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Operator: Good day, and thank you for standing by. Welcome to the BellRing Brands Fourth Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Meyer. Please go ahead. Jennifer Meyer: Good morning, and thank you for joining us today for BellRing Brands Fourth Quarter Fiscal 2025 Earnings Call. With me today are Darcy Davenport, our President and CEO; and Paul Rode, our CFO. Darcy and Paul will begin with prepared remarks, and afterwards, we'll have a brief question-and-answer session. The press release and supplemental slide presentation that support these remarks are posted on our website in both the Investor Relations and the SEC Filings sections at bellring.com. In addition, the release and slides are available on the SEC's website. Before we continue, I would like to remind you that this call will contain forward-looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements. These forward-looking statements are current as of the date of this call, and management undertakes no obligation to update these statements. As a reminder, this call is being recorded, and an audio replay will be available on our website. And finally, this call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. With that, I will turn the call over to Darcy. Darcy Davenport: Thanks, Jennifer, and thank you all for joining this morning. Fiscal year '25 was a strong year for BellRing Brands. Net sales grew 16% and adjusted EBITDA margin reached 20.8%. We launched our first media campaign since '21, delivering compelling returns, expanded distribution while elevating retailer partnerships and accelerated our multiyear innovation strategy. We also advanced our savings program, enhancing flexibility to reinvest in future growth. Our strong track record of cash generation continued this year, and we meaningfully stepped up our share repurchases, buying approximately 7% of our shares outstanding. We expect another successful year in fiscal '26 with a softer Q1 followed by a stronger balance of the year. Paul and I will provide additional detail on our guidance and quarterly cadence. Turning to the fourth quarter. The ready-to-drink shake category grew 15%, while Premier shake consumption grew 20%, driven by incremental promotion events. Premier continues to have category-leading metrics, including the #1 household penetration and the category's highest repeat rate. Notably, both household penetration and buy rate increased during the quarter, reinforcing the brand's unmatched strength and consumer loyalty. Now turning to the category. RTD shakes are one of the fastest-growing CPG categories, fueled by consumer health and wellness trends, functional beverage preferences and GLP-1 usage. Household penetration of 54% highlights a long runway for growth as it trails mature CPG categories, which are often at 80% to 90%. Retailers are leaning into this opportunity, increasing category space, testing higher traffic aisle locations and expanding display space to capture growing consumer demand. The success of this category, which has doubled in retail sales since 2019 to $8.7 billion has naturally attracted competition. Currently, the 2 leaders, including Premier Protein, have approximately 50% market share. The other participants include newer insurgent and crossover brands and some declining legacy brands. Of note, legacy brands, which collectively represent approximately 30% of the category, have been meaningful share donors for several years now. Over time, we expect retailers to consolidate the shelf behind a handful of the best-performing brands and move them to more heavily trafficked aisles. We believe that mainstream appeal, high repeat rates and execution capabilities will determine the long-term winners. Premier Protein is well positioned to benefit from these developments and continue to lead the category. Over the next few years, we expect RTD shake category dollar growth to be high-single to low-double-digit, with volume the primary driver. In late '25, a major club retailer significantly expanded their RTD assortment. While we do not know for certainty, we assumed the expanded assortment continues through fiscal '26. We expect pricing benefits to subside and promotional spending to slightly increase as new brands work to establish themselves in the market. These near-term dynamics lead us to expect category growth in the high single digits for '26. In the medium-to-long-term, we expect more marketing spending, expanded shelf space, innovation and the mainstreaming and affordability of GLP-1s to drive higher household penetration and category growth. We are confident in our continued strength of the category. Premier's deep category knowledge, strong brand equity, scalable manufacturing network and robust retailer relationships give us confidence that we will continue to be the category leader and capture meaningful share of long-term growth. I'll now turn to our long-term targets. BellRing began its journey as a public company 6 years ago with $850 million in revenue. Our total revenue base is now $2.3 billion, and our Premier Protein shake revenue has tripled. Since IPO, we have delivered a net sales CAGR of 18%, significantly ahead of our long-term revenue growth projection of 10% to 12% shared at the time of our listing. There are multiple ways to achieve strong growth in our business. However, it becomes more difficult to grow at double-digit rates of a larger revenue base. And in the near term, we are expecting a more competitive environment. As a result, we are updating our long-term revenue growth algorithm from low double digits to high single digits, specifically 7% to 9%, with Premier Protein driving our growth. This assumes that Premier Protein, the #1 market share brand will continue to grow relatively in line with the RTD category, while Dymatize slightly weighs down our growth rate. We are maintaining our adjusted EBITDA margin algorithm of 18% to 20%, which embeds higher levels of brand investment enabled by our cost savings agenda. These investments are designed to reinforce our brand strength and position us for sustained profitable growth over the long term. Our updated revenue growth algorithm is healthy. And together with attractive margins and our asset-light model, we expect to continue to generate strong cash flow and create significant value for our shareholders. Turning to our outlook for '26. Our '26 net sales guidance is a range of 4% to 8% growth with adjusted EBITDA margins of 18%. At the midpoint, sales for the year are expected to be modestly below our long-term algorithm because of the softer first quarter driven by specific items and near-term competitive dynamics. We expect performance to strengthen with the remainder of the year at the top end of our algorithm. Adjusted EBITDA margin is expected to be at the lower end of our range, primarily due to significant commodity inflation and tariffs, along with the lagged revenue impact of increased brand investments. For Q1, we expect flat consumption for premier RTD shakes with October and November lapping the toughest club channel comparisons, including a nonrecurring promotion. For context, we are lapping 23% consumption growth in the first quarter of '25, which included very strong club consumption with the smallest number of new brand entrants in an incremental promotion. Q1 net sales largely follows consumption with some additional timing-related headwinds impacting sales, resulting in a roughly 5% decrease in net sales. Paul will provide more detail later. We expect consumption along with net sales to accelerate starting in mid-December. As we move through the year, our FDM merchandising initiatives, advertising and innovation become more meaningful contributors to our growth and club comparisons ease as we lap expanded assortment. Now I'll provide additional details on our operating plans for '26. Our priorities for this year include: one, continuing to grow our distribution both in and out of aisle; two, increase advertising investment while elevating its impact; and three, launch innovation that provides consumer excitement, adds occasions and drives trial. Distribution, both in and out of the aisle is a major opportunity. Starting with club, we intend to bolster our position in club channel with new products, increased sampling and additional promotional spending. We expect our performance in club to improve as we move through the year. Our Premier shake TDP increases driven primarily in mass, food, drug and e-commerce channels grew by more than 20% in '25, and we have strong plans to expand at similar rates in '26. As I mentioned last quarter, we have partnered with a new broker to significantly expand store level coverage and launched an internal retail sales team focused on securing in-store displays, especially singles and entry price point multipacks. In late Q1, we will launch a partnership with a major mass retailer that includes placements across pharmacy and grocery aisles plus extensive displays and end caps. This program will also include the first launch of new shake innovation targeting incremental occasions, which I'll discuss later in my remarks. Our second priority is advertising. We saw a strong return on investment in fiscal '25 and decided to further invest and elevate our creative in '26. Premier has the highest unaided brand awareness in the category, though there remains significant opportunity for expansion. We have strengthened our agency roster and we'll be launching a new creative campaign designed to drive household penetration, strengthen emotional connections and bring fresh energy and relevance to the brand. The campaign kicks off in late December and includes national TV and strong digital components. Turning to innovation. In fiscal '25, we conducted a comprehensive demand study and incorporated the results into our multiyear innovation strategy. The study validated our product focus for '26 and identified several white space opportunities, some of which that we have accelerated launching in late '26 and early '27. Specifically, in '26, we are intensifying our focus on innovation across flavors, consumer segments and occasions. In June of '25, we launched almond milkshakes, our first non-dairy protein offering, with the strategy of bringing new consumers into our brand. Although early, it is already the #2 turning 4 count in the non-dairy RTD set. We are seeing strong incrementality with nearly half of the buyers new to the brand. Almond milkshakes are expanding distribution throughout '26 and supported by advertising. About a year ago, we launched our indulgent line with the goal of driving incremental occasions, it worked. In '26, we will build on that success as well as the success of our Café Latte core shake flavor with our new Coffeehouse or proffee shake line. Each shake provides 30 grams of protein and the caffeine equivalent of 1 cup of coffee, meeting the protein and energy consumer need, which is incremental to our core baseline. It will be offered in Carmel Macchiato and Mocha targeting a sweeter taste palate. Coffeehouse launches in mid-December in both mass and e-commerce channels. The launch will be fully supported with paid media influencer partnerships and in-store signage and sampling. And lastly, Premier is known for its flavor innovation, and we will continue to bring flavor excitement to category throughout the year. In closing, Premier has a history of strong growth and is the #1 brand in one of the fastest-growing categories in retail. The power of the brand is evident in our record high household penetration and repeat rates. Our first-mover advantage lies in being a scaled pure-play company with attractive margins and a deep category expertise. Retailers see the category's potential, and they are partnering with Premier as they develop their growth plans. Q1 has some unique dynamics that are causing near-term challenges, but growth in the balance of the year is strong. The brand and business fundamentals are robust, and I have confidence in delivering the year. We are investing in our brands, sharpening our execution and innovation plans and driving our sales -- our savings agenda to enable our next phase of growth. I remain confident in our future and our ability to create sustained long-term value for shareholders. Thank you for your interest in the company. I will now turn the call over to Paul. Paul Rode: Thanks, Darcy, good morning, everyone. Fiscal '25 was a year of strong performance for BellRing with net sales growth of 16%, adjusted EBITDA of $482 million and an adjusted EBITDA margin of 20.8%. Our business generated $261 million in cash flow from operations, and we ended the year at net leverage ratio of 2.1x. Our strong balance sheet enabled us to repurchase 9 million shares or $473 million in total or approximately 7% of shares outstanding. We've continued to repurchase shares in October with $40 million repurchased to date in the first quarter. In the fourth quarter, net sales were ahead of our expectations at $648 million, up 17% over the prior year. We delivered adjusted EBITDA of $117 million at a margin of 18.1%. Premier Protein net sales grew 15% and were in line with our expectations with strong volume growth for our RTD shakes and putters. RTD shake sales grew 14%, driven by volume growth from incremental promotional events and distribution gains offset partially by unfavorable price mix. As expected, Premier shake dollar consumption was up 20% and outpaced revenue growth. This difference was driven by expected changes in trade inventory, primarily the previously noted e-commerce fee load as well as the pricing impact from our incremental promotional events, which had an outsized impact to our net sales compared to consumption at retail prices. Dymatize net sales growth of 33% was well ahead of our expectations, driven by strong volumes. International benefited from strong consumption and a volume pull forward ahead of our late Q1 price increase with the latter and expected headwind to Q1 growth. Adjusted gross profit, which excludes mark-to-market adjustments on commodity hedges, was $192 million and declined 4% from prior year. Adjusted gross profit margin of 29.7% decreased 620 basis points. The decline was driven by mid-single-digit input cost inflation, increased promotional activity and onetime packaging redesign cost. Protein costs stepped up in the quarter across both powders and shakes, and we expect these headwinds, most notably on powders to continue into fiscal '26. SG&A expenses were $81 million and delivered significant leverage at 12.5% of sales versus 16% of sales in the prior year quarter. The reduction in expenses was driven by lower marketing and advertising expenses as expected as we lapped a period of heavier media and [indiscernible] testing. I'd now like to discuss our long-term targets and capital allocation priorities, followed by our 2026 financial guidance. As Darcy discussed in her remarks, we now target long-term annual net sales growth of 7% to 9%. We expect our business to maintain strong profitability and are reiterating our long-term adjusted EBITDA margin algorithm of 18% to 20%. In 2023 through 2025, we exceeded our adjusted EBITDA margin algorithm. That performance reflected strong sales growth with favorable pricing and a more constructive commodity cost environment prior to the second half of fiscal 2021. Advertising spend as a percentage of net sales was also relatively low at approximately 3% given past supply constraints. Looking ahead, our adjusted EBITDA margin algorithm reflects a healthier level of Premier brand support with total company advertising investment increasing to 4% to 5% of net sales and promotional spending at competitive levels. Our adjusted EBITDA margin algorithm also now incorporates the impact of tariffs. As previously communicated, tariffs will begin to impact our P&L starting in fiscal '26. While we have mitigated much of our tariff exposure, we do expect an ongoing annualized impact to our margins of approximately 120 basis points. We continue to evaluate ways to further mitigate these impacts. To bolster our margin target, we have accelerated cost savings initiatives across our organization. The primary areas of savings involve more efficiently utilizing our co-manufacturing, warehousing and transportation networks as well as procurement savings from ingredients and packaging. Longer term, our cost savings efforts, normalization of record highway protein costs in 2026 and modest SG&A leverage are expected to be supportive of improvement in our EBITDA margins. Our disciplined capital allocation priorities remain unchanged. We will first invest in growth initiatives, including innovation, marketing and systems and process capabilities. Second, we expect to remain asset light with low capital expenditures. After investing in our business, we expect to be aggressive and opportunistically repurchasing our shares with M&A being a longer-term priority. Turning to our fiscal '26 outlook. We expect net sales of $2.41 billion to $2.49 billion. This represents 4% to 8% growth. Adjusted EBITDA is expected to be $425 million to $455 million with a margin of 18%. From a brand perspective, we expect high single-digit sales growth from Premier Protein at the midpoint. Premier's volume growth is expected to be driven by continued category tailwinds, distribution gains, including innovation and brand investments. Volume performance is expected to be partially offset by low single-digit headwind from promotional investments as Darcy mentioned in her remarks. We expect high single-digit sales declines for the rest of the portfolio. For Dymatize, we're executing a price increase beginning in late Q1 to offset meaningful Whey protein inflation and have prudently modeled in elasticities. Additionally, we are reducing brand investment as we navigate high protein costs and the brand has a difficult sales comparison in Q4. Specific to Q1, total net sales are expected to be down approximately 5% of both Premier and Dymatize declining largely in line with our overall decrease. Consumption growth for Premier Protein shakes is expected to be flat. In Club, Q1 is our toughest comparison of the year where we lapped a period with fewer new entrants and chose not to repeat promotions for Premier and Dymatize. Additionally, Dymatize had a strong fourth quarter and benefited from a sales pull forward from Q1 of approximately $8 million, mostly related to shipments ahead of our late Q1 price increase. Together, the non-repeating promotions and sales pull forward are a 4-percentage-point headwind to our first quarter growth. As we move into Q2, we expect an acceleration in both consumption and net sales with the balance of the year sales to grow at the high end of the algorithm at the midpoint of our guidance. This is driven by Premier, which we expect to outpace overall company growth for the balance of the year, as a robust merchandising programs in the FDM channel phase-in for Q2 and beyond and Club comparables ease. Moving to fiscal 2026 adjusted EBITDA. We expect adjusted EBITDA margins to decline 280 basis points at the midpoint with lower adjusted gross margins, the primary driver. Adjusted gross margins are expected to be pressured by significant input cost inflation, particularly whey protein, the primary input costs for our powders, the introduction of tariff cost and promotional investment with margin pressure primarily in the first half of the year. Tariffs are expected to have an unfavorable impact of 80 basis points on our gross margins, net of mitigation and the impact of timing. The remaining EBITDA margin impact is primarily due to increased advertising, which is partially offset by SG&A leverage. Advertising as a percentage of sales is expected to be approximately 4%, with the largest year-over-year dollar increases in Q2 and Q3. We expect Q1 adjusted EBITDA dollars to be below prior year levels with a margin of approximately 16% to midpoint, primarily driven by lower sales and gross margins. In Q2, adjusted EBITDA dollars are expected to improve sequentially, with margin rate approximately 100 basis points lower sequentially due to a combination of higher sales, inclusive of Dymatize pricing, continued high commodity inflation and the timing of advertising support. We anticipate adjusted EBITDA growth in the second half due to higher sales growth, easing commodity inflation and higher cost savings. In closing, fiscal '25 was a strong year, highlighted by robust top line growth and strong profitability. We feel confident in our plans and ability to deliver our 2026 guidance and long-term outlook. Premier is the #1 shake brand with durable competitive advantages in an attractive category, and we expect the investments we are making this year to bolster our long-term position. Finally, our cash-generative business and strong balance sheet enable us to fund our growth plans while also opportunistically repurchasing shares. I will now turn it over to the operator for questions. Operator: [Operator Instructions] Our first question comes from Steve Powers of Deutsche Bank. Stephen Robert Powers: Darcy, I think it's fair to say that a lot has changed over the last 6 months in your categories and around your business. Maybe just -- could you start off by summarizing what you've observed and how that's influenced your '26 plans as well as your updated long-term views. And why you believe the outlook you've landed on is the right one, both in the year ahead and longer term? Darcy Davenport: Sure. I would actually start with what has not changed. I think what has not changed is the momentum in the category. There is -- I mean, the household penetrate -- it's still a low household penetration category, call it 50% with a ton of upside. There -- I mean, you could actually argue there's more momentum in the category. And what has also not changed is Premier's position in the category. So we are the #1 brand, #1 household penetration, #1 repeat, strong national supply chain, et cetera. So I think those are kind of the mainstays. I would -- so I think what has changed is it's more competitive, which I think is expected. I mean the way I view the category in total is that there are -- they're kind of -- and I walked through some of this in my prepared remarks, but they are the leading brands, which include Premier, which represents about 50% of the category. There are these insurgent and crossover brands, which represent about 10% of the category. And then there are declining legacy brands, which represent about 30% of the category, who have been kind of meaningful shared donors through the year. As I look forward, what we expect to see is the leading brands keep leading and winning. The insurgent brands are -- there's going to be some mix. There's going to be kind of a shake-up, where some will make it and some will not. And then the declining brands will continue to decline. So as I look at our guidance and our plan for '26, I feel really good. We have a tough Q1. There's some unique dynamics going on with Q1 with -- in the club side of the business. We're lapping a period with fewer new entrants and one major club customer. And we're lapping some non-repeating promos in the other. So it's a tough quarter, but that does not represent the business. The last 3 quarters are much like every other quarter that we've had, which has strong, strong growth. And the reasons to believe there is the category is healthy. We have strong plans. The rest of the business is growing very rapidly. We've got a couple of really exciting partnerships, like we have a partnership with this mass retailer that I talked about, which really is, I think, a sign of what we're going to see in other grocery accounts and then advertising hitting as well as innovation. So I think there is the reason to believe as well as my view on the category. Operator: Our next question comes from Andrew Lazar with Barclays. Andrew Lazar: Darcy, I remember last quarter, you did not yet have as much clarity as you wanted around the repeat rate for some of the new entrants or the insurgence that have come into the category, particularly at your largest customer. I'm assuming you at least have some additional clarity now on some of this. And I guess, more importantly, what that means for sort of the -- your expected shelf set, right? For the year ahead at your largest club customer. I was hoping you could maybe update us a bit on that dynamic. I think that was one of the main reasons why last quarter, you weren't yet in a position to sort of provide '26 guidance as I think many had kind of hoped at the time. Darcy Davenport: Yes, sure. So yes. As I said in my remarks, that one of the changes is that we do expect that our major club customer will keep that expanded set. So that is a change versus what we had assumed before. So we think that the competitive set will be bigger and remain the same. I think that we wanted to watch repeat rates. I would say we're continuing to monitor. I think what is clear is that not all of these kind of insurgent brands are going to make it. There is definitely going to be a shakeout. These thresholds that you have to hit at these club customers are high. And so I think that we will continue to see sort of a rotation of different kind of smaller brands, bringing news, but also kind of just coming in and out. I would say what we have learned, we are -- our fifth pallet in that customer will -- as we expected, will be -- will transition out. The rest of our business is super strong. I think that what I've learned, and what we have learned is that I think that -- the category is strong, it's expandable. I think that they're -- from an insurgent brand standpoint, there will be winners and losers, and it's really hard to hit those thresholds. I think that we are really well positioned versus consumption. When we look at the interaction between us and many of the competitors, we have a clear position and our repeat rates are only getting stronger. So -- and we're also source -- we are sourcing some volume from those competitors. So I think I feel really good about our business in the long term despite there's kind of a little bit of messiness in this quarter. Operator: Our next question comes from Megan Clapp with Morgan Stanley. Megan Christine Alexander: I just wanted to ask about the club channel, again, maybe following up a bit on Andrew's question. There's been a lot of unique dynamics, not just here in the first quarter, but all year in the club channel. And clearly, it's an important channel for the category a bit more mature for you. But when we think about the acceleration that you talked about that you're going to see in mid-December and the kind of down 5% to up 9% or so embedded in the guide. How much is driven by the Club channel in