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Operator: Good day, and thank you for standing by. Welcome to the Cerence Inc. fourth quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Kate Hickman. Please go ahead. Hello, everyone, and welcome to Cerence's Fourth Quarter 2025 Conference Call. Kate Hickman: I'm Kate Hickman, VP of Corporate Communications and Investor Relations. Before we begin, I would like to remind you that this call may involve certain forward-looking statements. Any statements that are not statements of historical fact including statements related to our expectations, anticipations, intentions, estimates, assumptions, beliefs, outlook, strategies, goals, objectives, targets, and plans, are forward-looking statements. Cerence Inc. makes no representations to update those statements after today. These statements are subject to risks and uncertainties, which may cause actual results to differ materially from such statements and expectations. As described in our SEC filings including the Form 8-Ks with the press release preceding today's call, our most recent Form 10-Q, and our Form 10-K filed on 11/25/2024. In addition, the company may refer to certain non-GAAP measures, key performance indicators, and pro forma financial information during this call. Please refer to today's press release for further details of the definitions, limitations, and uses of those measures and reconciliations of non-GAAP measures to the closest GAAP equivalent. The press release is available in the Investors section of our website. Joining me on today's call are Brian Krzanich, CEO, and Tony Rodriguez, CFO. Please note that slides with further context are available in the Investor section of our website. Before handing the call over to Brian, I would like to mention that we will be participating in the Raymond James TMT and Consumer Conference on December 8 and the Needham Growth Conference on January 13. In addition, Cerence Inc. will also be exhibiting at CES in Las Vegas from January. Now on to the call. Brian? Brian Krzanich: Thank you, Kate. Good afternoon, and welcome, everyone. I'm excited to speak with you today and reflect on my first full year as Cerence's CEO. It's been a great year for the Cerence team and our customers. And I couldn't be happier with the performance. Over the past year, we strengthened the financial and operational foundation of the company and significantly increased positive cash flow generation. Beating nearly every metric and putting us on solid ground for executing on our future growth plans. We've made significant progress with our XUI platform, including meeting all our technology milestones while driving strong customer interest and adoption. We paid down $87.5 million of our debt using cash on hand while maintaining our cash position for the future. And we secured our first successful outcome in our efforts to protect and monetize our intellectual property. As a result, we believe that Cerence Inc. has the right foundation for long-term sustainable growth in fiscal 2026 and beyond. All of this has led us to posting strong results for this quarter. Again, delivering above the high end of our guidance range. With revenue of $60.6 million and adjusted EBITDA of $8.3 million. And importantly, we generated strong free cash flow of $9.7 million. For the full fiscal year, revenue was $251.8 million. Adjusted EBITDA was $48.1 million, and free cash flow grew almost threefold year over year to $46.8 million. And PPU increased to $5.05 for the trailing twelve-month period, up 12% from the same period last year. Tony will provide further details on our results later in the call. As you've heard us discuss in recent quarters, we are deeply committed to monetizing our intellectual property and protecting it against infringers. Last month, we resolved our suit with Samsung, which, among other things, resulted in Samsung agreeing to pay Cerence Inc. a one-time lump sum payment of $49.5 million. This payment is pursuant to a confidential cross-license agreement with Samsung, which limits our ability to provide specifics. Nevertheless, we believe that it's an important milestone in our strategy and a proof point for the broad applicability of our technology across different industries and verticals. I'd also like to share a bit more about our approach to IP monetization and how it fits into our long-term strategy. While we always prefer to enter licensing deals without resorting to litigation, we expect to take all necessary steps, including litigation, to ensure that we receive fair value for our foundational IP. And this is why we currently have actions against Apple, TCL, and Sony, among others. And we have a multiyear roadmap of potential future and are consistently evaluating if new lawsuits are warranted. We believe IP monetization will be a continuing ongoing revenue stream in the future that will help to support our nonautomotive business growth. The payment under the Samsung licensing agreement, as well as the expected cost related to our other active suits, are incorporated into our fiscal year 2026 guidance, which Tony will discuss. It's important to note that the process for these lawsuits is long, so as we move through fiscal 2026, we will keep you apprised of any important updates. Now taking a moment to look back at Q4. We continued to make progress on our three key deliverables: advancing our AI roadmap, growing our business with new and existing customers, and continuing our transformation and cost management initiatives. First, in terms of advancing our roadmap, we continued our development of Cerence's XUI with the addition of several new languages and ongoing advancements of our core tech and audio AI solutions, which are the basis for the XUI experience. We also hosted another successful demo at IAA in Munich in September, where we showcased our flexible, agnostic approach partnering with CEMA.ai as well as MediaTek to bring advanced low-power conversational AI to vehicles. We also furthered the advancement of our Agentic AI strategy, partnering closely with Microsoft to roll out a mobile work agent that enables people who choose to work in the car to do so more safely and securely through voice-first access to Microsoft 365 Copilot, Teams, Outlook, and OneNote. With XUI's automotive-grade agentic architecture, the mobile work agent can seamlessly and proactively orchestrate between Copilot and other domains like navigation to enable a cohesive and context-aware user experience. Through our partnership with Microsoft, we're turning the car into a trusted device, something that we believe our competitors cannot deliver. Looking forward to 2026, we're gearing up for our next big milestone, CES in Las Vegas, where we'll continue to showcase the latest innovations in Cerence's XUI and our core tech. We'll also demonstrate new AI agents focused on vehicle service and dealerships, part of our strategy to expand to other areas of the automotive ecosystem to drive additional revenue opportunities. In terms of customer adoption, we continued development of our two previously mentioned XUI customer programs, JLR and a brand within the Volkswagen Group. Both programs are on track and are expected to hit the road in 2026. We also continue to build the XUI pipeline with additional POCs with large global automakers, including some North American OEMs, where we are working to regain market share. Thus far, we're seeing positive momentum in converting POC programs to deals. Our second key deliverable is continuing to grow our business with new and existing customers. We signed several important deals in Q4, including with Toyota to bring our Gen AI-powered solutions into their vehicles, with Ford to expand the presence of our audio AI across their lineup, and with an autonomous trucking company for our emergency vehicle detection solution. Other key wins in the quarter included BMW, Honda, and Great Wall Motor. We also saw nine programs start production in Q4, including BYD, Subaru, and Geely. Outside of automotive, we continue to operationalize our new strategy and distributor model with a focus on three key areas. First, expand our work with partners like Microsoft and NVIDIA. Second, continue to double down on our work with distributors to grow in areas like voice-powered kiosks and logistics. And lastly, as mentioned, continue our IP monetization efforts. As a reminder, we believe the impact of our work to expand beyond automotive will be seen in our revenue and profitability in late fiscal year 2026 and beyond. And this is reflected in the fiscal 2026 guidance. Our third key deliverable is continuing our transformation and cost management initiatives. As you can see from our continued strong cash performance, we have driven real benefits from our work and are delivering it to the bottom line for our shareholders. Continuing our attention to cost, we initiated a restructuring plan in Q4 with respect to certain foreign operations intended to further reduce operating comp expenses and position Cerence Inc. for profitable sustainable future growth. We expect to incur the majority of the restructuring expenses related to this plan to complete its implementation in Q1. For the remainder of fiscal 2026, we will remain diligent and maintain our attention to cost management. In conclusion, we are incredibly proud of what our team has accomplished this quarter and in fiscal year 2025 as a whole. As we look to fiscal year 2026 and beyond, there are several key vectors for our ongoing growth. First, increasing adoption of Cerence's XUI and driving greater penetration of our stack and existing programs, delivering increased PPU. Second, increasing the number of connected vehicles shipped, resulting in expansion of our connected services business. And third, growth in our nonautomotive business towards the end of the year. This includes our IP monetization efforts, which we believe will continue to yield benefits and provide an ongoing revenue stream. And as a reminder, with most cases taking multiple years to reach resolution, this is a long-term strategy. We look forward to building on the strong foundation set in fiscal 2025 for long-term, sustainable growth in fiscal 2026 and beyond. While Tony will walk you through the details, we expect fiscal year 2026 revenue to be in the range of $300 to $320 million, marking a 23% year-over-year increase at the midpoint. And this reflects the patent license payment from our Samsung cross-license as well as anticipated 8% growth in our core technology business, which excludes professional services. And we expect professional services to shrink as our newer technology requires less time and engineering to deliver, and OEMs and tier ones continue to grow their internal capabilities. And we expect adjusted EBITDA of $50 to $70 million and free cash flow of $56 to $66 million. We're motivated by all we've achieved in the last year, and believe we have an exciting path ahead of us as we transition into a new phase of growth for Cerence AI. I'll now turn it over to Tony to take you through the details. Tony Rodriguez: Thank you, Brian. Afternoon, everyone, and thank you for joining us today. Appreciate your time and continued interest in our company. Today, I will walk you through our Q4 and full year results, highlight the key drivers behind our performance, and provide guidance for the upcoming quarter and full fiscal year 2026. We ended fiscal 2025 on a strong note, delivering results that exceeded expectations and reinforcing the momentum we've been building all year. As Brian mentioned, Q4 total revenue was $60.6 million, surpassing our projected range of $53 million to $58 million. For the full fiscal year, revenue reached $251.8 million, exceeding our earlier expectations. This performance reflects broad-based strength across our business, disciplined execution, and continued progress in driving growth during the year. Variable license revenue for the quarter was $31.6 million, up 25% year over year, fueled by strong customer utilization, solid in-period shipments, and a tailwind from favorable euro exchange rates. We had no material fixed license deals in the quarter or Q4 of last year. Importantly, we believe this continued shift toward recurring scalable usage-based models strengthens our revenue quality and visibility. For the full year, total license revenue grew 13%, a healthy expansion considering that we had lower fixed license contracts in the current year by about $8 million. Q4 connected service revenue came in at $14.2 million, up 17% year over year, reflecting a continued expansion of our connected installed base. For the year, connected services revenue was $53.4 million, which compares to $133.4 million in fiscal 2024. Though that prior year figure was an anomaly as it included a one-time $86.6 million noncash benefit from a decommissioned legacy contract. Excluding that, connected services actually grew 14% year over year, which we believe shows a steady demand and growing recurring scale. Professional services revenue for Q4 was $14.2 million, down 18% year over year as we continue to standardize our product offerings, streamline custom projects, and gain efficiency in implementations. Also, under applicable accounting rules, certain professional service revenue is deferred when it is included as a component of life licensing pricing. For the full year, professional services declined 21% year over year but was directionally consistent with our focus on higher gross margins. Gross profit for the quarter was $44 million, yielding a 73% gross margin, up from 4% in Q4 of last year, which we believe provides a clear demonstration of the improved mix towards technology revenue. Operating discipline remains a major focus. Q4 non-GAAP operating expenses were $38.3 million, down 3% year over year, reflecting strong cost control while continuing to invest in innovation and growth. For the full year, non-GAAP operating expenses were $146.1 million, down $28.5 million or 16% from last year, highlighting the expected sustained benefit of our cost realignment initiatives. These efficiencies translated into robust bottom-line performance. Q4 adjusted EBITDA was $8.3 million, well above our $2 million to $6 million guidance range. For the full year, adjusted EBITDA reached $48.1 million, doubling our initial expectations when the year began. That is a powerful statement of execution, discipline, and scalability. Our GAAP net loss for Q4 narrowed to $13.4 million from $20.4 million for the same quarter last year. For the full fiscal year, GAAP net loss was $18.7 million. We also made significant progress on our balance sheet during fiscal 2025, we reduced total debt by $87.5 million using cash on hand, and we ended the year with $87 million in total cash and marketable securities. We generated $9.7 million in positive free cash flow in Q4, our sixth consecutive quarter of positive free cash flow, and $46.8 million for the full fiscal year. We are confident in our liquidity position and believe that we will be able to continue funding strategic initiatives from operating cash generation. From a metric standpoint, we shipped approximately 11.7 million units for the quarter, an increase from 10.6 million in the prior year fourth quarter. We also grew the number of our connected cars shipped by 14% on a trailing twelve-month basis, underscoring the continued momentum in vehicle connectivity. Also on a trailing twelve-month basis, 52% of worldwide auto production included Cerence technology, remaining in line with our historical penetration. Adjusted total billings were $230 million, an increase of 8.4% year over year. Our five-year backlog metric is currently approximately $1 billion, up slightly from where it was two quarters ago. As a reminder, our five-year backlog may not be indicative of future actual revenue. As previously discussed, when we look at total licenses shipped, pro forma royalties, and the operating measure we use representing the total value of variable licenses shipped in a quarter, including shipments from prior fixed licenses where revenue was previously recognized upon contract signing. We refer to shipments where revenue was recognized in a prior period as fixed license consumption. Our pro forma royalties were $39.6 million, which were down slightly as compared to $41.9 million in Q4 of last year. Consumption of our previous fixed license contract totaled $8.5 million this quarter, better than the same quarter last year by about 49% and in line with expectations given the lower level of fixed contracts than in historical periods. This drops more of the pro forma royalties into revenue in the current period as compared to a year ago. Our PPU metric increased to $5.05 for the trailing twelve-month period, up 12% from $4.50 for the same period last year, reflecting continued implementation of our improving pricing strategy and an increase in the adoption of connected solutions. Looking ahead, we believe 2026 is shaping up to be an exciting year of growth and profitability. Again, as Brian mentioned, we expect total revenue in the range of $300 to $320 million. At the midpoint, this represents a 23% year-over-year increase. This includes a $49.5 million patent license payment, which we expect to account for as revenue finalized in Q1. A year-over-year comparable $22 million in expected new fixed license contracts, while absorbing modest headwinds from the anticipated continuing reduction of professional services revenue. At the midpoint, we anticipate high single-digit growth in our technology run rates, across both variable license and connected services, underscoring durable demand and expanding recurring contribution. Operating expenses are expected to remain largely stable with an increase primarily related to legal costs tied to IP licensing. For the full year 2026, we expect adjusted EBITDA of $50 million to $70 million, free cash flow of $56 million to $66 million, and gross margins between 79-80%. For Q1 FY 2026, we expect revenue between $110 million and $120 million, again including the $49.5 million patent license payment which we expect to account for as revenue, and roughly $8 million in expected fixed license contracts. Adjusted EBITDA is expected to be between $30 and $40 million. To summarize, fiscal year 2025 was a year of strong execution, improving profitability, and sustained momentum. We exceeded our targets, strengthened our balance sheet, and positioned the company for a year of accelerating growth in fiscal 2026. Our 2026 outlook reflects not just higher revenue and margin expansion, but also the realization of the value of our strong foundational IP portfolio and continued growth from our recurring technology lines. We're confident in the resilience of our business built to drive ongoing innovation, customer success, and long-term shareholder value. Thank you again for your confidence and continued support. With that, I will now turn it back to Brian to close our remarks. Brian Krzanich: Thanks, Tony. In closing, we are pleased with our results this quarter and incredibly proud of what our team accomplished in fiscal year 2025. For fiscal year 2026, we are focused on three key priorities: driving top-line growth, advancing XUI, and maintaining cost diligence. We believe we have an exciting path ahead and we look forward to sharing more on our Q1 progress in next quarter's call. We'll now open it up for questions. Operator: Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. If you would like to remove yourself from the queue, press star 11 again. We also ask that you please wait for your name and company to be announced before proceeding with your question. The first question that we have today is coming from the line of Jeff Van Rhee of Craig-Hallum Capital Group. Your line is open. Jeff Van Rhee: Great. Thanks. A couple. Maybe you start with the IP side. Congrats on the win there. Just to be clear, was that flowing through at a pure profit? And then I'd probably get back into it, but I want to avoid any mistake. What is the assumption for '26 in terms of legal expense? Tony Rodriguez: Hey. It's Tony. Hey, Tony. Thanks for the question. Yeah. A couple things on that IP side. So, yes, you know, we expect that to flow through revenue so that yeah, at a gross the gross amount of $49.5 million. This first one that really we closed in our ongoing process to monetize, you know, our IP outside of automotive, we did this on a contingent basis with the attorneys, so those costs will be recorded in Q1 as well. And I'll give you some numbers in there. It was actually, I think, in our 8-K as well. But so and, you know, it was the international customer. So there was also some withholding tax within Korea. So at the end of the day, that payment will flow through down to the bottom line. And the net amount would be minus roughly again, anticipating that that would be in revenue in Q1. 24, called $24 million of legal cost and a bit of withholding tax as well. Jeff Van Rhee: Okay. Yep. And then your second question Yeah. And I was the ongoing legal. Yep. Yeah. Yeah. And so the way we're looking at this now is that you know, we have an option of how we pursue these. Right? And we believe that we will utilize our external legal costs to do it more of an hourly basis to get a higher return kind of on these type of events. And, accordingly, we're looking at the kind of midrange of guidance of about you know, 7 to 8 million of additional legal costs this year. Tony Rodriguez: Okay. Jeff Van Rhee: And that's in our guidance. Yes. Brian Krzanich: Yep. Very helpful. Jeff Van Rhee: And then, you talked about the ramp in interest in XUI and some ramping in the proof of concepts, the POCs. Can you just put a little finer point on that? Any quantification, any scope you can put around the degree of increase in interest for that? Brian Krzanich: We have about this is Brian Jeff We have about half dozen POCs going on with different OEMs. In various levels of the XUI platform, whether it's kind of a continuum XUI that has a variety of options and capabilities. And so that's kind of the number of companies that we're working with or partners that are looking at XUI right now. And you saw we also announced several more ChatPro and certain subscriptions add-ons this quarter and implementations. Jeff Van Rhee: Mhmm. Great. Just two last, if I could sneak them in. One on the, connect Connected, nice sequential pickup there. Any if I recall, there are several ways you can take that revenue. I could be mistaken there, is there anything in there that is pull forward, true up, or what I would call sort of an unusual way of taking connected, or is that a clean number? Brian Krzanich: No. There's really only one way that I know of. And maybe Tony has more But it is always over the life of the contract. And so there's no pull forwards or unique accounting that's being done here. We take a look at the total value of the contract. We look at the lifetime, they're anywhere from one to ten years. There's some that are as long as ten years. The average we've said in the past has been about three. Stays that way still. And so we would break that revenue then out over that three-year period. Tony Rodriguez: Yeah. And so, yeah, definitely, it's clean. I think you're right. You follow us enough to know that, you know, in the case of where we get a billing where we, you know, we continue to monitor activity within the connected side. And if we believe that we work with our OEM and there was any potential underreporting, if we get catch-up billings within connected, we will you know, the relate to past services, we will recognize some of that. But, this quarter was, was rolling out of that. Brian Krzanich: Okay. Great. Congrats on that. That's not unique about connected. Those true-ups are just it's volume related. Right? And sometimes, takes a while for us to get all of the volumes correct. Between the OEMs and ourselves. Correct. Tony Rodriguez: Yeah. No. Totally understood. And maybe last then, just on the, you talked about sort of the non-automotive opportunities. Ramping in the out year. Maybe spend a second there and sort help us rank order top one, two, three, in the nonautomotive bucket. Brian Krzanich: Sure. You know, I again, I put our IP monetization in that bucket as well. Right? We set in here. We have other suits going on. And you know, we have a multiyear large list of opportunities in that space. And you really have to take a look at that Those are mostly us getting paid for our technology in nonautomotive space. And in fact, it's all of that. Right? Including the Samsung one. It's nonautomotive revenue. So I do want to clarify that. That is using our technology in a nonautomotive space that we are getting paid for and should have been paid for. We'd always prefer to just do a standard license. But we'll defend it in other words. The other spaces for the nonautomotive I tell you, the first one is the kiosk space. We actually did an implementation this last quarter in South America with a bank. Implementing voice into the kiosks. We have several other POCs going on with kiosks and various types of applications moving forward. So I'd say that's the first priority. Or the first opportunity that's coming due. Then we have we've talked about it in the past. What we call Vinnie. Which is our phone answering chat service. That can be implemented. We're targeting again, spaces that we know. So we're looking at dealerships and automotive space. Basically, you can answer phones, make appointments, do things for the, like, just for your CRM or your service space. There's also other applications in with OEMs in that space as well. Answering a lot of their calls since we already ingest all of the owner's manual. So those would be the first, like, two that I'd tell you that are near term and the products are ready. In fact, those will be at CES in demonstration mode. You'll be able to come see those at our booth in CES. Jeff Van Rhee: Mhmm. Thanks so much. Appreciate it. Brian Krzanich: Bye. Operator: Thank you. One moment for the next question. Our next question will come from the line of Mark Delaney of Goldman Sachs. Your line is open. Will (for Mark Delaney): Good afternoon, everyone. This is Will on for Mark Delaney, and thank you for taking our questions. So my first one is for the 8% growth in the core business fiscal 2026 that you expect, how does that break out between unit and content step up? Tony Rodriguez: Hey, Will. Thanks for the questions. So, you know, again, a couple of things to think about as, know, in that percent. When we think about that 8% core technology, we're thinking that that core license revenue and core connected. Right? And as we think about the latter, they're connected. You know, we think about, you know, the additional billing Billings for connected has been growing over the last, you know, year and a half, two years. And then that gets amortized over the subscription period. Right? So we're seeing those increased billings continue to amortize and grow that number, and we expect that growth related to increased billings in 2026. And then the amortization of the previous billings that are in deferred revenue. So we've been growing deferred revenue and then amortizing that. So that's you know, you know, roughly the eight or 9% in the connected side. And similarly, a similar percentage in, license. So it's a little bit different. As we've discussed in the past, you know, we've continued to decrease the fixed license revenue over the last two years or so. And what that means is more of the variable licenses actually drop down into revenue in periods. So because of those decreased fixed life over the last couple of years, what we're seeing is that overall, pro forma revenue will likely be fairly flat, but more of it will be in period revenue for those shipments. That's about half of that growth. And then the other half would be coming from, you know, additional price and volume out of the licenses. Will (for Mark Delaney): Alright. Thank you for the color there. Just no. That was helpful. Thank you. And just one follow-up question, but so can company share an update on the competitive landscape, especially with new AI systems coming to vehicles as illustrated that, that you saw with GM and Gemini. So if you just give us an update on what you're seeing across the competitive landscape. Thank you. Brian Krzanich: Yeah. I say, you know, the competitive landscape hasn't necessarily changed dramatically. From the standpoint of who our competitors are Right? You know, there aren't we're not seeing anything new or unique What we would say is that you know, more and more of the technology is becoming large language model based. And you're seeing more and more agentic AI in the products. And that's driving you know, the competition more than, I'd say, new players or new additions. So it's the same ones, and I tell you, you know, it's we've talked about them in the past. Google is there. Amazon's there. Those are the big two that we're usually competing against. Thank you. Operator: Thank you. At this time, if you would like to ask a question, please press 11 on your telephone. And I'm not showing any more questions in the queue. So I'd like to turn the call back over to Brian for closing remarks. Please go ahead. Brian Krzanich: Yes. Thank you. So, again, I would just like to thank everybody. Those were great questions, and I appreciate everybody's time. We're really excited about the results we had for both Q4 2025, but full year 2025. And we're feeling like we really have set the foundation for growth as we go into 2026. And we look forward to talking with you guys at the end of the first quarter here and, you know, showing you great results again and laying out more and more of our strategy for 2026 as we move forward. Thank you very much for the call today. And we look forward to talking to you again later on. Operator: Thank you all for participating in today's conference call. You may now disconnect.
Sarah: Good afternoon. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to NVIDIA Corporation's third quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. Toshiya Hari, you may begin your conference. Thank you. Toshiya Hari: Good afternoon, everyone, and welcome to NVIDIA Corporation's conference call for the 2026. With me today from NVIDIA Corporation are Jensen Huang, president and chief executive officer, and Colette Kress, executive vice president and chief financial officer. I'd like to remind you that our call is being webcast live on NVIDIA Corporation's 2026. The content of today's call is NVIDIA Corporation's property. It cannot be reproduced or transcribed without our prior written consent. During this call, we may make forward-looking statements based on current expectations. These are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release, our most recent forms 10-K and 10-Q, and the reports that we may file on Form 8-K with the Securities and Exchange Commission. All our statements are made as of today, 11/19/2025, based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During this call, we will discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our CFO commentary, which is posted on our website. With that, let me turn the call over to Colette. Colette Kress: Thank you, Toshiya. We delivered another outstanding quarter with revenue of $57 billion, up 62% year over year and a record sequential revenue growth of $10 billion or 22%. Our customers continue to lean into three platform shifts fueling exponential growth for accelerated computing, powerful AI models, and agentic applications. Yet we are still in the early innings of these transitions that will impact our work across every industry. Currently, we have visibility to a half a trillion dollars in Blackwell and Rubin revenue from the start of this year through the end of calendar year 2026. By executing our annual product cadence and extending our performance leadership through full stack design, we believe NVIDIA Corporation will be the superior choice for the $3 to $4 trillion in annual AI infrastructure build we estimate by the end of the decade. Demand for AI infrastructure continues to exceed our expectations. The clouds are sold out, and our GPU installed base, both new and previous generations, including Blackwell, Hopper, and Ampere, is fully utilized. Record Q3 data center revenue of $51 billion increased 66% year over year, a significant feat at our scale. Compute grew 56% year over year driven primarily by the GB 300 ramp while networking more than doubled given the onset of NVLink scale up and robust double-digit growth across Spectrum X Ethernet and Quantum X InfiniBand. The world hyperscalers, a trillion-dollar industry, are transforming search recommendations, and content understanding from classical machine learning to generative AI. NVIDIA CUDA excels at both and is the ideal platform for this transition, driving infrastructure investment measured in hundreds of billions of dollars. At Meta, AI recommendation systems are delivering higher quality and more relevant content, leading to more time spent on apps such as Facebook and Threads. Analyst expectations for the top CSPs and hyperscalers in 2026 aggregate CapEx have continued to increase and now sit roughly at $600 billion, more than $200 billion higher relative to the start of the year. We see the transition to accelerated computing and generative AI across current hyperscale workloads contributing toward roughly half of our long-term opportunity. Another growth pillar is the ongoing increase in compute spend driven by foundation model builders such as Anthropic, Mastral, OpenAI, Reflection, Safe Superintelligence, Thinking Machines Lab, and xAI. All scaling, compute aggressively to scale intelligence. The three scaling laws pretraining, post-training, and inference remain intact. In fact, we see a positive virtuous cycle emerging whereby the three scaling laws and access to compute are generating better intelligence and in turn increasing adoption and profits. OpenAI recently shared that their weekly user base has grown to 800 million. Enterprise customers have increased to 1 million, and their gross margins were healthy. Well, Anthropic recently reported that its annualized run rate revenue has reached $7 billion as of last month, up from $1 billion at the start of the year. We are also witnessing a proliferation of agentic AI across various industries and tasks. Companies such as Cursor Anthropic, Open Evidence, Epic, and Abridge are experiencing a surge in user growth as they supercharge the existing workforce, delivering unquestionable ROI for coders and healthcare professionals. The world's most important enterprise software platforms like ServiceNow, CrowdStrike, and SAP are integrating NVIDIA Corporation's accelerated computing and AI stack. Our new partner, Palantir, is supercharging the incredibly popular ontology platform with NVIDIA CUDA X libraries and AI models for the first time. Previously, like most enterprise software platforms, Ontology runs only on CPUs. Lowe's is leveraging the platform to build supply chain agility, reducing costs, and improving customer satisfaction. Enterprises broadly are leveraging AI to boost productivity, increase efficiency, and reduce cost. RBC is leveraging agentic AI to drive significant analysts' productivity, slashing report generation time from hours to minutes. AI and digital twins are helping Unilever accelerate content creation by 2x and cut costs by 550%. And Salesforce's engineering team has seen at least 30% productivity increase in new codevelopment after adopting Cursor. This past quarter, we announced AI factory and infrastructure projects amounting to an aggregate of 5 million GPUs. This demand spans every market CSPs, sovereigns, modern builders, enterprises, and supercomputing centers includes multiple landmark build outs. XAI's Colossus two, the world's first gigawatt scale data center. Lilly's AI factory for drug discovery, the pharmaceutical industry's most powerful data center. And just today, AWS and Humane expanded their including the deployment of up to 150,000 AI accelerators, including our GB 300, x AI and Humane also announced a partnership in which the two will jointly develop a network of world-class GPU data centers anchored by the flagship 500 megawatt facility. Blackwell gained further momentum in Q3. As GB 300 crossed over GB 200 and contributed roughly two-thirds of the total Blackwell revenue. The transition to GB 300 has been seamless. With production shipments to the majority to the major, cloud service providers, hyperscalers, and GP clouds and is already driving their growth. The Hopper platform in its thirteenth quarter since exception recorded approximately $2 billion in revenue in Q3. H '20 sales were approximately $50 million. Sizable purchase orders never materialized in the quarter due to geopolitical issues and the increasingly competitive market in China. While we were disappointed in the current state, that prevents us from shipping more competitive data center compute products to China, we are committed to continued engagement with the US and China governments. And will continue to advocate for America's ability to compete around the world. To establish a sustainable leadership and position in AI computing, America must win. The support of every developer, and be the platform of choice for every commercial business including those in China. The Rubin platform is on track to ramp in the 2026. Powered by seven chips, the Vera Rubin platform will once again deliver an x factor improvement in performance relative to Blackwell. We have received silicon back from our supply chain partners and are happy to report that NVIDIA Corporation teams across the world are executing the bring up beautifully. Rubin is our third generation rack scale system substantially redefined the manufacturability while remaining compatible with Grace Blackwell our supply chain data center ecosystem, and cloud partners have now mastered the build to installation process of NVIDIA Corporation's RAC architecture. Our ecosystem will be ready for a fast Rubin ramp. Our annual x factor performance lead increases performance per dollar while driving down computing cost for our customers. The long useful life of NVIDIA Corporation's CUDA GPUs is a significant TCO advantage over accelerators. CUDA's compatibility and our massive installed base extend the life NVIDIA Corporation systems well beyond their original estimated useful life. For more than two decades, we have optimized the CUDA ecosystem, improving existing workloads, accelerating new ones, and increasing throughput with every software release. Most accelerators without CUDA and NVIDIA Corporation's time-tested and versatile app architecture became obsolete within a few years as model technologies evolve. Thanks to CUDA, the a 100 GPUs we shipped six years ago are still running at full utilization today. Powered by vastly improved software stack. We have evolved over the past twenty-five years from a gaming GPU company to now an AI data center infrastructure company. Our ability to innovate across the CPU, the GPU, networking, and software, and ultimately drive down cost per token is unmatched across the industry. Our networking business purpose built for AI, and now the largest in the world. Generated revenue of $8.2 billion, up 162% year over year. With NVLink, InfiniBond, and Spectrum X Ethernet, all contributing to growth. We are winning in data center networking as the majority of AI deployments now include our switches with Ethernet GPU attach rates roughly on par with InfiniBand. Meta, Microsoft, Oracle, and xAI are building gigawatt AI factories with Spectrum X Ethernet switches. And each will run its operating system of choice highlighting the flexibility and openness of our platform. We recently introduced SPECTUM Spectrum XGS, a scale across technology that enables gigascale AI factories. NVIDIA Corporation is the only company with AI scale up scale out, and scale across platforms, reinforcing our unique position in the market as the AI infrastructure provider. Customer interest in NVLink Fusion continues to grow. We announced a strategic collaboration with Suzuki in October where we will integrate Fuzitsu's CPUs and NVIDIA Corporation GPUs via NVLink Fusion. Connecting our large ecosystems. We also announced a collaboration with Intel to develop multiple generations of custom data center and PC products connecting NVIDIA Corporation and Intel's ecosystems using NVLink. This week at supercomputing 25, Arm announced that it will be integrating NVLink IP for customers to build CPU SoCs that connect with NVIDIA Corporation. Currently on its fifth generation, NVLink is the only proven scale up technology available on the market today. In the latest MLPerf training results, Blackwell Ultra delivered 5x faster time to train than hopper. NVIDIA Corporation swept every benchmark. Notably, NVIDIA Corporation is the only training platform to ledge bridge f p four while meeting the MLPerf's strict accuracy standards. In semianalysis, inference max benchmark, Blackwell achieved the highest performance and lowest total cost of ownership across every model and use case. Particularly important is Blackwell's NVLink's performance on a mixture of experts. The architecture for the world's most popular reasoning models. On DeepSeek, r one, Blackwell delivered 10x higher performance per watt and 10x lower cost per token versus h 200. A huge generational leap fueled by our extreme codesign approach NVIDIA Corporation Dynamo, an open source, low latency, modular inference framework has now been adopted by every major cloud service provider leveraging Dynamos enablement and disaggregated inference the resulting such as MOE models, increase in performance of complex AI models AWS, Google Cloud, Microsoft Azure, and OCI have boosted AI inference performance for enterprise cloud customers. We are working on a strategic partnership with OpenAI focused on helping them build and deploy at least 10 gigawatts of AI data centers. In addition, we have the opportunity to invest in the company. We serve OpenAI, through their cloud partners. Microsoft Azure, OCI, and CoreWeave. We will continue to do so for the foreseeable future. As they continue to scale, we are delighted to support the company to add self build infrastructure, and we are working toward a definitive agreement and are excited to support OpenAI's growth. Yesterday, celebrated an announcement with Anthropic. For the first time, Anthropic is adopting NVIDIA Corporation and we are establishing a deep technology partnership to support Anthropics fast growth. We will collaborate to optimize anthropic models for CUDA, and deliver the best possible performance, efficiency, and TCO. We will also optimize future NVIDIA Corporation architectures for anthropic workloads. Anthropics compute commitment is initially including up to one gigawatt of compute capacity, with Grace Blackwell and Vera Rubin systems. Our strategic investments in anthropic menstrual, opening eye, reflection, thinking machines, and other represent partnerships. That grow the NVIDIA Corporation CUDA AI ecosystem and enable every model to run optimally on NVIDIA Corporation's everywhere. We will continue to invest strategically while preserving our disciplined approach to cash flow management. Physical AI is already a multibillion dollar business addressing a multitrillion dollar opportunity, and the next leg of growth for NVIDIA Corporation. Leading US manufacturers and robotics innovators are leveraging NVIDIA Corporation's three computer architecture to train on NVIDIA Corporation. Test on Omniverse computer, and deploy real world AI on Justin robotic computers. PTC and Siemens introduced new services that bring Omniverse powered digital twin workflows to their extensive installed base of customers. Companies including Belden, Caterpillar, Foxconn, Lucid Motors, Toyota, TSMC, and Wistron are building Omniverse Digital Twin factories to accelerate AI driven manufacturing and automation. Agility robotics, Amazon robotics, Figure, and skilled at AI are building our platform, tapping offerings such as NVIDIA Corporation Cosmos World Foundation Models for development, Omniverse for simulation and validation, and Jetson two power next generation intelligent robots. We remain focused on building resiliency and redundancy in our global supply chain. Last month, in partnership with TSMC, we celebrated the first Blackwell wafer produced on US soil. We'll continue to work with Fox conn, Vistron, Amcor, Spill, and others to grow our presence in The US over the next four years. Gaming revenue was $4.3 billion, up 30% year on year driven by strong demand as 42 million gamers, while thousands of fans packed the GeForce Gamer Festival in South Korea. To celebrate twenty-five years of GeForce. NVIDIA Corporation Pro Visualization has evolved into computers for engineers and developers. Whether for graphics, or for AI. Professional visualization revenue was $760 million, up 56% year over year. Was another record. Growth was driven by DGX Spark. The world's smallest AI supercomputer. Built on a small configuration of Grace Blackwell. Automotive revenue was $592 million, up 32% year over year primarily driven by self-driving solutions. We are partnering with Uber to scale the world's largest level four ready autonomous fleet built on the new NVIDIA Corporation Hyperion l four robotaxi reference architecture. Moving to the rest of the p and l. GAAP gross margins were 73.4% and non GAAP gross margins was 73.6%. Exceeding our outlook. Gross margins increased sequentially due to our data center mix, improved cycle time, and cost structure. GAAP operating expenses were up 8% sequentially and up 11% on non GAAP basis. The growth was driven by infrastructure compute, as well as higher compensation and benefits in engineering development costs. Non GAAP effective tax rate for the third quarter was just over 17%. Higher than our guidance of 16.5% due to the strong US revenue. On our balance sheet, inventory grew 32% quarter over quarter while supply commitments increased 63% sequentially. We are preparing for significant growth ahead and feel good about our ability to execute against our opportunity set. Okay. Let me turn to the outlook for the fourth quarter. Total revenue is expected to be $65 billion plus or minus 2%. At the midpoint, our outlook implies 14% sequential growth driven by continued momentum in the Blackwell architecture. Consistent with last quarter, we are not assuming any data center compute revenue from China. GAAP and non GAAP gross margins are expected to be 74.875% respectively. Plus or minus 50 basis points. Looking ahead, to fiscal year twenty twenty-seven, input costs are on the rise but we are working to hold gross margins in the mid-seventies. Gap and non GAAP operating expenses are expected to be approximately $6.7 billion and $5 billion respectively. GAAP and non GAAP other income and expenses are expected to be an income of approximately $500 million, excluding gains and losses from non-marketable and publicly held equity securities. GAAP and non GAAP tax phase are expected to be 17%. Plus or minus 1% excluding any discrete items. At this time, let me turn the call over to Jensen. For him to say a few words. Jensen Huang: Thanks, Colette. There's been a lot of talk about an AI bubble. From our vantage point, we see something very different. As a reminder, NVIDIA Corporation is unlike any other accelerator. We excel at every phase of AI. From pre-training and post-training to inference. And with our two-decade in CUDA x acceleration libraries, we are also exceptional. At science and engineering simulations, computer graphics, structured data processing, to classical machine learning. The world is undergoing three massive platform shifts at once. The first time since the dawn of Moore's Law. NVIDIA Corporation is uniquely addressing each of the three transformations. The first transition is from CPU general-purpose computing to GPU accelerated computing. As Moore's Law slows. The world has a massive investment in non-AI software. From data processing to science and engineering simulations. Representing hundreds of billions of dollars in cloud computing spend each year. Many of these applications, which ran once exclusively on CPUs, are now rapidly shifting to CUDA GPUs. Accelerated computing has reached a tipping point. Secondly, AI has also reached a tipping point. And is transforming existing applications while enabling entirely new ones. For existing applications, generative AI, is replacing classical machine learning in search ranking, recommender systems, ad targeting, click-through prediction, to content moderation, The very foundations of hyperscale infrastructure. Meta's gem a foundation model for ad recommendations trained on large-scale GPU clusters exemplifies this shift. In Q2, Meta reported over a 5% increase in ad conversions on Instagram and 3% gain on Facebook feed. Driven by generative AI based JEM. Transitioning to generative AI. Represents substantial revenue gains for hyperscalers. Now a new wave is rising. Agentic AI systems. Capable of reasoning, planning, and using tools. From coding assistants like Cursor and QuadCode to radiology tools like iDoc, legal assistants like Harvey, and AI chauffeurs like Tesla FSD and Waymo, These systems mark the next frontier of computing. The fastest growing companies in the world today OpenAI, Anthropic, xAI, Google, Cursor, Lovable, Replit, Cognition AI, Open Evidence, a bridge Tesla, are pioneering agentic AI. So there are three massive platform shifts. The transition to accelerated computing is foundational and necessary. Essential in a post-Moore's law era. The transition to generative AI is transformational, and necessary supercharging existing applications and business models. And the transition to agentic and physical AI will be revolutionary, giving rise to new applications, companies, products, services. As you consider infrastructure investments, consider these three fundamental dynamics. Each will contribute to infrastructure growth in the coming years. NVIDIA Corporation is chosen because our singular architecture enables all three transitions. And thus so for any form and modality of AI across all industries, across every phase of AI, across all of the diverse computing needs, in a cloud, and also from cloud to enterprise to robots. One architecture. Toshiya, back to you. Toshiya Hari: We will now open the call for questions. Operator, would you please poll for questions? Sarah: Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Thank you. Your first question comes from Joseph Moore with Morgan Stanley. Your line is open. Great. Thank you. I wonder if you could update us. Joseph Moore: You talked about the $500 billion of revenue for Blackwell plus Rubin. 'twenty five and 'twenty six at GTC. At that time, you talked about $150 billion of that already having been shipped. So as the quarter's wrapped up, are those still kind of the general parameters that there's $350 billion in the next kind of, you know, fourteen months or so. And, you know, I would assume over that time, you haven't seen all the demand that there is. There's possibility of upside to those numbers as we move forward? Colette Kress: Yeah. Thanks, Joe. I'll start first with a response here on that. Yes. That's correct. We are working into our $500 billion forecast. And we are on track for that as we have finished some of the quarters. And now we have several quarters now in front of us to take us through the end of calendar year '26. The number will grow. And we will achieve, I'm sure, additional needs for compute that will be shippable by fiscal year '26. So we shipped $50 billion this quarter. But we would be not finished if we didn't say that we'll probably be taking more orders. For example, just even today, our announcements with KSA and that agreement in itself is four to 600,000 more GPUs over three years. Anthropic is also not new. So there's definitely an opportunity for us to have more on top of the $500 billion that we announced. Sarah: The next question comes from C.J. Muse with Cantor Fitzgerald. Your line is open. C.J. Muse: Yes. Good afternoon. Thank you for taking the question. There's clearly a great deal of consternation around the magnitude of AI infrastructure build outs and the ability to fund such plans in the ROI. Yet, you know, at the same time, you're talking about being sold out every stood up GP is taken. The AI world hasn't seen the enormous benefit yet know, from d 300, never mind Rubin. And Gemini three just announced Grok five coming soon. And so the question is this, when you look at that as the backdrop, do you see a realistic path for supply to catch up with demand over the next twelve to eighteen months, or or do you think it can extend beyond that time frame? Jensen Huang: Well, as you know, we've done a really good job planning our supply chain. NVIDIA Corporation's supply chain basically includes every technology company in the world. And TSMC and their packaging and our memory vendors and memory partners and all of our system ODMs have done a really good job planning with us. And we were planning for a big year. You know, we've seen for some time the three transitions that I spoke about just a second ago, accelerated computing, from general-purpose computing and it's really important to recognize that AI is not just agentic AI, but generative AI is transforming the way that hyperscalers did the work that they used to do on CPUs. Generative AI made it possible for them to move search and recommender systems and, you know, add recommendations and targeting. All of that has been generated has been moved to generative AI. And it's still transitioning. And so whether you install NVIDIA Corporation GPUs for data processing, or you did it for generative AI for your recommender system, or you're building it for agentic chatbots and the type of AIs that most people see when they think about AI, all of those applications are accelerated by NVIDIA Corporation. And so when you look at the totality of the spend, it's really important to think about each one of those layers. They're all growing. They're related, but not the same. But the wonderful thing is that they all run on NVIDIA Corporation GPUs. Simultaneously, because the quality of the AI models are improving so incredibly. The adoption of it in the different use cases, whether it's in code assistance, which NVIDIA Corporation uses fairly exhaustively, and we're not the only one. I mean, the fastest growing application in history combination of cursor and CliveCode and code OpenAI's codex and and GitHub Copilot. These applications are the fastest growing in history. And it's not just used for software engineers. It's used by because of vibe coding, it's used by engineers and marketeers all over companies. Supply chain planners, all over companies, And so I think that that's just one example, the list goes on. You know, whether it's open evidence and work that they do in health care or the work that's being done in digital video editing runway. I mean, number of it really, really exciting start ups that are taking advantage of generative AI and agentic AI is growing quite rapidly, and not to mention all using it a lot more. And so all of these exponentials not to mention, you know, just today, I was reading a text from Dennis, and he was saying that that pre-training and post-training are fully intact. You know? And Gemini three takes advantage of the scaling laws, and got it received a huge jump in quality performance model performance. And so we're seeing all of these exponentials kind of running at the same time. And just always go back to first principles and think about what's happening from each one of the dynamics that I mentioned before. General-purpose computing to accelerated computing, generative AI replacing classical machine learning, and, of course, agentic AI, which is a brand new category. Sarah: The next question comes from Vivek Arya with Bank of America Securities. Your line is open. Vivek Arya: Thanks for taking my question. I'm curious what are you making on NVIDIA Corporation content per gigawatt? In that $500 billion number? Because we have heard, you know, numbers as low as $25 billion per gigawatt of content to as high as $30 or $40 billion per gigawatt. So I'm curious what power and what dollar per gigawatt assumptions you are making as part of that $500 billion number, And then longer term, Jensen, the three to $4 trillion in data center by 2030 was mentioned. How much of that do you think will require vendor financing, and how much of that can be supported by cash flows of your large customers or governments or enterprises. Thank you. Jensen Huang: In each generation, from Ampere to Hopper, from Hopper to Blackwell, Blackwell to Rubin, we are our a part of the data center increases. And and hock regeneration was probably something along the lines of twenty some odd, twenty to twenty-five. I Blackwell generation, Grace Blackwell particularly, is probably 30 to 30, you know, say 30 plus or minus. And then Rubin is probably higher than that. And and in each one of these generations, the speed up is x factors, And therefore their TCO, the customer TCO, improves by x factors, and the most important thing is in the end, you still only have one gigawatt of power. You know, one gigawatt data center is one gig gigawatt power, and, therefore, performance per watt, the efficiency of your architecture is incredibly important. And the efficiency of your architecture can't be brute forced. There is no brute forcing about it. That one gigawatt translates directly. Your performance per watt translates directly absolutely directly to your revenues. Which is the reason why choosing the right architecture matters so much now. You know, the world doesn't have an excess of anything to squander. And so we have to be really, really you know, we we use this this concept called co-design. Across our entire stack across the frameworks and models, across the entire data center, even power and cooling, optimized across the entire supply chain in our ecosystem. And so each generation our economic contribution will be greater Our value delivered will be greater. But the most important thing is our energy efficiency per per watt is going to be extraordinary every single generation. With respect to growing into into continuing to grow our customers financing is up to them. We are we we see the opportunity to grow. For quite some time, and remember, today most of the focus has been on the hyperscalers. And one of the areas that is really misunderstood about the hyperscalers is that the investment on NVIDIA Corporation GPUs not only improves their scale, speed, and cost, for from general-purpose computing. That's number one, because Moore's Law has Moore's law scaling has really slowed. Moore's law is about driving cost down. It's about it's about deflationary cost, the incredible deflationary cost of of computing over time. But that has slowed. Therefore, a new approach is necessary for them to keep driving the cost down. Going to NVIDIA Corporation GPU computing is really the the best way to do so. The second is revenue boosting in their current business models. You know, recommender systems drive the world's hyperscalers. Every single whether it's you know, watching watching short form videos or recommending books or recommending the next item in your basket to recommending ads to recommending news to rep it's all about recommenders. The world has the Internet has trillions of pieces of content How could they possibly figure out what to put in front of you in your little tiny screen unless they have really sophisticated recommender systems to do so. Well, that has gone generative AI. So the first two things that I just said hundreds of billions of dollars of CapEx is gonna have to be invested, is fully cash flow funded. What is above it, therefore, is AgenTik AI. This is revenue is net new net new consumption, but it's also net new applications. And some of the applications I've mentioned before, but these are these new applications are also the fastest growing applications in history. Okay? So I think that I you're gonna see that once people start to appreciate what is actually happening under, you know, under the water, if you will, you know, from from the simplistic view of what's happening to CapEx investment recognizing there's these three dynamics. And then lastly, remember we were just talking about the American CSPs. Each country will fund their own infrastructure. And you have multiple countries, You have multiple industries. Most of the world's industries haven't really engaged AgenTic AI yet. And they're about to. You know? All the names of companies that that you know we're working with know, whether whether it's autonomous vehicle companies or digital twins for for physical AI for for factories and the number of factories and warehouses being built around the world. Just the number of digital biology startups that are being funded so that we could accelerate drug discovery. All of those different industries are now getting engaged, they're gonna do their own fundraising. And so don't just look at the hyperscalers, as a way to build out for the future. You gotta look at the world, you gotta look at all the different industries, and, you know, enterprise computing is gonna fund their own industry. Sarah: The next question comes from Ben Reitzes with Melius. Your line is open. Ben Reitzes: Hey, thanks a lot. Jensen, wanted to ask you about cash. Speaking of $05 trillion you may generate about $500 billion in free cash flow over the next couple of years. What are your plans for that cash? How much goes to buyback versus in the ecosystem? And how do you look at investing in the ecosystem? I think there's there's just a lot of confusion out there about how these how these deals work and your criteria for doing those, like the Anthropic, the OpenAI's, etcetera. Thanks a lot. Jensen Huang: Yeah. Appreciate the question. Of course, using cash to fund our growth No company has ever grown at the scale that we're talking about and have the connection and the depth and the breath of supply chain that NVIDIA Corporation has. The reason why our our entire customer base can rely on us is because we've secured a really you know, really resilient supply chain and we have the balance sheet to support them. When we make purchases, our suppliers can take it to the bank. When we make when we make forecasts and we plan with them, they take us seriously. Because of our balance sheet. We're not we're not making up the offtake. We know what our offtake is. And because they've been planning with us for so many years, our reputation and our credibility is incredible. And so so it takes really strong balance sheet to do that. To support the level of growth and the the rate of growth and the magnitude associated with that. So that's number one. The second thing, of course, we're gonna continue to do stock buyback. Buybacks. We're gonna continue to do that. But with respect to the investments, this is really, really important work that we do. All of the investments that we've done so far. Well all the week period is associated with expanding the reach of CUDA, expanding the ecosystem. If you look at the work, investments that we did with OpenAI, of course, that relationship we've had since 2016. Delivered the first AI supercomputer ever made. To OpenAI. So we've had a close and wonderful relationship with OpenAI since then. And everything that OpenAI does runs on NVIDIA Corporation today. So all the clouds that they they deploy in, whether it's training and inference, runs NVIDIA Corporation, and we we love working with them. The partnership that that we have with them is one so that we could work even deeper from a technical perspective so that we could support their accelerated growth This is a company that's growing incredibly fast. And don't just look at don't just look at no. What is in the press. Look at all the ecosystem partners and all the developers that are connected to OpenAI. And they're all driving consumption of it. And the quality of the AI that's being produced huge step up since a year ago. So the quality of response is extraordinary. So we we invest in OpenAI for a deep deep partnership and co-development to expand our ecosystem and to support their growth. And, of course, rather than giving up a share of our company, we get a share of their company. And we invested in them in one of the most consequential once in a generation companies once in a generation company that we have a share And so I fully expect that investment to translate to extraordinary returns. Now in the case of Anthropic, this is the first time that Anthropic will be on NVIDIA Corporation's architecture. The first time NVIDIA Corporation will be Anthropic will be on NVIDIA Corporation's architecture is the the second most successful AI in the world, in terms of total number of users But in enterprise, they're doing incredibly well. ClotCode is doing incredibly well. Clot is doing incredibly well, all of the world's enterprise. And now we have the opportunity to have a deep partnership with them and bringing Claude onto the NVIDIA Corporation platform. And so what what do we have now? NVIDIA Corporation's architecture, taking a step back, NVIDIA Corporation's architecture NVIDIA Corporation's platform, is the singular platform in the world that runs every AI model. We run OpenAI, We run Anthropic. We run XAI. Because of our deep partnership with Elon and x AI, we were able to bring that opportunity to Saudi Arabia to the KSA so that humane could also be hosting opportunity for x AI. We run x AI. We run we run Gemini. We run thinking machines. Let's see. What else do we run? We run them all. And so not to mention, we run the science models, the biology models, DNA models, gene models, chemical models, and all the different fields around the world. It's not just cognitive AI that the world uses. AI is impacting every single industry. And so we have the ability through the ecosystem investments that we make to partner with deeply partner on a technical basis with some of the best companies, most brilliant companies in the world, We are expanding the reach of our ecosystem and we're getting a share and investment in what will what will be a very successful company, oftentimes once in a generation company. And so that basic that's our that's our investment thesis. Sarah: The next question comes from Jim Schneider with Goldman Sachs. Your line is open. Jim Schneider: Afternoon. Thanks for taking my question. In the past, you've talked about roughly 40% of your shipments tied to AI inference I'm wondering as you look forward into next year, where do you expect that percentage could go in say a year's time? And can you maybe address the Rubin CPX product you expect to introduce next year and contextualize that? How big of the overall TAM you expect that can take and maybe talk about some of the target customer applications for that specific product? Thank you. Jensen Huang: CPX is designed for long context type of workload generation. And so long context, basically, before you start generating answers, you have to read a lot. Basically, you know, long context. And it could be a bunch of PDFs, it could be watching a bunch of videos, studying three d images, so on and so forth. You have to you have to absorb the context. And so CPX is designed for long context type of workloads. And it's perf per dollars it's perf per dollar is excellent. It's perf for what is excellent. And which made me forget the first part of the question. Colette Kress: Inprinting. Jensen Huang: Oh, inference. Yeah. There are three scaling laws that are that are scaling at the same time. The first scaling law called pre-training, continues to be. Very effective. And the second is post-training. Post-training basically has found incredible algorithms for improving an AI's ability to break a problem down, and solve a problem step by step. And post-training is scaling exponentially. Basically, the more compute, you apply to a model, the smarter it is. The more intelligent it is. And then the third is inference. Inference because of chain of thought, because of reasoning capabilities, AIs are essentially reading, thinking, before it answers. And the amount of computation necessary as a result of those three things has gone completely exponential. I I think that that it's hard to to know exactly what the percentage will be at any given point in time and who. But, of course, our hope our hope is that inference is a very large part of the market. Because if inference is large, then what it suggests is that people are using using it in more applications, and they're using it more frequently. And that's you know, we should all hope for inference to be very large. And this is where Grace Blackwell is just an order of magnitude better more advanced than anything in the world. The second best platform is h 200, and it's very clear now that g b 300, g b 200, and g b 300, because of MP Link 72, the scale up network that we have, achieved. And you saw and Colette talked about in the seminar analysis benchmark it's the largest single inference benchmark ever done, And GB g b 200 m b link 72 is 10 times 10 to 15 times higher performance. And so that's a big step up. It's gonna take a long time before somebody is able to take that on. And and our leadership there is is surely multiyear. Yep. And so so I think I'm hoping that inference becomes a very big deal. Our leadership in inference is extraordinary. Sarah: The next question comes from Timothy Arcuri with UBS. Your line is open. Timothy Arcuri: Thanks a lot. Jensen, many of your customers are pursuing behind the meter power, but like what's the single biggest bottleneck that worries you that could constrain your growth? Is it power or maybe it's financing, or maybe it's, you know, something else like memory or even foundry? Thanks a lot. Jensen Huang: Well, these are all issues and they're all constraints. And the reason for that, when you're growing at the rate that we are and the scale that we are, how could anything be easy? What NVIDIA Corporation is doing obviously has never been done before. And we've created a whole new industry. On the one hand, we are transitioning computing from general-purpose and classical or traditional computing accelerated computing and AI. That's on one hand. On the other hand, we created a whole new industry called AI factories. The idea that in order for software to run, you need these factories to generate it generate every single token instead of retrieving information that was pre pre created. And so so I think this whole transition requires extraordinary scale. And all the way from the supply chain of course, the supply chain, we have we have much better visibility and control over because obviously, we're incredibly good at managing our supply chain. We have great partners that we've worked with for thirty-three years. And so so the supply chain part of it, we're quite confident. Now looking down our supply chain, we've now established partnerships with so many players in land and power and shell and and, of course, financing. These things none of these things are easy. But they're all attractable, and they're all solvable things. And the most important thing that we have to do is do a good job planning We plan up the supply chain, down the supply chain, We've established a whole lot of partners and so we have a lot of routes to market. And very, you know, very importantly, our architecture has to deliver the best value to the customers that we have. And so at this point, you know, I'm I'm very confident that NVIDIA Corporation's architecture is the best performance per TCL It is the best performance per watt and therefore, for any amount of energy that is delivered our architecture will drive the most revenues. And I think the increasing rate of our success I think that we're more successful this year at this point than we were last year at this point. You know, the the number of customers coming to us and the number of platforms coming to us after they've explored others is increasing, not decreasing. And so think the the I think all of that is just, you know, all the things that I've been telling you over the years are really coming are coming true and or becoming becoming evident. Sarah: The next question comes from Stacy Rasgon with Bernstein Research. Your line is open. Stacy Rasgon: Questions. Colette, I had some questions on margins. You said for next year, you're working to hold them in the mid-seventies. So I I guess, first of all, what are the biggest cost increases? Is is it just memory, or is it something else? What are you doing to work toward that? Is it how much is, like, you know, cost optimizations versus pre buys versus pricing And then also, how should we think about OpEx growth next year given the revenues seem likely to to grow materially? From from where we're running right now? Colette Kress: Stacy. Let me see if I can start with remembering where we were with the current fiscal year that we're in. Remember earlier this year, we indicated that through cost improvements and mix that we would exit the year in our gross margins in the mid-seventies. We achieved that. So now it's time for us to communicate where are we And getting ready to also execute that in Q4. working right now in terms of next year. Next year, there are input prices. That are well known in the industries that we need to work through. And our systems are by no means very easy to work with. There are are tremendous amount of components, many different parts of it as we think about that. So we're taking all of that into account, but we do believe if we look at working again on cost improvements, cycle time, and mix, that we will work to try and hold at our gross margins in the mid-seventies. So that's our overall plan for gross margin. Your second question is around OpEx. And right now, our goal in terms of OpEx is to really make sure that we are innovating with our engineering teams, with all of our business teams, to create more and more systems for this market. As you know, right now, have a new architecture coming out, and that means they are quite busy in order to meet that goal. And so we're gonna continue to see our investments on innovating more and more both our software, both our systems, and our hardware to do so. I'll leave it turn it to Jensen if he wants to add any couple more comments. Yeah. Jensen Huang: I think that's spot on. I think the only thing that would add is is remember that we plan, we forecast, we plan, and we negotiate with our supply chain well in advance. Our supply chain have known for quite a long time our requirements and they've known for quite a long time our demand, and we've been working with them and negotiating with them for quite a long time. And so so I think the the recent surge obviously quite significant, But remember, our supply chain has been working with us for a very long time. It's a And so in many cases, we've secured a lot a lot of supply for ourselves, because, you know, obviously, they're working with the largest company in the world. In doing so. And and and we've also we've also been been working closely with them on the financial aspects of it and and securing forecasts and plans and so on and so forth. So I I think all of that has worked out well for us. Sarah: Your final question comes from the line of Aaron Rakers with Wells Fargo. Your line is open. Aaron Rakers: Jensen, the question is for you. As you think about the entropic deal that was announced and just the overall breadth of your customers, I'm curious if your thoughts around the role that AI ASICs or dedicated play in these architecture build outs that has changed at all? Have you seen you know, I think you've been fairly adamant in the past that that some of these some of these programs never really see deployments. But I'm I'm curious if if we're at a point where maybe maybe that's even changed more in favor of of just GPU architecture. Thank you. Jensen Huang: Yeah. Thank you very much. And I re I really appreciate the question. So first of all, you're competing against teams. You're you're excuse me, against a company. You're get competing against teams. And there are there just aren't that many teams in the world who are built who are extraordinary at building these incredibly complicated things. You know, back in the hopper day, and the ampere days, we would build one GPU. That's the definition of an accelerated AI system. But today, we've gotta build entire racks, entire, you know, three different types of switches. A scale up, a scale out, and a scale across switch. And it takes a lot more than one chip to build a compute node anymore. Everything about that computing system because AI needs to have memory, AI didn't used to have memory at all, Now it has to remember things. The amount of memory and context it has is gigantic. The memory the memory architecture implication is incredible. The diversity of models from mixture of experts to dense models to diffusion models to autoregressive, not to mention you know, biological models that obeys the laws of physics, the list of the list of different types of models have exploded in the last last several years. And so so the challenge is the complexity of the problem is much higher, the diversity of AI models, is incredibly, incredibly large. And so this is where you know, if I will say the five things that makes us special, if you will. You know, the first thing I would say that makes us special is that we accelerate every phase of that transition. That's the first phase. That CUDA allows us to have CUDA x for transitioning from general-purpose of accelerated computing We are incredibly good at generative AI. We're incredibly good at agentic AI. So every single phase of that, every single layer of that transition, we are excellent at. You can invest in one architecture, use it across the board, You can use what one architecture, and, not worry about the changes in the workload across those three phases. That's number one. Number two, we're excellent at every phase of AI. Everybody's always known that we're incredibly good pre-training. We're obviously very good at post-training. We're incredibly good as it turns out, at inference, because inference is really, really hard. How could thinking be easy? You know, people think that inference is one shot and therefore, it's easy. Anybody could approach the market that way. But it turns out to be the hardest of all because thinking, as it turns out, is quite hard. We're great at every phase of AI, the second thing, The third thing is we're now the only architecture in the world that runs every AI model. Every frontier AI model we run open source AI models incredibly well. We run science models, biology models, robotics models, run every single model. We're the only architecture in the world that can claim that. It doesn't matter whether you're autoregressive or diffusion based. We run everything. And we run it for every major platform as I just mentioned. So we run every model. And then the the fourth thing I would say is that in every cloud. The reason why developers love us is because we're literally everywhere. We're in every cloud. We're in every we could even make you a little tiny cloud called DGX Spark. And so we're in every computer. We're everywhere from cloud to on-prem. To robotic systems. Edge devices, PCs, you name it. One architecture things just work. It's incredible. And then the the last thing, this is probably the most important thing, the fifth thing, is if you are a cloud service provider, if you're a new company like Humane, if you're a new company like CoreWeaver, Enscaler, Nebius, or OCI for that matter, The reason why NVIDIA Corporation is the best platform for you is because our off take is so diverse. We can help you with off take. It's not about just putting a random ASIC into a data center. Where's the offtake coming from? Where's the diversity coming from? Where's the resilience coming from? The, you know, the versatility of the architecture coming from, the diversity of capability coming from. NVIDIA Corporation has such incredibly good offtake our ecosystem is so large. So these five things every phase of acceleration and transition, every phase of AI, every model, every cloud to on-prem, and, of course, finally, it all leads to offtake. Sarah: Thank you. I will now turn the call to Toshiya Hari for closing remarks. Toshiya Hari: In closing, please note we will be at the UBS Global and AI Conference on December 2. And our earnings call to discuss the results of our 2026 is scheduled for February 25. Thank you for joining us today. Operator, please go ahead and close the call. Thank you. Sarah: This concludes today's conference call. May now disconnect.
