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Stephen Hare: Good morning, and welcome to Sage's full year results. I'm pleased to be joined by Jonathan Howell, our CFO. I hope you enjoyed that preview of the Sage Finance Intelligence Agent. I'm going to start with an overview of our key messages. Firstly, Sage delivered another strong performance in FY '25. For the fourth consecutive year, we achieved a double-digit increase in underlying ARR, testament to the resilience of our model and our durable growth. Through cost discipline, together with operating leverage, we've delivered strong profit margin and EPS expansion. And we've converted this into robust cash flows, supporting organic and inorganic investment and enabling strong shareholder returns. Secondly, our performance is driven by our relentless focus on delivering customer value. From the launch of Sage Intacct Suites to our new cloud-native version of Sage X3, we are accelerating the pace of innovation at Sage. Through our AI-powered platform, customers are saving time and making smarter decisions. The future is exciting with AI set to revolutionize the way businesses operate. And with AI agents, we're delivering the next wave of intelligent solutions, transforming how SMBs manage their finance, HR and payroll processes. And finally, our progress is underpinned by consistent, focused execution. In recent years, we've transformed our portfolio to meet and exceed our customers' needs. And today, as a result, we have around GBP 1 billion of cloud-native ARR growing over 20%. We've enhanced go-to-market with new systems and processes to drive efficient growth, and we're investing with purpose in our technology, our people and our communities to ensure that Sage continues to deliver for the long term. I'll talk more about our progress later in the presentation, but for now, I'm going to hand over to Jonathan for the financial review. Jonathan A. Howell: Thanks, Steve, and good morning, everyone. I'm pleased to share with you today our full year results and the outlook for the year ahead. In summary, we delivered strong financial results, and we enter FY '26 well positioned for further success. Looking back, we have a good track record of strong and consistent financial performance, which highlights our continued strategic progress. As a result, since FY '22, we've grown revenue at an average of 10% per year and operating profit at 18%, converting to strong EPS growth of 21%. Moving on to the highlights for FY '25. We've achieved revenue growth of 10%, reflecting the strength of our subscription-based model. Our operating profit margin was 23.9%, an expansion of 150 basis points as we scale the business and deliver efficiencies. This has led to a strong increase in EPS of 18%. And finally, we delivered cash conversion of 110%, driven by growth in subscription revenue and good working capital management. Let's turn now to ARR growth. Renewal rate by value was 101%. This reflects strong retention rates and a good level of upsell to existing customers, together with targeted price rises. And we've seen good levels of growth from new customer acquisition. As a result, ARR increased by GBP 245 million to GBP 2.6 billion. That's up 11% compared to last year. Importantly, this growth continues to be well balanced between new and existing customers. So turning to the P&L. Total revenue growth of 10% was underpinned by recurring revenue, which also grew by 10%. Sage has a 97% recurring revenue business, demonstrating the high quality and resilient nature of the group. Operating profit grew by 17% to GBP 600 million, reflecting continued top line growth and strong margin expansion. Profit after tax increased by 14% to GBP 423 million, leading to strong growth in underlying EPS of 18% to 43.2p. And we've increased the final dividend to 14.4p, taking the full year dividend to 21.85p which is up 7%. Cloud products continue to be a significant driver of growth with Sage Business Cloud revenue increasing by 13%. This reflects good strategic progress as we continue to expand our global cloud solutions. Within this, cloud native revenue increased by 23% driven by strong growth from new and existing customers, particularly in Sage Intacct. Subscription penetration also continued to increase and now stands at 83%. Moving now to our regional performance. Starting with North America, which represents just under half of group revenue. Here, we delivered revenue growth of 12%, driven mainly by the medium segment. Sage Intacct continued to perform well with strength across key industry verticals, including not-for-profit and financial services. Sage 200, Sage 50 and Sage X3 also supported growth across the region. The UKIA region represents almost a third of group revenue and grew at 9%, with a good performance across the portfolio. The U.K. and Ireland increased by 10% as revenue from Sage Intacct continued to scale rapidly. Further growth was achieved in small business solutions, including Sage Accounting and Sage 50 and this was supported by a good performance in SAGE 200. In Africa and APAC, growth of 7% was driven by strength in Sage Accounting and Payroll together with Sage Intacct. And finally, in Europe, which represents over a quarter of group revenue, growth was 7%. This reflects a strong performance across our cloud solutions. In France, growth of 6% was driven by strength in Sage X3 and Sage 200. Iberia also increased revenue by 10%, with strong growth in Sage 200 and Sage 50, together with the acquisition of ForceManager in October last year. And in Central Europe, growth of 6% was driven mainly by Cloud HR and Payroll. As we've said previously, our focus is on efficiently scaling the group. As we grow the top line, operating leverage together with disciplined cost control means we can invest more and expand the margin. This, in turn, leads to sustainable growth. In FY '25, we achieved strong margin growth of 150 basis points to 23.9%. This was underpinned by efficiencies, especially in G&A, which is running at 8% of revenue. Importantly, we continue to drive investment with sales and marketing at 40% of total revenue. An investment in R&D at 15% remains a key priority for the group. Turning to earnings per share, which grew double digit for the third consecutive year. Underlying operating profit grew at 17% following good revenue growth and margin expansion. Net finance costs increased following new debt issuance, while the effective tax rate remain constant at 24%. Together with the benefit of recent share buybacks, this led to EPS growth of 18% to 43.2p. Moving on to cash generation, which remains a core strength of Sage. During the year, the group generated GBP 660 million of cash from underlying operations, resulting in cash conversion of 110%. This is now the seventh consecutive year of cash conversion above 100%. And free cash flow was GBP 517 million net of interest and tax. The group has a strong balance sheet with GBP 1 billion of cash and available liquidity. Our leverage ratio of 1.7 remains within our midterm target range of 1 to 2x. In line with our disciplined approach to capital, this morning, we announced a share buyback program of up to GBP 300 million. This reflects our strong cash generation and robust financial position, together with our confidence in Sage's future prospects. Importantly, we retain significant capacity to support growth. So what does that mean for the outlook? We have good momentum as we enter the new financial year. Therefore, we expect organic total revenue growth in FY '26 to be 9% or above, and we expect operating margins to continue trending upwards in FY '26 and beyond as we focus on efficiently scaling the group. Thank you, and now back over to Steve. Stephen Hare: Thanks, Jonathan. Our performance is anchored in our strategic framework for growth. It starts with our purpose, to knock down barriers so that everyone can thrive as we aim to create the world's most trusted and thriving network for SMBs powered by AI. We deliver on this through our three strategic focus areas: Connect, Grow and Deliver, which I'll say more about shortly. And through this framework, we serve the interests of our stakeholders in line with our values, starting with our customers, small and midsized businesses. SMBs make up 99% of all businesses in our end markets. They are the lifeblood of our economy, providing employment and creating wealth for millions. Our small business tracker analyzes data from 140,000 SMBs. And it shows that despite the external backdrop, SMBs have again proved resilient and increasingly profitable during 2025. But they continue to face barriers such as weak productivity and late payments with the challenge of remaining competitive and compliant. They want effective integrated solutions from a trusted vendor and Sage provides these solutions helping SMBs to knock down barriers, automating processes, speeding up cash flows and delivering business insights. LA Opera, shown here on the slide, told us that Sage Intacct has completely transformed their finance function with its AI capabilities, helping to save 10 to 15 hours a week. And as we roll out Sage CoPilot and AI features more widely, we're opening up new possibilities for SMBs and accelerating customer benefits. The way we're doing this is through the Sage Platform. This platform provides a secure, scalable foundation for all of our products. It connects customers to their suppliers, banks, tax authorities and partners, automating transactions and speeding up compliance and improving cash flow. At the heart of the platform is the Sage AI factory, the infrastructure that drives Sage CoPilot powered by our LLM backed proprietary intelligence engine, and it's supported by our data hub and core experience and network services that enhance security and automate workflows. The system is already operating at scale with over 40,000 models in production, generating 3.5 billion predictions annually. Designed to support rapid innovation, the platform has enabled us to bring Sage CoPilot from inception to market in less than a year and to scale it across the portfolio. And we're now focused on leading the way in Agentic AI, both by launching our own agents, and by integrated trusted third-party agents in a secure ecosystem governed by Sage. For customers, this means greater choice, more intelligence, and faster innovation within the Sage products that they already know and trust. We've been building AI into our products for years through successive technologies, first predictive then generative and now agentic AI. Through these waves of innovation, we've created a powerful and differentiated proposition, combining our experience, extensive data sets and connected ecosystem to deliver trusted, domain-specific AI at scale. Sage CoPilot is our intuitive assistant and the primary way through which customers experience our latest innovations. This is powered by Sage AI, our intelligence engine. Built on deep domain expertise, our models are trained on rich, proprietary data sets from years of experience and fine-tuned to ensure relevant and precise responses. This specialism makes them more accurate and efficient than off-the-shelf models while industry partnerships such as our collaboration with the American Institute of CPAs promise to further enhance their performance. Increasingly, AI agents handle specialist work, taking care of repetitive tasks that weigh businesses down, but always ensuring the human stays in control. And the Sage Platform provides the environment for our AI to operate, bringing applications, workflows and data together. Guiding all of this is our underlying philosophy, authentic intelligence, meaning our AI is built to be ethical, transparent and human first. These pillars underpin our progress towards our ambition to create the world's most trusted and thriving AI-powered network for SMBs. So let's now turn to a look at our progress in more detail through our three strategic focus areas. First, Connect, where we aim to grow our platform by connecting more products, enabling us to serve customers better by expanding the scale and scope of services we provide. This drives the network effect, where every connection and every transaction that flows across the platform makes the system smarter for everyone. During the year, we scaled services, such as accounts payable automation with monthly transaction value tripling over the past 12 months to GBP 2.3 billion, thanks to continued adoption by customers such as Greenidge in the U.S. shown here on the slide. They told us that Sage AP automation has enabled them to double the number of invoices they process without increasing headcount. We also grew our accounts receivable service, and we launched our e-invoicing portal in France, helping customers prepare for upcoming compliance requirements. And through the acquisitions of Fyle and Criterion, we expanded in expense management and HCM, enabling us to streamline and automate these critical processes for SMBs. We're also innovating to expand our reach by delivering a growing set of services embedded into other platforms, such as fintechs and banks, plugging into the apps that SMBs already use. We partner with Tide to deliver bookkeeping, Monzo for making tax digital, NatWest for Carbon Accounting and Capital One for expense management. Extending our ecosystem to win customers earlier in their life cycle and acting as a trusted partner to regulated service providers who are looking to innovate. Looking ahead, our aim in this focus area is to drive the adoption of more network services, bringing productivity to customers and data and insights to Sage. Our second focus area is to grow by winning new customers and delighting our existing ones. And the biggest contributor to growth is Sage Intacct, our flagship mid-market solution. In the U.S., Sage Intacct grew ARR by over 20% with Q4 a record quarter in volume terms. This was driven by strength in key verticals and supported by investment in go-to-market and the expansion of suites. And outside the U.S., ARR increased by around 50%, with standout momentum in the U.K. where Sage Intacct now serves over 1,600 customers. During the year, we replatformed Sage X3 to deliver a full cloud native experience where we saw acceleration driven by strong demand in manufacturing and distribution. Through Sage X3, we can serve customers better, like Grupo Intaf in Spain, shown here on the slide, who told us that Sage has improved their efficiency and helped drive collaboration. For small businesses and accountants, we've expanded through product and package improvements, including in Sage Accounting, Sage 50 and Sage Active. And we've reinforced our relationships with accountants by delivering tools that streamline their work and free up time to grow their business. Our future focus in this area is to drive momentum with new and existing customers and continue to make it easier for them to access products and services. Our third focus area is to deliver productivity and insights driven by AI. Over the year, we've significantly scaled Sage CoPilot in availability and usage. Initially focused on Sage Accounting, we quickly expanded it to Sage 50, growing availability to around 150,000 customers including Adam Williams of Tyne Chease shown here on the slide. I met with Adam earlier this year, and he told me that Sage CoPilot is saving them over 12 hours of admin per week and helping them to get paid up to 7 days earlier. Other customers have told us it's doubled productivity in accounts payable, while reducing manual data entry by up to 90%. We've also expanded Sage CoPilot to Sage for Accountants, Sage X3 and Sage Intacct, where it's rapidly becoming an important tool for customers. Over 26,000 Sage Intacct users worldwide have so far access features such as search help, which seamlessly guides them through key workflows. And the Sage Finance Intelligence Agent, which we showed in the video at the start of the presentation, handles natural language questions like a human finance assistant. These solutions drive real value for customers, not just streamlining processes, but transforming their operations and making them more productive. Now we expect that this, over time, will create monetizable opportunities for Sage through features, pricing and lifetime value. As well as driving productivity for customers, we're also leveraging AI for colleagues at Sage. In engineering, AI is accelerating cogeneration saving hundreds of thousands of hours. In customer support, it's driving a 70% resolution rate with high satisfaction levels. And in go-to-market, AI agents are helping to generate, qualify and convert sales leads. We're doubling down on internal adoption, encouraging and empowering colleagues across the group to use AI to simplify and amplify their work. And with hundreds of new use cases being assessed, the potential ahead is considerable. Our future focus in this area is to continue to scale Sage CoPilot, embedding it into the core user experience across our portfolio while further developing our agentic capabilities, accelerating benefits and unlocking ROI for customers and for Sage. Our success depends on our ability to deliver for our stakeholders. For customers, we're committed to excellence with Sage ranked by G2 as the #1 software company in the U.K. for 2025 and in the Top 25 globally based on user reviews. And we continue to champion policies that our customers care about from partnering with the U.K. government on AI skills to advocating SMB access to green finance across the EU. For partners, we've launched AI developer solutions, enabling ISVs to build and deploy AI agents on our platform. And our new partner portal streamlines partner onboarding, provisioning and support, making it easier for them to work with Sage. For colleagues, we foster a high-performance culture and an innovative mindset. And we're pleased that we've been recognized by Forbes as one of the world's best employers. Turning to society, where we aim to multiply our impact by helping SMBs to be more sustainable. In FY '25, we launched our entrepreneurship program to support purpose-driven start-ups around the world. And Sage Foundation celebrated a decade of impact during which time we've raised over $5 million and enabled 1.4 million volunteering hours. And for shareholders, our objective is to deliver sustainable growth in shareholder value. We do this by growing revenue and by doing so more efficiently over time. The key to this is rooted in our strategy, our competitive positioning and financial model. We have a clear strategic focus, which guides our decisions and ensures we align with the needs of our customers and the expectations of our shareholders. We're differentiated from competitors by our AI-powered platform, global products and geographic reach with deep domain expertise across financials, payroll and HR. And we're diversified through our broad customer base and ecosystem. And finally, our resilient financial model is built on high-quality recurring revenue, providing stability and visibility with growth driving both investment and margin. So in conclusion, Sage delivered a strong performance in FY '25, underpinned by continuing durable growth. Smart investments are driving an accelerated pace of innovation, particularly through AI. And with good progress in execution, we enter FY '26 with confidence and momentum. Now before we move to Q&A, I'd like to say a big thank you to Jonathan, who's been a fantastic support to me and the broader Sage team over the last 12 years. He hands over the financial reins to Jacqui Cartin in great shape and I'm looking forward to welcoming Jacqui to the CFO role from the first of January. So that concludes today's presentation. Thank you very much for watching. And Jonathan and I would now be very happy to take your questions. Operator: [Operator Instructions] We will now take the first question from the line of Adam Wood from Morgan Stanley. Adam Wood: First of all, congratulations on the results and also best wishes from me, Jonathan. I know you've got a few weeks left, but best wishes from my side when that time comes up. I've got two questions, please. Just first of all, we saw a nice tick up in the ARR growth in the fourth quarter. Could you just talk a little bit about what the drivers of that improvement in ARR were at the end of the year, please? And maybe just secondly, when in the commentary around North America, you talked about the introduction of multiyear customer contracts as a driver of growth. I guess from Intacct side, that's a pure SaaS business, so multiyear contracts wouldn't bring any revenue forward, but I'm just curious if you could maybe expand a bit on how that was a driver for North American revenue, please. Jonathan A. Howell: Adam, yes, thank you. Thank you for your questions, and thank you for your comments. First of all, if we just stand back and look at ARR for the full year, we exited with growth of around 11%, and that was in line with the first half ARR exit rate. Looking at sequential growth, Q1, Q2, Q3, we saw between 2% and 2.5%. And then to your question, in Q4, that picked up to around 4%. And that was a very strong result and particularly [Technical Difficulty]. Operator: One moment please, your conference will resume shortly. Jonathan A. Howell: Hello, sorry, we lost the line for a moment then. Just to recap to make sure everybody gets it. Q4, we saw a sequential growth of 4%. And that was a strong result and significantly above the 3.5% that we saw in Q4 of the prior year and that's been driven by North America and UKIA, particularly across the medium segment and primarily Intacct, where we saw a very strong performance in Q4 in both new customer acquisition and upsell and cross-sell. I think it's probably just worth noting that we are now beginning to see the benefit from the ongoing investment that we've made in products, people and go-to-market in those regions in the medium segment. And that underpins our guidance for FY '26 as we exit with -- this year with good momentum. Suites multiyear contracts, Adam, you mentioned that. They simplify our proposition for customers and improve the sales motion. We expect over those multiyear contracts to be able to increase customer lifetime value over that extended period. And that provided a bit of an impact in Q4, but really, the whole performance was underpinned by strong execution in new customer acquisition. Operator: We will now take the next question from the line of Frederic Boulan from Bank of America. Frederic Boulan: Two, if I may. Firstly, around AI. I mean you kind of discussed your pipeline and the kind of innovation you've been pushing. Can you spend a minute around the impact on the business from a revenue standpoint? What you've been doing from a pricing standpoint and any early insights on what you've seen in your U.K. portfolio in particular? And then secondly, it would be good to have an update on the competitive dynamics, especially versus Intuit in the U.S.? Are you seeing any of the QuickBooks graduate funnel starting to dry out? On the contrary, I mean, U.S. performance seems to remain very, very healthy. So any comment there would be great. Stephen Hare: Yes. Thanks, Frederic. And so to start with the AI. And we have, as we've said before, been deploying AI for many years. What we're doing now is, both with Sage CoPilot and now increasingly with AI agents, starting to create more stand-alone capability that takes advantage of generative AI. So with Sage CoPilot, we've now deployed that to around 150,000 customers. And in terms of how we're monetizing, we're doing it in a number of different ways. With CoPilot, we're tending to bundle it into the existing plans and then use that to increase the price. So in the U.K., for example, with Sage Accounting, we put Sage CoPilot into the plus tier, and then we increased the price of that tier by around 25%, 30% and made it available to all those customers. With some of the agents, so for example, with accountants, we've launched a VAT agent, which does what it kind of says on the tin, which is it helps to prepare VAT returns. For those sorts of agents, we may well charge for those because they are -- separately because they're doing a particular task but I think my kind of overriding message here would be that the commercial models have not really been completely written. So I think if you ask us or you ask anyone else, we're all looking for different ways to monetize what is considerable value for our customers. We are saving our customers a tremendous amount of time. We've had feedback from small customers that Sage CoPilot is saving them 10, 12 hours a week. So I think it's kind of it will build over time, and we will -- these sorts of calls will give you transparency in terms of how it's being monetized. But it may not be an entirely kind of linear journey. It will -- there'll be different ways that we do things for different parts. As far as the competitive situation is concerned, look, I mean, I think it's very similar to how it's been in the past. I think our differentiation is that whether it be in the U.S. or elsewhere, we're being very clear that what we're doing with AI is we are driving a platform strategy where we're using our proprietary data sets to train our models to ensure that we get the accuracy that's required in a finance payroll environment. So if we're automating workflows in the case of midsize businesses with Intacct, we're seeking to automate the close, save time by deploying AI in the close process. All of these things have to be accurate. And the way we make them accurate is because we have domains or developing domain-specific LLMs. We've said in the press release, we have over 40,000 training models currently learning from our 40-plus years of experience in our proprietary data. And we think that is the way forward. Jonathan? Jonathan A. Howell: Yes, just to add a little bit more color on the pricing impact. As Steve said, we've seen price increases put through for Sage Accounting and Sage 50 in the U.K. only in relation to the introduction of CoPilot. And if you look back over the last 4 years, across our portfolio on a weighted average, our price increases have been between 4% and 5%. For this year in FY '25, that ticked up to 5.5%. And a significant component of that does come from this impact from pricing in response to the introduction of CoPilot. That's just the start. As Steve said, it's not going to be linear necessarily, but we are optimistic given that Sage CoPilot and other AI enablement will begin to be rolled out across other products and other territories outside of the U.K. Operator: We will now take the next question from the line of Toby Ogg from JPMorgan. Toby Ogg: Jonathan, best wishes from me as well. Just on the 9% or above growth guidance for '26, could you just help us with the framing around the sort of recurring revenue growth versus the other revenue? I think for 2025, you saw about a 30 basis point or so headwind between that organic recurring revenue growth and the total organic revenue growth. How should we think about that dynamic for 2026? And then also, you obviously mentioned 5.5% contribution from pricing in '25. How are you thinking about the pricing contribution embedded in the 2026 guide? Jonathan A. Howell: Yes. So in terms of the guidance for the year, if we just step back, for FY '26, we are using the same form of guidance that we've used for the last year, which is 9%, organic total revenue growth of 9% or above. We are confident in that guidance given the momentum that we take with us as we exit the year. We've invested in key products, particularly Sage Intacct and CoPilot. And we've also seen really in Q4 and continuing this year, good sales execution. We've got a solid sales pipeline and robust closure rates. So we see overall the guidance is realistic, but cautious. And needless to say, we will continue to update you as we move through FY '26. In terms of the various components of revenue, I think the most important thing to note is that other revenue, which we have seen as part of our strategy, a significant runoff over the last 5 years, as we exit the license business, that part is done. But we still have an element of maintenance and support and an element of professional services, which has now stabilized. And the professional services, in particular, is an important contributor because that provides us with flexibility for implementation and new customer acquisition in the direct channel. So in those two lines, that quite strong strategic runoff that we've seen in recent years has stabilized, and there will be some variability there going forward. Now it's important to note that the other revenue line is very small, that's only 3%, but it does have an impact. And the maintenance support is a larger line and has a little bit more of an impact in supporting those numbers. I think that's answered your question. Toby Ogg: Yes. Just on the pricing contribution for '26, anything you could say on that? Jonathan A. Howell: Sorry, Toby, yes. At this stage, no. We are always testing and seeking to optimize the fair value exchange that we have with our customers with existing products and new products. And therefore, we're constantly assessing the take up and adoption of these new products versus the additional pricing that we're asking for it. So at this stage, we have it baked into our plans, but we're not sort of giving forward guidance on what to expect. But clearly, you'll see the impact of any additional pricing as we get through Q1 and H1. Operator: We will now take the next question from the line of Charles Brennan from Jefferies. Charles Brennan: Just a couple from my side. Firstly, on Intacct, it sounds like that was the biggest driver of momentum at the end of the year. I'm under the understanding that where you provide some customer incentives to onboard new customers, that's typically in Intacct. And those discounts don't necessarily get reflected in ARR. Can you just talk about the volume of discounting at the end of the year relative to the previous year? And then when we think about the gap between ARR growth and recurring revenue growth, last year, I think, you exited ARR of 10.5%, and we saw just over a percentage point of dilution to get to recurring revenue growth. What do you think that delta looks like this year? And then just as a small follow-up. I didn't quite catch the point on the multiyear contracts. I know you said it was immaterial, but is there any pull forward of revenue recognition under a multiyear contract? Jonathan A. Howell: Yes. So first of all, in terms of your opening remark around Intacct, yes, that is the very significant driver that we've seen, obviously, over the last 2 to 3 years, but particularly in Q4. And just to deconstruct that a bit, we have seen total revenue growth for Intacct in the U.S., which is about a $650 million base now, of 23%. And in H2, that was 25%. And so that underpins the overall performance that we've seen. And ex-U.S., that total revenue base is about GBP 50 million, and that's growing up between 50% and 60%. Your reference on discounting, the level of discounting provided on a customer basis in Q4 of this year was not too dissimilar to what we were providing towards the back end of FY '24 and is part of the normal sort of sales cycle of both direct and partner channels, particularly in North America. Multiyear contracts, you sort of referenced that. What -- first of all, multiyear contracts are important because that enables us to acquire a new customer, onboard that customer with a good assessment of the capability and functionality that they need but then gives us a 3-year period in which to assess and upsell and cross-sell into their needs rather than necessarily the other way around, where there's a big sale upfront and then an assessment in subsequent years of whether all of that capability is needed. So that is the important thing about multiyear contract. It makes it both easier for the buyer of our products and for us for a provider of capabilities to our customers. In terms of revenue recognition, the impact is that any upfront discount is, therefore, spread over a 3-year period as opposed to a 1-year period. So there is an element of revenue improvement as a result of that. But I do stress, it's the performance of the underlying sales motion and our customer approval of our products, which is driving what we're seeing at the moment. And to give you an example, in North America, I think we have just had our highest volume month ever for Sage Intacct. So this is underpinned by real volume coming through. And then in terms of ARR to that sort of difference, we always expect them to be close, as you referenced in your question, but not necessarily the same. And this is consistent with other corporates and companies that use this measure. The reason is, as you know, an ARR is a point-in-time metric, while revenue is booked over an extended period. And any divergence that we see is mainly caused by the timing of revenue growth. That sort of compressed slightly in recent quarters. It will vary and fluctuate. We're not giving -- we're not giving forward-looking guidance on that gap because it depends upon the cadence of growth rate and when acceleration occurs. Stephen Hare: And Charlie, just to add, just to be helpful, I think with the dynamics around Sage Intacct, just to emphasize what Jonathan said, in Q4 and in September particularly, we did see very, very strong volume growth in U.S. with Intacct. And we saw that consistently both in the -- both direct and also through the channel. So it was a kind of -- it was a pretty consistent theme in terms of that volume growth. Operator: We have time for one final question from the line of Balajee Tirupati from Citi. Balajee Tirupati: Congratulations on your results and Jonathan, best wishes, and thank you from my side as well. Two questions from my side, if I may. Firstly, on the topic of AI, one of your key peers announced a deal with OpenAI yesterday. Do you see merit for Sage to also target similar integration of its portfolio with Frontier models to allow customers access to more customized services? And second question on margins, with puts and takes around AI, in particular, productivity gains internally and need for investment as well, do you see the view of 50 to 100 basis points per year margin expansion staying intact in 2026 and beyond? Stephen Hare: Thanks. So yes, on AI, I mean, I'll start with how do people access the capability. So I think people will increasingly want to access capability, do their kind of daily tasks, approving invoices, doing all the workflow type stuff in a number of different environments, right? So today, if you want to approve an invoice, for example, typically, you have to go into the application, log on to the application, do it in the application. And in the future, you might do that in Teams. You might do that in Outlook, you'll do that on an app on your phone, whatever it might be. And therefore, to sign up or to partner with some of the larger players like a ChatGPT, if the intention is to create that flexibility to access makes a lot of sense. The one warning I would give is we're very clear that the way that we produce accuracy is we have data on our platform, proprietary data on our platform which our learning models are using to create accurate automated workflows. We're also very protective of that data because that's customer data. So we would not, for example, want to share that data with others. Now I don't -- I can't comment on the detail of what other competitors are doing because there isn't enough information in the public domain to make an assessment. But what I can say is we're very clear that our AI is learning in a secure environment where we are -- it's effectively a private network with a gateway so that developers can come in and develop their own agents on our platform, but it has to be curated and controlled by Sage because that ensures the integrity of the data and the integrity of the outcome. I'll let Jonathan talk a little bit about margin, but let me just start by saying that I think in the same way that we're selling AI and productivity to our customers, we're obviously seeking to get productivity internally. And we've seen a number of areas which have already contributed to the expansion in margin this year, for example. So for example, in the area of -- areas like customer services, we are already deploying significant AI to get higher first-time resolution through AI rather than human-to-human conversations. And if you look at it at a very high level, we've grown Sage this year revenue 10% and our headcount is broadly the same as it was 12 months ago. So we're starting to see the benefits, the early benefits of some of that investment, but Jonathan, do you want to... Jonathan A. Howell: Yes. And I think the important point is that Steve just raised is that with the internal adoption of AI, there are significant savings that can be achieved. And we've seen those in customer support and also in R&D and engineering. So just to stand back to your question, this is now the third consecutive year of margin expansion. We've guided for FY '26 for margin to continue to be trending upward. So that will be the fourth consecutive year and this is driven by growth and established patterns of achieving operating efficiencies. So at this stage, we expect to be at the lower end of the usual 50 to 100 basis points range as we continue to invest in growth. And so as I always say on these earnings calls, we will, though, as we move through the year, continue to dynamically reallocate spend during the course of the year to maximize that trade-off between top line growth and margin expansion, depending upon the circumstances and the opportunities that present themselves to us as we move through the year. Thank you very much. And also thank you for your kind comments. Operator: I would now like to turn the conference back to Steve Hare for closing remarks. Stephen Hare: Thank you very much, and thank you, as always, everyone, for listening. And as I said in the presentation, but again, just to add my thanks to Jonathan for the huge contribution that he's made to Sage, and we look forward to welcoming Jacqui to the next call in January. But thank you very much, and have a good day, everyone. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Simon Carter: [Audio Gap] results. You will have noticed quite a few changes on the Campus over the last year since we were last here. And if you do get a little bit of time after the presentation, do check out the Retail underneath for 1 Broadgate. It launched last week, and it's already 90% let and under offer, which is a pretty good place to be. So, in terms of today's agenda, I'll start with an overview. David will take you through the first half performance and also our earnings levers. And then Kelly will look at our strong leasing and accretive asset management over the period. But before I hand over to David, I'd like to take a step back and look at what's driving the future performance of the business. At the heart of this is the decision we took nearly 5 years ago to build a market-leading position in Campuses and Retail Parks. Together, these now represent 90% of our business. These are sectors with strong occupational fundamentals. Demand is healthy, supply is constrained, and rents are very affordable. The investment market is waking up to this. Investors are increasing their allocations to both Retail and Offices. And we are very well placed to capitalize on this. That's down to the quality of the assets, the experience of our team and our value-add mindset. The result, a very attractive total return profile, underpinned by sustainable earnings growth. So, let's unpack this. Starting with prime London offices, where a classic supply crunch is driving strong rental growth. The return to the office has exceeded expectations. Mid-week utilization across our Campuses is now above pre-pandemic levels. Businesses are short on space. Last year, they expanded by 3.3 million square feet, the highest since 2019. And active demand is now 50% above the long-term average. But supply remains tight. Initial concerns about working from home have been compounded by rising construction costs and higher interest rates. You can see on this slide, vacancy for new and refurbished space in the city is predicted to fall below 2% and stay there for the next 4 years. Historically, when this has happened, it has driven double-digit rental growth. We've positioned our portfolio to benefit from this supply squeeze. Office occupiers are focused on four key areas: quality, location, amenity and flexibility. Our Campuses tick all the boxes. We currently account for 7 out of the top 20 leasing deals that are under offer in London. So, we're capturing a disproportionate share of a very strong market. That's down to high-quality sustainable buildings, prime locations near transport hubs, excellent amenities and public realm and flexible offerings, ranging from story to fully fitted work-ready space to headquarter space. This flexibility is key for customers in the innovation sectors. This is a fast-growing market, especially in the Knowledge Quarter. The number of innovation customers in our portfolio has more than doubled since 2022. There's been strong growth from a new generation of AI and tech businesses with high levels of venture capital investment. This is a key source of new demand. We're tracking 1.5 million square feet of new requirements. Kelly will explain in a moment how we're benefiting from this at Regent's Place. Our on-site developments are achieving record rents, which is driving development yields above 7% and mid-teens IRRs. These record rents also provide valuable evidence for upcoming reviews across our Campuses. We're derisking our schemes with pre-lets and fixed price contracts and increasingly bringing in partners such as Modon to reduce capital outlay, accelerate delivery and earn valuable fees. Let's move on now to Retail Parks. These continue to be the preferred format for retailers. They're efficient and adaptable, offer easy access, free parking, and they're ideal for a range of retailers, including value, grocery and multichannel. Retailers like M&S, Lidl, Aldi and Home Bargains are expanding into this format. Yet there's been virtually no new supply in the past decade, and we don't see this situation changing. Development economics are unattractive and planning is restrictive. As you know, we're the largest owner and operator of multi-let Retail Parks in the U.K. We have a portfolio stretching from the Isle of Wight to Inverness. Half the U.K. population lives within a 30-minute drive of one of our assets. And we have deep reach with the retailers, given our scale, the experience of our team and our in-house property management. Of course, we use demographic and competition data, but nothing beats picking up the phone to a retailer to understand trading. Our focus on strong trading locations is reflected in our footfall. This has grown 13.5% above the U.K. Retail benchmark over the last 5 years. Despite a more competitive investment market, we're still acquiring assets that yields above 7%. And we're comfortable taking occupational risk, due to the market strength, our asset management expertise and those retailer relationships. In real estate, affordability is just as important as supply and demand. For Prime Offices and Retail Parks, the picture is very positive. London office rents relative to wages are lower than at the turn of the century and Retail occupancy cost ratios are very healthy. This leaves plenty of room for rental growth. That's why we're guiding to 3% to 5% growth in both sectors. Investors are taking note of the occupational strength I've just described, and they're increasing their allocation to both Offices and Retail. This, together with strong credit markets means we expect investment volumes to grow. London office transactions have been subdued in recent years, as we know, but they've really picked up this year with over GBP 6 billion year-to-date and GBP 3 billion under offer. So far, the number of deals over GBP 100 million this year is already double the whole of last year. Strong occupational fundamentals, improving investment markets and our high-quality platform provide for an attractive total return profile. The essential building blocks are set out here. Their earnings yield, valuation uplift and development upside. Earnings yield is currently 5% and growing. Assuming stable property yields, valuations will primarily be driven by ERV growth, where we're guiding to 3% to 5%. You need to adjust for a bit of depreciation, the impact of leverage and the fact that ERV growth doesn't feed through 1:1. But you can see how these first two building blocks get you to around 8% to 9%. Developments add further upside with mid-teens returns forecast on the committed schemes and the pipeline. So, we're confident in delivering total accounting returns of 8% to 10% through the cycle. The total return outlook is underpinned by attractive earnings growth. We're expecting at least 6% next year, and we have the levers to deliver 3% to 6% over the medium term. This is an ideal point to hand over to David, who will take you through these levers as well as our numbers. David, over to you. David Walker: Thanks, Simon. Good morning, everybody. Three things from me today. First, I'll cover our financial performance for the half year. Second, the balance sheet and our approach to capital allocation. And finally, I'll provide an update, as Simon said, on the five levers of earnings growth I outlined in May and then how we see them translating into medium-term growth of 3% to 6%, including our guidance for FY '26 and then into FY '27. As you know, we released many of the key metrics in October. That's something you should expect from us going forward. One benefit we see is that it allows us to spend more time today on strategy and outlook, but starting with the numbers. Underlying profit was up 8% to GBP 155 million, and underlying EPS was 15.4p, 1% ahead of last year. meaning the dividend is also up 1%, in line with our policy of paying out 80% of underlying EPS. Looking at the EPS bridge, you can clearly see the benefit of our progress against the earnings levers, in particular, driving like-for-like, which was 4% and contributed GBP 6 million or 0.6p with a positive performance across both Offices and Retail, higher rents from developments from completed schemes like 1 Broadgate and The Optic, partially offset by void costs and lowering admin costs. This has been a key focus for me since I became CFO this time last year. I spoke in May about the savings we had already identified, and I'm pleased to see the benefit come through in H1 with admin costs down GBP 5 million or 12% versus last year, adding 0.5p to EPS. One-off items had only a limited impact on earnings year-on-year as the positive effect of surrender premia offset bad debt provision releases last year. Taken together then, these positives more than offset the GBP 13 million increase in finance costs, which reduced EPS by 1.3p. This is in line with expectations, mainly reflecting the fact that we're no longer capitalizing interest on completed developments and a 10 basis point increase in our weighted average interest rate to 3.7%. Here's the summary P&L account. I've covered most things here already, but just to touch on two further metrics. First, our NRI margin. This was lower due to the increase in PropEx, mainly because of the movement in provisions I just touched on, which slightly flattered the margin last year and void costs as we lease up developments. Once this is done, I expect our margin to stabilize at around 90%. The other thing to draw out here is the EPRA cost ratio, which was 17.4% at September as this higher PropEx more than offset the reduction in admin costs. Though I do expect the ratio to come down to the mid-teens in future years as we lease up developments and further leverage the operating platform we have in place, adding income while controlling costs. Now turning to the balance sheet. NTA has again increased since March, reflecting a 1.2% rise in property values, which added 10p and underlying profit, which added a further 15p, although this was partially offset by the dividend paid in July and other movements, resulting in NTA per share of 579p, up 2%. This, combined with the dividend paid, equated to a total accounting return of 4% for the half, meaning we're on track to deliver our full year target of 8% to 10%. Credit markets remain very strong, and we've capitalized through a broad range of activity focused on maintaining our overall maturity and enhancing diversity in our sources of finance. We raised a GBP 450 million green loan secured against 1 Broadgate, extended GBP 930 million of RCFs and renewed GBP 500 million of term loans at improved pricing. Looking ahead, we have just over GBP 300 million of debt maturities at British Land over the next 12 months. So, we remain well financed with flexibility on when and how we raise new debt. And with good access to the bank debt and capital markets, we expect to remain active in a strong market. I was pleased to have our Fitch rating reaffirmed in July at A with a stable outlook, reflecting the fact that our balance sheet remains strong. We ended September with GBP 1.7 billion of undrawn facilities in cash. Net debt was GBP 3.8 billion. Our LTV was 39.1% with net debt-to-EBITDA on a group basis at 7.2x. This balance sheet stability underpins all of our capital allocation decisions. We focus on recycling capital from mature, lower-returning assets into higher returning opportunities. Currently, that means investing further into Retail Parks, where, as Simon has described, the investment case remains compelling, and we continue to see opportunities to buy at attractive pricing. Alongside that, we progress best-in-class office developments at our Campuses on a derisked capital-light basis, securing pre-lets, certainty over build costs and bringing in partners to accelerate returns and reduce risk, just as we did over at 2 Finsbury Avenue. Our London urban logistics portfolio has embedded development optionality, and we remain positive about the long-term supply-demand dynamics here. So, we can progress those schemes when the time is right, but the sector is weaker today. So, we prioritize better uses of capital in Retail Parks and Campus development. It's important to note that we always make capital allocation decisions in the context of shareholder distributions, including the relative returns and EPS accretion available from share buybacks, for example, when we have the proceeds to invest following significant disposals. And as ever, all of our capital allocation decisions are based on our assessment of relative returns at any point in time. In May, I set out the five levers we focus on to drive consistent cash-generative earnings growth. So 6 months on, let's update against each. First, like-for-like rental growth. We've made a strong start to the year. Portfolio like-for-like growth was 4%, bang in the middle of our guidance of 3% to 5%. Campuses were up 7% as we drove occupancy and secured rental uplifts on space which have been surrendered. Our Retail business also continued to grow, albeit at a lower rate, reflecting the fact that we're at near full occupancy. Going forward, though, ERV growth should more directly translate into like-for-like growth as we're largely rack rented now on our parks. And overall, for the full year, I expect 5% like-for-like growth across the portfolio. Kelly will give you more detail on our portfolio performance in a minute. Fee income is our second earnings growth lever. We continue to work with a broad range of JV partners, generating fee income for both asset and development management. Although fee income was flat in the first half at GBP 13 million, we do expect to achieve 10% growth for the full year as we continue to earn fees on development mandates, and we're actively pursuing opportunities to leverage our platform in order to drive incremental fees from new and existing partners. Third, cost control. I'm pleased with the progress we've made over the last 12 months, but this remains a focus. And so for the full year, I expect admin costs to be GBP 75 million to GBP 76 million, ahead of the guidance I gave in May and versus GBP 82 million for last year. Development leasing is our fourth earnings lever. As I mentioned earlier, we're now benefiting from schemes such as 1 Broadgate and The Optic, while leasing on previously delivered schemes, Norton Folgate and Aldgate Place is well on track. 1 Triton Square launched in October, and we're delighted to have our first deals under offer there. Finally, capital recycling. The fuel in this machine is our ability to dispose of lower returning assets, freeing up capital to rapidly redeploy into higher-returning opportunities. As Simon laid out, the office investment market has been quieter than in previous years, but we are seeing signs of improvement. And against that backdrop, we've remained active, executing deals where it makes sense, disposing of Retail Parks where pricing has moved in or development sites in London, which were not income-producing, then rapidly redeploying the proceeds. Given the improving investment market, we do, however, expect activity to increase over the next 12 to 18 months. Bringing this together, we expect to deliver sustainable EPS growth of between 3% and 6% over the medium term. This slide shows how each of these earnings levers contribute to that. Now this is purposefully illustrative. And of course, it will not be linear in any particular year. But to me, this is the best way to think about the earnings growth potential of our business. So, let's go through each of them. In terms of like-for-like, we're confident we can consistently deliver 3% to 5% on our standing portfolio given the strong occupational fundamentals of our core sectors. At the midpoint, this top line of 4% growth drops 3% to 5% annual EPS growth. 10% fee income growth adds another 1% per year. And on costs, I do expect further reductions over the next 12 to 18 months, which will, of course, continue to benefit earnings. Although over the medium term, there is likely to be continued inflationary pressures. So, modeling broadly flat costs is not unreasonable over, say, 5 years. Likewise, our weighted average interest rate will gradually increase over time, reflecting prevailing market rates. Based on today's rates, we anticipate a 10 to 20 basis point increase per year, which would reduce EPS by around 2% per annum. So overall, we see a clear route to core EPS growth of 4% per year, and that's before further capital activity, which really is the kicker on top of this core growth. There are two components to consider: development completions and asset recycling. And while the timing and phasing of capital activity is, of course, hard to predict and it's by its nature, lumpy, I've assumed around GBP 500 million per year with GBP 200 million for developments and GBP 300 million for asset recycling. Then to model the earnings impact for developments, we assume a spread of around 200 basis points between the yield on cost and our funding costs. And for asset recycling, 100 basis points between what we buy versus what we sell. Taken together then, this capital activity would contribute a further 2% to EPS growth per year, increasing the annual growth rate to 6%, the top end of the range I described in May. So, bringing this back to immediate outlook. Moving into the second half, we expect to deliver at least 28.5p of EPS for FY '26 and from there, at least 6% EPS growth for FY '27 as we benefit from the continued lease-up of our developments, capitalize on the compelling fundamentals of our core business and so move forward with confidence in delivering against our five earnings growth levers. With that, over to Kelly. Kelly Cleveland: Good morning, everyone. You've heard from Simon on the strength of our markets. So, I'll now take you through how that's translated into performance and outline how we're adding value across the portfolio. I'll start with valuations, which have increased by 1.2%. This is the third period I've been able to report positive valuation growth, and it's a good sign that the inflection point is behind us. Valuations have been driven by strong rental growth of 2.4%. On an annualized basis, this is again at the top end of our guided range of 3% to 5%, and we're confident this rental growth will continue. Turning to the operational performance, starting with Campuses. We have leased 486,000 square feet at 3% ahead of ERV. And at the end of the period, we were under offer on 629,000 square feet, 6% ahead of ERVs. And we have been particularly busy since 30 September with a further 308,000 square feet put under offer, and that's a very busy 6 weeks. It's worth pointing out, we're seeing particularly strong momentum in leasing up vacancy. Since March, we've let or put under offer 751,000 square feet on vacant or newly delivered space. Our EPRA occupancy now stands at 88%, up 5% this half, up 10% for the year. As we said in the trading update, Broadgate is practically full. There's just one completed floor to lease across the entire Campus, and it's an exceptional floor, the top floor of our newest scheme at 1 Broadgate. We're in negotiations on that floor, and we'll set record new rents for the Campus. This is good news for our on-site developments, which will deliver into a market with very limited supply. Broadgate Tower is the first to be delivered late next year. This is a 390,000 square foot building with 240 square foot development floors. Since 30 September, we've gone under offer on 59,000 square feet across five deals, taking the building to 49% let. This is a very strong position to be in at this stage. The next to deliver is 2 Finsbury Avenue in 2027, where Citadel are taking up to 50% of the space. Here, we are in negotiations with a number of larger occupiers, 2 years ahead of delivery, and this is a fantastic tower building delivering in a year with very little competition. We've also been proactively identifying where we can take back space and re-let it at higher rents to drive value when there's such little supply. For example, at Exchange House, we proactively took back some floors. We're reinvesting the surrender receipt into much needed on floor upgrades after 35 years of occupation and have already re-let to MSCI, driving rents on by GBP 35 per square foot. This added GBP 10 million to the valuation of the building and sets strong rental evidence for the wider Campus. This is accretive asset management, and we will look to do more of this. Norton Folgate is a slightly different proposition for us at British Land as the product is smaller floor plates, often fitted and therefore, more suited to let post PC. We've made good progress and are now 89% let, under offer or in negotiations. And we're on track to be fully let by the end of the financial year. Simon covered the growing demand coming from innovation occupiers, which is driving momentum across the portfolio. To capitalize on that, we launched 1 Triton Square last month. This is an incredible building. It's a Campus within a Campus and offers real flexibility to tenants. It includes a floor of storey space, a floor of fitted labs, three lab-enabled floors, which look like a traditional office floor, but can easily be converted to lab use as demand evolves and three traditional office floors. You may have picked this up in David's piece, but I'm pleased to confirm that just 6 weeks after PC-ing, we have put 56,000 square feet under offer to two globally recognized science and tech occupiers due to complete later this month. And we have another 211,000 square feet in negotiations. We are very excited about this and look forward to continuing to update you on our progress. Turning to Retail Parks. You'll know it's a very competitive occupational landscape and retailers are keen to secure space. Leasing volumes remain strong at 681,000 square feet, 6% ahead of ERVs and under offers are 554,000 square feet, also 6% ahead of ERVs. Deals this half have been in line with previous passing rent. And thanks to recent strong rental growth, our portfolio is now largely rack rented. And as a reminder, it was over 20% over-rented just 2.5 years ago. So, we're in a great position to generate strong like-for-like rental growth from the portfolio. Retail Parks provide strong cash yields and good opportunities to increase value through asset management. I'll cover just a few of the many examples of asset management on our acquisitions, where we've looked to improve the tenant mix and drive footfall, sales and ultimately, rents. I'll start with the first one we bought when we took the contrarian call to start buying Retail Parks. When we bought Biggleswade Retail Park in 2021, it had 6 high-risk retailers. These are the ones in red. We've re-let all of these to strong category leaders, which has helped drive a 12% IRR since acquisition. Rolling forward to one of last year's buys, Queen Drive Retail Park. When we purchased it, there were two vacant units, both are now let, including to an M&S anchor, which is a major win for the park. The park is full and leasing well ahead of ERV and has delivered a 14% IRR since acquisition. And our most recent buy is Turbary Retail Park in Bournemouth, which we purchased earlier this month for a prospective double-digit IRR and a day 1 yield of 7.4%, which with asset management, we've already increased to 7.7%. And we have a strong pipeline of similar deals. As Simon covered, we're unlikely to see many new Retail Parks built, but we're actively looking for opportunities across the portfolio where we can add space efficiently. Projects like these ones at Glasgow and Rugby are smaller in scale, shorter in duration and lower risk than traditional developments, but they generate meaningful returns with a yield on cost of at least 8%, often double digits. And on top of that, they provide strong wash over to the rest of the park by improving lineup and rental tone. So, I'll leave you with three things. Values continue to rise, driven by strong ERV growth at the top end of our guidance. Our standing Campus assets are virtually full following a strong 6 months of lettings, and we've made good progress on our newly delivered space. And finally, as the market leader in Retail Parks, our active asset management is pushing on rents and values, and we'll look to buy more in the space as we continue to recycle capital. Now, over to Simon to wrap up. Simon Carter: Thanks, Kelly. So to wrap up, let's circle back to where we began. We're a market leader in the right sectors, Campuses and Retail Parks, where demand is healthy, supply is constrained and rents are affordable. Investors are increasing their allocations to these sectors, and we're very well positioned to capitalize on this and to deliver attractive total returns going forward. Thanks for listening. Simon Carter: We're now going to take your questions. Kelly and David are going to join on stage. And I think we'll start with questions in the room. Who's going to be first? We've got a microphone over there. Any questions in the room? Rob? Robert Jones: Someone's going to start. It's Rob Jones, BNP Paribas. I think two. The first one, I don't know if we can go back to a slide on the screen, but if you wanted to, it's Slide 4, which, Simon, was the one where you had the stars looking at times in the past where we've had less than 2% vacancy. Yes, I'm sorry about that. One could read into this that, if we're forecasting less than 2% vacancy '26 onwards, and I guess the '27 to '29, I don't know if that's even right, maybe it's just, I'm not sure, but even if it was, it implies that one could assume a 10% ERV growth going forward. Now obviously, at the moment your levels that you need to achieve -- and David has helped us probably by break down the levers of earnings growth going forward. You don't need anywhere near that to hit your target. So, do you think that, that kind of level of ERV growth, if we have such low vacancy and acceptable levels of credit demand still coming through can actually be a 2%? I assume in '27 to '29 based on the forecast. Surely that must be wrong, because even when you look at your own Slide 36, you got [indiscernible] Bank, Appold Street, likely getting committed with a '28 delivery, I think, which is in that period. Either the brokers are assuming you own 100% net on completion or they're a bit too bullish in terms of that. Simon Carter: Yes. It's a great question. This is directional. It's what the brokers are forecasting. Inevitably, you'll have a little bit of vacancy. But what you're seeing at the moment, the amount of supply that's coming through. So, we think there's something like 5 million square foot of new -- so this is new and refurbished. This isn't the whole city. This is new and refurbished stock coming through. 5 million square feet over this period of time. A lot of that's pre-let. And if you have normal levels of demand of about 2 million square foot a year, you can see how you eat into that supply very, very quickly. And I do think that the schemes that are on site, not everyone, but the schemes that are on site, particularly the BL projects will be delivered with a very, very high level of pre-let. I mean you're already seeing that. Look, we've only just started 2 FA, and we've got 33% let, up to 50% of Citadel exercised their options. We'll probably move to 1 Appold in the future, but that will be on a pre-let derisked basis. So, the market is very, very tight at the moment. Of course, there will always be a bit of vacancy, but that is what is being forecast at the moment. I think by Knight Frank, I think Cushman's have the vacancy rate a little bit higher than that. But what we're saying is sub 2%, you get very strong rental growth. But that is on the new and refurbished space. So look, I think you will have that. And we've seen that on our own new and refurbished space. That is what the rental growth is doing at the moment. Sorry, you had a second question. I just thought answer that one first, and then we'll move on to the second. Robert Jones: I'll pass on to someone else. Simon Carter: Okay. Very generous. Next will be Max. Maxwell Nimmo: I'll try my best. Max Nimmo, at Deutsche Numis. Yes, I guess perhaps a slightly higher-level question just around office development. There's obviously quite a bit of debate about the buy-to-sell model or the develop to sell and the sort of develop to hold. You talked about kind of mid-teens IRRs, but also mentioned the fact that depreciation could be 1%, maybe it's higher, the ERV growth perhaps doesn't always flow through one for one. Just in terms of your thinking about how you get comfortable with that and is it the JV angle? Is it the kind of derisking it? Just kind of some of your thoughts on that, if that's okay. Simon Carter: Sure. It's a really good question. As you saw on the slide on the schemes that are on site and the pipeline, we're projecting yields on cost north of 7%, mid-teens IRRs, so compelling returns. And those are derisked returns by the point we commit, because we place a fixed price contract, normally with an element of pre-let. And then also, as you say, we've brought in partners. So that's very compelling returns. The MO of British Land as it has been for the last 5 years is create this great product, lease it up, deliver compelling returns. And then yes, in time, we look to recycle. I think David referred to it as the fuel in the machine. The investment market has been quieter as we know. That's now catching up because everyone can see the rental growth we've just been speaking about. And so, we think we'll see increasing activity that then allows that engine of growth to go for us. We're not necessarily the best long-term owner of a stabilized office asset, because there is depreciation, and that will be a lower return. And we've got other uses of our capital. Today, we have more opportunity than we have capital. So we would like to do more of that development, more of that buying of Retail Parks that we've spoken about. Thomas Musson: Tom Musson at Berenberg. Just a question on the fee income growth that you hope to grow 10% a year, which obviously becomes more material to earnings growth as that compounds. Just wonder how you balance the decision between growing an income stream that's based around development mandates with the fact that future income that is aligned to development work inherently comes with a higher cost of equity, at least in the eyes of the listed market. Simon Carter: Yes. Good question. I'll give you an initial thought and then hand over to David on this one. It's the kicker on top. So, we're getting those type of returns. And then, we bring in partners, we're using their capital. We're normally selling ahead of where we would have been before we derisked the scheme. So, we're locking in some profits. And then those fees -- the fees on development mandates are good. It's a relatively high margin business. So, I think, it's a nice add-on. I don't know, David, if you would add anything to that. David Walker: Yes, not really other than to say we clearly we wouldn't commit to a development simply to drive fee income. Often, it's a result of the fact that we've already derisked that scheme by bringing in a partner. There are two principal -- or three principal chunks to it. The first is development fees. That's where we earn the highest margin. There's asset management fees, which is also an increasingly important part of the business, and then there's property management fees on top of that. So, 10% a year on average. Some years, it will be higher, some years, it will be lower, subject principally to, as you described, the developments we commit to. Zachary Gauge: It's Zachary Gauge from UBS. A few questions around development. Just looking at the updated guidance on Page 47, you've dropped your NRI margin by a couple of percentage points from the end of last year. And the reason given is additional void costs reflecting timing of development completions and lease-up. And obviously, you would have known the timing of development completions at the end of last year. So, can I back out of that, that the lease-up is going slightly slower than you had anticipated at the end of last year. And then following on from that, on the individual assets and where we are on ERV, sounding quite encouraging on Triton Square, so potentially getting to 50% by the end of the year, but nothing at Canada Water and nothing at Southwark. So, if you could just touch on the prospect for those individual schemes by the end of FY '26, that would be great. And the other one is on the under offers at 1 Triton Square. I think it breaks out to GBP 115 per square foot. Could you just touch on where that sits in relation to underwrite on the floor space they are taking, whether it's labs, fitted labs or offices? Simon Carter: No, happy to go through all of those. On leasing activity, we were probably slower throughout the period in terms of where we thought we would be. But actually, we saw an acceleration at the end of the period. Kelly, I don't know if you want to talk to some of the activity we've had on the development leasing front. Kelly Cleveland: Yes, sure. I covered in the prepared notes, but we've having completed 1 Triton and being able to show people around the building, we've had really good progress there in the last 6 weeks. We've also had good traction at Broadgate Tower. And again, just in the matter of about 5 or 6 weeks, we've put a huge amount under offer there, another one just recently as well. So with those schemes, we're tracking well in line and ahead of where we would want to be at this stage. Simon Carter: I think it's one of the themes of these results that momentum has built as we've gone through the period and particularly strong post period end in the market, which I think is pretty encouraging. And then I think you had a question on Canada Water and Mandela Way, office lease-up. Kelly, do you want to take those ones? Kelly Cleveland: Yes. I mean -- so Canada Water, we're having some encouraging conversations there. We're also encouraged by the spillover effect that Simon spoke about at the last set of results, where the lack of supply in the core is meaning affordable locations are getting a bit more business. So we'll keep you updated on Canada Water. What I would say is that the Canada Water leasing is not included in our guidance. So, any leasing that we do in pre-FY '27 is upside. Simon Carter: And maybe on Mandela Way. Kelly Cleveland: Yes, Mandela Way. So Mandela Way, that's -- it's a great asset in a very, very central location, which we have, again, only recently PC-ed on as we have always said and as our underwrite set out, that is a product that will lease post PC, because it's multi-let, smaller floor plates and it needs to be seen. But it's a great product. We've been getting people around, and we're in negotiations, and we'll again continue to keep you updated on that one. Simon Carter: And then, I think there was a question, which was sort of unpicking the rental deals under offer. We're probably not going to comment on deals under offer and where the rents are, but we're really happy with where demand is for 1 Triton, I'll say as much as that. Zachary Gauge: Just clarify one of those points. If you're 0% Canada Water at the end of the year, you're still confident on the guidance outlined for GRI? Simon Carter: Yes. David Walker: The leasing risk on 28.5p from here is de minimis. Adam Shapton: Adam Shapton from Green Street. I had two. One on office, one on Retail Parks. We'll do both, one off the other. Yes. So, office back to the indicative broker forecast, and maybe this is one with your BPF hat as well, Simon. Is the city of London concerned about the effectiveness or the attractiveness of the city as a business district if there's no space available? I mean, we've had high-profile comments from Larry Fink and so on about that. So do you think the city of London is concerned that the sort of supply barriers balance is not quite in the right place? And then on Retail Parks, just interested in your commentary on sort of QSR and casual dining. There's some evidence that profitability is being squeezed in that sector. It's been a success story for a lot of Retail Parks. What are you seeing in your portfolio from the drive-throughs and the QSRs in that sector? Simon Carter: Sure. Interesting question around city and lack of space. Just to flag that new and substantially refurbished space there. I think what you will see and what we are seeing today is because there isn't enough of that, customers are making compromises and taking good secondhand space. We have definitely benefited at Broadgate and the standing investments, as you saw from Kelly's slide. I think that's the fullest we've been. This is a 4.5 million square foot estate. And we've got one floor at the top of 1 Broadgate, which we're obviously being a little bit demanding on given that supply picture out there. So there is space. But I think it will -- you'll continue to see this ripple effect. There's some parts of the city that are not -- haven't done as well as Broadgate. It's right above Liverpool Street. It's got the Elizabeth line. That will ripple out. So, there is space for people to take. But they might not get that brand-new headquarters space. Because if you look today, just to sort of cement this point, we think if you want 150,000 square feet of new space, you've only got three buildings to choose from and one of those is 2 FA, if you want new. So look, something to happen. The city supply comes on stream. We know it's a cyclical market. At some point, supply will come back on stream. But obviously, you can't deliver in the next 2, 3, 4 years unless you've got planning, you've -- you started on site. And then, I think, on QSR has been a softer market, and we have seen some insolvencies. You don't tend to have a huge amount on Retail Parks. We've done fairly well when we've seen those insolvencies at reletting those units. But Kelly, I don't know if you want to touch on what we're seeing. You had it on your slide on the drive-thrus. And that's been a fantastically strong market. Kelly Cleveland: Yes. I mean, exactly that. Drive-thrus is just increasing demand for them. And as Simon said, we have limited casual dining when there have been failures and I won't name names, but when that does happen, it's not been an issue for us. We've always been able to just get out and get new formats in there. Jonathan Kownator: Jonathan Kownator, Goldman Sachs. To follow up on 1 Triton, please. Obviously, you repositioned the building with labs, office. Where do you see the take-up in that space? Is it for regular office space? Or is it for the lab type space? And more broadly, perhaps on occupier demand, how wide is it? Because obviously, tech is driving a lot of that demand right now. Do you see any demand from other sectors, please? Simon Carter: Kelly, do you want to take that one? Kelly Cleveland: Yes, sure. I mean, the beauty of that building is that three of the floors that are lab-enabled, we're able to convert them to office use depending on where the strongest demand and where the best returns are. Exactly as you identify, we are seeing really strong demand from science and tech that is -- that's definitely not letting up. It seems to be getting more and more on a week-by-week basis. So, we expect that to continue. Jonathan Kownator: So just to clarify, we're talking about office space, not lab space. Kelly Cleveland: For office space. Correct. Simon Carter: But we have seen demand for the lab space as well at Regent's Place. The incubator space has done well. We did an incubator at Drummond Street, where there was some existing lab space we were able to use, and that filled up very, very quickly. And we're now seeing those businesses graduate into our Crick space at 20 Triton. So that's quite an interesting theme. But I think today, the AI tech demand is definitely stronger than the sort of Life Science demand in London. But both feel like they've got pretty good prospects at this point. That's probably questions in the room, unless anyone's got a last-minute burning question. So should we go to the calls and see if anyone's on the line? Unknown Executive: Yes, it's all on the webcast today. Simon Carter: It's all on the webcast. Okay. Unknown Executive: Exactly. So we have one question from Nikita May at HSBC Asset Management. She says, you mentioned that AI-driven businesses are driving new demand for office space. Is this at the expense of other sectors like financial services? Do you have a limit of how much AI tenant exposure you would want to have? Simon Carter: Great question from Nikita. We haven't got enough data points, I think, to determine whether that's at the expense of other parts of demand in the sector. Today, it feels very much like new demand. These are businesses that weren't there 2 years ago. They've grown very, very rapidly in the portfolio. I think, I spoke to a number of you this morning. We've seen people take space at Regent's Place, very well-known names in the AI market. They've taken 7,000 square feet, they've then 14,000, then 21,000, and then they want more space after that. That feels like it's not today cannibalizing demand elsewhere. But obviously, we'll have to keep an eye on it. If Fintech grows at the expense of traditional banking, you'd look at that. But I think that will take sort of many years to feed through. And then on covenant exposure, we don't tend to set limits, but what we do look is at the covenant strength of every occupier we sign a lease with. Sometimes if it's start-up space, we're more relaxed to look at weaker covenants. But generally, if it's HQ space like 1 Triton, these are strong covenants taking the space in our portfolio. And the bulk of that 1.5 million square feet of additional demand that we're seeing is strong covenants. Unknown Executive: Yes. I've got one more question here. I've got two more questions. One is from Eleanor Frew at Barclays. She's asked, do you have a possible timeframe for larger asset disposals, noting you're seeing the market pick up? Simon Carter: The market is picking up. I think you should think next 6 to 12 months, but it will be dependent on when that strong core money comes back to the market, and we're seeing it come back now, but we'd want to see it there in depth. And I think you'll get that given the conversations we've been having. Clearly, we've got a budget around the corner. People will keep an eye on what's happening on the budget. But I think with these occupational fundamentals, that investment demand will be there, and that will be the market we'll look to take advantage of. So 6 to 12 months on that. Unknown Executive: And I have -- finally, I've got three questions from Mike Prew at Jefferies. The first part, I'll give you all three at once, but you exclude recently completed developments in the last 12 months from your 95% occupancy number. Are Norton Folgate and Canada Water schemes backed out of this? The second part of the question is Retail warehouse price performance seems to have slowed markedly from 2025. Is the repricing maturing/mature? And the final part of the question is, was the Southern multi-let logistics scheme profitable? And what is the progress at Thurrock, please? Simon Carter: Okay. So on -- David, I might need you to help on this on the occupancy numbers. I think -- am I right in saying that Norton Folgate, Kelly, it looks like you've got the answer to this one. David Walker: Yes. Yes, you are. Simon Carter: So Norton Folgate isn't excluded. That is in our... David Walker: That's correct. So, one of the things that's driven that delta over the last 6 months, Mike, would be the move from Norton Folgate into that kind of standing portfolio mix, if you like, from an occupancy perspective. We exclude developments that completed in the last 12 months. Simon Carter: And Canada Water hasn't -- didn't complete 12 months ago, so it is excluded. Is that right? David Walker: Correct. Correct. Simon Carter: Okay. Retail warehouse market slowing performance. What you're seeing now is the key driver is ERV growth. I think we've said that for a while. But we are seeing more and more people want to buy Retail warehousing. That's tending to focus on the very core long-let Southeast product, some of the product we create. I think Kelly alluded to it in the presentation. We tend to buy schemes with a bit of vacancy. We then lease them up, get to a really nice yield on them and then institutional capital, I think, will increasingly come in and drive performance there. But at this point, we're not assuming yield shift. I think you will see further yield shift, but what will be good is the ERV growth, and that will drive performance there. So, that would be the view there. And then Kelly, I don't know if you wanted to pick up on Southwark and Thurrock. Kelly Cleveland: Yes. I mean, Mandela Way, it's probably a bit early to be asking that question, where we've just PC-ed. And we're looking to get that leased up. So we'll keep you updated on that one. And on Thurrock, we are at 90% EPRA occupancy. Simon Carter: And that's as a Retail Park. So we decided to keep that as a Retail Park given the depth of demand in that market. That was the best thing to do there. And I think actually on Southwark, there was a profit release in the period, because we've delivered the scheme, and so there was an element of profit that came through in the period. So any more questions? One more? Unknown Executive: Yes. There's one more question. It's from Marcus Phayre-Mudge, Columbia Threadneedle. Congratulations on the cost efficiency improvements. I presume this has been driven by headcount restructuring. Is there more streamlining of decision-making to help bring overheads down in the future? Simon Carter: David, one for you, I think. David Walker: Yes. Thank you. Obviously, really delighted with the progress that we've made over the last 12 months, costs down 12% year-on-year for the first half. It's been quite a holistic view of the cost base, Marcus. So some headcount cost is included in that. But more generally, I'd just point to a sharper mindset on what we're spending and how and making sure that all of our teams are as efficient and effective as possible at what they're doing. More to go, it will remain a focus, but really pleased with the progress so far. Simon Carter: Any more questions? Great. Well, thank you very much for coming over to Broadgate. It's great to see you here today, and we'll see a number of you on the road over the next couple of weeks. And thank you very much for your time.
