加载中...
共找到 40,010 条相关资讯
Stephen Heapy: Good morning, everyone, and welcome to our interim results presentation for the period ended 30th of September 2025. The format this morning will be, I'll go through the first half highlights. I will then pass over to Gary Brown, our Chief Financial Officer, who will give a financial update, and then, Gary will return the microphone to me. And I'll go through a strategy update. There will then be a period after that for any questions, which we would be pleased to answer. So first of all, record passenger numbers, revenue and profitability. Further growth in the first half across all our key metrics, we delivered record numbers. Passenger numbers were 6% higher, including encouraging first summer performance at our Bournemouth and Luton bases. Strong financial performance with group profit before FX revaluations at 1% and earnings per share 8% higher following our GBP 250 million share buyback program. We are also pleased today to announce a further share buyback program of GBP 100 million. We have a strong balance sheet and access to ample liquidity, which are vital in this fast-paced, capital investment -- intensive industry. GBP 3.4 billion of cash gives us financial resilience and supports investment in our growing fleets. We operated 23 Airbus A321neo aircraft in summer 2025, and that represented 17% of our total fleet. We're also delighted to announce the launch of operations at Gatwick Airport, a once-in-a-generation opportunity to accelerate our growth. Next slide. Our growth strategy is to be the U.K.'s leading and best leisure travel business. We've made strong progress against all of our strategic pillars, supported by our fantastic colleagues, who are dedicated to delivering exceptional customer service. Our brands continue to be recognized by a leading, independent, customer-focused organizations, including Which?, TripAdvisor, Trustpilot, Feefo, and of course, the U.K. Institute for Customer Service. Our customers love us, and they come back time after time. Through initiatives like myJet2, we now know them better than ever, and our key metrics in this area show exactly this. We continue to invest in our digital and operational infrastructure, the retail operations center, our revenue management system, and of course, our second maintenance hangar at Manchester Airport. Our fleet renewal program is delivering against our sustainability targets, and we expect to operate 31 Airbus A321neo aircraft in Summer '26, and that represents 22% of the total fleet, which is 5 points higher than Summer '25. Next slide. Gatwick truly is a once-in-a-generation opportunity to accelerate our growth. Gatwick is the busiest single-runway airport in the world. And a once-in-generation opportunity came our way through the release of additional slots at Gatwick Airport. We will have access to 50 million people within a 60-minute journey by road or rail of Gatwick Airport. We have flights and the holidays on sale from March 2026 to 29 destinations across the Mediterranean, the Canary Islands and European leisure cities. The program will consist of 6 aircraft, and we hope to be able to grow that organically as we become established. We expect the new base to be profitable in financial year '29, and it should deliver meaningful profit growth thereafter. In September '25, the DfT approved the Gatwick expansion program to operate a dual runway subject to a 6-week appeal process. The new Northern runway is anticipated to be operational by the early 2030s, enabling the capacity of the airport to rise from 45 million to 60 million passengers per annum. That will present us with a fantastic opportunity to grow significantly. So the next part of the presentation, I will pass you over to our Chief Financial Officer, Gary Brown, who will give you our financial review. Gary Brown: Thanks, Steve. Good morning, everyone. I'm Gary Brown. I'm group CFO here at Jet2, and I'm pleased to present our financial results for the 6 months ending 30th of September 2025, together with some thoughts on how we think about capital allocation here. So moving to Slide 7. We've included this slide, as it's often easy to lose sight of where the business was relatively recently and where we are now. We flew 19.8 million passengers in the financial year ended 31st of March 2025, which means we've been growing at just under 8% a year since 2019. Our revenue has gone up even faster, averaging about 16% since 2019, mainly because more of our customers have been choosing package holidays. In fact, in 2025, these made up 66.5% of our total passengers, up 17 percentage points as compared to 2019, with package holiday revenue making up over 80% of our total revenue. Back then, we had 9 U.K. bases and an aircraft fleet of 90, primarily mid-life Boeing aircraft, a composition that is rapidly changing, as you heard from Steve, underpinned by our firm Airbus delivery schedule. The A321neo is making up 17% of our fleet in Summer '25. Operating profit has more than doubled, up 118% to GBP 447 million in 2025 from GBP 204 million in 2019. And we're also making more operating profit per sector seat, which has risen from around GBP 15 to GBP 20, a 35% increase. Our basic earnings per share are up 132% compared to 2019, and our average return on capital employed over the 3 years since the pandemic is 17%, one of the best in the industry. As you will hear, the strong financial track record and the continuing evolution of our business, ongoing confidence in our future growth prospects. On to Slide 8. Our key stats illustrate how our flexible, fully integrated operating model is capable of adapting to changing consumer trends. They also demonstrate our clear focus on optimizing profitability through a combination of volume, pricing and product mix. First things first, more people are choosing Jet2, an extra 750,000 passengers or 6% up on last year. This summer, more people chose flight-only, which was up by 16% as customer booking trends continue to be late, and we saw more of those last-minute price-sensitive deals. We've consistently stressed that both our products are vital importance, and it's great to see customers recognizing the clear value that our flight-only offering brings, friendly flight times, an industry leader for not canceling flights and with the added benefits of our Red Team of customer helpers, providing their outstanding customer-first service. Package holidays are still a hit, growing 1% to a record 4.73 million customers. And as you know, they bring in a higher profit per customer. Prices for package holidays held up well, rising 3%, as we were able to pass on most of the cost increases from our suppliers. On the flights-only side of the business, the average ticket price dropped 7% to GBP 122 because we ran more promotional offers, which was supported by the targeted reallocation of marketing investment to optimize load factors in a pretty competitive market. Pleasingly, we also made 4% more per passenger from our non-ticket revenue streams, having more flight-only passengers meant we earned more hold baggage income, whilst our in-flight retail offers saw spend per head grow further 4% due to consistently strong onboard product availability, made possible by our in-house retail operations center plus the launch of a new onboard product range. Looking now at Slide 9. Revenue was up by 5%, primarily due to the growth in passenger numbers, but also helped by the increase in the package holidays price. What I would describe as our underlying operating cost base was well controlled and up by 4.8%. Some of the main influences on this growth were in terms of our hotel accommodation costs. They represent about 45% of our full-year cost base. They were up 7% with inflationary rate increases of 6%, plus an increased proportion of bookings to higher-star rated and all-inclusive hotels, as customers treated themselves being the main drivers. Excluding the impact of SAF premiums due to the SAF mandate increase, our fuel costs, which are just over 10% of our cost base, were down 3% on a like-for-like basis, as a 7% increase in flying activity was offset by a 5% reduction in the blended fuel price, a 3% efficiency improvement from the growing A321neo fleet plus some FX benefits. Landing, navigation and third-party handling costs, which are towards 9% of our cost base, rose 10%. The growth above flying activity linked to average rate increases across the U.K. and European airport bases with notable increases in EUROCONTROL charges and third-party handling costs in Turkey. We also saw efficiencies in marketing spend coming through as investments we've made in our digital marketing technology infrastructure helped improve underlying cost per acquisition. Beyond our underlying cost base, we incurred over GBP 30 million of additional costs, including the increase in employer NI and national minimum wage imposed by government of about GBP 11 million, an extra GBP 17 million in premiums for sustainable aviation fuel as the SAF mandate jumped to 2%. Finally, we invested to firmly establish ourselves at our 2 new bases at Bournemouth and Luton in the first summer of operation. In total, these additional costs added a further 0.7% of overall cost growth. That said, our EBIT or operating profit margins were still healthy at 13.4%, whilst our basic earnings per share were up by 8%, aided by our GBP 250 million share buyback program. Return on capital employed sat at 23.5% halfway through the year, though it will dip a bit by year-end due to second half losses, which are normal for our business. Turning the page to Slide 10. Our EBITDA was up by 2% compared to last year, with our net cash generated from operating activities still strong at approximately GBP 700 million, although down on last year due to the later customer booking curve. Our capital expenditure investments included payments for 6 owned Airbus A321neo aircraft, a spare LEAP-1A engine to support the growing Airbus fleet plus normal maintenance on our existing Boeing aircraft. In addition, our second maintenance hangar at Manchester Airport opened in August, which means we can now support 6 lines of aircraft maintenance across both of our hangars. First half free cash flow was GBP 370 million, meaning that since the pandemic we've generated approximately GBP 2.5 billion of free cash, which enables us to confidently support our strategic capital allocation. We also chose to pay off certain aircraft loans for 4 of our Boeing 737-800NG aircraft with 6 last year because they were more expensive than what we can now achieve in the JOLCO market. On top of that, we bought back and canceled GBP 231 million worth of our own shares as part of our GBP 250 million share buyback program, which completed just after the end of the reporting period. Moving to Slide 11. First thing to say is that we have one of the strongest balance sheets in the industry with access, as Steve has said, to ample liquidity, which we think is essential in what is a fast-paced, capital-intensive industry. We took delivery of 9 new A321neo planes, 6 from our long-term aircraft order; and 3, we've leased to fill short-term gaps in the delivery profile. We also used the JOLCO market to finance 4 of the 9 new aircraft raising GBP 191 million. Our total cash was down GBP 242 million compared to last year, mostly due to capital allocation decisions, which included the majority of the GBP 250 million share buyback and the repurchase of the convertible bond in the second half of last financial year. Customer cash was broadly flat year-on-year due to the late booking curve and higher mix of flight-only bookings. As you've seen in the past, when we quickly capitalized on the demise of Thomas Cook and also during COVID, when we were able to make the right decisions for our colleagues and customers, this strong financial foundation has, on this occasion, allowed us to confidently pursue our growth ambitions at London Gatwick in the full knowledge that meaningful start-up investment will be required to provide a solid operational platform, which over time will enable us to fully capitalize on the scale of that opportunity. Finally, in a further demonstration of the confidence in the group's sustainable cash-generative business model and the Board's conviction and the prospects for the business, we have today announced an on-market share buyback program of up to GBP 100 million. Shares will be canceled following purchase, providing a further positive enhancement to earnings per share. Turning to our capital allocation framework on Slide 12. Let me quickly walk you through how we think about capital allocation. It's really all about making sure we invest in our business to ensure it remains resilient and keeps evolving to the ever-changing consumer landscape. It's about keeping our balance sheet in good shape to service our debt obligations and keep the cost of debt down, and it's to make sure we're well protected if anything unexpected comes along. On the flip side, it also means we've got the flexibility to invest in exciting growth opportunities as and when, whilst providing good returns for our shareholders. As you've seen, we're continuing to deliver solid operating and free cash flow, which means we can invest in the business, recently launched in both Bournemouth and London Luton Airports. We've been encouraged by their performances and are looking forward to continuing to grow in these regions by building our brand awareness and understanding and steadily growing a loyal customer base. Looking ahead, we're now gearing up for Gatwick to get underway in March '26, which is a fantastic opportunity for us to further accelerate our growth. Bear in mind that, as Steve has said, the catchment area is over 15 million people within 60 minutes of it by road or rail. And we continue to invest in tech and infrastructure with our AI-led revenue management system pilot underway, our second maintenance hangar at Manchester operational and our groundbreaking retail operations center now fully automated. Our total and net cash position remains strong, allowing us to be flexible around our debt obligations to reduce the overall cost of debt, whilst giving the JOLCO market the confidence to continue to do plenty of business with us. And in terms of shareholder returns, we bought back GBP 250 million of shares or approximately 10% of the current market cap of the company, which helped push our EPS, earnings per share, up by 8% and by 132% since 2019. And we've also increased the interim dividend, whilst announcing another buyback of GBP 100 million today, which will take us cumulatively to over 13% of the current market cap return to shareholders. Finally, on Slide 13, how are we thinking about the medium term? We know there are many companies in this industry who have flown too close to the sun in the way they run their balance sheet and leverage position. From our perspective, we believe remaining at less than 2x net debt to EBITDA on an owned cash basis brings a pragmatic balance between protecting the business, but also manageable levels of leverage to maximize returns. As of today, we've got plenty of headroom against this target, but as we take more aircraft and finance, then this level will drift up. We've said previously that we learned a lot during COVID, where we went into that period with just over GBP 0.5 billion of our own cash and an undrawn RCF of GBP 100 million. This allowed us to treat customers with respect and returning their deposits quickly and gave us the breathing space to make the right decisions for our business, and in particular, our colleagues. As you've heard, our business has grown by over 100% since then, and we believe that an own cash balance of between GBP 600 million and GBP 700 million at our year-end, which is a low point in the cash cycle, plus an undrawn RCF of GBP 500 million, gives us the necessary breathing space should we ever encounter something similar. Just to stress, we don't expect to grow this own cash target as the business continues to get bigger, as we feel this is the right level. Average capital expenditure from FY '27 to '30 is in the region of GBP 950 million, given current visibility of our Airbus fleet pipeline, and we believe financing approximately 50% of these aircraft is very much in line with our historical business philosophy of wanting to own a good proportion of these valuable capital assets, which we intend to fly through to end of life. This would mean approximately 65% of our total aircraft fleet would be unencumbered by the end of 2030. Finally, and has been seen recently, subject to maintaining our capital allocation principles and assuming satisfactory financial performance, we would look to return excess capital to our shareholders. I'll now hand back to Steve, who will talk you through the other slides. Stephen Heapy: Thank you very much, Gary. I'm sure you'll all agree, a very impressive set of results and some very clear messages. So next slide, Jet2's investment case. Our investment case clearly demonstrates why Jet2 is an attractive prospect for investors, both today and for the future. We have a growing market. Although holidays are classed as a discretionary purchase, many, many people within the U.K. class them as an essential purchase and prioritize that above many other things, including lottery ticket sales, streaming services, nights out, social occasions, et cetera. Over the last couple of years, we've added more bases; Liverpool, Bournemouth, Luton, and laterly, our 14th U.K. base Gatwick, and this increases the reach from 58 million to 61 million people. That covers 90% of the U.K. population. Size and scope of the offer. We're the #1 tour operator in the U.K. We've got a great product range. It's over 75 destinations across the Mediterranean, Canary Islands and European leisure cities. We're adding more and more hotels every year in response to the demands of our customers. We speak to our customers. We listen to what they say, and we act on what they tell us. We've got a fully integrated operating model. We control our seat supply. We do self-handling at many bases. We have our own training facilities. And of course, we have the retail operations center, which is now fully automated. Our tour operator only uses one airline, jet2.com. Why? Because it's the best airline in the U.K. according to TripAdvisor, the best airline in Europe according to TripAdvisor and the fifth best airline in the world according to TripAdvisor. Why would we trust our customers on any other airline? We have a customer-led offering. Our Net Promoter Score is in the mid-60s. That's on a par with some of the best brands in the world. We have a 62% repeat booker rate for package holidays. On sustainability, we remain committed to our sustainability targets outlined in our strategy document, and our fleet renewal program is progressing in line with expectations. This will aid a reduction in our carbon intensity ratio. We have a clear path to growth. We've received 23 Airbus A321neo aircraft, the most fuel-efficient and quietest aircraft in its class. And we have over the next 10 years, another 132 Airbus aircraft that will provide us with the ability to replace retiring aircraft and also provide a guaranteed stream of aircraft to fuel our growth ambitions. You've heard from Gary, consistently strong financial delivery. We have a strong balance sheet with which to underpin our growth at Gatwick and other bases, and this will continue with the prudence that we have shown over the last few years. Our growth agenda. Our growth agenda consists of 2 pillars. The first one, defend and strengthen the core. We have a committed firm aircraft order. This will facilitate further growth at our recently opened bases and will position us to capitalize on potential expansion at Gatwick. This order was done during the pandemic period and provides us with a guaranteed delivery stream, and this will help us to provide very accurate plans as to our activity in the future. Our reach, we have an ATOL license for 7 million customers, and this represents a 20% share of ATOL licenses. We over-index in the over 50s and people with a higher disposable income, and this gives us protection in economically challenging times. 33% of our customers were defined as affluent achievers as compared to 22% of the U.K. population. We're leveraging technology. We have the pilot for our revenue management system underway, and this will cover 5% of our flights. As a reminder, our revenue management system uses artificial intelligence and many external data points in which to price our flights competitively within the market. The early results are encouraging, and assuming continued positive performance, we plan to progressively roll out across the majority of flights in the forthcoming financial year. The next pillar is to extend our reach and diversity. Personalization and customer diversification is key. myJet2 has helped increase share of bookings through the app to 31%. That's 5% up year-on-year. myJet2perks has recently been refreshed, giving members the chance to access new exclusive discounts as well as giveaways across a range of popular brands and retailers. Tomorrow's reach. Following the Gatwick launch, we will expand our market presence to 61 million people, attracting new customers, thanks to improved reach, but we also have strong retention rates, underlining our strong customer-first approach. Leveraging technology. The leading-edge automation equipment installed at the retail operations center, alongside data intelligence will in time support an improved onboard retail experience for all our customers. We will aim to have the right products at the right time every time, further optimizing our in-flight's revenue potential. We've also invested heavily in our marketing technology, and there'll be more details on this in a future slide. Next slide, fleet. We're committed to growing and replenishing our fleet to support our growth agenda. We will get additional ACMI aircraft for Summer '26 to enable the allocation of 6 aircraft at Gatwick. But the Airbus delivery program is unchanged and will support any further growth at Gatwick or any other bases. By Summer '32, you can see from the chart, we'll have a total fleet of 161 aircraft, of which 124 will be CFM-powered A321neo aircraft. In our opinion, this is the best narrow-body aircraft in the world today in terms of fuel efficiency and noise. The average seat gauge will increase from 197 in Summer 2025 to 223 in Summer 2032, as the proportion of 232-seat neo aircraft increases. We, therefore, expect total seat capacity to increase at a compound annual growth rate of 4.4% across the period. Investing in our fleet. Investing in our fleet is key to maintaining our competitive advantage. As we increase the mix of A321neo aircraft in our fleet, it's important to recognize the significant benefit this brings to the group. For example, a Boeing 737-800 aircraft seats 189 passengers. However, the A321neo seats 232 passengers. Quite simply, we'll be able to take more people on holiday with less emissions per passenger. The A321neo is a crucial part of our climate transition plan. Additionally, the average cost per seat saving of GBP 10 was realized over Summer '25, primarily driven by fuel and carbon savings. And these savings will increase over time with the increase in the numbers of aircraft. To summarize, 23% more seats on neo, 20% fuel and carbon usage reduction per seat, 50% less noise than our existing fleet, which makes it a very attractive aircraft for many airports and a GBP 10 average cost per seat saving. Next slide, size and scope of offer. We have a diversified flying program at Jet2, and we operate to 25 countries, over 800 resorts from 14 U.K. bases, that's 75 destinations and over 600 routes. We operate to the Mediterranean, the Canaries and European leisure cities. We've offered more destinations in Summer '25, Pula in Istria and Riviera, Agadir, Marrakech and Jerez in the South of Spain. For Summer '26, we'll be launching Samos in Greece, La Palma in the Canary Islands and Palermo in Sicily. This shows that we're continuing to diversify our offer, respond to our customers and give them the destinations they have asked for. You can expect more destinations to be announced in the coming months. Next slide, driving loyalty across our customer base. Quite simply, our goal is to guide customers from their first booking to becoming loyal advocates of the brand and move them up the loyalty ladder. First rung on the loyalty ladder, new customers. We welcome new bookers with a seamless experience and personalized follow-up. From the moment they contact us on the website or in the call center, we make our customers feel welcome. Our customer service starts there. We look after them pre-travel, on holiday and when they return from holiday through a robust and comprehensive communication program, making our customers feel special before, during and after travel. The next rung on the ladder is repeat. We nurture customer engagement through tailored messaging, relevant content and unrivaled product that encourages repeat booking. This, of course, is aided by our significant investment in marketing technology, which we'll talk about in a little while. This is a very important stage in our booking. Some people will try us once, maybe based on price, and we need to make sure that we get the customer, we nurture them, we keep them interested. We send them relevant content and make sure they don't look somewhere else. The final stage on the ladder is loyal. As customers move up, we strengthen the emotional connection with them by providing exclusive benefits and recognition, turning them into loyal bookers who choose us first and recommend them to others. The more people experience Jet2 and Jet2holidays, the more loyal they become. By successfully moving our customers from new bookings right through to loyal status, this increases their lifetime value, boost booking frequency and reduces acquisition costs. Loyal customers are more likely to engage with the brand when they get tailored offers and share their positive experiences, ultimately amplifying the brand's reputation and reach. Next slide, win new customers. First of all, reaching new audiences. We have shown at our recent base launches at Liverpool, Bournemouth, Luton and Gatwick that we are very adept in reaching new customer audiences. However, there's an opportunity to do more to grow our audience by targeting younger demographic customers, springboarding off our highly successful nothing beats meme to increase relevance with this demographic, which is key to deepening our engagement through aspirational social-first content that taps into their interests and passions. Adding Gatwick base allows us to grow our reach to over 90% of the U.K. population, that's 61 million people. The focus of the messaging will be on the breadth of offering, the value that is offered by our products, our credentials and VIP service to drive engagement. We continually strive to improve the size and scope of our offering. We are the #1 tour operator in the U.K. to destinations across the Mediterranean, the Canaries and European leisure cities. We have an unrivaled product choice in excess of 5,600 quality properties spanning over 800 fabulous resorts across more than 75 destinations. And this is increasing every month, as we add more in-demand product to our portfolio. We have a variety of brands. Our beach, cities, villas, indulgent escapes and vibe brands provide relevant experiences for different types of customers. Fantastic range of properties, from 2-star to 5-star, from self-catering to all-inclusive. We provide our customers with the choice they want. We don't try to squeeze our customers into the products we want them to book, we let them choose. We offer fully flexible durations. We allow people the ultimate choice. They can go on the day they want. They can stay for as long as they like. It's up to them. The customer is in charge. Remember, Jet2holidays is the company that pioneered flexible duration holidays. All in all, we've got an award-winning proposition. What we have is very highly rated by our customers. You've seen the awards we win, our TripAdvisor ratings, our awards from the Institute of Customer Service. This is highly valued by our customers, and we continue to strive to provide them with the best experience possible. A happy customer will tell other customers of the experience they've received with Jet2holidays. Word of mouth has proved to be very important. Building on the nothing beats meme, we had over 80 billion global video views across TikTok. The song was named TikTok's official Sound of the Summer 2025. We saw celebrity activity from Jeff Goldblum, Mariah Carey and Drake, who visited our hangar with a combined 173 million followers. An estimated 13 million earned media value through the summer. And a 12% year-on-year increase in spontaneous brand awareness amongst 18- to 34-year-olds. All in all, we are #1 for brand awareness, #1 for branding, #1 for ad recall, #1 for consideration and the Jet2 brand, Jet2holidays has an 86% awareness. We've taken a long-term, consistent approach to building brand equity with our strong visual and sonic branding. We're the only U.K. travel brand to use a triple platinum chart-topping single as our instantly recognized sonic identity. With our effective marketing strategies, we ensure we tap into cultural moments that can be top of mind amongst consumers. Next slide, retain customers through end-to-end service excellence. We at Jet2 and Jet2holidays are famed for our customer service, multi-award winning throughout the years, we aim to build on that further. We offer 4 easy ways to book. Our smooth airport experience is famous. Go to one of our airports and be welcomed by our Red Team who are there to help you through the journey. We offer a VIP service to everybody in the sky. When you get to resort, you meet our Red Team there who will welcome you, put you on your resort transfer and then look after you in resorts. They are there for you 24/7 along with our telephone line. We've spoken to our customers, and 92% of them are satisfied or very satisfied. And the customer service scores have increased. Our Net Promoter Score is 64 for jet2.com, 66 for Jet2holidays. Compare that with some of the best brands in the world, Jet2.com and Jet2holidays are firmly there building a loyal customer base. Our total marketable database stands at over 11 million customers. Over half of these customers are considered active and have previously booked or traveled with us in the last 25 months. Our database has grown at a compound average rate of 13% since financial year '22. And this enables a more targeted personalized marketing experience, along with the investments we have made. We provide holidays that are relevant to customers' needs, and this helps drive effective and efficient bookings. We have leveraged our extensive database and myJet2 loyalty scheme to deliver data-led marketing to grow bookings from our loyal customer base and new customers. This, with the aid of our technology investments, enables smarter targeting, increased retention and deeper brand affinity. Our myJet2 membership program now has over 8 million subscribers with more than 99% of mobile app bookers being members. The program complements our customer retention strategy and is designed to encourage more users to book through either web or app channels by providing tailored browsing, exclusive discounts and rewards, a streamlined booking process, enhanced pre-travel support and in-resort experiences. In the last 13 months, we can see that retention rates are 7.5% higher for myJet2 members, so we know this is working. On myJet2perks, this now includes more offers from brand partners across a range of categories as well as price draws, which will continue to be updated weekly. In addition, our twofold investment in the mobile app and myJet2 scheme should also reduce reliance on more expensive third-party marketing tools. Together, these form our strategic approach to driving bookings. On the subject of technology and personalization, adopting technology to leverage real-time personalization and automation across the customer journey is essential. We provide real-time triggered e-mails and app push notifications to a highly personalized web and app experience and targeted paid media. This is done by enabling an omnichannel customer experience using state-of-the-art Adobe products. This suite of products enables us to market to the right customer at the right time via the right channel with the right content, the right images with the right price. This will prove essential in providing a highly targeted and personalized marketing experience to all our customers. And finally, on to the outlook. For year ended 31st of March 2026, our winter capacity is up 8% to GBP 5.5 million. The latter booking profile continues with average pricing following the Summer 2025 trend, and we will have additional Gatwick short-term start-up investments. To summarize, operating profit is in line with market expectations, excluding the Gatwick investment. On to year ending 31st of March 2027, Summer 2026 seat capacity is up 8.9% to GBP 20.1 million. That includes the Gatwick capacity. Existing bases are up by 3.9%, and Gatwick is 900,000 seats, and we have a healthy proportion of cost certainty locked in. Near term, there will be operating profit margin dilution from the Gatwick investment, but of course, this is a significant long-term opportunity. Final summary, we have a clear path to deliver further profitable growth underpinned by our trusted brand, loyal customer base and proven business model, which gives us ongoing confidence in our growth prospects. That's the end of the presentation. Thank you very much for listening, and we will go on to questions and answers. Thank you. Operator: [Operator Instructions] We'll now take our first question from Damian Brewer of Canaccord Genuity. Damian Brewer: Two questions; one for Steve, one for Gary. Steve, Gatwick, undeniably, it's a huge market and except for Jet2 -- sorry, except for TUI who are still quite small there, and now seems to be covered mostly by seat-only airlines that seem to have very transactional relationships with hotels rather than deep, long-standing ones. Can you expand a little bit more about how your hotel operators and providers have reacted to Jet2 expanding into Gatwick? How they've reacted? What they're saying to you? And what the opportunity there is? And then the second question, I'll do more on go, Gary. I know the GBP 600 million to GBP 700 million minimum net liquidity within the in-year cycle and the net debt-to-EBITDA remaining below 2x for the capital allocation policy, what would cause you not to consider further share buybacks beyond the next GBP 100 million? Stephen Heapy: Good morning, Damian and everybody else. Thanks for the question. Our hotel partners have reacted extremely positively and very well. On the day of the announcement, I had several e-mails and text messages and some phone calls from hoteliers that were very pleased that we had announced the start of operations from the end of March. They already received customers from all our other 13 bases in the U.K., and they like our operation. They like that the fact that customers come on our airline, we cancel very, very few, hardly any flights, the lowest of all the airlines. We look after our customers in the airport, on the aircraft and when they get in resort with our Red Team of customer helpers, and the customers arrive at the hotels very happy. And a happy customer, of course, is someone that looks for less things to complain about. We've got our customer helpers in many of our hotels, and they help diffuse situations. So it's easier for the hotel. They don't have to deal with angry customers at the reception desk because they contact us and we sort out any issues that arrive before they get to the hotel. So it's a much easier and seamless experience for the hotel. And they are really looking forward to receiving guests that come from Gatwick Airport. I think Gatwick in the past, to your earlier point, has been quite heavily orientated to flight-only. But we are expecting to build our package holiday operation from Gatwick. And so far, the response from customers, and indeed the hotels, has been very, very positive. So I'm very encouraged and very excited, Damian, and I think, we will see our operation grow, and we'll be taking many people from the Gatwick catchment area in one of our holidays. Gary Brown: Damian, it's Gary. Thanks for your question. I think, as you know, and as you've seen over the last 12, 18 months, we're very much open to returning capital to shareholders. Why wouldn't we consider doing that in the future? I think first things first, we have talked about that return of capital to shareholders depends very much on trading. So assuming that continues in that positive vein, then we would definitely consider it. I think secondly, we've got to continue to invest in the business. It's an evolving consumer landscape out there. And inevitably, if you don't invest, you haven't got a resilient business in front of you, but strategic projects that gave us a better return than we could get in the market at the time and for a share buyback would definitely take precedence. Today, though, based on the valuation out there, we believe that returning capital to shareholders is a very good use of funds, the GBP 100 million. And just the third thing to say is that based on our best thinking at the moment, and with the CapEx profile coming down the road, it's about GBP 600 million in FY '27, over GBP 1 billion in '28-'29. We're fully expecting the own cash at the low point in the cycle to start to approach the numbers you mentioned before, GBP 600 million, GBP 700 million. So that all being said, I think there's a very good chance that in the future, there will be more buybacks. But I'm not going to pin the tail on the donkey on this call. Operator: And we'll now move on to our next question from Jarrod Castle of UBS. Jarrod Castle: Just sticking with the Gatwick theme, but broader than that. I mean, how do you see the existing competition with easyJet at Luton, Bournemouth? I mean, they are a different product, but just to get your views on that. They're also having a mini CMD next week, Friday, so I'm sure they will explain how they can compete with you. And then, Steve, you spoke a bit about AI. I just wanted to get your thoughts on AI agentic. We're seeing kind of these big deals being signed this week, I think it was Google with Booking and some of the hotels, like Marriott, IHG and others tying up with OpenAI. How do you see that developing and the ability of these providers to connect to hotels so that you can make the booking directly even if they're not the merchant of record? So just a little bit about that rather than AI in terms of revenue management and CRM. Stephen Heapy: Okay. Thank you. In terms of the first point, competition, we're very confident in our products. We have a well-established package holiday operator. Don't forget, we were the pioneers of variable duration holidays, completely flexible holidays. And we also consistently deliver best-in-class customer service, which has been demonstrated through our multi-award winning record over the last few years. So I think people will be attracted to our product. We've had many, many people within the Gatwick catchment area asking for our flights on holidays there for some time. We've finally been able to do it this year. And I think the response will be very good. As to your point, what will be the competitors' response? I don't know. We'll see. We keep our head on our own game, which is providing best-in-class customer service, looking after our customers, listening to our customers, giving them the ability to book through whichever channel they want to by looking after them on the ground, in the air and in resort. And I'm confident that will shine through and make the operation from Gatwick a success as it is in our other 13 bases. In terms of the AI question, there's been a few announcements over the last few days, as you said, as to what might happen. You have to bear in mind, these are largely trials, the things that have been released, and they're largely in the U.S. The U.S. doesn't really have a package holiday market. People tend to, what we call, self-package, that's booked individual elements separately. And the trials with some of the AI tools are relating to one of those components. I think there's a long way to go before we reach something that would provide a tool for people to book package holidays. That will come, but it will take time. I think there will be further developments in the industry. There may be consolidations. There will be new products, products that are in the market now that are relevant that become superseded and obsolete. So what we have to do is keep our eye on what's happening in the market and all the developments, keep up our regular conversations with tech companies, which we do. We spend a lot of our time talking to tech companies to see what's coming down the track. But as we saw in the early 2000s, it's very tempting to jump on whatever bandwagon is passing and put all your eggs into one basket, but we're being very careful and very considered on our choice in technology. We have signed deals with big, robust, financially sound, market-leading technology companies, and we are working our way through to see how the environment changes over the coming years. So I'm very confident that we're back to the right horses. And with our methodical approach, we will come up with the right solutions for customers. Operator: And we'll now take our next question from Alex Paterson of Peel Hunt. Alexander Paterson: You described the performance at the new bases as being encouraging. Can you just sort of give a bit more color on that, perhaps describe the load factors and package holiday mix relative to the group average and the profiles of other bases when they opened? And what sort of start-up losses you've incurred there? And secondly, as a West Sussex resident, I'm absolutely delighted that you're opening a base at Gatwick. Do you think Gatwick would make any more slots available to you before the second runway opens? Gary Brown: Alex, it's Gary. Just in terms of the new bases, yes, we -- as I say, we're very encouraged. And I'll take you back to even Liverpool, which is still a new base. We put a 5th aircraft in the -- this summer. And Liverpool had a load factor of about 85%, but a package holiday mix of 73%. So you can see that particular region is outperforming the average. And bearing in mind, you put in quite a significant increasing capacity, and a load factor of 85% is pretty good, to be honest with you. In terms of Bournemouth and Luton, remember, Luton went on sale a lot later than any of our other bases, and they've come in at about 80% load factor. But again, the package holiday mix is very encouraging, about 60% for those new bases. And what we find is that if we can get that package holiday mix into the 60s, then you get a better level of loyalty and recurring revenue and profitability. So we're more than hopeful that with a full season of selling that certainly Luton and Bournemouth will be closer to the average and the package holiday mix will continue to drift up. I think we were on record of saying that we expected Bournemouth to pretty much break even because it's a relatively small base with just 2 aircraft. We're on track to deliver that performance for the full year. And we expected Luton to be sort of late single-digits loss in its first year of operation, partly because, as I say, it's gone on sale a lot later. And again, we're on track to deliver exactly what we said there. So hopefully, that gives you a bit more transparency there. I'll pass to Steve in terms of the Gatwick slots, the extra slots. Stephen Heapy: Yes, as we said, the Gatwick slots, we got those as a result of extra capacity that was released within the airport, so we didn't pay for those slots. We've got a program on sale from the 26th of March 2026, for Summer '26, when we put in our winter program on and Summer '27 in the coming weeks. And we continue to work with the slot coordinators, and we'll see what additional capacity comes up. We very much hope to grow our operation in Gatwick over the coming years. Operator: And we'll now move on to our next question from Ruairi Cullinane of RBC Capital Markets. Ruairi Cullinane: Firstly, how should we think about the balance between flight-only and package holiday pricing this year? Why has it made sense to discount flight-only prices rather than package holiday prices more? And secondly, on the longer-term capacity growth, which Steve mentioned, should average around 4.4%, I think. Is that purely driven by the fleet plan and upgauging? Or will you aim to utilize A321neos more than older aircraft or operate more daily flights from new bases in the South of England? Gary Brown: Ruairi, just in first -- in terms of the first question, we've consistently stressed that this is a fully integrated operator model, and it's capable of adapting to consumer trends, but also our clear demonstration that we're focusing on optimizing profitability through volume, pricing and product mix. This particular summer, because it has been late in terms of the consumer booking behavior, on average, about 11% of the bookings have been in the month of departure and that's played a little bit more to flight-only. But what's been pleasing from our point of view is that we've always said that both products are extremely important. And it's great to see that customers are recognizing the clear value that our flight offering brings; friendly flight times, industry leader for not canceling flights, the added benefit of our Red Team of customer helpers providing outstanding customer service. So I think people do see that even with a more commoditized product, there's a clear difference in terms of what they expect from Jet2 and why they spend a little bit more money with Jet2. With the late booking curve and the fact that it was more price-sensitive market, yes, we did get more promotional than we have in the past. That said though, I don't see pricing and marketing as 2 separate parts. They are all one and the same, really, in terms of how you invest your money. And we were very strategic and targeted in terms of how we released money from marketing and put that into price to get to the best possible outcome for the business, which, as we said around at the outset, was a record performance again. Stephen Heapy: Thanks, Gary. And on to the second question in relation to capacity, we have given a figure for capacity growth over the coming years. And that's driven by our fleet plan at the moment, and that takes into account the new aircraft that are due to come into the fleet. We've received 23 Airbus A321neo aircraft. I'll just remind you, those are the most fuel-efficient, quietest aircraft in the class. And we've got, over the next 10 years, another 132 to come into the fleet. Those aircraft will fulfill 2 purposes: the first of all, to replace older retiring aircraft, and the second will be to fuel growth within the fleet. We do have flexibility. We've got upwards flexibility. We can retire aircraft perhaps at a slower rate or take ACMI aircraft if there are growth opportunities, and we can retire aircraft at a faster rate if the growth opportunities seem a little bit more limited. So the number we've given you can be flexed up or down in relation to market conditions. So the number we've given is our current view as to the rate of retirement of current aircraft and entry into service of the new aircraft. And there is also, as you said, an element of up-gauging. We will be replacing largely our 189-seat 737-800s with our 232-seat Airbus A321neo. So the growth is driven by, a, more aircraft into the fleet, but we've got flexibility as to what the net impact is. And secondly, upguaging of our aircraft. But I think the big message here is although we've given a number, there is a lot of flexibility about what that number can be over the coming years, both upwards and downwards. Operator: And our next question comes from Gerald Khoo of Panmure Liberum. Gerald Khoo: Two, if I can. Firstly, just thinking, I suppose maybe we do it on FY '27. But what proportion of seat capacity is going to be at relatively new bases, if you just say bases are open less than 3 years and where they're still working the way up the maturity scale? And secondly, also on bases, once you've done Gatwick, is that going to be largely in terms of new bases? Is there enough growth headroom in your existing bases? Are there any other opportunities or any other bases that are still looking interesting beyond Gatwick? Stephen Heapy: In terms of the capacity relating to new bases, well, if we class new bases as Gatwick, Luton, Bournemouth, and let's say, Liverpool, we don't have the exact figure to hand, but it's 11%, 12%% maybe of our total capacity in those bases. I wouldn't really count Liverpool as a new base now, that is maturing very quickly. In terms of, is that it? Well, Gatwick was the last big airport in the U.K. that we had aspirations to grow into. And when we've met many of you that are on the call, I think we've said that we would love to start operations into Gatwick, but the ability to do so was limited through the availability of slots. The airport managed to release some extra capacity through some work that have been done on the airport infrastructure. And we're able to grab that capacity. So I think the aspiration that we set out in our meetings with you has been achieved. Is that it? I don't know. I'd never say never. We're always looking at opportunities within the U.K., but Gatwick was certainly the best that we'd always intended to grow into. But you mustn't forget, Gerald, that there's enormous opportunity still in our 13 existing bases to grow. We've got all the bases that we think there's a very strong business case for increasing capacity. Over the last couple of years, we've prioritized our aircraft into starting a base at Liverpool, at Luton, Bournemouth, and laterly, Gatwick, but putting those aside, there are another 10 bases in the U.K. that we have a fantastic opportunity to grow in. And over the last 2 years, we have launched 4 new bases. That's quite a lot. And we can't take our eye off the ball on our existing bases. There's more work we want to do there. And I think we'll probably be entering a period of stability, where we'll be growing our new bases and maturing the ones that have been launched recently, whilst taking care and strengthening our older bases. Operator: And we'll now take our next question from Ava Costello of Davy. Ava Costello: Just 2 for me, please. And the first one is on the package and flight-only mix. So for Summer '26, where do you expect the mix to go versus Summer '25? Obviously, Luton and Bournemouth bases maturing, and hopefully, moving towards the network average, but what do you expect the impact from Gatwick to have on the mix? And then the second one is a little bit more long-term focus. So how much of the growth deliveries could you potentially go to Gatwick? And is that solely dependent on a new run rate? Or do you see more capacity coming online organically from these tech advancements? Gary Brown: Ruairi, it's Gary. In terms of the package holiday-flight-only mix, as I said before, it's one of the questions, it very much depends on the market you're in at the time. And I'll repeat that, we're constantly solving for the best bottom line outcome whether volume pricing or mix. In terms of how we're looking at it for next financial year, I think if we can be flat in terms of package holiday mix, I think we will be very pleased with that. And early indications, and I will stress, it is very early indications for Summer '26 of playing that sort of theme out at the moment. If -- and again, it remains to be seen what the capacity in the industry looks like for next year. Our initial reads are between 2.5% and 3% at the moment. If there is a rebalancing between supply and demand, which generally happens in this industry, what it means then is consumers don't leave it quite as late to book, which plays more into more of the planned holiday products more than the impulsive holiday products. So if we can achieve flat next year, I think we'll be pretty pleased. And that's still pretty much in line with what we've always said for a full year outcome between 60% and 65% on package holiday mix, and we've been pretty consistent over the years in restating that. Stephen Heapy: Thanks, Gary. And on your second question in relation to Gatwick. We have no intention of standing still with 6 aircraft operating in and out of Gatwick. It's true that we're able to launch the 6 aircraft as a subject of some infrastructure work that was done at the airport. But you must remember, there's movements of fleets in Gatwick all the time, some airlines increase their operations, some airlines decrease their operation, and there are slot opportunities that come up regularly. So I hope we will be able to take advantage of any opportunities that come our way over the next few years. What is likely is the second runway will be approved, and that should come into operation in about 2030. And whilst that sounds a long way away, we've got Summer '27 on sale already, and we started to think about Winter '27-'28. So Summer '30 will be on us before we know what the key is. First of all, to grow and mature our Gatwick operation. And we said in our release that, that will take time to mature that operation. And secondly, we keep up dialogue with the airports and the slot coordinators to see what opportunities come our way. And you've known us for quite a while, you know that we have a track record of grabbing opportunities as they come up, of which the recent announcement into Gatwick is a perfect illustration of, so we'll keep up dialogue and keep watching what's happening and make any announcements in due course if we have something to say. Operator: And we'll now take our next question from Andrew Lobbenberg of Barclays. Andrew Lobbenberg: I can't believe we've got this far in the call and no one has mentioned the B word. So how do you see consumers reacting about the looming budget? And do you see it as being a clearing event and driving more consumer confidence once we're through it? Or what are your thoughts around the budget? And then, staying on Gatwick, and got it, we still are all asking about that, if now, how do you think about the cost of operating at Gatwick? The wonderful Wizz have been saying that it's a really expensive airport and they need to get out of there. I don't know whether you would think about that. But I mean, how does it look to you for airport charges, and indeed, also for the local labor market, which I think is pretty hot? Stephen Heapy: Okay. In terms of the budget, I haven't really got anything to comment on because I don't have any detail. I look at the newspapers on a daily basis. And here, the latest scare story is to what's going to happen. I mean, if you add up all these scare stories, there's going to be an additional GBP 15 trillion raised in the budget. So I don't really take too much notice of the individual policy speculations that I discussed. What I do think, though, is that the government shouldn't be imposing any more tax on air travel and holidays. It already collects an enormous amount of tax from the airline and holiday industry. And I think, it's gone on long enough that this industry is used as a cash cow. So I would urge the government not to increase taxes any further on air travel because that will inevitably put up prices and could price some people out of the ability to take a holiday, and those people will be the lowest paid members of society, which strikes me as being patently unfair. What we do have, however, as a great defense is our customer service. In economic times like this, people tend to gravitate around the brands they know, the brands they trust and the brands they know will deliver great customer service consistently on every holiday. And that is what you tend to see that people gravitate to these brands. You've seen our commentary on our Net Promoter Scores on customer satisfaction, on our rebook rates, and we expect this to be a massive form of defense during any potential reverberations from the budget. So I'm pretty confident -- I'm very confident, in fact, that we should be able to navigate through whatever is thrown at us next year because we'll be shored up by our fantastic customer service. In terms of Gatwick costs, obviously, I can't comment on those, but again, if you offer a great customer service that enables you much more to sell the product, we've got the best reputation for customer service. I'm very encouraged by the sales so far at Gatwick. It's been less than a week, but I'm very encouraged by them. And I think people are recognizing that we are recognized as #1 for customer service and being drawn to our brand. Many companies operate just on the price level and tend to deprioritize customer service. We prioritize customer service. And we think we have an absolute duty to provide people that perhaps have worked for 50, 51 weeks of the year to go on a highly valued holiday, and we feel it's our duty to treat every one of our customers as a VIP, whether they flight-only on a 2-star holiday, a 5-star holiday, self-catering, all inclusive, it doesn't matter. We treat all our customers the same, and that's very much as a VIP. And that's been our philosophy over the last 20-odd years at Jet2, 15 years at Jet2holidays. And that will remain our philosophy and the core of our strategy. Operator: And we will now take our next question from Richard Stuber of Deutsche Bank. Richard Stuber: Two questions for me, please. And apologies, I've got cut off and may be repeating one. The first question is on Gatwick. Could you give us some guidance in terms of what the start-up cost will be for this year and the shape of the cost as you reach profitability to FY '29? And I know you're saying that after that, it will be meaningfully profitable. Is that -- do you assume that there will be more slots and more aircraft in that? Or do you think it will be meaningfully profitable even on the 6 aircraft that you have at the moment? And the second question, just really on the cost outlook for next summer, could you tell us please what you're seeing in terms of cost inflation for accommodation and fuel? And what you would expect then to be sort of the average selling prices of your packages looking forward to next summer? Gary Brown: Thanks, Richard. In terms of Gatwick, we believe that in terms of the booking costs that we'll incur in this financial year to generate the bookings for next summer, plus labor cost, plus promotional content, et cetera, between GBP 10 million and GBP 15 million we reckon in this financial year. And we want to be as resilient as possible going into Summer '26 to make sure that we can provide the best possible product and service to what essentially are all new customers. We need to show them exactly what Jet2 is about. And as Steve has just reinforced, it's all about making customers feel special. And if you want to do that, then you need to spend the right amount of money setting that base up. In terms of FY '27, if you take Luton, I guess, as a guide, we said sort of late single digits losses in its first year. That was with 2 aircraft. We've got 6 at Gatwick. We're also doing it in because it was an opportunity that was slightly ahead of our expectations. And we're also doing that with less efficient aircraft or part less efficient aircraft in the form of ACMIs. So inevitably, there's an incremental cost there. And a bit like Luton, Gatwick is going on sale even later than Luton. And, therefore, there will be some price investment. So I think you can do the math on that and come up with your own answer. But in the FY '28, those ACMI aircraft will fall away. We will be selling across the whole selling cycle, we will be better known, et cetera. And therefore, we expect whatever those losses are in your model to halve is what I would say, and then, move into profitability. In terms of cost inflation, it's still very early, to be honest with you. The accommodation market is moving around depending on what demand looks like, not just from the U.K., but from Europe as well in terms of the Nordics, the German market, et cetera. I would expect accommodation inflation to be in or around 5%, but I may be proven wrong ultimately. We've yet to even decide on what a wage increase looks like for our colleagues. And clearly, we've got one eye on CPI, et cetera. So I'm sorry, I can't help you any more than that. In terms of fuel, you asked about, we're about 70% hedged, I think, for Summer '26. At the moment, the fuel rate is about 10% better. But remember, fuel is only 10% of our overall cost base. But the other side of that equation on FX, a bit of a benefit on the dollar, but we do buy EUR 4 billion worth, and the pound has been weaker against the euro, pretty much through that whole buying cycle. So hopefully, that helps you in terms of some of your modeling. Operator: We'll now take our next question from Axel Stasse of Morgan Stanley. Axel Stasse: I have 2, if I may. And the first one is on the additional capacity for next summer, approximately 4%, excluding Gatwick. And if you include the Gatwick, it's approximately 9%, while I think your competitors are significantly lower than this. So how do you think about fares or even load factors going forward? Do you say your competitive edge is enough or at least sufficient enough to maintain the fares stable? Or -- yes, just to have your view on this. And then the second question is on the cost certainty locked in for fiscal year '27 that you mentioned in the slides. Can you maybe elaborate here where are you most comfortable with? What is already locked in, if I can put it like this? And how should we maybe even look at the airline cost, seat per seat or per capacity growth year-over-year in fiscal year '27? Stephen Heapy: On the first question in terms of the capacity growth, yes, we've said our capacity growth in existing base is 3.9% and including Gatwick about 9%. That's one of the lowest levels of growth we've announced for some years. We don't have an accurate read on what the rest of the market is doing yet, and we won't know that with total accuracy until the end of January when people make the final slot declarations. But you should bear in mind that some of that additional capacity is due to us putting A321neo in some of the bases, which, as we said earlier, is an upgauge and that's 232 seats as opposed to 189. But the cost associated, the seat cost with those 232 seats is much lower. So some of the capacity increase is offset by efficiencies on cost. But we're confident with the capacity we've got. We -- and if we need to make any more adjustments, we will do that as we did with Summer '25, and we have done with Winter '25-'26. We've got a very flexible model and a very flexible approach to capacity management. So that's the number today, 3.9% and 9%. But if we feel we need to make adjustments, we can do that. But at the moment, we're confident with those 2 numbers. Gary Brown: And the second question, I guess it's a similar answer to what I just gave to Richard really. We're about 70% hedged for U.S. dollar on fuel. Fuel, about 10% cheaper in terms of the rate at the moment. U.S. dollar is about 2% better, but 50% hedged for euro, we're probably 2% worse at the moment. So there's a lot of moving parts before we have a very clear view of how that translates into the cost base and cost per seat. Just in terms of cost per seat as well, we don't have sight yet of EUROCONTROL fees, which are obviously very important to us in terms of cost per seat. So normally, we have a better view as we get sort of into January, late January, early February. And we also have a better view of the market at that point in time as well because everyone's put their slots into the system, and we'll be able to give you a better view at that point in time. Obviously, we'll look to price anything in. But as Steve pointed out before, in terms of the budget coming up, we don't know what that looks like either. So there's a lot of moving parts is what I would say, and I'm not being evasive, but there are. Operator: And we will now take our next question from Harry Gowers of JPMorgan. Harry Gowers: First one, maybe you could just talk through the flight-only pricing, how that's behaved or changed over recent months? And do you think the kind of minus 7% level is potentially a trough or a bottom? Or should we be thinking the winter could still come in a little bit worse than that in terms of the outlook? And then, sorry if I missed this earlier, but just on Gatwick, like where could that package mix maybe come in over time? And are you expecting the Gatwick market or catchment area to be any different versus the rest of the network just in terms of attractiveness of the product, demand for package holidays, et cetera, et cetera? Gary Brown: Just in terms of the flight-only pricing, I think we guided to mid-single digits down. It's slightly worse than that. I wouldn't say it's materially worse, but it's slightly worse with the 7%. But at the end of the day, I'll repeat again, I'm sorry, we do constantly look at that volume-pricing mix dynamic to drive the best possible bottom line outcome. And I think we've done that in the first half. In addition, as I say, we look at price part, marketing part as one of the same thing. And what we've been able to do is be very targeted in terms of how we've reduced our marketing spend and where we've put that in terms of pricing across both products actually to drive the best possible outcome for the business. In terms of winter, it's similar at the moment. Holiday pricing is pretty resilient, and flight-only is in negative territory, not quite at the minus 7%. But what I would say is that there's still 50% of winter seat capacity to sell, which tends to be sold from January onwards. And depending on what the market looks like, we may need to invest a little bit more in price or we may not. So only time will tell, but we're balancing the component parts to get the right possible outcome, I think, is what is safe to say. Stephen Heapy: And in relation to the package mix, we did say when we announced the start of our operation that package mix would be lower, and we would build that over subsequent years. Just because people haven't had perhaps a great choice in the package holiday market at Gatwick previously it doesn't mean that they won't do in the future. They will be and are being attracted by, as I said earlier, our customer service ethos by our award-winning product. And they will be attracted to that. Sales have started very encouragingly. It's only a week. I would just caution that we're only a week into it, but I'm very encouraged by overall sales and package holiday sales. And I think we offer what people want, great customer service, but one price. Why would you want to book a flight, a hotel and a transfer separately, and I mean all that hassle of going on 3 websites and messing about waiting 3 lots of transactions? You can secure your holiday for GBP 60 deposit all in one transaction knowing, a, it's with a company that has by far the best customer service in the industry; and b, the company that has by far the lowest cancellation rates of flights. If there's air traffic control issues, we don't cancel flights carte blanche. We fight to get people on their holiday. So I think that's going to be a very attractive proposition. We know that because it's very attractive in all our other bases, but also people from the Gatwick area have been asking us consistently for a long period of time to start operations there. So there's a huge amount of demand pent-up for both package holidays and more specifically package holidays from Jet2holidays. Operator: There are no further questions in queue. I will now hand it back to Steve and Gary for any closing remarks. Stephen Heapy: Okay. First of all, thank you for your time this morning. It's been 1.5 hours and very much appreciated, and thank you for your questions. It's been actually a pleasure to get so many questions from you. I hope we've answered them satisfactorily. And I hope you're pleased with the results, we are. Just to reiterate, it's a record set of results. We're continuing to invest for growth. We've seen that with our aircraft order, our new hangar at Manchester, our base at Gatwick, our retail operations center. Thirdly, we're continuing to create value for shareholders through our increasing dividend and also the announcement of GBP 100 million share buyback starting on the 1st of December. And fourthly, our investment into our product and our brand, which is continuing to retain existing customers, but also attract new customers. And that's not only at Gatwick and Luton and Bournemouth and Liverpool, but we continue to attract new customers at our other 10 bases also. So that's it on the call, I think. Thank you very much. I hope you're as pleased with the results as we are, and I'm sure we'll speak to many of you over the coming days. Thank you.
Operator: Welcome to the Global-E Third Quarter 2025 Earnings Conference Call. This call is being simultaneously webcast on the company's website in the Investors section under News & Events. For opening remarks and introduction, I will now turn the call over to Alan Katz, Global-E's Head of Investor Relations. Please go ahead. Alan Katz: Thank you, and good morning, everyone. With me on the call today are Amir Schlachet, Co-Founder and Chief Executive Officer; Ofer Koren, Chief Financial Officer; and Nir Debbi, Co-Founder and President. Amir will begin with a review of the business results for the third quarter of 2025. Ofer will then review the financial results for the third quarter, followed by the company's outlook for the remainder of 2025. We will then open the call for questions. Certain statements we make today may constitute forward-looking statements and information within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including, without limitation, statements regarding our future results of operations and financial position, growth strategy and plans and objectives of management for future operations including onboarding new merchants, expanding our offerings and introducing and integrating new solutions are forward-looking statements. These forward-looking statements reflect our current views with respect to the future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including those set forth in the section titled Risk Factors in our annual report on Form 20-F filed with the SEC on March 27, 2025 and other documents filed with or furnished to the SEC. These statements may reflect management's current expectations regarding future events and operating performance and speak only as of the date of this call. You should not put undue reliance on any forward-looking statements. Except as required by applicable law, we undertake no obligation to update or revise publicly any forward-looking statements whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. Please refer to our press release issued today, November 19, 2025, for additional information. In addition, certain metrics we discuss today are non-GAAP metrics. The presentation of this financial information is not intended to be considered in isolation from as a substitute for or superior to the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. For more information on these non-GAAP financial measures, please see the reconciliation tables provided in our press release today. Throughout this call, we'll provide a number of key performance indicators used by our management and often used by competitors in our industry. These and other key performance indicators are discussed in more detail in our press release issued today. I will now turn the call over to Amir, our Co-Founder and CEO. Amir, please go ahead. Amir Schlachet: Thanks, Alan, and welcome, everyone, to our third quarter earnings call. We achieved another quarter of very strong results, coming in above the midpoint of our guidance for revenue and adjusted EBITDA and even exceeding the top end of our guidance range on GMV. This strong performance was a result of the entire Global-E team around the world continuing their relentless execution throughout the quarter, developing and providing best-in-class solutions and services to our merchants and their shoppers. Before we dive into the quarter, in terms of our forward-looking outlook, given what we see in the market today and the overall robustness of trading volumes we have witnessed in Q3 and Q4 to date, we are once again raising our midpoint outlook across all of our guidance metrics for the remainder of the year. As such, for the full year of 2025, we now expect GMV to be roughly $6.46 billion at the midpoint, representing just over a 33% annual growth rate. We're also raising our revenue and adjusted EBITDA guidance for the full year to $952.1 million and $192.8 million at a respective midpoint, representing 26.5% and 37% growth for the year, respectively. As in previous years, in 2025, we once again expect to surpass the full year guidance ranges that we shared with you in the beginning of the year, a testament to the durability of our growth algorithm. We believe this strong performance for 2025 keeps us on track to deliver the multiyear growth and bottom line profitability targets we shared with you during our Investor Day earlier this year. Back to our quarterly results. We finished Q3 with GMV of $1.51 billion, up 33% year-over-year and revenue of $221 million, up 25.5% year-over-year. In terms of profit, our adjusted gross profit for Q3 was $102 million, up 24% from last year and quarterly adjusted EBITDA was $41.3 million, up 33% compared to the same quarter of last year, resulting in an 18.7% margin, a 100 basis point improvement compared to Q3 of 2024. Our GAAP net profit for the quarter was $13.2 million, and we generated $73.6 million in free cash flow, an increase of almost 250% compared to last year. Now before I go through the current trading patterns and our Q3 new merchant launches, I want to provide a few broader business updates. First, on several previous calls, we have mentioned our duty drawback offering, a value-added service that we have provided in certain non-U.S. markets for some time now. By use of these value-added service and depending on the sales parameters, merchants can potentially reclaim import duties on goods that are exported outside of their home base as well as on return goods. Given the recent suspension of the de minimis exemption, we have seen increased interest in this offering also for the U.S. In parallel to other offerings, such as 3 B2C all aimed at helping our brands to navigate the stormy orders of international B2C trade. Within the quarter, we also got the permit to offer import duty drawback to our U.S.-based merchants for their exports out of the U.S., further supporting them in optimizing their cost of trade in times of change. Second, a quick update on our managed market solution. We've been working in close collaboration with our partners at Shopify, according to our joint plans. Over the past 6 months, most of the development has been completed for a rollout in 2026 and we are currently in beta testing for the new flow. As a matter of fact, new merchants that apply now to managed markets are already going through the new flow. We still have some tweaking to do on the back of what we will learn from the better merchants, but remain on track for the next phase of managed markets, moving to full commercialization. Third, we continue to make good progress on our borderfree.com offering. During Q3, we added a buy-now capability as well as advanced search functionality, enabling a more streamlined shopper experience and improving sales conversion rates. We also continue to see further growth in shopper sign-ups as well as an increase to the share of merchant sales attributable to the borderfree.com channel which now stands at over 4.5%, representing an increasingly valuable demand generation channel for merchants on the program. Lastly, during the quarter, we announced the authorization of a $200 million share repurchase program by our Board. Global-E is a highly cash-generative business. And given our strong balance sheet and our track record of generating sustainable cash flows, we see a share buyback plan as a logical use of cash, especially at the current market valuation. Given the blackout periods that we are subject to in Q3, we have not yet begun buying back shares but we expect to do so starting in the coming days. We will employ a thoughtful approach here to take advantage of any disconnect we see between our performance and outlook and the market valuation of our shares. I also want to spend a few minutes on how we are strategically approaching AI in general and agentic e-commerce, in particular, and what we are doing to make sure we are well positioned to capitalize on this upcoming market opportunity. Throughout this year, we've already been seeing some traffic to our merchant sites being initiated from ChatGPT and resulting in successful transactions processed by Global-E as well as agent-assisted in-chat checkout transactions. While both still represent a very small share of sales for our merchants, we believe these are exciting potential new sales channels for them. As brands focus more on selling within these third-party channels, we will continue to provide the same best-in-class support and service that we provide across all of our sales channels. Irrespective of the sales channel, the value of our expertise and capabilities do not change. We meet our brands wherever they spend online and provide support for them to transact internationally regardless of the source of traffic. Furthermore, we have deployed AI-powered use cases throughout the buying journey from demand generation, utilizing AI, both for brands using our agency services and for our own B2B marketing through to different aspects of trade and post-purchase support from classification, down to customer care. In parallel, we also have an internal team focused on making sure that our solutions will be positioned to work seamlessly across the agentic commerce platforms for Instant Checkout from both a merchant and a consumer perspective when such platforms are introduced to the market. As our partners look to work with agentic technologies to provide instant checkout capabilities, we will be there to provide a seamless, effective and compliant end-to-end international experience. This is all obviously very early in the life cycle. But as always, we will keep doing what it takes to remain at the forefront of Global-E commerce, and we utilize the advantages of our scale, know-how and sophistication to emerge a share gainer. By focusing on this early and engaging with key players in the space, we are aiming to maintain our [indiscernible] position for the enablement of seamless cross-border commerce within AI-led transactions in the future. Now let's move on to the broader business performance in the third quarter and what we're currently seeing in Q4. As I already mentioned, we saw consumer discretionary spending holding up during Q3 and Q4 to date. And we continue to see strong market traction with our largest merchants across different destination markets. The trading patterns we have seen in Q3 and the first half of Q4 give us confidence that we will end the year strong. In terms of new merchant launches within Q3, we continue to grow across geographies and within our cohort of merchants. We experienced continued strong demand for our services across different markets as a large number of brands went live with Global-E during the quarter. This included multiple brands that went live with us in the U.S., such as Everlane, the renowned high street online U.S. clothing retailer that recently moved to Shopify, chose Global-E to accelerate its international growth and Ashford, the luxury U.S. watch brand. In Canada, we launched with the online shop of Drakes fashion brand, October's Very Own, as well as Aritzia, the fast-growing clothing company which has shown a quick ramp-up of their conversion rates and international sales post launch with Global-E, as they mentioned in their current -- in their recent quarterly earnings call. In the U.K., we launched a renowned luxury brand Coach which is part of the Tapestry group of brands; with Browns Fashion formerly part of Farfetch; and with the Jewelry brand, Regal Rose. I'm also pleased to say that U.K.'s Marks & Spencer is back online as of October and their trading is back to normal patterns. In France, we launched with Chloe, the renowned luxury fashion brand, thereby extending our partnership with [indiscernible]. We also launched with [indiscernible], the classic French sportswear brand and with the fashion brand Hartford. Across other European markets, we launched a Sleeper brand, Kalida and dog wear brand CLOUD7 in Germany, and with D1 Milano watches in Italy, among others. In Asia Pacific, we launched Bandai Spirits, the famous Japanese toy and collectible company, as well as Japanese designer fashion brand, Mihara Yasuhiro, and Posse, the high-end Australian fashion brand. We also launched Beauty of Joseon, a Korean skin care company; and Paper Shoot, a consumer electronics brand, which is also the first Taiwanese brand to sign with us. Another exciting launch in the region during Q3 was that of Blackbough Swimwear, our first brand out of the Philippines. Within the sporting goods vertical, golfers around the world can now buy their [indiscernible] from Tacoma Grove, the finished D2C Golf brand, which went live with us during Q3. During the quarter, we also went live with Live Sports, a U.K.