Operator: And gentlemen, thank you for standing by. Today's conference call is scheduled to begin momentarily. Thank you for your patience. Hello, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Xcel Brands Third Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. To withdraw your question, simply press star one again. Please be advised that reproduction of this call in whole or in part is not permitted without prior written authorization of Xcel Brands. And as a reminder, this conference call is being recorded. I would now like to turn the call over to Seth Burroughs from the company. Seth, you may begin. Good afternoon, everyone, and thank you for joining us. Seth Burroughs: Welcome to the Xcel Brands Third Quarter 2025 Earnings Call. We greatly appreciate your participation and interest. With us on the call today are Chairman and Chief Executive Officer, Robert W. D'Loren, and Chief Financial Officer, James F. Haran. By now, everyone should have had access to the earnings release for the quarter ended 09/30/2025, which went out this afternoon. In addition, the company will file with the Securities and Exchange Commission its quarterly report on Form 10-Q for the quarter ended 09/30/2025. The release and the quarterly report will be available on the company's website at www.xcelbrands.com. This call is being webcast, and a replay will be available on the company's relations website. Before we begin, please keep in mind that this call will contain forward-looking statements. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from certain expectations discussed here today. These risk factors are explained in detail in the company's most recent annual report filed with the SEC. Xcel Brands does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. The dynamic nature of the current macroeconomic environment means that what is said on this call could change materially at any time. Finally, please note that on today's call, management will refer to certain non-GAAP financial measures, including non-GAAP net income, non-GAAP diluted EPS, and adjusted EBITDA. Our management uses these non-GAAP metrics as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends related to the company's results of operations. Our management believes these financial performance measurements are also useful because these measures adjust for certain costs and other events that management believes are not representative of our core business operating results. Thus, they provide supplemental information to assist investors in evaluating the company's financial results. These non-GAAP measures should not be considered in isolation or as alternatives to net income, earnings per share, or any other measure of financial performance calculated and presented in accordance with GAAP. You may refer to the attachment to the company's earnings release or to the 10-Q for a reconciliation of non-GAAP measures. And now I'm pleased to introduce Robert W. D'Loren, Chairman and Chief Executive Officer. Bob? Please go ahead. Robert W. D'Loren: Thank you, Seth. Good afternoon, everyone, and thank you for joining us today. I would like to start today's call with a brief update on recent developments from the most recent quarter and our outlook moving forward. After that, our CFO, James F. Haran, will discuss our financial results in more detail. As you know, we closed a $2,000,000 net equity offering in Q3, of which one of our directors, UTG, and I together invested $935,000. This brings the total investment and financing in the past eighteen months by management and other insiders to approximately $2,000,000. $250,000 of the cash proceeds of the aforementioned equity were used to pay down our loan with First Eagle, with the balance being used for general working capital purposes. We have been working with UTG on new business opportunities, which include leveraging UCG's sourcing platform to supply products to our retail partners, leveraging their retail distribution in China, and conducting continued due diligence on potential acquisitions. We believe some of these transactions have the potential to be transformative for Xcel Brands. Change is coming fast in our core business of video content. There's distribution over linear TV as it moves to digital streaming and social commerce. In fact, just last week, TikTok shops announced that their quarterly volume now exceeds that of eBay. We believe that we are positioned well to capitalize on this change given our investments in social commerce technology and our portfolio of influencer-led brands. We continue to work hard with our production partners to drive our business. Earlier in the year, we announced our new influencer brands with Cesar Millan, Gemma Stafford, Jenny Martinez, Coco Rocha, and expect to announce a new influencer transaction for our Longaberger brand shortly. These new influencer-led brands have diversified our product categories into food, kitchen, home, and pet products and transitioned our supply chains to be more reliant on domestic production in the human food and pet food and supplements categories. Also, we have identified key category license opportunities for all of these new influencer brands. Our social media reach across our brand portfolio is now 46,000,000 people with a strong pipeline of new influencer-led brands. We are on track to reach 100,000,000 followers across our brand portfolio in 2026. C Wonder and Christie Brinkley remain amongst the fastest-growing brands on HSN. We expect category and distribution expansion in both of these brands in 2026. Our pipeline of licensing activities is strong for all of our brands, especially the influencer-led brands. All that said, we are approaching Q4 of this year with caution given the impacts of the tariffs on QVC, HSN, and our licensees, including G-III for our Halston brand. I should note that HSN's move to QVC's Pennsylvania studios did disrupt our sales in both Tower Hill by Christie Brinkley and C. Wonder. Judith Ripka continues to operate on plan and is up 6% over last year in retail sales on JTV. Our Longaberger brand launches on QVC this fall and will be guested and promoted by a strong, very talented influencer in the home and crafting space with over 3,000,000 highly engaged followers. We believe she's perfect for our Longaberger brand. We generated an adjusted EBITDA loss of $653,000 in Q3, which is $400,000 or approximately a 38% improvement over Q3 2024. While we forecasted a range of $1,000,000 to $2.5 million of adjusted EBITDA for 2025, much of it was weighted in the second half. Results of this year were driven by the Halston business, which has not materialized as we had hoped. G-III remains committed to the Halston brand and is adjusting merchandising and design to get the brand back on plan. We believe that this is a timing issue, and that we'll see further growth in 2026. Finally, given the softness in the Halston business, we have entered into an amendment to our credit facility with our lender that provides, amongst other things, certain modifications to our loan covenant, elimination of certain early payment fees, a release of a $1,000,000 loan liquidity reserve as partial payment on the gross $3,200,000 First Eagle term A loan balance, and in exchange for repayment, the net First Eagle term A balance of $2,200,000 on or before February 2026. It is our intent to refinance this net First Eagle term A $2,200,000 portion of the loan as a standalone financing or in connection with another transaction we are considering. With that, I would like to turn the call over to our CFO, James F. Haran, to cover our financial results for the third quarter. Jim? James F. Haran: Thanks, Bob. Good afternoon, everyone. I will now briefly discuss our financial results for the quarter and nine months ended 09/30/2025. Net licensing revenues were $1,100,000 for the current quarter compared with $1,500,000 in 2024. This decline was primarily attributable to the more cautious consumer spending in the current economic environment and the lower than expected performance in a Halston license as well as lower revenue recognized from a service agreement with IONTAPCO as intended. On a year-to-date basis, net licensing revenues were $3,800,000 for the current nine-month period compared with $6,500,000 for the comparable period in the prior year. The decrease in licensing revenue was primarily attributable to the 2024 divestiture of the Lori Goldstein brand. Direct operating cost expenses were $2,200,000 for the current quarter, down 23% from the prior year quarter. For the current nine-month period, direct operating costs were $6,300,000, a decrease of 36% from the prior year comparable period. For both the quarter and year-to-date periods, the decrease in direct operating costs was primarily attributable to the business transformation and cost reduction actions taken by the company over the past two years, as well as expenses related to the Lori Goldstein brand in 2024. As a result of the restructuring of our business model, we have reduced our payroll operating no-med cost to a run rate of under $8,000,000 on a per annum basis. Looking at our other operating costs and expenses, which are predominantly non-cash in nature, our depreciation and amortization expense was relatively flat from the prior year quarter. On a year-to-date basis, depreciation and amortization expense declined from $4,000,000 in the prior year to $2,700,000 in the current nine-month period, a result of the sale of the Lori Goldstein brand. We recognized non-cash losses related to equity method investment the past two years. These amounts are related to a non-controlling interest in the Isaac Mizrahi brand and were based upon a combination of our proportionate share of operating losses recognizing payment charges to write down the value of our investment and recorded similar non-cash charges as we reduced our interest in the brand over time. As a result, we have fully written down our investment in the Isaac Mizrahi brand, and going forward, we will not have to incur these charges and losses anymore. During the prior year nine-month period, we also recognized a $3,800,000 gain on the divestiture of the Lori Goldstein brand, and slightly offsetting that were impairment charges of $3,500,000 related to the exit from that and the sublease from our prior office location. I'd like to reiterate, however, that all these charges are described within the other operating costs and expenses are predominantly non-cash in nature and are not recurring and are excluded from our non-GAAP measures of performance. Turning to our interest and finance expense, our interest and finance expense was $500,000 for the current quarter compared with $100,000 for the third quarter of last year. On a year-to-date basis, interest and finance expense was $3,400,000 for the current nine months, versus $400,000 in the prior year comparable period. These year-over-year increases primarily reflect higher interest expense as a result of higher interest rates and higher average debt balance. In addition, during the current nine-month period, we recognized a $1,900,000 loss on the early extinguishment of debt from the April 2025 refinancing of our term loan. And keep in mind, under our term loan agreement, a majority of the interest due under our current debt will be paid in kind, meaning that it will accrue and not require cash payments until starting in 2027. Overall, we had a net loss for the current quarter of approximately $7,900,000 or minus $2.02 per share compared with a net loss of $9,200,000 or minus $3.92 per share in the prior year quarter. After adjusting for certain cash and non-cash items, results on a non-GAAP basis were a net loss of approximately $1,300,000 or minus $0.34 per share for the current quarter and a net loss of approximately $1,300,000 or minus $0.57 per share for the prior year quarter. Adjusted EBITDA for the current quarter was approximately negative $650,000 compared to negative $1,000,000 in 2024. This represents a 38% year-over-year improvement in EBITDA, which is roughly comparable to the year-over-year EBITDA improvements we have been showing over the past few quarters. For the current nine months, we had a net loss of approximately $14,700,000 or minus $5.06 per share on a GAAP basis compared with a net loss of $15,300,000 or minus $6.82 per share in the prior year nine months. On a non-GAAP basis, we have a net loss of $3,600,000 or minus $1.24 per share, roughly comparable to a non-GAAP net loss in the prior year period of $3,400,000 or minus $1.53 per share. Our year-to-date EBITDA for the current quarter was negative $1,650,000, a 38% improvement from EBITDA of negative $2.7 million for the prior year comparable period. Once again, as a reminder, our earnings press release and Form 10-Q present a full reconciliation of our non-GAAP measures with the most directly comparable GAAP measures. Now, turning to our balance sheet and our liquidity. During the current quarter, August 2025, the company closed on a public equity offering and concurrent management-led private placement equity transaction for a combined net proceeds of approximately $2,000,000. And as of 09/30/2025, the company's balance sheet reflected stockholders' equity of approximately $17,000,000 and unrestricted cash of approximately $1,500,000 and also reflected $12,500,000 of long-term debt. And with that, I would like to turn the call back over to Bob. Bob? Robert W. D'Loren: Thank you, Jim. This concludes our prepared remarks. Operator? Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to withdraw your question, simply press 1 again. We will pause for a moment to compile the Q and A roster. You will be on music hold until then. Please stay on the line. Thank you. Thank you for patiently waiting. We will now begin the question and answer session. Our first question comes from the line of Thomas Forte with the Maxim Group. Please go ahead. Thomas Forte: Great. So Bob and Jim, congrats on the quarter. I have one question and one follow-up. I'll go one at a time. Bob, in September, you announced what we thought was a pretty significant hire. Robert W. D'Loren: In addition to the company. With the addition of Olin Lancaster as Chief Revenue Officer, can you talk about the importance of that move and how you're able to attract him to Xcel Brands? Robert W. D'Loren: Sure. Olin and I have a long-standing relationship that took over two years for the stars to line up for him to come to Xcel. I'm very happy that he has joined us. He brings over twenty-five years of experience to Xcel, having run very big divisions within Ralph Lauren and other companies. And we have been working closely together, traveling a great deal over the last couple of months to various different trade shows to get all of these new influencer brands launched with good licensing partners. And I look forward to working hard in '26 with Olin. Thomas Forte: Great. And then for my follow-up, Bob, last quarter, you talked about having influencer brand products focused on domestic items such as food. Can you talk about things you've done in that area as a way to mitigate some of the tariff impact? Robert W. D'Loren: Yes. It's interesting that our timing was perfect, and signing Cesar, Gemma, and Jenny, particularly Gemma and Jenny, because QVC and other retailers are eager to make room for products that are sourced domestically, which the majority of food is. So we're very excited about the prospects with Jenny and Gemma. We have begun signing licenses with various different licensees, and the same is true with Cesar for dog food. And a majority of pet supplements are made here domestically. So timing was good with those. And just to some extent, it mitigates tariff risk with a lot of the concentrations that we have in apparel and goods that are in other countries. That said, most of our licensees have been shifting out of China to other places that are a little more tariff-friendly. QVC is still working on that transition in some of their categories, but we're excited for Gemma and for Jenny and Cesar. They're all launching on QVC coming up in Q1. So timing was good for us. Thomas Forte: Great. Thanks for taking my questions, Bob, and best of luck in the fourth quarter. Robert W. D'Loren: Thank you. Operator: Your next question comes from the line of Michael Kupinski with Noble Capital Markets. Please go ahead. Michael Kupinski: Thank you for taking the questions. I'm sorry for the background noise. Just a couple of quick questions. In terms of the disruption with the C Wonder and Christie in the fourth quarter, I was just wondering have those issues been resolved? Are they still lingering? I was just wondering if it's a temporary situation, or is it something that still needs to be resolved? Robert W. D'Loren: No. It has been resolved, Mike. It was really related to the vendor that was supplying QVC. They just couldn't get the costing to work with the tariffs. And we have since then replaced that vendor, and they're sourcing from different countries where the economics work for QVC. So that was part of it. And the other part of it was there was disruption when HSN, which Christie and C Wonder are HSN brands, moved from Tampa to Westchester, PA. It just caused delays and shows, but all of that has been resolved. It was actually remarkably good in terms of how QVC did the transition, but there were some programming challenges. Michael Kupinski: Great. And then in terms of G-III, you mentioned that they're tweaking some merchandising. Is that tweak going to be able to be done for the spring line, or is that going to be more of a fall line? Robert W. D'Loren: I think it will I think there will be some adjustments for spring because they've been making them all along. But I think it's really more a fall adjustment for them. And Olin and Joe Falco have been working very closely with the G-III team. Michael Kupinski: Gotcha. And then obviously, you have a lot of new brands that are coming out. I was just wondering if you have any updates on the product roadmap and, like, maybe when the rollouts for these brands you know, any updates on when they are gonna start hitting the market? Robert W. D'Loren: All of them will start hitting the market that start beginning Q1 of 2026. So it'll start with all the food products, some small electronics, devices that were that were vendor was able to source competitively despite the tariff situation, and then they'll continue to roll out into categories. At Cesar, we had a big pet accessories program that we signed last year, and there were delays we thought that could get out for this holiday season. But because of tariffs, they had to move to different factories and we shifted. But that all should really be in the market by fall next year. Michael Kupinski: Gotcha. Bob, I don't want you to say anything you can't, you know, obviously can't say, but did allude to an acquisition that you're contemplating. It might be kind of good to, right, remind investors what types of acquisitions you've been kinda contemplating in the past and what what what were you what they those acquisitions might bring to the table that we might be more most excited about. Robert W. D'Loren: So over the last three years or so, we've been looking for brand acquisitions and transformative transactions. And, you know, we continue to look at opportunities, I would say, in the general course of our business where we're looking at opportunities. There are a few that we are very interested in, and we're working very hard to try to make them happen. Michael Kupinski: Gotcha. Thank you very much. Good luck to you guys. Operator: Thank you. Your next question comes from the line of Walter Schenker with MAZ Partners. Walter Schenker: Hi, Bob. It is admirable to cut costs. However, you can cut costs to profitability if you don't have revenues. The questions that were asked sort of address some of the issue, which is you need to get your revenues meaningfully higher than they are now to break even. Even on a cash flow basis, can you sort of lay out how you look at the next twelve months and the revenue ramp without specific can be as specific as you feel comfortable. Robert W. D'Loren: So the roadmap is we're launching five new influencer-led brands that we think will drive the revenue going into '26. And, also, we now believe that some of the difficulties we experienced with both Christie Brinkley and our C Wonder brand because of tariffs and the move are behind us, and we think we have great upside. We also plan this going into '26 to expand new categories, particularly with the Christie brand into home and garden and beverage. And with C Wonder, we believe that '26 will be the year that we can also diversify into new sales channels. So that's the roadmap. And that's what Olin and I are working on on a day-to-day basis to maximize the opportunity with all of the brands in the portfolio. And then, of course, we do have a pipeline of additional brands that we are working on with influencers to bring to the market, hopefully, as soon as, you know, fall next year. So that's the roadmap. Walter Schenker: And, therefore and, again, you addressed some of this already. As we get into next year, each quarter should sequentially show higher revenues I realize there's some seasonality. But each quarter should given the ramp in the five new influences, additional people, and straightening out some of the issues you've had with your existing lines. Would pretty much sequentially show growth Correct. Robert W. D'Loren: Correct. Because they're all coming online. And, hopefully, you know, we can work with the team that is running the Halston brand. And we can help them to really accelerate growth in that brand as well. Walter Schenker: Okay. Thanks a lot. Robert W. D'Loren: Oh, thank you. Operator: Once again, if you would like to ask a question, that is to press star 1 on your telephone keypad. Thank you. Your next question comes from the line of Howard Brous with Wellington Shields. Please go ahead. Howard Brous: Just a Walter's question. Can you give us a sense of how we can look at 2026 in terms of potential revenue? Robert W. D'Loren: So Howard, there's you know, we haven't given guidance, but there are two analyst reports out there. One, that I think is a conservative view, and the other that is consistent I believe, with our internal goals for what we think we can do with the brands. And I would look to those two reports to get a sense of where we think you know, that can be for us. The important metric for us is top-line royalty revenue. Royalties, in the marketplace, Howard, they've been trading at higher values recently, particularly in the PE world. They're trading today for between seven and eight times royalty. Top-line royalty, 15 times EBITDA. And, you know, with royalties trading at that level, there's a massive disconnect even with where we are today with the market cap of the company. Because if you take the worst-case base at $6,000,000, times seven or eight times, that would imply we have $45 to $50,000,000 of asset value in the IP. And I've been saying this for years. There's always this disconnect, and that was certainly proved with the sale of our Isaac Mizrahi brand in 2022. So if you look at, you know, where the analysts have us, if we are successful in achieving our goal in getting all these categories for the new brands launched, it would imply a $100,000,000 of value on the royalty flows. And that's an important metric for us to look at. Howard Brous: That's all I have. Thank you. Operator: Another question from Walter Schenker with MAZ Partners. Please go ahead. Walter Schenker: Probably to end on a high note. Bob, you have previously, in talking to investors, indicated over a multiyear timeframe that the opportunities that you have lined up now could potentially get $50,000,000 of royalty income, half of I get my numbers. Half of that to you so that you could have $25,000,000. We're looking at your share count. You know, and earn a lot of money. That is still a potential target out a few years. Yes. Robert W. D'Loren: Yes. Then these brands are very powerful. Particularly Cesar Millan. Cesar is the biggest voice in the pet world. There is a lot of interest in him with 20,000,000 followers and syndicated TV shows in 80 countries. There's a global opportunity with him. So we're very excited about that, and Jenny Martinez, she could be the Latin Martha Stewart. And Gemma, when you think about the magnitude of 500,000,000 people having downloaded her recipes, the potential with them is enormous. Walter Schenker: Okay. Just again, I want to reaffirm that, you know, a few years out, you're still looking for especially relative to where we're now, very big numbers. At least on a per-share basis. That's the goal. Robert W. D'Loren: Good. Walter Schenker: Well, hopefully, we'll all achieve it. Thank you, Bob. Operator: At this time, there are no further questions. I would now like to turn the call back over to Mr. D'Loren for closing remarks. Robert W. D'Loren: Okay. Guys, before I give you my closing remarks, I do want to extend a special thanks to Seth Burroughs for joining us on this call at midnight his time. And with that, ladies and gentlemen, thank you all for your time this evening. We greatly appreciate your continued interest and support in Xcel Brands. As always, please stay fit, eat well, and be healthy. Operator: Ladies and gentlemen, that does conclude our conference call for today. You may all disconnect your lines, and we would like to thank you for participating.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Jack in the Box Fourth Quarter Fiscal Year earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. To withdraw your question, it is now my pleasure to turn the call over to Rachel Webb, Vice President of Investor Relations. Please go ahead. Rachel Webb: Thanks, operator, and good afternoon, everyone. We appreciate you joining today's conference call, highlighting results from our fourth quarter and fiscal year 2025. With me today are Chief Executive Officer, Lance Tucker, our Chief Financial Officer, Dawn Hooper, and our Chief Customer and Digital Officer, Ryan Ostrom. Following their prepared remarks, we will be happy to take questions from our covering sell-side analysts. Note that during both our discussion and Q&A, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in the earnings release which is available on our Investor Relations website at jackinthebox.com. We will also be making forward-looking statements based on current information and judgments that reflect management's outlook for the future. However, actual results may differ materially from these expectations because of business risks. We, therefore, consider the safe harbor statement in the earnings release and the cautionary statements in our most recent 10-Ks to be part of our discussion. Material risk factors as well as information relating to company operations are detailed in our most recent 10-K, 10-Q, and other public documents filed with the SEC and are available on our Investor Relations website. Additionally, the company intends to file a proxy statement and related materials with the SEC in connection with the 2026 Annual Meeting of Stockholders. Our directors and certain officers will be participants in the solicitation of proxies in connection with the annual meeting. Stockholders are encouraged to read the proxy statement and related materials when they become available as they will contain important information, including the identity of the participants and their direct or indirect interests by security holdings or otherwise. And with that, I would like to turn the call over to our Chief Executive Officer, Lance Tucker. Lance Tucker: Thanks, Rachel, and I appreciate everyone joining us today. I want to begin by thanking our teams, our franchisees, and our shareholders. Fiscal 2025 was an eventful year for Jack in the Box. And I continue to be inspired by our stakeholders' passion and support for the efforts we are making to unlock the company's long-term potential. As we approach our seventy-fifth anniversary, we are committed to improving performance today while laying the foundation for sustained shareholder value over the next seventy-five years. Throughout today's prepared remarks, I will provide an update on our Jack on Track plan, the current state of the business, and the actions we are taking to restore momentum at Jack in the Box and position the company for sustainable growth. I will then turn it over to Dawn for a deeper dive into fourth quarter results, 2026 outlook, along with how to think about the standalone Jack in the Box model going forward. When we announced Jack on Track back in April, one of our key goals was to simplify the business and sharpen our investment thesis. I am pleased with the progress we have made so far. As you saw in October, we announced the pending divestiture of Del Taco. This is a meaningful step that, when complete, will allow us to fully recenter our attention on strengthening the Jack in the Box brand and executing the remaining elements of our Jack on Track plan. I want to thank the Del Taco team for their partnership throughout this transition. We have also made good progress on our closure program and have numerous real estate transactions in process, so these key components of the Jack on Track program are also progressing as expected. While we are pleased with our progress on our Jack on Track initiatives, we are clearly not satisfied with our 2025 operating performance, and we are rebuilding our operational discipline to drive growth and shareholder value in 2026 and well beyond. I will speak more to this shortly. Now turning to our fourth quarter results. Our fourth quarter was really a story of two halves. The first few weeks of the quarter started off rocky, as I alluded to on our last conference call. Our value equation was not resonating, lacked enough price point of value, and we moved swiftly to address that with more demonstrable value later in the quarter. Coming out of August, we adapted quickly and implemented a true barbell promotional strategy. We pivoted media and marketing to feature our $4.99 bonus jack combo, a compelling offer that resonates well with our value-seeking guests. We also featured our $5 smashed Jack in a culturally relevant sporting event. That included pulsing digital offers, all of which drove incremental trial for the best burger in QSR. The overall result transactions improved throughout the quarter as guests opted into our value strategy, though check remained pressured, particularly as we continue to lap significant price increases from last year taken to combat big wage increases. All told, sales trends improved roughly 300 basis points throughout the course of the fourth quarter. As we have moved into the first quarter, our barbell strategy continues, and we largely maintained similar performance to what we saw at the end of Q4. Though like many brands, we have recently seen a few weeks of downward pressure tied to the effects of the government shutdown as well as lapping several weeks of our own stronger results from last year. We have made several changes to our menu to improve everyday value. Beyond the promotions we ran in Q4, in early October, we right-sized pricing on three of our signature combos, making them more affordable for our guests. We have also increased our cup sizes on small combos. While we know these changes will not improve results overnight, we are taking necessary steps to enhance how we improve our value perception, and we will continue refining our menu strategy. Over the past few months, we pulled several levers to drive improvement, but there is still significant progress to be made. Our category is more competitive than ever, and consumers are very careful about where they spend. We are committed to a strategy grounded in driving value for guests while protecting profitability for ourselves and our franchisees. Whether through boosting check or driving cost efficiency. We also know the entire guest experience plays into the value perception, not just promotion or price. As we build the foundation for Jack's Way, we are focused on consistency. Consistency across our operations, our food quality, and an elevated overall experience for the guest. First, we are making strides in operational excellence. We identified a critical gap in our field support and restructured our field teams to spend more than twice as much time in restaurants. This helps provide more real-time coaching to our team members and holds restaurants more accountable, also rewarding top performers. In the near term, we are retraining the entire system with a disciplined focus on getting back to basics. It is not glamorous, but it is essential. We have already received great feedback from our franchisees and employees on these efforts. Second, doing things Jack's way means serving high-quality food, leading the way with innovation. Our priority is clear. We need to serve hotter, juicier burgers with greater consistency across the system. So we have challenged ourselves to rethink how we deliver, starting with the fundamentals: cooking procedures, ingredients, and training. Shannon McKitty is doing a great job driving rapid improvement in our ops fundamentals. We have also reinvested in culinary innovation and welcomed our new executive chef, Kieran Duffy, to lead the effort. He has already shared concepts that we believe will elevate both quality and craveability for our guests. As we celebrate Jack's seventy-fifth anniversary and bring back some of our customer fan favorites for a limited time, we will be ramping up our innovation and quality improvements that position us to exit 2026 in a much stronger place than we entered. The final component of Jack's Way is modernizing our restaurants. We continue to work through the tenants of a comprehensive reimage program, and we will keep you updated on our progress. Meanwhile, we are currently testing a proof of concept on a handful of restaurants with a mini refresh that can be quickly implemented while generating modest uplift for the brand so we can get some immediate learnings. We know all of these things must work in tandem. The right menu, the right level of service, and a welcoming environment, and an overall experience that meets the customer's expectations. As you can probably tell, but to put a little finer point on it, 2026 will very much be a rebuilding year. Looking ahead to the next twelve months, here is what I expect Jack in the Box to achieve. First and foremost, I expect same-store sales for the Jack in the Box brand to return to positive as we utilize our barbell promotional approach throughout the year, enhance our operations, and improve the overall guest experience. Second, I expect the Del Taco divestiture and associated TSA to be fully completed, and we will be well on our way to rightsizing the organization as a standalone Jack in the Box brand. Third, our restaurant base will be substantially cleaned up with the closure of many of our underperforming restaurants behind us. Sales transferred from closed restaurants will benefit our remaining restaurants, and profitability will be improved. Fourth, later in the year, I expect us to begin actively executing a reimage program that will ultimately impact the majority of our restaurants, driving even stronger volumes and generating more guest excitement around the brand. And finally, we will have made significant progress in paying down our debt with a marked improvement in reducing our overall debt levels. As you can tell, there is real work ahead, but we have the right plan in place and the right leadership focus to execute our plans in the coming months. While 2025 was a challenging year, Jack in the Box remains in a position of strength with AUVs approaching $2,000,000, a resilient and dedicated franchise base, and core brand equities to leverage as we work to restore momentum. You can continue to expect transparency from us on progress as we are building towards long-term sustainable growth. We expect to exit 2026 as a stronger, more disciplined, more valuable Jack in the Box, positioned to drive sustained profitability and create long-term shareholder value. I will now turn the call over to Dawn to dive deeper into fourth quarter results and specifics around 2026 guidance. Dawn Hooper: Thanks, Lance, and good afternoon, everyone. I will start by reviewing the results of the two brands individually and then provide details on our fourth quarter 2025 consolidated performance and 2026 guidance. Beginning with Jack in the Box, our fourth quarter system same-store sales declined 7.4%, franchise same-store sales decreased 7.6%, and company-owned same-store sales were down 5.3%. This result included a decrease in transactions and negative mix, partially offset by a 2.4% increase in price. As Lance mentioned, we did see improvement throughout the quarter, ending Q4 roughly 300 basis points stronger than we started the quarter. Turning to restaurant count. For the fourth quarter, there were 15 Jack restaurant openings and 47 closures, and we ended the year with 2,136 restaurants. Jack restaurant level margin for the quarter decreased year over year by 240 basis points to 16.1%. The margin decrease was driven by sales deleverage, commodity inflation of 6.9%, elevated labor costs as a result of opening eight new restaurants in Chicago. Food and packaging costs as a percentage of company-owned sales remained flat at 30.3% as a result of favorable funding from our new beverage contract as well as price increases, offset by commodity inflation and negative mix as consumers shifted into price-pointed promotions as Lance mentioned. From a commodity standpoint, our largest inflationary category was beef, consistent with industry trends. Labor costs as a percentage of company-owned sales increased 100 basis points to 33.7% primarily due to the elevated labor at our new restaurant openings in Chicago, partially offset by a reversal of additional fee-to-taxes in California. Jack in the Box opened eight restaurants within twelve weeks in Chicago, which was one of the fastest new market openings we have completed in recent history. We are seeing excitement from customers around these openings, but there was a significant impact on our P&L for the quarter. The Chicago market had a negative 130 basis point drag on our overall company restaurant level margin. We are taking swift actions to improve the margin compression driven by this market. While volumes remain strong with annual unit volumes to exceed $2,000,000, labor costs were elevated this quarter as we staffed up the market to ensure first-time guests received the best possible experience. Occupancy and other operating costs as a percentage of company-owned sales increased 130 basis points to 19.9% primarily due to higher costs for rent, security, and third-party delivery fees. Franchise level margin was $62,600,000 or 38.9% of franchise revenues compared to $70,900,000 or 40.4% a year ago. The decrease was driven by lower franchise same-store sales and lapping $2,600,000 of nonrecurring lease termination revenue from franchisees, partially offset by higher early termination fees collected in connection with our closure program. For a quick update on Jack on Track, I will start with the restaurant block closure program. In Q4, we closed 38 restaurants under this initiative, all of which were franchise locations. Turning to real estate activity. We sold three real estate properties during the quarter, generating $4,800,000 in proceeds, which will be used to pay down debt. We also continue to reduce capital expenditures sequentially as we remain focused on disciplined capital allocation. And lastly, as announced in October, we entered into a material agreement to sell Del Taco. Overall, we are making progress on our Jack on Track plan every quarter. Now taking a look at Del Taco results. For Del Taco, system same-store sales declined 3.9% consisting of company-owned same-store sales down 3.1% and franchise same-store sales down 4.2%. This decline was driven by a decrease in transactions and an unfavorable mix, partially offset by a 2.8% increase in price. For the fourth quarter, there were four restaurant openings and 13 restaurant closures. Del Taco ended the year with a restaurant count of 576 locations. Del Taco restaurant level margin was 6.8%, as compared to 9.3% in the prior year. This decrease was primarily driven by the impact of opening locations in Colorado, transaction declines, inflationary increases in commodities, slightly offset by menu price increases. Food and packaging costs increased 260 basis points to 27.8% due to unfavorable mix and commodity inflation of 5.1%. Labor costs remained flat at 39% as elevated labor costs from the reopening of 17 locations in Colorado were offset by a reversal of additional fee-to-taxes in California. Occupancy and other costs decreased 10 basis points to 26.4% driven primarily by favorable utilities. Franchise level margin was $6,800,000 or 30% of franchise revenues compared to $6,000,000 or 26.5% in the prior year. The increase was driven by a lease buyout transaction and early termination penalties partially offset by lower sales and higher bad debt expense. Moving to our consolidated results. SG&A for the fourth quarter was $36,600,000 or 11.2% of revenues as compared to $30,000,000 or 8.6% a year ago. The increase was primarily driven by the $5,500,000 incremental advertising contribution we made during the quarter, higher information technology costs, the rollover of favorable insurance claim development factors from the prior year, and a decrease in COLI gains. These impacts were partially offset by lower share-based compensation and reduced incentive compensation tied to performance. Excluding the net COLI gains, along with company-owned marketing expenses, G&A was $27,000,000 or 2.4% of total system-wide sales. For the quarter, we spent approximately $3,900,000 in preopening costs. The majority of this investment supported new restaurant openings in Chicago for the Jack in the Box brand, with the remainder related to reopening the Colorado market for the Del Taco brand. Consolidated adjusted EBITDA was $45,600,000, down from $65,500,000 in the prior year due primarily to lower same-store sales at both brands. For the full year, adjusted EBITDA was $270,900,000, inside of our revised guidance range. GAAP diluted earnings per share was $0.30 for the quarter, compared to $1.12 in the prior year. Operating earnings per share, which includes certain adjustments, was $0.30 for the quarter versus $1.16 in the prior year. Our effective tax rate for the fourth quarter was negative 30.4% compared to 29.2% in the prior year quarter. The negative rate this quarter was primarily driven by incremental nontaxable gains from the market performance of insurance products used to fund certain nonqualified retirement plans along with favorable state audit accruals recorded during the period. The non-GAAP operating EPS tax rate for 2025 was 11.9% and was 25.4% for the full fiscal year. The lower non-GAAP operating EPS tax rate for the fourth quarter was primarily due to favorable state audit accruals recorded in the quarter. Capital expenditures were $17,900,000 for the quarter. Cash flows from operations for the quarter were $33,700,000, and cash flows from operations for the full fiscal year were $162,300,000. We did not repurchase any shares in the fourth quarter. For the full year, we repurchased 100,000 shares for $5,000,000. As of year-end, we had $175,000,000 remaining under our board-authorized share repurchase program. We ended the year with an unrestricted cash balance of $51,500,000. We also had available borrowing capacity of $96,800,000. Our total debt at year-end was $1,700,000,000, with our net debt to adjusted EBITDA leverage ratio at six times. As we look to 2026, we want to share the standalone Jack business model. Del Taco results will be reflected in discontinued operations in our Q1 2026 financial statements, pending successful close of the sale, which we expect to occur within Q1. Upon close, we will be required to file pro forma financials presenting a three-year look back of what our results would have been without Del Taco. After this, we plan to host a call with our analyst community to walk through the standalone model and assumptions in more detail. Before getting into specifics, I do want to reiterate the primary source of uncertainty in our 2026 outlook: the timing of our Jack on Track initiatives. Restaurant closures may shift based on factors such as franchisee readiness, lease dynamics, and market conditions. Similarly, while we do expect real estate proceeds during 2026, the exact timing of those transactions will depend on market conditions and our pace alongside our debt pay-down plans. Both of these add a level of variability to our sales, restaurant counts, and franchise level margin estimates for the year, and thus impact our overall adjusted EBITDA expectations. Please know our guidance reflects our current best assumptions. We will provide more color on this throughout the year as our assumptions update. Now to specific guidance. We expect to end fiscal 2026 between 2,050 restaurants to 2,100 restaurants. We expect same-store sales of negative 1% to positive 1% versus the prior year. Please keep in mind as you model company sales that you factor in our new market of Chicago, which will not be included in same-store sales but is expected to have AUVs above $2,000,000. We expect company restaurant level margin of 17% to 18%. This includes mid-single-digit commodity inflation largely driven by beef. Keep in mind, we are also rolling over a favorable beverage contract benefit from 2025. Restaurant level margin guidance also includes low single-digit wage inflation and our expectation for continued margin compression in the first quarter driven by our Chicago market. We expect franchise level margin of $275,000,000 to $290,000,000. Franchise level margin is the most impacted area on the P&L from Jack on Track through both closures and real estate sales. Like we mentioned on our last call, we expect a negative impact to franchise level margin of approximately $80,000 per closure. With a closure range of 60 to 100, this equates to roughly $4.8 to $8,000,000 on an annualized basis. As a reminder, franchise level margin also had a benefit in fiscal 2025 of $5,200,000 tied to rent spread monetization transactions with franchisees related to right of first refusal. We expect SG&A expenses of $125,000,000 to $135,000,000, accounting for roughly $31,000,000 in Del Taco specific G&A and advertising, as well as impacts of incremental Jack in the Box marketing spend, COLI gains, favorable share-based compensation, and lower incentive compensation in 2025. A comparable SG&A figure for fiscal 2025 is $134,000,000. For fiscal 2026, G&A, excluding selling and advertising, is expected to be approximately 2.5% of system-wide sales. We expect this to remain elevated for the first half of the year and then improve into the back half as we restructure following the sale of Del Taco. Similar to prior divestitures, we will enter into a transition services agreement or TSA, and we expect income to offset some of our G&A as part of that agreement. This guidance does not reflect that benefit, and we will share more as we learn the total TSA amount and timing. We expect preopening costs of less than half a million dollars and depreciation and amortization of $45 to $50,000,000. Adjusted EBITDA for the full year is expected to be $225,000,000 to $240,000,000. And finally, as part of the Jack on Track plan, we expect to pay down $263,000,000 in debt by retiring the August 2026 tranche of our securitization proceeds from the Del Taco divestiture, cash on hand, proceeds from real estate sales, and potentially borrowings on our VFN to preserve flexibility. We recognize that rebuilding takes time, and 2026 is about executing against Jack on Track and restoring momentum for the Jack in the Box brand. You have our commitment to transparency and to maintaining financial rigor as we make decisions that impact our guests, employees, franchisees, and shareholders. We look forward to speaking with you again in February as we release first quarter results. And with that, operator, please feel free to open the line for Q&A. We respectfully request that you limit questions to one and one follow-up. Our first question comes from the line of Brian Bittner with Oppenheimer. Your line is open. Brian Bittner: Hey, thanks for taking the question. Just as it relates to your '26 guidance for same-store sales down one to up one, you talked about how you anticipate comps to remain pressured in 1Q and then sequentially improve. Can you first talk about what are the main drivers of this improvement throughout the year? Is it comparison-driven or something else? And maybe you could help us understand how you are thinking about the shape of the recovery in 2026, maybe first half or second half so we can all get on the same page with that. Thanks. Lance Tucker: Hi, Brian. It's Lance. So first of all, we do expect the first quarter to be soft as we have mentioned. And you guys see credit card data probably just like we do, so you are already aware of that. As we get into the second quarter, though, which for us begins in mid-January, we will be entering our seventy-fifth anniversary, where we have a number of pretty exciting things going on relative to ads and innovation and bringing back some old customer favorites. We will also have some softer compares, particularly as you get into the second half of the year, that will contribute as well. And then there are a number of other things that we are doing. We will be obviously working on the value equation and continuing to ensure that we have the barbell strategy correct. We expect to continue to see sales benefit as we continue to improve on the tech side. Tech modernization, as you guys know, we have put a lot of time in the tech modernization. It is ongoing, and I think it will build throughout the year and help us a little bit. And then we do have, again, some interesting innovation coming. We have a new chef, a restructured innovation team, and structure that we think is going to draft some interesting things. So we have a lot of things that we are excited about as we go into 2026. But it's more of a calendar '26 comment than it is necessarily here in the first quarter. Brian Bittner: Okay. Thanks. And just a quick follow-up is on the EBITDA guidance. I think you guys said the biggest wildcard there is just as it relates to the Jack on Track plan and as you execute against that, what's the assumption in the current EBITDA guidance? Is it for no real estate sales and no block closures as of now? And then as those happen, that impacts the EBITDA relative to this initial guidance or how would you frame that dynamic up for us? Lance Tucker: No. We have lot closures built in. First of all, to start with that piece, I'll let Dawn give you the exact number, but I believe it looks like we've said 60 to 100 in total 26 closures. So that does include, you know, the closure program as you would expect when you see that number. You know, the real estate sale side, we do have real estate sales. I think they, you know, we're a little bit limited in how fast we can go on the real estate sales because of the dynamics of how we're able to pay the debt back within the securitization. But there is between $50 and $70,000,000 of real estate sales built into that guidance number. Dawn Hooper: That's right. Brian Bittner: Super helpful. Thanks, guys. Lance Tucker: Of course. Operator: Your next question comes from the line of Alex Slagle with Jefferies. Your line is open. Alex Slagle: Hey, thanks and thanks for all the color. First, I wanted to clarify on Brian's question and commentary around the first quarter same-store sales trends. It sounds like a modest improvement versus the reported fiscal 4Q just given the cadence you talked about. But then, I guess, some degree of slowdown recently. Is that so net-net for the first quarter, quarter to date, is it similar to the 4Q? Or has it improved a little bit even after a few weeks of softer trends? Lance Tucker: Yeah. I'd say we kind of as we got into the back half of Q4, we were seeing some improvements. As we entered '26, we maintained the last few weeks as we've not only gone over our own kind of stronger compares, but also had some impact from the government shutdown. Things have slowed down a little bit. Now they're normalizing again or beginning to normalize. I don't want to go into a lot more depth than that. But, again, when we kind of made the change to make sure we had some price point value and we've got things kind of at both sides of the barbell, the consumer has reacted better to that than what we were doing before, and I think you'll continue to see us run that playbook. Alex Slagle: Got it. In the $5,500,000 incremental marketing spend in the fourth quarter, you could kind of talk to if you're happy with the return you saw there and things you maybe do the same or different or if there's an opportunity to do more of that in 2026. Lance Tucker: Yeah. That's a good question. I can tell you first, let me kind of tell you where the spend went, actually. So we did obviously spend behind our value in digital offers and primarily was the bonus jack that we brought in kind of at the low end of the barbell. And then we also pretty heavily spent against the $5 smash jack for about a week within our app. That was actually tied to a sponsorship we had also invested in with part of that money which was for a culturally relevant sporting event. That was the Crawford Canelo fight where we got really a lot of benefit. So and then some of the spend also went to shortfalls. Obviously, our sales fell a little bit shorter where they would in the beginning part of the or where we thought they would. In the beginning part of the year. And so, you know, when you think about that five and a half, think, you know, a portion kind of half or a little less was really going to make sure that we that we shored up our marketing fund and the remainder was incremental. That's the way I think about that. As far as the benefits we got, we did see improved transactions. We also kind of got the opportunity to introduce a bunch of consumers to the Best Burger in QSR at a really good price point at $5. And then we made very significant impressions with one of our big demographic groups. So overall, you know, would we consider doing that again? I mean, our goal would be that we wouldn't need to do another significant contribution into the marketing fund because we would certainly expect that results are going to be better than what we saw in 2025. With that said, I am happy with the results. I think Ryan would echo that. And if we needed to do something again, you know, we'll always keep our options open. Alex Slagle: Certainly. Lance Tucker: Thanks. Operator: Your next question is from the line of Sarah Senatore with Bank of America. Your line is open. Sarah Senatore: Okay. Thank you. I guess a follow-up question on the top line outlook and then a question on G&A. So the top line, I know that your same-store sales guide is predicated on company-specific initiatives. And it sounds like you're very confident in those. Do you have any kind of underlying macro assumptions that you're making? I mean, we've seen I know you've talked about sort of exposure to different income cohorts. Anything that might signal, I guess, sort of expectation that things improve in sort of the macro backdrop? And then the G&A guide, I guess it's flat on an adjusted basis. I just want to make sure I understand that the second half is that more that will be lower. So is that the right run rate that the sort of lower G&A in the second half is actually the right run rate and so perhaps a little bit below that 2.5% of system-wide sales. It's just the first half is more, you might still have some stranded costs or still be working on restructuring. So, you know, as a go-forward basis. Thanks. Lance Tucker: Sarah, I'll take the first one, and then I'll ask Dawn to pitch in on the G&A question. But relative to kind of the macro conditions, really, the assumptions we've made are certainly that it's not going to get any worse, but that it's going to remain pretty flat throughout the year. We didn't build in a significant tailwind from anything going on in the environment that would necessarily be a benefit. So the numbers you kind of see are largely a status quo is what I would say. You know, we've seen just the slightest bit of consequential improvement kind of both in the low-income cohorts and in the Hispanic cohorts, but still a lot of work to do on both. And so not enough that we felt comfortable building any tailwind into that guidance. Dawn, on the G&A, I'll let you run with that piece. Dawn Hooper: Yeah. And on the G&A, you're exactly right. You know, as we rightsize the business and we exit the TSA and eliminate those stranded costs, you're going to see Q2 the second half of the year come in in, like, the 2.3, 2.4% range. Would be more realistic going forward. Sarah Senatore: Thank you so much. Very helpful. Operator: Your next question is from the line of Jeffrey Bernstein with Barclays. Please go ahead. Jeffrey Bernstein: Great. Thank you very much. My first question is just on franchisee sentiment. Lance, you mentioned the category is more competitive than ever. And currently, I know you're running somewhat appears, but large negative traffic wondering how those conversations are going as you focus on kind of more singular brand asset-light model. Maybe what are they asking for? Are they still showing willingness to invest in the Jack on Track plan? Any broader sentiment you can share since you are again, a primarily franchise business model and there's lots going on there, but profitability is likely under pressure. And then I had one follow-up. Lance Tucker: Sure. And you're right. I mean, when you have a difficult year like we had in 2025, that does in fact put pressure on franchisee P&Ls. You know, what I would tell you is to kind of sentiment what we're hearing from them, first of all, they want the same things we want. Right? They want sales to be positive just like we do. We want them to be positive tomorrow. And, and so, yes, of course, we hear that, and it's understandable. You know, when the sales are difficult and the bottom line results are difficult, the conversations are going to get more pointed. But, again, that's kind of what you expect. And while they're pointed, they're also respectful. And they also are willing and able to support the team and support the brand, and they're doing everything they can on their side as the primary operators of the restaurants to drive our results. And so look, we spend a lot of time talking to franchisees. We listen to them. We don't always agree, and I suspect that's the same across most systems. But with that said, we assume their positive intent, and they assume our positive intent. And so we are working together to try to drive the business forward. You know, as far as investing, you know, I do think as we get towards the end of the year, and I said this in prepared remarks, I do want to be rolling out some sort of some kind of reimage program. I think, you know, we're going to need to do a comprehensive reimage program, and that needs to start sooner rather than later. But as we also mentioned, we are testing kind of a mini reimage that would be much more affordable, get out there very quickly. And bring some, you know, instant kind of modest benefit to the brand until we get to a point where we can do a broader reimage. Because franchisees with the financials where they have been for the last year, will need a little more time before they're going to be in a position probably to reinvest in the brand the way we all want to. So a long answer to your question, but, you know, I guess I want to kind of end with two things. We do still have nearly a $2,000,000 overall AUV within our franchise community. And so, yes, you know, when you get to some of the smaller franchisees and some of the less well-capitalized franchisees, there are some pressures, and there's pressures across everyone. But it still overall is a pretty reasonable picture. And then we're actually going to be out. The executive team is in December doing kind of road shows in several markets to talk to franchisees and hear what they have to say. And ensure we're being as transparent with them as we are with you along this