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Operator: Thank you for joining us for Navios Maritime Partners' Third Quarter 2025 Earnings Conference Call. With us today from the company are Chairman and CEO, Mr. Angeliki Frangou, Chief Operating Officer, Mr. Efstratios Desypris, Chief Financial Officer; Mrs. Erifili Tsironi and Chief Trading Officer, Mr. Vincent Vandewalle. As a reminder, this conference call is being webcast. To access the webcast, please go to the Investors section of Navios Partners' website at www.navios-mlp.com. You'll see the webcasting link in the middle of the page and a copy of the presentation referenced in today's earnings conference call will also be found there. Now I will review the safe harbor statement. This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners' management and are subject to risks and uncertainties and which could cause actual results to differ materially from the forward-looking statements. Such risks are not fully discussed in Navios Partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in this conference call. The agenda for today's call is as follows: First, Ms. Frangou will offer opening remarks. Next, Mr. Desypris will give an overview of Navios Partners' segment data. Next, Mr. Tsironi will give an overview of Navios Partners' financial results. Then Mr. Vandewalle, who will provide an industry overview. And lastly, we'll open the call to take questions. Now I turn the call over to Navios Partners' Chairwoman and CEO; Ms. Angeliki Frangou. Angeliki? Angeliki Frangou: Good morning, and thank you all for joining us on today's call. I am pleased with the results for the third quarter and first 9 months of 2025 and which reported revenue of $346.9 million and $978.6 million, respectively. We also reported EBITDA of $193.9 million and $519.8 million respectively, and net income of $56.3 million and $168 million, respectively. Earnings per common unit was $1.90 for the quarter and $5.52 for the 9-month period. For the past 5 years, it seems as if we have been addressing constant change, not operating environment driven by geopolitical and other brands. Yet, we have remained laser-focused on our business, modernizing our fleet. As you can see on Slide 3, our fleet has an average age of 9.7 years compared to an industry average of 13.5 years for our 3 segments. Our reinvestment program puts us in a fortunate position of having a fleet that is almost 30% [indiscernible] than the have an almost half when you look at our tanker fleet. Angeliki Frangou: Please turn to Slide 4. Navios is a leading maritime transportation company owning operating a charter and modern fleet of 171 vessels across 3 segments, and 15 asset classes. As it split about 1/3 in its category by vessel number and vessel values. Vessel values are $6.3 billion in gross value and $3.8 billion net equity. We also enjoy a low net LTV of 34.5% and have $412 million available liquidity and strong credit rating of Ba3 by Moody's and BB by S&P. Angeliki Frangou: Please turn to Slide 5. We believe that diversification is strength when embedded in the culture of risk management, we have a business providing significant optionality in our decision-making process. For example, on charter-in, if we are able to secure long-term charters that provide a reasonable return on our investment will limit our exposure to short-term waiting for sector opportunity to return. We approached the allocation of capital similarly, patiently observing the market for either opportunistic purchases or acquisitions that can be held by long-term charters with the credit was counterparty. These activities are accompanied by deleverage cost we maintain strong balance sheet and a target net F&D of 20%, 25%. I would offer that all this works because of our strong lease management case. We are continuously monitoring and assessing as we evaluate and structure our transactions with risk management professionals who are equal partners in all our activities. We also obtained robust insurance coverage for liability and losses. And we have implemented many tools to manage operational risk and crew training. Angeliki Frangou: Please turn to Slide 6. Our gross LTV was 40.6% at the end of the third quarter. Net LTV was 34.5% in and we aim to continue to drive net LTV lows. We added $745 million of long-term contracted revenue during the quarter and net revenue backlog is $3.7 billion. Currently, virtually all of the fleet is covered for the fourth quarter of 2025. Angeliki Frangou: Please turn to Slide 7. I would like to focus on prospects for 2026, which are shaping up nicely. We have covered 58% of our days induced a cash breakeven to $894 per day for the remaining remaining 23,387 open and index days. You can see the breakdown of each segment on the right part of the slide, 92% of our container base and 7 [indiscernible] of our tankers are fixed we drive bank base, representing most of our market exposure by a number of days. Angeliki Frangou: Please turn to Slide 8. A few weeks ago, we took the opportunity to offer a $300 million senior secured bond in the Norwegian market. We drive one at par at a coupon of 7.75% with a -- the profit and usually paid $292.3 million of floating rate debt and the bias for issuance fees and for general corporate purposes. This transaction has no impact on our leverage rate because the profits are used to refinance existing debt, but we believe opportunistic financing reduces interest rate risk by replacing floating rate debt with a fixed interest rate. It also releases collateral, and we have around $1.2 billion of debt-free vessels. Pro forma for this transaction, we have 41% of our debt fixed at an average interest rate of 6.2%. [indiscernible] won't also introduce us to the Norwegian market, providing a targeted source of financing. Angeliki Frangou: Please turn to Slide 9 where we outlined a term capital program. As you can see here to date, we have returned $42.2 million under the dividend and unit repurchase program. Today, we purchased almost 5% of the number of units outstanding determined as of the date we launched the program. We have $37.3 million purchase power enable. These purchases have resulted in $4.6 per unit value creation, assuming the annual estimate of NAV of around $138 per unit. Angeliki Frangou: Please turn to Slide 10. Navios is a proven platform that has been executing its strategy in a challenging environment. I refer to the many uncertainties when we started this discussion, certainly the geopolitical risk, regional conflict change in global tariff regime and evolving trend patterns and unprecedented in recent history. We have remained focused on over the past 4 years. We have built [indiscernible] with an EBITDA run rate of about $750 million while increasing our book of contracted revenue to $3.7 billion and a vessel value to $6.3 billion. At the same time, we have decreased a net NPV by 33% to 34.5%. We have more to do, but we believe that this proven platform containing a divisive freight fleet with a risk management is the way to do it. I now turn the presentation over to Mr. Efstratios Desypris, Navios Partners Chief Operating Officer. Despyris? Efstratios Desypris: Thank you, Angeliki, and good morning all. Please turn to Slide 11, which details operating free cash flow potential for Q4 of 2025 and 2026. For Q4 2025, we fixed 88% of our available days at a net average rate of $24,871 per day. Contracted revenue exceeds estimated total cash operating costs by about $86 million, and we have 1,594 remaining open or index-linked base that should provide additional cash flow. For 2026, we have fixed about 58% of available days at a net average rate of $27,088 per day, generating about $860 million in revenue. This almost covers our ultimate cash operating cost for the year, resulting in a breakeven of $894 per day on our 23,387 open index dates. . Efstratios Desypris: Please turn to Slide 12. We are constantly renewing our fleet in order to maintain a young profile. We reduced our carbon footprint by modernizing our fleet, benefiting from new technologies and advanced environmental trading features. During Q3, we acquired 4 new building, 8,800 TEU contracts for a total $460 million. These vessels have already been chartered out for a fair period of over 5 years at a net rate of $44,145 per day, generating revenues of $336 million. We have 25 new building vessels delivered into our fleet since 2028, representing $1.9 billion of investment. Based on our financing, both are billing process, we have about $250 million of equity remaining to be paid. In container ships, we have 8 vessels to be delivered with a total acquisition price of about $0.9 billion. We have mitigated the residual value risk with long-term credit working charges expected to generate about $0.6 billion in revenue over a 5-year average stated duration. In tankers, we have 17 vessels to be delivered for a total price of $1 billion. We chartered out 11 of these vessels for an average period of 5 years, expected to generate aggregate contracted revenue of about $0.6 million. We also continue to opportunistically sell all the vessels. In 2025, we sold 12 rent vessels, 6 dry bulk, 3 targets and 3 containerships with average age of over 18 years for a total of about $275 million. Efstratios Desypris: Moving to Slide 13. We continue to maintain a strong backlog of contracted revenue that creates visibility in an uncertain environment. During the quarter, we added $745 million of contracted revenue. $595 million from containerships, including the $336 million on the 4 new building vessels, $138 million on tankers and $12 million on dry bulk vessels. Total contracted revenue amounts to $3.7 billion, $1.3 billion relates to our tankers fleet, $0.2 billion relates to our dry bulk fleet, and $2.2 billion relates to our containerships. Charters are extending through 2037 with diverse group of quality counterparties. I now pass the call to Erifili Tsironi, our CFO, who will take you through the financial highlights. Eri?. Erifili Tsironi: Thank you, Stratos, and good morning all. I will briefly review our unaudited financial results for the third quarter and the 9 months ended September 30, 2025. The financial information is included in the press release and is summarized in the slide presentation available on the company's website. Moving to the earnings highlights on Slide 14. Total revenue for the third quarter of 2025 increased by 1.8% to $347 million compared to $341 million for the same period in 2024 due to higher fleet combined time charter equivalent rate despite lower available days. Our combined TCE rate for the third quarter of 2025 increased by 2.4% to $24,167 per day, while our available days decreased by 0.8% to 13,443 days compared to Q3 '24. In terms of sector performance, a CCLA for our combined container and tanker fleet increased by 3.7% and 1.7% to 31,832 and 26,238 per day, respectively. In contrast, our TC rate for our dry bulk fleet was 3.5% lower at $17,976 per day. for the third quarter and first 9 months of '25 was adjusted as explained in the slide footnote. Adjusted EBITDA for Q3 25 decreased by $1.4 million to $194 million compared to Q3 20 million. The decrease was primarily driven by a $4.5 million decrease in other income net, mainly due to the decrease in foreign exchange gains and a $3.2 million increase in vessel operating expenses mainly due to a $3.4 million increase in OpEx pay and a $2 million increase in general and administrative expenses in accordance with our administrative services agreement. The above decrease was partially mitigated by a $6.1 million increase in time charter and voyage revenues and a $2.2 million decrease in time charter and voyage expenses, mainly due to the decrease in banker expenses as a result of lower freight volume base in the third quarter of '25. Our average combined OpEx rate was 6,798 per day, only $10 more than Q3 '24. Adjusted net income for Q3 '25 was $84 million compared to $97 million in Q3 '24. The decrease is mainly due to a $9 million increase in depreciation and amortization and a $2 million increase in interest expense and finance cost net. Adjusted earnings and earnings per common unit for the third quarter '25 were $2.8 and $1.9, respectively. For the first 9 months of '25, revenue decreased by $33 million to $979 million, adjusted EBITDA decreased by $29 million to $520 million and adjusted net income decreased by $67 million to $196 million compared to the same period in 2024. Our combined PCE rates the first 9 months of '25 was [indiscernible] per day. In terms of performance, the TCE rate for our containers increased by 3.1% to $31,213 per day compared to the same period in '24. In contrast, our dry bulk and tanker TCE rates were approximately 9.2% and 3.5% lower, respectively. TCE rates for our dry bulk vessels stood at $15,369 per day and for our tankers $26,290 per day for the first 9 months of '25. Our average combined OpEx rate was 2.4% higher compared to the first 9 months of '24 at $6,161 per day, also as a result of the change in the composition of our fleet. Adjusted earnings -- per common unit for the first 9 months of 25 was $6.6 and $5.60, respectively. Erifili Tsironi: Turning to Slide 15. I will briefly discus some key balance sheet data. As of September 30 '25, cash and cash equivalents, including restricted cash and time deposits in excess of 3 months were $382 million. During the first 9 months of '25, we paid $178 million underwriting building program, net of debt. We concluded the sale of 6 vessels for $75 million, adding about $49 million cash after debt repayment. Long-term borrowings yielding the current portion, net of deferred fees, increased to $0.2 billion following the delivery of 6 vessels during the first 9 months of the year. Net debt to book capitalization improved to 33.8%. Erifili Tsironi: We Slide 16 highlights our debt profile. With our recent $300 million senior unsecured bonds, we further diversified our funding new sources in addition to bank debt and leasing structures. The bond has a fixed interest rate of 7.75% and pro forma for the bond 41% of our debt is fixed at an average rate of 6.2%. We also have mitigated part of the increased interest rate cost by reducing the average margin for our floating debt and bareboat liabilities for -- in water fleet to 1.8%. I would like to note that the average margins for the completed undrawn floating rate debt of our new building program is 1.5%. Our maturity profile is targeted with no significant volumes due in any single year until 2030 when the bond matures. In Q3 '25, Navios Partners' completed 3 facilities for a total amount of $246 million, 1 additional facility of $68 million was signed in October. Efstratios Desypris: I now pass the call to Vincent Vandewalle, Navios Partners', Chief Trading Officer, to take you through the investor section. Vincent? Vincent Vandewalle: Thank you, Eri. Please turn to Slide 18. Geopolitical developments continue to shift worldwhile trading routes caused by the tariff war, restricted Suez Canal passages, Ukraine war and Port fee impositions by U.S. and China. Announced tariffs and the implementation pauses in effect, are not expected to have a significant effect on tankers and dry bulk trade apart from steel. Tariff impacts on grain and container ships are expected to reduce following the recent trade deal between U.S. and China. The Red Sea entrance leading to the Suez Canal continues to operate at restricted transit levels increasing -- for most vessel types. Since the Gaza ceasefire, Houthis announced that they have ceased the tax on shipping, but there were several piracy incidents of Somalia at the beginning of November. Ukraine war is shift in trading patterns, limiting grain exports out of the Black Sea and benefiting exports out of Brazil and U.S.A. Russian crude and product exports are adjusting to tie to sanctions on Russian oil producers, Rosneft and LUKOIL, elevating rates for non-sanctioned vessels. USTR port fees on Chinese vessels and similar Chinese port fee on U.S. vessels have been put on hold for the year, while the 2 countries negotiate a more permanent solution. Vincent Vandewalle: Please turn to Slide 20 for the review of the dry bulk industry. Demand growth for dry bulk has been relatively stable over the last 25 years at about 4% average annual ton mile growth. The current order book stands at about 11% of the total fee and will remain low due to high newbuilding prices, uncertainty about new fuel regulations and availability and general market outlook. The fleet is aging quickly with 39% of the vessels 15 years old, and with the older vessels for [indiscernible] on order, supply should be constrained over the medium term. Vincent Vandewalle: Please turn to Slide 21. The main driver of dry bulk demand will be strong Atlantic basin item growth over the next several years with new projects in Guinea and Brazil. The biggest new project is Simadou in Guinea starting now, which will ramp up to 120 million by '27. Also, Vale in Brazil has 3 new projects totaling 50 million tons expected to start exporting by the end of '26. The total of 170 million tonnes are all long-haul ton mile trades, creating demand for an additional 234 capes -- with the current order book of only 173 capes, the further tightening of supply and demand is expected over the next few years, benefiting rates. Overall, the dry bulk market looks positive based on steady long-term demand growth and a constrained supply of vessels. Vincent Vandewalle: Please turn to Slide 23 for the review of the tank industry. Reviewing the supply side as in dry, we see a relatively low tanker order book of 6% with 51% of the fleet already over 15 years old, rising quickly in the next few years. With all vessels exceeding the order book and the [indiscernible] offering first deliveries in late '28, supply is set to be tight for several years. Vincent Vandewalle: Please turn to Slide 24. The U.S. Office of Foreign Asset Control, OFAC, the EU and the U.K. continue to sanction Russian, Venezuelan and Iranian oil revenue and the ship is delivering their crude and products. These tighter sanctions have 2 main effects. Sanctioned oil volumes from these 3 countries have more difficulty finding willing buyers, raising demand for compliant barrels and nonsanctioned vessels to carry that all. Secondly, with 785 tankers now sanctioned, the fleet has already seen a significant reduction of about 14% of total capacity. The tanker market also looks positive over the medium term based on a low order book and aging fleet and a reduced fleet due to sanctions. Vincent Vandewalle: Please turn now to Slide 26 for a review of the container industry. After the COVID pandemics, containership ordering focusing mainly on the biggest units with fleet expansion in large vessels set to continue from high levels this year into next. Currently, 80% of the order book is for bigger ships with 9,000 TEU capacity or greater, and only 70% of the order book is for 2,000 to 9,000 TEU capacity where Navios is most active. Smaller segments of the fleets are well positioned to take advantage of shifting trading patterns. As shown on the right hand graph, growth non-Mainland trades, far exceeds the traditional mainly trades to the U.S. and Europe due to tariffs and higher growth in developing economies. It involving the Southern Hemisphere, mostly served by smaller-sized vessels are expected to see continued help growth as this trade shift continues. Overall, Navios Fleet is well positioned within the container market and continues to benefit from long-term employment with our high-quality charters. This concludes our presentation. I would now like to turn the call over to Angeliki Frangou for her final comments. Angeliki? Angeliki Frangou: Thank you, Vincent. And this concludes our formal presentation, and we'll open the questions. Operator: [Operator Instructions] We'll take our first question from Omar Nokta with Jefferies. Omar Nokta: Slide 11 has a really nice summary that shows and by '26, how you have 42% of your available days open to say the spot market or index rates yet given how much target could you have, you only need $894 to breakeven on those ships. Clearly, a great place to be, gives you plenty of flexibility. With that, how does that shape your interest in fixing your vessel kind of going forward from here, at least into '26. Do you keep what's available now to the spot market to keep those free and open given you've got that, say, flexibility? Or do you want to continue to put these ships on contract and fix the coverage out. . Angeliki Frangou: Let me take you through, and I think throughout the -- like to add a couple of things. One of the things we are doing is we use maximum flexibility. So you will see that the [indiscernible] the vessels that are open for 2026 is the majority is dry bulk. And basically, those vessels are on -- a lot of them are index-based with the premiums. So those we are actually very comfortable on how we are reaching that quarter forward, depending on what we have shown on the market. This is a very nice position wherein majority of our container vessels have been fixed. And basically, that is the area where we see a lot of upside. We also are seeing for the first time after quite some period that we see a fixed period for dry bulk that we haven't seen for some time. And with that, I'd like Efstratios to give you a little bit of feedback. Efstratios Desypris: Just asking to what [indiscernible] in 2026, we said [indiscernible] the container ship is covered. So there is an exposure in that sector, which is a sector that has -- people are discussing a lot of uncertainty. The majority, I would say, more than 50% of the tankers of CapEx. So the majority of the exposures in detail. You see that with the contracted revenue, we only have $20 million to cover for the next year, and we have 23,400 days approximately with basically [indiscernible]. We have seen a very big strength of the dry bulk sector recently, with rates across all the sectors of dry bulk being very healthy. And we have seen also the forward [indiscernible] being very healthy. So the exposure that we have today provides a very good opportunity for us, and it shows how much of the upside you can have on this portfolio. Omar Nokta: And just a follow-up. Clearly, we're seeing a pretty healthy containership chartering market and you've been able to take advantage of really good, strong, I would say, liner interest to build ships against contracts. And you've been fairly active in recent years in that 5,000 to maybe, say, 9,000 TEU range. There's been some focus recently or at least it feels like there's been a shift where liners are starting to look more at the feeder size kind of the net sub 2000 TEU size range. You don't have a big focus on that in today's -- with your fleet today. But is that something you see an opportunity in? Are there opportunities to build these smaller ships against contracts? Or is that more just talk at this point? Angeliki Frangou: There is always projects, and I will tell you that we see a lot of activity in every side. What you have to be very good is counterparty and duration because newbuilding prices remain at the levels we have seen. So it's very important, the [indiscernible], you mentioned into a value of the risk factor. But we see an increased activity. I mean it is quite interesting that there is a focus. We see a lot of inefficiency in the market, the trading patterns and it seems that the smaller vessels give more flexibility to the lines in order to achieve their this may -- this ever changing trading patterns. It's almost on a yearly basis, you will have new -- I mean, we saw China and United States having a 1-year agreement. So -- and basically, we see that it will happen in a lot of other areas. So you need to be alert and smaller vessels gives us flexibility. Omar Nokta: That makes sense. Okay. And maybe just finally, you had the successful $300 million bond issue last month, unsecured good rate. How are you thinking about those proceeds in terms of how you plan to employ them? Angeliki Frangou: As you said, I mean, addressing the market, [indiscernible] market is quite important. It hasn't been open for quite a time, I think, almost 10 years for the Maritime section. So what we achieved with that is we fixed our interest rate at 41% at 6.2%. We got a diversification in sources but also very importantly, we've got $1.2 billion of debt reverses. Basically, our net debt is the same before and after. And that gives us about $1 billion of debt-free vessels that gives us the most important thing that we get optionality. And this is a nice -- but we will see how to -- you have 1.2% of your vessels of 6.6%, basically that are... Omar Nokta: Very good. I'll turn it over. . Operator: And now I will turn the call back to Angeliki for final comments. Angeliki Frangou: Thank you, this concludes Q3 results. . Operator: Thank you, ladies and gentlemen. This does conclude today's program. Thank you for your participation, and you may disconnect at any time.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. 2025 Third Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Before I turn the call over to Mr. Eli Yaffe, Chief Executive Officer; and Ron Freund, Chief Financial Officer, I'd like to remind you that we'll be referring to forward-looking information in today's presentation and in the Q&A. By its nature, information contains forecasts, assumptions and expectations about future outcomes, which are subject to risks and uncertainties outlined here and discussed more fully in Eltek's public disclosure filings. These forward-looking statements are projections and reflect the current beliefs and expectations of the company. Actual events or results may differ materially. We'll also be referring to non-GAAP measures. Eltek undertakes no obligation to publicly release revisions to such forward-looking statements to reflect events or circumstances occurring subsequent to this date. I will now turn the call over to Mr. Eli Yaffe. Mr. Yaffe, please go ahead. Eli Yaffe: Thank you. Good morning. Thank you for joining us for the third quarter fiscal year 2025 earnings call. With me is Ron Freund, our Chief Financial Officer. We will begin by providing you with an overview of our business and a summary of the principal factors that affected our results during the third quarter followed by the details of our financial results. After our prepared remarks, we will be happy to answer any of your questions. By now, everyone should have access to our press release, which was released earlier today. The release will be also available on our website. We ended the third quarter with sales of $13.3 million and sales for the first 9 months totaled $38.6 million. Gross profit for the quarter was $1.6 million with breakeven operating income and net loss of $0.2 million. Our results were affected by the sharp depreciation of the U.S. dollar against the Israeli shekel, which increased our reported NIS-denominated expenses and reduced gross profits. The total impact of the currency erosion on the operation profit was approximately $800,000 compared to the third quarter of 2024. At the end of the second quarter, we updated our pricing model to reflect the currency trends. We expect to see the positive impact of the revised pricing beginning in the coming quarters as the new quotation issued after the end of Q2 2025 to take effect. Our bottom line was further impacted by approximately $0.0 million in financial expenses, primarily reflected the continued depreciation of the U.S. dollar against the shekel. This effect was mainly related to the U.S. dollar-denominated assets, including cash and cash equivalents, short-term deposits and trade receivables net of trade payables. On the operational front, we continue to experience some instability in our production processes. This is primarily related to the ramp-up of a new equipment installed over the past year as well as the integration of the newly recruited engineers and production staff, who are still gaining experience with these systems. As we have mentioned in previous calls, we are in a mindset of transitional period as we absorb significant additional capacity and technology upgrades. In addition to the foreign exchange impact, the key contributor to the operational results in this quarter were: higher depreciation expenses resulting from the purchase of new machine that become operational during this year; increased raw material consumption, driven by fluctuation of process instability during the rebound phase; higher energy costs, reflecting peak summer rates. We expect these effects to gradually be modest as the new line stabilize, process mature and the expand team reached full proficiency. From the market perspective, demand for the products remains strong, led by defense sector, which represents 63% of the quarterly sales, alongside 9% for the industrial and 6% from the medical customers. Rigid flex products accounts for 66% of the quarterly sales and 65% of the first 9 months of this year. We are seeing the entry of several new foreign competitors into our market. While this trend may limit price increase in certain segments, Eltek technological leadership, longstanding customer relationship and specification in high-end complex PCB solution position us well to maintain and, in some cases, expand our competitive advantage. Delivery time across the industry remain extended, reflecting strong global demand and constrained manufacturing capacity. Pricing dynamics also affect by segments. In low volume, high complexity production, competition remains limited, allowing for greater pricing flexibility. In mid- to high-volume production, we are seeing increased competition from new entrants. We are also facing pressure from several large Israeli customers to extend credit terms, which has increased working capital requirement and financial expenses. Encouragingly, the recent improvement in the regional security has positive effect logistics, shorter raw material delivery times now allowed us to gradually reduce inventory level and partially offset the higher working capital requirements. Our production capacity expansion program is progressing well. We're finishing the construction and the preparation of the new production hall, which will house the new coating line. Finally, our RRP project continues to progress according to plan. We are preparing to go live during 2026. The system will be replaced and integrate all company platform, including production satellite system, providing a modern data-driven work environment with greater operational visibility, control and efficiency across all business functions. I will now turn the call over to Ron Freund, our CFO, to discuss our financial results. Ron Freund: Thank you, Eli. I would like to draw your attention to the financial statements for the third quarter of 2025. During this call, I will also discuss certain non-GAAP financial measures. Eltek uses EBITDA as a non-GAAP financial performance measurement. Please see our earnings release for the definition and the reasons for its use. I will now go over the highlights of the 2025 third quarter. All numbers mentioned are in U.S. dollars. Revenues for the third quarter of 2025 were $13.3 million compared to $13.5 million in the third quarter of 2024. Gross profit for Q3 2025 totaled $1.6 million compared to $3.5 million in 2024. Operating profit for the third quarter of 2025 was $50,000 compared to $1.9 million in the same period last year. We recorded financial expenses of $0.3 million in Q3 2025 compared to financial income of $0.3 million in Q3 2024, mainly driven by changes in the shekel exchange rate relative to the U.S. dollar, net of interest earnings on our cash reserves. Net loss for Q3 2025 was $0.2 million or $0.03 per share compared to net income of $1.7 million or $0.25 per share in Q3 2024. EBITDA amounted to $0.6 million in Q3 2025 compared to $2.3 million in the prior year period. In the third quarter of 2025, we generated positive cash flow from operating activities of $2 million compared to $1.6 million in Q3 2024. As of September 30, 2025, our cash balances totaled $11.6 million. We are now ready to answer your questions. Operator: [Operator Instructions] The first question is from Mark Sharogradsky Kepler. Mark Sharogradsky: It's pretty low quarter for you. So I wanted to understand because last quarter, you said that your all operational issues was almost behind you. So how, again, you speak about the operating issues? And then when we will see the improvement of your pricing lift due to USD depreciation? Eli Yaffe: Thank you, Mark. What we report last quarter was about the end of the construction and the dust and the erosion and the wall break and everything that is already behind us as we reported. Now the instability is due to engineering and manpower, the operator itself of the machine. So it's 2 different issues. Regarding -- what was your second question? Mark Sharogradsky: Regarding when we will see the effect of price increases due to the lower USD? Eli Yaffe: Usually, it takes 6 to 9 months until quotation is mature and translated to profits. Mark Sharogradsky: I understand. And when you think you will be behind your operational difficulties? Eli Yaffe: It's tough to say because it depends upon the absorption rate of the employees and the absorption rate of the engineering forces, which is gained from day to day. It's hard to say and hard to predict when it's going to be ended. But of course, it's our goal to reduce this period to as short as possible. Mark Sharogradsky: Okay. I have one more question. You guided for '26, '27 gross margin in the middle term. When approximately we'll be able to reach those gross margins? Ron Freund: So Mark, as we reported in the past, we expect to complete the integration of the new coating line scheduled to arrive soon by the mid of 2026. And this line is expected to streamline our core manufacturing processes and expand our production capacity. We hope also to stabilize our production processes by that time and improve our gross margin. As we have noted in the past, each additional dollar of revenue contributes meaningfully to our gross profit and of course, to net income. So therefore, increasing our sales volume is expected to have a significant positive impact on this profitability. Mark Sharogradsky: Yes, because this quarter was pretty okay on the revenue. But again, I don't understand why all time we have these operational difficulties. Ron Freund: So I think that you should take a look at, first of all, the dollar influence, which is unpredicted and we cannot change it. But except for that, as Eli said before, our production processes are still not enough stable, and we suffer from increased raw material consumption. It is not that production stopped or do we have a problem with the machine. The efficiency is not as we wanted to be and slow. As we move forward, people gain more knowledge in exactly how to work with the new machines. And we hope that it will take us by the end -- by the middle of 2026 to solve also these problems. We are not satisfied with the result as you are, but that's the situation. Operator: The next question is from Ran Su. Unknown Analyst: I wanted to ask 3 questions. First of all is, can you elaborate more about the negative impact, as you said, from new competition? Second, about the price pressure you said you felt this quarter? And third question is, can we assume the negative impact from currency and foreign exchange to U.S. dollars will continue this quarter? Eli Yaffe: Regarding your first question, the competition starts from not in Israel, competition from abroad, from the Far East, but not China. And they start to penetrate more and more to the defense sector. What was your second question? Unknown Analyst: About the price pressure you said you felt this quarter? Eli Yaffe: That's, of course, limited our possibility to increase the price to any level that we would like because they are in the entry level and they put some pressure mainly in the high-volume production to be in the entry level and reduce the price. I think all in the... Unknown Analyst: Is it something sustainable? Eli Yaffe: In the volume, there is less competition right now. Unknown Analyst: Is it something you see as sustainable competition from the new entry? Eli Yaffe: The new entry is going to stay. It's going to stay. The question is, what's going to be the price level? And it's hard to forecast. But right now, the entry-level pricing is hurting us. That's on high-volume production. On low volume production, there is less competition. And we have more flexibility in the pricing, as I said before. What was your third question? Ron Freund: It was in regards to the U.S. dollar erosion. So as I hope you understand, we are getting hit by the erosion of the U.S. dollar in finance expenses, but also in the operating income. So as long as the dollar keeps to be eroded, we are going to have additional financing expenses and also our denominated expenses -- NIS-denominated expenses are going to be in a higher level. As we said previously, we hope that the new pricing will let us to cover these extra dollar expenses. But I think that you ask for the next quarter, the fourth quarter, I think that as long as the dollar is -- the exchange rate is less than it was at the end of the third quarter, then you should expect finance expenses and also operating income to be affected by it. Unknown Analyst: So as I understand, we should feel like compounded pressure both from the top line because of the new entry and from the foreign exchange in the fourth quarter? Eli Yaffe: The new entry guys will give us a limit to the new quotations that we can send. Operator: There are no further questions at this time. Before I ask Mr. Yaffe to go ahead with his closing statement, I would like to remind the participants that a replay of this call will be available tomorrow on our website. Eli Yaffe: In closing, I would like to thank the company employees and the management teams to their hard work during this time and to thank our customers and our investors for their continued support. Operator: This concludes the Eltek Ltd. 2025 Third Quarter Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' Third Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand over the call to Daniella Finn, Elbit Systems' VP, Investor Relations. Daniella, please go ahead. Daniella Finn: Thank you, Karen. Hello, everyone, and welcome to our third quarter 2025 earnings call. On the call with me today are Butzi Machlis, President and CEO of Elbit Systems; and Kobi Kagan, Corporate CFO. Before we begin, I would like to point out that the safe harbor statement in the company's press release issued earlier today also refers to the contents of this conference call. As usual, we will provide you with both GAAP financial data as well as certain supplemental non-GAAP information. We believe that this non-GAAP information provides additional detail to help understand the performance of the ongoing business. You can find all the detailed GAAP financial data as well as the non-GAAP information and the reconciliation in today's press release. Kobi will begin by providing a discussion of the financial results, followed by Butzi, who will talk about some of the significant developments during the quarter and beyond. We will then turn the call over to question-and-answer session. With that, I would like to now turn the call over to Kobi. Kobi, please go ahead. Yaacov Kagan: Thank you, Daniella. Hello, everyone, and thank you for joining us today. We are very pleased to announce another set of quarterly results with double-digit year-over-year growth in revenues, backlog and EPS. Quarterly free cash flow was solid at $101 million, underscoring our healthy cash generation. I will now highlight and discuss some of the key figures and trends in our financial results this quarter. Third quarter 2025 revenues were $1.922 billion, compared to $1.718 billion in the third quarter of 2024, a solid 12% growth in quarterly revenues year-over-year and 18% growth for the 9 months ended 30th September. In the third quarter of 2025, Europe contributed 28%; North America, 21%; Asia Pacific, 14%; and Israel was 33% of revenues. GAAP gross margin in the third quarter was 24.9% of revenues compared to 24% in the third quarter of 2024. The non-GAAP gross margin for the third quarter was 25.2% of revenues, compared to 24.4% in the third quarter of 2024. GAAP operating income for the third quarter was $171.4 million or 8.9% of revenues versus $125.8 million or 7.3% of revenues in the third quarter of 2024. Non-GAAP operating income was $186.7 million or 9.7% of revenues, compared with $140.7 million or 8.2% of revenues in the third quarter of last year. We are very pleased with this margin expansion trajectory. The operating expense breakdown in the third quarter was as follows: net R&D expense were $129.1 million or 6.7% of revenues, compared to $119.9 million or 7% of revenues in the third quarter of 2024. Elbit continues to invest in R&D to secure future profitable growth, which will maintain Elbit's position as the market leader in years to come. Marketing and selling expenses were $91 million or 4.7% of revenues versus $91.3 million or 5.3% in the third quarter of 2024. G&A expenses were $86.7 million or 4.5% of revenues, compared to $75.7 million or 4.4% of revenues in the third quarter of 2024. Financial expenses were $34.5 million in the third quarter, compared to $45 million in the third quarter of 2024. The decrease in financial expenses, net in the third quarter of 2025, was mainly due to a reduction in the average net debt. We recorded a tax expense of $11.4 million in the third quarter compared to $12.8 million in the third quarter of 2024. The effective tax rate in the third quarter of 2025 was 8.2% compared to 14.6% in the third quarter of 2024. The decrease in the effective tax rate for the third quarter of 2025, was mainly due to the increase in deferred tax assets. GAAP diluted EPS was $2.80 for the third quarter of 2025 compared to $1.77 in the third quarter of 2024. Our non-GAAP diluted EPS was $3.35 for the third quarter of 2025, compared to $2.21 in the third quarter of 2024. Quarterly segment revenue for the third quarter of 2025. Aerospace, third quarter revenues decreased by 3% year-over-year, mainly due to a decrease in Precision Guided Munition sales in Asia Pacific, partially offset by the increase in PGM sales in Israel and an increase in unmanned aerial system sales in Europe. Revenues for the 9 months were up 9%. C4I and Cyber, revenues increased by 14% year-over-year, mainly due to radio systems and command and control system sales in Europe. For the 9 months, revenue rose by 15%. ISTAR and EW, revenues increased by 5% in the third quarter of 2025, mainly due to Electro-Optic systems and Electronic Warfare systems sales in Israel and high-power laser sales in Israel. For the 9 months, revenue increased by 8%. Land revenue increased by 41% in the third quarter of 2025, due to ammunition and munition sales in Israel and in Europe. For the 9 months, revenues were up 44%. Elbit Systems of America, revenues decreased by 2% due to a decrease in Electronic systems and medical instrument sales, partially offset by the increase in Maritime and Warfighter system sales. For the 9 months, revenue rose 6%. The order backlog as of September 30, 2025, was $25.2 billion, $3.1 billion higher than the backlog at the end of the third quarter of 2024, and $1.4 billion higher than the backlog in the second quarter of 2025. The increase in backlog during the quarter came mainly from new European orders. Approximately 69% of the current backlog is derived from order outside of Israel. Approximately 38% of the current backlog is scheduled to be performed during the remainder of 2025 and during 2026. And the rest is scheduled for 2027 and beyond. Cash flow provided by operating activities in the 9 months ended September 30, 2025, was $461 million, as compared to $82.5 million in the 9 months ended September 30, 2024. The cash flow in the 9 months ended September 30, 2025, was affected mainly by the strong increase in net income. On the back of the continuous strength of the company's result the Board of Directors declared a dividend of $0.75 per share to be paid on January 5, 2026. I will now turn the call over to Mr. Machlis, Elbit's CEO. Butzi, please go ahead. Bezhalel Machlis: Thank you, Kobi. Hello, everyone, and thank you once again for joining us today. As Kobi just described, these results continued the growth and margin expansion trajectory, driven by strong demand for our solutions, particularly in Europe and Israel. Elbit's seventh consecutive quarter of double-digit growth further demonstrates our global leadership on the modern battleship. Our recently tested and proven solutions position us as the leading authority in our rapidly changing industry as defense budget continued to rise globally and our customers seek cutting-edge battle-proven system to secure and protect their population. Our portfolio of ever relevant technologies support our customers pursue of advanced warfighter solution across all domains. On the back of the strong results, I am proud that we continue to improve the translation of our revenue growth in both profit and cash flow. This is the fifth consecutive quarter where we delivered positive free cash flow and improved the company's cash conversion. Yesterday, we announced the signing of an international contract for a strategic solution for approximately USD 2.3 billion. This contract will be performed over a period of 8 years. I'm extremely pleased with this announcement of the largest contract in Elbit history, further testament to the superiority of our product and technologies. We will continue to equip our customers with advanced and relevant solutions. During the quarter, Elbit received another large contract to supply a European country with a range of our solutions totaling of USD 1.625 billion (sic) [ USD 1.635 billion ] to be delivered over the next 5 years. The contract includes long-range precision strike artillery-rocket systems and broad-spectrum of unmanned reconnaissance and loitering aerial combat systems, highly sophisticated ISTAR capabilities, including SIGINT, COMINT and electric warfare system. Enabled intelligence collections and processing system will also be delivered, along with advanced electro-optic, and night-vision system, combat vehicle upgrade, and protective systems. New orders also included contracts for our Hermes 900 drones, advanced airborne munitions for the IMOD and USD 260 million contract for DIRCM system to Airbus. Following the 12-day campaign against Iran, Elbit has seen growing interest in our solutions, mainly through not exclusively for the Hermes drones, EW system and training platforms. The Hermes platforms enable us to cross-sell products for other segments and offer our customers comprehensive solutions, since its first order in 2011, the Hermes 900 has been selected by over 20 customers worldwide. In August, we successfully launched the advanced JUPITER space camera, abroad the National Advanced Optical System satellite, supporting a wide span of earth observation mission, including military operations, environmental, monitoring and scientific research, developed by Elbit System ISTAR and EW, JUPITER is one of the world's most advanced space camera, featuring a very large aperture and exceptionally lightweight design. The camera is multispectral offering a combination of imaging channels. During the quarter, we expanded our operation in Europe, opening new facilities in Sweden and Germany to enhance our local delivery capabilities to ensure more secure, faster support to our customers. Being close to our customers is crucial for us, our enhanced presence in Europe strengthen our ability to deliver modern and reliable solutions at the pace required to ensure the unforced capability to defend Europe from its offenders. In June, we launched PAWS 2, a next-generation infrared missile warning system for fighter aircraft designed to enhance their survivability and operational effectiveness. The system detect wide range of threats regardless of seeker type and provides advanced protection for fighter jets, transport aircraft, and helicopter operating in complex high-threat environment. At DSEI, we unveiled Frontier, a cutting-edge wide-area persistent surveillance system, designed to address the inducing complexity and intensity of border protection challenges. Frontier autonomously operates multiple type of sensors to visually confirm and classify threats transmitting only the most relevant analyzed information to the appropriate forces. It leverage advanced artificial intelligence to optimize intelligence gathering and decision-making across land, air and maritime domains. All this notable achievement would not have been possible without our dedicated employees whose day and night, commitment to Elbit is truly unique. I would like to thank each and every one of our outstanding employees for their continued professionalism and dedication. And with that, I will be happy to answer your questions. Operator? Operator: [Operator Instructions] The first question is from Jordan Lyonnais of Bank of America. Jordan Lyonnais: So with the ceasefire now happening, how enduring are you guys thinking about the domestic demand? And if we do see a slowdown in the domestic bookings, how are we -- how should we think about the trade-off with margins as orders start to skew more towards international? Yaacov Kagan: Thank you, Jordan. So your question about the domestic demand, we can look at this quarter. We had an increase of $1.4 billion in our backlog, $200 million in Israel and $1.2 billion outside of Israel. We are looking at that as some kind of the nature of the growth of the backlog for the future. We are targeting around flattish backlog in Israel and growth outside of Israel, predominantly in Europe. That will be the growth area, which -- we see our funnel, we see our opportunities, and we see the demand that's coming out from Europe. And we think that this is the place that predominantly will provide the growth in the future in the backlog. Operator: The next question is from Seth Seifman from JPMorgan. Seth Seifman: I wanted to ask about when we think about the Aerospace business from here, and we saw the decline in the quarter. How should we think about the trajectory in that business going forward? I know you called out some decline in sales to Asia but also some drone orders during the quarter. So kind of where does that go from here? Bezhalel Machlis: It's Butzi. I believe that we will continue to see growth in this segment as well. We -- first, I would like to mention that our avionics is embedded on top of most of the Western platforms. It includes our helmet, but not only that, also quite a lot of other equipment from us is embedded in each -- in many, many platforms, all -- in many, many countries, not just in the U.S. So we enjoy from revenues coming from international sales of Boeing and Lockheed and other OEMs of all the platforms they bought. So I really feel that this -- I really believe that this market will continue to grow for us. And I would like also to mention UAVs. There is a huge demand for UAVs, for loitering munition. We have 20 international customers who bought till now, the Hermes 900 from us. And we provide not just a platform. We provide an integrated solution, which includes all our sensors and payloads from the company, and we have a very unique offering to our customers. And they see a growing market for UAVs or main UAVs, but also for small UAVs and for loitering munition, which are all under the Airborne segment. So I believe that this segment will continue to grow the company in Israel and mainly abroad. Yaacov Kagan: And Seth, this is Kobi to further add on Butzi's answer, we -- if you look at the 3 quarters over 3 quarters last year, Aerospace segment grew 9%. And we think that the relevant growth number for the Aerospace is a single-digit growth in revenues, because this segment is leaning predominantly on the U.S. budget with a lot of revenue coming from the U.S., which is a single-digit budget growth. And for that reason, that is the number that we think is relevant for this quarter -- for this segment. Seth Seifman: Okay. Excellent. Excellent. If I could add one follow-up question. Can you talk a little bit more about the opportunities that are emerging in directed energy. We've seen some of the progress on IRON BEAM. Are you seeing a lot of opportunities emerge for directed energy solutions outside of Israel as well? Bezhalel Machlis: Yes. The answer is yes. As you know, we are part of the Israeli program for ground high-power laser systems. The laser source is coming from us, and the first system should be deployed by the end of this year, the IRON BEAM system. And there's going to be -- I believe that next year, we'll see many more orders here in Israel for ground high-power lasers. Based on the success of Israel, there's a lot of interest in many other places for high-power lasers and for ground high-power laser system, and we are part of this solution. Here in Israel, we lead the airborne high-power laser system. It's still in the development phase. And actually -- and I believe that there is a very big potential for us, for the system. I think that high-power lasers in the air will be a game changer in the way countries are fighting against ones and against drones and against cruise missiles. And this is still under development, but also, it's only -- it's still in development, there is a lot of interest for that for many, many customers abroad. We are not developing just high-power lasers. We have other type of energy weapons, which are in a very advanced phase of development, which are -- some of them are confidential, but I can tell you that they are very unique. We really believe that this energy weapon activity is a very important growth engine for Elbit for the future. Operator: The next question is from Ellen Page of Jefferies. Ellen Page: Just the margin was very strong in the quarter on a year-over-year and sequential basis. Can you discuss the drivers of that? And was there any element of mix that supported profitability in the quarter? And how do we think about the progression of margins from here? Yaacov Kagan: Ellen, if you notice, there is a very strong expansion in margin this quarter, as you indicated, which comes as 0.9% improvement, a 1%, shy of 1% in the gross profitability of the company, an additional 0.5% on the operational expenses. So we are looking at a 1% expansion in the gross profitability and 1.5% expansion in the operational profitability. Those two are the fruits of improvement in our backlog profitability and for using a lot of operational excellence both investments and also processes that were inaugurated in the company, including using AI for different purposes of operational use. And that is driving our -- not just our operational profitability but also our gross profitability up. And this is the first quarter that we see this kind of expansion in both the gross profitability and the operational profitability. Including -- on top of that, we are also doing CapEx investments, which are yielding fruits. As we discussed many times in the past, the ERP system that is fully operational, the one ERP system that is fully operational in the company and also robots and cobots that we are also using now mainly in the ammunition and munition factories. And on top of that, if I can summarize everything, we can see that we have our advantages to the size, which with the increase in revenue, we are doing better conversion to profits. Ellen Page: Great. That's very helpful. And how do we think about the impact of less operational disruptions assuming the ceasefire hold. Is that an opportunity for another step up from here? Yaacov Kagan: So we see that -- we are very happy with the ceasefire, of course, and that is -- we prayed, everybody here prayed for that after 2 years of that -- this conflict. And we all hope that this quiet will be maintained here in Israel. And of course, in -- for the company, it allows us to regroup, people to come back for mobilization, and to get back to normal business which is, as you know, Elbit is mainly predominantly working outside of Israel, that this is our strength of doing around 70% of the business outside of Israel. It allows us to invest more in the business outside of Israel and to focus, of course, more about doing the ordinary business as we did before this 7th of October conflict. And of course, this is an opportunity for the company to receive more opportunities and more new business to strengthen our backlog. Operator: I'm passing the call to Daniella Finn. Please go ahead. Daniella Finn: Thank you, operator. We have a couple of questions from [indiscernible] from Excellence. [indiscernible], thank you very much for your questions today. The first one is, has there been any update to the company's profitability target for 2026, 10% operating profit following the expansion of the order backlog and the improvement in gross margins in the current quarter. Yaacov Kagan: Thank you, Daniella and [indiscernible]. We -- as you know, we're not giving specifically targets and providing guidance. Saying that, we will still maintain our internal targets to continue to improve our profitability. And this is, of course, a strong target in the company as well as the cash conversion, which is a very -- is the principal target in the company to continue the improvement in cash conversion in the company. Daniella Finn: Thank you, Kobi. And the second question from [indiscernible], how does Elbit plan to generate added value from the significant expansion in the U.S. DoD's budget. Specifically, is there a concrete plan to pursue an M&A transaction in the U.S. and/or to expand into verticals such as drone swarms or border protection applications? Bezhalel Machlis: Thank you, Daniella and [indiscernible]. The U.S. market is very strategic to Elbit. We see the U.S. as our home market. And we are -- I'm very pleased with our performance in the U.S. The last two positions we made, the night-vision activity and Sparton, the sonobuoys activity. Both of them are very successful, both of them are growing. And we certainly look for opportunities, for acquisitions in the U.S., we are exploring the market. I would like to say that in the past, we delivered a system to the CBP for border protection, and our system is deployed along the borders. And we are -- certainly, we believe that the current need for additional systems along the borders are very relevant to us, and we are planning to pursue it. And we have -- the rest of our activities in the U.S. are very successful as well. Our avionics activities are growing, and our Active Protection System is doing very well in the U.S. on top of the Bradley [ light ] tank, and we see -- we will continue to invest in the U.S. We will continue to recruit additional people, and we would like to expand our position in this very important market forward. Daniella Finn: Thank you, Butzi. Operator, if there are no more questions, we can wrap up. Operator: Before I ask Mr. Machlis to go ahead with his closing statement, I'd like to remind participants that a replay of this call will be available 2 hours after the conference ends. In the U.S., please call 1 (888) 782-4291. In Israel, please call (03) 925-5900; and internationally, please call (972) 3925-5900. A replay of the call will also be available at the company's website, www.elbitsystems.com. Mr. Machlis, would you like to make your concluding statement? Bezhalel Machlis: I would like to thank everyone on the call for joining us today and for your continued trust and support of Elbit. Have a good day and goodbye. Operator: Thank you. This concludes the Elbit Systems Ltd., Third Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Operator: Good morning, and welcome to the Gorilla Technology Group's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to our speakers today, Jay Chandan, Chairman and Chief Executive Officer; and Bruce Bower, Chief Financial Officer. Thank you. Please go ahead, gentlemen. Jayesh Chandan: Thank you very much. Good morning, everyone. Q3 marks the strongest quarter in Gorilla's history with revenue ahead of expectations, operating profit firmly positive and the bottom line at breakeven. Now we've delivered a clear swing in profitability. We've built a cash position about over $119 million. We've reduced debt to a point of $15.1 million, and we've advanced our AI infrastructure programs across Southeast Asia, Latin America and the Middle East, securing multibillion-dollar projects, but at the same time, we're also creating a historic pipeline for this business. The simple message is that Gorilla is now operating above the analyst model and scaling faster than the market expected. Thank you. Bruce, anything you want to say? Bruce Bower: Yes. I'd just like to take a walk through some of the highlights from the quarter and then in terms of where we are overall. So the first, as Jay mentioned, it was a record quarter for us in terms of revenue. The balance sheet, as Jay mentioned, $121.4 million of cash total. That breaks down to $109 million of unrestricted free cash and then the balance in restricted cash. Debt of $15.1 million means that we're in a significant net cash position of $106 million. This follows on the performance of the business and also in terms of the -- it was helped by a fundraise that we did in July. In terms of where we are as a business how and we're performing, you can see that we're on track to meet the guidance for 2025, which is in the range of $100 million to $110 million in terms of revenue. And then we were talking about EBITDA margins in the 20% plus range and net income margins in the 15% to 20% range. So we remain on track to hit all of those. The gross margins through the 9 months have been a bit over 35%. That's a little bit lower than we'd expect for the full year. So I think that we'll be on track to hit the 35% to 40% range for the full year. At the end of the quarter, we had accounts receivable of $36 million, and I know people are looking at that and worried. I'd just like to say that we expect the business to be collecting or some of those we've already collected on in the fourth quarter, a couple of significant outstandings in Asia and then some remaining in the Middle East, we expect to collect on. For the 9 months of the year, we had operating cash flow of minus $15 million, and we still expect to either have breakeven or positive operating cash flow for the total year. Another thing speaking about going into the next year is we issued guidance for the next year of $137 million to $200 million. I just wanted to talk a little bit more about how that works, and Jay can help me out as well. But basically, this is how we forecast guidance is based on contractual backlog, which is the revenue that we expect to realize from signed contracts and then also where we have delivery time lines and specified contractual milestones. In this case, we have a signed contract. And in the case of 2026, we have a large signed contract with FREYR, and we have individual deployment as part of that contract. The timing is more or less certain, but still subject to some change, which is why we opted for a wide range to reflect our conservatism in making our guidance. Nonetheless, the fair contract is still a large contract at $1.4 billion overall. So that means over $400 million annualized. And that will be when up and running, $400 million annualized. But the rollout will be through 2026. So the contribution will hit starting in 2026, but it's still -- it won't be the full amount. Nonetheless, we also have a strong pipeline, as we alluded to, which Jay can talk about in a second, which makes us optimistic about hitting the full year guidance for 2026. A couple of other things to point out about 2026 is we have been talking to the market for a long time now about where we're going to grow, diversifying the business and derisking it. What we've seen is that the contract wins and then the pipeline is mostly in Southeast Asia, which would lead to us hitting our target of over 50% coming from Southeast Asia next year. It's also a good mix between government and enterprise. So we'll be diversifying and reducing the government share of our revenue. And then the corporates are investment grade and then the government clients that we're talking to or that we've converted are investment grade as well. So we see an improving credit quality from our end customer. All of this points, I think, to an improving business mix. a diversified revenue base on all measures and then improving client quality. The last thing I'd like to do is Jay is a bit too modest to do this, so I'll do it for him, is the track record is now piling up to the point where I think we have many proof points. When this business went public in 2022 via de-SPAC, the revenue for that year was $22 million. The guidance for this year is $100 million to $110 million. So that's obviously a significant increase in a short period of time. Looking at the guidance for next year, that marks 2 things. One is it's a large absolute increase. The second is that the percentage growth rate actually for next year would be an acceleration over the percentage growth rate for 2025. So it's, I think, quite a testament to the management team to see an improvement in the revenue growth rate and also after a 5x increase in revenue since going public. And then that's not the only highlight. several other highlights. So first of all, we have, as I mentioned, over $100 million of net cash. This is after being in net debt when we went public. We had a very painful or even toxic financing mix earlier in 2022, 2023, all of which has been cleaned up. So the cap table is almost all common equity. And then when we talk about winning new contracts now or executing on contracts that we signed, looking at the balance sheet now, we have the ability to fund significant new deployments from our own resources and then from project level finance that we have on the table from several banks. So we anticipate overall a good year to finish up in 2025. We're quite excited about the outlook for 2026. And then with that, I'd like to turn it over to Jay for anything else that he'd like to add about the outlook, the pipeline, et cetera. Jayesh Chandan: Thank you, Bruce. Yes, it was a very good quarter, rather, wasn't it? But if anyone is still wondering whether this is structural, I would gently suggest that they may need a new pair of spectacles. Now just to highlight on what Bruce talked about and clarifying some of the proof points to all the naysayers out there, our revenue, the consensus analyst model was roughly about $26 million to $26.2 million. Our actuals were at $26.5 million. Gross profit estimate was $9.5 million. We did about $9.9 million. Our operating income, IFRS operating income was to be at minus $6 million. We did a positive of $4.4 million. That's a big swing. And our adjusted EBITDA was about $5.6 million estimated, we did $6.8 million. Adjusted net income was about $3.5 million. We completed quarter 3 at $6 million. Our EPS non-IFRS was $0.26, and we came in at the Gorilla actual was about $0.257, which is in line. Our EPS IFRS was expected to be at negative 0.8. We completed it at breakeven, which is 0.00, which is a 100% improvement. Our analyst implied debt was at about $21 million. Gorilla's actual was at about $15.1 million, and we're looking to reduce that substantially before the end of this year. What we also had modeled for was the unrestricted cash, the restricted cash and the total cash position, and we are predominantly on top of everything today. Why? Because we delivered profitability at an operating level, not adjusted, not sprinkled with ferry dust, not if you squint, you can't see it, so on and so forth. This is proper profitability. We ran the business efficiently. We delivered on big projects across the region. We are delivering big projects across the region. We controlled our costs, but most importantly, we generated a real operating profit. This is not a one-off. This is what we call discipline. Second, we did this at the same time, we were scaling at pace. Now most companies only turn profitable when they stop investing. We turned profitable while executing national infrastructure programs across Southeast Asia, Middle East, LatAm and so on. Anyone who has ever worked in this sector will tell you that is not just coincidence. It is pure operational muscle. Third, we have visibility. And when I say visibility, I mean proper visibility. The $1.4 billion Southeast Asia data center project is not a rumor. It's not a letter of intent. It is not a win. It is a contract and is underway already flowing into our scheduling and revenue plans for 2026 and onwards, of course. The first phase alone provides for $100 million of annual revenue for the first 3 years. This is the definition of structural. Now people also asked me about the pipeline of $7 billion. I'm going to show you this is not something we found under a sofa cushion, okay? It has come from governments, telcos, serious institutions that are designing their national AI and digital sovereignty strategy. Our role in those programs is not episodic. It is recurring, expandable and is increasingly indispensable. Now our balance sheet is also a strategic weapon for us. Over $110 million of unrestricted cash, $15 million plus of debt and working with major partners like Telstra with us on data centers, we are not just hoping to deliver, we are capitalizing to deliver. And finally, with the deepening partnerships with the likes of Intel, Edgecore, HPE and NVIDIA and expanding our sovereign 5G local interception cybersecurity platform, we're not a one-hit wonder. These are partnerships that stick because we execute. So just to go back into the question-and-answer session now, we're not at a peak today. If anything, this is the foothill before the climb. Our numbers are consistent. The profitability is real. The backlog is defined and the demand curve ahead of us, particularly on AI data centers and national infrastructure programs is significantly larger than what is formally in the guidance today. With that, I'd love to turn this over for question and answers. Operator: [Operator Instructions] Our first question today comes from Mike Latimore from Northland Capital Markets. Mike Latimore: Congrats on the great results here. In terms of the guidance for '26, what are you assuming on this large deal contribution kind of low end to high end of guidance? Or what are the factors that get you to the lower high end of that guidance? Jayesh Chandan: Mike, good to hear from you. Let me answer it with numbers first, Mike. For 2026, we've guided a revenue range of roughly around $137 million to $200 million. This is built on only 2 things. One is our contracted backlog with very clear delivery milestones. Number two, the first phase of the Southeast Asia data center project, which alone contributes $100 million from '26 to '28. Now there is 0 revenue in that guidance from databases of the $1.4 billion program and 0 from any other new mandates that are being structured. Now the reality is that the remaining phases of the AI data center program are much larger than the Phase 1. As the time lines and the site consequences are finalized with the customers, we will then extend both our '26 and '27 revenue base quite materially as well. Now on top of that, as you know, we've also built a pipeline. Inside of these are several national projects in late stage that also touch data centers, public safety, network intelligence, our 5G offer inception programs and so on. None of that is in the current guidance of 2026. So the question you've asked me is the range we have given you is based on the backlog driven by a base case assumption. It is also dependent significantly on some of the very important issues we're facing today. One is material shortages of semiconductors, deliveries from likes of NVIDIA, Dell, HPE, Super Micro and so on and so forth. But that said, the upside from additional AI data center phases and new sovereign mandates will sit about all of these, and they will crystallize and therefore, they will become our future guidance as well. So I personally believe that we published a very sensible conservative number, and that's why we have deliberately left the rest out of them for now. Mike Latimore: All right. Perfect. Any color on EBITDA margins, what you think they might do in '26? Jayesh Chandan: Sure. Bruce, do you want to take that? Bruce Bower: Sure. So we would guide for a sort of 15% to 25% range. Mike Latimore: Okay. Good. And I guess just last one for me. The -- what -- can you provide a little more detail on the deliverables on this large contract in '26? Like what is the thing you're going to be delivering in the first quarter and throughout '26? Jayesh Chandan: That's a good question. So the right way, Mike, to see the first $100 million is the run rate it builds. Personally, for me, I think most people expect that you've signed a $1.4 billion contract, it's a light switch and the revenue starts flowing in. No, it doesn't work that way. I'm sure you know data centers very well. We've been communicating on this for quite some time. The first one is basically about 6 to 8 megawatts. That's several hundred high-density AI rack. And we do not like them all in one day, as you can imagine. They come online in plan based as the power, cooling, all of the network zones are commissioned. So revenue ramps up in each batch as they are energized. Second, when you look at the GPU capacity, that becomes a very important factor as it follows in through these waves. As the racks go live, for example, we drop in the cluster through our NVIDIA and partner ecosystem, which drives up the GPU as a service usage line. Now on top of that, we stack our services over a period of time. So not all at once. You can't just do a big bang approach. It's video intelligence, say, for example, for cities, transports and borders, big data analytics, building your large language models for both the government and telco, bringing your inference engines and so on, your cybersecurity, your network appliances and intelligence platforms and things like even the environmental intelligence and smart policing. So as the national workloads move into the platform and the utilization grows, typically from 30%, 40% all the way up to, let's say, 70%, 80%, that deepens our revenue at the same time at the same levels as the physical capacity. So for -- just to take a leap from what Bruce said earlier, if you want us to be doing about $300 million to $400 million steady-state revenue, the GPUs all need to be in motion and be sinking harmoniously at the same time. So the part to that is a controlled ramp, as I said, is not a big bang. So we're anticipating, again, working very closely with NVIDIA on this. We're anticipating that we will get all of this commissioned and to go live by the end of 2026. Operator: Our next question comes from David Williams from Benchmark. Unknown Analyst: Congratulations on the progress and success here, gentlemen. I guess maybe one of the first questions is kind of around the guidance. Obviously, you talked about this a bit earlier, but it feels like there is some potential upside there. And I guess if you kind of think about the risks in the market and maybe from the supply side and just the market dynamics, what do you think -- I mean, how would you gauge that from the midpoint of the guidance up to the upper end? And I would suspect that there's more upside opportunity than downside risk. Is that fair to assume? Jayesh Chandan: David, it is absolutely fair to assume there is more upside. Why? Because see, let me give you the risks to the guidance. I think there are 2 parts to your question. First is the timing of the customer deployment. Large AI infrastructure and data center programs rely on client site readiness. There has to be site access, as you know, the market very well, power allocation, import clearances, customer procurement cycles, they can all shift from one quarter to the other. And even a slight change in a week or 2 changes that significantly. Number two, your supply chain constraints are also -- there is a big challenge today. If you look at the demand, there's a high demand for GPU servers, not just in the United States, but across the globe, right? And then if you're looking at things like networking equipment, they can also create longer lead times. I don't know if you've seen recently, the price of memory has shot up 40% in the last 2 months. Then you've got the things like regulatory and compliance approvals, you've got things like project phasing on multiyear platforms. You'll have to take -- we take into account even geopolitical sensitivities in certain regions like Southeast Asia, Middle East, Latin America and so on and so forth. But then if you look at the upside for us, I did talk about it previously. For us, it's about when these programs come live. Now our aim is to get all of these live by 2026 and make sure that we drop all of these clusters to our NVIDIA partnership and our partner ecosystem and make sure that we drive the GPU as a service usage line. Now once we've driven that -- and remember, these are all purpose-built data centers. That means there's one customer occupying 100% occupancy, okay? That means our revenue would hit scale as soon as the switch is switched on. So what we are trying to do is we are working very closely. I mean, I did mention to you the risks. But taking all those risks into mind, we're also looking at the upside. And we want to make sure that our upside actually helps negate the risks on the lower end. I hope that answers your question. Unknown Analyst: Can I add something to... Bruce Bower: So a couple of other things, David, to keep in mind. The first is the data center opportunity -- the data center contract we have is an umbrella contract with Freyr. When we announced it, the $1.4 billion was based on the scheduled deployments that we had then. there is always the possibility that there are more deployments added to that. So that would be another source of potential upside. The second thing is, of course, while we're talking about the contractual backlog, and we talked about the data center side, we haven't talked about anything else. So Gorilla is still actively bidding for government contracts. And so we put in several bids recently, and we're staying tuned for good news from a couple of governments in Asia. The other thing is that we've talked many times about one Amazon and some of the MOUs that we've signed with government customers in the past. None of those are in the guidance now because they haven't yet turned into a date and an amount. But as soon as we know and have crystal clear vision on the date and the amount, then those would also be added to the guidance for next year. So it's not just about delivering everything from the data center contract, although that's the biggest mover. There are many ways for Gorilla to win next year. Unknown Analyst: And then maybe, Bruce, is there a way to size kind of the magnitude of your backlog? You've talked about a few things. You don't have the amounts or maybe even dates to. But if we were kind of thinking about your total backlog and kind of what you're anticipating for next year, how do you -- how should we size that? Bruce Bower: So the backlog for us is -- we go with a strict definition. So $85 million is the backlog for 2026, where we have the exact date and time and it's signed and it's being implemented now. Then we have, as we mentioned, the data center contract where it's signed, it is being implemented, but the exact timing of the deployment is still -- we have a good idea, but it's not definite yet. As Jay mentioned, there are some [ DUCs ] that we have to get in a row or there are other people that we have to work with before we can define that. The pipeline is where we have a qualified lead, where we think that they'll make a decision in the next 3 to 6 months, where they have budgets, but that doesn't have a signed contract or with an amount and a date next to it. So there's 2 parts. One is the backlog is very strict. And then the pipeline for us is really about converting from customer either where it's signed, but it's not amount and dated or where they sign up and then they sign a contract and we know the amounts and the dates and can then move that into the backlog. Jayesh Chandan: If I add some color to that, David, as well, the pipeline has grown rather enthusiastically, if I may. If it grows any faster, I think I might need to send a congratulatory card for myself. But that said, the deals are also very mature. If you look at what we did a couple of years ago and where we were last year, we were building POCs, we're signing MOUs and so on and so forth, whether it was part Asian in the U.K. or the Middle East, LatAm and so on and so forth. The data center project has accelerated beyond our expectations. And I don't want people to think that we're only building the data centers. There's a lot of ancillary support services we provide on top of that as well. So the $1.4 billion, for example, was only a catalyst. Once governments and telcos saw that we could deliver sovereign grade AI infrastructure, that basically kind of triggered a surge of interest. Now without giving names, the demand wave behind the FRR is significantly larger than Freyr itself. That is one of the primary reasons why our pipeline is well north of $7 billion. Now if you look at the GPU infrastructure, it has moved away from ambition for us to urgency. Through our engagements with likes of NVIDIA and Edgecore and including our own appliances within the kind of the government, we're seeing that strategic infrastructure as an essential, not optional. So now what has happened? We've also started working with the likes of Telstra in Brazil who's providing capital and looking to build some seriously large data centers as well. So these are all kind of whole country platforms as opposed to just incremental pilots. And then finally, what we are doing is that we're making sure that we can formally count a large portion, let's say, even if it's 20% to 30% of the $7 billion to be signed very quickly in 2026. And that allows us to actually be much more confident of our multiyear expansion. So in short, David, the opportunity is pretty comfortably substantial for us, but it's also growing at the same time. And it's not definitely a single year anomaly. Unknown Analyst: Okay. And one more, if I may here. Just if you kind of think about your competitors in the market and the 800-pound Gorilla, so to speak, you're competing against there. Why are they choosing Gorilla? What gives you the edge? And why are you winning? Jayesh Chandan: That's a good question. Why we're winning? I think we've proven ourselves, okay, to where we are today. We believe that we work with governments to make sure that we understand what their requirements are, what their commission requirements are, what their ecosystem requirements are, and then we help them build national workloads. Now Gorilla has been in this space for a very long time. As you can imagine, we've been here for 24 years. We're going to be celebrating 25 next year, right? We are a full stack AI operator. And I think I kind of talked about this in my first speech at the NASDAQ, and I said we want to be an AI stack operator. We design the architecture, we build the data centers. We integrate the GPU stacks. We operate the platform, and we stay as a long-term partner for the governments and telco. Now apart from that, they also -- we offer these customers of ours, both enterprise as well as the government level, sovereign control and predictable economics. And that is very, very, very important because our customers know exactly who runs their infrastructure, who carries the responsibility for their uptime and performance. And then finally, it's about capability. Now as you know, we've been delivering national cybersecurity infrastructure. We built 4 data centers in Egypt for our $270 million contract. We're executing multimillion-dollar projects, national projects across Southeast Asia, Middle East, LatAm and so on. What has happened is we are moving faster than our competitors. Our speed of execution, our ability to structure these projects and our operational discipline is making us the preferred partner where you understand this probably better than most people do, AI infrastructure cannot fail. It does -- it cannot fail. It just cannot fail. And it has to be with people who can have a very strong operational discipline. I think that's the responsibility we take. So we will build, operate and manage responsibly. So think about it this way. Everybody is trying to sell buildings and servers. We're trying to sell outcomes. That's it. That's as simple as that. Bruce Bower: And one thing to add on to that, as the numbers guy, is when I was investigating why we win, so to prepare some investor materials, all of that came out. The other thing is that given our history and our relationships with hardware vendors in Taiwan and then using our own software to create appliances out of the hardware, we actually deliver a significant cost savings over a competitor. I mean, obviously, the biggest cost item will be NVIDIA GPUs and there's not much flexibility. But on items where there's flexibility, we can deliver like a 30%, 40% cost savings with better performance, and that will reduce the overall cost of the data center by 5% to 7%. And 5% to 7% may not sound like much, but when you're talking $1 billion data center, that's a significant cash savings. So not only is it sort of everything that the customer is looking for in terms of sovereign data infrastructure, faster time to market, but it's also cheaper. So in the end, there's enough that stacks up, it becomes very difficult to look at a competitor by comparison. Operator: Our next question comes from John Roy from Water Tower Research. John Marc Roy: Obviously, a lot of discussion around '26. I want to step back for half a second and look beyond that. And kind of these questions are related. One is, do you need to grow your sales team to turn that pipeline into backlog? And can you give us some color on the pipeline beyond '26? And the last thing is, what are you going to plan to do with all that cash? Is it for growth? What's it for? Just kind of curious. Jayesh Chandan: That's really, really good. No, no, that's a good question. You caught me off God there. No, but listen, I can tell you that my pipeline is $7 billion, and I can sign all of these deals, and it's all going to be hunky dory. It is not. It is going to take its own challenge. It's got its own challenges. Am I going to expand my sales team? Our sales teams are already well established. We have more than what, 250-plus people today. Full time, we have more than 200-plus contractors. So we're stretching our bottles right now. The sales guy -- there's one sales guy who gets everything done, which is myself. I make sure that I'm there in front of every single customer, every single project. It doesn't matter whether it's a $1 million project or a $1 billion project, I make sure that I'm there so that I can give them the confidence in the guidance. Where are we aiming for -- I think you kind of touched upon this as to what your -- what the future looks like. For me, personally, right, if the programs and partnerships in front of us land the way I expect it to be in the next, let's say, 3 to 6 months, I would like us to be -- and this is my personal target, please do not assume that this is going to be the company's target, around $500 million of annual revenue by '27. That's not a formal guidance, by the way. This is my target for what the platform is capable of delivering. Now that's what I am focused on. I want to get there, but we need to make sure that we've built all the LEGO blocks in place. to make sure that we're no longer a project shop, make sure that our pipeline is real and growing, make sure that we can have more cash and that it meets our ambition. And more importantly, it talks about what kind of acquisitions we're also able to do so that we are able to support. We need teams, we need people. Just to give you the scale, we've gone on a massive hiring free in Taiwan. Thailand is almost what, 60-plus people. We are looking at India. We've got about 150-plus new recruits going on in India. And we're looking at acquisitions as well for the first time in India as well as in the U.S. So that's -- keep your eyes peeled, and I'm sure we'll be able to provide you more updates in due course. John Marc Roy: No, that sounds good. And the cash, maybe, Bruce, can you give us some highlights on where that cash might be headed? Bruce Bower: Yes. So for all of the major contracts, there is a capital needs from Gorilla side. Sometimes with government customers, that can be for performance guarantees and for working capital. For some of these data center projects, we have to fund the CapEx upfront and then deliver it to the customer. In this case, we are in active negotiations with banks. I mean, Jay and myself are in New York this week, meeting with banks. So we have term sheets on the table from lenders, which will finance the vast majority of it. But just like getting a mortgage for a house, there's an equity component and the equity component would come from the balance sheet. We anticipate that we have more than enough cash on balance sheet now to fund the first deployment or 2 and hopefully even more than that. Like I mentioned, the business should generate substantial cash in the fourth quarter. And so that will see us into much higher revenue numbers in the coming 3 to 6 months. Operator: Our next question comes from Brian Kinstlinger from Alliance Global Partners. Brian Kinstlinger: Congrats on all the business development achievements over the last few months. As it relates to as it relates to the Freyr contract, I'm curious or I assume the margins are substantially higher than the operating margin of your existing business. The offset is the CapEx side. So the cash returns maybe aren't what the EBITDA margins are, but the EBITDA margins are super high. I just want to see if my assumption is right. Jayesh Chandan: You're right, Brian. First of all, good to hear from you. First of all, Freyr is not a construction gig. For me, it's a long-term AI infrastructure relationship across Indonesia, Malaysia, Thailand, Vietnam, Philippines and so on. Now what we are doing is we're designing, building, operating and monetizing it over the years. Now once that data center is live, we're not just there to host the racks. We're also layering a lot of services on top of it. So video intelligence, like I said, big data analytics for government, cybersecurity platform, smart policing and so on and so forth. So for me, Freyr is the doorway. The real value is what we sell on top of it and everything inside that