-based sports equipment brand and with Luke [indiscernible], a Scandinavian fly fishing gear company, which is also the first to integrate our services on a headless [indiscernible]. Besides many new merchant launches, during Q3, we also expanded our scope of business with quite a few existing merchants, such as FIGS where we expanded into South Korea in a number of Latin American markets. Helmut Lang, the New York-based fashion brand and the merchandise division of JYP Entertainment, one of the largest K-Pop labels and production companies which both expanded into Japan. Bang & Olufsen and Tom Ford, which both opened a number of new European markets with us in the quarter. Australian fashion brand Zimmerman, which went live with us with its [indiscernible] serving the APAC region and fashion brand Theory, which added support for several GCC countries out of its new U.K. [indiscernible] integration. Both Burberry and [indiscernible] Eyewear, who we worked with to expand into Mexico. Bach, we expanded with us into Norway and [indiscernible] which added more than 10 new countries, including Japan, Italy, Spain and several Nordic countries. Furthermore, as I mentioned earlier, in the face of higher tariffs and the suspension of the de minimis exemption in the U.S., we have seen heightened interest in our 3 B2C and multi-local solutions as well as our duty drawback value-added services. More and more merchants, both existing and new, continue to pivot to utilizing these advanced capabilities in order to mitigate as much as possible the effects of the new duty regimes on their business. The launch of new merchants and the continued expansion with existing merchants as well as our current pipeline, give us confidence that we are well positioned in terms of both our near-term and our long-term targets. We have good visibility to durable, profitable growth and a strong pipeline of cash flows into the future. Our results year-to-date would be impressive in any environment. But considering the uncertainty that the global e-commerce market faced at the start of 2025, I believe these results really showcase the resiliency of our business model and the value that we create for our merchants. I will now hand it over to Ofer to take us through the quarterly numbers in more depth and our increased 2025 guidance in Q4. Ofer Koren: Thank you, Amir, and thanks, everyone, for joining us today for our earnings call. As Amir just highlighted, we achieved another strong quarter of growth for globally. We delivered results at or above the top end of our guidance ranges for GMV, revenue and adjusted EBITDA, generated strong free cash flow and had another quarter that landed well above the Rule of 40. Before I go into the details of the quarter, I'd like to remind everyone again that in addition to our GAAP results, I'll also be discussing certain non-GAAP results. Our GAAP financial results, along with the reconciliation between GAAP and non-GAAP results can be found in our earnings release issued today. GMV in Q3 was $1.512 billion, up 33% year-over-year, 3% above the midpoint of our range for Q3. Trading volumes remained resilient in the third quarter despite some uncertainty due to ongoing changes in tariffs. As Amir discussed, we have also seen solid trading volumes through the first half of Q4, including significant contribution from some of the newly launched brands. The holiday shopping season is just getting underway, and we have seen initial sales volumes in line with expectations so far. In Q3, we generated total revenue of $220.8 million, up 25% year-over-year and 2% above the midpoint of our guidance range. Service fee revenue for the quarter was $103.5 million, and fulfillment services revenue for the quarter was $117.3 million. Service fee take rate was slightly lower than Q2 and in line with the first quarter, driven by mix, while fulfillment take rate was similar to last quarter and as expected, lower compared to the first quarter given the planned shift of certain volumes to multi-local and our growth within verticals that are multi-local by nature. Progressing through the income statement, non-GAAP gross profit was $102.1 million, up 24% year-over-year representing a gross margin of 46.3% compared to 46.7% in the same period last year. GAAP gross profit was $99.6 million, representing a margin of 45.1%. Moving on to operational expenses. In Q3, we continued to invest in the enhancement of our platform to further expand our offerings and add value for our merchants while leveraging our scale and AI tools and agents to gain efficiencies. R&D expense in Q3, excluding stock-based compensation, was $26.1 million or 11.8% of revenue compared to $22.8 million or 13% of revenue in the same period last year. Total R&D spend in Q3 was $30.8 million. We also continued to invest for growth within our sales and marketing organization, while remaining focused on cost and efficiency including by the growing use of AI-powered tools across our sales and marketing activities, such as demand generation, lead qualification and outreach. Sales and marketing expense, excluding Shopify-related amortization expenses, stock-based compensation and acquisition-related intangibles amortization, was $26.4 million or 12% of revenue compared to $21.5 million or 12.2% of revenue in the same period last year. Shopify warrant-related amortization expense was $8 million in the quarter, down from $37.4 million in Q3 '24. As I've discussed in the past several quarters, we expect this expense to remain at the same level for the remainder of the year and to be completely gone at the beginning of 2026. Total sales and marketing spend for the quarter was $38.4 million, down from $62.7 million in the same quarter last year. General and administrative expenses, excluding stock-based compensation, acquisition-related expenses and acquisition-related contingent consideration were $9.2 million or 4.2% of revenue compared to $7.7 million or 4.4% of revenue in Q3 of last year. Total G&A spend in the quarter was $13.4 million. Adjusted EBITDA was $41.3 million, up 33% from Q3 2024 and 5% above the midpoint of our guidance range. Adjusted EBITDA margin was 18.7% versus a 17.7% margin in Q3 2024, driven by lower operating expenses as a percent of revenue leveraging our scale and cost efficiencies. In Q3, our GAAP net profit was $13.2 million compared to a net loss of $22.6 million in the year ago period. The positive net profit was driven mainly by the reduced amortization expenses related to the Shopify warrants as well as our continued business growth and our growing efficiencies. Moving on to the balance sheet and cash flow statements. We ended the quarter with $552 million in cash and cash equivalents, including short-term deposits and marketable securities. Q3 was a strong quarter of cash generation with free cash flow of $73.6 million in the quarter, an increase of 245% compared with Q3 of 2024. We believe that our free cash flow margin adjusted for seasonality will continue to be strong in the coming quarters. As Amir highlighted, we expect to begin utilizing a portion of this cash to repurchase outstanding shares in the coming quarters in accordance with the Board authorization. We plan to start executing upon our buyback program in Q4, subject to market conditions and other applicable factors. We have a strong track record of cash generation and see an opportunity to return capital to shareholders to drive long-term value creation. We will also continue to look for opportunistic tuck-in acquisition opportunities to enhance our platform or offerings. Now let's go through our guidance for the remainder of the year. For Q4 2025, we're expecting GMV to be in the range of $2.195 billion to $2.315 billion. At the midpoint of the range, this represents a growth rate of 32% versus Q4 of 2024. We expect Q4 revenue to be in the range of $318.5 million to $334.5 million, representing a year-over-year growth rate of 24% at the midpoint. For adjusted EBITDA, we're expecting profit to be in the range of $74.3 million to $88.7 million or a margin of 25% at the midpoint. For the full year of 2025, this implies GMV to be in the range of $6.404 billion to $6.524 billion, representing a 33% annual growth rate at the midpoint of the range, an increase of 2% from our guidance in the start of the year. Revenue is expected to be in the range of $944.1 million to $960.1 million, representing a growth rate of 26.5% in the midpoint of the range, an increase of 1% from our initial guidance. And for adjusted EBITDA, we are expecting a range of $185.6 million to $200 million an increase of 37% versus 2024 at the midpoint and up 2% versus our initial guidance. We are excited by our guidance for Q4 and the full year of 2025 which reflects a strengthened outlook across all parameters. Furthermore, 2025 is expected to be our first GAAP profitable year as a public company. Our upward revised full year 2025 numbers demonstrate and reinforce our path to meet the medium-term targets that we provided at our Investor Day in March. To summarize, we believe the current environment represents exciting opportunities for Global-E to create value for our merchants by growing their sales while optimizing their costs and to continue growing at a fast pace for the foreseeable future. Given the increasingly complicated global e-commerce environment, we believe our services are becoming more and more integral to merchants every day. The market opportunity in front of us remains massive, and we plan to continue on our path to support merchants worldwide in expanding their direct-to-consumer business. Question & Answer Session Operator: [Operator Instructions] Your first question comes from Will Nance with Goldman Sachs. William Nance: [indiscernible]. I wanted to maybe touch a little bit on the commentary around the [indiscernible] product? It seems like you guys have continued to flag the function of the market with [indiscernible]. And maybe if you could talk more [indiscernible] the opportunity for the [indiscernible] services and any changes in how you're thinking about the longer-term trajectory of additional products [indiscernible]? Nir Debbi: Will, thank you for your question. It's Nir. Well, very excited with the developments we've seen obtaining -- updating the permission to offer duties or drawback in more jurisdictions to our clients. As the market becomes more complex for merchants, duty burden globally is rising. We've seen the changes already implemented on U.S. import [indiscernible]. We've seen some changes in the Canadian regulation. We are aware of the upcoming removal of de minimis also for EU that is expected sometime in the back half of 2026 for the entire European community. So the increase of -- in importance of duty drawback is clear because typically in e-commerce out of 100% that is being sold, you would see 10% to 15% that are coming back. Without duty drawback, it means that it's a loss of the duties on those sales, which typically account to 2% to 4%. So this is money that we can actually bring back home for our merchants, streamlining the cost effectiveness and in the current and foreseeable environment, that's a critical component to the trading. William Nance: That's great. It makes a lot of sense. And then, I guess, just separately, I was wondering if you could maybe speak to pipelines. I realize we're kind of done with implementation for this year heading into the holiday season. Was wondering if you could give some incremental color on just how pipelines heading into next year compared to this year, both in terms of the size and geography of merchants and just how you're seeing the [indiscernible]? Nir Debbi: Sure, Will. We continue to see high demand for new services supporting merchants doing 3 B2C, multi-local and other value-added services we deployed. Furthermore, there are multiple opportunities that we are seeing in global e-commerce as it becomes more complex. It's driven by what we spoke about just now from the extra complexity on duties, it's driven from other factors of complexity and cost structure aligning shipping, wanting to do a multi-local efficiently across geos, et cetera. So all in all, we are quite optimistic. We see development across the different stages of our funnel. We've seen it deployed into our Q4, which is part of the confidence we have in the guidance we gave. So all in all, we're quite optimistic going into 2026. Operator: And the next question comes from James Faucette with Morgan Stanley. Michael Fontan: It's Michael Fontan on for James. I wanted to ask on service fee take rates. How much of that sequential take rate decel is just due to the fact that you're continuing to win with larger merchants? And as you think about the path forward with some of the renewal impacts beginning to show up in Q4, how are you thinking about the path for service fee take rates from here if there are case-by-case pricing concessions that are made with those concessions presumably being absorbed in the P&L via some of those improvements in unit economics that you referred to in the past? Ofer Koren: Yes. So thank you for that, Michael. Regarding the first 9 months of the year, it has been slightly volatile, and it's mainly due to mix. So there are some mix shift between quarters. And in addition to that, as you mentioned, we see larger enterprise merchants, a higher share of larger enterprise merchants, which also have a certain impact. So when you look at Q3, similar levels to Q1, lower levels compared to Q2. And as we mentioned in Q2, we had some positive mix impact, that's on the service fee side. Going forward, as we mentioned in the past, we don't see any significant wide change we do see from time to time, we might reprice on specifications. But -- but we are not -- we do not expect a significant change on service fee take rate. On the overall take rate picture, what we have been doing for the last few years and in the last quarter as well, is expanding our TAM by developing new business models that allows us to further serve new and existing merchants. And our main financial focus in these efforts has been driving profit, both from a margin and reported dollar perspective, and some of these models by nature, have lower take rates. For example, as you know, multi-local is a good example for that. But important for us to note that they all meet our long-term profitability and support our long-term profitability goals. So on the fulfillment take rate side, we have seen some decrease over time. For the near future, we expect it to be around the levels that you've seen this quarter. Michael Fontan: Very helpful. And then just secondly, on managed markets. I know you've spoken in the past about harmonizing the domestic and international experiences. But can you just talk about what mechanically has sort of changed versus the prior implementation and what you expect to learn in the beta and perhaps how you're thinking about a little bit more of a material merchant push into next year post that beta testing? Amir Schlachet: Sure. Thanks, Michael. It's Amir. So as we mentioned already, we've been making great progress on the rollout of the new managed markets, the new flow. The main change there, there are a few updates to the service, but I think the main cornerstone is that we've shifted the flows to work through Shopify payments, [indiscernible] through the dedicated payment infrastructure that we had in the previous iteration. And what that is expected to allow us is for, as you mentioned, a much more streamlined experience for the merchants in minimal change, if any, from how they're used to managing their store today. So that should be the, I would say, the great benefit of this new build. And together with Shopify, we've done most of the development. It's pretty much ready for rollout in 2026. And we are already the -- better merchants that we mentioned, they're kind of live merchants because they're -- every new merchant as of the third quarter when we had the build in place, every new merchant that is signing up for a managed market is actually going through this new flow. So we are getting an increased volume of merchants and transactions. And this is serving as the kind of the better testing for this new flow. We use the learning from that to make some final refinements and we'll be ready for a full rollout next year. Operator: And the next question comes from Brian Peterson with Raymond James. Brian Peterson: So maybe high level, can we talk about post some of the changes in tariffs and everything else? Like what are you seeing in terms of the top of the funnel in kind of that white space or new merchants? Any update there in terms of the top of the funnel in terms of that progress? Nir Debbi: Brian, it's Nir. So all in all, I think that in line with our expectation, we have seen some effect on same-store sales, especially on the inbound U.S. corridor, where we've seen some weakness and also on the corridors between U.S. and Canada. However, on a global perspective, trading holds strong and resilient. So we're quite optimistic there. Taking it into what we forecasted in our pipeline and the [indiscernible] midterm onwards, we start to see it materializing as global trading becomes more complex, our funnel is actually being built up quicker than before, and we are quite optimistic that the extra complexities with the solutions and capability we built around duty drawback, import duty drawback, 3 B2C multi-local split shipments, et cetera, would create a sustainable business growth of new business in the coming quarters. Brian Peterson: Good to hear. And maybe just following up. For the ReturnGo acquisition, anything we should be thinking about in terms of contributions to revenue or expenses in the fourth quarter? Nir Debbi: Yes. So for now, ReturnGo doesn't have a significant impact. It will contribute up to $1 million of revenue in Q4. And it will have a slight negative impact on adjusted EBITDA, nothing worth mentioning. We are very optimistic about return go because since we acquired the company, we have been started to implement the ReturnGo solution into Global-E. It's early days, but we see good interest and traction from merchants. And we see some upside potential as it is still insignificant as I mentioned, but the run rate of revenue since we acquired the company has significantly grown and we are quite optimistic going into 2026. Operator: And the next question comes from Mark Zgutowicz with Benchmark. Mark Zgutowicz: Nir, I was just hoping maybe you can round out the commentary around same-store sales in terms of second half NDR trends sort of year-over-year and how you're thinking about first half next year and maybe also balancing that with just new deal pipeline growth? Nir Debbi: Thanks for the question. So as noted, same-store sales growth has been relatively stable throughout the year. And it continued despite the global tariff changes we've seen and the effect on key corridors. As I indicated, there was a slight weakness of the corridor of imports into the U.S. versus how other lanes are trading as well as some weakness between the Canada and the U.S. with imports into Canada. However, overall, it looks stable, and we do see some realization that started late Q3 in terms of, I would say, some adjustment of consumer behavior, maybe and merchants pricing to the new environment. So we expect it to stabilize also on those corridors going into 2026. In terms of the funnel, as I noted, we are quite optimistic. As we stated in the last quarter discussion, this year, indeed, we didn't have mega clients launching at the back half of the year. However, this was compensated and we expected it to be compensated with multiple smaller merchants launches that are trading very, very well. So -- and this is, of course, embedded into the numbers that you see that show our confidence in the growth that would come from new merchants. Mark Zgutowicz: Got it. That's helpful. And on Borderfree, just curious, it sounds like things are progressing there quite nicely. If you can maybe talk about trajectory into next year in terms of monetization? Is that perhaps more of a first half or a second half type modest inflection there on the monetization front, that would be helpful? Nir Debbi: We are very excited with the opportunity of borderfree.com. I think that when we set up acquiring Borderfree 2.5 years ago and then the building we did to the platform, our goal was to allow our merchants to have an effective brand awareness at a guaranteed ROI because we've seen the changes with back then with Google Cookie Policy, Apple iOS changes that actually made attribution harder on their media spend and actually cost of driving new traffic to our site was expensive and getting more expensive. This is even further accelerated with a lot of the eyeballs moving into ChatGPT, Gemini and others, which take -- again reduces the contribution and the attribution of paid media. And that further strengthen the model behind Borderfree. So we are very excited. We see continued adoption of new merchants. We see more and more returning customers using borderfree.com. We expect that with investments we're making now into a direct to checkout solution, optimizing traffic journeys through the site, the new cart that we just launched just a couple of weeks ago, allowing you to buy more than one product out of borderfree.com, et cetera. We will see much more conversion out of there. It's already increasing in its share of demand generation to participate in brands, and we expect it to continue to accelerate 2026. I'm not -- I don't see a material contribution to direct revenue, especially not in the first half of 2026. But if we meet our plans, I believe that over time, it will hold outside the direct revenue much more stickiness with our clients and even faster growth to their own same-store sales. Operator: And the next question comes from Samad Samana with Jefferies. Debanjana Chatterjee: This is Jeremy on for Samad. Congrats on the strong results. I guess, first, can you please give the FX impact on 3Q GMV and total revenue? And what FX impact are you baking into the 4Q guidance? Ofer Koren: So FX was much more stable in Q3 compared to Q2. We haven't seen any significant impact or on the top line and on the bottom line. And at least for now, it seems pretty stable in Q4 as well. So no big shifts and we don't expect any significant or material impact on [indiscernible] this quarter. Debanjana Chatterjee: Okay. And then on the enterprise integration with Shopify, have you seen any change to the competitive dynamics or any key learnings or takeaways from shifting to the new partnership? And then maybe can you help us size the uplift transitioning to preferred economics that you're expecting going forward? Nir Debbi: Samad, its Nir. In general, we haven't seen any material changes in the competitive environment. Over the last few quarters, we continue to clearly lead the market in the robustness, capabilities and offering of our platform and services. On Shopify specifically, we haven't seen notable changes since we signed a new agreement and transferred to the preferred status. Looking at the enterprise side, we don't see no one competes with us in a meaningful way today. There is another [indiscernible] provider that supports enterprise brands, however, the traction is low outside Shopify, and we expect it to be even lower within Shopify. On the smaller players, that are working on Shopify, those have been selling a [indiscernible] solution or point solutions even before the change and they haven't managed to take any enterprise merchants and only, I would say, very low traction within the smaller ones. So we haven't seen any material change to the dynamic. Ofer Koren: In terms of the Shopify rev share, it has the improved economics from the new contract began towards the end of Q3 and the full impact is reflected in the Q4 guidance. Operator: The next question comes from Patrick Walravens with Citizens Bank. Patrick Walravens: Great. At a high level, can you guys just explain how the duty drawback works like very simply for people who don't quite get it? And then also what you need to do in order to roll it out in a new country? Nir Debbi: Yes. So let's take into -- an example, a sale of a U.S. merchant to a Canadian shopper. Let's assume that the goods that were bought were USD 200. Once they hit the Canadian borders duty and tax applied, whether if they were paid in advance, paid at the border, duty and tax applies. The average duty rate, let's put it at 15%, would be another $30 that are paid on that -- on those goods and another 5% for sales tax, and you get $40 that are levied on this $20 or $200 parcel. Overall, this $40 are paid by the merchant or by the shopper, but they are part of what the merchant build into his pricing when he saw the goods. However, if I stated 10% of the goods are coming back or 15% even, it means that out of those $40 checks, on average, $4 to $6 are represented by returned goods. And actually, those dollars are lost today. With Global-E, for example, in Canada, where we have a CBSA approved credit program for our brands, we are actually able to reclaim those $4 to $6 for our brand, actually optimizing the cost structure selling into Canada around 2% for each transaction. Patrick Walravens: All right. That's great. Okay. So you shouldn't have to pay on the things you return. Got it. And then Ofer a follow-up for you. As I look at your 4-year plan versus where you are now, everything seems to make a lot of sense, except maybe the non-GAAP gross margins, your fiscal '25 to '28, guidance is high 40s and you are 46 this quarter, right? So I don't think that's high. So can we just address that a little bit? Ofer Koren: Yes. So I think that as we've mentioned in the Investor Day, we did not expect gross margins to increase over the levels that we have been able to reach. Basically, what we solve for is bottom line is cash generation and adjusted EBITDA that is more or less correlated to it. And as I mentioned, there are -- we have developed different models over time with different profiles that have some impact, different impact on [indiscernible]. So I think that we're actually, from our angle, we are on track to reach that target. We believe that we will be in the high 40s for gross margin. We're in that neighborhood now. And over time, we think that we can stay in similar levels, maybe likely improve over the term of the plan that we presented. Operator: The next question comes from Koji Ikeda with Bank of America. Koji Ikeda: I wanted to ask about agenetic commerce. And can you talk a little bit about how Global-E will help with the data flow to power agentic commerce? I mean do you envision globally plugging directly into the ChatGPT type agentic commerce experiences? And how, if at all, is agentic commerce changing sales cycles right now? Amir Schlachet: Sure, Koji, it's Amir. Thanks for your question. Again, I touched upon it a bit in the prepared remarks. We do believe that a agentic commerce is going to affect the entire value chain of e-commerce. And we're already starting to see signs of that today. As I mentioned, mean starting from the top of the funnel, kind of demand generation is being done today more with AI-enabled technologies, including marketing campaigns, even campaigns that we ourselves are doing for B2C. They are using the Meta Advantage Plus tools that are AI-driven and we're building custom generative AI-based tools to streamline many functions across the funnel from consumer support and [indiscernible] scoping and in targeting and outreach to merchants. So we think that the -- especially the high growth kind of D2C brands, they're probably the best position to work to leverage AI integrations and remove barriers that currently exist in marketing and selling and advertising and creating traffic from markets where previously it was very complex for them to create brand awareness with manual processes. So we're looking -- we're constantly looking at the new developments in the field. We're very impressed by what AI-supported platforms have been able to achieve in the relatively short time. And we're already seeing some transactions, not directly through kind of instant checkout, but transactions that are already initiated from ChatGPT and from agent-assisted in-chat checkout. And we believe this will grow in the future. In any case, given our expertise, given our unique know-how and our scale of data and capabilities, we believe we are best positioned to provide the kind of international and the cross-border layers that are required in order to enable these AI-powered transactions in the future. Koji Ikeda: Got it. And maybe a follow-up here. I look at the third quarter GMV growth, looks really strong and the 2025 GMV guide, that's really good, too. And so last year on the third quarter call, you did give some early look GMV growth color for 2025 of 30%. And clearly, the guide today implies that you're going to achieve that. So is there anything you can share today for 2026 GMV growth assumptions? Ofer Koren: Yes. We are very happy with the Q3 results and the growth trajectory we are seeing into Q4, and this will also support us going into 2026. As mentioned in the prepared remarks, we have seen very successful merchant launches in recent months and they're also trading very well. So we believe that this will provide us some tailwind going into '26. Generally speaking, we believe that we are on path to achieve our midterm targets. And I think this is sort of the framework that we are looking at going into '26. Operator: And the next question comes from Rob Wildhack with Autonomous Research. Robert Wildhack: To start on the repurchase, could you just give us some additional thoughts on your approach to like a time frame around the $200 million? Ofer Koren: So as we mentioned on the call, we have been in a closed window up till now, and we plan to start executing on the plan soon. The pace will depend on the market conditions and another aspect. But we do expect to start executing very soon and start to buy some of this plan in the coming months. Robert Wildhack: Okay. And then bigger picture, could you just remind us about how you're thinking about the bridge between adjusted EBITDA and free cash flow, both as it relates to the guidance, but also in the context of the longer-term target? Any numbers that you could put to the free cash generation maybe between 2020 -- the bridge between 2026 and that longer-term target for, I think, mid- to high 20% margins? Ofer Koren: Yes. So generally speaking, when we look at the full year, because we have seasonality for cash flow and free cash flow -- but when you look at the full year, it typically correlates with adjusted EBITDA, but it's higher. If you look at the previous years, and we expect it to continue to be somewhat higher compared to adjusted EBITDA. And this is supported mainly by working capital as long as we grow, this gives us some tailwind. And we expect it to continue on that path in the coming years as well. Nir Debbi: I think -- also important to note, as we guided on the longer-term targets, we do have efficiencies of scale as we continue to grow. You can see it on the long-term trajectory of improvement in our EBITDA and of course, out of it, you will see also the improvement coming on our free cash flow that is trading even slightly better. Operator: And the next question comes from Chris Zang with UBS. Chao Zhang: And I just have a question on the regional trends you've seen so far, and I'm talking about the merchant outbound region. And it looks like there's some softness in the U.S. that was offset by U.K. and European Union, even if you adjusted for [indiscernible] for U.K., can you maybe just comment on some of the regional trends versus the prior quarters and what are [indiscernible]? Nir Debbi: I think what you referred to is the fact that the share of the U.S. outbound was slightly lower this quarter. I don't think that it reflects a weakness on the U.S. trading outbound. It's much more reflects the mix of our new launches that is coming from additional origins, such as our great success in APAC and also some growth in Continental Europe that in share grew faster than the launches we had in U.K. And also some of the merchants have traded even better. But the combination of both yielded this result. It's not that we expect it to, over time, be consistent. So I wouldn't use the [indiscernible]. Operator: And that concludes our question-and-answer session. I'll hand it back to Global-E CEO, Amir for closing remarks. Amir Schlachet: Thank you. And on behalf of the entire global team, I would like to thank everyone for joining us today and for your ongoing support. Despite the uncertainty that the global commerce markets faced at the start of the year, we've continued to outperform every step of the way. Our outlook and market positioning is as strong as it's ever been, and we're excited to demonstrate continued performance for the remainder of 2025 and for years to come. We see tremendous opportunity within the market for our platform and services. As we grow in both new and existing merchants, our confidence in the value that Global-E is bringing to the e-commerce market remains reinforced. With a long runway of innovation and growth here at Global-E and by leaning into the opportunities ahead of us, we remain confident in our ability to achieve our growth targets across our key metrics for the foreseeable future. We look forward to speaking with many of you during the quarter and updating you on our future earnings calls. Until then, goodbye and take care. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Target Corporation Third Quarter Earnings Release Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will invite you to participate in a question and answer session. At the close of prepared remarks, we will open the queue for the Q and A session. As a reminder, this conference is being recorded Wednesday, November 19, 2025. I would now like to turn the conference over to Mr. John Holbert, Vice President, Investor Relations. Please go ahead, sir. John Hulbert: Good morning, everyone, and thank you for joining us on our third quarter 2025 earnings conference call. On the line with me today are Brian Cornell, Chair and Chief Executive Officer; Michael Fiddelke;, Chief operating Officer; Rick Gomez, Chief Commercial Officer; and Jim Lee, Chief Financial Officer. In a few minutes, Brian, Michael, Rick and Jim will provide their insights on our third quarter performance and outlook for the rest of the year. Following their remarks, we'll open the phone lines for a question-and-answer session. This morning, we're joined on this conference call by investors and others who are listening to our comments via webcast. Following the call, Jim and I will be available to answer your follow-up questions. And finally, as a reminder, any forward-looking statements that we make this morning are subject to risks and uncertainties, including those described in this morning's earnings press release and in our most recently filed 10-K. Also in these remarks, we refer to non-GAAP financial measures, including adjusted earnings per share. Reconciliations of all non-GAAP numbers to the most directly comparable GAAP number are included in this morning's press release, which is posted on our Investor Relations website. With that, I'll turn it over to Brian to kick things off. Brian? Brian Cornell: Thanks, John, and good morning, everyone. This is my final earnings call as Target's CEO, and I plan to keep my comments brief this morning. but I wanted to take a moment to thank all of you for your ongoing engagement and support over the last 11 years. It's been the highlight of my career to lead this great company and our business has undergone many important changes since I arrived in 2014. We entered into an innovative partnership with CVS to run our pharmacy business. We changed our operating model in food and beverage, paving the way for explosive growth in that part of the business. We invested in our product design, development and sourcing capabilities and launched several new billion dollar owned brands. We pioneered the Stores & Subs model for digital fulfillment, remodeled well over 1,000 of our existing stores and added nearly 200 net new locations in the U.S. All told, this year's top line is expected to be well over $30 billion higher than the year I arrived. In that 2014 fiscal year, GAAP and adjusted EPS both came in around $4 a share. And the upper end of this year's expected range for adjusted EPS is double that number. I am proud that our team could deliver this top and bottom line growth while building a solid foundation of operating capabilities, including one of the nation's largest [indiscernible] programs and Target Circle and a rapidly growing retail media business in Randell. That said, our business has not been performing up to its potential over the last few years. And I am singularly focused on supporting Michael and the entire leadership team as they make changes to the way we work, enhancing our merchandising authority, our retail experience and investing in technology to accelerate our business. In the call today, you'll hear how the team is working quickly to get the company back to profitable growth. And while we're not there, yes, I'm confident we're on the right path and Michael is the right person to lead the next chapter of Target's growth. So with that, I want to thank all of you for your participation today and for your thoughtful engagement over the years. And finally, I want to thank the entire Target team. It has been a privilege to work with you in support of this great brand. Now I'll turn the call and today's Q&A over to Michael. Michael Fiddelke: Thanks, Brian, and good morning, everyone. We have high but achievable aspirations for Target's future, and we're acting with urgency to make the changes and investments to position Target for sustainable and profitable growth over time. While our third quarter performance came in as expected, we're far from satisfied with our current results, and we won't be satisfied until we're operating at our full potential. To get there, we've set 3 distinct but highly interrelated priorities for our team. First, we must solidify our design-led merchandising authority leading with incredible product in a way that is distinctly target. Second, as a retailer that believes that the shopping experience is every bit as important as the products we sell, we need to offer a more consistently elevated experience across our stores and digital platforms. And third, we need to more fully use technology to improve our speed, guest experience and efficiency throughout the business. Together, these priorities are in service of one goal, getting back to sustainable growth as quickly as possible. They guide every decision we make, and I want to spend a few minutes to help clarify what these priorities are, why each matters and share some of our progress to date. Before I expand on these priorities, I want to pause and acknowledge our recent restructuring headquarters, in which we eliminated approximately 1,800 roles or about 8% of our headquarters footprint, a difficult but necessary step forward. While Jim will walk through some financial aspects of this decision, I want to make it clear that this move wasn't about cutting costs. Instead, by removing layers that have added complexity to the way we work, we're aiming to work with greater agility making it clear [indiscernible] decisions and empowering our team to operate with greater authority and speed in support of our strategy. So let's discuss how we're making progress in solidifying our merchandising authority and elevating our shopping experience. And you'll also see the critical role that enhanced technology is playing in support of both, helping us progress quickly, efficiently in industry-leading ways. We are a design-led company. And that starts with our authority and merchandising. Our ability to build a unique assortment of the right, stylish on-trend products at incredible value that's so central to who we are and key to our differentiation and future growth. At Target, we believe that offering an assortment that's distinctly ours is essential to maintaining our merchandising authority with our guests. Not every category plays the same role towards these efforts, but together, they create an assortment and experience that feels unmistakably target. A great example is the transformation of our hardlines business into FUN 101 an evolution in bringing greater cultural relevance, style authority and trend-right energy to the assortment, reinforcing what makes shopping at Target so special. And while we have much more change in FUN 101 to come, it builds our confidence to see the categories that have seen the greatest change driving some of the strong sales performance already. Rick will have more details to share later. And within each category, merchandising authority means staying incredibly close to our guests by knowing what they want next, reacting to, predicting and even setting new trends and tech will play a critical role in helping us get there. We're enhancing our capabilities by equipping our teams with new tools that provide them with AI-enabled consumer insights at their fingertips. Our merchants now have real-time access to advanced data from what is currently trending on social media to which products and styles are resonating with consumers at Target and across the industry today, to what future trends our guests are most likely to care about, helping our team forecast needs, anticipate trends and buy both smarter and faster. New tools also include our recently developed target trend brain, our new internal creative platform, which uses Gen AI technology to help our teams identify and react to emerging trends faster and predict future trends. By leveraging AI to capture color, material, style and product details in applying consumer research and our brand principles, we can deliver unique and on-trend products to our guests faster than ever before. To further enhance our speed to market, we've also created synthetic audiences, AI-driven models that simulate real consumer populations to preview how different groups could respond to campaigns and products before they ever launch. This allows our marketing and design teams to test, learn and refine products, promotions and messaging with incredible speed and efficiency. And while you'll see us continue to accelerate our use of technology, it's our talented team that brings this work to life, and we are investing intentionally in our team and how we approach our work. We're redefining roles throughout the cross-functional team that supports our assortment planning and buying decisions, what we call our merchant roundtable to better equip our teams to make bolder decisions even faster. I'm also excited to share we welcome new leaders to the team in areas like our home business to bring new ways of thinking and accelerate change in the signature category. These steps forward are examples of how we're solidifying our design-led merchandising authority by using people, process and technology to drive greater levels of newness and differentiation across our entire assortment more quickly reacting to emerging trends and amplifying these trends faster than ever before. Let's turn now to our team's efforts to elevate the guest shopping experience, both in stores and digital, a great guest experience means a lot of things, but it starts with a warm, friendly and helpful team. In stores, we're making changes to give our team members more time to focus on what matters most, spending time helping our guests. Through enhanced digital tools, we're reducing time devoted to backroom tasks through more efficient truck unloading and stocking. Every hour we save is being reinvested to allow more guest interaction with a focus on friendliness and service that makes target. An elevated shopping experience also means consistently finding the products you want to need every time you shop. This holiday season, we're using our expertise and deep consumer knowledge in a new gene E-powered gift finder available on our website and our app, allowing guests to ask questions on the app and help them find the perfect gift this holiday season by simply asking something as generic as what is a good present for my mother in law, to something more specific like I have a 5-year-old son that loves Dynasores? What gifts are available for under $20? Our app will provide recommendations or ask clarifying questions to quickly and easily help guests find the right presence for every person on their holiday shopping list. For guest shopping in our stores and online, we're also investing resources to ensure we have the right product in the right place at the right time all year long. This includes modernizing the technology that forecasts, orders and positions our inventory, using machine learning to optimize flow from supplier to shelf. It's helping us move inventory more efficiently, improve reliability for everyday frequently purchased items and further improve in-stocks. We've coupled these tech enhancements with process improvements some great root cause problem solving by the team and clear measurements that show where we have the most room to improve. All in, we've seen meaningful progress on this front. In fact, this past quarter, the on-shelf availability of our 5,000 top items, the ones for which being in stock is most important to our guests and which represent 30% of our total unit sales saw a more than 150 basis point improvement compared to this time last year. But even with this meaningful progress, I want to emphasize that we have much more room to improve and we're not slowing down. An elevated store experience also means meeting our guests when, where and how they want to shop. To do this, we're reconfiguring the role each of our stores plays within a market to optimize fulfillment speed and capabilities and in the process also better supporting the in-store shopping experience. Our pilot in the Chicago market has demonstrated the effectiveness of new operating models that govern each location's mix of in-store and digital fulfillment, helping to improve the guest experience and operational performance at each store at the same time. For those stores with high foot traffic volume, reducing their mix of brown box fulfillment, allowing those teams to spend more time interacting with in-store guests. For lower volume stores in the same market with big back rooms that are perfectly suited to ship product, we're pushing more digital fulfillment volume their way. And, of course, more labor hours to support this work, creating economies of scale in a more optimized workload for each node within a market. With the changes we've made, we're getting guests the products they want faster than ever while reducing average fulfillment costs. As a reminder, we already reached around 80% of the U.S. population with same-day delivery powered by Target Circle 360, where sales grew more than 35% again this past quarter, and around 99% of the U.S. population is already eligible for 2-day shipping. And now with our evolving market fulfillment strategy that includes expanding these learnings to an additional 35 markets, more than half of the U.S. is eligible for next-day shipping, and we expect to meaningfully expand that reach in the coming year. Elevating experience also means staying ahead of new ways our guests want to shop. We're leading in the next wave of digital engagement by partnering with the world's biggest Gin AI platforms, through an initiative we call conversational curation. Building on the apps for chat GPT experience previewed in early October, we're curating the shopping experience directly from the guest's own conversation. Guests tell us what they want or even what they're trying to solve for, and open AI will offer personalized recommendations. Through this partnership, we expect to be one of the first retailers on Open AI platforms to offer the purchase of multiple items in a single transaction, offer fresh food products on the platform, and the ability to choose drive up and pick up fulfillment options in addition to the conventional shipping options offered by others. Finally, I'd like to touch on important investments that will drive both merchandising authority and an elevated experience. Our investments in new stores, store remodels and chain-wide category changes aimed at providing greater inspiration in joy for our guests every time they shop. Our new larger-format stores are outpacing our initial sales expectations and continue to be a strong source of growth. Given current real estate opportunities, we expect to continue opening these bigger boxes in more and more markets across the U.S. Additionally, we're formulating plans for next year that will bring greater changes to key floor pads throughout the store, which will accelerate both our merchandising authority and our experience. To support this change, we'll be increasing our CapEx plans for next fiscal year, spending about $5 billion, about $1 billion more than this year to bring the latest and greatest of target to new and existing markets. Rick and Jim will have more to share on this in a moment. So now before I get ready to pass things over to Rick, I want to thank the Target team, you power our progress, and it is together as a team that will write Target's next chapter. While we're not yet where we want to be, we're making change to lay the foundation for a stronger, faster and more innovative target, one that's grounded in our purpose, fueled by our team and focused on growth. I'm proud of the progress we've made and confident in the opportunities ahead. And to those of you listening this morning, if you leave having heard nothing else, I'd leave you with the following thoughts. We are not satisfied with our current results and are relentless in our pursuit of returning to growth. Our 3 priorities around merchandising, experience and technology have us on the right path. And we know what needs to be done and are actively making progress towards being the best version of ourselves for our guests, our team and our stakeholders. With that, I'll turn the call over to Rick to share more about our third quarter performance and all we have planned for this holiday season. Richard Gomez: Thanks, Michael, and good morning, everyone. Our third quarter results underscore that we still have work to do but they also show us that the actions we're taking are the right ones for our guests and for our business. We're focused on improving performance, particularly in discretionary categories, listening closely to our guests and moving with greater agility to bring them the newness and affordability they expect from Target. In Q3, results were in line with expectations and similar to second quarter performance, with the exception of Q2 benefiting from the Nintendo Switch 2 launch, Q3 comp sales were down 2.7%, reflecting continued softness in discretionary categories like home and apparel, partially offset by growth in food and beverage and FUN 101. Digital comparable sales grew 2.4%, fueled by more than 35% growth in same-day delivery, powered by Target Circle 360 and continued growth in Drive-Up. We saw the strongest sales around seasonal moments like back to school, back to college and Halloween, highlighting once again the importance of these holidays to our business. Across categories, one theme is clear. Our guests continue to respond to newness and style-forward assortments. FUN 101 delivered another quarter of growth led by a nearly 10% comp in toys and double-digit growth in music, video games and our expanded selection of sporting equipment. All categories where we've invested in unique to target assortments that are clearly resonating. Food & Beverage also delivered another quarter of comp growth with notable strength in beverages, which were up nearly 7% in Q3 as guests leaned into our trend forward health and wellness assortment from prebiotic sodas to better-for-you energy drinks, we also saw strength in candy categories, particularly as the Halloween holiday approached. While apparel comps were down 5%, we delivered meaningful growth in denim and sleepwear categories, driven by style, forward newness, that helped to offset softness across the portfolio. This tells us that while there is still plenty of work to do, where we have made our biggest bets in terms of on-trend, design-led newness, consumers are reacting positively giving us confidence in our approach and the path ahead. Turning to the consumer. Many of the themes remain largely consistent with what we shared in prior quarters. Guest ARE choiceful stretching budgets and prioritizing value, they're spending it matters most, especially in food, essentials and beauty, while looking for trend-right deals in discretionary categories. They want quality and price to coexist, something we do particularly well through our balance of must-have national brands, our exclusive owned brand portfolio and our curation of emerging brands. As part of our work to solidify our merchandising authority, we will continue to elevate our assortment to lead with trend while always considering affordability and value. As we approach the holidays, we know consumers remain cautious Sentiment is at a 3-year low amid concerns about jobs, affordability and tariffs. Yet they remain emotionally motivated. They want to celebrate with loved ones without overspending. Our job is to help them do just that. Given our focus on affordability, we recently lowered prices on thousands of everyday food and essential items to help families further manage their budgets. And for the next major holiday around the corner, our Thanksgiving meal deal this year is one of our most affordable yet, feeding a family of 4 for less than $20 with Good & Gather Turkey at just $0.79 per pound as well as potatoes, staffing and other seasonal sides for less than $5. And while we are, of course, standing tall for the traditional Thanksgiving Fair, guests are also embracing new food trends like Good & Gather seasonal empanadas, gourmet host gifts from Marks & Spencer, Stonewall Kitchen, Sugarfina, and Hearth and Hand with Magnolia Table and new to target brands like Little Spoon, everyday dose and protein pop. As a percentage of our total Food & Beverage sales, we are selling twice the volume of new products compared to the industry, a sign that our trend bets are paying off. We're also accelerating newness in women's apparel, leaning into lux fabrics and trending athleisure at affordable prices. Inspired by our sourcing trip to the Swiss Alps, our latest Cashmerlike sweater start at just $30 and deliver the on-trend casual yet chic Opreski look. [indiscernible] at leisure fans, JoyLab is launching new patterns and fabrications in mid-December, earlier than ever this year. Perfect for gifting are those New Year fitness goals. In holiday decor, we're offering upscale and festive design at unbeatable prices from contemporary collections to nostalgic Christmas Classics, we have styles for every home. Ornaments start at $1, $3 and $5 price points, with holiday throws at $10 in Reeves and Fo greenery at $12, bringing incredible design and quality within reach. And once the tree is trimmed, it's time to think about what goes under it. As I've shared before, trading cards have been a huge trend that we have been leaning into. And this holiday season, we will be offering new product drops nearly every week, including Pokemon, MAGIC: THE GATHERING, NFL, MLB and WNBA cards. This includes highly anticipated exclusives, already hitting shelves and continuing to be released throughout December as well. This year, we've also expanded our assortment of affordable and on-trend toys, including thousands under $20 with many starting at just $5. As the #1 market share player for LEGO, we are partnering with this iconic brand to offer exclusive to target sets starting at just $10. And for Barbie fans of all ages, we're offering 2 exclusive Barbie collaborations with Joanna Gaines, a collectible doll and her perfectly designed townhouse to live in. All in, we are introducing 20,000 new items into this year's holiday assortment, twice as many as last year, with over half exclusive to Target. Before turning it over to Jim, I want to share how Michael's new enterprise priorities are taking shape across our commercial organization. In partnership with the Enterprise Acceleration Office, we've been modernizing how our cross-functional teams support all buying decisions at Target, what we refer to as our merchant roundtable. To clarify roles, streamline accountability and empower teams to make bold data-driven decisions allowing us to move faster and infuse newness into assortments more frequently. But not all newness is created equal. It isn't just about offering new products for the sake of newness. It's about leaning into the emerging trends in culturally relevant moments. When we do, this is when we see the strongest reaction from our guests. For the perfect example, look no further than our Stranger Things 5 assortment. We have the largest assortment of exclusive products in retail in the U.S. along with throwback marketing campaigns that transport guests back to the 1980s Nostalgia. Plus, we're dropping new items into the assortment every week to align with the new episode releases. This is yet another example of the incredible work we are doing to reimagine our hardlines assortment into FUN 101, a year-round celebration of culture, trend and style, served up in an only target way. And next year, we're planning to take these learnings and make bold investments to transform the in-store shopping experience and assortment. In fact, we already have plans to introduce more changes to our stores than we have in any year in the past decade. We will have far more details to share at our Financial Community Meeting this spring. With that, I'll turn the call over to Jim to walk through our third quarter financial results and updated expectations for the balance of the year. James Lee: Thanks, Rick. Our financial results in Q3 were in line with our expectations as our team continues to focus on what we can control and manage the business with discipline, despite continued softness on the top line, volatility in weekly and monthly trends, and uncertainty in the external environment. Third quarter net sales were 1.5% lower than a year ago, slightly better than our year-to-date performance, but about 60 basis points softer than in Q2. Category sales trends were relatively consistent between Q2 and Q3, with the exception of hardlines, where we saw continued growth but at a slower pace, following an outsized boost from the launch of the Nintendo Switch 2 in the second quarter. Across our selling channels, comp sales in our stores were down about 4%, while comparable digital sales grew 2.4% on top of nearly 11% a year ago. Within our first-party digital sales, we saw mid-single-digit growth in our same-day services, led by more than 35% growth in same-day delivery. Beyond our first-party digital platform, we saw a significant step up to nearly 50% growth in GMV of our Target Plus marketplace and mid-teens growth in Roundel ad sales, demonstrating the breadth and growing relevance of our digital ecosystem. Top line results during the quarter were quite volatile with net sales close to flat in August and October and down about 4% in September. This pattern reinforces many of the consumer themes we've been highlighting for some time. as guests shopped around back-to-school and back to college in August and around Halloween in October, but pulled back in September in between those key seasons. In addition, September apparel sales were hampered by unusually warm weather across the country while October benefited from the response to our most recent Target Circle week as consumers continue to focus on value. On the gross margin line, our Q3 rate of 28.2% was about 10 basis points lower than last year. Among the drivers, we saw about 1 percentage point of pressure in merchandising, reflecting the impact of higher markdowns. This pressure was offset by about 70 basis points of favorability from lower inventory shrink versus last year. In addition, we saw about 20 basis points of favorability from supply chain and digital fulfillment as the benefit of higher productivity and the lapping of last year's supply chain challenges was partially offset by the deleveraging impact of lower sales. Regarding our outlook for inventory shrink. Consistent with our prior commentary, we expect that shrink improvements will account for approximately 80 to 90 basis points of gross margin rate favorability for the full year. This would bring it fully back down to pre-pandemic levels, marking a dramatic turnaround over the last 2 years. One other note, our Q3 ending inventory was about 2% lower than a year ago. This is in line with recent trends in our Q4 sales outlook and reflects growth in our frequency businesses that was more than offset by lower levels in our discretionary businesses. Moving back to our third quarter P&L. Our SG&A expense rate of 21.9% was about 60 basis points higher than a year ago. However, this rate reflected about 60 basis points of impact from onetime business transformation costs. Excluding these costs, our third quarter SG&A expense rate was approximately flat to last year. On the bottom line, our business delivered third quarter GAAP EPS of $1.51 compared with $1.85 a year ago. Adjusted EPS, which excluded business transformation costs was $1.78 in the third quarter, about 4% lower than a year ago. While this is far short of where we aspire to be over time, it is solid profit performance in a quarter where our top line was down more than 1% and reflects stronger relative performance versus the first half of the year, consistent with our prior commentary. I'll turn now to capital deployment and reiterate our priorities, which we've consistently followed for decades. First, we look to fully invest in our business in projects that meet our strategic and financial criteria. Second, we look to support the dividend and build on our record of more than 50 years of consecutive annual increases. And finally, we look to deploy any excess cash beyond those first 2 uses to repurchase shares over time within the limits of our middle A credit ratings. Regarding our first priority, we've invested about $2.8 billion in capital expenditures so far this year and continue to expect full year CapEx of around $4 billion. Regarding the second priority, we paid $518 million in dividends in Q3, which was $2 million higher than last year as a 1.8% increase in the per share dividend was mostly offset by a lower average share count. Regarding the last priority, we deployed just over $150 million to repurchase our shares in the third quarter, following a pause in Q2. While we ended the quarter with a healthy cash position and expect to have continued capacity within the limits of our middle A ratings, we'll continue to exercise caution in our repurchase program in the face of continued uncertainty in the external environment. Now I want to turn to our outlook for the fourth quarter and the full year. While our Q3 results were consistent with our expectations, we've continued to see a high degree of volatility in our business. In addition, we're mindful of the challenges facing consumers as exemplified by recent declines in consumer confidence. As such, while our top line expectations for Q4 are in line with our prior guidance and recent performance, we've narrowed our full year EPS ranges and moved our adjusted EPS range to the bottom half of the prior range. With that as context, on the top line for the fourth quarter, we're continuing to expect a low single-digit decline in our comparable sales. in line with our year-to-date performance. On the adjusted EPS line, our updated range is from $7 to $8 for the full year. The expected range for GAAP EPS is about $0.70 higher than for adjusted EPS reflecting the benefit of the first quarter litigation settlement, partially offset by business transformation costs. Against the backdrop of a very difficult environment, I am proud of the team's hard work this year to navigate a very high level of complexity including their work to mitigate the impact of tariffs and navigate challenging consumer conditions. Over the past several months, we've also been hard at work to drive prioritization and outline key investments to return Target back to sustainable growth. Looking ahead to next year, we expect to ramp up our capital spending meaningfully in support of our store experience and remodel program, a step-up in technology and digital fulfillment capabilities and investment in new stores. Our current plan envisions 2026 CapEx dollars increasing by approximately 25% or $1 billion versus 2025. In addition, we are planning to leverage a continuous pipeline of productivity initiatives and approximately $180 million of expected annualized savings from our recent business transformation efforts to invest in key areas in support of our 3 strategic priorities. We will share more details on our plans for 2026 and beyond at our financial community meeting in March. While we know there's much more work to do, I'm confident that we are rapidly moving in the right direction and positioning our business to get back to sustainable, profitable growth in the years ahead. With that, I'll turn the call back over to Michael. Michael Fiddelke: Thanks, Jim. Before Rick, Jim and I take your questions, I want to emphasize some of what you've heard from us today and to underscore where we're headed as a team. There is no question that this is a period of transformation for Target. The environment around us continues to evolve, whether it's shifting consumer demand, changing competitor dynamics or broader macroeconomic pressures. But let me be clear, we are not waiting for conditions to improve. We are driving the change ourselves right now. We are taking bold decisive steps to reshape how we work and reignite growth with urgency, focus and confidence in who we are and who we can be. We know what makes Target special, an unmatched merchandising authority and the ability to create joy through an elevated and inspiring guest experience all enabled by the power of technology to amplify both speed and connection across every part of our business. These are more than ideas on a page. They are the pillars of our strategy, shaping every decision we make, and they are coming to life right now across the company. We're hard at work to simplify how we work to make faster, smarter decisions. We're laser-focused on strengthening our foundation in our supply chain, our stores, our digital experience and our technology capabilities. We're relentlessly striving toward greater authority in merchandising by combining data-driven insight with a design leadership and creative spark that makes target. And together, these actions are paving the way for what comes next, a return to sustainable profitable growth. While many out there have questions about where we'll go next, we are confident we're on the right path. That's because we're building from a strong foundation, a brand that guests love, a culture that's resilient and a team that's united behind a shared mission to help all families discover the joy of everyday life. As we look ahead, we're not just talking about getting back to growth. We're talking about building a stronger, more innovative target that's ready to lead in the next era of retail, one that moves faster, connects deeper and stands taller in the hearts and minds of our guests. And to our investors, partners and the financial community, thank you for your continued engagement. And if you're frustrated with our recent performance, we are too, and our entire team is working incredibly hard to return to growth and live up to our full potential. Finally, in the spirit of thinking and working differently, I'm excited to share that this year's financial community meeting will take place right here in Minneapolis on March 3. It will be a peak behind the curtain to help bring to life what we've talked about today in a more tangible way, providing a first-hand look at how we're evolving our assortment and technology, all in service of returning to growth. We look forward to seeing you all in Minneapolis this spring, and we'll be sending out more information very soon. And now we'll move to Q&A. Rick, Jim and I will be happy to take your questions. Question & Answer Session Operator: Our first question comes from Simeon Gutman with Morgan Stanley. Simeon Gutman: And Brian, best of luck. My question, Michael, for you, I think in 2016 or '17, there was a reset of margin during a prior investment phase that helped reposition Target for the next several years. At this stage, I guess can we rule that out, how have you thought about taking maybe a deeper investment in, I guess, margin in order to reinvest? Or should we now assume that -- this is the plan, it goes forward, and there doesn't need to be one? Michael Fiddelke: Yes. Thanks for the question, Simeon. We've got a pretty big Q4 holiday season that we'll get through before we unpack the specifics for next year. But what I can tell you is we're committed to making the right investments to get the outcomes we want when it comes to leading with merchandising authority and elevating the experience. We also have a lot from which to draw on there. The team is doing a wonderful job of finding efficiency within the business and changing some of how we work to reinvest. I mean, an example of that is some of what we found in elevating the store experience, we've taken a lot from our fulfillment market tests in Chicago. And as a reminder, that's about changing kind of how we organize stores against the work to be done. We found that making some stores round box shipping specialists because they've got the capacity, they've got the big back room. They might be a little lower volume in general, let them ship that brown box product so that we can free up our busiest in-stores our busiest in-store guest experiences to focus on serving that in-store guests. And so changes like that, we've seen good results in. We're rolling out some of the learnings from that test to 35 more markets here before the year is out. And that's the type of change we believe can fuel the step-up in experience that we want. And so we're excited about doing the work to get better outcomes when it comes to leading with merchandising authority and elevating the guest experience, and we feel like we're on the right path. The other thing I might add is you heard us describe our capital investments for next year. And that's putting capital to work and direct support to the priorities that we've laid out. And like we always have, we chase returns. And so the places where we're excited to step up investment are places where we expect really strong returns. That starts with investments in our stores, and those come in a couple of forms. You've heard us talk about the strength of our new store pipeline. That pipeline continues to be as strong as ever. It's been just a delight to watch the new store openings this year, especially those bigger boxes that continue to outperform our expectations. And there's nothing more fun than walking a brand newly opened store in a market that maybe didn't have a target or didn't have a target close to that neighborhood and to see the response in the community when we open a store. And that response is great on the faces and voices of those guests, and it's also great in terms of the incremental sales it provides and the high returns we see in those new stores. The second place where you'll see us continue to lean in is in store remodels and refreshing the existing fleet of stores. And while we've been talking about that for several years, we've been hard at work, as Brian even touched on in his opening remarks of remodeling the chain, that work isn't yet finished, and we want to make sure that we're investing in some of the stores that when we bring our latest and greatest store experience we see a reliable strong response from guests. We continue to see strong sales lifts that justify the investment in those remodels. And so for the stores that haven't yet seen a remodel, we think it's imperative that we bring our latest and greatest thinking. That's a direct investment in the store experience itself back to the strategy. And the merchandising authority because when we do a remodel, we reallocate the space up to our latest and greatest thinking by strategy, and that helps the merchandising drive some of that sales lift. And then importantly, technology will continue to be an area of focus for investment. We know the power of technology to help the humans and the humans that we focus on most there are obviously our guests and our team. And so wherever we can lean in and use technology. And again, it generates returns when we make things more delightful for our guests and the way technology can help with personalization on the app or help us get product to their doorstep faster and then for our team where we can allow the process-focused work of the team to get a boost from technology that frees up our store teams to better serve guests. And so there's a lot of examples within that CapEx investment. But at its core, or does it directly support the areas of focus within the strategy and do we like the returns. And then the answer to those 2 questions is yes, you're going to see us invest. Simeon Gutman: The quick follow-up, and you partially addressed it. I wanted to ask about the gaps and capabilities. You mentioned the different focus is merchandising experience. what are the most urgent gaps and capabilities? And then what are you most excited about, meaning things that can get addressed in the near term? Michael Fiddelke: And the things that I'm most excited about are some of the places where we're seeing momentum already. Take, for example, the work that we're doing in FUN 101. That's a perfect representation of us bringing real focused strategy to the categories that we used to call hard lines to say, what categories are what we do -- are the things that we do uniquely well, best positioned, how do we bring style and culture and design leadership to those categories. And so we've made more change in those categories. And we see response in those categories. It's good to see categories like toys is running an almost 10% increase in Q3. It's good to see the places where we've applied focus moving in the right direction. I think the same is true on experience. The work we're doing to create a consistently elevated experience, we like the trajectory there. That starts with the basic being in stock as part of a great guest experience, and we're seeing real meaningful progress from the team's incredible work to move the needle in the right direction there. And while on that front. We're not yet satisfied. We're not yet where we want to be. We like the direction of travel a lot. And so we'll continue to do the work and apply the focus to get improvement in the direction that we want there. Rick, I don't know if you want to add anything on the product side for some of the places where we've got changed and where we're seeing a strong guest response. Richard Gomez: Yes. I mean I can -- well, how about this. I'll talk a little bit about some of the capabilities that were the question addressed about which capabilities do we want to -- are a priority for us to evolve? And I want to highlight merchant -- roundtable evolution because it is so important to having those right products that are going to deliver the growth. And it is a cross-functional team that we've had in place. But if you think about the decisions that we made a couple of weeks ago to reduce the footprint in HQ, a big part of that was around simplifying the organization so we could make decisions faster. The next step in that is to outline how we're going to work differently, clarify roles written responsibilities, clarify decision-making. That's the work the team is doing now. And then what I'm really excited about is in adding in the automation and the technology so the team could spend less time doing the analysis and spend more time being creative coming up with those new ideas that are going to meet consumer needs and fuel growth like what we're doing in FUN 101. Michael Fiddelke: To build on Rich's last point there. I think the role that technology plays -- the technology will play is going to be incredibly important across the enterprise, but a huge shout out specifically to the pace at which Pratt and team are moving. I like the acceleration of the path forward in technology. I think you can see that in some of the AI examples that we shared today, but you can also see that in some of the core foundation base that we know we have work to do to make sure our teams have all the tools at their fingertips to build the right assortment, segment in that assortment, use technology more powerfully to automate how product moves through our supply chain. And so that continues to be a key area of focus for us. But the urgency with which we're moving that work along gives me a lot of confidence. Operator: Our next question comes from Corey Tarlowe Jefferies. . Corey Tarlowe: Great. And I wanted to ask on the level of investment that you're stepping up in the business in terms of the $5 billion for next year in CapEx. How do you think about the key levels or the key areas in which you will be investing? And then how do you think about whether or not that's the right level or if more may be needed to improve results to a greater magnitude across the business? Michael Fiddelke: Yes. Great question, Corey. And I think about it in 2 ways, and this is a conversation that Jim and I have regularly with input across the team, obviously. But it's 2 things. One is it starts with a focused strategy, investments needs to follow the path that we think drives the most growth for Target, and that starts with clarity on the strategy. And the second is we chase returns. And so the places where we're excited to step up investment are places where we expect really strong returns. That starts with investments in our stores, and those come in a couple of forms. You've heard us talk about the strength of our new store pipeline. That pipeline continues to be as strong as ever. It's been just a delight to watch the new store openings this year, especially those bigger boxes that continue to outperform our expectations. And there's nothing more fun than walking a brand newly opened store in a market that maybe didn't have a target or didn't have a target close to that neighborhood and to see the response in the community when we open a store. And that response is great on the faces and voices of those guests, and it's also great in terms of the incremental sales it provides and the high returns we see in those new stores. The second place where you'll see us continue to lean in is in store remodels and refreshing the existing fleet of stores. And while we've been talking about that for several years, we've been hard at work, as Brian even touched on in his opening remarks of remodeling the chain, that work isn't yet finished, and we want to make sure that we're investing in some of the stores that when we bring our latest and greatest store experience we see a reliable strong response from guests. We continue to see strong sales lifts that justify the investment in those remodels. And so for the stores that haven't yet seen a remodel, we think it's imperative that we bring our latest and greatest thinking. That's a direct investment in the store experience itself back to the strategy. And the merchandising authority because when we do a remodel, we reallocate the space up to our latest and greatest thinking by strategy, and that helps the merchandising drive some of that sales lift. And then importantly, technology will continue to be an area of focus for investment. We know the power of technology to help the humans and the humans that we focus on most there are obviously our guests and our team. And so wherever we can lean in and use technology. And again, it generates returns when we make things more delightful for our guests and the way technology can help with personalization on the app or help us get product to their doorstep faster and then for our team where we can allow the process-focused work of the team to get a boost from technology that frees up our store teams to better serve guests. And so there's a lot of examples within that CapEx investment. But at its core, or does it directly support the areas of focus within the strategy and do we like the returns. And then the answer to those 2 questions is yes, you're going to see us invest. Corey Tarlowe: Corey, if I can add just one more thing on top of that. When we add new stores, the added benefit for us is that we continue to build out our fulfillment footprint and capability and allows us to also expand our national digital reach as well, so that at a benefit of new stores. Corey Tarlowe: Great. And then I just have a quick follow-up to Michael. On your comments on change, I just wanted to double click on that, that word specifically, and the quotient and the multitude of change that you're thinking about making as we head into 2026 and the benefits that you're seeing from lowering prices on key frequency categories. And how you're thinking about the opportunity to cut further costs potentially because we did talk about investing in agility in terms of SG&A? So curious about how you think about the ability for the business to change today and how you're building for the future in that regard? Michael Fiddelke: And Corey, if I zoom out change is going to be incredibly important. And you've heard us say quite plainly, we're not satisfied with our performance over the last few years. While the third quarter came in as expected, you're not going to get a ton of satisfaction for us until that's accompanied by the growth that comes with a positive comp. And so we've got to do the work. There's no shortcut. And that means driving change to get different outcomes. We're starting all of that change with really clear priorities. We know how Target is best positioned to uniquely win. And when we lead with great product, when we're design-led and differentiated and we pair that with an excellent experience, that's what's driven Target's strength in the best of times before, and we think the modern version of that can get the growth outcomes that we want. And so that does mean doing the work. That means doing the work to make changes like we are in FUN 101 to get different outcomes on the merchandising side. That means making the right investments and driving the change so that, that experience can be great in every store, every day in stores and online, but we're doing the work and a huge credit to the team that you can see the progress of that work in ways that get us excited about what's to come even within those third quarter results because we can see where we've focused and made change. We're getting some of the outcomes that we want. And so next year, we'll be about expanding upon that to bring more of those wins across the business at greater scale. Operator: Our next question comes from Joe Feldman with Telsey Vicari Group. Joseph Feldman: I wanted to drill in a little bit more there on some of the changes. When you're talking about the in-store changes for next year. Are there any examples you can give us? I know you mentioned there are key pads within the store maybe. I'm assuming like the FUN 101, but broadening it out, maybe you could share a few examples. Michael Fiddelke: I'd be happy to share a few examples. Let me start with FUN 101 because we talk about it as a success story, and we are delivering growth, but it's just beginning. We still have more changes to make to FUN 101 to truly make that a family destination that's full of style, trend, design, pop culture. So you're going to see those changes come to life in '26. The other area that we're making some changes is in home. Home has been a challenged business for us. We are making changes to the product to elevate the style of the product but then we're also changing the store experience to facilitate more discovery to facilitate more inspiration and really stand tall for what will be a revamped a reinvented threshold brand. So those are some of the -- we're making changes. Obviously, our contract with Ulta Beauty ends August '26. So teams are working really hard and coming up with some great ideas for how we will expand our assortment and then how we'll also elevate the experience. We'll be able to share more specifics on that at the Financial Community Meeting. And we're making some changes in Baby. We think baby strategically is a really important category for us. We have historically done very well there. It's an acquisition kind of category, we bring people into Target and it starts kind of along several years of loyalty as their children grow up. But we have an opportunity to make that space a little bit more inviting, a little more inspiration and also bring more gifting into it. So those are just some headlines of what we're looking at. We'll be in a much better position at financial community meeting to share more specifics on those plans. But I got to tell you, I am really excited about these changes. And I think as we said in the prepared remarks, this is the most change we have made to the store floor pad in 10 years. So we're -- it's a lot of work, but we're really excited about it. Joseph Feldman: That's great. That was helpful. And then just a quick follow-up. With regard to the -- your Target Circle card, can you talk maybe about some opportunities there? It feels like it's been declining the penetration of Target Circle Card, I guess, has been declining a little bit. And I'm just curious as to if you have any reasons as to why that may be and what you can do to kind of recapture some of those customers, maybe where they've gone otherwise. Edward Decker: Sure. I'd be happy to talk about Target Circle. What we love about Target Circle is it's huge size. It's one of the biggest loyalty programs in the country. And now with Target Circle 360, we have a membership component to it. And what's really exciting about that is it's really helping to fuel our same-day delivery. Target Circle fueled a 35 comp growth in same-day delivery this past quarter, which is really encouraging. The conversations that we're having is now at, how do we continue to innovate and evolve on the platform. and things that we are looking at and trying or early access events with Target Circle 360. We did that this past October with Target Circle week, and it was really well received. So we'll be doing a lot more of that this holiday season. And the last point I would make is we're really excited to have the first-party data that we get through Target Circle and be able to leverage that for personalization, particularly through this holiday season. So that will be one of the tools in the toolbox that we'll be using. Michael Fiddelke: And Joe, if I can just build on the question also specifically on card. If you're referring to what you see in the results from profit sharing, we did see lower spend, a little bit lower penetration and overall lower balances in the card program. But what's important is what Rich has highlighted is that when you think about our whole loyalty program holistically across Circle 360 and the card program, and we're very pleased with the results we're seeing so far. Where we do have an opportunity, Joe, is to use where Rick started with that big base of target circle. It's a better on-ramp to folks for whom a circle card makes a lot of sense. And so that's a place where we haven't yet achieved our potential. And so making sure that we because we can know a guest and circle so well, that means we should be positioned to know which of them at the right point in time would most like a circle part too. And we've got work to do on that front. We haven't tapped into that to the degree that we would have hoped. And so you'll see that be an area of focus going forward for us. Operator: Our next question comes from Mike Baker with D.A. Davidson. Michael Baker: I think you said -- correct me if I'm wrong, but October flat, yet you're guiding to down low single digits to the fourth quarter. Is that indicative of a little bit of a slowdown post Halloween? And I guess, as a follow-up to that, a pretty wide range in terms of EPS for the fourth quarter. Can you talk about what you're expecting in terms of margins within that fourth quarter range and how you get to the low end versus the high end, et cetera? Michael Fiddelke: Yes. I'm happy to start, Mike, and Jim, feel free to add on. If you look at -- while the quarter came in where we expected it overall, we definitely did see volatility by month in Q3. And so that factors in to how we're thinking about our expectations, but we feel good that we've got the business positioned well heading into fourth quarter. We feel like our top line and bottom line guidance is prudent based on the volatility that we saw in Q3. And we start the quarter in a really good place, something we haven't unpacked as much yet. So I'll touch on it briefly is that inventory is in a great place as we step into the fourth quarter. on the balance sheet, it's down 2%. It's up in our frequency categories, which makes sense given the investments that we're making there and stronger inventory reliability and in-stocks and it's appropriately down, I think, in an appropriately cautious position in the discretionary categories. And so we start the quarter where we would want to be positioned from an inventory perspective, and we feel like it's the prudent place to be. Jim, feel free to add as we're thinking about profit for the fourth quarter or how we've reflected Q3 trends into that view. James Lee: Yes, Mike. And if I build up on that, I mean if you take a step back and look at Q3, obviously, we faced a pretty dynamic environment. And as our gross margins and percentage-wise was broadly flat, we're pleased with the performance, and that's in line with expectations and a big thank you to the team to manage and navigate and move quickly with agility to meet the needs of consumers and understand where things are heading. We expect that dynamic to continue in Q4. We do expect a continued volatile environment, which is why there's a little bit still, I guess, a wider range in place because we want to make sure we are -- we have the ability to react quickly to change this new environment that will represent the range that we're looking at. Michael Fiddelke: Only build I might have, and Rick, feel free to chime in here as -- we don't have a perfect crystal ball for exactly how it's going to play out by day or by week in Q4. But the thing we feel really good about is how we'll show up for the guests. You've -- we've touched a little bit on some of the questions on making sure that we meet the guests where they're at. And for us, that's always a couple of things because there's a couple of ingredients of how guests view value. It's the combination of great prices, and you heard us invest in 3,000 price cuts across Food & Beverage and Essentials we're really excited about a Thanksgiving meal for 4 under $20 as we step into Thanksgiving here right around the corner. And for Target, it's also pairing that great price with incredible product. And so I'm just as excited about the 20,000 new items that we'll have this coming fourth quarter, twice as many as last year as I am about the great pricing guests will find on those items. And so it's that combination for us that matters so much. And on that front, we feel really good about what guests are going to find as they travel the site and the store and the holiday season. Operator: Our next question comes from Kate McShane with Goldman Sachs. Katharine McShane: We wanted to drill down a little bit more on your commentary around inventory and in stocks. Is there any way you can kind of talk to how you feel about the inventory position going into holiday, how it looks versus last year? And just how you see the cadence of in-stocks improving over time. Michael Fiddelke: Yes, Kate, as I think about inventory broadly, we touched on a little bit of that, and Mike's question a second ago, but I do think it's important to spend a moment on in-stocks. And I would expect because being in stock matters so much to our guests, that's a topic you see us come back to over and over and over again in all of these earnings calls to come because it matters so much. If you've trusted us with a trip to the store, we can't let you down by being out of stock and we haven't been good enough over the last several years on that front. And so we're laser focused on improving that. And a huge credit to the team for the progress that we've seen so far. I can dimensionalize that just a little bit more here in a second. But I also want to emphasize that work is not done. The bar for the consumer for our guests is higher than ever before on that front. And so you're going to see us continue to lean in to make progress over time. Where we've started is with a really acute focus on those most frequently purchased items, where if we're out of stock, it hurts more, if you're a guess, and we've let you down. And so you heard in my remarks, the focus on our top items. So think of those as the 5,000 most frequently purchased items. They account for about 30% of our unit sales. And so a big piece of what guests are finding and buying every day at Target. And as the team has leaned in to make progress on that subset of items, it comes in a whole bunch of ways. It comes with embracing the use of technology to help us forecast better and being more in stock that way. It comes with us having a better view of how we're really performing. We've described it before. We've changed some of the measures we use for in-stocks that give us a clearer mirror than ever before where we're doing great and where we're falling down. And that's been really helpful because it's told us Okay, we might be okay on average in some places, but we're not good enough at the end of the day or we have a shortfall on weekends that we need to address. And so teams have been hard at work in moving the needle there. And on the measures that we move, you heard me describe a 150 basis point improvement in Q3. If you're not close to the work, it's maybe tough to appreciate how big that progress is. But what I like is that better year-over-year improvement in Q3, performance versus last year than we saw in Q2, which was better than we saw in Q1. And that trajectory gets me really excited that we're doing the right work to get a different outcome. And if we can keep that progress up and I have a ton of confidence that, that's exactly what we'll do. We'll be more and more in stock as we move through 2026 than we were in 2025. Operator: Our last question will come from Michael Lasser with UBS. Michael Lasser: You just outlined a lot of the progress that you're making on key operational metrics such as in-stocks and speed to market, yet we really haven't seen it trend ally to an overall improvement in the performance of the business. So the obvious question is, why not? And what -- as outsiders, is a reasonable time frame for holding the team accountable for showing that progress? Michael Fiddelke: Yes. Thanks for the question, Michael. Here's what I'd say. We're not satisfied with the top line performance of the business, even as it's come in as we expected in Q3. And so we're doing the work with urgency. As a team, our focus is to get back to growth. And we know that won't happen overnight, but we know what the path is. We're focused on making progress. We see momentum where we're making that investment a huge credit to the team to do the work that's going to get that outcome over time. And so we'll unpack more what our expectations for next year look like when we get to the financial community meeting in March. But I feel really good that we've got a team focused on doing the work now that will lead to growth over time. And rest assured, we are tackling that work with urgency. Michael Lasser: Okay. My follow-up question is -- if I could just add one more on... Joseph Feldman: Go ahead. Michael Lasser: Very much, Michael. I appreciate it. And I will add my best wishes to Brian. You've already outlined the $1 billion of incremental for next year, perhaps there might be some incremental operating investments that could take down the profitability a bit next year. How amongst those guardrails are you thinking about the commitment to the dividend and the importance of that to your certain shareholders moving forward? Michael Fiddelke: Well, and Jim, feel free to pile on to this one if you'd like. You've heard us describe our support and strong support over time of the dividend, Michael, you shouldn't expect anything to change there. We've been consistent in our capital priorities for as far back as I can remember in my 23 years here. And it starts with making the right investments in the business. The $5 billion we'll put to work next year. We're really excited. We'll generate the returns and the growth that warrant that level of investment. The dividend is always the second priority, and I think our track record speaks for itself in terms of our support of the dividend and share repurchases with what's left piece that we'll always adjust as appropriate, but the dividend sits second in that priority list for a reason. Thanks, Michael. That brings us to the end of today's call. Thanks, everyone, for your questions and engagement.