call. So a lot of conversation. Jeffrey Bernstein: Understood. And then just the follow-up as we look past the transition to a single brand asset-light model, presumably, maybe we're thinking more like fiscal 27. But just as you look out, like, what are the reasonable assumptions that you think about for top and bottom line even if it's directional only? I know unit growth gets the most attention because there's often talk about an acceleration in that growth and having a national footprint one day, but do you think about that directional trend over the next number of quarters or years or however you think about it in terms of top and or bottom line growth for the Jack story. Thank you. Lance Tucker: Sure. Yeah. You know, well, first of all, we'll give long-term guidance once we're a little further into the Jack on Track program. I'm not going to put an exact time frame on that, but I would tell you we realize the need to go out and update that long-term guidance sooner rather than later. Obviously, in the meantime, and you kind of referenced this, you know, a unit guidance number that's out there, given the closure program that's going on, is a number I wouldn't pay a lot of attention to. I think as you think about the long-term algorithm, I mean, I think it's not going to be too far off, I don't believe, from what you would expect. Is to say asset-light model, primarily franchise openings, reduced CapEx. Moderate G&A, probably low single-digit comps. You know, we are going to want to get into a growth story on the unit side. That's probably a couple, three years away. We'll give better guidance on that when that happens. And then kind of responsible unit openings, you know, with units that have really good overall unit economics. We are driving cost out of the building right now, and we need to continue to do that before it makes sense to be outbuilding just a whole lot. So we'll give more firm long-term guidance, as I said, here when we're a little better positioned to do so. But with that said, it's not probably an atypical algorithm than what you would have expected. Jeffrey Bernstein: Understood. Thank you. Operator: Of course. Next question is from the line of Gregory Francfort with Guggenheim. Your line is open. Gregory Francfort: Hey, Lance. Thanks for the question. I had, I guess, two. The first is you made a comment a couple questions ago about maybe holding off on bigger remodels and doing smaller remodels. In the near term, I guess if the stores need larger remodels, why would you do that? And would you consider maybe instead raising equity capital if these are the right things to do from either reimage or your struggling franchisee to buy in? Is that something that's on the table here? And I have a second question. Lance Tucker: No. I would not expect we would be doing an equity raise. So I'll largely put that one to bed. You know, I think we're going to have plenty of franchisees that are able to go full speed ahead with a more comprehensive reimage. But I think we are going to need to have an alternative for those that are not. So, you know, I'll reframe my answer just a little bit and say, I do expect at the end of the year to be moving forward with a full-on reimage program. But I think we do need to make sure that we've got programs that are attainable for everyone. And as I said, when we were talking about kind of franchise health, I think, you know, by and large, we're going to have a large number that would be able to move ahead and plow ahead, but we are going to need to make sure we have some options that give some relatively modest immediate impact while giving the franchisees time to plan for those expenditures going forward. Gregory Francfort: Got it. Okay. That's helpful context. And then just the other question I have was on the value scores. There's, I guess, a debate in the industry that some of the softness might be just the consumers balking at higher prices for a lot of brands just because labor costs were up a lot. Have you seen your value scores more recently change either for the better or for the worse? Just any thoughts on the direction of where that stands and where you want it to be. Thanks. Lance Tucker: Yes. We actually have seen our value scores increase a little bit. And, by the way, you're hearing the same thing, I believe, we think, and that we all think. I mean, there is just an overall feeling that prices are too high out there. Though with some of the pivots that Ryan and team made on the marketing side and you'll continue to see some improvements in our scores as we move forward given what we have planned for the calendar is to make sure that we do have kind of at that more value end of the barbell that we make sure we do have some good choice out there while also having some things at the more premium or abundant value side as well. Gregory Francfort: Awesome. Thank you very much. Appreciate it. Operator: Your next question is from the line of Dennis Geiger with UBS. Your line is open. Dennis Geiger: Great. Thank you, guys. I wanted to come back to that value topic again. And maybe, Lance, just if anything else, great to see the value scores are improving some. Could you share sort of where maybe value incidents was in the quarter? Or if it had been improving through the quarter, as you mentioned, sort of value was driving some improvement in the trend. Then I'm sure you don't want to give too much away, but as it relates to next year, maybe where are some of the biggest gaps? Clearly, the barbell approach, but some of the biggest opportunities from a value perspective in '26, if there's anything to share high level there. Lance Tucker: Yeah. So we don't typically share the absolute kind of value scores. I can tell you, particularly as you got into the second half of Q4, though, it was sloped upwards. I don't want to get into a whole lot more than that. And then as for next year, you know, I think from my perspective, and I'll ask Ryan to jump in here when I'm finished if he has anything to add. But I think the biggest thing we need to do is be consistent with value and make sure that we have something at both sides of the barbell that we try to play in so that the consumer always knows, hey. I can go get some price point of value if I need to. That is not the place where we want to build all our sales. It's not the place where we want to drive the business. But we do recognize that we've got to consistently be there with some fresh innovation and some, frankly, some good value, you know, literally every window every week. Ryan, am I missing anything? Ryan Ostrom: That's correct. It's making sure we have that consistent bottom part of the barbell strategy on value, and that is something we've kind of missed in a few windows before. So as we're looking at our 2026 calendar, we are making sure that consistently shows up in our messaging and marketing. Dennis Geiger: Terrific. One more then, if I could, maybe just another on remodels or the reimage program. Is there currently a prototype? I know over the years, there have been various prototypes, Lance. It seems like you're still kind of working through what the more comprehensive reimage prototype will be. So just wanted to confirm that. And then maybe if there's any context that you provide looking back historically on we've seen, I believe, some fits and starts as it related to a remodel program. And just looking back relative to the go forward, on why going forward, there's going to be strong demand to get done and, you know, what'll be different over the coming years maybe than looking back as it relates to getting the reimage done. Thank you. Lance Tucker: Sure. So first of all, yes. We do, in fact, have an image. I mean, we still are tinkering a little bit around the edges, but we have reimages frankly, in process. Right now. It's not as big a full-scale program. But the kind of the craves package and the reimage packages that we have, we're actually very happy with. You know, the real change from my perspective is making sure that we've got the right contribution coming from the company for those. Making sure if there's an aspect or two, we want to make sure that we're really focused in on that that we're getting those done in these reimages. So there are certain things that if the company's going to put in significant dollars, we want to make sure are present in these reimage packages, and you can imagine what those things would be. They'd look like the drive-through. They'd look like signage. You know, they'd look like some form in all likelihood of a digital menu board. Whether a habit or a full. So there's things that, you know, we want to make sure are focused on the guest and focus on driving sales. Going to be more important. So we're still tinkering with a little bit around that with that around the edges, but generally speaking, yes, we do actually have the image, and we're happy with it. As far as you know, there have been fits and starts, and that's actually a good way of saying that. The reality is we haven't done a full-on reimage in a number of years. And I think, you know, there's probably the biggest singular difference that I'm going to tell you that I see going forward is going to be leadership focus. And this is something that we're going to have to focus on and do. It's just been too many years. And all the data we get, it shows up strikingly that we're losing on the appearance of our buildings. And we've kind of gotten to the point where, you know, we just almost have to do this. So that is why it's an initiative for me. I just frankly have to make sure from a company standpoint, that we're a little further along in Jack on Track and have the cash, you know, to pay down the debt first, and then we can start with some pretty significant contributions on the company side. But we're going to drive this as one of our very top priorities, if not our top priority. Once we kind of get beyond Jack on Track. And so, you know, that is, I think, going to be the primary difference you see versus what you've seen in the past. Dennis Geiger: Very helpful. Thank you. Operator: Next question is from Brian Harbour with Morgan Stanley. Your line is open. Brian Harbour: Yes. Good afternoon. I had just sort of a bigger picture question. What in the work you've done, I mean, what do you think customers want out of Jack right now? I mean, you made the comment yourself that, you know, people are very selective. And so I think there's relatively few brands that are kind of taking share in that environment. So, you know, what is it that you think would really move the needle with your customers over the next year? Lance Tucker: I think when you think about Jack in the Box, one of the things you think about is we've always delivered a solid value, and we've always delivered a lot of innovation and variety. And so I think, you know, we're in a unique position to make sure that we can deliver kind of satisfying meals at a good value and some innovative things that you can't find just everywhere, and that's everything from breakfast twenty-four hours to a lot of our side items like your, you know, curly fries or your egg rolls or churros or certainly two tacos, which we're most famous for. So I think the consumer is looking for that, and I think the consumer is also looking for a little bit better experience from us. And that's where I think from an ops improvement standpoint, we can really make inroads quickly. And as I mentioned in my prepared remarks, Shannon and team on the ops side, we've done some restructuring. We're going to have people out there training much more than they have been. We're going to have a lot more field presence to make sure that we're delivering on that better ops experience. So a little bit of a long answer to your question, but that's what I think we can deliver. Brian Harbour: Yeah. That makes sense. I guess I was going to ask about that too. I think what did you pick up, like, is there, like, a quality perception gap that you think has emerged maybe as a result of some of those inconsistent or what do you think needs to be done better there? Lance Tucker: I think there are kind of two or three things. So to answer your question directly, I don't think our quality perception is as high as we think it should be, and there are steps that we need to take to fix that. So one of them is ops improvement. And, again, it's just making sure that we're given a good, consistent, friendly, what we call joyful, experience to the consumer every day. We need to make sure the accuracy is there. We need to make sure that as they're coming through the drive path, that the restaurant is clean, that the drive-through looks good. We need to make sure we have the right innovation, and all those things kind of wrap into quality perception. And so, yeah, we have kind of picked up that we don't think we're getting the credit we think we should. Some of that's self-inflicted. Some of that is just a lot of things that we need to do better. And so that's why you see us focused on our innovation. That's why you see us focusing on wanting to clean these drive paths up and do some work on the buildings themselves. And certainly, why you see us focus on, let's make sure we've got the right ops experience because that's better than any marketing you can do. You give people the right experience to get a hot burger. Prepared the way they want it. In a reasonable amount of time, they're going to come back and make Ryan's team's marketing job much easier. Brian Harbour: Thank you. Operator: Your next question is from the line of Andrew Charles with TD Cowen. Your line is open. Andrew Charles: Great. Thank you. Dawn, just one housekeeping and then my real question. First, can you comment on what your franchisee store level cash flow was in 2025 in the change versus 2024? The quick math, just looking at company stores, is about a 15% decline year over year, but hoping you can confirm that's aligned with the system. And my real question for Lance or Dawn is what cash on cash return are you going to target from the smaller scope remodel? And really, how can franchisees fund these just given the challenged state of industry cash flows? Dawn Hooper: Yeah. So, I'll take the franchise profitability first. We don't disclose that, but it should be in line with what you're seeing on the company side. I wouldn't expect it to be different. Lance Tucker: And then on the cash on cash returns, I mean, we're talking very modest investments here of, you know, under $25,000 depending on if you depending on what you're doing. So those certainly in the, you know, even in the context of a difficult year, whether it's for us or anybody in the industry, you know, we're talking very modest kind of investment here, more of a spruce up if you want to think about it that way. And that's the kind of thing if you put you do it the right way. You put just a little bit of marketing behind it. You would expect low single digits. You're not expecting, you know, huge returns on that, but you are expecting, you know, kind of a pretty modest return. Andrew Charles: Thank you. Operator: Your next question comes from Logan Wright with RBC Capital Markets. Please go ahead. Logan Wright: Hey, good afternoon. Thanks for taking my question. One was just on the Jack in the Box company-owned store. Same-store sales relative to the franchisee. Looks like company stores are outperforming the franchisee base. Is there anything behind that? It looks like compares got a little bit easier on the company stores, but I'm just wondering if that's a result of some of the operational changes you guys are making and not showing up in the company-owned restaurants first or if there's something else you would attribute the outperformance to. Thank you. Lance Tucker: You know, I'll start, and I'll let others jump in if there's more to add. But, you know, certainly, there was a little bit on the compares. I also think over time that the company's pricing probably has looked a little more favorable in franchisees in a lot of ways. Meaning, franchise franchisees are generally speaking taking more taking more price. So our absolute pricing at company restaurants right now is a little bit below many franchisees, not all. But we think, you know, given the markets where we have company restaurants head to head with the franchisees, that's what we're attributing most of the difference to. Logan Wright: Great. Thank you very much. Operator: The next question is from Jim Sanderson with Northcoast Research. Your line is open. Jim Sanderson: Hey, thanks for the question. Just trying to look more closely at your current performance and the outlook into fiscal '26. Maybe you can provide some learnings on what worked best that generated that sequential 300 basis point improvement in comp, if that was a consumer reaction among any specific income levels, regions, day parts, any texture on what really worked well relative to the promotions you offered. Lance Tucker: Yeah. Jim, I think more than anything else, we really came out of the third quarter and started the fourth quarter with not quite enough price point of value. I mean, it's the biggest singular driver of that move by far was when we pivoted and put dollars behind the bonus jack and more price-pointed value. When you think about geographies, there weren't differences in geographies. There weren't great differences in the various income or other demographic cohorts for that matter. I think it really was just a matter of, you know, we had a lot of abundant value, and we thought what we had was good value, and I still believe it was. But it wasn't price-pointed. It wasn't bringing people in as much. So when we made that switch, that's what drove that 300 basis point change. Jim Sanderson: Okay. And then just to follow-up on the discussion of kind of long-term outlook and cash on cash returns. How do you see the store margins at Jack in the Box evolving? They're quite a bit lower than they were pre-pandemic. Is there a new normal out there related to store labor and new stores, things like that that might adjust what we should expect out of the store going forward? Lance Tucker: I would expect certainly improvement from what we saw here in the fourth quarter. We opened the Chicago market. We opened eight restaurants in the span of eight or nine weeks. And frankly, really kind of overstaffed those, particularly with it being a brand new market to us. We wanted to make sure we were providing really good service. So and we overstaffed them to a degree. It actually did kind of move the overall consolidated labor number and restaurant labor margin. So, restaurant margin rather. I do think as we move forward, we're working on our supply chain. We are working on labor initiatives. So I would expect it to improve. I don't have the 2019 or 2020 numbers in front of me to tell you it is or isn't a new normal. What I can tell you is I would expect improvement in restaurant level margin both for us and our franchisees. Jim Sanderson: Alright. I'll pass it on. Thank you very much. Operator: Your final question comes from Jake Bartlett with Truist Securities. Your line is open. Jake Bartlett: Great. Thanks for taking the question. My first was on Jack in the Box's performance versus peers. I think clearly you're underperforming, but I'm wondering whether in your core California market, there might just be general pressure and you're not underperforming as much as it might just seem by looking at the national numbers. So if you can frame out how you're performing versus peers, and then I have a follow-up. Lance Tucker: Yeah. I think versus peers, we certainly as we started the fourth quarter, I think we were lagging more. And then we closed that gap as we got towards the end of the fourth quarter. Again, I hate to keep beating a dead horse, but as we adjusted what we were doing a little bit, so I think that, you know, we're certainly closing that gap. When I think about California versus the rest of the nation, California itself is, I think, a struggle among many, many brands. And so I'd, you know, I'd have a feeling that we would be certainly no worse off in California and probably a little better off than when you compare national to national. Just given the concentration we have. Jake Bartlett: Got it. And then my follow-up was on, you mentioned some of the moves you're making to increase affordability and you mentioned lowering or tweaking some of the combo pricing, increasing the size of the drink in the small combo. The question is about the franchisee's willingness to make those moves. You know, other brands that have done similar things have had to kind of really make some deals with the franchisees and incentivize them to do so. So, encouraging that it sounds like they're agreeable to doing something like that. So that's one part of it. And then the next part is just whether that should continue. Are there other opportunities here? You see within 26 to meaningfully increase the affordability with maybe even the core offering. Lance Tucker: And so I would say on the franchisee side, they have, in fact, been willing to make the moves that we've talked about. They were very on board with the cup change. They were onboard with making sure that we had some price point of combos that were in the area they need to be in in order to make sure that we're staying competitive. So we really did not have to, not that we didn't have discussions. And every franchisee is a little bit different. But with that said, by and large, we really didn't have much pushback on that front. So, you know, I think I can confidently say they were if not 100% on board, they were largely on board. Most certainly with making those changes. And then what was the second part of your question, Jake? I'm sorry. Jake Bartlett: Yeah. Just whether you're going to do more of that sort of thing, in '26, whether increasing affordability of the core menu is something that you're going to still try to build upon. Lance Tucker: You know, I believe that first of all, it's something you're always evaluating your making sure that you think you're in a relevant price point for the consumer you're trying to reach. I think there's probably some places where we could reduce prices. There's probably a few places we could take price too. So as we look into '26 come from menu pricing strategy, I think, from my perspective anyway, we'll be looking are there a few more price points we need to have out there that are eye-catching, so to speak? But then again, for every one of those, I would expect there's going to be a couple of places that we can smartly take price to where you shouldn't wouldn't see a huge impact on the P&L. Jake Bartlett: Alright. Thank you so much. Operator: I will now hand the call back over to CEO, Lance Tucker, for closing remarks. Lance Tucker: Alright. Well, thanks, everybody, for your time. We look forward to being in touch with all of you soon, and those of you we don't speak to, have a wonderful holiday season. Thank you. Operator: Thank you for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Greetings And welcome to the American Strategic Investment Company's Third Quarter Earnings Call. At this time, all participants are in a listen only mode. Please note this conference is being recorded. I would now like to turn the conference over to Curtis Parker, Senior Vice President. Thank you, Curtis. Over to you. Curtis Parker: Thank you. Hello, everyone, and thank you for joining us for our third quarter 2025 earnings call. This event is also being webcast in the Investor Relations section of our website. Joining me today on the call to discuss the quarter's results are Nick Schorsch Jr., American Strategic Investment Co's Chief Executive Officer; and Michael LeSanto, the Chief Financial Officer. The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties. Please review the forward-looking and cautionary statements section at end of the third quarter 2025 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. We refer all of you to our SEC filings, including the Form 10-K filed for the year ended December 31, 2024, filed on March 19, 2025, and all subsequent SEC filings for a more detailed discussion of the risks that could cause these differences. Any forward-looking statements provided during this conference call are only made as of the date of this call. As stated in our SEC filings, the company disclaims any intent or obligation to update or revise these forward-looking statements, except as required by law. Also during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. These measures should not be used in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release, which is posted on our website at www.americanstrategicinvestment.com. Please also refer to our earnings release for more detailed information about what we consider to be implied investment-grade tenants, a term we will use throughout today's call. I will now turn the call over to Nick Schorsch Jr., Chief Executive Officer. Please go ahead. Nick. Nicholas Schorsch: Thanks, Curtis. Good morning, and thank you all for joining us, and thank you for accommodating the updated timing of today's call. The additional timing ensured our newly appointed auditors, as Mike will describe in greater detail, to complete their review of our results. Our third quarter was focused on continuous proactive management of the company, with particular attention to the reduction of reoccurring expenses and management of our balance sheet. We remain committed to operating and unlocking value at our current assets with a focus on tenant retention, property improvements and cost efficiency. During the quarter, we executed a meaningful lease renewal at 196 Orchard, which extended the weighted average remaining lease term of the portfolio to 6.2 years at quarter end, up from 5.9 years at the end of the second quarter of this year. Near-term lease expirations are 8% of annualized straight-line rent and 56% of our leases now extend beyond 2030, up from 54% last quarter. We believe that this term, coupled with a high-quality tenant base featuring top 10 tenants who are 69% investment grade or implied investment grade, provides significant portfolio stability. We own 6 properties with 1 property, 1140 Avenue of the Americas, expected to be disposed of during the current quarter. Excluding this property, our $390 million approximately 743,000-square-foot New York City real estate portfolio is located primarily in Manhattan. Our office and retail properties benefit from a strong tenant base that includes large investment-grade firms. By focusing on resilient industries near transit-oriented locations, we believe the portfolio is well positioned for occupancy growth and tenant retention. As a key part of our strategy to unlock value, diversify our holdings and strengthen our balance sheet, we are also continuing to market 123 William Street and 196 Orchard for sale. Assuming we can sell these properties on favorable terms, upon closing, we expect to use the net proceeds to retire debt and reinvest in higher-yielding assets to enhance our long-term portfolio value. In September, we entered into an agreement for the strategic disposition of 1140 Avenue of the Americas via a cooperative consensual foreclosure with the lender, which is anticipated to close in the fourth quarter of 2025. Upon completion, this transaction is expected to eliminate a $99 million liability that matures in July 2026. This transaction is consistent with our strategy to proactively manage our balance sheet and allocate capital toward what we believe are the highest returns. In making this decision, we consider the significant ongoing and upfront expenses needed to operate the property and to retain and attract new tenants compared to the capital being invested towards other assets in the portfolio. With that, I'll turn it over to Michael LeSanto to go over the third quarter results. Michael? Michael LeSanto: Thank you, Nick. Third quarter 2025 revenue was $12.3 million compared to $15.4 million in the third quarter of 2024, principally due to the sale of 9 Times Square in the fourth quarter of 2024. The company's GAAP net gain attributable to common stockholders was $35.8 million in the third quarter of 2025, impacted by a $44.3 million noncash gain related to the foreclosure at 1140 Avenue of the Americas. This is compared to a net loss of $34.5 million in the third quarter of 2024 which was impacted by an impairment recorded in the quarter related to the sale of 9 Times Square. For the third quarter of 2025, adjusted EBITDA was $1.9 million compared to $4.1 million in the third quarter of 2024. Cash net operating income was $5.3 million compared to $7 million in the third quarter of 2024. As always, a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release and quarterly supplemental on our website. We also proactively and significantly reduced our professional fees by looking to change our audit partners via the engagement of CBIZ CPAs as our new independent registered public accounting firm for the fiscal year ending December 31, 2025, beginning with the review of our unaudited results for the third quarter of 2025. The decision to change the company's independent registered accountants was the result of a competitive bid process as well as the company's focus on streamlining its cost structure and reducing its general and administrative expenses, and there was no dispute or conflict with the prior firm. We look forward to a long and productive relationship with CBIZ CPAs in the future. I'll now turn the call back to Nick for some closing remarks. Nicholas Schorsch: Thank you, Michael. As we prepare to close out this year, we continue to focus on enhancing operational flexibility through the consensual foreclosure of 1140 Avenue of the Americas and our ongoing efforts to sell 123 William Street and 196 Orchard. We believe these sales will generate cash on the balance sheet that can be deployed into higher-yielding assets, creating future value for the portfolio. Simultaneously, our team is focused on leasing up available space, renewing leases in tenants and maintaining tight controls on expenses across the board. Thank you for joining us today, and we look forward to presenting our full year 2025 results for you in a few months. Operator: Thank you. And with that, ladies and gentlemen, we thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful evening.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to JOYY Inc.'s Third Quarter 2025 Earnings Call. [Operator Instructions] I'd now like to hand the conference over to your host today, Jane Xie, the company's Senior Manager of Investor Relations. Please go ahead, Jane. Tingzhen Xie: Thank you, operator. Hello, everyone. Welcome to JOYY's Third Quarter 2025 Earnings Conference Call. Joining us today are Ms. Ting Li, Chairperson and CEO of JOYY; and Mr. Alex Liu, the Vice President of Finance. For today's call, management will first provide a review of the quarter, and then we will conduct a Q&A session. The financial results and webcast of this conference call are available at ir.joyy.com. A replay of this call will also be available on our website in a few hours. Before we continue, I'd like to remind you that we may make forward-looking statements, including, but not limited to, the future development of our products and businesses, expected financial performance, our share repurchases and other future events, which are inherently subject to risks and uncertainties that may cause actual results to differ from our current expectations. For detailed discussions of the risks and uncertainties, please refer to our latest annual report on Form 20-F and other documents filed with the SEC. We will also discuss certain non-GAAP financial measures that are included as additional clarifying items to aid investors in further understanding the company's performance and the impact that these items and events had on the financial results. The non-GAAP financial measures provided above should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. You may find a reconciliation of the differences between GAAP and non-GAAP financial measures in our earnings release. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollars. I will now turn the call over to our Chairperson and CEO, Ms. Ting Li. Please go ahead, Ms. Li. Ting Li: Hello, everyone. I'm Li Ting. Thank you for joining us today. This quarter, we have taken another firm step towards becoming a global technology company powered by multiple growth engines and a strong synergistic ecosystem. Starting with our Q3 results. Livestreaming revenues sustained steady sequential recovery, while our ad tech platform, BIGO Ads accelerated top line growth with its total ad revenue growing over 19.7% quarter-over-quarter. Meanwhile, we maintained a robust cash flow generation and continued to actively return value to shareholders. Last quarter, I expressed our long-term commitment to building a meaningful and lasting presence in the ad tech industry. This quarter, we made concrete progress towards that goal. BIGO Ads daily growth revenue grew aggressively and reached new heights. As we further accumulate in scale and continuously iterate our AI algorithm, we are confident we will soon reach new milestones. We achieved total revenue of $540 million in the third quarter, up 6.4% quarter-over-quarter. Our livestreaming revenue was $388 million, up 3.5% Q-o-Q, making 2 consecutive quarters of sequential growth. Meanwhile, BIGO Ads recorded $104 million in revenue, with a year-over-year growth of 33.1%, bringing total non-livestreaming revenues, including ad revenues and others to 28.1% of group revenues. Non-GAAP operating income reached $41 million, up 16.6% year-on-year. Non-GAAP EBITDA reached $51 million, up 16.8% year-on-year and 4.9% Q-o-Q. Operating cash flow for the quarter reached $73 million. As of September 30, we had $3.3 billion in net cash. This provides strong support for our ongoing competitive shareholders' returns. We will continue actively executing our share repurchase program. As we advance our strategic priorities alongside strong acquisitional momentum, we are positioned to deliver long-term value for our shareholders. As we approach year-end, I would like to outline our overall strategic direction for year 2026. In short, we will focus on 3 key priorities, strengthening ecosystem synergies, reinforcing organization vision, vitality and reigniting growth. Beginning in 2022, we accelerated the diversification of our revenue stream, cultivating our 2B initiatives in ad tech and SaaS. We have made steady progress advancing towards our strategic positioning as a global tech company powered by multiple growth engines in the past several years. Today, our livestreaming business serves as a reliable cash call, providing a solid foundation for profitable growth. In the meantime, our advertising platform and the e-commerce SaaS businesses have completed initial validation of their business models and are rapidly emerging as our net growth curve. In Q3, our total non-livestreaming revenues exceeded 28.1% of group revenues. We have created a highly synergistic system where our global traffic, advertising and e-commerce SaaS businesses reinforce each other. The R&D capabilities, network infrastructure, local operations expertise and first-party data access, we accumulated through global social livestreaming are now powering our rapid 2B expansion. In turn, our 2B progress strengthens our competitive moat in both data and technology. We are just beginning to unlock the full strategic value of this integrated business ecosystem. We are transforming our high-growth ad tech business by establishing BIGO Ads as an AI-powered global platform for performance-driven, multichannel advertising across different verticals. In 2026, we expect to substantially extend our traffic coverage. On mobile traffic, we are exploring partnerships with meditation platform and developers like Google AdMob to accelerate traffic expansion. On web traffic, we are extending traffic coverage through partnerships with channels like Microsoft Xandr and Google AdX. On the demand side, as we establish web-to-web advertising capabilities and integrate our web models, we expect to capture continued growth from web-based advertise. For mobile-based advertising, we are enhancing our IAA D7 ROAS product to improve advertiser ROI for IAA, while advancing the optimization of our Target CPE and other products for IAP to expand into area. Finally, on platform technology, we expect to establish and strengthen our iOS ecosystem in 2026, which will enable us to unlock substantial incremental growth potential from iOS high-quality traffic. We will also continue investing in AI, building our team and resources to accelerate model development and optimization. These enhanced models will leverage deep user behavior and conversion data across channels and verticals, enabling more precise targeting and a better performance for our advertisers. We have clear strategies in place to drive continued growth in 2026 across all dimensions, including multichannels, traffic expansion, vertical-specific demand development and enhanced AI modeling capabilities. These initiatives will create powerful flywheel effects, which will compound enabling us to deliver increasing value to advertisers, while accelerating our own growth. We believe 2026 will be a milestone year for JOYY's ad tech business, and we are excited about the possibilities ahead. Turning to Shopline. We remain bullish on the long-term prospects of the SaaS-based e-commerce sector. Unlike walled garden marketplace platform, Shopline provides an open and extensible solution to merchants, through which merchants have full data ownership for advanced operations. For the past several years, Shopline's core mission has been product excellence. We have made a substantial investment in R&D to involve from storefront builder into a full stake e-commerce system seamlessly, combining SaaS infrastructure payments and integrated making tools into 1 powerful closed loop. With this rise of AI, we are now embedding advanced AI capabilities deeply into every part of merchant's journey, continuously sharpening our product edge to drive real business success for our customers. Since last year, we have seen accelerated growth in certain key regions with steady expansion in gross margins. This is an important strategic milestone for Shopline. Our long-standing commitment to R&D, excellence and talent recruitment has built the deep technological foundation that supports our success across all business segments. Through our modular organizational structure, we enhanced synergies by sharing resources and capabilities across business lines. Our approach enables us to remain agile and the execution focus while giving new ventures competitive advantages from day 1 and creating significant operating leverage as we scale. As we expand and diversify into new initiatives, our results-driven incentive merchanting provide our top talent with equitable opportunities and broader career development takeaways. By fostering an entrepreneurial spirit, embracing innovation and leveraging competitive incentives to attract and retain excellent talent, while ensuring high strategic goal adjustment between management and the core team members, we drive more efficient corporate development. From management strategic priority standpoint, we have a balanced framework incorporating both operating metrics and long-term shareholders' value accretion, which promotes strong argument with shareholders' interest. After several quarters of adjustment, our livestreaming business has returned to a sequential recovery trajectory. We believe it is positioned for steady year-over-year growth in 2026. Meanwhile, we expect our ad tech and SaaS business will sustain robust double-digit revenue growth year-on-year in the coming year. This sets the stage for year-over-year group revenue growth starting in Q4 2025 as reflected in our newly announced guidance and continue into 2026 and beyond. This is not just a return to growth, but rather the launchpad for unlocking vastly large addressable market. Next, let me share with you our latest operational update and our outlook for the future. In the third quarter, our global average mobile MAUs reached 266 million, up 1.4% quarter-over-quarter. Our organic users growth continued to be strong, driven by our instant messages. In Q3, IMO product MAUs grew by 600 million Q-o-Q, with average time spent per user up 10.8% year-over-year. Product retention rate continued to improve year-on-year, driven by our ongoing enhancements to core IMO features. On user acquisition, we maintained a disciplined ROI forecast, targeting users with strong monetization potential, BIGO LIVE's 30-day ROI from new devices improved 6.7% quarter-over-quarter as a result. In Q3, group livestreaming revenues reached $388 million. BIGO LIVE streaming revenue was $368 million, up 3.5% Q-o-Q, maintaining their sequential growth trend. BIGO's total paying users grew 0.8% Q-o-Q, while ARPPU increased 3.4% Q-o-Q. BIGO LIVE delivered positive sequential growth for the second consecutive quarter. This recovery reflects our comprehensive integrated approach, where we have leveraged effective streamer inclusive program, a healthy and diverse high-quality content ecosystem, AI-powered user touch point enhancements, which improve content discovery and payment experiences and strong local operational campaigns. These initiatives together drove renewed growth. Since the second half of last year, we have restructured our streamer incentive mechanism across regions, shifting support towards middle-tier streamers. We are now seeing significantly improved streamer engagement and content quality across the platform. In Q3, average streaming hours for newly signed steamers on BIGO LIVE rose 3.5% Q-o-Q and the average viewer numbers increased 3.9% Q-o-Q. We continue advancing AI-powered improvement across content, distribution and payment experiences, by incorporating future user signals through AI and optimizing strategies for cross-regional and in-app scenarios in BIGO LIVE. We enhanced viewing experiences and drove users' average viewing time up 3.4% Q-o-Q. Meanwhile, our real-time transition, the title now supports 15 languages, significantly improving user interaction across different regions. We are also using AIGC technology to efficiently generate localized virtual gifts. In October, AI-powered interactive gifts represented 25% of total virtual gift consumption, demonstrating strong user adoption of AI-enhanced futures. We have used packages, strategy to further optimize BIGO LIVE tiered paying users' benefit system. In Q3, mid-tier user ARPPU increased 2% Q-o-Q, while the total number of premium paying users achieved double-digit Q-o-Q growth. Looking ahead to 2026, we are confident that our streamer incentives, content cultivation and AI-driven optimization will position BIGO LIVE to regain momentum for growth. We are also advancing payment infrastructure improvements to deliver more diverse, localized payment options for global users. We believe this will be a tailwind to drive payment rate improvements across all products over time. Overall, we are confident that livestreaming will return to steady growth in 2026 and continue contributing sustainable cash flow for the group. Turning to BIGO Ads. In Q3, BIGO Ads achieved $104 million in advertising revenue, up 33.1% year-on-year and 19.7% in Q-o-Q, while first-party ad revenue and profit remained stable with single-digit Q-o-Q growth. Our third-party BIGO audience network was particularly strong, recording mid-double-digit year-on-year and 25% sequential growth. On the traffic side, BIGO audience network traffic continued to grow this quarter. SDK ad requests were up 228% year-on-year and 29% Q-o-Q, representing significant growth. On the technology front, we upgraded our IAA D7 ROAS optimization with AI-driven real-time prediction and smart building capabilities. By leveraging across channel and cross-vertical user behavior and attrition data, the enhanced model delivered significantly improved prediction accuracy and the generalization that enable advertisers to scale budgets with greater confidence, acquiring higher-quality users while sustaining strong return efficiency. We saw strong growth across the board, driven the algorithm integration, elevated traffic, new market expansion and strong advertiser demand across multiple verticals. BIGO Ads daily gross revenue reached new heights and continued on its upward trajectory with strong momentum. Web-based demand primarily for lead generation, maintained teens growth Q-o-Q, and we are optimistic on its Q4 growth prospects as we enter into the peak season. Meanwhile, improved IAA delivery and efficientiveness substantially drove IAA advertisers spending up by mid-double-digit Q-o-Q. During the third quarter, total spending from key cohorts increased by 30% Q-o-Q. At the same time, performance gains attracted a steady influx of new advertisers, with the numbers of key cohorts up by 17% Q-o-Q. From regional perspective, we continued to deepen our penetration in the developed countries, with BIGO Audience network revenue from North America growing 22% Q-o-Q, while Western Europe growing 41% Q-o-Q. We delivered exceptional results in Q3, driven by rapid network traffic expansion, continuous algorithm, optimization and the delivery efficiency improvements and rapid growth flow in net verticals. As we outlined in last quarter's earnings call, BIGO Ads represent our record second growth engine and the core long-term strategic initiative. We are committed to building a meaningful and lasting presence in this space and to see significant opportunities ahead. Turning to capital return. As of November 14, we have repurchased USD 88.6 million under our share buyback program. Given our strong financial position and operating momentum, we believe our shares remain undervalued, and we will continue actively executing share repurchases as part of our commitment to returning value to shareholders. Looking forward, with our livestreaming business stabilizing and driving revenue and profit from advertising and other emerging businesses, we expect the company's consolidated operating profit to continue to improve and our shareholders to benefit from long-term profitable growth. In summary, we are optimistic about the positive trends we are driving across our business units. Our core livestreaming business is a trajectory and the continued sequential growth, and we expect livestreaming to gradually remain momentum for growth. BIGO Ads is scaling rapidly as our second growth engine, driven by traffic readiness and vertical expansion and algorithm optimization. And we are strengthening Shopline's product capability and strategic advanced stages as a fully integrated SaaS platform with anticipated synergies with our ad tech platform on the horizon. As I mentioned earlier, we are just beginning to unlock the full strategic value of our integrated business ecosystem. We anticipate that 2026 will be renewed progress and serve as a jumping off plot into our next phase of growth. I will now turn the call over to Ms. Alex Liu, the Vice President of Finance, to provide our financial update. Fuyong Liu: Thanks, Ms. Li. Hello, everyone. In the third quarter of 2025, we recorded total net revenues of $540.2 million, securing a quarter-over-quarter growth of 6.4%. Our livestreaming business delivered its second sequential recovery with its livestreaming revenues increasing by 3.5% quarter-over-quarter. Our advertising business, in particular, BIGO Ads has demonstrated accelerating growth. BIGO Ads revenues was up by 33.1% year-over-year and 19.7% quarter-over-quarter to $103.9 million. Our non-GAAP EBITDA for the quarter was $50.6 million, up by 16.8% year-over-year and 4.9% quarter-over-quarter. Operating cash flow remained strong at $73.4 million in quarter 3, and we ended the quarter with $3.3 billion in net cash. We accelerated share buyback during the quarter. In quarter 3, we bought back $30.8 million worth of our shares. Between January 1 and November 14, we had bought back 1.7 million of our ADS for $88.6 million in 2025. I will now dive deeper into our detailed financial performance. Looking at our livestreaming business, our total livestreaming revenue were $388.5 million for the third quarter. $367.7 million of which was from BIGO segment, both up quarter-over-quarter. Global MAU was $266.2 million during the quarter, up by 1.4% quarter-over-quarter, driven by a healthy growth of the user pool of our instant messenger. Our ROI-oriented user acquisition, continued AI-driven optimization of our content quality and paying user experience have contributed to improved paying sentiment, with BIGO's total paying user and app increasing by 0.8% and 3.4% quarter-over-quarter. By region, group's total livestreaming revenues from developed countries increased by 7.6% quarter-over-quarter, while livestreaming revenues from Southeast Asia increased by 4.4% quarter-over-quarter. Our total non-livestreaming revenues were $151.7 million during the third quarter, up by 27.3% year-over-year. Non-livestreaming now contributes 28.1% of our total group revenues, up from only 21.3% contribution in the same period last year. We are presenting advertising revenues as a separate line item in the financial statements in this quarter to help investors better understand the performance of our emerging business. BIGO's advertising revenues increased by 33.1% year-over-year and 19.7% quarter-over-quarter to $103.9 million. In particular, our third-party BIGO Audience network delivered exceptional results, recording mid-double-digit year-over-year and 25% sequential growth. We are making substantial progress on all fronts. On the traffic front, SDK network ad request was up by 228% year-over-year and 29% quarter-on-quarter in quarter 3, leveraging multichannel and cross-industry user behavior and attrition data. We continued to train and optimize our algorithms to further improve our campaign performance, which drove advertiser spending. In Q3, the number of key cohorts was up by 17% quarter-over-quarter, with total spending from key cohorts up by 30% quarter-on-quarter. BIGO Ads has certainly emerged as our second major growth engine, and it continued to make a positive contribution to our bottom line. Group's gross profit was $193.1 million in the quarter, with a gross margin of 35.8%, up by 4.3% quarter-over-quarter. BIGO's gross margin was slightly down quarter-over-quarter due to the shift in our revenue mix, which saw an increased contribution from our low-margin network ad revenues. All other segment's gross margin was up by 3 percentage points year-over-year to 42.6% due to growth in higher margin SaaS revenues. Our group's operating expenses for the quarter were $174.2 million compared with $192 million in the same period of 2024. For our sales and marketing expenses, we are consistently optimizing our user acquisition expenses to enhance ROI. For our R&D and G&A expenses, we maintained prudent and disciplined in our total spending through enhanced resources sharing and operational synergy across different business units, while strategically allocating incremental share of our R&D resources towards BIGO Ads. Our group's non-GAAP operating income for the quarter was $40.7 million, up by 16.6% year-over-year. Non-GAAP net income attributable to controlling interest of JOYY in the quarter was $72.4 million, up by 18.4% year-over-year. The group's non-GAAP net income margin was 13.4% in the quarter. For the third quarter of 2025, we booked net cash inflows from operating activities of $73.4 million. Our benefit remains healthy with a strong net cash position of $3.3 billion as of September 30, 2025. Shareholder return continued to be an important component of our capital allocation strategy. We have retained $147.9 million to our shareholders through dividends and repurchased $88.6 million worth of our shares during the year as of November 14, 2025. We believe we are still substantially undervalued, and we will remain firmly committed to actively utilize our outstanding share repurchase program. Turning now to our business outlook. At the group level, we expect our net revenues for the fourth quarter of 2025 to be between $563 million and $578 million. This implies a 2.5% to 5.2% year-over-year growth for the group's revenue in quarter 4. As Ms. Li highlighted in her prepared remarks, we are now repositioned for growth, in particular, with advertising entering into the peak season of the year, we are expecting continued accelerating growth from BIGO Ads, with its total advertising revenue particularly delivering mid-double-digit year-over-year growth in the fourth quarter. Based on the trends we are seeing across our business, we have clear visibility for the group to year-over-year revenue growth in year 2026, and we are extremely excited about the tremendous synergy potential and powerful flywheel momentum that our business segments will deliver in the medium to long term. That concludes our prepared remarks. Operator, we'd now like to open up the call to questions. Thanks. Operator: [Operator Instructions] Your first question comes from Xueqing Zhang from CICC. Xueqing Zhang: [Foreign Language] Congratulations on the strong quarter. My question is about the livestreaming business. We have noticed the livestreaming growth slightly quarter-on-quarter for 2 consecutive quarters. How should we think about the long-term trend of the livestreaming business? Ting Li: [Interpreted] Thank you for your question. This is Li Ting. I will take your question. In the third quarter, our livestreaming business continued its steady sequential recovery, supported by growth in both our paying users and ARPPU. Across regions, developed countries and Southeast Asia maintained resilient and continue the improving trend we've seen in the recent quarters. Over the past several quarters, we've been focusing and executing a series of structural enhancements across our ecosystem, including refining streamer incentive programs, strengthening a more diversified content supply and distribution and expanding the use of AI for content distribution and also paying experience optimization. And those have reinforced one another and also help livestreaming back to healthier growth. Looking ahead to 2026, we expect livestreaming to return to year-over-year growth. First of all, the one-off operational adjustments that we made earlier this year are now largely behind us, and then we expect -- are now largely behind us. And going forward, we will continue to focus our resources on high-value paying users and developed countries while further enhancing refined operations globally through expanding higher-quality content supply, improving user segmentation and incentive existence while strengthening our global payment infrastructure. We expect these to improve our paying conversion and also ARPPU. Additionally, we will also expect some incremental revenue contribution from our new product initiatives in the Middle East region in year 2026. With these drivers, we remain confident that livestreaming is well positioned to resume steady year-over-year growth in the new year. Thank you. Operator: Your next question comes from Yuan Liao from Citic. Yuan Liao: [Foreign Language] I'll translate myself. Congrats for the strong quarter results. My question is regarding your advertising business. Could management please share the long-term strategic goals for your advertising business and also your operation plans for 2026? Ting Li: [Interpreted] Thank you, Liao Yuan. This is Li Ting. I will take your question. We are transforming our high-growth ad tech business by establishing BIGO Ads as a global platform for performance-driven multichannel advertising across different verticals. In terms of our channels, we expect to establish a multi-channel layout, enabling monetization for a wide range of suppliers, including web open networks, mobile app developers and others, thereby significantly expand our supply base. And in terms of industry vertical coverage, we expect our advertiser base to become much, much more diversified and cover a much broader range of advertiser types. For example, for in-app advertising segment, we will continue to deepen penetration into casual games and tool and utility apps. And for the in-app purchase segment, we expect to explore penetration into core vertical such as mid- to hardcore games, content and social as well as e-commerce marketplace. And on web-based advertising, we will also expect to penetrate into verticals such as finance, direct-to-customer, e-commerce, et cetera. So building on this foundation, as our advertising verticals become much, much more diversified and much more expanded advertiser coverage, together with rising traffic and diversifying traffic channels, we will accumulate an increasing volume of data. And this will empower our full domain user profiling and consequently enable us to further optimize the performance and efficiency of our model. And geographically speaking, BIGO Ads will continue to have a global footprint, while our core regions will still be concentrated in developed countries such as North America and Europe, globalization remains a clear path as we continue to expand our platform. And as for our specific plan for BIGO Ads for year 2026, we expect our growth drivers to come from the below 4 areas. First of all, continued expansion of our traffic; second, a strong growth in the number of IAA and web-based advertisers together with their advertiser spending and together with our expansion into new verticals; and thirdly, improvement of our advertising data infrastructure, including continuously enhancing data feedback, strengthening our iOS ecosystem, which we believe will accelerate our model optimization and efficiency; and fourth, geographic market expansion, building on our solid results and foundation that we have achieved regarding these 4 aspects, that has already been achieved in the year 2025. We have a very, very strong confidence in the development, and we really look forward to what we can achieve in the year '26. Operator: Your next question comes from Thomas Chong from Jefferies. Thomas Chong: [Foreign Language] I will translate myself. My question is about the 2026 outlook. Can management comment about the user and the revenue trend? And on the cost side, can management comment about the expenses trend and profitability outlook? Ting Li: [Interpreted] Thank you, Thomas. This is Li Ting. I will take your first question. Looking ahead to the year 2026, we're still in the process of finalizing detailed operational plan, and therefore, we will not provide a quantitative guidance at this stage. That said, based on the trends we are already observing across our major businesses, we have very clear visibility into the '26 for the group's return to positive year-over-year revenue growth, and we have very strong confidence in that. First of all, on livestreaming, as I mentioned earlier, the business has returned to relatively stable sequential growth trajectory following the adjustments that we made in the previous quarters. And we expect livestreaming to resume steady year-over-year growth in the year '26. And for -- secondly, for advertising and e-commerce SaaS, they have shown very strong momentum this year. BIGO Ads delivered approximately 30% year-over-year growth in the first 3 quarters of '25, and our e-commerce SaaS business also achieved double-digit growth. Looking into 2026, we expect both businesses to deliver very strong double-digit growth. And for advertising, we continue to see high visibility across traffic expansion, model, our model capabilities and our advertiser coverage and regional penetration. For SaaS, enhanced product capabilities and rapid growth in key markets, we will continue to contribute to top line expansion. Taken together, as livestreaming returns to year-over-year growth, while both advertising and SaaS maintaining strong performance, we believe that the group is entering into a new growth cycle, with our top line returning to positive stable year-over-year growth trajectory and broader long-term opportunities ahead. While on the user front, we will continue to focus on traffic quality. In Q3, our overall MAU base is still around 78% coming from our Instant Messenger product, which is highly sticky and purely organically acquired. And our IM product has delivered sequential growth for the past 3 quarters when it comes to MAU, and we expect this steady momentum to continue. For our broader social entertainment portfolio -- product portfolio, we expect to remain ROI-oriented and focus on acquiring high-quality global users. Overall speaking, at group level, we expect our group MAU to remain broadly stable in the year 2026 with continued improvement in our user community, which we believe will provide a solid foundation for livestreaming monetization and other monetization opportunities, particularly our first-party ads. Fuyong Liu: [Interpreted] Thank you, Thomas. This is Alex. I will take your second question. First of all, let us recap our performance in the third quarter. We delivered on better-than-expected profits in this quarter with our non-GAAP operating profit reached $40.7 million, up by 16.6% year-over-year. With our non-GAAP EBITDA increased by 16.8% year-over-year and 4.9% Q-o-Q to $50.6 million. For BIGO segment, our non-GAAP gross profit margin was 35% in Q3, down slightly Q-o-Q, mainly due to the change in our revenue mix as our rising third-party BIGO Audio network has a dilution impact on our segment gross margin. This was partially offset by our ongoing content cost optimization and better efficiency in the livestreaming -- in BIGO's livestreaming. As a result, BIGO's non-GAAP operating margin remained stable at 14% in Q3. Looking at all other segments, non-GAAP gross margin improved -- was improved from 40% to 42.9% year-over-year, driven by revenue growth and higher contribution from our higher-margin SaaS business. Its operating -- its non-GAAP operating loss continue to narrow further to $25.5 million, down from $38 million in Q3 last year, reflecting disciplined spending in our operating expenses. Looking into Q4, we expect the group's non-GAAP operating profit continues to improve Q-o-Q, and this implies that for the full year of '25, our group's total non-GAAP operating profit will achieve a nearly double-digit year-over-year increase compared to the year '24. And turning to the year 2026, looking at the 3 driving components with livestreaming returning to year-over-year growth -- top line year-over-year growth and maintaining stable profitability and BIGO Ads continue to go up, contributing incremental profit. And with e-commerce SaaS further narrowing its operating losses, we expect the group's total non-GAAP operating profit amount and non-GAAP EBITDA to continue the improving trend that we achieved this year and grow steadily in the year '26. Operator: Your next question comes from Raphael Chen from BOCI Research. Yiqun Chen: [Foreign Language] Let me translate myself. Congrats on the third quarter. Just wondering could management share the latest thoughts and the strategies of our shareholder return initiatives? Fuyong Liu: [Interpreted] Thank you, Raphael. This is Alex. I will take your question. Regarding capital return at the beginning of the year, we announced a 3-year shareholder return program totaling $900 million for the year '25 to '27, and we are currently executing this plan steadily, and we are well on track to deliver the plan. As of November 14, we have already paid out a total of $148 million in dividends and repurchased $88.6 million worth of our shares with share buyback execution accelerating in the third quarter. As Ms. Li just shared, we are entering into a new growth stage and the group's revenue will return to a growth trajectory, and we expect to open up much broader market opportunities. While our share price is still at a relatively low level, we expect to actively accelerate our share buyback going forward. Looking ahead, as our operating profit continues to grow, we expect that shareholders can look forward to enhance returns over time. So that was our last question. Thank you so much for joining our call, and we look forward to speaking with everyone next quarter. Thank you. Operator: Thank you. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, ladies and gentlemen. Thank you for participating in the third quarter 2025 earnings conference call for FinVolution Group. [Operator Instructions] After management's prepared remarks, there will be an opportunity to ask questions. Today's conference call is being recorded. I will now turn the call over to your host, Yam Cheng, Head of Capital Markets for the company. Yam, please go ahead. Yam Cheng: Okay. Thank you. Before I start, thank you, everyone, for dialing in. I think the line today could be a bit choppy. So in case we get disconnected, we'll dial again. So bear with us. Okay. So welcome to the third quarter 2025 earnings conference call. The company's results were issued via Newswire services earlier today and are posted online. You can download the earnings release and sign up for the company's e-mail alerts by visiting the IR section of our website. Mr. Tiezheng Li, our CEO; and Mr. Jiayuan Xu, our CFO, will start the call with prepared remarks and conclude with a Q&A session. During this call, we will be referring to several non-GAAP financial measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release. 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 are included in the company's filings with the U.S. SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Finally, we have posted a slide presentation on our IR website providing details of our results for the quarter. I will now turn over the call to our CEO, Mr. Tiezheng Li. Tiezheng, please go ahead. Tiezheng Li: Thanks, Yam. Hello, everyone. Welcome to our earnings call. In the third quarter of 2025, against a dynamic regulatory backdrop in China, we delivered another resilient result driven by robust growth in our international business. Total revenue grew 6.4% year-over-year to RMB 3.5 billion, and net profit came in at RMB 641 million, up 2.7% year-over-year. Our China business demonstrated stable revenue. Meanwhile, our international business continued to shine. Transaction volume was up 33% year-over-year, and revenue rose in line with volume, up 37% year-over-year. Our international segment continued to be an effective natural hedge to our China business, representing a record 25% of total revenue this quarter comparing to 19% a year earlier. We made meaningful progress in our international expansion. Our borrower base now stands at a cumulative 10 million with new borrowers up 18% sequentially in the third quarter, reaching 1.3 million. Notably, our international new borrower count has exceeded China's for 6 straight quarters. In Indonesia, growth accelerated following the stable interest rate policy announced by the OJK in July 2025. We also succeeded in upgrading customers' quality which improved risk metrics and take rate. In the Philippines, we boosted transaction volume by 86% year-over-year to RMB 1.6 billion despite typhoon-related seasonal softness. Turning to China regulatory landscape, a new consumer finance regulation framework took effect on October 1, 2025. As expected, we saw transitional effects across the industry in the third quarter. Our response was proactive and disciplined. We tightened credit standards to keep delinquency in check, prudently managed the loan growth and maintained close communication with our funding partners to ensure stable funding supply. Our funding costs improved slightly as a result. We anticipate that full implementation of this regulation in the fourth quarter could create short-term uncertainties over volume, revenue and risk metrics. But... Operator: Pardon me, ladies and gentlemen. We have appeared to lose the main speaker line. Please stand by while we reconnect. [Technical Difficulty] And it appears we got the speaker line back in. We may proceed. Tiezheng Li: Okay. Sorry, we got disconnected. We will resume from where we start regarding the China regulatory landscape. Okay. Turning to China regulatory landscape. A new consumer finance regulation framework took effect on October 1, 2025. As expected, we saw transitional effects across the industry in the third quarter. Our response was proactive and disciplined. We tightened credit standard to keep delinquency in check, prudently managed the loan growth, and maintained close communication with our funding partners to ensure stable funding supply. Our funding costs improved slightly as a result. We anticipate that full implication of these regulations in the fourth quarter could create short-term uncertainties over volume, revenue and risk metrics. But this is not new to us. As an industry pioneer with 18 years of proprietary data spanning diverse credit profiles and economic cycles, we have built a deeply resilient foundation. We continuously enhance our industry-leading risk assessment and pricing capabilities by leveraging big data analytics and AI to refine our models. Most importantly, we have the experience of actually adjusting our operations to dynamic regulatory shifts. We have successfully navigated through interest rate change in China and other developing countries. And we are well prepared to adapt to this new environment. We also continue to lead on the technology and AI. In the third quarter, we hosted our annual FinVolution Global Data Science Competition, which brought together top AI researchers, engineers and data scientists to develop tools to combat deep fake image detection. Over the past decade, the competition has attracted nearly 10,000 cumulative participants and covered frontier topics, including credit assessment, fraud detection, behavioral analytics, device recognition and voice authentication. The competition is winning growing recognition from academic institutions as well, including official tracks like IJCAI, International Joint Conference on Artificial Intelligence 2025, and the CIKM, Conference on Information and Knowledge Management 2025, and showing the value we are bringing to the global ecosystem. On the ESG front, we adopted AI to improve fulfillment of customer service and enhance consumer rights protection. During the quarter, we introduced a new upgrade on customer service AI agent to more accurately identify customer intent and automated response to select inquiries based on the level of urgency. This upgrade simplifies the customer service journey, enabling more timely engagement with customers. During the quarter, the enhanced AI agent have successfully completed over 1 million times of service interactions. In summary, we delivered a resilient quarter, thanks to disciplined execution of our local excellence, global outlook strategy and an experienced response to changing regulation. Our diverse portfolio was a key strength. We remain confident in the long-term fundamentals of our China business, where our international operations are gaining exciting momentum. I'm now turning the call over to our CFO, Jiayuan Xu, for a deeper look at the numbers. Jiayuan Xu: Thank you, Tiezheng. Hello, everyone. Let me go through our key results for the third quarter. Please refer to our third quarter earnings press release for further details. Let's start with China. The economy remains in moderate recovery model. Domestic demand is still relatively mild amid a complex external environment. Consumer confidence index trended up slightly in Q3. Against this softer environment, coupled with the early impact of the new regulation, we saw [Audio Gap] liquidity has improved while funding cost has been on a downward trend, improving from 3.7% last quarter to 3.6% this quarter. Customer acquisition [Audio Gap] has also become more rational as competition for consumer eased. Looking ahead, we should continue to be diligent on risk as we manage our business. On the international front, we delivered robust growth this quarter, underscoring the strength of our regional strategy and the power of our scalable platform. On the timing, this regional performance is our core technological capability. We are systematically replicating our proven playbook, spanning technology, risk modeling and the partnership frameworks into high-growth economies like those in Southeast Asia. The results speak for themselves. From the macro standpoint, we saw a touch of softness in the region. Typhoon season lowered the PMI to 49.9% in the Philippines, while consumer confidence remained similar in the third quarter in Indonesia. Against this economic climate, we delivered RMB 3.6 billion in total transaction volume, a 33% increase year-over-year. The growth was broad-based with Indonesia and the Philippines contributing 57% and 43% of volume, respectively. Our unique international borrower base also expanded to 3 million, surging 114% year-over-year, confirming the deep untapped demand across the region. Our regional strategy even out the distinct local conditions and brought about diversification. For example, while our growth was moderated by the seasonal typhoon in the Philippines, we were encouraged by the stabilizing regulatory environment in Indonesia, allowing us to accelerate our user acquisition. This drove transaction volume to RMB 2.1 billion, up 14% year-over-year and the loan balance to RMB 1.4 billion, up 21% year-over-year in Indonesia. Across the region, we continue to scale the platform with our operational know-how. We strategically upgraded our user quality in Indonesia to drive improved unit economics as evidenced by longer loan tenure, healthy risk metrics and higher take rates. Furthermore, our partnerships with ecosystem partners continue to expand. Our growing credibility is unlocking premium funding sources and attracted a new institutional bank partners to our franchise in the Philippines. Our e-commerce partnerships also continue to proliferate, forming 36% of volume in the Philippines, up from 20% a year ago. As a result, transaction volume was up 86% year-over-year to RMB 1.6 billion, and the loan balance surged 101% year-over-year to RMB 897 million in the country. Overall, strong operational execution this quarter produced a resilient financial results despite modern external challenges. Group net revenue reached RMB 3.5 billion, up 6.4% year-over-year. Net income was RMB 641 million, up 2.7% year-over-year, but down 14.7% sequentially, partially due to one-off government subsidiaries in Q2. Our balance sheet remains healthy with cash and short-term investments of RMB 7 billion and a historical low leverage ratio of 2.4x. We also maintained a prudent provision coverage ratio of 517%. Furthermore, we remain committed to shareholder returns in the third quarter. We repurchased a total of approximately USD 2.6 million. As of September 30, 2025, we have repurchased a total value of approximately USD 66.5 million, bringing cumulative share repurchase amount to USD 437 million since 2018. Since October, we further accelerated our buyback effort amid market price dislocation. In short, we continue to demonstrate strong execution of our local excellence global outlook strategy, while our financial performance for the first 9 months ended September 30, 2025, remains generally in line with our revenue forecast for this period. The recent regulatory changes in China have introduced near-term uncertainties. We now expect full year 2025 total revenue guidance to be in the range of approximately RMB 13.1 billion to RMB 13.7 billion, representing year-over-year growth of approximately 0% to 5%. Thank you. Now let me hand over the call to the moderator. Operator, please continue. Operator: Okay. We will now begin the question and answer session. For the benefit of all participants on today's call, if you wish to ask a question, please ask your question to management in Chinese, we may ask that you kindly repeat your question in English. Our first question comes from Alex Ye with UBS. Xiaoxiong Ye: [Foreign Language] So I will translate my question. My first question is regarding -- so given the current regulatory changes, it has introduced some volatility in the near-term risk as well as impairment charges, which impact our earnings as well. So I'm just wondering how should we expect our normalized take rate to settle in the next few quarters after assuming the asset quality gradually stabilized? So the second question is regarding our buyback plan. So can you remind us what are the current unused quota that we have in place? And given the current elevated uncertainties and depressed share price, do you have any more specific guidance in terms of the pace and scale that you're going to implement those buyback plan in the next 12 months? Jiayuan Xu: Okay. Thanks, Alex. I will take your questions. Your first question is about the normalized situation and the 24%. But our risk-bearing loan stays within 24%. In Q3, the average is around 22%. So following the 24% cap, there were several factors to consider. First, risk may fluctuate across cycle and is the most important factor in the current environment. Based on our experience in the previous cycles, it would be mostly back to the normal level. And on the funding side, as subject to the demand and supply of liquidity, now we are seeing more liquidity changing after high-quality assets as there should be some room for the optimization of funding costs. So overall, for our risk-bearing portfolio, the take rate should likely track well towards during the normal period. However, the new regulation may impact some parts of our business, such as the traffic referral business. Some customers will no longer be served. Also, we expect the take rate for this service should narrow accordingly. It depends on the factors like the market liquidity, funding costs and the real appetite of our partners. Below the revenue take rate, we also need to factor in operational efficiency. On the user acquisition front, we have noticed that reduced competition in the market, there should also be some room to optimize the acquisition costs. We will continue to adjust our acquisition pace dynamically based on price, funding availability and the risk strategy. As the business scales up and the technology becomes more deeply embedded across our operations, we also see further potential to optimize the fixed cost. In short term, we do anticipate some P&L impact from the risk. This uptick will tighten our new loan origination and impact the volume. At the same time, the historical cohort will likely perform when risk increase. It result in the high provision cost. Both elements could reduce the near-term profit level. As the risk metrics are still volatile, it may be too early to say how risk may evolve, but we will continue to monitor this closely. And your second question is about the shareholder return. On the buyback front, we have been actively repurchasing our shares. As of November 14, we have bought back USD 78.4 million worth of shares. Notably, the pace picked up in the fourth quarter. We did $12 million in the Q4 so far, which is nearly 5x what we did in the third quarter. So given the momentum, we are on track for a full year total that looks a lot like last year. And for the dividends, in 2024, we paid out $0.277 per share, representing 17% year-over-year increase. And it makes -- it marks 5 straight years of growth. Average is an 80% CAGR. And looking ahead, our focus remains on delivering the steady growth of our EPS. Let me reiterate our shareholder return strategies. Even with all the short-term fluctuations in the market, our core commitment to our shareholders remains solid. When we think about the returning value, we will look at the whole picture, including the dividend and the share buyback program. We will weigh the benefits of each. And right now, with our stock trading at just 0.6x of our net book value and only 1.5x of our short-term liquidity, in this situation, buying back our own shares is an effective way to create the value for our shareholders. That's why we are ramping up our buyback activity. Okay. Operator: And the next question comes from Cindy Wang with China Renaissance. Yun-Yin Wang: [Foreign Language] I have 2 questions here. First one, due to the connection issues, so could you tell us, what's your day 1 delinquency rate and also the 30-day loan collection rate in third quarter. And based on the early risk indicators since July, have you seen a stabilization in October and November? And how do you determine the inflection point of credit risk? Second, looking ahead, will the growth momentum in overseas market accelerate? And what are the main product driving growth in Indonesia and the Philippines? Jiayuan Xu: Okay. Thank you, Cindy. Yes. Sorry for the connection issue, and hopefully, everything is good now. I will take your first question, and Tiezheng will take your second question. Your first question is about the risk in our domestic business. Well, the new regulation has tightened the industry-wide liquidity and increased the credit risk. And this was reflected in our Q3 results with the day 1 delinquency rate increasing by 30 bps quarter-over-quarter to 5% and the 30-day collection rate softened to 88%. This trend persisted in the early October driven by the regulatory changes and the seasonal effect on the National Day holiday, we saw a further uptick on risk in the first half of October. Now we have begun to see early signs of stabilization. By November, the day 1 delinquency rate decreased by 4% from its October peak, though it remains by 8% above the Q3 average. While this is a positive development, we believe it's too early to draw a conclusion here. And if we see -- if we can see the sustained improvement over 2 consecutive months, it could be a turning point. Our response to this cycle has been shifting and strategic. We focus on the key risk management areas like risk underwriting, collection. We have proactively refined our risk models, leveraging the insights from past downturns to simulate various scenarios to more precisely calibrate, create credit exposure. Furthermore, we are deploying advanced AI to enhance our early warning alert capabilities for individual borrower stress. This analytical approach has been translated into concrete measures. We have tightened the underwriting standards, reduced exposure to high-risk profiles and scaled back customer acquisition spending on lower-quality channels. On the collection front, we have adopted a more refined and dynamic strategy, customizing repayment reminders based on user categories and enhancing our communication approach. So the cumulative impact of this volume and risk management adjustment is that while overall risk levels remain on a high level, the rate of increase has begun to moderate. As a market leader with consistent prudent risk culture and deep cycle experience, we are confident in our positioning. We maintain strong risk resilience supported by ample cash reserves and consecutive provision coverage ratio of 517%. This solid financial foundation positions us to not only withstand the current market fluctuations, but to emerge from this cycle in a strengthened competitive position. Okay. Tiezheng Li: I will share some information about the growth and products on our international markets. Our international business are growing very fast right now. And since from 2020 to 2024, the transaction volume grew at a CAGR of over 70%. And in Indonesia, after increased rate cap adjustment, the business has bounced back and is now growing very quick. And the Philippine market has kept up high double-digit growth year-on-year. Looking ahead to 2025, we expect transaction volume for both markets to grow at current trajectory, and profitability should also stay solid. And from product side, we have a diverse product to meet different consumption scenarios. And in Indonesia, we are not just doing online cash loans, we've also been pushing into buy now, pay later in offline retail. And we got most finance license last year, and we are rolling out installment finance for products like phones and e-bikes and appliance and furnitures. And we have built partnership with leading electronic brands to attach our financing solutions to select 3C products in their store. Right now, the buy now, pay later product still makes a small part of our overall business, but they are growing very fast. It's 6x in transaction volume year-over-year. And in Philippines, we built attractive e-commerce partnerships. It's contributed 36% of the transaction volume. We started the digital partnership in February last year, and now it's -- the transaction volume was triple of what it was a year earlier. This helped us reach a whole different kind of customer cohort, smaller take size, higher repurchase frequency, and a lot of them are female customers. And we think this user tend to be lower risk, and it will balance out our online loan portfolio. Building on the success, we are expanding similar solutions to daily consumption broader -- in broader industry. For example, we recently partnered with Smart. It's a Philippine local telecom provider, provides consumer with buy now, pay later solution. As we keep expanding into more offline scenarios, we'll be able to reach even more people who aren't active online. So we expect our customer base to keep getting broader and higher quality over time. Thank you, Cindy. Operator: And the next question comes from [ Gian ] Zhou with CICC. Dongping Zhou: [Foreign Language] I will translate my question. With the current regulatory situation so uncertain, what measures has the company taken to address it? And what are the key priorities for the future development? Tiezheng Li: Thanks, Dongping. For over 18 years, FinVolution has successfully navigated multiple market cycles. In China, we have upgraded from a P2P model to a loan facilitation model, adapted to an evolving regulatory landscape, and managed through several interest rate cap adjustment. Our international business has similarly matured through its own cycle of regulatory change. This experience made us a more resilient and stronger company. In China, we took preemptive action early this year in response to initial signs of market volatility and decisively prioritized quality over quantity. In recent months, we have proactively upgrade our borrower base, and we raised our underwriting standard to target higher quality customers. And we also adjusted our user acquisition spend to maximize risk-reward efficiency from a lifetime value perspective. This strategy allowed us to reduce both near-term risk and the user acquisition cost. As a direct result of these efforts, our sales and marketing expense decreased by 12% quarter-over-quarter. Looking forward, we remain vigilant in our risk management discipline. And turning to our international markets. Since our expansion began in 2018, we have built one of the few scaled overseas platform in our sector. We reached a significant milestone this quarter. And as our international revenue contributed 25% of group revenue for the first time. Today, our international business has built a strong foundation. We have over 15 institutional funding partners, a diverse network of online and offline partnerships, flexible product offerings and a complete licensing portfolio across multi countries. So our playbook has proven successful in Southeast Asia, and we are well positioned to replicate this model further. And looking ahead, the China market will continue to be a major bedrock of our business. We will focus on the right balance between risk and growth, solidifying the foundation for profitable, long-term sustainable business. And our international operations are already profitable, and we will continue to enhance the profitability as we scale. Our strategic target is to build a balanced portfolio with 50% of our business coming from international markets by 2030. Thank you. Operator: As there are no further questions, I'd like to turn the call back over to management for any closing remarks. Yam Cheng: Thank you once again for joining us today. Apologies for the disconnection of the call. If you have any further questions after this call, please feel free to let us know and contact the FinVolution IR team. Thank you so much. Operator: This concludes the conference today. You may now disconnect your lines. Thank you.
Operator: Thank you for standing by, and welcome to the Australian Agricultural Company Limited FY '26 Half Year Results Release. [Operator Instructions] I would now like to hand the conference over to Mr. Dave Harris, MD and CEO. Please go ahead. David Harris: Thank you. Good morning, and welcome to the Australian Agricultural Company's Half Year Presentation for the financial year 2026. I'm Dave Harris, Managing Director and CEO of AACo. And joining me on the call today is our Chief Financial Officer, Glen Steedman. Before we begin, AACo properties are the traditional homes of many First Nations peoples, and we acknowledge them and offer our respects to the elders, past and present. We recognize their culture and honor their deep connection to the land, waters, animals and skies, especially across the places where we have lived and worked for our 2 centuries of operation. As a food and agricultural company, there is much to learn from their approach to community and their knowledge and care for country. Our presentation today will follow the regular format. I'll start our presentation and then hand over to Glen to run through the financial performance in more detail before I close with some information about the current market conditions. And with that, let's begin our presentation on Slide 5. Australian agricultural company's history and its operations are well documented. We have been many things to many people over 2 centuries of operation. To some, we are an iconic pastoral company. To others, we represent innovation in cattle and genetics. And our connection to others is through feedlots, farming or processing. To many, we are sustainability and nature. And to our customers and chefs here and globally, we are world-class Wagyu. Through our integrated supply chain, we are all of those things and more. We manage our properties and value chain with a workforce of more than 450 people on our stations, in our head office and in our key global markets. And we take a nature-led approach, implementing farming practices that aim to balance human needs, the needs of our cattle and the needs of our ecosystems in our care. We are proud of our legacy and the opportunity we had to recognize that with you last year. We are equally proud of who we are today and the direction we are heading in through our next period of growth. This is AACo, and we are reimagining Australian agriculture to share with the world. That is our purpose. We first shared that purpose with you 6 months ago, alongside our vision, our values and our new strategic focus areas, all of which you will find as we turn to Slide 6. Our vision complements our purpose. We aspire to be the leading food and agricultural company, delivering nature-led solutions at scale. That is one of the ways we can reimagine Australian agriculture. We see sustainable beef production as one of the solutions to climate change, and we are actively pursuing the ability to demonstrate that through a holistic nature-based approach to sustainability. As we chase this endeavor, we are discovering, creating and building scalable innovations and beginning to share them with our industry and others here in Australia and globally. Our values, be curious, be generous and to own your impact are helping drive the culture within our company. In isolation, each value can help bring out the best in individual employees and in combination, they become a powerful tool that will bring out the best in our business. Striving for excellence will help AACo deliver on its new strategic focus areas. We unveiled these to you during our full year results in May. Better beef as we constantly seek to improve our genetics and accelerate our ability to grow revenue, margin and brand equity unlocking the value of the land, where we aim to leverage our world-class pastoral properties and assets to pursue new opportunities and revenue streams and partner and invest, which will drive our approach to innovation, building relationships with partners to solve problems and embed future value, building on our market-leading position. I'm pleased to say that we made progress in each of these focus areas, which I'll share with you shortly. Before that, though, as we turn to Slide 7, I wanted to acknowledge all of our shareholders and express the pride that I take in leading the Australian agricultural company. The Board and the management team are energized by the work we do each day and the vision and purpose that we are working towards. No year is without its challenges, but we face them together using the experiences of the recent and the not so recent past to help us achieve the best possible outcomes in each circumstance. The values that we have and the culture we are continuing to grow are supported through what we call the One AA approach, one team working towards the same common goal. With that approach and with a genuine understanding and appreciation across the supply chain, we are moving forward, progressing our strategy, and we are delivering outcomes for the business. In fact, as you'll see shortly, the operating profit in the first half of FY '26 is our best yet. It's an outcome that we are proud of though as always, we celebrate with a degree of caution. Perhaps the 2 constants over our more than 200 years of history are that nothing stays the same and that progress is always hard earned. Still, our teams here in Australia and around the world should be commended for how they have delivered in this period. And on that note, let's take a closer look at some of the financial and strategy highlights on Slide 8. Total revenue for the first half of FY '26 is $232.9 million, an increase of close to 20% versus the prior period. The growth was influenced by an increase in average beef prices that I'll talk more about shortly, along with an intentional and tactical program of earlier life cattle sales. AACo's live sales took place in the second half last year, but we strategically undertook a large portion of them in the first half of FY '26 to capitalize on a trio of ideal conditions, good cattle productivity, increased demand and strong cattle prices. While some of those settings are dictated by the market, AACo controls the biggest factor in achieving good live sales results, and that is the condition of our cattle. Pleasingly, AACo has achieved excellent productivity outcomes in recent periods through a combination of station-based cattle management activities and the company's nature-led sustainability program, which is improving land condition across many of our properties. With resilient paddocks that are producing quality feed, we have put ourselves in the best position to breed and grow the best quality cattle. And we have been building that resilience over several years through our nature-led program. It's given us better control and the ability to make decisions like choosing the time of those live sales, demonstrating the different avenues we can take to achieve consistent positive outcomes and create long-term value. The cattle sales also helped drive AACo's operating profit of $39.8 million for the period. As I mentioned, that is AACo's best half year operating profit result and is almost double the prior period. While used in slightly different forms elsewhere, AACo first introduced the operating profit metric into our business in 2019. The aim was to more clearly identify outcomes and progress from the day-to-day operational decisions that are being made across the business. It does this by removing the areas where we have limited or no control, such as herd valuations. 2019 was also around the time we further increased our emphasis on branded Wagyu. In the years that followed, we completed the move from being primarily a cattle company that also has some Wagyu brands to being a branded beef company that produces high-quality beef and cattle along a sophisticated integrated supply chain. Our Better Beef strategic focus area is the next stage of this evolution. AACo made targeted investments under this pillar in the first half of the year that you can see near the top right-hand slide under the heading Progress against strategic focus areas. One of the aims of the Better Beef program of work is to further improve our overall genetic profile of AACo's herd by increasing the proportion of Wagyu animals. Doing so is expected to result in both immediate gains and long-term value creation through improvements in production efficiency and overall quality. It will also increase the number of animals that are better suited to AACo's premium brands and high-paying markets. We also made another investment in the Goonoo property near Emerald in Central Queensland, boosting its production capacity by an additional 10%. The work will further enable the consistent year-round supply and the high quality, which underpins AACo's Wagyu branded beef sales. AACo progressed the delivery of its landscape carbon project at [indiscernible] Station in Central Queensland with the installation of the infrastructure that will help facilitate the generation of future Australian carbon credit units, or ACCUs. The company has received its first set of ecological condition scores for its highest value ecosystems after being granted registration with the organization known as Accounting for Nature. We first announced this project alongside the release of our sustainability framework in 2021 and have updated you on the extensive baselining work in the sustainability and annual reports since then. This brings to a close the first stage of that multiyear program. The scores and the framework will now be used internally to measure and inform AACo's science-based nature-led approach and track improvements in the ecosystem condition of our properties. Both projects are being delivered under the unlocking the value of the land program and are also examples of AACo's holistic nature-based approach to sustainability. As part of our partner and invest program, AACo is happy to announce investments in Appian, a carbon insetting company that operates the world's first carbon marketplace for livestock. Under this pillar, AACo is seeking opportunities with companies and initiatives that involve new technologies or measures that will help solve problems for the company and industry as well as create value over the long term. As you can see, we have made good progress against our strategic focus areas in the 6 months since we first shared them with you. Whilst we are only at the beginning of this next period in the company's already substantial history, I'm proud of what we have achieved against our priorities. The financial contributions we made to begin delivering in those areas are in line with the company's long-term approach of reinvesting back into the business. Pleasingly, core free cash flow improved $19.5 million versus the prior period to $7.7 million. Shareholders would recall that we've previously reported operating cash flow as one of our key performance indicators. That was appropriate through the previous period when the company's focus was almost exclusively on branded beef. However, we're of the view that core free cash flow is better suited to AACo's new strategic direction where investments into the business are made across multiple priorities in addition to normal business-as-usual activities. This metric will better highlight the combined outcome of our operating performance and strategic investments. In the first half, the core free cash flow result was driven by our overall performance, less those investments I've just taken you through. The long-term outcomes of the better Beef focus area will be seen through our commercial activities and the progress we are making in our global markets. I'll share more about that with you now as we turn to Slide 10. AACo was able to navigate fluctuating market conditions to achieve positive beef sales results. Whilst consumer sentiment was challenged by cost of living concerns, overall global beef supply and demand market factors were favorable. Premium beef prices improved in AACo's key markets compared to the prior period. and trim and commodity pricing was also strong, particularly in the U.S. and general retail. Overall, the average beef sales price per kilogram increased 7% on the prior period to $18.62. This was a major contributor to a 3% overall increase in average sales value across AACo's brands despite 4% lower volumes through the period. The results once again demonstrate the strength of our distribution network and partnerships and the strategic approach that we take to allocating products across our global markets to maximize value. Targeted marketing and other commercial activities supported the brands this period from launching a global chef Advocate program aimed at enhancing the knowledge of our Wagyu beef to dynamic pop-up experiences that take consumers on the sensory journey. We'll take a closer look at how each brand contributed to our success as we turn to Slide 11. As our most exclusive Wagyu brand, Westholme continues to be served in some of the world's best restaurants. Despite sitting at the top end of market globally, high-end foodservice isn't immune from the challenges and the cost of living pressures that I just mentioned impacted conditions in some markets this period. AACo's approach to product allocation and strong distribution relationships are important in these conditions, and we were able to use these tactical responses in the first half. Launching in Mexico and expanding into the Middle East opened the brand to new customers and new opportunities. And the launch of a new product here in Europe that we call PUA supported the brand's overall performance. Highly evolved global media and marketing strategies were deployed to continue exposing the brand to new customers, including chefs. And we were able to achieve increased menu presence and market penetration through scaling up value-added products like burgers in the U.S. On Slide 12, the Darling Downs brand benefited from improving market conditions, particularly in Korea. The brand is already an Australian brand success story with more than 20 years history in Korea and thriving as a household name in that market. Far from being content or complacent though, we continue to pursue growth in this region and elsewhere. Our Beyond Taste campaign that included the Sensory Maze experience I mentioned earlier is an example of how we're increasing brand awareness in Korea. The oversupply of local hanwoo beef that we spoke to you about in FY '25 began to ease in this period, helping reduce the price pressures we were experiencing. The Darling Downs brand grew beyond Korea as well, securing placements with 5 new retail groups across key Asian markets. Through these and other activities, the brand improved its performance in the second quarter, and we hope to continue that momentum into the second half of the year. Moving on to Slide 13 and 1824. The brand that we relaunched in January last year, recognizing and celebrating our 200 years of history. 1824 captures demand in markets and from consumers outside of Westholme and Darling Downs. It plays a key role in our brand portfolio, enjoying pride of place in more mainstream food service and butcher channels. It also has a more focused tighter set of markets, which enable it to play that complementary role without impacting price opportunities. The brand continues its positive growth. In just a short time, 1824 has already regained a loyal following, establishing itself with consistent supply and quality that is being sought after by distributors. There is strong demand within Australian market and opportunities to expand into the U.K. and to the Middle East. And with that, I'll now hand over to Glen, who will take you through our financial performance in more detail. Glen Steedman: Thank you, Dave, and good morning, everyone. It's a pleasure to be with you to share our financial performance for the first half of 2026. As shown by the performance highlights on Slide 15, we have delivered an excellent set of results this period whilst making progress against our strategy. Metrics along the top of this slide, operating profit, beef sales price and core free cash flow are some of our primary financial metrics we use to monitor our performance. Statutory profit and net tangible assets are secondary, given they incorporate an unrealized fair value movement on the market value of our [indiscernible]. Our first half operating profit of $39.8 million is the highest result achieved for a half since this measure was introduced, which has nearly doubled on the prior period. This was driven by our strong beef and cattle sales performance. Average sales prices were high for both beef and cattle sales with higher half 1 volumes for cattle sales underpinning this growth. Average sales prices for Wagyu Beef were up 7%, driven by global market allocation, capitalizing on opportunities across our brand portfolio. Our Better Beef program is targeted at growing revenue, margin and brand equity. And we have proven our ability to grow through uncertain market conditions, including the changes in tariffs, global trade policies and impacted markets during this period. Core free cash flow is a primary metric we use to determine how we are performing as a business. This represents free cash flow less in-year strategic investments made as we reinvest to deliver on priority areas. We believe this is an important measure as it highlights the underlying cash performance of the business and provides transparency on strategic investments we are making. As I'll touch on in the cash flow slide, we achieved a core free cash flow of $7.7 million, which was up $19.5 million on the prior period. Our statutory profit and net tangible assets improved primarily due to higher market prices of our cattle with the $82.2 million statutory net profit after tax, up $58.6 million versus the prior period and net tangible assets up 6%. Whilst the fluctuations in the mark-to-market value of the herd are largely unrealized and outside of our control, we're able to capitalize on market opportunities for our live cattle sales during this half and the higher sales revenue also contributed to favorable statutory performance. Cost control and supply chain efficiencies resulted in a stable cost of production, which is particularly notable given the higher inflationary environment. I'll now take you through the drivers of our performance in some detail as we walk through our profit and loss, balance sheet and cash flow. Moving to Slide 16. As Dave mentioned earlier, we are pleased to have delivered a total sales revenue of $232.9 million, representing a 19% increase on the prior period. This growth was achieved through strong sales execution across both beef and cattle and strategically higher volumes of cattle sold. Our Wagyu beef sales revenue was up 3% with 7% higher average sales prices on 4% lower volumes. There's significant value in the partnerships we have continued to nurture and grow in key markets across the world, enabling our teams to allocate profit to maximize price and ultimately grow margins, which underpins our favorable performance. We look forward to further development under our Better Beef strategy as we continue to invest in ways that can provide sustainable growth. During this first half, we further displayed the strength of our integrated supply chain and decision-making by executing on cattle sales. In doing so, we've been able to capitalize on increased demand and higher prices for live cattle, growing total cattle sales revenue by 71% from the prior period. This result was made possible through good productivity outcomes driven by improved land condition and station-based management activities, achieving 20% higher prices compared to the prior period. Importantly, the overall herd size remains in line with the 2025 year-end position with our herd well positioned to generate future value. Our beef and cattle sales results delivered a gross margin of $76.4 million, up 55% on the prior period. We have continued to invest in our brand and capabilities during this period, which supported our overall performance. The delivery of our $39.8 million operating profit is one we can all be proud of as we look to the future of continued momentum and strategic focus for success. Now turning to Slide 17. Our cash flow for the first half further tells the story of our strong sales results with reinvestment back into the business to progress our strategy. As mentioned earlier, core free cash flow is an important measure of our business performance, highlighting the underlying cash performance of the business. The difference between free cash flow and core free cash flow is the strategic investments we have made in year. We were pleased to achieve a core free cash inflow of $7.7 million, up $19.5 million on the prior period. Key cash outflows during the period were made in service of our strategy and included enhancing the genetics of our herd, improved 10% production capacity at our Goonoo property, infrastructure to enable the generation of future ACCUs from the [indiscernible] soil and carbon project and building alternative revenue streams through our Gulf cropping. These investments have supported -- been supported by access to capital under our refinanced debt facilities as well as higher receipts from sales revenue. Through our enhancements and investments in new infrastructure, we are making tangible progress against our strategic priorities. It's pleasing that whilst our strategy refresh is relatively new, we have been able to execute on meaningful components of this already. Moving to Slide 18. Our balance sheet strength continues to grow, underpinned by our world-class assets. The key movements on our balance sheet from year-end was predominantly livestock, which improved in value by $123.3 million. This was largely due to a $94.7 million unrealized fair value gain on the herd driven by higher market prices. The herd size remains materially unchanged with continued improvement in overall condition and quality, which is a focus of our strategy. As announced to the ASX in August, we were pleased to share that we successfully refinanced our club debt facility with our banking partners, securing an additional $80 million in borrowing capacity on more favorable terms. Securing additional capacity allows us to continue to actively pursue opportunities under our strategic focus areas and add further value into our business. I'll now hand back to Dave to take you through the outlook for our operating environment and provide closing remarks. David Harris: Thanks, Glenn. Now let's move to Slide 19. AACo's operating environment remains active heading into the second half, both within its supply chain and globally. Cost of living concerns and a downturn in high-end food service are being experienced in some key regions. However, market reports suggest a continued tightening of global beef supply will balance out these price pressures, and AACo will continue to manage evolving circumstances through its global distribution network. Lower live cattle trading volumes are expected in the second half after sales were initiated in the first period as we shared with you earlier. Our properties are well positioned as we enter the traditional wet season. They are increasingly resilient following several years of work to establish and embed our sustainable stocking and land management strategies. Through our sustainability program, we have intentionally moved away from more volatile seasonal business models. We anticipate having more control over how we manage our supply chain, which allows better long-term planning and produces better outcomes for our properties and our cattle. It also allows us to respond more appropriately when market challenges arise or when there is instability, which appears to be increasingly the case in recent years. On that note, we welcome the announcement this week of the tariffs being removed from Australian beef entering the U.S. It's an important market for AACO and Australian beef more generally, and we support the removal of barriers that could improve opportunities for us in any region. Our focus for a number of years has been on creating desirable premium brands as well as distribution network and routes to market that can help us withstand individual market pressures. Our brands have a growing presence in North America when combined with factors such as the prolonged herd liquidation there, we remain positive about that market, and we look forward to continuing to build our presence there. I would like to thank you for joining us on the call today and thank the Board and the management team here at AACo. Strong results like we saw in this period can only be achieved through hard work and dedication. A record half year operating profit is testament to the important role each person across the business plays in the success of our operations and to the course we have set ourselves on through our new business focus areas. We've made pleasing progress against our strategy, setting the company up for sustainable growth. We look forward to the future with optimism, with purpose and a drive to succeed. That's the end of today's presentation, and we're now happy to take questions. Thank you. Operator: [Operator Instructions] Your first question today is from Eric [indiscernible] and there's a webcast question. This reads, David, your predecessor marked that with adequate rain, AAC has the best grass factory. Can you comment on the recent rainfall on the AAC land masses and how it has benefited the cost of operations? David Harris: Thanks for the question there, Eric. Yes, there has certainly been a start -- a bit of a start to the early wet season in the north. The majority of our Central Queensland properties have also had really good rain, which has been helpful. I think that's a soft start for us, which is great. Obviously, we need that rain to continue. The last couple of years, we've had little starts like this, which then dried up and last year's rainfall was actually considerably later than normal with the majority of rainfall received in March last wet season. In relation to cost of production, I've been really happy with how we've been able to manage cost of production over the last 2 or 3 years now where we're largely flat. Over this first half period, you'll note it's actually down 1% on the prior comparative. But if we look at full year periods over the last 2 or 3 years, we've remained relatively flat from a cost of production perspective. I think something to take into account when I talk about building a resilient business model and that sustainable long-term stocking rate that we talk to is a lot of that work and that theory is put into place actually in the difficult years, not the good years. And so what we're trying to do there by breeding -- building this resilient business model is so that in the droughts and the tough years, which I'm sure won't be too far around the corner now that we've had a couple of good ones. That, that's actually when these programs come into play and we're not forced sellers and we're not forced into moving cattle around or spending a lot of money on excessive lick and supplement feeding programs. And so whilst I'm extremely happy with us being able to hold cost of production flat, whilst we're also evolving the herd to be slightly more Wagyu and slightly more from an intensive feeding program that have higher cost of productions, but that's also more higher-value product. So to hold it flat, I think, is an excellent outcome. And where I really look for this resilient business model to play out will be actually in the more difficult years than these good years. So I hope that helps and answers that question for you. Operator: Your next question is from John [indiscernible]. This reads, the first half result appears to be significantly enhanced by the mark-to-market and the value of livestock. This is, of course, not a recurring item and follows a particularly favorable period of broad beef price increases. In the absence of this, the company would have made a loss. It appears difficult to see how the company can achieve a return commensurate with assets employed given the long-term strategies have not really achieved significant results. Is this perspective wrong? Glen Steedman: Thanks for the question. I'll take that one, Dave. So we do use operating profit as our key measure of determining our profitability because the unrealized gains or losses on our cattle do distort our results from year-to-year. So some years like this one, there can be large profits and other years, there can be significant losses caused by that mark-to-market movement. So what operating profit basically does is it allocates the cost to the cattle as they move through the supply chain. So when you get to the end of the supply chain, the cost that they absorbed is offset against the revenue to get a true feel for the profitability of those animals that go through. We don't sell the majority of our cattle through the typical market process. So those unreal -- those market values that are assigned at different periods in time don't really represent the true value of that livestock to our organization. So for us, the operating profit is the best metric. We've introduced the core free cash flow metric as well to give greater transparency to the market, just so they can see what we're investing into the future and also how the business actually performs on an underlying basis without those investments occurring. So we hope that provides greater transparency, and that's a key measure that we're going to continue to monitor ourselves against. Operator: You have another question from John Dicks. This reads, how do you see the removal of U.S. tariffs on beef impacting AAC? David Harris: Yes. Thanks for the question. Look, I think as I mentioned in the presentation today, North America is a really important market for us as a business. I think it will obviously help all beef export businesses in Australia into the U.S. and help with pricing there. I think it's probably fair to say that we need to have a global outlook on this piece as well. And so whilst Australia's exports to the U.S. have reduced by 10%. There was a point in time where it was actually a competitive advantage against some of other exporting nations. And so in this situation where we may have lost 10, other nations have actually had more significant reductions. So for example, I believe Brazil is still at sort of 40%, but they were up in the 70s. And so other nations have had significant reductions as well. Largely, I think it's positive, but we have probably lost some competitiveness against other exporting nations into the U.S. But the North American market is a really strong one for us. And like I said in the presentation, we focus on the things in our control. So we focus on our brands, and we focus on being desired by the chefs and the consumers in North America and so that we can get to the top of the list and be a really desired product there. We've put a lot of effort in North America from a commercial brand marketing side of the business. And I think what stands us in good stead over there is our sophisticated distribution network that lets us get all the way around that country to some really amazing consumers and distributors. And so I think it will continue to be a very significant market for AACo. Operator: [Operator Instructions] Your next question comes from Lindsay Stubs. This reads why doesn't the company pay a dividend to its shareholders? Does the company have any franking credits? Is it likely the company will ever pay a dividend? David Harris: Thanks for the question, Lindsay. That's a question for the Board. But I can confirm that last year, there were no dividends declared or paid in that half year '26, and there are no franking credits. What I'm focused on from a management perspective is how we reinvest back in the business and how we build the business to be a more profitable business for the future. And so at the moment, what we're trying to do is illustrate to shareholders the value that we think we can deliver for the business by reinvesting back into it. We've just delivered the greatest or the largest half year result in recent history for the business. And so I'd like to think that, that's starting to build trust with shareholders about our capacity to reinvest back in the business and build returns. Operator: Thank you. There are no further questions on the webcast or on the phone line at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect. David Harris: Thank you.