footprint. So what we -- when you look at it from that perspective, yes, you're absolutely right. It carries a higher margin, your EBITDA is much higher. But in terms of cash generation, it might actually because of the CapEx -- extensive investment of the CapEx, it's going to be slightly full cycle. But what we will do is we will then deploy our own operations team. And more importantly, we will also apply our own stack of our solutions on top of them, helping them go from building large language models to inference engines and moving up the value chain going from let's say, H100 to 200 to GB 200, GB 300 and what comes after. And so look at it this way. For me, building data centers is only one part of it. Think of us as creating, curating, hosting and protecting your data. That's what we do. Brian Kinstlinger: Great. And then as we enter 2026, regarding your first large contract, which was the Egypt Smart City contract, how do you see the economics change in '26 versus '25 in terms of revenue? Are we increasing, declining, kind of steady state? And then how did the mix change from '26 compared to '25? Jayesh Chandan: That's a really good question. So if you recollect about a couple of years ago, Brian, when we first spoke, I said my first job was to derisk the business. And it was to derisk our delivery profile in 3 ways. I mentioned this to you, and I'm going to stick to my guns here. First, we secured the contracted program. Once we did the technical validation with the government of Egypt, we then score our revenues and so on and so forth. And as you know, 95% of our revenues came from government customers. So what we did was we wanted to move away from projects to long-term milestone-based predictable collections so that our cash exposure is limited. It took us about 1.5 years to build that. And today, we're seeing that we're able to strengthen our balance sheet, but more importantly, we're able to reduce debt. Now what has happened, and this has allowed us to give us the breathing space to reengineer our business and to build our, what I call, capabilities at the same time. So look at it from having project-based schedules and programs to a full fledged deployment. These factors kind of helped us reduce our execution risk, revenue timing and financial risk. So going into '26, I can say with confidence that we are able to now have a more predictable, more stable quarter upon quarter as opposed to what we had previously. that answers your question? Brian Kinstlinger: Yes, somewhat. I'll take some of it offline. And then I'm curious, you had a number of MOUs, including Amazon One, there's a smart city contract. Any update on your progress? And I don't need to go over each one of them, but maybe where you're seeing more progress headed towards the finish line of any of the MOUs that are very large. Jayesh Chandan: Yes. So the One Amazon project is going full steam ahead. As you know, we've already completed the proof of concept in Panama, and now we're running into Mato Grosso. You saw the signing happen sometime last month. So there's an initial $100 million program where we have received -- we expect to receive a good chunk of that in our tech deployment. Now of course, there are lots of issues we need to worry about because we have to worry about the sensors, the way they deployed, how every active is being monitored, how it becomes a stream of environment and health intelligence and so on and so forth. And these are monetized for decades. So we've already started work on that. It's growing, and that is not part of our guidance for 2026. We've also signed, as I said, with our MOUs with the likes of nTelastra, for example. This is not a single site. We're talking about 120-plus megawatts to be done over the next 24 months. So that also tie that to our Freyr project and so on and so forth, we're expecting that to also convert into a portfolio of other AI infrastructure projects, which are repeatable. We're also working very closely with the projects, and I know what is on the tip of the tongue of everybody in Thailand, for example, we are working very closely with the government and to give you some confidence that we are sure that there would be an outcome and light at the end of the tunnel over the next few months. In terms of the overall One Amazon and the other MOUs, which we've already signed, our team has been working day in and day out, and we're making sure that each of the platform builds the digital backbone and make sure that we are sitting on top of their infrastructure play. So again, all these are not included in the guidance for 2026. Brian Kinstlinger: Great. My last question, that was helpful. You highlighted, Jay, accurately that you invest to grow. You made a comment about that, and you've done that. But given the solid awards, the growing pipeline, are there any key investments you need to make now in terms of personnel, staff, facilities to take advantage of the opportunities in front of you? Anything meaningful that you can talk about or can quantify? Jayesh Chandan: Absolutely. I think I touched upon this, Brian. This is very, very, very important because I think most people think that, no, we're a small company, we don't have the means to do what we do. So what we are doing right now, and just give it to you straight, right? These are all numbers back. So we are focused heavily on our M&A story as well because that brings in deep execution legs for us. But at the same time, we're also looking at how we expand ourselves into some of the fastest-growing economies in the world. So first, India. if you look at the India AI market today, and I mean, I may be slightly off on these numbers, but we're looking at about $9.5 billion today, and that's expected by 2032, I think, or '23, it's going to be about $130 billion. There's a tenfold expansion of the AI market. The country is also -- I was there recently, the country is also doubling its data center capacity from 950 megawatts to roughly around 1,800, 2,000 megawatts. By 2026, we're talking about a transformational change. So this is a massive national shift when it comes to AI compute cloud and digital sovereignty. So our investment into India is not cosmetic. Our acquisition potentially is also not very cosmetic. It positions us in a triple-digit billion dollar economy and where we are building our own local team, our own regulatory posture, but more importantly, we are looking at sovereign grade projects at scale today. So India is one big market for us going forward. The second market, which we talked about and which is also going to give us scale and people to help deploy in the local market is the United States. Now the U.S., as everybody knows, the largest AI market on the planet, represents roughly around 36% to 38% of the global AI spend today. But that said, it is also true that public safety, digital infrastructure, your GPU demand, defense and so on and so forth are all running into tens of billions of dollars apart from the data center market and the AI market. So for me, the acquisition there we're pursuing is very deliberate. It gives us established platform. It gives us huge customer potential. And more importantly, it gives us execution depth. And that's something you asked me to talk about as well to deliver, can I deliver real AI infrastructure and public safety programs in a country like the United States or India? This is how we're going to do it. So the U.S. for us becomes what we call a second engine for Gorilla for the next 2 to 3 years, not just a size project. So look at it this way. We're not buying revenue, we're buying capability. So that gives us scale. So India gives us scale in the hypergrowth market. U.S. gives us credibility in the world's most mature AI and law enforcement ecosystem. Operator: Our last question comes from [ Bart Boone ] from Red Chip. Unknown Analyst: Jay, Bruce, congratulations on a great quarter. Jayesh Chandan: Thank you. Unknown Analyst: I just have a few questions here. First, we know you design, build and operate AI data centers, provide GPU as a service and you're rolling out your own branded AI GPU platforms with partners like EdgeCore and Intel. At the same time, you're deepening your relationship with NVIDIA and the wider GPU ecosystem. So how should investors think about the unified flywheel you're building and Gorilla's strategic role inside the next wave of AI compute infrastructure? Jayesh Chandan: That's a very interesting question. Well, I'll keep it short. The short answer to that is that we're not playing in one corner of the AI infrastructure. And I think the market needs to understand that. Why? Because we're building the whole engine. The data centers are just an anchor, [ Bart ]. We design them, we build them, we run them. We sit on them because they're long-term hosting and power and capacity contracts and so on and so forth. On top of that, we stack the GPU as a service using our NVIDIA-based platforms with our partners. That gives us usage-based recurring revenue as the workload scale. And this is a very important term, which the market needs to understand. As we scale, we will scale as well. And as our customers scale, our revenues will scale automatically. That term is called usage-based recurring revenue as the workload scale. Now on top of that, we talked about the flywheel. The flywheel is very simple. Data centers drive GPU demand. your GPU demand pull through our software, the software then locks in longer and deeper national engagement. Think of it as a 3-pronged approach. So how should someone see us, whether it's investors or customers, they should see us as a sovereign grade AI operator, not just as a project contributor or a box shifter. We're surely not a box shifter. Unknown Analyst: Thank you, Jerry. I think that adds a lot of color there. Now shifting away from the data center conversation. You've spoken about Quantum-safe networks and the Intelligent Network Director platform for lawful interception and network intelligence. How should we think about these as commercial gateways into larger sovereign infrastructure and national security programs rather than stand-alone products, right? How do they all work together? Jayesh Chandan: The quantum question. I love that. [ Bart ], let me keep this tight. I know we're running short on time. This is one of the most misunderstood parts of our business. First of all, the market is enormous, right? Post-quantum cryptography alone is expected to cross over $100 billion to $150 billion globally over the next decade as governments upgrade everything from national networks to their financial systems to their defense communications and so on and so forth. Now look at this, every country will need this not want, but they will need it. That's an absolute must. Our Intelligent Network Director is never just a product. What we do is when a country lets you monitor its entire network flows, your lawful interception, your cyber posture, they're not just trialing a tool. They're effectively handing you the keys of their national nervous system. And this is what the market has misunderstood. We're not trying to sell a product. We're actually managing their national nervous system. Now that becomes a gateway into data centers, into sovereign cloud, into your public safety modernization, your AI workloads and your full national security stack and so on and so forth. Now as we move forward, right, the quantum-safe network opens the door even wider for us. Why? If you look at the way we protect country's backbone communications, we're automatically in the room. I mean, whether it's Taiwan, whether it's Thailand, whether it's Egypt, whether it's LatAm, it doesn't matter where it is. We are in that room for the next phases of their data centers, their GPU infrastructure, all of the national analytics, all of their secure workloads and all of their critical infrastructure protection. We signed 2 projects, as you know. And these were 5G lawful interception protecting national critical infrastructure. Now these technologies are the starting point for the programs that run into hundreds of millions of dollars over their lifetime. So what is Gorilla doing? We're sitting in that room. We're negotiating. We may sign tens of millions of dollars today, but my aim is to convert them to hundreds of millions of dollars over their lifetime. So think of it this way, whether it's your Intelligent Network Director or your Quantum-safe, we're not stand-alone. Think of them as a handshake that goes together over larger sovereign scale national infrastructure program. That's how I look at it from our IND perspective. Unknown Analyst: That's very helpful. I just have one more question to leave you with. So over the past few years, you've gone from survival mode to a position where you have record revenue, strong profitability, a multiyear AI data center mandate and a multibillion-dollar pipeline. What do you think the market is missing about Gorilla's trajectory when you look at the next 2, 3 years? Jayesh Chandan: You put me on the spot there, about it. Okay. So first of all, I want everybody to understand this. We're no longer a project shop. we are becoming the sovereign AI infrastructure operator, right? Our Phase 1, for example, just in Southeast Asia, we're talking hundreds of billions of revenue per year. Later phases are just larger in scope. And the duration and none of that is in the guidance as yet. Again, I want to repeat that, it's not in the guidance. Second, our pipeline is growing. We're now sitting on our pipeline about what, $7 billion across telcos, law enforcement, infrastructure and government. These are multiyear national platforms. Now once we have proven that we can deliver, you're rarely a one contract supplier and the market knows that. Now if you look at the third part of it, balance sheet. And I think there's been quite a few questions on that. We have more than, like I said, $119-plus million of unrestricted cash -- sorry, $107 million of unrestricted cash and total of about $120 million of total cash left on the books. Now that means we can go fund serious data center builds without even blinking. A year ago, and you said it very rightfully, so we were managing survival. Today, we're designing national architectures. We're also making very clear, we're trying to make sure that we do not dilute our shareholders as a default. We're exploring a very range -- wide range of creative structures with our partners from project-level vehicles to revenue sharing and other funky options that let us scale hard without handing away the company to them. Now I did talk about my ambition. And again, this is my personal ambition, and this is not in guidance. This is not target. But I would like to see that the way things are moving forward and all the partnerships in front of us, I would like to be operating at about $500 million of revenue -- annual revenue by 2027 and increasing from there going forward as well. And finally, I think Brian talked about the flywheel question previously and so did you, [ Bart ]. Every data center for us brings in long-term GPU and hosting revenue. On top of that, as we evolve, the more infrastructure we operate, the more software intelligence we can pull through. What is the market missing? I think that was your question. The market is missing the fact that Gorilla is shifting from a small cap story of survival into a multi-region sovereign AI operator with long duration of contracts, expanding margins and a very serious revenue ambition. Most people are looking at it as the Gorilla yesterday. That yesterday was in [ Weber ] at $22 million of revenue. Trust me, when I hit $27 million, if my personal ambitions fulfilled are fulfilled and we hit $500 million, that's an exponential growth, which not many people have seen before. So the gorilla that they will meet in the next year will be a very different animal [ Bart ], and that's what the market is missing. Operator: We have no further questions. I'd like to turn the call back over to management for any closing remarks. Jayesh Chandan: Thank you very much. Thank you, everybody, for taking your time and listening to us. To our institutional and retail investors, I'm going to say this out loud, and I haven't written this or practiced the speech before. Your conviction has carried us from survival to scale. Now people ask me about survival. This is very important. You stood with me, Bruce and the rest of the team through every single battle we have bought to get you. Now we enter a new phase. We're not just winning contracts. We're building the AI infrastructure of nation. Your belief has shaped this company, and it will definitely define everything we've been building in the years ahead. Most importantly, I want to thank every single one of you, naming people like Sam, people like Christian, people like Gunther, who actually stood by me while the world was still playing catch-up. And I intend to repay the trust with performance. So thank you. And thanks, everybody, for listening in. Have a lovely day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Leumi's Third Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, November 18, 2025. The presentation that we will be using is available on the IR section of the bank's website. I would like to remind everyone that forward-looking statements for respective company's business, financial condition and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. Such forward-looking statements include, but are not limited to, product demand, pricing, market acceptance, changing economic conditions, risks in product and technology development and the effect of the company's accounting policies as well as certain other risk factors, which are detailed from time to time in the company's filing with the various securities authorities. I would now like to turn the call over to Ms. Hagit Argov, CFO and Head of Finance Division. Please go ahead. Hagit Argov: Good day, everyone. I'm very pleased to be here with you today and to present our strong third quarter 2025 financial results. So let's get started with Slide 3. First, some key takeaways. Bank Leumi continues to present high and stable results over many quarters. This quarter, ROE was 16.3% and net profit was ILS 2.7 billion. It is worth noting that if the excess capital were reduced to the bank's internal CET1 target of 10.6%, the ROE would stand at 19% in the third quarter. In addition, we continue to manage costs effectively while maintaining a strong efficiency ratio. Credit quality metrics further improved and they have been consistently among the best in the sector over a number of years. We continue to present significant excess capital and healthy liquidity ratios. Following the Bank of Israel approval to increase the payout ratio up to 75% of the net profit in the third quarter, Leumi announced a combined dividend and buyback of ILS 2 billion. So all in all, we delivered strong, consistent and high-quality performance. Let's take a quick look at Slide 4. Here, we can see our financial targets for 2025 and 2026 published as a strategic plan in our 2024 annual report. So far, Leumi is well on track to meet our financial targets. Before we dive into the details, let me start with a brief overview of the macroeconomic environment. For this, we move to Slide 5, which highlights the key macro indicators. In Q3, the economic indicators showed an expansion. The Bank of Israel estimates real GDP growth of 2.5% for 2025, mainly impacted by the implications of the military conflict against Iran and 4.7% GDP growth in 2026. The GDP growth is driven by domestic demand and fixed investment. In addition, export of high tech services, which is the key growth engine of the Israel economy has accelerated in recent months. And recently, inflation got back to the target range of Bank of Israel between 1% to 3%. In October 2025, a high-tech agreement with Hamas, including the return of the Israeli hostages was achieved. If fully implemented, this development would have positive implications for the Israeli economy and global sentiment. Moving to Slide 6, which provides a snapshot of our quarterly performance. I will let the numbers speak for themselves. As mentioned, net income for Q3 2025 was ILS 2.7 billion and ROE was 16.3%. The cost-to-income ratio was especially strong at 27%, down from 31.1% in Q3 2024. This was supported by higher income and lower costs, thanks to our advanced technology. Our cost-to-income ratio continues to lead the Israeli banking sector and is among the best globally. Credit loss expenses were 0.03% in Q3, reflecting, among other factors, a positive development in the geopolitical environment. Credit portfolio grew by 1.3% quarter-on-quarter, supported by continued demand, mainly from the corporate and mortgages segment. The book value per share of the bank increased by 2.7% in the quarter and is up 12.7% over the past 12 months to ILS 45. Quarterly earnings per share were up almost 20% year-on-year. Now let's drill down to some key numbers on Slide 7, which shows the breakdown of income and expenses. Net interest income decreased 1.6% year-on-year, mainly driven by a lower CPI compared with Q3 2024. Overall, finance income grew strongly by 10.5% year-on-year, supported by higher noninterest income, mainly from capital markets compared with the parallel quarter last year. Expenses declined, reflecting our tight cost control. As a result of the above, pre-provision net revenues increased year-on-year by 14.3%. In addition, as part of the Bank of Israel program to distribute benefits to customers that was launched in April 2025, Leumi continues to benefit its customers. This totaled ILS 172 million in the third quarter. A brief view of Slide 8 summarizes our 9 months 2025 results. As you can see, 9 months results followed a similar trend to those for the 3 months period in the previous slide. Another brief metric on Slide 9 highlights our fee. Fee income was partly affected by the benefits granted to customers in the Bank of Israel program. Excluding these benefits, fees grew strongly by 11.4% quarter-on-quarter, driven mainly by securities activity and credit growth. 9 months 2025 over 9 months 2024 displayed similar trend. On Slide 10, we clearly see the bank's continued improvement in our multiyear cost income ratio. Our cost income ratio continues to be strong at 27% in the third quarter and 28.6% in the 9 months. Turning to Slide 11. The development of credit loss expenses in Q3, which shows us that specific provisions reflect our high-quality credit portfolio with an income of ILS 74 million coming from net recoveries. That means collections minus provision increases. Collective provisions were lower than in the parallel quarter, reflecting an improvement in the macro environment in light of the positive development in the geopolitical situation. Overall, total credit loss expenses in the quarter were 0.03% of gross loans compared with 0.28% in Q3 2024 and maintain our coverage ratio. Slide 12 presents a significant metric. It is the high quality of our credit portfolio. Credit quality further improved in Q3 with troubled debt declining to 1.34% of gross loans. NPL was also at a low level of 0.41%. The coverage ratio, as I mentioned before, remains stable, while the rate of provisions to NPLs increased 3.3x. These parameters are among the lowest in the banking sector. Now we turn to Slide 13. This shows our strong credit growth. Credit growth over 9 months was in line with our targets and stood at 8.8% with a 1.3% rise in Q3. This was supported by the ongoing resilience of the economy with growth coming from corporates, including real estate, infrastructure, mortgages and middle market. The next slide, Slide 14, shows the bank's diversified deposit base. Total deposits were up 3.7% in 9 months 2025, while deposits from private individuals grew by 1.4%. Liquidity ratios remain robust with the LCR ratio at 128%. Let's now move on. Slide 15 shows our healthy capital and leverage ratios. The core Tier 1 ratio increased by 5 basis points in the quarter to 12.33% with the bank's capital buffer now standing at more than 2% or ILS 11 billion. The total capital ratio was stable at 14.87%, which is also well above the Bank of Israel minimum requirement of 13.5%. Going on to Slide 16, we see the bank's capital return. Because the limitation on the capital return was partly by the Bank of Israel, Leumi declared a total payout of ILS 2 billion, of which ILS 1.5 billion is a cash dividend and the rest is in buybacks. This represents 75% of the quarterly net profit and an annualized return of 8.2% at the current share price. In conclusion, we turn to Slide 17. Let me just summarize our presentation. The bank continues to present consistent and strong financial performance with high ROE even during macroeconomic and geopolitical uncertainty. We remain highly disciplined on costs, resulting in consistent efficiency improvement and the best cost-to-income ratio among Israeli banks and probably one of the best globally. Our technology transformation doesn't stop. Nearly 90% of our private customers carry out their activity through digital platforms. The bank's strong profitability and healthy capital buffer enable us to continue growing in our target segments and also allow us to share higher returns with shareholders through dividends and our buyback program. With that, I will now open the call for questions. Operator? Operator: [Operator Instructions] The first question, funding plans. Do you plan to come to the market in the near term to issue USD senior bonds or AT1s or Tier 2s? Hagit Argov: Okay. Thank you for the question. Regarding the senior, we constantly issue senior bonds depending on our liquidity ratio. And if it will be in U.S. dollar, it depends in the price and in the conditions. So we consider it when we issue. Regarding the Tier 2, let me point out that our total capital ratio is significantly above the requirement. So there is no specific need to refinance it in the near future. As for the bond seniors in the U.S. dollar with the call date in January 2026, the final decision will be during 2026, depends on our capital ratio. Operator: The next question, what are your refinancing plans for the Tier 2s callable in January 2026? Hagit Argov: The same question, I covered it in my answer. Operator: The next question, could you provide some color on the trajectory of net interest income and net interest margins as we approach the end of this year and look ahead to next year? Hagit Argov: Okay. So about this quarter, the NIM was affected mainly by the higher share of institutional in our deposit portfolio. These deposits carry lower margins. They are usually short term. So the current level of the NIM will not necessarily remain the same in the coming quarter. And of course, affected by the competition. About the future, we expected the Bank of Israel to announce an interest rate reduction. And according to our financial statements, a 1% decrease in interest rate would affect our results by around ILS 8 million, which is approximately 0.8% in ROE terms. So we believe that this will be the effect in our financial statement. Operator: The next question, I'd appreciate your perspective on the normalized cost of risk. There was a noticeable decline this quarter with COR at 9 bp for the first 9 months compared to 16 bp last year. Any insights on the drivers behind this change? And any guidance going forward would be very valuable. Hagit Argov: Okay. Thank you for the question. First of all, it is important to note that during the war, we accumulated a large excess provision due to concern about the geopolitical situation. Secondly, in this quarter, there is an improvement in the geopolitical situation. And as I mentioned in my presentation, in our credit quality parameters. And finally, our specific provision, we continue to record income from recovery, net recovery. It means we have more recoveries than write-offs. So consequently, total credit loss provisions were low, amounting to ILS 3 million. I want to mention that our NPL coverage is about 3x and is one of the highest in the system. And also, we maintain our coverage ratio, which means our provisions to our credit. So if I have to appreciate what will be in the future, it's, of course, depend on the geopolitical situation and our credit quality parameters. So if the situation will continue to improve and there will not be any deterioration. So I believe that it will be in the same level of provisions. Operator: The next question. A question on regulatory risk. There have been media headlines about an increased tax rate on the banks and separately by the Finance Minister to subsidize mortgage. Does the bank have any take on that? Hagit Argov: Actually, we heard about this plan at the same time as you did, and we don't have any further information. Such a process would require, of course, legislation. And yet, we don't see any official document. So if the issue develop further, we will be able to respond accordingly. Operator: The next question, how much more operating leverage is there? And how should we be looking at expenses going into next year? Hagit Argov: Okay. So as you know, Leumi has continued year after year to increase its income and decrease its expenses. Our motto has been doing more with less, and this is reflected in our financial parameters, in our cost-income ratio. We have achieved and we'll continue to do this mainly by advanced technology. By the way, to the best of my knowledge, it is the best of all the Israeli banks and probably in the world, and we are very proud of it. We continue our tight control of expenses, and we continue with our technology, and I believe we can maintain it at least in the same level. Operator: [Operator Instructions] There are no further questions at this time. This concludes Leumi's Third Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Operator: Greetings, and welcome to The Home Depot Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Isabel Janci. Please go ahead. Isabel Janci: Thank you, Christine, and good morning, everyone. Welcome to Home Depot's Third Quarter 2025 Earnings Call. Joining us on our call today are Ted Decker, Chair, President and CEO; Ann-Marie Campbell, Senior Executive Vice President; Billy Bastek, Executive Vice President of Merchandising; and Richard McPhail, Executive Vice President and Chief Financial Officer. Following our prepared remarks, the call will be open for questions. Questions will be limited to analysts and investors. [Operator Instructions] If we are unable to get to your question during the call, please call our Investor Relations department at (770) 384-2387. Before I turn the call over to Ted, let me remind you that today's press release and the presentations made by our executives include forward-looking statements under the federal securities laws, including as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to the factors identified in the release in our most recent annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. Today's presentation will also include certain non-GAAP measures, including, but not limited to, adjusted operating margin, adjusted diluted earnings per share and return on invested capital. For a reconciliation of these and other non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our website. Now let me turn the call over to Ted. Edward Decker: Thank you, Isabel, and good morning, everyone. Sales for the third quarter were $41.4 billion, up 2.8% from the same period last year. Comp sales increased 0.2% from the same period last year and comps in the U.S. increased 0.1%. Adjusted diluted earnings per share were $3.74 in the third quarter compared to $3.78 in the third quarter last year. In local currency, Canada and Mexico posted positive comps. Our results missed our expectations, primarily due to the lack of storms in the third quarter, which resulted in greater-than-expected pressure in certain categories. Additionally, while underlying demand in the business remained relatively stable sequentially, an expected increase in demand in the third quarter did not materialize. We believe that consumer uncertainty and continued pressure in housing are disproportionately impacting home improvement demand. Today, we've revised our guidance for fiscal 2025, which Richard will take you through in a moment. We remain focused on controlling what we can control. Our teams are executing at a high level, and we believe we are growing market share. We continue to invest across the business, supporting our associates and delivering the value proposition expected by our customers. In September, SRS completed the acquisition of GMS, a leading distributor of specialty building products, including drywall, ceiling and steel framing related to remodeling and construction projects. GMS further enhances SRS' position as a leading multi-category building materials distributor, bringing differentiated capabilities, product categories and customer relationships that are highly complementary to SRS' existing business. We could not be more excited to welcome GMS to the family and look forward to bringing a truly differentiated value proposition to our Pro customers. We're excited to see many of you in person in a few weeks at our investor conference at the New York Stock Exchange on December 9. We will update you on our strategic initiatives, our unique positioning in the marketplace, our investments and the traction we are seeing with our customers as we continue to position ourselves to win market share in both the near and long term. In closing, I would like to thank our store associates, merchants, supply chain teams and vendor partners who continue to take care of our customers and execute at a high level. With that, let me turn the call over to Ann. Ann-Marie Campbell: Thanks, Ted, and good morning, everyone. Our associates did an incredible job focusing on our customers and delivering exceptional customer service in our stores during the quarter. We continue to lean in on initiatives that help our associates do their jobs more effectively while also driving productivity in our operations. I'm going to highlight our progress across a number of initiatives that have helped improve the associate experience and are resulting in a better customer experience and increased customer satisfaction. Last year, we rolled out our freight flow application to all stores, which has improved our freight processes and driven efficiency in all operations. This initiative has significantly improved our cartons per hour metric, resulting in greater efficiency in our onload and pack out process. We also continue to focus on on-shelf availability and through computer vision and Sidekick, we have reached record in-stock and on-shelf availability levels. Lastly, our faster fulfillment efforts leveraging both our stores and distribution centers that you've heard about over the last few quarters have driven an over 400 basis point increase in our customer satisfaction scores. In addition, we continue to focus on our Pro ecosystem, maturing the new capabilities we have built for pros working on complex projects while enhancing the tools we have to serve pros. We are pleased with the progress we are seeing as our customers engage with our capabilities. There are 2 new tools we have deployed over the last several months that help us differentiate our offering. The first is a new project planning tool that we launched in September, which allows our pros to create and manage material lift and track orders and deliveries. The second tool, blueprint takeoffs, will transform the way pros plan and prepare for their projects. This new tool leverages advanced AI and proprietary algorithms to deliver accurate blueprint takeoffs and material estimates in record time. Pros can then quickly and easily purchase all materials they need for their project through The Home Depot, simplifying this complex process by going through a single supplier. This technology replaces a manual intensive process that took weeks to complete, increasing accuracy and reliability. Adding this advanced technology to our ecosystem of capabilities to better serve the pro working on complex projects will further enable us to be the one-stop shop for all project needs from initial planning to material delivery, saving our pros time and money. We look forward to seeing you in a few weeks in New York to provide a holistic view of how our full ecosystem is resonating with our pros and allowing us to gain traction and win in the market. With that, let me turn the call over to Billy. William Bastek: Thank you, Ann, and good morning, everyone. I want to start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and communities. As you heard from Ted, the underlying demand in the quarter was relatively similar to what we saw in the second quarter. However, our results were below our expectations, largely due to a lack of storms relative to historic norms, which most notably impacted areas of the business such as roofing, power generation and plywood to name a few. Turning to our merchandising department comp performance for the third quarter. 9 of our 16 merchandising departments posted positive comps, including kitchen, bath, outdoor garden, storage, electrical, plumbing, millwork, hardware and appliances. During the third quarter, our comp average ticket increased 1.8% and comp transactions decreased 1.6%. The growth in comp average ticket primarily reflects a greater mix of higher ticket items, customers continuing to trade up for new and innovative products as well as modest price increases. Big ticket comp transactions for those over $1,000 were positive 2.3% compared to the third quarter of last year. We were pleased with the performance we saw in categories such as appliances, portable power and gypsum. However, we continue to see softer engagement in larger discretionary projects where customers typically use financing to fund renovation projects. During the third quarter, both Pro and DIY comp sales were positive and relatively in line with one another. We saw strength across Pro heavy categories like gypsum, insulation, siding and plumbing. In DIY, we saw strength across our seasonal product offerings, including live goods, hardscapes and other garden products. Turning to total company online comp sales. Sales leveraging our digital platforms increased approximately 11% compared to the third quarter of last year. We're excited about the continued success we're seeing across our interconnected platforms. Our faster delivery speeds are resonating with customers and driving greater engagement and sales. We know that as we remove friction from the experience, we see incremental customer engagement leading to greater sales across all points of interaction. During the third quarter, we hosted our annual supplier partnership meeting where we focused on how we will continue to work together to bring the best products to market, deliver innovative solutions that simplify the project and offer great value with best-in-class features and benefits. At the event, we recognized a number of vendors across categories who continue to transform the industry with the innovation they bring to our customers on a daily basis. They include Leedarson, Cobra Tork, Feather River, Milwaukee, RYOBI, Frigidaire, Makita, Traeger and many more. We are proud of the innovation and partnership that our suppliers bring to The Home Depot and the value we're able to offer both our Pro and DIY customers. As we turn our attention to the fourth quarter, we're looking forward to the excitement we will bring with our annual holiday, Black Friday and Gift Center events. In our Gift Center event, we continue to lean into brands that matter most for our customers with our assortment of Milwaukee, RYOBI, Makita, DEWALT, RIDGID, Diablo, Husky and more. We'll have something for everyone, whether it's our wide assortment of cordless RYOBI tools or Milwaukee hand tools. And in appliances for Black Friday, we have exciting offers on LG, Samsung, Bosch, Whirlpool, GE and Frigidaire. Our assortment includes multiple exclusive products like LG stainless steel french door refrigerator with Craft Ice and Frigidaire's new Gallery dishwasher with a wash cycle time of only 50 minutes. This quarter, I'm also excited to announce the addition of PGT Windows to our wide assortment of exclusive retail brands, including American Craftsman and Andersen Windows. PGT's impact-resistant windows are engineered to meet some of the highest performance standards in the industry, reducing storm damage risk, providing energy efficiency, UV protection and sound reduction, and they will be exclusive to The Home Depot in the big box channel. Our merchandising organization remains focused on being our customers' advocate for value. This means continuing to provide a broad assortment of best-in-class products that are in stock and available for our customers. It is the power of our vendor relationships, coupled with our best-in-class merchant organization that allows us to offer our customers the best brands with the most innovation to solve pain points, increase functionality and enhance performance at the best value in the market. With that, I'd like to turn the call over to Richard. Richard McPhail: Thank you, Billy, and good morning, everyone. In the third quarter, total sales were $41.4 billion, an increase of $1.1 billion or approximately 3% from last year. Total sales include approximately $900 million from the recent acquisition of GMS, which represents approximately 8 weeks of sales in the quarter. During the third quarter, our total company comps were positive 0.2% with comps of positive 2% in August, positive 0.5% in September and negative 1.5% in October. Comps in the U.S. were positive 0.1% for the quarter with comps of positive 2.2% in August, positive 0.3% in September and negative 1.7% in October. For the quarter and in local currency, Canada and Mexico posted positive comp. In the third quarter, our gross margin was 33.4%, flat compared to the third quarter of 2024, which was in line with our expectations. During the third quarter, operating expense as a percent of sales increased approximately 55 basis points to 20.5% compared to the third quarter of 2024. Our operating expense included transaction fees related to the acquisition of GMS, but otherwise were in line with our expectations. Our operating margin for the third quarter was 12.9% compared to 13.5% in the third quarter of 2024. In the quarter, pretax intangible asset amortization was $158 million. Excluding the intangible asset amortization in the quarter, our adjusted operating margin for the third quarter was 13.3% compared to 13.8% in the third quarter of 2024. Interest and other expense for the third quarter was $596 million, which is in line with our expectations. In the third quarter, our effective tax rate was 24.3% compared to 24.4% in the third quarter of fiscal 2024. Our diluted earnings per share for the third quarter were $3.62 compared to $3.67 in the third quarter of 2024. Excluding intangible asset amortization, our adjusted diluted earnings per share for the third quarter were $3.74 compared to $3.78 in the third quarter of 2024. During the third quarter, we opened 3 new stores, bringing our total store count to 2,356. At the end of the quarter, merchandise inventories were $26.2 billion, up approximately $2.3 billion compared to the third quarter of 2024, and inventory turns were 4.5x, down from 4.8x last year. Turning to capital allocation. During the third quarter, we invested approximately $900 million back into our business in the form of capital expenditures and we paid approximately $2.3 billion in dividends to our shareholders. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was 26.3%, down from 31.5% in the third quarter of fiscal 2024. Now I will comment on our outlook for fiscal 2025. Today, we are updating our fiscal 2025 guidance to include softer-than-expected results in the third quarter, continued pressure in the fourth quarter from the lack of storm activity, ongoing consumer uncertainty and housing pressure as well as the inclusion of the GMS acquisition into our consolidated results. For fiscal 2025, we expect total sales growth of approximately positive 3% with GMS expected to contribute approximately $2 billion in incremental sales and comp sales growth percent to be slightly positive compared to fiscal 2024. Our gross margin is expected to be approximately 33.2%. Further, we expect operating margin of approximately 12.6% and adjusted operating margin of approximately 13%. Our effective tax rate is targeted at approximately 24.5%. We expect net interest expense of approximately $2.3 billion. We expect our diluted earnings per share to decline approximately 6% compared to fiscal 2024 when comparing the 52 weeks in fiscal 2025 to the 53 weeks in fiscal 2024. And we expect our adjusted diluted earnings per share to decline approximately 5% compared to fiscal 2024 when comparing the 52 weeks in fiscal 2025 to the 53 weeks in fiscal 2024. We plan to continue investing in our business with capital expenditures of approximately 2.5% of sales for fiscal 2025. We believe that we will grow market share in any environment by strengthening our competitive position with our customers and delivering the best customer experience in home improvement. Thank you for your participation in today's call. And Christine, we are now ready for questions. Operator: [Operator Instructions] Our first question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: My first question is more short term on the fourth quarter. So when you guided for the full year after the second quarter, we didn't have GMS in the numbers. And now we do. And then we now know your third quarter came in a little light and that the fourth quarter may be a little lighter on revenue as well. So there's some deleverage. We're having a tough time getting to the full amount of, call it, EBIT dollar shortfall because GMS looks like they made money last year. Are there any expenses that are tied to it? Or how do we think about the deleverage? Richard McPhail: Yes. Simeon, thanks for the question. I think you could look at it 2 ways. Let's talk about fiscal year, and let's talk about Q4. So fiscal year, as you know, we've revised our guidance by 40 basis points from 13.4% adjusted operating margin to 13% operating margin. The walk there, let's talk about the most significant item, which is GMS, the inclusion of GMS in our results. If you take their likely impact to 2025 and you add the transaction expenses to it, you're basically at 20 basis points of year-over-year impact to operating margin. You then take into account the decrease in our comp sales from 1 comp to slightly positive. And then we -- so that assumption would have obviously deleverage that we've spoken of previously. And then with respect to SRS and its impact, first, SRS continues to perform extremely well. There is significant pressure in the roofing market. We know that shipments are down double digits from the absence of storm activity this year. SRS actually comped flat for Q3. And so we think that they are taking significant share. But as our expectations have weakened slightly for them in the full year, rather than seeing them grow at mid-single digits, they're likely to grow low single digits. You do see some deleverage in SRS in the supply chain and in OpEx. And so you add those together and get your revision to the fiscal year guide. And really, you just add to that, if you're talking about Q4, you have all the same dynamics, but let's not forget, you're comparing Q4 last year has 14 weeks of expense. Q4 this year has 13 weeks of expense. And so you've got 50-ish basis points of operating expense deleverage in the quarter. So hopefully, that will help you with the walk. Simeon Gutman: Yes, that helped a lot. And then a follow-up. You mentioned on this call and in the release that there was an expectation of increased or improving demand, I guess, through the remainder of the year at one point. Was that an expectation based on housing or an expectation that there would be storms? And if there was any volatility related to government shutdown, do you have enough time looking backwards since the reopening that there's been an improvement in how the consumer is behaving? Edward Decker: Yes, Simeon, let me step back and just paint a broader picture of what we're seeing with the consumer in our sector. Our comps definitely slowed as the quarter progressed, but great work by the team to register the positive comp for the entire quarter. And as we said, the primary driver of that sales pressure was the lack of storm activity in the quarter. We don't plan for storms per se, but there's always some weather impact in the baseline. And given last year pretty significant storm activity, in this year truly 0. There was no storm activity this year. So we saw that most acutely in October. That was the single heaviest impacted month, and that's where, as Richard called out, the comp progression turned negative in October. And then you talked about the overall economy in housing. We did expect to start seeing some pickup in demand in the second half of the year. And this wasn't just the calendar dynamic of, oh, things will be better in the second half. We're expecting interest rates and mortgage rates to come down, which they did that would have been some assistance to housing. But we really just saw ongoing consumer uncertainty and pressure in housing that are disproportionately impacting home improvement demand. I think the good news is the team, as I said, is executing at a very high level, and we believe we're taking share. And if you adjust for the storm activity, our Q3 comp, the underlying business comp was essentially the exact same as Q2. And adjusting, again, for storm and weather, call that underlying business to be about a 1% comp in each of Q2 and Q3. So now here we are going into Q4, and we're going to see even more quarter-over-quarter pressure from the storm activity. So again, there's nothing that's happened this year. The storm activity and the rebuild and repair continued into Q4 last year. So we'll have even more storm pressure year-over-year in Q4. And then we just don't see the catalyst to increase that underlying storm-adjusted demand in the market. So I mean it's certainly a very interesting consumer dynamic out there. On the one hand, you look at certain economic indicators and you say, geez, things are pretty good. You look at GDP, you look at PCE, those are both strong. But on the other hand, what's impacting us in home improvement is the ongoing pressure in housing and incremental consumer uncertainty. So take housing. I mean, housing has been soft for some time. We all know the higher interest rates and affordability concerns. But what we're seeing now is even less turnover. The housing activity is truly at 40-year lows as a percentage of housing stock. I think we're at 2.9% turnover. And then home prices have started to adjust in even more markets over this past quarter. And then when you look at the consumer, what's going to spark the consumer, we still believe we have one of the healthiest consumer segments in the whole economy. But again, the economic uncertainty continues largely now due to living costs, affordability is a word that's being used a lot, layoffs, increased job concerns, et cetera. So that's why we don't see an uptick in that underlying storm-adjusted demand in the business. So as I said earlier, we're going to keep controlling what we can control, support our associates and deliver just a great value proposition for the customer and believe we took share in Q3 and year-to-date this year and do the same thing in Q4. Operator: Our next question comes from the line of Zach Fadem with Wells Fargo. Zachary Fadem: I wanted to start on the average ticket. I guess any callouts on commodities versus same SKU inflation? And then with last quarter ticking down on promo, curious how Q3 played out and whether you'd expect the industry to be more or less promotional this Q4? William Bastek: Yes. Zach, it's Billy. Thanks for the question. As it relates to ticket, as we've talked about on a few calls, I mean, we continue to see customers trade up for innovation. In fact, we really haven't seen any trade down that we haven't spoken about in previous calls, as it relates to that. So a modest increase in ticket, but most notably, that was from people, innovation and things in the marketplace that we've seen. As it relates to the promotional activity, it's really consistent year-over-year, both in Q3 and Q4. And as Ted mentioned, the fundamental demand in our business, while it didn't increase, certainly was very consistent with what we saw in Q2 outside of, as we mentioned in the storm impact. So from a fundamental standpoint, I feel very good about that and continue to see customers engage. Projects, as I mentioned, they're going to continue to have pressure where they're financed. But from a promotional activity standpoint, it's really a similar environment that it was in -- really for the balance of the year. And certainly, as it relates to Q4 a year ago, it's a similar environment for us as well. Zachary Fadem: Got it. And then, Richard, a couple of follow-ups on GMS. First of all, on operating expenses, could you help us understand what's onetime in terms of impact transactions, et cetera, on Q3 and Q4? And then on the inventory growth, up about 10%, any color you can offer on how much is GMS versus underlying volume versus pricing? Richard McPhail: Sure. You can think about the GMS transaction fees as about 5 basis points of margin to the year or 5 basis points of expense any way you put it, about 15 basis points to the quarter. Obviously, Q3 is one of our larger quarters. And you can think of the impact is about $0.05 of EPS for the year, for GMS transaction fees, and those all occurred in Q3. With respect to the inventory, inventory increases reflect principally the inclusion of GMS now in our balance sheet and the fact that we've leaned into investments, in particular, investments with respect to hitting our speed promise. So we've seen fantastic results from improving our speed and reliability of delivery over the last year. That's something we've leaned into. We have our DFC network, which we think is unmatched in our market. And as we see results from it, and obviously, this quarter, you saw an 11% comp online, we're going to continue to lean into that investment. So for the most part, it's investments in the business. Operator: Our next question comes from the line of Michael Lasser with UBS. Michael Lasser: Given all the comments from this morning, it begs the question, can home improvement demand recover without some assistance from either an increase in underlying housing activity or a reduction in interest rates? And how should this foster the market's expectation towards the recovery or potential recovery in 2026? Edward Decker: Thanks, Michael. We've talked about all the different drivers of demand in our segment. And there are leads and lags in all of them, and we've clearly called out over time that the most statistically relevant would be home price appreciation and household formation and housing turnover. Those 3 right now are pressured for sure. But we also know that we've more than worked our way through the pull forward of the COVID years. And there are many industry reports and calculations of now underspend per household. So on one hand, we're looking at something as much as a $50 billion cumulative underspend in normal repair and remodel activity in U.S. housing. On the other hand, we have less turnover and home price appreciation. So that tension is going to have to balance itself out as we work through the rest of this year and into next year. But fundamentally, our job is to put great value propositions in front of the customer and take share in any environment. So can The Home Depot grow? The answer is yes. Will the industry have some shorter-term pressures with turnover in home price? Yes as well. Michael Lasser: My second question is, as The Home Depot has taken a significant number of big steps over the last few years to gain market share, particularly in the Pro segment, has The Home Depot increased its fixed cost structure such that it's now experiencing deleverage as sales are under pressure, but this can act as a significant tailwind to the earnings outlook as sales improve. Edward Decker: Yes. I mean you're right, Mike. We have had a number of big steps on Pro. It's -- we've talked about the size of the overall home improvement TAM at $1-plus trillion and evenly split between Pro and consumer and how strong we've always been in both sectors out of our stores, the Pro and the consumer, but identified real opportunity to bring increased value proposition to that Pro space by building out wholesale type capabilities to capture more share of wallet with that customer. And that's what we've been doing, and we'll talk a lot about that more in a few weeks in New York. But we're very, very happy with all the initiatives and the organic investments we've made to build out those capabilities. And then we've augmented that with 2 acquisitions of very, very strong wholesale platforms with each of SRS and GMS. Now your question specifically on fixed cost structure, what's interesting, we've mentioned this several times, the organic effort is reasonably asset-light. This -- regardless of whether we lease our DCs or not, the capital deployed in those DCs is first and foremost for general store replenishment. And it's an added benefit that we're able then to deliver to the customer out of those buildings. And as Richard said, the speed equation is a flywheel that works and all our investments in our direct fulfillment centers regardless of what we're doing with the Pro, that's to serve all customers and increase the speed, which we have done very effectively. And then all the other related operating costs, we have variable incentive pay structures for our outside salespeople. We lease trucks and we add trucks and take trucks away from markets as volume ebbs and flows through the season. So really, other than an IT spend, which is modest investment in the scheme of things, there's not been a lot of incremental fixed cost put into the business to support the Pro organic initiatives. Operator: Our next question comes from the line of Christopher Horvers with JPMorgan. Christopher Horvers: So I wanted to follow up on the implied 4Q operating margin question. It looks like you're saying about 10.3%. Did you say that 50 basis points of that was the 53rd week lap? And is there anything like unique that we should think about that this is not -- this is or is not the right level to start to think about building the business as we look to the out years? So for example, 53rd week lap or perhaps the seasonality of the SRS and GMS business structurally changing the normal flow of operating margin over the year? Richard McPhail: Yes. Thanks, Chris. I would use our full year guide as the appropriate jumping off point. I think Q4 has a couple of items of noise. The first was the 53rd week. The second actually is the shape of the business. And if you look, you can actually see, for instance, the public filings of GMS when they were a public company and see the Q4 or rather our Q4 is a significant low point from a volume perspective. That's true for SRS as well. And so SRS and GMS see seasonal swings that are greater than Home Depot. You're going to just see that amplified if you hold Q4 in isolation. And so that's why I would really point you to full year as the right jumping off point for your modeling. Christopher Horvers: That's super helpful. I mean if you step back about the... Richard McPhail: The 53rd week is a year-over-year contract. So it doesn't impact your 2025 numbers, but it does impact the year-over-year. Christopher Horvers: Got it. Makes sense. If you think about this quarter, I mean, if you look at the monthly basis, even with the really tough weather/hurricane-driven compare in October, if you also look at the last -- the first 3 quarters of the year, the 2-year trend seems to be improving on the line, which points to replacement cycle demand and maybe some pricing and just life moves on. I guess -- and then there's some research out there that points to maybe the consumer is waiting for the full effect of the head. We have a couple of meetings coming up, and you had all this noise with a government shutdown that impacted even retailers that sell milk and eggs and take share every day. So why wouldn't we think that the launch point into 2026 is sort of 1 or if not better than this 1% sort of underlying demand just because uncertainty goes away, full effect of the Fed, housing stock ages and life moves on and replacement cycle demand continues to build. Edward Decker: Well, yes. And Chris, another positive add, there'll be more robust tax returns and the tax rates going into effect in '26. So yes, there's a positive story there. But again, the underlying 1%, that is what it was. And this ongoing consumer uncertainty we're talking about and specifically housing turnover and now price, those are near-term and newer phenomenon. Richard McPhail: Let me -- Chris, I mean, I'll just circle back. I was focusing on your question in context of Q4 being a jumping off point and thinking about 53rd week. Let me add something, though. When you pro forma GMS, we do need to take that into account. So on a pro forma basis, recall, we've sort of guided you to within The Home Depot numbers now with SRS included, SRS changes our margin profile by about 80 basis points of gross margin and about 40 basis points of operating margin. GMS, which was about half the size of SRS is about half the impact. So you've got a pro forma, this is not fiscal year, but a pro forma impact of about 40 basis points of GMS and about 20 basis points -- and about 20 basis points of operating margin for GMS, so 40-20. You add those together, you roughly have a change in our profile with both of them together of 120 basis points of gross margin and 60 basis points of operating margin. Now when you're talking fiscal year 2025, obviously, we have some wonkiness in the comparison periods. We've owned SRS for a full year of 2025, but only owned them a partial year in 2024. We will own GMS for about 5 months in 2025 and own them for no months in 2024. So I'm just going to avoid all the steps in the math and tell you, on a fiscal year perspective, you've got about a 55 basis point impact to gross margin year-over-year, reflecting the ownership of both SRS and GMS and about a 35 basis point impact to operating margin mix, reflecting the year-over-year comparison of those ownership periods of SRS and GMS. We'll clarify this more just one more time when we move forward and in the future, talk about future years. But hopefully, that gives you a little bit more clarity. So I do want to put an asterisk. The jumping off point is our full year guidance, but you also have to include that comparison or rather the full year impacts of GMS next year. Christopher Horvers: Right, offset by a tick of transaction fees. Richard McPhail: That would be correct. Yes. Operator: Our next question comes from the line of Zhihan Ma with Bernstein. Zhihan Ma: I wanted to follow up on the complex Pro and GMS side. So firstly, a short-term question on the $2 billion contribution to sales from GMS this year. I think if we do the math based on the reported numbers last year, kind of implies a high single-digit percentage decline on a year-over-year basis. I don't know if I completely got that math right. If that's true, how much of that is macro weakness versus underlying share dynamics? And is there any additional color you can provide on that underlying market? Richard McPhail: So basically, you're owning it for a quarter plus 8 weeks, and you're heading into the lowest -- the lowest quarter of the year for GMS' fiscal year. There was also weather impact across Home Depot, SRS and GMS. No one was immune to the broader weather impacts in the market. And so $2 billion is an approximation. We know that GMS continues to take share. We continue to take share as an enterprise and particularly in all of GMS' categories, and we feel great about that business going forward. Zhihan Ma: Got it. And then a long-term question, to your point about the current margin dilution impact from the acquisitions. Now is there a long-term argument that as you further consolidate -- I assume as you further consolidate in the complex Pro space, is there a path for you to structurally improve or recover your margins as you start to gain more bargaining power versus suppliers? Edward Decker: Well, there's structural differences in the margins of the wholesale business in retail. I mean, at the highest level, retail would have higher gross and lower operating cost in the inverse with wholesale. Of course, as we drive synergies between the 2 platforms and the most important synergy is the cross-sell and the value proposition to the Pro, we'll be able to leverage incremental sales in both retail and wholesale platforms to leverage the businesses. And of course, just operating efficiencies across a larger scale business will be able to drive efficiencies as well. But the fundamental difference of wholesale margin structure and a retail margin structure would be the case going forward. Those wouldn't dramatically change. Operator: Our next question comes from the line of Seth Sigman with Barclays. Seth Sigman: I had a couple of follow-up questions. Just first on transactions slowed while ticket accelerated this quarter. Just curious, how do you read that? Are there any signs of elasticity? Maybe just elaborate on price changes that you made in the quarter? Or is the slowdown in transactions just really storm related? William Bastek: Yes. Thanks, Seth. It's Billy. I'll answer your last question first. As it relates to the transactions, that was really related strictly to the storm impact that we called out. As I mentioned in our Q2 call after some policy changes were made around tariffs that we would take some moderate price moves with the entire strategy to make sure we protected the project. And so as it relates to elasticity, it's a little early. And then you couple that with a lot of dynamics in the marketplace over the last 60 days, 90 days since our last call, it's a little early to say how much of that is going to -- the elasticity piece will play out. I'm thrilled with the work that the team has done. If you go into our stores right now and look at Gift Center and all the value that we have there and certainly with our holiday program, same thing. So we're watching that. Again, our entire goal was to protect the project, and it bears also to point out that over 50% of our inventory is not part of tariffs and is obviously sourced domestically. So we'll continue to watch that and look forward to the Q4. Seth Sigman: Okay. And then just a follow-up on some of the demand comments today and what seems like a more cautious view on the consumer. I'm just trying to figure out how to reconcile that with big ticket still outperforming. You've had a few quarters of big ticket being positive that continued this quarter. And I guess just based on what you've seen historically, should that be a leading indicator for big projects that have still been pressured? How do you think about that? William Bastek: Well, I mean, you pointed out correctly. And in my prepared comments, I talked about big ticket transactions over $1,000 or positive 2.3%. But I wouldn't read into that from a project standpoint. Think about appliances, think about power tools and some of those pieces. Those are individual items as we've kind of talked about that metric in the past versus more of the project-oriented pieces that customers are still challenged with based on all the things that we've talked about earlier. Edward Decker: I think some of that -- some of the big ticket as well, we've called out the pressure on commodities overall. But some of that big ticket is the success in our Pro initiatives. I mean the managed accounts, the activity that Mike Rowe and team are driving to capture more share of larger Pro complex purchase. That is also driving that. So it's not so much that it's an indicator of demand as it is an indication of our taking share in bigger ticket pro-oriented project. Operator: Our next question comes from the line of Chuck Grom with Gordon Haskett. Charles Grom: There's a lot of talk about a K-shaped economy right now, but we're starting to see more evidence of job losses for white collar employees. So I guess I'm curious when you look at your data, is there anything you see that supports more fatigue in your upper income customer base? And I guess as a follow-up, anything regionally that you'd call out over the past couple of months? Edward Decker: Well, I think that regionally, the most acute difference, again, is the storm and weather patterns. On the larger or the higher income cohort, we don't see anything specific. As Billy said, there has not been a lot of trade down, and we've talked in the past, things like countertops, there's been some trade down, but we have still not seen trade down across the broader assortment in the store. If there's an indication of maybe some fatigue in taking on bigger projects, we have seen Pro backlogs and larger backlogs start to diminish a little bit. So our pros are reporting months that they're booked out. As we know some time ago, you couldn't find a pro. And then they all had full books, and we're seeing a little softening in larger project backlog. I can't say we've tied that directly to an income cohort, but we've definitely seen the dynamic. Charles Grom: Okay. And then just, Richard, can we just double-click on the opportunity to improve the margin structures of both GMS and SRS? It sounds like 30 -- 35 basis points of pressure this year. You probably have some wrap of that into '26. But just like broader picture over the next few years, I mean, how should we think about the improvement line for those 2 businesses? Richard McPhail: Well, we don't like to separate them out. While they do operate independently, as Ted said, the name of the game here is synergies and synergies in the form of cross-selling. And so I think the leverage in the businesses is going to be a function of how we create a differentiated value proposition across the entire enterprise, including SRS and GMS. So look, SRS, the combined entity is an engine for growth for The Home Depot. And so we're just getting started. So I wouldn't put a formula on it, but it's all going to be a function of how fast we can drive cross-sell. Operator: Our next question comes from the line of Steve Forbes with Guggenheim. Steven Forbes: Maybe, Richard, on the idea of cross-selling, would love to sort of hear high-level thoughts on -- I don't know if you can like rank order how you guys see the cross-selling opportunities today now that GMS is integrated. So what are you sort of building the business for from a cross-selling standpoint as we head into next year? Like rank order the opportunities would be great. Michael Rowe: Yes. Amit, it's Mike here. Thanks for the question. We see just from the relationships that have already been established between the outside sales force that we've got here within Home Depot, combined with the sales forces that they have originally with SRS and now with GMS, there is account handoffs that happen. So a great example, recently, with GMS engaged in a large roofing sale on a property, the customer was looking for much more in terms of product, in terms of whether it be framing, flooring and more. And that relationship then that SRS introduced to The Home Depot outside sales force to come in and sell that engagement to the contractor worked quite successfully. And that's just one example of many that have happened, and they happen both ways, whereby The Home Depot sales organization recognizes a large roofing opportunity that they can pass over to SRS or a large drywall opportunity that they can pass over to GMS, and those engagements are happening on a daily and weekly basis. Steven Forbes: And then just a quick follow-up. I was hoping to maybe explore the branch growth opportunity across SRS, GMS and Heritage. So I don't know, Ted, if you can provide a current update on branch counts across the various assets. And then like what's the right way to think about or think through the out-year branch growth opportunity? And I don't know if you can sort of talk about like what's the end state as you see it today versus the 1,200 you have today? How do we sort of think about the footprint evolving over the next 3, 5 or so years? Edward Decker: Yes. We'll certainly go into a lot more detail in a few weeks. But the model that SRS deploy is very similar to GMS that they'll drive organic comp growth through existing branches. They open greenfield branches. And then they'll focus on tuck-in customer list expansion-oriented acquisitions. And they've been doing that quite successfully. On the branches, think of SRS GMS, 40 to 50 branches a year, and they've been sort of running at that pace since we acquired SRS. And then they've done a handful of little tuck-in acquisitions. And again, these can be a 1 branch, $5-ish million acquisition or a smaller regional $30 million, $40 million, $50 million, a couple of few branch operations. So it's going really, really well, and we see that continuing with a key part of the business model. Richard McPhail: And I mean, just to -- it's not just about our plans. It's actually happening right now. If you talk about our non-comp sales, putting new stores and new SRS branches together, you've got about 0.5 point of sales growth driven by those 2 investments. And so we're thrilled with that. Isabel Janci: Christine, we've time for one more question. Operator: Our final question will come from the line of Steven Zaccone with Citi. Steven Zaccone: I wanted to follow up on the storm impact. So it sounds like it was 80 basis points of the third quarter pressure to same-store sales. How large will that be in the fourth quarter? And then we should be mindful of that, that that's also a headwind to think about in the first half of next year? Richard McPhail: Well, thanks. As Ted said, the underlying demand for the business was sort of similar Q2 to Q3. If you talk about storm Q3 to Q4, we absolutely are lapping strong results, in fact, even slightly higher sales last year in Q4 than Q3. Let's call it relatively even. So let's say, you basically, if you've got underlying minus the storm impact, you've got pretty much similar run rates for Q3 and Q4. Steven Zaccone: Okay. Understood. And then your comments on the housing pressure, how does that inform your maybe near- to medium-term outlook for SRS and GMS, right? Like these are new assets for Home Depot. So should we think that original expectation of mid-single-digit growth for SRS stepping down to low single digits? Is that kind of a run rate we should consider for the near to medium term? Edward Decker: I mean I wouldn't say that. We'll talk more about this in a few weeks. But the first thing to remember is SRS is much more in the reroof than new construction. So they're 80-plus percent reroof. So yes, their 15%, 20% of the business that goes into new construction is impacted. But the fundamental business is reroof activity, again, which is why it's disproportionately impacted with storms, particularly in their home and biggest market, which is Texas, which is by far, we think of hurricanes, we think of hail and other wind events. There was none such in 2025. So no, we look at SRS as a long-term mid-single-digit grower. And this is principally a storm impacted dynamic that's taken them down to flattish right now. But as Richard said earlier, we think roofing shipments, you can see this by reported data, roofing square shipments into the market are down mid-teens and SRS was flat. So clearly taking share. Operator: Ms. Janci, I'd like to turn the floor back over to you for closing comments. Isabel Janci: Thanks, Christine, and thank you all for joining us today. We look forward to speaking with you at our investor conference on December 9. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Chris Hunt: Good morning. Thank you for joining this webcast covering ICG's results for the 6 months ended 30th of September 2025 and the strategic partnership with Amundi we've announced this morning. The slides are available on our website, along with both accompanying announcements. As a reminder, unless otherwise stated, all financial information discussed today is based on alternative performance measures, which exclude the consolidation of some of our fund structures required under IFRS. This morning, I'm joined by our CEO and CIO, Benoit Durteste; our CFO, David Bicarregui. They will give an overview of our performance during the period, and we will then take questions. You can submit these through the webcast message function or by telephone, details of which are on the portal. And with that, I'll hand over to Benoit. Benoît Durteste: Thank you, Chris, and good morning, everyone. It's a pleasure to reflect today on the progress ICG has made during the first half. And this is an even more exciting than usual results announcement. We're not only reporting impressive H1 results, we're also announcing a major distribution agreement and strategic partnership with Amundi. From a group perspective, our growing breadth and scale is continuing to drive visible benefits for our clients and shareholders. And our deliberate tilt over the last decade towards higher returning strategies is clearly bearing fruit. Our track record and reputation for an unwavering focus on risk and investment performance are key factors in our recent success. Institutional clients are increasingly scrutinizing performance and in particular, realized performance or DPI. In a market where a number of players' pursuit of AUM and volume is leading to some unreasonable risk taking in our view, predominantly but not exclusively in credit and private debt, our clients recognize that we remain at heart investors squarely focused on consistency of performance through cycles. All of which means that we see substantial opportunity to grow our existing strategies and our institutional client base. This will drive significant organic growth in the coming years. And we are also well-positioned strategically and financially to continue to innovate new strategies and products where we see opportunities. These strong growth prospects are further enhanced by the announcement today of our strategic partnership with Amundi, which is a meaningful step forward in the development of our wealth strategy and will help shape appropriate product offerings for that market. It's an incredibly exciting opportunity, potentially very additive to both parties, and I'll speak about it further later in this presentation. I'll start with a few highlights on the last 6 months. Fundraising of $9 billion surpassed our expectations coming into the year with Europe IX raising more quickly than we had anticipated and Infrastructure II having a very strong run into its final close, achieving hard cap at more than double the size of the previous vintage. Our secondaries franchise continues to excite us in an area we have built entirely organically and which is now our third largest asset class by AUM. We are in the market with the subsequent vintage of LP secondaries, so Vintage 2. We are launching a European evergreen secondaries vehicle, and we are also launching a mid-market version of our strategic equity fund, which is our GP-led secondaries strategy in order to further cement our global leadership position in that asset class. On the financial side, fee-earning AUM now stands at $84 billion, up 6% in the last 6 months on a constant currency basis, and we have substantial dry powder to continue our investment programs. Management fees for the 6 months were up 16% at GBP 334 million, while expenses are being well managed and demonstrating operating leverage. At a group level, our operating cash flow was up meaningfully at GBP 450 million. So in short, we're enjoying significant growth and cash flow generation. Putting that into a longer-term perspective, you could see how our business has evolved rapidly over the last 5 years and the financial impact that's having. On the left-hand side of this chart, we set out our growth by asset class, which has been diversified, but really driven by higher return strategies in structured capital, secondaries and real assets equity. Private debt in comparison has grown but at a slower pace and remains an area where we continue to be highly disciplined, prioritizing long-term performance over aggressive deployment. We have attracted substantial capital into these higher returning strategies, leading to almost doubling our fee-earning AUM over the past 5 years, entirely organically. And we have grown our weighted average management fee rate from 85 bps at March '21 to just under 1% today. As a result, we are larger, more diversified, more resilient and more profitable. A key theme of our strategy has been scaling our higher return strategies, specifically private equity secondaries, structured capital, real assets equity, that's real estate equity and infrastructure equity. This takes time, but the successful execution of this is clearly visible in the middle of this page. In March '21, these strategies represented 1/3 of our fee earning. Since then, they have grown by 3.2x. That's compared to doubling of fee-earning AUM at the group level. And today, they represent 57% of our fee-earning AUM. From a purely financial perspective, this has been the key driver of the growth in our management fee rate I just spoke about and of course, our operating margin. But the broader rationale is arguably more important. These strategies are inherently more complex with higher barriers to entry. And this allows us to differentiate, generate outperformance for our clients, demonstrate our investment excellence, and in the process, charge higher management fees on committed capital as well as generate over time, more performance fees. These strategies are also harder to commoditize, which will help protect management fee rates and is reinforcing ICG's brand equity with our clients. These are not volume vanilla products. And what is particularly exciting is that all of these funds or strategies have significant room to grow organically for years to come. As a result of this shift, the future value of our fee-earning AUM is materially higher than 5 years ago. It is earning higher fees and is more relevant to clients' wider markets portfolios. Today, we are proud of our European heritage and of our global reach. We have presence in 18 countries, attract capital from clients around the world and invest in all the largest geographies for private markets, including 1/4 of our deployed capital being invested in the U.S. From a product perspective, we have a number of leading positions in structured capital, GP-led secondaries, European direct lending as well as an exciting array of earlier-stage strategies, including in real assets. And this has not been by chance. It is anchored in some very basic beliefs about what it takes to succeed in the long term, which is one, a focus on investment performance, always; two, a waterfront of strategies that provides something different to clients; and three, a platform that is scalable to be relevant to the largest investors globally. I'm proud that today's results show how we are continuing to build that at ICG, how they help underline the success of that execution to date and how they help demonstrate the opportunity ahead of us. Turning now to the current environment. Fundraising across the wider market remains challenging. Global private capital raised this year is likely to be lower for the fourth consecutive year. And to quote a recent Bain Report, fundraising has never been so hard. The statistic that there is about $3 of demand for every dollar likely to be raised is remarkable. It has existential consequences for many managers, some of whom simply are not and will not be able to raise capital. We're already seeing some firms effectively going into runoff or shrinking substantially, and I expect to see more of that. This will incidentally create some opportunities at the very least for hiring new talent, and we are already benefiting. One of the consequences of this is that LPs are increasingly selective with many looking to diversify towards Europe and focusing both on certain strategies such as structured capital and real assets as well as being very focused on investment performance and DPI in particular. For firms such as ICG who have a range of products and we're able to raise capital, doing so is reinforcing our position with clients. Stepping back, the real takeaway from this is that although the market has been challenging for a few years now, for firms such as ICG who have a range of products and are successfully raising capital, this is a very good time to differentiate, gain market share, and it is allowing us to set the firm up for even greater long-term success and growth. I mentioned the strong focus of investors on realized performance or DPI, how quickly you return cash to clients. And here is a slide that I showed at our Investor Days in London, New York, and Tokyo this past September and October. And this slide really resonates with our clients. To have this number of strategies as top decile or at the very least top quartile from a DPI perspective is highly unusual. It's very impressive. It's a track record we're incredibly proud of and a quantitative validation of how our focus on investment performance is delivering for clients. Importantly, this is not by chance, right? It is not new to ICG. Our investors know this well. Those of you who have known us for some time will have heard me speak about it many times in the past, how discipline in realizing assets, derisking funds is key to consistency of performance over a long period. Discipline, a consistent focus on risk return performance, not just return. This is what makes a real difference with investors today. The result of all this is that we are continuing to see strong client demand, and that's reflected in our fundraising. We have raised $9 billion in the last 6 months, which is particularly noteworthy, not just because we have surpassed our expectations, but because as we have previously indicated, we are this year and next at a structurally lower point of our own fundraising cycle. Europe IX continues to raise well with $2.8 billion raised in the period and the fund now standing at $7.5 billion, so well on the way to meeting or exceeding the previous vintage, which was just over EUR 8 billion. Infrastructure II held its final close in the period at EUR 3.15 billion. So that's over 2x larger than the prior vintage. It has been a standout success. We had a re-up rate of 85% and attracted capital from a wide range of clients. 