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Operator: Good day, and welcome to the Serko FY '26 Interim Results Announcement. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Darrin Grafton. Please go ahead, sir. Darrin Grafton: Good morning from Auckland, New Zealand, and thanks for joining our investor briefing covering Serko's results for the half year ending 30 September 2025. I'm Darrin Grafton, CEO of Serko, and I'm with our CFO, Shane Sampson. This morning, I'll take you through our performance and highlights for the half year period. I'll then hand to Shane to cover our financial results in detail. Then, I'll talk through how we're positioning Serko for the future growth, our outlook and finishing with Q&A. As always, unless otherwise stated, comparisons are made to previous half year period 1H FY '25. And let's begin on Slide 5. This is Serko's strongest half year performance ever on both revenue and EBITDAFI. This was due to disciplined execution and our focus on profitable growth. Key callouts are: first, we achieved strong total income growth of 45% to $61.8 million, and this reflects the scalability of our model with strong contributions from Booking.com for Business and the addition of GetThere, driving our expansion into North America. Second, we delivered EBITDAFI of $6.1 million. This is our highest ever EBITDAFI result. Third, we generated $3 million of free cash flow, and this reflects our cash-generating existing business and the fact we're still in the early stages of our ramping our investment into building Serko for the future. At the same time as delivering these results, we're setting the business up for the future, and I'll touch more on that shortly. Turning to Slide 6. Total income was up 45%. This was driven by a strong trajectory we're on with Booking.com for Business, which continues to grow as we focus on activation, engagement and conversion. This is translating to substantial growth. The other driver is GetThere, which has delivered significant growth in online bookings and to Serko's income. Turning to Slide 7, where we double-click on our Booking.com for Business performance. Completed room nights grew 32% to 2.1 million. This was driven by a 40% growth in active customers, improved onboarding and new platform capabilities that are driving higher customer engagement. We added 40,000 new customers in the half year, significantly stronger than in the same period last year. Completed room nights frequency per active customer was slightly lower, and our view is this likely reflects small- and medium-sized businesses in Europe booking fewer trips due to the macroeconomic headwinds there. We monitor these trends closely, and our analysis gives us confidence that customer activity should normalize as macro conditions improve. Serko crossed into the second tiering of commissions on multiple months, and we're tracking above 4.2 million completed room nights this financial year. Shane will talk to this further. We're delivering at pace against the new initiatives we told you about at our FY '25 announcement, including the latest release of incentives. We're seeing green shoots of success with Genius Level 2, and we have confidence it's driving increased customer retention. We also rolled out significantly improved checkout experience and company onboarding that improved the overall customer experience. Turning to Slide 8. In Australasia, online bookings grew 2%. This was offset by a minus 2% decline in average revenue per booking from reduced third-party costs, some of which were previously passed through the customers. Although this impacts slightly on the ARPV, it significantly reduces our cost, creating a net cost benefit. This mix shift improves the quality of our revenue and demonstrates our focus on sustainable margin expansion. Overall, this resulted in a stable revenue result. Our early commitment to NDC is now paying off. We are one of the few players globally delivering a fully integrated NDC offering across Sabre and Amadeus. We continue to invest and innovate as we strengthen our market leadership and as NDC starts to gain traction. Turning to Slide 9 on our GetThere acquisition and strategic partnership with Sabre, which has fundamentally repositioned Serko in the U.S. market. What's working well? We've fully integrated GetThere, stabilized the customer base with new ARR churn on key accounts around 1% of annualized revenue. We've established our new India development hub and setup global capability center that's now scaling. Revenue exceeded our expectations in the half, reflecting some of the expected churning customers taking longer to offboard than anticipated and very low level of new churn. Where we've been less effective, we haven't achieved our targeted U.S. sales, but we have a clear path forward. It's become apparent as we've been establishing our sales pipeline with leading Fortune 500 companies that many of them want to wait for the new capabilities we're building rather than onboarding to our existing products and going through a second migration later. The other point to note is that our partner, Sabre has shifted their focus away from direct corporate contracts to growth and relationships with travel management companies. This change has contributed to lower direct corporate sales. Sabre is referring TMC resellers to us, but the lower direct corporate sales means we don't anticipate making any performance payments for the 2025 calendar year. Our go-forward plan. In North America, we're now focused on scalable growth through a dual channel approach, firstly, via our TMC reseller network and direct corporate sales. Leveraging our Sabre partnership, we're targeting key management resellers. We've already onboarded 2 partners, Tangerine and Elite Travel. And while smaller in volume, they provide valuable insights into mid-market customer needs. On the direct side, through customer forums with leading Fortune 500 companies, they are involved in helping us to codesign our future AI-powered capabilities. With GetThere fully integrated, we're in the room with major corporates, gaining visibility and confidence in our North American opportunity and our execution model. As discussed at our Annual Shareholder Meeting, GetThere and our Sabre partnership have redefined Serko's North America position. We now have strong market presence, direct customer insights and relationships, along with the data and expertise in a key market, which positions us well for our future success. In summary, the first half has been about strengthening the platform, deepening relationships and codesigning our next-generation AI-powered capabilities. The second half is about establishing the technology to enable our growth, executing with focus and accelerating our North American opportunity. And I'll talk more to the strategy and outlook shortly, but now I'll pass to Shane to cover the financial highlights. Shane Sampson: Thanks, Darrin, and good morning, everyone. Darrin has already called out some highlights for the half year, and I'll go into more detail. I'm going to focus on the key outtakes from the result, and we've also put some additional financial detail in the appendix for your reference. Turning to Slide 11. Total income increased by $19 million or 45% to $61.8 million, reflecting growth in bookings for business volumes in their acquisition. Operating expenses increased by 29% to $65.1 million, up $14.7 million, primarily reflecting costs associated with GetThere and investment in the U.S. market of approximately $16 million and the initial stages of our platform acceleration initiatives with investment of $1.6 million in the half. This was partly offset by lower third-party hosting costs, so lower third-party costs and hosting efficiencies achieved in our pre-acquisition business. Our preferred measure of total spend, which excludes the impact of accounting decisions around capitalization and amortization, increased by $15.2 million or 34% to $59.3 million, broadly consistent with the increase in operating expenses. Higher growth in income relative to spend resulted in EBITDAFI improvement of $4.9 million to $6.1 million. Net loss after tax increased to $9.5 million, an increase of $4.4 million. I will talk to the drivers on the next slide. Free cash flow improved by $1.7 million to $3 million, reflecting the stronger EBITDAFI partially offset by realized FX losses, increased capital expenditure and capitalization of internally generated software and higher taxes paid. Turning to Slide 12. Net loss grew despite EBITDAFI growing and total income growth outpacing total spend growth. The bottom part of Slide 12 shows the primary drivers of the increased loss, which are lower interest income, foreign exchange slipping from a gain in the prior period to a loss in this period and the disposal of InterplX. Net finance income was $1.3 million lower, reflecting lower interest rates and less cash on hand as a result of the GetThere acquisition. We incurred a $2 million noncash accounting loss on the sale of InterplX. I will talk to this in more detail later. Serko puts foreign exchange contracts or FECs in place as an economic hedge against revenue received in Australian dollars and euro. Historically, we have not designated these FECs as hedges for accounting purposes, and therefore, any gains or losses on the FECs were recognized in the profit and loss, while the revenue was accounted for at the actual rates applying at the time the revenue is earned. The significant appreciation of the euro against the New Zealand dollar in the last 6 months has resulted in $3.7 million in the recognition of losses on FECs not designated as hedges for accounting purposes and other sundry FX losses. In the prior period, FX rates moved the other way, resulting in a gain of $1.4 million, but the change from the prior period was an adverse movement of $5.1 million. Note that in substance, the FECs are acting as economic hedges. For FY '27, we have designated some euro FX contracts as hedges for accounting purposes. I will talk to this more on a subsequent slide. Turning to Slide 13. While Serko has started to make investments in the platform acceleration program and acquired GetThere to support long-term growth in the U.S., the faster growth in total income still resulted in total income exceeding total spend in the period. This reflects strong unit economics in Booking.com for Business and improved margins in Australasia. Through our Booking.com for Business and Australasian results, we have demonstrated our ability to invest and grow revenue and then to optimize the business to generate operating leverage, giving us confidence as we prepare to make increased growth investments again. Turning to Slide 14. Our balance sheet remains strong with cash and short-term deposits of $65 million and no debt. Relative to 30 September 2024, cash has reduced and other assets and liabilities have increased, reflecting the GetThere acquisition in January. Relative to 31 March 2025, cash was up $3.6 million, reflecting the positive free cash flow and a cash inflow relating to a working capital adjustment on the GetThere acquisition. Noncurrent assets and noncurrent liabilities increased, primarily reflecting our new India office lease. Intangibles declined, reflecting the disposal of intangibles and goodwill associated with the InterplX business and amortization exceeding capitalization of software, reflecting our conservative approach to software capitalization. Turning to Slide 15. Our partnership renewal with Booking.com in April 2024 revised our revenue share arrangement with the revenue share continuing at the 50% rate for volumes up to the equivalent of approximately 4.2 million completed room nights or CRNs per year and a new TA system for higher incremental volumes. The arrangement is designed to mutually incentivize and benefit both parties. The chart on the left is from our May annual results and shows that in FY '25, we achieved NZD 3.3 million completed room nights. And in FY '26, we expect to exceed NZD 4.2 million, the approximate level at which incremental transactions and lower commission. This reflects the strong growth in CRN since the renewal was signed. The chart on the right shows average revenue per completed room night or ARPCRN, as shown earlier in the presentation, with ARPCRN declining 3%. The chart in the middle shows the average commission per completed room night or AComPCRN. We introduced this new metric in May as a way to show underlying changes in our share of commissions as the ARPCRN has impacted by the tiering of commissions. You can see the AComPCRN declined by 2%, slightly less than the ARPCRN as we had 2 months in the first half where our monthly volumes slightly exceeded the first tier, resulting in the blended commission percentage reducing to 49% from 50% in prior periods. As you have seen from the strong operating leverage we've achieved over the past few years, our incremental margins are high, and therefore, even on the lowest tier, our gross margin percentage is expected to be healthy. Turning to Slide 16. As I noted earlier, Serko has historically had FECs in place to act as an economic hedge, but has not designated them as hedges for accounting purposes. During the half, we chose to put FECs in place for FY '27 and designate them as hedges for accounting purposes. This will reduce volatility in reported revenue, FX gains and losses and therefore, reported net profit or loss in each period. Instead, mark-to-market gains or losses at each reporting date will go through the cash flow hedge reserve and be reflected in the total comprehensive profit or loss for the period. We have included details of the accounting hedges here to assist analysts and investors to calculate the impact on projected FY '27 revenues. I note a portion of expected FY '27 euro revenues are not covered by the accounting hedges and that we've not designated any FECs as accounting hedges in relation to FY '26 revenues. Turning to Slide 17. As previously announced, we sold our U.S.-focused expense business, InterplX on 30 September. Serko has recognized a noncash accounting loss of $2 million on the sale, primarily reflecting intangibles and in particular, goodwill. The InterplX business made a modest contribution to revenue of $0.8 million in the first half, and the disposal is expected to have a small net benefit to our profitability going forward. In addition to the financial benefit, we expect strategic benefits from the sale, including increased operating focus and improved ability to partner with leading U.S. payments and expense providers. Thanks, and I'll now hand back to Darrin. Darrin Grafton: Thanks, Shane. And turning to Slide 19. Let's shift to the product initiatives we are delivering that position us for growth. And the first is Booking for Business. In Booking.com for Business, we're focused on 3 outcomes; acquiring, converting and retaining customers. The pace of delivery has accelerated with significant deliveries in the half. In particular, I'd like to call out the new checkout experience, which is consumer grade with pay now, pay at property capability, simplified VAT and company detail capture and tighter authentication. This is reducing checkout error rates, improving completion reliability and improving conversion. The new checkout is built in our new platform and enables faster iteration and experimentation to drive further improvements for users and improve activation, conversion and retention. It's also a significant milestone as users can now register, make a booking and check out all within the new platform with a consistent user experience. So in the Australasian market, Qantas switched to NDC as their preferred channel in July. This was a big milestone and a significant investment to integrate through our partners, Sabre and Amadeus. We've seen NDC volumes start to scale since launch. And while still small in percentage of total bookings by September, this was starting to make a positive contribution to our ARPB. In North America, our focus has been on how we engage with our customers to co-design the future, while at the same time, sustaining our heritage products and serving existing customers with an improved user experience and travel supply. This includes key initiatives we launched during the half year that help to deliver customers a consumer-grade experience. Examples of new capabilities launched within our GetThere product, our new hotel shopping experience and new NDC carrier connections with Air Canada and British Airways, which provide content breadth and depth for our key U.S., Canada and transatlantic markets. This is about Serko adapting to the changing travel distribution landscape and ensuring we maintain connections to sources of supply to -- so customers have access to the breadth and depth of choice. On the Serko platform evolution, we've designed our platform to enable performance, scale and excellent unit economics and fast delivery of new capabilities, including for Booking.com for Business. We're building out our product and tech capability in India. And this month, we officially cut the ribbon on our new Bengaluru office. We're hiring key talent to work alongside the team who came on board with GetThere. This is a key part of our platform strategy and a focus for our leaders. AI coding tools are firmly embedded across our engineering team with more than 55% of daily active users using AI coding tools. More than 30% of the suggestions from AI are accepted by our engineers. And these stats compare well with industry benchmarks, and we continue to drive them even higher. We're continuing to roll out additional AI metrics and support our developers to grow their capabilities as tooling matures, and we update our collection of analysis of the related data. We're also trialing a wide range of AI tools and models. Turning to Slide 20. Serko is in the strongest position operationally and strategically that we've ever been in, with ongoing improvements across the business and a clear blueprint for our AI platform. We're now able to accelerate our investment to capture the opportunity ahead. We're well positioned to achieve our NZD 250 million revenue aspiration for 2030. Booking.com is the strongest business brand in global travel. And our partnership with them has enormous potential. Booking.com for Business is already driving significant revenue and contribution, but we have only captured a fraction of the opportunity. We have a clear strategy in place for growth for Booking.com for Business through both our partnerships and platform investment. We're accelerating our platform transformation to deliver AI-powered capabilities for customers. And we're optimizing our operating model to enable fast delivery and scalable profitable growth. Turning to Slide 21. We have strong momentum delivering Booking.com for Business capabilities and a track record that proves we're executing on our growth strategy. Our platform is successfully powering core components of Booking.com for Business, including the new checkout experience and all hotel room bookings. As part of our accelerated investment program, we have major initiatives underway as we continue to deliver new platform capabilities and value. This includes flight service modernization, a core service of the platform, allowing flight content to be retrieved across multiple supply integrations. We continue to lay the technical foundations for Serko's future, including removing any dependencies that the new platform has on legacy technology. We're also building AI and data frameworks powered by Serko data as part of our strategy to unlock the value of AI and emerging technologies. Turning to Slide 22. AI is central to our strategy and our roadmap. We're increasing our investment in AI, a targeted, disciplined way so we can launch new capabilities to customers and deliver future growth. Our teams are working alongside customers and prospects in the U.S. as we codesign new AI-powered capabilities. To enable our future, we're optimizing our operating model to ensure we allocate resources where they generate the greatest long-term value. In October, we launched an internal program to reallocate some of our people investment to focus on delivering AI and data capabilities. Around 60 roles from our global team of 460 may be impacted, while at the same time, we are creating new roles while we're hiring for -- the proposed program is expected to deliver $12 million in annualized savings, providing capacity to reinvest further in AI and innovation while supporting continued margin expansion. You've previously seen the outcomes of how we have successfully managed our resources and grown revenue while holding back cost. You've also heard how we've activated AI across our teams to establish new ways of building technology and deliver new capabilities to market. And turning to our FY '26 outlook on Slide 23. We reaffirm our FY '26 total income guidance of $115 million to $123 million. Serko is revising its total spend range to $124 million to $128 million for FY '26 from the $127 million to $133 million previously. Risks to Serko achieving its FY '26 goals include macroeconomic and geopolitical factors and currency and ARPCRN movements. We're all in on executing our strategy with scalable global platform, strong partnerships and a clear roadmap to profitability and growth. Serko is positioned to deliver sustained shareholder value. Thank you. That concludes our presentation, and we're now happy to take questions to allow more people to ask questions. We request that you ask one question back into the queue. Thank you. Operator: [Operator Instructions] We'll take our first question from Guy Hooper with Jarden. Guy Edward Hooper: Well done on some strong growth numbers. Maybe just to start with one on the spend. I mean you previously outlined a base spend rate over the next couple of years and then what an accelerated path might look like. I mean how should we think about the change in the FY '26 guide and the reduction in spend in that context? Shane Sampson: Guy, it's Shane. I'll take that one. So I think there's probably a couple of things that are worth calling out on the spend. One is you'll note that the midpoint of guidance implies meaningful growth into the second half relative to the first half, the total spend. So if you like, you will start seeing that acceleration and that really reflects, as Darrin talked about in the speech, we've been quite prudent in our spend. So teams are using AI throughout the business. But in terms of particularly dedicated spend on building AI into the product, we've been relatively prudent while we get clear what that looks like. And now we're at the point where we have the confidence to really start investing and accelerating that. So you will start seeing that acceleration in spend in the second half. I think the other thing Darrin called out in his presentation was that we are effectively looking to reallocate some of our resources. So that will result in reduced spend on an annualized basis in terms of the roles that will go, but we're actually looking to reinvest that next year again, back into that more AI-focused build of the future products. So I think we're reallocating resource from our heritage businesses, generating more operating leverage in those and then that resource to build the future products that are going to drive our growth. So I think those will be 2 callouts as you be sort of familiar with our performance over the last years, we're generally reasonably prudent in how we spend. So we tend to be at the bottom end of the range. Probably the other call out would be -- effectively, as we noted, we're not where we want to be in terms of U.S. sales. A chunk of our executive and senior staff remuneration is on performance. And so that also reduces the spend a little bit this year. So yes, those combination things, but definitely starting to get to the point where we're pressing to go on investment and that's because we have that clarity that we're clear what we do and how we're going to do it. And we're currently, I think, targeting to have an Investor Day on the 12th of March and hoping that we'll be able to show some of what we're doing there at that. Operator: We will go next to Wei-Weng Chen with RBC Capital Markets. Wei-Weng Chen: Yes, just a question from me about the U.S. So you previously won that lower U.S. government work had impacted on GetThere volumes. Wondering if you could speak to, I guess, what happened during the shutdown period, which happened in, I guess, your second half. I assume it's all covered within the reiterated guidance, but it would be good to kind of get some color on what exactly happened there. Shane Sampson: Wei-Weng, this is Shane. I can talk to that. Yes. So we continue to see weakness in U.S. government through the half year. Definitely, the government shutdown had even more extreme impact. But yes, that's all incorporated within the guidance. And obviously, we're pleased that the shutdown has finally come to a conclusion after setting a new record. Obviously, still a little bit of risk of another one on [ 30 ] January when they have the next deadline in the U.S. But yes, that's all incorporated within our guidance. Wei-Weng Chen: Yes. Is there anything you can quantify there or not really? Shane Sampson: I think in terms of -- yes, not a massive impact in terms of the shutdown across the U.S. business as a whole. As we know as Darrin noted, we've seen churns being very low in terms of new churn. So even with that government shutdown, we still expect the U.S. to be a bit stronger than we were anticipating in May. Operator: [Operator Instructions] We'll go next to Vignesh Nair with UBS. Vignesh Nair: Just a quick one on Booking.com. Obviously, you talked to some of the weaker macro impacting completed room nights per active business, sort of a mid-single-digit compression there year-on-year, it looks like. Can you just talk to what style of number you're expecting through completed room nights per active business based in the last 2 months of trading for the second half of '26 and how we should think about it? Shane Sampson: Yes, certainly in terms of the last couple of months, I think, consistent. So I think we -- in terms of where we saw that drop in the frequency per active customer, that really kicked in from kind of mid-May. So -- and hopefully, just as we had talked to you guys back in May, we were just starting to see that and then it's pretty much carried consistently through. So the sort of September and October in terms of the last couple of months are seasonally strong months. So we've seen that seasonal uptick, but with sort of that same consistent issue of slightly weaker booking frequency. So if you like that -- that will have a little bit of a dampening effect across the year, but at a sort of similar effect to what you've seen in the first half of a few percentage points lower relative to the size of the base. Vignesh Nair: So if it started in May, that's kind of the second half of the first half, so the second quarter. Are you expecting that to continue into the third and fourth quarter? Shane Sampson: Yes sorry, is kind of middle of the first quarter of our financial year. So yes, at the moment, we're assuming that continues in terms of in our kind of base case, obviously, if we've got a reasonable range of guidance for total income, and that's one of the reasons of the potential for that to recover. But in just the last couple of months, we've kind of seen that being reasonably consistent. Operator: We'll go next to Joshua Dale with Craigs Investment Partners. Joshua Dale: Just a quick one for me. Total income grew 45% to $61.8 million. What were those numbers in constant currency terms? Shane Sampson: Apologies. So Josh, Shane here. Apologies, we haven't actually got those to hand. I will look to dig into that. It would have been a little bit lighter. I think off the top of my head, we had about a 7% or 8% upswing in Booking for Business revenue through FX. The Australian and U.S. impacts would have been meaningful. So yes, a little bit lighter if we hadn't had that FX benefit. Operator: [Operator Instructions] We currently have no other questions holding. I will turn the conference back to the speakers for any additional or closing remarks. Darrin Grafton: Thank you, everyone, and we're entering the second half with strong momentum, a clear plan and unwavering confidence in our ability to execute. Thanks for your continued support as we deliver on Serko's next phase of growth. Thank you very much, everybody. Operator: Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time, and have a great day.
Operator: Good day, and welcome to the Serko FY '26 Interim Results Announcement. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Darrin Grafton. Please go ahead, sir. Darrin Grafton: Good morning from Auckland, New Zealand, and thanks for joining our investor briefing covering Serko's results for the half year ending 30 September 2025. I'm Darrin Grafton, CEO of Serko, and I'm with our CFO, Shane Sampson. This morning, I'll take you through our performance and highlights for the half year period. I'll then hand to Shane to cover our financial results in detail. Then, I'll talk through how we're positioning Serko for the future growth, our outlook and finishing with Q&A. As always, unless otherwise stated, comparisons are made to previous half year period 1H FY '25. And let's begin on Slide 5. This is Serko's strongest half year performance ever on both revenue and EBITDAFI. This was due to disciplined execution and our focus on profitable growth. Key callouts are: first, we achieved strong total income growth of 45% to $61.8 million, and this reflects the scalability of our model with strong contributions from Booking.com for Business and the addition of GetThere, driving our expansion into North America. Second, we delivered EBITDAFI of $6.1 million. This is our highest ever EBITDAFI result. Third, we generated $3 million of free cash flow, and this reflects our cash-generating existing business and the fact we're still in the early stages of our ramping our investment into building Serko for the future. At the same time as delivering these results, we're setting the business up for the future, and I'll touch more on that shortly. Turning to Slide 6. Total income was up 45%. This was driven by a strong trajectory we're on with Booking.com for Business, which continues to grow as we focus on activation, engagement and conversion. This is translating to substantial growth. The other driver is GetThere, which has delivered significant growth in online bookings and to Serko's income. Turning to Slide 7, where we double-click on our Booking.com for Business performance. Completed room nights grew 32% to 2.1 million. This was driven by a 40% growth in active customers, improved onboarding and new platform capabilities that are driving higher customer engagement. We added 40,000 new customers in the half year, significantly stronger than in the same period last year. Completed room nights frequency per active customer was slightly lower, and our view is this likely reflects small- and medium-sized businesses in Europe booking fewer trips due to the macroeconomic headwinds there. We monitor these trends closely, and our analysis gives us confidence that customer activity should normalize as macro conditions improve. Serko crossed into the second tiering of commissions on multiple months, and we're tracking above 4.2 million completed room nights this financial year. Shane will talk to this further. We're delivering at pace against the new initiatives we told you about at our FY '25 announcement, including the latest release of incentives. We're seeing green shoots of success with Genius Level 2, and we have confidence it's driving increased customer retention. We also rolled out significantly improved checkout experience and company onboarding that improved the overall customer experience. Turning to Slide 8. In Australasia, online bookings grew 2%. This was offset by a minus 2% decline in average revenue per booking from reduced third-party costs, some of which were previously passed through the customers. Although this impacts slightly on the ARPV, it significantly reduces our cost, creating a net cost benefit. This mix shift improves the quality of our revenue and demonstrates our focus on sustainable margin expansion. Overall, this resulted in a stable revenue result. Our early commitment to NDC is now paying off. We are one of the few players globally delivering a fully integrated NDC offering across Sabre and Amadeus. We continue to invest and innovate as we strengthen our market leadership and as NDC starts to gain traction. Turning to Slide 9 on our GetThere acquisition and strategic partnership with Sabre, which has fundamentally repositioned Serko in the U.S. market. What's working well? We've fully integrated GetThere, stabilized the customer base with new ARR churn on key accounts around 1% of annualized revenue. We've established our new India development hub and setup global capability center that's now scaling. Revenue exceeded our expectations in the half, reflecting some of the expected churning customers taking longer to offboard than anticipated and very low level of new churn. Where we've been less effective, we haven't achieved our targeted U.S. sales, but we have a clear path forward. It's become apparent as we've been establishing our sales pipeline with leading Fortune 500 companies that many of them want to wait for the new capabilities we're building rather than onboarding to our existing products and going through a second migration later. The other point to note is that our partner, Sabre has shifted their focus away from direct corporate contracts to growth and relationships with travel management companies. This change has contributed to lower direct corporate sales. Sabre is referring TMC resellers to us, but the lower direct corporate sales means we don't anticipate making any performance payments for the 2025 calendar year. Our go-forward plan. In North America, we're now focused on scalable growth through a dual channel approach, firstly, via our TMC reseller network and direct corporate sales. Leveraging our Sabre partnership, we're targeting key management resellers. We've already onboarded 2 partners, Tangerine and Elite Travel. And while smaller in volume, they provide valuable insights into mid-market customer needs. On the direct side, through customer forums with leading Fortune 500 companies, they are involved in helping us to codesign our future AI-powered capabilities. With GetThere fully integrated, we're in the room with major corporates, gaining visibility and confidence in our North American opportunity and our execution model. As discussed at our Annual Shareholder Meeting, GetThere and our Sabre partnership have redefined Serko's North America position. We now have strong market presence, direct customer insights and relationships, along with the data and expertise in a key market, which positions us well for our future success. In summary, the first half has been about strengthening the platform, deepening relationships and codesigning our next-generation AI-powered capabilities. The second half is about establishing the technology to enable our growth, executing with focus and accelerating our North American opportunity. And I'll talk more to the strategy and outlook shortly, but now I'll pass to Shane to cover the financial highlights. Shane Sampson: Thanks, Darrin, and good morning, everyone. Darrin has already called out some highlights for the half year, and I'll go into more detail. I'm going to focus on the key outtakes from the result, and we've also put some additional financial detail in the appendix for your reference. Turning to Slide 11. Total income increased by $19 million or 45% to $61.8 million, reflecting growth in bookings for business volumes in their acquisition. Operating expenses increased by 29% to $65.1 million, up $14.7 million, primarily reflecting costs associated with GetThere and investment in the U.S. market of approximately $16 million and the initial stages of our platform acceleration initiatives with investment of $1.6 million in the half. This was partly offset by lower third-party hosting costs, so lower third-party costs and hosting efficiencies achieved in our pre-acquisition business. Our preferred measure of total spend, which excludes the impact of accounting decisions around capitalization and amortization, increased by $15.2 million or 34% to $59.3 million, broadly consistent with the increase in operating expenses. Higher growth in income relative to spend resulted in EBITDAFI improvement of $4.9 million to $6.1 million. Net loss after tax increased to $9.5 million, an increase of $4.4 million. I will talk to the drivers on the next slide. Free cash flow improved by $1.7 million to $3 million, reflecting the stronger EBITDAFI partially offset by realized FX losses, increased capital expenditure and capitalization of internally generated software and higher taxes paid. Turning to Slide 12. Net loss grew despite EBITDAFI growing and total income growth outpacing total spend growth. The bottom part of Slide 12 shows the primary drivers of the increased loss, which are lower interest income, foreign exchange slipping from a gain in the prior period to a loss in this period and the disposal of InterplX. Net finance income was $1.3 million lower, reflecting lower interest rates and less cash on hand as a result of the GetThere acquisition. We incurred a $2 million noncash accounting loss on the sale of InterplX. I will talk to this in more detail later. Serko puts foreign exchange contracts or FECs in place as an economic hedge against revenue received in Australian dollars and euro. Historically, we have not designated these FECs as hedges for accounting purposes, and therefore, any gains or losses on the FECs were recognized in the profit and loss, while the revenue was accounted for at the actual rates applying at the time the revenue is earned. The significant appreciation of the euro against the New Zealand dollar in the last 6 months has resulted in $3.7 million in the recognition of losses on FECs not designated as hedges for accounting purposes and other sundry FX losses. In the prior period, FX rates moved the other way, resulting in a gain of $1.4 million, but the change from the prior period was an adverse movement of $5.1 million. Note that in substance, the FECs are acting as economic hedges. For FY '27, we have designated some euro FX contracts as hedges for accounting purposes. I will talk to this more on a subsequent slide. Turning to Slide 13. While Serko has started to make investments in the platform acceleration program and acquired GetThere to support long-term growth in the U.S., the faster growth in total income still resulted in total income exceeding total spend in the period. This reflects strong unit economics in Booking.com for Business and improved margins in Australasia. Through our Booking.com for Business and Australasian results, we have demonstrated our ability to invest and grow revenue and then to optimize the business to generate operating leverage, giving us confidence as we prepare to make increased growth investments again. Turning to Slide 14. Our balance sheet remains strong with cash and short-term deposits of $65 million and no debt. Relative to 30 September 2024, cash has reduced and other assets and liabilities have increased, reflecting the GetThere acquisition in January. Relative to 31 March 2025, cash was up $3.6 million, reflecting the positive free cash flow and a cash inflow relating to a working capital adjustment on the GetThere acquisition. Noncurrent assets and noncurrent liabilities increased, primarily reflecting our new India office lease. Intangibles declined, reflecting the disposal of intangibles and goodwill associated with the InterplX business and amortization exceeding capitalization of software, reflecting our conservative approach to software capitalization. Turning to Slide 15. Our partnership renewal with Booking.com in April 2024 revised our revenue share arrangement with the revenue share continuing at the 50% rate for volumes up to the equivalent of approximately 4.2 million completed room nights or CRNs per year and a new TA system for higher incremental volumes. The arrangement is designed to mutually incentivize and benefit both parties. The chart on the left is from our May annual results and shows that in FY '25, we achieved NZD 3.3 million completed room nights. And in FY '26, we expect to exceed NZD 4.2 million, the approximate level at which incremental transactions and lower commission. This reflects the strong growth in CRN since the renewal was signed. The chart on the right shows average revenue per completed room night or ARPCRN, as shown earlier in the presentation, with ARPCRN declining 3%. The chart in the middle shows the average commission per completed room night or AComPCRN. We introduced this new metric in May as a way to show underlying changes in our share of commissions as the ARPCRN has impacted by the tiering of commissions. You can see the AComPCRN declined by 2%, slightly less than the ARPCRN as we had 2 months in the first half where our monthly volumes slightly exceeded the first tier, resulting in the blended commission percentage reducing to 49% from 50% in prior periods. As you have seen from the strong operating leverage we've achieved over the past few years, our incremental margins are high, and therefore, even on the lowest tier, our gross margin percentage is expected to be healthy. Turning to Slide 16. As I noted earlier, Serko has historically had FECs in place to act as an economic hedge, but has not designated them as hedges for accounting purposes. During the half, we chose to put FECs in place for FY '27 and designate them as hedges for accounting purposes. This will reduce volatility in reported revenue, FX gains and losses and therefore, reported net profit or loss in each period. Instead, mark-to-market gains or losses at each reporting date will go through the cash flow hedge reserve and be reflected in the total comprehensive profit or loss for the period. We have included details of the accounting hedges here to assist analysts and investors to calculate the impact on projected FY '27 revenues. I note a portion of expected FY '27 euro revenues are not covered by the accounting hedges and that we've not designated any FECs as accounting hedges in relation to FY '26 revenues. Turning to Slide 17. As previously announced, we sold our U.S.-focused expense business, InterplX on 30 September. Serko has recognized a noncash accounting loss of $2 million on the sale, primarily reflecting intangibles and in particular, goodwill. The InterplX business made a modest contribution to revenue of $0.8 million in the first half, and the disposal is expected to have a small net benefit to our profitability going forward. In addition to the financial benefit, we expect strategic benefits from the sale, including increased operating focus and improved ability to partner with leading U.S. payments and expense providers. Thanks, and I'll now hand back to Darrin. Darrin Grafton: Thanks, Shane. And turning to Slide 19. Let's shift to the product initiatives we are delivering that position us for growth. And the first is Booking for Business. In Booking.com for Business, we're focused on 3 outcomes; acquiring, converting and retaining customers. The pace of delivery has accelerated with significant deliveries in the half. In particular, I'd like to call out the new checkout experience, which is consumer grade with pay now, pay at property capability, simplified VAT and company detail capture and tighter authentication. This is reducing checkout error rates, improving completion reliability and improving conversion. The new checkout is built in our new platform and enables faster iteration and experimentation to drive further improvements for users and improve activation, conversion and retention. It's also a significant milestone as users can now register, make a booking and check out all within the new platform with a consistent user experience. So in the Australasian market, Qantas switched to NDC as their preferred channel in July. This was a big milestone and a significant investment to integrate through our partners, Sabre and Amadeus. We've seen NDC volumes start to scale since launch. And while still small in percentage of total bookings by September, this was starting to make a positive contribution to our ARPB. In North America, our focus has been on how we engage with our customers to co-design the future, while at the same time, sustaining our heritage products and serving existing customers with an improved user experience and travel supply. This includes key initiatives we launched during the half year that help to deliver customers a consumer-grade experience. Examples of new capabilities launched within our GetThere product, our new hotel shopping experience and new NDC carrier connections with Air Canada and British Airways, which provide content breadth and depth for our key U.S., Canada and transatlantic markets. This is about Serko adapting to the changing travel distribution landscape and ensuring we maintain connections to sources of supply to -- so customers have access to the breadth and depth of choice. On the Serko platform evolution, we've designed our platform to enable performance, scale and excellent unit economics and fast delivery of new capabilities, including for Booking.com for Business. We're building out our product and tech capability in India. And this month, we officially cut the ribbon on our new Bengaluru office. We're hiring key talent to work alongside the team who came on board with GetThere. This is a key part of our platform strategy and a focus for our leaders. AI coding tools are firmly embedded across our engineering team with more than 55% of daily active users using AI coding tools. More than 30% of the suggestions from AI are accepted by our engineers. And these stats compare well with industry benchmarks, and we continue to drive them even higher. We're continuing to roll out additional AI metrics and support our developers to grow their capabilities as tooling matures, and we update our collection of analysis of the related data. We're also trialing a wide range of AI tools and models. Turning to Slide 20. Serko is in the strongest position operationally and strategically that we've ever been in, with ongoing improvements across the business and a clear blueprint for our AI platform. We're now able to accelerate our investment to capture the opportunity ahead. We're well positioned to achieve our NZD 250 million revenue aspiration for 2030. Booking.com is the strongest business brand in global travel. And our partnership with them has enormous potential. Booking.com for Business is already driving significant revenue and contribution, but we have only captured a fraction of the opportunity. We have a clear strategy in place for growth for Booking.com for Business through both our partnerships and platform investment. We're accelerating our platform transformation to deliver AI-powered capabilities for customers. And we're optimizing our operating model to enable fast delivery and scalable profitable growth. Turning to Slide 21. We have strong momentum delivering Booking.com for Business capabilities and a track record that proves we're executing on our growth strategy. Our platform is successfully powering core components of Booking.com for Business, including the new checkout experience and all hotel room bookings. As part of our accelerated investment program, we have major initiatives underway as we continue to deliver new platform capabilities and value. This includes flight service modernization, a core service of the platform, allowing flight content to be retrieved across multiple supply integrations. We continue to lay the technical foundations for Serko's future, including removing any dependencies that the new platform has on legacy technology. We're also building AI and data frameworks powered by Serko data as part of our strategy to unlock the value of AI and emerging technologies. Turning to Slide 22. AI is central to our strategy and our roadmap. We're increasing our investment in AI, a targeted, disciplined way so we can launch new capabilities to customers and deliver future growth. Our teams are working alongside customers and prospects in the U.S. as we codesign new AI-powered capabilities. To enable our future, we're optimizing our operating model to ensure we allocate resources where they generate the greatest long-term value. In October, we launched an internal program to reallocate some of our people investment to focus on delivering AI and data capabilities. Around 60 roles from our global team of 460 may be impacted, while at the same time, we are creating new roles while we're hiring for -- the proposed program is expected to deliver $12 million in annualized savings, providing capacity to reinvest further in AI and innovation while supporting continued margin expansion. You've previously seen the outcomes of how we have successfully managed our resources and grown revenue while holding back cost. You've also heard how we've activated AI across our teams to establish new ways of building technology and deliver new capabilities to market. And turning to our FY '26 outlook on Slide 23. We reaffirm our FY '26 total income guidance of $115 million to $123 million. Serko is revising its total spend range to $124 million to $128 million for FY '26 from the $127 million to $133 million previously. Risks to Serko achieving its FY '26 goals include macroeconomic and geopolitical factors and currency and ARPCRN movements. We're all in on executing our strategy with scalable global platform, strong partnerships and a clear roadmap to profitability and growth. Serko is positioned to deliver sustained shareholder value. Thank you. That concludes our presentation, and we're now happy to take questions to allow more people to ask questions. We request that you ask one question back into the queue. Thank you. Operator: [Operator Instructions] We'll take our first question from Guy Hooper with Jarden. Guy Edward Hooper: Well done on some strong growth numbers. Maybe just to start with one on the spend. I mean you previously outlined a base spend rate over the next couple of years and then what an accelerated path might look like. I mean how should we think about the change in the FY '26 guide and the reduction in spend in that context? Shane Sampson: Guy, it's Shane. I'll take that one. So I think there's probably a couple of things that are worth calling out on the spend. One is you'll note that the midpoint of guidance implies meaningful growth into the second half relative to the first half, the total spend. So if you like, you will start seeing that acceleration and that really reflects, as Darrin talked about in the speech, we've been quite prudent in our spend. So teams are using AI throughout the business. But in terms of particularly dedicated spend on building AI into the product, we've been relatively prudent while we get clear what that looks like. And now we're at the point where we have the confidence to really start investing and accelerating that. So you will start seeing that acceleration in spend in the second half. I think the other thing Darrin called out in his presentation was that we are effectively looking to reallocate some of our resources. So that will result in reduced spend on an annualized basis in terms of the roles that will go, but we're actually looking to reinvest that next year again, back into that more AI-focused build of the future products. So I think we're reallocating resource from our heritage businesses, generating more operating leverage in those and then that resource to build the future products that are going to drive our growth. So I think those will be 2 callouts as you be sort of familiar with our performance over the last years, we're generally reasonably prudent in how we spend. So we tend to be at the bottom end of the range. Probably the other call out would be -- effectively, as we noted, we're not where we want to be in terms of U.S. sales. A chunk of our executive and senior staff remuneration is on performance. And so that also reduces the spend a little bit this year. So yes, those combination things, but definitely starting to get to the point where we're pressing to go on investment and that's because we have that clarity that we're clear what we do and how we're going to do it. And we're currently, I think, targeting to have an Investor Day on the 12th of March and hoping that we'll be able to show some of what we're doing there at that. Operator: We will go next to Wei-Weng Chen with RBC Capital Markets. Wei-Weng Chen: Yes, just a question from me about the U.S. So you previously won that lower U.S. government work had impacted on GetThere volumes. Wondering if you could speak to, I guess, what happened during the shutdown period, which happened in, I guess, your second half. I assume it's all covered within the reiterated guidance, but it would be good to kind of get some color on what exactly happened there. Shane Sampson: Wei-Weng, this is Shane. I can talk to that. Yes. So we continue to see weakness in U.S. government through the half year. Definitely, the government shutdown had even more extreme impact. But yes, that's all incorporated within the guidance. And obviously, we're pleased that the shutdown has finally come to a conclusion after setting a new record. Obviously, still a little bit of risk of another one on [ 30 ] January when they have the next deadline in the U.S. But yes, that's all incorporated within our guidance. Wei-Weng Chen: Yes. Is there anything you can quantify there or not really? Shane Sampson: I think in terms of -- yes, not a massive impact in terms of the shutdown across the U.S. business as a whole. As we know as Darrin noted, we've seen churns being very low in terms of new churn. So even with that government shutdown, we still expect the U.S. to be a bit stronger than we were anticipating in May. Operator: [Operator Instructions] We'll go next to Vignesh Nair with UBS. Vignesh Nair: Just a quick one on Booking.com. Obviously, you talked to some of the weaker macro impacting completed room nights per active business, sort of a mid-single-digit compression there year-on-year, it looks like. Can you just talk to what style of number you're expecting through completed room nights per active business based in the last 2 months of trading for the second half of '26 and how we should think about it? Shane Sampson: Yes, certainly in terms of the last couple of months, I think, consistent. So I think we -- in terms of where we saw that drop in the frequency per active customer, that really kicked in from kind of mid-May. So -- and hopefully, just as we had talked to you guys back in May, we were just starting to see that and then it's pretty much carried consistently through. So the sort of September and October in terms of the last couple of months are seasonally strong months. So we've seen that seasonal uptick, but with sort of that same consistent issue of slightly weaker booking frequency. So if you like that -- that will have a little bit of a dampening effect across the year, but at a sort of similar effect to what you've seen in the first half of a few percentage points lower relative to the size of the base. Vignesh Nair: So if it started in May, that's kind of the second half of the first half, so the second quarter. Are you expecting that to continue into the third and fourth quarter? Shane Sampson: Yes sorry, is kind of middle of the first quarter of our financial year. So yes, at the moment, we're assuming that continues in terms of in our kind of base case, obviously, if we've got a reasonable range of guidance for total income, and that's one of the reasons of the potential for that to recover. But in just the last couple of months, we've kind of seen that being reasonably consistent. Operator: We'll go next to Joshua Dale with Craigs Investment Partners. Joshua Dale: Just a quick one for me. Total income grew 45% to $61.8 million. What were those numbers in constant currency terms? Shane Sampson: Apologies. So Josh, Shane here. Apologies, we haven't actually got those to hand. I will look to dig into that. It would have been a little bit lighter. I think off the top of my head, we had about a 7% or 8% upswing in Booking for Business revenue through FX. The Australian and U.S. impacts would have been meaningful. So yes, a little bit lighter if we hadn't had that FX benefit. Operator: [Operator Instructions] We currently have no other questions holding. I will turn the conference back to the speakers for any additional or closing remarks. Darrin Grafton: Thank you, everyone, and we're entering the second half with strong momentum, a clear plan and unwavering confidence in our ability to execute. Thanks for your continued support as we deliver on Serko's next phase of growth. Thank you very much, everybody. Operator: Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time, and have a great day.
Operator: Good day, and thank you for standing by. Welcome to Trip.com Group Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Michelle Qi, Senior IR Director. Please go ahead. Michelle Qi: Thank you. Thank you, all. Good morning, and welcome to Trip.com Group's Third Quarter of 2025 Earnings Conference Call. Joining me today on the call are Mr. James Liang, Executive Chairman of the Board; Ms. Jane Sun, Chief Executive Officer; and Ms. Cindy Wang, Chief Financial Officer. During this call, we will discuss our future outlook and performance, which are forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in Trip.com Group's public filings with the Securities and Exchange Commission. Trip.com Group does not undertake any obligation to update any forward-looking statements, except as required under applicable law. James, Jane and Cindy will share our strategy and business updates, operating highlights and financial performance for the third quarter of 2025 as well as outlook for the rest of the year. After the prepared remarks, we will have a Q&A session. With that, I will turn the call over to James. James, please. James Liang: Thank you, Michelle, and thanks, everyone, for joining us on this call today. Travel is thriving and the travel spirit shows no signs of slowing down. In the third quarter, travel demand surged across markets, led by vibrant domestic travel in China and a steady rise in outbound journey. Travelers are exploring with confidence seeking authentic experiences in new horizons, a reflection of their enduring passion for discovery. This growing enthusiasm is mirrored in the performance of our AI-powered tools such as Trip.Planner, whose recent upgrade has fueled a 180% year-over-year surge in unique visits. Inbound travel continues to play a vital role in fostering international exchange, trade and innovation, generating meaningful economic and cultural benefits. Expanded visa-free entry policies and broader coverage of the 240-hour transit visa exemption have made it easier than ever to visit, bringing the goal of raising inbound travel revenue to 1% to 2% of GDP increasingly within reach. As part of our inbound initiative, Trip.com Group launched Taste of China, an immersive dining experience that allows international visitors to explore Chinese culture through its rich culinary tradition. We remain optimistic about the future of travel. By leveraging AI innovation and delivering world-class service, we continue to make travel easier, more personalized and more enjoyable for every traveler. With that, I will turn the call over to Jane for operational highlights. Jane Sun: Thank you, Jane. Good morning, everyone. As a quick overview, our net revenue in Q3 increased by 16% year-over-year, reflecting strong demand across segments during peak travel season. Travel consumption remained robust throughout the summer and the National Day holiday with both domestic and international travel markets showing healthy momentum. This performance underscores travelers' growing desire for diverse, immersive and high quality experiences. Outbound travel continued to post solid growth in Q3 with our outbound hotel and air bookings growing by close to 20% from last year and reaching about 140% of 2019 volume. Japan, South Korea and Southeast Asian destinations remain the most popular choices, supported by their proximity and visa convenience. At the same time, travelers' radius of exploration continued to expand as more people sought new adventures and richer cultural experiences. This trend was particularly evident during the Golden Week, which was 1 day longer than last year and sparked stronger demand for long-haul trip. During the holiday, outbound hotel and air bookings surged by around 30% year-over-over reflecting sustained travel enthusiasm. Europe stood out as a key growth region driven by increased flight capacity and travelers appetite for in-depth experiences. Bookings to Iceland and Norway more than doubled year-over-year. Spain, Italy and Germany also grew by approximately 70%. These trends show that travelers are increasingly willing to invest in high-quality travel experiences highlighting strong consumption power and continued confidence in outbound travel. Domestic travel also remained vibrant fueled by travelers' passion for new and immersive experiences. From cultural discovery to outdoor exploration, the growing diversity of travel demand continues to drive solid market growth. Major cities such as Beijing, Shanghai, Chengdu and Xi'an remained the top choices for their accessibility and offering. Remote regions, including [indiscernible] and Lhasa also grew by nearly 30% as more travelers ventured West to discover unspoiled landscape and rich heritage. At the same time smaller cities are emerging as new favorites for urban residents seeking peace and renewal. Their local charms and slower pace offer refreshing escape from everyday life. Inbound travel continues to connect the world, bringing travelers from across the globe to experience oriental culture, spark innovation and drive trade. The Asia Pacific region remains the largest source of inbound travelers, with Europe and the U.S. also seeing strong growth. In Q3, inbound travel bookings on our platform grew by over 100%, reflecting robust international demand. Building on the success of relay over tours in Beijing and Shanghai, we recently launched a free layover experience for travelers at Hong Kong International Airport. Transit travelers with 7 hours or more can book in advance on the Trip.com app or website or on-site at the airport to explore Hong Kong's highlights. For those seeking a deeper adventure, premium tours provide access to landmarks, such as Lantau Island and Victoria Peak. We are making it easier than ever for international visitors to plan, book and enjoy these experiences, aiming to become the go-to platform and trusted hub for travelers from around the world. On the international front, Trip.com Group continued to deliver strong performance. International bookings on our platform grew by around 60% year-over-year. The Asia Pacific region remains the largest contributor, rising over 50% in Q3. Across all regions, Mobile continues to be a key growth driver, now accounting for over 70% of total bookings. Travelers increasingly rely on our app for one stop on the go experience managing flights, hotels and tours seamlessly combined with high service standards and hassle-free bookings. We offer users great convenience and excellent value, fueling continued growth across markets. As travel demand expands across borders, it is also diversified across generation. With spending power 3x that of younger travelers, affluent and active seniors are eager to explore and spend on quality travel, reshaping the market from price competition towards a true value creation. In Q3 the number of Old Friends Club members and their total GMV rising over 70%. Trip.com Group is tailoring more products and services for this growing segment. We launched our first Old Friends Club flagship store in Shanghai to connect with senior travelers face-to-face and introduced themed trips designed around their interest. We also formed a dedicated service team of [ chief ] mom and dad officers friendly travel buddies who travel alongside the seniors, offering support and thoughtful care for their needs. Younger travelers are also shaping new trends in travel, seeking experiences that go beyond the ordinary. In Q3, revenue from this segment grew by triple digit propelled by the rising craze for concerts and live experiences. To meet the growing demand, Trip.com Group announced multiyear strategic partnerships with the world's leading live entertainment company. The collaboration allows fans to plan entertainment trip seamlessly combining exclusive presale access to shows with flights, hotels and curated local experiences to our platform, as entertainment becomes an increasingly powerful driver of travel, these partnerships help fans follow the artists they love while supporting regional tourism and enhancing destination appeal across Asia. We are also strengthening event booking capabilities through our partnership with Cityline Group, covering Hong Kong and Macau. Users can now effortlessly collect tickets via Cityline extensive self-service kiosk network by connecting online bookings with offline ticketing, the partnership delivers a smooth, hassle-free experience for travelers enjoying large-scale events. Trip.com Group remains deeply committed to nurturing the broader travel ecosystem and supporting local economic development by promoting travel products around concerts, festivals, and major sports events. We inspire more travelers to explore these destinations, driving overnight stays and spending and turning seasonal excitement into lasting economic impact for local communities. At the same time, we continue to tailor products and services to meet diverse traveler needs. For example, offering Muslim-friendly options, highlighting smart toilets for Japanese users and providing foreign currency exchange for inbound visitors. To further empower partners and elevate service standards across the industry, Trip.com Group is harnessing technology and AI to help the entire travel ecosystem move forward. Hotels can now overcome language barriers with our AI communication tools that respond to guest inquiries in real time. Our AI content generator and training tools also empower hoteliers to produce engaging content and sharpen their digital skills, helping them connect with international guests and with our updated hotel scoring and page ranking algorithms, we encourage hotels to focus on what truly matters, genuine service and lasting guest satisfaction instead of chasing ratings or ranking. Together, these efforts help partners stay competitive in a fast-changing landscape and create richer, smoother and more seamless travel experiences for travelers around the world. Travel is a fundamental part of the human experience, and we remain confident in the industry's long-term growth. We will continue to enhance our services and empower the broader ecosystem, driving sustainable growth across the travel industry and the wider economy. With that, I will now turn the call over to Cindy. Xiaofan Wang: Thanks, Jane. Good morning, everyone. For the third quarter of 2025, Trip.com Group reported a net revenue of RMB 18.3 billion, representing a 16% increase from the same period last year and a 24% increase from the previous quarter, reflecting robust travel demand throughout the summer and the Golden Week holiday. Accommodation reservation revenue for the third quarter was RMB 8.0 billion representing an 18% increase year-over-year and a 29% increase quarter-over-quarter. This was mainly driven by strong momentum in outbound and international hotel bookings along with sustained strength in domestic demand. Transportation ticketing revenue for the third quarter was RMB 6.3 billion, representing a 12% increase year-over-year and a 17% increase quarter-over-quarter. International air bookings showed robust growth with outbound air bookings continuing to outpace the market. Packaged tour revenue for the third quarter was RMB 1.6 billion, representing a 3% increase year-over-year and a 49% increase quarter-over-quarter, primarily driven by the expansion of our international offerings, our destination services delivered strong growth with international markets continuing to drive overall expansion. Corporate travel revenue for the third quarter was RMB 756 million representing a 15% increase year-over-year and a 9% increase quarter-over-quarter. This was driven by more companies adopting our managed corporate travel services. Excluding share-based compensation charges, adjusted product development expenses for the third quarter increased by 12% year-over-year. Adjusted G&A expenses for the third quarter increased by 6% year-over-year. These were mainly due to increase in personnel-related expenses. Adjusted sales and marketing expenses for the third quarter increased by 26% from the previous quarter and increased by 23% from the same period last year. The sequential increase was primarily driven by broader marketing investments with incremental spend allocated to our international expansion. Adjusted EBITDA was RMB 6.3 billion for the third quarter compared with RMB 5.7 billion in period last year and RMB 4.9 billion (sic) [ RMB 4.8 billion ] in the previous quarter. Diluted earnings per ordinary share and per ADS were RMB 28.61 or USD 4.02 million for the third quarter of 2025. Excluding share-based compensation charges, and fair value changes of equity securities investments and exchangeable senior notes, non-GAAP diluted earnings per ordinary share and per ADS were RMB 27.56 or USD 3.87 million for the third quarter. Diluted earnings per ordinary share and per ADS for the quarter were elevated primarily due to a onetime gain from the divestment of one of our overseas investments. As of September 30, 2025, the balance of cash and cash equivalents, restricted cash short-term investment, held-to-maturity time deposits and financial products was and RMB 107.7 billion or USD 15.1 billion. Looking ahead, we are confident in the continued strength of our business and future opportunities. Our disciplined approach to investment and execution will remain central as we focus on sustainable growth and long-term value creation. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Joyce Ju from Bank of America. Joyce Ju: James, Jane, Cindy and Michelle, congratulations on another strong quarter. AI is clearly top of the mind for the market and a key pillar of Trip.com's strategy. Can management please elaborate on where do you see AI heading on your platforms, specifically, how do you view the trajectory for AI agents? Do you see them going mainstream? James Liang: Thank you for the question. AI is a central pillar of Trip.com's strategy, and we are committed to unlocking its full potential for the travel industry. We believe we are at the forefront of this transformation. On the user side, we are shifting more touch points to AI-driven tools continuously iterating our AI plus content ecosystem. Our AI agent, TripGenie, is now used in over 200 countries and regions, with users growing over 200% year-over-year in the first half of 2025. We are also refining the balance between advanced AI search and conventional search to better serve user intent. For hotels, search results now evolve from standardized information to real-time recommendations tailored to individual preferences. On the operational side, AI helps detect issues and provide intelligent solutions for complex cases. This enhances employee productivity, improves customer service efficiency, increases satisfaction and conversion rates and can help reduce cancellations through smarter, more responsive service. Looking ahead, we see AI as a tremendous opportunity to make travel more accessible, reliable and enjoyable. Trip.com is committed to investing in AI to enhance every step of the traveler's journey. By combining cutting-edge technology with 26 years of travel expertise, we ensure seamless experiences that go beyond AI alone. We will continue to explore how AI can make every step of the traveler's journey better and enrich the travel experience. Ultimately, travel is about exploration and experience, and we are focused on delivering the best for our customers today and in the future. Operator: We will now take our next question from Alex Yao from JPMorgan. . Alex Yao: I would like to ask some of the near-term consumer behavior and also travel trends during national holiday and also mid-autumn festival. In addition, I think when the current geopolitical tension between Japan and China, can you talk about Japan's revenue contribution to our company and also the financial impact that you could expect over the next, let's say, couple of quarters? Jane Sun: Sure. I'd be happy to take this question, Alex. So first of all, for the National Holiday, combined with midterm holiday, we have seen very strong trend. The trend we call is 3Ls, which is long stay, long distance and long tail. Because it's a longer holiday, most people go long haul, which is the strength for Trip.com. And also because people are going so far away, we are able to promote many long-tail travel destinations for sophisticated travelers, and the stay is longer. So if you look at the industry, the domestic market posted a very healthy single-digit growth. Cross-border, it was even stronger. The international capacity recovered even further compared to previous quarter at around 88% pre-COVID level. If you look at our platform, our long-haul, long stay drives strong growth, both domestically and internationally. For outbound hotel and air bookings, it jumped to more than 30% year-over-year growth. And also for inbound travel, we surged by more than 100% year-over-year for Golden Week holidays. So we are very positive for these holiday seasons. Regarding Japan, I think as long as consumers have the buying power, they will travel to different travel destinations. What we've seen a couple of factors impacting traveler's behavior. First of all, the travel destination needs to be safe and welcoming. Secondly, the visa application needs to be eased. Thirdly, the direct flight also is a very important consideration for travelers. So over the years, we have seen -- if certain destination is impacted, travelers as long as they have time, they have money, they can choose different travel destinations to go to. So overall, on our platform, we haven't seen major impact so far, yes. Operator: We will now take our next question from Thomas Chong from Jefferies. Thomas Chong: And congratulations on a strong set of results. My question is about how have hotel and air ticket price trend recently? And what's the outlook for next year? Xiaofan Wang: In Q3, the year-on-year decline in hotel and air ticket prices narrowed to the low single digits. During the Golden Week, both domestic hotel and airfares trended higher, reflecting strong travel demand before easing sequentially after the holiday on the supply side, domestic hotel capacity continues to expand at a mid- to high single-digit pace year-over-year, which is likely to keep some pressure on room prices going forward. Internationally, flight capacity has now recovered to about 88% of 2019 levels. As a result, cross-border air ticket prices have softened compared with last year but remain above pre-pandemic levels while hotel prices have stayed largely stable. Operator: We will now take our next question from Yang Liu from Morgan Stanley. Yang Liu: Congratulations on the solid results first. I have one question that -- yes, could you please hear me? . Michelle Qi: Yes, we can. Yang Liu: My question is that could management share some insight on the recent consumer sentiment and more importantly, your early thoughts for the coming year? Jane Sun: So we have seen the travel industry remain very strong. People's desire to explore the world continues to grow across culture, reflecting travelers' design for good products. In terms of the leisure travel, it has stayed robust supported by extra holidays this year. Our platform, long-haul trips show strong momentum. Outbound hotel and flights rose over 30%, with Europe emerging as a key driving force. Domestically, travelers are also seeking deeper and more immersive experiences and explore less known destinations. Year-to-date, per capital spending on our platform remains in line with last year. For business travelers, it has remained stable. We continue to attract new corporate clients with average business travel spending on our platform has increased year-over-year, supported by Chinese companies expanding its global footprint. Looking forward in 2026 at Trip.com Group we view challenges as opportunities to strengthen our foundation. Our focus remains on enhancing our product, service and to better meet the evolving needs of our global travelers. For international business, our strategy at Trip.com has proven to be very effective driving rapid market share gain outside of domestic market in recent quarter. We will also continue to invest globally, particularly across Asia Pacific to accelerate our growth and expand our presence. Domestically, we are focusing on capturing more demand and providing excellent services to our customers. In particular, we tap into the great opportunity for inbound travel and silver generation and young travelers. We aim to deep the collaboration with our partners when we bring inbound customers to domestic market, it drives huge job opportunities. and also drives huge incremental opportunities for our hotel partners, flight partners, destination partners, rental cars, et cetera. So we are very positive for the growth in 2026. Operator: Our next question comes from John Choi from Daiwa. John Choi: Congratulations on another great quarter. Just quickly, with new strategies from your industry peers in the China market, what kind of impact could this have on your business going forward? Jane Sun: Sure. First of all, I think the travel market brings joy and happiness to people. Secondly, we invest heavily in our technology and AI, try to improve the efficiency for the whole industry, that will benefit all the players in the market. And thirdly, as you can see, we have a couple of offerings, which is very much liked by the consumers. First of all, we provide one-stop total solution. So when you make a reservation for flight, customers automatically will book a nice hotel with us, and we offer airport transfer. We also have a trusted list for destinations -- for attractions. And when you are traveling, if you run into any issues, for example, if a certain area has a tsunami or earthquake or if there is a war happened during your trip within 2 minutes, our team will reach out to the customers in the destination, making sure they are moved to the safe area. The very next day, if our customers choose to fly back to their home countries, we will make prioritized arrangement for our customers. So that capacity and ability to help the customers in destination, pre-trip, post-trip give the confidence for our consumers that when they travel with Trip.com, they have peace in mind. So we continuously improve our customer service level to make sure we offer the best product, best technology and best service to our customers. And we'll continuously do that. I think as long as we make the right investment in this area, our customers will trust our team for our service and product. We will continue to grow. Operator: Our next question comes from Wei Xiong from UBS. Wei Xiong: Sure. Congrats on a solid quarter. On the international side, it's encouraging to see Trip.com continue to maintain strong growth in the third quarter. So could management maybe share more on our international performance and any regional operational highlights? Jane Sun: Sure. In Q3, booking on Trip.com increased by around 60% year-over-year, with APAC growing more than 50%, demonstrating robust growth despite macroeconomic uncertainties. In particular, Asia Pacific remains our operational focus and the largest contributor for our international business growth. Through localizing our products and tailor our marketing strategy, our brand recognition and market presence continue to strengthen across key markets. Trip.com was named as the Best Online Travel Agency in Asia at 2025 Travel Weekly Asia Readers' Choice Award. We are now a leading OTA in several key markets. reflecting our growing and solid footprint. For the new markets, emerging markets such as Middle East and Europe also show encouraging momentum signaling expanding global opportunities. For inbound booking, we surged more than 100% year-over-year in Q3 by continuously innovating our offerings such as half-day tour [ at The Bund ] or at the Great Wall and Taste of China immersive dining experiences we reinforced our position as the pioneer in inbound travel market. So our international business will continue to grow, and we will make strong investment in this field. Operator: We will now take our next question from Brian Gong from Citi. Brian Gong: James, Jane, Cindy and Michelle, congratulations on a solid quarter. My question is regarding the inbound travel. You just mentioned, which is the fastest-growing segment for Trip.com. Could you provide updates on your inbound business and the key catalysts for the growth ahead? Jane Sun: Sure. When we surveyed the inbound customers, we got very positive feedback. People told us the country is very safe, particularly for women travelers. They can run, they can jog in the middle of the night, where they cannot do even in some major cities in their home countries. People are very friendly, very hospitable, the food is delicious, the history is very rich and the infrastructure is very new and effective. And on top of it, they find affordable luxury in inbound travel. By paying USD 100, USD 200, they can stay in a very nice 5-star hotel with excellent services. So that gives a very good foundation for us to build upon these preconditions. And also the free visa gave more than 60 countries, convenience for these people to come for inbound travel. And also the extension for in transit travel from 3 days to 10 days also make it easier for business travelers to come. So we see great opportunity to capitalize on these opportunities. And from our end, because our inventory in China is the most comprehensive one. And our service is also very good. And we offer multi-language services when a customer come in, we offer 24-hour service. if you call our call center within 30 seconds, a live person will answer the call to help them to solve the issues on the ground. And we remain very alert when they enter into the country. So all that combined together, which enable us to drive the volume for inbound travel very strongly, and we will continuously do so. By winning these inbound customers into the country. We also offer very good job opportunities for young people. We also bring new revenue opportunities for our hotel partners for our airline partners for the local tour operators for major travel destination partners and also for famous landmarks attractions. So overall, I think we bring happiness for the consumers who are traveling inbound. We also bring great job opportunities for young people as well as great opportunities for our partners for inbound travelers. So a very positive move in this field. Operator: [Operator Instructions] Our next question comes from Wei Fang from Mizuho. Wei Fang: James, Jane, Cindy and Michelle, congrats on the good numbers. I think I heard there were additional marketing spend allocated to the international business, right, in the quarter? I was wondering, can management give us some more updates on your Trip.com's marketing progress in the quarter? And what's your plan for the next quarter and beyond like 2026? Jane Sun: Sure. Our marketing strategy on Trip.com delivered solid results in Q3. The scalable nature of our business is not directly improving marketing efficiency in our key targeted markets. In Q3, our mega sale in major markets, such as Korea, Thailand, Malaysia reached historical heights for the quarter. Internally, we also empower our execution team to set ROI targets aligned with long-term growth objectives. This approach drives motivation and ensure disciplined control over the key levers of marketing efficiency. Looking ahead, upcoming global holidays will continue to execute our signature campaigns using a proven play book while staying agile to capitalize on the emerging market trends by combining these opportunities with our long-term strategy, we aim to accelerate revenue growth and strengthen our market position, including expanding our organic mobile use base. Operator: Our next question comes from Parash Jain from HSBC. Parash Jain: I have a question more on the recent dynamics in the global market and how they will impact your business. And the dynamics on 2 fronts. Firstly, on probably with your deeper penetration in the region, as you rightly mentioned, are you seeing intensifying competition with the global OTAs like Agoda? And my second question is, I mean, another trend we have noticed is where Google is pushing the paid search instead of SEOs, and does it impact your metasearch platform? Jane Sun: Sure. Thanks for your question. Asia Pacific market offers huge potential representing around 60% of world's total population and benefiting from a strong economic growth rate. The middle income population is rising very fast and the GDP growth in this region is the fastest compared to the rest of the world. The region combined rich -- very rich travel resources from majestic nature to vibrant cities with a fragmented market and relatively low online penetration, highlighting opportunities for consolidation and digital expansion. So we invest heavily to expand into this market. These market dynamics create a very favorable environment for online travel companies. We focus on delivering one-stop total solution for our customers, with localized product and exceptional customer service for APAC travelers worldwide. Our globalization strategy involves the insights from each market, driving significant growth in our presence by taking the dynamic and market-specific approach we are confident in our continuous growth trajectory. Thank you. Operator: Our next question comes from Simon Cheung from Goldman Sachs. Simon Cheung: James, Jane, Cindy and Michelle, I just have one quick question. So I think you touched on when you discussed about your packaged tour business. One of the segments that I'm interested in your destination service business and the so-called experience markets. Wondering whether you can share some thoughts about your long-term positioning and the opportunity over there, especially given -- reported there's some IPO going on in that segment? Jane Sun: Sure. Destination service business is quite small compared to the overall pie. We expect our group to deliver around [ RMB 5 billion ] in GMV for destination service which represents only 2% to 3% of our total GMV. We drive our volume and the growth is more than 130% Trip.com growth year-to-date, and the rising demand from the APAC is strong. We cover about 300,000 offering worldwide, and we continuously cover more and more products in our platform. For us, our strength is one stop travel platform covering activity, attraction, transportation to better match users' demand and enhance overall travel experience. Leverage our large APAC user base, along with the loyalty program and AI tool, we're deepening engagement and driving repeated booking. Over the next 3 to 5 years, our focus is broadening product covering and market share. So for us, the [indiscernible] destination service is free because our customers already make the air flight and hotel bookings. So we don't need to spend money to acquire these customers. So the acquisition of these customers is free. And on top of it, we don't intend to make any money for destination marketing because it's very small. It's mainly to enhance users experience and making sure our customers love our product, love our platform. So we intend to expand aggressively in this field aiming to increase the loyalty and customer satisfaction to better serve our customers on the flight hotel. So the one-stop ecosystem gives us the advantage from a traffic acquisition also take away the pressure for making profit for this very small segment. Operator: Our next question comes from Ellie Jiang from Macquarie. Ellie Jiang: Congrats on the solid print. I have a question on the cost side. The operating expenditure came in at slightly lower end of expectations during the third quarter. How should we think about the outlook for the coming quarter, fourth quarter as well as for 2026? Xiaofan Wang: We continue to manage our investments with discipline on sales and marketing side, we adjust spending based on each market's maturity and the characteristics of different channels. As a result, the overall expense mix may in line with business priorities. On the personnel front, as more markets grow rapidly, we are expanding our global presence while maintaining high standards for new hires to ensure strong marginal cost efficiency. The quarter-over-quarter increase in operating expenses mainly reflected seasonal factors in China. With the global holiday season approaching, we plan to step up marketing investments as planned. while the marketing ratio may rise sequentially, it will vary year-over-year depending on regional and channel mix. Over the longer term, we remain focused on improving efficiency by growing direct mobile traffic enhancing cross-selling and strengthening customer loyalty. Operator: We will now take our last question from the line of Qiuting Wang from CICC. Qiuting Wang: My question is about Trip.com's margin as our international business grows rapidly, how should we expand margin out of Trip.com next year and in the longer term? Xiaofan Wang: It is still too early to provide specific commentary on the margin outlook for 2026. In general, we view margin as a natural result of a dynamic business mix. and ongoing improvements in operating efficiency across each business segment. In the long run, we do not see any structural limitations to our profit margins, supported by our innovative strategies global expansion and forward-looking investments, our margins could be comparable to both of our international peers. Operator: We have now come to the end of the question-and-answer session. Thank you all very much for your questions. I'll now turn the conference back to Michelle for closing comments. Michelle Qi: Thank you. Thank you, everyone, for joining us today. You can find the transcript and webcast of today's call on investors.trip.com. We look forward to speaking with you on our fourth quarter of 2025 earnings call. Thank you, and have a good day. Jane Sun: Thank you very much. See you next quarter. . Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to Trip.com Group Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Michelle Qi, Senior IR Director. Please go ahead. Michelle Qi: Thank you. Thank you, all. Good morning, and welcome to Trip.com Group's Third Quarter of 2025 Earnings Conference Call. Joining me today on the call are Mr. James Liang, Executive Chairman of the Board; Ms. Jane Sun, Chief Executive Officer; and Ms. Cindy Wang, Chief Financial Officer. During this call, we will discuss our future outlook and performance, which are forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in Trip.com Group's public filings with the Securities and Exchange Commission. Trip.com Group does not undertake any obligation to update any forward-looking statements, except as required under applicable law. James, Jane and Cindy will share our strategy and business updates, operating highlights and financial performance for the third quarter of 2025 as well as outlook for the rest of the year. After the prepared remarks, we will have a Q&A session. With that, I will turn the call over to James. James, please. James Liang: Thank you, Michelle, and thanks, everyone, for joining us on this call today. Travel is thriving and the travel spirit shows no signs of slowing down. In the third quarter, travel demand surged across markets, led by vibrant domestic travel in China and a steady rise in outbound journey. Travelers are exploring with confidence seeking authentic experiences in new horizons, a reflection of their enduring passion for discovery. This growing enthusiasm is mirrored in the performance of our AI-powered tools such as Trip.Planner, whose recent upgrade has fueled a 180% year-over-year surge in unique visits. Inbound travel continues to play a vital role in fostering international exchange, trade and innovation, generating meaningful economic and cultural benefits. Expanded visa-free entry policies and broader coverage of the 240-hour transit visa exemption have made it easier than ever to visit, bringing the goal of raising inbound travel revenue to 1% to 2% of GDP increasingly within reach. As part of our inbound initiative, Trip.com Group launched Taste of China, an immersive dining experience that allows international visitors to explore Chinese culture through its rich culinary tradition. We remain optimistic about the future of travel. By leveraging AI innovation and delivering world-class service, we continue to make travel easier, more personalized and more enjoyable for every traveler. With that, I will turn the call over to Jane for operational highlights. Jane Sun: Thank you, Jane. Good morning, everyone. As a quick overview, our net revenue in Q3 increased by 16% year-over-year, reflecting strong demand across segments during peak travel season. Travel consumption remained robust throughout the summer and the National Day holiday with both domestic and international travel markets showing healthy momentum. This performance underscores travelers' growing desire for diverse, immersive and high quality experiences. Outbound travel continued to post solid growth in Q3 with our outbound hotel and air bookings growing by close to 20% from last year and reaching about 140% of 2019 volume. Japan, South Korea and Southeast Asian destinations remain the most popular choices, supported by their proximity and visa convenience. At the same time, travelers' radius of exploration continued to expand as more people sought new adventures and richer cultural experiences. This trend was particularly evident during the Golden Week, which was 1 day longer than last year and sparked stronger demand for long-haul trip. During the holiday, outbound hotel and air bookings surged by around 30% year-over-over reflecting sustained travel enthusiasm. Europe stood out as a key growth region driven by increased flight capacity and travelers appetite for in-depth experiences. Bookings to Iceland and Norway more than doubled year-over-year. Spain, Italy and Germany also grew by approximately 70%. These trends show that travelers are increasingly willing to invest in high-quality travel experiences highlighting strong consumption power and continued confidence in outbound travel. Domestic travel also remained vibrant fueled by travelers' passion for new and immersive experiences. From cultural discovery to outdoor exploration, the growing diversity of travel demand continues to drive solid market growth. Major cities such as Beijing, Shanghai, Chengdu and Xi'an remained the top choices for their accessibility and offering. Remote regions, including [indiscernible] and Lhasa also grew by nearly 30% as more travelers ventured West to discover unspoiled landscape and rich heritage. At the same time smaller cities are emerging as new favorites for urban residents seeking peace and renewal. Their local charms and slower pace offer refreshing escape from everyday life. Inbound travel continues to connect the world, bringing travelers from across the globe to experience oriental culture, spark innovation and drive trade. The Asia Pacific region remains the largest source of inbound travelers, with Europe and the U.S. also seeing strong growth. In Q3, inbound travel bookings on our platform grew by over 100%, reflecting robust international demand. Building on the success of relay over tours in Beijing and Shanghai, we recently launched a free layover experience for travelers at Hong Kong International Airport. Transit travelers with 7 hours or more can book in advance on the Trip.com app or website or on-site at the airport to explore Hong Kong's highlights. For those seeking a deeper adventure, premium tours provide access to landmarks, such as Lantau Island and Victoria Peak. We are making it easier than ever for international visitors to plan, book and enjoy these experiences, aiming to become the go-to platform and trusted hub for travelers from around the world. On the international front, Trip.com Group continued to deliver strong performance. International bookings on our platform grew by around 60% year-over-year. The Asia Pacific region remains the largest contributor, rising over 50% in Q3. Across all regions, Mobile continues to be a key growth driver, now accounting for over 70% of total bookings. Travelers increasingly rely on our app for one stop on the go experience managing flights, hotels and tours seamlessly combined with high service standards and hassle-free bookings. We offer users great convenience and excellent value, fueling continued growth across markets. As travel demand expands across borders, it is also diversified across generation. With spending power 3x that of younger travelers, affluent and active seniors are eager to explore and spend on quality travel, reshaping the market from price competition towards a true value creation. In Q3 the number of Old Friends Club members and their total GMV rising over 70%. Trip.com Group is tailoring more products and services for this growing segment. We launched our first Old Friends Club flagship store in Shanghai to connect with senior travelers face-to-face and introduced themed trips designed around their interest. We also formed a dedicated service team of [ chief ] mom and dad officers friendly travel buddies who travel alongside the seniors, offering support and thoughtful care for their needs. Younger travelers are also shaping new trends in travel, seeking experiences that go beyond the ordinary. In Q3, revenue from this segment grew by triple digit propelled by the rising craze for concerts and live experiences. To meet the growing demand, Trip.com Group announced multiyear strategic partnerships with the world's leading live entertainment company. The collaboration allows fans to plan entertainment trip seamlessly combining exclusive presale access to shows with flights, hotels and curated local experiences to our platform, as entertainment becomes an increasingly powerful driver of travel, these partnerships help fans follow the artists they love while supporting regional tourism and enhancing destination appeal across Asia. We are also strengthening event booking capabilities through our partnership with Cityline Group, covering Hong Kong and Macau. Users can now effortlessly collect tickets via Cityline extensive self-service kiosk network by connecting online bookings with offline ticketing, the partnership delivers a smooth, hassle-free experience for travelers enjoying large-scale events. Trip.com Group remains deeply committed to nurturing the broader travel ecosystem and supporting local economic development by promoting travel products around concerts, festivals, and major sports events. We inspire more travelers to explore these destinations, driving overnight stays and spending and turning seasonal excitement into lasting economic impact for local communities. At the same time, we continue to tailor products and services to meet diverse traveler needs. For example, offering Muslim-friendly options, highlighting smart toilets for Japanese users and providing foreign currency exchange for inbound visitors. To further empower partners and elevate service standards across the industry, Trip.com Group is harnessing technology and AI to help the entire travel ecosystem move forward. Hotels can now overcome language barriers with our AI communication tools that respond to guest inquiries in real time. Our AI content generator and training tools also empower hoteliers to produce engaging content and sharpen their digital skills, helping them connect with international guests and with our updated hotel scoring and page ranking algorithms, we encourage hotels to focus on what truly matters, genuine service and lasting guest satisfaction instead of chasing ratings or ranking. Together, these efforts help partners stay competitive in a fast-changing landscape and create richer, smoother and more seamless travel experiences for travelers around the world. Travel is a fundamental part of the human experience, and we remain confident in the industry's long-term growth. We will continue to enhance our services and empower the broader ecosystem, driving sustainable growth across the travel industry and the wider economy. With that, I will now turn the call over to Cindy. Xiaofan Wang: Thanks, Jane. Good morning, everyone. For the third quarter of 2025, Trip.com Group reported a net revenue of RMB 18.3 billion, representing a 16% increase from the same period last year and a 24% increase from the previous quarter, reflecting robust travel demand throughout the summer and the Golden Week holiday. Accommodation reservation revenue for the third quarter was RMB 8.0 billion representing an 18% increase year-over-year and a 29% increase quarter-over-quarter. This was mainly driven by strong momentum in outbound and international hotel bookings along with sustained strength in domestic demand. Transportation ticketing revenue for the third quarter was RMB 6.3 billion, representing a 12% increase year-over-year and a 17% increase quarter-over-quarter. International air bookings showed robust growth with outbound air bookings continuing to outpace the market. Packaged tour revenue for the third quarter was RMB 1.6 billion, representing a 3% increase year-over-year and a 49% increase quarter-over-quarter, primarily driven by the expansion of our international offerings, our destination services delivered strong growth with international markets continuing to drive overall expansion. Corporate travel revenue for the third quarter was RMB 756 million representing a 15% increase year-over-year and a 9% increase quarter-over-quarter. This was driven by more companies adopting our managed corporate travel services. Excluding share-based compensation charges, adjusted product development expenses for the third quarter increased by 12% year-over-year. Adjusted G&A expenses for the third quarter increased by 6% year-over-year. These were mainly due to increase in personnel-related expenses. Adjusted sales and marketing expenses for the third quarter increased by 26% from the previous quarter and increased by 23% from the same period last year. The sequential increase was primarily driven by broader marketing investments with incremental spend allocated to our international expansion. Adjusted EBITDA was RMB 6.3 billion for the third quarter compared with RMB 5.7 billion in period last year and RMB 4.9 billion (sic) [ RMB 4.8 billion ] in the previous quarter. Diluted earnings per ordinary share and per ADS were RMB 28.61 or USD 4.02 million for the third quarter of 2025. Excluding share-based compensation charges, and fair value changes of equity securities investments and exchangeable senior notes, non-GAAP diluted earnings per ordinary share and per ADS were RMB 27.56 or USD 3.87 million for the third quarter. Diluted earnings per ordinary share and per ADS for the quarter were elevated primarily due to a onetime gain from the divestment of one of our overseas investments. As of September 30, 2025, the balance of cash and cash equivalents, restricted cash short-term investment, held-to-maturity time deposits and financial products was and RMB 107.7 billion or USD 15.1 billion. Looking ahead, we are confident in the continued strength of our business and future opportunities. Our disciplined approach to investment and execution will remain central as we focus on sustainable growth and long-term value creation. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Joyce Ju from Bank of America. Joyce Ju: James, Jane, Cindy and Michelle, congratulations on another strong quarter. AI is clearly top of the mind for the market and a key pillar of Trip.com's strategy. Can management please elaborate on where do you see AI heading on your platforms, specifically, how do you view the trajectory for AI agents? Do you see them going mainstream? James Liang: Thank you for the question. AI is a central pillar of Trip.com's strategy, and we are committed to unlocking its full potential for the travel industry. We believe we are at the forefront of this transformation. On the user side, we are shifting more touch points to AI-driven tools continuously iterating our AI plus content ecosystem. Our AI agent, TripGenie, is now used in over 200 countries and regions, with users growing over 200% year-over-year in the first half of 2025. We are also refining the balance between advanced AI search and conventional search to better serve user intent. For hotels, search results now evolve from standardized information to real-time recommendations tailored to individual preferences. On the operational side, AI helps detect issues and provide intelligent solutions for complex cases. This enhances employee productivity, improves customer service efficiency, increases satisfaction and conversion rates and can help reduce cancellations through smarter, more responsive service. Looking ahead, we see AI as a tremendous opportunity to make travel more accessible, reliable and enjoyable. Trip.com is committed to investing in AI to enhance every step of the traveler's journey. By combining cutting-edge technology with 26 years of travel expertise, we ensure seamless experiences that go beyond AI alone. We will continue to explore how AI can make every step of the traveler's journey better and enrich the travel experience. Ultimately, travel is about exploration and experience, and we are focused on delivering the best for our customers today and in the future. Operator: We will now take our next question from Alex Yao from JPMorgan. . Alex Yao: I would like to ask some of the near-term consumer behavior and also travel trends during national holiday and also mid-autumn festival. In addition, I think when the current geopolitical tension between Japan and China, can you talk about Japan's revenue contribution to our company and also the financial impact that you could expect over the next, let's say, couple of quarters? Jane Sun: Sure. I'd be happy to take this question, Alex. So first of all, for the National Holiday, combined with midterm holiday, we have seen very strong trend. The trend we call is 3Ls, which is long stay, long distance and long tail. Because it's a longer holiday, most people go long haul, which is the strength for Trip.com. And also because people are going so far away, we are able to promote many long-tail travel destinations for sophisticated travelers, and the stay is longer. So if you look at the industry, the domestic market posted a very healthy single-digit growth. Cross-border, it was even stronger. The international capacity recovered even further compared to previous quarter at around 88% pre-COVID level. If you look at our platform, our long-haul, long stay drives strong growth, both domestically and internationally. For outbound hotel and air bookings, it jumped to more than 30% year-over-year growth. And also for inbound travel, we surged by more than 100% year-over-year for Golden Week holidays. So we are very positive for these holiday seasons. Regarding Japan, I think as long as consumers have the buying power, they will travel to different travel destinations. What we've seen a couple of factors impacting traveler's behavior. First of all, the travel destination needs to be safe and welcoming. Secondly, the visa application needs to be eased. Thirdly, the direct flight also is a very important consideration for travelers. So over the years, we have seen -- if certain destination is impacted, travelers as long as they have time, they have money, they can choose different travel destinations to go to. So overall, on our platform, we haven't seen major impact so far, yes. Operator: We will now take our next question from Thomas Chong from Jefferies. Thomas Chong: And congratulations on a strong set of results. My question is about how have hotel and air ticket price trend recently? And what's the outlook for next year? Xiaofan Wang: In Q3, the year-on-year decline in hotel and air ticket prices narrowed to the low single digits. During the Golden Week, both domestic hotel and airfares trended higher, reflecting strong travel demand before easing sequentially after the holiday on the supply side, domestic hotel capacity continues to expand at a mid- to high single-digit pace year-over-year, which is likely to keep some pressure on room prices going forward. Internationally, flight capacity has now recovered to about 88% of 2019 levels. As a result, cross-border air ticket prices have softened compared with last year but remain above pre-pandemic levels while hotel prices have stayed largely stable. Operator: We will now take our next question from Yang Liu from Morgan Stanley. Yang Liu: Congratulations on the solid results first. I have one question that -- yes, could you please hear me? . Michelle Qi: Yes, we can. Yang Liu: My question is that could management share some insight on the recent consumer sentiment and more importantly, your early thoughts for the coming year? Jane Sun: So we have seen the travel industry remain very strong. People's desire to explore the world continues to grow across culture, reflecting travelers' design for good products. In terms of the leisure travel, it has stayed robust supported by extra holidays this year. Our platform, long-haul trips show strong momentum. Outbound hotel and flights rose over 30%, with Europe emerging as a key driving force. Domestically, travelers are also seeking deeper and more immersive experiences and explore less known destinations. Year-to-date, per capital spending on our platform remains in line with last year. For business travelers, it has remained stable. We continue to attract new corporate clients with average business travel spending on our platform has increased year-over-year, supported by Chinese companies expanding its global footprint. Looking forward in 2026 at Trip.com Group we view challenges as opportunities to strengthen our foundation. Our focus remains on enhancing our product, service and to better meet the evolving needs of our global travelers. For international business, our strategy at Trip.com has proven to be very effective driving rapid market share gain outside of domestic market in recent quarter. We will also continue to invest globally, particularly across Asia Pacific to accelerate our growth and expand our presence. Domestically, we are focusing on capturing more demand and providing excellent services to our customers. In particular, we tap into the great opportunity for inbound travel and silver generation and young travelers. We aim to deep the collaboration with our partners when we bring inbound customers to domestic market, it drives huge job opportunities. and also drives huge incremental opportunities for our hotel partners, flight partners, destination partners, rental cars, et cetera. So we are very positive for the growth in 2026. Operator: Our next question comes from John Choi from Daiwa. John Choi: Congratulations on another great quarter. Just quickly, with new strategies from your industry peers in the China market, what kind of impact could this have on your business going forward? Jane Sun: Sure. First of all, I think the travel market brings joy and happiness to people. Secondly, we invest heavily in our technology and AI, try to improve the efficiency for the whole industry, that will benefit all the players in the market. And thirdly, as you can see, we have a couple of offerings, which is very much liked by the consumers. First of all, we provide one-stop total solution. So when you make a reservation for flight, customers automatically will book a nice hotel with us, and we offer airport transfer. We also have a trusted list for destinations -- for attractions. And when you are traveling, if you run into any issues, for example, if a certain area has a tsunami or earthquake or if there is a war happened during your trip within 2 minutes, our team will reach out to the customers in the destination, making sure they are moved to the safe area. The very next day, if our customers choose to fly back to their home countries, we will make prioritized arrangement for our customers. So that capacity and ability to help the customers in destination, pre-trip, post-trip give the confidence for our consumers that when they travel with Trip.com, they have peace in mind. So we continuously improve our customer service level to make sure we offer the best product, best technology and best service to our customers. And we'll continuously do that. I think as long as we make the right investment in this area, our customers will trust our team for our service and product. We will continue to grow. Operator: Our next question comes from Wei Xiong from UBS. Wei Xiong: Sure. Congrats on a solid quarter. On the international side, it's encouraging to see Trip.com continue to maintain strong growth in the third quarter. So could management maybe share more on our international performance and any regional operational highlights? Jane Sun: Sure. In Q3, booking on Trip.com increased by around 60% year-over-year, with APAC growing more than 50%, demonstrating robust growth despite macroeconomic uncertainties. In particular, Asia Pacific remains our operational focus and the largest contributor for our international business growth. Through localizing our products and tailor our marketing strategy, our brand recognition and market presence continue to strengthen across key markets. Trip.com was named as the Best Online Travel Agency in Asia at 2025 Travel Weekly Asia Readers' Choice Award. We are now a leading OTA in several key markets. reflecting our growing and solid footprint. For the new markets, emerging markets such as Middle East and Europe also show encouraging momentum signaling expanding global opportunities. For inbound booking, we surged more than 100% year-over-year in Q3 by continuously innovating our offerings such as half-day tour [ at The Bund ] or at the Great Wall and Taste of China immersive dining experiences we reinforced our position as the pioneer in inbound travel market. So our international business will continue to grow, and we will make strong investment in this field. Operator: We will now take our next question from Brian Gong from Citi. Brian Gong: James, Jane, Cindy and Michelle, congratulations on a solid quarter. My question is regarding the inbound travel. You just mentioned, which is the fastest-growing segment for Trip.com. Could you provide updates on your inbound business and the key catalysts for the growth ahead? Jane Sun: Sure. When we surveyed the inbound customers, we got very positive feedback. People told us the country is very safe, particularly for women travelers. They can run, they can jog in the middle of the night, where they cannot do even in some major cities in their home countries. People are very friendly, very hospitable, the food is delicious, the history is very rich and the infrastructure is very new and effective. And on top of it, they find affordable luxury in inbound travel. By paying USD 100, USD 200, they can stay in a very nice 5-star hotel with excellent services. So that gives a very good foundation for us to build upon these preconditions. And also the free visa gave more than 60 countries, convenience for these people to come for inbound travel. And also the extension for in transit travel from 3 days to 10 days also make it easier for business travelers to come. So we see great opportunity to capitalize on these opportunities. And from our end, because our inventory in China is the most comprehensive one. And our service is also very good. And we offer multi-language services when a customer come in, we offer 24-hour service. if you call our call center within 30 seconds, a live person will answer the call to help them to solve the issues on the ground. And we remain very alert when they enter into the country. So all that combined together, which enable us to drive the volume for inbound travel very strongly, and we will continuously do so. By winning these inbound customers into the country. We also offer very good job opportunities for young people. We also bring new revenue opportunities for our hotel partners for our airline partners for the local tour operators for major travel destination partners and also for famous landmarks attractions. So overall, I think we bring happiness for the consumers who are traveling inbound. We also bring great job opportunities for young people as well as great opportunities for our partners for inbound travelers. So a very positive move in this field. Operator: [Operator Instructions] Our next question comes from Wei Fang from Mizuho. Wei Fang: James, Jane, Cindy and Michelle, congrats on the good numbers. I think I heard there were additional marketing spend allocated to the international business, right, in the quarter? I was wondering, can management give us some more updates on your Trip.com's marketing progress in the quarter? And what's your plan for the next quarter and beyond like 2026? Jane Sun: Sure. Our marketing strategy on Trip.com delivered solid results in Q3. The scalable nature of our business is not directly improving marketing efficiency in our key targeted markets. In Q3, our mega sale in major markets, such as Korea, Thailand, Malaysia reached historical heights for the quarter. Internally, we also empower our execution team to set ROI targets aligned with long-term growth objectives. This approach drives motivation and ensure disciplined control over the key levers of marketing efficiency. Looking ahead, upcoming global holidays will continue to execute our signature campaigns using a proven play book while staying agile to capitalize on the emerging market trends by combining these opportunities with our long-term strategy, we aim to accelerate revenue growth and strengthen our market position, including expanding our organic mobile use base. Operator: Our next question comes from Parash Jain from HSBC. Parash Jain: I have a question more on the recent dynamics in the global market and how they will impact your business. And the dynamics on 2 fronts. Firstly, on probably with your deeper penetration in the region, as you rightly mentioned, are you seeing intensifying competition with the global OTAs like Agoda? And my second question is, I mean, another trend we have noticed is where Google is pushing the paid search instead of SEOs, and does it impact your metasearch platform? Jane Sun: Sure. Thanks for your question. Asia Pacific market offers huge potential representing around 60% of world's total population and benefiting from a strong economic growth rate. The middle income population is rising very fast and the GDP growth in this region is the fastest compared to the rest of the world. The region combined rich -- very rich travel resources from majestic nature to vibrant cities with a fragmented market and relatively low online penetration, highlighting opportunities for consolidation and digital expansion. So we invest heavily to expand into this market. These market dynamics create a very favorable environment for online travel companies. We focus on delivering one-stop total solution for our customers, with localized product and exceptional customer service for APAC travelers worldwide. Our globalization strategy involves the insights from each market, driving significant growth in our presence by taking the dynamic and market-specific approach we are confident in our continuous growth trajectory. Thank you. Operator: Our next question comes from Simon Cheung from Goldman Sachs. Simon Cheung: James, Jane, Cindy and Michelle, I just have one quick question. So I think you touched on when you discussed about your packaged tour business. One of the segments that I'm interested in your destination service business and the so-called experience markets. Wondering whether you can share some thoughts about your long-term positioning and the opportunity over there, especially given -- reported there's some IPO going on in that segment? Jane Sun: Sure. Destination service business is quite small compared to the overall pie. We expect our group to deliver around [ RMB 5 billion ] in GMV for destination service which represents only 2% to 3% of our total GMV. We drive our volume and the growth is more than 130% Trip.com growth year-to-date, and the rising demand from the APAC is strong. We cover about 300,000 offering worldwide, and we continuously cover more and more products in our platform. For us, our strength is one stop travel platform covering activity, attraction, transportation to better match users' demand and enhance overall travel experience. Leverage our large APAC user base, along with the loyalty program and AI tool, we're deepening engagement and driving repeated booking. Over the next 3 to 5 years, our focus is broadening product covering and market share. So for us, the [indiscernible] destination service is free because our customers already make the air flight and hotel bookings. So we don't need to spend money to acquire these customers. So the acquisition of these customers is free. And on top of it, we don't intend to make any money for destination marketing because it's very small. It's mainly to enhance users experience and making sure our customers love our product, love our platform. So we intend to expand aggressively in this field aiming to increase the loyalty and customer satisfaction to better serve our customers on the flight hotel. So the one-stop ecosystem gives us the advantage from a traffic acquisition also take away the pressure for making profit for this very small segment. Operator: Our next question comes from Ellie Jiang from Macquarie. Ellie Jiang: Congrats on the solid print. I have a question on the cost side. The operating expenditure came in at slightly lower end of expectations during the third quarter. How should we think about the outlook for the coming quarter, fourth quarter as well as for 2026? Xiaofan Wang: We continue to manage our investments with discipline on sales and marketing side, we adjust spending based on each market's maturity and the characteristics of different channels. As a result, the overall expense mix may in line with business priorities. On the personnel front, as more markets grow rapidly, we are expanding our global presence while maintaining high standards for new hires to ensure strong marginal cost efficiency. The quarter-over-quarter increase in operating expenses mainly reflected seasonal factors in China. With the global holiday season approaching, we plan to step up marketing investments as planned. while the marketing ratio may rise sequentially, it will vary year-over-year depending on regional and channel mix. Over the longer term, we remain focused on improving efficiency by growing direct mobile traffic enhancing cross-selling and strengthening customer loyalty. Operator: We will now take our last question from the line of Qiuting Wang from CICC. Qiuting Wang: My question is about Trip.com's margin as our international business grows rapidly, how should we expand margin out of Trip.com next year and in the longer term? Xiaofan Wang: It is still too early to provide specific commentary on the margin outlook for 2026. In general, we view margin as a natural result of a dynamic business mix. and ongoing improvements in operating efficiency across each business segment. In the long run, we do not see any structural limitations to our profit margins, supported by our innovative strategies global expansion and forward-looking investments, our margins could be comparable to both of our international peers. Operator: We have now come to the end of the question-and-answer session. Thank you all very much for your questions. I'll now turn the conference back to Michelle for closing comments. Michelle Qi: Thank you. Thank you, everyone, for joining us today. You can find the transcript and webcast of today's call on investors.trip.com. We look forward to speaking with you on our fourth quarter of 2025 earnings call. Thank you, and have a good day. Jane Sun: Thank you very much. See you next quarter. . Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Operator: Good morning, everyone, and thank you for waiting. Welcome to Cosan's Third Quarter 2025 Earnings Release Conference Call. [Operator Instructions] The conference call is being recorded and will be available on the company's IR website at cosan.com.br. [Operator Instructions] Please note that the information contained in this presentation and in statements that may be made during the conference call regarding Cosan's business prospects, projections and operating and financial goals are based on beliefs and assumptions of the company's Executive Board as well as information currently available. Forward-looking considerations are not a guarantee of performance as they involve risks, uncertainties and assumptions and refer to future events that depend on circumstances that may or may not materialize. Investors should bear in mind that overall economic circumstances market conditions as well as other operating factors may affect Cosan's future performance and lead to results that differ materially from those expressed in such forward-looking statements. I will now turn it over to Mr. Rodrigo Araujo. Rodrigo Alves: Hi, everyone. Welcome to our earnings call of the third quarter of 2925. Here, we have the disclaimers about future projections and future assumptions with respect to the company's results. Next slide, please. So looking at the financial highlights of the third quarter of 25, you can see that we had an EBITDA under management of BRL 7.4 billion that's about BRL 1 billion less than 2024 and mostly impacted by the results of Moove, Radar and Raizen that we're going to detail later on. We also had given the lower EBITDA and the higher financial expenses, we had a lower net income in the period, negative BRL 1.2 billion. Our net debt was relatively stable in the quarter, slightly higher than Q2 '25. We had a quarter with lower dividends received. Of course, we have a concentration of dividends in the beginning and end of the year. So that's reflected in dividends for Q3. And in that sense, we also have our debt service coverage ratio of 1x. And this is, of course, one of the main reasons why the company needed to improve and enhance its capital structure and did the transactions that we announced recently. And in terms of safety, we continue to have positive metrics, low metrics in terms of incidents. Of course, there's an increase compared to Q2 '25, but still highly efficient ratios. And we continue, of course, to have safety as a priority for the company and continue our journey of improving safety over time. Next slide, please. In terms of operational performance for Q3 '25, we had in the case of Rumo, we had largest -- an increase in the transported volumes but also a reduction in the average tariffs that resulted in an increase in EBITDA of 4%. The company has been repositioning itself over the course of the year to improve its competitiveness in the Brazilian logistics market. In the case of Compass, we had higher distributed volumes in the quarter, also an increase in the participation of the residential segment that has healthier margins and it's quite accretive for the company as well. We continue to see the increase in the volumes sold by Edge in the unregulated market in Brazil. So we saw a growth of 6% of Compass EBITDA in the quarter. In Moove, something that we've been talking about. We already see the company having stable volumes compared to '24. When we compare to the second quarter of 25, there was a 13% increase in the volumes sold. So the company is gaining back its track in terms of volume, even though the EBITDA was 7% lower, and we are working on eliminating the logistics and tax inefficiencies of the new production settlements settings for the company after the fire in the Rio de Janeiro plant. We continue with the CapEx of the reconstruction of the plant. And in terms of insurance, the company has already received until October roughly BRL 500 million of proceeds in insurance. In the case of Radar, we had the sale of properties that impacted positively the results in 2024 that didn't occur in '25. So that's the main reason for the difference year versus year, and we will have the land appreciation review in the fourth quarter. We expect increase in the value of the portfolio given the current market environment. Finally, in Raizen, we have an increase in the pace of harvesting that was favored by weather conditions. So the sugarcane crushing increased in the quarter, even though we had lower sugar prices that affected EBITDA. And we also have an overall lower volume given the drought and fires that affected the company's production for this year. In the fuel distribution segment, we see a very healthy environment. We see operations of the federal police in Brazil and the crackdown of irregular players that's translating into higher margins and healthier margins. So we have quite relevant margins in the fuel distribution segment in Raizen. Next slide, please. In terms of liability management, you can see that, as I mentioned, gross debt relatively stable, net debt slightly higher, interest coverage about 1x. And in terms of the amortization schedule, we continue to have a duration of roughly 6 years with an average cost of CDI plus 90 bps. So no relevant change in terms of the debt structure of the company. And finally, when we look at the cash position through the quarter, we have no relevant events in terms of liability management. We only have the dividends received and interest payments in the quarter. So those were the only events that happened this quarter compared to the second quarter. So that's the main reason for the changes in the cash balance. So next slide, please. So thank you for participating in our earnings call of the third quarter of 2025, and we continue with the remaining of our earnings call. Thank you. Thank you for joining. Operator: [Operator Instructions] Before we begin the Q&A session, Mr. Marcelo Martins would like to say a few words. Please go ahead, Mr. Martins. Marcelo Martins: Good morning, everyone. Thank you for joining us at our earnings release conference call. And before we move on to the Q&A session, I'd just like to make a few comments because this is a key time for the company. I'd like to talk about what Cosan is going through right now. Since there's been a change in management at Cosan, more specifically when Nelson stepped down as a CEO and went to Raizen and I joined as a CEO, roughly 12 months have gone by. So a year after that change, and that's when we first started discussing our objective to improve Cosan's capital structure very objectively, and we discussed different alternatives. We've always made it clear that we wanted to as efficiently and constructly as possible, preserve the portfolio and look for an encompassing solution that would be definitive and to provide a positive perspective for the business and for Cosan. All of you who have taken part in conversations with us, with me here at Cosan or at other events will know that we've always made it clear that our first option was to potentially divest from some assets, but we also wanted to preserve the quality and integrity of our portfolio to continue to be a compelling company for future investments. And that's precisely what we did. We looked at what Brazil was going through, what the market was going through and came to the conclusion that the best option was to find relevant shareholders that could make significant contributions to the future of the company at an investment size that would also make sense. So in our pursuit, we identified a few potential investors, and I am completely confident that we ended up with the best investors possible for the future of this company. We were able to not only increase capitalization significantly, so reducing the company's issues substantially. So even if we still have a residual divestment balance so that we can reduce Cosan's debt to 0 or close to 0 in the near future, which is another commitment I've made to investors. We looked for a relevant transaction with the contribution of these new shareholders as the main factor and also some subscriptions to this new public offering that ended last week. I'm very happy to say, and I can speak for myself, for Cosan and Rubens as a controlling shareholder of Cosan that we are extremely happy to have highly valuable shareholders who have huge credibility in the market. They're very successful. They're fantastic risk managers, portfolio managers. They are very familiar with the infrastructure sector and considering our portfolio right now, they will make amazing contributions to the future of this company. So before anything else, I wanted to thank Boston and their commitment the level of involvement they've shown to the process and the fact that we were able to conclude this transaction. So looking forward, very excited and fully confident in the future of this company. That said, we know that as of now and over the next few months, probably the next year, we will be focusing entirely on integrating the new shareholders with a shareholder getting to know the companies in depth. You know the level of contribution they'll be making and what we expect as well at the Board at Cosan and the invested companies. The objective is to fully engage this group of shareholders, looking at future investments, that should bring the company's debt to 0 or close to 0. We also want to make it very clear that we do have divestment priorities, but this plan will be executed at the right pace so that we can really create value without any pressure to sell assets at any price. That is not going to happen, has not happened and will not happen, especially now that we are in a much more comfortable position when it comes to capital structure. So we will be focusing on our portfolio on identifying the priorities at Cosan looking forward and divesting so that we can execute our plan as efficiently as possible. And we're going to look at growth options down the line once we know the way forward, then we'll be able to look at assets that will become part of this portfolio in the future because, obviously, we want to unlock value and to use the levers we've always used in the past, but which hasn't been possible for the time being, given that we'll be focusing on rebalancing our capital structure. That's the main change now. We have a completely open horizon whilst a while back, there was quite a high level of uncertainty. So that was basically what I had to say. These are just my opening remarks, and we can now begin the Q&A session so that Rodrigo and I can answer any questions you might have about our results. Operator: We will now begin the Q&A session with Mr. Marcelo Martins, Mr. Rodrigo Araujo, and Ms. Camila Amorim. [Operator Instructions] Our first question is from Gabriel Barra from Citi. Gabriel Coelho Barra: My first point based on what Marcelo said is about supply. What was the allocation rationale in terms of supply and the outcome? I know Marcelo touched on it, but if you could provide us with a bit more detail, it would be really interesting to hear about that. And second question, also touching on what Marcelo said is after this capitalization, the company is a bit more comfortable and can now think about restructuring the portfolio, selling assets. If we could talk specifically about Raizen, even if the company is in a more comfortable position now with a better capital structure, Raizen has been burning cash and you've changed the perspective of the second offering to strengthen the subsidiary company's capital structure. So could you tell us about Cosan's strategy considering the subsidiary companies? Will there be a third entrant? What are the options on the table? Could you tell us about that? So those are my 2 questions. Rodrigo Alves: Thanks Barra. I'll start with your first question, and Marcelo can answer your second question. About the offering, this transaction was big enough to be relevant for the company's capital structure and for new partners to come in with expertise in infrastructure in Brazil with a long-term strategy and an amazing plan with the new partners. And that can be seen in the stats of the offering. The first offering was 10x the demand. The second offering was also significant. So we had 2 very successful offerings. And an interesting challenge in terms of allocation. For the first offering, we kept what we said to the market when we announced the offering, so we prioritized existing shareholders. The first offering had one non-shareholder that was long term strategic and was allocated. The rest were all part of the company's existing base. The second offering was a priority offering but we went beyond that and gave allocation priority to the existing shareholder base. 2/3 of the offering was allocated to the existing base. So we've really prioritized the company's long-term shareholders who've been with the company a long time, believing in our recovery journey. So in summary, we had 2 successful offerings where we kept what we had said that we were going to prioritize our existing shareholders. I'll turn it over to Marcelo so he can talk about our capital structure. Marcelo Martins: Well, Gabriel, adding to what Rodrigo said, we were very happy with the level of interest and demand for our first and second offering, which is a clear testament to the fact that the market is betting on the future of the company as well as knowing that this was the best solution possible considering the different alternatives and that we were committed to the market to resolve our capital structure this year. That's why it was so important to deliver on all these elements within 2025. As for Raizen, yes, we do understand solutions for the company's capital structure are required urgently. And I just want to say that I'm very happy with what the company's management has been delivering. And considering all of our expectations concerning what was to be delivered, I'd say management has complied with what we had expected for this year, 100%. Despite the challenging scenario, deliveries have been very positive. And a lot of points were addressed during the call on Friday. We know that this is the best way possible and it will be very positive for the portfolio and for the companies in the future. But obviously, capital structure challenges remain our conversations with Shell have progressed considerably. On a number of aspects that can be potential solutions or solution, we have made progress, although we haven't yet come to a conclusion about the way forward. I'd say that in our conversations with them, the clearest direction compared -- is much clearer than we had a few years -- weeks ago, but we haven't come to a final conclusion yet to announce to the market. We have been working hard on it. This is a massive priority for me and Cosan's team. After Cosan's capitalization we know that we need to focus on that, and we'll continue to work on it with a sense of urgency and closely with Shell so that we can come to a conclusion. I can't share with anything with you for the time being because we're still working on it. We haven't come to consensus on their side or on our side. So no conclusions yet. What we did do recently during the second offering was to announce that we might be using proceeds from that offering to capitalized companies, broadly speaking, and Raizen is included in that. So that remains, obviously. We have already disclosed that because we think that's a key consideration when it comes to Cosan. And depending on the solution, if it's a broad solution with a positive effect, we will definitely consider that capitalization. As I said, we haven't decided on the terms yet. And in fact, the structure to be pursued so that we can continue to deleverage the company hasn't been decided on yet. But our commitment to get to the right solution and to potentially making a capital contribution remains as we had said previously. Operator: The next question is from Isabella Simonato from Bank of America. Isabella Simonato: You touched on many different points, including the new shareholders and Raizen's process. And on Friday, during the call, you also announced several Board changes to the directors. I would imagine that comes from a shareholders' agreement that was signed. But if we could also talk about the context of the changes in directors, which at the end of the day also had an impact on Raizen at a crucial time, as we all know, when they're working on the balance sheet. So if you could provide us with more color about that, that would be very helpful. Marcelo Martins: Well, yes, those changes to the Board are a consequence of the new partners coming in. We had agreed that those changes would take place. And obviously, totally in line with the new partner's contributions to the company. Not only were we expecting those changes, but we also believe that they are extremely positive to the future of the company. Another point, which I didn't mention during my opening remarks, but I will now, before I address the financial changes is that we have been making significant changes at Cosan to streamline the team and to streamline the company itself. We believe that in line with Cosan's future and the contributions the company will have to make to its portfolio, it is important to streamline the holding company and to generate more efficiencies, which is something we've been thinking about for a while and now is the time to do it. I think that streamlining process will be very accretive in terms of value to Cosan. Streamlining the holding company and reducing expenses will also be a huge contribution in addition, obviously, to the capital increase. So that's how we're going to proceed. As for the changes in CFOs. Now that Rodrigo is leaving and with the objective of bringing in people from inside the company who have the knowledge and who can run this area with in-depth knowledge of the portfolio and the process, it had to be somebody from the company. Bergman has been with us a long time, 14 years, I think. He's been through many companies in the group. He has a lot of experience within the group. So he's highly qualified to take on the job. And since the holding company is focusing on the portfolio, the partnership with the new partners and focusing on the portfolio more constructively, it was key to bring in someone, if I may use a word in English that could hit the ground running. So he is somebody who is going to come in and hit the ground running and continue to manage things as we expect them to be managed now that Rodrigo is leaving. And somebody who is going to come into Rafa's place to make the right contributions, who had experienced enough to run such a complex company as Raizen. Hence, Lorival is now taking Rafa's place. What I wanted to say is that during the 2 years, Rodrigo spent with us, he made massive contributions even though it wasn't a long time, he was extremely active. He had a huge role to play and made exceptional contributions to the company. When we said we were going to sell our stake at Vale and with the current capitalization, that means we move BRL 20 billion in the Brazilian capital market in 12 months. That's a historical milestone for any company in Brazil, especially considering current times. So I really want to thank Rodrigo for his contribution, and I wish him the greatest of successes in his next professional stage. Isabella Simonato: Excellent. Marcelo, if I can have a follow-up question, please. Looking at the shareholders' agreement, it's clear that the new shareholders can join the Board, and it's slightly different at Raizen. Rubens -- and will be more in charge of the JV and the JV decisions. Did you make that decision? Did Shell have an opinion? And also, congratulations, Rodrigo, on the last 2 years. And I wish you success on your next stage. Marcelo Martins: These are actually, our new shareholders' agreement will keep the same terms as the pre-existing shareholders agreement. And these were the terms for Raizen already. So what we agreed with the new partners is that we wouldn't change anything. We would keep the same terms. There was no reason to change it, and that is our agreement with Shell. That's why Raizen was the exception. We have kept the appointment of the Board members in line with the shareholders agreement that is in force. As Rodrigo leaves, we're going to replace him at Raizen. We have an idea of who's going to do that, and we should be doing that soon. I just wanted to make that clear. And obviously, it won't be anyone appointed by the new partners for the reason I have just given you. Operator: The next question is from Thiago Duarte, BTG. Thiago Duarte: Good morning, everyone. Marcelo, Rodrigo pleasure to talk to you. If we can go back to Marcelo's opening remarks about the role the holding company has to play in this new context. Historically, Cosan has been going through different formats as a holding company, diversification, then simplification, eliminating holding companies along the way. In the last few years, there's been a significant investment cycle at the holding company and the subsidiary companies. And now with the offering, things are much more tangible. You're talking about a significant simplification with new partners coming in the controlling shareholders group, not only in terms of reducing expenses, but also bringing down the company's debt to 0. So given that context, once this process is concluded or is on the right track, a significant part of it has already been done. What will be the role that Cosan as the holdco will have to play in the future? And I also have a second question. Considering the funds that you raised and considering that a major part of it, if not all, will be used to reduce the holdco's debt, as you said. My question is what part of that debt would you be tackling? Do you think it will be the cost of debt or the maturity, the duration? What kind of an impact will that have on your liability and liquidity? Rodrigo Alves: I'll start with your second question, Thiago, and then I'll turn it over to Marcelo to talk about the holding company. Yes, you're right in terms of how the funds will be used. Substantially, they will be used to pay for the debt, we had already announced that during the offerings. In terms of priorities, there is a cost packing order to be tackled because the duration is compatible. And there's a lot that can go into call in the short term. And the trade-off will end up being positive between a high cost, but also a duration contribution. In terms of the duration itself, I think there is a first stage where there will be a reduction but once the company's credit improves, we'll have more opportunity for tactical operations in the long term. We don't have anything maturing by 2028. So in terms of that kind of pressure there isn't any. And a really good duration for the holding company's horizon. So we'll be focusing on costs, but naturally, there will be an opportunity for a part of the debt, which is callable in the short term to have a positive impact on the duration as well. I'll turn it over to Marcelo so he can answer your first question about the holding