Operator: Good day, and thank you for standing by. Welcome to Kingsoft Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Ms. Yinan Li, IR Director of Kingsoft. Please go ahead. Yinan Li: Thank you, operator. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2025 third quarter earnings call. I'm Li Yinan, IR Director of Kingsoft. I would like to start by reminding you that some information provided during the earnings call may include forward-looking statements, which may not be relied upon in the future for various reasons. These forward-looking statements are based on our information and information from other sources, which we believe to be reliable. Please refer to the other publicly disclosed documents for detailed discussion on risk factors, which may affect our business and operations. Additionally, in today's earnings call, the management will deliver prepared remarks in both Chinese and English. A third-party interpreter will provide consecutive interpretation into English. During the Q&A session, we will accept questions in both English and Chinese with alternating interpretation provided by the third-party interpreter. On-site translation is solely to facilitate communication during the conference call. In case of any discrepancy between the original remarks and the translation, the statements made by the management will prevail. Having said that, please allow me to introduce our management team who joined us today: Mr. Zou Tao, our Executive Director and CEO; and Ms. Li Yi, our acting CFO. Now I'm turning the call to Mr. Zou Tao. Tao Zou: [Interpreted] Hello, everyone, and thank you for joining Kingsoft's 2025 Third Quarter Earnings Call. This quarter, we continued to prioritize strengthening our core businesses with AI collaboration and internationalization as its strategical priorities. Kingsoft Office Group continued to deepen AI application scenarios and strengthen its brand and ecosystem development. Our online games business advanced general experience and extended its global reach, notably with the global launch of the sci-fi game, Mecha BREAK. In the third quarter, Kingsoft's total revenue reached RMB 2.419 billion, representing a year-on-year decrease of 17% and a quarter-on-quarter increase of 5%. Specifically, our office software and services business maintained a steady growth momentum. This growth was supported by robust momentum in WPS software business, rapid growth of WPS 365 business and steady growth in the WPS individual business. Revenue from online games and other business decreased primarily due to low revenue contributions from certain existing games and because the new game is still in its early development phase and gradually build its market influence. Now I will walk you through the business highlights of the third quarter 2025. In the third quarter, Kingsoft Office Group demonstrated overall improvement in its financial indicators with continuously optimized profitability and a significant acceleration in revenue compared to the previous 2 quarters. For WPS individual business, the rollout and promotion of new AI-powered products together with refined operations in both domestic and international markets drove a steady increase in WPS AI monthly active users, paying subscribers and user value. Revenue reached RMB 899 million, up 11% year-on-year. As of 13th September 2025, WPS Office global monthly active devices reached 669 million, an increase of 9% year-on-year. Specifically, WPS Office PC version monthly active devices grew by 14% to 316 million, while the mobile version monthly active devices increased by 5% to 353 million. WPS 365 business, we continuously enhanced our collaboration and AI product offerings, achieving significant progress in expanding our customer base among private enterprises and local state-owned enterprises and strengthen our product competitiveness and industry influence. This segment continued its high-growth trend with revenue reached RMB 201 million, a significant increase of 72% year-on-year. WPS software business saw acceleration progress in localization projects. Our AI-enabled products for government scenarios continue to integrate and deploy across government agencies, supporting the digital and intelligent transformation of localization customers. Revenue for this segment reached RMB 391 million, up 51% year-on-year. In the third quarter, for our online games business, our flagship game, JX3 Online celebrated its 16th anniversary in August, followed by the launch of its annual expansion pack in October, which delivered innovative new game player. The anime shooter game, Snowbreak: Containment Zone maintained its core user base through long-term content updates and user operations. Sci-fi mech game Mecha BREAK has been continuously optimizing its gameplay and operations to enhance the player experience. Additionally, to international IP games, Goose Goose Duck and Angry Bird are expected to launch this and next year in China, respectively. Looking ahead, Kingsoft Office Group will stay committed to its core strategy of AI collaboration and internationalization, meeting the scenario needs from individual user to enterprises through its core product portfolio. The online games business will focus on developing high-quality content and expanding global publishing, enhancing the long-term vitality of its classic franchises while driving the growth and the sustainable development of new genres. Yi Li: Thank you, Tao Zou and Yinan. Good evening, and good morning, everyone. I will now discuss the third quarter operational and financial results using RMB as currency. Revenue decreased by 17% year-over-year and increased by 5% quarter-over-quarter to RMB 2,419 million. The revenue split was 33% for office software and services business and 37% for online games and others business. Revenue from the office software and services business increased by 26% year-over-year and 12% quarter-over-quarter to RMB 1,521 million. The increases were mainly attributable to the growth of WPS software, WPS 365 and WPS individual business of Kingsoft Office Group. The remarkable increase of WPS software business was primarily driven by the robust orders of localization projects. The rapid growth of WPS 365 business was mainly due to our continuous improvement in collaboration and AI products as well as expansion of our customer base among private and local state-owned enterprises. The steady growth of WPS individual business was primarily attributable to increased number of paying subscribers, supported by our active promotion of AI features and refined operations. Revenue from the online games and others business decreased by 47% year-over-year and 6% quarter-over-quarter to RMB 898 million. The decreases primarily reflected lower revenue from certain existing games, partially offset by the revenue contribution from newly launched games. Cost of revenue increased by 3% year-over-year and 5% quarter-over-quarter to RMB 475 million. The year-over-year increase was primarily due to higher server and bandwidth costs, greater channel costs as well as increased service costs of institutional clients, along with the business growth of Kingsoft Office Group, partially offset by the lower channel cost of online games business. The quarter-over-quarter increase was primarily due to higher channel costs and increased server and bandwidth costs, both associated with online games business. Gross profit decreased by 21% year-over-year and increased by 5% quarter-over-quarter to RMB 1,944 million. Gross profit margin decreased by 4 percentage points year-over-year and kept flat quarter-over-quarter to 80%. The year-over-year decrease was mainly due to the decline in the revenue contribution from certain self-development high-margin games. Research and development costs increased by 4% year-over-year and 5% quarter-over-quarter to RMB 900 million. The year-over-year increase was mainly attributable to higher investments in AI and collaboration products, partially offset by lower accrued performance-based bonus. The quarter-over-quarter increase was mainly driven by the increased headcount and AI-related expenses of Kingsoft Office Group. Selling and distribution expenses increased by 55% year-over-year and 33% quarter-over-quarter to RMB 564 million. The increases primarily reflected higher promotional and advertising expenditures associated with online games business. Administrative expenses increased by 7% year-over-year and 2% quarter-over-quarter to RMB 178 million. The year-over-year increase was mainly due to higher personnel-related expenses and increased depreciation arising from the completion and operation of our Wuhan campus, which was constructed to support the Group's long-term development. Share-based compensation costs increased by 37% year-over-year and 13% quarter-over-quarter to RMB 80 million. The increases were mainly due to the grant of awarded shares to the selected employees of certain subsidiaries of the company. Operating profit before share-based compensation costs decreased by 70% year-over-year and 21% quarter-over-quarter to RMB 357 million. Net other gains were RMB 13 million for this quarter compared with losses of RMB 63 million and gains of RMB 443 million for the third quarter of 2024 and the second quarter of 2025, respectively. Share of profits of associates of RMB 5 million were recorded for this quarter compared with losses of RMB 428 million and RMB 170 million for the third quarter of 2024 and the second quarter of 2025. Income tax expense was RMB 66 million for this quarter compared with income tax expense of RMB 31 million and RMB 104 million for the third quarter of 2024 and the second quarter of 2025, respectively. As a result of the reasons discussed above, profit attributable to owners of the parent was RMB 213 million for this quarter compared with profit of RMB 413 million and RMB 532 million for the third quarter of 2024 and the second quarter of 2025. Profit attributable to owners of the parent, excluding share-based compensation costs was RMB 277 million for this quarter compared with profit of RMB 453 million and RMB 570 million for the third quarter of 2024 and the second quarter of 2025, respectively. The net profit margin, excluding share-based compensation cost, was 11%, 16% and 25% for this quarter, the third quarter of 2024 and the second quarter of 2025. The Group had a strong cash position towards the end of the reporting period. As at 30th September 2025, the group had cash resources of RMB 26 billion. Net cash generated from operating activities was RMB 494 million, RMB 1,387 million and RMB 767 million for this quarter, the third quarter of 2024 and the second quarter of 2025. Capital expenditure was RMB 72 million, RMB 109 million and RMB 81 million for this quarter, the third quarter of 2024 and the second quarter of 2025. That's all for the introduction of our operational and financial results. Thank you all. Now we are ready for the Q&A section. Thank you. Operator: [Operator Instructions] We will now take our first question from the line of Xiaodan Zhang from CICC. Xiaodan Zhang: [Interpreted] And my first question is regarding the gaming business. Games revenue for the quarter is down both year-on-year and quarter-on-quarter. So could management elaborate on the operational strategies for existing games as well as the new game pipelines? And also, could you share some color on the updated progress of Mecha BREAK? And regarding the office business, what are the main drivers behind the accelerated growth in Q3? And will this momentum be sustainable? Tao Zou: [Interpreted] So firstly is regarding the question for the games. We have discussed previously for the future and future strategy of the different versions. And so we currently have already obtained the version numbers, and we're going to be launching different games, including like Mecha BREAK and Goose Goose Duck and also the other products. But for the old games, we mainly focusing on the like the Fate of Sword and also the Snowbreak: Containment Zone, and we're going to have like the target for the customer, for the operation service. We're going to have the long-term like upgrading the generations, including the new play way, including new content, we're going to continue to upgrade that. This is the regular way. And target for the technology and operation, we're going to have some new improvement, so this is relevant to the strategy of the game. And for the Mecha BREAK, because it just launched for 1 season roughly and the target for this game for the play way, for the operation and also the rich content, we are still doing the operation and improvement. We think that we need longer time to give the answer. So actually, regarding the growth factors, we think that we could take a look from 3 perspectives. What I can say is that basically, they are all good, but I would like to separate into like personnel for the enterprise and also the information innovation, 3 aspects to the introduction. For the personnel, actually, the growth rate of the members is -- we have the basic number and including like the payment for the up value. And for their PC growth rate is actually out of -- exceeded our expectations. So this is going to be the key thing, which is the members. The secondly is the AI. Once we have released the 3.0 version, so through the AI, we have this monthly activity. Members compared with last year is going to increase 20%, especially launch 3.0 version. So compared with the first half year, we have realized doubled. And this is the second point. Another thing is that from the basic for the membership grows, so we can see that the feedback from the users are quite good. So we can see that basically it's exceeded than what we expected. It means that more and more enterprises customers, they started to accept us. And also for our product and service are quite satisfied. That is why we have increased like the industry's competitiveness. And third is about the software and information, the information innovation. So regarding this part is that we can see that since Q3 is quite smooth, and it has increased like 51%, no matter for the personnel or information innovation. So basically, it's going to be a very, very positive situation. So the growth element, whether we could be sustainable development, we would like to talk through 3 perspectives: personnel, enterprise and information innovation. And firstly, for the information innovation, that is kind of policy-oriented. So basically, we can realize more than 90% of the growth rate. This is from the short-term perspective. We can see that like Q4 is quite good, probably because we're going to complete in 2027, but the acceleration is quite good. Unless we have the big policy direction is going to have some adjustment. Otherwise, we have the confidence that we could realize this much growth constantly. For the personal business, regarding the growth rate for these 3 business, we have realized like more than 10% increase. So from the increasement of the membership and secondly is the payment like conversion rate and also the UP value. So up till now, we can see is that the users membership growth is quite good. And especially for the AI members is growth rapidly. So generally speaking, we have confidence. And -- but of course, it's a little bit lower than the expectation and then the enterprise membership growth. So from the enterprise perspective, my personal judgment is that if we could realize the delivery, if the delivery is on time in the future, we have a pretty big space to improve. So in the next 2 years, we're going to have -- we believe that we have more and more enterprise members to use our product. So we can see is that our productivity is quite good and our service is going to have a reputation. For our team, we need to strengthen their internal and external cooperation to strengthen our delivery ability. We believe that this has a certain pressure for us. But generally speaking, so from this report, we can see a lot of data was renewed, including our R&D and our staff percentage and also the investment of the R&D could reach to 35%, 36%. Previously, it was 32% to 33%. So we can see that we continue to do a further bigger investment for the R&D. This is -- we believe that it is going to be the very basic reason we could have such increase, especially like Wuhan Industrial Center and started the construction work in 2018 and up to now it's become the largest industrial base for Kingsoft. And this is going to be a very solid foundation for us. Operator: We will now take our next question from the line of Wenting Yu from CLSA. Wenting Yu: [Interpreted] So my first question is, how does the company view the opportunities for WPS Office and 365 in international markets, and which countries or regions will be the strategic priorities? And how does management assess the competitive dynamics overseas, particularly against the Microsoft Office? And the second question is about the online game. So over the next 2 years on top of the 2 IP titles mentioned in our pipeline, which game genres will be the main focus in the company's pipeline? And how does management view the opportunities for games to expand into the overseas market? Tao Zou: [Interpreted] So regarding the first question, this is actually a very good question from the strategic perspective. Since last year, we have reached the concept that AI collaboration plus overseas. So from the business perspective, the growth rate overseas is quite good from the users, members' perspective and also the other perspectives. So since -- started from this year, we have increased the overseas R&D investment. We actively did a lot of preparations for to go overseas. So from my perspective, especially when we talk about the competition with Microsoft because our main competitors is Microsoft. So our competition strategy overseas is that I think I would need to separate it from 2B and 2C, 2 perspectives. So for WPS in domestic market, we have actually go through with the competition with Microsoft for almost 30 years up to now is a long term. So several key points. The first is that from the edit tool to the content service platform, we have did this transformation because everybody really know that if they're going to use our product, we're going to provide a module. So our members target for the content and to have this PDF content transformation and also to like search the content information, et cetera. So this is actually very early stage, we did this. And except for very early stage, we have the document edit tool. We also have provided the content, the document content service to convert it into a platform. So actually, this is the first point. And secondly, is that since 2013, we started the like mobile end. So this is actually early -- 2 years earlier than Microsoft. So actually, for us, it's just an app would be solve all of the problems. But for Microsoft, it's going to be more complex. And so our -- that our -- like their package, the installation package is smaller for the mobile end. So that is why in overseas, a lot of customers, they actually know about us through the mobile end. Then we have the mobile end, we have these advantages. And in the past 10 years, we have collected a pretty good foundation. And then from the technical perspective, from the mobile end, we have some certain advanced than Microsoft. This is going to be the core things. And this time, we have the AI and especially we have released 3.0 version since 2023. After 2 years optimization, our sales together with our users, they're going to give us the feedback and we constantly do the practice, and we have a very good like both parties both end interaction. So we think that from the AI's perspective, target for the content application, we are stronger than Microsoft. So this is actually from the 2C's perspective. And we are actually a platform to do -- to provide the content and also the service, not just a simple document edit tool. And also from the mobile end, we have advantages together with our technology, we have the correct way. So we have the difference from the technical route. So for the 2B's perspective, I think we have a bigger advantage. And actually, all the domestic members are all clear, especially we have this -- the first package released to the market. Our WPS 365 is not just a content treatment platform. This is actually an office platform, especially we have the AI edit. And so not just -- we are not just like document treatment set compared with Microsoft. We are actually the whole office platform. And this platform in our company internally, we have used for 2 years. And in domestic market, we also have a lot of enterprises. They are seeing they actually could -- this software could have a very perfect integration with the enterprise OA system. This actually are significant advantages. So we can see that at least for our Office platform and to compete with Microsoft, this is actually very early stage. We have this module. We're going to have different components. So we have different module. It's very flexible and also the layout are also quite flexible. This is from the 2B's perspective. So this is actually -- we make a conclusion is that we have 2 perspective from 2C and 2B. And in the past few years, especially for the mobile end has been released. In the past 10 years, we have a very good like public members foundation through the mobile end. So on the other hand, they would like to actively download the PC end to remake the promotion and layout. So -- and secondly is from the national perspective, and we have a lot of Chinese friends, they would like to do the promotion and development. So I think that this is the core thing. So the second is regarding the games. Actually, we have a pretty good like foundation. Currently, we have some of the games already obtained their version numbers and including the JX4 and Angry Birds and Goose Goose Duck, and also the Snowbreak: Containment Zone. And we also have some games, which didn't get their certification yet, but probably we're going to launch it next year. So we think that from the overseas, the overseas opportunity is quite good. So including when we did start the -- launched the game in the -- for the Snowbreak: Containment zone and also the Mecha BREAK, we tried several times, especially for the mobile end. So we realized that in domestic market, some of the companies, they did a pretty good performances overseas. So we believe that this direction is correct. So we're going to continue to optimize our product, our technical ability, operation ability. Operator: We will now take our next question from the line of Linlin Yang from Guangfa Securities. Linlin Yang: I have 2 questions. The first question is could you share us the progress of our AI business? How do you think about its commercialization pace and market potential? My second question is the expenses. We see sales and marketing expenses was relatively high in the short term. As the business stabilized, will it return to normal by next quarter or Q1 in 2026? Tao Zou: [Interpreted] So I would like to answer the first question, and Li Yi is going to answer the second question. So regarding the AI business improvement progress, actually, since April this year, when we found the [indiscernible] to collaborate with Kingsoft Cloud target for the enterprises and different application services from the strategic way we're going to do the support and actually, including Zhuhai, we have local big model, and we have the feasibility report regarding the transportation, we have different projects delivery and also in different industries like the low industries, et cetera, with different regions, we all started all of the development. And so for the more details, it's not convenient for us to disclose at this moment. But why we would like to set up an AI product center because we strongly believe that the whole industry, when we do this practice for the big module, it's going to get into the specific application for different industries. So simplified -- make it simplified is that we think that in the future, different industries is going to have like restructured system for the big module, including the internally of the enterprises, for the organizations way is going to have some change. So the main job of this year is to this part. And we -- for Kingsoft Cloud, we have some progress. So at this moment, at this stage, the business is still in a very early stage. So because of a comprehensive reason, it is not convenient to disclose too much details at this moment. Yi Li: [Interpreted] So regarding the second question for the expenses for the marketing actually when we promoted into -- launched it into market, and we believe that for the long-term perspective, it's going to get back to a normal situation. When we have promoted the launch of different products, and we think that the cost is going to -- different season is going to have slightly changed. And the previous season, it was 15% to 16% and also this season is going to reach to 20% and more than 20%. So from the whole year's perspective, this is going to get -- we think that's going to be a reasonable level because we need to have all of the cost for the R&D, especially for the AI in the -- specifically in the early stage, we need to have more investments, but that is for the long-term sustainable development. So we believe that in the long term, we're going to control the rate, the investment rate and finally get a reasonable profit level. Operator: I am showing no further questions. Thank you all very much for your questions. And with that, we conclude our conference call for today. Thank you for participating. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Peer Schlinkmann: Good afternoon, everybody, and welcome to the 9 months earnings call of the Wacker Neuson Group. My name is Peer Schlinkmann, Head of Investor Relations and Corporate Communications. Thank you for joining today on the occasion of the release of our 2025, 9 months results. As usual, we will first start with the operational and financial results of the 9 months 2025 and give additional insights on the recent developments. Following this, we are happy to answer your questions in the Q&A session. Available to follow today's call via the webcast, the presentation slides are also available for download at wackerneusongroup.com/investor-relations. Please note that the entire call, including the Q&A session, will be recorded and a replay will be made available on our corporate website by the end of the day. And now I would like to hand over to our executives, Karl Tragl and Christoph Burkhard, who will lead you through this call. Christoph Burkhard: Thank you, Peer. This is Christoph Burkhard, CFO of the Wacker Neuson Group. Welcome, everybody, to our earnings call, and thank you for joining. Karl Tragl: Dear all, a warm welcome from my side, too, and thanks again for joining the conference call. I'm Karl Tragl, CEO of the Wacker Neuson Group. I would like to start the presentation with a brief overview of our key financials for the first 9 months of 2025. Our operational recovery continued in quarter 3 of 2025. Despite a challenging macroeconomic environment, which had especially weighed on the first quarter of this year, we were able to increase both our revenue and EBIT margin in quarter 3 year-over-year. This positive development is, among other things, the result of efficiency measures that we initiated last year. Now let's take a closer look. Our revenue for the first 9 months of 2025 amounted to EUR 1.625 million, marking a 5.6% decline year-on-year. This decline was primarily due to the weak first quarter of 2025 as well as persistently weak demand in the U.S. Our 9-month EBIT margin in 2025 amounted to 6.0%, which is 0.3 percentage points below the previous year. Also here, we were negatively impacted by the weak beginning of this year. However, it is apparent that we have succeeded in further stabilizing our improved profitability. The EBIT margin in the third quarter was at 7.5%, thus nearly on the same level as in quarter 2 2025 despite the lower revenue base of quarter 3. Moreover, this quarter's EBIT margin was 2.7 percentage points higher compared to quarter 3 in 2024. Looking at the net working capital ratio, we see a slight decrease compared to previous year. However, our yearly strategic target of approximately 30% remains under pressure, especially due to the uncertainties in the U.S. market. Our free cash flow surpassed the triple-digit mark and amounted to EUR 116 million. Christoph will explain both developments in more detail. Now let's look at the developments of our business segments after the first 9 months of this year. In general, the overall picture remains challenging. Recovery of compact equipment was slower than initially expected. It faced a year-on-year decline of 10%. Nevertheless, certain product groups like dumpers differed from the general trend, demonstrating resilient customer interest in our innovative products. The Light Equipment Products segment stabilized and remained only 1% below the previous year. And moreover, services grew again year-over-year by 1%. The 9 months year-to-date book-to-bill ratio was at 1.1. Nevertheless, we see the agriculture as well as construction industries recovery slower than initially anticipated. We, therefore, keep monitoring our markets closely, and we remain cautious regarding the developments in the last quarter of 2025. Let's take a closer look at our regions during the last 9 months. Revenues in the Europe region, EMEA, after 9 months of 2025 stood at EUR 1.269 billion and made up 78% of our global group revenue. Also, quarter 3 of 2025 revenues increased year-over-year. The 9-month revenues remained 4% below the prior year, still impacted by the negative effects of the weak first quarter. Moving to Americas region, accounting for 20% of our group revenue, we saw a decline of 10%, resulting in revenues of around EUR 322 million. Demand in the first 9 months of 2025 was further characterized by greater caution in ordering behavior in the U.S. compared to Europe due to ongoing macroeconomic and geopolitical uncertainties, mainly due to the effects of the U.S. tariffs. Demand declined not only in the U.S., but also in Canada and Mexico. In the Asia Pacific region, which represents 2% of our business, revenue dropped by 21% to approximately EUR 34 million. The region was primarily characterized by a decline in demand in Australia and China. I will now hand over to you, Christoph, to give some more insights into our financials. Christoph Burkhard: Thank you, Karl. Let's take a closer look at where we stand with our net working capital. Our net working capital ratio based on the last 12 months revenue at the end of September stood at 32.4%, slightly below the value at the end of the second quarter in 2025. In comparison to last year's figures, however, the progress we made is more apparent. Over the course of 12 months, net working capital dropped by EUR 116 million from EUR 808 million at the end of September 2024 to EUR 692 million at the end of September 2025. This reduction is mainly driven by a steady reduction of inventories and an increase of trade payables in the last 12 months. This is the driving force behind the reduction of 1.8 percentage points of net working capital and in the net working capital ratio over the last 12 months, which stood at 34.2% at the end of September 2024. Now looking towards year-end, I expect a slightly higher working capital ratio, predominantly caused by higher inventories in the U.S. Alternatively, we could have adjusted our production plan for 2025 downwards to the current lower demand in the U.S. This again would have triggered underutilization in our European plants. In light of our stable cash flow generation and in preparation for 2026, we decided to prioritize stable production output over short-term working capital optimization, leading to this temporary increase in finished goods inventories by year-end. We believe that this is the right decision because we avoid additional underutilization costs and at the same time, we expect inventories to decrease again towards springtime due to overall market normalization in 2026. Now let's have a look at our cash flow. Although our revenues decreased by 5% quarter-over-quarter, we were able to keep our profitability stable on a level of above 7.5% on a quarterly basis. This is also reflected in our stable cash flow from operating activities. Therefore, we could continue in Q3 with a positive free cash flow generation now for the sixth quarter in a row. Due to the just mentioned rising inventories in the U.S. by year-end, I do not expect cash flow generation in Q4 to continue as in the previous quarters. However, I stick to my previously made statement of a triple-digit free cash flow number at the end of the year. Also on the positive side, we further reduced our net debt in Q3 down to EUR 258 million, reaching the lowest level since the first quarter in 2023. Consequently, also our leverage ratio reduced further down to 0.9. And last but not least, the picture of our capital structure is completed by a robust equity ratio of 60%. And with this, back to you, Karl. Karl Tragl: Thank you, Christoph. Before concluding with the current outlook, I would like to give you an update on the implementation of our Strategy 2030. Despite the challenging market environment, along our strategic levers, we are continuing to implement the milestones, which you can see on this slide. The John Deere Cooperation is fully on track. We have successfully started delivering first serial excavators for John Deere from this. At the same time, we are ramping up the production line of our U.S. plant for further models and will start their delivery in 2026. On the chart, you see a picture of our modernized production sites in Menomonee Falls in Wisconsin. I can tell you, it really looks good. On the other hand, we have advanced our light equipment portfolio. We expanded the range of reversible plates and also introduced new battery-powered versions. The battery-powered rammers gained on efficiency through a feature called the integrated speed control. The compaction performance can now be optimally adapted to the respective application. And last but not least, we have expanded our zero emission portfolio in compact machines and added 2 models of excavators. With just a 1.2 ton operating weight, ESET 10 electric is particularly well suited for applications with a restricted floor load such as indoors. The green illuminated active working signal increases safety on both internal and nighttime construction sites. The second model introduced, EZ26 Electric is a bigger tracked zero tail excavator. Its emission-free, quiet and low vibration operation makes it the ideal choice for legally restricted or noise sensitive and environmentally critical areas as well as for special work sites with local and time restrictions. As you can see, one of our strategic focus areas remains our investment in sustainable construction. We believe that this is the future of construction, and we are ready to seize the future opportunities. Now let's move on to our outlook for the year 2025. Also, we have a stable order book development in the course of this year, market recovery is slower than we initially anticipated. Industry outlook partially stagnated as well. And moreover, we have faced a significantly weaker market demand in the U.S. due to geopolitical uncertainty as well as the tariffs. Due to supply chain issues of Nexperia, we only expect a minor impact on our production in the last 2 months of 2025. However, we will closely monitor the situation. Due to all of these factors, we have decided to narrow our yearly guidance. For 2025, we now anticipate a revenue in the range between EUR 2.15 billion and EUR 2.25 billion and an EBIT margin in the range between 6.5% and 6.8%. We expect our investments to reach around EUR 80 million and our net working capital to be at around 34% by the year-end. As we already mentioned, we succeeded in stabilizing our improved profitability in the current market environment in quarter 3 of 2025. Looking ahead, we will continue to counteract the weak market, especially in the U.S. with efficiency measures and cost discipline. For 2026, we expect market recovery in Europe as well as normalization of market demand in the U.S. Nevertheless, we still remain cautious and track our market developments continuously. Summarizing the key messages from our first 9 months. Revenue is in line to reach full year guidance. Narrowed margin guidance is driven by underlying U.S. tariff impact and geopolitical uncertainties. We are ready to seize the opportunities in the years ahead presented by the German special fund. Strong balance sheet is our foundation to execute our Strategy 2030 and drive future growth. Before we now jump into the Q&A session, let me send a sincere thank you to all our employees of the Wacker Neuson Group, who relentlessly are giving their best for our customers and our company, even more so in challenging times. So really thank you. Nobody is perfect, but a team can be. Thank you for listening. Operator, we are now ready to start the Q&A session, and we're very much looking forward to answering your questions. Operator: [Operator Instructions] First question is from Stefan Augustin of Warburg Research. Stefan Augustin: The first one would be actually on the book-to-bill just for Q3. And let's say, with that, maybe a little bit the progression throughout the quarter. Was that rather a stable quarter? Or was it more, let's say, weaker versus the end, something like that and the color on the current situation. That will be the first question, and I'll take them one by one, 2 more. Karl Tragl: Stefan, thank you for asking the question. The EUR 1.1 billion in the year-to-date was driven by a lot in the April and the [Baumol] effect. In quarter 3, we have been fluctuating around EUR 1.0 billion. So it's stable at the situation. Stefan Augustin: Okay. The next one is then a little bit more complicated, and I try to square it a little bit up. Starting from the net working capital ratio that goes up to -- in the new guidance, 34%. And you mentioned the production shipment into the U.S. Is that the right calculation to think about if you are now at 32% and you go up to 34%, that is roughly something like EUR 40 million in additional inventory. And how would this square up with shipments from Linz to the U.S. for Deere, which have been mentioned, I think, in the range around EUR 20 million for this year. Is there other shipments that are also impacted here? Or is it inventory that is not only in the U.S.? How do you need to think about that? Christoph Burkhard: Stefan, Christoph here. Well, you need to add to your John Deere calculation, of course, the imports from Europe that are already phased into 2026. And that, of course, is easily adding up to the number that you have in mind. I don't know, could -- is that the direction you wanted to. Stefan Augustin: Yes. I think I get this now. I just wanted to come, let's say, how do I come from the EUR 20 million to EUR 40 million, but that's a plausible answer. And then you cut on your investments. Is that actually something you abandon here? Or is that push out? And what is -- what has been, let's say, what is the cause of the lower -- the EUR 20 million lower investments? Where do you think? Karl Tragl: Stefan, Karl speaking here. There is no major investment which has been affected by this one. It's just many smaller investments, which we just moved a little bit forward to be on the safe side on that end. So it doesn't affect any future growth or any strategic investments. I would call it, it's a normal effect of cautious cost and cash flow management in such a situation. Christoph Burkhard: And Karl, if you allow me to add one thing here, Stefan, something that sometimes gets a little bit in the background is that our investment number does also comprise investments in terms of our sales network and sales channels. And so we are always evaluating, will we now replace a certain sales outlet. We will replace rent by a purchase of building and real estate, et cetera. So there are just some moving parts where we can be more conservative on the investment side without basically affecting the plants that are really adding to our capability for innovation. So it's not purely plant related. Stefan Augustin: All right. And then the last one is maybe a little bit on the pricing situation. What do you see right now? Is it okay? Or is it starting to deteriorate in Europe or the U.S.? How do we have to think about that one? Christoph Burkhard: Yes. Pricing situation, pricing expectations towards 2026, Stefan, let me differentiate between 2 major areas here. The first one is, I think we have been discussing that is the current situation in the U.S. where we encounter really difficult to increase prices. Here, we believe that -- I know it's a little bit vague, but sooner or later, I think the market will have to accept some price increases. I know this is pretty fuzzy, but that's, I think, all of us, even -- and also our competitors are calculating with this for 2026. And so the first part of the -- of our expectation that we will see modest price increases in 2026 is certainly in the U.S. And the second area for Europe, I think we will see the regular slight increase. So altogether, a slightly positive trend from our point of view. Stefan Augustin: Okay. And finally, a bit of housekeeping question. Can you remind us on the ramping up, the phasing of the Deere operation going from this year, the EUR 20 million to what roughly bracket in '26? And when does the production start in the U.S. Karl Tragl: Okay, Stefan, let me take the question. Karl speaking here. On the first hand, I would just want to remind us all that this is another partner who is not on the table, and we have to be careful not to jeopardize any communication from that side, especially we talk about start of production or start of deliveries. But in general, what we can say is, as I said, the cooperation is fully on track at the time we both agreed. Linz is fully operational, as we mentioned. There is start of production in U.S. by end of this year for the first model, which means then delivering next year. And as we always communicated, we are working with a 1-year interval in between 2 start of productions. So start of production of the next model is then obviously somewhere second half of next year in U.S. Operator: A lot has been clarified. I see there are no more questions in the queue right now. [Operator Instructions] There seem no questions to be incoming anymore. So with that, I'm handing the floor back over to Peer Schlinkmann. Thank you. Peer Schlinkmann: Thank you. Ladies and gentlemen, as we can see, there are no further questions left from you. That brings us to the end of our conference call. As usual, if you have any further questions, please do not hesitate to contact me or the entire Investor Relations team via phone or e-mail. If you would like to meet in person, please let us know or check our website and financial calendar for all relevant roadshow days in the coming months. Thank you again for joining our call, and we wish you all a wonderful winter and Christmas season. Have a great day.
Operator: Hello, everybody. And welcome to Nayax Ltd.'s Third Quarter 2025 Earnings Conference Call. All participants are in a listen-only mode. Presentation instructions will be given for the question and answer session. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Aaron Greenberg. Please go ahead, Aaron. Aaron Greenberg: Thank you, operator, and everyone for joining us today on this conference call. With me on the call today are Yair Nechmad, Nayax Ltd.'s Co-Founder and Chief Executive Officer, and Sagit Manor, Chief Financial Officer. Following management's prepared remarks, we will open the call for the question and answer session. Our press release and supplementary investor presentation are available on our Relations website at ir.nayax.com. As a reminder, during this call, we will be making forward-looking statements. All forward-looking statements on our call today are based on assumptions and therefore subject to risks and uncertainties that may cause results to differ materially from those projected. We have no obligation to update these statements except as required by law. You can read about these risks and uncertainties in our supplementary investor presentation released earlier today and our regulatory filings. In addition, today's call will include a discussion of non-IFRS measures. Management believes non-IFRS results are useful in order to enhance our understanding of our ongoing performance. However, these measures should be considered as a supplement to and not as a substitute for IFRS financial measures. A reconciliation between Nayax Ltd.'s non-IFRS to IFRS measures can be found in our earnings press release issued earlier today. All key performance indicators are intended to evaluate our business and properly measure in a macroeconomic environment to guide and support our decision-making. These key performance indicators may be circulated in a manner different from our industry standards. And finally, please note that all figures in today's call will be reported in US dollars unless stated otherwise. Yair will start the call with key financial and operational highlights. Following that, Sagit will go through the details of financial results and discuss the outlook. And with that, I would like to turn the call over to Nayax Ltd.'s CEO, Yair Nechmad. Yair? Yair Nechmad: Thank you, Aaron, and thank you, everyone, for joining us this morning to discuss our results for the third quarter and the progress we are making across the business. It was another strong quarter for Nayax Ltd., reflecting the continued execution of our strategy and our focus on profitable growth. We delivered strong operational and financial results highlighted by expanding margin disciplined growth across our segments, and consistent progress towards our long-term objectives. We continue to gain market share across our core automated self-service business with strong demand for our solution. We are adding new customers at scale while deepening relationships with existing ones. Our one-stop-shop solution hardware management suite and payment all from one trusted provider is a true differentiator for our customers in the automated self-service space and one that few others can offer. Our platform continues to demonstrate its value and stickiness with very low customer churn. Customers are expanding their engagement with Nayax Ltd. by adding more devices, processing more transactions, and adopting more of our services over time. As a result, we are seeing a steady increase in our ARPU driven by processing revenue growth per connected device. This reflects our growing share in high transaction value such as EV charging, amusement, and car wash, which are segments that drive significantly more revenue per customer. Recurring revenue as a percentage of total revenue continued to grow quarter over quarter. This sustained mix shift reflects our focus on building a more productive higher margin revenue model that scales efficiently as our customer base grows. Our growth in managing connected devices is a key driver of growth. As we continue to expand our product portfolio with our diverse payment hardware including lower-cost embedded products. I will now provide an update on three main focus areas: technology, customer and partnership, and M&A. On the technology front, we made great progress during the third quarter on several key technology initiatives. In Australia, we began rolling out the Bipos Media making the first commercial deployment of our next-generation Android payment platform. This is a meaningful step for us. The new device is our first truly Android-based PIN-enabled device family. And it opens the door to a wider set of vertical and higher value use cases in regions requiring PIN. The product combines our payment infrastructure with new engagement capabilities, including a touch screen interface and support loyalty, advertising, and permission promotional tools. We started our initial launch of the Vipose media in the UK and selective countries in Europe over the past months and plan more announcements about the product soon. In addition to announcements, two large partnerships with Autel and LinQual, we continue to build momentum with the UNO Mini, our embedded payment product. In China, six OEM partners completed their Ono Mini SDK certification which now allows them to support contactless payment across EV charging stations and power bank machines. We have a strong pipeline of OEMs that are going through the certification process and expect sales in embedded products to scale over the coming quarters. Finally, with respect to technology initiatives, Retail Pro has successfully integrated with One Bit AI-powered inventory optimization engine. This integration lends retail calls operational tools with predictive AI analytics from One Bit, helping merchants utilize the retail post software to cut overstock and stay ahead of evolving customer demand patterns. Turning to customers and partnerships. A key customer highlight this quarter is our success with ChartSmart. A US chart point operator managing thousands of ports and growing rapidly, in the DC fast charging space. Which has committed to using Nayax Ltd. as its preferred payment solution. ChartSmart is one of the fastest-growing EV charging networks in the United States, underscoring how our payment technology continues to power growth in the electric vehicle charging vertical. Our platform enables large operators like ChartSmart to simplify daily operations from payout and reconciliation payment acceptance, allowing them to focus on growing their network. Our collaboration with Adient continues to evolve as we jointly develop solutions in e-commerce embedded banking. For example, we began a pilot of our new e-commerce offering for EV charging, in October and already have a backlog ahead of the broader rollout. In parallel, we are preparing to launch our embedded banking product in the US in early 2026, including bank accounts and debit cards for our customers. This initiative brings us closer to our vision of being an end-to-end provider for our customers' business needs. We expect this initiative to drive higher recurring revenue per customer over time. On the M&A front, we remain active with a disciplined approach. We continue to pursue acquisitions that align with our key objectives of geographic expansion, technology enhancement, and strategic consolidation of distribution channels. Recently, we signed a letter of intent with exclusivity to acquire Integral Vending, our exclusive distribution partner in Mexico since 2015. Degel Vending has built a high-performing network across Mexico, developed a proprietary vending management system tailored for the Latin American market. This acquisition will deepen our presence in the region. Expand our software capabilities, and strengthen our ability to deliver a full suite of payment and management solutions across Latin America. It follows our recent two acquisitions in Brazil and represents the next step of our multiyear strategy to establish Nayax Ltd. as the leading platform across the region. While we do not expect a material financial contribution in 2025, we believe this deal will create long-term strategic value in 2026 and beyond as we expand our operation and distribution in Spanish and Portuguese-speaking markets. In November, we also completed the purchase of the remaining shares of Tigapo. Bringing us to full ownership of our arcade gaming business. Tigapo continued to deliver impressive growth and represent a highly scalable opportunity globally. Within the broader Nayax Ltd. ecosystem, Tigapo will benefit from our customers' network and international footprint. As an update, to the Nayax Ltd. capital purchase in Q2, we have successfully integrated it fully within our broader embedded payment initiative under the consolidation team. In July, we launched our rental business in Australia and we are rapidly growing our installed base of both rental units and finance hardware. Nayax Ltd. Capital allows us to provide a fully automated process of ordering the hardware, financing it, onboarding to NARTSCO, and invoicing, including the ability to automatically secure the financing against the gross processing receipt. This strategy produces a higher gross margin in the long term than selling the hardware outright. The low-touch sales cycle will create substantial operational leverage in the coming years. Turning now to guidance. For the full year. Which Sagit will also discuss in greater detail. At the beginning of the year, we set a target of revenue growth of 30% to 35% for 2025 including inorganic growth from acquisition. While multiple planned transactions have been delayed, we have maintained strategic discipline and refrained from pursuing deals at any cost. Our M&A pipeline remains active, focused on opportunities that enhance our technology, customer base, and long-term profitability. We are reiterating our organic revenue growth guidance of at least 25%. Which will be driven by enterprise hardware sales in the fourth quarter and maintain our strong recurring revenue growth. Enterprise sales accelerated in the third quarter. And we expect further momentum in the fourth quarter. Our hardware sales pipeline remains robust, and we are well-positioned to capture larger enterprise opportunities that align with our solutions and scale. Looking ahead, we remain confident in our strategy and the fundamentals of our business. Our growing base of connected devices, recurring revenue, strong customer retention, and disciplined focus on profitability position us well for sustained growth. Our addressable market continues to expand as the world moves further towards digital payment and connected commerce. While M&A continues to play an important role, organic growth remains the primary driver and the foundation of our business. We have entered the fourth quarter with strong momentum and even greater conviction in the long-term opportunities ahead. Our expanding pipeline, diversified revenue base, and strong financial discipline, we are well-positioned to continue outperforming the broader payment industry and deliver lasting value to our customers, partners, and shareholders. With that, I'll turn it over to our CFO, Sagit Manor, who will review our financial results in greater detail and walk through our outlook. Sagit? Sagit Manor: Thank you, Yair, and good morning, good evening, everyone. I'll start by reviewing our KPIs, and financial performance for the third quarter and then I'll discuss our updated outlook for the full year 2025. Looking at the three key performance indicators for the quarter that we consider primary measures of growth, First, total transaction value increased by 35% over Q3 2024, reaching $1.8 billion and driving strong corresponding processing revenue growth of 33% for the quarter. At the same time, average transaction value increased from $2.15 to $2.40 while maintaining a similar take rate. Displaying our strong positioning into emerging verticals such as EV charging, amusement, and car wash. Second, our customer base expanded by 21% compared to Q3 2024, with nearly 110,000 customers at the end of Q3. And third, our installed base of managed and connected devices grew 17%, compared to Q3 2024 to more than 1.4 million devices at the end of the quarter. These KPIs reflect the momentum in our business and the underlying strength of our platform as we continue to capture market share in automated self-service, driven by our technology platform and our growth in new verticals and geographies. Looking at our financial performance, Revenue for the third quarter was $104.3 million which is an increase of 26% over Q3 2024. We continue to take market share. Adding nearly 5,000 new customers this quarter and more than 56,000 managed and connected devices. Organic revenue growth for the third quarter was 25%, showing sequential acceleration compared to both the first and the second quarters. We expect organic revenue growth to continue to accelerate in the fourth quarter which I will discuss in our outlook. In the third quarter, recurring revenue which includes payment processing fees and SaaS subscription revenues, increased by 29% compared to last year's third quarter reaching $77 million and represented 74% of our total revenue in Q3. More specifically, processing revenue grew by 33% to $48 million in Q3, driven by a 17% increase in our installed base of managed and connected devices, and a 35% increase in dollar transaction value. Our take rate for the quarter was 2.71%. Hardware revenue in the quarter grew 18% to $27 million compared to $23 million in last year's same quarter, with continued strong demand for our products, solutions, and technology. In the quarter, our installed base grew by 17% compared to last year's third quarter, reaching more than 1.4 million devices as we added more than 56,000 devices to our installed base this quarter. Moving now to profitability and margins, for the quarter. We continue to drive significant margin expansion through initiatives to improve efficiency, in payment processing and optimize our hardware cost structure. Gross margin increased to 49.3% compared to 45.7% in the last year's third quarter driven by both higher recurring and hardware margins. Our recurring margin increased to 53.6% from 50.1% in the prior year quarter, mainly driven by an additional improvement in processing margin to 39.6% from 33% as a result of consolidating a majority of the payment volumes under five main payment acquirers. Driving improved operational efficiency, We also continue to benefit from recent favorable renegotiations of key contracts with several bank acquirers and improved smart routing capabilities. On the other side, our margin increased to 37% compared to 34.4% in Q3 2024. Driven by customer sales mix the continuing optimization of our supply chain infrastructure, and better component sourcing. For the full year, we expect other margins to be at the higher end of the range between 30% to 35%. In terms of gross profit, we generated more than $51 million an increase of 35% over last year's third quarter. Adjusted OpEx of $34 million was 32.2% of revenue and continues to improve as a percentage of revenue a testament to our disciplined cost management. Adjusted EBITDA increased to $18.2 million representing 17.5% of revenue an improvement of more than $7.2 million compared to last year's third quarter and demonstrating the continued scaling of operating leverage in the business. Operating profit was $7.8 million an improvement of $6.4 million from last year's third quarter. This significant operating profit increase is mainly driven by improved gross margin. Net income for the quarter was $3.5 million compared to $700,000 in the prior year period. Turning to our balance sheet. On September 30, 2025, cash and cash equivalents and short-term deposits totaled $173 million while short and long-term debt was $156 million. Both driven by notes and warrants of completed March 2025, of approximately 486 million shekels net maintaining a solid balance sheet and net cash position. Looking at cash flow, we generated $10.5 million from operating activities. Free cash flow for the quarter was $3.9 million mainly due to the timing of cash settlement from processing activities. Turning now to our outlook and referring to our forward-looking information disclosure in our press release. For the full year 2025, Nayax Ltd. is reiterating organic revenue growth guidance of at least 25%, driven by enterprise hardware sales in the fourth quarter and maintaining our strong recurring revenue growth. With some delays in strategic M&A transactions, we are updating our financial outlook to a revenue range of $400 million to $405 million on a constant currency basis. This represents revenue growth of 27% to 29%. We still anticipate an adjusted EBITDA margin of at least 15% and the updated guidance for the full year reflects the lower expected inorganic contribution due to delayed M&A activity and is now between $60 million to $65 million with at least 50% free cash flow conversion from adjusted EBITDA. As for our 2028 target, we continue to project an annual revenue growth of approximately 35% driven by a combination of organic growth and strategic M&A. We also continue to target a gross margin of 50% and an adjusted EBITDA margin of 30%, as we continue to drive high-margin revenues and operational efficiency. In closing, we are well-positioned for our future growth as we continue to grow our installed base globally and capture market share. We also continue to focus on scaling our recurring revenue streams in particular, our payment processing capabilities which benefit from the conversion trend of cash to cashless transactions. I'll now turn the call over to the operator for our Q&A session. Operator: Thank you. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset. Before pressing the star keys. Our first question is from Josh Nichols with B. Riley Securities. Please proceed. Josh Nichols: Yes. Thanks for taking my question, and great to see the company. Posted some record EBITDA margin here in the third quarter. I just want to touch on a little bit. You mentioned during the call there's a large number of these fast-growing EV partnerships and if you could give us a little bit of update on the timing some of those shipments. I know Autel alone was looking to ramp to maybe, like, 100,000 devices by the end of next year. Is that still on target? And what's the expectation for the EV ramp? Aaron Greenberg: Hi, Josh. This is Aaron. Yeah. So the EV charging has been accelerating as you mentioned. We've been announcing several partnerships. We also have been accelerating the OEM integrations on the embedded readers, which is a big growth driver for us, in the future with regards to EV charging. And we're getting a lot of momentum, especially in the North American market, and I expect also over the coming quarters with the launch of the VPost Media, which we talked about a little bit in the script as well. You know, over the coming quarters in Europe and UK with a pin on glass given that with DC charging, with the high average transaction value. You need to have a pen on glass device in order to be able to do those higher value transactions. And we all you know, so we see that, with the launch of that, that we'll be able to do more, in that market for the EV charging as opposed to in, you know, past years where we've been more focused on the North American market for EV charging. As we look forward, we already started to see some hardware revenues related to EV charging customers in Q3. We expect to see a significant acceleration of that in Q4. And as we start looking into, into next year, the partnership with Autel and with the other OEMs are progressing as expected. And we're seeing, you know, the first, Uno Minis were, you know, our embedded readers, were delivered at the '2 actually, and we're starting to see some acceleration of those volumes as well. Josh Nichols: That's good to hear for the EV ramp. I know there's been a couple other things you mentioned, like car washes, amusement, Looking at some of the recent, like, industry conference, I know smart coolers has been a big focus for the space. Any update you could provide us on what you guys have in terms of offerings on the smart cooler market and what you're seeing in terms of demand and potential growth activity that could be driving some acceleration there for next year? Aaron Greenberg: Yes. This is Aaron again. We signed some partnerships in the US market. We signed some partnerships in the US market with regards to the smart coolers for distribution with our Vipostouch. And we've been actively working in other markets as well. We signed a partnership with a large enterprise customer in Europe over the past several months, to start delivering smart coolers in the European markets. Which we hope to talk about over the coming months. And we see this as a big growth driver in the future. Smart coolers, as opposed to micro markets, which is also a fast-growing space. It's been best suited for us, with all the integration technology that we've developed over the last twenty years. You know, being able to utilize our Vipostouch and now the Vipost Media and other markets as well, for the smart cooler market, you know, see some acceleration. I think that car washes, as you mentioned, is a big growth area for us. We're also seeing a lot of growth in things like arcade gaming, after we finish the purchase of Tigapo over the last year. We saw significant growth in Tigapo's arcade gaming solution over the last twelve months, and we expect that to continue to be, even though it's a smaller number at the moment, to continue to be a large growth driver as well. Maybe just to add to the appreciate One thing to add to it, yeah, there is a great opportunity that Nayax Ltd. is exercising with all the OEM. In the cooler by itself, we are partnering with the cooler manufacturers and we are embedding ourselves with the Deepos Media already right now with the provider OEM. And by that, we can expose ourselves to a greater market share in the cooler industry. Appreciate the update. I'll hop back in the queue. Josh Nichols: Thanks. Operator: Our next question is from Cristopher David Kennedy with William Blair. Please proceed. Cristopher David Kennedy: Yes. Thanks for taking the question, and thanks for all the information. Just wanted to talk a little bit more about the embedded banking and the e-commerce opportunity that you mentioned in your opening comments? And just think about kind of the position for the business as we think out into 2026. Yair Nechmad: Yes. It's a great question. Thank you, Cristopher David Kennedy, for the question. The embedded is alive and kicking in terms of internally almost done from Nayax Ltd.'s perspective in the ready to launch. It will be launched during Q1, mostly in the US market. Everything in terms of setting up the agreement the way that we're operating. Will take live in Q1. And then following this, in Q2, this Q3, rolling out production, we have set targets for this. The impact of this in terms of how we're operating, I strongly pushing that, we'll look very much to bring value out to our customer. Mostly with the weight, MCA, with the working potential solution that we have. And then we'll help our customers to work it seamlessly with their working capital issues or challenges. With us helping them with our other part of the division, which is Nayax Ltd. Capital, that we close the loop for this. Cristopher David Kennedy: Great. Thank you for that. And then any update on the e-commerce opportunity as well? Thank you. Yair Nechmad: The same thing will happen also in the next year with the e-com. The e-com is mostly for the EV for the first start. The EV market. And then it will roll out to more and more segments in the All of this is gonna happen in 2026. Aaron Greenberg: Right. Cristopher David Kennedy: Thank you. And then I'll if I could just add there, we did start pilot test testing in the US market for the e-commerce solution. The beginning of this month. And as Yair said, production, full production, with external customers will start beginning of the year. Cristopher David Kennedy: Okay. Thanks for that. And then just as a follow-up, Sagit, you mentioned the higher average ticket. Can you just talk a little bit about average tickets across different verticals and kind of you know, the range between traditional vending versus EV or amusement or car washes? Thanks for taking the questions. Of course. I'll start and maybe Aaron can help as well. Thank you for the question. Sagit Manor: So we do see that, on a quarterly basis, the number of the value of the transaction is growing faster than the number of transactions. So and it comes from the higher, the verticals that provide higher ticketing. Like power, like laundromat, like, the easy, of course, and other areas where other verticals that we are growing. And we expect that to continue. And with that, I'll let Aaron to add some more information. Aaron Greenberg: Yeah. So know, there's high you know, some of the higher growth verticals like like EV charging. You know, for example, on a, you know, on a DC charger, you can see you know, average transaction value. Right now, we're seeing it somewhere around $18 on a transaction. You know, even with AC chargers, we see about 4 to $5 per transaction. On average. At the moment, and those have been, steadily rising as well. With EV adoption over the last couple of years. And, also, some of the other verticals as well are, starting to see some significant growth, car wash and others that are, you know, rising that, ATV. And then you know, it's important to mention also that on the retail, division, as you continue to grow the retail side of the business as well, the ATV will continue to go up as well. So I think we you know, it's important to, you know, stress that the ATV will likely continue to go up over time. You know, it's continue to expand these new verticals. The gross take rate is not what the focus has been on as opposed to really the net take rate and making sure that as we continue to increase the ATV, that the net take rate that we've been taking continues to maintain steady or growing. And as we've shown over the last several we've been able to get the processing gross margin up from the high twenties up to the high thirties. Which is a huge testament to the, you know, to the financial negotiating power that we now have, you know, doing, you know, several billion transactions a year now, and growing that processing growth as much as we are, gives us a lot of leverage to be able to go in do the negotiations with the acquiring bank. But, also, we have great smart routing capabilities that we've continued to add. Over the last several, quarters, that's allowing us be able to, you know, shave off even, you know, fractions of a penny off of each transaction and you know, even in, you know, in a one $2 transaction, a fraction of a penny is a huge difference, so with regards to the processing margin. Great. Make sure all the information because then a little bit of numbers. Right? And the dollar transaction value grew to $1.8 billion and grew 35% compared to the last quarter versus the number of transactions that grew 21%, and we see that growth coming from new customers, but mostly from existing ones. So it's, again, it's the cash to cashless conversion. More transact more cashless transactions going into and add to that geo so verticals, geography, and what and and extra item there that create, that growth of ATV. So we're very proud of that. We're very proud on the high margin, as Aaron on the processing. If you remember us talking about it a few years ago, that if we reached a 100 basis point, we'll be happy. And today, we are way over that, and we're continuing to grow. As we, am focusing on on the main acquirer of consolidation and really make the most of it. Cristopher David Kennedy: Great. Thanks for all Maybe one last thing to add to add to this. Yair Nechmad: Chris, one last thing to add to this. We also boost the platform remotely to change pricing. It's helped existing customers to fit their pricing according to inflation. And it's also increasing their capabilities to control price. Cristopher David Kennedy: Right. Thanks. Everyone. Appreciate it. Operator: Our next question is from Hannes Leitner with Jefferies. Please proceed. Hannes Leitner: Yes. Thanks for letting me on. I got also a couple of questions. The first one is maybe on your comments around acquirer optimization, given the processing had been growing nicely and gross profits been driven here on the recurring side. That would be interesting. To understand. Then the second one is on M&A opportunity. Appreciate the prudence of rather quality over quantity. Which led to the guidance cuts. Maybe you just can give us an update on your appetite. Has there anything been changed in terms of size? Are you looking for bigger things which didn't come through this year? Or should we expect that next year will be a catch-up in M&A? And then maybe just the last one, in terms of giving us a broader update on the market dynamics in the US. We know that two of your competitors are essentially merging. Has there been any change with the delay in that process? Has there been any opportunities? Thank you. Yair Nechmad: Maybe I'll start. Regarding how we are routing transactions, we are doing this more and more and better and better. And it's helped us to go currently now semi-automatic regarding how we are we're doing this with the acquirers, but we'll move further and further to almost automatic regarding each and every beam call will be routed according to the best price and the best data that we have. Since we have more than 3 billion transactions, we know exactly which acquirers is doing in terms of acceptance rate, is the most important part. And then they're the rate that we're getting. And we'll have the ability to increase the acceptance in one hand and to reduce the cost from the other end. This will go more and more into holding our margin in a very, very tight way that we can control the margins. And we know that we can negotiate against the vendors regarding the acquirers, we have big volume, and we can also have leverage against our customers. Most of the customers, 36% of them, are small customers that cannot really have leverage in terms of negotiating. So all of this is keeping us, I think, on the good track that the margin will be according to what we expect to achieve, and we are in control. Maybe before passing this to Aaron to talk about the M&A, we're looking at the 2028 and we see the market according to what we expected to reach our targets. That's a part of what we believe is the ability of the Nayax Ltd. team to bring to life this growth. And with the M&A, sometimes it will be potentially a delay, and maybe we should be more clear regarding the organic and just that's what be the main topic that will guide the market and not really relating to an organic. Aaron Greenberg: Thanks, Yair. This is Aaron. Thanks, Hannes, for the questions. On the M&A front, on the two points that you asked about, With regards to M&A appetite, we are continuing to be prudent with regards to the acquisitions that we're doing. Most of the acquisitions that we've looked at have tended to be on the smaller side, as you've seen, in quarters past. However, we do have the appetite to do a larger acquisition, not transformational, but a larger acquisition, if it makes sense strategically for us. As if we look into the 2028, mark, we expect to see somewhere around probably $200 million of inorganic out of the billion with regards to, as we've looked from 2022 to 2028, when we first came out with the 2028 targets. And, we still expect that to be relatively the same. So that would mean, obviously, if we're continuing to do a few a year, there's going to be a couple of larger acquisitions between now and 2028. And I would expect that probably as we go into 2026, one of the, you know, few acquisitions will likely be larger, you know, call it more than $100 million of enterprise value but still not a transformational acquisition. It's very important to us that we keep the culture and the infrastructure of Nayax Ltd. at the core. And that and having the core management team and, you know, and not having an acquisition, you know, us in the wrong direction. So anything that we end up doing, you know, really needs to fit within our culture, but also, needs to be something that we can, you know, easily digest as a company. And that's been very important to all of us as we look at this. You know, with you know? And I'll just mention as well that you know, we raised the bond at the beginning of this year to have the cash on hand to do acquisitions as needed. But, obviously, if needed, we can you know, there are other levers, to be able to go and, to purchase these companies as we go forward. With regards to the US, competition and M&A, obviously, you know, we've been tracking, you know, the merger of and three sixty five. They went into second three you as publicly announced. We've been watching as has everyone else. We don't have any other comment with to the M&A as it, currently stands. However, I will say, that we haven't been, afraid from a global perspective of, you know, this merger or any other mergers that are happening. You know, there's consolidation that's been happening in our industry for several years. We expect the consolidation will continue to happen. And we are winning right now in market share, taking, you know, of our technology, because of our great customer service. Because when a small customer and an enterprise customer comes to us, they know that they're gonna get great end-to-end support. And this is something that, you know, has been a big differentiator for us over the years. We're not the cheapest system out there in the world. We're not the cheapest you know, monthly service fee, you know, depending on which region that you're in. But we're, in our opinion, the highest quality. And able to touch all of these different verticals with one product, you know, which makes us very resilient in the long run. So, you know, in terms of the US market, we always look at the US market with regards to acquisitions. However, we've been seeing better opportunities outside of the US you know, in Europe, in Latin America, in Asia. Versus the US markets just because of the market dynamics over the last couple of years. But it doesn't exclude us from looking at the US market as well. And we obviously do look at acquisition targets in the US. Hannes Leitner: Great. Thank you so much. Operator: Our next question is from Sanjay Sakhrani with KBW. Please proceed. Sanjay Sakhrani: Thank you. Good morning. Want to talk a little bit about hardware. Obviously, it's a big contributor to the fourth quarter. You mentioned sort of accelerating enterprise. Could you just talk a little bit about the visibility there as well as the margins? It seems like the margins have been a bright spot there, continued improvement. What's the ceiling on those margins? Yair Nechmad: The ceiling is margin 100%, if you can. But in terms of what we want to achieve is to be better than the market. We invest around I think, the last two years a lot regarding putting the hardware in the half of ourselves in terms of how we produce and how we are reaching out to the best source of the component and design of the product. And now we're launching the also the Repos Media, which is a fully Android, which should support. Should have been what you call increasing our hardware cost, but actually, it is not. We succeed to get what we call a very, very good way to operate our hardware manufacturing and the way that we are sourcing it. And I believe that we can keep on running on the rails of the 30%, 35% as we said on the hardware side. We have the flexibility to meet all the requirements of the market. On top of the risk of the target, which is coming on and off into the US market, but the US market is only 39% of our business. So basically, in terms of all the blending of the global, we can see that we can control the margin of the hardware. Sanjay Sakhrani: Got it. And just the visibility for that fourth-quarter ramp. Yair Nechmad: So we're seeing high demand. Q4 is always a big enterprise. And we have a very, very good visibility to end this quarter with the expectations that we set to the market. And visibility is in our Salesforce. So it's a good visibility. Sanjay Sakhrani: Okay. And just one follow-up. In terms of the delay in the M&A, like, how much of that contributed to the third quarter versus it contributing to the fourth quarter? And then just a follow-up on Yair, you mentioned sort of it might be better just to give the organic growth expectations because inorganic is sort of hard to sort of estimate timing. There's always lumpiness there. As we think about that 2028 guidance, like, how much of it is organic versus inorganic to get to that 35? Thank you. Sagit Manor: So maybe I'll start and Yair and Aaron will continue. So the job in Q3, you know, we are not giving a quarterly guidance. However, versus the consensus, absolutely, the gap between our organic financial results. And the consensus comes from the lack of significant M&A that we were expecting to see, and that impacted the Q3 and, obviously, Q4. That's the reason why we are updating our guidance with respect mainly to the inorganic growth of the business. And as for 2028, I'll let Aaron speak about that and what's the M&A portion of it. Aaron Greenberg: Yeah. Thank you, Sagit and Sanjay. So with regards to this year, you know, I'll just say that, you know, there were multiple M&A's, that were delayed later in processes. You know, as I mentioned to Hannes and to others, you know, we're very prudent with regards to M&A. We want to make sure that we're doing the right acquisitions. You know, we have a very, you know, detailed due diligence process with regards to these acquisitions. You know, we're not just buying them on the fly. We have a dedicated team to work on this. And we want to make sure that the ones that we're buying are not just contributing, you know, in the short term to revenue, but you know, contribute to the long-term strategy of the business. Specifically with regards to this year, we expected that the Integral Vending acquisition would have happened earlier in this year. It's one that we've been talking about for a while with our with Integral there in Mexico, and it's one strategically that we really wanted to do for a while. And we finally were able to, know, to get to terms on the LOI, back. In the last, you know, month and a half or so, which is, which is a big plus for us, and, we're very excited about that. And, we believe that we'll be able to get that done by the end of the year. We're actively in the negotiations and due diligence process right now to get it closed. And there was another acquisition at the time of the Q2 earnings that we were deep in the process of we decided to drop out of in the due diligence process. You know, again, because of the prudent, you know, measures that we take during the process, we expected that we were gonna complete that, which would have contributed for this year, but we've decided to move on to other acquisitions as well. Or instead, sorry, that will contribute more into '26 as opposed to 2025. As we look at the 2028 targets, think, you know, Yair mentioned this, you know, it's very difficult to predict the exact timing of M&A. You know, the organic growth is the most important part to us in the long term. And we don't see that slowing down. We have a lot of potential catalysts as we go forward as well, not just from the cash to cash list, but also the embedded banking services, e-commerce, and other solutions. That we believe will continue to increase the ARPU over the coming years. But as we look into 2028, we do expect meaningful contribution from the M&A. Mentioned to Hannes, we expect about $200 million of inorganic revenues from the 2022, 2028 So I would still say another probably, you know, 150 plus million, basic is gonna come, from contribution of inorganic over the next you know, three and a half years. You know, So there'll still be some meaningful M&A that happens. Most of them will be smaller acquisitions, you know, call it, you know, plus or minus you know, 10 million of revenue per acquisition, something like that, but but there'll be know, as we've seen in the past quarters. But, there will be larger ones as well. Sanjay Sakhrani: Thank you. Operator: With no further questions, I would like to turn the conference back over to Yair for closing remarks. Yair Nechmad: Thank you for joining us today and for your interest in Nayax Ltd. This quarter again showed the strengths of our business and our strategy, as we help merchants move to cashless payment in many geographies and verticals. As we look ahead, we will stay focused on our plan profitable, and profitability growth growing in key markets and working closely with our partners. I want to thank our employees, for their hard work, and our customers, partners, and shareholders for their trust. Thank you. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the SQM Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Megan Suitor, Investor Relations team. Please go ahead. Megan Suitor: Good day, and thank you for joining SQM's earnings conference call for the third quarter of 2025. This call is being recorded and webcast live. Our earnings press release and accompanying results presentation are available on our website, along with a link to the webcast. Today's participants include Mr. Ricardo Ramos, Chief Executive Officer; Mr. Gerardo Illanes, Chief Financial Officer; Mr. Carlos Diaz, CEO of the Lithium Chile division; Mr. Pablo Altimiras, CEO of the Iodine and Plant Nutrition division; and Mr. Mark Fones, CEO of the International Lithium Division. Also joining us today are members of our commercial and business intelligence teams. Mr. Felipe Smith, Commercial Vice President of the Lithium Chile division; Mr. Pablo Hernandez, Vice President of Strategy and Development of the Lithium Chile division; Mr. Juan Pablo Bellolio, Commercial Vice President, Plant Nutrition and Specialty Products; and Mr. Andres Fontannaz, Commercial Vice President of International Lithium Division. Before we begin, please note that statements made during this call regarding our business outlook, future economic performance, anticipated profitability, revenues, expenses and other financial items, along with expected cost synergies and product and service line growth are considered forward-looking statements under U.S. federal securities laws. These statements are not historical facts and are subject to risks and uncertainties that could cause actual results to differ materially. We assume no obligation to update these statements, except as required by law. For a full discussion of forward-looking statements, please refer to our earnings press release and presentation. With that, I will now turn the call over to our Chief Executive Officer, Mr. Ricardo Ramos. Ricardo Ramos: Thank you. Good morning, everyone, and thank you for joining us today. During the third quarter, we experienced a more favorable pricing environment for lithium compared with the previous period. Although the market remains highly volatile, we are cautiously optimistic. Our realized average prices increased. And while we expect this positive trend to continue in the fourth quarter, we remain focused on high-quality production, being a reliable supplier, increasing volumes and continuing to advance our cost reduction initiatives. Demand fundamentals remain strong, not only for electric vehicles, but also from energy storage systems, which already account for more than 20% of global lithium demand. Operationally, the quarter was very strong. We delivered the highest lithium sales volumes in SQM history, supported by low cost and strong efficiencies at our Atacama operations. Our Australian operation also continued to progress as planned. Spodumene sales increased significantly. We initiated lithium hydroxide production, and we reached record sales volumes of spodumene concentrate, an important milestone from this project. We expect commercial activity to remain robust in the fourth quarter. Outside the Lithium segment, performance was also solid. In Iodine and Plant Nutrition, results remained strong. Iodine prices continue at high levels with a balanced supply-demand environment. Construction of our seawater pipeline is now more than 80% complete, giving us the ability to bring additional iodine to the market earlier than expected, if required. We are also expanding our iodine production capacity through the development of a third operation in Maria Elena, which will add 1,500 tons of iodine capacity. This further strength our long-term supply position and reinforces our reputation as a reliable supplier. In fertilizer, we continue to see healthy demand and stable price across most key markets. Our Specialty Plant Nutrition business delivered discrete but sustainable growth compared with last year, both in volumes and revenues. The shift toward tailor-made solutions and higher value blends continues to improve our product mix and supports our strategy of allocating products to the most attractive markets. In iodine, revenues increased 5% year-on-year with prices averaging close to $73 per kilogram. The x-ray contrast media segment, the largest end-use application continues to grow steadily and remains a key driver of long-term demand. We also complete a detailed review of our CapEx program for the period 2025, 2027. Total CapEx is now estimated at $2.7 billion over the 3-year period. Our plan maintains a focus on increasing production capacity, preserving low cost, ensuring high product quality and upholding strong sustainability standards. While some investment decisions have been delayed, this does not affect our ability to meet the production and sales objectives set for each of our divisions. Finally, as announced last week by SQM and Codelco, we received approval from China's antitrust authority. We look forward to advancing this joint venture before the end of the year. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Joel Jackson from BMO Capital Markets. Joel Jackson: I'll ask my questions one by one. Can you talk about what you're seeing right now in lithium demand? Particularly, I wanted to maybe investigate, it seems like inside China, the demand forecast for lithium are a lot higher, like for forecast, they're coming from Chinese forecasters as opposed people outside China in the Western world seem to have lower demand forecast. Do you see this disconnect? Is it around energy storage in China? Can you talk about that? Pablo Hernandez: Joe, Pablo Hernandez here. So regarding 2025 demand expectations, we have recently improved since our last earnings call, so driven by stronger-than-expected EV sales, particularly in Europe and the sharp increase that you mentioned in BSS shipments. So we expect demand to reach over 1.5 million metric tons this year, representing an over 25% growth. In terms of China, it continues to maintain a significant lead in the EV market. We expected 30% year-on-year growth, representing more than 60% of the global EV sales. And regarding the other significant EV markets, Europe this year had a very strong first 3 quarters with more than 30% year-over-year growth. On the U.S., they still had a slower growth of 10% year-over-year, while the rest of the world, of course, had strong numbers reaching 40% year-over-year growth. Joel Jackson: Okay. You, on your last quarter talked about Chilean production for lithium to be up about 10% for you, and then you have about -- excuse me, 20,000 tons for your share at Mt. Holland. Are you still maintaining that 10% year-over-year our at Atacama? And then should we now expect something closer to 24,000, 25,000 tons for the year out of Mt. Holland in spodumene. Gerardo Illanes: Joe, this is Gerardo. Just to be clear, are you asking about production or sales? Joel Jackson: Well, you gave guidance last quarter that Atacama production or sales at the [indiscernible] would be up 10% this year, and then you'd have 20,000 tons out of Mt. Holland. In this particular quarter release, you said Q4 volumes would be similar to Q3 at Mt. Holland, which would imply more than 20,000 tons out of Mt. Holland. So I mean, maybe what do you expect out of Atacama? Like what production do you expect in Chile this year? What production do you expect in Australia this year? Let's do like that. Carlos Diaz Ortiz: Joe, this is Carlos Diaz. Well, our production in Chile is going according to what is schedule. We expect to produce this year close to 230,000 that is lithium coming from the Salar de Atacama. 180,000 of those processed in Chile and 50,000 is going to be processed in China, starting for our lithium sulfate production that we have been very successful with that. We'll continue working with expansion for next year, and we expect to grow next year. We still don't have the final figure, but we continue working to increase the production. That is regarding to the lithium production in Chile. Mark Fones: Joe, this is Mark Fones. To answer the second part of your question, yes, we maintain our production estimation or forecast for this year, which you may recall it was between 150,000 to 170,000 tons of spodumene concentrate at 5.5%. So that still holds. And regarding the sales projection, which you were referring to of 20,000 tons LCE for this year, that you're also right, we are increasing that to a range between 23,000 and 24,000 tons. Joel Jackson: Okay. That's perfect. And then my last question would be, when we look at the different average selling price for lithium that you get between Chile and international, it's about a $3,000 to $4,000 a ton discount. Should we think of that as that's the conversion costs that are basically embedded because you have to pay a toller to produce spodumene on an LCE basis? And then would we expect that international price discount versus the Chilean price realized to decrease across 2026 as you ramp up the Kwinana hydroxide conversion plant? Andres Fontannaz: Joel, this is Andres Fontannaz. Regarding prices for the SQM International Lithium division, please keep in mind that most of our sales are concentrated on spodumene. So more than 90% of our third quarter sales were explained by spodumene. And right now, we are reporting all of our sales as lithium carbonate equivalent. So in order to compare those prices with the prices that we are getting in the Chilean operation, you need to take into consideration the conversion factors and also the refining cost. So that would make a more fair comparison. Joel Jackson: Right. So my question is then across 2026, as Kwinana ramps up, shouldn't your -- shouldn't the international price rise -- realized price on an LCE basis rise closer to the Chilean price as Kwinana ramps up next year? Gerardo Illanes: Joel, this is Gerardo. Don't worry, next year or starting from next quarter, we're going to report the numbers from Australia as the product is sold. So if it's spodumene or lithium hydroxide, you will see the breakdown. So you will not have this confusion of prices without the conversion cost or not. Operator: Our next question comes from the line of Lucas Ferreira from JPMorgan. Lucas Ferreira: Hope you can hear me well. My first question is just to make sure I understand the part of China production. So are you already running 50,000 tons there? Because I remember the capacity was something around 30,000 tons with potential tolling of another 20,000. So I was wondering if there is more capacity to be used in China next year if the market remains good as it is right now in terms of prices. Is China ready full capacity? And the other question I have is also a follow-up on the JV with Codelco. If, imagine the signing, like Ricardo mentioned now by the end of the year, if there is any sort of a retroactive payment that SQM has to do for the year 2025, given that it took long to sign the contract. So in other words, when you look at the free cash flow of the company, even though you consolidate -- most likely consolidate the full thing, is there any sort of adjustment effect or cash transfers that we should be aware of when the contract is fully signed? Ricardo Ramos: Lucas, Ricardo speaking here. First, you're right in terms that we have to pay a dividend to Codelco during next year. This dividend will be in relation of the tonnage volume that belongs to Codelco according to the joint venture agreement. And we will put in our accounting this value as soon as we finish the agreement. That -- it has been stated very clearly in our financial statements that we have to do it as soon as we have the agreement with Codelco. And it is reflected, and you can calculate the number because it's quite clear in the agreement with SQM and Codelco that is public agreement. Carlos Diaz Ortiz: Lucas, Carlos Diaz again. With respect to your first question, our production in China, let me tell you that first that we expect to produce this year like 100,000 metric tons of lithium sulfate. So when you compare to lithium carbonate and hydroxide, you have to divide by 2. So it's equivalent to 50,000 around that. And 20,000 of those is going to be produced in our [indiscernible] plant in China and 30,000 is going to be produced with third parties. So we -- for the next -- for the coming year, we expect to keep increasing the production in lithium sulfate, and we're studying and evaluating to expand our capacity in China in our own plant. That is our plan. Operator: Our next question comes from the line of Ben Isaacson from Scotiabank. Lucy Zhou: This is Lucy on for Ben. And I have 3 questions. With the CapEx plan lower and lithium prices start to rise, how should we think about the need to raise capital in 2026? Is it fair to say that the base case scenario is no capital raise? Gerardo Illanes: Lucy, this is Gerardo. Well, you can see our balance sheet. We have a very strong balance sheet, and we have had always a strong balance sheet. And on these days, even at the current pricing environment, some of our main KPIs are improving. We are deeply committed to maintaining a strong investment grade. And there are several levers we believe can be pulled before pulling the last one, which is raising capital. So we're working on several initiatives. And as long as we keep on having a strong balance sheet, it may not be needed. Lucy Zhou: And for my second question, earlier this year -- earlier this week, Ganfeng suggested 30% to 40% lithium demand growth next year. Do you have any preliminary thoughts on demand growth next year? And in particular, how do you see demand for ESS developing next year? Pablo Hernandez: Lucy, Pablo Hernandez here. So regarding Ganfeng, of course, we will need to look into their assumptions. But of course, this looks like a good and optimistic projection for next year. In our case, regarding 2026, we're still assessing demand growth expectations, and we remain relatively conservative with the expectation to reach more than 1.7 million metric tons. And the main driver will continue to be the EVs and of course, as you mentioned, the very strong demand that we've seen on the BSS side. Lucy Zhou: Perfect. And finally, how much R&M production growth do you expect to see in 2026 that is not from SQM? And is it all Chile based? Pablo Altimiras: Pablo Altimiras speaking. Well, regarding to the third-party production, I mean, with the public information that we have, we believe that most of that will come from Chile, from caliche ore. And we don't have the exact figure, but our expectation is that, that amount will not surpass the growth of the total demand. Operator: Our next question comes from the line of Andres Castanos-Mollor from Berenberg. Andres Castanos-Mollor: Can you please update us on the progress to closing the deal with Codelco and remind us what the milestones are pending? What happens if it doesn't close by 2025? Is there a long stop close there? What will happen? Ricardo Ramos: Sorry, Ricardo speaking. First is we are -- as we announced, we closed with an agreement with the antitrust authority in China that was the last remaining external authorization we needed. And now everything is under the review, especially the agreements between CORFO and Codelco under the review of Contraloria in Chile. Contraloria is like an internal auditing body of the government that needs to review this kind of contracts. We expect that this review will be positive and will be before the end of the year. There's no second one. We will close this year. That's for sure. Andres Castanos-Mollor: That's great. Another question, if I may. This would be asking on 2026 expected mix out of Australia. What mix of spodumene and hydroxide do you expect to get out of Australia in 2026? If you could indicate something about this. Mark Fones: Andres, this is Mark Fones. We have not yet closed our budget for next year on production for Mt. Holland. What I can tell you is that the mine and concentrator at Mt. Holland, we expect to be producing at capacity. So of course, we will be expecting half of Mt. Holland's capacity in terms of spodumene concentrate. What happens with the ramp-up on the refinery on the other hand, is that we've announced the first product this year, as you well know, and we will be ramping up production until almost reaching nameplate capacity by the end of 2026. What's the exact amount of that lithium hydroxide considering all the good work that has been performing covalent with Wesfarmers and SQM at the refinery in addition to all the challenges as any ramp-up in a capital project will happen next year, still remains to be seen, and we will let the market inform in due time. Operator: Our next question comes from the line of Corinne Blanchard from Deutsche Bank. Corinne Blanchard: The first question, I would like to get more color on the CapEx reduction. You reduced it by about 22% versus what we had last year. But I think in the press release, you stated that there will not be -- you will not have an impact on any capacity or projects. So I'm not sure how to think about it. So maybe if you can help us understand the reduction of CapEx and for which business or segment division you come to and maybe any projects that have been pushed out of the 2027 range, that would be helpful. Gerardo Illanes: Corinne, this is Gerardo. Let me give you a breakdown of what we announced. Well, yesterday, we announced that our CapEx program for the years '25, '27 will be somewhere around $2.7 billion. The breakdown, it's going to be somewhere around $1.3 billion for the Lithium Chilean division that basically has -- the main projects that they have is to finish the expansion of lithium hydroxide to reach 100,000 metric tons that should be ready at the beginning of next year. Then the expansion to reach 260,000 metric tons of lithium carbonate capacity in Chile, while we keep on working on initiatives to keep on producing lithium sulfate that is quite relevant, as Carlos was mentioning before. Then for the International Lithium division, the total CapEx that is included within this $2.7 billion is approximately $700 million, which includes approximately $400 million between the expansion of Mt. Holland and the first steps of Azure. Of course, both projects are subject to approval with our partners, but that's what is included in this time frame. And finally, in the Iodine and Plant Nutrition business line, the total CapEx is approximately $800 million. That includes the seawater pipeline that should be ready next year that is going to be critical to give us flexibility to produce more iodine and also the Maria Elena iodine production site that should let us bring additional production or capacity of iodine as of this moment. Corinne Blanchard: Maybe the second question, coming back to the Codelco agreement. Are you still waiting for the local group to be concerted? And if so, like can you provide an update of where you stand with them? Ricardo Ramos: No, no, no. Sorry. Regarding the communities, we had the agreement with the communities that was, I think, a couple of months ago. It was publicly released that we had the final agreement in order to move forward. And the only one that has already explained to you is the internal auditing body of the government that is reviewing the agreements between CORFO and Codelco. And after they finish their review and their approval, we will continue with the joint venture start-up. Operator: Thank you. Our next question comes from the line of Marcio Farid from Goldman Sachs. Marcio Farid Filho: A quick follow-up from my side, please. You mentioned the demand expectations. I think you mentioned 25% growth to 1.5 million tons. I wasn't sure if that was related to 2025 or 2026 because in the presentation, you mentioned 20% expectations for demand growth for '25. And if you can also detail how you're seeing demand for 2026? And also maybe provide some more details around ESS demand, which has been calling the market potential for the last few weeks would be great. And then I'll have a few follow-ups as well. Gerardo Illanes: Marcio, this is Gerardo. Give me one second before answering your question. And just to clarify something over the previous answer I gave. I mentioned 260,000 metric tons of lithium production -- lithium carbonate production capacity in Chile, but it refers to 600 -- sorry, 260,000 metric tons of lithium production overall coming from Chile from lithium chlorine or toll in China from lithium sulfate. Pablo Hernandez: Marcio, this is Pablo Hernandez. So on your question, the information that I previously provided on the 1.5 million metric tons -- over 1.5 million metric tons on the 25% year-over-year growth, that was related to 2025. And as I also mentioned, our expectations for 2026 is that this number is going to be reaching over 1.7 million metric tons. Specifically to BSS, as you well mentioned, and has been mentioned during the call, there's been a strong growth in demand from BSS, which we estimate over -- between 40% and 50% year-over-year growth this year, and we expect those numbers to remain stable for next year as well. Marcio Farid Filho: That's great. And maybe another follow-up on the Codelco deal. Can you provide us what are the expectations in terms of -- you probably need a revision of your offer license if you go ahead with the plan to produce nearly 260,000 tons overall with Chilean assets. Obviously, in theory, it would be ideal that you defer as much CapEx as possible for when the JV becomes effective in 2030. So I'm just thinking if there is any CapEx related to Salar Futuro that we can expect to be spent before 2030? Or can you defer that to beyond 2030 when the JV becomes effective? That would be great. Ricardo Ramos: Okay. First, the agreement will go into effect the same day we signed the agreement that is going to happen in the next few weeks. I hope so. And after we signed the agreement, we signed with Codelco, the agreement is starting. We don't need to wait until 2030. But you are right in terms that Salar Futuro is a great, great project, and we are working very hard on it. We expect to submit the environmental study to the authorities and communities during next year. And it's going to be a complex project and probably we will reach the final agreement during 2029, 2030, means that the initial investment in Salar Futuro that is a big project and a very interesting one, will be 2030 or 2031 starting investment. It means that it will not affect the CapEx in the next 3 or 4 years. It will not affect 2026, '27, '28, and we will continue with our today plan of projects in the Salar de Atacama as usual. That's why this project will have a significant impact, yes, and a very positive one starting, I hope, 2030, if not 2031. Marcio Farid Filho: That's great. And maybe one last one on iodine. Obviously, market has been strong for a couple of years now. I think you're going to be adding about 5,000 tons of capacity once the new pipeline and Maria Elena is ready. So can you talk a little bit about overall supply and demand conditions on iodine, if you expect these prices above $70 per ton or $70 per kilo to remain sustainable? Where are the other areas of supply growth that could put some pressure on prices, if at all, in the next couple of years? Pablo Altimiras: Pablo Altimiras is speaking. Well, as we have been said before, supply and demand for this year is tight because we -- this year, we are not seeing additional supply. Actually, the demand of this year is not growing because of the lack of supply. We believe that demand for the next year will grow in the range of 3%. And why the demand will grow? Because we see more capacity arriving to the market next year. As I said before, it's coming from caliche ore mainly. So we believe that we'll have more supply next year. Operator: Our next question comes from the line of Mazahir Mammadli from Rothschild & Company, Redburn. Mazahir Mammadli: So my first question is, if we assume that lithium hydroxide and spodumene prices stay kind of at the same level as they are today for 2026, would you expect the stand-alone profitability of Kwinana conversion to be positive? Mark Fones: Mazahir, this is Mark Fones. Yes, as we've said before, we continue to see the long-term profitability of Kwinana and the Mt. Holland project to be positive. And we still see ourselves committed with our partners, and we will continue to develop this project. And that's the reason also we announced that we expect a final investment decision on the expansion for the mining concentrator for somewhere next year. Mazahir Mammadli: Okay. And maybe a follow-up on the Codelco deal. So the 201 kilotons of lithium that's attributable to Codelco, do I understand that correctly that will be paid as sort of revenue that's attributable to that amount of lithium? Or is it gross profit? Or is it some other metric? Gerardo Illanes: This is Gerardo. Yes, the amount that is to be paid to Codelco is paid as a function of a certain amount of tonnage per year, which is 33.5 and is paid as a dividend. Mazahir Mammadli: Yes. I just want to clarify, is it going to be the revenue that's derived from 33.5 kilotons or gross profit that's derived from that amount of lithium? Gerardo Illanes: It's the profitability that we get from this tonnage, but the exact calculation and the exact way of how you can get to the number, it's describing the contracts that are publicly available on our website. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Wendy Huang: Good day and a good evening. Thank you for standing by. Welcome to Tencent Holdings Limited 2025 Third Quarter Results Announcement webinar. I'm Wendy Huang from Tencent IR team. [Operator Instructions]. And please be advised that today's webinar is being recorded. Before we start the presentation, we would like to remind you that it includes forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for measures of the group's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Let me now introduce the management team on the webinar tonight. Our Chairman and CEO, Pony Ma, will kick off with a short overview. President, Martin Lau and Chief Strategy Officer, James Mitchell, will provide business review; and Chief Financial Officer, John Lo will conclude the financial discussion before we open the floor for questions. I will now pass it to Pony. Huateng Ma: Okay. Thank you, Wendy. Good evening. Thank you, everyone, for joining us. During the third quarter of 2025, we achieved solid revenue and earnings growth, reflecting healthy trends across games, marketing services and fintech and business services. Our strategic investment in AI are benefiting us in business areas such as ad targeting and game engagement as well as efficiency enhancement areas such as coding and game and video production. We are upgrading the team and architecture of our Hunyuan foundation model, whose imaging and 3D generation models are now industry-leading. As Hunyuan's capabilities continue to improve, our investment in growing Yuanbao adoption and our efforts in developing agentic AI capabilities within Weixin will gain further traction. Looking at our financial numbers for the third quarter. Total revenue was RMB 193 billion, up 15% year-on-year. Gross profit was RMB 109 billion, up 22% year-on-year. Non-IFRS operating profit was RMB 73 billion, up 18% year-on-year and non-IFRS net profit attributable to equity holders was RMB 71 billion, up 18% year-on-year. Turning to our key services, core communication and social networks. Combined MAU of Weixin and WeChat grew year-on-year and quarter-on-quarter to RMB 1.4 billion. For digital content, TNE grew its paying user base and ARPU, solidifying its leadership position in music streaming. For games, Delta Force is now the top 3 game in China by gross receipts, while VALORANT successfully expanded from PC to mobile. And in AI, we enhanced our Hunyuan large language model's complex reasoning capabilities, especially in coding, mathematics and science. Our Hunyuan image generation model is ranked first globally among text-to-image models by LMArena. And our Hunyuan 3D model is the top ranked 3D generative model of [indiscernible]. I will now hand over to Martin for the business review. Chi Ping Lau: Thank you, Pony, and good evening and good morning to everybody. For the third quarter of 2025, our total revenue was up 15% year-on-year. VAS represented 50% of our total revenue, within which Social Networks subsegment was 17%, Domestic Games subsegment was 22% and International Games was 11%. Marketing Services was 19% of total revenue and FinTech and Business Services was 30% of total revenue. For the quarter, our gross profit was up 22% year-on-year to RMB 109 billion. VAS gross profit increased 23% year-on-year to RMB 59 billion, representing 54% of our total gross profit. Marketing Services gross profit increased 29% year-on-year to RMB 21 billion, contributing 19% of total gross profit and FinTech and Business Services gross profit increased 15% year-on-year to RMB 29 billion, contributing 27% of total gross profit. Turning to business segments. Value-added Services revenue was RMB 96 billion, up 16% year-on-year. Social Networks revenue was up 5% year-on-year to RMB 32 billion, driven by increased revenue from Video Accounts live streaming service, music subscriptions and Mini Games platform service fees. Music subscription revenue increased 17% year-on-year, boosted by growth in ARPU and subscribers. Music subscribers grew 6% year-on-year to RMB 126 million. Long-form video subscription revenue decreased 3% year-on-year. ARPU was stable while video subscribers declined 2% year-on-year to RMB 114 million due to the delay of drama series, Love's Ambition. Following its release at the end of the quarter, finally, Love's Ambition ranked among the most viewed drama series in China year-to-date. Domestic Games revenue grew by 15% year-on-year, primarily driven by Delta Force, Honor of Kings and VALORANT. International Games revenue increased by 43% year-on-year or 42% in constant currency, which is an unusually rapid rate due to recognizing revenue upfront on top of -- on copy sales of Dying Light: The Beast and also due to the consolidation of recently acquired studios. Moving to Communications & Social Networks. For Mini Shops, we're systematically building a more vibrant transaction ecosystem, resulting in continued rapid growth in GMV. We enhanced mini shop merchandise recommendations and thus sales conversions by leveraging our foundation model capabilities to better understand users' interests based on their content consumption within Weixin. We rolled out new features to enhance merchandise discovery in Weixin. For example, we added gifting capabilities in Weixin order and card page, leveraging Weixin's social graph. We also upgraded the image search feature in Weixin, which users can use to scan objects, identify them and then shop for them in Mini Shops. We also enhanced AI features in Weixin to provide new services to users and to promote greater usage of Yuanbao with encouraging results. @Yuanbao feature in video accounts and official accounts comment boxes summarizes content and also encourages users to ask follow-up questions and users like that feature a lot. We also enriched the Tencent news feed in Weixin with Yuanbao-generated content, and facilitated user exploration of news-related topics via the Yuanbao app. Now with that, I'll pass on to James. James Mitchell: Thank you, Martin. For domestic games, Honor of Kings gross receipts grew year-on-year, benefiting from collaborations with the China Literature IPs, Node of the Mysteries and Fox Spirit Matchmaker. The game achieved 139 million daily active users during its tenth anniversary event in October, which featured hero and minion outfits inspired by Bronze Age Shu Kingdom artefacts. Delta Force ranked among the top 3 games industry-wide by gross receipts in the quarter, achieving over 30 million daily active users in September including over 10 million daily active users on PC, driven by new season content, extensive first anniversary events and a global eSports tournament. We released VALORANT mobile on August 19 and it's become China's most successful mobile game launch year-to-date based on its first month DAU and gross receipts. VALORANT PC continued to grow and achieved record high DAU and gross receipts in September, benefiting from eSports-themed weapon items. The mobile launch resulted in VALORANT's combined monthly active users more than doubling from July's level to over 50 million in October. Among our international games for Clash Royale Supercell released new auto-chess mode Merge Tactics and extended its Trophy Road achievement system to 10,000 trophies, driving higher player engagement. Monthly daily active users and gross receipts achieved all-time highs in September. Gross receipts increased more than 400% year-on-year during the third quarter. Gross receipts of PUBG Mobile also grew year-on-year in the third quarter, benefiting from ancient Egyptian-themed outfits, an innovative X-suit with emote sound effects and a 2-player glider, and collaborations with Transformers and Lotus Cars. Our Polish subsidiary Techland released a new game in its Dying Light series called Dying Light: The Beast, which has achieved a very positive average user review score on Steam and which contributed to our international game revenue growing unusually quickly during the quarter due to the upfront revenue recognition of copy sales. The Marketing Services revenue increased 21% year-on-year to RMB 36 billion, underpinned by ad spend growth from all major advertiser categories. Impressions grew year-on-year as we enhanced engagement and increased ad load across video accounts, mini programs and Weixin Search. Average eCPM increased year-on-year as we upgraded our adtech foundation model with more parameters and captured additional closed-loop marketing demand. We introduced our automated ad campaign solution, AI Marketing Plus through which advertisers can automate targeting, bidding and placement as well as optimize ad creation improving their return on marketing investment. By inventory, video accounts and rich content and transaction system and its upgraded recommendation algorithms drove stronger user engagement. Increases in DAU and time spent per user contributed to ad impression growth. Advertisers increasingly adopted our marketing tools to drive traffic to their short videos, live streams in Mini Shops. For mini programs, increases in activations and time spent attracted ad spend for mini drama and Mini Games to promote their content. And for Weixin Search, increases in commercial query volume and click-through rates contributed to notable revenue growth. We improved the relevance of search ads by upgrading our large language model capabilities and optimizing sponsored results to better match user queries. Looking at FinTech and Business Services. Segment revenue was RMB 58 billion, up 10% year-on-year. FinTech services revenue grew by a high single-digit percentage, primarily driven by commercial payment services and consumer loan services. For commercial payment volume, the year-on-year growth rate was faster in the third quarter than the second quarter. Online payment volume continued to grow robustly, while off-line payment volume improved, particularly in the retail and transportation categories. For consumer loan services, our nonperforming loan rates remained among the lowest in the industry and improved year-on-year, reflecting our prudent risk management practices. Turning to Business Services. Despite supply chain constraints on sourcing GPUs, revenue grew at a teens rate year-on-year in the third quarter, benefiting from higher cloud services revenues and increased technology service fees generated from rising mini shop e-commerce transaction volumes. Revenue from our cloud storage and data management products, namely Cloud Object Storage, TCHouse, and VectorDB grew notably year-on-year due to increased demand, including from leading automotive and Internet companies. And for WeCom, we launched an AI summarization feature generate project recaps and provide advice based on users' e-mails and conversations to hand some project collaboration efficiency. And I'll now pass to John for the financial review. Shek Hon Lo: Thank you, James. For the third quarter of 2025, total revenue was RMB 192.9 billion, up 15% year-on-year. Gross profit was RMB 108.8 billion, up 22% year-on-year. Other gains were RMB 0.5 billion compared with other gains of RMB 3 billion in the same period last year, mainly due to lower subsidies and tax rebates as well as provisions paid for some receivables during the quarter. Operating profit was RMB 63.6 billion, up 19% year-on-year. Interest income was RMB 4.3 billion, up 7% year-on-year, driven by growth in cash reserves. Finance costs were RMB 3.8 billion, up 6% year-on-year due to ForEx movements and high interest expenses. Share of profit of associates and JV was RMB 7.8 billion with RMB 6 billion in the same quarter last year. On a non-IFRS basis, share profit was RMB 10.3 billion, up from RMB 8.5 billion in the same quarter last year, driven by associated company, specific factors, including this growth and improved operational efficiency. Interest expense increased by 10% year-on-year to RMB 9.8 billion, mainly driven by operating profit growth. On a non-IFRS basis, diluted EPS was RMB 7.575, up 19% year-on-year, outpacing non-IFRS net profit growth due to reduced share count after our share buybacks. Our weighted average number of shares, which we use for calculating quarterly diluted EPS decreased by 1% year-on-year. On non-IFRS financial figures, operating profit was RMB 72.6 billion, up 18% year-on-year. Net profit attributable to equity holders was RMB 70.6 billion, up 18% year-on-year. Moving on to gross margins. Overall gross margin was 56%, up 3 percentage points year-on-year. By segment VAS gross margin of 61%, up 4 percentage points year-on-year, mainly driven by greater contributions from certain internally developed high-margin games. Marketing Services' gross margin was 57%, up 4 percentage points year-on-year due to higher contributions from high-margin revenue streams, including video accounts and Weixin Search. FinTech and Business Services' gross margin was 50%, up 2 percentage points year-on-year due to improved revenue mix within fintech services. On third quarter operating expenses. Selling and marketing expenses were RMB 11.5 billion, up 22% year-on-year, reflecting increased promotional efforts to support the growth of our AI native applications and games. R&D expenses rose by 28% year-on-year to RMB 22.8 billion, primarily due to higher staff costs and increased infrastructure investment to support our AI initiatives. G&A, excluding R&D expenses increased by 2% year-on-year to RMB 11.4 billion. At quarter end, we had approximately 115,000 employees, up 6% year-on-year or 3% Q-on-Q, primarily reflecting headcount conditions for both games and our technology platform, including AI-related accounts. Our third quarter non-IFRS operating margin was 38%, up 1 percentage point year-on-year. Operating CapEx was RMB 12 billion, down 18% year-on-year, primarily due to supply changes. Non-operating CapEx was RMB 1 billion, down 59% year-on-year, reflecting higher base last year related to construction in progress. Free cash flow was RMB 58.5 billion, largely stable year-on-year as operating cash flow growth was offset by higher CapEx payments. On a quarter-on-quarter basis, free cash flow was up 36% due to higher games gross receipts. Net cash position was RMB 102.4 billion, up 37% Q-on-Q or 27.8% -- RMB 27.8 billion, mainly driven by free cash flow generation, partially offset by share repurchase were RMB 19.2 billion. Wendy Huang: [Operator Instructions]. The first question comes from Liao Yuan from Citic. Thomas Chong: Congrats on the strong results. My first question is about your gaming business. Your international gaming business growth rate has been accelerating for multiple quarters. So I just want to know what have you done right to achieve such good results? And how should we think about the growth trend going forward. Besides, could you share more thoughts on your international gaming strategy? For example, will you continue investing in high-quality overseas game studios or bring more developed games to global markets? And my second quick question is about your CapEx. This quarter, CapEx was around RMB 13 billion, but the cash payment for CapEx was RMB 20 billion. So how should we interpret the difference between these 2 figures? And is there any new update to your full year CapEx guidance? James Mitchell: Great. Why don't I start with the questions around games and the growth rate of the international game business, the strategy for the international game business. So the growth rate that we reported for the quarter for the international game business is substantially faster than the underlying trend line, and that's because during the quarter, we had the benefit of consolidation of newly acquired or recently acquired games studios as well as the benefit of the upfront revenue recognition on copy sales for the game Dying Light: The Beast. So going forward and looking into the fourth quarter, you should expect the growth rate for the International Games subsegment to decelerate closer to the underlying trend line. In terms of the strategy for our International Games business, yes, the drivers that you mentioned, we'll continue seeking to acquire games studios. We'll continue seeking to partner with overseas games studios, and we'll continue seeking to bring more games that are made in China to a global audience as well. Shek Hon Lo: In terms of CapEx, the difference reflects timing gap between the accrual of server-related expenditure and cash payment, which can cause temporary mismatches between the 2. In particular, the credit period for us to pay server suppliers is usually 60 days. In terms of the CapEx for 2025 to share with you, in 2024, our total CapEx grew by 221% year-on-year and was about 12% of the revenue. Previously, for 2025, we guided total CapEx was -- as a percentage of revenue to be at low teens and the 2025 CapEx will be lower to our previous guided range, but the amount will be higher than that of 2024. Wendy Huang: We will take the next question from Alicia Yap from Citigroup. Alicis a Yap: Congrats on the solid results. First question, can management elaborate about your comment on the upgrading Hunyuan team and also the Hunyuan infrastructure? What should we be expecting to see from the upgraded version? And then does management have any updated view on how Yuanbao might complement the AI capabilities that you have embedded into the Weixin ecosystem in the past few months? And then second question is on your advertising marketing service revenue. So does that automated ad campaign solution, the AIM+ better serve the smaller advertiser? Should we expect the solution to drive broader adoption rate for advertisers and drive higher ROI spending that support potentially accelerations of the ad revenue growth in the coming quarters? Chi Ping Lau: Yes. In terms of the Hunyuan team and the Hunyuan architecture, we are actually hiring more top-notch talent, especially in the research area in order to complement our existing strong engineering team and they are complementary to each other. And we have also been improving the Hunyuan overall architecture across different dimensions such as improving the hardware and software infrastructure in order to support better data preparation to support better pretraining of the model as well as to support reinforced learning across different knowledge domains at scale. So these are the improvements that we are making more specifically on the Hunyuan team as well as the Hunyuan architecture. Now in terms of how Yuanbao and Weixin complement each other, I would point to the fact that Weixin has actually introduced a number of AI features based on Yuanbao's capability. For example, in the prepared comments, we actually talked about the @Yuanbao feature in video accounts and official accounts comment box, which allows users to ask Yuanbao to summarize the content so that they can actually have very quick reference. And it actually encourage a lot of interesting additional follow-up questions and follow-up comments based on the summary of what Yuanbao provided. And we also enriched the Tencent News feed in Weixin with Yuanbao-generated content and allowed a lot of users to use that as a way to explore more news content, related news content as well as ask questions on the news content. And we are actually adding more and -- we are planning to add more functionalities of Yuanbao into Weixin so that -- those functionalities actually, one, serve the Weixin users better; and, two, actually help Yuanbao to gain a larger audience. And more and more of these audience find Yuanbao's capability through Weixin and eventually become a Yuanbao app user. So that's sort of complementary to each other. James Mitchell: And Alicia, in terms of the AIM+ automated ad campaign solution, we believe the automated ad campaign solution benefits all advertisers who deploy it by enabling them to automatically reach inventories as well as user profiles that are more performant than the inventories and user profiles they were manually targeting. You're right to say that small and medium-sized businesses are the first or the most eager to adopt this kind of product because they have the least legacy process to replace, and that's what we're experiencing right now. But we're also seeing bigger advertisers adopting AIM+ too that parallels the experience of Meta's Advantage+ automated ad solution overseas. Thank you. Wendy Huang: We will take the next question from Gary Yu from Morgan Stanley. Gary Yu: My first question is a follow-up on Yuanbao and Weixin. It appears that both the Yuanbao adoptions and also agentic AI function of Weixin hinder on foundation model capabilities, but yet CapEx spending remains slow according to your latest comment. So is there a risk that the company is not aggressive enough such that the potential AI application market could be lost to other companies who have either better model capabilities or more aggressive CapEx spending? And my follow-up question is regarding some of the expense items, selling and marketing and R&D. So when should we expect some of the internal AI adoption to benefit on cost efficiency in order to offset some of the investment that we have talked about on Yuanbao and game advertising. Chi Ping Lau: Yes. In terms of adoption and also the CapEx spending at this point in time, we actually believe that there's no insufficiency of GPUs for us at this moment. It's -- all our GPUs are actually sufficient for our internal use, and there is some limiting factor for external cloud revenue. Now in terms of the Yuanbao capability and Hunyuan model capability, as I talked about to Alicia's questions, we are actually making a lot of improvement in terms of our team, in terms of our talent recruitment and in terms of our Hunyuan infrastructure and overall process of the Hunyuan research. And I would say we are actually happy with the progress we have made already. And if you wait a little bit for our next model, you can see meaningful improvement in terms of the Hunyuan capability. And I believe with the new improvements that we have been making, we'll continue to pick up pace on the Hunyuan capability. And at this point in time, we actually do not believe that there is a decisive better model in China as everybody is actually locked in a pretty close race and different models may be different, maybe better in different use cases as well. So we don't believe we are really behind. And as we continue to improve our Hunyuan capability, and we actually have been also seeing quite a good ramp in terms of Yuanbao engagement. So I think you see both the model capability as well as our AI products keep on improving. Now in terms of the expenses, I think at this point of time, the G&A expense, especially the R&D is actually some of that is related to our AI investment. So there's a natural ramp-up because we invest more in AI. And if you look at the benefits of AI, at this stage, a lot of the efficiency gains are more on the revenue side and the gross profit side. So you see pretty good growth in those items. But in terms of the cost item, I would say we have already done pretty big organization optimization a few years back. And the organization that we have is actually lean and efficient and AI adoption actually allows our team to do more as well as instead of -- to reduce cost, which I think some other companies you are probably comparing with. Wendy Huang: We will take the next question from Alex Yao from JPMorgan. Alex Yao: Congrats on a very strong quarter and also thank you for playing a very smooth and relaxing music before the call. I will ensure I watch this TV drama after the earnings season. So 2 questions from my side. First one, you mentioned that Tencent is developing agentic AI capabilities within Weixin in the prepared remarks. Can you share your thoughts about how agentic AI creates value to consumers in Weixin. I'm particularly interested in your thoughts around Agentic commerce. Second one is on CapEx. Did I hear John right that the CapEx for 2025 will be lower than the previous guidance, but higher than the '24 actual CapEx spending. If I get that right, does it reflect a change of AI chip availability or a change of AI investment strategy or a change of your expectation of future token consumption? Chi Ping Lau: Yes. On your second question, the answer is you heard it right. And it's not a reflection of our change in AI strategy. It's not a change in terms of expectation of future token consumption. It is indeed a change in terms of the AI chip availability. Now in terms of the agent AI capabilities, right, I think the blue sky scenario is that eventually, Weixin will come with an AI agent that actually can help the user to essentially do a lot of tasks within AI -- within Weixin leveraging AI, right? Because if you look at the ecosystem of Weixin, it has very strong communications and social ecosystem, and it has a lot of data that allows the agent to understand about the users' needs as well as the intentions and interest. It has a very strong content ecosystem in the form of official accounts and video accounts. It has a mini program ecosystem, which essentially includes most of the use cases on Internet. It has a commerce ecosystem, which allows people to buy stuff and the payment ecosystem, which actually allows people to pay for it almost immediately. So that is almost ideal assistant for users and understands about the users' needs and can actually perform all the tasks within the ecosystem. So that's the blue sky scenario. Now I think how do we get there? At this point in time, it's actually very early stage in terms of development. Weixin is doing a number of things in parallel. For example, it's introducing Yuanbao capabilities into Weixin so that we can test out a lot of the AI features on a stand-alone basis within Weixin. It's also enhancing search with AI so that we can serve the users' search and information collecting as well as analysis needs more efficiently. We are also starting to work on vertical agent capabilities. And that's something that we are working on. We have not launched these yet. But then very likely, we'll be sort of working on functionality one by one. But eventually, we can actually sort of integrate all these agentic capabilities as well as the AI features so that we can actually create this blue sky scenario of Weixin agent. I think in terms of agent commerce, right, I think there's the agent side and there's the commerce side, the commerce, we're actually making very good progress in terms of building up our e-commerce ecosystem and the mini shop is actually growing very nicely in terms of GMV. Over time, as it continued to grow, right and as we work on the vertical agents, right, at some point in time, we will have agent e-commerce as well. But that's a bit later in the process. Wendy Huang: We will take the next question from William Packer from Exane BNP. William Packer: Congrats on the strong quarter. Firstly, Bloomberg have reported today that you've come to terms regarding a 15% commission with Apple within the WeChat ecosystem, below their usual 30%. While you probably prefer not to talk about the specifics in the press article, could you help us think through the implications of your improving relationship with Apple and the impact on your business, particularly in Mini Games and domestic video games? And then secondly, as a follow-up, Q3 was another very good quarter for Marketing Services with revenue growth accelerating. Could you help frame the growth outlook in the shorter term and for 2026 and any new structural or cyclical factors to consider? Chi Ping Lau: Well, in terms of Apple, right, what I could say is that, number one, we have a very good relationship with Apple, and we have sort of collaborated on a lot of different areas. And we have been in discussion with Apple to make the mini game ecosystem more vibrant. And we are constructive with the progress that we've made so far. And I think at some point in time, there may be an official announcement. And I think everybody should wait for that. James Mitchell: And in terms of the advertising growth outlook, we think that it's largely a continuation of current trends. Overall, China consumer spending is subdued, but gently improving, which is a gentle tailwind for advertising spending on the demand side. And then in terms of the supply that we provide, we'll continue deploying more AI capabilities, including the AIM+ program automated ad campaign program that I referred to earlier. Thank you. Wendy Huang: We will take the next question from Charlene Liu from HSBC. Charlene Liu: I think a quick one on R&D spending, especially as a percentage of revenue. How do we expect that to trend in the near and medium term? And then separately, we've seen really good GPM optimization at the segmental level. How should we think about overall impact to OPM taking into consideration potential uptick in AI investments, depreciation costs and whatnot? Yes, so those 2, I wanted to kind of see how that margin net impact will sort of play out in the medium term. James Mitchell: Why don't I take the gross profit margin question. And first of all, to clarify, while the gross margins of our various segments have been trending upward over time, that's not purely or even primarily due to sort of optimization efforts per se. There are some subsegments such as cloud, where we have taken a number of measures to optimize profitability, and that has flowed through into higher gross margins in the last 2 years. But for most of our segments, the improvement in gross margins is more a function of the positive mix shift toward higher-quality revenue streams that we've talked about a number of times in recent quarters. In terms of the dynamic between gross profit margin and operating profit margin, I would not put too much weight on that quarter-to-quarter because there are costs which at an early stage in a product development cycle, we would expense under R&D and therefore, come below the gross profit line. But then as we actually make the product more widely available, commercialize the product, we would move the costs from R&D expense into cost of service and therefore, above the gross profit line. So I would probably focus more on revenue growth, operating profit growth without getting too fixated on gross profit margin versus operating profit margin. Wendy Huang: We will take the next question from Kenneth Fong from UBS. Kenneth Fong: Congrats on a strong result. I have a question about the investment strategy. Given the strong equity market performance year-to-date globally, could management share some thoughts on our investment portfolio and strategy and direction? So basically, how should we deploy or recycle our capital? James Mitchell: So as you point out, markets have been quite buoyant both in terms of price and in terms of liquidity. And so we've been taking advantage of that buoyancy to more actively recycle our portfolio primarily via some on-market sales of our investment holdings. We've also been new investing in some emerging growth opportunities as well as our normal sort of focus areas such as games and digital content. But overall, year-to-date, divestments have exceeded investments by over $1 billion. And we've been actively investing in some interesting AI start-ups, particularly in China, where we can see a sort of new wave of value creation ahead. Wendy Huang: We will take the next question from Ronald Keung from Goldman Sachs. Maybe we go to the next question if Ronald not online. So we will take the next question from Robin Zhu from Bernstein. Robin Zhu: I guess 2 questions on gaming, please. One is if we look at the shooter genre, I think there seems to be a bit of a changing of guard with Battlefield, Delta Force, ARC Raiders is now doing quite well. Would be curious your thoughts on what you think is happening at the genre level. And for Delta Force specifically, what it would take, what's being planned to get the game from #2 -- #3 closer to the top 2 games? Is it realistic to expect that, that happens at some point or not? And I guess a follow-up on an earlier question on the Mini Games developments, I'd be curious if you could try and dimension some of the relative contributions of in-app advertising versus in-app purchases on Android right now and whether we think that this discussion going on with Apple is -- primarily on Mini Games has been reported? Or is there a broader discussion going on about -- or could potentially go on about the broader games business as a whole? James Mitchell: Robin, so in terms of what's happening with first-person action games, then outside China, as you say, there may be a changing of the guard. Within China, I think that Delta Force has obviously been performing gratifyingly well, but VALORANT has had an exceptionally strong year. And then Peacekeeper Elite, Arena Breakout, Crossfire Mobile, pretty much all of our first-person action games have actually been growing DAU or growing monetization or mostly both during 2025 year-to-date. So to me, that's not really a changing of the guard. It's more an expansion of the royal guard, if you will, which I think speaks to the fact that first-person action games are the leading game genre in the rest of the world. They're not yet the leading game genre in China, but with Delta Force and VALORANT and Peacekeeper Elite and the rest, we're seeking to bring them to the position that they should enjoy. In terms of growing Delta Force further, then we're really embracing platformization with our biggest games. And Delta Force unusually is sort of built from day 1 to support platformization in terms of its modularity. With more platformization, we can also support more new modes. And then one of the new modes that has done very well in Peacekeeper Elite, in PUBG Mobile and over time, we'll seek to nurture in Delta Force is user-generated content. And then we'll continue to add player versus environment content. We'll continue to strengthen the stream ecosystem and generally apply the experiences that we've accumulated over 17 years of launching 40 first-person action games in China to Delta Force. And then on your second question, the stories refer to Mini Games, not to app-based games. And at this point, the majority of the Mini Games revenue is in-app purchase rather than in-app advertising. So we'd theoretically benefit. Thank you. Wendy Huang: We will take the next question from Thomas Chong from Jefferies. Thomas Chong: Congratulations on a very strong set of results. My question is on the FBS side. Given that we are emphasizing more on the consumer loan side, I just want to get some color with regard to the macro environment. Is this a factor that we need to take into consideration about our consumer loan revenue growth? And if we look into our cloud revenue, how should we think about the growth rate going forward? Should we take into account the CapEx spending? Or should we expect the growth may decelerate because of less CapEx? Chi Ping Lau: So in terms of the FBS, particularly with respect to fintech, I think if you look at the fintech, there are 3 major businesses within fintech. One is our payment business. The second one is wealth management. The third one is loans, right? And in terms of macro environment, macro environment has the biggest bearing on the payment business because payment business is already very big. It tracks pretty closely with consumption growth in China. And there was a time in which the consumption growth was actually in more challenging state. I think over time, it's gradually improving. And what we see is in China, the consumption growth has been slow, and it's mainly due to the fact that a lot of consumers ramp up their savings during a period in which their balance sheet was actually sort of dragged down by the decline in property prices. So unlike a lot of the other economic downturns around the world, which are driven by excessive credit and a lot of people would go bankrupt, right? In China, it's just sort of people have resources, but then they decide to save more instead of spending more. We actually sort of -- so that's why we think there is actually potential for consumption to grow if people start to feel that they are secure now with the additional savings. And at the same time, if property prices stop declining, I think people will probably begin to spend more. I think this year, we have seen stock prices have been sort of pretty strong and that adds to the household balance sheet, and that is slightly a positive factor. And at the same time, if you look at consumer loans, right, because people are not stretched from a balance sheet perspective, they're just sort of saving more. It's not actually sort of affecting consumer loans delinquency that much. And by the way, we have been sort of very self-constrained in terms of extending loans, in terms of loan amount and also because of the data that we have, right? I think our underwriting is actually very conservative, very data-driven and our delinquency is among the industry leading. So that's essentially on the fintech side. In terms of cloud business, I think we have been increasing our revenue finally sort of this year, right? In the past few years, our revenue has not grown that much, but our gross profit has grown very significantly. And this year, we're growing both the revenue as well as the gross profit and the business is actually sort of profitable. One constraint of cloud business growth is availability of AI chips because when AI chips are actually in short supply, we actually prioritize internal use as opposed to renting it out externally. And the other way to say is if there is not an AI chip supply constraint, then our cloud revenue should be growing more quickly. Wendy Huang: We will take the next question from John Choi from Daiwa. Hyungwook Choi: I just want to quickly follow up on the advertising business. I think another strong quarter, as you said. But I think last quarter, management mentioned that it was more due to AI implementation. But for this quarter, can you kind of elaborate a bit more how impact from AI and how that has reshaped the overall conversion and pricing for our ad business. So if you take that out organically, what kind of growth could it be seen? And also just on the -- quickly -- a quick follow-up on the payment side. I think Martin just mentioned that the overall household spending has a high relation. But you also, I think you mentioned the retail and transportation category has done well on your volume growth. Especially on the grassroots side, have you noticed any trends that we are seeing on industry-specific levels and in terms of the transactions or the transaction size that gives us more confidence that over the past couple of quarters to see the improvement trend? James Mitchell: Why don't I take those? So in terms of the advertising revenue, roughly half of the growth or about 10 points was due to higher eCPM, which we attribute primarily to AI-supported adtech as well as the closed loop benefits. And then the other half was due to increased impression volume, which reflects increased user engagement and increased ad load. In terms of the commercial payment volume trends, then there is a measured improvement. As Martin spoke to, it's positive that China consumers have accumulated substantial savings, above trend savings in recent years. So they may be less worried by property price fluctuations and more receptive to the stock market performing well than would otherwise be the case given the substantial pent-up spending power. And we have seen that the online payment volume has continued to grow quite steadily through the weaker periods and now through this more stable period. But the off-line payment volume, which had been very suppressed and under pressure for a period of time, has also started to recover. So while online payment volume is growing faster than offline payment volume, the gap has been narrowing as off-line payment volume has improved in categories, including transportation and retail, which I suppose reflects people going out and about more often. Chi Ping Lau: But I have to stress such improvement is still pretty nascent. So we actually need to see it for a few more months in order to sort of have more confidence in saying this is a trend. Wendy Huang: We will take the last question from Ronald Keung from Goldman Sachs. Ronald Keung: Sorry for the technical. I have a question on advertising. Just following up on -- I want to hear how the AI Marketing Plus product, any early data points on the performance and ROI for merchants on that? And I also see you mentioned Mini Shops in one of the very early bullets in the results. So could you quantify the potential of that ad potential that I'm particularly looking for the increasingly vibrant Mini Shop transaction ecosystem, the ad potential there? And then my second question, I just want to ask about the analogy from Weixin and QQ because we have seen Facebook and Instagram kind of serving different cohorts within the company, and we have been serving those with Weixin and QQ as well. Any parallels and differences how we see Weixin as a key product, but also potentials for different products serving cohorts within domestic China? Just an open question -- open-ended question. James Mitchell: Why don't I start with the question around AIM+. So when you introduce this automated ad campaign system, the biggest sort of leap for the advertisers is allowing us as the platform operator to actually manage the bidding process on their behalf. And of course, there's degree of internal conservatism within the bigger advertisers as to whether to entrust the platform to manage the price or not. And typically, the larger advertisers will run the automated and the manual processes in parallel for a period of time and compare the ROI to verify whether the automated process is delivering more performance or not. And we've turned on that automated bidding tool relatively recently, but the early results are positive. Those advertisers who are adopting the automated solution are enjoying superior returns. And therefore, the percentage of our advertisers and the percentage of our advertising spending that is going through AIM+ is steadily increasing. And in terms of the Mini Shops, then I think you can benchmark the advertising to GMV ratios of the incumbent e-commerce marketplaces in China across to the GMV for Mini Shops, which is growing very quickly. And that will give you a sense of the advertising revenue potential from the mini shop operators. So that's on the advertising question. Chi Ping Lau: Yes. In terms of Weixin and QQ and then sort of analogy for rest of world, for example, sort of Facebook and Instagram. I think it's a very interesting question. And I think there are some fundamental differences, right, in the sense that, number one, if you look at Instagram and Facebook, they are primarily social networks, right? And if you look at Weixin and QQ, they are both communication network and social network. So if you have social network and it's sort of -- it's content-based, then it's actually easier for you to have different groups of people dialing in and reading different content versus communication, then the network effect of communication platform is actually sort of stronger. And the other thing is that China is much more mobile-oriented versus I think the rest of the world, there are still a lot of people who are using PC and if you have PC, then Facebook seems to be sort of adding more PC users. And I think thirdly is if you compare Facebook and Instagram, right, Facebook tends to sort of keep the more mature users and Instagram sort of more younger people. But in China, it's actually different between Weixin and QQ, right? The QQ users are primarily sort of younger in nature. So I think there is some fundamental differences. But at the same time, Weixin and QQ are serving different user group and different use cases. A lot of the younger people also have Weixin, but then they use QQ so that they would not be seeing their parents and their teachers and some people -- younger people would not be seeing their colleagues. And so I think going forward, when we continue to evolve QQ as a product, right, then we should actually latch on to these features and these user needs and sort of make it more fun, make it very differentiated from Weixin. Weixin probably will serve all purpose, whereas sort of QQ will serve the younger people, more active people, and we should sort of try to provide a lot of functionalities. You can meet new people, you can sort of serve more of your interest-based groups. And I think that's the way we are going to be differentiating QQ and Weixin and make sure that they serve our users in different use cases and scenarios. Wendy Huang: Thank you. We are now ending the webinar. Thank you all for joining our results webinar today. If you wish to check out our press release and other financial information, please visit the IR section of our company website at www.tencent.com. The replay of this webinar will also soon be available. Thank you and see you next quarter.
Peer Schlinkmann: Good afternoon, everybody, and welcome to the 9 months earnings call of the Wacker Neuson Group. My name is Peer Schlinkmann, Head of Investor Relations and Corporate Communications. Thank you for joining today on the occasion of the release of our 2025, 9 months results. As usual, we will first start with the operational and financial results of the 9 months 2025 and give additional insights on the recent developments. Following this, we are happy to answer your questions in the Q&A session. Available to follow today's call via the webcast, the presentation slides are also available for download at wackerneusongroup.com/investor-relations. Please note that the entire call, including the Q&A session, will be recorded and a replay will be made available on our corporate website by the end of the day. And now I would like to hand over to our executives, Karl Tragl and Christoph Burkhard, who will lead you through this call. Christoph Burkhard: Thank you, Peer. This is Christoph Burkhard, CFO of the Wacker Neuson Group. Welcome, everybody, to our earnings call, and thank you for joining. Karl Tragl: Dear all, a warm welcome from my side, too, and thanks again for joining the conference call. I'm Karl Tragl, CEO of the Wacker Neuson Group. I would like to start the presentation with a brief overview of our key financials for the first 9 months of 2025. Our operational recovery continued in quarter 3 of 2025. Despite a challenging macroeconomic environment, which had especially weighed on the first quarter of this year, we were able to increase both our revenue and EBIT margin in quarter 3 year-over-year. This positive development is, among other things, the result of efficiency measures that we initiated last year. Now let's take a closer look. Our revenue for the first 9 months of 2025 amounted to EUR 1.625 million, marking a 5.6% decline year-on-year. This decline was primarily due to the weak first quarter of 2025 as well as persistently weak demand in the U.S. Our 9-month EBIT margin in 2025 amounted to 6.0%, which is 0.3 percentage points below the previous year. Also here, we were negatively impacted by the weak beginning of this year. However, it is apparent that we have succeeded in further stabilizing our improved profitability. The EBIT margin in the third quarter was at 7.5%, thus nearly on the same level as in quarter 2 2025 despite the lower revenue base of quarter 3. Moreover, this quarter's EBIT margin was 2.7 percentage points higher compared to quarter 3 in 2024. Looking at the net working capital ratio, we see a slight decrease compared to previous year. However, our yearly strategic target of approximately 30% remains under pressure, especially due to the uncertainties in the U.S. market. Our free cash flow surpassed the triple-digit mark and amounted to EUR 116 million. Christoph will explain both developments in more detail. Now let's look at the developments of our business segments after the first 9 months of this year. In general, the overall picture remains challenging. Recovery of compact equipment was slower than initially expected. It faced a year-on-year decline of 10%. Nevertheless, certain product groups like dumpers differed from the general trend, demonstrating resilient customer interest in our innovative products. The Light Equipment Products segment stabilized and remained only 1% below the previous year. And moreover, services grew again year-over-year by 1%. The 9 months year-to-date book-to-bill ratio was at 1.1. Nevertheless, we see the agriculture as well as construction industries recovery slower than initially anticipated. We, therefore, keep monitoring our markets closely, and we remain cautious regarding the developments in the last quarter of 2025. Let's take a closer look at our regions during the last 9 months. Revenues in the Europe region, EMEA, after 9 months of 2025 stood at EUR 1.269 billion and made up 78% of our global group revenue. Also, quarter 3 of 2025 revenues increased year-over-year. The 9-month revenues remained 4% below the prior year, still impacted by the negative effects of the weak first quarter. Moving to Americas region, accounting for 20% of our group revenue, we saw a decline of 10%, resulting in revenues of around EUR 322 million. Demand in the first 9 months of 2025 was further characterized by greater caution in ordering behavior in the U.S. compared to Europe due to ongoing macroeconomic and geopolitical uncertainties, mainly due to the effects of the U.S. tariffs. Demand declined not only in the U.S., but also in Canada and Mexico. In the Asia Pacific region, which represents 2% of our business, revenue dropped by 21% to approximately EUR 34 million. The region was primarily characterized by a decline in demand in Australia and China. I will now hand over to you, Christoph, to give some more insights into our financials. Christoph Burkhard: Thank you, Karl. Let's take a closer look at where we stand with our net working capital. Our net working capital ratio based on the last 12 months revenue at the end of September stood at 32.4%, slightly below the value at the end of the second quarter in 2025. In comparison to last year's figures, however, the progress we made is more apparent. Over the course of 12 months, net working capital dropped by EUR 116 million from EUR 808 million at the end of September 2024 to EUR 692 million at the end of September 2025. This reduction is mainly driven by a steady reduction of inventories and an increase of trade payables in the last 12 months. This is the driving force behind the reduction of 1.8 percentage points of net working capital and in the net working capital ratio over the last 12 months, which stood at 34.2% at the end of September 2024. Now looking towards year-end, I expect a slightly higher working capital ratio, predominantly caused by higher inventories in the U.S. Alternatively, we could have adjusted our production plan for 2025 downwards to the current lower demand in the U.S. This again would have triggered underutilization in our European plants. In light of our stable cash flow generation and in preparation for 2026, we decided to prioritize stable production output over short-term working capital optimization, leading to this temporary increase in finished goods inventories by year-end. We believe that this is the right decision because we avoid additional underutilization costs and at the same time, we expect inventories to decrease again towards springtime due to overall market normalization in 2026. Now let's have a look at our cash flow. Although our revenues decreased by 5% quarter-over-quarter, we were able to keep our profitability stable on a level of above 7.5% on a quarterly basis. This is also reflected in our stable cash flow from operating activities. Therefore, we could continue in Q3 with a positive free cash flow generation now for the sixth quarter in a row. Due to the just mentioned rising inventories in the U.S. by year-end, I do not expect cash flow generation in Q4 to continue as in the previous quarters. However, I stick to my previously made statement of a triple-digit free cash flow number at the end of the year. Also on the positive side, we further reduced our net debt in Q3 down to EUR 258 million, reaching the lowest level since the first quarter in 2023. Consequently, also our leverage ratio reduced further down to 0.9. And last but not least, the picture of our capital structure is completed by a robust equity ratio of 60%. And with this, back to you, Karl. Karl Tragl: Thank you, Christoph. Before concluding with the current outlook, I would like to give you an update on the implementation of our Strategy 2030. Despite the challenging market environment, along our strategic levers, we are continuing to implement the milestones, which you can see on this slide. The John Deere Cooperation is fully on track. We have successfully started delivering first serial excavators for John Deere from this. At the same time, we are ramping up the production line of our U.S. plant for further models and will start their delivery in 2026. On the chart, you see a picture of our modernized production sites in Menomonee Falls in Wisconsin. I can tell you, it really looks good. On the other hand, we have advanced our light equipment portfolio. We expanded the range of reversible plates and also introduced new battery-powered versions. The battery-powered rammers gained on efficiency through a feature called the integrated speed control. The compaction performance can now be optimally adapted to the respective application. And last but not least, we have expanded our zero emission portfolio in compact machines and added 2 models of excavators. With just a 1.2 ton operating weight, ESET 10 electric is particularly well suited for applications with a restricted floor load such as indoors. The green illuminated active working signal increases safety on both internal and nighttime construction sites. The second model introduced, EZ26 Electric is a bigger tracked zero tail excavator. Its emission-free, quiet and low vibration operation makes it the ideal choice for legally restricted or noise sensitive and environmentally critical areas as well as for special work sites with local and time restrictions. As you can see, one of our strategic focus areas remains our investment in sustainable construction. We believe that this is the future of construction, and we are ready to seize the future opportunities. Now let's move on to our outlook for the year 2025. Also, we have a stable order book development in the course of this year, market recovery is slower than we initially anticipated. Industry outlook partially stagnated as well. And moreover, we have faced a significantly weaker market demand in the U.S. due to geopolitical uncertainty as well as the tariffs. Due to supply chain issues of Nexperia, we only expect a minor impact on our production in the last 2 months of 2025. However, we will closely monitor the situation. Due to all of these factors, we have decided to narrow our yearly guidance. For 2025, we now anticipate a revenue in the range between EUR 2.15 billion and EUR 2.25 billion and an EBIT margin in the range between 6.5% and 6.8%. We expect our investments to reach around EUR 80 million and our net working capital to be at around 34% by the year-end. As we already mentioned, we succeeded in stabilizing our improved profitability in the current market environment in quarter 3 of 2025. Looking ahead, we will continue to counteract the weak market, especially in the U.S. with efficiency measures and cost discipline. For 2026, we expect market recovery in Europe as well as normalization of market demand in the U.S. Nevertheless, we still remain cautious and track our market developments continuously. Summarizing the key messages from our first 9 months. Revenue is in line to reach full year guidance. Narrowed margin guidance is driven by underlying U.S. tariff impact and geopolitical uncertainties. We are ready to seize the opportunities in the years ahead presented by the German special fund. Strong balance sheet is our foundation to execute our Strategy 2030 and drive future growth. Before we now jump into the Q&A session, let me send a sincere thank you to all our employees of the Wacker Neuson Group, who relentlessly are giving their best for our customers and our company, even more so in challenging times. So really thank you. Nobody is perfect, but a team can be. Thank you for listening. Operator, we are now ready to start the Q&A session, and we're very much looking forward to answering your questions. Operator: [Operator Instructions] First question is from Stefan Augustin of Warburg Research. Stefan Augustin: The first one would be actually on the book-to-bill just for Q3. And let's say, with that, maybe a little bit the progression throughout the quarter. Was that rather a stable quarter? Or was it more, let's say, weaker versus the end, something like that and the color on the current situation. That will be the first question, and I'll take them one by one, 2 more. Karl Tragl: Stefan, thank you for asking the question. The EUR 1.1 billion in the year-to-date was driven by a lot in the April and the [Baumol] effect. In quarter 3, we have been fluctuating around EUR 1.0 billion. So it's stable at the situation. Stefan Augustin: Okay. The next one is then a little bit more complicated, and I try to square it a little bit up. Starting from the net working capital ratio that goes up to -- in the new guidance, 34%. And you mentioned the production shipment into the U.S. Is that the right calculation to think about if you are now at 32% and you go up to 34%, that is roughly something like EUR 40 million in additional inventory. And how would this square up with shipments from Linz to the U.S. for Deere, which have been mentioned, I think, in the range around EUR 20 million for this year. Is there other shipments that are also impacted here? Or is it inventory that is not only in the U.S.? How do you need to think about that? Christoph Burkhard: Stefan, Christoph here. Well, you need to add to your John Deere calculation, of course, the imports from Europe that are already phased into 2026. And that, of course, is easily adding up to the number that you have in mind. I don't know, could -- is that the direction you wanted to. Stefan Augustin: Yes. I think I get this now. I just wanted to come, let's say, how do I come from the EUR 20 million to EUR 40 million, but that's a plausible answer. And then you cut on your investments. Is that actually something you abandon here? Or is that push out? And what is -- what has been, let's say, what is the cause of the lower -- the EUR 20 million lower investments? Where do you think? Karl Tragl: Stefan, Karl speaking here. There is no major investment which has been affected by this one. It's just many smaller investments, which we just moved a little bit forward to be on the safe side on that end. So it doesn't affect any future growth or any strategic investments. I would call it, it's a normal effect of cautious cost and cash flow management in such a situation. Christoph Burkhard: And Karl, if you allow me to add one thing here, Stefan, something that sometimes gets a little bit in the background is that our investment number does also comprise investments in terms of our sales network and sales channels. And so we are always evaluating, will we now replace a certain sales outlet. We will replace rent by a purchase of building and real estate, et cetera. So there are just some moving parts where we can be more conservative on the investment side without basically affecting the plants that are really adding to our capability for innovation. So it's not purely plant related. Stefan Augustin: All right. And then the last one is maybe a little bit on the pricing situation. What do you see right now? Is it okay? Or is it starting to deteriorate in Europe or the U.S.? How do we have to think about that one? Christoph Burkhard: Yes. Pricing situation, pricing expectations towards 2026, Stefan, let me differentiate between 2 major areas here. The first one is, I think we have been discussing that is the current situation in the U.S. where we encounter really difficult to increase prices. Here, we believe that -- I know it's a little bit vague, but sooner or later, I think the market will have to accept some price increases. I know this is pretty fuzzy, but that's, I think, all of us, even -- and also our competitors are calculating with this for 2026. And so the first part of the -- of our expectation that we will see modest price increases in 2026 is certainly in the U.S. And the second area for Europe, I think we will see the regular slight increase. So altogether, a slightly positive trend from our point of view. Stefan Augustin: Okay. And finally, a bit of housekeeping question. Can you remind us on the ramping up, the phasing of the Deere operation going from this year, the EUR 20 million to what roughly bracket in '26? And when does the production start in the U.S. Karl Tragl: Okay, Stefan, let me take the question. Karl speaking here. On the first hand, I would just want to remind us all that this is another partner who is not on the table, and we have to be careful not to jeopardize any communication from that side, especially we talk about start of production or start of deliveries. But in general, what we can say is, as I said, the cooperation is fully on track at the time we both agreed. Linz is fully operational, as we mentioned. There is start of production in U.S. by end of this year for the first model, which means then delivering next year. And as we always communicated, we are working with a 1-year interval in between 2 start of productions. So start of production of the next model is then obviously somewhere second half of next year in U.S. Operator: A lot has been clarified. I see there are no more questions in the queue right now. [Operator Instructions] There seem no questions to be incoming anymore. So with that, I'm handing the floor back over to Peer Schlinkmann. Thank you. Peer Schlinkmann: Thank you. Ladies and gentlemen, as we can see, there are no further questions left from you. That brings us to the end of our conference call. As usual, if you have any further questions, please do not hesitate to contact me or the entire Investor Relations team via phone or e-mail. If you would like to meet in person, please let us know or check our website and financial calendar for all relevant roadshow days in the coming months. Thank you again for joining our call, and we wish you all a wonderful winter and Christmas season. Have a great day.