particular? And can you just tell us what that means for what you're expecting for growth in the club channel this year? And how the various headwinds and tailwinds kind of shake out in your mind as you think about that channel. Darcy Davenport: Yes. So what we expect is that -- the growth is -- the major growth is largely coming from outside of the club channel. I mean we've been seeing stronger growth for many, many quarters from our FDM, the food, drug, mass and e-commerce channels. So that is where we see -- that's where we have kind of the most potential, and where we see kind of the most opportunity for the category as well as us. So what our guidance assumes is that the club comparisons get better throughout the quarters. But the growth is largely coming from the rest of the channels. So I think that -- and in our -- in my remarks, I talked about kind of the reason to believe just around distribution, merchandising, advertising and innovation. Operator: Our next question comes from David Palmer with Evercore ISI. David Palmer: Thanks for the commentary on your general areas of investment. A lot of us are going to be looking at the all-channel scanner data, the consumption data. I wonder how you're thinking about what we will see in that consumption trend through the rest of the fourth quarter. And I presume which will be a ramp into 2Q? How you're thinking what we would see based on what your plans are -- and to the degree that you can, can you tell us how you're factoring in increased competition that you see and perhaps some room for surprises and your innovation contribution to growth. Darcy Davenport: From a consumption standpoint, we are expecting, in November, we'll continue to see Tough Club comps and remember, we have that non -- that Club promotion that we are not recurring. So expect kind of slightly negative kind of low-single digits, continuing through November. What we start seeing when you'll start seeing an acceleration in sort of the back half of December as New Year. So we have the mass partnership, so kind of expect low double digits in all of December, but it will ramp up towards the end. And then that momentum will continue through kind of Jan, Feb, March and on. So there really is some unique things going on right now within the club channel, then ease out. Obviously, the nonrecurring-club promo is very specific in October and November. But after that, I think that what happens is that it continues to accelerate as we layer on these demand drivers. David, what was the other question? David Palmer: Well, how you're thinking about increased competition being headwind, perhaps including some room for surprises there, but also contribution to growth, and how you're thinking about just the innovation giving you some help on some of the consumption numbers you're thinking about? Darcy Davenport: Yes. I would say that our guidance is very, I would say, it's prudent. It's conservative. It puts in assumptions around continued competition. And so I think it's one of the reasons why I feel really good about -- I feel really good about delivering the year quarter by quarter. Operator: Next question comes from Brian Holland with D.A. Davidson. Brian Holland: I wanted to maybe follow up on the conversation around compares over the balance of the year. I mean if I look at Premier Protein's consumption, a little bit softer in Q2 and Q3 prior year in club. Overall, consumption pretty strong throughout the year. So I know you did a longer promo event at your largest club customer this past August, September. So just a little more -- just a little better understanding about why, or how you view the compare as being easier over the balance of the year? And what level of visibility do you actually have into competitor shelf placement as we go through the year? Darcy Davenport: So I'll start, and then, Paul, if you want to add on anything? Yes, so our club comparisons do get easier. So if you remember, in our largest club customer, the expanded that started easing in Q3 and then expanded more in Q4. So we are lapping, so especially in Q1 and into Q2, we are lapping a period with kind of less competition. So the comps are more difficult in the front end. I think what -- as we move forward, I would say we have -- the visibility on competitive entrant is -- I mean, I would say, pretty good for the first half. And then we have -- I mean, we don't even know about our reset for the back half. Here's what I would say is -- as the #1 brand within the category, our retail partners are choosing us to figure out what they're going to do in this -- in their category. So there's some exciting things going on. And I'm going to -- I referred to this in my remarks, but in several retailers, a club retailer as well as some major food retailers. They're testing higher traffic dials to move the category. And they're not just -- they're not moving the entire category. What they're deciding to do is they're selecting the best performing brands the ones that have the most mainstream appeal, and they're moving those into these new higher traffic sets. Obviously, that includes Premier Protein. But some of the legacy brands will stay back in kind of the pharmacy. So that dynamic is not something they're testing it right now. So we're not seeing that necessarily make its way into consumption, but it will in the medium to long term, probably -- actually not even long term, medium term. So some of those dynamics are really exciting. And I think show you where the category is going, and whereas the #1 brand where we will be going. Paul Rode: So obviously, we had very strong distribution gains in fiscal '25. And so we'll obviously get the full year benefit of that in fiscal '26, including some pretty significant distribution gains in our fourth quarter, in particular at a mass retailer that reset shelf. And so obviously, we'll get a full year benefit of that reset as well, including -- in our first quarter, we have some innovation that's also shipping out. So as you kind of get into Q2 and beyond, some of that innovation will start shipping. Q2 obviously is a very big pulse period for us of advertising. So we're stepping up our advertising, stepping up our merchandising, stepping up our promotional events, especially in FDM. And so those are the reasons we think that sales and consumption will accelerate as we move into Q2 and beyond with additional innovation hitting later in the year. So those are the big pieces for the reasons for why we believe consumption will accelerate as we move throughout the year. Operator: Our next question comes from Thomas Palmer with JPMorgan. Thomas Palmer: I wanted to maybe bridge a little bit more on your EBITDA margin, down around 280 basis points year-over-year. You noted, I think, around 80 basis points from tariffs and your comments suggest maybe another 80 basis points for stepped-up advertising. So when we're kind of thinking through the remaining 120 basis points, maybe a little help kind of bridging like SG&A leverage, excluding advertising, inflationary pressure, excluding tariffs? And then maybe thinking through some of the cost savings that you noted. Paul Rode: So as you've highlighted, we're calling for our EBITDA margins to be down about 280 basis points compared to a year ago. And as you mentioned, about 80 basis points of that is tariff. From a line item perspective, we expect gross margins to be down, that's the lion's share of that decrease. And then SG&A, we would expect to be modestly down with advertising an 80 basis point headwind, and then there's offset partially by some G&A leverage. When you look at within gross margins, we were calling for inclusive of tariffs, a low to mid-single-digit inflation headwind. Much of that is on whey proteins, which is the input cost on our powders, we are taking pricing for late in Q1. So obviously, that will start to get offset as we move into Q2 and beyond. On our shake business, we do have a little bit of a step-up in Q1 and then inflation is pretty flat to slightly up as we kind of go through the year on shakes. And so the puts and takes are, we have some additional inflation, especially on our powder business, which were pricing. On our shake business, we have some modest inflation as we go through the year, but we also have cost savings initiatives that are more impactful in the second half of the year. So one of the things I want to point out here is that if you look at our margins, kind of by quarter, the first half obviously has -- we're lapping a very, very strong margin first half last year. We had gross margins nearly 35%. And so that's -- so as you look at kind of the headwinds throughout the year, first quarter has the biggest headwinds on a margin perspective versus a year ago. Q2 also has a sizable headwind, but less than Q1. And then as we get to the second half, things are actually fairly similar versus a year ago from a margin perspective. So it's really the first half where we have the biggest headwind related to margins. And again, largely driven by inflation, but also our stepped up promotions as well. Operator: Our next question comes from Peter Grom with UBS. Peter Grom: So I wanted to go back to the market share discussion and a follow-up to Andrew and Steve's question. And I guess specifically on what you are seeing from the insurgent brands. And I guess -- do you think they have the potential to see similar market shares to what the category leaders are at today? And I ask this more around the debate around what the competitive landscape looks like. I think some point to the potential that we could -- this industry could be similar to what we see in energy drinks, where you have a duopoly versus maybe some others where you have 5, 6 brands with similar shares. So Darcy, I know you mentioned that you think it's -- some of these brands are going to go away, but maybe you can take the other side of it, I'm curious if you think any of these insurgent brands have potential to become more real competitive threat over time? Darcy Davenport: I mean I'll just -- you guys have been along with our journey, and I think you even see it with our major competitor. It takes a long time to build a national network of a national supply chain. And so I think that from a -- I think it's -- I think you can -- some of these insurgent brands can do well in one retailer. But I think expanding out, and we've done it. This is kind of -- in many ways, this is our playbook, right? Like we started in club, we expanded outside of it. It is incredibly complicated. So it is complicated to -- it's a complicated supply chain, the expertise that you need to have the sophistication around expanding and being able to service multiple different channels simultaneously as well as the back end of -- on the co-man side. And then even if you're self-manufactured, that's a whole another piece. So I am assuming, we are assuming that, of course, there's going to be -- there are going to be a couple of these insurgent brands that probably make it. But it is going to take a while. And I think that what we're seeing, but I think there will be many more that don't. And that -- and I just do not want to underestimate the move from one kind of club customer to go national is very complicated. It takes multiple years, and it's a different skill set. So yes, I think that ultimately, I think this category is going to consolidate around kind of the most successful brands, a handful of them. And I clearly think that's going that's obviously going to include us as the #1 brand. Operator: Our next question comes from Alexia Howard with Bernstein. Alexia Howard: Can I ask about pricing expectations, price versus volumes embedded within your guidance. You're obviously taking a list price increase on Dymatize. With the rest of the portfolio, do you expect promotional activity step-up to actually bring pricing downwards? And does that cadence vary through the year? Paul Rode: Yes. So for -- I'm going to break it into brand. So for Premier Protein, we would expect a modest kind of a low single-digit headwind related to pricing. So that incorporates our stepped-up trade investments, offset by -- we expect some favorable mix. So there is a low single-digit headwind we're expecting on our shake business, which obviously is the biggest part of our business. On Dymatize, we're taking a price increase on powders, but we expect mix to play a big part of this because we now have RTD shakes and Dymatize, and those are at a much lower price per pound than powder. So it throws off a really funky mix. So net overall for total BellRing, I would expect a low single-digit headwind overall with Premier similar and then Dymatize, even though we're taking a price increase, may look like it's negative because of just mix. Operator: Our next question comes from Matt Smith with Stifel. Matthew Smith: Darcy, following up on the discussion or Paul, around higher promotional activity over the next year. We've seen a step-up in promotional intensity from insurgence in recent weeks. As you look forward, do you expect Premier promotional activity to be moving higher more on a frequency or a depth basis? And do you expect that to be focused in certain channels? It sounds like maybe club promotion should be similar relative to the prior year once we get past the first quarter? Darcy Davenport: Yes, I think that's me, right, Paul. Yes. So you're exactly right. We're expecting to see a little bit of a step-up of promotion in '26. And yes, I think, it's interesting that just October, especially in the club channel is usually not a high promotion time period, and it was a little bit more, and it's coming from the insurgent brands. So from our standpoint -- and also, I would just say that just remember that this category is actually fairly low promotion compared to many categories. It's just about -- it's about 25% to 30% sold on deal. So just keep that in mind as you're thinking about just this category kind of in the macro. But as far as our business, we are going to see a little bit of uptick in promotion mostly as we talked about, our emphasis, specifically in FDM as we are getting out of the aisle, as I've talked to you guys before, the key is for us is getting out of the aisle to get that trial, to get that -- and then with our 50% repeat, we get the repeat. So that's a big emphasis. It's why we brought on the brokers. It's why we have a new internal team focused on this, around singles and entry point priced multipacks. So because of that, when you have that merchandising, you usually have to do some sort of a TPR. So we are going to see a little bit of a step-up of promotion that comes along with that expanded merchandising. Operator: Our next question comes from Yasmine Deswandhy with Bank of America. Yasmine Deswandhy: So I just had a quick one on longer-term strategy. So you guys walked away from the PowerBar business a couple of years ago. And considering that the convenient nutrition category is expanding outside those traditional products. Have you given any thought into, say, going back into bars or expanding into breakfast offerings like waffles, pancakes and cereal. I guess I'm just asking as well because given the recent -- the press release of the recently announced Board appointment, it highlighted David's finance M&A background. So I also don't know if there's -- has there been any change in your capital allocation priorities, particularly around M&A and your product portfolio as well. Darcy Davenport: Why don't I hit the portfolio piece and Paul, you can hit capital allocation. So from a portfolio standpoint, we really -- we believe in our category, specifically ready-to-drink shakes and secondarily powders. We think that there is a ton of opportunity. I talked about in my prepared remarks just around this demand landscape study that we did. A key part of that demand landscape study was to evaluate and make sure that there was going to be a ton of room to grow, and there were many years of strong growth kind of a ton of white space that we could capture. So it confirmed that. So we love this category. We think there's a lot of opportunity. We have a great brand to compete. Now having said that, we also do participate in some of these -- we have a great brand that we have learned that can travel to heavier traffic aisles. We are competing in some of these other areas, but we're doing it through licensing. So if you -- we actually have a frozen pancake, we have a frozen waffle. We have a dry pancake mix. We have a cereal, and we're actually expanding some of those, but we do it through licensing because we want -- I want this organization laser-focused in what we believe is the biggest opportunity, which is ready-to-drink shakes and powders. So no, we do not have any plans to go back into bars. It's a highly competitive area, low barriers to entry, et cetera. So -- but we love the area that we in and we think there's a lot of upside, and I'll pass it over to Paul for capital allocation. Paul Rode: Yes, thanks, Darcy. Yes, on capital allocation, I would say that our priorities haven't shifted really that much. Obviously, our first priority is always investing in the business. And as we talked about, we are making investments this year within trade and promotions continue to drive this business. Outside of that, because we generate really strong cash flow, we're not expecting to change our asset-light model. We have low CapEx. Obviously, that provides us a lot of cash flow that we can obviously allocate from recently, and we still think is the most attractive is share repurchases. We've obviously leaned into share repurchases. And so that's still our near-term priority, but M&A, we're always looking at M&A. We're looking all the time. We get pitch things all the time. And so we'll definitely keep an eye out on M&A, and that's something I think that is becoming -- I wouldn't call it near term, but it's more kind of in the mid- to longer-term priorities for us. And yes, David, coming to the Board obviously brings a lot of strength in that area. So that's great for us. And so yes -- but yes, M&A is something we're always looking at. And if we find the right opportunity, we certainly would go after it. Darcy Davenport: Yes. And on the Board side, we're really happy to have David on board. I think he brings a great skill set, and we're always looking at expanding and improving the skill set on our board. Our Board has been incredible over the years, and we just want to continue to make it better and increase the skill set. And I think David does that. Operator: Next question comes from John Baumgartner with Mizuho Securities. John Baumgartner: I'd like to ask about RTD category segmentation. Fairlife Core Power, they've established that Premium segment in ultrafiltered milk, but now we've seen two legacy competitors relaunched with ultrafiltered, some of the newer entrants, the insurgents private label, they're adopting ultrafiltered. So I'm curious, Darcy, why the category is making this shift with ultrafiltered becoming more of a standard recipe? Is it tied to raw materials availability? Is it due to the license to move more Premium? Is there a specific consumer you sense they're chasing? Just curious your thoughts there on that recipe shift? And how might this shift position Premier differently relative to history? Darcy Davenport: Yes. Yes, I think the category is maturing. I think that it is -- when we did our demand landscape study, I think that what became very clear and our head of innovation, I will quote her, and she described the landscape is like there's different strokes for different folks. Meaning some -- when the category is more nascent, kind of everybody kind of wanted the same thing. But as it expands, there are different preferences. And so for instance, some people want thickshakes. Some people want thinner shakes. Some people want dairy shakes, some people want plant. So I think what's the good news for us is that our core 30-gram shake addresses the biggest consumer needs, but it doesn't address every consumer need. And so as we now are kind of growing up, we hit with the 30-gram with our core offering, we hit the biggest one, but now we're launching innovation to go after some of these other needs. And like -- I mean, I think a good example of that is, so when you're talking about ultra-filtered milk, that is an innovation. It's a thinner offering. It's more of a beverage. Ours is more of a thicker shake. Ours is more of a meal replacement. So I think that starts explaining why there's actually not that much interaction between the two. It's going after kind of a different consumer, different occasion. We launched almond milkshake, that's a non-dairy. We knew that was an opportunity. We think it's a smaller opportunity than the dairy side of things, but it's an incremental opportunity. And I think our numbers that we're getting from almond milkshake, even though it is early, are showing exactly that, 50% incremental, we're getting to new people. So that is a key aspect of our innovation strategy is really going after -- make sure that our 30-gram core business is strong. We always are looking at making it better. We're always looking at bringing in news and flavor innovation, et cetera. But at the same time, we also are going after some of these other incremental consumer needs with other innovation. Operator: Our next question comes from Jon Andersen with William Blair. Jon Andersen: We talked a lot about the insurgent brands this morning. And Darcy, you mentioned you expect over time there to be a bit of a shakeout, which makes sense to me with some winners and some not meeting the thresholds. But in your kind of experience, how long would you expect kind of a process like that to kind of take or to play out. And the reason I ask is because it seems like the competitive dynamic that is weighing a bit today, it could remain difficult until that kind of shakeout period -- shakeout event kind of plays out more broadly in the market. Darcy Davenport: Yes. I mean it's a great question. I think that we're seeing it right now, obviously, we're seeing brands that are not making the thresholds. I think what -- I think I would zoom out a little bit. So I think the reason why even in Steve's very first question, just about our view of the category these insurgent and kind of crossover brands, they're getting a lot of attention. They only represent 10% of the category, and there are a lot of them. So -- and I think that remembering, and I think that what is important is where the growth is coming from, it's coming from the leading brands, bringing in more households and then also sourcing volume from those declining legacy brands, which are not insignificant. 30% of the market share is in these kind of declining legacy brands. So what's happening is that, yes, there's going to be some churn in the insurgent kind of crossover brands. Some are going to make it, some of them not. There's always going to be new news. It's an exciting category. I mean you see it in energy. There's always like this group that kind of starts turning. But like if you zoom out the leading brands, which have established, which has -- they have high -- let's just talk about Premier, #1 household penetration, #1 repeat, national supply chain that we've built over years and years and years. We have -- we're now invested, we have capacity. We're now investing in the brand, we're leaning in, we're partnering with retailers to figure out where in the store that this category should be, and how it should be merchandised, and how to maximize it. They're choosing us to do that. So the leading brands are just going to -- they're going to keep on winning. There's going to be churn around the insurgent brands. And then the legacy brands are going to be the ones, I think, that continue to be -- they have been shared donors for years, and they're going to -- and that is just -- it's kind of accelerating. So your question around how long is it going to take? I mean, I think there's going to always be this kind of churn of insurgent brands. And I think it's an exciting category. We watch it for sure. But I think that there will -- I think the focus in my mind is -- and they're actually sourcing some volume from the declining legacy brands. So -- but I think the focus is that we definitely expect there to be a consolidation and the most successful brands are the ones that are going to really propel forward. Operator: Our next question comes from Robert Moskow with TD Cowen. Jacob Henry: This is Jacob Henry on for Rob. Just one question for me. I think I heard you guys mention that your fifth pallet at the large club customer is transitioning out. I'm just wondering if you have any insight into when, and why that's happening. Darcy Davenport: Yes, it was always going to be -- it was always going to be a temporary SKU. So it went in -- it's coming out in Q2. So it will phase out. Operator: And I'm not showing any further questions at this time. And as such, this does end today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Hello, and welcome, everyone joining Helmerich & Payne's Fiscal Fourth Quarter and Full Year Earnings Call. [Operator Instructions] Please note this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Mr. Kevin Vann, CFO. Please go ahead. J. Vann: Thank you, and welcome, everyone, to Helmerich & Payne's Conference Call and Webcast for the Fourth Quarter and Fiscal Full Year 2025. Before we get started, I first wanted to extend a warm welcome to Kris Nicol, who has joined the company as Vice President of Investor Relations. Kris Nicol: Thank you, Kevin. Kevin will be joined on the call today by John Lindsay, CEO; Trey Adams, President; and Mike Lennox, Executive Vice President of the Western Hemisphere. Before we begin our prepared remarks, I'd like to remind everyone that this call will include forward-looking statements as defined under securities laws. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that the expectations will prove to be correct. Please refer to our filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. Reconciliations of direct margin and certain GAAP to non-GAAP measures can be found in our earnings release. With that, I'll turn the call over to John. John Lindsay: Thank you, Kris. Hello, everyone, and thank you for joining us. We appreciate your interest in H&P. Fiscal 2025 was a pivotal year for H&P. We overcame several challenges, and I am immensely proud of how our global team closed the year with strong fourth quarter results, setting the stage for continued success in fiscal 2026. While the oil and gas industry is inherently cyclical, we are increasingly encouraged by the resilience of our business and the positive long-term prospects. We have long held the view that the upstream sector will need to invest for decades to come in order to sustain, if not grow production from current levels. We are pleased to see increasing alignment with this view. The recent update from IEA now projects robust demand growth for oil over the next quarter century under the current policy scenario with energy security and affordability remaining critical global concerns. On the gas side, the rise of AI and the surging power needs for data centers is rapidly creating a new source of demand. Coupled with the build-out of significant LNG capacity on the Gulf Coast, we see strong activity in the gas-rich basins over the next several years. Ultimately, technology-driven drilling as demand continues to grow and basins become more geologically complex will be essential for decades and is a key differentiator for H&P. Operationally and financially, our North America Solutions segment has positioned H&P as the leading driller in the U.S. land market. Customers are increasingly demanding efficiency and devising more complex well designs with longer laterals to maximize returns. Our success in delivering value, safety and performance is rooted in the strong partnerships we built with both large and small customers. As acreage quality becomes more challenging in unconventional shale plays, deploying the most capable rigs and cutting-edge technology is crucial for success. This past year was particularly historic for our International Land segment. After years of effort to develop a larger and more diverse international footprint, we exported 8 FlexRigs to Saudi Arabia and completed the KCAD acquisition, making H&P the largest active land driller globally. We're also very pleased to announce that 7 suspended rigs will be reactivated in the coming months in Saudi Arabia. This exciting development will call for intensifying our efforts to execute strategic priorities, deliver customer value and meet our financial objectives. The KCAD acquisition also brought us a global offshore labor contract business that complemented our existing offshore Gulf of America operations. We now operate in 6 countries, have a blue-chip customer base supported by strong contractual coverage and a global geographic palette of growth for this business going forward. Despite the challenges faced by the oilfield services sector, we remain optimistic that the market is stabilizing, and our expanded footprint will offer new opportunities. We anticipate the first half of 2026 will mirror 2025 with oil prices range bound between the upper 50s and mid-60s and rig activity aligning with these trends. Through the cycles, OFS companies must be able to make a return for our shareholders. I'm confident in our team's ability to continue refining and executing the H&P way, demonstrating leadership in international markets as we have in North America Solutions. Alongside legacy KCAD, our team has forged robust global partnerships in the Middle East and other strategic regions, enabling us to enhance our unique capabilities and strengthen customer collaborations. We're committed to nurturing leadership and promoting talent within our organization to prepare for the future. In line with this commitment, I was very pleased to announce earlier in the quarter the promotions of several key members of the management team, reflecting their strong contribution to H&P. Most notably, Mike Lennox became EVP of Western Hemisphere. John Bell became EVP of Eastern Hemisphere. And lastly, Trey Adams has been promoted to President as we position for the next phase of growth at H&P. And with that, I will turn the call over to Trey to provide more details of Q4 performance and the 2026 outlook for our 3 segments. Raymond Adams: Thank you, John. I will start by walking through North America Solutions. We had solid fourth quarter results driven by our ability to work safely and to deliver outsized drilling efficiencies for our customers. Our operations and sales teams continue to do an excellent job managing rig churn and creating customer value. On the operational front, average lateral lengths increased 5%, while our average drilled footage per day grew at the same rate. Encouragingly, the use of our advanced digital solutions and applications increased 20% over the year. The combination of the right rigs, right people and right solutions continue to drive efficiencies for our customers over the fiscal year. In the Permian Basin, the total rig count declined throughout the year as several E&Ps reduced drilling activity in the face of softening oil price fundamentals. Despite these rig drops, our rig fleet showed great resilience. We actually expanded our share position in the Permian throughout the year. At the same time, natural gas-oriented activity picked up through the year. Our footprint and outcome-oriented approach will position us well for continued natural gas activity expansion. An important point to highlight is that the industry utilization of super-spec rigs is tighter than it's peers. Utilization rates of rigs that have been idled less than 12 months remains strong at more than 80%. In addition to the relative tightness of the market, lateral lengths continue to expand. Over 40% of our wells today are over 3-mile laterals and technology and drilling efficiencies continue to be a primary focus for customers. We believe that this combination provides a strong platform for North America Solutions in fiscal year 2026. Safety and customer value will continue to be our focus looking forward, and both will be underpinned by our great rig crews and continued commercial and technological innovation. Moving to our international operations. Our new footprint is exciting and energizing. We now have meaningful positions in Saudi Arabia, Kuwait, Oman, Argentina, Europe, along with other countries poised for growth. As John mentioned, in Saudi Arabia, we will be resuming operations on 7 previously idled rigs in fiscal year '26, with operations resuming in the second fiscal quarter and continuing into the third fiscal quarter. With these 7 reactivated rigs, we will go from 17 active rigs to 24. As you know, we encountered several challenges in fiscal 2025, particularly in the Eastern Hemisphere. However, through every challenge, there is an opportunity. We have taken advantage of the past year to reorganize, retool and get our forward strategies aligned. Our 8 FlexRigs in Saudi Arabia continue to improve on all fronts with a focus on safety and performance. We also continue to see margin health improve across those 8 rigs and intend to realize our expected run rate margins by the end of the fiscal year 2026. The addition of 7 rigs in Saudi Arabia adds scale. And as those rigs are resumptions, we expect the learning curve to be expeditious and to hit the ground running in the second and third fiscal periods. Our business in Oman continues to be a particular bright spot with strong NOC and IOC relationships, providing a constructive long-term backdrop. Our combined organization enables further expansion across the MENA region. We now have a foundation that enables more realistic and long-term oriented discussions with IOC and NOC customers across the globe. Our Offshore Segment continues to provide stable long-horizon revenues for our consolidated business. We are active today in the Gulf of America, Caspian Sea, Norway and U.K. North Sea, Africa and Canada and have roughly 30% share of the global platform operations and maintenance business. Our expanded geographic exposure strategically positions us to benefit from the anticipated strong offshore investment cycle. In addition to our geographical positioning, the integration of our operating models and safety execution between our land and offshore businesses will continue to be additive for us in the near and long term. Many of our offshore customers have robust land activity. The transference of models, approaches, technology and relationships uniquely positions us to deliver differentiated value for customers across our global operations. With that, I will turn the call over to Kevin to walk through the financial results. J. Vann: Thanks, Trey. Today, I will review our fiscal fourth quarter and full year 2025 operating results and provide operational guidance for the first fiscal quarter of 2026. Additionally, I will spend some time outlining our annual fiscal 2026 projections, our financial position and provide an update on where we stand with our deleveraging efforts and cost reduction goals. Let me start with highlights for the recently completed fourth quarter and fiscal year ended September 30, 2025 where we exceeded our direct margin guidance in all operating regions despite the challenging market environment. Alongside our continued commercial success, we also made strong progress on the deleveraging front as we have currently paid off $210 million on our term loan, and we're significantly ahead of the debt reduction goals we laid out earlier this year. During the quarter, the company generated quarterly revenues of a little over $1 billion, which is the third consecutive quarter over that $1 billion mark. Correspondingly, total direct operating costs were $715 million for the fourth quarter versus $735 million for the previous quarter. General and administrative expenses totaled $78 million for the fourth quarter and $287 million for fiscal 2025. These results include a $10 million write-off related to one of our investment securities. Normalizing for that, we were in line with our full year guidance. Also included in the fourth quarter results was an approximate $40 million write-off of the investment in that same company for which we held the note receivable. To summarize fourth quarter's results, we are operating -- we are reporting a net loss of $0.58 per diluted share versus a net loss of $1.64 in the previous quarter. Earnings per share for the full year were a net loss of $1.66 per share. The quarterly results were negatively impacted by some unusual and noncash items and absent those items would have been a loss of $0.01 per share. Capital expenditures for the fourth quarter were $64 million, with full year 2025 totaling $426 million. This outcome was primarily driven by accelerated CapEx investment in the Eastern Hemisphere and increased investment in harmonizing our ERP footprint. Currently, we operate in 3 distinct ERP platforms, and our ultimate goal is to get to one platform for the company. We are continuing to invest now to capture additional synergies and cost savings in the future. Looking ahead to 2026, we expect significantly reduced capital investment levels even with the announced rig reactivations. This reflects current fleet conditions with maintenance capital expenditures approaching historically low figures and an ongoing emphasis on capital discipline. H&P generated $207 million in operating cash flow in the fourth quarter and a total of $543 million during the full year. Our cash flow generation helped fund $100 million in base dividends in addition to the significant progress on paying down our term loan. As we have stated, we are now on track to pay this completely down by June of 2026. Now turning to our 3 segments, beginning with North American Solutions. We averaged 141 contracted rigs during the fourth quarter, which was down from the third quarter, but consistent with industry activity and our expectations. We exited the fourth quarter with 144 rigs running. Segment direct margin for North America Solutions was $242 million, which was above the midpoint of our guidance range. Overall, margins were slightly down from the third quarter, but again consistent with our expectations and guidance. Looking ahead to the first quarter of fiscal 2026 for North American Solutions, we are anticipating our margins to stay in the same ZIP code of our industry-leading fourth quarter numbers, and we also expect our operated rig count to stay relatively flat with fiscal fourth quarter results. Our North American Solutions team continues to deliver. Despite some moderate headwinds we saw during 2025, they brought there A-game to the table, helping our customers and us to win-win outcomes. We are extremely grateful to the folks out in the field on the rigs and our great sales and marketing teams that help our customers find the solutions they need. This outcome is also evidence of our commitment to our customers and shareholders. For our customers, we benefit when they benefit via our performance-based contracts. Ultimately, our goal is to help them meet their objectives of drilling consistent and timely wells and setting them up for a clean and efficient completion and production process. As of today, approximately 50% of the U.S. active fleet is on a term contract. Additionally, as our performance contracts continue to drive alignment with our customers, we currently have roughly 50% of our rigs on them. In the North American Solutions segment, we expect direct margins in our first quarter to range between $225 million to $250 million as we don't see a material change in expected margins based on our current contractual structure, expectations around operating costs and anticipated rig count. Our International Solutions segment ended the fourth quarter with 61 rigs working and generated approximately $30 million in direct margins, above the midpoint of our expectations. This result is slightly down from the third quarter, but was toward the top end of our guidance. As a reminder, we had fewer rigs working during this past quarter as many of the final Saudi rig suspensions received during the third quarter had a full negative effect during the period. As we already stated, we are ready to get back to work and are very pleased about the announced rig reactivations. For the first quarter, we are anticipating between $13 million and $23 million of direct margin for the International segment. This is reflective of the reactivation costs anticipated in the first quarter that are not capitalized. This trend will persist through the first half of 2026 with direct margin expected to step up materially thereafter. Further, we expect the average first quarter operating rig count to be approximately 57 to 63 rigs. For the first time, we are laying out expectations for the full year international rig count to provide greater visibility on our outlook. For fiscal 2026, we believe the rig count will average between 56 to 68 rigs, which includes the rigs being reactivated in Saudi. Please note that the rig count includes only partial years for those reactivated rigs and includes the expectation for some lower rig counts in non-core countries where the current EBITDA contribution is minimal. Finally, with our Offshore Solutions segment, we generated a direct margin of approximately $35 million during the quarter, which was above our guidance range as well. Again, we are excited about this business and the consistent and stable results that it continues to deliver. As John and Trey said, it requires minimal capital and generate steady cash flow from a set of blue-chip customers. As we look toward the first quarter of fiscal 2026 for this segment, we expect that it will generate between $27 million and $33 million in direct margin with 30 to 35 management contracts and operated rigs on average. Now I want to transition to the first quarter and full year 2026 for certain consolidated and corporate items. In 2026, our strategy begins with optimizing our financial position to continue to pay down the term loan and generate free cash flow that will help us get closer to our goal of returning the balance sheet strength that has always been a priority at H&P. Fiscal 2026 gross capital expenditures are expected to be approximately $280 million to $320 million. Maintenance, fleet upgrades and reactivation capital across the global fleet of operating drilling rigs is expected to be approximately $230 million and $250 million and includes all of the estimated capital for the 7 rigs being reactivated in Saudi Arabia. Also included in our capital program is $40 million to $60 million of investments in our North American solution operations related to customer demand and funds the necessary upgrades to maintain our technology-leading position across the market. Depreciation for fiscal 2026 is expected to be approximately $690 million. Our sales, general and administrative expenses for the full fiscal '26 year are expected to be between $265 million and $285 million, which includes $50 million in savings from our original pro forma run rate. We, as a company, are culturally more focused on managing costs than ever. We have our eyes set on generating further savings as we evaluate systems alignment across both our Eastern and Western Hemisphere operating models. Our investment in research and development remains largely focused on solutions for our customers, such as drilling automation, wellbore quality and power management. We anticipate R&D expenditures to be roughly $25 million in 2026. Based upon our estimated fiscal '26 operating results and CapEx, we are projecting a consolidated cash tax range of $95 million to $145 million. And lastly, we are expecting interest expense of $100 million during 2026. Now looking at our financial position. We had cash and short-term investments of approximately $218 million on September 30, 2025, including the availability under our revolving credit facility, our total liquidity is approximately $1.2 billion. As I mentioned earlier, as part of our deleveraging efforts, we are pleased with the progress we have made on paying down the $400 million term loan with only $190 million currently outstanding and a clear line of sight to have it paid off by June of next year. Regarding cash returns to shareholders, we plan to maintain our long-standing base dividend of approximately $100 million in 2026. Longer term, as we delever, we will have additional flexibility to direct free cash flow to both enhance shareholder returns and invest for growth. And that concludes our prepared comments for the quarter, and we'll now turn it back to the operator for questions. Operator: [Operator Instructions] Our first question comes from Saurabh Pant with Bank of America. Saurabh Pant: John, Kevin, I don't know who wants to address this, but I want to start on the international side of things, if you don't mind. And then really, I'm thinking about 2 things. First is the rig count. Of course, it's great to see the 7 Saudi rigs coming back. But maybe just help us think about the potential for more Saudi rigs to come back as we move through fiscal '26 and then maybe like you said, the pluses and minuses in any of the other regions. And then the other thing that I'm thinking about is international margins. Like you said, Kevin, I think it's being weighed down by reactivation cost and a bunch of short-term-ish things. How should we think about normalized margins once all of that is settled? John Lindsay: Saurabh, thanks for the question. It is very, very positive, and we're very pleased about the reactivations. And as you can imagine, we're laser-focused on execution. We think this is going to be a phased approach to the reactivations. We think we'll be finished with mid-2026, working really closely with the customer. I'm going to let Trey. Trey has been over there recently and have him give a little feedback on what they're seeing. Raymond Adams: Yes, happy to. As John pointed out, we're thrilled about the 7 reactivations in Saudi Arabia. As it relates to longer-term growth in Saudi right now, we're focused on these 7 resumptions and focused on our core business there and getting those rig fleets back and aligned. But obviously, having a number of conversations more broadly across the region, myself and the teams are very active and very engaged in the Middle East today. We're encouraged by some IOC entry into the region. Obviously, there's been some long-standing IOCs in the MENA region, but continued interest from some new players. It positions us well through '26 and then really sets a good table for 2027. And then as some of those discrete rigs that Kevin mentioned in his prepared remarks, many of those rigs that you saw have fallen off of our international count have come in really low scale single rig, single string countries. And as we've kind of reorganized and continue to refocus our efforts around Saudi Arabia and core Middle Eastern countries, we're going to continue to see further growth and enhancements there. On our margins, you can expect, right, that the first half of fiscal '26 with the reactivations and continued to getting our FlexRig fleet aligned that we're going to have some new and increased costs, and Kevin talked about that, both on the OpEx and CapEx side of the fence. But we expect that to abate mid-'26 and really expect to see some full run rate margins towards the end of the fiscal year. J. Vann: Yes. Just to further elaborate on that. I think what we had mentioned on the last call was we felt like the fourth quarter was kind of a bottoming out of margins as the FlexRigs kind of caught their stride, and we expected to see further improvement, and we do -- continue to expect to see further improvement in those margins throughout fiscal year 2026. So absent the rig reactivation charges that are going to hit over the next couple of quarters, you're going to continue to see just further margin improvement across the region. Operator: We'll now move on to Doug Becker with Capital One. Doug Becker: I wanted to touch base on North America. Revenue per day has been very resilient despite some industry headwinds. Guidance does imply daily margin declining a few hundred dollars in fiscal first quarter. Just wanted to get a little sense for how you see daily revenue and daily operating expenses going forward because there was a pretty sizable bump in OpEx per day. And then if you look in your crystal ball, just when might daily margins trough based on a relatively stable rig count outlook from today? Michael Lennox: Doug, I'll take it. This is Mike. I appreciate the question. We see the NAS market is going to remain consistent as long as commodity prices and demand are intact. We do continue to expect rigs to churn. Our publics, they've gone down year after year by about 9 rigs. Our privates actually churn at about 4x of what the publics do, but that's given us a good opportunity to work for new customers. In the last year, we worked for 19 new customers. And so a lot of great hard work and effort by our sales team, really proud of what they do, keeping these rigs working. We expect demand for longer wells, more complex wells, as John mentioned in his opening remarks, and that positions H&P very, very well. We've made investments in our rig fleet for the past few years. We'll continue to do that this next year, allowing for 1 million pound setbacks, high torque top drives. We've also continued to deploy and invest in technology. Trey mentioned in his remarks of a 20% improvement on apps per rig. We've also -- on 1/3 of our fleet now, we've got rig floor automation, which includes HexGrips and slip lifters that provides a lot of consistency and reliability for our customers as they're going to continue to drill longer and longer wells. And then we've continued to invest in our people. I think that's something we're very proud of. We bring our drillers in, continue to invest in them and train them. As far as the oil and gas basins, we've seen an uptick in the Haynesville and in the Northeast. We went from 3 rigs earlier in the year to 8. We expect that demand to continue to be there. And then on the oil side, in the Permian, I think Trey mentioned it in his remarks, we went from 33% market share to 37% market share. So we've seen growth in that, even though rig count has been slightly down. We've seen growth in our market share. And then on the performance contracts, that's a lever or a tool that we're going to continue to use to -- you asked the question on revenue. We have the leading over our peers in revenue. OpEx we lead on that. We're the lowest and there's a lot of work that goes into keeping that OpEx in check, and we fully expect to keep it in check. And so I just really want to applaud our people, all the hard work that they're doing to keep all that in line. Doug Becker: And just any -- would you expect daily operating expenses to decline this quarter from fiscal fourth... Michael Lennox: Yes, we've seen some, what I call seasonal rigs churn, we see some costs that go up, potentially -- it's welding costs, tubular costs, trucking costs. It comes and goes. And so we expect it to come down. There's some onetime costs that are in there this last quarter. We do expect it to come down. But again, as long as those rigs are churning, we fully expect there to be some costs in there. John Lindsay: And the rigs just continue to work at a much higher and higher level quarter-over-quarter. And so that drives costs higher as well, as Mike had mentioned. Operator: We'll now move on to Scott Gruber with Citi. Scott Gruber: I may have missed it, but did you guys quantify the reactivation expense that's reflected in your fiscal first quarter international income? J. Vann: No. Scott, this is Kevin. No, we did not. And I think what I mentioned was if you go back and you look at the margins that we were able to achieve during this last -- during the fourth quarter for international, we kind of felt like what we had stated previously was that was a good kind of trough for bottoming out of the margins that we expected. And that absent those items, you would have probably continued to at least achieve the mark that we saw during the fourth quarter from a margin perspective and then with some anticipated improvement from there. Scott Gruber: Okay. Okay. And then it looks like cash taxes will step down in fiscal '26. Curious, is there a benefit from the recent tax law changes in the U.S. I'm just trying to think through if there's a benefit in fiscal '26 that then lapse and doesn't recur in '27? Or are you guys able to kind of chop that down over time? How sustainable is cash tax rate? J. Vann: It is somewhat -- yes, there are some benefit -- there is some benefit in that cash tax number that we're projecting for 2026 because of the one big beautiful bill. But going forward, the benefit will always be contingent upon the amount of capital that we're spending as well because there's certain portions of the bill that allow you to accelerate some capital investment that wasn't previously being allowed to be written off for tax purposes during the current year. But we have -- I guess, yes, it's in there. And then going forward, it's all going to be based upon capital expenditures. Scott Gruber: Yes. I imagine international activity levels. Operator: We'll now move on to Eddie Kim with Barclays. Edward Kim: Sorry if this was asked already, maybe even in the previous question, but just wondering if you