company. Marcelo Martins: Well, Thiago the last time Cosan had a capital increase before this one, obviously, was in 2007. So that was roughly 18 years ago. And that capital increase took place before we started diversifying our portfolio because the first acquisition of sugar and ethanol took place in 2008 when we acquired Esso Brasileira de Petróleo. So in practice, all the financing of these acquisitions of the companies in the portfolio took place in the last 17 years, which means that if we had leveraged the company in time because, obviously, that capital increase was crucial for that acquisition, but not enough to build up a portfolio that leveraging took place gradually over time. And it wasn't efficient because it's -- this is a pure holding company. Up to the point where the macro scenario changed, interest rates, skyrocketed and that coincided with the recurring leveraging of our stake at Vale. So we started going in a direction to where to resolve the company's capital structure, either would have to make a significant sale in the portfolio or have a capital increase somehow, which is what we did. So the holding company played a role in the last 17, 18 years that has changed. It doesn't make any sense continuing to use Cosan as a leveraging tool for future growth. First, because it's been clear to us for a while, especially our experience with Vale that we shouldn't develop any other verticals using Cosan's resources. So future investments will be made through the controlled companies when that makes sense again when the time is right. So there's no sense in continuing to leverage Cosan over time. It doesn't make financial sense. It's fiscally inefficient. So the holding company, regardless of our active participation in portfolio management, the holding company will no longer be a vehicle for future investments. We need to consider creating efficiencies and streamlining it over time, and that is our objective for now. Now what will happen once we get to a size that makes sense and the leverage that makes sense, then we'll discuss it again. But right now, we want to create efficiencies and streamline it. Operator: The next question is from Matheus Enfeldt from UBS. Matheus Enfeldt: My first question is based on what Marcelo said about timing. I know it's hard to say, but there's a lot of news about Cosan being in a hurry to resolve investments, to reduce the company's balance sheet in the very short term, which diverges from what you said, Marcelo which is that you now have the time to do it gradually. So I'd like to hear about that timing difference. When do you think we'll be able to see new decisions about the company's portfolio? And also in terms of timing, the message about Raizen sounded very different to my ears in the sense that Raizen doesn't need capital immediately, that it's in no rush, that it can perhaps wait for 2 or 3 years. Whereas what you said, Marcelo, is that they want to resolve it in the short term. So could a potential solution for Raizen happen in the next 6 months? Or do you think it will be over the next 2 or 3 years? So that's my first question. Second question is about Moove. We haven't talked about Moove yet. I'd like to hear more about the company's results. You had quite a solid result. How much of that came from operations? How much of that is a result of insurance proceeds or tax credits? I'd just like to hear about what's recurring and how the operational business is running? Rodrigo Alves: Thanks for the questions. I'll start with your question about Moove and Marcelo can talk about the company's balance sheet and timing. Let me just recap what we showed during the presentation. In terms of volume, the company is well covered. If you compare it to the same period last year, you can see that there's been significant volumes recovery, the reconstruction CapEx. Obviously, the dismantling and reconstruction of the Rio de Janeiro plant is ongoing. And given the volume solution, the company is focusing on eliminating tax and logistics complications in the setup, which transfer interstate products, a return of ICMS credits. The logistics is much more complex than if it was centralized in a single asset. So the company is working on that so that it can land on a new production setup. It's not just about the real plan, part of what was going to be done that will be done to the facilities that we've been acquiring over time, especially in Sao Paulo. So the company is on track to position itself competitively. And given everything that happened, that's quite remarkable. In terms of the insurance proceeds, yes, there was a considerable recognition in the second quarter, another BRL 200 million in the third quarter. But the main thing than the accounting recognition was what we expected that would happen, which is significant cash coming in, BRL 300 million in the second quarter, in October another BRL 200 million, which we have announced and that reiterates our confidence in the process. And we are confident that the company will recover. And again, the Rio de Janeiro plant reconstruction CapEx, as I said, part of the insurance was associated to property. So we expect that Rio's plant CapEx will also be covered and realized over time. I think that's it. And I'll turn it over to Marcelo. Marcelo Martins: Matheus, let me make it very clear so that there is no doubt. Our sense of urgency at Raizen is obviously much more along the lines of 6 months than 2 years. There's no question about that. As we continue to talk and define a strategy with Shell, not only will we announce that, we will also start executing on it as soon as possible. And there is definitely a sense of urgency. No, we do not think that we can wait for 2 years before we find a solution for Raizen's capital structure. The point is that it has been delivering significantly but that's part of the equation. The sense of urgency is there. As for the portfolio, what I said was there is no need for any fire sale of assets. In other words, we will do what's best to solve the company's indebtedness and the portfolio's prospects without burning assets. That doesn't mean there is no sense of urgency, but it's changed with the capitalization. So we have resolved a major part of the capital structure. And the rest will be done, delivered and announced will be executed in a time frame that makes sense, in a schedule that makes sense, for the price that makes sense and the right mood in a coordinated and organized fashion. We don't want to give anybody the impression that we're rushing around trying to sell assets. We didn't do it in the past when we needed to raise funds. So obviously, we're not going to do it now, considering that a major part of that solution has been found. Operator: The next question is from Monique Greco from Itaú. Monique Greco: I have a couple of questions. If you could provide us with more detail about some of the things you've already touched on. First question is if you can comment on the streamlining measures at the holdco level. Have you mapped them? Have you started implementing them? Do you have a time frame in mind to get to the streamlined level you would like? I heard that you are hoping to cut annual expenses by half at the holdco level. My second question is about the divestment agenda. Could you comment on the order and the pipeline? What would make a sense focusing on first? Rodrigo Alves: Thank you, Monique, and thank you for the questions. Well, with regard to implementing measures, as Marcelo said, we have mapped a process to streamline the structure at the holdco level, partly decentralizing some the rules, which is something we had already been doing. Now looking forward, we want to bring the holdco to a level that is strictly necessary. So we'll be focusing on what will remain in the portfolio. For next year, considering this personnel streamline, we should be saving about BRL 30 million for next year. That 50% reduction entails a few other initiatives. As you know, our prospectus announced that we are looking into the company's ADR because of its relevant annual cost. It's over BRL 10 million when we consider all the associated costs. So that's something we're considering, and other things as the physical space as well as other expenses based on what the company has been doing and will take place over time. So without giving you a time frame, we believe that it is very doable to bring -- to cut down on costs by half. As Marcelo said that is key in terms of capturing the value of the deal we announced. So it is in our interest to implement those measures as quickly as possible so that we can capture them also as soon as possible. And Marcelo will tell you about our divestment agenda. Marcelo Martins: As we've been saying to the market, Monique, divestments should take place following the order of capital allocation priority within the portfolio. And obviously, considering that we should start with Radar. So if you look at our portfolio and the level of priority of the business is looking forward, I think Radar is possibly the company where we might consider thinking selling a more considerable share. The rest will come as a consequence of that first step, obviously, depending on the size of the divestment, then we can allocate it to the other businesses as we consider a combination of value, size of the business and the future strategy for investment in those businesses. That's why it's the asset that makes the most sense to start with at the moment. Operator: The next question is from Regis Cardoso from XP. Regis Cardoso: Good morning, Marcelo, Rodrigo. Congratulations on the offering. Your exit will surprise, Rodrigo, but it will leave an important legacy. Marcelo you just talked about Radar, would it make sense to sell more assets or a stake in the company itself? And if you could talk about Rumo, would it make sense to sell a stake? Is there a minimum stakehold and needs to have to remain as a controlling shareholder? And the same applies to Moove, I would imagine that in time, a decision to raise funds at Moove would depend on resuming production. And I don't know if there's anything else on your radar in terms of when it would be possible to normalize things. Marcelo Martins: Well, first of all, with regards to Radar, it's a combination of factors. We can continue to sell properties that are part of the portfolio or sell a part of Cosan's stake. Obviously, there is a trade-off between speed and what makes the most sense in terms of adding value. So we'll look into that to make a decision on the best way forward. We know that, that is compelling to many investors. We have an exceptional portfolio, one of the best portfolios in Brazil. Its size is considerable and a performance track record that is also exceptional. So those are all very positive factors when we consider a significant divestment in that business. As for the other businesses, and I can speak for all other businesses, they are considered very relevant to the portfolio with the potential to create huge value, all of them without exception. If we are effectively going to consider selling a stake in some of them, more diluted stake in more than one of them or if we're going to concentrate it more in one rather than the others, will depend on, first, understanding our strategy looking forward as well as potential buyers and opportunities that may arise. Always, always bearing in mind that value is key. We have built this portfolio over time. We've made considerable progress in terms of growth investments. And obviously, we will make divestments that make sense for the right price depending on the demand, but also obviously considering what is key to the portfolio as a priority. Regis Cardoso: May I ask a follow-up question, please? What about capitalization at Raizen? Is there a maximum amount that you'd be willing to contribute? Marcelo Martins: Well, that is under discussion, but in the context of the offering, I think we've made it clear where that amount would be, right? Where that value would be. We're currently discussing that. I mean it will depend on how our conversations with Shell goes. It depends on what they will be willing to do. It depends on many other factors. But on our side, let's remember all of our statements, the first offering, the second offering and the context. So it will be within those thresholds that we announced to the market. Operator: This concludes the Q&A session. I will now turn it over to Mr. Marcelo Martins for his closing remarks. Marcelo Martins: Well, thank you again for joining us. And this has been a very exciting journey. Our objective is to resolve Cosan's capital structure and more broadly speaking, all the group's companies. We are extremely happy with where we've got to and very excited with the prospects for the group, its portfolio and a clear notion that we will be able to create significant value, again, as we have done in the past. So we want to stop just resolving the company's capital structure and start building again. But until we do so, that's what we'll be focusing on. Construction will come after that. Once again, I want to thank Rodrigo and the whole team for their huge effort, the professionalism, everyone at Cosan, even through tough times when we're talking about cutting down on our personnel, as we know, their level of commitment and professionalism is unique. We are undoubtedly one of the best companies in terms of its people. I want to thank my own team. I want to work -- to thank everyone who works for the companies in the portfolio, and thank you for joining us. Thank you. Operator: Cosan's Third Quarter 2025 Earnings Release Video Conference Call is now concluded. For further questions, please contact the Investor Relations department. Thank you so much for joining us, and have a great afternoon. [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 H World Quarter 3, 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to your first speaker today, Mr. Jason Chen. Thank you. Please go ahead. Jason Chen: Thank you. Good morning, and good evening, everyone. Thanks for joining us today. Welcome to H World Group 2025 Third Quarter Earnings Conference Call. Joining us today is our Founder and Chairman, Mr. Ji Qi; our CEO, Mr. Jin Hui; our CFO, Ms. Chen Hui; and our CSO, Ms. He Jihong. Following their prepared remarks, management will be available to answer your questions. Before we continue, please note that the discussion today will include forward-looking statements made under the safe harbor provision of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. H World Group does not undertake any obligations to update any forward-looking statements, except as required under applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliations of those measures to comparable GAAP information can be found in our earnings release that was distributed earlier today. As a reminder, this conference call is being recorded. The webcast of this conference call as well as supplementary slide presentation is available at ir.hworld.com. With that, now I will hand over the call to our CEO, Mr. Jin Hui, to discuss our business performance in the third quarter of 2025. Mr. Jin, please. Hui Jin: [Interpreted] I believe many of you have noticed that 2 weeks ago, on the occasion of H World's 20th anniversary, we successfully held a partner conference being 20 years young forging ahead. Therefore, before diving into our third quarter performance review, I'd like to take a few minutes to once again share some of our thoughts on the long-term outlook of China's hotel industry and us. In summary, we believe H World has great long-term growth potential by deeply rooted in China market. Currently, we can observe that while the industry supply is relatively ample, high-quality supply is in noticeable shortage. Compared to the mature U.S. market, China still has low hotel trend penetration and the industry remains fragmented. As a unified large singular market similar to the U.S. but with an even larger population base, the increase in churn ratio and the phase-out of low-quality supply will inevitably become a long-term trend. More importantly, the demand for travel is gradually shifting from discretionary demand to necessity for Chinese consumers nowadays. China has the best infrastructure worldwide with extensive high-speed rail and highway network coverage. This has made traveling much easier and more convenient, facilitating the penetration of accommodation needs from major cities to country-level markets. Additionally, Chinese consumers are beginning to redefine consumption concepts and oriental aesthetics. We can see a substantial increase in the consumer desire in seeking sales pressure, which further drives the growth of experiential consumption such as tourism, exhibitions, concerts, and sports events. Apparently, the current supply quality in China's hotel industry is unable to fully meet consumers' increasingly upgraded and diversified demand. Therefore, supply side reform will be the main theme of the future industry development and this will undoubtedly bring tremendous growth opportunities for domestic branded hotels like us. As the leading players in China's hotel industry, we will continue deepening our roots in the China market, pursuing high-quality growth and delivering service excellence with a brand-led approach to reduce industry with centering on high quality and efficiency. We are full of confidence in the future development of China's hotel industry. After sharing our perspectives on the long-term outlook, now let's turn to our third quarter performance. We are pleased to see early signs of improvement in the overall market condition. On the demand side, data from railway, aviation and the number of tourists indicate that the domestic travel demand continuously to grow steadily with the increasing demand for travel being particularly evident during the National Day and mid-autumn festival holiday period. On the supply side, third-party data shows that the sequential supply growth has stabilized and the year-over-year growth rate has moderated. However, we still need more time to see if this trend is sustainable. We are glad to report that H World delivered good results across several key metrics in the quarter. In the third quarter, we achieved a year-over-year increase in ADR while maintaining a relatively stable occupancy rate driven by refined revenue management initiatives, including optimizing pricing strategies across flagship hotel, newly opened hotel and a mature hotel as well as refining promotional strategies and enhancing incentive programs. As a result, our RevPAR stayed largely stable compared to the same period last year. Breaking through in new cities and regions and further penetrating in the lower-tier cities, we achieved another quarter of high-quality network expansion driven by a 17.3% year-over-year increase in the number of rooms in operation. Our group hotel GMV grew by 17.5% year-over-year to RMB 30.6 billion. Meanwhile, along with our network expansion and the continuous enhancement of H Rewards membership program, our membership base exceeded 300 million by the end of third quarter, up 17.3% year-over-year and ranking #1 globally. In addition, room nights sold to the members rose 19.7% compared to the same period of last year, exceeding RMB 66 million and accounting for 74% of the total room nights sold, which is also a leading position in worldwide. More importantly, our monetized and franchised business delivered strong growth in its hotel network revenue as well as profit. Our third quarter group M&F revenue rose 27.2% year-over-year to RMB 3.3 billion, and the group M&F gross operating profit increased by 28.6% year-over-year to RMB 2.2 billion, contributing over 70% of the group's total gross operating profit. In terms of hotel network expansion, we remain steadfast in executing our strategic focus on economy and middle scale segments to serve the mass market. This strategic positioning aligns precisely with the current consumer behavior of seeking value for money products and services and can further demonstrate our competitive advantages. By continuously upgrading our core products and enhancing our excellent service with a customer-centric principle, we are enhancing the quality of our hotel portfolio and strengthening our brand positioning to achieve long-term sustainable growth. The new version of HanTing along with our middle-scale brands, Ji Hotel and Orange Hotel, will serve as the key growth engines for our expansion in the lower-tier cities and provides strong foundation for achieving our strategic goal of 20,000 hotels in 2,000 cities. At the same time, H World has also made rapid breakthrough in the upper-midscale segment. At the end of third quarter, our number of upper-midscale hotels in operation and in pipeline exceeded 1,600, up 25.3% year-over-year. More importantly, to meet the growing consumer demand for quality living or oriental aesthetics and unique experiences, we recently launched a brand-new upper mid-scale brand, Ji Icons during our 20th anniversary. The introduction of Ji Icon further enriched our upper-midscale brand portfolio and help us to achieve comprehensive coverage from oriental to Western brands and from selected service to lifestyle hotel offerings. Ji Icon's brand embodies a combination of subtle understated and elegant oriental aesthetic, enabling a value lift from accommodation functionality to a holistic lifestyle experience. The success of Ji Hotels has demonstrated Chinese consumers' ethnicity for oriental aesthetics and culture. We are confident that building upon Ji Hotels Foundation, Ji Icon will further deepen the expression of oriental aesthetics and the culture element. Moreover, our group's strong supply chain and modular construction capability as well as our global leading membership and direct sales capability will effectively support our Ji Icons to reach low construction cost, high operational efficiency, and high product quality. We believe Ji Icons will become one of the big driving force to support our penetration in the upper-midscale segment and has the potential to become another world-class brand after HanTing, Ji Hotel, and Orange brand. We remain focusing on strengthening our direct sales capabilities through H Rewards membership program. Our membership program and direct sales capability are vital to our sustainable long-term business growth. Our membership base has been growing as we expand our hotel network and entering into more cities. By the end of third quarter, H Rewards membership exceeded 300 million and the room nights sold to the members grew 19.7% year-over-year with enlarging portion of contribution to the total room nights sold. Going forward, we will further enhance our membership benefits, expand loyalty points usage scenarios, and explore cross-industry partnership to strengthen member engagement and enhance direct sales capability. This concludes the business update for H World's Third Quarter 2025. Now I will hand over the call to our CFO, Ms. Chen Hui, to present the group's financial performance for the quarter. Hui Chen: Thank you, Jin Hui. Good evening, and good morning, everyone. Let me walk you through our third quarter financial overview. During the quarter, our group revenue grew 8.1% year-over-year to RMB 7 billion and Legacy-Huazhu revenue grew 10.8% year-over-year to RMB 5.7 billion, both surpassed the high end of our previous guidance. It was mainly driven by better-than-expected RevPAR performance as well as hotel network expansion. Group adjusted EBITDA rose by 18.9% year-over-year to RMB 2.5 billion, with margin improved by 3.3 percentage points year-over-year to 36.1%. The faster adjusted EBITDA growth and margin expansion were mainly contributed to further enlarged profit contribution from our asset-light business. Cost savings from Legacy-DH, partially on the absence of RMB 81 million restructuring costs incurred in the third quarter last year as well as cost optimization efforts from Legacy-Huazhu. Looking into our asset-light manachised and franchised franchise business. In the third quarter, powered by our high-quality asset-light network expansion and better-than-expected RevPAR performance. Our manachised and franchised business revenue recorded a robust 27.2% year-over-year growth to RMB 3.3 billion. More importantly, manachised and franchised business gross operating profit rose by 28.6% year-over-year to RMB 2.2 billion with a margin of 68% in the third quarter. As a result, gross operating profit contribution from our manachised and franchised business further enlarged to 70% in the third quarter, up 11.1 percentage points year-over-year. Moving to our cash flow and liquidity position. In the third quarter, we generated RMB 1.7 billion operating cash flow. And at the quarter end, the group had RMB 13.3 billion cash and cash equivalents and RMB 6.6 billion net cash on the balance sheet. Lastly, on our guidance for the fourth quarter of 2025, we expect our group revenue to grow 2% to 6% compared to the same quarter last year and 3% to 7% if excluding DH. The manachised and franchised revenue in the fourth quarter of 2025 is expected to grow in the range of 17% to 21% compared to the fourth quarter last year. With that, we are ready to take your questions. Operator, please open the line for Q&A. Operator: The first question comes from the line of Dan Chee of Morgan Stanley. Dan Chee: My question is about RevPAR and demand trend. Firstly, on the company's fourth quarter China revenue guidance of 3% to 4% year-on-year growth, what's the implied RevPAR assumption? Can the management share any 2026 outlook for us, especially after seeing third quarter RevPAR decline turns almost flat, especially on the new experiential demand Mr. Jin mentioned versus the original business demand weakness. So which one is driving the RevPAR stabilization? Hui Jin: [Interpreted] So as many of you may notice that in the third quarter, our RevPAR is a bit stabilized. On a year-over-year basis, it's kind of flat. It's not further declining compared to last 2 quarters. And of course, we observed several trends during the quarter. In terms of the demand, obviously, the demand was mainly driven by the leisure travel demand, especially from the tourism activities starting from summer holiday to September and of course, the beginning of the October National Day and mid-autumn festival as well. But on the supply side, as I mentioned before, on a year-over-year basis from the third-party data, we saw the supply growth actually moderated, so it was not growing as fast as before. So it's becoming a bit moderated, so which brings some of the benefits to the RevPAR stabilization. But more importantly, for us, S1 has been putting a lot of efforts over the last 6 months in terms to further enhance our, for example, the revenue management, as I mentioned in my prepared remarks, in terms of setting a new pricing strategy among different tiers of hotels like flagship new hotels and mature hotels. And therefore, I think -- but looking to the fourth quarter, because we are entering into the low season, there is still some of the uncertainties, so as of now, based on our revenue guidance, it implies our fourth quarter RevPAR, which is somewhere around flattish to slightly positive for the fourth quarter. In terms of business demand and leisure demand, of course, there are still some of the macro uncertainties. So to be very frank, the business demand is not that strong yet. But on the other hand, for the leisure demand, it was continuously growing. As I mentioned previously, for the Chinese consumers nowadays, the leisure traveling demand has become -- gradually becoming a necessity instead of discretional demand and especially for some emerging new demand such as concerts, marathon, sports events, and inbound traveler as well. So the leisure remained very strong. In terms of the outlook for the next year, we think it's a bit too early. It still takes time to see whether the stabilization in terms of the RevPAR and the supply-demand equivalent is sustainable. So we will give more color for our fourth quarter earnings. Thank you. Operator: Our next question comes from the line of Sijie Lin of CICC. Sijie Lin: My question is about RevPAR breakdown. If we look at ADR and OCC, we see that ADR performed better recently. So trying to understand the reason behind this and the sustainability. Also, if we look at the gap between blended RevPAR and same-hotel RevPAR, the gap remained at similar level with last few quarters. So is there any chance that the gap narrows in the future? And what measures need to be taken? Hui Jin: [Interpreted] In terms of the ADR, of course, for 2025, the improvement of RevPAR has been a very key task for our top management team. And of course, they have been putting a lot of efforts on that. So in terms of ADR, as I mentioned earlier, so we have doing a lot of works on further enhancing our revenue management capability, especially on the pricing for different layer of the hotel and different products. And of course, on the front line, we give a lot of various incentives to our salespeople to further motivate them to do a lot of sales activities. However, apart from these things we have been doing over the 6 months -- over the last 6 months, actually, the ADR increase in the third quarter is a result from our continuous efforts on the product upgrades, the quality improvements as well as our service excellence because we have been doing these things for many, many years and continuously doing so, and we have more and more recommendations from our customers. So that's why in certain areas or in certain regions, our products and service is definitely in a leading position, which gave us some of the pricing power, which led us to achieve a better ADR for the third quarter. And in terms of the like-for-like hotel or mature hotels, the gap, we are glad to see the year-over-year decline was narrowed significantly in the third quarter. On one hand, we -- in terms of the pricing, we use a lot of different layer for pricing the different products. Over the last 1.5 years, we opened a lot of high-quality hotels, new hotels in some of Tier 1, Tier 2 cities, which is creating some of the cannibalization to the existing hotels. But through different pricing -- in different pricing strategy for different products, I think we are seeing some of the improvements for our mature hotels. And fourth -- and more importantly, we keep doing a lot of existing hotels upgrades to further improve the hotel quality itself in order to rise -- improve the RevPAR as a whole. Operator: The next question will come from the line of Lydia Ling of Citi. Lydia Ling: Lydia from Citi. So I have a question regarding the brand, especially for the newly launched upper-midscale brand, Ji Icons. So could you actually share some -- your plans for this brand and such as your store opening plan and also the store economics like the CapEx and the payback period? And how actually your advantage versus like the current other leading upper-midscale brand in the market? And how is the feedback from the franchisees so far? Hui Jin: [Interpreted] Okay. So in terms of the Ji Icons brand, so obviously, the launch of Ji Icons brand has shown a very strong determination for H World to break through and development in the upper-midscale segment with multi-brand strategy. This trend is very clear. And secondly, based on the current culture confidence or Chinese culture confidence and also the preference from the Chinese consumers on our oriental culture or oriental service as well as oriental lifestyle that also basically support the launch of the Ji Icons brand. And as I said before, Ji Icons is going to definitely become one of the core brands in our upper-midscale segment. And we hope this brand can be the best brand or the best hotel that Chinese customers will like the most. So in terms of the UE, in terms of the CapEx you asked, we hope we can share more information after the first hotels opened. Thank you. Operator: Our next question comes from Simon Cheung of Goldman Sachs. Simon Cheung: The question is related to the hotel opening. In the third quarter, they've done very well in terms of hotel opening over 700. And I think in the first 9 months, they opened more than 2,000 hotels. That's on track or even exceeded the 2,300 hotel that they have targeted for the full year. Wondering whether there's any update for that and in particular, also on the new signing as well. And then on the related questions, given the focus and the strong momentum that they have seen in the upscale segments -- upper-midscale segments where they achieved 1,600 hotels secure. And we have seen similarly HanTing, they've done like 5,000 and that Ji Hotel done 4,000. Wondering whether they have any targets for the uppermid-scale in the longer run. Hui Jin: [Interpreted] Benefiting from faster new signings in 2023 and 2024 post COVID as well as further improvements in terms of our supply chain capability, which resulted improvements in conversion ratio from the pipeline to new openings. So we achieved a quite good new openings for the first 9 months, which is slightly more than 2,000. So therefore, for the full year, we could possibly open a bit more than 2,300 hotels as what we guided previously. But again, so we emphasized several times over the last several quarters' earnings call. In terms of the new signings and openings, we will focus more on quality expansion instead only looking for scale. So that the never changed. So we're going to continuously implementing this strategy for high-quality sustainable growth. In terms of the upper-mid segment, as I said, we have reached 1,600 in both pipeline and the operations, which also achieved a pretty rapid growth. But however, if you look into a longer term, for example, 2030, we're going to still focus on the mass market with the economy and the middle scale. So in terms of the proportion, economy and middle scale going to still contribute the majority. But in terms of the growth rate, we hope our upper mid segment could grow the fastest in the industry and become the leading players in China market by 2030. Operator: Our next question comes from Ronald Leung of Bank of America. Ronald Leung: Let me translate my questions in English. So I have two questions. My first question is about cost and margins outlook. The company has achieved very decent margin expansion in the past 2 quarters. Could management share with us the latest outlook on cost control and also margins? My second question is about the membership program. So the overall membership has grown decently to over 300 million by the end of 3Q '25. Could management share an update on the strategy on how to further enhance memberships loyalty and also marketing strategies to improve the conversion rates? Hui Jin: [Interpreted] Okay. So in terms of our members, so definitely, direct sales and membership is one of our core strategy. We are glad to see in terms of the member base as well as the room nights sold to our members continuously to grow. But we think that's still not enough. So that's why we have been doing quite a lot of jobs over the past several months. First of all, we introduced a price guarantee program, which is going to ensure our members to get the best price and service as also the unique experiences at the hotel. And secondly, we're also trying to fulfill more diversified demand from the leisure travelers and some of the emerging demand, for example, as I mentioned earlier, like sports events, like inbound travelers. So basically, the H Rewards membership program is gradually shifting from only business travelers to fulfill more diversified demand. And thirdly, we are also enhancing our capability to receive more business clients and corporate clients to further enhance our exposures. And lastly, we have been experimenting a lot of cross-industry cooperation with a lot of top-tier vertical players trying to enhance members' experiences and improve their engagement. Operator: Our last question comes from... Jihong He: [Foreign Language] Operator: Sorry, please go, continue. Jihong He: [Interpreted] Okay. Let me do the translation. So overall, the adjusted EBITDA margin improvement was mainly because of our asset-light strategy. So obviously, the M&F has higher margin compared to leased and owned. In terms of the cost control, in terms of the hotel operating costs, by leveraging our strong supply chain capability, we continuously to reduce the cost per room night sold. And for our leased and owned hotels, we're continuously seeking for more rental reduction, just trying to improve the profitability level of our leased and owned hotels. And on SG&A perspective, we're continuously optimizing our mid and back office and headquarter, just trying to control the cost. In terms of sales and marketing, we will based on ROI and do some of necessary investments on, for example, the hotel brand membership as well as the user -- new user acquisition. So as mentioned by Jin Hui, so we have been systematically improved our capability to improve our revenue management so as in the cost control side. So we are also doing a systematic capability improvement. Thank you. Operator: Thank you. We have come to the end of the question-and-answer session. That concludes the conference call for today. Thank you for your participation. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Israel Discount Bank Third Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, November 17, 2025. If you have not yet done so, please access the presentation on the bank's website, investors.discountbank.co.il. I would like to remind everyone that forward-looking statements for respected 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 filings with the various securities authorities. I would like to move first to Mr. Morris Dorfman, Executive Vice President, Head, Strategic and Finance. Mr. Dorfman, would you like to begin? Morris Dorfman: Yes. Thank you. Thank you all for joining us today. I extend my warm welcome to this investor call. Starting with Slide 2. Discount Group delivered strong Q3 results with net income of ILS 1.13 billion and ROE of 13.7%. Adjusted net income for one-offs amounted to ILS 1.25 billion, representing an ROE of 15.1%. Banking operations in Israel, comprising of Discount Bank and Mercantile recorded ILS 890 million and an ROE of 14.3%. Discount's cost efficiency ratio was 44% in Q3, while the cost-income ratio in the banking activity in Israel was slightly lower at 42.6%. Total credit in the group grew by 3.4%, accompanied by a solid credit quality metrics, while net interest income, NII, remained flat Q-o-Q. In light of these results, the Board decided to pay out 50% of Q3 net income. Moving to Slide 3. Despite 2 challenging years, Discount Bank has consistently shown double-digit ROE of 14% and stable net income. These figures exhibit the strength of bank and the resilience of the Israeli economy. At Slide 4. On the left side, 2025 GDP is now expected to grow by 2.5%. That said, Bank of Israel expects 2026 GDP to rebound notably with GDP growth at 4.7%. On the right-hand side, the job market remained resilient throughout this time, maintaining a healthy unemployment rate of 3.4%. On Slide 5, we summarized our credit portfolio growth and structure. In the third quarter, it's continuing its strong growth across most segments with a 3.4% growth rate quarter-on-quarter and 8.9% year-over-year. The corporate segment continued to show notable strength as credit grew by 5.6% quarter-on-quarter and 17.4% year-over-year. SME credit grew 1.6% and 4.6%, respectively, while household credit grew a healthy 4.3% Q-on-Q and mortgage grew by 2.2% Q-on-Q and 7.8% year-over-year. Operator: Mr. Dorfman, we can hear you. Morris Dorfman: Switching to Slide 6. This slide represents our credit portfolio quality. A stable economic environment is reflected in the consistent NPL ratio of 0.70%. The allowance ratio stands at 1.3% of total credit with a strong coverage ratio of 191%. On the right-hand side, credit loss expenses climbed to 28 basis points in the third quarter. The observed increase in provision is mainly due to 2 isolated corporate incidents made at Mercantile Bank amounting to approximately ILS 50 million. Excluding the Mercantile provisions, collective provisions amounted to almost 90% of all Q3 provisions, reflecting Discount's conservative stance on our credit portfolio. However, a 9-month year-over-year comparison revealed a decline in overall provisions as prior quarters exhibited comparatively lower provision levels. Moving to Slide 7 to discuss revenues. Total revenues increased by 0.9% Q-on-Q, while fee income grew by 2.5% Q-on-Q and 10.9% year-on-year, mainly from fees and commissions from financing activities. Net interest income, NII, slightly decreased by 0.2%, while CPI contribution remained stable. Ongoing pressure on lending and deposit margins is persistently eroding the bank's net interest margin. At the right-hand side, the income from regular financing activities decreased by 1.1% Q-on-Q despite a 3.4% expansion on our loan portfolio. Finance income declined primarily driven by the narrowing of credit and deposit margins. I apologize I had a problem with the line. I will move to Slide 8 to discuss expenses and cost-income ratio. Before we delve into this quarter figures, let's briefly review the bank's journey over the past decade, marked by significant improvement in its efficiency ratio from 67% to 52% post COVID and further reduction to 45 percentage following the divestiture of CAL. While they have come a far away, we think we can still improve our cost efficiency notably in coming years as we mentioned in our strategic plan announced earlier this year. Moving to Slide 9. Total expenses decreased by 3.8% quarter-on-quarter and by 1.2% year-over-year and the cost income improved to 44%. Salary expenses dropped 6% this quarter as we continue to maintain expense discipline. As previously communicated in the last quarter's report, the recently concluded wage agreement is expected to provide enhanced operational flexibility for management. Maintenance and depreciation expenses and other expenses are stable with changes mostly attributed to nonrecurring items. Moving now to Slide 10, you can observe our ample liquidity and diversified deposit base. On the left, you can see that 48% of our deposits are from our retail segment. On the right-hand side, our Tier 1 capital ratio stands at 10.47%, well above the 9.2% Bank of Israel requirements. Our liquidity ratios are well above the regulatory requirements, presenting a solid LCR of 1.7% and NSFR of 11.6%. Moving to Slide 13. I will briefly touch on our main subsidiaries, starting with Mercantile Bank that present a net income of ILS 234 million and ROE of 15.8%. The cost-income ratio stands at 37.5%. Mercantile grew its loan book by 7.6% year-over-year by a well-balanced portfolio. CAL is writing a net loss of ILS 88 million. The loss in the third quarter is attributed to the expenses related to the VAT assessment ruling, totaling ILS 137 million net and an increase in the Santam stock option provision of ILS 75 million after tax impact. As the VAT ruling loss recognized in the consolidated report in the previous quarter, CAL profit contribution amounted to ILS 40 million in this quarter. IDB New York Bank reported a net income of $24 million and ROE of 7%. The bank grew its loan book by 12.9% year-over-year and deposit by 30.9% year-over-year. To summarize my overview on Slide 12, I would like to emphasize the main takeaways from this quarter results. First, we delivered solid results with net income of ILS 1.13 billion and ROE of 13.7%. Second, our cost-income ratio dropped to 44%. Credit continues to grow at a healthy rate of 3.4% quarter-on-quarter and 8.9% year-over-year. Core Tier 1 equity remained stable at 10.5%, which allow further expansion next year, stable asset quality metrics with NPL ratio of 0.7%. The CAL sale is likely to boost our 2026 ROE by 1.2%, while stressing the Tier 1 ratio by 0.6%. And lastly, given our continued strong performance and the confidence we have in ongoing profitability, we announced a dividend payout of 50% of net income, reflecting a gross dividend yield of 5%. With this, I finish and would like to open to Q&A. Operator: [Operator Instructions] The first question is from Priya Rathod of Jefferies. Priya Rathod: I just have 2 questions, please. The first is on AUM, specifically for your small businesses section. There was a notable jump in AUMs quarter-on-quarter. Would you be able to give a bit more color on what is actually driving that AUM number, but then also what's driving the increase in the third quarter? The second question is on mortgages. Again, it was a really solid quarter in terms of growth in volumes, but how should we be looking at that number in the context of the sector data, particularly like the declining of new home sales? So I guess my questions are like what drove the higher mortgage volumes this quarter? And then how should we think about volumes going forward? Morris Dorfman: I didn't get your first question, but I will answer about the mortgages question, and then maybe if you can repeat the first one. So what's happening with mortgage as you understand, the real estate sector in Israel is at the moment, it's not moving too much. But most of the mortgages that have been sold this quarter -- the last quarter are one of the houses that were bought 2 years ago. there's this model in Israel when you pay 20% in advance and 80% just when the house is finished. So most of the people that bought houses about 2, 3 years ago, they took mortgages this year. So what you see now is the movement of money of the houses that we bought a couple of years ago. But I didn't hear your question -- the first question, I didn't understand the question. Priya Rathod: Yes. So the first question was on assets under management, AUM, particularly in the small business segment. There was quite a notable jump in AUMs quarter-on-quarter. I just wanted to ask what was -- what actually drives the AUM number and what drove the increase quarter-on-quarter? Morris Dorfman: Well, it's -- we don't see something special about the small businesses. It's part of our strategy, so we really focus on that. I can't say there's something unique in that. It's just our focus on this sector, if I got your questions right. Operator: The next question is from Chris Reimer of Barclays. Chris Reimer: Sorry if this was asked already, but how do you see dividends going forward in relation to the Bank of Israel announcement on the easing of restrictions for dividends? Morris Dorfman: Sure. So we -- of course, we had a discussion about it in our Board, and our thoughts and our decision is to be consistent in the way we pay dividends. So we thought it's better to keep the same level of dividend and not changing it every quarter. Therefore, we've chosen to pay 50%, and we plan to do it, of course, to keep the same in the future. Chris Reimer: Got it. And regarding expenses, aside from the divestment of CAL, do you see room for cost efficiencies in other areas? Morris Dorfman: Yes, of course, we -- well, as you know, it's part of our strategy to improve our efficiencies. So we're doing it both in bank and there's addition in -- Mercantile also working on that. And we're also examining what can be done together, Discount with Mercantile. And of course, also in IDB New York, there's also -- there's a new management team and they're working on new strategies, which will emphasize efficiency. Operator: [Operator Instructions] There are no further questions at this time. Thank you. This concludes the Israel Discount Bank Third Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Jun Togawa: Good evening, investors, shareholders and rating agencies. I am Togawa, Group CFO. Thank you very much for joining MUFG's online conference call today despite the late hour. Please look at the material titled Financial Highlights under JGAAP for the first half of the fiscal year ending March 31, 2026. Let me first explain our Q2 financial results, followed by revised FY '25 performance targets and shareholder return measures. Let me start from the income statement summary. Please turn to Page 8. First, the figures for the first half of FY '24 on the far left column of the table include the impact of the change in the equity method accounting date at Krungsri in Thailand. So the far right column shows the actual year-over-year change, adjusting this impact. All explanations on this page will be based on adjusted year-on-year comparisons. Line 1, gross profits increased by JPY 189.3 billion year-on-year. Line 2 and below shows the breakdown of gross profits. Net interest income increased, thanks to the impact of rising yen interest rates, improving lending spreads and benefits from last year's bond portfolio rebalancing. In addition, net fees and commissions expanded significantly, primarily due to growth in various fee revenues from domestic and overseas solution services and effects of acquisitions. Next, Line 6, G&A expenses increased by JPY 127.9 billion year-on-year due to the impact of inflation and acquisitions, as well as strategic expense allocation, mainly in Retail and Digital business group. Expense ratio was flat year-on-year at 56.1%. As a result, Line 8, net operating profits increased by JPY 61.3 billion year-on-year. Next, Line 9, credit costs decreased by JPY 65.7 billion year-on-year. I will explain the reasons for this later. Line 10, net gains and losses on equity securities decreased by JPY 235.3 billion, due to the gain on sale of large equity holdings last year, which is in line with our projection at the beginning of FY '25. Line 12, equity in earnings of equity method investees increased significantly year-on-year, mainly due to the extremely strong performance of Morgan Stanley. As a result, Line 16, profits attributable to owners of parent was JPY 1,292.9 billion. Although gain on sale of equity holdings decreased year-on-year, we were able to achieve steady growth in net operating profits and equity accounted earnings, which demonstrates the strength of our core business and also recorded onetime gains related to investments and organizational restructuring, resulting in a record high first half profit. Our progress toward initial full year target of JPY 2 trillion stands at a high level of 64.6%. Performance by business group is shown on Pages 9 through 12. I will not go into detail, but customer segment NOP is growing steadily with the exception of retail and digital, where strategic expenditures were made and Global Commercial Banking, which was affected by the economic slowdown in Asia. All business groups achieved an increase in net income. Please turn to Page 14 on balance sheet summary. The diagram on the left shows the overview. Loans shown in the top left increased by approximately JPY 1.8 trillion from the end of FY '24. Excluding government loans, it increased both in Japan and overseas by approximately JPY 4 trillion. Page 15 shows the status of domestic loans. The graph on the bottom right shows the trend in domestic corporate lending spreads. Spreads for large corporates in red line is rising, thanks to the accumulation of large, highly profitable loans. Along with SMEs in orange, profit improvement measures have been successful, and the upward trend is continuing. Next, Page 16 shows the status of overseas loans. The bottom right graph shows the trend in overseas lending spreads. The Americas has settled somewhat as the replacement of low-profit assets with high profit assets has run its course, but we continue to work on improving profitability in each region and maintain the gradual recovery trend. Meanwhile, GCIB has seen a significant increase in fee income as their O&D measures are progressing, and we are working to improve capital efficiency on both fronts. Please turn to Page 17 on asset quality. The NPL ratio shown by the line graph on the left continues to remain at a low level. The bottom right graph shows the breakdown of year-on-year changes in total credit costs, while there was an increase in large loan loss provisions overseas last year on the bank nonconsolidated basis, the sale was completed this fiscal year, resulting in a reversal. There were also multiple significant reversals in Japan, resulting in a significant decrease in credit costs. Credit costs also decreased at our overseas subsidiaries due to the effect of stricter screening criteria for new credit transactions in Asian partner banks. Taking the current situation into account, we kept our full year outlook for credit costs unchanged. Please turn to Page 18 on investment securities, including equities and government bonds. I will explain the unrealized gains and losses in the upper left table. Line 3, unrealized gains on domestic equity securities increased by JPY 0.36 trillion compared to the end of March 2025, due to rising stock prices despite progress in reducing equity holdings. In addition, unrealized gains and losses on domestic bonds reflecting hedging positions showing in the upper half of the lower left graph is controlled at a low level of just under JPY 0.3 trillion and unrealized gains and losses on foreign bonds in the bottom half are slightly positive. Given the scale of our balance sheet and income statement, we think we are in an extremely healthy state with reasonable degree of flexibility. Regarding the reduction of equity holdings on the right, the cumulative sales during the current MTBP were JPY 339 billion on an acquisition cost basis, which is about half of the JPY 700 billion target. The agreed amount has reached nearly 80% of the target, and we are making steady progress toward achieving this target. Page 20 shows capital adequacy. The CET1 ratio, excluding unrealized gains on the finalized and fully implemented Basel III basis fell 30 basis points from the end of March to 10.5% at the upper end of our target range due to growth investments and increase in loans, as well as yen appreciation versus end of March. Towards the end of the fiscal year, we expect risk-weighted assets to continue to accumulate and the yen to appreciate based on the financial indicators, I will come back later. Therefore, we expect the ratio to remain around the midpoint of the target range. Capital allocation results are shown on the lower right. We will continue to manage capital with an eye on balancing shareholder returns and growth investments. Please go back to Page 3. Let me turn to our FY '25 financial targets and shareholder returns. As shown on the left, given the continued strong performance of NOP, particularly in the customer segment and increased income from equity method investee, we revised up our net income target by JPY 100 billion from initial target to JPY 2.1 trillion. Turning to shareholder returns on the right. We continue to aim for a dividend payout ratio of approximately 40%. And in line with the upward revision of profit target, our annual dividend forecast for FY '25 was revised up to JPY 74, up JPY 10 from the previous year and JPY 4 from initial forecast. Regarding share repurchase, a resolution was approved today to acquire an additional JPY 250 billion in the second half of the year, bringing the total amount for the full year to JPY 500 billion. As discussed in May, this is due to take into account total shareholder return over the past few years. We also announced today the cancellation of 200 million treasury shares. We aim to achieve our mid- to long-term ROE target and we will work to provide shareholder returns while taking the optimal balance with growth investments into account. Turning to progress of 3 pillars of MTBP. Please turn to Page 4. First pillar is expand and refine growth strategies as shown on the left. Each of the seven strategies for seasoning growth is on track, resulting in an increase in NOP of approximately JPY 150 billion compared to FY '23. In particular, in the domestic retail business, a new service brand, EMUTO, was announced in June this year. The credit card reward programs and group-wide campaigns launched in conjunction with EMUTO generated strong response, leading to increased transactions for each group company. We will continue to demonstrate the collective strength of the group and aim to expand our services, including digital banking. Please turn to Page 5. Second pillar, social and environmental progress is shown on the left. Sustainable finance has steadily built up a track record even with different vectors at play globally. A white paper will be published again this year to communicate our view on contributing to accelerating transition. On the right is our third pillar, transformation and innovation. Under the current midterm plan to maximize MUFG's potential, we are working as a group to pursue new business initiatives, invest in human capital and strengthen our foundations in areas such as AI and data in addition to continuing cultural reform. Corporate transformation using AI is a particular urgent priority. And by combining this with agile management, we are working to transform into an AI-native company. The number of AI use cases has reached 116, and the aim is to increase to over 250 cases by FY '26. Current estimates suggest that the cumulative benefits over the 3 years of the current MTBP is approximately JPY 30 billion. The launch of a new strategic partnership with OpenAI is expected to accelerate use of AI across the company and to collaborate on various services, primarily in the retail sector such as digital banking. Moving on to Page 6. Let me take you through our path to achieving mid- to long-term ROE target of 12%, which has been a popular question since our announcement in May. We assume that the policy rate will rise to around 1%, while the sale of equity holdings will come to an end and capital gains will seize. After solidifying the goals of the growth strategy of the current MTBP, as explained on Page 4, we will pursue both organic growth by refining existing areas, both domestically and overseas and inorganic growth by focusing on the areas described in the slide, thereby making steady progress towards an ROE of 12%. Mr. Kamezawa will share his thoughts on this point at the investor meeting on the 18th. Page 7, my last slide. Last month, in October, we celebrated our 20th anniversary as MUFG. Looking back over the past 20 years, thanks to the understanding and support of our stakeholders, including our investors, we have taken on many challenges, gone through three major transitions and achieved growth sometimes despite headwinds. MUFG will continue to push ourselves forward and guided by our purpose of committed to empowering a brighter future, we will aim to further increase our corporate value even in a rapidly changing external environment. Your continued understanding and support is very much appreciated. That is all for me. Operator: Let me introduce the first questioner, Mr. Takamiya of Nomura Securities. Ken Takamiya: This is Takamiya from Nomura Securities. I have two questions. On the upward revision of your guidance and the 12% ROE target. I would like to hear your thoughts on the upward revision from two perspectives. First, I wonder if the assumptions are too conservative considering the current levels of the Nikkei stock average and the dollar-yen exchange rate. Second, the revision of JPY 100 billion from JPY 2 trillion to JPY 2.1 trillion is not small, but it is a somewhat small revision to your bottom line profit. What was the aim and your thoughts on this small revision? This is my question on your guidance. My second question is on your ROE target. On Page 6, you explained verbally the general direction you are heading, including assumptions like interest rate of around 1% and no gain on sale from reducing your equity holdings. But I think this is the first time you have clarified this in writing. Regarding the mid- to long-term ROE target of 12%, I want to know if there were any changes in your thinking and the management's perspective, reflecting the changes in the environment or tailwinds. Jun Togawa: Thank you, Takamiya-san. Regarding the upward revision, our initial guidance was JPY 2 trillion based on the assumption that the decrease in net gains and losses on equity securities and the absence of reversal of large loan loss provisions will be offset by continued growth in customer segment NOP, improvement in treasury interest income benefiting from last year's bond portfolio rebalance and a rebound from the loss due to bond portfolio rebalance in FY '24. Decrease in gains and losses on equity securities, absence of reversal of large loan loss provisions, treasury interest income improvement and rebound from last year's bond portfolio rebalance are in line with our initial forecast. Meanwhile, progress in the first half exceeded expectations, thanks to better-than-planned customer segment NOP, lower credit costs, upside in Morgan Stanley equity accounted earnings and onetime gains not factored in our initial forecast. I will explain our assumptions for the second half later, but we forecast strong yen toward the end of the fiscal year, slower treasury sales in the second half as trading gains were weighted to the first half, credit costs in line with our initial forecast, though the full year will depend on the impact of tariffs and an increase in strategic expense allocation, including retail and also included certain financial measures for FY '26, resulting in a guidance of JPY 2.1 trillion. There was internal discussion about whether a 5% revision was really necessary, but we decided to do so with the aim of disclosing our forecast appropriately at each point in time since the first half of last year. We may not have done this in the past, but that is our line of thinking. Regarding the assumptions, the yen assumption against the dollar is quite strong given the current level. But depending on interest rate trends, it is not unreasonable for the yen to be in the mid-JPY 140s by the end of the fiscal year. The share price of around JPY 43,000 may also seem conservative, but the impact of share prices on our earnings is not significant. So this was not the reason for the conservative profit target. As for future upside, we expect further growth in the customer segment and decline in credit costs, which is again subject to tariffs and also an upside in FX that you mentioned. Whether there has been a change in our view on the 12% target, we originally began the discussions to set the 12% target by trying to see how much we can increase our profit under the assumptions that Japan's policy interest rate will be around 1% and that we have no gain on sale of equity holdings, which I strongly insisted. Since investors asked questions based on different assumptions such as including gain on sale of equity holdings, we made that clear. We are fleshing out the details to achieve this as we speak. One change in our thinking, both in terms of inorganic investment and the use of capital, as I may have mentioned before, is that we are now discussing potential investments internally based on whether or not they contribute to achieving 12% ROE. Operator: Next, Mr. Nakamura of BofA Securities, please. Shinichiro Nakamura: This is Nakamura from BofA Securities. I also have two questions. First, let me confirm the full year CET1 ratio forecast on Page 20 again. It doesn't seem like it will approach the middle of the range. So if you could share with us your view on the level and the breakdown to the extent possible. There was an article in Bloomberg about your inorganic investments, and you denied that the information came from you. Could you elaborate on this, if possible? Sorry for asking too much. That is my first question. My second question is on credit cost. In the first half, there was a reversal on the bank nonconsolidated basis. So if you achieve your target in the second half, this is a reasonable level. So my question is on the current situation of private credit in the U.S. Although MUFG has not directly mentioned it, we are seeing large-scale loans to Oracle's data center investment, among others, which is widening credit spreads as a result. What are your thoughts on this increasing concentration of risk? Thank you. Jun Togawa: First, regarding the outlook for CET1 ratio toward the end of FY '25, the end of March '26, approximately 80 basis points up in the second half from the accumulation of net income based on the revised performance targets, 65 basis points down due to shareholder returns, including dividends and share buybacks, as I explained earlier, around 30 basis points down from the planned increase in risk assets. And with Morgan Stanley's accumulated profit from its extremely strong performance, et cetera, we expect the ratio to be somewhere between 10% and 10.5%. Regarding the private credit market, MUFG actually does not have a significant exposure. We have some exposure to companies that have been mentioned in the media. But as you saw earlier, our NPL ratio is declining. So I do not think we have a significant exposure. That said, the private credit market is extremely strong now. So we need to keep a close eye on the recent increase in volatility. I think the risk of lending to data centers depends on the project. We have extensive knowledge on project finance. So it is important to carefully select projects, taking into account factors like sources of cash flow and technical conditions, such as proper installation of high-voltage cables. Regarding the first question on inorganic investment, sorry, I skipped that. But actually, I have no comment. We continue to consider opportunities in three areas, namely AMIS, Digital and U.S. Asia. Operator: Next, Mr. Matsuno from Mizuho Securities. Maoki Matsuno: Matsuno from Mizuho Securities. I have two questions. First question is on Page 3. Upward revision of financial targets for FY '25. Can you give a more detailed breakdown? The graph on the bottom left shows a breakdown into customer segment, equity method investees and review on financial indicators. Can you give a breakdown of each of them? For example, weaker yen than the beginning of the year, would that be included in review on financial indicators or the equity market value? Can you give some color on the factors affecting changes in net income? My second question is on the operational policy of Global Markets in the second half. In the first half of the year, it looks like you did well by drastically reducing yen bonds and super long-term bonds and making profits on foreign bonds. Is there anything you can speak about the operations of Global Markets in the second half of the year? Those are my two questions. Jun Togawa: So starting with Page 3, your question on major factors affecting changes in full year targets. Earlier, I said the customer segment is expected to continue making steady progress in the second half of the year and is expected to exceed the initial plan by around JPY 30 billion for the full year. Regarding equity and earnings of equity method investees, I must admit it is difficult to say how much is coming from Morgan Stanley, but a certain amount is factored in. There are also some one-offs. Please look at the footnote on Page 8. Step-up gains from acquiring shares of JACCS, one-off gains from acquisition of Tidlor as a subsidiary and gains related to liquidation of local subsidiaries, a part of them were not factored in, accounting for approximately JPY 40 billion. The revision of financial indicators is expected to have an impact of approximately JPY 30 billion, mainly due to the weak yen. Stock price outlook was revised up, but gain on sales of equity holdings has been hedged for stocks scheduled for sale at the beginning of the fiscal year. So impact of sales of equity holdings is minimal. Although there will be partial impact on earnings due to an increase in AUM in the asset management and investor services, the impact of the revision of stock price assumptions is not that big. The impact is primarily from ForEx, and the total adds up to JPY 100 billion. For Global Markets, you are right. In Q1, reducing the balance of super long-term JGBs, partially offsetting with redemption gains on bear fund and gains on sale of foreign bonds, that's for the first half of the year. Regarding yen bond management from the second half onwards, our policy of gradually building up our yen bond positions, while monitoring the rise in Japan's policy rate remains unchanged. Short-term JGBs decreased as the BOJ's growth-oriented lending support operation is gradually coming to an end and need for short-term JGBs as collateral has decreased. The balance of short-term government bonds has fallen significantly. As for foreign bonds, the balance of long-term bonds appears to be increasing, while duration is decreasing and some might feel this doesn't sit well. This is due to categorizing mortgage bonds with long statutory maturities as long term. But overall duration shortened to 4 years. Operator: Next is Mr. Matsuda from Daiwa Securities. Ken Matsuda: Matsuda from Daiwa Securities. I also have two questions. Regarding net fees and commissions. Net fees and commissions in the first half of the year was very strong for both domestic and nondomestic. Is this trend in the first half a temporary phenomenon? Or including the current pipeline, can we expect further growth going forward? That is my first question. Second question is on CET1 ratio on Page 20. The impact of exchange rates was cited as a factor in the decline in the CET1 ratio in the first half of the year. It worsened by 40 basis points, but the yen did not appreciate significantly between the end of March and the end of September. Then why deteriorate by 40 basis points? Was it due to the Thai baht? What was the impact in the first half? If the weak yen environment continues, can we expect the CET1 ratio to improve further? These are my two questions. Jun Togawa: Thank you for your questions. Fee revenues, fee income partially include impact of acquisitions. Acquisition of WealthNavi, MPMS acquired by our Trust Bank and NICOS acquiring Zenhoren has resulted in a total acquisition effect of about JPY 48 billion. Apart from that, GCIB, in particular, is further promoting O&D initiatives, so fee income will grow. Domestically, fees related to loans such as MBOs and LBOs are growing. Solution-related fees are also growing. So we can expect continued growth in this area. In addition, AUM in asset management is growing steadily, and IS has also issued a press release stating that outsourcing operations have quickly achieved the MTBP target. These areas are growing steadily. So I believe we can continue to grow. Regarding CET1 ratio for the first half of the year, impact of U.S. MUA is large, as I might have said in May. The dollar-yen exchange rate from December to June saw the yen appreciate by about JPY 14. We took some hedging measures, but were implemented after April or May and hence, this impact. Regarding impact of the weak yen on CET1 ratio, it will depend on the trends in the dollar yen and Thai baht, but the weak yen will have a certain effect in lifting the CET1 ratio. That's all for me. Operator: Next is Mr. Yano, JPMorgan. Takahiro Yano: I also have two questions. One is a detailed question, a follow-up to Mr. Matsuno's question. Regarding the revised target for this fiscal year, you referred to the waterfall chart on the lower left, but I'd like to confirm referring to the table above. NOP is up JPY 50 billion. Credit costs haven't changed and ordinary profits increased by JPY 150 billion. I assume this is coming from increase in ownership interest, stock-related and other factors accounting for JPY 100 billion. I'd like to know the breakdown. This is my first question. The second question is a high-level question. Today, there was a headline in the news quoting CEO, Mr. Kamezawa about achieving top -- global top-tier ROE and corporate value. I assume this is along the same lines of what has he has been saying. But just to be sure, can we take this as a hint that the current ROE target of 12% will change? Is there no need to read too much into it? I would like to know what you mean by achieving global top-tier ROE, if there is anything we should know of. Jun Togawa: Thank you for the questions. Should I explain both NOP and ordinary profit? Well, if you could elaborate on the variance, if there is anything that is tricky in NOP. Okay. Within NOP, JPY 25 billion is from ForEx, assuming the yen to be about JPY 5 stronger. The rebound from treasury trading gains was concentrated in the first half, as I said, and the difference between first half and second half is about JPY 130 billion. Then there is increase in expenses, expense incurred in EMUTO, IT costs, AI, cyber-related impact from certain inflation-related costs, base wage increase, among others. All in all, about JPY 100 billion in expense increase. We are also considering a certain level of structural improvements for next fiscal year as profits are also strong. Averaging them all out, we expected an upside of about JPY 50 billion in NOP. Regarding ordinary profit, there is a one-off step-up gain from an increase in our ownership interest. This accounted for about JPY 100 billion in the first half. Some of it was not accounted for in the plan, as I said earlier. Combined with Morgan Stanley's profit increase, ordinary profit was revised up by JPY 150 billion. To your second question, I appreciate the expectations you have on us, but we will first focus on achieving 12%. Mr. Kamezawa spoke in that context. Thank you. Operator: It seems there are no further questions, so we will conclude the Q&A session. Finally, Mr. Togawa would like to say a few words. Togawa-san, please. Jun Togawa: Thank you very much for joining us today despite the late hour and on a day where many companies are announcing their results. Thank you for your diverse questions and comments. Today, I mainly explain the progress made in Q2 of FY 2025, and President Kamezawa will provide a more detailed explanation, including his own thoughts at the investor briefing on the 18th. We look forward to your participation. We