Operator: Good morning, everyone. Welcome to Lowe's Companies Third Quarter 2025 Earnings Conference Call. My name is Rob, and I'll be your operator for today's call. As a reminder, this conference is being recorded. I'll now turn the call over to Kate Pearlman, Vice President of Investor Relations and Treasurer. Kate Pearlman: Thank you, and good morning. Here with me today are Marvin Ellison, Chairman and Chief Executive Officer; Bill Boltz, our Executive Vice President, Merchandising; Joe McFarland, our Executive Vice President, Stores; and Brandon Sink, our Executive Vice President and Chief Financial Officer. I would like to remind you that our notice regarding forward-looking statements is included in our press release this morning, which can be found on Lowe's Investor Relations website. During this call, we will be making comments that are forward-looking, including our expectations for fiscal 2025. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the risk factors, MD&A and other sections of our annual report on Form 10-K and our other SEC filings. Additionally, we'll be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found on the quarterly earnings section of our Investor Relations website. Now I'll turn the call over to Marvin. Marvin Ellison: Thank you, Kate. Good morning, everyone, and thank you for joining us today. Third quarter sales were $20.8 billion with comparable sales increasing 0.4% year-over-year, despite a roughly 100 basis point headwind related to Hurricanes Helene and Milton. During the quarter, adjusted operating margin expanded approximately 10 basis points, leading to adjusted diluted earnings per share of $3.06, which is an increase of 6% versus last year. These results reflect continued operational discipline and strong execution across our perpetual productivity improvement or PPI initiatives. And auto sales results continue to be impacted by softer demand within an uncertain macro environment, we're encouraged to see improvement in DIY customer engagement and discretionary projects across many areas of the home. We're also pleased with our performance in the North and West divisions, which were not affected by storms in the prior year. And we're seeing strength across all 5 key initiatives within our 2025 Total Home Strategy, which we launched at our analyst and investor conference last year. Let me give you an update on the performance of our Total Home Strategy, beginning with the small to medium Pro, where we once again delivered growth this quarter. We're enhancing our Pro offering through our Pro extended aisle, which is a direct interface with our supplier systems. It allows our Pro sales associates to sell directly from their product catalogs with the suppliers opting fulfilling their orders directly to the job site. This expands our product assortment, inventory quantities and delivery capabilities for larger orders. Second, when it comes to accelerating online sales, we delivered online sales growth of 11.4% this quarter, driven by increased traffic and continued strong conversion. We're also continuing to enhance the online experience across lowes.com and our mobile app to make it simpler and faster for DIY and Pro customers to find all the products they need. Looking ahead, we're pleased with the ongoing build-out of our marketplace. This allows us to expand our product assortment to offer our customers everything they need for their homes across the price spectrum from value to premium without assuming the risk of owning the inventory. Third, we're leveraging our loyalty ecosystem to increase our customer preferences for Lowe's, so they choose us first and shop more often. In fact, our 30 million MyLowe's Rewards members shop twice as often and spend over 50% more than non-members. Through both our DIY and Pro loyalty programs, we're gaining deeper customer insights, which help us tailor more personalized value-enhancing offers through data-driven marketing. Fourth, we're really pleased with the strong results this quarter in home services, where we delivered double-digit comps. Later in the call, Joe will discuss the initiatives that are driving these gains. And the fifth and final initiative in our Total Home Strategy is increasing space productivity. We made great progress optimizing our selling space, and Bill will provide details on a couple of key initiatives later in the call. Overall, I'm very pleased with the progress that we have delivered through our Total Home Strategy and the strategic alignment we're driving across the organization. Let me now discuss the importance of generative AI to improve how we sell, how we shop and how we work. This is what we refer to as our AI framework. And as we continue to make strategic investments in our AI capabilities, we're already seeing tangible results. Our virtual assistants, Mylow and Mylow Companion, which are built on an OpenAI platform, are answering nearly 1 million questions per month about everything from product specs to project know-how to the status of a customer order. In fact, when our customers engage with Mylow online, the conversion rate more than doubles, which is clear evidence that AI is simplifying decision-making and driving sales. And when our associates use Mylow Companion to help customers shopping in our stores, we're seeing customer satisfaction scores increase 200 basis points. And every interaction with our virtual assistant is feeding our proprietary models, allowing us to continually improve accuracy and build a durable advantage in home improvement expertise. Within our technology team, engineers are using AI tools for development and code review, leading to double-digit productivity gains and accelerating our speed to market. In fact, Lowe's has just been recognized by OpenAI with their 100 billion token milestone award as a reflection of the depth and breadth of AI adoption throughout the organization. Achieving this milestone places Lowe's in an elite tier of companies that are not just experimenting with AI, but operating at a true enterprise scale. Looking ahead, we have a detailed road map of several additional high-impact AI initiatives that will drive further enhancements to the Pro and DIY customer experience, both in-store and online. This will include our participation in agentic commerce so we can continue to meet our customers where and how they choose to shop. And we also anticipate incremental productivity gains as we leverage AI to drive operating efficiency across the enterprise. Now let me turn to our acquisition of Foundation Building Materials or FBM, which we completed in October. I'd like to begin by extending a warm welcome to the entire FBM team. As a reminder, FBM is a leading distributor in interior building products, including drywall, metal framing, insulation and ceiling systems. FBM's business mix is balanced evenly between commercial and residential. And while the housing market is currently under some pressure, we're pleased with the momentum we're seeing with FBM's commercial sales. Some recent highlights include several data center projects, a luxury 150-unit residential high-rise and medical facilities, as FBM leverages a strong reputation for reliability and technical expertise to win these contracts. And when we consider the impact to Lowe's, this acquisition gives us a more comprehensive product portfolio, expands our revenue streams and further enhances our offering to our Pro customers. In fact, efforts are already underway to quickly connect FBM's product catalog to our Pro extended aisle. And FBM customers will gain access to Lowe's complementary products like tools, safety gear and fasteners so they can more quickly and conveniently source everything they need for their jobs. FBM's 370 locations nationwide also strengthens our fulfillment capabilities, especially in high-density urban markets in California, the Northeast and the Midwest, where Lowe's has less of a physical store presence. Our acquisition of FBM and Artisan Design Group, or ADG, creates a comprehensive interior solutions for our homebuilders with everything from drywall and insulation to doors, flooring, cabinets and appliances. And I look forward to updating you on the progress we're making with both acquisitions in the future. Now let me transition to our view of the macro environment. Overall, the U.S. homeowner remains healthy. Balance sheets are strong and consumers continue to spend. However, affordability and uncertainty in the broader economy continue to weigh on consumer confidence, particularly when it comes to larger discretionary purchases as borrowing costs have been elevated for longer than originally anticipated. Looking ahead, lower interest rates, including for home equity loans could begin to spur demand even as many homeowners remain reluctant to move and give up their historically low mortgage rates. This cycle is different from past housing slowdowns in a few important ways. First, homeowners today have record levels of equity, roughly $400,000 on average. And at the same time, they are more likely to invest in the home they already own instead of giving up the low mortgage rate. This is referred to as the lock-in effect and could make home equity financing a more attractive solution. So while the near-term macro backdrop reflects an anxious consumer, the combination of strong fundamentals, substantial home equity and the potential for lower rates ahead gives us confidence in the long-term health of the home improvement sector. And we remain confident that the continued execution of our Total Home Strategy will position Lowe's to win in the short and in the long term. Before I close, I'd like to wish all of our associates a blessed and safe holiday season. Our associates are our competitive advantage, and I appreciate all they do to make Lowe's a great company. And with that, I'll turn the call over to Bill. William Boltz: Thanks, Marvin, and good morning. This quarter, we delivered positive comps in 10 of our 14 merchandise divisions, and solid performance across both DIY and Pro despite lapping hurricane activity last year. Starting with home decor. We delivered positive comps in appliances, flooring, paint and kitchens and bath. We continue to strengthen our leadership position in appliances by providing customers with a value proposition that no other retailer in the industry can match. This includes the widest assortment of top brands and innovative products, all at a must-win price point. And by leveraging our market delivery network, we're the only retailer who can deliver and install major appliances in virtually every ZIP code in the U.S. next day. This capability is crucial for items like refrigerators or washing machines that often need to be replaced immediately. One example of our innovative product offering is an exclusive new Bosch hybrid tub dishwasher line available only at Lowe's. These models combine the quiet operation Bosch is known for, along with the durability of stainless steel, in the affordability of polymer. The result is a better clean and a better value with the most accessible price points in the industry. Turning to flooring. We saw a broad-based strength across soft services, vinyl and tile flooring. In carpet, customers are enthusiastic about the benefits of STAINMASTER PetProtect. Its LeakDefense backing helps prevent spills and pet accidents from seeping into the carpet pad or subfloor. STAINMASTER is the most trusted brand in carpet and it is exclusive to Lowe's. Touching on paint. We drove broad-based growth across stains, primers and paint, along with accessories and applicators. And we're excited to announce the launch of Sherwin-Williams ProBlock Quick Dry primers, an innovative product that block stains and provides outstanding coverage and drives in less than an hour. This new primer is available only at Lowe's and Sherwin-Williams locations, marking the first time that we have co-launched a product. This product provides Lowe's with true differentiation within the home center channel as we continue to build on our strong relationship with this key supplier. Lastly, in kitchens and bath, we recently completed a reset of our bathroom vanity showrooms and these new sets are delivering results ahead of our expectations. The updated showroom provides a much better shopping experience for both Pro and DIY customers because they can now see and interact with a larger number of products and the stock products are now much more accessible and readily available for quick take with. This is an important way we're driving space productivity and leveraging our larger stores as a competitive advantage. Turning now to building products. We drove positive comps across millwork, rough plumbing, lumber and electrical. We're supplementing our already robust in-store Pro offering and building products with our Pro extended aisle. As Marvin mentioned, this initiative expands our product offering, increases our inventory depth and enhances our delivery capabilities. And in millwork and rough plumbing we've seen strong performance driven by higher installation sales in home services, which Joe will discuss shortly. Millwork is another area where we're seeing innovation like the Larson 60 MT storm door with magnetic technology that keeps the door closed. It offers both performance and curb appeal and it gives customers a reason to upgrade. Turning to hardlines. We delivered positive comps in lawn and garden, with particular strength in live goods and hardscapes. Customers were inspired by the outdoor vignettes that showcased everything they needed to build their vertical gardens, along with upgrading a mailbox display and more. And the mild weather gave customers more opportunities to tackle more outdoor projects which helped drive extended demand. We're also pleased with a strong start to the holiday season in our tools, Trim A Tree and decor categories. Shifting gears to tools where we also delivered positive comps and we saw strong performance in hand tools and tool storage. Customers responded to our value offerings and improved assortments like the Kobalt 46-inch Workstation available in a wide range of colors. During the quarter, we leaned into value and drove strong online engagement during our DEWALT Days event supported by a homepage takeover and a compelling free tools battery offer. Now let me give you an update on one of our key Total Home Strategy initiatives, increasing space productivity, which is all about driving incremental sales opportunities by optimizing our sales footprint. This quarter, we completed the rollout of our rural format in 150 additional stores, bringing the total to nearly 500. We're also on track to complete rollouts of workwear and pet to more than 1,000 stores, giving us an opportunity to drive these assortments beyond our rural stores. In line with our pet expansion, which is focused on grab-and-go items like toys and treats, we're pleased to announce our new private brand, Heart & Herd. It offers pet owners high-quality, value-priced products for dogs and cats, just in time for holiday gifting. And as part of our space productivity efforts, we've made significant progress on our SKU rationalization initiative designed to improve our inventory productivity. By the end of 2025, we're set to achieve our multiyear goal of reducing our in-store SKU count by 15%. As we head into the holiday season, we're delivering new exciting products, both in-store and online through our Black Friday buildup event. We're giving customers an early start on their holiday shopping with great deals, including several that are already available now. In closing, I'd like to thank our merchants, inventory and supply chain teams, along with our MST associates and our supplier partners for their continued efforts to deliver results for our customers ahead of the busy holiday season. And now I'll turn the call over to Joe. Joseph McFarland: Thank you, Bill, and good morning, everyone. Let me begin by recognizing our store and supply chain associates who show up every day with energy and commitment to serve our customers. Quarter after quarter through changes and challenges, they've proven themselves to be our company's greatest asset. And that's why I'm particularly pleased to share that the investments we're making to support our frontline associates are truly paying off. New training programs are better equipping our store teams to sell complete customer projects, including featured seasonal products and services by enabling our associates to deliver more comprehensive solutions. These programs are boosting their knowledge, confidence and effectiveness at driving sales. And as Marvin mentioned, they can also rely on our AI-powered Mylow companion for product details and for help answering customers' questions. Add it all up, and we're empowering our associates with the tools they need to sell more effectively across all departments in the store. Additionally, a few weeks ago, we concluded our associate annual engagement survey a critical component of our proactive listening strategy, which supports our efforts to become the employer of choice in retail. Scores across the key measures of engagement and associate well-being as well as leadership effectiveness have all continued to improve, and our 95% participation rate continues to be industry-leading. All told, our better train and highly engaged associates are elevating the Lowe's shopping experience, which is reflected in improved customer satisfaction scores for both the DIY and Pro. To focus now on the Pro, enrollments in our MyLowe's Pro Rewards program continue to grow as our core small to medium Pro customers experience firsthand the benefits of our easier-to-use loyalty platform, which allows them to start earning rewards immediately and achieve higher rewards with lower levels of spending. We're also pleased to see Pro's taking advantage of our enhanced digital capabilities as they shift to more shopping online. And looking ahead, we're encouraged that our recent Pro survey overall sentiment improved for small to medium Pro's as they remain confident in their job prospects and report stable backlogs. Shifting now to performance in Home Services this quarter. We're pleased with our double-digit growth in this key initiative within our Total Home Strategy. The team delivered broad-based strength across a number of product categories including windows and doors, HVAC, water heaters, kitchens and bath and window treatments. These strong results were driven in part by tech-enabled solutions, which have enhanced the experience of customers, installers and associates alike. For our customers, we've accelerated the process from inquiry to completed installation by providing intuitive solutions for scheduling, quoting and payment. These enhancements have transformed what was a time-consuming process by removing friction and pain points along the customer journey. Turning now to our focus on operating efficiency. I'd like to thank our asset protection teams for continuing to deliver one of the best inventory shrink results in big box retail. Despite the challenging environment, these results are driven by a combination of outstanding leadership in industry-leading technology. We also focus this year on a number of perpetual productivity improvements or PPI initiatives in our stores including our front-end transformation, streamlining our BOPIS fulfillment and the freight flow optimization. And we're already working on our PPI roadmap for 2026 for store operations as we leverage AI-enabled solutions to further enhance the customer experience while also driving labor productivity. Before I close, let me take a moment to discuss one of our new initiatives to support veterans. As part of our long-standing commitment to the military community and the support of our objective to deliver 10 million square feet of impact in 2025. As a marine who served in combat, I'm particularly proud to share that in partnership with Building Homes for Heroes, and our hometown of Mooresville, North Carolina, we've just broken ground on Freedom Hill. This first-of-its-kind community will provide mortgage-free housing and support services for up to 15 households of injured veterans and first responders. As the executive sponsor of Lowe's philanthropic support of our military communities, it will be an honor for me to see lives changed through this initiative. With that, let me turn the call over to Brandon. Brandon Sink: Thank you, Joe, and good morning. Starting with our third quarter results. We generated GAAP diluted earnings per share of $2.88. In the quarter, we closed on our acquisition of Foundation Building Materials or FBM. We recognized $105 million in pretax transaction costs, including the fees associated with $9 billion in bridge financing. To finance the $8.8 billion purchase price, we issued $5 billion of bonds with a competitive weighted average coupon of 4.38% and borrowed $2 billion under a 3-year term loan. Given our better-than-expected cash flow generation, we financed the remaining $1.8 billion with cash on hand. We also recognized $24 million in non-GAAP adjustments associated with Artisan Design Group, or ADG. And keep in mind that in the third quarter of last year, we recorded a pretax gain of $54 million associated with the 2022 sale of our Canadian retail business. Excluding these impacts, we delivered adjusted diluted earnings per share of $3.06, exceeding our expectations. This is a 6% increase compared to adjusted diluted earnings per share in the prior year quarter. My comments from this point forward will include certain non-GAAP comparisons that exclude these impacts where applicable. Third quarter sales were $20.8 billion with comparable sales up 0.4% driven by DIY engagement across project-related categories as well as another quarter of growth in Pro, online and appliances. As Marvin mentioned, we also lapped storm-related demand, which was a roughly 100 basis point headwind to sales this quarter. While we continue to manage through an uncertain macro environment, we are pleased that we delivered positive comps in 10 of 14 product categories. Monthly comps were up 2.5% in August, up 0.9% in September and down 2.6% in October when storm-related demand was most concentrated last year. For the quarter, comparable average ticket increased 3.4%, driven by ongoing strength in Pro and appliances, mix shift into larger ticket purchases and modest price increases while comparable transactions declined 3%. Gross margin was 34.2% in the quarter, up 50 basis points as we cycle a number of storm-related pressures in the prior year. We also saw improvements in credit revenue and better sell-through of inventory as we drive our SKU rationalization efforts. Adjusted SG&A was 19.6% of sales, deleveraging 36 basis points as we cycled lower bonus attainment in the prior year and also invested in sales driving actions. Adjusted operating margin rate of 12.4% was up 10 basis points versus prior year and the adjusted effective tax rate of 24% was in line with prior year results. Inventory ended Q3 at $17.2 billion, down approximately $400 million versus prior year. This net decrease also reflects the inclusion of inventory from recent acquisitions of approximately $600 million and higher tariffs. These results were driven by several inventory productivity initiatives across the company as we leverage advanced AI inventory solutions to enhance our demand planning, allocation and replenishment while also driving our SKU rationalization efforts. ADG operating results were accretive to EPS on a non-GAAP basis for the third quarter and pressured operating margin by approximately 15 basis points, in line with expectations. Turning now to capital allocation. In Q3, we generated $687 million in operating cash flow, inclusive of the payment of federal and state taxes of roughly $900 million that have been deferred under a provision related to Hurricane Helene. Capital expenditures totaled $597 million as we continue to invest in our strategic growth imperatives. In the quarter, we paid $673 million in dividends at $1.20 per share. Adjusted debt to EBITDAR was 3.36x at the end of the quarter after we repaid $1.75 billion in debt maturities and borrowed $7 billion to finance the acquisition of FBM. The structure of this financing in conjunction with the timing of our existing bond maturities will allow for steady deleverage to our 2.75x target, which is expected by mid-2027. We ended the quarter with $621 million of cash and cash equivalents and delivered a return on invested capital of 26.1%. Turning to our financial outlook, which we are updating to include our year-to-date results and our expectations for FBM. We are seeing a cautious consumer amid ongoing uncertainty in the macro environment and the timing of an inflection in the home improvement in housing markets remains unclear. We're now expecting comp sales to be roughly flat for the year, which is at the bottom end of our previous guidance. When we include FBM sales of approximately $1.3 billion in the fourth quarter, we are expecting sales of approximately $86 billion for the year. We also now expect full year adjusted operating margin of approximately 12.1%, which includes 20 basis points of dilution from FBM and ADG. We're expecting adjusted diluted earnings per share of approximately $12.25, which represents a 2% growth over the prior year. Please note that this includes the impact of FBM, which is roughly neutral to adjusted EPS, and we expect capital expenditures of up to $2.5 billion for the year. On an annualized basis, we expect FBM and ADG to negatively impact consolidated adjusted operating margin by approximately 50 basis points. We are already working collaboratively with the FBM and ADG teams on cross-selling opportunities as we expand the offering for our Pro customers. We've also begun the efforts to extract cost synergies from our overlapping areas of spend. Taken together, we remain confident that there are compelling long-term EBITDA synergies from both revenue growth and lower operating expense. These investments in our Pro growth initiative, along with the other investments in our Total Home strategy will position us to capitalize on the expected recovery in housing and home improvement and continue to deliver long-term sales growth and shareholder value. And with that, we will open it up for your questions. Operator: [Operator Instructions] Our first question comes from the line of Chris Horvers with JPMorgan. Christopher Horvers: So my first question is about just how you're thinking about the trend in the business in light of the performance that you've seen over the past 6 months and a harder compare and then into '26. So you noted that quarter-to-date is positive. Is there anything you could elaborate on that? And is the flat guide for the fourth quarter simply just like, hey, there's uncertainty and there's a harder compare. And then as you think to '26, if the home improvement market is flat to slightly down this year and you're putting up a flat comp. If you take a look at the sum total of everything a little bit of lower rates, a little bit of replacement cycle, a little bit of innovation and what you're doing on the self-help side, should your sort of -- should the market and should Lowe's comp accelerate in '26 relative to '25? Marvin Ellison: Chris, this is Marvin. Bill and I will talk about November then we'll let Brandon share a tiny bit about how we think about '26 because as you can respect, we're not going to get into a ton of detail about that until our February call, we'll provide guidance for the year. Relative to November, look, we're very pleased with the positive comp performance to start the quarter in spite of storm overlaps from last year. We've seen improvements in the top line since exiting October. And we just believe that some of the key elements of our Total Home strategy are working and we're excited about November because there are some great things on tap. So I'm going to let Bill talk a bit about November, but also talk about appliances, which we think is really key to our performance, not only for the quarter, but what we're seeing in November. William Boltz: Yes. Thanks, Marvin. And Chris, we're excited about kind of the early start to the quarter, obviously, coming off of October. Strength for us really broad-based across the store, but particular strength within our seasonal categories, holiday, Trim A Tree, tools, appliances and other gift-related businesses that are getting off to an early start. Our stores look great. We're starting to see live trees show up now. Poinsettias showing up now as we get ready for next week. And we're seeing some early excitement around some key areas of the store. So whether it's by now and installed by the holidays within our flooring and cooking areas or you look at cobalt and some of the strength that we're seeing there with some new products in workstations, the buy and get offers within our tool business, driven by DEWALT, Craftsman, and Kobalt. We've got just a lot of strength going on right now that we'll carry into next week with Black Friday. So we're excited about how things are progressing. And in our appliance business, we've had really since last year, 4 straight quarters now of comp growth and unit growth, which is telling us the health of that business and that consumer responding to the offers and the innovation and the new products that the team has put up. Brandon Sink: And Chris, this is Brandon. I think when I step back and look at the totality of the year, we're now 3 quarters of the way through, obviously, navigating a lot of factors, a very choppy macro. But when I look at just the trends of the business, I think a lot for us to be cautiously optimistic about as we look ahead to '26. We're seeing acceleration on 1-year comps when you exclude storm-related activity for Q3 and what's implied in our Q4, also 2-year comps accelerating nicely as we've moved through the year, ongoing strength in Pro online. Bill just spoke to appliances, some early signs of life in our home services business, which is really positive. We cited broad-based performance across categories with 10 or 14 categories, geographies broad-based, really excited about FBM and ADG as we start the integration efforts. And obviously, just really pleased with the bottom line performance and the ongoing operational discipline that the company and has been able to show. So please through 3 quarters. And as we look ahead into 2026, as Marvin mentioned, we'll have more to come in February, but those are early thoughts. Christopher Horvers: And then on a related question, I mean, kitchen and bath, I think you said it was positive looking back, it seems like you'd have to go all the way back to 1Q '23. What's changed there? And as you think about it, Marvin, you've talked about like we have a lot of big ticket. We have a line remodel, the kitchen and bath, the appliances. And when we sort of need lower rates to improve that sort of big-ticket remodel category, but you are seeing signs of life. So is there sort of a misperception around sort of how remodel-oriented you are amongst investors or how do you think about maybe that category showing signs that it will inflect to the positive? Marvin Ellison: So Chris, I think it's 2 things. I'll take the first part, and I'll let Bill just talk about some of the work in resets and new products. I really believe that this is more about lowest taking share in this space. If you can go back to 2018 at our first Analyst and Investor Conference, I presented how we were managing this installed business with binders and whiteboards. And it's taken us a while, candidly, to get this business digitize with a technology platform that makes this entire process easy for the associate, the installer and most importantly, the customer. We think now we have a best-in-class tech stack for this space. We have central selling and so what you're looking at outside of kitchen and bath, which Bill will speak to, you see in categories like windows and doors in HVAC and water heaters. These are more replacement categories for customers who are living in the oldest housing stock in the history of the U.S., but because we have a better go-to-market strategy. Bill's teams given this great pricing. Brandon seems given us a great credit portfolio we're taking share in this area. But we're also seeing, to your point, signs of life in areas that make us cautiously optimistic that maybe there are brighter days ahead. And I let Bill talk about some of those categories. William Boltz: Yes. So Chris, I'll mention in my prepared remarks that during the quarter, we had completed our vanity reset across the stores. And that's one of the nice bright spots driven -- driving our kitchen and bath business. But we're also seeing broad-based strength, toilets, bathing, faucets, disposable kitchen sinks, bath repair. So it's really kind of broad-based across the categories. We're excited about that. But it really boils down to the strength. I think we're also seeing within our central selling organization where the store associates take the lead. We get -- turn it over to our central selling team, and they're helping to close the deal on a kitchen cabinet. The strength of what Joe's team is doing in the store to take good care of the customer. There's just a lot of things that are adding up to the strength of the kitchen and bath business, but those are just a few highlights. Operator: Our next question is from the line of Zack Fadem with Wells Fargo. Zachary Fadem: I wanted to follow up on your comments around improving Pro survey sentiment. And I'm curious if there's any extra color you can talk through in terms of how that's trended through the year? To what extent do you think this is a good leading indicator for your business? And then what do you think is driving the recent improvement? Marvin Ellison: So Zack, thanks for the question. Just to hit it at a high level, our small to medium Pro business remains very stable. And roughly 75% of our Pro's are very confident in their job prospects. And also, this segment of the Pro consumer continues to work on smaller ticket repair and maintenance projects, and that's been very consistent with what we've been saying all year long. So when we look at our Pro's, when we talk to our Pro's, they feel very confident in their business. They feel confident in their access to credit and even feel a little more confident about their ability to hire and attract labor. So we feel great about what our pros are telling us. And let me hand it over to Joe to just talk about some of the things we're doing in the store to drive this continued growth and, in my opinion, market share gain with the specific customer segment. Joseph McFarland: Well, thanks for the question. And we're really pleased with the flywheel effect that we're seeing from the transform Pro offering. And when you think about where we've been headed with the loyalty through MyLowe's Pro Rewards, a relaunch there, we have just a wonderful enhanced digital experience that Pro extended aisle we have made investments in fulfillment. The last 3 years, our Pro inventory investments are really beginning to pay off. The order modifications of fulfillment flexibility in the in-store experience. So we're excited to see this flywheel effect all come together with the great product offerings that we have. And we have a good confidence that when this does bounce back, we're well positioned to capture the share. Marvin Ellison: And Zack, the only thing I'll add to that, I mentioned in my prepared comments that we're in the process of adding FBM to our Pro extended aisle platform. That's going to be a huge deal for us because it is very challenging for us today to fulfill a large order of something, let's say, drywall to a customer job site and do it efficiently. We now are working to just transition that entire fulfillment process to a company that's best-in-class at it, and that's FBM. And so we think this is going to be great for FBM. It's going to be great for Lowe's, but more importantly, it's going to be great for the customer. So again, we see this as a sustainable growth strategy, and we feel great about the work we've done thus far. Zachary Fadem: Appreciate that. And I know we aren't guiding for '26 yet, but since the model is different with FBM and ADG, could we talk through early margin scenarios in both a status quo environment as well as the scenario where perhaps we see some benefits from tax stimulus and low rates? Brandon Sink: Yes, Zack, I'll just hit briefly what we're looking at in terms of margins on the FBM and ADG transactions. When you look at 2025 taken in isolation, I mentioned in my remarks, we're roughly 20 basis points on 2025. So that's coming roughly split even 10 from FBM and 10 ADG. And then when you look at as we wrap the year for 2026. That's going to be 50 basis points on the year. So I think 30 basis points of wrap into 2026. And the majority of that 50 basis points when you think of 2026 is going to be weighted towards gross margin on that. So I'm not going to get into any more details as it relates to base business or run rate, but that's just some early views of geography and impact from the transactions in '26. Operator: Our next question is from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: I wanted to ask to put the macro hat on again, there's a -- I don't know if it's a bear case, but there's a housing scenario that it just stayed in this -- it's treading water position for a longer. You have new prices that are lower than existing homes and the age of homeowners is pushing close to 40 years old. So I think affordability is the issue. It sounds like you may reject that premise, Marvin, given some of the bright spots, but I wanted to hear how you react to it. Marvin Ellison: No, Simeon, it's a good question. So I'll give you my thoughts, and I'll let Brandon provide any additional comments. The way we see it is this. I think that mortgage rates obviously are elevated longer than any of us anticipated. But the one thing that's different, as I said in my prepared comments is the fact that you have a healthy homeowner financially, and you have $33 trillion in equity that is in the system. And we think where between $11 billion to $13 billion, $1 trillion of that is capable. So we think this lock-in effect is real because at some point, customers are going to be looking at these sub-3% 30-year fixed mortgage rates. They like the neighborhood that they live in. They have excess equity in their home, and we think HELOCs are going to become the next opportunity for us to drive discretionary remodel big-ticket projects. So we think that is a strong possibility in the future. Now we're not going to try to time it. We're not going to try to build it in our forecast. I think that would be reckless. But we do think that, that is a very plausible hypothesis that takes you away from the bear case. So I'll pass it on to Brandon to see if he has any other thoughts. Brandon Sink: Simeon, I'll add, as Marvin mentioned, the mortgage rates, we're looking at those remaining elevated at least as of now 6% to 6.5% tied more to the longer-term yields, and that's continuing to pressure both existing home sales and new home starts. And I think as we start to look ahead into 2026, we're not anticipating meaningful near-term improvement there. But we are potentially excited about what could happen with the funding coming from home equity. We've seen 150 basis points of rate cuts from the Fed here over the last 18 months, the consensus would suggest we're going to see more -- we've seen these HELOC rates go from neighborhood of 10% to 12% down to 8% to 10%. And that's creating, I think, some opportunity as we look at project backlog, when we look at the data about $50 billion of projects that have been delayed or deferred with the equity now with the potential to be a significant funding mechanism. And if we do see further near-term rate reductions that could act ongoing as an additional stimulus. So we're investing in the business through our Total Home Strategy to be prepared for that type of environment and excited about the potential upside related to that into 2026. Simeon Gutman: And my follow-up, it's on the medium-to-larger Pro. Can you, Marvin, set up what Lowe's strategy is there. We've talked about the pieces of it. Will you keep supply chain separate? Are there categories that you think are essential to addressing that customer, whether it's an existing home remodel or even a new homebuilder and will you cross-sell that customer using the rest of the Lowe's asset base? Marvin Ellison: Yes. So Simeon, I would say we feel great about the current strategy with the smaller medium Pro is working. We've had quarter-over-quarter growth. We think it hinges on our MyLowe's Pro Rewards loyalty platform. It's resonating well where our customers we think it hinges well on the products that Bill's team brings to the table every day, and that was a huge gap in deficit for us 7 years ago, and that is no longer the case. We also think it's important that we maintain a very competitive credit portfolio. We have a best-in-class, 5% off every day for our Lowe's credit cardholders, and that also extends to the Pro customer that resonates exceptionally well. And we have every intention on leveraging FBM for fulfillment in every intention on taking the roughly 40 million FBM Pro customers and getting them connected to complementary projects, product and projects at Lowe's. But we see a very specific void in the marketplace for serving the small-to-medium Pro. That's why we've been so intentional about focusing on that customer. And we think we can focus on that customer in the brick-and-mortar stores and Lowes.com. And we can have a very robust strategy and platform with FBM and ADG and we can do both concurrently. One of the reasons we talk about the importance of FBM's commercial business is because it's countercyclical. When housing is down, that commercial business tends to outperform, and that's what we're seeing right now. So overall, we think we can do both and the data has proven that we have a very effective strategy with the small-and-medium Pro. Operator: Our next question is from the line of Kate McShane with Goldman Sachs. Katharine McShane: We wanted to ask a little bit more about the marketplace, just in terms of like what the initial performance has been, what you've seen with regards to seller onboarding product expansion and customer adoption? And just when you expect to scale this platform to a point where it could start to contribute more meaningfully to margin? Marvin Ellison: No. Kate, thank you for the question. We are really excited about the launch of our marketplace. The caveat is it's really early. And so we're not going to get into a lot of conversation relative to performance other than to say if exceeding expectations relative to financial performance, exceeding expectations, relative to the number of sellers and the quality of sellers. So every seller that we've approached and we are literally looking at 4-star plus rated sellers are required to get on this platform. And we again had great adoption with [indiscernible] technology, and they actually awarded Lowe's as the fastest launch partner they've ever had. So we were able to get that done quickly and we feel incredibly excited. And one of the unique characteristics that we have is at virtually everything purchase as a marketplace item can be returned in a physical Lowe's store because Joe his team partnered with technology some years back to create the technology rails to make that happen. So it creates incredible convenience for the customer when they need to return something. And again, I'll let Bill talk about how the merchants are playing a role to make sure that we have a really balanced approach to how we're thinking about this. William Boltz: Thanks, Marvin. And Kate, the only thing I would add is, obviously, early, but we're learning a lot as we progress with marketplace. We're finding that it's an opportunity to expand programs that our current vendors are providing in our stores to provide stuff that would be found on Lowes.com. And we're also entering and finding new products, products that quite honestly, we didn't think that could be available on Lowes.com that now is available and the consumers are engaging and buying them. So we're excited about that learning and what that can do. But at the forefront of when we put this together based on being a closed system, is that we wanted it to complement what we were doing with what's happening inside of our stores, and that's exactly what we're seeing early on here. Operator: Our next question is from the line of Seth Sigman with Barclays. Seth Sigman: I wanted to ask about operating leverage going forward. You've been delivering really strong operating margin improvement this year on pretty low comps. I guess it's been mostly driven by gross margin this year. So how do you think about the sustainability of gross margin as the primary driver of that? Or does the composition of margin expansion change over time? And then I guess, in general, if you could speak to how you are thinking about the leverage point in the business? That would be helpful. Brandon Sink: Sure, Seth. This is Brandon. Thanks for the question. I think as it relates to margin, very focused at this point on delivering that the 12.1% operating margin that we communicated as part of our guide. And just as a reminder ex, the dilution from the acquisitions, that's at 12.3% consistent with the flat bottom end of our range that we communicated at the beginning of the year. So the team has done a really great job balancing flow-through, the balance between gross margin, SG&A, managing the tariff pressure that we've been dealing with. And honestly, the PPI initiatives continuing to deliver $1 billion split roughly between SG&A and gross margin, that has been the primary driver in our ability to deliver amid softer sales. I think as we look ahead into 2026, a few things I would highlight we're continuing to look at FBM and ADG what we think housing and commercial markets are going to be looking like in the business performance there in '26. I mentioned earlier, new home starts both single-family and multifamily remain under pressure, but confident with these businesses that we can gain share in a down market. Marvin also mentioned a nice balance that we have on the commercial side. So looking at that and how that impacts the margin profile into '26. And then the last thing I'll mention, just as we continue to look at tariffs, those ramp here in Q3, we're expecting that also to continue ramping in Q4 and the wrap to affect the first half of the year. So managing through that and trying to understand how that impacts both sales margin and operating margin going forward. So all that will be waived. We'll look at that in terms of our previous rule of thumb, and we'll have more on that as we get into our call in February for 2026. Simeon Gutman: And then just I guess a related follow-up would be on the gross margin specifically. The gains this quarter really stepped up. Can you just unpack that a little bit more? Are there any timing consideration? I mean you mentioned tariffs starting to flow through, was there a benefit from raising prices relative to the cost coming through? Or anything else you can tell us about the mix dynamics that seem to be supportive this quarter? Brandon Sink: I would say, Seth, on Q3 margin, really nothing related to pricing or tariffs. I would say there, that's playing out very much in line with our expectations just in terms of estimating when the cost is going to be flowing through margin. The great work that Bill and team have done on the merchandising side with our suppliers. It really is the themes that I outlined in my remarks. We're lapping storm pressure from last year. So that is serving as a benefit this year. The credit portfolio has outperformed our expectations on better-than-expected losses. And then Bill referenced the SKU rationalization initiative. We've seen really good sell-through results thus far on the inventory that we're exiting there. That really was the core of the composition of the 50 basis points that we saw in Q3. Operator: Our next question is from the line of Greg Melich with Evercore ISI. Gregory Melich: I'd love to follow up on the traffic and ticket breakdown. If you look at the ticket expansion, it's accelerated like each quarter this year, how much of that 150 bps of acceleration is related to some of the early tariffs going through? How much of it is mix? And how sort of the basket evolving in terms of items in it and the size? Brandon Sink: Greg, I can speak to ticket and transaction. So when we look at ticket growth, it's really similar when we look at Q3 performance as to what we've seen in previous quarters in terms of the drivers. So the strength in our Pro business, also appliances, I will reference that in Q3, we did have some modest price increases. When we look at like-for-like inflation, again, modest. It's very consistent with our expectations and also the year-to-date trends that we've seen as we continue to watch tariffs move through the system. The offset is transactions, and that has been pressured by the lower DIY demand, but I'll also call out the bulk of the 100 basis points of storm-related pressure with the DIY is affecting the transaction. So that's really the driver of the offset when we look at Q3. And then I think when we look ahead to Q4, a lot of those same drivers are expected lift from Pro appliances. There will be some modest like-for-like inflation. Just as a reminder, we also have 100 basis points of hurricane pressure that we're cycling in Q4 that will also pressure comps and pressure DIY transactions in Q4. Gregory Melich: And then maybe just a clarification on before. The 50 bps is the full annualized effect on the margins of the 2 acquisitions, right? So we have like basically 15 bps that show up this year and then 35 bps next year. Brandon Sink: So yes, I would -- Greg, it's 20 on the year for 2025 and then 30 of wrap for a total annualized run rate into 2026 of 50 basis points. Gregory Melich: And if I take the guide for 4Q, it seems like margins should be down around 60 bps, and it's fair to say it's the 2 of those sort of rolling in. Brandon Sink: Yes, I would say when you isolate Q4, the bulk of the operating margin decrease is going to be driven by layering in the transactions. We have $1.3 billion of sales for FBM that will pressure operating margin or dilute it down as well as ADG. So that's driving the bulk of the change in Q4. Operator: Our next question is from the line of Zhihan Ma with Bernstein. Zhihan Ma: I wanted to ask about the FBM, ADG integration that you're doing. Can you just help us understand to what extent you're maybe onboarding ADG onto FBM ERP system, how does that integration work in the near term? Marvin Ellison: Thank you for the question. It's early days. So the first rule that we have is to do no harm to the performance of either business platform, including Lowe's. But we are in the early stages of the integration. The big advantage we have is FBM's current IT platform is the same platform that we are transitioning ADG too. That is not by accident. And also, it's an existing platform that we have in our Lowe's Pro Supply businesses. So we feel like we're going to have the ability to accelerate the IT integration between the companies, but as you can respect, we're in the early stages of that, but we feel really good about the plan. We feel really good about the timetable, and we have the best IT team in retail working on it. So I'm very confident we'll be able to make it happen. Zhihan Ma: Great. And then just a longer-term follow-up. You mentioned the plan to delever to the 2.75 by mI'd-'27. Is the longer-term plan to resume share buybacks by then? Or should we expect additional acquisitions from here? Brandon Sink: Yes. I would say, Zhihan, still very focused on the integration activities. As Marvin mentioned, that's going to be our focus here over the next 2 years. We're pausing share repo and very much expect to get back down to that 2.75x leverage target by 2027. So that's our focus. FBM is going to continue to run their existing play in the meantime, expanding through greenfield expansion, organic growth. And there could be potentially some small tuck-in M&A, but that would only be what we could self-fund with additional cash flow. So I think that's the best way to think about how we're going to be operating here over the next 2 years. Operator: Our last question comes from the line of Robby Ohmes with Bank of America. Robert Ohmes: Just 2 follow-ups. Just on the fourth quarter when you -- the way you're planning it for seasonal and given a little bit more probably tariff prices coming through. Any changes in the timing of promos? Are you doing any promos earlier related to holiday and things like that? William Boltz: No, Robby. I mean the promotional cadence remains relatively consistent to prior years. We started the quarter off with kind of the early pre-Black Friday type stuff that we've been doing. Obviously, Black Friday next week. And then post Black Friday, when you get into Cyber Monday events for dot-com and then you get into that leading up to the holiday time frame. We've got offers out there for both the MyLowe's Rewards members as well as our -- all of our consumers, both online and in-store, so relatively consistent... Robert Ohmes: And then just a follow-up. On flooring and the strength you guys are seeing there, you guys called out soft surfaces. Is there a trade down going on? How do you think you're doing relative to industry? Is there something changing in flooring? Or is it all -- is it something about your positioning in good, better, best? Or maybe a little more color there. William Boltz: Yes. It's nice to be able to give a shout out to the flooring team and all the work that they've been doing. Last quarter, we announced the acquisition and being able to get Daltile into our assortment. So that's starting to roll in now. But specifically, the soft surface, it's really the strength of STAINMASTER and we've called that out as one of our strongest brands, and now we've got LeakDefense being able to be offered. So that is not a trade down, that's a trade-up offering in the assortment. But I think the team has done a really nice job of offering value out there every single day. And I'd stack our soft surface offer out there every single day against what's going on in the marketplace. And then you could go into luxury vinyl, you can go into resilient hybrid and then you go into hard surface tile and the teams have offers out there every single day to close that consumer that's now making the decision to do a flooring project. Joseph McFarland: Robby, I would just add that the investments we've continued to make in our services business, flooring was one of our first to go central selling, where we remove that complexity of the design from the store. We shortened the time to close the customer and take them off the market. And so I think all in all the products the service level, we're really seeing some green shoots. Kate Pearlman: Thank you all for joining us today. We look forward to speaking with you on our fourth quarter earnings call in February. Operator: Thank you. This concludes the Lowe's Third Quarter 2025 Earnings Call. You may now disconnect.
Operator: Welcome to the Global-E Third Quarter 2025 Earnings Conference Call. This call is being simultaneously webcast on the company's website in the Investors section under News & Events. For opening remarks and introduction, I will now turn the call over to Alan Katz, Global-E's Head of Investor Relations. Please go ahead. Alan Katz: Thank you, and good morning, everyone. With me on the call today are Amir Schlachet, Co-Founder and Chief Executive Officer; Ofer Koren, Chief Financial Officer; and Nir Debbi, Co-Founder and President. Amir will begin with a review of the business results for the third quarter of 2025. Ofer will then review the financial results for the third quarter, followed by the company's outlook for the remainder of 2025. We will then open the call for questions. Certain statements we make today may constitute forward-looking statements and information within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including, without limitation, statements regarding our future results of operations and financial position, growth strategy and plans and objectives of management for future operations including onboarding new merchants, expanding our offerings and introducing and integrating new solutions are forward-looking statements. These forward-looking statements reflect our current views with respect to the future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including those set forth in the section titled Risk Factors in our annual report on Form 20-F filed with the SEC on March 27, 2025 and other documents filed with or furnished to the SEC. These statements may reflect management's current expectations regarding future events and operating performance and speak only as of the date of this call. You should not put undue reliance on any forward-looking statements. Except as required by applicable law, we undertake no obligation to update or revise publicly any forward-looking statements whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. Please refer to our press release issued today, November 19, 2025, for additional information. In addition, certain metrics we discuss today are non-GAAP metrics. The presentation of this financial information is not intended to be considered in isolation from as a substitute for or superior to the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. For more information on these non-GAAP financial measures, please see the reconciliation tables provided in our press release today. Throughout this call, we'll provide a number of key performance indicators used by our management and often used by competitors in our industry. These and other key performance indicators are discussed in more detail in our press release issued today. I will now turn the call over to Amir, our Co-Founder and CEO. Amir, please go ahead. Amir Schlachet: Thanks, Alan, and welcome, everyone, to our third quarter earnings call. We achieved another quarter of very strong results, coming in above the midpoint of our guidance for revenue and adjusted EBITDA and even exceeding the top end of our guidance range on GMV. This strong performance was a result of the entire Global-E team around the world continuing their relentless execution throughout the quarter, developing and providing best-in-class solutions and services to our merchants and their shoppers. Before we dive into the quarter, in terms of our forward-looking outlook, given what we see in the market today and the overall robustness of trading volumes we have witnessed in Q3 and Q4 to date, we are once again raising our midpoint outlook across all of our guidance metrics for the remainder of the year. As such, for the full year of 2025, we now expect GMV to be roughly $6.46 billion at the midpoint, representing just over a 33% annual growth rate. We're also raising our revenue and adjusted EBITDA guidance for the full year to $952.1 million and $192.8 million at a respective midpoint, representing 26.5% and 37% growth for the year, respectively. As in previous years, in 2025, we once again expect to surpass the full year guidance ranges that we shared with you in the beginning of the year, a testament to the durability of our growth algorithm. We believe this strong performance for 2025 keeps us on track to deliver the multiyear growth and bottom line profitability targets we shared with you during our Investor Day earlier this year. Back to our quarterly results. We finished Q3 with GMV of $1.51 billion, up 33% year-over-year and revenue of $221 million, up 25.5% year-over-year. In terms of profit, our adjusted gross profit for Q3 was $102 million, up 24% from last year and quarterly adjusted EBITDA was $41.3 million, up 33% compared to the same quarter of last year, resulting in an 18.7% margin, a 100 basis point improvement compared to Q3 of 2024. Our GAAP net profit for the quarter was $13.2 million, and we generated $73.6 million in free cash flow, an increase of almost 250% compared to last year. Now before I go through the current trading patterns and our Q3 new merchant launches, I want to provide a few broader business updates. First, on several previous calls, we have mentioned our duty drawback offering, a value-added service that we have provided in certain non-U.S. markets for some time now. By use of these value-added service and depending on the sales parameters, merchants can potentially reclaim import duties on goods that are exported outside of their home base as well as on return goods. Given the recent suspension of the de minimis exemption, we have seen increased interest in this offering also for the U.S. In parallel to other offerings, such as 3 B2C all aimed at helping our brands to navigate the stormy orders of international B2C trade. Within the quarter, we also got the permit to offer import duty drawback to our U.S.-based merchants for their exports out of the U.S., further supporting them in optimizing their cost of trade in times of change. Second, a quick update on our managed market solution. We've been working in close collaboration with our partners at Shopify, according to our joint plans. Over the past 6 months, most of the development has been completed for a rollout in 2026 and we are currently in beta testing for the new flow. As a matter of fact, new merchants that apply now to managed markets are already going through the new flow. We still have some tweaking to do on the back of what we will learn from the better merchants, but remain on track for the next phase of managed markets, moving to full commercialization. Third, we continue to make good progress on our borderfree.com offering. During Q3, we added a buy-now capability as well as advanced search functionality, enabling a more streamlined shopper experience and improving sales conversion rates. We also continue to see further growth in shopper sign-ups as well as an increase to the share of merchant sales attributable to the borderfree.com channel which now stands at over 4.5%, representing an increasingly valuable demand generation channel for merchants on the program. Lastly, during the quarter, we announced the authorization of a $200 million share repurchase program by our Board. Global-E is a highly cash-generative business. And given our strong balance sheet and our track record of generating sustainable cash flows, we see a share buyback plan as a logical use of cash, especially at the current market valuation. Given the blackout periods that we are subject to in Q3, we have not yet begun buying back shares but we expect to do so starting in the coming days. We will employ a thoughtful approach here to take advantage of any disconnect we see between our performance and outlook and the market valuation of our shares. I also want to spend a few minutes on how we are strategically approaching AI in general and agentic e-commerce, in particular, and what we are doing to make sure we are well positioned to capitalize on this upcoming market opportunity. Throughout this year, we've already been seeing some traffic to our merchant sites being initiated from ChatGPT and resulting in successful transactions processed by Global-E as well as agent-assisted in-chat checkout transactions. While both still represent a very small share of sales for our merchants, we believe these are exciting potential new sales channels for them. As brands focus more on selling within these third-party channels, we will continue to provide the same best-in-class support and service that we provide across all of our sales channels. Irrespective of the sales channel, the value of our expertise and capabilities do not change. We meet our brands wherever they spend online and provide support for them to transact internationally regardless of the source of traffic. Furthermore, we have deployed AI-powered use cases throughout the buying journey from demand generation, utilizing AI, both for brands using our agency services and for our own B2B marketing through to different aspects of trade and post-purchase support from classification, down to customer care. In parallel, we also have an internal team focused on making sure that our solutions will be positioned to work seamlessly across the agentic commerce platforms for Instant Checkout from both a merchant and a consumer perspective when such platforms are introduced to the market. As our partners look to work with agentic technologies to provide instant checkout capabilities, we will be there to provide a seamless, effective and compliant end-to-end international experience. This is all obviously very early in the life cycle. But as always, we will keep doing what it takes to remain at the forefront of Global-E commerce, and we utilize the advantages of our scale, know-how and sophistication to emerge a share gainer. By focusing on this early and engaging with key players in the space, we are aiming to maintain our [indiscernible] position for the enablement of seamless cross-border commerce within AI-led transactions in the future. Now let's move on to the broader business performance in the third quarter and what we're currently seeing in Q4. As I already mentioned, we saw consumer discretionary spending holding up during Q3 and Q4 to date. And we continue to see strong market traction with our largest merchants across different destination markets. The trading patterns we have seen in Q3 and the first half of Q4 give us confidence that we will end the year strong. In terms of new merchant launches within Q3, we continue to grow across geographies and within our cohort of merchants. We experienced continued strong demand for our services across different markets as a large number of brands went live with Global-E during the quarter. This included multiple brands that went live with us in the U.S., such as Everlane, the renowned high street online U.S. clothing retailer that recently moved to Shopify, chose Global-E to accelerate its international growth and Ashford, the luxury U.S. watch brand. In Canada, we launched with the online shop of Drakes fashion brand, October's Very Own, as well as Aritzia, the fast-growing clothing company which has shown a quick ramp-up of their conversion rates and international sales post launch with Global-E, as they mentioned in their current -- in their recent quarterly earnings call. In the U.K., we launched a renowned luxury brand Coach which is part of the Tapestry group of brands; with Browns Fashion formerly part of Farfetch; and with the Jewelry brand, Regal Rose. I'm also pleased to say that U.K.'s Marks & Spencer is back online as of October and their trading is back to normal patterns. In France, we launched with Chloe, the renowned luxury fashion brand, thereby extending our partnership with [indiscernible]. We also launched with [indiscernible], the classic French sportswear brand and with the fashion brand Hartford. Across other European markets, we launched a Sleeper brand, Kalida and dog wear brand CLOUD7 in Germany, and with D1 Milano watches in Italy, among others. In Asia Pacific, we launched Bandai Spirits, the famous Japanese toy and collectible company, as well as Japanese designer fashion brand, Mihara Yasuhiro, and Posse, the high-end Australian fashion brand. We also launched Beauty of Joseon, a Korean skin care company; and Paper Shoot, a consumer electronics brand, which is also the first Taiwanese brand to sign with us. Another exciting launch in the region during Q3 was that of Blackbough Swimwear, our first brand out of the Philippines. Within the sporting goods vertical, golfers around the world can now buy their [indiscernible] from Tacoma Grove, the finished D2C Golf brand, which went live with us during Q3. During the quarter, we also went live with Live Sports, a U.K.-based sports equipment brand and with Luke [indiscernible], a Scandinavian fly fishing gear company, which is also the first to integrate our services on a headless [indiscernible]. Besides many new merchant launches, during Q3, we also expanded our scope of business with quite a few existing merchants, such as FIGS where we expanded into South Korea in a number of Latin American markets. Helmut Lang, the New York-based fashion brand and the merchandise division of JYP Entertainment, one of the largest K-Pop labels and production companies which both expanded into Japan. Bang & Olufsen and Tom Ford, which both opened a number of new European markets with us in the quarter. Australian fashion brand Zimmerman, which went live with us with its [indiscernible] serving the APAC region and fashion brand Theory, which added support for several GCC countries out of its new U.K. [indiscernible] integration. Both Burberry and [indiscernible] Eyewear, who we worked with to expand into Mexico. Bach, we expanded with us into Norway and [indiscernible] which added more than 10 new countries, including Japan, Italy, Spain and several Nordic countries. Furthermore, as I mentioned earlier, in the face of higher tariffs and the suspension of the de minimis exemption in the U.S., we have seen heightened interest in our 3 B2C and multi-local solutions as well as our duty drawback value-added services. More and more merchants, both existing and new, continue to pivot to utilizing these advanced capabilities in order to mitigate as much as possible the effects of the new duty regimes on their business. The launch of new merchants and the continued expansion with existing merchants as well as our current pipeline, give us confidence that we are well positioned in terms of both our near-term and our long-term targets. We have good visibility to durable, profitable growth and a strong pipeline of cash flows into the future. Our results year-to-date would be impressive in any environment. But considering the uncertainty that the global e-commerce market faced at the start of 2025, I believe these results really showcase the resiliency of our business model and the value that we create for our merchants. I will now hand it over to Ofer to take us through the quarterly numbers in more depth and our increased 2025 guidance in Q4. Ofer Koren: Thank you, Amir, and thanks, everyone, for joining us today for our earnings call. As Amir just highlighted, we achieved another strong quarter of growth for globally. We delivered results at or above the top end of our guidance ranges for GMV, revenue and adjusted EBITDA, generated strong free cash flow and had another quarter that landed well above the Rule of 40. Before I go into the details of the quarter, I'd like to remind everyone again that in addition to our GAAP results, I'll also be discussing certain non-GAAP results. Our GAAP financial results, along with the reconciliation between GAAP and non-GAAP results can be found in our earnings release issued today. GMV in Q3 was $1.512 billion, up 33% year-over-year, 3% above the midpoint of our range for Q3. Trading volumes remained resilient in the third quarter despite some uncertainty due to ongoing changes in tariffs. As Amir discussed, we have also seen solid trading volumes through the first half of Q4, including significant contribution from some of the newly launched brands. The holiday shopping season is just getting underway, and we have seen initial sales volumes in line with expectations so far. In Q3, we generated total revenue of $220.8 million, up 25% year-over-year and 2% above the midpoint of our guidance range. Service fee revenue for the quarter was $103.5 million, and fulfillment services revenue for the quarter was $117.3 million. Service fee take rate was slightly lower than Q2 and in line with the first quarter, driven by mix, while fulfillment take rate was similar to last quarter and as expected, lower compared to the first quarter given the planned shift of certain volumes to multi-local and our growth within verticals that are multi-local by nature. Progressing through the income statement, non-GAAP gross profit was $102.1 million, up 24% year-over-year representing a gross margin of 46.3% compared to 46.7% in the same period last year. GAAP gross profit was $99.6 million, representing a margin of 45.1%. Moving on to operational expenses. In Q3, we continued to invest in the enhancement of our platform to further expand our offerings and add value for our merchants while leveraging our scale and AI tools and agents to gain efficiencies. R&D expense in Q3, excluding stock-based compensation, was $26.1 million or 11.8% of revenue compared to $22.8 million or 13% of revenue in the same period last year. Total R&D spend in Q3 was $30.8 million. We also continued to invest for growth within our sales and marketing organization, while remaining focused on cost and efficiency including by the growing use of AI-powered tools across our sales and marketing activities, such as demand generation, lead qualification and outreach. Sales and marketing expense, excluding Shopify-related amortization expenses, stock-based compensation and acquisition-related intangibles amortization, was $26.4 million or 12% of revenue compared to $21.5 million or 12.2% of revenue in the same period last year. Shopify warrant-related amortization expense was $8 million in the quarter, down from $37.4 million in Q3 '24. As I've discussed in the past several quarters, we expect this expense to remain at the same level for the remainder of the year and to be completely gone at the beginning of 2026. Total sales and marketing spend for the quarter was $38.4 million, down from $62.7 million in the same quarter last year. General and administrative expenses, excluding stock-based compensation, acquisition-related expenses and acquisition-related contingent consideration were $9.2 million or 4.2% of revenue compared to $7.7 million or 4.4% of revenue in Q3 of last year. Total G&A spend in the quarter was $13.4 million. Adjusted EBITDA was $41.3 million, up 33% from Q3 2024 and 5% above the midpoint of our guidance range. Adjusted EBITDA margin was 18.7% versus a 17.7% margin in Q3 2024, driven by lower operating expenses as a percent of revenue leveraging our scale and cost efficiencies. In Q3, our GAAP net profit was $13.2 million compared to a net loss of $22.6 million in the year ago period. The positive net profit was driven mainly by the reduced amortization expenses related to the Shopify warrants as well as our continued business growth and our growing efficiencies. Moving on to the balance sheet and cash flow statements. We ended the quarter with $552 million in cash and cash equivalents, including short-term deposits and marketable securities. Q3 was a strong quarter of cash generation with free cash flow of $73.6 million in the quarter, an increase of 245% compared with Q3 of 2024. We believe that our free cash flow margin adjusted for seasonality will continue to be strong in the coming quarters. As Amir highlighted, we expect to begin utilizing a portion of this cash to repurchase outstanding shares in the coming quarters in accordance with the Board authorization. We plan to start executing upon our buyback program in Q4, subject to market conditions and other applicable factors. We have a strong track record of cash generation and see an opportunity to return capital to shareholders to drive long-term value creation. We will also continue to look for opportunistic tuck-in acquisition opportunities to enhance our platform or offerings. Now let's go through our guidance for the remainder of the year. For Q4 2025, we're expecting GMV to be in the range of $2.195 billion to $2.315 billion. At the midpoint of the range, this represents a growth rate of 32% versus Q4 of 2024. We expect Q4 revenue to be in the range of $318.5 million to $334.5 million, representing a year-over-year growth rate of 24% at the midpoint. For adjusted EBITDA, we're expecting profit to be in the range of $74.3 million to $88.7 million or a margin of 25% at the midpoint. For the full year of 2025, this implies GMV to be in the range of $6.404 billion to $6.524 billion, representing a 33% annual growth rate at the midpoint of the range, an increase of 2% from our guidance in the start of the year. Revenue is expected to be in the range of $944.1 million to $960.1 million, representing a growth rate of 26.5% in the midpoint of the range, an increase of 1% from our initial guidance. And for adjusted EBITDA, we are expecting a range of $185.6 million to $200 million an increase of 37% versus 2024 at the midpoint and up 2% versus our initial guidance. We are excited by our guidance for Q4 and the full year of 2025 which reflects a strengthened outlook across all parameters. Furthermore, 2025 is expected to be our first GAAP profitable year as a public company. Our upward revised full year 2025 numbers demonstrate and reinforce our path to meet the medium-term targets that we provided at our Investor Day in March. To summarize, we believe the current environment represents exciting opportunities for Global-E to create value for our merchants by growing their sales while optimizing their costs and to continue growing at a fast pace for the foreseeable future. Given the increasingly complicated global e-commerce environment, we believe our services are becoming more and more integral to merchants every day. The market opportunity in front of us remains massive, and we plan to continue on our path to support merchants worldwide in expanding their direct-to-consumer business. Question & Answer Session Operator: [Operator Instructions] Your first question comes from Will Nance with Goldman Sachs. William Nance: [indiscernible]. I wanted to maybe touch a little bit on the commentary around the [indiscernible] product? It seems like you guys have continued to flag the function of the market with [indiscernible]. And maybe if you could talk more [indiscernible] the opportunity for the [indiscernible] services and any changes in how you're thinking about the longer-term trajectory of additional products [indiscernible]? Nir Debbi: Will, thank you for your question. It's Nir. Well, very excited with the developments we've seen obtaining -- updating the permission to offer duties or drawback in more jurisdictions to our clients. As the market becomes more complex for merchants, duty burden globally is rising. We've seen the changes already implemented on U.S. import [indiscernible]. We've seen some changes in the Canadian regulation. We are aware of the upcoming removal of de minimis also for EU that is expected sometime in the back half of 2026 for the entire European community. So the increase of -- in importance of duty drawback is clear because typically in e-commerce out of 100% that is being sold, you would see 10% to 15% that are coming back. Without duty drawback, it means that it's a loss of the duties on those sales, which typically account to 2% to 4%. So this is money that we can actually bring back home for our merchants, streamlining the cost effectiveness and in the current and foreseeable environment, that's a critical component to the trading. William Nance: That's great. It makes a lot of sense. And then, I guess, just separately, I was wondering if you could maybe speak to pipelines. I realize we're kind of done with implementation for this year heading into the holiday season. Was wondering if you could give some incremental color on just how pipelines heading into next year compared to this year, both in terms of the size and geography of merchants and just how you're seeing the [indiscernible]? Nir Debbi: Sure, Will. We continue to see high demand for new services supporting merchants doing 3 B2C, multi-local and other value-added services we deployed. Furthermore, there are multiple opportunities that we are seeing in global e-commerce as it becomes more complex. It's driven by what we spoke about just now from the extra complexity on duties, it's driven from other factors of complexity and cost structure aligning shipping, wanting to do a multi-local efficiently across geos, et cetera. So all in all, we are quite optimistic. We see development across the different stages of our funnel. We've seen it deployed into our Q4, which is part of the confidence we have in the guidance we gave. So all in all, we're quite optimistic going into 2026. Operator: And the next question comes from James Faucette with Morgan Stanley. Michael Fontan: It's Michael Fontan on for James. I wanted to ask on service fee take rates. How much of that sequential take rate decel is just due to the fact that you're continuing to win with larger merchants? And as you think about the path forward with some of the renewal impacts beginning to show up in Q4, how are you thinking about the path for service fee take