1/4 of the capital came from North America, reinforcing the growing strength of our brand there and the appeal of high-performing European products for certain North American investors. From a shareholder perspective, we reduced the balance sheet commitment from EUR 200 million in Fund I to EUR 150 million in Fund II, so moving from 13% of total fund size in the first vintage to under 5% in Fund II. More broadly, over the past 15 months, we have had five funds close at or above their hard cap and not just flagship scaling strategies as well. In any environment, that would be remarkable. But in this environment, with fundraising under such pressure, as we discussed earlier, that's a real achievement. All of which comes from and supports our client growth. We have continued to attract new institutional clients during the period. Since we announced our fundraising guidance in May '24, 43% of new LPs came from North America and 9% from the Middle East. And looking ahead, we will continue to broaden our reach through innovating new products and diversifying our sources of capital, always with an absolute focus on developing products that are appropriate to those channels where we can deliver attractive investment returns. Today, as part of that continued broadening of our client base, we're excited to announce a long-term strategic partnership with Amundi. This partnership significantly accelerates our ambitions in the private wealth space and combines ICG's investment expertise and track record of product innovation with Amundi's global distribution capabilities and structuring know-how. We have historically taken a much more cautious approach to the wealth channel than most of our peers. While there is obviously an enormous potential for capital raising, we have also seen how it can shift investment priorities of GPs towards a more volume-driven approach to the detriment of performance, which is precisely at the opposite end of the spectrum of what ICG is about and what we want to be, uncompromisingly focused on investment quality, risk and performance. And this is where the partnership with Amundi is incredibly exciting. We have found that we have a like-minded approach to investment to delivering the best results for end clients. We share key values, and this is essential for the success of our collaboration. Our common goal is to be an important force in shaping access for individuals to private markets investments while maintaining an unflinching focus on generating attractive risk-adjusted investment performance. We see a significant long-term opportunity to develop a range of products appropriate to the wealth market and believe that together, we have the right complementary capabilities to execute on that. I'm convinced that by working together in this way, we can create significant value for our clients and respective shareholders. As you're well aware, Amundi is the largest European traditional asset manager, one of the largest globally with some EUR 2.3 trillion of assets under management and access through its distribution network to over 200 million individual clients. It is the ideal partner for ICG in this transaction, bringing scale, access, and expertise that are highly complementary to our own existing capabilities. Looking at the two components of the partnership in a bit more detail. The commercial agreement, which covers distribution and product structuring will have an initial term of 10 years. Our immediate focus will be on developing and launching two evergreen funds, one for LP secondaries and one for private credit. Globally, outside of the U.S. and Australia and New Zealand, Amundi will be the exclusive distributor in the wealth channel for ICG's Evergreen and certain other products with ICG being Amundi's exclusive provider for those products to Amundi's distribution business. Over time, we will seek to develop more products and strategies that are well suited to the wealth market. And this is a very exciting long-term prospect of this partnership. We see a real opportunity to shape the market to ensure that products are appropriate and deliver what investors are looking for, structured in ways that enable returns to be generated over the long term. To align our interest and reinforce the long-term nature of this partnership, Amundi will acquire a 9.9% economic interest in ICG in a way that is non-dilutive to our current shareholders. The structure is set out in brief here and in more detail in the appendix and in the RNS we released this morning on this partnership. As part of this, Amundi will be entitled to nominate one non-executive director to our Board, and I look forward to working with that individual and the wider Amundi team to make a success of what I consider to be a meaningful alignment of two leading European-based firms to help shape the wealth market for private investments in the years to come. So looking ahead, future -- our future growth has a number of encouraging tailwinds. Our waterfront of strategies is significantly exposed to some of the fastest-growing asset classes in private markets, providing a constructive backdrop for our strategies. I'm very positive on the long-term opportunity ahead of us and our ability to execute on that, a trajectory that is reinforced by the results we are reporting today and the partnership with Amundi. And with that, I'll pass over to David. David Christopher Bicarregui: Thank you, Benoit, and thank you all for joining us today. I'm pleased to report that we have published strong results this morning with growth across key financial metrics. Fee-earning AUM grew 6% on a constant currency basis, ending at $84 billion. It has grown every year in the last 5 years in dollar terms and over that period has increased at an annualized rate of 14%. In the past 6 months, we have raised $5 billion for strategies that charge fees on committed capital and deployed $6 billion in strategies that charge fees on invested capital. We also have $19 billion of AUM not yet earning fees, largely in private debt, which has the potential to generate approximately GBP 130 million in additional management fees. Our visible recurring management fees remain the key driver of revenue growth. As of the 30th of September, management fees reached GBP 334 million for the last 6 months, an increase of 16% year-on-year. As we discussed in October, performance fees are becoming an important contributor to our revenue mix, reflecting the growth of higher return strategies that Benoit described earlier. In the period, we recognized total performance fee revenue of GBP 98 million, including the one-off impact of GBP 72 million due to the change in recognition method. We received GBP 62 million of cash from performance fees, up from GBP 40 million in H1 of last year. Our total balance sheet returns for the period were GBP 112 million, up 57% compared to the previous year. And preempting the inevitable question on first brands, the impact was minimal, less than GBP 5 million, and the assumptions on our CLO valuations provided by third-party valuation agent are broadly unchanged compared to March. Stepping back, the revenue profile in the period underlines the trajectory that Benoit spoke about earlier. These results reinforce our continued successful long-term execution. Over 70 -- sorry, 60% of our revenue in the last 6 months is from management fees, which have grown at an annualized rate of 19% over the last 5 years and over 80% of our revenue was fee-based. As we continue to scale up and scale out our investment strategies, I expect this trajectory to continue with the balance sheet remaining an important asset to enable this growth while becoming less meaningful to our revenue mix. Group operating expenses have grown 1% year-on-year. Over the medium term, we would still expect these to grow at mid-to-high single-digit percentage. We are clearly seeing operating leverage come through as our funds get bigger and we raise subsequent vintages, benefiting from the compounding fees on fees profile. This is a theme we've spoken about a lot in recent years, and it's very visible when you compare the 11% annualized growth rate of OpEx over the last 5 years to the 19% annualized growth of our management fees. The combination of management fee centricity and operating leverage is even clearer if we look at it on an FRE or fee-related earnings basis. This metric takes our management fees and deduct all of our group cash costs. The precise methodology is in the appendix. There's no entirely consistent market approach, and the team can certainly talk you through this offline. But over the last 5 years, our FRE has grown at an annualized rate of 26%. What this serves to highlight is the visible growing earnings power of our management fees, the operating leverage we achieve as management fees grow, and given its cash is a highly valuable earnings stream for shareholders. Over time, FRE growth is an important indicator of how successfully we are executing our strategy of scaling up and scaling out. The Amundi partnership we announced this morning is a great example of scaling up our credit and LP secondaries platforms. Management fees generated as a result of this partnership should have strong flow-through to FRE given our high embedded operating leverage. And over the long term, our combined ability to develop new products that are suitable for the wealth market will help to further diversify and grow our management fee base, which again should be visible in our FRE growth, all of which underlines why we think this might be an interesting metric to look at. And of course, we welcome feedback. As well as our higher earnings, our growing fee income is generating increased amounts of cash, and our balance sheet is structurally cash flow positive. In the last 6 months, we generated operating cash flow of GBP 450 million, up 143% year-on-year, driven by higher management fees, realized performance fees, and total balance sheet returns. We ended the period with total available liquidity of GBP 1.3 billion, net debt of GBP 401 million and net gearing of 0.15x. During the period, Fitch upgraded our credit outlook to BBB+ Stable, and we are now rated BBB+ Stable from both agencies. NAV per share as of the 30th of September was GBP 9. We have ample liquidity and financial resources, which we can use through market cycles to pursue our strategic ambitions of reinforcing our relevance to clients by scaling new strategies and new products. The current market backdrop is a great opportunity to reinforce our position as a global leader, and we're doing just that. So drawing this all together, our ability to deliver breadth at scale is having clear benefits, which are visible in our financial results. Since September 2020, ICG has generated over GBP 2.3 billion of cumulative earnings with nearly half returned to shareholders via dividends. We have a clear and disciplined approach to capital allocation, focused on generating recurring and sustainable growth for shareholders. And I look forward to discussing these results and our outlook with many of you in the coming weeks. So with that, I'll hand it back to Chris for questions. Chris Hunt: Thank you, David. Thank you, Benoit. [Operator Instructions] And we have a few questions already on the phone, so should we go first of talk to Oliver Carruthers from Goldman Sachs. Oliver Carruthers: I've got two questions from my side. The first one on the Amundi partnership. When you think of the scope and depth of private markets for Amundi's 200 million wealth clients, what level of penetration do you think this partnership could be taken to, particularly, Benoit, given your comments on product appropriateness, but also the direction of travel the industry seems to be -- it looks like it could be kind of moving towards in terms of potentially combining public and private investment content into a single product. So that's the first question. And then the second question, maybe a 2-part question on private equity secondaries. Obviously, an asset class with a lot of growth. First part, could you talk to the mid-market strategic equity launch in terms of both the timing and the scale of the opportunity? I think this probably has a potential to be pretty accretive to FMC economics because its investment capabilities and deal flow that lines up with your existing strategic equity franchise. And then second part of the secondaries question, your comment, Benoit, on industry consolidation in fundraising and the potential for some GPs to go into runoff, LPs will obviously be quite sensitive to this. So how do you think about that comment as you're growing your LP secondaries franchise? And do you expect this will create investment opportunities on the LP-led secondary side? Benoît Durteste: Thank you. I think that was three questions, practically put into two. So -- and the first one is quite broad. So your first question on the scope and depth of the wealth market for private assets. I mean, it's early days. And so no one really knows. But in theory, the potential is considerable because up until now, wealth and more broadly retail clients have not had access or very limited access to private assets, which has created a very meaningful divergence between the portfolio composition of institutional investors and that of the wealth channel or more broadly the retail channel. So the potential there is undeniably very significant. But as you rightly pointed out, you mentioned the potential need to structure a product by potentially mixing some private and public. I think a lot of the growth will be dependent on our ability to structure those products, which is why I'm so excited by the partnership with Amundi because they're thinking exactly along the same lines. I think by and large, today, what the market has done is try to chew on illiquid private products into the channel. And there are significant limitations and perhaps risk as well to that. But it can be structured in the right way where you're providing some liquidity without losing some of the key advantages of private asset investments. And so that's what we're -- that's clearly what we're going to be focusing on. In a sense, we're going -- initially, we're going for the relatively low-hanging fruits, the easy wins in areas that are structurally more liquid or offer more liquidity, such as credit and LP secondaries, but there's much more that can be done and that we've already started discussing. So I'm very excited. But I mean, you know us, we never want to overpromise and these things can also take time. But if I think long term, I think this partnership has enormous potential. And for us, it's really important that we're not just part and benefiting from this shift because there are many ways in which we could have benefited from this long-term shift, but that with and we'll be able to actually influence it to actually craft or steer the market in a direction that we think is the most sensible. On -- your second question was on key secondaries, and we don't talk about potential size of fund. But yes, you're right that this should be very accretive because it's not very difficult for us to roll out a mid-market version of our strategic equity strategy, very much in the way we've done that for European corporate. But having said that, I always a word of caution, even though we are the global leader in the space, and we benefit from a very strong track record, it's still, in a way, a first-time fund. So we always have to be a bit cautious about the speed of fund raise for that. But yes, medium term makes a lot of sense. It should be very accretive. And for us, strategically, it matters a lot as well because it enables us to essentially occupy the whole space in terms of size and so that we keep maintaining the first-mover advantage that we have in that asset class. So yes, very promising. And finally, you squeezed in a third question on some of the shakeup in the industry with some players will clearly struggle or already struggling. Will that generate opportunities in the secondary space? Perhaps. I'd be somewhat cautious there because if you think about it, we operate in two segments of secondaries, one which is the more traditional LP secondaries. And typically there, you want to be looking at strong managers with strong assets. Can you develop a more distressed play as part of that? Perhaps, but I'd be wary of that. I mean if a manager has underperformed and gone into one-off, there's probably a good reason. So not so sure for LP secondaries. And likewise, in GP-led secondaries, you clearly want to be backing only very strong assets with very strong managers. So if there are opportunities that come out of some pain in the market, I think it might be a more direct investment potentially in our structured capital strategy. This is where potentially we could see some opportunities. And depending on how broad-based this phenomenon is, we might revise our recovery fund, which we dust off every time there is a bit of a market crisis, but we're not there yet, right? So this is maybe in the future. Chris Hunt: Thank you, Benoit. Shall we keep on the phones for now? And should we go to David McCann at Deutsche Bank, please. David McCann: Congratulations on the results from the deal. So sticking with the theme largely of Amundi for the first questions really. Amundi on their own slides are talking about 5% EPS accretion linked to the ICG deal from 2028. Is this purely just their share of the profit from their anticipated 9.9% ownership? Or can we read anything into that in terms of the partnership ambition with that? And also sort of linked to Amundi, noting that this is excluding the U.S., would you be looking for a similar partnership in the U.S.? Or how would you -- how do you anticipate to address the U.S. market? That's really the first question. Second question is a more technical one probably for David. Can you just help us understand the CLO dividend income is obviously very strong in the period, much more so than normal, but that contrasted obviously with some mark-to-market credit losses. So how could we kind of square the circle? Why are we seeing sort of good news on one side, but then sort of bad news on the other side of what is obviously a related piece. Chris Hunt: Thanks, David. That was again three questions under the pretending to two. I'll take the first one very briefly. No, you can read nothing into that number. That's a question for Amundi, but there's nothing you can read into that figure as regards to partnership at all. Benoit, do you want to pick up the sort of the wealth strategy in the U.S.? And then David, maybe you talk about the CLO question. Benoît Durteste: Sure. So a couple of things. One is even though we've generally been more cautious. We haven't been standing still. So we have been addressing the wealth channel in the U.S. for a number of years. You may remember that we were an early investor in case, which is a distributor. We still are, by the way, and that's been -- in itself, that's been a very, very good investment for us. But obviously, that's one way for us to deploy, particularly in secondaries, both GP-led and LP secondaries. But also, I mean, we've had relationship with a number of banks, of large banks distributing a number of our strategies in the U.S. and that is -- that will continue. I think the exclusion here reflects the fact that this is not a geography where we has significant presence. So yes, so that's the answer on the U.S. part of our strategy. David Christopher Bicarregui: Yes. And then, David, on your more technical question about CLOs, I mean, as you said, I think you have to look at this in the round. The total returns across all the asset classes on the balance sheet were positive, including the credit business stripe. As you say, dividends are actually a little higher than where they've run historically, that tells you more about the performance of the underlying funds being good and performing in line with expectations, hence, the generation of dividends. And we'll continue to mark the book in accordance with the third-party model. And there's nothing certainly in the data that gives us any broader concern at this point. Chris Hunt: Hubert Lam from BofA. Hubert Lam: I've got two of them. Firstly, on Amundi again. So how much could the Amundi partnership bring you think in terms of flows over the next few years? How should we think about the opportunity here? And when do you think we should start seeing meaningful benefits of flows starting to come through? First question. The second question is on, again, the balance sheet and net investment return. Again, it was pretty -- it was at 5%, I think, for the period. So when do you think we can start getting back to the high single-digit or low double-digit growth, which you're targeting over the midterm? Benoît Durteste: Well, I'll take the first question, but I think that's the same question as from Oliver at Goldman Sachs. So I'll make the same answer. I think the long-term potential is very significant, but I'm always cautious about overpromising in the short to medium term, particularly since in a number of areas, essentially, we're going to be creating the market. So there are some -- I mentioned there are some easy wins. And yes, we'll benefit from that. But the biggest surprise is what we'll do in the longer term. That's where you'll see some very significant or potentially see some very significant impact. But yes, I think that's -- at this point, that's all that we can say. David Christopher Bicarregui: On the balance sheet, Hubert, I mean you know this, but the balance sheet is an outcome of how the funds are performing over periods of time. And again, we don't manage the balance sheet is an independent exercise. It's going to be what the funds perform over time. If you look at the NIR over time, 5 years about 9% now and total balance sheet return is about 11%. So clearly, over the medium to long term, it's reflecting fund performance as you'd expect it to. Benoît Durteste: And I think it might be worth reminding everyone, David, that -- I mean, as you said, I mean, the performance of the balance sheet has to be looked at over the long run because over short periods of time, what's mostly influencing it is our pace of deployment because increased deployment because we keep the valuations flat for -- typically for a year, when we increase deployment, it has a short-term negative impact on the -- or perceived negative impact on the balance sheet performance. But obviously, that evens out over time. Chris Hunt: [indiscernible]. We've had a quick question online around the status of fundraising for real estate equity. So as a reminder, we raised just over $1 billion in real estate equity in Europe during this half. But Benoit, do you have any broader observations or comments around the real estate fundraising market at the moment? Benoît Durteste: Sure. I mean it's been incredibly difficult these past few years because that is -- it is one of the asset class where the pain has been taken. Valuations have come down. And so LPs have suffered some significant losses or at least underperformance in their existing real estate portfolio. So generally, that creates a pause in the fundraising appetite. For us, that creates an opportunity because we did not have legacy real estate equity strategies or funds, which means that we don't have to be firefighting on older vintages. Essentially, we're starting from a clean slate. So it's a very -- our timing is very good in terms of establishing ourselves in the market. It's creating a window. But obviously, it takes a bit longer because the fundraising has been -- environment has been more difficult. It's starting to reopen. I think I mentioned during the presentation that some of the asset classes strategies that LPs are looking at right now, that includes real assets. There's increased appetite for real assets and real estate. And so we're starting to see that. So it takes time and it's early days for us, but I'm very confident that for us, the real estate asset class is going to be an area of significant growth in the next 5 to 10 years, and we're taking the cycle exactly at the right time. So we're starting to progressively see that it's speeding up. We're raising more. But I think fast forward 5 years from now, I mean, you'll see that our real estate franchise will be a bigger part of what we do. Chris Hunt: Thank you. One question online around the economics of the emerging partnership and how that will work. I'll take that. It will obviously vary by product. We obviously don't disclose terms of individual funds and strategies. But as David alluded to or mentioned earlier, we think over the medium term, this is a very exciting opportunity, and there's a lot of value to be created for all of the stakeholders involved in this, including the end clients. That's how we're thinking about the economics of that partnership. Another on the partnership, and this may be one for you, David. Look, the structure looks clear, the end outcome, 9.9% economic share, 4.9% voting rights looks clear. Would you mind just running through briefly the steps of how we're getting there from today to by the 30th of June 2027, please? David Christopher Bicarregui: Yes, sure, happy to do that. So actually, the best page, if you have it to refer to is probably Page 25 of our presentation, where we lay out a little bit more detail on the steps that will take place. As you can see, as we've discussed, through the steps, Amundi is going to acquire 9.9% economic stake. I think the key point here, though, is that there's no dilution to ICG shareholders and Amundi is going to be paying for all the voting and nonvoting shares using their own cash reserves. The first step is for Amundi to acquire 4.64% ordinary shares in the secondary market. Then ICG has agreed to repurchase 5.26% of ordinary shares to be canceled with Amundi then subscribing to non-voting shares that basically have the same economic ownership. So they happen in tranches over time. And as Chris mentioned, it will be completed by the 30th of June 2027. So ownership stakes, share buyback activities will be disclosed in the normal way as all of these steps progress. But I also want to emphasize the structure ensures no dilution to existing shareholders and no change to the ICG balance sheet P&L or cash position. Chris Hunt: Okay. Thank you. A couple of another question on the phone from Angeliki at JPMorgan. Angeliki Bairaktari: Just a couple from myself as well, please. First of all, with regards to the Amundi partnership, can you explain the rationale behind the exclusivity in distribution? We know that many of your peers in private markets actually distribute at the moment in Europe across several different distributors. So are you not limiting yourselves a little bit by just going exclusive with only one partner? And second question on Europe IX. You mentioned that the fund is now at EUR 7.5 billion. Can it exceed the EUR 10 billion target? And can you give us an update on when we should be expecting the final close of this strategy, please? Benoît Durteste: Yes. Thanks, Angeliki. On the I mean, the important part is that this is mutually exclusive, right? So are we limiting ourselves? Yes, you could say we could also distribute through others, but Amundi is by far the largest asset manager, traditional asset manager in Europe, and they're going exclusive with us as well. So I mean, it's -- I think it's incredibly valuable for both parties and should enable us to accelerate our position in the wealth market in a way that we would not have been able to had we gone through just normal commercial agreements on a fund-by-fund basis. And by the way, I mean, the way typically these agreements work is those distributors always ask for exclusivity at least for a period of time when they're distributing a fund. So even if you're going fund by fund, you're still giving exclusivity to JPMorgan, for instance. You've been distributing some of our products for a period of time. So no, I think it's only on that point, I think it's only positive. I think it's very, very positive for both parties. On Europe IX, we don't comment on ultimate target. The one thing I would say is that, as always, we're not obsessed with size. I mean, for me, the key criteria on the size of a fund is ability to deploy it well in a 3- to 4-year period. And so as always, when we're sizing a fund, we take a look at the speed of deployment in the first year or the first 18 months of the life of the fund, so in parallel with the fundraising effort, and we're right in the middle of that right now. And depending on that and our own assessment of the market, we either push the size up or we remain more cautious. It's too early to say. Chris Hunt: And just to build on -- Angeliki, just to build on the first question. This isn't going exclusive with one person, right? Amundi have got relation, a network of more than 600 distributors and over 200 million individual clients. So this doesn't limit us. This opens up a significant opportunity. So I think definitely, we're thinking about it in that way. We -- there's another question now online around private credit and how we see the deployment pipeline in private credit. Benoit, do you want to make some comments around that market as a whole? Benoît Durteste: Sure. So broad context is that the buyout market remains slow, certainly slower than it was 4, 5 years ago. And that has an impact on the credit and the private debt market because these markets are essentially aligned with the private equity buyout space. So that's for the general environment. Within that, it's obviously easier if you benefit from a long history and a large existing portfolio because those existing portfolios generate their own financing opportunities. If I look at where we deploy quite significantly in Europe, we deployed EUR 3 billion, EUR 4 billion per year. Actually, this year, we're on track to be at the upper end. But a significant portion of that, call it, 2/3 to 3/4 is by taking advantage of mining our existing portfolio. So that has a very big impact on our ability to deploy and deploy well. So that's a competitive advantage, if you will. Overall, it's -- we are cautious in this market environment. I mean, there are areas of the market where we feel it's overheating. It's probably more pronounced in the U.S. than Europe, but Europe is not immune. So we remain cautious in the way we deploy and particularly, we remain very cautious on the quality of legal protections and legal documentations where we're seeing in some instances, things that we find are unsatisfactory and so we stay with. Chris Hunt: And then two final questions online, both of which sound like possibly for you, David. First of all, FMC costs were flat year-on-year in H1. How should we -- can you just remind us, and I think you've mentioned this before, how should we think about growth in the medium term and cost base as a whole? David Christopher Bicarregui: Yes. So as I said in my sort of prepared remarks, I wouldn't read too much into a 1% change in cost base. There has been, as we mentioned in the presentation, there are quite a lot of cost discipline in the system. Our headcount is actually slightly down period-on-period. As we continue to scale the business up, we've made a lot of investments in the past that we've spoken about and actually, a lot of that is now in place. So that's a good and positive backdrop. But I'd still guide people to cost base increase more between the 5% and 10% range at this point because there'll be some seasonal effects anyway when you're looking at this over the 6 months. So that's how I'd guide for the future. Chris Hunt: And then what looks like the final question. FRE seems new disclosure this half. Could you sort of talk through a bit about the rationale and why now? David Christopher Bicarregui: Yes. So FRE, as I said, I think, is another way to think about our business. It's obviously one that many others use to compare asset management companies and their growth potential. So actually having a comparable metric, I think, in the public domain is helpful. Many analysts obviously do it already. So here's us explaining how we think about it internally. It brings together also a number of the themes I touched on in the presentation. If you think about our management fee growth of 19% over 5 years, cost growth of 11% over 5 years, it comes together into a very powerful FRE outcome. It's grown 26%. So for now and for the future, this is probably another one that we should watch and monitor, and we'll continue to evolve our financial disclosure as always, and I appreciate the feedback. Chris Hunt: Absolutely. And just for clarity, that's 26% annualized FRE growth over the last 5 years. With that, we have come to the end of the questions. So thanks ever so much for joining us, and this concludes the presentation. Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Ultralife Corporation Third Quarter 2025 Results Call. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Jody Burfening. Please go ahead. Jody Burfening: Thank you, Latanya, and good morning, everyone, and thank you for joining us this morning for Ultralife Corporation's Earnings Conference Call for the Third Quarter of fiscal 2025. With us on today's call are Mike Manna, Ultralife's President and CEO; and Philip Fain, Ultralife's Chief Financial Officer. The earnings press release was issued earlier this morning. And if anyone has not yet received a copy, I invite you to visit the company's website, www.ultralifecorp.com, where you'll find the release under Investor News in the Investor Relations section. Before turning the call over to management, I would like to remind everyone that some statements made during this conference call contain forward-looking statements based on current expectations. Actual results could differ materially from those projected as a result of various risks and uncertainties. The potential risks and uncertainties that could cause actual results to differ materially include uncertain global economic conditions, reductions in revenue from key customers, delays or reductions in U.S. and foreign military spending, acceptance of new products on a global basis, disruptions or delays in our supply of raw materials and components due to business conditions, global conflicts, weather or other factors not under the company's control. The company cautions investors not to place undue reliance on forward-looking statements, which reflect the company's analysis only as of today's date. The company undertakes no obligation to publicly update forward-looking statements to reflect subsequent events or circumstances. Further information on these factors and other factors that could affect Ultralife's financial results is included in the company's filings with the Securities and Exchange Commission, including the latest report on Form 10-K. In addition, on today's call, management will refer to certain non-GAAP financial measures that management considers to be useful and differ from GAAP. These non-GAAP measures should be considered supplemental to corresponding GAAP figures. With that, I would now like to turn the call over to Mike. Good morning, Mike. Michael Manna: Thank you, Jody. Good morning. Welcome to our call on Ultralife's Q3 operating results. Earlier this morning, we reported Q3 sales of $43.4 million with an operating loss of $1 million, including a onetime adjustment of $1.1 million for various costs related to the final services transition of Electrochem and the planned closure of our Calgary location, which resulted in a GAAP net loss of $0.07. In Q3, we saw revenue growth year-over-year, but faced several challenges with gross margin, primarily due to incoming supply chain quality issues, which affected product mix and line efficiencies in our Battery & Energy business. Our Communications business continues to weigh on earnings as new products are launched and sell-through gains momentum. Our overarching strategy of diversification through M&A and new product development remains critical to stabilizing and improving the profitability as many of our existing products service components or accessories within our customer systems, giving us limited control over order timing, volume and mix. As we've grown through M&A, periodically, we need to review our infrastructure and align it properly to serve our customers in a cost-effective manner. With that said -- with that in mind, we have decided to close our Calgary location which is a smaller facility supporting oil and gas battery packs acquired with the Excel acquisition, with production being relocated to our Houston facility. Additionally, we are progressing through a company-wide rebranding initiative with the first phase targeted for completion in Q4. This effort will emphasize the Ultralife brand as our unified market identity, enabling more cohesive marketing efforts, stronger brand equity and reduced redundancy. Ultimately, this alignment will enhance our global position as a leading critical power provider. With that said, because of the investment in new products and our M&A activity, we continue to see large opportunities develop on both sides of our business with favorable discussions with various partners and customers. With our leveraged business model and reduced facility count, we can add significant revenue with minimal increase to overall costs. I will now turn it over to Phil to talk through the detailed numbers. Philip A. Fain: Thank you, Mike, and good morning, everyone. Earlier this morning, we released our third quarter results for the quarter ended September 30, 2025. We filed our Form 10-Q with the SEC yesterday and have updated our investor presentation in the Investor Relations section of our website. As noted in our November 7th press release, we requested an extension to file our Form 10-Q with the SEC to allow for the completion of our accounting close for Electrochem. The service agreement under which Electrochem's former parent maintain their books and records concluded in the third quarter, and we have now transitioned Electrochem to Ultralife's information systems. A summary of our third quarter results follows. Consolidated revenues totaled $43.4 million compared to $35.7 million for the third quarter of 2024. Revenues from our Battery & Energy Products segment were $39.9 million compared to $32.5 million last year. Excluding third-party sales for Electrochem, which we acquired on October 31, 2024, sales for the segment increased 1.9% year-over-year. Government Defense sales for the 2025 quarter increased 19%, reflecting strong demand from the U.S.-based global prime. This growth was partially offset by a 5.7% decrease in commercial sales resulting from declines of 13.3% in oil and gas sales due to macroeconomic and geopolitical factors and 10.4% in medical battery sales due to the timing of orders. The sales split between commercial and government defense for our battery business was 70%-30%, almost identical to 69%-31% reported for the 2024 quarter, and the domestic to international split was 72%-28% compared to 56%-44% for the 2024 period, reflecting our acquisition of Electrochem and the heightened domestic shipments of our government defense products. Revenues from our Communications Systems segment of $3.4 million increased to 8.2% from the $3.2 million we reported last year. On a consolidated basis, the commercial to government defense sales split was 65%-35%, almost identical to 63%-37% for the 2024 third quarter. Our total backlog exiting the third quarter was $90.1 million, a 6.5% increase over the $84.5 million exiting the second quarter. The replenishment rate remains diverse in nature with commercial customers comprising approximately 55% of the backlog and government defense customers comprising the remaining 45%. Our consolidated gross profit was $9.6 million, an increase of 10.8% over the $8.7 million for the 2024 period. As a percentage of total revenues, consolidated gross margin was 22.2%, a 210 basis point decline from the 24.3% reported for last year's third quarter. Gross profit for our Battery & Energy Products business was $8.8 million compared to $8 million last year, an increase of 9.6%. Gross margin was 22.1% compared to 24.7% last year. The year-over-year reduction resulted from manufacturing inefficiencies, primarily due to quality issues associated with key incoming raw materials and components that disrupted our operations and to a lesser extent, sales mix, reflecting the declines in generally higher-margin medical and oil and gas sales. For our Communications Systems segment, gross profit was $0.8 million compared to $0.6 million for the year earlier period. Gross margin was 23.3% compared to 20% last year. Operating expenses were $10.6 million, an increase of $2.4 million or 29.4% from the year earlier quarter. The year-over-year increase is comprised of $1.3 million related to the inclusion of Electrochem and $1.1 million of nonrecurring costs. The onetime costs include a $0.5 million provision to close our Calgary facility, costs related to our transition of Electrochem to Ultralife information systems and litigation costs for our cyber insurance claim. We anticipate annual savings from our closure of Calgary of approximately $0.8 million throughout 2026. As a percentage of revenues, operating expenses were 24.4% compared to 22.9% for last year's third quarter. Excluding the onetime costs, operating expenses were 21.9% of revenues for the third quarter of 2025. Operating loss was $1.0 million compared to operating income of $0.5 million last year, reflecting the decline in Battery & Energy Products gross margin due in large part to quality issues on incoming materials, the onetime nonrecurring costs totaling $1.1 million and Communication Systems delayed sales orders. Other expense reported below operating income was $0.8 million for the quarter compared to $0.2 million for the year earlier period, primarily resulting from the increase in interest expense on the acquisition debt and the impact of foreign currency fluctuations. Our resulting tax benefit for the third quarter was $0.5 million compared to a provision of $0.1 million for the 2024 quarter computed on a GAAP basis at statutory rates. Net loss was $1.2 million or $0.07 per share on a GAAP fully diluted basis. This compares to net income of $0.3 million or $0.02 per share for the 2024 quarter. Adjusted EBITDA, defined as EBITDA, including noncash stock-based compensation expense and onetime acquisition and other costs not reflected of our ongoing operations was $2.0 million or 4.7% of sales compared to $1.9 million or 5.4% for the prior year quarter. Adjusted EBITDA on a TTM basis is $15.5 million or 8.3% of sales. Turning to our balance sheet. We ended the third quarter with working capital of $66.9 million and a current ratio of 3.0 compared to $67.9 million and 3.3 for 2024 year-end. Our liquidity remains solid. In the first 9 months of 2025, we have reduced our debt principal by $4.1 million, which already exceeds the $2.8 million amortization required for the full year under our debt agreement. While we do not have any draws on the $30 million revolver portion of our debt agreement and no present plans to do so, our balance sheet provides the borrowing base capacity for this amount. In closing, we have initiated several actions, which Mike will cover, which position us to improve our gross margins, reduce redundant facilities, consolidate operations, diversify our supply chain and better promote our Ultralife brand on a global basis. These actions better position us to more fully realize the profitability leverage associated with our increasing sales funnel. I will now turn it back to Mike. Michael Manna: Thank you, Phil, for the detailed review of the Q3 2025 results. As mentioned in our last call, our priorities remain clear for 2025. First, completion of the Electrochem transition, which over the last few quarters has been completed in full. We continue to expand vertical integration opportunities enabled by the acquisition of Electrochem, allowing us to incorporate Electrochem cells into existing pack assemblies and broaden our addressable market in areas such as pipeline inspection, seismic telemetry and sonobuoys. We are qualifying cells with several oil and gas customers to enable transition of their battery packs to utilize Electrochem cells and expect to see benefit of these efforts in 2026. Secondly, we remain focused on strengthening our sales opportunity pipeline to drive growth through 2026 and beyond, while continuing to strategically diversify our business and customer base. Our efforts are aimed not only at expanding the overall size of the funnel, but also prioritizing opportunities that can generate consistent, repeatable annual revenue. We have been reviewing our multiple brands and market initiatives and have started a company-wide branding alignment. We currently have a complex and confusing number of brands and trade names for a company of our size. This effort will reduce the redundant cost of supporting and justifying multiple brands and trade names, short messaging both internally and externally to customers that we are a global critical power provider of energy and RF products. Third, we are intensifying our efforts at improving and stabilizing gross margin through pricing, material cost deflation and lean productivity projects in both the Battery and Energy and Communications businesses. As we enter Q4, we have an external expertise to drive targeted lean exercises and process improvements at our Newark location to increase gross margin. We are closing our Calgary location which is focused on providing production -- are focused on providing production centers of excellence with all the necessary systems to support our customers and prepare for expected growth. Switching to development projects. We continue to invest in products on both sides of the business to drive revenue and opportunities for organic growth. The Communication System business is expanding the ruggedized server case portfolio to service new programs and server variants, which will provide greater opportunity to expand the market share in the ruggedized computing environment. We completed an initial design for the latest next-gen communication and control solution, utilizing our ruggedized server expertise and HPE's line of exceptional servers for AI and edge computing. Several military programs are using this solution now for possible fielding as components to the broader readiness initiatives. We showcased our new amplifier and Crescent server products at the Defense Security Equipment International Show in September, which is one of the UK and EU largest defense trade shows, where we met with multiple OEM and governmental representatives. We have sample amplifiers out with specific partners for trials currently with expected orders inbound and production shipments starting in 2026. Crescent server continues to evolve, and we have received critical feedback and direction to fully develop this tip of the spear compute capability for forward field applications with initial production expected in 2026. Meanwhile, we are finalizing the design of our next high-performance amplifier, targeting advanced radio platforms with the latest high-speed waveforms utilized by the U.S. and Armed Forces. We have preproduction parts in-house for bench testing and final validation and expect to have preproduction units for evaluation in Q1 2026. Lastly, on the communications side of the business, we received an initial PO from an international customer for prototype electronic warfare amplifiers. This is our first project, leveraging our amplification expertise to counter electronics in the battlefield. On the Battery and Energy side of the business, we have a great deal of activity across several products with new business being the key focus. But first, I will mention we received the BA-53 battery award in Q3 for $5.2 million, which will be delivered throughout 2026, our first sizable award for this product in over 4 years. On the new business side, I will start with the conformal wearable battery, where we have now begun shipping production quantities. We've quoted multiple large volume opportunities, mainly for international customers with expected awards for 2026 deliveries. We've passed 2 critical quality audits in our China location, the most important one being for our high-capacity thionyl chloride D cell with an opportunity in the metering space. Testing continues to go well, and we expect UL testing and validation testing to complete in Q4 with initial production volume commitments to come soon after. On the 123A side of our business, we have received a follow-on PEO from a major illumination company, which will begin deliveries in Q4 and throughout the first half of 2026. We're working on several new products for battery packs utilizing our XR123A cells, which offer a 30% increase in energy density over the standard 123A cell. As mentioned earlier, we established initial production capabilities for our thin cell technology to support customers in the medical wearable sector in various item tracking applications. The sales pipeline continues to strengthen with several projects now in the qualification phase. We are investing additional development effort in this product line with the unique cell designs that further reduce the thickness of the product while reducing manufacturing complexity with an eye on large-scale automation as we expect thin wearable sensors will continue to proliferate. We have expanded our family of X5 medical car products with the release of our latest product, a portable power bank that provides power to pole-mounted equipment or any other item that requires extended run time utilizing USB-C, mostly targeting tablet and portable computers. Production validation and certification are finishing up, and we have samples out to key partners in support of product quotations. Investing in new product development is essential to diversifying and strengthening our product portfolio, driving future growth and building our legacy of delivering critical power solutions. Our priorities remain converting long-term development product, development efforts into revenue, advancing vertical integration where possible and maintaining a strong focus on the operational efficiency initiatives. I continue to focus on the long-term projects and future of the business. And although we've had a challenging 2025, I'm confident we are making the right moves to stabilize and grow the business over the long term. As we go through the end of the year, we will enter 2026 with the Electrochem transition completed, the largest number of new products for sale ever in our Communication Systems business, multiple large opportunities for both sides of the business, a reduced North American facility count, unified back-office systems across most of North America and a strong brand architecture evolution underway. I believe we are well positioned for future growth with overall reduced operational costs. We'll go back to the operator for questions. Operator: [Operator Instructions] And I am showing no questions at this time. I would now like to hand the call to Mike for closing remarks. Michael Manna: All right. Well, thanks, everyone, for listening to today's call. We look forward to talking to you again next time during the Q4 2025 earnings call. Bye now. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Operator: Hello, and thank you for standing by for Baidu's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Juan Lin, Baidu's Director of Investor Relations. Juan Lin: Hello, everyone, and welcome to Baidu's Third Quarter 2025 Earnings Conference Call. Baidu's earning release was distributed earlier today, and you can find a copy on our website as well as on Newswire Services. On the call today, we have Robin Li, our Co-Founder and CEO; Julius Rong Luo, our EVP in charge of Baidu Mobile Ecosystem Group, MEG; Dou Shen, our EVP in charge of Baidu AI Cloud Group ACG; and Henry Haijian He, our CFO. After our prepared remarks, we will hold a Q&A session. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Credit Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and our filings with SEC and Hong Kong Stock Exchange. Baidu does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Our earnings press release and this call include discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.baidu.com. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on Baidu's IR website. I will now turn the call over to our CEO, Robin. Yanhong Li: Hello, everyone. In Q3, Baidu Core reported total revenue of RMB 24.7 billion, AI Cloud revenue reached RMB 6.2 billion, increasing 21% year-over-year sustaining value growth momentum. Apollo Go's growth accelerated sharply. We delivered over 3 million fully driverless operational rides in Q3, representing 212% year-over-year growth, up from 148% last quarter. This quarter demonstrated how AI is driving transformative value across our business. From enterprise services to consumer-facing products to smart mobility, our AI capabilities are delivering proven tangible impact at scale. Starting with the enterprise side, where our AI Cloud business continues to scale with healthy momentum and deliver measurable business impact. In Q3, AI Cloud continued its strong growth trajectory. Within AI Cloud, the areas most central to AI achieved the fastest growth. In particular, subscription-based revenue from AI accelerator infrastructure surged to 128% year-over-year, becoming the primary driver of AI Cloud's expansion. This reflects both a healthy shift towards a more recurring, structurally healthier revenue model and the strong demand for our AI products and solutions. Our ability to serve this growing demand stems from our early and strategic deployment across Baidu's full stack in AI architecture, spanning infrastructure, framework, models and applications, which allows us to support enterprises at every stage of their AI journey. At the infrastructure layer, our AI infrastructure is among the most advanced in China powered by a diverse mix of domestic and international high-performance computing resources, including our own self-developed AI computing architecture. Through continuous technical innovation, we drive performance and efficiency improvements while consistently reducing inference costs. Additionally, our industry-leading resource management capabilities significantly boost utilization and scalability. These advantages make our AI infrastructure reliable, scalable and highly cost effective for enterprise clients. And the model layer, we feature our self-developed early foundation model, which continues to iterate rapidly. At the recent Baidu World 2025, we unveiled ERNIE 5.0, our first native omni-model, foundation model with exceptional performance in omni-model understanding, creative writing and instruction following. ERNIE not only represents the cutting edge of our AI technology, but also serves as a backbone behind much of the AI-driven innovations across our businesses. At the application layer, we have a range of AI applications tailored to enterprise business needs. Let me share some examples. The first is [ Famou ] or FM agent, a self-evolving agent, we recently launched that significantly improved enterprise efficiency; built on ERNIE, it autonomously explores countless possibilities and continuously evolve its strategies to identify best solutions for highly complex, constantly changing real-world problems. FM agent is now deployed across industries including transportation, energy, logistics and ports, optimizing complex operations that traditional approaches struggle to handle. Its capability is particularly valuable in China, where we have diverse industrial sectors with numerous scenarios demanding efficiency improvements, when you can meaningfully boost efficiency across such varied use cases, the social impact is profound. Another example is the Daniel Wu English coach, an ERNIE powered digital employee we created for Yashi Education, featuring the lightness of the well-known actor. It enables users to engage in one-on-one real-time English conversation practice anytime, anywhere. This directly addresses a key challenge. Yashi's users require frequent on-demand speaking practice, which is difficult to scale with human instructors. The digital employee provides unlimited availability and an immersive engaging learning experience. Besides enterprises, our AI applications are creating value for individuals by enhancing productivity. Baidu Wenku and Baidu Drive, our largest AI applications for individuals, have been revitalized with AI. Their combined MAU has approached 300 million. In August, Wenku and Drive jointly launched a general-purpose AI agent platform that orchestrates hundreds of specialized agents to complete complex end-to-end tasks through simple natural language interactions. The platform has gained strong traction since launch, demonstrating how AI can meaningfully enhance personal productivity at scale. In the physical world, autonomous driving exemplifies the transformative value of AI, unlocking new possibilities for mobility, safety and efficiency. In Q3, Apollo Go's growth significantly accelerated to new heights. During the quarter, we provided over 3 million fully driverless operational rides to the public, representing a remarkable 212% year-over-year surge compared to 148% growth last quarter. In October, weekly average fully driverless operational rides exceeded 250,000, marking one of the highest levels achieved in real-world Robotaxi operations globally. To date, our fleets have accumulated over 240 million autonomous kilometers with more than 140 million of those being fully driverless, maintaining an outstanding safety record throughout. Achieving this rapid expansion while delivering exceptional safety performance is a powerful validation of our technology's maturity and operational capabilities. We are proud to see our decade-long commitment to autonomous driving now bearing fruit in large-scale operations. Reaching this scale requires maturity across multiple fronts, advanced technology, a rigorous and widely recognized safety record, demonstrated business viability, deep operational expertise and the ability to expand rapidly. These years of unwavering investment have not only given us a first-mover advantage, but more importantly, have built comprehensive capabilities that position Apollo Go as the undisputed global leader in this field. With this strength, Apollo Go has now entered a phase of rapid global expansion. As of October, Apollo Go's global footprint expanded to 22 cities, an increase from 16 last quarter. In October, Apollo Go entered Switzerland through a strategic partnership with PostBus, the country's leading public transport operator. Together, we plan to launch autonomous ride-hailing services in Eastern Switzerland, representing a key step in our European market expansion and another milestone in our global journey. In the Middle East, we secured one of the first fully driverless commercial operation permits in Abu Dhabi recently and deepened our collaboration with local partners. In Dubai, Apollo Go was granted exclusive authorization to conduct self-driving trials on open roads at the fourth Dubai World Congress for self-driving transport in September. RT6 provided trial rides to global attendees, including government officials, business leaders, media and investors, showcasing our technology's maturity on an international stage and demonstrating our global leadership. In Hong Kong, where Apollo Go has established by far the strongest presence in right-hand drive Robotaxi markets, we expanded our open road testing zones to include Kolon and Kung Tong District recently, further strengthening our position in the strategically important market. These milestones spanning Europe, the Middle East and Asia validate both our technology's adaptability and our ability to partner effectively with leading local operators in different regulatory environments. Looking ahead, we will expand to more markets with strong commercial potential and partnership opportunities, maintaining our unwavering focus on safety and operational excellence as we work toward making smart mobility widely accessible. In our mobile ecosystem, agents and digital humans represent AI-native monetization innovations that are transforming our online marketing business, creating substantial value for advertisers through higher engagement, better lead conversion and stronger ROI. Our agents help advertisers effectively clarify user intent through intelligent multi-round conversations and quickly find out the most relevant high-quality sales leads. This ensures advertisers receive more precise and qualified leads compared with traditional approaches. Building on this capability, agents have evolved into multiple forms; tech-based, voice-enabled and visually-embodied digital humans, each designed to address different scenarios and interaction needs. Such versatility enables advertisers to choose the most effective format for their specific use cases, achieving broader scenario coverage and higher conversion efficiency. As a result, agents have gained strong traction across diverse industries, including healthcare, business services and lifestyle services. In September, around 33,000 advertisers generated ad spending through our agents on a daily basis. Digital humans also saw strong momentum. Powered by ERNIE, our digital humans provide 24x7 AI-powered live streaming for advertisers at low cost, making professional live streaming accessible across more scenarios and industries. The technology continues evolving, delivering greater realism, more natural interaction and real-time engagement with viewers. This enables performance that surpasses human hosts in many cases, making our digital humans increasingly attractive to advertisers. Adoption has broadened beyond merchants to sectors such as healthcare, automotive and legal services. We are seeing both existing clients increase their budgets and new clients rapidly coming on board. In September, the number of digital humans live streaming on our platform almost tripled year-over-year, underscoring quick adoption across industries and growing monetization potential. These innovations are already generating significant revenue with fast growth rates. In Q3, combined revenue from agents and digital humans reached RMB 2.8 billion, up 262% year-over-year, validating the strong market appetite for our AI native monetization approaches. Looking ahead, we see substantial opportunities to scale these innovations further, broadening adoption across more verticals and deepening penetration with existing advertisers. Now let me review the key highlights for each business. In our AI Cloud business, our client portfolio continued to improve in Q3, demonstrating deeper collaboration across the board. Leading enterprise clients increased spending and expanded usage beyond AI infrastructure. Mid-tier enterprise clients delivered healthy growth with both subscription-based revenue and client count rising. Several key verticals saw strong momentum. In embodied AI, our client base expanded to 35 from 20 last quarter, covering nearly all major industry players in China. The automotive vertical also delivered strong growth with revenue nearly doubling year-over-year. In addition, this quarter, we entered into new collaborations with leading players, including Neolix, a major provider of autonomous delivery vehicles in China. Collectively, these results affirm the broadening adoption and strong recognition of Baidu AI Cloud. To address fast-growing demand, we strategically upgraded our MaaS platform Qianfan to be agent-centric. Qianfan is now positioned to provide not only leading model services with a constantly enriched model library, but also cutting-edge agent development capabilities and best-in-class agent infrastructure. By integrating high-quality proprietary and third-party capabilities and tools, Qianfan enables seamless agent creation and empowers enterprises to accelerate AI native application development. At the application level, we are driving productivity gains, both internally and externally. Internally, our developers widely leverage Comate, our AI coding assistant for developers. In September, AI contributed to over 50% of new code generation under developer oversight substantially improving our overall engineering and R&D productivity. Comate exemplifies our belief that AI should liberate humans from repetitive tasks and deliver immediate efficiency gains. Externally, we are democratizing AI through Miaoda, our no-code platform. After continuous capability enhancements, we launched the Miaoda's International version named MeDo in November, bringing powerful no-code capabilities to global users. By removing barriers like specialized training, we aim to empower more people worldwide to innovate and create with AI. On intelligent driving, Apollo Go provided 3.1 million fully driverless operational rides in Q3, up 212% year-over-year. As of November 2025, cumulative rides provided to the public have surpassed 17 million. In terms of geographic expansion, Apollo Go added 6 new cities, bringing its global footprint to 22 cities as of October 2025. In Chinese Mainland, Apollo Go has already achieved 100% fully driverless operations in multiple cities including Beijing, Shanghai, Shenzhen, Chengdu, Chongqing, Wuhan, Haikou, Sanya and more. These are not pilot zones, but represent real services already open to the public, which speaks to the maturity of our technology and operation. On our asset-light model and domestic partnerships, we also made good progress this quarter. The asset-light approach allows us to expand our autonomous driving services through partnerships and facilitate faster and more capital-efficient expansion. Following the launch of fully autonomous vehicle rental services with CAR Inc, Apollo Go now enables cross-city travel in Hainan province with fully driverless rental vehicles, offering users a differentiated experience, not typically available through traditional car rental services, particularly for tourism and leisure travel. In addition to our partnership with Hello Ride, we achieved scaled fully driverless operations in 2 cities in China, further validating the feasibility of the asset-light model. Looking ahead, we will continue to expand rapidly while prioritizing safety, accelerating the adoption of autonomous ride-hailing services across broader markets. In our mobile ecosystem, the AI transformation of Baidu Search continued to progress in Q3. At the end of October, roughly 70% of mobile search result pages contain AI-generated content. We believe this represents an optimal and sustainable level. This quarter, we prioritized enhancing the quality of multimodal content within AI search results while expanding our overall content ecosystem. AI generated multimodal content saw rapid growth in both volume and quality. In particular, with daily AIGC video generation consistently at the scale of millions, our total AIGC video content continues to expand quickly while daily distribution within Baidu App is also seeing strong growth. As content supply improves, users experience richer, more relevant and engaging search results, user metrics continue to improve. In September, Baidu App MAU reached 708 million, up 1% year-over-year. The daily average time spent per user in Q3 increased 2.3% year-over-year. We are also extending our AI search capabilities to external partners through the Baidu AI search API, which enables integration of our industry-leading search technology that delivers superior accuracy, authority and comprehensiveness. Leading companies such as Samsung, Xiaomi and Honor have already adopted the API. This strategic initiative expands our technology's reach beyond our own ecosystem, unlocking new business models and creating broader value across the industry. Underpinned by our full stack AI capabilities, each business group within Baidu has seen rapid progress with AI driving both product innovation and business growth. From an AI-native perspective, our portfolio cuts across business groups with a comprehensive range of AI-powered businesses from AI Cloud Infra to AI Applications, such as Baidu Wenku and Baidu Drive and to AI native marketing services, including agents and digital humans, all of which are showing strong growth momentum. In the physical world, Apollo Go, our largest AI application continues to scale rapidly, and these are just a few examples, underscoring the broad-based growth of our AI-powered businesses and the meaningful business impact our AI capabilities are already delivering at scale. Looking ahead, we will continue to expand our AI-powered revenue streams and strengthen our position to capture the long-term opportunities ahead. We are confident that our AI capabilities will bring even greater transformative value across our portfolio in the years to come. With that, let me turn the call over to Henry to go through the financial results. Haijian He: Thank you, Robin, and hello, everyone. Robin just mentioned our AI-powered businesses, and I'd like to elaborate. Based on ongoing feedback from investors and to better reflect valuation drivers based on our current portfolio, we are introducing a new AI native view this quarter cut across business groups to track AI-empowered assets company-wide. This new view organized our business according to the nature of our products and services, helping investors better understand the fundamental valuation drivers across our diverse product and service offerings. Going forward, we will provide business updates through this AI native view on an ongoing basis, while continuing to disclose results under the existing reporting methods, giving investors complementary lenses to assess the value of our portfolio. From this AI native view, we have a rich array of AI in power assets. We are highlighting 3 categories this quarter. AI Cloud Infra, AI applications and AI native marketing services. First, AI Cloud Infra, which refers to the AI infrastructure and platform services we provide to enterprises and public sector. In Q3, revenue from AI Cloud Infra reached RMB 4.2 billion, up 33% year-over-year. We operate one of China's most advanced AI accelerator infrastructure, enabling highly efficient and cost-effective training and inference across diverse enterprise workloads. Within AI Cloud Infra, subscription-based AI accelerator infrastructure revenue grew 128% year-over-year. Second, AI Applications. These are AI-native or AI-powered product offerings addressing specific use cases for individuals and enterprises, including our flagship software products such as Baidu Wenku, Baidu Drive and digital employee. AI is transforming how applications create value, enabling far more powerful capabilities that address real-world scenarios more effectively. We built a leading and comprehensive portfolio across both individuals and enterprises. Most of our AI applications are based on sticky subscription models, delivering high-quality revenue. In Q3, AI Applications generated revenue of RMB 2.6 billion. Third, our AI native marketing services, such as agents and digital humans continue to scale rapidly. This represents our second growth curve beyond our legacy business. These innovative products are gaining strong traction with customers seeking performance-driven AI-native solutions. Customers are increasingly willing to pay a premium for cutting-edge AI technology that delivers measurable improvements in productivity, marketing efficiency and ROI. In Q3, revenue from AI-native marketing services reached RMB 2.8 billion, representing a robust 262% year-over-year increase, accounting for 18% of Baidu Core's online marketing revenue. Now let me walk through the details of our third quarter financial results. Total revenues were RMB 31.2 billion, decreasing 7% year-over-year. Revenue from Baidu Core was RMB 24.7 billion, decreasing 7% year-over-year. Baidu Core's online marketing revenue was RMB 15.3 billion, decreasing 18% year-over-year. Baidu Core's non-online marketing revenue was RMB 9.3 billion, up 21% year-over-year. Driven by the boost of AI Cloud business within Baidu Core's non-online marketing revenue, AI Cloud revenue was RMB 6.2 billion, increased by 21% year-over-year. Revenue from iQIYI was RMB 6.7 billion, decreasing 8% year-over-year. Cost of revenues was RMB 18.3 billion, increasing 12% year-over-year, primarily due to an increase in costs related to AI Cloud business and content costs. Excluding impairment of long-lived assets, operating expenses were RMB 11.8 billion, increasing 5% year-over-year. And Baidu Core's operating expenses were RMB 10.4 billion, increasing 5% year-over-year. Baidu Core SG&A expenses were RMB 5.7 billion, increasing 14% year-over-year, primarily due to an increase in expected credit losses and channel spending expenses. SG&A accounted for 23% of Baidu Core's revenue in the quarter compared to 19% in the same period last year. Baidu Core R&D expenses were RMB 4.8 billion, decreasing 3% year-over-year. R&D accounted for 19% of Baidu Core's revenue in the quarter, which was basically flat from last year. Impairment of long-lived assets was RMB 16.2 billion, attributable to an impairment loss of Core asset group with our rapid progress in high-performance computing capabilities. We proactively conducted a comprehensive review of our asset base and impaired including, but not limited to, existing infrastructure that no longer aligns with current computing efficiency requirements. This results in a healthier and more optimized asset portfolio that better supports the future growth of our AI native business. Operating loss was RMB 15.1 billion. Baidu Core's operating loss was RMB 15.0 billion and Baidu Core's operating loss margin was 61%. Excluding impairment of long-lived assets, operating income was RMB 1.1 billion and Baidu Core operating income was RMB 1.2 billion. Non-GAAP operating income was RMB 2.2 billion. Non-GAAP of Baidu Core operating income was RMB 2.2 billion, and non-GAAP Baidu Core operating margin was 9%. Total other income, net was RMB 1.9 billion compared to RMB 2.7 billion in the same period last year. Income tax benefit was RMB 1.8 billion, compared to income tax expense of RMB 814 million in the same period last year. Net loss attributable to Baidu was RMB 11.2 billion and diluted loss per ADS was RMB 33.88. Net loss attributable to Baidu Core was RMB 11.1 billion, and net loss margin for Baidu Core was 45%. Excluding the impact of impairment of long-lived assets, net income attributable to Baidu was RMB 2.6 billion, and net income attributable to Baidu Core was RMB 2.7 billion. Non-GAAP net income attributable to Baidu was RMB 3.8 billion. Non-GAAP diluted earnings per ADS was RMB 11.12. Non-GAAP net income attributable to Baidu Core was RMB 3.8 billion, and non-GAAP net margin for Baidu Core was 16%. We define total cash and investments as cash, cash equivalents, restricted cash, short-term investments, net long-term time deposits and held-to-maturity investments and adjusted long-term investments. As of September 30, 2025, total cash investments were RMB 296.4 billion, and total cash and investments, excluding iQIYI were RMB 290.4 billion. Operating cash flow was RMB 1.3 billion, and operating cash flow, excluding iQIYI was RMB 1.5 billion. Baidu Core had approximately 31,000 employees as of September 30, 2025. With that, operator, let's now open the call to questions. Operator: [Operator Instructions] Our first question today comes from Alicia Yap with Citigroup. Alicis a Yap: My question is on ERNIE 5.0 that was unveiled at Baidu World recently? And then so how will the new model drive the next stage of application such as the digital humans? And what are the key focus area for earnings, future iterations and also the differentiation? Yanhong Li: Alicia, this is Robin. Over the past couple of years, I've been repeatedly saying that we're taking an application-driven approach when it comes to earnings iteration. At the Baidu World just a few days ago, we unveiled ERNIE 5.0, our first native omni-model foundation model. It has reached world-class levels in omni-model understanding, creative writing and instruction following, which are very important capabilities to our current and future product portfolio. From ERNIE 4.5 and ERNIE X1 in March to ERNIE 5.0 in November, ERNIE keeps getting better. Digital humans are a good example. Powered by ERNIE, they deliver fluent, contextually accurate and highly expressive dialogue. These are capabilities rooted in ERNIE's language strength. Beyond language, our model also drives visual realism, appearance, movement and even subtle micro expressions, all synchronized with the conversation. When these elements come together, the performance of our digital humans is truly exceptional and genuinely persuasive, capable of driving user engagement and purchasing decisions. ERNIE also powers FM agent, our self-evolving agent that significantly improves enterprise efficiency. It has proven to be very effective in industries like manufacturing, energy, finance, transportation and logistics. Similarly, our AI search and cloud business benefit from ERNIE's capabilities, too. Although ERNIE has delivered remarkable results for these applications, we see a lot of room for improvement. We like to see digital humans sell better than real humans in all kinds of live streaming e-commerce across many product categories. We like to see FM agents find better and better solutions in more complicated scenarios in all industries. We like to see AI-generated content to match users' interest better than KOL-generated content. We like to see ERNIE-based agents to be able to tell which piece of content has better quality regarding certain topics and so on and so forth. These are the areas where none of the existing models do a good job, not even close. So we aim to solve this problem. The application-driven approach actually reflects our deep conviction in where AI value will ultimately reside. While economic value today sits largely at the infrastructure layer, in a healthier AI ecosystem, the greatest value should come from applications where products deliver real impact to users, advertisers and enterprises. Going forward, I think no foundation model can be better than anyone at any aspect. We will continue to focus on making ERNIE strongest where it matters most for our portfolio. Baidu has always been a company with strong belief in technology, and we will continue investing decisively in areas where technology can create real measurable value. So staying close to applications ensures a sustainable path forward for AI development. Operator: And our second question today comes from Lincoln Kong at GS. Lincoln Kong: So my question is about the Cloud business. So in the third quarter, we have seen Cloud growth has slightly moderated. So are we seeing any changes in terms of the Cloud demand? And should we expect a re-acceleration in the coming quarters? So what's your outlook for the next year? And what are the key drivers that should support the sustainable growth of our cloud business? Dou Shen: This is Dou. Thank you, Lincoln. If you look at our year-to-date performance, our Cloud business is growing well above the industry average. Well, for quarter-to-quarter, there can be some variability, but the overall trend is strong, and we remain very confident about this growth trajectory going forward. On the demand side, enterprises are applying AI across every aspect of the operations, driving strong broad-based demand for AI-centric Cloud services. Within AI cloud, the area most closely tied to AI workloads is scaling the [indiscernible]. Our clients are using our cloud not only for model training, but increasingly for inference tasks. In Q3, AI Cloud Infra revenue reached RMB 4.2 billion, up 33% year-over-year, outpacing overall cloud growth. And the subscription-based AI accelerator infrastructure revenue grew 128% year-over-year, accelerating from around 50% last quarter. This results both strong -- reflects both strong underlying AI-driven demand and a healthier revenue mix. This momentum is supported by our full-stack AI capabilities. At the infrastructure layer, our high-performance AI infrastructure, especially self-developed AI computing architecture continues to see strong adoption driven by superior performance, efficiency and cost effectiveness. Many can start with AI Infrastructure and then expand to additional offerings over time. Also, our Qianfan MaaS platform has been upgraded to be agent-centric. With expanded model libraries, integrated tools and strengthened support for complex agent workflows, Qianfan provides best-in-class agent infrastructure, enabling enterprises to easily build and deploy AI agents at scale. At the application layer, we provide applications that can be readily applied to real business scenarios. Our cloud growth is not just about investment in AI infrastructure, we attach huge importance to applications. We have a comprehensive portfolio of AI products and solutions that is growing very fast, including digital employee, Yijian, Miaoda, FM agent and so on. So we firmly believe AI applications will create substantial value in our cloud businesses in the long term. So to sum up, if we look at our cloud business on an annualized basis, we believe that our full-stack AI capabilities and the strong demand for AI-centric cloud services will enable healthy, scalable and sustainable growth in the future. Thank you. Operator: And our next question comes from Alex Yao with JPMorgan. Alex Yao: The Baidu application evolves into an AI application and web search becomes a building feature for AI chatbots. The line between search and chatbot is getting blurry. How are -- based on your observation, how are user behaviors changing? And what is your competitive strategy going forward? Yanhong Li: Alex, let me answer your questions. And AI chatbot actually [Technical Difficulty] and evolve very quickly. So it's necessary to stay flexible to offer different products for different scenarios. And within Baidu, we leverage the chatbot capabilities through 2 complementary offerings. The first one is the ERNIE assistant, which is the built-in chatbot inside the Baidu App. This supports multi-round conversations function, calling and thanks for its deep integration with search. Since many users assess the ERNIE assistant directly from search, so you can draw on query contacts and interaction history to deliver a more relevant and personalized answers. It also connects to a set of tools through MPT, allowing the users to move seamlessly from information discovery to task compaction. And the ERNIE assistant is growing quite fast in our app. You can see that the conversation logs have increased around fivefold year-over-year and the DAU has surpassed 12 million with a very strong month-over-month momentum. And we expect this trend to be further continued in the coming few quarters. In parallel, we also offer the ERNIE bot as a stand-alone chatbot application. While it shares Core capabilities behind ERNIE assistants, the ERNIE bot takes an experimental and innovative approach with a near-term focus on improving retention and long-term ambition to compete at the forefront of the chatbot category. And for example, it provides some cutting-edge multimodel features such as the AI images or [ comic-style ] generations which have been especially popular among the younger users. And looking ahead, we believe the chatbots are not only all ultimate form of AI applications, the future of AI interactions will be multimodel real-time generative and interactive. And for example, at the most recent Baidu World, we have showcased the upgraded [indiscernible] digital human, which is capable of the instant interactions through the real-time voices and video like live conversations. As many of you may recall that we even had a very small technical hiccup during the live demo, which actually proved that it was truly real time and not prerecorded. And once resolved the digital human responding very vividly and deliver dynamic back and forth conversations that feel generally human. So we will continue to bring these advanced capabilities into search, making it more intelligent, personalized and capable of completing tasks. This continuous innovation is how we intend to capture the long-term opportunities in the AI area and strengthen our competitive advantages. Thank you, Alex. Operator: Our next question today comes from Gary Yu of Morgan Stanley. Gary Yu: And also appreciate the additional disclosure on AI-powered businesses. Could management share more on the growth outlook and also the profitability of Baidu new AI-powered businesses? And how will these categories help accelerate our overall revenue growth going forward? Haijian He: Thank you, Gary. This is Henry. Let me provide some background on this new AI-native views. Based on the investor feedback, we are seeing a need for greater transparency into our high-growth AI businesses. These views organize our portfolios by product nature, giving investors clearer visibility into the underlying value drivers. We will maintain both this AI native view and our existing reporting methods in parallel, offering complementary perspectives on our business performance. From this new perspective, I think we have a rich portfolio of AI-empowered assets. Let me give some highlights here. First of all, for the AI Cloud Infra, this part includes our industry-leading AI infrastructures containing self-developed AI computing architecture, cloud infrastructure and a best-in-class MaaS platform. As AI adoption accelerates, demand for robust infrastructure is growing and our differentiated capabilities position us well. We are capturing long-term sustainable revenue and expect margin to improve as utilization increases. Secondly, for the AI applications, this part includes flagship products, for example, of our Baidu Wenku and Baidu Drive. AI has significantly enhanced functionalities across these products. We have one of the China's broadest AI application portfolios, and most of these applications are subscription based and contributing to higher quality revenue and margins. Third, for the AI native marketing services, including agents and digital humans, this reflects how AI unlock greater efficiency and drive the second growth curve in our advertising business throughout enhanced engagement, conversation and ROI. This quarter, AI-native marketing services reached 18% of our Baidu Core's online marketing revenue, up from 4% a year ago, and we expect penetration to continue rising as adoption broadens. Customers are embracing these result-driven AI solutions and are willing to pay for tangible gains in productivities and marketing efficiency. Importantly, this AI-empowered business reinforce one another across Baidu's ecosystem. And AI embeds deeper across products. So we expect accelerating growth of these businesses. So when we're looking ahead, we remain confident in their revenue and profitability potential, which we believe will support for a stronger growth trajectory for Baidu over time. Thank you, Gary. Operator: And our next question today comes from Miranda Zhuang with BofA Securities. Xiaomeng Zhuang: The question is about the Robotaxi business. So Apollo Go has been accelerating growth this year. So looking ahead, can management update us on Apollo Go for next year and beyond, including your global expansion plans. And how do unit economics look across different markets? And how does management view the long-term profitability potential of the Robotaxi business? Yanhong Li: This is Robin. If you remember, our Robotaxi's journey started in 2013. So this is our 13th year. Today, Apollo Go is one of the world's largest robotaxi service providers. And as of November, we have provided over 17 million rides cumulatively, a level very few players globally have achieved. In China, we are the undisputed market leader. Through the first 3 quarters this year, our ride volumes were over 15x higher than our nearest domestic peers according to publicly disclosed data. All these rides are fully driverless, demonstrating unmatched operational scale and technological excellence. Scale matters a lot. The reason we are able to achieve a leading position in autonomous driving technology on a global basis is that we have the scale. We have encountered many issues, corner cases others have not seen. We were able to train our models to handle those cases and become smarter and smarter. I think robotaxi has reached a tipping point, both here in China and in the U.S. There are enough people who have chance to experience driverless rides and the word of mouth has created positive social media feedback, which I think will propel the opening or loosening of related regulations. For 2026 and beyond, we will continue to scale up our operations, both domestically and internationally. We will add more cars in our existing cities. We will expand to more cities. We will accumulate more fully driverless mileage and further improve our technology based on the operational data we gathered on the road. And yes, we need more data to train our models. Better models make the cars safer and faster. We will continue to drive down the cost per mile through technological innovation and operational efficiency. Right now, a few cities have achieved positive unit economics. As we scale, we hope to see more cities turn positive in 2026. Also, we're scaling through flexible business models, including asset-light models, we are very -- we are ready to enter any city quickly once regulatory and market conditions allow. As of October, Apollo Go's global footprint reaches 22 cities with significant progress in Europe, Middle East and Hong Kong. We're confident that UE will continue to improve as we scale. So in summary, for 2026 and beyond, we expect strong growth across 3 areas: rapid growth in ride volumes and [ fee ] size, geographic expansion in new markets -- into new markets and accelerated adoption of new business models. We believe Apollo Go is well positioned for continued global expansion and long-term profitability. Thank you. Operator: And our next question today comes from Thomas Chong of Jefferies. Thomas Chong: My question is about how is AI search monetization progressing? And what feedback are you seeing from advertisers and users? Can AI native marketing services offset traditional ad business? And how should we think about core advertising profitability going forward? Rong Luo: Thomas, this is Julius. In October, nearly 70%, 7-0 of the mobile search result pages have content AI generated and multi-model first content. This format is quite unique to us, and we are the first or maybe only one doing this. We expect this level to remain relatively stable as we have largely covered the query types where the AI meaningfully improved the user experiences. Our focus now has shifted to improving the quality, particularly the rich media content like images, videos, and we are seeing very clear improvement in content quality this quarter, which translate directly into the better user experiences. And we can see that the users retention is higher and the users exposed to the AI search results are initiating 6% more queries and spending more time with us. This tells us that users are finding real value in AI search and engaging more deeply. On monetization, we are actively testing and seeing some encouraging early results. First, we are testing MCP in the commercial modules in the AI search. For example, our e-commerce MCP module peaked nearly RMB 6 million in daily GMV during the recent Double 11 shopping festival. This is a very early stage, but the results are quite encouraging. Second, agents for advertisers are generating over RMB 25 million in daily revenue, and we expect this to grow as we bring more agents into the earning assistance as well. And third, we have started testing the digital human live streaming with the real-time interaction capabilities, try to explore the new ways to create engaging commercial experiences. And looking ahead, we see the significant monetization potential for AI search, and we will continue testing actively. However, our near-term priority still remains the user experiences over immediate monetization. This AI transformation is necessary for long-term competitiveness and will inevitably create a near-term pressure on both revenue and margins. So we believe this is the right trade-off to capture the large opportunities ahead. Thank you. Operator: And our final question today comes from Wei Xiong with UBS. Wei Xiong: Actually, I have a few questions here. First, just a quick one. Could you please explain this quarter's asset impairment and its rational? And second, what are your CapEx plans for next year? And how should we think about the margin trajectory as AI revenues grow? And lastly, could we please have an update on shareholder returns once the current buyback program expires? Haijian He: Thanks, Xiong. First of all, on your first question on asset impairment, the background is we are accelerating investments in the latest AI computing technologies without any hesitation. So as part of this effort, we have conducted a comprehensive review of our infrastructure portfolio. Some of the existing assets no longer meet today's computing efficiency requirements. So we actually proactively did some impairments. After this onetime of impairment, our asset base and portfolio profile is in a much healthy position and better aligned with advanced AI computing demand and higher value application scenarios going forward. Second, on the capital expenditures, we are maintaining a high level of investment. Just to give you one example. Since Baidu launched ERNIE in March of 2023, we have invested well above RMB 100 billion in the AI investment. Going forward, we will continue increasing our investment intensity in the AI area. We do expect to see greater operational leverage as our AI business scales. We're executing on 3 fronts. First of all, the asset review and impairments have left us with a leaner and more efficient asset base. Second, we are investing with a discipline to ensure capital efficiency. And of course, thirdly, we are enhancing utilization of our AI infrastructure, for example, through dynamic allocation of capacity across internal products and external cloud services. So as a result of these initiatives, we believe Q3 represents a low point for margins. Looking to next year, we will strive to improve our non-GAAP operational income and margins as these benefits start to flow through. So on your last point regarding shareholder returns, under the plan and program authorized in 2023, we have already bought back a worth of USD 2.3 billion in shares. We are currently reviewing the future buyback mechanism. We understand we also think it is important to provide a greater certainty and clarity to reduce volatility of buyback programs going forward. We're also actively exploring diversified return mechanisms, for example, setting a dividend policy potentially. Together, these efforts aim to deliver more consistent values to our shareholders. Thank you. Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect.
