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Stuart Green: Hello, and welcome to ZOO Digital's Interim Results Presentation for FY '26. So whilst you're all reading this disclaimer, let me just say that if you are watching this presentation live, then we will have time at the end for a Q&A session. We'll aim for about 30 minutes presentation, and we'll have up to 30 minutes of Q&A. [Operator Instructions] So just quick introductions for those who haven't met me before, I'm Stuart Green, I'm the CEO. I was formerly the CTO and took the current role in 2006. I am a large shareholder in the business, having invested my own capital over the course of several years. Rob? Robert Pursell: Hi everyone. My name is Rob Pursell. I'm the CFO. I actually only joined in August 2025. So slightly less tenured than Stuart. I spent 15 years operating as a CFO in technology businesses. and I've worked in a combination of both private and public companies. Stuart Green: So a quick recap for those new to the story. What we do is provide both technical and creative services to -- mainly to streaming -- video streaming companies and content producers to take their content and make it available for global audiences. And on this slide, you see some of the streaming platforms that we target in terms of where the output of our work goes. We are tech-enabled, and that's the key thing that sets us apart. So all of what we do for our customers, we do through technology that we've created that makes us very efficient and very scalable. We are what's referred to in our industry as an end-to-end vendor. So as I say, there are some technical things and some creative things. We can do everything that's needed to get original content and make it available on streaming services in any languages that our customers may require. Our previous financial year ending March '25 was characterized by being a period of transition for many of our customers who have gone through strategic reviews and have realigned their businesses. And in the course of that period and until recently, we have gone through a process of restructuring our cost base to ensure that we can deliver profits and generate cash in our business. So after a period that's been somewhat subdued over the last couple of years, we're now seeing signs that our customers are coming back and are ready to start ramping up again. And there are early signs, but we feel that there are kind of green shoots there. And we are in a very good position, we believe, to be able to capitalize on that and to grow the business going forward. So what we do then just to elaborate on this a little bit, is that we -- our work begins usually when a new program, say, a TV series or a new feature film has been completed, and it's made by a production company, and our work ends when we submit the final deliverables into one or more streaming services. So what's sandwiched in the middle there, which is the scope of what we do is divided between 2 areas. We refer to them as localization services, which are predominantly creative processes to adapt things for different languages and cultures. And in the other area, Media Services are mostly technical things that we do to make sure that, that content will play properly on whichever target platform or platforms is targeted for. And as I said, we're an end-to-end vendor so we can take care of everything that's needed in that process. And those -- and that -- those 2 headings that I gave you there are really categories of a whole range of different things. And on this slide, you see the variety of different individual services that we actually deliver to our customers. So this is a complex area. These are very specialized things. We're at this position, able to do all this because we've made investment over many years. We've developed technology -- bespoke technology that helps us to do this in a very efficient and scalable way. What our customers need from us and indeed other vendors that we compete with are set out on the slide. The first 2 of these are absolute necessities. So firstly, vendors who service these big buyers to work on this very high quality and expensive content, must, in the first instance, do an incredibly good job. So they must deliver to a quality into standards that are very high in exacting. And in this regard, ZOO performs exceptionally well, and I'll elaborate on that a little bit in just a second. We receive awards. So on the top there, you see an award that we received from Netflix for being their best performing partner in the Americas in 2024. Secondly, you have to be able to do that to incredibly high standard of security to ensure that there's no chance of the content that you're working on behalf of customers leaking and going into the wrong hands. And here again, we perform at a high standard. We are classified as a gold standard under the trusted partner network, which essentially is a framework for assessing the security undertakings that a particular vendor observes. So those are the 2 kind of stats, and we perform very well on both accounts. And it takes a while to demonstrate to customers that you have that capability. So this is not something that happens overnight. It happens over a period of years, which means that the barriers to entry for new entrants are very high. The next 3 items on this list are what we see as being the emerging requirements and in some cases, the change requirements that we're seeing customers now have as they have come out the other side of this period of this fallow period as it were, look -- and as they look to the future and the kind of partners that they want to work with. So the first thing is that increasingly they're looking for partners who are technologically advanced, are progressive in the use of tech. And in this regard, ZOO as a tech-enabled business, is very well positioned. So the fact that we are embracing AI, for example, in our workflow is something that is seeing very favorably by our customers. Next, as I mentioned, we are an end-to-end vendor. That means we can do everything. And that is increasingly sought after by customers who want to simplify the supply chain. So when in the past they may have had many vendors to cover these services, what they now want is very few vendors, but each of which has to be able to do everything. So the fact that we are an end-to-end vendor and there are very few of those in the market, again, positions ZOO very well. And then finally, our customers want things faster. They want us and other vendors to be able to turn around projects much more quickly because that's dead time for them. Once they finish title, ideally, they just like to get it up on the platform. But the work that we do stands in the way of that happening. So the quicker that, that can be done, the better for them. And this is an area where we excel, particularly through some recent innovations that we call Fast Track, which we'll elaborate on more in just a moment. So by all of these requirements, ZOO is incredibly well positioned, we believe, in the market. I mentioned that the quality is a key absolute requirement. And something we've done this -- in this set of results for the first time, and we'll do it in each half results going forward is that we are publishing a quality metric. This is not a measure that we've taken ourselves. It's actually based on measures that are supplied to us by a subset of our customers. So some but not all of our customers report to us either every month or every quarter, their own measures of the quality of the work that we've done. And we basically combine those to arrive at a weighted score. And as you can see in the half, we achieved 99.9%. So that's based on measures that are accounted for by customers who together were responsible for 58.2% of our revenue in that period. So the remaining amount of that is -- was basically what we did for customers who don't give us these -- don't have such rigorous programs to measure this performance. So the takeaway here is that hopefully, this gives you the evidence on the reinsurance that we are performing at a very high standard. And we believe that these scores put us at the very top of the league table in terms of vendors who deliver these services in the industry. But more importantly, as we'll come on in a moment to talk about the cost reductions we've implemented in the business, what was absolutely critical to us as we went through that exercise was not compromising on those top 2 essential requirements that I covered previously. And as you can see, with scores of 99.9%, we certainly achieved that. So with that, I hand over to Rob to cover off the results. Robert Pursell: Fantastic. Okay. Thank you, Stuart. So hopefully, you had a time to look at the statement we put out today and this presentation is online as well. But what we're trying to do here is really pull out some of the key messages in terms of what we've done and what we've delivered in H1 this year. And I think there's 2 things really. One is that we feel that we've shown that the business has now stabilized. So anyone who's followed the company for a while would have known that the results have been quite volatile over the last few years, and we can really see that's stabilizing. And probably the key message from this half is that we've now finished this cost rationalization program. And again, this is something we've been talking about over the last few releases. And there were 2 things we had to achieve with that. One, we had to really show the improvement in profitability, start to be able to generate some cash within the business after the previous years. But also, as Stuart said, we had to do that in a way that didn't impact on our quality, on our innovation and on all those attributes that our customers absolutely demand from us. And we feel we've done that now. So we feel that we can show higher margins, and we feel that we've done that in a way that isn't impacting on our ability to grow in the future. So getting down into some of the numbers. So firstly, in the half, revenues decreased by 19% to $22.4 million. Now we expected this. And the reason for this was that in H1 FY '25, we had a lot of backlog work coming through from the writers and actors strike that happened in Hollywood in FY '24. So we had a very, very poor year in FY '24 and then that came through -- some of that work came back in the first half of FY '25. As I said, that as expected. There's no surprises there for us. But what's important to note is that from the end of H1 FY '25, so for the last 4 quarters, revenues have been stable at around $11 million a quarter or $22 million a half. So that's 12 months of stability that we've had. Now during that time, we've been completing this cost rationalization program. And what you can see here is that one of the most immediate impacts of that is that our gross profit remained at just over $10 million for the half. So that's the same level as it was last year, but on $5 million less revenue, showing the impact of what was achieved. Gross profit was in line with last year. EBITDA actually increased from $1.7 million to $2 million. So we made a higher measure of EBITDA, again on lower revenues. And I'll come on and talk a little bit more about those cost savings. So I think financially, you can see here that we've really made that difference. We said we were going to have to do a lot with the business, and that's what we've done. I've introduced a new KPI measure, we call this cash EBITDA. Okay. So EBITDA is a commonly used name. We use it to measure profitability. There are some accounting things and now there are some costs that end up being capitalized, that end up being excluded from a normal measure of EBITDA. Now for us, there are 2 key costs. One is the payroll, the pay that we pay our developers to develop our technology and our software. That gets capitalized. So it isn't included in EBITDA. And the second is property cost, property leases because of some new accounting standards that gets capitalized as well. Now for me, looking at this, we're going to carry on paying our development team, we're going to carry on paying our property costs. So these are costs that have to be funded and monthly cost in the business that have to be funded. So what I've done is I've added those back into and I've effectively lowered that EBITDA measure to account for those. And what I feel that cash EBITDA is doing for us now is really showing our ability to turn the revenue into cash. So it's in a way, it's like a cash profit. It's the cleanest thing cash profit that we've got. And the reason I wanted to show that is to show that in the half, we actually generated $0.6 million. So the underlying business model is now starting to generate cash. I put some comparators there. So you can see in H1 last year, we made a small loss of $0.1 million. But actually in H2 of last year, so the half just before the one that we're reporting, we actually made a cash EBITDA loss of $2 million, okay? And so that was on the $22 million of revenues, so the same amount of revenue as we've done this half. but a $2 million loss compared to a $600,000 profit. So I think that's a really important measure for us to keep an eye on because we need to start generating cash as a business, but it really does show us again the impact financially of this cost program that we've been doing. Operating loss, again, with that this has improved. It was a loss of $2.5 million, that's down to $1.2 million for H1, and it was actually slightly positive in Q2. So again, that improving trend is we've seen within the half from Q1 to Q2. And in terms of our cash balance, so we've ended the year with $3.3 million in -- so we ended the half with $3.3 million in the bank. It was $4.3 million this time last year, but it was $2.7 million at the end of last financial year, which was the most recently reported number. So financially, I think we've really achieved everything we set out to do with the cost rationalization program. But there are 2 parts of that. From a finance point of view, great, we're starting to generate some cash, we're seeing improvements in profitability. But we have to be doing this in a way that in no way prevents our ability to grow. And there are 2 things that drive that for ZOO. One is the quality of the work that we do, but the second is the innovation and how we are really the leading tech-enabled provider in this space. Stuart will come and talk about these a little bit more coming on. But certainly, we've already shown you the quality metrics. So there can be no doubt that we are still operating at an incredibly high level of quality in the work that we do. And we've mentioned Fast Track. So we are doing something that we believe nobody else in the industry is actually doing at the moment, and that is being able to do dubbing in 24 hours and complete subtitling in around 3 hours. Now to give you an indication, dubbing normally probably take 3 to 4 weeks, subtitling 1 to 2 weeks. So it's a real reduction in the time that it takes to do that. And that's using our technology. And we've also started to integrate AI into a number of our workflows. Now we have to do this with our customers. So within our industry, there is a lot of caution around the use of AI. But we're starting to work with them and show them the efficiency, show them what it could do and with their approval, allow us to start to use AI within their workflows. And then the final thing as well, amongst all these cost savings, this rationalization, we've gone and invested in international operations in Germany, in Korea, in India and some other locations as well. And now we've been able to get all of those people working on our platforms within our -- to the same level of quality that we would be expected to do. And that's allowed us really to help manage costs and to be more flexible. And we're going to carry on doing that. But I think the point here is that not only have we made a significant difference to the financials within the business. But operationally, we haven't taken a pause at all. We are still doing the things that made so special prior to taking out those costs. And it's a combination of those 2 that I think is the real success for this half. So a little bit of a summary in terms of the numbers, and I'll try not to get into too much detail here. But what I wanted to do is you can see in the statement the comparative, so H1 '26 versus last year's H1 '25. But as I said, that benefited from quite a considerable backlog coming in from FY '24. So what we have done is, I've shown you there the results for FY '25 H2. So the half just before the one that we're reporting. I think that's important because you can actually see that, that there's revenue of $22 million, and yes, that's increased slightly to $22.4 million in this half. But if we would say drop down, you can then see, well, on a similar amount of revenue, we've gone from an operating loss of $4 million, an EBITDA loss of $0.5 million all the way to this current half of a reduced operating loss of $1.2 million, but that adjusted EBITDA of $2 million. And like I said, even the cash EBITDA is positive. So that really, I think, shows the impact of that change and to put it into another way. If I look at the fixed cost of the business, so people, property, IT costs, we've actually reduced those by 1/3. So that's quite a substantial change for a business to go through. So that's been completed. Now to maybe mention a little bit about the revenue, you can see that there is a small growth there from $22 million up to $22.4 million from H2 to H1. And dubbing, which is part of our localization is still in decline at the moment. So that declined by $2.7 million. So excluding dubbing, all our other revenue streams from Media Services to Subtitling actually grew by 19%. So we've already started to see the growth coming back in those areas. And we do expect dubbing to come back as well. It just takes a little longer as it's more dependent on original content. That's the content that's most likely to be dubbed, but it's just taking a little while for the industry to recover with that. So hopefully, that gives you a little bit more context in terms of those numbers. And then if we come and look at even more detail, what you can see here is we split our business really into 3 revenue streams. So Localization, which is the dubbing and subtitling; Media Services, which is more of a technical service, reformatting or getting the correct formats for the content so then be distributed onto the platforms. We have a legacy piece of licensing that is still in place, and that's what comes under Software Solutions. And so there's a lot of information there to look at. I think if I could just take you right down to the bottom of those tables and look at that total number there. What this is showing is that our gross profit, the percentage of profit we're making on those revenues is up now at 45%. And previously, that was at 37%. And 45% is -- I went back as far as 2018, and that is higher than we've had really achieved before. The next highest I could find was 38% in FY '23. So when we talk about the way in which we've shaped the business, we've really been able to improve the amount of profit that we can make of the revenues. And you can see that particularly in Media Services, where we've really been leveraging those investments that we've made in India and really being able to drive up the percentage of that. So that gives you a little bit more idea about what's going on within the revenues. And let's come to the balance sheet now. I'm not going to talk too much about this other than really to maybe sort of refer you to sort of the current liabilities line. And in previous meetings, there was concern about were our liabilities too high. We've obviously gone through a period of cash going out of the business and the inevitable pressure that, that put on creditors. And along with completing that cost program, along with still delivering the same level of quality and innovation, we've actually been able to significantly reduce the amount of liabilities within the business and on the balance sheet. So that's really helping just give us a bit of breathing room on the balance sheet and normalize that position a little bit. Then the final statement really to talk about is our cash flow. You can see, as you go down there, that we've generated cash from operations and just to pickup that number, that's $488,000 of cash that has been generated from the work that we've done. But if you look there, you can see that included a $5.3 million payment reduction in payables, which again is just reaffirming the idea that we're really sort of helping improve our liquidity in that situation. And that was partly done by the cost savings ensuring that, that cash EBITDA that we're generating cash at that level, but also we were able to improve the speed in which we're doing some invoicing and therefore, reduce the amount of receivables by being paid a little bit earlier as well. So that gave us positive cash flow operations, and you can see that, that flow through right down to the bottom to an increase of -- in cash from the end of the year of just under $700,000. Final point for me, so. So in terms of how we manage the liquidity in the business, how do we cope with growth, if we needed to -- we have more business coming through and the pressures of that, that can put on us and where we have 3 main facilities. We have a financing facility of $3 million in the U.S. from HSBC. We have GBP 2 million within -- in Europe. And what this allows us to do is to when we issue an invoice, we don't have to wait for the 30 or 45 days for it to be paid. HSBC will effectively pay us a little bit in advance amount. And at the end of the period, we drawn down $1.7 million out of that, around $6 million in total. But we still have $3.3 million in the banks. We still had enough money in the bank to cover what have been drawn down. But it's just helping us manage working capital a little bit better. And also what you could see, if you look at our balance sheet, you can see that we're kind of neutral in terms of our net current asset position and that was a slight deficit. It was in that liability at the end of the year. So I think the key message really is that we've completed the cost rationalization program. It has had the impact that we said it would do on our finances. We've done into a way that it's still allowing us to deliver the same level of work with the same level of quality, is not restricting the opportunities that we're seeing ahead of us, and it's leaving us absolutely on target to meet market expectations. Stuart Green: Thank you, Rob. So I'll just say a few words about the market and the trends that we're seeing there and those that -- in particular, that are pertinent to the ZOO business. So the first thing is that there are various commentators who look at how much is being spent globally on producing new entertainment content. And they all point to that some spend increasing over time. So all commentators think there's going to be more spend on content and our assumption is that more spend means more content is being made and more content is obviously good for us because in normal times, most of the work we do is related to new original content that's produced. Just a couple of data points very recently to speak to that point. In a recent announcement, Paramount, which, as you may know, was -- has gone through a transaction with Skydance Media. And the new CEO of Paramount has said that they're going to be spending an additional $1.5 billion a year on their content budgets. And also Disney, who last week put out a quarterly earnings indicated that they would be spending an extra $1 billion a year on producing original content. So obviously, those are 2 anecdotal things, but overall, the sense that we have here is that spend on original content is continuing. That's obviously a good thing for us. That doesn't -- that's really a proxy. Looking at that as a kind of proxy for the opportunity for ZOO because obviously, we're not tapping into content production budgets. We're tapping into those budgets are being spent on localizing that content. But what we know there from research by Slater, which is a market commentator in the localization field, is that the services market for media localization is worth around $3 billion a year. And our estimates are that about half of that spend is with the major global media companies that we target. So we think that the addressable market for ZOO in media localization is roundly $1.5 billion a year. And that excludes any spend on media services, where we don't have any market commentators giving us steer on that. So that tells you the ZOO's opportunity in terms of an addressable market is at least $1.5 billion. The other things that we are, I guess, to be mindful of is that localization remains and will we believe continue to remain a key strategy on the part of our customers in maximizing the return on the investments they're making in the original content. So that's to say they're choosing to make content that they believe will be appealing to audiences in different countries. And that, of course, then necessitates that, that content is localized. We're seeing more interest by streamers in commissioning content, which is delivered live or near live. So things like sports, another time-sensitive content such as chat shows, talk shows, current affairs programs, those kinds of things. Obviously, this is an area where we can excel and as I said, I'll talk a little bit more about that in a bit more detail in just a second. In the period, we've also seen our customers actually looking to license more third-party content. And this is at a time when their output, their current output of original content is actually lower than it would be normally as a consequence of their changes in content strategy. Something that we believe will sort of ride itself probably over the course of the next calendar year. Our customers all want things faster. So there's a real push to -- for faster turnaround and they're all increasingly looking to work with end-to-end vendors. So that's to say, suppliers like ZOO, of which there are a few who can actually do all of these things for them. These things we're getting a feel for as a result of the fact that we've -- there have been more RFPs issued that we've participated in, of course, the last few months than we've seen in several years. So this is buyers getting to the point where they're now ready to look ahead and think about who they want to partner with for these services. And again, we think that this is an indication of the market starting to move again and is giving us a feel for the kind of partners that they want to work with. And those trends are all favorable for ZOO. So these all play to ZOO's strengths. Obviously, AI is something words on everyone's lips. What I say about this is that actually, we published a white paper very recently. You can find it on the website, and we also delivered a webinar to talk about it, and you can watch that too in our Investor Relations section of the website. In a nutshell, we are using AI in certain areas. It is delivering benefits to ZOO and that it's reducing the time it takes us to do the work we do, and it also reduces our cost to fulfill that work. And of course, customers are also looking for benefits and the benefits they're looking for are the same as the ones that we're looking for, namely, they would like us to be able to deliver results faster. And also, obviously, they'd be very happy to take some savings of costs. So what we're doing is share the moment -- is with those customers who we're choosing to use AI or choosing for -- or permitting us, if you like, to use AI, we are sharing the cost with them. So our costs are coming down. We're charging a lower -- a slightly lower fee. But these are -- this is -- we're talking 10%, 20% difference in pricing. We're not talking a dramatic reduction in costs. And the reason for that is that to do localization in particular to the standard that is required by our customers, it is absolutely crucial that it has human oversight to be sure that all that context or those subtleties, nuances in the source programming is not lost and is correctly preserved authentically in the adaptations to the different languages. To do that, you need people. You can use -- and then we are indeed using AI to help us in that process to make it more efficient. But this isn't a -- this is like a 90% reduction in costs and time. Those kinds of levels of reduction are possible in media localization, but only if you're prepared to tolerate lower quality. And there are some segments of the market where we don't participate where that is the case. So if you think of user-generated content, such as the kind of programming you see on YouTube or TikTok, for example, these AI systems are being used quite successfully there. But that's not our market. Our market is the high end producers and distributors of this content who demand the highest quality. And therefore, our adoption of AI is designed to be consistent with the outputs that our customers want. Just one last thing to say about AI is it provides opportunity to trim costs in certain areas, we expect that, that will result in greater market demand. There is always that opportunity that if you can reduce the cost of something, you will be able to sell more of it. And we think that, that is true here, too. We provided this little diagram to give you a feel for where we are already using AI and where we're planning to use it in the future. So AIA in this diagram refers to Artificial AI Assistance. So it's where we are using AI not to displace a traditional process, but to augment it, to assist experts to do their job, but to do it more quickly, more efficiently potentially to a better standard. So we're already using it right across -- all across, pretty much all our customers for transcription. And for some customers who have given their explicit consent, we are also using it for translation as a way to produce a first pass that will then be further worked on by human specialist immediate localization. So the blue boxes show you where we're currently using AI. The orange boxes tell you the areas that we're very actively developing and expect to deploy new capabilities in the near to midterm. The red boxes are things where we are mostly already working, but the realization of those benefits is going to come a little bit further downstream. So right across our operations, looking at deploying AI as a way to assist existing processes. And even in translation, transcription, we're not done there. This is such a fast pace, quick moving field that we have it to continue to keep track of new developments in third-party systems to make sure we're using the best of breed. So our approach is to use best-of-breed technologies where they make sense in our workflows to deliver services for our customers. So I'll just talk about we have 5 pillars of our strategic plan that we talk about every time. These are the 5 very briefly, just in terms of the progress we've made in each area. In innovation, we have been, as I said, working on AI pretty extensively, and we've also developed a new proposition called Fast Track, which I will tell you about in the next slide. For scalability, we have really pressed ahead with our follow the sun strategy. So this is a strategy that we use to move projects in the course of 24 hours from one of our facilities to the next in a very efficient, streamlined way that effectively gives us 24/7 service capability without having to pay over time to shift work in each location. On collaboration, we are working with third parties. These are just 3 of the partners we work with on technologies for AI. AWS, which you may think of as a service for providing cloud-based compute and storage services. They actually also provide a range of other services, including for AI and where they make sense in our business, we use those. On customers, we are working very closely with our customers in a number of different areas and as I mentioned, have been recipients of RFPs from several of those customers who are looking to the future afresh and want to streamline the way in which they work, which, again, is all opportunity for us. And then finally, for talent, we have part of the reductions in costs that we've been able to implement that Rob has taken you through are because we are able to move certain functions to India and operate at a lower economic cost, very efficient and scalable services. So Fast Track then. So this is a new service that we have introduced in the period. It's a service that is designed -- that we designed specifically to deal with very time-sensitive content, especially, as I said, think of sports and current affairs and so on. But actually, what we found as we pitched this to our customers is that generally, any reduction in the time it takes to perform these kinds of services that we provide is increasingly sought after. So in fact, we've been engaged by customers to deliver our Fast Track service, which is a premium service, for which we can charge a premium. We've been asked to apply that service for a content type that isn't necessarily time sensitive but the customer would just simply like to get it to market more quickly. So the way we've gone about this is by further enhancing our cloud-based workflow platforms so that we can do much more work concurrently. So we still do the same amount of work for our customers, but much more of that work can be performed in parallel. And as a result, we've been able to take subtitling down from something that would take a week or 2, down to 3 hours and dubbing from something like a month or 2 down to 24 hours. So those are radical reductions in the turnaround time, which are essential for, as I say, live and near-live content, but also are increasingly sought after for content more widely where we see great opportunities. Just by way of example, we worked on a project recently for a customer where they wanted us to produce outputs in 32 different languages in the space of 3 hours or so. So we had within our systems around 700 of our operators around the world, all working on the same project at the same time. So what our systems are doing here is orchestrating what could be enormous resource pools in a very efficient and coordinated way to be able to deliver these outputs in a dramatically reduced time frame. And our clients for this are major streaming services for which we've already worked on a number of very high-profile titles. So just wrap up then with a few words on outlook. So we're on track for achieving full year market expectations. As Rob has taken you through, we've restructured our business for growth. What we're finding is that our customers are looking for faster turnaround, as I described, and that is creating new opportunities. They're looking to -- look again at how they want to work with vendors. We've seen many RFPs coming through, which we're participating in, and we're optimistic that we will be successful in a number of those. And also in live and near-live programming, we see more of that coming on to streaming based on what we're hearing from our customers. And there are -- we're not aware of any other vendor that can offer a truly multilingual, multiservice, fast-track type solution in the time frames that we're able to deliver. So just to wrap up with investment summary. So we're a trusted partner to the biggest names in the industry. We're a technology-first pioneer which obviously augurs very well as our customers are looking more and more to work with partners that are embracing technologies such as AI. We're already working with all of the major streamers and content producers. We've already implemented AI in some of be workflows and have -- are actively working on using that more widely. So AI for us is a great opportunity. We're delivering a premium solution in a market that is seeing structural growth. And so with a leaner and more efficient organization we built through the efficiencies that Rob's described, we're very well positioned to build on this position and grow as our market recovers. Thank you very much. So as I mentioned, if you have questions that you would like to pose, please submit them to the -- in the questions section on the right side, which I think should be on the right side of your screen. Stuart Green: We've already received a few questions, so we'll just dive in and take those in the order that they were submitted. So the first question comes from Andrew. Have you finally abandoned plans for the acquisition of the Japanese services provider? Have your customers' plans for this region diminished? So for those who are not familiar with this, a couple of years ago, we had plans to acquire a partner in Japan, and that was driven by requirements from our major customers for their plans to expand and do more activity in Japan, and they essentially saw an opportunity for us to partner with that provider that we had a base in the country. So we were looking to acquire a partner to do that. Since that time, obviously, this whole industry disruption occurred. And so we put that on hold. Based on the information from our customers, they are not ready yet to really drive forward in Japan with additional activity and sourcing of content and distribution of additional content in Japan. So for the moment, we are not pressing ahead with that. But we do expect that in due course, Japan will be a strategically important territory, and we would expect to have some solution for that region. Next question comes from Chris. In your update, you mentioned increases in RFPs. Please, can you clarify how your RFPs work as to say, are they for specific projects like a TV series? Or are they RFPs that set out the basis for a contractual way if you were to work with a vendor on multiple series or films, et cetera, going forward. So the answer is the latter. So typically, these RFPs are -- they're a process that our customers tend to go through every 3 or 4 years and during which they're going to the market and they're making sure that they're working with the best vendors getting the best price, the best quality and so on with partners who can drive down that delivery time and so on. And it just happens because of the development in the market, we're seeing a whole host of these all coming through at the same time, whereas normally they'd be staggered over a longer period. So these RFPs really are -- will lead to framework agreements that will cover usually a wide scope of services over a prolonged period of time, usually several years. So they're not -- we don't usually go through RFPs for -- on a more granular basis than that, for example, a specific project. Next question from Andrew. I've noticed much of your sales team has now been lost in the recent restructuring. Does this not signify -- significantly negatively impact on your ability to grow revenues going forward? It's not quite right that much of our sales team has been lost. We have -- there are members of our sales team who are no longer with us. I mean as part of the cost-saving initiatives that Rob has taken you through, that was obviously part of what we needed to do. We believe that at the moment, we've rightsized our commercial function. And I would expect that if and when our customers come back and start to ramp up again, and we see more activity there then it may be a time at which to kind of reinvest in business development -- additional business development bandwidth. Next one also from Andrew. You mentioned revenue stabilization. Are you not concerned this will be perceived as revenue stagnation. Is there any tangible evidence you're seeing from your customers of this stagnation being reversed? You tell them? Robert Pursell: Yes, sure. So as -- I think it's obviously a valid point. Like I said, we've been at $11 million for 4 quarters. So that is a good question. I think I'd refer to one point what I said was that if you take dubbing out of it, certainly in the H2 coming through to H1, the other service lines have grown by 19%. So we are seeing growth in media services. We are seeing growth in subtitling. What we are seeing is a continued decline that's been going on for a number of quarters now in dubbing. We feel that, that is really coming to the bottom now for 2 reasons. One is that, as Stuart said, Paramount, even Disney came out and said they're planning to spend an extra $1 billion on content next year. Our customers are getting their content strategies in place. They're getting more confidence in them, and therefore, we'll see more work coming through. I think alongside that, so even today, we believe that our customers are spending around $1.5 billion in localization. So what is really encouraging is when we talk about seeing being invited to additional RFPs and being able to access maybe channels or programs that we haven't been able to before is a way of, therefore, growing that revenue incrementally beyond just an underlying growth in the market. And in terms of what are we seeing from our customers? Well, I think the biggest change really and it may be the last sort of 6-or-so months has been that previously, some of our customers are very wedded to the idea of doing localization through a number of different partners with physical studios that actors would turn up to, and that isn't the ZOO model. So that excluded us from some of those channels where they were insisting on that. As the industry is changing and they want things quicker, and what we're being able to do in terms of using technology, particularly with Fast Track, where we've been able to -- one of our customers, we delivered dubbing to them within 24 hours. And they said that was as good as anything that they would see from their premium suppliers taking 2, 3, 4 weeks to do. So I think being able to demonstrate what we're able to do with our model is opening more doors than we've seen before. And that's coming through in terms of those additional RFPs. So I really feel like there are definite green shoots in those conversations with customers, the tangible evidence is the number of RFPs that we're looking at. The fact that we're being invited to go and meet and participate in programs that we probably wouldn't have. And by programs, I mean, actual sort of channels within our customers or individual programs, and that would give us a far, far greater access to their spend. So it's a very fair point in terms of the last 4 quarters, but we do feel confident having now stabilized ourselves financially, but in a way that doesn't restrict that growth, there are an ever-growing number of opportunities out there to get back to growing that revenue again. Stuart Green: Thanks, Rob. So this is the last question that's been submitted so far. So if you do have any other questions, that will be a great time to submit them. So you don't miss your chance. So this question comes also from Chris. So I'll start this and then I think, Rob, you can probably provide a bit more color in terms of how you model and think about this thing. So Chris asked you mentioned anticipation of increased spend in new content. As this happens in the medium term, where do you see your split in revenue normalizing to, i.e., percentage split between localization versus media services. So just to give a bit of context for those who are not so familiar with our business. As I say, when content -- a project comes to us, usually, there will be some combination of media services and media localization that we have to fulfill with that. But -- and as far as we're concerned, whether the content is new or old, it doesn't really matter that much to us. It's the same kinds of services that we do to the same standards on the same time frame. So whether it's new or old, it's not that important, we don't even track it in our systems. We don't even tag it to say this is the new title versus this is an old catalog title. However, the nature of the services that are required tends to be quite different between those 2. So something that is new. So it's been newly produced, it's been produced of the current technical standards. When it arrives to us, it will never have been because it's brand new, it will never been localized. So generally speaking, our customers will want -- definitely want us to localize it. They may just want it subtitling in multiple languages, they may want it to be dubbed into some languages because it's -- there will definitely be some media services that are needed together onto a streaming service. But because it's produced to a very high and current sort of standards of quality and so on, the amount of media services that's needed is modest. So for a new content, essentially, the service lines are much more skewed towards localization than the media services. Whereas if this is old content, then usually what's happening is that a distributor, such as a streaming service, has done a licensing deal with a content producer who have some catalog of old stuff. And the deal is that for a fee, they receive that material, and it goes on to the streaming service, and they'll come to us to get that content registered to that service. If it's old, then it's been produced to standards that are not necessarily up to the required standards for streaming today, and therefore, there may be some restorative work, you could say, that needs to be done to bring it up to scratch. So for example, the resolution, if it's old TV stuff, it may be produced a standard definition resolutions. If it's going on streaming service, it has to be, at the very least, high definition standard. So there's -- so generally, there's more -- there's a lot of media services work that needs to be done there. But if this is content that belongs to someone else, a distributor or a streaming service, generally won't pay for that -- for someone else's content to be dubbed. So for old stuff, it's skewed much more towards media services. And to the extent that there are localization services that are required, they're almost always restricted subtitling. So old stuff doesn't get dubbed. So that's sort of -- that's the dynamic between -- to Chris' question between thinking about the content and how things are changing there as this new content coming through what could happen there, and the split between localization of media services. And those services have different margin switch. I'll now hand over to Rob to talk about how we think about that. Robert Pursell: Yes. Thank you. So yes, I mean in one of the slides, we split out that revenue between sort of localization and media services, and you can see that localization margin is around 30%. We've got media service up to about 76% now. So they are quite different in terms of their profitability. So that mix becomes important when you're thinking about where we go as a business. There are a number of things that play here. So I'll try and not overcomplicate this too much. But I think the first thing to say is that we probably see currently more growth potential in localization than media services. We think they'll both grow but there'll be a greater rate of growth within localization. Two reasons, again, just the growth within the market, the fact that as more original content goes to be produced again, as Stuart says, that is going to require more dubbing because of the investment that's been put in there. So that naturally increases dubbing. But also, as we're working with our customers and as they're getting more familiar and comfortable with our approach to doing this, we see ourselves being able to access more of their spend. So there's probably more growth potential in localization. Now as I said, subtitling is already growing, but dubbing has been declining in the last half. So when does that change? Yes, we think it's going to be soon, but it's an opinion. The other thing that's really happened is that our customers have stopped working with quite so many suppliers. So before they'd often go out and use different suppliers to do different activities, different languages, different services. But now they want to just really look at working with fewer suppliers who can do everything there. So that's what we refer to an end-to-end supplier. So on the other hand, we see more growth potential in localization though we expect it to be more bundling of services. So we want to do the localization and the media services as well. So I think there are going to be some changes that we see. I would expect, if you see at the moment, localization is just slightly above where we are with media Services. So let's call out almost a 50-50 split. If you go back to H1 last year, it was nearly 50% higher than -- sorry, localization was nearly 50% higher than media service. So we went from about being half of our business to 2/3. And if you actually go back into the years when we've been doing significant amounts of revenue, so $70 million to $90 million, again, you sort of see that relationship with localization is around 2/3 of the business and media services is the 1/3. So I would expect that we would see localization increase as a percentage from where it is in H1. It would probably, as a maximum go back up to being 2/3 again, but it may not quite get there because of this bundling of services. So it's going to be in that range somewhere. But until we start to see what happens with these RFPs, with these conversations that we're having other than that range, I couldn't be more specific in terms of what I think will happen. Stuart Green: So a question from Randy. Good to hear from you, Randy. Are there other large content companies you haven't penetrated but need to? You mentioned Disney and Paramount. Are there any big global ones you're not yet working with? And if not, why not? So we are already -- to some degree or other, we are already working with all of the major global distributors, global streaming services and a big U.S.-based headquartered content producers. Obviously, given what I've said about the market size, we're not -- our market share currently is very low, and there in lies obviously a great opportunity. What these RFPs, in some cases amount to is the -- is those buyers opening up certain areas of the operations, that hitherto have been -- we've been denied access to for whatever reason, it could be some historical reason, to do with relationships with certain vendors. It could be because of -- as a result of restructuring the organization, it could be because where something used to be fragmented between different international operations has now been consolidated and it's been now purchased centrally and so on. So we're seeing here opportunities for us to be able to increase our share of spend by these big players on the services that we deliver. So in terms of global companies, there are -- the major ones are all U.S. corporations. Obviously, we are also targeting content producers and distributors in other regions as well. But at the moment, the bulk of our business is in relation to large U.S. media companies. And then, Randy, as a follow-up question on the RFPs, how many different companies are competing for on each one on average? That's a good question. Generally, we aren't told that. We infer it from various things. But I guess, typically, there may be a sort of a dozen-or-so companies that are in play, and they may be looking to select 3. So that's been a case for a particular assignment that we've secured recently, where for a large volume of work, a particular customer went out and spoke to 10 or 12 partners and have selected 3 of which ZOO is one. Now the question from Andrew, do you see project visibility improving anytime soon? Robert Pursell: Yes, I would think that it would do because I think as our customers get more settled in their own content strategies because remember, they've been through quite a bit of sort of disruption, followed by not only the strikes, but also with these changing business models and what that means. But it's -- that will help -- in conversations with them, that will help give us more visibility in terms of the work that they see coming to us. And also, I think as we get more embedded in some of these channels that Stuart's saying we weren't part of before that creates, again, a more reliable stream of revenue. I mean the nature of our business is that we work on programs, and those programs could be a number of episodes of an hour long or it could be a film. So by that nature, it's pieces of work that we do. I think one of the things that we're really looking for, and this requires a shift within our customers. So we shouldn't overstate this. But certainly, where Fast Track is probably going to be most beneficial to where we've got kind of episodic content that's going out every week. More in that sort of broadcast model than traditionally what we've seen streams, and that could be sports, that could be dating shows or current affairs or something like that. Now we're currently -- we believe the only people who can actually provide localization for that, so that itself having that repeatable business is coming in every week and would again give us more visibility. So I think that -- I would hope that those things would start to give us a little bit more visibility. But as I said, you look back at the last 12 months, we've had a lot of stability and visibility. It's just that we know that that's the run rate of the business. What we've now got to do is trying to step that up and show the revenue growth. So yes, hopefully, that answers it a little bit. It's a bit up in there at the moment, but we definitely see it moving in the direction where 1 or 2 or 3 of those matters could actually help us give us a little bit more sight or confidence in the longer-term forecast. Stuart Green: We're coming in to the hour. So I'll take this as the last question. It comes from George and his question is, when the AI bubble bursts -- a big assumption, which of the multimodal AI natives would you buy? So obviously -- I don't quite know what to do with that question, but I guess what I would say is that we have -- if you look at our strategy for AI, we're taking the view that there are quite a few well-funded companies out there that are doing a pretty good job of creating technologies. And our -- the way we see the opportunity here is to evaluate those, understand, understand then some what they're good at, what they're not so good at, where the risks are, how to mitigate those risks and then how to kind of embed those capabilities within our platforms in order to deliver a better service to our customers. So we haven't done any exclusive arrangements there. What we've said is that we want to be completely agnostic. We'll just use best-of-breed. So for example, I mentioned that we're already using for certain customers on certain content, we're using AI to do the translation. But we're actually choosing different platforms for different languages. So we find that, for example, for Latin American Spanish, the best platform is Platform A, whereas for I presume French, it's platform B. So the way our systems are configured is we just -- we'll just hook in given a particular situation, whichever we believe is the best platform to use. And what that means is, over time, obviously, we're continuing to evaluate these with each new iteration of the technology to make sure we always know which is the best of breed, and we can make sure that we're using the most appropriate solution. So I'm not sure, George, that we would actually go out and buy something because I think that in -- I guess your question is if the bubble bursts and all the kind of funding evaporates, what would you do that? Well, I guess we'll cross that bridge when we come to it and if I should transpire, then there may be some interesting assets to pick up at a much more interesting price that you'd have to pay today. With that, I think we should call it a day. Thank you so much, everyone, for joining the call, and we hope to see you next time. Robert Pursell: Thank you. Stuart Green: Thanks a lot.
Operator: Greetings. Welcome to the La-Z-Boy Fiscal 2026 Second Quarter Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now hand the conference over to your host, Mark Becks, Director of Investor Relations and Corporate Development of La-Z-Boy Incorporated. You may begin. Mark Becks: Thank you, Holly. Good morning, everyone, and thanks for joining us to discuss our fiscal 2026 Second Quarter. Joining me on today's call are Melinda Whittington, La-Z-Boy Inc.'s Board Chair, President and Chief Executive Officer; and Taylor Luebke, SVP and CFO. Melinda will open and close the call, and Taylor will speak to segment performance and the financials midway through. After our prepared remarks, we will open the line for questions. Slides will accompany this presentation, and you may view them through our webcast link, which will be available for 1 year. And a telephone replay of the call will be available for 1 week beginning this afternoon. I would like to remind you that some statements made in today's call include forward-looking statements about La-Z-Boy's future performance and other matters. Although we believe these statements to be reasonable, our actual results could differ materially. The most significant risk factors that could affect our future results are described in our annual report on Form 10-K. We encourage you to review those risk factors as well as other key information detailed in our SEC filings. Also, our earnings release is available under the News and Events tab on the Investor Relations page of our website, and it includes reconciliations of certain adjusted measures which are also included as an appendix at the end of our conference call slide deck. With that, I will now turn the call over to Melinda. Melinda Whittington: Thank you, Mark. Good morning, everyone. Yesterday, following the close of market, we reported solid October ended second quarter results. We were pleased to once again deliver modest sales growth, particularly in our Wholesale segment, where we also again delivered margin expansion continuing to create our own momentum in what remains a choppy market. Highlights for our second quarter included total delivered sales of $522 million, up slightly from prior year. In our Retail segment, delivered sales increased slightly and total written sales increased 4% with written same-store sales improving sequentially over the last 2 quarters. In addition, we opened 5 new company-owned stores in the quarter, bringing our total to 15 new company-owned stores over the last 12 months. In our Wholesale segment, delivered sales grew 2%, once again led by growth in our core North American La-Z-Boy Wholesale business. And we made continued progress on our distribution and home delivery transformation project with the consolidation of 2 additional distribution centers. Our GAAP operating margin was 6.9%, and adjusted operating margin was 7.1%. We generated strong operating cash flow of $50 million for the quarter, triple last year's comparable period. And we announced a 10% dividend increase marking our fifth consecutive year of double-digit increases. Overall, our operating performance for the second quarter was solid in the midst of a choppy landscape with sales slightly ahead of the midpoint of our guidance and adjusted operating margin that exceeded our expectations. As I noted, total written sales for our company-owned retail segment increased 4% versus last year's second quarter, driven by new and acquired stores. Written same-store sales which exclude the benefit of new and acquired stores, decreased 2% for the quarter, but demonstrated a continued sequential improvement in written same-store sales trends over the last 2 quarters. While consumer trends remain challenging for our industry, we continue to be agile and hone our execution. We saw our strongest results of the second quarter in October, where we achieved positive written same-store sales. However, results in early November remain mixed. And for Joybird, total written sales for the quarter were a positive 1% increase versus a year ago, demonstrating significant improvement versus the prior 2 quarters and driven by strength in retail store performance. We also have made substantial progress against our strategic initiatives, focusing on our core, vertically integrated North American upholstery business. We completed our 15-store acquisition in the Southeast U.S. region, expanding our ownership of important growing markets. We announced the planned exit of noncore businesses including Kincaid casegoods, American Drew casegoods and Kincaid upholstery. And we announced the proposed closure of our U.K. manufacturing facility. Notably, we expect all of these exits to be substantially completed by the end of our fiscal year. And we have strategically realigned our senior commercial leadership as well as realigned our corporate staffing to more efficiently support our streamlined business. These strategic initiatives are a clear demonstration of our proactive approach to driving our own momentum and what remains a challenged marketplace. We remain agile and committed to strengthening our business to prudently navigate the current environment while at the same time, best positioning ourselves for the next 100 years. To expand a bit more on these important Century Vision strategic initiatives, we were thrilled to complete our acquisition of the 15 store network in the Southeast U.S. region at the end of October. These acquired stores are located in attractive markets Atlanta, Georgia, Orlando and Jacksonville, Florida and Knoxville, Tennessee. And our ownership of these markets will enable new store growth on top of the already high-performing existing store base. This is the largest independent store acquisition in our company's history and will add an estimated $80 million in annual retail sales and roughly $40 million net to the total company on a consolidated basis. Recall, our Wholesale segment already manufactured and sold products to this business, and therefore, already recognize the wholesale portion of these annual sales. Given the strong profitability of this network, immediate sales and profit accretion and opportunity for further market expansion, this is a very attractive investment for our company. As an important pillar of our Century Vision strategy, over the last several years, we have maintained a consistent cadence of independent dealer acquisitions. And we see opportunity for a continued pipeline over time with roughly 40 independent dealers and nearly 150 independent stores still in our network. New store growth is another key lever to growing our retail business. And our strong balance sheet gives us the flexibility to make disciplined investments even in more challenging macroeconomic conditions. We opened 5 new company-owned stores in the quarter and closed 3 and opened 15 new stores in the last 12 months and closed 5. As we deliver the most significant period of new retail store growth in our company's history. Looking back even a bit further over the last 24 months, we have added 20 new company-owned stores as we continue to expand our La-Z-Boy store network towards our target of over 400 stores. And with this recently completed acquisition, company-owned stores now represent 60% of the current 370 La-Z-Boy store network, a significant increase from 45% of the approximately 350 store network just 5 years ago. We were also pleased to open our 15th Joybird store just last week in Easton Town Center in Columbus, Ohio, one of the Midwest premier open air shopping and dining destinations. We remain on track to open 3 to 4 new Joybird stores this fiscal year, and are pleased with the ramp-up and performance of our Joybird retail stores. In wholesale, our refined channel strategy is also contributing to our sales momentum as we expand our brand reach with compatible strategic partners. We recently added living spaces, a top 100 furniture retailer with over 40 stores across Western states. We also launched La-Z-Boy product at Costco on floors in over 350 locations as well as on costco.com. This follows the addition of Farmers Home Furniture and there are over 260 stores in the Southeast in our first quarter. Each of these strategic additions are complementary to our existing distribution and expand our brand reach to even more consumers. And lastly, highlighting our industry-leading service levels, we're proud to once again be named to Forbes' 2026 Best Customer Service list, recognizing our team's passion and commitment to our mission of transforming homes, rooms and communities for our customers and consumers. We're also capitalizing on the momentum from our ongoing initiatives to continue rolling out our new brand identity, which has been well received. The response from media, customers and consumers has been overwhelmingly positive, generating headlines such as La-Z-Boy just rebranded to prove its more than your grandmother's recliner and how La-Z-Boy made Comfort cool again. We plan to build on this success and continue executing our strategy to drive brand consideration and purchase intent across a broad range of consumers, including millennials and Gen X. On our final strategic pillar, strengthening our foundational capabilities, including building a more agile supply chain. We are making strong progress on our multiyear project to transform our distribution network and home delivery program. This transformation will reduce our distribution footprint from a total of 15 large distribution centers to 3 centralized hubs. In the second quarter, we consolidated an additional 2 distribution centers. As a reminder, the cumulative benefits of this transformation will include an estimated 30% reduction in square footage across our warehouse network, an approximate 20% reduction in mileage of inventory traveled across our network doubling of our delivery radius from 75 to 150 miles, enabling us to reach even more consumers and improved inventory productivity and working capital levels. All while improving an already strong consumer experience and once completed, delivering 50 to 75 basis points of wholesale segment margin improvement, the equivalent of up to 50 basis points on the total enterprise margin. Finally, as I noted earlier, we are taking steps to optimize our portfolio by focusing on our core vertically integrated North American upholstery business. We have announced plans to exit our noncore wholesale casegoods businesses, which include Kincaid casegoods, American Drew casegoods and Kincade Upholstery. We are currently evaluating alternatives for these exits, and we'll provide more details as negotiations progress. Importantly, we will continue to offer optimized case goods offerings in our La-Z-Boy stores, Comfort Studios and branded spaces as they enable consumers to furnish their homes and elevate our design business. And we are confident our new structure will further enhance our offerings in the future. In addition, while we remain committed to growing our La-Z-Boy business in the U.K., we have announced the proposed closure of our U.K. manufacturing facility in favor of more financially sustainable sourcing alternatives. We are currently in the required 45-day collective consultation period as required by the U.K. statutory process. We expect all of these strategic actions to be substantially completed by the end of our fiscal year. And we are committed to supporting our customers, our consumers and our employees through these transitions. And as we announced last month, we also strategically realigned our executive commercial leadership and corporate staffing to focus on our core and enhance operating efficiency. As our industry continues to evolve, it's important we remain agile and evolve our business to position us for continued profitable growth into the future. Collectively, these initiatives sharpen our focus on growing our core business where we have a leadership position and a right to win with the consumer. They also align with our Century Vision goals of growing double the market and delivering double-digit operating margins over the long term. The furniture industry has experienced tremendous change and challenge in recent years. Despite this, our mission remains the same, to empower our people to transform rooms, homes and communities. Our iconic brand, well-positioned manufacturing base, strong balance sheet and talented team provide the foundation for sustained sales growth and margin expansion. And now let me turn the call over to Taylor to review the financial results in more detail. Taylor Luebke: Thank you, Melinda, and good morning, everyone. As a reminder, we present our results on both a GAAP and adjusted basis. We believe the adjusted presentation better reflects underlying operating trends and performance of the business. Adjusted results exclude items, which are detailed in our press release and in the tables in the appendix section of our conference call slides. On a consolidated basis, fiscal 2026 second quarter sales increased slightly from prior year to $522 million as growth in our retail and wholesale business, partially offset by lower delivered volume in our Joybird business. Consolidated GAAP operating income was $36 million and adjusted operating income was $37 million. Consolidated GAAP operating margin was 6.9%, and adjusted operating margin was 7.1%. Retail margin deleverage due to lower delivered same-store sales and the impact of investment in new stores was partially offset by stronger wholesale segment margin, which included solid operating trends as well as the 110 basis point benefit of a change in our dealer warranty arrangements during the quarter. Diluted earnings per share totaled $0.70 on a GAAP basis and adjusted diluted EPS was $0.71, flat versus last year's comparable period. As I move to the segment discussion, my comments from here will focus on our adjusted reporting, unless specifically stated otherwise. Starting with the retail segment for the second quarter, delivered sales increased slightly to $222 million. Retail adjusted operating margin was 10.7% versus 12.6% due to fixed cost deleverage on lower delivered same-store sales and investments in new stores. For our Wholesale segment, delivered sales for the first quarter increased 2% to $369 million versus last year, driven by growth in our core North America La-Z-Boy branded wholesale business. Adjusted operating margin for the wholesale segment was 8.1% versus 6.8% with 160 basis points improvement driven by lower warranty expense due to the change in our dealer warranty arrangements as well as solid operating trends, partially offset by incremental expenses related to our distribution transformation project and increased advertising expenses. On our Wholesale business, we view our North America supply chain as a competitive advantage with approximately 90% of finished goods produced in the U.S. As such, we are well positioned to navigate the current trade and tariff environment. For Joybird, reported in Corporate and Other, delivered sales were $35 million, down 10%, primarily due to lower delivered sales volume. Joybird operating loss increased versus the prior year, primarily due to deleverage on lower Joybird delivered sales. Moving on to our consolidated adjusted gross margin and SG&A performance for fiscal 2026 second quarter. Consolidated adjusted gross margin for the entire company increased 10 basis points versus the prior year second quarter. The increase in gross margin was primarily driven by lower input costs, led by favorable ocean freight and improved sourcing, partially offset by higher supply chain costs, including friction costs related to our distribution and home delivery transformation. Adjusted SG&A as a percent of sales for the quarter increased by 50 basis points compared with last year due to fixed cost deleverage in our retail stores as well as investment in new stores. This was partly offset by the benefit of a change in our dealer warranty arrangements in the quarter that resulted in a onetime benefit due to a reduction in our ongoing warranty liability. This change has no impact on the end consumer and provides significant improvements in program management and administration. Our effective tax rate on a GAAP basis for the second quarter was largely unchanged at 26.7% versus 26.3% in the second quarter of fiscal 2025. Turning to liquidity, we ended the quarter with $339 million in cash and no externally-funded debt. We generated a strong $50 million cash from operating activities in the second quarter, triple the year ago period with improved working capital and higher customer deposits. We invested $20 million in capital expenditures during the quarter, primarily related to new stores and remodels and supply chain-related investments. We continue to believe that the best use of our cash and highest return on investment is prudently reinvesting back into the business. As such, we remain committed to disciplined investment in new stores, acquisitions and our distribution and home delivery transformation project to profitably grow our core business. Regarding cash returned to shareholders. Year-to-date, we returned $31 million to shareholders through dividends and share repurchases, including $18 million paid in dividends. We repurchased 23,000 shares in the quarter, which leaves 3.4 million shares available under our existing share repurchase authorization. Subsequent to quarter end, reflecting the confidence in the company's financial strength and long-term growth prospects, the Board of Directors increased the regular quarterly dividend by 10%. This is the fifth consecutive year of double-digit increases to the dividend. We continue to also view share repurchases and our dividend as an attractive use of our cash and positive return to shareholders. Capital allocation in fiscal 2026 is tilted more into the business through investments in the recent 15 store acquisition in our distribution and home delivery transformation project. Longer term, our capital allocation target remains consistent to reinvest 50% of operating cash flow back into the business and return 50% to shareholders and share repurchases and dividends. Before turning the call back to Melinda, let me highlight several important items for fiscal 2026 in our third quarter. We expect fiscal third quarter sales to be in the range of $525 million to $545 million, a growth of 1% to 4% year-over-year and adjusted operating margin to be in the range of 5% to 6.5%, reflecting advancement of our Century Vision initiatives, friction costs related to portfolio optimization and supply chain transformation, and a measured view on the uncertain macroeconomic backdrop. We expect to open approximately 15 new company-owned and independent La-Z-Boy stores during the full fiscal year, of which the majority are company-owned as well as 3 to 4 new Joybird stores. We continue to expect our tax rate for the full year to be in the range of 26% to 27%. We expect capital expenditures to be in the range of $90 million to $100 million for fiscal 2026, consistent with prior guidance. This includes investments for new stores and remodels, our multiyear project to transform our distribution network and home delivery program and continued manufacturing related investments. Of note, I want to spend a few moments on expected financial benefits of our strategic initiatives to hone our portfolio, which Melinda covered earlier. With the combined impacts of our 15-store acquisition, our casegoods exit, our proposed closure of the U.K. facility and our management reorganization we expect the going annual impact on our enterprise to be an approximate $30 million net sales decrease in a significant adjusted operating margin improvement of 75 to 100 basis points to the entire enterprise. We expect all of these initiatives to be substantially completed by the end of this fiscal year. And at this time, we do not expect these exits to have a material onetime gain or loss to the enterprise. Lastly, we anticipate adjustments for all other purchase accounting charges for the year to be in the range of $0.01 to $0.02 per share. And with that, I will turn the call back to Melinda. Melinda Whittington: Thanks, Taylor. We are sharpening our focus on our core businesses and enhancing our agility to navigate the challenging home furnishings environment. At the same time, we're executing on our long-term strategic objectives, and I am more excited than ever about the opportunities that lie ahead. Before I close, I want to welcome the employees of our latest acquisition. And I want to thank all of our employees around the world for their continued dedication to our mission of bringing the transformational power of comfort to more homes. And now I'll turn the call back to Mark. Mark Becks: Thank you, Melinda. We will begin the question-and-answer period now. Holly, please review the instructions for getting into the queue to ask questions. Operator: [Operator Instructions] Your first question for today is from Anthony Lebiedzinski with Sidoti & Company. Anthony Lebiedzinski: So first, I just wanted to check in with you about just if you saw any differences in geographic sales dispersion in your markets? Or was it more or less kind of consistent in your operating area? Melinda Whittington: Nothing dramatic, Anthony. Good morning. On any given week, you might see a little bit of choppiness across different geographies, but nothing significant. Canada continues to be more challenged just with trade tariff situation and some of those areas there. So that is maybe a little more bouncing, but nothing dramatic. Anthony Lebiedzinski: Got you. All right. And then just can you also comment on the extent of your pricing actions? And also, just wanted to get a better understanding of how do we think about unit volumes in Q2 and your expectations for Q3 as it relates to unit volumes? Taylor Luebke: Anthony, yes. So on pricing, we mentioned throughout the year in our playbook to deal with trade and tariff changes, one of our levers beyond just sourcing adjustments or inventory moves is some nominal pricing actions. So earlier in the year, we took a round of nominal pricing based on trade policies at that time. Given some changes with the 232 in the sectoral tariffs on upholstered furniture within the quarter, we actually took another round of nominal pricing to help offset, but still well positioned competitively versus our peers. Again, 90% of the products we make are in the U.S., so that other 10%, a little bit exposed, but still very well positioned. So in aggregate, through the course of calendar year '25, we're still in the single digits, which everything we hear from other manufacturers or retailers is at the very low end of what we're hearing is out in the market. On volume per se, directly related to pricing elasticity, hard to piece out in this industry, particularly with everything else going on around traffic and other kind of just general consumer uncertainty. But in our quarter, on our main North America wholesale La-Z-Boy business, we saw volume flat year-over-year, which relatively speaks to our pricing is going well in the market. Anthony Lebiedzinski: And then also in terms of the guidance, you talked about friction costs related to portfolio and supply chain optimization costs, can you expand on that and help us better understand the expected impact of this? And when should we should we see less of those friction costs? Taylor Luebke: Well, a couple of things on the friction costs. So that's a combination of our distribution and home delivery transformation project. We outlined a quarter ago as a multiyear project and hugely excited for the benefit to our network, to our consumers and to the company. Once we're through it, we'll improve all of our stakeholders as well as make us more profitable. In that case, you just have to get a little bit more inefficient in the short term to get way more efficient ongoing with some call it, dual lease costs or they just transition costs as we move out of the, call it, 15 DCs to 3 over time. So manageable, but it's there. On the strategic initiatives that Melinda had mentioned, our casegoods exit, our U.K. shutdown, it's -- we expect to be subsequently out of those businesses or those transitions completed by the end of our fiscal year. So I'm really just talking more about the back half of the year, and particularly quarter 3 as I outlined those friction costs as it relates to those 2 areas. Anthony Lebiedzinski: Got you. All right. And then my last question, so you mentioned expanding into living spaces on Costco. I know last year, you expanded more into rooms to go. How do you guys think about the opportunity there as far as it relates to expanding to other wholesale partners? Just broadly speaking, how do we think about the opportunity going forward? Melinda Whittington: I think a couple of things. Our focus over recent years has been very much around making sure we've got the right strategic partners that are going to represent our brand well and that are looking to grow and accelerate and give the consumer the right experience going forward. We certainly see that those that are winning out there in a very tough marketplace right now tend to be the more sophisticated kind of midsized regional players and a lot of those are the type of partners that we're working with. It's always important that it's compatible distribution that it's not going to -- it's going to reach a consumer that we're not otherwise going to reach in our furniture galleries. We've had some really good wins. As you noted here in the last couple of months with particularly, as you mentioned, the living spaces, the farmers down in the Southeast, recent Costco, which just puts more eyeballs on the product. I think going forward, because we want to make sure that distribution is compatible with also growing our own retail. What we'll see is probably as much an expansion of growth with the existing base and really building with those as opposed to lots of big additional new customers. But at the same time, the world is always changing, and we're going to make sure we're working with the right partners for the medium term and the long term. Operator: Your next question is from Bobby Griffin with Raymond James. Robert Griffin: I guess, first, Taylor, I just want to make sure I understand the impact here of all the different moving parts. So the acquisition of the 15 stores is going to add $40 million of net sales to the enterprise, and we sold off some of the noncore businesses. And I believe in your prepared remarks, you were kind of netting the 2 against each other. So does that -- is it correct to imply that the headwind from selling off the noncore businesses is about $70 million of sales that needs to come out of the wholesale segment? Taylor Luebke: Yes, your math is correct, Bobby. And note, we're in a process now of evaluating sale or other strategic transactions, but net of, call it, this fiscal year, that should be the impact of the entire enterprises that plus $40 million from the retail acquisition, minus $70 million from the exit of these noncore businesses. Robert Griffin: Okay. And then that would -- then you would see the corresponding step-up within wholesale margins from the savings and the better efficiency. So the -- I believe you called it 75 to 100 bps is really kind of just a wholesale margin step-up that segment? Taylor Luebke: The 75 bps, it's all bucketed together, Bobby, on the retail acquisition, these wholesale moves on noncore as well as they call it, commercial leadership realignment. So all of that together is the 75 to 100 bps to the entire La-Z-Boy enterprise. Robert Griffin: Okay. All right. That's helpful. That helps clean it up. And then just secondly, on the tariff aspect has some good commentary. I appreciate that. Does the nominal pricing you guys took here in 2Q, will that cover for the expected kind of modest step-up that we see on Jan 1 in the 232? Taylor Luebke: Yes. Robert Griffin: Okay. So you're all covered now based on what we know today from tariffs? Taylor Luebke: We've executed our playbook and some of it is also adjusting where we make products to more optimize our network for current trade policies, but as well as additional nominal pricing we put into market at the tail end of the quarter to both cover the current as well as the expected change on January 1. Obviously, we'll continue to be agile if anything changes between now and then. But overall, we feel really good and well positioned with our 90% of our product made in the U.S. Robert Griffin: Yes, very good. That's -- you guys got an advantage versus a lot of the industry there. And I guess just on the other side of things, some questions. Inventories were down pretty big this quarter. Is that just some of the efficiency gains starting to flow through? Or just kind of any commentary around that on a year-over-year basis, I was referring to? Taylor Luebke: Just great work by our supply chain team on being really tight on our inventory management while also protecting in-stock and service levels. I mean we continue to get better year-over-year. So really, it's just the everyday blocking and tackling and just getting smarter. This time, we do have a little bit of a build in the comparator period as we were building some stock to protect ourselves in certain cases on cover availability. But overall, just great work across the organization on getting tighter on our working capital management. Robert Griffin: Okay. I appreciate it. And then lastly, I guess, Melinda, this is the big acquisition with 15 stores, so -- and really good to see you kind of get over the finish line. Can you just talk about now with some of the organizational changes, the integration of that? And then also on the retail network, as we think about kind of the next leg of growth here, where are we at from quality of the store base in terms of like which ones -- how many remodels would you like to see and kind of opportunities there for the next multiyear kind of journey? Melinda Whittington: Yes. A couple of things on retail. We will open estimated about 15 this year, and we have talked about continuing the pace of sort of net new stores in the 10 to 15 range. So we intend to continue that trajectory. As we've talked, we see our way to over 400 stores, and we're about 370 across the network at this point. And those will be more heavily weighted towards company-owned stores as we continue that expansion. From a remodel standpoint, we have invested heavily over the last 5-plus years to make sure that our stores across the network, along with our independently owned are the appropriate reflection of our brand. And so I feel good about the overall use of our fleet, if you will, and we're going to continue to make sure that, that see it that way because it's important that consumers are inspired when they come into our stores, particularly when they're going to come in and participate in design and really think about bringing that product and investing into their home. We will continue to expand our rebranding across all of our stores over the next several years, and we're doing that prudently just given the time right now, but we've had such a great reception to the new branding, and we want to get that out across all those stores. But as I say, we're going to do that prudently as we go. The other way to expand the company owned is, of course, the transactions, like you said. I'm very pleased with the integration of this big acquisition. And how that's all been working together for the company. And I think there's still a pipeline there. Again, those are arms-linked transactions, but there are still a lot of independently owned out there. And I think over time, we'll have more opportunity to expand in that way. And then I can't talk about retail without calling out just the fact that super pleased with in-store execution even in really challenging times. And so we continue to strengthen that execution. And then to your point, make sure that we are appropriately but efficiently supporting that -- those operations as well. And that kind of speaks to your point on overall reorganization. So really good about how that's going right now with our 2 commercial presidents and the move of marketing over into the retail organization. We're already seeing some early wins there. And again, important to be as agile and effective as we can be in what's still going to be, I think, a challenging environment here for a while. Robert Griffin: And I guess one final one, if I could sneak one more in. Is the kind of selling the noncore businesses. And then as you think about, given your designers in the stores, the product portfolio they need how do you kind of balance that? I guess, is there opportunities on casegoods for partnerships? Or do you still have some casegood sourcing that could be there, and this is just a different noncore business that was sold? Just anything around that aspect? Melinda Whittington: The short answer to your question is yes. So casegoods are important to us. So what we do best is manufacture and sell custom upholstered furniture. Our casegoods offerings are super important to enhance that upholstery experience to ensure that in store, we have the ability to service the consumer around whole room and particularly with our design sales. And even in our branded spaces and our comfort studios with our strategic partners. It's important that we have the right casegoods to enhance what we're doing from an upholstery standpoint. That said, it's not our core competency to own the entire design and creation of the casegoods or even our right to win with customers on our wholesale casegoods business. It's just -- it's not our core competency. So we believe there are better places to do that, and we're excited about sort of reinventing that space, recognizing that change is always a challenge, but we are committed to having the right casegoods products in our stores to enhance the upholstery side, but do it in a more efficient way and in a way where we have a real right to win on the design side as well. Operator: Your next question for today is from Brad Thomas with KeyBanc Capital Markets. Taylor Zick: This is Taylor Zick on for Brad. Melinda, you gave some good color on trends throughout the quarter. While also noting that November was a bit mixed. If I recall, I think last year, you saw -- the industry saw improved demand in November post-election. So just given the comparable month was a bit stronger, how are you thinking about underlying demand trends as you head into your fiscal 3Q? Melinda Whittington: Yes. Yes, you're spot on. I think the -- first of all, if you just look at -- in the absolute -- the consumer is challenged, and demand remains choppy, and so we need to be agile and prudent as we deal with that. You're absolutely right that the comparison period from post election last year is a challenging one. And so again, that's kind of why we are navigating this in a prudent way and looking to make sure that we are efficient in how we're executing, but doing everything we can to reach those consumers that are out there and driving the strongest absolute results that we can. Taylor Zick: Got you. And maybe if I could just follow up on -- I don't think I heard much on the prepared remarks, but just curious on what you're seeing out there in the market relative to promotions and maybe what you're thinking about -- how you're thinking about promotion -- promotional intensity later in this quarter and maybe into 2026 as the industry kind of seems to be flattening out. Melinda Whittington: Yes. I think to start at the supply side, as Taylor noted, we are -- our pricing has been relatively nominal single digit. And so we're positioned very well. What we've seen from other suppliers, other manufacturers is significantly higher pricing. And so that's going to drive cost into the business overall. We're talking double digits, pretty widespread. Some of that is taking time to ultimately shift all the way out to the end consumer, but we are seeing that. At the same time, if I go back to Labor Day, which was our last big tentpole for the industry. We did see sharpened deeper price points to drive traffic, not overall in absolute bigger discounting, but a lot of again, traffic driving kind of deep attention, getting type of activity increase than from what we've seen, say, like at Memorial Day. So it's a very active marketplace out there and trying to do the right things to drive that traffic and give particularly the increasingly value-conscious consumer an opportunity to take care of their homes and get into our brand. But at the same time, recognize there's still -- you talked about that bifurcated consumer that K-shaped economy. We are still seeing design sales hold up really well. And seeing consumers that are coming in, ready to do whole rooms and leather and power and all those big upgrades. So it is a -- it requires some laser precision to navigate that environment. Taylor Zick: Yes. That's great. I appreciate the color. Maybe if I can sneak one in for Taylor. Taylor, you made commentary that capital this year and fiscal '26 would be tilted more towards reinvestment. As you eye up this exit of these noncore businesses, how are you thinking about capital allocation into 2026 between reinvestments and maybe some return to shareholders? Taylor Luebke: Yes. Good question, Taylor. So right now, a little early to comment to any change in our capital allocation for the year. We're thrilled with where we're at for this year. As we mentioned, we think our best use of cash when it's prudently reinvested back in the business. Last year was a little tilted towards shareholders. Right now, it's a little bit back in the business with this acquisition as well as CapEx on our distribution transformation as well as new store standup. So right now, we're still working through these exits on those businesses that Melinda had mentioned. Any new information as we progress through that, we'll share on capital decisions. But I am thrilled actually with our level of investment back to the business and very pleased to once again return a double-digit increase to our dividend, the fifth consecutive year on which I think speaks a testament to our strong financial footing and confidence in our business moving forward. Operator: We have reached the end of the question-and-answer session, and I will now turn the call over to Mark for closing remarks. Mark Becks: Thanks, everyone. Melinda, Taylor and I will be in our offices to take any follow-up calls. Thanks, and have a great holiday. Operator: This concludes today's conference, and you may disconnect your lines at this time. 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.