would appreciate your continued understanding and further support. Thank you very much for joining us today. Operator: This concludes the online conference call on financial highlights for the first half of FY '25 of Mitsubishi UFJ Financial Group. Thank you very much for participating today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the WaterBridge Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Mae Herrington, Director of Investor Relations. Mae, please go ahead. Mae Herrington: Good morning, everyone, and thank you for joining the WaterBridge Third Quarter 2025 Earnings Call. I'm joined today by our CEO, Jason Long; our COO, Michael Chop Reitz; and our CFO, Scott McNeely. Before we begin, I'd like to remind you that in this call and the related presentation, we will make certain forward-looking statements regarding our current beliefs, plans and expectations, which are not guarantees of future performance and which are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from results and events contemplated by such forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements. Please refer to the risk factors and other cautionary statements included in our filings with the SEC. I would also like to point out that our investor presentation and today's conference call will contain discussions of certain non-GAAP financial measures, which we believe are useful in evaluating our performance. These supplemental measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and the appendix of today's accompanying presentation. Prior to the closing of WaterBridge's initial public offering on September 18, 2025, WaterBridge completed the successful combination of its legacy entities, WaterBridge Equity Finance LLC, WaterBridge NDB Operating LLC and Desert Environmental LLC. Third quarter key operational metrics discussed today are presented on a combined basis and financial results discussed today are presented on a pro forma basis in accordance with Article 11 of Regulation S-X, assuming the combination and the IPO had occurred on January 1, 2024, with the exception of cash flow statement items, which are presented at the standalone entity level in accordance with SEC guidelines. I'll now turn the call over to our Chief Executive Officer, Jason Long. Jason Long: Thanks, Mae, and thank you, everyone, for joining us this morning for our first quarterly earnings call as a public company. We are proud to have brought WaterBridge to the public markets in September, listing on the NYSE and NYSE Texas and the largest energy sector IPO since 2019. We look forward to capitalizing on our momentum with a proven business strategy, a strong balance sheet and an unparalleled infrastructure that is well positioned to meet the ever-growing needs of current and future customers. The market's belief in our business model and enthusiasm for our listing was demonstrated with an upsized offering that was significantly oversubscribed and priced at the high end of the range. As this is our first earnings call, I'll spend a few minutes providing an overview of our business model before turning over to our COO, Michael Chop Reitz, to discuss our competitive advantages and why we believe WaterBridge is well positioned to create significant shareholder value in the near and long term. WaterBridge is a leading integrated pure-play water infrastructure company with operations primarily in the Delaware Basin, the most prolific oil and natural gas basin in North America. Our infrastructure network is comprised of approximately 2,500 miles of pipeline and nearly 200 produced water handling facilities capable of handling more than 4.5 million barrels per day of produced water. Produced water handling is critical to enabling oil and gas development in the Delaware Basin. Every barrel of oil brought to the surface is accompanied by multiple barrels of produced water. And without efficient, reliable and environmentally responsible systems to gather, treat, transport and dispose of the water, production simply cannot continue. The scale of the Delaware Basin makes this challenge even more complex, enormous volumes, long distances, evolving regulatory considerations and the need for continuous operational uptime. Effective produced water infrastructure not only keeps oil and gas wells flowing, but also protects freshwater resources, reduces truck traffic and emissions and enables E&P operators to plan, invest and grow with confidence. It is one of the quiet but essential backbones of the nation's energy economy. Today, produced water handling comprises approximately 90% of our revenue derived from fixed fee contracts for the transportation, treatment handling and disposal of produced water. Our Water Solutions business, which includes fees received from sales of brackish water, recycled and produced water and our waste management business, which receives fees from disposal of industry waste, provide the remainder of our revenue. I'd like to conclude by saying that we're excited to bring this company to the public markets and begin the next chapter in our evolution. This step allows us to broaden our partnerships and align with public equity investors who share our long-term vision and commitment to disciplined growth. As the importance of produced water infrastructure continues to expand alongside development in the Delaware Basin, we believe we are exceptionally well positioned to drive value through scale, reliability and innovation. I'd like to now hand it over to Chop to talk through some of those advantages in a bit more detail. Michael Reitz: Thanks, Jason, and thank you all for joining us today. As Jason mentioned, we see several key advantages for our business over the long term. First, our infrastructure and produced water solutions are best-in-class with substantial scale, strategic location, high operational efficiency and fit-for-purpose measurement and monitoring capabilities. Second, our access to underutilized pore space supports new and continued produced water handling capacity, which we believe is key to supporting the expected future growth of produced water in the Delaware Basin. We have secured significant access to pore space through our relationship with LandBridge, an active land management company with more than 300,000 mostly contiguous acres in the Stateline region of the Northern Delaware Basin and a 64,000 acre AMI with Texas Pacific Land. Our relationships with LandBridge and TPL provide contractually agreed upon access to economic properly managed pore space as well as access to surface acreage for the continued build-out of our strategically located infrastructure network. Third, we provide industry-leading flow assurance. Our infrastructure network has built-in operational redundancies to provide customers with uninterrupted water management solutions. Combined with our access to real-time monitoring through our best-in-class control room and proprietary forecast management software wave, we are able to provide reliable flow assurance, which is a critical priority for our E&P customers. Fourth, we prioritize long-term relationships with a diversified customer base that includes some of the largest and most active producers in the Delaware Basin. Our fixed fee contracts typically span 10 to 15 years with acreage dedications or minimum volume commitments in certain cases and annual fee escalators tied to the CPI or similar inflation index for substantially all the contracts. Our customer base is diversified with no customer representing more than about 17% of revenue. This insulates us from volatility tied to individual customer activity levels and provides us with broad visibility into future activity levels, which allows us to forecast our business with a high degree of confidence. And finally, WaterBridge is committed to responsibly managing produced water. We work collaboratively with E&P customers as well as the Texas Railroad Commission, providing feedback as well as pressure and seismic data to contribute to constructive solutions for responsible long-term produced water management. Beyond supporting energy production, we are also actively exploring opportunities to expand our operations to serve customers across a wide range of industries, including water needs for data center cooling and beneficial reuse of produced water. Now turning to our activities this quarter beyond the IPO. We continued our commercial momentum, bringing the previously announced bpx Kraken project online at the beginning of the third quarter. This project features a 10-year minimum volume commitment from bpx and supports sustainable water solutions for their long-term development plans in the Stateline region of the Delaware Basin. The project is constructed to include the initial produced water handling capacity of approximately 400,000 barrels per day with the ability to increase that capacity to approximately 600,000 barrels per day. We also announced our final investment decision for the first phase of the Speedway pipeline project, which will connect oil and gas developments in the Northern Delaware Basin to out-of-basin pore space owned by LandBridge in the Central Basin Platform. This transformational project garnered strong industry demand from both new and existing customers, demonstrating the need for reliable out-of-basin solutions for growing New Mexico volumes. Construction is underway, and we expect an in-service date mid-2026. Before I turn things over to Scott, I just want to reiterate that we're excited to begin this journey as a public company, and we're looking forward to growing and creating sustainable value for our new public shareholders. Now I'll turn the call over to Scott to take you through some of our financial results in more detail. Scott McNeely: Thanks, Chop, and good morning, everyone. We're pleased to deliver a strong first public quarter. Combined produced water handling volumes for the quarter were 2.5 million barrels per day, representing quarter-over-quarter growth of 7%. Sequential volume growth was driven by new volumes coming online on our bpx Kraken infrastructure and continued organic growth across our existing contract portfolio. Pro forma revenue for the third quarter increased to $205.5 million, up 8% compared to last quarter, driven mainly by the previously discussed increase in volumes as well as by increased rates in the period. Pro forma net loss was $18.7 million for the third quarter and pro forma adjusted EBITDA was $105.7 million, with pro forma adjusted EBITDA margin of 51%. Regarding capital structure, we received net proceeds of approximately $673 million from our IPO, which were used to strengthen our balance sheet and position us for future growth. We ended the quarter with total liquidity of $547 million, including cash and cash equivalents of $347 million and $200 million of undrawn legacy revolving credit facility. As of September 30, we had approximately $1.73 billion of borrowings outstanding associated with our legacy entities. Since the end of the third quarter, we streamlined and optimized our balance sheet through an inaugural $1.425 billion senior notes offering that closed in early October, increased our liquidity -- increasing our liquidity and decreasing our annual interest and amortization expense burdens. Concurrent with the senior notes offering, we put in place a new revolving credit agreement, replacing $200 million in legacy undrawn senior secured credit facilities with a new undrawn $500 million senior secured revolving credit facility maturing in September of 2030. Our disciplined approach to our capital allocation framework is designed to balance our top priorities, which are: first, to build out our water infrastructure network and commercial relationships. This includes organic growth, which we have been able to achieve at very attractive multiples as well as highly accretive acquisitions and expansion opportunities. Second, to maintain a conservative balance sheet to ensure maximum financial flexibility over time with a long-term leverage target of less than 3x. And finally, to potentially return capital to shareholders, which could include dividends as well as opportunistic share repurchases in the future. A quick note on guidance before we take your questions. We anticipate providing 2026 guidance concurrent with our fourth quarter and full year 2025 earnings call. To conclude, we're pleased to report a strong first public quarter. With the expansion of our network, including the opening of the bpx Kraken pipeline and the advancement of our Speedway pipeline project, we are well positioned to support the growing demand for water handling in the Delaware Basin. Our business is underpinned by high-quality assets, strong contracts and customer relationships, attractive operating margins and predictable cash flows, which allow us to continue driving profitable growth and creating long-term value for our shareholders. Operator, we'd now like to open up the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Theresa Chen with Barclays. Theresa Chen: Would you be able to provide some color on the level of demand you're seeing for Speedway for additional phases at this point? If you were to upsize the project, what would the magnitude be? And how much more CapEx would that require considering it would likely be pump work rather than looping? And what kind of build multiple would additional phases see? Michael Reitz: Yes. Thanks, Theresa. I can take the first part of that question. We're seeing a lot of demand for the Speedway project. We were oversubscribed on the first phase, which can get that capacity up to 500,000 barrels a day. The additional line, we can add an additional 500,000 barrels a day, and we're working with customers currently on what the final route for that will be. So I can't really speak to an exact CapEx number, but we do think it will be less than the initial CapEx for Speedway Phase 1. Jason Long: Yes. And Chop, if you were to think through the build multiple there, it's probably 3 or 4x conservatively speaking, with upside? Michael Reitz: Yes, that's right. Theresa Chen: Great. And maybe just zooming out a bit, looking at the broader basin and the forward trajectory for growth, can you provide some color on your view on the macro backdrop over the near to medium term, given the volatility we've seen in the forward price outlook, what have recent conversations been like with your producer customers? Have you seen any shifts in tone or concrete plans impacting demand for WaterBridge's services? Scott McNeely: Yes, Theresa, I'll take that one. I would say we're in a fortunate position with the bulk of our growth expected to come out of the Stateline in New Mexico to be much more insulated than the rest of the Lower 48. A couple of points I'd hit is first, and just to make sure we can level set on this, the expectations we set forward with investors and with you all during the IPO process was already very much calibrated for the current commodity price environment. So as it relates to go-forward expectations, [ no, call it ] meaningful shifts just based on more recent news. But second, you think through the growth expectations we are expecting to see over the next several years, it's important to keep in mind that the vast majority of that is going to be underpinned by minimum volume commitment backed contracts that are both coming online and ratcheting up over the next several years. And so there's a lot of certainty there that certainly helps provide some cushion relative to some of the concerns some other companies have voiced over. But I would say lastly, the real benefit of kind of water here, again, particularly in New Mexico, is it is critical to enable production. You're seeing water volumes grow at meaningful rates, and you're seeing the demand for our services grow even above those water growth rates as a byproduct of, one, recycling no longer having the ability to absorb the bulk of produced water growth in New Mexico; and two, so much of that legacy capacity along the Stateline starting to decline as a result of pore pressure issues. And so despite kind of the macro backdrop and despite a lot of the chatter, I think we're incredibly well positioned not just to deliver on the growth that we set forward during the IPO process but [ outdeliver ]. Operator: Your next question comes from the line of Eli Jossen with JPMorgan. Elias Jossen: Just wanted to start on the competitive landscape. I know we've seen a little bit of change there, but obviously, you guys have some of the best acreage on the Stateline. So I just want to get a sense of how discussions have gone with producer customers, more opportunities that you guys are seeing and what that landscape looks like right now? Scott McNeely: Yes. No, thanks for the question, Eli. No, I mean it's -- I would say, commercially, we've got an abundance of traction, obviously, wrapping up Kraken earlier this year, FIDing Speedway, also getting the Devon contract announced alongside their second quarter earnings earlier this year. So we've seen an abundance of success. And like I mentioned in response to Theresa's question, the demand is still very much there, and there are a number of producers really looking for those kinds of long-term large-scale flow assurance solutions, particularly for growth that's expected to come out of New Mexico. And so certainly, there are certainly others that are in discussions with a lot of these producers. But ultimately, in discussions with E&Ps, there are really 4 things that they're looking for. They want to make sure they're partnering with, one, prudent operators with experience; two, a company with the balance sheet and the ability to scale and grow alongside them; three, assets at scale today to be able to support large-scale development campaigns that we're seeing; and four, access that differentiated pore space that provides the maximum flow assurance with the least amount of risk. And typically, as we work through those 4 items, we typically come ahead of our peers as we kind of think through competing for business. Elias Jossen: That's awesome color. Maybe just on the contract rate outlook. I mean, I know we're seeing what I would expect sort of rates move up, especially on these large projects that you're announcing. But can you just talk about what the sort of new contracting and portfolio rollover looks like compared to the base business, how the rates, particularly in the Delaware compare and kind of the outlook there? Scott McNeely: Yes. I mean we're fortunate where we've seen a meaningful increase in rates in some of these more deals -- more recent deals that we've been able to wrap up. Part of that is a byproduct of underwriting just larger capital programs. And I think part of that is also a recognition that premium derisked flow assurance is worth a higher price than the rock bottom pricing that E&Ps were chasing 5-plus years ago. And so it's certainly going to continue to accrue to our advantage. And while we have, I would say, no material near-term contractual walls or kind of renewals that we're working through, as we see bpx Kraken come online, we see Speedway come online, we see Devon come online as well as a lot of these other opportunities that we're working through, you're going to see the average unit level revenue and operating margin on a per barrel basis increase across our company. Operator: Your next question comes from the line of Derrick Whitfield with Texas Capital. Derrick Whitfield: For my first question, I wanted to focus on the 1918 surface acquisition LandBridge announced earlier -- or closed and announced that earlier today. But specifically, to what degree could the pore space value of that asset on the East side be driven by WaterBridge versus industry? And over what period as you think through water disposal dynamics in the basin? Scott McNeely: Yes, it's a great question. As we mentioned earlier in discussing 1918 from LandBridge's perspective, I'll just repeat, I think a key point, which was this is an acquisition that, again, was designed to unlock new surface, to unlock new pore space contiguous to LandBridge's East Stateline Ranch, not just as a benefit to WaterBridge, but really to the industry and all the other players looking for access to pore space. Now as we kind of think through this through the lens of WaterBridge, there's clearly option value there for WaterBridge to access that surface and that pore space in the future if there's a commercial justification for that. And it's -- geographically speaking, it's close to some offsetting WaterBridge infrastructure. So we could access that pore space from WaterBridge's perspective at a fair economic -- on a fairly economic basis there. But as it sits today, no near-term plans for WaterBridge to construct infrastructure on 1918. Derrick Whitfield: Great. And then for my follow-up, I wanted to touch on just the beneficial reuse case and the opportunity you guys see. If I think about your prepared comments on beneficial reuse for both data centers and other industries, how large of a lift would that be for your organization? And could you operate that business with similar margins as it were tied to produced water disposal? Scott McNeely: Yes, I'll take this one as well, Derrick. This is an opportunity that we're very, very excited about. I mean, as we and others have spoke to, West Texas is certainly blowing up as it relates to its attractiveness for both power and for digital infrastructure. And as we all know, one of the real advantages is the access to water as it relates to cooling that. And it's not just that brackish water in the ground, but it's also the potential to redeploy produced water that's treated and used for cooling rather than being disposed of. So this is something that we're actively looking at. We're actively in conversations with counterparties on today from WaterBridge's perspective. We would certainly pursue or explore treating that ourselves as well as options with partnering with third parties. And ultimately, we would go with, I think, with what makes the most sense for both our business relative to the margins and the incremental lift in any capital requirements as well as weighing that with the demands of the customer. And so it hasn't been, call it, formally set as it relates to our approach on how to tackle that yet. But I think what's important to take away is, one, we're trying to be very thoughtful about the ultimate approach there; and two, regardless of that's done in-house or if that's done via partnership, we would expect a meaningful economic uplift for WaterBridge. Operator: Your next question comes from the line of Kevin MacCurdy with Pickering Energy Partners. Kevin MacCurdy: For my first question, I wanted to ask about the volumes on the Kraken side. How much of the initial 400,000 barrels a day is filled up currently? And what does that ramp look like over the next few quarters? And anything you could provide on the time line for Phase 2, which is the additional build-out of 200,000 barrels a day? Michael Reitz: Yes. Thanks for that question. So the initial capacity is probably taken about -- from a pipeline standpoint, about 50% to 60% by bpx depending on their development cadence. And we will -- we do expect that to increase materially over the next several years as those MVCs ratchet up. The additional 200,000 barrels a day that can be added to that system will not be added immediately. We will add that when the commercial need is justified. Kevin MacCurdy: Great. Appreciate that. And then as a second question, I wonder -- I mean, you kind of have a slide on this in your deck, but I wonder if maybe big picture, you can explain some of the big regulatory reforms that have happened in Texas as far as permitting and how you think that might be a tailwind or how WaterBridge is well set up for that? And then just do you have any view on how the regulatory environment could change for both Texas and New Mexico into the future? Michael Reitz: Yes, I'll take that one as well. So we've got a great relationship with the Railroad Commission as well as industry and working through a lot of these new permitting guidelines and practices. What you'll see is the way that WaterBridge has typically approached permitting is very similar to the way that the Railroad Commission is now guiding people to approach permitting. So we really haven't had -- it hasn't affected us negatively mainly because of our approach to spreading out our injection facilities and how we view the subsurface. So yes, we think that it's not going to affect us while it could affect others if they didn't have that access to vast amounts of undeveloped pore space like we do through LandBridge. And then just speaking to New Mexico, I really can't speak to that. It's a very volatile regulatory environment, as you may be aware, but Texas is favorable. And again, we have a great relationship with them. I don't see anything drastic happening there, though. Operator: Your next question comes from the line of Praneeth Satish with Wells Fargo. Praneeth Satish: Maybe just to elaborate on kind of the data center opportunity here. Like if we were to try to come up with a TAM, I mean, I assume the cost to treat water is going to be quite high, maybe supporting a tariff of over maybe $2 a barrel. Is that reasonable? And then maybe if you could just give us a sense of how many data centers are around your footprint that you could service? How would you get the water to these data centers? And any types of kind of rule of thumbs of how we should think about how much water is needed per gigawatt of capacity? And finally, just what's a realistic time line to see some of these deals get FID-ed? Scott McNeely: Praneeth, thanks for joining. Thanks for the question. Yes, it's a fantastic way to look at, and there's obviously still quite a bit that's moving around in the landscape in West Texas. I would say both the quantity of water that is used for a single, call it, 1 gigawatt facility plus power as well as the number of those that will ultimately be in West Texas is a bit of a moving target, although I would say clearly, we expect the demand to be very robust, and that's not just driven off of the successful commercial progress that LandBridge is making, but zooming out, it's really the progress that the broader industry is making in West Texas attracting those kinds of opportunities. We have heard different figures as it relates to the amount of water that's needed for a 1 gigawatt opportunity. That could be 100,000 to several hundred thousand barrels a day, and the range could be potentially even wider than that, just depending on the technology that's used. As you kind of alluded to, the ultimate rate that would be needed is going to vary depending on the amount of water as well as the level of treatment that's needed. So it's very challenging to say that the opportunity set today could represent hundreds of millions of dollars of EBITDA potential for us at WaterBridge because it's a fairly wide goalpost at the moment. But I think what's exciting is very few players out there have the infrastructure of scale, the expertise with water or the quantity of water, the kind of concentrations that we have to be able to deliver this type of solution. And I think as a result of that, we put ourselves in a very advantageous position as it relates to these kinds of discussions. And when appropriate and as we continue to make progress, we'll certainly circle back and share more of those details. Praneeth Satish: Got you. That's helpful. And then maybe shifting gears, if you could just talk about kind of your approach to securing MVCs for Speedway Phase 2. Will you aim for a similar level of commitments as Phase 1? And then how do you think about balancing MVCs versus overall returns? I know that you're saying the build multiple is very attractive already at 3 to 4x. But could it get even more attractive if you reduce the MVC requirements there? Just trying to think about that trade-off. Scott McNeely: Yes. No, it's a great flag, and it's a great way to think through the balance between underwriting a project with MVCs versus leaving ourselves some upside. When we think through the MVC volumes relative to the size, call it, the potential capacity of the system for Speedway, call it, 3 years in, you're looking, call it, 60% to 65% MVC driven, so -- relative to its capacity. So clearly, some ability to go out and capture incremental volumes that depending on the market at the time, could be at a meaningfully higher rate than those MVCs. And so the way we kind of balance it from our side is we take a look at a number of factors, including the customer concentration on the project, the scale of the project, call it the macro landscape, but call it the ability to kind of commercialize the asset with other E&Ps kind of in and around that area on the same set of assets. And we weigh all of those. And ultimately, we decide to scale the project and scale the MVCs to ensure we're providing effectively an asymmetric risk profile where our downside is protected, but there's as much upside as we can possibly capture. Operator: That concludes our question-and-answer session. I will now turn the call back over to Scott McNeely for closing remarks. Scott McNeely: Yes. Thanks again for joining us today on our first WaterBridge earnings call. To echo both Jason and Chop's comments, we're very excited about the success of the IPO and the ability to bring this company to the market and partner with like-minded investors who are excited about the growth of water infrastructure in West Texas and New Mexico alongside what is a very thriving oil and gas industry. And so we look forward to staying synced up. We are very much focused on transparency. So we ask if there are any questions, please feel free to reach out, and we'll get back to you as soon as we can. Otherwise, we look forward to touching base with you all with year-end results. Thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the NRx Pharmaceuticals' Q3 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, November 17, 2025. I would now like to turn the conference over to Matthew Duffy, Chief Business Officer. Please go ahead. Matthew Duffy: Thank you, Joelle, and welcome, everyone. Before we proceed with the call, I would like to remind everyone that certain statements made during this call are forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. Additional information concerning factors that could cause actual results to differ statements made on this call is contained in our periodic reports filed with the SEC. The forward-looking statements made during this call speak only as of the date hereof, and the company undertakes no obligation to update or revise forward-looking statements. Information presented on this call is contained in the press release issued this morning and in the company's Form 10-Q, which may be accessed from the Investors page of the NRx Pharmaceuticals, Inc. website. Joining me on the call today are Dr. Jonathan Javitt, our Founder, Chairman and CEO; and Michael Abrams, our Chief Financial Officer. We'll provide an overview of our company's progress as reported in today's 10-Q, following which Mike will give a review of the company's financials and results. Following their prepared results, we'll address investor questions. Jonathan as having a couple of technical issues this morning, so I'll start us off. Since the beginning of the third quarter, NRx has made transformative progress in developing our business. We have advanced each of our programs with drug approvals applications in process for KETAFREE, NRX-100 and NRX-101. It also expanded our NRX-101 pipeline and closed on multiple acquisition targets for a network of interventional psychiatric clinics HOPE Therapeutics. In conjunction with closing our first clinics, we now are now generating revenue and on a path to a highly promising company. The point of our call today is not 3 weeks of revenue from a single clinic just a few hundred thousand dollars that hit our third quarter income statement. Rather, it's the revolutionary and generational shift that we see in the treatment of severe depression and PTSD today, along with the potential to use the same technologies to treat traumatic brain injury, autism spectrum disorder, Parkinson's and even cognitive decline in coming years. This past quarter has been a watershed moment in that generational shift from our perspective. Lastly, a group of highly respected scientists presented real-world data showing an 87% treatment response and 72% remission from severe depression following a single day of treatment with a newly developed TMS for transcranial magnetic stimulation and a low dose of D-cycloserine or DCS. Note that the active ingredient in NRX-101 is also DCS. This allocation comes on the heels of a well-controlled clinical trial in which DCS was shown to more than double the effect of conventional TMS in treating both depression and suicidality. Rather than rely on this call, we urge you to read the underlying science, referenced on our website on the Publications page. As we announced last week, our company HOPE Therapeutics is the first one to deploy this ONE-D protocol in Florida in partnership with Ampa Health and we're actively partnering with its established clinics and seeking to open new clinics in Florida and nationwide. The scientists involved in that trial will be the first to say that there is not the only TMS machine capable of affecting a 1-day Theta-burst protocol. However, no drug other than DCS so far has demonstrated the augmentation of TMS in the literature. Accordingly, this quarter's results should be viewed as seeing the first green shoots come out of the ground, not as an indication of whether these shoots will ultimately be a bush or a giant tree. We anticipate that our growing enterprise will be far easier to discern by our next conference call. As you know, we have been working with DCS since our founding in 2015, and our Co-Founder, Dr. Daniel Javed, began research with this class of compounds in 1987. NRx holds rights to more than 70 patents around the world that relate to the use of DCS in treating depression, PTSD and other life-changing brain disorders. We have extensive experience in the formulation and stabilization of this highly challenging and unstable molecule. A breakthrough therapy designation IND opened with the FDA and manufactured drug in our warehouse that is actively being deployed in an expanded access protocol to enable doctors to replicate last week's dramatic ONE-D findings. Although a raft of compounding pharmacies are offering DCS for sale in response to these dramatic scientific results, we will be releasing chromatography and other foundational science demonstrating the need for manufacturing controls that are essential for preventing rapid degradation of DCS and the formation of various impurities, controls and techniques. We have devised over nearly 10 years of active preclinical and clinical development. The reason to be excited about combining DCS, which is a highly neuroplastic drug along with TMS, which is also a neuroplastic therapy, is not the simple notion that 2 neuroplastic treatments may be better than 1 as in one plus one equals to two. Rather, the scientific legacy of leaders in the field increasingly proves the drugs such as DCS, make the brain cells far more receptive to TMS and other neuroplastic therapies, akin to fertilize in the field as you plant the seeds. For those who are new to this conversation, neuroplasticity is the process by which brain cells are constantly growing new connections to other brain cells. In a digital computer, transitors are always turning on and off under the control of software but the circuits stay the same. In the brain, those transistors are neurons, polarized and depolarizes, the cellular equivalent turning on and off, but also constantly form new connections and prune those connections to other cells. That's called neuroplasticity. Over the past 20 years, we have come to understand that the loss of neuroplasticity in different parts of the brain is at the root of depression, PTSD, autism spectrum disorder and other conditions that I've mentioned. And Dr. Javitt's 45 year medical and scientific career, predominantly focused on the visual access of the brain, the last time he was involved in technological change that this profound was introduction of the first anti-VEGF drug to treat macular degeneration that led to a whole generation of injectable eye drugs that forever changed the potential for people to preserve their site in the face of previously hopeless and blinding conditions. In our view, we are witnessing a similar tectonic split shift in the neuroplastic drugs, devices and digital therapeutics are being combined to transform the treatment of severe depression of PTSD today and the brain diseases that affect more than a billion people on the planet tomorrow. The dose publishing this science are correct, it is likely that oral antidepressant drugs with their life-threatening complications, their effects on disfiguring weight gain and sexual dysfunction, their propensity to cause suicidal ideation and their dismal 30% success rate may lose their places first-line treatment for those with life-threatening brain diseases. More importantly, this generational shift in our understanding will finally cause us to abandon the notion of brain diseases that result in behavioral symptoms such as discretion and anxiety are biologically different for brain diseases that cause Parkinson's or cognitive dysfunction and that the patients who suffered these supposedly behavioral health problems are somehow less deserving of medical care than those who suffer from other neurological or CNS diseases. One reason we founded HOPE Therapeutics was to have the ability to directly engage the payer community in this changing paradigm. That brings us to corporate and financial results achieved in the past quarter and the objectives we think are meaningful over the coming quarters. Our quarterly report reflects only the first 3 weeks of revenue from our first 2 clinics. By year-end, we anticipate growing from 2 clinics to 6 or more clinics within our current orbit, and we expect these revenues to demonstrate strong growth over the coming quarters as we integrate the clinics, help grow them and add to their numbers. Most importantly, the historic revenue is based on ketamine treatment sessions and traditional TMS treatment sessions that are generally reimbursed at less than $500 a session. Much of our future growth is likely to be focused on day and shrug shorter short-term multi-modality treatments with rapid clinical results that are already reimbursed by payers at higher levels. To give you just one of many real-life illustrations of why this is economically viable, considering the situation of a highly trained essential first responder, who is suffering from depression and PTSD. In many cases, antidepressants are incompatible with a return to duty. For many frontline roles, this is a disqualification. Hence, the desire of the patient and the family for relief from a debilitating and life-threatening new addition aligns with the urgent need of military, law enforcement, emergency services and other organizations to maintain their force readiness. The financial and other resources -- financial and other resource costs of replacing frontline personnel is astronomical. While medical insurance decisions are often made by the executives who many Americans view as not caring enough about the individual, health insurance payment policies are increasingly dictated by the employers who pay the premiums and who care deeply about their ability to maintain a workforce in whom they have invested. Often the decision makers at that level are the military leaders, police and fire commissioners and others who have come up through the ranks and we think about their people first. When Dr. Javitt presented last month at Fort Belvoir to a room containing generals, admiral and elected officials. He sat with a senior adviser to the Secretary of the Veteran Affairs Administration who reminded of the public statements from the VA that stopping veteran suicide is in their -- is their top priority. We hope to release a video of that briefing to you in the coming weeks. Our balance sheet is considerably stronger than it was at the end of the second quarter, owing in part to the support of long-term health care specialist investors who joined us during the third quarter and purchased common stock with no warrant overhang, no pricing provisions and no convertible debt feature. At this point, NRx has secured operating capital that is anticipated to be sufficient to fund drug development operations through 2026. Additionally, as just noted, we expect to continue to add revenue from the clinical operations and believe it is likely that we will see revenue from sales of ketamine under an ANDA in mid-2026. As you can see from our balance sheet, and as Mike Abrams will be discussing in greater detail later, we are well positioned to achieve numerous milestones on both sides of our business with existing cash. Our goal in doing so is to substantially enhance shareholder value while advancing our mission of bringing HOPE to life. Now let's review each program, starting with our preservative free ketamine -- which was previously required a toxic preservative, which is benzethonium chloride to maintain stability and sterility. Our stability data remains on track for a 3-year room temperature shelf life. We're pursuing 2 parallel approval processes, a generic pathway and an innovative pathway using 2 different formulations to prevent price confusion. As you saw in August, FDA ruled that those 2 formulations create 2 different drug identities. The first pathway is a new drug application or NDA for NRX-100 in suicidal ideation for patients with depression, including bipolar depression. The second is an abbreviated new drug application or ANDA to make KETAFREE available for ketamine's existing generic indications. NDA preparation is nearly complete, and we anticipate transmitting the entire submission in the coming weeks. The key development is that we are adding more than 60,000 patient encounters of real-world efficacy data, which demonstrates statistically significant advantages of intravenous ketamine over nasal S-ketamine. Combined with the data from U.S. and European trials in more than 1,000 patient participants, we believe this to be a compelling case for efficacy. This will be an important step forward for both the company and for patients suffering from suicidal depression. There's currently no medication approved for treating suicidal ideation and the SPRAVATO label clearly states that it has not been shown to be effective for reducing suicidality. The only current alternative is for patients with suicidal ideation is ECT or electroconvulsive therapy. As you know, the PCORI trial, which is posted on our website, demonstrated a 30% incidence of memory loss with ECT and none with IV ketamine. And what we feel is a strong validation the FDA granted to us and expand Fast Track designation in August to now include all patients with suicidal ideation and depression, including bipolar depression. Suicidality is a massive problem in the U.S. The fact -- in fact, the CDC estimates that nearly 13 million Americans seriously consider suicide each year, and this leads to an American dying from suicide every 11 minutes. Our leadership team was invited to Fort Belvoir last month where we presented to senior military and veterans affairs leaders and will be repeating the briefing at VA headquarters and Nellis Air Force base to the Air Force leadership. As Secretary Collins has said publicly stopping veterans suicide is his top priority. In June, the FDA created the commissioner's national priority voucher program that affords substantially faster review times of 1 to 2 months versus the standard 10- to 12-month review, enhanced communication throughout the review process and creates potential for accelerated approval of NRX-100. Commissioner Macri has publicly stated the safe and effective drugs to prevent suicide are a top priority for him. More importantly, after some publicly reported personnel changes, the FDA centers for drugs now as a leader has been long-term proponent of accelerated approval for life-saving drugs that meet an unmet medical need. To receive a CNPV, a product must meet at least one of the following criteria: address the U.S. public health crisis, address a large unmet medical need, deliver more innovative cures for the American people, reassure key strategic drugs to the U.S. or reduce health care costs. NRx meets all of these criteria. In Q3, we filed an abbreviated new drug application for ketamine with priority review requested. We call this product KETAFREE. After meeting with the FDA in August of 2025, we've refiled the ANDA following FDA notification of the suitability position for NRx's proposed strength of KETAFREE. Last week, we received a communication from FDA, noting no significant deficiencies in the revised KETAFREE filing, and we believe the filing is on track for second quarter PDUFA date or generic -- that's a generic drug equivalent of a PDUFA date. The company has additionally submitted a citizen petition seeking to have benzethonium chloride, a toxic preservative included in all currently approved ketamine products for antiquated reasons, removed from all presentations of ketamine. This preservative is the subject of a detailed toxicology report we have published, which details the concerns that led FDA to ban BZT from topical antiseptics and hand cleansers. Notably, benzethonium chloride does not categorized by FDA as GRAS or generally recognized as safe. This report has been submitted to the FDA in support of our citizen petition. As a preservative-free formulation ketamine is an important invention, we have filed a patent application with the U.S. patent in the Tradmark office to protect our intellectual properties surrounding this product. The existing generic market for ketamine has been projected at approximately $750 million. And we believe KETAFREE made in the U.S. and often without any toxic preservatives offers patients and clinicians a superior option. We'll continue to work diligently with the FDA to move our application forward as rapidly as possible and provide a safer version of this critical product to the American public. Our program around NRX-101, our oral combination of D-cycloserine and lurasidone took an extremely positive and unanticipated direction as outlined in the opening. As you know, we received breakthrough therapy designation for this drug in the treatment of suicidal bipolar depression and continue to advance that agenda. Our manufacturing data is on file with stability trending towards 5 years, and we have 1 million doses in the warehouse. There are more than 7 million patients suffering from bipolar depression in the U.S., and many of these are at risk of akathisia, a terrible side effect caused by serotonin active or SSRI drugs that is closely related to suicide. These patients are a tremendous risk of self harm. We have demonstrated statistically significant superiority of NRX-101 over lurasidone to this current standard of care in reducing suicidality and akathisia in 2 well-controlled trials. Both NRX-101 and lurasidone are potent antidepressants and one of those trials also demonstrated superiority in reducing depression. Remember that we are comparing to a known effective drug, not placebo. Because of the huge unmet need, we are optimistic that FDA will be receptive to an application for accelerated approval in the 600,000 patients who suffer from suicidal ideation in bipolar depression, despite treatment with a currently approved medication. A few days ago, a new Director of the FDA Center for drugs was appointed who pioneered the accelerated approval pathway and has been a staunch to advocate for early approval of medicines for life-threatening conditions for which there is no currently available therapy. Last week, we saw a publication of the exciting and unanticipated finding that low-dose D-cycloserine, again, the active ingredient in NRX-101, when combined with a ONE-D protocol of TMS. Recently, there's been exceptional interest in the use of DCS, the active component to enhance the efficacy in the treatment of depression. D-cycloserine, like ketamine, blocks the NMDA receptor and enhances neuroplasticity. Recently published real-world data provides confirmatory evidence seen in a prior randomized controlled trial that low-dose DCS more than doubles the antidepressant effect and anti-suicidal effect of TMS. Unfortunately, DCS alone is contraindicated in patients with depression, which may impact willingness of patients and practitioners to use this new protocol. Importantly, NRX-101 while including DSCS in its formulation, does not carry this contraindication. As the addition lurasidone blocks the effect of the NMDA inhibition in one key side effect. This creates a significant need for development of NRX-101 for the use of -- in conjunction with TMS to treat depression, PTSD and other disorders. We have more than 25,000 manufactured doses of NRX-101 at the appropriate strength on hand and launched a nationwide expanded access program to enable physicians to access this medication at no charge to the patient under expanded access and federal right to try laws. A confirmatory Phase 3 trial of NRX-101 to augment the effects of TMS is planned for early 2026. The market estimate for this newly validated indication for NRX-101 is in excess of $1 billion. On September 8, 2025, HOPE Therapeutics initiated revenue generation upon closing of its acquisition of Dura Medical clinics located in Naples and Fort Myers, Florida. HOPE subsequently added Cohen and associates in Sarasota, Florida, another revenue-generating EBITDA-positive clinic to the HOPE network. Dr. Rebecca Cohen, Founder of Cohen and associates has been appointed as HOPE's Medical Director. Last week, HOPE was the first organization in Florida to launch 1-day TMS treatment for severe depression and ONE-D protocol using the Ampa TMS device. The ONE-D protocol has been reported in the peer-reviewed literature to achieve 87% response and 72% remission from severe depression at 6 weeks. Following a single day of TMS treatment combined with D-cycloserine, focus in the process of adding 3 more facilities this year and is in an active discussion with numerous acquisition opportunities around the country. With our significant advances in the third quarter and a committed investor base, we believe we are better positioned than ever in our history to build shareholder value and to address the national crisis of suicide. We will do everything in our power to continue bringing HOPE to life. With that, I'll turn it over to Michael Abrams, our CFO, to review our financial results for the third quarter. Mike? Michael Abrams: Thank you, Matt. For the 3 months ended September 30, 2025, the company reported a loss of operations of $4 million versus a loss from operations of $3 million for the comparable quarter in 2024, the difference is primarily attributable to $800,000 of additional research and development expenses to support our FDA initiatives for NRX-100 and NRX-101, including the previously discussed and submission for preservative-free IV ketamine, and $400,000 of additional general and administrative expense which included our efforts to close, operate and identify clinic acquisition targets for HOPE. As of September 30, 2025, NRx Pharmaceuticals had approximately $7.1 million in cash and cash equivalents Including approximately $3.1 million from a subscription receivable for which the company received the cash in early October, total cash as of September 30, 2025, would have been $10.3 million. For the third quarter ended September 30, 2025, the company reported revenue for the first time in its history, driven by the acquisition of Dura Medical, which closed September 8. While revenue of approximately $240,000 was relatively modest, it reflects 22 days of the full quarter in a single clinic group. Management anticipates the ability to include results for the full period for during and future quarters closing anticipated additional acquisitions and organic growth of previously acquired clinics will drive meaningful revenue growth in the fourth quarter and through 2026. Transactions where we acquire a noncontrolling interest are expected to improve our overall financial position, but not directly increase revenue. Finally, we remain in active discussions with several additional potential acquisition candidates and while no assurances can be given that we will close any or all of such opportunities, together, they represent total revenue of more than $20 million on an annual basis. The company believes that its current cash position will support operations at least through the second quarter of 2026 as well as provide sufficient capital to expected regulatory inflection points and complete potential additional select acquisition opportunities to expand the growing footprint of HOPE clinics. Our singular focus remains advancing our primary drug development initiatives and planned clinic acquisitions to build long-term value for our shareholders. With that... Jonathan Javitt: Thank you, Mike, and thank you guys for sparing my voice this morning. I look forward to taking questions. Matthew Duffy: Operator, I believe we can begin to take questions. Operator: [Operator Instructions] Your first question comes from Tom Shrader with BTIG. Thomas Shrader: I have a couple of questions on this remarkable DCS result with TMS. Historically, is it clear that DCS is much better than Ketamine in this position? Is this truly unique to the drug? Or is it a general combination effect. And then can you give us a sense of how you would use 101 in this procedure? I assume it's not a hard co-formulation that your 101 is simply available. But how cumbersome is it to add a drug, your DCS -- and can you get paid for it? Just some logistics. I know you have a lot of drug. It looks like it's exciting. Can you guys run us through the steps to actually use it? Jonathan Javitt: Those are great questions. And a lot of this work, the basic science work has been done and published by Dr. Josh Brown at Harvard McLean with a number of others supporting the science. The most important thing to recognize is that DCS has to be used at a non NMDA antagonist dose. And I know this is a little more science than we sometimes do on a conference call. But in this case, it's critical. DCS is what's called a mixed agonist antagonist, unlike ketamine, unlike [indiscernible] unlike all of the NMDA drugs that blocks the NMDA channel, DCS affects a side unit of NMDA called the glycine site and at low doses, it's actually an NMDA agonist, but much more importantly, it's a highly neuroplastic drug. There's evidence that ketamine plus TMS actually decreases the effectiveness of TMS, there are even people who believe that ketamine shouldn't be used in conjunction with electroshock therapy because it may decrease the effectiveness of electroshock therapy. So all of the work that's been done is at low doses of D-cycloserine, 150, 175-milligram dose and it just happens that when we formulated NRX-101, that was one of the strengths that we made. That's why we have it in the warehouse. In fact, it was not made to be the main strength of NRX-101, it was manufactured to be a potential step-down strength in our clinical trial. So far, nobody else has identified a different neuroplastic drug that works in combination with TMS, the way D-cycloserine does. Do me a favor and repeat the second part of your question where you were asking... Thomas Shrader: Just the procedure to use your drug because it's in the works at the FDA, what would be -- how hard is it to just for somebody to get your drug if they want to add it to TMS in your clinic or anywhere else? Jonathan Javitt: Well, we have an expanded access protocol for DCS under the laws than required to be made available for expanded access. So if somebody writes to us, we're happy to provide it for this purpose as long as they provide us with the data of what happened. ClinicalTrials.gov has been a little backed up because of the government shutdown. But as ClinicalTrials.gov catches up, you'll see those expanded access protocols for DCS and TMS showing up online. Operator: Your next question comes from Patrick Trucchio with H.C. Wainwright. Patrick Trucchio: NRX-100 and suicidal depression, the FDA has identified no significant deficiencies to date. I'm wondering, first, what feedback have you received on the accelerated approval strategy. Secondly, do you still anticipate a year-end PDUFA decision? And separately, when do you anticipate learning if the CNPV is granted and what impact that could have on the PDUFA? Jonathan Javitt: Well, as we've said, we're in the CNPV process, and therefore, the NDA under Fast Track designation for NRX-101 has not been filed in its totality yet. We've said that several times, we're expecting to be heard about the CNPV this year. And the main advances with that NDA are that we now have access to the real-world data that we believe massively augment the filing that we will make under accelerated approval once we learn whether we're doing it under CNPV or not, where we're expecting not only to file the original clinical trials that we've told people about, but more than 60,000 patients worth of real-world data as well that we believe provide a solid case for accelerated approval. Patrick Trucchio: Right. And with the Citizen Petition now filed to remove benzethonium chloride, can you discuss how this regulatory action could reshape the market for IV ketamine and how you would ensure adequate domestic supply if the FDA moves to ban this preservative-containing formulations? Jonathan Javitt: Yes. This is actually the first ketamine that's packaged in what's called a Blow-Fill-Seal presentation where instead of a glass bottle. The machinery takes a drop of polyester resin heats it up, blows it into a container, fills it and puts it out at the back of the assembly line completely packaged and ready to ship. It takes your production capacity from a couple of hundred thousand bottles a month to 1 million or more bottles a month per assembly line, and therefore, if we had to, we could supply every vial that's required for ketamine in the United States at that kind of manufacturing capacity. Everything else that's coming in for ketamine is glass vials. Patrick Trucchio: Right. And just one maybe on HOPE. The ONE-D protocol combines TMS and DCS and it shows a rapid onset of antidepression effects. I'm just wondering how you'll be positioning HOPE to become an early adopter in data generator for that combined treatment pathways? And as well just separately, assuming the approval of NRX-100 and NRX-101, how will you integrate those treatments into the HOPE care model once they're approved, assuming they are approved? Jonathan Javitt: Well, those are 2 fantastic questions. And the ONE-D protocol is legal under the medical device laws. The coil that was used was manufactured by a company called Ampa, which has some very exciting technology not only in terms of their pioneering of the ONE-D protocol, but in terms of having built the first portable TMS one that can be taken to nursing homes, extended living facilities, you could even do it in a firehouse because it fits in 2 Pelican cases. We announced last week that we partnered with Ampa that we are the first site in Florida to be doing the ONE-D protocol, so it's readily deployable. Now it's not specific only to that machine, but all of the ONE-D results so far that have been reported have been reported on that machine. Operator: [Operator Instructions] Your next question comes from Ed Woo with Ascendiant Capital. Edward Woo: Yes. Congratulations on all the progress. As NRX-100 and 101 have potential approval dates relative within the next year, hopefully, or much sooner than that? Have we talked about your clinical or commercialization strategy for both? Jonathan Javitt: Ed I'd like to listen to that question again. Edward Woo: Sure. Have you talked about your commercial strategy? Will you need to have a sales force to market NRX-100 and 101 when you get approval? Jonathan Javitt: Well, they're very different drugs and they will need different strategies. So NRX-100, we're talking about a drug that can only be deployed in a clinic setting by a physician who and we anticipate that there will be a REMS of some sort in the same way that there's a REMS for SPRAVATO. So the NRX-100 project, the preservative-free ketamine project is very much something that a company of our size can undertake. You talking about much more of what's called a medical science liaison function than a sales function because physicians who are treating with ketamine in their office, know that they want to do that and what they need is medical liaison support. It's not traditional pharmaceutical detailing. NRX-101 we're seeking an indication where we want to treat people with severe bipolar depression who have suicidal ideation despite having been treated with best available therapy. So if you take a look at the people who are currently prescribing drugs like lurasidone to treat bipolar depression, there are approximately 1,600 doctors like that in the United States. Many physicians don't want to be treating suicidal bipolar patients. So that's actually a sales force also that a company like ours could build, we anticipate it's a requirement of about 50 salespeople. We've talked to larger commercial partners in the past about NRX-101, and it's possible that we would partner with a larger commercial partner. But bottom line, NRX-100 is within our launch capabilities. NRX-101 is still within our launch capabilities, but we know that there is significant interest from larger partners. Operator: There are no further questions at this time. I will now turn the call over to Matthew Duffy for closing remarks. Matthew Duffy: Thank you, everyone, for joining us this morning. We're extremely excited about the path ahead with 3 potential drug approvals in the subsidiary targeting multiple profitable metal health clinics as well as our new indication with NRX-101. This concludes the NRx Pharmaceuticals Third Quarter 2025 Results Conference Call. Thank you all for participating. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Ladies and gentlemen, welcome to Richemont Financial Year 2026 Interim Results Presentation. I am Sandra, your call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Richemont. Please go ahead. Alessandra Girolami: Thank you, Sandra, and good morning, everyone. Thank you for joining us for Richemont's half year results presentation for the period ended 30th September 2025. Here with us today are Johann Rupert, Chairman; Nicolas Bos, CEO; Burkhart Grund, CFO; and James Fraser, Investor Relations Executive. We would like to remind you that the company announcement and results presentation can be downloaded from richemont.com, and that the replay of this audio webcast will be available on our website today at 3:00 p.m. Geneva time. Before we begin, please take note of our disclaimer regarding forward-looking statements in our ad hoc announcement and on Slide 2 of our presentation. Turning now to the presentation. Burkhart will begin by discussing key highlights and group sales. I will then provide further detail on the performance of our Maisons. And finally, Burkhart will take you through the financials and offer some concluding remarks. This presentation will then be followed by a Q&A session. Burkhart, over to you. Burkhart Grund: Thank you, Alessandra. Good morning to everyone, and thank you for joining us today. Richemont delivered solid results in the first half in a complex macroeconomic and geopolitical environment. Sales for the period reached EUR 10.6 billion, up by 10% at constant exchange rates and by 5% at actual exchange rates. Operating profit stood at EUR 2.4 billion, up by 7% compared to the prior year period or up by 24%, excluding the significantly adverse foreign exchange movements. Operating margin reached 22.2%, improving by 30 basis points. Profit from continuing operations at EUR 1.8 billion was 4% higher than the prior year period. Cash flow from operating activities amounted to EUR 1.9 billion. Finally, our net cash position remained very robust at EUR 6.5 billion after the EUR 1.9 billion dividend paid in September. Turning to our highlights, starting with the top line. The group posted double-digit growth at constant rates, led by continued success at Jewellery Maisons and sustained local demand across most regions. In the second quarter, in particular, the group and its Maisons experienced strong momentum with sales up by 14% at constant rates. In Q2, we saw higher sales across all business areas, including a remarkable 17% increase at the Jewellery Maisons. Sales at the Specialist Watchmakers were up 3%, posting their first quarter of growth in almost 2 years, while sales at other business area rose by 6%. In addition, all regions posted double-digit increases in Q2, including Asia Pacific, supported by a return to growth in China. In the period, the group showed its ability to maintain a robust financial position. Operating profit in the first half increased to EUR 2.4 billion, reflecting the positive contribution from the strong top line growth, combined with effective cost discipline. This was achieved despite external headwinds, including unfavorable FX movements, increasing raw material costs and to a lesser extent, the initial impact of additional U.S. duties. Consequently, the group maintained a solid net cash position at EUR 6.5 billion, an increase of EUR 0.4 billion over the prior year period. In this context, our Maisons continued to demonstrate agility while investing for the long term. Showing their persistent drive for creativity and product innovation, they introduced strong novelties with craftsmanship at their core. They further nurtured their brand equity through impactful yet disciplined communication spending. They continue to cultivate future growth prospects through strategic investments. This drove a higher share of our CapEx envelope towards internal boutiques and manufacturing capacities, primarily for the Jewellery Maisons. Let me now discuss the group sales performance in more detail, first by region and then by distribution channel. Unless otherwise stated, all comments refer to year-over-year changes at constant exchange rates. Most regions posted solid performances in the first half, benefiting from double-digit growth across all regions in Q2, led by strong local demand. Sales in the Americas maintained their momentum throughout the first half and posted 18% growth with strength across all business areas, all channels and all markets in the region. Of note, Jewellery Maisons and Specialist Watchmakers posted double-digit performances while several Fashion & Accessories Maisons showed encouraging signs. In Q2, the Americas region posted its seventh consecutive quarter of double-digit growth with sales up by 20%. The Americas made up 25% of group sales, up from 23% in the prior year period. Asia Pacific returned to growth in the first half, up by 5% compared to the prior year period, fueled by a 10% rise in the second quarter. Of note, sales in China, Hong Kong and Macau combined stabilized in the first half, a notable improvement to 7% growth in Q2, led by the Jewellery Maisons. The performance was solid elsewhere in Asia Pacific with notable double-digit growth in the South Korean and Australian markets. Sales in Asia Pacific made up 32% of group sales, down from 34% in the prior year period. Sales in Europe increased by 11%, driven by double-digit growth at the Jewellery Maisons and single-digit increases at the Specialist Watchmakers and other. All major markets in the region posted higher sales, notably in Italy. Growth was led by strong local demand in addition to a positive contribution from tourist spending, particularly from the American clientele. Overall, the performance in Q2 was consistent with that of Q1 at plus 11%. Sales in Europe represented 24% of group sales, a tad higher than the 23% in H1 '25. Japan ended the first half with sales down by 4% after returning to double-digit growth in the second quarter, led by an acceleration in local demand, particularly at Jewellery Maisons, where spending, while improving in Q2 declined in the first half, reflecting demanding comparatives and a stronger Japanese yen. Japan's contribution to group sales decreased slightly to 10% compared to 11% in the prior year period. Middle East and Africa posted the strongest regional growth for the period with sales up by 19%, slightly ahead of the Americas. The performance was led by the Jewellery Maisons with positive Specialist Watchmakers sales at constant rates. All markets were up with the United Arab Emirates being the key contributor. Sales in the region made up 9% of group sales, in line with the prior year period. The largest contributors to sales growth in value terms were the Americas and Europe, each adding over EUR 200 million in incremental sales, followed by the Middle East and Africa region with a contribution of over EUR 100 million. Combined with broadly stable sales in Asia Pacific and a limited decline in Japan, the group was able to generate over EUR 500 million of additional sales in the first half despite a significant negative impact from currency movements. Let us now turn to sales by distribution channel with growth expressed at constant exchange rates. Overall, the 3 channels experienced broadly similar performances in the first half, leading to a stable contribution from direct-to-client sales at 76%. Let's start with retail, which accounted for 70% of group sales, unchanged from the prior year period. Sales rose by 10%, driven by double-digit growth at the Jewellery Maisons and mid-single-digit growth at the other business area, while sales at the Specialist Watchmakers declined slightly. All regions, except Japan, posted solid performances, led by double-digit growth in the Americas and Middle East and Africa. Online retail at 6% of group sales grew by 7%. Strong performance at the Jewellery Maisons more than compensated for softness in the other business area. Sales at the Specialist Watchmakers were broadly stable in the period. All regions posted growth, led by Europe. And now moving to wholesale, which includes sales to external mono-brand franchise partners and third-party multi-brand retail partners, sales to agents and royalty income. Wholesale sales represented 24% of the group sales and were up by 9%, supported by growth at both the Jewellery Maisons and the other business area. By region, the strongest contribution came from the Americas, Europe and Middle East and Africa. Now back to you, Alessandra. Alessandra Girolami: Thank you, Burkhart. I will now review the business areas with all comparisons at actual rates unless otherwise specified. Let me start with the Jewellery Maisons, which include Buccellati, Cartier, Van Cleef & Arpels and Vhernier. Sales reached EUR 7.7 billion, an increase of 9% in the first half. At constant exchange rates, sales were up by 14%, with all regions posting double-digit growth, except for Japan, which was nearly flat. Q2 was particularly strong with sales up 17% at constant rates after a solid plus 11% in Q1. In the first half, sales grew across all distribution channels. The Jewellery Maisons generated an operating result of EUR 2.5 billion, up 9% versus the prior year period or up by 21% at constant exchange rates. Facing significant adverse currency movements, higher raw material costs and to a lesser extent, the initial impact of additional U.S. duties, the Jewellery Maisons implemented balanced price increases while aiming to maintain long-term value for clients. In parallel, they continue to invest in their network while managing their cost effectively as demonstrated by the level of communication expenses only slightly above the prior year levels. Coupled with strong top line momentum, this allowed the Jewellery Maisons to mitigate the unfavorable impact of external headwinds, resulting in a stable operating margin at 32.8%. Let's now look at the main developments over the past 6 months. Both jewelry and watch collections posted strong growth, fueled by the success of timeless lines, such as Opera Tulle and Macri at Buccellati, Clash, Panthère and Santos at Cartier and Alhambra, Perlée and Flora at Van Cleef & Arpels. Blending heritage with creative spirit, the Maisons pursued persistent innovation to foster desirability. Cartier launched its new branding campaign featuring the Panthère. And later in September, the Love Unlimited line, bringing a bold new look to the Love collection that was imagined over 50 years ago. Also in September, Van Cleef & Arpels displayed their artistic and craftsmanship savoir faire with the launch of their new Flowerlace jewelry collection. In the first half, high jewelry sales were supported by impactful and curated events in Europe and Asia for the En Equilibre collection at Cartier and l’Ile au Trésor collection at Van Cleef & Arpels, while Buccellati also hosted exclusive events in Italy. Vhernier has now celebrated an intense first full year within the group. The performance is very encouraging, and the integration is progressing as planned. Vhernier has now internalized several boutiques and refurbished one of its [ astodiers ] among other initiatives, thereby continuing to build a strong foundation for future growth. The Jewellery Maisons continue to upgrade and expand their network in strategic locations. Notable renovations, including Cartier's boutique on Collins Street in Melbourne, while key openings featured Buccellati at the Mall of the Emirates in Dubai and Van Cleef & Arpels in Goethestrasse in Frankfurt. Let's now turn to Specialist Watchmakers, where sales were down by 6% in the first half. At constant exchange rates, sales were down by 2% with a notable return to growth in Q2 at plus 3%. Regional performances continued to show contrasting trends. Double-digit growth in the Americas partly offset lower sales in Asia Pacific and Japan, 2 regions that combined account for over 50% of sales in the prior year period. Of note, all regions improved sequentially in the second quarter. By channel, retail and wholesale experienced slightly lower sales, while online retail was stable at constant rates. The operating results amounted to EUR 50 million, corresponding to an operating margin of 3.2%. Gross margin was impacted by the combination of unfavorable foreign exchange movements, of which the weaker U.S. dollar and the stronger Swiss franc, rising gold prices and an initial effect from higher U.S. duties. Ongoing cost discipline visible through a slight decrease in operating expenses partly mitigated the deleveraging impact of lower sales on the fixed operating cost structure. Reflecting their varied regional footprints, the Maisons experienced mixed trends. However, they maintained a 100% sell-in, sell-out ratio over 12 months, demonstrating disciplined inventory management. Novelties drawing on the Maisons' strong heritage and showcasing their craftsmanship contributed positively. The Lange & Söhne Odysseus Honeygold limited edition, for example, was fully allocated within 1 week of its launch. IWC introduced new references of the Ingenieur and Pilot's watches. Jaeger-LeCoultre released the Reverso Duoface Small Seconds and Piaget, its new jewelry watch collection, the Sixtie. Of note, Piaget has seen 5 of its creations nominated for the '25 Grand Prix d'Horlogerie de Geneve, which recognizes watchmaking excellence. 