Graham Sutherland: Good morning, and welcome to FirstGroup's 2026 Half Year Results Presentation. In a moment, I will hand over to Ryan to take you through the financial performance for the first half of the year. I will then provide an update on business performance in bus and rail before we take your questions at the end. Moving on to Slide 3. I'm pleased to report another strong half for the group despite several economic and policy headwinds. Strong execution has ensured that we've been able to fully counter the negative impacts of lower bus funding in England, above inflation wage pressures and higher levels of employer national insurance contributions. Group adjusted revenue, which does not include the national rail contract revenues, where we take substantially no revenue risk has increased by 30% to GBP 834 million. This was largely driven by growth in First Bus due to the acquisition of First Bus London, which completed in February. Adjusted earnings per share for the half year has increased by 16% to 9.9p, with earnings growth supported by the repurchase of circa 22 million shares during the period. As a result of our strong performance in the first half, the Board has proposed an interim dividend of 2.2p per share, up 29% against the prior year. As a result of our continued strategic delivery and the restructuring of the business completed earlier this year, we are on track to deliver modest growth in our adjusted earnings per share for the full year. We expect to then at least maintain adjusted earnings per share in full year 2027 as both Avanti West Coast and GWR are nationalized. This leaves us well positioned for the remainder of the year. Our focus will continue on operational delivery and the successful execution of our U.K. growth and diversification strategy. Turning now to Slide 4, which sets out some of the key highlights against our strategic framework. Delivering day in and day out remains a key priority for the group. We continue to drive operational efficiencies in First Bus with a 24% reduction in lost mileage to 1.3%. We have also increased our Net Promoter Score to plus 15 as service delivery remains core to our strategy. We have also completed our business restructure to deliver annualized overhead savings of around GBP 15 million, which will help offset the impact of -- on the group of increased national insurance contributions. We will see the full benefit of the restructuring in the second half. Looking at modal shift, generating additional demand for our service is a commercial driver of our business and also crucial for reducing congestion, improving air quality and supporting government decarbonization goals. In open access rail, our seat miles capacity utilization of 67% remains significantly above the industry average. And we've also secured Rolling stock for our new Stirling to London Houston service, which we expect to be fully operational in mid-calendar year 2026. Turning to our sustainability pillar. We are at the forefront of bus fleet and infrastructure electrification and are working to capitalize on opportunities to unlock adjacent electrification revenue streams. In the first half, this has included the launch of First Charge and a small investment in Palmer Energy technology to bring battery storage capability to our sites. We continue to diversify our portfolio with the First Bus London performing ahead of our expectations, and we continue to grow our business and coach asset footprint with high-quality value-accretive acquisitions. At open access rail, we were pleased to have been awarded Extra pass on our existing services and the extension of some of Lumo services to Glasgow. We've also submitted applications for new routes, where we can commit further material investment and utilize our proven expertise to drive economic growth through connecting underserved communities. I will now hand over to Ryan, who will take us through the financial results for the half year. Ryan Mangold: Thank you, Graham, and good morning, everybody. This has no doubt been a more challenging half year given the headwinds of inflation and national -- employers national insurance increases. However, the early actions that we have taken have helped mitigate some of these pressures and the group has continued to make progress across the business. In my presentation, I'll be covering the following 3 areas: strong growth in adjusted revenue, the improvement in adjusted EPS with further progress on a much better balance of earnings distribution; and finally, reinforcing our capital allocation policy and our financial guidance for full year 2026 as well as full year 2027. So turning to the financial summary on Slide 6, where we have made progress across all financial KPIs despite the headwinds. The group's adjusted revenue is up over 30%, driven by both organic and inorganic growth and decent performances across the business. The revenue improvements in bus and open access rail have largely been offset by inflationary cost pressures as well as the national insurance impact as well as business development costs in open access with the mobilization of our Stirling route, which is now underway. As a result, group adjusted operating profit of GBP 103.6 million is up 2.8%. Our positive operating profit performance has benefited somewhat by the IFRS 16 adjustment in rail being lower given SWR ending, partially offset by higher net finance costs, resulting in the group delivering GBP 55.5 million in adjusted earnings, up 7.1%. The ongoing share buyback program has reduced the average share count. And as a result, the group's adjusted EPS has increased by 16.5% to 9.9p. This robust underlying business performance and strength of the balance sheet has resulted in the Board proposing an interim dividend of 2.2p per share, an increase of 29.4%. The dividend is in line with the group's current progressive dividend policy of around 3x adjusted earnings per share with around 1/3 in the interim and 2/3 at the final. The free cash flow generation before acquisitions and returns to shareholders has been impacted by the timing of a more material investment in bus electrification in the half year, and this is us taking advantage of the available government funding, resulting in an above-normal spend in the half year. The group's adjusted net debt position was GBP 207.6 million with a strong free cash generation offset by the accelerated CapEx as well as about GBP 10 million in acquisitions and GBP 76 million returned to shareholders through the buyback program and the final dividend for the year. At the bus business, despite the material organic and inorganic growth investments in the year, the post-tax return on capital employed was 9.4%, which was impacted by the acquisition of the London business in February. And as expected, the profitability is initially lower from this business. Turning to the 30% growth in adjusted revenue on Slide 7. The material increase in adjusted revenue has been mostly driven by the capital deployment in the second half of full year '25, with London in particular, performing well and is operating ahead of the investment expectations. The regional bus business passenger demand has ever been marginally weaker with a number of factors contributing to this, which Graham will cover later. However, despite the marginally lower volumes, the bus business has been able to deliver some yield growth that has been partially offset by lower government funding. First Rail's open access operations delivered some revenue growth with this progress marginally impacted by the strike action that we saw in whole trains. The Rail Services business also delivered a strong performance in the half year. And what is pleasing to note now is that more than 30% of the current contracted revenues are now with external parties, demonstrating the continued strong value creation from these businesses. Looking at the 16.5% adjusted EPS growth on Slide 8. This chart shows our adjusted EPS progression on a post-tax basis for all the variances. Open access and rail services contributed 0.5p in growth, with this now at 3.6p of our EPS, representing a materially higher proportion of earnings in rail now from more sustainable business streams. H1 has, however, had a marginal benefit from once-off rail center provision releases. First Bus increased operating profits contributed 0.2p to the improvement and central costs are 0.3p lower year-on-year, driven by the cost efficiencies and the group restructure executed earlier. Despite SWR ending in May 2025, the earnings from the DfT talks are 0.1p higher than the prior year, with the first half benefiting from once-off enhanced variable management fees as well as lower disallowable costs. Interest costs were 0.5p higher due mainly to lower interest received on cash balances and the group now being in an adjusted net debt position. The buyback programs that have now run for several years has resulted in a lower number of average shares, and this contributed 0.8p per share. As can be seen, the work that we have been doing over the past few years, together with our disciplined capital allocation approach has grown our adjusted EPS to 9.9p per share. But equally as important, we are continuing to drive a far better distribution and the quality of our earnings as we look ahead. Turning to the adjusted cash flow movements for the past 12 months on Slide 9. As a reminder, our adjusted measures excludes the ring-fenced cash as well as the impact of IFRS 16 from the DfT train operating companies. The group generated EBITDA of GBP 181.4 million before the DfT TOC cash inflows where we have received GBP 37.9 million in distributions. Just as a reminder, these DfT TOC management fees are paid by way of dividends generally in the second half of the following year after completion of the top statutory audited accounts. Working capital was a net inflow of GBP 4.4 million in the 12 months, resulting in a total of GBP 223.7 million of capital generated from operations versus the full year of 2025 of GBP 207.4 million. The capital generated was deployed in investing GBP 126.5 million in CapEx, net of grant funding and battery sales into the Hitachi strategic joint venture. GBP 6.5 million was paid in cash interest and tax, mainly relating to interest on the new finance leases and arrangements for the electric fleet in First Bus, offset by interest earned on the cash balances. There was a nominal amount of cash tax paid with the low level of cash tax being driven by the historical losses as well as the accelerated capital allowances that should apply for several years given our decarbonization investment program. Other movements include payments to acquire shares for the Employee Benefit Trust that continues to hold around 20 million shares for share award settlements and small cash payments into the pension schemes, mainly to cover costs. This has meant that the business has generated a total of GBP 78.3 million in cash despite the accelerated investment in electrification of bus. Just short of GBP 150 million was deployed in growth capital with the acquisition of RATP London for GBP 90 million being the major contributor to that as well as several bolt-on acquisitions in First Bus, mainly in the business and coach market, but also includes investment into several innovative energy businesses as well as combined with the 2 open access rail businesses with Stirling in mobilization phase. GBP 37.1 million has been paid by way of dividends in the 12 months and GBP 99.1 million was spent on the share buyback programs. What is clear from the chart is that the group continues to deploy a very balanced approach to capital allocation, focusing on both organic and inorganic growth opportunities as well as meaningful returns to shareholders in line with our strategy. This results in the group ending the half year with GBP 207.6 million in adjusted net debt and a debt cover ratio of 0.95x, which is well below our leverage policy parameters despite being a fairly busy 12 months, combined with a seasonally high level of adjusted net debt at the half year. Turning to our capital allocation framework on Slide 10. As we look ahead, we have a leverage policy of less than 2x adjusted net debt to EBITDA. With our forecast year-end position being well below 1x, there's plenty of capacity for the U.K. growth for the right opportunities, where the post-tax IRR from these investments exceeds our WACC. On an underlying basis, pre-deployment of capital for acquisitions, we expect to maintain our leverage below 1x for the time being. We have a strong focus on decarbonization in First Bus with the additional cost and efficiency benefit this brings, and we will continue to deploy capital in this area, particularly where this is supported by government funding to help deliver the U.K.'s wider decarbonization strategy. At First Bus London, we continue to expect this business to be operating cash positive from full year '27 onwards, and we are very pleased with the business performance to date. For the DfT TOCs we now estimate that GBP 125 million will be received in cash from October 2025 onwards to the end of the contracts. And this includes the anticipated continued support as required under contract from the rail services businesses. This is effectively higher than the GBP 120 million that we guided in June, due mainly to the longer-dated contracts agreed in rail services business, slightly better DfT TOC end dates and partially offset by the cash that we received in the first half of the year. Our current dividend policy remains around 3x adjusted earnings per share with this ratio and quantum being progressive over time. And finally, in line with our disciplined capital allocation approach, the group is committed to any surplus cash that cannot be effectively deployed in growth will be returned to shareholders. Given the current adjusted net debt and the pipeline of U.K. opportunities that are currently being evaluated, we are not announcing an extension to the buyback program at this stage, and this will be reviewed again with the full year results. To end with on Slide 11, looking ahead for the financial outlook for full year 2026 as well as adding in guidance now for full year 2027, given the transition of the remaining DfT TOCs at some stage within the next 12 to 18 months. The group expects to deliver modest growth in adjusted EPS for full year 2026 and then to at least maintain this level into full year '27 off a higher base. The bus business anticipates making sequential operating profit progress year-on-year with growth being driven by the material change in the business following the acquisitions, including London, with bus now consisting of 3 strong business segments, delivering a combined annual revenue that's anticipated to be above GBP 1.4 billion for full year '26. In First Rail, the open access businesses are anticipated to deliver results ahead of full year 2025, reflecting strong demand and yield management being offset by inflationary cost pressures as well as the costs for mobilizing the Stirling business. The rail services businesses are expected to make progress year-on-year given the continued support provided to previous and existing DfT TOCs as well as growth in new customers. For the DfT TOCs, the fees are anticipated to be at more normal levels going forward and combined with SWR ending means that the underlying management fees will be lower. The IFRS 16 positive impact to EBIT for the year is expected to be circa GBP 36 million in full year 2026. At the center, we anticipate costs to be circa GBP 8 million lower, benefiting from the central restructuring that was completed in the first half. Below operating profit, we anticipate incurring GBP 60 million worth of interest, of which GBP 34 million relates to IFRS 16 charges mainly due to the DFT rail leases. We anticipate deploying a net circa GBP 180 million of CapEx in the First Bus after taking into account grant funding and the benefit of GBP 10 million cash from the Hitachi Strategic Battery partnership. This CapEx of GBP 180 million now includes GBP 30 million of CapEx in London for electric vehicles, where the group is trialing an outright ownership model rather than an operating lease model on a specific large route that commenced late in 2025 due to the operating margin benefit that the ownership model delivers. The current level of CapEx in bus is above the expected normal levels given the success the business has had in accessing grant funding and annual CapEx is anticipated to be around GBP 100 million per annum as we look ahead, depending on the model that may be applied in London. First Rail remains capital light, but with some investment expected on the inorganic growth in open access as we mobilize these routes. For the pensions escrow, we have now finalized the Bus Section 2024 triennial valuation. This resulted in GBP 20 million of cash being returned to the group in November with GBP 20 million paid into the scheme and the balance of GBP 43 million retained in escrow. The escrow will be reviewed with the 2030 valuation, where a number of medium-term actuarial and asset judgments will be clarified in the scheme's performance. And when this is combined with the group section, it means that GBP 65 million is now in escrow that we will continue to explore derisking options that will be tested on the 2030 valuations. We anticipate ending the year with circa GBP 125 million to GBP 135 million worth of adjusted net debt. And this guidance is before any further inorganic growth opportunities, where there's a decent pipeline in the U.K. that we continue to evaluate. As you can see, the group retains a very strong balance sheet position with a much improved quality of earnings trajectory where we expect modest growth in EPS for full year 2026 and then to at least maintain this higher level for full year 2027. I'll now hand over to Graham for the business review. Graham Sutherland: Thank you, Ryan, for the update. Much appreciated. Moving on to Slide 13. It's been a solid half year for First Bus with operating profit growth of 4%, driven by yield management, cost efficiencies and the benefits of recent acquisitions. This has come in a challenging environment, where the transition to a GBP 3 fare cap in England resulted in lower funding levels, down GBP 17 million on last year. This, combined with related pricing activity and generally a softer economy has negatively impacted regional bus volumes. Concessionary volumes are up 4%, but this has been more than offset by a 7% decline in commercial volumes, leaving overall volumes down by 4%. As well as the move to the GBP 3 fare cap, economic factors are impacting demand. It's worth noting that just over 40% of all bus trips are for shopping and leisure purposes and around 20% are for commuting, and we're seeing these journeys impacted by lower levels of consumer confidence. To offset the drop in funding and softer demand, we introduced a new simple distance-based fare structure, resulting in a circa 10% yield improvement in the first half. Inflationary pressures remain with cost increases due to inflation of circa 3%, mainly in wages, where there was a 4% average increase in driver pay awards. We have now settled the majority of our largest bargaining units with 2-year awards achieved in most cases. We have also delivered GBP 7 million of efficiencies through the electrification progress and overhead savings, including a GBP 2 million saving in fuel costs. We've also benefited from our new businesses in London and a business in Coach, where we also continue to extend and win value-accretive contracts. Adjusted operating profit margin of 6.1% after absorbing 1.4% impact from higher national insurance contributions. Regional bus operating profit margin was 8.2%, slightly lower than the prior year. Moving now to Slide 14. The First Bus portfolio is evolving as we grow our business in Coach segment and develop our franchising capability centered on First Bus London and our operations in Rochdale. In Business and Coach, we are actively growing our operational footprint and asset base. In the first half, this included the acquisition of Tetley’'s Coaches, an established profitable operator with a large own depot in Central Leeds. This segment's revenue grew by 30% in the first half due to contract wins and extensions, the launch of Flixbus services and the contribution of our new businesses, which are trading in line with expectations. This is an attractive market worth an estimated GBP 3 billion, and we have a strong pipeline of opportunities to further grow our market share. The significant increase in our franchising segment's revenue reflects the addition of First Bus London, which contributed GBP 150 million in the first half. Thanks to our focus on service delivery to drive customer satisfaction and performance incentives, both our London and Rochdale franchise businesses consistently hold top positions in the operator league tables. Looking ahead, a number of Merrill authorities outside London are progressing with bus franchising schemes. These include Liverpool City Region, West Yorkshire, South Yorkshire, Wales and the West Midlands, representing an opportunity for us to enter new markets. There is still some uncertainty over which franchising models will be deployed, in particular around fleet and depot ownership. This could lead to potential CapEx savings and property disposals should authorities opt for an ownership model. Our track records of delivering quality bus operations under contract in London and Greater Manchester leaves us well positioned to actively take part in franchising growth. And moving on to Slide 15. The electrification of our fleet and infrastructure is a key part of our strategy to transform our bus business and to unlock potential adjacent revenue streams. We continue to make good progress with circa 23% of our fleet zero emission with 3 fully and 17 partially electrified depots across the U.K. As I flagged on a previous slide, we're benefiting from electrification efficiencies, including through fuel costs. This has led to a net fuel cost per mile reduction of 20% over the last 3 years. We're also making good progress identifying and capitalizing on opportunities to further monetize our electrification assets -- we recently launched the First Charge brand, giving access to chargers at 15 of our depots. We also made a small investment in Palmer Energy Technology to bring battery storage capability to some of our depots. This included the launch of a battery energy storage facility in Holford, and we expect to launch a second facility in Aberdeen next year. Over time, this will drive further cost efficiencies and provide a potential platform for commercial second life use of bus batteries. And now moving on to open access rail on Slide 16. Our 2 open access rail operations, Hull Trains and Lumo delivered adjusted operating profit of GBP 16.3 million in the first half. This is lower than the prior year with some impact from industrial action at Hull Trains and GBP 1.3 million of mobilization costs for our new Stirling to London Houston service. Lumo saw strong demand during the summer months and Hull Trains had a good ramp-up in business traveler demand in September. Seat miles operate were 3% lower than the prior year, reflecting higher levels of engineering works on the East Coast mainline and industrial action. Seat miles utilization remains high for both operators and still well above the rail industry benchmarks. Looking ahead, the mobilization of our new Stirling to London Houston service is progressing well, and we expect the service to be fully operational in mid-calendar year 2026. As you can see on the slide, we've set out our current rail open access seat miles capacity and how we see this developing over the coming years. We were pleased to announce in July that the ORR had approved our applications for Extra Pass on our existing services from December 2025 as well as the extension of some of Lumo's services to Glasgow. These extensions will add an additional 118 million seat miles, a 13% increase to our existing capacity. This, together with our new Sterling and Carmarthen services will see us more than double our existing seat miles capacity over the next 2 to 3 years. We've also launched a number of applications with the ORR. This includes services from Payton to London Paddington, Hereford to London Paddington, the extension of the Sterling track access agreement to December 2038 with the addition of new battery electric trains a revised Rochdale to London Houston application and an application for a new route between Cardiff and New York. We've committed significant investment to facilitate the growth of our open access services, including our circa GBP 500 million agreement for 14 new Hitachi trains that are being manufactured in County Durham, securing the skills base and jobs in the local area. If our ongoing applications are successful, we will make use of our option to commit further investment in new Hitachi trains, representing a further U.K. manufacturing investment of around GBP 300 million. And moving on to Slide 17. Our teams managing the national rail contracts at Avanti West Coast and DWR continue to focus on enhanced service delivery and effective cost management. Both teams are performing well and attributable net income from the national rail contracts has been in line with our expectations at GBP 15.3 million in the first half. In line with government policy, the DfT train operating companies are moving into public ownership. Our SWR team worked tirelessly with the DfT operator to ensure a smooth transition with the business exiting the group on schedule in May. The dates for the transfer of Avanti West Coast and GWR have not yet been announced by the government, but are anticipated to be in full year 2027. Our rail services businesses, FCC, Mistral and Consultancy continue to progress and perform well with revenue showing encouraging growth. Almost 1/3 of the current contracted revenues are now from external customers. We continue to look at opportunities to scale these businesses as we believe private sector expertise will continue to be vital to the success of the rail industry. Moving on to conclude on Slide 19. Our robust performance in the first half and a challenging economic and policy environment is testament to the work we have done to transform, grow and diversify our business. We're on track to deliver modest growth in adjusted earnings per share for the full year, and we expect to then at least maintain adjusted earnings per share in full year '27 as we transition our train operating companies to the government. In First Bus, we're an experienced operator with a large, well-capitalized fleet and a network of own depots that will allow us to continue to improve performance and to grow in attractive markets. The electrification of our fleet and infrastructure continues at pace as we look to unlock cost efficiencies and potential adjacent revenue streams. We will also be able to leverage these capabilities when bidding for new contracts. In First Rail, we will continue to work to grow our open access capacity and revenues, look to optimize our rail services businesses and to bid for contracts where we can bring forward our experience and capability. In our remaining 2 DfT train operating companies, we continue to prioritize contractual and operational delivery together with the work required to ensure a professional handover to the DfT operator. Our strong balance sheet allows us to evaluate a good pipeline of value-accretive U.K. growth opportunities. We remain committed to our discipline on capital allocation, and we'll continue to return any surplus cash to our shareholders. As a leading U.K. public transport operator, we have a critical role to play in the delivery of the U.K.'s wider economic, social and environmental goals. We will continue to be proactive, demonstrate our strengths as an experienced partner, underpinned by our significant investment in growth and decarbonization. To close, the work we have done over the last few years has allowed us to maintain our positive earnings trajectory as the U.K. bus and rail markets partially transition to new models. We aim to continuously improve performance to drive more demand for bus and rail services and to capitalize on strategic U.K. growth opportunities. Thank you for your time this morning, and we will now open for questions. We will take questions from the room first and then from the webcast. Gerald Khoo: Good morning, everyone. Gerald Khoo from Panmure Liberum. 3, if I can. Firstly, on bus franchising. You set out the regions that are moving towards franchising. I was wondering whether you could sort of quantify the sort of revenue opportunity and also what's potentially at risk in, I think, just West Yorkshire is the area that you're in amongst those. Secondly, there's been quite a big increase in the CapEx guidance for the year, but not a very big increase in the adjusted net debt guidance. I was just wondering what the sort of reconciling item there is. And finally, you talked about having a look at owning electric buses in London. I mean what are the challenges around that versus owning diesel buses in London? Is it -- is it significantly more challenging to cascade electric buses into the regions to on to other London bus contracts? Graham Sutherland: Thank you, Gerald. And it was good to see the question starting before I even sat down. So I'm very impressed. I'll maybe take the first one on bus franchising. Look, I mean, obviously, we are in West and South Yorkshire. So that's clearly a risk for us, particularly given how some of these bids are formed with the ability only to win certain depots. But when we look at the opportunities outside, we kind of feel that we can balance the kind of risk/reward scenario here. And the fact that we've worked very hard to strongly capitalize our assets over the last few years with improved fleet, improved depot, I think it leaves us in a strong position in discussions with the local authorities in terms of how those assets are positioned and the future use within franchising. So I'm not going to quote individual subsector numbers, but I think the general feeling in the team is that we will come out of this process. We're likely to release some capital from the business in the areas where we have strong asset base. And we feel we've got the qualities and the experience now within our business, particularly bringing in the London business and what we've learned from that to be competitive in the bidding process. And obviously, that has started, the results of the first phase of Liverpool around the end of this calendar year. So we'll begin to get some insight as to where we stand in pretty short order. Ryan, do you want to take the second question on CapEx and net debt? Ryan Mangold: Yes. So CapEx is higher by GBP 30 million. It's primarily driven by us trialing the GBP 30 million, it's 59 EVs that we're trialing on a specific route in London, which is all electric that the business effectively retained and won that starts later this year. So the guidance is better than what we previously gave effectively with that sort of GBP 30 million going out and a couple of reasons for that. 1 is the GBP 20 million of escrow cash that's come into the business in the second half of the year as well as some underlying sort of cash -- stronger cash generation, particularly coming out of the rail business than what we originally anticipated. So a combination of those 2 factors offset against the CapEx in London is where the net debt guidance has ended being -- being slightly higher, but better off. And just also a reminder, we deployed GBP 10 million in growth M&A in the first half of the year as well. So we've got GBP 40-odd million and GBP 20 million back on the pensions escrow, but our net debt is slightly better than that, obviously, mathematically. Graham Sutherland: And then on the bus ownership in London. Ryan Mangold: Yes. So the EVs in London, I mean the TFL is committed to electrification in London. I think that the sort of risk of transition of technology in terms of how these EVs work and the warranties that the OEMs are now providing has kind of gone beyond the kind of risk factor that you previously, I think, would have taken and hence, kind of moving those to operating leases. I think the world is also moving to more post-IFRS 16 basis in terms of financial judgments. And I think there's quite a few bankers in the room. I think the banks eventually also start moving up to covenants to be sort of on a post-IFRS 16 basis. So your net debt to [ EBITDAR ] and your total cost of borrowing is going to be all kind of caught into one thing rather than just being simply off balance sheet. And combination of sort of commitment by TFL to go to electric. So we always have a use for those buses one way or the other is a positive. Technology improvements on the OEMs in terms of length of warranty is a positive. And if we can use our strong balance sheet to effectively kind of fund our business model in London at our WACC of 9% versus the WACC of the ROSCOs, then which is much, much higher, then we can sort of, in theory, kind of capture that benefit and that capture of that benefit really kind of translates into slightly higher margins. But we're just trialing this on a specific route. So we don't want people to think that we are just buying buses now in London. We're not going to uplease them. We're just trialing them on a specific route just to see that the kind of financial benefits are as we expect them to be over time. Graham Sutherland: Alex? Alexander Paterson: 3 from me as well, please. Firstly, just in the remote possibility that the budget doesn't like the blue touch paper of the U.K. economy and the consumer still doesn't feel great on the 27th of September. If commercial bus volumes remain somewhat subdued and the trend you saw in the first half continues, what sort of levers have you got? Should we expect more mileage reduction there? Secondly, if I can just elaborate on the bus franchising question. Manchester has obviously bought depots and fleet from previous operators. Birmingham has acquired a depot, look like they're going to buy more and fleet as well. What do you expect in the regions, where you think they may franchise? You talked about capital release. I don't know if you can quantify that at all. And then finally, just on the rail services, it sounds like you've had a very positive outcome on those continuing for longer. What do you think the end game is? Should we expect government provision of these services or private? If it's private, is there actually an opportunity for you to increase your market share? Graham Sutherland: Okay. Thanks, Alex. Very comprehensive questions. I mean the budget, obviously, when you look back a year, we obviously had to deal with national insurance contributions. I think the team worked very hard to manage that. The reality is when you're running a large business, you don't always deal with these issues in a 3-month period. So the reality is it's probably taken us right through to the end of the half year to do all the work that we wanted to offset those increased costs, and we will now see that in the second half. When we look at this budget, again, we will just deal with what comes our way. I mean, on volumes, we began to see volumes begin to -- this time last year, we were talking about volumes being up 4%. So clearly, there's been a number of impacts that have affected them. But we did see them begin to drop off in the January to March period and have largely been around the 4% level since then. We begin to cycle that effect out in January this year. And we're obviously working with various initiatives to stimulate more demand as well, including having put more frequency on in some of our larger urban areas to try and stimulate more demand. So we -- it's difficult to gauge, where volumes will be next year. But we still have population growth. We still have some macro tailwinds. So we do think it will settle down a bit, but we're prepared to deal with it, if we see softer volumes next year. So it's hard to call, but I do -- we do expect some improvement from the current level. In terms of bus franchising, yes, I mean, we have seen the signal from a number of areas that they want to own depot fleet in total. But we have also seen discussions around potentially a split fleet in certain areas given the lack of available funding to do the whole thing. So I don't think it's clear how that will completely play out. A lot of it will be down to choices at a Merrill authority level as to where they invest their money. I think the fact that we have a well-capitalized business is helpful. And also, we have available capital if the opportunity arises. So I think we'll lean into each individual situation as it kind of prevails. And as I said, if in Western South Yorkshire, they're looking at an ownership model, certainly the depots and maybe partially for the buses, then we're in a strong position to work with them to make that happen. So yes, so I think relatively positive in our ability to work there, but it's very hard to call out numbers because these are active negotiations, and they're not concluded at this point. I think then on rail services, the team have done a good job. There's no doubt about that. And we provide some high-quality expertise into the train operating companies, and we've been able to broaden some of these services beyond our -- obviously, into the external market, which is a positive. It's difficult to fully assess where GBR will go. But it's -- the reality is they may bring some in-house. They may combine and consolidate and look for 1 or 2 private sector partners. And at the end of the day, our job at the moment is to provide quality services, put good contracts in place, and then we'll respond to how the market evolves. But I think we have optionality here. And within the number, the GBP 125 million of cash receipts, that includes an assumption of how much rail services cash will be there. And we're more than comfortable with giving that guidance at this point. So evolving area. But since we last spoke, we have a better contract position now than we would have had 6 months ago, and that's encouraging. Ruairi Cullinane: Good morning. It's Ruairi Cullinane from RBC. The first question, I think the M&A was described as a U.K.-focused growth strategy. Should we infer from that, that you're likely to continue primarily buying businesses in the U.K.? And is there still a reasonable pipeline of opportunities there? Secondly, I was quite struck that bus CapEx could normalize towards GBP 100 million in the medium term. Is that -- does that come back to the shift to franchising and then more regions opting to own assets? And then finally, what have you assumed in terms of the timing of the exit of the remaining talks in terms of the upgrade of the cash inflow from DfT TOCs from GBP 120 million to GBP 125 million? Graham Sutherland: Okay. Thanks very much. On M&A, we are solely focused at this point in time on our U.K. pipeline of opportunity. We've been able to do over the last 18 to 24 months, 7 or 8 acquisitions. And we have a pipeline that at the moment that's made up of live opportunities under discussion and some more medium-term opportunities that we feel could come to the market. So our job right now is to run down those opportunities. They're a good fit with the strategy of the business in terms of more growth in bus and the potential to obviously completely optimize what's there on open access. So we feel there is enough there to have a strong growth story around bus and open access rail for the next 2 to 3 years. We -- as I've said before, we -- given the type of organization we are, stuff comes our way to assess and look at. So we will continue to look at opportunities outside the U.K., but we have absolutely -- at the moment, that's really just from a kind of good corporate citizen perspective. We are solely focused on driving and delivering the U.K. pipeline we have. And until that pipeline weakens, we have no real intention of looking elsewhere. Bus CapEx, Ryan, do you want to maybe take that one? Ryan Mangold: On the CapEx, there's a number of sort of variables on that. One of them being, obviously, as we transition towards franchising some of the markets, our own fleet in terms of our regional bus operations will be slightly smaller as a result of that. Now I kind of spoke a little bit earlier in one of the questions in terms of is it going to be depots and buses owned by the combined authorities or whether we can have a partner ownership. Now clearly, we're going to have to own the buses under that scenario, then clearly, the CapEx number will be higher, but that should then be reflected in the margins that those bids will go for in terms of cost of capital pricing. So that GBP 100 million kind of doesn't include the fact that we might have to buy buses under the franchising model, and we'll obviously update the market as and when that happens in terms of how the structure is going to end up. The other factor is that we've got a lot more confidence now on the electrification of our existing diesel fleet in terms of transitioning it from being a diesel fleet to an electric bus by just doing the -- putting in an electric drivetrain and battery. Normally, with the diesel bus about midlife, they'd have a massive engine replacement and a big refurbishment. And that happens instead of putting a diesel engine back into the bus, we're now putting in an electric drivetrain as well as the batteries. And that then gives us a sort of more limited amount of CapEx that we need to then spend to be able to electrify those fleets. And so that's -- I think we've got sort of 40, I think, in operation now, [ Janet ], I think from 30 in operation already, and we've got a sort of an investment in a business called KleanDrive, which is another one of these sort of adjacencies where we're trying to use our sort of scale and expertise to be able to help monetize the benefit of being a leader in this electrification journey for large fleets. And it's those sort of factors combined means that our overall CapEx, therefore, should be a lower number on a go-forward basis. But clearly, in the shortest term, whilst we've been successful in accessing government funding, which is very important to us in order to be able to continue this accelerated journey, then that CapEx level is generally higher. And you can see it from our average fleet age being down sort of just over 8.8 years currently versus starting out 11 years as early as 4 years ago. Graham Sutherland: And then on the TOC access, I mean, as we said during the presentation, we expect both of them to be transferred by the end of full year '27. Nothing has been announced by the government, but that's a kind of working assumption at this point. And as Ryan said, on the kind of cash upgrade number that we put out there is really a function of better operating performance and a little bit more longevity on some of our contracts, which is a positive. And I think it is worth saying as well that the operational performance, particularly Avanti in terms of what they can control outside of infrastructure failures has been very, very good. It's a significant step forward over the last 12 months and all credit to the team performing well above the industry averages on those metrics. So in terms of cancellations. So that obviously has a benefit as well in the short term. So I think general, just improved performance and contract longevity is really what's driving that upgrade. Any further questions in the room? Okay. Any questions on the web? Ryan Mangold: Currently no questions on the webcast. So I'll hand back for closing remarks. Graham Sutherland: Okay. Well, look, thanks, everyone, for coming along today, and thanks for all the questions. It's been fantastic to deal with them. And then look, the company continues to push forward and grow its key financial metrics, and we intend to continue doing that. So thank you very much for your time today.
Operator: Hello, and thank you for standing by. Welcome to Solana Company Third Quarter Operating Results Conference Call. At this time, participants are in a listen-only mode. After the speaker's 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 star 11 again. I would now like to hand the conference over to Serena Jassy, Investor Relations. You may begin. Serena Jassy: Before we begin, I would like to inform you that comments and responses to your questions during today's call reflect management's views as of today, November 18, 2025, only, and will include forward-looking statements and opinion statements including predictions, estimates, plans, expectations, and other similar information. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in the sections entitled Risk Factors in our annual report on Form 10-K filed with the United States Securities and Exchange Commission or the SEC on March 25, 2025, and in other subsequent filings with the SEC. Our SEC filings can be found on our website or on the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements. Please note that this conference call will be available for audio replay on our website under the news and events section of our Investor Relations page. With that, I would now like to turn the call over to Solana Company's Executive Chairman, Joseph Chi. Thank you. Joseph Chi: Good morning, everyone, and welcome to our first earnings call since we successfully raised over $500 million to fund our digital asset treasury strategy in September. I'm Joseph Chi, the Executive Chairman of Solana Company. I'm honored and pleased to be able to work with the capable board of directors and team closely since my appointment. Additionally, since 2017, I have served as the founder and chairman of Summit Capital, one of the earliest licensed funds in Asia that invest in the crypto blockchain sector. One of the co-sponsors for the PIPE transaction and now one of two strategic advisers to Solana Company. The Solana digital edge rate digital treasury strategy and the PIPE transaction mark a new beginning for Solana Company as its shareholders. Pantera Summer is committed to providing strategic support to accelerate the growth of the company going forward. The US dollar's $120 million investment by Pantera is the single largest cash investment in Pantera history. Pantera, together with Summer Capital and its ecosystem partners, accounted for roughly half of the total capital raised, underscoring their conviction in Solana Company's strategy and long-term potential, and the company's commitment to deliver results. I believe the background experience that Pantera and Summer give HSCT both global reach and institutional credibility. Since the closing of the PIPE transaction, we are now squarely focused on executing our digital asset treasury strategy. We aim to incorporate all of the learnings from our strategic investors about what has worked well, and what hasn't worked to really hone the plan. As we look forward, there are three pillars of execution we are focused on: advocacy, capital markets, and treasury management. First, let's talk about advocacy. Our goal is to maximize shareholder value and we believe we can do so through maximizing Solana per share accumulation. One key underlying assumption here is that Solana itself is worthy of investment. Therefore, our number one job is advocating for Solana or telling the Solana story to help investors understand why Solana is a compelling asset. Solana has become the most widely adopted and financially productive blockchain in the world. It now processes close to 80 million transactions per day with a median fee below one-tenth of a cent and provides a native staking yield of more than 7%. That combination of throughput, affordability, and productivity is why we believe Solana is the only blockchain that's both economically sustainable and institutionally relevant. We see that in the numbers, Solana is the number one chain in decentralized exchange volumes, the leading platform for stablecoin payments through integration with PayPal and Stripe, and one of the fastest-growing ecosystems for real-world asset tokenization with activities from firms like BlackRock, Franklin Templeton, and Apollo. It is definitely one of the most secure and decentralized blockchains built for institutional adoption. Our focus at HSDG has been on advocating for Solana matters not only to the crypto-native community but also to mainstream and traditional financial institutions globally. We believe this broader audience will ultimately determine which assets are relevant. As part of the effort, we have been productive in reaching outside of the crypto echo chamber and bringing Solana's story to the institutional world. Since our launch, HSDD has already appeared more than 10 times on main media such as CNBC and Bloomberg, helping bridge the conversation between traditional equity investors and the Solana ecosystem. Our adviser, Dan Moorhead, my partner, Cosmo Zhang, and I have been actively participating in media interviews, podcasts, relevant conferences, and events to promote Solana Company and its underlying assets not only in the US and UK but also in Asia and the Middle East. We and the Solana Company were featured in many local print and digital press in the regions mentioned. Each of these opportunities reinforces our central message: Solana's speed, cost efficiency, and real-world adoption make it one of the most credible and investable assets in our industry worldwide. Since we are the designated DAT to support Solana Foundation APAC region, we have traveled with the Solana Foundation senior management to Beijing, Shanghai, Hangzhou, Shenzhen, Hong Kong, and Singapore in the last two months. By organizing and attending multiple conferences, panels, and gatherings intensively over a few weeks, we have managed to reach out to thousands of people, including developers, investors, universities, research institutions, regulators, and industry partners, including major tech companies, to advocate for the Solana blockchain ecosystem. The enthusiastic participation on location and the conversations we had with the local communities made us realize that Asia is probably the single largest underpenetrated market with the highest potential for Solana. We believe it also has the largest population of keen users, developers, tech companies, and entrepreneurs ready to embrace the high-performance Solana blockchain. This outreach is translating into results. Trading volume in HSCT has meaningfully outperformed the average of peer DATs, including other Solana DATs, reflecting a growing awareness of Solana's fundamental confidence in a DAT model. We view this as an early indicator that our advocacy strategy is working, and investors are starting to view HSTT as the public gateway to Solana. As we committed to the investors during the fundraising process for the PIPE transaction, we have been focused on running the business with best market practices and the highest level of governance, diligence, and care. Cosmo will go through the outstanding results we achieved with the instantaneous activation of the ATM for fundraising, the tactical approach to Solana accumulation, and the rigor and discipline we apply through staking. We believe Pantera as the asset manager has delivered stellar results all around since we started with a new strategy. Just to reiterate, we are attempting to build a Berkshire Hathaway of the Solana ecosystem that compounds shareholder value and trades at a premium with a strong balance sheet, a clear strategy, and the expertise of a team that's experienced with DATs and is shareholder aligned with meaningful ownership. With that, I will turn it over to Cosmo to elaborate more on our strategy in Capital Markets and treasury management, and let's take a closer look at our third-quarter financials. Cosmo Jiang: Thank you, Joseph. I'm Cosmo Jiang, a Director for Solana Company and General Partner at Pantera Capital. Pantera brings deep experience as a digital asset specialist investment firm. Pantera was the first blockchain-dedicated institutional investment firm starting in 2013. Pantera anchored the first deals that catalyzed the digital asset treasury boom earlier this year, including coining the term DAT or debt. And as such, have unmatched experience in digital asset treasuries as well as the U.S. Capital markets broadly. I will now discuss the market environment and our launch progress. Now let me take a step back. It is important to acknowledge the broader market backdrop. Over the past several months, the digital asset treasury market has cooled after a period of rapid expansion earlier in the year. That is not unexpected. From an investor's lens, when I think back to what I mapped out as the white space roughly six months ago, now in our view, much of that white space has been taken. We just witnessed the creation of a whole new category of businesses over the last seven months, and the creation of a new category can only happen once. I believe this initial genesis phase of new dApps being launched is now largely over. Now that we see the white space as largely taken, we believe the industry is entering the execution and consolidation phase. The barriers to entry are a lot higher now for new entrants. Most DATs will be outcompeted and have uninteresting outcomes, ultimately resulting in healthy industry consolidation. We at Solana Company anticipate that this will be where the strongest DATs will prove themselves out and win out through operational excellence and capital discipline. We believe the best DATs can be amazing long-term outcomes for both shareholders and token holders. Those with credible management teams, transparent reporting, and durable token per share growth. We believe we have the ingredients to do so here at Solana Company. Our balance sheet strength, institutional sponsorship, and operational focus give us the foundation to continue building even in a more selective environment. As part of the company's continued commitment to maximize SOL per share through disciplined execution of its digital asset treasury strategy, including capital deployment, active on-chain management, and transparent reporting, Solana Company has increased its holdings of SOL by $100,000 or $100,000 in the first month of operation to a total of over 2,300,000 tokens. The company also still holds $9,800,000 of cash and stablecoins, which it intends to use to further the digital asset treasury. For the month of October, the company's average gross staking yield was 7.3% APY. This performance was approximately 36 basis points better than the 6.67% APY stake-weighted average of the top 10 largest validators over the same period. Solana Company's SOL holdings are primarily through institutional-grade validator infrastructure with rewards automatically restaked to compound returns. This staking yield translates to consistent daily on-chain revenue generation while preserving full liquidity and custody of underlying assets. Let me elaborate on the next two of our execution pillars, capital markets and treasury management. Capital market strategy is one of our pillars for execution, a driver of Solana per share growth. The objective is straightforward: to maximize tokens per share, disciplined capital formation, and balance sheet management. We are focused on ensuring that every financing decision, whether equity or equity-linked, is structured to be accretive, meaning it increases the number of SOL per share for our existing shareholders. As mentioned earlier, we have launched our ATM program and recently also announced a share buyback. The ATM is an important tool for a DAT. It allows us to access liquidity continuously and on efficient spreads rather than relying on episodic and uncertain capital raises. The buyback is an important complement. Whether we are trading at a premium or a discount to MNAV, we now have the flexibility to act in ways that maximize Solana per share growth. When we trade above our NAV, the ATM allows us to issue accretively. When we trade below NAV, we can use other tools such as share buybacks. Beyond that, we are evaluating structured equity transactions including convertible debt and warrant-linked financings that could provide flexible, non-dilutive growth capital while monetizing Solana's inherent volatility. Finally, we are open to participating in M&A within the DAT ecosystem. As we move from the launch phase of the market into the execution phase, we believe consolidation will naturally occur. HSCT is well-positioned to be an acquirer where it makes strategic sense, particularly in cases where smaller DATs trade below 1x MNAS and can be integrated accretively. Now to treasury management. As the asset manager, Pantera's expertise is really helpful here. That experience is already reflected in our execution. On our Solana purchases, we have been deliberate and data-driven. Our average cost basis is approximately $220 per SOL, to about $240 at launch, representing roughly a 10% improvement versus a passive approach. On the validator side, we've also been disciplined in how we stake. In October, as mentioned above, we outperformed our peers, and that comes from careful validator selection, MED capture, and continuous rebalancing. We believe that is a meaningful amount of outperformance versus what any individual investor may be able to achieve, and even many other publicly traded Solana DATs. Looking ahead, DeFi yield opportunities are on our roadmap, but only where we can identify risk-adjusted returns that make sense. We are carefully evaluating counterparty, smart contract, and regulatory risks before deployment. The goal is not to chase yield, it is to grow tokens per share in a sustainable, risk-controlled way. We believe through this approach of disciplined accumulation, active validator management, and selective yield enhancement, we are building a treasury that compounds value per share, not just one that holds tokens passively. I would now like to turn the call over to Dane Andreeff for updates on the company's legacy business, its orally applied technology platform. Dane Andreeff: Thank you, Cosmo. At its core, the company was founded as a neurotechnology company dedicated to addressing neurologic deficits through its innovative orally applied technology platform. This proprietary platform enhances the brain's ability to activate physiologic compensatory mechanisms, promoting neuroplasticity and improving the lives of individuals with neurological conditions. The company's first commercial product, the portable neuromodulation stimulator, or PoNS, exemplifies its mission to advance neurorehab through science and technology. The company has made some exciting progress over the past quarter, both clinically and strategically. The PoNS stroke registration program study was successfully executed, resulting in positive clinical outcomes. The successful results of the stroke registrational program supported our PoNS device submission for FDA 510(k) designation filed under its current FDA breakthrough device designation. Statistical analysis for the functional gait assessment primary endpoints demonstrated PoNS' superior effectiveness in improving gait deficit by achieving a clinically meaningful mean improvement compared to the control group, reflecting the clinical significance of this therapeutic intervention. In the third quarter, we have seen increased US activity, including increased VA and cash sales. This has been supplemented by additional out-of-network third-party reimbursement. We are happy with the progress made at Healius this quarter and would like to reiterate our excitement that this strategic evolution represents Healius' next chapter as Solana Company. By aligning its corporate strategy with the Solana Foundation and the broader Solana community, Solana Company positions itself at the intersection of breakthrough neuroscience and digital asset innovation, uniting two powerful platforms for sustainable growth and technological progress. I'm excited for the future of Solana. Now I would like to turn the call over to Jeff to cover the financial results. Jeff Mathiesen: Thank you, Dane. Our financial results include the $500 plus million PIPE transaction that closed on September 18, 2025, and related DAT activities from that date through the end of the quarter. Our third-quarter revenue of $697,000 included first-time staking rewards income of $342,000, comprising the majority of the increase from the prior year period. For the third quarter, the cost of revenue was $103,000 compared to $187,000 for the prior year period, mainly due to decreased inventory reserve and production scrap expenses. Selling, general, and administrative expenses for 2025 were $4,600,000 compared to the $2,900,000 reported in 2024, with the increase comprised of a $101,500,000 discretionary bonus in the current year. Research and development expenses for 2025 were $900,000 compared to $1,100,000 in 2024, driven primarily by reduced clinical trial activities. Unrealized loss on digital assets of $30,500,000 resulted from the net change in fair value of digital assets held by the company as of quarter-end. Total operating expenses for 2025 were $36,000,000 compared to $3,900,000 in 2024. The resulting loss from operations for the third quarter of 2025 was $35,400,000 compared to a loss of $4,100,000 for the prior year period. The current year non-operating loss in the third quarter of $317,300,000 included a $545,700,000 loss on derivative liability attributable to the valuation of the staples warrants from the September PIPE transaction and $194,700,000 of financing costs from the September PIPE transaction, including a $171,300,000 non-cash charge from the advisory warrants issued and an $8,600,000 non-cash charge for shares issued to Clear Street, offset by a $423,300,000 gain from the change in fair value of the derivative-related derivative liability from those stapled warrants as of September 30, 2025. We reported a net loss for 2025 of $352,800,000 or a loss of $32.89 per share. We had a net loss of $3,700,000 in the prior year period or a loss of 744.35¢ per basic and diluted common share. At September 30, 2025, we had $124,000,000 in cash and $350,200,000 of digital assets at fair value for a combined total of $474,200,000. Also at that date, we had a combined total of 75,900,000 common shares and prefunded warrants outstanding. Finally, as of November 17, 2025, certain provisions of the 2025 stapled warrants related to adjustments of the Black-Scholes inputs in determining the warrant value in the event of a fundamental transaction were amended. I'll now hand it over to the operator for questions. Operator: Thank you. Ladies and gentlemen, as a reminder to ask a question, please press 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press 11 again. I'm showing no questions in the queue. I would now like to turn the call back over to Joseph for closing remarks. Joseph Chi: Well, thank you all for joining the Solana Company third-quarter operating results update. We are pleased by the strategic change and progress we have made this quarter and look forward to sharing further updates next quarter. Thank you. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Varex Imaging Corporation Fourth Quarter Fiscal Year 2025 Earnings Conference Call and Webcast. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Now my pleasure to turn the call over to Christopher John Belfiore, Director of Investor Relations. Go ahead, sir. Good afternoon and welcome to Varex Imaging Corporation's earnings conference call for the fourth quarter and fiscal year 2025. Christopher John Belfiore: With me today are Sunny S. Sanyal, our President and CEO, and Shubham Maheshwari, our CFO. Please note that the live webcast of this conference call includes a supplemental slide presentation that can be accessed at Varex Imaging Corporation's website at vareximaging.com. The webcast and supplemental slide presentation will be archived on Varex Imaging Corporation's website. To simplify our discussion, unless otherwise stated, all references to the quarter are for 2025 and to the year are for fiscal year 2025. In addition, unless otherwise stated, quarterly comparisons are made year over year from 2025 to 2024. Finally, all references to the year are to the fiscal year and not the calendar year, unless otherwise stated. Please be advised that during this call, we will be making forward-looking statements which are predictions and projections about future events. These statements are based on current information, expectations, and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. Risks relating to our business are described in our quarterly earnings release and our filings with the SEC. Additional information concerning factors that could cause actual results to materially differ from those anticipated is contained in our SEC filings, including Item 1A Risk Factors of our quarterly reports on Form 10-Q, and our annual report on Form 10-Ks. The information in this discussion speaks as of today's date, and we assume no obligation to update or revise the forward-looking statements in this discussion. On today's call, we will discuss certain non-GAAP financial measures. These non-GAAP measures are not presented in accordance with, nor are they a substitute for, GAAP financial measures. We provide a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure in our earnings press release, which is posted on our website. With that, I will now turn the call over to Sunny S. Sanyal. Sunny S. Sanyal: Thank you, Chris. Good afternoon, everyone. Thank you for joining us for our fourth quarter earnings call. We are pleased to report a strong finish to the year, with fourth quarter revenue of $229 million, up 11% year over year and at the high end of our guidance. During the quarter, we saw strong demand from our global CT customers and continued to see strength in our industrial segment, which posted its highest revenue quarter ever at $77 million. Non-GAAP gross margin of 34% in the fourth quarter was above the high end of our guidance, benefiting from the higher volume and favorable product sales mix in the quarter. Turning to the fourth quarter results, total revenue was up 11% year over year with the Medical segment up 5% and the Industrial segment up 25%. Non-GAAP gross margin of 34% was 130 basis points higher than that in the same quarter last year. Non-GAAP earnings per share in the fourth quarter was $0.37, up $0.21 compared to last year. Looking at results for the full fiscal year, total revenue of $845 million increased 4% compared to fiscal 2024. Medical revenue of $593 million increased 2% year over year, and industrial revenue of $252 million increased 10%. Non-GAAP gross margin of 35% was 230 basis points higher than last year. Non-GAAP EBITDA at $122 million was up $33 million from $89 million last year. Non-GAAP earnings per share for the year was $0.90, up $0.35. We ended the year with $155 million worth of cash, cash equivalents, and marketable securities on the balance sheet, compared to $213 million last year. Recall that during the third quarter of fiscal 2025, we used approximately $75 million of our cash to retire our convertible debt. Let me give you some insights into sales detail by modality in the quarter, compared to a five-quarter average, which we refer to as sales trend. Our Medical segment saw strong demand in the quarter led by global sales of CT tubes, which were above its sales trend. Sales in fluoroscopy and radiography were also above their respective sales trends in the quarter, while sales in mammography and dental modalities were in line with their respective sales trends. Sales in our oncology modality were below its sales trend. Our Industrial segment posted its strongest quarter ever as demand for security screening continued to drive sales of security inspection systems and components globally. We also saw positive trends in nondestructive testing and inspection in the aerospace and defense and food inspection verticals, as our customers continue to find new ways to use our technology to solve problems they were unable to address in the past. During fiscal 2025, we advanced our key growth initiatives, including the introduction of innovative new technologies like photon counting for CT, a radiographic detector for the value segment from our new facility in India, and cargo systems in industrial. In photon counting, during fiscal 2025, we worked closely with our OEM customers as they continue to advance their product development process. We also made significant progress with our photon counting CT project with the Technical University of Munich. In addition, we completed the first stage of our India expansion plans and have begun to ramp up production and shipments of radiographic detectors from this facility. In Industrial, we are very pleased with how our cargo inspection systems business performed in fiscal 2025. During the year, we booked over $55 million in orders and shipped over 15 systems to several countries, including Mexico, Iraq, Brazil, and Saudi Arabia. We continue to be focused on establishing our sales channels for cargo inspection systems by building on our strong relationships and reputation for quality and innovation in this vertical. With that, let me hand over the call to Shubham Maheshwari. Shubham Maheshwari: Thanks, Sunny, and hello, everyone. Let me begin by sharing a breakdown of our revenues for both the medical and industrial segments. Providing this information annually offers valuable context for understanding our performance and the strength of our business. Our Medical segment spans nearly all X-ray imaging modalities, underscoring the breadth of our capabilities and market presence. Total medical sales for fiscal 2025 were $593 million, with CT as the largest modality and accounting for 40% of total medical revenue. These CT sales are primarily driven by X-ray tubes as we currently do not participate in the supply of detectors for this modality. From a geographic perspective, the Medical segment remains well balanced across all three regions, reflecting our strong global partnership with leading imaging OEMs. The slight skew toward APAC in fiscal 2025 was fueled by a recovery in China and increased sales to our top customer, Canon. In fiscal 2025, revenue from our Industrial segment grew to $252 million, serving a highly fragmented customer base. The security vertical accounted for roughly 41% of total sales, up from 40% in fiscal 2024. This growth was driven by strong performance in our security Inspection Systems business, which gained significant traction since its introduction early in fiscal 2025. Our top 10 customers were 52% of revenues in fiscal 2025, and revenue from our largest customer, Canon, grew 6% year over year. Turning to the fourth quarter, our performance exceeded expectations. Revenues of $229 million were at the high end of our guidance. Non-GAAP gross margin of 34% and non-GAAP EPS of $0.37 were above expectations. Compared to the same period in fiscal 2024, total revenues increased 11%, driven by a 5% increase in medical and a 25% increase in industrial, primarily from cargo system shipments. Medical revenues were $152 million, and industrial revenues were $77 million, representing 66% and 34% of total revenues, respectively. This marks the highest quarterly contribution of industrial revenue to total Varex Imaging Corporation history, a milestone that speaks to the strength of our diversification strategy. Now analyzing regional performance, Americas grew 9%, EMEA rose 16%, and APAC increased 8% year over year. Sales volume to China remained steady, contributing 14% of total revenues, underscoring the resilience of our healthcare market position despite the tariff challenges. Let me now cover our results on a GAAP basis. Fourth quarter gross margin was 34%, an improvement of 140 basis points year over year, reflecting our continued operational discipline. Operating expenses were $58 million, up $2 million compared to 2024. We reported operating income of $20 million, net income of $12 million, and GAAP EPS of $0.29 per share based on fully diluted 42 million shares. For the full fiscal year 2025, gross margin was 34%, up 270 basis points year over year, demonstrating strong margin improvement. Operating expenses totaled $318 million, an increase of $94 million compared to fiscal year 2024. As noted previously, the primary driver was a non-cash goodwill impairment charge of $94 million taken in Q3. This resulted in an operating loss of $28 million, a net loss of $70 million, and a GAAP loss per share of $1.70 based on fully diluted 41 million shares. Now moving on to the non-GAAP results for the quarter. Gross margin in Q4 was 34%, up 130 basis points year over year, primarily due to the higher volume and a favorable product sales mix. For the full year, we delivered a gross margin of 35%, up 230 basis points year over year and in line with the goal we communicated at the start of the year. R&D spending in the fourth quarter was $24 million, an increase of $2 million compared to 2024 and representing 10% of revenues. R&D was $91 million for fiscal 2025, an increase of $4 million compared to last year and represented 11% of revenues. For both the quarter and year, the increase in R&D was primarily due to investment in growth initiatives, including security systems in photon counting and radiographic in medical. SG&A expense was $31 million, in line with 2024 and representing 14% of revenues. For the full year, SG&A expense was $122 million, down $1 million compared to last year and representing 14% of revenues. Operating expenses totaled $55 million, an increase of $2 million compared to 2024 and represented 24% of revenues. For the full year, operating expenses totaled $213 million, an increase of $3 million compared to fiscal 2024. Operating income was $23 million, an increase of $9 million compared to the previous year, and operating margin was 10% of revenue, up from 7% in 2024. For the full year, operating income was $80 million, an increase of $28 million compared to last year, and operating margin was 9% of revenue, up from 6% in 2024. Tax expense in the fourth quarter was $2 million or 14% of pretax income compared to a $2 million benefit in 2024. For the full year, tax expense was $11 million or 22% of pretax income compared to $1 million in fiscal 2024 or 3% of pretax income. Net earnings were $15 million or $0.37 per diluted share, up 131% from $0.16 in the year-ago quarter. Average diluted shares for the quarter on a non-GAAP basis were 42 million. For the full year, net earnings were $0.90 per diluted share, up 73% from $0.52 in fiscal 2024. Average diluted shares for the full year on a non-GAAP basis were 41 million shares. Now turning to the balance sheet. Accounts receivable increased by $20 million, and days sales outstanding increased by one day to 62 days. Inventory held steady at $299 million in the fourth quarter, and days of inventory decreased by 21 days to 180 days. Accounts payable decreased by $1 million, and days payable decreased five days to 42 days. Now moving to debt and cash flow information. Net cash flow from operations was $8 million in the quarter. We ended the quarter with cash, cash equivalents, and marketable securities of $155 million, up $3 million compared to the third quarter of 2025. Compared to fiscal 2024, cash was down from $213 million, primarily due to the use of $75 million to reduce our debt in June. Gross debt outstanding at the end of the quarter was $370 million, and debt net of $155 million of cash, cash equivalents, and marketable securities was $215 million. Adjusted EBITDA for the quarter was $35 million or 15% of sales. Our trailing twelve months adjusted EBITDA was $122 million, and our net debt leverage ratio was approximately 1.8 times adjusted EBITDA on a trailing twelve-month basis. Over the years, our net leverage ratio has continued to come down, and this year's performance marks the lowest level we have reported as a public company. This achievement underscores our commitment to deleveraging and reflects our ability to establish a stable long-term capital structure since our spin-off from Varian. Now moving on to the outlook for the first quarter. Guidance for the first quarter is as follows. Revenues are expected between $200 million and $215 million. Non-GAAP earnings per diluted share are expected between $0.05 and $0.25 of profit. Our expectations are based on non-GAAP gross margin of 32% to 34%, non-GAAP operating expenses of approximately $52 million, interest and other expense net in a range of $8 million to $9 million, tax rate of about 23% for the first quarter, and non-GAAP diluted share count of about 42 million shares. I would like to now hand the call back to Sunny for some thoughts on the year ahead. Sunny S. Sanyal: Thank you, Sam. Looking back, we faced a challenging start to fiscal 2025 due to the unpredictable global tariff situation. However, as we had anticipated, our customers' ordering patterns normalized once the tariff situation stabilized. Looking ahead, our customers in China are projecting stronger orders and sales for 2026 compared to 2024 and 2025. Last year's uncertainty around the implementation of stimulus programs led hospitals to delay imaging equipment purchases, but this appears to be behind us. Customers in China are now saying that they are seeing increased tender activity driven by demand for value-tier and mid-tier CT systems to support rural healthcare expansion plans. I am also happy to say that we were recently informed by MOFCOM that investigations regarding CT tube pricing have been paused indefinitely. We are intensifying our efforts to strengthen geopolitical resiliency through supply chain and manufacturing regionalization. We have also raised prices and are charging our customers for tariffs. Together with export-oriented manufacturing and localized or regional supply chains, we have put several measures in place to position Varex Imaging Corporation better to withstand current and future trade challenges. These operational and supply chain initiatives are reinforcing our customers' confidence in Varex Imaging Corporation as a premier long-term partner. We plan to continue to invest in R&D to strengthen our competitive edge. Looking at other future growth markets, such as India, South Asia, The Middle East, and Latin America, we see value-tier and mid-tier products in both radiographic and CT playing a critical role in driving our future growth. Our strategy is to lead with innovation while also maintaining cost-effectiveness in these segments. Our investments in supply chain, cost-effective product designs, and expanded low-cost manufacturing in India are central to our strategy to drive growth in the value and mid-tier segments. Our detectors factory in Vizag, India is ramping up production of our radiographic detectors, and we are expanding the site to enable even greater vertical integration to support further product cost reduction efforts. We continue to advance our photon counting CT detector offering with our anchor OEM customers. We are engaged with additional OEMs to secure design-ins. A couple of years ago, we announced a collaboration with the Technical University of Munich to develop a technology demonstrator for our photon counting CT system. Over the past two years, this project has achieved key milestones, and we plan to showcase this system for customers at major trade shows in 2026. Our goal is to demonstrate the value proposition of photon counting CT beyond just higher resolution images. We know that photon counting technology offers potential for more precise material discrimination, and we hope to be able to show clinical value and improved workflow with our capabilities. This system will also showcase the added value of integrating multiple Varex Imaging Corporation components, such as our high-power CT tubes optimized for photon counting detectors, along with our high voltage generator connectors and heat exchangers. By enabling customers to experience the full capabilities of our X-ray components and photon counting detector technology within a fully functional CT system, we intend to accelerate the adoption of Varex Imaging Corporation's photon counting CT detector offering. November 8 marked World Radiography Day, commemorating Roentgen's discovery of X-rays 130 years ago. Since then, X-rays have largely been generated the same way, using a heated filament in a vacuum tube. Looking beyond photon counting, we expect nanotube-based cold emitters to enable a new generation of X-ray sources that will drive the development of new imaging applications for decades to come. We are continuing to invest in nanotube-based cold emitters and are making progress with this technology in collaboration with several innovative OEMs who are developing novel applications. As with any foundational technology, bringing applications to market takes time. We plan to provide more visibility to this technology at trade shows in fiscal 2026. On the Industrial segment side, progress on our products and implementations of our systems are on track, and we are planning to scale up production capacity of our cargo systems in fiscal 2026. Recently, we shipped a batch of our VXM6 mobile cargo system to our European customer, and we are now preparing to implement our channels. Overall, we are happy with our performance in fiscal 2025 and are looking forward to another year of solid progress towards our strategic plans in fiscal 2026. These include exiting fiscal 2026 with additional OEM design-ins for photon counting CT, ramped-up detector production in India, introduction of new products in cargo systems, increased traction with new bendable industrial detectors, and more OEM integration of nanotubes in multi-beam medical applications. I want to thank all our employees and partners worldwide for their hard work and dedication. Their efforts and flexibility have been instrumental in delivering a solid year and driving the innovation that powers our growth initiatives in medical and industrial. Together, we are building momentum and shaping the future of our business. Thank you, everyone, for your commitment and passion for making this possible. With that, we will now open up the call for your questions. Thank you. We will now be conducting a question and answer session. Operator: Our first question is coming from Suraj Kalia from Oppenheimer. Your line is now live. Suraj Kalia: Sunny, Sam, can you hear me all right? Sunny S. Sanyal: Yes, Suraj. How are you? Suraj Kalia: Gentlemen, congrats on a strong end to the year. Sunny, Sam, one of the comments you all made in your prepared remarks, appreciate you giving us some incremental detail and maybe I got my numbers wrong. Top 10 customers were 52% of sales. If I got that right, because it is split between medical and industrial, how should we think about the sustainability just given the customer concentration? Sunny S. Sanyal: Yeah. Yes, Suraj. Thanks for your question. I can try to answer that. So the sustainability and for a number of years, top 10 customers generally for us are in that range, 50-55% range. So this number is very much within the range over the last many, many years. The reason we do not break out medical versus industrial, Suraj, is that the vast majority of those top 10 customers are medical. And sometimes one industrial customer might be there, and if we begin to break that out, then it can become public information for that one customer, which is not something that for commercial reasons we are doing at this time. So that is the reason we do not break it out between industrial and medical. Suraj Kalia: Got it. Sunny, obviously for the last two quarters, medical has been somewhat soft, but it has been more than compensated by industrials. Can you just walk us through what specifically are we seeing some sort of a structural shift? And as we enter 2026, do you think any of the systemic forces could change, you know, as you go through the year specifically within these two buckets? Gentlemen, thank you for taking my questions. Sunny S. Sanyal: Thank you, Suraj. So Suraj, industrial as a percent of our overall sales has been growing. So it is approaching 30%, and we expect it will get up to mid-30s. So that is a trend that has been consistent. It has been consistently growing and growing faster than medical. Within medical, any movement between modalities or between China and non-China tends to be largely, I would say, that volatility is month to month, quarter to quarter, and it moves around. What we have been seeing though increasingly is given the geopolitical situation, more of our non-Chinese OEMs are asking us to ship product to them from our Chinese facilities, from our facility at Wuxi. So it is very difficult for us to now maintain consistency in between China and ex-China within the medical segment because of that phenomenon. Suraj Kalia: Sunny, forgive me. Can I ask another question? Sunny S. Sanyal: Yes. Yes. Suraj Kalia: Sunny, just I am sure you have heard in the news, GE is thinking about or there is some speculation about them kind of selling or divesting their China business. Siemens Healthineers is splitting out. Any implications for Varex Imaging Corporation per se, maybe not in the short term, but how do you see if these happen, do you see any impact to Varex Imaging Corporation? Thank you. Sunny S. Sanyal: So the vast majority of our business in China comes through our Chinese OEMs. So from that perspective, these announcements really do not have any significant implications for us, although our non-Chinese OEMs, our global OEMs do some business in China. So but we are not anticipating a significant impact from at least a couple of examples that you cited. Secondly, our Chinese OEMs are also increasingly commercially focused outside of China. So at the end of the day, for us, it is all about building our franchise of OEM partners and securing design wins, and the geography while they start in one place, they can all end up in another place. Virtually, most of our customers used to be concentrated in one geography, and then they moved global into other geographies. And we are seeing that out of our customers in China as well. Thank you. Operator: Thank you. Our next question is coming from Lawrence Scott Solow from CJS Securities. Your line is now live. Lawrence Scott Solow: Great. Thank you. Good afternoon or good evening. I guess first question, Sunny, Sam, I know you do not give full-year guidance. I do not want to make too much of Q1. I know seasonally it is a little bit slower. But I guess it looks like you have like kind of flat to 8% growth, so mid-single-digit for the quarter, 4% to midpoint. Is there anything we could glean from that the quarter in reference to the full year? Qualitatively, it sounds like things are going pretty well, both on medical and industrial. So just trying to get any high-level outlook for the full year that you can share would be great. Sunny S. Sanyal: Sure, Larry. Let me answer that question. Yes. At this point, the demand environment looks to be solid. And we expect full-year revenues to grow. We are expecting the medical business to grow for the year. We also expect the industrial business to grow. And we are expecting the medical business ex-China to grow, and at the same time, we are modeling China to be flattish. So that is some additional color that I can provide you for the full year. You know, and you mentioned that we do not guide annually just for various reasons. And so that is the color I can provide. And then trying to glean more from Q1 into the full year, I would say for this coming fiscal year, Q1 and Q3 comps are somewhat easier for us in the sense because of tariff and this and that, you know, business volumes followed some more of an unusual pattern for us in FY '25. But FY '26, everything seems to be normal. So I would expect through the year, through various quarters, we would see normal gradual growth through the year as opposed to the up and down pattern that we saw in FY '25. So I would say Q1, Q3 easier comps, Q2, Q4 a little bit more difficult comps. But overall, we should see gradual growth through the year as is our typical pattern. Lawrence Scott Solow: Got you. And the China piece specifically, you are assuming kind of flat or is in your budget. Not the full-year guidance because you are only going to share that with us. But it sounds like your customers in China expect growth. Although I know you also mentioned that it is a little bit to figure out now because you are shipping from China more often than not than you were previously, but any thoughts on that? Sunny S. Sanyal: Yeah. It is becoming more and more difficult. Our customers, global customers, are changing their supply chains. But to the extent that what we can model, we are seeing China as stable, stable to slight growth, but given the tariff and all of the uncertainties around the U.S.