Operator: Good morning. My name is Tom, and I will be your conference operator today. At this time, I would like to welcome everyone to Viking's Third Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. [Operator Instructions] I would now like to turn the program to your host for today's conference, Vice President of Investor Relations, Carola Mengolini. Carola Mengolini: Good morning, everyone, and welcome to Viking's Third Quarter 2025 Earnings Conference Call. I am joined by Tor Hagen, Chairman and Chief Executive Officer; and Leah Talactac, President and Chief Financial Officer. Also available during the Q&A session is Linh Banh, Executive Vice President of Finance. Before we get started, please note our cautionary statement regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties and other factors, which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release as well as in our filings with the SEC. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We may also refer to certain non-IFRS financial metrics, which are reconciled and described in our press release posted on our Investor Relations website at ir.viking.com. Tor and Leah will begin today's call with a strategic overview of the business, including a recap of our third quarter results and an update of the current booking environment. Following their remarks, we will open the call for your questions. To supplement today's discussion, an earnings presentation is available on our Investor Relations website. With that, I'm pleased to turn the call over to Tor. Torstein Hagen: Thank you, Carola, and good morning, everyone. This was a great and memorable quarter with very good financial results, a strong booking environment and highlighted by a significant operational milestone. Starting on Slide 3, you can see that in the third quarter, net yield increased 7.1% year-over-year. Leah will provide more detail shortly, but I want to highlight that our consolidated net yield this quarter was $617, the highest in Viking's history. Turning to the overall booking environment. We continue to see strong momentum. As of November 2, 2025, and for our core products, 96% of our 2025 capacity was sold when 70% of our 2026 capacity was already booked too. I believe that this reflects the strength of the Viking brand, the resilience of our target customers and the appeal of our destination-focused products. As we continue to grow our fleet, this forward visibility gives us confidence in our trajectory and in our ability to deliver long-term value to all stakeholders. I also believe that our well-defined product and clear focus on our customer base have enabled us to build a robust travel platform and support a steady fleet expansion. This has also allowed us to extend the brand into new destinations that further strengthen our guest loyalty. Our guests value and understand Viking. We do not try to be everything to everyone. We focus on the destination and on cultural enrichment while providing an intimate elegant atmosphere on board. Now if you look at the next slide, #4, you can see how this strategy has brought us to a remarkable milestone. We started Viking 28 years ago with 4 river vessels. And today, we have a fleet of more than 100 ships, 103 to be exact. I believe that this growth reflects both disciplined execution and an innovative approach. First, we have been modernizing river voyages. In addition, we have been reinventing Ocean Voyages and perfecting the expedition experience. Each of these products is approached with the same philosophy of thoughtful design, cultural depth and operational discipline. We have been modernizing river voyages by transforming what River Cruising can be. We have introduced new elegant and efficient ships with immersive itineraries that bring guests closer to the art, history, and culture of every destination. Today, River Cruising has become a globally recognized way of travel and Viking with a fleet of 89 river vessels offer the most extensive and enriching collection of river itineraries across the world. We have also been reinventing ocean by bringing the same vision that is modernizing the River Cruising. We are redefining what an Ocean Voyage can be, introducing new small, elegant ships designed not for entertainment, but for enrichment. At Viking, we said that we are for the thinking first. True to that promise, our ocean itineraries with a fleet of 12 ships focus on cultural discovery and meaningful experiences, bring our guests closer to the world's most inspiring destinations. And lastly, we have been perfecting the expedition experience. With purpose-built ships, we enable our guests to explore the most remote regions of the planet from Antarctica to the Arctic and also closer to home on North America's great lakes. These itineraries are designed with safety and comfort at the core by placing science, exploration and sustainability at the heart of every journey. In doing so, we are creating a new category of travel, one that feels less like tourism and more like meaningful discovery. This innovative approach is also reflected in the extraordinary breadth of our offerings. As shown on Slide 5, we are currently providing itineraries that cumulatively span more than 85 countries across all 7 continents, all 5 oceans, 21 rivers and 5 lakes calling on over 500 ports. Looking ahead, we remain committed to setting the standard in experiential travel, offering opportunities to explore the world in ways that are comfortable, cultural enriching and environmentally responsible. As we reflect on this milestone, achieving a fleet of 100 vessels, let me turn to one of our key advantages that have helped fuel the growth in the river segment, which is the docking locations. On Slide 6, you will see how these set Viking apart. Our river vessels dock in the hearts of cities and towns, near historical and cultural attractions. They provide our guests with more time ashore to enjoy the local culture. Today, we control or have priority access to 113 of the most coveted docking locations in various regions of the world. This includes premier locations in Paris, just 800 meters from the Eiffel Tower and in Luxor, close to the Karnak Temple. This unique access not only enhances the guest experience but also reinforces Viking's leadership position in the River Cruising. Now to conclude this section, I will share some great news about how our product is being recognized across the industry. On Slide 7, you can see that Viking has once again been rated #1 for oceans and #1 for Rivers by Conde Nast Traveler, now for the fifth consecutive year in the 2025 Readers' Choice Awards. We were also honored as a World's Best by Travel + Leisure in the 2025 World's Best Awards. No other travel company has simultaneously received such honors across these product lines from both publications. What makes these awards especially meaningful is that they are voted on by the guests, reinforcing that our distinct approach resonates with those who value meaningful travel. They also reflect the dedication of our entire team, whose commitment ensures that every voyage lives up to the Viking's name. By staying true to our principles, small ships, destination-focused itineraries, and exceptional service, we have been able to lead without compromise. And as we look ahead, we remain committed to maintaining the standards that have earned us [indiscernible]. With that, I will turn to Leah to discuss our financials. Leah Talactac: Thank you, Tor, and good morning, everyone. I will start by reviewing our third quarter results, which were very good and will also mention a few records worth highlighting. On a consolidated basis, capacity grew 11% and net yields rose 7.1%, resulting in a 21.4% increase in adjusted gross margin year-over-year. As Tor noted, net yields were $617 this quarter, the highest in Viking's history. As expected, vessel expenses, excluding fuel per capacity PCD increased 9.6% year-over-year. Consistent with what we shared last quarter, the year-over-year increase was driven by several factors. These included changes in our itinerary mix, which led to higher expenses such as port charges as well as slightly higher repair and maintenance costs compared to the prior years. Repairs and maintenance costs occur when specific work is required on our vessels and the timing can shift depending on operational needs. As a result, the cadence of these expenses may differ from one period to the next and is not always a like-for-like comparison. I will note that with a larger fleet and a different mix of itineraries, both capacity and net yields increased more than offsetting expected cost increases. Regarding SG&A, expenses remained flat as a percentage of adjusted gross margin when compared to same time last year. Following the year-over-year step-up in expenses during the second quarter, we continue to invest in our teams, including through stock-based compensation to support long-term growth. As it relates to overall expenses, we remain firmly committed to disciplined cost management, while at the same time, retaining our talent, supporting our expanding capacity and stimulating demand. We believe that this balanced approach ensures we are not only managing today's environment responsibly but also laying the foundation for Viking's sustained growth and long-term success. Having said this, we are proud to report the highest quarterly adjusted EBITDA in our company's history at $704 million, up 26.9% year-over-year, while also reaching one of the highest adjusted EBITDA margins at 52.8%. As we have shared before, capacity growth, coupled with yield growth translates into strong EBITDA improvement and margin expansion. In summary, you can see that this quarter, we achieved the highest net yield in Viking's history and the highest adjusted EBITDA. We believe that these great results underscore the strength of our business model, the resilience of the demand across our portfolio and the discipline of our execution as we continue to deliver profitable growth. Now moving to net income. This was $514 million, an improvement of almost $135 million when compared to the same period in 2024. I will note that the net income for the third quarter of 2024 includes a loss of $18.6 million from the revaluation of warrants issued by the company due to stock price appreciation. While this quarter in 2025, we recorded nonrecurring charges of $19.7 million in connection with debt refinancing, which are included in interest expense. Adjusted EPS was $1.20 for the third quarter, up 33.2% year-over-year. Now before moving to our reportable segments, which are on Slide 10, I would like to highlight that year-to-date, our consolidated adjusted gross margin increased 21% year-over-year to $3.2 billion, and our net yield is 7.4% higher than in the same period last year. Now I will briefly discuss our 2 reportable segments, river and ocean. Unless noted, I will be referring to year-to-date metrics or 9 months ended September 30, 2025. In the river segment, capacity PCDs increased 5.2% year-over-year, mainly driven by the addition of 4 new ships, 2 for Egypt delivered in 2024 and 2 for Europe delivered this year. Occupancy for the period was 96% and adjusted gross margin increased 14.3% year-over-year to $1.4 billion. As a result, net yield was $589, up 7.8% year-over-year, driven by strong demand for both our Egypt and European itineraries. For ocean, capacity PCDs increased 15.3% year-over-year, mainly due to the addition of the Viking Vela in December of 2024 and the Viking Vesta in June of 2025. Occupancy for the period was 95.4%. Adjusted gross margin increased 28.5% year-over-year to $1.5 billion, while net yield increased 10.9% to $591. Now moving to the balance sheet. On Slide 11, you can see that as of September 30, 2025, we had total cash and cash equivalents of $3 billion. Our net debt was $2.8 billion, and our net leverage ratio was 1.6x, an improvement compared to the 2.1x shared last quarter. Also on Slide 11, we show our bond maturity outlook. In October of 2025, we issued $1.7 billion of senior unsecured notes due 2033. The net proceeds were used to fully redeem all outstanding senior unsecured notes due 2027 and to repay finance leases on 2 ocean ships and 1 expedition ship, with the balance designed to repay the finance lease on an additional ocean ship. To this end, bond maturities are now due 2028 and beyond. Since our last earnings release, we have also realized additional financial achievements. Moody's upgraded Viking to Ba2 from Ba3, and we upsized our revolving credit facility to $1 billion. We believe that all these actions underscore our consistent performance, strengthen Viking's capital structure and enhance our financial flexibility to pursue long-term growth. From a committed capital expenditure perspective and for the full year 2025, the total expected committed ship CapEx is about $910 million or $480 million net of financing. And for the full year 2026, the total expected committed ship CapEx is about $1.2 billion or $320 million net of financing. With that, I'll turn it back to Tor to review our business outlook, including our booking curves. Torstein Hagen: Thanks, Leah. Let's now talk about the booking curves, which are all as of November 2, 2025. On Slide 13, we show our consolidated metrics for our core products. As you can see, we continue to be in very good shape for both 2025 and the 2026 seasons. For 2025, 96% of our capacity PCDs for our core products is already booked. Advanced bookings equaled $5.6 billion, which is 21% higher than the 2024 season at the same point in time, while the capacity has increased by 12%. Because our 2025 capacity is mostly sold out, these metrics are very similar to what we shared last quarter. I will note that as we approach the end of the calendar year, we might experience a few cancellations, which is normal. Now moving to 2026, we are in a very good position there, too. The capacity for our core products is increasing by 9%, and we are already 70% booked with $4.9 billion of advanced bookings. These are 14% higher than the 2025 season at the same point in time for 2024. I'll talk about the advanced booking curves for the segments. On the next slide, you will see the curves for Ocean Cruises. This is Slide 14. I'll begin with the blue line, which represents bookings for 2025. Overall, we have sold 95% of the capacity PCDs for the year, which is an increase of 18%. Advanced bookings are 29% higher than they were at the same point last year, and rates have remained very strong, equal to $717 compared to $661 last year. Now if you look at the yellow line, you will see the booking trend for the 2026 season. As you can see, we are in very good shape. Ocean capacity is projected to increase by 9% in 2026 and approximately 77% of the capacity has already been sold. This equals to about $2.4 billion in advanced bookings at average rates of $783 compared to $749 at the same point for the 2025 season. If we move to Slide 15, you will see the curves for the River Cruises. I will start with the blue line, which graphs the advanced bookings for 2025. Like oceans, we are also having a great year in river, 96% of the 2025 capacity is already sold, which is an increase of 6% year-over-year. Advanced bookings are 16% higher than last year at this point in time and rates equaled $820 compared to $758 last year. Like ocean, we have very little to sell for the '25 season, and our teams are now focused on 2026 and beyond. Now looking at the yellow line, these are the advanced bookings for the 2026 season. As you can see, we have sold $2.2 billion in advanced bookings, representing 62% of our capacity. The river operating capacity is expected to grow 10% year-over-year, a figure slightly higher than the last quarter due to some tender adjustments. These are good trends for the 2026 river, which builds on top of a steep 2025 curve. The rates equal to $920 compared to $853 in 2025. So overall, advanced bookings for our core products are doing very well. They are either in line with or exceeding some of our expectations. Moreover, average rates for the 2026 season have increased. These are currently 5.5% higher than the 2025 season at the same point in time, alongside a 9% increase in capacity. To this end, we are very pleased with how the curves are trending. Now Leah will add some color to our order book and capacity. Leah Talactac: Thank you, Tor. Our order book chart, which is on Slide 16, has been updated to reflect the following: the successful delivery of 4 river vessels and the addition of option agreements for 8 additional river vessels, which, if exercised, will result in 4 deliveries in 2031 and 4 more in 2032. You can see that we continue to prioritize expanding capacity to meet growing demand. At Viking, we believe that by staying focused on delivering meaningful experiences, we will continue to drive strong earnings growth, expand margins and sustain long-term financial performance. With this, I conclude our prepared remarks. I'll now turn it back to the operator to take questions. Operator: [Operator Instructions] And the first question this morning is coming from Steve Wieczynski from Stifel. Steven Wieczynski: Congratulations on a very solid quarter here. So Tor, Leah, if we look at 2026 pricing across river and ocean, both improved not only from your August update, but it also improved relative to the update you gave when you did your debt deal in late September. So I guess what I'm wondering is maybe help us think about what is driving that pricing increase right now? Meaning is demand so strong that you're able to take price action. Or is it something out there where you still have more desirable itineraries, cabin classes, whatever you want to think about it out there that are now being kind of bought at this point for next year? And then maybe help us think about what type of promotional work or marketing you're doing currently in order to drive that demand into '26. Leah Talactac: Steve, I think the key indicators that we're seeing with respect to our yield really shows the health of our consumer. I think we've always said from the beginning that our consumers are different. They're more resilient. They have time, they want to travel, and they have the funds to do so. And in the prior earnings calls, we had mentioned that based on what we can see from the remaining inventory available that we would be able to achieve this mid-single-digit growth in price. So we see that come to bear this quarter. Our marketing strategy has been to engage with consumers rather than take pricing actions, and this continues towards the future. I think we've said also in the past that we would like to be in a comfortable spot ending the year, but also still have enough inventory for next year's wave. So you'll start to see that in our marketing spend, but we also are cognizant that people are also booking forward seasons. So it remains -- the cadence is similar to prior years with respect to marketing. However, we are quite pleased to see that our consumers are willing to travel and are willing to pay to travel with Viking. Torstein Hagen: And maybe I can add, Leah, I just came back from a day on a ship in Malta on the ocean ship. And our customers rave about the product that we have. And they come up to me and said I have 3 more booked, I have 4 more booked. So they're really very much looking forward to experiencing more of the Viking product. And they tell me how different we are from everybody else. Steven Wieczynski: Okay. Got you. And then second question, Leah, in the release, you made a remark that I thought was kind of interesting. You basically said Viking's capital structure is in such a good spot at this point that it's giving you guys the financial flexibility to pursue long-term growth. And I guess the question is, maybe what does the pursue long-term growth mean to you guys? I'm wondering if you could maybe expand upon a little bit more what that means. Leah Talactac: Sure. Long-term growth is really organic growth. You saw that we ordered or have options for more river ships. We still feel that there is potential for us to expand our market share in the luxury ocean segment. And we also -- we remain optimistic that there could be inorganic growth as well. We are watchful again, we want to make sure that it's scalable, margin accretive and complementary to the brand. But with our capital structure the way it is, and we're structuring it with now we have the $1 billion revolver, we feel confident that we could be opportunistic when the opportunity comes. Operator: Your next question is coming from Matthew Boss from JPMorgan. Matthew Boss: Congrats on a nice quarter. With the acceleration on advanced bookings across both river and ocean, maybe to your point, could you elaborate on demand trends that you continue to see globally? Maybe more so, what sets your experience apart from a loyalty perspective? And with that, how you plan to optimize pricing on the remaining capacity? Torstein Hagen: Okay. We have said many times, we are different. I don't need to repeat that. Of course, we only have a tiny portion of our capacity in the Caribbean, I think it's 4% or something like that of the ocean capacity. So any kind of overcapacity that one may see there shall not impact us the slightest. We have seen that people want to go from huge ships to smaller ships, and we are there to capitalize on that, I would say. We haven't seen any weakening in demand. It's strong. When you look at the demand curves, you could see -- when you look at them, of course, you see that we are very far ahead on the oceans, but that's a bit deliberate because we have new buildings coming on stream next year. And we'd rather make sure that we are in good shape as we start that year. So we're about to end that year now when you look at 70% being booked already. So I think you could argue maybe we could have been a little bit greedier on the price. But I think when you see the margins we have, we are fine with it the way it is. And I think we have hit a very, very good spot on the oceans. On the rivers, we are where we usually should be at this time of the year. And we haven't seen -- we have read about competition, but we haven't seen much of it. Matthew Boss: And then as a follow-up, Leah, could you speak to the cadence of recent booking trends over the last 3 months, maybe what you're seeing today as we think about the continued momentum? Just any differences in customer demand for your ocean relative to river experiences? Leah Talactac: I would say that the demand is in line with expectation. With ocean being more booked than river, you can see that we are starting to focus on our river. But our book percentage complete on a consolidated basis is about the same as last year. And we are really agnostic as to whether our guests travel with us on ocean, river being that we are one brand. So I think we are quite happy with where things stand as far as how the pricing has developed. We don't really see much bifurcation with how our consumer is looking towards their experiences. There's no bifurcation between geographies or routes. Both our ocean and river segments contribute to the uplift. So this reflects the consistency of the brand and loyalty of our guests worldwide. And this also is a strong indicator of our sustained pricing power going forward. Operator: Your next question is coming from James Hardiman from Citi. James Hardiman: So I wanted to follow up a little bit on the advanced booking commentary for 2026. I think you answered my first question, which is whether or not the acceleration was a function of sort of mix or other items versus just a stronger consumer. It sounds like it's the latter. But maybe speak to whether or not the relative acceleration between ocean, which has been pretty consistent with where it started out 2 quarters ago in terms of 2026 advanced booking -- bookings per PCD relative to river, which has gone 4 to 6 to 8, right, the last couple of quarters. Is that an indication of stronger demand, accelerating demand in river and more consistent demand for 2026 in ocean? Or are there other factors at play there? Leah Talactac: I think what -- sorry, go ahead, Tor. Torstein Hagen: I thought I'll leave it to you. I think -- I thought I started addressing the question in my comments that the efforts on the ocean side are, of course, a little bit influenced by the new building program that we have. So we'd like to be further ahead. On the rivers, if I read the chart on Page 15, you can see the prices that we get there now are some 8% higher than it was last year at the same time. So there's no weakness to be spotted there at all. Of course, the capacity expansion on the -- that we have on the rivers is smaller than the capacity expansion on the oceans. And that's why we want to play a little bit safe and make sure we are really well ahead on the oceans. James Hardiman: That makes sense. I didn't know if, Leah, you had anything to add to that, or no? Leah Talactac: No, Tor sums it up pretty well. I think that with ocean being a year-round product and river really having a shorter season with the shoulder seasons in the first and fourth quarters, I think the booking pattern reflects a little bit of how the seasons operate. But again, as Tor mentioned, ocean is our growth engine. And so we are quite pleased that we are further ahead from a capacity percentage, but we are also quite pleased with how the river bookings and their price increases has transpired. James Hardiman: And then as a follow-up, obviously, since the last time we spoke, one of your main competitors or I guess, I should say, a new competitor, we've sort of gotten a peak at what they're going to be bringing to the table in terms of a river offering. Any initial thoughts there compare and contrast? And then I forget what slide it was, but you spoke to the fact that you guys have control or priority access to 113 of the world's most coveted destinations. Thoughts on that as a moat? Are there any ways in which you can ultimately play defense as you think about a major competitor getting into that river space? Torstein Hagen: Well, I feel that we are so far ahead as we are. So I just watched a football match between Italy and Norway and Norway beat Italy 4-1. And the reason we beat them is that we stopped playing defense, we've continued playing offense. And I think that's what we plan to do also on the river business. We have a great position, and we want to exploit that fully. Operator: Your next question is coming from Robin Farley from UBS. Robin Farley: Just circling back to this nice uptick in booked revenue per passenger cruise day in the last 3 months. And when we hadn't necessarily seen it move up from May to August, I'm just curious if there is anything you would call out that was sort of in the comparable base that we may not see as easily as you can that has made this uptick? Or would you say that you are actually seeing an improved -- I don't know whether -- I don't know if you'd attribute it to like geopolitical situation being better or things that are actually accelerating the demand? Or just trying to get a sense of if there were things in the comparable base that made it look like an acceleration versus that sort of May to August? Leah Talactac: I think that the booking curves or the trends that you've seen since the last few updates really shows and reflects the strength of our consumer. We did market more earlier in the year, but we saw the consumer respond even beyond what we had expected them to respond, both in volume and price. And so I think this goes back to our guests appreciate and know the Viking value and the product. They're very loyal. They would like to travel, and they're willing to plan ahead. And so I think all of that is coming to bear as the booking curves develop. Robin Farley: And just for a follow-up, actually, on the expense side, you talked about how your marketing cadence will be similar, and that's been successful for you and that you're investing more in the team and SG&A. I know some of the expense in the quarter, you talked about the timing of repair and things like that, that's just a timing issue. Would you say that though broadly, one would expect, given the pretty significant capacity increase you have that other things would scale outside of the kind of marketing and HR expenses that still would be an expectation that investors should have? Leah Talactac: Sure. So you bring up a good point, which is that our SG&A for this year really is a reflection of what we are incurring today to support next year's growth. So that's also something to keep in mind. Having said that, we are committed to also making sure that our expenses are -- they are within reason. So we make sure that -- we have said before, we are not going to save our way to greatness. However, we are very cognizant of how costs could increase. We would never compromise the quality of the product for that, but our operators on our ships are very well versed in how to navigate through price or through inflation and through cost pressures. And as well as in the corporate side, where we have SG&A, we are also seeing some efficiencies as technology plays a larger part in how we do business. But with the growth that we have, there are going to be increases because what we are spending today really is to support next year and as it goes on. So very good observation, thank you, Robin. Operator: Your next question is coming from Brandt Montour from Barclays. Brandt Montour: So one of -- I say, Norwegian is moving capacity out of Europe in '26. Is that a tailwind for you guys? Or is it just sort of too different of a customer to actually matter for you? Torstein Hagen: Norwegian has, I would say, 2 product lines. They have the children's entertainment business; I mean the mass market big ships and whatever they do there doesn't impact us at all. Of course, they have other products, which are more related to our ocean business. And I haven't quite followed to the extent they move any of that out, of course, it means there's less capacity to compete with. But again, I feel we are in such a unique position. So I don't worry too much about what other people are doing. I think for us; it's really a matter of continuing to deliver the outstanding product that we have to the guests that we have and who are such loyal followers of us. So I don't worry too much about it or think about it too much. Brandt Montour: And then just a follow-up maybe to that point, Tor. I guess reading into your answer to James' question about Royal Caribbean and Celebrity. And just essentially, you said you were going to press your advantage. I want to understand kind of maybe what you mean by that? It seems like their product is going to be a little different, right? There's going to be kids allowed. There's going to be more bells and whistles. It's going to be a little bit -- we think more -- a little bit more expensive than perhaps your product. What do you mean by pressing your advantage? And do you think that there is -- how much overlap do you really think you have here with what they're going to try -- the tool they're going to try and sell to? Torstein Hagen: Well, we have some huge advantages in the docking sites we have. It's also the design we have of our river ships, which is quite unique. we can take 190 guests on our river ships. I don't know where they will end up being on the end. There's 160 or thereabouts, 170 maybe. But obviously, if we get 20 more guests on the ships and it costs pretty much the same to operate, then I'd tell you, we have a huge advantage either in terms of making a better offer to our guests or making more returns to our shareholders. So I think the design we have on our ships is really very, very, very unique. And I think a fundamental sound design where we design for cost and efficiency rather than for bells and whistles is a much healthier way of doing business, at least that's the Viking philosophy. Leah Talactac: And can I add to that also, the breadth of our itineraries, we currently have operations in 21 rivers and so I think we will continue to make sure that we remain dominant in that market, the North American market that travels to Europe and other rivers worldwide. Operator: Your next question is coming from Stephen Grambling from Morgan Stanley. Stephen Grambling: Just wanted to follow up on some of your comments around SG&A and just margins more broadly. I guess I know you don't guide, but are there any other puts and takes to consider as we look at the year ahead or even longer term? I know that your order book, I think, is actually lower in '27 right now for ocean relative to 2026. So is that potentially, I guess, in some ways, a tailwind in some ways for SG&A next year as you're investing for the year ahead? Or do you already have to build for 2028? And then any other color you have on kind of gross margin puts and takes? Leah Talactac: Stephen, that's a great question. I think at the end of the day, if you look at our order book, we have growth year-on-year. I note that, yes, we do take 2 ships -- ocean ships for delivery in '26 versus 1 in '27. But I think the one thing to note is that in 2027, then we have 3 new ships operating. So we're seeing continuous growth year-over-year, which means from an SG&A perspective, we will continue to also, at the end of the day, grow that. But SG&A is an area where we do believe we can leverage for margin expansion. And as you can see from the quarter's performance and our year-to-date performance with the capacity we have and the yields we have, we've been able to grow adjusted EBITDA as well. So that's obviously a goal we still maintain. Stephen Grambling: And maybe one other follow-up on that. One of the, I guess, the hallmarks of the business has been the marketing engine. How do you think about utilizing AI or other technology to further bolster that? And are there other opportunities to leverage AI in the broader business? Leah Talactac: Yes, sure. So we do see -- certainly see opportunity both from a marketing perspective and also from a revenue management perspective with the new technology or the technology that we have available. So those are at play now. Could there also be opportunity to use that same technology as we think about how we look at and operate the rest of the business, certainly. So these are certainly initiatives that we have already begun and some of it is also already being used. So there -- and I think when we think about efficiencies and leveraging some of that, there's certainly opportunity in the future. Operator: Your next question is coming from Lizzie Dove from Goldman Sachs. Elizabeth Dove: I wanted to go back on the comments that you mentioned around inorganic growth. And just maybe if you could give us a refresh on what type of things high level could be on the table there. And you've really built up a very, very strong balance sheet, great cash balance. Like to what extent that kind of precludes you from capital returns in other forms over the medium term? Leah Talactac: Sure. So I just wanted to level set on what our guiding principles when we think about acquisitions or opportunities. So we want to make sure that it's scalable, that it doesn't distract from our organic growth. We want to make sure that it's margin accretive. And we also want to make sure that it is complementary to the brand and within the brand ethos because the one Viking brand really is so powerful. So having said that, there are others -- we know that our guests travel and do other things outside of cruising. And we had in the past operated something that we call Viking Tours, which was more geared towards land-based products. At the time that we started it, it was not the right time. I think it was like back in 2009 or something like that, but it was not the right time. But could that be something that we could do in the future? Certainly. But we are a much different company now than back then. And so we have to make sure that we deploy not just our capital but also our human resources where it would make -- generate the most shareholder value. Torstein Hagen: If I may add, Leah, of course, we have also been -- we are dipping our toes into the Chinese market, the Chinese outbound market. So as you probably know, we operate 4 river ships in Europe for the Chinese, and we have an ocean ship, which also will be deployed in some fashion for the Chinese. Of course, the Chinese market is huge and different from other operators of travel, we market our product directly to the Chinese consumer, sometimes with a travel agent in between, but largely directed to the Chinese consumer. This will take time to develop, so we shouldn't boast too much about it now. But I think this could be a significant growth engine in the longer term. So that's something we could reserve funds for. Elizabeth Dove: And then just on the customer side, I mean, you clearly operate in this great demographic, a lot of demand and a growing customer demographic, right? Maybe you could share like in terms of the customer demand you're seeing, like how much is kind of repeat visitation or cross-sell between river and ocean? And also like how much you're seeing in terms of new to brand and new to cruise? Any kind of color around that, I think, would be interesting. Leah Talactac: Sure. Go ahead, Tor. Torstein Hagen: No, you start, and I finish. Leah Talactac: Okay. So from a repeat guest percentage, we are seeing quite a few of our guests repeat. So for the 2024 season, 53% of our guests had traveled with us before. And as Tor mentioned, there are quite a few of them with more than 1 or 2 active bookings. We have seen that there are guests who may have 3 or 4 additional bookings in addition to the booking that they currently are on. And in fact, we have a very good take rate when we think about guests who are currently on an ocean ship, they will book their next journey with us while they are on their current one. So I think that is also a testament to how well the product presents itself. It's not just about marketing. We also operate an outstanding product that guests truly enjoy. As far as new-to-brand is concerned, we continue as obviously, when we're growing the way that we're growing, you want to make sure that your repeat guest percentage remains high, but also that you attract new to brand. And we start to see that. And when we ask them who they mostly come from, we start to see that quite a few of our guests had started with the larger cruise operators. But once they hear about the Viking way of travel, they are drawn towards that way of travel of experiential cruising with destination being the focus, not the ships. And then once they're in the Viking ecosystem, then they continue to repeat. And then, Tor, any follow-ups? Torstein Hagen: Well, that was really the point I was planning to make of the new-to-brand people we have on the oceans. And when we look at it, we ask them, who have you traveled with before? And I will not do free advertising for people we shall not do free advertising for. But you find that 35% of them have traveled with company X and 27% have travel with company Y and so forth. And it really means that as people get older, which happens to the best of us, if people get older, then get tired of being on ships with children. And that's a course of people came up to us and said, yesterday, Malta. This fact that we don't have children on board, it's a quiet serene atmosphere on board our ships really make it very easy for us to convert people who have been having enjoyable times on ocean ship and say here is something totally different. So that's really a very important part of the mission we are on. Operator: Your next question is coming from Trey Bowers from Wells Fargo. Raymond Bowers: You guys have laid out a really impressive, committed capacity growth book for the next 6 years, maybe 8 years in ocean. In terms of that new capacity coming online, is that there's so much untapped itineraries out there at different regions that as you introduce these ships, the itinerary mix should look significantly different in the years to come? Or do you feel like in the kind of current regional mix that you're servicing today that there's so much demand out there that you guys are not able to meet that? So just a little bit kind of under incremental information around kind of how this ocean business is going to continue to develop would be great. Torstein Hagen: Yes. I'd say it's more the latter. We have seen from our booking curves that we are selling far ahead, and we are sold out of many of the itineraries. So I think it's really more of the same and to more customers, which is a fairly simple message to get across. So that's really what it is on the oceans. On the rivers, we have been able to expand the geographic spend a bit. So for example, I feel we own the Nile, we are now in India and so forth. So there, we can add product. But on the ocean, we cover the whole globe. So it's really just more of the same. We have the demand there as we can see it. Raymond Bowers: So looking ahead -- sorry. Torstein Hagen: No, no, go ahead. Raymond Bowers: So looking ahead a few years, if we were to look at what itineraries have looked like for the last few years, the expectation would be it's still predominantly Europe and Northern Europe. You mentioned China. Just curious, that was my thought is will we see maybe a little more Caribbean from you guys in the years to come, a little more Asia in the years to come, especially just given what a leadership role you already laid out that you guys already represent in river as you kind of build this luxury business and represent such a large share of it. Do you feel like there's -- your customers, as you mentioned, in Malta, would love for you guys to introduce, I don't even know, an itinerary where you've never even been there before. And given all the repeat customers, do you feel like that's something that you guys can continue to grow in the years to come? Torstein Hagen: Yes. I think people trust us. So for example, now this itinerary we had in Malta, you go from Malta to Tunisia to Algeria to Casablanca and Cadiz, can you dare do that? No problem, you have a Viking and say fans. So I think that we can do fairly readily. But I'd also like to add, we have a couple of benefits. First of all, we started our -- we have been able to design a type of vessel that is standard. So you can come on board, I think yesterday was a Viking -- I don't know what ship it was, it was a Viking Saturn, I think, which is 2 years old. You can't really tell the difference between it and the Viking Star, which is 10 years old or 11 or whatever. So the fact that we have been able to have consistent, clear standard from one ship to the other to the third, it really makes it very easy. It's all interchangeable. So Southwest is -- has done this quite well. So I think it's a major, major benefit there. But that means that we have good contracts with shipyards in terms of the capital costs. because they like to build more of the same, too. So we don't have to reinvent and have uncertainties. So it's been a fairly smart thing, I would say. So we should stick to that and just continue on the path we have. Leah Talactac: One thing to keep in mind also is that our guest demographic is quite different. They are ready and willing to travel year-round. So when we think about the people who travel on the larger public cruise lines, they have to worry about holidays and when children are in school or out of school, whereas our guests travel year-round. And so right now, for the 2024, Viking from a luxury ocean market perspective, we were only 24% of market share, whereas in river, we're over 50% and so when we look at what is the -- what could we dominate in, we're already over 50% in river. And we see really this white space where people enjoy the product. We have purposefully built ships to have itineraries in Europe where larger ships cannot go. And as -- and we're already seeing that when the larger public cruise lines are pulling out of Europe. And so there's certainly opportunity for us there. We don't really -- we want to go where the destination is the focus, and that's not really the Caribbean. So we will continue to make sure that our guests have the ability to travel Mediterranean in the quiet season or in the Nordic countries. And then certainly, there are other more exotic locations that, as Tom mentioned, our guests are really willing and able to travel to and they want to and then they do feel that comfort and sense of safety when traveling with Viking. Torstein Hagen: Like yesterday, the Mediterranean in the second half of November is a fantastic and nice place to be. Nice temperature, not too crowded and all of that. So I think Caribbean, we only have a tiny sliver there. And even the Caribbean product we have is different. It goes largely out from San Juan, and then it goes to each of the islands. So there's something to see. You not only go to either open sea or even worse. I've heard you go to islands where you can then rent cabanas, which is not really genuine and so forth. I think we are about real life experiences, not fake. So I think we have a very, very good product. Raymond Bowers: And if I could just sneak one quick one in. I think it was Lizzie asked about the nonorganic growth, and you went to non-cruise. Does the -- just that consistency of product kind of preclude you guys from ever adding in a nonorganic basis cruise ship? Is that something you've just decided we're going to only build? Or are there potential other luxury river or ocean brands out there that you could kind of easily make them meet the Viking standard if they came up for sale? Torstein Hagen: You should never say never, but not far from it, I would say, not far from never. It would take a hell of a special situation to convince us otherwise. Of course, it's important -- it's been important for us to be able to secure docking spaces. So there may be some things we can do in that area, I would say, that's high value to create moats. But it's not so -- we -- our guests like the brand we have, and we shouldn't try to confuse them too much. So -- but I will never say never. Operator: That is all the time we have questions for this morning, and this does conclude our Q&A session for today. I will now turn the conference back over to Tor Hagen, Viking's Chairman and CEO, for closing remarks. Torstein Hagen: Well, thank you all for listening to us. I hope you share our optimism. It's been a spectacular year after 27 spectacular years behind us. So I think we look very optimistically towards the future. But we also like to be realist, and it's nice to have a sound capital structure that we have. You never know what happens and -- either in terms of problems or opportunities. So thank you very much. Operator: Thank you. This does conclude today's conference call. You may disconnect at this time and have a wonderful day. Thank you once again for your participation.