2025 also marks the 270th anniversary of Vacheron Constantin celebrated through worldwide events and new launches. Worth noting is the creation of La Quête du Temps, a mechanical marvel 7 years in the making and currently displayed at the Louvre, showcasing the Maisons' ability to combine history, craftsmanship and engineering. In parallel, while the overall number of stores was largely stable in the first half, the Maisons continue to enhance their network. Notable examples, including IWC's new booking in Taichung, Taiwan, Vacheron Constantin strategic relocation in Seoul, and Jaeger-LeCoultre's major renovation at the Kuala Lumpur Pavilion. Let's move to the other business area, comprising the Fashion & Accessories Maisons, Watchfinder & Co., and the group's watch component manufacturing and real estate activities. Overall sales were down by 1% at actual exchange rates, but rose by 2% at constant exchange rates. Regionally, Europe was the main contributor to growth and trends in the Americas were encouraging. By channel, sales in both retail and wholesale increased slightly. Growth at constant rates was driven by a double-digit rise at Watchfinder and modest growth at the Fashion & Accessories Maisons. Trends improved sequentially across all regions in Q2, leading to a 6% increase in sales at constant rates. Overall, the other business area reported an operating loss of EUR 42 million. Fashion & Accessories Maisons posted a EUR 33 million loss, improving at constant rates, thanks to controlled operating expenses while continuing to invest in the desirability of the Maisons. Turning now to Maisons' highlights. Alaïa saw its sales grow by double digits, fueled by sustained success and brand heat of its icons such as La Ballerine and Le Teckel. It is also worth highlighting the continued solid performance at Peter Millar, thanks to its lifestyle positioning and success in its crown crafted collection. Chloé saw improved momentum led by ready-to-wear, confirming that its strategy to reconnect with its roots is resonating well with clients. Overall, ready-to-wear across the Maisons achieved double-digit growth in the first half, fueled by a sustained focus on creativity. Montblanc made progress on its transformation program, comprising a greater focus on writing instruments and leather goods categories in direct-to-client channels while streamlining its wholesale network. Gianvito Rossi has been increasingly recognized as a leading global luxury female footwear brand, underscored by the enthusiastic reception of its latest golden edge fashion collection. The Maisons continue to enhance their distribution networks over the period. Openings, including Chloé in Saint Tropez, Peter Millar expanding to San Diego and Columbus, and Watchfinder, launching its first U.S. internal boutique in Soho, New York City. This concludes the review of the first half performance of each business area. Burkhart, over to you. Burkhart Grund: Thank you, Alessandra, and well done on the pronunciation of Goethestrasse. Alessandra Girolami: Thank you, Burkhart. Burkhart Grund: Let me walk you through the rest of the P&L, starting with gross profit. Gross profit increased by 2% to EUR 6.9 billion and represented 65.3% of sales, a decrease of 190 basis points compared to the prior year period. This is the result of several moving parts, which have evolved considerably in the past 6 months. Starting with our production costs that were affected by rising raw material prices, particularly that of gold and to a lesser extent this period, higher U.S. duties. With a time lag between production and effective sale, our inventory levels acted as a partial natural hedge in a period of rising material costs. Compensating for the higher production costs, we benefited from positive impacts related to pricing and favorable sales mix. This was not sufficient, however, to compensate for the material adverse currency movements of a negative 180 basis points we faced in the first half, notably driven by a weaker U.S. dollar and Chinese renminbi, next to a strong Swiss franc, one of our main manufacturing currencies. Before we move on to the rest of the P&L, let me add a few words on U.S. duties. In the first half, the impact of increased U.S. tariff rates was limited to some EUR 50 million, thanks to our proactive inventory management since April and due to the phasing of the implementation of different tariff rates, starting with 10%, then 15% for Europe-made products, followed by 39% in August for Swiss-made products. With this phasing in mind, we anticipate a greater unfavorable impact in the second half, particularly if the 39% tariffs on Swiss origin products are maintained. Based on the current levels of our U.S. inventories and planned shipments, we estimate the full adverse impact of the increased U.S. tariff rates to be around EUR 0.3 billion for the full current fiscal year. Let us now look at net operating expenses, which were stable compared to the prior year period in value and increased by just 3% at constant exchange rates. Operating expenses stood at 43.1% of sales, down 220 basis points, driving positive flow-through from higher sales. Selling and distribution expenses were up by 3% or by 6% at constant exchange rates. The rise in cost was primarily related to continued retail store network expansion as well as salary increases. As a percentage of sales, selling and distribution expenses were down 70 basis points. Communication expenses decreased by 4% or 2% at constant rates, reflecting the Maisons' efficiency in allocating the resources and to a lesser degree, some impact from the phasing of specific events from 1 year to the next. As a percentage of sales, communication spend was 8.2% down -- sorry, 8.2%, down 80 basis points and below our typical range of 9% to 10%. Administrative and other expenses decreased by 2% at both actual and constant rates amounted to 9.2% of sales, down 70 basis points, reflecting lower valuation adjustments and fewer nonrecurring costs than observed in the prior year period. This resulted in an operating profit of EUR 2.4 billion, up by 7% at actual exchange rates and by 24% at constant exchange rates. Overall, the strong sales growth contribution and the effective cost control mitigated the impact of external headwinds in the first half, namely of unfavorable foreign exchange movements, the sharp increase in the price of gold and to a lesser degree, additional U.S. duties. As a consequence, operating margin remained robust at 22.2%, a 30 basis point improvement versus the prior year period. Let us now review the rest of the P&L items below the operating profit line, starting with finance costs. Net finance costs reduced slightly to EUR 158 million for the first half, down from EUR 173 million in the prior year period. This EUR 15 million improvement is mainly comprised of the following items. On the one hand, higher net FX losses on monetary items for EUR 162 million, primarily due to a weak U.S. dollar in addition to the impact of lower fair value adjustments for EUR 129 million. The latter relates to the group's investments in externally managed bond funds and money market funds. On the other hand, more than compensating those 2 items were the EUR 326 million increase in net gains on FX hedging activities. Turning to discontinued operations, which consists of YNAP until the completion of its sale on -- at the end of April of this year. Profit for the period stood at EUR 17 million. As a reminder, last year's results included a EUR 1.2 billion noncash write-down related to the transaction. Figures presented here are the estimated final closing adjustments related to the disposal, our 33% stake in LuxExperience being now recorded as an equity accounted investment. Let's now review the profit for the period. Profit from continuing operations stood at EUR 1.8 billion, 4% higher than prior year period. This included the rise in operating profit and the improvement of net finance costs that I've just described. The evolution of the share of equity accounted results was down EUR 34 million, primarily reflecting lower gains than in the prior year period on equity-accounted businesses and to a lesser degree, the result of our stake in LuxExperience, which was included for the first time. The group's effective tax rate for the first half stood at 19.5%, in line with our expectations for the full year, absent any special unforeseen items occurring in the second half. Finally, profit for the period was EUR 1.8 billion, up from EUR 0.5 billion in the prior year period that included a EUR 1.2 billion noncash write-down from discontinued operations. Cash flow generated from operating activities came in at EUR 1.9 billion, an increase of EUR 600 million compared to the prior year period, driven by higher operating profit and lower working capital requirements. Indeed, inventories rose, but less than in the prior year period, notably as the Jewellery Maisons experienced strong sales growth. Specialist Watchmakers also demonstrated effective production management, contributing to controlled inventory levels. To a lesser extent, higher cash inflows from foreign exchange derivatives also contributed to the reduction of working capital needs. Let us now turn to our gross capital expenditure, which amounted to EUR 0.4 billion and represented 3.6% of group sales. Our CapEx was broadly in line with the prior year period. A higher share was allocated to distribution and manufacturing. Investments in our distribution network dedicated to renovations, relocations and openings of directly operated stores represented 55% of gross capital expenditure, a share 8 percentage points higher than the prior year period. The share of manufacturing spend increased to 30% of overall CapEx compared to 24% in the prior year period. The investment mostly related to the Jewellery Maisons. Other investments represented 15% of CapEx, down compared to the prior year period, the decrease mainly reflecting the completion of several noncommercial Maisons projects. Let us now turn to free cash flow. At EUR 1 billion, free cash flow was about EUR 0.8 billion higher than in the prior year period. The increase primarily reflected the EUR 0.6 billion benefit from cash flow from operating activities that I described earlier, in addition to the nonrecurrence of last year's real estate acquisitions in London. Our balance sheet remained solid. Shareholders' equity accounted for 54% of total assets. Net cash amounted to EUR 6.5 billion at the end of September, down EUR 1.7 billion compared to the end of March 2025. This decrease is more than explained by the EUR 1.9 billion dividend cash outflow in September that reflected an ordinary dividend of CHF 3 per A share, which was approved by shareholders at the latest AGM. Before turning over to the Q&A, I would like to offer some concluding remarks. Richemont delivered solid results in the first half in a complex macroeconomic and geopolitical context. Our sales growth, largely fueled by sustained local demand in most regions speaks to the strength of our Maisons' positioning built with consistency over time. And we will continue to nurture their brand equity and cultivate their potential through investing in quality locations and manufacturing capacities. While we continue to navigate uncertain times and face demanding comparatives, we maintain the course and remain focused on leading the group with the same discipline as in the past. We have full confidence in our talented team's dedication to continue to enchant our clients with craftsmanship and creativity at the core to deliver sustainable value creation for our stakeholders. Now this concludes our presentation. Thank you for your attention, and I will now hand back over to Alessandra. Anne-Laure Jamain: Thank you, Burkhart. We now start the Q&A session. [Operator Instructions] Operator: [Operator Instructions] The first question comes from Ed Aubin from Morgan Stanley. Edouard Aubin: So Ed Aubin from Morgan Stanley. So first of all, congratulations, obviously, for the strong set of results. And Mr. Rupert, congratulations for the opening of the [ former ] Cartier building in Paris. I think it's really stunning. And I guess, for your support of the art world. So just going back to the question. So Burkhart, on the exit rate and kind of the start of Q3, which I know you don't really like to comment about. But yes, if you could comment in terms of how things have been trending over the past few weeks. You're going to be facing a much higher, much more difficult comparison basis for the quarter ending December, particularly in the U.S. So are you already seeing some slowdown on the back of that and so on. So that would be question number one. And then question number two, on the gross margin, which was down 190 basis points. Burkhart, if you could just -- I know you've helpfully provided a profit bridge, but on the input cost inflation and particularly related to gold, if you could provide a little bit of color because ahead of the results, people were struggling a bit with the modeling. And related to that, you helpfully given some tariff -- quantified the tariff headwind for H2, which I guess is EUR 250 million. The consensus is currently assuming a lower rate of decline for the gross margin, only 150 basis points in H2. Does that seem realistic given that the tariff impact should be substantially higher in H2 versus H1? Burkhart Grund: Yes. Good morning. Let me -- okay, let me try to help you within the limits of what we usually do, right? I mean, forward-looking and looking at Q3 sales, you know that we will not give you that color because there is too much uncertainty going forward. What I can point out is and remember that we had a very strong third quarter last year, a growth of 10%. And I think we're confident again in the long-term prospect of the Maisons, but we cannot, at this stage, give you any indication of how we're trading. The performance across the second quarter was pretty uniform with a bit of slightly higher growth in the month of September, but that has something to do also with past year's comparison. So really nothing much to add to that. Now the gross margin, I think we have been giving some indications. Let me try to be helpful. So overall, we have a 190 basis point drop in the gross margin in the first half, out of which 170 basis points really are linked to the FX impact, so the translation effect. And it's a mixed bag between obviously weaker dollar and dollar-linked currencies, but also for example, the renminbi, to a much lower extent, the Japanese yen this year and some other currencies such as the Korean won, for example, combined with the relative strengthening of the Swiss franc, which you know is one of our major manufacturing currencies. The other drivers in the first half are about 20 basis points negative, all combined, right? The biggest downward pressure on the gross margin came from gold, which is about north of 2 percentage points. And as we pointed out, for the time being, a very minor impact from U.S. tariffs around EUR 50 million plus, which, as you know, is linked to, let's say, the inventory cycle. It sits in inventory today and will then when we sell the inventory, be recycled into the cost of goods line later. The stock revaluation and price increases for the time being roughly compensate for these negative impacts. That's why the overall decline of the gross margin not linked to FX is about 20 basis points in the first half. Now on tariffs, we will not speculate about that. We know the current rates. And answering your question, actually, your question is answered through what you put on the table saying, is that realistic to estimate that gross margin will be weaker -- with a weaker drop in the second half if we have a disproportionate impact of tariffs. So I think the answer lies in the question there. Operator: The next question comes from Antoine Belge from BNP Paribas. Antoine Belge: Yes. It's Antoine Belge at BNP Paribas. So 2 questions. First of all, can you talk a bit about China, Chinese, Greater China. I know it's a bit complicated. So in Q2, I think Greater China was up 7%. My understanding is actually Hong Kong and Macau were quite strong. So -- but so was Mainland China locally a bit positive. And what about the Mainland Chinese cluster, if you take into account maybe the impact of tourism? And more generally, what's your view on China, there is improvement, just easy comps? Are you seeing some macro impacts, better consumer confidence? And my second question is a bit of a follow-up on the topic of gross margin. So I understand that there will be some headwinds that are going to be greater in H2, but you passed quite a hefty price increases, I think, in September. So could you quantify those? I mean, according to our estimates in September globally for Jewellery Maisons, it was around a high single digit coming on top of around 3%. So I'm slightly surprised by the comment that the gross margin would be declining more than they did in H1 because there should be at least, in my opinion, more impact from pricing. So am I getting something wrong here? Nicolas Bos: Nicolas Bos here. I will answer your -- try to answer your first question although everybody would love to have a final view on China and its evolution. We've definitely seen an improvement, particularly in the last quarter, definitely on the region, what we refer to as Greater China. As you mentioned very well, it was driven by an improvement of business in Hong Kong and Macau, both touristic, so Mainland Chinese traveling to Hong Kong and Macau and also domestic clientele, particularly in Hong Kong. All in all, we see -- I don't know if it's a stabilization, but we are back to a positive performance for the region, including slightly positive in Mainland China on the very end of the period and clearly driven by the Jewellery Maisons. In general, we've seen some repatriation of purchasing, notably from Japan to Hong Kong for our Mainland Chinese clients. But it seems -- and it will be difficult to predict the future, but it seems that we are now at a more stable level of purchasing from our Japanese -- or Chinese clients, sorry. What we see at large, but maybe it's a wider discussion is that there is an evolution of consumption in China connected probably to the economic situation, but also to an evolution in taste where we see Chinese clients becoming much more demanding, discerning and differentiating when it comes to their choice of brands and collection. That affects positively the Jewellery Maisons. We still see on some of the watch Maisons a more challenging situation. And what we foresee, if we're able to foresee anything is that it's really a market that is reaching another new level of sophistication and of quality of demand, very much at par with what we see in the rest of the world. And that has an impact really brand by brand, category by category, collection by collection. But all in all, it seems to be quite stabilizing. Burkhart Grund: And Antoine, just picking up on your second question. Listen, we're not going to guide on any gross margin in the second half because we have uncertainty and volatility on currencies, on gold, et cetera. What we have pulled out or pointed out is that at current rates, we will have a disproportionate impact of tariffs in the second half. As for the first half, we have been shielded by inventory holdings and, let's say, proactive inventory management. So that's really all I can say on this topic. Antoine Belge: But maybe on the price increases, I mean, could you maybe confirm that what was taken in September at high single-digit overall global number for Jewellery Maisons, is that what happened? Nicolas Bos: Well, we had some -- as you noticed, we had some price increases because we discussed it before that we want to maintain price increases as limited as possible because for us, keeping the affordability of certain collections and the attractiveness of the Maisons is really what comes first. But regardless, we had to implement some price increases. There were some in May, low single digit. There were some in September, particularly for Cartier, quite limited on a worldwide basis to try to reflect some of the increase in the price of gold, notably. But then including also some specific local adaptation, we need to keep in mind that the dollar has depreciated 8% in 1 year. So we need also to maintain kind of fair international pricing and reflect the evolution of exchange rates. So that came on top of the slight international price increase. So we haven't seen a true impact, let's say, in desirability of traffic in the stores, meaning by that, that we didn't necessarily notice a specific spike of purchasing before the price increase nor decrease afterwards. We believe it's because it was quite reasonable and the desirability of the collection comes really first. So we'll see in the second half how that unfolds. Operator: The next question comes from Thomas Chauvet from Citi. Thomas Chauvet: A couple of questions, please. The first one, a follow-up on pricing and maybe your pricing philosophy. Nicolas, you said you're trying to maintain affordability and to try to limit price increase because obviously, you can't cut prices once you've increased them. So you're very careful. Nevertheless, do you think the consumer, not just in China but globally is also starting to buy jewelry a bit differently than in the past for other reasons than the beauty of the Cartier, Van Cleef design or the emotional value that you talked about before or simply gifting purposes or the big events of life, but also as a commodity investment? So very strategically to invest has more than as more than a store value, but maybe even an investment in an unprecedented rising gold and precious metal market. So -- and how would you react to that? Because we've seen some of your Chinese luxury competitors, if I can call them competitors. We know the way they operate, [ La Portugieser ], they increase prices by 20% today, tomorrow, mechanically, they'll reduce prices because gold prices have decreased. I know that's not how Richemont operates, but we're in a very different gold market now. So curious to hear your thoughts. And secondly, perhaps also for you, Nicolas or for Mr. Rupert. It's been over a year that Nicolas, you've been appointed as group CEO. Are there any areas where that you've identified where the group or perhaps the individual business areas, divisions could do differently, could evolve, could be a bit more efficient? Obviously, there's been huge cost efficiency in the first half, as we know. Could you share some high-level thoughts on your also perhaps portfolio review, particularly within Specialist Watchmakers and Fashion & Accessories? Are there any obvious brands that may need financial or strategic support or brands that you think maybe might prove challenging to turn around? I'm thinking perhaps Dunhill, Montblanc or Roger Dubuis. Nicolas Bos: Thank you very much for your questions. I think that would require probably a few hours to answer. But starting with the first one, I mean, the pricing philosophy has not changed. We really believe in what we call fair pricing, which is that the price of any of the creation should reflect its interest [ rate ] value. And of course, we need also to take into account variations in the price of raw materials and exchange rates. I have to correct what you said, it does happen that we decrease prices, and it has happened in the past because that fair pricing policy includes that as well. So it has happened. It's true, it's not something easy to implement, but it does happened. And on the very high end, high jewelry, exceptional watches, we do actually adjust prices up or down on a monthly basis from a European pricing that we translate into local currencies. So we have fluctuations that can go up and down. Of course, the primary focus is to limit the increases to make sure that the fair pricing is still there and the attractiveness of the collections is maintained. So we will continue to look at that. We really truly believe that our clients have a really precise understanding and assessment of value. And unlike what we sometimes hear is not because a piece is expensive and a client or collector has significant resources that elasticity is endless and that the price doesn't matter on the opposite. So we are very attentive to that, and we will continue to do so. I don't know if that answers your question. On the second part, maybe Johann will want to say something. But what I can say is that -- and we talked about it before, Richemont is very much about long term and continuity. And then I came after more than 30 years already in the group. So not here to make any form of revolution. I think that's not expected at all. We've seen a period where we had very, very unexpected and strong phenomena during COVID -- after COVID that actually led to a very, very strong ups and downs in performance across the board. And we were seeing also global purchasing trends in Asia, in America and Europe. What we see in the last period, clearly in the last year, 1.5 years is that we come back to a much more differentiated performance by brand, by category, by collection, by geography, in a way, back to what we used to see before that whole period and the pre-COVID and COVID period. So what I'm very, very attentive to with all of my colleagues is to make sure that we maintain or sometimes bring back all of our Maisons to really their core identity, their core expertise that they all have a very, very distinctive offer and complementary offer. We don't see today a global phenomena where everybody does well or everybody is challenged anymore. And my belief and our belief at Richemont is that each and every brand is much stronger when they are occupying their respective territories. And of course, the territory of expression of Panerai is different from Lange and the one of Jaeger-LeCoultre already different from Vacheron Constantin. Same for the Jewellery Maisons or the Fashion & Accessories Maisons. So this is the primary focus to make sure that they are all really playing in their specific respective field. And then taking with Burkhart and the team and all my colleagues, a very differentiated approach. Some of them are very successful, mature international brands. Some of them require still some more support because they are in development phase. Some of them are in redevelopment in some areas. You were mentioning Dunhill with this new, and I must say, fantastic designer, Simon Holloway. We also talk about Montblanc, where we do a lot of work with Giorgio Sarne, the new CEO and the team to see how Montblanc can revolve around the auto writing and the expertise in laser. And you've seen with renewed communications and identity where we try to bring back Montblanc in a way to its core expertise. So this is very much the kind of long-term work, but nothing at the end of the day, different from the previous decades, I believe. Operator: The next question comes from Erwan Rambourg from HSBC. Erwan Rambourg: Congratulations on such a standout performance. If I could just make a comment, you're sounding very low volume-wise. So -- and I don't think I'm the only one suffering from this. So if you don't mind speaking slightly louder. I'll keep it to 2 questions as asked. So one on Van Cleef. We've had pushback from people who are bearish talking about the Alhambra dependence, ubiquity, potential fatigue. Obviously, you're probably fed up with this, Nicolas, since you've probably heard these comments when you were running that brand. But I'm wondering if you could talk about maybe relative performance within Jewellery Maisons. I suspect, Buccellati is booming from a low base, but can you sort of compare and contrast what you're seeing from Van Cleef relative to what you're seeing at Cartier, please? And then second question on Cartier. Obviously, a management change there as well with now Louis being in the seat replacing Cyrille. I'm wondering, if you could talk maybe about -- I know there's no revolution going on, but maybe what the areas of focus can be and what has changed? I think people looking at the group from outside will possibly think that there's greater SG&A discipline at Cartier, that would maybe be a bit simplistic. But what would you call out in terms of maybe the 2, 3 focus points for Louis in running Cartier? And if I can cheekily add another very small question related to Cartier, Love Unlimited seems to be a pretty resounding success. Should we consider this as permanent or more in animation on the range? Nicolas Bos: Thank you very much. It's a lot of questions. And of course, we don't discuss so much performance and results by Maisons. Of course, on the Van Cleef & Arpels side, I need to answer. I don't feel any fatigue about Alhambra. So we have been seeing quite a few of them for 25 years. And I believe that most of our clients and stakeholders share the same view. So to have an icon is a blessing. So it's very often referred to as kind of liabilities. Is there a risk attached to it. At the end of the day, it's a blessing. I mean, the brands that do have iconic clients, in jewelry, in watches, in ready-to-wear or accessories are usually the ones that are very successful in the long-term if they manage to maintain the desirability and the creativity around these iconic lines. So Alhambra is, I can talk about Alhambra for some time, but I'm not going to. But it's -- to me, an extraordinary collection that's been here for more than 50 years and has offered over this more than 5 decades, almost endless opportunities for creativity with sizes, colors, styles. And that will continue, and we see that there is renewal within that collection, and that's widely appreciated. Needless to say, Van Cleef & Arpels like other Maisons is working on other collections. We've seen collections like Perlee. We were talking a bit earlier in the presentation about Flowerlace and Floral collection, some of the watch collections also at Van Cleef & Arpels that established themselves around Poetic Complications. So Alhambra is not the only collection far from that, but it's true that it's probably the most recognizable and iconic one, and it's something that we will continue to develop and protect. At Cartier, the same. Cartier is blessed with having several very iconic collection. Love is definitely one of them, created pretty much in the same period, Alhambra '68 and Love in '69. And Love Unlimited is actually a very important development within that universe of the Love collection. It's not the way I see it with the team and animation. It's really a new expression within Love. Love is a bangle bracelet. And for the first time, it has become so-called and articulated. And I believe personally, and I like jewelry, as you know, it's a fantastic piece and fantastic collection even with my Van Cleef shares, I've been quite -- I have to say and to acknowledge it's really a fantastic collection. And we've seen the response among existing clients of the Love collection or new clients actually entering the world of Cartier. And it's so far, a very, very positive response. So we'll see how it goes. But we believe it's here to stay for the long-term, and the team is already working on the further development around Love Unlimited. As for Louis and Cartier, I think Louis is doing a very good job. The transition with Cyrille is going on extremely smoothly and I pay tribute to both of them. Cyrille is still very involved with some activities at Cartier, if you think of the women's pavilion and all the philanthropic and artistic activities of Cartier. And they work really hand-in-hand with the current team. Once again, Cartier has the other Maisons is evolving and adapting to this new environment. I mean, there is always a new environment and typically the slowdown in China, which was a very, very strong market and still a very strong market for Cartier, something that the team is really addressing now and to see how we can make sure that Cartier will be ready for the next phase of the luxury industry in China. We've seen the strength of Cartier in America and the United States, which is quite impressive over the period. And they're also working there, renovating and improving the retail network and operations. So yes, he has a lot on his plate, but it's very much once again question of continuity with the previous management and the whole history of Cartier, and I'm quite confident it will continue to be very successful. Erwan Rambourg: Very useful. Best of luck. Nicolas Bos: Thank you very much. Operator: The next question comes from Jon Cox from Kepler. Jon Cox: It's Jon Cox with Kepler here. A couple of questions for you. The first one, just on the -- you had a very tight grip on costs, including on the CapEx side of things in the first half of the year. It's clearly an unprecedented environment, potentially maybe looking a bit better with China and Hong Kong coming back. Just wondering how we should think about the costs going forward in terms of you guys have a fantastic track record when things get a bit more difficult. You tend to look very closely at costs and cash flow and that sort of stuff. Is it more about maybe relaxing a little bit more? Or has the... Johann Rupert: Sorry, Jon -- it's Johann here, Jon. What makes you think that it's during tight times that we look at cash flow and cash. Jon Cox: I know you tell all the time, Johann. Johann Rupert: I just want to [indiscernible] your leg. Jon Cox: Because Nicolas is adding a bit more on the cost side maybe than you have historically done. That's the sort of gist of the question. Johann Rupert: No, no. No, then ask it directly. I think you've got to look at Burkhart as the gentleman that's managed to keep the costs under control through COVID up till now. Burkhart Grund: Yes, Jon, and we're not going to give you any guidance going forward, but we intend to confirm the reputation that you just cited and mentioned by keeping focused on that. But remember, this is not a cost-saving initiative that is disconnected from what our Maisons need to grow. And we will always continue to invest where we need to invest to make our -- prepare our Maisons for the future with the right level of resources that they need. So we would never suppress activities that will impact the future readiness, so to say, of the Maisons. We have done during COVID, have deployed an approach that have been executed by all the Maisons with a high level of responsibility and auto responsibility of how to make through a very challenging time. And the same approach is what the Maisons are driving today that they are aware of the external factors, and they know best what resources they need to deploy for the future of the Maisons. And I think this is built into the philosophy of our management teams in the Maisons and in the businesses. Jon Cox: Okay. And then maybe just as a bit of an add. You mentioned a potential EUR 300 million charge if the existing 39% tariff is maintained. If that tariff sort of goes back to 15% next week or in the next couple of days, should we just think it will be 6 weeks' worth of EUR 300 million costs? And just as an add, Johann, you're on the call. I saw your comments earlier to the media saying this misunderstanding between the Swiss and the U.S. could be resolved in the next day or 2. Any further comment on that at all? Johann Rupert: Yes. [indiscernible] those of us, Jon, that were on the call, I -- it was selective. You know what subeditors do. It could be today, but I say the comprehensive agreement would probably take up to February. But I have absolutely no idea. It's in the hands of third parties. So I'm not predicting anything. It was selective editing. Burkhart Grund: Yes. And Jon, based on what we know, which is the current rates, we expect for the full year roughly EUR 300 million impact. Again, after a good EUR 50 million in the first half, where, again, I pointed out that we're pretty much shielded in time from -- through our inventory. But that obviously, once we sell the inventory, we recycle it into the income statement, and that's where we expect overall at current rates, again, current rates, a total cost of about EUR 300 million for the full year. Jon Cox: Okay. I'm just going to throw in a cheeky one. Trade receivables have gone up a lot in that half compared to a year ago, certainly a couple of hundred million. Is this any sort of indication you guys are looking forward to a good Christmas period? Burkhart Grund: I'll answer that question right away, Jon. I just want to add one more thing on tariffs. Let's not forget that the biggest impact of tariffs comes from the tariffs -- the European tariffs, which is, as you know, 15% because we produce a significant amount of jewelry, fashion and accessory items and one watch brand as well in the European Union or inside the European Union. So that impact will stay. Here, the same logic applies. What has been in inventory will be recycled into the income statement, and that is where the biggest part of our sourcing actually comes from, right? So let's not equate just tariff impact with Swiss tariff impact. Second question, we have wholesale debt of around EUR 600 million, wholesale debt, meaning receivables, which are highly current. So this has -- is really on the back of the wholesale channel performance. We have pointed out that retail and wholesale are roughly growing at the same rate, which means that we also have a healthy recovery of sell-in, again, strictly controlled, which is watches, but which is also linked to the very strong performance of our ready-to-wear lines. And I would say this is pretty current. Our inventory -- our receivable days are quite low, talking about 40 days on average. So this is more, I would say, the expression of a healthy business in wholesale today, and I would not interpret that as pointing to the future. Jon Cox: Great. Well done on the figures. Well deserved. Burkhart Grund: Thank you. Operator: The next question comes from Luca Solca from Bernstein. Luca Solca: Luca Solca from Bernstein. Looking at the U.S., I wonder how you're thinking about American demand and whether there could be a reason to think that because of the stock market, because the crypto American consumers are very strong? Or is there also an element of consumers wanting potentially to avoid price increases and buying ahead of those price increases on the back of the tariffs that have been introduced? And how you separate which is which. I wonder if just myself thinking about the possible contribution from demand being brought forward or if that is not really a point that you would see from your retail activity in America. And congratulations, Johann, for apparently sounding the right tone with President Trump seeing the picture of you and Ponte and Dufour and a few others in the overall office with President Trump was clearly refreshing. If that goes through, I think you should be seen as a Swiss hero, but well done. On another point, and that would be my second question. There's a lot of talk about the K-shaped society coming forward. Artificial intelligence applications could possibly make wealth and income polarization and inequality even greater. You have a very broad range of prices to take care of the very rich and the middle class, and you stated that you're very careful to maintain accessibility for all consumers. Are you seeing in the way you're selling, and I'm referring to the different price points at which you sell that this K-shaped reality is indeed appearing and that you have the highest demand growth at the 2 extremes of your offer? Johann Rupert: Luca, as usual, Johann here, a very perceptive question. Plural, but please don't think that I had much to do with whatever the eventual outcome between Darren and Washington is. The -- like you, I'm really concerned, if I could put it like this, about the possible unintended consequences of the AI economy. We know that there will be winners. And -- but perhaps it's easier to spot the losers than the winners 5 years ends. Now -- and the hollowing out and polarization, I would say, especially in the United States, the biggest visible effect that I've seen is a hollowing out of the middle class. If you look at the malls and if you look at -- and I hesitate to mention names of companies. But if you speak to mall owners, they will tell you that Costco and Cartier are still doing very well. It's in the middle that the hollowing out has occurred. And this was clearly reflected in the anger displayed by the voters in the last presidential election. There is a hollowing out of the middle class. That's more evident if you look at where they're spending their money. Clearly, and I won't and worried about this in 2015. Societies cannot live with that massive differential between rich and poor. The problem is that in the new economy, and it's before AI, it's a winner takes all economy. In the past, the bricklayer who made 80 bricks an hour earned x, but if you did 120 or 100, you were paid more, but the person who laid 20% less still had an income. Today, if you write software that's 20% less effective, you get 0. And especially when you have an economy and an intellectual property-based economy where you can increase production at 0 marginal cost. It's a winner takes all economy. And if you look at, let's say, the top 10 companies in the United States and you look at their percentage of capital allocated and how it's circular amongst them, one does get a problem that how concentrated is this capital allocation and the wealth generation. I think I read somewhere that NVIDIA has created in the last year, 1.5 years, 100 billionaires amongst the staff. Now good luck to that. It does indicate that in 5 years' time and if you start looking at the differential between winners and losers because of AI, I think we're going to have more polarization. I suspect that we're going to have abundance. The real question is how is that abundance shared. That will be the real question, any case. Nicolas Bos: Luca, Nicolas here to continue on your first question. We haven't seen so much movement and variations of trends and sales linked to the timing of price increases. So there might be, to your point, some kind of global feeling that you might as well, particularly in the U.S. these days, buy before additional price increase or tariff impact materialize. It's clearly something that's in the air. But we didn't feel a massive impact of that. And over the last 6 to 9 months. We've had different price increases in the respective brands at different timings, but we haven't seen spikes or downs that we could see sometimes before that we used to see, as you know, for instance, in Japan, where a few years ago, if you are planning a price increase, you knew that the month before would be phenomenal and the month after will be really down. We didn't see any of that -- at that level in the U.S. So there is definitely that feeling, but I think it's not so important. And we feel that in a way, if I may, we have clients that -- and collectors that if they can afford and they have a good reason to buy and they want to enjoy it's the right moment. They don't know what the future is made of. So they say we might as well enjoy now and make that purchase because who knows how it's going to go. So this is pretty much what we hear. And so far, it's very much down to the desirability of the brands and the collections and the perceived wealth or actual wealth of the buyers and the clients. And we are discussing a bit earlier today with Burkhart. It's true that we see in a few countries, clients, collectors that are buying much more from their wealth's and their assets or their perceived wealth's and the stock exchange does play a role, of course, into that more than by -- according to their income and the variations of their income. And that's pretty much the case in the U.S. these days. Burkhart Grund: And Luca, if I just want to add one thing. If it were a quarterly spike, we would probably come to a different conclusion, but this is 7 quarters in a row with double-digit growth. So this is probably reshooting a bit that argument. Luca Solca: Absolute Absolutely. I understand the point on American demand. That is very reassuring. Thank you, Burkhart and Nicolas. I also think -- and thank you, Johann, for your explanations that artificial intelligence is proposing monumental questions to politics and society. So we'll see how that is taken care of. Operator: The next question comes from Patrik Schwendimann from Zürcher Kantonalbank. Patrik Schwendimann: Congrats for these outstanding numbers. And thank you, Johann, especially for your support for Switzerland. If the gold price stays where it is currently, how much more pressure on the gross margin do you expect for H2 and also for next year? And how much more price increase would you need? That's my first question. And second question, again, on China, the Chinese luxury consumption has improved recently. How sustainable do you think is this? I mean we've just seen this morning real estate market is still down. Burkhart Grund: Patrik, I really don't want to speculate. So can't really and won't really answer that question. I mean, gold pressure or gold price increase, we've seen it. Maisons have, I think, adjusted to it quite well in the first half, trying to find the right balance between limited price increases, efficiency gains, strong inventory management and strong cost management. And I think the way the mix has come out is quite favorable. And we will continue to apply that approach by our Maisons. And going into the numbers gain, how much would you need it would reduce the quality of the mix in a way. I mean it's not price increases to offset as a singular item, but we're working on many more items of the mix. And I can only confirm that this will be the policy and the approach going forward. But I would refrain with the high volatility that we have and the many moving pieces to -- and I know you have to feed your models, and I don't blame you for that at all. But it's a bit more complicated to actually run these businesses than just applying a simple model. Patrik Schwendimann: But just the recent price development, I would assume that the pressure is increasing, right, because you have a time lag. Burkhart Grund: Well, we have a time lag. Yes, that's the mechanics of it. And price increases also have a time lag because, as you know, most of them were applied pre-summer, during summer and after summer, so a bit later in the first half than from April 1. So that also has a time lag, or a stronger impact later in the year. Patrik Schwendimann: Okay. Nicolas Bos: And Patrik, if I may add, Nicolas here, to that, impossible to predict the volatility of the gold price. As you know, in others -- one of the specificities of jewelry is that gold, which is for many people, an investment vehicle, for us is a working material. So it has always been the case, will always be the case. So we have to see the fluctuations of the gold price and that they impact our cost of goods and our margins. On the other hand, as we discussed before, the desirability of gold and its investment value also, we believe, impact positively the attractiveness of jewelry. Of course, we prefer, and we will welcome your support in advising clients to buy gold under the form of jewelry instead of under purely a financial form because then they get the best of both worlds. But apart from that, we can only react afterwards. As for China, we believe that -- first of all, we've seen a stabilization of our sales. Is it going to last that we've seen the bottom of it? We never know and we cannot predict, but it seems to be stabilizing, both in Mainland China and in general, sales to Mainland Chinese, whether domestic sales or touristic, although we've seen some movements and, for instance, repatriation of sales from Japan to Hong Kong in the last quarter quite significantly. What we see is the strength of certain brands remains extremely, extremely important and that the desirability of certain lines, certain collection and probably the most iconic, the most historic the lines, the more attractive they are these days. We've seen that continue to strengthen. So we are very -- I wouldn't say optimistic, but -- yes, to some extent about China. It's a very, very sophisticated culture. Obviously, there is high purchasing power. It's impossible to predict how it's going to evolve quarter-by-quarter. But we continue to invest in our presence in China in the quality of our presence in the development of the visibility and desirability of our brands, retail network, exhibitions, activities. And we believe it's going to remain a very, very important market, although we're probably not going to see the type of growth that obviously we've seen during a few years before. Operator: The next question comes from Atiyyah Vawda from Avior. Atiyyah Vawda: I have 2 questions. The first one is on the Specialist Watchmakers store network. I noticed that the number of stores have been reduced by 14 during the period. Can you give us a bit more color on what that related to? And then the second comment is on the jewelry business. From a strategic perspective, how easy is it to launch maybe platinum versions of the products, for example, in the Love range or in the others from a manufacturing perspective, but also from the ability of the brand to actually have platinum versions of the current products? Nicolas Bos: Thank you very much. Maybe I would start with the second part, which is a bit more technical, and thank you for that. It's true that platinum that somehow decreased or almost disappeared in the jewelry [indiscernible] category a decade ago is becoming, again, a very interesting material to work with. But availability is still limited, and the workability is very different from the gold. So for instance, you are talking about the gold bracelet or if I'm talking about certain other collections, there are a lot of motives that you can create in gold that are very, very difficult to create in platinum is much harder material to work, and it's also a much heavier material. So it's less adapted to certain lines. So -- but you're right, there is a thinking behind that. And there are lines that are -- that always existing in platinum, but were a bit less visible and that become quite interesting and attractive again. But it's not going to replace gold anytime in the future for sure. It's going to complement at most. And we see that also in the watchmaking, some beautiful opportunities for platinum versions of some iron watches. Burkhart Grund: Yes. Let me just circle back on the Specialist Watchmaker network. Now just a bit of context between internal, meaning directly operated stores and external stores or franchise stores at the Specialist Watchmakers. We're talking about a good 920 stores. So 14 is a slight downward adjustment, which is primarily or a bit more than half is driven by some closures or adjustments on the franchise store network and some very few internal stores that we have closed. It's not in one market. There is a bit in China, but there's a bit in outside of China as well. I'd say, overall, it's pretty much what we do every year. We review the -- or the Maisons review their store network and adjust when they see the need. And this is not something very major that has happened here. Operator: Next question comes from James Grzinic from Jefferies. James Grzinic: I just had 2 quick questions. The first one, Burkhart, you talked to reduced building inventory at the end of half 1, if you compare it to last year, given that strong growth in jewelry sales in Q2. Can I just check that if demand were to grow as strongly in the peak quarter as it did in half 1, your machine really could feed that demand? That's the first question. And secondly, can you perhaps more generally talk to what the customer response has been to those meaningful Cartier price rises through mid-September. Any markets where there's been more resistance than others or vice versa? Nicolas Bos: James, Nicolas here. On the second question, we mentioned before that we haven't seen real significant trends around the price increases. So maybe a very, very case-by-case basis, some slight acceleration before the price increase and slight deceleration after. But even on a monthly basis, it pretty much averages. So we didn't see any noticeable movement there. Burkhart Grund: On the inventory, let me kick off and then Nicolas will complement. Just look at -- let's look at the numbers. First of all, there's about a EUR 600 million increase in inventory. A good half of that, so a bit more than EUR 300 million is linked to either FX, meaning valuation or revaluation of inventories due to the higher input costs, notably gold. So that automatically revalues or increases the value of our inventory. The other half is increased inventory per se. And the split there is between the biggest part of that in really underlying inventory increase is work in progress, meaning in the production or manufacturing process today and a smaller part is finished goods. So this is really just the number side. And when you see the inventory coverage, it's gone from close to 20 months to about 18. So that's really the financial frame of it, so to say. You know that we have been investing over the last years in -- primarily in additional capacity for jewelry making. And you've seen as well in the first half of the year that a bigger part, a bigger share of the CapEx went not just into distribution, but also into manufacturing, and that manufacturing was concentrated in the Jewellery Maisons. So we have been focusing over the last years already also because we've had shortage in lines to rebuild the inventory holdings to the right level and have had good success in it, but this is an ongoing process that we continue to complete. Does that cover, Nicolas, or do you have? Nicolas Bos: No, very much so then we could go more in detail, but it's very much the investment in production workshops that you will find for the Jewellery Maisons at Cartier and Van Cleef & Arpels and Buccellati and also at Vhernier and Valenza recently. So we are definitely -- we are very -- we are being cautious. We don't want to build overcapacity, obviously, but we want to make sure that we are ready for the future. And if trends continue to be positive, we can answer to them. With limitations that will remain, availability of craftsmanship for handmade jewelry remains an issue. And then it's a very lengthy process that we tackle of identifying young talent, training them, being involved with the schools and so on. But this is more a 3-, 5-, 8-year journey to train craftsmen. But it's been an ongoing process for years and years. So we're quite confident that we will probably continue to see some scarcity and some shortage on some collections, but that's the nature of the activity. But all in all, our capacity to supply will follow the demand, the way we look at it. James Grzinic: That's great. Thank you, Nicolas. So to paraphrase you, if top line turns out to be demand would support double digit in peak trade, you'll be able to feed that basically given your production capability now and notwithstanding the inventory balance at the end of September. And I presume you are satisfied with price elasticity since those price rises at Cartier in September that will allow you to continue to, I think, that -- use that fine balance of value, affordability, et cetera, et cetera? Burkhart Grund: James, are you trying to find out if you should buy now Christmas present or later? James Grzinic: I already had. So I'm kind of assess that. Burkhart Grund: Okay. So rest assured, that's fine. Operator: The next question comes from Chris Huang from UBS. Chris Huang: Chris Huang from UBS. Congratulations on the results, and I will stick to 2 questions. My first one, sorry, Burkhart, just to come back on the commentary you made on September faster than the quarter. I assume that's a group level comment. So could you perhaps please talk specifically about the Jewellery Maisons as you had newness from Love Unlimited at the end of the quarter, and that should be quite mix accretive. So just wondering if you can touch on the cadence of Jewellery Maisons to help us think about the momentum ahead. The other question I have is a clarification on pricing. Nicolas, you mentioned the pricing you did in September. So thank you for that. But just to clarify, what's the incremental contribution from pricing in Q2, specifically versus Q1 for the division? I'm just trying to understand within that 6 percentage point sequential acceleration, how much of that actually came from pricing? Was it more of a low single digit or mid-single-digit contribution, please? Burkhart Grund: Chris, I'm not sure if we can be really helpful on these questions. They're very, very short-term oriented. I understand where you're coming from, but commenting on a single month and then by -- with a high level of granularity by Maisons is not something that we recommend to do because it can lead to conclusions that are do not reflect the reality of our business. Our business is always be it by year, be it by quarter, cyclical and has as much to do with the current trends as well as the comp base of the prior year. And this is the way I would leave it today. I would not endeavor to go further. Sorry for not being more helpful than that. Chris Huang: No worries, understood. Operator: We will now take the last question from Carole Madjo from Barclays. Carole Madjo: Carole Madjo from Barclays. Two questions, please. The first one, can you share a bit more color on the state of the watch market? Do you feel like the market has finally stabilized, I guess, mostly in China and that the positive growth you are able to deliver in Q2 can be sustained? That's the first question. And then number two, just to come back on communication costs, which was lower in H1. Are you still happy with the ratio of around 10% of sales for the full year, which is what you have been doing over the past few years? I know you talked about some phasing effect. So are there any particular events worth flagging that you will do in H2 to push top line as again, you will be facing tougher comps? Nicolas Bos: Nicolas here, on the watch market, I mean, we would love to be able to predict how that market is going to evolve. What we've seen definitely in the recent period is a stabilization for most of our Maisons. They come from very, very different situations, the respective weight of the geographies. For instance, some of the Maisons were extremely successful in Asia and in China in the past. And of course, the slowdown in China did hurt them more than the ones that had more of an American or European footprint. So we see all the Maisons pretty much coming back to a more healthy and better balanced situation. As I mentioned before, also very much refocusing and focusing on their core collection, core identities and delivering a strong and clear message to the -- their collectors and their stakeholders. So we are seeing some positive impact of all this. How it's going to evolve in the future is difficult to predict. We see, for sure, a more and more differentiated watch market, where it's much more difficult to see a global trend even at the scale or the level of one country or one price category. And if you see, for instance, the success of Cartier watches in the past period, be it in sale or even in attractiveness and buzz around the Cartier collection, it's extremely high and shows also an evolution or kind of coming back in terms of taste towards smaller shaped watches that had a bit disappeared for a period. So we very much have individual and singular trend Maison by Maison, and we try to very much follow them on a very granular level. Difficult to say how it's going to evolve. For sure, what we see, and we see that also through the activities of Watchfinder, which is the secondhand watch business that we own. Burkhart Grund: Pre-loved. Nicolas Bos: Pre-loved, sorry, Mr. Chair. Pre-loved watches. We see for sure that the speculative bubble on watches that followed the COVID period has burst and is gone now, and we are back to a much more, let's say, rational and a bit more predictable consumer behavior when it comes to whether pre-loved or first love watches. Johann Rupert: If I may just make a final observation. These successes at, for instance, Cartier, it's not turn on, turn off. It takes years to develop. And I really would like to pay homage to not only obviously Louis, but Cyrille and what they have prepared. And what you are witnessing is really the power of Cartier. There are only so many Maisons in the world that have the power and the reach and the influence and the trust of consumers across all continents that if they have good products, these products sell and sell at scale. So I mean, this comes from Alain Perrin says, Cartier is a machine, and you are seeing the results of decades of work, really decades. And I'd like to pay homage to all of those people. That's why when you have something very, very good like the new Love's range, it can sell, and it can sell at scale. Alessandra Girolami: Thank you very much. This will now conclude the call. Please do not hesitate, of course, if you have any further questions, and talk to you soon. Thank you. Burkhart Grund: Thank you very much. Nicolas Bos: Thank you. Burkhart Grund: Thank you.