rates from here if there are case-by-case pricing concessions that are made with those concessions presumably being absorbed in the P&L via some of those improvements in unit economics that you referred to in the past? Ofer Koren: Yes. So thank you for that, Michael. Regarding the first 9 months of the year, it has been slightly volatile, and it's mainly due to mix. So there are some mix shift between quarters. And in addition to that, as you mentioned, we see larger enterprise merchants, a higher share of larger enterprise merchants, which also have a certain impact. So when you look at Q3, similar levels to Q1, lower levels compared to Q2. And as we mentioned in Q2, we had some positive mix impact, that's on the service fee side. Going forward, as we mentioned in the past, we don't see any significant wide change we do see from time to time, we might reprice on specifications. But -- but we are not -- we do not expect a significant change on service fee take rate. On the overall take rate picture, what we have been doing for the last few years and in the last quarter as well, is expanding our TAM by developing new business models that allows us to further serve new and existing merchants. And our main financial focus in these efforts has been driving profit, both from a margin and reported dollar perspective, and some of these models by nature, have lower take rates. For example, as you know, multi-local is a good example for that. But important for us to note that they all meet our long-term profitability and support our long-term profitability goals. So on the fulfillment take rate side, we have seen some decrease over time. For the near future, we expect it to be around the levels that you've seen this quarter. Michael Fontan: Very helpful. And then just secondly, on managed markets. I know you've spoken in the past about harmonizing the domestic and international experiences. But can you just talk about what mechanically has sort of changed versus the prior implementation and what you expect to learn in the beta and perhaps how you're thinking about a little bit more of a material merchant push into next year post that beta testing? Amir Schlachet: Sure. Thanks, Michael. It's Amir. So as we mentioned already, we've been making great progress on the rollout of the new managed markets, the new flow. The main change there, there are a few updates to the service, but I think the main cornerstone is that we've shifted the flows to work through Shopify payments, [indiscernible] through the dedicated payment infrastructure that we had in the previous iteration. And what that is expected to allow us is for, as you mentioned, a much more streamlined experience for the merchants in minimal change, if any, from how they're used to managing their store today. So that should be the, I would say, the great benefit of this new build. And together with Shopify, we've done most of the development. It's pretty much ready for rollout in 2026. And we are already the -- better merchants that we mentioned, they're kind of live merchants because they're -- every new merchant as of the third quarter when we had the build in place, every new merchant that is signing up for a managed market is actually going through this new flow. So we are getting an increased volume of merchants and transactions. And this is serving as the kind of the better testing for this new flow. We use the learning from that to make some final refinements and we'll be ready for a full rollout next year. Operator: And the next question comes from Brian Peterson with Raymond James. Brian Peterson: So maybe high level, can we talk about post some of the changes in tariffs and everything else? Like what are you seeing in terms of the top of the funnel in kind of that white space or new merchants? Any update there in terms of the top of the funnel in terms of that progress? Nir Debbi: Brian, it's Nir. So all in all, I think that in line with our expectation, we have seen some effect on same-store sales, especially on the inbound U.S. corridor, where we've seen some weakness and also on the corridors between U.S. and Canada. However, on a global perspective, trading holds strong and resilient. So we're quite optimistic there. Taking it into what we forecasted in our pipeline and the [indiscernible] midterm onwards, we start to see it materializing as global trading becomes more complex, our funnel is actually being built up quicker than before, and we are quite optimistic that the extra complexities with the solutions and capability we built around duty drawback, import duty drawback, 3 B2C multi-local split shipments, et cetera, would create a sustainable business growth of new business in the coming quarters. Brian Peterson: Good to hear. And maybe just following up. For the ReturnGo acquisition, anything we should be thinking about in terms of contributions to revenue or expenses in the fourth quarter? Nir Debbi: Yes. So for now, ReturnGo doesn't have a significant impact. It will contribute up to $1 million of revenue in Q4. And it will have a slight negative impact on adjusted EBITDA, nothing worth mentioning. We are very optimistic about return go because since we acquired the company, we have been started to implement the ReturnGo solution into Global-E. It's early days, but we see good interest and traction from merchants. And we see some upside potential as it is still insignificant as I mentioned, but the run rate of revenue since we acquired the company has significantly grown and we are quite optimistic going into 2026. Operator: And the next question comes from Mark Zgutowicz with Benchmark. Mark Zgutowicz: Nir, I was just hoping maybe you can round out the commentary around same-store sales in terms of second half NDR trends sort of year-over-year and how you're thinking about first half next year and maybe also balancing that with just new deal pipeline growth? Nir Debbi: Thanks for the question. So as noted, same-store sales growth has been relatively stable throughout the year. And it continued despite the global tariff changes we've seen and the effect on key corridors. As I indicated, there was a slight weakness of the corridor of imports into the U.S. versus how other lanes are trading as well as some weakness between the Canada and the U.S. with imports into Canada. However, overall, it looks stable, and we do see some realization that started late Q3 in terms of, I would say, some adjustment of consumer behavior, maybe and merchants pricing to the new environment. So we expect it to stabilize also on those corridors going into 2026. In terms of the funnel, as I noted, we are quite optimistic. As we stated in the last quarter discussion, this year, indeed, we didn't have mega clients launching at the back half of the year. However, this was compensated and we expected it to be compensated with multiple smaller merchants launches that are trading very, very well. So -- and this is, of course, embedded into the numbers that you see that show our confidence in the growth that would come from new merchants. Mark Zgutowicz: Got it. That's helpful. And on Borderfree, just curious, it sounds like things are progressing there quite nicely. If you can maybe talk about trajectory into next year in terms of monetization? Is that perhaps more of a first half or a second half type modest inflection there on the monetization front, that would be helpful? Nir Debbi: We are very excited with the opportunity of borderfree.com. I think that when we set up acquiring Borderfree 2.5 years ago and then the building we did to the platform, our goal was to allow our merchants to have an effective brand awareness at a guaranteed ROI because we've seen the changes with back then with Google Cookie Policy, Apple iOS changes that actually made attribution harder on their media spend and actually cost of driving new traffic to our site was expensive and getting more expensive. This is even further accelerated with a lot of the eyeballs moving into ChatGPT, Gemini and others, which take -- again reduces the contribution and the attribution of paid media. And that further strengthen the model behind Borderfree. So we are very excited. We see continued adoption of new merchants. We see more and more returning customers using borderfree.com. We expect that with investments we're making now into a direct to checkout solution, optimizing traffic journeys through the site, the new cart that we just launched just a couple of weeks ago, allowing you to buy more than one product out of borderfree.com, et cetera. We will see much more conversion out of there. It's already increasing in its share of demand generation to participate in brands, and we expect it to continue to accelerate 2026. I'm not -- I don't see a material contribution to direct revenue, especially not in the first half of 2026. But if we meet our plans, I believe that over time, it will hold outside the direct revenue much more stickiness with our clients and even faster growth to their own same-store sales. Operator: And the next question comes from Samad Samana with Jefferies. Debanjana Chatterjee: This is Jeremy on for Samad. Congrats on the strong results. I guess, first, can you please give the FX impact on 3Q GMV and total revenue? And what FX impact are you baking into the 4Q guidance? Ofer Koren: So FX was much more stable in Q3 compared to Q2. We haven't seen any significant impact or on the top line and on the bottom line. And at least for now, it seems pretty stable in Q4 as well. So no big shifts and we don't expect any significant or material impact on [indiscernible] this quarter. Debanjana Chatterjee: Okay. And then on the enterprise integration with Shopify, have you seen any change to the competitive dynamics or any key learnings or takeaways from shifting to the new partnership? And then maybe can you help us size the uplift transitioning to preferred economics that you're expecting going forward? Nir Debbi: Samad, its Nir. In general, we haven't seen any material changes in the competitive environment. Over the last few quarters, we continue to clearly lead the market in the robustness, capabilities and offering of our platform and services. On Shopify specifically, we haven't seen notable changes since we signed a new agreement and transferred to the preferred status. Looking at the enterprise side, we don't see no one competes with us in a meaningful way today. There is another [indiscernible] provider that supports enterprise brands, however, the traction is low outside Shopify, and we expect it to be even lower within Shopify. On the smaller players, that are working on Shopify, those have been selling a [indiscernible] solution or point solutions even before the change and they haven't managed to take any enterprise merchants and only, I would say, very low traction within the smaller ones. So we haven't seen any material change to the dynamic. Ofer Koren: In terms of the Shopify rev share, it has the improved economics from the new contract began towards the end of Q3 and the full impact is reflected in the Q4 guidance. Operator: The next question comes from Patrick Walravens with Citizens Bank. Patrick Walravens: Great. At a high level, can you guys just explain how the duty drawback works like very simply for people who don't quite get it? And then also what you need to do in order to roll it out in a new country? Nir Debbi: Yes. So let's take into -- an example, a sale of a U.S. merchant to a Canadian shopper. Let's assume that the goods that were bought were USD 200. Once they hit the Canadian borders duty and tax applied, whether if they were paid in advance, paid at the border, duty and tax applies. The average duty rate, let's put it at 15%, would be another $30 that are paid on that -- on those goods and another 5% for sales tax, and you get $40 that are levied on this $20 or $200 parcel. Overall, this $40 are paid by the merchant or by the shopper, but they are part of what the merchant build into his pricing when he saw the goods. However, if I stated 10% of the goods are coming back or 15% even, it means that out of those $40 checks, on average, $4 to $6 are represented by returned goods. And actually, those dollars are lost today. With Global-E, for example, in Canada, where we have a CBSA approved credit program for our brands, we are actually able to reclaim those $4 to $6 for our brand, actually optimizing the cost structure selling into Canada around 2% for each transaction. Patrick Walravens: All right. That's great. Okay. So you shouldn't have to pay on the things you return. Got it. And then Ofer a follow-up for you. As I look at your 4-year plan versus where you are now, everything seems to make a lot of sense, except maybe the non-GAAP gross margins, your fiscal '25 to '28, guidance is high 40s and you are 46 this quarter, right? So I don't think that's high. So can we just address that a little bit? Ofer Koren: Yes. So I think that as we've mentioned in the Investor Day, we did not expect gross margins to increase over the levels that we have been able to reach. Basically, what we solve for is bottom line is cash generation and adjusted EBITDA that is more or less correlated to it. And as I mentioned, there are -- we have developed different models over time with different profiles that have some impact, different impact on [indiscernible]. So I think that we're actually, from our angle, we are on track to reach that target. We believe that we will be in the high 40s for gross margin. We're in that neighborhood now. And over time, we think that we can stay in similar levels, maybe likely improve over the term of the plan that we presented. Operator: The next question comes from Koji Ikeda with Bank of America. Koji Ikeda: I wanted to ask about agenetic commerce. And can you talk a little bit about how Global-E will help with the data flow to power agentic commerce? I mean do you envision globally plugging directly into the ChatGPT type agentic commerce experiences? And how, if at all, is agentic commerce changing sales cycles right now? Amir Schlachet: Sure, Koji, it's Amir. Thanks for your question. Again, I touched upon it a bit in the prepared remarks. We do believe that a agentic commerce is going to affect the entire value chain of e-commerce. And we're already starting to see signs of that today. As I mentioned, mean starting from the top of the funnel, kind of demand generation is being done today more with AI-enabled technologies, including marketing campaigns, even campaigns that we ourselves are doing for B2C. They are using the Meta Advantage Plus tools that are AI-driven and we're building custom generative AI-based tools to streamline many functions across the funnel from consumer support and [indiscernible] scoping and in targeting and outreach to merchants. So we think that the -- especially the high growth kind of D2C brands, they're probably the best position to work to leverage AI integrations and remove barriers that currently exist in marketing and selling and advertising and creating traffic from markets where previously it was very complex for them to create brand awareness with manual processes. So we're looking -- we're constantly looking at the new developments in the field. We're very impressed by what AI-supported platforms have been able to achieve in the relatively short time. And we're already seeing some transactions, not directly through kind of instant checkout, but transactions that are already initiated from ChatGPT and from agent-assisted in-chat checkout. And we believe this will grow in the future. In any case, given our expertise, given our unique know-how and our scale of data and capabilities, we believe we are best positioned to provide the kind of international and the cross-border layers that are required in order to enable these AI-powered transactions in the future. Koji Ikeda: Got it. And maybe a follow-up here. I look at the third quarter GMV growth, looks really strong and the 2025 GMV guide, that's really good, too. And so last year on the third quarter call, you did give some early look GMV growth color for 2025 of 30%. And clearly, the guide today implies that you're going to achieve that. So is there anything you can share today for 2026 GMV growth assumptions? Ofer Koren: Yes. We are very happy with the Q3 results and the growth trajectory we are seeing into Q4, and this will also support us going into 2026. As mentioned in the prepared remarks, we have seen very successful merchant launches in recent months and they're also trading very well. So we believe that this will provide us some tailwind going into '26. Generally speaking, we believe that we are on path to achieve our midterm targets. And I think this is sort of the framework that we are looking at going into '26. Operator: And the next question comes from Rob Wildhack with Autonomous Research. Robert Wildhack: To start on the repurchase, could you just give us some additional thoughts on your approach to like a time frame around the $200 million? Ofer Koren: So as we mentioned on the call, we have been in a closed window up till now, and we plan to start executing on the plan soon. The pace will depend on the market conditions and another aspect. But we do expect to start executing very soon and start to buy some of this plan in the coming months. Robert Wildhack: Okay. And then bigger picture, could you just remind us about how you're thinking about the bridge between adjusted EBITDA and free cash flow, both as it relates to the guidance, but also in the context of the longer-term target? Any numbers that you could put to the free cash generation maybe between 2020 -- the bridge between 2026 and that longer-term target for, I think, mid- to high 20% margins? Ofer Koren: Yes. So generally speaking, when we look at the full year, because we have seasonality for cash flow and free cash flow -- but when you look at the full year, it typically correlates with adjusted EBITDA, but it's higher. If you look at the previous years, and we expect it to continue to be somewhat higher compared to adjusted EBITDA. And this is supported mainly by working capital as long as we grow, this gives us some tailwind. And we expect it to continue on that path in the coming years as well. Nir Debbi: I think -- also important to note, as we guided on the longer-term targets, we do have efficiencies of scale as we continue to grow. You can see it on the long-term trajectory of improvement in our EBITDA and of course, out of it, you will see also the improvement coming on our free cash flow that is trading even slightly better. Operator: And the next question comes from Chris Zang with UBS. Chao Zhang: And I just have a question on the regional trends you've seen so far, and I'm talking about the merchant outbound region. And it looks like there's some softness in the U.S. that was offset by U.K. and European Union, even if you adjusted for [indiscernible] for U.K., can you maybe just comment on some of the regional trends versus the prior quarters and what are [indiscernible]? Nir Debbi: I think what you referred to is the fact that the share of the U.S. outbound was slightly lower this quarter. I don't think that it reflects a weakness on the U.S. trading outbound. It's much more reflects the mix of our new launches that is coming from additional origins, such as our great success in APAC and also some growth in Continental Europe that in share grew faster than the launches we had in U.K. And also some of the merchants have traded even better. But the combination of both yielded this result. It's not that we expect it to, over time, be consistent. So I wouldn't use the [indiscernible]. Operator: And that concludes our question-and-answer session. I'll hand it back to Global-E CEO, Amir for closing remarks. Amir Schlachet: Thank you. And on behalf of the entire global team, I would like to thank everyone for joining us today and for your ongoing support. Despite the uncertainty that the global commerce markets faced at the start of the year, we've continued to outperform every step of the way. Our outlook and market positioning is as strong as it's ever been, and we're excited to demonstrate continued performance for the remainder of 2025 and for years to come. We see tremendous opportunity within the market for our platform and services. As we grow in both new and existing merchants, our confidence in the value that Global-E is bringing to the e-commerce market remains reinforced. With a long runway of innovation and growth here at Global-E and by leaning into the opportunities ahead of us, we remain confident in our ability to achieve our growth targets across our key metrics for the foreseeable future. We look forward to speaking with many of you during the quarter and updating you on our future earnings calls. Until then, goodbye and take care. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Greetings, and welcome to the Data Storage Corporation Third Quarter Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alexandra Schilt, Investor Relations. Thank you. Please go ahead. Alexandra Schilt: Thank you. Good morning, everyone and welcome to Data Storage Corporation's 2025 Third Quarter Business Update Conference Call. On the call with us this morning are Chuck Piluso, Chairman and Chief Executive Officer; and Chris Panagiotakos, Chief Financial Officer. The company issued a press release this morning containing its 2025 third quarter financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. Before we begin, please note that today's call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to various risks and uncertainties described in the company's filings with the SEC. Except as required by law, the company assumes no obligation to update or revise forward-looking statements. I'd now like to turn the call over to Chuck Piluso. Please go ahead, Chuck. Charles Piluso: Thank you, Alex. We appreciate everyone joining us today. First, I want to acknowledge the delay in the reporting of our financials. We require additional time to finalize the accounting adjustments related to the sale of our CloudFirst subsidiary, and the team worked diligently to complete this as quickly as possible. However, we're happy to be here with you today to discuss our results and our strategy moving forward. This quarter represents a defining period for Data Storage Corporation as we completed the sale of our CloudFirst subsidiary, and repositioning the company for its next phase of disciplined growth, what we call DSC 2.0. The CloudFirst sale completed on September 11, 2025 was a significant milestone for our company. That provided strong financial foundation while simplifying our structure and allowing us to focus on long-term shareholder value creation. In addition, the Board of Directors established a special committee to oversee our tender offer and buyback process, ensuring full transparency and alignment with shareholder interest. Once the tender process is completed, we'll be able to determine our final cash position, which will reflect the balance after completing all buyback transactions. We expect to move forward shortly with the tender and also a plan to launch our new corporate website in the coming weeks to highlight the company's streamlined profile and future direction. Before discussing our broader strategy, I'd like to turn this over to Chris Panagiotakos, our CFO, for a review of our financial results. Chris, take it from here. Chris Panagiotakos: Thank you, Chuck. Good morning, everyone. As Chuck mentioned, on September 11, 2025, we closed the sale of our CloudFirst business for $40 million. At the time of the sale, CloudFirst was projected to generate approximately $25 million in annual revenue and $5.5 million in EBITDA with no debt. As a result of the transaction and in accordance with auditing and reporting standards, our ongoing financial reporting now reflects only our continuing operations, specifically our Nexxis subsidiary. Sales from continuing operations, which consists of our Nexxis subsidiary, were $417,000 for the 3 months ended September 30, 2025. An increase of $92,000 or 28.2% from $325,000 in the same period last year. The increase was primarily driven by the continued expansion of our voice and data telecommunication solutions to new and existing customers. Sales from our continuing operations were $1.1 million for the 9 months ended September 30, 2025, an increase of approximately $159,000 or 17.6% from $900,000 in the same period last year. The increase was primarily driven by an expanding customer base in our Nexxis Voice and Data Solutions business. Selling, general and administrative expenses for the 3 months ended September 30, 2025, increased $313,000 or 31.8% to $1.3 million from $984,000 for the 3 months ended September 30, 2024. The increase was primarily driven by an increase in noncash stock-based compensation, primarily related to the accelerated vesting of equity awards in connection with the divestiture which triggered a fundamental transaction cause in the equity award agreements with employees as well as an increase in salaries and directors' fees due to the annual merit-based adjustments. These increases were partially offset by a decrease in professional service as certain legal and consulting projects from the prior year were completed. Selling, general and administrative expenses for the 9 months ended September 30, 2025, increased $376,000 or 13.1% to $3.2 million from $2.9 million for the 9 months ended September 30, 2024. The increase was primarily driven by an increase in noncash stock-based compensation, primarily related to the accelerated divesting of equity awards in connection with the divestiture, which triggered a fundamental transaction cause in the equity award agreements with employees as well as an increase in salaries and director fees due to the annual merit-based adjustments. These increases were primarily offset by a decrease in professional fees as certain legal and consulting projects from the prior year were completed. Net income attributable to common shareholders for the 3 months ended September 30, 2025, was $16.8 million compared to net income of $122,000 for the 3 months ended September 30, 2024. Net income attributable to common shareholders for the 9 months ended September 30, 2025, was $16.1 million compared to net income of $235,000 for the 9 months ended September 30, 2024. The significant increase in net income for the 2025 3- and 9-month period was primarily driven by the gain recognized on discontinued operations. We ended the quarter with cash, cash equivalents and marketable securities of approximately $45.8 million at September 30, 2025. The compared to $12.3 million at December 31, 2024. However, as Chuck noted, our final cash position will depend on the outcome of the tender offer and share buyback process, which will commence shortly. Thank you, and I will now turn the call back to Chuck. Charles Piluso: Thank you, Chris. The sale of CloudFirst was a transformative event for our company and our shareholders. It allowed us to unlock value, strengthen our financial position and focus on building DSC 2.0, a streamlined company pursuing selective opportunities in high-value markets. Our near-term emphasis is on disciplined execution, prudent capital allocation and operational efficiency. We are currently exploring strategic acquisitions that provide recurring revenue streams within emerging areas, such as GPU-based computing, AI enabled infrastructure, cybersecurity, but we are approaching these opportunities carefully and strategically. They remain areas of active interest, not current commitments. Our Nexxis subsidiary continues to perform well and provides a stable recurring revenue base. We see ongoing opportunities to expand Nexxis organically and through targeted acquisitions that complement our communications and data services offerings. We are also in the process of forming a special advisory group composed of experienced leaders in technology, infrastructure and cybersecurity to help identify and evaluate strategic opportunities that align with our long-term growth objectives. In addition, we are actively engaging strategic consultants to ensure that every potential investment or acquisition supports our long-term vision of profitability and sustainable growth. Looking ahead, our priorities are to complete the tender offer and share buyback process, after which our cash position and capital allocation plans will be finalized. Launched a new corporate website reflecting the company's refined focus. Also to close on an acquisition that will provide recurring revenue and to continue to strengthen Nexxis, our core operating platform today. Our experience and disciplined management philosophy, combined with our NASDAQ listing, a clean balance sheet, no debt positions us to act decisively as we uncover opportunities to invest in while continuously focusing on shareholder value. With that, I'd like to open up the call for questions. Operator? Operator: [Operator Instructions]. Our first question today is coming from Matthew Galinko of Maxim Group. Matthew Galinko: Maybe firstly, can you just remind us on what the possible outcomes of the tender look like for your cash position? Like can you bound what the low end and high end might be? Charles Piluso: Matt, that's difficult. I've run a number of models to see what that would be. And also having calls with some of our larger investors when we first announced the tender. I really cannot guess on that. If we tended all, everything, the lowest end would be approximately, I think, around $5 million. I'm estimating and then at the higher end, it could be between $10 million and $15 million. So I think it's in that range between $5 million and $15 million, but it's really -- it's too hard to really forecast that. There are really guesses with a low confidence level of what it could be. But we also have a $10.8 million ATM that's also there if we find a right opportunity that by spending that money, we're actually increasing shareholder value and not diluting them and not increasing the value. So it would be nice to be left with at least $10 million to $11 million in the company. And then as we find the acquisition cap that ATM or otherwise. But we're not going to just do it to dilute everything. We're going to do it because we have a reason. So we are trying to create a funnel of potential acquisitions that we can get done. I mean, I'm putting the pressure to try to do something by the end of March. But the smaller company sometimes are not ordered it and have to get audited. So we're pushing us to create the funnel. We also found that about sub-$5 million companies or sub-$10 million is a problem. So we need to move upstream a little bit to $10 million to $20 million. We would do more than that if we saw someone that had the right kind of bank debt, not a poisonous debt, but actually not sure. So that was a long answer. If I had to guess, I would say, it would be great to be ending up with between $10 million and $15 million. Matthew Galinko: Got it. No, I appreciate the color. That's very helpful. Maybe as a follow-up, just on a housekeeping question. But I know you mentioned there were fees that were nonrecurring in '24 compared to '25 and SG&A. Was there anything in the third quarter SG&A that for '25, that was nonrecurring. So in other words, should we see SG&A come down in the fourth quarter as we move past the major part of the carve-out of the segment? Or are we still kind of -- is the third quarter SG&A number a good run rate to be thinking about? Charles Piluso: Chris, do you want to answer that, Chris? Chris Panagiotakos: So there were not any nonrecurring charges in the quarter. All the transactions associated with the sale were booked with the sale. So I think the Q3 number is a good number to use going forward. Matthew Galinko: Got it. Very good. And then one more, and then I'll jump back in the queue. But with respect to the direction you go for acquisitions, I think you mentioned in the script that you'd consider doing a tuck-in or something small to bolster Nexxis. I'm wondering if that could end up being with some of the volatility we're seeing around expectations in the AI and infrastructure space and HPC, if kind of data and voice might be a quiet but productive use for deployment. So is there a scenario where you push harder exclusively into Nexxis? Or is that not realistic as a use of capital? Charles Piluso: Let me answer it this way. John Camello does a fantastic job in running Nexxis. And he has a small staff that we continue to add to. The platform and the building that is on makes it very easy for us to go out and let's say, pick up a $5 million VoIP company. Most of the VoIP companies have -- I'm not going to say all of them, but have maybe 40% of their revenue is in Internet access data services. And with that, you can pick that up, I think, at a decent multiple. Frankly, there's not a lot of loyalty with dial tone. So as long as you're doing a good job on customer service and dial tone exists. A lot of times, it's an easy base. I mean, many years ago, we did roll ups in telecommunications. So it's not far and technology has changed. So the multiples are not too high on it, and we are actually looking for VoIP and data access companies that are doing just what John is doing to be able to add to that base on that. And I think it's -- I don't want to use the word easy, but I believe that John can move from his $1.5 million revenue to $5 million rather quickly and $5 million can go to $10 million. It's not sexy on shareholder value, but we have running the pulp company we have some good expenses. I think our run rate in the public company is typically around $2 million a year. So picking up loyal dial tone revenue and data circuits that John does can reduce or eliminate that burn. So yes, it is a good focus. And on the AI side, with GPUs, it's very volatile. You have companies that have $750 million in revenue, and the valuation is $16 billion. So we're watching, we have some ideas on that. We've been talking to folks but as to the Nexxis piece, yes, it's an easy one first because John has a great platform, great billing, and all of that for us to be able to do that. Actually, one of our board members that was in that business that sold that business to Magic Jack for a good amount is actually helping out, trying to line up some of the brokers for us to start talking to those VoIP and data access companies. Operator: [Operator Instructions]. Our next question is coming from [ Sean Lee ] of Private Investor. Unknown Attendee: Yes. Just curious about your position on the tender offer or the one that -- is it likely to happen or the probability of that happening? Charles Piluso: Yes. Well, we stated that in the proxy when we did that. So we need to do the proxy. It's stated in there and we will be doing it. I believe that we have 90 days from close to get that actual done. So yes, that is going on. The special committee is evaluating with the price of that buyback should be for the per share but just that's happening. Unknown Attendee: Thank you. Operator: Thank you. At this time, I would like to turn the floor back over to Mr. Piluso for closing comments. Charles Piluso: Thank you. Thank you for the questions. In closing, this quarter represents a turning point for Data Storage Corporation. The successful sale of CloudFirst provided both capital, strength and strategic clarity. As we advance our M&A growth strategy, we remain focused on disciplined execution, operational excellence and shareholder value creation. We continue to evaluate new technology-driven opportunities that complement our history in enterprise infrastructure while maintaining conservative and focused approach. I'd like to thank our employees, our Board of Directors, advisers and shareholders for their continued confidence and support. We look forward to updating you on our progress in the months ahead. Thank you for joining today. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Wendy Huang: Good day and a good evening. Thank you for standing by. Welcome to Tencent Holdings Limited 2025 Third Quarter Results Announcement webinar. I'm Wendy Huang from Tencent IR team. [Operator Instructions]. And please be advised that today's webinar is being recorded. Before we start the presentation, we would like to remind you that it includes forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for measures of the group's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Let me now introduce the management team on the webinar tonight. Our Chairman and CEO, Pony Ma, will kick off with a short overview. President, Martin Lau and Chief Strategy Officer, James Mitchell, will provide business review; and Chief Financial Officer, John Lo will conclude the financial discussion before we open the floor for questions. I will now pass it to Pony. Huateng Ma: Okay. Thank you, Wendy. Good evening. Thank you, everyone, for joining us. During the third quarter of 2025, we achieved solid revenue and earnings growth, reflecting healthy trends across games, marketing services and fintech and business services. Our strategic investment in AI are benefiting us in business areas such as ad targeting and game engagement as well as efficiency enhancement areas such as coding and game and video production. We are upgrading the team and architecture of our Hunyuan foundation model, whose imaging and 3D generation models are now industry-leading. As Hunyuan's capabilities continue to improve, our investment in growing Yuanbao adoption and our efforts in developing agentic AI capabilities within Weixin will gain further traction. Looking at our financial numbers for the third quarter. Total revenue was RMB 193 billion, up 15% year-on-year. Gross profit was RMB 109 billion, up 22% year-on-year. Non-IFRS operating profit was RMB 73 billion, up 18% year-on-year and non-IFRS net profit attributable to equity holders was RMB 71 billion, up 18% year-on-year. Turning to our key services, core communication and social networks. Combined MAU of Weixin and WeChat grew year-on-year and quarter-on-quarter to RMB 1.4 billion. For digital content, TNE grew its paying user base and ARPU, solidifying its leadership position in music streaming. For games, Delta Force is now the top 3 game in China by gross receipts, while VALORANT successfully expanded from PC to mobile. And in AI, we enhanced our Hunyuan large language model's complex reasoning capabilities, especially in coding, mathematics and science. Our Hunyuan image generation model is ranked first globally among text-to-image models by LMArena. And our Hunyuan 3D model is the top ranked 3D generative model of [indiscernible]. I will now hand over to Martin for the business review. Chi Ping Lau: Thank you, Pony, and good evening and good morning to everybody. For the third quarter of 2025, our total revenue was up 15% year-on-year. VAS represented 50% of our total revenue, within which Social Networks subsegment was 17%, Domestic Games subsegment was 22% and International Games was 11%. Marketing Services was 19% of total revenue and FinTech and Business Services was 30% of total revenue. For the quarter, our gross profit was up 22% year-on-year to RMB 109 billion. VAS gross profit increased 23% year-on-year to RMB 59 billion, representing 54% of our total gross profit. Marketing Services gross profit increased 29% year-on-year to RMB 21 billion, contributing 19% of total gross profit and FinTech and Business Services gross profit increased 15% year-on-year to RMB 29 billion, contributing 27% of total gross profit. Turning to business segments. Value-added Services revenue was RMB 96 billion, up 16% year-on-year. Social Networks revenue was up 5% year-on-year to RMB 32 billion, driven by increased revenue from Video Accounts live streaming service, music subscriptions and Mini Games platform service fees. Music subscription revenue increased 17% year-on-year, boosted by growth in ARPU and subscribers. Music subscribers grew 6% year-on-year to RMB 126 million. Long-form video subscription revenue decreased 3% year-on-year. ARPU was stable while video subscribers declined 2% year-on-year to RMB 114 million due to the delay of drama series, Love's Ambition. Following its release at the end of the quarter, finally, Love's Ambition ranked among the most viewed drama series in China year-to-date. Domestic Games revenue grew by 15% year-on-year, primarily driven by Delta Force, Honor of Kings and VALORANT. International Games revenue increased by 43% year-on-year or 42% in constant currency, which is an unusually rapid rate due to recognizing revenue upfront on top of -- on copy sales of Dying Light: The Beast and also due to the consolidation of recently acquired studios. Moving to Communications & Social Networks. For Mini Shops, we're systematically building a more vibrant transaction ecosystem, resulting in continued rapid growth in GMV. We enhanced mini shop merchandise recommendations and thus sales conversions by leveraging our foundation model capabilities to better understand users' interests based on their content consumption within Weixin. We rolled out new features to enhance merchandise discovery in Weixin. For example, we added gifting capabilities in Weixin order and card page, leveraging Weixin's social graph. We also upgraded the image search feature in Weixin, which users can use to scan objects, identify them and then shop for them in Mini Shops. We also enhanced AI features in Weixin to provide new services to users and to promote greater usage of Yuanbao with encouraging results. @Yuanbao feature in video accounts and official accounts comment boxes summarizes content and also encourages users to ask follow-up questions and users like that feature a lot. We also enriched the Tencent news feed in Weixin with Yuanbao-generated content, and facilitated user exploration of news-related topics via the Yuanbao app. Now with that, I'll pass on to James. James Mitchell: Thank you, Martin. For domestic games, Honor of Kings gross receipts grew year-on-year, benefiting from collaborations with the China Literature IPs, Node of the Mysteries and Fox Spirit Matchmaker. The game achieved 139 million daily active users during its tenth anniversary event in October, which featured hero and minion outfits inspired by Bronze Age Shu Kingdom artefacts. Delta Force ranked among the top 3 games industry-wide by gross receipts in the quarter, achieving over 30 million daily active users in September including over 10 million daily active users on PC, driven by new season content, extensive first anniversary events and a global eSports tournament. We released VALORANT mobile on August 19 and it's become China's most successful mobile game launch year-to-date based on its first month DAU and gross receipts. VALORANT PC continued to grow and achieved record high DAU and gross receipts in September, benefiting from eSports-themed weapon items. The mobile launch resulted in VALORANT's combined monthly active users more than doubling from July's level to over 50 million in October. Among our international games for Clash Royale Supercell released new auto-chess mode Merge Tactics and extended its Trophy Road achievement system to 10,000 trophies, driving higher player engagement. Monthly daily active users and gross receipts achieved all-time highs in September. Gross receipts increased more than 400% year-on-year during the third quarter. Gross receipts of PUBG Mobile also grew year-on-year in the third quarter, benefiting from ancient Egyptian-themed outfits, an innovative X-suit with emote sound effects and a 2-player glider, and collaborations with Transformers and Lotus Cars. Our Polish subsidiary Techland released a new game in its Dying Light series called Dying Light: The Beast, which has achieved a very positive average user review score on Steam and which contributed to our international game revenue growing unusually quickly during the quarter due to the upfront revenue recognition of copy sales. The Marketing Services revenue increased 21% year-on-year to RMB 36 billion, underpinned by ad spend growth from all major advertiser categories. Impressions grew year-on-year as we enhanced engagement and increased ad load across video accounts, mini programs and Weixin Search. Average eCPM increased year-on-year as we upgraded our adtech foundation model with more parameters and captured additional closed-loop marketing demand. We introduced our automated ad campaign solution, AI Marketing Plus through which advertisers can automate targeting, bidding and placement as well as optimize ad creation improving their return on marketing investment. By inventory, video accounts and rich content and transaction system and its upgraded recommendation algorithms drove stronger user engagement. Increases in DAU and time spent per user contributed to ad impression growth. Advertisers increasingly adopted our marketing tools to drive traffic to their short videos, live streams in Mini Shops. For mini programs, increases in activations and time spent attracted ad spend for mini drama and Mini Games to promote their content. And for Weixin Search, increases in commercial query volume and click-through rates contributed to notable revenue growth. We improved the relevance of search ads by upgrading our large language model capabilities and optimizing sponsored results to better match user queries. Looking at FinTech and Business Services. Segment revenue was RMB 58 billion, up 10% year-on-year. FinTech services revenue grew by a high single-digit percentage, primarily driven by commercial payment services and consumer loan services. For commercial payment volume, the year-on-year growth rate was faster in the third quarter than the second quarter. Online payment volume continued to grow robustly, while off-line payment volume improved, particularly in the retail and transportation categories. For consumer loan services, our nonperforming loan rates remained among the lowest in the industry and improved year-on-year, reflecting our prudent risk management practices. Turning to Business Services. Despite supply chain constraints on sourcing GPUs, revenue grew at a teens rate year-on-year in the third quarter, benefiting from higher cloud services revenues and increased technology service fees generated from rising mini shop e-commerce transaction volumes. Revenue from our cloud storage and data management products, namely Cloud Object Storage, TCHouse, and VectorDB grew notably year-on-year due to increased demand, including from leading automotive and Internet companies. And for WeCom, we launched an AI summarization feature generate project recaps and provide advice based on users' e-mails and conversations to hand some project collaboration efficiency. And I'll now pass to John for the financial review. Shek Hon Lo: Thank you, James. For the third quarter of 2025, total revenue was RMB 192.9 billion, up 15% year-on-year. Gross profit was RMB 108.8 billion, up 22% year-on-year. Other gains were RMB 0.5 billion compared with other gains of RMB 3 billion in the same period last year, mainly due to lower subsidies and tax rebates as well as provisions paid for some receivables during the quarter. Operating profit was RMB 63.6 billion, up 19% year-on-year. Interest income was RMB 4.3 billion, up 7% year-on-year, driven by growth in cash reserves. Finance costs were RMB 3.8 billion, up 6% year-on-year due to ForEx movements and high interest expenses. Share of profit of associates and JV was RMB 7.8 billion with RMB 6 billion in the same quarter last year. On a non-IFRS basis, share profit was RMB 10.3 billion, up from RMB 8.5 billion in the same quarter last year, driven by associated company, specific factors, including this growth and improved operational efficiency. Interest expense increased by 10% year-on-year to RMB 9.8 billion, mainly driven by operating profit growth. On a non-IFRS basis, diluted EPS was RMB 7.575, up 19% year-on-year, outpacing non-IFRS net profit growth due to reduced share count after our share buybacks. Our weighted average number of shares, which we use for calculating quarterly diluted EPS decreased by 1% year-on-year. On non-IFRS financial figures, operating profit was RMB 72.6 billion, up 18% year-on-year. Net profit attributable to equity holders was RMB 70.6 billion, up 18% year-on-year. Moving on to gross margins. Overall gross margin was 56%, up 3 percentage points year-on-year. By segment VAS gross margin of 61%, up 4 percentage points year-on-year, mainly driven by greater contributions from certain internally developed high-margin games. Marketing Services' gross margin was 57%, up 4 percentage points year-on-year due to higher contributions from high-margin revenue streams, including video accounts and Weixin Search. FinTech and Business Services' gross margin was 50%, up 2 percentage points year-on-year due to improved revenue mix within fintech services. On third quarter operating expenses. Selling and marketing expenses were RMB 11.5 billion, up 22% year-on-year, reflecting increased promotional efforts to support the growth of our AI native applications and games. R&D expenses rose by 28% year-on-year to RMB 22.8 billion, primarily due to higher staff costs and increased infrastructure investment to support our AI initiatives. G&A, excluding R&D expenses increased by 2% year-on-year to RMB 11.4 billion. At quarter end, we had approximately 115,000 employees, up 6% year-on-year or 3% Q-on-Q, primarily reflecting headcount conditions for both games and our technology platform, including AI-related accounts. Our third quarter non-IFRS operating margin was 38%, up 1 percentage point year-on-year. Operating CapEx was RMB 12 billion, down 18% year-on-year, primarily due to supply changes. Non-operating CapEx was RMB 1 billion, down 59% year-on-year, reflecting higher base last year related to construction in progress. Free cash flow was RMB 58.5 billion, largely stable year-on-year as operating cash flow growth was offset by higher CapEx payments. On a quarter-on-quarter basis, free cash flow was up 36% due to higher games gross receipts. Net cash position was RMB 102.4 billion, up 37% Q-on-Q or 27.8% -- RMB 27.8 billion, mainly driven by free cash flow generation, partially offset by share repurchase were RMB 19.2 billion. Wendy Huang: [Operator Instructions]. The first question comes from Liao Yuan from Citic. Thomas Chong: Congrats on the strong results. My first question is about your gaming business. Your international gaming business growth rate has been accelerating for multiple quarters. So I just want to know what have you done right to achieve such good results? And how should we think about the growth trend going forward. Besides, could you share more thoughts on your international gaming strategy? For example, will you continue investing in high-quality overseas game studios or bring more developed games to global markets? And my second quick question is about your CapEx. This quarter, CapEx was around RMB 13 billion, but the cash payment for CapEx was RMB 20 billion. So how should we interpret the difference between these 2 figures? And is there any new update to your full year CapEx guidance? James Mitchell: Great. Why don't I start with the questions around games and the growth rate of the international game business, the strategy for the international game business. So the growth rate that we reported for the quarter for the international game business is substantially faster than the underlying trend line, and that's because during the quarter, we had the benefit of consolidation of newly acquired or recently acquired games studios as well as the benefit of the upfront revenue recognition on copy sales for the game Dying Light: The Beast. So going forward and looking into the fourth quarter, you should expect the growth rate for the International Games subsegment to decelerate closer to the underlying trend line. In terms of the strategy for our International Games business, yes, the drivers that you mentioned, we'll continue seeking to acquire games studios. We'll continue seeking to partner with overseas games studios, and we'll continue seeking to bring more games that are made in China to a global audience as well. Shek Hon Lo: In terms of CapEx, the difference reflects timing gap between the accrual of server-related expenditure and cash payment, which can cause temporary mismatches between the 2. In particular, the credit period for us to pay server suppliers is usually 60 days. In terms of the CapEx for 2025 to share with you, in 2024, our total CapEx grew by 221% year-on-year and was about 12% of the revenue. Previously, for 2025, we guided total CapEx was -- as a percentage of revenue to be at low teens and the 2025 CapEx will be lower to our previous guided range, but the amount will be higher than that of 2024. Wendy Huang: We will take the next question from Alicia Yap from Citigroup. Alicis a Yap: Congrats on the solid results. First question, can management elaborate about your comment on the upgrading Hunyuan team and also the Hunyuan infrastructure? What should we be expecting to see from the upgraded version? And then does management have any updated view on how Yuanbao might complement the AI capabilities that you have embedded into the Weixin ecosystem in the past few months? And then second question is on your advertising marketing service revenue. So does that automated ad campaign solution, the AIM+ better serve the smaller advertiser? Should we expect the solution to drive broader adoption rate for advertisers and drive higher ROI spending that support potentially accelerations of the ad revenue growth in the coming quarters? Chi Ping Lau: Yes. In terms of the Hunyuan team and the Hunyuan architecture, we are actually hiring more top-notch talent, especially in the research area in order to complement our existing strong engineering team and they are complementary to each other. And we have also been improving the Hunyuan overall architecture across different dimensions such as improving the hardware and software infrastructure in order to support better data preparation to support better pretraining of the model as well as to support reinforced learning across different knowledge domains at scale. So these are the improvements that we are making more specifically on the Hunyuan team as well as the Hunyuan architecture. Now in terms of how Yuanbao and Weixin complement each other, I would point to the fact that Weixin has actually introduced a number of AI features based on Yuanbao's capability. For example, in the prepared comments, we actually talked about the @Yuanbao feature in video accounts and official accounts comment box, which allows users to ask Yuanbao to summarize the content so that they can actually have very quick reference. And it actually encourage a lot of interesting additional follow-up questions and follow-up comments based on the summary of what Yuanbao provided. And we also enriched the Tencent News feed in Weixin with Yuanbao-generated content and allowed a lot of users to use that as a way to explore more news content, related news content as well as ask questions on the news content. And we are actually adding more and -- we are planning to add more functionalities of Yuanbao into Weixin so that -- those functionalities actually, one, serve the Weixin users better; and, two, actually help Yuanbao to gain a larger audience. And more and more of these audience find Yuanbao's capability through Weixin and eventually become a Yuanbao app user. So that's sort of complementary to each other. James Mitchell: And Alicia, in terms of the AIM+ automated ad campaign solution, we believe the automated ad campaign solution benefits all advertisers who deploy it by enabling them to automatically reach inventories as well as user profiles that are more performant than the inventories and user profiles they were manually targeting. You're right to say that small and medium-sized businesses are the first or the most eager to adopt this kind of product because they have the least legacy process to replace, and that's what we're experiencing right now. But we're also seeing bigger advertisers adopting AIM+ too that parallels the experience of Meta's Advantage+ automated ad solution overseas. Thank you. Wendy Huang: We will take the next question from Gary Yu from Morgan Stanley. Gary Yu: My first question is a follow-up on Yuanbao and Weixin. It appears that both the Yuanbao adoptions and also agentic AI function of Weixin hinder on foundation model capabilities, but yet CapEx spending remains slow according to your latest comment. So is there a risk that the company is not aggressive enough such that the potential AI application market could be lost to other companies who have either better model capabilities or more aggressive CapEx spending? And my follow-up question is regarding some of the expense items, selling and marketing and R&D. So when should we expect some of the internal AI adoption to benefit on cost efficiency in order to offset some of the investment that we have talked about on Yuanbao and game advertising. Chi Ping Lau: Yes. In terms of adoption and also the CapEx spending at this point in time, we actually believe that there's no insufficiency of GPUs for us at this moment. It's -- all our GPUs are actually sufficient for our internal use, and there is some limiting factor for external cloud revenue. Now in terms of the Yuanbao capability and Hunyuan model capability, as I talked about to Alicia's questions, we are actually making a lot of improvement in terms of our team, in terms of our talent recruitment and in terms of our Hunyuan infrastructure and overall process of the Hunyuan research. And I would say we are actually happy with the progress we have made already. And if you wait a little bit for our next model, you can see meaningful improvement in terms of the Hunyuan capability. And I believe with the new improvements that we have been making, we'll continue to pick up pace on the Hunyuan capability. And at this point in time, we actually do not believe that there is a decisive better model in China as everybody is actually locked in a pretty close race and different models may be different, maybe better in different use cases as well. So we don't believe we are really behind. And as we continue to improve our Hunyuan capability, and we actually have been also seeing quite a good ramp in terms of Yuanbao engagement. So I think you see both the model capability as well as our AI products keep on improving. Now in terms of the expenses, I think at this point of time, the G&A expense, especially the R&D is actually some of that is related to our AI investment. So there's a natural ramp-up because we invest more in AI. And if you look at the benefits of AI, at this stage, a lot of the efficiency gains are more on the revenue side and the gross profit side. So you see pretty good growth in those items. But in terms of the cost item, I would say we have already done pretty big organization optimization a few years back. And the organization that we have is actually lean and efficient and AI adoption actually allows our team to do more as well as instead of -- to reduce cost, which I think some other companies you are probably comparing with. Wendy Huang: We will take the next question from Alex Yao from JPMorgan. Alex Yao: Congrats on a very strong quarter and also thank you for playing a very smooth and relaxing music before the call. I will ensure I watch this TV drama after the earnings season. So 2 questions from my side. First one, you mentioned that Tencent is developing agentic AI capabilities within Weixin in the prepared remarks. Can you share your thoughts about how agentic AI creates value to consumers in Weixin. I'm particularly interested in your thoughts around Agentic commerce. Second one is on CapEx. Did I hear John right that the CapEx for 2025 will be lower than the previous guidance, but higher than the '24 actual CapEx spending. If I get that right, does it reflect a change of AI chip availability or a change of AI investment strategy or a change of your expectation of future token consumption? Chi Ping Lau: Yes. On your second question, the answer is you heard it right. And it's not a reflection of our change in AI strategy. It's not a change in terms of expectation of future token consumption. It is indeed a change in terms of the AI chip availability. Now in terms of the agent AI capabilities, right, I think the blue sky scenario is that eventually, Weixin will come with an AI agent that actually can help the user to essentially do a lot of tasks within AI -- within Weixin leveraging AI, right? Because if you look at the ecosystem of Weixin, it has very strong communications and social ecosystem, and it has a lot of data that allows the agent to understand about the users' needs as well as the intentions and interest. It has a very strong content ecosystem in the form of official accounts and video accounts. It has a mini program ecosystem, which essentially includes most of the use cases on Internet. It has a commerce ecosystem, which allows people to buy stuff and the payment ecosystem, which actually allows people to pay for it almost immediately. So that is almost ideal assistant for users and understands about the users' needs and can actually perform all the tasks within the ecosystem. So that's the blue sky scenario. Now I think how do we get there? At this point in time, it's actually very early stage in terms of development. Weixin is doing a number of things in parallel. For example, it's introducing Yuanbao capabilities into Weixin so that we can test out a lot of the AI features on a stand-alone basis within Weixin. It's also enhancing search with AI so that we can serve the users' search and information collecting as well as analysis needs more efficiently. We are also starting to work on vertical agent capabilities. And that's something that we are working on. We have not launched these yet. But then very likely, we'll be sort of working on functionality one by one. But eventually, we can actually sort of integrate all these agentic capabilities as well as the AI features so that we can actually create this blue sky scenario of Weixin agent. I think in terms of agent commerce, right, I think there's the agent side and there's the commerce side, the commerce, we're actually making very good progress in terms of building up our e-commerce ecosystem and the mini shop is actually growing very nicely in terms of GMV. Over time, as it continued to grow, right and as we work on the vertical agents, right, at some point in time, we will have agent e-commerce as well. But that's a bit later in the process. Wendy Huang: We will take the next question from William Packer from Exane BNP. William Packer: Congrats on the strong quarter. Firstly, Bloomberg have reported today that you've come to terms regarding a 15% commission with Apple within the WeChat ecosystem, below their usual 30%. While you probably prefer not to talk about the specifics in the press article, could you help us think through the implications of your improving relationship with Apple and the impact on your business, particularly in Mini Games and domestic video games? And then secondly, as a follow-up, Q3 was another very good quarter for Marketing Services with revenue growth accelerating. Could you help frame the growth outlook in the shorter term and for 2026 and any new structural or cyclical factors to consider? Chi Ping Lau: Well, in terms of Apple, right, what I could say is that, number one, we have a very good relationship with Apple, and we have sort of collaborated on a lot of different areas. And we have been in discussion with Apple to make the mini game ecosystem more vibrant. And we are constructive with the progress that we've made so far. And I think at some point in time, there may be an official announcement. And I think everybody should wait for that. James Mitchell: And in terms of the advertising growth outlook, we think that it's largely a continuation of current trends. Overall, China consumer spending is subdued, but gently improving, which is a gentle tailwind for advertising spending on the demand side. And then in terms of the supply that we provide, we'll continue deploying more AI capabilities, including the AIM+ program automated ad campaign program that I referred to earlier. Thank you. Wendy Huang: We will take the next question from Charlene Liu from HSBC. Charlene Liu: I think a quick one on R&D spending, especially as a percentage of revenue. How do we expect that to trend in the near and medium term? And then separately, we've seen really good GPM optimization at the segmental level. How should we think about overall impact to OPM taking into consideration potential uptick in AI investments, depreciation costs and whatnot? Yes, so those 2, I wanted to kind of see how that margin net impact will sort of play out in the medium term. James Mitchell: Why don't I take the gross profit margin question. And first of all, to clarify, while the gross margins of our various segments have been trending upward over time, that's not purely or even primarily due to sort of optimization efforts per se. There are some subsegments such as cloud, where we have taken a number of measures to optimize profitability, and that has flowed through into higher gross margins in the last 2 years. But for most of our segments, the improvement in gross margins is more a function of the positive mix shift toward higher-quality revenue streams that we've talked about a number of times in recent quarters. In terms of the dynamic between gross profit margin and operating profit margin, I would not put too much weight on that quarter-to-quarter because there are costs which at an early stage in a product development cycle, we would expense under R&D and therefore, come below the gross profit line. But then as we actually make the product more widely available, commercialize the product, we would move the costs from R&D expense into cost of service and therefore, above the gross profit line. So I would probably focus more on revenue growth, operating profit growth without getting too fixated on gross profit margin versus operating profit margin. Wendy Huang: We will take the next question from Kenneth Fong from UBS. Kenneth Fong: Congrats on a strong result. I have a question about the investment strategy. Given the strong equity market performance year-to-date globally, could management share some thoughts on our investment portfolio and strategy and direction? So basically, how should we deploy or recycle our capital? James Mitchell: So as you point out, markets have been quite buoyant both in terms of price and in terms of liquidity. And so we've been taking advantage of that buoyancy to more actively recycle our portfolio primarily via some on-market sales of our investment holdings. We've also been new investing in some emerging growth opportunities as well as our normal sort of focus areas such as games and digital content. But overall, year-to-date, divestments have exceeded investments by over $1 billion. And we've been actively investing in some interesting AI start-ups, particularly in China, where we can see a sort of new wave of value creation ahead. Wendy Huang: We will take the next question from Ronald Keung from Goldman Sachs. Maybe we go to the next question if Ronald not online. So we will take the next question from Robin Zhu from Bernstein. Robin Zhu: I guess 2 questions on gaming, please. One is if we look at the shooter genre, I think there seems to be a bit of a changing of guard with Battlefield, Delta Force, ARC Raiders is now doing quite well. Would be curious your thoughts on what you think is happening at the genre level. And for Delta Force specifically, what it would take, what's being planned to get the game from #2 -- #3 closer to the top 2 games? Is it realistic to expect that, that happens at some point or not? And I guess a follow-up on an earlier question on the Mini Games developments, I'd be curious if you could try and dimension some of the relative contributions of in-app advertising versus in-app purchases on Android right now and whether we think that this discussion going on with Apple is -- primarily on Mini Games has been reported? Or is there a broader discussion going on about -- or could potentially go on about the broader games business as a whole? James Mitchell: Robin, so in terms of what's happening with first-person action games, then outside China, as you say, there may be a changing of the guard. Within China, I think that Delta Force has obviously been performing gratifyingly well, but VALORANT has had an exceptionally strong year. And then Peacekeeper Elite, Arena Breakout, Crossfire Mobile, pretty much all of our first-person action games have actually been growing DAU or growing monetization or mostly both during 2025 year-to-date. So to me, that's not really a changing of the guard. It's more an expansion of the royal guard, if you will, which I think speaks to the fact that first-person action games are the leading game genre in the rest of the world. They're not yet the leading game genre in China, but with Delta Force and VALORANT and Peacekeeper Elite and the rest, we're seeking to bring them to the position that they should enjoy. In terms of growing Delta Force further, then we're really embracing platformization with our biggest games. And Delta Force unusually is sort of built from day 1 to support platformization in terms of its modularity. With more platformization, we can also support more new modes. And then one of the new modes that has done very well in Peacekeeper Elite, in PUBG Mobile and over time, we'll seek to nurture in Delta Force is user-generated content. And then we'll continue to add player versus environment content. We'll continue to strengthen the stream ecosystem and generally apply the experiences that we've accumulated over 17 years of launching 40 first-person action games in China to Delta Force. And then on your second question, the stories refer to Mini Games, not to app-based games. And at this point, the majority of the Mini Games revenue is in-app purchase rather than in-app advertising. So we'd theoretically benefit. Thank you. Wendy Huang: We will take the next question from Thomas Chong from Jefferies. Thomas Chong: Congratulations on a very strong set of results. My question is on the FBS side. Given that we are emphasizing more on the consumer loan side, I just want to get some color with regard to the macro environment. Is this a factor that we need to take into consideration about our consumer loan revenue growth? And if we look into our cloud revenue, how should we think about the growth rate going forward? Should we take into account the CapEx spending? Or should we expect the growth may decelerate because of less CapEx? Chi Ping Lau: So in terms of the FBS, particularly with respect to fintech, I think if you look at the fintech, there are 3 major businesses within fintech. One is our payment business. The second one is wealth management. The third one is loans, right? And in terms of macro environment, macro environment has the biggest bearing on the payment business because payment business is already very big. It tracks pretty closely with consumption growth in China. And there was a time in which the consumption growth was actually in more challenging state. I think over time, it's gradually improving. And what we see is in China, the consumption growth has been slow, and it's mainly due to the fact that a lot of consumers ramp up their savings during a period in which their balance sheet was actually sort of dragged down by the decline in property prices. So unlike a lot of the other economic downturns around the world, which are driven by excessive credit and a lot of people would go bankrupt, right? In China, it's just sort of people have resources, but then they decide to save more instead of spending more. We actually sort of -- so that's why we think there is actually potential for consumption to grow if people start to feel that they are secure now with the additional savings. And at the same time, if property prices stop declining, I think people will probably begin to spend more. I think this year, we have seen stock prices have been sort of pretty strong and that adds to the household balance sheet, and that is slightly a positive factor. And at the same time, if you look at consumer loans, right, because people are not stretched from a balance sheet perspective, they're just sort of saving more. It's not actually sort of affecting consumer loans delinquency that much. And by the way, we have been sort of very self-constrained in terms of extending loans, in terms of loan amount and also because of the data that we have, right? I think our underwriting is actually very conservative, very data-driven and our delinquency is among the industry leading. So that's essentially on the fintech side. In terms of cloud business, I think we have been increasing our revenue finally sort of this year, right? In the past few years, our revenue has not grown that much, but our gross profit has grown very significantly. And this year, we're growing both the revenue as well as the gross profit and the business is actually sort of profitable. One constraint of cloud business growth is availability of AI chips because when AI chips are actually in short supply, we actually prioritize internal use as opposed to renting it out externally. And the other way to say is if there is not an AI chip supply constraint, then our cloud revenue should be growing more quickly. Wendy Huang: We will take the next question from John Choi from Daiwa. Hyungwook Choi: I just want to quickly follow up on the advertising business. I think another strong quarter, as you said. But I think last quarter, management mentioned that it was more due to AI implementation. But for this quarter, can you kind of elaborate a bit more how impact from AI and how that has reshaped the overall conversion and pricing for our ad business. So if you take that out organically, what kind of growth could it be seen? And also just on the -- quickly -- a quick follow-up on the payment side. I think Martin just mentioned that the overall household spending has a high relation. But you also, I think you mentioned the retail and transportation category has done well on your volume growth. Especially on the grassroots side, have you noticed any trends that we are seeing on industry-specific levels and in terms of the transactions or the transaction size that gives us more confidence that over the past couple of quarters to see the improvement trend? James Mitchell: Why don't I take those? So in terms of the advertising revenue, roughly half of the growth or about 10 points was due to higher eCPM, which we attribute primarily to AI-supported adtech as well as the closed loop benefits. And then the other half was due to increased impression volume, which reflects increased user engagement and increased ad load. In terms of the commercial payment volume trends, then there is a measured improvement. As Martin spoke to, it's positive that China consumers have accumulated substantial savings, above trend savings in recent years. So they may be less worried by property price fluctuations and more receptive to the stock market performing well than would otherwise be the case given the substantial pent-up spending power. And we have seen that the online payment volume has continued to grow quite steadily through the weaker periods and now through this more stable period. But the off-line payment volume, which had been very suppressed and under pressure for a period of time, has also started to recover. So while online payment volume is growing faster than offline payment volume, the gap has been narrowing as off-line payment volume has improved in categories, including transportation and retail, which I suppose reflects people going out and about more often. Chi Ping Lau: But I have to stress such improvement is still pretty nascent. So we actually need to see it for a few more months in order to sort of have more confidence in saying this is a trend. Wendy Huang: We will take the last question from Ronald Keung from Goldman Sachs. Ronald Keung: Sorry for the technical. I have a question on advertising. Just following up on -- I want to hear how the AI Marketing Plus product, any early data points on the performance and ROI for merchants on that? And I also see you mentioned Mini Shops in one of the very early bullets in the results. So could you quantify the potential of that ad potential that I'm particularly looking for the increasingly vibrant Mini Shop transaction ecosystem, the ad potential there? And then my second question, I just want to ask about the analogy from Weixin and QQ because we have seen Facebook and Instagram kind of serving different cohorts within the company, and we have been serving those with Weixin and QQ as well. Any parallels and differences how we see Weixin as a key product, but also potentials for different products serving cohorts within domestic China? Just an open question -- open-ended question. James Mitchell: Why don't I start with the question around AIM+. So when you introduce this automated ad campaign system, the biggest sort of leap for the advertisers is allowing us as the platform operator to actually manage the bidding process on their behalf. And of course, there's degree of internal conservatism within the bigger advertisers as to whether to entrust the platform to manage the price or not. And typically, the larger advertisers will run the automated and the manual processes in parallel for a period of time and compare the ROI to verify whether the automated process is delivering more performance or not. And we've turned on that automated bidding tool relatively recently, but the early results are positive. Those advertisers who are adopting the automated solution are enjoying superior returns. And therefore, the percentage of our advertisers and the percentage of our advertising spending that is going through AIM+ is steadily increasing. And in terms of the Mini Shops, then I think you can benchmark the advertising to GMV ratios of the incumbent e-commerce marketplaces in China across to the GMV for Mini Shops, which is growing very quickly. And that will give you a sense of the advertising revenue potential from the mini shop operators. So that's on the advertising question. Chi Ping Lau: Yes. In terms of Weixin and QQ and then sort of analogy for rest of world, for example, sort of Facebook and Instagram. I think it's a very interesting question. And I think there are some fundamental differences, right, in the sense that, number one, if you look at Instagram and Facebook, they are primarily social networks, right? And if you look at Weixin and QQ, they are both communication network and social network. So if you have social network and it's sort of -- it's content-based, then it's actually easier for you to have different groups of people dialing in and reading different content versus communication, then the network effect of communication platform is actually sort of stronger. And the other thing is that China is much more mobile-oriented versus I think the rest of the world, there are still a lot of people who are using PC and if you have PC, then Facebook seems to be sort of adding more PC users. And I think thirdly is if you compare Facebook and Instagram, right, Facebook tends to sort of keep the more mature users and Instagram sort of more younger people. But in China, it's actually different between Weixin and QQ, right? The QQ users are primarily sort of younger in nature. So I think there is some fundamental differences. But at the same time, Weixin and QQ are serving different user group and different use cases. A lot of the younger people also have Weixin, but then they use QQ so that they would not be seeing their parents and their teachers and some people -- younger people would not be seeing their colleagues. And so I think going forward, when we continue to evolve QQ as a product, right, then we should actually latch on to these features and these user needs and sort of make it more fun, make it very differentiated from Weixin. Weixin probably will serve all purpose, whereas sort of QQ will serve the younger people, more active people, and we should sort of try to provide a lot of functionalities. You can meet new people, you can sort of serve more of your interest-based groups. And I think that's the way we are going to be differentiating QQ and Weixin and make sure that they serve our users in different use cases and scenarios. Wendy Huang: Thank you. We are now ending the webinar. Thank you all for joining our results webinar today. If you wish to check out our press release and other financial information, please visit the IR section of our company website at www.tencent.com. The replay of this webinar will also soon be available. Thank you and see you next quarter.