Alison Schwanke: Welcome, everybody, to the Third Quarter 2025 Knightscope Earnings Call. My name is Alison Schwanke, I'm the VP of Marketing here at Knightscope. And I'm joined by our Chairman and CEO and CFO. We're excited to go through the results and some exciting news for us here at Knightscope. I'll hand it over to you, Bill. William Li: Thanks, Ali. Welcome, everybody. We're livestreaming from our brand spanking new Knightscope headquarters here in Silicon Valley. If you see some noise or stuff going on in the background, we're getting ready for KHQ night, have friends and family here this evening, and we're excited to get everyone to come visit the new facility. So the other important thing to note, we will not be covering any MNPI during the call, so no material non-public information. If you ask a question after the discussion on the earnings, if we can't answer the question, we'll try to rephrase it so we can. But Ali is here to moderate and make sure we stay out of trouble. Alison Schwanke: If you do have any questions, please use the Q&A feature inside of the webinar, and we'll make sure and line those up so we can answer after we address some of the initial findings. William Li: So with that, we're going to turn it over to Apoorv, who's going to walk us through the third quarter. Apoorv Dwivedi: Thanks, Bill. So as we look into our third quarter financials, there's 3 primary themes that are emerging. On one side of revenue, we saw modest revenue growth. Company is still largely early stage in an industry where there's a lot of excitement around robots. However, the adoption is still uneven. We believe that we will be able to better penetrate existing markets and enter new markets with innovative technologies that the company is bringing forth in the near future. On the margin side, on the margin side has been challenged as we continue to build scale economics in manufacturing -- wait 1 second -- in manufacturing, in the field servicing and in our material manufacturing. Historically, our team has been exceptionally scrappy, doing whatever it takes to meet growing demand. This scrappiness has been our superpower, but it doesn't scale. So as we prepare for our next phase of growth, we're completely overhauling how we build and deliver our products. In Q3, we saw a temporary dip in our margins as a direct result of the deep dive we took in our manufacturing operations. Lastly, our investment in product development and innovation. We are investing in innovation and product development, and we believe that innovation will be a critical engine of our growth in the near future. With that, let's jump into the financials. Total revenue of $3.1 million grew by 23.5% versus prior year. This was driven by increase in both sides of the business. Services revenue grew modestly by 2%, while product revenue grew by 82%, largely as the company delivered higher production to catch up from prior quarter's component shortages. Gross loss of $1.6 million is largely driven by $600,000 write-off of slow-moving and obsolete inventory that we identified as part of the move from Mountain View to Sunnyvale, in addition to recognizing higher material costs incurred to meet production demands of the third quarter. OpEx increased by almost 13% and ended at $7.9 million, largely due to intensified investment in R&D, primarily in the next-generation 4-wheeled K7 robot. As such, our R&D investment increased by $2 million as compared to prior year. However, this was offset by cost savings of about $1.1 million across SG&A, primarily in lower third-party professional fees and in lower IR expense. As a result of these dynamics, our loss from operations came in at $9.5 million as compared to $7.7 million prior year. Additionally, our net loss of $10 million came in $1 million better than prior year, primarily due to the $3 million expense hit that we took last year as part of the change in fair values of the warrant liabilities, which are no longer on our books. EPS came in at $0.98 -- negative $0.98 as compared to a loss of $3.58 prior year. And finally, on a great note, our cash balance continues to increase as the company relies on its ATM as well as cost management. So we ended our cash balance at about $20.4 million this quarter versus $5.3 million last year at the same time. With that, I will pass it on to Bill for the next -- for Q&A. William Li: No, before we go to the Q&A, I really think we might have a video at this show. Apoorv Dwivedi: Oh, interesting. Let's do it. William Li: Let's roll it. [Presentation] William Li: All right. Well, hopefully, everybody enjoyed that. We've been working on the Knightscope K7 for a very long time. We're excited to announce that we're going to start a limited series production second half of '26. And we're in very good spirits here as building on what Apoorv said, kind of resetting the stage and foundation for growth of Knightscope. I've never been this excited about the company's future even since inception. So things are looking up here. Ali, do you want to hit us with the easy questions first? Alison Schwanke: Yes, absolutely. Well, the first one I already answered, but I'm going to go ahead and read it again. Robin was excited for us to speak about what was coming. I think maybe that was the video that we referred to, but the earnings were released this morning. So what other news is behind that? William Li: Literally behind us. All new K7 autonomous security robot. We're really excited about building a new foundation to be able to handle much larger environments at much higher speeds with a ton more capabilities. And I think you and I are going to be sharing a little bit more over the next coming months and feeding some exciting news ahead of the launch in the second half. Alison Schwanke: Yes, absolutely. Well, there's a couple of questions here regarding some of the financials. So let's go into those. So Greg says, is the company building first, then selling the inventory or building inventory and then selling products? Apoorv Dwivedi: Well, that's a great question. It's -- traditionally, we've sold the products first, then built them. However, as we kind of move forward towards scaling, I think one of the things we want to do is figure out how do we build the stock and then sell the inventory as demand comes in. It's important for us to be able to -- as we scale to do that because that allows us to then turn the bookings into revenue much faster. William Li: I think historically, if you look at the numbers, we -- at the peak and maybe $6 million worth of backlog. We brought it down to about like $1 million or $2 million. We want to get that down as much as possible and start building finished goods inventory so that we can actually ship quicker and actually the whole operations, the financials, everything get improved. So that was one of the other reasons to move here to a much, much larger facility. In Mountain View, we had about 13,000 square feet. Here in Sunnyvale, we're at 33,000 square feet and a lot more capacity for us to continue to grow. Alison Schwanke: There's a question here about the stock. The stock is down over 99% from the IPO price. How can you justify C-level salaries with such dismal performance? Apoorv Dwivedi: Look, the stock price is rarely an indication, especially for a company like our size. It's really an indication or a performance of the company itself. It's really more driven by market dynamics and what people think the stock and the company will do and what they're seeing. Now the salary expectations and the compensation is really driven by Board. The Board determines what they think we've done and how we perform and how we've done, and they determine that. I think overall, the company has been in a really great point so far. We took us a lot to get here. We're looking forward to the growth. And I think what we're seeing is the compensation reflects where the Board feels that the company is going to be. Alison Schwanke: Fantastic. Let's talk a little bit about the K7 capabilities. There are some questions here about what all can it do what are the capabilities of the new K7? William Li: We're not going to unveil everything today, but it will go up to 10 miles an hour, so much faster than the K5. They handle much more difficult terrain, so light-duty off-road as well as kind of street level type of environments. We're going to -- we're still working on this. It's not ready for prime time just yet, but we're going to work on off-grid capabilities for us to deploy these in much larger environments that don't have power infrastructure. That's another big R&D investment for the next year plus for us to be able to deliver on that capability, still at the R&D stage. We have a few things up our sleeves. But remember what I've often said, we want to put 1 million machines in network that can see, feel, here, smell, speak and autonomously cooperate. And the K7, this next generation of technology is a massive step towards that vision. Alison Schwanke: Yes. One more quick thing to add is the amount of hours that we've now acquired and experience in the field of controlling. William Li: I think if we would have tried to build this much earlier in our development cycle, it would have been that much more difficult. We've now operated well over 4 million hours fully autonomously across every time zone in the U.S. and multiple winters and summers. And it's important to have that field experience and that literally gives us a competitive advantage because we can see designs from science fair projects to start-ups and the like that might have an interesting thing to look at. One quick review, we know this is going to fail, that's going to fail, and this is going to fail and they're going to find out real quick why you're not going to want to go down that path. So having that intelligence and understanding from being out in the field is really, really important. You cannot develop the stuff in a laboratory. Alison Schwanke: Absolutely. Well, let's pivot a little bit back to some shareholder questions. So we have a couple here about what we're doing to drive or specifically address shareholder value. Apoorv Dwivedi: Sure. So shareholder value, again, comes from execution, right? We, as a team, are going to have to figure out how do we execute and deliver on the promises of growth that we're giving to the shareholders. And that's just a process. It doesn't happen in a quarter. It doesn't happen in 2 quarters. It takes a while. The company, as we've talked about in the prior few calls, is going through a true transition period. We grew for the last 10 years through being scrappy. Scrappy is great for innovation. However, in order for us to move forward to the next phase of growth requires us to set in processes, structure and basically set up for scale. And to do that, we need shareholder support to continue to believe in us. But what we'll deliver in the future is higher revenues. We're focusing on that. We're focusing on penetrating new markets. We're focusing on driving our margins lower. Again, right now, it's kind of an interesting time because we have to clean up some backlog and some other just things that have happened in the past. But as we kind of go through that cleanup phase, as we set up for scale, that's how we add shareholder value by showing growth and through innovating. William Li: I think maybe it might be worthwhile recapping what we've done over the last 2 years and why we're excited we've literally turned Knightscope inside out and upside down, going through every single functional area, every single department. We brought in a new seller board. We've got rid of about 40% of the management team. We took about 30% of the payroll out and brought in new talent. We shut down a few facilities. We moved into a brand-new one. We set up a new remote monitoring department, new sales team, new accounting team, new CFO, new VP of Marketing. And now we've got a huge product launch that we're working on with the K7. There's the K1 stuff that we'll talk about next year. So it's a focus on growth, but you need to kind of have a stable foundation that Apoorv was trying to get at. We literally changed everything in the building, including the address of the building. And if you haven't noticed the actual logo of the company, nothing -- no stone unturned to make sure that we're set up for success. And our 3 growth strategies to be abundantly clear. One, organic growth is to grow the base business, the current business that we have and all the blocking and tackling that needs to get done for that. Second is new product development-led growth. So new products, new technologies, new capabilities that give us a sustainable competitive advantage in the marketplace. And then the last one, inorganic growth. A lot of focus on mergers and acquisitions that can build on that top line revenue or give us additional technical capabilities. Alison Schwanke: So that actually is a good parallel to what's being asked here, which is, are you working on any M&A opportunities? William Li: Never crossed my mind. Do you want to cover that one? Apoorv Dwivedi: Sure. So there we are absolutely looking at M&A opportunities. There are 2 primary areas that we're focused on. One is do we -- how do we -- so the way we think about growth engine is really hardware, software, humans, right? Those are 3 critical components of our growth in the future. On the hardware side, we have development here. On the software side, we're looking for partners and/or companies to acquire that allow us things like perception AI or audio AI or sense AI. So those are the things that are going to help us become better at the analytics and being able to give our machines the capabilities to perceive the environment around them in a better way. Third part of it is the human side. We -- as you guys know, as Bill just mentioned, this year or last year, we invested in something called the RTX group, which put humans in the loop. We do believe that really this idea that robots will somehow replace humans is the answer. It really isn't. The answer is you got to pair humans with robots. You got to augment them so humans can become better, right? Humans can become faster at what they do. So we're looking at industries or at least companies where we can find some great humans to work with us. William Li: I think defining the next-generation augmented security guard is certainly a path that we're considering the remote monitoring. And at the end of the day, we had a large VIP client here yesterday. At the end of the day, clients don't care. They say please fix my problem in a way that I can afford it. And all the solutions today really aren't delivering what clients actually need. So what we're off building is that solution that will be comprehensive to actually permanently fix the problem for the clients as opposed to pushing a certain technology or a certain strategy. Alison Schwanke: So this question plays into that a little bit, and it's about autonomous driving. So the fact that it's already being adopted by much larger companies, was there a consideration in teaming up with them in terms of incorporating Knightscope tech into one of theirs? Or are we totally set on developing our vehicles or the vehicles from the ground up in-house? I guess, totally in-house was the clarifier there. William Li: Totally in-house. I think as I often said, there's going to need to be a very large portfolio of technologies. This is what's behind us is just the beginning as was the K5 and the K1. The easy way to think about it is it's very different to secure and protect the school as it might be to secure an underpass of a bridge or a federal court house. You can't have one single technology and fla-la, that's just going to fix everything. If that was the case, then all the camera is going to fix something. Well, there's 85 million cameras in the U.S. I don't think it's fixing much. So I think you need a large portfolio and either we're going to do it ourselves. We may partner with folks or we may buy it. But one way or another, we need to achieve the mission and ends up being a make-buy decision. In some cases, we know a little bit more than what's out in the marketplace. And we're in a little bit of an odd space, right? So you've got the delivery robots making some good progress on sidewalks, less than 5 miles an hour on sidewalks. Then you've got the autonomous vehicle folks and the trucking folks. They're primarily focused at 35, 50, 75 miles an hour on city streets and highways. That's a very different profile than 10 miles an hour around the perimeter of a security location that needs security. So we're still specializing. We're certainly open to partnerships. We've been evaluating them as part of our M&A strategy or as part of our technology development. Alison Schwanke: Fantastic. There's several questions here around government and government contracts. So I'll group these together and people asking, do we have any government contracts that we're pursuing? Or what has been the latest of some of the work you did on Capitol Hill? William Li: So yes, we have local state federal contracts in the stationary side, a good portion of them. The federal side, to be frank, as we always are, rather frustrating. We're in the middle of a whole conversation and then to have the government shutdown is really not productive. So we'll restart those conversations, but that certainly was a little bit of a setback. At the same time, the problem still persists, right? All these military bases need to be hardened. The 10,000 federal security -- sorry, the 10,000 federal buildings still need improved security. And so I think the solutions that we're building, inclusive of us partnering with our friends over at Palantir to get our technology on their FedStart platform is also a huge enabler for us to grow the federal side of things. But as I've said, this is a medium, long-term type of thing. You're not going to all of a sudden have a significant growth on a client that moves very slowly. Alison Schwanke: Yes. Well, speaking of this may be related to that. So how do we think about the K7 having an applicability for border security? Is that rugged enough? William Li: Well, light-duty off-road is really important. The other reason we're looking at the off-grid charging, autonomous charging is also important because you don't necessarily have power out in the middle of nowhere. And I think the Department of Homeland Security is looking out to put a request for a proposal on certain autonomous technologies to do that capability to support our friends over at CBP. So it's certainly on the road map for us. Alison Schwanke: Great. What about the ability for us to share K7 preorder numbers as part of future quarterly reports? William Li: I mean, look, I think we traditionally just haven't been forward-looking. Again, the key is we want to execute first and then talk about what we've done. And I think that's going to stay our course for now. I think over the years, we've had -- we have a lot of existing clients and former clients that have expressed a great deal of interest. So reengaging those folks is certainly at top of mind, inviting them here, doing some beta testing in some of these locations, et cetera. We wouldn't build this if we didn't think there was strong demand for it. But I'll agree with Apoorv, we'll probably make sure these get deployed, and then we'll talk about the actual numbers. Alison Schwanke: Yes, there is a wait list open right now. So if there is interest, people can go and it's on the website, a head under the Autonomous Security tab on the website, it's also on the homepage. William Li: Knightscope.com/... Alison Schwanke: /K7 or again, if you don't have any extra clicks in you today, just go to the homepage and there's a button right on there, you can go see it. Cool. Let's talk about how the K7, maybe just the robots K lines are made in terms of components. So our K components sourced in relation to tariffs versus U.S.-made? William Li: So to be clear, we design everything, we engineer it, we manufacture it, we deploy and we support it. For a majority of our products, if not all of them, were BAA or Buy American Act compliant, and that is the strategy for these machines. And need to be careful with other companies that love to import stuff from China and then have that surveilling your own property without the proper cyber controls or point of origination type of discussion. And so we're being very careful with that. This is technology built and designed in America to protect Americans. Alison Schwanke: Let's talk about the facility that we have here. We have a couple of questions on if it's available to come in for a tour if people aren't able to make it to the event. William Li: I think we're going to have to set that up because we get that request a lot. I haven't talked to you about this, but -- so April 4 or -- April 4. Alison Schwanke: The first week in April. William Li: First week in April is probably the next time we'll do an event. So that will be our 13th year anniversary. So we'll work to have Apoorv do some karaoke that night and get you all here to visit us here at Knightscope. What we want to do for our prospective clients and existing clients is actually have the facility amenable to or set up properly for you to understand and view the technology. You can only PowerPoint and Zoom people to death and e-mail them so much. Sometimes they need to come and see and touch and feel and experience. So we're going to be spending the next probably 3 to 6 months finishing up the setup of what's planned here for Knightscope headquarters, and we'll certainly have an invitation out for you. Alison Schwanke: Robert has a question about our sales force. Have we reassigned your sales force to specialize in different industries, federal, state, et cetera, or local governments and education kind of in the vertical strategy, I guess? William Li: Mixed bag. So we've tried vertical only sometimes has been successful. We've done more regional. We just brought on a new director who specializes on local and state. So kind of a mixed bag, and I think we'll continue to do that. Again, this is new technology. No one in the history of mankind has done this before. So there's a lot of experimentation. Something that works in one region may not work in a different region or one vertical in another vertical. So kind of working our way through that. Alison Schwanke: Do you feel the new K7 will put our competitors such as -- I won't name the competitors specifically in this call, but will we put the competitors in the rearview mirror? And if so, how? William Li: What competitor? Alison Schwanke: Do you want to name them? William Li: No. I don't acknowledge any viable products out in the field. Millions of hours of operation. I'm kidding. So I think first and foremost, most people don't like the next assertion, but we're serious about making the U.S. the safest country in the world. Anyone and everyone who's trying with a new public safety technology, a new law enforcement capability or physical security, we want to support them. We're not that company. It's like, oh, well, everything is cut-throat. It's a zero-sum game. And if you win -- if we win, you lose and you win, we lose. That's not the game here. I want to make it miserable for anyone who wants to cause harm to an American citizen to understand that they can't do that here anymore. And so we want to be supportive. We're always going to have some fun conversations with competitors and so-called competitors. But I think we're very confident in the K7 and its capabilities, and we're also excited to get it out on the road. Alison Schwanke: Competitive-wise, one of the things that is important for us to remember that substitute competitors and our people's perceived behavior and the way that they've always done things is one of our biggest competitors. William Li: That's a great point. I think the actual real problem and kind of what I told Congress on when I was on Capitol Hill is the biggest fear I have of AI is not the technology. The technology is moving very quickly in an exciting fashion. The actual problem is humans. Humans don't want to change. Large organizations don't want to change. I don't think it's new news, like we've been arguing with the Department of Veterans Affairs for 5 years now. I literally went to go see the Secretary of the VA to continue to plead our case, to spend half a decade to try to convince a client that you have a problem you have a budget problem, you have a staffing problem, you have a security problem and the organization continues to want to do business the old way is problematic. And so that's why I've been pushing for a national robotic strategy to basically be that catalyst for the federal government to unstuck this because this continues to happen. And it's not just us. It's everyone that's working on robots or automation or AI or any kind of technology. You have an industry that doesn't want to change. And new news coming for you, it's going to change one way or another. Apoorv Dwivedi: Yes, I think that's what I mentioned earlier in my -- when I opened up the financial themes. The adoption is uneven, especially in the safety and security world, right? And as you mentioned earlier, the more people, the more industries that are out there adapting and adopting to what robots and machines and technology can help them with, the easier actually it becomes for us to go out there and put forth a value proposition. Otherwise, we are competing again against status quo and sometimes it's a harder sell. William Li: Actually, I'll go down a path. I think we shared this with the analysts, I think it would be fair to share it with the audience here. If I can have you visualize a bar chart, and if I put a very large bar here of 3 companies, top 3 guarding companies in the U.S., 1/3, 1/3, 1/3, plus or minus, these 3 companies alone generate, what is it? Apoorv Dwivedi: $30 billion. William Li: $30 billion worth of revenue and employ 0.5 million humans in the U.S. alone. Now if you go over here and you make a little chart here, if you add up all the competitors, folks that have new technologies, anyone working in public safety, law enforcement kind of technology, physical security, you're like almost about 1% of this. And that's pretty much stayed steady for a decade. And that proves my point. Folks don't want to change. The countries addicted to video management systems running Windows are humans and cameras. And then we're wondering why everything costs so much and a violent crime occurs every 26 seconds and a property crime every 4 seconds. Like the system is broken. You've got 1.5 million guards, 1 million law enforcement professionals, 85 million cameras, 300,000 cop cars, not working. We need to change. Alison Schwanke: So this is a question that most likely a lot of companies like us receive, but it goes to you, Bill. Some of these goals, Bill has been saying for years, we've struggled to deliver on them. Why will this time be different? William Li: So I live here in Silicon Valley. There are 22,000 start-ups here, literally 95% fail. So the statistical probability of someone starting a company, getting it funded, growing it, taking it public and still be alive and kicking 12, 13 years later is almost near 0. So first and foremost, I want to thank our investors that have stayed with us all this time, our vendors, our suppliers, the relentless Knightscope team and all our supporters because what we're doing is technically very difficult. Operationally, it's extremely taxing and there's an industry that doesn't want to change. That said, now that we've built that foundation that Apoorv was speaking of earlier, now we have that foundation to actually grow to the next level. I think another thing to put in context, people take for granted that the autonomy side is kind of really easy to do. Okay. Well, about half a dozen folks have tried to literally do what we're doing and no longer exist and given up. And half of them were large corporations and half of them start-ups. I think on the self-driving type of thing, started 2007, '13 started getting some traction. Everybody will be in a self-driving vehicle by 2020. Hey, folks, it's almost 2026. Like it's not scaling across the nation. There's some great progress being done by the team over at Waymo, at Nuro, et cetera. But -- and by the way, the team at Tesla is doing awesome work, but it's extremely difficult problem. So if you think this is just going to over 1 decade, just miraculously appear and it's going to work and Bill just keeps saying the same thing over and over again. Well, you can take it 2 different ways, like Bill is delusional. This will never work. You can try to bet against us, you will fail or maybe he's on to something and this is just going to take some time, but if we can stick with it, crime is not going away. Like there's not a market risk here, right? Technology, yes, can it be improved? Sure. And the last part of the risk is execution, and that's what we really need to focus on. So yes, I've been saying it for a long time. We're focused. We're relentless. And because we're focused and relentless, we're going to get where we told everyone we're going to go. Is it taking longer than we want? Sure. The team at Tesla has promised all kinds of things. Eventually, they get there. And we applaud them for that effort, and we hope to follow in their footsteps. Alison Schwanke: So this question follows that up, might be more in my territory, but Francis says, what are some of the new marketing strategies? William Li: First marketing, new marketing strategy. Go higher [indiscernible] marketing that's a genius. So go for it, Ali. Alison Schwanke: Sure. Well, thanks for that question. There is a lot of foundational work that we are building right now. We have a lot of focus on data and integration of systems to see the whole entire customer journey across the -- knowing about the product to even creating demand and then eventually through the customer experience. So I have got a lot of things planned out for next year. Right now, we're seeing the K7 launch as you've seen hopefully in your e-mail and on social today. But we have a lot of vertical work that we're doing, pairing that with a lot of content and then the new focus on how people are actually finding information online. So we've got -- search engines are changing. We're now looking at how that feeds into ChatGPT and AI discovery. But ultimately, you're going to see a lot more of us at the industry-specific presence next year. So we've got a big focus on trade shows and events and field sales as a lot of people are getting a little bit tired of that digital environment. So we're going to see a lot of more faces in person. And just like we had yesterday here on site with the group that came and toured, lots of excitement. And I think we're seeing the public wake up to the idea that robots are here, and we need to see them in person. William Li: Yes. Robots will be everywhere, taking a little longer than we want. We'll get there. Alison Schwanke: Yes. We're also working on some content production. So we're working on a podcast studio. This is a make shift set up today to show you the K7, but we do have some details that we're working on so we can create content and actually use some of that AI. William Li: Are we getting Apoorv on TikTok? Alison Schwanke: He already knows how to do karaoke, but I'm really excited as a strategic marketer to build out a team that's really data-focused. So Apoorv and I speak the same language of if it's not a number and it didn't actually put up on -- end up on a report, it didn't happen. So that's a big difference that I'm bringing to the team here. William Li: Excellent. Alison Schwanke: All right. Well, we have a couple of questions about drones. So this person has been following for about 8 years. Now are we thinking in surveillance? Is surveillance drones, are they possible? William Li: There's a lot of companies that have been working on it. There's a few technical issues that folks are overcoming. I think you still have the end user desire not to change. There are some law enforcement agencies that have been using it, drone as a first responder. I'm excited to see that work being done to kind of enable a different approach. I think eventually, there'll be drones flying out of these machines. But for persistent 24/7, it's not really yet a thing in the physical security side of things, which is different than law enforcement. I think on the law enforcement side, there's certainly a lot more traction. I think the opposite on the federal side, it's not the drones or drone capability, it's the never-ending drones showing up on military bases that aren't supposed to be there. And so there's actually a more poignant approach on anti-drone technology. And it's getting to be a real serious problem for all the military bases. I don't think this is kind of new news, but there's -- I won't give you the number, but there's thousands of foreign nationals that try to get on U.S. military bases every year. And those bases need to get hardened, not just from the human element, but from the drones as well. Alison Schwanke: There's a question here about our goal of achieving 100-plus K5s in the field. And this was a goal several years ago, but it doesn't seem like we're there. What are the greatest obstacles? Apoorv Dwivedi: I mean I think the -- we have more than 100 total ASR devices out in the field. Really, the biggest challenge comes out to adoption, right? It's the same theme that we go across when you have new technologies. We have certain early adopters that continue to renew and continue to expand. And then there are certain places where we still struggle because, again, it's such a new territory for our potential clients that they just need to get more comfortable. Again, it's just time, as you mentioned earlier, Bill. We just need time to be in the open. We need time to be in front of customers and clients, and we need them to see this our devices in front of them. William Li: So I shared that with Ali when she first joined and woe is me, we're having struggles with these type of clients or having struggles with these type of clients. And I don't understand, we've had clients renew for 3, 4, 5, 6, 7, 8. I think we're coming on a ninth year renewal with the same client. She's like, I want to hear about the struggles. Who are the people that keep renewing for half a decade or almost a decade, like we need to go understand that better. And that's the kind of right attitude and question to ask and kind of where we're going to be very much focused. Alison Schwanke: Yes. And some of the anecdotal feedback from the field is we're seeing a lot more adoption of the technology of what it can do versus it being sort of a shiny object. So I'm really excited for that we're seeing a lot of that happen. William Li: And because there are a lot of investors on the call, I think one other analysis that Apoorv and I did when he first arrived is for those clients that did renew for 3, 4, 5, 6, 7, 8, 9 years, what do the financials look like for those units? And actually, it's lucrative and kind of what we planned. So we're just going to need to do a rinse and repeat on that type of approach. Alison Schwanke: We have one question about maybe what can be done to overcome the fear of the robots. I think it's maybe a general question. William Li: Congress asked me the same thing. I think there's one soft thing to do and then one harder thing to do. The soft thing to do is just communicate, spend the time, do the webinars, invite people over, do the lunch and learn, educate, put out the content, get people to share the content, for places that we've been deployed for a long time, people are bored with it because it's -- yes, it's a robot. It's supposed to be here. It's fine. Move on to the next subject. For a lot of places where we go, it's still a novelty. It's something from science fiction that's off the movie screen and now in front of me. I think educating is probably one of the most important things to do. I think the harder thing, which is my ask of the administration and the folks on Capitol Hill is we need to pass the national robotic strategy to basically have a mini mandate to require every department and agency to take 1% of their operating maintenance and service kind of budgets and thou shall use it for robotics, automation and autonomy. And this is not an ask to increase expenditures for the federal government, it's actually to reduce it. Can you please stop being inefficient with our own tax dollars and use commercially reasonable and commercially available technology that's already proven in the marketplace so we can save taxpayer dollars and you guys can still spend that money elsewhere. And if we can get Congress to actually put that mandate in, we can actually get some footing in this industry, which then has a bunch of positive repercussions. Alison Schwanke: So I'm going to put these 2 questions together. One is about who will be the customer of the K7 and then the other is a question about whether or not the red and blue lights are restricted to law enforcement, only seeing that on the video. William Li: There's no restrictions. I mean you can go look at a security vehicle sometimes has those. And in terms of who the clients are, we're not ready to disclose that yet, but probably the easiest sale you might ever get is from an existing client. So we'll probably start there and do some good amount of beta testing before we do a wider release. Alison Schwanke: Do you envision any entry into the K-12 education market? William Li: I struggle with the K-12 situation, which is different than higher education. Our country, unfortunately, can't pay our teachers properly. The schools don't have enough budget to buy the appropriate computers and tools. And then someone is going to show up and say, you need 6 or 7 figures to come out of nowhere to pay to properly secure this facility. Like this is more of a almost now defunct Department of Education discussion because the schools don't have the budget to do it. That's kind of the first issue. Second issue is we operate primarily very well in 24/7 operations. So health care, casinos, airports, et cetera, work a lot better for us. K-12 don't necessarily run 24/7, I think they should, but they don't actually run 24/7. So I think that's a challenge. Where we've spent a lot more time is with universities and colleges. And sometimes there, there is the actual budget. They run closer to 24/7 and is a better match. It's still, I think, a sore point that needs to get addressed. Alison Schwanke: Can you talk about the other side of the business? It is 2/3 of revenue. I think they're asking that -- is it? Please clarify? Apoorv Dwivedi: Yes. The ECD devices continue to be the primary driver of our revenue today. It's about 60% of overall revenue. William Li: And I think there, we talked about growth being organic. It just basically blocking and tackling kind of the same approach. That said, I think we said earlier in the year that we're looking to revamp the K1 stationary lineup. Today is about the K7. Perhaps sometime in the future, we'll have a Knightscope briefing on a new product launch to discuss the K1 separately. Apoorv Dwivedi: And if I can expand on that, Bill. The other part of it is the dynamics of how the revenue is recognized across both products, right? So on the ECD devices, primarily we recognize revenue as we sell it as a transactional sale. On the robots, it's really the revenue is over a course of time, whether it's every month is 1/12 of the annual revenue or every year is the full subscription price. So as you think about that, obviously, the onetime sales of the ECDs will have a higher percentage -- it will be a higher percentage of our revenue. One of the things that company is also doing very -- as we continue to grow is how do we grow more of our revenues to be recurring. So even on the ECD side, we are growing the services side of that business solely but surely. So we're focused on things like our KEMs that allows our customers and clients to see their -- the health of their ECD devices in real time. We are expanding on the full services maintenance model that allows our clients to essentially be hands-off and pay a monthly subscription fee or an annual subscription fee for us to take care of their units for them. And we believe there's growth there. There's demand there and there's growth there. So that's going to continue to happen. But for now, because the way we sell these devices, the revenue on the ECD devices continues to be higher. Alison Schwanke: So Kevin asks, given so many of our competitors have not been successful in this area, what should we be watching as an indicator that the market has matured enough for Knightscope to succeed? William Li: So what we've been talking about is it's adoption. It's -- once again, it's boring, would be a good thing. At some point in time, there will be a tipping point where if you don't have an autonomous security robot, you're like the outcast weirdo, like the insurance company is going to look at you and go, you don't want to pay the $5, $10, $15 an hour to properly secure your facility, like we're not going to underwrite this policy. At some point, it's going to have a tipping point, no different than like you don't build a building today without fire extinguishers and smoke detectors and fire detectors and that sort of stuff. But I think what you need to really kind of focus on is adoption and use cases, and that's kind of what we're working on. Alison Schwanke: One quick administrative thing. It sounds like your microphone is a little bit lower than Apoorv and myself. So if you can adjust that for us, that would be wonderful. There's a question from Nataniel about he references like the PC was offered to the public, have we created anything for the home? William Li: So we intentionally started business to business because if you start with a new product, business to government, you will fail or like much higher risk of failing. So we started business to business. We've slowly been adding business to government, which is a different animal. Business to consumer, that's a wildly different process, wildly different marketing sales and service, distribution, price points, et cetera. I think we are slowly getting in there, but not on purpose. So we've had clients that have very large estates that look more like a business than a home or an HOA or apartment complex and that sort of thing. I think once we're comfortable with our operating in all 50 states, we're happy where we are with the federal side of things and the local and state government. We've got good penetration in all the rest of the business to business. I think we can start discussing business to consumer, but that's a very, very long time from now. Alison Schwanke: Apoorv, I think this one is for you. A financial question. Greg says, what -- this might be a typo in here, but what was the company last fourth income versus the development expense investments? If expense is greater than income, how is that sustainable? Apoorv Dwivedi: So I didn't quite catch the first part. But the second part of the question is it's -- long term, it's not sustainable, right? That's what we have to figure out is how do we continue to drive business growth, to drive business margins and then obviously drive EBITDA or net income for the -- so be positive cash flow. The challenge is we're a hardware company. Software companies can develop a product and then put it out and get 70%, 60%, 90% margins. As a hard tech company, we have to scale. That's really -- what it comes down to is we got to scale. Once we scale large enough, we can use economics on the manufacturing side, on the vendor management side, on humans and use that to then drive gross margin and EBITDA. And that's really the -- it's an execution challenge and its execution strategy for us. That's really what we have to do. William Li: Take a slightly -- maybe a different nuanced approach for 12 years on every single call, you guys don't have enough money, you're going to run out of money, you're going to hit the wall, it's never going to work. And we've never missed the payroll, never run out of money. We literally have the most cash on hand that we ever had in the history of the company. We actually have the resources now to do what we had planned to do. We're working on improving the gross margins. We're improving the product our fixed cost basis and everything else. And that's why we're excited and that's why the Board is excited is because we actually have a plan to move the company forward in a very exciting way. You don't get talent like this and the rest of the entire management team and the whole team to go work on a very difficult problem if you don't have a way to get from A to B. We've got a way to get from A to B and it's kind of exciting. So I'm in the -- that's not a conversation point anymore of, oh, well, you don't have enough cash on hand to make whatever next quarter, we're not having that conversation. The conversation now is you have the resources, you have the management team, you need to focus on execution. Alison Schwanke: There's a couple of questions around shareholder value from earlier investments. So I'll group them together, and how is Knightscope helping early investors recover losses? Apoorv Dwivedi: Continue to be investors. I mean I think this is a long game, right? So over the long course, as we continue to, again, do the things that Bill talked about, new product innovation, growth in revenue, drive margins, drive EBITDA, drive execution, our share price will reflect that over time. Again, one of the first questions you asked is why is the share price where it is? The share price isn't reflecting today where the things -- where the company is and what things that we've accomplished. It's really more of a -- there are certain players in the market that are able to influence the stock price to where it is, which is outside of our control. That being said, the only way we can continue to combat that or to address it is to really execute. And that's all we're going to focus on. Alison Schwanke: There's also a couple of questions here about pairing drones or additional technology with land-based units or pairing those with police. And so I think the questions revolve around how might we be thinking about that? Or what are your thoughts on those topics? Apoorv Dwivedi: I would say we just got to focus on what we have today. That stuff is in the future. But I'll follow your lead, Bill. William Li: I'm going to -- I'll leave it there. Alison Schwanke: Okay. Fantastic. There's a personal question for you, Bill. How are you doing as a CEO? There's been some dark times in the company history. What makes you want to do this every day for so long? William Li: Thanks for that. Yes, it's been a long 12-plus years. I think I've said this publicly, I'll say it again. I think the first 9 years, I was primarily very focused externally to just get the capital to do what we wanted to get done. And we didn't get the support here from all the VC establishment. So we turned to 35,000 retail investors to give us the capital and invest the capital where we need it to at least get to this point, and we're forever grateful. If you're upset with us, I'm upset too. We're not where we need to be, but I can't fix the past. I got to fix the future. And if you're still a long-term hold with the team, I hope you continue to do so. I think kind of is the first point. The 2 years right after taking the company public were probably the 2 most miserable of my professional career. I won't go through into all the drama associated with it. But one of our largest investors called me and he basically said, hey, Bill, this is not a leeping, leeping, leeping -- this is not a democracy, like take control and go do what you need to go do. And then a couple of our executives, [indiscernible] also called me and said like you need to like go with your gut. And one of the things I hate about getting old is getting older. But one of the things I love is having all this experience. And I think we're going to get out of the mess that was created and being extremely, extremely exciting force in public safety. And what gets me up is I made a commitment that we're going to go try to make the U.S. the safest country in the world. It sounds absolutely freaking ludicrous. But what I told Congress and what I'll tell you is now that we've worked the problem for like 12 years, we actually have a plan on how to get there. There's a line of sight on how to actually physically do it. So that gets me motivated and excited. I think the second thing that gets me motivated and excited is the people that I get to work with every day -- I get to work with and the technology that I get a chance to participate in. I love what we're doing. I know down to my [indiscernible] that we're going to be extremely successful. It's been painful, but that's what will make the victory that much sooner. Alison Schwanke: We have a couple of questions about the K7 in this market, so... William Li: So many questions about the K7? Alison Schwanke: Yes. William Li: Do you think there's maybe something there? I don't know. Alison Schwanke: We have a couple of questions about what it -- could we use it in neighborhoods? How do you keep it from, let's say, people trying to do bad things to it or harm the device? Apoorv Dwivedi: Similar to what we've done with the K5, you end up behind bars, and we have all the evidence to prosecute to the fullest extent of the law. We have and we will continue to do so. You are not to graffiti a police car. You are not to knock over a law enforcement motorcycle. You are not to break a camera or break a fence or a gate. And if you mess with the security robot, like you're going to end up a night in jail. Don't do it. Alison Schwanke: Has the IP been valued? William Li: Most people don't like this answer, but we have like maybe close to a dozen patents. I'm not a big fan. I'm going to get in trouble with the next statement. But typically, investors on the East Coast have a lot more either actual or sentimental value with patents. Folks on the West Coast like the technology moves so fast, like it's not worth it doing. We did some of the basics. If we would have just sat here and literally patented everything we could, there's probably 100 to 120 patents we could have done, and we would have spent an arm and a leg and a massive amount of staff time is not worth the trip. And I'm kind of with the Tesla team in some cases, like the technology is moving so fast. We actually want the country to be successful, like here's our patents, go do what you need to do. It's not kind of very much where we're focused. So we're not like a pharmaceutical where we have like secret ingredients. And the ingredients change. Like 6, 12, 24 months, everything is completely redone. Like why do I want to use the recipe from last year? Apoorv Dwivedi: And I think the other part is, to your point, Bill, is in a world where resources are constrained, where do you allocate the resources for the most result on your investment? Is patent protection the thing that's going to drive this company and give us returns we need. I think our view is that it probably won't. We would rather invest that money in innovation, in people, in talent, in process, and that's where we get the biggest bang. Alison Schwanke: So this question is about the way the company is evolving. And it seems -- so Michael says, it seems like the company is still engineering led. At every shareholder meeting, we talk about R&D, new product development, new tech. Have we ever -- I'll paraphrase this question. Have you really achieved product market fit or a repeatable business model? Are we fundamentally too early or better off embedded in Google X or similar? William Li: I think it's a good question. We've talked about adoption problems. But I still go back to client. It's not a $0.99 download of an app. You can get a client to pay you for 3, 5, 7, 10 years in a row, full price and continue to renew. Like I think we got product market fit. You just got to make sure that the sales team is aligned with the marketing team, is aligned with the client experience team, et cetera, to go after the market that has the best fit as opposed to trying to sell to everyone and every Tom Dick and Harry that would like a robot. Like I make fun of this, but to make the point, one of our worst clients we could ever have is the Chief Innovation Officer that has budget and needs a shiny object to show that here, she did a great job but bringing in new technology and then a year later, I don't want to renew. Well, why not? Well, you didn't fix any problems. Well, you didn't have any problems in the first place, so we shouldn't have sold you the technology. I think bringing Ali in to be like super laser-focused on getting that accelerating where we do have product market fit will alleviate that situation. I think one of our first employee, Mercedes Soria, for the first, I want to say, 10 years, she literally was like, we're too early, we're too early, we're too early. The last couple of years, we were right on time, but we better pick up the pace. She's a lot more conservative in kind of business approach than I am. So to me, that's an important gauge as she focuses on our AI strategies and the like. So it's been a long haul, like it's been very difficult. But I'm telling you, this next 5, 10 years is going to be absolutely freaking epic. Apoorv Dwivedi: And to be honest, what company grows that doesn't invest in innovation? Like how do you drive growth? How do you drive revenue? How do you drive market adoption if you're not constantly investing in R&D? I would say, if anything, we should be doing more because that's exactly where we're going to get things like the K7 and all the things we want to do with the new sets of technologies we're going to bring forward. William Li: That's right. Alison Schwanke: Well, one of the biggest pieces of the data work that we're doing is having that feedback loop actually, then feedback into a lot of the engineering. So I think that, that's going to help us position product market fit even more effectively going forward. We have one question about if we have reached out, so I'm going to read this for verbatim. Have you considered reaching out directly to President Trump? Perhaps Congress was a waste of time, but our efforts might be received better elsewhere? William Li: Tried not to give play by play on a lot of the government relations type of things. I think there's a need for an executive order. And I know this administration has used it to great effect and in some cases, maybe overused. But in this particular case, it probably needs to be both by legislation and by executive order. Remember, an executive order doesn't last. It's not a sustainable type of thing. So we will probably want to do both, but it's very difficult to have those conversations when the government shut down. Alison Schwanke: Sure. We have time for a couple more questions. There's a couple of questions here about expanding to the European market or perhaps Chile. What are your thoughts on expansion? William Li: Absolutely not. And this gets some people on the team and our investors frustrated. But listen, when we've achieved our mission, which is to secure the U.S., we're operating in all 50 states, we've got $500 million cash on hand, we're bored out of our minds, and we have nothing else to do, like we'll go work on Chile and Argentina and Japan and everything else. Having worked on 4 continents, I can tell you, forcing to go do that now, you're near 100% chance of a BTE, nearly a 100% chance of a business terminating event. This is not just software that you just go pop over in South Africa or Japan, and it's just going to work. Like tell me who's going to do all the translation? Have you done all the IHR stuff? Have you done all the import-export things? Oh, great, now you guys set up a subsidiary in Tokyo. You understand the insurance requirements there. Have you done the market research? We shouldn't be there in Americans to think our technology just sticking in Tokyo and it's going to work perfectly. We have the right font. We have the right [indiscernible] on the products and everything else. Then he's going to be arguing about transfer pricing and oh great, now we got to tell the auditors like, hey, go audit the subsidiary in Tokyo, like not doing that. And it looks great on the PowerPoint. Some bankers will push us to go do it. Absolutely, freaking not. I work for the shareholders and the Board, and I'm telling you that's a good way to cause a massive distraction and a massive level of difficulty. So that is not in the cards in the short, medium or possibly long term. Alison Schwanke: So we have several questions here that are more specific to maybe your individual situation. So I encourage you to reach out to us if that can be answered offline. But the last question we have since we'll keep you at time here is there is this concept we've talked about the autonomous security force. Is that the same thing as the K7 or isn't? What does that mean? William Li: I guess since I told Congress, I can tell all of you that tuned in, and we've been hinting at it for the past year. Apoorv has mentioned it on some remarks with the analysts. We've mentioned in some of our communications. And I think in order for us to really bring a software plus hardware plus humans approach, we really need to build the nation's first autonomous security force that can bring the entire portfolio of technologies to bear with almost every element of the human possibly involved that may or may not influence our M&A strategy. But if you're able to bring in a solutions provider that actually has a solution to fix the problem and you need to uniquely combine hardware, software, robotics, AI technologies, perhaps with a future augmented security guard, I think that probably is the right mix and one of the reasons we're very excited about our future. And now I'm going to put Apoorv on the spot and see if he'll elaborate. Apoorv Dwivedi: I mean this kind of goes back to the question we were answering earlier about like how do we look at M&A, how do we look at -- how do we become a force multiplier. The reality is when you were talking about that graph with the $30 billion and the $1 billion, it's -- one of the reasons why the technology firms continue to have a challenge in growing is really each one of us are providing one part of a really complex solution, right? Somebody's got cameras, someone's got a robot, someone's got a LiDAR detector. And if you then go to the Head of Security, we talked about this, they're like, well, now I have -- I don't know which dashboard to look at. I don't know which one is giving me the right information at the right time. And sometimes I miss things. We've come to the conclusion that really for us to be effective in the future, especially in the long run, we need to really create a fully perimeter, a secure solution that combines not just 1 or 2 things, but multiple things and multiple parts of the process of what it takes to secure a perimeter, and that includes, again, hardware, software and humans. So that's what the force is going to be. It's going to be all 3 of those things and under a platform of technology, data insights that perhaps today may exist, but they're definitely fragmented. William Li: And that is what we plan to do to unstuck the adoption problem. If the clients are unwilling to adopt the technology outright, maybe we can -- not maybe, we will put it in a format that they're more accustomed to doing and will be that much more effective in us delivering what we're promising that we want to do from a long-term mission standpoint. So we're well on our way. There's, as you often say, more to come during 2026 and 2027 about that. But just think about those 3 words, and we literally mean it, an autonomous security force. Alison Schwanke: All right. Well, I think we've got some folks on the call that wanted to see more about this K7. Would it be possible for you to give us a little bit of a walkaround? William Li: We got to move the chairs. Alison Schwanke: I mean, I think that -- we've got our producer, Eric, if you'd be able to give us... William Li: You got promoted. Alison Schwanke: If you have to log up, we will continue to do this, but we'll also have additional videos online. So Bill, give us a little tour of what's behind us? William Li: This is the all new Knightscope K7 autonomous robot standing right in front of it. Obviously, it's not too small. And it has a lot of capabilities. I'm going to cut this in half maybe. First, let's talk about the autonomy side of things. It's very important for us internally and operationally, the clients don't care, the clients just want the technology to work and fix their problem. We care because we need these things to run 24/7 and autonomously recharge and be completely hands off. So there's a unique combination of sonar technology, LiDAR technology, actually multiple LiDAR is one up from here. There's a GNSS RTK with monocular camera that will help us with some visual adoption, a good amount of technology, all the camera, all the wheel encoder stuff and combine that so that we can control analogously to what self-driving car might do. And this is a next generation, all new complete do over of the [indiscernible], which we're really excited about. I was mentioning is that we've learned a lot over operating 4 million [hours]. And in some cases, it's making mistakes is how you learn. So what we ended up doing is putting a kind of test procedure in place. There is 1 or 2 or more challenging client locations where with the K5 and the older technology navigation stack, we're having some difficulties. So we literally came up with a test procedure to see if we can get the right sensor stack for the K7 to be able to successfully operate that. And on top of that, do that both in the real world and in simulation. So we're really excited about the autonomous stack on here. It's got 4-wheel steering. Alison Schwanke: So having some challenges with the [indiscernible]. So I just want to make sure I know folks are seeing a little bit late. So would you just want to hold this in your mouth when you're speaking, would that be okay? There you go. Yes. So folks that gave us questions or notes in the chat, let us know if that's a little bit... William Li: Yes, Ali. All right. And [indiscernible] on the video, tons of lights. That's also a different way of doing the physical deterrents, 360-degree view. And what we'll do over the next few months is to start sharing more about what the vehicle sees, how it operates, et cetera. I know of some folks who have already been asking like, I want to see what the detections look like. So we'll work on that. A really loud public address system, so we can do top down through broadcast messages, prerecorded or speech to text or text to speech rather. And I mention it's 4-wheel steering. This will go up to 10 miles an hour. We'll work on higher speeds a little bit later. And this is intended to handle terrains that we haven't been able to control prior. So gravel, dirt, sand, think of light-duty off-road. We're not off-roading like craziness type of thing, not a lot of crimes going out in the middle of nowhere, but enough to be able to handle something like the border or solar farms, really large environments. And so there's also something I forgot to mention here. There's a pencil zoom camera on here. We're working on some capabilities for acoustic event detection. There's maybe some other sensors that we're going to add. We'll talk about that later in an future briefing in terms of new products. But this is going to be able to handle much, much larger environments at higher speeds, providing the physical -- what we included standard is RTS, the risk and threat exposure monitoring. So we will monitor because if most law enforcement agencies or security operations centers are wildly in the shack. And as one of my friends likes to say, you have 1 million cameras and you're literally blind. You can't see because you've got too much data. So if we're able to help with that, it's going to be very important. So more to come, and we're excited to have a huge -- I don't know if it's huge, but we will see how big it's going to be this evening. We've got a good amount of friends and family coming over to Knightscope headquarters to see the K7 in person and check out our new facility and you all get an invite for April for the unauthorized anniversary, a thing that our CFO hasn't signed off on. I think other than that, we can do a wrap. Alison Schwanke: Yes, that sounds good. So we've had a lot of interest, I think, in people having touring of the K7. So in the future, we will actually do more of the video about the K7. So we've got some focus on that. And with that, any closing comments, Apoorv? Apoorv Dwivedi: Well, thank you for joining us. We appreciate the opportunity to talk to you all about what we’re going. And we are excited for you to continue to join us. William Li: To wrap it up, our investors always ask why should I be interested in Knightscope? There's usually 3 risks. Is there a market? No. Execution risk? Well, as I'’ve often said, there’s not a market risk here. Crime’s not going away. Technology, we’'re at the bleeding edge of capabilities and now we have a new strategy with that autonomous security force approach that we think is going to be a big unlock. And on the execution side, I will bet on the Knightscope team every single time. Thank you very much. Alison Schwanke: Thank you. Apoorv Dwivedi: Thank you.
Stuart Green: Hello, and welcome to ZOO Digital's Interim Results Presentation for FY '26. So whilst you're all reading this disclaimer, let me just say that if you are watching this presentation live, then we will have time at the end for a Q&A session. We'll aim for about 30 minutes presentation, and we'll have up to 30 minutes of Q&A. [Operator Instructions] So just quick introductions for those who haven't met me before, I'm Stuart Green, I'm the CEO. I was formerly the CTO and took the current role in 2006. I am a large shareholder in the business, having invested my own capital over the course of several years. Rob? Robert Pursell: Hi everyone. My name is Rob Pursell. I'm the CFO. I actually only joined in August 2025. So slightly less tenured than Stuart. I spent 15 years operating as a CFO in technology businesses. and I've worked in a combination of both private and public companies. Stuart Green: So a quick recap for those new to the story. What we do is provide both technical and creative services to -- mainly to streaming -- video streaming companies and content producers to take their content and make it available for global audiences. And on this slide, you see some of the streaming platforms that we target in terms of where the output of our work goes. We are tech-enabled, and that's the key thing that sets us apart. So all of what we do for our customers, we do through technology that we've created that makes us very efficient and very scalable. We are what's referred to in our industry as an end-to-end vendor. So as I say, there are some technical things and some creative things. We can do everything that's needed to get original content and make it available on streaming services in any languages that our customers may require. Our previous financial year ending March '25 was characterized by being a period of transition for many of our customers who have gone through strategic reviews and have realigned their businesses. And in the course of that period and until recently, we have gone through a process of restructuring our cost base to ensure that we can deliver profits and generate cash in our business. So after a period that's been somewhat subdued over the last couple of years, we're now seeing signs that our customers are coming back and are ready to start ramping up again. And there are early signs, but we feel that there are kind of green shoots there. And we are in a very good position, we believe, to be able to capitalize on that and to grow the business going forward. So what we do then just to elaborate on this a little bit, is that we -- our work begins usually when a new program, say, a TV series or a new feature film has been completed, and it's made by a production company, and our work ends when we submit the final deliverables into one or more streaming services. So what's sandwiched in the middle there, which is the scope of what we do is divided between 2 areas. We refer to them as localization services, which are predominantly creative processes to adapt things for different languages and cultures. And in the other area, Media Services are mostly technical things that we do to make sure that, that content will play properly on whichever target platform or platforms is targeted for. And as I said, we're an end-to-end vendor so we can take care of everything that's needed in that process. And those -- and that -- those 2 headings that I gave you there are really categories of a whole range of different things. And on this slide, you see the variety of different individual services that we actually deliver to our customers. So this is a complex area. These are very specialized things. We're at this position, able to do all this because we've made investment over many years. We've developed technology -- bespoke technology that helps us to do this in a very efficient and scalable way. What our customers need from us and indeed other vendors that we compete with are set out on the slide. The first 2 of these are absolute necessities. So firstly, vendors who service these big buyers to work on this very high quality and expensive content, must, in the first instance, do an incredibly good job. So they must deliver to a quality into standards that are very high in exacting. And in this regard, ZOO performs exceptionally well, and I'll elaborate on that a little bit in just a second. We receive awards. So on the top there, you see an award that we received from Netflix for being their best performing partner in the Americas in 2024. Secondly, you have to be able to do that to incredibly high standard of security to ensure that there's no chance of the content that you're working on behalf of customers leaking and going into the wrong hands. And here again, we perform at a high standard. We are classified as a gold standard under the trusted partner network, which essentially is a framework for assessing the security undertakings that a particular vendor observes. So those are the 2 kind of stats, and we perform very well on both accounts. And it takes a while to demonstrate to customers that you have that capability. So this is not something that happens overnight. It happens over a period of years, which means that the barriers to entry for new entrants are very high. The next 3 items on this list are what we see as being the emerging requirements and in some cases, the change requirements that we're seeing customers now have as they have come out the other side of this period of this fallow period as it were, look -- and as they look to the future and the kind of partners that they want to work with. So the first thing is that increasingly they're looking for partners who are technologically advanced, are progressive in the use of tech. And in this regard, ZOO as a tech-enabled business, is very well positioned. So the fact that we are embracing AI, for example, in our workflow is something that is seeing very favorably by our customers. Next, as I mentioned, we are an end-to-end vendor. That means we can do everything. And that is increasingly sought after by customers who want to simplify the supply chain. So when in the past they may have had many vendors to cover these services, what they now want is very few vendors, but each of which has to be able to do everything. So the fact that we are an end-to-end vendor and there are very few of those in the market, again, positions ZOO very well. And then finally, our customers want things faster. They want us and other vendors to be able to turn around projects much more quickly because that's dead time for them. Once they finish title, ideally, they just like to get it up on the platform. But the work that we do stands in the way of that happening. So the quicker that, that can be done, the better for them. And this is an area where we excel, particularly through some recent innovations that we call Fast Track, which we'll elaborate on more in just a moment. So by all of these requirements, ZOO is incredibly well positioned, we believe, in the market. I mentioned that the quality is a key absolute requirement. And something we've done this -- in this set of results for the first time, and we'll do it in each half results going forward is that we are publishing a quality metric. This is not a measure that we've taken ourselves. It's actually based on measures that are supplied to us by a subset of our customers. So some but not all of our customers report to us either every month or every quarter, their own measures of the quality of the work that we've done. And we basically combine those to arrive at a weighted score. And as you can see in the half, we achieved 99.9%. So that's based on measures that are accounted for by customers who together were responsible for 58.2% of our revenue in that period. So the remaining amount of that is -- was basically what we did for customers who don't give us these -- don't have such rigorous programs to measure this performance. So the takeaway here is that hopefully, this gives you the evidence on the reinsurance that we are performing at a very high standard. And we believe that these scores put us at the very top of the league table in terms of vendors who deliver these services in the industry. But more importantly, as we'll come on in a moment to talk about the cost reductions we've implemented in the business, what was absolutely critical to us as we went through that exercise was not compromising on those top 2 essential requirements that I covered previously. And as you can see, with scores of 99.9%, we certainly achieved that. So with that, I hand over to Rob to cover off the results. Robert Pursell: Fantastic. Okay. Thank you, Stuart. So hopefully, you had a time to look at the statement we put out today and this presentation is online as well. But what we're trying to do here is really pull out some of the key messages in terms of what we've done and what we've delivered in H1 this year. And I think there's 2 things really. One is that we feel that we've shown that the business has now stabilized. So anyone who's followed the company for a while would have known that the results have been quite volatile over the last few years, and we can really see that's stabilizing. And probably the key message from this half is that we've now finished this cost rationalization program. And again, this is something we've been talking about over the last few releases. And there were 2 things we had to achieve with that. One, we had to really show the improvement in profitability, start to be able to generate some cash within the business after the previous years. But also, as Stuart said, we had to do that in a way that didn't impact on our quality, on our innovation and on all those attributes that our customers absolutely demand from us. And we feel we've done that now. So we feel that we can show higher margins, and we feel that we've done that in a way that isn't impacting on our ability to grow in the future. So getting down into some of the numbers. So firstly, in the half, revenues decreased by 19% to $22.4 million. Now we expected this. And the reason for this was that in H1 FY '25, we had a lot of backlog work coming through from the writers and actors strike that happened in Hollywood in FY '24. So we had a very, very poor year in FY '24 and then that came through -- some of that work came back in the first half of FY '25. As I said, that as expected. There's no surprises there for us. But what's important to note is that from the end of H1 FY '25, so for the last 4 quarters, revenues have been stable at around $11 million a quarter or $22 million a half. So that's 12 months of stability that we've had. Now during that time, we've been completing this cost rationalization program. And what you can see here is that one of the most immediate impacts of that is that our gross profit remained at just over $10 million for the half. So that's the same level as it was last year, but on $5 million less revenue, showing the impact of what was achieved. Gross profit was in line with last year. EBITDA actually increased from $1.7 million to $2 million. So we made a higher measure of EBITDA, again on lower revenues. And I'll come on and talk a little bit more about those cost savings. So I think financially, you can see here that we've really made that difference. We said we were going to have to do a lot with the business, and that's what we've done. I've introduced a new KPI measure, we call this cash EBITDA. Okay. So EBITDA is a commonly used name. We use it to measure profitability. There are some accounting things and now there are some costs that end up being capitalized, that end up being excluded from a normal measure of EBITDA. Now for us, there are 2 key costs. One is the payroll, the pay that we pay our developers to develop our technology and our software. That gets capitalized. So it isn't included in EBITDA. And the second is property cost, property leases because of some new accounting standards that gets capitalized as well. Now for me, looking at this, we're going to carry on paying our development team, we're going to carry on paying our property costs. So these are costs that have to be funded and monthly cost in the business that have to be funded. So what I've done is I've added those back into and I've effectively lowered that EBITDA measure to account for those. And what I feel that cash EBITDA is doing for us now is really showing our ability to turn the revenue into cash. So it's in a way, it's like a cash profit. It's the cleanest thing cash profit that we've got. And the reason I wanted to show that is to show that in the half, we actually generated $0.6 million. So the underlying business model is now starting to generate cash. I put some comparators there. So you can see in H1 last year, we made a small loss of $0.1 million. But actually in H2 of last year, so the half just before the one that we're reporting, we actually made a cash EBITDA loss of $2 million, okay? And so that was on the $22 million of revenues, so the same amount of revenue as we've done this half. but a $2 million loss compared to a $600,000 profit. So I think that's a really important measure for us to keep an eye on because we need to start generating cash as a business, but it really does show us again the impact financially of this cost program that we've been doing. Operating loss, again, with that this has improved. It was a loss of $2.5 million, that's down to $1.2 million for H1, and it was actually slightly positive in Q2. So again, that improving trend is we've seen within the half from Q1 to Q2. And in terms of our cash balance, so we've ended the year with $3.3 million in -- so we ended the half with $3.3 million in the bank. It was $4.3 million this time last year, but it was $2.7 million at the end of last financial year, which was the most recently reported number. So financially, I think we've really achieved everything we set out to do with the cost rationalization program. But there are 2 parts of that. From a finance point of view, great, we're starting to generate some cash, we're seeing improvements in profitability. But we have to be doing this in a way that in no way prevents our ability to grow. And there are 2 things that drive that for ZOO. One is the quality of the work that we do, but the second is the innovation and how we are really the leading tech-enabled provider in this space. Stuart will come and talk about these a little bit more coming on. But certainly, we've already shown you the quality metrics. So there can be no doubt that we are still operating at an incredibly high level of quality in the work that we do. And we've mentioned Fast Track. So we are doing something that we believe nobody else in the industry is actually doing at the moment, and that is being able to do dubbing in 24 hours and complete subtitling in around 3 hours. Now to give you an indication, dubbing normally probably take 3 to 4 weeks, subtitling 1 to 2 weeks. So it's a real reduction in the time that it takes to do that. And that's using our technology. And we've also started to integrate AI into a number of our workflows. Now we have to do this with our customers. So within our industry, there is a lot of caution around the use of AI. But we're starting to work with them and show them the efficiency, show them what it could do and with their approval, allow us to start to use AI within their workflows. And then the final thing as well, amongst all these cost savings, this rationalization, we've gone and invested in international operations in Germany, in Korea, in India and some other locations as well. And now we've been able to get all of those people working on our platforms within our -- to the same level of quality that we would be expected to do. And that's allowed us really to help manage costs and to be more flexible. And we're going to carry on doing that. But I think the point here is that not only have we made a significant difference to the financials within the business. But operationally, we haven't taken a pause at all. We are still doing the things that made so special prior to taking out those costs. And it's a combination of those 2 that I think is the real success for this half. So a little bit of a summary in terms of the numbers, and I'll try not to get into too much detail here. But what I wanted to do is you can see in the statement the comparative, so H1 '26 versus last year's H1 '25. But as I said, that benefited from quite a considerable backlog coming in from FY '24. So what we have done is, I've shown you there the results for FY '25 H2. So the half just before the one that we're reporting. I think that's important because you can actually see that, that there's revenue of $22 million, and yes, that's increased slightly to $22.4 million in this half. But if we would say drop down, you can then see, well, on a similar amount of revenue, we've gone from an operating loss of $4 million, an EBITDA loss of $0.5 million all the way to this current half of a reduced operating loss of $1.2 million, but that adjusted EBITDA of $2 million. And like I said, even the cash EBITDA is positive. So that really, I think, shows the impact of that change and to put it into another way. If I look at the fixed cost of the business, so people, property, IT costs, we've actually reduced those by 1/3. So that's quite a substantial change for a business to go through. So that's been completed. Now to maybe mention a little bit about the revenue, you can see that there is a small growth there from $22 million up to $22.4 million from H2 to H1. And dubbing, which is part of our localization is still in decline at the moment. So that declined by $2.7 million. So excluding dubbing, all our other revenue streams from Media Services to Subtitling actually grew by 19%. So we've already started to see the growth coming back in those areas. And we do expect dubbing to come back as well. It just takes a little longer as it's more dependent on original content. That's the content that's most likely to be dubbed, but it's just taking a little while for the industry to recover with that. So hopefully, that gives you a little bit more context in terms of those numbers. And then if we come and look at even more detail, what you can see here is we split our business really into 3 revenue streams. So Localization, which is the dubbing and subtitling; Media Services, which is more of a technical service, reformatting or getting the correct formats for the content so then be distributed onto the platforms. We have a legacy piece of licensing that is still in place, and that's what comes under Software Solutions. And so there's a lot of information there to look at. I think if I could just take you right down to the bottom of those tables and look at that total number there. What this is showing is that our gross profit, the percentage of profit we're making on those revenues is up now at 45%. And previously, that was at 37%. And 45% is -- I went back as far as 2018, and that is higher than we've had really achieved before. The next highest I could find was 38% in FY '23. So when we talk about the way in which we've shaped the business, we've really been able to improve the amount of profit that we can make of the revenues. And you can see that particularly in Media Services, where we've really been leveraging those investments that we've made in India and really being able to drive up the percentage of that. So that gives you a little bit more idea about what's going on within the revenues. And let's come to the balance sheet now. I'm not going to talk too much about this other than really to maybe sort of refer you to sort of the current liabilities line. And in previous meetings, there was concern about were our liabilities too high. We've obviously gone through a period of cash going out of the business and the inevitable pressure that, that put on creditors. And along with completing that cost program, along with still delivering the same level of quality and innovation, we've actually been able to significantly reduce the amount of liabilities within the business and on the balance sheet. So that's really helping just give us a bit of breathing room on the balance sheet and normalize that position a little bit. Then the final statement really to talk about is our cash flow. You can see, as you go down there, that we've generated cash from operations and just to pickup that number, that's $488,000 of cash that has been generated from the work that we've done. But if you look there, you can see that included a $5.3 million payment reduction in payables, which again is just reaffirming the idea that we're really sort of helping improve our liquidity in that situation. And that was partly done by the cost savings ensuring that, that cash EBITDA that we're generating cash at that level, but also we were able to improve the speed in which we're doing some invoicing and therefore, reduce the amount of receivables by being paid a little bit earlier as well. So that gave us positive cash flow operations, and you can see that, that flow through right down to the bottom to an increase of -- in cash from the end of the year of just under $700,000. Final point for me, so. So in terms of how we manage the liquidity in the business, how do we cope with growth, if we needed to -- we have more business coming through and the pressures of that, that can put on us and where we have 3 main facilities. We have a financing facility of $3 million in the U.S. from HSBC. We have GBP 2 million within -- in Europe. And what this allows us to do is to when we issue an invoice, we don't have to wait for the 30 or 45 days for it to be paid. HSBC will effectively pay us a little bit in advance amount. And at the end of the period, we drawn down $1.7 million out of that, around $6 million in total. But we still have $3.3 million in the banks. We still had enough money in the bank to cover what have been drawn down. But it's just helping us manage working capital a little bit better. And also what you could see, if you look at our balance sheet, you can see that we're kind of neutral in terms of our net current asset position and that was a slight deficit. It was in that liability at the end of the year. So I think the key message really is that we've completed the cost rationalization program. It has had the impact that we said it would do on our finances. We've done into a way that it's still allowing us to deliver the same level of work with the same level of quality, is not restricting the opportunities that we're seeing ahead of us, and it's leaving us absolutely on target to meet market expectations. Stuart Green: Thank you, Rob. So I'll just say a few words about the market and the trends that we're seeing there and those that -- in particular, that are pertinent to the ZOO business. So the first thing is that there are various commentators who look at how much is being spent globally on producing new entertainment content. And they all point to that some spend increasing over time. So all commentators think there's going to be more spend on content and our assumption is that more spend means more content is being made and more content is obviously good for us because in normal times, most of the work we do is related to new original content that's produced. Just a couple of data points very recently to speak to that point. In a recent announcement, Paramount, which, as you may know, was -- has gone through a transaction with Skydance Media. And the new CEO of Paramount has said that they're going to be spending an additional $1.5 billion a year on their content budgets. And also Disney, who last week put out a quarterly earnings indicated that they would be spending an extra $1 billion a year on producing original content. So obviously, those are 2 anecdotal things, but overall, the sense that we have here is that spend on original content is continuing. That's obviously a good thing for us. That doesn't -- that's really a proxy. Looking at that as a kind of proxy for the opportunity for ZOO because obviously, we're not tapping into content production budgets. We're tapping into those budgets are being spent on localizing that content. But what we know there from research by Slater, which is a market commentator in the localization field, is that the services market for media localization is worth around $3 billion a year. And our estimates are that about half of that spend is with the major global media companies that we target. So we think that the addressable market for ZOO in media localization is roundly $1.5 billion a year. And that excludes any spend on media services, where we don't have any market commentators giving us steer on that. So that tells you the ZOO's opportunity in terms of an addressable market is at least $1.5 billion. The other things that we are, I guess, to be mindful of is that localization remains and will we believe continue to remain a key strategy on the part of our customers in maximizing the return on the investments they're making in the original content. So that's to say they're choosing to make content that they believe will be appealing to audiences in different countries. And that, of course, then necessitates that, that content is localized. We're seeing more interest by streamers in commissioning content, which is delivered live or near live. So things like sports, another time-sensitive content such as chat shows, talk shows, current affairs programs, those kinds of things. Obviously, this is an area where we can excel and as I said, I'll talk a little bit more about that in a bit more detail in just a second. In the period, we've also seen our customers actually looking to license more third-party content. And this is at a time when their output, their current output of original content is actually lower than it would be normally as a consequence of their changes in content strategy. Something that we believe will sort of ride itself probably over the course of the next calendar year. Our customers all want things faster. So there's a real push to -- for faster turnaround and they're all increasingly looking to work with end-to-end vendors. So that's to say, suppliers like ZOO, of which there are a few who can actually do all of these things for them. These things we're getting a feel for as a result of the fact that we've -- there have been more RFPs issued that we've participated in, of course, the last few months than we've seen in several years. So this is buyers getting to the point where they're now ready to look ahead and think about who they want to partner with for these services. And again, we think that this is an indication of the market starting to move again and is giving us a feel for the kind of partners that they want to work with. And those trends are all favorable for ZOO. So these all play to ZOO's strengths. Obviously, AI is something words on everyone's lips. What I say about this is that actually, we published a white paper very recently. You can find it on the website, and we also delivered a webinar to talk about it, and you can watch that too in our Investor Relations section of the website. In a nutshell, we are using AI in certain areas. It is delivering benefits to ZOO and that it's reducing the time it takes us to do the work we do, and it also reduces our cost to fulfill that work. And of course, customers are also looking for benefits and the benefits they're looking for are the same as the ones that we're looking for, namely, they would like us to be able to deliver results faster. And also, obviously, they'd be very happy to take some savings of costs. So what we're doing is share the moment -- is with those customers who we're choosing to use AI or choosing for -- or permitting us, if you like, to use AI, we are sharing the cost with them. So our costs are coming down. We're charging a lower -- a slightly lower fee. But these are -- this is -- we're talking 10%, 20% difference in pricing. We're not talking a dramatic reduction in costs. And the reason for that is that to do localization in particular to the standard that is required by our customers, it is absolutely crucial that it has human oversight to be sure that all that context or those subtleties, nuances in the source programming is not lost and is correctly preserved authentically in the adaptations to the different languages. To do that, you need people. You can use -- and then we are indeed using AI to help us in that process to make it more efficient. But this isn't a -- this is like a 90% reduction in costs and time. Those kinds of levels of reduction are possible in media localization, but only if you're prepared to tolerate lower quality. And there are some segments of the market where we don't participate where that is the case. So if you think of user-generated content, such as the kind of programming you see on YouTube or TikTok, for example, these AI systems are being used quite successfully there. But that's not our market. Our market is the high end producers and distributors of this content who demand the highest quality. And therefore, our adoption of AI is designed to be consistent with the outputs that our customers want. Just one last thing to say about AI is it provides opportunity to trim costs in certain areas, we expect that, that will result in greater market demand. There is always that opportunity that if you can reduce the cost of something, you will be able to sell more of it. And we think that, that is true here, too. We provided this little diagram to give you a feel for where we are already using AI and where we're planning to use it in the future. So AIA in this diagram refers to Artificial AI Assistance. So it's where we are using AI not to displace a traditional process, but to augment it, to assist experts to do their job, but to do it more quickly, more efficiently potentially to a better standard. So we're already using it right across -- all across, pretty much all our customers for transcription. And for some customers who have given their explicit consent, we are also using it for translation as a way to produce a first pass that will then be further worked on by human specialist immediate localization. So the blue boxes show you where we're currently using AI. The orange boxes tell you the areas that we're very actively developing and expect to deploy new capabilities in the near to midterm. The red boxes are things where we are mostly already working, but the realization of those benefits is going to come a little bit further downstream. So right across our operations, looking at deploying AI as a way to assist existing processes. And even in translation, transcription, we're not done there. This is such a fast pace, quick moving field that we have it to continue to keep track of new developments in third-party systems to make sure we're using the best of breed. So our approach is to use best-of-breed technologies where they make sense in our workflows to deliver services for our customers. So I'll just talk about we have 5 pillars of our strategic plan that we talk about every time. These are the 5 very briefly, just in terms of the progress we've made in each area. In innovation, we have been, as I said, working on AI pretty extensively, and we've also developed a new proposition called Fast Track, which I will tell you about in the next slide. For scalability, we have really pressed ahead with our follow the sun strategy. So this is a strategy that we use to move projects in the course of 24 hours from one of our facilities to the next in a very efficient, streamlined way that effectively gives us 24/7 service capability without having to pay over time to shift work in each location. On collaboration, we are working with third parties. These are just 3 of the partners we work with on technologies for AI. AWS, which you may think of as a service for providing cloud-based compute and storage services. They actually also provide a range of other services, including for AI and where they make sense in our business, we use those. On customers, we are working very closely with our customers in a number of different areas and as I mentioned, have been recipients of RFPs from several of those customers who are looking to the future afresh and want to streamline the way in which they work, which, again, is all opportunity for us. And then finally, for talent, we have part of the reductions in costs that we've been able to implement that Rob has taken you through are because we are able to move certain functions to India and operate at a lower economic cost, very efficient and scalable services. So Fast Track then. So this is a new service that we have introduced in the period. It's a service that is designed -- that we designed specifically to deal with very time-sensitive content, especially, as I said, think of sports and current affairs and so on. But actually, what we found as we pitched this to our customers is that generally, any reduction in the time it takes to perform these kinds of services that we provide is increasingly sought after. So in fact, we've been engaged by customers to deliver our Fast Track service, which is a premium service, for which we can charge a premium. We've been asked to apply that service for a content type that isn't necessarily time sensitive but the customer would just simply like to get it to market more quickly. So the way we've gone about this is by further enhancing our cloud-based workflow platforms so that we can do much more work concurrently. So we still do the same amount of work for our customers, but much more of that work can be performed in parallel. And as a result, we've been able to take subtitling down from something that would take a week or 2, down to 3 hours and dubbing from something like a month or 2 down to 24 hours. So those are radical reductions in the turnaround time, which are essential for, as I say, live and near-live content, but also are increasingly sought after for content more widely where we see great opportunities. Just by way of example, we worked on a project recently for a customer where they wanted us to produce outputs in 32 different languages in the space of 3 hours or so. So we had within our systems around 700 of our operators around the world, all working on the same project at the same time. So what our systems are doing here is orchestrating what could be enormous resource pools in a very efficient and coordinated way to be able to deliver these outputs in a dramatically reduced time frame. And our clients for this are major streaming services for which we've already worked on a number of very high-profile titles. So just wrap up then with a few words on outlook. So we're on track for achieving full year market expectations. As Rob has taken you through, we've restructured our business for growth. What we're finding is that our customers are looking for faster turnaround, as I described, and that is creating new opportunities. They're looking to -- look again at how they want to work with vendors. We've seen many RFPs coming through, which we're participating in, and we're optimistic that we will be successful in a number of those. And also in live and near-live programming, we see more of that coming on to streaming based on what we're hearing from our customers. And there are -- we're not aware of any other vendor that can offer a truly multilingual, multiservice, fast-track type solution in the time frames that we're able to deliver. So just to wrap up with investment summary. So we're a trusted partner to the biggest names in the industry. We're a technology-first pioneer which obviously augurs very well as our customers are looking more and more to work with partners that are embracing technologies such as AI. We're already working with all of the major streamers and content producers. We've already implemented AI in some of be workflows and have -- are actively working on using that more widely. So AI for us is a great opportunity. We're delivering a premium solution in a market that is seeing structural growth. And so with a leaner and more efficient organization we built through the efficiencies that Rob's described, we're very well positioned to build on this position and grow as our market recovers. Thank you very much. So as I mentioned, if you have questions that you would like to pose, please submit them to the -- in the questions section on the right side, which I think should be on the right side of your screen. Stuart Green: We've already received a few questions, so we'll just dive in and take those in the order that they were submitted. So the first question comes from Andrew. Have you finally abandoned plans for the acquisition of the Japanese services provider? Have your customers' plans for this region diminished? So for those who are not familiar with this, a couple of years ago, we had plans to acquire a partner in Japan, and that was driven by requirements from our major customers for their plans to expand and do more activity in Japan, and they essentially saw an opportunity for us to partner with that provider that we had a base in the country. So we were looking to acquire a partner to do that. Since that time, obviously, this whole industry disruption occurred. And so we put that on hold. Based on the information from our customers, they are not ready yet to really drive forward in Japan with additional activity and sourcing of content and distribution of additional content in Japan. So for the moment, we are not pressing ahead with that. But we do expect that in due course, Japan will be a strategically important territory, and we would expect to have some solution for that region. Next question comes from Chris. In your update, you mentioned increases in RFPs. Please, can you clarify how your RFPs work as to say, are they for specific projects like a TV series? Or are they RFPs that set out the basis for a contractual way if you were to work with a vendor on multiple series or films, et cetera, going forward. So the answer is the latter. So typically, these RFPs are -- they're a process that our customers tend to go through every 3 or 4 years and during which they're going to the market and they're making sure that they're working with the best vendors getting the best price, the best quality and so on with partners who can drive down that delivery time and so on. And it just happens because of the development in the market, we're seeing a whole host of these all coming through at the same time, whereas normally they'd be staggered over a longer period. So these RFPs really are -- will lead to framework agreements that will cover usually a wide scope of services over a prolonged period of time, usually several years. So they're not -- we don't usually go through RFPs for -- on a more granular basis than that, for example, a specific project. Next question from Andrew. I've noticed much of your sales team has now been lost in the recent restructuring. Does this not signify -- significantly negatively impact on your ability to grow revenues going forward? It's not quite right that much of our sales team has been lost. We have -- there are members of our sales team who are no longer with us. I mean as part of the cost-saving initiatives that Rob has taken you through, that was obviously part of what we needed to do. We believe that at the moment, we've rightsized our commercial function. And I would expect that if and when our customers come back and start to ramp up again, and we see more activity there then it may be a time at which to kind of reinvest in business development -- additional business development bandwidth. Next one also from Andrew. You mentioned revenue stabilization. Are you not concerned this will be perceived as revenue stagnation. Is there any tangible evidence you're seeing from your customers of this stagnation being reversed? You tell them? Robert Pursell: Yes, sure. So as -- I think it's obviously a valid point. Like I said, we've been at $11 million for 4 quarters. So that is a good question. I think I'd refer to one point what I said was that if you take dubbing out of it, certainly in the H2 coming through to H1, the other service lines have grown by 19%. So we are seeing growth in media services. We are seeing growth in subtitling. What we are seeing is a continued decline that's been going on for a number of quarters now in dubbing. We feel that, that is really coming to the bottom now for 2 reasons. One is that, as Stuart said, Paramount, even Disney came out and said they're planning to spend an extra $1 billion on content next year. Our customers are getting their content strategies in place. They're getting more confidence in them, and therefore, we'll see more work coming through. I think alongside that, so even today, we believe that our customers are spending around $1.5 billion in localization. So what is really encouraging is when we talk about seeing being invited to additional RFPs and being able to access maybe channels or programs that we haven't been able to before is a way of, therefore, growing that revenue incrementally beyond just an underlying growth in the market. And in terms of what are we seeing from our customers? Well, I think the biggest change really and it may be the last sort of 6-or-so months has been that previously, some of our customers are very wedded to the idea of doing localization through a number of different partners with physical studios that actors would turn up to, and that isn't the ZOO model. So that excluded us from some of those channels where they were insisting on that. As the industry is changing and they want things quicker, and what we're being able to do in terms of using technology, particularly with Fast Track, where we've been able to -- one of our customers, we delivered dubbing to them within 24 hours. And they said that was as good as anything that they would see from their premium suppliers taking 2, 3, 4 weeks to do. So I think being able to demonstrate what we're able to do with our model is opening more doors than we've seen before. And that's coming through in terms of those additional RFPs. So I really feel like there are definite green shoots in those conversations with customers, the tangible evidence is the number of RFPs that we're looking at. The fact that we're being invited to go and meet and participate in programs that we probably wouldn't have. And by programs, I mean, actual sort of channels within our customers or individual programs, and that would give us a far, far greater access to their spend. So it's a very fair point in terms of the last 4 quarters, but we do feel confident having now stabilized ourselves financially, but in a way that doesn't restrict that growth, there are an ever-growing number of opportunities out there to get back to growing that revenue again. Stuart Green: Thanks, Rob. So this is the last question that's been submitted so far. So if you do have any other questions, that will be a great time to submit them. So you don't miss your chance. So this question comes also from Chris. So I'll start this and then I think, Rob, you can probably provide a bit more color in terms of how you model and think about this thing. So Chris asked you mentioned anticipation of increased spend in new content. As this happens in the medium term, where do you see your split in revenue normalizing to, i.e., percentage split between localization versus media services. So just to give a bit of context for those who are not so familiar with our business. As I say, when content -- a project comes to us, usually, there will be some combination of media services and media localization that we have to fulfill with that. But -- and as far as we're concerned, whether the content is new or old, it doesn't really matter that much to us. It's the same kinds of services that we do to the same standards on the same time frame. So whether it's new or old, it's not that important, we don't even track it in our systems. We don't even tag it to say this is the new title versus this is an old catalog title. However, the nature of the services that are required tends to be quite different between those 2. So something that is new. So it's been newly produced, it's been produced of the current technical standards. When it arrives to us, it will never have been because it's brand new, it will never been localized. So generally speaking, our customers will want -- definitely want us to localize it. They may just want it subtitling in multiple languages, they may want it to be dubbed into some languages because it's -- there will definitely be some media services that are needed together onto a streaming service. But because it's produced to a very high and current sort of standards of quality and so on, the amount of media services that's needed is modest. So for a new content, essentially, the service lines are much more skewed towards localization than the media services. Whereas if this is old content, then usually what's happening is that a distributor, such as a streaming service, has done a licensing deal with a content producer who have some catalog of old stuff. And the deal is that for a fee, they receive that material, and it goes on to the streaming service, and they'll come to us to get that content registered to that service. If it's old, then it's been produced to standards that are not necessarily up to the required standards for streaming today, and therefore, there may be some restorative work, you could say, that needs to be done to bring it up to scratch. So for example, the resolution, if it's old TV stuff, it may be produced a standard definition resolutions. If it's going on streaming service, it has to be, at the very least, high definition standard. So there's -- so generally, there's more -- there's a lot of media services work that needs to be done there. But if this is content that belongs to someone else, a distributor or a streaming service, generally won't pay for that -- for someone else's content to be dubbed. So for old stuff, it's skewed much more towards media services. And to the extent that there are localization services that are required, they're almost always restricted subtitling. So old stuff doesn't get dubbed. So that's sort of -- that's the dynamic between -- to Chris' question between thinking about the content and how things are changing there as this new content coming through what could happen there, and the split between localization of media services. And those services have different margin switch. I'll now hand over to Rob to talk about how we think about that. Robert Pursell: Yes. Thank you. So yes, I mean in one of the slides, we split out that revenue between sort of localization and media services, and you can see that localization margin is around 30%. We've got media service up to about 76% now. So they are quite different in terms of their profitability. So that mix becomes important when you're thinking about where we go as a business. There are a number of things that play here. So I'll try and not overcomplicate this too much. But I think the first thing to say is that we probably see currently more growth potential in localization than media services. We think they'll both grow but there'll be a greater rate of growth within localization. Two reasons, again, just the growth within the market, the fact that as more original content goes to be produced again, as Stuart says, that is going to require more dubbing because of the investment that's been put in there. So that naturally increases dubbing. But also, as we're working with our customers and as they're getting more familiar and comfortable with our approach to doing this, we see ourselves being able to access more of their spend. So there's probably more growth potential in localization. Now as I said, subtitling is already growing, but dubbing has been declining in the last half. So when does that change? Yes, we think it's going to be soon, but it's an opinion. The other thing that's really happened is that our customers have stopped working with quite so many suppliers. So before they'd often go out and use different suppliers to do different activities, different languages, different services. But now they want to just really look at working with fewer suppliers who can do everything there. So that's what we refer to an end-to-end supplier. So on the other hand, we see more growth potential in localization though we expect it to be more bundling of services. So we want to do the localization and the media services as well. So I think there are going to be some changes that we see. I would expect, if you see at the moment, localization is just slightly above where we are with media Services. So let's call out almost a 50-50 split. If you go back to H1 last year, it was nearly 50% higher than -- sorry, localization was nearly 50% higher than media service. So we went from about being half of our business to 2/3. And if you actually go back into the years when we've been doing significant amounts of revenue, so $70 million to $90 million, again, you sort of see that relationship with localization is around 2/3 of the business and media services is the 1/3. So I would expect that we would see localization increase as a percentage from where it is in H1. It would probably, as a maximum go back up to being 2/3 again, but it may not quite get there because of this bundling of services. So it's going to be in that range somewhere. But until we start to see what happens with these RFPs, with these conversations that we're having other than that range, I couldn't be more specific in terms of what I think will happen. Stuart Green: So a question from Randy. Good to hear from you, Randy. Are there other large content companies you haven't penetrated but need to? You mentioned Disney and Paramount. Are there any big global ones you're not yet working with? And if not, why not? So we are already -- to some degree or other, we are already working with all of the major global distributors, global streaming services and a big U.S.-based headquartered content producers. Obviously, given what I've said about the market size, we're not -- our market share currently is very low, and there in lies obviously a great opportunity. What these RFPs, in some cases amount to is the -- is those buyers opening up certain areas of the operations, that hitherto have been -- we've been denied access to for whatever reason, it could be some historical reason, to do with relationships with certain vendors. It could be because of -- as a result of restructuring the organization, it could be because where something used to be fragmented between different international operations has now been consolidated and it's been now purchased centrally and so on. So we're seeing here opportunities for us to be able to increase our share of spend by these big players on the services that we deliver. So in terms of global companies, there are -- the major ones are all U.S. corporations. Obviously, we are also targeting content producers and distributors in other regions as well. But at the moment, the bulk of our business is in relation to large U.S. media companies. And then, Randy, as a follow-up question on the RFPs, how many different companies are competing for on each one on average? That's a good question. Generally, we aren't told that. We infer it from various things. But I guess, typically, there may be a sort of a dozen-or-so companies that are in play, and they may be looking to select 3. So that's been a case for a particular assignment that we've secured recently, where for a large volume of work, a particular customer went out and spoke to 10 or 12 partners and have selected 3 of which ZOO is one. Now the question from Andrew, do you see project visibility improving anytime soon? Robert Pursell: Yes, I would think that it would do because I think as our customers get more settled in their own content strategies because remember, they've been through quite a bit of sort of disruption, followed by not only the strikes, but also with these changing business models and what that means. But it's -- that will help -- in conversations with them, that will help give us more visibility in terms of the work that they see coming to us. And also, I think as we get more embedded in some of these channels that Stuart's saying we weren't part of before that creates, again, a more reliable stream of revenue. I mean the nature of our business is that we work on programs, and those programs could be a number of episodes of an hour long or it could be a film. So by that nature, it's pieces of work that we do. I think one of the things that we're really looking for, and this requires a shift within our customers. So we shouldn't overstate this. But certainly, where Fast Track is probably going to be most beneficial to where we've got kind of episodic content that's going out every week. More in that sort of broadcast model than traditionally what we've seen streams, and that could be sports, that could be dating shows or current affairs or something like that. Now we're currently -- we believe the only people who can actually provide localization for that, so that itself having that repeatable business is coming in every week and would again give us more visibility. So I think that -- I would hope that those things would start to give us a little bit more visibility. But as I said, you look back at the last 12 months, we've had a lot of stability and visibility. It's just that we know that that's the run rate of the business. What we've now got to do is trying to step that up and show the revenue growth. So yes, hopefully, that answers it a little bit. It's a bit up in there at the moment, but we definitely see it moving in the direction where 1 or 2 or 3 of those matters could actually help us give us a little bit more sight or confidence in the longer-term forecast. Stuart Green: We're coming in to the hour. So I'll take this as the last question. It comes from George and his question is, when the AI bubble bursts -- a big assumption, which of the multimodal AI natives would you buy? So obviously -- I don't quite know what to do with that question, but I guess what I would say is that we have -- if you look at our strategy for AI, we're taking the view that there are quite a few well-funded companies out there that are doing a pretty good job of creating technologies. And our -- the way we see the opportunity here is to evaluate those, understand, understand then some what they're good at, what they're not so good at, where the risks are, how to mitigate those risks and then how to kind of embed those capabilities within our platforms in order to deliver a better service to our customers. So we haven't done any exclusive arrangements there. What we've said is that we want to be completely agnostic. We'll just use best-of-breed. So for example, I mentioned that we're already using for certain customers on certain content, we're using AI to do the translation. But we're actually choosing different platforms for different languages. So we find that, for example, for Latin American Spanish, the best platform is Platform A, whereas for I presume French, it's platform B. So the way our systems are configured is we just -- we'll just hook in given a particular situation, whichever we believe is the best platform to use. And what that means is, over time, obviously, we're continuing to evaluate these with each new iteration of the technology to make sure we always know which is the best of breed, and we can make sure that we're using the most appropriate solution. So I'm not sure, George, that we would actually go out and buy something because I think that in -- I guess your question is if the bubble bursts and all the kind of funding evaporates, what would you do that? Well, I guess we'll cross that bridge when we come to it and if I should transpire, then there may be some interesting assets to pick up at a much more interesting price that you'd have to pay today. With that, I think we should call it a day. Thank you so much, everyone, for joining the call, and we hope to see you next time. Robert Pursell: Thank you. Stuart Green: Thanks a lot.