Operator: Welcome to ABN AMRO's Q3 2025 Analyst and Investor Call. Please note, this call is being recorded. [Operator Instructions]. I will now hand the call over to speakers. Please go ahead. Marguerite Bérard-Andrieu: Good morning, and welcome to ABN AMRO's Q3 results presentation. I'm joined today by our CFO, Ferdinand Vaandrager; and our CRO, Serena Fioravanti. After our presentation, we will hold a Q&A session to address all your questions. Let me begin with the highlights of the third quarter on Slide 2 before moving to the announcement of our intention to acquire NIBC. The third quarter was another solid quarter for ABN AMRO. Net profit reached EUR 617 million with a return on equity of 9.5%. The inclusion of HAL contributed EUR 26 million to our results across all products we managed to grow this quarter. Our mortgage portfolio increased by EUR 2.1 billion and corporate loans grew by the same amount. Net new assets increased by EUR 4.3 billion. Cost discipline remains a priority with FTEs declining by 700 in Q3 and by almost 1,000 year-to-date, excluding HAL. Credit quality remained strong with EUR 49 million in net impairment releases reflecting recoveries and improved macroeconomic variables. Our CET1 ratio stands at 14.8%, and we finalized the EUR 250 million share buyback in September. We will review our capital position in Q4 to assess the potential for further capital returns. Now turning to our other announcement of the day. I'm very pleased to announce that we have reached an agreement to acquire NIBC. This acquisition is fully aligned with our strategy and presents a unique opportunity to reinforce our leading position in the Dutch retail market, and accelerate our personal and business banking strategy. NIBC is a well-run, primarily Dutch-focused entrepreneurial bank with a strong specialization in mortgage lending and savings products. It serves around 500,000 retail clients and around 175 corporate clients with a high-quality portfolio mortgage and very low arrears. NIBC will add around EUR 28 billion of mortgages, significantly increasing our scale in these markets, further cementing our leading position in the Dutch mortgage market. Around half of the mortgage portfolio will be off balance as NIBC has an attractive originate-to-manage franchise with long-dated mortgages. The acquisition also brings an attractive savings platform, serving 300,000 clients across the Netherlands, Germany and Belgium. The savings offer an interesting cross-sell opportunity with our investment platform, BUX. Given NIBC's domestic focus and the overlap of service providers, there is substantial potential for cost synergies with limited execution risk. This transaction is expected to deliver return on invested capital of around 18%, 1-8, and will improve our group's financial profile. The capital impact of approximately 70 basis points is anticipated at closing. The acquisition is, of course, subject to regulatory approvals and is expected to be completed during the second half of 2026. We look forward to welcoming NIBC's clients and colleagues and to the opportunities this acquisition will bring to us all. Now turning to our third quarter results. I will start with the Dutch economy. While the Dutch economy continues to perform well, supported by a strong fiscal position and low unemployment, the housing market remains robust, with pricing still rising, though at a lower pace than in the first half of the year. Employment continued to rise and is at a record high. The debt-to-GDP ratio of the Netherlands remains very healthy -- and that's a French person telling you that, it is significantly lower than other European countries. The Dutch elections results have been announced and coalition talks have begun. Ideally, the quick and stable formation process will allow the new government to start addressing important national issues, for example, the housing shortage or the nitrogen issue. Given this economic context on the next slide, I will discuss our results. We again showed a quarter with strong mortgage production growth, thanks to a robust housing market. Our mortgage portfolio grew by EUR 2.1 billion in Q3 with our market share in new production rising to 19%. We made some important amendments to our mortgage terms. We now automatically adjust risk premium after repayments, reviewing it monthly instead of only at the end of the fixed rate period. This led our mortgage products obtaining the top rating in the intermediary market, which accounts for nearly 75% of new volume. We observed an immediate increase in new volumes following this. Today, we also announced the rationalization of our mortgage brand line-up. Going forward, we will focus on our core labels, namely ABN AMRO and Florius and we will discontinue the Moneyou brand. This allows us to focus investments in our core labels, in technology and innovation to further improve our services. Moving to corporate loans, further organic growth and the inclusion of HAL resulted in EUR 2.1 billion loan growth this quarter. Loan growth was partially offset by the wind-down of asset-based finance. This quarter, we sold our U.K. lease portfolio. Moving to deposits. HAL added close to EUR 11 billion of client deposits. Within Wealth Management, we also have provided targeted offerings starting in Q2, which have resulted in net new assets of over EUR 4 billion this quarter. Given this positive developments in our lending and deposit franchises, let's now look more closely how these have supported our net interest income. Our net interest income increased to EUR 1.5 billion. HAL's inclusion contributed positively to NII by around EUR 34 million. The inflow of NHG mortgages and the adjustments we made in the mortgage terms I just mentioned before, led to slightly lower margins. However, the strong growth in our mortgage book offset this. Deposit margins declined partly related to targeted offerings within Wealth Management at reduced margins. Treasury results increased during Q3. However, the increase was a bit lower than initially expected. Based on last quarter's forward rates, the inflection point of replicating portfolio yield was expected at the beginning of next year. However, current interest rates have brought this timing forward this quarter, bringing the decline in the replicating yield to a standstill. In the coming quarters, we expect the deposit margins will start to become a tailwind. Looking ahead to next quarter and assuming a modest increase in treasury NII and stable deposit margins, we expect full year NII of at least EUR 6.3 billion, including HAL. Now turning to fees. Looking at our third quarter fee income, the fee contribution from HAL becomes evident, increasing overall fee income by around 10%. These excluding HAL, continued to increase, with fee income for the third quarter, reaching its highest level in the past 2 years. Personal and Business Banking fees increased mainly from higher seasonal payment transactions. Wealth Management fees was primarily thanks to higher advisory and mandated business volumes. Other income is volatile by nature and ended at EUR 28 million for Q3. The decline was caused by a number of factors, all having a negative impact on other income this quarter. Specifically, we booked lower equity participation results, lower other income within treasury and a negative fair value correction of past bookings related to some mortgages. Now moving to our operating expenses. We have further reduced expenses as we worked on rightsizing our cost base. This quarter, FTE showed a significant reduction of 700, half of which related to contractors in Group Functions. Since the beginning of the year, the number of contractors have declined by 1,100. To a limited extent, we onboarded external for their skills, which explains the small increase in internal FTEs over the same period. The Dutch Collective Labor Agreement increased wages by 3.75% on the 1st of July, leading to an increase this quarter in personnel expenses. Thanks to our ongoing cost discipline, our underlying cost base declined this quarter. At the beginning of the year, we projected our underlying costs excluding HAL to be between EUR 5.3 billion and EUR 5.4 billion, and we are confident now of ending at the lower end of this guidance. Including HAL, this now translates to a full year cost guidance between EUR 5.4 billion to EUR 5.5 billion. Now turning to our credit quality, which again remained very solid. Prudent risk management supports our strong financial results. We recorded impairment releases of EUR 49 million this quarter, mainly related to recoveries in corporate loans and improved macroeconomic variables. We saw some inflow into stage 3 for specific individual files, although, this was lower compared to the last few quarters and fully offset by releases. The total Stage 3 ratio decreased slightly to 2% and our coverage ratio was broadly stable for each of our lending projects. Given the impairments year-to-date, the cost of risk for 2025 will likely end around 0 for the full year. Now moving on to our capital position on the next slide. Our CET1 ratio remains stable at 14.8%, well above the regulatory requirements of 11.2%. The impact of the consolidation of HAL was offset by the quarterly contribution of our net profit. The total impact of HAL on our CET1 ratio as of Q3 is 40 basis points, 7 basis points of impact were already taken in Q2. The formal move of certain loan portfolios to the standardized approach had no impact on our capital ratio, while RWAs increased by EUR 1.6 billion. This was offset by lower capital deductions in our CET1 capital. During Q3, data quality improvements were realized around EUR 1 billion of RWA reductions, mainly from data improvements on real estate collateral. Further progress on data remediation is anticipated, for example, related to the SME support factor, which may result in further reductions in Q4. Looking ahead, as I mentioned, NIBC will impact our capital ratio by around 70 basis points at closing, expected in the course of next year. Our capital position remains robust, and our capital generation is strong. In Q4, we will review our capital outlook and incorporate all the relevant capital and RWA developments. Now to summarize our third quarter results. For 2025, we expect net interest income of at least EUR 6.3 billion and costs between EUR 5.4 billion and EUR 5.5 billion, both including HAL. We are delivering on our cost discipline, improving our data quality and sourcing and are delivering profitable growth in mortgages and deposits. The seamless integration of HAL and closing the acquisition of NIBC are important strategic milestones as we build scale in our core markets. Looking ahead, we are excited to invite you to our Capital Markets Day in just 2 weeks' time. There we will present our updated strategy and financial targets with a sharp focus on rightsizing our cost base, optimizing our capital allocation and unlocking profitable growth opportunities. We look forward to sharing our vision for the future and the next chapter in our journey with you. With that, I would like to ask the operator to open the call for Q&A. Thank you. Operator: [Operator Instructions] The next question comes from Giulia Miotto from Morgan Stanley. Giulia Miotto: I'll start with a question on NIBC. Why do you think that the execution risk here is low? Like, can you give us any, I don't know, qualitative comment on, for example, do you have the same systems or -- anything that can give us confidence on essentially achieving this quite significant synergies? That would be my first comment. And then secondly, I wanted to ask on the costs. The quarter was very good. Was a beat versus consensus expectations, excluding the one-off, the EUR 55 million. However, the exit rate is actually quite high. If I take the mid-range, if I take basically EUR 5.450 billion and then I remove the EUR 3.9 billion that you've done so far, underlying would be EUR 1.55 billion for Q4, which is more than what I would expect. And then it's quite a high run rate for '26. So how should we think about the exit rate and yes, on the cost side? Marguerite Bérard-Andrieu: Thank you very much for your questions. I will start with your first question on NIBC, and Ferdi will take your question on costs. So on NIBC, bear in mind that this is an asset we know very well. We operate in the same market, in the same businesses, mortgages, savings. So this is an asset we know very well indeed. And you're right, we have evident synergies. I'm going to give you just one. We use, for instance, for mortgages, the same service provider Stater. So this is an evident synergy just to flag this one. It is too early to share all the details, of course, of the target operating model. Bear in mind that the transaction will be only closed in the second half of 2026. But we are indeed confident that this is below execution risk transaction for us. Now Ferdi to the cost this quarter and looking forward? Ferdinand Vaandrager: Yes, Giulia, I think the most important message on cost is that underlying our costs are going down, evidenced by the FTE reductions year-to-date. And this offsets the more than offset the CLA increase. As Marguerite said already earlier, we will end at the low end of the guidance range, excluding Hauck Aufhäuser Lampe, but if you add the cost of Hauck Aufhäuser Lampe, we will add in the range of EUR 5.3 billion EUR 5.4 billion. If you look at the exit rate in Q4, we always have some prudency in our guidance, specifically for Q4 because, as usual, you can always expect some seasonal cost increases. Last year, that was around 4%. So that's what you need to take into account if you look at the exit rate in the guidance. Giulia Miotto: Okay. But so just to clarify on the Q4 costs. So it will probably be higher than an exit rate for '26. It sounds like because there is some in Q4... Ferdinand Vaandrager: There can always be, Giulia, that is the question underlying, we expect the cost trend to continue as we've seen in the previous quarters. But normally, there is some prudency of the seasonal cost increase you can see in Q4. Giulia Miotto: Understood. Ferdinand Vaandrager: The guidance is fairly clear between the EUR 5.4 billion and EUR 5.5 billion, including the cost of Hauck Aufhäuser Lampe. Operator: The next question comes from the Namita Samtani from Barclays. Namita Samtani: The first one on the NIBC deal, thanks to the EUR 100 million of first run rate cost synergies in 2029. But when you speak about further upside from revenue synergies what are you referring to? Are these funding synergies? And do you have a sense of quantum? And also the legal merger of ABN AMRO Hypotheken Groep into ABN AMRO. Is that included in the deal maths that you've given today? And my second question, on the replicating portfolio, is it still EUR 165 billion in size? And how should we think about the long end part of the replicating portfolio? Is it more mechanical, for example, just a very simple 5-year swap rolling mathematically or in fairly even tranches? It's just that replicating portfolio slide on Page 16, it confuses me a bit. And I can't understand when year-on-year, I'm going to see a benefit from the hedge. Is it in 2027? So any color there helpful. Marguerite Bérard-Andrieu: Thank you very much. I will take your question on NIBC, and Ferdi will take your question on the replicating portfolio. So yes, we see this transaction on NIBC as very accretive indeed because there are synergies in costs as well as in revenues. Just to give you a few highlights, we are adding 500,000 new retail clients to the ABN AMRO Group. These are clients that have -- that are mass affluent clients. So they fit very well our group. We think that we can bring more products and services to these clients. We also see, as I briefly mentioned an opportunity in using BUX to serve these clients. Bear in mind that NIBC have clients, of course, primarily in the Netherlands, but also in Belgium and Germany. So BUX can really help with that. And yes, in terms of synergies, there are also funding synergies, both on the revenue side as well, I would say, on the cost side, just to hint at a few of the positives we see in the transactions. Ferdinand Vaandrager: Yes, maybe come back and to add to that Marguerite. Indeed, we're prudent in our assessment. So the EUR 100 million is the post tax cost synergies. Of course, there can be some funding synergies. For example, we can over time, refinance the debt securities at the lower rates and also potential reduced LCR targets. But also on the other hand, you might also see some dis-synergies from deposit churn. So overall, if you look at the synergies, it's negligible in our assumption on the revenue and the funding synergy side. If your question on the replicating portfolio, yes, I can confirm the size is still around EUR 165 billion. As you have seen some terming in, that means that it has increased somewhat over the past 2 quarters, and it's also still there around 40% to 45% of the replicating portfolio reprices within 1 year, and the overall duration is around 3 years. If you look at the sensitivity slide in the presentation. It's now an update on a quarterly basis. So the starting point is slightly different from the previous quarters. And there, you can see that we have seen the inflection point already on the income side. But if you purely look at the sensitivity, it does not take into account any changes in volume, and it does not take into account any cost changes, i.e., changes in deposit pricing. So you should just look at as a sensitivity on the replicating income as an 'as is' situation. Marguerite Bérard-Andrieu: And forgive me because I realized I forgot to answer your question on the legal merger and of course, yes the transaction with NIBC is subject to all regulatory approvals. And that, of course, includes the legal merger. Let's say, we do not anticipate difficulties on that front. Operator: The next question comes from Tarik El Mejjad from BofA. Tarik El Mejjad: Just another question on NIBC and one on cost base. I mean I guess you share with us more detailed math on the deal with the synergy expected with some time frame because, I mean, clearly, usually, at least on my M&A model, I mean revenue synergies is not something I would push too much. And on the cost sounds quite punchy here, but I mean, Marguerite, you gave some indications of what kind of synergies. But yes, if you can share with us would be helpful. I mean this is very important for your capital allocation, I guess. And my question is what's next? Because I was more expecting a deal on the Wealth Management to be honest. And in Bloomberg, you mentioned that this is it in terms of deals to be announced. So is this now back to focus on restructuring the bank and costs? Or should we expect more potentially destructive deals to come? So that's number one. And number two, on just maybe a question for Ferdinand. On the cost guidance, EUR 5.4 billion, EUR 5.5 billion, is that excluding incidentals or it's all-in reported guidance? Marguerite Bérard-Andrieu: Thank you. Thank you very much for your questions. A couple of things. Yes, this deal is highly accretive. The 18% return on invested capital, we are very confident is achievable. And indeed, what we primarily factored, I mean why we factored in this model was primarily cost synergies. So if there are revenue synergies on top of it, it is an upside. But I agree with you, this is not a primary thing that we looked at in this deal. And looking forward, we will be sharing yes, more details on the target operating model, but that will come in due course. Just to clarify the answer I gave to Bloomberg. This was more an answer on saying, well, we're not going to call every morning to announce to announce a new M&A deal. So it's just that -- I think the question I got from Sarah there was like, is there something else coming out at the CMD? So no, in the next 2 weeks, don't expect any other announcement from us. And as far as our strategy is concerned, organic and inorganic, we will share everything in 2 weeks when you come to our Capital Markets Day. Ferdinand Vaandrager: Yes. Tarik, to come back to your question on the guidance. Initially, the guidance was equal to last year. We expect to end up at the lower end of that range. Hauck Aufhäuser Lampe adds between the EUR 130 million and EUR 140 million. So this translates in the updated guidance. And clearly, the updated guidance is excluding the incidentals as announced today. Operator: The next question comes from Benoit Petrarque from Kepler Cheuvreux. Benoit Petrarque: So just to come back on NIBC, sorry for that. Just again, the strategic rationale. Because it sounds like a very financially attractive deal and it seems that from a strategic point of view, that was the main reason behind this deal. I was also a bit expecting a bit more other type of deals, let's say. And maybe I missed it, but do you see kind of any franchise value in NIBC or you see just purely 100% as a financial attractive deal with 10% accretion by '29. Just wanted to clarify that because I also see a very low fee base at NIBC. And I was also expecting a bit more fee business as target. And I was also wondering if you could provide some timing on the EUR 140 million pretax synergies, whether we'll start to see some positive effect from that in '27 or that will be more back-end loaded? And just second question on NII. So your guidance of more than EUR 6.3 billion implies roughly EUR 50 million quarter-on-quarter on NII in Q4. And I was just wondering if you could provide the moving parts, deposit margin, lending margin, treasury income. What will drive this improvement in the fourth quarter? Marguerite Bérard-Andrieu: Thank you very much for your questions. So on NIBC, it is indeed both, a financially sound deal, an accretive deal and also a strategic deal. I think it's a good -- it's a good way of proving how we look at M&A. M&A strategy will always be disciplined and we will only pursue it if we find it shareholder accretive. It will be -- this is one of our criterion. You see it with this deal and the 18% of return on invested capital that it brings to the bank. This being said, we see a natural strategic fit with NIBC. It brings us scale in our domestic market in mortgages and in savings. The NIBC brand is a very good brand in the Netherlands. This is a brand that has been existing for 80 years. It has an entrepreneurial flavor. It appeals to the client base that's also slightly different from the clients we already have at ABN AMRO. So it is a great way for us to keep growing and strengthen our position in our domestic market. To your question of -- yes -- to full -- when we see the full benefit of the synergies we mentioned, we express it as 2029 just because as I said, we do expect the closing of the transaction to only happen in the second half of 2026. So we do expect a full benefit of the synergies to be there in 2029. But it does not all happen in the last year, of course. Ferdinand Vaandrager: Yes. And Benoit, maybe on your NII. Arguably you could say NII for this quarter is slightly lower, but I want to reiterate here that is mainly by our own decision. So it was a targeted wealth management campaign. And there, you see a very good NNA growth of almost EUR 4.3 billion. So now it's key that we start transferring that in valuable assets. Number two is an acceleration in the ABF wind down, specifically portfolio sale in the U.K., which is ahead of plan. And what Marguerite already said that is the implementation of what we call here [ARNA]. And that has clearly a positive impact on our position with the intermediaries. Also, if you look at our market share now up till 19%, so for Q4, we expect a modest improvement in the treasury results, as well as stable deposit margins. And if you look at the update on the sensitivity slide, what we discussed earlier, the inflection point of the replicating portfolio is already reached this quarter or, I should say, a start of Q4. So that brings the decline in the replicating yields to a standstill. But if you look at the sensitivity, the tailwinds will be very limited initially and will be more pronounced in the second half of next year. Operator: The next question comes from Benjamin Goy from Deutsche Bank. Benjamin Goy: Two questions, please. So first, on NIBC, again, which over the last 6, 7 years, has built up a significant off-balance sheet mortgage book. Just wondering your thoughts on that part of the business because you very much rely on balance sheet growth? And then secondly, you also call it a low execution risk. I'm just wondering, when you look at capital return going forward, do you basically take your current capital ratio minus 70%? Or would you include a buffer given the uncertainties and execution risk? Marguerite Bérard-Andrieu: Thank you very much. So on the -- on your question of the originate-to-manage portfolio that NIBC has and that represents roughly half its portfolio. We see, it as actually an interesting and value-added opportunity for ABN AMRO because it's not something we were doing already, and we see opportunities with that. So we welcome that addition in our business model. And I confirm that we've been thoroughly assessing the CET1 impact of these transactions that amounts to 70 basis points. And this takes into account a very prudent approach to the transaction, including all form of day 1 provisioning and so on that may be needed. So I would say, so it's a fully loaded 70 basis points. Operator: The next question comes from Chris Hallam from Goldman Sachs International. Chris Hallam: Just a couple of follow-ups. So first, just on funding synergies. Ferdi, I think you said those have been negligible, i.e. not particularly incremental to the 18%, but I'm just wondering how that works given their funding mix, which is much less skewed to deposit funding than your own and their own deposit funding cost, which is higher than yours. So just is this a reason why either you wouldn't fully change the funding mix or why you would expect to see a very high level of deposit attrition? And then second, I acknowledge we've got the CMD coming up very soon. But just looking specifically into 2026, as you're going through the year-end budgeting process, what are the key items you're focused on for the cost side of the business? Are there any specific items or challenges for ABN AMRO that we should consider for 2026 in particular? Both for ABN I guess, on the one side, but also for the industry more broadly? Marguerite Bérard-Andrieu: Ferdi, I will let you take this. Ferdinand Vaandrager: Yes, Chris, I'll start with the first one. So absolutely, there is a potential. But again, the argument here that we try to be prudent and specifically look at cost synergies. Of course, there can be some revenue synergies, but also the funding synergies here. It's too early to start communicating on the potential here, and some of the funding synergies, arguably will be further out also beyond the indicated 2029. But for sure, this provides potential on top of the indicated cost synergies. Marguerite Bérard-Andrieu: And on your question. Well, '26 happens to be the first year of our strategic plans. So I promise we will share everything on '26 as well as for the following years at our CMD in 2 weeks. This being said, I believe in discipline and I believe in saying what we do and doing what we say. We've been very clear from the beginning that rightsizing our cost base, steering on capital and pursuing profitable growth are all 3 like motives. And so 2026 will look like that. Operator: The next question comes from Farquhar Murray from Autonomous. Farquhar Murray: Just 2 questions, if I may. Firstly, more broadly on M&A. You now have kind of 2 integrations with HAL and NIBC. Do you think there's sufficient management room kind of bandwidth for another deal in the near term? And then maybe coming back a little bit to HAL actually, as an integration given it's come on board post closing. I just wondered if you could give us an update on how that business is performing as compared to the original expectations of that acquisition. In particular, I'm thinking about the cost synergy target of EUR 60 million there? Marguerite Bérard-Andrieu: Thank you very much. So I'll take your first question on bandwidth, and I will let Ferdi comment on the HAL integration. I think that was your second question. So do we have the bandwidth? Yes, we do. We are moving at pace. We have a very strong management team. I'm very happy with our Executive Board. And basically, Choy, who is in charge of Wealth is very much involved in the integration of HAL and making it a success. We have colleagues that have been very much involved in the due diligence regarding NIBC, and who will be, in due time, fully ready also to be there for the integration. So we're very confident that we have all it takes to make this integration a success. With M&A, you don't necessarily plan in advance, but we will know how to be opportunistic, if needs be, as I said, always with discipline and only if it's shareholder accretive. Ferdinand Vaandrager: Yes. Maybe just on Hauck Aufhäuser Lampe, as indicated earlier, cost synergies, year 3, EUR 60 million. Also, if we look at the first quarter after consolidation, we're confident that we're going to reach that. So no unexpected surprises in here. We've also said that we need around one-off cost of around EUR 90 million, 1/3 integration cost and 2/3 restructuring cost. We booked so far this year around EUR 8 million in integration costs. The integration is fully on track. So the legal merger between HAL AG and ABN AMRO is to be completed by the end of 2026, and that will really simplify the further integration. So the bottom line is here over results, of the results what we see now is in line with expectations, and we're very confident we're going to reach the EUR 60 million run rate synergies in year 3, which is 2028. Operator: The next question comes from Delphine Lee from JPMorgan. Delphine Lee: My first question is just going back to NIBC and just your thoughts about M&A in general. I mean just wanted to understand kind of what areas of priorities you would have? Would it -- I mean, because is the intention in the long run to continue to strengthen the position in the Netherlands? Or would it mean more to kind of diversify a little bit away from your mortgage book through private banking or corporate banking? Just trying to understand a little bit kind of where your focus is M&A-wise? And my second question is just in terms of excess capital and the usage, and how you allocate capital more generally speaking, is the intention over the long run to sort of manage it to kind of increase the payout? Do you still think there is room with the transaction further down the line? Just trying to think about how you manage your capital with buybacks and what we should expect? Marguerite Bérard-Andrieu: Thank you very much. You are anticipating on what we are going to share in 2 weeks. I will only reiterate that, we only consider M&A when it is disciplined, when it is shareholder-accretive. We think that adding scale in our home market is a smart, strategic move, and back to how acquisition that the bank recently completed and Ferdi was commenting on. This is also a strong strategic fit for us as we grow in wealth in Northwestern Europe, which is part of our strategy. But we will describe all of this at our CMD. In terms of our capital position and our capital usage. Again, this will be the topic of CMD in 2 weeks. But basically, in a nutshell, we will continue to optimize our RWA both in data and from steering more to come on that. The outcome of our capital assessment will be communicated with our Q4 results, including potential capital distributions. But we have a strong balance sheet and a strong capital position. And I think, yes, the rest will come. Bear with us for 2 more weeks. Operator: The next question comes from Juan Pablo Lopez Cobo from Santander. Juan Lopez Cobo: First one is regarding NIBC. Probably I missed some of the KPIs, but you mentioned that the deal is highly accretive. Regarding EPS accretion, if we assume, let's say, EUR 100 million net income coming from NIBC and the EUR 100 million synergies lower post tax. Is it fair to assume an EPS accretion of around 7% to 8%. Does it sound reasonable for you? That's my first question. My second question is regarding the deposits campaign. If you could share some color on this deposit campaign? Volume can we assume around EUR 3 billion, cost probably around 2% or slightly above 2%. And maybe duration, if I got you right, I don't know if we can assume the NII impact in this Q coming from the deposit campaign could be something around EUR 15 million, EUR 20 million. So it will be interesting to know to listen the duration and what percentage of these deposits you think will stay in the bank? Marguerite Bérard-Andrieu: Thank you. Thank you very much. I will let Ferdi answer both your questions. Maybe just a clarification because I'm not sure that we fully agreed on the figure. But when we mentioned cost synergies, it's EUR 100 million post tax. So basically, pretax, it's higher, just to clarify that point. Ferdi, I'll let you go into the EPS accretion. Ferdinand Vaandrager: No. I think if you look at the underlying, how you come to your calculation, fully synergized a profit of around EUR 200 million, indeed, you would come in 2029 to around 7% EPS accretion. And then again, if you look at the overall deposits, yes, we assume some outflow, but we expect it to be limited from the overall deposit campaign. And the most important part of the targeted deposit campaign is increased our net new assets. It had an impact on our on overall margins, but now it should really translate into valuable assets. So that is a transfer into either discretely portfolio management either in advisory or private markets. Marguerite Bérard-Andrieu: But usually, what we observe is that it takes usually 6 months for bankers to actually transform into more valuable assets. Operator: [Operator Instructions] The next question comes from Anke Reingen from RBC. Anke Reingen: It's just 2 number questions, please. Firstly, on the other income, that was quite big this quarter. And I just wonder, is it sort of like a run rate? I mean, a number of banks talked about NII and other income of their value result, like mix effect. Should we see that the Q3 other income could be a run rate going forward? And then on the deposit costs, is there sort of like a change in trend where in the past, we were talking about cuts and savings rates. We're now talking about some selective campaigns on higher deposits with a benefit to volume? Would you say the trend has changed here? Marguerite Bérard-Andrieu: Thanks. Ferdi, on these 2 questions. Ferdinand Vaandrager: No, let me start on other income. It was low this quarter at EUR 28 million. So also quarterly-on-quarter significantly down. And we explained that the main impact here is number one, equity participation. You're always dependent when the revaluation is done. And in Q2, we had a successful exit of the portfolio. ALM results is always volatile. And in this quarter, it always depends on your economic hedges and hedging effectiveness. But the main driver this quarter was lower fair value revaluations on the IFRS 17 and it was specifically related to one-off correction of past bookings in the March fiscal, and that impact was roughly EUR 30 million. So if you look for the coming years, other income is volatile by nature. It also includes XVAs, ALM results and private equity revaluations. But overall, excluding incidentals in the past years, it was around EUR 450 million. And if you would also exclude volatile items around the EUR 400 million. Then if you look at changes on pricing. No, the deposit campaign was very targeted at Wealth Management. So we really target the specific client group. And as said earlier already, we are willing to do that at very low margins because there, we see the opportunity to transfer that in valuable assets. So it's absolutely not a change broader how you should look at our prices. Operator: The next question comes from Jason Kalamboussis from ING. Jason Kalamboussis: I'm coming back to what Tarik mentioned. While the deal is good value for money strategically and from a higher level, it looks like it distracts to what I thought was a clearer focus on wealth management. So if you have any additional thoughts, welcome there. So moving on to wealth. Could you please provide the split year-to-date of the inflows in custody and the rest? And is it something that we could see provided on a quarterly basis? The second thing is on HAL. What are the -- how does the AUMs that you brought in split again into -- can you split out the custody and cash elements, if possible? And my third question is, is the reasonable assumption to -- when I'm looking at your AUM to assume that most of the custody and cash assets above 75% are in the Netherlands, that will be very useful. Marguerite Bérard-Andrieu: Thank you very much. I'll take your first question, and we'll let Ferdi answer the 2 others. In terms of strategy, we believe that it is a perfect strategic fit to actually keep growing and at scale in our home markets. We have the platform for that. We already have 5 million clients in the Netherlands, NIBC adds, roughly 500,000 new retail clients. We do believe in scale and in using our platform, both in mortgages and savings in the Netherlands. This being said, we also do believe that wealth management is an extremely good business of ABN AMRO. I mean we have a strong #1 position in the Netherlands with the market shares of the 35%. We have now a strong #3 position in Germany. We also are present in France and to lesser extent in Belgium. So we will share our strategy for 3 businesses at our CMD. But indeed, we do like very much the wealth management business. Ferdi on the 2 other questions? Ferdinand Vaandrager: Yes, Jason, number one is the split between custody. Overall, you should see that there's the difference between core net new assets and total net new assets of core net new assets. So overall, core and net new assets we had a very strong quarter. As discussed earlier, mainly reflecting the cash inflow from targeted offerings and indeed, the majority of this was wealth management in the Netherlands. Total NNA plus EUR 4.3 billion. So the custody is included in here for this quarter was plus EUR 1 billion more or less. If you look at the total custody within Wealth Management of course that was also a question, I think that is around the EUR 50 billion today. Then I also think, but I didn't hear you that well this, client asset inclusion of Hauck Aufhäuser Lampe. So in total, this was around EUR 26 billion and the split there was around EUR 23 billion in securities and EUR 4 billion in cash. The majority of that inclusion is in securities. Jason Kalamboussis: That's very useful. Just a quick follow-up. I mean, on the NIBC deal, what I'm a bit surprised is that the fee element is quite small. So you have less than 10% that's coming in fees. So that was a bit the sense of my question that, yes, I understand the scale. And also it's a good deal financially. But on the other hand, I would have thought that your focus would have been towards increasing the fee side within your income, whereas this goes a bit the other way. But again, If you have any comments, that would be great. Marguerite Bérard-Andrieu: I understand your question. As I said, it adds scale, which is, I think, a very positive strategic move, and it's also financially very accretive. So we saw it as 2 very good reasons to pursue this acquisition. Ferdinand Vaandrager: Yes, maybe to add there, it's also had the addition of the savings account to the BUX platform, that might provide at least investment propositions there where we are absolutely focusing on transferring NII into fees. Operator: There are no more questions at this time. I will now hand the word back to the speakers for any closing remarks. Marguerite Bérard-Andrieu: Well, I thank you very much all for your questions this morning, and we look forward to welcoming you at our Capital Markets Day on November 25. And for the time on, goodbye. And thanks again. Have a great day.
Operator: Good morning, and thank you for waiting. Welcome to Rumo's Third Quarter 2025 Earnings Presentation. [Operator Instructions] This presentation is being recorded and simultaneous translation is available by clicking on the interpretation button. [Operator Instructions] Before proceeding, we would like to reiterate that forward-looking statements are based on Rumo's Executive Board's beliefs and assumptions and information currently available to the company. These statements involve risks and uncertainties as they relate to future events and depend on circumstances that may or may not materialize. We recommend that you refer to the disclaimer on the second page of the presentation. Now I will turn the conference over to Mr. Felipe Saraiva, Rumo's Head of Investor Relations, to begin the presentation. Please go ahead, Mr. Saraiva. Felipe Saraiva: Good morning, everyone, and thank you for joining Rumo's Third Quarter 2025 Earnings Conference Call. Let's begin with the highlights on Page 3 of the presentation. We reached a new quarterly record for transported volume, 23.4 billion RTK, up 8% year-over-year. This performance was driven mainly by the Northern operation with the higher volumes in general cargo, especially hardwood pulp, bauxite and fuel. Our cash cost was another positive highlight this quarter. We continue to capture energy efficiency gains, reducing fuel consumption, the main component of our variable cost. In fixed costs and expenses, we recorded a nominal reduction of BRL 36 million, which combined with the volume growth translated into a 12% efficiency gain in our cost per unit. The combination of higher volumes and disciplined cost management allowed us to maintain a stable margin in a more competitive environment. Adjusted EBITDA reached BRL 2.3 billion, an increase of 5% year-over-year. We closed the quarter with BRL 1.5 billion in investments and net leverage of 1.9x. Moving to Page 4. Let's look at market share. Our market share this quarter reflects a more competitive grain logistics environment. We maintained a stable market share in Goiás and in the southern ports, while performance in Mato Grosso and the Port of Santos was lower than last year. On Page 5, I will share more details on the market dynamics in the Santos corridor, which is our core business. As a reminder, rail capacity is shared between Mato Grosso and Goiás working as communicating vessels. Grain exports from those markets increased compared to 2024, a year that was impacted by a crop shortfall in the Midwest of Brazil, but still remained slightly below 2023 levels. We transported 8.5 million tons with alternative corridors absorbing part of the difference versus the year of 2023. In the soybean complex, which includes soybean and meal, the market was stronger than usual this quarter, driven by the carryover volumes not exported in the first half of the year, and we captured that demand efficiently. For corn, despite a record crop in 2025, export volumes from Mato Grosso and Goiás were lower. Our performance reflected this more competitive landscape with some flow distribution across all of the logistic corridors, partially offset by growth in soybean complex, as I have mentioned. As you may see in the lower chart, our railway system remains the main logistics solution serving the Port of Santos. Moving to Page 6, we will review the operational indicators. Both the transit time and dwell time in Santos slightly increased during the quarter because of greater complexity of managing higher volumes in the system. In energy efficiency, we reduced unit fuel consumption by 2% with a solid performance across both the Northern and Southern operations. On Page 7, we will show operational results and volumes. We transported 23.4 billion RTK in the quarter, up 8% year-over-year. The Northern operation accounted for about 3/4 of this growth, mainly supported by higher general cargo volumes, particularly hardwood pulp, bauxite and fuel. In the agriculture portfolio, we transported more volumes of sugar and fertilizers. In the Southern operation, the main highlight was higher corn volumes, which had been impacted last year by crop shortfalls in the South. In general cargo, we continue to pursue new opportunities and optimize asset utilization of that system. Now on Page 8, we present revenues and tariff highlights. Net revenue amounted by BRL 3.8 billion, a 2% increase year-over-year. As we always say, the focus of our pricing strategy is on finding the right balance between volumes and tariffs to maximize the system profitability. This year export dynamics led to a stronger competition among logistic alternatives serving our key markets. In this context, we adjusted our commercial positioning in both operations to ensure competitiveness and attractiveness for the rail transportation. Moving to Page 9, we present the EBITDA. EBITDA grew 4%, reaching BRL 2.3 billion. Our efficiency in managing costs and expenses helped us maintain stable margins despite a more competitive environment. Additionally, we recorded a BRL 55 million in insurance recoveries related to the loss of profits in the Southern operation due to extreme weather events on May last year. On Page 10, we move to financial results and net income. The net financial result was a net expense of BRL 837 million, mainly reflecting higher net debt and interest rates. Despite the higher rates, we delivered adjusted net income of BRL 733 million, broadly in line with the last year figure. On Page 11, let's look at our net debt position. Net debt at the end of the quarter was BRL 14.9 billion, reflecting the quarter's cash generation. We closed the period with a healthy leverage of 1.9x. Our liquidity position remains very solid with BRL 7.2 billion in cash and a well-distributed debt maturity schedule with no major concentrations in the fiscal years of 2026 and 2027. On Page 12, we will present the investments in the quarter. We invested BRL 1.5 billion in the quarter, in line with our plan. Recurring CapEx was BRL 503 million, focused on asset maintenance and operational safety. In the Mato Grosso railway project, we invested BRL 575 million with the cash disbursements following the construction progress. Other expansion projects amounted by BRL 396 million with the focus of increasing capacity and modernizing the existing infrastructure. Now turning to the soybean market on Page 13. The next Brazilian soybean crop is expected to reach the all-time high level of 175 million tons in production. The state of Mato Grosso should account for roughly 51 million tons in production. And as we speak, the seeding is almost completed. Exports from the region are estimated at 32 million tons, pointing to a healthy logistics demand for the next season. On Page 14, I will present the corn market. The Brazilian corn crop is also expected to reach a record high level with an estimated production of 145 million tons in the next season. In Mato Grosso, production is forecasted at 59 million tons, driven by an expansion of roughly 400,000 hectares in planted area. Exports should remain stable around 25 million tons in the state of Mato Grosso. This concludes my presentation. Thank you, and we are glad to start the Q&A session. Operator: Joining us today are Mr. Pedro Palma; Mr. Guilherme Machado; and Mr. Felipe Saraiva. Before we begin the Q&A session, Mr. Pedro Palma would like to say a few words. Please go ahead, Mr. Palma. Pedro Palma: Good morning, everyone. This is Pedro Palma. Thank you for joining us in the earnings release for the third quarter. It's a pleasure to be here with you. Before we start the Q&A session, let me just summarize the quarter and how the company has been doing. Looking at how volumes have progressed, we're very happy to have gone over the 8 billion RTK volume at the company with major stake in the South and North operations making contributions to that increase. In the last few months, the South operation has been over 1.2 billion RTK, going back to very healthy and robust volume levels. And the North operation has been close to 7 billion RTK. That's a testament to our resilience, our ability to overcome challenges in the rail environment, which is becoming much more favorable, much more solid. And we have reached those volumes in the last quarter and the last few months despite a fiercer competition in the market, considering grains volumes, both in the North and South operations. As we said since the beginning of the year because of the carryover inventory of corn from '24 to '25, we also mentioned the delayed in volumes coming in, in terms of soybeans. And over the year, there's been a smoother, more linear export level. At the beginning of the year, we were still testing the market's pricing level to understand how we should position our own pricing levels. As of the second quarter, when it was clear to us what that new price level was going to be, we made the required adjustments to our pricing policy to make sure that we would have the required and suitable volumes to execute on our rail activities. And let me remind you, at very healthy margin levels. Our pricing journey has never been linear. Over the years, it's been through ups and downs. Let me remind you that in '22, '23 and '24, our prices went up by 60% in the grains market. And '25 has been a year of adjustments to pricing levels so that we can find the right level that will give us the right market share, the fair market share to ensure that we're growing and positioning ourselves competitively. So we've been doing that, and our rail operation has been responding accordingly with increasing volumes. Now let's take a look at the other portfolios, fertilizers, pulp, sugar, bauxite, they've all been growing at very consistent volumes, also increasing our system across volumes and margins and ensuring that our revenue is resilient and good diversification across all kinds of cargoes. Obviously, our main market is and will continue to be the grain market. Right now, as you can see in our market share charts shared by Saraiva, the corn market and corn exports from the Port of Santos has been less than historically, what has been putting additional pressure on our commercial structure. But these are circumstantial situations. We've dealt with them in the past, and we'll continue to deal with it by adjusting prices so as to ensure the best margin possible for our system. Obviously, price is a variable that is not under our control, but there are variables that are under control. One, capacity, and we have been proving that we have the capacity to operate as well as cost and fixed expenses discipline. As you can see, in an environment where volumes have been increasing, new operations have been coming and going up and running, we are healthy volume levels and increasing efficiency within the system. That's what a company such as ours has to do. Our improvements in -- our investments in improving assets and improving management has to, in the long run, be translated into structural -- lower structural unit costs so we can have healthy margins even in more volatile pricing situations. In the rail execution line, let me highlight our enhancement in safety, both rail safety and personal safety. In 2025, there's been a reduction in incident frequency, which is very closely related to the quality of management and discipline in execution. This is an ongoing journey. We will consistently continue to decrease frequency both in rail incidents and personal incidents. This is one of our values, and it's something we will continue to focus on increasingly more, but I am absolutely convinced that with our teams, both in the North and South operation, our organizational structure will make it even more robust and bring in even more quality in execution and a working environment that will continue to help us progress in reducing costs, increasing competitiveness and bringing in increasing more volumes to a safe system. And before we move on to the Q&A session, one last comment about our investments. As you've seen in Saraiva's presentation, our CapEx is in line with what we did last year. But more important than absolute figures, I just want to reassure you that we are keeping with our recurring CapEx, and we're doing the absolute necessary to have a robust and efficient operation. And our expansion CapEx is within the plan with the Mato Grosso rail works and requalifying also the Paulista Network and all the works at the Port of Santos to make sure that we are building the foundation for future growth and making sure that we are showing today the results that we will reach in the future. So in addition to CapEx, it all makes me confident that we are in line with our schedule and the figures that we had planned. Specifically for Mato Grosso rail next year, the BR-070 terminal will be going into operation. So this year, we have the first stage of this transformational and relevant project for the company and all the companies that we work with. So those are my opening remarks. And now we'll begin the Q&A session. Myself, Machado and Saraiva are here to take your questions. Thank you. Operator: [Operator Instructions] The first question is from Mr. Alberto Valerio from UBS. Alberto Valerio: The first question is what every investor wants to know. What is the company's pricing level? What can we expect for the next quarter, for next year? What is the competitive environment like? Do you think it's reached a sustainable level or not yet? Will there be further adjustments? And are you maintaining the guidance based on third quarter yields? If we see the same yields in the fourth quarter, things might be a bit challenging in terms of keeping the guidance. That's it for me. Pedro Palma: Thanks for the question. This is Pedro. Looking at the competitive scenario and based on my opening remarks, I think it's fair to say that the pricing scenario, especially considering the corn market will continue to be a bit more acid than we had planned. So looking at the current scenario in the fourth quarter to be objective, it is a bit more acid than it was in the third quarter. That said, I don't think that is material. Looking forward -- and let me touch on 2026. As Saraiva showed, the crop dynamics looks positive, different to 2025, where we went in without carryover inventory. And what we're seeing for 2026 will be a beginning of the year with higher volumes in the system, which should make the logistic pressure easier for next year. So I think the dynamics will be marginally better than we saw in 2025, thinking about the transition into 2026. Having said that, to be very transparent and objective, prices are not directly under our control. But what I do see is for 2026, we are beginning our commercial efforts for that journey at similar levels to what we have seen in the second quarter of 2025. And over time, as the market progresses, we will rebuild our pricing basis with more confidence in future prices and volumes. As for the guidance, obviously, we already have the numbers for the third quarter. There are challenges to execute on the fourth quarter volumes. The name of the game for us to conclude the year within the figures that we announced for the guidance will be totally related to executing on volumes, especially now in December and continuing to control costs and expenses. The challenge I see is that, honestly, there's still some uncertainty with regards to the volumes for exports, given that export volumes in December, sometimes clients prefer to execute them in January only based on international demand. So those volumes will have an impact on our numbers. But that said, we are confident that we will meet the guidance. We'll continue to work tirelessly to do so. I don't know if Gui would like to say anything, please feel free to jump in. Guilherme Lelis Machado: Yes. In terms of what we have been seeing in the fourth quarter, last Monday, we announced that October was an exceptional month for us. After May and August, it was our new record, and we'd have to repeat the same thing because our investments have been translated into absorbing capacity fluctuations in the market. November looks like will be a strong month in terms of volumes. As Pedro said, the uncertainty will be mainly concentrated in December. We imagine there will still be major volumes. If we have a healthy demand environment, especially considering the high product availability we have in land, rail will be ready to capture that demand, especially considering our performance in the third quarter and beginning of the fourth quarter. So our focus will be to continue executing sharply in terms of our operations, which is what has been happening and managing costs and expenses as we have been doing. So having said that, obviously, we should be delivering close to the midpoint of the guidance in terms of volumes. Our CapEx is solid and under control. And in terms of EBITDA, if we have a good risk balance in the fourth quarter, we should be able to meet the guidance close to the mid-low point and our efforts will all be towards executing on that at the end of the year. Operator: The next question is from Mr. [ Matteos Santana ] from Bradesco BBI. Unknown Analyst: Could you talk a bit more about corn? Looking at the figures, especially year-on-year in terms of exports, we see that volumes have been very low so far. So there wasn't a lot of corn transported in October. What do you expect for the fourth quarter? Do you think there will be more volumes? Or should we wait for the beginning of the year, January and February, where you'll be focusing more on corn exports? Pedro Palma: Matteos, this is Pedro. As I said in my previous answer, we do see a corn carryover -- a high carryover inventory for corn. Historically, the corn carryover inventory from 1 year to the next, let's just take a look at an example in Mato Grosso. It's about 5 million tonnes. If we look at a snapshot of today, in fact, if we look at October to November, there was a possibility of a 15 million tonne carryover inventory instead of 5 million. So there's an increase in the carryover inventory this crop year was 10 million tonnes. Now what will be exported additionally in December or what will only be exported at the beginning of next year. That's the question mark in the system. And it depends on international demand, and it also depends on the negotiations between producers and traders. So that's the uncertainty I mentioned and Gui mentioned with regards to December figures. How much of that corn will be available for export. What I can say is that we are fully able to transport whatever volume is available. As we have shown in previous months, we do have the capacity, and we are ready for higher volumes than we have transported in the last few months. So -- we're just waiting to see what those volumes will be. So even if we have higher volumes in December, the beginning of next year, in my opinion, we'll be seeing more corn to be transported than we saw in 2025 because the carryover inventory that we see right now by itself cannot be transported in December alone. Felipe Saraiva: Pedro, this is Felipe. In addition to the corn carryover inventory, soybean planting was early this crop year when compared to other crop year. So we'll have higher corn carryover inventories when we move into next year. So that volume might be transported depending on the international demand for that corn, but we'll also have an early soybean harvest because the soybean was planted earlier. So there should be a higher demand for logistics than we saw at the beginning of 2025 when soybean harvest was later. So biomass in general is looking more favorable in terms of logistics in Mato Grosso specifically. Operator: The next question is from Mr. Pedro Bruno from XP. Pedro Bruno: You mentioned your cost discipline. If I could touch on that, please, to understand, especially looking at SG&A plus fixed costs, the consolidated line. You gave us some numbers that don't really give us a lot of visibility. You talk about other operation costs, which I think is the more positive line in terms of how costs progress. It's maintenance, third-party services, security, facilities and others. There was a significant fluctuation, close to BRL 70 million year-on-year, depending on the window, but it looks like that line was highly efficient. But in general terms on fixed costs and SG&A, if you could give us a bit more color on what kind of initiatives we're talking about and what's been responsible for that efficiency? And if there is a trade-off among those initiatives or if there's something you had already planned on capturing. Guilherme Lelis Machado: Pedro, thanks for joining us, and thanks for the question. Yes. what we've been noticing in terms of reduction. And we started working on that since last year, and it's been translating into positive results this year. Throughout our journey and the company has had major projects and initiatives that have required an expansion of our structure. And we believe we have reached an adequate level. So from now on, we will be optimizing things and operating efficiently, always taking care of the company's operational leverage, which is what we do, maximize volume and decreasing unit costs. But what we have been doing is optimizing our structure our occupation, our capacity use because right now, we're at the right structure level. So we have been optimizing our personnel, simplifying processes and rationalizing company initiatives to prioritize those that create value and add to the company's core business. We have been managing inventory very efficiently and working on losses and compensation so that we can avoid losses. We don't want that to be a detractor to our overall structure. So there isn't one specific thing that's been leading to those gains, but -- there are several initiatives and many things the company has been doing that have helped us converge towards those efficient levels. So that's what we've been doing to optimize our cost and expenses this year. Operator: The next question is from Mr. Rogério Araúj from Bank of America. Rogério Araújo: My question is about your liability negotiation and the renewal of the South and West networks. Could you update us on those processes? What are the next steps? And we had the BRL 55 million loss of profit insurance proceeds. And I think the structure was also damaged due to force majeure because of the rains. Are you negotiating anything to that end in the South network? If you could give us more color on that, that would be very helpful. Guilherme Lelis Machado: This is -- Rogério. Thank you for the questions. I'll start by the end of your question. In terms of compensation for the South network claims, they should come to an end now. We recognize those in the second and third quarter. So that was all we had in terms of compensation. The team worked very closely to the insurance companies, and we were able to resolve those issues very swiftly within the regulation. In terms of other occurrences, we are complying with the regulation. There should be something else happened. We will announce that to the market, but there's nothing material to share at the moment. In terms of the South and West networks, there is no news for this half of the year. In the renewal and end of concession of the South network, let's remember that there was a working group with the company, the ministry and the regulatory agency. Those activities have been concluded. So we're not just waiting for the conclusions to be announced. In the South network, we do have the potential and the company is interested in continuing to operate it in a model that is financially feasible for us. Discussions will be ongoing with the stakeholders, and we'll be looking into different alternatives. And as things progress, we will be informing the market. There's nothing to announce for the time being, but this discussion should be taking place over the next few months. Let me remind you that the South network will be concluded in February 2027. So we still have a ways to go with these stakeholders. As for the West network, we do have an event in the short term, halfway through next year, June 2026. That's when the contract will come to an end. We've made it very clear so far in light of the fact that there has been no volumes transported in that operation. So there's no significant revenues or investments coming from there. So we should be giving that asset back to the government and then we'll assess the reconciliation in the assets and liability balance sheet for that operation. Discussions with the government are amicable. So now we just need to decide on the best design for that negotiation. We will let you know as things progress. Operator: The next question is from Mr. Daniel Gasparete from Itaú BBA. Daniel Gasparete: Touching on what Guilherme said about volume and unit cost. How are you coming to your tariffs for 2026, its competitiveness considering a scenario where things might be slower, given the pressure on the margin. What about the carryover of your tariffs from '25 to '26? I know you have the guidance, but if you could tell us a bit more on that dynamics. And also, how do fluctuations in tariffs affect your perception of CapEx investment projects and the projects for this year? Pedro Palma: Daniel, this is Pedro. Let me take your question. Well, let me start by the end to your point about our investment plans. Obviously, when we look at our CapEx execution and our expansion project, we need to calibrate those based on expectations of profit and the investments that are being made. I think the main point when we look at tariffs and when we look at the future interest rates, if we were to conduct a financial assessment of our investments, looking at our expansion plans, you have to have an expansion of volumes, competitiveness and pricing that you get from that structure. And often, investments can help you stabilize pricing. So pragmatically speaking, our journey in the rail system for both operations, especially in the North operation, pricing has never been linear because -- given any moment, when you go into any year and a specific year, there is an effect of the fluctuation of exports, crop failures. There are one-off circumstantial events that can change the pricing ratio within a semester, a year, a crop. But if we look at how our pricing has progressed over the years, you will see that pricing levels have been normalized and the tendency and our thesis that has been confirmed year over the year is that the world needs agricultural commodities and the best region to produce and export those is Brazil and the best region in Brazil for that starts in the Brazilian Midwest, and we want to be the best logistics company with the best structure with the lowest cost to be the best export solution. So to address a point that might not be exactly what you asked, but to give you more granularity, right now, we're fine-tuning our business plan for Stage 2 of our rail expansion project in Mato Grosso in light of the fact that we're moving towards concluding Stage 1. Next year, we will be delivering the BR-070 terminal as we had announced. So now coming into the new year, we'll be fine-tuning CapEx and what we expect from the next stages for the project in light of what's happening in terms of competition and what we expect looking forward. What I can share with you right now, this is not a decision that has been made because the Executive Board is still looking into things to then discuss it with the Board is that we're very constructive about how demand will grow in our markets and competitiveness and our structural profitability coming from investments that we can make. But obviously, we'll look into things stage by stage. We won't be making any dogmatic investments. Our investments are always based on an in-depth assessment of what the market has to offer in terms of demand, expected profitability and our ability to absorb those results and to seek fair share for our operations. Unknown Executive: Another important point is that throughout this journey and considering the tariff dynamics, we've had a very healthy journey after we went through that repositioning, like Pedro said during his presentation, that's taken place over the last few years. So obviously, in 2025, the level of our tariffs how we've traded our capacity. This is a very healthy level. There's been no value disruption. The company margins are still very solid and very healthy. In terms of investments, just to add to what Pedro said, we need to bear in mind that we are sensitive to the company's cash consumption. So all of our investment plans have to be assessed in light of cash generation. We're not going to put the company under any financial stress that is incompatible or that will take us to levels of debt that don't make sense. Also given that there's a persisting high level of interest rates. So we will be calibrating that as we look into market dynamics and making sure that we preserve the company's health. Daniel Gasparete: That was a very clear answer. If you could just touch on the first part of my question, which was about the carryover from '25 to '26 and maximizing volumes and minimizing unit costs. Do you think the trading cycle will be as slow as it was in '25? Unknown Executive: Yes, there will be a degree of carryover into '26 from '25, as I said in my answer to a different question. If we look at the baseline for '26, we're talking about similar pricing levels to the second half of '25. And carryover inventory volumes, good crops obviously put pressure on the system. But as we have shown in the past, we are totally able to increase prices if market opportunities arise. That's what we did from '22 to '24. We increased prices by more than 60% during that period, just as we repositioned it in the recent past in 2025 to make sure that we were capturing volumes as we have reiterated at very healthy margins, given that our pricing levels are very healthy going from '24 into '25. But to be objective, the baseline for '26 is what we had in the second half of '25. We'll have to wait for the market to operate and pressure levels. And in '26, we should be able to capture price recovery along the year. Operator: The next question is from Ms. Julia Rizzo from Morgan Stanley. Julia Rizzo: Can you hear me okay? I have a question about your tariffs, your competitive yield. I think you mentioned that in your institutional presentation in the third quarter, showing that the tariffs at the Rondonópolis terminal was very close to the market. You said it was the next best alternative and Rumo's nominal yield was 246 and the market was 244. What was that like in the third quarter? I just want to understand where the market is going and if what we're seeing now is a reflex if you have already reached market levels. What got my attention was the drop in tariffs and the loss of share. So my next question is what would be a fair or sustainable share for the company this year? We still have a quarter to go and good volumes to deliver, hopefully, and for next year. Unknown Executive: Julia, Thank you for the question. The company right now is operating considering alternative costs considering the regions we operate in Mato Grosso. Let me remind you that the rail volume captures volumes from across the state. And for each region of the state, alternative costs are different. Looking at the portfolio average, we're very close, slightly below the alternative costs to our clients. So looking at the price reduction we saw in the third quarter this year, there are two elements to it. First, price repositioning in the grains portfolio because we want to bring rail to a competitive level and to make sure that we are positioned as the best logistics solution to our clients and the effect of the mix in our portfolio with lower unit cost than the grains portfolio. So obviously, all of that leads to around 7% decrease in the tariffs this quarter. Now looking forward, we will continue to maintain rail as the best alternative to our clients. And that's the strategy we've been implementing for 2026. And market share is a consequence of that positioning and market dynamics. It's not a goal for the company. What the company is pursuing is to have a competitive tariff so as to make sure that we are using the rail system to full capacity. Now looking at the export market for Mato Grosso, we want to operate at about 40%, depending on the quarter, slightly below or slightly above, maybe close to 45%. That's the range we expect the market share to operate in. But again, to remind you, the market share is a result of exports and the rail operation. If the market is at a normal level, then we imagine that we'll be operating at about 40% in our grain portfolio in Mato Grosso. And as I said in my presentation, rail -- we'll be making sure that rail is the absolute best solution at the Port of Santos. We've been doing that at the Port of Santos and the Mato Grosso operation was just slightly below last year's, but very similar to 2023 when the market -- the export market was more similar to the current market. Julia Rizzo: Could you give me some reference in terms of reals per ton at the Rondonópolis terminal? Just so we have an idea of where the market is at and what the company is executing. Unknown Executive: We were very close, Julia. It's around BRL 230 per tonne in Rondonópolis. Some months, it's slightly above that. Some months, it's slightly below that. It's not linear. But right now, we're operating very close to competitive prices at that terminal. Operator: The next question is from Mr. Filipe Nielsen from Citi. Filipe Ferreira Nielsen: Most of my questions have been answered. If I could just touch on a point that hasn't been addressed yet. All those changes and discussions taking place at Cosan, Rumo's controlling company. There have been changes in the Board, management, new shareholders coming in. What have been the first conversations with the new shareholders and the controlling companies stance? Do you know what the strategy is going to be like and how strategies are thinking and how that fits with how you think, both in terms of pricing strategy and projects? Pedro Palma: Filipe, this is Pedro. Thank you for your question. Well, first point, we think it's very healthy that the controlling company be healthy, the Cosan Group be healthy. So with BTG coming in to Cosan's controlling share with Rubens. Rubens keeping the controlling stake in the structure is welcome news and very healthy for Rumo as well. Obviously, the 2 new shareholders have joined the company because they see value in Cosan Group and its portfolio, and they are bringing additional types of expertise, both BTG based on their historical experience and professionals. Their track record is amazing. And I'm absolutely certain that they will make huge contributions to the progress of the Cosan Group, and Rumo is no exception to that. Conversations have been very transparent. They're very incipient because the conclusion of that transaction, the election of the new members of the Board at Rumo only just happened at the end of last week. But what I can say is that preliminary discussions and conversations have been very positive. So we'll be discussing things together and working together on the next steps so that we have an increasingly better and more robust company. Talking specifically about Rumo, no one has any question about the rail asset in the logistic infrastructure and the role that Rumo can play in the markets it operates in. Everybody wants for this company to continue to grow and be better. So I'm sure Rumo's team, I can speak for myself and the whole team that everyone is very happy with the change in shareholders at the Cosan level. And with this new stage beginning now. Operator: This concludes the question-and-answer session. I would like to turn it over to Mr. Guilherme Machado for his closing remarks. Guilherme Lelis Machado: Well, thank you for joining us. And let me just conclude by saying a few things. I don't want to be repetitive and say the same things Pedro said in his opening presentation and everything we said during the Q&A session. The company has been delivering a very solid operational execution month after month. We have been attracting volumes to our operation after the beginning of the year when we realized and were able to swiftly adjust our commercial dynamics to recover the fair share and market share. This has been a very healthy and positive dynamics in our operation. And our projects will continue in line with what we've got planned for the year and delivering on the relevant projects for the company, such as the first stage of the Mato Grosso rail and all the other commitments to do with modernizing, creating capacity at the company, both at the Paulista Network and any other fronts we work on. Safety and operating efficiency are not only our priorities, but almost an obsession. And they have been translated into practical results. You've been able to see both in terms of incident frequency rate, as Pedro said, as well as capturing efficiencies, especially energy efficiencies as we have been sharing with you through our figures. The company's financial position is very solid, especially considering the high interest rates. We've been able to issue and restructure our debt very creatively, very efficiently. So our maturities are well balanced. The cost of capital is also very healthy. So having said all that, our focus for the end of the year will be on delivering results, and we have been making adjustments according to what the market presents us with. We're highly focused on delivering on our commitments. And we are aware that there will be higher risks in the fourth quarter. But in financial and operational terms, we know that the company is pretty ready to absorb those, but we are already looking into 2026, and we're paving the way towards positive execution, delivering value to the company and our shareholders. That is Rumo's objective, and that is how we have been facing challenges. We are fully dedicated to making sure that in 2025, we deliver a solid year. Thank you all for joining us, and we'll see you at the next earnings release call. Thank you. Operator: Rumo's Third Quarter 2025 conference call is now concluded. Thank you for joining us, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Hendrik du Toit: Good morning, ladies and gentlemen. Welcome to the Ninety One interim results presentation for the half year to 30 September 2025. I will highlight the key numbers before moving to the business review. Kim McFarland, our Finance Director, will then present the financial review. I will then update you on recent developments and conclude before we take questions. Those of you participating through the webcast can submit questions during the presentations via the chat function at the bottom of your screen. Assets under management rose more than 19% over the past year. Flows turned around strongly. We recorded net inflows of GBP 4.3 billion for this half year, resulting in adjusted earnings per share growing by 15%. This net inflow number consists of GBP 2.4 billion of organic inflows and GBP 1.9 billion that came from the Sanlam U.K. transaction. The dividend per share increased to 6p per share and operating margins expanded to 32.1%. Staff shareholding grew to 32.7%. The people of Ninety One are fully aligned with all our other shareholders. I'm delighted to report that our business is growing again, in terms of revenues, earnings and assets under management. This is supported by investment returns and a significant turnaround in net inflows. We are sticking to our core strategy and investing in our existing growth drivers, while selectively backing new growth initiatives across our ecosystem. Investment performance remains competitive. The Sanlam relationship is delivering, and Ninety One is poised for further growth. We always show the long-term track record of Ninety One to remind everyone that we are about growth over time and not growth all the time. The business has been built over many years in a patient and predominantly organic way. Markets have been supportive of late, but we are clear that sustaining growth over time takes focus, rigorous execution, discipline and belief. We remain committed to our people-centric, capital-light and technology and AI-enabled business model. Market conditions have improved over the reporting period. The panic that followed Liberation Day is now history, and animal spirits are back supporting overall equity market levels. More interestingly, we are observing a new openness to diversification of institutional portfolios, which includes interest in emerging markets. This interest seems to be driven by the desire to diversify geographically as well as a recovery in relative returns. Given the high concentration levels in indices, we are also witnessing a renewed interest in active strategies. A little over 1 year ago, I reported to you in a world in which active long-only and emerging markets across the capital structure would deeply out of favor. Therefore, Ninety One was experiencing a third consecutive year of hostile business conditions. I'm delighted to report that these conditions have improved substantially over the past year. Despite the strong performance from emerging markets and the rise in financial asset prices generally, we are some way off historic levels of demand at this stage. As mentioned at the end of the previous reporting period, our industry continues to be extremely competitive. Clients are setting high standards and continue to be price sensitive. Fee pressure remains a challenge. It goes without saying that Ninety One is exposed to market levels and how financial assets are priced. A sharp decline in markets will affect revenue generation and new business volumes. More generally, the Internet era is being replaced by the AI era. This touches every industry, including our own. At Ninety One, we are embracing this and look forward to reporting progress in more detail in due course. In summary, conditions have improved, while competition remains relentless in this industry. Equity markets have done well over the past 3 years with headline indices close to doubling. Over the past 6 months, our clients continued to benefit from strong performance. Emerging markets in general have outperformed developed markets and the strength in South Africa further contributed to our assets under management and driving these through the threshold of GBP 150 billion and $200 million, respectively. In fixed income, we have also seen positive returns, even though developed market bonds have had a tough time. Ironically, this is where most of the inflows in our industry have been over the past few years. Emerging market bonds are doing much better, and we expect demand to grow in this space. This is an area in which Ninety One is one of the market leaders. Since our listing, investors showed little interest in emerging markets. We're now seeing a decline in the active outflows in equities and an improvement in the environment for specifically active equities. For the second half year in a row, we're seeing positive active fixed income inflows. But as you can see, we are still well below the long-term demand levels for emerging markets. Judged by recent client engagements, we expect demand to pick up in due course. This assumes a world in which risk assets remain attractive. The outflows that have been with us from 2022 have started to reverse in the second half of the 2025 financial year, and inflows have now accelerated into the first half of the 2026 financial year. In addition, we have added GBP 1.9 billion of Sanlam U.K. assets with the completion of the acquisition of Sanlam U.K. We also benefited from the strongest year since 2020 in terms of market and portfolio growth. We are mindful of the fact that markets do not usually go up in a straight line, and we remain vigilant on the cost front. These slides show organic net flows, excluding the Sanlam take on. We had substantial equity inflows largely in our competitive global equity offerings, and positive flow in all asset classes, except multi-asset. This related to our own performance and general client demand. We have addressed the situation by bringing in new leadership and renewed focus on the multi-asset part of our business. The majority of our client groups were positive for the half year given the pipeline. And given the pipeline, I'm hopeful that U.K. will show positive results for the full year and that South Africa will return to positive net flows for the second half as well. Investment performance has been solid over the period, and we can compete in the areas where we need to compete for net inflows. As always, a few strategies have done outstandingly well while there are also laggards. Overall, we have a competitive offering, which has the potential to generate ongoing net inflows and meet the high standards of our clients. I now hand over to Kim McFarland, our Finance Director, to take