Operator: Good morning, and thank you for standing by. Currently, all of the participants are in listen only mode. After management's discussion, there will be a question and answer session. Please be advised that today's conference call is being recorded. I would now like to turn the conference over to Michael Poliview, Please go ahead. Michael Polyviou: Thank you, Ella, and welcome to IceCure Medical's conference call to review the financial results as of and for the 9 months ended September 30, 2025, and provide an update on recent operational highlights. You may refer to the earnings press release that we issued earlier this morning. Participating on today's call are IceCure Medical CEO at Eyal Shamir; and the company's CFO, Ronen Tsimerman. Before we begin, I will now take a moment to read a statement of our forward-looking statements. This call and the question-and-answer session that follows it contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Words such as expects, anticipates, intends, plans, believes, seeks, estimates and similar expressions or variations of so forth and intended to identify forward-looking statements. For example, we are using forward-looking statements in this presentation when we discuss but the FDA's marketing authorization process will drive meaningful growth for us and support broader access for patients. We believe the global interest following the FDA authorization will support international adoption the belief that ProSense will be the only [ cablation ] system cleared in the U.S. for blast cancer in the foreseeable future. The expectation that Terumo Corporation will submit regulatory applications for ProSense, in Japan in the first half the expectation that revenue and gross profits may continue to vary quarter-to-quarter as the company focused on building commercial scale sales and the belief that the company's cash, cash equivalents and short-term deposits, positions puts it in a stronger financial position to continue executing across regulatory, clinical and commercial initiatives. The forward-looking statements contained or implied during this call are subject to other risks and uncertainties, many of which are beyond the control of the company, including those set forth in the Risk Factors section of the company's annual report on Form 20-F for the year ended December 31, 2024, filed with the Securities and Exchange Commission on March 27, 2025, which is available on the SEC's website at www.sec.gov. The company disclaims any intention or obligation, except as required by law, to update or revise any forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and speaks only as of the live broadcast today, November 19, 2025. In addition, during the course of this call, was because certain metrics that are non-GAAP measures and refer you to affiliation tables and other information about these non-GAAP measures included in the earnings press release that we issued earlier this morning. I will now turn the call over to IceCure Medical's CEO, Eyal Shamir. Eyal, please go ahead. Eyal Shamir: Thanks, Michael, and hello, everyone, and thank you for joining us today to review our results for the first 9 months of 2025. During the third quarter, we remained focused and executed a growth multiplying front, including commercial operations, technology, intellectual property and regulatory matters. In October, we announced the most significant milestone in IceCure history, those for when the FDA granted marketing authorization for our [indiscernible] system to treat low-risk breast cancer. This authorization validates the clinical research we have invested in over many years and positions IQ at the forefront of minimally invasive breast cancer care. As a reminder, the authorization is for women aged 70 and older, with tumors up to 1.5 centimeters or receiving aggrevant endocrine therapy, including women who are not eligible for surgery. The indication cover a population of roughly 46,000 women in the U.S. over 70 years of age diagnosed each year. Lusan estimated 88,000 patients who are not candidates or willing to go through surgery and patients that can be treated for palliative purposes. By addressing the needs of patients, we cannot choose not to undergo surgery. Persons offer an important alternative to treat cancer that was not previously available to those patients. Additionally, 10% of women are diagnosed with benign restaurants annually and of this approximately 63,000 U.S. women operated to remove the benign breast tumors VI surgery treatment, which called lumpectomy. Collectively, this is a significant addressable market for process of roughly 200,000 patients annually, representing a significant opportunity ahead for IceCure. The response to the FDA decision has been extremely encouraging. We are seeing growing interest from the U.S. clinicians, including breast surgeons, interventional agents and breast geologists, many of whom are requesting demonstration and installation. Our U.S. commercial team is focused on expanding process installation, freezing volume and utilization. We believe IPO is the well positioned at this time for reasons including the fact that the FDA marketing authorization established that any other company wishing to file for a 510(k) marketing authorization for different cryoablation system to treat breast cancer will be required to submit 5 years of follow-up data, use a liquid nitrogen-based system and use probe [indiscernible] engage. To our knowledge, no other company is currently conducting a breast cryoablation study in the U.S. Given this significant barrier to entry, we believe ProSense will be the only cryoablation cleared in the U.S. for breast cancer in the possible future. In the U.S., we have other 20 commercial sites using ProSense prior to the FDA marketing authorization. We expect the number of commercial site will increase organically in addition to the 30 clinical site plan for our upcoming post-market study. We have submitted the study design to the FDA for review and will provide an update when we receive the FDA approvals to move forward with the post-market study. As a reminder, the FDA approval to move -- sorry, as a reminder, the clinical site while treating study patients with the benefit of reimbursement will also be available for any appropriate patients sticking ProSense [indiscernible] commercially. We expect this rollout to drive meaningful growth in both clinical use and product adoption. ProSense currently benefits from a CPT 3 code covering approximately 3,800 [indiscernible] costs. This is expected to increase to just over $4,000 in early January 2026. This improvement, combined with the FDA authorization should support broader access for patients. Beyond the U.S., we are experiencing a high level of global interest from clinicians in response to the FDA decision in markets where ProSense is already approved for breast cancer. Just a few days ago, we added Switzerland to our growing list of countries in which ProSense has been approved. As our office in Israel, we are currently hosting a visit from a distinguished Brazilian medical delegation their visit encompass a clinical overview and a roundtable discussion featuring meeting with the key opinion leaders and presentations regarding ongoing clinical trial for breast [indiscernible]. The delegation, which includes 5 interventional [indiscernible] and breast [indiscernible] also observe live clinical cases in [indiscernible] and Bellingan medical centers in Israel. In Brazil, the largest health care market in Sout America, Rosen is approved for breast cancer as well as other indications. And we have a distribution agreement with EUR 6.6 million expected over the next 5 years. Furthermore, our global marketing and clinical team have been approached by numbers medical societies to ensure our participation is in upcoming conferences in 2026. European and Asian medical societies are specifically adding breast cancer cryoablation master classes with ProSense. On the innovation front, we continue to make strong progress. In September 2025, our net generation probation system received regulatory approval in Israel for breast cancer and other indications. We recently secured a notice of patent allowance for Accent and its [indiscernible] product in the U.S. and in Japan, further strengthen the intellectual property portfolio. ProSense continue to gain significant visibility and at leading medical conferences around the world. Since the beginning of the third quarter, it was featured at [indiscernible] 2025 the Japanese Breast Cancer Society Conference, the European Society of Breast Imaging Congress and the aptitude restake the lead in the breast cancer care full summit in New Orleans. In addition, we have partnered with Karig Hospital in Florence, Italy, and conducted a 2-day course of theoretical and hands-on training for physicians from across the globe, helping to broaden adoption and expertise for breast cancer carioablation. Finally, an ongoing clinical validation continues to reinforce the safety and the effectiveness of our technology. During and following the end of the third quarter alone 13 independent study in breast cancer world presented and published as well as encouraging data in lung cancer and endometriosis, further demonstrating the growth activity and clinical value of ProSense. In addition to the recent improvement in Switzerland, we are also advancing our global regulatory strategy with our partner in Japan, Terumo Corporation plans to submit a regulatory application for the ProSense in the treatment of breast cancer in the first half of 2026, marking an important step expanding access to ProSense in new international markets. In summary, we believe ITO is entering an exciting growth phase. We are implementing our sales and marketing strategy in the U.S. to target a patient population of about 200,000 women annually to drive and accelerate growth, we will continue to expand clinical evidence, improve reinvestments and enter new markets. We are confident in the path ahead for both patients and shareholders. I will now turn the call over to Ronen. Ronen Tsimerman: Thank you, Eyal. For the 9 months ended September 30, 2025, revenue was $2.1 million compared to $2.4 million for the same period in 2024. Revenue for the first 9 months of 2024 included $100,000 from our exclusive distribution agreement and other services with Terumo, our distributor in Japan while [indiscernible] revenue was booked during the first 9 months of 2025. We had $316,000 decrease in sales during the 9 months ended September 30, 2025 due to a decrease in sales in Japan, other territories in Asia and North America. Partially offset by an increase in sales in Latin America. As we have said in the past, we expect fluctuations in quarterly revenue as commercial activities ramp in the U.S. and globally following the FDA's marketing clearance for process in low-risk breast cancer. Gross profit for the 9 months ended September 30, 2025, was $626,000 compared to $134,000 in the prior year period. This resulted in a gross margin of 30% versus 43% in the same period in 2024. As we previously communicated, we expect gross profit may continue to rise quarter-to-quarter and the company focuses on building commercial scale sales. Overall, total operating expenses decreased to $11.5 million for the 9 months ended September 30, 2025 compared to $12.2 million a year ago. This reflects our efforts to optimize spending without sacrificing commercial or regulatory execution. Net loss for the 9 months ended September 30, 2025, was $10.8 million or $0.18 per share, relatively the same as net loss of $10 million or $0.22 for the same period last year. As of September 30, 2025, we had $10 million in cash, cash equivalents and short-term deposits compared to $7.6 million as of December 31, 2024. In July 2025, we completed a rights offering, which was approximately 2x oversubscribed, raising $10 million in gross proceeds to support commercialization of Process Systems. During the first 10 months of 2025, we raised approximately $5.87 million in net proceeds from the sales of 5.4 million ordinary share through a market offering facility, bringing our cash balance as of October 31, 2025, to $11.8 million. We believe this puts us in a stronger financial position to continue executing across our regulatory clinical and commercial initiatives. Operator, we will now open the call for Q&A. Operator: [Operator Instructions] The first question is from Anthony Vendetti of Maxim. Anthony Vendetti: Ronen. I just want to just find out where it's at with the FDA for approval of the post-market study, I know you're awaiting that final approval -- has there been any communication with them? Or you're just kind of in a wait-and-see mode? Ronen Tsimerman: As I described in my part, we submitted the protocol to the FDA, and we started interactive communication with them in order to finalize it. But the official protocol with all other elements already submitted to the FDA. Anthony Vendetti: Okay. So there's -- they haven't indicated or there's not necessarily an expected time line of when they'll officially sign off on it. But you've identified 30 sites and well, there's 30 sites that you need I believe in the last quarter, you said 20 have been identified. Can you give us an update on those numbers, please? Ronen Tsimerman: Yes, we have about 20 sites that identified, we are adding more of that, but it's mainly around the clinical protocol, the statistical analysis plan and the claim database. So we are working on all elements. And I believe that more or less by the end of the year, maybe the shutdown delay a bit but by the end of the year, very early next year, we will get the final approval. And then by summer '26, we will need to -- or maybe before, but not later than summer '26, we need to recruit the first patient, 20% to reach 80 patients by end of 2026. Anthony Vendetti: That certainly seems like a very easy hurdle. In this press release, you mentioned that there might be even more patients that could benefit from cryoablation because the ones that are low risk over 70. I think was -- we originally -- I think it was originally identified as around 46,000. But in this press release, you said there's 88,000 additional patients that could benefit as well as another 63,000 that could be treated for benign tumors as well. Is that new information? And maybe just elaborate on that, please. Ronen Tsimerman: Yes. So part, Anthony, if you remember, part of our grand letter authorization letter that we got from the FDA contain like 2 parts. One of them is a low-risk early stage for patients who are 70 and older up to 1.5 centimeter. This, as you mentioned, represent about 46,000 new patients every year in the U.S. And the second part, which is due also to the breakthrough device designation that I still got in 2021 is patients who are not eligible for surgery. It could be patients with comorbidities that they cannot take them to the overall and put them under general patients who are not willing to do surgeries, patients that maybe even they are in stage that it's less cable, but more as the palliation treatment, according all the evidence from sales and other evidence, we believe that the number is the 88,000 new patients every year in the U.S. for those who are surgical or not willing to do. And the benign breast tumors that now our new users that the most drive is, of course, breast cancer. But those hospitals clinic, breast surgeons and breasts seeing also younger patients, again, 1 million new patients every year, mainly from the age of 21 to 35, suffering from benign tumors and about 63,000 of them are surgically removed So we believe that part of this addressable market could be replaced by cryoablation as the minimally invasive because those younger patients both the image bikini line is extremely important for them from the outpatient facility fee. It's the same coverage, which in January will be about $4,000 -- and for that, we have a specific indication and also a specific even CPT1 code for benign breast tumors. So all of that giving us a potential addressable market of over 200,000 new patients every year just in the U.S. Operator: [Operator Instructions] There are no further questions at this time. I will turn the call over to Eyal Shamir for concluding remarks. Eyal Shamir: Thank you for joining our call today and for the great questions. We believe the FDA marketing authorization has dramatically changed our growth trajectory. We look forward to keeping you all updated as we continue to execute on our commercial rollout of poses in the U.S. and globally. As a great day, everyone and for those in the U.S. Have a happy Thanksgiving. Thank you. Operator: This concludes the IceCure Third Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Stuart Green: Hello, and welcome to ZOO Digital's Interim Results Presentation for FY '26. So whilst you're all reading this disclaimer, let me just say that if you are watching this presentation live, then we will have time at the end for a Q&A session. We'll aim for about 30 minutes presentation, and we'll have up to 30 minutes of Q&A. [Operator Instructions] So just quick introductions for those who haven't met me before, I'm Stuart Green, I'm the CEO. I was formerly the CTO and took the current role in 2006. I am a large shareholder in the business, having invested my own capital over the course of several years. Rob? Robert Pursell: Hi everyone. My name is Rob Pursell. I'm the CFO. I actually only joined in August 2025. So slightly less tenured than Stuart. I spent 15 years operating as a CFO in technology businesses. and I've worked in a combination of both private and public companies. Stuart Green: So a quick recap for those new to the story. What we do is provide both technical and creative services to -- mainly to streaming -- video streaming companies and content producers to take their content and make it available for global audiences. And on this slide, you see some of the streaming platforms that we target in terms of where the output of our work goes. We are tech-enabled, and that's the key thing that sets us apart. So all of what we do for our customers, we do through technology that we've created that makes us very efficient and very scalable. We are what's referred to in our industry as an end-to-end vendor. So as I say, there are some technical things and some creative things. We can do everything that's needed to get original content and make it available on streaming services in any languages that our customers may require. Our previous financial year ending March '25 was characterized by being a period of transition for many of our customers who have gone through strategic reviews and have realigned their businesses. And in the course of that period and until recently, we have gone through a process of restructuring our cost base to ensure that we can deliver profits and generate cash in our business. So after a period that's been somewhat subdued over the last couple of years, we're now seeing signs that our customers are coming back and are ready to start ramping up again. And there are early signs, but we feel that there are kind of green shoots there. And we are in a very good position, we believe, to be able to capitalize on that and to grow the business going forward. So what we do then just to elaborate on this a little bit, is that we -- our work begins usually when a new program, say, a TV series or a new feature film has been completed, and it's made by a production company, and our work ends when we submit the final deliverables into one or more streaming services. So what's sandwiched in the middle there, which is the scope of what we do is divided between 2 areas. We refer to them as localization services, which are predominantly creative processes to adapt things for different languages and cultures. And in the other area, Media Services are mostly technical things that we do to make sure that, that content will play properly on whichever target platform or platforms is targeted for. And as I said, we're an end-to-end vendor so we can take care of everything that's needed in that process. And those -- and that -- those 2 headings that I gave you there are really categories of a whole range of different things. And on this slide, you see the variety of different individual services that we actually deliver to our customers. So this is a complex area. These are very specialized things. We're at this position, able to do all this because we've made investment over many years. We've developed technology -- bespoke technology that helps us to do this in a very efficient and scalable way. What our customers need from us and indeed other vendors that we compete with are set out on the slide. The first 2 of these are absolute necessities. So firstly, vendors who service these big buyers to work on this very high quality and expensive content, must, in the first instance, do an incredibly good job. So they must deliver to a quality into standards that are very high in exacting. And in this regard, ZOO performs exceptionally well, and I'll elaborate on that a little bit in just a second. We receive awards. So on the top there, you see an award that we received from Netflix for being their best performing partner in the Americas in 2024. Secondly, you have to be able to do that to incredibly high standard of security to ensure that there's no chance of the content that you're working on behalf of customers leaking and going into the wrong hands. And here again, we perform at a high standard. We are classified as a gold standard under the trusted partner network, which essentially is a framework for assessing the security undertakings that a particular vendor observes. So those are the 2 kind of stats, and we perform very well on both accounts. And it takes a while to demonstrate to customers that you have that capability. So this is not something that happens overnight. It happens over a period of years, which means that the barriers to entry for new entrants are very high. The next 3 items on this list are what we see as being the emerging requirements and in some cases, the change requirements that we're seeing customers now have as they have come out the other side of this period of this fallow period as it were, look -- and as they look to the future and the kind of partners that they want to work with. So the first thing is that increasingly they're looking for partners who are technologically advanced, are progressive in the use of tech. And in this regard, ZOO as a tech-enabled business, is very well positioned. So the fact that we are embracing AI, for example, in our workflow is something that is seeing very favorably by our customers. Next, as I mentioned, we are an end-to-end vendor. That means we can do everything. And that is increasingly sought after by customers who want to simplify the supply chain. So when in the past they may have had many vendors to cover these services, what they now want is very few vendors, but each of which has to be able to do everything. So the fact that we are an end-to-end vendor and there are very few of those in the market, again, positions ZOO very well. And then finally, our customers want things faster. They want us and other vendors to be able to turn around projects much more quickly because that's dead time for them. Once they finish title, ideally, they just like to get it up on the platform. But the work that we do stands in the way of that happening. So the quicker that, that can be done, the better for them. And this is an area where we excel, particularly through some recent innovations that we call Fast Track, which we'll elaborate on more in just a moment. So by all of these requirements, ZOO is incredibly well positioned, we believe, in the market. I mentioned that the quality is a key absolute requirement. And something we've done this -- in this set of results for the first time, and we'll do it in each half results going forward is that we are publishing a quality metric. This is not a measure that we've taken ourselves. It's actually based on measures that are supplied to us by a subset of our customers. So some but not all of our customers report to us either every month or every quarter, their own measures of the quality of the work that we've done. And we basically combine those to arrive at a weighted score. And as you can see in the half, we achieved 99.9%. So that's based on measures that are accounted for by customers who together were responsible for 58.2% of our revenue in that period. So the remaining amount of that is -- was basically what we did for customers who don't give us these -- don't have such rigorous programs to measure this performance. So the takeaway here is that hopefully, this gives you the evidence on the reinsurance that we are performing at a very high standard. And we believe that these scores put us at the very top of the league table in terms of vendors who deliver these services in the industry. But more importantly, as we'll come on in a moment to talk about the cost reductions we've implemented in the business, what was absolutely critical to us as we went through that exercise was not compromising on those top 2 essential requirements that I covered previously. And as you can see, with scores of 99.9%, we certainly achieved that. So with that, I hand over to Rob to cover off the results. Robert Pursell: Fantastic. Okay. Thank you, Stuart. So hopefully, you had a time to look at the statement we put out today and this presentation is online as well. But what we're trying to do here is really pull out some of the key messages in terms of what we've done and what we've delivered in H1 this year. And I think there's 2 things really. One is that we feel that we've shown that the business has now stabilized. So anyone who's followed the company for a while would have known that the results have been quite volatile over the last few years, and we can really see that's stabilizing. And probably the key message from this half is that we've now finished this cost rationalization program. And again, this is something we've been talking about over the last few releases. And there were 2 things we had to achieve with that. One, we had to really show the improvement in profitability, start to be able to generate some cash within the business after the previous years. But also, as Stuart said, we had to do that in a way that didn't impact on our quality, on our innovation and on all those attributes that our customers absolutely demand from us. And we feel we've done that now. So we feel that we can show higher margins, and we feel that we've done that in a way that isn't impacting on our ability to grow in the future. So getting down into some of the numbers. So firstly, in the half, revenues decreased by 19% to $22.4 million. Now we expected this. And the reason for this was that in H1 FY '25, we had a lot of backlog work coming through from the writers and actors strike that happened in Hollywood in FY '24. So we had a very, very poor year in FY '24 and then that came through -- some of that work came back in the first half of FY '25. As I said, that as expected. There's no surprises there for us. But what's important to note is that from the end of H1 FY '25, so for the last 4 quarters, revenues have been stable at around $11 million a quarter or $22 million a half. So that's 12 months of stability that we've had. Now during that time, we've been completing this cost rationalization program. And what you can see here is that one of the most immediate impacts of that is that our gross profit remained at just over $10 million for the half. So that's the same level as it was last year, but on $5 million less revenue, showing the impact of what was achieved. Gross profit was in line with last year. EBITDA actually increased from $1.7 million to $2 million. So we made a higher measure of EBITDA, again on lower revenues. And I'll come on and talk a little bit more about those cost savings. So I think financially, you can see here that we've really made that difference. We said we were going to have to do a lot with the business, and that's what we've done. I've introduced a new KPI measure, we call this cash EBITDA. Okay. So EBITDA is a commonly used name. We use it to measure profitability. There are some accounting things and now there are some costs that end up being capitalized, that end up being excluded from a normal measure of EBITDA. Now for us, there are 2 key costs. One is the payroll, the pay that we pay our developers to develop our technology and our software. That gets capitalized. So it isn't included in EBITDA. And the second is property cost, property leases because of some new accounting standards that gets capitalized as well. Now for me, looking at this, we're going to carry on paying our development team, we're going to carry on paying our property costs. So these are costs that have to be funded and monthly cost in the business that have to be funded. So what I've done is I've added those back into and I've effectively lowered that EBITDA measure to account for those. And what I feel that cash EBITDA is doing for us now is really showing our ability to turn the revenue into cash. So it's in a way, it's like a cash profit. It's the cleanest thing cash profit that we've got. And the reason I wanted to show that is to show that in the half, we actually generated $0.6 million. So the underlying business model is now starting to generate cash. I put some comparators there. So you can see in H1 last year, we made a small loss of $0.1 million. But actually in H2 of last year, so the half just before the one that we're reporting, we actually made a cash EBITDA loss of $2 million, okay? And so that was on the $22 million of revenues, so the same amount of revenue as we've done this half. but a $2 million loss compared to a $600,000 profit. So I think that's a really important measure for us to keep an eye on because we need to start generating cash as a business, but it really does show us again the impact financially of this cost program that we've been doing. Operating loss, again, with that this has improved. It was a loss of $2.5 million, that's down to $1.2 million for H1, and it was actually slightly positive in Q2. So again, that improving trend is we've seen within the half from Q1 to Q2. And in terms of our cash balance, so we've ended the year with $3.3 million in -- so we ended the half with $3.3 million in the bank. It was $4.3 million this time last year, but it was $2.7 million at the end of last financial year, which was the most recently reported number. So financially, I think we've really achieved everything we set out to do with the cost rationalization program. But there are 2 parts of that. From a finance point of view, great, we're starting to generate some cash, we're seeing improvements in profitability. But we have to be doing this in a way that in no way prevents our ability to grow. And there are 2 things that drive that for ZOO. One is the quality of the work that we do, but the second is the innovation and how we are really the leading tech-enabled provider in this space. Stuart will come and talk about these a little bit more coming on. But certainly, we've already shown you the quality metrics. So there can be no doubt that we are still operating at an incredibly high level of quality in the work that we do. And we've mentioned Fast Track. So we are doing something that we believe nobody else in the industry is actually doing at the moment, and that is being able to do dubbing in 24 hours and complete subtitling in around 3 hours. Now to give you an indication, dubbing normally probably take 3 to 4 weeks, subtitling 1 to 2 weeks. So it's a real reduction in the time that it takes to do that. And that's using our technology. And we've also started to integrate AI into a number of our workflows. Now we have to do this with our customers. So within our industry, there is a lot of caution around the use of AI. But we're starting to work with them and show them the efficiency, show them what it could do and with their approval, allow us to start to use AI within their workflows. And then the final thing as well, amongst all these cost savings, this rationalization, we've gone and invested in international operations in Germany, in Korea, in India and some other locations as well. And now we've been able to get all of those people working on our platforms within our -- to the same level of quality that we would be expected to do. And that's allowed us really to help manage costs and to be more flexible. And we're going to carry on doing that. But I think the point here is that not only have we made a significant difference to the financials within the business. But operationally, we haven't taken a pause at all. We are still doing the things that made so special prior to taking out those costs. And it's a combination of those 2 that I think is the real success for this half. So a little bit of a summary in terms of the numbers, and I'll try not to get into too much detail here. But what I wanted to do is you can see in the statement the comparative, so H1 '26 versus last year's H1 '25. But as I said, that benefited from quite a considerable backlog coming in from FY '24. So what we have done is, I've shown you there the results for FY '25 H2. So the half just before the one that we're reporting. I think that's important because you can actually see that, that there's revenue of $22 million, and yes, that's increased slightly to $22.4 million in this half. But if we would say drop down, you can then see, well, on a similar amount of revenue, we've gone from an operating loss of $4 million, an EBITDA loss of $0.5 million all the way to this current half of a reduced operating loss of $1.2 million, but that adjusted EBITDA of $2 million. And like I said, even the cash EBITDA is positive. So that really, I think, shows the impact of that change and to put it into another way. If I look at the fixed cost of the business, so people, property, IT costs, we've actually reduced those by 1/3. So that's quite a substantial change for a business to go through. So that's been completed. Now to maybe mention a little bit about the revenue, you can see that there is a small growth there from $22 million up to $22.4 million from H2 to H1. And dubbing, which is part of our localization is still in decline at the moment. So that declined by $2.7 million. So excluding dubbing, all our other revenue streams from Media Services to Subtitling actually grew by 19%. So we've already started to see the growth coming back in those areas. And we do expect dubbing to come back as well. It just takes a little longer as it's more dependent on original content. That's the content that's most likely to be dubbed, but it's just taking a little while for the industry to recover with that. So hopefully, that gives you a little bit more context in terms of those numbers. And then if we come and look at even more detail, what you can see here is we split our business really into 3 revenue streams. So Localization, which is the dubbing and subtitling; Media Services, which is more of a technical service, reformatting or getting the correct formats for the content so then be distributed onto the platforms. We have a legacy piece of licensing that is still in place, and that's what comes under Software Solutions. And so there's a lot of information there to look at. I think if I could just take you right down to the bottom of those tables and look at that total number there. What this is showing is that our gross profit, the percentage of profit we're making on those revenues is up now at 45%. And previously, that was at 37%. And 45% is -- I went back as far as 2018, and that is higher than we've had really achieved before. The next highest I could find was 38% in FY '23. So when we talk about the way in which we've shaped the business, we've really been able to improve the amount of profit that we can make of the revenues. And you can see that particularly in Media Services, where we've really been leveraging those investments that we've made in India and really being able to drive up the percentage of that. So that gives you a little bit more idea about what's going on within the revenues. And let's come to the balance sheet now. I'm not going to talk too much about this other than really to maybe sort of refer you to sort of the current liabilities line. And in previous meetings, there was concern about were our liabilities too high. We've obviously gone through a period of cash going out of the business and the inevitable pressure that, that put on creditors. And along with completing that cost program, along with still delivering the same level of quality and innovation, we've actually been able to significantly reduce the amount of liabilities within the business and on the balance sheet. So that's really helping just give us a bit of breathing room on the balance sheet and normalize that position a little bit. Then the final statement really to talk about is our cash flow. You can see, as you go down there, that we've generated cash from operations and just to pickup that number, that's $488,000 of cash that has been generated from the work that we've done. But if you look there, you can see that included a $5.3 million payment reduction in payables, which again is just reaffirming the idea that we're really sort of helping improve our liquidity in that situation. And that was partly done by the cost savings ensuring that, that cash EBITDA that we're generating cash at that level, but also we were able to improve the speed in which we're doing some invoicing and therefore, reduce the amount of receivables by being paid a little bit earlier as well. So that gave us positive cash flow operations, and you can see that, that flow through right down to the bottom to an increase of -- in cash from the end of the year of just under $700,000. Final point for me, so. So in terms of how we manage the liquidity in the business, how do we cope with growth, if we needed to -- we have more business coming through and the pressures of that, that can put on us and where we have 3 main facilities. We have a financing facility of $3 million in the U.S. from HSBC. We have GBP 2 million within -- in Europe. And what this allows us to do is to when we issue an invoice, we don't have to wait for the 30 or 45 days for it to be paid. HSBC will effectively pay us a little bit in advance amount. And at the end of the period, we drawn down $1.7 million out of that, around $6 million in total. But we still have $3.3 million in the banks. We still had enough money in the bank to cover what have been drawn down. But it's just helping us manage working capital a little bit better. And also what you could see, if you look at our balance sheet, you can see that we're kind of neutral in terms of our net current asset position and that was a slight deficit. It was in that liability at the end of the year. So I think the key message really is that we've completed the cost rationalization program. It has had the impact that we said it would do on our finances. We've done into a way that it's still allowing us to deliver the same level of work with the same level of quality, is not restricting the opportunities that we're seeing ahead of us, and it's leaving us absolutely on target to meet market expectations. Stuart Green: Thank you, Rob. So I'll just say a few words about the market and the trends that we're seeing there and those that -- in particular, that are pertinent to the ZOO business. So the first thing is that there are various commentators who look at how much is being spent globally on producing new entertainment content. And they all point to that some spend increasing over time. So all commentators think there's going to be more spend on content and our assumption is that more spend means more content is being made and more content is obviously good for us because in normal times, most of the work we do is related to new original content that's produced. Just a couple of data points very recently to speak to that point. In a recent announcement, Paramount, which, as you may know, was -- has gone through a transaction with Skydance Media. And the new CEO of Paramount has said that they're going to be spending an additional $1.5 billion a year on their content budgets. And also Disney, who last week put out a quarterly earnings indicated that they would be spending an extra $1 billion a year on producing original content. So obviously, those are 2 anecdotal things, but overall, the sense that we have here is that spend on original content is continuing. That's obviously a good thing for us. That doesn't -- that's really a proxy. Looking at that as a kind of proxy for the opportunity for ZOO because obviously, we're not tapping into content production budgets. We're tapping into those budgets are being spent on localizing that content. But what we know there from research by Slater, which is a market commentator in the localization field, is that the services market for media localization is worth around $3 billion a year. And our estimates are that about half of that spend is with the major global media companies that we target. So we think that the addressable market for ZOO in media localization is roundly $1.5 billion a year. And that excludes any spend on media services, where we don't have any market commentators giving us steer on that. So that tells you the ZOO's opportunity in terms of an addressable market is at least $1.5 billion. The other things that we are, I guess, to be mindful of is that localization remains and will we believe continue to remain a key strategy on the part of our customers in maximizing the return on the investments they're making in the original content. So that's to say they're choosing to make content that they believe will be appealing to audiences in different countries. And that, of course, then necessitates that, that content is localized. We're seeing more interest by streamers in commissioning content, which is delivered live or near live. So things like sports, another time-sensitive content such as chat shows, talk shows, current affairs programs, those kinds of things. Obviously, this is an area where we can excel and as I said, I'll talk a little bit more about that in a bit more detail in just a second. In the period, we've also seen our customers actually looking to license more third-party content. And this is at a time when their output, their current output of original content is actually lower than it would be normally as a consequence of their changes in content strategy. Something that we believe will sort of ride itself probably over the course of the next calendar year. Our customers all want things faster. So there's a real push to -- for faster turnaround and they're all increasingly looking to work with end-to-end vendors. So that's to say, suppliers like ZOO, of which there are a few who can actually do all of these things for them. These things we're getting a feel for as a result of the fact that we've -- there have been more RFPs issued that we've participated in, of course, the last few months than we've seen in several years. So this is buyers getting to the point where they're now ready to look ahead and think about who they want to partner with for these services. And again, we think that this is an indication of the market starting to move again and is giving us a feel for the kind of partners that they want to work with. And those trends are all favorable for ZOO. So these all play to ZOO's strengths. Obviously, AI is something words on everyone's lips. What I say about this is that actually, we published a white paper very recently. You can find it on the website, and we also delivered a webinar to talk about it, and you can watch that too in our Investor Relations section of the website. In a nutshell, we are using AI in certain areas. It is delivering benefits to ZOO and that it's reducing the time it takes us to do the work we do, and it also reduces our cost to fulfill that work. And of course, customers are also looking for benefits and the benefits they're looking for are the same as the ones that we're looking for, namely, they would like us to be able to deliver results faster. And also, obviously, they'd be very happy to take some savings of costs. So what we're doing is share the moment -- is with those customers who we're choosing to use AI or choosing for -- or permitting us, if you like, to use AI, we are sharing the cost with them. So our costs are coming down. We're charging a lower -- a slightly lower fee. But these are -- this is -- we're talking 10%, 20% difference in pricing. We're not talking a dramatic reduction in costs. And the reason for that is that to do localization in particular to the standard that is required by our customers, it is absolutely crucial that it has human oversight to be sure that all that context or those subtleties, nuances in the source programming is not lost and is correctly preserved authentically in the adaptations to the different languages. To do that, you need people. You can use -- and then we are indeed using AI to help us in that process to make it more efficient. But this isn't a -- this is like a 90% reduction in costs and time. Those kinds of levels of reduction are possible in media localization, but only if you're prepared to tolerate lower quality. And there are some segments of the market where we don't participate where that is the case. So if you think of user-generated content, such as the kind of programming you see on YouTube or TikTok, for example, these AI systems are being used quite successfully there. But that's not our market. Our market is the high end producers and distributors of this content who demand the highest quality. And therefore, our adoption of AI is designed to be consistent with the outputs that our customers want. Just one last thing to say about AI is it provides opportunity to trim costs in certain areas, we expect that, that will result in greater market demand. There is always that opportunity that if you can reduce the cost of something, you will be able to sell more of it. And we think that, that is true here, too. We provided this little diagram to give you a feel for where we are already using AI and where we're planning to use it in the future. So AIA in this diagram refers to Artificial AI Assistance. So it's where we are using AI not to displace a traditional process, but to augment it, to assist experts to do their job, but to do it more quickly, more efficiently potentially to a better standard. So we're already using it right across -- all across, pretty much all our customers for transcription. And for some customers who have given their explicit consent, we are also using it for translation as a way to produce a first pass that will then be further worked on by human specialist immediate localization. So the blue boxes show you where we're currently using AI. The orange boxes tell you the areas that we're very actively developing and expect to deploy new capabilities in the near to midterm. The red boxes are things where we are mostly already working, but the realization of those benefits is going to come a little bit further downstream. So right across our operations, looking at deploying AI as a way to assist existing processes. And even in translation, transcription, we're not done there. This is such a fast pace, quick moving field that we have it to continue to keep track of new developments in third-party systems to make sure we're using the best of breed. So our approach is to use best-of-breed technologies where they make sense in our workflows to deliver services for our customers. So I'll just talk about we have 5 pillars of our strategic plan that we talk about every time. These are the 5 very briefly, just in terms of the progress we've made in each area. In innovation, we have been, as I said, working on AI pretty extensively, and we've also developed a new proposition called Fast Track, which I will tell you about in the next slide. For scalability, we have really pressed ahead with our follow the sun strategy. So this is a strategy that we use to move projects in the course of 24 hours from one of our facilities to the next in a very efficient, streamlined way that effectively gives us 24/7 service capability without having to pay over time to shift work in each location. On collaboration, we are working with third parties. These are just 3 of the partners we work with on technologies for AI. AWS, which you may think of as a service for providing cloud-based compute and storage services. They actually also provide a range of other services, including for AI and where they make sense in our business, we use those. On customers, we are working very closely with our customers in a number of different areas and as I mentioned, have been recipients of RFPs from several of those customers who are looking to the future afresh and want to streamline the way in which they work, which, again, is all opportunity for us. And then finally, for talent, we have part of the reductions in costs that we've been able to implement that Rob has taken you through are because we are able to move certain functions to India and operate at a lower economic cost, very efficient and scalable services. So Fast Track then. So this is a new service that we have introduced in the period. It's a service that is designed -- that we designed specifically to deal with very time-sensitive content, especially, as I said, think of sports and current affairs and so on. But actually, what we found as we pitched this to our customers is that generally, any reduction in the time it takes to perform these kinds of services that we provide is increasingly sought after. So in fact, we've been engaged by customers to deliver our Fast Track service, which is a premium service, for which we can charge a premium. We've been asked to apply that service for a content type that isn't necessarily time sensitive but the customer would just simply like to get it to market more quickly. So the way we've gone about this is by further enhancing our cloud-based workflow platforms so that we can do much more work concurrently. So we still do the same amount of work for our customers, but much more of that work can be performed in parallel. And as a result, we've been able to take subtitling down from something that would take a week or 2, down to 3 hours and dubbing from something like a month or 2 down to 24 hours. So those are radical reductions in the turnaround time, which are essential for, as I say, live and near-live content, but also are increasingly sought after for content more widely where we see great opportunities. Just by way of example, we worked on a project recently for a customer where they wanted us to produce outputs in 32 different languages in the space of 3 hours or so. So we had within our systems around 700 of our operators around the world, all working on the same project at the same time. So what our systems are doing here is orchestrating what could be enormous resource pools in a very efficient and coordinated way to be able to deliver these outputs in a dramatically reduced time frame. And our clients for this are major streaming services for which we've already worked on a number of very high-profile titles. So just wrap up then with a few words on outlook. So we're on track for achieving full year market expectations. As Rob has taken you through, we've restructured our business for growth. What we're finding is that our customers are looking for faster turnaround, as I described, and that is creating new opportunities. They're looking to -- look again at how they want to work with vendors. We've seen many RFPs coming through, which we're participating in, and we're optimistic that we will be successful in a number of those. And also in live and near-live programming, we see more of that coming on to streaming based on what we're hearing from our customers. And there are -- we're not aware of any other vendor that can offer a truly multilingual, multiservice, fast-track type solution in the time frames that we're able to deliver. So just to wrap up with investment summary. So we're a trusted partner to the biggest names in the industry. We're a technology-first pioneer which obviously augurs very well as our customers are looking more and more to work with partners that are embracing technologies such as AI. We're already working with all of the major streamers and content producers. We've already implemented AI in some of be workflows and have -- are actively working on using that more widely. So AI for us is a great opportunity. We're delivering a premium solution in a market that is seeing structural growth. And so with a leaner and more efficient organization we built through the efficiencies that Rob's described, we're very well positioned to build on this position and grow as our market recovers. Thank you very much. So as I mentioned, if you have questions that you would like to pose, please submit them to the -- in the questions section on the right side, which I think should be on the right side of your screen. Stuart Green: We've already received a few questions, so we'll just dive in and take those in the order that they were submitted. So the first question comes from Andrew. Have you finally abandoned plans for the acquisition of the Japanese services provider? Have your customers' plans for this region diminished? So for those who are not familiar with this, a couple of years ago, we had plans to acquire a partner in Japan, and that was driven by requirements from our major customers for their plans to expand and do more activity in Japan, and they essentially saw an opportunity for us to partner with that provider that we had a base in the country. So we were looking to acquire a partner to do that. Since that time, obviously, this whole industry disruption occurred. And so we put that on hold. Based on the information from our customers, they are not ready yet to really drive forward in Japan with additional activity and sourcing of content and distribution of additional content in Japan. So for the moment, we are not pressing ahead with that. But we do expect that in due course, Japan will be a strategically important territory, and we would expect to have some solution for that region. Next question comes from Chris. In your update, you mentioned increases in RFPs. Please, can you clarify how your RFPs work as to say, are they for specific projects like a TV series? Or are they RFPs that set out the basis for a contractual way if you were to work with a vendor on multiple series or films, et cetera, going forward. So the answer is the latter. So typically, these RFPs are -- they're a process that our customers tend to go through every 3 or 4 years and during which they're going to the market and they're making sure that they're working with the best vendors getting the best price, the best quality and so on with partners who can drive down that delivery time and so on. And it just happens because of the development in the market, we're seeing a whole host of these all coming through at the same time, whereas normally they'd be staggered over a longer period. So these RFPs really are -- will lead to framework agreements that will cover usually a wide scope of services over a prolonged period of time, usually several years. So they're not -- we don't usually go through RFPs for -- on a more granular basis than that, for example, a specific project. Next question from Andrew. I've noticed much of your sales team has now been lost in the recent restructuring. Does this not signify -- significantly negatively impact on your ability to grow revenues going forward? It's not quite right that much of our sales team has been lost. We have -- there are members of our sales team who are no longer with us. I mean as part of the cost-saving initiatives that Rob has taken you through, that was obviously part of what we needed to do. We believe that at the moment, we've rightsized our commercial function. And I would expect that if and when our customers come back and start to ramp up again, and we see more activity there then it may be a time at which to kind of reinvest in business development -- additional business development bandwidth. Next one also from Andrew. You mentioned revenue stabilization. Are you not concerned this will be perceived as revenue stagnation. Is there any tangible evidence you're seeing from your customers of this stagnation being reversed? You tell them? Robert Pursell: Yes, sure. So as -- I think it's obviously a valid point. Like I said, we've been at $11 million for 4 quarters. So that is a good question. I think I'd refer to one point what I said was that if you take dubbing out of it, certainly in the H2 coming through to H1, the other service lines have grown by 19%. So we are seeing growth in media services. We are seeing growth in subtitling. What we are seeing is a continued decline that's been going on for a number of quarters now in dubbing. We feel that, that is really coming to the bottom now for 2 reasons. One is that, as Stuart said, Paramount, even Disney came out and said they're planning to spend an extra $1 billion on content next year. Our customers are getting their content strategies in place. They're getting more confidence in them, and therefore, we'll see more work coming through. I think alongside that, so even today, we believe that our customers are spending around $1.5 billion in localization. So what is really encouraging is when we talk about seeing being invited to additional RFPs and being able to access maybe channels or programs that we haven't been able to before is a way of, therefore, growing that revenue incrementally beyond just an underlying growth in the market. And in terms of what are we seeing from our customers? Well, I think the biggest change really and it may be the last sort of 6-or-so months has been that previously, some of our customers are very wedded to the idea of doing localization through a number of different partners with physical studios that actors would turn up to, and that isn't the ZOO model. So that excluded us from some of those channels where they were insisting on that. As the industry is changing and they want things quicker, and what we're being able to do in terms of using technology, particularly with Fast Track, where we've been able to -- one of our customers, we delivered dubbing to them within 24 hours. And they said that was as good as anything that they would see from their premium suppliers taking 2, 3, 4 weeks to do. So I think being able to demonstrate what we're able to do with our model is opening more doors than we've seen before. And that's coming through in terms of those additional RFPs. So I really feel like there are definite green shoots in those conversations with customers, the tangible evidence is the number of RFPs that we're looking at. The fact that we're being invited to go and meet and participate in programs that we probably wouldn't have. And by programs, I mean, actual sort of channels within our customers or individual programs, and that would give us a far, far greater access to their spend. So it's a very fair point in terms of the last 4 quarters, but we do feel confident having now stabilized ourselves financially, but in a way that doesn't restrict that growth, there are an ever-growing number of opportunities out there to get back to growing that revenue again. Stuart Green: Thanks, Rob. So this is the last question that's been submitted so far. So if you do have any other questions, that will be a great time to submit them. So you don't miss your chance. So this question comes also from Chris. So I'll start this and then I think, Rob, you can probably provide a bit more color in terms of how you model and think about this thing. So Chris asked you mentioned anticipation of increased spend in new content. As this happens in the medium term, where do you see your split in revenue normalizing to, i.e., percentage split between localization versus media services. So just to give a bit of context for those who are not so familiar with our business. As I say, when content -- a project comes to us, usually, there will be some combination of media services and media localization that we have to fulfill with that. But -- and as far as we're concerned, whether the content is new or old, it doesn't really matter that much to us. It's the same kinds of services that we do to the same standards on the same time frame. So whether it's new or old, it's not that important, we don't even track it in our systems. We don't even tag it to say this is the new title versus this is an old catalog title. However, the nature of the services that are required tends to be quite different between those 2. So something that is new. So it's been newly produced, it's been produced of the current technical standards. When it arrives to us, it will never have been because it's brand new, it will never been localized. So generally speaking, our customers will want -- definitely want us to localize it. They may just want it subtitling in multiple languages, they may want it to be dubbed into some languages because it's -- there will definitely be some media services that are needed together onto a streaming service. But because it's produced to a very high and current sort of standards of quality and so on, the amount of media services that's needed is modest. So for a new content, essentially, the service lines are much more skewed towards localization than the media services. Whereas if this is old content, then usually what's happening is that a distributor, such as a streaming service, has done a licensing deal with a content producer who have some catalog of old stuff. And the deal is that for a fee, they receive that material, and it goes on to the streaming service, and they'll come to us to get that content registered to that service. If it's old, then it's been produced to standards that are not necessarily up to the required standards for streaming today, and therefore, there may be some restorative work, you could say, that needs to be done to bring it up to scratch. So for example, the resolution, if it's old TV stuff, it may be produced a standard definition resolutions. If it's going on streaming service, it has to be, at the very least, high definition standard. So there's -- so generally, there's more -- there's a lot of media services work that needs to be done there. But if this is content that belongs to someone else, a distributor or a streaming service, generally won't pay for that -- for someone else's content to be dubbed. So for old stuff, it's skewed much more towards media services. And to the extent that there are localization services that are required, they're almost always restricted subtitling. So old stuff doesn't get dubbed. So that's sort of -- that's the dynamic between -- to Chris' question between thinking about the content and how things are changing there as this new content coming through what could happen there, and the split between localization of media services. And those services have different margin switch. I'll now hand over to Rob to talk about how we think about that. Robert Pursell: Yes. Thank you. So yes, I mean in one of the slides, we split out that revenue between sort of localization and media services, and you can see that localization margin is around 30%. We've got media service up to about 76% now. So they are quite different in terms of their profitability. So that mix becomes important when you're thinking about where we go as a business. There are a number of things that play here. So I'll try and not overcomplicate this too much. But I think the first thing to say is that we probably see currently more growth potential in localization than media services. We think they'll both grow but there'll be a greater rate of growth within localization. Two reasons, again, just the growth within the market, the fact that as more original content goes to be produced again, as Stuart says, that is going to require more dubbing because of the investment that's been put in there. So that naturally increases dubbing. But also, as we're working with our customers and as they're getting more familiar and comfortable with our approach to doing this, we see ourselves being able to access more of their spend. So there's probably more growth potential in localization. Now as I said, subtitling is already growing, but dubbing has been declining in the last half. So when does that change? Yes, we think it's going to be soon, but it's an opinion. The other thing that's really happened is that our customers have stopped working with quite so many suppliers. So before they'd often go out and use different suppliers to do different activities, different languages, different services. But now they want to just really look at working with fewer suppliers who can do everything there. So that's what we refer to an end-to-end supplier. So on the other hand, we see more growth potential in localization though we expect it to be more bundling of services. So we want to do the localization and the media services as well. So I think there are going to be some changes that we see. I would expect, if you see at the moment, localization is just slightly above where we are with media Services. So let's call out almost a 50-50 split. If you go back to H1 last year, it was nearly 50% higher than -- sorry, localization was nearly 50% higher than media service. So we went from about being half of our business to 2/3. And if you actually go back into the years when we've been doing significant amounts of revenue, so $70 million to $90 million, again, you sort of see that relationship with localization is around 2/3 of the business and media services is the 1/3. So I would expect that we would see localization increase as a percentage from where it is in H1. It would probably, as a maximum go back up to being 2/3 again, but it may not quite get there because of this bundling of services. So it's going to be in that range somewhere. But until we start to see what happens with these RFPs, with these conversations that we're having other than that range, I couldn't be more specific in terms of what I think will happen. Stuart Green: So a question from Randy. Good to hear from you, Randy. Are there other large content companies you haven't penetrated but need to? You mentioned Disney and Paramount. Are there any big global ones you're not yet working with? And if not, why not? So we are already -- to some degree or other, we are already working with all of the major global distributors, global streaming services and a big U.S.-based headquartered content producers. Obviously, given what I've said about the market size, we're not -- our market share currently is very low, and there in lies obviously a great opportunity. What these RFPs, in some cases amount to is the -- is those buyers opening up certain areas of the operations, that hitherto have been -- we've been denied access to for whatever reason, it could be some historical reason, to do with relationships with certain vendors. It could be because of -- as a result of restructuring the organization, it could be because where something used to be fragmented between different international operations has now been consolidated and it's been now purchased centrally and so on. So we're seeing here opportunities for us to be able to increase our share of spend by these big players on the services that we deliver. So in terms of global companies, there are -- the major ones are all U.S. corporations. Obviously, we are also targeting content producers and distributors in other regions as well. But at the moment, the bulk of our business is in relation to large U.S. media companies. And then, Randy, as a follow-up question on the RFPs, how many different companies are competing for on each one on average? That's a good question. Generally, we aren't told that. We infer it from various things. But I guess, typically, there may be a sort of a dozen-or-so companies that are in play, and they may be looking to select 3. So that's been a case for a particular assignment that we've secured recently, where for a large volume of work, a particular customer went out and spoke to 10 or 12 partners and have selected 3 of which ZOO is one. Now the question from Andrew, do you see project visibility improving anytime soon? Robert Pursell: Yes, I would think that it would do because I think as our customers get more settled in their own content strategies because remember, they've been through quite a bit of sort of disruption, followed by not only the strikes, but also with these changing business models and what that means. But it's -- that will help -- in conversations with them, that will help give us more visibility in terms of the work that they see coming to us. And also, I think as we get more embedded in some of these channels that Stuart's saying we weren't part of before that creates, again, a more reliable stream of revenue. I mean the nature of our business is that we work on programs, and those programs could be a number of episodes of an hour long or it could be a film. So by that nature, it's pieces of work that we do. I think one of the things that we're really looking for, and this requires a shift within our customers. So we shouldn't overstate this. But certainly, where Fast Track is probably going to be most beneficial to where we've got kind of episodic content that's going out every week. More in that sort of broadcast model than traditionally what we've seen streams, and that could be sports, that could be dating shows or current affairs or something like that. Now we're currently -- we believe the only people who can actually provide localization for that, so that itself having that repeatable business is coming in every week and would again give us more visibility. So I think that -- I would hope that those things would start to give us a little bit more visibility. But as I said, you look back at the last 12 months, we've had a lot of stability and visibility. It's just that we know that that's the run rate of the business. What we've now got to do is trying to step that up and show the revenue growth. So yes, hopefully, that answers it a little bit. It's a bit up in there at the moment, but we definitely see it moving in the direction where 1 or 2 or 3 of those matters could actually help us give us a little bit more sight or confidence in the longer-term forecast. Stuart Green: We're coming in to the hour. So I'll take this as the last question. It comes from George and his question is, when the AI bubble bursts -- a big assumption, which of the multimodal AI natives would you buy? So obviously -- I don't quite know what to do with that question, but I guess what I would say is that we have -- if you look at our strategy for AI, we're taking the view that there are quite a few well-funded companies out there that are doing a pretty good job of creating technologies. And our -- the way we see the opportunity here is to evaluate those, understand, understand then some what they're good at, what they're not so good at, where the risks are, how to mitigate those risks and then how to kind of embed those capabilities within our platforms in order to deliver a better service to our customers. So we haven't done any exclusive arrangements there. What we've said is that we want to be completely agnostic. We'll just use best-of-breed. So for example, I mentioned that we're already using for certain customers on certain content, we're using AI to do the translation. But we're actually choosing different platforms for different languages. So we find that, for example, for Latin American Spanish, the best platform is Platform A, whereas for I presume French, it's platform B. So the way our systems are configured is we just -- we'll just hook in given a particular situation, whichever we believe is the best platform to use. And what that means is, over time, obviously, we're continuing to evaluate these with each new iteration of the technology to make sure we always know which is the best of breed, and we can make sure that we're using the most appropriate solution. So I'm not sure, George, that we would actually go out and buy something because I think that in -- I guess your question is if the bubble bursts and all the kind of funding evaporates, what would you do that? Well, I guess we'll cross that bridge when we come to it and if I should transpire, then there may be some interesting assets to pick up at a much more interesting price that you'd have to pay today. With that, I think we should call it a day. Thank you so much, everyone, for joining the call, and we hope to see you next time. Robert Pursell: Thank you. Stuart Green: Thanks a lot.
Roland Jones: Well, good morning, ladies and gentlemen, and welcome to the Schroder Oriental Income Fund plc Annual Results Webinar coming to you today from the Schroders' headquarters in the heart of the city of London. I'm Roland Jones. I'm responsible for the investment trust sales here at Schroders. And I'm pleased to be your host over the next 35 minutes or so. I'm also very pleased to be joined by your portfolio manager, Richard Sennitt. Good morning, Richard. Richard Sennitt: Good morning, Roland. Good morning, everyone. Roland Jones: Richard has got over 35 years' experience and has recently returned from... Richard Sennitt: Not quite Roland. Roland Jones: Okay. Richard Sennitt: Over 30. Roland Jones: Just returned from a trip to Australia. And over the next 35 minutes or so, we're going to talk about the performance of the trust over the results period, the positioning a little bit of outlook and our views for the region, but also very importantly, the importance of generating a dividend from a portfolio of Asian equity stocks. So we're going to spend a little bit of time over on that topic over the next 35 minutes. Now you will have plenty of time to ask questions. I have my iPad. Please fill them in, send them to me. You've also got the opportunity to download the annual results and today's presentation. So it's all there. There's also a survey at the end. We'll be very grateful if you could fill that in because that's really useful for us, so we can make sure that these presentations are sort of meeting your requirements in the future. So that's the agenda for today. Roland Jones: Richard, tell us a little bit about the team that we have in Asia because that's very important, isn't it? Let's cover that. Richard Sennitt: Yes. No, you're absolutely right. It is a key part of our investment process. And I think it's probably worth just touching on how we do manage the portfolio and the way that we approach investment in Asia because I think it is a really important part of the ability to deliver success over the long term. First of all, we think that markets are inefficient in Asia, which won't surprise you. And the best way to extract those inefficiencies is very much through a bottom-up fundamental process. And to that end, as Roland mentioned, we have a very extensive team based out in the region. Although I'm based here in London, you can see that we have a team based through 6 offices in Asia and 47 analysts. And they're going out visiting companies, writing reports, making recommendations, and I'm drawing on their best ideas from an income perspective to create a portfolio of roughly about sort of 60 names. I think it's probably what's worth highlighting is that what we don't do is screen the universe for the highest-yielding stocks and backfill the portfolio with those names. What we're looking to do is to buy into companies where there is most certainly an income rationale to go in the portfolio, but there is also hopefully upside to fair value as well. And that does mean that there are some areas of the market where we're probably going to have a little bit less exposure or not get exposure to. One of the most obvious areas that we are quite underweight in would be, for instance, the Chinese Internet platform companies would be an example of that. This does mean that, I guess, stylistically for the fund, there is -- given the characteristics of income and so on, it doesn't tend to mean that overall, we have a sort of a bit of a value bias to the portfolio. So that's really on the sort of the team and high-level process. And perhaps if I sort of give a bit of a recap about what's been going on in the markets because I guess this year has been a year when actually Asia has been a pretty good performer versus world markets. It's up over 20% year-to-date. And I suppose if you rewind 12 months ago, that may have been a bit of a surprise to people because if you think about it, we just were in that period when we're having Trump coming into being elected in the U.S., and he obviously had very clear views around tariffs, which obviously, it was going to have a big impact on Asia. And also, there was concern around the outlook for the Chinese economy. So looking at whether there was risk around a hard landing there. And I guess what we've seen since then has been that markets have got a bit more comfort around those things. So around enough is being done to sort of stabilize the Chinese economy. And I think also that some of the sort of initial talk around tariffs, I think people got more comfortable with some of the deals that are starting to come through on there, and that's allowed markets to do a bit better. The other thing, of course, which has been a real driver for markets globally has been around what's been going on with AI and obviously, Asia is very much an enabler for AI with its extensive sort of semiconductor companies and world-class names like TSMC, Samsung Electronics, these sorts of names. And they're obviously a part of that whole ecosystem, and that has been helpful for the markets. And then I'd say the final piece, which has sort of driven markets a bit higher has been a weaker U.S. dollar, which tends to be helpful for liquidity in the region and good for stock markets, at least historically. And with that, just looking at the chart that we've got here, you can just see that what each of the individual markets have done. And the reason that I put this chart up here is just to sort of show that actually most of the rise in markets is being driven by -- or has been driven by a re-rating rather than earnings growth necessarily being revised up or coming through. So this just breaks down the returns for each market and it says what proportion came from a re-rating, what came from earnings and the earnings being the green, the dark blue being the sort of re-rating. And you can see in most markets, it's been about a re-rating. And that's because the markets have been quite liquidity driven. They've been quite narrow. They've been quite thematic. And as we go through time, I'd expect to see a bit more of a broadening out from the sort of re-rating phase more to sort of earnings growth coming through. And this just sort of paints that picture a bit in a slightly different way. The chart on the left is just looking at the sort of the weight of the largest 5 stocks in the benchmark. And you can see that on the left-hand side, it's now over 25% of the market. So it's been quite a concentrated market rally, and that's been sort of a bit similar to what we've obviously seen in markets like the U.S. And the number of stocks that have been outperforming has come right down, which is the right-hand chart. So it's been quite narrow, and that's around that sort of thematic piece, which I was sort of talking to. And that's generally been not a great backdrop for income, I'd say, because it has been quite a bit more of a growth-focused rally and with growth outperforming value. So if we look at the sort of the performance of the trust over the sort of financial year, you can see that here, we've got -- so I think the first thing to point out is obviously that absolute returns have been pretty good over the year. And actually, if you look back through time, they've been relatively consistent. You can see they're generating roughly 10% per annum over the longer term. Against the index, the strategy has lagged the benchmark. And that has really been around a couple of things. Firstly, about the point about value has been a bit of a headwind in the market because growth has done better in what's been quite a liquidity-driven market. And some of the names which have done very well have been some of those Chinese Internet platform companies, so the likes of Tencent, which is hard to sort of own from a sort of -- with an income -- justify from an income rationale perspective. So that's been one of the sort of headwinds. That's partly offset by an overweight in the stock selection in sort of Hong Kong. And I'd say then from a sector perspective, sort of financials have been good for us, being overweight and stock selection within them and -- which has been partly offset by stock selection within IT. The other thing I should point out here is obviously that subsequent to that year-end, we have announced the full year dividend, and it's shown another increase there, and I'll talk a bit more about that in a second. If I bring it sort of a bit more up to date to the end of October, you can see that the markets have sort of continued to rally. And that has been driven again by very much a continuation of sort of strength in some of those AI names. And since the month end, there's been a bit of a sort of question mark around that, about the sort of the sustainability of the rally, but maybe we can talk about that a bit later. But generally, the market environment has obviously been positive for equities. And I think it's probably worth pointing out how if you're looking at this trust, how you should think about how the trust performs in different types of markets. So here, we just got the annual returns going back over the last 10 years and looking at -- and what I would tend to say is that when markets are sort of quite liquidity-driven or growth focused, that tends to be a bit of a headwind for relative performance, but you tend to do relatively well from an absolute sense. But when markets are falling or gently rising, there's a reasonable, hopefully, an opportunity to outperform versus the benchmark. And I think that's what you see over the sort of 10 calendar years that we've got here. The strategy has sort of underperformed in 3 of those years is 2017, 2019 and 2020. And they were years which were good from an absolute perspective. So you made good absolute returns but lagged the benchmark, and that's partly because they were focused on growth. Those markets, they tend to be quite growth-driven, quite liquidity driven. But in most other markets, you can see there, which are generally rising or falling, the trust has managed to outperform its benchmark. So that's sort of the way that you should sort of, I guess, think about that relative performance piece. And just talking a bit more, I suppose, just putting that piece, I mentioned that sort of higher-yielding stocks have basically had a bit of a challenge from a relative performance perspective. So this just looks at the relative performance by quartile of yield. And you can see -- so if you look at the right-hand side, any -- the bars above the line are stocks outperforming the benchmark. And you can see that the lowest yield quintiles, so Quintile 4 and Quintile 3 have performed well, whereas the highest-yielding quartile has been the sort of the weakest performing quartile. And that's coming back to what I was sort of describing earlier as to how you should expect. So high-yielding stocks have lagged the benchmark essentially. And then if we look at the sort of performance of the individual markets, and this is to the end of October, and it looks at the 12-month returns. I think it can almost be summed up in sort of in a relatively -- I mean, it's a bit of a generalization, but the areas that have done best over the last 12 months or so have been in those areas of sort of North Asia and around us sort of more of an AI focus. So if you look at sector returns, the best-performing sectors, information technology, I guess, not too much of a shock to many people. And then on the left, if you look at the country returns, the North Asian markets, in particular, Korea, Taiwan, China, all outperformed. And obviously, particularly Korea and Taiwan have that large semiconductor industry and that enabler of AI theme there. And then on the flip side, you've got the sort of, if you like, from a market perspective, those markets which have got relatively less in some of those more direct technology AI areas. So -- and perhaps a bit more impacted by what's been going on from a tariff perspective in some ways. So you're looking down at the sort of the -- some of the Southeast Asian markets, so like Thailand, Philippines, Indonesia, but also Australia, which, again, is another market where it hasn't got so much of that sort of IT exposure. And from a sector perspective, it's been the sectors that have lagged have been those which are sort of a bit more defensive, so utilities, consumer staples and health care and so on. So if you look at the sort of performance of the trust over the longer term, that -- and here, we've got the sort of light blue line, which is the sort of FTSE, the green line, which is the regional benchmark and the dark blue line, which is the trust, you can see over the long term, both the region and the trust have outperformed the U.K. market. So it has sort of, if you like, fulfilled a sort of diversification away from the U.K., if you like. So for someone who's got a lot of U.K. income, this is sort of potentially you could diversify through this and over the longer term, there are periods obviously when it doesn't outperform the U.K., but long term, it has outperformed. And I think the other thing just to sort of highlight is that the trust has outperformed the benchmark over the longer term. And I think that's a sort of -- is an argument, particularly when you're investing in Asia for sort of active fund management. And I think those sort of inefficiencies within the market that you can hopefully, over the long term, exploit to an extent. So if we look at the sort of the dividend per share over time, as I mentioned that's another increase this year in the dividend, and that's the latest in the line of increases, which have been going on now consistently every year since launch. And I think it's probably worth saying that in a sense, the trust is a bit plain vanilla in the way that it generates its income. It's not obviously paying out of capital. It's paying out of the income that's come through from the companies that we've owned through time. And it's also not trying to generate income through writing options or additional strategies. So in that sense, it's quite sort of, I guess, simple in its approach to the underlying income. And that does mean that you get that sort of value tilt to the portfolio. Roland Jones: So Richard, does that mean that every stock that you own in the portfolio is a yielding stock? And are you drawn towards those high yielders? Richard Sennitt: There has to be an income rationale for the stock to go into the portfolio, but it doesn't necessarily have to have a high yield today or it could indeed even not be paying a dividend today. But I have to see a clear progression to a decent dividend being paid out in the sort of forecastable future, if you like, rather than necessarily say, 10, 20 years down the line. So there is definitely an income rationale, but there is the ability to buy into companies where I think there's going to be an increase in dividend, which is material coming through over the forecastable future. So yes, it's -- so that you don't have to have a dividend, but in general, the very large majority do. Roland Jones: And are you naturally wary of those stocks paying a high dividend because that may not be sustainable? I presume the sustainability of dividend is an important factor as well. Richard Sennitt: Yes, sustainability is important, and we obviously consider that when we're looking at individual stocks. And I think it goes back to that point I made at the beginning where we don't just screen for the highest-yielding stocks because often some of those stocks can be ones where you do see dividend cuts because perhaps they're paying out more than they should. And we also want to buy into companies where there is potentially hopefully some sort of growth in the medium to long term and that potentially is a bit of upside to capital. So yes, we do focus on that point. It doesn't mean that we can always avoid dividend cuts, but it's obviously a consideration when we put stocks into the portfolio. Roland Jones: That's good. Thank you for clarifying that. Richard Sennitt: And I suppose this -- just to give a bit of context around where yields in the region are today. If you look at the left-hand chart, this just shows the dividend yield for the different regions. And then you can see the yield of Asia and the yield of the trust. And I guess if you look at the region, the yield is -- it's higher than the U.S. It's a bit higher than Japan, not as much as in the U.K. But if you look on the right-hand side there, you see that the trust does yield a premium, obviously, to the region, as you'd expect. And at the moment, it is a little bit above that, the yield of the U.K. market. And then the chart on the right, I guess, is instructive of sort of where relative yields are versus history versus the sort of different regions. So this just looks at the, if you like, the dividend yield premium of Asia versus the rest of the world, and you see it's relatively high at the moment versus its long-term history. So in that sense, relative to other markets, it doesn't look particularly extended at the moment. And then I guess, just to finish off with you on some of the drivers of income at the moment. On the left is just sort of consensus numbers for dividend growth at the moment, which coming through -- sorry, a lot of sort of small bars there, probably not very clear. But I guess the bottom line is that we're sort of -- we are getting dividend growth forecast to come through this year, sort of that mid-single-digit range of growth. It does vary between sectors. And then on the right, the other sort of influence of dividends, obviously around currency. So particularly the strength of sterling versus the regional markets. And obviously, if sterling is strong, that tends to act as a bit of a headwind for the translation of dividends back into sterling and vice versa. And over the last few years, actually, it's been a bit of a headwind at work. Very recently, it sort of just started to come off a little bit from currency. So if we see that continue, that would be favorable, but it has been a headwind, broadly speaking, over the last couple of years. And then to your point about sort of resilience of dividends. And I think one of the reasons that sort of Asia is sort of interesting or is, in my view, relatively reliable source of income is that it's not particularly extended from a sort of payout perspective. So the proportion of company's earnings that are being paid out is not that high. So if you look at the left-hand chart, you can see that green line, which is the payout ratio for the region, and that's sort of 30 -- it sort of goes in that sort of 30% to 40% range. So quite a big cushion if sort of earnings could come under pressure. And then on the right, gearing also for the region, and this just looks at the listed sector gearing versus other regions. And you can see that the Asian region, which is that light blue line is relatively low versus the other regions. So again, another sort of reason why you might get some sort of resilience there if things did slow down. So if I talk a bit more now about sort of, I guess, outlook and positioning and where we sort of have exposure within the fund and the outlook. I guess, first of all, here, what do we like in the region? I guess this slide is a reminder of some of the key themes as stocks that investors in the trust can get exposure to. We've got obviously some of the global leaders in tech, so things that we mentioned sort of TSMC and Samsung Electronics, but also -- and they're obviously benefiting from that structural AI growth theme. But we've also got some of the world's best manufacturers in Asia unsurprisingly. So you've got things like Shenzhou, which is focused largely around sort of sports apparel, that sort of thing. Hon Hai, which obviously does a lot of the manufacturing of -- increasingly of high-end servers for AI, but also people probably know it for a lot of the Apple product that it does. And then a good exposure elsewhere to some of the sort of domestic growth trends as well. And we look through sort of financials, so banks, insurance companies and some of the other names there. And if you look at the trust sort of positioning that we stand at the moment, I think the thing -- we haven't made any big shifts over the recent period. But I suppose the thing that stands out and continues to stand out would be that we remain very underweight China. That's partly offset by the overweight to Hong Kong that we have. And that -- part of that is around this point around some of the Internet platform companies that don't really pay much in the way of dividends. But -- and I'll talk a bit more about China and the outlook in a second. But we continue to like Singapore, although that size of that overweight, we have sort of brought down a little bit. And the other area, I'd say we have taken money out of over the course of the last 12 months or so or whatever has been in Korea, where we're now underweight. And that's partly a reflection of the market has done really well. It's re-rated up. And part of that re-rating up has been on the sort of value-up program, which you probably heard people talking about, which is sort of trying to focus a bit more on shareholder returns and improving sort of -- generally sort of improving corporate governance in different areas. So... Roland Jones: Are we seeing evidence of that's of working? Richard Sennitt: We're starting to see some of that coming through. But yes, I wouldn't say it's by any means universal at the moment. So -- and that's hence why one of the areas I've been taking a bit of money out of because stocks have moved up in anticipation of this happening. And yes, we have seen some things, particularly in some of the sort of -- actually in some of the financial sector, we've seen improvement in dividend payouts and such like. So that has been coming through. But we're now in a phase where a bit more of the sort of things that need to happen are a bit more tied into sort of changes in legislation and so on that need to come through, which take time. And hopefully, over the longer term, we will do, but there is some expectation that they will in prices at the moment in my view. And then I guess on sectors, again, we remain, I guess, overweight in sort of real estate and financials and IT but I would say that we have taken down the weight over the course of the last 12 months in financials and IT. IT has obviously done pretty well as an area, as we've described. So there, it's been a bit about relative value and taking money out for that reason. Financials, again, it's been a good performing area of the market. And we still like financials, but just some of the things which have done well, we've sort of taken money out of. And then I suppose on the underweight, consumer discretionary remains a big underweight, partly again, that's partly around sort of Chinese e-commerce companies and so on. And I guess we've been adding to some of the sort of sectors such as utilities and some of the sectors that have lagged a bit into staples. Roland Jones: So that's where the proceeds from some of the gains we made on the IT, financials and real estate are going into those particular sectors. Richard Sennitt: Yes, being recycled. Roland Jones: Yes. Right. Richard Sennitt: And actually, we did put some money into consumer discretionary. So we were more underweight there, but there have been some opportunities in places like China to increase our exposure. Roland Jones: That's a bit of active management. Richard Sennitt: Yes. And then just the top 10 holdings, and I guess I'm not going to go through these names, but just in the sense of reasonably diversified both by country and by sector. And I think it is worth just sort of from an overall standpoint, just commenting on how the sector or the region is quite heterogeneous. It's not just about China or exports or whatever. Within the trust, you do get exposure to a broad set of drivers. And so obviously, we get the exposure that I sort of described in North Asia to some of these exporters and tech companies, that's Korea, Taiwan, and that makes up just over 1/3 of the portfolio. That's, I guess, driven more by what's going on globally in the export cycle as well as obviously structurally in AI. And then obviously, we've got sort of about 30% of the portfolio in China and Hong Kong, where we'd say that still has some of the challenges, which we know about around demographics, overinvestment and so on. And so we as we sort of mentioned earlier, we are quite underweight versus the reference benchmark. But as an active manager, we can still find things that we want to buy in there. And then I guess the other 2 chunks are sort of ASEAN, which has got a large portion of which, I guess, or the bigger overweight comes from our position in Singapore, which has increasingly benefited from its increased importance as a financial center within the region and also acting as a sort of increasingly into the region outside of its hinterland, et cetera. So some of the smaller ASEAN markets, Indonesia, Philippines, Thailand, Vietnam, all those markets which are, to an extent, benefiting in a sense from the sort of supply chain diversification, which we've seen coming out of from corporates that have been very focused on producing in China, and they want to have alternative sources of production. So that's sort of whole China Plus One theme. And then Australia, which again, is -- you don't think of necessarily as the highest growth market, but is a market where shareholder returns have generally been pretty reasonable through time and again, acts as a good sort of diversifier there. Roland Jones: And you've just come up from Australia, haven't you? Any particular insights that's worth sharing at this point? Or will you come to those? Richard Sennitt: Well, I come to those. I mean, yes, because I guess Australia is a market, as I was sort of saying, it's not -- you don't think of it as a sort of a high-growth Asian market in the sort of traditional sense. So you sort of perhaps think how does that fit within sort of an Asia portfolio or whatever. But it obviously benefits from growth that is going on across Asia as a whole from an economic standpoint. So what's going on, obviously, with its large commodity sector and so on. And also, the other point is that actually, you think of the sort of demographics, you don't necessarily think of a sort of Australia as being at the forefront of that, but actually because they're growing their population pretty rapidly, the demographic profile is also pretty good for Australia as well. Roland Jones: Which is not the same for other. Richard Sennitt: Yes, for some of the other Asian countries, it's working the opposite way where the populations are obviously getting older and the sort of fertility rate has dropped a bit. So in some of those North Asian markets. Roland Jones: Interesting. Okay. Richard Sennitt: I guess quickly on time because I realize I've been talking quite a long time, but I'll swiftly move through these last slides. I mean, on China, our sort of general position in the sense of the way that we're viewing the market hasn't really shifted that much. And this is a slide I would have used last year, obviously updated. But I think it does tell you what's generally been going on, which you look at consumer confidence at the moment in China, it still remains pretty low, hasn't improved much. So the domestic economy in China, despite the sort of stimulus measures that have come through have not actually seen the economy pick up particularly strongly from a domestic standpoint. Exports has been pretty good. That's helped the economy overall. And instead, people instead of choosing to sort of invest in property, which has obviously been a pretty weak area, they've been saving and increasing their savings, which is that middle chart. And that has seen sort of -- that's a plus and a negative, I guess, in the sense that, obviously, if they're saving more, they're not spending. But I guess if they can sort of get things right and people spending, there's obviously an opportunity for consumers to draw down on those savings to spend more when confidence improves. And on the right-hand chart, it just shows how interest rates haven't actually started to see a pickup in household borrowing. So that mechanism hasn't yet sort of flown through into the economy. And then the other -- so we remain underweight in China, but the other area, of course, where is sort of an area of debate... Roland Jones: Very topical. Richard Sennitt: Yes, is obviously within IT and AI in particular. And I think we're all sort of familiar with the chart on the left, which is sort of U.S. hyperscaler CapEx. It's obviously been exceptionally strong. And as a proportion of sales, it's sort of up there now at sort of around 20%. So that's grown very rapidly, and that's sort of been driving, obviously, related names in semiconductors and so on, both in Asia and elsewhere, which is the right-hand part of the chart. And near-term growth continues to look very good. The question mark is more about are we nearing that peak now. And the real question mark is all this investment is how much return are we going to generate on that investment. And that's where the sort of the big question still remains. So we are less overweight in IT than we would have been sort of 12 months ago. So we've been gradually bringing our exposure down just really to reflect that sort of how well these things have done over the course of the last 12 months. And the other area, which I mentioned, which we continue to like is sort of financials. We're a bit less overweight than we were. Again, it's sort of not just banks, it's also insurance companies, exchange companies. Penetration of insurance products, which is on the left, is still very low versus sort of developed markets. And so there's an opportunity longer term for that to grow through time. So we quite like that. And then on the right-hand side, you just look at sort of some of the returns coming out of banks. The ROEs are reasonably good in these markets. and the yields are good as well. And although rates have come down or come down a bit, and that will have an impact on margins, as rates come down, it has a flow-through on obviously, credit cost, but also on just demand for loans as well. So you hopefully get some offset coming through from there. And then I mentioned the point about the U.S. dollar earlier, and that's the central chart here or this chart here. And you can just see the green line, which is the U.S. dollar index. So as it goes up, the U.S. dollar is strengthening, as it comes down, it's weakening. And you can see that it moves sort of inversely to the index, which is the -- which is a dark blue line, and you can see that particularly clearly in the sort of '90s and early 2000s. But -- and more recently, you can see, obviously, the market has gone up and the U.S. dollar has weakened. So there is a correlation there. If we continue to see U.S. dollar weakness, that could act as a bit of a tailwind if history is a guide. Roland Jones: And Richard, actually, we've had a question on the dollar weakness. And obviously, you've very well -- you've sort of explained the relationship between the dollar and Asian equities. But the question actually relates to does a weaker dollar -- is there any evidence to suggest that either an income strategy or a more value-orientated strategy benefits more from a weaker dollar? Is there any evidence to that to support that fact? Richard Sennitt: Yes, I'm not sure that there's necessarily evidence to support that direct link. I guess the way that the sort of transmission mechanism works, I think if you look at it as the U.S. dollar weakens, it tends to ease liquidity in the region itself, and that allows interest rates in Asia, the central banks can start to sort of ease rates, and that helps from a sort of economic standpoint to generate growth. So you could argue, I guess, that it should be better for the domestic economy in a relative sense perhaps vis-a-vis some of the more export-orientated areas just because rate cuts should benefit domestic growth to an extent. And obviously, some of the sectors which have got good yield are attractive at the moment, things like financials, which I mentioned, obviously are driven by the strength of the domestic sector. So there's a sort of a bit of a link there. And then just the final piece is just on -- quickly on valuations. And I should say, given the rallies that we've seen in the market and what I was saying about it's been more about re-rating up than sort of earnings necessarily coming through strongly at this stage. The chart on the left just shows the sort of PE of the region versus its history, and you can see that it's now above the long-term average. So not particularly cheap markets versus the longer-term averages, but versus developed markets, which is on the right, which just shows the sort of ratio of PE for the region versus developed markets, you can still see that on that basis, Asia still looks relatively attractive versus history. And then when you sort of dive down and get a bit more granular looking at the different markets, you can see that here, which is the sort of just looks the little blue diamond -- light blue diamond is the valuation -- current valuation of the market against its range. And you can see that for most markets, they're sort of above their longer-term averages. And you can also see that there's a big spread across markets. So again, I think one of the key things to take away is that, again, from a sort of an active strategy, you can take advantage of those relative differences in valuation, which are there from a market level. But also when you look and drill down at the individual stocks in those markets, there's -- they're not all at the same price. So you can find -- again, you can find good opportunities. And to that point, the sort of -- again, the left-hand chart is just that repeat of that sort of stocks outperforming, the index come down. So it's been a narrow rally. That means outside of that, there's stocks that potentially you can find. And if you look at income stocks, which is the right-hand chart here, so this just looks at the top 2 quintiles of yield, so the top 40% of stocks by dividend yield and how they're valued relative to the market. And you can see that, that discount that's there, so it's around about sort of a 25% discount at the moment, roughly speaking, from the chart is not extended versus history. So from a sort of, again, dividend names don't look particularly extended versus the market in my view. And that is the sort of -- I won't take you through all the slides there, but that's the conclusion of the presentation. Roland Jones: Well, that's great because actually very comprehensive. We've got a little bit of time left for a few of the questions that come through. We have some really good questions actually. We -- interesting, one of our listeners has asked about, is it now time to consider inviting Japan back into the fold into an Asian -- a pan-Asian trust, particularly one where one is generating a dividend and the valuations for, say, the Japanese market are looking a little bit more palatable compared to where they were 20 years ago. Any thoughts on that? Richard Sennitt: Yes. And I think that certainly has merit. I mean we have historically invested in Japan to a lesser or a greater degree for the trust. I mean it's never been a significant weighting, but... Roland Jones: The trust is allowed to get Japanese exposure... Richard Sennitt: Yes. So we have one name at the moment in Japan. It's certainly a small exposure. But -- so there is opportunities over time. And -- but yes, at the moment, it's relatively small. Roland Jones: That's good, okay. And we've had another -- quite a few questions about valuations, particularly related to the AI bubble in Asia. And I think we've sort of covered quite a bit of that. But I'm just interested to hear, how has the trust performed in the very short term? I know we don't focus on the short term. It's the medium, long term and it's important. But has there been a degree of resilience with the trust given some of the profit taking you took out of the technology stocks recently? Richard Sennitt: Yes. I mean... Roland Jones: Great timing, by the way. Yes. Richard Sennitt: Well, yes. No, I mean, obviously, there have been those market -- those stocks have done well. And there has been definitely over the last few weeks, there's definitely been an increase in volatility around those names as I guess people have become a bit more nervous about valuations and I think the whole idea of what is the return of all this investment going to be, where are we going to get those use cases. And that has seen a bit more volatility. And from a relative perspective, I think since the end -- I mean, in the very short term since the end of the month, I think the trust is up in a relative sense against the benchmark about 2% or so. And so it's broadly flat against the market, which is sort of a little bit down a couple of percent or so. Roland Jones: And we've always positioned the trust and not only been able to generate a very decent income from Asian portfolios, but also quite a good way of getting a lower risk, slightly more conservative way to approach the Asian market. Richard Sennitt: Yes. I mean the set of stocks generally tends to have -- if you took those stocks and looked at them individually against the market as a whole, they tend to be lower volatility in aggregate. And that through time is a bit why you get the sort of when the market is rallying hard, they tends to lag a bit. So it's a bit low beta and vice versa. Roland Jones: Understood. Okay. We just have time for perhaps one more question. We've got a question about -- relating to the comments you made on the ASEAN region and talking about the very diverse nature of the Asian market, but specifically about the Philippines, where we've got a little bit of an overweight. What's the rationale there? What do you particularly like about the Philippines? I presume it's a stock more than a sector -- sorry, a stock more than a country related, but please tell us. Richard Sennitt: Yes. I mean there, it's a holding which we've had for a while, which is has done reasonably well, which is -- it's actually ICTSI, which is a port operator. And it's not just a sort of a domestic Filipino story, although that's actually an important segment of its earnings. It's also sort of an emerging growth proxy in the sense of it has a lot of exposure to emerging market ports globally. And so as trade flows within that emerging market piece grow over time, hopefully, the company should benefit from that. The Philippines is an interesting market because at the moment, it's one of the markets that's really sort of, I guess, lagged to put it nicely, I suppose, lagged the region. And the region is one of the markets which is trading at a significant at a discount to its sort of historic longer-term range. So it's definitely becoming more interesting. I guess interest rates clearly an easing of interest rates clearly globally help the Philippines perhaps more than some of the other markets given the external finances and so on. But I should say that as that potentially becomes a bit more attractive, it's also not the most liquid market in the world, and it's quite volatile. So it's never going to be a really huge portion of the portfolio from that perspective. Roland Jones: Okay. Well, thank you. Useful. Well, ladies and gentlemen, we're sort of fast approaching quarter to 10:00. Thank you all very much for listening in today and for all of your questions. Richard, very comprehensive overview of the region, which -- looking at your summary slides, I mean, despite having some concerns about China and some of the technology stocks, there is a lot more to Asia than just those 2 sectors, a very diverse area. We talked about the interesting opportunities in Australia, in ASEAN, in Korea. The trust after 20 years still remains a great way of generating a growing dividend from a basket of Asian portfolios. And we're on track to, I hope, attain the dividend hero status showing a 20-year unbroken rise of dividend over the next -- over the last 20 years. So one more year to go. But ladies and gentlemen, thanks once again for all your questions. Please do the survey. The feedback form is really important for us. It just helps us tailor these types of presentations for the future to make sure that we continue to hit the mark. Please send that into us. Have a great rest of the day. Thanks very much. Good morning.