could dig down deeper in the full year CapEx guidance. So you highlighted $230 million to $250 million of CapEx reflects both maintenance and reactivation-related CapEx. Are you able to let us know how much is just the reactivation-related CapEx specifically? And then tied to that, the reactivation-related OpEx, is that going to be a similar amount to the CapEx? If you could just provide some more color there, that would be great. J. Vann: Yes. No, the $230 million to $250 million, yes, does include all of the rig reactivation costs. And it's difficult to give an exact number per rig because it all depends upon which rigs are going to be -- the rigs being reactivated. So it's not a homogenous number across all the rigs. So I hate to give you -- if we got more rig reactivations, you could expect another x amount per rig. But the $230 million to $250 million includes all of the maintenance and rig reactivation cost. And the question, yes, in terms of the margin, it's not one for one. There's more CapEx than there is costs that are hitting operating costs. There's more capital cost than what's hitting the margins themselves. And most of the margin stuff is, again, going to be cleared out hopefully during the first quarter fiscal quarter, but there'll be some of that will bleed over into the second quarter as well. But again, if you look at what our fourth quarter performance was from a margin perspective internationally, we felt like that was kind of a low point for us, and we expected improvement from there. Absent the additional cost that's hitting the margins, our international margins from the rig reactivations, you would have -- we would have anticipated a little bit more improvement. Operator: [Operator Instructions] We'll now move on to Dan Kutz with Morgan Stanley. Daniel Kutz: So sorry to belabor this, but maybe just kind of coming at the CapEx guide question from a different angle. Anything you can share in terms of maintenance CapEx for a U.S. versus international rig or by segment? Yes, anything you could share in terms of what's contemplated for the maintenance component of that number would be really helpful. J. Vann: Yes. I think -- this is Kevin again, and I'll let Mike and Trey contribute. The -- what we've publicly said historically is that the maintenance CapEx on a domestic rig is somewhere around $1 million per rig. That number is coming in slightly lower than that now, but roughly $1 million per rig. And then on the international front, call it, $1.3 million to $1.5 million per rig for the maintenance CapEx. And that's generally, again, depending upon the rig and what needed to be done to it in 2026, that's generally kind of where we are. Michael Lennox: Yes. And I can give some color on NAS, just it's come down post COVID. It spiked up coming out of that, and then it's been down year after year. And again, we've been making investments, like I mentioned earlier, to drill these longer laterals. So that's the setback upgrades, the high torque top drives, the rig floor automation. Again, that removes people from the exposures of on the rig floor, but also helps as we drill the longer laterals, make up and break out of tubulars. And we expect and will continue to do some of those in 2026. So that's what most of the CapEx is made up of for NAS. Daniel Kutz: Awesome. That's really helpful. And then maybe -- sorry if I missed this or if you guys have talked about it, but just kind of you guys have made a ton of progress kind of penetrating the U.S. market with the legacy H&P technology portfolio, seeing and hearing a little bit more interest internationally in the Middle East, in particular, of operators kind of adopting and appreciating some of the efficiency benefits and productivity benefits of leveraging technology like you guys offer. So just was hoping for an update or any plans or any conversations around your -- leveraging your technology profile outside of the U.S. Raymond Adams: Yes. This is Trey. I'll answer that one. And what I'll share is that the answer is absolutely yes. So it's a big focus for us today. Conversations with customers across the Eastern Hemisphere, everyone is very interested in the technology evolution and advancements we've had in the U.S. unconventional space. And they're all wanting to get more active in that arena. And so our -- one of our focuses in '25 and going into '26 will continue to be, as Kevin pointed out in his prepared remarks, this drilling automation trend that we're continuing to progress. We believe that there's a lot of efficiencies and value to be created in the Western and Eastern hemispheres. And then if you couple that with a lot of the technology that Mike was describing with rig floor automation and other advancements we continue to make, there's just a tremendous amount of opportunity on the safety and performance fronts in front of us and a lot of customer value to be created. So the answer in short is yes. That evolution and transformation, obviously, will be taking shape in earnest, primarily in the Middle East, but other markets will continue to adopt and accelerate technology. We see a lot of interest in Argentina and Australia, Europe, name it. So really excited about that evolution. Operator: We'll now move on to Don Crist with Johnson Rice. Donald Crist: I wanted to kind of expand on the last answer you just gave. On the international side, I'm just kind of curious about timing in places outside of the traditional Middle East like Libya or Turkey and Australia, kind of timing on conversations for unconventional drilling there and when you think that rig count could kind of start to pick up over the next couple of years or so? Raymond Adams: This is Trey. I think it depends on where you're talking, but I'll start in Australia. Obviously, we've been in the Beetaloo for some time, continue to see future growth opportunities there and in other parts in Australia as well. We're delivering. We have a second FlexRig in country that arrived about a month ago that will be going to work for a long string of customers and stay working in Australia for some time. And then flipping over to North Africa, obviously, there's a ton of energy around Algeria and Libya. We're involved in all those conversations. We're having deep and involved technology conversations with NOCs in both regions. We're actively engaged with IOCs, and you know who those are that have signed long-term agreements in Algeria. We think the future is bright, and we think that the transference of U.S. unconventional and shale expertise into those regions is going to be critical for growth. As it relates to timing, it all manifests over long horizons. Mike talked about private E&P churn in the Lower 48. We're not talking about a 30-day window. These programs take a while to get formed up. But we hope over the next couple of quarters that we can update you all on our progression. And then obviously, some of the E&Ps as they progress in their drilling programs and build up their plans for '26 and '27, that will be notable as well. But we're very bullish on our positioning in both of those areas. Donald Crist: I appreciate that color. And one just last one for me. Any progress on the sale of Utica Square? I know there was a comp here in Oklahoma City. Just any kind of update there? John Lindsay: This is John. Really, the update is the process is going on. It's going well. We have multiple parties that are interested. We're hopeful that we'll have more news by the end of the year to the first half of 2026 is what we're hoping for. So it looks positive, but that's about all we have. Process is going well. Operator: We'll now move on to Tom Curran with Seaport Research Partners. Thomas Patrick Curran: Trey, you just referenced the second rig that will be going to work in Australia's Beetaloo Basin where you have invested in and partnered with Tamboran Resources, which I think of as sort of like a best of U.S. shale PayPal story with the Sheffield and Liberty Energy also involved. But beyond Australia, has H&P put any rigs to work or contracted to deploy any rigs for any of the existing or planned drilling campaigns in foreign shale plays by leading U.S. E&Ps? And here, I'm asking specifically about E&Ps, not the major. So Continental push into Turkey and Argentina's Vaca Muerta or EOGs moving to Bahrain, maybe other such cases that haven't been publicized yet. Could you just expound on where H&P is at within that story and maybe your strategy more broadly beyond Australia? Raymond Adams: Yes. No, that's a great comment. And I'd point you to we have a long history of putting rigs to work, and I've done this multiple times, not working on a super major portfolio, but working with IOCs in Argentina. Across the rest of Eastern Hemisphere, the conversations are very active. Obviously, you know our positioning with those companies that you just referenced here in the Lower 48. We have a long history of a lot of value creation. And so we've been in a lot of conversations recently and I mean, very active even at ADIPEC a couple of weeks ago with key IOCs, obviously, and super majors alike. Everyone wants to transfer this U.S. shale unconventional expertise into these geographies. And so we look forward to talking about how these programs get to scale and more into a firm footing. Many of them today are still in exploration phases. But as those programs mature, they're going to need a partner like H&P, and we're well positioned to deliver value for them. Thomas Patrick Curran: So it's safe for us to assume that you're right on the nexus of those conversations like you should be. Raymond Adams: Absolutely. We're not missing a conversation these days. Operator: We'll now move on to John Daniels with Daniel Energy Partners. John Daniel: Just a quick question on the fiscal year '26 guidance for activity. I know you say in the release, it's based on current market trends. Just trying to make sure there's no embedded assumptions about either potential customer M&A and implications or upside from new E&P start-ups? And then does the guidance try to take into consideration any future drilling efficiency gains? Raymond Adams: Yes. I'll take that one, John, and just start and say that, obviously, you know the history of the organization. And as Mike pointed out, our share increase in the Permian Basin, even in the face of rig count declines, we're anticipating a pretty range-bound rig count in the U.S. Lower 48 as we look forward. Obviously, we've been impacted by customer consolidation, just like everyone has, but we believe that our impact and our rig count range binding has been able to really hold us up. It's an interesting one, but you mentioned new E&P formations. I think this last year and for almost 106-year-old company like H&P, we worked for 19 new E&Ps that we hadn't worked for in the last 5 years, just in the last year. As we sit here, and I think Mike referenced this, we sit in a great share position, top share position with super majors, with large caps, with small and mid-caps. We have more private E&P activity than anyone. So I feel like we're going to be in a good position to be pretty durable with rig counts even in the face of additional consolidation headwinds. John Daniel: Okay. Got it. And if you said this on the call, I completely missed it, but did you say where you're -- what you are in terms of working count contracted today? Michael Lennox: Yes. John, this is Mike. It's 144 today. Operator: At this time, there are no further questions in queue. I will now turn the meeting back to John Lindsay. John Lindsay: Thank you, everyone, for participating in today's call. I just want to leave you with some brief closing thoughts. Fiscal year 2025 was pivotal for H&P. And while we faced several challenges, the construct as we look forward is increasingly positive. We now have a platform where H&P can drive profitable growth across diversed global markets. Our forward-thinking commercial strategies and advanced technologies set H&P apart from the competition, and our financial strength underpins growth, dividend stability and disciplined deleveraging. Our differentiation is clear, and H&P's positioning continues to deliver strong results for our customers and our shareholders. So thank you all. And operator, you may now close the call. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now 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 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 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.
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.
Operator: Good morning, ladies and gentlemen, to a conference devoted to talking about the results of the KGHM Group for the third quarter of first 9 months of 2025. We have President, Anna Sobieraj-Kozakiewicz with us; Mr. Zbigniew Bryja, Deputy Manager for Development; Piotr Krzyzewski, Deputy Board President for Industrial; and Mr. Laskowski, Deputy Board President for Investment and Investor Relations Director. The meeting is broadcasted online, and you will be able to send your questions to -- during the conference and afterwards, and all the answers are going to be published either during the conference or afterwards. And now Mr. President, over to you. Andrzej Szydlo: Welcome, ladies and gentlemen, and apologies to the investors who are watching us from the Western Hemisphere. Apologies for atypical time of the meeting. But due to the tight schedule, we needed to move the time of the conference a little bit back. Due to also the tight schedule I mentioned, I will try to make it very brief today not to get into the competence of further speakers today. So to give you the bird's eye view of our situation, I'll start with an anecdote. But yes, this slide and the trends that we have been seeing for many months about KGHM and influences its results. I think I can jokingly say that maybe LME -- copper prices on LME should be in Polish zloty because what does this slide show us? 5% copper price in terms of USD year-on-year. So 9 months -- first 9 months of 2024. The exchange rate for -- between USD and PLN is minus 4% year-on-year, which gives us the stable results, unchanged results. So the status quo is unchanged. So if the stock market would be in Polish zloty, this chart would be much more predictable. And then average copper price for 9 months were at the level of $9,556 in dollars and PLN 36,257. We see a marked increase in terms of silver price, which is a very important product of KGHM. Let me remind you, we are the second top producer of silver in the world. And here, we have 23% of increase in terms of zloty and 29% of increase in terms of dollars. Of course, that influences our results. However, this increase of copper prices in dollars happened by the end of the reporting period. And strengthening of zloty has been observed throughout 2024. Let me just remind you that at the end of last year, the dollar versus zloty was PLN 4, PLN 4.08, PLN 4.10. Next slide, please. In reference to the previous slide, we see a minus 1% in terms of adjusted EBITDA in KGHM Group. And in KGHM Polska Miedz S.A., we have minus 1%. So almost the same year-on-year, of course. And judging by the fact that the copper prices remained unchanged and in the first half of the year, we had a major renovation in Glogow smelter, so a decreased production year-on-year compared to 2024 by 20,000 tonnes of electrolytic copper. The drop of revenues by 1% can be treated as only 1%. Then adjusted EBITDA of KGHM Polska Miedz plus 5% compared to 2024, and plus 16% in terms of adjusted EBITDA in KGHM Group. And then net profit, a bit of deja vu because the first 6 months -- throughout the first 6 months we had the same results. So it's worse than first 9 months of 2024, both in terms of KGHM Polska Miedz and consolidated. Key production indicators, as I said, 20,000 tonnes of electrolytic copper less. And it is due to planned maintenance on smelter infrastructure in Glogow smelter. So in KGHM Polska Miedz S.A., that was 421,000 compared to 441,000; better results in terms of Sierra Gorda, as you can see, plus 14%, which is almost 8,000 tonnes of copper more in Sierra Gorda. And in KGHM International, a little less than 5,000 tonnes less, which is minus 11%. I think Ms. President will talk about the reasons of decreases in Robinsons mine -- in Robinson mine. So again, I'm not going to precede her part of the presentation. We see a constant trend, about 66%, 67% of payable copper in national, domestic assets comes from own concentrate, KGHM, 1/3 that would be purchased metal, either imported or scrap. This is no surprise. It's a stable level. And we do hope that this stability won't move towards lower production from own concentrate towards purchased metals. And here, we have the production results in terms of other assets. So Sierra Gorda and KGHM International. Silver production slightly higher, plus 1%. TPM production, minus 6%. And molybdenum production markedly higher, plus 95% better efficiency and better molybdenum concentration in Sierra Gorda. And to finish up, what I would like to emphasize, the results are really good, especially the EBITDA. The exchange rate differences affect the net result. And we are very happy that -- with what we've been commenting on for many years -- for many quarters, the cost discipline, because the increase of costs that we had in the previous years, systematic increase due to the cost of work or cost of energy, we have managed to stabilize it. I'm pretty sure that President Krzyzewski will talk about it. There is no increase, even decrease of C1 cost in foreign assets, international assets, domestic assets, the increase of C1 cost is minimal. And if we look at C1 without the tax, we even are dealing with a decrease. Okay. Now Professor Laskowski. Miroslaw Laskowski: Yes, let me give you a bit of details in production. In terms of production results in all the segments, ore extraction, production of copper and concentrate, production of electrolytic copper and metallic silver production, we are within or even above the budget. And the Q3 of 2025, is one of the best production quarters compared to other -- previous year's period and compared to the other -- the previous 5 quarters. So metallic silver, as you can see, plus 1.5% year-on-year. And Q3, as I said, of 2025, 330 tonnes, and this is one of the best results across these 5 quarters that we compare it with here. Electrolytic copper, in Q3, we returned to the production level of 149 tonnes. These are the amounts that we got in Q3, Q4 last year. The President Szydlo talked about the maintenance in electro refinery department in Glogow II smelter, this would contribute to the lower production results of the first 2 quarters of 2025. And in terms of production -- in terms of ore extraction, it's similar to 2024, over 23 million tonnes. And Q3, that would be a level of extraction of 6 -- 7.8 million tonnes, the highest in comparable periods. And production of copper in concentrate, it is slightly, but still higher than the compared 2024 year-on-year. So again, 304,000 tonnes, the highest level of production in compared -- with compared periods. These are really good results. And I need to emphasize that we had unfavorable production calendar. 2024 was an off year, and February had 29 days, 1 production day more for KGHM S.A. is 100 tonnes -- 100 more tonnes of extraction, more concentrate, 1,000 copper in concentrate, 1,700 electrolytic copper or 1,000 tonnes of wire copper. So this is one more day only in our production results. So -- and then one more thing about Zelazny Most reservoir. We have safe level of filling it, 6 million cubic meters of water. This is what we mean by safe. To compare in summer last year, when we got to KGHM, the filling of the reservoir of the main and southern part reached dozens of cubic meters. And one more important thing in terms of Zelazny Most, we have obtained all the agreements and permits to the level of 205. So that gives us a couple of -- or more than a dozen years of safe work in KGHM. Anna Sobieraj-Kozakiewicz: And in terms of production results of international assets, another very good year for that sector in terms of payable copper production. In Sierra Gorda for 55 assets, the level of payable copper production was 64,900 tonnes by -- it's an increase by 14% year-on-year, an increase of the production results. This result is due to the higher grade copper ore as well as higher recovery despite the lower volume of ore produced. Very good results in line with our budget assumptions. It's worth emphasizing that, thanks to the optimization activities, we have stabilized production in Sierra Gorda, and we see more predictability of production, both in terms of copper and molybdenum. In terms of molybdenum production, here, we can boast almost 100% increase of molybdenum production year-on-year. In Q3, that was over 2 million pounds. And so by the end of September, we have 4 million pounds in total. And then molybdenum production starting from May -- end of May, actually, we see a marked increase of that. And this is due to higher concentration of molybdenum in the ore as well as higher recovery despite the lower volume of ore processed. And what we need to emphasize here, molybdenum production in Q3 was one of the highest in the history of Sierra Gorda. In terms of silver and gold production, we see slight decreases, but this is due to lower volume of ore processed. In terms of gold, compared to the budget of this year, we see that we are still higher than our budget expectations, which, thanks to high prices of this metal and good TCRC premiums, contributes to a very good level of C1 below $1 per pound. Next slide, please. When it comes to the production results of KGHM International, the production of payable copper after 9 months is 40,600 of tonnes of payable copper, so a decrease of 11% compared to the reference period, and this is the result of the lower content of copper, lower volume and yield of metal. But here, we need to highlight that we are referencing to the previous year where the results were record high. And this year, the production of ore goes into liberty which has lower parameters of ore. However, we can see that we are within the budget when it comes to the production of copper of 75% of the production. When it comes to the production of the gold in Robinson, we are above the assumptions for the given year. And I was referencing to Robinson mine. Ladies and gentlemen, we can see that the production results of international assets are very good, which transfers to the good financial condition of international units. So at the end of September, we had $240 million, from which $210 million was paid by Sierra Gorda and $30 million KGHM International, and those are payments from guarantees, loans and provision of other services. So I can say that this is a very good year for international assets. Thank you very much. Zbigniew Bryja: So Professor, right now, when it comes to the advancement of development initiatives, we have similar parameters compared to the previous year for the given period. So when it comes to the development plan, it was 62%. Right now, we have 63%. So we can compare those values at the end of the year. In accordance with the conversations that we had with the departments, we can say that we've completed our tasks when it comes to investments and the execution would be at a similar level. So 96%, which is a very good result. Let me remind you, the investment plan, so PLN 3.800 billion, also the reserve that we will not be touching, will not be moving the assets. When it comes to the distribution divisions, as mentioned during the previous conferences, mining industry when it comes to the development spending is PLN 2.492 billion from which PLN 2.406 billion is for financing; leasing, PLN 86 million. So let me tell you 3/4 of 80% is the spendings for mining. When it comes to division for tasks of recreation development, it's 35%. In total, it's not what we would like to see, but this is something that we can do because the recreation and maintenance are very important components that provide us with the chance to survive, and we cannot -- those cannot suffer because of our investment plans. So we need to divide those assets so that every party is happy with the values they receive. So let's go to the next slide right now. Okay. This slide, the circular slide that we can -- this pie chart. So we can go to the segments. So PLN 2 billion -- of the execution, PLN 2.492 billion, 2.019 billion is mining. So of course, outfitting of the mines because we are mentioning that this is a type of activity that every day we are extracting every part of the deposit, let's say, so a part, we should also prepare for the excavation for every other day. So that's why maintenance of the mining region, so the construction of conveyor belts and stuff like that is important. Also, for the construction of the transformer station, those are all basic tasks. There are plenty of basic tasks that make our work in the industry mining -- in the mining industry profitable. So we need to have active mining department. Another very important item in here is replacement of machine park. And we undertaken plenty of actions in here in accordance with the regulations that are in force to rationalize the purchase of machines. And this year, right now in -- for 3 quarters, we have 201 machines, and the goal is 256 machines. And this is the approximate number because every year, depending on the needs, it's always the approximate. So 5 -- plus/minus 5 to 10 machines. And so that's why we shouldn't be mentioning any delays because this is a result of the previous year. So 256 machines. This is something that we want to purchase until the end of the year. The next item, mine dewatering. So we know the problem. So the water in Polkowice-Sieroszowice. So for example, the anti-filtration barrier needs to be prepared under the shaft SW4, so PLN 187 million. The development of the Zelazny Most tailings storage facility, and we are referencing to that because it was all related to Q3 to get all the acceptances, permits for the exploitations, for the construction, the environmental authorizations and licenses as well, so we can proceed with the construction of the storage. So we need to be consistent and go step by step, but this is also complemented by the investment in the construction of the so-called barriers surrounding the reservoir. So in order to decrease the pressure, and this is the so-called -- so those also -- some wells, special wells, relief wells in order to relieve the area. Also, the next part, so the replacement of mines and tailings divisions. So different types of modernizations of conveyors, shafts, ACs, ventilations in the hydro facility, hydrotechnical facility. So for example, pipes, the network of pipes because as you