Operator: Hello, and welcome to PACS Group's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] The speakers on today's call are PACS Group's Chief Executive Officer, Jason Murray; Mark Hancock, Interim Chief Financial Officer; and Josh Jergensen, President and Chief Operating Officer. The call today is being recorded, and a replay of the call will be available on the PACS Group Investor Relations website an hour after the completion of this call. A replay of this webcast will be available for approximately 30 days. Information to access the replay is listed on today's press release, which is available on our website under the Investor Relations section. Before we begin, I would like to remind everyone that during today's call, we will be making forward-looking statements regarding future events and financial performance. I'd now like to turn the conference over to Mark Hancock, Interim Chief Financial Officer. Please go ahead. Mark Hancock: Thank you, and good afternoon, everyone. Thank you all for joining us for this earnings call. Before we begin our prepared remarks, we would like to remind you this afternoon that PACS Group issued a press release announcing its third quarter 2025 results and other filings. An investor presentation was published and is available on the Investor Relations section of our website at pacs.com. I'd also like to remind everyone that during the course of today's conference call, we will discuss certain forward-looking information that is based on our current expectations, assumptions and beliefs about our business. Any forward-looking statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. You should carefully consider the risk factors that may affect our future results as described in our 2024 Form 10-K and our other SEC filings. During this call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDAR. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP. For a reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measures, please refer to the earnings release and the appendix included in the investor presentation, which are both published and available on the Investor Relations section of PACS Group's website. I'll now turn the call over to Jason. Jason Murray: Thanks, Mark, and thank you all for joining us today. Today, as you might imagine, is an exciting day for all of us at PACS Group. I'd like to extend our collective appreciation for your patience and support. We have worked expeditiously over the past several months and are once again current with all of our reporting obligations. We're ready to move forward with a renewed commitment to our mission of delivering high-quality care to our patients and driving value for our shareholders. Our results, which we will detail shortly, demonstrate that our team rose to the occasion. Together, we've navigated through recent challenges and turned those into momentum and motivation. With the previously announced restatement now completed and our internal controls strengthened in the process, we're operating today from a position of strength, transparency and discipline. I'd like to thank everyone on the PACS team for their hard work, focus and dedication throughout this period. We feel we have the best team in the business, and I'm excited about the opportunities that are ahead. In November 2024, the company's independent Audit Committee supported by external counsel and advisers began an independent investigation of the allegations made in the short seller report. That work has concluded. The committee's work and its resulting recommendations, which have been or are being implemented, reinforced our commitment to transparency, accountability and strong governance. Now our focus is squarely on the future, executing our strategy, delivering exceptional care and continuing to build trust with our stakeholders. PACS moves forward with confidence, strength and an unwavering commitment to doing things the right way. In short, today is the start of a new chapter for PACS. As I noted, we remain focused on executing our strategy and our results demonstrate the strong progress we have made. We delivered a tremendous start to fiscal year 2025 and delivered another quarter of growth and execution in the third quarter. In fact, we delivered record revenue and adjusted EBITDA in the first 9 months of 2025. We believe this record performance validates PACS core strengths, our commitment to clinical and operational excellence, our industry-leading talent and a strategy designed for sustainable growth. I'll touch on all of these themes throughout my remarks, and Mark will also provide more specifics on our financial performance and full year 2025 outlook. But first, I want to take a step back and talk briefly about PACS business and our strategy. We're a leading post-acute health care company, primarily focused on delivering high-quality skilled nursing care through a portfolio of locally operated facilities. Our mission is to be the leading provider of post-acute clinical care across the country and elevate care for America's most vulnerable. This has been our mission since I co-founded the company with Mark, starting with 2 facilities in 2013. Over the last decade, PACS team has worked to create value, trust and confidence for our patients and residents. We are now at 320 facilities across the country, and we feel like our journey is just starting. We're very thankful for the more than 47,000 employees across the country who provide care to over 30,000 residents each day. We're inspired and driven by their commitment to quality and excellence, and they are the foundation behind our success. We believe that health care is local, and we recognize that every patient, facility and community is unique. For that reason, PACS operates with a locally led, centrally supported model that empowers local leaders to make day-to-day operational and clinical decisions at the facility level, ensuring that care is responsive, personal and community-driven. At the same time, we maintain robust regional and central support systems that provide resources, oversight and regulatory expertise, establishing clear guardrails to help our local teams remain compliant with local, state and federal requirements. This coordinated model, local leadership supported by strong centralized systems enables us to deliver excellent clinical outcomes, operational consistency and the highest standards of integrity across the organization. Our model is centered on what matters most, which is putting patients first, empowering strong bedside leadership and holding ourselves accountable at every level. It's a simple approach, but it's very powerful. It's what makes PACS different, and it's why we're confident in our ability to deliver exceptional value to our patients and the communities we serve. We're proud of what this team has built, and we're excited to keep raising the bar of what's possible for PACS. We're applying these competitive strengths to a compelling market opportunity. The skilled nursing industry or SNF, is large and growing, with CMS expecting total industry expenditures to increase to $337.4 billion by 2032. At the same time, America is experiencing a significant demographic shift with estimates showing that nearly 20% of the U.S. population will be aged 65 or older by 2030. This aging curve, driven by the baby boomer generation is expected to meaningfully increase demand for post-acute and long-term care services over the coming decade. As one of the largest SNF operators in the U.S., we believe that our increasing scale and focus on clinical and operational excellence, coupled with our disciplined and sustainable growth strategy, uniquely positions PACS to capitalize on these demographic trends and drive further growth, both organically and through acquisitions. Taken together, we believe our competitive strengths will continue to drive our growth and success, delivering meaningful value to health care stakeholders, employees and shareholders alike. Now let's turn to an update on some of our recent operational and clinical advances. We continue to prioritize exceptional clinical outcomes across both our mature and newly acquired facilities, and that focus is reflected in our quality ratings. Based on CMS quality measure or QM star ratings, 192 of our facilities, representing 68.6% of our skilled nursing portfolio are rated 4 or 5 stars. This sustained improvement across the organization underscores the strength of our teams and supports the strong financial performance we continue to deliver. To better illustrate our facility's dedication to quality, I'd like to share a quick anecdote that highlights how our teams consistently rise to meet the needs of the communities we serve. In Q3 of 2023, we acquired a facility in Colorado. At the time of acquisition, the facility was on CMS' special focus facility list and members of the local community openly shared that it had been considered by some to be the worst skilled nursing facility in the state. For many operators, this combination of reputational and clinical challenges would have been a reason enough to walk away. But for us, it represented exactly the kind of opportunity where our model can make the deepest impact. More importantly, we believe without hesitation that the residents, families and communities deserved better. After many months of focused efforts and dedicated caregivers and leadership team at this facility, supported closely by the regional PACS team, execute a comprehensive operational and clinical turnaround. By Q3 of 2024, they had passed their second consecutive health inspection survey, meeting the requirements to graduate from the special focus facility program. As of March of this year, the facility officially came off the special focus facility list, and the team has since achieved a 4-star overall CMS rating, which is remarkable, milestone given where the facility started just a couple of years ago at acquisition. This example is just one that reflects a broader pattern across our portfolio. These types of clinical success stories are becoming increasingly common, underscoring the strength of our clinically driven operating model and the dedication of our caregivers in every market. In fact, through the first 9 months of 2025 alone, 5 additional facilities that were acquired while on the special focus facility candidate list have successfully graduated from the list. Each has its own unique story, it's different challenges, different starting points, different community needs, but all share a common thread, the ability of our teams to restore stability, rebuild trust and deliver meaningful improvements in patient care. These results reinforce what we believe at PACS. When supported with the right structure, leadership and resources, even the most challenged facilities can achieve dramatic sustained improvement. And most importantly, our patients and communities are better served because of it. These clinical achievements reflect the same operational discipline and team excellence that continue to drive momentum across our broader portfolio, momentum that has been especially evident over the last 15 months as we've expanded our footprint, strengthened operations and integrated a significant number of newly acquired facilities. Our third quarter performance reflects both sustained operational strength and the growth of the business through the meaningful expansion of our portfolio over the last 15 months. In that time, we've executed a series of strategic acquisitions, strengthened our presence in key markets and continued delivering high occupancy in our mature facilities. In the second half of 2024 alone, we acquired 94 facilities as part of 106 total acquisitions for the full year. The largest of these was the acquisition of the Prestige portfolio, which added 53 facilities across 8 states, 5 of which were new markets for us, significantly expanding our geographic footprint. In total, the acquisitions completed during the back half of 2024, added 7,424 skilled nursing beds and 1,334 assisted living units, more than 8,700 beds overall. This expansion meaningfully increased our scale and broadened the reach of our operating model. In 2025, we've continued to deploy capital to fuel growth, rooted in a disciplined approach focused on driving returns from our investments. Year-to-date, we've acquired the operations of 7 additional facilities. Today, our portfolio includes 35,202 total operating beds, 32,677 skilled nursing beds and 2,525 assisted living beds across 17 states, reflecting a significantly expanded geographic footprint. Portfolio performance remains strong. Total occupancy stands at 89% with our mature facilities delivering exceptional 95% occupancy, up from 94% last year. Occupancy in our new facilities, those acquired within the last 18 months, including the large 2024 acquisitions, is 81% compared with 83% in the prior year. This reflects the intentional onboarding period as newly acquired facilities begin adopting PACS operating systems and clinical processes. As these facilities progress through stabilization and ultimately move into ramping status, we expect to see continued improvement in both occupancy and skilled mix over time. Our locally led centrally supported model is foundational to driving increased occupancy, which prioritizes matching patient acuity with the right clinical capabilities at each facility. As hospitals continue to discharge higher acuity patients into skilled nursing settings, our team remains well positioned to meet that need, which supports both patient outcomes and continued occupancy strength. That means we also continue to invest in leadership development through our administrator and training or AIT program, better equipping local leaders to deliver responsive, personal and community-driven care, which ultimately drives higher occupancy. Since our founding, we have hired 261 AITs with 203 currently employed in licensed administrator or other leadership roles, reflecting an approximate 78% retention rate. We now have 36 AITs in the program, providing a strong pipeline of leaders to support both existing operations and future growth. We enter the fourth quarter of 2025 with confidence and momentum. But most importantly, the depth and quality of our people gives us a competitive advantage that can't be replicated. Our teams are motivated, they're focused, and they're ready to prove once again that PACS doesn't just adapt to challenges, we turn them into fuel. We're building on strength, executing with urgency and driving toward being the best in our sector. I'll now turn the time back over to Mark to cover our financial highlights for the quarter. Mark Hancock: Thank you, Jason. And I'd like to echo your sentiments in that when we first started PACS, we did it with the intention of building a legacy sustainable company in the post-acute health care sector. This is our life's work. And so I want to express my gratitude to our Audit Committee and advisers for their work and recommendations that have helped accelerate our maturation as a public company. We remain confident that our locally led centrally supported model, coupled with enhanced compliance and controls will increase our ability to deliver high-touch, high-quality care to our patients and strengthen our communities. With our exceptionally talented team, we are focused on continuing to execute our strategy to drive value for shareholders and the rest of the health care ecosystem. Our third quarter and year-to-date 2025 results reflect the operational and clinical excellence across our portfolio that continues to drive demand for our services. I will now highlight a few key financial metrics for the 3 months ended September 30, 2025. In the third quarter, we realized $1.3 billion of revenue, a 31% increase over the same period of the prior year. Adjusted EBITDAR for the third quarter was $226.6 million, while adjusted EBITDA was $131.5 million. Net income for the same period was $52.3 million. And lastly, our diluted earnings per share for the quarter was $0.32. In addition to our third quarter performance, I'd like to take a moment to highlight our year-to-date 2025 results. These further demonstrate the consistency of our growth and operating strength throughout the year. So for the first 9 months ended September 30, 2025, we realized $3.9 billion of total revenue. This represents a 36% increase over the same period in 2024. Year-to-date 2025 adjusted EBITDAR was $646.2 million, while adjusted EBITDA was $363.0 million. Net income for the same period was $131.7 million. And lastly, our diluted earnings per share through the first 3 quarters of 2025 was $0.80. As Jason noted, total facility occupancy across our portfolio was 89% for the first 3 quarters of 2025, well above the industry average of 79%. A meaningful number of facilities advanced into our mature category this year, and it's encouraging to see occupancy and skilled mix remain strong through that transition. Mature facilities continue to perform exceptionally well, achieving 95% occupancy, up from 94% occupancy last year, while skilled mix increased from 32% to 34% in 2025. Ramping facilities reported 86% occupancy and 23% skilled mix, reflecting the impact of several newer markets such as Colorado that continue to strengthen as operational initiatives take hold. New facilities ended the third quarter at 81% occupancy versus 83% in 2024, while skilled mix improved to 25% from 22% last year. The slight dip in occupancy reflects the expected transition following the large portfolio integrations completed in late 2024. As Jason mentioned, 2024 was an extraordinary year of growth for us. We completed 106 facility acquisitions, which is more than 4x our historical annual average, including 94 in the second half of 2024 alone. In comparison, during the first 3 quarters of 2025, we completed 7 acquisitions, all of which were strategic add-ons within the existing footprint of the states we operate in. This lower level of activity in 2025 has provided time to assimilate the significant volume of transactions completed in 2024 and demonstrates our intentional focus on integrating that large cohort. In 2025, our cost of services increased by 32% year-over-year as we continue to invest in staffing and quality initiatives. This increase aligns with our growth and reflects our ongoing efforts to make operational and clinical improvements across our portfolio, including in our newly acquired facilities. In addition to growing our operations in 2025, we purchased the underlying real estate of 5 facilities, further strengthening our balance sheet and our ownership position within our portfolio. As of the end of the third quarter, we now wholly own or partially own through joint ventures, the real estate interest in 100 of the facilities that we operate. In total, we currently own, have purchase options or have future rights to almost half of the properties that we operate. This continued expansion of real estate ownership achieved while maintaining consistent lease structures and financial terms underscores our disciplined approach to capital allocation and long-term value creation. Of the facilities that we lease, the average remaining tenor of our operating leases and our finance leases is 13 years and 19 years, respectively. Now turning to guidance. As we look forward to a great fourth quarter and finishing out the year, -- based on our recent results and current expectations, we are providing guidance for the full year 2025 as follows. We expect annual revenue to be between $5.25 billion and $5.35 billion in 2025. The midpoint of this range would be a 30% increase over 2024 revenue. For the full year 2025, we expect adjusted EBITDA to be between $480 million and $490 million. In summary, we expect these to be record results for the company. I'll now turn the call back over to Jason. Jason Murray: Thanks, Mark. And as Mark mentioned, we expect the full year to deliver record revenue and adjusted EBITDA, and our performance year-to-date has already reached record levels for the company. This continued momentum highlights the strength of our model and our teams throughout the country. We intend to continue proving that strength quarter after quarter, and we're energized and moving forward with discipline and focus and look forward to demonstrating our ability to execute and deliver results for our patients and shareholders. So with that, operator, I believe we're ready for questions. Operator: Our first question comes from David MacDonald with Truist. David MacDonald: I got a handful of questions. First, guys, can you just talk a little bit about -- you mentioned the momentum in the business a couple of times. If we look at the occupancy and skilled mix opportunity in the new and ramping, can you just spend a minute on that? And then kind of as we head towards 2026, is there any areas that you would call out in terms of areas of disproportionate investment? Joshua Jergensen: Yes. This is Josh. I'll take the first part of that question. As we look at occupancy, I think we refer often to our mature facilities. And as you know, those are facilities that we've had for over 37 months. And as reported, that occupancy has remained incredibly strong, and so has the skilled mix. What we've learned over the process of our acquisitions is that it takes time to implement and deploy our policies, procedures, our model of increasing the clinical capabilities of our facilities and the team's confidence in their ability to provide care to high acuity patients at a level where we can continue to operate and ensure that the patients and their family members are getting exceptional care outcomes. And so as we look at our ramping and new facilities, we still feel that there's a lot of opportunity for us to strengthen those teams to deploy the appropriate systems that we need. You heard, obviously, the number -- the sheer number of facilities that we took on, creates challenges for us to ensure that those teams are supported in a way that allow them to have the confidence to increase both skilled mix and occupancy. So I still -- and we still feel very confident that as you look at those cohorts of new and ramping that our expectation would be and the history of our company would show that those continue to increase and move towards where our mature facilities are performing, and we would expect that to be the case. Mark Hancock: And David, I would just -- this is Mark here. I'd just layer in that to your question about kind of any disproportionate relationships there. Just emphasizing what Josh said about the fact that we grew at over 106 facilities last year, which basically 1/3 of our portfolio represents that new bucket. And so there's a lot of embedded potential for organic growth there. David MacDonald: Okay. And then, guys, just I guess, second question, when you think about some of the changes the company has made relative to controls, what would you call out as the 1 or 2 changes that you view as most impactful? Jason Murray: Yes. That's a good question, David. And I would maybe point to one thing that stands out as I think through that. Number one, there's been a lot of lessons that we've learned through this process. But I would say the one that stands out to me is our ability to continue to develop and strengthen our compliance within the organization. And that's an area that we feel passionate about, and I think it aligns with our mission as an organization as well. And it's something that we, over the last year, have worked tirelessly to improve. And I think why that's notable is because it allows additional support for our locally led and centrally supported model, where we have administrators making decisions at the local level to support their patients and their staff. Having those additional support mechanisms in place to make sure that they're making good decisions, that's incredibly important to us. And so I'm very proud of the progress that we've made and the advancements that we've made in that area over the last year. And I would say that's probably the most notable in my opinion. David MacDonald: Okay. And then, guys, just last one for me, I guess, a 2-part question. One, if I look at year-to-date cash flow generation, it looked very strong. Anything that you would flag or call out there that's driving that? And then secondly, if you could just touch quickly on M&A. If you look at the number of facilities that you guys have integrated and you look at the activity year-to-date in '25, just an update on kind of the pipeline, how that's looking and how you guys are thinking about M&A on a go-forward basis? Mark Hancock: Yes, David. So I'll take the first part and maybe let Josh take the part about M&A. But on the question about cash, so yes, I mean, cash provided by operations for the first 9 months was $407 million. And we ended the quarter at September 30 with over $350 (sic) [ $355.7 ] million of cash and cash equivalents versus $157 million at the end of 2024. And that included, by the way, paydown of our line of credit throughout this year. Joshua Jergensen: And David, as far as M&A goes, I think Jason said it well as he was talking a little bit about the heavy amount of acquisition that we did at the end of 2024. And if you look historically at our organization, we kind of averaged out and talk about acquisitions around the 20 a year. Those have been somewhat cyclical as we've, in some years, grown a little bit more than that. And certainly, 2024, the second half of it would be one of those years. It's important for us as we grow that those facilities feel supported, that they feel that they are appropriately integrated into what makes our company special, that they get full access to our systems, to policies and procedures and understand how we go about providing training and education to ensure these facilities have the capabilities in order to be strong centers of excellence in the communities that they serve. And so that was a big part, along with what we've been going through in the investigation and prioritizing that and the recommendations that came from it that led to acquisitions being very strategic with the 7 that we acquired. As we move forward and feel that we are in the strongest position as an organization that we've ever been in, and we have a deep bench, as Jason mentioned, 36 AITs. We are incredibly excited because we're passionate and feel that the work that we do truly makes a difference. And so as we've continued to evaluate deals during this period and been very selective, I would imagine that we would continue to increase the amount of deals that we're looking at again, assuring that we stay disciplined in our approach, but also resilient in the efforts that we're making to ensure that the communities and people who are underserved right now can have the advantage of having PACS come in and deploy resources that help improve these facilities. And so as we look to what we've done historically, I think that you can look towards those historical numbers and use those as reference what we plan on doing as we move forward. Operator: Our next question comes from Benjamin Rossi with JPMorgan. Benjamin Rossi: So just thinking about long-term growth, with the changes to your baseline revenue and earnings structure and your 2025 outlook now implying that 30% top line growth and EBITDA growing further underneath that, what is the right way to think about your long-term growth algorithm? Is the previous framing of maybe low double digits across revenue and EBITDA still kind of roughly applicable? And then I think you kind of confirmed it here, but regarding your M&A with the 7 facilities year-to-date, I think you mentioned 20 facilities per year going forward is still the right way to think about inorganic? Mark Hancock: Yes. So yes, thanks, Ben. So the growth, I think that the models that you have are in line with our current performance, meaning take out the restatement for 2024, and I think we're tracking according to what you've been analyzing before. So -- but to your question -- to your point about -- we've given guidance of 20 facility acquisitions per year. We have far exceeded that in 2024. And over the years, historically, we've had years of kind of larger chunkier growth and followed by years of kind of a simulation. So that historical average gets smoothed out a little bit, but we have probably outpace that 20 facility guidance. We're not, at this point, prepared to change that guidance as far as the number of facility counts go. We kind of look to continue to be opportunistic in that. So we never set like goals on that. But as far as the top line guidance of 30%, I think that will be consistent with what previous models have suggested. Benjamin Rossi: Got it. Okay. And then across M&A, I appreciate your comments about activity progressing nicely over the past year. I guess just when thinking about your cohorts, what is the current embedded EBITDA opportunity across your new and ramping cohorts? And then when thinking about the 100-plus facilities you've added since last year, can you give any color on the embedded EBITDA opportunity across those newly acquired facilities? Joshua Jergensen: Yes. We've shared that generally, each acquisition is a little bit different depending on the state, depending on kind of how reimbursement works on the Medicaid side for each of those states. And so sometimes that's difficult to identify exactly, Ben, as we talk about that. One of the things that we have pointed to is kind of a margin number that each of these cohorts generally find themselves historically living in. And we've shared that the new facilities usually find themselves around 2% to 3%. And then as they kind of graduate into the mature, we see them somewhere in between 6% and 8% margin. And then as they move towards maturity, they usually are in the low double digits and sometimes get as high as the low teens. And what I can share with you is that the historical averages continue to be consistent with what we're seeing as those facilities kind of graduate through those cohorts. Benjamin Rossi: Great. And then if I could just sneak in one last one here. Just on the Medicaid rate development. Just thinking about rate development going into next year, how are you modeling growth relative to your historical trend at maybe 2% year-over-year? And what are any of your maybe embedded assumptions for the Medicaid supplemental program? And then for maybe some of the larger states like California, South Carolina or Washington, are you hearing any updates from your state counterparts on how they're factoring some of the related policy changes from the OBBBA as part of their budgeting? Joshua Jergensen: Yes. Medicaid is something that we keep a very close eye on. And Ben, obviously, you do as well as you're knowledgeable in asking the right questions. One of the things that we do in the acquisition process is we ensure that we're evaluating the states from a number of different perspectives. And one of those is identifying reimbursement associated with the state Medicaid programs and targeting opportunities where we feel like the reimbursement is modeled in a way where our model of taking a higher acuity patient is actually rewarded and appropriately reimbursed. And so you see from some of the growth in states like Oregon and Washington, California that have quality incentive programs, Texas that has that. There's a number of states that we look at where we're identifying that program, how it's reimbursed. And one of the things that we've identified as well is a case mix component to the Medicaid program, where essentially you're capturing patient acuity levels. So in a state like Kentucky and Ohio, where we've recently done some acquisitions in Ohio, the case mix allows a provider to be rewarded for taking a more clinically acute and complex patient. And most -- many providers shy away from going into states like that because their model isn't based on educating, training, building confidence in the clinical staff to take on those patients. And so each of the states that we've entered into in this last year, we actually feel incredibly good about the Medicaid basis and programs and our ability to have an impact on those and ensure that not only our skilled patients and revenue flowing to the bottom line, but also on the Medicaid front being rewarded for the patients that we're taking. And so you'll see that in the growth that we had in 2024 that we particularly identified states that we felt strong about their Medicaid programs. Operator: Our next question comes from Ben Hendrix with RBC Capital Markets. Benjamin Hendrix: Great. Thanks, guys, and great to have you back. Just a quick question about your local market strategy. You guys have talked extensively about the local market model, the ability to form really strong referral relationships in those models and how that helps with your payer relationships, too. Just wanted to talk a little bit about how those relationships in the various markets kind of fared across the audit process and if there were any changes that you had to make with regard to some key referral sources or key payers in your various markets and how those relationships held up through this process? Jason Murray: Yes. Ben, good to talk with you. So Jason here. So I think that's one of the beauties of the model that we have where it's locally led, centrally supported, that model where administrators and we try to keep health care local, administrators making decisions locally to support their patients and their staff as well. And I think what that means is they also have the ability to adapt to the local needs of that particular market. I think over this last year, we've seen our model shine amidst very challenging times to operate. What I would point to is our census numbers. You look across our portfolio, we have very strong census numbers, and I think that's a key indication that we are the provider of choice in the markets where we operate. So as we evaluated that very closely and kept track of those KPIs very closely over this last year, it was evident that our model works and that our people are special, and they have the ability to execute even in the challenging times that we were working through. It was inspiring to see, frankly. And so I would say that those relationships continue to be strong in the markets where we operate, and that's something we're very proud of. Benjamin Hendrix: In light of some of the operational changes you put into place as a result of the audit, are there any change in thinking about the types of M&A targets you're looking at, specifically how you're thinking about balancing deep turnaround opportunities like what you discussed in Colorado in your prepared remarks versus like another Signature, for example, which may be already performing well. Any thoughts on how you're balancing those opportunities? Jason Murray: So I think the short answer is no. As far as we evaluate deals, we continue to use the same discipline that we've used historically, which is we have a group of team members that consist of our investment committee. And that group meets regularly, and we talk through and evaluate deals. And as we work together as a committee, as we underwrite those opportunities, we ultimately settle on a decision there. And that structure has been a part of our company for a while now. And I think what that does is it provides the appropriate levels of control to make sure that we're doing good deals and staying disciplined with that. And so as we continue to use that same structure to vet deals, we anticipate that we'll continue to take deep turnarounds. Like I shared in the anecdote in my narrative, we feel very good about who we are as a company. And we like to think that we are very good at what we do. And I think that is an indication in the examples that we provided to take facilities that are struggling clinically and ultimately financially as well and to deploy our model into those and to breathe new life into those facilities and to see them transform and to see the quality metrics improve, that's incredibly rewarding for us. And so we will continue to do that moving forward in a very disciplined manner like we have historically. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to Jason Murray for closing remarks. Jason Murray: Yes. Thank you, operator, and thank you all again for joining us. Have a nice rest of your day. Operator: This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Good day, everyone, and welcome to the Vivos Third Quarter 2025 Conference Call. [Operator Instructions] This conference call is being recorded, and a replay of today's call will be available on the Investor Relations section of Vivos' website and will remain posted there for the next 30 days. I will now hand the call over to Brad Amman, Chief Financial Officer, for introductions and reading of the safe harbor statements. Please go ahead, sir. Bradford Amman: Thank you, Constantine. Hello, everyone, and welcome to our conference call. A copy of our earnings press release is available on the Investor Relations section of our website at www.vivos.com. With me on the call today is Kirk Huntsman, Vivos' Chairman and Chief Executive Officer. Today, we'll review the financial results for the third quarter of 2025 as well as more recent developments and Vivos' plans for the rest of 2025 and beyond. Following these formal remarks, we'll be happy to take questions. I would also like to remind everyone that today's call will contain certain forward-looking statements from our management made by -- made within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended concerning future events. Words such as aim, may, could, should, projects, expects, intends, plans, believes, anticipates, hopes, estimates, goal and variations of such words and similar expressions are intended to identify forward-looking statements. These statements involve significant known and unknown risks and are based upon a number of assumptions and estimates, which are inherently subject to significant risks, uncertainties and contingencies, many of which are beyond the company's control. Actual results, including, without limitation, the results of Vivos' growth strategies, operational plans, including sales, marketing, distribution, medical sleep provider acquisition and integration, research and development, regulatory initiatives, cost savings plans and plans to generate revenue as well as future potential results of operations or operating metrics, such as the potential for Vivos to achieve future positive cash flows or profitability and other matters to be addressed by Vivos management in this conference call may differ materially and adversely from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the risk factors described and other disclosures contained in Vivos' filings with the Securities and Exchange Commission, including the risk factors and other disclosures in our Form 10-K for the year ended December 31, 2024, and our other filings with the SEC, including our third quarter 2025 Form 10-Q filed with the SEC today, all of which are or will be accessible on the Investor Relations section of Vivos' website as well as the SEC's website. Except to the extent required by law, Vivos assumes no obligation to update statements as circumstances change. Finally, please be aware that the U.S. Food and Drug Administration has given certain specific Vivos appliances 510(k) clearance to treat mild to severe OSA with the FDA clearance of certain Vivos products for severe OSA in November of 2023. Treatment of patients with severe OSA with these specific appliances is no longer needed to be performed off-label at the clinical discretion of the treating doctor and is now an integral part of the Vivos treatment protocol. Treatment of OSA of any severity or any other condition with any other Vivos FDA-cleared devices remains at the clinical discretion of the treating doctor. For further information on our results for the 3- and 9-month periods ended September 30, 2025, please see our earnings release, which was distributed earlier today and our quarterly report on Form 10-Q, which is available on the SEC filings portion of the Investor Relations section of our website. With that, I'll now review our financial results for the quarter. We are very excited about our results of operations for the third quarter of 2025, which show the outcome of our first full quarter of activity following our June 10, 2025, acquisition of the Sleep Center of Nevada or SCN. The message from our numbers is very clear. The pivot to our sleep medical practice acquisition and strategic alliance model is taking hold. For the third quarter of 2025, revenue increased 76% to $6.8 million compared to $3.9 million in Q3 2024 and 78% sequentially versus second quarter of 2025. The increase in total revenue during the quarter reflected an additional $2.7 million in service revenue and approximately $200,000 in additional product revenue. During the quarter, we saw a $2.2 million increase in OSA sleep testing services, primarily generated by SCN and $1.3 million generated from treatment centers launched at 2 SCN locations in Las Vegas. You will see this new treatment center revenue broken out separately in our financial statements. Because of SCN, this is our first time we are recognizing this kind of revenue. Our revenue growth was offset slightly by a decrease of $800,000 in VIP enrollment revenue from our legacy business model. We are pleased to see that VIP enrollment revenue is becoming increasingly less material to our company as our new model grows, and we are expecting to be finished with recognizing any such legacy revenue by the end of 2026. For the 9 months ended September 30, 2025, our revenue increased approximately $2.3 million or 20% to $13.6 million compared to $11.3 million for the 9 months ended September 30, 2024. The increase in total revenue was impacted by an increase of approximately $2 million in service revenue and $300,000 in product revenue. The increase in services revenue is attributable to $2.8 million in sleep testing services, primarily generated by SCN and $1.6 million of new treatment center revenue. This was offset by a decrease of $2.6 million in VIP revenue from our legacy business model, which is -- which as noted, we continue to wean off of. For the 3 months ended September 30, 2025, cost of sales increased $1.3 million or 87% to approximately $2.8 million compared to $1.5 million for the 3 months ended September 30, 2024. This was expected and primarily attributable to higher costs associated with key investments we made in integrating SCN, including $0.5 million related to appliance, pediatric and lifeline fees, $400,000 related to SCN operations, $300,000 increase in support costs for the treatment centers, such as staff compensation and financing fees and a $100,000 increase in software and medical reporting services. For the 3 months ended September 30, 2025, gross profit increased approximately $1.6 million to $3.9 million. This increase was attributable to the increase in revenue of $2.9 million, offset by an increase in cost of sales of $1.3 million. Gross margin increased slightly to 58% for the 3 months ended September 30, 2025, compared to 60% for the 3 months ended September 30, 2024, due to the higher increase in cost of sales as a percentage of revenue. For the 9 months ended September 30, 2025, cost of sales increased $1.7 million or 37% to $6.1 million for the 9 months ended September 30, 2025, compared to $4.4 million for the comparable period in 2024. This again reflects our investment in SCN, as I noted. For the 9 months ended September 30, 2025, gross profit increased $600,000 to $7.6 million. This increase was attributable to the increase in revenue of approximately $2.3 million, offset by an increase in cost of sales of $1.7 million. General and administrative expenses increased by approximately $5.7 million or 42% to $19.2 million for the 9 months ended September 30, 2025, as compared to $13.5 million for the same period last year. The primary cause of the increase was approximately $2 million in costs associated with running SCN operations, $1.6 million related to professional fees, $1.1 million associated with salaries and wages on additional personnel, infrastructure costs of $600,000 and equipment, repairs and maintenance of $200,000. Other expense increased by $600,000 and $800,000 for the 3- and 9-month periods, respectively. Our net loss increased to $5.4 million in Q3 and $14.3 million for the full 3 quarters of 2025, reflecting the higher costs associated with our business model pivot. During the first 9 months of 2025, we used $1.7 million more in cash in operations and $5.5 million more in investing activities compared to the comparable periods in 2024, largely due to our acquisition of SCN and increased net loss. We also secured both debt and equity financing, providing us with $14.2 million in net cash from financing activities. The equity financing in 2025 came from an affiliate of our existing significant investor, Seneca Partners. As of September 30, 2025, our balance sheet showed total liabilities of $23.1 million with cash and cash equivalents of $3.1 million and stockholders' equity at $2.5 million. In summary, we're seeing significant increases in revenue, reflecting the acquisition of SCN and related OSA diagnostic and treatment revenue, which is extremely encouraging. We are also seeing some increased costs from the hiring of SCN personnel on the diagnostic side and additional hiring on the treatment side, plus some noncash depreciation expense. We've learned a lot from our first quarter of operating SCN, and our goal will be to drive growing revenue by meeting the significant demand from OSA patients we are seeing while better understanding and prudently managing costs as we have historically. We believe the strategic move to acquire SCN and other potential affiliate alliances and acquisitions set the stage for stronger performance in coming quarters. For more detailed information, I refer you to our earnings release and in our first full Form 10-Q filed today. And with that, I'll hand the call over to our Chairman and CEO, Kirk Huntsman, for his thoughts on our Q3 performance and what it means for the future of Vivos. Kirk? R. Huntsman: Thank you, Brad. Good afternoon, everyone, and thank you for joining us on today's conference call. The third quarter of 2025 will go down in the history of Vivos as a watershed quarter and an inflection point in the trajectory of our business. It is this latest quarter that first signaled our company's ability to monetize on a potentially large scale our life-changing technology for treating sleep-related breathing disorders such as obstructive sleep apnea. Here at Vivos, we have firmly believed for many years that we possess the most innovative, most clinically effective, most cost-effective, most safe, the most preferred and easiest-to-use treatments for OSA in the world. And we backed up those beliefs with literally dozens of peer-reviewed published studies in both medical and dental journals around the world. Time after time and study after study, Vivos' novel and proprietary oral medical devices have been shown to be safe and highly effective in treating OSA. In a landmark study first published in 2022, independent researchers revealed actual clinical results showing complete nonsurgical resolution of OSA symptoms using industry standard metrics in adults after just 10 months of Vivos treatment, and with no need for further intervention. To our knowledge, no one had ever before shown such amazing clinical results. Many of those studies were authored by some of the leading researchers and clinicians from universities and hospitals like Stanford and Mount Sinai . Regulators at the FDA and other international agencies also took note. And over the past dozen years, granted this company multiple unprecedented clearances, thereby opening the door for Vivos to compete head-to-head on with the medical industry's 40-year-old and much maligned gold standard treatment of CPAP. Today, Vivos CARE oral medical devices are the only oral appliances in the world that are FDA cleared to treat severe OSA in adults and moderate to severe OSA in children. Ironically, over the past 5 years or so, that same FDA has recalled millions and by some accounts, as many as 10 million CPAP units here in the United States because of over 560 reported deaths and over 130,000 adverse health incidents potentially caused by CPAP use. A recent study just showed that prolonged CPAP use actually increases the risk of adverse cardiovascular events. Yet despite all those warnings, CPAP remains the go-to first-line treatment option for up to 95% of patients first diagnosed with sleep apnea. It is difficult to imagine a more perfect scenario or market timing for Vivos. Our technology is clearly superior to virtually every other option for most people. And based on our experience in Las Vegas and elsewhere, it is widely preferred by a large majority of patients over its primary competition, which virtually no one really wants to use every night for the rest of their lives. So we have the right patented and FDA-cleared products or technology, and we have a large and growing market to service. Our challenge has always been figuring out the best way to get our breakthrough solutions into the market. And we believe this past quarter's results show that we've struck upon the right model to do just that. Our strategic pivot away from a reliance on dentists and towards more direct affiliations with or acquisitions of medical sleep practices and testing centers was designed to put Vivos technology and solutions in front of far more OSA patients while yielding a higher financial return to our company. We see these third quarter results as a validation of our core thesis, which was that when OSA patients are fully informed and presented with the full measure of clinical treatment options, a large majority will choose Vivos over the alternatives, including CPAP. Now to briefly review how we got here. In June, we closed on our acquisition of Sleep Center of Nevada. This group medical practice in the Las Vegas area specializes in a full range of in-lab and home sleep testing solutions with corresponding sleep study interpretations and consultations. Historically, SCN did not venture into the treatment aspect of things, but a large majority of their patients were referred by SCN medical professionals for CPAP and a small minority were referred for traditional oral appliance therapy. One important factor here behind our success to date at SCN has been that the level of cooperation and buy-in from the existing SCN medical team and support personnel in Nevada has exceeded our expectations. In fact, 2 of the lead sleep MDs at SCN and their families were among our very first patients. Having the full and unwavering endorsement of the medical team at Sleep Center of Nevada who have been waiting for a viable alternative option for CPAP to CPAP or surgical solutions for their patients has been critical to the ultimate success of our model. As a result of the SCN acquisition, Vivos established what we call Sleep and Airway Medicine Centers or what we call SAMC centers in 2 locations, one being co-located in the same building as SCN's flagship center, which we call Charleston; and the other in Henderson, Nevada, a Las Vegas suburb. The purpose of these operations was to educate and evaluate SCN's patients for treatment and provide them with whatever treatment option they might choose. Our SAMC clinics there are staffed by what we call our sleep optimization teams of medical, dental and specially trained providers and staff. These teams are at the heart of our new model and are driving the revenue growth we experienced in the third quarter. Now, early in the third quarter, we realized that the demand for SAMC services was far outstripping the production capacity of our SAMC centers and teams. We, therefore, immediately moved to expand the facility at Charleston and relocate the facility at Henderson. Concurrently, we recruited, hired, trained and deployed additional sleep optimization team members as rapidly as we could. These efforts have proceeded ahead of schedule and under budget. However, the costs associated with such growth are immediate and occur for up to 60 days or more prior to when the first patients can be seen and revenue production can kick in. This reality has impacted our third quarter results by showing higher-than-normal expenses relative to recognized revenue. In addition, as Brad mentioned, every day we are learning lessons on the ground that over time will help us optimize existing and expanded operations. This includes things like the time it takes to assemble teams to service demand, train those teams and obtain in-network insurance coverage. We are applying these lessons and thus, we expect that revenue growth in the coming quarters will outpace expenses as we more fully deploy these new teams into 2026. We believe we are currently servicing significantly less than 40% of the potential new patients being tested each month at Sleep Center of Nevada. We believe there are even more legacy SCN patients out there who are either dissatisfied with their CPAP units or who have discontinued their CPAP treatment altogether and are looking for alternatives. Well over 210,000 OSA patients have been tested and seen by SCN providers since 2019. And as of now, we have not even begun to address that deep well of patients. As of today, this overall excess in patient demand for appointments and services has us booking patients out into the latter part of February 2026. Ideally, patients should expect no more than to have to wait 2 to 3 weeks out for their next visit in order to maintain momentum and enthusiasm for treatment. So our operations and HR teams have been working very hard to expand our production capacity there in Las Vegas. As I just mentioned, we've expanded our facilities and significantly increased the size and number of our teams in order to more efficiently handle this demand with more to come. In addition, after some great work by our SCN sales staff, a local and very large cardiology practice with multiple locations has recently been referring many more cardiology patients than they were earlier in the third quarter, adding to the congestion and making the urgency of our expansion efforts even more acute. As our capacity expands and based on current trends, we anticipate that this cardiology practice could eventually refer several hundred patients per month. If that proves successful, that funnel may in and of itself become yet another avenue for us to deliver turnkey sleep disorder treatment options to large clinical groups, whether they be primary care, cardiology, neurology, pediatrics, internal medicine or even OB/GYN doctors. Each of these medical specialties regularly deals with patients who have OSA or another sleep disorder. Through our SAMC model, Vivos is very well positioned to meet those needs in a win-win relationship that is expected to be highly accretive to Vivos. So in terms of our current revenue-generating capacity in Nevada, we have been somewhat constrained to date by the number of fully licensed and credentialed dental providers on our sleep optimization teams. We currently have a number of new dentists and nurse practitioners in the onboarding process, and we expect to have sufficient providers fully licensed and well on their way to being fully credentialed in the first part of 2026. There is a usual and customary credentialing process that all new providers must go through with third-party insurance payers. We are actively working with the payers and our consultants to expedite that process, which typically takes anywhere from 2 to 6 months depending on the payer. Certain payers have recently consented to us billing out the codes we need to optimize coverage and reimbursement. So we do see progress along those lines. Now as we have been saying for some time, OSA patients who have either failed CPAP or who have just been diagnosed have been accepting Vivos treatment at high levels. This has happened despite many patients not always having full coverage from their insurance payer. In Las Vegas, for example, just under 2/3 of SCN patients who are presented with a full array of clinical treatment options choose some form of Vivos oral appliance treatment with an average dollar amount per case just over $5,000. Most patients are paying at least some of those amounts out of pocket or with the help of third-party financing. We expect that dollar value per case to rise further as we continue to add diagnostic and therapy services and as our staff gains valuable experience in explaining and presenting treatment options. As mentioned in our 10-Q filed today, we have several initiatives planned for 2026 and beyond, which have the potential to further increase the number of OSA patients we can service in both current and new markets. Such initiatives include, but are not limited to, the expansion of diagnostic and treatment services, the establishment and rollout of a pediatric OSA program and the collaboration with certain specialty medical groups like the cardiology practice there in Nevada that I mentioned earlier, who treat patients with comorbid OSA, but who lack the ability to test, evaluate and treat such patients within their existing practice environments. In addition to our acquisition model, like we have with SCN in Las Vegas, Vivos has developed and refined a new collaboration affiliation model for sleep centers not interested in being acquired outright. Under our refined affiliation model, Vivos retains full operational control over the patient experience and the provision of treatment through its managed clinical practices while collaborating with the local sleep clinic to ensure patients receive the full array of OSA treatment options. These health care delivery operations have been properly structured and reviewed by legal counsel to ensure full compliance with both state and federal health care laws. We've already put this refined collaboration model into practice. In July, Vivos executed an agreement with MISleep LLC, a Michigan sleep specialist entity engaged in sleep testing and OSA treatment in the Greater Detroit area. We expect to have this fully operational and seeing patients by the first week of December with one nearly complete sleep optimization team already trained and ready to begin seeing patients and with the potential for additional teams to be deployed in 2026 according to demand. We believe this new model corrects some of the issues we faced with our first strategic alliance in 2024 here in Denver, and we believe it will be very attractive to sleep center operators and owners who may not want to be acquired by us, but are looking to grow their business and referral networks by offering a highly differentiated treatment package to their OSA patients. Our M&A team continues to field phone calls and inquiries from both acquisition and affiliation prospects around the country. We are currently in negotiations with several potential candidates in various key markets. Given our experience with SCN, we believe these opportunities should be similarly accretive. In summary, we believe this initial success at SCN is a strong indication of the potential and upside of our business. As we roll forward, we expect to continue to modify and refine our model to make it even more efficient with the potential for even better gross margins. Furthermore, we expect that this model and in particular, our affiliation model is highly replicable and scalable across multiple markets. Although these third quarter results are early returns and without diminishing the headwinds that remain, we firmly believe this new model will continue to be highly accretive to top line revenue growth, which will, in turn, reduce our cash burn and move us closer to bottom line profitability. We believe that this methodical effort patiently executed over time has now put Vivos in a much better position to realize the full potential of our technological advantages and industry-leading products and services. And that concludes our prepared remarks. Now we'll be happy to take questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Lucas Ward from Ascendiant Capital Markets. Lucas Ward: Congrats on the quarter. So now that we have this acquisition in the mix, how should we model sales for the next few quarters? Like what's the growth potential? R. Huntsman: Well, I would say, Lucas, that we expect the revenues, the top line revenues to continue to grow. We are not yet anywhere close to full capacity for our teams that are out there right now. The key element here is the addition to our teams of the dental providers and the nurse practitioners. These providers are where the -- they're the source of revenue-generating activities. And so as we now have several new doctors and new nurse practitioners in the queue, for both licensing and credentialing, then we're going to continue to see that revenue growth grow rather dramatically. And we do believe that as those providers are deployed, that what you're going to see is you're going to see the proper settling out of and sort of rightsizing between our expenses and our revenues. And as we tried to say a minute ago, we've been carrying additional expenses here even in the third quarter, we've been carrying expenses beyond what would be what I would consider steady-state operational levels. And that's just because we had to hire -- you have to hire in advance and then you deploy it and then you get the revenue boost after you deploy it that rationalizes your expenses, your cost of labor. Lucas Ward: Okay. So okay. So there's an upfront investment in personnel and then sort of a delayed benefit in terms of revenues. Like how big is that gap? Is it a quarter or 2? R. Huntsman: It will be -- it's a little bit of a -- there's a ramp. And that ramp is probably going to be depending on how quickly we get our doctors licensed and credentialed, it's probably a 3- to 6-month ramp. But it's not like we can't start generating revenues. In most cases, we can start generating -- we have providers in place. We just don't have the optimal number of providers. So we're leaving money on the table until we can get our provider teams built up and credentialed. And so that's where that comes. But I would say for most -- in most cases, to get to full optimized revenue levels, I would give it a 6-month ramp. Lucas Ward: Okay. And then in terms of the additional operating expenses that we saw in this quarter, presumably some of that was sort of onetime or acquisition related. I'm just wondering like what would be reasonable in terms of operating expenses like next quarter or the quarter after? R. Huntsman: Well, if you look at the way that we have structured these SAMC operations, our SAMC operations at steady state should be throwing off contribution margins of 50% to 60%. And so that's our model. That's what we're expecting and anticipating. And there's nothing that's happened thus far to dissuade us from that analysis. We had that analysis going in. We're now 3 or 4 months along. There's nothing that dissuades us from that. So if you -- when you get in your model, when you get to steady state and you assume contribution margins of roughly 50%, 55%, you're going to be right there with where we expect to see these things operate long term. And then as we continue to experience excess demand, we'll be expanding the number of teams in order to meet that demand in each market. Lucas Ward: Okay. Okay. Last question on cash flow breakeven, can you give us an update on your -- kind of your goal there? R. Huntsman: Well, our goal is cash flow breakeven. I mean, there's just no question about it. And I don't mean to be -- I don't mean to take that question lightly. But we are -- the ability to generate profit at the practice level from these SAMC centers is directly tied to our abilities to generate cash flow breakeven. Now, we have expanded our home-based infrastructure in our accounting teams, and our IT infrastructure and our personnel so that we can handle this growth. So there's been some additions to our team that are -- that we think are essential to us being able to properly manage and handle this growth. But eventually and not too far down the road, the accretion of profits and revenues from our SAMC center operations will basically turn the corner, and we will see this company get to cash flow breakeven. I hesitate to say exactly when that will happen, but the further out that we get, the more of these affiliations and acquisitions that we do, the closer we will be to cash flow breakeven. Operator: [Operator Instructions] Your next question comes from the line of Robert Sassoon from Water Tower Research. Robert Sassoon: Exceptional quarter. A question, under the new business model and with revenues on the rise, how should investors look at the company now and in 6 months from now? R. Huntsman: Well, that's a great question. And I think the answer to that, Robert, is that, look, we have waited for nearly 9 years in this company to actually settle in on a model that was equal to the technological advantages that our product line had. To be able to finally find that model and to monetize it, that's why we're so enthusiastic about this. But the full measure of what this model is going to do for this company is still down the road. I mean, it's still going to continue to grow. I mean, we're thrilled by these results. Don't get me wrong. But the -- the best is yet to come. And so we see this as just the very first stage of a long march towards profitability and expansion and growth because this model is replicable, it's scalable, and we can take this model and apply it in virtually any market in the United States and then beyond. So as I think about this from an investor standpoint, I mean, when you look at the valuations that our company has in the market right now and relative to what's actually happening here on the inside of this company, I think the potential for continued growth is just extraordinary. And so -- I mean, obviously, I'm biased, but I would say that as an investor, you should continue to watch for what's happening and what we report in the months and weeks ahead. What we report about how much progress we're making with new affiliations. I mean, we talked a little bit about this exciting new opportunity with medical specialty groups. We are really excited about the potential for actually working right alongside cardiology and neurology practices, in particular, because they have a very acute interest in seeing that their patients who have obstructive sleep apnea somehow find a way to get tested and treated for that sleep apnea and nobody is filling that void right now. And so we feel like we have a value proposition and a technology that can actually do that. And it's a very low-cost way for us to get -- to deploy teams and get involved with them and satisfy that need. So what I would say is that over the next 6 months, 9 months, 12 months, watch and see how many affiliations we're doing and the progress of our current affiliations as a sort of a bellwether indicator of what's to come because these deployments, these SAMC centers and these other teams that we have, all of that is highly accretive revenue, both top line and contribution margin to our bottom line. So it's really -- we finally found a way to monetize this in a very, very effective way. So I think this is really -- as I mentioned in my opening statement, I think this is a true inflection point for this company and that the future is very bright from that respect. Robert Sassoon: That sounds like a very interesting development. We'll definitely monitor that. Maybe a question to Brad. How does the recognition of revenue differ between the various models? Bradford Amman: Great question, Robert. In the case of an acquisition like SCN, our new model allows us to capture sales at the point in time when shipment of the related product occurs as well as OSA diagnostic and treatment revenue. In the case of contractual alliances, through varying arrangements, we capture revenue from appliance sales as principal in the transaction. And depending on the agreement, either pay a fee or split gross profit or net income with sleep medical provider affiliate. R. Huntsman: Operator, there are no further questions? Operator: Yes, we do have no further questions at this time. So I'd like to turn the call back to Mr. Kirk Huntsman for closing comments. Sir, please go ahead. R. Huntsman: Thank you, operator. Well, I would just like to thank everyone for joining us on today's call. And again, thank you for your continued interest in Vivos Therapeutics. This is obviously a very exciting time for Vivos as we begin to reap the fruits of our business model pivot. We look forward to sharing our continued progress with you as we continue to execute on our plans during the remainder of 2025 and into the next year. Thank you all, and have a very good evening. Thank you very much. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
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 Williams-Sonoma, Inc. Third Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jeremy Brooks, Chief Accounting Officer and Head of Investor Relations. Please go ahead. Jeremy Brooks: Good morning, and thank you for joining our third quarter earnings call. I'm here today with Laura Alber, our Chief Executive Officer; Jeff Howie, our Chief Financial Officer; and Sameer Hassan, our Chief Technology and Digital Officer. Before we get started, I'd like to remind you that during this call, we will make forward-looking statements with respect to future events and financial performance, including our updated guidance for fiscal '25 and our long-term outlook. We believe these statements reflect our best estimates. However, we cannot make any assurances these statements will materialize, and actual results may differ significantly from our expectations. The company undertakes no obligation to publicly update or revise any of these statements to reflect events or circumstances that may arise after today's call. Additionally, we will refer to certain non-GAAP financial measures. These measures should not be considered replacements for and should be read together with our GAAP results. This call should also be considered in conjunction with our filings with the SEC. Finally, a replay of this call will be available on our Investor Relations website. Now I'd like to turn the call over to Laura. Laura Alber: Thank you, Jeremy. Good morning, everyone, and thank you for joining the call. I'm excited to talk to you about our third quarter. First, I'd like to take a moment to thank our team for their continued hard work. Everyone at Williams-Sonoma, Inc. has been focused on our key 3 priorities this year, which are returning to growth, elevating customer service and driving earnings. And that focus continues to drive our results. We are proud to deliver strong results in the third quarter of 2025 with an accelerating positive top line comp and continued outperformance in our profitability. In Q3, our comp came in above expectations at 4%, driven by another quarter of positive comps across all of our brands, and we continue to deliver on the bottom line despite the substantial tariff headwinds. Our operating margin came in at 17%, expanding 10 basis points with earnings per share of $1.96, growing 5% year-over-year. We are encouraged by our continued strong year-to-date performance through Q3 and are confident in our outlook for Q4. And therefore, we are reiterating our outlook for the full year comparable brand revenue growth to be in the range of 2% to 5%, and we are raising our bottom line guidance 40 basis points to an operating margin of 17.8% to 18.1% versus 17.4% to 17.8%. We drove this improvement in performance despite continued geopolitical uncertainty and no substantive improvement in the housing market. And we continue to gain market share and outperform the industry, which declined again in Q3. Our continued strong results reflect the power of our operating model, industry-leading channel experiences and strong portfolio of brands. We continue to see exceptional performance in our retail channel, which ran a positive 8.5 comp in Q3. Retail continues to benefit from an improved in-store experience with more inventory availability, enhanced design services and events and the opening of 14 beautiful newly remodeled or repositioned stores so far this year with 7 more to come in Q4. This investment is paying off with almost all of them beating the performance of the prior location. Our stores service brand billboards, and we believe a refreshed store improves customer perception of our brands. As we move into the final quarter of 2025, I want to highlight the specific progress we've made on our 3 key priorities. Starting with growth, our core brands continue to deliver strong results from positive momentum in furniture. Our focus on innovation has driven strong and improving furniture comps. Additionally, we are focused on incremental growth categories like Pottery Barn Dorm and West Elm Kids. We're also broadening our reach through strategic collaborations. These initiatives attract new customers while keeping our brands fresh and relevant. Our B2B business also remains an important growth engine, up 9% this quarter with strength in both trade and contracts, and our emerging brands, Rejuvenation, Mark and Graham and GreenRow continue to perform exceptionally well. Together, they delivered a double-digit comp, and we're excited to have recently opened our 13th Rejuvenation store in Salt Lake City. This year, we're also very proud of our improvements in customer service. We are committed to flawless execution delivering orders on time, damage-free every time, and we're proud that this year, we have record metrics. We're focusing on furthering our improvements through fewer split shipments and faster fulfillment. Finally, our third key priority, driving earnings. Our focus on revenue growth, elevating customer service and maintaining cost discipline has delivered strong earnings with our year-to-date earnings per share growing 5% in a very tough tariff environment. Also in Q3, we used AI as a key business driver to accelerate our strategy. Across our portfolio, AI-powered chat experiences are now live for all brands, providing customer service, delivery support and product guidance. These agents are improving speed, consistency and satisfaction, and we are now resolving over 60% of chats without human assistance, reducing handle times from 23 minutes to just 5. Another notable milestone this quarter was the launch of Olive, our new AI culinary and shopping companion for the Williams-Sonoma brand. Olive helps customers plan, cook and shop with confidence combining our culinary authority with cutting-edge technology to create a differentiated experience. What makes Williams-Sonoma, Inc. unique is how AI can amplify our differentiated foundation with our proprietary data, our vertical integration from design to delivery, our multichannel engagement and our expertise in home design in the culinary space. Our strong balance sheet, coupled with our tech capabilities allows us to apply AI in ways that can drive real scalable impact for our business that others cannot. Looking ahead, we see opportunity to drive down costs and drive up sales with AI, and our early results are reinforcing that confidence. We're using AI to enhance what we do best, guiding customers through shopping and design decisions. Additionally, AI is driving improvements in productivity and empowering associates with tools to amplify their creativity and expertise. Now I'd like to update you on tariffs. Since we last spoke, there have been notable changes in tariffs, such as a new tariff on some furniture, including imported upholstery kitchen cabinets and bath vanities. And now the 20% additional China tariff are down from 30%. Net-net, these changes are a push to our current estimated impact. As we look forward to the future, predictability in the tariff environment and a reduction in the India tariff would certainly be a positive for us. In the meantime, we continue to be actively and aggressively mitigating what we can with our previously discussed 6-point plan. To remind you, first, we are obtaining cost concessions from our vendors. Second, we are resourcing goods to get the best cost for our customers. Third, we're identifying further supply chain efficiency. Fourth, we are controlling costs. Fifth, we are expanding our Made in USA assortment, production and partnerships. And last, we are taking select price increases with a focus on maintaining competitive pricing. Now let's review our brands. Pottery Barn ran a positive 1.3% comp in Q3. We are pleased with the improvement we saw in large ticket, including furniture, upholstery and lighting. Our Pottery Barn stores continue to outperform, led by our standout design and crew services and our increased take at home today assortment. Our strategy of focusing on improving retail inventory availability, refreshing product assortments and enhancing design services is working. We have opened 6 beautiful new remodels or repositioned Pottery Barn stores so far this year with 3 more to come in Q4. Finally, across the brand, we continue a major change that we have made all year, which is to substantially reduce promotions in Pottery Barn. Now I'd like to talk to you about our Pottery Barn children's business, which ran a 4.4% comp in Q3. We saw acceleration in furniture fueled by successful new product launches, continued growth in collaborations and back-to-school and Dorm was a particular highlight in the quarter. In fact, back-to-school delivered double-digit growth, an acceleration from Q2. Our brands have become a destination for high-quality study solutions, durable backpack and on-trend dorm decor. Additionally, our enhanced dorm design tools and pickup near campus options have been important for gaining share in a very fragmented market. Now let's review West Elm. West Elm ran a positive 3.3% comp in Q3. We continue to make progress against the brand's 4 key pillars: product, brand heat, channel excellence and operational efficiency. Throughout the year, West Elm has brought in new successful collections in both furniture and nonfurniture, where the brand was previously underdeveloped. West Elm has significantly shifted the composition of their sales towards new products and the cumulative effect of new introductions since the fall of last year continues to produce results. Retail in West Elm was also a highlight due to improved in-stocks and more new furniture and more new fabrics displayed on the retail floor. And we've opened 2 beautiful new remodels or repositioned West Elm stores so far this year, with 1 more to come in Q4. To remind everyone, we have 119 stores in West Elm. And based on results, we are looking forward to returning to retail unit growth in this brand. As you can hear, we are quite excited by the momentum at West Elm. Now let's review the Williams-Sonoma brand, which continues to fire on all fronts and we had a positive 7.3% comp in Q3. Williams-Sonoma remains focused on premium quality products that are expertly crafted combining style and functionality. In Q3, we celebrated many successful culinary stories from the food and flavors of Spain to authentic Indian flavors through a collaboration with Palak Patel, Founder of The Chutney Life. We also recently launched a Wicked Collection featuring limited-edition Le Creuset Dutch ovens inspired by Elphaba and Glinda. And as we continue to connect our customers to the world's best chefs and products, we are seeing great traction with in-store events. Across the country, we hosted 42 in-store book signing events in Q3. We welcome the fans of celebrities and celebrity chefs like Neil Patrick Harris, David Burke and Melissa King into our stores for amazing cooking demos and cookbook signing. Finally, we've opened 6 beautiful new remodeled or repositioned Williams-Sonoma stores so far this year with 2 more to come in Q4. Now I'd like to update you on B2B, which grew 9% in Q3 with both trade and contract delivering strong comps. Leveraging our design expertise and commercial-grade product assortment, we've built a strong and growing client base across multiple industries. Our B2B offering remains a powerful differentiator, and we are seeing continued momentum. Our biggest success story in Q3 was an increase in commercial workspace wins, including projects with Google, WeWork, TurboTax and PayPal. Q4 brings the ramp-up of our growing corporate gifting program, including our leading assortment of quality giftables that can be customized with logos and company branding. We're also a destination for seasonal favorites that make a perfect client and employee holiday gift, if any of you need help. Now I'd like to update you on our emerging brands. With our proven ability to incubate and scale brands in-house, we are confident in the continued growth of our concepts and their ability to deliver profitability to our results. Rejuvenation delivered strong double-digit comps in the quarter, continuing an upward trajectory fueled by product innovation and category expansion. Our high-quality product offer and proprietary designs are resonating with customers. Both channels are performing well, and we continue to open new retail locations to drive brand awareness. This quarter, we expanded our Rejuvenation store count to 13, with the opening of 2 new storefronts, one in Nashville and one in Salt Lake City. The brand also saw a strong performance from its first ever lighting collaboration. Mark and Graham delivered its best Q3 in brand history, driven by successful new categories, M&G Kids and Bark & Graham as well as continued growth in personalized corporate gifting. As we head into the peak gifting season, the brand is well positioned with thoughtful, personalized