Operator: Welcome to the Elior Group Full Year 2024-'25 Financial Results Presentation. Please note, this call is being recorded. The management discussion and slide presentation plus the analyst question-and-answer session is broadcasted live over the Internet. Today's call will start with an introduction of Daniel Derichebourg, Chairman and Group CEO. Mr. Derichebourg will speak in French with an English translation right afterwards. After this introduction, Didier Grandpre, Group CFO, will carry on with the usual presentation before opening the Q&A session. Mr. Derichebourg, please go ahead. Daniel Derichebourg: [Interpreted] So hello, everybody. Firstly, I'm sorry for not speaking English, but you know what, at my age, I'm not going to start learning now. We had told you in May that everything was going a lot better. And if everything went according to plan, we would be able to pay out a dividend. And as you've seen in the press release, that has now been confirmed. Okay. So I'd like to thank you all for being here. It really is an honor to have you all here. And I'd now like to hand over to our Financial Director, Didier Grandpre, who's going to take us through the results. Didier Grandpre: Thank you, Daniel. Good afternoon, ladies and gentlemen, and welcome to Elior Group's full year results presentation. We have provided detailed financial information in our press release issued earlier this afternoon, which is available on Elior's website. I invite you to read the disclaimer on Slide 2, which is an integral part of the presentation. I will make a short introduction before covering our full year results in detail. Then I will share the progress made in the implementation of our CSR strategy, and I will continue with the business review section. And finally, I will conclude with our outlook for the next fiscal year before we answer Daniel and I, your questions. 2 years ago, the 2022-2023 fiscal year marked a turnaround in our operational profitability with a positive adjusted EBITDA of EUR 59 million compared to a loss of EUR 48 million in 2021-2022. The following year saw a remarkable improvement in performance with adjusted EBITDA increasing by EUR 108 million in 1 year. Now the 2024-2025 fiscal year is a new major milestone. We've not only strengthened operating profitability with adjusted EBITDA exceeding EUR 200 million, but also achieved a turnaround in profit before tax, reaching EUR 65 million compared to a loss of EUR 5 million last year. Elior has once again improved its performance in 2024-2025, although this was limited by a particularly challenging year for our temporary staffing business, which recorded an exceptional sharp revenue decline and an unusual negative EBITDA. After the takeover by a new management team in the second half of the year, our objective is clear: achieve a rapid return to profitability in this segment. In this context, it was important for us to present the 2024-2025 results, of course, as reported, but also excluding the underperformance of the temporary staffing business. Globally, our results for 2024-2025 are in line with the revised objectives set last May. First, in line with the first semester and our revised ambition, the organic growth was modest in the second semester, reaching plus 1.3% for the year. Growth stands at 1.7% when excluding temporary staffing activities. Adjusted EBITDA continued to grow, both in absolute value and in margin rate, up 50 basis points to 3.3% Notably, the margin rate for 2024-2025 reached 3.5% when excluding the underperformance of temporary staffing activities, corresponding to a 70 basis point increase. We achieved a positive profit before tax of EUR 65 million, an improvement of EUR 70 million, including lower non-recurring charges following the successful implementation of optimized organization across our geographies within 2 years. The payment of a dividend of EUR 0.04 per share has been approved by the Board of Directors today and will be proposed to the AGM approval on February 4, 2026. We remain focused on delivering value to our shareholders while continuing to pursue our deleveraging objectives. On this front, our leverage ratio was reduced by 0.5 points during the year, reaching 3.3x at the end of September 2025, thanks to a sustained free cash flow exceeding EUR 200 million for the second year in a row. Moving to our financial results in more detail, starting with the revenue on Slide 7. Group revenue reached EUR 6.15 billion, corresponding to an overall revenue growth of 1.6%, made of group organic growth at 1.3% within the expected range. Tactical acquisitions contributing for 0.8%, including notably the regional expansion of facility services in Spain to complement our leadership position in contract catering in that country. The negative currency impact of minus 0.3% came mainly from the softening of the U.S. dollar. Organic growth was driven by contract catering at 2% itself supported by strong commercial development in Spain, rigorous pricing discipline in the U.K. and successful commercial activity in the U.S., especially in the education market. In 2024-2025, activity in Italy declined due to non-renewal of some public contracts at a level of margin below our expectations. In Multiservices, the organic revenue decline is mainly due to temporary staff solutions. Excluding this activity, the segment grew by 1.1%, thanks to a strong recovery in Aeronautics and energy activities in the second semester. Contract retention slightly decreased in H2, including the full year impact of voluntary exits and non-renewals of some public contracts in Italy at the beginning of the fiscal year to reach 90.6% at the end of September 2025 versus 91% at the end of March and 91.2% 1 year ago. Following the rationalization of our portfolio, we expect contract retention to start improving from next year. Operational profitability increased again this year, thanks to maintained discipline on price increases, especially in the U.S., U.K., and France, continued productivity improvement in purchasing and labor. It is worth noting, despite a negative commercial balance in revenue, this still contributed positively to adjusted EBITDA, especially in France, underscoring our strategy of profitable growth. The Slide 9 illustrates the robustness of the foundation consolidated during the fiscal year '25 with a strong improvement in the profitability of contract catering activities, up 100 basis points driven by price increases in the U.S., U.K., and France, and accretive commercial development in Spain, the rationalization of our contract portfolio, and the streamlining of the operational organization in France and Italy. Excluding temporary staffing, there was a slight improvement in the profitability of Multiservices activities, up 10 basis points to 3% in fiscal year '25. This improvement came notably from the increase in the level of activity in the industrial sector in the second semester. The Slide 10 presents a major achievement for the past year with a positive pretax profit of EUR 65 million compared to a loss of EUR 5 million last year, an improvement of EUR 70 million and a positive net profit of EUR 87 million this year compared to a loss of EUR 41 million last year, an improvement of EUR 128 million. This turnaround is due to the continued improvement in operating profitability as just described, a decrease in amortization of intangible assets, down EUR 13 million due to a one-off charge last year in the U.S. for EUR 11 million related to short-term contracts. A sharp reduction in non-recurring charges down to EUR 9 million in fiscal year 2025, following the implementation of reorganization plans over the past 2 years, especially in France for both support and operational functions and in Italy to adjust the organization to the level of activity and regain commercial agility. Based on this year's strong performance and outlook, we activate net operating losses in the U.S. and France for a total of EUR 39 million, resulting in a tax benefit of EUR 22 million compared to a EUR 36 million tax charge last year. The adjusted net group profit stood at EUR 112 million, corresponding to an adjusted EPS of EUR 0.44. Moving to Slide 12. Free cash flow for the 2024-2025 fiscal year amounted to EUR 228 million, which represented 2/3 of the EBITDA that reached EUR 342 million or 5.6% of revenue. Free cash flow improved by EUR 13 million compared to last year, mostly from operations. CapEx amounted to EUR 144 million or 2.3% of revenue, up EUR 46 million or 70 basis points of revenue year-on-year. This increase included investment in Central Kitchen to ensure sufficient production capacity for new contracts, real estate investments to replace more expensive rentals in the long run and offer greater flexibility and the first phase of our transformation and innovation program to harmonize operational and financial processes within a common ERP platform on top of business as usual investments related to new commercial contracts or renewals. In addition to adjusted EBITDA, up by EUR 10 million, other components of free cash flow also improved compared to last year, notably the change in operating working capital, which contributed EUR 56 million, an improvement of EUR 32 million, thanks to better performance in the timely collection of receivables. The ramp-up of our new securitization program, which began in September 2024 and contributed EUR 89 million for the year, an improvement of EUR 6 million compared to last year. Non-recurring expenses amounted to EUR 15 million for the year, down EUR 11 million from last year following the completion of reorganization programs. IFRS 16 rents were EUR 81 million for the year, down EUR 4 million due to either termination of leases or renewal of leases under better economic conditions. Tax paid remained stable at EUR 17 million. The free cash flow contributed to reducing net debt from EUR 1.269 billion to EUR 1.125 billion at the end of September 2025. Financial interest amounted to EUR 97 million, plus EUR 13 million in refinancing costs for the revolving credit facility and the high-yield bond. IFRS 16 debt continued to decline, as previously mentioned, and tactical disposals and acquisitions resulted in a net increase of EUR 9 million for the year. The reduction of the net debt by EUR 144 million, combined with an improved adjusted EBITDA allowed us to stabilize our leverage ratio at 3.3x below the covenant of 4.5x and in line with our goal to fall below 3.5x by year-end towards a target of 3x in the short term. Moving to the next session on corporate social responsibility. This year, the group continued to implement its CSR strategy presented last year, Aimer sa Terre or Love your Earth, Horizon 2030. With the new CSRD requirements, we refined the double materiality assessment and identified 37 material items consistent with our strategy. The table shows significant progress this year in the four pillars of our strategy towards the 2030 targets. This is especially true for the first pillar, preserve resources with a significant step in reducing greenhouse, gas emissions, and contract catering activities, achieving a 7% reduction in fiscal year '25, supported by a doubling year-on-year of low-carbon recipes. 2/3 of single-use containers are sustainable packaging and a 42% reduction in food waste, getting closer to the 50% target in 5 years. Similarly, for the second pillar, sustainable food and services, recipes with the highest nutrition score rating increased by 12 points to reach 61% in fiscal year 2025, getting closer to the 70% target. Third, significant social progress was achieved this year, including a 10% decrease year-on-year in the frequency rate of workplace accidents. The promotion of internal resources to management position whenever relevant. This was actually the case for nearly half of vacancies this year. The group also strengthened its commitment to gender equality with 38% of women on leadership committees. Finally, the group expanded its local anchoring with 2/3 of national sourcing and maintain responsible sourcing with more than 15% purchased food products that are certified. In addition, the group has defined a decarbonization plan built around 9 levers of action and carried out a vulnerability assessment of its assets to physical risk, paving the way for adaptation plans. Moving to the business review section, starting on Slide 18 that shows the evolution of the securitization program in the second semester according to the seasonality of our sales. It is worth noting the weight of off-balance sheet compartment, reaching 82% at the end of March and 77% at the end of September 2025, up compared to previous years. It illustrates the quality of our receivables and the rigor applied in managing this new program. The right-hand side of the slide is a reminder of the maturity profile of our debt with extended visibility up to 2029 and 2030 following its refinancing at the beginning of the year. Liquidity remains solid in fiscal year 2025, globally stable around EUR 400 million since our refinancing at the start of the calendar year, supported by several factors: the securitization program providing an additional cash inflow of EUR 18 million at the end of September 2025. As a reminder, the ramp-up of this program in the first quarter of the fiscal year was accompanied by the repayment of the entire term loan at the end of December 2024 for EUR 100 million and a reduction of our bank overdraft credit line by EUR 14 million. The refinancing of the RCF and bond provided a positive net available liquidity of EUR 30 million. The success of our refinancing at the beginning of the year and improved performance already in H1 allowed us to revitalize our new commercial paper program, which reached EUR 81 million at the end of September and has since surpassed EUR 100 million, providing further visibility to this program. Finally, we executed the second annual repayment of the PGE, the state granted loan for EUR 56 million. Then we pursued the deployment of synergies from the combination of Elior and Derichebourg Multiservices with a further increase of EUR 4 million in recorded synergies and EUR 3 million in annualized synergies that reached EUR 43 million at the end of September. We have almost completed the implementation of cost synergies, while commercial synergies are gaining momentum and are expected to further ramp up next year. Following the rationalization of our contract portfolio, the commercial activity developed during the year demonstrated the relevance of our commercial and management organization closer to customers and greater empowerment of regional teams. New contract signings totaled nearly EUR 540 million on an annualized basis, resulting in net positive commercial balance of EUR 112 million, representing between 1.5% and 2% organic growth. In France, several notable signings occurred in both Contract Catering and Multiservices segments. for contract catering, the signing of next-generation campus in the utility sector in the Paris area, thanks to an offer meeting the needs of fluidity, diversity, and innovation catering. The signing of the Ministry of Ecology responding to a need to an offer integrating CSR innovation and inclusion. For Multiservices, contracts reinforcing our position as a leading player in retail and commercial spaces, the rehabilitation contract in the insurance sector demonstrating our capacity to manage multiple technical lots, including structural works. In temporary staffing solutions, the national expansion of a contract with a major logistics provider, strengthening our position in these sectors. Other examples of notable signings came as well from outside France, in the U.S. with the entry into the public university market with the signing of a large university, demonstrating our ability to win and deploy complex multisite programs and campuses. In the U.K., with the expansion in the business and industry sector following the recent rebranding to Elior at Work and the introduction of new culinary innovations with a particular focus on health, well-being and digital. In Spain, we contracted with a leading Spanish student residence operator, a fast-growing market for which Elior has developed a specific catering project, consolidating its market leadership. In Italy, commercial development was refocused on the private sector, especially in B&I, including a new site with a major player in defense and another contract in the health hygiene sector, strengthening our position in the high-end market segment. Moving to Slide 22. I mentioned previously the drivers of the CapEx increase in fiscal year 2025, reaching 2.3% in percentage of revenue. CapEx are expected to increase up to around 3% in fiscal year 2026, driven by two main factors. First, it is essential for our group to continue investing in its capacity to develop commercial activity in the education and early childhood markets, further strengthening our leadership position in this area. Investment to fulfill additional capacity requirements in our central kitchens were decided soon after Daniel Derichebourg took over as Group CEO. These requirements have been confirmed by a growing commercial momentum in this area. These are medium-term investments with the first deployment realized in fiscal year 2025 and a strong ramp-up expected this year in fiscal year 2026 to expand our regional footprint with around 10 central kitchens. Second, last semester, we announced the launch of a major transformation and innovation program to complete the integration of DMS and Elior activities on harmonized processes and common platform. Fiscal year '25 and '26 will be mainly focused on the design and building of the core model, while investment afterwards will support deployment in all our geographies. So while overall CapEx should actually increase up to around 3% in fiscal year 2026, the ratio should trend towards circa 2% in the midterm. It is also worth keeping in mind the time lag between the investment in new production tools and the subsequent generation of revenue, shorter for early childhood and aligned with school years for education. In other words, revenue growth objective for fiscal year 2026 include only partially the contribution expected from this CapEx made in fiscal year '26. So this leads us to the last section of this presentation, starting with the outlook for fiscal year 2025-2026. So after the efforts focused on optimizing the organization, pragmatically streamlining the contract portfolio and then developing commercial activity close to our customers, the 2025-2026 fiscal year should be marked by a return to growth, driven by price increases for which strict application is now established and a return to positive business development while preserving margin. Organic growth is thus expected to be between 3% and 4% in fiscal year 2026. The same 2 factors, price increases and business development should continue to contribute to the ongoing improvement of operational profitability with an adjusted EBITDA margin expected to increase by 20 to 40 basis points in the 3.5% to 3.7% range, framing a margin level equivalent to the last pre-COVID results. Finally, pursuing the net debt deleveraging remains a key priority with a leverage ratio to further decrease down to around 3x by the end of September 2026, consistent with our goal to further upgrade our credit rating. Conclusion on the -- to conclude on Page 25, with a further improvement in the profitability despite moderate revenue growth, this fiscal year 2025 demonstrated the robustness of the model that has been put in place under the leadership of Daniel Derichebourg. The commercial approach with greater proximity to customers and empowered regional teams started bearing fruit with a positive net development balance on an annualized basis, thanks to the new wins consolidating our leadership in historical and new market segments. Combined with price discipline that will continue with the same rigor, the operating margin is expected to improve to reach next year similar level to pre-COVID. Free cash flow generation and a prudent financial approach remain our priority while securing investments to support revenue growth and continuous productivity improvement. All these actions contribute to creating value for our shareholders with the payment of dividends that resumed this year and is expected to continue in the coming years. For the future, we expect the payment of dividends to trend towards around 30% of net result group share. So this concludes our presentation. We are now ready to answer your questions. Operator, could you please take the first question? Operator: [Operator Instructions] The next question comes from Jaafar Mestari from BNP Paribas. Didier Grandpre: Jaafar, we don't hear you. Jaafar Mestari: Us with some direction on what you expect in terms of net new business pricing and volumes, please, for '26. And secondly, on synergies, you said you almost completed the delivery. I just wanted to check if the total target is still EUR 56 million. So that would mean another EUR 10 million to EUR 15 million in the next year. The run rate seems to be lower than that. You're close to adding EUR 4 million synergies, I think, in the second half. So is there a jump in '26? Is the last batch a bit bigger? And lastly, in terms of your leverage targets, net debt to EBITDA at 3x at the end of '26. This is despite CapEx, which is going to be at least EUR 40 million higher, if I'm correct. Is that reduction in leverage mostly from a growing EBITDA? Or can we expect absolute debt to come down meaningfully in '26, please? Didier Grandpre: Sorry, I'm not sure we understood in full your first question, but my understanding is that you wanted to get more details about the driver of EBITDA improvement, of volume improvement, revenue growth for next year. So actually, the two main drivers that we see for next year are still the price increases that I would say we would expect between 1.5% and 2%. And then the volume and net development in the same range, meaning in total, this range of between 3% and 4%. So regarding the synergies, actually, most of the annualized synergies are made of the cost synergies to reach EUR 43 million. So we have I would say, still around EUR 5 million of cost synergies to be generated in fiscal year 2026. And we are expecting the ramp-up of commercial synergies that should increase, especially on an annualized basis in fiscal year 2026 to come around, I would say, the initial target. Then considering the leverage ratio of 3x at the end of September 2026, this is actually mainly driven by the EBITDA that is expected to increase next year in the same range as EBITDA, while, as you said, CapEx will further increase next year. At the same time, we need to keep in mind that we will have as well a further -- we're expecting as well a further ramp-up in the cash flow generated by the reduction of our operating working capital. We made really a very significant progress in fiscal year 2025, especially through the improvement of our collection of receivables. We still see some opportunities in some business lines. So they are part of the range we provided as well in our modeling details contributing to a further contribution of the operating working capital next year, that will be as well complemented by a further ramp-up of our securitization program. Operator: [Operator Instructions] The next question comes from Pravin Gondhale from Barclays. Pravin Gondhale: Firstly, on the next year EBITDA margin guidance of 3.5% to 3.7%. It appears a bit conservative given the ramp-up in organic growth as well as you are expecting net retention to go trend upwards next year, which should be margin accretive. Could you please help us provide some steer on what are the drivers of margin growth assumptions in your guidance there? And then secondly, the working capital securitization and factoring benefit of around $90 million this year, you explained that it was due to ramp-up of new securitization program. How should we be thinking about evolution of this in FY '26 and thereafter? Didier Grandpre: So on your first question regarding the EBITDA drivers, what we have seen in H2 and which was according to as per our expectation is that we will have in 2026, let's say, convergence of price increases towards close to a breakeven balance, while it was contributing this year to EUR 13 million on a full year basis, which is the first element. Second, we are actually expecting a further contribution of net commercial balance that should take also into account the slight impact of higher CapEx that will impact slightly the EBITDA moving forward. And then we are still expecting our operational efficiency plans to deliver further benefits. So I would say it will be mainly a split between the net development and efficiencies and synergies contributing to this increase between 20 basis points and 40 basis points next year. Then the expected contribution of the operating working capital is in the range that we have provided in the modeling details between EUR 40 million and EUR 60 million I would say, roughly speaking, you should expect 1/3 coming from the operational improvement, especially driven by a continuous improvement in the collection of receivables, as previously mentioned. The remaining part coming from the further ramp-up of the securitization program during the year, but still keeping in mind the seasonality, so meaning that we are still expecting a peak in mid-year around March as it was the case in fiscal year 2025 and then a decline in the second semester, which is offset in parallel by the free cash flow generation from operational activities. And after next year, we expect this to be fairly stable or slightly improving, but to a lesser extent. Operator: [Operator Instructions] The next question comes from Sabrina Blanc from Bernstein. Sabrina Blanc: I have two questions from my part. The first one is regarding the Multiservice performance. You have provided organic growth, excluding temporary staffing solutions. So I would like to understand, firstly, could you remind us the size of the temporary staffing solutions? And do you anticipate any, I don't know, selling or something like that regarding this activity or just to highlight the fact that this year, the activity was not very good. And my second question is regarding the taxes. I understood for 2025, you have benefited from positive element, but could we have a guidance for 2026, please? Didier Grandpre: So on your first question, the temporary staffing services are representing around 10% of Multiservices activity. We do expect this activity to come back to a positive territory quickly. That's why it was important for us to highlight that this year was an exceptional one. We have now a new management team fully in place with a new general manager, a new financial officer. They have worked on the reorganization of the activity. They have redirected the organization towards the commercial development. We have seen the first positive signs in terms of commercial momentum at the end of the fiscal year, and we are expecting the recovery to start already next year. So no other plans than recovering the level of performance that we used to get in the past. Regarding tax, we are not providing any guidance for next year. I mean, we are -- we still have some room to activate net operating losses as we did this year. Maybe it will be to a lesser extent, but it is today a little bit premature to assess what it could bring. Operator: The next question comes from Christian Devismes from CIC Market Solutions. Christian Devismes: I have one question about the growth guidance in 2026 in terms of EBITDA margin and EBITA margin because in 2025, we have an increase by 50 basis points in the EBITA margin, but only 10 basis points in the EBITDA margin due to the move in provision and so on. What should we expect in 2026? You guide on a growth of -- between 20 and 30 basis points on the EBITA margin. What should we expect on the EBITDA margin? Didier Grandpre: Yes. So you're right. So there were different movements in EBITDA and EBITA in the last 2 years. For 2026, we expect a kind of normalization, if you want, from that perspective. So our expectation is the same level of contribution at the level of EBITDA than at the level of EBITA. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks. Didier Grandpre: So this concludes our call today. Our next financial release will be on May 20, post market with our half year results for fiscal year 2025-2026. Until then, please do not hesitate to get in touch. Thank you, and good evening, everyone. Goodbye. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Peer Schlinkmann: Good afternoon, everybody, and welcome to the 9 months earnings call of the Wacker Neuson Group. My name is Peer Schlinkmann, Head of Investor Relations and Corporate Communications. Thank you for joining today on the occasion of the release of our 2025, 9 months results. As usual, we will first start with the operational and financial results of the 9 months 2025 and give additional insights on the recent developments. Following this, we are happy to answer your questions in the Q&A session. Available to follow today's call via the webcast, the presentation slides are also available for download at wackerneusongroup.com/investor-relations. Please note that the entire call, including the Q&A session, will be recorded and a replay will be made available on our corporate website by the end of the day. And now I would like to hand over to our executives, Karl Tragl and Christoph Burkhard, who will lead you through this call. Christoph Burkhard: Thank you, Peer. This is Christoph Burkhard, CFO of the Wacker Neuson Group. Welcome, everybody, to our earnings call, and thank you for joining. Karl Tragl: Dear all, a warm welcome from my side, too, and thanks again for joining the conference call. I'm Karl Tragl, CEO of the Wacker Neuson Group. I would like to start the presentation with a brief overview of our key financials for the first 9 months of 2025. Our operational recovery continued in quarter 3 of 2025. Despite a challenging macroeconomic environment, which had especially weighed on the first quarter of this year, we were able to increase both our revenue and EBIT margin in quarter 3 year-over-year. This positive development is, among other things, the result of efficiency measures that we initiated last year. Now let's take a closer look. Our revenue for the first 9 months of 2025 amounted to EUR 1.625 million, marking a 5.6% decline year-on-year. This decline was primarily due to the weak first quarter of 2025 as well as persistently weak demand in the U.S. Our 9-month EBIT margin in 2025 amounted to 6.0%, which is 0.3 percentage points below the previous year. Also here, we were negatively impacted by the weak beginning of this year. However, it is apparent that we have succeeded in further stabilizing our improved profitability. The EBIT margin in the third quarter was at 7.5%, thus nearly on the same level as in quarter 2 2025 despite the lower revenue base of quarter 3. Moreover, this quarter's EBIT margin was 2.7 percentage points higher compared to quarter 3 in 2024. Looking at the net working capital ratio, we see a slight decrease compared to previous year. However, our yearly strategic target of approximately 30% remains under pressure, especially due to the uncertainties in the U.S. market. Our free cash flow surpassed the triple-digit mark and amounted to EUR 116 million. Christoph will explain both developments in more detail. Now let's look at the developments of our business segments after the first 9 months of this year. In general, the overall picture remains challenging. Recovery of compact equipment was slower than initially expected. It faced a year-on-year decline of 10%. Nevertheless, certain product groups like dumpers differed from the general trend, demonstrating resilient customer interest in our innovative products. The Light Equipment Products segment stabilized and remained only 1% below the previous year. And moreover, services grew again year-over-year by 1%. The 9 months year-to-date book-to-bill ratio was at 1.1. Nevertheless, we see the agriculture as well as construction industries recovery slower than initially anticipated. We, therefore, keep monitoring our markets closely, and we remain cautious regarding the developments in the last quarter of 2025. Let's take a closer look at our regions during the last 9 months. Revenues in the Europe region, EMEA, after 9 months of 2025 stood at EUR 1.269 billion and made up 78% of our global group revenue. Also, quarter 3 of 2025 revenues increased year-over-year. The 9-month revenues remained 4% below the prior year, still impacted by the negative effects of the weak first quarter. Moving to Americas region, accounting for 20% of our group revenue, we saw a decline of 10%, resulting in revenues of around EUR 322 million. Demand in the first 9 months of 2025 was further characterized by greater caution in ordering behavior in the U.S. compared to Europe due to ongoing macroeconomic and geopolitical uncertainties, mainly due to the effects of the U.S. tariffs. Demand declined not only in the U.S., but also in Canada and Mexico. In the Asia Pacific region, which represents 2% of our business, revenue dropped by 21% to approximately EUR 34 million. The region was primarily characterized by a decline in demand in Australia and China. I will now hand over to you, Christoph, to give some more insights into our financials. Christoph Burkhard: Thank you, Karl. Let's take a closer look at where we stand with our net working capital. Our net working capital ratio based on the last 12 months revenue at the end of September stood at 32.4%, slightly below the value at the end of the second quarter in 2025. In comparison to last year's figures, however, the progress we made is more apparent. Over the course of 12 months, net working capital dropped by EUR 116 million from EUR 808 million at the end of September 2024 to EUR 692 million at the end of September 2025. This reduction is mainly driven by a steady reduction of inventories and an increase of trade payables in the last 12 months. This is the driving force behind the reduction of 1.8 percentage points of net working capital and in the net working capital ratio over the last 12 months, which stood at 34.2% at the end of September 2024. Now looking towards year-end, I expect a slightly higher working capital ratio, predominantly caused by higher inventories in the U.S. Alternatively, we could have adjusted our production plan for 2025 downwards to the current lower demand in the U.S. This again would have triggered underutilization in our European plants. In light of our stable cash flow generation and in preparation for 2026, we decided to prioritize stable production output over short-term working capital optimization, leading to this temporary increase in finished goods inventories by year-end. We believe that this is the right decision because we avoid additional underutilization costs and at the same time, we expect inventories to decrease again towards springtime due to overall market normalization in 2026. Now let's have a look at our cash flow. Although our revenues decreased by 5% quarter-over-quarter, we were able to keep our profitability stable on a level of above 7.5% on a quarterly basis. This is also reflected in our stable cash flow from operating activities. Therefore, we could continue in Q3 with a positive free cash flow generation now for the sixth quarter in a row. Due to the just mentioned rising inventories in the U.S. by year-end, I do not expect cash flow generation in Q4 to continue as in the previous quarters. However, I stick to my previously made statement of a triple-digit free cash flow number at the end of the year. Also on the positive side, we further reduced our net debt in Q3 down to EUR 258 million, reaching the lowest level since the first quarter in 2023. Consequently, also our leverage ratio reduced further down to 0.9. And last but not least, the picture of our capital structure is completed by a robust equity ratio of 60%. And with this, back to you, Karl. Karl Tragl: Thank you, Christoph. Before concluding with the current outlook, I would like to give you an update on the implementation of our Strategy 2030. Despite the challenging market environment, along our strategic levers, we are continuing to implement the milestones, which you can see on this slide. The John Deere Cooperation is fully on track. We have successfully started delivering first serial excavators for John Deere from this. At the same time, we are ramping up the production line of our U.S. plant for further models and will start their delivery in 2026. On the chart, you see a picture of our modernized production sites in Menomonee Falls in Wisconsin. I can tell you, it really looks good. On the other hand, we have advanced our light equipment portfolio. We expanded the range of reversible plates and also introduced new battery-powered versions. The battery-powered rammers gained on efficiency through a feature called the integrated speed control. The compaction performance can now be optimally adapted to the respective application. And last but not least, we have expanded our zero emission portfolio in compact machines and added 2 models of excavators. With just a 1.2 ton operating weight, ESET 10 electric is particularly well suited for applications with a restricted floor load such as indoors. The green illuminated active working signal increases safety on both internal and nighttime construction sites. The second model introduced, EZ26 Electric is a bigger tracked zero tail excavator. Its emission-free, quiet and low vibration operation makes it the ideal choice for legally restricted or noise sensitive and environmentally critical areas as well as for special work sites with local and time restrictions. As you can see, one of our strategic focus areas remains our investment in sustainable construction. We believe that this is the future of construction, and we are ready to seize the future opportunities. Now let's move on to our outlook for the year 2025. Also, we have a stable order book development in the course of this year, market recovery is slower than we initially anticipated. Industry outlook partially stagnated as well. And moreover, we have faced a significantly weaker market demand in the U.S. due to geopolitical uncertainty as well as the tariffs. Due to supply chain issues of Nexperia, we only expect a minor impact on our production in the last 2 months of 2025. However, we will closely monitor the situation. Due to all of these factors, we have decided to narrow our yearly guidance. For 2025, we now anticipate a revenue in the range between EUR 2.15 billion and EUR 2.25 billion and an EBIT margin in the range between 6.5% and 6.8%. We expect our investments to reach around EUR 80 million and our net working capital to be at around 34% by the year-end. As we already mentioned, we succeeded in stabilizing our improved profitability in the current market environment in quarter 3 of 2025. Looking ahead, we will continue to counteract the weak market, especially in the U.S. with efficiency measures and cost discipline. For 2026, we expect market recovery in Europe as well as normalization of market demand in the U.S. Nevertheless, we still remain cautious and track our market developments continuously. Summarizing the key messages from our first 9 months. Revenue is in line to reach full year guidance. Narrowed margin guidance is driven by underlying U.S. tariff impact and geopolitical uncertainties. We are ready to seize the opportunities in the years ahead presented by the German special fund. Strong balance sheet is our foundation to execute our Strategy 2030 and drive future growth. Before we now jump into the Q&A session, let me send a sincere thank you to all our employees of the Wacker Neuson Group, who relentlessly are giving their best for our customers and our company, even more so in challenging times. So really thank you. Nobody is perfect, but a team can be. Thank you for listening. Operator, we are now ready to start the Q&A session, and we're very much looking forward to answering your questions. Operator: [Operator Instructions] First question is from Stefan Augustin of Warburg Research. Stefan Augustin: The first one would be actually on the book-to-bill just for Q3. And let's say, with that, maybe a little bit the progression throughout the quarter. Was that rather a stable quarter? Or was it more, let's say, weaker versus the end, something like that and the color on the current situation. That will be the first question, and I'll take them one by one, 2 more. Karl Tragl: Stefan, thank you for asking the question. The EUR 1.1 billion in the year-to-date was driven by a lot in the April and the [Baumol] effect. In quarter 3, we have been fluctuating around EUR 1.0 billion. So it's stable at the situation. Stefan Augustin: Okay. The next one is then a little bit more complicated, and I try to square it a little bit up. Starting from the net working capital ratio that goes up to -- in the new guidance, 34%. And you mentioned the production shipment into the U.S. Is that the right calculation to think about if you are now at 32% and you go up to 34%, that is roughly something like EUR 40 million in additional inventory. And how would this square up with shipments from Linz to the U.S. for Deere, which have been mentioned, I think, in the range around EUR 20 million for this year. Is there other shipments that are also impacted here? Or is it inventory that is not only in the U.S.? How do you need to think about that? Christoph Burkhard: Stefan, Christoph here. Well, you need to add to your John Deere calculation, of course, the imports from Europe that are already phased into 2026. And that, of course, is easily adding up to the number that you have in mind. I don't know, could -- is that the direction you wanted to. Stefan Augustin: Yes. I think I get this now. I just wanted to come, let's say, how do I come from the EUR 20 million to EUR 40 million, but that's a plausible answer. And then you cut on your investments. Is that actually something you abandon here? Or is that push out? And what is -- what has been, let's say, what is the cause of the lower -- the EUR 20 million lower investments? Where do you think? Karl Tragl: Stefan, Karl speaking here. There is no major investment which has been affected by this one. It's just many smaller investments, which we just moved a little bit forward to be on the safe side on that end. So it doesn't affect any future growth or any strategic investments. I would call it, it's a normal effect of cautious cost and cash flow management in such a situation. Christoph Burkhard: And Karl, if you allow me to add one thing here, Stefan, something that sometimes gets a little bit in the background is that our investment number does also comprise investments in terms of our sales network and sales channels. And so we are always evaluating, will we now replace a certain sales outlet. We will replace rent by a purchase of building and real estate, et cetera. So there are just some moving parts where we can be more conservative on the investment side without basically affecting the plants that are really adding to our capability for innovation. So it's not purely plant related. Stefan Augustin: All right. And then the last one is maybe a little bit on the pricing situation. What do you see right now? Is it okay? Or is it starting to deteriorate in Europe or the U.S.? How do we have to think about that one? Christoph Burkhard: Yes. Pricing situation, pricing expectations towards 2026, Stefan, let me differentiate between 2 major areas here. The first one is, I think we have been discussing that is the current situation in the U.S. where we encounter really difficult to increase prices. Here, we believe that -- I know it's a little bit vague, but sooner or later, I think the market will have to accept some price increases. I know this is pretty fuzzy, but that's, I think, all of us, even -- and also our competitors are calculating with this for 2026. And so the first part of the -- of our expectation that we will see modest price increases in 2026 is certainly in the U.S. And the second area for Europe, I think we will see the regular slight increase. So altogether, a slightly positive trend from our point of view. Stefan Augustin: Okay. And finally, a bit of housekeeping question. Can you remind us on the ramping up, the phasing of the Deere operation going from this year, the EUR 20 million to what roughly bracket in '26? And when does the production start in the U.S. Karl Tragl: Okay, Stefan, let me take the question. Karl speaking here. On the first hand, I would just want to remind us all that this is another partner who is not on the table, and we have to be careful not to jeopardize any communication from that side, especially we talk about start of production or start of deliveries. But in general, what we can say is, as I said, the cooperation is fully on track at the time we both agreed. Linz is fully operational, as we mentioned. There is start of production in U.S. by end of this year for the first model, which means then delivering next year. And as we always communicated, we are working with a 1-year interval in between 2 start of productions. So start of production of the next model is then obviously somewhere second half of next year in U.S. Operator: A lot has been clarified. I see there are no more questions in the queue right now. [Operator Instructions] There seem no questions to be incoming anymore. So with that, I'm handing the floor back over to Peer Schlinkmann. Thank you. Peer Schlinkmann: Thank you. Ladies and gentlemen, as we can see, there are no further questions left from you. That brings us to the end of our conference call. As usual, if you have any further questions, please do not hesitate to contact me or the entire Investor Relations team via phone or e-mail. If you would like to meet in person, please let us know or check our website and financial calendar for all relevant roadshow days in the coming months. Thank you again for joining our call, and we wish you all a wonderful winter and Christmas season. Have a great day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies, Inc. Third Quarter Fiscal 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. At that time, if you have a question, you will need to press star 1. This conference call is being recorded, 11/19/2025. I would now like to turn the conference over to Mr. Ernie Herrman, Chief Executive Officer and President of The TJX Companies, Inc. Please go ahead, sir. Thanks, Courtney. Ernie Herrman: Before we begin, Deb has some opening comments. Operator: Thank you, Ernie, and good morning. Today's call is being recorded and includes forward-looking statements. Deb McConnell: About our results and plans. These statements are subject to risks and uncertainties that could cause the actual results to vary materially from these statements, including among others, the factors identified in our filings with the SEC. Please review our press release for a cautionary statement regarding forward-looking statements as well as the full Safe Harbor statements included in the Investors section of our website, tjx.com. We have also detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and in the Investors section of tjx.com along with reconciliations to non-GAAP measures we discuss. Thank you. And now I'll turn it back over to Ernie. Ernie Herrman: Good morning. Joining me and Deb on the call is John. I'd like to start by thanking our global associates for working together to deliver our shoppers an exciting assortment of merchandise at excellent values every day. I truly appreciate their continued hard work and dedication to The TJX Companies, Inc. Moving to our third quarter performance, I am extremely pleased that comp sales, profitability, and earnings per share were all well above our plan. Our overall comp sales increase of 5% was driven by strong comp sales growth across each of our divisions. Clearly, our value proposition continued to resonate with consumers in The United States, Canada, Europe, and Australia. And we are confident that we gain market share across each of these geographies. With our above-plan results in the third quarter, we are raising our full-year guidance for sales and profitability. John will detail our results and guidance in a few minutes. As to the fourth quarter, we are off to a strong start and as always, we'll strive to beat our plans. I am very excited about the initiatives we have underway for the holiday season. We are convinced that we will keep attracting shoppers to our retail banners. Availability of quality branded merchandise has been exceptional and we are in an excellent position to flow a fresh assortment of goods to our stores and online. We feel great about the strength of our business and are confident that our flexibility, wide customer demographic, and focus on value will continue to be a tremendous advantage. I'll talk more about our fourth quarter opportunities in a moment, but first, I'll turn the call over to John to cover our third quarter results in more detail. Thanks, Ernie. I also add my gratitude to all of our associates for their continued hard work and commitment to The TJX Companies, Inc. John Klinger: Now I'll share some additional details on the third quarter. As Ernie mentioned, our consolidated comp sales growth of 5% came in well above our plan. This was driven by a combination of a higher average basket and an increase in customer transactions. Further, we saw strong comp increases in both our apparel and home categories. Third quarter pre-tax profit margin of 12.7% was up 40 basis points versus last year and well above our plan. Gross margin increased 100 basis points versus last year. This was due to an increase in merchandise margin, primarily driven by lower freight costs, expense efficiencies, and expense leverage on sales. Importantly, we are very pleased with our mitigation strategies which allowed us to offset all the tariff pressure we saw in the third quarter. SG&A increased 60 basis points versus last year. This was due to incremental store wage payroll costs, a contribution to the TJX Foundation, and higher incentive compensation accruals. Net interest income negatively impacted pre-tax profit margin by 10 basis points versus last year. Third quarter diluted earnings per share of $1.28 increased 12% versus last year and was also well above our expectations. Lastly, we are extremely pleased with our third quarter pre-tax profit margin came in 60 basis points above the high end of our plan. In the third quarter, merchandise margin was stronger than we expected driven by lower freight costs, and we saw a benefit from expense leverage on the above-plan sales. Further, with our above-plan results, we had higher incentive compensation accruals and made a contribution to the TJX Foundation. Now to the third quarter divisional performance. At Marmaxx, comp sales grew by an outstanding 6% with strong increases in both our apparel and home businesses. It was also great to see strength in our store performance across all regions and income demographics, which speaks to the broad-based appeal of our values. The comp increase was driven by a higher average and growth in customer transactions. Marmaxx's segment profit margin was 14.9%, up 60 basis points versus last year. We were also pleased with the results at our Sierra stores and U.S. e-commerce businesses which we report as part of this division. We are extremely pleased with Marmaxx's momentum and continue to see terrific opportunities for our largest division to grow its footprint and capture additional market share. At HomeGoods, we continue to see very strong sales momentum with comp sales up 5%. Segment profit margin improved to 13.5%, up 120 basis points versus last year. With our highly differentiated mix of home fashions from around the world, at our HomeGoods and HomeSense banners we are confident that consumers will continue to be drawn to our stores. Further, we see a significant opportunity to further grow our store base and attract more customers which we believe will allow us to capture a bigger piece of the U.S. home market. TJX Canada's comp sales increased an outstanding 8%. Segment profit margin on a constant currency basis was 14.9%, down 20 basis points versus last year. Which was driven by unfavorable transactional foreign exchange. As the leading off-price retailer in Canada, our Winners, HomeSense, and Marshalls banners have excellent brand awareness and strong customer loyalty. We believe our position as a top value retailer in Canada sets us up very well to continue our growth in this country for many years to come. At TJX International, comp sales grew 3% with increases in both Europe and Australia. Segment profit margin on a constant currency basis increased to 9.2%, up a very strong 190 basis points versus last year. Ernie Herrman: We are convinced that we will continue to gain market share across John Klinger: both Europe and Australia. Looking ahead, we're excited about our growth plans in our existing countries and our planned entry into Spain in 2026. Moving to inventory. Balance sheet inventory was up 12% and inventory on a per-store basis was up 8% versus last year as we've been buying into the excellent opportunities for quality branded merchandise we've been seeing in the marketplace. Availability of quality merchandise has been terrific. And we are strongly positioned to flow fresh assortments for our stores and online this holiday season. As to capital allocation, we continue to reinvest in the growth of the business while returning $1.1 billion to shareholders through our buyback and dividend programs in the third quarter. Now I'll turn it back to Ernie. Ernie Herrman: Thank you, John. Now I'd like to highlight some of the opportunities that we see to drive sales and transactions in the fourth quarter. First, I am convinced that our retail banners will be a shopping destination for value-conscious shoppers this holiday season. As always, we believe consumers will see compelling values throughout the store every time they visit us. We see this as a major differentiator as our customers can shop our excellent values every day and not have to wait for sales, or promotional days like they do for many other retailers. Second, we believe we are strongly positioned to be a top destination for gifts. With the excellent availability of merchandise we have been seeing, we are confident that we will have a very exciting assortment of gifts this holiday season. Importantly, we plan to have gifting options across good, better, and best brands so our shoppers can find something for everyone on their list. At prices that fit their budget. Additionally, after the holidays, we will remain focused on being a gifting destination year-round. Next, we will be flowing fresh selections to our stores and online multiple times a week throughout the holiday season. We believe this differentiates us from many other major retailers as our ever-changing mix of merchandise allows shoppers to see a new assortment every time they visit. Further, we believe this may encourage shoppers to visit our stores more frequently to see what's new. I am also excited about our post-holiday initiatives to transition our stores to the categories and trends that we believe consumers want. John Klinger: Lastly, Ernie Herrman: we are excited about our holiday marketing campaigns. We recently launched our campaigns across a variety of media channels with an emphasis on digital. At every division, we believe our campaigns position us as a destination for holiday decor and inspiring gifts at terrific values. John Klinger: Further, Ernie Herrman: we are targeting a wide consumer demographic to emphasize that our values are available to all shoppers, to all our shoppers every day. We believe our campaigns will keep our retail brands top of mind and may encourage cross-shopping of our banners and attract new customers this holiday season. John Klinger: Now I'd like Ernie Herrman: to quickly summarize the key reasons why I am so confident that we are in an excellent position to continue our global growth and increase market share over the short and long term. First, we're convinced that consumers will continue to seek out value. Our value proposition of brand, fashion, quality, and price sets us apart from many other retailers and has served us extremely well through many kinds of retail and economic environments over the course of our nearly fifty-year history. Second, we successfully operate stores across a very wide customer demographic. We curate each of our stores individually to appeal to shoppers across various income and age demographics. Further, we continue to see our customer growth driven by both attracting and retaining shoppers across age groups. Next, we are confident that the flexibility of our buying, planning, and allocation, store formats, systems, and supply chain will continue to be a key advantage. Operator: Fourth, Ernie Herrman: we still see significant store growth ahead with a long-term store target of 7,000 stores just for our current countries and Spain. Additionally, with our joint venture in Mexico and investment in The Middle East, we have further expanded our off-price reach around the world. All of this gives us great confidence that we have a tremendous opportunity to capture additional market share globally. Operator: Fifth, Ernie Herrman: I am extremely confident that there will be more than enough quality branded inventory in the marketplace to support our growth plans. As a growing retailer around the world, vendors can use our nearly 5,200 stores as a way to clear excess inventory, grow their business, and introduce their brands to new consumers. Next, we are convinced that the appeal of in-store shopping is here to stay. We see our treasure hunt shopping experience as an important advantage and believe it will continue to resonate with consumers. Further, we make it very easy for our customers to shop our banners by locating our stores in convenient, easy-to-access locations, and offering them the ability to shop multiple categories across our store very quickly. Most importantly, I truly believe the depth of off-price knowledge and expertise within The TJX Companies, Inc. is unmatched. We have many leaders across the company with decades of off-price experience who are laser-focused on driving the current business at a very high level while also teaching and developing the next generation of TJX leaders. We also have a very deep bench which gives us the ability to rotate talent between divisions and geographies. Finally, I am so proud of our culture. Which I believe has been a major contributor to our long history of strong performance. Summing up, we are extremely pleased with the overall performance of The TJX Companies, Inc. in the third quarter and the momentum of the business entering the holiday season. I am so proud of the continued execution of our teams around the world and their relentless focus on our value commitment to our shoppers. We remain convinced that we have significant opportunities for growth and believe we can continue to capture market share around the world for many years to come. Finally, I am pleased to share that during the third quarter, we published our 2025 Global Corporate Responsibility Report. The report covers our ongoing work across four key areas: workplace, communities, environmental sustainability, and responsible sourcing. We invite you to learn more by visiting our website tjx.com. Now I'll turn the call back to John to cover our fourth quarter and full-year guidance. And then we'll open it up for questions. John Klinger: John? Thanks again, Ernie. I'll start with our fourth quarter guidance where we are planning overall comp sales to increase 2% to 3%, consolidated sales to be in the range of $17.1 billion to $17.3 billion, pre-tax profit margin to be in the range of 11.7% to 11.8%, up 10 to 20 basis points versus last year's 11.6%. Gross margin to be in the range of 30.5% to 30.6%, flat to up 10 basis points versus last year. SG&A to be in the range of 18.9%, which would be 30 basis points favorable versus last year. We're assuming net interest income of $26 million which we expect to delever fourth quarter pretax profit margin by 10 basis points. Our fourth quarter guidance also assumes a tax rate of 25.4% and a weighted average share count of 1.12 billion shares. Based on these assumptions, we expect fourth quarter diluted earnings per share to be in the range of $1.33 to $1.36, up 8% to 11% versus last year's $1.23. Moving to the full year. We now expect overall comp sales to increase by 4%. We are increasing our full-year consolidated sales guidance to a range of $59.7 billion to $59.9 billion. This increase reflects the flow-through of the above-plan sales in the third quarter. We are increasing our full-year pre-tax profit margin guidance to 11.6%, up 10 basis points versus last year's 11.5%. Moving to gross margin, we now expect it to be 30.9%, up 30 basis points versus last year's 30.6%. We now expect full-year SG&A to be 19.5%, a 10 basis points unfavorable versus last year. We're assuming net interest income of $111 million which we expect to delever fiscal 2026 pretax profit margin by 10 basis points. Our full-year guidance assumes a tax rate of 24.5% and a weighted average share count of approximately 1.13 billion shares. As a result of these assumptions, we're increasing our full-year diluted earnings per share to be in the range of $4.63 to $4.66, up 9% versus last year's diluted earnings per share of $4.26. In terms of tariffs, we're assuming that the current level of tariffs on imports into The US will stay in place for the remainder of the year. As such, our guidance assumes that we will be able to continue to offset the tariff pressure on our business in the fourth quarter. In closing, I want to reiterate Ernie's confidence in our plans for the remainder of the year and our long-term opportunities going forward. I want to emphasize that we remain in an excellent position to continue to invest in the growth of our company while simultaneously returning cash to our shareholders. Now we're happy to take your questions. As a reminder, please limit your questions to one per person so we can answer as many questions as we can. Thanks and now we'll open it up to questions. Operator: Thank you. To join the queue, press 1. Our first question comes from Brooke Roach from Goldman Sachs. Good morning and thank you for taking our question. Ernie, I'd love to hear a little bit more about what gives you confidence in continuing to deliver the comp momentum as we come up into a tough compare for the holiday season. John Klinger: And then Operator: can you also give a little bit of commentary on what the benefit was to comp in the quarter from AUR and pricing growth and what your plans are for pricing and price gaps as you deliver value into the holiday season. Thank you. Ernie Herrman: Sure, Brooke. Well, in the comp momentum, you can see we've been kind of building momentum for a bit now, right? It's going back a number of months. I think when you look around the board here, at the opportunity to deliver a shopping experience and merchandise, that is branded at tremendous value across good, better, and best. And then you look at the lack of that customer mission being serviced really by anybody else around us. Nobody is really doing that. So, and I'm talking good, better, best, branded. At tremendous value. In a shopping environment, which I think over the last decade has become more important to consumers in terms of not only the merchandise but our shopping environment is very pleasant. Our associates are very accommodating. They're happy. We're providing, I think, an overall pleasant, exciting treasure hunt shopping experience. Even if they're running for treasure hunt. Our consumers, and we have data on this, really enjoy shopping. It's a very positive experience. And contrast that with what's happening around us, And I think ultimately that's why our formula just bodes well in terms of confidence in our comp momentum. Yeah. John, did you want to jump in? Yeah. I mean, just to give you some color on the cadence and the build of the comp. John Klinger: So the cadence in the quarter was very consistent by month, which was really nice to see. As to transactions, and basket, both transactions and basket were up with basket driving a little bit more of the comp within And within basket, ticket was the driver. Ernie Herrman: Does that help you, Brooke, with that part of that question? Deb McConnell: Yes. Very helpful. Thank you. Ernie Herrman: Yes. But you had kind of a third part which I believe was around the you know, the pricing gap, which, you know, it's on what John is getting at. But clearly, another component is our merchants are so driven by keeping a gap on our retail against the out the door We've talked about that many times. And I think that's what speaks to the third question you were getting at is, we will continue to shop aggressively competition, which by the way is clearly all retail, whether it's online, whether it's brick and mortar, at mass market, discount, or department stores or specialty, And then we will ensure, as we always do, that our out the door retail retail is below their, promotional retailer promotional retails. And we'll continue to do that regardless, you know, and that's where it gets down to item and SKU and that, you know, our teams are so good at staying laser-focused on executing that. So, that, by the way, I guess you could argue another component of being confident in our continued momentum. Operator: Thank you, Ernie. John Klinger: You're welcome, Brooke. Operator: Our next question comes from Paul Lejuez from Citi. Ernie Herrman: Hey, thanks guys. Just a John Klinger: follow-up on the traffic and ticket. I'm curious if if it was mix that drove the basket. When you think about the higher people? So I will Ernie Herrman: Sorry, Paul. That didn't come. Can you, repeat that first part? Paul Lejuez: Sure. I'm curious. If it was mix that drove the basket. In terms of higher AUR, higher ticket. Or are you seeing true true price increases? Based on what's happening in the competitive landscape? Are you seeing that opportunity to take prices higher across the assortment because others are doing the same? And then I'm also just curious if you could talk about the income demographic comment. I think you said consistent performance. Was curious if you were referring to The United States specifically, or if you could maybe talk about income demographics in other geographies as well, any differences that you're seeing? Ernie Herrman: Sure. Yeah. Paul Lejuez: So when you break down the ticket, John Klinger: it was a bit more of the price versus the mix. That drove that. Don't know if Ernie, do you want to expand on that? Yeah, sure. Yeah, Paul, I think it was Ernie Herrman: combination, but I think a little bit more was due to, yes, some of the pricing, that's gone up, as selectively throughout as other prices have gone up around us. I think you've seen many reports about other retailers talking about having made some price adjustments on certain items, categories Again, we and some of those cases have followed suit. Based on what we've had to pay. In retail. But again, I go back to what I had said to Brooke at the end of that question, her third question, is we are extremely diligent on making sure we're providing in some cases, at least as good a value as we were prior. In fact, our value perception scores, which we are always monitoring, extremely strong. Of course, one would probably guess that when you look at sales, you would say that if the value perception wasn't strong, we probably wouldn't be doing these pump sales. Paul Lejuez: So I think as John said, that was probably the chunk Ernie Herrman: of the reason. But merchandise mix does certainly impact Again, I wanted to emphasize we do not top down drive the retail ticket. We're insisting on the right value. And then our down at the buyer and level, the ones that really determine where the retail should be. Right. There's a John Klinger: a good part of our mix that you know, we're not buying, you know, the same thing over and over Yeah. When when we look at ticket, we're really looking at, it within the department. And so sometimes it can be a little challenging to read. Paul Lejuez: But Ernie Herrman: But Getting back to your income demographics, John Klinger: the vast majority of our geographies, it was it was close. I mean, it's both income demographics that we kind of break it down and how we look at it, we're very, very close. But it was the lower income demographic that was driving the comp in the majority of our geographies. Paul Lejuez: Got it. Thank you, guys. Good luck. Ernie Herrman: Which Paul brings up know, because you hear you're I'm sure all of you have heard many different reports on in some cases articles about the upper end or luxury retail driving some of the, you know, again, I always emphasize the strength in our business model is that we're have a balanced approach. Right. Where we have all we try to appeal to all ages and all in condemn And we never veer off that mission really for times like this and times when things get better or times where people are struggling. We want to appeal to all income demographics. Which is why we're seeing consistent across all the income demographic bands we look at. Paul Lejuez: All right. Just as a follow-up, is that unusual that it would be the lower income demos that are outperforming at the same time that you're seeing ticket go higher? John Klinger: No. It's been like that for the last number of quarters. I mean, because really for quite a long time, we've been seeing strong across all income demographics that sometimes it'll tip one way or the other. That's what we're seeing is just a tipping of of it rather than a trend. Ernie Herrman: It's not a long term trend, yeah. Yeah, so and Paul, we have Paul Lejuez: we have Ernie Herrman: and when John says the strength, you know, all the income demos are healthy. It's just that one's nudging a little bit In other words, a lot of we we are happy with the all the different income groups. That one's just nudged up a bit. In the in the recent. Paul Lejuez: Broadcast. Thanks, Gus. Welcome. Operator: Our next question comes from Alex Straton from Morgan Stanley. Deb McConnell: Great. Thanks so much. I've got one for John and then maybe one for Ernie. Alex Straton: So John, just on the gross margin guidance for the fourth quarter, can you talk about what changes to make that year over year expansion a little bit less than what we've seen in the last couple of quarters? And then for Ernie, a bigger picture question. A lot of discussion around AI disintermediation in retail. Especially with the use of personal digital shoppers. So I'm just wondering how you think about what these developments mean for TJ and what your broader kind of AI strategy might be more generally? Thanks so much. Ernie Herrman: Yes. Go ahead, John. So John Klinger: on the gross margin for the fourth quarter, the reason why is it's really how we are handling our shrink accrual for the year. Because we had a favorable shrink came in last year, so we're up against the adjustment in the fourth quarter that that brought the shrink rate down from our plan. So we have favorable shrink comparison to last year for Q1, Q2, Q3. And in Q4, we're up against a negative comparison last year. Does that make sense? Or I'm sorry. We're up against the positive adjustment last year, this year, which creates a negative compare Paul Lejuez: Is that good, Alex, on that? Yeah. Alex Straton: Yep. It is. Thank you. Okay. Paul Lejuez: So and on the, yeah, the bigger picture AI question, which of course Ernie Herrman: no topic is highlighted more than AI and the world we're in today. Our teams are all over this from a couple's perspectives. But let me emphasize that we're doing it in a TJX approach manner. In terms of where would it dovetail into helping us without us swinging a pendulum and doing something that could be counterproductive. So we are pretty aggressively evaluating and testing and deploying AI really across our business to help us work more efficiently and enhance and augment really the work our associates are doing. So you had mentioned I think, some example, but areas we would look at it right now testing is enhancing our fraud detection and security. There are aspects to that that could work out well. In store analytics, really helping with that process. Enhancing customer service. I'll give you another one. HR, where I think we're going to get some really big benefit. Is in some HR processes. Where there's a lot of information that could be somewhat cumbersome. As big as we are today, I think that's going to help streamline a lot of a lot of work for some of our HR associates there. Enhancing customer service, I think I mentioned. Marketing, a recent discussion we just had is marketing optimization. This is something going on around us. And we are taking a look. It's really at the beginning to see what processes there would benefit from us implementing AI. So we are can't tell you details, but we are taking a hard look and we'll be testing some services there. To see if we can move that further. Obviously it goes without saying we'd be looking at supporting buying and planning in a way, again, in a way that's still allows our merchants to function with the secret sauce that we do not want to be impacted by AI if that's not appropriate. So we're always very careful with that. But of course, we wanna be aware of it and look at it. And then helping IT teams deliver and operate more efficiently that would was one of the first places we were looking at this a number of years ago. And the last thing here, Alex, I would say is are also, the teams are really terrific and are I give our IT area credit that they're always looking at what are other people doing with AI. So that we're always aware competitively speaking so that we don't get blindsided on something we should have been looking at and somebody else is. So that's probably a little more info than you needed. But I think that kind of explains to you we're on John Klinger: Part of that last comment that I already made, you know, have established cross functional governance that process that just ensures that we are thoughtfully proceeding on looking at AI. Alex Straton: Great. Thanks so much. Good luck. Ernie Herrman: Thank you. Operator: Our next question comes from Matthew Boss from JPMorgan. Paul Lejuez: Thanks and congrats on a nice quarter. John Klinger: Thanks, Matt. Thanks, Matt. Paul Lejuez: So Ernie Herrman: Ernie, could you elaborate on just on the overall acceleration Matthew Boss: at Marmaxx, new customer acquisition, relative to expanded basket from your existing core And and if you could elaborate on the strong start to the fourth quarter, have you seen any softening in business or just opportunities that, that you see for holiday this year? Paul Lejuez: So Ernie Herrman: you're you're you're laying it up for me here, Matt. It's a new Always early. John Klinger: Yeah. I appreciate it. Now the new customer Ernie Herrman: acquisition, clearly, we're it's funny. We just talked about this a week ago, I do it my marketing team in the analysis group there. We're clearly capturing new customers consistently and above the balance that we did before. We're getting equal equal momentum from that as well as our infrequent and frequent customer spending. I think we have I give the Marmaxx team credit on just really terrific execution. They have right now, if you look in the store, a very balanced mix across all the families of business. And that's one reason I think we're capturing the market share we're capturing, which is apparel has kicked in. By the way, we sometimes talk when weather has been against us. I would tell you right now weather has helped us recently. So, that certainly is a plus in Marmaxx on certain categories. But when you look at our apparel and non-apparel business there, it's healthy across the board. So yeah, I think you start to touch on this, Matt. There is no area that's really lagging too much. Otherwise, by the way, we wouldn't it's hard to have Marmaxx run a six comp if we did have a high liability department that wasn't performing. So that's been you know, really strong. Their inventory position, now you go to kind of the root of what's going on and why I have the continued confidence back a little bit back to Brooke's first question is the availability in the market is just, I've used this before, the off the charts. I didn't use it in the script, but it's off the charts. So we have so much availability across the brands in many categories. And some more availability in some of the categories that we haven't seen in a while. So I think that is going to bode well for our next quarter. And when you're consumer right now, given the lack of excitement at retail around us, that's making them very open to trying us. Which is why, you know, we have really strong holiday marketing campaigns set up that really talks to our value leadership over next couple of months. And that's why I mentioned on the script, we're so excited about the different marketing creatives, which are really aimed at keeping us top of mind with consumers and are encouraging consumers that haven't tried us to try us for the first time. And that's why I think the new customer and infrequent customers in customers that may have shopped us a year ago and haven't been back That's what our marketing is aimed at, taking advantage in this environment. John Klinger: And then I'll just reiterate what Ernie has said upfront. John Klinger: Earlier in the call that we continue fund payroll appropriately in the stores We continue to invest in remodels in the stores. We've got fixtures that make it easier for customers to shop the stores Operator: Thanks. Good morning. Ernie, are there any categories Morning. Ernie, are there any categories or customer demographics where raising prices has been less successful? And how quickly can you pivot if you see pushback to some of this price over the holidays? David: Yes, great question. We we Ernie Herrman: actually I won't say what it is. We have one category, only one, you know all the categories we have, where we weren't happy. We pivoted back and brought the retails right back to where they were pre the adjustment. Other than that, would say we're 95% successful on the pricing strategy. Again, we don't lead the pricing strategy. We wait for the market around us. So even on that one category, what must my guess is our competitors on that category probably had to adjust their retails too, because we only went up when their retails were going up. And then we found out if it wasn't good for us, there's there's no way it was good for them. So, no, other than the one I'm thinking about, we have been successful across the board Having said that, just on some we've had couple of items. I'll hear it from a couple of the merchants where we tried this one and this one SKU, even though it was in a category where it's worked across the board. We might have a SKU that didn't work because it might just not, it might be bumping up against something or whatever. In our own mix. Because sometimes they have to compete in our own mix And even the pricing, if it went up around us, and we try to take it up because it went up around us it's still hanging with our other goods. Sometimes it doesn't work. So But absolutely, Lorraine, 95% success And very few, we're very careful on it. Which is why not only do we judge it off the actual hard data where we watch selling by SKU, every week. We also use our value perception scores. We keep a constant pulse on that. And the speed at which we turn our inventory gives us the flexibility to react quickly. Great point, John. Yep. Yep. Thank you, guys. Good question, Lorraine. Yeah? Operator: Our next question comes from Ike Boruchow from Wells Fargo. Hey, good morning guys. Congrats Ernie Herrman: Two from me. Similar to Lorraine's question, Ernie, Deb McConnell: are there categories that you've intentionally deemphasized or pushed harder because of tariffs because you look at the economics of each category. Just kind of curious how you think about that. And then, look, clearly, business is not seeing any issues. But you know, very high level, I'm sure you guys have tons of KPIs or markers you look at to kind of judge The U. S. Consumer Is there anything that you've seen over the past couple months kind of going into holiday that at all shows you that The US consumer is under some level of pressure. I think it's still a debate at this point. Just kind of curious how you guys view that at a high level. Ernie Herrman: Sure, Ike. On the first one, the d, you know, the d deemphasizing category, so to speak, if we were running into a tariff We have done that to a little degree. What's happened though, the cycle tends to come back because when they're imported like that, eventually their other accounts kind of back up And so if people back off enough, again, we're not not the importer. So we're able to negotiate through the third party. And we just might have a lag. We don't consciously deem deemphasize over the long term. We just might take what's called our internal sales and inventory plans. They're called ladder plans. We might take those down for a couple of months, but then the market cycles back. We've seen that happen in numerous times. Because you know, we're not ready to take a big price increase if the vendors are coming to own a category if we can't show the great value. So it kind of works its way through the system. So a great question That's in those cases, and yes, we have done it in a couple of cases, we just wait for the cycle to come back to us in a couple of months. Tariffs overall, I mean, we we don't really get different data than what all of you get. We can see that prices have been going up across many retailers and many categories. And it's been talked about as either it's been done or they're looking at doing it. And I would, my barometer for our other retailers struggling a little is the fact that the availability of merchandise across the board is so high across good, better and best that would lead us to believe that other retailers are struggling with some of the impact of the tariffs, I guess. So but again, we don't get any outright. That's just a pulse from what we what we see in the market. Yep. Deb McConnell: Very helpful. Thanks. Operator: You're welcome. Our next question comes from Michael Binetti from Evercore ISI. Deb McConnell: Hey guys, great quarter. Thanks for taking our questions here. Ernie Herrman: I had a couple on the margin. First, on the gross margin, John Klinger: So in third quarter, you'd I think you'd started the guidance at about five to 15 basis points of improvement on a two to three comp. You obviously beat it by a lot. Sounds like freight was a key upside driver. So a couple of questions on that. Just since the shrink dynamic should be kind of contained to fourth quarter, does that freight benefit roll off in fourth quarter? Could you talk a little bit about what's driving freight, if that's something that could contribute after fourth quarter? Secondly, I'm also curious if there was a mismatch of any kind in the quarter between tariff costs and pricing, also what that dynamic looks like in fourth quarter. Sounds like you expect to offset tariffs. But I'm wondering if that if the tariff headwind does get tougher in fourth quarter. And then finally, just on I guess, the pretax margins more broadly, are there any early signals of margin headwinds we should keep in mind as we look at our models for next year, either across the company or at the Marmaxx or HomeGoods divisions. Deb McConnell: Yeah. So Michael, just on the freight piece. So for for freight, it was a combination of favorable ocean rates and efficiencies that we Ernie Herrman: we implemented as far as movement of our merchandise. Deb McConnell: And that's really what drove that freight piece. John Klinger: And then as far as tariffs go, Deb McConnell: I mean, q '2, Q3, Q4, I mean, John Klinger: tariffs are pretty consistent as far as Deb McConnell: what we're seeing. We have every confidence that we can do exactly what we did in the second and third quarter in the fourth. So as I said in my Ernie Herrman: closing comments, Deb McConnell: we are very confident in our ability to continue to navigate the tariff environment. John Klinger: Is that freight dynamic something you think continues after fourth quarter? Or is that something that's just contained? It's really up to the freight Deb McConnell: the ocean freights providers. I mean, John Klinger: if they start taking ships off Ernie Herrman: off offline and try to John Klinger: decrease the surplus or availability, I mean, it's hard for me to answer that. Deb McConnell: It's asking me to look into the future. Can say that what we've been seeing in the John Klinger: third quarter is that we did see a savings in the ocean freight container rate. Okay, so it sounds like it's more related to SPOT than contracts. A little less visibility. And then any other new, headwinds to think about as we look at the models next year? Operator: No. Deb McConnell: Yeah. The what I'm I'm not prepared to talk about next year right now. John Klinger: We're still in the process of Ernie Herrman: of pulling our plans together. Okay. Best of luck in the holidays, guys. Thanks a lot. Thank you. John Klinger: Our next Operator: question comes from Cory Tarlow from Jefferies. Ernie Herrman: Great. Thanks and good morning. Ernie, you commented on the value perception scores Curious how you think about your value gaps today versus historically, within the context of what you've seen from competitors and then also kind of the shape of the comp throughout the year. Given your comp was initially driven very much by traffic to start the year. Deb McConnell: Mhmm. And sort of the commentary has felt Ernie Herrman: a way that it's evolved John Klinger: to be a little bit more driven by price, Ernie Herrman: but not so much so that it's eroded your value gaps is what it I think is is the point, but curious to get your perspective on that. Thanks so much. Yeah, Corey, spot on. That you summed that up, very balanced is the way we would look at. The value gap today, by the way, I would tell you has improved from where it was even a couple of years ago in terms of a couple of things. I still believe part of the value equation, which is kind of evolved, over the last number of years, is the shopping environment that we provide to go along with the merchandise is creating I think an even larger value gap. Between us and the other retailers. And I think if you look at our shopping in our store versus other off pricers or other specialty stores or department stores or larger discount stores. I think you would find a very efficient, clean, organized and then treasure hunt all at the same time. Combined with believe the perceptions are spot on where our values have even improved out the door retail versus others. The gap has improved. So across the board, I would say we have improved there versus historic comparisons on terms of total value The shape of the, I think you were asking about the shape of the comp and that being driven, it would have been a little bit more transactions you were feeling, but part of this is the retail. It was only I think it was only HomeGoods where the right Well, home goods was essentially flat. Right? And the others were still up. Yeah. So that's why I said your comment was spot on where it's kind of an in between, and we're feeling really good about it. Because again, I think there is major value gap between us and everybody else. And as John said, we've had we've had these pricing things, but clearly it does not impact any value per perception at all. Deb McConnell: Exactly. Again, driving a five comp and being strong across Ernie Herrman: every Yes, every bond. Our division. Yes. Deb McConnell: It was was, you know, really positive to see. Ernie Herrman: I would throw in a bigot. Now you can appreciate that this hasn't come up yet, but my biggest challenge, for this organization is when you have such strong sales momentum, which keeps getting better is for us to not get over our skis and buy too much too soon. So I think we've talked about that before, even a year ago. One reason we are delivering the year we're having is keeping a lot of liquidity. And our merchants are able to be very entrepreneurial and very on their buying. And that's when we provide the most exciting value branded off price closeout goods to the consumer. And so that continues to be a focus is to make sure with all this availability that's out there, and combined with our strong sales, we just need to fight urge to buy too much too soon. Know what I mean, Corey? That would probably be our biggest challenge right now because that's the number one way we still can continue to drive our sales. And profitable sales. Yeah, certainly. That makes a lot of sense. And then I just had a quick follow-up for John. You mentioned in Q4 that SG&A was, 30 basis points I believe, favorable or expected to be. Could you just unpack that for us a little bit? Thanks so much, and and best of luck. Yeah, sure. So it's it's gonna be a combination of incentive accrual favorability versus last year and expense savings. So last year we adjusted our our incentive accruals in the fourth quarter So we're comparing to that. So Deb McConnell: have a year over year favorability there. Okay, great. Thank you and best of luck. Ernie Herrman: Thank you. Operator: Our next question comes from Jay Sole from UBS. Ernie Herrman: Great. Thank you so much. Deb McConnell: Ernie, my question is if you just take a step back and think about this has been a year with an unprecedented level of tariffs. And you're talking about availability of inventory. I think you just said it was off the charts. Ernie Herrman: Does it surprise you at all Deb McConnell: that in the year when you would think people would be making less product, importing less product, that you have seen someone should go availability. And if it does, you know, how do you explain it? Ernie Herrman: Yeah. No. Great question, Jay. I have to tell you, yeah, a little surprise on the degree to which the availability is there. Because to your point, back when I go back in the spring, when all of this was just starting to evolve, and we get you know, we there were some categories where by the way, some categories back then, we wouldn't have worried about availability, only because they're they wouldn't have been impacted as much by the tariff. It would have been a more moderate tariff. And then there are others where we might have expected a little less availability. And so, a little bit. We always thought they'd be good availability. Remember, you're never gonna hear from me. A concern about not having enough goods across the board. Maybe in a category at the but you're never gonna hear a concern, even with tariffs. About us not having enough goods the way the model works. And the way, by the way, and the way we have we have seasoned pros in all of these areas in merchandising and planning that can bob and weave to dynamics out there. But yes, to your point, I think the degree to this, how do I explain it? I think part of the reason you explained it is you have public companies that are retailers that still have to bring in, whether it's the e com players, that still have to bring in goods. They're not shutting down their websites. So they're having to buy goods eventually. Maybe they've massaged it and moved from one category or less with one brand or more with another because of the tariffs, but still creates excess inventories. It is still a down the supply chain when things slow up at retail, again, they're public. They just, they can't afford to have a 20% decrease. In their So they're not cutting their spending. Do you know what I mean there, Jay? They can't cut their ordering as a extreme as the tariffs would maybe tell them they do. So I think what happens is they might be less bring in less units but they're gonna bring in the dollars that equate given the tariff. And then if those sales don't materialize, we still end up with the extra supply of closeouts. And that's what I think is, as well as I think retail across the board has been a little choppy and that's creating the excess inventory. So the yeah. Interesting dynamic. Again, this is where I like to give credit to our teams because bottom up the teams assess in each area how much because we buy in a few different ways. So they know how to weigh their core flow is coming from with certain vendors, and yet all the opportunistic side. We wouldn't be in this really good inventory position. We'll still be in liquidity if our teams weren't so good at executing. At that level. So that's where, again, very proud of what they've done in this environment. As you said, very challenging year. Got it. Thank you so much. Thank you. Operator: Our next question comes from Adrienne Yih from Barclays. Good morning. Let me add my congratulations. Ernie, we've been in the store throughout the quarter. And I was wondering I mean, they're extraordinarily long lines. I was wondering if you had been seeing sort of earlier cadence to the holiday shopping behavior and or promotionality Obviously, Walmart pulled forward their Black Friday. Just wondering what you're seeing there and if you expect a shift in the holiday season And then, John, for you on you've done a ton of work on supply chain and transfer transportation logistics over the past couple of years. Outside of the freight tailwind, are you expecting to see sort of a longer term go forward positive impact And does that change the leverage point of on gross margin? Thank you. Ernie Herrman: Questions, Adrienne. Yeah, no, we haven't we don't believe there's necessarily a perp on our part, there's no purposeful shift to thinking we're doing earlier. Again, as we've said, we're off to a strong start. We like the way we're positioned in November. Already. Which obviously indicated we were happy with our traffic, and you've been witnessing it evidently. I think what's also happening is I didn't get to talk about this earlier, but we, every year, our Q4, as you've seen, has been one of our steadiest performing quarters where we have become more of a gift giving destination. And I think that's at the root of it. I think all of the we've also talked about this. The social media, the the coolness of shopping at The TJX Companies, Inc. store, whether it's Marshall's or Sierra or HomeGoods or TJ Maxx, you probably I don't know if you see them. A lot of our reusable bags show up with shoppers that bring them to their supermarkets because we've made such an impact on consumers. And they find us to be a desirable place to show their brand. So I think as they've gotten acclimated and more desirable to shop our brand, I think that makes them think of us more for gift giving than ever before. Which is also a reason I think you're you're seeing that. It's nothing that we purposely did for an event per se or a timing thing. I think it's the nature of the brand equity and the coolness factor that we've developed over the last handful of years. That's yielding a little bit of an earlier earlier shop of us in November. John Klinger: Okay, thanks. Yeah. And so Deb McConnell: getting to the second part of your question, Ernie Herrman: I mean, of all, the leverage point we still see again, just repeating on a three to four comp, Deb McConnell: with no outsized expense increases. We still anticipate being flat to John Klinger: 10 basis points. That's not changing. We don't see that changing right now. As far as the supply chain goes, Deb McConnell: I mean certainly with Ernie Herrman: a higher ticket, we just have to, we Deb McConnell: we were more efficient in our operational areas. There's less units to move to hit the same top line. But, you know, Ernie Herrman: in addition to that, we're always looking for ways to increase the Paul Lejuez: efficiency of our facilities. And John Klinger: looking to Paul Lejuez: rather than open up a new facility as sales go up, which we still have to do. But where we can, if we can expand a facility to increase the capacity, that certainly is something we always look to do as well. Operator: Fantastic. Best of luck for holiday and see you in December. Ernie Herrman: Thanks. Thank you. Operator: Our last question comes from Mark Alschwager from Baird. Great. Good morning. Thanks for taking my question. Paul Lejuez: First, on segment margins, the delta between HomeGoods and Marmaxx is the narrowest we've seen in some time. Just talk about the key drivers to narrowing that gap and whether you expect that convergence to continue? Deb McConnell: Thank you. Paul Lejuez: I mean, so I mean, both divisions are performing, you know, doing outstanding job at driving both the top and bottom line. Certainly some of the freight benefits that we've seen over time, I mean, because of the size and nature of the product have benefited HomeGoods a little bit more. But look, we're very pleased with with both of our US divisions. Both our US segments. But nothing more to add. It's just driving the top line. I mean home goods has been very consistent at driving that top line. And and that's one of the biggest levers we have to increase the pre tax profit. Ernie Herrman: Yeah, Mark, I think I would jump up. Mark, just adding a little flavor to the merchandising to what John was saying is they've also they're constantly creating newness of vendors there. And And always super fast turning business, as you know. And so I think they've been, you know, they're very in terms of the merchandise vendor content. I think has been able to help them on their merchandise margins, which probably is also a big benefit terms of their operating income getting a little closer. To Marmaxx. Paul Lejuez: Excellent. Best of luck this holiday. Ernie Herrman: Thank you. Thanks. I'd like to at this point thank you all for joining us today. We look forward to updating you again on our fourth quarter earnings call in February. You everybody. Operator: That concludes today's conference. Thank you for participating. You may disconnect at this time.
Operator: Good afternoon, everyone. Welcome to the combined 9 months YTD 2025 results analyst briefing. I am Ian, and I will be your moderator for today. A few reminders before we begin. [Operator Instructions] Number four, please be reminded that this webinar is recorded. Allow me now to introduce our panelists for this afternoon. We are joined here today by Ms. Monica Ang-Mercado, San Miguel Food and Beverage Inc. CFO; Ms. Chesca Tenorio, VP and Head of Corporate Financial Planning and Investor Relations; Mr. Erich Pe Lim, Petron Corporation Investor Relations Head; Ms. Tina Garcia, SMFB Investor Relations Head. Also joining us on Zoom, we have Mr. Bryan Villanueva, SMC's Chief Finance Officer; Mr. Joseph N. Pineda, SMC's Treasurer; Mr. Paul Causon, San Miguel Global Power Holdings Corp. CFO; Mr. Ferdinand Constantino, Adviser to SMC; Ms. Tatish Palabyab, SMC Chief Sustainability Adviser; Mr. Erwin Hernandez, AVP and Head of Business Development, Project and Financial Planning of SMC Infrastructure. We'd also like to acknowledge the presence of other key executives of the group who will be joining us in this call. I now turn you over to Ms. Chesca Tenorio to discuss the SMC Group's financials and operational results. Chesca Tenorio: Good afternoon, and welcome to San Miguel Corporation's Combined 9 Months Year-to-Date 2025 Results Analyst Briefing. We're pleased to announce with pride that the San Miguel Corporation Group has demonstrated strong profitability and a resilient performance during the period. Before we begin further with the financial results of the company, we would like to first highlight a few key developments, which we will be discussing in detail throughout this presentation. As a macro backdrop, the Philippine economy in the third quarter of the year recorded a 4% GDP growth, slower than previous quarters. GDP decelerated amid governance concerns over infrastructure spending and slower domestic demand despite a cumulative 75 bps rate cuts by the BSP so far this year. While GDP growth slowed down, SMC exhibited resilience, recording strong year-on-year performance for the third quarter of the year compared even to the first 2 quarters of the year. The SMC Group maintained strong profitability despite recording lower revenues as the group worked towards margin expansion through cost disciplines, reduced material costs and operational efficiencies. These results underscore the group's ability to navigate market headwinds and other external pressures to deliver resilient performance. The Food, Hard Liquor, Power and Infrastructure businesses delivered the biggest improvements. During the period as well, SMC has earned recognition for its sustainability efforts. This is for both environmental stewardship and social impact. SMC has integrated ESG impact assessments into its capital expenditure review process and conducted physical climate risk evaluations of key facilities to ensure long-term business resilience. Alongside our sustainability initiatives, we continue to prioritize efficiency, financial discipline and key strategic actions, allowing us to maintain growth momentum amid external challenges. Equally important, beyond business performance and value creation, the group's long-term focus continues to center on nation-building, food and energy security and driving sustainable development. We remain committed to supporting the country's long-term growth by advancing critical infrastructure projects and expanding our energy portfolio to meet the increasing needs of our communities and industries. So that's basically our executive summary. So let's now turn to the group's respective earnings performance. On the slide, you'll see SMC's results. SMC delivered solid results for the 9 months ending September 2025. This is reflecting strong profitability and operational resilience amid persistent global headwinds and a looming local political concern. The company's strategic focus, cost discipline and efficiency initiatives supported earnings stability despite softer revenues and continued pressures in global commodities market. Consolidated revenues declined 7% to PHP 1.1 trillion, mainly due to, one, lower crude and commodity prices that has impacted the fuel and oil and power segments; two, reduced revenue contribution from the power business due to the deconsolidation of SPPC and EERI and lower average realization prices on lower coal and WESM prices. However, this was partially offset by solid contributions from the food, hard liquor and infrastructure businesses. Consolidated operating income increased 13% to PHP 137.4 billion, driven by lower raw material costs, pricing actions and improved operational efficiency, resulting in margin expansion from 10.3% to 12.6%. Profitability improvements were led by Food Group, Hard Liquor and Infrastructure, along with Power posting the largest improvement in margins. Net income rose significantly to PHP 78.6 billion during the period, supported by a gain from the fair valuation of investments and foreign exchange gains. Even excluding one-off and ForEx impacts, core net income improved by 54% to PHP 60.3 billion. Consolidated EBITDA finished at PHP 194.3 billion, and this is 16% higher than prior year. Now to walk us through the performance of San Miguel Food and Beverage, I'll turn the floor over to Tina. Kristina Lowella Garcia: Thank you, Chesca. For the 9 months ended September 2025, San Miguel Food and Beverage continued to deliver strong results with consolidated net sales reaching PHP 302.9 billion, up 4% from last year, supported by firm demand, efficient pricing and sustained brand initiatives across its Food, Beer and Spirits divisions. Operating income rose 12% to PHP 44.7 billion, while net income grew 11% from last year to PHP 33.7 billion, reflecting solid performance across all segments. EBITDA increased 13% to PHP 58.4 billion, driven by broad-based gains and improved margins across the businesses. Let me walk you through the Food businesses performance for 9 months period ended September 2025. San Miguel Foods maintained its solid performance with all key metrics exceeding last year's levels. Revenues grew 7% to PHP 143.5 billion, supported by strong volume growth across the segments. The Protein segment posted 11% revenue growth on higher volumes, backed by stable internal supply and continued favorable chicken prices. Animal Nutrition & Health revenue declined 1% year-to-date, a marked improvement from the first half shortfall of 5% as feeds volumes steadily recovered. Prepared and packaged food consisting of Purefoods, Magnolia dairy and coffee sustained strong momentum, delivering 9% revenue growth driven by higher sales volumes, favorable selling prices and an improved sales mix. Operating income increased 32% to PHP 13 billion, largely driven by Protein's sustained strong performance and continued favorable raw material prices. Net income rose 33% to PHP 8.9 billion, while EBITDA grew 27% to PHP 19.6 billion, reflecting broad-based margin improvements across the businesses. Moving on to the Beer business. San Miguel Brewery reported revenues of PHP 110.7 billion, almost matching last year's level. Operating income rose 2% to PHP 23.9 billion, reflecting effective cost management, supported by the September 2024 price increase, resulting in improved margins. EBITDA increased by 4% to PHP 30 billion with margins improving to 27%. Net income reached PHP 18.8 billion, up 1% from last year. Domestic revenues totaled PHP 98.3 billion, a slight 1% decline year-on-year. The performance reflected subdued discretionary spending, the impact from last year's pre-September price increase trade loading and the onslaught of successive typhoons affecting most regions. Operating income for the domestic business was flat at PHP 20.7 billion, while net income finished at PHP 18.5 billion. International operations registered modest growth with all key metrics showing improvement. Revenues reached $218 million, up 3% versus last year, driven by strong volume growth in exports, Thailand and South China as well as higher San Miguel brand sales in Vietnam. Operating income rose 15% to $56 million, supported by higher volumes, lower production costs and managed expenses. SMB continues to implement key initiatives to strengthen its brand presence. In the domestic operations, SMB reinforced equity building through the Oktoberfest kickoff event and the release of the new SMB Christmas campaign. Offtake boosting initiatives were also implemented such as thematic and digital campaigns, consumer and tactical promotions and product innovations, reinforcing flagship and premium brands. In the international operations, SMB boosted consumer engagement through channel-specific programs, modern trade expansion and sustained brand building through seasonal campaigns, merchandising drives, digital initiatives and product innovations. Amid a challenging market, SMB will continue implementing volume-boosting initiatives alongside prudent cost control, supply chain improvements and organizational capacity building. Turning now to our Spirits business. In the first 9 months of 2025, Ginebra San Miguel sustained its strong performance despite a challenging market with revenues reaching PHP 48.7 billion, a 7% year-on-year increase. Operating income rose 19% to PHP 7.5 billion, supported by higher selling prices, favorable molasses costs, improved distillery efficiencies and continued secondhand bottle usage. Notable volume growth was observed from the Vino Kulafu and Primera Light brands. Net income and EBITDA grew 17% and 19%, respectively, reaching PHP 6.3 billion and PHP 8.4 billion. That concludes the update for San Miguel Food and Beverage. I'd now like to invite Erich to present updates on Petron. Erich Pe Lim: Petron Corporation in the first 9 months of 2025 reported revenues PHP 594.9 billion, a 10% softening versus the same period last year. Revenues dropped mainly due to lower Dubai crude prices from an average of $81 per barrel in 2024 to $71 per barrel in 2025, a 13% drop. The decline in crude oil price was attributable to a significant buildup of crude supply by key producers compounded by geopolitical tensions and shifting policies. Despite the aforementioned external challenges, Petron was able to notably register double-digit growth in other key metrics with operating income finishing 20% higher at PHP 26.6 billion. This was driven by higher domestic sales, lower costs and improved plant efficiencies. Combined sales volumes from the Philippines and Malaysia reached 84.7 million barrels, up 3% versus the comparable period last year. Growth was fueled by strong domestic performance, particularly in the Philippines, where volumes in highly profitable retail segment continued to grow, registering a double-digit increase of 11%, allowing Petron to unceasingly corner the bigger share of the market. Finally, this led to a net income, which registered even higher gains, increasing 37% year-on-year to PHP 9.7 billion, underscoring the company's resilience in navigating persistent industry headwinds. Over to you, Chesca. Chesca Tenorio: Thank you, Erich. Let me now continue with the performance of the remaining businesses in the group, along with updates on our sustainability initiatives, overall business developments and outlook. San Miguel Yamamura Packaging Group maintained stable performance, posting September year-to-date revenues of PHP 28.4 billion. This is nearly unchanged from last year. Revenue was generated by serving key food and beverage customers of their plastics, beverage filling, flexibles, paper and glass packaging requirements. Operating income, though improved by 4% to PHP 2.2 billion, driven by the successful implementation of cost-saving programs and initiatives to improve productivity across all its operations. Meanwhile, EBITDA declined slightly to PHP 4.0 billion. Moving to the Power segment. San Miguel Global Power's revenues amounted to PHP 118.8 billion. That's 23% lower compared to previous years with offtake volumes dropping by 18% to 22,090 gigawatt hours. The decline, though, was primarily due to the divestment and resulting deconsolidation of the South Premiere Power Corp. or SPPC, owner of the 1,278 megawatts Ilijan Power Plant. This was made with the completion of the group's divestment of 67% interest in the underlying gas power generation assets last January 27, 2025. Moreover, the decline in the revenues reflected a downward adjustment in fuel tariffs to bilateral customers due to the continued softening of global coal prices. Excluding the impact of the SPPC deconsolidation, volumes were relatively stable, supported by the following: first, there's a full 9-month operation of 4 generation units of the 600-megawatt Mariveles greenfield power plant and 3 BESS or Battery Energy Storage Systems, facilities with a combined capacity of 110-megawatt hours, plus 5 additional BESS facilities with a total capacity of 140-megawatt hours, which began commercial operations in 2025. Second, strong offtake volumes from the Masinloc Plant contributing 6,571 gigawatt hours or 30% of the total volume. And third, there was higher generation volume from the San Roque hydroelectric power plant amounting to 929 gigawatt hours. That's up 125%. So overall, operating income for the power group rose to PHP 34.8 billion with operating margins expanding to 29% from only 22% last year. This improvement is a result of better margins from contracted capacities and significant contributions from BESS facilities. Such operating income does not include the share in the net earnings of SPPC and EERI, which owns the new Batangas combined cycle power plant units 1 and 2 with a net capacity of 425 megawatts each. This amounts to about PHP 5.9 billion to date, which the energy business continues to recognize from its remaining 33% interest in these gas power generation assets as part of its portfolio, even with the aforesaid deconsolidation. Meanwhile, EBITDA grew 22% to PHP 54.1 billion. Net income for the power group surged to PHP 42.4 billion, bolstered by the PHP 21.9 billion gain from the Chromite transaction and higher earnings from key operating power generation asset portfolio. Excluding the aforesaid gain from the Chromite transaction, core net income still improved significantly by 52%. Moving now to the Infrastructure segment. SMC Infrastructure sustained its growth trajectory with revenues rising by 7%, buoyed by the improved traffic volumes across all toll roads. Combined average daily traffic reached PHP 1.07 million, marking a 4% increase from the corresponding period last year. EBITDA grew by 8%, reaching PHP 23.8 billion with a sustained margin of 80%. Operating income rose by 12% to PHP 16.7 billion, supported by effective operational and management cost control. Moving to the Cement business. The Cement Group generated consolidated net sales of PHP 25.5 billion for the 9 months 2025. That's a 6% decrease from the comparable period last year. This is primarily due to the lower sales volume and weaker average selling price as a result of the continued influx of imported traded cement. Imports were estimated to account for 21% of industry volume as of the period. Despite the 3% decline in EBITDA to PHP 7.3 billion, margin though improved to 29% due to ongoing cost efficiency measures. Meanwhile, operating income fell by 4% to PHP 5.1 billion. A snapshot of our balance sheet, SMC's consolidated total assets as of September 30, 2025, stood at PHP 2.7 trillion, while total liabilities amounted to PHP 1.9 trillion. Stockholders' equity ended at PHP 733 billion. Consolidated cash balance stood at PHP 344 billion, while interest-bearing debt totaled to PHP 1.6 trillion. Next, we just want to highlight some 9 months 2025 sustainability performance for our group. The following are the highlights. SMC, along with the subsidiaries, Northern Cement and San Miguel Global Power Holdings were recognized for its sustainability initiatives. On September 23, 2025, SMC received recognition as one of the sustainability champions from Manila Times. On October 23, 2025, the Asian Water Awards recognized SMC for its water conservation initiatives of the year for Philippines, in particular, for Northern Cement Corporations reaping the rain and recycled water program. San Miguel Global Power also received recognition from the same award giving body for Outstanding Water Resources Contribution of the Year for the Philippines. This is for the Malita Power Plant's entry and integration of treated into non-potable domestic water supply systems. Also for Masinloc Power was awarded 3 Asian Power Awards. One is Environmental Upgrade of the Year Philippines, for its entry of clean chemistry, sustainable corrosion mitigation at Masinloc units; Operational Efficiency Initiative of the Year, for its entry of fuel flexibility in a cost-effective mill improvement project to promote industry innovation and customer satisfaction; and third, Circular Economy Leadership of the Year, for Philippines for its entry of cost-effective mill enhancement project, leveraging fuel flexibility to promote customer satisfaction and drive industry innovation. Overall, San Miguel Global Power was recognized then for Employee Engagement Initiative of the Year, Gold, for the company-wide sustainability month event. Other highlights of our sustainability performance. We continue to advance our environmental, social and governance commitments, focusing on embedding sustainability into our core business processes and decision-making. Under environmental stewardship for our 9 months '25, integration of sustainability and capital projects was done. We have formally embedded a sustainability questionnaire into our capital expenditure process. This ensures that environmental and social impacts are systematically assessed for all proposed projects, supporting responsible investment decisions. Second, climate risk assessment. This was completed in October 2025. So now our climate risk assessment has been completed. It's identifying potential physical and transition risks across our operations. Business units now are reviewing the final materials to develop targeted mitigation and adaptation strategies. Next, under capacity building and governance. For carbon markets readiness, this was completed in September 3, 2025. We conducted a carbon markets workshop for our management team to strengthen internal understanding and readiness. This initiative enhances our capacity to engage with emerging carbon pricing and trading mechanisms in the future. Lastly, as an energy update as of 9 months 2025, over the next decade, I'd like to reiterate that we will be shifting towards renewables by expanding hydroelectricity capacity, building solar plants and adding more battery storage systems. In June 2025, through GEA-3, San Miguel Global Power was awarded 4,200 megawatts of hydropower projects. And next in October 2025, under the GEA-4, we secured over 2,225 megawatts of new solar projects. This marks a major step in transforming our portfolio and supporting the country's clean energy transition. Lastly, we now move to the outlook and recent updates of the group. To reiterate, SMC is pressing ahead with its growth and expansion strategy backed by solid operating performance amid the country's current political situation and global economic challenges. For the new Manila International Airport, progress on the land development and ground improvement works are ongoing with areas ready for construction of key facilities. SMC continues to look for ways to optimize cost and overall project time lines. For the NAIA, completed improvements as of September 30, 2025 include the following: first, there are local road networks that have been upgraded with widened curbside areas to ease congestion and enhance traffic flow. A new automated parking system with expanded payment options has been installed to streamline entry and exit. Terminal 1 OFW lounge and multiphase prayer room, Terminal 3 dignitaries lounge and airside employee cafeterias in all terminals have been completed. Implemented new traffic management schemes and designated of outer lane as taxi-on lanes at Terminal 3 have also been completed. Upgraded and migrated to SAP for automation of business processes have been done. Heating, ventilation and air conditioning systems at Terminal 3 and lighting fixtures at Terminal 3 arrivals have also all been upgraded. Beyond the completed works, NAIA is also working on the following: in partnership with Collins Aerospace, ongoing rollout of modernized passenger processing and airport management systems, additional immigration e-gates, upgrading of key airport equipment such as elevators, walkalators, explosive detection systems, passenger boarding bridges, advanced visual docking guidance systems and lastly, terminal facilities such as expanded bus gates, lounges and retail and dining halls are all on works. For MRT-7, the railway components percentage completion is at 81.5%. For the depot site development and construction of other facilities are still ongoing. In addition, the submitted variation, which include the new location of Station 4 is approved by the San Jose Del Monte and DOTr. Consequent to the new approved location of Station 14, there is also an ongoing study on the realignment of the highway component. On the toll roads, we continue to advance our improvement projects for existing toll roads such as Skyway System, NLEX, SLEX and STAR. Upgrades include road widening, additional entry exits and interchange enhancements. Ongoing construction works on SLEX TR4 is progressing steadily well with the toll roads percentage accomplishment and right-of-way acquisitions at 49.4% and 85%, respectively. These projects would allow for greater development in Metro Manila and other fast-growing regions of Luzon by enhancing connectivity, easing congestion and improving traffic flow, supporting the country's overall social and economic development. Last, as of September 30, 2025, roughly 50% of the group's 1,000-megawatt hours of BESS projects are already in operation, delivering ancillary services to the National Grid Corporation of the Philippines under a 5-year Ancillary Service or ASPA or selling their spare capacities to the reserves through the independent electricity market operator to ensure grid stability. The remaining BESS projects in the pipeline are expected to commence commercial operations by 2026. SMGP is also expanding its renewable energy portfolio through hydropower and solar energy projects, as mentioned earlier. On updates on our sustainability front, SMC is finalizing a sustainable finance framework to align financing with ESG strategy of the group. The document is seen to establish the company's decarbonization road map and will enable us to access sustainability-linked financing options, supporting the transition toward a lower carbon and more resilient business model for the group. Other projects in the pipeline include an automated platform to track sustainability data across all business units and development of business level road maps for each of our 4 sustainability goals. And that brings us to the end of our presentation. Thank you for your time and attention, and we now open the floor and call for your questions. Operator: [Operator Instructions] We have a question from -- we have a raised hand from [ Tony Watson ]. Unknown Analyst: Okay. Can you hear me okay? Chesca Tenorio: Yes, we can hear you. Unknown Analyst: Great. Just one question on the Meralco claim. When I visited San Miguel Power a couple of months ago, they mentioned they're expecting a final ruling on the second claim sometime late fourth quarter, early first quarter. Any update on that? Paul Bernard Causon: May I take on that, Jessica? Chesca Tenorio: Yes, Paul. Thank you. Paul Bernard Causon: So thank you for your question. Let me update you first on the first claim. So the first claim is for PHP 5.1 billion. And pursuant to the ruling of the Supreme Court, which came out earlier this year, Meralco has paid already 2 out of the 6-month installments to date. Now with respect to the second claim, which is a little over PHP 29 billion, about PHP 15 billion of that is still unaccrued by the company. We we've had the hearing with the ERC yesterday basically to discuss the case. And the way that the way case went on, there were 2 things that were apparent from the meeting. Number one, we were able to get a confirmation from Meralco with respect to the amount. So there is no dispute at all with respect to the amount of the claim. The second one, the legal basis for the second claim is tightly linked with the first case, which has already been ruled upon by the Supreme Court. So those 2 critical elements of the case were put on record by the hearing officer from the ERC. And we expect that the results of such hearing will be elevated to the commission when it will be meeting -- and by early December. And I think with respect to the earlier assessment on the time lines, we will be a bit delayed with respect to the resolution, maybe not this year, but definitely early next year, most probably January. Operator: We have a raised hand from [ Ajay Sharma ]. Unknown Analyst: Can you talk about -- can you hear me? Chesca Tenorio: Yes, we can hear you. Unknown Analyst: Okay. So I want to know for both the Spirits and Beer business, the volume growth has been pretty modest. I guess, Spirits no volume growth, I guess, this year. So I'm just wondering, how much was the price increase for both of them this year and how much was the excise increase? And how do you see the fourth quarter shaping up? Chesca Tenorio: Well, Ajay, historically, for the fourth quarter, those are the months, the celebration months because Christmas is a big event for the Philippines. Normally for -- across our businesses, Food, Ginebra and Beer volumes tend to improve sizably. In terms of the excise taxes, it's around 6% annually, and most of that is usually passed on or declared in the beginning of the year. So by now, the volume performance of the Q3 or the first 9 months, I think really shows the challenged spirits and alcohol industry in the sense that the consumer habits have changed in terms of on-premise drinking and off-premise. We have more competitors as well as the earthquakes and the recent typhoons, they have had a very big effect as well as the economic effect on the consumption for nonessential goods, which is really our Spirits and Beer business. But for Food, you can see the volume is growing. Unknown Analyst: And are you gaining market share? How is the market share trend for both categories? Chesca Tenorio: We are still very dominant in Beer. As you know, we're 90-plus market share. I think to gain additional points is really difficult and challenging. However, we are trying to introduce more variants, more SKUs for -- to excite the market and to enter other more premium categories, and that's where we are trying to gain market share away from the foreign brands. Also for Ginebra or the Spirits business, we have been gaining market share steadily around close to 50-plus percent for the white. Of course, there's still plenty of room for us to try to grow. We're trying to really penetrate the brown spirits market. Operator: We have a question from [ Mark Anthony ] [indiscernible]. Congratulations on the results. Question for GSMI. After half a decade of volume growth for GSMI and considering the perpetual increase of excise taxes, do you see GSMI moving towards direction of growth in value due to higher prices and not necessarily in volume as we may already have seen in the 9 months of 2025? Or does the distribution network of GSMI still have a huge runway to drive volume growth? How does 4Q '25 volumes of GSMI look like? And is it reasonable to expect the cash dividends next year to grow by the same rate as income this year and maintain the payout ratio? Chesca Tenorio: Okay. For the first, well, we already explained some of that. Definitely, the past years, we have been surprised at the market's ability to absorb the higher prices. We've been passing on the increase in excise taxes to them and the volume has been growing. But yes, we do not rely on being able to pass on the prices. We still think that there is a lot of room for growth, not only for our flagship categories or brands such as the red or the low-cost gin, but we have many other SKU or category that we're trying to grow, especially in the Visayas and Mindanao or the Southern regions. In terms of the distribution network, we have many untapped areas yet. We have been increasing dealer routes and distributors or dealers to our network, not only for Ginebra, but also for Beer, because we feel that, that's really where we can improve, not only in increasing distributors, but also increasing wholesaler routes. We have also been increasing our CapEx for expansion related or production capacity-related projects. So we really do think there's still a lot of room to grow, especially for Spirits. For Q4, again, this is the best time for Ginebra, Beer and Food. Typically, the volume will really be very, very high average per day compared to the usual. And for the cash dividends, we don't really provide guidance or guarantee on what we will be announcing for the following year. But as you can see in the past years, our payout ratio has been steadily increasing. It really depends on the performance of the company. Operator: We have another question from Karissa Magpayo. On FB, can you share sales growth trends so far in 4Q '25? Are we seeing some improvements in demand across the 3 segments, namely Beer, Spirits and Food? Chesca Tenorio: Okay. This is almost the same question, but I'll maybe share more about the Food growth. As you know, we have commodities business, which is mostly poultry and feeds and those have been steadily growing very well. The thing is for poultry, prices of the poultry have gone down in the past few weeks. So that may be affecting our volume. But for our prepared and packaged food businesses, which are the branded or value-added, those are Purefoods canned goods and other timplados or ready-to-cook, ready-to-eat type of products. Magnolia, which are heavy into butter-margarine-cheese type or dairy type of businesses, those are heavily used by bakeries and the normal consumers or households because it is Christmas time. So they're having a lot of sweets or desserts. So that's what's going to be driving the Food business for Q4. Operator: We have a question from [ Sharmaine Co ]. Question for Petron. May I ask how much inventory holding gain losses were in the third quarter, both in 2025 and 2024? Erich Pe Lim: For inventory gains and losses, for year-to-date September 2025, inventory losses amounted for roughly around [ PHP 2 billion ]. So this is a little lower or flattish coming from the disclosed figure in the first half of 2025. This is particularly because crude prices, crude by crude, basically consolidated in the third quarter of 2025 at around $70 per barrel. So we didn't see that much volatility. Now if you compare it to the year-to-date September 2024, inventory losses during that period is a little more than PHP 4 billion. Operator: We have a question from an anonymous attendee. For Power, could you walk us through the expected baseload capacity additions coming online in 2026 to 2027? Paul Bernard Causon: Okay. That's sort of an industry question. And well, I will answer it from our perspective, nonetheless. So currently, the net reliable capacity in Luzon, which accounts for practically 70%, 80% of the country's supply and demand is around 14 to 15 gigawatts on a daily basis. And out of that number, roughly 62% is more than 20 years old in terms of operating life. So there's quite a bit of fragility on the supply side. But with the ensuing coal moratorium that's been imposed by the Department of Energy, there's been quite a bit of expansion on the baseload side. The Department of Energy has across committed projects of roughly 9 gigawatts in solar capacities for the next 3 years with expected plant factors ranging from 16% to 18%. From our end, what is for sure, would be we are putting up 700 megawatts in baseload capacity by next year from Masinloc Units 4 and 5. I would say that I have quite a bit of insight on other generators plans with respect to baseload capacities, but the total is relatively very small at 500 megawatts. Operator: We have a raised hand from [ Ashwaria Pai ]. Unknown Analyst: My question is, first, San Miguel Global Power. Now that the auctions are completed, is it possible to give a guideline on the solar and hydropower CapEx and the time line for it and the incremental EBITDA from those projects? And my second question is, what would be the funding source for the next maturities of dollar bond for San Miguel Global Power in 2026, which is close to USD 1 billion? Paul Bernard Causon: Okay. Several questions there. So on the first one, what's clear with respect to our hydropower projects that's qualified under GEA-3 would be a CapEx headline of around $12 billion to $13 billion. But that one, of course, is subject to cost optimization. So we have -- we're looking at various approaches on construction and also on how we will configure the EPC with respect to those projects that should significantly reduce the cost further. From our initial assessment, we're looking at somewhere between $5 billion to $6 billion. But the equity component or the amount that we expect to spend in the next 3 to 4 years should be way smaller, somewhere between $2 billion to $3 billion. Again, subject to ongoing detailed studies, technical studies on the sites and also depending on our ongoing negotiations with the OEM suppliers, particularly for the Francis turbines. With respect to our GEA-4 projects, which are the solar farms, that would entail a relatively smaller number in terms of CapEx. So it's more or less around $1.4 billion, which we expect to incur over the next 4 to 5 years for the awarded capacities of roughly 2,200 megawatts. But again, that amount is still subject to cost optimization depending on our ongoing negotiations on the panels. And considering that most of the civil works would be something that we can do already internally and also would entail relatively smaller costs as far as the sites that we've chosen are concerned. Because most of the solar projects are -- in terms of megawatts are located in the Angat water reservoir, which -- since it's floating solar, there's supposed to be minimal site development. And therefore, the time lines for its completion will be very -- a lot shorter than the other ones in terms of time lines. The COD for the solar projects would be -- with respect to the 2,200 megawatts should be completed within the next 3 years. And then our GEA-3 projects, the hydropower projects in 5 years' time. The first batch of the 4.2 gigawatts should be available, roughly 2 gigawatts by 2029, 2030. Second question on the refinancing. Well, the DCM markets definitely is something that we are closely looking at. Our preference, of course, is to have the expiring dollar perps refinanced in peso, DCM sources. Of course, we're looking at the dollar markets as well. But in any case, we have the existing liquidity to be able to backstop any refinancing activities that we will be doing next year. And we're fairly confident, at least for the perps that are expiring in January this year -- January 2026 and December 2026, that we should be able to easily have them refinanced. Operator: We have a question from an anonymous attendee. For Petron, what's your current outlook for crude oil market next year? Erich Pe Lim: To be perfectly honest, it's quite difficult to perceive into 2026, just given how fluid our business is and the confluence of factors that affect crude prices, right? But what I can share, I guess, how we see crude prices will be at least for until the end of 2025 and into the first quarter of 2026. So currently, Dubai crude prices at around $65 per barrel. So at least for -- until the end of the year until end of 2025, we see it range trading more or less plus/minus at $65 per barrel. So it's steady. And that's particularly because of 2 factors, right, which will keep prices supported and that particularly the persistent geopolitical risks and the sanctions that were imposed on Russia and Iran. However, in the first quarter of 2025, we could see it probably range between $60 to $65, maybe a little correction. And that's particularly because of the demand and supply dynamics which would pressure prices. On the demand side, as we all know, you can still see a lot of uncertainty in terms of tariffs, which, of course, has hampered economic activity. And on the supply side, you see OPEC+ continuously adding right into their production. This year alone incremental volumes brought upon by OPEC is already more than 2 million barrels. And based on their last announcement, in November and December, they would add incremental volumes of around 130,000 barrels per day each month. So these are basically the factors that might pressure prices. But nevertheless, we see it still more or less in a level around $65 to $60 per barrel. So it's not very volatile, relatively speaking. Operator: We have a question from [ Kiu Huang ]. How were the price increases in SMFB in Q3? Can you break down in each segment, including Food, Beer and Spirits? Any price increases planned in Q4? Chesca Tenorio: In Q2, so the price increases were very minimal. For Food, there was also -- there was around a small single-digit increase, Ginebra as well. For Beer, we did not do a price increase for Q3. Now for the Q4, I think the plan is to just maintain. If ever there will be some increases, it will be in a few months' time. Operator: We have another question for Power. What's San Miguel Global Power's plan for purchase equity shares at Meralco? Could you talk about the progress of securing and drawing down project debt at Project Chromite and Masinloc Units 4 and 5? And could you share a bit the outlook and funding requirement for San Miguel Global Power in 2026? What's construction and funding plan for solar projects at GEA-4? Paul Bernard Causon: Okay. So many questions. Let me go through them one by one. So on the Meralco shares, it remains to be a strategic investment of the group. We're quite happy, of course, with the dividend payout and the market value of these shares currently. But with respect to adding more to this remains to be opportunistic in nature and of course, depending on the circumstances presented to us. But at the moment, these shares remain to be a highly strategic investment of the group. With respect to the project debt for the Chromite entities, we are currently in the documentation phase with the lender banks. And we're very close to having the finalized and executed maybe later this year or early next year. The total debt that could be raised there is roughly PHP 145 billion in total. On the project level debt for Masinloc 4 and 5, it's progressing very well. We've been getting quite a bit of interest and commitments from local banks. We are more or less confident that we'll be able to raise at least PHP 50 billion to PHP 60 billion from this, and that should pretty much snap off any remaining debt on the EPC for Units 4 and 5. So as far as we are concerned, in as much as the EPC invoices are not yet due to date by virtue of the vendor financing arrangement that we have in place for these units. So this pretty much would have no significant impact to us in terms of cash flows at least in the next 2 years. Okay. Last question -- last 2 questions. Could you remind me again what was the -- what were the last 2 questions you asked? Chesca Tenorio: EBITDA outlook -- Paul, it's the EBITDA outlook and funding requirement for 2026 and construction funding plan for solar projects. Paul Bernard Causon: Okay. On the EBITDA outlook for 2026, well, what we've seen this year is pretty much indicative of what we expect to see next year, except that we will have full year contributions from battery projects that we have coming -- that we've commissioned and put into commercial operation early this year, bringing the total to around 500 megawatts. By next year, we expect the rest of the 500-megawatt pipeline to become fully operational as well. It's an opportune time to get into renewable -- into ancillary services, especially since the DOE is integrating quite a bit of intermittent capacities into the grid. As I mentioned earlier, over the next 3 years, it expects to integrate around 9 gigawatts of intermittent solar capacities. And our batteries are strategically positioned to be able to provide power quality services to NGCP to be able to allow such integration. With respect to the -- and then therefore, our profit outlook for next year should be at least around PHP 70 billion in terms of EBITDA. With respect to our funding plan for next year, a lot of those actually are refinancing activities. So the biggest debt that are maturing next year will be our January 2026 perps. So we have that pretty much pinned down. So we're looking at 2 very concrete financing activities that we are very confident to be able to have that refinanced over -- at least a 5-year period. The December 2026 perps, as I mentioned earlier, we're looking at peso DCM deal for that. We have to have it redenominated and financed also over the long term. The rest of the financing activities strategy would either involve syndication, involving foreign banks and also local banks, again, to be able to refinance roughly PHP 30 billion, PHP 40 billion in expiring debt next year. How to finance the solar projects? So I did mention the CapEx earlier. It's $1.5 billion, but that is expected to be incurred over a 4-, 5-year period. The primary method or approach that we're looking at to do this will be through the vendors. So because of the magnitude of the capacities that San Miguel Global Power is going to foray into, a lot of contractors, OEM suppliers for panels are actually offering us a lot of options with respect to vendor-initiated or vendor-financed deals. And that will give us a lot of flexibility in terms of financing these projects, not only with respect to the equity component, but also on the debt component. And as you know, given the nature of the Green Energy Auction Award, it's basically a government-sponsored offtake contract or set of contracts. So we are very confident that at some point in the next 2 years, once we paid at least the equity component of the $1.4 billion that we'll be able to raise the requisite OpCo level debt. And again, given the vendor financing that we have put in place, we are under no pressure to actually have this done at least in the next 5 years. So I hope I've covered all your questions. Let me know if there's anything else. Thank you. Operator: With the interest of time, we have one last question from an anonymous attendee. For San Miguel Corp., what is the net debt at the parent level as of 9M '25? Chesca Tenorio: Thank you, Ian. For that question, parent net debt of San Miguel Corp. is PHP 701.4 billion as of 9 months 2025. Thank you. Operator: All right. That concludes our Q&A. Thank you to everyone for your questions and to our panelists for providing detailed and informative answers to our queries. For those who have further questions, you may address it to us via e-mail at smcinvestorrelations@sanmiguel.com.ph. Thank you, and good day. Kristina Lowella Garcia: Thank you. Chesca Tenorio: Thank you, everyone. See you next briefing. Thanks for joining.