can probably recall, one of the reasons of gathering a substantial amount of water when we arrived to KGHM was exactly that. So the infrastructure of pipelines was not good. So we are removing this downside. And right now, we can maintain the safe level of water of Zelazny Most, and we can proceed. So exploration, this is not significant, so PLN 86 million. And the next year due to the entrance of Bytom Odrzanski, we will be drilling new holes in order to get some more exploration within that region, and this is in perspective. Maintenance of shafts, those are mostly -- so PLN 56 million, and this is mostly for the SW4 shaft complex. So step by step, we need to remove the salt and move the infrastructure. And the biggest part, so deposit access program, so 34% for all investment -- mining investments. And on the first slide, we have 35%. We have development. So this is, in fact, this position, this item plus exploration, of course. So it's still mining and mostly prepared for north, for shafts because a shaft without the possibility of connecting to the mining system becomes a well, and we are not constructing wells. So that's why we are very much interested in the intensification of work for Retkow, [ GG-2 Odra ] and Gaworzyce. And for the plant areas, the gallery areas that we have, for Q1, we have 32.4. So within the plan and the execution is not endangered in here, and we are right now going back to the situation from a year ago. So the excavations were underwater. And right now, they are well prepared and accessible. So we are sort of like trying to get the time back. But the excavations are not everything. And for example, we need conveyor belts for those. We need to prepare roads. Those need to be limited because, of course, we need to prepare the proper conveyor belt systems for that. And it's all when it comes to the basic inflows, and this is also a slide that shows the scope of our works for the upcoming years. And in green, we have the upcoming shafts that we will be constructing in the future. And please pay attention that in June 2023, we have the deconstruction of the shaft. We have been noticing the increase, and it all transfers into the ton of excavation of yield. So right now we have a stabilization of Glogow. So those amounts are not so relevant anymore. But when it comes to the construction of the following shafts, so GG-1 and on the surface and the equipment of the facility, we have the reinforcement prepared for the shaft and anti-weight in -- for one of the machines, so machine 1. And we are also preparing for the construction of the target cage. We are also increasing from 33 to 34 when it comes to AC of megawatts, but it will be given for the exploitation in September '29. And -- so PeBeKa 2 units from our group, so the general contractor for the surface works, so the liquidation of the temporary facilities and Bipromet, so a company that plays a role of the so-called engineer of the contract will be overseeing the progress of work. When it comes to GG-2, apart from the planning work for the municipality because we need to get the permits because as you know, in some other words, the GG-2 will be in different place as compared to what was planned before. And the works are going in accordance with the schedule when it comes to the transformator station. So the first hall is done already. So there will be no dislocation and the shaft will be there. When it comes to Gaworzyce shaft, we have everything prepared. We are preparing for the geological drills right now. So it's all when it comes to the shaft. Let's proceed to the next slide when it comes to the execution in metallurgy. So it's PLN 358 million, and the main investments and the point of interest of ours at the end of the year. There will be a renovation, Cedynia mine conducted. But in general, we are preparing for Glogow 2 that will be taking place next year. So the first contracts, purchases as well, and those are the main points of interest when it comes to metallurgy. When it comes to ZWRs, it's modernization of mills, crushers, ball mills and press fillers -- filters, sorry. And we are counting on ending the Legnica smelter as well. So the new technology without no caps, no cap -- and until the end of the next year, this installation will be accessible and available. So that's all when it comes to the investments, the basic info. Thank you very much. Andrzej Szydlo: I will digress for a moment here. Such detailed presentation by President Bryja results from 2 things. First, his passion; and secondly, the importance KGHM puts on investment and development and providing long-term efficiency of our facilities. Thank you very much, President. You can see -- we can see your enthusiasm and heart, but time is running out. So let's move on. Piotr Krzyzewski: Thank you. So let's move on to financial results. Piotr Krzyzewski. Yes, it's good to be last because I can start from a summary. So I will borrow some of the words that my predecessors used. So to summarize, the Q3, but also all 3 quarters of this year, we've observed and have been observing good production levels with good cost discipline. At the same time, we're using our opportunities. In consequence, we have good financial results and creation of additional value for shareholders and stockholders. This is what we focused on, and you can see that after these 9 months. Before we move on to the presentation, 3 key aspects I would like to emphasize. If I started from finances, I would say the first important element here, President Szydlo mentioned that is the exchange rate. We discussed a lot about tariffs. They are important. However, through the prism of our results, we are able to manage our trade activities so that tariffs do not affect us so much. But the exchange rate affects us just like all the other European economy and all the other industries in Europe. And this is a great challenge in terms of competitiveness for the industrial -- from the European industry. In Poland, it's particularly important because zloty is also very strong right now. So as the President said, on one hand, the copper prices raised by 5%, and our currency also raised by 5%. So at the end of the day, all the national assets, the price of copper in dollars then calculated -- recalculated into zloty has the same value, even though it increased in general. In terms of trade, again, the last quarter was very dynamic. On one hand, spread between LME and CME grew by PLN 3,000 almost. And then we had the 2nd of August when we finished the claim based on Paragraph 232 in the States, and the decision was made of not imposing tariffs on semi-finished products, but raw materials were tariffed -- were taxed. So again, it did not affect us so much. We were able to rechannel our goods and the flow of our goods. So thank you very much for the commercial team and our clients, our logistics department. So we -- there was a lot of time pressure there. But as you can see, the results are impressive. And energy aspects. Again, very volatile, first transactions, first PPAs in the history of the company. We purchased 110-megawatt hours, 2 big wind farms that will provide energy for us next year. To give you the bigger picture, this is 5% of the purchased energy a year. And if we look at it from the perspective of the infrastructure, it's like Legnica will be covered by 72% by wind energy. And from the perspective of ESG, it's like in Scope 2, we reduced Scope 2 by 5% next year. So energy transition is important, but I also have to emphasize the fact that this is a very efficient financial instrument, and it will contribute very well to lower cost of purchasing energy in the next year and years to come. Moving on to the presentation now. In terms of group revenues, it's 1% lower. But as President Laskowski mentioned, it has its reasons. President Szydlo, the maintenance on electro-refinition at Glogow was responsible for that. I will show you what it means. We produced less, but we managed to earn more. And this is something we focus a lot. It's not about production volume, but we want to produce as efficiently as possible in terms of finance. Operating costs, also lower by 1%. What was mentioned during our first quarter conference, we focus on cost discipline. Cost optimization program is working very well. And then if we take into -- exclude depreciation, then it's minus 2%. So this is something we will be doing in the coming periods, as you will see. So the adjusted EBITDA, as you can see, is plus 16% year-on-year. But again, keep in mind the fact that in 2024 for 9 months compared to 9 months 2023, EBITDA -- adjusted EBITDA was plus 43%. So very, very high dynamics of growth. So we're raising the bar. In terms of the contributions, as you can see, over PLN 1 billion higher EBITDA, out of which Sierra Gorda, PLN 7 million, then KGHM Polska Miedz, and KGHM International, also strong contributors as well. President also mentioned Sierra Gorda here. What we do in our domestic assets, we also do in international assets. So we focus on one hand, fulfill our cost discipline. And in Sierra Gorda, it's a low-grade mine. This is the most important aspect. So the financial lever is very important here. And we've made a lot of changes here, both personnel and managerial, minus 1 level, relations with our partners, so far T2 is also doing very well. So the team of the President also contributes in many areas to Sierra Gorda. And the cooperation between the assets is also very good, and we see very positive results of that here. Here, looking at group sales revenue, the first is, yes, the renovation in electro-refinition. You can see the sales -- changes in sales volumes is copper and this is due to the maintenance in electro-refinition. So by 16% own contribution, own concentrate and 4% only in foreign inputs. So it shows how well we are able to adjust. A great thank you for the smelter departments. So we're looking at production through the perspective of finances. And the results are really, really well. The other positions should be connected. So position 2, 3 and 4. If we combine them, we have PLN 800 million plus. So this is how efficiency and management looks like, risk management looks like. This is plus PLN 800 million. To remind you, last year, we have generated PLN 670 million plus. In this year it's over PLN 100 million. And again, our strategies work in a way that they can allow us to participate in exchange rate increase. So this contributed positively to the result. Here, we have the expenses by nature. Again, we're getting very close to the inflation levels, 4%, both in terms of capital group and similarly on domestic assets, again, again, plus 4%. The biggest value positions here are well, tax, unfortunately, plus 10%. In terms of value, I would say, cost of -- labor costs, PLN 300 million, in the capital group in Poland, PLN 200 million. Also here, we have the reserve for the pension expenses. And let's take a look at the use of materials here. It's also going -- it's still going down. And a great work -- a great achievement of the capital group here. Energy and energy factors here, the quantity decided here, the price is lower, but we used more energy, less gas. This was also a result of some of the maintenance activities on steam and gas blocks. So I would say the budget of gas plus energy keeps being optimized, and that contributes to very good results. And that -- that gives us the image we see. So C1 unit cost. In the capital group, we have minus 6%, but if we exclude the tax, the decrease is minus 13%, which is a very good result. And that here is a result of both production efficiency and cost regime. Taking a look at some particular clusters of assets in Poland, plus 2%. But again, if we exclude the tax from that, that would be minus 4%. So from that perspective, again, great cost discipline and all the factors that we could influence determine the fact that C1 go down. And then C1 is recalculated and dependent on the USD rate. So if we exclude that as well, then that would place us on the level of minus 9% almost. So this is the real value if we eliminate both the tax and the exchange rate from our analysis. Then taking a look at KGHM International, as the President mentioned already, good levels of production, both on Robinson mine and TCRC is supporting us here. Logistics costs got down mostly. All that contributed to the fact that C1 in KGHM International got down by almost 40%. And Sierra Gorda marked decrease of almost 50%. And here, TPMs are very, very important. And the facts that were already mentioned, TCRC, molybdenum, all the opportunities on the market we have used. And that is showed in C1. And then the financial results. The first column, let me just mention that it's without -- Sierra Gorda excluded. So KGHM International and domestic assets, positive contribution. And what was mentioned by President Laskowski, I would like to thank the mining departments that contributes very, very well in both assets. And as the President said, the last quarter in Poland in terms of ore extraction is very good in Poland. And we see that this tendency is being continued also now. So these perspectives are really good. Second parameter that contributed positively would be our loans and loans also sent to Sierra Gorda. And the biggest negative element, exchange rate differences. To give you the picture. These are the exchange rate differences resulting from our loans granted to Sierra Gorda. And because of that, the change of exchange rate, the result is around PLN 1 billion. And part of our debt, part of all the bank liabilities we have is also denominated in dollars that contributed positively, gave us PLN 200 million plus, but then we are still minus PLN 800 million -- minus. That influenced detrimentally the financial result of the group. Last thing, cash flow, also very important, if not the most important because cash is what matters in the end. Looking at operational cash flow, comparing it with investing activities, we are very close to financing our investing activities with operating activities. And here, I would like to point one thing to your attention. EBITDA positive -- contributes very positively. But then stock, something that will be connected with the maintenance in Glogow smelter. We have some last corrections on our budget for the next year. We don't want it to influence our cathode production. So we are calculating right now how many anodes we need to create to make it in time without this smelter to provide stability of the company. So by the end of September, in semi-finished products, you probably observed that it's over PLN 1.4 billion semi-finished product, mainly anodes that we are producing right now for stock. We have it very well calculated and it pays off, I have to assure you. It will cost us some of the current assets. But still by the end of the day, it will positively contribute to our results. So I think on the annual conference, we will show you that and this element is going to be growing. It's going to be increasing. One more thing that I would like to mention in the last days, to conclude, the cash flow. We will be emitting our bonds in December. This is a planned transaction that contributes to the strategy, that writes in the strategy of stable financing. One of the important elements apart from bank financing would be bond financing. We have the whole program written down. We already emitted bonds once. Right now, we will refinance that emission and that issuance, we want to prolong the refinancing terms, and we want to use the positive situation, market situation. So this is something that you will be shown by the end of the year for sure. Thank you very much. Operator: I would like to thank the Management Board for the presentation of results. Now feel free to ask the questions. And due to time limitations, please focus on the questions for this presentation today. Do we have any questions from the room? No questions from the room. Janusz Krystosiak: I think I have a question from the Internet, from the web. Jakub Szkopek, Erste. It's pretty long. When it comes to 2 years ago when the Management Board was taking job at KGHM, they were basing their actions on the assumed copper prices. Right now the copper prices are 11,000 increase the prices of gold and silver, increase tax on excavation. When the Management Board will test again and reverse the -- and write-offs, and to reverse the write-offs. Piotr Krzyzewski: Yes. So to answer those questions, when I remember from PLN 8,000, PLN 8,250, right now, we are close to PLN 11,000. We need to add one more parameter. Back then, the exchange rate was PLN 4.10. Right now, it's PLN 3.60. It's a very important element when it comes to the increase because it's not high when it comes to Polish zloty, but some other aspects as well because as I understand, the matter of the change when it comes to the taxation, the tax for the balance date, we'll be talking to the auditor, to the supervisor, and this is an aspect that was -- is being analyzed by us, whether there is a reason for that. So we need to have a broader look, not only through the prism of the copper price itself. Thank you very much. Janusz Krystosiak: And to continue with the questions via e-mails, I think it's for Ms. President and for Mr. President, Piotr Krzyzewski. So 2 questions from Morgan Stanley. Number one, when can we expect an update on the Sierra Gorda development? What areas are the feasibility studies conducted for? Anna Sobieraj-Kozakiewicz: So ladies and gentlemen, we are trying to have a very detailed approach when it comes to investments for Sierra Gorda. At the current stage, we are in the preparation of the feasibility study. For which, the end date is at the end of this year or the beginning of the next year. And only then we'll have the full package of information that will be the basis for our decision. And we can -- we will be able to talk about the further investment decisions. Right now, the gathering information stage is in progress. Janusz Krystosiak: Question number 2 from [ Janusz ]. What part of the turnover capital -- working capital can be reversed in Q4? Piotr Krzyzewski: So as mentioned, the key element will be the matter of the construction of the optimal state of semi-finished products. So -- and what will be the burden of the turnover capital? And we are working on some other elements as well to free up the capital as well, and this is something that you can observe too. So it's very difficult for me to provide the details when it comes to the numbers. But just to add on what Ms. President was saying, our strategy from the very beginning was for our assets to be developed, and we are focusing on what you can see right now, and we have agreed with our partners that, first, the assets need to be produced effectively, the goals, the results need to be reached, and then we can talk about the investments. The first one is executed, reached and needs to be continuously reached. But right now we can talk about the investments. And I think that this aspect is very complex because from the perspective of the fourth line, for green line, this aspect is much more complex. So we are making the drills in the concession area. So the mineralization is in the neighborhood. And the layout, the exact layout of Sierra Gorda, this is something that we are having discussions over. And we are considering all the assets that are developing in terms of operations, and we are looking at the investments from the financial efficiency. Andrzej Szydlo: So I'll just add on this. From the very beginning, so for a longer period of time right now, we have been saying that, first and foremost, the international assets should be organized and optimized, and this is something that is being done. And secondly, not so long ago we had a problem of the due date of loans, [ so Doosan ]. And this problem was resolved too. The third thing, this year, Ms. President was referring to the payment of loans. And it's good that it's happening. So this will also be contributing to -- for us to protect us from the proper levels of the pay of the loans when it comes to the exchange rates. And the last thing, the most important one, the CapEx that are pretty relevant when it comes to the off-sites and the fourth line. And to be truth with you, the burden of the investments, when it comes to the group, we all know it, and we have been signalizing it as a Management Board. The biggest challenge when it comes to the investment is at KGHM S.A. And of course, the project that can be attractive, so increase of the -- increasing the Sierra Gorda production capacity when it comes to the fourth line, provided that it's going to be effective, efficient, can go hand-in-hand with what we are planning when it comes to the finances for KGHM. So for example, if we consider this to be very efficient with relatively short return rate, we need to remember that fourth line is working negative -- in a negative manner for the so-called loans. And we are turning this capital well, it's working well. So when it comes to the answer, we need to search for the proper balance for the investments. First, we need to proceed with the ones that are the most important. So for example, the ones that we need to execute, then we need to proceed with the ones that are the most profitable ones. Anna Sobieraj-Kozakiewicz: So just to add on that answer. The last sentence from me, we would like to focus on the production to be at a foreseeable level, and this is something that we are putting a lot of effort into right now. We're talking about the Millennia CapEx, $700 million for the fourth line of Millennia. So this is something that we need to keep in mind. And what was stated before, the international assets are contributing positively to EBITDA. So right now, 46% of corrected EBITDA. But at this CapEx, we need to be sure that the return rate will be proper. Andrzej Szydlo: So just at the very end, to remember, for Sierra Gorda, the decisions are made with our partners. So we are -- we have 50% of shares, but this is not a monopoly for the decision. So we need to agree upon those and we are co-referencing and searching for proper solutions. Piotr Krzyzewski: I would like to add one more sentence when it comes to financing because ladies and gentlemen, this is something that we have been communicating and saying to you. We are trying to separate the international assets from the banking perspective. So for example, $500 million for Sierra Gorda, there's a bigger option in here to get more financing. KI is getting more financing for different assets as well with our support from the substantial part. So I would like to say that we are not defining the risk of cannibalization of CapEx because I think there is no risk as such. But when it comes to the loans and changing the philosophy not to generate additional loans, yes, this is something that we have been focusing on from the very beginning, and we have been -- so we will be providing the financing from the operational standpoint, but for respective assets. Unknown Analyst: If I can just ask President, Krzyzewski, you said that we produced less but earned more. So at KGHM, Q4 usually was the biggest sales. So what is the prediction for the future that in Q4 we produced more and we sold more and earned more. Is that possible for the future for Q4? Piotr Krzyzewski: A very good question. But I have to answer when it comes from the sort of like the back office perspective. And I think that this is actually publicly available when it comes to the European market. So the benchmark, so [indiscernible] for cathodes is 40% higher compared to this year. So I will not comment on that. But for sure, we will be optimizing that in the long perspective. The company earns as much as possible on its products, of course, depending on the availability of the items on the market. And this is something -- we also need to remember about the geopolitical world. So we are responsible for the 50% of the copper in Europe. So this technological tract is dependent on us in Europe, depending on the partners, depending on the availability of the product and raw materials, too. Janusz Krystosiak: Thank you very much. One more question from mBank from (sic) [ for ] Mr. President, Bryja. When it comes to -- what will be the profile of the expenses for new 3 shafts in time? So the CapEx will be divided in even amounts. Are there any more intensive -- intense periods? Zbigniew Bryja: When it comes to the construction of the shaft, the most expensive part is the deepening part and then equipment of the shaft when it comes to GG-1 and Retkow is of different purposes. And this is transferring to the -- providing proper equipment for the shafts because we need to remember that any additional equipment is sort of like limiting the amount of air within the shaft. When it comes to the first hole drilled in Retkow, we are just waiting for 2 more, the construction of the freezing units, so 44 holes need to be drilled the whole installation. When it comes to the deepening of the hole, we are assuming at 2028, 2029. When it comes to the shaft, it will be deepened and evened out in accordance with our schedule around 2036. And this is the most important part for Retkow, but all the remaining shafts within the period of 2 or 3 years will be going after that shaft. So that will be the concentration of the period from 2034 to 2040. So those will be the expenses in different parts of time for 3 shafts. So Retkow will be finished in 2040, the next one in 2042, and the next one in 2044. So if we are talking about the deepening as being the most expensive part, and then providing the proper infrastructure for the shaft is the 30s, but it's very difficult to indicate a specific year because we haven't started the deepening period yet. So it's a matter of a year or 2 years. So thank you very much. Janusz Krystosiak: Thank you very much. So do we have any questions from the room? If not, then it's... The last question, a bit technical, analytical from me. I will try to answer that and maybe Mr. President will -- so Adam Milewicz from PKO BP. Why in Q3 of this year, why is it the income tax CIT, corporate income tax, is so high? Piotr Krzyzewski: So last year, we've been observing the return of CIT from the previous years, and this is sort of like distorting the analytics part of this tax. And this one that we have right now is a standard level. So please consider that for -- in terms of the previous periods as well. Operator: Right. Thank you very much for attending this conference and feel invited to the next one that will be happening next year. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