-China situation, we are modeling essentially a stable and a flattish China for the coming year. Lawrence Scott Solow: Okay. And I want to just ask on industrial, if I can slip in one more question. Sunny S. Sanyal: Yes, sure. Go ahead. Lawrence Scott Solow: Really strong. Sunny S. Sanyal: Yes, the quarter was strong. The year was strong. The quarter was really strong, obviously. I know a few million dollars could jack up those percentages a little bit, but also the gross margin was really strong in the quarter. Was there anything I am just trying to figure out, I know you have the standalone systems now, but sometimes the mix will actually drive higher revenue on the service side. So but that would not be a lumpy higher revenue number. So any color to that strong performance, particularly on the margins in the quarter in Industrial? Sunny S. Sanyal: Sure. I can try to answer that. So you are right, Larry. Industrial gross margins were quite a bit better than our expectations for this past quarter. You know, we experienced a higher than usual proportion of service revenues on our Linux installed base. And as you know, the service business is at much higher margin than the hardware equipment gross margins that we experience. So because of that service and time and material, which is generally unplanned service business experience. So that drove our gross margin higher for the quarter. So in order to kind of glean more than that, I think this is a little bit unusual for the industrial business to produce that type of margin. We are shipping currently a decent amount of hardware. So I would say that Q4 gross margin was not the norm, but we did benefit from higher as a normal service. Lawrence Scott Solow: And and Sunny S. Sanyal: Yeah. Yeah. Go ahead. Sorry. And I was saying that Sunny S. Sanyal: when I say if you go back two years ago, our industrial margin had much more of a service component to it. And at that time, we could do 35-37, 38-40% gross margin. And what I was going to add there is that my comment is more on the near to mid-term, but in the long term, say when you are thinking of say two years and stuff, when a lot of this hardware that we are currently shipping goes into service, that should provide a nice gross margin tailwind for us. And we would like to see our industrial margins go back up to 38-39%, 40% in that range. Lawrence Scott Solow: Great. That is exactly where I was going. I appreciate that. Thank you. I am also I appreciate all that call. Thank you. Operator: Thank you. Our next question is coming from James Philip Sidoti from Sidoti and Company. Your line is now live. James Philip Sidoti: Hi, good afternoon. Thanks for taking the questions. So your revenue came in well above my estimate, well above your guidance in the street. Was there anything unusual? Did you pull any sales in from the first quarter or anything unusual in this fourth quarter that led to the revenue growth? Sunny S. Sanyal: Jim, no. There was nothing unusual here. There always is a little bit of a push and pull driven by our own customers and their freight optimization type of a situation that can happen. But nothing to speak about in terms of pull-in or push-out. It is just that the demand in both the segments was strong. And we benefited from that. And also, we did ship cargo systems in this last quarter, and they can be they can be $1 to $2 million per system. So that can swing the numbers. One or two systems can increase the number. As opposed to tubes or detectors, which are generally in the $50,000-$75,000 in that type of a price range. Versus $1.5 million to $2 million type of a system. So that is a little bit more color behind the strong performance for Q4. James Philip Sidoti: Okay. And I believe you said China was 14% of revenue. So I am just checking my math, $32 million compared to about $30 million a year ago. Does that sound right? Sunny S. Sanyal: That is correct. This last quarter, China was $32 million. Yeah. And a quarter ago, I have $31 million, but it might just be rounding, Jim. James Philip Sidoti: Yeah. No. I was comparing to 2024. Sunny S. Sanyal: Yes. James Philip Sidoti: Okay. Alright. And India, it sounds like you started to ship the detectors. Do you expect those to ramp over the next couple of quarters? And when do you expect to start to ship tubes? Sunny S. Sanyal: Okay. So when it comes to India, yes, we have started to ship detectors from India. So now the factory, as you just said, we expect it to ramp up over FY 2026. So we are really excited about that. We are planning to ramp that up. And then the tubes factory, that is still under construction, although I would say it is towards the later stages of the construction schedule. So once we complete the construction, then we need to bring in equipment and then qualify the equipment. Run trial runs, etcetera, and make sure it is all optimized and qualified. So I would say that factory is still now twelve months away from production, or from product shipments, twelve to fifteen months. But we made a lot of progress there on the tube side. And of course, detectors, it started to ramp. James Philip Sidoti: Okay. And as the business from India grows, should we see that in growth an improvement in gross margin? Or are those lower margin products? Sunny S. Sanyal: Yes. So as you know, Jim, gross margin has many factors to it. Which is overall cost, new product introductions, as well as what the tariff environment is doing, and of course, concentration, product and everything else like that. But just isolated to India, there are two aspects in India that are happening. Some of the legacy product that we transfer from Salt Lake City to India, of course, that product will see a pickup in gross margin. So that is one aspect of India. So that should see gross margin improvement. However, the amount of product that we will transfer from Salt Lake City to India is mostly radiographic, and it is a very small proportion of overall revenues. We are talking $10 million, $20 million, $30 million and not more than that. So that is a small amount of revenue that ships from India eventually, which is transferred from Salt Lake. But our bigger plans from India are to be more competitive in the radiographic segment, sub-segment of our medical segment. And so, as we begin to ship from there, and then as commercial, competitive, and all other dynamics play out, we will be able to provide you more color. But overall, we are thinking that the new business piece is corporate average gross margins, not necessarily a big driver for an upward momentum to gross margin. So those are the two areas of color I can provide you as it comes to gross margin. Separately, outside of India, as it comes to overall color for gross margin for the company, you know, we have been doing a lot of work trying to take cost out, trying to pass tariffs related costs to our customers, and we are being successful at that. So that is helping our gross margin. And then as photon counting detector related products begin to ship, and as some of our new products in cardiovascular, etcetera, begin to ship, that should provide a little bit more tailwind to our gross margin. So I would say, India, impact on gross margin is there. But small. India enables us to grow in the RAD segment for medical, but our cost reduction and other new products actually provide more of a tailwind for our gross as we look into late 2026 and 2027. James Philip Sidoti: And then last one for me, R&D. I know that expense can move up and down. Know that I think you had a payment to Micro OX in the first quarter. But in this quarter, was up almost $3 million on a GAAP basis. From the June. Was there non-cash expense in there? Is that the timing of projects? How should we think about R&D? I know you said it will be up or you are going to continue to spend in R&D, but should that number continue to rise year over year? Sunny S. Sanyal: So, Jim, in R&D, there is a lot of expense that is, you know, engineers like to play with, you know, experiment with materials and everything else. And also, we need to buy material to build new prototypes. So and that is generally not on a linear basis across quarters. So it can jump up and down a couple million or $2 million here and there. So that is what happens in R&D. But what I can say is overall OpEx for the coming year, we are planning it to be lower than this last fiscal year. So all I can say is that OpEx should be around $52 million, $53 million a quarter. For the full year as we go through the year. James Philip Sidoti: Okay. Thank you. That is very helpful. Sunny S. Sanyal: Yeah. Thank you, Jim. Operator: Thank you. Next question today is coming from Anderson Shock from B. Riley Securities. Your line is now live. Anderson Shock: Hi, thank you for taking the questions and congrats on a really strong quarter and into the year. So you mentioned a batch of VXM mobile cargo inspection systems to a European and then implementing a rail cargo scanner this year, I guess in 2026. Is there any color you can share on the size of these orders and the timeline of shipping these? And I guess how should we think about growth in 2026 compared to the $55 million in orders in 2025? Sunny S. Sanyal: Yeah. We have not given specific color around that in that detail. We are expecting a growth year out of our cargo systems. So maybe I will just leave it at that. I mentioned the VXM6, the cargo and the rail scanner as examples of new products. So at this point, for the products that we had set out to build and market in cargo system, there were portals, gantries, mobiles, car scanners. They are all of them are the products are there, and they are manufacturable, and we shipped them to customers. And they have either been installed or in the process of being installed. So that was my point about giving the color about these systems. Anderson Shock: Got it. And then did I hear correctly that the anti-dumping investigations in China have been paused indefinitely? Sunny S. Sanyal: Yes. There were two investigations. One was antidumping, that is a pricing matter. And the second one was an industry investigation, and both have been paused without any end date, definitely. Anderson Shock: Okay, got it. Thank you for taking our questions. Sunny S. Sanyal: Thank you, Anderson. Operator: Thank you. Next question is a follow-up from Lawrence Scott Solow from CJS Securities. Your line is now live. Lawrence Scott Solow: Great. Just quickly. I know you do not guide sensitive products, but so the $55 million in orders that you got for the systems are a little bit more than that. Bit for the security screening. Is that I mean, I assume the majority of that has not shipped yet without giving us a number. Is that fair? Sunny S. Sanyal: I do not know if I could say majority. Some of that has been shipped, and a lot of that has not been shipped. Lawrence Scott Solow: So Okay. Lawrence Scott Solow: Or said another way, would you expect more to be shipped this year than last than in 2026 and 2025? Sunny S. Sanyal: Okay. Sunny S. Sanyal: Yes. The projects that are in flight will come off of that backlog. And then with it during the year, there will be orders that we capture depending on the timing. It is likely some of that will also get shipped and installed in '26. We do not have a large backlog. So our cycle time from taking the order to when it gets out of our ships out of our docks is about six months. Lawrence Scott Solow: Right. But that is actually pretty long for you for backlog. Right? Your business generally is not about Sunny S. Sanyal: Yeah. Our components business, yes. Lawrence Scott Solow: It is so so right. So that should that is probably yeah. Taiwan longer cycles for you at least. Sunny S. Sanyal: It is. But in a systems business, it is not unusual to have more than a year of that type of a lead time. Our case, we can we are at that point where we can get those out fairly quickly. Lawrence Scott Solow: Right. No. That is a good thing. Then just just last question. Just from a general you know, broad brush, tariff impact, there is some on the gross margin on the higher cost side, right? Assuming tariffs do not let us, you know, probably a tough assumption, but let us say nothing changes from here. Can you just kind of walk us through the impact of tariffs and does that I guess that may get better as you ship more out of India and China, but any just color on the impact currently? Would be great. Thanks. Yes. Sunny S. Sanyal: Yeah, Larry. So we are getting impacted by tariffs on the gross margin line somewhere between 100 and 150 basis points. And now, if those tariffs were not there, we would be clearly at a 35% gross margin. But with the tariffs being there and there is a lot of discussion in the Supreme Court and this and that in terms of tariffs decisions. Sure, sure. Yeah. So there is a little bit of variability to it depending upon where the right now, the tariffs have been flowing through our P&L and balance sheet, etcetera. And it is impacting us around 100 to 150 basis points. And you are right, in certain situations, rerouting supply chains from higher tariffs sourcing from higher tariff to lower tariff country into the United States. Right. And then the finished goods the only country where I am aware of the China is China, where there is US sourced product getting tariffed by China at around 10% right now. So some of that benefit can be obtained by us when the tubes factory in India goes online. So that can help, but it is still maybe I would say, at least twelve months away on that side. Lawrence Scott Solow: Sure. Great. Thank you. Appreciate it. Sunny S. Sanyal: Thank you, Larry. Thank you. We reached the end of our question and answer session. I would like to turn the floor back over for any further or closing comments. Sunny S. Sanyal: Thank you all for your questions and participating in our earnings conference call today. The webcast and supplemental slide presentation will be archived on our website. A replay of this quarterly conference call will be available through December 2 and can be accessed at www.vareximaging.com/investorrelations. Thank you, and goodbye. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Operator: Ladies and gentlemen, welcome to the Dolby Laboratories Conference Call discussing Fourth Quarter Fiscal Year 2025 Results. During the presentation, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question and answer session. If you would like to ask a question at that time, please press star then the number one on your phone. Simply press star one again. As a reminder, this call is being recorded Tuesday, November 18, 2025. I would now like to turn the conference over to Mr. Peter Goldmacher, Vice President of Investor Relations. Peter, please go ahead. Peter Goldmacher: Good afternoon. Welcome to Dolby Laboratories' Fourth Quarter 2025 earnings conference call. Joining me today are Kevin Yeaman, Dolby Laboratories' CEO, and Robert Park, our CFO. As a reminder, today's discussion will include forward-looking statements, including our fiscal 2026 first quarter and full-year outlook, management's expectations for our future performance, and other statements regarding our plans, opportunities, and expectations. These statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today, including, among other things, changes in customer demand, in law and regulation, and the impact of macroeconomic events on our business. A discussion of these and additional risks and uncertainties can be found in our earnings press release as well as in the Risk Factors section of our Forms 10-K and 10-Q. Dolby assumes no obligation to update any forward-looking statements. During today's call, we will discuss non-GAAP financial measures. These measures should be considered in addition to and not as a substitute for GAAP measures. A reconciliation between GAAP and non-GAAP financial measures is available in our earnings press release and in the Interactive Analyst Center on the Investor Relations section of our website. With that, I'd like to turn the call over to Kevin. Kevin Yeaman: Thank you, Peter, and thanks to everyone for joining the call today. I'd like to share a brief overview of our financial results and a few highlights for the quarter, and then I'd like to talk about our unique position in the market and our opportunities heading into FY 2026 and beyond. After that, I'll turn the call over to Robert to cover the financials before we get to Q&A. We wrapped up Q4 and the full year in line with the expectations we provided on the last earnings call. In FY 2025, we grew revenue by 6%, aided by the acquisition of GE Licensing, and we expanded our operating margins by 1.8 percentage points. Robert will walk through the results in more detail in just a moment. I'll start by walking through some of the Q4 highlights as it relates to Dolby Atmos, Dolby Vision, and imaging patents. For Dolby Atmos and Dolby Vision, we continue to see strong engagement from our ecosystem of content creators, content distributors, and device OEMs, as they increasingly embrace the value of content created in Dolby Atmos and Dolby Vision across sports, music, TV, and movies. In September, we announced Dolby Vision 2, which will dramatically improve picture quality and unleash the full capabilities of modern TVs, from mainstream sets to the top-of-the-line models. Some of the benefits of Dolby Vision 2 include automatically adjusting contrast via ambient light detection, motion control to optimize sports and gaming content, and features that enable creators to take full advantage of the latest advancements in higher-end TV displays. By bringing two distinct offerings to market, Dolby Vision II will allow TV OEMs to bring Dolby Vision deeper into their lineups by improving their mid-range offerings, while Dolby Vision 2 Max will offer important differentiation at the high end. Dolby Vision 2 is receiving a strong reception from the industry. Hisense and TCL, two of the top three global TV OEMs, are the first TV makers to announce support, with release dates yet to be announced. This quarter, we had several TV launches with Dolby Atmos and/or Dolby Vision with device partners including TCL, Samsung, Hisense, Xiaomi, and Amazon. And Peacock is now streaming Sunday night football games and this season's NBA games in Dolby Atmos. Moving on to automotive, the value proposition for Dolby Atmos and increasingly Dolby Vision continues to resonate in the auto world. This past quarter, we signed agreements with Maruti Suzuki, the top passenger vehicle brand in India with over 40% market share, Depaul in China, and VinFast in Vietnam. Also, the first in-car game featuring Dolby Atmos, Loner, officially launched on Li Auto Vehicles as more content creators are looking to add value by taking advantage of Dolby Atmos in the car. A number of partners recently announced new models with Dolby Technologies, including Li Auto, Mahindra, Cadillac, Zika, and Mercedes. In mobile, we are very happy to share that Instagram is now distributing content in Dolby Vision, with initial support for iOS. In a blog post, Instagram concluded that content in Dolby Vision increased the time spent in the app. The blog post also noted that Meta intends to expand Dolby Vision to other Meta apps and corresponding operating systems. Additionally, Douyin, known in many parts of the world as TikTok, has made Dolby Vision available to its users in China, joining other Chinese social media companies, including Xiao Hongshu, Kuaishou, and Bilibili, in offering their users the ability to capture, share, and edit content in Dolby Vision. We've seen how support on social media platforms and video sharing sites in China drives demand for Dolby Vision on mobile devices. These new partnerships with Instagram and Douyin are another important catalyst to further penetrating the mobile device ecosystem. In wearables, Meta announced that the Meta Quest will have Dolby Atmos and Dolby Vision, and Samsung announced that its Galaxy XR comes with Dolby Atmos. The wearables market is still in its early days, and we are working with the ecosystem to ensure that we are able to offer all device makers the technology to help them create the most immersive and connected experience possible. Turning to imaging patents, where we participate in patent pools, which help device makers license critical imaging technology, the primary growth driver to date has been growth in OEM licensees. In FY 2025, we helped launch a new patent pool focused on providing critical imaging technology to content streaming providers using a consumption-based pricing model. This video distribution program significantly expands the TAM for imaging patents beyond devices. The pool signed its first licensees in 2025, and we will start recognizing revenue in fiscal 2026. The progress we've made in FY 2025 gives us confidence that we can grow Dolby Atmos, Dolby Vision, and imaging patents at a growth rate of about 15% to 20% per year over the next three to five years. Now before I wrap up, I'd like to take a few minutes to talk about Dolby and where we're going. Today, we are at the beginning of an opportunity to expand our total addressable market by delivering value to new sets of customers via consumption-based revenue models. We currently have two such offerings. We just discussed the first, which is the video distribution program for content streamers. The second is Dolby OptiView. Dolby OptiView is our software as a service solution that is focused on delivering real-time, personalized, and interactive streaming experiences in sports, sports betting, and iGaming. Dolby OptiView combines very low latency video streaming with the ability to optimize advertising and integrate additional content. For example, highlights of another game that's happening, to engage viewers and drive higher revenue through subscriptions and advertising. We see a significant opportunity in reinventing the fan experience for live sports, aligning with content owners to increase the value of their content. The NFL has been delivering Red Zone to the NFL Plus app using Dolby OptiView streaming since the start of the season, and they've seen significant increases in the quality of the streaming experience while delivering content at half the previous latency. All of these improvements contribute to longer viewing time. While our focus in the near term is on scaling these two new offerings, Dolby OptiView and the video distribution program for content distributors, we believe that there will be opportunities in the future to deliver new value to trusted partners and new customers, expanding into new verticals with consumption-based revenue models. And this is increasingly an important focus of our innovation pipeline. Dolby has maintained its leadership position for sixty years by innovating and raising the bar on the quality and efficiency of entertainment. We do this by working with each part of the ecosystem, creatives, content distributors, device makers, and earning their trust. This gives us a unique connection to their needs, challenges, and opportunities, enabling us to deliver experiences that come to life in the highest possible quality. As we look to the next chapter of the Dolby story, our expansion into consumption-based models is a natural extension of our work to date. We have always delivered value to the distributors in our ecosystem, and the opportunity to bring new experiences to life through the power of streaming is an opportunity to create new revenue streams. The world is changing fast, and we are too. In the last three years, we have transformed our research and innovation capabilities in our advanced technology group, bringing in new capabilities aligned with the future, particularly as it relates to AI. This team is focused on AI-powered innovations to enhance our current and future offerings. So what does this mean for Dolby going forward? We are very excited about where we are, where the world is going, and our ability to work with our customers and partners to grow our ecosystems. I'm proud of the progress and confident in our strategy to grow Dolby Atmos, Dolby Vision, and imaging patents at 15% to 20% per year over the next several years. And now that Dolby Atmos, Dolby Vision, and imaging patents are approaching 50% of our licensing revenue, its impact on our overall growth rate is more meaningful. And while it's still early days, there is a significant opportunity to expand our total addressable market with consumption-based revenue models by serving the providers of audio-video content that are looking to deliver more engaging interactive entertainment experiences. With that, I'd like to turn the call over to Robert to review our Q4 and FY 2025 results and our guidance for FY 2026. Robert Park: Thank you, Kevin. Revenue for the quarter came in at $307 million, above the midpoint of guidance we shared last quarter. Non-GAAP earnings per share of $0.99 was above the high-end guidance due to a $0.28 discrete tax benefit this quarter. Excluding this discrete tax item, non-GAAP earnings per share came in at $0.71, which was above the midpoint of guidance primarily due to higher revenue and better gross margins, partially offset by higher operating expenses. Licensing revenue was $282 million, and products and services revenue was $25 million. We generated approximately $123 million in operating cash flow, repurchased $35 million of common stock, and have approximately $277 million remaining on our share repurchase authorization. We declared a $0.36 dividend, up 9% from a dividend a year ago, and ended the quarter with cash and investments of approximately $783 million. We recorded a $6 million restructuring charge in the quarter as we continue to streamline operations and adjust resources towards the most impactful areas. For the full fiscal 2025, we reported revenues of $1.35 billion, which was above the midpoint of guidance and up 6% year over year, and non-GAAP earnings per share of $4.24, or $3.97 excluding the previously mentioned discrete tax benefit, within the range of our annual earnings guidance. As Kevin mentioned, we expanded our full-year non-GAAP operating margins by 180 basis points. For the year, Dolby Atmos, Dolby Vision, and Imaging Patents grew just over 14%, in line with our expectations of roughly 15% growth, and represented 45% of licensing revenue. Foundational Audio Technology revenue came in just under negative 1%, again close to our expectations of roughly flat growth. Detailed licensing performance by end market and other components are on the IR portion of our website. And as we share with you every quarter, while trends are typically smoother on an annual basis, the timing of recoveries, minimum volume commitments, and true-ups can drive quarterly volatility. In terms of end market performance for the full year, we saw strong growth in mobile driven by the GE Licensing acquisition and other revenue due to auto and Dolby Cinema. PC and broadcast grew mid-single digits, and CE was down, in line with expectations coming into the year. Moving on to guidance. For the full year, we expect revenue between $1.39 billion and $1.44 billion, or up about 3% to 7% year over year. We expect licensing revenue to be between $1.285 billion and $1.335 billion, with revenue from Foundational Audio Technologies expected to be down low single digits due to timing of deals in mobile, and lower expected unit shipments in PC and CE. We expect Dolby Atmos, Dolby Vision, and patents revenue to grow approximately 15%. We are targeting non-GAAP operating expenses to be between $780 million and $800 million. This guidance implies operating margin improvement of between fifty and one hundred basis points. We expect non-GAAP earnings per share to be between $4.19 and $4.34. As a reminder, fiscal 2025 non-GAAP EPS was $3.97 excluding the discrete tax benefit in Q4. From an end market perspective, for the full year, we expect other revenue to be up high teens, broadcast and mobile to be up mid-single digits, and consumer electronics and PCs to be down high single digits. Imaging patents revenue from content distributors, which we call the video distribution program, or VDP for short, will be reported in the Other category given that these patents aren't licensed to a specific device. For Q1 fiscal 2026, we expect revenue to be between $315 million and $345 million. Within that, we expect licensing revenue to be between $290 million and $320 million. Gross margin should be approximately 90% on a non-GAAP basis, and we expect non-GAAP operating expenses to be between $195 million and $205 million. Non-GAAP earnings per share is expected to be between $0.79 and $0.94. Q1 revenue is expected to be down approximately 8% year over year at the midpoint due to two main factors. The first is a tough comparison against 2025 when we had a large favorable true-up. The second is the timing of recoveries and minimum volume commitments. The composition of revenue between the first half and the second half of the year will likely be more evenly distributed this year than it was last year. In closing, the creation and distribution of Dolby-enabled content continues to grow, and we are on the cusp of a significant opportunity to expand our offering and to expand our future market opportunities and grow our customer base. Our financials remain solid with high gross margins, healthy cash flows, and a strong balance sheet. With that, I'd like to turn it back to Peter, and we'll open the line for your questions. Peter? Peter Goldmacher: Thanks, Robert. Before I turn the call back to the operator to open up the lines for Q&A, I'd like to announce that we're going to have a casual event for investors at CES on Wednesday, January 7, from 8 AM to 9 AM at the Dolby Live Theater in the Park MGM. We will be in a quiet period, so there won't be any formal remarks or commentary on the business, but we always appreciate the opportunity to show off our technology. If you'd like to join us, please reach out to me for details or send a note to ir@dolby.com. With that, operator, can we please open up the call for Q&A? Operator: Thank you. We will now begin the question and answer session. Press 1 again. Thank you. Your first question comes from the line of Ralph Schackart with William Blair. Your line is open. Ralph Schackart: Kevin, maybe you can provide a little bit more color on what seems like a pretty interesting opportunity to expand the TAM on the new consumption models you talked about. Kevin Yeaman: I think you talked about video distribution for streamers. I think that came primarily from the GE patents. If you could sort of confirm that and sort of provide an update there? And then OptiView, and maybe just kind of taking a step back, give us a sense of the contribution in the 2026 guidance. And will this be something that will build throughout the year? Or just sort of you can sort of frame that opportunity? And then I have a follow-up. Ralph Schackart: Yeah. Thanks, Ralph. So if you put this in the context of Dolby's journey for sixty years, we've been leading the way in the quality and efficiency of experience, and we've been doing that by providing the services, technologies, the know-how to not just our paying customers, the device licensees, but also to content creators and to distributors of content. And so as we look to where that future is going, we believe that we have significant opportunities to begin to add new value to the content streamers, to bring that future to life. It's a future where streaming services are more aware of what engages audiences. They're able to respond to that in the form of not just which content they show them, but actually having the content itself be personalized to that audience. And to introduce interactive features. That's, of course, what we are doing with Dolby OptiView for sports betting and iGaming. We talked about I talked about on the call just a moment ago about how the NFL is now utilizing Dolby OptiView for its Red Zone service. And I think we've been in the market for about two years with Dolby OptiView. And over that time, we brought on a fantastic roster of customers, and many of them are still in the early stages of scaling. For some of them, these are new offerings. For others, they're testing the offerings on a percentage of the user base before they go bigger. So we think that as we look forward, scaling the customers we've won is a big opportunity to increase revenue. And also Dolby OptiView is becoming known in these circles compared to a year ago. So that is healthy for our pipeline. And then more recently, you asked about the video distribution video patent distribution program. So as you know, imaging patent licensing has always been driven by licensing per device. And what's new is that the pool has now established a pool for content streamers. That's a combination, Ralph, of the patents we've always had in the imaging patent pools and the GE licensing patents. The significance is that it significantly expands the addressable market by opening up the world of these content streamers. And that's one of the things that gives us confidence in sustaining growth in our Dolby Atmos, Dolby Vision imaging patents because that's still part of patent licensing revenue. Dolby OptiView is a part of product and services. Yes, we're continuing to look to drive growth, but we're optimistic about the midterm. And we think that between those two programs, in three years, we could have probably 10% of our revenue coming from service provider customers as opposed to device customers. And we'll be looking for opportunities to introduce new offerings and do everything we can to accelerate that. Ralph Schackart: Great. And maybe just double click on the energy patents. I think you had mentioned there's four new content streamers, if I heard that correctly. Is that you, sort of approaching the market with the patents in combination with GE and looking for opportunities to work with the streamers? Or are there are you bringing sort of, I guess, revenue-enhancing opportunities to them versus, I guess, IP you know, in terms of monetization? Thanks. Kevin Yeaman: Yeah. Thank you. So, so we most of our past licensing revenue, we license through patent pools. So the patent pools are a structure where many licensors contribute their patents for a particular purpose. In this case, the content streaming industry has obviously grown, and there's also a growing recognition of the critical nature of this imaging patent technology to what they do. And so it is we participate in those pools. It's via the pool that the decisions are made to establish new programs. And that's what led to the opening of this pool. There's five licensees have signed up. We didn't have any that was all in 2025. So it'll first start generating revenues in FY 2026. And going forward, one of the natures of these pools is that it in a sense licensors to innovate into those pools. And so we would expect to see opportunities to innovate into those pools to meet the future needs of content streamers at any markets that those pools decide to focus on in the future. Ralph Schackart: Great. Just one last one, if I could, Kevin. I think you had mentioned that in the second half of 2025 fiscal year that the licensee signed that you'll generate revenue in 2026. Can you just sort of bridge the gap and know, from signing to monetization? And that time period and sort of what's taking place in between? Thanks a lot. Kevin Yeaman: Well, the patent like the patent pool side of the business still operates somewhat like what you're used to in the early Dolby days where we recognize that revenue when we get the reports from the pools. And so that is the that's the probably the most important thing to understand as it relates to patent licensing is when we sign someone up, we are then waiting for that first royalty report. Ralph Schackart: Okay, understood. Thank you. Operator: Your next question comes from the line of Steven Frankel with Rosenblatt. Your line is open. Steven Frankel: I want to follow-up on Ralph's questions around this new model. And I'm just trying to fundamentally understand whether the pool is selling new capabilities to the stream the streamers, or are we enforcing patents from the pool on activities and technologies that they're already deploying? Kevin Yeaman: So, on day one, Steve, it's essentially the same patents that were in the pool that was established for device licensees. That is the pool for content streamers. As I said, going forward, the purpose of these pools is to establish a mechanism to incent licensors to continue to collaborate and innovate into the future needs of the licensees. So the second part of your question, was oh, why now? It really is just that industry has grown significantly, and there is a recognition that these imaging patent technologies are essential to the way they generate value. Steven Frankel: Let me ask it a different way. So were they using these at with the understanding that at some point, they would have to pay for what they're using? Or are you approaching them saying, you should be using this now? Going forward. That's what I'm basically trying to understand what your what your go-to-market motion is. Enforcement or upselling? Kevin Yeaman: Yeah, got you. So, again, it's the pool that we participate in, which is approaching the customers. We sometimes approach bilaterally or participate in that. Generally speaking, these are technologies that have been being used. And I would say it's a combination. I mean, first and foremost, we look to the pool looks to bring licensees on board. And it also, like I said, provides value going forward. You have the certainty of having the ability to operate against this growing number of patents from innovation across a growing number of licensors. And sometimes there is enforcement. That's a last resort, but it's always when it's used, it's to ensure a level playing field across all licensees. Steven Frankel: Okay. Thank you. And you know, we've had some past discussion on Atmos music and automobiles kind of approaching a level where it might have to be broken out. At about subsegment, like you break out these other markets. Where did you exit the year? And do you think that's something that could happen in fiscal 2026? Kevin Yeaman: I don't anticipate doing it in fiscal 2026, but I do anticipate that automotive will become a separate end market. We're still in the early days. It's still one of the fastest growers. And we continue to make great progress bringing Dolby Atmos music to cars. And we're even earlier days bringing Dolby Vision to cars. So automotive continues to be one of the areas that gives us confidence in our ability to continue to grow Dolby Atmos, Dolby Vision, and imaging patents. Steven Frankel: Okay. And we want to leave Robert out. So, what were true-ups in the quarter? Robert Park: Okay. Steve, for not leaving me out. Appreciate that. True-ups for the quarter was really not a factor. It's minus $1 million for the quarter. Steven Frankel: Okay. Great. And then maybe one more time back on auto. Kevin, how do you feel in your progress of going deeper into some of the brands that you've already been with? And what's your visibility into maybe going in the North American brands getting into some lower price points and more aggressively priced cars? Than in a lot of the high-end vehicles so far. Kevin Yeaman: Yes. We continue to make progress getting deeper into lineups. You're aware of what we've done with Mercedes. Obviously a higher-end brand, but getting deeper in lineups. Cadillac in the tire EV lineup. Across our portfolio, we see a number of our partners bringing Dolby Atmos to additional models. We also feel very good about the pipeline activity around bringing it even deeper. And so we still believe that Dolby Atmos is an experience that should be the standard way to listen to music in the car, just as stereo has been for a very, very long time. Operator: Your next question comes from Patrick Scholl with Barrington Research. Your line is open. Patrick Scholl: Hi. Thank you. Just another follow-up on your the new model that you're rolling out with the content distributors. I was just wondering, just in terms of the imaging patent licensing, is any of their is there any, like, overlap between the technologies that you're licensing there and the services being able to distribute content in, like, in Dolby Vision and Dolby Atmos? Kevin Yeaman: Separate things. The Dolby Vision actually, is not dependent on video codec. We implement Dolby Vision across a range of video codecs. Dolby Atmos is implemented with the branded Dolby audio codec. Patrick Scholl: Oh, okay. And then with the Dolby Vision 2, is there I guess, in any when you when you produce an update, to to Dolby Vision, is there any sort of process to updating the content pipeline or the service distribution pipeline in order to get adoption from device manufacturers? Is that more accelerated from other you know, technology rollouts, or is it similar in that area? Kevin Yeaman: Yes. So, yes, good question. I mean, first of all, we're always introducing new features and functionality as it relates to our core offerings. But significant about Dolby Vision 2 is this is a significant upgrade. So it really I hope you can join us at CES. It's a noticeable difference across all TV entire TV range. And that's why we think we've gotten such good engagement, and Hisense and TCL announced right along with us on announcing Dolby Vision 2 that they plan to adopt it. And yes, this does include providing new tools to creators to take advantage of the full range of capabilities. And we expect that the first TVs will be in the market by 2026. We expect to have content we're working the content pipeline at the same time. And I would say compared if your question is compared to when we first brought Dolby Vision to life, I would say it can go it's faster than that because of the general the broad adoption of Dolby Vision and because like I said, this makes a significant difference. We have good engagement across the ecosystem. Patrick Scholl: Okay. And then just on the three-year growth outlook for Atmos and Vision and the ImagePat and Thing, I think if I heard you correctly, like, the top end of that, you know, kind of three-year CAGR is brought down a little bit from what it had been. Is that just sort of a law of large numbers or just the kind of just the macro kind of view of just how things are been trending more recently is the and, like, the potential macro impacts from trade issues and things like that. Kevin Yeaman: Yes, I would say law of numbers. We were when we first started providing this construct, we were at about just over 20% of our revenue was 50%. And I would say today we've on the Q&A we've talked about auto. We just talked about Dolby Vision 2. We talked about the video distribution program. All of those are things that are in the early stages of growth and can contribute to this growth rate going forward. And we haven't yet talked about the fact that Instagram is now including Dolby support for Dolby Vision for iOS, which is a partnership we're also very excited about. We're on the with Dolby Atmos and Dolby Vision. Now we're on Instagram. And, that's important because social media is the most prominent use case on mobile devices. And so we've seen in China how when we get included on social media and video distribution sites. We mentioned I mentioned on the call that Douyin has now adopted us. That drives demand for Dolby Vision and Dolby Vision playback on mobile devices. And so we think this is also a good driver. So what we're seeing is quite a few important wins that are early growth drivers for us to keep driving that forward. And now that it's approaching 50%, it has a much greater impact on the overall top-line growth. Operator: Okay. Thank you. Your next question comes from Vikram Kasavabhotla with Baird. Your line is open. Vikram Kasavabhotla: Yes. Hey, thanks for taking the question. Maybe just a follow-up on some of the comments you made on the last response. Just could you talk more about your observations around the macro environment right now? What is your latest thinking in terms of the potential impacts from the tariffs as well as just the state of the consumer and how have you gone about incorporating that into the outlook for '26? Kevin Yeaman: Yeah. Thanks for the question, Vikram. So first, I would say that over this last year, we haven't seen any specific identifiable impact of the tariffs. If anything, I think what we're seeing is that our device partners have been dealing with supply chain issues for quite some time beginning with the pandemic, and they've invested a lot in resiliency. And I think they've proven to be quite resilient. At the same time, I would say the overall device market is flattish, sluggish. And so as it relates to foundational, Robert said, we're planning for low single digits. But we are seeing a big improvement from 2022 to 2024 when one of the biggest reasons for our larger declines was because we were coming off those really strong purchasing years in 2021 where everybody went out to buy a TV and a PC. So in that respect, we see it stabilizing relative to that period of time. Don't think it will be sluggish forever. We think our partners are hard at work doing exciting things. But and I guess I would also add that we have been able to grow Dolby Atmos 20% a year through all of that. So we're really focusing on what we can control, and that is all the things we just talked about that we think will drive continued growth in Dolby Atmos, Dolby Vision imaging patents. And we are of course excited that we see new paths to expanding our addressable market by adding value to new customers, some of whom are already partners. Vikram Kasavabhotla: Okay, great. And then maybe a follow-up on the 2026 outlook. I think you called out a couple of drivers that are affecting the first quarter year-over-year trend here. Curious if there's anything else to call out as we think about the cadence throughout the rest of the year? Robert Park: Yes. Hi, Vikram. This is Robert. Yeah. Our quarterly results can fluctuate widely due to timing of true-ups, minimum volume commitments, and recoveries. And Q1 is no different than the previous past where we've had Q1 is depressed due to a Q1 true-up of last year and then timing of some minimum volume commitments. And I think this year we expect our revenue to be more evenly distributed between the first half and second half versus what it was last year. Vikram Kasavabhotla: Okay. Great. And then maybe just the last one for me. It'd be great to get your latest thoughts around allocation here. It looks like you saw some share repurchase authorization left. Looks like it's in good shape. What is your latest thinking on how you plan to approach repurchase activity going forward? Kevin Yeaman: Yes, we do have just over $70 million of repurchase authorization remaining. Our policy, of course, is to, as I'm sure you know, is we do dilution on a regular basis from equity comp. We have a regular dividend that we announced an increase today. We've increased that every year except for one during the pandemic. And then we do look closely at this with our board each quarter, and over time we have sometimes done more buybacks than is necessary to offset dilution. So we continue to look at it closely. Vikram Kasavabhotla: Okay. Thank you for the comments. Operator: And with no further questions in queue, this will conclude our conference call today. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to NTIC's Fourth Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] Today's conference is being recorded. As part of the discussion today, the representatives from NTIC will be making certain forward-looking statements regarding NTIC's future financial and operating results as well as their business plans, objectives and expectations. Please be advised that these forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and that NTIC desires to avail itself of the protections of the safe harbor for these statements. Please also be advised that actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including those described in NTIC's most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and recent press releases. Please read these reports and other future filings that NTIC will make with the SEC. NTIC disclaims any duty to update or revise its forward-looking statements. I will now hand the conference call over to Mr. Patrick Lynch, NTIC's CEO. Please go ahead, sir. G. Lynch: Good morning. I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Wolsfeld, NTIC's CFO. Please note that a press release regarding our fourth quarter and full year fiscal 2025 financial results was issued earlier this morning and is available at ntic.com. During today's call, we will review various key aspects of our fiscal 2025 fourth quarter and full year financial results, provide a brief business update and then conclude with a question-and-answer session. Please note that when we discuss year-over-year performance, we are referring to the fourth quarter and full year of our fiscal 2025 in comparison to the fourth quarter and full year of last fiscal year. Fiscal 2025 was marked by order timing shifts and selective softness in our ZERUST oil and gas and Natur-Tec markets. So NTIC used this period to strengthen its competitive position and to execute strategic initiatives that we believe will enhance our long-term growth potential. We accelerated product innovation within Natur-Tec, advanced new ZERUST solutions across global industrial markets and pursued emerging opportunities in the South American offshore oil and gas sector. These actions have expanded our pipeline, sharpened our focus and positioned NTIC to reaccelerate growth and improve profitability in fiscal 2026 and beyond. In fiscal 2026, we expect to start reaping the benefits gained from the strategic investments NTIC made over the past 3 years to upgrade our global operations and support future growth. We are also focused on flattening our operating expenses while expanding gross margins and driving sales in the higher-margin parts of our business, which we expect will improve our profitability and strengthen our balance sheet in fiscal 2026. While we anticipate macroeconomic headwinds to persist, especially in Europe, we believe NTIC is positioned to deliver growth and improved profitability across many of our key markets in the coming fiscal year. So with this overview, let's examine the drivers of the fourth quarter in more detail. For the fourth quarter ended August 31, 2025, our total consolidated net sales decreased 4.4% to $22.3 million as compared to the fourth quarter ended August 31, 2024. Broken down by business unit, this included a 29.4% decrease in ZERUST oil and gas net sales and a 10% decrease in Natur-Tec net sales, partially offset by a 5.8% increase in ZERUST industrial net sales. Turning to our joint venture sales, which we do not consolidate in our financial statements. Total net sales for the fiscal 2025 fourth quarter by our joint ventures increased year-over-year by 4.7% to $24.4 million. For fiscal 2025, joint venture sales declined 4.9%, reflecting the continued impact of high energy prices and regional political pressures on the European economy as well as significantly increased uncertainty related to U.S. trade and economic policies and the potential impact this will have on global supply chains. We continue to closely monitor trends across our European markets for signs of stabilization following years of subdued demand as governments begin to implement target economic stimulus packages. We expect that any economic recovery from these stimulus packages will lead to a positive impact on our joint venture operating income in future periods, especially in Germany. Improving sales trends at our wholly owned NTIC China subsidiary continue. Fiscal 2025 fourth quarter net sales at NTIC China increased by 12% to $4 million. For fiscal 2025, NTIC China sales increased 14% to $16.2 million, the second strongest year of sales we have experienced in this market. NTIC China sales for fiscal 2025 demonstrate that demand continues to grow in this geography. Furthermore, given that the majority of NTIC China sales are for domestic Chinese consumption, we believe NTIC China's exposure to U.S. tariffs is limited. We expect demand in China will continue to improve in fiscal 2026, helping to support higher incremental sales and profitability in this market. We continue to believe that China will likely become a significant market for our industrial and bioplastics segments, so we'll continue to take steps to enhance our operations in this geography. Now moving on to ZERUST oil and gas. Fourth quarter of fiscal 2025, ZERUST oil and gas sales were $3 million compared to $4.2 million in the same period last year. As a reminder, ZERUST oil and gas sales for the fourth quarter last year benefited from approximately $600,000 in sales that shifted from the third quarter due to timing. On an annual basis, ZERUST oil and gas sales were $7.3 million compared to $9.2 million for the prior full fiscal year. This decline was primarily due to timing of orders. We have continually invested in ZERUST oil and gas to enhance our sales team and add resources to support future growth. This has improved our sales pipeline as the size and the number of opportunities have expanded among both new and existing customers. Our pipeline includes global opportunities to protect above-ground oil storage tanks, pipeline casings and offshore oil rigs from corrosion. The nature of this industry will always cause certain fluctuations in ZERUST oil and gas sales. Nevertheless, we still expect to see ZERUST oil and gas sales and profitability to improve significantly in fiscal 2026 as we leverage these investments and rein in operating expense growth. Earlier this month, we announced that our 85% owned subsidiary, ZERUST Brazil, secured a new 3-year contract for a major offshore project with a leading global EPC company. Under this agreement, ZERUST Brazil will provide advanced corrosion protection solutions for floating production storage and offloading units, or FPSOs, with an estimated total value of approximately BRL 70 million, which is equal to approximately USD 13 million based on current exchange rates. The project started in Q4 and is expected to ramp up during our fiscal 2026 and then continue through calendar 2028. This is a significant validation of our engineering capabilities, scalability of our ZERUST oil and gas business and the reputation we've built as a trusted partner to leading offshore operators. Brazil represents one of the fastest-growing deepwater markets globally, and we believe this win provides a strong foundation for continued growth and expansion across international oil and gas markets. Turning to our Natur-Tec bioplastics business. Fourth quarter Natur-Tec sales were $5.1 million, representing a 10% year-over-year decline in Natur-Tec sales, primarily due to pricing dynamics and the timing of orders. For example, during the past year, a large North American customer of our resin compounds late purchasing for nearly 6 months as they made tooling adjustments to increase the output of their manufacturing line. While this contributed to Natur-Tec's decline in sales for fiscal 2025, we have already received orders for the first and second quarters of the new fiscal year for the equivalent of what this customer purchased from us in all of fiscal 2025. It's also worth mentioning that in Q4 of fiscal 2025, we entered into a preferred supplier agreement with the nation's leading specialized distributor for JanSan, food service and industrial packaging. We expect this new relationship to translate into higher Natur-Tec sales growth in fiscal 2026. We are also working on several larger opportunities for our Natur-Tec solutions that we believe holds significant promise to benefit our sales in the coming quarters, including advancing the compostable food packaging solution we mentioned on our last call. Overall, we believe Natur-Tec is a best-in-class compostable plastic business that is well positioned for significant further growth in the U.S. and abroad. While fiscal 2025 was more challenging than we expected at the beginning of the fiscal year, we remain steadfast on pursuing our strategic growth plan. We are confident in the direction we are headed. Before I turn the call over to Matt, I wanted to acknowledge the hard work and dedication of our global team of both employees and joint venture partners. Our success and our ability to navigate more complex economic periods are a direct result of their efforts. With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fourth quarter and full fiscal year 2025. Matthew Wolsfeld: Thanks, Patrick. Compared to the prior fiscal year period, NTIC's consolidated net sales decreased 1.0% in fiscal 2025 and decreased 4.4% in fiscal 2025 fourth quarter because of the trends Patrick reviewed in his prepared remarks. Sales across our global joint ventures increased 4.7% in the fourth quarter. Joint venture operating income in the fourth quarter increased 6.6% compared to the prior fiscal year period, primarily due to the corresponding increase in net sales. For fiscal 2025, sales across our global joint ventures decreased 4.9%, while joint venture operating income decreased 9.8% compared to the prior fiscal period. Total operating expenses for the fiscal 2025 fourth quarter increased 2.2% or $9.7 million for the fiscal 2025, primarily due to strategic investments in ZERUST oil and gas, sales infrastructure and increased personnel expenses, including new hires, benefits and higher travel and professional fees. As a percentage of net sales, operating expenses were 43.5% for the fourth quarter compared to 40.7% for the prior fiscal year period. For fiscal 2025, operating expenses as a percentage of net sales were 44.7% compared to 41.6% for the prior fiscal year. Gross profit as a percentage of net sales was 37.9% during the 3 months ended August 31, 2025, compared to 43.8% during the prior fiscal year period. Gross profit as a percentage of net sales was 37.6% for the fiscal year ended August 31, 2025, compared to 39.7% for the prior fiscal year. Lower gross margin for the fourth quarter and full year periods were primarily due to a less profitable mix of sales. There were a couple of onetime items that impacted profitability during the fiscal year, including a $1.1 million benefit to other income due to the receipt of cash from the employee retention credit that was payable in February of 2025. Secondly, NTIC recognized $387,000 in other expense during the fourth quarter of 2025 as NTIC's Chinese subsidiary was assessed penalties from Ningbo Customs, a customs authority in China as a result of a technical classification matter. We have since updated our export documents and internal review procedures and believe this issue has now been fully resolved. We also experienced an increase in our effective tax rate for fiscal 2025, which was 67.5% for fiscal 2025 compared to 17.3% in the prior fiscal year. The changes primarily reflect increased income tax expense in our foreign subsidiaries and is primarily due to the increase in income tax expense as compared to reduced consolidated pre-book tax income. As a result, our effective tax rate was unusually high and volatile in fiscal 2025. We expect the effective rate to normalize in future periods when additional profits are recognized in our North American operations. NTIC reported net loss of $1.1 million or $0.11 per diluted share for the fiscal 2025 fourth quarter compared to net income of $1.8 million or $0.19 per diluted share for the fiscal 2024 fourth quarter. For the full year, NTIC reported net income of $18,000 or $0.00 per diluted share compared to $5.4 million or $0.55 per diluted share for the fiscal 2024 full year. For the fiscal 2025 fourth quarter, NTIC's non-GAAP adjusted net loss was $607,000 or $0.06 per diluted share compared to non-GAAP adjusted net income of $1.9 million or $0.20 per diluted share for the fiscal 2024 fourth quarter. For the fiscal 2025, non-GAAP adjusted net loss was $12,000 or $0.00 per diluted share compared to net income of $5.8 million or $0.59 per diluted share for fiscal 2024. A reconciliation of GAAP to non-GAAP financial measures is available in our fourth quarter fiscal year 2025 earnings press release that was issued this morning. As of August 31, 2025, working capital was $20.4 million, including $3.7 million in cash and cash equivalents compared to $23.7 million, including $5 million in cash and cash equivalents as of August 31, 2024. As of August 31, 2025, we had outstanding debt of $12.2 million. This included $9.3 million in borrowings under our existing revolving line of credit compared to $4.3 million as of August 31, 2024. Reducing debt through positive operating cash flow and improving working capital efficiencies will be a strategic focus for fiscal 2026. We generated $2.4 million in operating cash flows for the fiscal year ended August 31, 2025. At year-end, the company had $28.6 million of investment in joint ventures, of which 51.7% or $14.8 million was in cash, with the remaining balance primarily invested in other working capital. During fiscal 2025 fourth quarter, NTIC's Board of Directors declared a quarterly cash dividend of $0.01 per common share that was payable on August 13, 2025, to stockholders of record on July 30, 2025. To conclude our prepared remarks, we are optimistic NTIC's momentum is building across many parts of our business. We believe our multiyear strategies are working, our global markets are expanding, and our team is delivering results. With a clear vision and disciplined execution, we're confident that the foundation we have built will drive continued growth, stronger profitability and meaningful creation -- value creation for our shareholders. With this overview, Patrick and I are happy to take your questions. Operator: [Operator Instructions] And we have a question coming from the line of Tim Clarkson with Van Clemens. Timothy Clarkson: Patrick, Matt, obviously, this year was not what everyone wanted. But just a couple of background questions. In general, are the income taxes on our international business, are they higher than the taxes domestically in the United States? Matthew Wolsfeld: It's not that it's higher. It's that essentially what you have is you have a situation where with all of our subsidiaries, let's say, the main 5 subsidiaries, they have a standard statutory tax rate, somewhere between 20% and 33%, 34% depending on the country. And so all of those subsidiaries are profitable, so they generate tax expense. So if you look at it from an effective tax rate when you put it all together, you have essentially the numerator in the effective tax rate calculation is a fixed number. There isn't a significant amount of -- there isn't a significant amount of tax expense from North America. However, we do have tax expense in North America based off of the -- we recognize here based off of the royalties and dividends that we received from JVs. The issue that we have is that the denominator in the calculation, there's very little profit, especially in fourth quarter that went into that number. And so what it created is a very large effective tax rate for fourth quarter. The expectations are that going forward, as there is more profitability, specifically in North America, the denominator in that calculation is going to be increased. For example, if we had more profit in North America, we would have had the same numerator, the same tax expense, but the denominator in the calculation would have been significantly higher, would have led to a more normalized effective tax rate. It's just the nature of how the tax provision calculation works, especially when we had, I would say, a difficult fourth quarter from a North American standpoint. So I do expect it to normalize in fiscal 2026 as we get back to similar profit levels that we had before. Timothy Clarkson: Okay. Sure. So I know you mentioned that you're looking to cut expenses in the company, too. I mean how realistic -- how much money do you think you can cut to improve profitability? Matthew Wolsfeld: The goal at this point isn't to cut expenses. The goal is to, I would say, maintain the same level of operating expenses that we had or close to the same level of operating expenses that we had in fiscal '25. I mean you recall all through the end of 2024 and through 2025, we talked about the increased investments that we've made in the oil and gas group and a couple of other areas inside the company with the ability to kind of use those investments to drive revenues going forward. We didn't see the revenue increases in fiscal 2025. The expectations are the investments that we made in 2024 and 2025, we'll start seeing the results of that in 2026 and beyond as those investments, specifically the people that we hired are able to gain traction and drive revenue growth. So the expectation is that we're going to drive revenue growth in 2026, those gross margin dollars falling down to the operating profit line as we're able to hold operating expenses as stable as possible. Timothy Clarkson: Sure. Okay. On the oil and gas, it sounds like there's some additional business that will kick into the first quarter and further on out with some of these larger orders. Now what is driving this business? Is it just having more sales out in the field in places like the Middle East and Brazil? Or is it as the technology finally getting to be accepted as superior to the legacy technology of the cathodic arc stuff? G. Lynch: Yes. Can you hear me? Timothy Clarkson: Yes, I can hear you. Go ahead. G. Lynch: Right. Okay. It's a combination of having [indiscernible] it's just general acceptance of the technology in the market, where we've proven that it works over and over again. We're getting repeat business from existing customers as we're putting in new customers. And that's really starting to starting to give our oil and gas business the attention that we think it deserves. Timothy Clarkson: Sure, sure. In terms of the packaging, I know that you guys had a breakthrough in terms of being able to kind of replace the traditional Saran wrap packaging that doesn't allow air to go out and you've now developed packaging that's similar to that, that's compostable. I mean how close are we from getting some business from that? G. Lynch: For that, I'd like to turn the question over to Vineet Dalal, who runs our Natur-Tec business. Vineet, go ahead. Vineet Dalal: Yes, this is Vineet. Yes, we have several customers where we're doing trials with compostable packaging, especially for food -- consumer food applications. So this is something that we're working on. We've gotten some good feedback, not just here in North America, but also in India, where there's a big market for these kind of applications. So we expect some of those opportunities to start hitting our sales in 2026. Timothy Clarkson: Okay. Are the costs similar for the compostable product versus the legacy product? Vineet Dalal: No. The cost is definitely higher as a premium solution, but due to legislation and government regulations in countries like India, these companies are forced to use compostable packaging instead of traditional plastic packaging. Operator: Our next question coming from the line of Gus Richard with Northland Capital Markets. Auguste Richard: You mentioned weakness in North America. Could you just describe where that's coming from? Matthew Wolsfeld: The main weakness in North America, we experienced throughout the entire fiscal 2025 was primarily the Natur-Tec group and the oil and gas group. If you look at the oil and gas group in North America was down close to 46% on the year. Natur-Tec North America was down about [ 13% ] on the year. Auguste Richard: Got it. Okay. And then in the floating platforms for the oil and gas, I'm trying to wrap my mind around how your solution work floating on the water and how much does that open up the market opportunity for you? G. Lynch: So it's a new market for us overall. It's not like you're trying to put the entire rig into a package, but you're taking sections of it and finding unique ways to apply our technology in those sections to provide long-term corrosion protection. And based on what we've seen in practice in Brazil so far, we think this is an opportunity, obviously, that can be very -- for us in Brazil, but in other areas around the world where they use offshore platforms. Matthew Wolsfeld: The only thing I'll add, Gus, is that the work that we talked about in Brazil, specifically on these FPSOs, there's a service component to it, where there are actual ZERUST oil and gas employees that are living on the offshore -- essentially the offshore floating platforms and applying the ZERUST solution to the infrastructure and then they're on the rig for a period of time and then they leave and then replacements come in. And so it's been a long process in order to be able to get slots where our specific workers can be on those platforms to do the installation work. And so that's a different -- it's kind of a different sales process than we typically see with onshore, where we're typically selling the solution and it's getting installed and then you don't need to continually apply and continually upkeep it. Auguste Richard: Okay. And just out of curiosity, is that having to have folks on the rigs and continually reapplying, does that have an impact on the margin profile for the floating platforms? Matthew Wolsfeld: Yes. There's -- I mean it's a slightly decreased margin given the service component and things like that compared to just selling any of the other ZERUST oil and gas solutions where you're just selling the actual product and somebody else is doing the installation work. Auguste Richard: Got it. That's super helpful. And then the onetime, I guess, is the Chinese tariff custom, whatever the heck that charge was. Was that a onetime event and nonrecurring? Or is there an impact to the P&L going forward? Matthew Wolsfeld: Well -- Vineet, do you want to address that? Vineet Dalal: Yes. It was a onetime event. I mean essentially, we produce some compounds in China that are filled compounds. So they contain minerals and then that we export out of China. And when you export it, I mean, we've always followed international norms for HTS codes that we use here in the U.S., in India, in Europe. And essentially, when we export it out of China, we get a VAT credit. Now because of the trade war between the U.S. and China and Chinese customs cracking down on any exports that contain minerals or rare earths, there's a customs official who basically said that because your compounds contain these minerals, you're not eligible for the VAT refund. And so that basically accounted for -- we have to repay back all the credit or the rebate that we got. So we expect this to be a onetime event moving forward, that will be part of our cost of goods sold. Matthew Wolsfeld: So essentially, it was a couple of years' worth of VAT that the Chinese government clawed back as well as a penalty on top of that for using what they deem to be the wrong code for the VAT. So the expectations are it's a onetime charge that we took and decided we weren't going to challenge the Chinese government and this we wanted to move forward as quickly as possible with the process so we can continue the import and export of the product. Auguste Richard: Got it. And then on the food packaging application, is this going to be like packaging in, I don't know, like a vegetable produce supplier? Or is this something applied in a supermarket over chicken breast or whatever? Sort of -- go ahead. Vineet Dalal: Yes. So we are looking at multiple applications. One of the applications that we're looking at in India is packaging of milk. So these are milk pouches where we're working with all the largest dairies in India to change over from conventional polyethylene packaging to a fully compostable solution. And we have run trials. We had to engineer the product so that it met the barrier performance, the shelf life performance, the handling. And then even on their form film machines, the throughput was -- with our solution was equivalent to the throughput with additional plastic technology. And so we have proven all that, and we expect that to be a growth business, at least in India. In the U.S., we are working with consumer foods companies where they're looking to -- we're looking at multilayer structures, which would be used for things like sauces and salad dressings and those kind of food items. Auguste Richard: Okay. So replacement for Tetra Pak, am I getting it right? Vineet Dalal: Yes, or pouches, like these little pouches for salad dressings or short shelf life sauces. Auguste Richard: Got it. Like the pouches you would get in a restaurant for -- salad. Vineet Dalal: Yes, in a restaurant or a QSR. So this one, the project that we are working on in the U.S., that's essentially for a QSR segment. Auguste Richard: Got it. And when do you expect that to sort of add to Natur-Tec revenue? Is that revenue second half of fiscal '26? Is it starting today? Can you give a little bit of color as to when you expect that to contribute to revenue? Vineet Dalal: The application in the U.S. that requires some, I would say, fine-tuning. So we are working closely with the customer on trials and prototype validation. So that will probably take several quarters at least before we can introduce that in the market. But the application in India, we've already gotten an initial appeal from one of the dairy companies. And so we expect that business to kind of grow probably by Q2, Q3 of fiscal 2026. Operator: And I'm showing there are no further questions in the queue at this time. I will now turn the call back over to Mr. Patrick Lynch for any closing remarks. One just queue up coming from the line of Zach Liggett, Desmond Liggett Wealth Advisors. Zach Liggett: On your presentations here over the last, I think, couple of years, you've had a strategic objective of hitting greater than 15% top line growth and slower expense growth. I'm just curious, I know the last couple of years have been sort of investment years for you. But how are you thinking about those objectives looking forward? G. Lynch: Matt, I think you're better qualified to handle this one. Matthew Wolsfeld: I guess from a top line growth standpoint, we are still certainly still optimistic. We look at the opportunities that we have in -- specifically in oil and gas, specifically in Natur-Tec, the expectations are that those 2 groups are going to have some significant growth in 2026. The traditional ZERUST business is going to be relatively stable with some slight growth. But certainly, the opportunities that we have in Natur-Tec and oil and gas kind of worldwide are what we expect to kind of fuel that 15% growth this year. Certainly, we didn't get that last year, but we think the investments that we've made should put us back to that kind of growth rate, which would obviously have a significant impact from a gross margin standpoint. And again, with the dollar values flowing down to the EPS level. Zach Liggett: Yes. Okay. And then the operating cash flow came off quite a bit this year. How are you thinking about that for FY '26 and free cash flow for that matter? If you could give us an update on your CapEx expectations? Matthew Wolsfeld: Well, our fiscal 2025 was a large year, really '24 and '25 were a large year from a CapEx standpoint. We had a new ERP -- new SAP ERP system that was implemented, which was -- certainly wasn't cheap. We funded that out of operating cash. We also purchased a building that's directly adjacent to our existing headquarters here for the increased production and warehousing that we need given we're kind of outgrowing the current footprint that we have here. So we were able to add another 60%, 70% to our office -- to our space here. The expectations are for 2026 that there's going to be very little capital improvements that are needed in North America. There are additional facilities we're looking at in Brazil, which they would fund on their own, which wouldn't involve operating cash coming out of North America, and they have a cash surplus in Brazil. And also at Natur-Tec India, they're looking at essentially building their facilities there to accommodate the production and warehousing needs for the Indian business. And again, they would be funding that and taking care of that entirely within their operating cash and any kind of financing in India. So the expectations are specifically in North America in 2026 is that we're going to be able to add a significant amount of cash to pay down our line of credit. The goal is certainly to pay down the line of credit as much as possible, get back to the point that as we're seeing increased earnings, we're able to ramp the dividend back up and have a nice cash cushion to be able to kind of fund future growth and needs that the company has over the next few years. Zach Liggett: All right. Yes, that sounds promising. And then last -- or 2 small ones for me, I guess. Any benefits you're seeing this coming year from One Big Beautiful Bill? Matthew Wolsfeld: Not really. I mean... G. Lynch: No. That's our business. Zach Liggett: Okay. And then any AI use cases that you guys have identified for the coming year? G. Lynch: No. Operator: Thank you. I'll now turn it back to Mr. Patrick Lynch. G. Lynch: All right. Thank you all for joining this morning. I hope you have a nice day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