Operator: Good morning, ladies and gentlemen, and welcome to the Dialight plc Interim Results Investor Presentation. [Operator Instructions]. Before we begin, we would like to submit the following poll. If you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Dialight plc, Steve, Mark, good morning. Stephen Blair: Good morning, and thank you, everybody, for joining. We're going to go through this fairly rapidly, but I thought I'd start by giving you a little bit of history of Dialight on the basis that you may not all be aware of where Dialight has come from. So Dialight has been supplying LED products at the individual product level for about 50 years. And we continue to supply those products today. And in fact, it was the fastest-growing part of our business year-on-year in the first half. But in the early 2000s, Dialight saw a first-mover opportunity to move into industrial LED lighting. And this was particularly in hazardous locations where protection of plants and people by having adequate lighting for safety purposes was really important. And so we had the first-mover advantage. And over the period sort of mid-2000s up until 2014, the business grew very rapidly, reaching a positive cash position, inventory around the $35 million mark and profitability around about the 17% return on sales. So everything was going very well for Dialight at that point. On this slide, you can see a couple of examples. Bottom right is a mine and top left is a wastewater treatment facility. But you can see the quality of the lighting is really important to make sure that people and personnel are safe on those sites. So we had a very good market position, very good brand recognition. And then the business lost its way a little bit between 2014 and 2024. So I stepped into the CEO role in February '24, at which point we had a net debt of $24 million. We had a legal case with the Sanmina Corporation hanging over our heads. We weren't growing and we weren't making any profit. Now there were many reasons for that. Largely, a lot of complexity had come into the business, really created by the rapid growth in the early days when the proliferation of SKUs, both at the finished goods level and at the subassembly level meant that we were a very high mix but very low volume manufacturer. And that is always a very, very difficult place to be. It makes demand planning very difficult. It makes understanding what the market requires very difficult. And in terms of manufacturing, it means you have very, very low efficiency in manufacturing because you're continually changing the different types of product that you're manufacturing. So when I stepped in, we set off on a program really of simplification and complexity reduction. In any business, complexity equals cost. And our first quarter call, which really galvanized all of the other changes in the business was reducing the SKU count so that we could focus on profitability and selling products that we could make money on and stop selling those products that really made no money. And just to give you an example of the progress we've made over the last 18 months, we manufacture power supplies. We manufacture light engines that drive the LEDs. We manufacture the LED circuit boards and optics, and we design and manufacture the houses. Over the last 18 months, we've reduced all of those components by 83%. So an example is the power supply. We were manufacturing 126 different power supplies 18 months ago. We're now manufacturing 12. That sort of reduction really improves our efficiency in the factory. It means we're changing lines less often. It means that we have much greater buying power. It also means that our demand planning is easier. And all of these changes have really brought benefit to the business. And I'm going to move to the next slide and just show you some of the progress we've made. So we've started delivering profit. We've started generating cash. And there's a long way to go with the annualization of the savings and the improvements that we've made as well as what we'd be doing in the future to further improve the business. So the transformation plan, which is what we put together when I first joined is all about improving the basic fundamentals of the business to deliver profit and cash to pay down debt and allow us to invest in growth in the future. Now what you'll see from the financial performance is that year-on-year, our revenue has declined. Partly that is due to the tariff impact and the global economic climate, not that we can't manage it, but because it brings uncertainty with some of our bigger clients who are contemplating large capital projects, because of the tariffs on steel, aluminum, copper and the like, their investment decisions can swing wildly depending on the tariff situation. So what we've seen on these larger projects is a bit of a slowdown, which has impacted our revenue. But that said, our approach has been to bring quality of earnings to the business in anticipation of preparing for growth when the market allows. So I think you'll see from the financial performance that we've gone from a very difficult place to a far, far better position in terms of our net debt, in terms of our profitability, in terms of our return on sales and in our ability to generate cash. We have a number of key strengths as a business. I mentioned about a fantastic customer base who recognize our brand and understand that we were the market leader, and in the hazardous space continue to be the market leader. We offer a 10-year warranty. So essentially for any customer, it's fit our product and literally forget about it. We control our own designs, particularly around the power supplies, which give us the confidence to then offer that 10-year warranty. And certainly, all of the testing we've done and all of the in-service -- the in-service application of the products have shown that our warranty claims are very low. And therefore, the quality of the products that we're supplying can actually meet and exceed that 10-year warranty. We've got good access to the customer base and a tremendous set of people. And that's really -- it's the quality of the people and their knowledge of the industry and our business that has really helped us quickly turn around the performance of the business. I talked about the transformation plan. And fundamentally, it's built around 5 key pillars. The first is all about winning hearts and minds. If you can't convince people in your organization that your strategy is the right strategy and you're moving in the right direction, it's going to be very difficult to bring around -- to bring a turnaround. And as I said, we've got tremendous people, and they have really bought into the idea that generating margin, generating cash, thus allowing us to reinvest in the business is the way forward. Historically, the emphasis has been on top line growth, and that really didn't help the business over that 10-year period. So now we're really focusing on quality of the underlying business. And as I said, when growth or when the market is more amenable to growth, we expect to be able to grow with high leverage on that additional revenue. We then turn to sales transformation. As I said, historically, we've been selling on the basis of volume and not really very much emphasis on margin. We have now changed the emphasis. Margin is as important as volume, and we're rewarding our salespeople based on a combination of both revenue and margin. And we'll be rolling that out fully at the start of the new financial year. But already, we're seeing the way that the salespeople are thinking is moving towards that balance between decent revenue, but good margin because that is what is allowing us to improve the quality in the business. The third element is the operations transformation. So how do we make the engine of the business as efficient as possible? And certainly, reducing the SKUs has really helped us with that efficiency and reducing inventory has had a dramatic effect on our cash generation and also actually the space that we have available for growth within our factories. The fourth piece is the margin improvement and cash generation. So we've improved a lot of our processes. We brought a lot of efficiency into the overhead part of our business, and that's allowed us to reduce our cost quite considerably. Those 4 pillars of the transformation were the things we set off to do to really get the business quality back, and then within the last sort of 6 or 8 months, we turned our attention to creating a platform for future growth. And here, we're looking at short, medium and long-term opportunities for growth. We have a Board-directed committee called the Strategy and Innovation Committee, where we're looking strategically at what we do in the short term. So where are some quick wins that will allow us to get new product or new services into the market quickly. Medium term, what do we need to develop for the medium-term future in terms of product? And then longer term, just as we were a first mover with silicon-based LED technology, what might be coming next that could allow us to be a future first mover with a change in technology as technology continues to advance. So in summary, we've had a good last 18 months. We've turned from loss to profit. And as we look forward into the second half, we continue to expect to deliver strong and tangible progress on the transformation plan. We want to accelerate the transformation of our sales team and put in place support and remuneration structures that incentivize them to be more successful. We do intend to improve our working capital position, although right now, we are back to where we were in the heyday of our business. We are in December, going to settle the outstanding liability on the Sanmina contract, which will be a big step forward for us. And as a Board and as a business, we remain confident that the recently upgraded expectations we put into the market, we will fulfill and deliver for the remainder of this financial year. So hopefully, that was a useful summary and a useful introduction. And I'll hand over to Mark now to take you through some of the more financially appropriate elements of our business. Mark Rupert Fryer: Thanks, Steve. So for those of you that didn't know, I was CFO at Dialight from 2010 to 2014, and I rejoined in January this year. So looking at the overall financial summary for the half. The group made $5.5 million of operating profit for the half, that's both up on the full year last year when we made $4.2 million of profit and the second half in which we made $3.3 million. What I think is slightly disappointing is the revenue performance in those very difficult markets, as Steve has said, the tariff impact on major CapEx projects with high tariffs on steel and copper, which make up a large part of the installation costs for a new facility, our lights are typically 1% to 2%. So it's not the cost of the lights, it's the cost of the other commodities. They have up to 50% tariffs on them currently. So that's delaying CapEx. That said, whilst overall volumes were down 4%, Signals and Components was actually up 10% and the components element, which has a very strong correlation with data centers and AI was actually up 20% in the half. As Steve said, we're focusing on the higher-margin products. The top 300 SKUs that we manufacture have about a 15% higher margin than the average across all our SKUs. So we're concentrating on those top 300. That has seen us add 230 basis points to the gross margin. In the half we generated 35.3% gross margin, and we see that increasing further going forward. We've reduced almost all lines of cost half-on-half. The overall level of labor has reduced significantly in our main facilities in both Ensenada and in Penang in Malaysia. Ensenada, particularly, we've reduced from about 560 heads, and we'll exit the year with near 400 heads. Overall, labor costs reduced from $7 million in the prior half to $6 million this half. The production overhead reduced from $14 million to $13 million, and the overhead reduced from $29 million to $25 million. So the combination of the increased gross margin and the reduced cost is what's seen a sixfold increase in the operating profit for the half. On top of that operating profit, we had a small $0.4 million profit on non-underlying items, but a very significant part of that was the receipt of $2.9 million from the U.S. IRS and this related to employee retention credits because we continued to work our engineering function through COVID, and we applied for credits for that, and we received those in the first half of the year. We've used those to afford the costs of the transformation plan and also costs of buying in our 2 main pension schemes, which were defined benefit pension schemes. A real financial highlight is the group in the last 10 years has significantly built up its level of working capital. It needed to do that particularly through COVID, but now we need to get back to the historic levels that we had in 2012, '13. So in this time, 6 months ago, we were talking to our shareholders about targeting a reduction of at least $5 million for the year, but we did say that we thought we could reduce inventory by up to $10 million. And actually, we've run ahead of that. We've saved $10.8 million in the first half alone. So just moving then to the income statement. You can see that small 4% reduction in sales. But despite that, an overall improvement in the working capital, the reduction in the overheads and the profit on the non-underlying items and closing for the half with an underlying EBITDA of just under $10 million. I hope you can all see this slide. It seems quite small to me. But over the last 2 years and closing off with the second half of last year, the gross margin for the group has improved by 10 percentage points from 28% to 38%. And you can see the group has gone from being loss-making to now generating a nice profit on an upwards increasing curve. The first half margin at 35% looks disappointing compared to the second half of last year. The reason for that is we have felt that the group has been capitalizing too much overhead into inventory. And so in the last 18 months, we've reduced the overall capitalization from about $11 million down to $6 million, and that had an impact of about $3 million in the first half of the year. If we hadn't taken that reduction, the operating profit would have been $8.5 million. And you'll see that later on a slide, but that was just, I think, to demonstrate we are making good progress. If we hadn't have had that inventory reduction in the capitalization, the margin would have been 39.1%. So the same as last year. But I should also add, this is the last half in which the group has been manufacturing traffic lights. We sold that business 12 months ago to LEOTEK, and we had to run off a manufacturing agreement, we only make a 7% margin on traffic lights. As I say, that activity is now finished. If you took out the impact of the stock valuation and the traffic light, we actually generated a gross margin in the first half of 42%, which is getting near to the target, which I'll share with you for what we want to be generating going forward. I've included this income statement just to show the last 12 months, which I guess has been really the first 12 months of the significant impact of the transformation hitting the group and the benefits of that. And you can see there that the underlying EBITDA at $17.3 million and an operating profit of $13.6 million. The current share price, we're valued at about 6x EBITDA. This is just a summary of the non-underlying costs. So these are very clear to everyone. I think the most important aspect of those is overall, we made a small profit, but more importantly, the ongoing benefit of the 2 major activities, the transformation plan costs, $1.3 million of costs. These have got a payback of about threefold. So we should see a reduction in operating costs going forward of $4 million on an annualized basis and only about $1.5 million will hit this year, an incremental $2.5 million will be next year. Then secondly, the defined benefit schemes, they have now both been brought in, and they will both be bought out in about May, June next year. In terms of the balance sheet, you can see there the inventory reduction from $40 million at year-end down to $30 million is the most -- the biggest generator to the debt reduction in the half. The net debt improved to $10.5 million at the end of the half. We've continued to generate cash. The net debt now is around $8.5 million. And it's that really which has enabled us to agree with Sanmina to pay them early. They've been good enough to give us a reduction in the amount. We should have paid them $6 million, and they've agreed to accept $5.65 million, and we'll make that payment in the second week of December. That removes the contingent liability and that draws a conclusion to that whole outsourcing and litigation. So that removes that uncertainty on the group. Overall, then with about $50 million of net assets, the group is generating a run rate of about 17% return on capital. I'll share with you later the targets for the group. We're looking to target 25% plus. And just to put that into context, back in 2012, the group was generating 50% return on capital. So we don't see any reason why we shouldn't get back to that level. In terms of the cash flow, the operating cash flow in the half was $13.9 million. Steve referred earlier on to the start of the year when I joined, we had $24 million of debt then. We've generated $14 million of cash. And as I've said, we've moved further on. We're now down to about $8.5 million. That isn't just about reducing inventories, it's reducing trade receivables as well. One aspect, though, we were squeezing our suppliers too much. And you'll see that we have caught up now on those payments and the overall level of creditors has reduced by almost $10 million as well, whilst the level of debt is obviously also reduced. Finally, I think the group has been running with capital expenditure at about $10 million a year, which was about $6 million of CapEx and $4 million of capitalized R&D. Going forward, I think we'll look to be reducing the level of actual CapEx by about half to about $3 million a year, but we will still continue to invest in R&D to have the best products in the sector because that's one of the differentiators that we have over our competitors. So this is my final slide. So the -- on the left-hand area here, this shows you the margins that the group was making in 2012. And on the right-hand side, we set these ambitions, I think, in about March. And frankly, it probably seemed slightly unbelievable to many people. But basically, what certainly I found was a business here, I sort of very much brought into Steve and Neil, the Chairman's ambition for where they wanted to take the group, the delivery of the transformation plan, and we really need to just get back to where we were. And back then, the group was generating an underlying gross margin of about 40% generating an EBITDA margin of 20%, a return on sales of 17%. The EBITDA was virtually 100% conversion to cash. Therefore, the group didn't have any debt. It paid high dividends and it generated in excess of 50% return on assets, and it was relatively working capital light. In terms of our ambition, we'd like to get to 3% to 5% growth. We are targeting to get to 45% gross margin. That actually is the same as -- it's hard to get your head around. It's the same as the gross margin of 39% in 2012, and that's because in 2012, sales commission was expensed in the gross margin, and now it's included in overheads and the sales commission is 6%. But 45% gross margin, 15% plus EBITDA margin and a return on sales of 11% to 13% plus. We expect to eliminate bank debt next year. We're going to target 25% plus return on assets. And we set out a target to achieve $35 million of inventory over 3 years. And actually, we've hit that now. So I think we probably need to revisit that. I think we will probably reduce inventory a little bit further. And in broad terms, whilst the delivery of the transformation plan is ahead of where we would expect to be at this point, we're still only about halfway toward achieving each and every one of these 3-year ambition. The transformation plan annualization, you won't see the full benefits probably until the 2027 financial year is when the full benefits will be felt. And we think we can do that very largely through self-help and the annualization of those benefits. The revenue growth of 3% to 5% would make the task of getting there easier and would enable it to be quicker. So I think that hopefully specs out where we expect the group to get to. And with that, I'll hand back to Steve. Stephen Blair: Thank you, Mark. I think I'll summarize very quickly by saying that Dialight has always been a quality business, and it struggled a bit in that 2014 to 2024 time period, but the quality was always there. And we are now starting to bring that quality of business back. As Mark said, we're probably halfway through to where we want to be. And we have really clear plans of how we deliver progress. And if the markets allow then we'll certainly be seeing growth. That's what we're targeting. And when you have a quality business generating growth, you deliver exceptional returns. And certainly, that is where we are trying to get to. So with that, I'll hand back to Jake, and we will take any questions that you may. Operator: Perfect. Steve, Mark, if I may just jump back in there. Thank you very much indeed for your presentations this morning. [Operator Instructions]. As we have received a number of questions, so perhaps if we dive straight into it. The first question that we have here reads as follows. What is the elasticity of customer demand with respect to pricing in your main segments? Stephen Blair: Mark, would you like to take that? Mark Rupert Fryer: Yes. So I think the answer to that is -- well, let's do this by segment. I think the OE segment, this is the segment we've been in for 50 years. The average sales price of an individual light is very low. However, we are the brand leader. We've been doing this for 50 years. We supply just in time to the contract equipment manufacturers. So I would say in that segment, the price is relatively elastic. We are always competing with others. But once we are in with that customer, we tend to stick. Lighting, on the other hand, and I think this comes to another question, I think we have market-leading products. The value of safety of not having to change out the lights and the energy saving that our products generate and the overall ESG impact of our lights means that the pricing isn't as elastic. And in fact, we've put the pricing up twice in the last 12 months, and we haven't seen a notable falloff. And indeed, when the whole discussion about tariffs, we received praise from our customers that we didn't immediately put our pricing up as some of our competitors did as a surcharge. And we don't believe that they have seen a major impact either. So hopefully, that answers your question. I think it probably comes to another question, which is Dialight has an outstanding reputation for the quality of the product and being pioneering. All our lights have been designed to be LED lights. That isn't always the same for all our competitors, that may well use an old technology, housing and power supply with the LED. But that said, and I think the question is, who do you compete with? Are they the same as 10 years ago? And the answer to that is yes. We have some very large, well-capitalized, very serious competitors, and we tend to come up against the same competitors. So whilst the products have been improved, prior management have continued to invest in the product development. We remain one of the top 4, 5 competitors in the space. And our market share, we think, is around the 15% to 20% mark. And the more hazardous the segment is like oil and gas and mining, the slightly higher our market share is. Operator: Perfect. Thanks, Mark. Just turning to the next question. What would the FY '25 gross margin have been without the adverse impact of the runoff of the traffic business, i.e., what's normalized? Mark Rupert Fryer: Yes, sure. That's a very good question. So last year, the actual traffic segment was loss-making at the gross margin level. And it was for that reason that we booked an onerous contract provision at year-end of $0.8 million. And that has been released, and that was the primary reason why it made a very small 7% gross margin this year. If traffic had not been included in the full year '25 numbers, the gross margin would have been about 39%. So quite an uplift. And I have to say we'll both be very happy to look forward to H2 without traffic in it. Operator: Perfect. The next question asks, are you continuing to invest in the Components segment? Or are you in harvest mode? Stephen Blair: So when I joined 2 years ago, we weren't investing in the Components segment. I was told that it would only ever grow up and down or grow and decline with the market and that there was no opportunity for growth. And so to be honest, a lot of our emphasis was on the solid-state lighting because it's the major part of the business. But just in August, I visited a customer in Asia who said, basically, look, we love what you do for us, and we do 2 million or 3 million with this customer a year, but I've got $25 million worth of other stuff that I'd be happy for you to provide as opposed to competitors. And so suddenly, overnight, having gone and actually spoken to the customer and listened, we saw that there is an opportunity in the Components segment. And we are now looking to invest. And so we've gone from a business we were running mainly for cash to actually, there may be some opportunity here. And as Mark said earlier, we saw a 10% year-on-year improvement in that business. So AI and data centers are a big element of that. That seems set to continue. But this is more about broadening our market share. And so if you'd ask me that question 6 months ago, I would say, no, we are not investing. It's a cash cow. But now we see real potential, and we will be turning our attention to selective investment to provide the best return we can. Mark Rupert Fryer: And I should also just add on that, that the indicator business makes the highest gross margin and the highest return on sales. So the greater the mix that, that can be will overall drive up the group's return on sales. Operator: Perfect. The next question asks, many congrats on the progress so far. Two questions, please. Has it been difficult to win staff hearts and minds whilst cutting headcount? And the second part of the question is, how has the identity of your competitors changed since 2012? Stephen Blair: So if I take the first one, it's not been that difficult, to be honest. We have -- I think you find this in any business. You have very intelligent people who are keen to be engaged in the strategy of the business and to understand what is needed from them. And we started off very, very transparently as soon as I joined, we talked about the problems in the business. We talked about the opportunities. We talked about the strategy that would get us back to where Dialight had previously been. And we said quite clearly, there are people who will be part of that journey, and there will be people who won't be part of that journey, either because they don't want to be part of that journey or because the business can't support those functions or resources. And so people have responded extremely well to that. And even people who have left the business have left feeling they made a contribution to it. And they feel proud of that. So as I said right at the beginning, that first pillar was the key to any success. And I think looking at the results, it sort of shows that everybody stepped up. Those people who remain, I would say, are even more dedicated to Dialight. And that for any leadership team is a godsend. And I think it's gone as well as I could have expected. Mark Rupert Fryer: And in terms of the competitors and whether they've changed since 2012, the simple answer is no, they haven't changed. So the 4 competitors are Appleton, which is a subsidiary of Emerson; Cooper Crouse, which is a subsidiary of Eaton; Holophane, which is a subsidiary of Acuity Lighting; and Killark, which is a subsidiary of Hubbell. I think what has changed is, in 2012, Dialight was 100% LED. And those 4 competitors were not as highly focused on LED. They are now a lot more focused than they were then. They had legacy traditional technology businesses. They will still sell those lights to you as well, but they'll be a much smaller part of the mix than they would have been back in 2012. We tend to come up against them on most major bids. I think one of the areas in which we have slightly underinvested more recently has been in selling to the engineering, procuring businesses, the EPCs. That is a long-term sell and the goal in that is getting specified, your products specified on new build and retrofit of facilities. So that is something that we are investing in now more heavily. That's an investment that hits the P&L initially, but then typically higher margins can be generated when those bigger projects go live. Our competitors have continued throughout the last decade to invest in that area. So there are areas in which we are not specified and our competitors are. We need to do better at that. But today, our business is between 60% and 70% MRO maintenance and repair work. That's higher than it used to be. It used to be more CapEx new project orientated. And a combination of, hopefully, tariff uncertainty removing and our investment in the EPC team, we'll see that level of activity build up again and the overall percentage of MRO to marginally reduce. Operator: Perfect. Is wind a significant part of the U.S. obstruction business? And if so, are there revenue risks from the likely decline in new turbine orders/builds? Or is cellular/broadcast the driver? Stephen Blair: Yes. So wind is not a driver for us at all. All of our obstruction business is tower-based, are the communication towers and the like. And so really, that is the driver for our business. I mean with 5G towers, they're not as tall. And therefore, we don't see demand for our products increasing. But as Mark said earlier, the obstruction business is a very solid, reliable business with good returns. And so we'll continue to go after that obstruction business. But no, we're absolutely not impacted by how the wind market is growing or declining. Mark Rupert Fryer: I can see where the question comes from because in 2012 Dialight was in the wind market and had a Danish lighting business, BTI, but that has been exited in the last 5, 10 years. So no [indiscernible]. Operator: Perfect. Thanks, guys. And that actually concludes all the questions that have come in this morning. So thank you very much indeed for being so generous of your time and addressing all of those questions. And of course, if there are any further questions that do come through, we'll make these available to you after the presentation just for you to review and to then add any additional responses, of course, where it's appropriate to do so, and we'll publish those responses out on the platform. But Steve, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great. Stephen Blair: Thanks, Jake. I'll sort of repeat what I said at my earlier wrap-up, and that is, this is a really good quality business. We think it has much, much further to go. And we are looking for growth on top of that high-quality business, which means we expect to generate profit, cash and growth. And certainly, that is what we're targeting. And I really appreciate your time today. We're very happy to talk to as many people as possible. We think we have a really good story, and this is a really great business. So thank you for your time and attention today. Operator: That's great. Steve, Mark, thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Dialight plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.
Lawrence Hutchings: Good morning, and welcome. It's great to see so many familiar faces here in our events center in Salisbury House and a big welcome to those on our webcast this morning. I'm Lawrence Hutchings, Chief Executive, and I'm joined today by Dave Benson, our CFO. This week in -- Monday to be exact, marks my first anniversary at Workspace. Our agenda for this morning, we have a high-level overview of performance in the first half. I'll hand over to Dave to take us through the financials in detail. Then I'll take us through our first update on strategy since we launched back in June, which was 5 short months ago, and we'll then move to Q&A. It's been a very busy time for Workspace. The economic backdrop continues to be challenging, not least because of the uncertainty around the upcoming budget. So we are controlling the controllables and taking a series of actions to deliver the fix, accelerate and scale strategy that we laid out in June. We're starting with our focus on stabilizing then rebuilding occupancy. But before I go into that, I'll summarize the first half performance, including some early and encouraging success indicators. There should be no surprises on this slide. We are clear on our expectations. The performance in the first half has played out broadly as we expected. Back in June, I said things were going to get tougher before they got better. Let's start with the performance metrics. I'll highlight a few on the light blue line, like-for-like occupancy is down, as we said. And that's driven a fall in rental income and also in valuations. Importantly, we've taken cost out of the business. So our admin expenses are down 5.6%, roughly GBP 2 million annualized. We've held our dividend flat and it's well underpinned by our cash flow because we understand how hugely important dividend is to our shareholders. On the dark blue line, Dave will talk through this in detail. but our valuation movement has been driven by lower occupancy and contracted rent along with a fall in ARVs, and this reflects our pragmatic approach to pricing. Although importantly, yields have held broadly flat. I'd like to provide more detail on what's driving the operational business. These are the interesting lead indicators that I referred to, and they demonstrate our strategic actions are gaining traction. Conversion and retention are key and together, they drive occupancy. Inquiries are down in a softer market but our conversion is up 1% year-on-year to 16%. And importantly, in October alone, up another percent to 17%. Retention has also increased, and this is a key focus for us, and I'll go into some detail on that later. A new metric that we're showing this time is our NPS, Net Promoter Score. It's up 14 points to plus 47, which is a great achievement. Our rent per square foot is marginally up. However, that is mostly driven by these fixed 5% annual increases or first year increases that we have in our lease -- standard lease model. This is the strength of our business. And it means that we are never far away from some form of reversion opportunity. I'll hand over to Dave to take us through the financials. Thanks, Dave. David Benson: Thanks, Lawrence, and good morning, everyone. As Lawrence says, we are operating in a softer economy, and we are seeing some customers deferring decisions in the run-up to -- in the uncertainty area in the run up to the autumn budget. But against this backdrop, as the top left-hand chart on this slide shows, we had slightly fewer inquiries in the first half of the year compared to the same period last year. However, as Lawrence will cover later, we have been working hard and the inquiry to deal conversion ratio has continued to improve. It's well above historic averages with a significant pickup in quarter 2. As expected and highlighted in our quarterly trading updates, we have, however, seen a fall in like-for-like occupancy, down 2.5%, largely driven by large customers leaving the Centro Center in Camden. Excluding those vacations, like-for-like occupancy would have been down to 81.7%. Like-for-like average rent per square foot was broadly flat, reflecting our selected price reductions and promotions, which have helped to drive new deal conversion and customer retention. Turning to the income statement. Underlying rental income increased slightly, GBP 0.5 million to GBP 67.3 million. The total rental income was down 2.9% to GBP 58.7 million, following the disposals made over the last 12 months. This was partly offset by lower administrative expenses, where we streamlined our support functions to deliver annualized savings of GBP 2 million. Net finance costs increased by GBP 1 million, reflecting -- sorry, a decrease in capitalized interest following the completion of Leroy House in October 2024 and also an increase in the average interest rate following repayment of GBP 80 million or 3.3% private placement notes in August 2025. Overall, trading profit after interest was therefore down 6.4% to GBP 30.6 million, with adjusted underlying earnings per share down to 15.8p. There were one-off costs of GBP 4.5 million in the period, largely in respect of the restructuring of the support functions and the implementation of our new CRM system. And these, together with the decrease in the property valuation, resulted in a loss before tax of GBP 71.1 million. Taking into account the trading profit performance and confidence in the longer-term prospects for the company, we will be paying an interim dividend of 9.4p per share, in line with prior year. On the balance sheet, and notwithstanding the decrease in the property valuation, which I'll come back to in a moment, we've maintained our capital discipline with trading profit funding last year's final dividend, and the proceeds from property disposals largely funding capital expenditure, resulting in net debt slightly increasing to GBP 833 million with NTA per share of GBP 7.21. So coming on to the valuation. Overall, we saw an underlying decrease of 4%, reflecting largely lower occupancy. On this slide, we set out the valuation movements by property category. On the left-hand side, you can see the valuation at the 30th of September and on the right-hand side, you can see the movements in the period. In the first row is the like-for-like portfolio, which accounts for around 3/4 of the overall value. And as you can see, the like-for-like valuation was down 3%, driven by lower occupancy, with the yield improvements largely offsetting a 2.3% decrease in ERV per square foot. We did continue to see smaller spaces performing relatively more strongly with units less than 1,000 square feet seeing a decrease of 0.7% in ERV compared to an average decrease of 3.6% for larger units. We also saw a significantly better-than-average performance in our high conviction and pilot sites with the valuation of pilot sites down by just 0.4%, and our high conviction down by 1.6% on average. Valuation movements in the non-like-for-like categories were also impacted by decreases in ERV which, in some cases, were compounded by yield expansion, particularly in the Southeast offices. Turning to debt. We continue to maintain a wide range of facilities with a spread of maturities, largely fixed interest rates and significant headroom. Over the past 6 months, we have successfully refinanced GBP 200 million of bank facilities, extending the maturity until 2029 as well as extending the maturity of a further GBP 215 million of facilities by one year. The facilities have the option to extend the maturities by a further year as well as increasing facility amounts subject to lender consent. Overall, this gives us significant flexibility with no additional refinancing required until 2027. As I mentioned before, though, we have seen a small increase in our average cost of debt following the repayment of the GBP 80 million of private placement notes. Looking forward, the softer economy and ongoing macroeconomic uncertainty continues to create a tough operating environment. As previously announced, H2 earnings will be impacted by a number of factors, including the lower opening rent roll, although we do expect less pressure on occupancy from large customer vacations in the second half. We will see the increase in the average cost of debt, as mentioned already, but we will also see the full 6-month benefit of the cost efficiencies that we implemented in the first half of the year. We expect full year capital expenditure of around GBP 60 million as we complete our refurbishments at Atelier House and The Biscuit Factory, alongside tactical capital-light refurbishments to enhance our offering in our conviction and high conviction buildings. This capital expenditure will be offset by proceeds from property disposals. And I'll now hand back to Lawrence to talk through our strategic progress. Lawrence Hutchings: Thanks, Dave. There are 3 elements to our strategy: Fix, Accelerate and Scale. And they are all underpinned by our objective to achieve operational excellence in our platform. That is the point where we're able to deliver highly efficient, sustainable growth in underlying recurring income. I call this the new Workspace where Workspace is once again a clear market leader. We've been working hard to execute over the last 5 months. I will go into more detail on each element over the next few slides. As we execute, we're starting to see traction, and it gives me confidence that we have the right strategy to deliver recovery in income-led shareholder returns. I'll update you first on Fix. This is the most critical area of our strategy, and it speaks directly to occupancy, which then flows through to income, valuations and shareholder value. We are laser-focused on stabilizing and then rebuilding occupancy. There are two drivers to our occupancy, new customers and retaining our existing customers. Many people don't realize that in any given year, typically 90% of our revenue comes from our existing customers. So the more we can retain, the better position we will be in, particularly in a market where the cost of acquiring new customers has grown. Within the retention area is our expansion and contraction of existing customers. We have almost 4,000 customers on our platform, and they have a diverse set of needs and requirements. They're dynamic, and we support them in a variety of ways. Often, this is in the shape of supporting their upsizing when they win a new piece of business or at times when they need to contract before then expanding again. This is part of the appeal of being at Workspace. Interestingly, our customers stay on average 5.5 years on an initial 2-year lease. Our platform and nearly 40 years of experience supporting London's creative SMEs, places us in a very strong position. However, experience, legacy and platform in themselves are not enough. So how are we driving these improvements in retention? Our customers are the owners and the CEOs of these businesses. They are in our centers daily. Therefore, the function and presentation of our buildings is absolutely critical, as is the service they receive from our center teams and especially the people that are on site every day because they interface with them all the time. We've put in place a huge amount of initiatives to support our retention. Our customer teams are taking more responsibility and leveraging their contacts and relationships to deliver expansions, contractions and lease renewals, which were previously run by our head office teams. We've further empowered our center teams to resolve the issues that come up on the ground. Nothing frustrates our customers more than 40 facilities. So we have to be right on top of it. Our new CRM platform now makes it easier for customers to raise issues and access a range of services and support. We're also delivering more events and value-added services. All of this action is delivering tangible results. Firstly, as I mentioned, like-for-like retention is already up -- is already up 2% to 85%. In October, when our center teams took over responsibility for expansions, we saw a 12% increase versus the Q2 monthly average. Our customer satisfaction score is up 1.5% to 91.2% since March. Our cleaning and maintenance score is up 3.9% since March. And finally, our value-add offers and Skills Academy, has received a 9.8 out of 10 review from our customers. We're tactically investing in our buildings to create better environments, and our pilot projects are the test centers for these improvements and innovations in both our product and experience. We're investing modest sums in the areas that our research and feedback tell us matters most to our SME customers. At Vox, we've seen the most significant changes. This high conviction building has seen occupancy improve 400 basis points to 79% since we launched the project back in June. We spent GBP 700,000 on high-impact areas, including breakout areas, receptions, meeting rooms and formal seating areas, corridors and putting new phone booths in. Over the leather market, sorry, pleasingly, our NPS at Vox has improved to plus 78 from plus 41 just a year ago. And over The Leather Market, our NPS has increased to plus 37 from plus 16, a year ago. Occupancy at other market is 82% and being transparent marginally down. However, that is mostly driven by the impact of a fail customers business. Importantly, at Leather Market, we have 5,600 square feet of space over offer that translates -- under offer, that translates to about 4% in occupancy. However, let's not just listen to my views on the impact and changes that we're making to resourcing in our centers and presentation. Francesca, who is our General Manager at Vox Studio, has some fascinating insights of our own on the impacts. [Presentation] Lawrence Hutchings: Fantastic. Turning to new customers. In a competitive market, how do we improve our performance in attracting new customers to our platform. It's not simply about the number of inquiries rather the quality and relevance of those inquiries. I'm pleased to say, Will and the team are rising to the challenge. We are leveraging a huge amount of third-party data and market research more than at any time in our history to increase our market share of London's creators, makers, disruptors and innovators. This has led to a 20% increase in First Choice consideration in our brand tracking over the course of the last financial year-to-date. This remains significantly ahead of our largest flex peers. The broadcast video, on demand ad campaign that I know many of you have seen, has resulted -- has resulted in a 22% increase in booked viewings during the campaign period. Our new drive on targeted social and digital ads has delivered a 40% increase in click-through rate to our website from LinkedIn. Whilst our website accounts for circa 60% of all our leasing deals, brokers remain important, especially in our larger spaces. Our increased focus on engagement with these firms has seen viewings from brokers up 12% over the period. And our focus on local marketing has driven an increase in walk-in viewings, especially at our lower occupancy sites, including the Chocolate Factory, Westbourne Studios and Screenworks. Better leads are translating to better conversion. We're working across the board. We're training and coaching our sales team and building a more commercial mindset. We've reviewed their incentivization and we're taking a more pragmatic approach to commercial terms. We've freed the leasing team up from expansions, contractions and renewals to focus on new business solely. We're trialing new initiatives like furnishing units, inclusive deals and more flexible terms. And as you heard from Francesca, the center teams also have an important role to play. They're busy taking viewings, proactively improving units based on feedback from customers, viewings and from our sales and leasing teams, and they're undertaking common area upgrades and maintenance on a more regular basis. We're doubling down on technology, and I'm really excited about how we're using AI. Elodie, our sales agent is accelerating conversion, working 24 hours a day when our SME customers are online. Viewings on a Monday are up 25%, and there is more to come from Elodie. We're also using AI to generate floor plans and unit layouts along with this cool tool that enables our sales team to present the unit in several different design and layout options for our customers that struggle with spatial reasoning. You'll see the majority of our units on the website now have CGIs to help with space planning. We have more improvements coming with our customer site, including a new landing page, and improved navigation, and I'm pleased to say we've launched the new landing page today. So what are the next steps on Fix? As I've said, empowering our center teams, shifting accountability to the call face and incentivizing them to provide better customer experiences whilst driving revenue, and it's working. We're going to roll out this evolution of the structure across our portfolio. This creates a need for better data and revenue management tools, which we are continuing to enhance and roll out. And finally, this focus on driving revenue is being supported by our first Head of Revenue, James Graham, who joins us from IWG in early January. James will oversee the sales and retention initiatives across the platform. As you can see, we are 120% focused and moving at pace to address the occupancy challenge. Importantly, we're making progress, but we appreciate we have a lot of work to do. Turning now to Accelerate. This is about optimizing our GBP 2.3 billion of real estate portfolio and our platform. We're fond of saying we have two verticals in our business, a super fast-moving dynamic operating business, which delivers circa GBP 140 million of revenue a year. Sitting next to that, a real estate investment business that optimizes our real estate portfolio. And these two verticals are supported by a series of corporate functions. I just want to take a moment to remind everyone of our conviction-led approach following the extensive portfolio review we did earlier this year. We're on track to meet our 2-year target of GBP 200 million, which equates to circa 30 -- sorry, 20 assets. We sold GBP 52 million so far this year, which is broadly in line with book value. That's on top of the GBP 100 million of disposals we made last year. Most of these assets are outside London. They're smaller. They're not in our SME business format and they don't speak to our target customers. We have a further pipeline of disposals, and we're constantly reviewing our portfolio with a very critical eye. We will not shy away from recycling more, including the change of use opportunities where we believe the SME market has shifted in that location. Capital discipline is always important, especially given where we are in our recovery. As we stand here today, one of the best uses of our capital is rebuilding occupancy and letting up the space we already own. The swing from vacant to occupied is circa 130% of the rent when we include the empty business rates and service charge liabilities. Whether this is investing in pilot type projects that you've just seen or the subdivision of larger spaces into our smaller studio formats, the impacts on occupancy, income, income growth, adjusted profit and valuations is meaningful. This includes investing modest amounts on new sources of demand to accelerate our rebuilding of occupancy. Importantly, we don't have any further large projects, as Dave mentioned, beyond the completion in the coming months of the Biscuit Factory and Atelier House in Camden. Instead, we are focused 100% on leasing the floor space we already own, which means we have structurally lower CapEx commitments for the next phase of our recovery. We have guided to lower leverage, reducing our interest drag and improving our balance sheet metrics. And we have a proud history of dividends and dividend growth, which are fully covered by our trading profit. Our guiding focus is on ensuring we always have the most appropriate capital structure and on delivering shareholder returns. Accelerate also incorporates the next phase of our pilot project, which is now moving into business as usual following their success. We've selected China Works and Cargo Works in Southwark. These are beautiful characterful workspace buildings in amazing locations in what I call London's creative hinderlands out of Zone 1 through to Zone 3 and 4. These are locations where our extensive research tells us there is a high proportion of our target SME customers and their staff living, working and socializing. Growing occupancy through targeted investment in high-impact areas enables us to drive income growth. These projects are high impact. They're efficient use of capital with modest investment, delivering tangible near-term results on both conversion and retention. We said when we launched our strategy, all 3 elements started together immediately. We're confident in our ability to fix occupancy and deliver capital recycling to optimize our portfolio and our platform. We're going to be creative and entrepreneurial where we see growth opportunities within our capital constraints that deliver immediate impact on our occupancy. There are ways that we can capitalize on our unique real estate customer base, adding other complementary formats to our larger campuses that create new sources of demand and provide services to both existing and potential customers. Qube is an example. More on that in a moment. Micro storage is another example. There are others we are monitoring, targeting different high-growth sectors within London's dynamic and growing SME space. We believe we are uniquely positioned to access these opportunities as both owner and operator of our buildings. Turning now to Qube. This is a great example of our strategy at work. We're unlocking an exciting new source of demand for London's growing content creators. Many don't know, London is one of the world's leading locations for content. And there are well-established Flex platforms, including the Ministry and Elephant & Castle. Our deal with Qube at the Old Dairy is one of a pipeline of sites we've identified in London as we support Qube's growth with our real estate and modest amounts of capital. The combined investment is less than it would cost us to fit out the space, and we're excited by the halo opportunities we can create for like-minded businesses to locate near the Qube facility. We're also exploring ways of working together, including creating podcast studios in our assets that are operated or powered by Qube. And we're looking forward to learning from each other, operationally over the coming months, and we welcome Amin and Nick to the Workspace platform. Turning now to next steps. One of the most insightful things for me over the last 12 months and the most eye-opening things has been to get out into our buildings and visit our customers and just see how truly diverse and successful some of them are. We've started a podcast series. And I think some of you have seen the wild podcast I've done with Charlie, who was the founder there, which is a phenomenal success story within 5 short years. He's just sold that business for GBP 230 million to Unilever. And there are many others within our business. And one of our challenges is how do we get the workspace story and how diverse our customer base is and how our studio spaces are used by such a variety of different people in such a variety of different ways. And we kicked off a video at our strategy session, which we got really good feedback from. And every time we take sell-side or investors off to our buildings, they always come back surprised, pleasantly surprised about what they've seen. In fact, we had an investor tour a few weeks ago, one of our largest shareholders. And he said to me after walking around The Leather Market. He said, "This restores my faith in London". So we've got a video for you just to provide more insight into the types of customers we host on our platform and what they're doing with their businesses. [Presentation] Lawrence Hutchings: We remain laser-focused on our Fix, Accelerate and Scale strategy, starting with rebuilding occupancy, which will drive a recovery in earnings and deliver shareholder value. To put the occupancy challenge in perspective, if we converted every single inquiry we had in a single month, we wouldn't have an occupancy challenge. And I appreciate we're not going to do that, but it gives you some indication of the volume that we're dealing with in terms of inquiries and the deliverability of what we need to do. We're closer to our customers than we've ever been, and we're far more responsive. This is giving me confidence that we're seeing the early signs of progress as we presented today. However, I am aware it's early days, and we have a lot to do. We're clear what it is that we need to do and how we are going to execute and we are executing at pace. I'd like to move now to Q&A, and we'll start with questions on the floor, and then we'll move across to the webcast. Thank you. Lawrence Hutchings: Can I just ask that we introduce ourselves for those on the webcast, everyone knows who's asking the question. Thank you. Neil Green: Neil Green from JPMorgan. Two, please. First, on the occupancy side, given your lease break profile, you're able to flag the large unit vacations well ahead of time. So we saw that coming. Have you seen or are you watching any further potential large unit lease breaks, potentially back in the second half or first half of next year? And generally, any comments you may have around when and what level occupancy might trough at, please? And secondly, encouragingly leasing activity has continued post period end, and you've got some space under offer. But interesting to see if you can tell us any more around how those leases compare to ERV, given the ERV impact on the values in the first half, please? Lawrence Hutchings: So there's probably 3 questions there. Maybe I'll have a shot at the first one, Dave. The second one, Neil, just remind me again. Second question. Neil Green: Occupancy... Lawrence Hutchings: And trough. Neil Green: Yes. Lawrence Hutchings: Yes. And the third one is how the deals post the period close effectively, how they look against ERV. I think Dave is probably reasonably well positioned to answer that as well. But picking up the first one, we've been very transparent about one of the key drivers of occupancy during this last period, has been the vacation of a large occupier in Camden, which is where, obviously, our new offices, and there's a reason for that. There aren't too many 45,000 square foot occupiers within our portfolio. There's one other large occupier in West London that we're monitoring very, very closely. So I think after those 2 large occupiers, we stepped down a long way into the sort of 10,000 to 15,000, if that makes sense. There aren't many of those in our portfolio either. And then we stepped down again into the sort of 5,000 to 8,000 square foot mark. The sweet spot of our business remains 300 to 1,200 square foot units. But as you would appreciate, businesses come in and scale with us effectively. And there's many great examples. Some of them stay with us. [indiscernible] has elected to stay, we've moved out of our corporate space in Kennington to facilitate their expansion. But there are other cases where business is sold effectively. And that's what success looks like for our SME customers is some form of exit. And as you appreciate, there are times where part of that exit is that, that business gets taken up into the mothership as we call it effectively. And we get that space back and the process starts again with dividing the space back up into small units. We are being far more pragmatic. We've seen some improvement in large unit demand and where that's taking place, we've been comparing that to the alternative of subdividing units. Hopefully, that answers that question. Dave, I might hand over to you. We're being very careful about guiding to a trough in occupancy as you would appreciate. David Benson: Yes. I mean, I think it would be rash to guide to a trough against the macro that we've seen, particularly a week before budget. Having said that, we are very focused, as we've talked about on what we can control and the drivers and the early indications and they are early indications, are positive. The visibility, as Lawrence talked about, in terms of the large units, which have been a big driver of the movement in the first half are much less in the second half, which is positive. So I think we're controlling the things we can control and leaving those in the right direction, absolutely. I think the other thing I would say is that there is uncertainty, as I said, I think it has resulted in some customers and potential customers deferring decisions until after the budget, but when we speak to the customers, they are positive about the -- overwhelmingly, they are positive about their prospects for growth next year. So I think that augurs well for next year. In terms of ERVs and pricing where we're seeing, as we saw ERV's down in the first half, and that's really been driven by the deals we're doing. We are still doing deals at the -- I mean for us, as Lawrence says, the key focus at the moment is on driving occupancy. You have 130% return on driving it. And that is wholly our focus. So we are being creative about how we deliver that occupancy. Pricing is one of those factors. So we will continue to be pragmatic on pricing. Lawrence Hutchings: Just to add to that, we have fun to stay in the business, there's 2 levers effectively; occupancy and rate. And if occupancy comes up a little bit, we let rate off, rebuild occupancy, pull rate on effectively. So as you preset, supply/demand economics fundamentally within the building. So where we have tension we can drive better rental outcomes. There's no question. What we've also realized with the pilot projects is that where we're investing and improving the environment, those rent increases at the end of that 2-year lease are much easier for us to achieve. And we're getting feedback from our customers saying, I'm okay with paying a 5% or 6% increase because I've seen you're investing in the building. Denese down the front here, I think. Denese Newton: Denese Newton from Stifel. I had a question, obviously, you started to disclose retention rates, which is a new metric and will be a good guide for trends in occupancy. I just wondered with the current rate at sort of 85%, where should we benchmark that against sort of historic retention rates? And what do you think would be a realistic target for improvement in that? And how would that then impact occupancy? Lawrence Hutchings: Yes. I think if you -- in recent times, the last few years -- sorry, retention has slipped. There's no question. And I think going back just before I joined, we had several months where retention numbers were meaningfully lower than that 82%. And as I mentioned earlier, there are really 2 key drivers to occupancy. What we're putting in from the top new business and what we're losing effectively and as you'd appreciate in a competitive/uncertain market, the cost of customer acquisition goes up, as you would appreciate, retaining more existing customers is fundamental to us. We have seen periods where -- and obviously, we're providing averages over the reporting period, we have seen months where we're getting closer towards 90% but we're not guiding to a target at this juncture. We have gone through forensically and Will is here in the audience today is overseeing the sales function until James Graham arrives and doing a great job. We've been forensic in going through line by line, those customers. And as Francesca mentioned, we've moved from being reactive to a proactive. We're positively engaging with our customers to establish what their intentions are in advance of these lease events and seeing how we can go in and help. And sometimes help looks like contraction, sometimes help looks like expansion. Just to expand on that for a moment, the balance over the period of expansions versus contractions has been positive to expansions, about 60-40 effectively is the ratio we're running at the moment. So it's another metric which we think is important. So we'll continue to update and report against these retention numbers. I think it's early for us to be providing a guide. We're doing better than we have done in recent history effectively, but we think there's a lot more that we can be doing. And as I say, the pilot projects, retention has improved effectively. It's running above the averages. So that's what's giving us confidence, not just the physical changes, but the resource changes, taking the responsibility from the leasing team effectively across into that team. And if you think about it, Francesca knows these people personally. The CEOs are in our business, in our centers every day. She sees them, she knows them. So now she's empowered to have those discussions as well as part of the wider discussions, and we're seeing the same in Leather Market, and we've now handed that -- we've already handed that across to the other center managers, and we're seeing benefits. So it is a key area of focus for us. Adam Shapton: Adam Shapton at Green Street. Two questions. One -- the first one is technical one on valuation. And I might make a fool of myself with this question. But am I right in thinking that there's a structural occupancy assumption in the valuation that the valuers take and presumably you agree with them? David Benson: I mean they obviously form an independent view. I mean, in our view as directors is obviously, it has to be materially and we have to be comfortable with it. But different valuers take different approaches. We have -- this year, we have 2 valuers. So we have Knight Frank as well as CBRE valuing different parts of the portfolio. They both do Red Book, very similar approach, but slightly different assumptions. So there is -- within there, an assumption around void, yes, for different properties, units, et cetera. The key driver, though, really is the occupancy as we say, contracted rent at the moment. That's really what's driving the -- it's less about the endpoint. It's much more about the fact that the occupancy at the moment is lower. Adam Shapton: Yes. Okay. So my question was, has that assumption changed in the last 2 years? David Benson: No. Adam Shapton: In your statements, you very consistently pointed to where income would be at 90% occupancy, which you might say is leading people to think about that as a structural occupancy number. Is that still right? Is that what your value is assuming? Lawrence Hutchings: So long-term average is that, Dave, is 90%. David Benson: Yes. I don't think there's been a fundamental shift. It's more the fact that we have a new valuer who has a slightly different approach, that's all. Adam Shapton: Okay. That's clear. And then on retentions and renewals, it's great to see the number increasing. If you split out those renewals from your like-for-like numbers, is it -- are you able to say what your renewal rates would be versus previous passing? So I know within your like-for-likes, you've got step-ups, right, and fixed increases within terms. So -- and I know you mentioned there's people increasing and decreasing in GLA, but what's the renewal spread [indiscernible]? Lawrence Hutchings: Typically, we're better to be dealing with the existing customer from a commercial terms outcome than a new customer, typically. Adam Shapton: Sorry, let's say, I'm paying 50 square foot and I renewed, what's the renewal spread, is it -- versus previous passing? Lawrence Hutchings: So it's -- the renewal spread is different. I don't have the numbers at my fingertips. The renewal spreads look different with the smaller units compared to the large units. We're being a lot more pragmatic on large units at the moment, and there's more competition in that large unit space, if that makes sense. So we're being a lot more pragmatic there. I don't have the average with me. But what we know is that small sweet spot of our business, we've got more leverage there, if you appreciate. And we -- the renewal spreads will get the 5% kickers in the -- on the first anniversary, as you appreciate, standard lease model 2 years ,5% uplift year 1. And then effectively, we go to market at -- when I say market, it's not a true market review, but we're able to set a rent at the end of that period. So we -- as I say, we're typically renewing at passing or marginally above is my understanding on the small units, the large units is where we still have some pressure. David Benson: Yes, there's definitely a difference between small and large, absolutely. I mean you can see that in the ERV spreads that I talked about for the smaller units, it's a much smaller decrease. And in terms of -- I think your question around existing versus new deals, we are and always have been very transparent on pricing. Our pricing, you can see it on the website, our customers talk to each other fundamentally. So yes, we're doing some promotions and deals and so new customers may benefit from some of those, but there isn't as big a difference as you might perhaps imagine. James Carswell: It's James Carswell from Peel Hunt. Just on the occupancy, can we just make sure I'm thinking about this correctly. The expansion of Wild Cosmetics and then your own move to Canada, that's presumably in the 80% like-for-like number you bought today and likewise Qube, which I think was post period end. The benefit of that is still to come in the occupancy number. Is that correct? Lawrence Hutchings: Yes. David Benson: Yes. So actually, while the expansion actually is post the end of September, so that's not in the September occupancy number. And you're right, Qube, no, that is not in there either. But neither is -- so they will be taking space in the Old Dairy, but that space is currently occupied. So effectively, we'll be replacing occupied space. James Carswell: Okay. Perfect. And then I mean similar question to Denese, maybe on the conversion rates, I mean, it's obviously great to see it improving. How -- what's the kind of holy grail in terms of the conversion rate, do you think you can... Lawrence Hutchings: Converting 18% roughly, [indiscernible], we have deals that come into the system. We think there's capacity to improve that, get to 20%, get to 22% as I think it's in that sort of league, if that makes sense. The flex industry use a whole variety of different measures. Some are looking at conversion from viewing, some are looking at conversion from inquiry as you would appreciate. So us getting accurate benchmarks is a little challenging. But we think there is definitely further improvement to come from conversion. Well, I think that's fair. Yes. Will Abbott: And I think back to the point of our potential pricing as we start to see occupancy increasing, there will be more aggressive on pricing, which you expect to see coming down. Our priority at the moment is to bring in customers, build occupancy and the point's made already once we've got that customer in place, then we can start to work with that customer, expand that customer. James Carswell: Perfect. And then just final question on business rates. I think I'm around thinking there's some changes to operators and landlords that issue licenses rather than leases. I think you typically issue leases, so it doesn't impact yourselves. But I mean, does that give you a bit of a competitive advantage where some of your peers are going to have to potentially pass it on to customers? Or is that a very different space and not really a market? Lawrence Hutchings: The leases give us an advantage in terms of mitigation, but the -- I think all the pressure that you're seeing at the moment, and I suspect what you're referring to, James, the flexible space organization, effectively owners organization called [ Flexor. ] And in fact, one of our team members is Chair of [ Flexor ] this year. They are lobbying government very, very actively. There's councils approach these things differently as you'd appreciate. There's enough ambiguity in the business rating system to allow for that to happen. But it really has a big impact on those operators that run hot desks. And my understanding of it is that previously, the hot desk flex operators, of which we're not one, as you'd appreciate, have been run an argument successfully with councils that the business rate should only apply to the desks. So -- because that's the least area. So if you go to one of those operators' websites, they're leasing space by the desk perfectly. The fact that it sits in a wider environment with a whole lot of amenity, they've argued that it's really just the desk that should be rated. My understanding is it's either City of London or Camden has effectively argued with one of the other flex operators and imposed a rating charge on them that ignores that and says, no, no, we're charging on the entire floor plate effectively rates. So it's a significant impact, as you'd appreciate. Fortunately, we are not -- that's not how our business operates. We don't run a hot desk model effectively. So it doesn't have a direct bearing on us. As you would appreciate, we do a lot of work around business rates. We have a business rate team. We have people that help us with that. So yes, we're -- this current issue that's getting all the press, it does not have an impact on us. Thomas Musson: It's Tom Musson at Berenberg. Curious, I suppose, just on your sales agent, Elodie. How much does that cost to run? What's the sort of equivalent number of people you might think be required to drive your inquiry levels to the levels that they are? I wanted to just get a sense of the efficiency gain there. And is there a lot more that can be done here going forward with AI and other areas, not just generating inquiries, but in supporting retention as well? Lawrence Hutchings: So I'll get Will to answer some of the specifics around that. I'll give him a moment. But just to pick up the use of -- firstly, the use of AI in the business, which was the last point that I think you made. We are trialing other what we call AI verticals. So we showed you today that we can do in a unit overlay now effectively that helps our customers because you appreciate some of our creatives will look at a blank space and see that is hugely excited, as you appreciate, because they're running a sound studio or they've got a podcaster or whatever it is or they are an influencer and they're creating an infinity wall so that they can promote their product in there. There's so many different uses. So being able to provide a blank space option is, we believe, is important effectively. However, there is also a percentage of the market that doesn't have that special reasoning. They've got a more regular type layer. They want some desks in there effectively. So how do we help them envisage? They look at a blank space. I don't know how many guests I can fit in, I don't know how many people I can get in there, how can we help them at that point on the website, that is absolutely critical. And that's where that AI is helping us. We've also been using AI and space planning, which has been phenomenal. So we take a blank floor, and we say, right, we need to subdivide this into our standard small unit format. That used to take 3 weeks. We didn't exercise a few months ago. It was done in hours. And about 98% accuracy once we gave it the parameters. So that is another area. We think our business should lend itself very, very well to AI applications. We have a very high volume of small transactions that are very similar, as you would appreciate. We're pushing to 120, 130 leasing deals a month, as you would appreciate. I was looking at some numbers from one of our peers the other day, one of our listed peers. We do as many deals in a month as they did in the year. So it's not the same value of deals as you would appreciate, but the deal volume is enormous. So that also would suggest that AI applications will have the ability to make a very positive impact on our efficiency and speed effectively. Just before I hand over to Will on this specific question about the costs of Elodie and what the next evolution of that is, I just wanted to remind you and this is where our customer is so different. I mentioned earlier, we deal with the CEOs and owners of these businesses. They're in and out of our businesses constantly. Typically, they start as small businesses. So we're part of what they call business administration. It's not their core business effectively. They're trying to make money, promote their product, grow sales, deliver the next phase of innovation and what they're doing. So where the bit that gets in the way, effectively, that makes sense there's a bit of administration that we need like VAT returns that they need to deal with. So often we find that they're coming online to us at 9:00 at night or 10:00 at night. They've their dinner sitting at home, I need to deal with my space requirements. So of course, the difference between, we'll get back to you tomorrow and we can deal with it immediately or Elodie can deal with a lot of it immediately and there's further evolutions in Elodie, will make an enormous difference because getting someone booked in, in a competitive environment versus I'll call you back tomorrow, there's a huge -- that could be the difference between winning that piece of business and not winning that piece of business. But I'll hand over to Will. He's the expert in this area. Will? Will Abbott: So the -- on your question about cost, roughly the equivalent cost of one sort of inquiries agent or in fact, less annualized. But importantly, it's not about replacing people. It's about freeing up that team to do higher value work. So first implementation of Elodie was really over the weekend, which is why we saw the big impact on Monday mornings for viewings booked in. So triaging inquiries -- initial inquiries going back quickly, capturing them in that window of opportunity to then pass them on to the team to complete the conversion into the sales team. We have a version as well for meeting rooms. We also have a version for broker interactions, each one trained specifically against the requirements for those incoming inbound queries. We're also training on outbound, which will be something we'll be rolling out in time. And we are just in the final stages of testing our agent, Elodie agent to sit on the home page, to capture that first contact and help people through that initial sort of top of funnel, if you like, conversion. Beyond that, as Lawrence touched on, we are trialing AI in a range of different places, automating campaign creation. We talked about the image creation. So it's something that's absolutely integral to our plans going forward. Lawrence Hutchings: Any other questions from the floor? I'm not sure if we have any questions from the webcast? Clare is going to translate it.. Clare Marland: Just one question. Have -- from Richard Williams of QuotedData. Have we had any dialogue with Saba Capital, new shareholder? Lawrence Hutchings: We haven't, at this stage, met with Saba. We've had some e-mail communication with Saba. We anticipate meeting them at some stage during the road show. But at this point, we haven't any detailed conversations or dialogue with Saba. Clare Marland: That's it. Lawrence Hutchings: Any other questions? There's no other questions for the floor. I'd like to close today's presentation. I'd firstly like to acknowledge the enormous amount of work that's gone into delivering this first 5 months of strategy implementation by our team across the business. And we acknowledge change is a difficult thing. It takes a lot of energy. I think as human beings, we're wired to resist it. So we fully appreciate the enormous amount of change that we're making in the business and the response to the team has been phenomenal. And as you can see from these results, we're very pleased. We know there's a lot to do. We know there's a long way to go, but I think we've made a really strong start. So I just want to acknowledge the team firstly. Secondly, to acknowledge the team that's got us here today, there's been lots of late nights. We fully appreciate. And thirdly, to thank all of our shareholders and the stakeholders, the people in this room for your time today and your continued support. We greatly appreciate it. Thank you. We look forward to seeing you at the next update. Thank you very much. Operator: This presentation has now ended.