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: Good morning, and welcome to the Gladstone Capital Corporation Fourth Quarter 2025 Earnings Call. At this time, all 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. I would now like to turn the conference over to your host, Mr. David Gladstone, Chairman of Gladstone Capital Corporation. Please go ahead, sir. David Gladstone: Thank you, Melissa. This is David Gladstone, Chairman, and this is our earnings conference call for Gladstone Capital Corporation for the quarter and fiscal year ending September 30, 2025. Thank you all for calling in. We are always happy to talk to you, our shareholders and analysts, and we welcome the opportunity to provide updates on our company. And now we will hear from Catherine Gerkis. She is Director of Investor Relations and ESG, to provide a brief disclosure regarding certain regulatory matters. Melissa? Operator: Good morning. Today's call includes forward-looking statements, which are based on estimates, assumptions, and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstonecapital.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Ks and earnings press release for more detailed information. You can also sign up for our email notification service and find information on how to contact our Investor Relations department. Now, I will turn the call over to Gladstone Capital's President, Bob Marcotte. Bob Marcotte: Good morning and thank you all for dialing in. I'll cover the highlights for the quarter and the fiscal year-end and conclude with some comments on our near-term outlook for the company. Beginning with our last quarter results, fundings last quarter totaled $126.6 million and included five new private equity-sponsored investments in a variety of industry sectors, much of which we previewed in our last call. Exits and prepayments declined relative to the past couple of quarters to $23.5 million, so net originations were a healthy $103.1 million. Interest income for the period rose 14% to $23.8 million with a 16.2% increase in average earning assets and a 30 basis point decline in the weighted average portfolio yield to 12.5% for the quarter. Interest and financing costs increased $1.4 million on higher average bank borrowings, and net management fees increased $0.5 million as incentive fee credits declined. So net investment income for the period came in at $11.4 million. Net realized losses were $6.3 million for the quarter, which relates to the exit of FES Resources, a legacy oil and gas services investment. However, on balance, the portfolio appreciation offset the depreciation for the quarter, and for the TTM period, our ROE came in at 11.9%. With respect to the portfolio, the portfolio turnover for the period did not have a material impact on our investment mix as the new originations were predominantly first lien debt, which rose to 72% of the fair value of the portfolio, and total debt holdings came in at 90% of the portfolio at fair value. As of the end of the quarter, we had three non-earning debt investments with a cost basis of $28.8 million or $13 million at fair value, which is 1.7% of our debt investments. In addition, PIK income increased for the quarter to $2 million or 8.4% of interest income as much of the increase was generated by two recent investments which included supplemental PIK above the underlying 10% cash interest yield on those assets. Since the end of the quarter, originations have largely paced with repayments, and we continue to work through a healthy pipeline of deals going into our traditionally strong fourth quarter. In reflecting on our recently concluded fiscal 2025 and the outlook for the next quarter or two, I'd like to leave you with the following. Fiscal 2025 was a huge challenge for us. As we overcame the spike in repayments and liquidity events, which totaled $352 million, we were able to source and close 15 new investments representing $397 million of originations, which contributed to the $63 million increase in fair value of our investment portfolio for the year. The combination of the depth of the deal origination opportunities in the lower middle market, the experience of our origination team, and the utility of our BDC private credit model to deliver attractive financing solutions to the private equity market all contributed to these record results. In addition to recycling the wave of investment exits, we significantly expanded our private equity sponsor relationships, and as the lead lender in most of our deals, we are well-positioned to increase our investments as these new PE platforms look to drive growth in equity appreciation through acquisition or expansion. At present, we are continuing to see a healthy flow of attractive investment opportunities and remain cautiously optimistic that the lower middle market will remain relatively insulated from spread erosion, leverage escalation, and financing terms erosion experienced in the larger middle market. As we ended the quarter with a conservative leverage position with net debt at a modest 2.5% of NAV, having refunded our 2026 debt maturity shortly after the end of the quarter with the $149 million convertible issue. As part of the debt recapitalization, we also called our $57 million 7.5% 2028 notes and increased our floating rate bank borrowings to capitalize on the projected decline in short-term rates, which will also serve to reduce our unused facility costs going forward. Pro forma for these refinancing activities, our line of credit borrowings availability is approximately $130 million, more than enough to support our near-term investment activities. Now I'd like to turn the call over to Nicole Schaltenbrand, Gladstone Capital's CFO, to provide some details on the Fund's financial results for the quarter and year-end. Nicole Schaltenbrand: Thanks, Bob. Good morning. During September, total interest income rose $2.9 million or 14% to $23.8 million as the average earning assets rose $104.8 million or 16.2% while the weighted average yield on our interest-bearing portfolio declined 30 basis points to 12.5% for the period. Total investment income was $23.9 million on the higher interest-earning assets as fee income declined $600,000 from last quarter. Total expenses rose $2.1 million or 20.5% versus the prior quarter as interest expenses rose $1.4 million with increased bank borrowings and net management fees rose on the reduction of incentive fee credit. Net investment income for the quarter rose to $11.4 million or $0.52 per share. The net increase in net assets resulting from operations was $14 million or $0.63 per share for the quarter ended September 30, as impacted by the realized and unrealized valuation depreciation covered by Bob earlier. Moving over to the balance sheet. As of September 30, total assets rose to $908 million consisting of $859 million in investments at fair value, and $49 million in cash and other assets. Liabilities rose $100 million quarter over quarter to $406 million as of September 30 with the completion of the $149.5 million 5.5% convertible note issue in September, which was used to pay down our LOC borrowings and increased temporary cash investments which were subsequently used to call and repay our $150 million of 5.2 notes due January 2026 and our $57 million of 7.75 notes due in 2028. The remaining balance of our liabilities consists primarily of $50 million 3.75 notes due May 2027 and $19.4 million of preferred stock. As of September 30, net assets rose $7.6 million to $482 million from the prior quarter end with the sale of approximately 263,000 shares under our ATM program, netting approximately $7 million for the quarter. NAV per share rose from $21.25 to $21.34 as of September 30. Our gross leverage as of September 30 rose to 84.3% of net assets. After the end of the quarter, we have funded the $272.7 million note retirements with cash on hand and approximately $157 million of closing rate bank borrowings to better match our floating rate assets. With respect to distributions, monthly distributions for November and December will be $0.15 per common share, which is an annual run rate of $1.8 per share. The Board will meet in January to determine the monthly distribution to common stockholders for the following quarter. At the current distribution run rate for our common stock and with the common stock price at about $18.77 per share yesterday, the distribution run rate is now producing a yield of about 9.6%. And now I'll turn it back to David to conclude. David Gladstone: Well, thank you, Bob, Nicole, Catherine, you all did a great job in updating our stockholders and the analysts who follow us. And the recent performance is really strong. In summary, the team maintained their underwriting leverage and also the investment totals of $396 million for the year, almost $400 million. So the company has a very strong balance sheet today. We've refinanced any debt that's coming due in the future, and so we're in good shape today. We've maintained ample bank lines of credit and capacity to support the healthy pipeline of new deals that we have to continue to support the asset growth and shareholders' dividends. And for anyone keeping score, the Glad team delivered a stellar 16.75% return on equity for the last five years. That puts them right near the top and certainly ahead of the top peer group in developing returns for their shareholders. In summary, Gladstone continues to stick with the strategy of investing in growth-oriented lower middle market businesses with good management. Many of these investments are in support of mid-sized private equity funds that are looking for experienced partners to support the acquisition and growth companies they invest in. This gives us an opportunity to make attractive interest by paying loans and small equity investments and pay strong distributions to our stockholders. Now operator, would you please come on and tell people how they can call in and ask questions? Operator: Thank you. Our first question comes from the line of Eric Zwick with Lucid Capital Markets. Please proceed with your question. Eric Zwick: Thank you. Good morning, everyone. Good morning. Wanted to start with a question on the pipeline. You obviously had a very nice quarter of originations in the most recently reported quarter. And I know you mentioned 2025, you've significantly expanded the number of PE sponsor relationships. Just curious if you could give us an update on where the pipeline stands today in terms of size and maybe also the mix of new versus add-on opportunities? Bob Marcotte: Sure. Fourth quarter is always pretty strong. I will say that we've definitely seen some of the newer assets that we put on with follow-on acquisition opportunities, some of which have already closed and some of which are pending. So we're definitely seeing that effect through the portfolio. On the potential deals, at any given time, we're probably tracking an order of magnitude, $100 million of potential volume. Obviously, those are going to fall out in a variety of different ways. But we feel like somewhere in the range of 10 deals, $100 million of near-term volume that's going to be more than ample to clear any repayments that we might see and continue to grow. I think if you go back to our traditional history, we've been able to grow the assets somewhere in the range of 25 to 50 over the course of a year. I think we increased a little more than that last year. I think we would expect it to be a little bit more than that this year because we've had such a turn. We turned 42% of the portfolio from last September. So you would expect the rollover rate in 2026 to be lower, which I think positions us well to have a net add of assets because of the maturity of the existing assets. I would say one more point. We tend to see a barbell of transactions coming through. One, the transactions that are add-ons for existing deals, those are companies that are getting larger. They might be in the $10 million, $15 million, $20 million EBITDA range. Those deals will be bigger. The new deals where we're starting new originations, those tend to be smaller deals. They're first-time transitions from family or privately held businesses to private equity. They tend to start smaller and then grow. So a $10 million to $20 million deal on the initial side will then become a $20 million to $30 million deal on the second bite at the growth profile for that business. So that's a little bit more than you probably asked for, but that's what's going on right now. Eric Zwick: No, that's great color. Thank you. And then switching gears to the decline quarter over quarter and the portfolio yield. Curious how much of that was reflective of lower base rates working through the portfolio versus potentially maybe new originations coming on at lower yields, although I think you mentioned that you're not seeing maybe a whole lot of spread compression at this point on newer deals, maybe I misheard that. Bob Marcotte: Most of that was the base rate, which I think came down from in the four-thirty range and probably ended the quarter closer to 3.9. So most of the move was underlying base rates. If you just isolate what we closed on the quarter, the metrics on the margin were well north of seven, and the leverage was pretty attractive, but even if we were at 7.5% using round numbers on four, that increase would probably put you at an 11.5% yield, which compares to the 12.8% that we were at the end of last quarter. So while our spreads are very attractive, the overall impact on our combined portfolio yield, the new definitely brought it down a bit as well. Eric Zwick: Thank you. And one last one if I could. Just looking through the SOI notice WBXL, which is on non-accrual, had a slight improvement in the valuation. So just curious kind of what you're seeing there, some improved operational performance, and if that expectation might continue to trend in a positive direction. Bob Marcotte: I think they're up to eighteen straight months of sales increases and profitability increases. They are currently EBITDA positive and continuing to grow. We've been through both sales and operating cost restructurings. They are not to a point where we are ready to turn it on and make it an earning asset. But we're feeling very strong about where the business has gone and the consistency and sustainability of the underlying brand in that business. Eric Zwick: Good news. Thanks for taking my questions this morning. Bob Marcotte: Sure. Next question. Operator: Thank you. Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please proceed with your question. Christopher Nolan: Given where the stock price is and your low leverage, any consideration of doing material share repurchases? Bob Marcotte: Relative to where we're performing, I'm certainly tempted. I think the last time we brought that up, we were probably trading at a thirty-ish percent discount. It was a number of years ago. We're definitely getting in the range where that's going to be a discussion. And then, given following up on the comments earlier talking about new private equity partnerships, should we expect accelerating portfolio growth in fiscal 2026? Bob Marcotte: I guess if you extend the comments I made earlier, I think the answer is probably yes. If we have lower turnover in the underlying portfolio, we broaden the relationships, our origination bucket originations went from $178 million to $400 million. I think we could probably outrun a modest repayment stream. So I think we are in that position. I think the question following on your last one, at some point, another equity is going to become an issue for us. So buying an equity when we have the opportunity to continue to expand profitably will be the crux of the discussion around that until the stock recognizes that we have that earnings power and the opportunity it's going to be a challenge to chew up the equity through buying back the shares. Christopher Nolan: Final question. For the fiscal first quarter, the quarterly dividend has been reduced to $0.45. The dividend is not yielding that high on NAV. It's like nine and change as a percentage. I was thinking beyond that. Yes, 9.6% as I think Nicole outlined. Yes. And I get it, lower base rates, but you're maintaining investment spreads and leverage is low and so forth like that. What's sort of thinking behind the reduction of the dividend? Didn't look like it was imperative, but I may be missing something. Bob Marcotte: Well, I think we were trying to be responsible. And I think as you look out over the course of the next year, I think we have about $650 million at year-end of floating rate assets. About $150 million of floating rate debt. I think any further compressions in rates are going to become a challenge for us as well as everyone else. We did very well to substitute and work through our refinancing activities to essentially a neutral cost of capital and maintaining our financial flexibility and maturity profile. I think the challenge is a 100 basis point decline is going to pressure us as well as everyone else. And how do we absorb that? Well, we'll absorb it through if you would note in our financials, we paid an awful lot of commitment fees on our line of credit that we didn't use. So we probably are going to reduce that by virtue of what we've done. We also had a very light quarter from a fee load perspective, I expect those fees to increase. And the combination of those as well as some of the dividend reduction, I think, puts us in a much more healthy position to maintain the current dividend. I don't feel that we're under any particular pressure at this point. It was just really more of setting expectations going into 2026. Given the rates are already beginning to decline. Christopher Nolan: Great. And final question on the dividend. Is it sort of switching to more of a base dividend plus a supplement type of structure going forward? Or is you're just thinking just pay $0.45 going forward? Bob Marcotte: I think we could certainly see a supplemental on a go-forward basis. We've provided two supplementals in the last year for some of our capital gains. And the other thing to your earlier point about the yield, I think while the current cash yield is at that range, I think we've also on an ROE basis cleared that by a wide margin on some of our equity gains. And I would expect that to be a material part of those supplementals on a go-forward basis. So while the current cash yield may be sub-ten, the overall yield on equity with NAV growth has been almost, I think as David outlined, 16.7% over the last five years. So we wanted to be in a position to invest in the right deals and achieve the overall return for our shareholders. That's why we made the change in the dividend. Christopher Nolan: Got it. Thank you. Bob Marcotte: Okay. Next question. Operator: Thank you. Before we take the next question, our next question comes from the line of Robert James Dodd with Raymond James. Please proceed with your question. Robert James Dodd: Hi, guys. On the outlook for next year, Bob, I mean, congratulations, you did grow over a very high level of portfolio churn over the last twelve months. But still, 60% of the portfolio didn't turn over. So I mean, the lower middle market does seem to be healthy. There's a lot of activity going on, which obviously is what drove that turnover. What do you think the risks are that elevated repayment activity continues going into 2026? Because to your point, I mean, the 42% that you already turned over, that's probably not going to turn over again. But there is still more than half the portfolio that didn't. I mean, could you still see extremely high levels in the following twelve months? Bob Marcotte: Robert, that's a question I would say that the maturity of the investments and where the private equity are in achieving their appreciation plan and maturity is a big one. As I described earlier, most of the smaller deals will take several years to professionalize and scale. So a number of the ones that we would have recently funded are in that situation. I would say that we were somewhat opportunistic and were able in the course of the last couple of quarters to land some very attractive deals as the market was a bit dislocated post-Liberation Day. So we could see some of those larger exposures turnover. But net-net, I think we're in a position where we will continue to grow even if those larger transactions in the other 60% do turn. But I do think the question really boils down to are the private equities selling their companies as rapidly as they have in the past? And I think the generic answer is no. I think that the hold periods are extended. The maturity and appreciation plans have not necessarily been fully achieved. So we still see some stickiness to the underlying portfolio, but I'm not terribly worried about our ability to outpace it having survived 2025. Robert James Dodd: Okay. Fair enough. Then one more if I can. On credit, I mean, obviously, no new non-accruals this quarter. WBXL seems to be improving. I mean, are there any cracks developing anywhere in the portfolio or themes that you're seeing that you're incrementally concerned about? Because it certainly doesn't seem to be showing up anywhere from a credit perspective. Bob Marcotte: Well, Robert, I think as you understand our strategy, we sit on the boards and observe what's going on in these businesses. And I can't tell you that there aren't issues inside those businesses. But when you go in under relatively low leverage and you see it at the vantage point that we see at the Board level, it becomes a lot more manageable. Right? It doesn't ripen into the situation where the report sixty or ninety days post quarter end and liquidities are getting tight. So we are in a position to take action sooner. Now there are certainly some assets that we are focused on, and there's likely to be equity infusions on the part of the sponsors, or they may be in the market to be sold. But I think we are still in a very safe position. So even if we end up waiving a covenant or so, to give them the breathing room to go to market and sell the business, our leverage position is still well covered by the enterprise value. So I guess there's two questions there. Do we believe there are businesses that are having challenges? Yes, there are a couple. But do we believe that there's an exposure on an LTV basis? No, there isn't. I don't feel that we are exposed on any of our positions that aren't otherwise in those non-earning assets. Robert James Dodd: Got it. Thank you and congratulations on the performance over the last year. Bob Marcotte: Thanks for calling in. Operator: Thank you. Ladies and gentlemen, there are no other questions at this time. I'll turn the floor back to Mr. Gladstone for any final comments. David Gladstone: Well, thank you all for being with us for another quarter and ending another year so successfully. And we hope we can even do that in the next quarter. But thank you all for calling in. That's the end of this call. Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