Operator: Good day, and thank you for standing by. Welcome to Wix.com Ltd.'s Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising when your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Emily Liu, Head of Investor Relations. Please go ahead. Emily Liu: Thanks, and good morning, everyone. Welcome to Wix.com Ltd.'s Third Quarter 2025 Earnings Call. Joining me today to discuss our results are Avishai Abrahami, CEO and Co-Founder, Nir Zohar, President and Co-Founder, and Lior Shemesh, our CFO. During this call, we may make forward-looking statements, and these statements are based on current expectations and assumptions. Please consider the risk factors included in our press release and most recent Form 20-F that could cause our actual results to differ materially from these forward-looking statements. We do not undertake any obligation to update these forward-looking statements. In addition, we will comment on non-GAAP financial results and key operating metrics. You can find all reconciliations between our GAAP and non-GAAP results in the earnings materials and in our interactive analyst center on the Investor Relations section of our website, investors.wix.com. With that, I'll turn the call over to Avishai. Avishai Abrahami: Thanks, Emily. With Vibe Coding and our decades of proven expertise in democratizing emerging technologies for everyone to enjoy, we will be able to deliver products that unlock entirely new value for small businesses and people. Let me start by setting the stage. When I think about Vibe Coding, I try to simplify things by breaking the world apart into two categories. One is the developer sphere. This is Claude code, cursor, Windsurf, and all these tools which are great for engineers. These tools integrate directly on the source code of a project, enabling complex technical programming which requires significant user expertise. The second sphere is where everyone else lives. The majority of humanity who do not code or even think they can code. Suddenly, with Vibe Coding, they can create pieces of software that improve their personal lives or help to build their businesses, all by simply using natural language. For example, a school teacher can create a custom app to track attendance and post grades. A neighborhood restaurant can build an application to handle their staff schedule, another to manage vendors, another to sort inventory, and so on and so forth. These people can now build any type of application they need or want with zero coding knowledge. Bottom line, Vibe Coding is unlocking access for regular people to build software intuitively without any technical barriers. This story sounds exactly like Wix.com Ltd.'s story back in 2006. We did not invent websites back then. They were already widely available, but only to big companies with engineering budgets. There was an absolute barrier for the average person. We knew there was a way to enable an online presence for everyone. This was and still is the mission of Wix.com Ltd. We intend to do for software what we did for websites, enabling everybody to build applications without any need for a developer. What's different today is that the software application market is many, many times bigger than the website creation market. Think about it. That same neighborhood restaurant needs only one website, which they likely built on Wix.com Ltd., but they may need many applications to successfully run their business. Up until now, creating the application a business owner may want has been too expensive or completely inaccessible. Without this new tech, it probably would never have been built. We are already seeing this huge opportunity materialize as the AI-powered app building space has grown exponentially over the past year, and we are taking a bigger and bigger piece of this pie. Base 44's share of audience traffic increased from almost nothing to more than 10% in October. Among local tools, Base 44 is quickly proving to be a leader and the best solution on the market today, with enormous white space still ahead. Base 44 is also getting better fast. We recently launched our new builder, transitioning Base 44 from a predominantly user-reliant tool to an expert developer partner for everyone. The new builder represents a fundamental architectural advancement moving to an agent decoding environment with multi-agent layers. Base 44 can now validate, debug, refactor for performance, and fix its own work, making app creation faster, smarter, and more powerful than before. Please do not mistake my obvious enthusiasm for Base 44 and the AI-powered app building opportunity as lack of excitement about Wix.com Ltd. It is no secret that we intended to release a new flagship product as early as this summer, and as CEO, I am clearly unhappy that I still cannot share it with you today. However, seeing it in our labs gives me more and more confidence that the wait will be worthwhile. I expect it early 2026 and truly believe that it will deliver great value to our users. I want to impart one last thought about the massive importance of building products that allow humans and AI to work in tandem. People building big tech projects, creating websites, or developing applications, whether engineers or not, need to be able to control the outcome of their creation. This is why we continue to put a huge emphasis, both at Wix.com Ltd. and at Base 44, on curating the right combination of visual editing capabilities for humans and powerful AI Vibe Coding. This combination will allow for high-quality outcomes with less iteration, while giving humans the right level of control and calibration. The future of creation will be interactive, intelligent, accelerating, and we're just at the cusp of this transformation. With that, I'll turn it over to Nir. Nir Zohar: Thanks, Avishai. We are pleased to see the new user cohort behavior in our core business from the first half of the year continue through Q3 and into October. These robust cohorts have been a key driver of our top-line growth, fueling the momentum we've seen throughout the year. They also provide a solid foundation for continued growth as we move into Q4 and 2026. Organic traffic continued to improve as more users actively searched for Wix.com Ltd. online, underscoring Wix.com Ltd.'s continuously improving brand awareness and top position platform for web creation. Solid traffic from paid channels also drove higher traffic as we cap robust demand while operating within our TROI guardrails. New users purchased more advanced website subscriptions, adopted more business applications, and purchased longer-duration subscriptions at an accelerating clip, demonstrating the growing trust our users place in Wix.com Ltd. With new cohort bookings following a similar shape to the second quarter cohort, cohort growth continued to trend strongly through the third quarter. We also welcomed our first full quarter of new Base 44 cohorts under the Wix.com Ltd. banner in Q3, which performed better than anticipated. As the Vibe Coding market has exploded this year, Base 44 has meaningfully outgrown most peers. We now estimate our share of audience traffic to AI-powered application builders to be more than 10%, up from low single digits in June. This growth in a matter of just months is a result of a fantastic product with organic reach supercharged by our expertise and investments, as well as the application of Wix.com Ltd.'s proven strategic playbook to Base 44. In addition to establishing a dedicated customer care team and expanding Base 44's R&D capabilities, we focused on building up a comprehensive full-scale brand and marketing function. Remember, Base 44 did not have any marketing motion when we acquired it in June. On day one after the deal closed, we started to apply a marketing plan that has been fine-tuned and tested over the past two decades. A key competitive differentiator for Wix.com Ltd. to Base 44. This included refining the company identity, messaging, and visual system to better reflect our market ambition. We also launched campaigns in key channels and core geographies. Compelling branding and effective marketing are crucial to growing Base 44's reach beyond just early adopters and capturing the huge white space Avishai spoke about. Returns on our initial marketing investments meaningfully exceeded expectations as demand ramped through the quarter. As a result, we were able to confidently scale marketing efforts above our initial August plan. Today, Base 44 serves over 2,000,000 users around the world. This is more than seven times more users than we had in June. Impressively, this translates into more than a thousand new paying subscribers joining daily. We now anticipate Base 44 to achieve at least $50,000,000 of ARR by year-end, an increase from our previous expectations. We also continue to see positive trends in our main geographic markets as we improved monetization of the growing population of users and conversion improved sequentially. Better monetization was also a result of healthier commerce activity in the third quarter. Transaction revenue accelerated, increasing by 20% year over year, driven by 13% growth in GPV and an elevated take rate. Merchants are continuing to opt for Wix.com Ltd. payments. The opportunity remains large as we continue to strive towards capturing and addressing the full spectrum of merchant needs per our long-term commerce strategy. To wrap it up, our solid Q3 results illustrate the durability of our core business, which remains healthy against a dynamic operating environment. It also speaks to our ability to enter new markets efficiently and effectively, highlighting Wix.com Ltd.'s innovation-first mindset and the proven first-mover advantage. I remain confident in our ability to drive long-term growth by delivering essential tools that help users, both new and old, adapt, operate, and succeed in any environment. With that, I'll hand it over to Lior. Lior Shemesh: Thanks, Nir. We accelerated growth entering the second half of the year with third-quarter results exceeding expectations. This performance was driven by strong fundamentals in our core business and an exceptional first full quarter of Base 44 under the Wix.com Ltd. banner you just heard about from Nir. The team is executing well as we build the critical foundation for sustained momentum in 2026 and beyond. There were a few highlights in the third quarter, but I'd like to start with our financial results. Total bookings grew to $515,000,000 in Q3, up 14% year over year. The strong performance was driven by robust new user cohorts joining, the existing users finding success and adopting more business applications, as well as better-than-expected results from Base 44. Total revenue grew to $505,000,000, also up 14% year over year and above the high end of our guidance range. Partners' revenue grew 24% year over year to $192,000,000, driven by continued traction among professional designers and solid studio adoption. Domains, marketing applications, and Google Workspace saw particular strength within the partners' business in the most recent quarter. Transaction revenue was $65,000,000, up a strong 20% year over year, driven by slightly improved GPV growth coupled with a sustained elevated take rate as merchants continue to attach Wix.com Ltd. payments. GPV grew 13% year over year to $3,700,000,000. Partners remained the primary driver of GPV growth, contributing approximately 55% of total GPV. Turning to the cost side, we recognized our first full quarter of costs associated with Base 44. Before getting into the details, I'd like to start by explaining the business dynamics of Base 44, which differs from core Wix.com Ltd. As Nir discussed, we are seeing top-line growth for Base 44 trend above our initial expectations. A very large majority of these users are on monthly subscription plans, a stark contrast to the more than 80% of Wix.com Ltd.'s mix attributed to annual or longer-duration plans. This translates into a linear bookings dollar trajectory for Base 44 compared to Wix.com Ltd.'s front-loaded bookings behavior. As a result, most of Base 44's bookings are expected to come in future quarters as these monthly cohorts build and renew. However, the cost associated with these Base 44 users is impacting our financials today. This misalignment between bookings and operating expenses is resulting in a short-term headwind to our free cash flow. We also anticipate a short-term headwind on operating profit as we incur startup costs and initial growth investments for Base 44 while revenue ramps but remains insignificant to our top line today. The two areas we see the most impact are cost of revenue and sales and marketing. On the cost of revenue side, we are incurring AI processing and compute costs to support ramping Base 44 demand. These costs tend to be front-end heavy as new users consume more AI tokens during their initial build phase. These expenses offset continued AI-driven product productivity efficiencies across the customer care organization and improve business solutions' gross margin. As a result, total non-GAAP gross margin in Q3 was 69%, down slightly from 70% in Q2 as expected. On the sales and marketing side, third-quarter non-GAAP sales and marketing expenses increased 23% sequentially as we built and deployed a marketing strategy for Base 44. This is a result of accelerated branding and acquisition marketing investments above our initial August plan to capture stronger-than-expected demand, particularly in the back half of the quarter. I'm very encouraged by Base 44's TROI, especially so early on, a signal of sustained user strength that isn't fully reflected in the P&L due to the monthly mix dynamic. We also saw a slight increase in non-GAAP R&D expenses, which were up 7% compared to the second quarter as a result of higher overhead, AI, and other expenses as planned. As a result, non-GAAP operating income was $90,000,000, 18% of revenue in the third quarter. This excludes $35,000,000 of acquisition-related expenses, primarily earn-out payments for the Base 44 team. We expect earn-out payments to continue to trend upwards as Base 44 AI ARR approaches the high end of its lofty previously set performance target. Q3 free cash flow was $159,000,000 or 32% of revenue. This is an increase from a free cash flow margin of 30% last quarter as we generated strong bookings and realized working capital benefits associated with the higher costs I just discussed. I expect operating and free cash flow margins to improve over time as we optimize multiple areas of our business model. Today, we're already beginning to see AI costs decrease as LLMs improve and competition continues to ramp. I expect this to continue, if not accelerate. Additionally, I expect sales and marketing expense leverage as branding investments normalize once we move past initial branding investment costs. TROI targets should tick lower as Base 44 scales too. We also expect Base 44's user and subscription mix to optimize over time. In the long term, I expect Base 44 to have similar operating free cash flow margins to Wix.com Ltd. We continue to strategically manage our balance sheet. In September, we issued $1,150,000,000 in 0% convertible senior notes due 2030. These notes follow the maturation and payback of our previous tranche of 2025 convertible notes. We expect to deploy this cash for business purposes, potential M&A opportunities, and continued share repurchases. We repurchased approximately 1,300,000 Wix.com Ltd. ordinary shares for approximately $175,000,000, underscoring our continued commitment to returning value to shareholders. This leaves approximately $225,000,000 remaining on our current authorized program. Let's now talk about how we expect to finish out the year. As healthy in our core offering, along with ramping Base 44 contribution, is setting the foundation for a strong fourth quarter. We are raising our full-year bookings outlook to $2,062,000,000 to $2,078,000,000 or 13% to 14% year-over-year growth, up from the 11% to 13% year-over-year growth previously expected. This increased expectation is driven by meaningful outperformance of Base 44, which we expect to continue as we accelerate marketing investments to capture the stronger-than-anticipated demand we're seeing today. As a result, we expect Base 44 to achieve at least $50,000,000 of ARR by year-end, an increase from our previous plan. Our guidance also assumes a stable macro, continued strength in our top of funnel, and current FX rates. For revenue, we are updating our previous full-year outlook to $1,990,000,000 to $2,000,000,000, up 13% to 14% year over year. This is a shift towards the high end of our plan, up from the 12% to 14% growth previously expected. The dynamics differ between bookings and revenue as Base 44 outperformance is offset by a continued shift in our core business mix towards longer-duration subscription packages. On the cost side, we now expect non-GAAP gross margin to be 68% to 69% of revenue and non-GAAP operating expenses to be approximately 50% of revenue for the full year. These updated expectations reflect the front-end heavy AI and sales and marketing costs against linear revenue and bookings behavior. Due to higher anticipated bookings and working capital benefits partially offsetting these increased cost expectations, we expect free cash flow of approximately $600,000,000 in 2025 or 30% of revenue for the full year. I'm looking forward to a strong finish to 2025 as we enter 2026 on solid footing. Operator, we are now ready for questions. Operator: Thank you. And wait for your name to be announced. To withdraw your question, simply press 11 again. Please stand by while we compile the Q&A roster. Now, first question coming from the line of Ygal Arounian with Citi. Your line is now open. Ygal Arounian: Hey, guys. Good morning. Good afternoon. So a couple on Base 44. Could we just dive into the dynamics of monthly subs versus the sort of more traditional annual subs that you got for core Wix.com Ltd. and what are you seeing there in terms of churn and those subscription dynamics? And as people sign up monthly, can you get them to sign up annually more often over time? Is that the expectation? How does that change your kind of visibility into investment as some of the margins come down here? And then I have a follow-up on the cost side. Avishai Abrahami: Well, I'm just gonna have a shy. I think that as regards to the percentage, of course, at this stage, lean a lot more towards a monthly subscription than an annual subscription. And then we've also seen it in Wix.com Ltd. in the beginning. It takes time for people to trust the platform. And then they will actually feel more comfortable to pay an annual subscription. And I think we are heading in that. Vibe Coding is still so new that we are heading toward that direction. But if in Wix.com Ltd., the vast majority are annual subscriptions, then on Base 44, most of our users are still on their monthly subscription. When it comes to churn, it's very early to say, it's changing very quickly. So it's very hard to say. Obviously, churn is higher than the standard Wix.com Ltd., which almost doesn't exist. Right? There's almost no churn. But if you look on a cohort basis, Base 44 is better than we expected. And we know there's so much more we can do. So we're very optimistic, and we think that churn will probably not be our problem going forward. Right, if everything continues to advance in the same way it is now. Ygal Arounian: Okay. You talked about, Avishai, in the past that these platforms are good for prototyping. But, eventually, when you have a finished product, that sort of has to live somewhere else, right, because a lot of the back-end stuff isn't developed. Is that part of the factor for churn? Then on the cost side, just on the gross margins and the AI compute, is there anything that you can do within your control outside of LLM costs coming down to keep costs down, for example, your own internal data to help build versus relying on third-party LLMs as much? Thanks. Avishai Abrahami: Well, I'm not gonna go into all the details here, but yes, there's a lot we can do in cost. Okay? It's not a priority at this stage, right? It's something that we're also investigating. I think the priority now is to build a better product and capture more market share. But I think that long term, and long is not multiple years, we can dramatically improve the cost of AI for Base 44. There is so much we can do from training our own models to do part of it, from partnerships with the different vendors, from the fact that simple reality that cost is always declining. And so I think there's gonna be a tremendous amount of opportunities for us to reduce the cost of the AI for Base 44. And sorry? And so the first part, so I'm sorry I missed that. So we do see, you're right, when you say, a lot of it is just used for prototyping. Right? And that's great. For people to actually build an application that is just for demo, for a few people, and then the prototype is the application. Right? It doesn't need scale. It's okay if it kind of like it has tiny bugs or but we are getting to a place that today with Base 44, you can really build more full applications. There's still quite a way to go on what we can do there, and how to make it even better. But we are getting to a place, and of course, we have some users that already built really large applications that have been deployed and we can see that. So if a year ago, you couldn't do Vibe Coding for anything real, and a few months ago, you could do Vibe Coding for multi prototypes. For applications, I think today we are starting to see more applications that are real and have been used on the commercial level. For websites, it's still different. I think for websites, there's still a gap that needs to be closed with Vibe Coding to build real websites that are Google-friendly, that are LLM-friendly, that are of all the privacy rules that are required by law. And a bunch of other things. And there's still quite a distance to go. But we hope to close that early next year. Lior Shemesh: You guys, this is Lior. Just a couple of small points about the cost. I think that what is interesting here is that new users coming to Base 44, they are obviously consuming more AI tokens. Right? More bandwidth as they build their apps. But what we see is a big difference between, obviously, the cost of newcomers to the one that actually continues, because they might modify, do some changes, but it's really not the same. But it means that, for example, if you take this year compared to next year, next year you're going to have much more of the recurring revenue. It means that the profit obviously will be totally different. So it's not just about the fact that, as Avishai mentioned, that we already started to see the cost of AI goes down, but it's also about the model itself that is so different between newcomers to the one that actually already built their app and just maintaining it. Ygal Arounian: Okay, guys. Very helpful. Thank you. Operator: Thank you. Our next question coming from the line of Deepak Mathivanan with Cantor Fitzgerald. Your line is now open. Deepak Mathivanan: Great. Thanks for taking the questions. Avishai, I just wanted to ask a big picture question for you. Wix.com Ltd. is pretty well positioned to kind of reengineer the web for the AI era by making a lot of small business websites kind of agent-ready. Right? Like so they can be discovered by Gemini, IGBT, and others more effectively versus the current web architecture, which includes a lot of total consumption for them. Can you talk about the vision you have for Wix.com Ltd. for this era and how you're planning to capitalize on this big secular theme for the next three to four years? What are you doing, perhaps the new product or from others in the future, to make the websites of both your current and future customers kind of agent-friendly so they can get the traffic, transactions, everything from agents? Avishai Abrahami: So, yes, you are right. I think that you're touching a very important point. We're gonna see in the next couple of years. We're already starting to see that, but it's probably going to accelerate a transition and change in many ways that you consume content website, or discover website with the content. And or just discover the content without even the website. Right? So there's a lot of things that are changing now. The first thing that we're doing in Wix.com Ltd. in order to support and enable all our customers to enjoy that new mode is that every Wix.com Ltd. website is now indexable by LLMs. Right? So we make the data available to any LLM, and there's a few formats for that. And so we ensure that CHARGEPT can actually read your content and discover your website. That's the first part. The second part is that we continuously add new standards for how to do e-commerce, the one that OpenAPI OpenAI released a few months ago, MCP, and a bunch of others in order to enable all the functionality to be available within LLMs or be discovered by LLMs. And then run on your website. In addition to that, there's a few more things that we think that how the user interface will change next couple of weeks. I'm not gonna go into details, but I think that that's another super interesting opportunity for our customers. And we intend, of course, to provide fantastic solutions for that. So if you look at it, long term, I mean, the fact that, and not just Wix.com Ltd., right? There are other platforms out there. But if you are an owner of a business and you try to build a website in the old way, you're gonna find that you're not supporting all these new standards that are coming every few months. Right? There's a new standard that you need to support to be part of the new world of AI. Then I think the platform we have to work for you really pretty hard in order to make sure that all those standards that will ensure your business visibility in this new world are part of what we supply. Deepak Mathivanan: Got it. Then maybe one quick one for Nir. Can you talk about the cohort retention trends of Base 44 and how it compares versus Wix.com Ltd. on monthly customer plans, perhaps on month one retention or monthly retention given that you have had Base 44 now for a few months? Nir Zohar: Hey. Sure, Deepak. So, you know, naturally, it's still very early. Just as you said, it's just a few months. When we look at it, we're seeing kind of similar behavior to what we know from the monthlies on Wix.com Ltd. And I would actually dare to say that it seems it's better than what you used to see at Wix.com Ltd. in the early days. So I think, you know, we are, Avishai referred to this in the beginning when he was talking about the monthlies' behavior. Our belief is that we're gonna work on a few different things in tandem that we are gonna eventually improve the dynamics. One, as we garner more brand visibility and brand recognition, it would be easier for people to transition to the annual plans and then obviously will give us more visibility and better TROI. Faster TROI, so to speak. And secondly, there's a lot more improvements we can do in creating more motivation for people to retain and strengthen their connection with the platform. And our belief is that we should see better results as time progresses. Again, it's very, very early. Deepak Mathivanan: No. Makes sense. Thank you so much. Operator: Thank you. Next question coming from the line of Andrew Boone with Citizens Bank. Your line is now open. Andrew Boone: Thanks so much for taking the questions. I'd like to touch on WixVibe and just the learnings of Vibe Coding as it relates to website creation. Do we get self-creator to that double-digit kind of target that we've talked about in the past? And then going back to Base 44, you guys just help us understand the pathway to getting margins up to core Wix.com Ltd. levels? What does that have to look like? And kind of what are the assumptions that need to take place around retention? Thanks so much. Nir Zohar: Andrew, I'll take the first one about WixVibe. So, you know, WixVibe is, you know, it's a beta of something we're trying out. And it's part of our general strategy in terms of product and understanding. Avishai spoke about this today and in the past about the higher complexity there is between Vibe Coding and building websites. All that, you know, Google-friendly as you put it, Google-friendly, LLM-friendly, matching means security, etcetera, etcetera, etcetera. And obviously, we think there needs to be a better solution there, and we're working towards this. Lior Shemesh: Andrew, with regard to the second question, I think that we need to relate to the two different components in terms of the investments that we are making. And the first one, we spoke about it before, is about the AI. And I think that, you know, I would like to take the opportunity and spend a couple of minutes in order to explain it better. By the way, for both cases, also for the sales and marketing and also for the cost of goods sold. We have a really proven track record, you know, how we can actually, over time, we can drive growth and be in a place where we believe that we can drive even more profitability. And I will try to explain. So with regard to the AI cost, you know, I kind of spoke about it before. We see a very strong user demand. Very important to mention that both of the investments, also sales and marketing, and also the AI cost, which is a part of the cost of goods sold, are both driven because of a very, very strong demand. As we know, you know, from an accounting point of view, we first recognize the cost, only later recognize the revenue. So by definition, when you have such a hyper-growth business, you recognize more cost at the very beginning and then you recognize the revenue over time. So by definition, we are going to see a higher profitability in a later stage. But at least at the very beginning, you know, this is the situation. Also, in terms of the AI cost, I, you know, kind of spoke about it before. New users consuming more AI tokens. So it means that the more that we have more customers, and that are maintaining their application and stay with us in terms of the application, so obviously, we are going to see that their margin profile is much better than the new one. But right now, all of the customers, most of the customers, because it's such a new platform, are new. So we all understand this situation. The other thing is about the cost of AI. We've already started to see, we're going to see more players in this market, which eventually is going to lower the cost. So I believe that we are going to see that dramatic change in terms of the overall cost, which obviously is going to have a positive impact. Very much that you saw, we saw at the very beginning when we started the business at Wix.com Ltd. The hosting was totally different in terms of its cost. Right? And today is much, much, much more profitable than it used to be in the past. With regard to the marketing, it is really the same methodology as we use at Wix.com Ltd., meaning that we invest in marketing based on TROI. So it means that when you have such a hyper-growth business, you invest more right now in order to capture the demand under the TROI methodology. Meaning that we are not investing money in marketing and we don't see short-term returns. And this is something that is really important to mention because when you have such a growth, you invest right now more, you're recognizing the cost immediately and only after you recognize the revenue. In order to summarize everything, I think that already next year, we are going to see improving margin as a result of that. But yes, I mean, we are going to see some pressure on margin in the short term. Definitely because of all the reasons that I mentioned before. We are going to see that the TROI targets are optimized, we are going to see that AI cost decrease, we are going to see Base 44 mix of customer change. All of that is going to drive the profitability to be very similar to the one that we see in Wix.com Ltd., and we strongly believe because we've been there. Andrew Boone: Thank you. Operator: Thank you. Our next question coming from the line of Josh Beck with Raymond James. Your line is now open. Josh Beck: Yes. Thank you so much for taking the question. Maybe, you know, following up on Lior's comments there. You know, when we look at kind of the Q4 gross margin guidance implied, I think it's something on the order of 66% or so. And, you know, assuming that, you know, creative core subscriptions are kind of in the mid-eighties, it would indicate, you know, a pretty big difference for Base 44, which, as you mentioned, I think it has to do with this hypergrowth dynamics. You have effectively these new cohorts being the vast, you know, majority. So should we kind of assume that as long as this is in a hypergrowth phase going from $50,000,000 to $100,000,000, yeah, there should be kind of this drag and not until we get beyond that phase, it goes away just kind of any other guidepost to kind of help us think about the duration of this drag would be great. Lior Shemesh: It's a great question. You know, it's I think that it's kind of interesting because this kind of drag is a drag that we really like. Right? Because it's coming from very high growth, and I believe that also profitable growth in the future. I think that it's too early for me to say because, yes, you're right. The more that we have very high growth, it means that we have more new customers that are building the application, and it's more expensive, as I mentioned before, from recurring customers. But we also see quite a big decrease in the AI cost. But also in terms of our ability, for example, to do changes in our model in order to take the margins up. So it's really hard for me to answer the question. It really depends on what is stronger, meaning the growth effect or the ability to actually reduce the cost. But I do believe for sure, looking at the trends right now, that I believe that the margins will continue to improve as we already started to see that from Q3 to Q4. Josh Beck: Okay. Very helpful. And then maybe just a follow-up. On the pricing construct. Obviously, we can all see the Base 44 pricing and, you know, the freemium and some permutation of good, better, best. You know, is that at a point where you're still experimenting? Or, you know, do you feel like if you were to take one of these plans and kind of run out that customer's life cycle that it already does have, you know, quite attractive profitability built in, or are you still tweaking the pricing? How are you thinking about that? Nir Zohar: Hey, Josh, it's me. Again, I think, you know, it's very, very early. So naturally, you know, we're just gonna be testing different things and different ideas. And see what lands the most balanced and smart optimization between the margins and the financial results. And our top priority, which is grabbing market share. Josh Beck: Very helpful. Thank you. Operator: Thank you. Our next question coming from the line of Ken Wong with Oppenheimer. Fantastic. Thanks for taking my question. Maybe first, just as we think about that bookings guide, last quarter, you guys had mentioned that the majority of the raise was coming from the core. Any color on how we should be thinking about the contributing factors to the 4Q bookings? And then second, just on the profitability. I think we get it. You're a lot of upfront costs. You guys had already started messaging that perhaps less margins going forward. As we try to rattle through the higher OpEx and the gross margins, I mean, is it fair to assume that we might still see some margin expansion? Any early thoughts there, Lior? Lior Shemesh: Sure. So I will start with the guidance. I think that it's fair to say that most of the increase in guidance is coming from the strength that we see with the Base 44 business. I think that it's very much kind of different from what we've seen only last earnings. I remember it has been like five months from the minute that we've bought this business. The first earning that we had like a few months ago, we've seen the demand, but in the last few months, it's even much, much bigger than what we anticipated at the very beginning. This is why we've decided to invest more. And I do believe that Base 44 will turn out to be a significant growth driver for Wix.com Ltd. With regard to the margin headwind, yes, I believe that it will continue and let me even say differently, I hope that it will continue because it means that we are going to see a much higher demand. I think that in this case, it's really the same as what we've seen, you know, in the past from Wix.com Ltd. You know, every time that we've launched a new product, it was actually the case the very beginning with the ADI, even when we started the partners business. We saw such a huge demand and obviously we are investing in to capture it. So, yes, I mean, in the short term, we are going to see some more pressure on margin. I'm not sure where the margin expansion will start again. It is going to be 2026 or late 2026. It really depends on the demands that we are going to see for this business. Ken Wong: Fantastic. Thank you. Operator: Thank you. And our next question coming from the line of Trevor Young with Barclays. Your line is now open. Trevor Young: Great. Thanks for the questions. First one, Avishai. On the new Self Creator tool that was expected first this summer and then pushed to the fall, now getting pushed out again to sometime in '26. Can you expand on what the delays are there? Is there some sort of reimagination going on with the tool? Just trying to figure out what's going on in terms of, you know, the product launch and timing. Avishai Abrahami: Actually, most of the reason for the delay is about just fine-tuning technology. So, you know, it's solving a lot of technical challenges and bugs and making it really stable and working faster. And, yeah. So I suppose the most project was doing software, which you know, anyways, tend to be delayed, but this one to be fair to the team, right, is using a lot of new technologies that didn't exist before. And so a lot of AI stuff that never existed before. So it was a bit harder to estimate some of the effort that will go into finalizing them. I think we are beyond this point. In fact, it's kind of entering already the first stage of a closed beta within here inside of Wix.com Ltd. So I feel very confident we're gonna see it very early in 2026. And we're actually gonna have, I think, a much better product. Trevor Young: Great. Thanks for that. And as a follow-up question, on the 3Q cohort commentary trending similar to 1H, if I recall correctly, 1Q cohort collections grew 12%, 2Q was 14%. So should we assume 3Q is kind of low teens growth territory? So did something change in August and September to cause a step down relative to the 20% growth that you had flagged back in the July timeframe? Nir Zohar: Hey, Trevor. It's Nir. Not so much, actually. No. I think we've, you know, we've seen some expected seasonality. And generally, we've seen the cohorts behave as we expected. We're seeing ongoing strength going into, you know, the rest of Q3 and into Q4. Trevor Young: Great. Thanks, guys. Operator: Thank you. And that's the end of our Q&A session. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. And you may now disconnect. Nir Zohar: Thank you, everyone.
Operator: Good day, and thank you for standing by. Welcome to Kingsoft Cloud Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nicole Shan, IR Director of Kingsoft Cloud. Please go ahead. Nicole Shan: Thank you, operator. Hello, everyone. And thank you for joining us today. Kingsoft Cloud third quarter 2025 earnings release was distributed earlier today and is available on our IR website at ir.ksyulin.com as well as on the PR Newswire services. On the call today from Kingsoft Cloud, we have our Vice Chairman, CEO, Mr. Zhou Tao, and the CFO, Ms. Li Yi. Mr. Zhou will review our business strategies, operations, and other company highlights followed by Ms. Li, who will discuss the financial performance. They will be available to answer your questions during the Q&A session that follows. There will be conductive integration. Our are for your convenience and the reference purpose only. In case of any discrepancy, management statement in original language will prevail. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in The U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions. And relate to events that involve known or unknown risks, uncertainties, and other factors. All of which are difficult to predict and many of which are beyond the company's control. Which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties, or factors are included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements. As a result of new information, future events, or otherwise. Except as required under applicable law. Finally, please note that unless otherwise stated, all financial figures mentioned during this conference call are denominated in RMB. It's now my pleasure to introduce our Vice Chairman and CEO, Mr. Zhou. Please go ahead, Zhou. Zhou Tao: Hello, everyone. Thank you, and welcome to Kingsoft Cloud third quarter 2025 earnings call. I am Zhou Tao, CEO of Kingsoft Cloud. In the era that artificial intelligence is implemented across various industry verticals, and reshaping the technological landscape, Kingsoft Cloud firmly established its strategic positioning and defined its development orientation. On the premise of steadily meeting the demands of model training, we have made adequate technical and resource reserves for the explosive growth of inference. In the face of the dual trends of rapid model iteration and increasing adoption of artificial intelligence, we have provided our clients with stable and efficient integrated training and inference intelligent cloud computing services. And have laid out model API business to turn inference scenarios into new growth engines. The substantial high growth in revenue and the stable profit margin level validates the steady execution of our strategic measures achieving high quality and sustainable development. First, our revenue in the third quarter reached RMB 2,480,000,000.00, with year-over-year growth rate accelerating from 24% in the previous quarter to 34 to 31% this quarter. Both public cloud and enterprise cloud achieved year-over-year and sequential growth. Among which public cloud revenue increased significantly by 49% year-over-year, reaching RMB 1,750,000,000.00. Second, intelligent computing cloud business remains on a fast development track. This quarter, gross billings of intelligent computing reached RMB 782,000,000, with a year-over-year growth around 122%. It accounted for 45% of the public cloud revenue, realizing a significant increase from 31% in the same period last year. Generative artificial intelligence and cloud are symbiotically integrated in many aspects, including technology, products, and customer cross-sales. The demand for artificial intelligence not only drives the rapid development of intelligent cloud, but also leads to the growth and technological innovation of basic public cloud and accelerates the iterative process of cloud computing technologies. From training clusters to native technologies, our computing power services, model API services, storage services, and data services have all been upgraded. Third, the Xiaomi and Kingsoft continued to offer a solid foundation. This quarter, revenue from the Xiaomi and Kingsoft ecosystem reached RMB 691,000,000, increasing by 84% year-over-year. And its proportion in the total revenue further rose to 28%. From January to September 2025, total revenue from the Xiaomi and Kingsoft ecosystem reached RMB 1,820,000,000.00. We anticipate adequately fulfilling the business cooperation under the continuing connected transactions annual quarter this year and are optimistic in the further increase of the quarter next year. Finally, our adjusted gross profit for this quarter reached RMB 393 million, representing a year-over-year increase of 28%. The adjusted operating profit turned from loss to profit reaching RMB 15,360,000.00. And the adjusted operating profit margin was 0.6%. The adjusted net profit recorded a historical positive profit of RMB 28.73 million for the first time. The company is aiming at both revenue growth and profitability improvements. As the economies of scale are becoming increasingly prominent, while accelerating the construction of intelligent computing infrastructure and technological capabilities, we are also strengthening the control of costs and expenses. Now I would like to walk you through the key business highlights for 2025. In terms of public cloud services, revenue reached RMB 1,750,000,000.00 in this quarter, making a year-over-year increase of 49%. Intelligent computing cloud business has maintained strong growth. We have successfully supported the large-scale training and inference demands of various top Internet customers providing high-quality, high-performance, high-stability, highly efficient cloud computing services. Especially for many artificial intelligence and Internet enterprises, facing the simultaneous demands for model training and inference, we have provided customers with stable and integrated intelligent computing services for different scenarios. Meanwhile, we actively expanded customer coverage and the cross-selling of intelligent computing cloud and basic cloud. In terms of ecosystem customers, we continued to provide high-quality services to Xiaomi and Kingsoft, continue to prepare underlying resources for ecosystem customers to enhance the rapid expansion capability of intelligent computing demands. In terms of enterprise cloud services, revenue in the quarter was RMB 730,000,000. We firmly believe that in today's rapidly evolving generative artificial intelligence landscape, intelligence will evolve from model capabilities to industry solutions empowering and reshaping diverse sectors of the economy. As the indispensable carrier for intelligent computing, cloud services enjoy tremendous potential for such digitalization and intelligentization. In this trillion-dollar sustainably expanding market, we have deeply explored our inherent DNA of two d enterprise services, targeted advantageous selected verticals, and geographical regions, and built core competitiveness for the future. As a result, it has received widespread recognition from our customers and the broader markets. For example, in the public services sector, we aim to become the preferred cloud partner for intelligent computing in the public services agencies and enterprises for their inference demands. Taking Qingyang City in Gansu Province as an example, as one of the eight major nodes of the national project is data web computing and a central area for intelligent computing business. We will be responsible for building the public services cloud platform in Qingyang fully empower local public services affairs with intelligence and digitalization. In the field of health care, we have achieved a milestone breakthrough in a project integrating artificial intelligence with traditional Chinese medicine clinical scenarios. Whereby not only have we achieved a deep integration of traditional Chinese medicine theory in artificial intelligence, seizing the commanding position in chronic disease management technology, but we have also verified the practical value of artificial intelligence in improving patients' quality of life and disease control rate at the clinical level. In the enterprise services sector, following the successful implementation of a landmark project for intelligent generation of bank credit reports, we continued to advance the intelligentization transformation across the entire credit approval process. This evolution extends from the single function of credit report initiation to a comprehensive intelligence system including customer onboarding, credit report generation, loan disbursement, monitoring and early warning, and post-loan reporting. We firmly believe that these proven accumulated successful experiences, market reputation, and replicable core solutions will enable us to seize a pioneering position in the emerging industry wave, build a solid core competitiveness, and achieve high-quality and sustainable shareholder returns. In terms of product and technology, in the public cloud space, we continued to enhance the technology of Intelligent Computing Cloud this quarter, strengthening the capability of the Starflow platform and made significant progress in the following three aspects. First, we have launched our model API service delivering highly available and easily integrable capabilities for model invocation and management, laying a solid foundation for the subsequent provision of diverse model service paradigms. Second, we upgraded our online model services integrating multiple open-source foundation models equipped with automatic scaling capabilities, offering a highly available inference platform. Third, we launched our data annotation and dataset marketplace, aiming to provide customers with end-to-end support for data flow and help them efficiently advance the model training process. In the enterprise cloud space, in order to meet the demand for private deployment scenarios, we have built a computing power scheduling platform, a lightweight math platform, a generative artificial intelligence knowledge base. And we have closely collaborated with WPS AI to build a trusted intelligent product architecture for public services use cases. Meanwhile, through the organizational development of the dual R&D centers in Beijing and Wuhan, we attract talents from various regions, build a talent pipeline, and maintain sustained investment intensity in the intelligent computing field. As of the end of Q3, the number of employees in Wuhan is 2.8 times the headcount back in 2022 when we first launched our Wuhan strategy. Overall, we will firmly seize the historic opportunities presented by the Xiaomi and Kingsoft ecosystem. Continue to invest in infrastructure, focus on refining core products and solutions, and to create long-term value for our customers, shareholders, employees, and other stakeholders. I will now pass the call over to Ms. Li Yi, our CFO, to go over our financials for the third quarter of 2025. Thank you. Li Yi: And thank you all for joining the call today. Before we go through the details of financial results for the third quarter, I would like to highlight the following aspects. First, revenue has consistently achieved year-over-year growth for six quarters, reaching RMB 2,478 million this quarter. This represents an accelerated year-over-year growth rate of 31% up from 24% in the previous quarter. Revenue from public cloud service stood at RMB 1,752,300,000.0, a significant increase of 49% from RMB 1,165,500,000.0 in the same quarter last year. Meanwhile, robust demand from our intelligent cloud, which is also called AI cloud business, drove around 120% year-over-year billing growth, which totaled RMB 782,400,000.0. Second, profitability has seen substantial improvement. Our adjusted gross margin rose to 16% up from 15% in the previous quarter. And adjusted EBITDA margin improved to 33% compared with 17% last quarter. Notably, we turned quarterly adjusted operational and adjusted net loss into profit simultaneously for the first time. These gains validate our strong execution in pursuing high-quality, sustainable development as well as our ability to monetize opportunities in the intelligent cloud space. Third, I would like to express our gratitude to shareholders for their support during our risk to equity financing in September. We successfully raised HKD 2,800,000,000.0. And 8% of the fund will be allocated to further investment in AI infrastructure and transfer them to general operational needs. This funding will fully underpin the growth of our intelligent cloud business and enable us to create long-term value for all stakeholders. Now I will walk you through our financial results for 2025. And use RMB as currency. Total revenues were RMB 2,478 million. Of these, revenues from public cloud services were RMB 1,752,300,000.0, up 49% from RMB 1,175,500,000.0 in the same quarter last year. Revenues from enterprise cloud services reached RMB 725,700,000.0, compared with RMB 110,000,000 in the same quarter last year. Total cost of revenues was RMB 2,097,100,000.0, up 33% year-over-year, which was mainly due to our investment into infrastructure to support intelligent cloud business growth. Addition cost increased by 15% year-over-year, from RMB 673,800,000.0 to RMB 775,700,000.0 this quarter. The increase was mainly due to the purchase of racks which is their expanding intelligent cloud business, as well as the basic computing and storage cloud demand both by AI development. Depreciation and amortization costs increased from RMB 297,500,000.0 in the same quarter of 2024 to RMB 649,700,000.0 this quarter. The increase was mainly due to the depreciation of newly acquired and leased servers and later work equipment, which were mainly allocated to intelligent cloud business. Solution development and services cost increased by 90% year-over-year from RMB 499,000,000 in the same quarter of 2024 to RMB 595,900,000.0 this quarter. The increase was mainly due to the solutions that no expansion. Fulfillment cost, other cost were RMB 5,200,000.0 and RMB 70,600,000.0 this quarter. Our adjusted gross margin for the quarter was RMB 392,600,000.0, increased by 28% year-over-year and 12% quarter-over-quarter. It was mainly due to the expansions of our revenue scale, the energy contribution from intelligent cloud, and the cost control of IBC racks and servers. Adjusted gross margin increased from 15% last quarter to 16% in this quarter. On the expense side, excluding traffic concession cost, our total adjusted operating expenses were RMB 420,900,000.0, decreased by 70% year-over-year and 25% quarter-over-quarter. Of which our adjusted R&D expenses were RMB 10,888,400,000.0, decreased by 90% from the same quarter last year. The decrease was mainly due to the decrease of personal cost resulting from our strategic adjustment for the research team, as well as the expense serving from Beijing Wuhan dual research center strategy. Adjusted selling and marketing expenses were RMB 127,600,000.0, increased by 15% year-over-year. Adjusted general and administrative expenses were RMB 104,900,000.0, decreased by 29% year-over-year due to the reverse of credit loss. The impairment of long-lived assets was near this quarter, compared with RMB 190,700,000.0 in the same quarter last year. Our adjusted operating profit was RMB 15,400,000.0, total profit from adjusted operating loss of RMB 140,200,000.0 in the same period last year. The improvement was mainly due to the of revenue scale and gross profit, the expense control, as well as the reverse of credit loss. Adjusted operating profit margin increased from minus 7% in the same period last year to 0.6% this quarter, representing an increase of eight percentage points. Our non-GAAP EBITDA profit was RMB 826,600,000.0, increased by 3.5 times of RMB 185,400,000.0 in the same quarter last year. Our non-GAAP EBITDA margin achieved 33% compared with the 10% in the same quarter last year. It was mainly due to our strong commitment to intelligent cloud development, strategic adjustment of business structure, strict control of costs and expenses, as well as the long recovery impact of subsidy in other income. As of 09/30/2025, our cash and cash equivalent totaled RMB 33,954,500,000.0, decreased from RMB 5,464,100,000.0 as of 06/30/2025. The decrease was mainly due to our infrastructure investment for intelligent cloud. This quarter, our capital expenditures, including those financed by third parties, and the right of use assets obtained in 24 finance lease liabilities was RMB 2,787,800,000.0. Looking forward, AI technology drives the revolution of cloud computing. We can more than just fulfill the computing demands of model training and inference. We also empower enterprises to invoke an API and apply AI capabilities to their business. Stepping into the phase of rapid development in AI applications and explosive growth in demand, we will further invest into infrastructure, strengthen technology, enhance service stability, and provide customers with high value-added cloud service. That's all for the introduction of our operational and financial results. Thank you all. Thank you, operator. We are now going to start the Q&A session. Please ask your question in both Mandarin Chinese and English if possible. Operator, please go ahead. Operator: Thank you. As a reminder, to ask a question, you will need to press 1 and one on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Xiaodan Zhang from CICC. Please go ahead. Your line is open. Xiaodan Zhang: So thanks management for taking my questions. And, first of all, has there been any structural change in the demand of your ecosystem and external clients for the past quarter? And secondly, how does management see the margin trend in the coming quarters? And what's the expected mix of different computing resources acquisition models? Thank you. Zhou Tao: So basically, the core of the reason behind the AI revenue growth in Q3 is that we have some clusters that, you know, partially delivered in the previous quarters, for example, like the 2025, and these clusters and these services have only been partially accounted for revenues from a full quarter basis. But now in Q3, they are starting to be recognized as full quarter revenues. And, also, there's the factor of partially delayed revenue as well. Some of the revenue which we had in Q2 but was not accounted for, and then this revenue is delayed into the third quarter. Yeah. So regarding the second part of your first question, which is about the structure of internal and external customers, I think I used to say that from a large trend general trend perspective, currently in the phase of transitioning from large and top customers' training demand to general and wider spread customers' inference demand. Most of at the current stage, we still see, you know, majority of our demand coming from the larger customers in their training demand. However, especially in the latest quarter, we are increasingly seeing the trend of our customers adopting artificial intelligence models into their diverse industries. So in face of this general trend, we have also, as we mentioned in the prepared remarks, we have launched our StaffLoad platform to meet the demands of such general trend. And this also goes back to the margin that you also asked about. We generally think that in the future, the inference demand will tend to exhibit a higher margin profile than the current stage of training. And therefore, we think that when that wave of demand comes, we expect to have higher margins. Li Yi: Thank you, Xiaodan. I think because level as a proportion of the AI business continues to rise and its cost structure is mainly dominated by depreciation, we expect this EBITDA margin will still remain above 20%. But I have to mention that the significant quarter-on-quarter improvement in this quarter was mainly driven by a one-time other income, which will return to the normal level next quarter. Thank you, Xiaodan. Operator, next question, please. Operator: Thank you. Our next question comes from the line of Wenting Yu from CLSA. Please go ahead. Your line is open. Wenting Yu: The first question is, could management share the outlook and guidance on the revenue outlook for next year? And beyond the Internet companies' post-model training and in-body intelligence scenarios that are already underway this year, which other industry and application scenarios are expected to have strong computing power demand that could drive the revenue growth next year? And the second question is with multiple providers in both China and the US increasing the proportion of server leasing in their computing resource mix, how does management view the current market dynamics for procurement versus leasing? And from a cost-effectiveness and profit margin perspective, how would the company allocate the resources between these two approaches? Li Yi: Wenting, thank you for your question. The company's budget process is currently underway and expected to be completed around the beginning of the next year. We will share the specific details with you once it is finalized. However, regarding the demand for our AI business, we are fully confident in the subsequent demand growth. And for your second question about the procurement method, we primarily align our capital channels with actual customer needs, including cluster scale, delivery time, and supply inventory level. There's no rigid total allocation target from the cost-effectiveness perspective. Both approaches have their own pros and cons. The leasing model is to find our supply chain channels and provide a certain degree of flexibility in resource allocation, with the flexibility also offered through short-term and long-term contracts. Self-procurement, on the other hand, gives us great autonomy in control delivery time rates and managing plus. It also reduces the profit sharing with suppliers, thereby, elevating our pressure on profit margin. Zhou Tao: Yeah. You know, as you mentioned that the robotics companies in China are a growth environment partly. So, you know, as you this year, we have covered most of the robot companies in China, and we can see the revenue is increasing very rapidly. In the next year, we believe the increase of the robotic companies will also be fast. Meanwhile, you know, as more and more Internet companies in China using talking token services, which is the API services, we are seeing the increase of the business is very quickly. So we believe in the next year, this will be a very important factor to driving the revenue to increase. Thank you. Li Yi: So this is the CEO. He added that yes, that is your question. Your second question is really about the choice between the leasing model and the CapEx model. So we've talked about that before. So, generally, there's a general rule of thumb. When you're looking at the larger customers, especially the customers that have solid profiles, have solid fundamentals, and are trustworthy. Premium customers, for example, like Xiaomi. We would tend to choose the CapEx model. While in other growth stage companies, medium and small-sized companies, we generally tend to adopt the leasing model. Which is also a way a meaningful way to reduce our own risk. So as we rightly mentioned, there's no kind of a top-down target for the split between these two different methods. And we also talked about in the last quarter as well that the impact of these two different methods have different impacts on our gross margins. However, we have seen the financial results for the past three quarters. Which we have adopted various combinations of these two different models. You know, especially when you compare the gross margin for the third quarter versus the second quarter, it actually also improved sequentially. So I would say that at the current stage, we do not expect material changes to the current status. But generally speaking, in the future, we do expect the margin to improve. Thanks, Anthony. Next question, please. Operator: Thank you. Our next question comes from the line of Timothy Zhao from Goldman Sachs. Please go ahead. Your line is open. Timothy Zhao: Thank you, management, for taking my question. My question is regarding the differences between AI training versus inferences. Could management share what is the pricing methodology between these two kinds of demand and what has been the part pricing trend over the past few months or year to date? And, in terms of the utilization rate of the chips of GPUs, pricing, and profitability, can you share more color on the gap between training and inferences? Thank you. Zhou Tao: Okay. Let me answer these questions. You know, we're not talking about the price strategy for inference and training. You know, there's not too much difference between two things. So the price is based on the qualities. How many resources to use, which is the most important factor. And also comparing, you know, the margin rate, you know, there are two kinds of inference services, which one is, you know, customer by resource and use our platform to influence. So that margin ratio is very similar to the training margin ratios, but another one is, you know, customers do directly by our API talking services. That we think that will have a better margin ratio. But, you know, this business is just in the beginning, so we have we need time to see what is the big difference between the two things. Thank you. Operator: Sounds good. Thank you. Due to time constraints, this concludes our question and answer session. So I'll hand the call back to Nicole for closing remarks. Nicole Shan: Thank you. Thank you all once again for joining us today. If you have any questions, feel free to contact us. Look forward to speaking with you again next quarter. Have a nice day. Bye-bye.