Stephen Hare: Good morning, and welcome to Sage's full year results. I'm pleased to be joined by Jonathan Howell, our CFO. I hope you enjoyed that preview of the Sage Finance Intelligence Agent. I'm going to start with an overview of our key messages. Firstly, Sage delivered another strong performance in FY '25. For the fourth consecutive year, we achieved a double-digit increase in underlying ARR, testament to the resilience of our model and our durable growth. Through cost discipline, together with operating leverage, we've delivered strong profit margin and EPS expansion. And we've converted this into robust cash flows, supporting organic and inorganic investment and enabling strong shareholder returns. Secondly, our performance is driven by our relentless focus on delivering customer value. From the launch of Sage Intacct Suites to our new cloud-native version of Sage X3, we are accelerating the pace of innovation at Sage. Through our AI-powered platform, customers are saving time and making smarter decisions. The future is exciting with AI set to revolutionize the way businesses operate. And with AI agents, we're delivering the next wave of intelligent solutions, transforming how SMBs manage their finance, HR and payroll processes. And finally, our progress is underpinned by consistent, focused execution. In recent years, we've transformed our portfolio to meet and exceed our customers' needs. And today, as a result, we have around GBP 1 billion of cloud-native ARR growing over 20%. We've enhanced go-to-market with new systems and processes to drive efficient growth, and we're investing with purpose in our technology, our people and our communities to ensure that Sage continues to deliver for the long term. I'll talk more about our progress later in the presentation, but for now, I'm going to hand over to Jonathan for the financial review. Jonathan A. Howell: Thanks, Steve, and good morning, everyone. I'm pleased to share with you today our full year results and the outlook for the year ahead. In summary, we delivered strong financial results, and we enter FY '26 well positioned for further success. Looking back, we have a good track record of strong and consistent financial performance, which highlights our continued strategic progress. As a result, since FY '22, we've grown revenue at an average of 10% per year and operating profit at 18%, converting to strong EPS growth of 21%. Moving on to the highlights for FY '25. We've achieved revenue growth of 10%, reflecting the strength of our subscription-based model. Our operating profit margin was 23.9%, an expansion of 150 basis points as we scale the business and deliver efficiencies. This has led to a strong increase in EPS of 18%. And finally, we delivered cash conversion of 110%, driven by growth in subscription revenue and good working capital management. Let's turn now to ARR growth. Renewal rate by value was 101%. This reflects strong retention rates and a good level of upsell to existing customers, together with targeted price rises. And we've seen good levels of growth from new customer acquisition. As a result, ARR increased by GBP 245 million to GBP 2.6 billion. That's up 11% compared to last year. Importantly, this growth continues to be well balanced between new and existing customers. So turning to the P&L. Total revenue growth of 10% was underpinned by recurring revenue, which also grew by 10%. Sage has a 97% recurring revenue business, demonstrating the high quality and resilient nature of the group. Operating profit grew by 17% to GBP 600 million, reflecting continued top line growth and strong margin expansion. Profit after tax increased by 14% to GBP 423 million, leading to strong growth in underlying EPS of 18% to 43.2p. And we've increased the final dividend to 14.4p, taking the full year dividend to 21.85p which is up 7%. Cloud products continue to be a significant driver of growth with Sage Business Cloud revenue increasing by 13%. This reflects good strategic progress as we continue to expand our global cloud solutions. Within this, cloud native revenue increased by 23% driven by strong growth from new and existing customers, particularly in Sage Intacct. Subscription penetration also continued to increase and now stands at 83%. Moving now to our regional performance. Starting with North America, which represents just under half of group revenue. Here, we delivered revenue growth of 12%, driven mainly by the medium segment. Sage Intacct continued to perform well with strength across key industry verticals, including not-for-profit and financial services. Sage 200, Sage 50 and Sage X3 also supported growth across the region. The UKIA region represents almost a third of group revenue and grew at 9%, with a good performance across the portfolio. The U.K. and Ireland increased by 10% as revenue from Sage Intacct continued to scale rapidly. Further growth was achieved in small business solutions, including Sage Accounting and Sage 50 and this was supported by a good performance in SAGE 200. In Africa and APAC, growth of 7% was driven by strength in Sage Accounting and Payroll together with Sage Intacct. And finally, in Europe, which represents over a quarter of group revenue, growth was 7%. This reflects a strong performance across our cloud solutions. In France, growth of 6% was driven by strength in Sage X3 and Sage 200. Iberia also increased revenue by 10%, with strong growth in Sage 200 and Sage 50, together with the acquisition of ForceManager in October last year. And in Central Europe, growth of 6% was driven mainly by Cloud HR and Payroll. As we've said previously, our focus is on efficiently scaling the group. As we grow the top line, operating leverage together with disciplined cost control means we can invest more and expand the margin. This, in turn, leads to sustainable growth. In FY '25, we achieved strong margin growth of 150 basis points to 23.9%. This was underpinned by efficiencies, especially in G&A, which is running at 8% of revenue. Importantly, we continue to drive investment with sales and marketing at 40% of total revenue. An investment in R&D at 15% remains a key priority for the group. Turning to earnings per share, which grew double digit for the third consecutive year. Underlying operating profit grew at 17% following good revenue growth and margin expansion. Net finance costs increased following new debt issuance, while the effective tax rate remain constant at 24%. Together with the benefit of recent share buybacks, this led to EPS growth of 18% to 43.2p. Moving on to cash generation, which remains a core strength of Sage. During the year, the group generated GBP 660 million of cash from underlying operations, resulting in cash conversion of 110%. This is now the seventh consecutive year of cash conversion above 100%. And free cash flow was GBP 517 million net of interest and tax. The group has a strong balance sheet with GBP 1 billion of cash and available liquidity. Our leverage ratio of 1.7 remains within our midterm target range of 1 to 2x. In line with our disciplined approach to capital, this morning, we announced a share buyback program of up to GBP 300 million. This reflects our strong cash generation and robust financial position, together with our confidence in Sage's future prospects. Importantly, we retain significant capacity to support growth. So what does that mean for the outlook? We have good momentum as we enter the new financial year. Therefore, we expect organic total revenue growth in FY '26 to be 9% or above, and we expect operating margins to continue trending upwards in FY '26 and beyond as we focus on efficiently scaling the group. Thank you, and now back over to Steve. Stephen Hare: Thanks, Jonathan. Our performance is anchored in our strategic framework for growth. It starts with our purpose, to knock down barriers so that everyone can thrive as we aim to create the world's most trusted and thriving network for SMBs powered by AI. We deliver on this through our three strategic focus areas: Connect, Grow and Deliver, which I'll say more about shortly. And through this framework, we serve the interests of our stakeholders in line with our values, starting with our customers, small and midsized businesses. SMBs make up 99% of all businesses in our end markets. They are the lifeblood of our economy, providing employment and creating wealth for millions. Our small business tracker analyzes data from 140,000 SMBs. And it shows that despite the external backdrop, SMBs have again proved resilient and increasingly profitable during 2025. But they continue to face barriers such as weak productivity and late payments with the challenge of remaining competitive and compliant. They want effective integrated solutions from a trusted vendor and Sage provides these solutions helping SMBs to knock down barriers, automating processes, speeding up cash flows and delivering business insights. LA Opera, shown here on the slide, told us that Sage Intacct has completely transformed their finance function with its AI capabilities, helping to save 10 to 15 hours a week. And as we roll out Sage CoPilot and AI features more widely, we're opening up new possibilities for SMBs and accelerating customer benefits. The way we're doing this is through the Sage Platform. This platform provides a secure, scalable foundation for all of our products. It connects customers to their suppliers, banks, tax authorities and partners, automating transactions and speeding up compliance and improving cash flow. At the heart of the platform is the Sage AI factory, the infrastructure that drives Sage CoPilot powered by our LLM backed proprietary intelligence engine, and it's supported by our data hub and core experience and network services that enhance security and automate workflows. The system is already operating at scale with over 40,000 models in production, generating 3.5 billion predictions annually. Designed to support rapid innovation, the platform has enabled us to bring Sage CoPilot from inception to market in less than a year and to scale it across the portfolio. And we're now focused on leading the way in Agentic AI, both by launching our own agents, and by integrated trusted third-party agents in a secure ecosystem governed by Sage. For customers, this means greater choice, more intelligence, and faster innovation within the Sage products that they already know and trust. We've been building AI into our products for years through successive technologies, first predictive then generative and now agentic AI. Through these waves of innovation, we've created a powerful and differentiated proposition, combining our experience, extensive data sets and connected ecosystem to deliver trusted, domain-specific AI at scale. Sage CoPilot is our intuitive assistant and the primary way through which customers experience our latest innovations. This is powered by Sage AI, our intelligence engine. Built on deep domain expertise, our models are trained on rich, proprietary data sets from years of experience and fine-tuned to ensure relevant and precise responses. This specialism makes them more accurate and efficient than off-the-shelf models while industry partnerships such as our collaboration with the American Institute of CPAs promise to further enhance their performance. Increasingly, AI agents handle specialist work, taking care of repetitive tasks that weigh businesses down, but always ensuring the human stays in control. And the Sage Platform provides the environment for our AI to operate, bringing applications, workflows and data together. Guiding all of this is our underlying philosophy, authentic intelligence, meaning our AI is built to be ethical, transparent and human first. These pillars underpin our progress towards our ambition to create the world's most trusted and thriving AI-powered network for SMBs. So let's now turn to a look at our progress in more detail through our three strategic focus areas. First, Connect, where we aim to grow our platform by connecting more products, enabling us to serve customers better by expanding the scale and scope of services we provide. This drives the network effect, where every connection and every transaction that flows across the platform makes the system smarter for everyone. During the year, we scaled services, such as accounts payable automation with monthly transaction value tripling over the past 12 months to GBP 2.3 billion, thanks to continued adoption by customers such as Greenidge in the U.S. shown here on the slide. They told us that Sage AP automation has enabled them to double the number of invoices they process without increasing headcount. We also grew our accounts receivable service, and we launched our e-invoicing portal in France, helping customers prepare for upcoming compliance requirements. And through the acquisitions of Fyle and Criterion, we expanded in expense management and HCM, enabling us to streamline and automate these critical processes for SMBs. We're also innovating to expand our reach by delivering a growing set of services embedded into other platforms, such as fintechs and banks, plugging into the apps that SMBs already use. We partner with Tide to deliver bookkeeping, Monzo for making tax digital, NatWest for Carbon Accounting and Capital One for expense management. Extending our ecosystem to win customers earlier in their life cycle and acting as a trusted partner to regulated service providers who are looking to innovate. Looking ahead, our aim in this focus area is to drive the adoption of more network services, bringing productivity to customers and data and insights to Sage. Our second focus area is to grow by winning new customers and delighting our existing ones. And the biggest contributor to growth is Sage Intacct, our flagship mid-market solution. In the U.S., Sage Intacct grew ARR by over 20% with Q4 a record quarter in volume terms. This was driven by strength in key verticals and supported by investment in go-to-market and the expansion of suites. And outside the U.S., ARR increased by around 50%, with standout momentum in the U.K. where Sage Intacct now serves over 1,600 customers. During the year, we replatformed Sage X3 to deliver a full cloud native experience where we saw acceleration driven by strong demand in manufacturing and distribution. Through Sage X3, we can serve customers better, like Grupo Intaf in Spain, shown here on the slide, who told us that Sage has improved their efficiency and helped drive collaboration. For small businesses and accountants, we've expanded through product and package improvements, including in Sage Accounting, Sage 50 and Sage Active. And we've reinforced our relationships with accountants by delivering tools that streamline their work and free up time to grow their business. Our future focus in this area is to drive momentum with new and existing customers and continue to make it easier for them to access products and services. Our third focus area is to deliver productivity and insights driven by AI. Over the year, we've significantly scaled Sage CoPilot in availability and usage. Initially focused on Sage Accounting, we quickly expanded it to Sage 50, growing availability to around 150,000 customers including Adam Williams of Tyne Chease shown here on the slide. I met with Adam earlier this year, and he told me that Sage CoPilot is saving them over 12 hours of admin per week and helping them to get paid up to 7 days earlier. Other customers have told us it's doubled productivity in accounts payable, while reducing manual data entry by up to 90%. We've also expanded Sage CoPilot to Sage for Accountants, Sage X3 and Sage Intacct, where it's rapidly becoming an important tool for customers. Over 26,000 Sage Intacct users worldwide have so far access features such as search help, which seamlessly guides them through key workflows. And the Sage Finance Intelligence Agent, which we showed in the video at the start of the presentation, handles natural language questions like a human finance assistant. These solutions drive real value for customers, not just streamlining processes, but transforming their operations and making them more productive. Now we expect that this, over time, will create monetizable opportunities for Sage through features, pricing and lifetime value. As well as driving productivity for customers, we're also leveraging AI for colleagues at Sage. In engineering, AI is accelerating cogeneration saving hundreds of thousands of hours. In customer support, it's driving a 70% resolution rate with high satisfaction levels. And in go-to-market, AI agents are helping to generate, qualify and convert sales leads. We're doubling down on internal adoption, encouraging and empowering colleagues across the group to use AI to simplify and amplify their work. And with hundreds of new use cases being assessed, the potential ahead is considerable. Our future focus in this area is to continue to scale Sage CoPilot, embedding it into the core user experience across our portfolio while further developing our agentic capabilities, accelerating benefits and unlocking ROI for customers and for Sage. Our success depends on our ability to deliver for our stakeholders. For customers, we're committed to excellence with Sage ranked by G2 as the #1 software company in the U.K. for 2025 and in the Top 25 globally based on user reviews. And we continue to champion policies that our customers care about from partnering with the U.K. government on AI skills to advocating SMB access to green finance across the EU. For partners, we've launched AI developer solutions, enabling ISVs to build and deploy AI agents on our platform. And our new partner portal streamlines partner onboarding, provisioning and support, making it easier for them to work with Sage. For colleagues, we foster a high-performance culture and an innovative mindset. And we're pleased that we've been recognized by Forbes as one of the world's best employers. Turning to society, where we aim to multiply our impact by helping SMBs to be more sustainable. In FY '25, we launched our entrepreneurship program to support purpose-driven start-ups around the world. And Sage Foundation celebrated a decade of impact during which time we've raised over $5 million and enabled 1.4 million volunteering hours. And for shareholders, our objective is to deliver sustainable growth in shareholder value. We do this by growing revenue and by doing so more efficiently over time. The key to this is rooted in our strategy, our competitive positioning and financial model. We have a clear strategic focus, which guides our decisions and ensures we align with the needs of our customers and the expectations of our shareholders. We're differentiated from competitors by our AI-powered platform, global products and geographic reach with deep domain expertise across financials, payroll and HR. And we're diversified through our broad customer base and ecosystem. And finally, our resilient financial model is built on high-quality recurring revenue, providing stability and visibility with growth driving both investment and margin. So in conclusion, Sage delivered a strong performance in FY '25, underpinned by continuing durable growth. Smart investments are driving an accelerated pace of innovation, particularly through AI. And with good progress in execution, we enter FY '26 with confidence and momentum. Now before we move to Q&A, I'd like to say a big thank you to Jonathan, who's been a fantastic support to me and the broader Sage team over the last 12 years. He hands over the financial reins to Jacqui Cartin in great shape and I'm looking forward to welcoming Jacqui to the CFO role from the first of January. So that concludes today's presentation. Thank you very much for watching. And Jonathan and I would now be very happy to take your questions. Operator: [Operator Instructions] We will now take the first question from the line of Adam Wood from Morgan Stanley. Adam Wood: First of all, congratulations on the results and also best wishes from me, Jonathan. I know you've got a few weeks left, but best wishes from my side when that time comes up. I've got two questions, please. Just first of all, we saw a nice tick up in the ARR growth in the fourth quarter. Could you just talk a little bit about what the drivers of that improvement in ARR were at the end of the year, please? And maybe just secondly, when in the commentary around North America, you talked about the introduction of multiyear customer contracts as a driver of growth. I guess from Intacct side, that's a pure SaaS business, so multiyear contracts wouldn't bring any revenue forward, but I'm just curious if you could maybe expand a bit on how that was a driver for North American revenue, please. Jonathan A. Howell: Adam, yes, thank you. Thank you for your questions, and thank you for your comments. First of all, if we just stand back and look at ARR for the full year, we exited with growth of around 11%, and that was in line with the first half ARR exit rate. Looking at sequential growth, Q1, Q2, Q3, we saw between 2% and 2.5%. And then to your question, in Q4, that picked up to around 4%. And that was a very strong result and particularly [Technical Difficulty]. Operator: One moment please, your conference will resume shortly. Jonathan A. Howell: Hello, sorry, we lost the line for a moment then. Just to recap to make sure everybody gets it. Q4, we saw a sequential growth of 4%. And that was a strong result and significantly above the 3.5% that we saw in Q4 of the prior year and that's been driven by North America and UKIA, particularly across the medium segment and primarily Intacct, where we saw a very strong performance in Q4 in both new customer acquisition and upsell and cross-sell. I think it's probably just worth noting that we are now beginning to see the benefit from the ongoing investment that we've made in products, people and go-to-market in those regions in the medium segment. And that underpins our guidance for FY '26 as we exit with -- this year with good momentum. Suites multiyear contracts, Adam, you mentioned that. They simplify our proposition for customers and improve the sales motion. We expect over those multiyear contracts to be able to increase customer lifetime value over that extended period. And that provided a bit of an impact in Q4, but really, the whole performance was underpinned by strong execution in new customer acquisition. Operator: We will now take the next question from the line of Frederic Boulan from Bank of America. Frederic Boulan: Two, if I may. Firstly, around AI. I mean you kind of discussed your pipeline and the kind of innovation you've been pushing. Can you spend a minute around the impact on the business from a revenue standpoint? What you've been doing from a pricing standpoint and any early insights on what you've seen in your U.K. portfolio in particular? And then secondly, it would be good to have an update on the competitive dynamics, especially versus Intuit in the U.S.? Are you seeing any of the QuickBooks graduate funnel starting to dry out? On the contrary, I mean, U.S. performance seems to remain very, very healthy. So any comment there would be great. Stephen Hare: Yes. Thanks, Frederic. And so to start with the AI. And we have, as we've said before, been deploying AI for many years. What we're doing now is, both with Sage CoPilot and now increasingly with AI agents, starting to create more stand-alone capability that takes advantage of generative AI. So with Sage CoPilot, we've now deployed that to around 150,000 customers. And in terms of how we're monetizing, we're doing it in a number of different ways. With CoPilot, we're tending to bundle it into the existing plans and then use that to increase the price. So in the U.K., for example, with Sage Accounting, we put Sage CoPilot into the plus tier, and then we increased the price of that tier by around 25%, 30% and made it available to all those customers. With some of the agents, so for example, with accountants, we've launched a VAT agent, which does what it kind of says on the tin, which is it helps to prepare VAT returns. For those sorts of agents, we may well charge for those because they are -- separately because they're doing a particular task but I think my kind of overriding message here would be that the commercial models have not really been completely written. So I think if you ask us or you ask anyone else, we're all looking for different ways to monetize what is considerable value for our customers. We are saving our customers a tremendous amount of time. We've had feedback from small customers that Sage CoPilot is saving them 10, 12 hours a week. So I think it's kind of it will build over time, and we will -- these sorts of calls will give you transparency in terms of how it's being monetized. But it may not be an entirely kind of linear journey. It will -- there'll be different ways that we do things for different parts. As far as the competitive situation is concerned, look, I mean, I think it's very similar to how it's been in the past. I think our differentiation is that whether it be in the U.S. or elsewhere, we're being very clear that what we're doing with AI is we are driving a platform strategy where we're using our proprietary data sets to train our models to ensure that we get the accuracy that's required in a finance payroll environment. So if we're automating workflows in the case of midsize businesses with Intacct, we're seeking to automate the close, save time by deploying AI in the close process. All of these things have to be accurate. And the way we make them accurate is because we have domains or developing domain-specific LLMs. We've said in the press release, we have over 40,000 training models currently learning from our 40-plus years of experience in our proprietary data. And we think that is the way forward. Jonathan? Jonathan A. Howell: Yes, just to add a little bit more color on the pricing impact. As Steve said, we've seen price increases put through for Sage Accounting and Sage 50 in the U.K. only in relation to the introduction of CoPilot. And if you look back over the last 4 years, across our portfolio on a weighted average, our price increases have been between 4% and 5%. For this year in FY '25, that ticked up to 5.5%. And a significant component of that does come from this impact from pricing in response to the introduction of CoPilot. That's just the start. As Steve said, it's not going to be linear necessarily, but we are optimistic given that Sage CoPilot and other AI enablement will begin to be rolled out across other products and other territories outside of the U.K. Operator: We will now take the next question from the line of Toby Ogg from JPMorgan. Toby Ogg: Jonathan, best wishes from me as well. Just on the 9% or above growth guidance for '26, could you just help us with the framing around the sort of recurring revenue growth versus the other revenue? I think for 2025, you saw about a 30 basis point or so headwind between that organic recurring revenue growth and the total organic revenue growth. How should we think about that dynamic for 2026? And then also, you obviously mentioned 5.5% contribution from pricing in '25. How are you thinking about the pricing contribution embedded in the 2026 guide? Jonathan A. Howell: Yes. So in terms of the guidance for the year, if we just step back, for FY '26, we are using the same form of guidance that we've used for the last year, which is 9%, organic total revenue growth of 9% or above. We are confident in that guidance given the momentum that we take with us as we exit the year. We've invested in key products, particularly Sage Intacct and CoPilot. And we've also seen really in Q4 and continuing this year, good sales execution. We've got a solid sales pipeline and robust closure rates. So we see overall the guidance is realistic, but cautious. And needless to say, we will continue to update you as we move through FY '26. In terms of the various components of revenue, I think the most important thing to note is that other revenue, which we have seen as part of our strategy, a significant runoff over the last 5 years, as we exit the license business, that part is done. But we still have an element of maintenance and support and an element of professional services, which has now stabilized. And the professional services, in particular, is an important contributor because that provides us with flexibility for implementation and new customer acquisition in the direct channel. So in those two lines, that quite strong strategic runoff that we've seen in recent years has stabilized, and there will be some variability there going forward. Now it's important to note that the other revenue line is very small, that's only 3%, but it does have an impact. And the maintenance support is a larger line and has a little bit more of an impact in supporting those numbers. I think that's answered your question. Toby Ogg: Yes. Just on the pricing contribution for '26, anything you could say on that? Jonathan A. Howell: Sorry, Toby, yes. At this stage, no. We are always testing and seeking to optimize the fair value exchange that we have with our customers with existing products and new products. And therefore, we're constantly assessing the take up and adoption of these new products versus the additional pricing that we're asking for it. So at this stage, we have it baked into our plans, but we're not sort of giving forward guidance on what to expect. But clearly, you'll see the impact of any additional pricing as we get through Q1 and H1. Operator: We will now take the next question from the line of Charles Brennan from Jefferies. Charles Brennan: Just a couple from my side. Firstly, on Intacct, it sounds like that was the biggest driver of momentum at the end of the year. I'm under the understanding that where you provide some customer incentives to onboard new customers, that's typically in Intacct. And those discounts don't necessarily get reflected in ARR. Can you just talk about the volume of discounting at the end of the year relative to the previous year? And then when we think about the gap between ARR growth and recurring revenue growth, last year, I think, you exited ARR of 10.5%, and we saw just over a percentage point of dilution to get to recurring revenue growth. What do you think that delta looks like this year? And then just as a small follow-up. I didn't quite catch the point on the multiyear contracts. I know you said it was immaterial, but is there any pull forward of revenue recognition under a multiyear contract? Jonathan A. Howell: Yes. So first of all, in terms of your opening remark around Intacct, yes, that is the very significant driver that we've seen, obviously, over the last 2 to 3 years, but particularly in Q4. And just to deconstruct that a bit, we have seen total revenue growth for Intacct in the U.S., which is about a $650 million base now, of 23%. And in H2, that was 25%. And so that underpins the overall performance that we've seen. And ex-U.S., that total revenue base is about GBP 50 million, and that's growing up between 50% and 60%. Your reference on discounting, the level of discounting provided on a customer basis in Q4 of this year was not too dissimilar to what we were providing towards the back end of FY '24 and is part of the normal sort of sales cycle of both direct and partner channels, particularly in North America. Multiyear contracts, you sort of referenced that. What -- first of all, multiyear contracts are important because that enables us to acquire a new customer, onboard that customer with a good assessment of the capability and functionality that they need but then gives us a 3-year period in which to assess and upsell and cross-sell into their needs rather than necessarily the other way around, where there's a big sale upfront and then an assessment in subsequent years of whether all of that capability is needed. So that is the important thing about multiyear contract. It makes it both easier for the buyer of our products and for us for a provider of capabilities to our customers. In terms of revenue recognition, the impact is that any upfront discount is, therefore, spread over a 3-year period as opposed to a 1-year period. So there is an element of revenue improvement as a result of that. But I do stress, it's the performance of the underlying sales motion and our customer approval of our products, which is driving what we're seeing at the moment. And to give you an example, in North America, I think we have just had our highest volume month ever for Sage Intacct. So this is underpinned by real volume coming through. And then in terms of ARR to that sort of difference, we always expect them to be close, as you referenced in your question, but not necessarily the same. And this is consistent with other corporates and companies that use this measure. The reason is, as you know, an ARR is a point-in-time metric, while revenue is booked over an extended period. And any divergence that we see is mainly caused by the timing of revenue growth. That sort of compressed slightly in recent quarters. It will vary and fluctuate. We're not giving -- we're not giving forward-looking guidance on that gap because it depends upon the cadence of growth rate and when acceleration occurs. Stephen Hare: And Charlie, just to add, just to be helpful, I think with the dynamics around Sage Intacct, just to emphasize what Jonathan said, in Q4 and in September particularly, we did see very, very strong volume growth in U.S. with Intacct. And we saw that consistently both in the -- both direct and also through the channel. So it was a kind of -- it was a pretty consistent theme in terms of that volume growth. Operator: We have time for one final question from the line of Balajee Tirupati from Citi. Balajee Tirupati: Congratulations on your results and Jonathan, best wishes, and thank you from my side as well. Two questions from my side, if I may. Firstly, on the topic of AI, one of your key peers announced a deal with OpenAI yesterday. Do you see merit for Sage to also target similar integration of its portfolio with Frontier models to allow customers access to more customized services? And second question on margins, with puts and takes around AI, in particular, productivity gains internally and need for investment as well, do you see the view of 50 to 100 basis points per year margin expansion staying intact in 2026 and beyond? Stephen Hare: Thanks. So yes, on AI, I mean, I'll start with how do people access the capability. So I think people will increasingly want to access capability, do their kind of daily tasks, approving invoices, doing all the workflow type stuff in a number of different environments, right? So today, if you want to approve an invoice, for example, typically, you have to go into the application, log on to the application, do it in the application. And in the future, you might do that in Teams. You might do that in Outlook, you'll do that on an app on your phone, whatever it might be. And therefore, to sign up or to partner with some of the larger players like a ChatGPT, if the intention is to create that flexibility to access makes a lot of sense. The one warning I would give is we're very clear that the way that we produce accuracy is we have data on our platform, proprietary data on our platform which our learning models are using to create accurate automated workflows. We're also very protective of that data because that's customer data. So we would not, for example, want to share that data with others. Now I don't -- I can't comment on the detail of what other competitors are doing because there isn't enough information in the public domain to make an assessment. But what I can say is we're very clear that our AI is learning in a secure environment where we are -- it's effectively a private network with a gateway so that developers can come in and develop their own agents on our platform, but it has to be curated and controlled by Sage because that ensures the integrity of the data and the integrity of the outcome. I'll let Jonathan talk a little bit about margin, but let me just start by saying that I think in the same way that we're selling AI and productivity to our customers, we're obviously seeking to get productivity internally. And we've seen a number of areas which have already contributed to the expansion in margin this year, for example. So for example, in the area of -- areas like customer services, we are already deploying significant AI to get higher first-time resolution through AI rather than human-to-human conversations. And if you look at it at a very high level, we've grown Sage this year revenue 10% and our headcount is broadly the same as it was 12 months ago. So we're starting to see the benefits, the early benefits of some of that investment, but Jonathan, do you want to... Jonathan A. Howell: Yes. And I think the important point is that Steve just raised is that with the internal adoption of AI, there are significant savings that can be achieved. And we've seen those in customer support and also in R&D and engineering. So just to stand back to your question, this is now the third consecutive year of margin expansion. We've guided for FY '26 for margin to continue to be trending upward. So that will be the fourth consecutive year and this is driven by growth and established patterns of achieving operating efficiencies. So at this stage, we expect to be at the lower end of the usual 50 to 100 basis points range as we continue to invest in growth. And so as I always say on these earnings calls, we will, though, as we move through the year, continue to dynamically reallocate spend during the course of the year to maximize that trade-off between top line growth and margin expansion, depending upon the circumstances and the opportunities that present themselves to us as we move through the year. Thank you very much. And also thank you for your kind comments. Operator: I would now like to turn the conference back to Steve Hare for closing remarks. Stephen Hare: Thank you very much, and thank you, as always, everyone, for listening. And as I said in the presentation, but again, just to add my thanks to Jonathan for the huge contribution that he's made to Sage, and we look forward to welcoming Jacqui to the next call in January. But thank you very much, and have a good day, everyone. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Dialight plc Interim Results Investor Presentation. [Operator Instructions]. Before we begin, we would like to submit the following poll. If you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Dialight plc, Steve, Mark, good morning. Stephen Blair: Good morning, and thank you, everybody, for joining. We're going to go through this fairly rapidly, but I thought I'd start by giving you a little bit of history of Dialight on the basis that you may not all be aware of where Dialight has come from. So Dialight has been supplying LED products at the individual product level for about 50 years. And we continue to supply those products today. And in fact, it was the fastest-growing part of our business year-on-year in the first half. But in the early 2000s, Dialight saw a first-mover opportunity to move into industrial LED lighting. And this was particularly in hazardous locations where protection of plants and people by having adequate lighting for safety purposes was really important. And so we had the first-mover advantage. And over the period sort of mid-2000s up until 2014, the business grew very rapidly, reaching a positive cash position, inventory around the $35 million mark and profitability around about the 17% return on sales. So everything was going very well for Dialight at that point. On this slide, you can see a couple of examples. Bottom right is a mine and top left is a wastewater treatment facility. But you can see the quality of the lighting is really important to make sure that people and personnel are safe on those sites. So we had a very good market position, very good brand recognition. And then the business lost its way a little bit between 2014 and 2024. So I stepped into the CEO role in February '24, at which point we had a net debt of $24 million. We had a legal case with the Sanmina Corporation hanging over our heads. We weren't growing and we weren't making any profit. Now there were many reasons for that. Largely, a lot of complexity had come into the business, really created by the rapid growth in the early days when the proliferation of SKUs, both at the finished goods level and at the subassembly level meant that we were a very high mix but very low volume manufacturer. And that is always a very, very difficult place to be. It makes demand planning very difficult. It makes understanding what the market requires very difficult. And in terms of manufacturing, it means you have very, very low efficiency in manufacturing because you're continually changing the different types of product that you're manufacturing. So when I stepped in, we set off on a program really of simplification and complexity reduction. In any business, complexity equals cost. And our first quarter call, which really galvanized all of the other changes in the business was reducing the SKU count so that we could focus on profitability and selling products that we could make money on and stop selling those products that really made no money. And just to give you an example of the progress we've made over the last 18 months, we manufacture power supplies. We manufacture light engines that drive the LEDs. We manufacture the LED circuit boards and optics, and we design and manufacture the houses. Over the last 18 months, we've reduced all of those components by 83%. So an example is the power supply. We were manufacturing 126 different power supplies 18 months ago. We're now manufacturing 12. That sort of reduction really improves our efficiency in the factory. It means we're changing lines less often. It means that we have much greater buying power. It also means that our demand planning is easier. And all of these changes have really brought benefit to the business. And I'm going to move to the next slide and just show you some of the progress we've made. So we've started delivering profit. We've started generating cash. And there's a long way to go with the annualization of the savings and the improvements that we've made as well as what we'd be doing in the future to further improve the business. So the transformation plan, which is what we put together when I first joined is all about improving the basic fundamentals of the business to deliver profit and cash to pay down debt and allow us to invest in growth in the future. Now what you'll see from the financial performance is that year-on-year, our revenue has declined. Partly that is due to the tariff impact and the global economic climate, not that we can't manage it, but because it brings uncertainty with some of our bigger clients who are contemplating large capital projects, because of the tariffs on steel, aluminum, copper and the like, their investment decisions can swing wildly depending on the tariff situation. So what we've seen on these larger projects is a bit of a slowdown, which has impacted our revenue. But that said, our approach has been to bring quality of earnings to the business in anticipation of preparing for growth when the market allows. So I think you'll see from the financial performance that we've gone from a very difficult place to a far, far better position in terms of our net debt, in terms of our profitability, in terms of our return on sales and in our ability to generate cash. We have a number of key strengths as a business. I mentioned about a fantastic customer base who recognize our brand and understand that we were the market leader, and in the hazardous space continue to be the market leader. We offer a 10-year warranty. So essentially for any customer, it's fit our product and literally forget about it. We control our own designs, particularly around the power supplies, which give us the confidence to then offer that 10-year warranty. And certainly, all of the testing we've done and all of the in-service -- the in-service application of the products have shown that our warranty claims are very low. And therefore, the quality of the products that we're supplying can actually meet and exceed that 10-year warranty. We've got good access to the customer base and a tremendous set of people. And that's really -- it's the quality of the people and their knowledge of the industry and our business that has really helped us quickly turn around the performance of the business. I talked about the transformation plan. And fundamentally, it's built around 5 key pillars. The first is all about winning hearts and minds. If you can't convince people in your organization that your strategy is the right strategy and you're moving in the right direction, it's going to be very difficult to bring around -- to bring a turnaround. And as I said, we've got tremendous people, and they have really bought into the idea that generating margin, generating cash, thus allowing us to reinvest in the business is the way forward. Historically, the emphasis has been on top line growth, and that really didn't help the business over that 10-year period. So now we're really focusing on quality of the underlying business. And as I said, when growth or when the market is more amenable to growth, we expect to be able to grow with high leverage on that additional revenue. We then turn to sales transformation. As I said, historically, we've been selling on the basis of volume and not really very much emphasis on margin. We have now changed the emphasis. Margin is as important as volume, and we're rewarding our salespeople based on a combination of both revenue and margin. And we'll be rolling that out fully at the start of the new financial year. But already, we're seeing the way that the salespeople are thinking is moving towards that balance between decent revenue, but good margin because that is what is allowing us to improve the quality in the business. The third element is the operations transformation. So how do we make the engine of the business as efficient as possible? And certainly, reducing the SKUs has really helped us with that efficiency and reducing inventory has had a dramatic effect on our cash generation and also actually the space that we have available for growth within our factories. The fourth piece is the margin improvement and cash generation. So we've improved a lot of our processes. We brought a lot of efficiency into the overhead part of our business, and that's allowed us to reduce our cost quite considerably. Those 4 pillars of the transformation were the things we set off to do to really get the business quality back, and then within the last sort of 6 or 8 months, we turned our attention to creating a platform for future growth. And here, we're looking at short, medium and long-term opportunities for growth. We have a Board-directed committee called the Strategy and Innovation Committee, where we're looking strategically at what we do in the short term. So where are some quick wins that will allow us to get new product or new services into the market quickly. Medium term, what do we need to develop for the medium-term future in terms of product? And then longer term, just as we were a first mover with silicon-based LED technology, what might be coming next that could allow us to be a future first mover with a change in technology as technology continues to advance. So in summary, we've had a good last 18 months. We've turned from loss to profit. And as we look forward into the second half, we continue to expect to deliver strong and tangible progress on the transformation plan. We want to accelerate the transformation of our sales team and put in place support and remuneration structures that incentivize them to be more successful. We do intend to improve our working capital position, although right now, we are back to where we were in the heyday of our business. We are in December, going to settle the outstanding liability on the Sanmina contract, which will be a big step forward for us. And as a Board and as a business, we remain confident that the recently upgraded expectations we put into the market, we will fulfill and deliver for the remainder of this financial year. So hopefully, that was a useful summary and a useful introduction. And I'll hand over to Mark now to take you through some of the more financially appropriate elements of our business. Mark Rupert Fryer: Thanks, Steve. So for those of you that didn't know, I was CFO at Dialight from 2010 to 2014, and I rejoined in January this year. So looking at the overall financial summary for the half. The group made $5.5 million of operating profit for the half, that's both up on the full year last year when we made $4.2 million of profit and the second half in which we made $3.3 million. What I think is slightly disappointing is the revenue performance in those very difficult markets, as Steve has said, the tariff impact on major CapEx projects with high tariffs on steel and copper, which make up a large part of the installation costs for a new facility, our lights are typically 1% to 2%. So it's not the cost of the lights, it's the cost of the other commodities. They have up to 50% tariffs on them currently. So that's delaying CapEx. That said, whilst overall volumes were down 4%, Signals and Components was actually up 10% and the components element, which has a very strong correlation with data centers and AI was actually up 20% in the half. As Steve said, we're focusing on the higher-margin products. The top 300 SKUs that we manufacture have about a 15% higher margin than the average across all our SKUs. So we're concentrating on those top 300. That has seen us add 230 basis points to the gross margin. In the half we generated 35.3% gross margin, and we see that increasing further going forward. We've reduced almost all lines of cost half-on-half. The overall level of labor has reduced significantly in our main facilities in both Ensenada and in Penang in Malaysia. Ensenada, particularly, we've reduced from about 560 heads, and we'll exit the year with near 400 heads. Overall, labor costs reduced from $7 million in the prior half to $6 million this half. The production overhead reduced from $14 million to $13 million, and the overhead reduced from $29 million to $25 million. So the combination of the increased gross margin and the reduced cost is what's seen a sixfold increase in the operating profit for the half. On top of that operating profit, we had a small $0.4 million profit on non-underlying items, but a very significant part of that was the receipt of $2.9 million from the U.S. IRS and this related to employee retention credits because we continued to work our engineering function through COVID, and we applied for credits for that, and we received those in the first half of the year. We've used those to afford the costs of the transformation plan and also costs of buying in our 2 main pension schemes, which were defined benefit pension schemes. A real financial highlight is the group in the last 10 years has significantly built up its level of working capital. It needed to do that particularly through COVID, but now we need to get back to the historic levels that we had in 2012, '13. So in this time, 6 months ago, we were talking to our shareholders about targeting a reduction of at least $5 million for the year, but we did say that we thought we could reduce inventory by up to $10 million. And actually, we've run ahead of that. We've saved $10.8 million in the first half alone. So just moving then to the income statement. You can see that small 4% reduction in sales. But despite that, an overall improvement in the working capital, the reduction in the overheads and the profit on the non-underlying items and closing for the half with an underlying EBITDA of just under $10 million. I hope you can all see this slide. It seems quite small to me. But over the last 2 years and closing off with the second half of last year, the gross margin for the group has improved by 10 percentage points from 28% to 38%. And you can see the group has gone from being loss-making to now generating a nice profit on an upwards increasing curve. The first half margin at 35% looks disappointing compared to the second half of last year. The reason for that is we have felt that the group has been capitalizing too much overhead into inventory. And so in the last 18 months, we've reduced the overall capitalization from about $11 million down to $6 million, and that had an impact of about $3 million in the first half of the year. If we hadn't taken that reduction, the operating profit would have been $8.5 million. And you'll see that later on a slide, but that was just, I think, to demonstrate we are making good progress. If we hadn't have had that inventory reduction in the capitalization, the margin would have been 39.1%. So the same as last year. But I should also add, this is the last half in which the group has been manufacturing traffic lights. We sold that business 12 months ago to LEOTEK, and we had to run off a manufacturing agreement, we only make a 7% margin on traffic lights. As I say, that activity is now finished. If you took out the impact of the stock valuation and the traffic light, we actually generated a gross margin in the first half of 42%, which is getting near to the target, which I'll share with you for what we want to be generating going forward. I've included this income statement just to show the last 12 months, which I guess has been really the first 12 months of the significant impact of the transformation hitting the group and the benefits of that. And you can see there that the underlying EBITDA at $17.3 million and an operating profit of $13.6 million. The current share price, we're valued at about 6x EBITDA. This is just a summary of the non-underlying costs. So these are very clear to everyone. I think the most important aspect of those is overall, we made a small profit, but more importantly, the ongoing benefit of the 2 major activities, the transformation plan costs, $1.3 million of costs. These have got a payback of about threefold. So we should see a reduction in operating costs going forward of $4 million on an annualized basis and only about $1.5 million will hit this year, an incremental $2.5 million will be next year. Then secondly, the defined benefit schemes, they have now both been brought in, and they will both be bought out in about May, June next year. In terms of the balance sheet, you can see there the inventory reduction from $40 million at year-end down to $30 million is the most -- the biggest generator to the debt reduction in the half. The net debt improved to $10.5 million at the end of the half. We've continued to generate cash. The net debt now is around $8.5 million. And it's that really which has enabled us to agree with Sanmina to pay them early. They've been good enough to give us a reduction in the amount. We should have paid them $6 million, and they've agreed to accept $5.65 million, and we'll make that payment in the second week of December. That removes the contingent liability and that draws a conclusion to that whole outsourcing and litigation. So that removes that uncertainty on the group. Overall, then with about $50 million of net assets, the group is generating a run rate of about 17% return on capital. I'll share with you later the targets for the group. We're looking to target 25% plus. And just to put that into context, back in 2012, the group was generating 50% return on capital. So we don't see any reason why we shouldn't get back to that level. In terms of the cash flow, the operating cash flow in the half was $13.9 million. Steve referred earlier on to the start of the year when I joined, we had $24 million of debt then. We've generated $14 million of cash. And as I've said, we've moved further on. We're now down to about $8.5 million. That isn't just about reducing inventories, it's reducing trade receivables as well. One aspect, though, we were squeezing our suppliers too much. And you'll see that we have caught up now on those payments and the overall level of creditors has reduced by almost $10 million as well, whilst the level of debt is obviously also reduced. Finally, I think the group has been running with capital expenditure at about $10 million a year, which was about $6 million of CapEx and $4 million of capitalized R&D. Going forward, I think we'll look to be reducing the level of actual CapEx by about half to about $3 million a year, but we will still continue to invest in R&D to have the best products in the sector because that's one of the differentiators that we have over our competitors. So this is my final slide. So the -- on the left-hand area here, this shows you the margins that the group was making in 2012. And on the right-hand side, we set these ambitions, I think, in about March. And frankly, it probably seemed slightly unbelievable to many people. But basically, what certainly I found was a business here, I sort of very much brought into Steve and Neil, the Chairman's ambition for where they wanted to take the group, the delivery of the transformation plan, and we really need to just get back to where we were. And back then, the group was generating an underlying gross margin of about 40% generating an EBITDA margin of 20%, a return on sales of 17%. The EBITDA was virtually 100% conversion to cash. Therefore, the group didn't have any debt. It paid high dividends and it generated in excess of 50% return on assets, and it was relatively working capital light. In terms of our ambition, we'd like to get to 3% to 5% growth. We are targeting to get to 45% gross margin. That actually is the same as -- it's hard to get your head around. It's the same as the gross margin of 39% in 2012, and that's because in 2012, sales commission was expensed in the gross margin, and now it's included in overheads and the sales commission is 6%. But 45% gross margin, 15% plus EBITDA margin and a return on sales of 11% to 13% plus. We expect to eliminate bank debt next year. We're going to target 25% plus return on assets. And we set out a target to achieve $35 million of inventory over 3 years. And actually, we've hit that now. So I think we probably need to revisit that. I think we will probably reduce inventory a little bit further. And in broad terms, whilst the delivery of the transformation plan is ahead of where we would expect to be at this point, we're still only about halfway toward achieving each and every one of these 3-year ambition. The transformation plan annualization, you won't see the full benefits probably until the 2027 financial year is when the full benefits will be felt. And we think we can do that very largely through self-help and the annualization of those benefits. The revenue growth of 3% to 5% would make the task of getting there easier and would enable it to be quicker. So I think that hopefully specs out where we expect the group to get to. And with that, I'll hand back to Steve. Stephen Blair: Thank you, Mark. I think I'll summarize very quickly by saying that Dialight has always been a quality business, and it struggled a bit in that 2014 to 2024 time period, but the quality was always there. And we are now starting to bring that quality of business back. As Mark said, we're probably halfway through to where we want to be. And we have really clear plans of how we deliver progress. And if the markets allow then we'll certainly be seeing growth. That's what we're targeting. And when you have a quality business generating growth, you deliver exceptional returns. And certainly, that is where we are trying to get to. So with that, I'll hand back to Jake, and we will take any questions that you may. Operator: Perfect. Steve, Mark, if I may just jump back in there. Thank you very much indeed for your presentations this morning. [Operator Instructions]. As we have received a number of questions, so perhaps if we dive straight into it. The first question that we have here reads as follows. What is the elasticity of customer demand with respect to pricing in your main segments? Stephen Blair: Mark, would you like to take that? Mark Rupert Fryer: Yes. So I think the answer to that is -- well, let's do this by segment. I think the OE segment, this is the segment we've been in for 50 years. The average sales price of an individual light is very low. However, we are the brand leader. We've been doing this for 50 years. We supply just in time to the contract equipment manufacturers. So I would say in that segment, the price is relatively elastic. We are always competing with others. But once we are in with that customer, we tend to stick. Lighting, on the other hand, and I think this comes to another question, I think we have market-leading products. The value of safety of not having to change out the lights and the energy saving that our products generate and the overall ESG impact of our lights means that the pricing isn't as elastic. And in fact, we've put the pricing up twice in the last 12 months, and we haven't seen a notable falloff. And indeed, when the whole discussion about tariffs, we received praise from our customers that we didn't immediately put our pricing up as some of our competitors did as a surcharge. And we don't believe that they have seen a major impact either. So hopefully, that answers your question. I think it probably comes to another question, which is Dialight has an outstanding reputation for the quality of the product and being pioneering. All our lights have been designed to be LED lights. That isn't always the same for all our competitors, that may well use an old technology, housing and power supply with the LED. But that said, and I think the question is, who do you compete with? Are they the same as 10 years ago? And the answer to that is yes. We have some very large, well-capitalized, very serious competitors, and we tend to come up against the same competitors. So whilst the products have been improved, prior management have continued to invest in the product development. We remain one of the top 4, 5 competitors in the space. And our market share, we think, is around the 15% to 20% mark. And the more hazardous the segment is like oil and gas and mining, the slightly higher our market share is. Operator: Perfect. Thanks, Mark. Just turning to the next question. What would the FY '25 gross margin have been without the adverse impact of the runoff of the traffic business, i.e., what's normalized? Mark Rupert Fryer: Yes, sure. That's a very good question. So last year, the actual traffic segment was loss-making at the gross margin level. And it was for that reason that we booked an onerous contract provision at year-end of $0.8 million. And that has been released, and that was the primary reason why it made a very small 7% gross margin this year. If traffic had not been included in the full year '25 numbers, the gross margin would have been about 39%. So quite an uplift. And I have to say we'll both be very happy to look forward to H2 without traffic in it. Operator: Perfect. The next question asks, are you continuing to invest in the Components segment? Or are you in harvest mode? Stephen Blair: So when I joined 2 years ago, we weren't investing in the Components segment. I was told that it would only ever grow up and down or grow and decline with the market and that there was no opportunity for growth. And so to be honest, a lot of our emphasis was on the solid-state lighting because it's the major part of the business. But just in August, I visited a customer in Asia who said, basically, look, we love what you do for us, and we do 2 million or 3 million with this customer a year, but I've got $25 million worth of other stuff that I'd be happy for you to provide as opposed to competitors. And so suddenly, overnight, having gone and actually spoken to the customer and listened, we saw that there is an opportunity in the Components segment. And we are now looking to invest. And so we've gone from a business we were running mainly for cash to actually, there may be some opportunity here. And as Mark said earlier, we saw a 10% year-on-year improvement in that business. So AI and data centers are a big element of that. That seems set to continue. But this is more about broadening our market share. And so if you'd ask me that question 6 months ago, I would say, no, we are not investing. It's a cash cow. But now we see real potential, and we will be turning our attention to selective investment to provide the best return we can. Mark Rupert Fryer: And I should also just add on that, that the indicator business makes the highest gross margin and the highest return on sales. So the greater the mix that, that can be will overall drive up the group's return on sales. Operator: Perfect. The next question asks, many congrats on the progress so far. Two questions, please. Has it been difficult to win staff hearts and minds whilst cutting headcount? And the second part of the question is, how has the identity of your competitors changed since 2012? Stephen Blair: So if I take the first one, it's not been that difficult, to be honest. We have -- I think you find this in any business. You have very intelligent people who are keen to be engaged in the strategy of the business and to understand what is needed from them. And we started off very, very transparently as soon as I joined, we talked about the problems in the business. We talked about the opportunities. We talked about the strategy that would get us back to where Dialight had previously been. And we said quite clearly, there are people who will be part of that journey, and there will be people who won't be part of that journey, either because they don't want to be part of that journey or because the business can't support those functions or resources. And so people have responded extremely well to that. And even people who have left the business have left feeling they made a contribution to it. And they feel proud of that. So as I said right at the beginning, that first pillar was the key to any success. And I think looking at the results, it sort of shows that everybody stepped up. Those people who remain, I would say, are even more dedicated to Dialight. And that for any leadership team is a godsend. And I think it's gone as well as I could have expected. Mark Rupert Fryer: And in terms of the competitors and whether they've changed since 2012, the simple answer is no, they haven't changed. So the 4 competitors are Appleton, which is a subsidiary of Emerson; Cooper Crouse, which is a subsidiary of Eaton; Holophane, which is a subsidiary of Acuity Lighting; and Killark, which is a subsidiary of Hubbell. I think what has changed is, in 2012, Dialight was 100% LED. And those 4 competitors were not as highly focused on LED. They are now a lot more focused than they were then. They had legacy traditional technology businesses. They will still sell those lights to you as well, but they'll be a much smaller part of the mix than they would have been back in 2012. We tend to come up against them on most major bids. I think one of the areas in which we have slightly underinvested more recently has been in selling to the engineering, procuring businesses, the EPCs. That is a long-term sell and the goal in that is getting specified, your products specified on new build and retrofit of facilities. So that is something that we are investing in now more heavily. That's an investment that hits the P&L initially, but then typically higher margins can be generated when those bigger projects go live. Our competitors have continued throughout the last decade to invest in that area. So there are areas in which we are not specified and our competitors are. We need to do better at that. But today, our business is between 60% and 70% MRO maintenance and repair work. That's higher than it used to be. It used to be more CapEx new project orientated. And a combination of, hopefully, tariff uncertainty removing and our investment in the EPC team, we'll see that level of activity build up again and the overall percentage of MRO to marginally reduce. Operator: Perfect. Is wind a significant part of the U.S. obstruction business? And if so, are there revenue risks from the likely decline in new turbine orders/builds? Or is cellular/broadcast the driver? Stephen Blair: Yes. So wind is not a driver for us at all. All of our obstruction business is tower-based, are the communication towers and the like. And so really, that is the driver for our business. I mean with 5G towers, they're not as tall. And therefore, we don't see demand for our products increasing. But as Mark said earlier, the obstruction business is a very solid, reliable business with good returns. And so we'll continue to go after that obstruction business. But no, we're absolutely not impacted by how the wind market is growing or declining. Mark Rupert Fryer: I can see where the question comes from because in 2012 Dialight was in the wind market and had a Danish lighting business, BTI, but that has been exited in the last 5, 10 years. So no [indiscernible]. Operator: Perfect. Thanks, guys. And that actually concludes all the questions that have come in this morning. So thank you very much indeed for being so generous of your time and addressing all of those questions. And of course, if there are any further questions that do come through, we'll make these available to you after the presentation just for you to review and to then add any additional responses, of course, where it's appropriate to do so, and we'll publish those responses out on the platform. But Steve, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great. Stephen Blair: Thanks, Jake. I'll sort of repeat what I said at my earlier wrap-up, and that is, this is a really good quality business. We think it has much, much further to go. And we are looking for growth on top of that high-quality business, which means we expect to generate profit, cash and growth. And certainly, that is what we're targeting. And I really appreciate your time today. We're very happy to talk to as many people as possible. We think we have a really good story, and this is a really great business. So thank you for your time and attention today. Operator: That's great. Steve, Mark, thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Dialight plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.
Operator: Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura. Laura Chen: Thank you. Hello, everyone. Welcome to the third quarter 2025 Earnings Conference Call of GDS Holdings Limited. The company's results were issued via Newswire services earlier today and are posted online. A summary presentation, which we'll refer to during this conference call, can be viewed and downloaded from our IR website at investors.gdsservices.com. Leading today's call is Mr. William Huang, GDS Founder, Chairman and CEO, who will provide an overview of our business strategy and performance. Mr. Dan Newman, GDS CFO, will then review the financial and operating results. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company's prospectus as filed with the U.S. SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that GDS' earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. GDS press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn over the call to GDS Founder, Chairman and CEO, Mr. William Huang. Please go ahead, William. William Huang: Thank you. Hello, everyone. This is William. Thank you for joining us on today's call. During the third quarter, our revenue increased by 10.2%, and our adjusted EBITDA increased by 11.4% year-on-year, maintaining the healthy growth trend since our business began to recover last year. During 3Q '25, our gross additional area utilized was around 23,000 square meters. We are on track to achieve our highest every year of move-in. We continue to deliver the long-term backlog. In addition, we are now delivering the 40,000 square meter, or 152-megawatt order which we won in the first quarter of this year. By being selective with new business, we have successfully shortened the book-to-build period and brought down our backlog. Nonetheless, we still have visibility for over 70,000 square meters of move-in from the backlog next year. Our total new bookings for the first 9 months is 75,000 square meters or 240 megawatts. We expect to achieve nearly 300 megawatts for the full year, which is a big step-up from the level of the past few years. Around 65% of our bookings in 2025 are AI-related. Nonetheless, AI demand in China is still at a very early stage. If we look at the big picture, the domestic tech industry has reached a critical juncture with major players making unprecedented financial commitment to AI infrastructure. This marks a definitive end to the previous downturn and signals the beginning of a robust recovery for the data center sector. All of our major customers are committed to the massive scale of this new investment cycle, with CapEx plans of hundreds of billions, underscoring the intensity of the new AI arms race. Leading local chip companies are making continuous development progress in terms of performance, efficiency and capacity. The growth of the domestic chip segment will secure the long-term growth of the AI infrastructure industry. We have unwavering confidence in the AI demand to come basis on the development and the ramp-up of domestic technologies. We believe that new bookings in the coming years could be better, and this is what we are preparing for in our strategic plan. There are 2 essential ingredients to win big in AI, powered land and access to capital. We have already secured around 900 megawatts of powered land in and around Tier 1 markets, which is suitable for AI demand, particularly for AI inferencing. In addition, based on our communications with our customers, we are in the process of securing more powered land in complementary locations, and we believe that 900 megawatts will not be enough. On the financing side, we recently completed first IPO of a data center REIT in China. The transaction was a huge success. We intend injecting more assets in the REIT next year and establishing a continuous pipeline of asset monetization. The REIT gives us a significant competitive advantage in terms of accessing capital from the domestic equity market. It enables us to monetize assets efficiently, repeatedly and at the lowest possible cost. The China market is at an inflection point. The outlook for the data center industry is very exciting. Our market position is as strong as ever. Over the past few years, we have taken a conservative approach. We improved our asset utilization and significantly strengthened our balance sheet. Going forward, we will maintain our financial discipline while, at the same time, taking a more aggressive approach to new business. I will now pass on to Dan for the financial and operating review. Daniel Newman: Thank you, William. Starting on Slide 15. As William mentioned, in 3Q '25, our reported adjusted EBITDA grew by 11.4% year-on-year. At the end of 1Q '25, we deconsolidated the data center project companies, which we sold to the ABS. And then during 3Q '25, we deconsolidated the data center project companies, which we sold to the C-REIT. In order to present a consistent trend, we have adjusted historic numbers to take out the EBITDA contribution of the deconsolidated companies for the first 9 months of 2025 and for the comparative period. On this pro forma basis, our adjusted EBITDA for the first 9 months grew by 15.4%. Turning to Slide 16. Our C-REIT started trading on the Shanghai Stock Exchange on the 8th of August. As of yesterday's close, the C-REIT units were priced at RMB 4.375, 45.8% up from the IPO price. At this level, the C-REIT is trading on 24.6x EV to the projected 2026 EBITDA as disclosed in the C-REIT offering memorandum. The implied dividend yield is 3.6% based on the projected cash available for distribution, also as stated in the offering memorandum. It is our strategic objective to grow and diversify our C-REIT so that it is a viable option for us to recycle capital on a repeated basis, thereby unlocking value for GDS shareholders and freeing up funds for new investment. Under current regulations, we are permitted to apply for approval for the first post-IPO asset injection 6 months after the IPO date, i.e. during 2Q '26. Thereafter, it will take some time to complete the regulatory review process. For the first IPO -- post-IPO asset injection, we are preparing assets with a target enterprise value of around RMB 4 billion to RMB 6 billion. This compares with an enterprise value of RMB 2.4 billion for the assets which we injected into the C-REIT at IPO. With the creation of the C-REIT platform, we have the opportunity to invest in new data centers, ramp up, operate and then, once the track record qualifies, to monetize over a 5- to 6-year investment cycle. Even if we take a very conservative view on potential future exit multiples into the C-REIT, the return on new investment is still very compelling. This could not have happened at a better time as we address the upcoming AI demand wave. We think it's a game changer. Turning to Slide 17. For the first 9 months of 2025, our organic CapEx was RMB 3.8 billion. We still expect our organic CapEx for the full year to be around RMB 4.8 billion. However, net of the cash proceeds of the asset monetization, our CapEx will be around RMB 2.7 billion. As shown on Slide 18, our operating cash flow for the full year will be around RMB 2.5 billion. Therefore, after taking into account the asset monetization proceeds, our China business is almost self-funding. Turning to Slide 19 and 20. Our net debt to last quarter annualized adjusted EBITDA multiple decreased from 6.8x at the end of 2024 to 6.0x at the end of 3Q '25. The decrease is mainly due to the cash proceeds of the asset monetization and the deconsolidation of debt of the project companies sold to the ABS and C-REIT as well as the offshore equity capital raise, which we did in 2Q '25. We are benefiting from the favorable interest rate environment in China, with our effective interest rate dropping to 3.3%. Turning to Slide 22. After 9 months, we are on track to achieve the midpoint of our revenue guidance and at or above the top end of our EBITDA guidance for the full year of 2025. Our growth rate during the current year has clearly benefited from the strong new bookings in 1Q '25 and a short book-to-bill period. This gives a clear illustration of how our growth rate can accelerate with a pickup in demand. The relatively subdued new bookings since 2Q '25 will affect our growth rate next year. However, in our internal projections, we foresee higher bookings next year, leading to gross acceleration thereafter. We'd now like to open the floor to questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Yang Liu of Morgan Stanley. Yang Liu: I have 2 questions here. The first one is regarding the China market inflection. As William just mentioned, the China market is approaching the inflection point. What do we need to see to see that really happen in the near future? And in terms of your strategy to go a little bit more aggressive in China, could you please elaborate more, for example, with location or what type of project, et cetera, are you planning? The second question is regarding the overall investment profile because now we have a C-REIT platform, and it is a very effective way to recycle capital. And what is the new overall investment return with C-REIT scheme? William Huang: Okay. I think number one question is, yes, I think how to explain the aggressive approach. I think what we see in the market, demand is very strong in China. I think our customer announced their big investment in the next 5 years. I think now another signal is domestic chip is catching up. Just as what I mentioned, I think in terms of the efficiency, chips efficiency and production capacity, I think they all improved a lot. That means the real data center opportunity is coming. So we are well positioned. As I just mentioned, we still have the large -- I think the largest land bank -- powered land bank in and around Tier 1 market. This is very good for the future inferencing. Another is, I think, the China tech player, they will continue to do massive training. So I think in order to capture this opportunity, we will acquire more land in some very cheap power location and more -- as much close to, let's say, the Tier 1 city, yes. So I think this is our strategy. And we are -- a lot of the land acquisition is in process. And maybe something will happen, we can announce in next earnings call. This is number one. Number two, I think Dan may can explain about the REITs. Daniel Newman: Sure. The unit economics of the data center investment in China is very solid. The selling price is stable. The unit development cost has come down to a level which is very efficient. And this allows us to generate typically 11% to 12% cash on cash yield on new investment. What has changed is the way that we can look at and evaluate investment. If we take the approach of investing, which maybe takes 1 year to construct and then 1 year for the customer to move in fully, we have to hold the asset and operate for 3 years to establish the track record, which is required before assets can be injected into C-REIT. But then in the year -- the following year, which would be year 5 or 6, we can consider an asset injection. But even if we use a exit multiple, a cap rate, which is being very conservative compared with even where we IPO-ed our C-REIT. If we look at the IRR over a 5- to 6-year period, then it is in the low to mid-teens. And the levered IRR, the return on equity, is well into the 20s. I think fundamentally, this is very attractive. William Huang: Yes. I'll add 1 more point. I think we believe now is the right timing to step in the market because, number one, I think the price is more stable; number two, I think the development cost is almost at the bottom of the -- in terms of history, right? So I think this is the right timing to maintain very good return. It's the right timing, yes. Operator: Our next question comes from Sara Wang of UBS. Xinyi Wang: Congratulations on the solid results. It's glad to hear that GDS is being more aggressive in acquiring new business opportunities. So I have actually 1 question, but 2 parts. So I think Dan just mentioned, we are expecting higher booking next year. So regarding this booking, does that include our potentially new powered land acquired in relatively -- like regions with relatively lower power tariffs? And the second question is that, if we are going into complementary markets on top of our 900 megawatts resources then how shall we think about the -- like is there any difficulties in acquiring new power quota? Because this year, we have heard [indiscernible] like NBRC, they're actually relatively rationalizing or controlling the new power quota release in China in general? Yes, that's my question. William Huang: Okay. The first question, I think that was new booking next year, right? We're not fully relying on the new acquisition of the land. Definitely, we will -- if we can success to secure the land, power the land, we can do more, right? So this is our focus base. The second -- what's the second... Laura Chen: How difficult... William Huang: I think power quota always -- I mean, in general, always not easy, right? But based on our track record and the reputation, I see a lot of governments willing to work with us. So for us, it's not that challenge for us. We have a lot of the experience in the past -- in the last 10 years to build up the right relationship with the government and the power company. Operator: The next question comes from the line of Frank Louthan from Raymond James & Associates. Frank Louthan: Can you give us an update on DayOne on private round funding and potential updates for a possible IPO? And then what is the outlook on your customers getting GPUs and be able to ramp their installs going forward? When do we expect that to crack open? William Huang: Yes, I think I answer and maybe Dan can add more color. I think -- I have to say, I think after Series B, I think DayOne is fully independent. So we cannot represent DayOne anymore since that time, right? But we still can give some highlight information, right, about DayOne because we quite enjoy the equity value increase, right, for our shareholders. I think all business in Asia Pacific and in Europe, which we already announced the market what we already stepped in, remain very, very good, very, very positive, and the demand still remains very, very strong. So I think the DayOne's business is on the right track and could be better. So that's all what I can tell you. Maybe if you are interested, maybe we can introduce to the DayOne's right people to explain in more detail. Frank Louthan: Okay. And on potential for additional installs to ramp? Daniel Newman: Frank asked about the new business in DayOne I think. William Huang: Yes. I just can -- what I can tell you is they remain very, very strong, positive view for the future, yes. I cannot tell any detail more. I cannot represent -- this is a GDS earnings call, right? Sorry about that. Operator: The next question will come from Michael Elias from TD Cowen. Michael Elias: So in the U.S., when we think about the training workloads that we're seeing, we're seeing gigawatt scale projects getting deployed. And I'm curious, when you think about what training will look like in China, are you seeing the opportunity to deploy at that kind of the scale, i.e., in the gigawatt range? And then second question is, can you give us an update, as you think about these AI data centers that you expect to build, what the time to build those data centers are and how that varies from traditional cloud data centers? And if I can squeeze it in, any notable constraints or long lead time items that we should be aware of? William Huang: I think scale-wise, I think our client talk about gigawatt level, I mean, new demand, right? So I think this is just like 3 years ago in -- what happened in the U.S. And the number-wise, we are talking -- every big player talk about gigawatt size new demand. So I think that it's catching up. That's what we have been seeing -- we have seen. So in terms of time to market, right, I think, in China, we can build very fast. I think normally 9 months to 12 months is very normal start from the piling to deliver, right? The extreme, I mean, case, we can build -- let's say, even built within 8 month. So that's our record in China. Daniel Newman: Any bottlenecks or... William Huang: No, I don't think the -- in terms of development, yes, supply chain in China is not an issue. Operator: The next questions will come from the line of Daley Li of Bank of America Securities. Huiqun Li: I have 2 questions here. First one is about we got new orders for the China market, like a near 30 megawatts. Could you share what's the... William Huang: 300. Huiqun Li: Can you hear me? Sorry. Laura Chen: Go ahead. William Huang: Go ahead. Sorry. Yes. Huiqun Li: Yes. Yes. Could you give some color about the AI exposure? What's the percentage from AI? And is this about inferencing model training for the recent order? Number two, for the second cone is about the -- we heard the China government gave some window guidance in 2Q this year to tighten the data center supplier in China? And do you see any impact to us and to the market? William Huang: Yes, I think, new order from -- Yes, go ahead. Daniel Newman: Okay. In our prepared remarks, we commented that we will probably reach nearly 300 megawatts in terms of new bookings for the whole of 2025. I think we hit 240 megawatts up to the end of the first quarter, and there's some good new business in the fourth quarter. We also stated that, by our estimation, around 65% of the new bookings this year are AI related. We are -- only have a presence in Tier 1 markets. So that is AI in Tier 1 markets. So that's going to be mainly AI inferencing or it can be a combination of AI inferencing and training, and it's being deployed within the established cloud regions and cloud availability terms. The second question was... William Huang: Window guidance about the carbon quota. I think this has always happened in the Tier 1 market, right? So -- but we are lucky. We already prepared for that. And that's why I mentioned we still have almost 900 megawatts powered land. This power is all gathered carbon quota in or near Tier 1 market. It's very difficult to apply new around the Tier 1 market. But in a remote area, I think I didn't hear any about the window guidance because the power in those place, it's -- the big problem is how to sell, right? It's not -- so the power is -- capacity is very large in a remote area. So get the power, I think it's not very, very difficult. And the local governments are very encouraged the data center -- the operator built a data center in those places, location. Operator: Our next question comes from Timothy Zhao of Goldman Sachs. Timothy Zhao: Congrats on the solid results. I have 2 questions. First is about the pricing trend. Just wondering if you can share some color on how you think about the MSR trend into fourth quarter and next year, especially given that probably the company is entering to a peak renewal period for the contract that were signed maybe 5 to 7 years ago, then how should we think about the MSR trend into next year? Second is about the overall market and the competitive landscape. I think right now, you have been emphasizing time-to-market quite a lot. If you remember, I think maybe 5 years ago when there was a wave about the cloud data centers and 5G network, there was also a wave of increased data center supply in China. Just wondering if you think, from where we are right now, how do you think about the overall industry supply and demand dynamics? Daniel Newman: The first part of your question about the downward price reset when our installed base contract come up for renewal. And this has been going on for a few years and will continue for a few years more. And the impact of that gets reflected in our MSR. And I was -- give some comment on future expectations. Now I'd say that, over 2026, we expect the MSR to decrease by 3% to 4%. That's on average, comparing 1Q versus 1Q, 2Q versus 2Q and so on. And that is not only a function of the downward price reset, we also have elevated higher levels of move-in. And that also has a dilutive effect on MSR. So that 3% to 4% reflects the combination of those factors. William Huang: Yes. I think I add a little bit of my points. I think all the new build data center, the price is quite stable since 2 years ago. Nothing changed. I think this is very good. But in the meanwhile, I think the cost is more stable, right? So if you look at all the new-build asset return, it's very decent. So I think this is a way to look at the MSR, right? Because the new campus, new building is, in general, I think compared with like edge data center, the enterprise data center, even cloud data center, the price definitely go -- went down a lot. But if you look at the asset return since 2 years ago, it's very, very similar, very -- and this price is very, very stable. Return is also very stable. It's 100% fit the REITs to inject to the REIT. Daniel Newman: Tim asked about the competitive landscape. William Huang: Competitive landscape, I think the new competition, I think, if you try to get your customer trust and reliable, you should show your financial capability. Now our customers more care about the financial capability, not just the capability you can build. Everybody can build easily, right? So I think if you try to commit a customer 500-megawatt or 1-gigawatt campus in the future, I think the financial -- our customers definitely will consider about do you have the capability to access the capital market, what's the cash position you have right now? So this is very -- this is the new competitive advantage. In terms of this, I think we are more -- much more way ahead than any competitor else, right? So I think this is not just a land/power competition. It's also the capability to access capital market. So in terms of this, if I look around, I think not that much company, both has the land capability -- power the land capability and well position and let's say, financing capability. Operator: Thank you for the questions. Due to the time limits of today's call, I would like to now turn the call back over to the company for any closing remarks. Laura Chen: Thank you once again for joining us today and see you next time. Bye. Operator: This concludes today's conference call. You may now disconnect your lines. Thank you.