you through the financial results. Thanks, Kim. Kim McFarland: Thank you, Hendrik. I'm here to present a set of strong financial results for the period ended 30 September 2025. I would like to highlight that our core operating business has again produced a solid outcome. Management fees and adjusted operating expenses both increased by 3%, resulting in the core business recurring results increasing by 2% on the prior period to GBP 82 million. Management fees were at GBP 290.7 million. This is as a result of the increase in average AUM from GBP 126.7 billion to GBP 139.7 billion, alongside a decline in the average management fee rate to 41.5 bps. More on this later, but worth noting that the increased closing AUM positions Ninety One's revenues well for the next 6 months. Adjusted operating expenses of GBP 208.7 million includes the interest expense on the lease liabilities for our office premises and the full bonus accruals. It does exclude nonoperating costs. The business produced an adjusted operating profit of GBP 98.8 million, up 12% from the prior period. This increase is predominantly as a result of higher performance fees of GBP 4 million. Other income is negligible and there's mainly a number of fair value adjustments on seed investments. There were FX losses as a result of the stronger GBP to USD in the period. So the adjusted operating profit margin increased from 30.5% to 32.1%. And at the finals for 2025, we reported an adjusted operating profit margin of 31.2%. So let me explain further the decline in the average management fee rate. This is calculated as a monthly average and over the 6-month period has shown a slow decline. However, there was a market fall at the end of H1 2026, which we have analyzed. During the period, daily average AUM upon which the management fees are generated, consistently lagged monthly average AUM upon which the average management fee rate is calculated due to the manner in which markets moved markedly during the period. And this effectively overstated the average management fee rate decline by an estimate 0.8 bps. Calculated on a daily averaging basis, the actual daily average rate is closer to 42.3 bps. So closer to a fall in 1 bp over the 6-month period, which is higher than our historic guidance. There were further factors that are impacted on the fee rate in the period, which were a significant AUM increase in lower-than-average fee rate clients. The Sanlam U.K. take on being an example, although this impact was small. However, the take on of large mandates at lower-than-average fee rates has and will have a material impact on our management fee rate, an AUM decrease for higher than average fee rate clients. The U.K. OEIC being an example, and this would have had an estimate 0.5 bp negative impact. And at the same time, there were some downward fee adjustments for existing clients who generally compensated with additional assets. Ninety One's profit before tax after considering the list of nonoperating adjustments, adjusting net -- adjusted net interest income, the small share scheme, net expense, corporate-related professional fees and now the amortization of the intangible asset as a result of the U.K. Sanlam transaction increased by 10% to GBP 102.2 million. At the interim, the share scheme is generally a net expense. And this is largely reflecting the amortization impact from prior year credits where staff bonuses were allocated to Ninety One shares. At the year-end, we have a better understanding of the share scheme and the allocation of annual staff bonuses to Ninety One shares. Remember, we fully expensed the bonus payments within adjusted operating expenses, irrespective of how settled. IFRS requires the amortization of bonus-related share awards over 4 years, which is then included in the share scheme expense. The effective tax rate for the year was 25%, down from 26.3% in the prior period, and this was driven by higher earnings in lower tax jurisdictions. And in the prior period, there were a larger number of nondeductible expenses. So the above factors resulted in a profit after tax of GBP 76.7 million, up 11% from the prior period. And our adjusted EPS shows a 15% increase to 8.4p, more than the increase of adjusted operating profit of 12% due to the lower effective tax rate on the adjusted operating profit and a lower number of ordinary shares for the calculation of adjusted EPS. So this analysis summarizes the absolute movement in adjusted operating profit from H1 2025 to H1 2026. It clearly shows that management fees, performance fees and other income increased. These increases were partially offset by the increase in employee remuneration, but noting business expenses were actually lower by GBP 2.7 million than the prior period. This is the analysis of the movement in adjusted operating expenses. Adjusted operating expenses increased by 3% to GBP 208.7 million. Employee remuneration represented 64% of the total expense base. In the prior period, it was 62%, and increased by GBP 9.5 million to GBP 134.1 million. This was driven by an increase in fixed remuneration consistent with the increase in head count and annual inflation increases as well as an increase in variable remuneration in line with increased adjusted operating profit. Over 50% of employee remuneration remains variable and the resulting compensation ratio was 43.6%, up from 42.9% in the prior period. Business expenses decreased by 3% to GBP 74.6 million. We began to analyze the cost changes, at a high level, we've broken this down -- the movement down as follows: inflation-linked increases of GBP 1.4 million for those costs that are impacted by inflation. FX-linked impact was negative GBP 2 million. And there's been a pickup in technology spend of GBP 1.7 million, with other costs then decreasing by GBP 2.8 million. Technology now is the largest business expense. Previously, it was third-party administration. Looking ahead, we're expecting business expenses to be impacted by inflation, ongoing technology spend and the move into the new offices in Cape Town planned for January 2026. Post the Sanlam integration in South Africa, there will be a cost impact, which will be predominantly headcount driven. So increases to employee remuneration as well as the resulting general operating costs. This is showing the business expenses and total expenses as a percentage of average AUM in basis points over a 5.5-year period. The adjusted operating profit margin over the period is also reflected here. Irrespective of the movement in AUM, business expenses have marginally decreased over the period, even noting the continual investments in our core technology system. Total expenses as a percentage of average AUM hav,e, in fact, declined aided by the growth in the denominator. The adjusted operating profit margin has remained in the range of 31% to 35%, reflecting ongoing cost management with the underlying AUM growth. Ninety One's qualifying capital was GBP 316.3 million at the end of September 2025. In line with our dividend policy, the Board has proposed an interim dividend of 6p, this is an increase of 11%. After this dividend payment, there will be an estimated capital surplus of GBP 155.3 million. This will result in a capital coverage of 245%. During the period, we continued with our buybacks, and this resulted in another return of capital of GBP 20.4 million and a reduction of 14.1 million shares. We did, however, issued GBP 13.7 million of plc shares for the U.K. Sanlam transaction in the period. In line with our capital-light model, since listing over 5.5 years ago, we have returned close to 60% of our initial market capitalization to shareholders. So a few updates regarding the Sanlam transaction. All regulatory approvals have now been secured. The U.K. transaction completed on the 16th of June 2025, with the result of GBP 1.9 billion of AUM on boarded and Ninety One plc issuing 13.7 million shares. It's planned for the SA transaction to be completed by the end of the financial year, which results in expected total onboarded AUM of circa GBP 17 billion and revenue in line with what we previously reported. An additional 112 million shares will be issued when the SA transaction closes. Now reviewing the position for H1 2026. The adjusted EPS and operating margin were accretive. There was a slight dilution on the average fee rate, which I mentioned earlier. And also, as previously mentioned, we will be waiting the shares issued to Sanlam for the determination of the adjusted EPS for the interim and then for the final 2026 results. For the interest, this looks as follows. So shares in issue, excluding Sanlam U.K. is GBP 882.7 million, weighting of shares issued for the Sanlam U.K. is 13.7 million times by 107, the days since the transaction in the period, divided by 183, so the days in the total period, which gives you 8 million shares. So shares in issue for adjusted EPS calculation is 890.7 million. The actual number of shares and issue at end of September 2025 was 896.4 million. The intangible assets arising on the balance sheet for the Sanlam transaction will be amortized over 15 years. To note, this is tax deductible in the U.K. but not in South Africa. And so on that final technical point, I will now hand you back to Hendrik. Hendrik du Toit: Thank you, Kim. At Ninety One, we think long term and our commitment to our strategic pillars do not preclude us from constant improvement and development of our firm. Over the period, we've continued to invest in talent. We've broadened the top leadership team and evolved accountability throughout our firm. We ensured that our 3 core opportunities international public markets, Southern Africa and private markets are adequately resourced to compete effectively as market-facing units, supported by our 3 pillars of investments, client group and operations. And so as we go into the second half of the year, we have formed a dedicated international public markets team, which can focus on the commercial opportunity for a recovery in demand for active investment management especially in international and emerging market strategies. We have a focused and strong Southern African team to take a market-leading business to an entirely new level. Finally, we've reinforced our private markets team with fresh talent and additional senior leadership and asked them to accelerate progress in this growth market. We are backing new growth opportunities out of the recently established Ninety One Foundry. These include in-region presence and partnerships in key emerging markets, allowing us to become domestic competitors in certain regions and deepen our investment insight in these fast-evolving markets. For example, we opened 2 offices in the Middle East in the previous reporting period. We have now put additional resources in, and we are building an on-the-ground domestic business in the Kingdom of Saudi Arabia, which includes a strong investment presence. In Asia, we're developing an exciting joint venture with a Singapore-based alternative investment firm with deep experience and relationships in the region and in particularly China. This will strengthen our investment capabilities in the region as well as positioning us to compete more effectively for capital flowing out of the region. We have established a digital finance unit with dedicated leadership to provide clients in certain markets with a far better experience than they traditionally have received from asset management firms. We've committed substantial resources to AI-related innovation which we will update you on further at the end of the year. I must stress that these developments are fully expensed through the cost line and are not consuming significant additional capital. Over the reporting period, we've made meaningful progress on the technology front, which includes a major systems migration. Now that this has been fully completed, significant resources have been freed up for further enhancements and innovation. These are the additional 3 areas of growth we're pursuing, which we believe will impact the way we run our business in years to come. What we're really trying to do is from strong foundations, build the active investment manager of the future. To become the active manager of the future, AI is key. At Ninety One, we approach AI on 3 levels: advocate, equip and use. So this is how we rate ourselves. We see quite high levels of adoption, we see reasonable levels of experimentation given the widely available AI tools to all our staff members, sort of 6 out of 10. Then our people have embraced it, and we are working hard to get our proprietary data organized for the effective deployment of AI across the firm. The proof of the pudding is in the transformational impact of AI. We have much to do on this front. The business is stronger than it was in the previous reporting period, supported by better business conditions and recovering demand. We plan to improve and modernize our business through disciplined investments in and adjacent to our core activities and markets. Emerging markets and the search for diversification are coming back into favor, which supports us. Active investing has a role to play in this world particularly within emerging markets and in the global equity opportunity set. The strategic clarity and simplicity of our business model enables us to seize the opportunity with pace and strength. In short, we see renewed opportunity for growth. Thank you very much. We can now move on to Q&A. We will take questions in the room first, and then will watch -- then we'll take questions from webcast viewers. [Operator Instructions] I think Angeliki, you had the hand up right in the beginning, so. Angeliki Bairaktari: This is Angeliki Bairaktari from JPMorgan. So your flows were much stronger than the previous semester, GBP 2.4 billion. And we -- you say in your presentation that you feel that active is back. Can you perhaps give us a little bit more color with regards to where you see that strength coming from I think you had APAC, Middle East and also equities. But if you can just give us a little bit more color on the pipeline that you're seeing for the next 6 to 12 months where you see the strength coming from? And that's my first question. And then maybe on the management fee margin outlook. There's a lot of moving parts there, relative to my expectations, the management fee margin followed more. I think we still have some dilutive impact to come from Sanlam once the further AUM gets onboarded on the platform. So how should we think about the run rate, management fee rate for next year perhaps? Hendrik du Toit: I think you've asked the real questions that we all need answers for. So I can give you color on what we see rather than a prediction, Angeliki. So firstly, the -- if I can go to the flow or the pipeline that we see. Firstly, the result is again emphasizing the strength of our diversity. We source capital from the same kind of client but in different regions around the world. They have slightly different perceptions on risk and on willingness to take risk at a point in time. And that's why we've seen equity up weightings from large clients in Asia. And that's really where we've seen it. In the rest of the world, particularly North America, where we've delivered some positive, we are seeing a significant search activity or investigating activity's about how to diversify's their portfolios. That flood's gate has not yet opened. We expect that given the sense that markets normalize over time, and we've come out of a long period of underperformance for the rest of the world relative to the U.S. And we know these things go into 10, 15-year cycles. There's a very good paper on our website about dollar cycles and dollar cycles and international investments seem to be highly correlated. You can go and read that. So -- but what we have seen in the last 6 months picking up from the previous 6 months, not the year ago, but the preceding half year is an intensity or intensification of client and search a client engagement and, call it, presearch engagement. What, of course, can change the flow picture is whether we, in this very competitive world win in the very final stage. I mean an example in the last 6 months, and it really hurts me to say it. But after eliminating all competitors, we came second for a sort of close to $5 billion mandate, one client that would have made this figure look a lot better. And so we are driven, and I think you should understand it Ninety One deals in the upper end of the institutional market. Small numbers of clients make a big difference. The fee on that depends on where they're already engaging with that client at scale, and therefore, the client gets a better deal and we price persistency as well. So clients that are persistent, and this is not price cutting, but clients that are persistent have proven themselves to be persistent over time, get a better deal than those who rent your capacity. And so sometimes, we would not do a deal, which we could do and create great inflows to make all of you happy because we know this client is a capacity renter. And they'll come for 3 years and then cause a problem for us when they go out again, whereas others deserve the respect of a value-for-money deal plus scale benefit. So it's very, very difficult to predict where we are. I think we still, with our underlying guidance of market fee pressure is around -- and I still think it's around the 1 where we are is 50% of our growth typically when we're in growth cycles is upweighting from existing clients, 50% is new. If those existing clients are the big ones, your fee goes lower, if they come from general market, mutual fund market, et cetera, your fees are a bit better. But I think over time, Ninety One is moving towards and increasingly institutional. So the breakdown in the addendum to the slide pack, the appendix where we show institutional versus adviser actually, we are trending towards a much more institutional business. And even in South Africa, where we have a strong advisory business, those advisory firms are getting bigger and bigger and behaving more like institutional multi-manager. So I think -- we're going through that lowering a fee process but hiring of what increasing of volume and therefore, increase operating margin but not necessarily on a fee basis. So I think the 1% we guide to is still the underlying fee compression in our industry. We might as of late, be hit by something a little more or less, but it depends. And it also depends on the growth of the alternatives business because that is a still and where I see the real fee pressure in our industry is actually on the alternatives business. I don't think the 2 and 20 models are going to hold because if clients look at their fee budgets, this is where. So what they're currently doing, just an interesting thing in private equity, private credit, et cetera. They pay the full fee, but then they do a deal on the side to co-invest for nothing. So what is the real effective fee of providing those services and your capabilities to a client for free. So I think about -- it would be a really interesting work -- a piece of work for you to do when you look at that side. So I think that's where the fee pressure is more than in ours, but we are preparing for a world where we have to be at least 1 basis point more efficient every year. And I can't tell you whether we're going to be at 40. Right now, I'll -- Kim, I think you've got the answer. We're running at a slightly higher fee level, maybe you can add here for me, then actually the number shown there. Kim McFarland: Yes. Well, I kind of explained that in my sort of daily -- I think I did that on the call this morning actually as well on the sort of daily, monthly factor. But I think you're sort of -- you're asking the question about looking ahead. And Hendrik is right, we are seeing pressure on the fees, both. You've got the standard 1 bp a year that we advise on. But when you're looking at both new mandates, but actually more so existing client mandates that are coming on board at lower rates and then giving us the asset to compensate. So hence, we're seeing the pickup in the AUM, but they are often negotiating at lower fee rates. So this is why we're definitely seeing more fee pressure. Hendrik du Toit: But for us, it is -- the value lies in embedding those relationships for the long term. And if you can do that, you have a higher-quality business. But what we're not doing is price-cutting to win volume. We don't going out there saying, "Hey, we're cheap". But this -- and I still believe, this market will settle down when nominal interest rates are on the rise again because actually, it's hard for a treasurer or someone to sign a check, when he earns it out of interest, it's easier. So I think there's a -- there is a link, which one day will prove statistically, but we can't give you an exact number now. The next step on the pipeline, we're seeing substantial opportunities against scale ones, so there won't be fee level enhancing ones, they'll probably be roughly where we are for the rest of the year that we should convert. What we don't know is where the unexpected redemptions or changes in strategy can happen with the client. And that's the problem when you deal with these large clients. They get a new CIO, they get staff changes and a new strategy comes in, you're being seen as okay, but not necessarily central to the strategy. So -- but I'm fairly comfortable that the visibility of the pipeline is better than it's been in recent reporting periods. Jonas Dohlen: Jonas Dohlen here from Deutsche Bank. Just one follow-up. Yes, just one follow-up on the fee margin. I was just wondering if that guidance now includes the Sanlam or if that's still on kind of the legacy assets on that 1 basis point... Hendrik du Toit: Sanlam is lower because it's a $20 billion deal. So it's lower, and it's largely fixed income assets. Jonas Dohlen: Yes. But on a group level, you expect 1 basis point... Hendrik du Toit: Yes, on an organic basis. So there's an organic basis and then there's the Sanlam transaction. And what I'm saying, the 1 basis point is the market pressure. If we were to ex Sanlam or if we were to get a big up weighting from a sovereign wealth fund where we already have a premium deal because they've got billions and billions with us, it's probably going to be below that fee level. If we win 500 million mandate chunks, it will be at or around or above that fee level. You see. So that's why I'm saying the market -- the institutional market pressure is roughly 100 basis -- or 100 basis points per year. The -- sorry, 1 basis point per year excuse me. 1 basis point per year. But the -- for us, Sanlam is a separate transaction and then obviously hugely accretive from a profitability point of view, and it depends then what kind of flow we get. Jonas Dohlen: Great. And then just on the tax rate as well. I think you mentioned... Hendrik du Toit: I don't understand... Jonas Dohlen: 25%. Kim McFarland: 25%. Correct. Jonas Dohlen: Being a reasonable number to go forward. I'm just wondering how to kind of square that circle. I mean you have a higher tax rate in South Africa, and that amortization part not being tax deductible as well? Kim McFarland: But we have tax in many other jurisdictions as well. So it's linking up the 2 of it. And -- you're right. When I'm looking at it, I'm looking for the next 6 months and the South African impact is only -- it's going to be in the results for a couple of months next year. I think looking ahead with the nondeductibility of the amortization piece, it will tick up a bit. Hendrik du Toit: Piers, you'll come back in new uniform. Piers Brown: Yes. Indeed, yes, it's Piers Brown from Investec. Hendrik du Toit: Very good. Piers Brown: So very happy about that. I might be greedy and actually, go for 3 questions. So the first one, yes, just back on to the fee rate conversations. So I guess, if you look at this from the perspective of the operating margin, you're -- I mean you printed 32%, which looks very good for the first half. If I take out the performance fees, you -- which I know is a slightly dubious calculation, but it looks like you're maybe sub-30%. But the question would be just on the fee rate outlook, do you think 30% is still the level you can protect? Hendrik du Toit: I think you have to compensate higher average assets under management, that compensates a bit because remember, the markets had a run close to the end, there was Liberation Day down than up. So your average AUM doesn't reflect your actual AUM. And you've got to look at where the sterling is strong or weak, which then deflates a big cost base. So I'm more comfortable than you. But you are right, there's -- the core revenues have not grown as much as they should have. So we don't run to a target actually. And therefore, it's not something we monitor daily. But I'm not at this stage, I'm comfortable that we're going to come back to you with a 25% operating margin, put it that way. Kim McFarland: I think that's too right. I think you've also got to recognize the fact that we're taking on the Sanlam assets, as I said, next year at a low cost. Hendrik du Toit: And I would remind everybody, we've bought I know we call the GBP 1.9 billion acquired growth, but we bought back those shares already. So if you think about it, it's just a mandate win, the big one is going to take a bit longer, but if we can do that, if we have the cash flows, then you know what, it's actually akin to an organic transaction. Piers Brown: Okay. Second one is just on the composition of flows. And sort of relating this into Sanlam, but I mean you've had GBP 1.3 billion of Africa outflows, offset by very strong inflows in Asia Pac. Is there anything in the Africa performance, which is maybe impacted by clients reallocating in advance of Sanlam or... Hendrik du Toit: No, no, it's not Sanlam. It's the -- South Africa is actually a very competitive market, and it's very transparent. When you know exactly what each competitor is doing and your cousin or your kid works at the competitor, you literally know what goes on. And so we had some performance pressure in 1 or 2 strategies, which didn't get -- the market goes quickly, moves quickly against you. We've had the back end of the so-called 2-pot system, which means money was released out of the pension system, where if you're a large provider, you have to suffer that. That is now gone. So that structural bit has left. And then, of course, there was the back end of the internationalization of the SA equity or SA investment market because the exchange controls were relaxed for international opportunities opened up for retirement funds. The Minister gave a big -- a few years -- 2 years ago, a big -- there was a big change in the -- what they call Regulation 28. And that means they could invest more. So there was a structural flow abroad. Typically, to new competitors rather than to someone already has a high wallet share with a client because it just makes sense for those clients. And actually, international passive was a big winner there where we don't compete. So I think those 2 forces are over, think on our investment side, we have all intends -- we intend to be very competitive, and we have recovered quite a lot in terms of competitiveness. So I think on all 3 factors, we're stronger in the second half than the first, but it is one of those markets where if you have a big share and you're not absolutely on top of it, the competitors come after you and we've got some very good competitors in that market. Piers Brown: Okay. Perfect. And just maybe a last one on capital. So 245% capital coverage ratio. I think you've sort of indicated 200% in the past is where you'd like to be. It doesn't feel like there's an awful lot of need for seed capital for some of the new initiatives. So the obvious question is, would you look to move closer to the [ 200% ]? Kim McFarland: We will -- I mean, as you noted, we've continued with buybacks in the actual period. We will continue to look for opportunities to use additional seed capital for buybacks when we're comfortable with the price, and obviously in agreement with the Board. Hendrik du Toit: If pricing is reasonable, we think reducing the denominator is always better than just paying out the cash. But we must look at where the market goes. And who knows, there may be opportunities. Any other questions? Investing definitely add value for money, you'll get your dividend. Varuni, are there any of online questions. Varuni Dharma: Yes. There are a few. First one is from Brian Thomas at Laurium Capital. Are you able to comment on the buyback program that was suspended during the half? Are there any metrics that you take into account in determining when you buy back stock that we should be mindful of? Hendrik du Toit: Before we answer that, there's -- Kim just reminds me, there is one thing in the Africa side. There was a 1 single client sort of -- and many clients pay out and eventually but reallocated away from us as well. So you should sort of have the impact of that number. And that's why I'm quite confident that it can turn around. Sorry, on the buyback, yes, we carefully -- we carefully look at value and value in the context of the industry and the context of what we see ahead because the one downside with buying back is if you overpay for your own stock. And therefore, it's always a consideration and a discussion with the Board. It's not an automatic buyback process. And -- but our industry has been so extremely -- I actually had benefit of last week in Paris when I went to watch the Rugby and I have to remind, I know the French listeners, it was a wonderful moment for South Africa and Paris. But in spite of referee against us, we're still -- but I actually went to watch the Rugby with someone who used to be one of the top financial analysts in the market about 25 years ago -- 20 years ago. And he's gone to private equity. He hadn't looked at valuations of asset managers. He was -- it's a bit like talking to someone who fell asleep 25 years ago because he was completely mind boggled by the relative valuation of asset managers against other financial firms particularly wealth today because in his time, it was exactly the opposite. We were the 20 multiple shops and the others were single digit. So I think broad -- and that reminded me again, that these cash flows, quality cash flows are still, in my opinion, or at least in our opinion, fairly cheap, which is why we have also been acquiring stock slowly and as a management team because we think the market is not appreciating the quality of the cash flows we generate. And so even though they don't -- may not grow as much organically there could be -- and there has been a re-rating of late. Now if the re-rating is too much, we will obviously step away. But our industry is still structurally very cheap compared to other cash flows of similar quality. I mean just close your eyes, 30%-plus operating margins is that's tech. Okay, what do you pay for tech? Palantir last when I looked at 185 PE multiple. So it's very different. And it's in that context that we think rather than in short 1 month, 1 week, 1 quarter valuation cycles. But there is a proper process, which Kim can talk to you about when she reports it again. Do you want to add something, Kim? Kim McFarland: Yes, that's fine. Hendrik du Toit: Any other questions? Varuni Dharma: Yes. Next question, Murray Winckler from Laurium again. Congratulations on returning to net inflows for the business. Headcount increased by 8%, which seems high. What should we expect going forward? Hendrik du Toit: Murray, well to done to you, by the way. You're one of those guys stealing business. We will have to come take it back. Just I mean that is one of the big questions. Can we get to a bigger -- a real efficiency for our business? That's about the digitization and the technology investment. But we should also remember that there was some preparation for -- although we're not taking on many people from Sanlam, there's a significant preparation for taking on a book of that size that -- and then there's also the improvement of our communication with end clients, which we had to invest in to make sure it's there. And again, technology over time will make that a lot easier but it was really important, and we've had challenges on -- with South Africa being on the gray list. We've had real challenges on dealing with our international funds into South Africa and our service capability had to just be much sharper, much better equipped to deal with it. And then we've also been building the private markets business, which is much more -- actually much more human intensive than certain public markets investment businesses. And that's about the reasons. I don't know Kim, are there any other ones that you pick up and you want to... Kim McFarland: I think that's right. I think the pickup in a lot of op staff on the IP platform in South Africa. Likewise, on the Sanlam. A lot of them are actually long-term contractors at this stage because I see it as a temporary thing. So I think the sort of more permanent headcount growth has been in private markets and within the actual business. So I think the question is what are we thinking about it looking forward? I'm not seeing an 8%. I wouldn't be looking at an 8% increase in headcount going forward, I think, would be my answer. Hendrik du Toit: And I think with a better use of technology, we could run the same quality service, leaner, that includes client acquisition, client service, investment processes, but it's very important to do these things very slowly over time. I'm not as bold as the big banks that say that they will run -- I mean, 2 of the big bank CEOs in Global Bank CEOs confirmed to me that they'll double their business over the next 5 years with the same staff levels. That has to be seen whether that's going to realize, but those are ambitious goals. I think we should have similar goals, but it's early stage saying it because the promise and the layer of technology is always there and then the delivery is slightly behind. And we've -- those of us who have worked in the markets a long time have realized that. But definitely don't budget for a 8% staff increase, Murray. That's not going to happen. Varuni Dharma: Next question from Jaime Gomes, Laurium Capital. Can you please explain the expected total onboarded AUM from Sanlam remaining the same as what it was this time last year, circa GBP 17 billion. Has the book experienced some outflows given the strong market performance over the last 12 months? Hendrik du Toit: The book is roughly -- it's the same number. There might be a little benefit rand to sterling exchange. So it might be a little more in sterling. But remember, it's a very fixed income, heavy book. There are also -- there could be a few wins associated as well, but we first got to deliver them. So we're very comfortable that the numbers will reflect what we told the market at least. Varuni Dharma: Next question from Hubert Lam. Can you give us an update on the alternatives business and new initiatives, including private credit? And he has a second question, which is, how should we think about further investments you need to make in AI and tech and what that means for your cost base? Hendrik du Toit: Hubert, nice to get a question from you. I know you have another meeting, so you're not here in person. I would say that my simple answer is private markets are hard. And I'm so glad we didn't buy an overpriced boutique to grow, which then doesn't grow, okay? Because the top guys dominate they've got such a strangle hold. And so that's my one point. I think we found niches which we can live in and defend and grow. And what we have actually done is put some of our -- to make sure they get the full support of the firm, put some of our top leadership very close to the private markets guys and they support them to get through and we build it around and particularly around our emerging markets positioning. Now what we know is the emerging markets haven't had huge flows as such. We think there will be appetite and there will be appetite coming. We modest net inflow have been consistently in that space. But we are building through our cost line, and it's fully reflected in our cost line, we are building capability to be actually -- to be fully competitive in our various areas. And I think our focus is private credit. And private credit and transition credit, and that is very clear, and we have built a market name and position there. So we would expect accelerating flows to follow. But those businesses take -- will take a while to impact -- to truly impact on the bigger Ninety One bottom line. If you model us, model us largely as a long-only business, long-only active business because that's still very dominant in terms of revenues and flows. Kim McFarland: Cost. Hendrik du Toit: And yes, but private market is costly to build. It's high fee, but costly, whereas public markets could be done very efficiently with slightly lower fee, and that's the sort of trade-off between the businesses. But we do see the merger. And so the partnership we announced in the joint venture we announced with in -- with the Singapore based, which we are about to announce because we'll probably -- will probably sign in the next few days, and that's why we haven't been long on detail because anything still -- things have to be -- until they're fully signed, you don't want to talk too much. But there, we have -- we're talking to a business which does long short and crossover between public and private. Now I think these universes are getting closer, and one just has to make sure you understand what happens to the other side of the liquidity fence rather than just staying in the curated even if you want to be a very good long-only business staying in the highly curated screen-based long-only part of life. You've actually got to get -- understand what entrepreneurs are doing and what's happening in the ever longer pre-IPO pipeline because we do know a lot more happens on that side of the fence now from venture right through to growth. And I think that's important for us. But as these things emerge, who knows what product constructs will look like, who knows what client appetite will look like. Clients today are still very organized in boxes between the so-called alternatives units, which is now quite frankly, mainstream and active long only, which is becoming increasingly alternative and passive. So they've got their different boxes. But as they start looking at the total portfolio approach, who knows how they are going to buy and that's what we need to be prepared for. Kim McFarland: And I think the question on uptick in technology spend or AI spend, which was the other one, I think Hendrik mentioned the fact that our big technology replatforming exercise did complete early this year. So those costs are now -- and the ongoing cost of that are actually largely built into our figures. AI has largely been a part of our operating cost line. So the gain, how you should think about it is really a continuation of what our cost base is right now. Hendrik du Toit: Yes. And we absorb in what is available or what can be bought. We don't go to bleeding edge development. The big thing is getting your data organized. And I mean it's been with -- that data story has been with me ever since I've been in this firm. Everyone said we have to organize our data better. But you can get so much more value if you are properly digitized as digital middle business models are showing, it is not trivial and that easy. But as a midsized business, if we can't get it right, nobody can get it right. So -- but we're spending resource and effort on it to make sure we can extract maximum value given the enhancements of the available tools. And they are genuinely moving very fast. And I think 5 years from now, we will be in an entirely different world, and we need to be ready for it. Any other questions, Varuni? Varuni Dharma: Yes, a couple. We have a couple of questions on buybacks. The first one from James Slabbert from Standard Bank. There was a slide on the existing capital stack in the business, would it be aggressive to model for annual buybacks far in excess of earnings remaining after the payout of dividends. I think you've touched on that. But -- so by modeling for buybacks in excess of earnings. And then whilst we're on buybacks, a question from Keenon Choonoo from Investec. Is there a preference between Ninety One Limited or PLCs when considering buybacks? Kim McFarland: So we look at both the plc and the limited lines as far as buybacks are concerned. In fact, we look at even PLCs on the JSE line when we look at buybacks. So we look at all three because there sometimes is a variation in price. So we look at all 3 -- effectively 3 lines, although there's obviously 2 shares to answer that question. As far as buybacks to ceding earnings, we look at buybacks from a capital position. So we -- it comes back to the question asked earlier by peers, you aim for a 200% capital position. We're in excess of that. So I'm rather looking at my capital position, understanding, yes, is there any seed? Is there any regulatory requirements. As you mentioned, there's not an awful lot of that at the moment, but we take that into consideration and at the same time, then look at opportunities for buyback based on surplus capital that we're holding on the balance sheet. Hendrik du Toit: Yes. But we -- what we don't do is this is a highly operationally leveraged business. It will only be an extreme that we will leverage the business. You remember, this is what sticks out asset managers. They go on leverage and then they get the fall in assets under management. They get outflows and the debt stays the same and the equity gets wiped out. So we will be very, very careful to ever go beyond what we can do out of our ongoing earnings or surplus capital. Some other industries, people get very brave. I think, yes, this is probably one of the reasons why we haven't bought the firm from the market yet, okay, because you don't leverage these businesses. . Varuni Dharma: Another question from James Slabbert for clarity on the 1 basis point fee margin compression. Would you apply that to the current fee rates that H1 2026 or the FY '25, so the year-end? Hendrik du Toit: I think we've already done this year, we've already done it. I mean we doubled it. So we think we could have a -- we're not 100% sure, but we could have a far lower decline in the second half, just given what's happened in flow dynamics, excluding the Sanlam. But -- and it's really a gut feel here. But that 100 basis points feels like the underlying trend in the market, not necessarily ours. And James, I wish we can't even forecast it to our Board where we're going to be -- it's very -- you've got a very hard job at doing that. I don't know whether Kim can give you any more wisdom except to say the trend is not up. Kim McFarland: Well, I think you're right. I think you're going to look at the most recent fee rate. And if it's in the half year, so you're taking half or 0.5 based on the most recent fee rate, but then you have to take into consideration, as we mentioned, the Sanlam assets coming on board, which will have a further impact and should we take on any large new mandates in the period. If we see those flows, there's likely to be further fee erosion, hopefully not, but there's likelihood. Hendrik du Toit: You see -- especially when you do the relationship deals, with a large insurance company or something like that. And they are genuinely sensitive because it hits their profit, but they can give you assurance about commitment, timing, i.e., embedded value or present value of the deal, that's different from when you get in the normal distributed pension market OCIOs most -- many of them are in -- or multi managers are different because you're not going to compete on price there at all. So it depends where the flow comes from. What we haven't seen, and I think that's the bit you should understand. We haven't seen the sort of -- I've hinted that there are opportunities to grow. But the good times aren't back yet. When you get into the good times and clients want to deploy fast and -- they just want to get the money out there. Then price sensitivity tends to take a backseat. At the moment, they have lots of time to deploy. They're thinking multiyear. They're not chasing markets. I think if you get up severe underperformance or you get -- and I don't think we're going to see it immediately, but if you get a big correction in the dollar, then that changes life. And that's the positive for us. But I don't want you to model that. Varuni Dharma: Last question from Herman [ Van Veltsa]. Do new clients favor fixed fees? Or do they tend to opt for performance fees? Hendrik du Toit: Herman, nice to hear from you again. Another old campaign. I wish clients wanted to give more performance fees because the way you could resolve this constant fee bickering and say, come on, pay us afterwards, pay us properly. But Interestingly, clients have typically been burned by performance fees because they end up paying more. And so they're reluctant to do that. They're also reluctant to go to the -- I mean, in mutual funds, where it's quite prevalent in South Africa, it's not actually encouraged in the rest of the world. ETFs are very difficult. You can't really do -- it's difficult to do, whereas institutional owners don't want to go and pay the big check and ask their Board to pay a large check to a manager unless it's in the alternative bucket. Now again, if those buckets fade and different kind of people contract with us, we could possibly push more performance fees. We think it's a way to align well, although buy-side analysts or sell-side analysts would say it's lower quality of earnings. But I think we could make more profit. They're very happy to do that when they buy Millennium or Citadel. But for some reason, there is a reluctance in our space because that's just what it is. So we would be quite open because we know, over time, 80% of our offerings beat the benchmark. So it's in our favor. But -- it's not the reality today. So I wouldn't model for much bigger performance fee component in our business. I'd roughly keep it similar, noting that a period of good performance, we will own more performance fees. Thank you very much. Thank you very much, and I'll see you after second half, and I hope the positive -- the positive hence, have realized, but it's up to the market. Thank you. Kim McFarland: Thank you. Hendrik du Toit: Thank you very much, guys.
Operator: Thank you for standing by, and welcome to Kodiak's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. I would now like to hand the call over to Lauren Harper, Kodiak's Chief of Staff. Please go ahead. Lauren Harper: Thank you, and welcome, everyone, to Kodiak's Third Quarter 2025 Earnings Call. On the call today are Don Burnette, Founder and Chief Executive Officer of Kodiak; and Surajit Datta, Chief Financial Officer of Kodiak. Our press release and an earnings presentation were issued earlier today and are posted on the Investor Relations section of our website. This call is being broadcast live via a webcast, and a replay will be available on our website after the call. Before we begin, I would like to remind you that during today's call, Kodiak will be making forward-looking statements within the meaning of the federal securities laws about financial performance and future events, including our guidance for fiscal fourth quarter and full fiscal year 2025, as well as our long-term goals. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statement made during this call that is not a statement of historical facts should be deemed to be a forward-looking statement. All forward-looking statements, including statements regarding our guidance for fiscal fourth quarter and full fiscal year 2025, our estimated total addressable market, our operational and product road map, our relationships with partners and suppliers, our ability to produce and deploy the Kodiak driver at scale, including the timing of launching driverless trucks for long-haul highway operations, our expansion plans and opportunities and our expectations regarding future business and financial performance, including future cash flows and our path to profitability, are based upon management's current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission. We disclaim any obligation, except as required by law, to update or revise any financial or operational projections or other forward-looking statements, whether because of new information, future events or otherwise. Any forward-looking statements made on this call speak only as of the date of this call. Further, in addition to discussing results that are calculated in accordance with generally accepted accounting principles, we may also refer to certain non-GAAP financial measures. For more detailed information on our non-GAAP financial disclosures, including reconciliations to most comparable GAAP measures, please refer to our earnings release, which can be found on our Investor Relations website. Our discussion today also includes references to forward-looking free cash flow. Such forward-looking financial measure is provided on a non-GAAP basis without a reconciliation to the most directly comparable GAAP measure due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. I will now turn the call over to Don. Please go ahead. Don Burnette: Thanks, Lauren, and welcome to our first earnings call as a public company. Today, we're excited to share our third quarter results. But first, I'd like to introduce you to Kodiak and talk about our industry-leading technology, our strategy and why we believe we are positioned to capture the tremendous opportunity in the global trucking market. Kodiak delivers AI-powered driving technology that tackles some of the world's toughest driving jobs across vehicles and environments. We are a leading provider of autonomous trucking technology with 10 driverless trucks in customer operation with no human in the cab. These 10 trucks are the first to be delivered as we fulfill the world's largest known driverless trucking contract, a binding order to deploy our technology in 100 customer-owned trucks. Our differentiated technology allows us to seamlessly operate across a variety of environments, giving us the flexibility we need to focus on 3 large verticals: long-haul trucking, industrial trucking and defense. Across these verticals, we work with industry-leading customers such as J.B. Hunt, Werner, C.R. England, Martin Brower, Atlas Energy Solutions and the U.S. Army. Kodiak's core business is based on the Driver-as-a-Service or DaaS model, which is designed to replicate how customers pay their drivers today, either by the mile or by the vehicle. Our customers own and operate their own driverless trucks and pay us a recurring fee to utilize the Kodiak driver in their fleets. This DaaS model allows us to generate recurring revenue while keeping our balance sheet relatively asset-light. We initially launched this model with Atlas Energy Solutions, a leading logistics provider in the Permian Basin that is actively working to automate its supply chain. We intend to grow DaaS revenue, both as Atlas grows its fleet of Kodiak-powered trucks and as we expand driverless operations with new customers. I believe it is paramount to execute across 3 strategic pillars to launch a driverless business: technology, safety case and product. While technology is the most visible, each of these pillars is critical to successfully launching and scaling autonomous trucks. Let me address each of these, starting with technology. The Kodiak Driver, our autonomous system combines advanced AI-powered software with modular vehicle-agnostic hardware. We designed The Kodiak Driver to operate in challenging driving environments while integrating seamlessly into our customers' fleets. This single integrated software platform is designed for deployment across 3 verticals: long-haul trucking, industrial trucking and defense. It operates day and night in a wide range of weather conditions, including rain and severe dust storms and in some of the most complex scenarios in trucking. Our core technology allows the Kodiak driver to operate without high-definition maps commonly used in the AV industry. We believe this approach makes the Kodiak driver more adaptable to real-time changes on the road than traditional AVs that heavily rely on premaps to rain. It also makes the Kodiak driver better able to navigate unstructured off-road environments, uniquely enabling us to pursue opportunities in the industrial and defense verticals that would otherwise be challenging if we required high-definition maps. We integrate our software into our modular autonomy hardware kit that is adaptable to a wide range of vehicle types. We've already integrated the Kodiak hardware kit into Class 8 trucks, Ford F-150s and even treaded military vehicles. Our hardware kit includes Kodiak's proprietary sensor pods, which are self-contained modules that contain third-party cameras, radars and LiDARs and are designed to be quick and easy to swap in the field with minimal training. Our modular approach allows us to quickly install The Kodiak Driver's hardware kit into our customers' trucks, reducing the cost of deployment. Years ago, we decided that upfitting was the right go-to-market strategy to address a significant industry-wide challenge that today, none of the truck OEMs offer a driverless-ready platform. To implement this strategy, we partnered with Michigan-based Roush Industries, a leading automotive product development supplier. Roush is an industry leader in small to medium volume automotive manufacturing. Their deep experience building high-quality vehicles at scale brings efficiency and quality to our manufacturing that would be very difficult to match with in-house production. Now to our second pillar, safety. Safety is our core value at Kodiak. It is critical to building trust with customers, regulators and the general public. The most important part of the process is building a safety case, which is a comprehensive evidence-backed argument for why The Kodiak Driver is safe to deploy. Kodiak is one of only a handful of AV companies known to have completed a driverless safety case. Developing a safety case is a massive cross-functional effort, spanning software, systems engineering, hardware, functional safety, manufacturing, operations and even legal and policy. To help track our progress on launching The Kodiak Driver on long-haul routes, today, we are unveiling our Autonomous Readiness Measure, or ARM, which measures the percentage of claims and evidence in Kodiak safety case for driverless operations that are materially complete. Having completed our industrial safety case, our industrial arm is necessarily at 100%. Today, I am incredibly proud to report that our long-haul arm currently stands at 78%, and we expect to make steady progress in the quarters ahead as we prepare for long-haul driverless operations in the second half of 2026. Lastly, I'd like to turn to our third pillar, the product. We take a unique customer-centric approach that has allowed us to implement our technology and build a valuable product our customers can utilize efficiently. The operational experience we have gained over 7 years and 10,000 loads has enabled us to understand our customers' needs and build our products accordingly. For example, we developed our quick swap sensor pods after hearing from our customers about the importance of our hardware fitting into existing maintenance processes. Additionally, our driverless deployment with Atlas in the Permian has helped us pressure test core product features, including launching, driving, landing and maintaining driverless vehicles. We see this generating a flywheel effect, allowing us to leverage these features and our learnings across long-haul and defense deployments. As we have already discussed, the Kodiak driver operates on highways, local streets, dirt roads and off-road environments. This generalization enables seamless operations and shared learnings across industries. I'd like to address our unique experience and opportunity in each of these verticals. Kodiak started its journey with long-haul trucking, and this continues to be our primary focus. Given the trucking industry's $4 trillion global TAM, we see tremendous opportunity in this vertical. Today, we get paid to deliver freight from our Dallas operations hub to Houston, Oklahoma City and Atlanta using our own trucking fleet with a safety driver. Our highly respected customers include J.B. Hunt, Werner, C.R. England and Martin Brower. We also see a robust pipeline of customers interested in piloting and eventually deploying The Kodiak Driver in their fleets. We continue to make meaningful progress towards our goal of launching driverless operations in the long-haul vertical in the second half of next year and expect to subsequently transition our long-haul customers to our DaaS business model. The industrial trucking vertical, where we deployed our first driverless trucks includes oil and gas, mineral transportation and logging transportation. The $68 billion global industrial market is an ideal use case for our technology. Operators in remote industrial locations face even greater difficulties recruiting and retaining drivers than long-haul carriers, meaning that autonomy can offer significant cost savings and operational efficiencies. As I mentioned previously, The Kodiak Driver's technology is well designed to work in unstructured industrial environments where we see many challenging scenarios that are less common in long-haul trucking. These include oncoming traffic, narrow uneven roads, frequent pedestrians and the occasional count. We believe that this versatility sets The Kodiak Driver's AV capabilities ahead of the competition. In addition to being a significant revenue opportunity, our industrial trucking deployment in the Permian helps us mature The Kodiak Driver across all 3 of our strategic pillars. The Permian is a literal and figurative sandbox for honing our technology, our safety case and product, enabling a flywheel that is already accelerating our ability to implement our technology across verticals. The unstructured driving environment of the Permian produces more unusual edge cases compared to structured highway driving, progressing the technology through rapid learning and challenging the system. We've also gained significant product experience integrating into our customers' transportation management systems and developed processes for managing vehicle maintenance with operations personnel on the ground. We've been delivering loads with no human in the vehicle in some of the toughest weather conditions in trucking, including dust storms. This experience will enable us to provide greater value to our long-haul customers. Lastly, we're focused on adapting our virtual driver for defense purposes. The current administration has adopted a supportive posture for autonomous technology and defense use cases mirror long-haul and industrial trucking with both on-road and off-road operations. We have proven experience in defense exemplified by our $30 million contract with the U.S. Army, which we completed work on earlier in 2025. The need for autonomy and defense applications is obvious. And ultimately, we believe autonomy will be integrated into the entire Pentagon vehicle fleet. We believe Congress and the military support investments in autonomy, though the government shutdown has caused some short-term uncertainty around contracting timing. We will continue to pursue opportunities in this space going into 2026. Now turning to our Q3 results. We are pleased with our strong performance in Q3. During the third quarter, we deployed the Kodiak driver in an additional 5 trucks owned by our customer, Atlas Energy Solutions. We are now generating recurring gas revenue on a total of 10 driverless trucks equipped with the Kodiak driver, a 100% increase over Q2. As we move into 2026, we expect to accelerate our deployment as we seek to fulfill Atlas's initial order of 100 Kodiak-equipped trucks. We have also completed over 5,200 cumulative hours of paid driverless operations, which represents a 166% increase from the end of Q2. We view this as a key metric to measure the progress of an autonomous company regardless of the specific use case. Additionally, we have driven over 3 million autonomous miles and delivered over 10,000 loads for our customers, a 21% increase in cumulative deliveries over Q2. I'd like to address our recent progress by pillar. First, the technology pillar. At the beginning of Q4, we issued a new software release that, among other improvements, includes new features that allow us to reduce the need for remote assistance by 53%. This reduction in turn, improves our ability to scale our solution. Another feature included in this new software release is a new component of our perception system that leverages generative AI-based vision language models to identify and address novel complex edge case scenarios that are rare in the real world. We believe combining our proprietary multimodal AI perception model, Giga FusionNet, with these new high-level reasoning capabilities sets a new standard for physical AI. Using this new technology, The Kodiak Driver's AI can now identify scenarios like flooded roads and car fires, rare scenarios that can be a challenge for more traditional perception techniques. This new feature allows us to better handle the long tail of complex etch cases and gives us further confidence as we move down the path towards our long-haul driverless deployment. In Q3, we announced that we have integrated NXP's ISO 26262-compliant processors and interfaces into the architecture that powers The Kodiak Driver. The addition of NXP's automotive solutions have improved The Kodiak Driver's reliability and robustness while helping us to improve vehicle uptime. Last week, we announced an expanded partnership with global Tier 1 automotive supplier, ZF. Through this expanded partnership, we purchased steering systems with redundant components for 100 Kodiak-equipped trucks. These redundant steering components are critical to ensuring our ability to safely scale The Kodiak Driver. On the safety side, we were proud to announce the results of an evaluation by Nauto, a leader in AI-powered fleet safety technology. Kodiak received the highest VERA safety score among over 1,000 fleets in Nauto's network. In fact, The Kodiak Driver received a perfect score of 100 in 3 out of 4 Nauto VERA score categories and in 95 in the fourth. We believe independent safety evaluations like Nauto's help to validate what we already know. The Kodiak Driver is already among the safest drivers on American highways. Lastly, I'd like to address the product pillar. As we've discussed earlier, we continue to execute on the upfitting strategy we first articulated years ago. In Q3, Roush launched a dedicated manufacturing line to upfit trucks with Kodiak's hardware kit. With the Roush-built trucks already rolling off the line, we believe we have further solidified a leading position in building driverless trucks at scale. We also continue to strengthen our OEM relationships over the course of the quarter, and we'll continue to prioritize building those relationships. Additionally, we added the ability to haul 2 trailers at the same time. Pulling doubles, as it's called in trucking, is difficult for even highly skilled human drivers. In addition to extra length, the second trailer complicates every turn. This makes maneuvering extremely difficult. Pulling doubles is even more difficult in the Permian, which features rugged landscapes with narrow windy roads, and we achieved a significant technical milestone ahead of schedule. We also saw significant regulatory progress in Q3 and the early days of Q4. I'd like to highlight one item in particular. In early October, the U.S. Department of Transportation issued a waiver that allows AV truck operators to use flashing warning beacons as a replacement for reflective warning triangles. We integrated these warning beacons into our very first driverless-ready truck back in 2024. We are thankful for the administration support, and we want to thank them for their leadership on this issue. Finally, over the past few months, we made tremendous progress as we prepared Kodiak to operate as a public company. We are incredibly excited for this next chapter and look forward to sharing more updates on our next earnings call. I am proud of what we have accomplished thus far and believe we are well positioned for growth. In summary, Q3 showed Kodiak executing across our 3 pillars: technology, safety and product, positioning us to deliver meaningful growth and durable value for customers, partners and shareholders. We are converting our progress into real commercial traction, including delivering additional Kodiak driver-powered trucks under the world's largest known driverless truck deployment. We head into 2026 with strong momentum across the long-haul, industrial and defense verticals and are continuing to move toward the launch of driverless long-haul operations while scaling our industrial business. We believe these wins will allow us to grow as we remain capital efficient, providing a path to profitability and positive free cash flow in the future. I'll conclude my remarks by extending a huge thanks to all of our Kodiakers. The progress we have made is a reflection of your hard work, and I look forward to accomplishing even more with you in the future. Surajit, over to you. Surajit Datta: Thank you, Don, and good afternoon, everyone. I am pleased to share Kodiak's financial results for the third quarter of 2025, our first as a public company. This quarter marks an important milestone for Kodiak as we continue to successfully execute on our mission to accelerate adoption and commercialization of autonomous technology in a safe and reliable way. From a financial perspective, we are committed to delivering consistent value and building on the strong foundation already in place. We see potential for significant long-term growth, scale and operating leverage. We delivered strong performance, demonstrating our ability to scale and grow the business. We also continue to focus on deploying capital efficiently, most notably by partnering with leaders in the AV and trucking ecosystems. This allows us to focus on our core competency of developing advanced AI-powered autonomy software. Revenue for the third quarter was $0.8 million. This represents a 53% growth over the prior quarter, primarily driven by increase in Driver-as-a-Service revenue generated by our 100% quarter-over-quarter growth in customer-owned and operated driverless trucks. Let me take a moment to further explain our DaaS revenue model. Under this model, we charge our customers a single composite license fee to use The Kodiak Driver AV hardware and AI-powered autonomy software. We charge this fee on either a per vehicle or a per mile basis. This flexible pricing model is designed to align with our customers' diverse operational models. The DaaS model allows us to build predictable recurring revenue under multiyear contracts. We have already implemented the DaaS model with Atlas. In our long-haul operations, our customers currently pay us to deliver freight on Kodiak-owned autonomous trucks. We plan to transition our long-haul customers to the DaaS model once we commence our long-haul driverless operations. By integrating the Kodiak driver into customer-owned fleets, we expect to continue to build an asset-light business that scales with our customers' growth while limiting our CapEx outlay. Now turning back to the financials. GAAP operating loss for the third quarter was $30 million. Non-GAAP operating loss for the quarter, which excludes stock-based compensation, totaled $24.7 million, primarily due to continued investment in R&D and operational support for our industrial deployment. For a reconciliation of non-GAAP metrics to GAAP, please see our earnings release, which we filed prior to the call. We also incurred capital expenditures of $6.6 million, primarily to purchase AV components that we deploy on our customers' trucks. Free cash flow for the quarter was negative $40 million. This included high single-digit millions of onetime payments and public company-related costs. We ended the quarter with $146.2 million in cash and cash equivalents, including the proceeds raised as part of the de-SPAC transaction, net of fees and expenses. Turning to guidance of Q4 of fiscal year 2025. We expect to end 2025 with customer-owned and operated driverless trucks in the mid- to high teens. Q4 FY '25 free cash flow is expected to be in the range of negative $36 million to negative $38 million as we continue to invest in R&D and incur capital expenditures to purchase and deploy AV hardware on customer-owned trucks. Over the next few quarters, we expect to continue to deploy The Kodiak Driver to meet our initial contractual commitment of 100 customer-owned driverless trucks with Atlas. This is expected to drive meaningful increase in quarter-over-quarter revenue. As we look ahead, we expect our capital needs to be primarily driven by 4 factors: R&D investments, including safety validation, costs associated with scaling industrial commercialization, strategic initiatives to lower AV unit hardware expenditures and public company costs. We expect that these capital needs will be partially offset by increases in DaaS revenue as well as improvements in operating leverage from scale and efficiencies. We plan to provide more detailed guidance for fiscal year 2026 as a part of our Q4 FY 2025 earnings call. We'll opportunistically seek additional financing options to strengthen our liquidity and support the next phase of growth, particularly as we build out our customer pipeline and launch driverless commercial long-haul operations in the second half of fiscal 2026. Our financial priorities remain consistent with our strategic goals that Don had laid out earlier. We want to, first, grow Driver-as-a-Service revenue with existing and new industrial and long-haul customers to build a durable recurring high-margin business model over time. Second, invest prudently in technology, safety cases and commercial readiness to launch long-haul driverless operations in the second half of fiscal 2026. Third, implement scale and cost efficiencies into our capital-light model to achieve profitability and positive free cash flow over time. Lastly, maintain a strong balance sheet and enhance liquidity through disciplined capital planning and opportunistic financing. In summary, Kodiak is entering its next chapter with a strong foundation. Our momentum, technology leadership and competitive position remains strong, and we are delivering high growth with focus on improving operating leverage. We are executing with fiscal discipline and transparency as we build long-term value for our customers, partners, employees and shareholders. I want to thank you all for attending our first earnings call and for starting this journey as a public company with us. Operator, can you please open the line for questions? Thank you. Operator: [Operator Instructions]. Our first question comes from the line of Michael Ward of Citigroup. Michael Ward: Don, I wonder if you could talk a bit more about the ZF partnership that seems intriguing. How exactly is that going to work? Is it a supply relationship, development relationship? How is that going to work? Don Burnette: Thanks, Mike. The ZF relationship is primarily a supplier relationship. ZF, as you know, is one of the leading suppliers of steering columns and automotive components in general to the commercial trucking market. We have a long-standing relationship with them and use their components in our driverless trucks today. And this announcement further solidifies the partnership between Kodiak and ZF as we intend to scale our solution going into 2026. Michael Ward: That's a great. It's a great company. Surajit, as you look at the fourth quarter, it seems like your annualized run rate at year-end is going to be somewhere in that $5 million range just from the Atlas relationship. Is that about right? Surajit Datta: We expect meaningful growth in revenue. So Q4, as we have guided, we will be into... Michael Ward: As you exit -- as you exit, is that what we're talking about in that $5 million range for the annualized run rate? Surajit Datta: Yes. I think that could be close to that number. Michael Ward: Okay. And then from what I can tell, your cash burn was about $35 million, you had some unusual there in 3Q. So about $35 million a quarter, that's about right? Surajit Datta: In Q3, we had some high single-digit millions of onetime costs and public company-related costs. So we have guided for Q4 for free cash flow to be negative $36 million to negative $38 million. Michael Ward: Perfect. Okay. And just one last one, if I could, is I think you're on track to get to that 100-unit agreement with Atlas by the end of '26. That's your current target? Surajit Datta: Yes, that's our target. Operator: Our next question comes from the line of Andres Sheppard of Cantor Fitzgerald. Andres Sheppard-Slinger: Congrats on all the great progress and congrats on the first public quarter. Certainly, incredible achievement. Don, I wanted to maybe touch on the long-haul operations that you're targeting to launch in the second half of next year. Can you maybe help us understand what is needed between now and then between that, I guess, 78% and 100%. Anything that you can point that we should be focusing on? And how confident are you in that target? Don Burnette: Thanks, Andres. Yes, we're excited to finally come out with some tracking metrics around our progress toward long haul. We've been talking about this for the last several quarters, and we wanted to be able to provide the market with some visibility and transparency into our development process. The arm is effectively a measure of the material completeness of our safety case. And as you know, we don't launch a driverless product until our safety case is complete. Most