John Crosse: Good morning, and welcome, everyone, in the room and joining online or on the phones. Thanks for joining us for our FY '25 results. Just a few housekeeping things before we kick off. There are no planned fire alarm tests today. So if the alarm does go off, for those in the room, it's a real one. And you can see the fire exits just behind you marked in green. And then finally, just wanted to draw your attention to the usual disclaimer in the presentation. We've got for you this morning. So without further ado, I would like to hand over to Lukas. Lukas Paravicini: Thank you very much, John. And good morning, and a very warm welcome to all of you here in the room, and a very warm welcome to you all who join us online. Today marks another exciting day on the journey of Imperial Brands. I'm very pleased to share with you another year of strong performance, and I'm very excited about this being my first time in the role of CEO of the group, a true honor and a true privilege, which I don't take lightly. I'm joined today by Murray McGowan, our newly appointed Chief Financial Officer; and John Crosse, our Head of Investors Relation. I'll start off by giving you the highlights of fiscal year '25. Murray will then join us and share more about the financial performance and the outlook for '26. I will then come back, talk a bit more about our operational delivery, our transformation and also to reconfirm our strategic ambition that we set out in March this year. At the end of that, we look very much forward to all your questions. And with that, let me get down to business, and let's start the presentation. What I really would like to do today is highlight 3 things. First, the quality of our performance during this past fiscal year and how this builds on our growing track record of consistent growth. Second, how our evolved strategy is not just a confident evolution, it is also a step change in our capabilities and a commitment to delivering further significant value to our shareholders. And third, our own personal excitement at the opportunities that lie ahead of us. Since the half year results in May and the announcement of our new roles, Murray and I have been spending a lot of time with our people across our global businesses. This included face-to-face events in all regions attended by more than 600 of our leaders. We've been discussing our recent achievements, our refreshed strategy and how we can make an even bigger impact over the next 5 years. What's been really energizing is the sheer enthusiasm of our colleagues about where we are going next. And it has reinforced my belief that we have the right plan and the right people to make the step change we highlighted at the CMD in March. We'll come back to those plans later. But first, let's look at our fiscal year '25 dashboard. Once again, all the key metrics are delivering in line with our commitments. You can see here how consistent operational delivery is underpinning improvements in our key financial measures and in turn, driving shareholder returns. In combustibles, we maintained share in our priority markets while also delivering another year of strong pricing. In NGP, we recorded a further year of double-digit revenue growth with share growing in all categories. This progress at an operational level has translated into revenue growth of more than 4% and an improvement of more than 9% in earnings per share. This has also been a year of strong cash flow. All this has supported material increases in our -- in both our underlying dividend and our ongoing share buyback. During fiscal year '26, we further intend to make total capital returns in excess of GBP 2.7 billion. These results add to our consistent track record of growth. You can see here how each year of incremental improvement adds up to a powerful cumulative effect over the past 5 years, a 48 basis points improvement in aggregate market share. NGP revenue up 73%, EPS up 1/3, and the GBP 10 billion in capital returns. That's equivalent to 2/3 of our market cap when we started our 2021 strategy. So that's what we have delivered. Even more important is how we have delivered. As you have heard us say many times, the unifying theme behind our success is our challenger approach. These things is about 3 things: getting really close to our consumer, staying focused on the most important drivers of growth and investing to become more agile. During the CMD, you've heard us talk in more detail about how we brought to life this challenger idea. For example, investing in new consumer capabilities, prioritizing must-win market battles, developing a high-performance culture, investing in technology and harnessing our self-help opportunities. It was these investments, these changes, which helped us turn around our tobacco business and build an NGP business where we now have attractive products across all consumer categories. At this point, I would also like to take a moment to thank Stefan, Stefan Bomhard, for his leadership in the turnaround of Imperial Brands over the past 5 years. He leaves behind a strong platform for future growth. Looking ahead, you'll see us continue to play our important distinctive role as a challenger business in this sector. And as we said at the Capital Market Day, our purpose remains unchanged. We're still going to be forging a path to a healthier future for moments of relaxation and pleasure. In this way, we will continue to deliver strong performance for shareholders. I will now hand over to Murray. And when I come back, I'll take a closer look into our strategic ambition and how we transform our business to actually achieve them. Murray, over to you. Murray McGowan: Thank you, Lukas, and good morning, everyone. As many of you know, I joined Imperial Brands just over 5 years ago, heading up Strategy and Corporate Development. And in that role back in 2021, I led the development of our previous strategy, which we shared in January '21. And more recently, I led the work to develop our evolved strategy that we shared in March of this year at our Capital Markets Day. Now I am really honored to have the opportunity to step up to be Chief Financial Officer for Imperial Brands, and I absolutely share Lukas's excitement about the opportunities that we have ahead of us. As I pick up the CFO baton from Lukas, I'm pleased to show you another positive year of financial results and a year of strong delivery. As Lukas said, we've maintained aggregate share in our 5 priority markets, whilst delivering strong pricing. We have again delivered double-digit net revenue growth in NGP and strong operational performance has enabled us to deliver group adjusted operating profit in line with guidance, up by 4.6%. This, together with the GBP 1.25 billion share buyback, enabled us to deliver high single-digit EPS growth that we committed to. Leverage of 2x is in line with the target of being at the lower end of our 2 to 2.5x range. And this has been driven by cash conversion near the upper end of our 90% to 100% range, delivering robust free cash flow of GBP 2.7 billion. Turning to volume and price mix at the regional and group level. Once again here, we can see the strength of the tobacco value model in action. Our investment in brand equity and improved sales execution enabled strong pricing across our footprint, shown in orange on the chart. Price/mix has more than offset volume declines shown here in gray to deliver tobacco net revenue growth of 3.7%, a similar rate to last year. Volume declines in Europe and AACE improved relative to historical rates and strong pricing in Europe helped deliver net revenue growth of 4.2% in this region. In the U.S., we saw strong price/mix of 9.9%, more than offsetting volume declines, which were slightly more moderate than the prior year. Moving on to adjusted operating profit. Tobacco performance has been the main contributor to group adjusted operating profit growth, supported by NGP and Logista. In tobacco, the strong pricing I just described has driven higher profit. As usual, we benefit from the operational gearing as we move down the P&L. In NGP, losses remained at a similar level to last year as we increased investment in certain parts of our portfolio, for example, Zone in the U.S. We're making good progress towards building a sustainable and profitable NGP business as we continue to build scale. Overall, tobacco and NGP adjusted operating profit grew 4.9%. At Logista, performance was behind prior years with growth from tobacco price increases offset by performance in the long-distance transport sector. So overall, I am pleased with the 4.6% growth in group adjusted operating profit. Now as CFO, I will always be transparent about items that we classify as adjustments. Today, we are disclosing 2 charges related to our 2030 strategy. The first is an impairment charge related to our recent announcement that we will cease production at our Langenhagen factory. The second relates to the initial cost of our wider transformation program. These costs are within the guidance we gave at our Capital Markets Day back in March, and the remaining costs related to transformation will be adjusting items in future years. Strong adjusted operating profit growth, coupled with the share count reduction has driven earnings per share growth of 9.1%. The increase in tax reflects a slightly higher adjusted effective tax rate at 23.3% with higher net finance costs in line with our guidance. There was a small increase in minority interest, reflecting the strong performance in Africa. These impacts are more than offset by the benefit of the reduced share count. During the year, we repurchased just over 5% of our share capital, bringing the total repurchase since we began the share buyback program in 2022 to 15.8%. Turning to cash and capital allocation. Our operating cash conversion was 97%, enabling strong free cash flow generation of GBP 2.7 billion. This means that over the past 5 years, we generated cumulative cash of GBP 11.6 billion. Now disciplined capital investment remains a key part of how we create value. And let me assure you that I remain committed to our capital allocation framework as I step into the CFO role. Our first priority is to invest in the business. As a reminder, our approach is primarily organic. We have committed to invest in transformation, but we will also consider bolt-on acquisitions where they support the delivery of our strategy. Second, we maintain a strong and efficient balance sheet. Third, we deliver progressive dividends. And fourth, we're committed to returning surplus capital to our shareholders. As we announced on the 7th of October, we've increased our FY '26 share buyback to GBP 1.45 billion. As Lukas said, we've now returned over GBP 10 billion to our shareholders since FY '21. This represents 2/3 of our market value when we launched a previous strategy in January 2021. And going forward, we are committed to an evergreen share buyback throughout the next 5-year strategic period. Our expectations for the coming year are in line with the medium-term guidance that we set out at the Capital Markets Day in March 2025. We will continue to invest to support low single-digit tobacco and double-digit NGP net revenue growth on a constant currency basis. Given the strong momentum in our NGP business, we'll continue to invest to drive growth while balancing our objective to build a sustainable and profitable business. Group adjusted operating profit is expected to grow in the 3% to 5% range, driven primarily by the continued profit growth of our combustible business. In line with previous years, because of the phasing of combustible pricing and investment, performance will be weighted to the second half. Free cash flow generation is expected to be at least GBP 2.2 billion after investments in our transformation. The growth in adjusted operating profit, combined with the ongoing share buyback is expected to deliver at least high single-digit EPS growth, even after slightly increased tax, finance and minority interest costs. At current rates, we expect foreign exchange translation to be a 2% to 2.5% tailwind to profit. As usual, there is a slide in the appendix with guidance on the specific items. Now, I believe the results we are delivering today demonstrate the strong foundation that we have built that will enable us to continue to deliver over the next 5 years and generate value for our shareholders. Thank you. I'll now hand back to Lukas. Lukas Paravicini: Thank you very much, Murray. And in this part, I'll start off by giving you a bit more details about our operational delivery and how they underpinned our fiscal year '25 performance. I will then turn back to our strategic ambitions, and I'll explain how in our opinion, the distinctive combination of actually consistent in-year delivery and an accelerated transformation add up to a compelling investment proposition. So let's start with the tobacco business. We have driven pricing successfully and created significant value. This pricing has been achieved while also maintaining stable share in our priority markets. Our portfolio has been performing in line with our strategic objectives. The times where we were the largest owner of market share have gone for good. Our overarching priority is to balance aggregate share, pricing and long-term brand building to generate sustainable value. In any given year, we may make deliberate decisions in individual markets to monetize share gains made in previous years. The U.S. and Germany, our 2 largest markets, which together account for about half of our revenue and profits. And we have grouped them on the same slide because they share key characteristics. In both markets, we are benefiting from long-term investments in our sales force, which have improved effectiveness and coverage. In both markets, we are competing successfully at the premium end with iconic brands like Gauloises and Davidoff in Germany and Winston and Kool in the U.S. In both markets, we are also capitalizing well on our consumer down trading into the discount segment. Both markets continue to be highly affordable for consumers, and we see attractive opportunities for the future. In Germany, we have continued the improving share trajectory of last year after a decade of share declines. Aligned with our strategy in the U.S., we delivered stable share in what is a highly competitive marketplace. Our U.S. business also has a strong mass market cigar franchise, led by our premium Backwoods brand. And this has continued to grow well over the past year. Turning to the other key markets. In Spain, we took a conscious choice to monetize share gains over the past 4 years. We see this market as continuing to be highly affordable and attractive over the next 5 years and beyond. As we have always said, the U.K. and Australia both face rising excise rates, leading to growing illicit trades. And we expect these trends to continue into fiscal year '26. Having spent time in both markets recently, I've been impressed by our team's ability to continue to generate value. In Australia, for the first time, we moved into the #1 position in terms of market share. And in the U.K., the team managed our tobacco business skillfully, while also making good progress building a meaningful NGP franchise. And our Africa cluster contains diverse markets from Morocco in the Northwest to Madagascar in the Indian Ocean and accounts for 10% of our operating -- our tobacco adjusted operating profit. As you would expect, in any emerging markets business, the performance of individual countries can vary. But in aggregate, these markets have been growing strongly and consistently. And we expect it to become an even more material contributor to the group over the next few years. So let me talk now about NGP. We continue to see share growth across all categories. In modern oral, we are excited by the significant growth we are delivering with Zone in the U.S. We have established a national share of 2.8%, and the product is now available in 100,000 stores. And we are committed to ongoing investment in building this brand. In the Nordic markets, we are also growing strongly with Skruf. Here, targeted innovation in flavors and the design of our pouches is paying off with a positive response from consumers. Our vape business is performing well. We're focused on Western Europe where vaping is established as a dominant category. Across our footprint, we are growing share. And in the big 3 European markets, the U.K., France and Spain, we now have well-established double-digit positions. I've been particularly pleased to see the agility with which we adapted to regulatory changes. Our new pod-based blu Kit ranges was rolled out at pace during the year and has already become the big driver of our growth. In heated tobacco, we have made further progress. Here, we are growing share in our focused footprint. While it is early days, our new Pulze 3.0 device is winning positive feedback from the trade and consumers. So it's been a strong operational performance, which builds on our solid record. I'm proud of what our teams have achieved over the past 5 years. Their success gives us a firm foundation for the next strategic period. But I want to be clear, absolutely clear, this management team is not resting on its laurels. As we said at the CMD, we know we need to go further, and we need to go faster. And we are confident we have the right plans to deliver continued strong performance for our shareholders. At one level, our strategy is a confident evolution. As I said earlier, we will continue to follow the challenger approach, which has underpinned our recent success. Our strategy will further drive significant sustainable value in our combustible business and build an NGP business operating at scale. This is a combination, we believe, create material value for shareholders over the next 5 years. These are the twin priorities, which sit on the top of our strategy wheel. But this is more, more than just an evolution. Delivering these ambitious priorities will require a further step change in our capabilities. And the 3 elements on the bottom half of our wheel, our strategic enablers explain how we will achieve them. Taking these elements together, the big opportunity is this. We are a business that was stitched together from many acquisitions over several decades. Over the past few years, we have made progress towards building a consumer-centric, simplified and more joined-up business. And we have assembled a fantastic team of people with a unique blend of broad consumer experience and deep knowledge of our consumer, our markets and our industry. But this journey, this journey remains unfinished. During the next few years, by investing further in our consumer capabilities, our technology and data and by equipping our people with the right skills, we are setting ourselves up for success. We will, at last, complete our long transition from a loose collection of businesses to become a true challenger business, which leads the industry in consumer intimacy. And we will become an agile, data-led and high-performing organization. And at that moment, we will fully unleash the brilliant talent we have brought together. An important element of this new team is our 1,000 strong global consumer organization. Our investment in people and capabilities has enabled us to continue deepening our insights into the consumers we need to target. This enables us to build more sharply differentiated brands, which create passion among our consumers and drive material commercial outcomes. A fresh capability we have added over the past year is our new brand building framework. This adds more rigor to how we identify target consumers, build compelling marketing campaigns and ultimately, deliver share and revenue. An early output of this work has been our new "Touch of Blue" campaign for Gauloises in Germany, which is already helping drive an improvement in the share trend. We are applying the same processes to our NGP business. For example, here, you can see some of the work we are doing with our Zone in the U.S. and blu here in the U.K. Armed with a clearer view of our target consumers and their needs, we are getting more intentional in how we innovate in tobacco and NGP. For example, by mapping the flavors preferred by our Moroccan consumers, we discovered we were missing an important opportunity. To meet that need, we launched Gauloises Rich Gold, and it's performing well. In vape, the new blu Kit range I mentioned earlier was in response to our consumers expressing a need for more authentic tasting flavors and a differentiated quality design. In O&D, in close collaboration with consumers, we've revamped the format, creating a new pouch that delivers superior flavor, faster nicotine release and a smoother mouth feel. And excitingly, as you will have seen in the area outside this morning, today marks the official launch of our nicotine pouch in the U.K. market under the Zone brand. And the latest iteration of our Pulze heated tobacco device is another example of highly focused innovation. We know our consumer wants convenient, all-in-one package, which closely replicates the experience of a cigarette. And the early signs are that this is going to be a winning proposition with our consumers. Over the past 12 months, we made further progress in transforming the other elements of our business to simplify our organization and become more efficient and data enabled. Our 5-year program to build a new ERP platform is on track, and we recently went live in our first large production site. We've launched a stronger and more integrated business planning process. We continue to drive efficiency through manufacturing excellence. And in October, we took the difficult but necessary decision to withdraw from Langenhagen factory in Germany. We're also continuing to drive sales excellence, investing in technology and the skills of our sales teams to become the trade partner of choice. Right now, it would be fair to say we are still playing catch-up with other consumer businesses, which started transformation years earlier. Over the next strategic period, though, we can accelerate our progress by learning from the journeys taken by our peers. We can leapfrog technologies and we skip unnecessary development steps. I think of the opportunity as being a little bit like those emerging countries, which successfully jumped from coins and banknotes, straight to mobile wallets. At future results presentations, I look forward to providing more detail of our transformation plans and updating you on the progress we make. As we grow and transform our business, we want to do so in a responsible, sustainable way. We continue to invest in consumer insights and scientific research to develop our understanding of how we are contributing to harm reduction. Our most recent research looked at the behavior of adult smokers with no plans to quit when introduced to blu vapes. It was very encouraging to see that 6 months into the survey, between 1/3 and 40% of participants had either significantly reduced smoking cigarettes or stopped completely. And we are committed to incorporating these kinds of insights into how we market and develop our future product ranges. Also today, we are announcing further reductions in CO2 and waste. Now let me draw all these trends together. It's been another year of consistent broad-based growth. Strong foundations are in place for the next 5 years, and we have a clear strategy for value creation. Our focused approach to getting close to our consumers and building differentiated brands works well. We now have a stronger, more sustainable combustible business. And in NGP, competitive products across all categories, and we are building scale and margins. But we are never complacent, and we take absolutely nothing for granted. That said, as we look to fiscal year '26, we feel confident that we can continue to deliver sustainable growth. At the same time, we are excited about the opportunities to further transform this business to deliver a step-up in our capabilities. It's a transformation that will ensure that we can deliver sustainable growth in the years to 2030 and well beyond. We think that when you stand back, what we are offering is a highly attractive investment proposition, broad-based operational delivery, which translates into growing revenues and profitability with strong cash generation and significant capital returns at what is still a very attractive valuation. As we always say, if you are invested in us, we thank you for your support. And if you aren't yet a shareholder, well, we think this is a great time for you to take another look at what we are doing and where we are going next. Thank you very much. And with that, I would like to ask John to open for our Q&A session. John Crosse: Great. Thank you, Lukas. I think as usual, we'll start with questions in the room first. We've also got questions on the phone for those of you who joined by telephone and also on the webcast as well. [Operator Instructions] But as I said, let's take the first question from here in the room. Do you want to go at the front? Can you please state your name and your organization as well, please, just for those listening on the webcast. Mirza Faham Baig: It's Faham Baig, UBS. First question, I appreciate Imperial has transitioned away from a share donor. And sorry for being pedantic, but the volume share performance in the U.S. and Germany has turned slightly negative in the scanner data. And the question is, as competitive activity rises in the deep discount segment, how are you thinking about balancing aggregate share stability versus value delivery? And the second question on Zone in U.S. nicotine pouches. I appreciate that you've been able to keep share relatively stable as the category has become more price competitive. The question is 2 part. Where do you believe if you stand with Zone's product -- Zone's product quality versus that of incoming launches? And would you maybe look to use some of the duty drawback benefits to reinvest into price? Lukas Paravicini: So those are 3 questions. I'll try to answer them in sequence. Please remind me if I forget one. Let's start with market share. Listen, as you pointed out, I think what you have seen over the last 5 years is that we have clearly moved away from being the biggest donor of market share in the industry, if you go back 5 years to where we are today. I don't think that has happened by accident. That has happened because we have invested in our capabilities. We have built a muscle. And that capability is all around starting with the consumer, starting with the consumer, understanding our consumer better, hence, being able to build more differentiated brands, invest into better innovation, which you have seen over the last years coming to market. We have invested in our sales force. We have actually extended sales coverage in Germany and the U.S. We have increased significantly productivity by adding technology to that. And I think we have been very agile in also managing our portfolio of brands and portfolio of markets to always achieve a stable market share across our aggregate 5 markets, which is our goal. And the goal is stable market share. That's what is in our model. And I think we have shown that capability, that agility to balance off well market share and pricing or revenue. And I'm convinced, I'm confident in those same capabilities that going forward, we can still generate very much value out of our combustible business without losing share. Okay? I'm sorry, that was the first one. I thought it was it. There was sort of relief of that question. Yes, U.S. Zone. Well, we are really excited about U.S. Zone in the U.S. Actually, our growth has actually accelerated in the second half. And you all know there has been quite a bit of aggressiveness, which we would never follow. And so we are pleased. We gained -- we started 18 months ago. We came from nowhere to 2.8% market share. We're in 100,000 stores. And we have a proposition that our consumers really like. We maintained our market share throughout the summer and throughout September, throughout that competitive pricing. This is a growing category, and it is highly competitive. We always expected more competition to come in. We are confident in our product proposition, and we are confident in building a significant business in the U.S. continuing to grow at our pace on the long term. So that's the second one. The third one was duty drawback. Listen, now that we have clarity with duty drawback in the U.S., as you know, in summer, there has been some legislation passed through Congress in the U.S. We have very agilely put ourselves to work. And it is not as easy as -- it's not a thing you do overnight. But as a global organization, we are well placed to take opportunity and benefit of that duty drawback scheme. We do have to certify certain lines and certain factories abroad for U.S. imports. We do hope -- so it's less a question of if, it's more a question of when. We -- I mean, we -- let's be clear. We hope that this year, we still see a little benefit, but we'll for sure ramp it up next year. So that will come. I think that covered everything. John Crosse: Next question in the room. Damian, you want to take it down the front. Damian McNeela: So Damian McNeela from Deutsche Bank. First question, just following on from Faham's question on Zone. I think you indicated you're in about 100,000 stores. Just can you talk about whether -- what your expectations are for further distribution gains behind Zone for the coming year? And then just in terms of NGP profitability, it was broadly stable in the year just finished. Given the sort of expectations for sort of relaunch of Zone in U.K. and U.S., how should we think about NGP profitability next year? And then just the last one on the NGP side. European NGP revenues growth slowed in the second half, obviously, because of lapping launches in the first half. But can you sort of indicate what we should expect in the second half, please? Sorry, for FY '26... Lukas Paravicini: '26. Yes. So let me go back. I'll quickly answer the Zone question. I'll also touch on the NGP in '26, and then Murray will answer the question on the profitability. So listen, we've been in 100,000 stores. There's a bit more to come there. There's some more distribution we can harness. Ultimately, we want a weighted distribution of north of 85%. Well, there's some to be hold there. But I think that's one element of our growth and our confidence. The other is that we have a proposition that our consumer, which we target very precisely, does enjoy our products. And there is confidence that by continuing to invest behind the brand, we will be able to continue to grow at our pace that product. In general, when you go back at NGP and the growth you highlighted or asked for in Europe, I just want to step back again and share our excitement of where we are with NGP. Let me just remind you where we are 5 years ago. Many of you in this room would not give us very much credit for NGP. Since we almost doubled the net revenue, we have a proposition in all 3 categories. Over the last 3 years, we have grown double digit in NGP, and we have grown share in all 3 categories. And we have committed to build or we have an ambition to build a meaningful business over the next 5 years. And we have underpinned that commitment with a double-digit growth. Now we've pointed out in the CMD that growth will be different depending on regions and categories. We knew that vape is a category which is more mature, which goes through regulatory changes in the years we are in the middle of. And hence, you will see a different growth rate from O&D -- sorry, nicotine pouches and heated tobacco. But if you look at Europe, the point you make, if you look at '25, our modern oral nicotine pouches in Nordics grew very, very well. Our heated tobacco in Italy grew very well. But yes, vape is in the middle of a transition from a disposable vape to a rechargeable, reusable pod-based system, which obviously has that effect of slowing down growth. Okay. Sorry, you wanted -- I keep forgetting that there are other questions. Murray McGowan: In terms -- profitability -- as we said in the Capital Markets Day, we're really clear that we want to build a sustainable, scaled next-generation products business that generates both profit and cash and contribution to the group. What we're not looking to do is set an average time line as to when we'll hit that profitability. As we look at our businesses now, we see opportunities to invest to drive growth, whether it be Zone in the U.S. or Zone in the U.K. or other vaping opportunities or heated tobacco in Southern Eastern Europe. What we do believe is those we can see healthy margins, healthy gross margins across our portfolio of next-generation products. And if you look in the appendices of the presentation today, we share the margins across each of the different platforms. So we believe the right call for us is to invest to grow and to grow towards profitability. But we are confident that by the time we get to the end of the plan, it will be a good contributor to the group overall. In terms of your specific question about profitability next year, I wouldn't expect a significant shift in terms of level of profitability for next year. But in the grand scheme of our P&L, we think it's a sensible investment from a shareholder perspective. John Crosse: [Mariah Deshnov] from Barclays here. Just thinking about your agreement with TJP, does that prevent you at all from launching Skruf as a product in the U.S. if there was interest? And also, if there were to be any PMTAs of any new products in 2026, would that have to be done through TJP or how would that work? Lukas Paravicini: So TJP Labs is our partner. We were very agile a few years ago, and that was a good demonstration on how we look at bolt-on acquisitions, how we move agile when it comes to opportunities and where we want to enter new market. And we have a contract manufacturing agreement with them. We bought the products. So the products are ours. They are under in the PMTA. So the question whether we want to launch a product that is used on the Skruf in the U.S. has nothing to do with TJ Lab. It has to be with the PMTA process that you would have to require a PMTA. And then that is a more complicated undertaking. So TJ Lab is our contract manufacturer, but has nothing to do with the choices we make on products. And there was -- no, that's it. Yes. John Crosse: We'll take another question in the room. And then we'll go to the phone lines. There's one waiting. Bastien Agaud: Bastien Agaud from Bank of America. On the next tobacco product directive, experts say that we should have something probably next year calling for potentially normalization at the European level, whether with some restriction on the flavor. So given the opportunity on the potential geographical expansion, whether with restriction on the flavor, is that an opportunity for you? Or how should we think about it given potentially more country where you can open or whether with more restriction on the flavor? And I'm thinking about modern oral particularly. Lukas Paravicini: So I think I remember when I joined this group, the first thing that I learned is that there is regulation and there's a lot of noise around regulation. But I also learned quite quickly that regulation has been with this industry for the last 30, 40 years. And the industry and ourselves have built a muscle to adapt and live with regulation, which we fully understand and support. So I think that's the first point. We are a company that is accustomed to operate in a regulated market, and we will adapt, and we have adapted well to that like the others in the industry. I think the EU TPD that you are referring to is a well-established, long process. We have now finally seen the basics or the proposal. As you know, there's lots of differences around the 29 markets or 27. I'm not sure really how many in the European Union, I apologize for that. But in the conglomerate of all those markets, there's all different kind of opinions. And so it will take at least to your point, we believe it's a good year for this to harmonize to find a solution. But we know the direction and the direction actually helps us also put a framework. We've always been in favor of some thoughtful regulation that allows adult smoker to get to those products that help them get off smoking, but also prevent you getting to those same products, which we do not market to. So we'll see what comes out. We are confident that we'll continue to operate well in that framework. And as you said, more regulation that is thoughtful will actually help us going forward. John Crosse: Great. Thanks, Lukas. We go to the phone lines now. Sharon, do you just want to remind people on the phones again how to register? Operator: [Operator Instructions] I will now hand back to you, John. John Crosse: Thanks. So we do have some questions in the queue. The first one is David from Morgan Stanley. Unknown Analyst: David [indiscernible] from Morgan Stanley. I just had one question on cash flow looking forward. How should we think about working capital in '26 and outer years? Should we expect an inflow or outflow? Murray McGowan: Thanks for the question, David. Working capital, we try to ensure we maintain a tight control on working capital as a group. In terms of guidance going forward, look, we guide on free cash flow as a business. We're very clear the guidance for the business in the meantime in the medium term is from GBP 2.2 billion up to GBP 3 billion by the end of the strategic period. Working capital, we're not expecting any significant shifts plus or minus during that period of time at this stage. So we don't guide on that. I think the focus more on the free cash flow commitment, so at least GBP 2.2 billion next year. John Crosse: Great. Thanks, David. We do also have one question that's come through online from [John Guy]. John, I think we've answered that. Your question was around the building blocks of driving double-digit growth in NGP next year. I think we covered that early on. John, do drop us an e-mail and get in touch if you feel you need a bit more detail, but I think we've answered that already. So come back into the room if there's any other questions in the room. No. Okay. There's no other questions online. So with that, I hand it over to you, Lukas, to wrap up. Lukas Paravicini: Thank you very much. It's been a pleasure to have you here. Thanks for your interest. And again, as I said, we are very excited with not just what we have delivered this year, what we have delivered over the last 5 years. Again, also thanks to Stefan, who is not with us today, but has always been instrumental in delivering the last 5 years. But also very excited about how we continue our confident evolution in delivering against a good tobacco business, sustainable value there, why we build an NGP business at scale and also very excited how we're going to step up our capability built around getting closer to consumers, invest further in technology to underpin our strategic ambitions. Thank you very much, and hope to see you soon again. Thank you.
Chris Hunt: Good morning. Thank you for joining this webcast covering ICG's results for the 6 months ended 30th of September 2025 and the strategic partnership with Amundi we've announced this morning. The slides are available on our website, along with both accompanying announcements. As a reminder, unless otherwise stated, all financial information discussed today is based on alternative performance measures, which exclude the consolidation of some of our fund structures required under IFRS. This morning, I'm joined by our CEO and CIO, Benoit Durteste; our CFO, David Bicarregui. They will give an overview of our performance during the period, and we will then take questions. You can submit these through the webcast message function or by telephone, details of which are on the portal. And with that, I'll hand over to Benoit. Benoît Durteste: Thank you, Chris, and good morning, everyone. It's a pleasure to reflect today on the progress ICG has made during the first half. And this is an even more exciting than usual results announcement. We're not only reporting impressive H1 results, we're also announcing a major distribution agreement and strategic partnership with Amundi. From a group perspective, our growing breadth and scale is continuing to drive visible benefits for our clients and shareholders. And our deliberate tilt over the last decade towards higher returning strategies is clearly bearing fruit. Our track record and reputation for an unwavering focus on risk and investment performance are key factors in our recent success. Institutional clients are increasingly scrutinizing performance and in particular, realized performance or DPI. In a market where a number of players' pursuit of AUM and volume is leading to some unreasonable risk taking in our view, predominantly but not exclusively in credit and private debt, our clients recognize that we remain at heart investors squarely focused on consistency of performance through cycles. All of which means that we see substantial opportunity to grow our existing strategies and our institutional client base. This will drive significant organic growth in the coming years. And we are also well-positioned strategically and financially to continue to innovate new strategies and products where we see opportunities. These strong growth prospects are further enhanced by the announcement today of our strategic partnership with Amundi, which is a meaningful step forward in the development of our wealth strategy and will help shape appropriate product offerings for that market. It's an incredibly exciting opportunity, potentially very additive to both parties, and I'll speak about it further later in this presentation. I'll start with a few highlights on the last 6 months. Fundraising of $9 billion surpassed our expectations coming into the year with Europe IX raising more quickly than we had anticipated and Infrastructure II having a very strong run into its final close, achieving hard cap at more than double the size of the previous vintage. Our secondaries franchise continues to excite us in an area we have built entirely organically and which is now our third largest asset class by AUM. We are in the market with the subsequent vintage of LP secondaries, so Vintage 2. We are launching a European evergreen secondaries vehicle, and we are also launching a mid-market version of our strategic equity fund, which is our GP-led secondaries strategy in order to further cement our global leadership position in that asset class. On the financial side, fee-earning AUM now stands at $84 billion, up 6% in the last 6 months on a constant currency basis, and we have substantial dry powder to continue our investment programs. Management fees for the 6 months were up 16% at GBP 334 million, while expenses are being well managed and demonstrating operating leverage. At a group level, our operating cash flow was up meaningfully at GBP 450 million. So in short, we're enjoying significant growth and cash flow generation. Putting that into a longer-term perspective, you could see how our business has evolved rapidly over the last 5 years and the financial impact that's having. On the left-hand side of this chart, we set out our growth by asset class, which has been diversified, but really driven by higher return strategies in structured capital, secondaries and real assets equity. Private debt in comparison has grown but at a slower pace and remains an area where we continue to be highly disciplined, prioritizing long-term performance over aggressive deployment. We have attracted substantial capital into these higher returning strategies, leading to almost doubling our fee-earning AUM over the past 5 years, entirely organically. And we have grown our weighted average management fee rate from 85 bps at March '21 to just under 1% today. As a result, we are larger, more diversified, more resilient and more profitable. A key theme of our strategy has been scaling our higher return strategies, specifically private equity secondaries, structured capital, real assets equity, that's real estate equity and infrastructure equity. This takes time, but the successful execution of this is clearly visible in the middle of this page. In March '21, these strategies represented 1/3 of our fee earning. Since then, they have grown by 3.2x. That's compared to doubling of fee-earning AUM at the group level. And today, they represent 57% of our fee-earning AUM. From a purely financial perspective, this has been the key driver of the growth in our management fee rate I just spoke about and of course, our operating margin. But the broader rationale is arguably more important. These strategies are inherently more complex with higher barriers to entry. And this allows us to differentiate, generate outperformance for our clients, demonstrate our investment excellence, and in the process, charge higher management fees on committed capital as well as generate over time, more performance fees. These strategies are also harder to commoditize, which will help protect management fee rates and is reinforcing ICG's brand equity with our clients. These are not volume vanilla products. And what is particularly exciting is that all of these funds or strategies have significant room to grow organically for years to come. As a result of this shift, the future value of our fee-earning AUM is materially higher than 5 years ago. It is earning higher fees and is more relevant to clients' wider markets portfolios. Today, we are proud of our European heritage and of our global reach. We have presence in 18 countries, attract capital from clients around the world and invest in all the largest geographies for private markets, including 1/4 of our deployed capital being invested in the U.S. From a product perspective, we have a number of leading positions in structured capital, GP-led secondaries, European direct lending as well as an exciting array of earlier-stage strategies, including in real assets. And this has not been by chance. It is anchored in some very basic beliefs about what it takes to succeed in the long term, which is one, a focus on investment performance, always; two, a waterfront of strategies that provides something different to clients; and three, a platform that is scalable to be relevant to the largest investors globally. I'm proud that today's results show how we are continuing to build that at ICG, how they help underline the success of that execution to date and how they help demonstrate the opportunity ahead of us. Turning now to the current environment. Fundraising across the wider market remains challenging. Global private capital raised this year is likely to be lower for the fourth consecutive year. And to quote a recent Bain Report, fundraising has never been so hard. The statistic that there is about $3 of demand for every dollar likely to be raised is remarkable. It has existential consequences for many managers, some of whom simply are not and will not be able to raise capital. We're already seeing some firms effectively going into runoff or shrinking substantially, and I expect to see more of that. This will incidentally create some opportunities at the very least for hiring new talent, and we are already benefiting. One of the consequences of this is that LPs are increasingly selective with many looking to diversify towards Europe and focusing both on certain strategies such as structured capital and real assets as well as being very focused on investment performance and DPI in particular. For firms such as ICG who have a range of products and we're able to raise capital, doing so is reinforcing our position with clients. Stepping back, the real takeaway from this is that although the market has been challenging for a few years now, for firms such as ICG who have a range of products and are successfully raising capital, this is a very good time to differentiate, gain market share, and it is allowing us to set the firm up for even greater long-term success and growth. I mentioned the strong focus of investors on realized performance or DPI, how quickly you return cash to clients. And here is a slide that I showed at our Investor Days in London, New York, and Tokyo this past September and October. And this slide really resonates with our clients. To have this number of strategies as top decile or at the very least top quartile from a DPI perspective is highly unusual. It's very impressive. It's a track record we're incredibly proud of and a quantitative validation of how our focus on investment performance is delivering for clients. Importantly, this is not by chance, right? It is not new to ICG. Our investors know this well. Those of you who have known us for some time will have heard me speak about it many times in the past, how discipline in realizing assets, derisking funds is key to consistency of performance over a long period. Discipline, a consistent focus on risk return performance, not just return. This is what makes a real difference with investors today. The result of all this is that we are continuing to see strong client demand, and that's reflected in our fundraising. We have raised $9 billion in the last 6 months, which is particularly noteworthy, not just because we have surpassed our expectations, but because as we have previously indicated, we are this year and next at a structurally lower point of our own fundraising cycle. Europe IX continues to raise well with $2.8 billion raised in the period and the fund now standing at $7.5 billion, so well on the way to meeting or exceeding the previous vintage, which was just over EUR 8 billion. Infrastructure II held its final close in the period at EUR 3.15 billion. So that's over 2x larger than the prior vintage. It has been a standout success. We had a re-up rate of 85% and attracted capital from a wide range of clients. 1/4 of the capital came from North America, reinforcing the growing strength of our brand there and the appeal of high-performing European products for certain North American investors. From a shareholder perspective, we reduced the balance sheet commitment from EUR 200 million in Fund I to EUR 150 million in Fund II, so moving from 13% of total fund size in the first vintage to under 5% in Fund II. More broadly, over the past 15 months, we have had five funds close at or above their hard cap and not just flagship scaling strategies as well. In any environment, that would be remarkable. But in this environment, with fundraising under such pressure, as we discussed earlier, that's a real achievement. All of which comes from and supports our client growth. We have continued to attract new institutional clients during the period. Since we announced our fundraising guidance in May '24, 43% of new LPs came from North America and 9% from the Middle East. And looking ahead, we will continue to broaden our reach through innovating new products and diversifying our sources of capital, always with an absolute focus on developing products that are appropriate to those channels where we can deliver attractive investment returns. Today, as part of that continued broadening of our client base, we're excited to announce a long-term strategic partnership with Amundi. This partnership significantly accelerates our ambitions in the private wealth space and combines ICG's investment expertise and track record of product innovation with Amundi's global distribution capabilities and structuring know-how. We have historically taken a much more cautious approach to the wealth channel than most of our peers. While there is obviously an enormous potential for capital raising, we have also seen how it can shift investment priorities of GPs towards a more volume-driven approach to the detriment of performance, which is precisely at the opposite end of the spectrum of what ICG is about and what we want to be, uncompromisingly focused on investment quality, risk and performance. And this is where the partnership with Amundi is incredibly exciting. We have found that we have a like-minded approach to investment to delivering the best results for end clients. We share key values, and this is essential for the success of our collaboration. Our common goal is to be an important force in shaping access for individuals to private markets investments while maintaining an unflinching focus on generating attractive risk-adjusted investment performance. We see a significant long-term opportunity to develop a range of products appropriate to the wealth market and believe that together, we have the right complementary capabilities to execute on that. I'm convinced that by working together in this way, we can create significant value for our clients and respective shareholders. As you're well aware, Amundi is the largest European traditional asset manager, one of the largest globally with some EUR 2.3 trillion of assets under management and access through its distribution network to over 200 million individual clients. It is the ideal partner for ICG in this transaction, bringing scale, access, and expertise that are highly complementary to our own existing capabilities. Looking at the two components of the partnership in a bit more detail. The commercial agreement, which covers distribution and product structuring will have an initial term of 10 years. Our immediate focus will be on developing and launching two evergreen funds, one for LP secondaries and one for private credit. Globally, outside of the U.S. and Australia and New Zealand, Amundi will be the exclusive distributor in the wealth channel for ICG's Evergreen and certain other products with ICG being Amundi's exclusive provider for those products to Amundi's distribution business. Over time, we will seek to develop more products and strategies that are well suited to the wealth market. And this is a very exciting long-term prospect of this partnership. We see a real opportunity to shape the market to ensure that products are appropriate and deliver what investors are looking for, structured in ways that enable returns to be generated over the long term. To align our interest and reinforce the long-term nature of this partnership, Amundi will acquire a 9.9% economic interest in ICG in a way that is non-dilutive to our current shareholders. The structure is set out in brief here and in more detail in the appendix and in the RNS we released this morning on this partnership. As part of this, Amundi will be entitled to nominate one non-executive director to our Board, and I look forward to working with that individual and the wider Amundi team to make a success of what I consider to be a meaningful alignment of two leading European-based firms to help shape the wealth market for private investments in the years to come. So looking ahead, future -- our future growth has a number of encouraging tailwinds. Our waterfront of strategies is significantly exposed to some of the fastest-growing asset classes in private markets, providing a constructive backdrop for our strategies. I'm very positive on the long-term opportunity ahead of us and our ability to execute on that, a trajectory that is reinforced by the results we are reporting today and the partnership with Amundi. And with that, I'll pass over to David. David Christopher Bicarregui: Thank you, Benoit, and thank you all for joining us today. I'm pleased to report that we have published strong results this morning with growth across key financial metrics. Fee-earning AUM grew 6% on a constant currency basis, ending at $84 billion. It has grown every year in the last 5 years in dollar terms and over that period has increased at an annualized rate of 14%. In the past 6 months, we have raised $5 billion for strategies that charge fees on committed capital and deployed $6 billion in strategies that charge fees on invested capital. We also have $19 billion of AUM not yet earning fees, largely in private debt, which has the potential to generate approximately GBP 130 million in additional management fees. Our visible recurring management fees remain the key driver of revenue growth. As of the 30th of September, management fees reached GBP 334 million for the last 6 months, an increase of 16% year-on-year. As we discussed in October, performance fees are becoming an important contributor to our revenue mix, reflecting the growth of higher return strategies that Benoit described earlier. In the period, we recognized total performance fee revenue of GBP 98 million, including the one-off impact of GBP 72 million due to the change in recognition method. We received GBP 62 million of cash from performance fees, up from GBP 40 million in H1 of last year. Our total balance sheet returns for the period were GBP 112 million, up 57% compared to the previous year. And preempting the inevitable question on first brands, the impact was minimal, less than GBP 5 million, and the assumptions on our CLO valuations provided by third-party valuation agent are broadly unchanged compared to March. Stepping back, the revenue profile in the period underlines the trajectory that Benoit spoke about earlier. These results reinforce our continued successful long-term execution. Over 70 -- sorry, 60% of our revenue in the last 6 months is from management fees, which have grown at an annualized rate of 19% over the last 5 years and over 80% of our revenue was fee-based. As we continue to scale up and scale out our investment strategies, I expect this trajectory to continue with the balance sheet remaining an important asset to enable this growth while becoming less meaningful to our revenue mix. Group operating expenses have grown 1% year-on-year. Over the medium term, we would still expect these to grow at mid-to-high single-digit percentage. We are clearly seeing operating leverage come through as our funds get bigger and we raise subsequent vintages, benefiting from the compounding fees on fees profile. This is a theme we've spoken about a lot in recent years, and it's very visible when you compare the 11% annualized growth rate of OpEx over the last 5 years to the 19% annualized growth of our management fees. The combination of management fee centricity and operating leverage is even clearer if we look at it on an FRE or fee-related earnings basis. This metric takes our management fees and deduct all of our group cash costs. The precise methodology is in the appendix. There's no entirely consistent market approach, and the team can certainly talk you through this offline. But over the last 5 years, our FRE has grown at an annualized rate of 26%. What this serves to highlight is the visible growing earnings power of our management fees, the operating leverage we achieve as management fees grow, and given its cash is a highly valuable earnings stream for shareholders. Over time, FRE growth is an important indicator of how successfully we are executing our strategy of scaling up and scaling out. The Amundi partnership we announced this morning is a great example of scaling up our credit and LP secondaries platforms. Management fees generated as a result of this partnership should have strong flow-through to FRE given our high embedded operating leverage. And over the long term, our combined ability to develop new products that are suitable for the wealth market will help to further diversify and grow our management fee base, which again should be visible in our FRE growth, all of which underlines why we think this might be an interesting metric to look at. And of course, we welcome feedback. As well as our higher earnings, our growing fee income is generating increased amounts of cash, and our balance sheet is structurally cash flow positive. In the last 6 months, we generated operating cash flow of GBP 450 million, up 143% year-on-year, driven by higher management fees, realized performance fees, and total balance sheet returns. We ended the period with total available liquidity of GBP 1.3 billion, net debt of GBP 401 million and net gearing of 0.15x. During the period, Fitch upgraded our credit outlook to BBB+ Stable, and we are now rated BBB+ Stable from both agencies. NAV per share as of the 30th of September was GBP 9. We have ample liquidity and financial resources, which we can use through market cycles to pursue our strategic ambitions of reinforcing our relevance to clients by scaling new strategies and new products. The current market backdrop is a great opportunity to reinforce our position as a global leader, and we're doing just that. So drawing this all together, our ability to deliver breadth at scale is having clear benefits, which are visible in our financial results. Since September 2020, ICG has generated over GBP 2.3 billion of cumulative earnings with nearly half returned to shareholders via dividends. We have a clear and disciplined approach to capital allocation, focused on generating recurring and sustainable growth for shareholders. And I look forward to discussing these results and our outlook with many of you in the coming weeks. So with that, I'll hand it back to Chris for questions. Chris Hunt: Thank you, David. Thank you, Benoit. [Operator Instructions] And we have a few questions already on the phone, so should we go first of talk to Oliver Carruthers from Goldman Sachs. Oliver Carruthers: I've got two questions from my side. The first one on the Amundi partnership. When you think of the scope and depth of private markets for Amundi's 200 million wealth clients, what level of penetration do you think this partnership could be taken to, particularly, Benoit, given your comments on product appropriateness, but also the direction of travel the industry seems to be -- it looks like it could be kind of moving towards in terms of potentially combining public and private investment content into a single product. So that's the first question. And then the second question, maybe a 2-part question on private equity secondaries. Obviously, an asset class with a lot of growth. First part, could you talk to the mid-market strategic equity launch in terms of both the timing and the scale of the opportunity? I think this probably has a potential to be pretty accretive to FMC economics because its investment capabilities and deal flow that lines up with your existing strategic equity franchise. And then second part of the secondaries question, your comment, Benoit, on industry consolidation in fundraising and the potential for some GPs to go into runoff, LPs will obviously be quite sensitive to this. So how do you think about that comment as you're growing your LP secondaries franchise? And do you expect this will create investment opportunities on the LP-led secondary side? Benoît Durteste: Thank you. I think that was three questions, practically put into two. So -- and the first one is quite broad. So your first question on the scope and depth of the wealth market for private assets. I mean, it's early days. And so no one really knows. But in theory, the potential is considerable because up until now, wealth and more broadly retail clients have not had access or very limited access to private assets, which has created a very meaningful divergence between the portfolio composition of institutional investors and that of the wealth channel or more broadly the retail channel. So the potential there is undeniably very significant. But as you rightly pointed out, you mentioned the potential need to structure a product by potentially mixing some private and public. I think a lot of the growth will be dependent on our ability to structure those products, which is why I'm so excited by the partnership with Amundi because they're thinking exactly along the same lines. I think by and large, today, what the market has done is try to chew on illiquid private products into the channel. And there are significant limitations and perhaps risk as well to that. But it can be structured in the right way where you're providing some liquidity without losing some of the key advantages of private asset investments. And so that's what we're -- that's clearly what we're going to be focusing on. In a sense, we're going -- initially, we're going for the relatively low-hanging fruits, the easy wins in areas that are structurally more liquid or offer more liquidity, such as credit and LP secondaries, but there's much more that can be done and that we've already started discussing. So I'm very excited. But I mean, you know us, we never want to overpromise and these things can also take time. But if I think long term, I think this partnership has enormous potential. And for us, it's really important that we're not just part and benefiting from this shift because there are many ways in which we could have benefited from this long-term shift, but that with and we'll be able to actually influence it to actually craft or steer the market in a direction that we think is the most sensible. On -- your second question was on key secondaries, and we don't talk about potential size of fund. But yes, you're right that this should be very accretive because it's not very difficult for us to roll out a mid-market version of our strategic equity strategy, very much in the way we've done that for European corporate. But having said that, I always a word of caution, even though we are the global leader in the space, and we benefit from a very strong track record, it's still, in a way, a first-time fund. So we always have to be a bit cautious about the speed of fund raise for that. But yes, medium term makes a lot of sense. It should be very accretive. And for us, strategically, it matters a lot as well because it enables us to essentially occupy the whole space in terms of size and so that we keep maintaining the first-mover advantage that we have in that asset class. So yes, very promising. And finally, you squeezed in a third question on some of the shakeup in the industry with some players will clearly struggle or already struggling. Will that generate opportunities in the secondary space? Perhaps. I'd be somewhat cautious there because if you think about it, we operate in two segments of secondaries, one which is the more traditional LP secondaries. And typically there, you want to be looking at strong managers with strong assets. Can you develop a more distressed play as part of that? Perhaps, but I'd be wary of that. I mean if a manager has underperformed and gone into one-off, there's probably a good reason. So not so sure for LP secondaries. And likewise, in GP-led secondaries, you clearly want to be backing only very strong assets with very strong managers. So if there are opportunities that come out of some pain in the market, I think it might be a more direct investment potentially in our structured capital strategy. This is where potentially we could see some opportunities. And depending on how broad-based this phenomenon is, we might revise our recovery fund, which we dust off every time there is a bit of a market crisis, but we're not there yet, right? So this is maybe in the future. Chris Hunt: Thank you, Benoit. Shall we keep on the phones for now? And should we go to David McCann at Deutsche Bank, please. David McCann: Congratulations on the results from the deal. So sticking with the theme largely of Amundi for the first questions really. Amundi on their own slides are talking about 5% EPS accretion linked to the ICG deal from 2028. Is this purely just their share of the profit from their anticipated 9.9% ownership? Or can we read anything into that in terms of the partnership ambition with that? And also sort of linked to Amundi, noting that this is excluding the U.S., would you be looking for a similar partnership in the U.S.? Or how would you -- how do you anticipate to address the U.S. market? That's really the first question. Second question is a more technical one probably for David. Can you just help us understand the CLO dividend income is obviously very strong in the period, much more so than normal, but that contrasted obviously with some mark-to-market credit losses. So how could we kind of square the circle? Why are we seeing sort of good news on one side, but then sort of bad news on the other side of what is obviously a related piece. Chris Hunt: Thanks, David. That was again three questions under the pretending to two. I'll take the first one very briefly. No, you can read nothing into that number. That's a question for Amundi, but there's nothing you can read into that figure as regards to partnership at all. Benoit, do you want to pick up the sort of the wealth strategy in the U.S.? And then David, maybe you talk about the CLO question. Benoît Durteste: Sure. So a couple of things. One is even though we've generally been more cautious. We haven't been standing still. So we have been addressing the wealth channel in the U.S. for a number of years. You may remember that we were an early investor in case, which is a distributor. We still are, by the way, and that's been -- in itself, that's been a very, very good investment for us. But obviously, that's one way for us to deploy, particularly in secondaries, both GP-led and LP secondaries. But also, I mean, we've had relationship with a number of banks, of large banks distributing a number of our strategies in the U.S. and that is -- that will continue. I think the exclusion here reflects the fact that this is not a geography where we has significant presence. So yes, so that's the answer on the U.S. part of our strategy. David Christopher Bicarregui: Yes. And then, David, on your more technical question about CLOs, I mean, as you said, I think you have to look at this in the round. The total returns across all the asset classes on the balance sheet were positive, including the credit business stripe. As you say, dividends are actually a little higher than where they've run historically, that tells you more about the performance of the underlying funds being good and performing in line with expectations, hence, the generation of dividends. And we'll continue to mark the book in accordance with the third-party model. And there's nothing certainly in the data that gives us any broader concern at this point. Chris Hunt: Hubert Lam from BofA. Hubert Lam: I've got two of them. Firstly, on Amundi again. So how much could the Amundi partnership bring you think in terms of flows over the next few years? How should we think about the opportunity here? And when do you think we should start seeing meaningful benefits of flows starting to come through? First question. The second question is on, again, the balance sheet and net investment return. Again, it was pretty -- it was at 5%, I think, for the period. So when do you think we can start getting back to the high single-digit or low double-digit growth, which you're targeting over the midterm? Benoît Durteste: Well, I'll take the first question, but I think that's the same question as from Oliver at Goldman Sachs. So I'll make the same answer. I think the long-term potential is very significant, but I'm always cautious about overpromising in the short to medium term, particularly since in a number of areas, essentially, we're going to be creating the market. So there are some -- I mentioned there are some easy wins. And yes, we'll benefit from that. But the biggest surprise is what we'll do in the longer term. That's where you'll see some very significant or potentially see some very significant impact. But yes, I think that's -- at this point, that's all that we can say. David Christopher Bicarregui: On the balance sheet, Hubert, I mean you know this, but the balance sheet is an outcome of how the funds are performing over periods of time. And again, we don't manage the balance sheet is an independent exercise. It's going to be what the funds perform over time. If you look at the NIR over time, 5 years about 9% now and total balance sheet return is about 11%. So clearly, over the medium to long term, it's reflecting fund performance as you'd expect it to. Benoît Durteste: And I think it might be worth reminding everyone, David, that -- I mean, as you said, I mean, the performance of the balance sheet has to be looked at over the long run because over short periods of time, what's mostly influencing it is our pace of deployment because increased deployment because we keep the valuations flat for -- typically for a year, when we increase deployment, it has a short-term negative impact on the -- or perceived negative impact on the balance sheet performance. But obviously, that evens out over time. Chris Hunt: [indiscernible]. We've had a quick question online around the status of fundraising for real estate equity. So as a reminder, we raised just over $1 billion in real estate equity in Europe during this half. But Benoit, do you have any broader observations or comments around the real estate fundraising market at the moment? Benoît Durteste: Sure. I mean it's been incredibly difficult these past few years because that is -- it is one of the asset class where the pain has been taken. Valuations have come down. And so LPs have suffered some significant losses or at least underperformance in their existing real estate portfolio. So generally, that creates a pause in the fundraising appetite. For us, that creates an opportunity because we did not have legacy real estate equity strategies or funds, which means that we don't have to be firefighting on older vintages. Essentially, we're starting from a clean slate. So it's a very -- our timing is very good in terms of establishing ourselves in the market. It's creating a window. But obviously, it takes a bit longer because the fundraising has been -- environment has been more difficult. It's starting to reopen. I think I mentioned during the presentation that some of the asset classes strategies that LPs are looking at right now, that includes real assets. There's increased appetite for real assets and real estate. And so we're starting to see that. So it takes time and it's early days for us, but I'm very confident that for us, the real estate asset class is going to be an area of significant growth in the next 5 to 10 years, and we're taking the cycle exactly at the right time. So we're starting to progressively see that it's speeding up. We're raising more. But I think fast forward 5 years from now, I mean, you'll see that our real estate franchise will be a bigger part of what we do. Chris Hunt: Thank you. One question online around the economics of the emerging partnership and how that will work. I'll take that. It will obviously vary by product. We obviously don't disclose terms of individual funds and strategies. But as David alluded to or mentioned earlier, we think over the medium term, this is a very exciting opportunity, and there's a lot of value to be created for all of the stakeholders involved in this, including the end clients. That's how we're thinking about the economics of that partnership. Another on the partnership, and this may be one for you, David. Look, the structure looks clear, the end outcome, 9.9% economic share, 4.9% voting rights looks clear. Would you mind just running through briefly the steps of how we're getting there from today to by the 30th of June 2027, please? David Christopher Bicarregui: Yes, sure, happy to do that. So actually, the best page, if you have it to refer to is probably Page 25 of our presentation, where we lay out a little bit more detail on the steps that will take place. As you can see, as we've discussed, through the steps, Amundi is going to acquire 9.9% economic stake. I think the key point here, though, is that there's no dilution to ICG shareholders and Amundi is going to be paying for all the voting and nonvoting shares using their own cash reserves. The first step is for Amundi to acquire 4.64% ordinary shares in the secondary market. Then ICG has agreed to repurchase 5.26% of ordinary shares to be canceled with Amundi then subscribing to non-voting shares that basically have the same economic ownership. So they happen in tranches over time. And as Chris mentioned, it will be completed by the 30th of June 2027. So ownership stakes, share buyback activities will be disclosed in the normal way as all of these steps progress. But I also want to emphasize the structure ensures no dilution to existing shareholders and no change to the ICG balance sheet P&L or cash position. Chris Hunt: Okay. Thank you. A couple of another question on the phone from Angeliki at JPMorgan. Angeliki Bairaktari: Just a couple from myself as well, please. First of all, with regards to the Amundi partnership, can you explain the rationale behind the exclusivity in distribution? We know that many of your peers in private markets actually distribute at the moment in Europe across several different distributors. So are you not limiting yourselves a little bit by just going exclusive with only one partner? And second question on Europe IX. You mentioned that the fund is now at EUR 7.5 billion. Can it exceed the EUR 10 billion target? And can you give us an update on when we should be expecting the final close of this strategy, please? Benoît Durteste: Yes. Thanks, Angeliki. On the I mean, the important part is that this is mutually exclusive, right? So are we limiting ourselves? Yes, you could say we could also distribute through others, but Amundi is by far the largest asset manager, traditional asset manager in Europe, and they're going exclusive with us as well. So I mean, it's -- I think it's incredibly valuable for both parties and should enable us to accelerate our position in the wealth market in a way that we would not have been able to had we gone through just normal commercial agreements on a fund-by-fund basis. And by the way, I mean, the way typically these agreements work is those distributors always ask for exclusivity at least for a period of time when they're distributing a fund. So even if you're going fund by fund, you're still giving exclusivity to JPMorgan, for instance. You've been distributing some of our products for a period of time. So no, I think it's only on that point, I think it's only positive. I think it's very, very positive for both parties. On Europe IX, we don't comment on ultimate target. The one thing I would say is that, as always, we're not obsessed with size. I mean, for me, the key criteria on the size of a fund is ability to deploy it well in a 3- to 4-year period. And so as always, when we're sizing a fund, we take a look at the speed of deployment in the first year or the first 18 months of the life of the fund, so in parallel with the fundraising effort, and we're right in the middle of that right now. And depending on that and our own assessment of the market, we either push the size up or we remain more cautious. It's too early to say. Chris Hunt: And just to build on -- Angeliki, just to build on the first question. This isn't going exclusive with one person, right? Amundi have got relation, a network of more than 600 distributors and over 200 million individual clients. So this doesn't limit us. This opens up a significant opportunity. So I think definitely, we're thinking about it in that way. We -- there's another question now online around private credit and how we see the deployment pipeline in private credit. Benoit, do you want to make some comments around that market as a whole? Benoît Durteste: Sure. So broad context is that the buyout market remains slow, certainly slower than it was 4, 5 years ago. And that has an impact on the credit and the private debt market because these markets are essentially aligned with the private equity buyout space. So that's for the general environment. Within that, it's obviously easier if you benefit from a long history and a large existing portfolio because those existing portfolios generate their own financing opportunities. If I look at where we deploy quite significantly in Europe, we deployed EUR 3 billion, EUR 4 billion per year. Actually, this year, we're on track to be at the upper end. But a significant portion of that, call it, 2/3 to 3/4 is by taking advantage of mining our existing portfolio. So that has a very big impact on our ability to deploy and deploy well. So that's a competitive advantage, if you will. Overall, it's -- we are cautious in this market environment. I mean, there are areas of the market where we feel it's overheating. It's probably more pronounced in the U.S. than Europe, but Europe is not immune. So we remain cautious in the way we deploy and particularly, we remain very cautious on the quality of legal protections and legal documentations where we're seeing in some instances, things that we find are unsatisfactory and so we stay with. Chris Hunt: And then two final questions online, both of which sound like possibly for you, David. First of all, FMC costs were flat year-on-year in H1. How should we -- can you just remind us, and I think you've mentioned this before, how should we think about growth in the medium term and cost base as a whole? David Christopher Bicarregui: Yes. So as I said in my sort of prepared remarks, I wouldn't read too much into a 1% change in cost base. There has been, as we mentioned in the presentation, there are quite a lot of cost discipline in the system. Our headcount is actually slightly down period-on-period. As we continue to scale the business up, we've made a lot of investments in the past that we've spoken about and actually, a lot of that is now in place. So that's a good and positive backdrop. But I'd still guide people to cost base increase more between the 5% and 10% range at this point because there'll be some seasonal effects anyway when you're looking at this over the 6 months. So that's how I'd guide for the future. Chris Hunt: And then what looks like the final question. FRE seems new disclosure this half. Could you sort of talk through a bit about the rationale and why now? David Christopher Bicarregui: Yes. So FRE, as I said, I think, is another way to think about our business. It's obviously one that many others use to compare asset management companies and their growth potential. So actually having a comparable metric, I think, in the public domain is helpful. Many analysts obviously do it already. So here's us explaining how we think about it internally. It brings together also a number of the themes I touched on in the presentation. If you think about our management fee growth of 19% over 5 years, cost growth of 11% over 5 years, it comes together into a very powerful FRE outcome. It's grown 26%. So for now and for the future, this is probably another one that we should watch and monitor, and we'll continue to evolve our financial disclosure as always, and I appreciate the feedback. Chris Hunt: Absolutely. And just for clarity, that's 26% annualized FRE growth over the last 5 years. With that, we have come to the end of the questions. So thanks ever so much for joining us, and this concludes the presentation. Thank you.