Simon Carter: [Audio Gap] results. You will have noticed quite a few changes on the Campus over the last year since we were last here. And if you do get a little bit of time after the presentation, do check out the Retail underneath for 1 Broadgate. It launched last week, and it's already 90% let and under offer, which is a pretty good place to be. So, in terms of today's agenda, I'll start with an overview. David will take you through the first half performance and also our earnings levers. And then Kelly will look at our strong leasing and accretive asset management over the period. But before I hand over to David, I'd like to take a step back and look at what's driving the future performance of the business. At the heart of this is the decision we took nearly 5 years ago to build a market-leading position in Campuses and Retail Parks. Together, these now represent 90% of our business. These are sectors with strong occupational fundamentals. Demand is healthy, supply is constrained, and rents are very affordable. The investment market is waking up to this. Investors are increasing their allocations to both Retail and Offices. And we are very well placed to capitalize on this. That's down to the quality of the assets, the experience of our team and our value-add mindset. The result, a very attractive total return profile, underpinned by sustainable earnings growth. So, let's unpack this. Starting with prime London offices, where a classic supply crunch is driving strong rental growth. The return to the office has exceeded expectations. Mid-week utilization across our Campuses is now above pre-pandemic levels. Businesses are short on space. Last year, they expanded by 3.3 million square feet, the highest since 2019. And active demand is now 50% above the long-term average. But supply remains tight. Initial concerns about working from home have been compounded by rising construction costs and higher interest rates. You can see on this slide, vacancy for new and refurbished space in the city is predicted to fall below 2% and stay there for the next 4 years. Historically, when this has happened, it has driven double-digit rental growth. We've positioned our portfolio to benefit from this supply squeeze. Office occupiers are focused on four key areas: quality, location, amenity and flexibility. Our Campuses tick all the boxes. We currently account for 7 out of the top 20 leasing deals that are under offer in London. So, we're capturing a disproportionate share of a very strong market. That's down to high-quality sustainable buildings, prime locations near transport hubs, excellent amenities and public realm and flexible offerings, ranging from story to fully fitted work-ready space to headquarter space. This flexibility is key for customers in the innovation sectors. This is a fast-growing market, especially in the Knowledge Quarter. The number of innovation customers in our portfolio has more than doubled since 2022. There's been strong growth from a new generation of AI and tech businesses with high levels of venture capital investment. This is a key source of new demand. We're tracking 1.5 million square feet of new requirements. Kelly will explain in a moment how we're benefiting from this at Regent's Place. Our on-site developments are achieving record rents, which is driving development yields above 7% and mid-teens IRRs. These record rents also provide valuable evidence for upcoming reviews across our Campuses. We're derisking our schemes with pre-lets and fixed price contracts and increasingly bringing in partners such as Modon to reduce capital outlay, accelerate delivery and earn valuable fees. Let's move on now to Retail Parks. These continue to be the preferred format for retailers. They're efficient and adaptable, offer easy access, free parking, and they're ideal for a range of retailers, including value, grocery and multichannel. Retailers like M&S, Lidl, Aldi and Home Bargains are expanding into this format. Yet there's been virtually no new supply in the past decade, and we don't see this situation changing. Development economics are unattractive and planning is restrictive. As you know, we're the largest owner and operator of multi-let Retail Parks in the U.K. We have a portfolio stretching from the Isle of Wight to Inverness. Half the U.K. population lives within a 30-minute drive of one of our assets. And we have deep reach with the retailers, given our scale, the experience of our team and our in-house property management. Of course, we use demographic and competition data, but nothing beats picking up the phone to a retailer to understand trading. Our focus on strong trading locations is reflected in our footfall. This has grown 13.5% above the U.K. Retail benchmark over the last 5 years. Despite a more competitive investment market, we're still acquiring assets that yields above 7%. And we're comfortable taking occupational risk, due to the market strength, our asset management expertise and those retailer relationships. In real estate, affordability is just as important as supply and demand. For Prime Offices and Retail Parks, the picture is very positive. London office rents relative to wages are lower than at the turn of the century and Retail occupancy cost ratios are very healthy. This leaves plenty of room for rental growth. That's why we're guiding to 3% to 5% growth in both sectors. Investors are taking note of the occupational strength I've just described, and they're increasing their allocation to both Offices and Retail. This, together with strong credit markets means we expect investment volumes to grow. London office transactions have been subdued in recent years, as we know, but they've really picked up this year with over GBP 6 billion year-to-date and GBP 3 billion under offer. So far, the number of deals over GBP 100 million this year is already double the whole of last year. Strong occupational fundamentals, improving investment markets and our high-quality platform provide for an attractive total return profile. The essential building blocks are set out here. Their earnings yield, valuation uplift and development upside. Earnings yield is currently 5% and growing. Assuming stable property yields, valuations will primarily be driven by ERV growth, where we're guiding to 3% to 5%. You need to adjust for a bit of depreciation, the impact of leverage and the fact that ERV growth doesn't feed through 1:1. But you can see how these first two building blocks get you to around 8% to 9%. Developments add further upside with mid-teens returns forecast on the committed schemes and the pipeline. So, we're confident in delivering total accounting returns of 8% to 10% through the cycle. The total return outlook is underpinned by attractive earnings growth. We're expecting at least 6% next year, and we have the levers to deliver 3% to 6% over the medium term. This is an ideal point to hand over to David, who will take you through these levers as well as our numbers. David, over to you. David Walker: Thanks, Simon. Good morning, everybody. Three things from me today. First, I'll cover our financial performance for the half year. Second, the balance sheet and our approach to capital allocation. And finally, I'll provide an update, as Simon said, on the five levers of earnings growth I outlined in May and then how we see them translating into medium-term growth of 3% to 6%, including our guidance for FY '26 and then into FY '27. As you know, we released many of the key metrics in October. That's something you should expect from us going forward. One benefit we see is that it allows us to spend more time today on strategy and outlook, but starting with the numbers. Underlying profit was up 8% to GBP 155 million, and underlying EPS was 15.4p, 1% ahead of last year. meaning the dividend is also up 1%, in line with our policy of paying out 80% of underlying EPS. Looking at the EPS bridge, you can clearly see the benefit of our progress against the earnings levers, in particular, driving like-for-like, which was 4% and contributed GBP 6 million or 0.6p with a positive performance across both Offices and Retail, higher rents from developments from completed schemes like 1 Broadgate and The Optic, partially offset by void costs and lowering admin costs. This has been a key focus for me since I became CFO this time last year. I spoke in May about the savings we had already identified, and I'm pleased to see the benefit come through in H1 with admin costs down GBP 5 million or 12% versus last year, adding 0.5p to EPS. One-off items had only a limited impact on earnings year-on-year as the positive effect of surrender premia offset bad debt provision releases last year. Taken together then, these positives more than offset the GBP 13 million increase in finance costs, which reduced EPS by 1.3p. This is in line with expectations, mainly reflecting the fact that we're no longer capitalizing interest on completed developments and a 10 basis point increase in our weighted average interest rate to 3.7%. Here's the summary P&L account. I've covered most things here already, but just to touch on two further metrics. First, our NRI margin. This was lower due to the increase in PropEx, mainly because of the movement in provisions I just touched on, which slightly flattered the margin last year and void costs as we lease up developments. Once this is done, I expect our margin to stabilize at around 90%. The other thing to draw out here is the EPRA cost ratio, which was 17.4% at September as this higher PropEx more than offset the reduction in admin costs. Though I do expect the ratio to come down to the mid-teens in future years as we lease up developments and further leverage the operating platform we have in place, adding income while controlling costs. Now turning to the balance sheet. NTA has again increased since March, reflecting a 1.2% rise in property values, which added 10p and underlying profit, which added a further 15p, although this was partially offset by the dividend paid in July and other movements, resulting in NTA per share of 579p, up 2%. This, combined with the dividend paid, equated to a total accounting return of 4% for the half, meaning we're on track to deliver our full year target of 8% to 10%. Credit markets remain very strong, and we've capitalized through a broad range of activity focused on maintaining our overall maturity and enhancing diversity in our sources of finance. We raised a GBP 450 million green loan secured against 1 Broadgate, extended GBP 930 million of RCFs and renewed GBP 500 million of term loans at improved pricing. Looking ahead, we have just over GBP 300 million of debt maturities at British Land over the next 12 months. So, we remain well financed with flexibility on when and how we raise new debt. And with good access to the bank debt and capital markets, we expect to remain active in a strong market. I was pleased to have our Fitch rating reaffirmed in July at A with a stable outlook, reflecting the fact that our balance sheet remains strong. We ended September with GBP 1.7 billion of undrawn facilities in cash. Net debt was GBP 3.8 billion. Our LTV was 39.1% with net debt-to-EBITDA on a group basis at 7.2x. This balance sheet stability underpins all of our capital allocation decisions. We focus on recycling capital from mature, lower-returning assets into higher returning opportunities. Currently, that means investing further into Retail Parks, where, as Simon has described, the investment case remains compelling, and we continue to see opportunities to buy at attractive pricing. Alongside that, we progress best-in-class office developments at our Campuses on a derisked capital-light basis, securing pre-lets, certainty over build costs and bringing in partners to accelerate returns and reduce risk, just as we did over at 2 Finsbury Avenue. Our London urban logistics portfolio has embedded development optionality, and we remain positive about the long-term supply-demand dynamics here. So, we can progress those schemes when the time is right, but the sector is weaker today. So, we prioritize better uses of capital in Retail Parks and Campus development. It's important to note that we always make capital allocation decisions in the context of shareholder distributions, including the relative returns and EPS accretion available from share buybacks, for example, when we have the proceeds to invest following significant disposals. And as ever, all of our capital allocation decisions are based on our assessment of relative returns at any point in time. In May, I set out the five levers we focus on to drive consistent cash-generative earnings growth. So 6 months on, let's update against each. First, like-for-like rental growth. We've made a strong start to the year. Portfolio like-for-like growth was 4%, bang in the middle of our guidance of 3% to 5%. Campuses were up 7% as we drove occupancy and secured rental uplifts on space which have been surrendered. Our Retail business also continued to grow, albeit at a lower rate, reflecting the fact that we're at near full occupancy. Going forward, though, ERV growth should more directly translate into like-for-like growth as we're largely rack rented now on our parks. And overall, for the full year, I expect 5% like-for-like growth across the portfolio. Kelly will give you more detail on our portfolio performance in a minute. Fee income is our second earnings growth lever. We continue to work with a broad range of JV partners, generating fee income for both asset and development management. Although fee income was flat in the first half at GBP 13 million, we do expect to achieve 10% growth for the full year as we continue to earn fees on development mandates, and we're actively pursuing opportunities to leverage our platform in order to drive incremental fees from new and existing partners. Third, cost control. I'm pleased with the progress we've made over the last 12 months, but this remains a focus. And so for the full year, I expect admin costs to be GBP 75 million to GBP 76 million, ahead of the guidance I gave in May and versus GBP 82 million for last year. Development leasing is our fourth earnings lever. As I mentioned earlier, we're now benefiting from schemes such as 1 Broadgate and The Optic, while leasing on previously delivered schemes, Norton Folgate and Aldgate Place is well on track. 1 Triton Square launched in October, and we're delighted to have our first deals under offer there. Finally, capital recycling. The fuel in this machine is our ability to dispose of lower returning assets, freeing up capital to rapidly redeploy into higher-returning opportunities. As Simon laid out, the office investment market has been quieter than in previous years, but we are seeing signs of improvement. And against that backdrop, we've remained active, executing deals where it makes sense, disposing of Retail Parks where pricing has moved in or development sites in London, which were not income-producing, then rapidly redeploying the proceeds. Given the improving investment market, we do, however, expect activity to increase over the next 12 to 18 months. Bringing this together, we expect to deliver sustainable EPS growth of between 3% and 6% over the medium term. This slide shows how each of these earnings levers contribute to that. Now this is purposefully illustrative. And of course, it will not be linear in any particular year. But to me, this is the best way to think about the earnings growth potential of our business. So, let's go through each of them. In terms of like-for-like, we're confident we can consistently deliver 3% to 5% on our standing portfolio given the strong occupational fundamentals of our core sectors. At the midpoint, this top line of 4% growth drops 3% to 5% annual EPS growth. 10% fee income growth adds another 1% per year. And on costs, I do expect further reductions over the next 12 to 18 months, which will, of course, continue to benefit earnings. Although over the medium term, there is likely to be continued inflationary pressures. So, modeling broadly flat costs is not unreasonable over, say, 5 years. Likewise, our weighted average interest rate will gradually increase over time, reflecting prevailing market rates. Based on today's rates, we anticipate a 10 to 20 basis point increase per year, which would reduce EPS by around 2% per annum. So overall, we see a clear route to core EPS growth of 4% per year, and that's before further capital activity, which really is the kicker on top of this core growth. There are two components to consider: development completions and asset recycling. And while the timing and phasing of capital activity is, of course, hard to predict and it's by its nature, lumpy, I've assumed around GBP 500 million per year with GBP 200 million for developments and GBP 300 million for asset recycling. Then to model the earnings impact for developments, we assume a spread of around 200 basis points between the yield on cost and our funding costs. And for asset recycling, 100 basis points between what we buy versus what we sell. Taken together then, this capital activity would contribute a further 2% to EPS growth per year, increasing the annual growth rate to 6%, the top end of the range I described in May. So, bringing this back to immediate outlook. Moving into the second half, we expect to deliver at least 28.5p of EPS for FY '26 and from there, at least 6% EPS growth for FY '27 as we benefit from the continued lease-up of our developments, capitalize on the compelling fundamentals of our core business and so move forward with confidence in delivering against our five earnings growth levers. With that, over to Kelly. Kelly Cleveland: Good morning, everyone. You've heard from Simon on the strength of our markets. So, I'll now take you through how that's translated into performance and outline how we're adding value across the portfolio. I'll start with valuations, which have increased by 1.2%. This is the third period I've been able to report positive valuation growth, and it's a good sign that the inflection point is behind us. Valuations have been driven by strong rental growth of 2.4%. On an annualized basis, this is again at the top end of our guided range of 3% to 5%, and we're confident this rental growth will continue. Turning to the operational performance, starting with Campuses. We have leased 486,000 square feet at 3% ahead of ERV. And at the end of the period, we were under offer on 629,000 square feet, 6% ahead of ERVs. And we have been particularly busy since 30 September with a further 308,000 square feet put under offer, and that's a very busy 6 weeks. It's worth pointing out, we're seeing particularly strong momentum in leasing up vacancy. Since March, we've let or put under offer 751,000 square feet on vacant or newly delivered space. Our EPRA occupancy now stands at 88%, up 5% this half, up 10% for the year. As we said in the trading update, Broadgate is practically full. There's just one completed floor to lease across the entire Campus, and it's an exceptional floor, the top floor of our newest scheme at 1 Broadgate. We're in negotiations on that floor, and we'll set record new rents for the Campus. This is good news for our on-site developments, which will deliver into a market with very limited supply. Broadgate Tower is the first to be delivered late next year. This is a 390,000 square foot building with 240 square foot development floors. Since 30 September, we've gone under offer on 59,000 square feet across five deals, taking the building to 49% let. This is a very strong position to be in at this stage. The next to deliver is 2 Finsbury Avenue in 2027, where Citadel are taking up to 50% of the space. Here, we are in negotiations with a number of larger occupiers, 2 years ahead of delivery, and this is a fantastic tower building delivering in a year with very little competition. We've also been proactively identifying where we can take back space and re-let it at higher rents to drive value when there's such little supply. For example, at Exchange House, we proactively took back some floors. We're reinvesting the surrender receipt into much needed on floor upgrades after 35 years of occupation and have already re-let to MSCI, driving rents on by GBP 35 per square foot. This added GBP 10 million to the valuation of the building and sets strong rental evidence for the wider Campus. This is accretive asset management, and we will look to do more of this. Norton Folgate is a slightly different proposition for us at British Land as the product is smaller floor plates, often fitted and therefore, more suited to let post PC. We've made good progress and are now 89% let, under offer or in negotiations. And we're on track to be fully let by the end of the financial year. Simon covered the growing demand coming from innovation occupiers, which is driving momentum across the portfolio. To capitalize on that, we launched 1 Triton Square last month. This is an incredible building. It's a Campus within a Campus and offers real flexibility to tenants. It includes a floor of storey space, a floor of fitted labs, three lab-enabled floors, which look like a traditional office floor, but can easily be converted to lab use as demand evolves and three traditional office floors. You may have picked this up in David's piece, but I'm pleased to confirm that just 6 weeks after PC-ing, we have put 56,000 square feet under offer to two globally recognized science and tech occupiers due to complete later this month. And we have another 211,000 square feet in negotiations. We are very excited about this and look forward to continuing to update you on our progress. Turning to Retail Parks. You'll know it's a very competitive occupational landscape and retailers are keen to secure space. Leasing volumes remain strong at 681,000 square feet, 6% ahead of ERVs and under offers are 554,000 square feet, also 6% ahead of ERVs. Deals this half have been in line with previous passing rent. And thanks to recent strong rental growth, our portfolio is now largely rack rented. And as a reminder, it was over 20% over-rented just 2.5 years ago. So, we're in a great position to generate strong like-for-like rental growth from the portfolio. Retail Parks provide strong cash yields and good opportunities to increase value through asset management. I'll cover just a few of the many examples of asset management on our acquisitions, where we've looked to improve the tenant mix and drive footfall, sales and ultimately, rents. I'll start with the first one we bought when we took the contrarian call to start buying Retail Parks. When we bought Biggleswade Retail Park in 2021, it had 6 high-risk retailers. These are the ones in red. We've re-let all of these to strong category leaders, which has helped drive a 12% IRR since acquisition. Rolling forward to one of last year's buys, Queen Drive Retail Park. When we purchased it, there were two vacant units, both are now let, including to an M&S anchor, which is a major win for the park. The park is full and leasing well ahead of ERV and has delivered a 14% IRR since acquisition. And our most recent buy is Turbary Retail Park in Bournemouth, which we purchased earlier this month for a prospective double-digit IRR and a day 1 yield of 7.4%, which with asset management, we've already increased to 7.7%. And we have a strong pipeline of similar deals. As Simon covered, we're unlikely to see many new Retail Parks built, but we're actively looking for opportunities across the portfolio where we can add space efficiently. Projects like these ones at Glasgow and Rugby are smaller in scale, shorter in duration and lower risk than traditional developments, but they generate meaningful returns with a yield on cost of at least 8%, often double digits. And on top of that, they provide strong wash over to the rest of the park by improving lineup and rental tone. So, I'll leave you with three things. Values continue to rise, driven by strong ERV growth at the top end of our guidance. Our standing Campus assets are virtually full following a strong 6 months of lettings, and we've made good progress on our newly delivered space. And finally, as the market leader in Retail Parks, our active asset management is pushing on rents and values, and we'll look to buy more in the space as we continue to recycle capital. Now, over to Simon to wrap up. Simon Carter: Thanks, Kelly. So to wrap up, let's circle back to where we began. We're a market leader in the right sectors, Campuses and Retail Parks, where demand is healthy, supply is constrained and rents are affordable. Investors are increasing their allocations to these sectors, and we're very well positioned to capitalize on this and to deliver attractive total returns going forward. Thanks for listening. Simon Carter: We're now going to take your questions. Kelly and David are going to join on stage. And I think we'll start with questions in the room. Who's going to be first? We've got a microphone over there. Any questions in the room? Rob? Robert Jones: Someone's going to start. It's Rob Jones, BNP Paribas. I think two. The first one, I don't know if we can go back to a slide on the screen, but if you wanted to, it's Slide 4, which, Simon, was the one where you had the stars looking at times in the past where we've had less than 2% vacancy. Yes, I'm sorry about that. One could read into this that, if we're forecasting less than 2% vacancy '26 onwards, and I guess the '27 to '29, I don't know if that's even right, maybe it's just, I'm not sure, but even if it was, it implies that one could assume a 10% ERV growth going forward. Now obviously, at the moment your levels that you need to achieve -- and David has helped us probably by break down the levers of earnings growth going forward. You don't need anywhere near that to hit your target. So, do you think that, that kind of level of ERV growth, if we have such low vacancy and acceptable levels of credit demand still coming through can actually be a 2%? I assume in '27 to '29 based on the forecast. Surely that must be wrong, because even when you look at your own Slide 36, you got [indiscernible] Bank, Appold Street, likely getting committed with a '28 delivery, I think, which is in that period. Either the brokers are assuming you own 100% net on completion or they're a bit too bullish in terms of that. Simon Carter: Yes. It's a great question. This is directional. It's what the brokers are forecasting. Inevitably, you'll have a little bit of vacancy. But what you're seeing at the moment, the amount of supply that's coming through. So, we think there's something like 5 million square foot of new -- so this is new and refurbished. This isn't the whole city. This is new and refurbished stock coming through. 5 million square feet over this period of time. A lot of that's pre-let. And if you have normal levels of demand of about 2 million square foot a year, you can see how you eat into that supply very, very quickly. And I do think that the schemes that are on site, not everyone, but the schemes that are on site, particularly the BL projects will be delivered with a very, very high level of pre-let. I mean you're already seeing that. Look, we've only just started 2 FA, and we've got 33% let, up to 50% of Citadel exercised their options. We'll probably move to 1 Appold in the future, but that will be on a pre-let derisked basis. So, the market is very, very tight at the moment. Of course, there will always be a bit of vacancy, but that is what is being forecast at the moment. I think by Knight Frank, I think Cushman's have the vacancy rate a little bit higher than that. But what we're saying is sub 2%, you get very strong rental growth. But that is on the new and refurbished space. So look, I think you will have that. And we've seen that on our own new and refurbished space. That is what the rental growth is doing at the moment. Sorry, you had a second question. I just thought answer that one first, and then we'll move on to the second. Robert Jones: I'll pass on to someone else. Simon Carter: Okay. Very generous. Next will be Max. Maxwell Nimmo: I'll try my best. Max Nimmo, at Deutsche Numis. Yes, I guess perhaps a slightly higher-level question just around office development. There's obviously quite a bit of debate about the buy-to-sell model or the develop to sell and the sort of develop to hold. You talked about kind of mid-teens IRRs, but also mentioned the fact that depreciation could be 1%, maybe it's higher, the ERV growth perhaps doesn't always flow through one for one. Just in terms of your thinking about how you get comfortable with that and is it the JV angle? Is it the kind of derisking it? Just kind of some of your thoughts on that, if that's okay. Simon Carter: Sure. It's a really good question. As you saw on the slide on the schemes that are on site and the pipeline, we're projecting yields on cost north of 7%, mid-teens IRRs, so compelling returns. And those are derisked returns by the point we commit, because we place a fixed price contract, normally with an element of pre-let. And then also, as you say, we've brought in partners. So that's very compelling returns. The MO of British Land as it has been for the last 5 years is create this great product, lease it up, deliver compelling returns. And then yes, in time, we look to recycle. I think David referred to it as the fuel in the machine. The investment market has been quieter as we know. That's now catching up because everyone can see the rental growth we've just been speaking about. And so, we think we'll see increasing activity that then allows that engine of growth to go for us. We're not necessarily the best long-term owner of a stabilized office asset, because there is depreciation, and that will be a lower return. And we've got other uses of our capital. Today, we have more opportunity than we have capital. So we would like to do more of that development, more of that buying of Retail Parks that we've spoken about. Thomas Musson: Tom Musson at Berenberg. Just a question on the fee income growth that you hope to grow 10% a year, which obviously becomes more material to earnings growth as that compounds. Just wonder how you balance the decision between growing an income stream that's based around development mandates with the fact that future income that is aligned to development work inherently comes with a higher cost of equity, at least in the eyes of the listed market. Simon Carter: Yes. Good question. I'll give you an initial thought and then hand over to David on this one. It's the kicker on top. So, we're getting those type of returns. And then, we bring in partners, we're using their capital. We're normally selling ahead of where we would have been before we derisked the scheme. So, we're locking in some profits. And then those fees -- the fees on development mandates are good. It's a relatively high margin business. So, I think, it's a nice add-on. I don't know, David, if you would add anything to that. David Walker: Yes, not really other than to say we clearly we wouldn't commit to a development simply to drive fee income. Often, it's a result of the fact that we've already derisked that scheme by bringing in a partner. There are two principal -- or three principal chunks to it. The first is development fees. That's where we earn the highest margin. There's asset management fees, which is also an increasingly important part of the business, and then there's property management fees on top of that. So, 10% a year on average. Some years, it will be higher, some years, it will be lower, subject principally to, as you described, the developments we commit to. Zachary Gauge: It's Zachary Gauge from UBS. A few questions around development. Just looking at the updated guidance on Page 47, you've dropped your NRI margin by a couple of percentage points from the end of last year. And the reason given is additional void costs reflecting timing of development completions and lease-up. And obviously, you would have known the timing of development completions at the end of last year. So, can I back out of that, that the lease-up is going slightly slower than you had anticipated at the end of last year. And then following on from that, on the individual assets and where we are on ERV, sounding quite encouraging on Triton Square, so potentially getting to 50% by the end of the year, but nothing at Canada Water and nothing at Southwark. So, if you could just touch on the prospect for those individual schemes by the end of FY '26, that would be great. And the other one is on the under offers at 1 Triton Square. I think it breaks out to GBP 115 per square foot. Could you just touch on where that sits in relation to underwrite on the floor space they are taking, whether it's labs, fitted labs or offices? Simon Carter: No, happy to go through all of those. On leasing activity, we were probably slower throughout the period in terms of where we thought we would be. But actually, we saw an acceleration at the end of the period. Kelly, I don't know if you want to talk to some of the activity we've had on the development leasing front. Kelly Cleveland: Yes, sure. I covered in the prepared notes, but we've having completed 1 Triton and being able to show people around the building, we've had really good progress there in the last 6 weeks. We've also had good traction at Broadgate Tower. And again, just in the matter of about 5 or 6 weeks, we've put a huge amount under offer there, another one just recently as well. So with those schemes, we're tracking well in line and ahead of where we would want to be at this stage. Simon Carter: I think it's one of the themes of these results that momentum has built as we've gone through the period and particularly strong post period end in the market, which I think is pretty encouraging. And then I think you had a question on Canada Water and Mandela Way, office lease-up. Kelly, do you want to take those ones? Kelly Cleveland: Yes. I mean -- so Canada Water, we're having some encouraging conversations there. We're also encouraged by the spillover effect that Simon spoke about at the last set of results, where the lack of supply in the core is meaning affordable locations are getting a bit more business. So we'll keep you updated on Canada Water. What I would say is that the Canada Water leasing is not included in our guidance. So, any leasing that we do in pre-FY '27 is upside. Simon Carter: And maybe on Mandela Way. Kelly Cleveland: Yes, Mandela Way. So Mandela Way, that's -- it's a great asset in a very, very central location, which we have, again, only recently PC-ed on as we have always said and as our underwrite set out, that is a product that will lease post PC, because it's multi-let, smaller floor plates and it needs to be seen. But it's a great product. We've been getting people around, and we're in negotiations, and we'll again continue to keep you updated on that one. Simon Carter: And then, I think there was a question, which was sort of unpicking the rental deals under offer. We're probably not going to comment on deals under offer and where the rents are, but we're really happy with where demand is for 1 Triton, I'll say as much as that. Zachary Gauge: Just clarify one of those points. If you're 0% Canada Water at the end of the year, you're still confident on the guidance outlined for GRI? Simon Carter: Yes. David Walker: The leasing risk on 28.5p from here is de minimis. Adam Shapton: Adam Shapton from Green Street. I had two. One on office, one on Retail Parks. We'll do both, one off the other. Yes. So, office back to the indicative broker forecast, and maybe this is one with your BPF hat as well, Simon. Is the city of London concerned about the effectiveness or the attractiveness of the city as a business district if there's no space available? I mean, we've had high-profile comments from Larry Fink and so on about that. So do you think the city of London is concerned that the sort of supply barriers balance is not quite in the right place? And then on Retail Parks, just interested in your commentary on sort of QSR and casual dining. There's some evidence that profitability is being squeezed in that sector. It's been a success story for a lot of Retail Parks. What are you seeing in your portfolio from the drive-throughs and the QSRs in that sector? Simon Carter: Sure. Interesting question around city and lack of space. Just to flag that new and substantially refurbished space there. I think what you will see and what we are seeing today is because there isn't enough of that, customers are making compromises and taking good secondhand space. We have definitely benefited at Broadgate and the standing investments, as you saw from Kelly's slide. I think that's the fullest we've been. This is a 4.5 million square foot estate. And we've got one floor at the top of 1 Broadgate, which we're obviously being a little bit demanding on given that supply picture out there. So there is space. But I think it will -- you'll continue to see this ripple effect. There's some parts of the city that are not -- haven't done as well as Broadgate. It's right above Liverpool Street. It's got the Elizabeth line. That will ripple out. So, there is space for people to take. But they might not get that brand-new headquarters space. Because if you look today, just to sort of cement this point, we think if you want 150,000 square feet of new space, you've only got three buildings to choose from and one of those is 2 FA, if you want new. So look, something to happen. The city supply comes on stream. We know it's a cyclical market. At some point, supply will come back on stream. But obviously, you can't deliver in the next 2, 3, 4 years unless you've got planning, you've -- you started on site. And then, I think, on QSR has been a softer market, and we have seen some insolvencies. You don't tend to have a huge amount on Retail Parks. We've done fairly well when we've seen those insolvencies at reletting those units. But Kelly, I don't know if you want to touch on what we're seeing. You had it on your slide on the drive-thrus. And that's been a fantastically strong market. Kelly Cleveland: Yes. I mean, exactly that. Drive-thrus is just increasing demand for them. And as Simon said, we have limited casual dining when there have been failures and I won't name names, but when that does happen, it's not been an issue for us. We've always been able to just get out and get new formats in there. Jonathan Kownator: Jonathan Kownator, Goldman Sachs. To follow up on 1 Triton, please. Obviously, you repositioned the building with labs, office. Where do you see the take-up in that space? Is it for regular office space? Or is it for the lab type space? And more broadly, perhaps on occupier demand, how wide is it? Because obviously, tech is driving a lot of that demand right now. Do you see any demand from other sectors, please? Simon Carter: Kelly, do you want to take that one? Kelly Cleveland: Yes, sure. I mean, the beauty of that building is that three of the floors that are lab-enabled, we're able to convert them to office use depending on where the strongest demand and where the best returns are. Exactly as you identify, we are seeing really strong demand from science and tech that is -- that's definitely not letting up. It seems to be getting more and more on a week-by-week basis. So, we expect that to continue. Jonathan Kownator: So just to clarify, we're talking about office space, not lab space. Kelly Cleveland: For office space. Correct. Simon Carter: But we have seen demand for the lab space as well at Regent's Place. The incubator space has done well. We did an incubator at Drummond Street, where there was some existing lab space we were able to use, and that filled up very, very quickly. And we're now seeing those businesses graduate into our Crick space at 20 Triton. So that's quite an interesting theme. But I think today, the AI tech demand is definitely stronger than the sort of Life Science demand in London. But both feel like they've got pretty good prospects at this point. That's probably questions in the room, unless anyone's got a last-minute burning question. So should we go to the calls and see if anyone's on the line? Unknown Executive: Yes, it's all on the webcast today. Simon Carter: It's all on the webcast. Okay. Unknown Executive: Exactly. So we have one question from Nikita May at HSBC Asset Management. She says, you mentioned that AI-driven businesses are driving new demand for office space. Is this at the expense of other sectors like financial services? Do you have a limit of how much AI tenant exposure you would want to have? Simon Carter: Great question from Nikita. We haven't got enough data points, I think, to determine whether that's at the expense of other parts of demand in the sector. Today, it feels very much like new demand. These are businesses that weren't there 2 years ago. They've grown very, very rapidly in the portfolio. I think, I spoke to a number of you this morning. We've seen people take space at Regent's Place, very well-known names in the AI market. They've taken 7,000 square feet, they've then 14,000, then 21,000, and then they want more space after that. That feels like it's not today cannibalizing demand elsewhere. But obviously, we'll have to keep an eye on it. If Fintech grows at the expense of traditional banking, you'd look at that. But I think that will take sort of many years to feed through. And then on covenant exposure, we don't tend to set limits, but what we do look is at the covenant strength of every occupier we sign a lease with. Sometimes if it's start-up space, we're more relaxed to look at weaker covenants. But generally, if it's HQ space like 1 Triton, these are strong covenants taking the space in our portfolio. And the bulk of that 1.5 million square feet of additional demand that we're seeing is strong covenants. Unknown Executive: Yes. I've got one more question here. I've got two more questions. One is from Eleanor Frew at Barclays. She's asked, do you have a possible timeframe for larger asset disposals, noting you're seeing the market pick up? Simon Carter: The market is picking up. I think you should think next 6 to 12 months, but it will be dependent on when that strong core money comes back to the market, and we're seeing it come back now, but we'd want to see it there in depth. And I think you'll get that given the conversations we've been having. Clearly, we've got a budget around the corner. People will keep an eye on what's happening on the budget. But I think with these occupational fundamentals, that investment demand will be there, and that will be the market we'll look to take advantage of. So 6 to 12 months on that. Unknown Executive: And I have -- finally, I've got three questions from Mike Prew at Jefferies. The first part, I'll give you all three at once, but you exclude recently completed developments in the last 12 months from your 95% occupancy number. Are Norton Folgate and Canada Water schemes backed out of this? The second part of the question is Retail warehouse price performance seems to have slowed markedly from 2025. Is the repricing maturing/mature? And the final part of the question is, was the Southern multi-let logistics scheme profitable? And what is the progress at Thurrock, please? Simon Carter: Okay. So on -- David, I might need you to help on this on the occupancy numbers. I think -- am I right in saying that Norton Folgate, Kelly, it looks like you've got the answer to this one. David Walker: Yes. Yes, you are. Simon Carter: So Norton Folgate isn't excluded. That is in our... David Walker: That's correct. So, one of the things that's driven that delta over the last 6 months, Mike, would be the move from Norton Folgate into that kind of standing portfolio mix, if you like, from an occupancy perspective. We exclude developments that completed in the last 12 months. Simon Carter: And Canada Water hasn't -- didn't complete 12 months ago, so it is excluded. Is that right? David Walker: Correct. Correct. Simon Carter: Okay. Retail warehouse market slowing performance. What you're seeing now is the key driver is ERV growth. I think we've said that for a while. But we are seeing more and more people want to buy Retail warehousing. That's tending to focus on the very core long-let Southeast product, some of the product we create. I think Kelly alluded to it in the presentation. We tend to buy schemes with a bit of vacancy. We then lease them up, get to a really nice yield on them and then institutional capital, I think, will increasingly come in and drive performance there. But at this point, we're not assuming yield shift. I think you will see further yield shift, but what will be good is the ERV growth, and that will drive performance there. So, that would be the view there. And then Kelly, I don't know if you wanted to pick up on Southwark and Thurrock. Kelly Cleveland: Yes. I mean, Mandela Way, it's probably a bit early to be asking that question, where we've just PC-ed. And we're looking to get that leased up. So we'll keep you updated on that one. And on Thurrock, we are at 90% EPRA occupancy. Simon Carter: And that's as a Retail Park. So we decided to keep that as a Retail Park given the depth of demand in that market. That was the best thing to do there. And I think actually on Southwark, there was a profit release in the period, because we've delivered the scheme, and so there was an element of profit that came through in the period. So any more questions? One more? Unknown Executive: Yes. There's one more question. It's from Marcus Phayre-Mudge, Columbia Threadneedle. Congratulations on the cost efficiency improvements. I presume this has been driven by headcount restructuring. Is there more streamlining of decision-making to help bring overheads down in the future? Simon Carter: David, one for you, I think. David Walker: Yes. Thank you. Obviously, really delighted with the progress that we've made over the last 12 months, costs down 12% year-on-year for the first half. It's been quite a holistic view of the cost base, Marcus. So some headcount cost is included in that. But more generally, I'd just point to a sharper mindset on what we're spending and how and making sure that all of our teams are as efficient and effective as possible at what they're doing. More to go, it will remain a focus, but really pleased with the progress so far. Simon Carter: Any more questions? Great. Well, thank you very much for coming over to Broadgate. It's great to see you here today, and we'll see a number of you on the road over the next couple of weeks. And thank you very much for your time.
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology Third Quarter 2025 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided with for management's prepared remarks. [Operator Instructions] I will now turn the call over to Mr. Matthew Zhao, VP of Capital Markets and IR at Kuaishou Technology. Huaxia Zhao: Thank you, operator. Good evening, and good morning to everyone. Welcome to Kuaishou Technology Third Quarter 2025 Financial Results Conference Call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Chairman and CEO; and Mr. Jin Bing, our CFO. Before we start, please note that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ from those discussed. The company does not undertake any obligation to update any forward-looking information, except as required by law. For important information about this call, including forward-looking statements, please refer to the company's public information or third quarter 2025 results announcement ended at September 30, 2025, issued earlier today. During today's call, management will also discuss certain non-IFRS measures. These are provided for additional information and should not replace IFRS-based financial results. For a definition of non-IFRS financial measures and reconciliation of IFRS to non-IFRS financial results and related risk factors, please refer to the third quarter 2025 results announcement. For today's call, management will use Chinese as the main language. A third-party interpreter will provide simultaneous English interpretation in the prepared remarks session, and a consecutive interpretation during the Q&A session. Please note that English interpretation is for convenience purposes only. In case of any discrepancy, management's original language will prevail. Lastly, unless otherwise stated, all currency units mentioned are in RMB. Now I'll turn the call over to Yixiao. Yixiao Cheng: Hello, everyone. Welcome to Kuaishou's Third Quarter 2025 Earnings Conference Call. In Q3, we continued to advance our AI strategy, expanding scenario-based AI applications and innovative use cases across our business. These efforts created a tangible business value across all business scenarios, strengthened the quality and efficiency for our organizational infrastructure and fueled strong operational financial results. Average DAUs on the Kuaishou App surpassed 416 million in Q3, marking the third consecutive quarter of record highs. Total revenue for Q3 rose by 14.2% year-over-year to RMB 35.6 billion. Revenue from our core commercial business, online marketing services and other services, primarily e-commerce, increased by 19.2% year-over-year. Adjusted net profit rose 26.3% year-over-year to RMB 5 billion with an adjusted net margin of 14%. We achieved a year-over-year growth in the group's overall profitability while continuing to invest strategically in AI, a catalyst for unlocking deeper value across our content and business ecosystems. First, our AI strategy and the progress of our large video generation model, Kling AI. We continue to refine the foundation models behind Kling AI, developing new features to meet creators' diverse needs and build a one-stop creative productivity platform that empowers everyone to tell captivating stories with AI. In Q3, we launched Kling Lab and upgraded the start-and-end-frames function and introduced digital human solution. Notably, at the end of September, we released the Kling AI 2.5 model, achieving substantial advances in prompt adherence, dynamic effects, style consistency and visual aesthetics. Just 10 days after launch, the model was simultaneously ranked as the world's #1 text-to-video and image-to-video model by Artificial Analysis.ai independent AI benchmarking platform. While maintaining its leading content generation performance, the new model also integrates continuous engineering innovations that lower video inference costs, reducing creators' per video-generation expense by almost 30% and further strengthening Kling Al's cost-efficiency advantages. Kling AI's innovations in foundational models and product features have provided creators with higher-quality video generation solutions, establishing a foundation for broader adoption across professional creative fields such as marketing, e-commerce, film and television, short plays, animation and gaming. As Kling AI continues to expand its use cases, it has made breakthroughs in monetization and revenue growth. In Q3, revenue from Kling AI exceeded RMB 300 million. Kling AI is committed to empowering global creators and building a premium ecosystem. In September, we launched the Kling AI NextGen Creative Contest, which received over 4,600 entries from 122 countries and regions worldwide, covering diverse fields such as history, science fiction and animation. Outstanding works were screened at international film festivals, including Cannes, Tokyo and Busan for the integrating AI-powered film and TV works with traditional film and TV industries. In Q3, we achieved strong results from integrating AI into diverse internal and external use cases. On business empowerment, large AI models have now been integrated across all of Kuaishou's major business scenarios, driving incremental value across our ecosystem. We iterated our end-to-end generative recommendation large model, OneRec and extended beyond short video recommendations to additional recommendation scenarios such as online marketing services and e-commerce shopping mall. This expansion has generated meaningful incremental benefits. In Q3, large AI models demonstrated notable effects, especially in online marketing services. We pioneered a generative reinforcement learning-based bidding model that integrates sequence modeling with goal optimization. This innovation transformed advertising bidding from a single-step decision-making to long-term strategic planning, significantly enhancing bidding capabilities and ROI for clients, especially for small and medium-sized, one. Meanwhile, we explored using end-to-end generative recommendation in online marketing service scenarios through OneRec. Tailored to the characteristics of online marketing services, we introduced the client marketing expression and marketing commercial value perception mechanism to achieve bidirectional matching between users' interest and clients' demands, enhancing personalization and matching efficiency. Large AI model technologies, especially OneRec drove roughly 4% to 5% growth in domestic online marketing services revenue in Q3. In terms of online marketing material generation, Kling AI's large model has significantly reduced video production costs for clients. Meanwhile, advanced digital human technology has also opened up new operational scenarios in live streaming for both online marketing clients and e-commerce merchants. Consequently, the total spending from online marketing services driven by AIGC marketing materials exceeded RMB 3 billion in Q3. For e-commerce, we launched OneSearch, an end-to-end generative retrieval architecture. It enables more precise product matching and optimizes the user experience, driving nearly 5% growth in shopping mall search order volume. The adoption of OneRec in e-commerce also contributed to high single-digit GMV growth in the shopping mall feed in Q3. For entertainment live streaming, we leveraged Kling AI to introduce the AI Universe gift customization feature, which generates highly personalized avatar-based personal gifts, increasing both user engagement and willingness to pay. Second, user growth and content ecosystem. In Q3, average DAUs on the Kuaishou App reached 416 million and MAUs reached 731 million. This is the third consecutive quarter that average DAUs reached a record high. The sustained and steady traffic growth reflects Kuaishou's community's unique appeal to users. By refining our user growth strategies, offering distinctive and diverse content, optimizing our traffic allocation mechanism and enhancing community engagement, we continued to reinforce Kuaishou's identity as a heartwarming, diversified, informative and engaging online community. In Q3, average daily time spent per DAU on the Kuaishou App was 134.1 minutes, while total user time spent rose by 3.6% year-over-year. Our refined user growth strategies leveraged smart marketing material placement to enhance acquisition efficiency, lowering the acquisition cost per new user year-over-year. In traffic allocation, by modeling users' long-term user interaction patterns, we improved both user satisfaction and retention. We also continue to upgrade users sharing experience within private messaging and iterated on social interaction features. As a result, the daily average penetration rate of private messages among users with mutual followers increased by more than 3 percentage points year-over-year. We also elevated the user product experience through a series of device-level intelligent optimizations. In content operations, we partnered with the Beijing Radio and Television Station to launch the 2025 Kuaishou Super Summer Gala, where celebrities and everyday users come together and celebrate. The live stream session attracted a peak over 5.4 million concurrent users. To cater to young audiences, we hosted an online concert hosting -- featuring TNT, which drew 980 million live streaming views. In the pan-knowledge category, we curated the Liyuan Music Festival Summer Tour series, showcasing offline tours across diverse traditional art forms such as Qinqiang and also Shanbei Storytelling. By bringing these live performances to audiences, we helped benchmark creators like An Wan achieve cumulative accretive breakthroughs and gain recognition. Third, online marketing services. In Q3, revenue from our online marketing services reached RMB 20.1 billion, up 14% year-over-year. With the growth rate accelerating quarter-over-quarter, we continuously iterated and upgraded our online marketing placement products with AI models. Drawing our unique traffic dynamics, we cater to the needs of more marketing customers through our smart placement capabilities, achieving more precise targeting and higher conversion rates. This drove strong year-over-year growth in both external and closed-loop marketing services revenue. In Q3, our UAX solutions accounted for over 70% of external marketing spending. Ongoing innovations, iterations, particularly with our generative and reinforcement learning-based bidding model and generative recommendation large model further improved marketing recommendation efficiency and enhanced management of marketing variety and value. The combination of our 3 key AIGC commercialization tools, AIGC short video, digital human and digital employee has empowered our customers with an end-to-end AI solution covering marketing material creation, live streaming operations and user engagement. In Q3, for closed-loop e-commerce marketing services, we upgraded the product and content optimization capabilities of our omni domain platform marketing solution to maintain a steady supply of premium marketing materials. By integrating multi-content reinvestment and ROI bidding recommendation tools, we helped e-commerce merchants improve traffic and at sales conversions, thereby enhancing their willingness to invest in marketing placement. In Q3, total marketing spending from omni-platform marketing solution accounted for over 65% of our closed-loop marketing spending. Additionally, we established a bidding agent based on AI capability to replace mutual -- manual adjustment decisions, enabling more consistent conversions and unlocking greater economies of scale. On the traffic side, by enhancing the synergies between e-commerce and commercial value, we released more traffic capacity to merchants with long-term operations, helping more brand e-commerce merchants achieve a scaled expansion and stable conversion improvements. From a scenario perspective, in Q3, closed-loop e-commerce marketing services in pan-shelf-based scenarios also realized a solid growth. We optimized people to goods matching in pan-shelf search, and we used large models to better meet the users' needs and improve efficiency. These efforts increased marketing placement and penetration and drove stronger merchant participation. In Q3, for the lifestyle service sector, where clients mainly operate on a lead-based model, we upgraded our private messaging products and optimized vertical-oriented products. These improvements helped clients reach users more efficiently and achieve higher user conversion rates across various conversion goals. In lifestyle services, particularly among our small and medium-sized customers, we improved private messenger response rates with AI-powered customer service. In Q3, we combined our local services with a lead-based marketing business to form our lifestyle service segment, integrating teams, product lines and traffic distribution. This unification strengthens our ability to support merchants pursuing sustainable operations and help build a more diversified collaborative ecosystem with local customers -- merchants. These 3 -- the content consumption sector led by short plays was another key revenue driver for our external marketing services in Q3. We continued to enhance content supply and product innovation across short plays, mini-games and novels, while capturing incremental growth opportunities from the rapid rise of comic-style short plays, further expanding external marketing services revenue. Comic-style short plays combine features of comics, short plays and audio dramas, typically featuring vertical-screen episodes to 1 to 3 minutes long. This new genre has recently gained widespread traction among the broader market. Kling AI has significantly lowered the barrier to creating comic-style short plays while elevating overall content quality. In addition, through a mix of marketing placement, revenue sharing, IAA and IAP models, we created multiple monetization pathways for high-quality short-play content, expanding reach on both the supply and demand side. Fourth, our e-commerce business, in Q3, our e-commerce GMV grew 15.2% year-over-year to RMB 385 billion. Through a mix of merchant incentive programs, omni-domains traffic support and intelligent tool empowerment, we helped merchants build omni-domain operations ecosystems, continuously elevating user experience and driving high-quality supply and demand growth. To support the merchants sustainable growth, we encourage them to adopt an efficient conversion path that integrates public and private domains using public domains to acquire customers and private domains to strengthen retention. In Q3, the mix of our e-commerce monthly average paying users showed healthy trends. Active e-commerce users repeat purchase frequency increased year-over-year and user stickiness continued to improve. In Q3, in e-commerce supply, building on our platform's traffic and content-based e-commerce advantages, we continued to attract new merchants organically and onboarded merchants through a diverse channels. We introduced a range of incentives to lower onboarding costs and entry barriers for new merchants. In addition, we continue to launch initiatives to empower new merchants to navigate early growth stages and ramp up operations more efficiently, driven by a growing number of small and medium-sized merchants together with our targeted support for high-quality existing merchants, our average monthly active merchant base continued to grow. We also broadened the range of products, number of Level 3 product categories per store among our average monthly active merchants increasing by nearly 30% year-over-year. To empower merchants and KOLs in Q3, we launched a series of initiatives to unlock greater value creation within their private domains supporting their ability to build a dual growth engine of exceptional content and superior products. We launched the Pop-Up Follower rewards product to accelerate follower growth and empower merchants and KOLs from traffic generation to follow conversion ultimately to sales. With a stronger control over merchandise selection and supply, we expanded our product portfolio of high-quality platform native offerings. We focused on the premium brands through our KOL blockbuster initiative, leveraging the traffic pool of gift products to spotlight, dedicated live streaming sessions for [ treasury ]brands, supported by improved KOL product matching, KOL targeted vertical outreach and platform incentives. We expanded the KOL engagement, enhanced brand performance and empowered KOLs to address product selection and assortment expansion challenges. In Q3, the average daily number of active merchandise items increased by over 30% year-over-year. We provided guaranteed resources such as traffic support and product supply to onboard small and medium-sized KOLs and established long-term growth mechanisms. These efforts strengthened the KOL content ecosystem in Q3, driving a 14.8% year-over-year increase in the number of average daily active streamers hosting live sessions with over 10,000 followers. In Q3, in terms of operating across diverse scenarios, pan-shelfed e-commerce GMV continued to outpace overall GMV growth, contributing over 32% of total e-commerce GMV. We continued to enhance our infrastructure and supply ecosystem, driving a 13% year-over-year increase in average daily active merchants for pan-shelf-based e-commerce. We built on the diverse engagement features, strategy tools from Q2, including Super Links, the official channel of platform recommended product. These tools helped merchants quickly boost product exposure and sales conversion, cultivating user mind share for our shopping mall. The marketing host tool we introduced for merchants and content-based scenarios effectively lowered their operational barriers and drove steady quarter-over-quarter growth in merchant adoption. In Q3, we maximized the synergies between short videos and live streaming. We helped merchants integrate traffic from content-based scenarios through a seamless loop from product recommendations via short videos to rapid conversion in live streaming rooms and back to user engagement via short videos. This strategy steadily expanded the merchants customer base, supported by more short videos with embedded shopping links and our customized funnels, short video e-commerce GMV maintained a healthy growth. In Q3, in terms of integrating AI into our e-commerce business, we focus on empowering merchants across our e-commerce business chain with 3 core areas: AIGC content production, merchant efficiency improvement and product matching efficiency optimization. Our AIGC capabilities for generating and optimizing materials continue to deliver strong results, helping merchants improved conversion efficiency across both image and video formats in diverse scenarios. Penetration of the smart live streaming highlights and AI live streaming scenarios also steadily increased. Concurrently, our AI product management assistant is providing comprehensive omni-scenario support, it helps merchants reduce costs, increase efficiency and strengthen their operational capabilities while also operating high -- generating high-quality data. On the matching front, our explainable recommendations powered by our e-commerce knowledge graph, predict users' potential and long-term interest. This boosts conversion rates and also strengthen the user trust and stickiness with our recommendations. We believe these AI capabilities will ultimately power growth flywheel of data infrastructure, precise matching and merchant efficiency empowerment driving the healthy and sustainable development of our e-commerce ecosystem. Next, regarding our live-streaming business. Q3 live-streaming revenue grew by 2.5% year-over-year to RMB 9.6 billion. Growth was driven by high-quality content, expanding live-streaming scenarios and AI-powered product innovations. For live-streaming supply, the healthy development of our talent agency ecosystem provided robust support pillar. By end of Q3, our partner talent agencies had increased by more than 17% and talent agency managed streamers grew by over 20% both year-over-year. We focus on categories such as group live-streaming by supporting premium benchmark groups guiding content optimizations, we achieved high-quality development and steady revenue growth. Innovative AIGC applications also injected momentum into our business growth, leveraging AI, Kling AI capabilities, in late September, we rolled out the AI Universe gift series with a customizable special effect platform-wide, effectively diversifying options for personalized interactions in live streaming rooms. On launch day alone, users paid to create and send over 100,000 personalized virtual gifts. In Q3, for entertainment live-streaming operations, we launched a Super Grand Stage 2.0 organized as 5 regional contests nationwide to further integrate online live-streaming and offline scenarios. Targeting the summer season and demand from young users, we hosted the Summer Gaming Music Festival in Chengdu, an offline event blended gaming, music and interactive experiences deepening our partnerships with game developers. The event attracted 672 million live stream views and over 50,000 participants. Moreover, our live streaming+ strategy continued to empower traditional industries, further validating its commercial value. In Q3, average daily number of users submitting resumes on Kwai Hire increased by over 20% year-over-year. In Ideal Housing, average monthly number of paying clients increased by over 90% year-over-year. Finally, our overseas business. In Q3, we continued to strengthen our foothold in overseas markets, focusing on high-quality growth. On the traffic front, we optimized customer acquisition efficiency to precisely reach high-value demographics. By prioritizing operations for core category creators, we fostered stronger connections between our high-quality characteristic content and our core user base. Brazil, our core international market maintained stable DAUs while reducing user acquisition cost year-over-year delivering consistent year-over-year growth in average daily time spent per DAU. For online marketing services, we bolstered business resilience, diversified our marketing client base across industries. Through an updated product capabilities and placement strategies, we improved overall conversion efficiency across our marketing funnel, unlocking more on monetization potential for diverse user groups and earning sustained client recommendation. Concurrently, our e-commerce business in Brazil improved both in subsidy and operating efficiency. While maintaining disciplined ROI management, we achieved a healthy year-over-year growth in GMV transaction scale and order volume in Q3. Looking ahead to Q4 and into 2026, we will continue investing in our AI strategy, exploring efficient gates that empower users, video creators, marketing clients and e-commerce merchants through Kling AI and other large AI model technology. At the same time, guided by our development philosophy and AI strategy, we will comprehensively transform and upgrade our organization structure, talent deployment, product design and features. We will persistently uphold and concentrate Kuaishou's technology innovation ethos, maintaining and deepening our long-term competitive advantages in the era of AI. That concludes my prepared remarks. Next, our CFO, Bing, will review the company's financial update for Q3 2025. Bing Jin: Thank you, Yixiao, and hello, everyone. In Q3, we continue to strengthen our core advantages, leveraging our large AI model capabilities, we further empowered our content and business ecosystems. With our rich content supply and optimized omni-domain operations ecosystem, we continuously enhanced the experience for users and creators while helping merchants and KOLs improve their operational capabilities and support sustainable growth. During the quarter, we achieved solid operational and financial results, with the total revenue increasing 14.2% year-over-year to RMB 35.6 billion. This included a 19.2% year-over-year increase in revenue from our core commercial business, which includes our online marketing services and other services, primarily e-commerce. With our steady revenue growth and improved operating efficiency, we improved our overall profitability. Operating profit increased 69.9% year-over-year to RMB 5.3 billion. Adjusted net profit grew 26.3% year-over-year to RMB 5 billion with a healthy adjusted net margin of 14%. Now let's take a closer look. Our total revenue grew 14.2% year-over-year to RMB 35.6 billion in Q3. The increase was mainly driven by growth across each of our business, including online marketing services, live streaming, e-commerce and Kling AI. In Q3, online marketing services revenue increased 14% to RMB 20.1 billion from RMB 17.6 billion in the same period last year. The growth was primarily attributable to the use of AI technology to continuously upgrade our online marketing product solutions that improved the conversion efficiency, which drove higher client spending from our marketing clients. Revenue from other services, including e-commerce and Kling AI businesses reached RMB 5.9 billion in Q3, up 41.3% from RMB 4.2 billion in the same period last year. The increase was mainly driven by growth in e-commerce GMV, which boosted e-commerce commission income as well as the expansion of our Kling AI business. We have continuously refined Kling AI's foundation models and developed more innovative features. Its application coverage has expanded, driving further breakthroughs in commercialization. In Q3, our live-streaming revenue was RMB 9.6 billion, up 2.5% from RMB 9.3 billion in the same period last year. We consistently cultivating high-quality content, expanded live streaming scenarios and leveraged AI-empowered product innovations to build a diverse and healthy live-streaming ecosystem. These steps drove greater user engagement with high-quality live-streaming content. Cost of revenues increased 13.4% year-over-year in Q3 to RMB 16.1 billion, accounting for 45.3% of total revenue. The increase was mainly due to increased revenue sharing costs and related taxes in line with our revenue growth, partially offset by decreases in depreciation of property and equipment and right-of-use of assets and amortization of intangible assets. In Q3, our gross profit grew 14.9% year-over-year to RMB 19.4 billion. Gross profit margin was 54.7%, up 0.4 percentage points year-over-year. Moving to expenses. Selling and marketing expenses were RMB 10.4 billion, roughly flat year-over-year and accounted for 29.3% of total revenue, down from 33.3% in Q3 last year, reflecting our refined efforts and improved operating efficiency. R&D expenses were RMB 3.7 billion, up 17.7% year-over-year, accounting for 10.3% of total revenue. The increase was mainly due to higher employee benefit expenses, including share-based compensation expenses and increased investments in AI. Administrative expenses decreased 13.6% year-over-year to RMB 688 million or 1.9% of total revenue, mainly due to lower employee benefit expenses, including share-based compensation expenses. Group level operating profit for Q3 increased 69.9% year-over-year to RMB 5.3 billion. Net profit for Q3 was RMB 4.5 billion. Adjusted net profit rose 26.3% year-over-year to RMB 5 billion with an adjusted net margin of 14%. Our balance sheet is quite robust with cash and cash equivalents, time deposits, restricted cash and wealth management products totaling RMB 106.6 billion as of September 30, 2025. We generated a positive operating net cash flow of RMB 7.7 billion in Q3. Additionally, we actively delivered on our commitment to shareholder returns based on marketing conditions. As of September 30, we had repurchased an aggregate of approximately HKD 2.17 billion (sic) [ HKD 2.07 billion ] or around 42.25 million shares, which accounted for about 0.98% of our total shares outstanding for 2025. In addition, we declared a special dividend of HKD 2 billion in Q3, reflecting our confidence in Kuaishou's long-term growth prospects and a solid financial position. Looking ahead, we'll continue to prioritize user needs and execute our AI strategy to empower all of our business stars while exploring more diversified growth avenues. These initiatives will reinforce our competitive edge in ever-changing market and enable us to create long-term value for our users, partners and shareholders. That concludes our prepared remarks. Now let's move into the Q&A session. Operator: [Interpreted] [Operator Instructions] The first question comes from Felix Liu of UBS. Felix Liu: [Interpreted] Congratulations on the very strong third quarter results. My question is on Kling AI. How does -- the market is very focused on the competitive landscape of video GenAI. Could management share more color on Kling's competition strategy from here? And where do you plan to develop and drive evolution in Kling from here? After the launch of Sora 2, how do we see the development of the overall video GenAI industry? And do you anticipate more opportunities on the 2C side of video GenAI. Unknown Executive: [Interpreted] Thank you for your question. The surge of entrants from tech giants to start-ups reflects just how attractive and promising the video generation market is. That said, we believe video generation is still far from maturity in both product and technology. With a growing number of market participants, we expect accelerated innovation across the industry, meeting more user needs, penetrating a wider range of use cases and pushing the market to expand even more. As for Kling AI's positioning and competitive strategy, we have zeroed in on key goal to empower everyone to craft captivating stories with AI. Our first industry focus is film and television, where we are dedicating our resources to deepening our tech and product capabilities. Video models like large language models are essentially evolving toward world models. We see video models as the key technology for world models. Applications can extend far beyond film and TV production. They can reach interactive experiences and data generation for embedded intelligence. While we will continue sharpening our model and product capabilities across diverse application scenarios, our strategic focus right now is squarely set on AI-powered film and TV production. With this goal in mind, we have been advancing our technology leadership and product creativity, and we'll continue on this path. Video models differ from language models in 2 ways. First, they are highly complex. While language models are relatively simple at the macro level, video models consist of a wide range of different modules. This complexity also gives us significant room for technological breakthroughs and innovation. Second, video generation is an open-ended domain, inputs can be text, pictures or motion trajectories and outputs can be diverse content including images, video and sound. These 2 characteristics [indiscernible] allow greater flexibility in technology and product choices, which in turn provide significant room for technology and products innovation. Kling AI aims to bring together product creativity, inside users capability to push technological boundaries. For example, in April, we [ revealed ] our concept of interaction called MVL. Building on this, we are continuously upgrading our foundation model and product capabilities, exploring more ML model products. Alongside the [Technical Difficulty] breakthrough in our product capabilities, we have also wide range of operational initiatives to foster -- creative mechanism and a thriving content creation ecosystem. For example, our Kling AI Future Partner program integrates key resources from both Kuaishou and Kling AI to precisely match creators with high-value commercialization opportunities across diverse scenarios. The program has supported well-known brands such as the NBA and [ Mochi Ice Cream and Tea ]. We also recently leveraged the Kling AI NextGen Creative Contest, helping Kling AI creators gain exposure at international film festivals in Busan, Cannes and Tokyo, further expanding Kling AI's global brand visibility and influence. As for the latest buzz around Sora 2, it has made technology breakthroughs on multiple fronts and integrated closely with social interaction features. This has really accelerated the rollout of consumer-level AI applications and strengthen our confidence in the future commercial scalability of video generation. For us, our main focus is still on professional creators, improving their experience and willingness to pay. At the same time, we are actively exploring consumer-facing use cases. When the time is right, we will advance the productization of Kling AI's technology, embedding social features to speed up consumer level applications and commercialization. Operator: [Interpreted] The next question comes from Lincoln Kong from Goldman Sachs. Lincoln Kong: [Interpreted] Congrats on a very solid result. So my question is about the AI-powered business. So on top of Kling AI and the OneRec just we've been talking about for online marketing services, could management elaborate more on AI large language model to empower our Kuaishou content ecosystem and how to improve our operational efficiency front? Unknown Executive: [Interpreted] Thank you for your question. 2025 is widely regarded as AI's first year advancing into deep applications. Throughout the year, AI technologies represented by a multi-model generation and AI agents have consistently moved toward richer and more efficient applications that are more aligned with user needs. This marks a systematic step toward unlocking AI's industrial scale value. Against this backdrop, we have progressively developed a comprehensive AI technology and application system centered on user needs and rooted in our existing business scenarios. It is designed to accelerate AI adoption to empower our content and business ecosystems as well as our organizational infrastructure. In terms of empowering our content ecosystem, AI has now been fully integrated across Kuaishou's business operations from content and user understanding to content generation and recommendations. First, in understanding content and users, our proprietary multi-model large language model, KwaiYii has demonstrated strong video comprehension capabilities. Based on this model, we upgraded our short video and live streaming content understanding system and launched [ Tag Next ], our next-generation tagging system, which enables more accurate and comprehensive content understanding. [ Tag Next ] is now being applied across key scenarios, including early-stage content management, content diversity expansion and the new interest discovery, driving higher average app usage time per user. Second, in content generation, Kling AI continues to empower mass creators. We have witnessed a significant increase in the video views volume of AIGC short video content on the platform. Third, in content recommendation, the important -- the most important area, we further expanded the boundaries of generative recommendation systems by upgrading our end-to-end generative recommendation large model, OneRec. We launched the next-generation OneRec-Think large model, integrating LLM inference capabilities and combining conversational inference, personalized recommendations and real-time feedback mechanisms into one single model system. This further enhances recommendation accuracy and strengthens user trust. Beyond business empowerment, AI technology has played a major role in improving the efficiency of our organizational infrastructure. Our proprietary AI coding tool, CodeFlicker has become a core intelligent development tool used daily by our engineers at a high frequency. It supports scenarios such as automated unit testing generation, intelligent code review and smart testing cases generation. Currently, nearly 30% of the new code at Kuaishou is generated using CodeFlicker. In terms of content review, we have applied large AI models across diverse scenarios, including user profiling, content identification and comment analysis. By leveraging COT reasoning and reinforcement learning technologies, we have enhanced our review models capabilities. Currently, over 99% of the content on our platform is reviewed by AI, greatly reducing related costs while improving the efficiency and quality of content review. In addition, our customer service team is leveraging AI technology to prescreen and route user inquiries, provide intelligent assistance and accumulate knowledge. As a result, over 70% of user inquiries are now directly handled and resolved by our AI-powered customer service system, significantly improving efficiency. Overall, a resilient self-reinforcing cycle of AI innovation, AI application monetization and revenue growth is taking shape at Kuaishou. In the long run, we believe this full spectrum AI application ecosystem will further strengthen Kuaishou's market resilience and unlock new growth momentum. Operator: [Interpreted] The next question comes from Thomas Chong of Jefferies. Thomas Chong: My question is about online marketing services. We have seen our online marketing revenue accelerating this quarter. Can management provide more details on what we have done from the perspective of traffic, industry sectors as well as product offering? Unknown Executive: [Interpreted] Thank you for your question. In Q3, online marketing services revenue grew by 14% year-over-year, accelerating from the previous quarter with domestic online marketing services revenue increasing by over 16%. From the traffic perspective, advertising revenue was driven by both increased marketing material impressions and higher CPM. The growth in impressions was supported by overall traffic growth and by more high-quality native marketing content, which helped increase ad load. The rise in CPM was driven by our use of AI technology such as generative reinforcement learning bidding and end-to-end generative recommendation models, which improved the matching between user interest and advertiser needs, enhancing the personalization and matching efficiency of online marketing material recommendations. Looking ahead at external marketing services industry-wise, lifestyle services, where clients mainly rely on lead-based operations and content consumption represented by short plays and mini games were the standout sectors this quarter. In lifestyle services, we upgraded our private messaging product and optimized the subsequent conversion passes across industry verticals, helping clients to reach users more efficiently and improve sales conversions. Since most of our lifestyle services clients are small and medium-sized businesses, they benefit more from products like our AI customer service, UAX placement solutions and AIGC marketing material generation tools. In content consumption industries, deep AI empowerment drove rapid growth in comic style short plays. We captured this opportunity and used Kling AI to play an active role in upstream content creation. In terms of our closed-loop marketing services, we continue to iterate our omni-platform marketing solution, helping e-commerce merchants achieve more incremental exposure and conversion. By leveraging intelligent bidding agents and generative large models, we enabled 24/7 stable bidding and more fully uncovered user interest, which helped expand merchants placement budgets. We also strengthened our ability to capture and interpret users' full range interest across both content-based and shelf-based scenarios, effectively increasing the number of converted users and their purchase frequency while better meeting users' e-commerce consumption needs on Kuaishou. From a product perspective, we upgraded multiple products, including our UAX placement solutions, AIGC marketing material generation tools, live streaming digital human solutions and our virtual employee. These enhancements lowered the marketing threshold and improved conversion rates, driving more online marketing services spending. Specifically in Q3, our UAX placement solutions added fixed period steady placement feature. The new feature allows clients to set their requirements for marketing materials and pricing for a specific ad placement period, while the system automatically handles intelligent infrastructure, smart dynamic fine-tuning and smart creative content production. This enhanced the stability of the ad placement period had helped our online marketing clients achieve more consistent placement performances at a more predictable cost. In Q3, our UAX placement solutions accounted for over 70% of the external marketing spending. Our AIGC marketing material generation tool enabled the clients to generate short video materials rapidly at a low cost and in batches with a 10% to 20% higher material conversion efficiency than the industry average. Live-streaming digital human solutions allowed our clients to run 24/7 live streams even without streamers or venues. Our virtual employee reached a human level customer service performance in conversational accuracy, efficiency and safety, engaging naturally across scenarios like private messaging and common, improving conversion efficiency for our clients. Looking ahead, we'll continue to expand our industry client base and further deepen AI applications, empowering clients to achieve more efficient, high-quality marketing performances and better ad placements. Operator: [Interpreted] The next question comes from Daniel Chen from JPMorgan. Qi Chen: [Interpreted] So my question is related to e-commerce. So what's the latest progress and the performance of our Double 11 promotion in December quarter? And if we look at next 1 to 2 years, what's the incremental -- what's the key growth driver for our e-commerce business, especially the live streaming e-commerce? How should we look at the future growth potential? Unknown Executive: [Interpreted] Thanks for the question. Regarding e-commerce, while consumption has shown some resilient recovery this year, overall user spending has remained cautious and rational. During the Double 11 Sales Promotion, we delivered results in line with our expectations with standout performances in categories such as jewelry and gemstones, tea, wine and wellness, apparel, including men's and women's apparel, sportswear and family matching outfits and fresh food. For this year's Double 11 Sales Promotion, we invested over RMB 18 billion in platform traffic incentives, combined with RMB 2 billion in user subsidies and RMB 1 billion in merchandise subsidies. Together, these effectively enhanced the merchant sales conversions and buyer engagement, increasing the number of merchants achieving GMV of over RMB 10 million by double digits year-over-year. We implemented a tiered support programs tailored to business type and merchant and KOL size, fostering a thriving e-commerce ecosystem and motivating them to achieve better growth across omni-domain scenarios. For shelf-based e-commerce scenarios, we focus on supporting core products where we launched a range of initiatives, including the Big Brand, Big Subsidy and Super Links. During this year's Double 11 Sales Promotion, the number of single products achieving over RMB 1 million GMV via the Big Brand, Big Subsidy initiative surged by over 77% year-over-year. Our users' mind share for shopping on Kuaishou improved during the sales promotion with search-generated e-commerce GMV growing by over 33% year-over-year. For our future e-commerce growth drivers, in the short to medium term, we will prioritize boosting user purchase frequency followed by increasing ARPPU. Our key initiatives to raise purchase frequency are: first, we will continue to empower streamers to strengthen their private domains and operational efficiency, broadening the variety of streamers and product categories that users pay for. Second, we will maximize cross-scenario synergy. Lower purchase barriers in short video scenarios will allow us to expand our [Technical Difficulty]. More as we progressively reinforce users' shopping mindset on Kuaishou, our pan-shelf-based e-commerce will better capture users' repeat purchases needs with greater certainty. We will further enhance the operations of our key product categories and more precisely identify our core user AI [Technical Difficulty] users' trust in the platform having steady ARPPU growth. There is still significant room to grow our e-commerce monthly average paying users, but we view this as a long-term outcome metric rather than a short-term performance metric. In the near to medium term, we will mainly focus on the healthy structure of our e-commerce monthly average paying users. Regarding the growth potential of live streaming e-commerce, as a common platform, live streaming e-commerce and trust-based e-commerce have always been the backbone of our e-commerce business and most critical operational scenarios. We believe that live streaming e-commerce with its built-in conversion advantages will continue to gain ground in the online retail market and it stills hold substantial room for structural growth in the future. The long-term growth potential lies in creating a healthy ecosystem where merchants can operate sustainably with private domain follower retention, acting as a key moat given their high user stickiness and repeat purchase behavior. Accordingly, we helped merchants better integrate their public and private domain strategies through a range of initiatives acquiring traffic in the public domain while retaining followers and converting them into customers and driving repeat purchases in private domains. That said, exceptional content and superior products remain the essential foundation of our ecosystem. Therefore, we'll continue to onboard merchants and creators, expanding the pipeline for high-quality supply while continuously broadening the range of merchandise. In parallel, we will strengthen long-term collaboration with both merchants and KOLs by offering them extensive products through our distribution pool and providing traffic support for standout content. We will also equip the merchant and KOLs with our intelligent operational tools, empowering them with AI to improve efficiency and performance. A robust business ecosystem in turn, will incentivize the continuous creation of exceptional content. Finally, while live streaming e-commerce is the backbone of Kuaishou's e-commerce, we will also encourage merchants to operate across diverse scenarios and strengthen the efficiency of omni-domain synergies. This will facilitate a closer alignment with the user needs and enhance the resilience and stability of Kuaishou's e-commerce ecosystem. Thank you. Operator: [Interpreted] The next question comes from Xueqing Zhang of CICC. Xueqing Zhang: [Interpreted] My question is regarding CapEx and profit margins. With the progress of Kling and other AI drive initiatives, does the company have any updated guidance on the CapEx and AI-related spending plans? Has the full year 2025 profit margin target being adjusted? And given that the industry is significantly increasing CapEx, how is Kuaishou planning the CapEx over the next 1 to 2 years? And what impact will AI investments have on profit margins? Bing Jin: [Interpreted] Thanks for your question. As Yixiao said, this quarter, we achieved strong results by integrating AI technology across a wide range of internal and external application scenarios. AI empowered our business operations and improved the quality and efficiency of our organizational infrastructure. AI technology continues to unlock increasing value across our content and business ecosystems. At the same time, Kling AI made more solid breakthroughs in commercialization. We now expect Kling AI's full year 2025 revenue to reach USD 140 million, more than double the target we set at the beginning of the year of USD 60 million. Given Kling AI's users' growing demand for video generation models, we have continued to ramp up our investment in computing power for Kling AI. Beyond the incremental investment in inference capacity alongside continuous model iterations, we have recently started to scaling up Kling AI's training computer power to keep Kling AI at the forefront of technology advancement. Including this and CapEx from other AI initiatives, we expect the group's total 2025 CapEx to increase in the mid- to high double digits year-over-year. Regarding expenses, we have recently stepped up our investments in hiring and retaining AI talent. This portion of expenses remains relatively manageable. And despite the higher AI-related investments, we're confident that our full year adjusted operating margin will continue to improve year-over-year. Our overall improvement in profitability further underscores that AI continues to unlock increasing value across Kuaishou's content and business ecosystems. Thanks to the better-than-expected progress of Kling and integration AI technology in our businesses, so we [Technical Difficulty] growth plan with a focus on upgrading computing power and technology. This goes beyond supervising costs and expenses builded in our strategy of leveraging leaps in AI to drive greater value. As AI applications continue to expand across scenarios, their potential value will be unlocked. We are confident that we can continue to steadily grow our profits, improving profitability over the next 2 years, and we look forward to sharing our progress along the way. Thank you. Huaxia Zhao: Thank you, operator. That's the end of the Q&A session. Operator: [Foreign Language] Huaxia Zhao: [Interpreted] Thank you once again for joining us today. If you have any further questions, please contact our capital market and IR team at any time. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Noella Alexander-Young: Hello, and good afternoon, everyone. Welcome to today's presentation. My name is Noella Alexander-Young, virtual event moderator here at Renmark Financial Communications. On behalf of our team, we want to thank everyone for joining us today for ProPhase Labs, Inc.'s third quarter 2025 results. ProPhase Labs, Inc. is trading on the Nasdaq under the ticker symbol PRPH. Presenting today is Ted Karkus, Chairman and CEO. Following the presentation is a Q&A session for which you can participate using the chat box in the top right-hand corner of your screen. That being said, I will now hand the floor over to Ted. Ted William Karkus: Okay. Greetings all. Thank you, Noella, as always. Thank you, shareholders and others, for joining the call. This is our Q3 ProPhase Labs, Inc. presentation to review results and what we are going to be doing going forward. First of all, I have to thank Renmark, who does a phenomenal job of hosting these calls. We do a call like this about once a month so that I can keep investors up to date. I also want to acknowledge Red Chip, who we also hired for investor relations. They work in a collaborative effort with Renmark, and I am really pleased to have Red Chip onboard as well now. Let's just hop to the forward-looking statement very quickly. I am going to assume that you have all read this. Bottom line, everything I am going to say today is accurate as of today. It does not mean that things cannot change in the future. And if they do, there is no guarantee that you will be updated in the future. Alright? But I will assume that everybody's read the forward-looking statement. And with that, and by the way, this entire presentation is available on our corporate website, so you can review it at any time. As most of you know, these are the verticals of ProPhase Labs, Inc. I am going to go into each one of them. Before I do that, and I will probably remind everybody at the end, it is critical and important we have a proxy out there. It is critically important that you vote. If you do not vote for our proxy, you are putting our company in harm's way. It makes no sense if you are an investor and you do not vote your proxy. It is really that simple. So I can understand why shorts do not want you to vote the proxy, there are a number of reasons for this that I am going to go into. I am going to go into the various subsidiaries of the company. Why do not I just tell you at the outset, we are working on some strategic initiatives. The strategic initiatives may be impacted if you do not vote the proxy. The strategic initiatives could recognize significant underlying value in our company. This would be good for all of us as investors. So please vote your proxy. We do have a lot of positive voting going on. But we do need a quorum, and we need everybody to vote. Alright? I will remind everybody at the end of this call too just because it is so important. Talk about it a little bit about the reverse stock split and all that other stuff. Or the potential reverse stocks. But why do not I just clarify a couple of things upfront? We talked about a crypto treasury strategy previously. That is not off the table. But to be clear, I will not do anything that does not significantly recognize the underlying value and assets get the votes. It could impact a very bullish strategy. I hope to update you very soon. On the strategy. And let's just leave it at that. I do not want to talk out of line. I do not want to get too far ahead of myself. I want to go through the various subsidiaries of the company and where we are at right now. The end of this call, I think that you will all realize that there is a disconnect between the market cap and the underlying assets in the company. My job is to recognize some of that underlying value and for the long run so that the stock price goes up in the long run. And so we all make money in the long run. That is what I did before. I turned around the company once before when I first took over. Had a 65¢ stock. Company potentially going bankrupt. I paid out $2.40 in cash, special dividends to the shareholders. And our start flew, and we went into all these great businesses. It is like a deja vu because right now, I am working at exactly the same thing. The only difference is back then, all I had was a brand with declining sales. It looked like I was going out of business. Now we have several assets. Each one of which by itself individually has significantly more upside potential than what called these had at the time. So with that, let's get into the various businesses. So the very first asset I want to talk about is our Crown Medical Collections. Now everybody knows I was talking about that earlier in the year. And everyone's like, okay, Ted. Are you getting tired of talking about it? We are beginning not to believe. But we went through a critically important process that took longer than anyone would have liked, and it was bankrupting COVID lab subs that are not really doing anything now anyway. So it made sense to bankrupt them. It turned out to be a significantly more complicated and cumbersome procedure than I certainly expected. Critical component of that was hiring the right bankruptcy attorney who was independent of Crown Medical to actually be the bankruptcy attorney of record. We found the perfect person to do that. He has done a phenomenal job. I cannot believe the amount of work he did. And finally, just unlike the last week, the judge gave the green light. We bankrupted the lab subs. I reported that. And then critically important, Crown Medical has now been appointed special counsel. The reason that is so important Crown Medical was already reaching out to the roughly thousand insurance companies that owe us money. We are talking about, like, a $150 million of uncollected COVID testing that at one point in time the prior government guaranteed we would get reimbursed for. So part of what got us in this mess in the first place, we built out businesses. Thinking that money was going to continue to flow and all of a sudden it just stopped. All of sudden, we had overhead. Seemed like a rounding error at the time that that became significant. When we got cut off from this funding. So in any event, Crown is now going after that. To be clear, a big part of what we are going after are underpaid claims. These are COVID tests where we submitted to the insurance companies. They paid us, but they underpaid us. Let's suppose legally there was pay us a $125 companies with the balance. We are talking to many tens of millions of dollars. A significant portion of this $150 million. And for not paying what they were supposed to pay. They already reimbursed the claim. They already acknowledged that the patient was a real patient of theirs. They acknowledged that the doctor's requisition order. Was proper, that we turned around the COVID test properly, etcetera, etcetera. So now if they have no defense, and in some cases, Crown Medical may be representing four or five laboratories, in four or five states going after the same insurance company. And if this insurance company happened to underpay, well, five of these labs in five different states, states. It shows a pattern of fraudulent behavior. No insurance company wants to defend a lawsuit that they are not dollars or more, even a million dollars just defending. A lawsuit they are going to lose. So now Crown comes to them and says, hey. Give you and I do not know what the exact percentage discount is. We will give you a 25% discount to settle right now. So they have a choice of taking a 25% discount of paying now or they could spend money on lawsuits that they are going to lose, spend an enormous amount of money in litigation, and then lose the full amount. And potentially trouble damages we can prove fraudulent behavior. So we are in a situation where certainly out of the thousand labs thousand insurance companies, half of them, let's call them the low hanging fruit, we think that they are going to settle quickly. So the key point of all this was appointing Crown Medical as special counsel. That just happened. So while Crown has been preparing to go after these thousand insurance companies, and in fact, scrubbed our data clean. They said we had one of the best, if not the best dataset of any lab. That they are representing. And he said that we we had world class IT. That, collected our data the right way, So we are pristine, and, Crown Medical means business. So the bottom line is Crown was approaching the insurance companies before, but their attitude is when you actually get court approval and you are ready to serve litigation, that is when we will talk. So now the last part of this, in bankruptcy court, what is interesting because in theory, the idea is to get the bankrupt company out of bankruptcy and operating again, They have what is called expedited litigation. You skip over months of pleadings. You go right to meet and confirm meetings, And if they are not successful, you go right to delivery and discovery. So Crown Medical has I do not know, a stack this thick. Of discovery items to serve the insurance companies. And we believe the insurance companies are going to start settling right away now the Crown has been appointed special counsel. So that is where we are at today. Yes. Has it been frustrating? Did I think it could have happened months ago? Absolutely. This was the hurdle we had to get out over, and now things should move quickly. And in fact, we have one small settlement. Not going to go into details. Does not matter. It is a small amount of money. But the point is, now that crown has been appointed special counsel, believe settlements are going to start happening. It is going to change our financial structure pretty quickly. Now I am talking about it a few months. I am going to talk about it in a few days. So we are still going to have to get through the next few months. But after that, once that money starts coming in, if our market cap is anywhere near where it is right now, you can do not know if I am allowed to say this or not. So I will just say I have a history when we have significant casts in undervalued stock. Of buying back stock. That is what I did the last time around, the last cycle around. I bought back a ton of stock. I did two Dutch auctions. We took out everybody that wanted to sell, and we paid dividends. We could be in a very similar deja vu type situation. Again, once the Crown Medical cash flow starts to flow in. We will pay off debt first, then maybe we will buy back stock, hypothetically. And then we will be in a very sweet position. So now we have to put that all into perspective of the fact that I do not know what we have. A $12 million mark cap? We are estimating Crown is estimating and they they are actually telling me they are somewhat conservative. They absolutely believe going to collect at least $50 million net. That is net. Of the $150 million we are going after, giving discounts. They are not going to go after all the claims. Some of them probably are not clean or whatever. They are going to give big discounts to the insurance companies. Taking their contingency fees. The last piece of this Crown not getting paid a penny. They have dozens of attorneys dozens of attorneys working on this. None of them get paid a penny. Except out of the collections. They have been working on this all year for free for us. They would not be doing it if we were not going to collect a lot of money. So that is crowd. So when you look at it from the perspective of I am trying to figure out some team what to do with our company, I see all this cash coming in. So I am funding the company. Principally with debt right now. Does not mean, you know, we will not issue some shares. But the the goal right now we have an ATM. I have never used I have not used the ATM. We we, have a new ATM. You know, I cannot we canceled the ELOC months ago, which we announced. Then we signed up for an ATM. We have not used the ATM yet. I cannot guarantee I am not going to, but, you know, it is based on price, based on our cash needs, it is based on debt availability, etcetera. But we have several companies willing to fund us as needed. Especially because ones that do their due diligence in Crown, are very confident that that cash will be flowing into the company. The other aspect of this is we have or three other subsidiaries that are very valuable. Let let's get out into that a little bit. Think we are going to jump to where our b smart esophageal cancer test. That is in a ProPhase Biopharma subsidiary. I am going to go just straight to this page. I am not going to do a a long detailed presentation of this. I am sure most of you have heard this before. The bottom line is esophageal cancer is one of the deadliest cancers. We have what we believe is the best diagnostic test in the world for one of the deadliest cancers. It is that simple. The reason it is one of the deadliest cancers is because it is not diagnosed accurately. We take an inaccurate diagnosis and make it accurate. It is that simple. That is the beauty of it. We are basically enhancing the endoscopy. The standard of care you are at risk of cancer of of esophageal cancer is an endoscopy. An endoscopy an endoscopy is where they stick a tube down your throat and remove. Tissue specimens and study them under a microscope. Two pathologists study the same specimen under the same microscope. One will tell you you have esophageal cancer. One will tell you you do not. All we are doing is we are taking that specimen. Running through our mass spec machine with the a a you know, associated AI, etcetera. We have patented the key eight proteins that are virtually always when you are developing esophageal cancer. So it is a no brainer. Take one of those specimens. So the interesting this is such a convenient test in critically important to physicians And broad scale commercialization is the convenience of There is nothing more convenient than our test because this is for patients already getting the endoscopy. So the roughly 67 and 67 million endoscopies in The United States alone, and this is a global problem. This is a growing problem around world. And so there is 7 million of those industries. They are just for people at high risk of esophageal cancer. We believe every one of those 7 million endoscopies should add our test onto it. If they did, they will get a significantly more accurate diagnosis. It would make no sense not to. If we get reimbursed hypothetically, a thousand to $2,000, that would make our test a 7 to $14 billion target market test. It is that simple. And the last piece of this is we are partnered, ventured with Mayo Clinic. We own the test. We have, doctor Chris Hartley, and, he indicated he wants to get more involved. He is at Mayo Clinic. Have doctor Joe Abdul, one of the scientists who invented the test. We have James McCulley. He is the CEO of another biotech company with significant experience with commercialization. Are all people working with us now. Others. And as the cash flow comes in, from our Crown Medical initiative, be able to fund this. No problem. And we are not talking about a big budget. I am looking at a small budget. Just to develop the test for the next year, get it to a point where a multibillion dollar cancer testing company wants to take us over or joint venture partner with us. You know, why build out a huge Salesforce if someone else already has one and just sort of a plug and play plugs in our test? And all of a sudden, you know, it is doing hundreds of millions of dollars a year. And we got a 7% royalty. We get, I know, We got a block of money upfront. We we could get a block of money upfront twelve months from now that is five times the current market cap of our company. So that that gives you a little bit about our be smart esophageal cancer test. The key point is we just highlighted a press release in the in the last week or so. Got into a major journal. The reason the major journal was important is that is where the key opinion leaders in the industry study our clinical study and gave it a thumbs up. And said, hey. We are all in. This is a great test. It should be commercialized. Now that we got their good seal of approval, so to speak, can now work on commercialization as what is called the laboratory developed test or LDT. FDA decided that they were not going to oversee laboratory developed tests. We have cleared the FDA hurdle. Good to go. So I am really excited about this test. And let's let's move on. Our next opportunity would be our Nebula Genomics DNA complete. We completely turned the business around. George Church founded it. I am not going to do a lot on this. Except to say, that we completely cleaned up the business led led by Jason Karkus, He we shut down the laboratory. We cut out such a large percentage of our expenses and overhead. As I said, we shut down the lab. We have a highly Jason, had a highly efficient lab to do our testing now. Which makes our business a pre you know, it is primarily a direct to consumer business now. We went from a lifetime subscription to you buy a one year then you renew it the next year. We found that the conversion rates were virtually identical to the lifetime. And so by selling it one year, it means next year, most people renew. That is a that is a subscription. That is a revenue for us. That we do not have to pay anything for. We already have the data. We are already doing the reporting. We already have the IT. So the profit margin on the subscriptions that come in in year two, the subscription renewals, is probably, like, 95%. So we are roughly a breakeven business now, that on a pro form a basis, will be profitable. And now as we clean up our finances, we will be able to grow this business dramatically. Because we have one of the best reporting systems in the world. We have one of the biggest database in the world to leverage. You know, we tested in over a 130 countries. Over 60 over 60 or 70,000 whole genome sequencing. It is the equivalent of 150 million ancestry tests. Our database alone is is worth more than the mark market cap of our company, although we could not sell it by itself. For political reasons. Because you cannot sell somebody's data. But, of course, somebody could buy the company, what I want to do right now is build this business. So it gives you a little bit about our businesses, We have a dietary supplement business that we could potentially develop. We will we will see. I am trying to keep the business the our company as clean and mean as possible, as lean as possible. Not going too many different directions. I am not looking to go in more directions. Crown Medical collect a lot of money. Pay off our debt. Develop our esophageal cancer test, grow our nebula business, Our company could be worth 10 or 20 times worth trading right now. That is the opportunity. So that said, I will go to, you know, the investment highlights. Again, earlier this year, we completely restructured the company. Sold our a formalized manufacturing facility. Down our Nebula Genomics laboratory, We dramatically reduced headcount. We significantly reduced IT and related overhead. And we are now working on not just the reverse crypto treasury strategy, but we have another initiative that could be very exciting that recognizes the underlying value of our I promise you, if I do a deal like this, I am going to do this, because it is going to make all of us as shareholders a lot of money. Otherwise, there would be no reason to do it. So that is where we are at. Reviewed the Crown Medical Collections initiative. I am looking forward to when that cash flow starts. Once that cash flow starts, we are a different company. So if you are worried about the stock price now, we have shorts in there. You know, I I think we have a lot of shorts in our stock right now. Really sort of silly. And will that change as soon as the Crown Medical starts to flow? As I mentioned, we we did already get one small check. You know, it is not worth talking about. The point, is we have turned the corner. We have gotten over the last hurdle. With the bankruptcy courts. We went through BSmart. DNA complete, Nebula Genomics is well positioned. We do have potential our dietary supplements. But I want the cash flow if we are going to develop that business. And so now let's go to I have some other things that I want to mention. In fact, we will we will get to the questions. But before we get to the questions, I wanted to mention somebody talked about our working capital deficit. To be clear, that is an accounting item. When we bankrupted the lab subs, the accounting for those lab subs change. The assets and liabilities, the timing, change between what is current and what is noncurrent. It created this ridiculous amount of negative working capital. Obviously, it is ridiculous. We are losing tens of millions of dollars. So, obviously, that was an accounting. It is a balance sheet item. It is it is not affecting us in real terms. It just it is just accounting terms for bankrupting some. The other thing I will mention to you is that the a lot of the negatives in the quarter that is related to amortization and depreciation. Stock based compensation, You know? And for those of you you question whether I get stock options and that kind of thing, to be clear, for most of the year, I voluntarily and Jason did too. Deferred most of our salary. Just to help the company. I did not collect an interest rate on it. Alright? I did make one loan to the company earlier in the year that somebody questioned me about. To be clear, had I borrowed that money to make the loan to the company, just so I could get others to invest in the company and make them senior secured to my loan so that they would feel good. I did that to help the company. So, you know, people question, oh, you got a high interest rate on the loan. I number one, I borrowed the money. Number two, I put myself at risk. Number two, three, did that for the company. And number four, I I deferred a significant amount of my salary this year. Nobody is paying me to do that. Okay? So I am doing this all for the company. I am all in. I hope those that are listening are all in too. So hope that addresses that. I do want to get back one more time about the voting. We may do a reverse stock split. We may have to. But understand our stock price just went from trading $50.60 cents to 25¢. We have a market cap. I do not even know what the market cap is. It is around it is just over, like, $12 million or something like that. Let's see. Yes. It is, you know, some kind of number around $12 million. Where is the stock going if we do a reverse stock split? Well, you have to understand that sometimes with reverse stock splits, the stock price actually go up afterwards. Because the only reason when it is fully discounted before you do the reverse stock split and then all the shorts have to start to cover. Because there is no reason to be short anymore because reverse stock split happened. Also, you have to put it into context of the value of the company. With companies most companies, the reason why the stock prices may go down after the reverse stock split is because they were going down anyway. If a company is going bankrupt and they are going out of business, then sure, their stock price is going to go down. They are going to do reverse. The stock is going to continue down. See, it will happen all the time. But real companies like ours that have enormous underlying asset value they do not have to go down after the reverse stock split. In fact, if we do a and there is not a guarantee. If we do a reverse stock split, it is quite possible our stock goes up. I was talking to one large shareholder. Involved in a company. The stock symbol is o e s x. They did a reverse stocks when the stocks done nothing but go up afterwards. Even in during this this correction in the bull market over the last couple of months, stocks been doing nothing but going up. After the reverse stock split. So in our case, you know, we have a mark cap of $12 million. Our stock's just been cut in half. After filing the proxy. And we now have crossed the hurdle with Crown Medical With the collections, it is now visible. We can now see that the collections are actually going to start to happen. And so after the reverse, understand whatever the number of the reverse is, we are going to have the same market value. Your shares are still going to own the same percentage of the company. And if the Crown Medical starts to kick in, if the stock's anywhere near these prices, I will buy back stock and take it up dramatically higher than where it is now. So after the reverse stock split, whatever the equivalent is, I will take the stock up from there with buybacks. As enough you know, once enough cash comes in and we are paying off our debt. We have excess cash. And I should not say definitively I will do that, it would be a no brainer to do that if the stock's not undervalued. As I said, have a history last time around. When I did this. I sold the Goldie's brand. I did exactly the same thing. Your stock was 65¢. We sold the Caldi's brand, and I did two Dutch auctions. Exact same thing. So I do not I this is Deja, but I do not mind doing that again. Do not be so scared of a reverse. Now if you want to be scared of a reverse stock split when or stocks that 75¢ maybe, or 80¢ or a dollar. Oh, is he going to do a reverse or not? Or stocks? Trading under 30¢ a share. It has got a $12 million market cap. It is silly. So I just want to put it in that perspective. The other thing critically important, I am working on strategic deals besides the crypto treasury strategy. I am working on another deal. We have to maintain Nasdaq compliance the likelihood of doing a deal that is going to attract and increase the value of our company and make our shareholders money, going to be difficult to get a deal done if we are not Nasdaq compliant. So it would be silly not to be Nasdaq compliant. I need every person listening to this call please vote for the proxy. Otherwise, own the stock. What is the point of owning the stock? And then not voting to help the company do well? That is the point of voting. So please, please, please vote. Okay? And I am sorry I have to do this, but, you know, the voting ends at the end of the week. We are close, but we are not there yet. So every last year, it makes a difference. I feel like I am a politician now. That is it on the voting. That is it on talking about the reverse stock split. Let me just see Why do not I, turn it over to to questions? Actually, it is exactly 02:30, so that is when I normally turn it over to questions anyway. Noel, please, I will hand it off to you. Thank you all for your time. Noella Alexander-Young: Thank you very much, Ted, for the presentation. We will now begin the Q&A. Your first question is, based on your press release, it sounds like you are potentially working on two or more different major that could increase shareholder value. Can you clarify this? Ted William Karkus: Yeah. So and by the way, it is potentially more than two. We have the reverse crypto strategy. Understand crypt crypto so volatile right now and crypto treasury stocks that did reverse mergers are somewhat out of favor. There is no hurry to do something like that. But as I mentioned, though, if significant cash comes in when significant cash comes in from the Crown Medical Initiative, we could use that cash. That would be nondilutive. If we develop the crypto treasury strategy around that. Where we generate income, off of the crypto And I am telling you, there is no question. Is going up in the long run. It is not even question. But I am not I do not need to be a gambler with the company either, and I do not need to do a reverse crypto strategy right now. So we will we will see. That was on the table. But with crypto market where where it is right now, we will see. There is potentially a very attractive deal that we could do when crypto was higher. So but we will see. In the meantime, another and this is relatively recent has developed just do not want to talk more about it today, but I will be updating shareholders. If I do that deal, it will be very positive for the shareholders. Alright? And so we will see where it goes. I do not want to get out of line and say too much too soon. There is no guarantee. I am going to do the deal. But it is certainly interesting. It is something we are pursuing. Number three, now that we were published in the journal for our b smart esophageal cancer test, our scientists are being approached by a variety of companies, cancer testing companies, and others that want to either get involved, joint venture, acquire, whatever. Alright? So we have that going on. So we have that going on with the subsidiary, then I have the deals I just described going on with the whole company. So there is a lot of potential there. I am going to do what is best for the shareholders. Even though I got diluted with everybody else, I am still a large shareholder. I care about the value of our shares ultimately. For the question. What is the next one? Noella Alexander-Young: Thank you, Ted. Next, if you were asked, it looks like you made you a reverse stock split. If you do it, is it possible that the stock price will go up or down? Ted William Karkus: Exactly. So if, you know, if the stock price was a lot higher right now, could it have a little risk? I guess it would still be undervalued even if was double. Right? But with where the stock price is, what is the downside? Is it going to do? It is going to go from a $12 million cap to $11 million market cap? Then the Crown Medical, $20 million is going to come in, and I am going to buy back half the shares outstanding in the company. And my stock will be twice or three times worth trading on a on a split adjusted basis. This is all silly. A reverse stock split in and of itself is not something to be scared of. What is more to be scared of is if we were not Nasdaq compliant. We have a lot of value in the fact that we are a Nasdaq company I want to stay a Nasdaq company, and we will see what happens. Earlier in the year, if Crown Medical had kicked in earlier in the year, my guess is we might not have to do the reverse. We, you know, we might be trading around a dollar an hour more. It is quite possible or probable. That did not play out that way. But having said that, even in a dollar, we might have done a reverse. When we are talking about the reverse I am sorry. Crypto treasury strategy, they were thinking that they wanted a higher stock price, and they might want us to do a reverse anyway even if we did not need to. So I do not want to go more into it than that. But stock prices sometimes go up after the reverses. I gave you one example of that. I like to think ours would be one of them. If nothing else, all the shorts out there, you know, they would probably be running for the hills afterwards when they see there is you know, nobody left the seller, the market cap is so low. That is not a guarantee. I do not know what is going to happen. I can just tell you the reverse stock split in and of itself. Your percentage of share ownership does not change. The market value of the company at that moment does not change. And the upside from here for our market value is incredible. Thank you. Noella Alexander-Young: Thank you for the clarity, Ted. The next question is, from the recently released financial earnings reports and statements I see that M and A discussions unrelated to the crypto treasury strategy are being explored. Does this mean the crypto treasury strategy remains part of the company's strategic vision going forward? Ted William Karkus: Sure. So I think I just answered all of those questions. I do not think we need to spend too much time on that. Again, everything is possible. I only want to do something accretive for the shareholders. That is the goal. And I happen to have another deal that could be very accretive for the current shareholders, I think everybody would very I just do not like talking too much about it because it is premature. So but I just want you to know, though, we have to be Nasdaq compliant. That is the that is why everybody has to vote. Alright. Thank you. Noella Alexander-Young: Thank you, Ted. Your next question is, $100,000 in the till unable to use shares for cash how do you plan to pay employees and board going forward? Ted William Karkus: Sure. So amount of cash we have on hand right now is about the same amount of cash we have had on hand every month and every quarter all year long. Have multiple investors, large investors, that want to support us. With various types of funding up options. You know, we did a a $3.8 million debt deal once before. We we can always take out more debt. You know, there are we definitely have a number of options out there. People that want there are definitely large investors out there that see the underlying value. And I will use all potential financing strategies to support our company. Whether whether it is you know, debt or equity or combination or what have you, we are in really good shape from the point of view that we have such a strong underlying asset value. So financing until the Crown Medical comes in, that is not the issue. The issue is is is what form we take. Debt or equity. What the terms are, etcetera, etcetera, etcetera. Noella Alexander-Young: Thank you, Ted, for that response. Next, we And let me just add to that. Ted William Karkus: Whatever we do right now, once the Crown Medical comes in, even if we hypothetically issued shares, my goal would be to buy back all the shares. The stock price anywhere near stock price, I will buy back. I would not be afraid to buy back 10 or 20 or 30 or 50% of the shares outstanding in the entire company. And I I really do think that way. If we are a stock undervalued and the cash is coming in, so that all gets fixed as the cash comes in. And that is separate from the fact that, as I said, you know, our beeswort esophageal cancer test could be worth 10 times our market cap 12, you know, twelve months from now. Literally, or less nine month nine, twelve months from now. Just our esophageal cancer test alone could be worth 10 times the current market cap of our company. Think of that as a concept. You got Lucid as a $105,150,000,000. Market cap. Their test if you test positive on their test, you then have to the next step is to go get an endoscopy. They are not even competition. It is kinda like I I compare it to testing where you get the rapid antigen test, test positive on the rapid antigen test, the next step is to go get the higher, more accurate, you know, reading from the PCR test. Well, this is the same kind of thing. On their test, the next step is get an endoscopy, We make the endoscopy die diagnosis significantly more accurate. So and and they have a market cap, you know, We should be once we commercialize, we should have a significantly greater market cap than they do. And, again, just if we achieve their market cap, it would be more than 10 times the current value of our company. Thank you. Noella Alexander-Young: Thank you, Ted. Next, Vi was asking, how are you going to prevent delisting from stock exchange without a reverse stock split? What needs to happen to get the price above $1 for a month? Ted William Karkus: Sure. So first of all, it does not have to be above a month. It is for ten trading days. Number two, this deal I am working on, quite frankly, I could take the stock over a dollar very, very quickly. And number three, but I would like to have in my back pocket if we needed doing the reverse stock split. Which is why you have to vote. And number four, we need the vote because I need to give the other companies and bankers that I am working with confidence that we will remain on Nasdaq and be Nasdaq compliant. So we need to vote for that even if we do not do a reverse stocks. What we need to show we have the votes to do a reverse stock split if necessary. Otherwise, that could derail some of these potential deals. It could be great. So again, I do not I do not know how to emphasize this, strongly enough. Because I do not know the random people out there that own stock. But because if it is in a brokerage name, we do not get those lists or if we get the list, we do not get the contact information or you know, we you know, you have to book your shares. And so please do it through the brokerage firms. They typically will send you an email or you just go online. And you can vote very easily. Alright. Thank you. Noella Alexander-Young: Thank you, Ted. Your next question is, when will prophase go up stay up, and what might be the ceiling? Ted William Karkus: Think I have answered that question so many times. People are going to be upset with me if I answer it again. Noella Alexander-Young: Nope. I will move on to the next one. The stealing is the company could be worth 10 times where it is trading today. Eighteen months. Okay? And that is not the ceiling. Just you know, I was thinking about this because I was thinking about it for myself with all the shares that were issued in the last year and how I got diluted. And I was just thinking, you know, our esophageal cancer test in in three or four years would be you should be worth a billion dollars. So you know, easily, that that means that this like, a $20 even with a little more dilution, even if we have 50 million shares outstanding. A billion dollars means we would have a $20 stock price. We currently have a 26 at stock price, 27. I do not know what stock's trading today. Alright. Could you imagine that? We are trading under 30¢, so we could be at $20. And understand if if we do a reverse stock split, the ratio of where we are, you know, that potential percentage, it would still be the same. We do a reverse stock split. It does not change. The market cap the value of it will still go up by multiple of of 20 if we go to a billion dollar markup one day. Now that may sound like a pipe dream today, but by the same token, once before, I took over, I turned around a company that was 65¢ and went over $10 a year. Actually, it went over $13 a So, actually, that went up 20 times. So do not think that I cannot do the same thing with the company that we have now. Since the underlying assets of our company are much more valuable now. They were before. Noella Alexander-Young: Thank you for the clarity on that, Ted. The next question is, what is the accurate share count slash market cap of the company presently? Ted William Karkus: Sure. So, you have to go by the reported numbers. It is I believe there are $4,046,100,000.0 shares outstanding that is reported do not know what the stock price is today. So at 25 to 30¢, know, we are we are talking about around a $12 million market cap. Noella Alexander-Young: Thank you, Ted. Next, a viewer is asking, the share price keeps slipping despite shareholders' patience. When will management take decisive action to protect and grow shareholder value? And how do you plan to address the ongoing decline? Ted William Karkus: So I think I have already answered that question ad nauseam. At look. At the end the day, do not control the stock price. You know, it I I think shorts are having fun with it right now. I think it is silly. Any any portfolio manager out there, likes to invest in penny stocks, I do not see how they do not buy the stock right now. And having said that, the bottom line is you just have to be patient until cash flow starts coming in from Crown, Medical Initiative, or partner on our b smart esophageal cancer test, or we do a strategic initiative an m and a type transaction, whether that is a reverse merger or similar. That brings out the value in our company. Any of those things would drive our stock price significantly higher, in my opinion. Noella Alexander-Young: Thank you for that response. Next question. When will the company stop mentioning the possibility of collecting $25 million in accounts receivables? Ted William Karkus: I think that is a question out of frustration We did not anticipate it would take that long to bankrupt the lab sub and get going. But now we have done it. We crossed that hurdle. So however long it took it took But now we are in expedited litigation going forward. Crown is skipping pleadings. They are going right to meet and confer. They already have hundreds of insurance companies lined up. They are going right into meet and confers right now. And now all of a sudden, it is like a hockey stick. Going to start seeing some settlements. In a couple of months. Do not know the exact time frame, and then it is going to go like a hockey stick, I believe. It is just going to ramp up. We are going to have significant cash flow. We are going to be a different company once that happens. You want to wait for that to happen? You can wait for that to happen. Maybe the stock is you know, double or triple where it is now. You know, once you see the visibility of that happening. I mean, what where are we going on downside here? You know? It is kinda silly. Hope that answered your question. Thank you for that response, Ted. Noella Alexander-Young: Next question. Given the need for capital to fund BSmart, is it realistic to use a go it alone strategy with regards to BSmart? Does it make sense to consider partnering the asset? Ted William Karkus: That is a good question. So my thought is as some cash flow comes in from Crown, I do not ever want to be in this financial position again. It is not fun. Honestly, it has been the worst year of my life. In terms of managing a company. With the financial pressure I have been under. With the pressure the stock price has been under, So I have no intention of ever being in that type of situation again. I am not going to spend a lot of money developing our esophageal cancer test. The idea is to kick it off the ground, do sort of a grassroots told you we have we have some world class scientists and commercialization experts that we are working with. We are going to get more key opinion leaders involved. We are going to get networks to sign up. Like, if we find one decent sized physician network, we will get them taking you know, using our test. With the great results they are going to get. It then will spread like a hockey stick. As it spreads like a hockey stick, then the goal would be the joint venture. I look. I might be able to joint venture now. I do not know what they pay us. They might give us 25 or 50 million of cash. Plus a royalty. Would not be so bad. By the same token, they might give us a couple $100 million and a bigger royalty if I wait twelve months. So, you know, we will we will see. But there is interest now. Think that the interest is going to as we start penetrating the market even a little bit, all these other cancer testing companies that that have an esophageal cancer test, or a developing one are going to be very nervous. In fact, to be honest with you, I already know they are getting nervous because the day we published in the journal, that very day, one of them contacted us and said, hey. Let's talk. So we will we will see we will we will see where it all goes. No guarantees that I am going to do anything short term. I do not think it is necessary. But by the same token, I am not going to break the bank and spend a lot of money to develop this right now. It is just not necessary. Noella Alexander-Young: Thank you for that response, Ted. Next question. Do you anticipate that the recent weakness in virtual currencies provides an opportunity to the company's strategic initiatives given you have not yet purchased a significant amount of virtual currencies? Ted William Karkus: Yeah. So, obviously, you are talking about, the cryptocurrencies. But if we are not going to do a deal see, we were talking we have been talking to crypto asset managers where we would do sort of well, I do not want to go into details on it. If we do not do a deal like that, but instead we were just going to invest long term a crypto treasury strategy we have to wait until the Crown Medical collections come in, and I would want to pay off debt first. Get the company financially sound. And then if with excess capital, maybe put together a a long term strategy. But there is a lot to go before we would there is a lot to be done before we would go it alone. With that type of strategy. But for now, is it possible? Yes. It is always possible. Right now, also, the markets are not excited. If you are not the number one leader in a particular crypto, then struggling. So for instance you know? And even the ones that are the leaders are struggling from the point of view, you know, that when the crypto goes down in price, you know, the stock price is going down. In terms of a multiple to net asset value, if you go back at the beginning of the year, you know, they were trading at two or three times net asset value. Now they are trading at net net asset value. And if you are not one of the leaders who are often trading at a discount to net asset value. So, again, I pay attention to that. I am I am not going to do a deal for the sake of doing a deal. There is no reason. Have so much underlying value in our company. We have so much potential. That we can also go it alone. So or we can do a different type of deal that is not a crypto related deal. What I was trying to explain in my press release. It is not that we might not do a crypto related deal. That is not that is not our number one focus right now. We have better opportunities out there, we believe. Does not mean that that cannot change in the future. We believe we have better opportunities right now. Noella Alexander-Young: Thank you for clarifying that, Ted. Your next question is, any update with respect to linebacker there any potential value or future updates with regards to the line to linebacker expected? Ted William Karkus: Wow. That is an interesting question. That we have not been doing much with linebacker. I am not looking to break the bank on something that is so early stage. That in very early studies, has potential that was exciting to me. But that is very different from something that is a late stage ready to be commercialized. It is it is so want to say more about that. I am surprised somebody even asked that question. Let let's just leave it at that on on that topic for now. Noella Alexander-Young: Thank you for the response on the last head. Your next question is, has there been any insider stock purchases this year? Ted William Karkus: Have there been insider I do not know. That that would probably have to be you know, filed obviously and by insiders The one person that is really an insider is me. And, you know, the directors and quite frankly, I deferred a lot of my compensation It it did not put me in a great financial position to also be buying stock. And in fact, I loaned the money loan money to the company. So I I that was my way of supporting the company. And as far as the directors are concerned, we are the same thing. They are actually rather than taking cash compensation, they primarily and I do not want to speak out of turn around and know the exact number. They they took a lot of stock compensation or stock option compensation in lieu of some of their cash compensation. I I think that is putting their best foot forward and also showing support for the company and belief in the company. Noella Alexander-Young: Thank you, Ted, for that response. Your next question is, how many DNA test kits have been have you processed so far in 2025? Ted William Karkus: Oh, I do not know the number off the top of my head. I am not going to look that up now. But what I will tell you is since we have been on a tight budget, without us virtually doing any advertising at all, we have such a strong SEO presence that is called search engine optimization. It is you know, we have been in the business eight years. We did this the right way. We did a lot of great marketing. But we are frankly, right now, we are at a very tight budget, and I do not want to dilute shareholders unnecessarily to grow a business. So I am sort of laying low, until we get more capital in, but with virtually no advertising. We are still selling the product. We are selling the product in the beauty is it is, at a pro form a base, it is actually profitable now. We have restructured it that much, and we made it that clean. It is great business. For us to grow as soon as we get a little excess cap. I want excess capital to really grow that business. So, like, in a few months, I think we are really going to start growing the business in a nice way. Way. Noella Alexander-Young: You, Ted, for shedding some light on that. And I think we have time for one more question here. So the question is, do you think is the disconnect between the market's valuation of the company and the underlying assets? You have referenced the value of the underlying assets and the disconnect What do you think specifically is the main cause of this disconnect? Ted William Karkus: That is an excellent I was going to say I hope it is a good question. That is an excellent question. That is not in a snowball question either, but it is a really good one. I believe the disconnect is because we are tight on cash. And so every time I go, to potential investors, quite frankly, there are a lot of sleazy people in the investment world, and it is really disappointing. If I talk to three and potential investors, one of them is going to short the stock and then make me an offer a week later. You know, everybody knows that we are tight on cash. We have been tight on cash all year. That all changes and we are frankly we are a develop so we are development stage company tight on cash. It makes us an easy short target, especially if we go to investors and some of them want to fool around with the stock price. That will change as soon as the crowd medical starts flowing. That plus our stock price has been under a dollar. So so the stock's just been under pressure. But you got to understand, are you a trader? Or are you investor? If you are an investor, look at the underlying value. Even if there was a little more dilution, so what? Our market cap is so low. That once the Crown Medical starts to flow in, or even without the Crown Medical, If I do a deal for our b smart esophageal cancer dose, we will a block of cash up front. I will I will probably start buying back stock immediately. Our stock would explode on that if I do a deal like that. And separately, I am working on a potential deal right now. Again, it is it is preliminary. Do not want to talk about it more. But I the that disconnect will start to go away. Fact that there is a disconnect creates an opportunity for potential m and a strategist and bankers recognize that underlying value in that disconnect. So it actually creates an opportunity. And because it creates an opportunity, that is why we are getting inquiries. Both not only to me, but the scientists at be smart and esophageal cancer test, etcetera. Noella Alexander-Young: Excellent. Thank you very much, Ted, for all of your responses today. That concludes the Q&A session. Before we go, I will turn back the floor to Ted for final remarks. Ted William Karkus: Noel, thanks so much. Again, thank you, Renoir, hosting. Thank you to the shareholders. I know he said it six times today. I feel like a politician today. If you are a shareholder in the company, if you are an investor in the company and you do not quote the shares, then do not complain to me. If we have an issue because you did not vote your shares. So vote vote your shares. Alright? So that we have the flexibility to do what we need to do if we need to do it. It is not just the flexibility. For a reverse stock split. It is also based on potential deals we are working on The bankers are going to want to see that there is not a risk that we are always going to be Nasdaq compliant. It is possible we do a big deal. And the stock price will go over a dollar anyway. But whatever I am working on, we need you to vote the proxy in order to pass. We would not have put the proxy out there if we did not need to. There is no guarantee we are going to. We are not going to do a reverse stock split. But even if we do, they are quite frankly I think there is a good probability that our stock price goes up. After we do the reverse. Does not necessarily have to go down. And it is not a bad thing. Guarantees knock on wood, they remain Nasdaq compliant. Being Nasdaq compliant is is a value to the company. Look. If we got delisted, it is not going to change the value of the company. It is not going to change the value of what we are doing. And then when we go back above a buck, we do a deal. We will go back on Nasdaq again. But why go through all that? And at the same time, I am I am working on some deals that you know, some things that could be very, very exciting for the company. Where all the shareholders make a lot of money. So it is silly not to vote. I cannot stress that strongly enough. That, I appreciate everybody joining the call and listening to me today. Everything I say is from the heart. It is from living and breathing our company twenty four seven. I am a fighter I did this once before. You know, a dozen years ago. With the very same company when I inherited it. I say inherited, I did this I won a proxy contest, two years of litigation. So it was, you know, a serious fight. To win control of the company and find out I was in control of the company that was virtually going bankrupt, turned it around, You know, it took a number of years. So I have done it before. I can do it again. I am going to do it again. And we are in a similar position, but, again, the assets in the company are multiples of what they were the last time I did it. So I am going to do this. And if you guys are patient with me, I think that I can I and our company and not just me, it is Jason, He built the COVID testing business into a multi $100 million business? He is now cleaned up the Nebula Genomics business. And you know, we have these great businesses. And so I am just looking forward to the future. Do not have more to say than that. Everybody have a great day. Thanks for all your questions. Thanks for listening to the hour. Noel Noella Alexander-Young: Sorry. I cut you off there, Ted. Alrighty. Well, thank you everyone for joining us today for the ProPhase Labs, Inc. third quarter 2025 results. ProPhase Labs, Inc. is trading on the Nasdaq under the ticker symbol PRPH. The playback wave will be available on our website twenty four to forty eight hours after this presentation under the VNDR Loughby tab. Tuned for the next quarterly call, and see you next time.