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: 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: Greetings. Welcome to the Cengage Group's Second Quarter Fiscal Year 2026 Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Richard Veith. Sir, you may begin. Richard Veith: Good morning, and welcome to Cengage Group's Fiscal 2026 Second Quarter Investor Update. Joining me on the call are Michael Hansen, Chief Executive Officer; and Dean Tilsley, Chief Financial Officer. A copy of the slide presentation for today's call has been posted to the company's website at cengagegroup.com/investors. The following discussion and the earnings materials contains forward-looking statements within the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as believe, expect, intend, may, could, should, will, estimate, likely or similar words and are neither historical facts nor assurances of future performance and relate to future results and events, and they are based on Cengage Group's current expectations and assumptions. Forward-looking statements relate to the future, and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Forward-looking statements are not guarantees of future performance, and you should not rely on any of these forward-looking statements. Many factors could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements. You should consider such factors, many of which are subject to the risks and uncertainties discussed in the slide presentation, which accompanies this call and in the Risk Factors section of our fiscal 2025 annual report for the year ended March 31, 2025, as may be updated by our quarterly reports for the fiscal year 2026. Any forward-looking statement made during this discussion or in earnings materials is based on currently available information and speaks only as of the date of this discussion and the date of the earnings materials. The company disclaims any obligation to publicly update or revise any forward-looking statements, whether written or oral, except as required by law. On today's call and in our slide presentation, we will refer to certain non-GAAP financial measures, definitions and the rationale for using these measures and reconciliations of each to its most directly comparable GAAP financial measure are provided in the legal disclaimer and in the appendix of the slide presentation. I'll now turn the call over to Michael for an update on the business, followed by Dean, who will take you through the second quarter and first half details before we open the call for questions. Michael? Michael Hansen: Thank you, Richard, and good morning, everyone. Our second quarter results for fiscal year '26 demonstrates strong digital acceleration in our core business, partially offset by cyclical market factors in the K-12 and English Language Learning markets. Overall, our financial performance through Q2 shows adjusted cash revenue down slightly by 2% year-over-year at $872 million, adjusted cash EBITDA down 8%. Our U.S. Higher Ed business is performing strongly. First half U.S. Higher Ed adjusted cash revenue was up 4% year-over-year, driven by continued digital growth of 7%. Our work segment is thriving, fueled by ed2go, where first half adjusted cash revenue was up a robust 28%, demonstrating the power of our education for employment mission. We will continue to invest in this business to capture accelerating demand for workforce skills, including investment into relevant courses non-English language courses, improved pipeline conversion, distribution channels, outcomes data and skills verification to drive growth and help people meet their career aspirations. The headwinds impacting our overall results were primarily in our school and English Language Learning segments. Both faced a low adoption year and funding restrictions as well as political climate challenges. Despite this slow adoption here, we continue to position the business for success for the upcoming large adoption year supported by the updated Big Ideas Learning partnership and investments in go-to-market content and technology. We remain focused on sustainable growth. Our strategy is clear and built on a belief that trusted content is considered table stakes and value is shifting to workflow tools, outcomes data and skills verification. In this context, I will highlight 3 major initiatives we are currently driving. First, we are anchoring generative AI in our curated pedagogy based content. Our student Assistant 2.0 is live in over 100 products and the Instructor Assistant is on track for a January 2026 release. Second, we are transforming our school business with the launch of our new unified digital platform Explore, which is scheduled for release in January. The new digital teaching and learning experience will consolidate our solutions and embed AI to meet key customer criteria. This is a core part of our strategy to transform the school business into a largely digital business. Finally, we are continuing to invest in Cengage work by driving higher demand conversion and preparing for the implementation of Workforce Pell in July of 2026. In closing, we are continuing to execute on our education for employment mission and have a powerful portfolio of digital platform businesses that will deliver robust growth in both top and bottom line. I will now hand the call over to our CFO, Dean Tilsley who will provide a more detailed review of our Q2 financial performance. Dean Tilsley: Thank you, Michael. I'll now walk through the specifics of our financial results for the second quarter and the first half of fiscal year '26. The second quarter saw a material improvement on our Q1 results as we move through our Q2 sales period, driven by strong sales performance in our key higher Ed and Work segments, which represent around 70% of our revenues. K-12 exposed segments, including school and to a smaller extent, ELL, that performed in line with the expected headwinds due to 2026 being a known low adoption year, but we remain well positioned in the large California and Florida state adoptions coming next year. The management team retained a clear balance on managing costs by accelerating investment in AI, digital first and work funded by efficiency savings as we simplify our operating model. The strong performance of digital sales, rollout of new AI products and go-to-market investments position the company in a strong position for sustainable and profitable growth. To help you understand the true underlying performance of the business, I will provide normalized results and nonrecurring items alongside reported financials. Trailing 12 months adjusted cash revenue came in at $1.522 billion, down 1% as reported but up 1% year-on-year when normalized for nonrecurring items. Trailing 12-month adjusted cash EBITDA came in at $511 million, up 4% as reported, but up $33 million or 7% were normalized for nonrecurring items. Moving to the quarter. Q2 adjusted cash revenue came in at $612 million, flat year-on-year as reported, but up 1% year-on-year when adjusting for nonrecurring items. On an adjusted GAAP basis, revenues were up 1% year-on-year as reported. Q2 adjusted cash EBITDA declined 1.5% year-on-year but up 1% year-on-year when normalized to nonrecurring items. On a GAAP basis, adjusted EBITDA was down slightly with higher Ed and Work segment both growing strongly, offset by lower K-12 performance. On a year-to-date basis, adjusted cash revenues reached $872 million, a decline of 2% year-on-year as reported, with Q2 performance helping offset the 8% year-on-year decline reported in Q1. Normalized to nonrecurring items, adjusted cash revenues would be flat year-on-year and on an adjusted GAAP basis, revenues are up 1% year-on-year as reported. Year-to-date, adjusted cash EBITDA of $343 million represents a decline of 8% as reported and down 5% when normalizing for nonrecurring items. On a GAAP basis, EBITDA was down 2% year-on-year as reported. Now turning to performance highlights by segment. Higher education, which represents 50% of our business leads in our digital-first strategy and is leveraging strong tailwinds within its key U.S. market. Normalizing for the change in our Latin American go-to-market model and nonrecurring items, Q2 and H1 adjusted cash revenues at $303 million to $404 million, respectively, are up 2.5% year-on-year. Q2 and H1 U.S. Higher Ed adjusted cash revenue grew 4% year-on-year, driven by 7% growth in digital sales, improved sell-through rates and growth in institutional sales and pricing. Institutional sales at over $200 million year-to-date were over 20% year-on-year and now represent 53% of U.S. Higher Ed sales. Gale performance improved in Q2 due to an uptick in renewals and demand as we get past the uncertainty in funding related to federal action that impacted Q4 of '25 and Q1 of '26. Adjusted cash revenues were down 6.7% for the quarter versus a 15% decline in Q1. International adjusted cash revenues are flat year-on-year when normalized for the change in LatAm sales channel to a third party, leading to revenues being repurposed on a net basis in '26 versus growth in 2025. U.S. Higher Ed is a business of clear focus for the company, and we continue to invest in AI tools, products and go-to market to position the business for sustained revenue growth and continuous record of improving margins. A good example of this focus has been to hire new top talent to lead our U.S. and international sales and marketing teams, further driving the strong forward momentum for this business. Higher Ed Q2 adjusted cash EBITDA is flat year-on-year as reported, reflecting flat revenue and investment into AI and go-to-market to position the segment for sustained growth. Turning now to the Work segment. The work segment is a bright spot for the company in terms of revenue growth and opportunity and benefit from operational leverage. Q2 adjusted cash revenues were up 9% year-on-year and up 5% year-to-date, powered by ed2go up 32% year-on-year for the quarter and 28% year-to-date and CTE revenues, which were up 7% year-on-year for the quarter due to strong sales in the quarter. We are building on the ed2go momentum and increasing investment to capture the accelerating demand for workforce skills training, improving our pipeline conversion and expanding the number of courses, institution, geographies and languages that we operate in. For the first half of the year, Infosec and Milady businesses declined 5% year-on-year, impacted by federal budgeting pressures, government shutdown, and the recent immigration policy. We expect these pressures to continue through the rest of the year. Top line revenue growth, coupled with cost efficiencies due to our new operating model delivered Q2 adjusted cash EBITDA growth of 13% and 10% year-to-date, taking adjusted cash EBITDA margin to 51.3%, up 270 bps on a direct margin basis. The School segment, which only represents 17% of our total adjusted cash revenues continued to be impacted by 2026 being a low adoption year. Q2 adjusted cash revenues were down 4% year-on-year, which reflects a significant improvement on Q1, where revenues were down 22%, with no large adoptions such as the $40 million and new contracts signed in 2025. The sales team will be focused on winning open territories where they retained strong win rates. Gale adjusted cash revenues have declined 15% year-on-year, in line with expectations due to federal policy, creating funding uncertainty leading to market softness for renewals and demand for databases. The focus for school this year is to position the business for the large adoption year in 2027 and '28 were California and Florida, maintaining investment into AI tools, content and go-to-market capabilities. Q2 and year-to-date adjusted cash EBITDA year-on-year decline reflected lower revenue, new loyalty and considerable delivery for the revised Big Idea of many partnerships and a one-off $4 million bad debt charge related to Baker & Taylor. Moving to the final and smaller segment, our English Language Learning. Q2 adjusted cash revenue at $41 million were down 19% year-on-year and H1 revenues are down 15% year-on-year. Year-on-year comparisons were impacted by one large nonrecurring international deal in fiscal 2025 and headwinds from government policy. Normalizing for the exit from the Ministry of Education contract in Egypt and nonrecurring international deal, H1 revenues will be down 5% year-on-year reflecting federal funding headwinds in the core U.S. market. Q2 adjusted cash EBITDA is down 10% year-on-year when normalized for a nonrecurring international deal and H1 down 7% year-on-year, normalized for nonrecurring items. Turning now to cash flow, liquidity and debt. H1 cash flow performance reflects the flow-through of lower cash EBITDA and timing impacts that we expect to create in Q3. Technical issues with the new SAP accounting system caused delays to invoices going out during our key selling season, which has in turn delayed selection. These issues have now been resolved, and we maintained strong communication with customers during the period, no contractor revenue or loss, and we anticipate strong collections in Q3 and Q4. Our success in institutional sales is driving a change in revenue mix resulting in collection timing shifting from Q2 to Q3. And faster billings for School and ELL relative to fiscal 2025, again, due to not having any large adoptions this year, plus the revised partnership with Big Ideas many impacted cash. This will be partially offset in the second half by lower reimbursement to Big Ideas learning under the new agreement. The $42 million year-on-year change in leveraged free cash flow reflects a lower cash EBITDA, higher restructuring costs due to implementing our new operating model that will lead to future savings, higher taxes as we've improved due to improving profitability, offset by lower consulting costs and lower interest payments for margin reduction achieved through the November '24 repricing. Lastly, 2 preferred equity dividend payments were made in H1 '26 versus 1 in H1 '25, which also impacted cash flow. Liquidity position remains strong, with net leverage below 3x for 5 consecutive quarters. We expect this position to improve as we improve cash collection in the second half of the year and lower restructuring costs. Net leverage ratio of 2.8x represents an improvement in our trailing 12-month adjusted cash EBITDA as the cost saving programs continue to take hold, enhance year-on-year profitability. Cumulative deleveraging over the past 24 months, reinforces Cengage's capacity to navigate macro challenges while executing growth and transformation strategies. In summary, we continue to see robust performance in our key Higher Ed and Work segment, which are both set up for strong future performance. School and to a lesser degree, English Language Learning have faced some known headwinds in the first half of the year but we are well positioned to return to growth. Our cost structure continues to become more efficient, bringing up capacity for our continued investment to AI, digital first and [ Work ] businesses, while also improving margin. and the projected improvement in free cash flow and the substantial reduction in net cash interest underscore our strong financial trajectory and ability to generate value for our shareholders. We are now happy to take your questions. Operator: [Operator Instructions] This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and welcome to the Danaos Corporation conference call to discuss the financial results for the 3 months ended September 30, 2025. As a reminder, today's call is being recorded. Hosting the call today is Dr. John Koustas, Chief Executive Officer of Danaos Corporation; and Dr. Evangelos Chatzis, Chief Financial Officer of Danaos Corporation. Dr. Koustas and Mr. Chatzis will be making some introductory comments, and then we will open the call to a question-and-answer session. I would now like to turn the conference over to Mr. Evangelos Chatzis, Chief Financial Officer. Please go ahead, sir. Evangelos Chatzis: Thank you, operator, and good morning to everyone. Before we begin, I quickly want to remind everyone that management's remarks this morning may contain certain forward-looking statements and that actual results could differ materially from those projected today. These forward-looking statements are made as of today, and we undertake no obligation to update them. Factors that might affect future results are discussed in our filings with the SEC, and we encourage you to review these detailed safe harbor and risk factor disclosures. Please also note that where we feel appropriate, we will continue to refer to non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income, time charter equivalent revenues and time charter equivalent dollars per day to evaluate our business. Reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying materials. With that, let me now turn the call over to Dr. John Koustas, who will provide the broad overview of the quarter. John Coustas: Thank you, Evangelos. Good morning, and thank you all for joining today's call to discuss our results for the third quarter of 2025. As we enter the final months of the year, operating conditions remain broadly unchanged. The war in Ukraine continued with no end in sight. And while the conflict in the Middle East is in the process of resolution, transit through the Red Sea has not yet resumed and liners are waiting for more permanent signs of stability to restart the transit. The recent escalation in trade and tariff tensions between the United States and China enabled trade to resume unhindered while the redirection of Chinese exports to the EU and other countries kept trading and container traffic at an all-times high during the third quarter of the year. The charter market remains robust and the idle fleet remains at all-time low. Demand for midsized and larger vessels continues unabated, and we have secured new charters for vessels opening as far out as the beginning of 2028. Shipyard slots for 2028 deliveries are becoming scarce and newbuilding prices continue to rise. We have selectively extended our newbuilding program at below market prices, and we have already secured multiyear employment for these new orders. Following the IMO's 1-year postponement of its net zero framework, we expect conventional fuels to remain prevalent in the medium term, even long-term decarbonization trajectory is unchanged. In relation to our newbuilding program, we recently added six 1,800 TEU vessels to our order book with scheduled deliveries between 2027 and 2029 and have secured 10-year charters for 4 of these vessels with a contribution to our contracted revenue backlog of approximately $236 million. On the financing front, we recently completed a $500 million unsecured 7-year bond offering with a 6.85% coupon. This is one of the most competitively priced deals ever achieved in the shipping industry for an unsecured bond with such tenor and is a testament of our superior credit quality. We intend to use the proceeds to redeem our 2028 $300 million bond as well as prepay in full some smaller secured bank credit facilities. We have already arranged secured debt financing for the majority of our newbuilding program and our fortress balance sheet that has been solidified with the recent bond issuance considerably enhances our capacity to pursue accretive investment opportunities that can propel the growth of Danaos into the next level. Our solid performance has enabled us to continue to deliver strong profitable performance, enhance our contract backlog and fund investments to reduce the age of our fleet and further cement Danaos' leadership position in the container charter market. We also continue to opportunistically invest in the dry bulk Capesize market segment, where we expect outsized returns due to supply constraints and ton-mile demand increase. Finally, I'm pleased to announce that we are increasing our quarterly dividend to $0.90 per share, consistent with our policy of yearly increases, while also striving to continue to build long-term value for the benefit of our shareholders. With that, I'll hand the call over back to Evangelos, who will take you through the financials for the quarter. Evangelos Chatzis: Thank you, John, and good morning again to everyone, and thanks to all of you for joining this call. I will briefly review the results for the quarter, and we will then open up the call to Q&A. We are reporting adjusted EPS for the third quarter of 2025 of $6.75 per share or adjusted net income of $124.1 million compared to adjusted EPS of $6.5 per share or adjusted net income of $126.8 million for the third quarter of 2024. This $2.7 million decrease in adjusted net income between the 2 quarters is the combined result of a $6.1 million increase in total operating costs, mainly due to the increase in the average number of vessels in our fleet and a $2.5 million decrease in dividend income, partially offset by a $4.5 million increase in operating revenues, a $1 million decrease in equity loss on investments and a $0.4 million decrease in net finance expenses. As analyzed in our earnings release, the increase in our fleet produced $11.2 million of incremental operating revenues that was supplemented by an extra $1.8 million in higher operating revenues as a result of higher fleet utilization. Those were partially offset by a $4.3 million decrease in revenues of our Container segment as a result of lower contracted charter rates between the 2 periods and the $4.2 million lower noncash U.S. GAAP revenue recognition. Vessel operating expenses increased by $2.4 million to $52.3 million in the current quarter from $49.9 million in the third quarter of 2024, mainly as a result of the increase in the average number of vessels in our fleet, while our daily operating cost slightly increased to $6,927 per vessel per day for this quarter compared to $6,860 per vessel per day for the corresponding third quarter of 2024. Our operating costs continue to remain among the most competitive in the industry. G&A expenses increased by $1.6 million to $12.6 million in the current quarter compared to $11 million in the third quarter of 2024. Interest expense, excluding finance cost amortization, increased by $0.3 million to $7.7 million in the current quarter compared to $7.4 million in the third quarter of 2024. This increase is the combined result of a $0.9 million increase in interest expense due to an increase in our average indebtedness of $121 million between the 2 periods, and that was partially offset by a reduction in the cost of debt service by approximately 74 basis points, mainly as a result of a decrease in SOFR cost between the 2 periods. We also had a $0.6 million decrease in interest expense due to higher capitalized interest on vessels under construction between the 2 periods. At the same time, interest income came in at $3.8 million in the current quarter due to the increased average cash balances on our balance sheet, partially offset, of course, by declining interest rates. Adjusted EBITDA increased by 1.5% or $2.7 million to $181.6 million in the current quarter from $178.9 million in the third quarter of 2024 for reasons that have already been outlined earlier on this call. We encourage you to review our updated investor presentation that is posted on our website as well as subsequent events disclosures. Let me provide a few of the highlights. Since the date of our last earnings release, we have added $745 million to our contracted revenue backlog. As a result, our contracted charter backlog has considerably improved and now stands at $4.1 billion with a 4.3-year average charter duration, while contract coverage is already at 100% for this year, 95% for 2026 and at 71% for 2027 in terms of operating days, contracted operating days. Our investor presentation has analytical disclosure on our contracted charter book. As of September 30, 2025, our net debt stood at $165 million, and this translates to a net debt to adjusted EBITDA ratio of 0.23x, while 53 out of our 84 vessels are unencumbered and debt-free. This quarter, we have declared a dividend of $0.90 per share, which is an increase of approximately 6% versus the prior dividend. And we also continue to execute under our share repurchase program, and we currently have $86.4 million remaining authority to repurchase stock under our $300 million stock buyback program. Finally, as of the end of the third quarter of 2025, cash stood at $596 million, while total liquidity, including availability under our revolving credit facility and marketable securities stood at $971 million, giving us ample flexibility to pursue accretive capital deployment opportunities. With that, I would like to thank you for listening to this first part of our call. Operator, we are now ready to open the call to Q&A. Operator: [Operator Instructions] The first question comes from Omar Nokta with Jefferies. Omar Nokta: A couple of questions for me. Just a couple of questions, one on kind of the industry and then on Danaos specifically. Just first, on the container shipping chartering activity we've been seeing. It's been a bit of a bumpy year in terms of lower trade and tariffs and box freight rates have gotten lower and there's kind of growing charter perhaps of the Red Sea. Return, even though it's still very, very early and people are still cautious. But yet, despite all that, you're still seeing very high demand for charters on your existing ships. But then also despite you having said you wanted to step back from the newbuilding market, it's been kind of difficult given the contracts being awarded. I wanted to just kind of get your sense in terms of what do you think is driving all of this kind of -- I don't want to call it, say, a frenzy, but just a strong appetite on the part of liners looking for ships, whether it's what's on the water on a forward basis perhaps, but then also looking for brand-new ships that deliver in '28 and '29. Just kind of that high volume of activity, what do you think is driving that? And can we expect that to persist as we get into 2026? John Coustas: Well, Omar. It's difficult, let's say, to answer exactly what is happening. What we see is that there is -- there was this, let's say, problem with tariffs. But tariffs themselves have not changed the overall the world, let's say, production capacity. And China, I mean, during this period didn't stop producing. It's just that the goods were directed elsewhere. And what is really interesting this time is that we see the dynamism in the market happening outside of the, let's say, the usual Western areas, I mean, Europe and the U.S. The market is developing quite substantially all over the other -- the rest of the world. And that is why also demand for midsized ships has been so robust because that's really where the demand increase is coming. So yes, I cannot really say how strong 2026 is going to be. I mean, as far as we are concerned, practically, even for 2027, we are mostly fixed. It's difficult really to make any prediction. And you see we will, of course, have a better idea of where the market is heading after the canal is opening again, which we believe now that it will be maybe an event of the first half of '26, although in that kind of area, the disarmament of Hamas is not happening. And I think this is really the most crucial question to ensure that this conflict is over. Omar Nokta: Yes, definitely a lot of moving pieces, and it does sound like the trade has clearly gotten much more complex. And then maybe just kind of thinking about Danaos specifically and the investment in the Capesize vessel you bought, that's your 11th ship. This one comes after you had bought the original 10 back in '23. What's maybe triggered this investment? And then also why this age range? And should we expect more of these types of investments going forward? John Coustas: Yes. Of course, our idea was when we entered that kind of market to really grow it. I mean, as a percentage, let's say, of our fleet, not in terms of, let's say, ship numbers, but at least, let's say, in terms of investment in value, all this dry bulk investment is less than 5% of our overall assets. So it's still really nothing, I mean, practically. And we definitely want to increase it. For the time being in the newbuilding front, still these vessels do not make sense. So we're trying to expand selectively in the secondhand market and mainly trying to identify good quality vessels. Omar Nokta: Okay. And then final one, just on the share repurchase program. You have been since inception, I think, in '22, quite active with it. You're also active in the prior, say, 3 or so quarters. Not much was done. I don't think you bought any stock in the last quarter. What's behind that? And what can we expect going forward? Or what do you think about the buyback from here? John Coustas: We are continuing. We have not really stopped. It's just the pace has been kind of smaller. We still believe that our stock is greatly undervalued. And we are continuing at a smaller pace, but we have not stopped. Evangelos Chatzis: Yes, Omar, we are resuming the share buybacks in the past few weeks, and we're still at it. Omar Nokta: Okay, awesome. And also congrats on the bond issue last month. John Coustas: Thank you. Operator: [Operator Instructions] The next question comes from Climent Molins with Value Investor's Edge. Climent Molins: Following up on Omar's question on the Capesize acquisition and your commentary on maybe wanting to expand your direct exposure. Could you provide an update on how you view your investment in Star Bulk? And secondly, is there any appetite to maybe expand into other segments such as Panamaxes or Supramaxes? John Coustas: Well, as we said, we are happy with our investment in Star Bulk. We have actually increased that position last spring when we saw a dip in prices. We are continuing. We believe that there is room for appreciation. As far as the other segments, no, we are not looking into other segments at the time being. Climent Molins: That's helpful. And following up on the Capesize side of the fleet, could you provide some guidance on your Q4 fixtures to date? Evangelos Chatzis: We do not provide guidance as to charter fixtures for the running quarter. Climent Molins: I understand. Make sense. Operator: It appears we have no further questions at this time. I would like to turn the call back over to Dr. Koustas for any further comments or closing remarks. John Coustas: Thank you all for joining this conference call and your continued interest in our story. Look forward to hosting you on our next earnings call. Have a nice day. Operator: Thank you. This concludes today's teleconference. We would like to thank everyone for their participation. Have a wonderful afternoon.