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology Third Quarter 2025 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided with for management's prepared remarks. [Operator Instructions] I will now turn the call over to Mr. Matthew Zhao, VP of Capital Markets and IR at Kuaishou Technology. Huaxia Zhao: Thank you, operator. Good evening, and good morning to everyone. Welcome to Kuaishou Technology Third Quarter 2025 Financial Results Conference Call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Chairman and CEO; and Mr. Jin Bing, our CFO. Before we start, please note that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ from those discussed. The company does not undertake any obligation to update any forward-looking information, except as required by law. For important information about this call, including forward-looking statements, please refer to the company's public information or third quarter 2025 results announcement ended at September 30, 2025, issued earlier today. During today's call, management will also discuss certain non-IFRS measures. These are provided for additional information and should not replace IFRS-based financial results. For a definition of non-IFRS financial measures and reconciliation of IFRS to non-IFRS financial results and related risk factors, please refer to the third quarter 2025 results announcement. For today's call, management will use Chinese as the main language. A third-party interpreter will provide simultaneous English interpretation in the prepared remarks session, and a consecutive interpretation during the Q&A session. Please note that English interpretation is for convenience purposes only. In case of any discrepancy, management's original language will prevail. Lastly, unless otherwise stated, all currency units mentioned are in RMB. Now I'll turn the call over to Yixiao. Yixiao Cheng: Hello, everyone. Welcome to Kuaishou's Third Quarter 2025 Earnings Conference Call. In Q3, we continued to advance our AI strategy, expanding scenario-based AI applications and innovative use cases across our business. These efforts created a tangible business value across all business scenarios, strengthened the quality and efficiency for our organizational infrastructure and fueled strong operational financial results. Average DAUs on the Kuaishou App surpassed 416 million in Q3, marking the third consecutive quarter of record highs. Total revenue for Q3 rose by 14.2% year-over-year to RMB 35.6 billion. Revenue from our core commercial business, online marketing services and other services, primarily e-commerce, increased by 19.2% year-over-year. Adjusted net profit rose 26.3% year-over-year to RMB 5 billion with an adjusted net margin of 14%. We achieved a year-over-year growth in the group's overall profitability while continuing to invest strategically in AI, a catalyst for unlocking deeper value across our content and business ecosystems. First, our AI strategy and the progress of our large video generation model, Kling AI. We continue to refine the foundation models behind Kling AI, developing new features to meet creators' diverse needs and build a one-stop creative productivity platform that empowers everyone to tell captivating stories with AI. In Q3, we launched Kling Lab and upgraded the start-and-end-frames function and introduced digital human solution. Notably, at the end of September, we released the Kling AI 2.5 model, achieving substantial advances in prompt adherence, dynamic effects, style consistency and visual aesthetics. Just 10 days after launch, the model was simultaneously ranked as the world's #1 text-to-video and image-to-video model by Artificial Analysis.ai independent AI benchmarking platform. While maintaining its leading content generation performance, the new model also integrates continuous engineering innovations that lower video inference costs, reducing creators' per video-generation expense by almost 30% and further strengthening Kling Al's cost-efficiency advantages. Kling AI's innovations in foundational models and product features have provided creators with higher-quality video generation solutions, establishing a foundation for broader adoption across professional creative fields such as marketing, e-commerce, film and television, short plays, animation and gaming. As Kling AI continues to expand its use cases, it has made breakthroughs in monetization and revenue growth. In Q3, revenue from Kling AI exceeded RMB 300 million. Kling AI is committed to empowering global creators and building a premium ecosystem. In September, we launched the Kling AI NextGen Creative Contest, which received over 4,600 entries from 122 countries and regions worldwide, covering diverse fields such as history, science fiction and animation. Outstanding works were screened at international film festivals, including Cannes, Tokyo and Busan for the integrating AI-powered film and TV works with traditional film and TV industries. In Q3, we achieved strong results from integrating AI into diverse internal and external use cases. On business empowerment, large AI models have now been integrated across all of Kuaishou's major business scenarios, driving incremental value across our ecosystem. We iterated our end-to-end generative recommendation large model, OneRec and extended beyond short video recommendations to additional recommendation scenarios such as online marketing services and e-commerce shopping mall. This expansion has generated meaningful incremental benefits. In Q3, large AI models demonstrated notable effects, especially in online marketing services. We pioneered a generative reinforcement learning-based bidding model that integrates sequence modeling with goal optimization. This innovation transformed advertising bidding from a single-step decision-making to long-term strategic planning, significantly enhancing bidding capabilities and ROI for clients, especially for small and medium-sized, one. Meanwhile, we explored using end-to-end generative recommendation in online marketing service scenarios through OneRec. Tailored to the characteristics of online marketing services, we introduced the client marketing expression and marketing commercial value perception mechanism to achieve bidirectional matching between users' interest and clients' demands, enhancing personalization and matching efficiency. Large AI model technologies, especially OneRec drove roughly 4% to 5% growth in domestic online marketing services revenue in Q3. In terms of online marketing material generation, Kling AI's large model has significantly reduced video production costs for clients. Meanwhile, advanced digital human technology has also opened up new operational scenarios in live streaming for both online marketing clients and e-commerce merchants. Consequently, the total spending from online marketing services driven by AIGC marketing materials exceeded RMB 3 billion in Q3. For e-commerce, we launched OneSearch, an end-to-end generative retrieval architecture. It enables more precise product matching and optimizes the user experience, driving nearly 5% growth in shopping mall search order volume. The adoption of OneRec in e-commerce also contributed to high single-digit GMV growth in the shopping mall feed in Q3. For entertainment live streaming, we leveraged Kling AI to introduce the AI Universe gift customization feature, which generates highly personalized avatar-based personal gifts, increasing both user engagement and willingness to pay. Second, user growth and content ecosystem. In Q3, average DAUs on the Kuaishou App reached 416 million and MAUs reached 731 million. This is the third consecutive quarter that average DAUs reached a record high. The sustained and steady traffic growth reflects Kuaishou's community's unique appeal to users. By refining our user growth strategies, offering distinctive and diverse content, optimizing our traffic allocation mechanism and enhancing community engagement, we continued to reinforce Kuaishou's identity as a heartwarming, diversified, informative and engaging online community. In Q3, average daily time spent per DAU on the Kuaishou App was 134.1 minutes, while total user time spent rose by 3.6% year-over-year. Our refined user growth strategies leveraged smart marketing material placement to enhance acquisition efficiency, lowering the acquisition cost per new user year-over-year. In traffic allocation, by modeling users' long-term user interaction patterns, we improved both user satisfaction and retention. We also continue to upgrade users sharing experience within private messaging and iterated on social interaction features. As a result, the daily average penetration rate of private messages among users with mutual followers increased by more than 3 percentage points year-over-year. We also elevated the user product experience through a series of device-level intelligent optimizations. In content operations, we partnered with the Beijing Radio and Television Station to launch the 2025 Kuaishou Super Summer Gala, where celebrities and everyday users come together and celebrate. The live stream session attracted a peak over 5.4 million concurrent users. To cater to young audiences, we hosted an online concert hosting -- featuring TNT, which drew 980 million live streaming views. In the pan-knowledge category, we curated the Liyuan Music Festival Summer Tour series, showcasing offline tours across diverse traditional art forms such as Qinqiang and also Shanbei Storytelling. By bringing these live performances to audiences, we helped benchmark creators like An Wan achieve cumulative accretive breakthroughs and gain recognition. Third, online marketing services. In Q3, revenue from our online marketing services reached RMB 20.1 billion, up 14% year-over-year. With the growth rate accelerating quarter-over-quarter, we continuously iterated and upgraded our online marketing placement products with AI models. Drawing our unique traffic dynamics, we cater to the needs of more marketing customers through our smart placement capabilities, achieving more precise targeting and higher conversion rates. This drove strong year-over-year growth in both external and closed-loop marketing services revenue. In Q3, our UAX solutions accounted for over 70% of external marketing spending. Ongoing innovations, iterations, particularly with our generative and reinforcement learning-based bidding model and generative recommendation large model further improved marketing recommendation efficiency and enhanced management of marketing variety and value. The combination of our 3 key AIGC commercialization tools, AIGC short video, digital human and digital employee has empowered our customers with an end-to-end AI solution covering marketing material creation, live streaming operations and user engagement. In Q3, for closed-loop e-commerce marketing services, we upgraded the product and content optimization capabilities of our omni domain platform marketing solution to maintain a steady supply of premium marketing materials. By integrating multi-content reinvestment and ROI bidding recommendation tools, we helped e-commerce merchants improve traffic and at sales conversions, thereby enhancing their willingness to invest in marketing placement. In Q3, total marketing spending from omni-platform marketing solution accounted for over 65% of our closed-loop marketing spending. Additionally, we established a bidding agent based on AI capability to replace mutual -- manual adjustment decisions, enabling more consistent conversions and unlocking greater economies of scale. On the traffic side, by enhancing the synergies between e-commerce and commercial value, we released more traffic capacity to merchants with long-term operations, helping more brand e-commerce merchants achieve a scaled expansion and stable conversion improvements. From a scenario perspective, in Q3, closed-loop e-commerce marketing services in pan-shelf-based scenarios also realized a solid growth. We optimized people to goods matching in pan-shelf search, and we used large models to better meet the users' needs and improve efficiency. These efforts increased marketing placement and penetration and drove stronger merchant participation. In Q3, for the lifestyle service sector, where clients mainly operate on a lead-based model, we upgraded our private messaging products and optimized vertical-oriented products. These improvements helped clients reach users more efficiently and achieve higher user conversion rates across various conversion goals. In lifestyle services, particularly among our small and medium-sized customers, we improved private messenger response rates with AI-powered customer service. In Q3, we combined our local services with a lead-based marketing business to form our lifestyle service segment, integrating teams, product lines and traffic distribution. This unification strengthens our ability to support merchants pursuing sustainable operations and help build a more diversified collaborative ecosystem with local customers -- merchants. These 3 -- the content consumption sector led by short plays was another key revenue driver for our external marketing services in Q3. We continued to enhance content supply and product innovation across short plays, mini-games and novels, while capturing incremental growth opportunities from the rapid rise of comic-style short plays, further expanding external marketing services revenue. Comic-style short plays combine features of comics, short plays and audio dramas, typically featuring vertical-screen episodes to 1 to 3 minutes long. This new genre has recently gained widespread traction among the broader market. Kling AI has significantly lowered the barrier to creating comic-style short plays while elevating overall content quality. In addition, through a mix of marketing placement, revenue sharing, IAA and IAP models, we created multiple monetization pathways for high-quality short-play content, expanding reach on both the supply and demand side. Fourth, our e-commerce business, in Q3, our e-commerce GMV grew 15.2% year-over-year to RMB 385 billion. Through a mix of merchant incentive programs, omni-domains traffic support and intelligent tool empowerment, we helped merchants build omni-domain operations ecosystems, continuously elevating user experience and driving high-quality supply and demand growth. To support the merchants sustainable growth, we encourage them to adopt an efficient conversion path that integrates public and private domains using public domains to acquire customers and private domains to strengthen retention. In Q3, the mix of our e-commerce monthly average paying users showed healthy trends. Active e-commerce users repeat purchase frequency increased year-over-year and user stickiness continued to improve. In Q3, in e-commerce supply, building on our platform's traffic and content-based e-commerce advantages, we continued to attract new merchants organically and onboarded merchants through a diverse channels. We introduced a range of incentives to lower onboarding costs and entry barriers for new merchants. In addition, we continue to launch initiatives to empower new merchants to navigate early growth stages and ramp up operations more efficiently, driven by a growing number of small and medium-sized merchants together with our targeted support for high-quality existing merchants, our average monthly active merchant base continued to grow. We also broadened the range of products, number of Level 3 product categories per store among our average monthly active merchants increasing by nearly 30% year-over-year. To empower merchants and KOLs in Q3, we launched a series of initiatives to unlock greater value creation within their private domains supporting their ability to build a dual growth engine of exceptional content and superior products. We launched the Pop-Up Follower rewards product to accelerate follower growth and empower merchants and KOLs from traffic generation to follow conversion ultimately to sales. With a stronger control over merchandise selection and supply, we expanded our product portfolio of high-quality platform native offerings. We focused on the premium brands through our KOL blockbuster initiative, leveraging the traffic pool of gift products to spotlight, dedicated live streaming sessions for [ treasury ]brands, supported by improved KOL product matching, KOL targeted vertical outreach and platform incentives. We expanded the KOL engagement, enhanced brand performance and empowered KOLs to address product selection and assortment expansion challenges. In Q3, the average daily number of active merchandise items increased by over 30% year-over-year. We provided guaranteed resources such as traffic support and product supply to onboard small and medium-sized KOLs and established long-term growth mechanisms. These efforts strengthened the KOL content ecosystem in Q3, driving a 14.8% year-over-year increase in the number of average daily active streamers hosting live sessions with over 10,000 followers. In Q3, in terms of operating across diverse scenarios, pan-shelfed e-commerce GMV continued to outpace overall GMV growth, contributing over 32% of total e-commerce GMV. We continued to enhance our infrastructure and supply ecosystem, driving a 13% year-over-year increase in average daily active merchants for pan-shelf-based e-commerce. We built on the diverse engagement features, strategy tools from Q2, including Super Links, the official channel of platform recommended product. These tools helped merchants quickly boost product exposure and sales conversion, cultivating user mind share for our shopping mall. The marketing host tool we introduced for merchants and content-based scenarios effectively lowered their operational barriers and drove steady quarter-over-quarter growth in merchant adoption. In Q3, we maximized the synergies between short videos and live streaming. We helped merchants integrate traffic from content-based scenarios through a seamless loop from product recommendations via short videos to rapid conversion in live streaming rooms and back to user engagement via short videos. This strategy steadily expanded the merchants customer base, supported by more short videos with embedded shopping links and our customized funnels, short video e-commerce GMV maintained a healthy growth. In Q3, in terms of integrating AI into our e-commerce business, we focus on empowering merchants across our e-commerce business chain with 3 core areas: AIGC content production, merchant efficiency improvement and product matching efficiency optimization. Our AIGC capabilities for generating and optimizing materials continue to deliver strong results, helping merchants improved conversion efficiency across both image and video formats in diverse scenarios. Penetration of the smart live streaming highlights and AI live streaming scenarios also steadily increased. Concurrently, our AI product management assistant is providing comprehensive omni-scenario support, it helps merchants reduce costs, increase efficiency and strengthen their operational capabilities while also operating high -- generating high-quality data. On the matching front, our explainable recommendations powered by our e-commerce knowledge graph, predict users' potential and long-term interest. This boosts conversion rates and also strengthen the user trust and stickiness with our recommendations. We believe these AI capabilities will ultimately power growth flywheel of data infrastructure, precise matching and merchant efficiency empowerment driving the healthy and sustainable development of our e-commerce ecosystem. Next, regarding our live-streaming business. Q3 live-streaming revenue grew by 2.5% year-over-year to RMB 9.6 billion. Growth was driven by high-quality content, expanding live-streaming scenarios and AI-powered product innovations. For live-streaming supply, the healthy development of our talent agency ecosystem provided robust support pillar. By end of Q3, our partner talent agencies had increased by more than 17% and talent agency managed streamers grew by over 20% both year-over-year. We focus on categories such as group live-streaming by supporting premium benchmark groups guiding content optimizations, we achieved high-quality development and steady revenue growth. Innovative AIGC applications also injected momentum into our business growth, leveraging AI, Kling AI capabilities, in late September, we rolled out the AI Universe gift series with a customizable special effect platform-wide, effectively diversifying options for personalized interactions in live streaming rooms. On launch day alone, users paid to create and send over 100,000 personalized virtual gifts. In Q3, for entertainment live-streaming operations, we launched a Super Grand Stage 2.0 organized as 5 regional contests nationwide to further integrate online live-streaming and offline scenarios. Targeting the summer season and demand from young users, we hosted the Summer Gaming Music Festival in Chengdu, an offline event blended gaming, music and interactive experiences deepening our partnerships with game developers. The event attracted 672 million live stream views and over 50,000 participants. Moreover, our live streaming+ strategy continued to empower traditional industries, further validating its commercial value. In Q3, average daily number of users submitting resumes on Kwai Hire increased by over 20% year-over-year. In Ideal Housing, average monthly number of paying clients increased by over 90% year-over-year. Finally, our overseas business. In Q3, we continued to strengthen our foothold in overseas markets, focusing on high-quality growth. On the traffic front, we optimized customer acquisition efficiency to precisely reach high-value demographics. By prioritizing operations for core category creators, we fostered stronger connections between our high-quality characteristic content and our core user base. Brazil, our core international market maintained stable DAUs while reducing user acquisition cost year-over-year delivering consistent year-over-year growth in average daily time spent per DAU. For online marketing services, we bolstered business resilience, diversified our marketing client base across industries. Through an updated product capabilities and placement strategies, we improved overall conversion efficiency across our marketing funnel, unlocking more on monetization potential for diverse user groups and earning sustained client recommendation. Concurrently, our e-commerce business in Brazil improved both in subsidy and operating efficiency. While maintaining disciplined ROI management, we achieved a healthy year-over-year growth in GMV transaction scale and order volume in Q3. Looking ahead to Q4 and into 2026, we will continue investing in our AI strategy, exploring efficient gates that empower users, video creators, marketing clients and e-commerce merchants through Kling AI and other large AI model technology. At the same time, guided by our development philosophy and AI strategy, we will comprehensively transform and upgrade our organization structure, talent deployment, product design and features. We will persistently uphold and concentrate Kuaishou's technology innovation ethos, maintaining and deepening our long-term competitive advantages in the era of AI. That concludes my prepared remarks. Next, our CFO, Bing, will review the company's financial update for Q3 2025. Bing Jin: Thank you, Yixiao, and hello, everyone. In Q3, we continue to strengthen our core advantages, leveraging our large AI model capabilities, we further empowered our content and business ecosystems. With our rich content supply and optimized omni-domain operations ecosystem, we continuously enhanced the experience for users and creators while helping merchants and KOLs improve their operational capabilities and support sustainable growth. During the quarter, we achieved solid operational and financial results, with the total revenue increasing 14.2% year-over-year to RMB 35.6 billion. This included a 19.2% year-over-year increase in revenue from our core commercial business, which includes our online marketing services and other services, primarily e-commerce. With our steady revenue growth and improved operating efficiency, we improved our overall profitability. Operating profit increased 69.9% year-over-year to RMB 5.3 billion. Adjusted net profit grew 26.3% year-over-year to RMB 5 billion with a healthy adjusted net margin of 14%. Now let's take a closer look. Our total revenue grew 14.2% year-over-year to RMB 35.6 billion in Q3. The increase was mainly driven by growth across each of our business, including online marketing services, live streaming, e-commerce and Kling AI. In Q3, online marketing services revenue increased 14% to RMB 20.1 billion from RMB 17.6 billion in the same period last year. The growth was primarily attributable to the use of AI technology to continuously upgrade our online marketing product solutions that improved the conversion efficiency, which drove higher client spending from our marketing clients. Revenue from other services, including e-commerce and Kling AI businesses reached RMB 5.9 billion in Q3, up 41.3% from RMB 4.2 billion in the same period last year. The increase was mainly driven by growth in e-commerce GMV, which boosted e-commerce commission income as well as the expansion of our Kling AI business. We have continuously refined Kling AI's foundation models and developed more innovative features. Its application coverage has expanded, driving further breakthroughs in commercialization. In Q3, our live-streaming revenue was RMB 9.6 billion, up 2.5% from RMB 9.3 billion in the same period last year. We consistently cultivating high-quality content, expanded live streaming scenarios and leveraged AI-empowered product innovations to build a diverse and healthy live-streaming ecosystem. These steps drove greater user engagement with high-quality live-streaming content. Cost of revenues increased 13.4% year-over-year in Q3 to RMB 16.1 billion, accounting for 45.3% of total revenue. The increase was mainly due to increased revenue sharing costs and related taxes in line with our revenue growth, partially offset by decreases in depreciation of property and equipment and right-of-use of assets and amortization of intangible assets. In Q3, our gross profit grew 14.9% year-over-year to RMB 19.4 billion. Gross profit margin was 54.7%, up 0.4 percentage points year-over-year. Moving to expenses. Selling and marketing expenses were RMB 10.4 billion, roughly flat year-over-year and accounted for 29.3% of total revenue, down from 33.3% in Q3 last year, reflecting our refined efforts and improved operating efficiency. R&D expenses were RMB 3.7 billion, up 17.7% year-over-year, accounting for 10.3% of total revenue. The increase was mainly due to higher employee benefit expenses, including share-based compensation expenses and increased investments in AI. Administrative expenses decreased 13.6% year-over-year to RMB 688 million or 1.9% of total revenue, mainly due to lower employee benefit expenses, including share-based compensation expenses. Group level operating profit for Q3 increased 69.9% year-over-year to RMB 5.3 billion. Net profit for Q3 was RMB 4.5 billion. Adjusted net profit rose 26.3% year-over-year to RMB 5 billion with an adjusted net margin of 14%. Our balance sheet is quite robust with cash and cash equivalents, time deposits, restricted cash and wealth management products totaling RMB 106.6 billion as of September 30, 2025. We generated a positive operating net cash flow of RMB 7.7 billion in Q3. Additionally, we actively delivered on our commitment to shareholder returns based on marketing conditions. As of September 30, we had repurchased an aggregate of approximately HKD 2.17 billion (sic) [ HKD 2.07 billion ] or around 42.25 million shares, which accounted for about 0.98% of our total shares outstanding for 2025. In addition, we declared a special dividend of HKD 2 billion in Q3, reflecting our confidence in Kuaishou's long-term growth prospects and a solid financial position. Looking ahead, we'll continue to prioritize user needs and execute our AI strategy to empower all of our business stars while exploring more diversified growth avenues. These initiatives will reinforce our competitive edge in ever-changing market and enable us to create long-term value for our users, partners and shareholders. That concludes our prepared remarks. Now let's move into the Q&A session. Operator: [Interpreted] [Operator Instructions] The first question comes from Felix Liu of UBS. Felix Liu: [Interpreted] Congratulations on the very strong third quarter results. My question is on Kling AI. How does -- the market is very focused on the competitive landscape of video GenAI. Could management share more color on Kling's competition strategy from here? And where do you plan to develop and drive evolution in Kling from here? After the launch of Sora 2, how do we see the development of the overall video GenAI industry? And do you anticipate more opportunities on the 2C side of video GenAI. Unknown Executive: [Interpreted] Thank you for your question. The surge of entrants from tech giants to start-ups reflects just how attractive and promising the video generation market is. That said, we believe video generation is still far from maturity in both product and technology. With a growing number of market participants, we expect accelerated innovation across the industry, meeting more user needs, penetrating a wider range of use cases and pushing the market to expand even more. As for Kling AI's positioning and competitive strategy, we have zeroed in on key goal to empower everyone to craft captivating stories with AI. Our first industry focus is film and television, where we are dedicating our resources to deepening our tech and product capabilities. Video models like large language models are essentially evolving toward world models. We see video models as the key technology for world models. Applications can extend far beyond film and TV production. They can reach interactive experiences and data generation for embedded intelligence. While we will continue sharpening our model and product capabilities across diverse application scenarios, our strategic focus right now is squarely set on AI-powered film and TV production. With this goal in mind, we have been advancing our technology leadership and product creativity, and we'll continue on this path. Video models differ from language models in 2 ways. First, they are highly complex. While language models are relatively simple at the macro level, video models consist of a wide range of different modules. This complexity also gives us significant room for technological breakthroughs and innovation. Second, video generation is an open-ended domain, inputs can be text, pictures or motion trajectories and outputs can be diverse content including images, video and sound. These 2 characteristics [indiscernible] allow greater flexibility in technology and product choices, which in turn provide significant room for technology and products innovation. Kling AI aims to bring together product creativity, inside users capability to push technological boundaries. For example, in April, we [ revealed ] our concept of interaction called MVL. Building on this, we are continuously upgrading our foundation model and product capabilities, exploring more ML model products. Alongside the [Technical Difficulty] breakthrough in our product capabilities, we have also wide range of operational initiatives to foster -- creative mechanism and a thriving content creation ecosystem. For example, our Kling AI Future Partner program integrates key resources from both Kuaishou and Kling AI to precisely match creators with high-value commercialization opportunities across diverse scenarios. The program has supported well-known brands such as the NBA and [ Mochi Ice Cream and Tea ]. We also recently leveraged the Kling AI NextGen Creative Contest, helping Kling AI creators gain exposure at international film festivals in Busan, Cannes and Tokyo, further expanding Kling AI's global brand visibility and influence. As for the latest buzz around Sora 2, it has made technology breakthroughs on multiple fronts and integrated closely with social interaction features. This has really accelerated the rollout of consumer-level AI applications and strengthen our confidence in the future commercial scalability of video generation. For us, our main focus is still on professional creators, improving their experience and willingness to pay. At the same time, we are actively exploring consumer-facing use cases. When the time is right, we will advance the productization of Kling AI's technology, embedding social features to speed up consumer level applications and commercialization. Operator: [Interpreted] The next question comes from Lincoln Kong from Goldman Sachs. Lincoln Kong: [Interpreted] Congrats on a very solid result. So my question is about the AI-powered business. So on top of Kling AI and the OneRec just we've been talking about for online marketing services, could management elaborate more on AI large language model to empower our Kuaishou content ecosystem and how to improve our operational efficiency front? Unknown Executive: [Interpreted] Thank you for your question. 2025 is widely regarded as AI's first year advancing into deep applications. Throughout the year, AI technologies represented by a multi-model generation and AI agents have consistently moved toward richer and more efficient applications that are more aligned with user needs. This marks a systematic step toward unlocking AI's industrial scale value. Against this backdrop, we have progressively developed a comprehensive AI technology and application system centered on user needs and rooted in our existing business scenarios. It is designed to accelerate AI adoption to empower our content and business ecosystems as well as our organizational infrastructure. In terms of empowering our content ecosystem, AI has now been fully integrated across Kuaishou's business operations from content and user understanding to content generation and recommendations. First, in understanding content and users, our proprietary multi-model large language model, KwaiYii has demonstrated strong video comprehension capabilities. Based on this model, we upgraded our short video and live streaming content understanding system and launched [ Tag Next ], our next-generation tagging system, which enables more accurate and comprehensive content understanding. [ Tag Next ] is now being applied across key scenarios, including early-stage content management, content diversity expansion and the new interest discovery, driving higher average app usage time per user. Second, in content generation, Kling AI continues to empower mass creators. We have witnessed a significant increase in the video views volume of AIGC short video content on the platform. Third, in content recommendation, the important -- the most important area, we further expanded the boundaries of generative recommendation systems by upgrading our end-to-end generative recommendation large model, OneRec. We launched the next-generation OneRec-Think large model, integrating LLM inference capabilities and combining conversational inference, personalized recommendations and real-time feedback mechanisms into one single model system. This further enhances recommendation accuracy and strengthens user trust. Beyond business empowerment, AI technology has played a major role in improving the efficiency of our organizational infrastructure. Our proprietary AI coding tool, CodeFlicker has become a core intelligent development tool used daily by our engineers at a high frequency. It supports scenarios such as automated unit testing generation, intelligent code review and smart testing cases generation. Currently, nearly 30% of the new code at Kuaishou is generated using CodeFlicker. In terms of content review, we have applied large AI models across diverse scenarios, including user profiling, content identification and comment analysis. By leveraging COT reasoning and reinforcement learning technologies, we have enhanced our review models capabilities. Currently, over 99% of the content on our platform is reviewed by AI, greatly reducing related costs while improving the efficiency and quality of content review. In addition, our customer service team is leveraging AI technology to prescreen and route user inquiries, provide intelligent assistance and accumulate knowledge. As a result, over 70% of user inquiries are now directly handled and resolved by our AI-powered customer service system, significantly improving efficiency. Overall, a resilient self-reinforcing cycle of AI innovation, AI application monetization and revenue growth is taking shape at Kuaishou. In the long run, we believe this full spectrum AI application ecosystem will further strengthen Kuaishou's market resilience and unlock new growth momentum. Operator: [Interpreted] The next question comes from Thomas Chong of Jefferies. Thomas Chong: My question is about online marketing services. We have seen our online marketing revenue accelerating this quarter. Can management provide more details on what we have done from the perspective of traffic, industry sectors as well as product offering? Unknown Executive: [Interpreted] Thank you for your question. In Q3, online marketing services revenue grew by 14% year-over-year, accelerating from the previous quarter with domestic online marketing services revenue increasing by over 16%. From the traffic perspective, advertising revenue was driven by both increased marketing material impressions and higher CPM. The growth in impressions was supported by overall traffic growth and by more high-quality native marketing content, which helped increase ad load. The rise in CPM was driven by our use of AI technology such as generative reinforcement learning bidding and end-to-end generative recommendation models, which improved the matching between user interest and advertiser needs, enhancing the personalization and matching efficiency of online marketing material recommendations. Looking ahead at external marketing services industry-wise, lifestyle services, where clients mainly rely on lead-based operations and content consumption represented by short plays and mini games were the standout sectors this quarter. In lifestyle services, we upgraded our private messaging product and optimized the subsequent conversion passes across industry verticals, helping clients to reach users more efficiently and improve sales conversions. Since most of our lifestyle services clients are small and medium-sized businesses, they benefit more from products like our AI customer service, UAX placement solutions and AIGC marketing material generation tools. In content consumption industries, deep AI empowerment drove rapid growth in comic style short plays. We captured this opportunity and used Kling AI to play an active role in upstream content creation. In terms of our closed-loop marketing services, we continue to iterate our omni-platform marketing solution, helping e-commerce merchants achieve more incremental exposure and conversion. By leveraging intelligent bidding agents and generative large models, we enabled 24/7 stable bidding and more fully uncovered user interest, which helped expand merchants placement budgets. We also strengthened our ability to capture and interpret users' full range interest across both content-based and shelf-based scenarios, effectively increasing the number of converted users and their purchase frequency while better meeting users' e-commerce consumption needs on Kuaishou. From a product perspective, we upgraded multiple products, including our UAX placement solutions, AIGC marketing material generation tools, live streaming digital human solutions and our virtual employee. These enhancements lowered the marketing threshold and improved conversion rates, driving more online marketing services spending. Specifically in Q3, our UAX placement solutions added fixed period steady placement feature. The new feature allows clients to set their requirements for marketing materials and pricing for a specific ad placement period, while the system automatically handles intelligent infrastructure, smart dynamic fine-tuning and smart creative content production. This enhanced the stability of the ad placement period had helped our online marketing clients achieve more consistent placement performances at a more predictable cost. In Q3, our UAX placement solutions accounted for over 70% of the external marketing spending. Our AIGC marketing material generation tool enabled the clients to generate short video materials rapidly at a low cost and in batches with a 10% to 20% higher material conversion efficiency than the industry average. Live-streaming digital human solutions allowed our clients to run 24/7 live streams even without streamers or venues. Our virtual employee reached a human level customer service performance in conversational accuracy, efficiency and safety, engaging naturally across scenarios like private messaging and common, improving conversion efficiency for our clients. Looking ahead, we'll continue to expand our industry client base and further deepen AI applications, empowering clients to achieve more efficient, high-quality marketing performances and better ad placements. Operator: [Interpreted] The next question comes from Daniel Chen from JPMorgan. Qi Chen: [Interpreted] So my question is related to e-commerce. So what's the latest progress and the performance of our Double 11 promotion in December quarter? And if we look at next 1 to 2 years, what's the incremental -- what's the key growth driver for our e-commerce business, especially the live streaming e-commerce? How should we look at the future growth potential? Unknown Executive: [Interpreted] Thanks for the question. Regarding e-commerce, while consumption has shown some resilient recovery this year, overall user spending has remained cautious and rational. During the Double 11 Sales Promotion, we delivered results in line with our expectations with standout performances in categories such as jewelry and gemstones, tea, wine and wellness, apparel, including men's and women's apparel, sportswear and family matching outfits and fresh food. For this year's Double 11 Sales Promotion, we invested over RMB 18 billion in platform traffic incentives, combined with RMB 2 billion in user subsidies and RMB 1 billion in merchandise subsidies. Together, these effectively enhanced the merchant sales conversions and buyer engagement, increasing the number of merchants achieving GMV of over RMB 10 million by double digits year-over-year. We implemented a tiered support programs tailored to business type and merchant and KOL size, fostering a thriving e-commerce ecosystem and motivating them to achieve better growth across omni-domain scenarios. For shelf-based e-commerce scenarios, we focus on supporting core products where we launched a range of initiatives, including the Big Brand, Big Subsidy and Super Links. During this year's Double 11 Sales Promotion, the number of single products achieving over RMB 1 million GMV via the Big Brand, Big Subsidy initiative surged by over 77% year-over-year. Our users' mind share for shopping on Kuaishou improved during the sales promotion with search-generated e-commerce GMV growing by over 33% year-over-year. For our future e-commerce growth drivers, in the short to medium term, we will prioritize boosting user purchase frequency followed by increasing ARPPU. Our key initiatives to raise purchase frequency are: first, we will continue to empower streamers to strengthen their private domains and operational efficiency, broadening the variety of streamers and product categories that users pay for. Second, we will maximize cross-scenario synergy. Lower purchase barriers in short video scenarios will allow us to expand our [Technical Difficulty]. More as we progressively reinforce users' shopping mindset on Kuaishou, our pan-shelf-based e-commerce will better capture users' repeat purchases needs with greater certainty. We will further enhance the operations of our key product categories and more precisely identify our core user AI [Technical Difficulty] users' trust in the platform having steady ARPPU growth. There is still significant room to grow our e-commerce monthly average paying users, but we view this as a long-term outcome metric rather than a short-term performance metric. In the near to medium term, we will mainly focus on the healthy structure of our e-commerce monthly average paying users. Regarding the growth potential of live streaming e-commerce, as a common platform, live streaming e-commerce and trust-based e-commerce have always been the backbone of our e-commerce business and most critical operational scenarios. We believe that live streaming e-commerce with its built-in conversion advantages will continue to gain ground in the online retail market and it stills hold substantial room for structural growth in the future. The long-term growth potential lies in creating a healthy ecosystem where merchants can operate sustainably with private domain follower retention, acting as a key moat given their high user stickiness and repeat purchase behavior. Accordingly, we helped merchants better integrate their public and private domain strategies through a range of initiatives acquiring traffic in the public domain while retaining followers and converting them into customers and driving repeat purchases in private domains. That said, exceptional content and superior products remain the essential foundation of our ecosystem. Therefore, we'll continue to onboard merchants and creators, expanding the pipeline for high-quality supply while continuously broadening the range of merchandise. In parallel, we will strengthen long-term collaboration with both merchants and KOLs by offering them extensive products through our distribution pool and providing traffic support for standout content. We will also equip the merchant and KOLs with our intelligent operational tools, empowering them with AI to improve efficiency and performance. A robust business ecosystem in turn, will incentivize the continuous creation of exceptional content. Finally, while live streaming e-commerce is the backbone of Kuaishou's e-commerce, we will also encourage merchants to operate across diverse scenarios and strengthen the efficiency of omni-domain synergies. This will facilitate a closer alignment with the user needs and enhance the resilience and stability of Kuaishou's e-commerce ecosystem. Thank you. Operator: [Interpreted] The next question comes from Xueqing Zhang of CICC. Xueqing Zhang: [Interpreted] My question is regarding CapEx and profit margins. With the progress of Kling and other AI drive initiatives, does the company have any updated guidance on the CapEx and AI-related spending plans? Has the full year 2025 profit margin target being adjusted? And given that the industry is significantly increasing CapEx, how is Kuaishou planning the CapEx over the next 1 to 2 years? And what impact will AI investments have on profit margins? Bing Jin: [Interpreted] Thanks for your question. As Yixiao said, this quarter, we achieved strong results by integrating AI technology across a wide range of internal and external application scenarios. AI empowered our business operations and improved the quality and efficiency of our organizational infrastructure. AI technology continues to unlock increasing value across our content and business ecosystems. At the same time, Kling AI made more solid breakthroughs in commercialization. We now expect Kling AI's full year 2025 revenue to reach USD 140 million, more than double the target we set at the beginning of the year of USD 60 million. Given Kling AI's users' growing demand for video generation models, we have continued to ramp up our investment in computing power for Kling AI. Beyond the incremental investment in inference capacity alongside continuous model iterations, we have recently started to scaling up Kling AI's training computer power to keep Kling AI at the forefront of technology advancement. Including this and CapEx from other AI initiatives, we expect the group's total 2025 CapEx to increase in the mid- to high double digits year-over-year. Regarding expenses, we have recently stepped up our investments in hiring and retaining AI talent. This portion of expenses remains relatively manageable. And despite the higher AI-related investments, we're confident that our full year adjusted operating margin will continue to improve year-over-year. Our overall improvement in profitability further underscores that AI continues to unlock increasing value across Kuaishou's content and business ecosystems. Thanks to the better-than-expected progress of Kling and integration AI technology in our businesses, so we [Technical Difficulty] growth plan with a focus on upgrading computing power and technology. This goes beyond supervising costs and expenses builded in our strategy of leveraging leaps in AI to drive greater value. As AI applications continue to expand across scenarios, their potential value will be unlocked. We are confident that we can continue to steadily grow our profits, improving profitability over the next 2 years, and we look forward to sharing our progress along the way. Thank you. Huaxia Zhao: Thank you, operator. That's the end of the Q&A session. Operator: [Foreign Language] Huaxia Zhao: [Interpreted] Thank you once again for joining us today. If you have any further questions, please contact our capital market and IR team at any time. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Hello, and welcome everyone to the Valvoline Inc.'s 4Q Earnings Conference Call and Webcast. My name is Becky, and I'll be your operator today. All lines will be muted throughout the presentation portion of the call with a chance for Q&A at the end. I will now hand over to your host, Elizabeth Clevinger with Investor Relations to begin. Please go ahead. Elizabeth Clevinger: Thank you. Good morning, and welcome to Valvoline Inc.'s fourth quarter fiscal 2025 Conference Call and Webcast. This morning, Valvoline Inc. released results for the fourth quarter, and fiscal year ended September 30, 2025. This presentation should be viewed in conjunction with that earnings release, a copy of which is available on our Investor Relations website at investors.valvoline.com. Please note that these results are preliminary until we file our Form 10-K with the Securities and Exchange Commission. On this morning's call is Lori A. Flees, our President and CEO, and John Kevin Willis, our CFO. As shown on slide two, any of our remarks today that are not statements of historical facts are forward-looking statements. These forward-looking statements are based on current assumptions as of the date of this presentation and are subject to certain risks and uncertainties that may cause actual results to differ materially from such statements. Valvoline Inc. assumes no obligation to update any forward-looking statements unless required by law. In this presentation and in our remarks, we will be discussing our results on an adjusted non-GAAP basis unless otherwise noted. Non-GAAP results are adjusted for key items, which are unusual, non-operational, or restructuring in nature. We believe this approach enhances the understanding of our ongoing business. A reconciliation of our GAAP to adjusted non-GAAP results and a discussion of management's use of non-GAAP and key business measures is included in the presentation appendix. The information provided is used by our management and may not be comparable to similar measures used by other companies. With that, I will turn it over to Lori. Lori A. Flees: Thank you, Elizabeth. And thank you for joining us today. Let's start with a look at some key highlights for fiscal year 2025 on slide three. System-wide store sales again saw a double-digit increase, to $3.5 billion, and we delivered our nineteenth consecutive year of system-wide same-store sales growth. This nearly two-decade-long streak accounts for almost half of our retail business's history and puts us in a special category of retailers. The network continues to grow with the addition of 170 system-wide stores this year, bringing the total to 2,180 across the US and Canada. We also saw double-digit growth in adjusted EBITDA, taking into account the impacts of refranchising and including the investments in technology we made this year. This would not be possible without our team and our strong franchise partners, and I'd like to thank both groups for all of their work that went into driving these results. Slide four shows our performance over time on key metrics. Our historical performance shows our track record of steady new store growth, strong same-store sales comps, and compelling net sales and profit growth. This performance is a function of the attractive market we operate in and the capabilities we built over time, which allow us to deliver best-in-class customer, employee, and franchisee experiences. Turning to slide five, we'll take a look at our fiscal year 2025 performance compared to our updated guidance from August. Net revenues and system-wide same-store sales growth came in at the midpoint of the guidance range, while adjusted EBITDA landed above the midpoint. System-wide store additions of 170 demonstrate meaningful progress in new franchise store growth. They added 71 net new stores and 104 total stores this year, including transfers. Adjusted EPS came in at the low end of the range at $1.59 per share, and our capital expenditures were above the range driven by the timing and mix of new store additions at the end of the year. Overall, we're pleased with our fiscal year 2025 results and the continued growth of our business. Now I'd like to provide an update on the progress we've made against our strategic priorities this year. Our strategic priorities remain the same. First, drive the full potential of our core business. We are the retail leader in automotive preventative maintenance services, and we'll continue to drive transaction and ticket growth with increased store-level efficiency. Second, deliver sustainable network growth. We'll continue to extend our reach to more customers across North America, and we'll do that in a way that maximizes return on invested capital. And last, we will continue to innovate to meet the evolving needs of our customers and the car park. We made very good progress in fiscal 2025 to drive the full potential of our core business, and we continue to believe we have a lot more opportunity in front of us. This past year, we saw strong same-store sales growth with a healthy balance from transaction and ticket. Transaction growth continued across the network, including in our mature store base. We also saw ticket growth across the network with contributions from premiumization, net pricing, and increased NOCR penetration. Our efficiency initiatives within company-operated stores in fiscal 2025 included a continued focus on labor productivity. Workday implementation combined with scheduling process improvements already underway drove meaningful efficiencies in our largest cost category. As of Q4, all US company-owned stores have migrated to use Workday's forecasting and automated scheduling tools that enable our field leadership to more easily monitor and optimize schedules to match both team member availability and experience with expected customer demand. We recently spent time with both our operations leadership team and our franchise partners across the US and Canada. We spent time celebrating our accomplishments in 2025 and getting focused on 2026. Our core business remains focused on four key things. One, consistent process execution. Our technology-enabled SuperPro process earns a 4.7-star rating from customers, and this builds loyalty. Two, increase store efficiency by leveraging fully the work started in FY 2025 in both labor and store-level expense management. Three, enhance return on marketing spend as we gain benefits from our network scale and reach. And four, continued team member retention to help improve store throughput and NOCR penetration. As it relates to network growth, we closed fiscal 2025 with a strong Q4, delivering 56 net new system-wide stores in the quarter and bringing our total to 170 additions for the year. Over 60% of this year's new stores across the system were ground-up builds, a testament to our real estate analytics capabilities and our proven playbook for successfully opening new construction sites. Franchise ground-ups drove much of the increase year over year, as they had 41 greenfield additions this year. At the end of 2024 and 2025, we refranchised three markets: Denver, Las Vegas, and West Texas. Our franchise partners for these markets committed to significant development agreements to grow the markets by two to three times in size. Since the closing of the refranchising transactions, we have seen the new store additions in these markets grow by more than 150% over the prior year, and these franchise partners' pipelines continue to grow. Our new store growth will continue to ramp in FY 2026, with continued momentum across our franchise partners. Fiscal 2026 will also include the expected closing of the Breeze Auto Care acquisition. As we shared previously, bringing a year's worth of store growth in one step will allow us to leverage many of the investments we've already put in place across a larger store base, including retail-specific technology investments and fleet sales expansion. At the end of last week, we received regulatory clearance from the FTC and plan to close the transaction on December 1. As part of the agreement with the FTC, we will divest 45 stores, bringing the net additions to 162. Although we had to reduce the number of store additions in order to gain FTC approval, we believe this is still a good use of capital and will create long-term shareholder value. Turning to the third priority, fleet growth continues to outpace the growth in our consumer business. Our fleet customers tell us that they value the speed and convenience of our service to maximize the productivity of their assets. This year, we've increased our work with our franchise partners to grow our fleet business across their geographies. Early days, but significant opportunity for growth. Before I turn it over to Kevin to discuss our financial results in more detail, I want to invite you to a planned investor update on December 11. We'll introduce you to more of our management team, provide a deeper look at our strategic priorities, and long-term growth targets, and the initiatives driving our business forward. Now I'll turn it over to Kevin. John Kevin Willis: Thanks, Lori. Let's turn to Slide eight and start with a more detailed look at our financial results. For the fourth quarter, net sales grew to $454 million, increasing 4% on a reported basis and 10% when adjusted for the impacts of refranchising. System-wide same-store sales increased 6% with about one-third coming from transaction growth. We do continue to see transaction growth across the portfolio. For the fiscal year, net sales grew 12% when adjusted for the impacts of refranchising to $1.7 billion. System-wide same-store sales grew 6.1% over 13% on a two-year stack. For the year, transaction growth accounted for just over one-third of the comp also across the portfolio. On the ticket side, we saw contributions from all three levers: premiumization, net price, and NOCR service penetration. Slide nine looks at the other drivers of the financial results for the quarter. The gross margin rate of 39.1% was flat year over year driven by leverage at the labor line of about 120 basis points offset by increased product costs. We continue to drive operating leverage generating a 60 basis point year over year improvement excluding increased depreciation expense. SG&A as a percentage of sales increased 40 basis points year over year to 18.2%. Sequentially, SG&A as a percentage of sales decreased 30 basis points as we continue to see SG&A growth moderate. Overall, adjusted EBITDA margin increased 20 basis points to 28.7%. Turning to the next slide, we'll take a look at the financial drivers for the full fiscal year. We'll start with gross margin. We are very pleased with the benefit coming from labor leverage for the year which drove 90 basis points of margin expansion. Operating leverage improved 70 basis points year over year excluding increased depreciation expense. SG&A as a percentage of net sales increased 80 basis points from the investments in both teams and technology, to support growth and provide a better operational foundation for the future. As we look forward to fiscal 2026, we will continue to invest in growth, but do continue to expect SG&A growth to moderate. Adjusted EBITDA margin was flat with SG&A investments offsetting gross margin expansion. On slide 11, we'll take a look at our overall profitability for the year adjusted for refranchising. In fiscal 2025, adjusted EBITDA increased 11%, adjusted net income increased 6%, impacted by increased new store depreciation on a recast basis adjusted EPS increased 8%. Turning to slide 12, we'll take a look at the details of our balance sheet and cash flow and cover the Breeze acquisition. We ended fiscal 2025 with a leverage ratio of 3.4 times on a rating agency adjusted basis. Our capital allocation priorities have not changed. First, fund growth with a focus on strong returns on invested capital second, to stay within our target leverage ratio and third, to use share repurchase as a way to return value to shareholders. Turning to cash. Our CapEx for the year was $259 million. About 70% of the spend was for new store additions. Now let's take a look at some details of the Breeze acquisition. As Lori mentioned, we plan to close on December 1. We will acquire 162 stores following the divestitures required by the FTC for a net purchase price of $593 million subject to adjustments for acquisitions and sale leaseback transactions completed by Breeze, since signing and customary closing adjustments. We'll fund the purchase price entirely with a newly issued $740 million Term Loan B. The excess proceeds will initially be used to pay down the revolving credit facility. The additional debt will increase our leverage ratio to approximately 4.2 times. We expect it to take approximately eighteen to twenty-four months to return to the target leverage ratio through a combination of EBITDA growth, and debt reduction. Now let's take a look at our outlook for fiscal year 2026 on the next slide. These amounts include the Breeze acquisition, makes some of the ranges broader than they might normally be. We expect system-wide same-store sales growth of 4% to 6% and overall network growth of 330 to 360 new stores. The low end of this range reflects a need to carefully consider our overall capacity in light of the Breeze acquisition. At the midpoint, we expect sales to grow by about 20% with EBITDA growth of approximately 15%. Including Breeze and our planned company store growth, we expect fiscal 2026 CapEx of $250 million to $280 million. We expect adjusted EPS of $1.60 to $1.70 per share. At the midpoint, this represents a 4% growth over the prior year including an impact of approximately $0.20 per share related to interest expense for the acquisition. Similar to prior years, we anticipate approximately 40% to 45% of adjusted EBITDA dollars to come in the front half of the year. As we move into fiscal 2026, we are excited by the opportunities in front of us, and are confident in our ability to execute. We look forward to sharing more details about our long-term outlook at our planned investor update on December 11. I'll now turn it back over to Lori to wrap up. Lori A. Flees: Thanks, Kevin. As we wrap up this fiscal year, I want to again thank our team and our franchise partners. Dedication to delivering a quick, easy, and trusted experience to our guests remains a key driver of our long-term growth. In fiscal year 2025, we delivered compelling growth and financial results, while making investments to support our future. The fiscal year 2026 guidance Kevin laid out underscores our commitment to drive continued financial performance. Our resilient and durable business model positions us for ongoing growth in fiscal year 2026 and beyond. We look forward to sharing more with you at our planned investor update. With that, I'll turn it over to Elizabeth to begin Q&A. Elizabeth Clevinger: Thanks, Lori. Before we start the Q&A, I'd like to remind everyone to limit your question to one and a follow-up so that we can get to everyone on the line. With that, can the operator please open the line? Operator: Thank you. Our first question comes from Justin Kleber from Baird. Your line is now open. Please go ahead. Justin Kleber: Hey, good morning, everyone. Thank you for taking the questions. Just a few on the outlook. I was hoping you could maybe frame the revenue and EBITDA contribution from Breeze just so we can understand how the core Valvoline Inc. business is expected to perform. And then a follow-up related to guidance, just what's driving the decline in EBITDA margins in fiscal 2026? It looks like about 100 basis points. How much of that is kind of core Valvoline Inc. versus simply including the Breeze business in your consolidated results? I'll that one. John Kevin Willis: First, we do expect the core business to continue to perform well in fiscal 2026, really no change in that. In terms of how we considered what to include for the Breeze transaction, it's still early days. We haven't closed on the deal yet. We have received recent financial updates on how the business is doing. And as part of the conclusion of the FTC second request process, we're getting reengaged with the team. And we tried to take all of that into account and be measured in our approach in terms of what we in the outlook for Breeze. And that's partly why some of the ranges are admittedly a little bit broader than we normally make them without the inclusion of an acquisition like this. So we're not prepared at this point to really talk specifically about Breeze in terms of what exactly is included in there. But rest assured, did take a measured approach and consider that very carefully. As we included Breeze into the end of the numbers for the ten months we expect to own that business in fiscal 2026. Justin Kleber: Okay. Thanks for that, Kevin. And then just, as it relates to the acquisition, I'm not sure how much you can share you know, given you haven't closed the deal yet, but it looks like the divest locations, right, if we compare the net purchase price relative to what was discussed back in February, it seems like you're divesting those locations for less than a million dollars a box. And you're acquiring, the remaining stores that you know, close to $4 million a box. So can you just help us you know, reconcile those two numbers? And maybe why the divested locations look like, you know, you're selling them at such a lower price relative to what you're buying the remaining outlets for? Thank you. Lori A. Flees: Yeah. You know, the FTC when they do their review, they really were looking at maintaining a level of competition across all the markets that oil changers is located. And they defined competition significantly more narrowly than what we do and what we see when we open stores or when we operate stores in the market. However, we had the process requires us to go out and divest the 45 stores that have been agreed to with the FTC. And so we conducted that process. It was a competitive process. And that's where the outcome is and where the numbers that Kevin shared, where the net acquisition price is $593 million, which reflects the sale price of the locations that we have to divest. I will just underscore what I said in my prepared remarks is that we know where the stores are that we will be integrating them into our portfolio. We've assessed them with our real estate analytics capability. And when you take that analysis with our proven playbook around integrating acquisitions, which we have been doing pretty much since we started the business. We have confidence we're gonna deliver long-term shareholder returns. You know, at the outset, as Kevin mentioned, we do have the latest information through August of the performance of the business that we will be integrating. But we have not been able to spend time in detail with their leadership team because of the FTC review. So as Kevin mentioned, we've tried to incorporate what we know and what we believe we can accomplish in this fiscal year with the new assets that we'll be adding to our portfolio. But we have been appropriately measured in how we incorporated them in the ranges we're providing. Justin Kleber: Okay. Thanks for all that color, and I look forward to seeing everyone next month. Lori A. Flees: Yes. Thanks. Justin Kleber: Thank you. Operator: Our next question comes from Simeon Gutman from Morgan Stanley. Your line is now open. Please go ahead. Simeon Gutman: Hi, Lori. My question is we have, I guess, a slightly lower outlook or algo than what we're used to. And frankly, I think the market has been hoping to have something that's like a little bit more conservative. So we are getting together, it sounds like, in a few weeks. So can you talk about expectations for the core business? It sounds like nothing's changing, I want to confirm. But how do you think about the core business? Is the algo change reflective of anything structural or tactical? Or it is just being prudent and setting up a reasonable range for the business to grow off of? Thanks. Lori A. Flees: Yes. Thanks, Simeon. The same-store sales guide has really been the material difference in our longer-term algorithm in our current year algorithm. And as we look at FY '26, we're very confident in the four to 6% range. We will be sharing more of the longer-term algorithm probably more medium-term. But the fundamentals of our business remain incredibly strong. And when you compare it to where we were in 2022, the material difference is twofold. One, is the percentage of new stores within our network. Obviously, new store ramping contributes a higher same-store sales for those stores than our mature stores. And so as we continue to scale our business and the new stores become a smaller part of the overall same-store sales, you would expect that to naturally come down. The second is the interest and the inflation environment. When we were coming off of the COVID era, there was significant inflation that was running through our same-store sales comp, and we're back down to a more moderate normal level. Now, obviously, you know, that could change. We don't expect it to change. But we expect if that changes, it will only go up. So I think we feel very good about the four to six guide. Think we'll be able to share our longer-term outlook in December, and we'll be able to break down why we have confidence in that longer perspective. Simeon Gutman: And then a follow-up can we talk about the, I guess, the number of stores in market and expansion by you and others? It looks like capacity or number of oil changers is increasing steadily. Curious how you look at that how your own cannibalization rates look and if there are any markets that you are not going to enter or you have thinking twice because a competitor is already well positioned there. Lori A. Flees: Yeah. You know, Simeon, we look at every new unit both in terms of the demographics of that geographic area, the travel patterns, the household growth, the income, and what's been happening with the income levels. We look at broad competition, not just quick lube competition, but others that are competing for customers' preventative maintenance business. And we look at where our stores are in proximity with any location. We know that customers will seek out quick easy trusted service in the most convenient location. So we know when we add a store or pretty high precision around knowing what transfers will happen from our existing stores. And we also know what the impact of potential competitive entry are. Sometimes, you know, sometimes we have a pretty long lead time with that construction timing and sometimes a little less so if it's an acquisition. But what's been happening in the market is not changing. So the competitive environment that we operate has been relatively consistent. The competitive it's very fragmented. There's still a significant number of customers that are not going to the most convenient stay in your car, you know, quick, easy, trusted service. So whenever we add a site, you know, 70% or more of the customers are coming from outside our specific category, our specific channel. But we see normal behaviors from our competitors as it relates to adding sites. And we know what the impact is in the short term. They typically have high promotions, and we may have customers that go and try it in order to take advantage of a new store opening promotion, but then they return. They return back to their trusted service provider. So there's really not any changes that we're seeing, and there are no markets we stay away from because of the competitive environment. Again, the QuickLube channel has such a small percentage of the preventative maintenance market that there is a lot of share to be captured by the category. And we have been capturing that share right along with it. Or more so. Simeon Gutman: Okay. Thank you. Good luck. Operator: Thank you. Our next question comes from Steven Zaccone from Citi. Your line is now open. Please go ahead. Steven Zaccone: Great, good morning. Thanks very much for taking my question. Can you help us think through the margin outlook for '26 with the new four to six same-store sales guidance? There were some prior commentary that you were hopeful to see SG&A leverage at some point in 2026. So how does that stack up with the new guidance? John Kevin Willis: I'll take that one. And we were really pleased with how we continue to see SG&A growth in improvement or SG&A growth moderate in Q4. Continue to moderate versus what we saw in Q3. And that's that we think that's a very good sign. We're going to continue to invest in the growth of the business. But as we said before, we do expect to return to leverage and fiscal 2026. I think a comment though worth making is that with the inclusion of the Breeze acquisition, in the numbers, that's going to be more difficult to tease out and we'll continue to provide color around that. As we've said before, we would expect to lap the technology that we've made sometime in Q1, again, while continuing to invest in growth of the overall business. So see we do see some opportunities there. I think from a gross margin perspective, we continue to see opportunities. Good progress, great progress really has been made from a labor perspective. But we continue to see room to improve in the overall store operating profit as well. And we're focused on that. We're going to continue to work that fiscal 2026 and beyond as we operate the business and find new ways to improve the profitability. Lori A. Flees: The key thing, Steve, just to add on to what Kevin Sorry. Sorry. Key thing to add on to what Kevin's saying is Laurie. Whenever we do acquisitions or start new stores, it typically has a lower margin four-wall EBITDA in any new store we acquire or we build. And that ramps over time. In this case, we are adding 162 stores that have a lower margin profile than our existing base. And so as those stores as we can apply our playbook you should fully expect that margin improvement to happen. We're just taking on a significant increase in new stores in the overall mix. But from an SG&A standpoint, you know, we will be we will be levering relative to the business without you know, without the Breeze addition, and we'll work through continuing to leverage SG&A as we integrate. Steven Zaccone: Okay. That's helpful. That's helpful. Thank you. The follow-up I had is just, on the same-store sales guidance. You know, the last year you faced a difficult compare in the first quarter. So if we think about the quarterly cadence of comps, is there anything to be mindful of you know, below or above that guidance range as we go each quarter? John Kevin Willis: As we look at it based upon our current view of the fiscal year, we would expect the same-store sales growth to be pretty consistent across all four quarters. We don't really see any reason for there to be much variance around that throughout the course of the year. Obviously, weather can be an impact if it happens, but typically that just changes timing. It doesn't necessarily change what our guests actually do. As look at where we are, obviously, it's still relatively early in Q1. We're seeing that play out. So far, the core business is operating as we would expect it to. In Q1. So does help support the commentary, think. Steven Zaccone: Very much. Best of luck. Lori A. Flees: Thanks. Thank you. Operator: Our next question comes from Mark Jordan from Goldman Sachs. Your line is now open. Please go ahead. Mark Jordan: Thank you very much for taking my questions and looking forward to the investor update. For the same-store sales guidance, you've gone to a little bit but how do you build to that 4% to 6%? What's the mix like between traffic and ticket? Is it more ticket heavy? How should we think about the mix of franchise versus company operated? John Kevin Willis: To give you a little bit of color on that. As we look at both Q4 and the year, we a nice balance between transactions and ticket across the system. Q4, it was about one-third. The same-store sales growth was about one-third transaction and two-thirds ticket. And again, that's consistent with both company and franchise. As you look at the full year, very similar. Again, the core business is operating and performing as we'd expect it to. And so as we look at fiscal 2026 on an overall basis, I wouldn't really expect that to change materially over the course of the year for the business as we're operating it today. Mark Jordan: Okay, perfect. And then just just one quick follow-up, guess, kind of on your current trends, health of the consumer you're seeing. We've heard a little bit about concerns around deferral and non-oil change services or just an extension oil change intervals. Is there anything you're seeing there in your current business? Lori A. Flees: Yeah. Thanks, Mark. You know, automotive maintenance is a non-discretionary spend for consumers, and the demand for our services has been very resilient. Over this more uncertain macro environment. We continue to see the same dynamics. So we are not seeing customers trade down or defer. Premiumization is up across all customer types, which is a reflection of the car park. And we saw growth in customers across all levels of household income. Think the interesting thing when we look at the past five years intervals between service have been largely stable. Although in FY 2025, we saw slightly less days and miles between oil changes for our customers. Again, we've been talking about car maintenance in in almost like a peace of mind becomes a seasonal or time of year sort of consideration, less than an exact number of miles. And so what we've seen in FY 2025 is slightly less days and miles between oil changes. Now we are not expecting that to hold or continue to go down. We would expect for the days and miles to be more consistent. But in 2025, it was interesting that we did see a shortening of the cycle. Mark Jordan: Perfect. Thank you very much. Operator: Thank you. Our next question comes from Chris O'Cull from Stifel. Your line is now open. Please go ahead. Patrick: Great. Thanks, guys. This is Patrick on for Chris. I had a quick follow-up on the comp guidance. Laurie, the company guided to 4% to 6% this year. And I'm just curious what factors you're seeing in the business that could get you to the lower end of that range given kind of where you exited 4Q? Lori A. Flees: Yeah. I think, what we've talked about is, at the low end, we would fairly more even balance between transaction and ticket on the high end, it might be a little bit more weighted to ticket. So some of the things that would factor in is the NOCR improvement year over year. We've got a few things that our teams are executing against, but that would sort of depending on how that plays out, that would get us to the higher end of the range. Just specifically on NOCR. And then there's some are always doing pricing tests. So, again, assuming that our pricing test show both from a competitive positioning as well as the last of demand that we would move forward with some of the pricing that we have planned and that our franchisees would do the same. So those are the two things that I think pull you up to the high end of the range. But the other fundamentals are consistent across the low and bottom end. Patrick: Got it. That's helpful. Thank you. And then can you provide an update on the company's efforts to improve new unit build costs and just help us understand how much savings you think you can achieve relative to current levels? And is there any other opportunity you see in terms of improving the new unit economics outside of improving the build costs? Lori A. Flees: Yeah. Great question. And this is something that I know we'll spend more time on in December. Because it has been an area of focus for us for the past two years. When you look at our new unit cost, relative to two years ago, we've actually reduced those costs by about 10%. In this year. And we're fairly early in our journey, some of the things that we've done, like, we've got a I talked about it in the last quarter. We had a new prototype design, which would reduce the cost of the building. We had bids out the last time we spoke, and we just opened our first new prototype design in June, which does deliver a nice savings relative to the old building design. And so that was the first one in June. So when you look at where we will be in this year, those factor into our CapEx numbers. And we're in the early days. There's still additional work that we're doing. And so we look forward to sharing more of those plans and the impact that that will have on CapEx. I will just state though that when we look at returns, we've always talked about 30% cash on cash returns and or mid to high teens IRR on a new unit. Even through the period of our of our CapEx or new unit capital cost going up, our returns have stayed high and improved in many cases. And this is because the fundamentals of the core business have gotten stronger. So each box is returning a higher four-wall EBITDA margin again, over a slightly elevated CapEx, it still delivered a really fantastic return for both us and franchisees. Now that will continue to improve as that denominator starts to get more optimized. So really excited to share more information on that, in December. John Kevin Willis: The only thing I would add to that is there's also the aspect of converting acquired stores. There's been a lot of focus also on really sharpening the pencil around what we spend when we buy a store, which we typically do buy 30 to 40 stores in a normal year, obviously we'll be taking that into consideration as we think through the Breeze stores as well once that deal is closed. Patrick: Great. That's helpful. Thanks, guys. Elizabeth Clevinger: Mhmm. Thank you. Operator: Our next question comes from Peter Keith from Piper Sandler. Your line is now open. Please go ahead. Peter Keith: Thanks. Good morning and congratulations on getting the Breeze acquisition done. Just on a separate topic, wanted to dig into a little bit on the higher product cost impact. It looked pretty impactful at around 120 basis point drag for the quarter. Could you give a little more detail on what this was and if we're going to see this headwind continue or if there's any potential offsets as we step into the new fiscal year? John Kevin Willis: Yes. As we look at product cost, there are several components to that. As we all know, crude oil pricing continues to be down versus prior year. And typically, we would expect to see base oil pricing come down as well. That typically takes some time, three or four months is not uncommon for that curve to catch up. And unfortunately, we really haven't seen much there yet. And in the case of supply chain costs, we continue to see inflation there, which does create a drag on the product cost side. When base oil pricing does decline, and we would expect it to at some point, we would see some benefit from that as well as our franchise partners. And since our franchise partners will benefit from this as well as we pass those savings along to them. Another component to this that has also been a drag and is, I would say, marginally gotten worse would be used oil pricing. It's also a component of product cost. Historically, it's been more of offset as we sell the used oil. Used oil prices do tend to move with crude oil pricing and that has been the case even more so than the case, I would say to the extreme. We've seen used oil pricing come down considerably to the point that some providers out there are starting to charge customers to pick up used oil versus actually buying that. It's just a function of the market dynamics. As crude has gone down and stayed down there's just less demand on the used oil side. And so it becomes more of a drag. But we've seen an outsized impact to that as well. We are not currently paying providers to pick up our oil, but we're also not realizing very much in terms of the sale of our used oil either. And we expect to see that trend continue for the time being. And would expect to see that in 2026. And we've included that in the consideration around our outlook as well. Peter Keith: Okay. All right. That's helpful. And then, I guess a simplistic question on optics. So the comp was quite good for the quarter, the EBITDA at the high end and then the EPS the low end. So I guess optics do matter. You did miss the EPS consensus estimates a bit. To me, it looks like you had $0.02 headwind from higher interest expense. Maybe you can comment if the why did interest expense jump up so much and if there's anything in your model that maybe caused the drag on the EPS? John Kevin Willis: Yeah. There a couple of things in there. Depreciation in the quarter was a little higher than we expected because of the timing and mix of new store additions in the quarter. So that's part of it. The effective tax rate is also just a bit higher than what we expected as well. And I would say probably from an interest perspective, would say net interest is probably a little bit higher, meaning interest income that we would have expected to see was a bit lower as well. So it's really pieces of all of that that I would say contributed to us landing at the bottom end of the range for the full year. Peter Keith: Okay. That's helpful. Thank you. Good luck with the new fiscal year. John Kevin Willis: Thank you. Elizabeth Clevinger: Thank you. Operator: This marks the end of our Q&A session for today. So I'll hand back to Laurie for closing remarks. Lori A. Flees: Well, thank you everyone for joining and for the questions. You know, as we step back and look at FY '25, we feel really good about what we delivered from compelling growth and financial results. And as we look at FY '26, we know there's more to come as we continue to drive the core business and moderate the G&A growth and spend in our existing business. Now with Breeze, while we're adding 162 stores to our network, this is not something that is new to us. We have been doing bolt-on acquisitions for a long time. This is obviously larger scale, but we have the playbook and the team ready we will you know, following the close on December 1, we'll start our integration process. And I feel really good about the Breeze team and again, the strategic rationale for that acquisition. Remains the same. When we close the transaction, Valvoline Inc. will be the category leader in store count, revenue, and transactions both on an absolute and an average per store basis. We'll have over 2,300 well over 2,300 stores, which we can leverage our investments against. So using our playbook, we'll bring these stores into the portfolio and we do see significant growth opportunities ahead. Our resilient business model remains unchanged, and it will continue to position us for momentum in FY 'twenty six and beyond. So I wanna thank you all again for joining us today, and I look forward to seeing you either virtually or in person at our investor update in December. Thanks all. Operator: This concludes today's call. Thank you for joining us. You may now disconnect your lines.