Operator: Good day, and thank you for standing by, and welcome to Weibo Reports Third Quarter 2025 Financial Results. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to your first speaker today, Ms. Sandra Zhang from IR. Thank you. Please go ahead. Sandra Zhang: Thank you, operator. Welcome to Weibo's Third Quarter 2025 Earnings Conference Call. Joining me today are Chief Executive Officer, Gaofei Wang; and our Chief Financial Officer, Fei Cao. The conference call is also being broadcasted on Internet and is available through Weibo's IR website. Before the management remarks, I would like to read you the safe harbor statement in connection with today's conference call. During today's conference call, we may make forward-looking statements, statements that are not historical facts, including statements of our beliefs and expectations. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Weibo assumes no obligation to update the forward-looking statement in this conference call and elsewhere. Further information regarding this and other risks is included in Weibo's annual report on Form 20-F and other filings with the SEC. All the information provided in this press release is occurring as the date hereof. Weibo assumes no obligation to update such information except as required under applicable law. Additionally, I would like to remind you that our discussion today includes certain non-GAAP measures, which excludes stock-based compensation and certain other expenses. We use non-GAAP financial measures to gain a better understanding of Weibo's comparative operating performance and the future prospects. Our non-GAAP financials exclude certain expenses, gains or losses and other items that are not expected to result in future cash payments or are nonrecurring in nature or are not indicative of our core operating results and outlook. Please refer to our press release for more information about our non-GAAP measures. Following management's prepared remarks, we'll open the lines for a brief Q&A session. With this, I would like to turn the call over to our CEO, Gaofei Wang. Gaofei Wang: [Interpreted] Thank you. Hello, everyone. Welcome to Weibo's Third Quarter 2025 Earnings Conference Call. On today's call, I will share with you highlights on Weibo's product and monetization in the third quarter 2025. On the user front, in September 2025, Weibo's MAUs reached 578 million and average DAUs reached 257 million. In the third quarter, Weibo's total revenues reached USD 442.3 million, a decrease of 5% year-over-year. Our total ad revenues reached USD 375.4 million, a decrease of 6% year-over-year. Our non-GAAP operating income reached USD 132.0 million, representing a non-GAAP operating margin of 30%. In 2025, our overall corporate strategy continued to focus on enhancing user value sustaining Weibo's leading position in hot topics and the entertainment content ecosystem while reinforcing the competitiveness of our social products. Building on this, we also leverage large language model to enhance our recommendation feeds and search products, aiming to increase our user base and engagement. Next, I'll share with you highlights in Weibo's product operation and monetization in the third quarter. On user growth and engagement, in 2025, our key product revamp is the upgrade of the homepage information feed, which put the recommendation feed as the default core feed. The revamp has largely rolled out in all users by late July. Alongside the information feed revamp, we also optimized our recommendation algorithm, especially for video content recommendation. During the summer vacation, leveraging the active entertainment events and hot topics during the summer vacation, we saw significant improvement in user engagement of the mid- and low frequency-user group. The per capita viewership, time spent and retention of the mid- and low-frequency user group grew double digits quarter-over-quarter, which in turn drove per capita time spent in recommendation feed for the whole user group to increase for Q3 quarter-over-quarter. In the third quarter, we implemented two key strategies. First, we enhanced the algorithm of the recommendation feed to improve user satisfaction with content, which matches their real-time interest. For example, in hot topic distribution, we established user behavior linkage between the recommendation feed and the search function. We use the view and engage with the hot topics in search function. They are showing more precisely targeted content in recommendation feed. This strategy has been proven particularly effective in enhancing engagement and retention among mid- and low frequency users of Weibo. Second, we enhanced our algorithm to better integrate video content into the recommendation feed, driving deeper content consumption. With the homepage information feed shifting from a relationship-based model to a recommendation-based one, video content could be distributed through our recommendation algorithms to reach more precise and broader user group on top of the traditional social distribution mechanisms. As a result, we saw a notable increase in the distribution of original and mid- to long-form video content in the recommendation feed. The enriched mid to long form video content extending user time spent in the recommendation feed and supporting healthy development of the content ecosystems. Meanwhile, we continue to enhance our interest-based content operation, strengthening large-scale content production by content creators around user interest and thereby improving the quality and diversity of content supplied to the recommendation feed. The restructuring of the information feed was strategic significance for Weibo, which is comparable to our transition from the chronological to algorithm-based sorting several years ago. In the short term, user experience for certain user group may face some challenges. However, from a long-term perspective, the increased weight of recommendation content and video content will strengthen Weibo's core competitiveness as a social media platform while laying a solid foundation for the sustainable and healthy development of our content ecosystem. While improving the efficiency of the homepage recommendation feed, we also strengthened social discussion in a relationship feed ensuring its role as the cornerstone of Weibo's differentiated competitiveness. In the third quarter, our efforts focus on two key aspects: driving interaction between content creators and their followers, and stimulating interest-based social engagement among users to fully boost the social engagement across the platform. First, to further drive the interaction between content creators and their followers, we upgraded the core fan mechanism and optimized the content reach and distribution. This significantly improved interaction efficiency in the relationship feed which is measured by the ratio of total interactions versus total viewership, resulting in double-digit growth of this ratio, both quarter-over-quarter and year-over-year in Q3 while further driving content creators' motivation to consistently produce high-quality content in text and image. Second, to enhance ordinary user social interaction around interest-based content, we continue to develop the Super Topics community, focusing on key summer events, concert and anime conventions, which young people are interested in. We encourage users to share meaningful and emotional content around their interest, positioning Super Topics as the front-end useful space for interest-based sharing and interaction. In the third quarter, the number of users who posted and engaged in Super Topics grew double digit year-over-year. This effective initiative has strengthened Weibo's differentiated advantages in text and image, complementing the homepage recommendation feed and contributing to the solid development of the platform's ecosystem. Turning to search products. In the third quarter, we continued to reinforce AI application in search function, focusing on technical infrastructure upgrades and integration across ecosystem scenarios. First, in upgrading technical infrastructure, we continue to enhance intelligent search capability to understand user search intent and content matching capability, which effectively improve the relevance and accuracy of search results and making it easier for users to find desired content. At the same time, we upgraded the search model from conventional onetime information search to continuous exploratory dialogue, enabling users to engage in coherent conversations with intelligent search and enjoy a more intelligent and seamless information across experience. Second, the integration across ecosystem scenarios, we focused on extending intelligent search application in information feed, fostering a Search as a Service user mindset. We deeply integrated intelligent search into the content consumption experience with enhanced content verification and the content summary features. The system leveraged AI to assess the authenticity of the original post, extract key information and provide extended insights, helping users quickly access structured and reliable information while consuming contents. In the third quarter, the MAUs of Weibo intelligent search product exceeded 70 million with its DAU and search queries increasing more than 50% quarter-over-quarter. This momentum not only reflects users' recognition of Weibo's intelligent search product, but also further contribute to the expansion of Weibo search ecosystem. As a result, the total search queries on Weibo increased 20% quarter-over-quarter in the third quarter. Looking ahead, we will continue to deepen the innovative application of AI in search products. On the technology front, we aim to make search more user aware. As for user experience, we strive to deliver a more seamless and intelligent usage journey. And in terms of the ecosystem, service will become more contextually relevant. These efforts will continuously provide users with a smarter, more convenient search experience and further unlock the value of Weibo's content ecosystem. Moving on to monetization. In 2025, the ad product and sales team focused on two main priorities: first, to expand and solidify customers' mindset of choosing Weibo as a go-to platform for content marketing across more industries and clients. Second, to continuously enhance the performance and conversion capabilities of our ad products. In the third quarter, due to the high base effect from the Olympic last year, Weibo's ad revenue decreased 6% year-over-year. From the overall market perspective, thanks to the stimulus policy aimed at driving domestic demand and consumption, e-commerce platform and related industry maintain a relatively high level of advertising spend, which supported our third quarter ad revenues. According to client feedback, after several years of substantial and continuous budget allocation towards performance ad, the bidding for the commercial traffic has become increasingly intense, which pushed their cost upward. In addition, the government recently issued tax policy that limit the cap of the feed ad spend for tax deduction purpose. This dynamic has driven clients to reevaluate their ad budget allocation, placing renewed emphasis on the value of the brand advertising. In particular, marketing approaches such as celebrity endorsement have generally become a key option for clients to consider. In light of this trend, leveraging Weibo's strength in celebrity resources, we aim to better facilitate clients' needs across the full celebrity endorsement and marketing life cycle. We hope to create richer celebrity marketing playbook together with clients, helping them enhance their marketing effectiveness. Let me share more color from an industry perspective. Competitive dynamics within the e-commerce sector has persisted since the second quarter, benefiting from deep partnerships with leading e-commerce platforms. Ad revenues from e-commerce sector achieved notable year-over-year growth in the third quarter. Meanwhile, we have been gradually cultivating partnerships with other business lines within this e-commerce group promoting a more balanced revenue mix and thus laying a solid foundation for the future revenue stability. Ad revenues from the automobile sector sustained year-over-year growth trend in third quarter. Weibo has continued to solidify its strength in the new energy vehicle content ecosystem. Revenue from traditional fuel vehicles also remained stable this year, contributing to improved revenue stability for the automobile industry. In the online game and smartphone sectors, revenue declined due to overall budget contraction. As for the food and beverage, dairy products and footwear and apparel sectors, revenue fell year-over-year primarily due to the tough comparable base from last year's Olympics. However, with the recovery and strengthening of celebrity marketing in clients' mindset, ad revenues from celebrity endorsements continue to grow year-over-year. On the ad product front, we have continually strengthened the application of AI technology across the entire advertising life cycle this year to enhance ad efficiency. By the third quarter, we have deployed AI capabilities throughout the process from the ad creative production and bidding model optimization to campaign performance improvement. Notably, Weibo's AI ad creative platform, Lingchuang, launched in the second quarter has been widely adopted, enabling even scalable and personalized ad production in both text and image formats. Furthermore, in the third quarter, we have extended AI-generated ad creatives to video contents. This upgrade enables intelligent extraction of key highlights for the pre-roll segments and the generation of eye-catching cover images. This not only improved the efficiency and diversity of video ad creative production, but also enhanced targeting precision and user viewing experience. As of the end of October, AI-generated ad creatives accounted for nearly 30% of the consumption. Besides this, to address the common needs of the brand clients, we launched new products via live stream the press conference. We leveraged AI to click live streams in real time, extract the most engaging highlights and transform them into high-quality material suitable for KOL distribution. These highlights are further distributed through our feed ad product, amplifying the overall content reach and influence. This model not only addresses clients' difficulties in efficiently converting live stream content into shareable materials but also enable clients to achieve secondary distribution of valuable live stream content through a combination of high-quality materials and precise targeting. For example, in live stream product launched by a smartphone brand, AI-generated material make up 10% of all materials. It contributed towards much as 30% of total interactions. We plan to roll out this model to more brand clients hosting product launch, thereby further unlocking the potential of AI in brand marketing. In terms of ad performance, the upgraded AI-powered ad performance model has demonstrated impressive results in key scenarios. Experimental data shows that the conversion efficiency of both app download ads and form submission campaigns have improved. AI-powered performance ad models have enabled us to better deliver on client campaign objectives. Entering into the fourth quarter, we will focus on capturing marketing opportunities from sector with high budget visibility such as the e-commerce sector. We will beef up our efforts to further expand the penetration of our brand plus content marketing approach across key industries, sustain the growth momentum in the automobile sector and strive for recovery in the consumer goods. At the same time, we will continue to drive the application of AI in ad creative generation and AI placement optimization with the hope of offering smarter and more efficient advertising solutions to clients of all sizes and thus further strengthening Weibo's differentiated competitiveness in the advertising market. Next, let me turn the call over to Fei Cao for our financial review. Cao Fei: Thank you, Gaofei, and hello, everyone. Welcome to Weibo's Third Quarter 2025 Earnings Conference Call. Let me start with operating metrics. In September 2025, Weibo's MAU and average DAU reached 578 million and 257 million, respectively, with a steady improving DAU versus MAU ratio year-over-year. The modest year-over-year decline in MAU was primarily due to the high traffic base during the Paris Olympic game in the same period last year. On the user product side, in the third quarter, we completed the revamp of our information feed and prioritized the recommendation feed for content consumption. We are encouraged by early signs of improvement in user engagement with interest-based feed and video content on Weibo in addition. User scale and search queries from Weibo intelligent search feature continued to grow robustly quarter-over-quarter with intelligent search MAU exceeding 70 million in the third quarter. This growth was mainly driven by our AI technology upgrades, which allow us to better meet users' content search and discovery needs on the platform. Turning to financials. As a reminder, my prepared remarks will focus on non-GAAP results. Commentary amounts are in U.S. dollar terms and all comparisons are on a year-over-year basis unless otherwise noted. Now let me walk you through our financial highlights for the third quarter 2025. Weibo's third quarter 2025 net revenues were USD 442.3 million, a decrease of 5% or 4% on a constant currency basis. Operating income was USD 132 million, representing operating margin of 30%. Net income attributable to Weibo reached USD 110.7 million and diluted EPS was $0.42. Let me give you more color on third quarter 2025 revenue performance. Weibo's advertising and marketing revenue for the third quarter 2025 was USD 375.4 million, down 6% or 5% on a constant currency basis, while value-added service VAS revenues was USD 66.9 million, up 2% Weibo's advertising business saw a modest decline, primarily due to the high base effect from last year's Paris Olympics. By industry, our top 3 verticals were FMCG, e-commerce and 3C products. In terms of growth drivers, e-commerce, Internet services, automobile and local services were the key contributors. Notably, the e-commerce sector recorded over 50% year-over-year growth, driven by similar policy amid a boosting domestic demand and consumption. We are pleased to see increased ad budget across multiple business lines within these platforms, including traditional e-commerce activities and local service initiatives. Weibo has continued to demonstrate its unique value in driving brand awareness and user acquisition for e-commerce platforms amid intensified market share competition. The automobile sector sustained solid growth this quarter, thanks to Weibo's thriving auto-related content ecosystem, a dynamic EV launch season and stable ad spend from ICE vehicle brands. On the other hand, we faced a significant year-over-year decline in the food and beverage and apparel industry, again, due to the high base effect from the last year's Olympics. And as for 3C products, this year, government-backed trade-in subsidies encouraged many consumers to upgrade their phones or home appliance earlier this year, which leads to softer shipments and lower ad spend from advertisers in the second half. Other underperforming sectors that weighed on overall top line recovery included online games, largely due to a tough year-over-year comparison and overall ad budget contraction in the sector. By ad product category, promoted feed ads remained the largest contributor followed by social display ads and topic and search placements. AI has progressively transformed the entire life cycle of Weibo's ad products from creative generation to ad placement. Notably, our real-time bidding feed products sustained double-digit growth, driven by AI-powered ad tech upgrades that enhanced conversion and ROI for advertisers, particularly for ad download and lead generation campaigns. Ad revenues from Alibaba reported robust growth of 112%, reaching USD 45.5 million in the third quarter. We are pleased with the strong momentum from Alibaba this year, driven by deeper collaboration during key marketing windows and Alibaba's increased ad spend on its local services initiatives. Value-added service VAS revenues grew 2% to USD 66.9 million in the third quarter, mainly due to modest increase in revenues from game-related business and membership services. Turning to cost and expenses. Total cost and expenses for the third quarter was USD 310.3 million, an increase of 3%. Operating income in the third quarter was USD 132 million, representing an operating margin of 30% compared to [ 36% ] last year. Turning to income tax under GAAP measure. Income tax expenses for the third quarter were USD 57.2 million compared to USD 32.2 million last year, primarily due to the recognition of USD 29.4 million deferred tax liability related to equity pick-up gains in the third quarter of 2025. Net income attributable to Weibo in the third quarter was USD 110.7 million, representing a net margin of 25% compared to 30% last year, primarily attributable to top-line pressure. Turning to our balance sheet and cash flow items. As of September 30, 2025, Weibo's cash, cash equivalents and short-term investments totaled USD 2.04 billion compared to USD 2.35 billion as of December 31, 2024. The decrease of Weibo's cash, cash equivalents and short-term investments was mainly resulted from the purchase of long-term wealth management products and the payment of the annual dividend to our shareholders and was partially offset by the operating cash flows in the past 3 quarters this year. In the third quarter, cash provided by operating activities was USD 200 million. Capital expenditures totaled USD 5.1 million and depreciation and amortization expenses amounted to USD 15.4 million. With that, let me now turn the call over to the operator for the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Alicia Yap of Citigroup. Alicis a Yap: [Foreign Language] Can management share with us the overall advertising outlook for the fourth quarter and also 2026. So any color that you can provide in terms of the growth rate for fourth quarter? And also how should we be thinking about the overall ad revenue growth into next year? And then what is your future strategy for the overall advertising product upgrade? How is AI been helping or will be benefiting the click-through rate or even the advertising monetization and also how AI could be also improving -- help advertisers to improve their ROI. Any color that you can share would be great. Gaofei Wang: [Interpreted] All right. Thank you for the question. So according to the financial report that we have just delivered in Q3, we've been seeing the overall decrease of the ad revenue primarily due to several reasons. The first one is that we had a high base last year due to the Olympic Games. And also, second is that even if we had a poorer performance of the headset industry and the verticals of gaming, and also, we had a little bit better performance from the e-commerce and automotive. But I think that on the overall basis, this is actually the performance within our expectations. Looking forward to Q4, we have been seeing that in the second half of this year, overall speaking, the overall figures and statistics of the consumption-related figures are actually slowing down. And we've been seeing that in some certain provinces and cities, the national subsidy policies have been seeing some kind of headwinds like the limitations on the spending as well as the exiting. So I think that this is going to have a continuous impact on the headset industry as well as the automotive industry next year because we are foreseen a kind of exiting of the national subsidy policy for this industry for certain regions. Okay. So these are some of the uncertainties that we've been witnessing, but still, except for these uncertainties, we could see some of the certainties for next year and also 2026 in specifics. So you know that in 2025, we did not have any hot topics or hot trends or events happening. But in 2026, we are expecting several important events like the Winter Olympics and also the World Cup as well. So this will be actually bringing a better placement of the advertisers from the consumer goods verticals. And you know that in Q3, the decreased performance of the ad revenue primarily was due to the decreased performance of the ad placement from the consumer goods industry. Okay. So as a result, it is very difficult for me to give you a very precise prediction of our performance in 2026. Having said that, in Q4, we've been seeing some of the important things. First of all, is that there are actually fierce -- more fierce competition for the e-commerce industry, especially from the off-line scenario and targeting the life service -- lifestyle service. We used to have -- Weibo used to have actually quite low percentage of the market share in this particular segment. But still, we do see fierce competition going on for the food delivery and lifestyle service as well as the other relevant ones. So that is to say that in Q4, we are expecting a huge demand increase in this particular area. Okay. And also for the e-commerce, of course, I've been already shared some of the colors on this. And second is that in terms of the automotive industry, we believe that it will be actually performing quite good in Q4. But first of all, due to the anti-evolution policies, we've been seeing at some of the customers or advertisers from this particular industry had issues like the price competition or price war. And in the first half of this year, those advertisers did not pretty much focus a lot of their revenues on the product promotion or the mindset establishment. So I think that this situation will be getting better in the second half of the year. I'm talking about the automotive -- I mean headset and also gaming industries. For headset industry, we know that this was primarily impacted negatively by the trend of exiting the national subsidy policy. So in the second half of this year, we'll be seeing that except for Apple, the rest of the other headset makers were having a deteriorating sales volume. And that's the reason why we do see a lower frequency of the new phone launch. And for gaming industry, you could see that from a financial report of NetEase or Tencent, they did not have that lot of new game release in the second half of this year. But of course, they are claiming that in 2026, Q1, we're going to see some of the new games launched from these two major game makers. But still as for whether or not they're going to be allocating more budget on this, this is still uncertain. All right. And second point on the overall strategies. So we're talking about two directions. The first one is that in the previous years, a lot of those budget of advertisements actually was pretty much placed on the performance-based ad and we did not see a lot of spending from those advertisers on the mindset related areas. And also after COVID-19, in order to consume more ad locks, we do see the behaviors of focusing on the live stream e-commerce. So I think that this year, we've seen a very obvious trend that there are more budget allocated to the areas of establishing and building the mindset. So as the traditional advantageous platform on this particular area, Weibo is definitely going to seize this opportunity. And I think that we are going to focus on the hot topics and KOL, especially top notch KOLs in terms of the integrated marketing. So we do actually see the trend of increasing budget from these advertisers on those fronts. Okay. And the second point is on the bidding ad and also performance-based ad. So last year, we've been seeing a decrease of our overall revenue -- ad revenue contributed to the overall ad revenue from the performance-based ad. But recently, in the past years, we've been dedicating a lot of efforts in making wonderful products in the performance-based ad and also increasing and updating our technologies. And also, most importantly, we've been applying a lot of AI technologies to really have a very good boost of the revenue from the performance-based ad. So you can see that in Q3, we had a lot of increase on this area. So because -- not only because of the overall data and traffic and also the adjustments of our strategies, but most importantly, I think that the overall use of the AI technology is really important. So we will be actually expecting a very good increase of this performance-based ad. All right, pretty much for the answer for this question. Operator: The next questions will come from the line of Leo You from CLSA. Yang You: [Foreign Language] I have two questions on the product commercialization. And first is on the strategy and the progress of intelligent search. Do we have the commercialization attempts already in the fourth quarter? And what other AI application could management share? And second question is on the information feed revamp. What are the initial feedback from users' content consumption, engagement? And how would that translate into revenue growth in the future? Gaofei Wang: [Interpreted] So thank you for this question. First of all, we could see that in terms of the intelligent search, as we already said that this has been increased a lot in Q3 in terms of the overall products. So resulting in a very good performance. For instance, in September, the MAU exceeded 70 million. And in terms of the DAU and also the query number, we had a quarter-by-quarter increase of over 50%. So of course, in terms of the monetization of the intelligent search, first point is that we do see a very good increase of the overall intelligence search-based volume, and that was resulted in the performance like in Q3, we had a query increase by about 20% quarter-by-quarter. And this actually provided with us a very good traffic to actually have a better performance on this. And second point is that, of course, at the current stage, we do not have the ability of all the consumers. I mean the customers are not having this particular requirement of placing the ad precisely just based on the intelligent search results. But this did actually provide some of the impacts to the customers because, for instance, we are able to use the GEO technology to actually facilitate better product and better content creations and helping the customers understanding or advertisers in understanding the new product-related issues and some of the other important things and also issues as well. So this is going to be generating a lot of ad assets for our advertisers so that they are able to use in the near future. Of course, this is not going to be directly charging from the customers, but I think in the future, the customers and advertisers are able to put more weight on this particular part of the intelligent search. So I do think that in the future, we are going to see a very good increase, be it the brand-based ad revenue or the overall budget of the performance-based ad. And also, the second question is pretty much based on the information feed. So as we have already stated that we have an updated version or modification of this information-based feed in 2025 and already provided to the users. So we've been already finishing the first stage switch for information feed in July. But of course, it takes time for the users to get used to this and nurture their habit of using. But still, I think that this particular new information feed is going to be very useful and beneficial to the overactivity of the users and also improving the overall retention and the total time spent on the consumption as well. So I think that this is also going to be lowering the threshold for the users of using Weibo. Okay. Of course, I think that this particular kind of modification or the version update is pretty much like what happened years ago from the time spent based to the non-time spent base. And of course, at the current stage, we think that there are a lot of variations between different versions. So it still takes time for the user to adopt this new kind of a platform or it takes time for them to nurture their habits of using. But still, I think that on the overall basis, this did have a lot of benefits impacting the overall consumption behavior. And also, of course, in Weibo, we are going to continuously focusing on the upgrades and optimization of our products as well. Okay. And also, I think that this is very good to have a certain kind of improvements on two fronts. The first front is that, of course, it is going to impact some of the new users using a process of this particular product because it used to be the case that the users need to log on the Weibo and establish following a relationship before they could take any action on consumption of the content. But at the current stage, this particular process is waived so that we are at the same starting point as the other competitors for this particular part. So the users are able to actually consume a very good quality or content at the very beginning. And second is that for the existing users, of course, from an experience standpoint, it still takes time for them to be adopted -- adopting this new concept and also establishing a new using habit. But still, I think that at the current stage, this has primarily given us better opportunities, especially for those new users to take actions on consumption more frequently without even establishing a following relationship as the prerequisite. Okay. And also, I need to add another point, which is the third point that is for the video-based consumption. So we know that in the past, for those of consumers, I think that the videos are actually very difficult for the users to actually consume upon so that was impacting a lot of the original social-based relationship. And you know that in the past, for those content creators, especially the video content creators, it is very difficult for them to establish a social relationship with the users and also consumers as well. So even if on the relationship-based feed, it is also very difficult for those video content creators to expose their content in front of the wide audience. So also for the hot topic search because of the real timeliness of their content, especially the video-based content, it is also very difficult for them to expose their content as well. But now after the change, we could see that we are going to proactively recommending more video-based content to the users. And this is going to be very, very important for Weibo in the long run, be it from a growth standpoint or from the standpoint of enhancing our core competitive edge. Operator: That's the end of the question-and-answer session. With that, I would like to conclude the conference call today. Thank you all 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.]
Dalton Philips: Good morning, everybody, and thank you for joining Catherine and I for our FY '25 results presentation. It's great to be sharing a very set -- very strong set of results with you this morning. Our core business is in a great place with our commercial and operational excellence programs, combined with our cost efficiency efforts, providing the platform for us to reach a record level of profitability. I'll start with some key messages, then we'll cover our financials and an operating review, and we'll close out on our acquisition of Bakkavor. So let's start with some key headlines on Page 5. Firstly, we're really proud of what we feel is an exceptional year of delivery. Catherine will share more; however, I do want to highlight the strong performance that we've had against every one of our financial medium-term targets. In particular, we achieved a 15% ROIC, which is an increase of 350 basis points on FY '24. Secondly, we continue to deliver for our customers on 2 things that are incredibly important to them, service and innovation. And these are 2 of the key elements that give us a competitive advantage in the market. Thirdly, against a subdued backdrop, we've had strong manufactured volume growth of 2.5%, which is well ahead of the overall grocery market. And we continue to take advantage of a number of structural tailwinds, which we expect to continue through FY '26 and beyond. Fourthly, we're driving this positive momentum into FY '26 as we know there is a lot more opportunity to go after in our core business. Trading has started well, and we anticipate another year of profitable growth ahead. Finally, regarding the acquisition of Bakkavor, things are progressing to plan, both in terms of the external support for the deal with the positive Phase 1 decision from the CMA and our internal progress on planning for integration and synergy delivery. We crossed another key milestone this morning with the agreement to sell our Soup & Sauce business to the Compleat Food Group, a business we have a high amount of respect for and one where our Bristol colleagues will really thrive. This now paves the way for us to complete the Bakkavor transaction in early 2026, in line with our original time line. Turning to the next page, and I wanted to highlight the 5 areas that we see as key to sustaining our enduring competitive advantage in the market. We've really doubled down on these to create what we call a moat around our business, something that is highly valued by customers and extremely difficult to replicate. Firstly, our innovation engine. We launched 534 new products this year in partnership with our customers. That's over 10 products every single week. What makes us unique here is that our innovation teams are increasingly embedded within our customers, and we've built capabilities to support every stage of the innovation journey far beyond just recipe development. Secondly, our technical leadership. We believe we have best-in-class capabilities in the technical and food safety space where you can never compromise on quality. These high standards were recognized in our BRCGS audit performance this year. To give another example, we reduced product withdrawals by 60% year-on-year from an already very low base in FY '24. And this level of reliability is incredibly important to our customers. A third part of that moat is around complexity management. Our business is complex, manufacturing over 1,500 SKUs using more than 2,000 unique ingredients produced in 16 factories up and down the country, operating chilled, ambient and frozen supply chains, delivering it all directly to our customers' doors or through our direct-to-store distribution system. There's a lot of moving parts, and we take great pride in the fact that we do all this without missing a beat with over 99% service levels in FY '25. Fourthly, our infrastructure. This is a really well invested and fully integrated manufacturing network, which we continue to ensure remains world-class, fit for the future of next-gen automation and technology. And the final area in our approach is to efficiency. We really lean in on our cost base at every level of the business, driving a culture focused on delivering the best possible value for our customers. This is in part executed through our Greencore Operational Excellence program, which last year delivered a 4% increase in units per labor hour. Bringing these 5 elements together creates a business that is highly resilient, extremely hard to replicate and provides a strong platform for future growth, hence, why we call it our moat. As I now hand you over to Catherine, I'm confident in saying that our business is in a good place and with plenty more opportunities to go after. Catherine Gubbins: Thanks, Dalton. Good morning, everyone. I just want to echo Dalton's thanks to you all for joining us in person and on the call today. It has been an exceptional year for the group with strong performance across every financial metric. I'm very proud of our performance and the progress that we've made. And starting on Slide 8, I'm going to give you an overview of some of those key financial metrics for 2025. Starting with revenue, you can see that we delivered a strong revenue number of just under GBP 2 billion for the year, representing growth year-on-year of 7.7%, the components of which I will cover in more detail shortly. Adjusted operating profit is a key KPI for us. We said 2 years ago that we would return to pre-pandemic levels of profitability by 2026, and we're delighted to have exceeded that one year early. We delivered GBP 125.7 million, an increase of 28.9% year-on-year. And again, I'll speak to some of the individual elements of that improvement in a moment. On adjusted operating margin, we have grown margin by 110 basis points to 6.5%. This is still short of our medium-term target of being at 7% or above, but it's clearly really strong progress in the right direction. And we will look at some of the key drivers of that growth as we move through the deck. You can also see that we delivered strong cash flow for the year, and our leverage closed the year at 0.4x net debt to EBITDA. Most importantly, though, we're delighted to have delivered a return on invested capital of 15% in 2025, representing a 350 basis point increase versus the prior year. This was primarily driven by an increase in net operating profit after tax and also a slightly lower average invested capital base. Return on invested capital is our North Star metric and is the key lens through which we manage the business. If we move over to Slide 9, we have set out in a little bit more detail the breakdown of our revenue performance for the year. As mentioned, total revenue increased by 7.7%, 2.9% of which was driven by new business wins. Underlying volume and mix growth represented 2.8% and inflation and pricing impacts then drove the remaining 2%. The most significant contributor to the new business win-related growth was the ready meals contract that was onboarded in our Kiveton site in September 2024. There were also several other wins across our other categories in the first half of 2025, and these are being delivered in the network throughout Q3 and Q4. Our underlying volume and mix growth was supported by continuing strong demand for convenience food, continued product innovation and some favorable weather during the summer. We saw good growth in sandwich and sushi in particular, while performance in parts of the salad portfolio and ambient sauces was a bit more challenging. When analyzed by segment, our food to go category revenue increased to GBP 1.3 billion, representing a 7.5% increase on the previous year, while revenue associated with our other convenience category grew to GBP 609 million, an increase of 8.3% on the previous year. Some further detail on the composition of those categories has been included in the appendix. Just moving on then to Slide 10. You can see our adjusted operating margin increased to 6.5%, and I'll take you through some of the main drivers of that improvement. Volume growth and mix drove a positive impact of 0.4 percentage points, driven by some of the factors I've just taken you through. There was a negative inflationary impact of 2.5 percentage points. That represents about GBP 45 million worth of inflation in the year. And to give you a sense of the components of that, about 75% of that was related to labor inflation, with the remainder coming from materials and packaging inflation, which really started to increase from Q3, Q4 onwards. Pricing and inflation recovery drove a 1.7 percentage point impact. This was delivered through our pricing pass-through mechanisms and positive discussions with customers around labor pricing, in particular, during the year. Our ongoing operational excellence initiatives drove a positive impact of 1.1 percentage points, which partially offset inflation, as you can see, but also contributed to the operating profit growth. This encompasses our continued focus on driving efficiency across our manufacturing business, including direct labor optimization and waste reduction. Finally, a focus on managing our overheads and indirect costs drove an incremental saving of 0.4 percentage points. I have been very focused on our overhead cost base since joining, so it's good to see the contribution being driven by this work. In the current year, this was predominantly driven by indirect labor standardization, functional headcount challenges and other overhead savings. Just moving on then to Slide 11 and cash. For this financial year, we recorded a free cash inflow of GBP 120.5 million, a significant improvement on the prior year with a number of factors contributing to this outturn. There was a net working capital inflow of GBP 27.6 million, which was a significant improvement on the prior year. Again, at our Capital Markets Day, I would have referenced the increased focus we are putting on proactive working capital management across all the components. The impact here is driven by a broad focus on stock management, managing our debtors, creditors and other payables to optimize inflows and outflows. Maintenance CapEx for the period was GBP 29.6 million, which was an increase of GBP 3.4 million when compared with 2024. While not included in the definition of free cash flow, we also meaningfully increased our strategic capital expenditure, which I'll speak to you about in a little bit more detail shortly. Cash exceptional charges for the year were GBP 17.4 million and were comprised of spend on the Making Business Easier transformation program and also on the Bakkavor transaction. Just going quickly through some of the other items here. Interest and tax charges, GBP 25.7 million, down GBP 600,000 compared to last year as a result of lower interest cost and borrowing, offset by a slight increase in tax paid. I have previously referenced that our U.K. defined benefit scheme would achieve a fully funded position by the end of September 2025, meaning nearly GBP 10 million of annual pension contributions from the group would no longer be required. We do, however, now anticipate an increase in tax-related cash flows in 2026, which is likely to offset this. Finally, lease payments of GBP 15.5 million were broadly in line with last year and other movements here of GBP 11.2 million related to share-based payments and other noncash-related charges. Our free cash flow conversion was 66.5% for the last 12 months. We are happy to have delivered this in the context of our overall medium-term target of being at 55% and above, and we'll continue to focus on cash conversion going forward. Just moving on then to Slide 12 and touching on our capital allocation framework. I have previously noted that I will update on our capital allocation plans at our half year and full year results announcements. Our priority, as you can see here, continues to be ensuring funds are available to invest in organic growth through maintenance and strategic CapEx, an area, as I said, I'll expand on further in a moment. But just moving on to dividends. Last year, the group reinstated the payment of a dividend for the first time in 5 years and indicated that going forward, it will be a progressive dividend growing in line with earnings. Given the strong financial performance of the group for the year, the Board is recommending the payment of a dividend of 2.6p per share, an increase of 30% year-on-year. We have closed out the financial year with our leverage in a very strong position with net debt to EBITDA at 0.4x. And as I think about points 3 and 4 here, this puts us in a really strong position as we contemplate closing out on the Bakkavor transaction and focusing on deleveraging post completion. As a result of this transaction, we are not proposing any further return of capital to shareholders at this time. At this point, it will be premature to talk about the capital allocation framework for the combined group with any specificity. What I will say is the group's philosophy is to deploy capital to balance long-term growth and shareholder returns. We will do this through investing in driving operating profit growth, generating strong free cash flow and following a disciplined investment and capital allocation approach that ultimately drives returns for shareholders. Moving on then to Slide 13. I wanted to just take you through a little bit more detail on how we think about investment into the core business. As you can see here, our adjusted operating profit growth feeds strong cash flow generation, which we then prioritize for investment into the core business. This ultimately then enables delivery of above-target returns. Year-on-year, we have increased that capital investment by 34% with strategic investments increasing from GBP 6.2 million to GBP 13.8 million. And I just wanted to call out some of the areas that we have invested in. We've invested GBP 4 million to automate certain manual tasks. In this financial year, this included projects like packaging automation, automated sushi rolling and some vegetable slicing. We invested GBP 5 million capacity and capability expansion across the network with many of these projects now operational and some carrying into full year '26. We also invested GBP 4 million in sustainability investment to help drive our sustainability objectives while also driving benefit to the P&L. As we've indicated in the guidance in the appendix, we'd expect to step this investment up again in 2026, and we are guiding on investing GBP 50 million in that financial year. Alongside this spend, we're continuing to invest in our making business easier program, investing GBP 12 million over the past year through exceptional items and increasing this investment into 2026. Dalton is going to speak about progress in this area shortly. Just to finish off, you will remember that we set out our 5 medium-term financial targets at our Capital Markets Day. I'm really pleased that we have made strong progress against all of these targets in 2025. We have effectively met our returns on invested capital target, and we've continued to drive the business to further deliver on this metric. On revenue, we obviously outperformed versus this metric in the financial year with a key driver of that being a significant new business win. On margin, again, we made excellent progress versus our target of being at 7% or above, and we are confident that we have a pathway to get to that target. On cash conversion for the full year, we outperformed our target for the reasons I've highlighted, and our leverage is clearly below the indicated range, but this is a welcome positive as we look to complete on the back of our transaction. So in summary, we have had a very strong year. I will refer you to some further guidance we've set out in the appendix. I just want to thank you all for your attention this morning. And now I will hand you back to Dalton. Thank you. Dalton Philips: Thanks, Catherine. And let me now turn to the strategic and operating review. And on Page 16, you can see our strategic framework, which we launched at our CMD earlier this year. And there are 2 key pillars here: strengthen the core and grow and expand, underpinned by 5 enablers, which make up our Greencore way of winning. And following some years of stabilization and rebuilding, last year was about progressing both pillars in parallel, realizing opportunities within our core business while simultaneously building the platform for future growth. And you can see on Page 17 that a key element of our strong core is our performance versus the wider market. It's been a tough year in the U.K. grocery market with subdued volume growing at 0.7% against a backdrop of persistent high inflation and muted consumer confidence; however, our core categories where we typically hold the #1 or #2 position continue to perform well. For example, the market -- the sandwich market grew at 4% year-on-year. For example, us, we grew at 4% year-on-year. In absolute terms, we outperformed the market by 180 basis points, achieving 2.5% manufactured volume growth. And despite that difficult backdrop, there are some key tailwinds to support continued growth. Firstly, consumers' desire for convenience continues to rise with the large multiples opening 175 new convenience stores this year, and the number of convenience stores is forecast to rise by 2% next year. Secondly, premiumization remains an important growth driver in our key categories. For example, own label premium sandwiches grew 23% year-on-year. Finally, we're seeing a sustained trend of growth in eating in, which was up 1% versus last year against eating out, which was down 3%. As eating out becomes increasingly expensive and dine-in options improve in quality and variety, more and more consumers are seeing better value by staying at home. This is particularly important for us as we look to our combination with Bakkavor who have real depth in the food for later market. Turning to Page 18 and another key factor of our performance has been in our portfolio management. We're committed to driving returns in every part of our business with the goal that each category will, in time, cover its cost of capital. And we can point to some really good progress here. You know about our 15% ROIC figure, but I thought it worth sharing the building blocks which sit underneath it. Our focus in portfolio management zeroed in initially on our larger categories, so sandwiches, ready meals, ambient sauces and salads, which make up 85% of our revenue. We've made really good progress here, increasing ROIC across these categories by 400 basis points, therefore, keeping returns well above WACC. A good example is in our sandwich business, where we drove returns in 3 areas: Firstly, new business wins in the retail and coffee channels; secondly, margin accretive new product launches; and thirdly, operational excellence initiatives. And we've also driven ROIC in our smaller categories by circa 100 basis points, whilst this is in the right direction, we still have more to do so that every category covers its cost of capital. A good example here would be our sushi business with improvements again driven by, firstly, new business wins; secondly, diversifying our offering into poke bowls; and thirdly, execution of our automation road map. Moving to Page 19, and let me share the key enablers of our strategic framework, starting with great food. We launched 534 new products in partnership with our customers last year. That's over 100 more than in FY '24. This includes NPD, so entirely new-to-market concepts as well as what we call EPD, so existing product development to improve quality and taste profiles. We're now able to deliver this scale of innovation at speed faster than ever before, reacting quickly to trends and working with our customers to get new products on shelf fast. You can see a great example of exactly that on the top left of this page. Last week at the CMD, M&S talked about their partnership with us and the work we did together on the strawberry sando, which went viral, quickly becoming M&S' top-selling sandwich and selling over 1.2 million units within weeks of launching. This is a great example of the incremental impact that innovation can have. The other products that we've highlighted here on this page, Greggs, Mac & Cheese, Sainsbury's, Taste the Difference, Chicken and Nduja Wrap and Cox, marry Me Chicken Sandwich are other examples of the many products that had hugely positive consumer feedback. And on the right, you can see some of the benefits that innovation delivers, driving incremental growth, margin accretion through premiumization and improved quality. Moving to Page 20, and we wouldn't be able to deliver any of this without our strong partnerships with customers and suppliers. And here, you can see a few examples of the value that we've delivered through these partnerships. For example, we supported the launch of a first-to-market food on the move store with co-op. We created a bespoke offering of hot and cold products, testing out new concepts such as serve over counters, super premium ranges and time of day offers. We've also -- we're also servicing these stores via our direct-to-store distribution arm. This is a great opportunity to trial new concepts, which can then be rolled out into their main estate. Secondly, we used our category management and insights capabilities to support a customer with a full store transformation, advising them on space, product locations, flow and range. 30 weeks after the reset, volume in the store was up 22% with the number of shoppers up 18%. Thirdly, through an Innovation Day with one of our customers, we identified an opportunity to expand their premium sauce range into a new cuisine. The products went live 4 months later, growing the tier by 163% for that customer and allowing them to grow 1 percentage point of share in that sauce cuisine. Fourthly, an incredibly important part of our partnership model is the relationship that we have with our suppliers. We often speak about our customers wanting to do more with fewer strategic partnerships. Well, the same is true for us with our supplier community. We've reduced our total supplier base by 15% since FY '22 and strengthened our relationships with our key suppliers. This is an important driver in helping us manage complexity whilst in parallel ensuring that we have the best quality products in the supply chain with the right cost structure. There are -- these are just 4 of the hundreds of examples where every day, our teams are going above and beyond to build truly lasting partnerships. Moving on to delivery excellence on Page 21, and our Greencore operational excellence model continues to deliver strongly. We've spoken before about units per labor hour as a measure of productivity in our sites. And this has continued to build, up 4% from FY '24 and up a material 10% since FY '23. This progress has been underpinned by the delivery of over 700 -- or 701 individual operational excellence projects in the year with an average value delivered per project increasing by 37%. An example would be a line balancing exercise we ran in 7 of our sites, reducing bottlenecks and increasing units per labor hour by 10% in those sites. This project delivered GBP 750,000 of in-year savings. And we still have more to go after in the core business. So we've set up 2 new centers of excellence to target the next set of opportunities. Firstly, on next-gen automation, we've continued to progress select concepts. You can see in the photo an automated packing line, which we installed in our Spalding salad site, and we're now kicking off the first of a 5-year automation road map with 12 prioritized concepts in order to deliver at least 10% direct labor savings over time, a number you might remember we shared with you at the CMD. Our current focus is on recruiting the team with a head of automation now in place in order to move at pace to deliver the first prioritized concepts. Secondly, on group logistics, we've kicked off a project to optimize and standardize the way we do internal logistics across our sites. This includes inbound, outbound and warehousing costs. Like many areas of our operational excellence agenda, we can drive real benefits here from moving to one standardized way of doing things across the group. On Page 22, a key part of delivery excellence is our Making Business Easier technology transformation, a multiyear program driving consistency and simplicity into the business. The program is now in its second year and is making good progress. We've included some examples on this page of the kind of initiatives that we are driving across 2 dimensions: the quick wins, which are delivering early value and the multiyear transformational projects. To highlight a couple. Firstly, a quick win for us this year was the rollout of an automated invoice processing across all sites. This has reduced time to process, improved payment controls and reduced errors. In FY '26, we expect to process over 100,000 invoices automatically, which at that scale has significant benefits. We've also made good progress on our larger multiyear initiatives. You can see some examples of the types we're working on, on this page. None of them are rocket science. It's more about standardizing and modernizing some of our basic business processes after years of underinvestment. An example of this would be supply chain planning, where we've now selected a tech platform for a solution to streamline demand forecasting and production planning and scheduling and are rapidly moving into the delivery phase. Whilst we're still early on our journey, we're making good headway. Total program costs are still estimated to be up to GBP 80 million over 5 years, whilst investment in FY '26 will be circa GBP 20 million to GBP 25 million, which is reflective of the upfront phasing of the program spend. Moving to sustainable choices on Page 23, and we're pleased to hit our Scope 1 and Scope 2 carbon emissions and food waste reduction targets in FY '25, which is a particularly strong result in a year when we increased manufacture volumes by 2.5%. And looking further out, we've also begun development of our 2040 net zero transitional plans for 4 pilot lighthouse sites, which will form the basis for future group level climate transition plans. And whilst we've got good results in some sustainability areas, we did not meet our in-year target on water reduction. This is because of a couple of particularly high water using sites as the other sites have substantially decreased our water usage in year. However, we know there is more work to be done, and this remains a key focus for us. In the people space, one achievement I wanted to highlight is the reduction in our attrition rate down by 600 basis points from 24% to 19%. We need to keep great people and have them grow their careers with us. So this is a really strong result. We also made progress on our employee engagement score, hitting 84% in our last survey. And we were also proud to donate nearly 1 million meals with our charity partners during the year. Let's now switch gears on Page 24 to the second part of our strategic framework, grow and expand. And let me briefly set out why we're so excited by the combination with Bakkavor. From a strategic perspective, the deal will create a U.K. convenience food champion with strong relevance, reach and resilience. It will also unlock at least GBP 80 million in cost synergies and creates significant optionality on capital allocation. From a financial perspective, the deal will create material value for shareholders with an attractive returns and earnings profile, which you can see on the right-hand side of this page. Since May, we've made really good progress on the planning for integration and synergy delivery with a cross-functional team and a central integration management office now up and running with colleagues from both businesses. On Page 25, you can see an updated time line for the deal. Let me orientate you on where we are today and what comes next. We announced the recommended acquisition back in May, receiving strong support from both sets of shareholders at our respective AGMs. Following this, the CMA began a Phase I investigation into the deal, which they concluded at the end of last month. And we were really happy that they raised no competition concerns with regards to 99% of the revenues of the combined group, and this is in line with the strategic rationale of bringing together 2 complementary but not overlapping businesses. Competition concerns were identified in only one area, supply of own label chilled sauces, less than 1% revenue of the combined group. These sources are manufactured exclusively in our Bristol site. And over the past weeks, we have been working with [indiscernible] to come to a quick resolution, and we were delighted to announce this morning that we have a binding agreement to sell our Bristol site to the Compleat Food Group, and that's just 3 weeks after the CMA announced their Phase I decision. In terms of next steps from here, we've already secured agreement in principle for our proposed remedy from the CMA. So the final step is to secure formal CMA approval, which is expected to come before the end of the year. As such, we remain on track to close the deal in early 2026. On a personal note, whilst, of course, we're very sad that we have to sell our chilled sauces business, I know that the Compleat Food Group will be a great home for the Bristol team. And looking ahead, we're really excited to be welcoming back our colleagues to the combined group and for what we can deliver together for our customers, for our consumers, for our colleagues and of course, for shareholders. I'll wrap now with some closing thoughts on Page 26. And firstly, we're thrilled by the group's exceptional delivery and our progress against our medium-term financial targets. Secondly, we remain encouraged by the potential in our core business. We know there are so many more opportunities to go after that will drive returns. Thirdly, trading has started well, and we look forward to another year of profitable growth. And finally, we remain excited about the potential from our acquisition of Bakkavor and are delighted that the pathway is now cleared to completion in early 2026, which will allow us to get going on synergy delivery. So thank you again, as Catherine said, for coming here this morning. We really appreciate it. And now we'd both be delighted to take any questions or clarifications you might have. Mike, are you going to do the honours? We will start up front here. Patrick? Patrick Higgins: Patrick Higgins from Goodbody. Two questions, if that's okay. Maybe the first one for you, Dalton. Just in terms of, I guess, the wider kind of consumer backdrop, your slide on Page 17 outlines several key drivers around the food to go or your convenience business that should underpin that category's continued outperformance, whether it's convenience or premiumization. I guess my question is just more around the general U.K. consumer backdrop. Are you seeing any shifts in kind of consumer behavior or any kind of green shoots in terms of an improving or improving underlying or kind of broader consumer demand? Then my second question is possibly for you, Catherine, just around the cost outlook. What kind of inflation are you guys budgeting for the year ahead? And maybe just talk us through the various buckets with labor, raw materials. And then against that, how should we think about the various levers you guys have at your disposal to kind of offset and continue your kind of margin delivery, whether it's in terms of price pass-through or your kind of ongoing cost savings initiatives? Dalton Philips: Okay. Thanks, Patrick. Look, I'll take that first one then. Look, there's definitely a sense of uncertainty out there. Consumer confidence is still pretty negative. You saw the latest GFK -- it hasn't really improved at all. In fact, it's not in a great place. Having said that, if you think about our business, look, volumes have remained really strong. Q3, Q4 were terrific for us and growing very strongly ahead of the market. So look, we enter into this financial year with a real level of confidence. I thought Simon Roberts did a super job last week talking about a trend that we've seen for a number of years, but this is in the same basket, people trading up and down in the same basket. And I think that bodes well for the portfolio and the categories that we operate in. If you think about our categories, we're own brand. So that by default has huge value credentials. We typically tier our ranges, even think about the meal deal, there's 3 tiers now. There's even an ultra-premium meal deal, and they're offering fantastic value. And I think, look, there's a strong underpinning of tailwinds out there, the move on premiumization, very important for us, the move on convenience stores, very supportive to our underlying business. And then this what I highlighted in there, this dine-in versus dine out and the value that's been offered there. So I think those 3 sort of structural tailwinds and then obviously, you've got the population growth underpin gives us a level of confidence as we go into what is a fragile market. I mean we can't get away from that. So I think we're confident that despite the consumer backdrop, those tailwinds, Patrick will continue to drive the business forward. Catherine Gubbins: Thanks, Patrick. Yes, look, when we think about inflation, I know I referenced it when I was speaking earlier, for 2025, the inflation we experienced is about 2% to 3%, and that was broadly throughout the year caused by labor inflation, as you know, by about 6% in the year. And obviously, we had the national insurance increase on top of that. Q3, Q4, we saw significant price increases in the protein space. So that obviously fed through quite significantly. When we were thinking about 2026 then, I think we were anticipating inflation of about 3% to 4%, to be honest. And again, seeing that protein inflation continuing into this financial year. There's a little bit of uncertainty as to how long that will continue. Obviously, we have expectations around labor inflation, but we await, I suppose, any announcements in next week's budget to see where that lands. But I suppose 3% to 4%, but I suppose a little bit of uncertainty as to how that would play out. Obviously, it's still pretty early in the financial year. And I suppose I would just reiterate, as we called out in the presentation, we've been pretty good at offsetting that inflation, whether it's through engaging with our customers are deploying our cost initiatives. And I know that was your other question. When we think about managing our margin, we think about it in 3 areas. And I think we've spoken at length about those areas today, I suppose is how we engage with customers. Dalton spoke about that at length, our innovation, premiumization, delivering for customers and really using that to drive volume and accrete margin. Then obviously, there's how we approach the manufacturing network. Again, we give you a fair bit of detail around how our operational excellence initiatives have kind of evolved. So we're really now starting to look at next-gen automation to really tackle that kind of manual element of our business that still is ripe for automation. So I suppose that's kind of where we see ourselves pivoting in that space. And look, I referenced the focus we have really deployed last year and will do into the future around pretty significant cost base under gross profit and above operating profit. There is lot of indirect labor there and other overheads to just be kind of laser-focused on. Again, they're the kind of key areas that we see ourselves kind of continuing to leverage to drive margin going forward. Dalton Philips: Just keep moving down the... Gary Martin: Gary Martin here from Davy. Just a couple of questions from me. Just a follow-on to Patrick's question there just around the cost side of things. Just around conversations with retailers at the minute, I mean, how challenging is that after a year of reasonably high inflation, particularly with NIC charges, national living wage? Is it becoming trickier from your side? Or are there levers to pull from your perspective? And then maybe just a second question just around -- or even just a follow-on to my first question actually, just around the level of, we'll say, low-hanging fruit that are left from a self-help perspective. Is there still a lot that you can do from that side to offset any additional costs and then just a further question just around cash conversion this year, very strong, well above the 55% set the CMD. I'm just wondering how sticky that is. I know that there were some puts and takes with regards to pension coming down and cash tax coming up and all the rest of it, but it would be good to get a long-term view on that. Dalton Philips: Yes. Thanks, Gary. Look, maybe I'll start on the first 2, Catherine, and then you can sweep over anything I missed and pick up the cash conversion. Look, the retailers have been fighting hard for their consumers to ensure that they're as competitive as possible, and it's a challenging market out there. I don't think the level of conversations have changed. We're very transparent. I mean, typically, about 75% of our volume goes through some sort of transparent model. So that's really helped the conversations because it's very transparent to -- as the proteins move up or down, they're getting it in that month or the next month depending on the contract. So the conversations, I think, are at a similar level to before. The real focus is on innovation. It's not really on cost because you've got the transparency there. That's sort of table stakes. It's all around innovation. And there's a huge push on it. Everybody is trying to just get an edge. And I think we've been very successful with these Chinese walls that we put through our business that allows dedicated teams for specific customers to develop those ranges that I put out. I mean, actually, there's a mince pie wrap that went out yesterday for one of our large customers. We're always trying to do something slightly different. And I think if the innovation is there, Gary, the conversations are much more positive. Typically, where I would have more tense conversations is where there'll be a challenge, well, somebody else launched that, why haven't I got that? That's where the conversations are. It's not really in cost. That's not to minimize it. It's just to say that if you're not there on cost, you don't have a business. And that leads, I think, into your second point around is the much more low-hanging fruit. We think you've got to continually be driving this. And leaving to aside the Bakkavor opportunities that will come from that, there is still opportunities in OE. So capacity management, line balancing, overhead balancing, like there's a lot of work we've done there. We were doing something the other day in terms of indirect procurement. You would be shocked in the variety of pricing around Wellington boots. It would blow your mind, there are Wellington boots that have been purchased that are extremely expensive in our network. Now it's not people doing anything wrong, but they're needing to react to a situation. And you go -- when you standardize all of that, and I think when you're talking about Wellington Boots, you're kind of going, yes, there's still a lot of opportunity out there. It's a well-run business, but we are going to keep going after it. And then maybe we'll talk later about next-gen automation, like there is just such an opportunity there. Like if you think about the dexterity of the hand, what it can do today in assembly, you think about next-gen automation that we think is probably 24 to 36 months away where you're able to mimic the dexterity of the hand and be able to pick up because you can pick up anything with a robot, but to pick up a tomato, a slice tomato without bruising it or a piece of avocado is a whole different kettle of fish. And that sort of dexterity is coming through. You think of that next-gen automation into our food to go operation real opportunity. But Catherine, do you want to pick up on that... Catherine Gubbins: And look, just to pick up on that point as well. I think we're really starting to see this year the benefit of that operational excellence mindset across our manufacturing business. It's a real muscle that's just strengthened over the last period and it's kind of just an ongoing assessment of the manufacturing business just to see where the opportunities lie. So yes, look, just around cash conversion, absolutely, we had a strong performance this year. As I said, it was just really from proactive management across the cash portfolio, I suppose specifically focusing on working capital, obviously, impacted by improved revenues. and increased costs as well give us a little bit more opportunity around the year-end. Absolutely, you've called out the point around the pension contribution. And I suppose our improved profitability over the last few years means we've been consuming some of those tax losses, and we're now in a position where we potentially are looking at higher cash tax this year. But I suppose broadly speaking, we're still confident with the range we indicated at the Capital Markets Day that we will be ahead of that on a go-forward basis. Charles Hall: Charles Hall from Peel Hunt. First of all, well done, terrific year. Could I just ask about the other convenience sector that you had volume -- underlying volumes were down slightly. Can you just talk about the moving parts of the different businesses within that, how you compare against the market and what you see as the outlook for that segment of the business? Dalton Philips: Yes. Look, I think there are some areas where we've just had some deliberate business losses that we've seeded. I mean I can talk about salads, for example, there's been a number of contracts there that we've just said, not for us. In fact, they were more on the commodity side of prep veg that we just didn't want to go into and we wanted to move up the value chain. But overall, I think if you think about other convenience like that ready meals has been absolutely like a train. We're trying to, Charles, continue with this focus that we was very successful for us 3 years ago, which was resigning volume that wasn't profitable, and it worked very well. You'll remember, we gave up 10% of our volume. You've got to be careful that you don't slip into that, business is good, so we'll take this on the side. So we've tried to keep our shape there. And -- but in general, our share, I mean, I think I would say salads would be -- that would be the one area where it just didn't really quite work to the level we had hoped. The rest, I think we're confident from a share point of view. I don't know if you add on that... Charles Hall: And are you now through that business resignation process? Or is there still more to do? Dalton Philips: No, we're absolutely through it. But these contracts are often on 3- to 5-year cycles. So actually, we're now coming up to many of those contracts that 3 years ago, we were -- we took a strong stance those are starting to be recycled into the market. And we're just trying to be firm on this and not get ahead of ourselves. So there's nothing more now. You've seen the portfolio, the ROIC that we've been making huge progress and even sushi, which I know we talked about a couple of years ago, like it's absolutely flying at the moment. I mean there's more to do, obviously. So I think we're in a pretty good place on our portfolio. Charles Hall: And anything to say on new business wins? Dalton Philips: Had some good wins over the summer, which will carry through. It's about 100 basis points of volume that will annualize into this year. So I think that's a good underpin and you put that on top of what's going on with those structural tailwinds of premiumization, convenience stores, you wouldn't want to get ahead of yourself, but we're feeling confident. And I think as we look to Bakkavor, when we think about that ability to manage those portfolios, there'll be learnings that we can bring to them, and I'm sure they'll have learnings for us as well. Andrew Wade: Andy Wade from Jefferies. First one, just sort of looking at your 7% operating margin target. So on the one hand, we've got that where you're at 6.5% this year. But just sort of looking through how you're talking about the opportunity still. There's still fundamental stuff like line balancing and overhead balancing and procurement and so on. But then you've got the big projects to come as well, the automation, logistics, the tech side of things, which is going to be another 5 years. I'm just sort of trying to square up where we're nearly at 7% already and you've got so much in the pipeline. Am I overestimating how much is still to go? Or is that 7% looking very conservative? That's my first question. Dalton Philips: Look, I'm sure Catherine will have some views on -- Well, actually, do you want to go on that? Catherine Gubbins: Look, we have plenty, plenty to go after, plenty levers to pull, right? They're not all going to magically appear next year. We're obviously planning to deliver these initiatives over the next number of years, right? I think what we would say is 7% over the medium term, 7% or above is a target that we're happy. We are happy to stand behind at this point in time. Obviously, that's Greencore on a stand-alone basis. We're really looking forward to combining with Bakkavor and then seeing what that looks like. And obviously, we'll be back out to talk to you about how we feel from a margin perspective in the context of the enlarged group. But I think, Andy, the point you made is valid. We have -- I suppose we have plenty of things that we're going to go after to drive the margin. But as I said, it's just -- we need to knock it down, deliver them and wait for them to show up in the P&L. So I think we're happy with the 7% and above. Andrew Wade: Okay. Second one, sort of touching back on question Charles asked on the contract side of things. Can you just remind us, you had the big ready meal win in September '24, which is annualized through now. You had some wins in the first half, a bit of salad loss in the second half and a couple more that you've just recently won. Is that broadly the shape of it? Or is there any big ones I'm missing there? Dalton Philips: No, that's broadly the shape of it. Some -- a number of sandwich contracts that have come our way that were either expansion or new customers, but... Andrew Wade: That's the sort of 100 basis point-ish number you were talking about with Charles' question. Great. And then a little bit churlish given how good the results are, but the making business easier, we're talking about GBP 80 million over 5 years. Are we going to be taking all of that as exceptional? And I guess if it's going to be going on for quite a long time, why do we think that -- I mean, obviously, you run it by the accountants and stuff, but how does that qualify as exceptional given it over quite a long period? Catherine Gubbins: Yes. Look, I mean, it's a transformational spend. We've obviously given that a lot of consideration. We're into year 3 of that program now, and we're happy that it qualifies as an exceptional spend. Clive Black: Yes, Clive Black from Shore Capital. Three relatively general ones. Firstly, what's the plant utilization then in September '25, what spare capacity you've got? Secondly, maybe say a word on your coffee shop opportunity because that's been a mixed blessing for Greencore in the past. And then lastly, what sort of -- how would you classify your relationships with the movers and shakers in process engineering? Dalton Philips: In process engineering. Clive Black: Manufacturing engineering. Dalton Philips: So I'll rattle through that and Catherine, please, come in if you want. So plant utilization, we're about 85% at the moment. So we've got that 15%. We had it before. We sold some of that capacity, which is part of the 2.5% volume growth, and we've been squeezing more out. And I think the challenge into the ops team is I will always be at around 15%. Now at some point, the guys will say, you need to put down more bricks and mortar. But I think our challenge back in is we shouldn't need to put more bricks and mortar down. I'm talking as a stand-alone site, forget the Bakkavor opportunity because obviously, one is to get to 3 shifts. Okay? And at the moment, for example, wrap rolling, we haven't got any technology that can go faster than a human. So we wrap roll ourselves. But we don't think we're far away, I mean, far sort of 18 months away from being able to speed the wrap lineup and bang, you pick up more capacity. So what we say to the team is, let's keep it at 15 and keep eking it out. In terms of the coffee channel, good question given ISG. But I think like if you take something like Costa or Nero, I mean, Nero is a fantastic business as is Costa, very professionally run. In the Nero case, they give us the keys. We deliver at night. We deliver through our DTS operation. We deliver other products for them as well. In some cases, we're quasi-merchandising the shop for them. So I think it's a good channel. It's professionally run. And I think if we're disciplined in holding our shape, I see the opportunity there. And then the third in terms of process manufacturing, this is a really good question. So we've been typically dealing with the Militex of this world, so European, and we want to go out to China. In fact, the plan is to go out in Q1 to go out to China to start speaking to other OEMs, think with the Bakkavor behind us and we can say, look, we've got 40 plants here. I think we believe there could be a different conversation. But we're trying to pull kind of current leading-edge technology from the Militex, but we want to see as something next gen from other sectors Clive because we're not the only other people out there who are dealing with the hand dexterity issue, and we believe there must be technology out there. And like I can't tell you how many thousands of people we have on our lines that -- and we've talked about 10% of that could be a medium-term target and some might say that's not ambitious enough in terms of taking labor out. Catherine Gubbins: Nothing further for me, to be honest. Operator: [Operator Instructions] The next question comes from Karel Zoete from Kepler. Karel Zoete: I have 2 clarification questions. The first one is in relation to the transition costs in 2026 plus the integration cost. What would be a reasonable expectation for both aspects combined in '26? And the other thing is on operating margins. Did I understand correctly you expect them to expand into 2026? Catherine Gubbins: Yes. So look, I suppose if you think about cost of the transaction into next year, we have an estimate of our costs being about GBP 40 million. for the transaction. And obviously, we recognized GBP 11 million in exceptionals in full year '25 in respect of the transaction. I suppose moving on to margin, absolutely, Karel, I suppose our expectation, our plan, our aspiration is that we will improve the operating margin in 2026. I'm not sure if you want me to build on it anymore. I think we've spoken a bit today around how we're planning to approach that, obviously, within the confines of that overall operating margin target of 7% and above that we've set out over the medium term, I suppose we are on the journey to delivering that, yes. Dalton Philips: Okay. Well, we'll wrap it there. We really appreciate you coming in today, and thank you for your questions and support.