gifts for all occasions. I'm also excited to talk about our newest brand, GreenRow, which delivered strong growth this quarter. In Q3, we launched the largest holiday collection to date with handcrafted decor and gifts made from upcycled and natural materials. The brand's colorful and unique products have had a great response and the product line is incredibly beautiful in person. Therefore, we believe retail stores are the next leg of growth at GreenRow and are looking to test a few store locations as soon as possible. Finally, I'd like to share one highlight in our global business. In the U.K., we broadened our brand presence with the launch of Pottery Barn Online and the opening of a pop-up store in our West Elm Tottenham Court Road in London. And so far, we're quite pleased with the performance of Pottery Barn in this new market. In summary, we're pleased with our execution and continued outperformance in Q3 marked by accelerating positive comps and strong profitability. Across the company, we remain dedicated to enhancing our channel experiences and strengthening our brands. Each and every day, we prioritize innovation, product design and exceptional customer service. These are the qualities that set us apart in a fragmented industry and position us to capture additional market share. We see tremendous opportunity to continue to lead our industry as we execute on our vision to own the home and the places where our customers work, stay and play. As we enter the final quarter of the year, we're filled with optimism for a strong finish. This holiday season, we're ready to showcase our best across our stores and online. From all of us, we wish you and your family a joyful Thanksgiving next week and a happy holiday season. Before I hand things over to Jeff, I want to take another minute to express our thanks to our team, our vendors and all of our partners for their ongoing dedication and contributions to our company's success. We appreciate everything they do. And with that, I will turn it over to Jeff to walk you through the numbers and our outlook in more detail. Jeff Howie: Thank you, Laura, and good morning, everyone. Our results this quarter reflect Williams-Sonoma, Inc.'s competitive advantages in the home furnishings industry, including the following: the strength of our multi-brand portfolio across different categories, aesthetics and price points. Our size and scale, providing the ability to drive market share gains as we maximize white space opportunities. The competitive advantage of our multichannel platform, serving customers where they choose to shop online, in-store or business to business. Our focus on customer service and full price selling, creating efficiency and cost savings across our supply chain. And finally, the power of our operating model to deliver highly profitable earnings. Our headlines for this quarter demonstrate these competitive advantages. We delivered positive comps for the fourth straight quarter. Furniture and nonfurniture categories both ran positive comps, reflecting strength across all categories of our offering. White space opportunities, such as Dorm, West Elm Kids and Rejuvenation grew double digits. Retail, e-commerce and business-to-business all drove positive comps. Our supply chain team achieved best-ever results across nearly all customer service metrics while simultaneously improving efficiency and reducing costs. And despite the headwinds from tariffs, we drove operating margin expansion of 10 basis points to 17% and EPS growth of 5% to $1.96 per share. Our results this quarter would not be possible without the team we have at Williams-Sonoma, Inc. I'd like to thank our talented, dedicated team for delivering these outstanding results. Now let's dive into the numbers. I'll start with our Q3 results and then update guidance for fiscal year '25. Q3 net revenue finished at $1.88 billion for a positive 4% comp. All brands delivered positive comps driven by positive comps in both our furniture and nonfurniture categories. We gained market share in the quarter, even as we increased our penetration of full price selling. From a channel perspective, both channels delivered positive comps, with retail up 8.5% comp and e-commerce up 1.9% comp. Moving down the income statement. Gross margin exceeded our expectations, coming in at 46.1%, 70 basis points higher than last year. Higher merchandise margins and supply chain efficiencies drove this gross margin improvement, offset by slightly higher occupancy costs. Merchandise margins delivered 60 basis points of our gross margin improvement, exceeding our expectations. Three factors contributed to this improvement in merchandise margins. First, the impact from tariffs is taking longer than anticipated to flow through to our gross margin. This is due to the delayed effective dates of the tariffs and our aggressive front-loading of inventory before tariff effective dates. Second, we are seeing margin upside from our 6-point tariff mitigation plan, including price increases as well as strong consumer response to our full-price product offering. And finally, lower inbound transportation costs are helping offset tariff costs. Supply chain efficiencies added 30 basis points to our gross margin. Our focus on customer service and in-stock ready to sell inventory is delivering tangible margin improvements from lower accommodations, damages, replacements and out-of-market shipping expense. Occupancy costs were up 5.9% and were 20 basis points higher year-over-year. This was because of our retail outperformance and the higher occupancy costs in that channel. To recap, our gross margin results this quarter exceeded our expectations. Our tariff mitigation efforts more than offset the headwinds from tariffs in the third quarter. Turning now to SG&A. Our Q3 SG&A ran at 29.1% of revenues, 60 basis points higher than last year. Employment expense deleveraged 50 basis points due to higher incentive compensation from our strong results year-to-date. We continue to manage variable employment costs across our stores, distribution centers and customer care centers in line with top line trends. Advertising expenses were 20 basis points higher year-over-year. Our in-house marketing team continues to test and optimize into different levels of spend. During the quarter, we increased our investment in digital advertising after testing and proprietary in-house analytics model indicated we could scale efficiently. The higher spend drove an acceleration in year-over-year site traffic and improved revenue per visit. Our in-house marketing team's ability to test, scale and optimize across our portfolio of brands is a competitive advantage in the home furnishings industry. Finally, general expenses leveraged 10 basis points. On the bottom line, our earnings exceeded our expectations. Despite the tariff headwinds, our operating margin of 17% was 10 basis points above last year and diluted earnings per share grew 5% year-over-year to $1.96. On the balance sheet, we ended the quarter with a cash balance of $885 million with no outstanding debt. We generated $316 million in operating cash flow during the quarter and invested $68 million in capital expenditures supporting our long-term growth. During the quarter, we returned $347 million to our shareholders. We did this through $267 million in stock repurchases and $80 million in dividends. Merchandise inventories stood at $1.5 billion, up 9.6% from last year. Our inventory includes $48 million of incremental tariff costs recorded in inventory as well as $30 million of a strategic pull forward of receipts and lower tariff rates than in effect today. Without this incremental $78 million, our inventory level would be in line with our sales trends. Overall, our inventory levels and composition are well positioned to support our upcoming holiday season. Summing up our Q3. We're proud to have delivered strong results, even as we navigated a challenging tariff environment and historically low housing turnover. Now let's turn to our guidance for fiscal year '25. First, some housekeeping. In the first quarter of fiscal year '24, we recorded a $49 million out-of-period adjustment related to prior year's freight accrual. This benefited fiscal year '24 operating margin results by approximately 70 basis points. Our guidance for fiscal year '25 uses our fiscal year '24 results without the out-of-period adjustment as a comparable basis. Additionally, fiscal year '24 was a 53-week year for Williams-Sonoma, Inc. In fiscal year '25, we will report comps on a 52-week versus 52-week comparable basis. All other year-over-year compares will be 52 weeks versus 53 weeks. On full year '24 results, the additional week contributed 150 basis points to revenue growth and 20 basis points to operating margin. The discrete impact of the additional week on just Q4 '24 was 510 basis points to revenue growth and 60 basis points to operating margin. Now our guidance. Given our strong Q3 results and our outlook for Q4, we are updating our fiscal year '25 guidance. On the top line, we are reiterating our fiscal year '25 net revenue guidance. We expect full year '25 comps to be in the range of positive 2% to positive 5%, with total net revenues in the range of positive 0.5% to positive 3.5% due to the 53rd week impact from last year. Our guidance continues to assume no meaningful changes in the macroeconomic environment or interest rates or housing turnover. Our guide reflects the continued strength in our business, strong customer response to our product lineup and continued traction across our growth initiatives. On the bottom line, we are raising our full year operating margin guidance 40 basis points to a range of 17.8% to 18.1%. This means that despite the tariff headwinds, we are now guiding the midpoint of our fiscal year '25 operating margin to be approximately 20 basis points above last year when excluding the 53rd week impact. Our higher operating margin guide reflects both the strong results we have delivered year-to-date and the expectation that tariffs will have a greater impact on our margins in Q4. Our updated guidance reflects all the tariffs in place as of this call. This includes the new Section 232 tariffs on furniture, the revised 20% additional China tariffs, the 50% India tariff, the 20% Vietnam tariff and an average 18% tariff on the rest of the world as well as the 50% steel and aluminum tariffs and a 50% copper tariff. In fact, our incremental tariff rate has more than doubled from 14% earlier this year to 29% today, inclusive of all the tariffs I just mentioned. We believe the strength of our operating model, combined with the 6-point mitigation plan Laura outlined enables us to mitigate a large portion of these tariffs, which is embedded in our guidance. It's important to note the tariff policy has been volatile and subject to multiple revisions. It's hard to say where tariffs will ultimately land and what impact they will have on our business. Our guidance reflects our best estimates of the impact based upon the tariffs in place as of this call. Also today, we are providing some further inputs for modeling purposes. We now expect our full year interest income to be approximately $35 million and our full year effective tax rate to be approximately 26%. Turning now to capital allocation. Our plans for fiscal year '25 continue to prioritize funding our business operations and investing in long-term growth. We expect to spend between $250 million and $275 million on capital expenditures in fiscal year '25. We are investing 85% of this capital spend on our e-commerce channel, retail optimization and supply chain efficiency. We remain committed to returning excess cash to our shareholders in the form of increased quarterly dividend payouts and ongoing share repurchases. For dividends, we will continue to pay our quarterly dividend of $0.66 per share, which is a 16% increase year-over-year. We are proud to say that fiscal year '25 is the 16th consecutive year of increased dividend payouts. For share repurchases, we announced today that our Board of Directors approved an additional $1 billion share repurchase authorization, bringing our total authorization to approximately $1.6 billion. We remain committed to opportunistically repurchasing our stock to provide returns to our shareholders. As we look forward to 2026, we will balance our long-term growth potential with the tariff and macroeconomic landscape, and we will provide guidance in March. As we look further into the future beyond '26, we are reiterating our long-term guidance of mid- to high single-digit revenue growth with operating margins in the mid- to high teens. Wrapping up Laura's and my comments, we delivered another quarter of strong results despite the headwinds from tariff policy and historically low housing turnover. Our focus remains on our 3 key priorities: returning to growth, elevating our world-class customer service and driving earnings. We are confident we will continue to outperform our peers and deliver shareholder growth for these 5 reasons. Our ability to gain market share in the fragmented home furnishings industry, the strength of our in-house proprietary design, the competitive advantage of our digital first but not digital-only channel strategy, the ongoing strength of our growth initiatives and the resilience of our fortress balance sheet. With that, I'll open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Max Rakhlenko from TD Cowen. Maksim Rakhlenko: Congrats on the nice quarter. So first, can you just discuss the elasticity that you're seeing in the business as you selectively increase prices? And how we should think about the impact to comps from transactions versus ticket in 3Q? Laura Alber: Thanks, Max. We look at prices constantly across our brands, across categories and with our competition. And you know we sell a wide range of products. And so there's not one quick answer to elasticity because in some [ cases ], there's room to take up prices. In other cases, you need to take down prices based on what the market is doing. This is why we're so focused on innovation and bringing new innovative and exclusive products to market because that gives us better pricing power. Also, I would say that pricing is not just about the product itself, but also the service and the experience. And we have been really, really focused, as you know, on improving our service, which has been a huge driver of our op margin, which I'm sure we'll talk a lot about today. But that's a big -- especially as we come up against the holiday season, it's a big deal for customers deciding where to buy their gifts, especially large tickets. If they want to buy gifts from people they trust, they can return things to and that they're going to stand behind their product quality and they can get instructions about how to use that expensive espresso machine. So it's not just one metric, and it's not just one category. It's going to be different depending on the product you asked me about. Maksim Rakhlenko: Got it. And then, Jeff, you noted that it's taking longer for tariffs to flow through. Just how should we consider the impact of tariffs over the next several quarters as it does sound like 4Q will see a pickup? And then just any guideposts on modeling for the next several quarters? Jeff Howie: Yes, let me explain why the tariffs are taking longer to flow through. I think it's important to unpack that. And first, it's really due to the delayed effective dates. For example, the August 7 reciprocal tariff, which applies in most countries like China and Vietnam, et cetera, had an exception for goods that were on the water that had to be received before 10/5. Another example is with the India tariffs that were effective on August 27, there was an exception for goods in the water to be received before 9/17. So this means that these tariffs do not start being applied to new receipts until mid- to late third quarter. And then on top of that, we aggressively front-loaded receipts to bring in inventory at lower tariff rates than are in effect today. So the combination of these 2 really advantaged us in Q3. As we look to Q4, we've certainly said that the tariffs will have a larger impact upon our margin, and that is embedded in our guidance. As we look beyond Q4, it's a little early to talk about '26. There's a lot that could change between now and then, especially with the tariff landscape. So we'll save that conversation for March. Operator: Your next question comes from the line of Zach Fadem from Wells Fargo. Zachary Fadem: Could we start with your take on broader category performance from Q2 to Q3 and whether you saw underlying improvement there? And then just curious, stepping back, how you would frame the improvement we've seen in furnishings in your category relative to some of the broader macro and pressures that we've seen in home improvement and other bigger ticket categories. Laura Alber: We're really pleased with our continuing improvement across quarters and brands. And in particular, the West Elm increase in comps is really exciting for us to see because we expected it to happen, and there's nothing more fulfilling when you see a strategy come to fruition. And I still think there's a lot of room left to go in West Elm as they build out certain categories and their seasonal assortments. And we've been continuing to improve our in-store experiences, and that's been really helping. But in terms of the broader merchandise categories across brands, we have been aware, as everyone is that the housing market has not recovered, and that is really most correlated with furniture and to be able to improve our furniture comps without a significant improvement in housing is a really, really strong sign. And we love that because a furniture collection that we introduced in the season this year, we can build upon for next year with new piece types and also with better inventory stocking positions. And so the continuation of our furniture strength is very important to the short term and the longer term. And then in the holiday season, the categories that are exciting, we saw Dorm pick up from Q2 to Q3. Back-to-school is the broader category for that, and it was a strong season and really, really a good season for us. The Halloween product categories were strong, autumnal and Thanksgiving. Also, we're not done with Thanksgiving yet, obviously, but we're close. And so we've been pleased with our results there. It's too early to comment about holiday. We're actually on the call a week earlier than we were last year. So those of you wondering about the lack of comments there, it's just a little bit too early to comment. But based on what we've seen with the other seasonal holidays, we can see that that's a competitive advantage for us. There's not many other people out there that have the assortment that allows customers to really decorate and entertain for the holidays. And especially at this time of the year, it's a real strength that's a traffic driver for us. Operator: Your next question comes from the line of Cristina Fernández from Telsey Advisory Group. Cristina Fernandez: So I want to follow up a little bit on that last comment on holiday. As we look at the implied Q4 revenue guidance, it's pretty wide. So could you comment on the low end versus high end and your ability to continue this comp trend as you face a more difficult year-over-year comparison? Laura Alber: Thank you, Cristina. Holiday launch season and then it includes January. We are really focused on great price selling. And this has been an important part of our margin profile all year and the improvements that you've seen. And we have amazingly, we've had great success in our margin improvement. Even with the tariffs on top of everything. And as we go into the holiday season, we continue to have opportunity from a year-over-year perspective in pulling back on promotions. And so we're focused on right price selling and hope to have less promotions than last year, hence, the wide range of comp performance. That's one piece of it. The second is when you look at the multiyear numbers, we're mindful of our strong holiday last year. Operator: Your next question comes from the line of Peter Benedict from Baird. Peter Benedict: I guess two. One would be the market seems to be really concerned about how you're going to be able to digest these tariffs as they ultimately come through despite your ability to do so to date. I think expectations next year for operating margins to be lower in the first half of the year. But maybe, Jeff, I'm not asking for specific guidance, but just how should we think about the ability of the business to just even maintain operating margins in the face of what you know about tariffs as they sit today? That's my first question. And then my second question would be around unit growth. Laura, it sounded like maybe a little bit more of an offensive posture there, particularly around West Elm. We know that in aggregate, your units have been kind of coming down. Are you signaling a change there? Should we be thinking about -- I'm just thinking about the magnitude of unit growth we might expect as we look out on the horizon. Jeff Howie: Peter. So where is the operating margin going? That's a great question. But if we look beyond our current guidance, that's not really a question we're going to answer today. It's too early to start discussing '26 guidance. Our focus is on the holiday season delivering in Q4. And the real reason here is the tariff landscape has been incredibly volatile. Just look at what's happened over the past several quarters. Every quarter, there's been new tariffs, repeal tariffs, everything is changing. And there's a lot of uncertainty in this front. I would point out that India is one of our largest sources of goods and where that tariff is going, which is currently at 50% is an open question. We also have the Supreme Court decision on IEEPA tariffs pending. We'll see where that goes. So it's a little hard to understand beyond our current guidance and beyond this year and Q4, where the tariff landscape is going to impact us. We believe that our 6-point mitigation plan that Laura and I have been articulating all year, combined with the power of our operating model will allow us to offset a large portion of the tariffs, but the ultimate amount depends upon where the tariffs ultimately land. What we're really focused on is delivering the current quarter. And everything we know about our ability to offset the current tariffs is embedded within our guidance. In terms of your second question, Peter, where is unit growth going? Look, we've been saying all along that we have done an incredible job, and I want to complement our entire organization regarding our retail repositioning strategy. And there's been multiple legs of the strategy. There's been closing underperforming stores, which I think everyone knows, we've closed about 17% of our stores since 2019. It's about repositioning stores from some of the tired indoor malls to more vibrant lifestyle centers. And it's also been about opening new stores. And we see opportunity for new store growth, particularly in the West Elm brand with Rejuvenation, with GreenRow potentially. And there's a lot of opportunity for us to continue to grow stores. In terms of where overall store count growth is going, as we've been saying all year, it will be mid-single-digit closures this year. And I think we're not necessarily guiding '26, but I don't think we'll see a substantial change in the overall store count as we look towards '26. There's still more room to go on our repositioning strategy, but there's also white space opportunity to infill. And there's some great new locations that we're working on that will come online in '26 and in '27. Operator: Your next question comes from the line of Chris Horvers from JPMorgan. Christopher Horvers: So two quick ones. So I guess playing devil's advocate on the compare in the fourth quarter, Laura, furniture pull forward is behind you. There's a lot of momentum around self-help initiatives. And obviously, there's a tick of pricing coming through here. So as you think about where we are in the cycle, particularly with housing not helpful, why couldn't the growth rate just stay at the growth rate considering where we are? And then a quick one on gross margin. Understanding there was some shift on timing, but asking the question another way, did the drivers in terms of -- in the fourth quarter in terms of the expected tariff headwind versus the expected benefit from the mitigation strategies, did you change those at all in your outlook? Laura Alber: Pull forward first, I don't see any reason to believe we've seen pull forward of anything for that matter. We absolutely could be at the same comp, if not higher. We have a wide range. I was just explaining the differences of why you might look at it and say it's a little bit lower than where you've been. It's very important that we don't play in the promotional game. It's a key aspect of our strategy. At the same time, we're going to have great deals for Black Friday. We have great deals right now for early Black Friday. We bought into them. We have vendor partnerships on them. But we're not going to have as much -- we hope we're not going to have as many needs to promote as we did last year. And so that's the only hesitation on the comp side. And then in terms of the tariff impact in Q4, it's sizably more than Q4 because of the way that the cost flows through every single quarter. And so we did a fantastic job, great success with our mitigation plan in Q3 and throughout the year, and we will continue to do that. And in fact, it's amazing to see the new opportunities that we're finding in supply chain. Supply chain has been just a tremendous positive this year in delivering op margin. And what's great about it, as you know, is it means the customer is getting their products delivered more smoothly and on time and without damage. And that's all good for the brand. It's fantastic for the P&L. And there's still room. As we look at Q4 on the op margin side and the supply chain savings, there's more to go there. We're really optimistic about our AZ DC, which is our new DC that came up last year. And honestly, we're doing better than we have been with that, and that could be -- that could really help us, especially because the calendar this year for Christmas similar to last year is pretty tight. So we want to be able to ship it late and ship it perfectly and not disappoint anyone. That's why people come to us and shop online later with us like they do Amazon and others because they trust us to deliver before Christmas. So there's a lot of really good things happening. But in terms of the impact of tariffs, please don't get ahead of us on Q4 in terms of the margin because the tariffs are going to have a greater impact, as you can see in our guidance and the implied Q4 guidance than they did in Q3. If you look at our op margin ex tariffs, it's expanding. And so for all those that are worried about this, just realize that this goes into the base and we're done with it, and we move forward, and it's about outperforming our competition and continuing to deliver for our shareholders and most importantly, for our customers and giving them incredibly beautiful, well-designed, high-quality product at the best price in the market. Operator: Your next question comes from the line of Jonathan Matuszewski from Jefferies. Jonathan Matuszewski: I had one question and one follow-up. The first question was just on the consumer. You mentioned a better response to full price selling than it seems like what you planned for. So just from like a strategy perspective here, how does that minimal elasticity kind of inform your customer targeting efforts going forward? And is what you're seeing giving you more confidence to target a higher-end consumer, a higher income consumer more in the future than in the past? And are there strategies in place to do that? That's my first question. Laura Alber: Yes, it's a great question. We're lucky where we sit, but we love all our customers. So we want to give them the best price if it's the first apartment, first baby or if it's their tenth one and we do see when we look at our tic-tac-toe as owning the home that we haven't covered the real super high end at scale yet. It's not surprising to me that Rejuvenation is doing so well. Why do we have such great growth, it's expensive, it's absolutely gorgeous, high-quality product. I hope that you've all visited a store, bought some products or seen it in someone's house because when you see it, you understand why we're really growing that business and why we believe so strongly to be our next billion dollar brand. That sits at the high end. GreenRow sits at the high end. We haven't talked about it a lot because it's tiny, but we're seeing that it's a new aesthetic. It is very, very original that is not in the marketplace and that is entirely green products and people care about that. At least that customer cares about that. And so that's at the high end. And we see that we can have retail stores in that brand, which tells me it's bigger than you might think. And then there's Williams-Sonoma Home, which we continue to see as an opportunity for us into the future. But don't mistake the importance of us also covering the upper middle customer, the Pottery Barn, the West Elm and making sure that also those brands are so appealing that people trade into that. I can decorate your house more beautifully and more affordably than the high end, why wouldn't you come to us? And by the way, we'll do the whole thing for you and we'll set it up. And I think you'll see that we can do it for a fraction of the price of what other people do and have it be super interesting and gorgeous. So we're going after all those pieces and there's opportunity right across that tic-tac-toe bar from what we define as our value customer, which is different than the market all the way to the high-end consumer. Operator: Your next question comes from the line of Simeon Gutman from Morgan Stanley. Simeon Gutman: Laura, Jeff, can I ask on tariffs again? The 6-point plan seems to be beneficial, and it sounds like the elasticities aren't awful. What's the chance that we get to the fourth quarter or even the first quarter as this inventory turns, that the impacts are going to be a lot more minimal than we think? And I'm just trying to size up the conviction that we haven't seen anything yet. And then if some of the IEEPA stuff gets, I don't know, invalidated, do you suspect that industry prices go back down? Or do you think retail prices, especially ones that have already changed, they're just going to hold? Laura Alber: First of all, I just want to say that the last thing I want to think is that we're immune to tariffs. We've done a really great job of offsetting them so far, but the amount that they hit us in Q4 is sizably different than it was in Q3. So just -- that's why look at our guidance, please, and understand the impact. IEEPA, there's other tariffs, I'm not focused on that. We're focused on how we give in the current tariff environment the greatest value to our consumers. And where should we be pricing things and where should we be moving things. So I wouldn't spend a lot of time worrying about that. I think it's just one more thing that could change and be kind of distracting in the short term. There's also really good things that like if the India tariff is revealed that -- or reduced by half, that would be great for us. But all that is a backdrop that affects the entire industry. And once it's in and it's rolled through on a yearly basis, we're done with it. So I just -- as I said, just to recap, please don't think that we are in Q4 and beyond. We will offset as much as we possibly can. We've done a better job than I think we even thought we could do in offsetting all of it this quarter. But we have a few things going on in Q4 that I want to make sure, Jeff reminded you in his prepared remarks, I'll let him remind you again about the 53rd week. Jeff Howie: Yes. I mean a couple of other things that I want to highlight, too, Simeon, is, and as Laura said, don't get ahead of us there. We did have an improvement in our merchandise margins, particularly against what we expected in Q3. But it goes back to the timing factor that I talked about, I think, on the first question. The effective dates were delayed for all the tariffs. So as we get to Q4, there will be a substantially larger impact to our operating margin than there was in Q3. And our guidance embeds in there our best estimates of what that impact is inclusive of all of our tariff mitigation efforts. So I can't say it any other way other than we do not expect a repeat of Q3 and Q4, which is what our guidance is. In terms of the 53rd week, I do want to remind everyone that this is a 53rd week for Williams -- we are coming up against the 53rd week for Williams-Sonoma, Inc. On the year, it was worth 150 basis points to revenue growth and 20 basis points to operating margin. But in Q4, where the 53rd week comes into play, it had a pretty big impact at 510 basis points of revenue growth and 60 basis points of operating margin growth. So just on that, the 53rd week and those 60 basis points, we would be down normally on a year-over-year 13-week -- I'm sorry, yes, 13-week to 13-week comparison. Operator: Your next question comes from the line of Steven Zaccone from Citigroup. Steven Zaccone: I wanted to ask on Pottery Barn because the business decelerated a little bit there on the 2-year stack, and it's actually lagging the rest of the segments of the business. You referenced some pullback in promotions. Can you just talk about what's new this year? Because I think that's been the strategy for the past couple of years. And when you think about the performance of that business, what are you seeing from a competitive perspective? Any sort of kind of trade down from the consumer and [ to go ] with some of these earlier questions around pricing, is there anything to call out from a pricing perspective competitive-wise? Laura Alber: We haven't seen that yet. Pottery Barn's furniture has improved this year, especially on the multiyear stack, and that's been good to see. They did have more promotions to reduce out of the base than you might have expected. And so we continue to work on that, and there's still opportunity. Operator: Your next question comes from the line of Chuck Grom from Gordon Haskett. Charles Grom: Laura, just bigger picture, a lot of people have asked about the tariffs. I want to ask a little bit about category growth and how you see sustainability moving into 2026. Broadly speaking, a lot of your peers are doing better. Do you think that continues? And then one more near term, just cadence throughout the quarter, some of your peers have had a lot of volatility. Anything you want to highlight for us and anything you want to speak to so far in November? Laura Alber: We don't talk about the months and the cadence. I do want to talk about the excitement we have as we look forward. We have not seen a housing recovery. It's like the worst housing market in the last 4 years, as you know. And that is a big deal. Now there's really not a lot of great signs that it's getting better quickly, but there are some green shoots. And I personally am very optimistic about housing next year. That would be a big change for us if that happens because we know that when you move, you buy a lot, when you refurnish your house. And we've been very good at getting the remodeler and the redecorator to come to us, but we're excited to be ready with a much more powerful furniture supply chain than we've ever had before when those sales come to us. And we know that when that turns and you see upside again, it's a really big deal. Some people I don't think they're going to be ready for it. But the things we've done to really improve our supply chain are so strategic. I believe and have always believed that the person that owns the furniture network is the one who wins the whole thing. And that is where we've been focused and we continue to build and have all sorts of tech projects in play to make that happen. And you can see it in our numbers this year, how much improvement year-on-year. I read through last year's script, and it's funny when you read it because we were talking about all the supply chain improvements then. But I think if you had asked me, I wouldn't have expected that we would have this much more. And yet we still have more, and that's what's exciting when you think about the power of our operating model in this multi-brand, multichannel company and where this could go in the future as furniture recovery. Operator: Your next question comes from the line of Michael Lasser from UBS. Michael Lasser: Laura, one of the interpretations of your -- some of your comments over the last hour is that Williams-Sonoma has gone through this significant change where it's reduced promotions, improved its profitability while it's been able to drive consistent sales growth. And now it may be at the point at which it can no longer lower promotional activity without it having some impact on the sales. Is that the right interpretation of what has been said on this call? And second, was the magnitude of the benefit to your margin in the third quarter from selling older, lower-cost inventory at new higher prices equal to or greater than it might have been in the second quarter such that we should think about these not repeating in 2026, understanding you're not providing any guidance on 2026 at this point? Laura Alber: In terms of your first question, I mean, you took some liberty there, Michael. I think what I'm saying is that key strategies for our company continue to work. And it has been a focus on innovative product design, high quality, high service and a regular price business, investing in our brands, investing in our tech stack, our supply chain to deliver great operating margins. But I will remind you, our key -- our first initiative this year was return to growth. I kept joking it's 1, 2 and 3 return to growth. We are obsessed with where we can grow, what brand it is, which categories it is and how we outperform. So do not mistake that, that is where our head is and what we're driving towards. On the second question, I'll hand over to Jeff. Jeff Howie: Yes, Michael, honestly, I'm not tracking with you on the question because actually, our margin expansion year-over-year in Q2 was -- gross margin was 220 basis points. There's only 70 basis points in Q3, with the difference, of course, being the impact of the tariffs. So I'm not sure I understood your question, but there was a greater impact of the tariffs in Q3. And while certainly, we have our mitigation efforts, the tariff impact will increase sequentially quarter-over-quarter every year this year. And as we said on the call, it will have an impact on us in Q4 in a much more substantial way than it did in prior quarters this year. Operator: Your next question, and this will be the final question comes from the line of Oliver Wintermantel from Evercore ISI. Oliver Wintermantel: And yes, I think the message on gross margin in 4Q came across. I just want to focus on SG&A. You guys have lowered general expenses for the last several quarters. And especially in 4Q, I think there was 80 basis points in incentive comp headwind and advertising was also up a headwind of 30 basis points in the fourth quarter. So maybe could you talk a little bit about SG&A moving parts into the fourth quarter, how you expect that to shake out? Jeff Howie: Yes. I mean, as you know, we don't guide to specific lines. We guide to top line and the bottom line as it gives us the flexibility to pull different levers as we see results come in. In Q3, our higher employment expense was really almost entirely attributable to higher incentive compensation due to our strong performance year-to-date. And then as I explained in our prepared remarks, advertising deleveraged about 20 basis points because we saw some opportunities during Q3 to spend some additional advertising in the digital space. And one of our competitive advantages is our in-house marketing team that has ability across our portfolio of brands to test, scale and optimize our spend. And they saw some opportunity to spend in Q3 that gave us great returns, drove incremental traffic to the web and higher revenue per visit, and so we leaned into that. So as we think about Q4, we don't guide to specific lines, but our approach is always the same as we're looking to control our SG&A, but where we see opportunities that are going to give us good return on investment, we will, of course, lean into those. But it all depends upon the overall macro. Laura Alber: And I thought that it might be worth spending another minute even though we're a couple of minutes past the hour, talking about our SG&A reductions due to our AI initiatives, because we were joking earlier that we have a 6-point mitigation plan for tariffs, but I think maybe we should launch our seventh as AI because we're seeing some really exciting results both on the sales side and also on the margin. I'll let Sameer make a few comments about that before we close the call. Sameer Hassan: Sure. Thank you, Laura. Like Laura mentioned earlier, in Q3, we are seeing really, really impactful results. She shared a couple of the data points around our customer service automation. She shared our launch of Olive, our AI, again, that's customer-facing. If you haven't used that, I really encourage you to go on the Williams-Sonoma site today. It's super helpful for planning for the holidays and is driving sales, driving engagement, driving loyalty. It's really exciting. And we're already -- just on the topic of SG&A, we're already seeing reduced payroll costs where automation absorbs -- AI automation absorbs repeatable work, reduce vendor costs when we streamline external spend. And we're also seeing the same tech grow the top line. In supply chain, we're cutting out of market shipments, improving routes, lowering damages, replacements, trimming shipping costs. Inventory, we're using AI to raise in-stock rates on key items, all the stuff supports conversion. It's driving down costs, but it's also driving the top line. Digital guided journeys, better content coverage. All of this is driving SG&A leverage. All of it's driving reduced costs, but it's also driving demand leverage, which is really exciting to see it impact both on the cost side as well as the top line side. So we really see this compounding benefit as we head into 2026. I'm really excited about the continued impact we're seeing from our AI road map. Operator: And we have reached the end of our question-and-answer session. I will now turn the call back over to Laura Alber for closing remarks. Laura Alber: Yes. Thank you all for joining us today. And as I said earlier, I wish you all a very happy Thanksgiving with your families. Hopefully, you get a chance to stop by our stores and do some shopping. Look forward to talking to you in the new year. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the LuxExperience First Quarter of Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A. It is now my pleasure to introduce your host, Martin Beer, the Chief Financial Officer of LuxExperience. Thank you. Sir, please begin. Martin Beer: Thank you, operator, and welcome, everyone, to the LuxExperience Investor Conference Call for the First Quarter of Fiscal Year 2026. With me today is our CEO, Michael Kliger. Before we begin, we'd like to remind you that our discussions today will include forward-looking statements. Any comments we make about expectations are forward-looking statements and are subject to risks and uncertainties, including the risks and uncertainties described in our annual report. Many factors could cause actual results to differ materially, we are under no duty to update forward-looking statements. In addition, we will refer to certain financial measures not reported in accordance with IFRS on this call. You can find reconciliations of these non-IFRS financial measures in our earnings press release, which is available on our Investor Relations website at investor.luxexperience.com. I will now turn the call over to Michael. Michael Kliger: Thank you, Martin. Also from my side, a very warm welcome to all of you, and thank you for joining our call. We will comment today on the results and performance of the first quarter of fiscal year 2026 of LuxExperience. As a group, we have now become the clear digital multi-brand leader for luxury enthusiasts worldwide. We are perfectly positioned to benefit from the expected further growth of the digital luxury market as well as from the ongoing consolidation process among the remaining players. As explained last time, LuxExperience reports on the basis of a new segment reporting structure. The 3 segments are Luxury Mytheresa, Luxury NET-A-PORTER and MR PORTER as well as Off-Price. We are very pleased with the results of the first quarter. Across all 3 segments, we have delivered strong results and improvements. Mytheresa continues to demonstrate our unique ability to deliver strong growth and profitability despite ongoing macro headwinds. NET-A-PORTER and MR PORTER clearly show the first signs of the commercial turnaround, which will drive renewed growth and profitability for the 2 store brands after years of decline. In the Off-Price segment, we anticipated a fundamental transformation by focusing on the healthy core, and I am pleased that we have been off to a fast start here also. We just announced that we have reached an agreement to sell the assets powering THE OUTNET platform to the O Group LLC. Shareholders of the O Group LLC include Joseph Edery and Ritesh Punjabi, CEO of Timeless Group of Companies. Both are renowned experts in the off-price luxury fashion sector. The divestment of THE OUTNET assets is a strategic step in line with our transformation plan announced in May 2025, which strengthens the operating model by reducing complexity. We believe that we found a great new home for THE OUTNET, and we can now fully focus on the transformation of the YOOX business and the disentanglement of off-price from the luxury businesses in the back end. This will allow us to also accelerate the buildup of an efficient infrastructure platform for NET-A-PORTER and MR PORTER. The closing of the transaction with the O Group is expected for Q1 of calendar year 2026, subject to certain closing conditions, including customary regulatory approvals and payment of the purchase price, which is subject to adjustments based on inventory levels at closing. As a result of the transaction, the Off-Price segment will purely refer to the business of YOOX from now on, while we classify THE OUTNET as discontinued operations as it is no longer considered part of our core financial performance. Let me now start by commenting on the Mytheresa business. We are extremely pleased with the outstanding results in the first quarter of fiscal year 2026. The ongoing and even accelerating momentum from the previous quarters demonstrates the strength of our business model, which focuses on wardrobe-building big-spending luxury customers. In Q1 of fiscal year 2026, we grew our net sales by plus 12.2% compared to Q1 fiscal year '25. In the United States, which is a key market for our business, net sales growth reached plus 21.9% in Q1 fiscal year 2026 compared to Q1 fiscal year '25. The U.S. accounted for 22.1% of the net sales of our total business in the first quarter. In Europe, excluding Germany, we experienced again an excellent net sales growth of plus 14.1% in Q1 fiscal year 2026. Our clear focus on big-spending wardrobe-building customers is the fundamental driver of our outstanding growth and financial strength at Mytheresa. In the first quarter of fiscal year '26, the top customer base of Mytheresa grew by plus 10.2% compared to the prior year period, significantly higher than in previous quarters. Furthermore, the average spend per top customer in terms of GMV grew again by a very strong plus 15% in Q1 fiscal year '26 versus Q1 fiscal year '25. The average order value last 12 months for Mytheresa increased by a remarkable plus 10.7% to a record EUR 797 in Q1 fiscal year '26, demonstrating the success of our focus on selling full price high-end luxury products to top customers. The continued full price focus at Mytheresa is also evident with the again improved gross profit margin growing by 70 basis points in Q1 fiscal year '26. Our success with big-spending wardrobe-building customers makes Mytheresa a highly desired partner for luxury brands. In the first quarter of fiscal year '26, we saw again many high-impact campaigns and exclusive product launches, underlining Mytheresa's strong relationships with luxury brands. We launched exclusive styles from Loewe Fall/Winter '25 runway collection for womenswear and menswear only available at Mytheresa as well as an exclusive womenswear Max Mara cashmere capsule collection only available at Mytheresa. We were the exclusive prelaunch partner for Brunello Cucinelli's Fall/Winter '25 collection and Calvin Klein Collection Fall/Winter '25 collection for womenswear and menswear. We also launched exclusive womenswear styles from Moncler's Fall/Winter '25 collection as well as exclusive styles from God's True Cashmere and ZEGNA's Fall/Winter '25 collection. In addition to creating desirability for our top customers with exclusive digital campaigns and product launches, we also create desirability and the sense of community for Mytheresa's top customers through unique money-can-buy physical experiences. In the first quarter, we hosted various top customer events, including a private diamond master class and a tailored styling session with Jessica McCormack at her Mayfair Townhouse in London. Together with Givenchy, we celebrated Sarah Burton's debut runway collection with a curated cocktail reception, a private exhibition tour and an intimate dinner in Shanghai. We hosted a top customer cocktail in Madrid at the Rosewood Hotel and also held an exclusive Schiaparelli style suite there. To celebrate London, Milan and Paris Fashion Weeks, we invited top customers to various shows to experience the magic of OneWay firsthand. Furthermore, we hosted style suites in London, The Hamptons, New Jersey, Singapore, Hong Kong, Warsaw, Frankfurt and Zurich, presenting new collections in immersive curated environment. Highlights in the United States included intimate dinners with Michelin Star chefs in Aspen and Los Angeles. We hosted a New York Fashion Week After Party at the legendary Indochine with Calvin Klein Collections. We partnered with Loewe for an exclusive event at The Glass House in Connecticut, showcasing the brand's exclusive collection inspired by Josef and Anni Albers, followed by an intimate dinner by Chefs Riad Nasr and Lee Hanson of Frenchette. Furthermore, we hosted an exclusive 2-day experience with ZEGNA in Turin, featuring an on-stage dinner with a private opera performance at Teatro Regio and next day, a lunch at the famous Ristorante del Cambio. In summary, we are extremely pleased with the Mytheresa business in the first quarter of fiscal year '26, and Martin will later show how the outstanding top line results translated into very strong bottom line results. Let me now comment on the luxury segment comprised of NET-A-PORTER and MR PORTER. In the first quarter of fiscal year '26, we clearly saw the first signs of the commercial turnaround directly resulting from the execution of a strategy that focuses on luxury customers seeking editorial inspiration and brand discovery as well as a strict focus on full price selling. In Q1 fiscal year '26, net sales declined as expected by minus 10.8% versus Q1 fiscal year '25 for NET-A-PORTER and MR PORTER combined. United States declined by minus 10.7% and Europe, excluding the U.K. and Germany by minus 3.6% in terms of net sales in Q1 fiscal year '26 compared to Q1 fiscal year '25. The net sales decline is still driven by 2 little investments into attractive new merchandise a year ago for the current fall/winter season. For the next spring/summer season, we can already see improved results. While the overall net sales declined for NET-A-PORTER and MR PORTER combined, the average spend in terms of GMV per EIP customer, the so-called extremely important people customers grew by plus 4% in Q1 fiscal year '26 versus Q1 fiscal year '25. The average order value last 12 months increased by a remarkable plus 15.5% to EUR 836 for NET-A-PORTER and MR PORTER combined in Q1 fiscal year '26. Finally, the gross profit margin improved by 130 basis points in Q1 fiscal year '26 for NET-A-PORTER and MR PORTER combined, driven by a higher share of full price sales amongst other factors. All these KPIs indicated an already much healthier business. In the first quarter of fiscal year '26, a renewed focus on high-impact campaigns and exclusive product launches was successfully initiated for NET-A-PORTER and MR PORTER with a clear focus on luxury customers, looking for editorial inspiration and brand discovery. NET-A-PORTER launched an exclusive capsule with Jimmy Choo focused on key boot styles for fall/winter '25. NET-A-PORTER also launched an exclusive colorway of the iconic Chloe Paddington bag, which drove outstanding media engagement with audiences as well as an exclusive on-trend animal print Nilii Lotan bag, all drove commercial success and increased brand awareness as the destination for fashion discovery. MR PORTER launched the Bottega Veneta for Winter '25 collection with an exclusive prelaunch for EIP customers. MR PORTER also launched 13 exclusive styles from the Eau Fraîche Déprimés Fall/Winter '25 collection. And NET-A-PORTER and MR PORTER both launched Aime Leon Dore as a new brand, each with exclusive capsule collections. Further new brand launches at MR PORTER include Eleventi, Apprécié, Morehouse and Satoshi Nakamoto. NET-A-PORTER also continued to drive outstanding customer engagements through unique editorial content. In September, the Oscar-nominated actress, Emily Blunt was the cover star of Porter Magazine, marking the most engaged Porter cover in the last 12 months. September also saw NET-A-PORTER present Season 10 of the Incredible Women podcast series celebrated with a private event in London hosted by international model, actress and campaigner Adwoa Aboah. MR PORTER's journal feature on Walton Goggins drove 14,500 visits to the journal section, whilst its video attracted 390,000 views on Instagram Reels. It was featured in media outlets, including People Magazine and the Hollywood report. Partnering with such talent has proven effective in reaching new audiences, enhancing brand visibility and driving traffic to the MR PORTER site. MR PORTER's film with actor Adam Brody modeling key design items has had 593,000 views. NET-A-PORTER created a number of unique experiences for its EIPs, including a dinner in London, celebrating 25 years of NET-A-PORTER to which top clients who have shopped with the brand for the last 25 years were invited. And to route the new runway collections, NET-A-PORTER hosted EIP dinners for its customers in all 4 fashion week cities, New York, London, Milan and Paris. MR PORTER hosted dinners in both New York and Hong Kong for high-profile EIP customers. It also invited to a dinner in London to celebrate its collaboration and exclusive capsule with Drake in attendance where press influencers and EIPs. A share of the proceeds from the capsule collection were donated to the MR PORTER Charity Health & Mind, which runs in partnership with Movember, which supports men's mental health. This story and capsule collection had the highest click-through rate from the homepage to product seen this quarter. Already, we can see that the new leadership team at NET-A-PORTER and MR PORTER is driving the creation of much healthier and resilient business model to regain financial strength and growth. Martin will later comment on the progress achieved in improving the profitability of the NET-A-PORTER and MR PORTER luxury segment. Lastly, let me comment on YOOX' stand-alone performance in Q1 of fiscal year '26. We are pleased with the progress that we have achieved to separate the YOOX business from the luxury of YNAP. The sale of THE OUTNET assets will allow us to accelerate the process of separation further. To create a lean business model that is compatible with a lower margin and lower average order value off-price business, we are focusing the YOOX business on the healthy core in terms of geography and operational fulfillment models. The closure of the marketplace business, warehouses in Dubai and Hong Kong as well as the optimization for higher tariff rates shipping to United States causes a deliberate net sales decline in the short term, but will allow to return to solid profitability. In Q1 fiscal year '26, net sales declined as expected by minus 16.5% versus Q1 '25 for YOOX. Europe, including Germany, increased by plus 1.7% in terms of net sales in Q1 fiscal year '26 compared to Q1 fiscal year '25. The overall net sales decline is, as explained, mainly driven by a renewed focus on a healthy core for the YOOX business. While the overall net sales declined for YOOX, the top spending customer average spend in terms of GMV grew by plus 4.7% in Q1 fiscal year '26 versus Q1 fiscal year '25. The average order value last 12 months increased by a remarkable plus 17.8% to EUR 256 for YOOX in Q1 fiscal year '26. Finally, the gross profit margin improved by 400 basis points in Q1 fiscal year '26 for YOOX compared to the prior year period, driven mostly by last year effects and also a higher share of first price sales. All these KPIs indicate a clear focus on the healthy part of the customer base. As part of the transfer of THE OUTNET assets to the O Group, LuxExperience will, for a certain period after closing, provide certain operational and IT services, all priced at cost level to the buyer. Latest by the end of calendar year '26, all services and activities in relationship to THE OUTNET will have stopped for LuxExperience, significantly reducing the complexity in the group. And now after having reviewed the good commercial results and improvements across all businesses, I hand over to Martin to discuss the financial results in detail. Martin Beer: Thank you, Michael. As Michael outlined, we were able to successfully find a new home for THE OUTNET. Just to highlight the financial implications. THE OUTNET assets will be transferred at closing with an expected cash consideration at USD 30 million, depending on inventory levels at closing. Closing of the transaction is expected in the first quarter of calendar year '26. In line with IFRS requirements, we will report THE OUTNET already in this Q1 of fiscal year '26 as discontinued operations as it is no longer considered part of our core financial performance. The Off-Price business is now fully focused on YOOX, and we adjusted our reporting accordingly. Therefore, with our fiscal Q1 reporting running from July to September '25, we will report quarterly results along our 3 business segments: Luxury Mytheresa, Luxury NET-A-PORTER and MR PORTER and Off-Price business of YOOX and highlight specific developments that influenced each segment's performance. Following that, I will review the consolidated financial results for LuxExperience at group level and give an update on guidance, now excluding THE OUTNET. Unless otherwise stated, all numbers refer to euro. Let's first review the performance of our Mytheresa business. During the first quarter of fiscal year '26, GMV grew by 13.5% to $245.9 million compared to the prior year period. Net sales also grew double digit to $226.3 million, representing a plus 12.2% increase. We continue to take share in an overall soft market. In Q1 of fiscal year '26, Mytheresa's gross profit margin increased by 70 basis points to 44.6% as compared to 43.9% in the prior year period. Main driver was our continuous efforts to increase the full price share. In Q1 of fiscal year '26, the shipping and payment cost ratio increased by 110 basis points to 14.6% as compared to 13.5% in the prior year quarter. The increase is mainly due to the new U.S. tariff situation. As we pay all duties for our U.S. customers, the cost increase for us is reflected in our shipping and payment cost ratio. If you excluded the duties costs, the shipping and payment cost ratio in relation to GMV decreased by 90 basis points from 8.8% to 7.9% in Q1 fiscal year '26. Main drivers of this improved cost ratio were higher AOVs and lower negotiated shipping fees based on increasing group volumes. With these measures, we limited the effect of increased U.S. custom duties in the quarter to 110 basis points increase in our shipping and payment cost ratio and mostly compensated the increase with the above-mentioned 70 basis points increase in our gross profit margin. The net effect of U.S. customs and the combined view of the increased shipping and payment cost ratio and the increasing gross profit margin was therefore mostly compensated and overall not significant. In Q1 of fiscal year '26, the marketing cost ratio decreased by 110 basis points to 10.4%. We are successfully capturing market share, but are mindful of the overall soft market situation. As targeted, we will increase marketing spend throughout the remaining fiscal year if deemed effective. Also, the selling, general and administrative SG&A cost ratio decreased by 110 basis points to 12.9% compared to the prior year quarter. SG&A expenses increased by 4.7% compared to the previous year quarter, and the cost ratio benefited from the strong top line increase. Subsequently, the adjusted EBITDA margin expanded by 210 basis points during the quarter to 3.5% as compared to the 1.4% in the prior year period. Adjusted EBITDA grew by EUR 5 million to EUR 7.9 million in Q1 of fiscal year '26. Q1 profitability in the previous year was very low. And given the cost developments just mentioned, we expect profitability levels at Mytheresa in the remaining quarters in this fiscal year '26, transition year, to be at previous year profitability levels. Inventory levels at Mytheresa are up 4% compared to previous year despite double-digit growth. Let me now comment on the Luxury NET-A-PORTER and MR PORTER segment in more detail. In the first quarter of our fiscal year '26, GMV and net sales decreased by minus 10.8% to EUR 224.5 million and EUR 212.3 million, respectively. The anticipated top line decrease was fully in line with our expectations and due to lower merchandise order volumes from previous year. The new leadership is working on adjusting upcoming seasons buying volumes and aligning subsequent marketing strategy to reembark on top line growth again. We expect to see first signs on GMV growth in the second half of this fiscal year. The gross profit margin in Q1 increased by 130 basis points from 46.5% to 47.8%, with the increase influenced by a higher share of full price sales and onetime effects in the previous year. Core focus of our transformation plan is to bring down the SG&A cost ratio. SG&A expenses in Q1 of fiscal year '26 decreased by minus EUR 4.2 million or minus 6.8% compared to the last quarter, which was Q4 of fiscal year '25, running from April to June '25. Compared to the first quarter of previous year, SG&A expenses decreased by minus EUR 6.6 million or minus 9.7% if you included IT development costs that were capitalized last year. As this is the first quarter of fiscal year '26, we will see more significant effects throughout fiscal year '26 and fiscal year '27. With the top line decrease of minus 10.8% in GMV in the quarter, the SG&A cost ratio increased marginally by 30 basis points compared to the previous year quarter, including capitalized IT development costs in the previous year quarter. Overall, the SG&A cost ratio in the quarter is at 27.6% of GMV compared to 12.9% at Mytheresa. We will continue to bring down this more than 1,000 basis points difference with adjusting the operating model, the IT replatforming, corporate overhead cost savings and reembarking on top line growth. Given the top line decrease of minus 10.8% GMV in the quarter, EUR 9.3 million less gross profit was generated. With the other cost lines in line with our expectations, the adjusted EBITDA margin in the quarter was at a negative minus 6.9%, below the adjusted EBITDA level at Mytheresa. The new leadership teams at NET-A-PORTER and MR PORTER are in the middle of refining and investing in our buying and marketing efforts to set NET-A-PORTER and MR PORTER on a growth trajectory again while focusing on profitability. With the execution of our transformation plan and bringing down the SG&A cost ratio, we expect the NAP/MRP segment to achieve comparable profitability levels to the Mytheresa segment with a targeted adjusted EBITDA margin of 7% to 9% medium term. We expect NAP/MRP to breakeven on adjusted EBITDA margin level already in fiscal year '27. Inventory levels at NAP/MRP are down minus 8.8% to previous year, with a healthy all-season share at targeted levels and in line with the situation at Mytheresa. Let me now review the financial performance of the off-price business of YOOX. Continuing the path of a more comprehensive restructuring effort at YOOX and with focus on profitable customer cohorts, GMV and net sales in Q1 of fiscal year '26 declined by 19.3% and 16.5%, respectively, to EUR 118.6 million GMV and net sales in the quarter, also driven by the deliberate shutdown of the unprofitable YOOX Marketplace, which had a GMV of EUR 4.6 million in Q1 fiscal year '25. YOOX' gross profit margin increased by 400 basis points from 32.6% in the prior year period to 36.5%, mostly driven by previous year destocking initiatives. Core focus of our transformation plan is to bring down the SG&A cost ratio also at YOOX. At YOOX, SG&A expenses in Q1 of fiscal year '26 decreased by minus EUR 6.2 million or minus 15.5% versus Q1 of previous year, if you included all the IT development costs in previous year on a stand-alone basis. With the carve-out of THE OUTNET from Off-Price and reporting it as discontinued operations, we excluded all P&L effects that were directly attributed to THE OUTNET and will fall away subsequently. Certain cost elements in corporate and tech will not fall away with the sale of THE OUTNET and therefore, increased the cost share for YOOX and the group. With reporting THE OUTNET as discontinued operations, EUR 3.6 million SG&A expenses from THE OUTNET were allocated to YOOX already in this quarter. THE OUTNET had net sales of EUR 41 million in Q1 of fiscal year '26. At YOOX, the SG&A cost ratio was at 28.6% of GMV. We will continue to bring down the SG&A cost ratio with significantly simplifying the operating model, subsequent IT downsizing, corporate overhead cost savings and reembarking on top line growth. During the first quarter of fiscal year '26, the adjusted EBITDA margin was at minus 18.1%, in line with expectations in our transformation plan. With the execution of our defined transformation measures, we expect to return to adjusted EBITDA profitability of YOOX in 15 to 21 months and return to top line growth already in fiscal year '27. Inventory levels at YOOX are minus 13% to previous year, in line with our targeted inventory strategy at YOOX. Now that we have reviewed the performance of our individual segments, let's take a look at how these results translate into our group level financials for LuxExperience. In Q1 fiscal year '26, group GMV amounted to EUR 588.9 million, while group net sales were at EUR 557.2 million. GMV and net sales declined by minus 4.3% and minus 4.2%, respectively, as compared to illustrative levels in Q1 fiscal year '25, excluding THE OUTNET. Adjusted EBITDA on group level stood at minus EUR 28.1 million with an adjusted EBITDA margin of minus 5%. Top and bottom line of the LuxExperience Group are at expected levels for Q1 of fiscal year '26, excluding THE OUTNET. At the end of Q1 fiscal year '26 and excluding the inventory of THE OUTNET, group inventory stood at EUR 1.18 billion. Operating cash flow of the LuxExperience Group was at minus EUR 146.4 million, driven by phasing, seasonal and onetime effects. Excluding the onetime effects, we had around minus EUR 40 million negative operating cash flow. Onetime effects relate to restructuring expenses, phasing of accounts payables and custom drawback receivables. Negative cash flow in the first quarter is typical due to seasonal inventory buildup. For the full fiscal year '26, we expect operating cash burn to stay well below EUR 200 million, given fiscal year '26 as a key transition year for our transformation plan. We are executing our transformation plan on a fully funded basis with total cash outflow during all years of the transformation plan to range between EUR 350 million and EUR 450 million. We expect to break even on an operating cash level in 2 to 2.5 years. The group ended the fiscal year with a cash position of around EUR 460 million and additional access to revolving credit facilities of EUR 200 million, of which EUR 42.2 million were utilized end of Q1 fiscal year '26. LuxExperience has a strong balance sheet with EUR 1.7 billion of current assets, mostly inventories and cash, almost no bank debt and an equity ratio of 60%. The integration of the YNAP finance teams and formation of all LuxExperience Group structures have started early and are progressing very well. Key activities included a new group-wide organization and governance setup, an integrated finance consolidation and IFRS 16 tool, new segment reporting, unified accounting and reporting policies with transparent cost center structures to enable accountability and cost savings and a highly efficient and effective finance group team setup. The statutory and group audits for fiscal year '25 under strict PCAOB guidelines were successful, and we filed our 20-F as planned on October 30, 2025. We are in an ideal position to execute our transformation plan to deliver sustainable growth and profitability, supported by our strategic initiatives across our segments. With our continued success at Mytheresa, we have proven that we are the best execution team and global digital luxury. The new leadership teams at NET-A-PORTER, MR PORTER and YOOX have begun their work. And at group level, we are in the midst of implementing the measures of our transformation plan. Given our agreement to sell the assets powering THE OUTNET, we would like to provide an updated guidance for fiscal year '26 that reflects the new structure of our LuxExperience Group. The new guidance takes into consideration the anticipated financial impact of the transaction and reconfirms our guidance for the other business and segments. We remain committed on the full execution of the transformation plan, which includes operational adjustments, technology platform integration and organizational alignment. As communicated, fiscal year '26 will be our key transition year. For fiscal year '26, we expect LuxExperience's GMV at around EUR 2.4 billion to EUR 2.7 billion and an adjusted EBITDA margin between minus 2% and plus 1%. We expect Mytheresa to grow mid- to high single digits in the full fiscal year. NET-A-PORTER and MR PORTER will show growth in the second half of the fiscal year, but a decline by low single digits for the full fiscal year. YOOX will continue to adjust the revenue base downwards, but at a lower extent in the second half of the fiscal year. Our medium-term targets remain unchanged at adjusted EBITDA profitability at 7% to 9% and to return to 10% to 15% annual growth rates. And with this, I hand over to Michael for his concluding remarks. Michael Kliger: Thank you, Martin. We are very pleased with our first quarter of fiscal year '26 earnings results. The outstanding performance of Mytheresa demonstrates our proven ability to drive profitable growth in digital luxury and the clear signs of the commercial turnaround at NET-A-PORTER and MR PORTER show that we are fully on track with our transformation plan. With the agreement to sell the assets at THE OUTNET, we have also found a tailored solution that allows us to accelerate the transformation at YOOX. LuxExperience is in the perfect position to benefit from the continued growth of digital luxury and the ongoing consolidation in the sector. We expect to become the one and only destination for luxury enthusiasts worldwide. We will continue to generate enormous value for our customers, brand partners and shareholders. And with that, I ask the operator to open the line for your questions. Operator: [Operator Instructions] Your first question comes from the line of Blake Anderson with Jefferies. Blake Anderson: So I wanted to ask on the acquisition. It looks like it's been almost 7 months now since you closed it. There are lots of moving pieces. I wanted to ask what are the strongest signs that you think your plan is working so far and that it's on track? And what would be any areas, if any, that have surprised you? Michael Kliger: Thank you, Blake. Indeed, we closed in April. So a few months into the overall work, we are well on track. As explained in our call, we -- if you look at some of the quality KPIs of margin, of AOV, of spend per top customer, we are well on track. And for the luxury NET-A-PORTER, MR PORTER, we believe and expect positive growth already next year in '26 calendar. So really good developments. We are really happy that we were able to bring a new leadership team so quickly at NET-A-PORTER, at MR PORTER and also at YOOX. The signed agreement to sell the assets of THE OUTNET was a significant milestone. We have announced workforce reductions in multiple locations. So it's all well on track. And Martin explained that we already see the results of very early SG&A reductions. I mean a lot of the activities that we are doing have, of course, lags before they can really take effect in the P&L. So we are very happy. We are not surprised. We knew what was not working. We knew what was working because we did a very extensive due diligence. And are, of course, in a quite unique position of truly understanding the business model of NET-A-PORTER and MR PORTER and also very close to the off-season luxury business. So it looks very, very good. We explained in May that this is a multiyear exercise with continuous improvement. This is not front loaded, back-end loaded, we will continue to show quarter-by-quarter improvements. And this was only the first quarter. Blake Anderson: Makes sense. Still very early. So I wanted to ask on the guidance. It sounds like there weren't really any changes there aside from THE OUTNET sale. Just wanted to confirm that and then see if there were any -- was any color you could provide on a quarterly basis kind of by segment there. And I think you said the Mytheresa segment was maybe mid- to high single-digit GMV growth, which would I think would imply a slowdown. So any more color on that segment as well, which has been really strong for you? Martin Beer: No, you're completely right, Blake. So there is a reconfirmation of the perspective and the guidance for the 2 segments, Mytheresa and NET-A-PORTER and MR PORTER. And it is obviously an adjustment needed if we take out THE OUTNET and then report it as discontinued operations, that is around EUR 212 million of net sales for the full year that we expected. And therefore, we had to adjust that. You see that also we narrowed the range on top and bottom line. I mean we had on bottom line minus 4% to plus 1%, and now we narrowed it down. So I think we are -- as a key success factor is to really start early and really push the transformation plan, we are well on track to see the good movements. So yes, reconfirmation of the guidance, adjusting it for THE OUTNET effect. On the Mytheresa guidance, mid- to high single digits, I mean, there's no specific call out. I mean, as we are seeing very strong support and great signs of growth throughout both luxury segments. But obviously, we want to be mindful in the overall situation of the market. I mean, it's always tough to predict. And therefore, it is -- this is in line with what we expect today in line with an overall soft market. Operator: Your next question comes from the line of Oliver Chen with TD Cowen. [Operator Instructions] There appears to be no audio from Oliver Chen's side. We will move to the next question. The next question is from [ Cedric Norris with Morgan Stanley ]. Unknown Analyst: So I have 2, if that's okay. First, there is this idea that fashion trends follow a pendulum swinging from maximal ease and colorful style to more quiet luxury ones, the latest being more in favor over the recent past. We recently saw sea waves of fashion designers change doing their debut in some of the largest luxury houses. So having in mind that fashion trends are hard to predict, could you perhaps elaborate on what you have seen in terms of consumer appetite for bolder Lux and the overall interest for the luxury category? Have the recent creative directors changes generated more interest? And if yes, for which brands? And then secondly, if you could share what you saw in terms of performance by category, that would be helpful. Michael Kliger: Happy to do so, [ Cedric ]. So you're absolutely right. We have come out of a fashion week cycle with lots of new designers. And at a very high level because each brand has its own story, there was a bit of movement to more bolder, more colorful, more feminine, more femininity across many, many brands. We clearly see more buzz. We clearly see more interest. Most of these collections have not dropped yet. So this is really February, March, April, where we will see how the appetite for consumers are by different Maisons. But we clearly have seen a sort of joint idea of many creative directors to move into a new swing, move out of quiet luxury. But I always insist that the drivers of quiet luxury brands like ZEGNA, Brunello Cucinelli, Loro Piana, they will continue to be successful. This is an additional side of fashion that hopefully will excite customers as we move into February, March, April when a lot of these shows and collections will become available. In terms of what is driving the growth, this is, of course, very much the story of Mytheresa, the story of NET-A-PORTER and MR PORTER. It's clothing. It's ready-to-wear. This is where we see the nicest momentum. This is driven by a very diverse lifestyle of our clients. Vacation remains a big theme, but both summer and winter. And then there is one additional category that we always call out, which is the success of fine jewelry now also on digital. It's probably one of the later categories that have moved, and we see good traction both on NET-A-PORTER and on Mytheresa for fine jewelry in the neighborhood of 20,000, 50,000 pieces. So we are gradually moving up into very nice price points, of course, not odd jewelry, but real luxury products. Operator: [Operator Instructions] Your next question comes from the line of Oliver Chen from TD Cowen. Nicholas Sylvia: This is Nicholas Sylvia on for Oliver Chen. I do believe some of my questions were answered already, but I did want to ask a little bit more on guidance. I know you mentioned that EBITDA margin sounds like was adjusted a tiny bit on the lower end, if I'm not mistaken. I was just wondering if you could provide any additional color on what you think the primary drivers are there, if there are any besides the sale of THE OUTNET? And my second question is if you could just speak a little bit more on what you're seeing regionally. Martin Beer: Yes, maybe I'll take the first question on the guidance, yes, we adjusted upwards. So we had adjusted EBITDA margin for the group minus 4% to plus 1% previously and therefore, now guide towards minus 2%, plus 1%. So if you take the midpoint, it's an improvement. Obviously, the -- as Michael outlined, it is the transformation plan that we are embarking on from a group level. And in addition, the work of the new leadership teams at the brands, we are all working on improving the profitability from the business side, from the back-end side and also then focusing on reembarking on growth. But for us, and we outlined that in the -- in multiple last calls, the SG&A cost ratio was really the key element of improving the profitability. . And it is quite noteworthy that already in Q1, so July, August, September, just a couple of months after closing, we were able to decrease SG&A costs by minus EUR 15 million, if you combine the 2x YNAP segments of the quarter in comparison to the prior year quarter. So we are obviously front-loading a lot of pain, a lot of adjustments that we need to do and we will continue to do so. So this is the core element. And I also guided on growth, especially in NET-A-PORTER, MR PORTER already in the second half of this fiscal year to show growth. And this will obviously also help on the -- on a ratio logic that from a lower expense base to then have obviously profitability improvement on the whole group reembarking on the growth trajectory again. And it always helps to be the #1 worldwide to really push also on the growth side. Michael Kliger: Yes. And let me talk about geography. We continue to see very good traction in the U.S. We highlighted it in our script, that it is actually the fastest at accelerating geography. Europe, excluding Germany, very stable growth rates. So we are across all the segments happy with that -- these 2 geographies. On the YOOX side, as we said, we are really focusing on the healthy core, which is Europe. So we intentionally drive business in Europe. Asia has stabilized, obviously at a low level. So we are really looking forward to continued growth in the short term in the U.S. and Europe. There may be upside opportunity now in China, but probably still early to say. And I just want to highlight that as a group, 31% of our business is now in the United States. So we feel very good about our U.S. business and our scale in the U.S. now. Operator: Appears to be no further questions at this time. This does conclude today's call. Thank you for attending. You may now disconnect.