Operator: Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bullish Global Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Michael Fedele, VP of Finance. Please go ahead. Michael Fedele: Good morning. Welcome to our third quarter earnings call. I'm Michael Fedele, Vice President of Finance, and I'm joined on today's call by our Chief Executive Officer, Tom Farley; Chief Financial Officer, David Bonanno; and Director of Corporate Development, Liam Foley. This call will contain forward-looking statements, including those relating to our expected performance and business opportunities. These statements are not assurances of future performance. They are subject to risks and uncertainties, and our actual results could differ materially. For more details on these risks, please refer to today's earnings press release and our SEC filings, including our prospectus dated August 12, 2025. We undertake no obligation to update or revise any forward-looking statements. This call will also include a discussion of non-IFRS financial measures. A reconciliation of these measures to the most directly comparable IFRS metrics can be found in our earnings press release and presentation, which also contain additional information regarding non-IFRS financial measures and key performance indicators. I'll now turn the call over to Tom. Thomas Farley: Thank you, Michael. Thank you all for joining our call today. I'm Tom Farley, the Chairman and CEO of Bullish. We're pleased to share that Bullish continues to win. For Q3 2025, Bullish reported record adjusted revenue of $76.5 million, record adjusted EBITDA of $28.6 million and record adjusted net income of $13.8 million. As Dave will discuss here shortly and can be seen from the provided guidance, we expect more records coming for 2025 as a whole. In the last 6 weeks, our momentum has only increased. On October 31, we fully launched our options franchise and the early results are encouraging. We also launched our U.S. exchange business and have onboarded marquee customers in the early days. We have signed up many new liquidity services customers here in Q4, including high-profile crypto projects. Our index business is gaining traction with many launches of U.S.-based ETFs and other listed products tied to our benchmarks. Our media business growth has accelerated in Q4, now registering in our weekly and monthly reports as the top crypto news site globally measured by views. I will now share some context on where Bullish sits within the broader crypto ecosystem before moving on to discuss our business successes in greater depth. For several years now, Bullish has intentionally positioned ourselves at the intersection of 3 strong ongoing trends that are driving crypto evolution. One, increasing regulatory clarity with regulations that require infrastructure businesses and their customers to operate in a compliant and responsible fashion. Two, increasing numbers of traditional finance institutions operating in crypto in meaningful ways. And three, growing tokenization of major asset classes on the back of the successful tokenization of the U.S. dollar via stablecoins. We are more convinced than ever that we are on the right path. We are squarely positioned at the center of each of these trends. We are proud of our regulatory footprint and are pleased with the ongoing institutional adoption that we are helping to drive. However, I'd like to expand on this third trend, tokenization. Tokenization refers to the process of turning traditional financial assets into crypto assets. We believe this trend will be the most transformational crypto value proposition of the next decade, and we are positioned to be leaders in this space through our liquidity services platform. In fact, the tokenization trend gave rise to our liquidity services business back in 2023. The first major asset that was successfully tokenized was the U.S. dollar in the form of stablecoins. As dollars were tokenized, stablecoin issuers turned to service providers such as Bullish for help, to help them tokenize the U.S. dollar. We saw a market need for listings, liquidity and visibility as these new tokens bridge the chasm from TradFi to blockchain. We spent most of the years 2022, 2023 and 2024 in build mode to meet these needs, and we call the collection of these products, liquidity services, before tokenization was even the hot word on everyone's lips. Today, for stablecoins, we are writing smart contracts enabling bridging from one layer, one blockchain to another. We are listing stablecoins against many other assets on a compliant and regulated global exchange. We are providing liquidity both on Bullish and on DeFi protocols, and we are marketing these stablecoins through our Consensus and CoinDesk properties. In short, with our liquidity services offering, we have built a tokenization platform, and it has become our fastest-growing business. But that is not what excites us the most. The trend of tokenizing assets other than the U.S. dollar is in the first inning. These tokenization services have the potential to continue scaling meaningfully as more and more assets and asset classes are listed on chain in the years ahead. This includes substantially every major asset class you can think of. We look at the successful tokenization of the dollar, stablecoins as a road map for the future tokenization of these new asset classes. And as a partner for substantially all dollar and euro-backed stablecoins, we've learned the value of developing a rich set of capabilities specifically suited to helping that asset class tokenize. We continue to evolve our services targeted at stablecoins. For example, Bullish now has direct [ mint/burn ] capabilities with nearly every stablecoin issuer and also advanced API orchestration tools that allow seamless movement between fiat and stables, powering our partners' growth. We believe that each new asset class will also require incremental asset-specific capabilities alongside our standard offering of the 3 core services every asset issuer needs to tokenize: listings, liquidity and visibility. With this additional functionality need in mind, we have submitted an application with the SEC to receive regulatory approval as a transfer agent, which will further supplement our tokenization and liquidity services strategy for U.S. securities. We look forward to sharing more of our future plans with you over the months ahead, and we look forward to taking this tokenization journey with you. Now, excitement about our liquidity service platform's potential for future tokenization growth aside, how is it doing right now? Our services continue to be sought after. We're adding new and diversified customers, and our momentum has continued into Q4. In the third quarter, we added a record number of liquidity services partners, and our active partner count is up 100% sequentially. We're on track for another strong quarter in Q4, building on the success of our existing Layer 1 blockchain relationships with market leaders such as Solana, Ripple and TRON. We have further broadened our Layer 1 blockchain relationships that we are supporting with liquidity services, adding 4 additional blockchain ecosystems, Canton, Cardano, Midnight and VeChain to our scope of services since we last spoke. We are also pleased to share that our collaboration with the Solana Foundation continues to develop constructively. In the first quarter of this engagement, Bullish minted more than 80% of our stablecoins on Solana. And Solana's total stablecoin value locked, that is how many dollars are tokenized on Solana, grew by more than 40% during that quarter. Shifting gears to discuss our very successful options trading launch, I'd like to first take a step back and remind everyone why we are so excited about this opportunity for Bullish. Crypto options are the most rapidly growing asset class in this space. They've grown to more than $200 billion in monthly trading volume just last month, up more than 230% from the same period last year. Furthermore, given the complex nature of options as well as the sophisticated user base, we are well positioned to carve out substantial market share in this asset class, and we expect to see that asset class grow by multiples in the coming years. Turning to the specifics of our own progress. Our exchange launched in full and without risk caps at the tail end of October. In just over 2 weeks, we've already traded well over $1 billion of volume. And as of today, we have approximately $1 billion in open interest. Our best day was yesterday, where we traded $240 million, about 4% market share by our definition. I'm really excited by the traction we've attained right out of the gate, and I expect it to become a significant contributor to our financial performance going forward. Look, I've been involved with a lot of these derivatives launches over the years, including very successful ones and a few that I rather not discuss. This one has all the hallmarks of a big winner. Our last earnings call occurred less than 24 hours after we received our prestigious BitLicense. We indicated that receipt of this license marked the final step in enabling U.S. onboarding for prospective Bullish exchange clientele. We also shared that it will take time for these U.S.-based customers to go live given their institutional nature and the typical lengthy onboarding process for these types of customers. But with all that said, we are pleased to share that we've already actively onboarded many new customers, including various retail brokers with millions of customers like Webull and Moomoo, institutional brokers such as Cantor Fitzgerald, a very large crypto custodian and other institutional clients. So things are progressing more quickly than we anticipated just a couple of months ago when we last gathered. Our U.S.-based clientele value our already liquid global order book, which helped us launch without any 0 to 1 or cold start liquidity problems. We are encouraged by our early progress in the U.S. and look forward to continuing to seize market share in the months to come. Outside of the United States, we continue to make steady progress growing our exchange. During the quarter, we've added some of the largest retail brokerages in Europe, the Middle East and Latin America and integrated various crypto-focused hedge funds or asset managers that have already started trading derivatives on our platform. Shifting to information services. Our CoinDesk business continues to perform well, supported by significant accomplishments in our indices business. We are pleased to share that since our last earnings call just 2 months ago, our indices have underpinned an additional 5 of 6 total newly launched U.S.-based exchange-traded crypto products as well as 4 additional global ETPs. During the span, we also won 6 new benchmark switches from competitors and have 2 active ETP filings for the CoinDesk 20 Index. On the CoinDesk Insights or media side, we continue to successfully capture more market share against competitors with our market-leading and accessible crypto content and coindesk.com continues to be a highly sought-after destination for advertising. We have also successfully launched CoinDesk Research, a subscription-based vertical dedicated to delivering high-quality research and analysis. CoinDesk Research also serves as a natural extension and upsell to our liquidity services clientele. The thesis that we can land and expand is proving to be true. There are many examples of existing customers in Q3 and so far in Q4, choosing to take advantage of new Bullish company products and services in addition to their existing products and services. Overall, we continue to win, and we continue to execute on the vision that Dave and I laid out when we first joined Bullish. We're proud of our success to date, and we believe that we're just getting started. We're just getting started on a macro level because tokenization of securities and other real-world assets and the shift of financial market infrastructure has only just begun. And we're just getting started today at Bullish generally because we believe we have or are pursuing the right mix of licenses, technology, talent and experience to be a winner in a world that is rapidly shifting on chain. We will continue to execute with focus, discipline and momentum as we position Bullish for sustained growth in 2026 and beyond. With that, I'll turn the call over to Dave, our CFO, my partner, to review the quarter in more detail. David Bonanno: Thank you, Tom, and good morning, everyone. I'll start by walking through our third quarter results and then provide additional context about our operating performance before sharing our outlook for the fourth quarter. As a reminder, reconciliations of our non-IFRS metrics can be found in the back of today's presentation as well as in our 6-K filing published earlier today. Total adjusted revenue for the third quarter was $76.5 million, up 34% sequentially and 72% year-over-year, exceeding the high end of our guidance. Third quarter SS&O revenue, which includes liquidity services and all CoinDesk-branded products, reached $49.8 million, up over 50% versus 2Q and over 300% versus the prior year's quarter. Through the first 3 quarters of this year, SS&O revenue represents 53% of total adjusted revenue year-to-date compared to 28% for the full year 2024. Adjusted operating expenses for the third quarter were $47.9 million, down 2% from 2Q 2025. Adjusted EBITDA for the third quarter was $28.6 million, up 253% sequentially and 271% year-over-year. And lastly, adjusted third quarter net income was $13.8 million. As our business continues to scale, we are pleased with our cost control and high incremental margins, which we expect to continue into the future. Turning to our current financial performance. Quarter-to-date trading volume through November 17 stands at $126 billion with an average trading spread of 1.7 basis points. Our November month-to-date trading spreads are averaging 1.8 basis points, up from the 1.6 basis points you will have seen in our October monthly metrics. We expect materially higher transaction revenue for the full fourth quarter as compared to the second and third quarters of 2025, driven by higher volatility and increased active trading customers. Turning now to our Q4 guidance. We expect SS&O revenue between $47 million and $53 million and adjusted operating expenses between $48 million and $50 million. We remain confident in the outlook for our financial performance and believe Bullish is well positioned to deliver sustained and profitable growth in the coming quarters. Thank you for joining us today. And with that, I'll turn it back to Tom for closing remarks. Thomas Farley: Thank you very much. And as we said last time, thank you very much for your continued attention to Bullish and following along with the story. And we appreciate your time today, and we'll open it up for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Ken Worthington with JPMorgan. Kenneth Worthington: I wanted to focus on liquidity services. So maybe starting, you mentioned that the number of stablecoins doubled this quarter. About how many stablecoins are you servicing? And then also, you mentioned previously that the pipeline of non-stablecoin tokens was starting to dominate that pipeline. How do the economics look for non-stablecoin tokens compared to stablecoins? And then I'll wrap the follow-up in here, too. Coinbase launched a service related to ICOs. To what extent does that compete with your non-stablecoin promotion business? Thomas Farley: Thanks, Ken. Good to hear from you. I was probably doing my thing where I'm speaking too fast. The -- just to clarify your question, actually, the liquidity services figures, high level that I quoted refer to all liquidity services customers. That is to say we are not saying we doubled our stablecoin customers. In fact, off the top of my head, my guess is that we did not double the number of our stablecoin customers. We doubled the overall. So inclusive of, for example, the 4 Layer 1 blockchains that I described as well as stablecoin issuers. So -- but just to answer maybe the thrust of your question regardless, we continue to add stablecoin customers, which is consistent with our going-in thesis, I think not too dissimilar from your own, that with the GENIUS Act, we will continue to see growth in the number of stablecoin issuers. And what we're seeing is the new issuers need those 3 tokenization or liquidity services products as much as everyone else, the listing, liquidity and visibility. But what's perhaps even more exciting is we're proving the product market fit for these services extends far beyond stablecoin issuers. And so during the quarter, we saw more of a, quite frankly, even mix among kind of 3 broad categories, which are stablecoin issuers, Layer 1 blockchains and then third, just token crypto project issuers. So in other words, not a Layer 1 or a stablecoin, and we're seeing more of a blend. Just to touch on that, I'll let Dave kind of clarify if I butchered any of those figures and coming back to you, Ken. And then on the ICO platform, like where we've really focused is the highest quality crypto platforms, and that's consistent with our kind of reason for being, which is servicing the institutional customers. By and large, they're less interested in the tail of crypto. They're more interested in $1 billion or at least $0.5 billion market cap and up crypto projects. And so, so far, what you described at a competitor versus where we're focusing are just kind of fundamentally 2 different kind of fields of inquiry. So we're kind of focused on sticking to our knitting, building out our liquidity services in our core market and really enjoying the ride as our TAM expands in real time. David Bonanno: Yes, Ken, to your question about the stablecoin liquidity service agreements. As we mentioned before, we are partnered with basically every stablecoin out there, except for USDT currently. I believe that count is about 9 or 10 total stablecoins, both euros and dollar-based partners, with regards to the opportunity to further monetize stablecoins versus non-stablecoin partners. In general, we do see the ability to use our partners' assets that are stablecoins to do other revenue-generating activities just given the broad-based utility of stablecoins throughout crypto, DeFi and otherwise. But we are also able to find other opportunities with the nonstable partners. It depends. Each one of these is a little bit bespoke with varying degrees of utility and contract sizes. We're excited about both sides of the pipeline. And both sides of the pipeline are growing, albeit right now with more emphasis on the nonstable portion given the next wave of, say, GENIUS compliance stablecoins has really yet to go live, but we expect a new wave of those to begin late fourth quarter, early first quarter, and we expect to pick up some new significant wins, which we'll talk about early next year. Operator: Your next question comes from the line of Peter Christiansen with Citi. Peter Christiansen: Tom, David, congrats on the execution momentum here, really impressive stuff here. I want to double-click into the motivation to seek transfer agent capabilities and licensure. Obviously, there's opportunities with some of the coin indices and perhaps even bespoke products. But just curious, how do you think about the competitive landscape or setup for maybe some more commodity type of RWAs out there, single stocks? How are you seeing that competitive setup? And then as a follow-up, I was just curious if you could speak to some of the performance you saw out of the AMM during some of the heightened volatility that we've seen in recent weeks. Obviously, spreads look pretty healthy there. But just curious if there's any other operating metrics that you think are useful for us to consider. Thomas Farley: Sure. Good to hear from you, Pete. Two very meaty topics. I'll endeavor to answer the first, and Dave will take the second. I talked a bit in my prepared remarks about this tokenization trend fairly broadly. But I'd like to add a little more context and kind of contour given your question. When you think about stablecoins, they're really just the U.S. dollar, and it's a question, okay, how do I take the U.S. dollar? I'm going to speak in colloquial terms here for maybe people who aren't crypto heads in this all day every day. But you got the U.S. dollar and then how do I take this U.S. dollar and put it on blockchain, so I can use it for commerce. That is the act of tokenizing the U.S. dollar. Well, if you think about the types of people who do it, some are super crypto native, think Tether or Circle and some are less crypto native. I think more recently, you've seen in the news, Western Union, for example. And then some are somewhere in the middle and think of PayPal or others of their hill. And so now those say, okay, I want to take the dollar and I want to tokenize it. They can do some of that -- those necessary tasks all on their own. But some firms look at it and they go, wow, there's a whole lot of expertise here, and I can't do it on my own. And you can think about, okay, how do you get from non-tokenized to tokenized and you can lay out a spectrum of products and services. For example, do you write the actual smart contract to create the tokens or not? Do you write the effectively Excel spreadsheet or Oracle database on the blockchain that tabulates which accounts own which amount of tokens? Or do you go to a vendor for that? Do you go get the state-by-state licenses in the United States or the federal licenses now required under GENIUS? Or do you rent those? So those are all sort of tokenization services, if you will. And we looked at that and we said, we're going to stick to our knitting, and we're going to do those services that we're really good at. And we said we're going to focus on the active listing the token, not just listing the token stand-alone, but listing the token against many other tokens -- listing the token, not just as a spot transaction, but as a perpetual future, a dated future, an options contract, doing it on a compliant regulated exchange, thereby conferring a certain level of respect to those asset issuers. We're going to focus on the liquidity provision, making sure that even in moments of distress, there are bids and offers available for those newly tokenized tokens, if you will, use the same word twice. And then finally, the visibility. We own the premier properties in crypto. There is no debate about that. CoinDesk is #1 for views in the world for crypto news site. CoinDesk is where important institutional people and companies gather twice a year in Asia and the U.S., and we can help these stablecoins and tokens get their message out, okay? That's been our strategy. So now your question is, hey, tell us about this transfer agent element. Well, we're looking at the world, and we're saying, boy, it feels like the next domino to drop here or at least the next enormous domino to drop, there'll be other little tests along the way is the U.S. securities market, whether that be single stocks or fixed income or what have you. And what we've drifted into and stablecoins, our customers have pulled us into it, is we now have a more expansive offering than just the dead simple listing liquidity and visibility. I gave the example of the API orchestration. I gave you the example of the direct mint earn. And I gave you the example of we're now writing those smart contracts ourselves to facilitate bridging from Layer 1 to Layer 1. Well, what the transfer agent license gives you the ability to do is more actively engage with asset issuers who are tokenizing U.S. securities to offer more robust listings, liquidity and visibility, but also some services around the margin, such as writing the actual smart contract for them or tabulating who owns of what security. That is the license you go for in the U.S. under the SEC regime that gives you the freedom to be able to offer those additional services to securities issuers, whether in a tokenized or, frankly, a certificated form. So that gives you a little more of the thinking behind that, Pete. Hopefully, that narrative -- it was a long one. Hopefully, it wasn't too boring, but gives you a sense of where we're headed. David Bonanno: And regarding dealer... Thomas Farley: Go ahead. Peter Christiansen: No, you're playing the arms dealer side, right? Thomas Farley: Yes. We just want to be helpful in this tokenization wave. We think it's huge, Pete. Just one more quick anecdote, Dave is going to punch me. But we went out and we started this tokenization effort really in earnest, we started building the features in 2022. We productized it in 2023. It really took off in 2024. We called it liquidity services, but it was tokenization. We went in January of 2025 this year. And if you go back, Pete, this around the time we started talking to you and you look at our deck, we talked all about tokenization and there was kind of a big yawn. People just really weren't too excited about it. That's how much has changed in the year 2025. It's the regulatory regime here. It's also just the technologies of the Layer 1s are that much more robust. People have realized it's ready for prime time. People now realize that the benefits of tokenization are real, being able to use those tokens more easily as collateral in a more efficient manner. I'm now speaking on a regular basis to the heads of the very largest banks in the world who are preparing for this wave. And so we've seen this coming. At times, we felt a little crazy because of the looks we were getting across the table, but we've been preparing for it, and we just want to be a part of helping our customers make this leap. David Bonanno: And Pete, with regards to your question around the volatility experience, probably you're referring to mostly October 10, the AMM performance in the -- performance of the exchange in totality, we're really proud and pleased with our performance and the way the technology held up. Every couple of quarters or so, we get really kind of a feature moment to advertise the difference of AMM liquidity versus what we see in other club order books. Way more depth was preserved on our order books during the flash crash on October 10 than you saw in other venues, notably the other offshore venues, where liquidity just absolutely evaporated in major assets like Solana. Our spot prices had far fewer wicks, smaller wicks, our derivative systems had far fewer liquidations than you saw in other venues. And as a whole, we're really proud of the way the system held up. We had a lot of trading revenue that day, and that went noticed by our customers. And I do think that there is a lot of discussion underway in the market more broadly around the way that derivatives and marketing systems and order books function in, say, less regulated venues versus our own. Thomas Farley: Just one more comment on that. I remember way back in kind of 2022, I had a launch with one of the most prominent executives at trading firm in our industry. And he said, I suggest you, Tom, as somebody who's been around kind of clearing and derivatives your whole career, go look at how these perpetual futures markets work on these other venues. You'll be appalled. And I did exactly that. I spent a weekend doing a deep dive and came back to our team and said, we will never do that. It is wrong what happens on these markets. What we saw on October 10 is positions were liquidated for fully collateralized accounts. It's a heads, I win, tails, you lose approach from these unregulated venues. And it underscores for you why real institutions are never going to do business there. They're just not. Real institutions need to know when they're hedged, they're hedged. Their position isn't just going to evaporate in the dead of night when they have gains on it on a fully collateralized basis. Operator: Your next question comes from the line of Dan Fannon with Jefferies. Daniel Fannon: I wanted to follow up on SS&O more broadly. Obviously, a lot of momentum, strong third quarter. But then when we look at the 4Q guide, it is basically flat at the midpoint. So can you talk about that -- squaring that with the kind of longer-term growth opportunity from a revenue perspective and the momentum in the business today versus kind of near-term revenue outlook? David Bonanno: Yes, sure. Thanks, Dan. Great to hear from you. Taking the second part of your question first. We remain very confident in the growth outlook for subscription services and other revenue looking forward. We see the pipeline filling up, new projects coming along. We believe tokenization more broadly is potentially a very large tailwind for that line item. Specifically on the Q4 guide, there are a couple of different cross currents there. I'd say, one, we do continue to experience broad-based growth across pretty much all line items in SS&O in terms of customer wins and new contracts, as Tom has mentioned. Somewhat offsetting that growth would one be seasonality. The fourth quarter is the only quarter this year with 0 events revenue. The third quarter did feature our DC policy event and EDGE conferences. So there was some revenue in the third quarter from events, which will not occur again in the fourth quarter. Additionally, there's a little bit of impact from large price -- downward price movement in the broader digital asset space, which affects partially the indices business, some of our lending business and to a lesser extent, liquidity services, but that is largely offset by the broad-based growth. There's a little bit of a timing element as well, whereas a lot of the new contract signings during the fourth quarter are coming middle end of the quarter versus the third quarter, where we had extreme momentum both in the second quarter leading into the early third quarter. And so when you put all that in the blender, we come out with the guidance you see in front of you today, which is flat to modest growth. Daniel Fannon: Great. That's very helpful. And then I was hoping you could just provide a little more commentary around the momentum post the BitLicense approval. You talked about a few onboardings. But I guess, could you expand upon those comments and talk about kind of the pipeline and how you see the kind of ramping up of that customer base as we go into, obviously, fourth quarter, but more importantly, into next year? Thomas Farley: Yes, sure, Dan. As I said, we've had kind of more early wins and notable early wins than I think we were expecting to be able to reveal to you given that there were only 2 months or 8 weeks between our 2 earnings calls. So some really good early momentum. I would say the other thing that's positive is the pipeline has filled up very, very quickly and has many exciting names who will be known to you and have things like bank or investments in their title and have the potential to really move the needle. I guess the downside is we have seen other than a bunch of early adopters who were quick to sign an agreement, it's hard. Like it's a slog. And I think some of this goes back to FTX, frankly, because we still get questions that are pretty clearly tailored to avoiding an FTX-like situation, where the diligence is just very robust. Hey, let's go through your SOC reports. let's go through your cyber reports. We want to see more working papers in addition to just the publicly available audit. So everything feels good and about on track, and we have some positive upside surprises in terms of the number of big customers who have already signed and have come on board as well as the size of the pipeline, but it's going to take some time. Operator: Your next question comes from the line of Brett Knoblauch with Cantor Fitzgerald. Brett Knoblauch: Tom, I think we're expecting kind of CLARITY Act to get put through the Trump's desk before the end of the year and signed. Could you maybe explain to us what you're expecting that will do to your business, particularly from the liquidity services front? Thomas Farley: Sure. And good to hear from you, Brett. I wish this call were Monday and not today. I'll be meeting with 7 or 8 of the 100 U.S. Senators, including many or most of those who are actively involved in, I guess, what was called in the house, the CLARITY Act, but more broadly a market structure bill tomorrow and Friday on the Hill, Brett. So I'll have a lot better sense. I love hearing that the premise of your question was around a bill getting passed this year. You're a bit more optimistic than I am. I am very optimistic that it will get passed because I'm seeing bipartisan support. And I think it will be very helpful for the crypto industry, largely because of preemption, in other words, not having to go to each of the 50 states to get their very particular, in some cases, approvals for operating in the crypto business. I think that will -- that in and of itself will be a boon for infrastructure providers like Bullish. And I think providing the legal certainty, much like it has on the stablecoin side will bring in many institutions and tokenization participants, asset issuers, for example. So getting that done will be great for growth, and I very much would like to see it. And I think it will only be helpful for our business. But I will know a lot more in the next 48 hours. And look, there's a lot to come. I suspect the House Ag will come out with a whole new version of their proposed bill. I suspect that will have to be negotiated with -- I mean, pardon me, Senate Ag, that will have to be negotiated to some extent with Senate Banking. But then ultimately, there will be a conference procedure with the Senate and the House to make sure that we produce a bill that makes sense for our country and for this industry, and we will be a very active participant in that as evidenced by where I'm spending the next 2 days. Brett Knoblauch: Awesome. And then maybe just on the U.S. momentum. It feels like that launch happened a bit sooner than we were expecting and then adoption was much faster than we were expected. Could you maybe pinpoint why it happened so fast and how it's been so good? And kind of what you're expecting, I guess, from the U.S. business, maybe the rest of this year and into next year? Thomas Farley: Yes. I'm going to get PTSD while I give you this answer. So we made a couple of faithful decisions over the last couple of years. One of them, I'm totally happy that we did it, and it's ultimately something that I can share with you as an investment thesis, frankly, but it brought us a lot of pain and heartburn. And what we did, Brett, is we said we're going to go get the toughest regulatory approvals in the world for the provision of spot crypto trading as an exchange. All of them. We're going to get Hong Kong. We're going to go to the freaking Germans, the BaFin, known as the toughest, most thorough regulator. We're going to go to the New Yorkers, not only are we going to go to the New Yorkers who are known for being very discerning about handing out BitLicenses, we're going to wait to launch in the U.S. And on top of all that, and we're going to go to the Brits and we're going to get benchmark administration license. And on top of all that, we're not just going to ask them for licenses like every other crypto exchange has asked for, which is, hey, let me operate an exchange within your jurisdictions and let me operate everything within the 4 walls of your country. We're going to go to them and we're going to say, we want to have one global order book where men from Hong Kong's bid offer can interact with Gerhard's offer or offer to sell sitting in Munich or Elaine in New York's bid can interact with Soso's offer in France. And that was very difficult because imagine telling a regulator, especially a particularly provincial regulator that, hey, yes, we'll onboard in your regime and we'll hold the customer funds in your regime, but we need to be able to operate a single global order book. And so it took us probably 2 years longer than it would have, maybe you could say should have, if we had taken the shortcut approach, which is what nearly every other crypto exchange has done. But the benefit finally is accruing to us, which is when we get that BitLicense and we "open for business," all it really means is these customers have been knocking on our door for 2 years, we can just say, okay, you're cool, come on in, we've approved you. We've done the KYC/AML. We'll hold your funds in the U.S. We'll onboard you in the U.S. But the liquidity is right there. You can trade tomorrow and interact with all of our customers all around the world. So that's what enabled us to kind of get into business so quickly and which -- and the reason why it may look a little different than what you're used to from others. Operator: Your next question comes from the line of Brian Bedell with Deutsche Bank. Brian Bedell: Congrats on the good momentum here. Maybe just talk about another angle on the U.S. traction. Dave, you quoted some pretty good metrics for trading volume so far in 4Q. We typically think of a lot of the onboarding here is contributing to SS&O. But can you talk about the new customer momentum contributing organically to the trading volume outlook? And is that something that has the potential to grow even faster than SS&O just from the U.S. angle alone? David Bonanno: Yes. So thanks for the question. The -- our user counts across the board are continuously hitting new all-time highs. So that is definitely beneficial. This is for trading customers. That is definitely beneficial to the trading volumes. It's always difficult to disaggregate the attribution of more customers versus volatility price or our own internal pricing changes. But when you put them all together, we are certainly realizing more trading revenues, more trading volumes per unit volatility than we have in the past. It is good to see a little bit of fallback in the market. It does bring to light the diversified revenue streams we have with exceptionally strong transaction revenue that we've had so far in the first half of here in the fourth quarter. We continue to believe that over the course of 2026, the U.S. will become a major contributor to that. We're also extremely pleased with the launch of options. We expect options to be a major contributor to our transaction revenues next year. And we're pleased with the overall momentum we've seen on the exchange trading side. And a lot of that is around cross-sells, our liquidity services, our ability to trade in and out of different stablecoins and our laser focus on institutions, the products and services that they need are all paying off. Thomas Farley: Yes. And just to add one element to that. Options -- I don't want to oversell it because we're still single-digit market share. But the early days have been a bit of a revelation. And what we're realizing is a couple of things. One, it's all organic from a product perspective. Obviously, we didn't have options when we gathered 2 months ago. So when I say we did $240 million yesterday, that's all organic, of course. But it's also organic to a great extent, in a customer sense. The options customer base is quite different than the linear customer base, so like the spot customer base. So that's been really good in bringing new customers on to the platform, which is exciting. But then more broadly, we're realizing there's a real need in the market for an options exchange that allows customers in a single account to be able to trade spot and perps and data futures and options on a liquid compliant exchange with portfolio margining. And it feels like we hit the market just right on this one. So I'm excited. Stay tuned. Brian Bedell: Yes, that's great news. And then just on the incremental margins, Dave, you referenced obviously high incremental margins. Fair to say that it's higher on the trading side than the SS&O side or not necessarily the case? David Bonanno: Probably, I'd say that's fair to say on the SS&O side, you do have the events business, which is our only line item that features any meaningful variable costs. So in total, probably a bit more on the trading side. You'll notice incremental margins in the third quarter were actually above 100%. That was due to more advertising spend in the second quarter for an event than there was in the third quarter. If you look at the guidance and the kind of current run rate of the transaction revenues for the fourth quarter, you can pencil out not quite over 100% incremental operating margins, but definitely well north of 80%. And we continue to look forward to demonstrating the operating leverage in the business to demonstrating the benefits of the diversified revenue streams and having that begin to play through in hopefully a more volatile environment than we got in the second and third quarters of this year. Hopefully, that persists into 2026, and we look forward to posting more earnings, higher margins and demonstrating that operating leverage that we've been talking about. Operator: [Operator Instructions] The next question comes from the line of Chris Brendler with Rosenblatt. Christopher Brendler: Congrats on the results as well. Maybe a little bit of an education for me, but I just wanted to ask about the monthly metrics on the spread side. I would have thought the options business would have been higher than spot. And so a function of it's early? Or am I just not thinking about that correctly? And then the other question would just be the negative spread in perpetual futures in October. I imagine that's volatility related. Just give me a little color there on what drove the negative spread, so much larger negative spread in October for perpetual futures. David Bonanno: Yes, sure. So on the options side, early days, we continue, as we do with all the products to experiment with our pricing. And as I've mentioned before, we are always solving for maximizing our total adjusted transaction revenue per unit of volatility. That's across all of the products. The products do tend to work together. And so we've seen benefits from changing prices in certain products with the volumes or maybe revenues we get out of other products. So still early days on the spreads with regards to options, but we look forward to updating you on that as we go. And that is also why we report the monthly exchange metrics so everyone can keep track in essentially real time along with us. With regards to the perpetual futures spread in October, yes, the volatility was largely the driver behind the negative spread there. Zooming out, though, we continue to make good progress on perpetual futures. We do hope that the ramping up of the options activity will filter down into perpetuals as well, and we can kind of move that into positive territory here going forward. It will be variable. It will be somewhat volatility dependent, but we're pleased with the progress, and we look forward to making more progress on perpetual futures. Operator: Your next question comes from the line of Rayna Kumar with Oppenheimer. Guru Sidaarth: This is Guru on for Rayna. With options now officially live on the platform, can you maybe just help us understand the potential capital efficiencies that you'd now be able to offer through greater cross-margining capabilities? And also going forward, given the role that tokenized assets can play here and just improving collateral management, do you see any specific near-term opportunities, perhaps just expanding your relationship with Circle beyond USDC and into USYC? Or just any other tokenized money market product, right? And if I can squeeze another one in directly in relation to the prior question. With options revenue likely becoming material in early '26, when can we actually expect perhaps revenue to turn positive? Thomas Farley: Thank you, boy, a lot there. So in terms of options, one of the benefits that we have, along with that one global order book is one matching engine. And so when you look across the other exchanges, both regulated and unregulated that offer options, they tend to have different matching engines for different jurisdictions. They have a different matching engine for options than they do for perps. In one very notable case, they have a different matching engine for spot and a different matching engine for perps and a different matching engine for options. And so it's very difficult to then aggregate trades and positions back into a single global account. For us, we've always just focused on building simply. We have a single matching engine. We allow customers in a single account to place all of their derivatives transactions as well as their spot transactions and the corresponding collateral that arises from those spot transactions and a single global order book. And so what that enables us to do is just put our thinking cap on and have smart, sensible margining where we capture from each customer the lowest possible margin we can, but no less. So for example, if a customer has sold Bitcoin calls, but they hold Bitcoin collateral, you can take that account and you can provide a reasonable margin. If a customer owns a highly correlated crypto asset and they have sold short another highly correlated crypto asset, you can provide some offset, not a total offset, but some offset. This is the sort of thing -- look, it's not simple, and it's not made for an easy sound bite, but providing that portfolio margining is kind of the lifeblood of the options trading community. That's what they need, and that's why they've rallied to us. I was joking with a colleague yesterday, an old colleague of mine, and he was pointing out that the old company we worked at had just been approved for a new VAR-based margining system that had been in the works for 12 years. So that gives you a sense of how complex this can be. But the beauty for us is we were able to start with something very efficient, which is what's leading to this early success, and it will only become more efficient over time as we have a chance to evolve it. David Bonanno: And regarding your question around tokenization, money markets as collateral, et cetera, we continue to follow the customers and the customer demand. We see tokenization of a variety of different assets opening up new opportunities for us, both across liquidity services and the exchange as collateral trading pairs and otherwise. So we think with hopefully, the passage of the market infrastructure bill as well, a lot of new opportunities will come out of tokenization that touch many parts of our business. With regards to perpetual futures, we're not providing any specific guidance on transaction revenues. That's not something we've been doing. However, again, we do provide the monthly exchange data so that you can follow along at home in basically real time. And as I said earlier, we continue to see progress in that line item. We think 2026 will be a better year than 2025, which was notably better than 2024. But stay tuned and continue to watch the monthly metrics for updates on all of the transaction revenue line items. Operator: Your next question comes from the line of Joseph Vafi with Canaccord. Joseph Vafi: Great progress. Just one quick one for me here on the spot spreads. I know there was some incremental pricing power in Q2. Maybe we just kind of drill down on that just a little bit more and some of the efforts there and what you're seeing in the spot market in Q3 and early Q4. David Bonanno: Yes. Thanks, Joe. The progress there has been -- yes, I think we touched on this in the last call. The second quarter, we spent a good amount of time iterating on our pricing structure in general. It was also a particularly low volatility environment. Those 2 things combined to create what were we hope to be anomalously low spreads during the quarter. You've clearly seen them rebound quite strongly off the lows seen in say, May and June type time frame. Again, we continue to optimize for total adjusted transaction revenue per unit volatility. We feel pretty good with where we are today. But there's always changes going on within the market, within our customer base, within volatility. And so we'll continue to experiment and spread with the spreads. Higher spreads are not necessarily always what we're targeting. We're targeting higher adjusted transaction revenue. There may be circumstances where slightly lower spreads lead to more volume, which more than offsets the decrease in spreads. But I think where we are today represents a reasonably good baseline moving forward. Although, again, I will reiterate, it's a very dynamic situation in the market, and we will continue to make changes to optimize for total adjusted transaction revenue. Thomas Farley: I just want to highlight, we do have to stop right at the opening bell. And I know there's a couple of other people in the queue, and we will make sure to circle back and get to you after this call and also make sure that we call on you early on the next call. Operator: Your next question comes from the line of Bill Papanastasiou with KBW. Bill Papanastasiou: Just a quick one for me. Now that you've successfully secured the BitLicense and have expanded into the U.S., I'm just curious what's next? Are there any remaining geographies that you're looking to tackle and secure a Tier 1 license? Or will the focus remain on consolidating existing markets into the global order book? Thomas Farley: Yes, that great question. Not really. I'll just highlight the U.K. still has not propagated any legislation around crypto trading, and that will come at some point. But no, we have the Asia band, the Europe band and now the U.S. band. There will be incremental spot licenses we will look to pick up, but it's frankly not even noteworthy enough to discuss on this call other than the U.K. But this is a continuing game of licenses. And it's not just for spot, but for derivatives and our index business as well. And so it's like we have full-time staff. This is all they do. And they'll just constantly be gathering licenses, and we'll be sharing those with you. But the big ones geographically are covered. So I just want to jump in because I know Gautam and Owen and Ed, you guys are in queue. Sincere apologies. If I were less verbose, we would have gotten through it all. If I could answer all the questions like Dave. And we'll make sure that we get to you guys early next time, and we'll also circle back over the next 24, 48 hours and have discussions with each of you individually. And finally, I just want to say thank you all again for following along with the Bullish story and look forward to 3 months from now being able to tell you about everything we've accomplished in the meantime. Much appreciated. Operator: Ladies and gentlemen, that concludes the question-and-answer session and today's conference call. We would like to thank you all for your participation. You may now disconnect your lines. Have a pleasant day, everyone.
Operator: Thank you for standing by, ladies and gentlemen, and welcome to the Star Bulk Carriers Conference Call on the Third Quarter 2025 Financial Results. We have with us today Mr. Petros Pappas, Chief Executive Officer; Mr. Hamish Norton, President; Mr. Simos Spyrou and Mr. Christos Begleris, Co-Chief Financial Officers; Mr. Nicos Rescos, Chief Operating Officer; and Mrs. Charis Plakantonaki; and Mr. Constantinos Simantiras. [Operator Instructions] I must advise you that this conference is being recorded today. We will now pass the floor over to your speakers, Mr. Spyrou. Please go ahead, sir. Christos Begleris: Thank you, operator. I'm Christos Begleris, Co-Chief Financial Officer of Star Bulk Carriers, and I would like to welcome you to our conference call regarding our financial results for the third quarter of 2025. Before we begin, I kindly ask you to take a moment to read the safe harbor statement on Slide #2 of our presentation. In today's presentation, we will go through our third quarter company highlights, financial results, actions taken to create value for our shareholders, cash evolution during the quarter, vessel operations, our investments in our fleet, the latest on the regulatory front and our views on industry fundamentals before opening up for questions. Let us now turn to Slide #3 of the presentation for a summary of our third quarter 2025 highlights. The company reported the following: Net income amounted to $18.5 million with adjusted net income of $32.4 million or $0.16 adjusted income per share. Adjusted EBITDA was $87 million for the quarter. During the third quarter, we repurchased 250,000 shares for a total of $4.4 million, while from the beginning of the fourth quarter until today, we have bought back 360,000 shares for $6.7 million. Our Board of Directors decided to continue prioritizing returns to shareholders given the company's strong position, declaring a dividend per share of $0.11 for the quarter payable on or December 18, 2025. Our total cash today stands at $454 million. Meanwhile, our total debt stands at $1.028 billion. Through undrawn revolver facilities, we have additional liquidity of $115 million, resulting to pro forma liquidity of more than $570 million. We have approximately $91 million remaining from our recently renewed share repurchase program. Finally, we currently have 15 debt-free vessels with an aggregate market value of $336 million. On the top right of the page, you will see our daily figures per vessel for the quarter. Our time charter equivalent rate was $16,634 per vessel per day. Our combined daily OpEx and net cash general and administrative expenses per vessel per day amounted to $6,421. Therefore, our TCE less OpEx and cash G&A is approximately $10,213 per vessel per day. Slide 4 provides an overview of the company's capital allocation policy over the last 3 years and the various levers we have used to strengthen the company, increase the increasing value of our shares and return capital to our shareholders. In total, since 2021, we have taken actions totaling $2.8 billion in dividends, share buybacks and debt repayment to create value for our shareholders. At the same time, Star Bulk has been growing the platform at opportune times through consecutive fleet buyouts by issuing shares at or above net asset value. On the top right-hand corner, we illustrate how the company has used both dividends and buybacks over time to return capital. We have returned in total $13.2 per share in dividends since 2021. This corresponds to approximately 70% of our current share price. On the bottom of the page, we saw our net debt evolution. Since 2021, our average net debt has reduced by 50%, reaching a level where it is covered by the fleet scrap value at a comfortable level. Slide 5 graphically illustrates the changes in the company's cash balance during the third quarter. We started the quarter with $431 million in cash. We generated positive cash flow from operating activities of $92 million after including vessel sale proceeds, debt proceeds and repayments, CapEx payments for energy-saving devices and ballast water treatment systems, share buybacks and the dividend payment for the second quarter, we arrived at a cash balance of $457 million at the end of the quarter. I will now pass the floor to our COO, Nicos Rescos, for an update on our operational performance and the investment we continue to make on our fleet. Nicos Rescos: Thank you, Christos. Please turn to Slide 6, where we provide an operational update. Operating expenses for Q3 2025 stand at $5,096 per vessel per day. Net cash G&A expenses were $1,325 per vessel per day for the same period. In addition, we continue to rate at the top amongst our listed peers in terms of RightShip Safety Score. Slide 7 provides a fleet update and some guidance around our future dry dock and the relevant total off-hire days. During October, we entered into 3 prompt recent renovation agreements with Hengli Shipbuilding for three 82,000 deadweight scrubber-fitted Kamsarmax newbuildings scheduled for delivery in Q3 2026. Our 5 Kamsarmax newbuildings under construction at Qingdao Shipyard are expected to be delivered during Q3 and Q4 2026. We have secured $130 million in debt on the five Qingdao newbuilding Kamsarmax vessels, plus another $74 million expected against the three Hengli Kamsarmax vessels. As of Q3, we have completed 51 EST installations with 4 vessels completed during the quarter and with 9 remaining and planned for 2025. On the top right of the page, we have our CapEx schedule, illustrating our newbuilding CapEx and vessel energy efficiency upgrade expenses. On the bottom of the page, we provide our expected [ dry ] expense schedule, which for the remaining of 2025 and '26 is estimated at $20 million and $47 million, respectively. In total, we expect to have approximately 580 and 1,140 off-hire days for the same period. Please turn to Slide 8 for an update on our fleet. On the vessel sales front, we continue disposing non-Eco vessels opportunistically, reducing our average fleet age and improving our overall fleet efficiency. We'll continue to optimize our fleet through selected disposals and acquisitions. During Q3, we sold and delivered 6 Kamsarmax and Supramax vessels, collecting total proceeds of $75.5 million with another 2 Supramaxes, Star Runner and Star Sandpiper delivered in October, generating around $25 million in proceeds. We maintain 8 long-term chartering contracts, which provide flexibility and leverage across market cycles. Considering the aforementioned changes in our fleet mix, we operate one of the largest dry bulk fleets amongst U.S. and European listed peers with 145 vessels on a fully delivered basis and an average age of 11.9 years. I will now pass the floor to our CSO, Charis Plakantonaki, for an update on recent global environmental regulation developments. Charis Plakantonaki: Thank you, Nicos. Please turn to Slide 9, where we highlight the key milestones on the ESG front. For the seventh consecutive year, Star Bulk has published its annual environmental, social and governance report, which provides a comprehensive overview of the company's sustainability strategy, performance and future goals. Through transparent and data-driven reporting, the publication highlights measurable progress towards long-term ESG objectives, supported by detailed action plans and sustainability-focused key performance indicators. The report has been developed in accordance to the global reporting initiative standards, the Sustainability Accounting Standards Board for Marine Transportation and aligns with the United Nations Sustainable Development Goals. In October 2025, during the latest IMO by the Environment Protection Committee, the IMO member states decided to postpone the adoption of the Net-Zero Framework for 1 year. The framework had been previously approved during the April MEPC. Despite the developments around global regulations, the company's decarbonization strategy remains focused on fleet renewal, energy efficiency and research and development on green technologies. We also continue to contribute to the work of the Maritime emission reduction center together with our partners and have participated for 1 more year in the carbon disclosure project on climate change and water security. On the technology front, we have commenced assessing the application of artificial intelligence across the company, having completed the diagnostic, identified and prioritized use cases and selected the first ones to be developed. We also continue our technology upgrades on board our vessels, including fiber installations and Starlink deployment. As part of our enhanced corporate responsibility program, during Q3 2025, we delivered anti-harassment training to all employees across company offices in line with regulatory requirements. I will now pass the floor to our Head of Market Analysis, Constantinos Simantiras, for a market update and closing remarks. Constantinos Simantiras: Thank you, Charis. Please turn to Slide 10 for a brief update of supply. During the first 10 months of 2025, a total of 31.2 million deadweight was delivered and 3.9 million deadweight was sent for demolition for a net fleet growth of 2.6% year-to-date and 2.9% year-over-year. The newbuilding order book remains modest at 10.9% of the existing fleet as contracting activity has been soft during 2025, falling to a 5-year low of 22.1 million deadweight year-to-date. Limited shipyard capacity availability up to late 2027, high shipbuilding costs and uncertainty over future green production have kept new orders under control. Furthermore, the IMO's decision to postpone the adoption of the Net-Zero framework for 1 year is likely to extend this ordering caution well into 2026. At the same time, the fleet is aging. And by the end of 2027, roughly 50% of the existing fleet will be over 15 years old. Moreover, the increasing number of vessels undergoing their third special survey is estimated to reduce effective capacity by approximately 0.5% per annum during 2026 and 2027. Average steaming speeds have picked up slightly in recent months, supported by firmer freight rates and lower bunker prices, but remain close to historical lows. Furthermore, environmental regulations become stricter every year and are expected to continue to incentivize slow steaming and moderate effective supply. Finally, global port congestion eased during Q3 and has returned to long-term averages. For the remainder of 2025 and 2026, congestion is expected to follow seasonal trends and to have a relatively neutral impact on effective supply growth. Let us now turn to Slide 11 for a brief update of demand. According to Clarksons, total dry bulk trade during 2025 is projected to expand by 1.4% in ton miles. Total dry bulk trade volumes underperformed during the first half, but experienced a strong recovery during the third quarter. Trade volumes increased by 5.1% year-over-year during Q3, supported by strong iron ore, grain and minor bulk exports and a recovery of coal volumes. Ton-miles have received extra support from stronger Atlantic exports, longer Pacific trade distances and war-related inefficiencies. The recent ceasefire agreement in the Middle East has intensified the discussion for the return of Red Sea crossings, and we should expect a gradual normalization during 2026. Chinese dry bulk imports recovered and increased 4.4% year-over-year during the third quarter after having contracted by 4.2% during the first half. Imports to the rest of the world increased 4.6% year-over-year to a new record high and remain on a strong upward trend over the past 2 years as lower commodity prices and a weaker U.S. dollar helped stimulate demand for raw materials. During 2026, dry bulk demand is projected to increase by 2.1% in ton miles. The IMF forecast for global GDP growth stands at 3.1%, slightly below 2025 levels, while Chinese GDP is projected to slow down to 4.2% from 4.8% this year. U.S. agreements with trade partners and the 1-year truth with China should help reduce uncertainty and support trade activity over the next year. Iron ore trade is expected to expand by 0.8% in 2025 and by 2.8% in 2026. During the first 3 quarters, Chinese steel production declined by 2.5% year-over-year, driven by output cuts that began in May with a target to reduce overcapacity, while output in the rest of the world increased by 0.5% year-over-year. China's property sector remains under pressure, but record high steel exports have helped mitigate the weakness in domestic consumption. Iron ore imports increased to all-time highs during Q3, assisted by lower domestic production in the first half and seasonal restocking. As of 2026, ton miles are expected to benefit from new high-quality iron ore mines in Guinea that should gradually replace lower quality Chinese production and imports from shorter distances. Coal trade is expected to contract by 6.2% in 2025 and by 1.1% in 2026. Volumes experienced a strong recovery during Q3 after a strong pullback during the first half of 2025 due to weaker demand in China and India. Chinese coal fundamentals have recently improved as domestic output is contracting, thermal electricity generation has recovered and domestic coal prices are moving higher due to the expectations of a colder winter. India new thermal energy capacity, strong demand from Southeast Asian economies and global focus on energy security are expected to support coal trade over the coming years. Grain trade is expected to expand by 2% during 2025 and by 5.3% in 2026. During the third quarter, total grain volumes surged by 11% year-over-year, driven by record harvest in Brazil and the U.S. and strong exports from Argentina following the temporary export tax suspension. Grain exports from other sources have recently increased but Black Sea volumes remain weak due to war-related disruptions. It is worth highlighting that China had not purchased any soybean cargoes before the October trade through. Since then, buying activity has resumed and is expected to intensify over the coming months as China agreed to buy 12 million tons in 2025 and 25 million tons per annum through 2028. Minor bulk trade is expected to expand by 5% during 2025 and by 2.1% in 2026. Minor bulk trade has the highest correlation with global GDP growth and continues to benefit from healthy outlooks across major economies. Wide price differentials continue to fuel Chinese steel exports and backhaul trades despite rising protectionist measures. Furthermore, bauxite exports from West Africa continued their strong performance and helped inflate ton miles for the Capesize fleet. As a final comment, despite geopolitical uncertainties, we remain optimistic about the medium- to long-term outlook for the dry bulk market, supported by a favorable supply outlook, stricter environmental regulations and easing trade sanctions. We remain focused on actively managing our diverse scrubber-fitted fleet to capitalize on market opportunities and deliver value to our shareholders. Without taking any more of your time, I will now pass the floor over to the operator to answer any questions we may have. Operator: [Operator Instructions] Our first question comes from Chris Robertson with Deutsche Bank. Christopher Robertson: Assuming you guys can hear me. So my first question is looking at the new financings, you secured up to $204 million on the 8 newbuilding assets being delivered in 2026. So taking these financings into account and then the regularly scheduled amortization or planned repayments during the year, what is your expectation around the total net change in debt in 2026 as a whole? Christos Begleris: Just a clarification, please. We have secured financing for the first 5, that's $130 million. And we are in discussions about the financing of the last 3 that we have confirmed this month. So the final numbers and figures for those vessels will be actually disclosed during the next disclosure of March. Christopher Robertson: Okay. Got it. I guess just related then to planned amortization during 2026. Could you comment around that? Christos Begleris: Our amortization will remain around the $50 million mark per quarter. What is happening is that some older facilities are getting refinanced. And then the new facilities for the new buildings have an amortization profile of 17 years, has not impacting in any major way the amortization profile of Star Bulk. So our amortization profile will remain around $50 million to $52 million per quarter for 2026. Christopher Robertson: That's helpful. As a follow-up to that, just as it relates to the dividend policy on the minimum cash balance per owned vessel, is that being calculated based on the pro forma size of the fleet after the newbuild deliveries? Or should we think about that as an average number per quarter as the deliveries are taking? Or is it being calculated right now at pro forma? Hamish Norton: Okay. So our dividend policy is perhaps slightly confusing. But the -- were you referring to the $2.1 million per ship that we have to keep on our balance sheet before we want to pay a dividend? Christopher Robertson: Yes, Hamish. Hamish Norton: Okay. Well, so basically, there has been no change to that. And we're so far above that level in terms of our cash balance that we -- it's not been an obstacle to any dividend payments in the last 2 years. I mean we have something on the order of $450 million of cash. And we have 142 vessels growing by the number of newbuildings. Petros Pappas: To Chris' question, though, I mean, the amount of CapEx -- equity CapEx required for the new buildings have already been covered by proceeds of past vessel sales. So essentially, funds that we have been using from operation to pay dividends are not impacted from these they have already generated process. Hamish Norton: I think I understand the question. I think I was misunderstanding the question. We don't have to allocate cash to specific accounts. We just take the number of vessels and multiply by 2.1. And that our aggregate cash has to be greater than that. Christopher Robertson: Right. My question was related on the number of vessels specifically, Hamish, the 2.1x the certain number. Now is that number being -- is that number pro forma the newbuild deliveries? Or like in 4Q, for example, is that as the fleet stands today? Or are you already taking into account the number of newbuildings? Hamish Norton: I mean it's as the fleet stands today, but we're so far above that level that it's not impacting our ability to pay dividends. It's not even closed. Christopher Robertson: Right, right. Okay. All right. Last question for me, just turning to rates. Looking at the strong rate performance right now in the sub-cape segment, do you attribute that to a waterfall impact from the stronger Capesize rates? Or is that a function of just stronger demand fundamentals in the sub-cape segment? Petros Pappas: Well, first of all, I think there is a spillover effect from the bigger vessels. But let's not forget that grain trade improved by 11% during Q3 and that coal did very well as well during the third quarter. So that helped a lot the Kamsarmax vessels. And on the Supramax vessels, minor trade was doing well as well. And I think also perhaps there was an urgency in ordering more cargoes whilst we didn't know whether there was going to be major tariffs, and that also helped out. Operator: [Operator Instructions] Our next question comes from Omar Nokta with Jefferies. Omar Nokta: Just wanted to ask maybe just a follow-up to the new buildings. And I guess maybe in general about fleet composition. You've acquired these 3 Kamsarmaxes that will deliver next year. You've got the other 5 Kamsarmax newbuildings. And if I recall, you got chartered in maybe long term last year, was it 5 other Kamsarmaxes. So you've been very active on the Kamsarmax front, at least with respect to, say, bringing in new buildings there. And just wanted maybe to kind of get a refresh as to what's behind that? What is it maybe specifically about that class that keeps you coming back to it, say, versus the Ultras/capes? Petros Pappas: Omar, first of all, we ordered Kamsarmaxes because our existing Kamsarmax fleet is getting older. So we need to do some renewal on that level. Second, we actually -- our S&P department managed to get very early deliveries during 2026, which we expect to be a good year. The prices were low. The vessels had scrubbers, so they're eco vessels. So we're happy with how they are doing, how they will be doing. Then think about this. Kamsarmaxes at $35 million equals $70 million, which basically is the cost of the Capesize. It's difficult to find Capesize vessels to order for anywhere close to 2025. I mean, I think that if we were going to order, it would probably be end '27 or '28. So who knows what will happen in 3 years from now. But if you calculate that Kamsarmaxes may, let's say, 2 Kamsarmaxes will do $16,500 per day, meaning $33,000 per day for 2 vessels minus $10,000 for the OpEx. That actually ends up at $23,000. So we get EBITDA of $23,000 on the 2 vessels, which actually would equal a charter rate equivalent of $29,000 for a Cape. Therefore, as long as we cannot order Capes and we found the opportunity to order Kamsarmaxes delivering very early comparatively. And as we think that the investment will bring the same results with the Cape, we went ahead and bought Kamsars. Omar Nokta: Okay. That's actually very, very interesting and clear the methodology there. I guess as you kind of think about that because I know in the past, and I know, Hamish, we've talked about this, post the Eagle transaction, you've been a bit maybe bottom heavy in terms of the Ultra Supras and hoping to maybe naturally get into Capes to kind of even things out. What do you think you can do there then? Obviously, Petros, you just mentioned the arbitrage perhaps of acquiring Kamsars versus Capes. But is there a means to maybe bolster the cape presence? Is it -- it seems like, obviously, you said new buildings are far off. How about the sale and purchase market? Petros Pappas: Well, the Supras actually, there's an equivalent calculation for the Supras as well. But there also, we have engaged in a trade, which we call the pendulum trade we return -- especially the Supras, you can return to the Atlantic with steel cargoes and other cargoes, which is not as easy for the Kamsarmaxes. And then -- and you can do that at low teens right now. But then on the front haul, you can do $23,000 to $25,000. And therefore, if you add the 2 and divide by 2, you get an average of around $17,000, which makes Supras Ultras equivalent to Kamsarmaxes. And therefore, according to the calculation I gave you earlier, equivalent to Capes. And actually, Supras are cheaper. Supra newbuildings are cheaper than Kamsarmaxes. Omar Nokta: And I think he also wanted to know what we could do around Capes. Petros Pappas: Okay. Around Capes. Right now, everybody keeps the Capes close to his chest and they are expensive and everybody whoever sells Capes likes to sell the worst performers that they have. And therefore, to find an opportunity is not as easy or you have to pay a very high price and not for new buildings, for secondhand. I mean there are cases where secondhand vessels are -- prices are equal to those of new buildings. When we took over Eagle Bulk, we had a big number of Supras under our ownership. So during the last 1.5 years or 2 years, we have disposed of about 28 Supras. And therefore, we're bringing the balance of Capes, Kamsars, and Supras more on an equal foot basis sorry, -- and we're keeping basically our Ultramaxes. We have sold the Supras, which are older, not eco, and we're keeping the better vessels. Omar Nokta: Yes. No, certainly. Well, very detailed response as usual, Petros, but obviously very logical. So very helpful to understand that. And it looks like the value really is perhaps now even though the outlook may be more exciting as we think about it just sort of conceptually, the outlook may be more exciting for Capes. If you have them great, but if you want to deploy capital, it sounds like the sub-capes where it's at. Operator: We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Mr. Pappas for closing comments. Petros Pappas: No further comments, operator. Thank you very much for listening in, and good night. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Andrea Ferraz Estrada: Good morning, everyone, and welcome to Klarna's Third Quarter 2025 Earnings Call. My name is Andrea Ferraz, Head of Investor Relations and M&A, and I'm joined today by Sebastian Siemiatkowski and Niclas Neglen. Our Q3 results were released at around 7:30 a.m. Eastern Time, and they are available on the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These statements are based on our current expectations and assumptions as of today. Actual results may differ materially due to various risks and uncertainties, including those described in our most recent filings with the SEC. During this call, we will present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website as well as filed with the SEC. Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2024. [Operator Instructions] Before we move to Q&A, we'll begin with a short presentation. Sebastian, please go ahead. Sebastian Siemiatkowski: Hello, everyone, and welcome to Klarna's first earnings report, quarterly earnings as a public company. Very excited. I'm Sebastian Siemiatkowski, the CEO and Founder of Klarna. And with me, I have Niclas Neglen, our CFO. Let's get right to it. Most of you are probably familiar with Klarna, 114 million active consumers, 850,000 merchants and above $100 billion in GMV. And we have grown this network quite extensively in the last few years. We are having users across all parts of life. These are female, male, all types of educational background, living in all areas. And as you may know also, Klarna is today much more than just buy now, pay later. We offer pay in full, pay later, fair financing. And as you will see, more and more neobank features. Our reach is global, North America, Canada, U.S., most of Europe and Australia and New Zealand. But let's look at today's headlines. So today, I'm very proud to focus together with you on three topics: growth acceleration. It's fantastic that we're expecting to see above 30% revenue growth for Q4. We also have a record quarter for fair financing product. It actually grew over 139% year-on-year, and I'll tell you more about why, associated with the number of merchants that we're seeing growing there. And then we're celebrating that Klarna has now actually issued over $0.5 trillion over our 20 years. And thanks to our leading underwriting technology, we have continuously lower losses than industry standards. Those $0.5 trillion has actually been issued with less than 70 basis points, put that against any benchmark, and you will see that's pretty impressive over 20 years and 26 markets. But let's go back first a little bit in time. 2015, Klarna is -- about 10 years ago, we're sitting down with most of what is the current management team, asking ourselves, what is the future of tech? What is the future of fin? And we realize this world is about to change. Eventually, we will all have digital financial assistance that helps us save time, save money and be in control of our lives. And we realize this will also have large implications for both the financial industry, the retail banking and technology. And you can think about it this way. They -- both of these markets are pretty much malfunctioning. They have the classical fallacies of nonfunctioning markets, such as the fact that it's hard to search and find the right things. But that is going to an end now. AI is going to change, and ignorance will stop being a business model. These lock-ins that people have been able to rely on, forget about them. They're going to go from strategy to nostalgia because now AI agents will be able to move all of my so-called proprietary data, preference and all of that between different providers. And finally, this means the moats are drained, the gates are open. We're going to see a dramatic increase in competitiveness in both financial services and tech. We're very excited about this. And what it means is that trust is the new oil, not data anymore, but trust. The one that customers actually trust to truly care to their best interest are going to be the ones that are going to gather the most following. In addition to that, customer service minimization is going to be something that we can forget about. Historically, banks have put us on 45-minutes holds and the big tech companies, they don't have customer service at all, just FAQs. Forget about that. That's a thing of the past. So the quiet life that we have observed among the big tech and banking companies are over. Complacency means end of business. Marble offices are gone, and the free gourmet cafeteria is no longer culture, it's overhead. This is what we're about to see. And we can see that it's already starting to happen. Pre-AI tech, we saw tremendous perks, 0 customer service, products killed without consequence. And now we're starting to see year of efficiency, intense AI product shipping urgency and the first real competitive threats in 20 years. And that is quite exciting because if you look at those two sectors, fin, retail banking, that's a $520 billion profitable profit pool that is addressable to Klarna. And we only cater to 0.6% of that today. And ads and technology companies are another $500 billion. These two combined is $1 trillion. Now remember, this was estimated by McKinsey, but also by Claude, and I have to admit that Claude was significantly cheaper than McKinsey in making these estimates. Now what does this mean? Well, we say in Sweden, one person's dead, another person's bread. This is pretty much it because this means that Klarna is having a fantastic opportunity to go after these two massive profit pools. And we're going to do that by 100% focus on customer obsession, growth, operational efficiency and leading the AI innovation. And I think that here, I want to highlight that those days when tech companies and banks could not wake up every day like retailers do and restaurants do, focusing on how do I bring in customers through the door, how do I give them the best offer, the best service and how do I make sure I operate very efficiently, so I don't go out of business. Those days are gone. And the businesses in these industries that are willing to really pursue this and work effortlessly on these topics, they are going to win and they're going to grab a lot of market share in these markets. So let's talk about customer obsession at Klarna. Well, what we are doing is very simple. We give people back time, we give people back money and we give back them control. And this goes far beyond. A lot of you will be familiar with buy now, pay later, but we do offer a number of other services like searching for products at the right price, making sure that it's easy to pay your bills and manage your finances, to show you where your packages are in real time, so you can go and pick them up and give you control and insights of your spending habits. And in addition to that, we offer you a lot of give back money. I mean just a number of money that our customers have saved on customer -- on not paying interest with our Pay in 4 interest fee is in the billions. And in addition to that, we offer cash back and other features as well. So this was the very topic. I think something I would like to focus on today a little bit is that our form of credit is really the more sustainable solution. And if you would ask that digital financial provider -- the digital financial assistant of the future in what they would argue is the best form of credit, I can tell you it's not going to be credit cards with $6,500 outstanding balance with tremendous fees and never-ending payback over revolving. That's not going to be the one. It's not going to be point-of-sale financing. Yet again, another way to charge high fees, it starts at 0% financing, but then after a few months, they start to push you into 36%, and it's also not the best one. The best one is going to be the buy now, pay later with Klarna. Why? It's low average order value, so you're only borrowing about $100. Your average outstanding balance with Klarna is $88 versus these others. The interest rate is 0 and you pay back on fixed installments. This is a healthier form of credit, which is attracting an audience that is very aware and conscious about their spending. This is also visible in our credit losses and our charge-off rates, as you can see, are a fraction of these competing credit products. There are other ways in which Klarna already today really distinguish itself. And just today, I want to focus on one to just highlight it to you. Klarna is the only payments network in the world that collects SKU level data on basically a majority of all of our transactions, which means that when customers buy with us, when they buy with a credit card, they're used to seeing what you see on the left-hand side. You will all recognize it from your banking apps. You barely understood where you spent, just some merchant name that you can barely read and some amount. With Klarna, we have the full SKU level. We know exactly what you purchased, so we can show you images of the items that you bought. As you can see on the right-hand side, the Nike Tech here and so forth. You can see the sizes, the colors. You can also then, as a consequence, report returns much more easily or if you have warranties or other things that you want to follow up on. So that is a tremendous value and a differentiation and richness of information that we carry at Klarna. So putting customer obsession is really what we've been focusing on a lot and even more so in the last year. We have this very strict process where we start with insights. So we generate -- we do over 200 consumer interviews every week. We have -- we basically inspect visually 5,000 interactions in detail per week. And this drives a lot of what we call actionable insights, which are average actually about 75 currently per week. The expected value of delivering on them are estimated at $300 million of lifetime transaction margin. And we're very, very important to us that they are crystal clear on what is broken, how could it be fixed and that we have these very quick estimates of the financial impact and the efforts to fix them. And then we obviously work effortlessly to deliver these improvements to our customers. And currently, we're shipping at a rate of about 20 improvements a week with an estimated lifetime value of about $15 million in transaction margin. And each of these shipped improvements is verified for impact, for quality and effort. This is the core of our customer obsession process to just effortlessly talk to customers, look at these recordings and then understand how we could improve on them. The fantastic effects of this are that numbers don't lie. We have 73 in NPS, 54% in global brand trust and 41% in global brand awareness. Remember, as I said, trust is the new oil, more than data. Data will flow freely, trust doesn't come freely. Trust only comes from hard work like the one I just displayed. And this is why we don't just have customers, we actually have fans. These consumers, when you talk to them, they rave about Klarna, they rave about what we're offering them, and they exhibit a huge amount of trust for what we offer them. Now this then brings us to growth. Now with growth, we have our objective #1, and that is that Klarna should be available everywhere Visa is, that we basically -- and we do that through what we call our default global distribution partner play. This means that we go to the biggest PSPs in the world, the ones that are doing over $1 trillion worth of volume. And then we have worked with them to say, Klarna shouldn't just be an alternative that you add on as a merchant. It should be standard, default. When you sign up for the Stripe, Nexi, Worldpay, you should automatically get Visa, Mastercard and Klarna in the default offering. And that is something that we are -- have been pushing for years and are continuing to push for. And you can see now this quarter, we add Clover to this club of signed partners and some of them are already even live like Stripe and Apple Pay that are basically ramping up now with this new offer. And you can see that, that's having a real, real impact on the number of merchants that we're adding because if we're ever going to hit the 150 million acceptance points that Visa has, this is only through global distributions that this will happen. And you can see that it's starting to pay off the strategy as we went -- we added a record of 235,000 merchants this quarter, up, and it's now growing at 38% compared to a year ago at 13%. Obviously, we're also still expanding with the world's best brands as well. So some of the renewed or expanding partnerships, you can see on this, and that is obviously still a big important part of our strategy, but the distributions of our PSPs, acquirers and technology platforms is the key one that's going to drive the most of the millions of merchants that we want to attract to Klarna to be on par with Amex, Visa and Mastercard. Objective 2, and this may be something that you're not familiar with, and that is that a lot of merchants offer Klarna, as we said, about 850,000, but not all of them have been offering all of our payment methods. And this is also an important thing. We want customers to be able to expect that each of the payment method that they recognize with Klarna, which is the pay in full or pay now, it is the pay later and it is the fair financing should be available every merchant. And we have made fantastic progress here, especially on the fair financing side, as you can see, just between last year, we were 80,000, now we're 150,000 merchants. It means that still only 18% of our merchants actually offer fair financing, but it's a significant improvement. And this is driving -- this is what is the explanation for driving that fast growth in the fair financing product. We just doubled the amount of merchants that offer it. And so consequently, you can see more than almost doubling the volume as well. We're also working effortlessly to improve our pay in full offering. This is really -- you could -- if you would like to call it the big wallet competitor to some of our big wallets out there because this allows you to pay the full amount. Currently, we have about 43% coverage, and it is growing, which is great. We do a lot of things here to make sure that debit is an important payment method available at every checkout out there when people see Klarna. Now then we have our third objective, which is to go from payments to full neobank. And in order to explain to you how we do that, I will take you quickly just through the customer acquisition channel that I think is totally revolutionary and very different. Most banks will acquire customers through promotions, through standing in the airports and bug you when you're running to your flight. What Klarna does is we're available in all of these millions of checkouts and people will see us, we are associated there with fantastic brands, be it a Nike, a Macy's, a Sephora, and we bug you and say, "Hey, you know what, why don't you use us to pay this time around rather than your card." And it turns out it is so simple to start using Klarna. It's almost as simple or even as simple as using your existing card. And this drives -- this is what has allowed us to accumulate 114 million active users which is fantastic. But obviously, they only use us -- some of them only use us for a single purchase. So what we then start doing is saying, hey, you know what, if you download our app, you will unlock a world of additional features, additional things that you can do, like we saw on how you can see your purchase history and understand exactly what you purchase or make it easier for you to return. So about 49 million monthly active users and 76% of the total have downloaded our app. So that's the next step. And then we say, hey, when in that app, beyond just seeing your purchase history, you can actually use it for shopping. We have our shopping browser. We have cash back. We have tons of things. And what you can start seeing happening now is there's about 10% of the population that uses these features. So it's much smaller, but look at what's happening on the average revenue per customer. It's going from $28 to $90 on that segment of audience. And now here comes the card, which we're super excited. I'm going to show you some more amazing metrics on our card. And what's interesting here is only 3% so far has picked it up, but it's starting to pick up rapidly. And you can see that when people start using our Klarna card, then the average revenue per customer jumps to $130, which is actually 4x as much as the average active user. And in addition to that, we're also expanding the bank offer, the balances, to store a positive balance, to be able to use our savings products and so forth. And you can see there as well, the average revenue per customer is very, very different. So each one of those are very early, but we can say the funnel is working. This channel is amazing. It brings in customers at a fraction of the cost that our competitors are spending to attract the same users. And we're now seeing that we are able to transform them into a richer relationship that gives consumers more value but also allows Klarna to generate more revenue per customer. So first, what about the card? People ask me about why should I get the card? Well, first and foremost, the purpose of our card was to bring back the control of debit or credit. Some of you may remember when you were kids, at least when I was a kid, working at Burger King, you would swipe your card and press 1 for debit, press 2 for credit. People really loved that. But the problem was banks didn't love it because you weren't borrowing enough money when you did that. You weren't building up a balance. You weren't putting all of your purchases per month on a balance and then you were less likely to revolve, less likely to build up that balance. So banks remove that, but we know there's a big segment of customers in the U.S., we call them the self-aware avoiders, which McKinsey has said is about 20% of the audience, we think it's even bigger. But the point is that, that's an audience who have tried those credit cards, who realize that they're a debt trap, realize that they're product of the devil as some of them call them, and that they're all about pushing into debt. So they really enjoy this control of press 1 for debit, press 2 for credit, and we're bringing that back, and we see tremendous demand for that. But the most common thing I hear when I say that is people tell me, "Yes, that would be a nice feature. But what about my perks? What about my loyalty points? What about all the other perks that I get on my credit card?" And that's what you're seeing here is now not only have we launched the card with 1 for debit and 2 for credit. But in addition to that, we're now rolling out the debit card with credit card perks. And the demand for this has been through the roof. We're very excited about this. It's just about to roll out and get launched, but I can give you a funny example. I tweeted about this and said that anyone who would produce these funny memes will actually give us -- will have an early access code. And it was just -- you should go to X and watch these memes. It's really, really funny. And then one of our customers suggested, look, if you personally cut my Amex, I'm there. And we said, fine, I'll do that. So we had almost 1,000 people who indicated that they wanted us to sign up to get their credit card cut by our -- by me personally. So we think that's showing some very good promise to the demand of this product. And we're seeing across social media, there's tons of interest as we present these products to our audience. So this objective #3, from payments to full neobank, what is the numbers? What is it looking like? Well, the fantastic thing is thanks to the success of the last quarter, we have now surpassed one of our main competitors in global active card users, hitting 3.2 million, which we're very excited about. And we can see that U.S. obviously has been a big contributor to that with going from virtually 0 to 1.4 million active cardholders in the U.S. market. So it's starting to really, really work, and we're excited about trying to continue to accelerate this in additional markets. You should be aware here that Europe was a little bit later to the game. So U.S. was first, and we expect to see even more great success here in Europe as well. And that is also being seen in our card volumes. As you can see on a year-to-year basis, they're now growing almost at 100% rate. And that also has contributed. So I would say, doubling the number of merchants offering financing has grown financing product a lot. You can see here what we have done through the card. And all of this is paying off in an acceleration of our revenue growth. So here again, what you can see now is for the U.S. that we are now actually this quarter reporting 51% growth year-on-year, which we're very excited, which means that we're far outpacing our local competitor in growth. And in addition to that, you can see that it's also picking up across the board in all markets and also the strong growth in the U.S. is contributing a lot to the growth overall of the company, meaning that we're now almost on par in global growth as well. We have picked up to 28%. And this is while increasing take rates, which is a strong sign of the preference and interest in our products. So finally, a few words on operational efficiency. It's fantastic now that we're celebrating that we have underwritten $0.5 trillion since inception. And we've done that with south of 70 basis points of credit losses. And this is partly due to the fantastic short durations of our credit. That means that through the macroeconomical cycles that we have gone through over those 20 years, issuing all of this in over 26 markets, when macroeconomical swings happen, we can change our underwriting models. And in just about 60 days, we have -- more than half of our balance sheet is underwritten according to the new model. That's a level of agility that none of the large banks can compete with. Most of them with their credit card portfolios and their mortgages and so forth will sit and try to refresh their balance sheet for years after economical changes have implications on how you should underwrite. And we have also continued to transform Klarna's productivity. So you can see here that our revenue per employee, as we've been talking about previously, has continued to increase. We're now at $1.1 million per employee, and we hope to continue to do that acceleration. And part of that is due to AI and just a focus on operational efficiency, which not through layoffs, but through natural attrition as we haven't hired for a few years has now led to the number of employees to shrink by about 47%. But we want to highlight here as well is that not all of that comes through on the total staff cost. And the reason for that is we have made a commitment to our employees that all of these efficiency gains and especially the applications of AI should also, to some degree, come back in their paychecks, so that they are fully aligned and -- they are incentivized, aligned with the investors to drive these changes through the company. And that's you're seeing as the compensation per employee has risen from $126 to $203 through that process, which gives us a perfect alignment between our employees and our investors in driving the financial goals of Klarna. So we continue to see very demonstratable value from Klarna's AI assistant. This has been reported before. The update, as you can see, it used to do about 700 full-time jobs, now it's doing about 853 full-time jobs of a saving of $60 million. So we continue to invest in this. And you can see also that the focus on operational efficiency that we said in these AI times will be so important has led us to allow us to do about 108% revenue growth while keeping OpEx flat, which I think is pretty remarkable and unheard of as a number among businesses. With that said, I'm going to hand over to Niclas for the financial update. Niclas Neglen: Thanks, Sebastian. As you mentioned, Q3 was a landmark quarter for Klarna, a quarter where our investments in growth, especially in the U.S. and fair financing started to compound exactly as we expected. I'll now take a few minutes to walk through the financial update. Let's start at the top line. GMV grew to $32.7 billion, and the U.S. grew 43% year-over-year. Consequently, revenue grew to $903 million. And in the U.S., we saw revenue growth of 51%. The transaction margins came in at $281 million, reflecting a planned accounting lag from fair financing that I'll talk more about. Importantly, the lag is temporary. We're actually guiding to $109 million plus increase in Q4 on transaction margin dollars as those revenues start compounding. So this slide really captures the story of the quarter, faster growth now with profitability accelerating right behind it. The foundations for our growth remain the same. It's the building blocks you see on the right, growing with our strategic partners, scaling with the large global merchants, ensuring consumers have the Klarna card and building out that full suite of Klarna's flexible payments at more merchants. As we've already said, fair financing is a key contributor to Q3 '25 performance. In the U.S., it's up 244%. Fair financing is now available at 151,000 merchants, an increase of 3x over the last 2 years. Couple that with the new forward-flow agreement that we put in place, enables a very capital-efficient way for us to continue to expand this product. Overall, revenue growth is outpacing the market. We continue to see an acceleration based on the foundations of our building blocks, and we're coupling that with an increase in take rate in a very sustainable way. This page is central to understanding the impact of our success in accelerating growth through the U.S. fair financing. It creates a short-term profitability lag in Q3 '25. On the left-hand side P&L, we show the transaction margin dollars based on realized losses increasing by 25% year-over-year. You can see that correspondingly on the right-hand side chart, where you see $297 million going up by 25% to $371 million based on those realized losses. In fact, the $91 million of upfront provisioning is primarily driven by fair financing and drives the $280 million transaction margin dollars you see in Q3 '25. While that is the case, we're guiding towards a Q4 '25 of $390 million to $400 million of transaction margin dollars driven by the fact of -- that revenue from the success of the fair financing compounding over time. So let's just recap how accounting for fair financing works. Here's an illustrative example of a consumer who has a 6-month loan. We provision for the potential credit losses upfront, while we actually earn revenue over time as the consumer pays us back. As planned, our numbers reflect the growth in fair financing and the associated accounting processes. You can see that in the chart below. The gray parts of the bars show the upfront provisioning from the success of our fair financing product. While we can see the realized losses, the actual losses that we have recorded are actually very stable and coming down by 1 bp in Q3 '25 based on that continued improved underwriting. In fact, when you look at fair financing, you can see delinquencies falling 5% year-over-year, while GMV has been growing at 139%. Similarly, U.S. charge-offs remain stable within expected ranges. In summary, we have strong top line growth with GMV and revenue driven by an acceleration in the U.S. and in fair financing. That's driven a planned profitability lag in Q3 '25, and we're guiding towards an acceleration in transaction margin dollars in Q4, driven by us being able to continue to compound the revenue that we've seen from the success of our growth. Andrea Ferraz Estrada: Thanks, Niclas. We'll go to the investor questions first, and I will read three questions from say.com. The first question from [ Salem ] is, how can Klarna stay competitive against traditional credit card companies that offer buy now, pay later options? Sebastian Siemiatkowski: Yes. I think Klarna -- I've gotten the competitive question ever since 20 years back when it was us versus PayPal in Sweden and then it was us versus PayPal in Germany and then it was us versus payments companies in the U.K. and the U.S. I think that like -- I mean, in essence, how do you compete? You stay customer obsessed, you make sure that you build -- you listen to your customers, and you build the features that they want. You make sure that you are operationally efficient and don't waste money. And then you just keep on grinding and grinding. I think that, obviously, you could argue that when Klarna was still a small company, the prerequisite -- a small company may be grinding as much as they want, it's still hard to scale it into a large-scale company. But Klarna is at scale now with 114 million users globally, we are one of the largest banks in the world with a number of customers. And now we're exploring and looking into how we add additional value to those customers. And we're seeing that, that is accelerating in the numbers. So I feel we are very well situated to compete against the traditional companies who, most of them, I would say, expose complacency, lack of customer obsession and rely on high barriers of entry and low -- and high switching costs for their competitiveness rather than operational excellence and customer obsession. Andrea Ferraz Estrada: Thanks. The second question is from Benjamin, who asks, does Klarna have any plans to pay dividends to shareholders? Sebastian Siemiatkowski: No, we have no such current plans or ambitions. But I mean, obviously, we hope that Klarna will continue to improve its profitability and so forth. So in the future, nobody knows what's going to happen. Andrea Ferraz Estrada: And the third question is, how do you intend to improve profits on your current business model? Sebastian Siemiatkowski: There are a multitude of things. I mean, as you saw here Niclas explain, spent some time on is the profitability lag that is created through the high growth of fair financing as a product, which is fantastic accomplishments and really primarily stems from the fact that we've doubled the number of merchants that offer this product. But as you can see, that's still only 20% of the portfolio, and we hope to achieve 100%. So we would expect these products to continue to grow. Over time, in most markets, Klarna has on a, what we call, transaction margin. Am I using the right term, Niclas? Yes? Good. The transaction margin has been somewhere around 50%, 60% over a longer period of time in these markets. And a lot of that comes back to maturity, on like having enough repetitive customers, maturing your underwriting models for that specific geography and so forth. And we believe that, that's very achievable in all of our markets. The U.S. is a slight different, which is worth highlighting. And many times, people ask us about credit losses, but what we focus primarily in the U.S. right now is payments fees. Payments fees are actually the same size as losses in the U.S. market. And this is because of the settlement costs that are -- and the nonregulated credit card markets that we see in the U.S. So you may remember that in Europe, there's a regulation, credit cards cost 20, 40 bps. In the U.S., they may cost 150 to 200. So similar as we've seen other companies, some of you have been in payments and fintech for a long time will remember PayPal and how they basically sought to increase the difference between their funding cost and their payment fees. And this is exactly the same thing we're going through. We have tons of initiatives to drive down the payments cost, which should allow the U.S. market that is currently running at positive gross -- transaction margins, but not as high as in some of the more mature European markets. And I think that's the biggest, biggest one that's going to have the biggest implication on the transaction margin. As you can see, below transaction margin, the operating costs, we have no plans whatsoever to increase any spending there currently because of the efficiency gains that we're seeing from AI. We don't believe that hiring is the right approach at this point in time. It could be small hiring here and there, but not anything that will have implications on the net. Yes. Andrea Ferraz Estrada: Great. Thanks, Sebastian. So I have asked the analysts to e-mail me the questions so I can pass them on to management. So I will go ahead and do that. So the first question comes from Tim Chiodo at UBS. And it's about Apple Pay in store. Now they estimate that U.S. Apple Pay could be approaching $1 trillion of volume by 2027, meaning that even if 1% was via BNPL, Klarna would have a reasonable share of that business. Can you talk about how the Klarna team sizes up the potential opportunity associated with the Apple Pay channel even more broadly, including the online experience traction you've already seen? And as a follow-up, Affirm counts Apple Pay-related volumes, which are carded, as Affirm card volumes. Will the recognition be the same here, so we can use for comparability purposes? Sebastian Siemiatkowski: I'll leave the second one to you, Niclas. But I think on the first one, I can answer that. Hopefully, you noted the slide where we were talking about objective one, which is to reach the same amount of acceptance points as the big networks like Visa and Mastercard. Some of you will remember Amex 20 years ago was not accepted widely. You could maybe use it in a restaurant or an airport but not everywhere. And Amex did a fantastic work to roll it out and make it available everywhere. Klarna is going through that process right now, and that is the objective one that we're referring to. And we have already a few years back, identified that this is not going to happen by us signing every merchant ourselves. In order for us to reach that scale, we need to work more closely with our distribution partners. So that's number one. Second, companies like Stripe, like Apple Pay and others who have acceptance everywhere, who can drive that rollout of Klarna, making Klarna more available. So with that said, however, we had worked with some of these partners for many years, but we had never worked as we've always been an alternative payment method, something that merchant would have to go in, post-signing up with a Stripe or Worldpay, et cetera, and then add on. And that as well was clear to us was not going to make us into millions and millions of acceptance points. So we went for our holy grail that has been to become default, meaning that when you sign up with these partners, we should be default and we should be available. And that we're seeing tremendous success with already. You saw some of the ones in the slide. You can see that it is having a very positive impact on the growth of number of merchants. When it comes to Apple Pay, it is slightly different because the acceptance is already there, and it's more about customer adoption. So we have teams that are focusing internally using that customer obsession methodology that we showcase you where we are looking and interviewing customers using that product, looking at customer interactions and then making sure that all the minor glitches and things that can be improved are weeded out and that works really, really well. And we see a lot of scale and growth in that portfolio. But in addition to that, obviously, then the second part is just education, marketing and educating our consumers about the availability. And we have some interesting upcoming things that are going to happen there as well. I don't want to get ahead of myself, but like there's some interesting stuff that's going to come there to make it even more attractive and grow the awareness. As you saw in that slide, becoming a neobank, everything with Klarna is we have so many tons -- great features and many of these features drive additional revenue per customer as well. And a lot of -- but we have 114 million users, right? So there's -- a lot of it right now, the focus is really how do we make sure that all these users actually use us and use all these features. And so that's where a lot of the effort is, and that is true for Apple Pay as well. When we -- regarding reporting, I'll hand -- glad -- over to Niclas on that topic. Niclas Neglen: Thanks, Sebastian. So yes, so today, we don't actually include Apple Pay in our card volumes. This is what you're seeing today where we're announcing things around the card, it doesn't include Apple Pay. Apple Pay is growing really strongly. So is Google Pay. And I think globally, we're seeing really, really strong adoption for Apple Pay as well, particularly in the U.K. Andrea Ferraz Estrada: All right. Thanks. So the next question comes from Sanjay at KBW. And he asks, the 4 million Klarna card sign-ups in 4 months seems really strong. What are you seeing in terms of usage and uplift in GMV from consumers who are signing up for the card? What's the ARPAC from a card customer versus one that doesn't have a card? Sebastian Siemiatkowski: I will gladly leave that to you, Niclas. Niclas Neglen: Sure. So I think we had some of this on the slides, right? But what we're seeing from the card, ARPAC is around about $130. Now that's obviously only 3% today of active card users. So you can see where that's going in comparison to the $28 that we have on average on our 114 million active users. So we'll continue to see, I think, strong performance on that overall. Andrea Ferraz Estrada: Great. The next question comes from Jason from Wells Fargo, and he asks, the credit beta looks good in Q3. But are you seeing any signals in your data suggesting that you may have to tighten the credit box in any of your major geographies, especially as we head into the holidays and consumers potentially lean in more on BNPL? Sebastian Siemiatkowski: Look, I think, again, the key message that we've been trying to get out and that I feel very -- that I really myself think a lot about is the fact that the audience using Klarna is what we refer to as the self-aware avoiders. These are users who usually have used credit cards historically, found them to be not aligned with their best interest or even as I would quote some customers, the product of the devil. And the point is that like you end up racking up debt of $4,000, $5,000, you're paying high interest on that and you're revolving for eternity. Buy now, pay later, $100 average order value, the fixed installments, 0 interest. Obviously, our fair financing products are very affordable as well. So I would argue that the Klarna customer is a more conscious customer. It's one that is a little bit more thoughtful in how to spend on debit, how to spend on credit. And this is partially why we've seen after underwriting $0.5 trillion over 20 years, these below 70 bps losses over time. And the other thing that we highlighted was the agility of the model, right? So because we underwrite in real time, it allows us, when we see macroeconomical shifts, to adjust those models. And in just 40 days, more than 50% of our balance sheet is underwritten according to the new standards. And that gives you an agility. So the question then is, I would say, have we any reason currently to make any adjustments? And the honest answer is no. We have not seen anything in our data or in our spending that suggests that there should be currently any changes. What we have communicated, and I've said on some interviews is that in the midterm, I am keeping a close eye on whether we may see what is the inverse of credit underwriting in my 20 years, which would be that generally speaking, normally in lower -- in more worse performing macroeconomical scenarios, you would see implications for low-income household, blue-collar jobs, et cetera. With AI, it might very well be that the implications are the inverse, that it's actually going to affect high-income households and white-collar jobs to a larger degree. And that's what we're keeping an eye on to see if we want to make an adjustment. But so far, nothing has -- but I'm keeping a close eye and we're keeping a close eye on the unemployment numbers and particularly trying to understand in those unemployment jobs or numbers, what is -- how is the split between these professions and what are the implications for that. So it's one to keep a close eye on, but nothing that we have acted on so far. Andrea Ferraz Estrada: All right. Thank you. So operator, please go ahead and open the lines for the analysts. Operator: [Operator Instructions] Your first question comes from the line of James Faucette of Morgan Stanley. James Faucette: I wanted to ask about your partnership with Walmart and OnePay that was highlighted in your prepared remarks and slides. But wondering if you can give us any insight on how that's developing so far in terms of adoption, credit quality, even if just directionally? Niclas Neglen: So to answer your question, the OnePay, Walmart relationship is really going well. I think we are firing on all engines. External data, you can see that we've basically taken up the vast majority of volume with that relationship. And so we're moving forward really nicely. Generally speaking, it's going to plan with regards to the type of consumers we're seeing. And I think we're just seeing many, many opportunities, James, for us to continue to develop that relationship with OnePay and Walmart. Operator: Our next question comes from the line of Jason Kupferberg of Wells Fargo. Jason Kupferberg: I know you asked one of mine already. But let me ask you this, just on the fair financing side, I think you said you're now at 18% of your merchants. And I was wondering what percent of your total GMV those merchants represent? And then just any targets, where does that 18% penetration rate go to potentially over the next year or 2? Because obviously, that should ultimately be pretty accretive to the TM line. Niclas Neglen: Yes. Great. Thanks for the question. I don't have an exact figure with regards to the percentage of volume overarchingly. But I can say is that as we're continuing to work, to Sebastian's point, with the partnerships, we're going to see this continue to expand, obviously, to the suitable places. But ultimately, we're seeing that we're continuing with the partnerships to be in default in more places, allowing us then to have all of our full features or product sets with each of these merchants, right? So I would expect that to continue to become a very significant number, right? Obviously, with respect to certain verticals, you would have less opportunity for that, right, with a very small ticket, high frequency. But generally speaking, we would expect most of our merchants to be able to have that product set as well. And so it's all about just working through the integrations, working through the partnerships that we have and continuously doing that throughout our 26 markets and beyond. Operator: Your next question comes from the line of Darrin Peller of Wolfe Research. Darrin Peller: All right. Congrats on your first quarter out of the gate being a good quarter. It's nice to see the U.S. GMV growth continuing to accelerate during the quarter. So if you could just touch on the key drivers here again. I know fair financing is one of the main contributors, but anywhere else you're seeing the momentum? And what's the sustainability of that? And I'll just ask my two together. Just one more is on PSP default partnerships. I know that was clearly an exciting opportunity in terms of TAM. So how are the partnerships ramping in line? Are they in line with your expectations? Just a little update there. Sebastian Siemiatkowski: I think that the -- when it comes to the partnerships, as we said, like we concluded a few years back that like growing merchant-by-merchant is just not going to scale. You're going to have to work with PSPs. You look at the Stripes, the Worldpays of the world, JPMorgan Chase, all these guys, they have trillions of dollars of volume, right? So finding out ways to work with them, finding good partnerships and then also not just becoming an alternative that has a small 1 percentage of the volume, but actually coming default is super critical. I think one of the things that actually doesn't get enough attention here is the Stripe Link partnership, which in itself is like many of you now using Stripe will notice that you have this one-click experience, not that dissimilar to what Shopify does and others. And the benefit now is that Klarna is the main provider of that, which means that everyone getting a Stripe Link gets the option to use our buy now, pay later, which becomes an even faster way to reach all of the Stripe merchants that offer that already. So all of this is just like different ways of distribution of Klarna. Another one in Europe, which is actually important is this Vipps announcement. It might sound small, but it means it's opening up for third-party partnerships with local schemas, with local payment schemas and so forth. So all of these things are going to -- but the difference with this kind of growth is obviously, it's not like you launch and then go live and everything. These are like long-term strategic relationships, you need to sign the contracts, you need to find the reasons for them to do it. You need to set up the technical integrations. And as you will be familiar with, some of these companies are M&As. So they will have different tech platforms for different subsets of the volumes. So you need to integrate on all these platforms. But what we're happy about this is we think it's like setting a foundation for long-term growth of the company. And we can see that clearly now is the ones that already are live like the Stripe you saw on the slide or the Apple Pay and so forth, that is actually starting to really be visible in the growth of both number of merchants and volume. So we think this is nice because it sets the foundation and will continue. And there's really no reason why we would -- this would stop or anything. We're on a good trajectory here and things is going to continue. I think that's been very important for the U.S. The other one is making sure that we actually then offer all payment methods, not just one, as you saw. And then the third one, which we're super excited about, is that card growth that has already outcompeted globally -- on a global level, one of our competitors there. But also even on the U.S. level, we think fairly soon, we'll be able to catch up. So I think that the -- there's good belief to be optimistic about the opportunities in the U.S. in the short and midterm. Niclas Neglen: I would just add there, if you don't mind, like basically, if you think of it, there's $7 trillion worth of volume flow through these PSPs that we've signed, right? We're going to start ramping -- we started ramping up with Stripe and a few others that Sebastian mentioned. And over the coming quarters, we will continue to do so. But when we talk about something being live, yes, it's live, but there's still multiyear worth of growth here to Sebastian's point, right, which is really, I think, important to point out and highlight. And with regards to your other question, just around verticals, I was looking through kind of -- we're actually seeing a very broad-based growth across all of our types of verticals, which just shows how we're more and more becoming an everyday spending partner. Sebastian Siemiatkowski: I think it's worth highlighting as well is that in Europe, we are used to being 20% share of checkout. In the U.K., as an example, not uncommon for Klarna to be 20% share of checkout, on par with PayPal. In other European markets, we could see 40%, 50%, even 60% share of checkouts. In the U.S., it's predominantly still 5% to 10%. This is entirely natural. This is exactly the same that we've seen over the years in every market we come in. We're at about 5%, and we start growing 10%, 15% and so forth. So also like as a share of checkout, there's tremendous opportunity to grow in that regards we believe. And then people will have argumentations like is the same going to happen in the U.S. and in Europe, et cetera, et cetera. But from our point of perspective, there's no reason to believe that we could not achieve that, and we're going to definitely work hard to make it happen. Operator: Your next question comes from the line of Mihir Bhatia of Bank of America. Mihir Bhatia: I wanted to just maybe talk a little bit about the provision line item. And I appreciate the detail you guys went into in the prepared remarks. But maybe just to put a little finer point on it, the provisions for credit losses, they're up 17 bps quarter-over-quarter. And I was just wondering if you could talk about the drivers of that. How much of that was new loans versus changes for the loans on balance sheet? Because just given the credit performance, it seems like a pretty big jump. Any color on how we should think about that going forward? Niclas Neglen: Yes. So I mean, obviously, we are scaling the book quite quickly, right? And so given that the vast majority is really on -- is really with the new cohort of growth that we're seeing, right? I would expect that to kind of move -- over time, start normalizing, right? But I think given the speed and the size and the opportunity and the fact that we can continue to compound with so many new merchants through the partnerships that we have, I think it will take a multi-quarter view for us to fully kind of get into a more normalized mix, if that makes sense, Mihir. Sebastian Siemiatkowski: Well, we think it's very good. It's very healthy. It's like a subscription business. You should take the marketing cost upfront and you have revenue over the lifetime of the customer. And that's the same thing we're doing here. I mean the dominant impact on that line is because we're taking the cost upfront while the revenue is coming in over time. And so that makes a lot of sense. Obviously, some of our competitors, when they sell more of what they generate, they book both the cost and the income immediately. But we also know and you -- many of you will be aware that, that is also less affordable. It is actually more profitable to do what we're doing and putting it on our balance sheet. So it's a trade-off between how much we sell off and so forth. But from an accounting perspective, this makes a lot of sense. This is diligence. This is smart and thoughtful to do it this way. And for us that have been -- myself been with Klarna for 20 years as an investor, a shareholder, I've seen us go through these cycles. And as you start growing fast because of the number of merchants that we've added on financing has doubled, then you're going to see these short-term profitability lags' implications on the P&L. Mihir Bhatia: Understood. If I could ask a follow-up just on Southern Europe, pretty strong growth there. Anything in particular -- anything to call out there on what's driving that growth? Sebastian Siemiatkowski: Yes. I think that the -- thank you for highlighting that. We actually -- we spent, I would say, 2022 and '23, Sykes, our Head of Commercial, spent a lot of time on really setting the foundation in Italy, in Spain, in France, in these large markets that at that point in time, we hadn't really been as successful in, and we hadn't yet outcompeted the local competitors that existed. And it's really nice to see that pay off. I think one thing that's underappreciated about Klarna is global coverage. And the point is if you're talking to retailers across the world, if you're talking to Sephora that's operating obviously in all these markets, it just has such a tremendous value to be able to work with one provider as Klarna across all these markets. I remember clearly being in a meeting with IKEA and they once said to me like many years ago, "You moved from the local payment method to the regional one." And I was like, "Yes, but here's global with PayPal. How do I get in that quadrant?" And now we are, right? And what's helpful about that, obviously, we also have salespeople on the ground across the world, right? So we have people in Barcelona, we have people in Tokyo, we have people in Portland, next to Nike. We have across the world, over 40 locations. They sit close and work with these retailers. These are long-term relationships, and we make sure that we're live with these merchants across all markets. So we're getting a lot of value of that in these markets like France and Spain, Italy because they just roll us out. And that allows us to be very competitive on a local level as well. And I think that's being seen. But we actually think there's more potential there. There's more work to be done on improving the quality of the product and so forth. So we think there's a good potential to continue growing in these markets as well. But very helpful to have this global distribution partnership with people like Stripe and others who are going to automatically turn us on in all these local markets. Operator: Next question comes from the line of Nate Svensson of Deutsche Bank. Christopher Svensson: Congrats on getting out there with the first quarter. I wanted to ask on the Elliott partnership that we saw the news come across this morning. Maybe you could talk a little bit more about the process to bring them on board? What they saw in Klarna to get them comfortable? Why you decided they were the right partner? And then I guess we saw that $6.5 billion number there. Does that give you enough runway to meet your ambitions for U.S. fair financing? Or do you think you're going to have to additional partners? And then sorry for making it a three-parter, but just on the revenue recognition, there. It sounds like you will be selling some of the back book over. Should we assume the entirety of the front book will be sold to Elliott? Sebastian, I think you had mentioned making this decision between how much to keep on, how much to sell. So just more details on the revenue recognition from that partnership would be helpful. Niclas Neglen: Sure. Great. So yes, I mean, Elliott is a great partner, and we work with them on a number of other transactions as well. I think generally speaking, it's always going to be a balance for us between profitability, ensuring that we can continue to grow and ensuring that we don't dilute our shareholders in that growth through the capital given that we're a bank, right? So those are really the three vectors that we think about. And I think this is a great partnership. Elliott is a strong partner. They understand us. They know us well. We've done other transactions with them in the past. And from our perspective, this one is a really, really good partnership. I do believe the runway that we have with our growth potential that we've just spoken about here will give us an opportunity to continue to do more of these things over time, right? And again, thinking about those three balances of profitability, ensuring that we minimize dilution to shareholders, grow the best return on tangible equity while also growing the business in the size and ensuring that we can do that. So I think that's really the economics around it. Andrea Ferraz Estrada: Thanks, Niclas. I'm going to take, again, since some of the analysts sort of just ended up sending us the e-mails. So Will Nance from Goldman Sachs is asking, could you talk about your engagement with merchants around advertising into the holidays? Where are you now? And where do you aspire to be in terms of merchants viewing Klarna as a way to drive sales and engagement with consumers? Sebastian Siemiatkowski: Yes. So I think that this is actually one of the things I'm very proud and happy about, and I think has made a big difference in this -- we were talking about this customer obsession work. You saw me presenting a little bit on how we do it. You saw those customer interviews that we do and we review all the experience and so forth. And a big part of that is obviously feeding actionable insights, not only for us, but also for our partners. So what we do out of that process, we come and we recognize like how could we help Sephora grow their business? How could we help Etsy grow their business? How could we help eBay grow their business? And this generates like very, very concrete advice and suggestions of changes, of improvements, marketing campaigns, to your point, and so forth. And that's what our sales teams are then interacting with. And we've seen a fantastic uptick in trust and people wanting to listen because I think maybe more like every other traditional company, we used to come and say, "Hey, we have this idea, and this could have this impact, and it could be like something more complex." But now we're coming with like super concrete, real well-explained, very, very high-impact changes that can be fixed, and we're seeing that having a very dramatic effect. So -- and marketing activities is obviously a big part of that. There's tons of things we can do like how we position the payment method, how we show it on the website. And obviously, 0% financing, fantastic opportunity, one of the things that I think Klarna has underinvested in, and we are now really ramping up and making sure that we're offering. I think 0% financing is such a fantastic opportunity. A lot of merchants and a lot of brands want to offer affordability without lowering their prices. And also, what we see is that 0% financing is driving a fantastic audience to Klarna because it attracts a more broad spectra of FICO scores. So it is fantastic in many, many ways. And that's going to be a continuous focus with our partners. You're going to see us do a lot of things in 0% financing. Andrea Ferraz Estrada: Fantastic. And I think we have time for just one more. It comes from Rob Wildhack at Autonomous. And the question is, wonder if you could talk about the transaction margin by product. What kind of transaction margins are you seeing on the U.S. fair financing volume? And how should we expect them to -- the mix to impact the overall transaction margin as you grow that product? Where does that transaction margin settle out at steady state? Niclas Neglen: Yes. Good question. I mean, look, there's a lot of different products that we're launching, right, and that we're working and building that are new, whether it be through the card and otherwise. But let's talk about fair finance because you mentioned that one. So generally, we target between 3% and 4% transaction margin dollars. I think that's a fair approach. And as we continue to ramp, that obviously will be accretive to the overall portfolio. But again, at the same time, we're also, to Sebastian's point, building out the pay in full elements and such, right? So we are going to have variations to that. I think the key thing for us is really can we serve as much of the customer share of wallet as possible and are we relevant in every single time that they want to make a payment as an everyday spending partner. That's what we really need to focus on. Then as you know, we've spoken about this before, it's all about having a very trend-based focused model, where we look at how we're developing over time, given the fact that we are growing in 26 markets across -- with 114 million users or consumers and with so many merchants, right, and across so many vectors. So we're going to continue to kind of do that. And as we guide, we'll guide towards the transaction margin dollar growth basis on a volume view rather than trying to just nail down a particular unit economics on one or another. Andrea Ferraz Estrada: All right. Thank you so much. And with this, we conclude the call. We thank everyone for joining, for putting up with our technical issues. And with this, we conclude the call. Thank you. Sebastian Siemiatkowski: Thank you so much. Niclas Neglen: Thanks, everybody.
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: Good day, everyone, and welcome to the Algorhythm Holdings Third Quarter 2025 Financial Results Earnings Call. My name is Elvis, and I'll be your operator today. As a reminder, this call is being recorded. We have a brief safe harbor statement, and then we'll get started. This call contains forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we file with the Securities and Exchange Commission, including the cautionary statement found in our current and periodic filings. Now I'll turn the call over to Gary Atkinson, company CEO. Please go ahead, Gary. Gary Atkinson: Thank you. Good morning, ladies and gentlemen. Thank you for joining our third quarter 2025 earnings call. My name is Gary Atkinson, company's CEO. I'm also joined this morning by Alex Andre, company's CFO and General Counsel. I appreciate you taking the time to hear about the progress we've made as Algorhythm continues on its growth as a leading AI-driven logistics technology company. This quarter was a major milestone for us. It was the first reporting period since we completed the sale of our legacy Singing Machine business and transition to a clean financial presentation reflecting only our core operations at SemiCab. This is the new Algorhythm, a lean, technology-first organization focused squarely on disrupting freight logistics through artificial intelligence and network optimization. Before diving into our recent progress, I want to restate the core problem that SemiCab is solving and why our conviction in this business continues to grow. First, the global truckload transportation market is massive. It has a total addressable market of approximately $3 trillion per year. Second, the industry remains massively inefficient. On average, one out of every 3 miles driven by a truck is empty. These empty miles cost shippers and carriers over $1 trillion annually, not to mention the hidden impacts of unnecessary road congestion, wasted fuel and avoidable CO2 emissions. Third, SemiCab is uniquely positioned to address this problem. We are one of the first freight technology platforms to embed our AI-driven collaborative optimization model directly into the core of our architecture. Our platform is designed by default, to continuously optimize every single load we process automatically, finding multilateral mattress to reduce empty miles. And finally, we're seeing the proof. It's working. In India, our real-world case studies show many examples of truck utilization rates improving to approximately 85%, outperforming industry average by more than 20 percentage points. If done at scale and with proper execution, we believe SemiCab can be an integral part of the infrastructure that coordinates all full truckload movements around the world. Alex will go into more detail shortly, but I want to call out several major achievements from the last few quarters. During the third quarter, revenue increased approximately 1,300% year-over-year, representing an annualized run rate of about $7 million. This year, we've added 4 new Fortune 500 clients in India, and we've converted 5 pilot programs into multimillion dollar contract expansions. Across all awarded expansions, we are now tracking toward approximately $10 million in annual contractual run rate. This is a forward-looking metric and dependent on continued access to trucks, but it is a strong indicator of the direction and scale that we're moving ahead with. We anticipate further customer activity before year-end, and we look forward to updating you as progress continues. With that, I will now turn the call over to Alex Andre, our CFO, who will walk through the third quarter financial results. Alex Andre: Thank you, Gary. Hello, everyone. The quarterly report that we will be filing with the SEC later today will present our financial results for the 3 and 9 months ended September 30, 2025 and '24. As Gary mentioned, we sold Singing Machine on August 1. Under applicable GAAP provisions, we reflected all financial results attributable to Singing Machine as discontinued operations in our financial statements. As a result, our balance sheet, income statement and statement of cash flows only reflect the financial results of our continuing operations, including the operations of SemiCab. Singing Machine's financial results for all periods reported in our financial statements are reflected in select line items referencing discontinued operations. Moving on to our third quarter financial results. Sales for the 3 months ended September 30, 2025, increased to $1.7 million from $100,000 last year, primarily due to the acquisition of SMCB Solutions Private Limited on May 2, 2025. SMCB, which owns our SemiCab business in India was responsible for $1.7 million of revenue that we achieved during the third quarter of 2025. SemiCab's legacy U.S. business was responsible for the $100,000 of revenue that we generated during the third quarter of 2024. We recently announced the SemiCab's annualized revenue run rate have tripled more than 7 million since January 2025. This growth was reflected in the revenue that we generated this quarter. We expect SemiCab to generate around $2 million during our fourth quarter. During the next 12 months, we expect revenue to increase substantially with SemiCab's annualized revenue run rate increasing to between $15 million and $20 million by the end of next year. This will be largely attributable to the growth in our SemiCab India business but will also reflect some revenue that we expect to generate from SemiCab's new U.S.-based SaaS business that we recently announced. Gary will discuss SemiCab's U.S. SaaS business later during this call. Gross loss for the 3 months ended September 30, 2025, increased to $351,000 from $32,000 last year, with gross margin percentage decreasing to negative 20% this quarter from negative 25% last year. Gross loss is a function of the revenue that SemiCab generates from the managed services that it provides in India and the freight handling and servicing costs that compromise its cost of sales that it incurs in connection with the provision of those services. SemiCab pays for access to trucks and generates revenue by using these trucks to complete shipments for its customers. SemiCab enters into contracts for access to trucks when it enters into new territories, then begins generating revenue in these territories as it acquires customers there. SemiCab does not fully utilize the trucks that it is paying for when it first enters new territories as it obtains customers in the territories and is awarded more routes from its customers, it will be able to more fully utilize the trucks it has under contract. This will result in the amount of revenue generated from the trucks going up, spreading a larger revenue base over the relatively small cost of the trucks it is using in the territories. We expect gross loss to decrease over the next 12 months as the growth in revenue that SemiCab generates from obtaining additional routes from its growing customer base exceeds the increase in the cost of sales that it will incur as it enters into contracts for access to additional trucks. Operating expenses for the 3 months ended September 30, 2025, decreased to $1.2 million from $1.8 million last year. The decrease was due primarily to cost reduction measures that we implemented during the past couple of quarters and a decrease in operating expenses that we incurred during the 3-month period ended September 30, 2024, in connection with our acquisition of the assets of SemiCab's U.S. business on July 3, 2024. We expect general and administrative expenses to increase over the next 12 months as we continue to invest in the growth and development of our SemiCab business. Net loss for the 3 months ended September 30, 2025, decreased to $1.8 million from $2.1 million last year. The decrease was due primarily to the cost reduction measures that we implemented during the past couple of quarters, and a decrease in operating expenses that we incurred during the 3-month period ended September 30, 2024, in connection with our acquisition of the assets of SemiCab's U.S. business on July 3, 2024. Net loss available to common stockholders is expected to remain at similar levels over the next 12 months. We expect cost reduction activities that we are engaged in to beneficially impact our net loss, but expect this to be offset by increases in the investment we will make in the growth and development of SemiCab. That concludes my overview of the third quarter financial results. Gary Atkinson: Perfect. Thank you, Alex. Before we open up the call to questions, I would like to close by highlighting a new initiative that we announced last week that we believe will meaningfully accelerate our growth and further transform our business. The launch of SemiCab Apex, our new SaaS platform for the U.S. and global markets. Apex is an important evolution of our go-to-market strategy and a major expansion of our business model. It offers a combination of high margins, rapid scalability and global adaptability delivered through cloud-based software that is frictionless for customers. Here are a few key reasons why we are so excited about Apex. Apex is a high-margin SaaS product. Because Apex is delivered entirely as software without any physical freight operations, it carries significantly higher gross margin. As adoption increases, we expect Apex to significantly improve our blended company margins and strengthen overall profitability. Apex scales quickly. Unlike our managed services business, Apex does not require access to trucking fleets to grow revenue. Apex can be deployed within any enterprise shippers business that manages their own dedicated fleet or Apex can be implemented with a 3PL warehouse or carrier network. Apex is also extremely easy to implement. We designed Apex to integrate into existing TMS or transportation management systems via commonly used APIs without requiring a major IT integration project. This dramatically reduces customer friction and speeds up time to market. Apex is globally deployable. Because we are solving a global inefficiency that is not dependent on region-specific physical operations, Apex can be deployed in the U.S., India, Europe, Middle East or any market around the world where shippers need better visibility, planning and optimization. I'll close on this note. Apex is the future of SemiCab. We're building toward a world where our platform powers millions of loads every day across tens of thousands of shippers globally, where we are positioned to generate recurring revenue and transaction fees on each and every one of these loads that is coming through the SemiCab platform. With that, I would now like to open the call for any questions. Operator: [Operator Instructions] We have a question from [ Brian Tantalo ] an investor. Unknown Attendee: Congratulations on a great quarter. I appreciate the update. Just one quick, you talked about Apex, sounds extremely exciting. What -- can you just explain what the go-to-market strategy is? What we should be looking for as points of progress? Gary Atkinson: Yes, absolutely, Brian. Thanks for that question. I'm happy to talk more about Apex. I mean, again, we are very, very excited about this product launch, particularly in the U.S. So in terms of sort of the go-to-market strategy, we've identified 3 different verticals that we're going to be going after with the Apex product. So the first one that we touched on are enterprise shippers. So these would be fast-moving consumer goods companies, very similar in profile to the companies that we're servicing in India and basically, any enterprise customer that has its own dedicated fleet. So for example, let's say, customers like a Pepsi or a Coca-Cola or a Walmart or basically large clients that have 50% to 60% of their trucking is internally managed, they could deploy SemiCab Apex platform right sort of on top of their TMS system. And so it's a very -- we're not asking a customer to replace their entire TMS system. We're just asking them to add some API hooks that go into our cloud-based Apex platform to help optimize what they're already doing. So that's one distinct vertical. The other one we're looking at is essentially 3PL warehousing customers that offer freight brokerage services. They could be then utilizing the SemiCab Apex platform to offer new services to their existing customers. So it would sort of be like a white labeling of our platform where 3PL warehouses could advertise themselves as a 5PL service provider and basically white label our platform to their customers. So that's another way of generating revenue. And then finally, the last segment that we've identified is the carriers themselves. So if you're a large transporter with thousands of trucks, you could utilize SemiCab to help improve what you're currently already doing. And so that's sort of the 3 different verticals that we've identified, and we're going to be sort of growing our sales team over time as we progress our conversations with those different customer groups. So hopefully, that answers the question. Unknown Attendee: It was helpful. Congratulations again. Operator: Next, we have Eric Nickerson of Third Century Partners. Eric Nickerson: I came on to the call just as you were finishing up your comments and opening up for questions. All I really want to ask is, is this call going to be -- is it going to be on the website so I can listen to it there? Gary Atkinson: Yes. This call is recorded. It will be available up on our website a little bit later today once the recording becomes available. And we can share it out with you, Eric. Eric Nickerson: Okay. Good. I'll do that. Just one other question. A moment ago, you said you're particularly excited about the United States. Is that to say that you think the U.S. market is going to be a better immediate place to attack than India? Did I hear you right? Gary Atkinson: Well, I mean, yes, so I don't want to -- I think the thing that I'm so excited about the U.S. and the Apex launch in particular is the margins on SaaS are typically 90% to 95% gross margins. So the ability to transform the financials of the company are just much more meaningful with the Apex launch and also the ability at which it can scale. Right now, I'd say, one of the sort of gating items on the growth in India is just access to trucks. Whereas here, with the Apex launch in the U.S. we're not limited at all by any physical access to really anything. It's pure software. It's cloud-based. It can scale as fast as a customer wants to scale and so there's no -- it's just a much easier to scale and deploy as opposed to India, which is not to say we're not excited about the growth in India. I mean we've got massive, massive growth opportunities in India, but it does require more of an operational lift just because you need to have access to trucks. You need a full team on site to manage. So they're both good businesses. We both think they complement each other well. It's just one can move a lot faster than the other. Eric Nickerson: Okay. Good. I won't bother you with the stuff, it will probably just make you repeat what you've already said. I'll listen to the call on the transcript... Operator: [Operator Instructions] And we have no further questions at this time. Gary, I'll turn the program back over to you for any closing comments. Gary Atkinson: All right. Well, that concludes our prepared portion of the call today. I want to just thank everybody for taking the time to join us and we look forward to continuing to update everybody into the near-term future as we continue to scale the business, add clients, expand clients and continue to grow. So thank you again for all your support, and we'll be talking soon. Thank you. Operator: That concludes our meeting today. Thank you for joining. You may now disconnect.
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.]