David de la Roz: Good afternoon, everyone, and thank you all for joining us today for our second quarter fiscal year 2026 results presentation for the 3 months ending 30th of September 2025. I'm David de la Roz, the Director of Investor Relations, at eDreams ODIGEO. As always, you can find the resource materials, including the presentation and our results report on the Investor Relations section of our website. I would like to inform you that today's presentation will be a little longer than usual as we discuss our new 4-year strategic plan and our financial outlook for the 4-years period. I will now pass you over to Dana Dunne, our CEO. Dana Dunne: Thank you, David. Good afternoon, everyone, and thank you for joining us. Today, we're going to discuss 3 things: first, we will do a brief update on our first half year results of FY '26, which are on track; second, we will share our new 4-year strategic plan in which we accelerate significantly Prime member growth and further diversify and strengthen our business; and three, we will discuss the immediate headwind that is hitting us, which is Ryanair that has recently intensified their OTA blocking efforts. On today's call, David will take you through the brief update of the first half of FY '26 results. I will then take you through the key drivers of our new 4-year strategic growth plan. David will follow with the immediate headwind, financial implications and our financial outlook for the new long-term 4-year guidance. I will then share some closing remarks. Now I'll pass it over to David, who will take you through our first half FY '26 results highlights. David Corrales: Thank you, Dana. If you could all please turn to Slide 5 of the presentation, I will take you through the key highlights of our results. In the first half of the fiscal year, eDO continued to show strong performance. Our Prime members grew 18% reaching 7.7 million with 457,000 added in the first half. Cash EBITDA reached EUR 94 million for the semester, growing 16% year-on-year and growing the last 4 months margin by 7 percentage points in one year. And we remain committed to shareholder returns. In the first half, we invested EUR 32.6 million in share repurchases and year-to-date, we have canceled 5.98 million shares, that's 4.7% of shares outstanding. If you could all please turn to Slide 6 of the presentation, I will take you through the key highlights of our Prime P&L. In the first half of fiscal '26, the Prime model continued to show that it is the engine of our growth, and we saw significant improvements in profitability, driven primarily by the increasing maturity of our Prime member base. Looking at Prime's impact on profitability and the drivers behind that growth, our cash marginal profit, a key measure of profitability, grew by 10%, reaching EUR 144.2 million. This shows that our business is not just growing, but each transaction is becoming more profitable. This improvement is due to the maturity of our Prime member base. As members stay with us longer, their profitability grows, which is evident in the 15% increase in cash marginal profit for Prime and its margin increasing by 6 percentage points over the past year. This is having a positive ripple effect on our entire business as our overall cash EBITDA margin improved by 5 percentage points from 22% in the first half of fiscal '25 to 28% in the first half of fiscal '26. Cash EBITDA for the semester reached EUR 94 million, marking a 16% year-on-year increase. Looking at revenue performance. In the first half of the year, we have observed a few key changes in our revenue margin. While our overall revenue margin increased by 5% compared to the same period last year, our cash revenue margin saw a 6% decrease. The shift is primarily due to a 20% growth in Prime revenue margin, driven by an 18% increase in Prime members. However, this growth was largely offset by a 22% planned reduction in non-Prime revenue margin. Cash revenue margin for the Prime segment grew by 2% versus the first half of the last fiscal year. While member growth was a positive factor, it was offset by a test of monthly subscription fees for a subset of our customers. As we said in our results call of the previous quarter, the increase in Prime deferred revenue was again positive for the second quarter as we decrease the sample size of the test of Prime monthly payments. The 6% decrease in overall cash revenue margin was due to the planned decline in the non-Prime segment. Let me pass it over to Dana, who will take you through key drivers of our new 4-year strategic growth plan. Dana Dunne: Thank you, David. Please turn to Slide 8 of the presentation. I will take you through the key drivers of our new 4-year strategic growth plan. As you know, we've been running a number of tests of monthly and quarterly payments and the results are very positive. We have identified a number of use cases in which a monthly or quarterly payment of the subscription results in higher lifetime value and therefore, makes more sense than charging an annual fee upfront. We have also identified that monthly payments are enabler for future growth along 2 additional dimensions as it allows us to pursue growth opportunities via offering new products incompatible with a single annual payment and additional growth opportunities in middle-income countries that are more receptive to monthly payments. In summary, this will lead to more top line growth in the next 3 to 5 years, alongside a short-term investment. I will now take you through the areas of growth, sharing the results and the opportunity to create more shareholder value by investing in accelerated growth. Please turn to Slide 9 of the presentation. The first key strategic driver is evolving our payment model. Customers have clearly told us that they generally prefer monthly payments over annual ones. Our survey data, which is based upon 1,740 customers confirm this, 49% prefer monthly payments, while only 25% annual payments and 25% have no preference. We also have seen other subscription businesses move increasingly to monthly as well. For example, over the past several years, Amazon, Adobe, Microsoft 365 have increasingly moved from annual to monthly payments, to name a few companies. As a result of this customer preference, we have been testing monthly and quarterly payments for several years, across 10 Prime markets and 5 products. That means flight, rail, accommodation, price freeze and Prime stand-alone, in order to see how to make this work given the uniqueness of travel and Prime. Please turn to Slide 10. The results from our tests are compelling, showing customers clearly prefer monthly or quarterly payments over annual ones. NPS, the Net Promoter Score, is over 10% higher with monthly payments and conversion from free trial to a paid member is 8% higher based on data from June 2024 to September 2025. This is a clear message. Consumers prefer monthly. Please turn to Slide 11. With the introduction of Prime of monthly and quarterly payments, we unlock new growth opportunities for Prime across product and geographic expansion. For new products, this model is a better fit for rail customers due to lower average basket values of rail bookings and a higher purchase frequency versus flights. Consumers clearly prefer this for lower ticket items. For new product expansion, eDO offers some products in unique ways such as price freeze. These products have high customer satisfaction levels. Now with a smaller monthly or quarterly payment, the value perception is much higher. For new markets, smaller monthly payments are also better suited for growth in new middle-income economies, increasing Prime penetration in these markets. In sum, monthly and quarterly payments facilitate additional growth opportunities. Please turn to Slide 12. Furthermore, the monthly quarterly payment model demonstrates superior results. In positive scope, the aggregate lifetime value is higher by 13% compared to the annual payment option. In summary, we will roll out monthly and quarterly payment models where LTV is positive versus annual payments, which is true in a majority of scopes for new member acquisition. David will speak with you in the financial section about the implications of the onetime unwinding impact of the cash deferred, which has a onetime negative consequence on our cash EBITDA. Please turn to Slide 13. Geographic expansion is our second key growth driver. We will invest in new Prime markets beyond our initial 10 countries to accelerate subscriber growth. We have tested Prime in 14 new markets in the last year, and the results are positive, showing further growth opportunity. The new international markets show promising metrics compared to our European top 5 markets, including higher Prime household penetration year one, NPS and Prime attachment rate. Please turn to Slide 14. Based on these promising results, we will focus on scaling Prime further geographically. Our strategy involves fueling growth in the most promising markets through further traffic acquisition and improving product, price competitiveness and operations in the most promising new markets. Our first phase will focus on growing a set of markets that showed great potential including Mexico, Argentina, the United Arab Emirates, Poland and South Africa. Please turn to Slide 15. Our third driver of growth is product expansion, starting with rail. We are entering the attractive European rail market, which is largely growing at over EUR 40 billion. This will complement our leading flight proposition to drive subscriber growth and increase member engagement. Europe has one of the most dense, high-speed rail networks in the world and it is opening up. Already, the rail market has taken a huge share from the short distance flight market, which provides good upside for us. For example, the Paris Bordeaux route, the rails market share is now 90%. That's 9-0% and Madrid to Barcelona is now 72% rail. Europe is further liberalizing its rail market with a number of new rail providers entering across countries. All of this provides exciting growth opportunities. Please turn to Slide 16. Prime gives us a unique competitive advantage to succeed in this market over rail-focused transactional competitors. Prime generates 4x more revenue margin compared to other transactional rail OTAs. This, in turn, gives us more revenue to play with to win versus transactional businesses. In over 95% of cases, Prime is cheaper prices than rail operators or rail OTAs. Moreover, we see higher conversion rates compared to flights and higher Prime renewal rates as the number of products increases. To Prime, our leading technological platform, coupled with our advanced AI capabilities, our skills in acquisition and marketing and our leading European OTA brand makes eDO a natural winner in this market. Please turn to Slide 17. I want to dedicate a word to hotels since we have said this is also a priority. Since the Capital Markets Day, we have made significant progress in our hotel business proposition and further invested in hotels for growth. The global online hotel market is at EUR 293 billion and has an OTA penetration of 62%. We're already seeing promising results. Our unique visits to hotels are up 42%. Our LTV of Prime hotel repeat customers has increased by 33% and Prime hotel per flight booking is up 33% year-on-year. In summary, in hotels, Prime is a unique offering with superior price proposition, excellent customer experience, wide inventory selection and growing flexibility. With over 7.7 million Prime members, Prime for hotels gives us increased retention of Prime customers as we move from being a flight-centric proposition and company to an overall travel-centric one and one that is unique in its subscription offering. Please turn to Slide 18. Finally, as most of you know, we are one of the leaders in Europe in AI. With this new plan, we are leveraging our AI leadership to support this accelerated growth. We have already achieved massive scale adoption of Generative AI with a run rate of well over 400 billion tokens per year. Tokens are a number of words or data chunks being processed by all of our Generative AI use cases, and this is a key enabler and a key benchmark for how sophisticated our company is in Generative AI. This level of AI consumption places us clearly amongst the leaders of AI across the global e-commerce industry. If you could please turn to the next slide, I would like to share with you some of the most current use cases across the organization. In customer service, our generative and agentic AI solutions are revolutionizing how we serve customers, enabling end-to-end agentic automation of even complex tasks such as canceling and booking. In IT, we've seen a step change in productivity on the back of our leadership in AI adoption, with more than 30% of our code now being AI generated. And across the business, we are seeing how even complex processes can be automated through AI. For example, AI is now automating the management of our in-house dynamic pricing engine, which previously required scarce data science expertise. Now let me pass it back to David, who will take you through our immediate headwind, the financial implications of the plan and our financial outlook for the next new long-term 4-year guidance. David Corrales: Thank you, Dana. Now let's address the immediate headwind hitting our business. If you could please on to Slide 21. Ryanair has recently identified their OTA blocking efforts, which is increasing instability in Ryanair content coverage. Since mid-September 2025, our average daily bookings for Ryanair have been reduced by over 80%. It is important to stress that this has impacted our new customer acquisition, but not the churn of our existing Prime customers. Customers who booked our Ryanair flight demonstrate a similar renewal rate to the average of the company as they find alternative lines and maintain a similar Net Promoter Score. If you could please turn to Slide 23. Given the investment for accelerated growth and the impact of the headwind, we're issuing a new long-term financial guidance. In Prime members, despite the headwind, we are accelerating growth. We will deliver 40% more Prime subscribers than the market consensus by increase by year 3. In the second half of fiscal '26, we will be affected by the recent stability in Ryanair content, and we will grow our Prime member base in the whole fiscal year by 600,000 members. In fiscal '27 as we anniversarize the impact of the Ryanair instability, we would also grow our Prime member base by another 600,000 members. From fiscal '28 onwards, when our new investments start to pay off, we will grow our Prime member base at 15% to 20% per annum to reach more than 13 million members by fiscal '30, dramatically more than the analyst consensus of only 4% per annum and more importantly, achieving record levels in annual net adds by adding in the range of 1.5 million to 2 million new Prime members per year between fiscal '28 and fiscal '30. Regarding the ARPU of Prime, average revenue per user, due to the introduction of monthly and quarterly payment installments, our ARPU will temporarily reduce in fiscal '26 and fiscal '27 to the low mid- EUR 60s and is projected to recover to approximately EUR 70 by fiscal year '30. In terms of the Prime deferred revenue, it will reduce to an amount of negative EUR 18 million in the aggregate of fiscal '26 and a negative EUR 6 million in the aggregate of fiscal '27 and then contribute over EUR 30 million positive per year from fiscal '28 to fiscal '30. If you could please turn to Slide 24. We will have a period of investment during the second half of fiscal '26 and the first 3 quarters in fiscal '27, and we will start showing growth from the fourth fiscal quarter of fiscal '27 in cash EBITDA. Cash EBITDA will come down to an estimated EUR 155 million in fiscal '26 and EUR 115 million in fiscal '27. We expect the investment period to be 5 quarters, so cash EBITDA will start growing year-on-year by the fourth quarter of fiscal '27. You can see the largest investment is the timing impact of the move to monthly and quarterly payments, with the onetime change in deferred revenues, which happens over the next 12 months and its impact on cash EBITDA. From fiscal '27 to fiscal '30, we expect cash EBITDA to grow by more than 33% per annum, reaching over EUR 270 million by fiscal year '30. Now let me pass it over to Dana, who will do some closing remarks. Dana Dunne: Thank you, David. Let me start by saying that I've been in this business for 13 years, and I've never been more excited about the future of eDO. We're going to grow this business more rapidly and further diversify and strengthen the business and its attractiveness to customers. With the move to monthly, we will go to new product categories, such as rail and other lower value ones as well. We will go to more geographies, some of which are lower income ones than in Western Europe, and we will continue to lead in our investments in skills in AI, which creates lots of value for customers of eDO. Let me be clear, separate from this, we have a headwind, which we have boxed by minimizing its financial impact in our new guidance while we build an even stronger and more diversified business. Now please turn to Slide 26. I'll follow by saying we've done this before. We have transformed the business dramatically in the past and at the same time, delivered on our long-term guidance. For instance, in our last 3.5-year plan, we set very ambitious plans, and we delivered. One, we grew our Prime numbers from less than 2 million in 2021 to 7.25 million in 2025. We improved our cash EBITDA from EUR 3 million to EUR 180 million. We deleveraged the company from 8.6x to 1.7x. We transformed our business from transaction to subscription business with now 74% of revenues and 88% of cash marginal profit from subscribers, whereas it used to be 38% and 50%, respectively, and we created a stronger consumer business. In sum, we have a team that delivers. Please turn to Slide 27. In closing, despite the negative headwind, we are building a much better, much stronger business. We will deliver higher growth. We will deliver 40% more Prime members than market consensus by FY '30. We will deliver a higher customer LTV. The new payment model results in a 13% higher lifetime value for Prime. We will deliver stronger customer loyalty. The new payment model delivers over 10% increase in NPS scores and increased customer stickiness. We will deliver more diversified business. 66% of eDO's volume will be driven by nonflight products and flight outside of the top 5 European markets in FY '30. This transforms us from a fundamentally European flights business to a global travel business. And we will continue with our share buyback. We have committed EUR 100 million for the next 2 years to continue our share buyback program. Over the years, we have demonstrated resilience, transformation and an unwavering commitment to delivering shareholder value. Today, we are strengthening our foundations, not just for the next quarter but the next decade, transforming from a mainly European flights to a global travel business, trust in our track record and our vision, securing a sustainable and highly rewarding future for all of us. Now let me pass it back to David. David Corrales: Thank you, Dana. With that, we would now like to take your questions on the webcast. [Operator Instructions] Now let me go to the first set of questions that comes from Francisco Ruiz, the analyst of BNP Paribas. The first one is, can you put an example on monthly payments similar to what you did with the EUR 55 annual payment? If I book a flight to New York from Madrid, and previously, I get a discount of EUR 30, will I get this discount as well under the monthly one? Dana Dunne: Good question. Absolutely. And the answer is yes. It is exactly the same value proposition to the customer. The only thing that is changing is that in yearly, you collect the subscription fees in one time, that's the past. And at the beginning of the program, while on a monthly model and the same for quarterly, we collect the monthly subscription fees with a lower price than the yearly one, of course, every month during the course of that year. But in terms of the benefits now, not just in a sense, the cost to the customer, the benefits to the customer stay exactly the same. And in fact, if I just highlight, this opens up a lot of new customer segments that we can go into by doing this. And by doing that, we're going to enter into rail. And so all of our existing customers will get rail within their subscription fee as well. So it's a win-win. David Corrales: The second question that comes from Francisco Ruiz as well is, what is your opinion on the Google AI tool Canvas in your business? If this is not a threat, could you help us to understand why? Dana Dunne: Absolutely. So first of all, as all of you know, we're one of the leading AI companies across any industry within Europe. Many of you also know that we have a small business in the U.S., and there are far larger travel companies in the U.S. than us. Google's announced these partnerships with the largest travel companies in the U.S., and we look forward to participating in these opportunities from a European point of view. As you can see in the new plan, we're also investing in AI to keep this leadership, and we view AI search results as a potential new channel or variation of existing channels through which we can acquire customers. In fact, if you look at the new announcement of the new model being out, Google stated explicitly that they're not becoming a transactional company, by passing off the customer to its partners. So we absolutely welcome this and welcome it from a European point of view. David Corrales: Okay. The next set of questions come from Carlos Trevino from Santander. The first question is, could you elaborate on the nature of the investments in the second half of fiscal '26 and fiscal '27? Could you provide the breakdown between fixed costs and variable costs? Well, let me take that one. And let me actually start from the second half of it, which is the one about the fixed cost or variable costs. I can tell you the fixed cost, and you can actually go to the variable by difference, right? The amount of fixed costs that you should expect towards the end of the forecast period. So by fiscal year '30 is about EUR 140 million starting from the level that you have seen today, which we're doing now approximately EUR 25 million, EUR 26 million per quarter in the first 2 quarters of this year. We're going to increase somewhat the number of members. There's a lot of new developments to actually pursue in the business and going into all of those new verticals, going into new countries, going into new products like rail, going into small ticket items. So if we -- like we've said other times, if we enlarge the size of the factory, we believe that, that, coupled with the enhanced productivity that we are seeing from AI, like we have shown you earlier today, more than 30% of our code is right now AI generated already. We feel that we can deliver at speed in the number of new things that need to be produced. Now about the other size of the nature of the investments, that is some of the investment that is also on the variable cost nature. When you go into, again, new verticals, you don't have the advantage of an established customer base that -- which results in higher CAC than otherwise, right? At the end of the day, the cost of acquisition in one of our established countries is the blended mix of how many people come to you direct and those are either former transactional customers of you in the past or friends and family referrals of the existing Prime members. So when you go to a new country in which you don't have a meaningfully established base and you go -- or you go into a new vertical in which you're acquiring customers, the CAC is some higher. And then over time, it will decrease to more normal levels of CAC that you see in our more established business, in the more established verticals. That's the nature of the investments really. But because you asked about those -- and with the labeling that we have done in the slide which we run you through the cash EBITDA, let's just remind everyone that the biggest impact by far is the onetime timing difference of collecting monthly from a large portion of our customers from collecting yearly. The next question from Carlos as well is, will there be any kind of commitment to those subscribers choosing monthly quarterly payments? Yes, let me take that one as well. The monthly subscription program that we have is one-off installments of 12 months. So when the customers join the monthly program, they actually join a yearly program with monthly payments, but they have a commitment to continue to pay for the 12 months. And last question from Carlos Trevino is apart from the Ryanair no impact, have you seen an increase in your churn rate over the last months? Dana Dunne: The simple answer is no. If I compare from the Capital Markets Day to today, churn rates are stable. Moreover, I just want to make the point again because it's a really important one for all investors is that if we look at customers that had a prediction towards Ryanair who have joined our program, we do not see a change in the churn rate of them at all over the past year, over the past 2 years, et cetera. And what in fact happens is many of these customers simply take another airline. David Corrales: The next set of questions comes from Andrew Ross, who is analyst at Barclays. He says, what percentage of Prime subscribers on annual versus monthly subscriptions in fiscal '26 and fiscal year '30 in your assumptions, will you shift everyone to monthly? I want to refer you again to Slide 12 of the presentation, where we have a chart that talks exclusively about that. That is a very important question indeed. We will go with monthly on the new markets, and we will go with monthly on the new products at 100%. So rail will be monthly from the beginning, and we will not have customers that joined via rail being annual payments. And then in the existing market, existing products, it's approximately 50% that will be on monthly versus annual. And that is a very large part of our customer base, of course. The next question says, will it be possible to cancel a subscription midway through the year and pay only, say, a few months? Is that not a risk given relatively low annual frequency on the flight side and amongst Prime subscribers in general? Dana Dunne: So we've tested a number of models over the past number of years. And the model that works really well that you see the results there that you see the MPS increase, that you see the LTV, et cetera, is a monthly program with an annual commitment to it. So therefore, no, there isn't a risk and everything is baked in within our numbers based upon the long duration that we've been running this program and the test. David Corrales: The next question from Andrew is what percentage of gross bookings from nonflights within the top 5 Euro countries by fiscal year '30? Well, that's -- We don't tend to break down the gross bookings even in the actual data. So therefore, there's no point breaking it down for the forecast data, but you can take as a proxy that the majority of the nonflights, i.e. particularly in the part of new products, goes into monthly. So at least the subscription fee -- the subscription fee, again, will be on a monthly basis, but the gross bookings themselves come with every transaction. So they go along the year depending on the transaction. The next question says, what does this mean for shareholder returns in the next couple of years, given leverage will step up? Well, gross leverage is going to stay the same. Net leverage is going to go up from the level of about 1.8 that we have just published today to something in the surrounding of just under 3 or around 3, more or less. I think this -- we start this, let's say, a new cycle of growth from a very solid financial position with the lowest leverage that we have ever had. That's one of the things that help us to maintain a very solid, I would say, path of return of cash to shareholders with a commitment from us that it will be EUR 100 million in the next 2 years. The next question says, will you sign a strategic partnership with Ryanair, given the impact on bookings recently? And why haven't you done this? Dana Dunne: Absolutely. So let me explain how our situation is different. And then also, let me explain to you what our criteria is for deal with any partner. First one is what our situation is. As many of you know, we're absolutely leading in technology. And so therefore, we have had access to Ryanair, albeit limited. And today, we still have access to Ryanair, but it is dramatically less than what we had before. And we've been very open and transparent with you, but it's not 0, whereas most of the other competitors of us have had 0 because they don't have the platform, they don't have the technology that we have. And so if you have 0, then signing a deal gives you more than 0. So that's an upside. For us though, that's one starting point that's slightly different. The second one is also in terms of Prime. We are not a transaction-based business unlike the other players out in the marketplace. We are the only subscription one. And that model drives us to certain different behaviors, different decision-making than others. We are very focused not just on getting the business, but then making sure that the customer has a whole good trip that they do another trip, another trip, another trip, and when day 365 comes up, that they renew with us. And that is fundamental about our model and our business. It's unlike a non-subscription-based business. So therefore, we're very, very focused on the end-to-end customer experience on it. So that is our 2 fundamental things that are different when we evaluate deals versus someone else in it. Now come to our criteria. Our criteria is threefold. The first one is obviously, shareholder value, right? What are our options and which one creates the most amount of shareholder value versus the next option, right? And so we simply dispassionately compare that with. The second criteria is around the customer experience, and I think I explained to you a little bit more about why that is so important to us. And the third one is about compliance in terms of regulation, laws, rules, et cetera, from Europe. And so we make dispassionately that situation. And any deal, not just this one, but with any partner, that is how we'll make them in the best interest of those 3 criteria. David Corrales: The next question from Andrew is, which markets are the focus for rail in particular? Dana Dunne: Absolutely. So look, we're focusing first on Continental Europe. And within Continental Europe, the markets that are really opening up the soonest, which is Spain, Italy and France. And by the way, they're at later stages, and we can go to other ones as well. David Corrales: The next seems to be the last question from Andrew. Says, Expedia and Skyscanner have tried out trains in Europe in the past with limited success, whereas a single product focus from Trainline seems to be working. What are your thoughts on this? Dana Dunne: So let me take it, David. So first of all, the obvious thing is, I can't speak for Expedia and Skyscanner. Really important to point out, Skyscanner is a Meta, which is an absolutely entire different business model, not just from us, but from other OTAs. Now Expedia as an OTA is a different business than ours, and I'm not -- was not privy to their results, so I can't comment on. What I can comment on, we are unique. We have Prime. We have a technology leadership. We have a really strong transport brand, and we have been running this for a while and are basing our plan on our actual results. This is not about ideas, but on actual results that we have been doing well in. David Corrales: The next set of questions come from Bharath Nagaraj, the analyst from Cantor Fitzgerald. The first one says, when you say you're planning to enter the railway market, is that by building partnerships with rail travel supplies directly? Or what is the plan? And similarly, with regards to hotels, remind us again as to how you're growing supply of hotels? Is that via direct relationships? Dana Dunne: Yes, absolutely. So great questions. So the first one, if I take the rail market, absolutely, we are signing partnerships with a number of rail providers on that, and we're going market by market. We also have our platform as well that allows us to get rail content from other parties from third-party providers as well that would have that content. In terms of -- for hotels, we have simply a multi -- with hotels, sorry, you're talking about we have almost 2 million hotels on our platform. The hotels market is fundamentally different in terms of, let's say, content and the amount or the number of, let's say, content sources that you need to in order to have a robust business. Now within that, we've built a platform that is a multi-provider platform. So we get some by going direct to hotels, but then we get a lot from let's say, third parties, and we have relationships with a number of really key third parties that allows us to get it. And then we've built on top of this a layer that allows us to deduplicate because we'll have -- meaning having so many different providers, we're getting duplicity of content. So we need to do duplicate it, and we need to figure out which is the best one in order to offer and close that hotel booking for. David Corrales: The next question is what was the churn when it came to monthly payments? It would have picked up as well, right, versus annual payments? Let me take this one. We are rolling out -- I'm going back again to the Page 12 and the Page 11 before that. We are rolling out the monthly instead of annual in those places where the LTV is positive versus yearly, which means that when we do it, the balance between new members that you get or extra members that you get and the churn evolution is positive overall. The next question says, what's the results of the monthly payment model for just air, not including rail? They're both positive. They are positive for rail and they're positive for flights. In rail, it is a precondition, right, like we have said. Rail is part of those type of, let's say, products in which you have lower average basket value and you have more frequency of consumption. And it ties a lot better with monthly installment cadence. And on the case of air is, of course, the vast majority of the sample because that's the one that we were able to test more extensively over a period 2 years. The next question says, given Ryanair was always against OTAs, what have they done exactly since mid-September? Remind us again how much of your group was still Ryanair driven prior to mid-September? The relationship with Ryanair from a technological point of view has been for a number of years, if you will, kind of like a cat and mouse game. They try for us not to access the content, and we go around the hurdles that they put. What they have taken are increased anti-scraping measures that preclude us from giving a good customer experience to our numbers. And that has increased from September. The possibility that we go around those hurdles is a good possibility like in the past, but we have decided for this forecast to box it in. So that this forecast that we have shared with you today are not dependent on us going over the hurdles like we have done in the past. The next question is from Nizla Naizer, the analyst from Deutsche Bank. Can the economics of Prime still work if the subscription is shorter? Yes, yes, absolutely. And that is demonstrated by the data that we have shown today that the LTV is 30% higher in the use cases in which it is higher, of course. In the ones in which it is lower, is those cases where we're not rolling out monthly, and we're keeping only the annual payment option. And then the -- well, the next one is actually a repeat from the previous. And the following one is -- I think that one is repeated as well. Let me just go up here. We have questions from Chadd Garcia from Schwartz Investment Counsel. He says most of the decline in cash EBITDA estimates in '26 look to be coming from a decrease in deferred revenue, given the new nonannual Prime programs. Just looking at EBITDA, taking the working capital performance of cash EBITDA out of it, what does the change in EBITDA estimate look like, if any? I think the easiest way to do that is to look at the adjusted EBITDA as opposed to the cash EBITDA. Now you can put together 2 data points that we provided today. The first one would be the expectation of cash EBITDA by the end of fiscal '26 of EUR 155 million. And the second one is that in the aggregate of the year, we expect to have negative EUR 18 million in the change in deferred revenue. If you put the 2 together, you get to an adjusted EBITDA of EUR 173 million. EUR 173 million is almost a 30% increase in adjusted EBITDA versus the adjusted EBITDA that we reported of about EUR 134 million in fiscal '25. And that evolution is net of all of these timing effects, onetime of the change to monthly for a good portion of our members. The next question comes from Adam Patinkin from David Capital. What efforts are being made to reconcile with Ryanair? And what will the financial impact be if the issues with Ryanair can be resolved? Let me take the second part, which is more of a financial question, and then Dana can go on the first, although, there's not a lot to say because we've talked enough, I think, about the 3 elements of -- that would potentially underpin a deal with Ryanair. On the financial, it will, of course, be a positive, right? And we just don't want to venture how much positive because there is a range of options, right? You could go back to the levels that we had just before September. You could go to more, and we prefer to talk about our forecast, absolutely boxing in Ryanair so that it's not an impact. If there is an impact, it will be positive versus what we're showing today. The next question comes from Paul Simenauer from BNP Paribas. Are there other players that may seek to do what Ryanair tried to do that create further downside risk to EBITDA guidance? Dana Dunne: Let me take that one. So first of all, Ryanair has been consistent about this, that they have been going after this for minimum of 15, it's actually been over 15, more like probably 20 years consistently. So in that time, you've been able to see everybody, been able to see the market, and that approach to it. In fact, what they're doing is really counter to the basic fundamentals of fixed asset owners. When you look at fixed asset owners and what they do, not just in travel, right, like other airlines or other hoteliers, but look at theme parks, look outside of even the kind of travel, entertainment, leisure industry. There's lots of other fixed asset industries. And what you're fundamentally doing is running an auction. And you want to bring as many people as possible to the auction, particularly when you have a perishable asset like a seat an airplane that's expiring at a certain date. You want to bring as many people as possible. It's not just to sell that seat, it's not just to fill that kind of theme park, it would be actually to be able to yield manage and push it up and up. And the more people you bring to the auction, the more likely you are to be able to close out at a higher and higher price. This is exactly what other fixed asset businesses owners do. This is exactly what you see, for example, Disney, with its theme parks, you see even a semi-fixed asset owner, Apple does this by using so many other types of companies as well on this freight. When you look at also just us we -- not just as a, let's say, a potential point to bring people to an auction. There is uniqueness in us. And there's uniqueness in primarily because we have Prime. And if you look at our customer base, if you look at our disclosure that we've shared before, is that only 5% of our Prime customers actually go to an airline website. That's 5% go to an airline website. So 95% don't. And that is what we bring to the auction. That's where we bring to an airline. That's what we bring to other fixed asset partners. Now if you look at as another fact is that airlines have participated in our Prime Days, have seen 173% growth in their bookings versus airlines that don't participate in our Prime Days. So again, it just shows the amount of kind of value that we can bring and the collaboration that we do bring to other fixed asset providers. David Corrales: The next question that we have comes from Guilherme Sampaio, the analyst at CaixaBank. Could you comment on how do you expect the different parts of the LTV on a single customer basis to change with the movement to monthly payments? In most subscription models, there is a churn spike around the payment date. Do you see that in your numbers? Well, actually, we define churn as when people don't take. So yes, it comes around more precisely on the payment date is when we know if we have a churn number or not because up until that payment date, they can use the service, however many times they want. Now on the parts of the LTV, it's a little bit of what we said earlier to a different question. You have an increase in conversion that we have shown a particular slide in which from visit to number of Prime members that finally joined, there's an 8% increase. On the other hand, there are certainly different behaviors around the churn, but net-net of the 2 things, which are the 2 most important things, you have a 13% increase in LTV for those use cases, again, in which the LTV is positive, and we're only rolling out monthly or quarterly payment installments in those use cases in which the LTV is positive. That is the last question that we have now in the webcast. So with that, I'm going to thank everyone for joining the webcast today. Dana wants to share a closing remarks. Dana Dunne: Yes. Absolutely. So look, I know that some of you are long or short-term oriented shareholders. Investors with a short-term horizon would, I acknowledge, would prefer that we postpone doing these investments. But let me be clear, as a shareholder, I'm telling you that it is not in the best interest of the long-term growth of the company and of overall shareholders. For the analysts that cover us, we look forward to working with you and helping you understand in more detail the implications for your models. Lastly, again, as a significant shareholder, I can say this is absolutely the right thing to do. it makes our company far more diversified. And it turns us into a global travel company as opposed to a European flights business, which, in turn, makes us more valuable and attractive to different types of stakeholders. It gives us stickier customers, which, in turn, makes us more valuable. It gives us much greater growth profile in the coming year for investors, and that's 40% higher than the analyst consensus, which again is very valuable, and we will execute this plan while we buy back EUR 100 million of our stock over the next 2 years. With that, let me pass it back to David. David Corrales: Thank you, Dana. I echo your words. I'm a significant shareholder as well, a significant and proud shareholder. Before we conclude the call, I would like to inform you that on Thursday, the 26th of February, we will be hosting our conference call for the 9 months result presentation. And in the meantime, we will be happy to receive your questions via the Investor Relations team or the investor email address, which is investors@edreamsodigeo.com. Have a nice evening. Thank you very much for joining.
Roland Jones: Well, good morning, ladies and gentlemen, and welcome to the Schroder Oriental Income Fund plc Annual Results Webinar coming to you today from the Schroders' headquarters in the heart of the city of London. I'm Roland Jones. I'm responsible for the investment trust sales here at Schroders. And I'm pleased to be your host over the next 35 minutes or so. I'm also very pleased to be joined by your portfolio manager, Richard Sennitt. Good morning, Richard. Richard Sennitt: Good morning, Roland. Good morning, everyone. Roland Jones: Richard has got over 35 years' experience and has recently returned from... Richard Sennitt: Not quite Roland. Roland Jones: Okay. Richard Sennitt: Over 30. Roland Jones: Just returned from a trip to Australia. And over the next 35 minutes or so, we're going to talk about the performance of the trust over the results period, the positioning a little bit of outlook and our views for the region, but also very importantly, the importance of generating a dividend from a portfolio of Asian equity stocks. So we're going to spend a little bit of time over on that topic over the next 35 minutes. Now you will have plenty of time to ask questions. I have my iPad. Please fill them in, send them to me. You've also got the opportunity to download the annual results and today's presentation. So it's all there. There's also a survey at the end. We'll be very grateful if you could fill that in because that's really useful for us, so we can make sure that these presentations are sort of meeting your requirements in the future. So that's the agenda for today. Roland Jones: Richard, tell us a little bit about the team that we have in Asia because that's very important, isn't it? Let's cover that. Richard Sennitt: Yes. No, you're absolutely right. It is a key part of our investment process. And I think it's probably worth just touching on how we do manage the portfolio and the way that we approach investment in Asia because I think it is a really important part of the ability to deliver success over the long term. First of all, we think that markets are inefficient in Asia, which won't surprise you. And the best way to extract those inefficiencies is very much through a bottom-up fundamental process. And to that end, as Roland mentioned, we have a very extensive team based out in the region. Although I'm based here in London, you can see that we have a team based through 6 offices in Asia and 47 analysts. And they're going out visiting companies, writing reports, making recommendations, and I'm drawing on their best ideas from an income perspective to create a portfolio of roughly about sort of 60 names. I think it's probably what's worth highlighting is that what we don't do is screen the universe for the highest-yielding stocks and backfill the portfolio with those names. What we're looking to do is to buy into companies where there is most certainly an income rationale to go in the portfolio, but there is also hopefully upside to fair value as well. And that does mean that there are some areas of the market where we're probably going to have a little bit less exposure or not get exposure to. One of the most obvious areas that we are quite underweight in would be, for instance, the Chinese Internet platform companies would be an example of that. This does mean that, I guess, stylistically for the fund, there is -- given the characteristics of income and so on, it doesn't tend to mean that overall, we have a sort of a bit of a value bias to the portfolio. So that's really on the sort of the team and high-level process. And perhaps if I sort of give a bit of a recap about what's been going on in the markets because I guess this year has been a year when actually Asia has been a pretty good performer versus world markets. It's up over 20% year-to-date. And I suppose if you rewind 12 months ago, that may have been a bit of a surprise to people because if you think about it, we just were in that period when we're having Trump coming into being elected in the U.S., and he obviously had very clear views around tariffs, which obviously, it was going to have a big impact on Asia. And also, there was concern around the outlook for the Chinese economy. So looking at whether there was risk around a hard landing there. And I guess what we've seen since then has been that markets have got a bit more comfort around those things. So around enough is being done to sort of stabilize the Chinese economy. And I think also that some of the sort of initial talk around tariffs, I think people got more comfortable with some of the deals that are starting to come through on there, and that's allowed markets to do a bit better. The other thing, of course, which has been a real driver for markets globally has been around what's been going on with AI and obviously, Asia is very much an enabler for AI with its extensive sort of semiconductor companies and world-class names like TSMC, Samsung Electronics, these sorts of names. And they're obviously a part of that whole ecosystem, and that has been helpful for the markets. And then I'd say the final piece, which has sort of driven markets a bit higher has been a weaker U.S. dollar, which tends to be helpful for liquidity in the region and good for stock markets, at least historically. And with that, just looking at the chart that we've got here, you can just see that what each of the individual markets have done. And the reason that I put this chart up here is just to sort of show that actually most of the rise in markets is being driven by -- or has been driven by a re-rating rather than earnings growth necessarily being revised up or coming through. So this just breaks down the returns for each market and it says what proportion came from a re-rating, what came from earnings and the earnings being the green, the dark blue being the sort of re-rating. And you can see in most markets, it's been about a re-rating. And that's because the markets have been quite liquidity driven. They've been quite narrow. They've been quite thematic. And as we go through time, I'd expect to see a bit more of a broadening out from the sort of re-rating phase more to sort of earnings growth coming through. And this just sort of paints that picture a bit in a slightly different way. The chart on the left is just looking at the sort of the weight of the largest 5 stocks in the benchmark. And you can see that on the left-hand side, it's now over 25% of the market. So it's been quite a concentrated market rally, and that's been sort of a bit similar to what we've obviously seen in markets like the U.S. And the number of stocks that have been outperforming has come right down, which is the right-hand chart. So it's been quite narrow, and that's around that sort of thematic piece, which I was sort of talking to. And that's generally been not a great backdrop for income, I'd say, because it has been quite a bit more of a growth-focused rally and with growth outperforming value. So if we look at the sort of the performance of the trust over the sort of financial year, you can see that here, we've got -- so I think the first thing to point out is obviously that absolute returns have been pretty good over the year. And actually, if you look back through time, they've been relatively consistent. You can see they're generating roughly 10% per annum over the longer term. Against the index, the strategy has lagged the benchmark. And that has really been around a couple of things. Firstly, about the point about value has been a bit of a headwind in the market because growth has done better in what's been quite a liquidity-driven market. And some of the names which have done very well have been some of those Chinese Internet platform companies, so the likes of Tencent, which is hard to sort of own from a sort of -- with an income -- justify from an income rationale perspective. So that's been one of the sort of headwinds. That's partly offset by an overweight in the stock selection in sort of Hong Kong. And I'd say then from a sector perspective, sort of financials have been good for us, being overweight and stock selection within them and -- which has been partly offset by stock selection within IT. The other thing I should point out here is obviously that subsequent to that year-end, we have announced the full year dividend, and it's shown another increase there, and I'll talk a bit more about that in a second. If I bring it sort of a bit more up to date to the end of October, you can see that the markets have sort of continued to rally. And that has been driven again by very much a continuation of sort of strength in some of those AI names. And since the month end, there's been a bit of a sort of question mark around that, about the sort of the sustainability of the rally, but maybe we can talk about that a bit later. But generally, the market environment has obviously been positive for equities. And I think it's probably worth pointing out how if you're looking at this trust, how you should think about how the trust performs in different types of markets. So here, we just got the annual returns going back over the last 10 years and looking at -- and what I would tend to say is that when markets are sort of quite liquidity-driven or growth focused, that tends to be a bit of a headwind for relative performance, but you tend to do relatively well from an absolute sense. But when markets are falling or gently rising, there's a reasonable, hopefully, an opportunity to outperform versus the benchmark. And I think that's what you see over the sort of 10 calendar years that we've got here. The strategy has sort of underperformed in 3 of those years is 2017, 2019 and 2020. And they were years which were good from an absolute perspective. So you made good absolute returns but lagged the benchmark, and that's partly because they were focused on growth. Those markets, they tend to be quite growth-driven, quite liquidity driven. But in most other markets, you can see there, which are generally rising or falling, the trust has managed to outperform its benchmark. So that's sort of the way that you should sort of, I guess, think about that relative performance piece. And just talking a bit more, I suppose, just putting that piece, I mentioned that sort of higher-yielding stocks have basically had a bit of a challenge from a relative performance perspective. So this just looks at the relative performance by quartile of yield. And you can see -- so if you look at the right-hand side, any -- the bars above the line are stocks outperforming the benchmark. And you can see that the lowest yield quintiles, so Quintile 4 and Quintile 3 have performed well, whereas the highest-yielding quartile has been the sort of the weakest performing quartile. And that's coming back to what I was sort of describing earlier as to how you should expect. So high-yielding stocks have lagged the benchmark essentially. And then if we look at the sort of performance of the individual markets, and this is to the end of October, and it looks at the 12-month returns. I think it can almost be summed up in sort of in a relatively -- I mean, it's a bit of a generalization, but the areas that have done best over the last 12 months or so have been in those areas of sort of North Asia and around us sort of more of an AI focus. So if you look at sector returns, the best-performing sectors, information technology, I guess, not too much of a shock to many people. And then on the left, if you look at the country returns, the North Asian markets, in particular, Korea, Taiwan, China, all outperformed. And obviously, particularly Korea and Taiwan have that large semiconductor industry and that enabler of AI theme there. And then on the flip side, you've got the sort of, if you like, from a market perspective, those markets which have got relatively less in some of those more direct technology AI areas. So -- and perhaps a bit more impacted by what's been going on from a tariff perspective in some ways. So you're looking down at the sort of the -- some of the Southeast Asian markets, so like Thailand, Philippines, Indonesia, but also Australia, which, again, is another market where it hasn't got so much of that sort of IT exposure. And from a sector perspective, it's been the sectors that have lagged have been those which are sort of a bit more defensive, so utilities, consumer staples and health care and so on. So if you look at the sort of performance of the trust over the longer term, that -- and here, we've got the sort of light blue line, which is the sort of FTSE, the green line, which is the regional benchmark and the dark blue line, which is the trust, you can see over the long term, both the region and the trust have outperformed the U.K. market. So it has sort of, if you like, fulfilled a sort of diversification away from the U.K., if you like. So for someone who's got a lot of U.K. income, this is sort of potentially you could diversify through this and over the longer term, there are periods obviously when it doesn't outperform the U.K., but long term, it has outperformed. And I think the other thing just to sort of highlight is that the trust has outperformed the benchmark over the longer term. And I think that's a sort of -- is an argument, particularly when you're investing in Asia for sort of active fund management. And I think those sort of inefficiencies within the market that you can hopefully, over the long term, exploit to an extent. So if we look at the sort of the dividend per share over time, as I mentioned that's another increase this year in the dividend, and that's the latest in the line of increases, which have been going on now consistently every year since launch. And I think it's probably worth saying that in a sense, the trust is a bit plain vanilla in the way that it generates its income. It's not obviously paying out of capital. It's paying out of the income that's come through from the companies that we've owned through time. And it's also not trying to generate income through writing options or additional strategies. So in that sense, it's quite sort of, I guess, simple in its approach to the underlying income. And that does mean that you get that sort of value tilt to the portfolio. Roland Jones: So Richard, does that mean that every stock that you own in the portfolio is a yielding stock? And are you drawn towards those high yielders? Richard Sennitt: There has to be an income rationale for the stock to go into the portfolio, but it doesn't necessarily have to have a high yield today or it could indeed even not be paying a dividend today. But I have to see a clear progression to a decent dividend being paid out in the sort of forecastable future, if you like, rather than necessarily say, 10, 20 years down the line. So there is definitely an income rationale, but there is the ability to buy into companies where I think there's going to be an increase in dividend, which is material coming through over the forecastable future. So yes, it's -- so that you don't have to have a dividend, but in general, the very large majority do. Roland Jones: And are you naturally wary of those stocks paying a high dividend because that may not be sustainable? I presume the sustainability of dividend is an important factor as well. Richard Sennitt: Yes, sustainability is important, and we obviously consider that when we're looking at individual stocks. And I think it goes back to that point I made at the beginning where we don't just screen for the highest-yielding stocks because often some of those stocks can be ones where you do see dividend cuts because perhaps they're paying out more than they should. And we also want to buy into companies where there is potentially hopefully some sort of growth in the medium to long term and that potentially is a bit of upside to capital. So yes, we do focus on that point. It doesn't mean that we can always avoid dividend cuts, but it's obviously a consideration when we put stocks into the portfolio. Roland Jones: That's good. Thank you for clarifying that. Richard Sennitt: And I suppose this -- just to give a bit of context around where yields in the region are today. If you look at the left-hand chart, this just shows the dividend yield for the different regions. And then you can see the yield of Asia and the yield of the trust. And I guess if you look at the region, the yield is -- it's higher than the U.S. It's a bit higher than Japan, not as much as in the U.K. But if you look on the right-hand side there, you see that the trust does yield a premium, obviously, to the region, as you'd expect. And at the moment, it is a little bit above that, the yield of the U.K. market. And then the chart on the right, I guess, is instructive of sort of where relative yields are versus history versus the sort of different regions. So this just looks at the, if you like, the dividend yield premium of Asia versus the rest of the world, and you see it's relatively high at the moment versus its long-term history. So in that sense, relative to other markets, it doesn't look particularly extended at the moment. And then I guess, just to finish off with you on some of the drivers of income at the moment. On the left is just sort of consensus numbers for dividend growth at the moment, which coming through -- sorry, a lot of sort of small bars there, probably not very clear. But I guess the bottom line is that we're sort of -- we are getting dividend growth forecast to come through this year, sort of that mid-single-digit range of growth. It does vary between sectors. And then on the right, the other sort of influence of dividends, obviously around currency. So particularly the strength of sterling versus the regional markets. And obviously, if sterling is strong, that tends to act as a bit of a headwind for the translation of dividends back into sterling and vice versa. And over the last few years, actually, it's been a bit of a headwind at work. Very recently, it sort of just started to come off a little bit from currency. So if we see that continue, that would be favorable, but it has been a headwind, broadly speaking, over the last couple of years. And then to your point about sort of resilience of dividends. And I think one of the reasons that sort of Asia is sort of interesting or is, in my view, relatively reliable source of income is that it's not particularly extended from a sort of payout perspective. So the proportion of company's earnings that are being paid out is not that high. So if you look at the left-hand chart, you can see that green line, which is the payout ratio for the region, and that's sort of 30 -- it sort of goes in that sort of 30% to 40% range. So quite a big cushion if sort of earnings could come under pressure. And then on the right, gearing also for the region, and this just looks at the listed sector gearing versus other regions. And you can see that the Asian region, which is that light blue line is relatively low versus the other regions. So again, another sort of reason why you might get some sort of resilience there if things did slow down. So if I talk a bit more now about sort of, I guess, outlook and positioning and where we sort of have exposure within the fund and the outlook. I guess, first of all, here, what do we like in the region? I guess this slide is a reminder of some of the key themes as stocks that investors in the trust can get exposure to. We've got obviously some of the global leaders in tech, so things that we mentioned sort of TSMC and Samsung Electronics, but also -- and they're obviously benefiting from that structural AI growth theme. But we've also got some of the world's best manufacturers in Asia unsurprisingly. So you've got things like Shenzhou, which is focused largely around sort of sports apparel, that sort of thing. Hon Hai, which obviously does a lot of the manufacturing of -- increasingly of high-end servers for AI, but also people probably know it for a lot of the Apple product that it does. And then a good exposure elsewhere to some of the sort of domestic growth trends as well. And we look through sort of financials, so banks, insurance companies and some of the other names there. And if you look at the trust sort of positioning that we stand at the moment, I think the thing -- we haven't made any big shifts over the recent period. But I suppose the thing that stands out and continues to stand out would be that we remain very underweight China. That's partly offset by the overweight to Hong Kong that we have. And that -- part of that is around this point around some of the Internet platform companies that don't really pay much in the way of dividends. But -- and I'll talk a bit more about China and the outlook in a second. But we continue to like Singapore, although that size of that overweight, we have sort of brought down a little bit. And the other area, I'd say we have taken money out of over the course of the last 12 months or so or whatever has been in Korea, where we're now underweight. And that's partly a reflection of the market has done really well. It's re-rated up. And part of that re-rating up has been on the sort of value-up program, which you probably heard people talking about, which is sort of trying to focus a bit more on shareholder returns and improving sort of -- generally sort of improving corporate governance in different areas. So... Roland Jones: Are we seeing evidence of that's of working? Richard Sennitt: We're starting to see some of that coming through. But yes, I wouldn't say it's by any means universal at the moment. So -- and that's hence why one of the areas I've been taking a bit of money out of because stocks have moved up in anticipation of this happening. And yes, we have seen some things, particularly in some of the sort of -- actually in some of the financial sector, we've seen improvement in dividend payouts and such like. So that has been coming through. But we're now in a phase where a bit more of the sort of things that need to happen are a bit more tied into sort of changes in legislation and so on that need to come through, which take time. And hopefully, over the longer term, we will do, but there is some expectation that they will in prices at the moment in my view. And then I guess on sectors, again, we remain, I guess, overweight in sort of real estate and financials and IT but I would say that we have taken down the weight over the course of the last 12 months in financials and IT. IT has obviously done pretty well as an area, as we've described. So there, it's been a bit about relative value and taking money out for that reason. Financials, again, it's been a good performing area of the market. And we still like financials, but just some of the things which have done well, we've sort of taken money out of. And then I suppose on the underweight, consumer discretionary remains a big underweight, partly again, that's partly around sort of Chinese e-commerce companies and so on. And I guess we've been adding to some of the sort of sectors such as utilities and some of the sectors that have lagged a bit into staples. Roland Jones: So that's where the proceeds from some of the gains we made on the IT, financials and real estate are going into those particular sectors. Richard Sennitt: Yes, being recycled. Roland Jones: Yes. Right. Richard Sennitt: And actually, we did put some money into consumer discretionary. So we were more underweight there, but there have been some opportunities in places like China to increase our exposure. Roland Jones: That's a bit of active management. Richard Sennitt: Yes. And then just the top 10 holdings, and I guess I'm not going to go through these names, but just in the sense of reasonably diversified both by country and by sector. And I think it is worth just sort of from an overall standpoint, just commenting on how the sector or the region is quite heterogeneous. It's not just about China or exports or whatever. Within the trust, you do get exposure to a broad set of drivers. And so obviously, we get the exposure that I sort of described in North Asia to some of these exporters and tech companies, that's Korea, Taiwan, and that makes up just over 1/3 of the portfolio. That's, I guess, driven more by what's going on globally in the export cycle as well as obviously structurally in AI. And then obviously, we've got sort of about 30% of the portfolio in China and Hong Kong, where we'd say that still has some of the challenges, which we know about around demographics, overinvestment and so on. And so we as we sort of mentioned earlier, we are quite underweight versus the reference benchmark. But as an active manager, we can still find things that we want to buy in there. And then I guess the other 2 chunks are sort of ASEAN, which has got a large portion of which, I guess, or the bigger overweight comes from our position in Singapore, which has increasingly benefited from its increased importance as a financial center within the region and also acting as a sort of increasingly into the region outside of its hinterland, et cetera. So some of the smaller ASEAN markets, Indonesia, Philippines, Thailand, Vietnam, all those markets which are, to an extent, benefiting in a sense from the sort of supply chain diversification, which we've seen coming out of from corporates that have been very focused on producing in China, and they want to have alternative sources of production. So that's sort of whole China Plus One theme. And then Australia, which again, is -- you don't think of necessarily as the highest growth market, but is a market where shareholder returns have generally been pretty reasonable through time and again, acts as a good sort of diversifier there. Roland Jones: And you've just come up from Australia, haven't you? Any particular insights that's worth sharing at this point? Or will you come to those? Richard Sennitt: Well, I come to those. I mean, yes, because I guess Australia is a market, as I was sort of saying, it's not -- you don't think of it as a sort of a high-growth Asian market in the sort of traditional sense. So you sort of perhaps think how does that fit within sort of an Asia portfolio or whatever. But it obviously benefits from growth that is going on across Asia as a whole from an economic standpoint. So what's going on, obviously, with its large commodity sector and so on. And also, the other point is that actually, you think of the sort of demographics, you don't necessarily think of a sort of Australia as being at the forefront of that, but actually because they're growing their population pretty rapidly, the demographic profile is also pretty good for Australia as well. Roland Jones: Which is not the same for other. Richard Sennitt: Yes, for some of the other Asian countries, it's working the opposite way where the populations are obviously getting older and the sort of fertility rate has dropped a bit. So in some of those North Asian markets. Roland Jones: Interesting. Okay. Richard Sennitt: I guess quickly on time because I realize I've been talking quite a long time, but I'll swiftly move through these last slides. I mean, on China, our sort of general position in the sense of the way that we're viewing the market hasn't really shifted that much. And this is a slide I would have used last year, obviously updated. But I think it does tell you what's generally been going on, which you look at consumer confidence at the moment in China, it still remains pretty low, hasn't improved much. So the domestic economy in China, despite the sort of stimulus measures that have come through have not actually seen the economy pick up particularly strongly from a domestic standpoint. Exports has been pretty good. That's helped the economy overall. And instead, people instead of choosing to sort of invest in property, which has obviously been a pretty weak area, they've been saving and increasing their savings, which is that middle chart. And that has seen sort of -- that's a plus and a negative, I guess, in the sense that, obviously, if they're saving more, they're not spending. But I guess if they can sort of get things right and people spending, there's obviously an opportunity for consumers to draw down on those savings to spend more when confidence improves. And on the right-hand chart, it just shows how interest rates haven't actually started to see a pickup in household borrowing. So that mechanism hasn't yet sort of flown through into the economy. And then the other -- so we remain underweight in China, but the other area, of course, where is sort of an area of debate... Roland Jones: Very topical. Richard Sennitt: Yes, is obviously within IT and AI in particular. And I think we're all sort of familiar with the chart on the left, which is sort of U.S. hyperscaler CapEx. It's obviously been exceptionally strong. And as a proportion of sales, it's sort of up there now at sort of around 20%. So that's grown very rapidly, and that's sort of been driving, obviously, related names in semiconductors and so on, both in Asia and elsewhere, which is the right-hand part of the chart. And near-term growth continues to look very good. The question mark is more about are we nearing that peak now. And the real question mark is all this investment is how much return are we going to generate on that investment. And that's where the sort of the big question still remains. So we are less overweight in IT than we would have been sort of 12 months ago. So we've been gradually bringing our exposure down just really to reflect that sort of how well these things have done over the course of the last 12 months. And the other area, which I mentioned, which we continue to like is sort of financials. We're a bit less overweight than we were. Again, it's sort of not just banks, it's also insurance companies, exchange companies. Penetration of insurance products, which is on the left, is still very low versus sort of developed markets. And so there's an opportunity longer term for that to grow through time. So we quite like that. And then on the right-hand side, you just look at sort of some of the returns coming out of banks. The ROEs are reasonably good in these markets. and the yields are good as well. And although rates have come down or come down a bit, and that will have an impact on margins, as rates come down, it has a flow-through on obviously, credit cost, but also on just demand for loans as well. So you hopefully get some offset coming through from there. And then I mentioned the point about the U.S. dollar earlier, and that's the central chart here or this chart here. And you can just see the green line, which is the U.S. dollar index. So as it goes up, the U.S. dollar is strengthening, as it comes down, it's weakening. And you can see that it moves sort of inversely to the index, which is the -- which is a dark blue line, and you can see that particularly clearly in the sort of '90s and early 2000s. But -- and more recently, you can see, obviously, the market has gone up and the U.S. dollar has weakened. So there is a correlation there. If we continue to see U.S. dollar weakness, that could act as a bit of a tailwind if history is a guide. Roland Jones: And Richard, actually, we've had a question on the dollar weakness. And obviously, you've very well -- you've sort of explained the relationship between the dollar and Asian equities. But the question actually relates to does a weaker dollar -- is there any evidence to suggest that either an income strategy or a more value-orientated strategy benefits more from a weaker dollar? Is there any evidence to that to support that fact? Richard Sennitt: Yes, I'm not sure that there's necessarily evidence to support that direct link. I guess the way that the sort of transmission mechanism works, I think if you look at it as the U.S. dollar weakens, it tends to ease liquidity in the region itself, and that allows interest rates in Asia, the central banks can start to sort of ease rates, and that helps from a sort of economic standpoint to generate growth. So you could argue, I guess, that it should be better for the domestic economy in a relative sense perhaps vis-a-vis some of the more export-orientated areas just because rate cuts should benefit domestic growth to an extent. And obviously, some of the sectors which have got good yield are attractive at the moment, things like financials, which I mentioned, obviously are driven by the strength of the domestic sector. So there's a sort of a bit of a link there. And then just the final piece is just on -- quickly on valuations. And I should say, given the rallies that we've seen in the market and what I was saying about it's been more about re-rating up than sort of earnings necessarily coming through strongly at this stage. The chart on the left just shows the sort of PE of the region versus its history, and you can see that it's now above the long-term average. So not particularly cheap markets versus the longer-term averages, but versus developed markets, which is on the right, which just shows the sort of ratio of PE for the region versus developed markets, you can still see that on that basis, Asia still looks relatively attractive versus history. And then when you sort of dive down and get a bit more granular looking at the different markets, you can see that here, which is the sort of just looks the little blue diamond -- light blue diamond is the valuation -- current valuation of the market against its range. And you can see that for most markets, they're sort of above their longer-term averages. And you can also see that there's a big spread across markets. So again, I think one of the key things to take away is that, again, from a sort of an active strategy, you can take advantage of those relative differences in valuation, which are there from a market level. But also when you look and drill down at the individual stocks in those markets, there's -- they're not all at the same price. So you can find -- again, you can find good opportunities. And to that point, the sort of -- again, the left-hand chart is just that repeat of that sort of stocks outperforming, the index come down. So it's been a narrow rally. That means outside of that, there's stocks that potentially you can find. And if you look at income stocks, which is the right-hand chart here, so this just looks at the top 2 quintiles of yield, so the top 40% of stocks by dividend yield and how they're valued relative to the market. And you can see that, that discount that's there, so it's around about sort of a 25% discount at the moment, roughly speaking, from the chart is not extended versus history. So from a sort of, again, dividend names don't look particularly extended versus the market in my view. And that is the sort of -- I won't take you through all the slides there, but that's the conclusion of the presentation. Roland Jones: Well, that's great because actually very comprehensive. We've got a little bit of time left for a few of the questions that come through. We have some really good questions actually. We -- interesting, one of our listeners has asked about, is it now time to consider inviting Japan back into the fold into an Asian -- a pan-Asian trust, particularly one where one is generating a dividend and the valuations for, say, the Japanese market are looking a little bit more palatable compared to where they were 20 years ago. Any thoughts on that? Richard Sennitt: Yes. And I think that certainly has merit. I mean we have historically invested in Japan to a lesser or a greater degree for the trust. I mean it's never been a significant weighting, but... Roland Jones: The trust is allowed to get Japanese exposure... Richard Sennitt: Yes. So we have one name at the moment in Japan. It's certainly a small exposure. But -- so there is opportunities over time. And -- but yes, at the moment, it's relatively small. Roland Jones: That's good, okay. And we've had another -- quite a few questions about valuations, particularly related to the AI bubble in Asia. And I think we've sort of covered quite a bit of that. But I'm just interested to hear, how has the trust performed in the very short term? I know we don't focus on the short term. It's the medium, long term and it's important. But has there been a degree of resilience with the trust given some of the profit taking you took out of the technology stocks recently? Richard Sennitt: Yes. I mean... Roland Jones: Great timing, by the way. Yes. Richard Sennitt: Well, yes. No, I mean, obviously, there have been those market -- those stocks have done well. And there has been definitely over the last few weeks, there's definitely been an increase in volatility around those names as I guess people have become a bit more nervous about valuations and I think the whole idea of what is the return of all this investment going to be, where are we going to get those use cases. And that has seen a bit more volatility. And from a relative perspective, I think since the end -- I mean, in the very short term since the end of the month, I think the trust is up in a relative sense against the benchmark about 2% or so. And so it's broadly flat against the market, which is sort of a little bit down a couple of percent or so. Roland Jones: And we've always positioned the trust and not only been able to generate a very decent income from Asian portfolios, but also quite a good way of getting a lower risk, slightly more conservative way to approach the Asian market. Richard Sennitt: Yes. I mean the set of stocks generally tends to have -- if you took those stocks and looked at them individually against the market as a whole, they tend to be lower volatility in aggregate. And that through time is a bit why you get the sort of when the market is rallying hard, they tends to lag a bit. So it's a bit low beta and vice versa. Roland Jones: Understood. Okay. We just have time for perhaps one more question. We've got a question about -- relating to the comments you made on the ASEAN region and talking about the very diverse nature of the Asian market, but specifically about the Philippines, where we've got a little bit of an overweight. What's the rationale there? What do you particularly like about the Philippines? I presume it's a stock more than a sector -- sorry, a stock more than a country related, but please tell us. Richard Sennitt: Yes. I mean there, it's a holding which we've had for a while, which is has done reasonably well, which is -- it's actually ICTSI, which is a port operator. And it's not just a sort of a domestic Filipino story, although that's actually an important segment of its earnings. It's also sort of an emerging growth proxy in the sense of it has a lot of exposure to emerging market ports globally. And so as trade flows within that emerging market piece grow over time, hopefully, the company should benefit from that. The Philippines is an interesting market because at the moment, it's one of the markets that's really sort of, I guess, lagged to put it nicely, I suppose, lagged the region. And the region is one of the markets which is trading at a significant at a discount to its sort of historic longer-term range. So it's definitely becoming more interesting. I guess interest rates clearly an easing of interest rates clearly globally help the Philippines perhaps more than some of the other markets given the external finances and so on. But I should say that as that potentially becomes a bit more attractive, it's also not the most liquid market in the world, and it's quite volatile. So it's never going to be a really huge portion of the portfolio from that perspective. Roland Jones: Okay. Well, thank you. Useful. Well, ladies and gentlemen, we're sort of fast approaching quarter to 10:00. Thank you all very much for listening in today and for all of your questions. Richard, very comprehensive overview of the region, which -- looking at your summary slides, I mean, despite having some concerns about China and some of the technology stocks, there is a lot more to Asia than just those 2 sectors, a very diverse area. We talked about the interesting opportunities in Australia, in ASEAN, in Korea. The trust after 20 years still remains a great way of generating a growing dividend from a basket of Asian portfolios. And we're on track to, I hope, attain the dividend hero status showing a 20-year unbroken rise of dividend over the next -- over the last 20 years. So one more year to go. But ladies and gentlemen, thanks once again for all your questions. Please do the survey. The feedback form is really important for us. It just helps us tailor these types of presentations for the future to make sure that we continue to hit the mark. Please send that into us. Have a great rest of the day. Thanks very much. Good morning.