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.]
Operator: Good morning, ladies and gentlemen, and welcome to the Metro Inc. 2025 Fourth Quarter Results Conference Call. [Operator Instructions] Also note that the call is being recorded on Wednesday, November 19, 2025. I would now like to turn the conference over to Sharon Kadoche, Director, Investor Relations and Corporate Finance. Please go ahead. Sharon Kadoche: Good morning, everyone, and thank you for joining us today. Our comments will focus on the financial results of our fourth quarter, which ended on September 27. With me today is Mr. Eric La Fleche, President and CEO; Nicolas Amyot, Executive VP and CFO; Marc Giroux, Chief Operating Officer; and Jean-Michel Coutu, President of the Pharmacy Division. During the call, we will present our fourth quarter results and comment on its highlights. We will then be happy to take your questions. Before we begin, I would like to remind you that we will use in today's discussion different statements that could be construed as forward-looking information. In general, any statement which does not constitute a historical fact may be deemed a forward-looking statement. Words or expressions such as expect, intend, are confident that, will and other similar words or expressions are generally indicative of forward-looking statements. The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, our annual budget and our 2025 action plan. These forward-looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks, known and unknown as well as uncertainties that could cause the outcome to differ materially. Risk factors that could cause actual results or events to differ materially from our expectations as expressed in or implied by our forward-looking statements are described under the Risk Management section in our 2024 annual report. We believe these forward-looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements, except as required by applicable law. I will now turn the call over to Nicolas. Nicolas Amyot: Okay. Thank you, Sharon, and good morning, everyone. I will now go over our Q4 results, starting with a comment on our Toronto freezer situation. As you are all aware, operations at our frozen distribution center in Toronto have stopped on Friday, September 12, as a result of a mechanical issue with the refrigeration system. Since then, our teams have been working hard on securing supply for our Ontario food retail network. Our contingency plan is ongoing and working well, and Eric will be sharing more color on the state of the DC in a minute. On my end, I will be focusing on the financial impact of this situation in Q4, as well as the expected spillover in our first quarter of F '26. The after-tax financial impact of this situation on our fourth quarter was $22.5 million or $30.6 million before taxes, which includes $24.5 million for inventory losses as well as $6.1 million for other direct costs related to temporary equipment rental to keep the temperature down in our freezer as well as incremental transportation and third-party logistics costs for the execution of our contingency plan. Looking forward to Q1 of F '26, we estimate that the direct costs associated with the rental of temporary chilling equipment and with the execution of our contingency plan will impact our net earnings by approximately $15 million to $20 million. The impact on sales and margin is expected to be modest, given the contingency plan in place, and we expect being essentially back to normal by the end of December. Now turning to our Q4 results. Total sales reached $5.1 billion, an increase of 3.4% versus the fourth quarter last year, driven by higher sales in our discount and pharmacy retail networks. Food same-store sales grew by 1.6% in the quarter, while pharmacy same-store sales grew by 4.8%, supported by 5.5% growth in prescription sales and a 2.9% growth in front-end sales. Our gross margin reached $1.022 billion, 20% of sales versus 19.7% in the same quarter last year. The year-over-year increase is partly attributable to shrink improvement in food retail activities as well as productivity gains at our food distribution centers. Note that the direct costs related to the freezer were recorded under operating expenses. Turning to operating expenses. They were $535 million in the quarter, up 4% year-over-year. As a percentage of sales, operating expenses were 10.5% versus 10.4% in the fourth quarter last year as they were unfavorably impacted by $6.1 million of direct costs related to the temporary shutdown of our freezer. Excluding these costs, operating expenses grew by 2.8% year-over-year and represented 10.4% of sales, the same percentage as Q4 last year. EBITDA for the quarter amounted to $485 million, that's up 5.5% year-over-year and stands at 9.5% of sales. Adjusting for the $6.1 million direct costs incurred for the Toronto DC, adjusted EBITDA stood at $491 million, up 6.8% year-over-year, reaching 9.6% of sales, an increase of 30 basis points over Q4 2024. Total depreciation and amortization expense for the quarter was $140 million, up $4.1 million. Net financial costs for the fourth quarter were $34.4 million compared to $32.6 million last year due to higher interest on net debt. Our effective tax rate of 24.1% is lower than the effective tax rate of 24.5% in the fourth quarter last year, largely driven by the Terrebonne tax holiday. Adjusted net earnings were $246 million compared to $227 million last year, an increase of 8.6%, while adjusted fully diluted net earnings per share amounted to $1.13 versus $1.02 last year, this is up 10.8% year-over-year. These results are adjusted for the $22.5 million after-tax impact of the freezer situation. Our capital expenditures in fiscal '25 totaled $511 million, down $69 million versus last year. The lower year-over-year CapEx level is mainly the result of the completion of our automated distribution centers in the summer of '24. Looking forward, we expect CapEx in F '26 to reach approximately $550 million as we continue to invest in our retail network. On the food retail side, in fiscal '25, we opened 14 stores, including 5 conversions and carried out major expansions and renovations at 17 stores for a net increase of 294,000 square feet or 1.4% of our food retail network square footage. Under our normal issuer bid program as of November 7, we have repurchased 8.7 million shares for a total consideration of $848 million, representing an average share price of $97.51. Closing in on fiscal '25, we are very pleased with our financial performance and the fact that we delivered against our financial framework. I will now turn it over to Eric for more color on our DC situation as well as on our overall performance. Thank you. Eric La Flèche: Thank you, Nicolas, and good morning, everyone. We delivered another solid quarter to finish a very good year, meeting or exceeding our financial framework metrics. In fiscal '25, we grew sales by 3.7%, adjusted EBITDA by 5.5% and adjusted earnings per share by 10.9%. Before turning to the quarterly results, let me share some color on the state of our frozen DC in Toronto. I'm pleased to report that operations resumed on November 10, and that we started shipping to our stores yesterday. We expect to essentially be back to normal by the end of December. The mechanical issue responsible for the shutdown affected several components of the refrigeration system and the repairs were complex. The setback was not related to the automation system. Our automated freezer DC in Quebec assumed a substantial portion of the Ontario volume together with 3 Ontario-based third-party logistics providers and also increased direct-to-store deliveries from several suppliers. I want to thank all our teams and partners who have worked nonstop on our contingency plan to minimize the impact on our customers. We have insurance coverage and are currently working with our insurers to confirm the amounts that we will be entitled to recover. Turning to the fourth quarter. We recorded sales growth of 3.4%. Food same-store sales were up 1.6% and 3.8% over 2 years. Discount continues to drive same-store sales faster than Metro with the gap between them remaining consistent with the prior quarter. Food same-store sales were negatively impacted by about 30 basis points due to the shutdown of the freezer over the last couple of weeks of the quarter and also by the lift we had during the LCBO strike that occurred in the fourth quarter last year. Total food sales growth of 3.2% reflects the performance of our new stores and conversions, which we are very pleased with. Our internal food basket inflation was below the reported food CPI of 3.4%. We continue to see inflationary pressures on certain commodity prices, namely in the meat category. We are presently in our price freeze period. However, we continue to receive price increase requests from our vendor partners at levels higher than a typical 2% to 3%. We continue to negotiate hard to minimize the impact on consumers going forward. During the quarter, our Metro stores saw an increase in average basket, partly offset by a slight decrease in transactions. On the discount side, both basket and foot traffic were up as customers continue to search for value. Promotional penetration remains at elevated levels and consistent with prior quarters. Private label sales continue to outperform national brands by a healthy margin. The competitive environment remains intense but rational, and our market share was flat for the quarter. Online sales grew by 19.8% in the quarter, driven by the ramp-up of click-and-collect and the launch of home delivery at both Super C and Food Basics as well as third-party marketplaces. Last month, we celebrated the first anniversary of the Moi loyalty program in Ontario. Although still early in the program, we continue to see encouraging metrics with a growing member base and improved penetration rates. Turning to pharmacy. The business sustained its momentum with another quarter of strong Rx sales growth and positive front-end performance. Prescription sales were up 5.5% driven by continued organic growth, specialty medications, GLP-1s and clinical services. In fiscal '25, we recorded 5.4 million clinical services in our network of pharmacies, a number that is well aligned with our leading market position in the province of Quebec. Commercial sales were up 2.9%. The strong performance was driven mainly by growth in beauty and cosmetics and partly offset by a slow start to the cough and cold season. As Nicolas mentioned, we are on track with our plan to accelerate the development of our growing discount banners as we successfully opened 9 new stores and converted 5 stores in fiscal '25. We continue to see more opportunities in the coming years, and our plan calls for a dozen new discount stores in fiscal '26 including a few conversions. Looking forward, halfway through our first quarter, we are seeing similar trends to Q4 in food same-store sales. On the pharmacy side, prescription sales continue to be strong, but sales of OTC products are softer due to the slow start of the cough and cold season. To conclude, in addition to the ramp-up of the freezer, our focus remains on realizing efficiency gains throughout our supply chain and store network while we continue to execute on our plan to accelerate the development of our growing discount banners. We remain steadfast in our efforts to deliver the best value possible to our customers through our effective merchandising programs, strong private labels, the Moi program and consistent execution at store level. Thank you, and we will be happy to take your questions. Operator: [Operator Instructions] First, we will hear from Chris Li at Desjardins. Christopher Li: Thanks first for quantifying the impact on the same-store sales with the DC shutdown. Eric, I was wondering, are you still seeing some impact in Q1 when you said the trends are in Q1 and similar to Q4, or is that 30 basis points pretty much now behind you in Q1? Eric La Flèche: The answer is we continue to see an impact from the freezer situation. It is impacting our same-store sales a bit. So that's continuing. I said the 30 basis points was 2 events, the freezer for 2.5 weeks and the LCBO last year. So the freezer situation is having an impact. We're losing a bit of sales and margins. It doesn't show too much to the consumer, but we don't have a full assortment in certain categories, and frozen bakery is an example. So when I say similar trends in Q1 to Q4, we're in the same -- very much in the same ballpark. And we continue to be affected by the freezer situation. It is a bit of a drag included in that number. Christopher Li: Okay. And presumably, once it's fully back online by end of this calendar year, I mean, that shouldn't really be a headwind anymore? Eric La Flèche: That's correct. Christopher Li: Okay, okay. That's helpful. And then just maybe a quick one on gross margin. It continued to benefit nicely from the productivity gains at the food DCs. Is it fair to assume we'll continue to see the benefits manifested in fiscal '26? Nicolas Amyot: Chris, so I would say, yes. However, I guess, as you know, we are in a very competitive industry. So we're always looking at preserving, gaining market share. So not to say that some of these benefits would not be "reinvested" in promotional activities. But the -- I would say that, yes, the benefits that we've been able to capture are there to stay. Christopher Li: Okay. That's helpful. And maybe last question on the pharmacy business. We had another very strong year both in terms of prescription and commercial sales growth. I guess my question is, do you expect kind of similar drivers for this year that have supported the strong growth in the previous fiscal year? And then what are some of the things that you guys are watching closely? Eric La Flèche: Yes. We expect the same fundamental trends. The Rx growth has been very strong the last couple of years. We're seeing still good growth. The expanded scope of practice going forward is going to be a tailwind on Rx eventually when Bill 67 kicks in. On the front-end, it's a competitive market. We're well positioned. We have a great network, good merchandising, good programs, and we're confident in our ability to continue to see decent growth in our front-end sales. The fundamental drivers are still there. Aging population, health trends, clinical services, expanded scope of practice, these are all good tailwinds, structural tailwinds for pharmacy for us in Quebec. Operator: Next question will be from Mark Carden at UBS. Mark Carden: So just to start, just wanted to see your latest thinking on the health of the consumer. Has purchasing behavior changed much from last quarter? And then just related, are you still seeing much of a Buy Canadian push? Eric La Flèche: So consumer behavior is very similar to what we've been reporting for several quarters, as I outlined in my opening remarks, so not much to add there. Buy Canada, it has softened up. There's still more growth in Buy Canadian product sales than non-Canadian product sales, but that growth has somewhat narrowed versus what we saw in spring and summer. So it's declining a bit. And since counter tariffs were lifted in -- on September 1, some of these products, U.S. products prices have gone down, so that's maybe contributed to the narrowing of that gap. Mark Carden: Okay. Great. And then just on prescription drugs, you guys continue to do well there, slight deceleration from the last few quarters, though. Just curious what the primary drivers you're seeing in the growth of prescription drugs are from a category standpoint. What you're seeing from the GLP-1 angle? And then any update on your outlook for health care services? Eric La Flèche: I'll let Jean-Michel have a crack at that. Jean-Michel Coutu: Yes. So I think Eric highlighted the drivers very well. So GLP-1s continue to be a tailwind. There's been some changes in that category as new products have come into market in Canada, and that's also continuing to boost growth in that category overall. In terms of professional services, we're continuing to see growth on professional services. Although since there's no new services, we're starting to see that it's moderating a little bit, but with Bill 67, we do expect that to pick up. We don't have any news on the Bill 67 front. Right now, we're probably looking at a January time line depending on the negotiations between the government and AQPP. But on that is the same underlying drivers that are going to continue to maintain that momentum in F 2026 for us. Operator: Next question will be from Irene Nattel at RBC Capital Markets. Irene Nattel: I think we're all kind of hyper focused on any marginal changes in the environment, kind of competitive intensity consumer behavior. But based on your comments, Eric, like are there really any or is it fairly stable to, let's say, earlier in the year? Eric La Flèche: I think it's fairly stable, like very consistent environment, I would say, and consumer behavior. The accelerating square footage growth is not new for this quarter, but it's been something that we've opened stores, others have opened stores. So there's industry square footage growth out there that's having an effect. It's making the market certainly more competitive. So the level of same-store sales we're reporting, I think, reflects some of that new competition, new square footage in the market. So that's the only comment I would add. Irene Nattel: That's really helpful. And then just coming back to a comment that you made about requests for price increases being in excess of the historical 2% to 3%. I think you called out meat, but what about other categories? And what would be your expectation for where things actually settle out versus the request? Eric La Flèche: So price request of over 2%, 3% is not unusual. We've seen that before, mid-single digits, high single digits, sometimes more, it depends on the category, the ingredients, particular situations. So this is, I would say, normal situation. The quantity remains elevated of price increase request, but we deal with it as best we can. We negotiate in good faith with our vendors. We pushback when we can. And when it's justified, it will be a market increase and we will have to take it. As I said in the opening remarks, we're in the freeze right now. So there were some price increases before November 15, and the next wave will not come before February. So consumers -- we're trying to protect consumers as much as we can and give value as much as we can. What the outcome of those negotiations are, we expect to be normal and we expect it to be manageable and we expect to stay in a range of inflation in the 2%, 3%. But the jury is out, and I don't have the famous crystal ball. We'll see where it lands. Irene Nattel: That's great. And just one final one for me, please. You mentioned the accelerating square footage growth, yours and the others notably in discount. What kind of returns are you seeing as you open these real estate projects? And are they any different from historically? Eric La Flèche: In general, we're pleased with our returns. We analyze investments very carefully. We have our internal thresholds. We're meeting our investment thresholds. So market by market, investment by investment, we're careful to make the decisions that will contribute to long-term shareholder growth and capture the market share that we think is out there to capture for us in a responsible and disciplined way. So short answer is we're meeting our financial targets. Operator: Next question will be from Michael Van Aelst at TD Cowen. Michael Van Aelst: I just wanted to go back on your answer to one of the earlier questions about the industry's square footage growth. And I mean, I think it makes sense that it's moderating the levels of same-store sales growth. But you also said that it's making the industry more competitive. Now I guess I'm wondering, is it just making it more competitive in terms of lowering that same-store sales growth? Or is it also impacting your gross margins? Because your gross margin up 23 basis points was actually quite solid. And so I'm kind of curious as to whether you're seeing pressure on the gross margin. Eric La Flèche: The comment was more of the same. When there's a new store opening across the street, it makes it more competitive for your existing networks. So I said, square footage makes it more competitive because it adds competition in certain markets and it impacts same-store sales for that market. So for me, it's one and the same. The gross margin, we're pleased with our results this quarter. So we're able to manage through this competitive environment and pleased with our performance. I think we have experienced merchandisers, and we're doing what we can to meet our targets. But we're in a competitive environment and we always have been. Michael Van Aelst: Okay, so okay. And then Nicolas mentioned that the DC efficiencies that you're getting are helping to drive that gross margin higher. I mean that was the case, obviously, in this quarter in the face of some of these competitive pressures. So what might change? What do you think might change over the next -- over fiscal '26 that might require you to reinvest some of that margin improvement back into promo activity like you suggested might be necessary? Eric La Flèche: I don't want to speculate. We are competitive. We always will be competitive in the market to protect our share, protect our sales and deliver decent margins to our shareholders for the business. What might change? It's hard to give you a straight answer or clear answer to that. We're in a competitive market and we're confident in our position and our ability to compete. We're well positioned with our network of stores, both Metro and discounts in both provinces with a very good market share. I think we're well positioned to continue to do well. Michael Van Aelst: Okay. So maybe just I'll ask it a little bit clearer. Is there anything that you're seeing now that's causing you to reinvest some of that gross margin gain that you got in Q4? Or is that just a possibility in future quarters? Eric La Flèche: Well, it's always a possibility, but we don't give guidance like that, and I think we should. That's all I'm going to say. Michael Van Aelst: Okay. Just to be clear on the DC impact. When you talked about the direct impact of $6 million, all of that was in OpEx, I believe you said. So when you say you got -- you had -- I don't know, you said 30 basis point impact from 2 factors. So let's call it 20 basis points from the freezer. Was that adjusted for in the EPS? Or is that not? Or was that left to flow through? Nicolas Amyot: No. So what I said, as you've mentioned, is that all the direct costs associated with the freezer were recorded under OpEx. When the freezer situation happened, we completely stopped operating the freezer, shipping products out of the freezer. So the gross margin benefit that we've seen was realized, if you will, prior to that situation and is "not adjusted for." It just does not include any impact for the freezer. All the direct cost, incremental costs are in OpEx. Eric La Flèche: Just to pick up on that, we did not adjust for the lost sales and the margins on those lost sales. We adjusted for the loss of inventory in the warehouse and the direct cost. Nicolas Amyot: Was that clear, Mike? Michael Van Aelst: Yes, that's clear. Operator: Next question will be from Mark Petrie at CIBC. Mark Petrie: Thanks for all the comments on the consumer and the competitive environment. That's very helpful. Hoping you can elaborate on the steps you took with regards to the frozen DC just to get it back on track to full operations. Was it repair, replace? And how have you sort of addressed the risks of recurrence? Eric La Flèche: Thank you for that question. So I'm not an engineer, and I don't want to say things that are way out of my league. But there was a complex repair and set up. So it involved compressors that were repaired, heat exchanger that is being replaced. So we are changing some components of the heat exchanger system to a different system, and we will be adding some redundancy so that we will avoid the situation. We will do eventually or in the not-too-distant future. We don't face the same risk in Terrebonne, our other frozen automated frozen facility in Quebec. That one is a fresh and frozen building on a different refrigeration system. We made sure that we have enough capacity and redundancy there. We will add even more, but we are in a good position there. And I think the risk is well managed. I think the good news in this catastrophe is what Terrebonne, our Quebec DC was able to pick up from Ontario. So very pleased that we were able to increase capacity in Terrebonne in short order quite substantially. So that proves that we have good networks, good facilities with good systems that can operate. Again, the breakdown in Toronto was really mechanical, refrigeration related, not IT or automation related at all. I hope this answers your question. Mark Petrie: Yes, it does. And I'm not an engineer either, so that's more than enough for me. But I guess maybe just to follow up, the cost for whatever you did have to do with Terrebonne, that's included in the $15 million to $20 million for Q1 or that's just included in your overall CapEx budget? Or where do those costs fall? Eric La Flèche: So the $15 million, $20 million that we flagged out for Q1, a lot of that is transportation costs, and that includes Terrebonne. So we're shipping from Terrebonne to Ontario stores all over the province. So that has a substantial cost, transportation costs, and that's in that number. Mark Petrie: Yes. Okay. Sorry, I just meant the cost of the equipment, but I think it was probably relatively small. And then my only other follow-up question, just on the same-store sales and, I guess, specifically to inflation. It seemed like the gap to CPI was wider this quarter than it has been in the last number of quarters. Would that be a fair interpretation? And if so, when you look at your internal data, what would account for that? Eric La Flèche: I wouldn't say the gap to CPI increased. We're in the same ballpark. CPI for our markets was 3.4% We're in the 3% range. So it was about a similar gap in the previous quarter, if I recall. And we don't see a huge gap, but there's a gap. Operator: Next question will be from Vishal Shreedhar at National Bank. Vishal Shreedhar: I just wanted to circle back to the GLP-1s that will go generic and have an impact on Metro's drugstore business. Is it fair to suggest that there'll be an impact on same-store sales growth and gross margin dollars? Or do you anticipate some of that being completely or more than offset by volume? Jean-Michel Coutu: Yes. So I could take this one. So it's a good question. Right now, the challenge is we don't have a crystal ball, so we can't really tell you when Ozempics could be genericized. There's been some delays. We know that the first submission did receive a notice of noncompliance. So clearly, it's going to be pushed further into F 2026 for us. Some people are saying spring. And then the question becomes, will they have enough supply to meet the demand. That also is going to change the dynamic and the impact of GLP-1s for us. But when you look at it right now, the submission is for Ozempic, which is primarily for diabetes. Are they going to be prescribing also for weight loss? Chances are, yes. But there are other alternatives, as I mentioned earlier, on market right now that have also continued to bring a little bit more dynamics to that category. But yes, it will -- a generic, if the demand doesn't pick up because of the lower cost, will create some deflation in our same-store sales. Right now, when we look at latent demand, we do expect some pickup because of the accessibility of the new price point. And then in terms of margin, in our model, it can create some margin decrease as we make margin as a percentage from wholesale. So that's, I mean, that's the dynamic right now in the market, but there's still a lot of unknowns for F 2026. Vishal Shreedhar: Okay. That was helpful. With respect to the Jean Coutu network, is that sufficiently outfitted to capture the growing demand for professional services? And how can I think about the size of that business for Metro? Jean-Michel Coutu: Yes. So right now, it's more of a same-store sale business, and we get royalties on those fees. But when we look at our network, we are very well positioned. We've invested for a long time in making sure that our stores have sufficient consulting rooms on average 2 per store. And now we're looking at stores with 3 and 4 as we're renovating and continuing to expand our stores. So we are in a very strong position to continue to offer these professional services across our network. It's something we've always invested in, and we see it right now, we're capturing our fair share of professional services and it's continuing to grow. Operator: The next question will be from John Zamparo at Scotiabank. John Zamparo: I wanted to follow up on the gross margin gain topic. The year-over-year gain this quarter was significantly more than what Metro had posted over the last 3 quarters. I know you called out shrink improvements and productivity gains from the DC. But is there any color you can add on why this made a more meaningful improvement this quarter versus the past 3? Eric La Flèche: Not really. Maybe Marc can add color, but not really. Marc Giroux: Maybe a comment on the 2 questions regarding margin. Gross margin is a very dynamic and fluid concept of results. Our focus is winning on customer value and driving tonnage and maintaining share and delivering, as Eric said, the bottom line and shareholder value. So the rate itself for us is a guiding post but not an objective in itself. So depending on the quarter, depending on the dynamic, depending of the tonnage available, our merchandising team will invest and deploy strategy to win in the marketplace. As you've seen in the past, our gross margins have been quite stable for multiple quarters. Some -- to Nicolas' point earlier, some of the productivity gain and shrink gain sometimes are reinvested to drive tonnage and sometimes they're flowing to the bottom line. I don't know if that helps and provides additional color. John Zamparo: Yes. And just a follow-up on that, the fact that shrink is listed as the first factor, should we interpret that as that was the larger of the 2 drivers between that and productivity? Nicolas Amyot: Not necessarily, John. I would say it's a combination of shrink, DC productivity, including DC within the DC as well as all of our logistics around transportation. So I would say that they are similar contributors. John Zamparo: Got it. Okay. And then in the outlook, you talked about 12 new or converted stores in F '26. Apologies if I missed it, but can you say what you expect for net square footage growth for this year? Eric La Flèche: It's a little -- for fiscal '26, we're seeing above 1%, 1% to 1.4% where we land. Operator: [Operator Instructions] Next is a follow-up from Michael Van Aelst. Michael Van Aelst: Just a quick one on the insurance claim. I know you said you're still negotiating it. But is your expectation that it's going to cover most or all of the direct and indirect inventory hit or just one of them? And then do you have any idea of the timing? Eric La Flèche: Michael, I would have liked to report that exactly that we're going to get it all back. These are complex policies with several insurers. So what I read is -- what I'm told, I should say, we're making our claims. We're going to get as much as we can. We think we're well covered with good coverage, and hope -- we will keep you posted, and we hope to get most, if not all of it back, but we'll see. We'll see where it ends up. Michael Van Aelst: Yes. Can you comment at all on the timing? Eric La Flèche: Hard to say, too. We're going to get some advances. It looks like they're going to -- they recognize liability. So we're going to get some money pretty early. For the rest, I don't know how long it will take. So we'll keep you posted. Operator: Next question is a follow-up from Chris Li. Christopher Li: Sorry. I'm sorry if you talked about this already, but just a question on your SG&A expenses for the quarter. If we exclude the $6 million of nonrecurring costs, it was fairly normal. I think it was up just under 3%. And I know you don't give any sort of guidance for this year, but I'm just wondering like is there anything over the horizon that would cause you perhaps to deviate from that 3% growth for this year if you exclude the onetime costs that are still coming in Q1? Nicolas Amyot: Yes. So as you've mentioned, I think adjusted for the direct cost of the freezer, the year-over-year growth of SG&A was 2.8%. Nothing specific to highlight, multiple categories contributed "normally" to the increase. Nothing that we see on the horizon that should have a material impact. We have always ongoing union labor negotiations that could come and have an impact. But as you've mentioned, we don't give specific guidance. And I would say nothing specific to highlight. Christopher Li: Okay. That's helpful. And then on the share buyback. You bought back, I think, $800 million of shares in fiscal '25. Do you expect a similar amount in fiscal '26? And then maybe related to that, you do have still a very strong balance sheet. I think your leverage is only 2.2x, which is below your target. Do you anticipate there's more room maybe to use that to accelerate the buybacks if you think it's appropriate? Nicolas Amyot: Yes. I think at this point, as I've mentioned, we've -- as of November 7, we have repurchased 8.7 million shares. The total approved program was 10 million shares. We're obviously not going to get to that by November 26. I would say that next year, at this point, I would expect a similar program and similar kind of operating conditions, meaning we're not necessarily going to totally fill it. And I think leverage wise, we've been saying that we are in a good position balance sheet wise. We might increase leverage in the future depending on conditions and I would say, for the moment, message is the same. Operator: Thank you. And at this time, we have no other questions registered. Please proceed. Sharon Kadoche: Thank you all for your interest in Metro, and please mark your calendars for our first quarter results on January 27. Thank you. Operator: Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you disconnect your lines. Have yourselves a good day.
Mark Herndon: Good afternoon, everyone. Thank you for joining us on this call. My name is Mark Herndon, Chief Financial Officer of Horizon Kinetics. We are pleased to have you join us for our call that will cover our results for the third quarter of 2025. But first, a reminder that today's presentation may include forward-looking statements. Reliance on forward-looking statements involve certain risks and uncertainties, including, but not limited to, uncertainty about the future security valuations or our performance. During the course of today's call, words such as expect, anticipate, believe and intend may be used in our discussion of our goals or events in the future. Management cannot provide any assurances that future results will be described in our forward-looking statements. Furthermore, the statements made on this call apply only as of today. The information on this call should not be construed to be a recommendation to purchase or sell any security -- particularly security or investment fund. The opinions referenced on this call today are not intended to be a forecast of future events or a guarantee of future results. It should not be assumed that any of the security transactions referenced today have been or will prove to be profitable or that future investment decisions will be profitable or will equal or exceed past performance of the investments. We encourage you to read our filings with the SEC on our Form 10-K as well as our other filings, which describe the risks and uncertainties associated with managing our business. The company does not assume any obligation to update any forward-looking statements made today. These filings can also be found at the OTC Markets website and our press releases or other information is at our corporate website at www.hkholdingco.com. Today's discussion will be led by Murray Stahl, Horizon Kinetics' Chairman and Chief Executive Officer, and will also be available to answer questions -- applicable questions, and we'll moderate the questions. [Operator Instructions] With that, I'll turn it over to Murray to start us off. Murray Stahl: Okay. Thank you, Mark, and thank you all for joining us. So I will lay out the format for today. So when there's a minute or 2, I'm going to turn it over to Mark Herndon. He's going to review the financials, then I'll take it back. And I might go into a little detail of a financial high point that I think is merits note. And then I will talk about strategy and how we're going forward and some interesting things that we are in the process of doing and some other things that we hope to be doing. So with that, Mark, you can describe the financial results, and you can relay it to me after that. Mark Herndon: Great. And as a reminder for everyone, our Form 10-Q update continues to be our required GAAP presentation that includes certain proprietary funds as consolidated entities, and our press release continues to present both that GAAP presentation as well as a supplement that provides our financial statements, excluding those funds. We call that the adviser-only presentation. Consistent with what we have previously reported, this is a presentational matter that does not impact the company's earnings available to HKHC shareholders or the shareholders' equity of HKHC. The consolidated results present higher total assets as we include the investment assets of those funds that we have consolidated on our balance sheet as well as a line item called redeemable noncontrolling interests. That line item essentially represents our clients' account balances that are supported by the assets of those funds, which you'll see identified in our financial statements as consolidated investment products. Another notable difference is the treatment of management fees charged to those consolidated investment products. Under GAAP, those revenues are eliminated for consolidation since the fund is presented within the financial statements. It is akin to an intercompany transaction. However, the economic benefit resulting to HKHC shareholders remains and that economic benefit is reflected through a smaller allocation of the investment returns of the consolidated investment products to the redeemable noncontrolling interests than what they would otherwise have received. You can also see the impact of those items in the table within the MD&A of our 10-Q filing. Our results this quarter continue to be favorable for HKHC shareholders. The company recorded revenues of $17.9 million for the quarter, a $4.8 million or 37% increase from the third quarter of 2024. The year-to-date period was similarly higher with a $55.8 million of revenues thus far in 2025, which was 49% higher than 2024's year-to-date period. These increases are primarily the result of the overall increase in AUM across the portfolio of investment products and client accounts compared to 2024. At the adviser-only level, as presented in the supplemental table within the press release, operating income was $5.5 million for the third quarter, up from $1.5 million in the prior year and the year-to-date period was $16.1 million as compared to $5.4 million in the prior year. These results were driven primarily by the revenue growth we just mentioned. Overall, the company's net income was $0.39 per share for the quarter and $1.05 per share for the year-to-date period. And please note that our net income or loss is often impacted by swings in unrealized gains or losses associated with certain investments, including digital assets. This quarter, that included an aggregate of $10.1 million of unrealized losses related to our investment securities and equity holdings in our proprietary funds. Those unrealized losses compared to the third quarter of 2024, which had unrealized gains aggregating about $31.6 million. This is an illustration of what we have previously noted for you that may result in seeing volatility from quarter-to-quarter as a result of unrealized gains or losses in various holdings, including those digital assets, which is primarily Bitcoin. I should also note that the third quarter of 2024 last year also included the cumulative tax adjustment for converting from a pass-through entity to a C-Corp, which resulted in an approximately $60 million deferred tax liability and expense upon the adoption of that status. That deferred tax value on the balance sheet changes quarterly based on movements in the underlying cumulative tax differences, including investment holdings or applicable tax rates. From a cash perspective, the company has paid approximately $4 million in income taxes in 2025 year-to-date. From a balance sheet perspective, the company continues to have substantial cash and investments, including amounts outside of the consolidated investment products, and we have no third-party debt. Our long-term liabilities are limited to various long-term office space leases. The company's Board recently declared a $0.106 per share dividend, which reflects a 49% increase from the prior quarter's dividend. This dividend will be paid on December 17 for shareholders of record as of November 25. That concludes the prepared remarks. I'll turn it back over to you, Murray, to say a few words before we get into Q&A. Murray Stahl: Okay. Thanks, Mark. And so -- you've heard that we are required to present our financials on a consolidated basis. I personally think it's important to look at the unconsolidated results, and those can be found in the 10-K -- I mean, the 10-Q, I beg your pardon, and starting on Pages 17, 18 and so forth. So let me just point out a few things there, and then we'll talk about some operating matters. So you will observe that on September 30, we had on our balance sheet this consolidated company. This is the company equity, not the consolidated equity. We had $37 million in cash. At the same period of time a year ago, December 31, we had $14 million in cash and caused us a little problem, you might recall, because we had these performance fees. That's very nice to have performance fees. The problem -- the only problem with performance fees, of course, is that the United States Treasury would like to get its money on an estimated accrued basis, but we don't have access to that money until we've actually finalized the numbers. So it was a little bit of an issue, not a big issue, but a little bit of an issue to actually raise the cash needed to pay the taxes to that would be applicable for our performance fees, which we're delighted in getting. Now that impacted last year's dividend policy because we didn't want to be caught in that circumstance again. Now in principle, we had no possibility whatsoever in lacking liquidity because we have a large and liquid securities portfolio, we could have sold securities. The problem with selling the securities is, they are at gains. And anything we sell at a gain would require even more taxes, which we'd very much like to minimize. So I say these things for two reasons. One, of course, is to call your attention to the cash balance and the effect on last year's dividend policy. You'll note that the dividend we just announced is higher than what we paid last year, even though we haven't accrued a performance fee yet, although we might in the future. And the second thing is just to make you comfortable with looking at the financial statements the way we look at the financial statements, which is to focus on the operating company. And the operating company for the year-to-date period, and it's the year-to-date period that I would argue is more important than the quarterly period. This is more important than the quarterly period is because with possibly performance fees and with fluctuations in markets, there are only so many conclusions one can draw from the individual quarterly results. So I personally like to focus upon the year-to-date results. In this particular case, the operating income line, which you will find on Page 18, the operating income line is $16.1 million approximately. So that's when my attention is drawn to the financial statement, that's the first number I look at. You'll see below the operating line, there are all sorts of things, entries and sometimes they're positive and sometimes they're negative, has an accounting impact in as much as we don't really bear the full brunt of negativity because we unaccrue certain tax liabilities. So just like we share our profits with the United States Treasury, we will also share our mark-to-market losses with the United States Treasury as well. So it's never as grievous as the below-the-line numbers appear to suggest. And I think the numbers should be understood in that context accordingly. Now a lot of interesting things have happened year-to-date. I'll call your attention to only several. One is, we launched a Japan owner-operated ETF in the month of May. And that ETF has now achieved $25 million in assets under management. Now obviously, $25 million in assets under management is not going to radically change our profitability. We also, some years back, you might recall, we launched another ETF called the Blockchain Development ETF. That ETF has more or less about $20 million in ETFs, even the aggregation of those are not going to radically change our profitability. However, you will observe that our largest expense, again, from the income statement is -- our largest single expense is sales and distribution and marketing. Employee compensation is even a bigger expense, but a lot of employee compensation is marketing related because the biggest unit we have is marketing. And that brings up the biggest problem in asset management companies, which is raising assets. And dilemma that every asset manager wrestles with is, how much time will be devoted to raising assets under management? Because that is the amount of time you're going to abstract from investing portfolios and doing the research. What we'd like to do is, we'd like to minimize the amount of time we spend marketing, so we can maximize the amount of time we spend doing research and investing so that we can have as good results as we possibly can. So the object of the exercise in Japan ETF and the Blockchain ETF was to see if we could raise money reputationally. In other words, the products get a reputation, the products were not marketed in a traditional sense. They spread with word of mouth. And we're looking to see what we did right in attracting the assets. Now obviously, if they had a lot more assets or alternatively, if new assets come in, and they're coming in through that modality, it's an incredibly high-margin business. So it's a success as it were, and we hope to make it a bigger success. If that success does materialize, the conclusion one would draw is, our margins would expand -- hopefully expand considerably. Now it turns out that in the first quarter of 2026, just around the corner, we're going to launch another ETF. And we haven't really officially publicly announced what it's going to be, but personally, I'm pretty excited about it and with the same approach, word-of-mouth approach. We'll see how far we can come with all that. And in addition to margins, the biggest challenge you really have in asset management is the challenge of indexation. Active management in and of itself doesn't really have the scalability of indexation. Indexation, obviously, since the S&P 500 has hundreds of trillions -- has trillions upon trillions of dollars of market value, the hundreds of trillions. I think the market capitalization of S&P 500 is $64 trillion or thereabouts. So obviously, it's a big number. So to go from $1 billion of assets to $5 billion of assets, it's not a problem. That's scalable. In the world of active management, you're only going to find so many good unrecognized ideas, and you have to realize there's a limit to how much money you can invest in. Therefore, it's not scalable. Therefore, you have to continually devise new products. So that's one of the challenges. We'd like to spend our time finding new investments rather than scaling our existing investments. And towards that end, we've come to the conclusion that we'd like to separate as much as possible, raising capital from managing capital. That brings me to another thing I think you'll find intriguing. You will observe that we brought a company public called Consensus Mining, trades under the symbol CMSG over the counter. It has a market capitalization of more or less $80 million. Horizon is the manager of the cryptocurrency in their portfolio. What do we mean by management? Well, Horizon manages the mining of cryptocurrencies. In Consensus Mining, we do something called scripts mining, which is basically to mine two cryptocurrencies simultaneously with one electric current. This is not the place or time to go into the detail unless somebody asks a question, then we will go into detail, but we do that. And as far as I can tell, it's actually pretty successful. So the amount of crypto is growing, but it's growing organically. It's not growing from marketing. If the company were to require capital and maybe one day that time will come, that will be the prerogative of that company. So Horizon is the manager and Horizon gets a fee. At the moment, that fee is de minimis. Why is it de minimis? Because we're looking to incubate Consensus Mining. But in the fullness of time, contractually, that will pay a substantial fee. It will be not substantial in relation to investment management fees as they are known to exist, but will be substantial relative to the de minimis quantities we get right now. We do the exact same thing with Winland Holdings which at the moment is 44% plus owned by our colleagues at FRMO Corporation. So there are two businesses. In total, the assets are crypto assets plus the devices that we use to mine crypto assets. And I believe, if I'm not mistaken, the aggregation of assets were over $50 million. If we were to charge a fulsome fee, that would be 1% and the number was $50 million of assets under management. 1% of $50 million is $500,000. So at that quantity, $500,000 would come right to the bottom line. There'll be some taxes on. So you can see we're building the potential for operating leverage, and we're separating to the degree that we can, the raising of capital and the managing of capital, something that -- just that everybody in investment management business has reflected upon. And to the best of my knowledge, and please correct me if I air in saying this, but I'm not familiar with anyone successfully addressing that question. So I think we're up to some really interesting things. We will wait for the new year to see what our new ETF does. Of course, at that time, I will report back to you. And we are mining new crypto coins every day, which, of course, adds to our assets under management in the crypto context. And I think we're up to some interesting things. So rather than continue, I'll stop here, and I'll open up for questions if anyone has any questions. And as per tradition, we will stay around and answer every question until we resolve questions. So if there are some questions, I'd be delighted to answer. Mark Herndon: We have a handful of questions already. [Operator Instructions] Going back to a topic you mentioned a minute ago about the Japanese fund. The question was simply, can you clarify the percentage of the AUM, which, as you mentioned, we publicly disclosed the assets under management for the fund. It's on our website. It's about $25 million, which is obviously a small portion of the $10.4 billion of AUM. But I do want our listeners to understand that you can find that information on our website. Is there anything else you want to talk about in terms of the opportunity of the Japanese market overall, just more broadly? Murray Stahl: Well, I suppose I'd be remiss if I didn't do at least a little bit of marketing since I'm already on the call. And let me put it this way. So virtually everybody in the world of investing is a devotee of diversification. So I will share a statistic with you. If you bought a European index and just by coincidence, 13% of the European equity index is pharmaceuticals. And if you took the pharmaceutical companies and looked at their revenues and disaggregated them by geographic exposure, you will find that not quite, but almost 2/3 of the revenue comes from the United States. Now obviously, the sum of the parts made is equal to whole. So if 2/3 or almost 2/3 of revenue comes from the United States, everything else is much less than United States. Therefore, the United States and the European pharmaceutical companies are the biggest exposure. So I think it's legitimate to ask in a very real sense, yes, of course, they domicile in Europe. Are they really European companies? You're really getting a different exposure, and that's Europe. Let's turn our attention to Japan. So big companies in Japan, Toyota, Sony, SoftBank, Mitsubishi UFJ. if you look at their financial statements, you will find the lion's share of their exposures geographically come from the United States. So how can it be that one buys an index in Japan with a view to diversifying away from American exposure and one buys a stock like Sony because it's part of the index, and Sony happens to have well over half of its revenue originating in the United States of America. So I think we're entitled to asking, is it a Japanese company or is it an American company? So one of the virtues of Japan ETF, I don't want to make it too much of a selling point of the Japan ETF. This is a Horizon Kinetics call, not a Japan ETF marketing call. But in any event, what's the point of investing abroad, for simplification, if your revenue is actually going to originate in the United States of America. This is an ETF where the companies do the lion's share of virtually all of their business in Japan. So for better or worse, this is really a Japan ETF. And in relation to Japan ETFs, they are largely comprised of the biggest companies in Japan, which are global multinational, it is distinctly different, and I think it is superior. They have other attributes that I think may make it further superior, but I'll leave it there, and you can get a sense of what we're trying to do. We're trying to develop very, very unique products. And I think Japan owner-operators' ETF is one such product. So I'll leave it there. Mark Herndon: Okay. And then with respect to our own portfolio, we've had a couple of questions come in. A perennial favorite to talk about the TPL stock. One of the questions is just simply, how much of our AUM does TPL make up? And the other is a question about if as a firm that we have been selling TPL stock. And of course, I understand that with some regulated products from time to time, there may be sales around the mutual fund or individual clients might provide instructions, but I don't believe anything has changed on that front, but I wanted to see if you would expand on our views about TPL in general? Murray Stahl: The only time we really sell it is where we're compelled to. So there may be cases like we have it in a certain portfolio and the regulations about what your exposure can be and you have no choice, you have to reduce it, not reducing it for any fundamental reasons. If the exposure too high by regulation is appreciated, well, we'll have to reduce the exposure. And of course, we're mindful of regulations, but not selling it for any fundamental reasons. As far as fundamentals go, in my opinion, of course, and feel free to disregard, I think the fundamentals are fabulous. I really do. I think they're absolutely fabulous. So you can take that for what it's worth, but I couldn't be more excited about the future prospects. So you might well, let me leave it there. But if you have more detailed questions to the degree, I can answer them, I'll be glad to answer. Mark Herndon: Okay. The next question is also about our portfolio. The commenter has noted the drop in LandBridge stock following a stock offering to their existing shareholders, and they were asking, is that an expression of doubt about data centers or the volume of data centers coming to that area or just what's the view there? Murray Stahl: Well, let's see what I can say about that. Yes, I think I can say about that. So first of all, you may be interested to observe. So on October 10, just for some reason, I have to -- I just remember that on October 10, LandBridge traded in round numbers at $49 a share. It's not exactly $49 a share, so forgive me for generalizing, but roughly $49 a share. Some number of days ago, LandBridge traded at $85 a share. Today, LandBridge trades at roughly $62 a share, okay? So clearly, in a little over a month, that's a pretty big movement, up and down, that's a pretty big range. So right now, without being too precise about it, we're just in the middle of the range. Interesting enough, today, because it was -- the matter was brought to my attention, LandBridge traded as low as $58, as high as $62 and a fraction, even in 1 day. That's a pretty big range. So it had something to do with the fundamentals. What can possibly happen in a 24-hour time period regarding data centers for any company? And if it did happen, it would truly be momentous and it would be disclosed because it would have to be disclosed. So basically, in my humble opinion, this is just my humble, I underscore the word humble opinion. I think it's a function in the modern age of how people do research. So basically, a typical person does research, I'm not like this, but a lot of other people seem to be, they have a screen that they look at constantly, and they have the prices of securities and some are up and some are down and some are more or less unchanged. And LandBridge is supposed to be active in data centers. They're waiting for an announcement and they haven't seen the announcement yet. So I can only imagine the reason thusly, perhaps there never will be data centers. And if there never will be data centers, then why am I paying X for the shares? They must surely be worth much less. And perhaps I should sell them. And on the other hand, there are days when people come to the exact opposite conclusion, as you can see from the ranges of the prices in a very brief period of time, I might add, I just quoted you. So now let me impose upon you the following heuristic. Let's make-believe, just for the sake of argument, I don't believe this, but just for the sake of argument, there will never ever in the course of history, no matter how many millennia, how many eons the world will see until the sun is extinguished and life becomes impossible on planet, let's say there's never going to be a data center on LandBridge. Never going to happen. So do you actually think that the company wouldn't prosper anyway? All it would mean is data center is going to be somewhere else. I'm going to explain where it's going to be in a moment. But you can't run a data center without power and you can't run power plants without water. And the only place you can build things of the appropriate magnitude are a place like West Texas. And it's happening. So up in Lubbock, Fermi is building its data center and starting with, I think, 1.2 gigawatts. And eventually, in Lubbock, they're going to have over 11 gigawatts. And then there is -- I think it's a 2.2-gigawatt plant in Sweetwater, Texas. which is supposed to be energized in April, I believe. I could quote other numbers. The plant, a data center is being built for Meta Platforms aka Facebook in Richland Parish, Louisiana. And that's going to start, I think, at 2.5 gigawatts -- either 2.2 gigawatts or 2.5 gigawatts and scaled up to 5 gigawatts. The reason for mentioning those numbers is as follows. The most data center dense area of the United States of America is the Washington, D.C., Northern Virginia metro area. If you looked up every data center in that area, every single one and added them up, it's 3.9 gigawatts. I know because I did it. So you just can't build a 2- or 3-gigawatt data center in an area that you can't get the electric power. And you could get electric power, you couldn't get the water. I'll explain why you need the water in a second. You don't need the water so much to cool the data center. You need the water to generate power. So you need a site if you're going to build these magnificent structures, and the power plants go with them. You have to have a site with a lot of water and not a lot of people. So over the course of civilization, as you probably know, the people wherever they are in the world, they had a tendency to move where there's a lot of water. There aren't too many places in the world where you can get water and you don't have to deal with people. And one of the few areas is West Texas. So now before I go more into water and why you need the water, I'm going to give you one other physical fact so you understand this question. Let's say, merely for the sake of argument, I decided to build a 2-gigawatt data center, okay? It's -- I'm going to give you a hypothetical question and I'm going to answer it. So it's rhetorical. So if I'm going to build a 2-gigawatt data center, how many gigawatts of power plant do I need to service it, okay? If I asked virtually any person they will say, well, if you have a 2-gigawatt data center, you obviously require a 2-gigawatt power plant. And as reasonable as the answer appears to most people, that is wrong. Why is it wrong? Well, for 2 primary reasons. First thing is that no power plant can possibly be up and running 24/7. It has to go down sometimes either for scheduled maintenance or unscheduled maintenance. Someone goes down, you have to have backup power. So since you have to power a data center, it can never be down, at a minimum, you need another 2 gigawatts. So therefore, a 2-gigawatt data center will require 4 gigawatts of power, okay? Now -- so now -- okay. So I build a 4-gigawatt power plant, and it might go down on a moment's notice. So I have to have both things running simultaneously. One is the power plant that's feeding the data center. The other one is the so-called spinning reserve. There's other backup power needed. Then you have to deal with another issue, which is called PUE, power usage effectiveness. What does that mean? That means if I had a 2-gigawatt data center and I had 1 power plant, 2 gigawatts, I couldn't possibly energize that power plant. Let's forget about the issue of the redundancy for backup. Why? Because the amount of power you're drawing, the wattage you're drawing is so enormous, even though the power is only moving a short distance that much of the power is being lost as heat. So basically, the electrons in the wire are hitting each other and they're hitting the walls of the cable. And a lot of power is being dissipated because of that, and that's expressed as heat. It's the same concept as when you charge your cell phone and you touch your phone, you touch the charging device, you'll see it's warm. So you're not using all the power that comes from the outlet. So it's being lost. The same concept, except it's not a small device, it's 2 gigawatts. So the general number you'd use is the coefficient of 1.58. That's your power usage effectiveness. So what does that mean? If you had a 2-gigawatt data center, you have to draw 1.58x2 or 3.16 gigawatts. You need 3.16 gigawatts to energize a 2-gigawatt data center. That's how much power you need. So it's just enormous. Okay. That answers the power question. Now the water. Why in the world do you need water? People think, well, you need water to cool a data center, but they can get around that. They have various ways of mitigating the amount of water you need, that's all true. I won't go into details because we're not in real agreement, but we're in general agreement. You don't need a lot of water to cool a data center, even though you do need some. But the power plant. So the power plant, whether your power source is coal, which you wouldn't use, or it's nuclear or it's natural gas, all those 3 things are thermal. What does that mean, thermal? It means whatever your fuel source is, you're generating heat to boil water. So you