Pedro Courard: Good morning, good afternoon. My name is Pedro Courard, I'm CEO of Atlantic Sapphire. And today, together with Gunnar Skinderhaug, our CFO, we will present the third quarter operational update of the company. The company has been performing according to plan during the last quarter. In terms of production, achieving 1,400 tonne HOG in the third quarter at an average weight of 3.1 kilo HOG. And in terms of prices, we achieved $8.6 per kilo, let us say, 19% above the U.S. price index. We have continued the process of operational improvement in all areas, allowing us to keep our ambitions in terms of future production. As we are finishing the operational upgrades started in 2025, we are now realizing the positive impact of having more stable systems. While our feed conversion remains stable in 1.3, we have been constantly increasing our feed consumption rate permitting us sustain our future production plans. Losses were slightly higher than in previous quarters, but still within normal ranges and very low. Keeping our trend for 2025. During the third quarter, we increased our harvest maintaining good average weight, reaching premium prices. Following market tendencies during the quarter, we had a decrease in prices compared to previous one. Both net and standing biomass are showing stable levels for the last 2 quarters, in line with our expectations. Gunnar Aasbo-Skinderhaug: Efforts are currently on Phase 2. improving biological and financial performance. Phase 1 harvest data improving, sales performance is improving. As Pedro mentioned, and profitability measures are on track. All efforts are currently on Phase 1. Phase 2 investments are preliminary cost as we focus all our efforts on improving Phase 1. The profitability measures are on track and will drive down unit costs in the coming periods, mainly from 3 areas. Scale is increasing as volume increase, scale effect is increasing. Current harvest volume is expected at 5,400 metric tons for 2025, growing to 7,000 metric tons for 2026 and 7,500 metric tons for 2027. Another improvement area is cooling and energy as new measures allow more efficient water cooling on the facility. The third main area is maintenance as Pedro mentioned the maintenance program is executed and completed and will drive down unit costs going forward. Beyond the ambition, we see further potential going forward. Also through scale, increasing from 7,500 and beyond, we see optimized Phase I operating at 8,500 tonnes annual harvest weight. We also have further potential to improve cooling and energy usage and also improve FCR. This will drive down unit cost in an optimized Phase 1 further. And Phase 2 will allow further scale on the facility, allowing even further reduced operational costs per kilogram harvested. Now we open for Q&A. Gunnar Aasbo-Skinderhaug: [Operator Instructions] We have one question from IntraFish. When do you expect to be able to move to Phase 2 and how have costs for this changed? Pedro Courard: Well, first, it's important to mention that today, we are 100% focused on Phase 1. Our goal is validate Phase 1and everything is going in that direction. Once we are able to validate Phase 1, we will continue spending resources in Phase 2. So far, we don't have yet a cost estimation for this step. Gunnar Aasbo-Skinderhaug: We have no further questions posted. We are open to receiving questions also on e-mail. We will reply as quickly as we can. There is 1 here from DNB. What measures will you take to improve net biomass growth to target 2,200 to 2,500 live weight per quarter? And when do you expect to get there? Pedro Courard: Today, we are running according to the plan. The measure are the normal one. We are increasing the feed consumption per day, our goal is to be at around 32 tonnes per day, and now we are moving directly in this path. So we expect that in the first month of 2026 will be in that level of standing biomass. Gunnar Aasbo-Skinderhaug: There are no further questions posted. As mentioned, we will answer questions also on e-mail. Thank you, everyone, for attending this Q3 presentation. Wish you all a great day. Pedro Courard: Thank you very much.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Mizrahi Tefahot Bank Third Quarter 2025 Business Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, November 18, 2025. With us on the line today are Mr. Adi Shachaf, CFO; and Mr. Menahem Aviv, Chief Accountant. We would like to draw your attention to Slide #1 of the financial statement for the third quarter 2025 presentation, which includes general comments regarding legal responsibility, including that the information contained in the presentation constitutes information from the bank's 2025 quarterly reports and/or immediate reports as well as the periodic quarterly and annual reports and/or immediate reports published by the bank in previous years. Accordingly, the information contained in the presentation is only partial, is not exhausted and does not include the full details regarding the bank and its operations or regarding the risk factors involved in its activity and certainly does not replace the information included in the periodic annual and/or quarterly or immediate reports published by the bank. In order to receive the full picture regarding the bank's 2025 quarterly and annual reports, the aforesaid reports should be pursued fully as published to the public. The bank's results in practice may be significantly different from those included in the forecasting information as a result of a large number of factors, including inter alia, changes in the domestic and global equity markets, macroeconomic changes, geopolitical changes, legislation and regulation changes and other changes that are not under the bank's control, which may lead to the estimations not realizing and/or to changes in the business plan. The forecasting information may change subject to risks and uncertainty due to being based on the management's estimations regarding future events, which include inter alia, global and local economic development forecast, particularly regarding the economic situation in the market, including the effect of macroeconomic and geopolitical conditions, expectations for changes and developments in the currency and equity markets; forecasts related to other various factors affecting exposure to financial risks, forecasts with respect to changes to borrowers' financial strength, public preferences, changes in legislation and provisions of regulators, competitors' behavior, the status of the bank's perception, technology developments and human resources developments. Mr. Shachaf, would you like to begin? Adi Shachaf: Thank you all, and welcome to the Mizrahi Tefahot Q3 2025 Analyst Call. As you all know, the last 2 years were very unusual for Israel. From the first day of the war, the bank has taken a pro-client approach trying to offer immediate relief to its clients beyond the mandatory relief plan of the Bank of Israel, and we're adapting the COVID experience and best practice to the current situation. As for the bank, it is much more boring, as you can see from the report on the results and without any material one-off. I think the most conspicuous item in this report is the very strong credit growth. This growth is across the board along most of the asset classes, including mortgages, corporate and middle market and is part of our strategic plan. Since life is not always linear. Many of the deals we are working on materialized in Q3. So it would be reasonable to assume that the work on [ toward ] closing and growth rate in Q4 would be lower. This growth should help us to create a nice starting point for 2026. We think that our credit metrics reflect a balanced credit portfolio with adequate risk management. You can see provisioning was relatively standard for this period. And then for the other items, please let me use this call to further highlight a couple of points. CPI contribution to financing revenues is traditionally high in Q3, and that was also the case this time. CPI contribution in Q4 is, of course, expected to be lower. The net profit and the return on equity reflects the strong balance sheet and the good efficiency ratio. Our cost-income ratio for the quarter is below 35% and in line with our strategic plan. On the expense side, you can see the continuation of 2024 being a notch down compared to 2023 levels. And as always, salaries are also affected from variable remuneration related to the bank's results. It is also very noticeable that the results have been reached despite the relative extra tax Israeli banks are paying in 2025 and despite the extensive Bank of Israel client relief outline. Our implementation of the outline is targeting more financing, interest paying or saving benefits to clients and less operational benefits, and one can easily estimate the impact of these 2 items on the results. Liquidity is very robust with high share of core deposits and capital ratios are in tandem with the profitability and growth. Demand for mortgages is healthy and we continue to follow our strategy to retain our market share in the market. We think that it is reasonable to assume that today's balance sheet growth will materialize in the coming quarters, and we do expect to see further responsible credit growth in the coming quarters. We will distribute 50% of Q3 profit to dividends. All in all, since we are following our boring yet effective path and accommodating to the new environment. Thank you very much for your attention. And with that, I leave you with the hands of Mr. Menahem Aviv, our Chief Accountant. Menahem Aviv: Thank you, Mr. Shachaf. Let's overview the main figures in the financial statements. The net profit in Q3 2025 reached ILS 1.483 billion. The net profit in the first 9 months of 2025 reached ILS 4.26 billion. The return on equity in Q3 reached 17.6% and in the first month of 2025 reached 17.2%. The equity amounted ILS 34 billion. The cost income ratio reached in Q3 2025, 34.2%. The financing revenues from current operations in Q3 reached ILS 2.822 billion. The total revenues in Q3 reached ILS 3.830 billion. Operating and other expenses totaled to ILS 1.310 billion. The ratio of provisions to loans in Q3 reached 0.04%, and the ratio of Tier 1 reached 10.14% and the total ratio reached 13.03% (sic) [ 13.04% ]. Adi Shachaf: I think we can go now to Q&A. Thank you, Mr. Aviv. Operator: [Operator Instructions] The first question is from Tavy Rosner of Barclays. Tavy Rosner: Just a couple of short questions, if I may. I saw the announcement from Bank of Israel earlier this week, allowing banks to distribute higher capital as long as it meets the capital requirements. What's your take about the announcement? Do you feel that there is room to distribute more? Or are you comfortable with the current level for the time being? Adi Shachaf: Thanks, Tavy. We're comfortable with the current level. As you can see, we use this capital for our growth and credit growth. And we think that, for example, in this quarter, a 50% dividend alongside a return on equity of 17.6% reflects the good mix and balance between these 2. And we think that we would keep on with our strategic plan and grow our credit, and we need this capital. Tavy Rosner: Got it. And then on the business side, on the mortgage aspect, do you feel any change in the competitive dynamics? Any other banks or institutions competing actively on prices? Or how should we think about mortgages in the near term? Adi Shachaf: We're not allowed to refer to prices, but we see a very competitive market on the mortgage arena for many, many quarters. Our strategy is to retain our market share, and we were able to do it despite the heavy competition. Tavy Rosner: Okay. Got that. And then just a housekeeping one. How should we think of expenses growth the next couple of quarters? Is it still like mid-single-digit type of growth? Or are you expecting to kind of lower it at some point? Adi Shachaf: So can you please repeat it, Tavy, I couldn't hear you. Tavy Rosner: Yes. Just about the expenses in general, salaries and so on. Should we expect mid-single-digit growth through the cycle as like a normal run rate? Adi Shachaf: Yes. Operator: There are no further questions at this time. This concludes the Mizrahi Tefahot Bank Ltd. Third Quarter 2025 Business Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Joanna: Morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer Holdings, Inc.'s Fourth Quarter and Fiscal Year 2025 Conference Call. After the speakers' remarks, there will be a question and answer session. As a reminder, this call is being recorded. I would now like to turn the conference over to Jonathan P. Poldan, Vice President Treasurer and Investor Relations. You may begin your conference. Good morning. Jonathan P. Poldan: And welcome to Energizer Holdings, Inc.'s Fourth Quarter and Fiscal 2025 Conference Call. Joining me today are Mark S. LaVigne, President Chief Executive Officer, and John J. Drabik, Executive Vice President and Chief Financial Officer. In just a moment, Mark will share a few opening comments, and then we will take your questions. A replay of this call will be available on the Investor Relations section of our energizerholdings.com. In addition, please note that our earnings release, prepared remarks, and a slide deck are also posted on our website. During the call, we will make forward-looking statements about the company's future business and financial performance, among other matters, and are subject to risks and uncertainties. These statements are based on management's current expectations, which may cause actual results to differ materially from these statements. We do not undertake to update these forward-looking statements. Other factors that could cause actual results to differ materially from these statements are included in reports we file with the SEC. We also refer in our presentation to non-GAAP financial measures. A reconciliation of non-GAAP financial measures to comparable GAAP measures is shown in our press release issued earlier today, which is available on our website. Information concerning our categories and estimated market share discussed in this call relates to the categories where we compete and is based on Energizer Holdings, Inc.'s internal data, data from industry analysis, and estimates we believe to be reasonable. The battery category information includes both brick-and-mortar and e-commerce retail sales. Unless otherwise noted, all comments regarding the quarter and year pertain to Energizer Holdings, Inc.'s fiscal year, and all comparisons to the prior year relate to the same period in fiscal 2024. With that, I would like to turn the call over to Mark. Good morning, and thanks for joining us today. We delivered strong earnings in fiscal 2025 by staying agile and focused in the face of a disruptive environment and shifting trade policies. We moved quickly, capitalized on opportunities, and executed with discipline to achieve outstanding results. Our decisive actions to reshape our operational footprint, combined with strategic investments and strong execution, have established an elevated earnings base positioning Energizer Holdings, Inc. to win as we close 2025 and move into 2026. Let me share a few highlights that define our progress in 2025. We grew net sales in a challenging environment driven by significant growth in e-commerce, international expansion, and meaningful innovation in auto care. We made necessary changes to our network and executed targeted pricing to mitigate tariffs and preserve margins. Project Momentum achieved over $200 million in savings to date. As we announced this morning, we have extended it into a 2.3% to nearly $3 billion. Adjusted earnings per share increased 6% to $3.52, supported by organic growth, disciplined cost management, and manufacturing production credits, enabled by our investments in U.S. production. We also returned $177 million to shareholders in fiscal 2025 through dividends and share repurchases, reducing our outstanding shares by roughly 5%. The macro environment continues to evolve. Tariffs have increased our costs, consumer demand softened late in the year, and supply chains required rapid rebalancing. We responded quickly, realigning our manufacturing footprint to minimize tariff exposure and executing pricing actions to protect margins. These steps were not easy, but they were necessary and created a solid foundation for future growth. As we enter fiscal 2026, we know the first quarter will reflect a challenging sales comparison, transitional tariff-related costs, and moderating consumer sentiment. But beyond Q1, the benefits of our actions, including network realignment, accelerated APS integration, and Project Momentum savings, will build. And we expect these initiatives to drive double-digit adjusted earnings per share growth over the final three quarters of the year. In short, fiscal 2025 was a year of resilience, agility, and progress. We faced a challenging environment head-on, made bold decisions, and strengthened our foundation for the future. I want to thank our colleagues, suppliers, and customers for the collaboration that helped us overcome these headwinds and deliver. This year-over-year growth reflects disciplined execution and the strength of the partnerships built on trust and shared commitment to solving challenges together. Thank you for your continued confidence in Energizer Holdings, Inc. Together, we are ready to compete, win, and grow. With that, let's open the call for questions. Joanna: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. We do ask that you limit yourself to one question and one follow-up. You may certainly re-queue if you have additional questions. The first question comes from Peter K. Grom at UBS. Please go ahead. Peter K. Grom: Great. Thank you. Good morning, guys. Hope you are doing well. So I wanted to pick up on that last point and just on the phasing end of the year, specifically just kind of the ramp needed to hit the full year following a challenging first quarter. So can you maybe just speak to the degree of confidence or maybe the visibility you have on the implied ramp just given how difficult and dynamic the operating environment continues to be? And then just related, I mean, what is the level of flexibility or cushion you have kind of embedded in the outlook at this stage? Thanks. Mark S. LaVigne: Thanks, Peter. Look. Let me start. I am going to hand it to John, and then I will maybe finish and kind of how we were how we approach providing outlook for the year. I mean, look, we acknowledge that we expected a stronger Q4. But I still think we want to take a step back at least as we get started. And really reflect and be proud of what the organization achieved in '25. And to do that, I think you have to go back to we launched Project Momentum three years ago, and the objective behind that was to restore gross margins, enhance free cash flow, strengthen the balance sheet. We have delivered across all of those metrics over that three-year period with $200 million in savings. We have recovered 350 basis points in gross margin. And momentum has enhanced free cash flow played a part in enhancing free cash flow. We delivered more than $740 million in free cash flow that time period. The result over that time period is nearly 5% EPS growth on average over that time period. And over 3% EBITDA growth. As we started momentum, we understood the need for supply chain agility. And in FY 2025, put that to an early test. And with the tariff and trade policies, we needed to adjust fast, and we did. We overhauled our network. We preserved margins in '25, and this will get Peter to your question. Essentially do that in '26 once you incorporate kind of the APS margin integration that we are going to go through. So there is a transitional period which we saw in Q4, you are going to see in Q1, but the pieces are in place and the plans are mostly complete. For the ramp that John's going to describe. So it has really been a remarkable transformation and, as you said, in a really disruptive volatile environment over the last three years, which ended in a sort of six-month sprint. Where we needed to rebalance our network to make sure that we took into account new trade policy. So as we exit that sprint at the '1, we are really set up from Q2, three, and four to get back to more historical wells performance from a financial perspective. So, John, you want to talk to Durant? Yeah. Yeah. Let me start with the first quarter and then we can kind of go into what we see Q2 through Q4. So on the top line in the first quarter, we are getting we have got both that storm comp and the shift in display timing that we called out. Both of those we view as one-time or timing in nature. And then kind of as you look at the rest of it, the category overall we are calling down for the quarter about 300 to 400 basis points, but we see that improving as we kind of go throughout the quarter and then into the rest of the year. So our outlook for the full year on the category you know, kind of contemplates back to, you know, roughly flat in the back half. And then we are going to lean into other areas for growth that have been driving us for the last year or two. And that is really international markets, as well as transitioning that APS business into our Energizer Holdings, Inc. branded portfolio. That is a big driver in the back half of our fiscal year. And then we are going to continue to see growth in e-commerce and some of the innovation that we expect to launch this year. So when you put those in place, I think we are going to get past the first quarter and start to see better growth in the back half of the year, really starting in Q2. Then gross margin is also getting impacted in the first quarter. So as we get past the first quarter, we should benefit getting past the transitional operational inefficiencies that we really generated over the summer and into fall. As we kind of moved our supply chain around to offset the tariffs. Then we will further benefit from transitioning the APS business to our branded portfolio think that will help us on the margin side. So as we look at kind of Q2 through Q4, I think low single-digit top-line growth normalized gross margins with some of the momentum savings should allow us to generate that EPS growth of kind of low double digits. And then Peter, to wrap up on your final question, how do we approach '26? I mean, look. There is a lot of stuff we cannot control. And so what we tried to do is be really clear-eyed about what we are seeing in the environment today. We did not rely on anything necessarily changing except for the progression that we will talk about it from a category standpoint. But we basically said the battery category is going to be down roughly 2% for the year. Trade policies are going to stay in place. Things that are macro factors, we basically took them as they are and enrolled them forward. And so if you look at our EPS call, there is growth at the higher end of our range. And as we were contemplating it, we felt it was appropriate to build in some downside just so that we can absorb some shocks to the system, which we have seen over the last couple of years and not having to change our outlook. So we were a little bit conservative in terms of the EPS growth. We did not build in anything out of our control to cooperate over the year. And so I think we feel like it is an appropriate call and one that we can achieve as we go through the year. Yeah. That is going to inevitably change along the way. Peter K. Grom: Got it. That makes a ton of sense. I will pass it on. Thank you so much. Mark S. LaVigne: Thanks, Peter. Joanna: Thank you. The next question comes from Lauren Rae Lieberman at Barclays. Please go ahead. Lauren Rae Lieberman: Great. Thanks so much. Good morning. Just wanted to take a step back maybe and like, a bigger picture look. You know, consumer slowdown softening, just wanted to get your perspective on maybe what has changed since we last spoke, you know, both August and then you were at our conference sort of what has changed, what has not, and how are you thinking about the consumer and cost environment from here? Thanks. Mark S. LaVigne: Laura, I think so if I start with gross margin, we saw the landscape changing we had plans in place. So I would say the gross margin projection largely as we expected. We knew Q4 was going to get hit by some of these costs. We expected them to continue into '26. They have, but we have also executed the plans to make them go away as we exit Q1. Would say the biggest changes we have just seen is softening consumer sentiment. You have heard it from a lot of our peers. You have certainly seen it in some of the macro data that as we progress from August September and into October, you really did see softening consumer sentiment. And we are seeing it in the category data for batteries. We are seeing some of the more recent time periods, some improvement in that. But we did not feel like it was appropriate to rely on that continuing to ramp up long term. We are still very bullish on the battery category. We expect it to be kind of a low single-digit grower, but we are going through a disruptive time. And I think it is important to call that from a consumer standpoint as we have. Gross margin, we have controlled what we can. Overall for the year, again, I just mentioned in Peter's question, down 2% is our call for value. But we are going to be able to offset that with some growth in other areas of our business. Lauren Rae Lieberman: Okay. Okay. Great. So just Oh, one other thing, Laura. I am sorry to cut you off. I just as we progress through the year, this is one thing I failed to mention. So the category we are assuming is down 3% to 4% in the first quarter. As we progress, we are expecting stabilization in the category. We are going to start to lap some softer comps that you saw in '25. I failed to mention that. Lauren Rae Lieberman: Okay. Okay. And that is a big part of the driver of the sort of projected improvement in trends after January. Or the comp? Mark S. LaVigne: Yes. Okay. Okay. Great. Alright. I will pass it on. Thank you so much. Mark S. LaVigne: Thanks, Lauren. Joanna: Thank you. The next question comes from Robert Edward Ottenstein at Evercore. Please go ahead. Robert Edward Ottenstein: Great. Thank you very much. I was just wondering if you could talk a little bit about channel dynamics. Obviously, weaker consumer, how is the consumer responding in this environment in terms of which channels they are going to and shopping? What is going on at Amazon with you and the category, and how are you responding to these different changes in consumer dynamics and shopping patterns? Thank you. Mark S. LaVigne: Good morning, Robert. Consumers are certainly seeking value. They are cautious. They are very comfortable shifting channels to be able to find the value of the product and to meet their needs. That manifests itself in a lot of different ways. You have got brands, pack sizes, as you mentioned channel, Certainly e-commerce is a big part of that channel shift that is going on. It has been a point of emphasis for us to make sure that we win in e-commerce. We had a really strong Q4 in e-commerce. We saw our e-commerce business grow more than 35%. In Q4, we saw it grow 25% for the year. As we look ahead to '26, we expect 15% growth off of that. As we go into '26. So it has been an area we have invested in. It is an area where we are winning. And, you know, over that time period, if I look in the aggregate, over a four, thirteen, and fifty-two week period, we are winning with consumers because Energizer Holdings, Inc. is gaining share over each of those time periods. So as consumers are seeking value, our broad portfolio of premium and value brands are there to meet consumers where they are. And we are capturing we are capturing consumers. Robert Edward Ottenstein: Great. Thank you very much. Mark S. LaVigne: Thanks, Robert. Joanna: Thank you. The next question comes from Andrea Faria Teixeira at JPMorgan. Please go ahead. Shovana Chowdhury: Hi, this is Shovana Chowdhury on for Andrea. Thanks for taking our question. Your management commentary, one of the levers to restore gross margin includes optimizing US manufacturing to a your future benefits from production credits. As such, can you give us a sense of magnitude of incremental benefit from your prior estimate of $35 to $40 million annually? Mark S. LaVigne: Yeah. We are continuing to invest in domestic production to drive those credits. We think there could be upside $15 million to $20 million over what we have generated to date per year. So that is where we will continue to focus and try to recoup those. Shovana Chowdhury: Thank you. And quickly, just to clarify, and is that something that would be a benefit starting fiscal 2026 possibly, or is that, like, more of fiscal 2027 onwards story if you get this incremental benefit? Mark S. LaVigne: Yeah. That is we anticipate that in '26. So kind of that level. Shovana Chowdhury: Sounds good. Thanks. I will pass it on. Joanna: Thank you. The next question comes from William Michael Reuter at Bank of America. Please go ahead. William Michael Reuter: Hi. My first question on the weakness that you are seeing in consumers, do you expect that they are just reducing the amount of product that they have in their pantries, or do you believe that their behavior is changing such that they are utilizing devices that need batteries less? I am just kind of trying to dig a little more into your expectation that the category is down. By two or three or 4% this year, and then it bounces back in for future years. Mark S. LaVigne: Consumers are changing. I mean, what we see is consumers will typically drain household inventory. Consumers will typically maybe skip a purchase cycle. And so what you see that play out over a multiple quarter period, but then everything stabilizes and consumers go back to that historical low single-digit growth that we expect to see out of the category. So we believe these are temporary behaviors out of consumers. It will you know, it also manifests itself with channel shifting, pack size changes, and other things that come through in the category data. But we do expect a reversion back to more normalized behavior as we head into '26. William Michael Reuter: Got it. And then just a follow-up for me. I think that there had been an algorithm of an expectation of kind of half a turn of deleverage annually. And if I kind of look back over the last handful of years, leverage really has not moved a whole lot. So I guess, what is your expectation for that deleveraging path? And, I guess, in that context, will you think about allocation relative to share repurchases, which you guys did $90 million this year? Mark S. LaVigne: Yeah. Look. First priority is going to be to pay down debt. We think we can get back to resumption of normalized cash in twenty-five or cash flow twenty-five you know, we were down and that was really largely due to our press plastic-free packaging transition in North America. We invested in both inventories, so working capital was way up for the year. We invested in a lot of CapEx, frankly, to make that product. That should normalize both of those as we head into '26. So we think that we can get that kind of somewhere north of 10% on free cash flow we would focus on paying down $150 to $200 million of debt. I think the, you know, the offset from a leverage perspective will be where the earnings ends up. So we will, you know, we will have to see where that comes in, but it will not probably be all the way to half a turn. It would be something less than that if the earnings fall off. I will say that, you know, we generated decent cash as we finished up the fourth quarter. And we paid down about $80 million of debt so far in the quarter. So we are making good progress and will continue to push there. William Michael Reuter: Great. That is all for me. Thank you. Mark S. LaVigne: Thank you. Joanna: Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press 1. The next question comes from Brian Christopher McNamara at Canaccord Genuity. Please go ahead. Brian Christopher McNamara: Good morning, guys. Thanks for taking the question. I am curious how your retail partners are behaving as it relates to channel inventories. We have heard a variety of takes from other companies but the predominance has generally been they have been pretty tight on inventories heading into the holiday season. I am curious how your categories are being impacted by that. Mark S. LaVigne: Good question, Brian. I think that plays a part in kind of Q4, Q1 dynamic that we were highlighting today. So we saw displays going at the end of that we thought were going to go in Q1. And then obviously with some softening in the consumer sentiment in the category, you have seen lighter replenishment as we have gotten into Q1 simply because they are managing inventory more tightly. We have expected that, you know, for purposes of what the outlook we are providing, we are expecting that to continue for the balance of this year. I think we do expect tighter inventory management as we progress through '26. Brian Christopher McNamara: Great. And my other question was already asked, so thanks. Appreciate it. Mark S. LaVigne: Thanks, Ryan. Joanna: Thank you. We have no further questions. I will turn the call back over to Mark S. LaVigne for closing comments. Mark S. LaVigne: Thanks, everyone, for joining today. Have a good rest of the day. Joanna: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your line.
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.
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: 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.]
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.