Operator: Hello, and thank you for standing by for Baidu's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Juan Lin, Baidu's Director of Investor Relations. Juan Lin: Hello, everyone, and welcome to Baidu's Third Quarter 2025 Earnings Conference Call. Baidu's earning release was distributed earlier today, and you can find a copy on our website as well as on Newswire Services. On the call today, we have Robin Li, our Co-Founder and CEO; Julius Rong Luo, our EVP in charge of Baidu Mobile Ecosystem Group, MEG; Dou Shen, our EVP in charge of Baidu AI Cloud Group ACG; and Henry Haijian He, our CFO. After our prepared remarks, we will hold a Q&A session. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Credit Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and our filings with SEC and Hong Kong Stock Exchange. Baidu does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Our earnings press release and this call include discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.baidu.com. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on Baidu's IR website. I will now turn the call over to our CEO, Robin. Yanhong Li: Hello, everyone. In Q3, Baidu Core reported total revenue of RMB 24.7 billion, AI Cloud revenue reached RMB 6.2 billion, increasing 21% year-over-year sustaining value growth momentum. Apollo Go's growth accelerated sharply. We delivered over 3 million fully driverless operational rides in Q3, representing 212% year-over-year growth, up from 148% last quarter. This quarter demonstrated how AI is driving transformative value across our business. From enterprise services to consumer-facing products to smart mobility, our AI capabilities are delivering proven tangible impact at scale. Starting with the enterprise side, where our AI Cloud business continues to scale with healthy momentum and deliver measurable business impact. In Q3, AI Cloud continued its strong growth trajectory. Within AI Cloud, the areas most central to AI achieved the fastest growth. In particular, subscription-based revenue from AI accelerator infrastructure surged to 128% year-over-year, becoming the primary driver of AI Cloud's expansion. This reflects both a healthy shift towards a more recurring, structurally healthier revenue model and the strong demand for our AI products and solutions. Our ability to serve this growing demand stems from our early and strategic deployment across Baidu's full stack in AI architecture, spanning infrastructure, framework, models and applications, which allows us to support enterprises at every stage of their AI journey. At the infrastructure layer, our AI infrastructure is among the most advanced in China powered by a diverse mix of domestic and international high-performance computing resources, including our own self-developed AI computing architecture. Through continuous technical innovation, we drive performance and efficiency improvements while consistently reducing inference costs. Additionally, our industry-leading resource management capabilities significantly boost utilization and scalability. These advantages make our AI infrastructure reliable, scalable and highly cost effective for enterprise clients. And the model layer, we feature our self-developed early foundation model, which continues to iterate rapidly. At the recent Baidu World 2025, we unveiled ERNIE 5.0, our first native omni-model, foundation model with exceptional performance in omni-model understanding, creative writing and instruction following. ERNIE not only represents the cutting edge of our AI technology, but also serves as a backbone behind much of the AI-driven innovations across our businesses. At the application layer, we have a range of AI applications tailored to enterprise business needs. Let me share some examples. The first is [ Famou ] or FM agent, a self-evolving agent, we recently launched that significantly improved enterprise efficiency; built on ERNIE, it autonomously explores countless possibilities and continuously evolve its strategies to identify best solutions for highly complex, constantly changing real-world problems. FM agent is now deployed across industries including transportation, energy, logistics and ports, optimizing complex operations that traditional approaches struggle to handle. Its capability is particularly valuable in China, where we have diverse industrial sectors with numerous scenarios demanding efficiency improvements, when you can meaningfully boost efficiency across such varied use cases, the social impact is profound. Another example is the Daniel Wu English coach, an ERNIE powered digital employee we created for Yashi Education, featuring the lightness of the well-known actor. It enables users to engage in one-on-one real-time English conversation practice anytime, anywhere. This directly addresses a key challenge. Yashi's users require frequent on-demand speaking practice, which is difficult to scale with human instructors. The digital employee provides unlimited availability and an immersive engaging learning experience. Besides enterprises, our AI applications are creating value for individuals by enhancing productivity. Baidu Wenku and Baidu Drive, our largest AI applications for individuals, have been revitalized with AI. Their combined MAU has approached 300 million. In August, Wenku and Drive jointly launched a general-purpose AI agent platform that orchestrates hundreds of specialized agents to complete complex end-to-end tasks through simple natural language interactions. The platform has gained strong traction since launch, demonstrating how AI can meaningfully enhance personal productivity at scale. In the physical world, autonomous driving exemplifies the transformative value of AI, unlocking new possibilities for mobility, safety and efficiency. In Q3, Apollo Go's growth significantly accelerated to new heights. During the quarter, we provided over 3 million fully driverless operational rides to the public, representing a remarkable 212% year-over-year surge compared to 148% growth last quarter. In October, weekly average fully driverless operational rides exceeded 250,000, marking one of the highest levels achieved in real-world Robotaxi operations globally. To date, our fleets have accumulated over 240 million autonomous kilometers with more than 140 million of those being fully driverless, maintaining an outstanding safety record throughout. Achieving this rapid expansion while delivering exceptional safety performance is a powerful validation of our technology's maturity and operational capabilities. We are proud to see our decade-long commitment to autonomous driving now bearing fruit in large-scale operations. Reaching this scale requires maturity across multiple fronts, advanced technology, a rigorous and widely recognized safety record, demonstrated business viability, deep operational expertise and the ability to expand rapidly. These years of unwavering investment have not only given us a first-mover advantage, but more importantly, have built comprehensive capabilities that position Apollo Go as the undisputed global leader in this field. With this strength, Apollo Go has now entered a phase of rapid global expansion. As of October, Apollo Go's global footprint expanded to 22 cities, an increase from 16 last quarter. In October, Apollo Go entered Switzerland through a strategic partnership with PostBus, the country's leading public transport operator. Together, we plan to launch autonomous ride-hailing services in Eastern Switzerland, representing a key step in our European market expansion and another milestone in our global journey. In the Middle East, we secured one of the first fully driverless commercial operation permits in Abu Dhabi recently and deepened our collaboration with local partners. In Dubai, Apollo Go was granted exclusive authorization to conduct self-driving trials on open roads at the fourth Dubai World Congress for self-driving transport in September. RT6 provided trial rides to global attendees, including government officials, business leaders, media and investors, showcasing our technology's maturity on an international stage and demonstrating our global leadership. In Hong Kong, where Apollo Go has established by far the strongest presence in right-hand drive Robotaxi markets, we expanded our open road testing zones to include Kolon and Kung Tong District recently, further strengthening our position in the strategically important market. These milestones spanning Europe, the Middle East and Asia validate both our technology's adaptability and our ability to partner effectively with leading local operators in different regulatory environments. Looking ahead, we will expand to more markets with strong commercial potential and partnership opportunities, maintaining our unwavering focus on safety and operational excellence as we work toward making smart mobility widely accessible. In our mobile ecosystem, agents and digital humans represent AI-native monetization innovations that are transforming our online marketing business, creating substantial value for advertisers through higher engagement, better lead conversion and stronger ROI. Our agents help advertisers effectively clarify user intent through intelligent multi-round conversations and quickly find out the most relevant high-quality sales leads. This ensures advertisers receive more precise and qualified leads compared with traditional approaches. Building on this capability, agents have evolved into multiple forms; tech-based, voice-enabled and visually-embodied digital humans, each designed to address different scenarios and interaction needs. Such versatility enables advertisers to choose the most effective format for their specific use cases, achieving broader scenario coverage and higher conversion efficiency. As a result, agents have gained strong traction across diverse industries, including healthcare, business services and lifestyle services. In September, around 33,000 advertisers generated ad spending through our agents on a daily basis. Digital humans also saw strong momentum. Powered by ERNIE, our digital humans provide 24x7 AI-powered live streaming for advertisers at low cost, making professional live streaming accessible across more scenarios and industries. The technology continues evolving, delivering greater realism, more natural interaction and real-time engagement with viewers. This enables performance that surpasses human hosts in many cases, making our digital humans increasingly attractive to advertisers. Adoption has broadened beyond merchants to sectors such as healthcare, automotive and legal services. We are seeing both existing clients increase their budgets and new clients rapidly coming on board. In September, the number of digital humans live streaming on our platform almost tripled year-over-year, underscoring quick adoption across industries and growing monetization potential. These innovations are already generating significant revenue with fast growth rates. In Q3, combined revenue from agents and digital humans reached RMB 2.8 billion, up 262% year-over-year, validating the strong market appetite for our AI native monetization approaches. Looking ahead, we see substantial opportunities to scale these innovations further, broadening adoption across more verticals and deepening penetration with existing advertisers. Now let me review the key highlights for each business. In our AI Cloud business, our client portfolio continued to improve in Q3, demonstrating deeper collaboration across the board. Leading enterprise clients increased spending and expanded usage beyond AI infrastructure. Mid-tier enterprise clients delivered healthy growth with both subscription-based revenue and client count rising. Several key verticals saw strong momentum. In embodied AI, our client base expanded to 35 from 20 last quarter, covering nearly all major industry players in China. The automotive vertical also delivered strong growth with revenue nearly doubling year-over-year. In addition, this quarter, we entered into new collaborations with leading players, including Neolix, a major provider of autonomous delivery vehicles in China. Collectively, these results affirm the broadening adoption and strong recognition of Baidu AI Cloud. To address fast-growing demand, we strategically upgraded our MaaS platform Qianfan to be agent-centric. Qianfan is now positioned to provide not only leading model services with a constantly enriched model library, but also cutting-edge agent development capabilities and best-in-class agent infrastructure. By integrating high-quality proprietary and third-party capabilities and tools, Qianfan enables seamless agent creation and empowers enterprises to accelerate AI native application development. At the application level, we are driving productivity gains, both internally and externally. Internally, our developers widely leverage Comate, our AI coding assistant for developers. In September, AI contributed to over 50% of new code generation under developer oversight substantially improving our overall engineering and R&D productivity. Comate exemplifies our belief that AI should liberate humans from repetitive tasks and deliver immediate efficiency gains. Externally, we are democratizing AI through Miaoda, our no-code platform. After continuous capability enhancements, we launched the Miaoda's International version named MeDo in November, bringing powerful no-code capabilities to global users. By removing barriers like specialized training, we aim to empower more people worldwide to innovate and create with AI. On intelligent driving, Apollo Go provided 3.1 million fully driverless operational rides in Q3, up 212% year-over-year. As of November 2025, cumulative rides provided to the public have surpassed 17 million. In terms of geographic expansion, Apollo Go added 6 new cities, bringing its global footprint to 22 cities as of October 2025. In Chinese Mainland, Apollo Go has already achieved 100% fully driverless operations in multiple cities including Beijing, Shanghai, Shenzhen, Chengdu, Chongqing, Wuhan, Haikou, Sanya and more. These are not pilot zones, but represent real services already open to the public, which speaks to the maturity of our technology and operation. On our asset-light model and domestic partnerships, we also made good progress this quarter. The asset-light approach allows us to expand our autonomous driving services through partnerships and facilitate faster and more capital-efficient expansion. Following the launch of fully autonomous vehicle rental services with CAR Inc, Apollo Go now enables cross-city travel in Hainan province with fully driverless rental vehicles, offering users a differentiated experience, not typically available through traditional car rental services, particularly for tourism and leisure travel. In addition to our partnership with Hello Ride, we achieved scaled fully driverless operations in 2 cities in China, further validating the feasibility of the asset-light model. Looking ahead, we will continue to expand rapidly while prioritizing safety, accelerating the adoption of autonomous ride-hailing services across broader markets. In our mobile ecosystem, the AI transformation of Baidu Search continued to progress in Q3. At the end of October, roughly 70% of mobile search result pages contain AI-generated content. We believe this represents an optimal and sustainable level. This quarter, we prioritized enhancing the quality of multimodal content within AI search results while expanding our overall content ecosystem. AI generated multimodal content saw rapid growth in both volume and quality. In particular, with daily AIGC video generation consistently at the scale of millions, our total AIGC video content continues to expand quickly while daily distribution within Baidu App is also seeing strong growth. As content supply improves, users experience richer, more relevant and engaging search results, user metrics continue to improve. In September, Baidu App MAU reached 708 million, up 1% year-over-year. The daily average time spent per user in Q3 increased 2.3% year-over-year. We are also extending our AI search capabilities to external partners through the Baidu AI search API, which enables integration of our industry-leading search technology that delivers superior accuracy, authority and comprehensiveness. Leading companies such as Samsung, Xiaomi and Honor have already adopted the API. This strategic initiative expands our technology's reach beyond our own ecosystem, unlocking new business models and creating broader value across the industry. Underpinned by our full stack AI capabilities, each business group within Baidu has seen rapid progress with AI driving both product innovation and business growth. From an AI-native perspective, our portfolio cuts across business groups with a comprehensive range of AI-powered businesses from AI Cloud Infra to AI Applications, such as Baidu Wenku and Baidu Drive and to AI native marketing services, including agents and digital humans, all of which are showing strong growth momentum. In the physical world, Apollo Go, our largest AI application continues to scale rapidly, and these are just a few examples, underscoring the broad-based growth of our AI-powered businesses and the meaningful business impact our AI capabilities are already delivering at scale. Looking ahead, we will continue to expand our AI-powered revenue streams and strengthen our position to capture the long-term opportunities ahead. We are confident that our AI capabilities will bring even greater transformative value across our portfolio in the years to come. With that, let me turn the call over to Henry to go through the financial results. Haijian He: Thank you, Robin, and hello, everyone. Robin just mentioned our AI-powered businesses, and I'd like to elaborate. Based on ongoing feedback from investors and to better reflect valuation drivers based on our current portfolio, we are introducing a new AI native view this quarter cut across business groups to track AI-empowered assets company-wide. This new view organized our business according to the nature of our products and services, helping investors better understand the fundamental valuation drivers across our diverse product and service offerings. Going forward, we will provide business updates through this AI native view on an ongoing basis, while continuing to disclose results under the existing reporting methods, giving investors complementary lenses to assess the value of our portfolio. From this AI native view, we have a rich array of AI in power assets. We are highlighting 3 categories this quarter. AI Cloud Infra, AI applications and AI native marketing services. First, AI Cloud Infra, which refers to the AI infrastructure and platform services we provide to enterprises and public sector. In Q3, revenue from AI Cloud Infra reached RMB 4.2 billion, up 33% year-over-year. We operate one of China's most advanced AI accelerator infrastructure, enabling highly efficient and cost-effective training and inference across diverse enterprise workloads. Within AI Cloud Infra, subscription-based AI accelerator infrastructure revenue grew 128% year-over-year. Second, AI Applications. These are AI-native or AI-powered product offerings addressing specific use cases for individuals and enterprises, including our flagship software products such as Baidu Wenku, Baidu Drive and digital employee. AI is transforming how applications create value, enabling far more powerful capabilities that address real-world scenarios more effectively. We built a leading and comprehensive portfolio across both individuals and enterprises. Most of our AI applications are based on sticky subscription models, delivering high-quality revenue. In Q3, AI Applications generated revenue of RMB 2.6 billion. Third, our AI native marketing services, such as agents and digital humans continue to scale rapidly. This represents our second growth curve beyond our legacy business. These innovative products are gaining strong traction with customers seeking performance-driven AI-native solutions. Customers are increasingly willing to pay a premium for cutting-edge AI technology that delivers measurable improvements in productivity, marketing efficiency and ROI. In Q3, revenue from AI-native marketing services reached RMB 2.8 billion, representing a robust 262% year-over-year increase, accounting for 18% of Baidu Core's online marketing revenue. Now let me walk through the details of our third quarter financial results. Total revenues were RMB 31.2 billion, decreasing 7% year-over-year. Revenue from Baidu Core was RMB 24.7 billion, decreasing 7% year-over-year. Baidu Core's online marketing revenue was RMB 15.3 billion, decreasing 18% year-over-year. Baidu Core's non-online marketing revenue was RMB 9.3 billion, up 21% year-over-year. Driven by the boost of AI Cloud business within Baidu Core's non-online marketing revenue, AI Cloud revenue was RMB 6.2 billion, increased by 21% year-over-year. Revenue from iQIYI was RMB 6.7 billion, decreasing 8% year-over-year. Cost of revenues was RMB 18.3 billion, increasing 12% year-over-year, primarily due to an increase in costs related to AI Cloud business and content costs. Excluding impairment of long-lived assets, operating expenses were RMB 11.8 billion, increasing 5% year-over-year. And Baidu Core's operating expenses were RMB 10.4 billion, increasing 5% year-over-year. Baidu Core SG&A expenses were RMB 5.7 billion, increasing 14% year-over-year, primarily due to an increase in expected credit losses and channel spending expenses. SG&A accounted for 23% of Baidu Core's revenue in the quarter compared to 19% in the same period last year. Baidu Core R&D expenses were RMB 4.8 billion, decreasing 3% year-over-year. R&D accounted for 19% of Baidu Core's revenue in the quarter, which was basically flat from last year. Impairment of long-lived assets was RMB 16.2 billion, attributable to an impairment loss of Core asset group with our rapid progress in high-performance computing capabilities. We proactively conducted a comprehensive review of our asset base and impaired including, but not limited to, existing infrastructure that no longer aligns with current computing efficiency requirements. This results in a healthier and more optimized asset portfolio that better supports the future growth of our AI native business. Operating loss was RMB 15.1 billion. Baidu Core's operating loss was RMB 15.0 billion and Baidu Core's operating loss margin was 61%. Excluding impairment of long-lived assets, operating income was RMB 1.1 billion and Baidu Core operating income was RMB 1.2 billion. Non-GAAP operating income was RMB 2.2 billion. Non-GAAP of Baidu Core operating income was RMB 2.2 billion, and non-GAAP Baidu Core operating margin was 9%. Total other income, net was RMB 1.9 billion compared to RMB 2.7 billion in the same period last year. Income tax benefit was RMB 1.8 billion, compared to income tax expense of RMB 814 million in the same period last year. Net loss attributable to Baidu was RMB 11.2 billion and diluted loss per ADS was RMB 33.88. Net loss attributable to Baidu Core was RMB 11.1 billion, and net loss margin for Baidu Core was 45%. Excluding the impact of impairment of long-lived assets, net income attributable to Baidu was RMB 2.6 billion, and net income attributable to Baidu Core was RMB 2.7 billion. Non-GAAP net income attributable to Baidu was RMB 3.8 billion. Non-GAAP diluted earnings per ADS was RMB 11.12. Non-GAAP net income attributable to Baidu Core was RMB 3.8 billion, and non-GAAP net margin for Baidu Core was 16%. We define total cash and investments as cash, cash equivalents, restricted cash, short-term investments, net long-term time deposits and held-to-maturity investments and adjusted long-term investments. As of September 30, 2025, total cash investments were RMB 296.4 billion, and total cash and investments, excluding iQIYI were RMB 290.4 billion. Operating cash flow was RMB 1.3 billion, and operating cash flow, excluding iQIYI was RMB 1.5 billion. Baidu Core had approximately 31,000 employees as of September 30, 2025. With that, operator, let's now open the call to questions. Operator: [Operator Instructions] Our first question today comes from Alicia Yap with Citigroup. Alicis a Yap: My question is on ERNIE 5.0 that was unveiled at Baidu World recently? And then so how will the new model drive the next stage of application such as the digital humans? And what are the key focus area for earnings, future iterations and also the differentiation? Yanhong Li: Alicia, this is Robin. Over the past couple of years, I've been repeatedly saying that we're taking an application-driven approach when it comes to earnings iteration. At the Baidu World just a few days ago, we unveiled ERNIE 5.0, our first native omni-model foundation model. It has reached world-class levels in omni-model understanding, creative writing and instruction following, which are very important capabilities to our current and future product portfolio. From ERNIE 4.5 and ERNIE X1 in March to ERNIE 5.0 in November, ERNIE keeps getting better. Digital humans are a good example. Powered by ERNIE, they deliver fluent, contextually accurate and highly expressive dialogue. These are capabilities rooted in ERNIE's language strength. Beyond language, our model also drives visual realism, appearance, movement and even subtle micro expressions, all synchronized with the conversation. When these elements come together, the performance of our digital humans is truly exceptional and genuinely persuasive, capable of driving user engagement and purchasing decisions. ERNIE also powers FM agent, our self-evolving agent that significantly improves enterprise efficiency. It has proven to be very effective in industries like manufacturing, energy, finance, transportation and logistics. Similarly, our AI search and cloud business benefit from ERNIE's capabilities, too. Although ERNIE has delivered remarkable results for these applications, we see a lot of room for improvement. We like to see digital humans sell better than real humans in all kinds of live streaming e-commerce across many product categories. We like to see FM agents find better and better solutions in more complicated scenarios in all industries. We like to see AI-generated content to match users' interest better than KOL-generated content. We like to see ERNIE-based agents to be able to tell which piece of content has better quality regarding certain topics and so on and so forth. These are the areas where none of the existing models do a good job, not even close. So we aim to solve this problem. The application-driven approach actually reflects our deep conviction in where AI value will ultimately reside. While economic value today sits largely at the infrastructure layer, in a healthier AI ecosystem, the greatest value should come from applications where products deliver real impact to users, advertisers and enterprises. Going forward, I think no foundation model can be better than anyone at any aspect. We will continue to focus on making ERNIE strongest where it matters most for our portfolio. Baidu has always been a company with strong belief in technology, and we will continue investing decisively in areas where technology can create real measurable value. So staying close to applications ensures a sustainable path forward for AI development. Operator: And our second question today comes from Lincoln Kong at GS. Lincoln Kong: So my question is about the Cloud business. So in the third quarter, we have seen Cloud growth has slightly moderated. So are we seeing any changes in terms of the Cloud demand? And should we expect a re-acceleration in the coming quarters? So what's your outlook for the next year? And what are the key drivers that should support the sustainable growth of our cloud business? Dou Shen: This is Dou. Thank you, Lincoln. If you look at our year-to-date performance, our Cloud business is growing well above the industry average. Well, for quarter-to-quarter, there can be some variability, but the overall trend is strong, and we remain very confident about this growth trajectory going forward. On the demand side, enterprises are applying AI across every aspect of the operations, driving strong broad-based demand for AI-centric Cloud services. Within AI cloud, the area most closely tied to AI workloads is scaling the [indiscernible]. Our clients are using our cloud not only for model training, but increasingly for inference tasks. In Q3, AI Cloud Infra revenue reached RMB 4.2 billion, up 33% year-over-year, outpacing overall cloud growth. And the subscription-based AI accelerator infrastructure revenue grew 128% year-over-year, accelerating from around 50% last quarter. This results both strong -- reflects both strong underlying AI-driven demand and a healthier revenue mix. This momentum is supported by our full-stack AI capabilities. At the infrastructure layer, our high-performance AI infrastructure, especially self-developed AI computing architecture continues to see strong adoption driven by superior performance, efficiency and cost effectiveness. Many can start with AI Infrastructure and then expand to additional offerings over time. Also, our Qianfan MaaS platform has been upgraded to be agent-centric. With expanded model libraries, integrated tools and strengthened support for complex agent workflows, Qianfan provides best-in-class agent infrastructure, enabling enterprises to easily build and deploy AI agents at scale. At the application layer, we provide applications that can be readily applied to real business scenarios. Our cloud growth is not just about investment in AI infrastructure, we attach huge importance to applications. We have a comprehensive portfolio of AI products and solutions that is growing very fast, including digital employee, Yijian, Miaoda, FM agent and so on. So we firmly believe AI applications will create substantial value in our cloud businesses in the long term. So to sum up, if we look at our cloud business on an annualized basis, we believe that our full-stack AI capabilities and the strong demand for AI-centric cloud services will enable healthy, scalable and sustainable growth in the future. Thank you. Operator: And our next question comes from Alex Yao with JPMorgan. Alex Yao: The Baidu application evolves into an AI application and web search becomes a building feature for AI chatbots. The line between search and chatbot is getting blurry. How are -- based on your observation, how are user behaviors changing? And what is your competitive strategy going forward? Yanhong Li: Alex, let me answer your questions. And AI chatbot actually [Technical Difficulty] and evolve very quickly. So it's necessary to stay flexible to offer different products for different scenarios. And within Baidu, we leverage the chatbot capabilities through 2 complementary offerings. The first one is the ERNIE assistant, which is the built-in chatbot inside the Baidu App. This supports multi-round conversations function, calling and thanks for its deep integration with search. Since many users assess the ERNIE assistant directly from search, so you can draw on query contacts and interaction history to deliver a more relevant and personalized answers. It also connects to a set of tools through MPT, allowing the users to move seamlessly from information discovery to task compaction. And the ERNIE assistant is growing quite fast in our app. You can see that the conversation logs have increased around fivefold year-over-year and the DAU has surpassed 12 million with a very strong month-over-month momentum. And we expect this trend to be further continued in the coming few quarters. In parallel, we also offer the ERNIE bot as a stand-alone chatbot application. While it shares Core capabilities behind ERNIE assistants, the ERNIE bot takes an experimental and innovative approach with a near-term focus on improving retention and long-term ambition to compete at the forefront of the chatbot category. And for example, it provides some cutting-edge multimodel features such as the AI images or [ comic-style ] generations which have been especially popular among the younger users. And looking ahead, we believe the chatbots are not only all ultimate form of AI applications, the future of AI interactions will be multimodel real-time generative and interactive. And for example, at the most recent Baidu World, we have showcased the upgraded [indiscernible] digital human, which is capable of the instant interactions through the real-time voices and video like live conversations. As many of you may recall that we even had a very small technical hiccup during the live demo, which actually proved that it was truly real time and not prerecorded. And once resolved the digital human responding very vividly and deliver dynamic back and forth conversations that feel generally human. So we will continue to bring these advanced capabilities into search, making it more intelligent, personalized and capable of completing tasks. This continuous innovation is how we intend to capture the long-term opportunities in the AI area and strengthen our competitive advantages. Thank you, Alex. Operator: Our next question today comes from Gary Yu of Morgan Stanley. Gary Yu: And also appreciate the additional disclosure on AI-powered businesses. Could management share more on the growth outlook and also the profitability of Baidu new AI-powered businesses? And how will these categories help accelerate our overall revenue growth going forward? Haijian He: Thank you, Gary. This is Henry. Let me provide some background on this new AI-native views. Based on the investor feedback, we are seeing a need for greater transparency into our high-growth AI businesses. These views organize our portfolios by product nature, giving investors clearer visibility into the underlying value drivers. We will maintain both this AI native view and our existing reporting methods in parallel, offering complementary perspectives on our business performance. From this new perspective, I think we have a rich portfolio of AI-empowered assets. Let me give some highlights here. First of all, for the AI Cloud Infra, this part includes our industry-leading AI infrastructures containing self-developed AI computing architecture, cloud infrastructure and a best-in-class MaaS platform. As AI adoption accelerates, demand for robust infrastructure is growing and our differentiated capabilities position us well. We are capturing long-term sustainable revenue and expect margin to improve as utilization increases. Secondly, for the AI applications, this part includes flagship products, for example, of our Baidu Wenku and Baidu Drive. AI has significantly enhanced functionalities across these products. We have one of the China's broadest AI application portfolios, and most of these applications are subscription based and contributing to higher quality revenue and margins. Third, for the AI native marketing services, including agents and digital humans, this reflects how AI unlock greater efficiency and drive the second growth curve in our advertising business throughout enhanced engagement, conversation and ROI. This quarter, AI-native marketing services reached 18% of our Baidu Core's online marketing revenue, up from 4% a year ago, and we expect penetration to continue rising as adoption broadens. Customers are embracing these result-driven AI solutions and are willing to pay for tangible gains in productivities and marketing efficiency. Importantly, this AI-empowered business reinforce one another across Baidu's ecosystem. And AI embeds deeper across products. So we expect accelerating growth of these businesses. So when we're looking ahead, we remain confident in their revenue and profitability potential, which we believe will support for a stronger growth trajectory for Baidu over time. Thank you, Gary. Operator: And our next question today comes from Miranda Zhuang with BofA Securities. Xiaomeng Zhuang: The question is about the Robotaxi business. So Apollo Go has been accelerating growth this year. So looking ahead, can management update us on Apollo Go for next year and beyond, including your global expansion plans. And how do unit economics look across different markets? And how does management view the long-term profitability potential of the Robotaxi business? Yanhong Li: This is Robin. If you remember, our Robotaxi's journey started in 2013. So this is our 13th year. Today, Apollo Go is one of the world's largest robotaxi service providers. And as of November, we have provided over 17 million rides cumulatively, a level very few players globally have achieved. In China, we are the undisputed market leader. Through the first 3 quarters this year, our ride volumes were over 15x higher than our nearest domestic peers according to publicly disclosed data. All these rides are fully driverless, demonstrating unmatched operational scale and technological excellence. Scale matters a lot. The reason we are able to achieve a leading position in autonomous driving technology on a global basis is that we have the scale. We have encountered many issues, corner cases others have not seen. We were able to train our models to handle those cases and become smarter and smarter. I think robotaxi has reached a tipping point, both here in China and in the U.S. There are enough people who have chance to experience driverless rides and the word of mouth has created positive social media feedback, which I think will propel the opening or loosening of related regulations. For 2026 and beyond, we will continue to scale up our operations, both domestically and internationally. We will add more cars in our existing cities. We will expand to more cities. We will accumulate more fully driverless mileage and further improve our technology based on the operational data we gathered on the road. And yes, we need more data to train our models. Better models make the cars safer and faster. We will continue to drive down the cost per mile through technological innovation and operational efficiency. Right now, a few cities have achieved positive unit economics. As we scale, we hope to see more cities turn positive in 2026. Also, we're scaling through flexible business models, including asset-light models, we are very -- we are ready to enter any city quickly once regulatory and market conditions allow. As of October, Apollo Go's global footprint reaches 22 cities with significant progress in Europe, Middle East and Hong Kong. We're confident that UE will continue to improve as we scale. So in summary, for 2026 and beyond, we expect strong growth across 3 areas: rapid growth in ride volumes and [ fee ] size, geographic expansion in new markets -- into new markets and accelerated adoption of new business models. We believe Apollo Go is well positioned for continued global expansion and long-term profitability. Thank you. Operator: And our next question today comes from Thomas Chong of Jefferies. Thomas Chong: My question is about how is AI search monetization progressing? And what feedback are you seeing from advertisers and users? Can AI native marketing services offset traditional ad business? And how should we think about core advertising profitability going forward? Rong Luo: Thomas, this is Julius. In October, nearly 70%, 7-0 of the mobile search result pages have content AI generated and multi-model first content. This format is quite unique to us, and we are the first or maybe only one doing this. We expect this level to remain relatively stable as we have largely covered the query types where the AI meaningfully improved the user experiences. Our focus now has shifted to improving the quality, particularly the rich media content like images, videos, and we are seeing very clear improvement in content quality this quarter, which translate directly into the better user experiences. And we can see that the users retention is higher and the users exposed to the AI search results are initiating 6% more queries and spending more time with us. This tells us that users are finding real value in AI search and engaging more deeply. On monetization, we are actively testing and seeing some encouraging early results. First, we are testing MCP in the commercial modules in the AI search. For example, our e-commerce MCP module peaked nearly RMB 6 million in daily GMV during the recent Double 11 shopping festival. This is a very early stage, but the results are quite encouraging. Second, agents for advertisers are generating over RMB 25 million in daily revenue, and we expect this to grow as we bring more agents into the earning assistance as well. And third, we have started testing the digital human live streaming with the real-time interaction capabilities, try to explore the new ways to create engaging commercial experiences. And looking ahead, we see the significant monetization potential for AI search, and we will continue testing actively. However, our near-term priority still remains the user experiences over immediate monetization. This AI transformation is necessary for long-term competitiveness and will inevitably create a near-term pressure on both revenue and margins. So we believe this is the right trade-off to capture the large opportunities ahead. Thank you. Operator: And our final question today comes from Wei Xiong with UBS. Wei Xiong: Actually, I have a few questions here. First, just a quick one. Could you please explain this quarter's asset impairment and its rational? And second, what are your CapEx plans for next year? And how should we think about the margin trajectory as AI revenues grow? And lastly, could we please have an update on shareholder returns once the current buyback program expires? Haijian He: Thanks, Xiong. First of all, on your first question on asset impairment, the background is we are accelerating investments in the latest AI computing technologies without any hesitation. So as part of this effort, we have conducted a comprehensive review of our infrastructure portfolio. Some of the existing assets no longer meet today's computing efficiency requirements. So we actually proactively did some impairments. After this onetime of impairment, our asset base and portfolio profile is in a much healthy position and better aligned with advanced AI computing demand and higher value application scenarios going forward. Second, on the capital expenditures, we are maintaining a high level of investment. Just to give you one example. Since Baidu launched ERNIE in March of 2023, we have invested well above RMB 100 billion in the AI investment. Going forward, we will continue increasing our investment intensity in the AI area. We do expect to see greater operational leverage as our AI business scales. We're executing on 3 fronts. First of all, the asset review and impairments have left us with a leaner and more efficient asset base. Second, we are investing with a discipline to ensure capital efficiency. And of course, thirdly, we are enhancing utilization of our AI infrastructure, for example, through dynamic allocation of capacity across internal products and external cloud services. So as a result of these initiatives, we believe Q3 represents a low point for margins. Looking to next year, we will strive to improve our non-GAAP operational income and margins as these benefits start to flow through. So on your last point regarding shareholder returns, under the plan and program authorized in 2023, we have already bought back a worth of USD 2.3 billion in shares. We are currently reviewing the future buyback mechanism. We understand we also think it is important to provide a greater certainty and clarity to reduce volatility of buyback programs going forward. We're also actively exploring diversified return mechanisms, for example, setting a dividend policy potentially. Together, these efforts aim to deliver more consistent values to our shareholders. Thank you. Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Welcome to the Figure Technology Solutions Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Lastly, today's call is being recorded. I would now like to turn the call over to [ Craig Streem ] Investor Relations. Unknown Executive: Thank you, Nicky. Good morning, everybody. Welcome to our third quarter 2025 earnings call. This is [ Craig Streem ] in the Investor Relations team at Figure. Joining me on today's call are Mike Cagney, Executive Chairman and Co-Founder of figure; Michael Tannenbaum, our Chief Executive Officer; and Macrina Kgil, our Chief Financial Officer. In today's call, we will refer to certain non-GAAP measures, which are reconciled to GAAP measures in the earnings release we issued yesterday after the market closed and in the appendix to our supplemental slide presentation posted to our website. Non-GAAP measures are not intended to be a substitute for GAAP results. Certain statements made during today's call may contain forward-looking statements, which may vary materially from actual results. Information concerning risks, uncertainties and other factors that could cause these results to differ is included in our SEC filings and set forth on Page 3 of the earnings presentation we've posted in the IR section of our website and in the risk factors we've identified in our third quarter 10-Q filed earlier today as well as in other SEC filings. We're not undertaking any commitment to update these statements if conditions change, except as required by law. And a recording of the conversation will be made available on our website following the conclusion of today's call. Following the formal remarks, we will also open the line for questions, and I would encourage you to follow along in the posted earnings presentation as we go through our formal remarks. And with that, I'll turn the call over to Michael Tannenbaum. Michael, please go ahead. Michael Tannenbaum: Thanks, Craig, and thanks to all of you who are joining us this morning. Let's begin by turning to Slide 4. As you saw in the earnings press release we issued after the close yesterday, we had a very strong third quarter with great results in all of our key performance metrics. Adjusted EBITDA, the measure that most clearly demonstrates the profitability of our business, reached $86 million in the quarter, an increase of 75% year-over-year and EBITDA margin reached 55%. Net income for the quarter was nearly $90 million, more than triple last year's quarter. Total consumer loan marketplace volume reached almost $2.5 billion in the third quarter, representing a 70% increase year-over-year. This growth reflects continued expansion across our origination partner network and increased utilization of Figure Connect for liquidity. As more partners leverage the platform to fund and sell loans, we're seeing meaningful gains in both scale and efficiency. A standout example being first lien lending, where adoption has accelerated sharply among both new and existing partners. Firstly, volumes nearly tripled year-over-year, making it one of our fastest-growing products this quarter. Partners are leaning into Figure Connect as a liquidity solution, enabling faster funding, improved execution and lower cost versus traditional channels. This momentum demonstrates how our marketplace model extends beyond home equity and into the broader consumer ecosystem, capturing a larger share of the housing finance value chain. We also continue to see encouraging progress from new product categories, which together contributed more than $80 million in volume in the third quarter. These include innovative blockchain-based solutions for crypto-backed loans, loans to small and medium businesses and debt service covenant ratio, or DSCR, loans. Each of these products leverages the same origination and trading infrastructure that powers our core marketplace. This combination of core growth and product innovation reinforces the scalability of the Figure ecosystem. By expanding both vertically within home lending and horizontally across adjacent asset classes, we're creating multiple avenues for growth and ensuring that Figure remains the leading blockchain marketplace for consumer credit origination and liquidity. Now let's turn to Slide 5. Given it's our first earnings call as a public company, I want to share a bit about our evolution and how we have succeeded in delivering against what we see as a generational capital markets opportunity. From the beginning of the company, we've had a relentless focus on innovation and technology, in particular, on the use of blockchain to drive scale, achieve competitive differentiation and disrupt incumbents. With mortgage and home equity, we identified a greenfield product set where we could improve the product experience and capital market. But our ultimate objective has always been to create a true marketplace that will connect assets with the capital markets in a capital-light manner that generates the sort of margins you see in this quarter's results. Over time, we believe this will translate into lasting shareholder value. On Slide 6, I'll start by going back to 2018 when we became one of the first entities to originate consumer loans on blockchain. In 2020, we did the first securitization of blockchain assets. In 2023, we did the first AAA-rated securitization of blockchain assets and now our securitizations have AAA ratings from both S&P and Moody's. To date, we've originated over $18 billion in loans on the Provenance blockchain and executed over $60 billion in blockchain transactions. We believe we are, by far, the largest player in the public blockchain real-world asset space and our lead is growing. We began as a direct-to-consumer lender using our balance sheet to originate loans. We very quickly grew to a business-to-business to consumer platform and now have nearly 250 third parties, that's up a lot from last quarter who use our technology to originate blockchain-native assets. Originally, we used our balance sheet to bridge between our partners and the capital markets but we began to move away from that in June of 2024 with the launch of Figure Connect, where we allow our origination partners to access capital market liquidity directly. Instead of intermediating with our balance sheet, our partners sell directly to the capital markets using our marketplace. This fee-based model is more profitable for us, and in addition, does not require us to use our equity capital. We went from 0 volume in the marketplace of June of 2024 to having it comprise almost half of our total consumer loan marketplace volume in this quarter. Turning to Slide 7. I want to share a bit more about why blockchain is so important to our approach and how it has become the backbone of our entire strategy. We focus on 3 foundational elements of blockchain. Transactional efficiency, liquidity and lending and each of these is an essential element contributing to our ability to transform capital markets. Starting with transactional efficiency, we have found that blockchain has enabled us to save roughly 85 basis points in securitization costs by taking advantage of the immutability of putting loan attributes on blockchain, which has allowed us to reduce third-party review costs. Moving to liquidity. We created via standardization an homogeneity in our loans. Every loan originated across our now almost 250 partners is done electronically end-to-end on the blockchain without human involvement in the data. Regardless of the partner, every loan is underwritten the same way, and all performance data is captured transparently. We've seen the value of this approach validated recently given some of the capital markets issues and fraud highlighted by the Tricolor and First Brands situation. Earlier, I mentioned $60 billion in transaction versus $18 billion in originations, which demonstrates that through Figure Connect, we're turning homogeneity and data integrity into real tradable liquidity. That's a breakthrough for a historically illiquid asset class and is quickly becoming one of Figure's strongest moats. Finally, the last element is what we broadly characterize as lending, specifically how lean perfection and cross collateralization can provide greater economic efficiency for a variety of products. One way we're applying this directly is through Democratized Prime where our frictionless, short-term liquidity funding marketplace is delivering financing rates below those achievable in wholesale capital markets. This not only validates DeFI's potential efficiency, but also gives us a road map to extend this to other asset classes, something Mike Cagney will discuss later on this call. Turning to Slide 8. you'll see the 2 core marketplaces that anchor the Figure ecosystem today, our consumer credit marketplace and our digital asset marketplace. These are the primary engines of our business model. The consumer credit marketplace supports our origination partners, which include banks, credit unions and mortgage companies. Every loan they originate is fully digitally standardized and executed on chain, creating homogeneity and transparency across the ecosystem. Our digital asset marketplace provides a connection point between the capital seekers I just spoke about and the capital providers who seek to earn the best possible return. Our digital asset marketplace is a global regulated exchange built on the same blockchain rails as our consumer credit network. Embedded within this marketplace is Democratized Prime, our decentralized short-term funding market. Democratized Prime connects lenders and borrowers directly, eliminating traditional intermediaries. And importantly, it's not isolated from the rest of the platform. It can also finance the same loans originated by our consumer credit partners. These 2 marketplaces work together. One generates high-quality, real-world assets and the other provides the liquidity to fund them. Across both ecosystems, our revenue model is simple. We earn a fee-based take rate on ecosystem volume. On the next slide, you can see the illustration of the life cycle of a loan within the Figure ecosystem and how we capture value at each stage. Let's use a credit union partner as an example. When their customer applies for a loan, a credit union connects directly to Figure's system through an API or web app and sends us just a few key data points. Things like income, property details and loan amount. Within seconds, our technology determines whether that loan meets prespecified underwriting parameters. If approved, Figure's platform automatically verifies both income and property value by linking to the consumer's bank account and third-party data sources. In nearly all cases, there's no human touch. The resulting data credit score, income and property valuation are written immutably to the blockchain forming a digital audit trail that dramatically reduces quality control costs as those loans move through the capital markets. Loans are then aggregated and financed either through warehouse lines or increasingly on Democratized Prime before being sold to loan buyers. At sale, Figure earns a roughly 3% ecosystem fee which is deducted from proceeds, meaning our partners are not out of pocket. If the loan is later securitized through our platform, we earn an additional 40 basis points. Separately, we earn a 25 basis point annual servicing fee for as long as the loan remains outstanding, which typically runs about 5 years. Across this life cycle, automation and blockchain verification translate to meaningful cost savings in origination, diligence and secondary market execution. All efficiencies that directly strengthen the partner economics while creating recurring high-margin revenue for Figure. These improved economics for all parties involved have been a significant contributor to the growth and relationships you'll see on the next slide. Our partner network is one of Figure's most powerful differentiators. Today, that network spans traditional banks and credit unions, more than half of the top 20 independent mortgage banks and a growing base of fintechs, solar and home improvement companies. As highlighted in our earnings release, this quarter, we onboarded one of the largest mortgage servicers in the United States to our marketplace. These partners rely on our infrastructure to originate and distribute consumer credit products more efficiently creating a nearly continuous flow of high-quality assets. Because our partners can originate, fund and sell loans seamlessly, their economics improve and our overall reach continues to expand. As a result, over the past 5 years, partner-originated volume has grown at roughly a 74% CAGR. This network is a core part of our flywheel, broadening access to borrowers while also increasing liquidity for investors across our platform. Turning to Slide 12, expanding the supply side to meet this demand for credit is an important part of our mission to be a marketplace for these products. We are achieving this through Figure Connect, a purpose-built marketplace that enables buying and selling of standardized blockchain-native assets for all counterparties in the transaction. We now have a diverse range of participants on the platform. These are high-grade institutional counterparties such as banks, asset managers and insurers looking for transparent data-rich credit exposure that settles faster and more efficiently than anything available in traditional markets. On this same note, in Q3, we added 7 new buyers to our securitization program, including a prominent sovereign wealth fund who has become a programmatic buyer, benefiting our broader ecosystem. In short, Figure Connect is transforming what used to be a fragmented and opaque process into an always-on data transparent and institutionally funded marketplace, redefining how real-world assets move throughout the capital markets. Before concluding on Slide 13, I want to also note that in the conversations with investors, we frequently hear we have a high "do versus say ratio". This slide summarizes some of the operational proof points we have been highlighting recently. The first is expanding our consumer loan marketplace to first lien, which is up almost 3x year-over-year and is rapidly proliferating through our partner ecosystem. The second is the progress on our blockchain pillars with our blockchain native equity listing and our growth in our stablecoin yields or YLDS. The third is the ubiquity we have been building for our YLDS stablecoin, including recent expansions into the Sui and Solana ecosystems. We are committed to continued delivery on the growth of our marketplace and our vision of bringing the capital markets on chain. So before I hand it over to Mike, I want to take a step back and put this quarter in context. What you've heard today, strong financial results, growing partner adoption and continued product innovation, all reflect the strength of Figure's platform and the durability of our business model. We're executing with discipline, scaling a capital-light marketplace and translating technology investment into measurable financial performance. At the same time, we're still in the early stages of an even larger opportunity, which is transforming the capital markets themselves. The traction we're seeing in Democratized Prime, the expansion of YLDS and the upcoming equity initiatives underscore how blockchain is driving real change here at Figure. I'm incredibly proud of the progress our team has made and confident in the foundation we've built for sustainable long-term growth. With that, I'll turn it over to Mike Cagney to share his perspective on the broader opportunity ahead and the next phase of innovation at Figure. Michael Cagney: Thanks, Michael. I want to start off my remarks today by reminding the investors about the enormous opportunity we're executing into at Figure. This quarter was exceptional. We optimized for the long term in our approach to product technology investment and corresponding shareholder value. We're transforming the capital markets with blockchain, and we see the opportunity to build a $100 billion or more market capitalization company in this field. We built our consumer loan marketplace in a series of very deliberate, methodical steps over the past 7 years. And as Michael pointed out, that's clearly paying dividends for us today. The early progress you're seeing in YLDS and Democratized Prime is just that. It's early progress, but we're confident that over time, we will continue to build out these products and many more we've not even revealed yet. On Slide 15, Democratized Prime, our DeFi lending product is an important part of our future. And in many ways, it's the most scalable platform, the most natural place for both third-party assets and our ecosystem. Many of you heard me talk about the liability flight from banks to stablecoin, which will in turn drive demand for DeFi as alternative funding sources. We believe Democratized Prime is well positioned to benefit from that flight. Democratized Prime competes directly with traditional capital allocators that intermediate between sources and uses of capital, directly connecting borrowers and lenders and reduces significant time and cost benefits. We stood up at a number of loan marketplaces on Democratized Prime, and importantly, the funding cost there is lower than traditional warehouse lines. We see a significant opportunity to use Democratized Prime to offer warehouse into our existing Figure Connect lending partners eliminating the 90-day diligence, minimum fees, excessive legal costs that they have to face with the banks in lieu of a lightning fast, cheaper financing solution. The economic model of Democratized Prime is compelling as it generates incremental pure margins since it operates as a decentralized exchange-like marketplace rather than a balance sheet business. This continues our broader trend of introducing capital-light, higher-margin products that expand the ecosystem's velocity and profitability. Over time, we see Democratized Prime becoming the preferred liquidity venue not only for assets originating within our consumer credit network, but also for blockchain native real-world assets more broadly and a direct extension of the structural efficiencies we built across the Figure platform. And as we add additional blockchain ecosystem connectivity to YLDS, like you're seeing with Sui and Solana, we have a natural platform to access to Democratized Prime for their ecosystems. On Slide 16, earlier this week, we announced a partnership with Solana to deploy our yield-bearing stable coin YLDS on the Solana blockchain, the second major blockchain partnership for YLDS after Sui and that we've announced since the IPO. This collaboration brings together Solana speed, throughput and composability with YLDS regulatory anchor design and attractive transparent returns. The step also supports our broader strategy at Figure, building modern capital markets infrastructure that bridges traditional finance and decentralized systems. YLDS is not just a token, it's a regulated financial infrastructure asset designed to support fiat movement on and off chain and enable a seamless flow of yield and liquidity across our ecosystem and other LLMs. The Solana and Sui deployments extend that capability into one of the most active blockchain developer communities, opening up new rails for innovation, adoption and scale. Finally, I'm pleased to share one major strategic marker that further accelerates how we are reinventing capital markets as we continue to build out the blockchain ecosystem Michael referred to. Yesterday, we announced that we filed a confidential S-1 for the upcoming launch of a blockchain-native equity share class on Provenance blockchain. This offering is a nondilutive secondary transaction and represents the first public equity class to exist entirely on blockchain infrastructure. We'll share more about this offering in a call with the analysts and investor community next Tuesday, November 18 after the market closes, at which time we expect our registration statement will be public. This is a watershed moment for Figure for Provenance blockchain and for capital markets more broadly, and one we believe will define how asset classes are created, financed and traded for decades to come. With that, I'll turn it over to Macrina to walk through our financial results for the quarter. Minchung Kgil: Thanks, Mike. Turning to Slide 18. Let's take a closer look at our financial performance this quarter. As a reminder, at Figure, we focus on 3 key metrics: volume, revenue and EBITDA. Starting with volume, our total ecosystem activity continues to grow rapidly. Notably, our consumer loan marketplace volume reached a record level nearing $2.5 billion this quarter. Importantly, volume on Figure Connect made up nearly half of the total consumer loan marketplace volume as we continue on our path to building out our capital-light marketplace with limited balance sheet exposure. Moving to revenue. Adjusted net revenue reached $156 million in the quarter, an increase of 42% from the third quarter of last year. Adjusted net revenue benefited from the higher level of ecosystem volume I just mentioned, partially offset by lower take rates from partner branded volume as we shift more volume away from Figure branded. I would remind you that Figure-branded volume generates a higher growth take rate in revenue with higher operating expenses. Overall, our partner branded volume, especially volume from Figure Connect brings us higher adjusted EBITDA margin. Turning to our profitability. Figure achieved an adjusted EBITDA of $86 million for the quarter, up 75% year-over-year, representing an adjusted EBITDA margin of 55.4% compared to 44.9% in the prior year period. That's over a 10-point improvement in margin, driven by operational efficiency, automation and the continued shift toward our marketplace. On the expense side, we continue to demonstrate meaningful operating efficiency. Our fixed costs, which include technology and product development as well as G&A functions like finance, legal and capital markets, have remained stable from pre-IPO levels relative to our revenue growth. The investments in technology that we've made over the last 7 years allows us to add new product verticals without significant incremental development costs. Variable costs that move with our volumes have benefited from continued reduction in funding costs in addition to automation and AI applications embedded throughout the business. Variable expenses as a percentage of adjusted net revenue declined from 36% to 28% year-over-year, highlighting the efficiency of our marketplace model and transition away from using our balance sheet. On the next slide, there are trends I want to make sure you are aware of. As we look ahead to the remainder of '25 and early '26, it's important to note the typical seasonality in home equity loan origination volumes that we expect to see in the fourth and first quarters based on historical information from '23 and '24. According to a third-party data source, Q4 and Q1 volumes historically trended below the annual average, lower than the yearly baseline. This pattern is consistent with what we've seen historically as demand for lending tends to moderate heading into the year-end holiday period and through the winter months. We see that consumers typically defer major financial decisions such as home improvements or debt consolidation during the late fall and winter as household budgets shift toward holiday spending and travel. That said, we believe our diversified partner base and capital-light marketplace model position Figure to navigate these dynamics effectively. Before we close, I want to highlight the 3 long-term financial goals that guide our strategy shown on the next slide. First, adjusted EBITDA margin. We are targeting annual margins above 60%, reflecting the scalability of our model as more activity moves to Figure Connect, and as Democratized Prime adoption continues to grow. These initiatives fundamentally reduce the need for balance sheet capital, increase transaction velocity and drive a higher contribution margin with each incremental dollar of volume and balance. Our progress this year with adjusted EBITDA margin reaching nearly 55% this quarter demonstrates that level is achievable in the longer term. Second, capital light. Figure is moving to a marketplace model and as partners increasingly originate, fund and sell loans through our platform, our role becomes that of an infrastructure provider, capturing recurring marketplace economics without tying up capital. The transition to third-party and on chain funding through Figure Connect and Democratized Prime continues to reduce the use of our own balance sheet while maintaining liquidity and flexibility across the ecosystem. And third, operating efficiency. We've maintained a disciplined cost structure with limited increases in fixed expenses even as revenue and volume have scaled substantially. Our technology investments, particularly in AI and process automation have reduced variable costs as a percentage of revenue and allowed us to support more partners, more products and more transaction volume without proportional increases in headcount or spend. We believe we are uniquely positioned as the future of capital markets with an integrated platform that uses blockchain to originate, finance and trade real-world assets at a fraction of traditional cost. As we continue to grow our partner networks and develop our decentralized finance capabilities, we expect to deliver sustained volume growth, stable and attractive take rates and expanding operating margins over time. I'd like to thank everyone for joining us today and for your continued interest in Figure. Nicky, we're now available for questions. Operator: [Operator Instructions] Our first question is coming from Dan Dolev with Mizuho. Dan Dolev: Amazing quarter. I mean you're really crushing it. You obviously crushed all of our expectations. So maybe a question for you, Michael and Mike, what is either of you most excited about in the business right now? Because there seems to be so many moving parts and so many great things. Kind of I think investors want to know what's the most exciting thing for you guys. And great results again. Michael Tannenbaum: Thanks, Dan. I'll start, and then I'll let Mike add what he's most excited about. For me, it's very simple. Our existing and future customers are coming to us rather than us going to them, asking us how they can use our blockchain tech to improve their business, which I think is definitely exciting. I spend a lot of my time on partner acquisition and growth. And when I joined this company, blockchain for most of our partners was very much in the background. I've referred to it kind of similar to cloud technology where it just works. But increasingly, I see that our origination partners want to have conversations about our blockchain ecosystem more directly. They're considering YLDS, our stablecoin and Demo Prime in addition to our tokenized loans, and they see the connection between these things. So that go-to-market and sort of that dynamic is very exciting. Mike, I would be interested to hear from you. Michael Cagney: So I think you know my -- what I'm most excited about. I think the press release yesterday announcing that we're issuing equity native to public blockchain is a huge transformational opportunity. It's an opportunity to build an entirely new capital market ecosystem. And then unfortunately, I can't spend a ton of time talking about that today, but we're going to spend a lot of time talking about that next Tuesday. But I think that's a real leap of us demonstrating that the value proposition that Michael articulated earlier in the call, the transactional efficiency, the liquidity and the capital financing DeFI aspects of blockchain are applicable not just to the credit asset class, which I think we've clearly demonstrated, but to other asset classes as well and equity being the next one on the agenda for us. Operator: Our next question is coming from James Yaro with Goldman Sachs. James Yaro: Also congrats on the IPO as well as on the strong results coming out of the gate here. I'd love to just touch on your product road map. What's the order of prioritization of your products from here? And then maybe if you could comment on the TAM and profitability of those top few products? And what do you see as being meaningful to results among these new products over the next, let's say, 2 to 3 years? Michael Tannenbaum: Thanks, James. That's a good question. I'll start by saying that we have a huge $185 billion plus market opportunity in front of us. We see all consumer credit and asset classes, as Mike just mentioned, beyond consumer credit as addressable. From the core standpoint of our HELOC product, we're executing into $35 trillion of home equity. And there is just a huge amount of runway in that product. Importantly, though, as you heard us mention in the prepared remarks, we've seen a lot of traction as well in the first lien aspect of the business, which is a -- which is the largest consumer credit asset class. And so that is something that we're pushing really hard, and we'll continue to do so in the coming quarters. In terms of the blockchain ecosystem pillars, namely Democratized Prime and YLDS, we're also making significant progress and really excited in the coming months to share some ways that we're going to be bringing more liquidity and ubiquity to those products, particularly some of the liquidity you see in other blockchain ecosystems, bringing that into our Demo Prime marketplace. So Mike, I don't know if you want to elaborate on that a bit. Michael Cagney: No, I think we're going to continue to invest in Demo Prime. It's a core aspect of what we're trying to deliver on in terms of capital market disruption. Then as I mentioned in Dan's comment or question, the application of equity native chain is really an extension of the existing infrastructure that we have. Obviously, it's an extremely novel transaction, but it's one that's tapping into again, the transactional efficiency, liquidity and financing benefits we've demonstrated on the credit side. So we really look at this as just an extension, but an important part of the road map. Michael Tannenbaum: Yes, I'd like to add because it's -- could I just -- we called it Democratized Prime, which I think that name Democratized Prime is a reference to prime brokerage. So it really connects kind of all the pieces of our ecosystem, right? The cross-collateralization you could get across crypto, tokenized loans, tokenized equity. And so that name was very intentional, and you'll be hearing more about that in the future. Next? James Yaro: Super helpful. Maybe if you could just perhaps touch on the Figure Connect outlook. 46% of your volume on our estimates came from Connect this past quarter, which was better than at least we had anticipated. How do you think about the -- what that could comprise and over what time frame? Minchung Kgil: Sure. James, thank you for being on the call. How we think about Connect is we've made progress. We opened up Connect in June of 2024. Within 2025, we are already reaching very close to 50% of Connect volume across our overall consumer loan marketplace volume. We do think that in the mid- to near term, 60% of Connect volume is quite doable, and we're working hard with our partners to get there. . Operator: Our next question is coming from Patrick Moley with Piper Sandler. Patrick Moley: Congrats on the IPO. So you saw really impressive partner growth in the quarter. So I was hoping you could elaborate on that. Can you help us get a better sense for the composition of those new partners in terms of size and the types of loans you'd expect them to be originating. And then how should we think about the time that it's going to take for those new partners to reach what you'd expect to be kind of a realistic run rate from them? Michael Tannenbaum: Yes. The partner growth was really impressive. I think the biggest aspect of partner growth for the quarter was growth in the SMB segment. That's because there -- it's completely greenfield, and we actually saw not only tailwinds because of the government shutdown and the small business administration being closed, but also just broad recognition of the opportunity and what we're doing and the applicability into the SMB use case. That was coupled with a product improvement that we released that allowed us to underwrite small and medium business bank accounts. But more broadly, we are constantly onboarding a range of partners that range in size. And I think one of the nice things that add stability to our business is that we bring on people that can get up and running in as fast as 2 weeks. And then we bring on enterprise parties that are doing more of a years long in some cases, sales cycle and implementation, and we have all of that capability in-house. This quarter, you saw us add a major servicer, one of the largest, if not the largest in the United States. We also added an extremely large independent mortgage bank. And we also added one of the players that has done a partnership with Robinhood and so we do expect to see some volume from there as well. And so we're continuing to add a diversified group of partners and that range in size and now also end market with the SMB additions. Operator: Our next question is coming from Ryan Tomasello with KBW. Ryan Tomasello: Congrats on the strong quarter out of the gate. I wanted to ask about Democratize Prime and YLDS. If you could just discuss the strategies you're leaning into to drive adoption there. I think one of the opportunities, it sounds like you've alluded to in the past is given the ecosystem you have, the possibility of promoting some incentives to existing origination partners as well as the underlying consumer borrowers to jump-start usage of those products. So if you can just elaborate on what the strategy is there? Michael Tannenbaum: Sure. I'll start, and I'll let Mike add as he's very close to Democratized Prime. In terms of the marketplace, where we're focused today is on the funding side. We originate, as you can see from the results this quarter, a very large number of tokenized loans each month. And ultimately, we see Democratized Prime as serving not only those loans but third-party loans as well. So it's a really massive opportunity. It's, frankly, the most scalable in many ways because of our ability to work and support with third-party assets. And so now our focus is on building out the funding side where we want to make sure that there is sufficient liquidity for these assets because when you're building out a marketplace, which is something that Figure has a lot of success in doing, you need to kind of control one side of the marketplace and then add others. And so we have the asset side down, and we're looking to increase funding. Mike, anything you would add there? Michael Cagney: Yes. I think as it relates to YLDS, the announcement with Sui and Solana are important in terms of the direction we're taking with YLDS. YLDS started as a Provenance security and Provenance doesn't have the builder community that both Sui and Solana have. And so bringing a security into those ecosystems where you have a fiat on/off ramp and a yielding stablecoin for purposes of payments, cross-border remit, collateral, we think is a significant opportunity, and we expect to get significant acceleration off of that. We're also making headway with YLDS in terms of collateral on exchanges. I think you'll see some announcements from us as we go into the second half -- or at the end of this year as it relates to that and that's natural. We would expect that YLDS would be a superior collateral type versus USDC because of the yielding nature for it. On Democratized Prime, as Michael said, we have the ability to put billions of dollars of assets on there. What we're looking at now is the funding side, and we're doing this in lockstep fashion. So we can't drop $1 billion of assets and then expect the capital to show up. Conversely, we can't drop $1 billion of capital unless we're ready to put the assets to work. What we're very focused on in terms of the capital side is replicating what Athena and others have done in liquid staking protocols where we have an underlying yielding asset. In this case, a home equity line of credit or lending against such asset as the yield-generating feature for that as opposed to something Athena does, which is the drop between the spot and forward market and the yield that's there, which is extremely volatile as the market is seeing today. And so we expect that we have an enormous opportunity to drive asset generation through that yielding liquid staking protocol construct. And we believe that's going to add a significant amount of dollars in Democratized Prime. Ryan Tomasello: Great. Appreciate all that color. And then in terms of the value proposition of tokenization, you've clearly demonstrated that within the consumer credit asset class thus far. But if you're able to give us just your general thoughts on what you see that value proposition being for tokenized equities given the stronger liquidity and transparency in that asset class at least relative to consumer credit. So what are the additional benefits you see being unlocked from tokenization there? Michael Tannenbaum: Well, without getting too much into the structure because most of that's going to be covered on next Tuesday's call, and I do encourage everyone to join because I think it's very innovative, and we'll give a lot more detail. But I think one of the focuses and you've heard both Mike and I talk about this is a lot of the existing market today is focused on kind of tokenizing but not necessarily adjusting the full blockchain infrastructure behind that tokenization and what we're about to unveil will be a little bit more fundamental. So that's, I think, hopefully enough to make you interested in joining next Tuesday. Michael Cagney: I can add to that a little bit in a more general construct. I think that a lot of our peers are discussing tokenization of equities and what they're doing is promoting the idea of taking a DTCC security and doing a blockchain representation of that. And the value prop they allude to is 24/7 trading. And I don't think 24/7 trading is that appealing to the broader market. And I don't think the market makers want to make market 24/7. And so I think it's a little bit of a red herring in terms of why there's value here. If you go back to the 3 value props of blockchain that Michael talked through earlier, there's transactional efficiency, and there's some transactional benefit you get with a blockchain native equity. The transfer agent costs, for example, is lower, but it's not enough to move the needle. There's a liquidity benefit at the margin in that you do have 24 hours -- 24/7 trading. But again, I think we were looking to lift FTX out of bankruptcy. They had a U.S. equity [ perp ] business that traded 24/7. And that's all that mattered, that business would have been flying and it was and it was going sideways. I think the real value in putting equity on blockchain is the DeFI construct, the ability to cross collateralize your stock with other assets like Bitcoin, like Figure loans, for example, and build unique borrowing pools through processes like Democratized Prime, where you access leverage in a way that traditional prime brokerage can't service. And even more importantly, the ability to lend that stock out. So rather than the opaque locate market we have today, where the prime broker earns the benefit when the security goes on special and pays an extraordinary yield, you have a straight-up limit order book, a limit order book where you put the stock out for loan and you decide what you want to get paid for it. And that's enough that should drive anyone on the buy side to want to own the blockchain version of that security. There's considerations about liquidity and how do you keep the price in lockstep. Again, Michael alluded, we'll talk to that in depth next Tuesday, in particular, how we're doing this for our issuance. But I think this is the future of how capital markets, equity capital markets are going to work. And just as we did with lending, where we pioneered it with our own product, we think we'll do the same thing here on equity. Operator: We will move next with Rob Wildhack with Autonomous Research. Robert Wildhack: Just a quick one to start. I appreciate the comments on seasonality. Do you think we should expect the quarter-over-quarter cadence in 2025 to reflect what happened in 2024? Or are there any differences that we should be aware of this year? And then same question heading into 2026. Minchung Kgil: Rob, this is Macrina. So as you saw our Q3 was outsized growth compared to last year, and we have been trending really well with our IPO and all of the efforts with partners. I do expect some level of seasonality in Q4 and also into Q1, but I do want to balance out that we have been having great success with our partners. We're seeing a lot of interest. So for us, it's more of a balanced approach. Robert Wildhack: Okay. And then bigger picture, you guys have really emphasized the lower cost to originate and faster time to close as big advantages. I think this quarter, we've seen or heard several other fintechs either growing in or expanding their own HELOC businesses, some even with automated appraisals, income verification, things like that. So I was hoping you could talk a bit more about the sources of your advantage like how much of the better Figure process comes from the blockchain-based infrastructure versus maybe more traditional tech improvements? Because I think the extent to which it's the former could matter a lot for your defensibility there. Michael Tannenbaum: The thing to remember about what we do is we've built an alternative capital market that has deep liquidity ratings, tokenization and it brings -- we use blockchain as a tool to bring the transparency and to bring the immutability of the data. And for example, as we mentioned, highlighted this quarter with Tricolor, the lean perfection. And so having that data and the ability to track the true provenance of the loan is critical to building out that capital market. And so we're doing something very different than everybody else in the space. And HELOC is just kind of a primitive to that marketplace. And the reason is because we've built an alternative capital market on blockchain rails. And to be very specific, when we make a change to our technology, it's integrated into the capital market. So what we do is if we decide to push an automation like we did with small business bank account, it's our capital market and technology that are working together, and it's that point of integration between those 2 that unlocks the really high margins that you see this quarter, the capital-light marketplace and the growth that you're seeing. Operator: Our next question comes from Dan Fannon with Jefferies. Daniel Fannon: I wanted to discuss the outlook for the non-HELOC loan growth. I think it was roughly $80 million in the quarter. Can you talk about how you see that progressing as the products expand? And which of the products you mentioned in the release were really -- was there an outsized driver of those loans? Michael Tannenbaum: We're seeing significant growth in first lien, as we mentioned, 3x year-over-year. And that is the primary focus for figure of the new products that you've heard us mention because of the, frankly, market size and opportunity for our partners -- existing partners to grow. That said, the SMB and crypto backed loans are also extremely important to the growth story, HELOC loans has been grown as well around the 3x year-over-year number. And what we're seeing is just the beginning of that marketplace as we expect to pursue the same B2B2C approach that we did in the mortgage market. And so today, that's mainly direct to consumer. And then in SMB, as we add more and more partners and build that go-to-market engine, we do expect to see significant growth there as well. Daniel Fannon: Great. And as a follow-up, you mentioned the government shutdown as being a catalyst for some SMBs joining. Can you talk about just the outlook for new origination partners given the strength we saw in the adds in the third quarter and maybe how you're seeing those conversations in the outlook in terms of potential additions over the next several quarters. Michael Tannenbaum: Yes. So the opportunity is definitely much broader than that specific shutdown. But the parallel is interesting because in mortgage, you have Fannie Mae; in small and medium business, you have the SBA, and we are an alternative blockchain-based capital market to both. And so we think this is a huge opportunity to bring that transparency. Again, back to the earlier question, what makes us different, right? It's the combined technology with the blockchain transparent capital market. And that is a solution that is relevant not only for mortgage, not only for SMB, but for tons of asset classes. But SMB is where we are being pulled. And I think that the current market environment there is just adding further tailwinds. Operator: [Operator Instructions] We will move next with Craig Siegenthaler with Bank of America. Craig Siegenthaler: So a follow-up on Dan's first question. On the first lien growth, is that a first lien HELOC? Or is that a first lien primary? And then I wanted to get an update on your appetite to expand outside of HELOC because I saw you referenced debt service covenant ratio loans in your prepared remarks. I think that's a pretty small TAM, but I'm wondering what about resident transition loans, auto loans and also primary first liens, non HELOCs. Could we see Figure move into some of these other potentially larger TAM segments in the future? Michael Tannenbaum: Yes. So I'll start on the first lien question. And it is a first lien HELOC. We distinguish that because the use case is very different. Oftentimes, when people think about a HELOC, they think about a mortgage on top of an existing first whereas the first lien HELOC that we originate via our partners is used to pay off an existing loan, often because the rate is higher than the prevailing rate. And it's also -- so it's a true replacement for a cash out refinance or a rate and term refinance to use traditional mortgage parlance. There's also 40% of homeowners that own their home free and clear, and so don't have an existing lien. So that's the first lien opportunity. And where we really see growth in there, just to be even more specific, is among especially small balance first lien because the cost to originate for Figure is $1,000, whereas industry average is $1,200. And so if you look at a, say, $200,000 mortgage that's a really material savings, and that's why we are seeing partner adoption. In fact, we are seeing some partners adopt first lien that don't use our HELOC products. So it's really massive growth. I do want to correct the record on the TAM of DSCR. That actually is one of the largest, if not the largest components of non-QM. I believe there's over $20 billion annual securitization of DSCR. But I will just use this opportunity to remind everyone that the capital market that we're building, and I think the SMB use case represents this the best is one that transcends any one specific asset class. We really see this as the beginning. Our ambitions are much broader than just mortgage or HELOC. And so you'll see more next week in the coming quarters, but we're definitely really excited about the business that we're building and its broad reach into the U.S. capital markets. Craig Siegenthaler: For a follow-up again on HELOC. I wanted to hear a little more details on your value proposition for large banks especially large banks that originate and hold HELOCs on their balance sheet, they might not receive the full value of the Figure Connect value proposition. And also with large banks, is it a headwind that you're really only offering capabilities in one lending segment because they might want solutions across all the consumer loan classes that they play in. Michael Tannenbaum: So this actually gets to kind of what I was saying I'm most excited about, and I think it would be good for Mike to expand here as well because there's this broad thesis that we have at Figure which is that you're going to have liabilities moving into stablecoin, which are tokenized liabilities, and therefore, assets themselves will need to be funded with those. And so if you think about the broad capital market as one where assets have been moving out of the banking system for the last 20 to 30 years, that will continue and accelerate with stable coin. And so for a large bank, actually, what's happening is they're going to want to tokenize their assets to access those viabilities that are tokenized and Democratized Prime is actually a perfect way to do so. And so this is part of our broader macro thesis and it's being borne out in the conversations we're having, Mike is having, the sales team is having. I don't know if you'd add anything there, Mike. Michael Cagney: Yes. I mean I think that we got an interesting perspective in late '22, early '23, when we had some liability flight out of the banking system and the regionals and the super regionals were especially impacted by that. They were all selling assets at fire sale prices that had a cascading series of events that ultimately led to bank failure and the need for the FDIC and the treasury to step in with some extraordinary measures to stabilize the market. And the treasury is today talking about $2 trillion going to a stablecoin or $6 trillion going into stablecoin. And they're not talking about where that's coming from, which is clearly demand deposits. And we're in a discussion with a lot of banks, a lot of regional and super regionals about this across 2 factors. One is to Michael's point, the ability to originate blockchain-native assets and access that DeFI ecosystem, which paradoxically is just the reallocation of that capital pulled out of the demand deposit put into stablecoin and then reapplied in DeFi to generate yield. And we think there's an enormous opportunity and low balance first lien is a great use case for us to bring to those banks because they don't do that loan today. So it's a greenfield opportunity for them and an ability for them to get a front row seat as to how blockchain works. The second thing that we're doing where we're getting traction is around the ability to use yields defensively, where when JPMorgan comes with JP coin and tries to approach those deposits, the bank can offer up a yielding alternative where with YLDS we, just like any Genius Act coin we can hold treasuries and bank deposits, we have the ability to hold bank deposits back to that bank. So if a regional bank customer buys YLDS, and it comes through that regional bank, we can hold that deposit back at the bank balance sheet, therefore, not keeping the liability within the bank itself. And we think both of those are significant opportunities for us, especially as we're getting the Genius Act coming online, you're starting to see more noise out of Chase. I think Chase is going to make very aggressive moves here at the expense of regional and super regionals. And I think we're well positioned to bring both some defensive and certainly in certain circumstances, offensive capabilities into those banks, with the combination of on-chain asset origination and access to DeFi through Democratized Prime but also YLDS as a defensive measure for -- or an alternative to a nonyielding stablecoin. Operator: And this concludes today's Figure Technology Solutions Third Quarter 2025 Earnings Conference Call. Please disconnect your lines at this time, and have a wonderful day.