generate heat to boil water. What happens when you boil water? Well, it turns into steam? What happens to the steam? It goes through the turbine and spins the turbine. And that without explaining how the rotors and the stator actually generate power, let's just leave it at, power is generated. But in order to generate at a constant rate, the steam has to move through turbine at a constant rate. So how do you ensure that it's at a constant rate? Well, you have to basically condense the steam on the other side of the turbine. So if the temperature is lower on the other side of turbine, there's going to be a temperature differential known in physics as temperature gradient. And the steam is going to move from the hot area to the cold area at a constant rate, the same way water would flow through a pipe at a constant rate. That's how it's done. So how in the world are you going to condense the steam? There's only 2 ways to do it. Way number 1, what some people refer to as an open-loop system. How does an open-loop system work? Well, it's open, meaning you expose the water to air, you expose the steam rather to air, the ambient temperature of the environment. And because steam is a 212 degrees Fahrenheit, and you expose to the air, temperature and cool, it's going to condense the water. But 100% condense the water, some of it's going to evaporate. That's why when you look at a power plant, you see this big smokestack and you see white smoke coming out of it, that's steam. You're losing some of the water. So you need this water to be replaced. At what rate do you have to replace the water? The number is so big that I won't even tell you what the number is. I'll give you a homework assignment. Just go to the website of the American Electric Power Association and look it up. It's a big number. Even though you're condensing 90% of the steam, maybe more than 90% of steam, it's still a big number. You got to have a lot of water. That's the way the thing works. So what's the other way of doing it? Well, the other way of doing it is a closed-loop system. So basically, the steam never leaves the pipe. And the steam is routed back to the front of the turbine, okay? But it's lost some of its heat energy. So it's got to be fired up again through the boiler. Well, want to lose some of this energy just because heat is dissipating through the pipe. But you got to keep boiling the water. So you still have to condense the steam back into water. Now it's not going to evaporate because it's in the pipe. So how are you going to get the steam in the pipe to be recondensed to water when it's not exposed to air? Well, what do you do? You pour water on the pipe because the water is what's known in physics as a heat transfer fluid. And the water on top of the pipe turns into steam and it evaporates, steaming a lot of water. So the operative thing is, no matter how you do it, so everyone is looking for announcement. I put this 2-gigawatt data center on my property. But the operative thing is the water. Believe me, there'll be announcements eventually. So -- but the operative thing is to allow for the water. Now you can't draw the water out at a rate in excess of the natural refresh rate or you destroy the aquifer. So if your neighbor haven't been fortunate enough to have a data center on your neighbor's property, your neighbor is unlikely -- and by the way, it's not the data center, it's the power plant that counts, not the data center because it's the power plant that's using the water. But whether it's on your property or not, it's on your neighbor's property, it's true your neighbor is getting the ground rent, but the real money is the water. And since your neighbor can't draw the water at natural -- at greater natural refresh rate because your neighbor doesn't want to destroy the aquifer. Your neighbor is going to have to collaborate with you and take water for you anyway. So you're all going to share in it. So I just told you this, if people realize that, the stock will probably not be fluctuating the way it does. But unfortunately, we don't live in that universe. And well, the stock price is what the stock price is. So you see what their expectations are and you see the reality in my humble opinion, I underscore the word humble, of course, they ought not to be as excitable as they are at the moment is my, I suppose, my concluding remark on that subject. But you can follow up and ask me more questions than that if I haven't been sufficiently concise and clear. Mark Herndon: Okay. We're going to stay on the forward-looking investment horizon here a little bit. The question is then, over the next 3 to 5 years, do you foresee the global AI build-out leading to net inflation due to CapEx spending or net deflation due to productivity gains? Do you have a view on that? Murray Stahl: Neither. Neither. I just wrote about this. I don't think it's out yet, but I'll give you my investment thesis. The biggest exposure in the S&P 500, it's obviously technology stocks, whether it's Microsoft and Meta Platforms or Google aka Alphabet or whether it's NVIDIA or maybe Broadcom or maybe even AMD, you can add it up, you can see what it amounts to. It's the biggest exposure. So if you simply take the earnings of the big data center companies, they just reported them 1.5 weeks ago, take the cash flow statements. And what you will see is you will see very large capital expenditures. They're connected with data centers all right, but they're not building data centers. They're -- just like if you're a big company, you want to rent office space, you don't build a building. But you're still responsible for buying your furniture, you're still responsible for buying your computers and communications devices and electronics and office furniture and so on and so forth, same with data center. So the big companies, basically, what they're buying is they're buying electronics. They're buying the service. From whom are they buying the service? Well, NVIDIA, AMD, Broadcom, et cetera, et cetera, okay? So if the data centers are going to continue to be populated, well, the capital expenditures are going to be high and your free cash flow is not going to be very high. So because your free cash flow, your earnings might be higher than what they otherwise would have been, but your free cash flow is going to be lower. And that's going to affect the valuation in a negative way. Even the earnings go up. So you might say, well, but the capital expenditures will go on only for a brief period of time, and then they'll cease because the data centers will be built. And there, we have a problem. And that problem is only -- I've written about this. This problem is only dawning on the market right now. That's why the market is so tenuous. Two possibilities, either that assessment is correct or it's incorrect. Let's say, just for the sake of argument, the assessment is correct. So Amazon, Microsoft, et al. will significantly reduce their capital expenditures, but they're buying the equipment that goes into the data centers. So they're going to reduce their capital expenditures. It must logically follow that they're going to reduce their purchases from NVIDIA and Broadcom and AMD, et al. and that segment of the market will follow that and will probably offset because the market capitalizations and the weighting of the S&P are just about as big as the companies who are buying that stuff. So if indeed, the capital expenditures are going to decline, making a problem for a subset of technology, which is big enough because the valuation is very high to create a real market problem. Possibility number 2, the capital expenditures keep going up. Why would they keep going up endlessly? Well, a simple reason because the NVIDIA asserts, and they assert with very good reason, that they are doing what Intel had done a quarter century ago, which is they are obsoleting their equipment every 24 months. So the current iteration, the Grace Blackwell 200 GPU, graphics processing unit, it will soon give way to the Rubin Vera (sic) [ Vera Rubin ] equipment. So you have to get rid of your Grace Blackwell 200s, you have to buy new stuff, just like Intel was doing a long time ago. So if they intend to do this, which they obviously do intend because they do say that, well, then you always got to stay with the state-of-the-art. And if you always have to stay with the state-of-the art, the state-of-the-art is going to be obsoleted every 24 months and your capital expenditures will never end. You'll never really have free cash flow, and that's horrible. So you might say, well, but in that case, if that proposition is true, well, then I'll just go buy NVIDIA because NVIDIA has a real intriguing advantage relative to what Intel had because Intel, as you might recall, Intel had the problem of, yes, they obsoleted their microprocessor. Yes, the new generations of PCs, personal computers, will be required to include or embed the new Intel microprocessor, but they had to build a whole new wafer fabrication plant. So what good was it? They had more earnings, but they had less free cash flow. So to what end? But NVIDIA, you will undoubtedly argue, doesn't do that because NVIDIA doesn't make chips. Yes, they make a few chips on an experimental basis, but don't mass produce chips. So they have some nimble wafer fabrication facilities, but the chips are made by Taiwan Semiconductor. Only their wafer fabrication facilities will be obsolete. So therefore, NVIDIA is in an unbeatable position, but not really because you think Taiwan Semiconductor will live without a payback in its capital. For the privilege of making the chips, they will charge accordingly. And that will create a problem for NVIDIA. So you see no matter which way you go, there is a logical contradiction in the entire movement. And logical contradiction dates back, and this will explain our Horizon exposures. The logical contradiction goes back 10, 12, 15 years because the premise was you can build a gigantic business like the technology business without using resources from other segments of portfolio. And for a while, they were actually doing it. It's a very ahistorical view. So for example, historically, the automobile was invented, you could have been a big believer in the automobile more than 125 years ago, you never had to buy an automobile stock because you could have bought Exxon or some other oil company, and they needed gasoline. So you might conclude, I'm going invest in automobiles by buying oil companies. And Exxon actually would have been a big choice, a good choice. Then it was called Standard Oil of New Jersey, but nevertheless, you get the idea. And there are other things you could have done. So you didn't necessarily need to buy the automobile companies, other segments of the economy prospered. So for example, if they had to build roads, there were gravel companies, cement companies, construction companies. And some of those were actually very prosperous. You could have had a whole portfolio investing in the evolution of the automobile and never bought an actual automobile company. But strangely, that didn't happen in technology. It didn't happen in technology because the iPhone invention, you could run the iPhone, the smartphone, all these brilliant, beautiful devices on the existing fiber optic cable or telephone systems. So for 10 or 12 years, you can expand the business with minimal capital expenditure because you were building on an existing network. So Netflix, for example, Netflix, their nights and Netflix uses 25% of the Internet bandwidth in the United States of America. But they don't have a lot of capital expenditures because the fiber optic cable is already in the ground. That's a very ahistorical unusual situation. Now we're coming into the different world, the world of high-performance computer, note how I do not say artificial intelligence, but high-speed, high-performance computing because that's really what it is. We're going to need other things, and we're going to need water, and we're going to need natural gas. And there's only a handful of ways to get them. And at Horizon, we got them, and we're staying with them. So it's just a matter of time, the world is moving in the direction to make these -- all of them, extraordinarily lucrative investments. So you don't even have to do anything. All you need to do is think it through. And perhaps, just perhaps, I may advance the proposition, maybe that's why LandBridge for whatever reason, was actually up today, not down. Anyway, I'll leave it there, but I'm willing to elaborate if someone wants to propose a more involved question. Mark Herndon: Okay. And I may have lost a question earlier. There was -- and this is just a factual question of what percentage does TPL make up of our AUM. And I can just let our investors know. We disclosed that last year in our 10-K that was roughly 41% as of December 31, 2024. That's one of our risk factors. It's come down a bit since then, but I don't believe we've put out an updated number, but generally speaking, that's about where it is. Murray Stahl: Right. So based on the risks, when we get new assets -- because let me just elaborate, if I may. When you get new assets under management, we obviously can't buy and we wouldn't buy TPL at that allocation. So new assets diluted. And for example, Japan ETFs, say what you will about it, positive or negative, doesn't have any TPL in it. And similarly speaking, the Blockchain Development Fund has no TPL in it. So as we raise new assets, there are different investment products, they don't have any TPL. So we get diluted over time even without selling. Mark Herndon: So now we have a series of questions now that are turning back to just the Horizon Kinetics Holding Company stock. And this one is very simple. The -- what is your single highest priority for deploying free cash flow right now? Murray Stahl: Single highest priority. Well, we are -- obviously, we have the 70% payout ratio. So we're taking 70% of our net income and we're paying it out to shareholders. So I think it's fair to say our biggest priority is rewarding the shareholders. Mark Herndon: Along that same line, there's a question about governance structures. What governance structures are in place to ensure minority shareholders can fully participate in the long-term compounding of HKHC's capital allocation strategy, which I suspect you're going to talk a little bit more about dividend there. Murray Stahl: Well, dividend is one thing. And so obviously, everybody gets to participate. And we're long-term investors. We encourage people to be a long-term investor. We're open -- I think we're open. I'd like to believe we're open. And we -- I don't have the answer to your question to hand. Usually, I do. But if I don't, be delighted to get the information and engage with you and get you an answer. So we're pretty much an open book. We have no plans to take the company private and maybe that's what you're thinking about, that we might take company private again. We're not planning on doing anything like that. There are no plans to do that. You might observe in the last open period, I personally bought some stock. Right now, I can't buy stock today, obviously, because I'm having this call, and we'll see what I do when next open period is. But I don't know what else to say. It's available to anyone who is welcome long-term investors. Mark Herndon: Yes. It's really the same structures as any other public company really, right? Okay. So the next question, a little bit more specific back to our financial statements. And again, this one is a little specific to our lease obligations. The question is around new or extended lease obligations. Is that for -- that are listed in Note 10? Is that all for New York office space? And if I may, just to put a couple of clarifications around that for our listeners. Our lease obligations are for office space broadly over multiple locations, not necessarily just in New York City. What you see in Note 10, the contractual obligations table within Note 10 includes the runout of existing New York City offices through early 2027 as well as 2 other previously existing office space leases and 1 new 10-year lease in Connecticut for additional office space. While we've disclosed additional office space agreements, which are in both New Jersey and New York, those leases have not yet commenced, right? We haven't taken occupancy for those locations yet. So those are omitted from what you see in that table in Note 10, but rather, the broad terms are disclosed in the narrative sentences below that note. I will let you know also that, that lease obligation in New York City is for different space than what we are currently in. The new lease is for 15 years, which is why you predominantly see this gross number that you may see in the notes, total payments over that long-term time frame. And I'll emphasize to you now that the cash payments that we will be making eventually are actually less than what we're currently paying in New York City. So that is a very long setup, but I'll just -- Murray, I'll turn to you to ask, would you like to comment on how we plan to use that New York City office space or in general? Murray Stahl: Yes. So basically, we came to conclusion that if you've been to our offices, we're in 3 separate floors, and that creates one problem and then there's a second problem. First problem is it's very inefficient. We have 3 lobbies. We have 3 reception areas. You get -- you actually pay for the elevator entrance. So there's a lot of wasted space. So it's very inefficient. It'd be a lot more efficient if we could be on one floor. So part of the reason was to save money by going to one floor. The other thing is the current lease, we're responsible for paying for all sorts of ancillary services that in another location, we wouldn't be responsible for paying, and that's the savings as well. So basically, in terms of the usable floor space, we would have a better arrangement. In terms of the ambience, it's better. And in terms of the monthly obligation because you pay monthly, it worked out to be 35% cheaper. So everybody can have a better experience and we save 35%, it seems like everybody should be happy. And speaking as a very large shareholder, it made me happy. And so that's where we're going. We also have another issue that the new space is going to solve. So you might be aware, I myself do a lot of meetings, we call roundtables and other things where I invite investors to come in. And the existing accommodations don't normally allow for the attendance that we would otherwise have. So we have to limit it. And a lot of people like to come in and hear what we have to say, and it's kind of foolhardy to let them do it because it's also a source of new business among other things. So we needed to find a space where we wouldn't be so limited. And we found such a space, and that's what's happened as far as that goes. Have we left anything out more? Mark Herndon: Yes, we have a couple more. We've had a couple of questions come in around the mechanics of our disposal of the consumer products division. This person references specifically the Scott's Liquid Gold sale. And I did want to just spend a minute to set this up as well. Many people get confused about the Scott's Liquid Gold corporate entity that we merged with in 2024, which is actually different than the namesake brand that was -- they had disposed of well prior to our transaction with them. The 2 brands that we had were called KIDS'N'PETS and MESSY PET. And due to their relatively small size, the revenues associated with that, those brands were reported within our other revenue line in the past. And as a group, again, we called it the consumer products group as opposed to the individual brands. But the question was about, were there multiple bidders? And can we share more details about the sale and where the $2.5 million fair value, where is it reported on the balance sheet. If you'd like to comment on it broadly, I can also give a couple of specifics, if you'd like. Murray Stahl: Yes. Well, so basically, we did get some cash, and then we're also getting a long-term royalty. So we like royalties. Long-term royalty gives us some upside. Obviously, we're never going to have the scale to be in consumer products. So basically disposing of the inventory, getting some cash and disposing the ongoing expenses or limiting the ongoing expenses, which we did and getting a long-term royalty now just cash flow over a very long period of time, and you can maybe elaborate on that, Mark. Mark Herndon: Sure. I'd be happy to. The one thing, just mechanically, the $2.5 million fair value that you referenced is in the other assets sort of down the balance sheet line item a bit. And I would say one of the things we talked about is just that there's some parameters around the royalty arrangement that this percentage, we have a little higher percentage in the early years, a little lower in the outer years and a minimum of $1.5 million and a maximum of $5.25 million over this long-term period. But I think we came to the conclusion that the additional focus that this buyer can bring to it, that is going to bring more to us from those brands in terms of royalty income than we would have achieved by just continuing to own and operate it ourselves as a stand-alone operation. I think that's the last question specific to HKHC. There has been just one more that came in while we were talking about that around -- sorry, looking through the question again. AI as currently defined -- I'm sorry, it says, Murray does not believe we have AI as currently defined by the industry. Do you foresee any super intelligence being created in the near future? Are we on that trajectory? Murray Stahl: Okay. I'm going to try and just explain. Obviously, it's more than just Horizon Kinetics. So in the colloquial, artificial intelligence is taking the means the average person, machines that think like human beings. And the problem is it's very difficult and many would argue it's impossible to get a machine to think like a human being. So why is that true? Because a human being, even though human beings do many, many foolish things, human being has the ability, at least in principle, to recognize limitations of human thought, which is not to say to recognize the limitations of that individual's human thought, but the limitations of thought itself. So for example, without giving you a treatise on histo-analogy, there are certain inherent contradictions in thought. So for example, there's what's called the Cretan liar paradox, also known as the Epimenides paradox. And it goes something like this. Epimenides, a Cretan, says, all Cretans are liars. Well, he is a Cretan, and therefore, if that statement is true, he must be lying. So therefore, all Cretans are really telling the truth. But everything he says is a lie. So I'm hearing contradiction. How do you resolve it? And the answer is, it's unresolvable. In mathematics, you find the same thing, you find something called G del's incompleteness theorem that was discovered that you can't complete -- there are certain mathematical propositions that you cannot completely prove. So proof that there are certain things that can't be proven or you could have in mathematics also the Cantor infinity paradox. No matter how big a number you come up with, it's always going to be bigger because you can add 1 to it. So if you're going to add 1 to it, why can't you add infinity to infinity? Why can't you make infinity squared or infinity cubed or infinity to hundredth power and so on and so forth. So you never get to the end of it and how do you ultimately talk about a finite universe if numbers are infinite? And it goes on and on like that. Well, when you get into really complicated questions, you have to deal with that. But you also have to deal with it, and I gave an example of this at a recent roundtable, so I'll recapitulate it for your amusement. Let's take a more invisible, abstruse, very refined questions and maybe we shouldn't even be talking about them. Let's do a simple exercise of what some people call artificial intelligence, and I will describe the exercise, and I'll tell you where we got it from. It's a ChatGPT exercise. The exercise is as follows. You're asking a computer to make a list of all the books written by Winston S. Churchill, okay? So we're not talking about the Cantor infinity paradox or G del's incompleteness theorem or the Cretan liar paradox. There's a certain number of books that Winston Churchill wrote and you got to look it up. The problem came up because at the Roosevelt -- President Franklin Roosevelt's home at Hyde Park that I visited not long ago. They redid it. And in the study, because President Roosevelt was friends with Winston Churchill, they decided to put in the study all the books of Winston S. Churchill. That's a cool exhibit. Trouble is that there were books in there that said they were written by Winston Churchill, they were not written by Winston Churchill. And if you keyed in ChatGPT, give me a list of the works of Winston Churchill, until recently, they may have corrected it, but until -- because it was pointed out to them. But until recently, they gave you works that were not written by Winston Churchill that they said were written by Winston Churchill. How could they make such a mistake, not talking about complicated things because Winston Churchill was live and Winston Churchill was writing books. It just so happens, there were 2 Winston S. Churchills writing books. One was the Winston Churchill, the orator, the statesman that you know. The other was the American novelist known as Winston S. Churchill, lived in the city of Boston. And in his era, he was a best-selling novelist. Now how is ChatGPT to know there are 2 Winston Churchills, not one. Interestingly enough, Winston Churchill during his life corresponded with a novelist and he wrote, I'm going to paraphrase a letter that he wrote. And the letter was written before Winston Churchill became Prime Minister. So he said, I intend one day to be the Prime Minister of the United Kingdom. It wouldn't be great if you ran for President and you won, and we could meet as Winston S. Churchill each, you as the President of United States of America and I as the President of the United Kingdom. That will be pretty intriguing. Alas, that's not the way history was written, but ChatGPT doesn't know that. So you see the problem is, every nuance of every bit of data has to be pointed out to a computer. And all that data has to be catalogued properly and all that data has to be manipulated and somebody is producing a query. That's why the typical ChatGPT query takes 10x the amount of electric power than a simple Google query. So you will say to me, as a rejoinder as most people inevitably do, well, one day, they'll figure out a way to use less power for more elaborate queries. And you will not be right if you say that. Why? Because if you look inside a computer, a computer is basically just a big electromagnet. The data, it's expressed in binary forms. It switches on and off, zeros and ones. In other words, the data is simply electrons. So you can't process more data by using less electrons because data are electrons. You got to use more electrons. So the question is for society, if you want to have those privileges, which I personally don't need them, but I'm a minority of one. Everybody else seems to want them. Well, if you want them, if you want autonomous driving and you want to watch movies at 3:00 a.m. and you want to write book reports on Shakespeare without having read Hamlet, well, that's fine, but you better be prepared to use a lot of electric power. And this world is running out of it. So as I said, I'm minority of one. I don't need the stuff personally, but everybody else seems to want it. So since my vote doesn't count for anything, it is what it is. It's going to be the way it's going to be, and you know the outcome is. So sometime in the not-too-distant future, the best guess is sometime in the year 2028, we're running out of electric power. And there's nothing anybody can do to stop it. That's where we are. Now if it went the other way, let's just say, just for the sake of argument, mind you, went the other way, went the Murray Stahl way. So it went the Murray Stahl way instead of reading a book on a device, you might just buy the book and just put it on a bookshelf and that doesn't use any electric power. Problem with that, to show you that everything has its problems, believe or not, there are 5 million books published in the world every year. How would you ever build a library to contain them all? Even if you could, how would anybody be able to use, there's just too many books. So you can't flip through them. You can flip through some, but basically, you have to have some sort of electronic means of surveying them and extracting data from them that's useful. And therefore, there's no alternative but to go to high-performance computing, which everyone calls artificial intelligence. That's not artificial intelligence. It's merely data sorting. So I hope -- sorry for the elaborate answer, but it required it, and I hope you found it helpful with respect to your question. Mark Herndon: Okay. That's great. I do not have any further questions coming from the web or sent in advance. Murray Stahl: Okay. Excellent. So I take it that, that is, as they say in a movie business, a wrap. Is it a wrap? I think it's a wrap. Mark Herndon: I think it's a wrap. Murray Stahl: Okay. Good. So in that case, I'm going to thank everybody for listening. I thank you all for your support. And of course, you know what happens that we hang up this phone and someone is going to think about something they want to ask, they forgot to ask, please do not hesitate to contact us if such an event occurs and you have a question, we will get you an answer. And of course, we'll reprise this in about 90 days. So until that time, thank you so much for attending. We look forward to seeing you at the next Horizon Kinetics' shareholder update. Thanks so much. Bye-bye. Mark Herndon: Thank you.
Operator: Welcome to the Powell Industries Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Ryan Coleman, Alpha Investor Relations. Please go ahead. Ryan Coleman: Thank you, and good morning, everyone. Thank you for joining us for Powell Industries conference call today to review fiscal year 2025 fourth quarter and full year results. With me on the call are Brett Cope, Powell's Chairman and CEO; and Mike Metcalf, Powell's CFO. There will be a replay of today's call, and it will be available via webcast by going to the company's website, powellind.com, or a telephonic replay will be available until November 26. The information on how to access the replay was provided in yesterday's earnings release. Please note that information reported on this call speaks only as of today, November 19, 2025, and therefore, you are advised that any time-sensitive information may no longer be accurate at the time of replay listening or transcript reading. This conference call includes certain statements, including statements related to the company's expectations of its future operating results that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties and that actual results may differ materially from those projected in these forward-looking statements. These risks and uncertainties include, but are not limited to, competition and competitive pressures, sensitivity to general economic and industry conditions, international, political and economic risks, availability and price of raw materials and execution of business strategies. For more information, please refer to the company's filings with the Securities and Exchange Commission. With that, I'll now turn the call over to Brett. Brett Cope: Thank you, Ryan, and good morning, everyone. Thank you for joining us today to review Powell's fiscal 2025 fourth quarter and full year results. I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions. Our fourth quarter marked a solid finish to another record year for Powell. Compared to the fourth quarter of last year, we achieved gross profit dollar growth of 16%, revenue growth of 8% and the generation of $61 million in operating cash flow. Our teams delivered a record quarterly gross profit of 31.4%, which was 215 basis points better than the prior year and a record quarterly earnings per share of $4.22 per diluted share. Our fourth quarter performance is a testament to the ongoing high level of project execution across all of our operations, combined with the steady progress against our strategic goals. The revenue profile of fiscal 2025 was driven by the strong growth in our nonindustrial markets, including both the Electric Utility and our Commercial and Other Industrial sectors. These 2 markets accounted for 41% of our revenue in fiscal 2025 and currently comprise 48% of our total backlog. Five years ago, these 2 market sectors accounted for just under 20% of our backlog as our focused effort to diversify the business and grow in these strategic markets has produced important results for the future of Powell. The Light Rail Traction market also had notable contributions during the year, with revenue nearly doubling compared to the prior year as we experienced increased levels of commercial activity in this end market throughout fiscal 2025 versus the prior year. We booked $271 million of new orders in the quarter, which was roughly 1% higher than the prior year. There were no mega projects in the quarter as our order book was comprised of a higher volume of small- and medium-sized projects. For the full year, we booked $1.2 billion of new orders, 9% higher than fiscal 2024. We finished the year with a backlog of $1.4 billion and registered a book-to-bill of 1.0x for the full year. Today, our backlog and project schedules are well balanced across the markets and geographies we serve. We also benefit from a healthy mix of large projects as well as core smaller and medium-sized projects that help maximize productivity across our manufacturing plants. With that said, we have begun to see some divergence emerge as we close out 2025 across our key end markets. We believe this is reflective of a global economic environment that is operating at very different speeds, driven by country, region and sector imbalances. Overall, the quality and visibility into future order activity continues to be very good, with strength driven by Electric Utility, data center and natural gas market opportunities, including large-scale LNG and related natural gas projects, which is offsetting some softness in portions of our traditional oil and gas and petrochemical markets, such as refineries and polyethylene and polypropylene facilities. We continue to actively review and evaluate our available manufacturing capacity. In August, we announced the next phase of our $12.4 million investment that will add an incremental 335,000 square feet of productive capacity at our Jacintoport facility in Houston. While the Jacintoport yard can be utilized to support any of our customers and market sectors, this investment is primarily focused on supporting our Oil and Gas customers, particularly the incoming wave of anticipated LNG project development work that we expect to come to market over the next 3 to 5 years. The production and export of U.S. LNG is clearly going to play a critical role in the global energy landscape, and this investment ensures that we continue to advance our industry-leading role in the fabrication of engineered-to-order power distribution solutions for critical applications. This announcement brings our cumulative investment at the Jacintoport fabrication yard to approximately $20 million over the past 8 years and nearly $40 million across our 3 Houston manufacturing facilities to support our organic growth plans. We expect this phase of the Jacintoport expansion to be completed by the second half of fiscal 2026. We continue to evaluate our entire manufacturing footprint for opportunities supporting growth and expansion, along with options that may further improve productivity. We believe that investments like these are the best use of our capital as the project time lines and execution, return on capital and payback periods are highly compelling for our shareholders. On the inorganic side, we closed the acquisition of Remsdaq during the fiscal fourth quarter. We continue to be incredibly excited around the future of our electrical automation strategy as we now work to complete the integration of the Remsdaq team into the larger Powell family. We are already experiencing commercial interest around Remsdaq's products across the multiple markets that we serve, including Electric Utility as well as data center applications within our Commercial and Other Industrial market sector. Our teams began quoting Remsdaq's products and technology in North America during the fourth quarter, introducing these products to customers on this side of the Atlantic as well as integrating their existing commercial efforts in the U.K. with Powell's customer base there. We are confident in our ability to scale our total Powell automation offering at margin-accretive economics in the coming years. As we enter our fiscal 2026, the Commercial environment for each of our end markets remains positive as we are optimistic that the momentum we built throughout our fiscal 2025 will continue into the new year. The fundamentals in the Oil and Gas market support our expectation for continued order strength. Specific to the fundamentals of the U.S. natural gas market, the pipeline of LNG projects that we are tracking continues to support our expectation for continued momentum for both greenfield and brownfield orders. Activity within our commercial and other industrial market also remains healthy, and our progress to further penetrate this market is progressing well. Recent data points and industry commentary by data center operators continue to identify power availability and reliability as key constraints to capacity growth and AI data center expansion. As a critical supplier of power distribution and control equipment, we continue to see elevated levels of activity as operators execute their capacity growth plans. Opportunities are growing in both size and volume as well as product applications as we expand our presence in this strategic market. The outlook for our Electric Utility market remains robust and balanced across the customers and geographies that we serve. The growing wave of investment in electrical infrastructure to meet growing demand levels is broad and durable, and we expect another strong year of activity in 2026. I want to thank the entire Powell team for another record year for their commitment to Powell and our customers and suppliers alike by helping to further our unique position as a supplier of critical electrical distribution components to a growing array of applications. With that, I'd like to turn the call over to Mike to walk us through our financial results in more detail. Michael Metcalf: Thank you, Brett, and good morning, everyone. I will begin first with the fiscal fourth quarter business results and then move to the total fiscal year 2025 results. Revenues for the fourth fiscal quarter of 2025 increased by 8% to $298 million compared to the same quarter in fiscal 2024 of $275 million, and was also higher sequentially by $12 million, driven predominantly on the strength across our electric utility sector. Net orders for the fourth fiscal quarter were $271 million, $4 million higher than the same period 1 year ago, driven by strong year-over-year activity in our commercial and other industrial, Light Rail, Traction power and Electric Utility sectors, which was offset by lower commercial activity across our petrochemical and oil and gas sectors. Overall, we remain encouraged by the level of commercial activity across all the end markets that we participate in. Considering this level of new order bookings, coupled with the sustained strength of our top line performance, the book-to-bill ratio was 0.9x for the fiscal fourth quarter and 1.0x for the full year fiscal 2025. Reported backlog at the end of fiscal 2025 increased to $1.4 billion, $41 million higher than the end of fiscal 2024 on an increasing proportion of Electric Utility, commercial and other industrial and Light Rail Traction power backlog, partially offset by lower petrochemical backlog levels versus the prior year. As we exit fiscal 2025, our Electric Utility and Oil and Gas sectors each now make up 1/3 of our total backlog. Overall, we are very pleased with both the execution across the business, driving record revenue levels for the year as well as our orders performance continuing to grow and diversify our backlog position as we enter fiscal 2026. Compared to the fourth quarter of fiscal 2024, domestic revenues of $239 million increased by $4 million or 2%, while international revenues increased by 38% to $68 million on higher volume across most of our international manufacturing and service locations. From a market sector perspective, revenues from our Petrochemical and Oil and Gas sectors were lower by 25% and 10%, respectively, on challenging comparisons resulting from the large industrial project orders that were booked in fiscal 2023 and executed predominantly in fiscal 2024. In the fourth quarter of fiscal 2025, the Electric Utility sector doubled versus the same period 1 year ago, while our Light Rail Traction sector increased by 85%, albeit on a smaller revenue base, and the Commercial and Other Industrial sector was lower by 9% on project timing. We reported $94 million of gross profit in the fiscal fourth quarter of 2025, which was $13 million or 16% higher than the same period of fiscal 2024. Gross profit as a percentage of revenues increased by 215 basis points to 31.4% of revenues in the current fiscal quarter. The higher quarterly margin rate is primarily attributable to continued strong project execution across the business, delivering favorable project closeouts, resulting in an incremental 100 basis points to the fourth fiscal quarter margin rate. Additionally, we have maintained pricing levels and combined with strong throughput across the business, which is driving incremental volume leverage and productivity, these variables have created a tailwind to margins across most of our operating divisions. Selling, general and administrative expenses increased by $5.5 million or 25% on higher levels of compensation expenses as well as the Remsdaq acquisition costs. SG&A expenses were $27 million in the fiscal fourth quarter or 9.1% of revenue compared to 7.8% of revenues a year ago. In the fourth quarter of fiscal 2025, we reported net income of $51.4 million, generating $4.22 per diluted share compared to net income of $46 million or $3.77 per diluted share in the fourth quarter of fiscal 2024. We generated $61 million of operating cash flow in the fiscal fourth quarter, driven mainly on higher earnings during the period. In August, we completed our recently announced business acquisition of Remsdaq Limited for a total consideration of $18.4 million, which includes cash acquired of $4.6 million. This transaction had a net cash impact of $11.5 million in the fiscal fourth quarter with contingent payments of roughly $2 million to occur in future periods. In addition, investments in property, plant and equipment totaled $1.8 million during the fiscal fourth quarter as we invest in capacity and productivity projects across the business. As we recently announced, we've embarked on a critical project that will expand our capacity at our offshore yard in Houston, further strengthening Powell's position in supporting the production and export of U.S. LNG. This roughly $12 million investment falling predominantly during fiscal 2026 will help to ensure that we can confidently fulfill delivery commitments to our customers. Now recapping our total year fiscal 2025. Revenues of $1.1 billion increased by $92 million or 9% compared to fiscal 2024. Notably, our Electric Utility and the Commercial and Other Industrial sectors were higher versus fiscal 2024 by 50% and 19%, respectively, while the Petrochemical sector was lower versus the prior year by 19%. Orders were $1.2 billion, 9% or $94 million higher versus fiscal 2024. Overall, we've been very pleased with the activity across all the end markets that we serve and the resulting orders mix through fiscal 2025. Gross profit as a percentage of revenues grew 240 basis points year-over-year to 29.4% or $51 million higher than fiscal 2024. The margin rate continues to benefit from a stable pricing environment, exceptional project execution, coupled with incremental volume leverage and successful operational and commercial strategies that continue to address the macro inflationary challenges across the supply chain. Selling, general and administrative expenses were higher by $11 million versus the prior year. Overall, net SG&A expenses as a percentage of revenues were higher versus the prior year by 20 basis points at 8.6% of revenues in fiscal 2025 versus 8.4% in the prior year. In fiscal 2025, research and development spending increased $2 million or 17% versus the prior fiscal year as we continue to make progress on new product design and development. Total R&D spend in fiscal 2025 was $11 million or 1% of revenues. We reported net income of $180.7 million or $14.86 per diluted share in fiscal 2025 compared to $149.8 million or $12.29 per diluted share in the prior year. Operating cash flow generated in fiscal 2025 was $168 million versus $109 million in the prior year, driven by higher income generated versus the prior year. In addition to the acquisition of Remsdaq, which was a net cash, cash usage of $11.5 million in fiscal 2025, total capital spending on property, plant and equipment was $13 million in fiscal 2025, $1 million higher than the prior year as we completed the expansion of our breaker manufacturing facility in Houston, which spanned across both fiscal 2024 and fiscal 2025. At the end of fiscal 2025, we held cash, cash equivalents and short-term investments of $476 million, $118 million higher than our fiscal 2024 year-end position, reflecting the sustained level of commercial activity across our end markets, coupled with the strong execution across the business. The company holds 0 debt. Looking forward, we are confident that the strong commercial momentum we experienced across our key end markets in fiscal 2025 will carry into fiscal 2026. We believe that the composition and the quality of the current backlog, combined with the sustained business profitability supported by a stable pricing environment, volume leverage and disciplined project execution will provide meaningful tailwinds for continued performance. In addition, the company's strong liquidity position and solid balance sheet support significant financial flexibility, positioning Powell for another successful year in 2026. At this point, we'll be happy to answer your questions. Operator: [Operator Instructions]. And your first question today will come from John Franzreb with Sidoti & Company. John Franzreb: Congratulations on another impressive quarter. Gentlemen, I'd like to start with the current operating environment. Can you talk a little bit about if there's been any meaningful change in the competitive landscape or maybe the pricing environment today versus, say, a year ago? Brett Cope: John, thanks again. It's Brett. So if you -- try to answer each of our 3 main sectors. As I noted in the prepared comments, Oil and Gas is still a very good healthy market for Powell. We are seeing some parts of that subsector of that market like in Canada, the North Sea of the U.K. with policy in the U.K., a little softer, not as much as we might see day-to-day, but then other parts of the market, the gas, as we talked a lot about in the last couple of years. But more recently, utility taking another step up. That's a market we strategically have been pursuing for years. And now with the increased demand part and then the C&I part with data center. I would say that market is more demand-driven speed, maybe a little less price sensitive, whereas the other part of the market that -- the aforementioned subsectors of oil and gas, because it's a little softer, a little bit more price sensitive. So it's a tale of different scenarios regionally by different sectors right now. And so it's a little different, not just kind of one ubiquitous market across the board. John Franzreb: That makes sense. That makes sense. I'm kind of also curious about your thoughts about seasonality, especially considering the backlog profile. I know in years past, it's been de minimis to volatile. How would you kind of characterize how should we expect the upcoming first quarter to kind of lay out given the current job outlook? Michael Metcalf: Yes. John, this is Mike. I'll address that one. As we always see in every fiscal year, our first quarter of fiscal is the October, November, December with the holidays and such. We do anticipate that sequentially, as we exit fourth quarter and report our first quarter, it seasonally is softer due to what I just mentioned. That said, as we look forward on a total year basis, we still are very optimistic about next year. John Franzreb: Okay. All right. And just one more question, I'll get back into queue. Regarding the SG&A, you mentioned there is maybe some onetime M&A expenses in the quarter. How big were those expenses, just so I can maybe rightsize SG&A on a go-forward basis? Michael Metcalf: Yes, sure. So on a discrete 4Q basis, John, we were up about $5 million year-over-year. Roughly $3 million of that was due to compensation -- variable compensation items and $2 million -- a little less than $2 million was acquisition-related, legal, valuation services. Operator: The next question will come from Chip Moore with ROTH Capital. Alfred Moore: Maybe just first for me, C&I, it sounds like you feel very good about the trends there. I think you called out opportunities growing and maybe some urgency on price. Just with the modest decline in the quarter, was that largely timing or anything to call out there? And then on the go forward, how are you viewing the opportunity in some of the newer products you're offering there? Brett Cope: Yes. I think on the quarter, just timing. If you look at that sector -- Chip, Brett, by the way, the opportunities are clearly growing, both for things that we have noted on the earlier calls that we're aspiring to bring to market to get inside the 4 walls of the data center. But also on the outside, we continue -- that's an area we are always able to play. But on both fronts, we're making good progress and the size and breadth of the opportunity for Powell is clearly growing. I just look at the last quarter's activity, it's -- there's a lot of people, a lot of conversations going on, a lot of what ifs. And so -- and we're quoting some pretty big things today, and it's grown really nicely over the last 2 years for us. Alfred Moore: Got it. And Brett, I guess, the corollary on utility, that phenomenal growth this quarter. You've been working on that for a long time. But I guess, sustainability of growth there, the trends you're seeing, obviously, it looks like in backlog, demand is quite healthy, but any more color there? Brett Cope: Really. This is -- this particular strategy around utility that we're working hard at for well over a decade, I'm super pleased with, and I appreciate the question. Mike and I were just talking before the call today, if you look at oil and gas in the backlog profile to utility, they're equal weighted. So we want both. We absolutely love our oil and gas customer. We have decades of relationships we're going to own, and we're going to build that same profile with the North American and U.K.-based utility customers. So -- we think the demand profile looks good. That includes both where we have been fighting our way into the distribution side of the substation. And now with this kind of increase in demand, we're going to do everything we can to grab as much of that as we can as well. This is a great growth sector for Powell on the distribution side with the electrical automation strategy and the service strategy. So all 3 of our strategies play here. Alfred Moore: Great. And sorry, maybe one more on C&I data center and maybe kind of technical, but Brett, I'd be curious to get your thoughts if you have any -- a lot of buzz around 800-volt DC architectures down the road. Just do you guys play there? Or what would be a potential role? And how do you see that evolution? Brett Cope: Yes. We -- a couple of the folks that we're meeting -- we've got the DC switchgear that we provide to traction. So we have a DC breaker today that fits. We have a design on a rectifier. We would have to do some R&D around that to apply it to a DC structure for the data centers that the power levels are talking about. So if you look at how the future DC might develop, you still have the AC tie. So at the power levels today, we'd have the 38 kV primary switchgear, which would still be the same tomorrow at the DC. But then as you get inside the DC distribution of the data center potential on the architecture, the Powell technology would play. We'd have to do a little investment around the rectifier as a solution. There are other solutions to -- as there are frequently when you're doing the distribution scheme into any facility. But -- we've had a few folks up that are in the space, seeing what we do and how we do it and chats about what we'd have to do to finish off a few things to get it where they want it to be for tomorrow. So we're in that conversation. Alfred Moore: Great. Appreciate that. And maybe, Mike, for you, just back to the margins and pricing. I think you called out you feel good on backlog and sustainability. Just remind us, I think you called out 100 basis points this quarter, but how should we think about '25 sort of normalized? Is sort of 28% the right ballpark? Or how are you viewing that? Michael Metcalf: Yes. I mean, look, it was another really outstanding quarter operationally. We generated roughly 100 basis points of margin due to project closeouts. And from a year-to-date perspective, exiting the year at 29.4% on a year-to-date basis, this had about 125 basis points of project closeouts. So when we think about the sustainability and considering the margins that we see in backlog, we do anticipate a continuation of solid project execution through next year. And considering this margins in the upper 20s for the total year of fiscal 2026 are realistic. Operator: Next question will come from Jon Braatz with Kansas City Capital. Jon Braatz: Brett, a question on the LNG market. It's been about 9 months, 10 months since the pause has ended. And I suppose some would have thought some LNG projects would have reached FID by now. And as you look at those projects, is there -- are you surprised they haven't reached -- some haven't reached FID yet? Or is there a little bit of a hang up for some reason? Brett Cope: How to answer this question. It's a very -- as I've said in other calls, it's extremely active. It has taken a little more time, to your point, Jon, to spin back up. I think given -- again, just sitting as Brett, looking at the macro picture with each model and how they're going to market, where their cargoes are going to go, who they're signing up in their production agreements. I kind of get a feel for where -- why some of the delay, but I'm not overly worried about it. I still feel really good about the fundamentals on many of the projects. And it is -- I didn't have much in my comments on the prepared side on the space other than the general comment that we feel still really good about the sector of gas. And I just reiterate that with you on the question here, it's very strong activity, and I feel good the investment we're making in offshore is going to be very well timed for what's going on, on this next wave. Jon Braatz: Okay. Okay. A couple of questions on the end markets. In the C&I segment, beyond data centers, what might be active in that area? And then also in the Traction area, orders were up significantly. What are you seeing there that's driving the business in Traction? Brett Cope: Yes. So on C&I, yes, clearly, the main driver of that is data centers. And it's -- as I noted earlier with John Franzreb, it's a very active area, and we are seeing some nice opportunities grow. The balance of that would be other industries that we've always had presence, but never really, I'd say, overly hunted. Mining has been one of note. We occasionally see a cycle on pulp and paper integrated facilities. They have a lot of power usage and moving a lot of fluids and pulp slurries and so that uses a lot of medium voltage. And so that kind of rises and fall. And then occasionally, we'll see some other commercial activities sneak in through an E&C or a distributor because some of that market to distribution that we're getting exposed to, we're seeing -- occasionally, we'll see some broader industries that we might not have seen as directly in our Powell sales channel. Jon Braatz: So mostly data center still. Brett Cope: It is largely driven by data centers, and it is growing for us for sure. Jon Braatz: Yes, okay. Brett Cope: The Traction piece, yes, it's a nice story. Look, I always said -- and we talked about it in the company. I love Traction. I think we do it very well. The DC side, we've done it now for nearly 30 years. We're good at what we do. There's a lot of people play in this market, but there's a lot of people that sort of put the fingers in this market and on the contracting side and muddy it up. And there's a reason there aren't that many people that play on the gear side because by the time it gets to a company like Powell, got all kind of crazy terms and things that just make you wonder. So there was a lull last couple of years. It does -- it takes a long time to get these projects to market just because of the, what I'll call the government side, if you will, of the contracting. But there is a broader set of projects that are getting to market now around the East Coast, Ramada up to New York, over Chicago and even in Canada, there's a number of projects that are sort of just timing out at the same time, and we see some other things continuing on into next year, quite frankly so. Jon Braatz: Okay. Okay. Good. A question for you, Mike. In terms of SG&A, as we look forward, obviously, in the fourth quarter, you had some onetime items. But as you continue to see the robust revenue line and the progress that you're seeing there, do you think you can leverage SG&A costs? Or would you think that maybe we'll still see a little bit faster growth in those expenses over revenue? Michael Metcalf: No, Jon. I think you'll see leverage, especially when you compare it to what we reported in our fourth fiscal quarter with those unusuals. When you look at the year-to-date numbers, we reported 8.6% of revenues in the total year '25, that compares to 8.4%, 20 basis points, as I noted in the prepared comments, 24 basis points above where we ended 2024. So relatively flat, and that also has the acquisition cost. So yes, nothing crazy that we see going forward. Jon Braatz: Okay. Any acquisition costs in 2026 from the most recent acquisition, obviously? Michael Metcalf: No. Those all were incurred in 2025. Operator: Next question is a follow-up from John Franzreb of Sidoti & Company. John Franzreb: Yes. I guess I'm still thinking about the closeouts. And I'm wondering how you would characterize 2025 compared to prior years. Is this kind of a normal level of activity, maybe on a percent of revenue basis or how we should think about it? I just want to get a bit of handle on that. Michael Metcalf: Yes. John, this is Mike. Yes, closeouts, I would say, in 2025 were a little bit heavier than in prior periods. As you'll see in our K that will be filed this afternoon, the closeouts ran a little better than 1.5% of total revenue, 1.7% to be exact. And as I mentioned in my response to Chip, I mean, we do expect to continue this execution -- the outstanding execution into 2026. So we should expect to see some project closeouts in a favorable fashion in 2026. John Franzreb: Got it. Got it. And regarding the uptick in R&D, can you talk a little bit about maybe where the spend is going? And when do you expect to see the commercialization of some of these projects? Brett Cope: John, it's Brett. I'll take this one first, and Mike can add color. I think we're going to -- you'll continue to see spending at this level for the next couple of years. I feel good about the progress we're making. When you bring -- we're bringing some wholesale products to market to fill some gaps in our 038 strategy on distribution. So we had some nice wins. We had some learning experiences in '25, but that's normal in the course of getting the engine back up and going and flying the plane at Altitude. I think in '26, I expect to see some products hit the market that we should see some tangible results to report back to the street. Not done, some. And I think there'll be some iterative effort that will continue on into '27 and '28 just because that's the process. But I do think we'll see more tangible results as we get through the fiscal year next year. Michael Metcalf: Yes. And I would mention, John, just to get an appreciation of the lead time of some of these projects, these electrical distribution equipment projects. They do have a long lead time, but well better than a year after they've been tested and the like. So yes, the R&D has ticked up the last couple of years, and you should begin to see some of these projects exiting the pipeline, but they do take quite a while. John Franzreb: Got it. Got it. And I guess in light of the capacity expansion, can you give us an updated CapEx budget for 2026? Michael Metcalf: Well, the $12.4 million for the Jacintoport expansion, that I expect that to hit in its entirety in fiscal 2026 on top of maintenance and productivity projects that we normally execute call it, the $5 million to $7 million range, and that's what I would expect in 2026. John Franzreb: Got it. And I might have missed this in the prepared remarks, and I apologize. But how much of the backlog is deliverable in the coming 12 months? Michael Metcalf: About 60% is convertible in 2026. John Franzreb: Got it. Got it. And one last question, and again, this is just a point of clarification. Data center revenue, I mean, maybe for all of fiscal 2025 as a percentage basis? And how does that comp to like 2024? Just trying to contextualize it. Michael Metcalf: Yes. If you look at our backlog, our backlog for C&I is about 15%. Roughly half of that is today data centers. that's probably 100 to 200 basis points higher than it was last year. Operator: The next question is a follow-up from Jon Braatz of Kansas City Capital. Jon Braatz: Mike, just a question on the incentive comp. Was that sort of a catch-up number in the fourth quarter? Michael Metcalf: Yes. It is, Jon. What we typically see is we will accrue based on our expected results as we progress through the year. And given the results of our results that we had this year, we did have a catch-up in the fourth fiscal. Jon Braatz: Okay. Any -- can you tell us how much it was -- how much of a catch-up? Michael Metcalf: Well, as I mentioned to John Franzreb a little earlier, the variable compensation of the $5 million year-over-year increase, variable compensation and compensation in general, which would include headcount adds and the like was about $3 million. And then the legal and valuation services related to the M&A activity was just under $2 million. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Brett Cope, CEO, for any closing remarks. Brett Cope: Thank you, Nick. As you've heard from Mike and I this morning, we are very pleased with the financial results for our total fiscal 2025 financial performance. And we are very proud of the Powell team that delivered for our shareholders. The markets we serve continue to support our belief that fiscal 2026 will be another strong year for Powell. I would like to welcome our new team members from Remsdaq Limited to Powell. I am very excited to write the next chapter on electrical automation and how Powell will help drive that future. With that, thank you for your participation on today's call. We appreciate your continued interest in Powell and look forward to speaking with you next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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 Eric 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.