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology Third Quarter 2025 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided with for management's prepared remarks. [Operator Instructions] I will now turn the call over to Mr. Matthew Zhao, VP of Capital Markets and IR at Kuaishou Technology. Huaxia Zhao: Thank you, operator. Good evening, and good morning to everyone. Welcome to Kuaishou Technology Third Quarter 2025 Financial Results Conference Call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Chairman and CEO; and Mr. Jin Bing, our CFO. Before we start, please note that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ from those discussed. The company does not undertake any obligation to update any forward-looking information, except as required by law. For important information about this call, including forward-looking statements, please refer to the company's public information or third quarter 2025 results announcement ended at September 30, 2025, issued earlier today. During today's call, management will also discuss certain non-IFRS measures. These are provided for additional information and should not replace IFRS-based financial results. For a definition of non-IFRS financial measures and reconciliation of IFRS to non-IFRS financial results and related risk factors, please refer to the third quarter 2025 results announcement. For today's call, management will use Chinese as the main language. A third-party interpreter will provide simultaneous English interpretation in the prepared remarks session, and a consecutive interpretation during the Q&A session. Please note that English interpretation is for convenience purposes only. In case of any discrepancy, management's original language will prevail. Lastly, unless otherwise stated, all currency units mentioned are in RMB. Now I'll turn the call over to Yixiao. Yixiao Cheng: Hello, everyone. Welcome to Kuaishou's Third Quarter 2025 Earnings Conference Call. In Q3, we continued to advance our AI strategy, expanding scenario-based AI applications and innovative use cases across our business. These efforts created a tangible business value across all business scenarios, strengthened the quality and efficiency for our organizational infrastructure and fueled strong operational financial results. Average DAUs on the Kuaishou App surpassed 416 million in Q3, marking the third consecutive quarter of record highs. Total revenue for Q3 rose by 14.2% year-over-year to RMB 35.6 billion. Revenue from our core commercial business, online marketing services and other services, primarily e-commerce, increased by 19.2% year-over-year. Adjusted net profit rose 26.3% year-over-year to RMB 5 billion with an adjusted net margin of 14%. We achieved a year-over-year growth in the group's overall profitability while continuing to invest strategically in AI, a catalyst for unlocking deeper value across our content and business ecosystems. First, our AI strategy and the progress of our large video generation model, Kling AI. We continue to refine the foundation models behind Kling AI, developing new features to meet creators' diverse needs and build a one-stop creative productivity platform that empowers everyone to tell captivating stories with AI. In Q3, we launched Kling Lab and upgraded the start-and-end-frames function and introduced digital human solution. Notably, at the end of September, we released the Kling AI 2.5 model, achieving substantial advances in prompt adherence, dynamic effects, style consistency and visual aesthetics. Just 10 days after launch, the model was simultaneously ranked as the world's #1 text-to-video and image-to-video model by Artificial Analysis.ai independent AI benchmarking platform. While maintaining its leading content generation performance, the new model also integrates continuous engineering innovations that lower video inference costs, reducing creators' per video-generation expense by almost 30% and further strengthening Kling Al's cost-efficiency advantages. Kling AI's innovations in foundational models and product features have provided creators with higher-quality video generation solutions, establishing a foundation for broader adoption across professional creative fields such as marketing, e-commerce, film and television, short plays, animation and gaming. As Kling AI continues to expand its use cases, it has made breakthroughs in monetization and revenue growth. In Q3, revenue from Kling AI exceeded RMB 300 million. Kling AI is committed to empowering global creators and building a premium ecosystem. In September, we launched the Kling AI NextGen Creative Contest, which received over 4,600 entries from 122 countries and regions worldwide, covering diverse fields such as history, science fiction and animation. Outstanding works were screened at international film festivals, including Cannes, Tokyo and Busan for the integrating AI-powered film and TV works with traditional film and TV industries. In Q3, we achieved strong results from integrating AI into diverse internal and external use cases. On business empowerment, large AI models have now been integrated across all of Kuaishou's major business scenarios, driving incremental value across our ecosystem. We iterated our end-to-end generative recommendation large model, OneRec and extended beyond short video recommendations to additional recommendation scenarios such as online marketing services and e-commerce shopping mall. This expansion has generated meaningful incremental benefits. In Q3, large AI models demonstrated notable effects, especially in online marketing services. We pioneered a generative reinforcement learning-based bidding model that integrates sequence modeling with goal optimization. This innovation transformed advertising bidding from a single-step decision-making to long-term strategic planning, significantly enhancing bidding capabilities and ROI for clients, especially for small and medium-sized, one. Meanwhile, we explored using end-to-end generative recommendation in online marketing service scenarios through OneRec. Tailored to the characteristics of online marketing services, we introduced the client marketing expression and marketing commercial value perception mechanism to achieve bidirectional matching between users' interest and clients' demands, enhancing personalization and matching efficiency. Large AI model technologies, especially OneRec drove roughly 4% to 5% growth in domestic online marketing services revenue in Q3. In terms of online marketing material generation, Kling AI's large model has significantly reduced video production costs for clients. Meanwhile, advanced digital human technology has also opened up new operational scenarios in live streaming for both online marketing clients and e-commerce merchants. Consequently, the total spending from online marketing services driven by AIGC marketing materials exceeded RMB 3 billion in Q3. For e-commerce, we launched OneSearch, an end-to-end generative retrieval architecture. It enables more precise product matching and optimizes the user experience, driving nearly 5% growth in shopping mall search order volume. The adoption of OneRec in e-commerce also contributed to high single-digit GMV growth in the shopping mall feed in Q3. For entertainment live streaming, we leveraged Kling AI to introduce the AI Universe gift customization feature, which generates highly personalized avatar-based personal gifts, increasing both user engagement and willingness to pay. Second, user growth and content ecosystem. In Q3, average DAUs on the Kuaishou App reached 416 million and MAUs reached 731 million. This is the third consecutive quarter that average DAUs reached a record high. The sustained and steady traffic growth reflects Kuaishou's community's unique appeal to users. By refining our user growth strategies, offering distinctive and diverse content, optimizing our traffic allocation mechanism and enhancing community engagement, we continued to reinforce Kuaishou's identity as a heartwarming, diversified, informative and engaging online community. In Q3, average daily time spent per DAU on the Kuaishou App was 134.1 minutes, while total user time spent rose by 3.6% year-over-year. Our refined user growth strategies leveraged smart marketing material placement to enhance acquisition efficiency, lowering the acquisition cost per new user year-over-year. In traffic allocation, by modeling users' long-term user interaction patterns, we improved both user satisfaction and retention. We also continue to upgrade users sharing experience within private messaging and iterated on social interaction features. As a result, the daily average penetration rate of private messages among users with mutual followers increased by more than 3 percentage points year-over-year. We also elevated the user product experience through a series of device-level intelligent optimizations. In content operations, we partnered with the Beijing Radio and Television Station to launch the 2025 Kuaishou Super Summer Gala, where celebrities and everyday users come together and celebrate. The live stream session attracted a peak over 5.4 million concurrent users. To cater to young audiences, we hosted an online concert hosting -- featuring TNT, which drew 980 million live streaming views. In the pan-knowledge category, we curated the Liyuan Music Festival Summer Tour series, showcasing offline tours across diverse traditional art forms such as Qinqiang and also Shanbei Storytelling. By bringing these live performances to audiences, we helped benchmark creators like An Wan achieve cumulative accretive breakthroughs and gain recognition. Third, online marketing services. In Q3, revenue from our online marketing services reached RMB 20.1 billion, up 14% year-over-year. With the growth rate accelerating quarter-over-quarter, we continuously iterated and upgraded our online marketing placement products with AI models. Drawing our unique traffic dynamics, we cater to the needs of more marketing customers through our smart placement capabilities, achieving more precise targeting and higher conversion rates. This drove strong year-over-year growth in both external and closed-loop marketing services revenue. In Q3, our UAX solutions accounted for over 70% of external marketing spending. Ongoing innovations, iterations, particularly with our generative and reinforcement learning-based bidding model and generative recommendation large model further improved marketing recommendation efficiency and enhanced management of marketing variety and value. The combination of our 3 key AIGC commercialization tools, AIGC short video, digital human and digital employee has empowered our customers with an end-to-end AI solution covering marketing material creation, live streaming operations and user engagement. In Q3, for closed-loop e-commerce marketing services, we upgraded the product and content optimization capabilities of our omni domain platform marketing solution to maintain a steady supply of premium marketing materials. By integrating multi-content reinvestment and ROI bidding recommendation tools, we helped e-commerce merchants improve traffic and at sales conversions, thereby enhancing their willingness to invest in marketing placement. In Q3, total marketing spending from omni-platform marketing solution accounted for over 65% of our closed-loop marketing spending. Additionally, we established a bidding agent based on AI capability to replace mutual -- manual adjustment decisions, enabling more consistent conversions and unlocking greater economies of scale. On the traffic side, by enhancing the synergies between e-commerce and commercial value, we released more traffic capacity to merchants with long-term operations, helping more brand e-commerce merchants achieve a scaled expansion and stable conversion improvements. From a scenario perspective, in Q3, closed-loop e-commerce marketing services in pan-shelf-based scenarios also realized a solid growth. We optimized people to goods matching in pan-shelf search, and we used large models to better meet the users' needs and improve efficiency. These efforts increased marketing placement and penetration and drove stronger merchant participation. In Q3, for the lifestyle service sector, where clients mainly operate on a lead-based model, we upgraded our private messaging products and optimized vertical-oriented products. These improvements helped clients reach users more efficiently and achieve higher user conversion rates across various conversion goals. In lifestyle services, particularly among our small and medium-sized customers, we improved private messenger response rates with AI-powered customer service. In Q3, we combined our local services with a lead-based marketing business to form our lifestyle service segment, integrating teams, product lines and traffic distribution. This unification strengthens our ability to support merchants pursuing sustainable operations and help build a more diversified collaborative ecosystem with local customers -- merchants. These 3 -- the content consumption sector led by short plays was another key revenue driver for our external marketing services in Q3. We continued to enhance content supply and product innovation across short plays, mini-games and novels, while capturing incremental growth opportunities from the rapid rise of comic-style short plays, further expanding external marketing services revenue. Comic-style short plays combine features of comics, short plays and audio dramas, typically featuring vertical-screen episodes to 1 to 3 minutes long. This new genre has recently gained widespread traction among the broader market. Kling AI has significantly lowered the barrier to creating comic-style short plays while elevating overall content quality. In addition, through a mix of marketing placement, revenue sharing, IAA and IAP models, we created multiple monetization pathways for high-quality short-play content, expanding reach on both the supply and demand side. Fourth, our e-commerce business, in Q3, our e-commerce GMV grew 15.2% year-over-year to RMB 385 billion. Through a mix of merchant incentive programs, omni-domains traffic support and intelligent tool empowerment, we helped merchants build omni-domain operations ecosystems, continuously elevating user experience and driving high-quality supply and demand growth. To support the merchants sustainable growth, we encourage them to adopt an efficient conversion path that integrates public and private domains using public domains to acquire customers and private domains to strengthen retention. In Q3, the mix of our e-commerce monthly average paying users showed healthy trends. Active e-commerce users repeat purchase frequency increased year-over-year and user stickiness continued to improve. In Q3, in e-commerce supply, building on our platform's traffic and content-based e-commerce advantages, we continued to attract new merchants organically and onboarded merchants through a diverse channels. We introduced a range of incentives to lower onboarding costs and entry barriers for new merchants. In addition, we continue to launch initiatives to empower new merchants to navigate early growth stages and ramp up operations more efficiently, driven by a growing number of small and medium-sized merchants together with our targeted support for high-quality existing merchants, our average monthly active merchant base continued to grow. We also broadened the range of products, number of Level 3 product categories per store among our average monthly active merchants increasing by nearly 30% year-over-year. To empower merchants and KOLs in Q3, we launched a series of initiatives to unlock greater value creation within their private domains supporting their ability to build a dual growth engine of exceptional content and superior products. We launched the Pop-Up Follower rewards product to accelerate follower growth and empower merchants and KOLs from traffic generation to follow conversion ultimately to sales. With a stronger control over merchandise selection and supply, we expanded our product portfolio of high-quality platform native offerings. We focused on the premium brands through our KOL blockbuster initiative, leveraging the traffic pool of gift products to spotlight, dedicated live streaming sessions for [ treasury ]brands, supported by improved KOL product matching, KOL targeted vertical outreach and platform incentives. We expanded the KOL engagement, enhanced brand performance and empowered KOLs to address product selection and assortment expansion challenges. In Q3, the average daily number of active merchandise items increased by over 30% year-over-year. We provided guaranteed resources such as traffic support and product supply to onboard small and medium-sized KOLs and established long-term growth mechanisms. These efforts strengthened the KOL content ecosystem in Q3, driving a 14.8% year-over-year increase in the number of average daily active streamers hosting live sessions with over 10,000 followers. In Q3, in terms of operating across diverse scenarios, pan-shelfed e-commerce GMV continued to outpace overall GMV growth, contributing over 32% of total e-commerce GMV. We continued to enhance our infrastructure and supply ecosystem, driving a 13% year-over-year increase in average daily active merchants for pan-shelf-based e-commerce. We built on the diverse engagement features, strategy tools from Q2, including Super Links, the official channel of platform recommended product. These tools helped merchants quickly boost product exposure and sales conversion, cultivating user mind share for our shopping mall. The marketing host tool we introduced for merchants and content-based scenarios effectively lowered their operational barriers and drove steady quarter-over-quarter growth in merchant adoption. In Q3, we maximized the synergies between short videos and live streaming. We helped merchants integrate traffic from content-based scenarios through a seamless loop from product recommendations via short videos to rapid conversion in live streaming rooms and back to user engagement via short videos. This strategy steadily expanded the merchants customer base, supported by more short videos with embedded shopping links and our customized funnels, short video e-commerce GMV maintained a healthy growth. In Q3, in terms of integrating AI into our e-commerce business, we focus on empowering merchants across our e-commerce business chain with 3 core areas: AIGC content production, merchant efficiency improvement and product matching efficiency optimization. Our AIGC capabilities for generating and optimizing materials continue to deliver strong results, helping merchants improved conversion efficiency across both image and video formats in diverse scenarios. Penetration of the smart live streaming highlights and AI live streaming scenarios also steadily increased. Concurrently, our AI product management assistant is providing comprehensive omni-scenario support, it helps merchants reduce costs, increase efficiency and strengthen their operational capabilities while also operating high -- generating high-quality data. On the matching front, our explainable recommendations powered by our e-commerce knowledge graph, predict users' potential and long-term interest. This boosts conversion rates and also strengthen the user trust and stickiness with our recommendations. We believe these AI capabilities will ultimately power growth flywheel of data infrastructure, precise matching and merchant efficiency empowerment driving the healthy and sustainable development of our e-commerce ecosystem. Next, regarding our live-streaming business. Q3 live-streaming revenue grew by 2.5% year-over-year to RMB 9.6 billion. Growth was driven by high-quality content, expanding live-streaming scenarios and AI-powered product innovations. For live-streaming supply, the healthy development of our talent agency ecosystem provided robust support pillar. By end of Q3, our partner talent agencies had increased by more than 17% and talent agency managed streamers grew by over 20% both year-over-year. We focus on categories such as group live-streaming by supporting premium benchmark groups guiding content optimizations, we achieved high-quality development and steady revenue growth. Innovative AIGC applications also injected momentum into our business growth, leveraging AI, Kling AI capabilities, in late September, we rolled out the AI Universe gift series with a customizable special effect platform-wide, effectively diversifying options for personalized interactions in live streaming rooms. On launch day alone, users paid to create and send over 100,000 personalized virtual gifts. In Q3, for entertainment live-streaming operations, we launched a Super Grand Stage 2.0 organized as 5 regional contests nationwide to further integrate online live-streaming and offline scenarios. Targeting the summer season and demand from young users, we hosted the Summer Gaming Music Festival in Chengdu, an offline event blended gaming, music and interactive experiences deepening our partnerships with game developers. The event attracted 672 million live stream views and over 50,000 participants. Moreover, our live streaming+ strategy continued to empower traditional industries, further validating its commercial value. In Q3, average daily number of users submitting resumes on Kwai Hire increased by over 20% year-over-year. In Ideal Housing, average monthly number of paying clients increased by over 90% year-over-year. Finally, our overseas business. In Q3, we continued to strengthen our foothold in overseas markets, focusing on high-quality growth. On the traffic front, we optimized customer acquisition efficiency to precisely reach high-value demographics. By prioritizing operations for core category creators, we fostered stronger connections between our high-quality characteristic content and our core user base. Brazil, our core international market maintained stable DAUs while reducing user acquisition cost year-over-year delivering consistent year-over-year growth in average daily time spent per DAU. For online marketing services, we bolstered business resilience, diversified our marketing client base across industries. Through an updated product capabilities and placement strategies, we improved overall conversion efficiency across our marketing funnel, unlocking more on monetization potential for diverse user groups and earning sustained client recommendation. Concurrently, our e-commerce business in Brazil improved both in subsidy and operating efficiency. While maintaining disciplined ROI management, we achieved a healthy year-over-year growth in GMV transaction scale and order volume in Q3. Looking ahead to Q4 and into 2026, we will continue investing in our AI strategy, exploring efficient gates that empower users, video creators, marketing clients and e-commerce merchants through Kling AI and other large AI model technology. At the same time, guided by our development philosophy and AI strategy, we will comprehensively transform and upgrade our organization structure, talent deployment, product design and features. We will persistently uphold and concentrate Kuaishou's technology innovation ethos, maintaining and deepening our long-term competitive advantages in the era of AI. That concludes my prepared remarks. Next, our CFO, Bing, will review the company's financial update for Q3 2025. Bing Jin: Thank you, Yixiao, and hello, everyone. In Q3, we continue to strengthen our core advantages, leveraging our large AI model capabilities, we further empowered our content and business ecosystems. With our rich content supply and optimized omni-domain operations ecosystem, we continuously enhanced the experience for users and creators while helping merchants and KOLs improve their operational capabilities and support sustainable growth. During the quarter, we achieved solid operational and financial results, with the total revenue increasing 14.2% year-over-year to RMB 35.6 billion. This included a 19.2% year-over-year increase in revenue from our core commercial business, which includes our online marketing services and other services, primarily e-commerce. With our steady revenue growth and improved operating efficiency, we improved our overall profitability. Operating profit increased 69.9% year-over-year to RMB 5.3 billion. Adjusted net profit grew 26.3% year-over-year to RMB 5 billion with a healthy adjusted net margin of 14%. Now let's take a closer look. Our total revenue grew 14.2% year-over-year to RMB 35.6 billion in Q3. The increase was mainly driven by growth across each of our business, including online marketing services, live streaming, e-commerce and Kling AI. In Q3, online marketing services revenue increased 14% to RMB 20.1 billion from RMB 17.6 billion in the same period last year. The growth was primarily attributable to the use of AI technology to continuously upgrade our online marketing product solutions that improved the conversion efficiency, which drove higher client spending from our marketing clients. Revenue from other services, including e-commerce and Kling AI businesses reached RMB 5.9 billion in Q3, up 41.3% from RMB 4.2 billion in the same period last year. The increase was mainly driven by growth in e-commerce GMV, which boosted e-commerce commission income as well as the expansion of our Kling AI business. We have continuously refined Kling AI's foundation models and developed more innovative features. Its application coverage has expanded, driving further breakthroughs in commercialization. In Q3, our live-streaming revenue was RMB 9.6 billion, up 2.5% from RMB 9.3 billion in the same period last year. We consistently cultivating high-quality content, expanded live streaming scenarios and leveraged AI-empowered product innovations to build a diverse and healthy live-streaming ecosystem. These steps drove greater user engagement with high-quality live-streaming content. Cost of revenues increased 13.4% year-over-year in Q3 to RMB 16.1 billion, accounting for 45.3% of total revenue. The increase was mainly due to increased revenue sharing costs and related taxes in line with our revenue growth, partially offset by decreases in depreciation of property and equipment and right-of-use of assets and amortization of intangible assets. In Q3, our gross profit grew 14.9% year-over-year to RMB 19.4 billion. Gross profit margin was 54.7%, up 0.4 percentage points year-over-year. Moving to expenses. Selling and marketing expenses were RMB 10.4 billion, roughly flat year-over-year and accounted for 29.3% of total revenue, down from 33.3% in Q3 last year, reflecting our refined efforts and improved operating efficiency. R&D expenses were RMB 3.7 billion, up 17.7% year-over-year, accounting for 10.3% of total revenue. The increase was mainly due to higher employee benefit expenses, including share-based compensation expenses and increased investments in AI. Administrative expenses decreased 13.6% year-over-year to RMB 688 million or 1.9% of total revenue, mainly due to lower employee benefit expenses, including share-based compensation expenses. Group level operating profit for Q3 increased 69.9% year-over-year to RMB 5.3 billion. Net profit for Q3 was RMB 4.5 billion. Adjusted net profit rose 26.3% year-over-year to RMB 5 billion with an adjusted net margin of 14%. Our balance sheet is quite robust with cash and cash equivalents, time deposits, restricted cash and wealth management products totaling RMB 106.6 billion as of September 30, 2025. We generated a positive operating net cash flow of RMB 7.7 billion in Q3. Additionally, we actively delivered on our commitment to shareholder returns based on marketing conditions. As of September 30, we had repurchased an aggregate of approximately HKD 2.17 billion (sic) [ HKD 2.07 billion ] or around 42.25 million shares, which accounted for about 0.98% of our total shares outstanding for 2025. In addition, we declared a special dividend of HKD 2 billion in Q3, reflecting our confidence in Kuaishou's long-term growth prospects and a solid financial position. Looking ahead, we'll continue to prioritize user needs and execute our AI strategy to empower all of our business stars while exploring more diversified growth avenues. These initiatives will reinforce our competitive edge in ever-changing market and enable us to create long-term value for our users, partners and shareholders. That concludes our prepared remarks. Now let's move into the Q&A session. Operator: [Interpreted] [Operator Instructions] The first question comes from Felix Liu of UBS. Felix Liu: [Interpreted] Congratulations on the very strong third quarter results. My question is on Kling AI. How does -- the market is very focused on the competitive landscape of video GenAI. Could management share more color on Kling's competition strategy from here? And where do you plan to develop and drive evolution in Kling from here? After the launch of Sora 2, how do we see the development of the overall video GenAI industry? And do you anticipate more opportunities on the 2C side of video GenAI. Unknown Executive: [Interpreted] Thank you for your question. The surge of entrants from tech giants to start-ups reflects just how attractive and promising the video generation market is. That said, we believe video generation is still far from maturity in both product and technology. With a growing number of market participants, we expect accelerated innovation across the industry, meeting more user needs, penetrating a wider range of use cases and pushing the market to expand even more. As for Kling AI's positioning and competitive strategy, we have zeroed in on key goal to empower everyone to craft captivating stories with AI. Our first industry focus is film and television, where we are dedicating our resources to deepening our tech and product capabilities. Video models like large language models are essentially evolving toward world models. We see video models as the key technology for world models. Applications can extend far beyond film and TV production. They can reach interactive experiences and data generation for embedded intelligence. While we will continue sharpening our model and product capabilities across diverse application scenarios, our strategic focus right now is squarely set on AI-powered film and TV production. With this goal in mind, we have been advancing our technology leadership and product creativity, and we'll continue on this path. Video models differ from language models in 2 ways. First, they are highly complex. While language models are relatively simple at the macro level, video models consist of a wide range of different modules. This complexity also gives us significant room for technological breakthroughs and innovation. Second, video generation is an open-ended domain, inputs can be text, pictures or motion trajectories and outputs can be diverse content including images, video and sound. These 2 characteristics [indiscernible] allow greater flexibility in technology and product choices, which in turn provide significant room for technology and products innovation. Kling AI aims to bring together product creativity, inside users capability to push technological boundaries. For example, in April, we [ revealed ] our concept of interaction called MVL. Building on this, we are continuously upgrading our foundation model and product capabilities, exploring more ML model products. Alongside the [Technical Difficulty] breakthrough in our product capabilities, we have also wide range of operational initiatives to foster -- creative mechanism and a thriving content creation ecosystem. For example, our Kling AI Future Partner program integrates key resources from both Kuaishou and Kling AI to precisely match creators with high-value commercialization opportunities across diverse scenarios. The program has supported well-known brands such as the NBA and [ Mochi Ice Cream and Tea ]. We also recently leveraged the Kling AI NextGen Creative Contest, helping Kling AI creators gain exposure at international film festivals in Busan, Cannes and Tokyo, further expanding Kling AI's global brand visibility and influence. As for the latest buzz around Sora 2, it has made technology breakthroughs on multiple fronts and integrated closely with social interaction features. This has really accelerated the rollout of consumer-level AI applications and strengthen our confidence in the future commercial scalability of video generation. For us, our main focus is still on professional creators, improving their experience and willingness to pay. At the same time, we are actively exploring consumer-facing use cases. When the time is right, we will advance the productization of Kling AI's technology, embedding social features to speed up consumer level applications and commercialization. Operator: [Interpreted] The next question comes from Lincoln Kong from Goldman Sachs. Lincoln Kong: [Interpreted] Congrats on a very solid result. So my question is about the AI-powered business. So on top of Kling AI and the OneRec just we've been talking about for online marketing services, could management elaborate more on AI large language model to empower our Kuaishou content ecosystem and how to improve our operational efficiency front? Unknown Executive: [Interpreted] Thank you for your question. 2025 is widely regarded as AI's first year advancing into deep applications. Throughout the year, AI technologies represented by a multi-model generation and AI agents have consistently moved toward richer and more efficient applications that are more aligned with user needs. This marks a systematic step toward unlocking AI's industrial scale value. Against this backdrop, we have progressively developed a comprehensive AI technology and application system centered on user needs and rooted in our existing business scenarios. It is designed to accelerate AI adoption to empower our content and business ecosystems as well as our organizational infrastructure. In terms of empowering our content ecosystem, AI has now been fully integrated across Kuaishou's business operations from content and user understanding to content generation and recommendations. First, in understanding content and users, our proprietary multi-model large language model, KwaiYii has demonstrated strong video comprehension capabilities. Based on this model, we upgraded our short video and live streaming content understanding system and launched [ Tag Next ], our next-generation tagging system, which enables more accurate and comprehensive content understanding. [ Tag Next ] is now being applied across key scenarios, including early-stage content management, content diversity expansion and the new interest discovery, driving higher average app usage time per user. Second, in content generation, Kling AI continues to empower mass creators. We have witnessed a significant increase in the video views volume of AIGC short video content on the platform. Third, in content recommendation, the important -- the most important area, we further expanded the boundaries of generative recommendation systems by upgrading our end-to-end generative recommendation large model, OneRec. We launched the next-generation OneRec-Think large model, integrating LLM inference capabilities and combining conversational inference, personalized recommendations and real-time feedback mechanisms into one single model system. This further enhances recommendation accuracy and strengthens user trust. Beyond business empowerment, AI technology has played a major role in improving the efficiency of our organizational infrastructure. Our proprietary AI coding tool, CodeFlicker has become a core intelligent development tool used daily by our engineers at a high frequency. It supports scenarios such as automated unit testing generation, intelligent code review and smart testing cases generation. Currently, nearly 30% of the new code at Kuaishou is generated using CodeFlicker. In terms of content review, we have applied large AI models across diverse scenarios, including user profiling, content identification and comment analysis. By leveraging COT reasoning and reinforcement learning technologies, we have enhanced our review models capabilities. Currently, over 99% of the content on our platform is reviewed by AI, greatly reducing related costs while improving the efficiency and quality of content review. In addition, our customer service team is leveraging AI technology to prescreen and route user inquiries, provide intelligent assistance and accumulate knowledge. As a result, over 70% of user inquiries are now directly handled and resolved by our AI-powered customer service system, significantly improving efficiency. Overall, a resilient self-reinforcing cycle of AI innovation, AI application monetization and revenue growth is taking shape at Kuaishou. In the long run, we believe this full spectrum AI application ecosystem will further strengthen Kuaishou's market resilience and unlock new growth momentum. Operator: [Interpreted] The next question comes from Thomas Chong of Jefferies. Thomas Chong: My question is about online marketing services. We have seen our online marketing revenue accelerating this quarter. Can management provide more details on what we have done from the perspective of traffic, industry sectors as well as product offering? Unknown Executive: [Interpreted] Thank you for your question. In Q3, online marketing services revenue grew by 14% year-over-year, accelerating from the previous quarter with domestic online marketing services revenue increasing by over 16%. From the traffic perspective, advertising revenue was driven by both increased marketing material impressions and higher CPM. The growth in impressions was supported by overall traffic growth and by more high-quality native marketing content, which helped increase ad load. The rise in CPM was driven by our use of AI technology such as generative reinforcement learning bidding and end-to-end generative recommendation models, which improved the matching between user interest and advertiser needs, enhancing the personalization and matching efficiency of online marketing material recommendations. Looking ahead at external marketing services industry-wise, lifestyle services, where clients mainly rely on lead-based operations and content consumption represented by short plays and mini games were the standout sectors this quarter. In lifestyle services, we upgraded our private messaging product and optimized the subsequent conversion passes across industry verticals, helping clients to reach users more efficiently and improve sales conversions. Since most of our lifestyle services clients are small and medium-sized businesses, they benefit more from products like our AI customer service, UAX placement solutions and AIGC marketing material generation tools. In content consumption industries, deep AI empowerment drove rapid growth in comic style short plays. We captured this opportunity and used Kling AI to play an active role in upstream content creation. In terms of our closed-loop marketing services, we continue to iterate our omni-platform marketing solution, helping e-commerce merchants achieve more incremental exposure and conversion. By leveraging intelligent bidding agents and generative large models, we enabled 24/7 stable bidding and more fully uncovered user interest, which helped expand merchants placement budgets. We also strengthened our ability to capture and interpret users' full range interest across both content-based and shelf-based scenarios, effectively increasing the number of converted users and their purchase frequency while better meeting users' e-commerce consumption needs on Kuaishou. From a product perspective, we upgraded multiple products, including our UAX placement solutions, AIGC marketing material generation tools, live streaming digital human solutions and our virtual employee. These enhancements lowered the marketing threshold and improved conversion rates, driving more online marketing services spending. Specifically in Q3, our UAX placement solutions added fixed period steady placement feature. The new feature allows clients to set their requirements for marketing materials and pricing for a specific ad placement period, while the system automatically handles intelligent infrastructure, smart dynamic fine-tuning and smart creative content production. This enhanced the stability of the ad placement period had helped our online marketing clients achieve more consistent placement performances at a more predictable cost. In Q3, our UAX placement solutions accounted for over 70% of the external marketing spending. Our AIGC marketing material generation tool enabled the clients to generate short video materials rapidly at a low cost and in batches with a 10% to 20% higher material conversion efficiency than the industry average. Live-streaming digital human solutions allowed our clients to run 24/7 live streams even without streamers or venues. Our virtual employee reached a human level customer service performance in conversational accuracy, efficiency and safety, engaging naturally across scenarios like private messaging and common, improving conversion efficiency for our clients. Looking ahead, we'll continue to expand our industry client base and further deepen AI applications, empowering clients to achieve more efficient, high-quality marketing performances and better ad placements. Operator: [Interpreted] The next question comes from Daniel Chen from JPMorgan. Qi Chen: [Interpreted] So my question is related to e-commerce. So what's the latest progress and the performance of our Double 11 promotion in December quarter? And if we look at next 1 to 2 years, what's the incremental -- what's the key growth driver for our e-commerce business, especially the live streaming e-commerce? How should we look at the future growth potential? Unknown Executive: [Interpreted] Thanks for the question. Regarding e-commerce, while consumption has shown some resilient recovery this year, overall user spending has remained cautious and rational. During the Double 11 Sales Promotion, we delivered results in line with our expectations with standout performances in categories such as jewelry and gemstones, tea, wine and wellness, apparel, including men's and women's apparel, sportswear and family matching outfits and fresh food. For this year's Double 11 Sales Promotion, we invested over RMB 18 billion in platform traffic incentives, combined with RMB 2 billion in user subsidies and RMB 1 billion in merchandise subsidies. Together, these effectively enhanced the merchant sales conversions and buyer engagement, increasing the number of merchants achieving GMV of over RMB 10 million by double digits year-over-year. We implemented a tiered support programs tailored to business type and merchant and KOL size, fostering a thriving e-commerce ecosystem and motivating them to achieve better growth across omni-domain scenarios. For shelf-based e-commerce scenarios, we focus on supporting core products where we launched a range of initiatives, including the Big Brand, Big Subsidy and Super Links. During this year's Double 11 Sales Promotion, the number of single products achieving over RMB 1 million GMV via the Big Brand, Big Subsidy initiative surged by over 77% year-over-year. Our users' mind share for shopping on Kuaishou improved during the sales promotion with search-generated e-commerce GMV growing by over 33% year-over-year. For our future e-commerce growth drivers, in the short to medium term, we will prioritize boosting user purchase frequency followed by increasing ARPPU. Our key initiatives to raise purchase frequency are: first, we will continue to empower streamers to strengthen their private domains and operational efficiency, broadening the variety of streamers and product categories that users pay for. Second, we will maximize cross-scenario synergy. Lower purchase barriers in short video scenarios will allow us to expand our [Technical Difficulty]. More as we progressively reinforce users' shopping mindset on Kuaishou, our pan-shelf-based e-commerce will better capture users' repeat purchases needs with greater certainty. We will further enhance the operations of our key product categories and more precisely identify our core user AI [Technical Difficulty] users' trust in the platform having steady ARPPU growth. There is still significant room to grow our e-commerce monthly average paying users, but we view this as a long-term outcome metric rather than a short-term performance metric. In the near to medium term, we will mainly focus on the healthy structure of our e-commerce monthly average paying users. Regarding the growth potential of live streaming e-commerce, as a common platform, live streaming e-commerce and trust-based e-commerce have always been the backbone of our e-commerce business and most critical operational scenarios. We believe that live streaming e-commerce with its built-in conversion advantages will continue to gain ground in the online retail market and it stills hold substantial room for structural growth in the future. The long-term growth potential lies in creating a healthy ecosystem where merchants can operate sustainably with private domain follower retention, acting as a key moat given their high user stickiness and repeat purchase behavior. Accordingly, we helped merchants better integrate their public and private domain strategies through a range of initiatives acquiring traffic in the public domain while retaining followers and converting them into customers and driving repeat purchases in private domains. That said, exceptional content and superior products remain the essential foundation of our ecosystem. Therefore, we'll continue to onboard merchants and creators, expanding the pipeline for high-quality supply while continuously broadening the range of merchandise. In parallel, we will strengthen long-term collaboration with both merchants and KOLs by offering them extensive products through our distribution pool and providing traffic support for standout content. We will also equip the merchant and KOLs with our intelligent operational tools, empowering them with AI to improve efficiency and performance. A robust business ecosystem in turn, will incentivize the continuous creation of exceptional content. Finally, while live streaming e-commerce is the backbone of Kuaishou's e-commerce, we will also encourage merchants to operate across diverse scenarios and strengthen the efficiency of omni-domain synergies. This will facilitate a closer alignment with the user needs and enhance the resilience and stability of Kuaishou's e-commerce ecosystem. Thank you. Operator: [Interpreted] The next question comes from Xueqing Zhang of CICC. Xueqing Zhang: [Interpreted] My question is regarding CapEx and profit margins. With the progress of Kling and other AI drive initiatives, does the company have any updated guidance on the CapEx and AI-related spending plans? Has the full year 2025 profit margin target being adjusted? And given that the industry is significantly increasing CapEx, how is Kuaishou planning the CapEx over the next 1 to 2 years? And what impact will AI investments have on profit margins? Bing Jin: [Interpreted] Thanks for your question. As Yixiao said, this quarter, we achieved strong results by integrating AI technology across a wide range of internal and external application scenarios. AI empowered our business operations and improved the quality and efficiency of our organizational infrastructure. AI technology continues to unlock increasing value across our content and business ecosystems. At the same time, Kling AI made more solid breakthroughs in commercialization. We now expect Kling AI's full year 2025 revenue to reach USD 140 million, more than double the target we set at the beginning of the year of USD 60 million. Given Kling AI's users' growing demand for video generation models, we have continued to ramp up our investment in computing power for Kling AI. Beyond the incremental investment in inference capacity alongside continuous model iterations, we have recently started to scaling up Kling AI's training computer power to keep Kling AI at the forefront of technology advancement. Including this and CapEx from other AI initiatives, we expect the group's total 2025 CapEx to increase in the mid- to high double digits year-over-year. Regarding expenses, we have recently stepped up our investments in hiring and retaining AI talent. This portion of expenses remains relatively manageable. And despite the higher AI-related investments, we're confident that our full year adjusted operating margin will continue to improve year-over-year. Our overall improvement in profitability further underscores that AI continues to unlock increasing value across Kuaishou's content and business ecosystems. Thanks to the better-than-expected progress of Kling and integration AI technology in our businesses, so we [Technical Difficulty] growth plan with a focus on upgrading computing power and technology. This goes beyond supervising costs and expenses builded in our strategy of leveraging leaps in AI to drive greater value. As AI applications continue to expand across scenarios, their potential value will be unlocked. We are confident that we can continue to steadily grow our profits, improving profitability over the next 2 years, and we look forward to sharing our progress along the way. Thank you. Huaxia Zhao: Thank you, operator. That's the end of the Q&A session. Operator: [Foreign Language] Huaxia Zhao: [Interpreted] Thank you once again for joining us today. If you have any further questions, please contact our capital market and IR team at any time. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good day, and thank you for standing by. Welcome to Kingsoft Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Ms. Yinan Li, IR Director of Kingsoft. Please go ahead. Yinan Li: Thank you, operator. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2025 third quarter earnings call. I'm Li Yinan, IR Director of Kingsoft. I would like to start by reminding you that some information provided during the earnings call may include forward-looking statements, which may not be relied upon in the future for various reasons. These forward-looking statements are based on our information and information from other sources, which we believe to be reliable. Please refer to the other publicly disclosed documents for detailed discussion on risk factors, which may affect our business and operations. Additionally, in today's earnings call, the management will deliver prepared remarks in both Chinese and English. A third-party interpreter will provide consecutive interpretation into English. During the Q&A session, we will accept questions in both English and Chinese with alternating interpretation provided by the third-party interpreter. On-site translation is solely to facilitate communication during the conference call. In case of any discrepancy between the original remarks and the translation, the statements made by the management will prevail. Having said that, please allow me to introduce our management team who joined us today: Mr. Zou Tao, our Executive Director and CEO; and Ms. Li Yi, our acting CFO. Now I'm turning the call to Mr. Zou Tao. Tao Zou: [Interpreted] Hello, everyone, and thank you for joining Kingsoft's 2025 Third Quarter Earnings Call. This quarter, we continued to prioritize strengthening our core businesses with AI collaboration and internationalization as its strategical priorities. Kingsoft Office Group continued to deepen AI application scenarios and strengthen its brand and ecosystem development. Our online games business advanced general experience and extended its global reach, notably with the global launch of the sci-fi game, Mecha BREAK. In the third quarter, Kingsoft's total revenue reached RMB 2.419 billion, representing a year-on-year decrease of 17% and a quarter-on-quarter increase of 5%. Specifically, our office software and services business maintained a steady growth momentum. This growth was supported by robust momentum in WPS software business, rapid growth of WPS 365 business and steady growth in the WPS individual business. Revenue from online games and other business decreased primarily due to low revenue contributions from certain existing games and because the new game is still in its early development phase and gradually build its market influence. Now I will walk you through the business highlights of the third quarter 2025. In the third quarter, Kingsoft Office Group demonstrated overall improvement in its financial indicators with continuously optimized profitability and a significant acceleration in revenue compared to the previous 2 quarters. For WPS individual business, the rollout and promotion of new AI-powered products together with refined operations in both domestic and international markets drove a steady increase in WPS AI monthly active users, paying subscribers and user value. Revenue reached RMB 899 million, up 11% year-on-year. As of 13th September 2025, WPS Office global monthly active devices reached 669 million, an increase of 9% year-on-year. Specifically, WPS Office PC version monthly active devices grew by 14% to 316 million, while the mobile version monthly active devices increased by 5% to 353 million. WPS 365 business, we continuously enhanced our collaboration and AI product offerings, achieving significant progress in expanding our customer base among private enterprises and local state-owned enterprises and strengthen our product competitiveness and industry influence. This segment continued its high-growth trend with revenue reached RMB 201 million, a significant increase of 72% year-on-year. WPS software business saw acceleration progress in localization projects. Our AI-enabled products for government scenarios continue to integrate and deploy across government agencies, supporting the digital and intelligent transformation of localization customers. Revenue for this segment reached RMB 391 million, up 51% year-on-year. In the third quarter, for our online games business, our flagship game, JX3 Online celebrated its 16th anniversary in August, followed by the launch of its annual expansion pack in October, which delivered innovative new game player. The anime shooter game, Snowbreak: Containment Zone maintained its core user base through long-term content updates and user operations. Sci-fi mech game Mecha BREAK has been continuously optimizing its gameplay and operations to enhance the player experience. Additionally, to international IP games, Goose Goose Duck and Angry Bird are expected to launch this and next year in China, respectively. Looking ahead, Kingsoft Office Group will stay committed to its core strategy of AI collaboration and internationalization, meeting the scenario needs from individual user to enterprises through its core product portfolio. The online games business will focus on developing high-quality content and expanding global publishing, enhancing the long-term vitality of its classic franchises while driving the growth and the sustainable development of new genres. Yi Li: Thank you, Tao Zou and Yinan. Good evening, and good morning, everyone. I will now discuss the third quarter operational and financial results using RMB as currency. Revenue decreased by 17% year-over-year and increased by 5% quarter-over-quarter to RMB 2,419 million. The revenue split was 33% for office software and services business and 37% for online games and others business. Revenue from the office software and services business increased by 26% year-over-year and 12% quarter-over-quarter to RMB 1,521 million. The increases were mainly attributable to the growth of WPS software, WPS 365 and WPS individual business of Kingsoft Office Group. The remarkable increase of WPS software business was primarily driven by the robust orders of localization projects. The rapid growth of WPS 365 business was mainly due to our continuous improvement in collaboration and AI products as well as expansion of our customer base among private and local state-owned enterprises. The steady growth of WPS individual business was primarily attributable to increased number of paying subscribers, supported by our active promotion of AI features and refined operations. Revenue from the online games and others business decreased by 47% year-over-year and 6% quarter-over-quarter to RMB 898 million. The decreases primarily reflected lower revenue from certain existing games, partially offset by the revenue contribution from newly launched games. Cost of revenue increased by 3% year-over-year and 5% quarter-over-quarter to RMB 475 million. The year-over-year increase was primarily due to higher server and bandwidth costs, greater channel costs as well as increased service costs of institutional clients, along with the business growth of Kingsoft Office Group, partially offset by the lower channel cost of online games business. The quarter-over-quarter increase was primarily due to higher channel costs and increased server and bandwidth costs, both associated with online games business. Gross profit decreased by 21% year-over-year and increased by 5% quarter-over-quarter to RMB 1,944 million. Gross profit margin decreased by 4 percentage points year-over-year and kept flat quarter-over-quarter to 80%. The year-over-year decrease was mainly due to the decline in the revenue contribution from certain self-development high-margin games. Research and development costs increased by 4% year-over-year and 5% quarter-over-quarter to RMB 900 million. The year-over-year increase was mainly attributable to higher investments in AI and collaboration products, partially offset by lower accrued performance-based bonus. The quarter-over-quarter increase was mainly driven by the increased headcount and AI-related expenses of Kingsoft Office Group. Selling and distribution expenses increased by 55% year-over-year and 33% quarter-over-quarter to RMB 564 million. The increases primarily reflected higher promotional and advertising expenditures associated with online games business. Administrative expenses increased by 7% year-over-year and 2% quarter-over-quarter to RMB 178 million. The year-over-year increase was mainly due to higher personnel-related expenses and increased depreciation arising from the completion and operation of our Wuhan campus, which was constructed to support the Group's long-term development. Share-based compensation costs increased by 37% year-over-year and 13% quarter-over-quarter to RMB 80 million. The increases were mainly due to the grant of awarded shares to the selected employees of certain subsidiaries of the company. Operating profit before share-based compensation costs decreased by 70% year-over-year and 21% quarter-over-quarter to RMB 357 million. Net other gains were RMB 13 million for this quarter compared with losses of RMB 63 million and gains of RMB 443 million for the third quarter of 2024 and the second quarter of 2025, respectively. Share of profits of associates of RMB 5 million were recorded for this quarter compared with losses of RMB 428 million and RMB 170 million for the third quarter of 2024 and the second quarter of 2025. Income tax expense was RMB 66 million for this quarter compared with income tax expense of RMB 31 million and RMB 104 million for the third quarter of 2024 and the second quarter of 2025, respectively. As a result of the reasons discussed above, profit attributable to owners of the parent was RMB 213 million for this quarter compared with profit of RMB 413 million and RMB 532 million for the third quarter of 2024 and the second quarter of 2025. Profit attributable to owners of the parent, excluding share-based compensation costs was RMB 277 million for this quarter compared with profit of RMB 453 million and RMB 570 million for the third quarter of 2024 and the second quarter of 2025, respectively. The net profit margin, excluding share-based compensation cost, was 11%, 16% and 25% for this quarter, the third quarter of 2024 and the second quarter of 2025. The Group had a strong cash position towards the end of the reporting period. As at 30th September 2025, the group had cash resources of RMB 26 billion. Net cash generated from operating activities was RMB 494 million, RMB 1,387 million and RMB 767 million for this quarter, the third quarter of 2024 and the second quarter of 2025. Capital expenditure was RMB 72 million, RMB 109 million and RMB 81 million for this quarter, the third quarter of 2024 and the second quarter of 2025. That's all for the introduction of our operational and financial results. Thank you all. Now we are ready for the Q&A section. Thank you. Operator: [Operator Instructions] We will now take our first question from the line of Xiaodan Zhang from CICC. Xiaodan Zhang: [Interpreted] And my first question is regarding the gaming business. Games revenue for the quarter is down both year-on-year and quarter-on-quarter. So could management elaborate on the operational strategies for existing games as well as the new game pipelines? And also, could you share some color on the updated progress of Mecha BREAK? And regarding the office business, what are the main drivers behind the accelerated growth in Q3? And will this momentum be sustainable? Tao Zou: [Interpreted] So firstly is regarding the question for the games. We have discussed previously for the future and future strategy of the different versions. And so we currently have already obtained the version numbers, and we're going to be launching different games, including like Mecha BREAK and Goose Goose Duck and also the other products. But for the old games, we mainly focusing on the like the Fate of Sword and also the Snowbreak: Containment Zone, and we're going to have like the target for the customer, for the operation service. We're going to have the long-term like upgrading the generations, including the new play way, including new content, we're going to continue to upgrade that. This is the regular way. And target for the technology and operation, we're going to have some new improvement, so this is relevant to the strategy of the game. And for the Mecha BREAK, because it just launched for 1 season roughly and the target for this game for the play way, for the operation and also the rich content, we are still doing the operation and improvement. We think that we need longer time to give the answer. So actually, regarding the growth factors, we think that we could take a look from 3 perspectives. What I can say is that basically, they are all good, but I would like to separate into like personnel for the enterprise and also the information innovation, 3 aspects to the introduction. For the personnel, actually, the growth rate of the members is -- we have the basic number and including like the payment for the up value. And for their PC growth rate is actually out of -- exceeded our expectations. So this is going to be the key thing, which is the members. The secondly is the AI. Once we have released the 3.0 version, so through the AI, we have this monthly activity. Members compared with last year is going to increase 20%, especially launch 3.0 version. So compared with the first half year, we have realized doubled. And this is the second point. Another thing is that from the basic for the membership grows, so we can see that the feedback from the users are quite good. So we can see that basically it's exceeded than what we expected. It means that more and more enterprises customers, they started to accept us. And also for our product and service are quite satisfied. That is why we have increased like the industry's competitiveness. And third is about the software and information, the information innovation. So regarding this part is that we can see that since Q3 is quite smooth, and it has increased like 51%, no matter for the personnel or information innovation. So basically, it's going to be a very, very positive situation. So the growth element, whether we could be sustainable development, we would like to talk through 3 perspectives: personnel, enterprise and information innovation. And firstly, for the information innovation, that is kind of policy-oriented. So basically, we can realize more than 90% of the growth rate. This is from the short-term perspective. We can see that like Q4 is quite good, probably because we're going to complete in 2027, but the acceleration is quite good. Unless we have the big policy direction is going to have some adjustment. Otherwise, we have the confidence that we could realize this much growth constantly. For the personal business, regarding the growth rate for these 3 business, we have realized like more than 10% increase. So from the increasement of the membership and secondly is the payment like conversion rate and also the UP value. So up till now, we can see is that the users membership growth is quite good. And especially for the AI members is growth rapidly. So generally speaking, we have confidence. And -- but of course, it's a little bit lower than the expectation and then the enterprise membership growth. So from the enterprise perspective, my personal judgment is that if we could realize the delivery, if the delivery is on time in the future, we have a pretty big space to improve. So in the next 2 years, we're going to have -- we believe that we have more and more enterprise members to use our product. So we can see is that our productivity is quite good and our service is going to have a reputation. For our team, we need to strengthen their internal and external cooperation to strengthen our delivery ability. We believe that this has a certain pressure for us. But generally speaking, so from this report, we can see a lot of data was renewed, including our R&D and our staff percentage and also the investment of the R&D could reach to 35%, 36%. Previously, it was 32% to 33%. So we can see that we continue to do a further bigger investment for the R&D. This is -- we believe that it is going to be the very basic reason we could have such increase, especially like Wuhan Industrial Center and started the construction work in 2018 and up to now it's become the largest industrial base for Kingsoft. And this is going to be a very solid foundation for us. Operator: We will now take our next question from the line of Wenting Yu from CLSA. Wenting Yu: [Interpreted] So my first question is, how does the company view the opportunities for WPS Office and 365 in international markets, and which countries or regions will be the strategic priorities? And how does management assess the competitive dynamics overseas, particularly against the Microsoft Office? And the second question is about the online game. So over the next 2 years on top of the 2 IP titles mentioned in our pipeline, which game genres will be the main focus in the company's pipeline? And how does management view the opportunities for games to expand into the overseas market? Tao Zou: [Interpreted] So regarding the first question, this is actually a very good question from the strategic perspective. Since last year, we have reached the concept that AI collaboration plus overseas. So from the business perspective, the growth rate overseas is quite good from the users, members' perspective and also the other perspectives. So since -- started from this year, we have increased the overseas R&D investment. We actively did a lot of preparations for to go overseas. So from my perspective, especially when we talk about the competition with Microsoft because our main competitors is Microsoft. So our competition strategy overseas is that I think I would need to separate it from 2B and 2C, 2 perspectives. So for WPS in domestic market, we have actually go through with the competition with Microsoft for almost 30 years up to now is a long term. So several key points. The first is that from the edit tool to the content service platform, we have did this transformation because everybody really know that if they're going to use our product, we're going to provide a module. So our members target for the content and to have this PDF content transformation and also to like search the content information, et cetera. So this is actually very early stage, we did this. And except for very early stage, we have the document edit tool. We also have provided the content, the document content service to convert it into a platform. So actually, this is the first point. And secondly, is that since 2013, we started the like mobile end. So this is actually early -- 2 years earlier than Microsoft. So actually, for us, it's just an app would be solve all of the problems. But for Microsoft, it's going to be more complex. And so our -- that our -- like their package, the installation package is smaller for the mobile end. So that is why in overseas, a lot of customers, they actually know about us through the mobile end. Then we have the mobile end, we have these advantages. And in the past 10 years, we have collected a pretty good foundation. And then from the technical perspective, from the mobile end, we have some certain advanced than Microsoft. This is going to be the core things. And this time, we have the AI and especially we have released 3.0 version since 2023. After 2 years optimization, our sales together with our users, they're going to give us the feedback and we constantly do the practice, and we have a very good like both parties both end interaction. So we think that from the AI's perspective, target for the content application, we are stronger than Microsoft. So this is actually from the 2C's perspective. And we are actually a platform to do -- to provide the content and also the service, not just a simple document edit tool. And also from the mobile end, we have advantages together with our technology, we have the correct way. So we have the difference from the technical route. So for the 2B's perspective, I think we have a bigger advantage. And actually, all the domestic members are all clear, especially we have this -- the first package released to the market. Our WPS 365 is not just a content treatment platform. This is actually an office platform, especially we have the AI edit. And so not just -- we are not just like document treatment set compared with Microsoft. We are actually the whole office platform. And this platform in our company internally, we have used for 2 years. And in domestic market, we also have a lot of enterprises. They are seeing they actually could -- this software could have a very perfect integration with the enterprise OA system. This actually are significant advantages. So we can see that at least for our Office platform and to compete with Microsoft, this is actually very early stage. We have this module. We're going to have different components. So we have different module. It's very flexible and also the layout are also quite flexible. This is from the 2B's perspective. So this is actually -- we make a conclusion is that we have 2 perspective from 2C and 2B. And in the past few years, especially for the mobile end has been released. In the past 10 years, we have a very good like public members foundation through the mobile end. So on the other hand, they would like to actively download the PC end to remake the promotion and layout. So -- and secondly is from the national perspective, and we have a lot of Chinese friends, they would like to do the promotion and development. So I think that this is the core thing. So the second is regarding the games. Actually, we have a pretty good like foundation. Currently, we have some of the games already obtained their version numbers and including the JX4 and Angry Birds and Goose Goose Duck, and also the Snowbreak: Containment Zone. And we also have some games, which didn't get their certification yet, but probably we're going to launch it next year. So we think that from the overseas, the overseas opportunity is quite good. So including when we did start the -- launched the game in the -- for the Snowbreak: Containment zone and also the Mecha BREAK, we tried several times, especially for the mobile end. So we realized that in domestic market, some of the companies, they did a pretty good performances overseas. So we believe that this direction is correct. So we're going to continue to optimize our product, our technical ability, operation ability. Operator: We will now take our next question from the line of Linlin Yang from Guangfa Securities. Linlin Yang: I have 2 questions. The first question is could you share us the progress of our AI business? How do you think about its commercialization pace and market potential? My second question is the expenses. We see sales and marketing expenses was relatively high in the short term. As the business stabilized, will it return to normal by next quarter or Q1 in 2026? Tao Zou: [Interpreted] So I would like to answer the first question, and Li Yi is going to answer the second question. So regarding the AI business improvement progress, actually, since April this year, when we found the [indiscernible] to collaborate with Kingsoft Cloud target for the enterprises and different application services from the strategic way we're going to do the support and actually, including Zhuhai, we have local big model, and we have the feasibility report regarding the transportation, we have different projects delivery and also in different industries like the low industries, et cetera, with different regions, we all started all of the development. And so for the more details, it's not convenient for us to disclose at this moment. But why we would like to set up an AI product center because we strongly believe that the whole industry, when we do this practice for the big module, it's going to get into the specific application for different industries. So simplified -- make it simplified is that we think that in the future, different industries is going to have like restructured system for the big module, including the internally of the enterprises, for the organizations way is going to have some change. So the main job of this year is to this part. And we -- for Kingsoft Cloud, we have some progress. So at this moment, at this stage, the business is still in a very early stage. So because of a comprehensive reason, it is not convenient to disclose too much details at this moment. Yi Li: [Interpreted] So regarding the second question for the expenses for the marketing actually when we promoted into -- launched it into market, and we believe that for the long-term perspective, it's going to get back to a normal situation. When we have promoted the launch of different products, and we think that the cost is going to -- different season is going to have slightly changed. And the previous season, it was 15% to 16% and also this season is going to reach to 20% and more than 20%. So from the whole year's perspective, this is going to get -- we think that's going to be a reasonable level because we need to have all of the cost for the R&D, especially for the AI in the -- specifically in the early stage, we need to have more investments, but that is for the long-term sustainable development. So we believe that in the long term, we're going to control the rate, the investment rate and finally get a reasonable profit level. Operator: I am showing no further questions. Thank you all very much for your questions. And with that, we conclude our conference call for today. Thank you for participating. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]