Stephen Hare: Good morning, and welcome to Sage's full year results. I'm pleased to be joined by Jonathan Howell, our CFO. I hope you enjoyed that preview of the Sage Finance Intelligence Agent. I'm going to start with an overview of our key messages. Firstly, Sage delivered another strong performance in FY '25. For the fourth consecutive year, we achieved a double-digit increase in underlying ARR, testament to the resilience of our model and our durable growth. Through cost discipline, together with operating leverage, we've delivered strong profit margin and EPS expansion. And we've converted this into robust cash flows, supporting organic and inorganic investment and enabling strong shareholder returns. Secondly, our performance is driven by our relentless focus on delivering customer value. From the launch of Sage Intacct Suites to our new cloud-native version of Sage X3, we are accelerating the pace of innovation at Sage. Through our AI-powered platform, customers are saving time and making smarter decisions. The future is exciting with AI set to revolutionize the way businesses operate. And with AI agents, we're delivering the next wave of intelligent solutions, transforming how SMBs manage their finance, HR and payroll processes. And finally, our progress is underpinned by consistent, focused execution. In recent years, we've transformed our portfolio to meet and exceed our customers' needs. And today, as a result, we have around GBP 1 billion of cloud-native ARR growing over 20%. We've enhanced go-to-market with new systems and processes to drive efficient growth, and we're investing with purpose in our technology, our people and our communities to ensure that Sage continues to deliver for the long term. I'll talk more about our progress later in the presentation, but for now, I'm going to hand over to Jonathan for the financial review. Jonathan A. Howell: Thanks, Steve, and good morning, everyone. I'm pleased to share with you today our full year results and the outlook for the year ahead. In summary, we delivered strong financial results, and we enter FY '26 well positioned for further success. Looking back, we have a good track record of strong and consistent financial performance, which highlights our continued strategic progress. As a result, since FY '22, we've grown revenue at an average of 10% per year and operating profit at 18%, converting to strong EPS growth of 21%. Moving on to the highlights for FY '25. We've achieved revenue growth of 10%, reflecting the strength of our subscription-based model. Our operating profit margin was 23.9%, an expansion of 150 basis points as we scale the business and deliver efficiencies. This has led to a strong increase in EPS of 18%. And finally, we delivered cash conversion of 110%, driven by growth in subscription revenue and good working capital management. Let's turn now to ARR growth. Renewal rate by value was 101%. This reflects strong retention rates and a good level of upsell to existing customers, together with targeted price rises. And we've seen good levels of growth from new customer acquisition. As a result, ARR increased by GBP 245 million to GBP 2.6 billion. That's up 11% compared to last year. Importantly, this growth continues to be well balanced between new and existing customers. So turning to the P&L. Total revenue growth of 10% was underpinned by recurring revenue, which also grew by 10%. Sage has a 97% recurring revenue business, demonstrating the high quality and resilient nature of the group. Operating profit grew by 17% to GBP 600 million, reflecting continued top line growth and strong margin expansion. Profit after tax increased by 14% to GBP 423 million, leading to strong growth in underlying EPS of 18% to 43.2p. And we've increased the final dividend to 14.4p, taking the full year dividend to 21.85p which is up 7%. Cloud products continue to be a significant driver of growth with Sage Business Cloud revenue increasing by 13%. This reflects good strategic progress as we continue to expand our global cloud solutions. Within this, cloud native revenue increased by 23% driven by strong growth from new and existing customers, particularly in Sage Intacct. Subscription penetration also continued to increase and now stands at 83%. Moving now to our regional performance. Starting with North America, which represents just under half of group revenue. Here, we delivered revenue growth of 12%, driven mainly by the medium segment. Sage Intacct continued to perform well with strength across key industry verticals, including not-for-profit and financial services. Sage 200, Sage 50 and Sage X3 also supported growth across the region. The UKIA region represents almost a third of group revenue and grew at 9%, with a good performance across the portfolio. The U.K. and Ireland increased by 10% as revenue from Sage Intacct continued to scale rapidly. Further growth was achieved in small business solutions, including Sage Accounting and Sage 50 and this was supported by a good performance in SAGE 200. In Africa and APAC, growth of 7% was driven by strength in Sage Accounting and Payroll together with Sage Intacct. And finally, in Europe, which represents over a quarter of group revenue, growth was 7%. This reflects a strong performance across our cloud solutions. In France, growth of 6% was driven by strength in Sage X3 and Sage 200. Iberia also increased revenue by 10%, with strong growth in Sage 200 and Sage 50, together with the acquisition of ForceManager in October last year. And in Central Europe, growth of 6% was driven mainly by Cloud HR and Payroll. As we've said previously, our focus is on efficiently scaling the group. As we grow the top line, operating leverage together with disciplined cost control means we can invest more and expand the margin. This, in turn, leads to sustainable growth. In FY '25, we achieved strong margin growth of 150 basis points to 23.9%. This was underpinned by efficiencies, especially in G&A, which is running at 8% of revenue. Importantly, we continue to drive investment with sales and marketing at 40% of total revenue. An investment in R&D at 15% remains a key priority for the group. Turning to earnings per share, which grew double digit for the third consecutive year. Underlying operating profit grew at 17% following good revenue growth and margin expansion. Net finance costs increased following new debt issuance, while the effective tax rate remain constant at 24%. Together with the benefit of recent share buybacks, this led to EPS growth of 18% to 43.2p. Moving on to cash generation, which remains a core strength of Sage. During the year, the group generated GBP 660 million of cash from underlying operations, resulting in cash conversion of 110%. This is now the seventh consecutive year of cash conversion above 100%. And free cash flow was GBP 517 million net of interest and tax. The group has a strong balance sheet with GBP 1 billion of cash and available liquidity. Our leverage ratio of 1.7 remains within our midterm target range of 1 to 2x. In line with our disciplined approach to capital, this morning, we announced a share buyback program of up to GBP 300 million. This reflects our strong cash generation and robust financial position, together with our confidence in Sage's future prospects. Importantly, we retain significant capacity to support growth. So what does that mean for the outlook? We have good momentum as we enter the new financial year. Therefore, we expect organic total revenue growth in FY '26 to be 9% or above, and we expect operating margins to continue trending upwards in FY '26 and beyond as we focus on efficiently scaling the group. Thank you, and now back over to Steve. Stephen Hare: Thanks, Jonathan. Our performance is anchored in our strategic framework for growth. It starts with our purpose, to knock down barriers so that everyone can thrive as we aim to create the world's most trusted and thriving network for SMBs powered by AI. We deliver on this through our three strategic focus areas: Connect, Grow and Deliver, which I'll say more about shortly. And through this framework, we serve the interests of our stakeholders in line with our values, starting with our customers, small and midsized businesses. SMBs make up 99% of all businesses in our end markets. They are the lifeblood of our economy, providing employment and creating wealth for millions. Our small business tracker analyzes data from 140,000 SMBs. And it shows that despite the external backdrop, SMBs have again proved resilient and increasingly profitable during 2025. But they continue to face barriers such as weak productivity and late payments with the challenge of remaining competitive and compliant. They want effective integrated solutions from a trusted vendor and Sage provides these solutions helping SMBs to knock down barriers, automating processes, speeding up cash flows and delivering business insights. LA Opera, shown here on the slide, told us that Sage Intacct has completely transformed their finance function with its AI capabilities, helping to save 10 to 15 hours a week. And as we roll out Sage CoPilot and AI features more widely, we're opening up new possibilities for SMBs and accelerating customer benefits. The way we're doing this is through the Sage Platform. This platform provides a secure, scalable foundation for all of our products. It connects customers to their suppliers, banks, tax authorities and partners, automating transactions and speeding up compliance and improving cash flow. At the heart of the platform is the Sage AI factory, the infrastructure that drives Sage CoPilot powered by our LLM backed proprietary intelligence engine, and it's supported by our data hub and core experience and network services that enhance security and automate workflows. The system is already operating at scale with over 40,000 models in production, generating 3.5 billion predictions annually. Designed to support rapid innovation, the platform has enabled us to bring Sage CoPilot from inception to market in less than a year and to scale it across the portfolio. And we're now focused on leading the way in Agentic AI, both by launching our own agents, and by integrated trusted third-party agents in a secure ecosystem governed by Sage. For customers, this means greater choice, more intelligence, and faster innovation within the Sage products that they already know and trust. We've been building AI into our products for years through successive technologies, first predictive then generative and now agentic AI. Through these waves of innovation, we've created a powerful and differentiated proposition, combining our experience, extensive data sets and connected ecosystem to deliver trusted, domain-specific AI at scale. Sage CoPilot is our intuitive assistant and the primary way through which customers experience our latest innovations. This is powered by Sage AI, our intelligence engine. Built on deep domain expertise, our models are trained on rich, proprietary data sets from years of experience and fine-tuned to ensure relevant and precise responses. This specialism makes them more accurate and efficient than off-the-shelf models while industry partnerships such as our collaboration with the American Institute of CPAs promise to further enhance their performance. Increasingly, AI agents handle specialist work, taking care of repetitive tasks that weigh businesses down, but always ensuring the human stays in control. And the Sage Platform provides the environment for our AI to operate, bringing applications, workflows and data together. Guiding all of this is our underlying philosophy, authentic intelligence, meaning our AI is built to be ethical, transparent and human first. These pillars underpin our progress towards our ambition to create the world's most trusted and thriving AI-powered network for SMBs. So let's now turn to a look at our progress in more detail through our three strategic focus areas. First, Connect, where we aim to grow our platform by connecting more products, enabling us to serve customers better by expanding the scale and scope of services we provide. This drives the network effect, where every connection and every transaction that flows across the platform makes the system smarter for everyone. During the year, we scaled services, such as accounts payable automation with monthly transaction value tripling over the past 12 months to GBP 2.3 billion, thanks to continued adoption by customers such as Greenidge in the U.S. shown here on the slide. They told us that Sage AP automation has enabled them to double the number of invoices they process without increasing headcount. We also grew our accounts receivable service, and we launched our e-invoicing portal in France, helping customers prepare for upcoming compliance requirements. And through the acquisitions of Fyle and Criterion, we expanded in expense management and HCM, enabling us to streamline and automate these critical processes for SMBs. We're also innovating to expand our reach by delivering a growing set of services embedded into other platforms, such as fintechs and banks, plugging into the apps that SMBs already use. We partner with Tide to deliver bookkeeping, Monzo for making tax digital, NatWest for Carbon Accounting and Capital One for expense management. Extending our ecosystem to win customers earlier in their life cycle and acting as a trusted partner to regulated service providers who are looking to innovate. Looking ahead, our aim in this focus area is to drive the adoption of more network services, bringing productivity to customers and data and insights to Sage. Our second focus area is to grow by winning new customers and delighting our existing ones. And the biggest contributor to growth is Sage Intacct, our flagship mid-market solution. In the U.S., Sage Intacct grew ARR by over 20% with Q4 a record quarter in volume terms. This was driven by strength in key verticals and supported by investment in go-to-market and the expansion of suites. And outside the U.S., ARR increased by around 50%, with standout momentum in the U.K. where Sage Intacct now serves over 1,600 customers. During the year, we replatformed Sage X3 to deliver a full cloud native experience where we saw acceleration driven by strong demand in manufacturing and distribution. Through Sage X3, we can serve customers better, like Grupo Intaf in Spain, shown here on the slide, who told us that Sage has improved their efficiency and helped drive collaboration. For small businesses and accountants, we've expanded through product and package improvements, including in Sage Accounting, Sage 50 and Sage Active. And we've reinforced our relationships with accountants by delivering tools that streamline their work and free up time to grow their business. Our future focus in this area is to drive momentum with new and existing customers and continue to make it easier for them to access products and services. Our third focus area is to deliver productivity and insights driven by AI. Over the year, we've significantly scaled Sage CoPilot in availability and usage. Initially focused on Sage Accounting, we quickly expanded it to Sage 50, growing availability to around 150,000 customers including Adam Williams of Tyne Chease shown here on the slide. I met with Adam earlier this year, and he told me that Sage CoPilot is saving them over 12 hours of admin per week and helping them to get paid up to 7 days earlier. Other customers have told us it's doubled productivity in accounts payable, while reducing manual data entry by up to 90%. We've also expanded Sage CoPilot to Sage for Accountants, Sage X3 and Sage Intacct, where it's rapidly becoming an important tool for customers. Over 26,000 Sage Intacct users worldwide have so far access features such as search help, which seamlessly guides them through key workflows. And the Sage Finance Intelligence Agent, which we showed in the video at the start of the presentation, handles natural language questions like a human finance assistant. These solutions drive real value for customers, not just streamlining processes, but transforming their operations and making them more productive. Now we expect that this, over time, will create monetizable opportunities for Sage through features, pricing and lifetime value. As well as driving productivity for customers, we're also leveraging AI for colleagues at Sage. In engineering, AI is accelerating cogeneration saving hundreds of thousands of hours. In customer support, it's driving a 70% resolution rate with high satisfaction levels. And in go-to-market, AI agents are helping to generate, qualify and convert sales leads. We're doubling down on internal adoption, encouraging and empowering colleagues across the group to use AI to simplify and amplify their work. And with hundreds of new use cases being assessed, the potential ahead is considerable. Our future focus in this area is to continue to scale Sage CoPilot, embedding it into the core user experience across our portfolio while further developing our agentic capabilities, accelerating benefits and unlocking ROI for customers and for Sage. Our success depends on our ability to deliver for our stakeholders. For customers, we're committed to excellence with Sage ranked by G2 as the #1 software company in the U.K. for 2025 and in the Top 25 globally based on user reviews. And we continue to champion policies that our customers care about from partnering with the U.K. government on AI skills to advocating SMB access to green finance across the EU. For partners, we've launched AI developer solutions, enabling ISVs to build and deploy AI agents on our platform. And our new partner portal streamlines partner onboarding, provisioning and support, making it easier for them to work with Sage. For colleagues, we foster a high-performance culture and an innovative mindset. And we're pleased that we've been recognized by Forbes as one of the world's best employers. Turning to society, where we aim to multiply our impact by helping SMBs to be more sustainable. In FY '25, we launched our entrepreneurship program to support purpose-driven start-ups around the world. And Sage Foundation celebrated a decade of impact during which time we've raised over $5 million and enabled 1.4 million volunteering hours. And for shareholders, our objective is to deliver sustainable growth in shareholder value. We do this by growing revenue and by doing so more efficiently over time. The key to this is rooted in our strategy, our competitive positioning and financial model. We have a clear strategic focus, which guides our decisions and ensures we align with the needs of our customers and the expectations of our shareholders. We're differentiated from competitors by our AI-powered platform, global products and geographic reach with deep domain expertise across financials, payroll and HR. And we're diversified through our broad customer base and ecosystem. And finally, our resilient financial model is built on high-quality recurring revenue, providing stability and visibility with growth driving both investment and margin. So in conclusion, Sage delivered a strong performance in FY '25, underpinned by continuing durable growth. Smart investments are driving an accelerated pace of innovation, particularly through AI. And with good progress in execution, we enter FY '26 with confidence and momentum. Now before we move to Q&A, I'd like to say a big thank you to Jonathan, who's been a fantastic support to me and the broader Sage team over the last 12 years. He hands over the financial reins to Jacqui Cartin in great shape and I'm looking forward to welcoming Jacqui to the CFO role from the first of January. So that concludes today's presentation. Thank you very much for watching. And Jonathan and I would now be very happy to take your questions. Operator: [Operator Instructions] We will now take the first question from the line of Adam Wood from Morgan Stanley. Adam Wood: First of all, congratulations on the results and also best wishes from me, Jonathan. I know you've got a few weeks left, but best wishes from my side when that time comes up. I've got two questions, please. Just first of all, we saw a nice tick up in the ARR growth in the fourth quarter. Could you just talk a little bit about what the drivers of that improvement in ARR were at the end of the year, please? And maybe just secondly, when in the commentary around North America, you talked about the introduction of multiyear customer contracts as a driver of growth. I guess from Intacct side, that's a pure SaaS business, so multiyear contracts wouldn't bring any revenue forward, but I'm just curious if you could maybe expand a bit on how that was a driver for North American revenue, please. Jonathan A. Howell: Adam, yes, thank you. Thank you for your questions, and thank you for your comments. First of all, if we just stand back and look at ARR for the full year, we exited with growth of around 11%, and that was in line with the first half ARR exit rate. Looking at sequential growth, Q1, Q2, Q3, we saw between 2% and 2.5%. And then to your question, in Q4, that picked up to around 4%. And that was a very strong result and particularly [Technical Difficulty]. Operator: One moment please, your conference will resume shortly. Jonathan A. Howell: Hello, sorry, we lost the line for a moment then. Just to recap to make sure everybody gets it. Q4, we saw a sequential growth of 4%. And that was a strong result and significantly above the 3.5% that we saw in Q4 of the prior year and that's been driven by North America and UKIA, particularly across the medium segment and primarily Intacct, where we saw a very strong performance in Q4 in both new customer acquisition and upsell and cross-sell. I think it's probably just worth noting that we are now beginning to see the benefit from the ongoing investment that we've made in products, people and go-to-market in those regions in the medium segment. And that underpins our guidance for FY '26 as we exit with -- this year with good momentum. Suites multiyear contracts, Adam, you mentioned that. They simplify our proposition for customers and improve the sales motion. We expect over those multiyear contracts to be able to increase customer lifetime value over that extended period. And that provided a bit of an impact in Q4, but really, the whole performance was underpinned by strong execution in new customer acquisition. Operator: We will now take the next question from the line of Frederic Boulan from Bank of America. Frederic Boulan: Two, if I may. Firstly, around AI. I mean you kind of discussed your pipeline and the kind of innovation you've been pushing. Can you spend a minute around the impact on the business from a revenue standpoint? What you've been doing from a pricing standpoint and any early insights on what you've seen in your U.K. portfolio in particular? And then secondly, it would be good to have an update on the competitive dynamics, especially versus Intuit in the U.S.? Are you seeing any of the QuickBooks graduate funnel starting to dry out? On the contrary, I mean, U.S. performance seems to remain very, very healthy. So any comment there would be great. Stephen Hare: Yes. Thanks, Frederic. And so to start with the AI. And we have, as we've said before, been deploying AI for many years. What we're doing now is, both with Sage CoPilot and now increasingly with AI agents, starting to create more stand-alone capability that takes advantage of generative AI. So with Sage CoPilot, we've now deployed that to around 150,000 customers. And in terms of how we're monetizing, we're doing it in a number of different ways. With CoPilot, we're tending to bundle it into the existing plans and then use that to increase the price. So in the U.K., for example, with Sage Accounting, we put Sage CoPilot into the plus tier, and then we increased the price of that tier by around 25%, 30% and made it available to all those customers. With some of the agents, so for example, with accountants, we've launched a VAT agent, which does what it kind of says on the tin, which is it helps to prepare VAT returns. For those sorts of agents, we may well charge for those because they are -- separately because they're doing a particular task but I think my kind of overriding message here would be that the commercial models have not really been completely written. So I think if you ask us or you ask anyone else, we're all looking for different ways to monetize what is considerable value for our customers. We are saving our customers a tremendous amount of time. We've had feedback from small customers that Sage CoPilot is saving them 10, 12 hours a week. So I think it's kind of it will build over time, and we will -- these sorts of calls will give you transparency in terms of how it's being monetized. But it may not be an entirely kind of linear journey. It will -- there'll be different ways that we do things for different parts. As far as the competitive situation is concerned, look, I mean, I think it's very similar to how it's been in the past. I think our differentiation is that whether it be in the U.S. or elsewhere, we're being very clear that what we're doing with AI is we are driving a platform strategy where we're using our proprietary data sets to train our models to ensure that we get the accuracy that's required in a finance payroll environment. So if we're automating workflows in the case of midsize businesses with Intacct, we're seeking to automate the close, save time by deploying AI in the close process. All of these things have to be accurate. And the way we make them accurate is because we have domains or developing domain-specific LLMs. We've said in the press release, we have over 40,000 training models currently learning from our 40-plus years of experience in our proprietary data. And we think that is the way forward. Jonathan? Jonathan A. Howell: Yes, just to add a little bit more color on the pricing impact. As Steve said, we've seen price increases put through for Sage Accounting and Sage 50 in the U.K. only in relation to the introduction of CoPilot. And if you look back over the last 4 years, across our portfolio on a weighted average, our price increases have been between 4% and 5%. For this year in FY '25, that ticked up to 5.5%. And a significant component of that does come from this impact from pricing in response to the introduction of CoPilot. That's just the start. As Steve said, it's not going to be linear necessarily, but we are optimistic given that Sage CoPilot and other AI enablement will begin to be rolled out across other products and other territories outside of the U.K. Operator: We will now take the next question from the line of Toby Ogg from JPMorgan. Toby Ogg: Jonathan, best wishes from me as well. Just on the 9% or above growth guidance for '26, could you just help us with the framing around the sort of recurring revenue growth versus the other revenue? I think for 2025, you saw about a 30 basis point or so headwind between that organic recurring revenue growth and the total organic revenue growth. How should we think about that dynamic for 2026? And then also, you obviously mentioned 5.5% contribution from pricing in '25. How are you thinking about the pricing contribution embedded in the 2026 guide? Jonathan A. Howell: Yes. So in terms of the guidance for the year, if we just step back, for FY '26, we are using the same form of guidance that we've used for the last year, which is 9%, organic total revenue growth of 9% or above. We are confident in that guidance given the momentum that we take with us as we exit the year. We've invested in key products, particularly Sage Intacct and CoPilot. And we've also seen really in Q4 and continuing this year, good sales execution. We've got a solid sales pipeline and robust closure rates. So we see overall the guidance is realistic, but cautious. And needless to say, we will continue to update you as we move through FY '26. In terms of the various components of revenue, I think the most important thing to note is that other revenue, which we have seen as part of our strategy, a significant runoff over the last 5 years, as we exit the license business, that part is done. But we still have an element of maintenance and support and an element of professional services, which has now stabilized. And the professional services, in particular, is an important contributor because that provides us with flexibility for implementation and new customer acquisition in the direct channel. So in those two lines, that quite strong strategic runoff that we've seen in recent years has stabilized, and there will be some variability there going forward. Now it's important to note that the other revenue line is very small, that's only 3%, but it does have an impact. And the maintenance support is a larger line and has a little bit more of an impact in supporting those numbers. I think that's answered your question. Toby Ogg: Yes. Just on the pricing contribution for '26, anything you could say on that? Jonathan A. Howell: Sorry, Toby, yes. At this stage, no. We are always testing and seeking to optimize the fair value exchange that we have with our customers with existing products and new products. And therefore, we're constantly assessing the take up and adoption of these new products versus the additional pricing that we're asking for it. So at this stage, we have it baked into our plans, but we're not sort of giving forward guidance on what to expect. But clearly, you'll see the impact of any additional pricing as we get through Q1 and H1. Operator: We will now take the next question from the line of Charles Brennan from Jefferies. Charles Brennan: Just a couple from my side. Firstly, on Intacct, it sounds like that was the biggest driver of momentum at the end of the year. I'm under the understanding that where you provide some customer incentives to onboard new customers, that's typically in Intacct. And those discounts don't necessarily get reflected in ARR. Can you just talk about the volume of discounting at the end of the year relative to the previous year? And then when we think about the gap between ARR growth and recurring revenue growth, last year, I think, you exited ARR of 10.5%, and we saw just over a percentage point of dilution to get to recurring revenue growth. What do you think that delta looks like this year? And then just as a small follow-up. I didn't quite catch the point on the multiyear contracts. I know you said it was immaterial, but is there any pull forward of revenue recognition under a multiyear contract? Jonathan A. Howell: Yes. So first of all, in terms of your opening remark around Intacct, yes, that is the very significant driver that we've seen, obviously, over the last 2 to 3 years, but particularly in Q4. And just to deconstruct that a bit, we have seen total revenue growth for Intacct in the U.S., which is about a $650 million base now, of 23%. And in H2, that was 25%. And so that underpins the overall performance that we've seen. And ex-U.S., that total revenue base is about GBP 50 million, and that's growing up between 50% and 60%. Your reference on discounting, the level of discounting provided on a customer basis in Q4 of this year was not too dissimilar to what we were providing towards the back end of FY '24 and is part of the normal sort of sales cycle of both direct and partner channels, particularly in North America. Multiyear contracts, you sort of referenced that. What -- first of all, multiyear contracts are important because that enables us to acquire a new customer, onboard that customer with a good assessment of the capability and functionality that they need but then gives us a 3-year period in which to assess and upsell and cross-sell into their needs rather than necessarily the other way around, where there's a big sale upfront and then an assessment in subsequent years of whether all of that capability is needed. So that is the important thing about multiyear contract. It makes it both easier for the buyer of our products and for us for a provider of capabilities to our customers. In terms of revenue recognition, the impact is that any upfront discount is, therefore, spread over a 3-year period as opposed to a 1-year period. So there is an element of revenue improvement as a result of that. But I do stress, it's the performance of the underlying sales motion and our customer approval of our products, which is driving what we're seeing at the moment. And to give you an example, in North America, I think we have just had our highest volume month ever for Sage Intacct. So this is underpinned by real volume coming through. And then in terms of ARR to that sort of difference, we always expect them to be close, as you referenced in your question, but not necessarily the same. And this is consistent with other corporates and companies that use this measure. The reason is, as you know, an ARR is a point-in-time metric, while revenue is booked over an extended period. And any divergence that we see is mainly caused by the timing of revenue growth. That sort of compressed slightly in recent quarters. It will vary and fluctuate. We're not giving -- we're not giving forward-looking guidance on that gap because it depends upon the cadence of growth rate and when acceleration occurs. Stephen Hare: And Charlie, just to add, just to be helpful, I think with the dynamics around Sage Intacct, just to emphasize what Jonathan said, in Q4 and in September particularly, we did see very, very strong volume growth in U.S. with Intacct. And we saw that consistently both in the -- both direct and also through the channel. So it was a kind of -- it was a pretty consistent theme in terms of that volume growth. Operator: We have time for one final question from the line of Balajee Tirupati from Citi. Balajee Tirupati: Congratulations on your results and Jonathan, best wishes, and thank you from my side as well. Two questions from my side, if I may. Firstly, on the topic of AI, one of your key peers announced a deal with OpenAI yesterday. Do you see merit for Sage to also target similar integration of its portfolio with Frontier models to allow customers access to more customized services? And second question on margins, with puts and takes around AI, in particular, productivity gains internally and need for investment as well, do you see the view of 50 to 100 basis points per year margin expansion staying intact in 2026 and beyond? Stephen Hare: Thanks. So yes, on AI, I mean, I'll start with how do people access the capability. So I think people will increasingly want to access capability, do their kind of daily tasks, approving invoices, doing all the workflow type stuff in a number of different environments, right? So today, if you want to approve an invoice, for example, typically, you have to go into the application, log on to the application, do it in the application. And in the future, you might do that in Teams. You might do that in Outlook, you'll do that on an app on your phone, whatever it might be. And therefore, to sign up or to partner with some of the larger players like a ChatGPT, if the intention is to create that flexibility to access makes a lot of sense. The one warning I would give is we're very clear that the way that we produce accuracy is we have data on our platform, proprietary data on our platform which our learning models are using to create accurate automated workflows. We're also very protective of that data because that's customer data. So we would not, for example, want to share that data with others. Now I don't -- I can't comment on the detail of what other competitors are doing because there isn't enough information in the public domain to make an assessment. But what I can say is we're very clear that our AI is learning in a secure environment where we are -- it's effectively a private network with a gateway so that developers can come in and develop their own agents on our platform, but it has to be curated and controlled by Sage because that ensures the integrity of the data and the integrity of the outcome. I'll let Jonathan talk a little bit about margin, but let me just start by saying that I think in the same way that we're selling AI and productivity to our customers, we're obviously seeking to get productivity internally. And we've seen a number of areas which have already contributed to the expansion in margin this year, for example. So for example, in the area of -- areas like customer services, we are already deploying significant AI to get higher first-time resolution through AI rather than human-to-human conversations. And if you look at it at a very high level, we've grown Sage this year revenue 10% and our headcount is broadly the same as it was 12 months ago. So we're starting to see the benefits, the early benefits of some of that investment, but Jonathan, do you want to... Jonathan A. Howell: Yes. And I think the important point is that Steve just raised is that with the internal adoption of AI, there are significant savings that can be achieved. And we've seen those in customer support and also in R&D and engineering. So just to stand back to your question, this is now the third consecutive year of margin expansion. We've guided for FY '26 for margin to continue to be trending upward. So that will be the fourth consecutive year and this is driven by growth and established patterns of achieving operating efficiencies. So at this stage, we expect to be at the lower end of the usual 50 to 100 basis points range as we continue to invest in growth. And so as I always say on these earnings calls, we will, though, as we move through the year, continue to dynamically reallocate spend during the course of the year to maximize that trade-off between top line growth and margin expansion, depending upon the circumstances and the opportunities that present themselves to us as we move through the year. Thank you very much. And also thank you for your kind comments. Operator: I would now like to turn the conference back to Steve Hare for closing remarks. Stephen Hare: Thank you very much, and thank you, as always, everyone, for listening. And as I said in the presentation, but again, just to add my thanks to Jonathan for the huge contribution that he's made to Sage, and we look forward to welcoming Jacqui to the next call in January. But thank you very much, and have a good day, everyone. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to BingEx' 2025 Third Quarter Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Helen Wu from Piacente Financial Communications. Please go ahead. Helen Wu: Thank you, operator. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially from those mentioned in today's news release and in this discussion due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. The non-GAAP financial measures we provide are for comparison purpose only. The definition of these measures and our consolidation table are available in the news release we issued earlier today. As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on the BingEx company's IR website at ir.ishansong.com. Furthermore, throughout the call, we will consistently use the company's brand name FlashEx to refer to its publicly listed entity, BingEx Limited. Joining us today from FlashEx senior management are Mr. Adam Xue, Founder, Chairman of the Board and Chief Executive Officer; Mr. Hongjian Yu, Co-Founder, Director and Executive President and Mr. Luke Tang, Chief Financial Officer. I will now turn the call over to Mr. Adam Xue. Peng Xue: Thank you, Helen. Hello, everyone, and welcome to FlashEx Third Quarter 2025 Earnings Call. Amid ongoing external challenges in the third quarter, FlashEx continued to enhance our unique on-demand dedicated career model, further strengthening our core competitiveness to elevate service quality and user experience. We expanded service categories and scenarios, deepened user insights, broadened service touch points, tested new technologies and improved our dispatch algorithms. Meanwhile, we have steadily improved user engagement by focusing on high-value, time-sensitive sectors and leveraging refined operations to reinforce our brand reputation and boost user recognition. We also broadened our reach among both merchant and individual customers, building a strong foundation for long-term sustainable growth. For the first quarter of 2025, FlashEx recorded total revenue of RMB 1 billion with a gross margin of 11%. Adjusted net profit reached RMB 62.6 million, representing a 9% increase year-over-year. As of the end of the quarter, cash position stood at RMB 877.9 million, reflecting a healthy financial position. Let's move on to our operational initiatives for merchants and individual users. In the third quarter, we adopted a more refined tiered management approach for our merchant customers, optimizing response mechanisms and benefits within our existing service framework. For high-frequency merchant customers, we introduced a dedicated VIP support team offering direct one-on-one assistance to improve feedback efficiency and order fulfillment. We also launched a membership program that grants qualified merchants key benefits such as priority dispatching and peak hour surcharge favors, ensuring stable fulfillment rates and service quality even during holidays or peak demand periods. These core merchant customers generally have more mature operations, high-order frequency and steady demand with longer customer life cycles and stronger brand synergies that provide FlashEx with stable, predictable revenue, building a resilient income mode through long-term collaboration. In addition, we continue to focus on highly time and experience sensitive categories such as fresh flowers and cakes, expanding our merchant partnerships from simple delivery to collaborative operations. Building on previous initiatives like packaging design upgrades and delivery route optimization, we established specialized team to conduct customized fulfillment training each month, covering holidays, trends, consumer preference and more. These programs ensure that our riders are well trained in precession handling procedures for dedicated -- for delicate flowers and cakes, turning last-mile delivery into a seamless extension of our merchants brand experience. At the same time, we expanded our in-store service pilot program in key cities. Under this program, dedicated on-site representatives work directly with merchant customers to allocate delivery resources in real time based on peak hours and special events, improving delivery efficiency and fulfillment rates. For example, at a cake shop in Chongqing, FlashEx order volume grew fourfold from the previous quarter after in-store model was introduced in July. This success also encouraged nearby merchants to join the platform, unlocking additional order potential. By combining category expertise with in-store support, we help merchants enhance customer satisfaction, while reinforce FlashEx' unique advantages in premium delivery categories. This approach continue to strengthen recognition of our brand differentiated model and boost user loyalty. While deepening collaboration with high-frequency merchant customers, we also continue to expand our channels for acquiring new merchant leads. First, our business development team actively engaged with commercial districts and local communities to reach potential new customers. Meanwhile, we encourage and incentive our Flash riders to identify new stores during their daily deliveries. Compared with traditional shop-by-shop prospecting, rider-generated leads are less costly and better aligned with real business scenarios. This approach not only improved the efficiency of new merchant acquisition, but also creates a virtuous cycle that originally enhances our reach among small- and medium-sized business. For individual users, we remain focused on instant life cycle system positioning in the third quarter, actively expanded service scenarios to grow our user base. Since the second quarter, we have steadily introduced a range of new services for individual users in the FlashEx APP, including shopping assistance, parcel pickup, meal pickup, gift delivery and luggage delivery. Daily delivery volume across these 5 life cycle scenarios continue to grow in the third quarter, up by 15% from the previous quarter. We also explored new and emerging needs. For example, with rising demand in the electronic vehicle sector, we piloted an on-site battery charging support service that allows Flash riders to handle the manual process for car owners, saving them valuable time. Our offerings are designed to meet users' everyday needs, transforming FlashEx from a delivery brand into an essential part of their daily life. To further enhance the individual user engagement and experience, we added a new community section to the FlashEx APP, encouraging users to share their experiences, usage scenarios and personal needs. This interaction helps us gain deeper user insights and continuously improve our services. Meanwhile, they also naturally boost brand awareness, allowing us to more effectively promote new service features. As we continue to deepen our engagement with merchant customers and individual users during the quarter, we also focused our business development efforts on enterprise clients, a high-value user group and actively pursued outreach and partnership opportunities. Enterprise clients offer important benefits. They typically have long life cycles and high retention rates and require ongoing steady services. Their long-term value helps drive our steady and stable business growth. Based on these trends, we have created focused strategies for enterprise clients, targeting mutual growth through deepen collaboration. By tapping into enterprise clients' private traffic potential and having them improve service quality, we expand FlashEx user base, reach more industries and penetrate new service scenarios. This approach not only drives the business volume growth but also increases brand awareness, strengthening FlashEx' market recognition and reputation. As we grow our business base -- our user base, we prioritize improving technology and operational efficiency. In the third quarter, we teamed up with the Yuhang District government in Hangzhou and other partners to implement a citywide low-altitude logistics delivery solution, which has now reached the commercial testing stage. With more than 11 years of experience on nationwide network across 298 cities and over 100 million users, FlashEx provides precise order forecasting, set recommendation for drone takeoff and landing, route planning and smart dispatch support, positioning us as an early leader in urban drone delivery systems. As a key element of new productive forces, low altitude logistics not only fits well with FlashEx on-demand dedicated courier model, but also offers better solutions for long distance, time-critical and personalized orders. By combining drones with riders, we can better support deliveries in specific scenarios like heavy traffic, helping to fill service gaps and to improve delivery quality and user experience. FlashEx has always viewed our riders as our key strength. In the third quarter, we continued to enhance our incentive programs and create development opportunities for riders and offered educational support to families of eligible riders. These initiatives boost the rider sense of belonging as well as their career motivation, highlighting FlashEx' strong commitment to social responsibility. As we enter the fourth quarter of 2025, FlashEx will remain focused on steady growth in our core business, refining operations business-wide to drive comprehensive platform growth. We will deepen our efforts across key service areas, boosting our service capabilities and targeting the right user segments to grow our user base. We will also explore new service opportunities, strengthen partnerships and enhance the user experience, reinforce FlashEx unique position as a leading on-demand dedicated courier service provider and building a strong comprehensive edge -- competitive edge. Meanwhile, we will actively align with national policies and current trends, offering users a more diverse range of services to boost satisfaction. Through these efforts, we aim to achieve both commercial success and social impact, making positive contribution to society as a whole. This concludes my remarks. Now I will turn the call over to our CFO, Luke Tang. Thank you. Le Tang: Thank you, Adam. Hello, everyone. This is Luke. Let me walk you through our third quarter financial results. Before I begin, please note that all numbers are in renminbi and all percentage changes are on a year-over-year basis, unless otherwise noted. In the third quarter of 2025, we delivered a solid financial performance driven by disciplined, refined operations and the strengthening of our differentiated business positioning. Our on-demand dedicated courier model continued to demonstrate strong resilience. In the third quarter, gross margin held steady at 11%, while non-GAAP net margin expanded to 6.2% from 5% in the same period of last year. Our shareholders' equity grew to RMB 839.3 million as of third quarter end 2025, up from RMB 747.1 million at the end of 2024. Additionally, we have demonstrated our commitment to enhancing shareholder value by repurchasing approximately 1.6 million ADS in aggregate as of November 18, 2025. Our revenues for the third quarter reached RMB 1,005.4 million compared to RMB 1,154.8 million in the same period of 2024. The year-over-year decline primarily reflects lower order volumes, amid ongoing competitive pressures in the market throughout the quarter. Our cost of revenues for the quarter was RMB 893.6 million, representing a decrease of 12.8% for the same period of 2024. This was primarily in line with the decline in revenues and also reflects our continued efforts to enhance operational efficiency. Our gross profit was RMB 111.8 million for the third quarter compared with RMB 130.3 million in the same period of 2024. Gross profit margin for the third quarter was 11.1%. Turning to operating expenses. Our total operating expenses for the third quarter were RMB 97.7 million comprised of RMB 42.9 million in selling and marketing expenses, RMB 37 million in general and administrative expenses and RMB 17.7 million in research and development expenses. Excluding share-based compensation expenses, our non-GAAP income from operations was RMB 23.7 million for the third quarter compared with RMB 46.2 million in the same period of 2024. Other income was RMB 2.5 million for the third quarter compared with RMB 5.8 million in the same period of 2024. The year-over-year decrease was primarily due to a lower amount of government grants. Our non-GAAP net income for the third quarter reached RMB 62.6 million, representing an 8.6% increase compared with RMB 57.6 million in the same period of 2024. Our cash position remained healthy with cash and cash equivalents, restricted cash and short-term investments totaling RMB 877.9 million as of the third quarter's end. In summary, our third quarter results highlight the resilience of our business in a dynamic and competitive market. By leveraging our refined and differentiated operational strategy, loyal core merchant base and the continued expansion of our user scenarios, we are strategically positioned to capture emerging opportunities and drive sustainable long-term growth. That concludes our prepared remarks. We would now like to open the floor to your questions. Operator, please go ahead. Operator: [Operator Instructions] We will take our first question, and the question comes from the line of Stephen Zhang from CICC. Yu Zhang: I'm Stephen from CICC. I've got 2 questions here today. My first question is, could you please share our third quarter order volume and ASP trends broken down by 2B and 2C segments? Given the subsidy rollbacks of food delivery and colder weather in the fourth quarter, have these factors had a measurable impact on order growth? Finally, what is our outlook for order volume trends next year? And what are the key drivers? And my second question is, what is the management's outlook on the trend and potential for future reduction in the company's expense ratio? Peng Xue: Okay. Thank you for your question. I will answer your first question, and then my CFO, Luke, will answer the second question. Well, for the first question, we believe that the scaling back of subsidies and the regulatory standardization in the food delivery industry are shifting the competitive focus from lower price to better service, fostering a more stable market environment. This regional environment allows FlashEx to fully leverage its differentiated value proposition of on-demand dedicated courier. Users are increasingly willing to pay for reliable timeliness, a sense of trust and security and perceivable quality of service. Accordingly, we remain committed to investing resources in expanding service scenarios and refining the user experience. On one hand, we continue to strengthen our positioning as an instant life cycle assistant, intensifying the penetration of the key everyday scenarios and uncovering users' latest needs. On the other hand, we are enhancing collaboration with our merchant clients, adopting a collaborative management approach to elevate their service quality and customer experience, thereby increasing order frequency. On the operational and delivery side, we continuously optimize operating efficiency, while strengthening the training and support team system for our Flash riders. In the third quarter, the average delivery time was 26 minutes. Improved user experience drives repeat orders, ensure stable rider income and attracts high-quality delivery resources, creating a positive cycle where better service experiences lead to more franking orders, which in turn drives higher income for riders. In the third quarter, the company's overall order volume demonstrated strong resilience despite external market fluctuation and ASP achieved a year-over-year increase. Looking ahead to the fourth quarter and 2026, we will continue to amplify our time efficiency advantage, deepen scenario penetration, expand the overall user base and increase order frequency from merchants through the collaborative management model, driving FlashEx long-term and sustainable growth. Le Tang: Thank you, Stephen and Adam. This is Luke. I will take your second question. In recent years, the company's overall expense ratio has remained on a stable and gradually declining trajectory, primarily driven by our sustained investment in refined operations and efficiency enhancements. At the same time, we have been expanding the channels of new user acquisition, effectively lowering client acquisition costs. On the merchant side, we further diversified our new merchant discovery approach. We encourage riders to identify new stores during their deliveries. Additionally, through deep collaboration with the core merchants, including on-site support and coordination, we have achieved nearby merchants to join the platform, achieving effective synergies in merchant acquisition. Furthermore, in this quarter, we focused on unlocking potential among enterprise clients by leveraging their private domain traffic, effectively increasing our brand reach to border end users. From a medium- to long-term perspective, we believe there remains room for further optimizing of our expense ratio with continued revenue growth and improved client structure and ongoing upgrades to operational strategies, we expect the expense ratio to trend downward in a healthy and controlled manner. While maintaining strategic investments, we will continue to optimize our cost structure, ensuring that the company can realize stronger operating leverage as market competition stabilized. Overall, with the continuous improvement in operational efficiency and solid foundation for the scale, the company's expense ratio retains potential for further reduction in the future. Thank you. Operator: And that concludes the question-and-answer session. I will now hand the call -- turn the call over to Helen Wu for closing remarks. Helen Wu: Thank you once again for joining BingEx 2025 Third Quarter Financial Results and Business Update Conference Call today. If you have any further questions, please contact the IR team at BingEx or Piacente Financial Communications. Thank you, and have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Stephen Heapy: Good morning, everyone, and welcome to our interim results presentation for the period ended 30th of September 2025. The format this morning will be, I'll go through the first half highlights. I will then pass over to Gary Brown, our Chief Financial Officer, who will give a financial update, and then, Gary will return the microphone to me. And I'll go through a strategy update. There will then be a period after that for any questions, which we would be pleased to answer. So first of all, record passenger numbers, revenue and profitability. Further growth in the first half across all our key metrics, we delivered record numbers. Passenger numbers were 6% higher, including encouraging first summer performance at our Bournemouth and Luton bases. Strong financial performance with group profit before FX revaluations at 1% and earnings per share 8% higher following our GBP 250 million share buyback program. We are also pleased today to announce a further share buyback program of GBP 100 million. We have a strong balance sheet and access to ample liquidity, which are vital in this fast-paced, capital investment -- intensive industry. GBP 3.4 billion of cash gives us financial resilience and supports investment in our growing fleets. We operated 23 Airbus A321neo aircraft in summer 2025, and that represented 17% of our total fleet. We're also delighted to announce the launch of operations at Gatwick Airport, a once-in-a-generation opportunity to accelerate our growth. Next slide. Our growth strategy is to be the U.K.'s leading and best leisure travel business. We've made strong progress against all of our strategic pillars, supported by our fantastic colleagues, who are dedicated to delivering exceptional customer service. Our brands continue to be recognized by a leading, independent, customer-focused organizations, including Which?, TripAdvisor, Trustpilot, Feefo, and of course, the U.K. Institute for Customer Service. Our customers love us, and they come back time after time. Through initiatives like myJet2, we now know them better than ever, and our key metrics in this area show exactly this. We continue to invest in our digital and operational infrastructure, the retail operations center, our revenue management system, and of course, our second maintenance hangar at Manchester Airport. Our fleet renewal program is delivering against our sustainability targets, and we expect to operate 31 Airbus A321neo aircraft in Summer '26, and that represents 22% of the total fleet, which is 5 points higher than Summer '25. Next slide. Gatwick truly is a once-in-a-generation opportunity to accelerate our growth. Gatwick is the busiest single-runway airport in the world. And a once-in-generation opportunity came our way through the release of additional slots at Gatwick Airport. We will have access to 50 million people within a 60-minute journey by road or rail of Gatwick Airport. We have flights and the holidays on sale from March 2026 to 29 destinations across the Mediterranean, the Canary Islands and European leisure cities. The program will consist of 6 aircraft, and we hope to be able to grow that organically as we become established. We expect the new base to be profitable in financial year '29, and it should deliver meaningful profit growth thereafter. In September '25, the DfT approved the Gatwick expansion program to operate a dual runway subject to a 6-week appeal process. The new Northern runway is anticipated to be operational by the early 2030s, enabling the capacity of the airport to rise from 45 million to 60 million passengers per annum. That will present us with a fantastic opportunity to grow significantly. So the next part of the presentation, I will pass you over to our Chief Financial Officer, Gary Brown, who will give you our financial review. Gary Brown: Thanks, Steve. Good morning, everyone. I'm Gary Brown. I'm group CFO here at Jet2, and I'm pleased to present our financial results for the 6 months ending 30th of September 2025, together with some thoughts on how we think about capital allocation here. So moving to Slide 7. We've included this slide, as it's often easy to lose sight of where the business was relatively recently and where we are now. We flew 19.8 million passengers in the financial year ended 31st of March 2025, which means we've been growing at just under 8% a year since 2019. Our revenue has gone up even faster, averaging about 16% since 2019, mainly because more of our customers have been choosing package holidays. In fact, in 2025, these made up 66.5% of our total passengers, up 17 percentage points as compared to 2019, with package holiday revenue making up over 80% of our total revenue. Back then, we had 9 U.K. bases and an aircraft fleet of 90, primarily mid-life Boeing aircraft, a composition that is rapidly changing, as you heard from Steve, underpinned by our firm Airbus delivery schedule. The A321neo is making up 17% of our fleet in Summer '25. Operating profit has more than doubled, up 118% to GBP 447 million in 2025 from GBP 204 million in 2019. And we're also making more operating profit per sector seat, which has risen from around GBP 15 to GBP 20, a 35% increase. Our basic earnings per share are up 132% compared to 2019, and our average return on capital employed over the 3 years since the pandemic is 17%, one of the best in the industry. As you will hear, the strong financial track record and the continuing evolution of our business, ongoing confidence in our future growth prospects. On to Slide 8. Our key stats illustrate how our flexible, fully integrated operating model is capable of adapting to changing consumer trends. They also demonstrate our clear focus on optimizing profitability through a combination of volume, pricing and product mix. First things first, more people are choosing Jet2, an extra 750,000 passengers or 6% up on last year. This summer, more people chose flight-only, which was up by 16% as customer booking trends continue to be late, and we saw more of those last-minute price-sensitive deals. We've consistently stressed that both our products are vital importance, and it's great to see customers recognizing the clear value that our flight-only offering brings, friendly flight times, an industry leader for not canceling flights and with the added benefits of our Red Team of customer helpers, providing their outstanding customer-first service. Package holidays are still a hit, growing 1% to a record 4.73 million customers. And as you know, they bring in a higher profit per customer. Prices for package holidays held up well, rising 3%, as we were able to pass on most of the cost increases from our suppliers. On the flights-only side of the business, the average ticket price dropped 7% to GBP 122 because we ran more promotional offers, which was supported by the targeted reallocation of marketing investment to optimize load factors in a pretty competitive market. Pleasingly, we also made 4% more per passenger from our non-ticket revenue streams, having more flight-only passengers meant we earned more hold baggage income, whilst our in-flight retail offers saw spend per head grow further 4% due to consistently strong onboard product availability, made possible by our in-house retail operations center plus the launch of a new onboard product range. Looking now at Slide 9. Revenue was up by 5%, primarily due to the growth in passenger numbers, but also helped by the increase in the package holidays price. What I would describe as our underlying operating cost base was well controlled and up by 4.8%. Some of the main influences on this growth were in terms of our hotel accommodation costs. They represent about 45% of our full-year cost base. They were up 7% with inflationary rate increases of 6%, plus an increased proportion of bookings to higher-star rated and all-inclusive hotels, as customers treated themselves being the main drivers. Excluding the impact of SAF premiums due to the SAF mandate increase, our fuel costs, which are just over 10% of our cost base, were down 3% on a like-for-like basis, as a 7% increase in flying activity was offset by a 5% reduction in the blended fuel price, a 3% efficiency improvement from the growing A321neo fleet plus some FX benefits. Landing, navigation and third-party handling costs, which are towards 9% of our cost base, rose 10%. The growth above flying activity linked to average rate increases across the U.K. and European airport bases with notable increases in EUROCONTROL charges and third-party handling costs in Turkey. We also saw efficiencies in marketing spend coming through as investments we've made in our digital marketing technology infrastructure helped improve underlying cost per acquisition. Beyond our underlying cost base, we incurred over GBP 30 million of additional costs, including the increase in employer NI and national minimum wage imposed by government of about GBP 11 million, an extra GBP 17 million in premiums for sustainable aviation fuel as the SAF mandate jumped to 2%. Finally, we invested to firmly establish ourselves at our 2 new bases at Bournemouth and Luton in the first summer of operation. In total, these additional costs added a further 0.7% of overall cost growth. That said, our EBIT or operating profit margins were still healthy at 13.4%, whilst our basic earnings per share were up by 8%, aided by our GBP 250 million share buyback program. Return on capital employed sat at 23.5% halfway through the year, though it will dip a bit by year-end due to second half losses, which are normal for our business. Turning the page to Slide 10. Our EBITDA was up by 2% compared to last year, with our net cash generated from operating activities still strong at approximately GBP 700 million, although down on last year due to the later customer booking curve. Our capital expenditure investments included payments for 6 owned Airbus A321neo aircraft, a spare LEAP-1A engine to support the growing Airbus fleet plus normal maintenance on our existing Boeing aircraft. In addition, our second maintenance hangar at Manchester Airport opened in August, which means we can now support 6 lines of aircraft maintenance across both of our hangars. First half free cash flow was GBP 370 million, meaning that since the pandemic we've generated approximately GBP 2.5 billion of free cash, which enables us to confidently support our strategic capital allocation. We also chose to pay off certain aircraft loans for 4 of our Boeing 737-800NG aircraft with 6 last year because they were more expensive than what we can now achieve in the JOLCO market. On top of that, we bought back and canceled GBP 231 million worth of our own shares as part of our GBP 250 million share buyback program, which completed just after the end of the reporting period. Moving to Slide 11. First thing to say is that we have one of the strongest balance sheets in the industry with access, as Steve has said, to ample liquidity, which we think is essential in what is a fast-paced, capital-intensive industry. We took delivery of 9 new A321neo planes, 6 from our long-term aircraft order; and 3, we've leased to fill short-term gaps in the delivery profile. We also used the JOLCO market to finance 4 of the 9 new aircraft raising GBP 191 million. Our total cash was down GBP 242 million compared to last year, mostly due to capital allocation decisions, which included the majority of the GBP 250 million share buyback and the repurchase of the convertible bond in the second half of last financial year. Customer cash was broadly flat year-on-year due to the late booking curve and higher mix of flight-only bookings. As you've seen in the past, when we quickly capitalized on the demise of Thomas Cook and also during COVID, when we were able to make the right decisions for our colleagues and customers, this strong financial foundation has, on this occasion, allowed us to confidently pursue our growth ambitions at London Gatwick in the full knowledge that meaningful start-up investment will be required to provide a solid operational platform, which over time will enable us to fully capitalize on the scale of that opportunity. Finally, in a further demonstration of the confidence in the group's sustainable cash-generative business model and the Board's conviction and the prospects for the business, we have today announced an on-market share buyback program of up to GBP 100 million. Shares will be canceled following purchase, providing a further positive enhancement to earnings per share. Turning to our capital allocation framework on Slide 12. Let me quickly walk you through how we think about capital allocation. It's really all about making sure we invest in our business to ensure it remains resilient and keeps evolving to the ever-changing consumer landscape. It's about keeping our balance sheet in good shape to service our debt obligations and keep the cost of debt down, and it's to make sure we're well protected if anything unexpected comes along. On the flip side, it also means we've got the flexibility to invest in exciting growth opportunities as and when, whilst providing good returns for our shareholders. As you've seen, we're continuing to deliver solid operating and free cash flow, which means we can invest in the business, recently launched in both Bournemouth and London Luton Airports. We've been encouraged by their performances and are looking forward to continuing to grow in these regions by building our brand awareness and understanding and steadily growing a loyal customer base. Looking ahead, we're now gearing up for Gatwick to get underway in March '26, which is a fantastic opportunity for us to further accelerate our growth. Bear in mind that, as Steve has said, the catchment area is over 15 million people within 60 minutes of it by road or rail. And we continue to invest in tech and infrastructure with our AI-led revenue management system pilot underway, our second maintenance hangar at Manchester operational and our groundbreaking retail operations center now fully automated. Our total and net cash position remains strong, allowing us to be flexible around our debt obligations to reduce the overall cost of debt, whilst giving the JOLCO market the confidence to continue to do plenty of business with us. And in terms of shareholder returns, we bought back GBP 250 million of shares or approximately 10% of the current market cap of the company, which helped push our EPS, earnings per share, up by 8% and by 132% since 2019. And we've also increased the interim dividend, whilst announcing another buyback of GBP 100 million today, which will take us cumulatively to over 13% of the current market cap return to shareholders. Finally, on Slide 13, how are we thinking about the medium term? We know there are many companies in this industry who have flown too close to the sun in the way they run their balance sheet and leverage position. From our perspective, we believe remaining at less than 2x net debt to EBITDA on an owned cash basis brings a pragmatic balance between protecting the business, but also manageable levels of leverage to maximize returns. As of today, we've got plenty of headroom against this target, but as we take more aircraft and finance, then this level will drift up. We've said previously that we learned a lot during COVID, where we went into that period with just over GBP 0.5 billion of our own cash and an undrawn RCF of GBP 100 million. This allowed us to treat customers with respect and returning their deposits quickly and gave us the breathing space to make the right decisions for our business, and in particular, our colleagues. As you've heard, our business has grown by over 100% since then, and we believe that an own cash balance of between GBP 600 million and GBP 700 million at our year-end, which is a low point in the cash cycle, plus an undrawn RCF of GBP 500 million, gives us the necessary breathing space should we ever encounter something similar. Just to stress, we don't expect to grow this own cash target as the business continues to get bigger, as we feel this is the right level. Average capital expenditure from FY '27 to '30 is in the region of GBP 950 million, given current visibility of our Airbus fleet pipeline, and we believe financing approximately 50% of these aircraft is very much in line with our historical business philosophy of wanting to own a good proportion of these valuable capital assets, which we intend to fly through to end of life. This would mean approximately 65% of our total aircraft fleet would be unencumbered by the end of 2030. Finally, and has been seen recently, subject to maintaining our capital allocation principles and assuming satisfactory financial performance, we would look to return excess capital to our shareholders. I'll now hand back to Steve, who will talk you through the other slides. Stephen Heapy: Thank you very much, Gary. I'm sure you'll all agree, a very impressive set of results and some very clear messages. So next slide, Jet2's investment case. Our investment case clearly demonstrates why Jet2 is an attractive prospect for investors, both today and for the future. We have a growing market. Although holidays are classed as a discretionary purchase, many, many people within the U.K. class them as an essential purchase and prioritize that above many other things, including lottery ticket sales, streaming services, nights out, social occasions, et cetera. Over the last couple of years, we've added more bases; Liverpool, Bournemouth, Luton, and laterly, our 14th U.K. base Gatwick, and this increases the reach from 58 million to 61 million people. That covers 90% of the U.K. population. Size and scope of the offer. We're the #1 tour operator in the U.K. We've got a great product range. It's over 75 destinations across the Mediterranean, Canary Islands and European leisure cities. We're adding more and more hotels every year in response to the demands of our customers. We speak to our customers. We listen to what they say, and we act on what they tell us. We've got a fully integrated operating model. We control our seat supply. We do self-handling at many bases. We have our own training facilities. And of course, we have the retail operations center, which is now fully automated. Our tour operator only uses one airline, jet2.com. Why? Because it's the best airline in the U.K. according to TripAdvisor, the best airline in Europe according to TripAdvisor and the fifth best airline in the world according to TripAdvisor. Why would we trust our customers on any other airline? We have a customer-led offering. Our Net Promoter Score is in the mid-60s. That's on a par with some of the best brands in the world. We have a 62% repeat booker rate for package holidays. On sustainability, we remain committed to our sustainability targets outlined in our strategy document, and our fleet renewal program is progressing in line with expectations. This will aid a reduction in our carbon intensity ratio. We have a clear path to growth. We've received 23 Airbus A321neo aircraft, the most fuel-efficient and quietest aircraft in its class. And we have over the next 10 years, another 132 Airbus aircraft that will provide us with the ability to replace retiring aircraft and also provide a guaranteed stream of aircraft to fuel our growth ambitions. You've heard from Gary, consistently strong financial delivery. We have a strong balance sheet with which to underpin our growth at Gatwick and other bases, and this will continue with the prudence that we have shown over the last few years. Our growth agenda. Our growth agenda consists of 2 pillars. The first one, defend and strengthen the core. We have a committed firm aircraft order. This will facilitate further growth at our recently opened bases and will position us to capitalize on potential expansion at Gatwick. This order was done during the pandemic period and provides us with a guaranteed delivery stream, and this will help us to provide very accurate plans as to our activity in the future. Our reach, we have an ATOL license for 7 million customers, and this represents a 20% share of ATOL licenses. We over-index in the over 50s and people with a higher disposable income, and this gives us protection in economically challenging times. 