Operator: Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura. Laura Chen: Thank you. Hello, everyone. Welcome to the third quarter 2025 Earnings Conference Call of GDS Holdings Limited. The company's results were issued via Newswire services earlier today and are posted online. A summary presentation, which we'll refer to during this conference call, can be viewed and downloaded from our IR website at investors.gdsservices.com. Leading today's call is Mr. William Huang, GDS Founder, Chairman and CEO, who will provide an overview of our business strategy and performance. Mr. Dan Newman, GDS CFO, will then review the financial and operating results. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company's prospectus as filed with the U.S. SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that GDS' earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. GDS press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn over the call to GDS Founder, Chairman and CEO, Mr. William Huang. Please go ahead, William. William Huang: Thank you. Hello, everyone. This is William. Thank you for joining us on today's call. During the third quarter, our revenue increased by 10.2%, and our adjusted EBITDA increased by 11.4% year-on-year, maintaining the healthy growth trend since our business began to recover last year. During 3Q '25, our gross additional area utilized was around 23,000 square meters. We are on track to achieve our highest every year of move-in. We continue to deliver the long-term backlog. In addition, we are now delivering the 40,000 square meter, or 152-megawatt order which we won in the first quarter of this year. By being selective with new business, we have successfully shortened the book-to-build period and brought down our backlog. Nonetheless, we still have visibility for over 70,000 square meters of move-in from the backlog next year. Our total new bookings for the first 9 months is 75,000 square meters or 240 megawatts. We expect to achieve nearly 300 megawatts for the full year, which is a big step-up from the level of the past few years. Around 65% of our bookings in 2025 are AI-related. Nonetheless, AI demand in China is still at a very early stage. If we look at the big picture, the domestic tech industry has reached a critical juncture with major players making unprecedented financial commitment to AI infrastructure. This marks a definitive end to the previous downturn and signals the beginning of a robust recovery for the data center sector. All of our major customers are committed to the massive scale of this new investment cycle, with CapEx plans of hundreds of billions, underscoring the intensity of the new AI arms race. Leading local chip companies are making continuous development progress in terms of performance, efficiency and capacity. The growth of the domestic chip segment will secure the long-term growth of the AI infrastructure industry. We have unwavering confidence in the AI demand to come basis on the development and the ramp-up of domestic technologies. We believe that new bookings in the coming years could be better, and this is what we are preparing for in our strategic plan. There are 2 essential ingredients to win big in AI, powered land and access to capital. We have already secured around 900 megawatts of powered land in and around Tier 1 markets, which is suitable for AI demand, particularly for AI inferencing. In addition, based on our communications with our customers, we are in the process of securing more powered land in complementary locations, and we believe that 900 megawatts will not be enough. On the financing side, we recently completed first IPO of a data center REIT in China. The transaction was a huge success. We intend injecting more assets in the REIT next year and establishing a continuous pipeline of asset monetization. The REIT gives us a significant competitive advantage in terms of accessing capital from the domestic equity market. It enables us to monetize assets efficiently, repeatedly and at the lowest possible cost. The China market is at an inflection point. The outlook for the data center industry is very exciting. Our market position is as strong as ever. Over the past few years, we have taken a conservative approach. We improved our asset utilization and significantly strengthened our balance sheet. Going forward, we will maintain our financial discipline while, at the same time, taking a more aggressive approach to new business. I will now pass on to Dan for the financial and operating review. Daniel Newman: Thank you, William. Starting on Slide 15. As William mentioned, in 3Q '25, our reported adjusted EBITDA grew by 11.4% year-on-year. At the end of 1Q '25, we deconsolidated the data center project companies, which we sold to the ABS. And then during 3Q '25, we deconsolidated the data center project companies, which we sold to the C-REIT. In order to present a consistent trend, we have adjusted historic numbers to take out the EBITDA contribution of the deconsolidated companies for the first 9 months of 2025 and for the comparative period. On this pro forma basis, our adjusted EBITDA for the first 9 months grew by 15.4%. Turning to Slide 16. Our C-REIT started trading on the Shanghai Stock Exchange on the 8th of August. As of yesterday's close, the C-REIT units were priced at RMB 4.375, 45.8% up from the IPO price. At this level, the C-REIT is trading on 24.6x EV to the projected 2026 EBITDA as disclosed in the C-REIT offering memorandum. The implied dividend yield is 3.6% based on the projected cash available for distribution, also as stated in the offering memorandum. It is our strategic objective to grow and diversify our C-REIT so that it is a viable option for us to recycle capital on a repeated basis, thereby unlocking value for GDS shareholders and freeing up funds for new investment. Under current regulations, we are permitted to apply for approval for the first post-IPO asset injection 6 months after the IPO date, i.e. during 2Q '26. Thereafter, it will take some time to complete the regulatory review process. For the first IPO -- post-IPO asset injection, we are preparing assets with a target enterprise value of around RMB 4 billion to RMB 6 billion. This compares with an enterprise value of RMB 2.4 billion for the assets which we injected into the C-REIT at IPO. With the creation of the C-REIT platform, we have the opportunity to invest in new data centers, ramp up, operate and then, once the track record qualifies, to monetize over a 5- to 6-year investment cycle. Even if we take a very conservative view on potential future exit multiples into the C-REIT, the return on new investment is still very compelling. This could not have happened at a better time as we address the upcoming AI demand wave. We think it's a game changer. Turning to Slide 17. For the first 9 months of 2025, our organic CapEx was RMB 3.8 billion. We still expect our organic CapEx for the full year to be around RMB 4.8 billion. However, net of the cash proceeds of the asset monetization, our CapEx will be around RMB 2.7 billion. As shown on Slide 18, our operating cash flow for the full year will be around RMB 2.5 billion. Therefore, after taking into account the asset monetization proceeds, our China business is almost self-funding. Turning to Slide 19 and 20. Our net debt to last quarter annualized adjusted EBITDA multiple decreased from 6.8x at the end of 2024 to 6.0x at the end of 3Q '25. The decrease is mainly due to the cash proceeds of the asset monetization and the deconsolidation of debt of the project companies sold to the ABS and C-REIT as well as the offshore equity capital raise, which we did in 2Q '25. We are benefiting from the favorable interest rate environment in China, with our effective interest rate dropping to 3.3%. Turning to Slide 22. After 9 months, we are on track to achieve the midpoint of our revenue guidance and at or above the top end of our EBITDA guidance for the full year of 2025. Our growth rate during the current year has clearly benefited from the strong new bookings in 1Q '25 and a short book-to-bill period. This gives a clear illustration of how our growth rate can accelerate with a pickup in demand. The relatively subdued new bookings since 2Q '25 will affect our growth rate next year. However, in our internal projections, we foresee higher bookings next year, leading to gross acceleration thereafter. We'd now like to open the floor to questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Yang Liu of Morgan Stanley. Yang Liu: I have 2 questions here. The first one is regarding the China market inflection. As William just mentioned, the China market is approaching the inflection point. What do we need to see to see that really happen in the near future? And in terms of your strategy to go a little bit more aggressive in China, could you please elaborate more, for example, with location or what type of project, et cetera, are you planning? The second question is regarding the overall investment profile because now we have a C-REIT platform, and it is a very effective way to recycle capital. And what is the new overall investment return with C-REIT scheme? William Huang: Okay. I think number one question is, yes, I think how to explain the aggressive approach. I think what we see in the market, demand is very strong in China. I think our customer announced their big investment in the next 5 years. I think now another signal is domestic chip is catching up. Just as what I mentioned, I think in terms of the efficiency, chips efficiency and production capacity, I think they all improved a lot. That means the real data center opportunity is coming. So we are well positioned. As I just mentioned, we still have the large -- I think the largest land bank -- powered land bank in and around Tier 1 market. This is very good for the future inferencing. Another is, I think, the China tech player, they will continue to do massive training. So I think in order to capture this opportunity, we will acquire more land in some very cheap power location and more -- as much close to, let's say, the Tier 1 city, yes. So I think this is our strategy. And we are -- a lot of the land acquisition is in process. And maybe something will happen, we can announce in next earnings call. This is number one. Number two, I think Dan may can explain about the REITs. Daniel Newman: Sure. The unit economics of the data center investment in China is very solid. The selling price is stable. The unit development cost has come down to a level which is very efficient. And this allows us to generate typically 11% to 12% cash on cash yield on new investment. What has changed is the way that we can look at and evaluate investment. If we take the approach of investing, which maybe takes 1 year to construct and then 1 year for the customer to move in fully, we have to hold the asset and operate for 3 years to establish the track record, which is required before assets can be injected into C-REIT. But then in the year -- the following year, which would be year 5 or 6, we can consider an asset injection. But even if we use a exit multiple, a cap rate, which is being very conservative compared with even where we IPO-ed our C-REIT. If we look at the IRR over a 5- to 6-year period, then it is in the low to mid-teens. And the levered IRR, the return on equity, is well into the 20s. I think fundamentally, this is very attractive. William Huang: Yes. I'll add 1 more point. I think we believe now is the right timing to step in the market because, number one, I think the price is more stable; number two, I think the development cost is almost at the bottom of the -- in terms of history, right? So I think this is the right timing to maintain very good return. It's the right timing, yes. Operator: Our next question comes from Sara Wang of UBS. Xinyi Wang: Congratulations on the solid results. It's glad to hear that GDS is being more aggressive in acquiring new business opportunities. So I have actually 1 question, but 2 parts. So I think Dan just mentioned, we are expecting higher booking next year. So regarding this booking, does that include our potentially new powered land acquired in relatively -- like regions with relatively lower power tariffs? And the second question is that, if we are going into complementary markets on top of our 900 megawatts resources then how shall we think about the -- like is there any difficulties in acquiring new power quota? Because this year, we have heard [indiscernible] like NBRC, they're actually relatively rationalizing or controlling the new power quota release in China in general? Yes, that's my question. William Huang: Okay. The first question, I think that was new booking next year, right? We're not fully relying on the new acquisition of the land. Definitely, we will -- if we can success to secure the land, power the land, we can do more, right? So this is our focus base. The second -- what's the second... Laura Chen: How difficult... William Huang: I think power quota always -- I mean, in general, always not easy, right? But based on our track record and the reputation, I see a lot of governments willing to work with us. So for us, it's not that challenge for us. We have a lot of the experience in the past -- in the last 10 years to build up the right relationship with the government and the power company. Operator: The next question comes from the line of Frank Louthan from Raymond James & Associates. Frank Louthan: Can you give us an update on DayOne on private round funding and potential updates for a possible IPO? And then what is the outlook on your customers getting GPUs and be able to ramp their installs going forward? When do we expect that to crack open? William Huang: Yes, I think I answer and maybe Dan can add more color. I think -- I have to say, I think after Series B, I think DayOne is fully independent. So we cannot represent DayOne anymore since that time, right? But we still can give some highlight information, right, about DayOne because we quite enjoy the equity value increase, right, for our shareholders. I think all business in Asia Pacific and in Europe, which we already announced the market what we already stepped in, remain very, very good, very, very positive, and the demand still remains very, very strong. So I think the DayOne's business is on the right track and could be better. So that's all what I can tell you. Maybe if you are interested, maybe we can introduce to the DayOne's right people to explain in more detail. Frank Louthan: Okay. And on potential for additional installs to ramp? Daniel Newman: Frank asked about the new business in DayOne I think. William Huang: Yes. I just can -- what I can tell you is they remain very, very strong, positive view for the future, yes. I cannot tell any detail more. I cannot represent -- this is a GDS earnings call, right? Sorry about that. Operator: The next question will come from Michael Elias from TD Cowen. Michael Elias: So in the U.S., when we think about the training workloads that we're seeing, we're seeing gigawatt scale projects getting deployed. And I'm curious, when you think about what training will look like in China, are you seeing the opportunity to deploy at that kind of the scale, i.e., in the gigawatt range? And then second question is, can you give us an update, as you think about these AI data centers that you expect to build, what the time to build those data centers are and how that varies from traditional cloud data centers? And if I can squeeze it in, any notable constraints or long lead time items that we should be aware of? William Huang: I think scale-wise, I think our client talk about gigawatt level, I mean, new demand, right? So I think this is just like 3 years ago in -- what happened in the U.S. And the number-wise, we are talking -- every big player talk about gigawatt size new demand. So I think that it's catching up. That's what we have been seeing -- we have seen. So in terms of time to market, right, I think, in China, we can build very fast. I think normally 9 months to 12 months is very normal start from the piling to deliver, right? The extreme, I mean, case, we can build -- let's say, even built within 8 month. So that's our record in China. Daniel Newman: Any bottlenecks or... William Huang: No, I don't think the -- in terms of development, yes, supply chain in China is not an issue. Operator: The next questions will come from the line of Daley Li of Bank of America Securities. Huiqun Li: I have 2 questions here. First one is about we got new orders for the China market, like a near 30 megawatts. Could you share what's the... William Huang: 300. Huiqun Li: Can you hear me? Sorry. Laura Chen: Go ahead. William Huang: Go ahead. Sorry. Yes. Huiqun Li: Yes. Yes. Could you give some color about the AI exposure? What's the percentage from AI? And is this about inferencing model training for the recent order? Number two, for the second cone is about the -- we heard the China government gave some window guidance in 2Q this year to tighten the data center supplier in China? And do you see any impact to us and to the market? William Huang: Yes, I think, new order from -- Yes, go ahead. Daniel Newman: Okay. In our prepared remarks, we commented that we will probably reach nearly 300 megawatts in terms of new bookings for the whole of 2025. I think we hit 240 megawatts up to the end of the first quarter, and there's some good new business in the fourth quarter. We also stated that, by our estimation, around 65% of the new bookings this year are AI related. We are -- only have a presence in Tier 1 markets. So that is AI in Tier 1 markets. So that's going to be mainly AI inferencing or it can be a combination of AI inferencing and training, and it's being deployed within the established cloud regions and cloud availability terms. The second question was... William Huang: Window guidance about the carbon quota. I think this has always happened in the Tier 1 market, right? So -- but we are lucky. We already prepared for that. And that's why I mentioned we still have almost 900 megawatts powered land. This power is all gathered carbon quota in or near Tier 1 market. It's very difficult to apply new around the Tier 1 market. But in a remote area, I think I didn't hear any about the window guidance because the power in those place, it's -- the big problem is how to sell, right? It's not -- so the power is -- capacity is very large in a remote area. So get the power, I think it's not very, very difficult. And the local governments are very encouraged the data center -- the operator built a data center in those places, location. Operator: Our next question comes from Timothy Zhao of Goldman Sachs. Timothy Zhao: Congrats on the solid results. I have 2 questions. First is about the pricing trend. Just wondering if you can share some color on how you think about the MSR trend into fourth quarter and next year, especially given that probably the company is entering to a peak renewal period for the contract that were signed maybe 5 to 7 years ago, then how should we think about the MSR trend into next year? Second is about the overall market and the competitive landscape. I think right now, you have been emphasizing time-to-market quite a lot. If you remember, I think maybe 5 years ago when there was a wave about the cloud data centers and 5G network, there was also a wave of increased data center supply in China. Just wondering if you think, from where we are right now, how do you think about the overall industry supply and demand dynamics? Daniel Newman: The first part of your question about the downward price reset when our installed base contract come up for renewal. And this has been going on for a few years and will continue for a few years more. And the impact of that gets reflected in our MSR. And I was -- give some comment on future expectations. Now I'd say that, over 2026, we expect the MSR to decrease by 3% to 4%. That's on average, comparing 1Q versus 1Q, 2Q versus 2Q and so on. And that is not only a function of the downward price reset, we also have elevated higher levels of move-in. And that also has a dilutive effect on MSR. So that 3% to 4% reflects the combination of those factors. William Huang: Yes. I think I add a little bit of my points. I think all the new build data center, the price is quite stable since 2 years ago. Nothing changed. I think this is very good. But in the meanwhile, I think the cost is more stable, right? So if you look at all the new-build asset return, it's very decent. So I think this is a way to look at the MSR, right? Because the new campus, new building is, in general, I think compared with like edge data center, the enterprise data center, even cloud data center, the price definitely go -- went down a lot. But if you look at the asset return since 2 years ago, it's very, very similar, very -- and this price is very, very stable. Return is also very stable. It's 100% fit the REITs to inject to the REIT. Daniel Newman: Tim asked about the competitive landscape. William Huang: Competitive landscape, I think the new competition, I think, if you try to get your customer trust and reliable, you should show your financial capability. Now our customers more care about the financial capability, not just the capability you can build. Everybody can build easily, right? So I think if you try to commit a customer 500-megawatt or 1-gigawatt campus in the future, I think the financial -- our customers definitely will consider about do you have the capability to access the capital market, what's the cash position you have right now? So this is very -- this is the new competitive advantage. In terms of this, I think we are more -- much more way ahead than any competitor else, right? So I think this is not just a land/power competition. It's also the capability to access capital market. So in terms of this, if I look around, I think not that much company, both has the land capability -- power the land capability and well position and let's say, financing capability. Operator: Thank you for the questions. Due to the time limits of today's call, I would like to now turn the call back over to the company for any closing remarks. Laura Chen: Thank you once again for joining us today and see you next time. Bye. Operator: This concludes today's conference call. You may now disconnect your lines. Thank you.
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.]
Gunnar Pedersen: Good morning, everyone, and welcome to this third quarter presentation for Vow. For technical issues with the network in the auditorium, we had to do our last minute move into this conference room. So it's a bit packed in here, but we certainly hope everything is working out to your satisfaction and that everyone is receiving this webcast. So today, I have Cecilie Hekneby, with me, our CFO, to do the presentation of the financials. My name is Gunnar Pedersen. I'm the CEO of Vow. So I'm going to share with you some highlights first. Cecilie will take you through the financials. I'll come back with the market and business update before we go into summary and outlook and finally, open up for questions. So starting off with Q3. So Q3 was a very busy quarter across the whole company, especially in Maritime Solutions, where we had record high revenues. We also continued our structured assessment of the company. And in Q3, specifically, we did some deep dive into the big industrial projects. What we found was that there was 2 big projects that had underestimated cost to completion, which has impacted the margins and also leading to a reversal of revenue. Cecilie will take you through the details of that. And also it's been published in a notice earlier in October. So in the Maritime Solutions segment, we've had record high revenue and also a very positive development on the margins, perhaps a bit on the very high side compared to what you normally should expect. This is due to a reduced share of legacy contracts, but also the project mix. So a lot of equipment deliveries, different types of equipment have different margins, and this quarter has been very fortunate in -- or favorable in terms of the mix. The Aftersales segment continues its positive development, improving margins, whereas the volumes is about the same as the third quarter last year. Year-to-date, however, is a good growth on Aftersales. Our Industrial segment has been facing challenges in terms of underestimated cost of completion, as mentioned. On a high note, what we've formally talked about as the large reactor from Evensen that was finally delivered to follow last week. So very pleased with that. Some questions have come across on this. It doesn't have a big impact on the revenue, but it does have a very positive effect on the cash flow, as it triggers some payment milestones. Liquidity has improved significantly with very good inflows. And also, we've been able to settle outstanding payments to our vendors. And also it's worth noticing that the covenants were waived for Q3. Our total order backlog stands at NOK 1,449 million with another NOK 134 million in options. So this provides us with a very good visibility into the future. Order intake as of end third quarter is NOK 1,082 million. I should perhaps mention that the delivery of the reactor was subsequent to the quarter. And by that, I think I can leave you with Cecilie to do the financials, and I'll come back for the market update. Cecilie? Cecilie Margrethe Braend Hekneby: Good morning. I will give you an update on the financial numbers. This is just an executive summary that actually summarize what Gunnar just said. So before I start with the walk through of the financial numbers, I would like to address the notification published in October, and there are specific events that led to the announcement. As explained in the stock market announcement, a review of the 2 major circular solution projects reveal that total cost to completion next year had been underestimated. The reduced project margins and technical reporting of progress on costs led to a reversal of revenue in the quarter. The 2 projects constitute a major part of -- in the Industrial Solutions segment and the preliminary consolidated numbers for the group, indicated a lower-than-expected EBITDA for the quarter. This was still at an early stage in our preparation for the third quarter reporting, but we consider this as inside information that could not be delayed and issued a trading update. Phase 1 of Follum and Rhode Island represent significant milestones for our pyrolysis technology, and an SVP Program Director was appointed at the end of September to strengthen coordination, execution and financial control for the projects, reporting directly to Gunnar. He and his team then performed a total review of the remaining scope, risks and handover requirements and found that total cost of completion was underestimated. And as a result of this reassessment, a onetime cost increase was recognized in the Q3. So how does this impact revenue? Revenue from projects is recognized based on estimated total gross margin for the project according to technical reporting of progress. The contracts for these 2 projects are predominantly fixed price with limited flexibility for price adjustments. The updated cost estimates, therefore, led to a reduction in total gross margin and hence a reversal of previously recognized revenues but with no cash effect. Circular Solutions is a key area within the Industrial Solutions segment, delivering to the industrial scale pyrolysis market, which is still maturing. With these 2 projects now entering the final stage, we expect increased cost visibility and tighter cost management going forward. We aim to be transparent in our reporting, but I understand that it may be challenging to follow the financial development for the last quarters. Vow has been in a challenging financial position. And since I started in May, my team and I have worked diligently to secure consistent and precise reporting to get control and provide insight. So this slide sums up what I just have explained, and I will now go through the numbers for the quarter, starting with the key financial for the group. The reporting currency is in Norwegian kroner. So reported revenue for the quarter was NOK 214 million compared to NOK 267 million 1 year earlier. And on the graph on the left-hand side, you can see minus NOK 6 million in revenue for the Industrial Solutions segment, following the reversal of revenue and softer performance in the remainder of the segment, with higher revenues in the Maritime Solutions segment and steady numbers in Aftersales. Moving on to the graph in the middle, we have adjusted EBITDA of negative NOK 29 million, heavily impacted by the financial performance in the Industrial Solutions segment. The order backlog of NOK 1.4 billion remains strong and gives good visibility. Total revenue was NOK 214 million, down NOK 53 million from Q3 '24 heavily impacted by the Industrial Solutions segment. But revenue in the Maritime Solutions segment of NOK 166 million is all-time high following progress on large newbuilding contracts and up NOK 73 million from last year. The year-to-date numbers for Maritime Solutions are impacted by the catch-up effect in Q2. Aftersales make a solid contribution with NOK 54 million in the quarter. This is up 3% from third quarter last year, but up 11% year-to-date. Revenue in the Industrial Solutions segment is down NOK 128 million from Q3 last year and NOK 136 million from year-to-date following the cost of kits and reduced margins for the 2 projects, in addition to the soft performance in the remainder of the segment. Moving over to the operational key figures for the quarter. Revenue is, as explained, heavily impacted by the updated cost of completion estimates that overshadowed the strong performance in the Maritime Solutions and Aftersales segments. I would like to highlight the development of gross profit and employee expenses. Being a project organization, employee hours linked to specific projects are attributed to the cost of goods sold. The group has during the year improved its time tracking and hourly rate position. With a more accurate attribution of employee hours to specific projects, a larger share of personnel cost is now currently classified under COGS as recovery hours. This, in turn, improves the alignment between project costs and actual resource usage, which provide better insight and basis for pricing of projects. Reported employee expenses, hence vary with project activity and hours allocated to projects and are down NOK 17 million from Q3 last year. Gross employee expenses, including the recovery hours amounted to NOK 58 million in the quarter compared to NOK 64 million last year. Employee expenses are also impacted by a change in the allocation of holiday payment compared to last year, with a higher cost in the second quarter this year and lower this quarter following when employee actually were on holiday, impacting production. NOK 2.5 million of nonrecurring items in the quarter are related to employee expenses. Other operating expenses amounted to NOK 21 million, up NOK 3 million from last year. EBITDA for the group was negative NOK 31 million, which is slightly higher than the preliminary EBITDA from the trading update in October. EBITDA adjusted for nonrecurring expenses were minus NOK 29 million. Let's look into the development of the segments. Vow has 3 business segments, Maritime Solutions, Aftersales and Industrial Solutions, in addition to Administrative, which consist of expenses not allocated to the business segments. There were no nonrecurring items in the business segments. The nonrecurring expense of NOK 2.8 million in the quarter is related to the Admin segment. Adjusted EBITDA for the Maritime Solutions segment was NOK 29 million in Q3, up from NOK 7 million 1 year earlier, following strong revenue development stemming from high delivery volumes in addition to increasing margins as the share of legacy contracts are decreasing and replaced with new contracts with revised terms and conditions. The backlog of NOK 1.2 billion is firm and provide long visibility. Gunnar will share some details on this in his part. Aftersales continue to grow with an increasing number of vessels in operation equipped with Vow systems. Adjusted EBITDA amounted to NOK 10 million in the quarter, up from NOK 7 million last year, indicating an adjusted EBITDA margin of 17%, up from 13% 1 year earlier. The Industrial Solutions segment was impacted by the cost updates and reduced margins in addition to soft performance in the quarter in the remaining parts of the segment, leading to a negative EBITDA of NOK 65 million in the quarter. Focus forward in this segment is on selected opportunities with reduced risk and exposure profiling. Moving over to the financial performance in the quarter. We see that financial costs have been reduced. Financial items in the quarter of negative NOK 13 million or NOK 1 million lower than last year. Interest costs amounted to NOK 12 million, which is down NOK 5 million from Q3 last year. There was a net foreign exchange loss of NOK 1 million in the quarter, while there was a gain of NOK 3 million last year. Vow reports in Norwegian kroner, but most of the contracts are in euro. About 60% of the project costs are in the contract currency and is a natural hedge. Fluctuation in foreign currency exchange rates may, however, have an impact on key financial figures, and we have started to look into alternatives to mitigate the risk. Depreciation in the quarter of NOK 12 million is down NOK 2 million from third quarter last year. And I also would like to highlight that following the sale of Vow's shares in Vow Green Metals in June, the share of net loss of NOK 3 million and a gain NOK 1 million is recognized in the year-to-date numbers. Looking at the balance sheet. I would like to highlight the development of trade receivables and trade creditors. Since I started in May, managing working capital with improved processes for collection of debt and payment to vendors has been a key priority. Trade receivable bills have been reduced by NOK 75 million year-to-date, the cash collected has been used for settlement of overdue supply debt and other liabilities. And trade creditors are reduced by NOK 102 million year-to-date. Prepayments to vendors are also significantly reduced. Having managed now to settle overdue debt, our working capital is steadily improving and net working capital has been reduced by NOK 32 million year-to-date. Interest-bearing debt of NOK 557 million including leasing has increased by NOK 87 million year-to-date due to the increased utilization of the credit facilities, partly offset by reduction in borrowings. The DnB term loan amounted to NOK 195 million at the end of September, down from NOK 262 million at year-end '24. The group obtained a waiver for the 12 months rolling EBITDA ratio covenant, and we are in close and constructive dialogue with DnB. Looking at the cash flow development, we started 2025 with NOK 46 million in cash and at NOK 34 million in cash at the end of June. At end of September, cash amounted to NOK 23 million, with an additional NOK 26 million in available liquidity. There has been high activity in the quarter, and the illustration highlights the main development in the quarter. During the quarter, there has been an inflow from trade receivables of NOK 80 million. In addition to milestone payments, we have succeeded in collecting overdue receivables. The cash has been used to repay overdue trade payables and other current debt in line with management's focus in addition to repayment of loans and interest. Having resolved the overdue payables, the overall financial position has improved. Liquidity is significantly improving in the fourth quarter, following a large milestone payments, both from the maritime side and industrial side, and I am satisfied to see that measures taking are starting to show results. At the Q2 presentation in August, we informed that we had initiated a profit improvement program. The target of the program is to strengthen cost control, improve profitability and increase operational efficiency. And we have identified concrete measures and defined several hypothesis. Example of this are related to cost down, operational efficiency, service cost and indirect spending. The program is under implementation and is part of the budget process for next year. It is implemented based on feasibility and expected effect and several actions are already taken. This was a rather detailed walk-through of the financial developments in the quarter, and now Gunnar will give you a market and business update. Gunnar Pedersen: Thank you, Cecilie. So we're going to start this market and business update with Maritime Solutions. And as you can see on the bottom left-hand graphics, Maritime makes up about 53% of the revenue so far this year with NOK 365 million. The main contract entered into in this period is EUR 11.5 million for advanced environmental systems. Additionally, there's several smaller contracts amounting to a total of EUR 2.9 million for various other deliveries. Order backlog stands at a very strong NOK 1.2 billion, which is 49%, up from the third quarter last year. And also margins, as I mentioned, in the quarter at 17.7%, EBITDA are very positive. And as I said, it's due to very high delivery volumes of equipment also with a favorable mix of the deliveries. So looking into the Maritime contract development and a little bit more about the backlog. We have been talking about legacy projects in earlier presentations, and we have received questions about these legacy contracts. So how much of the revenue is made from legacy contracts, and at what time are you going to be completed with those deliveries. And on the lower right-hand graph, you can see how this plays out. The top dark blue one from the left, is from new contracts, whereas the lower part is from legacy contracts. So looking at Q3, there is 35% of the revenue coming from new contracts whereas the remaining 65% is coming from legacy contracts. And you can also see, and this is based on estimates of when deliveries are taking place and so on, we have made an estimate how this is going to play out through 2026 and into 2027. So you can see that, for example, in fourth quarter, new contracts will be about 43% and so on. It can vary a bit up and down. That depends on the contracts and the delivery time of these contracts. That's why you see a bit fluctuation on the split between new and legacy contracts. It is also a fact that we may even enter into new contracts that are legacy contracts, so that would be options, options that are binding to us in terms of price, but options that are valid from quite some years back. Currently, there is one remaining option that we will classify as a legacy contract. Yes, I think that's about as good explanation as I can give here now on the legacy contracts and that part. So looking at the backlog and the pipeline, this graph on the right-hand side shows when the vessels are scheduled for delivery from the yard to the cruise line. And typically, we deliver equipment 18, 24 months before, sometimes it can be as little as a year or even less than that, depending on the type of project. But this is typical. So this year, there's 10 vessels, next year in '26, another 10. '27, there are 7 vessels to be delivered that are under contract, there's 2 that we're bidding for. And you can see going out in time how this grows. So '28, bidding for 7, another 3 -- no, 7 under contract and another 3 that we are bidding for. And '29, 1 under contract, 1 option and 13 that we are bidding for. So currently, the backlog is 37 confirmed orders for cruise ships and 1 option. The tendering activity, currently activity tenders, 59 new builds and 4 retrofits. So it is a very active market, and it has a very good visibility. So we hold a leading position, and we are maintaining our market shares. Looking at where we have delivered equipment this year, in total, we are going to deliver to 18 vessels, 13 have been delivered, another 5 systems remain to be delivered in Q4. So Q4 is also going to be very active for us. And on the lower left-hand side, you can see what cruise lines we have delivered to you or are delivering to this year. So it's all the major ones basically. So on your right-hand side, you can see Norwegian Aqua. It's commissioned in February this year. So handed over to the customer in February this year. It can hold about 5,200 people, passengers and crew all in all. It was built at Fincantieri at the Marghera yard, and we have delivered a full scope of traditional systems, both for advanced wastewater processing but also for waste disposal on this vessel. This is number 3 in a series of 6 vessels that they build for NCL. So this year, we have commissioned 9 vessels. There is 1 more to go for the fourth quarter. And you can also see here on the bottom, which cruise lines, they are being commissioned for or delivered to them. So all the major ones on this as well. And of course, that's another 10 vessels entering into aftersales. I've had the opportunity to meet with the several of the big cruise lines in the third quarter. And it's been, of course, very interesting meetings and conversations. It is very obvious that well-functioning systems is critical to their operation. In some cases, if these systems don't work, they cannot operate the vessels. Actually, that's in quite many of the cases. Our customers generally express that they are very satisfied with our systems as well as with our aftersales support. But as always, there is room for improvement, and thus, we see this as opportunities, and we are working on these opportunities to make sure that our customers are even more satisfied in the future. As you can see, bottom left-hand side, aftersales accounted for 25% of our revenue so far in 2025. We see a strong development over time on the right-hand side, Q3 54 versus 53 in Q3 last year. That's not a big jump. But if you see the year so far, it's quite good growth on that as well. It varies a bit over time when they order spare parts, when they order services and also in terms of chemicals for the systems. So strong development over time. Also in the graph, the metrics, you can see very healthy margins now, and we're very satisfied with that. Part of it comes from high volume over the year, giving an effect. So -- but this is a healthy level, I believe. So for the Industrial Solutions. The Industrial Solutions segment again, as you can see on the bottom left, it accounts for about 22% of our revenue as per third quarter, so NOK 150 million. It consists of the main subsegments Circular Solutions and Thermal Heat Treatment. With 2 major projects within Circular Solutions that make up the majority of the revenues. We already touched on the deep dive and the effects on the margins on that. It is, of course, very unfortunate when we find such issues in the projects. And of course, we have taken a few steps to ensure that we learn from these. These are first of a kind projects both of them. So this is really important that we spend our time wisely and learn as much as possible from them. The effects I think we have talked about earlier in the presentation. Just to touch on thermal heat treatment, still see a soft market in Q3 not so much due to energy prices anymore, but other uncertainties. But we do see positive indications related to both defense industry and aluminum, and we'll probably get back to that on the next slide. So industrial contract development, again, circular and thermal heat treatment, order backlog stands at NOK 212 million, of which, NOK 152 million is circular and NOK 60 million shared among the other subsegments. So we've been asked sometimes about some of these projects that have been talked about in earlier presentations such as end-of-life tires. I chose that example just to give you an update on that specifically. So we have completed FEED studies, and we are waiting for final investment decisions from one of the major customers. And they are in turn now waiting for the final piece of the puzzle, which is the permitting. And the permitting for that is expected to be due by the end of the quarter. What we see in thermal heat treatment, we see an improving pipeline with opportunities and some of these opportunities have resulted in RFQs and some of the RFQs have also resulted now in active bids in thermal heat treatment. So the volume of active bids is actually quite high, and we are pleased to see that development. VGM, Vow Green Metals have been mentioned earlier today. And I must say they are gaining momentum now, commissioning is ongoing at Follum for Phase 1. Engineering activities are ongoing with ourselves and VGM and others for Phase 2. The large reactor, which is actually part of Phase 2 was delivered last Thursday. That's what you see on the picture. The big is white plastic that is wrapped in. So it's 60 tonne of equipment being lifted into the production facility. So it is looking good. It is also worth mentioning, I think, that VGM was awarded EUR 26.2 million from EU Innovation Fund to build a new large-scale biocarbon production facility in Norway. So of course, this is very interesting for us. It is strengthening the positive development for the metallurgic market segment for biocarbon. And I think we are well positioned to continue playing in that development. We also mentioned that we're revisiting our strategies in the second half of the year, even though they are not concluded yet. I think I can share a few glimpses of where we're headed with you here today. It will come as no surprise that within the Maritime segment, we really want to strengthen our competitiveness. We also continue to introduce new technology, new and sustainable technology also into the waste disposal part of that market. We will continue developing our aftersales services. Within industry, then supported by a more defined strategic direction, I would say. We will exercise a more selective approach with regards to the type of prospects we go after and also the contract formats within the industry segment. And then with a solid operational foundation, I think we are prepared for moving from analysis and into execution, delivering improvements, capturing opportunities and also then creating long-term values. Also, we believe that it is important for us as well as for our investors that we can also deliver on an improved overview and predictability for the development and for the values that we are creating. It is very helpful internally. I can tell you to understand the cost of the deliveries, allocating the cost to the right place and so on. So that work will continue. And I certainly hope that you will see the results of that as well as we move along. The strategy work is scheduled to be concluded by the end of Q4. So we'll get back with more info on that. So finally, summary and outlook. Our customers confirmed a very strong market development in cruise and yards are actually still expecting to conclude on several contracts that we are actively bidding for during the fourth quarter. We have maintained our strong market position. And also, we see a positive development of the margins. And we will see that continue as the share of legacy contracts is going down as we saw on the earlier slide. We have healthy margins in aftersales and a growing active fleet will continue to bring growth to that segment. The revisit of our strategy will be concluded in the fourth quarter. And I think with a much better oversight and control of the financial situation, I'm confident we will also see a very positive development continue on our liquidity. And of course, we do this in a very close collaboration with our bank. So that concludes the presentation, and now we open up for questions. Unknown Attendee: Thank you. There are quite a few questions already from the online audience. I just remind you that if you are watching this online, you can add your or send in your questions by typing it on your screen. But first, let me see, are there any questions from the audience here in Oslo. Seems not. While you're thinking about that, let's turn to the online audience. First question is regarding the backlog and pipeline in Maritime Solutions. One observant viewers says, he has compared the Q2 presentation with the current presentation, it seems that some of the bidding, some of the contracts that you're bidding for '26 and '27 has been removed from the chart this time. Is that correct? Gunnar Pedersen: I'm actually not sure about the details, but if I understand the question correctly, if we -- for contracts that we do not win, I expect they will disappear from the charts, not ending up as contracts. External analysts tell us that within advanced wastewater processing, we have had indications anything from 60% to 80% market share. So there are contracts we do not win. And within waste disposal, it's slightly lower. Unknown Attendee: Then there's a question about liquidity. You -- so you have NOK 22.7 million in cash at the end of the quarter. Will you need to raise more money? Cecilie Margrethe Braend Hekneby: We see an improving situation regarding liquidity and -- and we -- I am very satisfied with the development in the quarter that we have now settled overdue payments to vendors and that we have managed to collect receivables. That also was overdue. And now with significant milestone payments coming in in the fourth quarter, we see a very positive development on liquidity. Unknown Attendee: And will there be more surprises in industrials? Or do you now have a better understanding on the underlying problems? Gunnar Pedersen: It would be quite stupid on me to guarantee anything. These are first-of-a-kind projects. But what we've done with a thorough deep dive on them, I'm quite confident that we know what the remaining work is and we know the cost of the remaining work. So not what we have seen here. And then I think everyone who deals with new technologies and new markets understand that there may be smaller hiccups along the way. We're well prepared for that. We're actually planning for some of these and to find them as early as possible. And in most cases, I think I can say we have also alternative solutions to that ready. So I don't expect any big ones. Unknown Attendee: You also talked about a large customer in industrials waiting for permitting. Do you have any signals that they will move forward with you if that permit is given? Gunnar Pedersen: Yes. Unknown Attendee: Then there are -- you have mentioned in the past quite a few studies going 4 or 5 years back studies with names like Unipetrol, Repsol, what can you say about these studies and early projects? What is the status? Gunnar Pedersen: Yes. They are very interesting. All these studies because it's studies based on different types of feedstock and how you process and what you want to come out of the process. And I think certainly, our customers learn from those. In some cases, we actually do test runs for them, and we take tests of whatever comes out to certify quality, to look at types of emissions and so on, and that is used as part of the permitting process. So I would say that we've learned a lot about different types of applications of the technology. And it is also very clear to me that our customers are learning along the way, learning what is going to be a business case for them or not. And I think if you look across the industry and different studies that are made, it's kind of coming together what everyone think is going to be a very profitable one, at least to begin with and what could potentially become very profitable later on. Unknown Attendee: There are 2 more questions from the online audience. So we're, I guess, nearing the end of the Q&A session, but let's take the next one. What is the installed base of Maritime Solutions in terms of number of vessels as well as number of systems? Gunnar Pedersen: I've heard a number, but I cannot remember it, but it is quite a significant number of systems. So in the hundreds. Unknown Attendee: And there is a follow-up on the cash and liquidity situation. Can you be more specific in terms of what you expect in terms of cash inflow in Q4? Cecilie Margrethe Braend Hekneby: We do not guide on the cash position at year-end. But as I already presented, we are -- I'm satisfied with the development. It has been quite challenging for the company over time. But we see a significant improvement. So I'm looking forward to report the fourth quarter. Unknown Attendee: Then there is actually one more. You have previously talked about return to 15% EBITDA. Now you report 17% to 18% for both cruise projects and aftersales. What do you expect in terms of margin expansion going forward? Gunnar Pedersen: I don't think we guide on that either, but we are seeing healthy margins in some areas. And we are definitely working to continuously improve. I think it is also important to say that when we are able to, for example, reduce cost on producing and delivering equipment, some of those improvements, we need to use those to improve our competitiveness to ensure that we are still competitive. We have high market shares, there is only one thing you can be really sure of, and it's that your competitors are hungry, and they will do everything they can. So you need to be forward leaning and work on the cost and you need to be prepared to share some of your improvements. Unknown Attendee: And there is one more. With covenants based on 12 months rolling net interest-bearing debt over EBITDA, you're likely to be in breach several quarters ahead. How will you address this problem? Cecilie Margrethe Braend Hekneby: Well, we are in close and constructive dialogue with the DnB. We are working on -- we see an improved liquidity. We are working on the -- to build a more profitable company. And I'm sure that we together find a good path. Unknown Attendee: Thank you. There are no further questions. Back to you. Cecilie Margrethe Braend Hekneby: Thank you . Gunnar Pedersen: Okay. Thank you, everyone, for watching.
David de la Roz: Good afternoon, everyone, and thank you all for joining us today for our second quarter fiscal year 2026 results presentation for the 3 months ending 30th of September 2025. I'm David de la Roz, the Director of Investor Relations, at eDreams ODIGEO. As always, you can find the resource materials, including the presentation and our results report on the Investor Relations section of our website. I would like to inform you that today's presentation will be a little longer than usual as we discuss our new 4-year strategic plan and our financial outlook for the 4-years period. I will now pass you over to Dana Dunne, our CEO. Dana Dunne: Thank you, David. Good afternoon, everyone, and thank you for joining us. Today, we're going to discuss 3 things: first, we will do a brief update on our first half year results of FY '26, which are on track; second, we will share our new 4-year strategic plan in which we accelerate significantly Prime member growth and further diversify and strengthen our business; and three, we will discuss the immediate headwind that is hitting us, which is Ryanair that has recently intensified their OTA blocking efforts. On today's call, David will take you through the brief update of the first half of FY '26 results. I will then take you through the key drivers of our new 4-year strategic growth plan. David will follow with the immediate headwind, financial implications and our financial outlook for the new long-term 4-year guidance. I will then share some closing remarks. Now I'll pass it over to David, who will take you through our first half FY '26 results highlights. David Corrales: Thank you, Dana. If you could all please turn to Slide 5 of the presentation, I will take you through the key highlights of our results. In the first half of the fiscal year, eDO continued to show strong performance. Our Prime members grew 18% reaching 7.7 million with 457,000 added in the first half. Cash EBITDA reached EUR 94 million for the semester, growing 16% year-on-year and growing the last 4 months margin by 7 percentage points in one year. And we remain committed to shareholder returns. In the first half, we invested EUR 32.6 million in share repurchases and year-to-date, we have canceled 5.98 million shares, that's 4.7% of shares outstanding. If you could all please turn to Slide 6 of the presentation, I will take you through the key highlights of our Prime P&L. In the first half of fiscal '26, the Prime model continued to show that it is the engine of our growth, and we saw significant improvements in profitability, driven primarily by the increasing maturity of our Prime member base. Looking at Prime's impact on profitability and the drivers behind that growth, our cash marginal profit, a key measure of profitability, grew by 10%, reaching EUR 144.2 million. This shows that our business is not just growing, but each transaction is becoming more profitable. This improvement is due to the maturity of our Prime member base. As members stay with us longer, their profitability grows, which is evident in the 15% increase in cash marginal profit for Prime and its margin increasing by 6 percentage points over the past year. This is having a positive ripple effect on our entire business as our overall cash EBITDA margin improved by 5 percentage points from 22% in the first half of fiscal '25 to 28% in the first half of fiscal '26. Cash EBITDA for the semester reached EUR 94 million, marking a 16% year-on-year increase. Looking at revenue performance. In the first half of the year, we have observed a few key changes in our revenue margin. While our overall revenue margin increased by 5% compared to the same period last year, our cash revenue margin saw a 6% decrease. The shift is primarily due to a 20% growth in Prime revenue margin, driven by an 18% increase in Prime members. However, this growth was largely offset by a 22% planned reduction in non-Prime revenue margin. Cash revenue margin for the Prime segment grew by 2% versus the first half of the last fiscal year. While member growth was a positive factor, it was offset by a test of monthly subscription fees for a subset of our customers. As we said in our results call of the previous quarter, the increase in Prime deferred revenue was again positive for the second quarter as we decrease the sample size of the test of Prime monthly payments. The 6% decrease in overall cash revenue margin was due to the planned decline in the non-Prime segment. Let me pass it over to Dana, who will take you through key drivers of our new 4-year strategic growth plan. Dana Dunne: Thank you, David. Please turn to Slide 8 of the presentation. I will take you through the key drivers of our new 4-year strategic growth plan. As you know, we've been running a number of tests of monthly and quarterly payments and the results are very positive. We have identified a number of use cases in which a monthly or quarterly payment of the subscription results in higher lifetime value and therefore, makes more sense than charging an annual fee upfront. We have also identified that monthly payments are enabler for future growth along 2 additional dimensions as it allows us to pursue growth opportunities via offering new products incompatible with a single annual payment and additional growth opportunities in middle-income countries that are more receptive to monthly payments. In summary, this will lead to more top line growth in the next 3 to 5 years, alongside a short-term investment. I will now take you through the areas of growth, sharing the results and the opportunity to create more shareholder value by investing in accelerated growth. Please turn to Slide 9 of the presentation. The first key strategic driver is evolving our payment model. Customers have clearly told us that they generally prefer monthly payments over annual ones. Our survey data, which is based upon 1,740 customers confirm this, 49% prefer monthly payments, while only 25% annual payments and 25% have no preference. We also have seen other subscription businesses move increasingly to monthly as well. For example, over the past several years, Amazon, Adobe, Microsoft 365 have increasingly moved from annual to monthly payments, to name a few companies. As a result of this customer preference, we have been testing monthly and quarterly payments for several years, across 10 Prime markets and 5 products. That means flight, rail, accommodation, price freeze and Prime stand-alone, in order to see how to make this work given the uniqueness of travel and Prime. Please turn to Slide 10. The results from our tests are compelling, showing customers clearly prefer monthly or quarterly payments over annual ones. NPS, the Net Promoter Score, is over 10% higher with monthly payments and conversion from free trial to a paid member is 8% higher based on data from June 2024 to September 2025. This is a clear message. Consumers prefer monthly. Please turn to Slide 11. With the introduction of Prime of monthly and quarterly payments, we unlock new growth opportunities for Prime across product and geographic expansion. For new products, this model is a better fit for rail customers due to lower average basket values of rail bookings and a higher purchase frequency versus flights. Consumers clearly prefer this for lower ticket items. For new product expansion, eDO offers some products in unique ways such as price freeze. These products have high customer satisfaction levels. Now with a smaller monthly or quarterly payment, the value perception is much higher. For new markets, smaller monthly payments are also better suited for growth in new middle-income economies, increasing Prime penetration in these markets. In sum, monthly and quarterly payments facilitate additional growth opportunities. Please turn to Slide 12. Furthermore, the monthly quarterly payment model demonstrates superior results. In positive scope, the aggregate lifetime value is higher by 13% compared to the annual payment option. In summary, we will roll out monthly and quarterly payment models where LTV is positive versus annual payments, which is true in a majority of scopes for new member acquisition. David will speak with you in the financial section about the implications of the onetime unwinding impact of the cash deferred, which has a onetime negative consequence on our cash EBITDA. Please turn to Slide 13. Geographic expansion is our second key growth driver. We will invest in new Prime markets beyond our initial 10 countries to accelerate subscriber growth. We have tested Prime in 14 new markets in the last year, and the results are positive, showing further growth opportunity. The new international markets show promising metrics compared to our European top 5 markets, including higher Prime household penetration year one, NPS and Prime attachment rate. Please turn to Slide 14. Based on these promising results, we will focus on scaling Prime further geographically. Our strategy involves fueling growth in the most promising markets through further traffic acquisition and improving product, price competitiveness and operations in the most promising new markets. Our first phase will focus on growing a set of markets that showed great potential including Mexico, Argentina, the United Arab Emirates, Poland and South Africa. Please turn to Slide 15. Our third driver of growth is product expansion, starting with rail. We are entering the attractive European rail market, which is largely growing at over EUR 40 billion. This will complement our leading flight proposition to drive subscriber growth and increase member engagement. Europe has one of the most dense, high-speed rail networks in the world and it is opening up. Already, the rail market has taken a huge share from the short distance flight market, which provides good upside for us. For example, the Paris Bordeaux route, the rails market share is now 90%. That's 9-0% and Madrid to Barcelona is now 72% rail. Europe is further liberalizing its rail market with a number of new rail providers entering across countries. All of this provides exciting growth opportunities. Please turn to Slide 16. Prime gives us a unique competitive advantage to succeed in this market over rail-focused transactional competitors. Prime generates 4x more revenue margin compared to other transactional rail OTAs. This, in turn, gives us more revenue to play with to win versus transactional businesses. In over 95% of cases, Prime is cheaper prices than rail operators or rail OTAs. Moreover, we see higher conversion rates compared to flights and higher Prime renewal rates as the number of products increases. To Prime, our leading technological platform, coupled with our advanced AI capabilities, our skills in acquisition and marketing and our leading European OTA brand makes eDO a natural winner in this market. Please turn to Slide 17. I want to dedicate a word to hotels since we have said this is also a priority. Since the Capital Markets Day, we have made significant progress in our hotel business proposition and further invested in hotels for growth. The global online hotel market is at EUR 293 billion and has an OTA penetration of 62%. We're already seeing promising results. Our unique visits to hotels are up 42%. Our LTV of Prime hotel repeat customers has increased by 33% and Prime hotel per flight booking is up 33% year-on-year. In summary, in hotels, Prime is a unique offering with superior price proposition, excellent customer experience, wide inventory selection and growing flexibility. With over 7.7 million Prime members, Prime for hotels gives us increased retention of Prime customers as we move from being a flight-centric proposition and company to an overall travel-centric one and one that is unique in its subscription offering. Please turn to Slide 18. Finally, as most of you know, we are one of the leaders in Europe in AI. With this new plan, we are leveraging our AI leadership to support this accelerated growth. We have already achieved massive scale adoption of Generative AI with a run rate of well over 400 billion tokens per year. Tokens are a number of words or data chunks being processed by all of our Generative AI use cases, and this is a key enabler and a key benchmark for how sophisticated our company is in Generative AI. This level of AI consumption places us clearly amongst the leaders of AI across the global e-commerce industry. If you could please turn to the next slide, I would like to share with you some of the most current use cases across the organization. In customer service, our generative and agentic AI solutions are revolutionizing how we serve customers, enabling end-to-end agentic automation of even complex tasks such as canceling and booking. In IT, we've seen a step change in productivity on the back of our leadership in AI adoption, with more than 30% of our code now being AI generated. And across the business, we are seeing how even complex processes can be automated through AI. For example, AI is now automating the management of our in-house dynamic pricing engine, which previously required scarce data science expertise. Now let me pass it back to David, who will take you through our immediate headwind, the financial implications of the plan and our financial outlook for the next new long-term 4-year guidance. David Corrales: Thank you, Dana. Now let's address the immediate headwind hitting our business. If you could please on to Slide 21. Ryanair has recently identified their OTA blocking efforts, which is increasing instability in Ryanair content coverage. Since mid-September 2025, our average daily bookings for Ryanair have been reduced by over 80%. It is important to stress that this has impacted our new customer acquisition, but not the churn of our existing Prime customers. Customers who booked our Ryanair flight demonstrate a similar renewal rate to the average of the company as they find alternative lines and maintain a similar Net Promoter Score. If you could please turn to Slide 23. Given the investment for accelerated growth and the impact of the headwind, we're issuing a new long-term financial guidance. In Prime members, despite the headwind, we are accelerating growth. We will deliver 40% more Prime subscribers than the market consensus by increase by year 3. In the second half of fiscal '26, we will be affected by the recent stability in Ryanair content, and we will grow our Prime member base in the whole fiscal year by 600,000 members. In fiscal '27 as we anniversarize the impact of the Ryanair instability, we would also grow our Prime member base by another 600,000 members. From fiscal '28 onwards, when our new investments start to pay off, we will grow our Prime member base at 15% to 20% per annum to reach more than 13 million members by fiscal '30, dramatically more than the analyst consensus of only 4% per annum and more importantly, achieving record levels in annual net adds by adding in the range of 1.5 million to 2 million new Prime members per year between fiscal '28 and fiscal '30. Regarding the ARPU of Prime, average revenue per user, due to the introduction of monthly and quarterly payment installments, our ARPU will temporarily reduce in fiscal '26 and fiscal '27 to the low mid- EUR 60s and is projected to recover to approximately EUR 70 by fiscal year '30. In terms of the Prime deferred revenue, it will reduce to an amount of negative EUR 18 million in the aggregate of fiscal '26 and a negative EUR 6 million in the aggregate of fiscal '27 and then contribute over EUR 30 million positive per year from fiscal '28 to fiscal '30. If you could please turn to Slide 24. We will have a period of investment during the second half of fiscal '26 and the first 3 quarters in fiscal '27, and we will start showing growth from the fourth fiscal quarter of fiscal '27 in cash EBITDA. Cash EBITDA will come down to an estimated EUR 155 million in fiscal '26 and EUR 115 million in fiscal '27. We expect the investment period to be 5 quarters, so cash EBITDA will start growing year-on-year by the fourth quarter of fiscal '27. You can see the largest investment is the timing impact of the move to monthly and quarterly payments, with the onetime change in deferred revenues, which happens over the next 12 months and its impact on cash EBITDA. From fiscal '27 to fiscal '30, we expect cash EBITDA to grow by more than 33% per annum, reaching over EUR 270 million by fiscal year '30. Now let me pass it over to Dana, who will do some closing remarks. Dana Dunne: Thank you, David. Let me start by saying that I've been in this business for 13 years, and I've never been more excited about the future of eDO. We're going to grow this business more rapidly and further diversify and strengthen the business and its attractiveness to customers. With the move to monthly, we will go to new product categories, such as rail and other lower value ones as well. We will go to more geographies, some of which are lower income ones than in Western Europe, and we will continue to lead in our investments in skills in AI, which creates lots of value for customers of eDO. Let me be clear, separate from this, we have a headwind, which we have boxed by minimizing its financial impact in our new guidance while we build an even stronger and more diversified business. Now please turn to Slide 26. I'll follow by saying we've done this before. We have transformed the business dramatically in the past and at the same time, delivered on our long-term guidance. For instance, in our last 3.5-year plan, we set very ambitious plans, and we delivered. One, we grew our Prime numbers from less than 2 million in 2021 to 7.25 million in 2025. We improved our cash EBITDA from EUR 3 million to EUR 180 million. We deleveraged the company from 8.6x to 1.7x. We transformed our business from transaction to subscription business with now 74% of revenues and 88% of cash marginal profit from subscribers, whereas it used to be 38% and 50%, respectively, and we created a stronger consumer business. In sum, we have a team that delivers. Please turn to Slide 27. In closing, despite the negative headwind, we are building a much better, much stronger business. We will deliver higher growth. We will deliver 40% more Prime members than market consensus by FY '30. We will deliver a higher customer LTV. The new payment model results in a 13% higher lifetime value for Prime. We will deliver stronger customer loyalty. The new payment model delivers over 10% increase in NPS scores and increased customer stickiness. We will deliver more diversified business. 66% of eDO's volume will be driven by nonflight products and flight outside of the top 5 European markets in FY '30. This transforms us from a fundamentally European flights business to a global travel business. And we will continue with our share buyback. We have committed EUR 100 million for the next 2 years to continue our share buyback program. Over the years, we have demonstrated resilience, transformation and an unwavering commitment to delivering shareholder value. Today, we are strengthening our foundations, not just for the next quarter but the next decade, transforming from a mainly European flights to a global travel business, trust in our track record and our vision, securing a sustainable and highly rewarding future for all of us. Now let me pass it back to David. David Corrales: Thank you, Dana. With that, we would now like to take your questions on the webcast. [Operator Instructions] Now let me go to the first set of questions that comes from Francisco Ruiz, the analyst of BNP Paribas. The first one is, can you put an example on monthly payments similar to what you did with the EUR 55 annual payment? If I book a flight to New York from Madrid, and previously, I get a discount of EUR 30, will I get this discount as well under the monthly one? Dana Dunne: Good question. Absolutely. And the answer is yes. It is exactly the same value proposition to the customer. The only thing that is changing is that in yearly, you collect the subscription fees in one time, that's the past. And at the beginning of the program, while on a monthly model and the same for quarterly, we collect the monthly subscription fees with a lower price than the yearly one, of course, every month during the course of that year. But in terms of the benefits now, not just in a sense, the cost to the customer, the benefits to the customer stay exactly the same. And in fact, if I just highlight, this opens up a lot of new customer segments that we can go into by doing this. And by doing that, we're going to enter into rail. And so all of our existing customers will get rail within their subscription fee as well. So it's a win-win. David Corrales: The second question that comes from Francisco Ruiz as well is, what is your opinion on the Google AI tool Canvas in your business? If this is not a threat, could you help us to understand why? Dana Dunne: Absolutely. So first of all, as all of you know, we're one of the leading AI companies across any industry within Europe. Many of you also know that we have a small business in the U.S., and there are far larger travel companies in the U.S. than us. Google's announced these partnerships with the largest travel companies in the U.S., and we look forward to participating in these opportunities from a European point of view. As you can see in the new plan, we're also investing in AI to keep this leadership, and we view AI search results as a potential new channel or variation of existing channels through which we can acquire customers. In fact, if you look at the new announcement of the new model being out, Google stated explicitly that they're not becoming a transactional company, by passing off the customer to its partners. So we absolutely welcome this and welcome it from a European point of view. David Corrales: Okay. The next set of questions come from Carlos Trevino from Santander. The first question is, could you elaborate on the nature of the investments in the second half of fiscal '26 and fiscal '27? Could you provide the breakdown between fixed costs and variable costs? Well, let me take that one. And let me actually start from the second half of it, which is the one about the fixed cost or variable costs. I can tell you the fixed cost, and you can actually go to the variable by difference, right? The amount of fixed costs that you should expect towards the end of the forecast period. So by fiscal year '30 is about EUR 140 million starting from the level that you have seen today, which we're doing now approximately EUR 25 million, EUR 26 million per quarter in the first 2 quarters of this year. We're going to increase somewhat the number of members. There's a lot of new developments to actually pursue in the business and going into all of those new verticals, going into new countries, going into new products like rail, going into small ticket items. So if we -- like we've said other times, if we enlarge the size of the factory, we believe that, that, coupled with the enhanced productivity that we are seeing from AI, like we have shown you earlier today, more than 30% of our code is right now AI generated already. We feel that we can deliver at speed in the number of new things that need to be produced. Now about the other size of the nature of the investments, that is some of the investment that is also on the variable cost nature. When you go into, again, new verticals, you don't have the advantage of an established customer base that -- which results in higher CAC than otherwise, right? At the end of the day, the cost of acquisition in one of our established countries is the blended mix of how many people come to you direct and those are either former transactional customers of you in the past or friends and family referrals of the existing Prime members. So when you go to a new country in which you don't have a meaningfully established base and you go -- or you go into a new vertical in which you're acquiring customers, the CAC is some higher. And then over time, it will decrease to more normal levels of CAC that you see in our more established business, in the more established verticals. That's the nature of the investments really. But because you asked about those -- and with the labeling that we have done in the slide which we run you through the cash EBITDA, let's just remind everyone that the biggest impact by far is the onetime timing difference of collecting monthly from a large portion of our customers from collecting yearly. The next question from Carlos as well is, will there be any kind of commitment to those subscribers choosing monthly quarterly payments? Yes, let me take that one as well. The monthly subscription program that we have is one-off installments of 12 months. So when the customers join the monthly program, they actually join a yearly program with monthly payments, but they have a commitment to continue to pay for the 12 months. And last question from Carlos Trevino is apart from the Ryanair no impact, have you seen an increase in your churn rate over the last months? Dana Dunne: The simple answer is no. If I compare from the Capital Markets Day to today, churn rates are stable. Moreover, I just want to make the point again because it's a really important one for all investors is that if we look at customers that had a prediction towards Ryanair who have joined our program, we do not see a change in the churn rate of them at all over the past year, over the past 2 years, et cetera. And what in fact happens is many of these customers simply take another airline. David Corrales: The next set of questions comes from Andrew Ross, who is analyst at Barclays. He says, what percentage of Prime subscribers on annual versus monthly subscriptions in fiscal '26 and fiscal year '30 in your assumptions, will you shift everyone to monthly? I want to refer you again to Slide 12 of the presentation, where we have a chart that talks exclusively about that. That is a very important question indeed. We will go with monthly on the new markets, and we will go with monthly on the new products at 100%. So rail will be monthly from the beginning, and we will not have customers that joined via rail being annual payments. And then in the existing market, existing products, it's approximately 50% that will be on monthly versus annual. And that is a very large part of our customer base, of course. The next question says, will it be possible to cancel a subscription midway through the year and pay only, say, a few months? Is that not a risk given relatively low annual frequency on the flight side and amongst Prime subscribers in general? Dana Dunne: So we've tested a number of models over the past number of years. And the model that works really well that you see the results there that you see the MPS increase, that you see the LTV, et cetera, is a monthly program with an annual commitment to it. So therefore, no, there isn't a risk and everything is baked in within our numbers based upon the long duration that we've been running this program and the test. David Corrales: The next question from Andrew is what percentage of gross bookings from nonflights within the top 5 Euro countries by fiscal year '30? Well, that's -- We don't tend to break down the gross bookings even in the actual data. So therefore, there's no point breaking it down for the forecast data, but you can take as a proxy that the majority of the nonflights, i.e. particularly in the part of new products, goes into monthly. So at least the subscription fee -- the subscription fee, again, will be on a monthly basis, but the gross bookings themselves come with every transaction. So they go along the year depending on the transaction. The next question says, what does this mean for shareholder returns in the next couple of years, given leverage will step up? Well, gross leverage is going to stay the same. Net leverage is going to go up from the level of about 1.8 that we have just published today to something in the surrounding of just under 3 or around 3, more or less. I think this -- we start this, let's say, a new cycle of growth from a very solid financial position with the lowest leverage that we have ever had. That's one of the things that help us to maintain a very solid, I would say, path of return of cash to shareholders with a commitment from us that it will be EUR 100 million in the next 2 years. The next question says, will you sign a strategic partnership with Ryanair, given the impact on bookings recently? And why haven't you done this? Dana Dunne: Absolutely. So let me explain how our situation is different. And then also, let me explain to you what our criteria is for deal with any partner. First one is what our situation is. As many of you know, we're absolutely leading in technology. And so therefore, we have had access to Ryanair, albeit limited. And today, we still have access to Ryanair, but it is dramatically less than what we had before. And we've been very open and transparent with you, but it's not 0, whereas most of the other competitors of us have had 0 because they don't have the platform, they don't have the technology that we have. And so if you have 0, then signing a deal gives you more than 0. So that's an upside. For us though, that's one starting point that's slightly different. The second one is also in terms of Prime. We are not a transaction-based business unlike the other players out in the marketplace. We are the only subscription one. And that model drives us to certain different behaviors, different decision-making than others. We are very focused not just on getting the business, but then making sure that the customer has a whole good trip that they do another trip, another trip, another trip, and when day 365 comes up, that they renew with us. And that is fundamental about our model and our business. It's unlike a non-subscription-based business. So therefore, we're very, very focused on the end-to-end customer experience on it. So that is our 2 fundamental things that are different when we evaluate deals versus someone else in it. Now come to our criteria. Our criteria is threefold. The first one is obviously, shareholder value, right? What are our options and which one creates the most amount of shareholder value versus the next option, right? And so we simply dispassionately compare that with. The second criteria is around the customer experience, and I think I explained to you a little bit more about why that is so important to us. And the third one is about compliance in terms of regulation, laws, rules, et cetera, from Europe. And so we make dispassionately that situation. And any deal, not just this one, but with any partner, that is how we'll make them in the best interest of those 3 criteria. David Corrales: The next question from Andrew is, which markets are the focus for rail in particular? Dana Dunne: Absolutely. So look, we're focusing first on Continental Europe. And within Continental Europe, the markets that are really opening up the soonest, which is Spain, Italy and France. And by the way, they're at later stages, and we can go to other ones as well. David Corrales: The next seems to be the last question from Andrew. Says, Expedia and Skyscanner have tried out trains in Europe in the past with limited success, whereas a single product focus from Trainline seems to be working. What are your thoughts on this? Dana Dunne: So let me take it, David. So first of all, the obvious thing is, I can't speak for Expedia and Skyscanner. Really important to point out, Skyscanner is a Meta, which is an absolutely entire different business model, not just from us, but from other OTAs. Now Expedia as an OTA is a different business than ours, and I'm not -- was not privy to their results, so I can't comment on. What I can comment on, we are unique. We have Prime. We have a technology leadership. We have a really strong transport brand, and we have been running this for a while and are basing our plan on our actual results. This is not about ideas, but on actual results that we have been doing well in. David Corrales: The next set of questions come from Bharath Nagaraj, the analyst from Cantor Fitzgerald. The first one says, when you say you're planning to enter the railway market, is that by building partnerships with rail travel supplies directly? Or what is the plan? And similarly, with regards to hotels, remind us again as to how you're growing supply of hotels? Is that via direct relationships? Dana Dunne: Yes, absolutely. So great questions. So the first one, if I take the rail market, absolutely, we are signing partnerships with a number of rail providers on that, and we're going market by market. We also have our platform as well that allows us to get rail content from other parties from third-party providers as well that would have that content. In terms of -- for hotels, we have simply a multi -- with hotels, sorry, you're talking about we have almost 2 million hotels on our platform. The hotels market is fundamentally different in terms of, let's say, content and the amount or the number of, let's say, content sources that you need to in order to have a robust business. Now within that, we've built a platform that is a multi-provider platform. So we get some by going direct to hotels, but then we get a lot from let's say, third parties, and we have relationships with a number of really key third parties that allows us to get it. And then we've built on top of this a layer that allows us to deduplicate because we'll have -- meaning having so many different providers, we're getting duplicity of content. So we need to do duplicate it, and we need to figure out which is the best one in order to offer and close that hotel booking for. David Corrales: The next question is what was the churn when it came to monthly payments? It would have picked up as well, right, versus annual payments? Let me take this one. We are rolling out -- I'm going back again to the Page 12 and the Page 11 before that. We are rolling out the monthly instead of annual in those places where the LTV is positive versus yearly, which means that when we do it, the balance between new members that you get or extra members that you get and the churn evolution is positive overall. The next question says, what's the results of the monthly payment model for just air, not including rail? They're both positive. They are positive for rail and they're positive for flights. In rail, it is a precondition, right, like we have said. Rail is part of those type of, let's say, products in which you have lower average basket value and you have more frequency of consumption. And it ties a lot better with monthly installment cadence. And on the case of air is, of course, the vast majority of the sample because that's the one that we were able to test more extensively over a period 2 years. The next question says, given Ryanair was always against OTAs, what have they done exactly since mid-September? Remind us again how much of your group was still Ryanair driven prior to mid-September? The relationship with Ryanair from a technological point of view has been for a number of years, if you will, kind of like a cat and mouse game. They try for us not to access the content, and we go around the hurdles that they put. What they have taken are increased anti-scraping measures that preclude us from giving a good customer experience to our numbers. And that has increased from September. The possibility that we go around those hurdles is a good possibility like in the past, but we have decided for this forecast to box it in. So that this forecast that we have shared with you today are not dependent on us going over the hurdles like we have done in the past. The next question is from Nizla Naizer, the analyst from Deutsche Bank. Can the economics of Prime still work if the subscription is shorter? Yes, yes, absolutely. And that is demonstrated by the data that we have shown today that the LTV is 30% higher in the use cases in which it is higher, of course. In the ones in which it is lower, is those cases where we're not rolling out monthly, and we're keeping only the annual payment option. And then the -- well, the next one is actually a repeat from the previous. And the following one is -- I think that one is repeated as well. Let me just go up here. We have questions from Chadd Garcia from Schwartz Investment Counsel. He says most of the decline in cash EBITDA estimates in '26 look to be coming from a decrease in deferred revenue, given the new nonannual Prime programs. Just looking at EBITDA, taking the working capital performance of cash EBITDA out of it, what does the change in EBITDA estimate look like, if any? I think the easiest way to do that is to look at the adjusted EBITDA as opposed to the cash EBITDA. Now you can put together 2 data points that we provided today. The first one would be the expectation of cash EBITDA by the end of fiscal '26 of EUR 155 million. And the second one is that in the aggregate of the year, we expect to have negative EUR 18 million in the change in deferred revenue. If you put the 2 together, you get to an adjusted EBITDA of EUR 173 million. EUR 173 million is almost a 30% increase in adjusted EBITDA versus the adjusted EBITDA that we reported of about EUR 134 million in fiscal '25. And that evolution is net of all of these timing effects, onetime of the change to monthly for a good portion of our members. The next question comes from Adam Patinkin from David Capital. What efforts are being made to reconcile with Ryanair? And what will the financial impact be if the issues with Ryanair can be resolved? Let me take the second part, which is more of a financial question, and then Dana can go on the first, although, there's not a lot to say because we've talked enough, I think, about the 3 elements of -- that would potentially underpin a deal with Ryanair. On the financial, it will, of course, be a positive, right? And we just don't want to venture how much positive because there is a range of options, right? You could go back to the levels that we had just before September. You could go to more, and we prefer to talk about our forecast, absolutely boxing in Ryanair so that it's not an impact. If there is an impact, it will be positive versus what we're showing today. The next question comes from Paul Simenauer from BNP Paribas. Are there other players that may seek to do what Ryanair tried to do that create further downside risk to EBITDA guidance? Dana Dunne: Let me take that one. So first of all, Ryanair has been consistent about this, that they have been going after this for minimum of 15, it's actually been over 15, more like probably 20 years consistently. So in that time, you've been able to see everybody, been able to see the market, and that approach to it. In fact, what they're doing is really counter to the basic fundamentals of fixed asset owners. When you look at fixed asset owners and what they do, not just in travel, right, like other airlines or other hoteliers, but look at theme parks, look outside of even the kind of travel, entertainment, leisure industry. There's lots of other fixed asset industries. And what you're fundamentally doing is running an auction. And you want to bring as many people as possible to the auction, particularly when you have a perishable asset like a seat an airplane that's expiring at a certain date. You want to bring as many people as possible. It's not just to sell that seat, it's not just to fill that kind of theme park, it would be actually to be able to yield manage and push it up and up. And the more people you bring to the auction, the more likely you are to be able to close out at a higher and higher price. This is exactly what other fixed asset businesses owners do. This is exactly what you see, for example, Disney, with its theme parks, you see even a semi-fixed asset owner, Apple does this by using so many other types of companies as well on this freight. When you look at also just us we -- not just as a, let's say, a potential point to bring people to an auction. There is uniqueness in us. And there's uniqueness in primarily because we have Prime. And if you look at our customer base, if you look at our disclosure that we've shared before, is that only 5% of our Prime customers actually go to an airline website. That's 5% go to an airline website. So 95% don't. And that is what we bring to the auction. That's where we bring to an airline. That's what we bring to other fixed asset partners. Now if you look at as another fact is that airlines have participated in our Prime Days, have seen 173% growth in their bookings versus airlines that don't participate in our Prime Days. So again, it just shows the amount of kind of value that we can bring and the collaboration that we do bring to other fixed asset providers. David Corrales: The next question that we have comes from Guilherme Sampaio, the analyst at CaixaBank. Could you comment on how do you expect the different parts of the LTV on a single customer basis to change with the movement to monthly payments? In most subscription models, there is a churn spike around the payment date. Do you see that in your numbers? Well, actually, we define churn as when people don't take. So yes, it comes around more precisely on the payment date is when we know if we have a churn number or not because up until that payment date, they can use the service, however many times they want. Now on the parts of the LTV, it's a little bit of what we said earlier to a different question. You have an increase in conversion that we have shown a particular slide in which from visit to number of Prime members that finally joined, there's an 8% increase. On the other hand, there are certainly different behaviors around the churn, but net-net of the 2 things, which are the 2 most important things, you have a 13% increase in LTV for those use cases, again, in which the LTV is positive, and we're only rolling out monthly or quarterly payment installments in those use cases in which the LTV is positive. That is the last question that we have now in the webcast. So with that, I'm going to thank everyone for joining the webcast today. Dana wants to share a closing remarks. Dana Dunne: Yes. Absolutely. So look, I know that some of you are long or short-term oriented shareholders. Investors with a short-term horizon would, I acknowledge, would prefer that we postpone doing these investments. But let me be clear, as a shareholder, I'm telling you that it is not in the best interest of the long-term growth of the company and of overall shareholders. For the analysts that cover us, we look forward to working with you and helping you understand in more detail the implications for your models. Lastly, again, as a significant shareholder, I can say this is absolutely the right thing to do. it makes our company far more diversified. And it turns us into a global travel company as opposed to a European flights business, which, in turn, makes us more valuable and attractive to different types of stakeholders. It gives us stickier customers, which, in turn, makes us more valuable. It gives us much greater growth profile in the coming year for investors, and that's 40% higher than the analyst consensus, which again is very valuable, and we will execute this plan while we buy back EUR 100 million of our stock over the next 2 years. With that, let me pass it back to David. David Corrales: Thank you, Dana. I echo your words. I'm a significant shareholder as well, a significant and proud shareholder. Before we conclude the call, I would like to inform you that on Thursday, the 26th of February, we will be hosting our conference call for the 9 months result presentation. And in the meantime, we will be happy to receive your questions via the Investor Relations team or the investor email address, which is investors@edreamsodigeo.com. Have a nice evening. Thank you very much for joining.