33% of our customers were defined as affluent achievers as compared to 22% of the U.K. population. We're leveraging technology. We have the pilot for our revenue management system underway, and this will cover 5% of our flights. As a reminder, our revenue management system uses artificial intelligence and many external data points in which to price our flights competitively within the market. The early results are encouraging, and assuming continued positive performance, we plan to progressively roll out across the majority of flights in the forthcoming financial year. The next pillar is to extend our reach and diversity. Personalization and customer diversification is key. myJet2 has helped increase share of bookings through the app to 31%. That's 5% up year-on-year. myJet2perks has recently been refreshed, giving members the chance to access new exclusive discounts as well as giveaways across a range of popular brands and retailers. Tomorrow's reach. Following the Gatwick launch, we will expand our market presence to 61 million people, attracting new customers, thanks to improved reach, but we also have strong retention rates, underlining our strong customer-first approach. Leveraging technology. The leading-edge automation equipment installed at the retail operations center, alongside data intelligence will in time support an improved onboard retail experience for all our customers. We will aim to have the right products at the right time every time, further optimizing our in-flight's revenue potential. We've also invested heavily in our marketing technology, and there'll be more details on this in a future slide. Next slide, fleet. We're committed to growing and replenishing our fleet to support our growth agenda. We will get additional ACMI aircraft for Summer '26 to enable the allocation of 6 aircraft at Gatwick. But the Airbus delivery program is unchanged and will support any further growth at Gatwick or any other bases. By Summer '32, you can see from the chart, we'll have a total fleet of 161 aircraft, of which 124 will be CFM-powered A321neo aircraft. In our opinion, this is the best narrow-body aircraft in the world today in terms of fuel efficiency and noise. The average seat gauge will increase from 197 in Summer 2025 to 223 in Summer 2032, as the proportion of 232-seat neo aircraft increases. We, therefore, expect total seat capacity to increase at a compound annual growth rate of 4.4% across the period. Investing in our fleet. Investing in our fleet is key to maintaining our competitive advantage. As we increase the mix of A321neo aircraft in our fleet, it's important to recognize the significant benefit this brings to the group. For example, a Boeing 737-800 aircraft seats 189 passengers. However, the A321neo seats 232 passengers. Quite simply, we'll be able to take more people on holiday with less emissions per passenger. The A321neo is a crucial part of our climate transition plan. Additionally, the average cost per seat saving of GBP 10 was realized over Summer '25, primarily driven by fuel and carbon savings. And these savings will increase over time with the increase in the numbers of aircraft. To summarize, 23% more seats on neo, 20% fuel and carbon usage reduction per seat, 50% less noise than our existing fleet, which makes it a very attractive aircraft for many airports and a GBP 10 average cost per seat saving. Next slide, size and scope of offer. We have a diversified flying program at Jet2, and we operate to 25 countries, over 800 resorts from 14 U.K. bases, that's 75 destinations and over 600 routes. We operate to the Mediterranean, the Canaries and European leisure cities. We've offered more destinations in Summer '25, Pula in Istria and Riviera, Agadir, Marrakech and Jerez in the South of Spain. For Summer '26, we'll be launching Samos in Greece, La Palma in the Canary Islands and Palermo in Sicily. This shows that we're continuing to diversify our offer, respond to our customers and give them the destinations they have asked for. You can expect more destinations to be announced in the coming months. Next slide, driving loyalty across our customer base. Quite simply, our goal is to guide customers from their first booking to becoming loyal advocates of the brand and move them up the loyalty ladder. First rung on the loyalty ladder, new customers. We welcome new bookers with a seamless experience and personalized follow-up. From the moment they contact us on the website or in the call center, we make our customers feel welcome. Our customer service starts there. We look after them pre-travel, on holiday and when they return from holiday through a robust and comprehensive communication program, making our customers feel special before, during and after travel. The next rung on the ladder is repeat. We nurture customer engagement through tailored messaging, relevant content and unrivaled product that encourages repeat booking. This, of course, is aided by our significant investment in marketing technology, which we'll talk about in a little while. This is a very important stage in our booking. Some people will try us once, maybe based on price, and we need to make sure that we get the customer, we nurture them, we keep them interested. We send them relevant content and make sure they don't look somewhere else. The final stage on the ladder is loyal. As customers move up, we strengthen the emotional connection with them by providing exclusive benefits and recognition, turning them into loyal bookers who choose us first and recommend them to others. The more people experience Jet2 and Jet2holidays, the more loyal they become. By successfully moving our customers from new bookings right through to loyal status, this increases their lifetime value, boost booking frequency and reduces acquisition costs. Loyal customers are more likely to engage with the brand when they get tailored offers and share their positive experiences, ultimately amplifying the brand's reputation and reach. Next slide, win new customers. First of all, reaching new audiences. We have shown at our recent base launches at Liverpool, Bournemouth, Luton and Gatwick that we are very adept in reaching new customer audiences. However, there's an opportunity to do more to grow our audience by targeting younger demographic customers, springboarding off our highly successful nothing beats meme to increase relevance with this demographic, which is key to deepening our engagement through aspirational social-first content that taps into their interests and passions. Adding Gatwick base allows us to grow our reach to over 90% of the U.K. population, that's 61 million people. The focus of the messaging will be on the breadth of offering, the value that is offered by our products, our credentials and VIP service to drive engagement. We continually strive to improve the size and scope of our offering. We are the #1 tour operator in the U.K. to destinations across the Mediterranean, the Canaries and European leisure cities. We have an unrivaled product choice in excess of 5,600 quality properties spanning over 800 fabulous resorts across more than 75 destinations. And this is increasing every month, as we add more in-demand product to our portfolio. We have a variety of brands. Our beach, cities, villas, indulgent escapes and vibe brands provide relevant experiences for different types of customers. Fantastic range of properties, from 2-star to 5-star, from self-catering to all-inclusive. We provide our customers with the choice they want. We don't try to squeeze our customers into the products we want them to book, we let them choose. We offer fully flexible durations. We allow people the ultimate choice. They can go on the day they want. They can stay for as long as they like. It's up to them. The customer is in charge. Remember, Jet2holidays is the company that pioneered flexible duration holidays. All in all, we've got an award-winning proposition. What we have is very highly rated by our customers. You've seen the awards we win, our TripAdvisor ratings, our awards from the Institute of Customer Service. This is highly valued by our customers, and we continue to strive to provide them with the best experience possible. A happy customer will tell other customers of the experience they've received with Jet2holidays. Word of mouth has proved to be very important. Building on the nothing beats meme, we had over 80 billion global video views across TikTok. The song was named TikTok's official Sound of the Summer 2025. We saw celebrity activity from Jeff Goldblum, Mariah Carey and Drake, who visited our hangar with a combined 173 million followers. An estimated 13 million earned media value through the summer. And a 12% year-on-year increase in spontaneous brand awareness amongst 18- to 34-year-olds. All in all, we are #1 for brand awareness, #1 for branding, #1 for ad recall, #1 for consideration and the Jet2 brand, Jet2holidays has an 86% awareness. We've taken a long-term, consistent approach to building brand equity with our strong visual and sonic branding. We're the only U.K. travel brand to use a triple platinum chart-topping single as our instantly recognized sonic identity. With our effective marketing strategies, we ensure we tap into cultural moments that can be top of mind amongst consumers. Next slide, retain customers through end-to-end service excellence. We at Jet2 and Jet2holidays are famed for our customer service, multi-award winning throughout the years, we aim to build on that further. We offer 4 easy ways to book. Our smooth airport experience is famous. Go to one of our airports and be welcomed by our Red Team who are there to help you through the journey. We offer a VIP service to everybody in the sky. When you get to resort, you meet our Red Team there who will welcome you, put you on your resort transfer and then look after you in resorts. They are there for you 24/7 along with our telephone line. We've spoken to our customers, and 92% of them are satisfied or very satisfied. And the customer service scores have increased. Our Net Promoter Score is 64 for jet2.com, 66 for Jet2holidays. Compare that with some of the best brands in the world, Jet2.com and Jet2holidays are firmly there building a loyal customer base. Our total marketable database stands at over 11 million customers. Over half of these customers are considered active and have previously booked or traveled with us in the last 25 months. Our database has grown at a compound average rate of 13% since financial year '22. And this enables a more targeted personalized marketing experience, along with the investments we have made. We provide holidays that are relevant to customers' needs, and this helps drive effective and efficient bookings. We have leveraged our extensive database and myJet2 loyalty scheme to deliver data-led marketing to grow bookings from our loyal customer base and new customers. This, with the aid of our technology investments, enables smarter targeting, increased retention and deeper brand affinity. Our myJet2 membership program now has over 8 million subscribers with more than 99% of mobile app bookers being members. The program complements our customer retention strategy and is designed to encourage more users to book through either web or app channels by providing tailored browsing, exclusive discounts and rewards, a streamlined booking process, enhanced pre-travel support and in-resort experiences. In the last 13 months, we can see that retention rates are 7.5% higher for myJet2 members, so we know this is working. On myJet2perks, this now includes more offers from brand partners across a range of categories as well as price draws, which will continue to be updated weekly. In addition, our twofold investment in the mobile app and myJet2 scheme should also reduce reliance on more expensive third-party marketing tools. Together, these form our strategic approach to driving bookings. On the subject of technology and personalization, adopting technology to leverage real-time personalization and automation across the customer journey is essential. We provide real-time triggered e-mails and app push notifications to a highly personalized web and app experience and targeted paid media. This is done by enabling an omnichannel customer experience using state-of-the-art Adobe products. This suite of products enables us to market to the right customer at the right time via the right channel with the right content, the right images with the right price. This will prove essential in providing a highly targeted and personalized marketing experience to all our customers. And finally, on to the outlook. For year ended 31st of March 2026, our winter capacity is up 8% to GBP 5.5 million. The latter booking profile continues with average pricing following the Summer 2025 trend, and we will have additional Gatwick short-term start-up investments. To summarize, operating profit is in line with market expectations, excluding the Gatwick investment. On to year ending 31st of March 2027, Summer 2026 seat capacity is up 8.9% to GBP 20.1 million. That includes the Gatwick capacity. Existing bases are up by 3.9%, and Gatwick is 900,000 seats, and we have a healthy proportion of cost certainty locked in. Near term, there will be operating profit margin dilution from the Gatwick investment, but of course, this is a significant long-term opportunity. Final summary, we have a clear path to deliver further profitable growth underpinned by our trusted brand, loyal customer base and proven business model, which gives us ongoing confidence in our growth prospects. That's the end of the presentation. Thank you very much for listening, and we will go on to questions and answers. Thank you. Operator: [Operator Instructions] We'll now take our first question from Damian Brewer of Canaccord Genuity. Damian Brewer: Two questions; one for Steve, one for Gary. Steve, Gatwick, undeniably, it's a huge market and except for Jet2 -- sorry, except for TUI who are still quite small there, and now seems to be covered mostly by seat-only airlines that seem to have very transactional relationships with hotels rather than deep, long-standing ones. Can you expand a little bit more about how your hotel operators and providers have reacted to Jet2 expanding into Gatwick? How they've reacted? What they're saying to you? And what the opportunity there is? And then the second question, I'll do more on go, Gary. I know the GBP 600 million to GBP 700 million minimum net liquidity within the in-year cycle and the net debt-to-EBITDA remaining below 2x for the capital allocation policy, what would cause you not to consider further share buybacks beyond the next GBP 100 million? Stephen Heapy: Good morning, Damian and everybody else. Thanks for the question. Our hotel partners have reacted extremely positively and very well. On the day of the announcement, I had several e-mails and text messages and some phone calls from hoteliers that were very pleased that we had announced the start of operations from the end of March. They already received customers from all our other 13 bases in the U.K., and they like our operation. They like that the fact that customers come on our airline, we cancel very, very few, hardly any flights, the lowest of all the airlines. We look after our customers in the airport, on the aircraft and when they get in resort with our Red Team of customer helpers, and the customers arrive at the hotels very happy. And a happy customer, of course, is someone that looks for less things to complain about. We've got our customer helpers in many of our hotels, and they help diffuse situations. So it's easier for the hotel. They don't have to deal with angry customers at the reception desk because they contact us and we sort out any issues that arrive before they get to the hotel. So it's a much easier and seamless experience for the hotel. And they are really looking forward to receiving guests that come from Gatwick Airport. I think Gatwick in the past, to your earlier point, has been quite heavily orientated to flight-only. But we are expecting to build our package holiday operation from Gatwick. And so far, the response from customers, and indeed the hotels, has been very, very positive. So I'm very encouraged and very excited, Damian, and I think, we will see our operation grow, and we'll be taking many people from the Gatwick catchment area in one of our holidays. Gary Brown: Damian, it's Gary. Thanks for your question. I think, as you know, and as you've seen over the last 12, 18 months, we're very much open to returning capital to shareholders. Why wouldn't we consider doing that in the future? I think first things first, we have talked about that return of capital to shareholders depends very much on trading. So assuming that continues in that positive vein, then we would definitely consider it. I think secondly, we've got to continue to invest in the business. It's an evolving consumer landscape out there. And inevitably, if you don't invest, you haven't got a resilient business in front of you, but strategic projects that gave us a better return than we could get in the market at the time and for a share buyback would definitely take precedence. Today, though, based on the valuation out there, we believe that returning capital to shareholders is a very good use of funds, the GBP 100 million. And just the third thing to say is that based on our best thinking at the moment, and with the CapEx profile coming down the road, it's about GBP 600 million in FY '27, over GBP 1 billion in '28-'29. We're fully expecting the own cash at the low point in the cycle to start to approach the numbers you mentioned before, GBP 600 million, GBP 700 million. So that all being said, I think there's a very good chance that in the future, there will be more buybacks. But I'm not going to pin the tail on the donkey on this call. Operator: And we'll now move on to our next question from Jarrod Castle of UBS. Jarrod Castle: Just sticking with the Gatwick theme, but broader than that. I mean, how do you see the existing competition with easyJet at Luton, Bournemouth? I mean, they are a different product, but just to get your views on that. They're also having a mini CMD next week, Friday, so I'm sure they will explain how they can compete with you. And then, Steve, you spoke a bit about AI. I just wanted to get your thoughts on AI agentic. We're seeing kind of these big deals being signed this week, I think it was Google with Booking and some of the hotels, like Marriott, IHG and others tying up with OpenAI. How do you see that developing and the ability of these providers to connect to hotels so that you can make the booking directly even if they're not the merchant of record? So just a little bit about that rather than AI in terms of revenue management and CRM. Stephen Heapy: Okay. Thank you. In terms of the first point, competition, we're very confident in our products. We have a well-established package holiday operator. Don't forget, we were the pioneers of variable duration holidays, completely flexible holidays. And we also consistently deliver best-in-class customer service, which has been demonstrated through our multi-award winning record over the last few years. So I think people will be attracted to our product. We've had many, many people within the Gatwick catchment area asking for our flights on holidays there for some time. We've finally been able to do it this year. And I think the response will be very good. As to your point, what will be the competitors' response? I don't know. We'll see. We keep our head on our own game, which is providing best-in-class customer service, looking after our customers, listening to our customers, giving them the ability to book through whichever channel they want to by looking after them on the ground, in the air and in resort. And I'm confident that will shine through and make the operation from Gatwick a success as it is in our other 13 bases. In terms of the AI question, there's been a few announcements over the last few days, as you said, as to what might happen. You have to bear in mind, these are largely trials, the things that have been released, and they're largely in the U.S. The U.S. doesn't really have a package holiday market. People tend to, what we call, self-package, that's booked individual elements separately. And the trials with some of the AI tools are relating to one of those components. I think there's a long way to go before we reach something that would provide a tool for people to book package holidays. That will come, but it will take time. I think there will be further developments in the industry. There may be consolidations. There will be new products, products that are in the market now that are relevant that become superseded and obsolete. So what we have to do is keep our eye on what's happening in the market and all the developments, keep up our regular conversations with tech companies, which we do. We spend a lot of our time talking to tech companies to see what's coming down the track. But as we saw in the early 2000s, it's very tempting to jump on whatever bandwagon is passing and put all your eggs into one basket, but we're being very careful and very considered on our choice in technology. We have signed deals with big, robust, financially sound, market-leading technology companies, and we are working our way through to see how the environment changes over the coming years. So I'm very confident that we're back to the right horses. And with our methodical approach, we will come up with the right solutions for customers. Operator: And we'll now take our next question from Alex Paterson of Peel Hunt. Alexander Paterson: You described the performance at the new bases as being encouraging. Can you just sort of give a bit more color on that, perhaps describe the load factors and package holiday mix relative to the group average and the profiles of other bases when they opened? And what sort of start-up losses you've incurred there? And secondly, as a West Sussex resident, I'm absolutely delighted that you're opening a base at Gatwick. Do you think Gatwick would make any more slots available to you before the second runway opens? Gary Brown: Alex, it's Gary. Just in terms of the new bases, yes, we -- as I say, we're very encouraged. And I'll take you back to even Liverpool, which is still a new base. We put a 5th aircraft in the -- this summer. And Liverpool had a load factor of about 85%, but a package holiday mix of 73%. So you can see that particular region is outperforming the average. And bearing in mind, you put in quite a significant increasing capacity, and a load factor of 85% is pretty good, to be honest with you. In terms of Bournemouth and Luton, remember, Luton went on sale a lot later than any of our other bases, and they've come in at about 80% load factor. But again, the package holiday mix is very encouraging, about 60% for those new bases. And what we find is that if we can get that package holiday mix into the 60s, then you get a better level of loyalty and recurring revenue and profitability. So we're more than hopeful that with a full season of selling that certainly Luton and Bournemouth will be closer to the average and the package holiday mix will continue to drift up. I think we were on record of saying that we expected Bournemouth to pretty much break even because it's a relatively small base with just 2 aircraft. We're on track to deliver that performance for the full year. And we expected Luton to be sort of late single-digits loss in its first year of operation, partly because, as I say, it's gone on sale a lot later. And again, we're on track to deliver exactly what we said there. So hopefully, that gives you a bit more transparency there. I'll pass to Steve in terms of the Gatwick slots, the extra slots. Stephen Heapy: Yes, as we said, the Gatwick slots, we got those as a result of extra capacity that was released within the airport, so we didn't pay for those slots. We've got a program on sale from the 26th of March 2026, for Summer '26, when we put in our winter program on and Summer '27 in the coming weeks. And we continue to work with the slot coordinators, and we'll see what additional capacity comes up. We very much hope to grow our operation in Gatwick over the coming years. Operator: And we'll now move on to our next question from Ruairi Cullinane of RBC Capital Markets. Ruairi Cullinane: Firstly, how should we think about the balance between flight-only and package holiday pricing this year? Why has it made sense to discount flight-only prices rather than package holiday prices more? And secondly, on the longer-term capacity growth, which Steve mentioned, should average around 4.4%, I think. Is that purely driven by the fleet plan and upgauging? Or will you aim to utilize A321neos more than older aircraft or operate more daily flights from new bases in the South of England? Gary Brown: Ruairi, just in first -- in terms of the first question, we've consistently stressed that this is a fully integrated operator model, and it's capable of adapting to consumer trends, but also our clear demonstration that we're focusing on optimizing profitability through volume, pricing and product mix. This particular summer, because it has been late in terms of the consumer booking behavior, on average, about 11% of the bookings have been in the month of departure and that's played a little bit more to flight-only. But what's been pleasing from our point of view is that we've always said that both products are extremely important. And it's great to see that customers are recognizing the clear value that our flight offering brings; friendly flight times, industry leader for not canceling flights, the added benefit of our Red Team of customer helpers providing outstanding customer service. So I think people do see that even with a more commoditized product, there's a clear difference in terms of what they expect from Jet2 and why they spend a little bit more money with Jet2. With the late booking curve and the fact that it was more price-sensitive market, yes, we did get more promotional than we have in the past. That said though, I don't see pricing and marketing as 2 separate parts. They are all one and the same, really, in terms of how you invest your money. And we were very strategic and targeted in terms of how we released money from marketing and put that into price to get to the best possible outcome for the business, which, as we said around at the outset, was a record performance again. Stephen Heapy: Thanks, Gary. And on to the second question in relation to capacity, we have given a figure for capacity growth over the coming years. And that's driven by our fleet plan at the moment, and that takes into account the new aircraft that are due to come into the fleet. We've received 23 Airbus A321neo aircraft. I'll just remind you, those are the most fuel-efficient, quietest aircraft in the class. And we've got, over the next 10 years, another 132 to come into the fleet. Those aircraft will fulfill 2 purposes: the first of all, to replace older retiring aircraft, and the second will be to fuel growth within the fleet. We do have flexibility. We've got upwards flexibility. We can retire aircraft perhaps at a slower rate or take ACMI aircraft if there are growth opportunities, and we can retire aircraft at a faster rate if the growth opportunities seem a little bit more limited. So the number we've given you can be flexed up or down in relation to market conditions. So the number we've given is our current view as to the rate of retirement of current aircraft and entry into service of the new aircraft. And there is also, as you said, an element of up-gauging. We will be replacing largely our 189-seat 737-800s with our 232-seat Airbus A321neo. So the growth is driven by, a, more aircraft into the fleet, but we've got flexibility as to what the net impact is. And secondly, upguaging of our aircraft. But I think the big message here is although we've given a number, there is a lot of flexibility about what that number can be over the coming years, both upwards and downwards. Operator: And our next question comes from Gerald Khoo of Panmure Liberum. Gerald Khoo: Two, if I can. Firstly, just thinking, I suppose maybe we do it on FY '27. But what proportion of seat capacity is going to be at relatively new bases, if you just say bases are open less than 3 years and where they're still working the way up the maturity scale? And secondly, also on bases, once you've done Gatwick, is that going to be largely in terms of new bases? Is there enough growth headroom in your existing bases? Are there any other opportunities or any other bases that are still looking interesting beyond Gatwick? Stephen Heapy: In terms of the capacity relating to new bases, well, if we class new bases as Gatwick, Luton, Bournemouth, and let's say, Liverpool, we don't have the exact figure to hand, but it's 11%, 12%% maybe of our total capacity in those bases. I wouldn't really count Liverpool as a new base now, that is maturing very quickly. In terms of, is that it? Well, Gatwick was the last big airport in the U.K. that we had aspirations to grow into. And when we've met many of you that are on the call, I think we've said that we would love to start operations into Gatwick, but the ability to do so was limited through the availability of slots. The airport managed to release some extra capacity through some work that have been done on the airport infrastructure. And we're able to grab that capacity. So I think the aspiration that we set out in our meetings with you has been achieved. Is that it? I don't know. I'd never say never. We're always looking at opportunities within the U.K., but Gatwick was certainly the best that we'd always intended to grow into. But you mustn't forget, Gerald, that there's enormous opportunity still in our 13 existing bases to grow. We've got all the bases that we think there's a very strong business case for increasing capacity. Over the last couple of years, we've prioritized our aircraft into starting a base at Liverpool, at Luton, Bournemouth, and laterly, Gatwick, but putting those aside, there are another 10 bases in the U.K. that we have a fantastic opportunity to grow in. And over the last 2 years, we have launched 4 new bases. That's quite a lot. And we can't take our eye off the ball on our existing bases. There's more work we want to do there. And I think we'll probably be entering a period of stability, where we'll be growing our new bases and maturing the ones that have been launched recently, whilst taking care and strengthening our older bases. Operator: And we'll now take our next question from Ava Costello of Davy. Ava Costello: Just 2 for me, please. And the first one is on the package and flight-only mix. So for Summer '26, where do you expect the mix to go versus Summer '25? Obviously, Luton and Bournemouth bases maturing, and hopefully, moving towards the network average, but what do you expect the impact from Gatwick to have on the mix? And then the second one is a little bit more long-term focus. So how much of the growth deliveries could you potentially go to Gatwick? And is that solely dependent on a new run rate? Or do you see more capacity coming online organically from these tech advancements? Gary Brown: Ruairi, it's Gary. In terms of the package holiday-flight-only mix, as I said before, it's one of the questions, it very much depends on the market you're in at the time. And I'll repeat that, we're constantly solving for the best bottom line outcome whether volume pricing or mix. In terms of how we're looking at it for next financial year, I think if we can be flat in terms of package holiday mix, I think we will be very pleased with that. And early indications, and I will stress, it is very early indications for Summer '26 of playing that sort of theme out at the moment. If -- and again, it remains to be seen what the capacity in the industry looks like for next year. Our initial reads are between 2.5% and 3% at the moment. If there is a rebalancing between supply and demand, which generally happens in this industry, what it means then is consumers don't leave it quite as late to book, which plays more into more of the planned holiday products more than the impulsive holiday products. So if we can achieve flat next year, I think we'll be pretty pleased. And that's still pretty much in line with what we've always said for a full year outcome between 60% and 65% on package holiday mix, and we've been pretty consistent over the years in restating that. Stephen Heapy: Thanks, Gary. And on your second question in relation to Gatwick. We have no intention of standing still with 6 aircraft operating in and out of Gatwick. It's true that we're able to launch the 6 aircraft as a subject of some infrastructure work that was done at the airport. But you must remember, there's movements of fleets in Gatwick all the time, some airlines increase their operations, some airlines decrease their operation, and there are slot opportunities that come up regularly. So I hope we will be able to take advantage of any opportunities that come our way over the next few years. What is likely is the second runway will be approved, and that should come into operation in about 2030. And whilst that sounds a long way away, we've got Summer '27 on sale already, and we started to think about Winter '27-'28. So Summer '30 will be on us before we know what the key is. First of all, to grow and mature our Gatwick operation. And we said in our release that, that will take time to mature that operation. And secondly, we keep up dialogue with the airports and the slot coordinators to see what opportunities come our way. And you've known us for quite a while, you know that we have a track record of grabbing opportunities as they come up, of which the recent announcement into Gatwick is a perfect illustration of, so we'll keep up dialogue and keep watching what's happening and make any announcements in due course if we have something to say. Operator: And we'll now take our next question from Andrew Lobbenberg of Barclays. Andrew Lobbenberg: I can't believe we've got this far in the call and no one has mentioned the B word. So how do you see consumers reacting about the looming budget? And do you see it as being a clearing event and driving more consumer confidence once we're through it? Or what are your thoughts around the budget? And then, staying on Gatwick, and got it, we still are all asking about that, if now, how do you think about the cost of operating at Gatwick? The wonderful Wizz have been saying that it's a really expensive airport and they need to get out of there. I don't know whether you would think about that. But I mean, how does it look to you for airport charges, and indeed, also for the local labor market, which I think is pretty hot? Stephen Heapy: Okay. In terms of the budget, I haven't really got anything to comment on because I don't have any detail. I look at the newspapers on a daily basis. And here, the latest scare story is to what's going to happen. I mean, if you add up all these scare stories, there's going to be an additional GBP 15 trillion raised in the budget. So I don't really take too much notice of the individual policy speculations that I discussed. What I do think, though, is that the government shouldn't be imposing any more tax on air travel and holidays. It already collects an enormous amount of tax from the airline and holiday industry. And I think, it's gone on long enough that this industry is used as a cash cow. So I would urge the government not to increase taxes any further on air travel because that will inevitably put up prices and could price some people out of the ability to take a holiday, and those people will be the lowest paid members of society, which strikes me as being patently unfair. What we do have, however, as a great defense is our customer service. In economic times like this, people tend to gravitate around the brands they know, the brands they trust and the brands they know will deliver great customer service consistently on every holiday. And that is what you tend to see that people gravitate to these brands. You've seen our commentary on our Net Promoter Scores on customer satisfaction, on our rebook rates, and we expect this to be a massive form of defense during any potential reverberations from the budget. So I'm pretty confident -- I'm very confident, in fact, that we should be able to navigate through whatever is thrown at us next year because we'll be shored up by our fantastic customer service. In terms of Gatwick costs, obviously, I can't comment on those, but again, if you offer a great customer service that enables you much more to sell the product, we've got the best reputation for customer service. I'm very encouraged by the sales so far at Gatwick. It's been less than a week, but I'm very encouraged by them. And I think people are recognizing that we are recognized as #1 for customer service and being drawn to our brand. Many companies operate just on the price level and tend to deprioritize customer service. We prioritize customer service. And we think we have an absolute duty to provide people that perhaps have worked for 50, 51 weeks of the year to go on a highly valued holiday, and we feel it's our duty to treat every one of our customers as a VIP, whether they flight-only on a 2-star holiday, a 5-star holiday, self-catering, all inclusive, it doesn't matter. We treat all our customers the same, and that's very much as a VIP. And that's been our philosophy over the last 20-odd years at Jet2, 15 years at Jet2holidays. And that will remain our philosophy and the core of our strategy. Operator: And we will now take our next question from Richard Stuber of Deutsche Bank. Richard Stuber: Two questions for me, please. And apologies, I've got cut off and may be repeating one. The first question is on Gatwick. Could you give us some guidance in terms of what the start-up cost will be for this year and the shape of the cost as you reach profitability to FY '29? And I know you're saying that after that, it will be meaningfully profitable. Is that -- do you assume that there will be more slots and more aircraft in that? Or do you think it will be meaningfully profitable even on the 6 aircraft that you have at the moment? And the second question, just really on the cost outlook for next summer, could you tell us please what you're seeing in terms of cost inflation for accommodation and fuel? And what you would expect then to be sort of the average selling prices of your packages looking forward to next summer? Gary Brown: Thanks, Richard. In terms of Gatwick, we believe that in terms of the booking costs that we'll incur in this financial year to generate the bookings for next summer, plus labor cost, plus promotional content, et cetera, between GBP 10 million and GBP 15 million we reckon in this financial year. And we want to be as resilient as possible going into Summer '26 to make sure that we can provide the best possible product and service to what essentially are all new customers. We need to show them exactly what Jet2 is about. And as Steve has just reinforced, it's all about making customers feel special. And if you want to do that, then you need to spend the right amount of money setting that base up. In terms of FY '27, if you take Luton, I guess, as a guide, we said sort of late single digits losses in its first year. That was with 2 aircraft. We've got 6 at Gatwick. We're also doing it in because it was an opportunity that was slightly ahead of our expectations. And we're also doing that with less efficient aircraft or part less efficient aircraft in the form of ACMIs. So inevitably, there's an incremental cost there. And a bit like Luton, Gatwick is going on sale even later than Luton. And, therefore, there will be some price investment. So I think you can do the math on that and come up with your own answer. But in the FY '28, those ACMI aircraft will fall away. We will be selling across the whole selling cycle, we will be better known, et cetera. And therefore, we expect whatever those losses are in your model to halve is what I would say, and then, move into profitability. In terms of cost inflation, it's still very early, to be honest with you. The accommodation market is moving around depending on what demand looks like, not just from the U.K., but from Europe as well in terms of the Nordics, the German market, et cetera. I would expect accommodation inflation to be in or around 5%, but I may be proven wrong ultimately. We've yet to even decide on what a wage increase looks like for our colleagues. And clearly, we've got one eye on CPI, et cetera. So I'm sorry, I can't help you any more than that. In terms of fuel, you asked about, we're about 70% hedged, I think, for Summer '26. At the moment, the fuel rate is about 10% better. But remember, fuel is only 10% of our overall cost base. But the other side of that equation on FX, a bit of a benefit on the dollar, but we do buy EUR 4 billion worth, and the pound has been weaker against the euro, pretty much through that whole buying cycle. So hopefully, that helps you in terms of some of your modeling. Operator: We'll now take our next question from Axel Stasse of Morgan Stanley. Axel Stasse: I have 2, if I may. And the first one is on the additional capacity for next summer, approximately 4%, excluding Gatwick. And if you include the Gatwick, it's approximately 9%, while I think your competitors are significantly lower than this. So how do you think about fares or even load factors going forward? Do you say your competitive edge is enough or at least sufficient enough to maintain the fares stable? Or -- yes, just to have your view on this. And then the second question is on the cost certainty locked in for fiscal year '27 that you mentioned in the slides. Can you maybe elaborate here where are you most comfortable with? What is already locked in, if I can put it like this? And how should we maybe even look at the airline cost, seat per seat or per capacity growth year-over-year in fiscal year '27? Stephen Heapy: On the first question in terms of the capacity growth, yes, we've said our capacity growth in existing base is 3.9% and including Gatwick about 9%. That's one of the lowest levels of growth we've announced for some years. We don't have an accurate read on what the rest of the market is doing yet, and we won't know that with total accuracy until the end of January when people make the final slot declarations. But you should bear in mind that some of that additional capacity is due to us putting A321neo in some of the bases, which, as we said earlier, is an upgauge and that's 232 seats as opposed to 189. But the cost associated, the seat cost with those 232 seats is much lower. So some of the capacity increase is offset by efficiencies on cost. But we're confident with the capacity we've got. We -- and if we need to make any more adjustments, we will do that as we did with Summer '25, and we have done with Winter '25-'26. We've got a very flexible model and a very flexible approach to capacity management. So that's the number today, 3.9% and 9%. But if we feel we need to make adjustments, we can do that. But at the moment, we're confident with those 2 numbers. Gary Brown: And the second question, I guess it's a similar answer to what I just gave to Richard really. We're about 70% hedged for U.S. dollar on fuel. Fuel, about 10% cheaper in terms of the rate at the moment. U.S. dollar is about 2% better, but 50% hedged for euro, we're probably 2% worse at the moment. So there's a lot of moving parts before we have a very clear view of how that translates into the cost base and cost per seat. Just in terms of cost per seat as well, we don't have sight yet of EUROCONTROL fees, which are obviously very important to us in terms of cost per seat. So normally, we have a better view as we get sort of into January, late January, early February. And we also have a better view of the market at that point in time as well because everyone's put their slots into the system, and we'll be able to give you a better view at that point in time. Obviously, we'll look to price anything in. But as Steve pointed out before, in terms of the budget coming up, we don't know what that looks like either. So there's a lot of moving parts is what I would say, and I'm not being evasive, but there are. Operator: And we will now take our next question from Harry Gowers of JPMorgan. Harry Gowers: First one, maybe you could just talk through the flight-only pricing, how that's behaved or changed over recent months? And do you think the kind of minus 7% level is potentially a trough or a bottom? Or should we be thinking the winter could still come in a little bit worse than that in terms of the outlook? And then, sorry if I missed this earlier, but just on Gatwick, like where could that package mix maybe come in over time? And are you expecting the Gatwick market or catchment area to be any different versus the rest of the network just in terms of attractiveness of the product, demand for package holidays, et cetera, et cetera? Gary Brown: Just in terms of the flight-only pricing, I think we guided to mid-single digits down. It's slightly worse than that. I wouldn't say it's materially worse, but it's slightly worse with the 7%. But at the end of the day, I'll repeat again, I'm sorry, we do constantly look at that volume-pricing mix dynamic to drive the best possible bottom line outcome. And I think we've done that in the first half. In addition, as I say, we look at price part, marketing part as one of the same thing. And what we've been able to do is be very targeted in terms of how we've reduced our marketing spend and where we've put that in terms of pricing across both products actually to drive the best possible outcome for the business. In terms of winter, it's similar at the moment. Holiday pricing is pretty resilient, and flight-only is in negative territory, not quite at the minus 7%. But what I would say is that there's still 50% of winter seat capacity to sell, which tends to be sold from January onwards. And depending on what the market looks like, we may need to invest a little bit more in price or we may not. So only time will tell, but we're balancing the component parts to get the right possible outcome, I think, is what is safe to say. Stephen Heapy: And in relation to the package mix, we did say when we announced the start of our operation that package mix would be lower, and we would build that over subsequent years. Just because people haven't had perhaps a great choice in the package holiday market at Gatwick previously it doesn't mean that they won't do in the future. They will be and are being attracted by, as I said earlier, our customer service ethos by our award-winning product. And they will be attracted to that. Sales have started very encouragingly. It's only a week. I would just caution that we're only a week into it, but I'm very encouraged by overall sales and package holiday sales. And I think we offer what people want, great customer service, but one price. Why would you want to book a flight, a hotel and a transfer separately, and I mean all that hassle of going on 3 websites and messing about waiting 3 lots of transactions? You can secure your holiday for GBP 60 deposit all in one transaction knowing, a, it's with a company that has by far the best customer service in the industry; and b, the company that has by far the lowest cancellation rates of flights. If there's air traffic control issues, we don't cancel flights carte blanche. We fight to get people on their holiday. So I think that's going to be a very attractive proposition. We know that because it's very attractive in all our other bases, but also people from the Gatwick area have been asking us consistently for a long period of time to start operations there. So there's a huge amount of demand pent-up for both package holidays and more specifically package holidays from Jet2holidays. Operator: There are no further questions in queue. I will now hand it back to Steve and Gary for any closing remarks. Stephen Heapy: Okay. First of all, thank you for your time this morning. It's been 1.5 hours and very much appreciated, and thank you for your questions. It's been actually a pleasure to get so many questions from you. I hope we've answered them satisfactorily. And I hope you're pleased with the results, we are. Just to reiterate, it's a record set of results. We're continuing to invest for growth. We've seen that with our aircraft order, our new hangar at Manchester, our base at Gatwick, our retail operations center. Thirdly, we're continuing to create value for shareholders through our increasing dividend and also the announcement of GBP 100 million share buyback starting on the 1st of December. And fourthly, our investment into our product and our brand, which is continuing to retain existing customers, but also attract new customers. And that's not only at Gatwick and Luton and Bournemouth and Liverpool, but we continue to attract new customers at our other 10 bases also. So that's it on the call, I think. Thank you very much. I hope you're as pleased with the results as we are, and I'm sure we'll speak to many of you over the coming days. Thank you.
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.]
Operator: Good afternoon, everyone. Welcome to the combined 9 months YTD 2025 results analyst briefing. I am Ian, and I will be your moderator for today. A few reminders before we begin. [Operator Instructions] Number four, please be reminded that this webinar is recorded. Allow me now to introduce our panelists for this afternoon. We are joined here today by Ms. Monica Ang-Mercado, San Miguel Food and Beverage Inc. CFO; Ms. Chesca Tenorio, VP and Head of Corporate Financial Planning and Investor Relations; Mr. Erich Pe Lim, Petron Corporation Investor Relations Head; Ms. Tina Garcia, SMFB Investor Relations Head. Also joining us on Zoom, we have Mr. Bryan Villanueva, SMC's Chief Finance Officer; Mr. Joseph N. Pineda, SMC's Treasurer; Mr. Paul Causon, San Miguel Global Power Holdings Corp. CFO; Mr. Ferdinand Constantino, Adviser to SMC; Ms. Tatish Palabyab, SMC Chief Sustainability Adviser; Mr. Erwin Hernandez, AVP and Head of Business Development, Project and Financial Planning of SMC Infrastructure. We'd also like to acknowledge the presence of other key executives of the group who will be joining us in this call. I now turn you over to Ms. Chesca Tenorio to discuss the SMC Group's financials and operational results. Chesca Tenorio: Good afternoon, and welcome to San Miguel Corporation's Combined 9 Months Year-to-Date 2025 Results Analyst Briefing. We're pleased to announce with pride that the San Miguel Corporation Group has demonstrated strong profitability and a resilient performance during the period. Before we begin further with the financial results of the company, we would like to first highlight a few key developments, which we will be discussing in detail throughout this presentation. As a macro backdrop, the Philippine economy in the third quarter of the year recorded a 4% GDP growth, slower than previous quarters. GDP decelerated amid governance concerns over infrastructure spending and slower domestic demand despite a cumulative 75 bps rate cuts by the BSP so far this year. While GDP growth slowed down, SMC exhibited resilience, recording strong year-on-year performance for the third quarter of the year compared even to the first 2 quarters of the year. The SMC Group maintained strong profitability despite recording lower revenues as the group worked towards margin expansion through cost disciplines, reduced material costs and operational efficiencies. These results underscore the group's ability to navigate market headwinds and other external pressures to deliver resilient performance. The Food, Hard Liquor, Power and Infrastructure businesses delivered the biggest improvements. During the period as well, SMC has earned recognition for its sustainability efforts. This is for both environmental stewardship and social impact. SMC has integrated ESG impact assessments into its capital expenditure review process and conducted physical climate risk evaluations of key facilities to ensure long-term business resilience. Alongside our sustainability initiatives, we continue to prioritize efficiency, financial discipline and key strategic actions, allowing us to maintain growth momentum amid external challenges. Equally important, beyond business performance and value creation, the group's long-term focus continues to center on nation-building, food and energy security and driving sustainable development. We remain committed to supporting the country's long-term growth by advancing critical infrastructure projects and expanding our energy portfolio to meet the increasing needs of our communities and industries. So that's basically our executive summary. So let's now turn to the group's respective earnings performance. On the slide, you'll see SMC's results. SMC delivered solid results for the 9 months ending September 2025. This is reflecting strong profitability and operational resilience amid persistent global headwinds and a looming local political concern. The company's strategic focus, cost discipline and efficiency initiatives supported earnings stability despite softer revenues and continued pressures in global commodities market. Consolidated revenues declined 7% to PHP 1.1 trillion, mainly due to, one, lower crude and commodity prices that has impacted the fuel and oil and power segments; two, reduced revenue contribution from the power business due to the deconsolidation of SPPC and EERI and lower average realization prices on lower coal and WESM prices. However, this was partially offset by solid contributions from the food, hard liquor and infrastructure businesses. Consolidated operating income increased 13% to PHP 137.4 billion, driven by lower raw material costs, pricing actions and improved operational efficiency, resulting in margin expansion from 10.3% to 12.6%. Profitability improvements were led by Food Group, Hard Liquor and Infrastructure, along with Power posting the largest improvement in margins. Net income rose significantly to PHP 78.6 billion during the period, supported by a gain from the fair valuation of investments and foreign exchange gains. Even excluding one-off and ForEx impacts, core net income improved by 54% to PHP 60.3 billion. Consolidated EBITDA finished at PHP 194.3 billion, and this is 16% higher than prior year. Now to walk us through the performance of San Miguel Food and Beverage, I'll turn the floor over to Tina. Kristina Lowella Garcia: Thank you, Chesca. For the 9 months ended September 2025, San Miguel Food and Beverage continued to deliver strong results with consolidated net sales reaching PHP 302.9 billion, up 4% from last year, supported by firm demand, efficient pricing and sustained brand initiatives across its Food, Beer and Spirits divisions. Operating income rose 12% to PHP 44.7 billion, while net income grew 11% from last year to PHP 33.7 billion, reflecting solid performance across all segments. EBITDA increased 13% to PHP 58.4 billion, driven by broad-based gains and improved margins across the businesses. Let me walk you through the Food businesses performance for 9 months period ended September 2025. San Miguel Foods maintained its solid performance with all key metrics exceeding last year's levels. Revenues grew 7% to PHP 143.5 billion, supported by strong volume growth across the segments. The Protein segment posted 11% revenue growth on higher volumes, backed by stable internal supply and continued favorable chicken prices. Animal Nutrition & Health revenue declined 1% year-to-date, a marked improvement from the first half shortfall of 5% as feeds volumes steadily recovered. Prepared and packaged food consisting of Purefoods, Magnolia dairy and coffee sustained strong momentum, delivering 9% revenue growth driven by higher sales volumes, favorable selling prices and an improved sales mix. Operating income increased 32% to PHP 13 billion, largely driven by Protein's sustained strong performance and continued favorable raw material prices. Net income rose 33% to PHP 8.9 billion, while EBITDA grew 27% to PHP 19.6 billion, reflecting broad-based margin improvements across the businesses. Moving on to the Beer business. San Miguel Brewery reported revenues of PHP 110.7 billion, almost matching last year's level. Operating income rose 2% to PHP 23.9 billion, reflecting effective cost management, supported by the September 2024 price increase, resulting in improved margins. EBITDA increased by 4% to PHP 30 billion with margins improving to 27%. Net income reached PHP 18.8 billion, up 1% from last year. Domestic revenues totaled PHP 98.3 billion, a slight 1% decline year-on-year. The performance reflected subdued discretionary spending, the impact from last year's pre-September price increase trade loading and the onslaught of successive typhoons affecting most regions. Operating income for the domestic business was flat at PHP 20.7 billion, while net income finished at PHP 18.5 billion. International operations registered modest growth with all key metrics showing improvement. Revenues reached $218 million, up 3% versus last year, driven by strong volume growth in exports, Thailand and South China as well as higher San Miguel brand sales in Vietnam. Operating income rose 15% to $56 million, supported by higher volumes, lower production costs and managed expenses. SMB continues to implement key initiatives to strengthen its brand presence. In the domestic operations, SMB reinforced equity building through the Oktoberfest kickoff event and the release of the new SMB Christmas campaign. Offtake boosting initiatives were also implemented such as thematic and digital campaigns, consumer and tactical promotions and product innovations, reinforcing flagship and premium brands. In the international operations, SMB boosted consumer engagement through channel-specific programs, modern trade expansion and sustained brand building through seasonal campaigns, merchandising drives, digital initiatives and product innovations. Amid a challenging market, SMB will continue implementing volume-boosting initiatives alongside prudent cost control, supply chain improvements and organizational capacity building. Turning now to our Spirits business. In the first 9 months of 2025, Ginebra San Miguel sustained its strong performance despite a challenging market with revenues reaching PHP 48.7 billion, a 7% year-on-year increase. Operating income rose 19% to PHP 7.5 billion, supported by higher selling prices, favorable molasses costs, improved distillery efficiencies and continued secondhand bottle usage. Notable volume growth was observed from the Vino Kulafu and Primera Light brands. Net income and EBITDA grew 17% and 19%, respectively, reaching PHP 6.3 billion and PHP 8.4 billion. That concludes the update for San Miguel Food and Beverage. I'd now like to invite Eric to present updates on Petron. Erich Pe Lim: Petron Corporation in the first 9 months of 2025 reported revenues PHP 594.9 billion, a 10% softening versus the same period last year. Revenues dropped mainly due to lower Dubai crude prices from an average of $81 per barrel in 2024 to $71 per barrel in 2025, a 13% drop. The decline in crude oil price was attributable to a significant buildup of crude supply by key producers compounded by geopolitical tensions and shifting policies. Despite the aforementioned external challenges, Petron was able to notably register double-digit growth in other key metrics with operating income finishing 20% higher at PHP 26.6 billion. This was driven by higher domestic sales, lower costs and improved plant efficiencies. Combined sales volumes from the Philippines and Malaysia reached 84.7 million barrels, up 3% versus the comparable period last year. Growth was fueled by strong domestic performance, particularly in the Philippines, where volumes in highly profitable retail segment continued to grow, registering a double-digit increase of 11%, allowing Petron to unceasingly corner the bigger share of the market. Finally, this led to a net income, which registered even higher gains, increasing 37% year-on-year to PHP 9.7 billion, underscoring the company's resilience in navigating persistent industry headwinds. Over to you, Chesca. Chesca Tenorio: Thank you, Erich. Let me now continue with the performance of the remaining businesses in the group, along with updates on our sustainability initiatives, overall business developments and outlook. San Miguel Yamamura Packaging Group maintained stable performance, posting September year-to-date revenues of PHP 28.4 billion. This is nearly unchanged from last year. Revenue was generated by serving key food and beverage customers of their plastics, beverage filling, flexibles, paper and glass packaging requirements. Operating income, though improved by 4% to PHP 2.2 billion, driven by the successful implementation of cost-saving programs and initiatives to improve productivity across all its operations. Meanwhile, EBITDA declined slightly to PHP 4.0 billion. Moving to the Power segment. San Miguel Global Power's revenues amounted to PHP 118.8 billion. That's 23% lower compared to previous years with offtake volumes dropping by 18% to 22,090 gigawatt hours. The decline, though, was primarily due to the divestment and resulting deconsolidation of the South Premiere Power Corp. or SPPC, owner of the 1,278 megawatts Ilijan Power Plant. This was made with the completion of the group's divestment of 67% interest in the underlying gas power generation assets last January 27, 2025. Moreover, the decline in the revenues reflected a downward adjustment in fuel tariffs to bilateral customers due to the continued softening of global coal prices. Excluding the impact of the SPPC deconsolidation, volumes were relatively stable, supported by the following: first, there's a full 9-month operation of 4 generation units of the 600-megawatt Mariveles greenfield power plant and 3 BESS or Battery Energy Storage Systems, facilities with a combined capacity of 110 megawatt hours, plus 5 additional BESS facilities with a total capacity of 140 megawatt hours, which began commercial operations in 2025. Second, strong offtake volumes from the Masinloc Plant contributing 6,571 gigawatt hours or 30% of the total volume. And third, there was higher generation volume from the San Roque hydroelectric power plant amounting to 929 gigawatt hours. That's up 125%. So overall, operating income for the power group rose to PHP 34.8 billion with operating margins expanding to 29% from only 22% last year. This improvement is a result of better margins from contracted capacities and significant contributions from BESS facilities. Such operating income does not include the share in the net earnings of SPPC and EERI, which owns the new Batangas combined cycle power plant units 1 and 2 with a net capacity of 425 megawatts each. This amounts to about PHP 5.9 billion to date, which the energy business continues to recognize from its remaining 33% interest in these gas power generation assets as part of its portfolio, even with the aforesaid deconsolidation. Meanwhile, EBITDA grew 22% to PHP 54.1 billion. Net income for the power group surged to PHP 42.4 billion, bolstered by the PHP 21.9 billion gain from the Chromite transaction and higher earnings from key operating power generation asset portfolio. Excluding the aforesaid gain from the Chromite transaction, core net income still improved significantly by 52%. Moving now to the Infrastructure segment. SMC Infrastructure sustained its growth trajectory with revenues rising by 7%, buoyed by the improved traffic volumes across all toll roads. Combined average daily traffic reached PHP 1.07 million, marking a 4% increase from the corresponding period last year. EBITDA grew by 8%, reaching PHP 23.8 billion with a sustained margin of 80%. Operating income rose by 12% to PHP 16.7 billion, supported by effective operational and management cost control. Moving to the Cement business. The Cement Group generated consolidated net sales of PHP 25.5 billion for the 9 months 2025. That's a 6% decrease from the comparable period last year. This is primarily due to the lower sales volume and weaker average selling price as a result of the continued influx of imported traded cement. Imports were estimated to account for 21% of industry volume as of the period. Despite the 3% decline in EBITDA to PHP 7.3 billion, margin though improved to 29% due to ongoing cost efficiency measures. Meanwhile, operating income fell by 4% to PHP 5.1 billion. A snapshot of our balance sheet, SMC's consolidated total assets as of September 30, 2025, stood at PHP 2.7 trillion, while total liabilities amounted to PHP 1.9 trillion. Stockholders' equity ended at PHP 733 billion. Consolidated cash balance stood at PHP 344 billion, while interest-bearing debt totaled to PHP 1.6 trillion. Next, we just want to highlight some 9 months 2025 sustainability performance for our group. The following are the highlights. SMC, along with the subsidiaries, Northern Cement and San Miguel Global Power Holdings were recognized for its sustainability initiatives. On September 23, 2025, SMC received recognition as one of the sustainability champions from Manila Times. On October 23, 2025, the Asian Water Awards recognized SMC for its water conservation initiatives of the year for Philippines, in particular, for Northern Cement Corporations reaping the rain and recycled water program. San Miguel Global Power also received recognition from the same award giving body for Outstanding Water Resources Contribution of the Year for the Philippines. This is for the Malita Power Plant's entry and integration of treated into non-potable domestic water supply systems. Also for Masinloc Power was awarded 3 Asian Power Awards. One is Environmental Upgrade of the Year Philippines, for its entry of clean chemistry, sustainable corrosion mitigation at Masinloc units; Operational Efficiency Initiative of the Year, for its entry of fuel flexibility in a cost-effective mill improvement project to promote industry innovation and customer satisfaction; and third, Circular Economy Leadership of the Year, for Philippines for its entry of cost-effective mill enhancement project, leveraging fuel flexibility to promote customer satisfaction and drive industry innovation. Overall, San Miguel Global Power was recognized then for Employee Engagement Initiative of the Year, Gold, for the company-wide sustainability month event. Other highlights of our sustainability performance. We continue to advance our environmental, social and governance commitments, focusing on embedding sustainability into our core business processes and decision-making. Under environmental stewardship for our 9 months '25, integration of sustainability and capital projects was done. We have formally embedded a sustainability questionnaire into our capital expenditure process. This ensures that environmental and social impacts are systematically assessed for all proposed projects, supporting responsible investment decisions. Second, climate risk assessment. This was completed in October 2025. So now our climate risk assessment has been completed. It's identifying potential physical and transition risks across our operations. Business units now are reviewing the final materials to develop targeted mitigation and adaptation strategies. Next, under capacity building and governance. For carbon markets readiness, this was completed in September 3, 2025. We conducted a carbon markets workshop for our management team to strengthen internal understanding and readiness. This initiative enhances our capacity to engage with emerging carbon pricing and trading mechanisms in the future. Lastly, as an energy update as of 9 months 2025, over the next decade, I'd like to reiterate that we will be shifting towards renewables by expanding hydroelectricity capacity, building solar plants and adding more battery storage systems. In June 2025, through GEA-3, San Miguel Global Power was awarded 4,200 megawatts of hydropower projects. And next in October 2025, under the GEA-4, we secured over 2,225 megawatts of new solar projects. This marks a major step in transforming our portfolio and supporting the country's clean energy transition. Lastly, we now move to the outlook and recent updates of the group. To reiterate, SMC is pressing ahead with its growth and expansion strategy backed by solid operating performance amid the country's current political situation and global economic challenges. For the new Manila International Airport, progress on the land development and ground improvement works are ongoing with areas ready for construction of key facilities. SMC continues to look for ways to optimize cost and overall project time lines. For the NAIA, completed improvements as of September 30, 2025 include the following: first, there are local road networks that have been upgraded with widened curbside areas to ease congestion and enhance traffic flow. A new automated parking system with expanded payment options has been installed to streamline entry and exit. Terminal 1 OFW lounge and multiphase prayer room, Terminal 3 dignitaries lounge and airside employee cafeterias in all terminals have been completed. Implemented new traffic management schemes and designated of outer lane as taxi-on lanes at Terminal 3 have also been completed. Upgraded and migrated to SAP for automation of business processes have been done. Heating, ventilation and air conditioning systems at Terminal 3 and lighting fixtures at Terminal 3 arrivals have also all been upgraded. Beyond the completed works, NAIA is also working on the following: in partnership with Collins Aerospace, ongoing rollout of modernized passenger processing and airport management systems, additional immigration e-gates, upgrading of key airport equipment such as elevators, walkalators, explosive detection systems, passenger boarding bridges, advanced visual docking guidance systems and lastly, terminal facilities such as expanded bus gates, lounges and retail and dining halls are all on works. For MRT-7, the railway components percentage completion is at 81.5%. For the depot site development and construction of other facilities are still ongoing. In addition, the submitted variation, which include the new location of Station 4 is approved by the San Jose Del Monte and DOTr. Consequent to the new approved location of Station 14, there is also an ongoing study on the realignment of the highway component. On the toll roads, we continue to advance our improvement projects for existing toll roads such as Skyway System, NLEX, SLEX and STAR. Upgrades include road widening, additional entry exits and interchange enhancements. Ongoing construction works on SLEX TR4 is progressing steadily well with the toll roads percentage accomplishment and right-of-way acquisitions at 49.4% and 85%, respectively. These projects would allow for greater development in Metro Manila and other fast-growing regions of Luzon by enhancing connectivity, easing congestion and improving traffic flow, supporting the country's overall social and economic development. Last, as of September 30, 2025, roughly 50% of the group's 1,000 megawatt hours of BESS projects are already in operation, delivering ancillary services to the National Grid Corporation of the Philippines under a 5-year Ancillary Service or ASPA or selling their spare capacities to the reserves through the independent electricity market operator to ensure grid stability. The remaining BESS projects in the pipeline are expected to commence commercial operations by 2026. SMGP is also expanding its renewable energy portfolio through hydropower and solar energy projects, as mentioned earlier. On updates on our sustainability front, SMC is finalizing a sustainable finance framework to align financing with ESG strategy of the group. The document is seen to establish the company's decarbonization road map and will enable us to access sustainability-linked financing options, supporting the transition toward a lower carbon and more resilient business model for the group. Other projects in the pipeline include an automated platform to track sustainability data across all business units and development of business level road maps for each of our 4 sustainability goals. And that brings us to the end of our presentation. Thank you for your time and attention, and we now open the floor and call for your questions. Operator: [Operator Instructions] We have a question from -- we have a raised hand from [ Tony Watson ]. Unknown Analyst: Okay. Can you hear me okay? Chesca Tenorio: Yes, we can hear you. Unknown Analyst: Great. Just one question on the Meralco claim. When I visited San Miguel Power a couple of months ago, they mentioned they're expecting a final ruling on the second claim sometime late fourth quarter, early first quarter. Any update on that? Paul Bernard Causon: May I take on that, Jessica? Chesca Tenorio: Yes, Paul. Thank you. Paul Bernard Causon: So thank you for your question. Let me update you first on the first claim. So the first claim is for PHP 5.1 billion. And pursuant to the ruling of the Supreme Court, which came out earlier this year, Meralco has paid already 2 out of the 6-month installments to date. Now with respect to the second claim, which is a little over PHP 29 billion, about PHP 15 billion of that is still unaccrued by the company. We we've had the hearing with the ERC yesterday basically to discuss the case. And the way that the way case went on, there were 2 things that were apparent from the meeting. Number one, we were able to get a confirmation from Meralco with respect to the amount. So there is no dispute at all with respect to the amount of the claim. The second one, the legal basis for the second claim is tightly linked with the first case, which has already been ruled upon by the Supreme Court. So those 2 critical elements of the case were put on record by the hearing officer from the ERC. And we expect that the results of such hearing will be elevated to the commission when it will be meeting -- and by early December. And I think with respect to the earlier assessment on the time lines, we will be a bit delayed with respect to the resolution, maybe not this year, but definitely early next year, most probably January. Operator: We have a raised hand from [ Ajay Sharma ]. Unknown Analyst: Can you talk about -- can you hear me? Chesca Tenorio: Yes, we can hear you. Unknown Analyst: Okay. So I want to know for both the Spirits and Beer business, the volume growth has been pretty modest. I guess, Spirits no volume growth, I guess, this year. So I'm just wondering, how much was the price increase for both of them this year and how much was the excise increase? And how do you see the fourth quarter shaping up? Chesca Tenorio: Well, Ajay, historically, for the fourth quarter, those are the months, the celebration months because Christmas is a big event for the Philippines. Normally for -- across our businesses, Food, Ginebra and Beer volumes tend to improve sizably. In terms of the excise taxes, it's around 6% annually, and most of that is usually passed on or declared in the beginning of the year. So by now, the volume performance of the Q3 or the first 9 months, I think really shows the challenged spirits and alcohol industry in the sense that the consumer habits have changed in terms of on-premise drinking and off-premise. We have more competitors as well as the earthquakes and the recent typhoons, they have had a very big effect as well as the economic effect on the consumption for nonessential goods, which is really our Spirits and Beer business. But for Food, you can see the volume is growing. Unknown Analyst: And are you gaining market share? How is the market share trend for both categories? Chesca Tenorio: We are still very dominant in Beer. As you know, we're 90-plus market share. I think to gain additional points is really difficult and challenging. However, we are trying to introduce more variants, more SKUs for -- to excite the market and to enter other more premium categories, and that's where we are trying to gain market share away from the foreign brands. Also for Ginebra or the Spirits business, we have been gaining market share steadily around close to 50-plus percent for the white. Of course, there's still plenty of room for us to try to grow. We're trying to really penetrate the brown spirits market. Operator: We have a question from [ Mark Anthony ]. [indiscernible] Congratulations on the results. Question for GSMI. After half a decade of volume growth for GSMI and considering the perpetual increase of excise taxes, do you see GSMI moving towards direction of growth in value due to higher prices and not necessarily in volume as we may already have seen in the 9 months of 2025? Or does the distribution network of GSMI still have a huge runway to drive volume growth? How does 4Q '25 volumes of GSMI look like? And is it reasonable to expect the cash dividends next year to grow by the same rate as income this year and maintain the payout ratio? Chesca Tenorio: Okay. For the first, well, we already explained some of that. Definitely, the past years, we have been surprised at the market's ability to absorb the higher prices. We've been passing on the increase in excise taxes to them and the volume has been growing. But yes, we do not rely on being able to pass on the prices. We still think that there is a lot of room for growth, not only for our flagship categories or brands such as the red or the low-cost gin, but we have many other SKU or category that we're trying to grow, especially in the Visayas and Mindanao or the Southern regions. In terms of the distribution network, we have many untapped areas yet. We have been increasing dealer routes and distributors or dealers to our network, not only for Ginebra, but also for Beer, because we feel that, that's really where we can improve, not only in increasing distributors, but also increasing wholesaler routes. We have also been increasing our CapEx for expansion related or production capacity-related projects. So we really do think there's still a lot of room to grow, especially for Spirits. For Q4, again, this is the best time for Ginebra, Beer and Food. Typically, the volume will really be very, very high average per day compared to the usual. And for the cash dividends, we don't really provide guidance or guarantee on what we will be announcing for the following year. But as you can see in the past years, our payout ratio has been steadily increasing. It really depends on the performance of the company. Operator: We have another question from [ Karissa Magpayo ]. On FB, can you share sales growth trends so far in 4Q '25? Are we seeing some improvements in demand across the 3 segments, namely Beer, Spirits and Food? Chesca Tenorio: Okay. This is almost the same question, but I'll maybe share more about the Food growth. As you know, we have commodities business, which is mostly poultry and feeds and those have been steadily growing very well. The thing is for poultry, prices of the poultry have gone down in the past few weeks. So that may be affecting our volume. But for our prepared and packaged food businesses, which are the branded or value-added, those are Purefoods canned goods and other timplados or ready-to-cook, ready-to-eat type of products. Magnolia, which are heavy into butter-margarine-cheese type or dairy type of businesses, those are heavily used by bakeries and the normal consumers or households because it is Christmas time. So they're having a lot of sweets or desserts. So that's what's going to be driving the Food business for Q4. Operator: We have a question from [ Sharmaine Co ]. Question for Petron. May I ask how much inventory holding gain losses were in the third quarter, both in 2025 and 2024? Erich Pe Lim: For inventory gains and losses, for year-to-date September 2025, inventory losses amounted for roughly around [ PHP 2 billion ]. So this is a little lower or flattish coming from the disclosed figure in the first half of 2025. This is particularly because crude prices, crude by crude, basically consolidated in the third quarter of 2025 at around $70 per barrel. So we didn't see that much volatility. Now if you compare it to the year-to-date September 2024, inventory losses during that period is a little more than PHP 4 billion. Operator: We have a question from an anonymous attendee. For Power, could you walk us through the expected baseload capacity additions coming online in 2026 to 2027? Paul Bernard Causon: Okay. That's sort of an industry question. And well, I will answer it from our perspective, nonetheless. So currently, the net reliable capacity in Luzon, which accounts for practically 70%, 80% of the country's supply and demand is around 14 to 15 gigawatts on a daily basis. And out of that number, roughly 62% is more than 20 years old in terms of operating life. So there's quite a bit of fragility on the supply side. But with the ensuing coal moratorium that's been imposed by the Department of Energy, there's been quite a bit of expansion on the baseload side. The Department of Energy has across committed projects of roughly 9 gigawatts in solar capacities for the next 3 years with expected plant factors ranging from 16% to 18%. From our end, what is for sure, would be we are putting up 700 megawatts in baseload capacity by next year from Masinloc Units 4 and 5. I would say that I have quite a bit of insight on other generators plans with respect to baseload capacities, but the total is relatively very small at 500 megawatts. Operator: We have a raised hand from [ Ashwaria Pai ]. Unknown Analyst: My question is, first, San Miguel Global Power. Now that the auctions are completed, is it possible to give a guideline on the solar and hydropower CapEx and the time line for it and the incremental EBITDA from those projects? And my second question is, what would be the funding source for the next maturities of dollar bond for San Miguel Global Power in 2026, which is close to USD 1 billion? Paul Bernard Causon: Okay. Several questions there. So on the first one, what's clear with respect to our hydropower projects that's qualified under GEA-3 would be a CapEx headline of around $12 billion to $13 billion. But that one, of course, is subject to cost optimization. So we have -- we're looking at various approaches on construction and also on how we will configure the EPC with respect to those projects that should significantly reduce the cost further. From our initial assessment, we're looking at somewhere between $5 billion to $6 billion. But the equity component or the amount that we expect to spend in the next 3 to 4 years should be way smaller, somewhere between $2 billion to $3 billion. Again, subject to ongoing detailed studies, technical studies on the sites and also depending on our ongoing negotiations with the OEM suppliers, particularly for the Francis turbines. With respect to our GEA-4 projects, which are the solar farms, that would entail a relatively smaller number in terms of CapEx. So it's more or less around $1.4 billion, which we expect to incur over the next 4 to 5 years for the awarded capacities of roughly 2,200 megawatts. But again, that amount is still subject to cost optimization depending on our ongoing negotiations on the panels. And considering that most of the civil works would be something that we can do already internally and also would entail relatively smaller costs as far as the sites that we've chosen are concerned. Because most of the solar projects are -- in terms of megawatts are located in the Angat water reservoir, which -- since it's floating solar, there's supposed to be minimal site development. And therefore, the time lines for its completion will be very -- a lot shorter than the other ones in terms of time lines. The COD for the solar projects would be -- with respect to the 2,200 megawatts should be completed within the next 3 years. And then our GEA-3 projects, the hydropower projects in 5 years' time. The first batch of the 4.2 gigawatts should be available, roughly 2 gigawatts by 2029, 2030. Second question on the refinancing. Well, the DCM markets definitely is something that we are closely looking at. Our preference, of course, is to have the expiring dollar perps refinanced in peso, DCM sources. Of course, we're looking at the dollar markets as well. But in any case, we have the existing liquidity to be able to backstop any refinancing activities that we will be doing next year. And we're fairly confident, at least for the perps that are expiring in January this year -- January 2026 and December 2026, that we should be able to easily have them refinanced. Operator: We have a question from an anonymous attendee. For Petron, what's your current outlook for crude oil market next year? Erich Pe Lim: To be perfectly honest, it's quite difficult to perceive into 2026, just given how fluid our business is and the confluence of factors that affect crude prices, right? But what I can share, I guess, how we see crude prices will be at least for until the end of 2025 and into the first quarter of 2026. So currently, Dubai crude prices at around $65 per barrel. So at least for -- until the end of the year until end of 2025, we see it range trading more or less plus/minus at $65 per barrel. So it's steady. And that's particularly because of 2 factors, right, which will keep prices supported and that particularly the persistent geopolitical risks and the sanctions that were imposed on Russia and Iran. However, in the first quarter of 2025, we could see it probably range between $60 to $65, maybe a little correction. And that's particularly because of the demand and supply dynamics which would pressure prices. On the demand side, as we all know, you can still see a lot of uncertainty in terms of tariffs, which, of course, has hampered economic activity. And on the supply side, you see OPEC+ continuously adding right into their production. This year alone incremental volumes brought upon by OPEC is already more than 2 million barrels. And based on their last announcement, in November and December, they would add incremental volumes of around 130,000 barrels per day each month. So these are basically the factors that might pressure prices. But nevertheless, we see it still more or less in a level around $65 to $60 per barrel. So it's not very volatile, relatively speaking. Operator: We have a question from [ Kiu Huang ]. How were the price increases in SMFB in Q3? Can you break down in each segment, including Food, Beer and Spirits? Any price increases planned in Q4? Chesca Tenorio: In Q2, so the price increases were very minimal. For Food, there was also -- there was around a small single-digit increase, Ginebra as well. For Beer, we did not do a price increase for Q3. Now for the Q4, I think the plan is to just maintain. If ever there will be some increases, it will be in a few months' time. Operator: We have another question for Power. What's San Miguel Global Power's plan for purchase equity shares at Meralco? Could you talk about the progress of securing and drawing down project debt at Project Chromite and Masinloc Units 4 and 5? And could you share a bit the outlook and funding requirement for San Miguel Global Power in 2026? What's construction and funding plan for solar projects at GEA-4? Paul Bernard Causon: Okay. So many questions. Let me go through them one by one. So on the Meralco shares, it remains to be a strategic investment of the group. We're quite happy, of course, with the dividend payout and the market value of these shares currently. But with respect to adding more to this remains to be opportunistic in nature and of course, depending on the circumstances presented to us. But at the moment, these shares remain to be a highly strategic investment of the group. With respect to the project debt for the Chromite entities, we are currently in the documentation phase with the lender banks. And we're very close to having the finalized and executed maybe later this year or early next year. The total debt that could be raised there is roughly PHP 145 billion in total. On the project level debt for Masinloc 4 and 5, it's progressing very well. We've been getting quite a bit of interest and commitments from local banks. We are more or less confident that we'll be able to raise at least PHP 50 billion to PHP 60 billion from this, and that should pretty much snap off any remaining debt on the EPC for Units 4 and 5. So as far as we are concerned, in as much as the EPC invoices are not yet due to date by virtue of the vendor financing arrangement that we have in place for these units. So this pretty much would have no significant impact to us in terms of cash flows at least in the next 2 years. Okay. Last question -- last 2 questions. Could you remind me again what was the -- what were the last 2 questions you asked? Chesca Tenorio: EBITDA outlook [indiscernible] the EBITDA outlook and funding requirement for 2026 and construction funding plan for solar projects? Paul Bernard Causon: Okay. On the EBITDA outlook for 2026, well, what we've seen this year is pretty much indicative of what we expect to see next year, except that we will have full year contributions from battery projects that we have coming -- that we've commissioned and put into commercial operation early this year, bringing the total to around 500 megawatts. By next year, we expect the rest of the 500-megawatt pipeline to become fully operational as well. It's an opportune time to get into renewable -- into ancillary services, especially since the DOE is integrating quite a bit of intermittent capacities into the grid. As I mentioned earlier, over the next 3 years, it expects to integrate around 9 gigawatts of intermittent solar capacities. And our batteries are strategically positioned to be able to provide power quality services to NGCP to be able to allow such integration. With respect to the -- and then therefore, our profit outlook for next year should be at least around PHP 70 billion in terms of EBITDA. With respect to our funding plan for next year, a lot of those actually are refinancing activities. So the biggest debt that are maturing next year will be our January 2026 perps. So we have that pretty much pinned down. So we're looking at 2 very concrete financing activities that we are very confident to be able to have that refinanced over -- at least a 5-year period. The December 2026 perps, as I mentioned earlier, we're looking at peso DCM deal for that. We have to have it redenominated and financed also over the long term. The rest of the financing activities strategy would either involve syndication, involving foreign banks and also local banks, again, to be able to refinance roughly PHP 30 billion, PHP 40 billion in expiring debt next year. How to finance the solar projects? So I did mention the CapEx earlier. It's $1.5 billion, but that is expected to be incurred over a 4-, 5-year period. The primary method or approach that we're looking at to do this will be through the vendors. So because of the magnitude of the capacities that San Miguel Global Power is going to foray into, a lot of contractors, OEM suppliers for panels are actually offering us a lot of options with respect to vendor initiated or vendor finance deals. And that will give us a lot of flexibility in terms of financing these projects, not only with respect to the equity component, but also on the debt component. And as you know, given the nature of the Green Energy Auction Award, it's basically a government-sponsored offtake contract or set of contracts. So we are very confident that at some point in the next 2 years, once we paid at least the equity component of the $1.4 billion that we'll be able to raise the requisite OpCo level debt. And again, given the vendor financing that we have put in place, we are under no pressure to actually have this done at least in the next 5 years. So I hope I've covered all your questions. Let me know if there's anything else. Thank you. Operator: With the interest of time, we have one last question from an anonymous attendee. For San Miguel Corp., what is the net debt at the parent level as of 9M '25? Chesca Tenorio: Thank you, Ian. For that question, parent net debt of San Miguel Corp. is PHP 701.4 billion as of 9 months 2025. Thank you. Operator: All right. That concludes our Q&A. Thank you to everyone for your questions and to our panelists for providing detailed and informative answers to our queries. For those who have further questions, you may address it to us via e-mail at smcinvestorrelations@sanmiguel.com.ph. Thank you, and good day. Kristina Lowella Garcia: Thank you. Chesca Tenorio: Thank you, everyone. See you next briefing. Thanks for joining.