of the work from here forward involves a lot of validation and testing of the system that includes simulation, that includes structured testing and other forms of testing validation as we build up to that launch. And so we'll be providing more detail along the way. For now, this is our first data point as we progress, but you should expect to see quarter-over-quarter improvement as we move toward our expected driverless launch in the second half of 2026, and we feel reasonably confident that, that is an accurate time line. Andres Sheppard-Slinger: Wonderful. That's super helpful. I appreciate all that color. And maybe just as one follow-up. A question on liquidity. So with roughly $150 million in cash and equivalents now, how are you thinking about kind of capital needs going forward? I realize you're not guiding cash burn going forward, but how should we think about that liquidity and any potential additional capital needs? Surajit Datta: Thanks for the question. This is Surajit here. I'll jump in here. As you see as a part of the de-SPAC transaction, which you just concluded, we had the largest capital raise in the history of the company, demonstrating our ability to raise across the capital structure and across several investors. And we feel excited about our momentum and the tremendous progress we are making in deploying our technology and scaling the business. So as we scale this business over both industrial and long haul, we should be able to also drive significant operating leverage and reduce our [ BOM ] cost. So we feel confident that as we execute on this strategy, we will be opportunistically seeking additional financings to strengthen our liquidity over the next 12 months, support the next phase of growth and execute against our road map. So we feel confident we're raising that additional capital for the next few quarters. Operator: Our next question comes from the line of James Mcilree of Chardan Capital Markets. James McIlree: When you think about the second half entry into the long-haul market relative to the ARM measure, do you need to be at 100% for some period of time before you can enter the market? Or can you enter the market with a sub 100% again, you have to have it at some period of time. I'm just curious how that -- how you're using ARM as a gating factor to the long-haul entry. Don Burnette: Thanks, Jim, for the question. We -- there's no specified period of time. It's more of a minimum requirement. So yes, we would need to get to 100% on the readiness measure in order to feel comfortable that we have closed out the safety case for launching our driverless product. That being said, there's no specified amount of time between getting to 100 and actually doing the first driverless run, so to speak. And so it's a little bit premature and early to kind of talk about specifics at that sign of a granularity. And so what I would say is we're shooting for the second half of next year. And as we get closer to that moment, we should be able to provide additional clarity and more certainty around the timing of when we actually do our first deliveries. James McIlree: That's very helpful. And then as far as customer additions are concerned, is it more likely that you enter the long-haul market before getting another industrial customer? Or is it the opposite that it's more likely to get another industrial customer first? Don Burnette: Well, we're dual tracking that. We're continuing to push to build our industrial business. As we talked about in our remarks earlier, we feel really good about growing that vertical. We have a great customer in Atlas, and this is really a crawl, walk, run approach to deploying autonomy. This is a safety-critical technology. We want to make sure that it's rightsized for our customers as our customers are learning with us. There's a lot in the product pillar that goes into actually efficiently deploying this product. And you can't just dump hundreds or thousands of vehicles on a customer overnight and expect them to be able to efficiently operate those vehicles to provide a useful benefit. And so there's a learning process as we go through this customer development, and that's really where we talked about the flywheel earlier on. And so we are looking to pick up additional industrial customers, and we'll have more on that as we continue to move through the quarters. At the same time, the team, especially the R&D team, the systems engineering team and our validation team are working really hard to get the truck to the appropriate level of safety for deploying driverless. And so I think it's really a dual track multipronged effort. Those are parallel efforts. I think the goal would be to announce additional customers in both of those verticals along the way. I can't really say exactly to what time frame one would come before the other. These are both top issues. Operator: Our next question comes from the line of Itay Michaeli of TD Cowen. Alright. We move to our next question, next question comes from the line of Mike Latimore of Northland Capital Markets. Mike Latimore: Congrats on the first call here and doubling the units in the quarter. That's great. I think Nauto's score was very positive. Can you leverage that? Are you leveraging that for marketing purposes after new prospects? And can that be helpful even, I don't know, in keeping insurance costs down? Don Burnette: Well, when you talk about new technology, especially within the safety -- safety critical realm like automotive driving, credibility and trust needs to be built over time. And we feel that the Nauto results really speaks to the safety of our system, especially as it compares to human driving. And that's one of those big question marks that people have had for many years, even over decades is how do these vehicles drive relative to existing humans, not just from a crash or accident percentage perspective, but what is the behavior by which they drive. And the exciting thing for us is I think this really demonstrates that not only are these vehicles not getting into accidents, which is kind of like your high-level metric, but they're also driving in a responsible, defensive and safe way. And that leads to better safety overall on our roadways. It also improves traffic and congestion. And so that's something that we think is really important as we deploy this technology more broadly and start to scale it. We want to be good citizens, not only to our customers, but also to the general motoring public. And this result simply speaks to the trustworthiness of the system for folks that don't have direct visibility into the system. Now how does that help Kodiak, of course, from a marketing perspective, but it helps from a regulatory perspective when we talk to regulators, they can get a sense for, hey, I have never seen this in action, and it's far away from where I drive day-to-day, but I can see that the score comprise over 1,000 fleets actually, they are the safest on the road. Same with our customers, right? We can take this data to our customers and show them not just 1 or 2 or 3 trucks, but we can say over the course of our entire operations of our fleet, we're actually behaving as safely and safer than human drivers on the road. And I think that really speaks to the credibility and trustworthiness of the system as a whole. Mike Latimore: Great. Obviously, a lot of focus on industrial and long haul. In the government vertical, a ton of focus just across the board on autonomous systems, whether it's in air, on sea, on the ground. Can you give a little more context or color around opportunities you might see in the government vertical? Don Burnette: Yes. It's been tricky as of late with the government shutdown, as we mentioned in our remarks. We still remain convicted that the defense vertical is a large opportunity for autonomy. The Secretary of Defense actually just made some remarks emphasizing the importance of contested logistics and actually prioritizing commercial solutions within the Army and other branches adoption of autonomy. We think this is the right approach, and we think that Kodiak has, we believe, the most mature, commercially viable autonomy solution that can be applied to defense applications. And of course, as you've seen, we've demonstrated that several times over across multiple vehicles in multiple different environments with our Ford F-150s and the versatility they bring, but also the Textron Systems RIPSAW platform, which is a fully threaded vehicle. We really demonstrated the ability to bring that commercial maturity into the defense market. And we believe that, that's what the defense market is ultimately looking for as they want to scale and productize this technology. So we remain very bullish in defense applications. It's an interesting world in the government space right now, but we think 2026 is going to be an exciting year. So I would say stay tuned for more. Operator: Our next question comes from the line of Ravi Shanker of Morgan Stanley. Nancy Hipp: This is Nancy Hipp on for Ravi Shanker. It would be helpful to hear a bit about how you're managing adverse weather, extreme environments or edge case scenarios in your autonomous system and how big a risk those are to scaling? I know you had a GenAI system to identify sort of these novel edge cases, but it would be helpful to hear more on that as you approach the on-highway launch in 2026. Don Burnette: Sure. Well, in our -- I'll use an example, our industrial launch back in 2024. So we delivered 2 -- the first 2 driverless trucks in December of 2024 and very quickly got those trucks to a level where they were capable of operating, firstly, around the clock, so 24/7, which is important to our customer, Atlas, which is a 24/7 operation, but also importantly, in adverse weather conditions. And so this has been something that The Kodiak Driver has already been able to handle for several quarters now in a driverless fashion. And so we expect to be able to bring those capabilities ultimately over to the highway environment when we first launch our driverless product in the second half of next year. So yes, the team is definitely working on validating those capabilities for highway. That is all encapsulated in our safety case, which, as we said, we're now at 78% on our readiness measure. And so we have already experienced and importantly, our AI system has experienced an adverse weather already. Nancy Hipp: Got it. That's very helpful. And then maybe for my second question, it would be helpful to hear about feedback you're receiving from your current partners after the launch with Atlas. And sort of how do you see that decision-making cycle for customers to go from initial discussions to adopting driverless trucks into a pilot to eventually scaling? Don Burnette: I think it's been an interesting journey, and the answer to that question has evolved quite a bit over the last decade, last several years and then to where we are today at the end of 2025. Our sense is that customers and the market broadly is excited about driverless deployment. It's more of a when can we get our hands on it as opposed to one of skepticism, which was not always true. If you go back several years, there was a lot of skeptical prospective carriers and truckload operators out there. These days, we don't -- we don't get as much skepticism. I think people realize that autonomy is the future of transportation broadly. That's true in the commercial market. That's true in the private vehicle market. And certainly, it's our belief at Kodiak that automation will make all the transportation modalities more efficient and safer over time. And of course, customers want to take advantage of that. They recognize that there's first-mover advantage and they want to move quickly. And of course, we want to be able to deliver a safe and efficient solution to them. More importantly, not just a safe solution, but one that they can actually utilize and hopefully utilize out of the gate. And again, this is where that flywheel effect comes in. Yes, we have an industrial application launched today, which is in a different domain than highway, but the customer interactions are largely the same for what we will bring to our over-the-road highway customers when we do eventually launch that product. And those are learnings that you can't really get other than doing -- and we think that this flywheel is going to accelerate our progress as we begin to scale our highway deployment. So I think customers are excited for it. I think they're waiting patiently to get their hands on the first driverless trucks that they can, and we hope to be the leading provider of those solutions for the customers broadly. Operator: Our next question comes from the line of [indiscernible]. Unknown Analyst: On those routes in Dallas, as you kind of prove out the safety case, Aurora, when they were proving out their safety case, I guess, got some pushback from their partner, PACCAR. Just curious if that's a risk scenario where you prove out your safety case, but the partner doesn't want it. And is there -- I'm going to extend that. I think you had mentioned kind of J.B. Hunt there as well. Do they have any saying this? Do they care? I mean I assume they're just -- if you're just delivering goods from one point to another, they shouldn't care, but who knows maybe they don't want the brand subjected to that risk. So if you can just talk about kind of who needs to sign off, if anyone, for you to go driver out on those trips from Dallas? Don Burnette: Thanks, Walter. It's a great question. I think there's like the legal sense of the question, who needs to legally sign off and then from a trustworthiness and good partnership perspective, there's who do you want to bring along. Our philosophy is we've always built our technology to be platform agnostic. We've shown that we can develop The Kodiak Driver and implement The Kodiak Driver across many different makes, models and form factors of vehicles. This gives us flexibility. So we haven't announced the platform that we will be using for our initial highway deployment. I think you asked, is this a risk? Everything is a risk. I would definitely say it's a risk. At the same time, we think building the right relationships and the safety of the technology in the right way and bringing people along, including them in the process is the right way to approach business. And so we think we have a path forward to deploy driverless vehicles without a driver and without an observer in the cab, and that's something that we definitely intend to do. But for sure, building trust with our partners is paramount in that process. Unknown Analyst: And then just kind of sticking with that partnership question, I guess. You've elected to upfit, right? And obviously, you've generated $800,000 of revenue. I think Aurora's revenue is like $1 million, so not even that much difference in the current quarter. I'm just curious like at what point, if at all, do you -- is it important to be integrated off the line, that type of stuff? I mean I know it's still early days, not a '26, not a '27, like do we just not worry about this or not consider this for some extended period of time? Or are there things in the works that you have planned for, I don't know, '27 or '28? Don Burnette: I don't think it's important to draw a line in the sand and pick a date like a switchover date. I don't think that's the right way to think about it. I think the right way to think about it is in terms of rollout and scale. In a lot of my conversations, there's this sense that thousands or even tens of thousands of autonomous trucks are going to fall from the sky and end up on our [ roadways ]. We're going to wake up on Monday morning and tens of thousands of autonomous vehicles are going to be out on the road. And we don't really think that's true. There's a progression to rolling this out, both from a safety, efficiency and operational perspective. And our current approach, we believe, scales into many, many thousands of trucks, which should be sufficient for the foreseeable future, short to medium term. And then -- that also depends on the development cycles for partners, OEMs and other providers within the autonomy space. And we don't control those time lines and something that I've said for a very long time is that I don't want to be beholden to time lines of other companies. I want to be able to take charge and control our own destiny. I think that's something that Kodiak has really done well, and we've executed on. We will continue to follow that philosophy over the next several years. We want to make sure that we have a product that we can deliver to customers when we are ready to deliver that product. And ultimately, when the ecosystem matures and when suppliers are ready, I think you're going to see access to broader scale, not just for Kodiak, but for the industry at large. And so I don't really think of it as a black or white or a line in the sand or a date on the calendar. It will come. It is a gradual progression. We are working hand-in-hand with suppliers, both on the Tier 1 side and the OEM side. We're tracking progress. They're tracking our progress. And so it's not something that we're losing sleep over, and we feel like the position we're in with the experience we've gained now developing an upfit solution and with our partner, Roush, that we've set ourselves up for success in the next coming years. Operator: Our last question comes from the line of Itay Michaeli of TD Cowen. Itay Michaeli: Can you hear me? Don Burnette: Yes, sir. We can. Itay Michaeli: Perfect. Sorry about before. Congrats on the first earnings call. So going back to the 78% long-haul arm, Don, I was hoping you could maybe share roughly where that metric was maybe 3, 6, 12 months ago. And then on the OTA that you did that reduced the remote assistance by over 50%, curious if you could talk a bit more about that as well and kind of what are some of the issues that were resolved with that update? Don Burnette: Yes, absolutely. Thanks for the question, Itay. I'm glad that we cleared up the mic issue. So we don't have any numbers, historical numbers to share, unfortunately. This is our first data point. And of course, we will share updated data points going into the future, so you can see the trends. So unfortunately, I don't have a number to share on the historical aspect of that. Obviously, over the first several quarters of the year, we were focused very hard on delivering additional driverless trucks to Atlas and really perfecting the operation of those vehicles in that environment. And as we turn our focus to highway and our highway customers over the course of 2026, we'll have a lot more updates for you as we go. In terms of the improvement, this is incredibly exciting because efficiency is ultimately what will drive margins. And while all autonomous vehicles today require some type of remote support in certain circumstances, remote assistance in certain circumstances. It is our job as R&D developers to drive down the moments that any kind of assistance is required. So there's no specific instances I can point to or specific cases. But you can imagine that these trucks are very conservative, and they often will come to a stop if they see something they're not sure about. There's a lot of potholes that are present in the Permian. And often our truck will stop and ask human assistance for confirmation that they can continue or should they drive around it or is it safe? And ultimately, we want that conservative behavior in our trucks. But as we improve the technology, as our AI improves, as our foundation model work improves, the scene understanding, and we gave several examples of these in our deck, our scene understanding improves dramatically. The trucks can start to handle those cases on their own, and they need to call for human support less and less. And so we've actually reduced that, as we said, over 50% in the last quarter, and that's a huge, huge win and a sign that the technology is accelerating very, very quickly, and we expect that type of acceleration to continue. Itay Michaeli: That's great and good to see the progress there. Maybe just a quick follow-up on the financials. Of the roughly $6.5 million of CapEx in the quarter, can you share roughly how much of that is for purchase for soon-to-be-delivered trucks versus kind of in-period delivered trucks? Surajit Datta: Thanks. It's a great question. Most of the CapEx is for future deployment as we need some lead time to acquire -- purchase the -- purchase the AV hardware components and then get it assembled. So most of that relates to the future deployment and ramp, what I would call it like success-based. So as we plan out the deployment for each quarter, we tend to make those purchases. But it's not exactly linear as well. Sometimes we may make some bulk purchases if the pricing is attractive or if there are potential tariff situations. So we look at that as well. Operator: Thank you. And ladies and gentlemen, this concludes Kodiak's Third Quarter 2025 Earnings Conference Call. Thank you for participating. You may now...
Operator: Hello, ladies and gentlemen. Thank you for standing by for the Third Quarter 2025 Earnings Conference Call for XPeng Inc. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Mr. Alex Xie, Head of Investor Relations and Capital Markets of the company. Please go ahead, Alex. Alex Xie: Thank you. Hello, everyone, and welcome to XPeng's Third Quarter 2025 Earnings Conference Call. Our financial and operating results were issued by Newswire services earlier today and available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaopeng.com. Participants on today's call from management team will include Co-Founder, Chairman and CEO, Mr. He Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Corporate Finance and VW Projects, Mr. Charles Zhang; Vice President of Finance and Accounting, Mr. James Wu; and myself. Management will begin with prepared remarks, and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that XPeng's earnings press release and this conference call include the disclosure of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. XPeng's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to our Co-Founder, Chairman and CEO, Mr. He Xiaopeng. Please go ahead. He Xiaopeng: [Interpreted] Hello, everyone. In Q3 2025, XPeng reported record sales -- record results in key operating metrics with new highs in deliveries, revenue, gross margin and cash reserves. Vehicle deliveries for the quarter totaled 116,007 units, a 149% increase year-over-year. The all-new XPeng P7 launched recently quickly became one of the top 3 BEV sedans priced between RMB 200,000 to RMB 300,000 boosting monthly deliveries to over 40,000 units starting in September. Additionally, the company's gross margin exceeded 20% for the first time in Q3, and we reduced our net loss further. Our goal is to achieve breakeven for the company in the fourth quarter. These continuous operational improvements strengthen our focus on physical AI R&D, supporting the targeted mass production of our VLA 2.0 model, Robotaxi and humanoid robot in 2026. As AI models advance and become increasingly integrated with real-world data, machines are slowly gaining the ability to interact, communicate, transform and create within our physical environment. This development is reshaping the future of mobility and daily life. Over the past 11 years, XPeng has dedicated itself to building full stack technologies in-house evolving from software-defined vehicles to the emerging realm of physical AI. We understand that vehicles and humanoid robot, the 2 primarily applications of physical AI, share a homogeneous physical world model, SoCs and infrastructure, allowing for rapid iteration and evolution. Excitingly, new capabilities are continuously emerging from our physical AI technology stack. Over the next decade, my goal is to make XPeng a leading global company in embodied intelligence. Focused on physical AI applications, we're developing an extensive portfolio of technologies, products and supporting business ecosystem. Besides providing AI-powered vehicles to consumers worldwide, we aim to deploy pre-installed mass-produced Robotaxi on a large scale and achieve the mass production of humanoid robots. We believe that an open and dynamic ecosystem is crucial to unlocking the full potential of physical AI for humanity. To achieve this, we plan to open source our physical world model, launch Robotaxi services in partnership with mobility platforms and relieve our humanoid robot SDK. This approach will expand the physical AI application ecosystem through collaborations with business and technology partners and accelerate the value creation process. I'm also glad to report that as we introduce the one vehicle, dual energy product cycle for AI vehicles, we'll expand our scale and increase our NEV market share through a wider product range. On November 6, we launched presales for the XPeng X9 Super Extended-Range EV, an industry frontrunner in extended-range vehicles equipped with a 5C rate high-capacity LFP battery and a total range of up to 1,602 kilometers. It is the world's first large 7 seater to offer the longest range, highest AI computing power, smallest turning radius and most efficient space utilization in its category. We see super extended-range EVs as crucial for accelerating the shift from ICE vehicles to NEVs. Since presales began for the X9 Super EREV, we've experienced unprecedented interest, especially in northern regions and inland cities of China, attracting many customers who previously hesitated to switch to BEV models. To date, preorders for this model are nearly 3x higher than the presale of the previous X9. On a like-for-like basis, the X9 Super EREV will officially launch on November 20 with deliveries starting immediately afterwards. I anticipate reaching a new delivery record in December. We plan to introduce 3 super extended-range products in Q1 2026 focusing on alleviating key challenges for our EREV users by offering long, pure electric range and quicker 5C supercharging, thereby capturing more of the EREV market. We have put in more R&D expenses in 2025. As a result in 2026, we'll also launch 4 new one vehicle, dual energy models, including our first product launch in some key market segments. These innovative products will help us establish a presence in these markets and build leading products like the MONA M03. I'm confident that the 7 one vehicle, dual energy models with super extended-range technology debuting next year will greatly increase our total addressable market or TAM and provide significant sales growth opportunities. On the global business front, we maintained strong sales growth and established a solid foundation for long-term expansion through our localized approach. In September 2025, our monthly overseas deliveries exceeded 5,000 units for the first time, a 79% increase year-over-year. During the third quarter, we grew our global presence with 56 new overseas stores, expanding our sales and service network to 52 countries and regions worldwide. Additionally, our first European localized production facility at Magna plant in Graz, Austria, officially commenced operations with the initial batch of XPeng G6 and G9 rolling off the line. Simultaneously, XPeng's R&D center in Munich, Germany, officially began functioning, helping us better understand overseas customer needs and accelerate technological advancement and product launches. In 2026, we plan to introduce 3 new overseas models, including popular mid- to small SUVs that meet the diverse preferences of global consumers. Our strong focus on investing in AI large models, computing infrastructure and data set is driving the continuous emergence of advanced capabilities from our physical world model. Our upcoming VLA 2.0 model, which has 10x more parameters than its predecessors will substantially enhance safety and user experience in intelligent driving. From my own recent driving experience during very complicated and complex road conditions, we experienced very impressive and unparalleled driving experience from the intelligent VLA model. So starting from late December, we will initiate a co-creation program with our early adopters. In the early quarter of 2026, we aim to deploy the VLA 2.0 model across the entire Ultra lineup. I see the mass production of VLA 2.0 as a major breakthrough in physical AI models, offering a significant generational leap in user experience and attracting more people to choose XPeng for its leading intelligent driving technology. Going forward, XPeng will open source it's VLA 2.0 model to global commercial partners, aiming to provide industry-leading advanced driver assistance experience to a wider audience. Volkswagen will be the initial launch customer for the VLA 2.0 model. Additionally, XPeng's Turing AI SoC has earned a formal sourcing designation from Volkswagen with codeveloped vehicles expected to start mass production early next year. Revenue from licensing our technology to external partnerships will be reinvested into our R&D, mainly to support iteration and upgrades of the Turing SoC and VLA models. This fosters a positive cycle of innovation and commercialization. We invite more automakers and Tier 1 manufacturers to collaborate with us on the Turing SoC and VLA 2.0, working together to promote the adoption of advanced intelligent technologies in both Chinese and global markets. Traditionally, end-to-end models were able to maybe reach advanced Level 2 at its best; however, the rise of physical world model is speeding up the arrival of true autonomous driving. I believe that only pre-installed mass-produced Robotaxis with a strong ability to generalize can achieve widespread adoption and create a sustainable business model. In 2026, XPeng plans to launch 3 Robotaxi models. Our technology stack for Robotaxi does not depend on high-definition maps or LiDAR. This approach enables us to address current industry's challenges, including high cost, operational limitations and poor generalization, allowing for an efficient and scalable deployment worldwide. We intend to begin pilot operations of XPeng Robotaxi in China in 2026, continuously improving both software and hardware of Robotaxi while building an operational ecosystem. I believe that a collaborative ecosystem where all industry stakeholders' benefit is key to scaling rapidly. Therefore, we plan to open our SDK to our partners, and Amap will be the first ecosystem partner for XPeng Robotaxi. We also invite more companies in the mobility sector to explore Robotaxi collaboration opportunities with us. Our humanoid robots adopt a technology road map driven by physical world model. With full support from our vehicle and powertrain R&D teams, we unveiled our next-generation IRON robot at the latest XPeng Tech Day. The IRON's human-like posture and agile gait surprised and deeply moved many XPeng fans and also highlighted the great commercial potential of humanoid robots. Currently, IRON demonstrates only a very small fraction of its capabilities. In Q2 2026, we plan to achieve full capability integration through cross-domain innovation aiming for performance and user experience for far surpass current market offerings. Our target is to begin mass production of advanced humanoid robots by the end of 2026. Once produced, IRON will be first deployed in commercial scenarios, providing services like tour guiding, retail assistance and patrols. By the end of next year, I hope IRON will be working alongside us at XPeng stores, campuses and factories as our new team members. Additionally, XPeng Robotics will open its SDK to global developers, inviting partners from various industries to collaborate on secondary development. This will enable IRON to be trained and to evolve across diverse and long-tail real-world well scenarios, unlocking broader application possibilities. From a long-term perspective, I believe the market potential for humanoid robots will exceed that of automobiles. Once a new generation of robots reaches the inflection point just as China's EV industry did with electrification, we expect explosive growth ahead. I envision that by 2030, XPeng robots could sell over 1 million units annually. With the launch of our one vehicle, dual energy product cycle, I expect total deliveries in the fourth quarter to reach between 125,000 and 132,000 units reflecting a year-over-year growth of 36.6% to 44.3%. We project fourth quarter revenue to be roughly between RMB 21.5 billion to RMB 23 billion, up 33.5% to 42.8% from the previous year. XPeng's AI-driven vehicle business is in the early stages of rapid expansion in terms of scale and market shares, while Robotaxi and humanoid robot programs are swiftly moving forward and towards mass production. I'm confident that XPeng will establish itself as a leader in physical AI, both in China and globally, delivering greater value for our customers and shareholders worldwide. Thank you, everyone. With that, I'll now turn the call over to our VP of Finance, Mr. James, who will discuss our financial performance for the third quarter of 2025. Jiaming Wu: Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the third quarter of 2025. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB 20.38 billion for the third quarter of 2025, an increase of 101.8% year-over-year and an increase of 11.5% quarter-over-quarter. Revenues from vehicle sales were RMB 18.05 billion for the third quarter of 2025, an increase of 105.3% year-over-year and an increase of 6.9% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly attributable to higher deliveries from newly launched vehicle models. Revenues from services and others were RMB 2.33 billion for the third quarter of 2025, representing an increase of 78.1% year-over-year and an increase of 67.3% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were primarily attributable to the increased revenues from after sales services and technical R&D services rendered to the Volkswagen Group due to the successful achievement of certain key milestones in the current quarter. Gross margin was 20.1% for the third quarter of 2025, compared with 15.3% for the same period of 2024 and 17.3% for the second quarter of 2025. Vehicle margin was 13.1% for the third quarter of 2025, compared with 8.6% for the same period of 2024 and 14.3% for the second quarter of 2025. The year-over-year increase was primarily attributable to the ongoing cost reduction, while the quarter-over-quarter decrease was due to targeted promotion to clear outgoing inventory during product transition. R&D expenses were RMB 2.43 billion for the third quarter of 2025, representing an increase of 48.7% year-over-year and an increase of 10.1% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to higher expenses related to the development of new vehicle models and technologies, as the company expanded its product portfolio to support future growth. SG&A expenses were RMB 2.49 billion for the third quarter of 2025, representing an increase of 52.6% year-over-year and an increase of 15% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were primarily due to higher commission to the franchised stores, driven by higher sales volume as well as higher marketing and advertising expenses. As a result of the foregoing loss from operations was RMB 0.75 billion for the third quarter of 2025, compared with RMB 1.85 billion year-over-year and RMB 0.93 billion quarter-over-quarter. Net loss was RMB 0.38 billion for the third quarter of 2025 compared with RMB 1.81 billion year-over-year and RMB 0.48 billion quarter-over-quarter. As of September 30, 2025, our company had cash and cash equivalents, restricted cash, short-term investments and time deposits in total of RMB 48.33 billion. To be mindful of the length of the earnings call, I will encourage listeners to refer to our earnings press release for more details on our third quarter 2025 financial results. This concludes our prepared remarks. We'll now open the call to questions. Operator, please go ahead. Operator: [Operator Instructions] For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. [Operator Instructions]The first question today comes from Tim Hsiao with Morgan Stanley. Tim Hsiao: [Foreign Language] So my first question is about the physical AI because in the past, the competitive advantages of other companies were reflected in several aspects like cost, brand and channels. Just wondering if the management could elaborate a bit more about what aspects XPeng's long-term competitive advantage in physical AI will be demonstrated? And how will the company continuously enhance its strength in these areas? That's my first question. He Xiaopeng: [Interpreted] I think this is definitely a big question. The traditional way for automakers to make money is completely different from the new physical AI model generated kind of business format. They come from different DNAs. Traditionally, older traditional automakers focus on their own positioning and also about how they target their user segments and then everything boils down to their integration of Tier 1 suppliers and all the other different parts of the supply chain. However, when it comes to a physical AI-generated model, the definition is different. We determine what the -- we -- everything boils down to the definition of the future tech. It involves full-stack technology capability and also custom integration. For example, the launch of our IRON robot is a great example of that. So that's why different DNA is going to generate different products and different growth momentum. In the future, I believe that cars will be a new format of robotics, and it's going to actually come to the real life in the coming 5 to 10 years as the next generation of robotics in our life. So traditionally, the integration of supply chain is completely different from what we are looking at right now, which is the physical AI technology integration across different domains and involves software, hardware and infrastructure upgrades, which will lead to a completely new set of products. As a result, traditionally, software were only a small percentage of traditional car development, whereas right now, it takes up a large part of new product development. And I believe that when you look at our future developments, we are actually going to see more and more physical AI components in the future for car development over 50%, and we are going to see that very, very soon. Thank you. Tim Hsiao: [Foreign Language] My second question is about revenue from the collaboration with Volkswagen. So first of all, congratulations on the project wins of Turing chips at Volkswagen. So may I know from which quarters the related revenue will start to kick in? And how should we think about the trend of the revenue contribution from the collaboration with Volkswagen in December quarter and the full year 2026? That's my second question. Charles Zhang: Tim, this is Charles. So in Q3, we delivered a few key development milestones on time. So you probably have seen that the revenue from the technology collaboration increased significantly quarter-over-quarter. And we continue to see that there are a few key development milestones to be delivered in Q4. So we believe that the revenue from technical collaboration in Q4 will be expected at a comparable level we see in Q3 2025. And then regarding your question on the Turing SoC. Yes, we were -- our Turing SoC was selected by Volkswagen for the 2 B class vehicles we're jointly developing. And we have already started to supply the Turing SoC to some of the -- our partners, the preproduction and verification vehicles. So therefore, the revenue -- we would expect that the revenue from Turing SoC will start to be recognized in Q4 and probably in the small amount. But however, as our jointly developed vehicle SOP from early next year, and we would expect the revenue from the Turing SoC will ramp up with the sales volume of the 2 vehicles we jointly developed. In terms of the revenue from the technical collaboration in 2026, and we expect that as long as we can deliver the key milestones that are scheduled in 2026, we would expect that the revenue -- the technical -- the revenue from the technical collaboration for the full year 2026 would be comparable to that of the revenue we recognized in 2025. So I think looking back, we have demonstrated that we can -- well, we delivered the revenue from commercialization of our technology for 7 consecutive quarters. And I think we believe that there are still opportunities we would like to explore to commercialize our technology and also as our CEO, Xiaopeng, mentioned, and we will reinvest such revenue from the licensing or technical collaboration back into our R&D. Thank you, Tim. Operator: Next question comes from Nick Lai with JPMorgan. Y.C. Lai: [Foreign Language] My first question is -- my 2 questions is actually related to humanoid robot strategy and ambition in the longer term. At a recent Technology Day, XPeng demonstrated our first humanoid robot IRON which worked really like human. And can you talk about our technology road map and compare with the comparable peers? And where is our competitive advantage comparing with the peers in the medium and longer term? That's my first question. He Xiaopeng: [Interpreted] Thank you. Because there are so many robotics companies in the market, to be honest, the technological and product development road map and strategy of XPeng's robotics is moving forward as we expect, according to our own plan. We have paid really little attention to any other differences in the robotics industry to other companies before we launch our own products. Now when we look at XPeng, for example, our product philosophy is highly theoretical. You can actually -- well, it's highly human-like. That is the goal of developing our own humanoid robot. What's interesting about our product is that we realize that when we incorporate muscles and very bionic skin on to our robots, we actually attracted a lot of people to dare to hug him. And this is very, very exciting because traditional robots really were not that attractive and appealing for human beings to give them a hug. In addition to that, we also would like to mention that in the future, I believe that across many aspects of lifeline work, we are going to see more and more robots that is working alongside us. So for the current generation of XPeng robots, last time that we launched it, it was actually the seventh generation, and we are going to begin mass production of the eighth generation of our humanoid robots. In fact, when we look at some of the available robotics in the market, I believe that a lot of them are between generation 3 and 5, which is mainly being driven by joints and all the operation of different hardware. And when you look at the operation of hardware and software, you can see that the available products in the market look very similar in the way that they walk and they move. And these kind of robots, I believe, are very, very hard or difficult to commercialize in the end. So in the future generations of our robot, we actually have been thinking about what kind of technological route we should be used, and we have fully integrated actually hardware and software driven by integrated AI. So this time, you can see that the robot that we showed to the market is based on our full-stack R&D capability and cross-domain integration. I believe that XPeng Motors has many advantages when it comes to our robotics and humanoid robot development. For example, our physical AI resources have a synergy effect with our AI cars. For example, we actually are considering may be producing higher than car grade performance for our humanoid robots. And also our thinking logic on how to conduct business and mass production of our humanoid robot is largely driven by our knowledge and industry know-how in the EV industry. For example, when we build the future sales and marketing layout and globalization, there's a lot of synergistic effects that we can enjoy from the existing layout with our car sales. Also I believe when it comes to the future robotics development, some company will still -- some of the players will come from auto-making industry. And I believe that XPeng will definitely have a first-mover advantage in this regard because of the data, the SoCs and the capability that we have. Thank you. Y.C. Lai: [Foreign Language] My second question is also related to humanoid robot long-term strategy and operations. And from here to commercialization, what are the key critical milestones that we should be mindful? And from now towards the end of '26, can you remind us what the capacity and expected scale of our human robot operations? And also in terms of use case, by, say, 2030, you mentioned that 2030 we target to deliver 1 million units, can you also talk about the use case in the longer term? He Xiaopeng: [Interpreted] Thank you. To be honest, IRON's mass production is probably the most challenging kind of vehicle or products I've ever worked on at XPeng Motors, if I have to make the comparison between mass-producing IRONs and other cars because there's still a lot of challenges. For example, our ultimate goal is for it to be easily trained with human language so that it can really help us in various ways, and there's a lot of room for improvement there when it comes to capability integration. For example, if this robot can walk or run in various safe postures that requires a lot of integration of capability as well. For example, it needs to have all the joints embedded in management and also full coupling of different wiring, et cetera. Also, if we need to allow it to have more generalized kind of dexterous hand movements, well, it will also require a lot of hand-based VLA, which we believe by beginning of next year will be integrated. We also need to allow it to have that kind of communication and language-based communication capability between the robot and humans. So that also will come from, for example, a lot of VLM and VLT, which is the small brain and large brain kind of modeling capability. But what I'm really excited to share here is that we will start entering the 1.0 stage of our new generation of mass-produced models next month. I believe that in the next 10 months, we'll be able to actually promote the robot development in an orderly manner during mass production. And I think that's the first part of my answer. Thank you. I think the ramp-up in robot production capacity is much simpler compared to cars. However, the commercialization of robots is indeed very, very challenging. It requires us to look for really new heights of technology and ultimately achieving more capabilities. Therefore, we hope to initially implement in several commercial scenarios included tour guiding, shopping or retail assistance, et cetera. In 2026, we hope that we actually can see a lot of our own robots working alongside us at our XPeng stores, campuses for the first stage of field testing. At the same time, we are also opening our SDK to more of our partners so that our partners can easily and simply buy our robots and train them for commercialization purposes. If your question is about future possibilities of scenario application, I think it's going to be even more than you think. For example, for commercialized robots, maybe you can switch their arms and allow them to go into the industrial production scenarios. And when will the robots go into our household setting? I think maybe 5 years' time, we still have a big chance of achieving that. And I hope that through opening our SDK, we can allow more kind of partners to help us tackle those diverse and long-tail scenarios of application so that we can all enjoy a better robotic future and build a better ecosystem. Thank you. Operator: The next question comes from Ming from Bank of America. Ming-Hsun Lee: [Foreign Language] Why does XPeng choose to launch Robotaxi service in 2026? Could you share your technology inflection point or how fast you lower your cost? And compared to other Robotaxi companies in China, what is XPeng's technology path or business model? What is your advantages? He Xiaopeng: [Interpreted] Thank you, Ming, for your question. I think that within our R&D strategy, there are 2 key aspects, which are full-stack self-development and also cross-domain integration. I believe that in 2026, we will be actually seeing a collection of inflection points within our own development system. For example, we are going to be able to launch our current models into the Robotaxi configuration of fleets, which, by that time, we believe that the inflection point will arrive. At the same time, our VRM models will continue to offer new capabilities for our future vehicles to be more robotic-like. In addition to that, our current second-generation VLA can actually train our intelligent driving Ultra cars and also in the future, maybe also train our mass version of cars using the same kind of large model, too. In other words, we have our cross-domain capability based on our robotic development, which really can solve a lot of Robotaxi current limitations, for example, the high cost of production and also the limitation of the mobility destinations. For example, current Robotaxi now cannot really handle very complicated and complex road conditions and also in residential areas that has a lot of unpredicted scenarios and also a lot of them currently require LiDAR for their perception capability and so on. So in 2026, we hope that by commercializing fully shared L4 capability in our Robotaxi. We actually can have the dual development of the driverless L4 model together with an assisted driving L4 model. With the launch of both method or road map in the future, I think very soon, it will be proven that XPeng has actually a better commercial logic thinking compared to other Robotaxi companies and that will give us a great competitive advantage. Thank you. Ming-Hsun Lee: [Foreign Language] So how does the management team think about the commercialization of your Robotaxi business? Especially in the future, what is your planned milestone, for example, like in terms of the number of fleet? Or when will you plan to roll out in different cities or overseas market? And also currently, you already have a cooperation with Gaode, Amap, and could you elaborate more about your cooperation? And in the future, do we expand -- do you plan to cooperate with small partners like other ride-hailing companies? He Xiaopeng: [Interpreted] Thank you. Actually, next year, XPeng is going to launch 3 different types of Robotaxi models at different price points to support different mobility purposes and demands. In the next phase of development, I believe, with the premise of regulatory approval, our priority is to really get everything running smoothly, when it comes to the whole technological and operation and business model. So in that scenario, we hope to work with more and more business partner in the ecosystem. For example, Amap will be a great partner. They are going to give us more development support when it comes to traffic and also payment and operation and services, et cetera. That really set us apart from a lot of the autonomous driving OEMs. And I believe that in the future, for different countries and regions and different steps of development, we are going to actually launch more partnership with different service providers across different lanes. And for XPeng, what we need to do is that we are building our toolbox really well, and we're opening up our interface capability so that we can work more with our ecosystem partners in the future across different countries and cities. And so once we really get everything up and running commercially in different environments, we can then quickly build our ecosystem. This is one of our considerations. Thank you. Operator: The next question comes from Tina Hou with Goldman Sachs. Tina Hou: [Foreign Language] Let me translate my first question. So first, I would like to understand, over the next 1 to 3 years, do we have a rough revenue estimate or breakdown for our new businesses, including Robotaxi, humanoid robot as well as eVTOL? Gui Hongdi: Tina, it's Brian. First of all, I would say that for these future development areas, we do not provide any numerical guidance at the moment. Clearly, all those 3 areas, we anticipate volume, scale level production and operations in the next 12 months. For example, the Land Aircraft Carrier from our flying car company is aimed to be delivered to end customers before the end of next year, will be in volume, also scale, which I would say, in the thousands of range. But the other 2, for example, the humanoid robot as well as autonomous driving Robotaxi, as we just discussed earlier, next year will be actually a year we'll see a lot of operational testing as well as scaling up process to make them ready for large quantity production and use. So I would say the contribution from next year will probably be limited. But I think the volume we'll expect to ramp up rapidly once the model and the stability of these products is proven in the use, consumer end as well as application end. So the long-term goal of having 1 million per year humanoid robots sort of sales by 2030 is our long-term goal. And that is something that we have good confidence given we see the quick ramp-up in terms of technology as well as multiple application areas in home, in offices, in factory settings. So with all these future areas, we believe the potential is immense. So at this moment, unfortunately, I cannot give you the exact breakdown as well as precise cost estimates because these are still, I would say, evolving. But I think the overall trend is very exciting for us. Tina Hou: [Foreign Language] So my second question is regarding our passenger vehicles. So wondering if we can get more details on the new models, their segment as well as price segment, both in the domestic market as well as overseas and also do we have a volume target for 2026? Charles Zhang: Tina, it's Charles here. I think we believe that one chassis, dual powertrain vehicles present very attractive opportunities. It is also one of our strategic initiatives to expand the volume and the TAM of our -- each of our vehicles. So I think on November 20, we are launching the X9 with pricing, that will be our first, we call it the Super EREV product to be launched. And then you probably also have noticed that we have -- we already have 3 existing vehicles, Super Electric model, already registered with regulators, and we plan to launch those 3 products in early 2026. As Xiaopeng also mentioned that we have 4 vehicles -- 4 new vehicles when we launch, it will be equipped with both BEV as well as EREV powertrain options. And those 4 new vehicles are positioned in the different various segment -- various pricing segments we're in. And we believe that, that will continue to enhance our product portfolio in each of the price segments we're targeting. So in terms of the growth into next year, and we believe that the huge -- the one chassis, dual powertrain vehicle models, the 7 models will significantly drive our growth next year. And also another growth driver we have seen is that the international market will continue to be a major growth driver for us. With our current products available in the international market, we have already hit 5,000 per month for September and also October, the 2 consecutive months already. And of the 7 new vehicles we're launching next year, 3 of them -- at least 3 of them will go to international market. And so we are confident that the international market volume will continue to be a very important growth driver for us into 2026. Operator: The next question comes from Pingyue Wu with Citic. Pingyue Wu: [Foreign Language] I have 2 questions. And my first question is about the new EREV model. And what do we think about the growth potential of our new EREV models in 2026? And my second question is about the humanoid robots. And how do we think about the fuel economy of the humanoid robots since we have implemented some new technologies, for example, the solid-state batteries and et cetera. And in terms of the affordability, will IRON robot be affordable for family, say, like RMB 200,000 or even less? He Xiaopeng: [Interpreted] First of all, regarding the first question, I think what's interesting that we discover from the sales figures that we gather from -- since the launch of X9 was that the targeted customers and also the actual users of BEV and EREV are quite different. So we believe that we can expect to actually see several times of quarter-over-quarter growth when the new version of X9 actually get delivered, and actually different customer groups, when they purchase BEV versus EREV, they are using the cars across different scenarios as well. And specifically, what I want to share is that, obviously, BEV and EREV users in different sizes or scale of cars are also different. In larger vehicles, the percentage of EREV adoption is higher, whereas for Class A vehicles, especially smaller passenger vehicles, BEV ratio is actually higher. So I think we'll have to wait for more numbers to show maybe by Q4 and also Q1 next year before we actually can give you a more concrete answer. Thank you. And the second part of your question, regarding the pricing affordability of robotics, I think, first of all, the pricing logic is very different between cars and robots. When we look at the BOM cost of our Gen 6 and Gen 7 robots, they remain very high last year. But by first half of this year, when we were preparing for true mass production, we actually have enough reasons for us to actually believe the future retail sales price of the robotics -- of the robots can be very similar to car prices. And the second point that I want to mention here is that the traditional way of pricing a car is weight-based. It involves how many kind of iron and lithium and all kinds of elements included and components included in making a car, whereas robots, it's very different because the percentage of software in a robot is over 50% since day 1, whereas the number is only 10% to 20% for a lot of cars. In other ways, you have to put in a lot of cost to train the software and the model, and you need to have the overall capability to do a lot of integration and also domain controller as well. For example, you need to be able to combine all 4 SoCs into a super domain controller so that you can make them as light as possible and as affordable as possible. And these remain very challenging for many industry players. In other words, we really have high hopes for our future when it comes to robotics development. Hopefully, we are going to -- we expect to handle a limited amount of SKU integration, not as many SKU as when you're making a car. And we also will try our best to make the pricing of robots as affordable as possible. So it really can truly help and empower thousands of households in the future. Thank you. Operator: The next question comes from Xiaoyi Lei with Jefferies. Xiaoyi Lei: [Foreign Language] I have just one question. Could you please provide an update on the progress of our overseas localized production for next year? And additionally, how do we plan to leverage our smart driving capabilities to drive the sales growth in international markets? Gui Hongdi: It's Brian, again. Just to address your question on overseas plan for next year. You're right, we actually initiated our local production this half -- second half of this year with first factory in Indonesia and also the -- another factory production facility with partnership with Magna in Austria. Those, I think, is slowly ramping up the capacity. So we anticipate the volume for next year's production in these 2 plants will continue to rise and support our overall sort of overseas growth. I think in the Europe, we are looking at the tens of thousands in terms of numbers of vehicle locally produced there. And in Indonesia, I think probably a smaller, but also a sizable number, high thousands is something that we want to achieve. Looking beyond those 2 plants, we continue to look at additional opportunities to have local capabilities in other markets as well as building local supply chain capabilities to support the localization in these key regions. So we will be increasing our local content, increasing our local stores materials and also looking for further localization strategy to be implemented. So that's something I think is ongoing. I think it's a must do for a company has global ambitions. Looking at the global product sales next year, I think, as Charles mentioned, we're looking for higher growth in the international markets compared to our domestic market. We're also looking for higher contribution economically from those markets. So I would say in the next year or the year beyond, we're looking at a faster growing, higher profit contribution for our international businesses. Operator: Since there are no further questions, I'd like to turn the call back over to the company for any closing remarks. Alex Xie: Thank you once again for joining us today. If you have further questions, please feel free to contact XPeng's Investor Relations through the contact information provided on our website or the Piacente Financial Communications. Operator: This concludes today's conference call. You may now disconnect your lines. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good day, and thank you for standing by. Welcome to H World Quarter 3, 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to your first speaker today, Mr. Jason Chen. Thank you. Please go ahead. Jason Chen: Thank you. Good morning, and good evening, everyone. Thanks for joining us today. Welcome to H World Group 2025 Third Quarter Earnings Conference Call. Joining us today is our Founder and Chairman, Mr. Ji Qi; our CEO, Mr. Jin Hui; our CFO, Ms. Chen Hui; and our CSO, Ms. He Jihong. Following their prepared remarks, management will be available to answer your questions. Before we continue, please note that the discussion today will include forward-looking statements made under the safe harbor provision of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. H World Group does not undertake any obligations to update any forward-looking statements, except as required under applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliations of those measures to comparable GAAP information can be found in our earnings release that was distributed earlier today. As a reminder, this conference call is being recorded. The webcast of this conference call as well as supplementary slide presentation is available at ir.hworld.com. With that, now I will hand over the call to our CEO, Mr. Jin Hui, to discuss our business performance in the third quarter of 2025. Mr. Jin, please. Hui Jin: [Interpreted] I believe many of you have noticed that 2 weeks ago, on the occasion of H World's 20th anniversary, we successfully held a partner conference being 20 years young forging ahead. Therefore, before diving into our third quarter performance review, I'd like to take a few minutes to once again share some of our thoughts on the long-term outlook of China's hotel industry and us. In summary, we believe H World has great long-term growth potential by deeply rooted in China market. Currently, we can observe that while the industry supply is relatively ample, high-quality supply is in noticeable shortage. Compared to the mature U.S. market, China still has low hotel trend penetration and the industry remains fragmented. As a unified large singular market similar to the U.S. but with an even larger population base, the increase in churn ratio and the phase-out of low-quality supply will inevitably become a long-term trend. More importantly, the demand for travel is gradually shifting from discretionary demand to necessity for Chinese consumers nowadays. China has the best infrastructure worldwide with extensive high-speed rail and highway network coverage. This has made traveling much easier and more convenient, facilitating the penetration of accommodation needs from major cities to country-level markets. Additionally, Chinese consumers are beginning to redefine consumption concepts and oriental aesthetics. We can see a substantial increase in the consumer desire in seeking sales pressure, which further drives the growth of experiential consumption such as tourism, exhibitions, concerts, and sports events. Apparently, the current supply quality in China's hotel industry is unable to fully meet consumers' increasingly upgraded and diversified demand. Therefore, supply side reform will be the main theme of the future industry development and this will undoubtedly bring tremendous growth opportunities for domestic branded hotels like us. As the leading players in China's hotel industry, we will continue deepening our roots in the China market, pursuing high-quality growth and delivering service excellence with a brand-led approach to reduce industry with centering on high quality and efficiency. We are full of confidence in the future development of China's hotel industry. After sharing our perspectives on the long-term outlook, now let's turn to our third quarter performance. We are pleased to see early signs of improvement in the overall market condition. On the demand side, data from railway, aviation and the number of tourists indicate that the domestic travel demand continuously to grow steadily with the increasing demand for travel being particularly evident during the National Day and mid-autumn festival holiday period. On the supply side, third-party data shows that the sequential supply growth has stabilized and the year-over-year growth rate has moderated. However, we still need more time to see if this trend is sustainable. We are glad to report that H World delivered good results across several key metrics in the quarter. In the third quarter, we achieved a year-over-year increase in ADR while maintaining a relatively stable occupancy rate driven by refined revenue management initiatives, including optimizing pricing strategies across flagship hotel, newly opened hotel and a mature hotel as well as refining promotional strategies and enhancing incentive programs. As a result, our RevPAR stayed largely stable compared to the same period last year. Breaking through in new cities and regions and further penetrating in the lower-tier cities, we achieved another quarter of high-quality network expansion driven by a 17.3% year-over-year increase in the number of rooms in operation. Our group hotel GMV grew by 17.5% year-over-year to RMB 30.6 billion. Meanwhile, along with our network expansion and the continuous enhancement of H Rewards membership program, our membership base exceeded 300 million by the end of third quarter, up 17.3% year-over-year and ranking #1 globally. In addition, room nights sold to the members rose 19.7% compared to the same period of last year, exceeding RMB 66 million and accounting for 74% of the total room nights sold, which is also a leading position in worldwide. More importantly, our monetized and franchised business delivered strong growth in its hotel network revenue as well as profit. Our third quarter group M&F revenue rose 27.2% year-over-year to RMB 3.3 billion, and the group M&F gross operating profit increased by 28.6% year-over-year to RMB 2.2 billion, contributing over 70% of the group's total gross operating profit. In terms of hotel network expansion, we remain steadfast in executing our strategic focus on economy and middle scale segments to serve the mass market. This strategic positioning aligns precisely with the current consumer behavior of seeking value for money products and services and can further demonstrate our competitive advantages. By continuously upgrading our core products and enhancing our excellent service with a customer-centric principle, we are enhancing the quality of our hotel portfolio and strengthening our brand positioning to achieve long-term sustainable growth. The new version of HanTing along with our middle-scale brands, Ji Hotel and Orange Hotel, will serve as the key growth engines for our expansion in the lower-tier cities and provides strong foundation for achieving our strategic goal of 20,000 hotels in 2,000 cities. At the same time, H World has also made rapid breakthrough in the upper-midscale segment. At the end of third quarter, our number of upper-midscale hotels in operation and in pipeline exceeded 1,600, up 25.3% year-over-year. More importantly, to meet the growing consumer demand for quality living or oriental aesthetics and unique experiences, we recently launched a brand-new upper mid-scale brand, Ji Icons during our 20th anniversary. The introduction of Ji Icon further enriched our upper-midscale brand portfolio and help us to achieve comprehensive coverage from oriental to Western brands and from selected service to lifestyle hotel offerings. Ji Icon's brand embodies a combination of subtle understated and elegant oriental aesthetic, enabling a value lift from accommodation functionality to a holistic lifestyle experience. The success of Ji Hotels has demonstrated Chinese consumers' ethnicity for oriental aesthetics and culture. We are confident that building upon Ji Hotels Foundation, Ji Icon will further deepen the expression of oriental aesthetics and the culture element. Moreover, our group's strong supply chain and modular construction capability as well as our global leading membership and direct sales capability will effectively support our Ji Icons to reach low construction cost, high operational efficiency, and high product quality. We believe Ji Icons will become one of the big driving force to support our penetration in the upper-midscale segment and has the potential to become another world-class brand after HanTing, Ji Hotel, and Orange brand. We remain focusing on strengthening our direct sales capabilities through H Rewards membership program. Our membership program and direct sales capability are vital to our sustainable long-term business growth. Our membership base has been growing as we expand our hotel network and entering into more cities. By the end of third quarter, H Rewards membership exceeded 300 million and the room nights sold to the members grew 19.7% year-over-year with enlarging portion of contribution to the total room nights sold. Going forward, we will further enhance our membership benefits, expand loyalty points usage scenarios, and explore cross-industry partnership to strengthen member engagement and enhance direct sales capability. This concludes the business update for H World's Third Quarter 2025. Now I will hand over the call to our CFO, Ms. Chen Hui, to present the group's financial performance for the quarter. Hui Chen: Thank you, Jin Hui. Good evening, and good morning, everyone. Let me walk you through our third quarter financial overview. During the quarter, our group revenue grew 8.1% year-over-year to RMB 7 billion and Legacy-Huazhu revenue grew 10.8% year-over-year to RMB 5.7 billion, both surpassed the high end of our previous guidance. It was mainly driven by better-than-expected RevPAR performance as well as hotel network expansion. Group adjusted EBITDA rose by 18.9% year-over-year to RMB 2.5 billion, with margin improved by 3.3 percentage points year-over-year to 36.1%. The faster adjusted EBITDA growth and margin expansion were mainly contributed to further enlarged profit contribution from our asset-light business. Cost savings from Legacy-DH, partially on the absence of RMB 81 million restructuring costs incurred in the third quarter last year as well as cost optimization efforts from Legacy-Huazhu. Looking into our asset-light manachised and franchised franchise business. In the third quarter, powered by our high-quality asset-light network expansion and better-than-expected RevPAR performance. Our manachised and franchised business revenue recorded a robust 27.2% year-over-year growth to RMB 3.3 billion. More importantly, manachised and franchised business gross operating profit rose by 28.6% year-over-year to RMB 2.2 billion with a margin of 68% in the third quarter. As a result, gross operating profit contribution from our manachised and franchised business further enlarged to 70% in the third quarter, up 11.1 percentage points year-over-year. Moving to our cash flow and liquidity position. In the third quarter, we generated RMB 1.7 billion operating cash flow. And at the quarter end, the group had RMB 13.3 billion cash and cash equivalents and RMB 6.6 billion net cash on the balance sheet. Lastly, on our guidance for the fourth quarter of 2025, we expect our group revenue to grow 2% to 6% compared to the same quarter last year and 3% to 7% if excluding DH. The manachised and franchised revenue in the fourth quarter of 2025 is expected to grow in the range of 17% to 21% compared to the fourth quarter last year. With that, we are ready to take your questions. Operator, please open the line for Q&A. Operator: The first question comes from the line of Dan Chee of Morgan Stanley. Dan Chee: My question is about RevPAR and demand trend. Firstly, on the company's fourth quarter China revenue guidance of 3% to 4% year-on-year growth, what's the implied RevPAR assumption? Can the management share any 2026 outlook for us, especially after seeing third quarter RevPAR decline turns almost flat, especially on the new experiential demand Mr. Jin mentioned versus the original business demand weakness. So which one is driving the RevPAR stabilization? Hui Jin: [Interpreted] So as many of you may notice that in the third quarter, our RevPAR is a bit stabilized. On a year-over-year basis, it's kind of flat. It's not further declining compared to last 2 quarters. And of course, we observed several trends during the quarter. In terms of the demand, obviously, the demand was mainly driven by the leisure travel demand, especially from the tourism activities starting from summer holiday to September and of course, the beginning of the October National Day and mid-autumn festival as well. But on the supply side, as I mentioned before, on a year-over-year basis from the third-party data, we saw the supply growth actually moderated, so it was not growing as fast as before. So it's becoming a bit moderated, so which brings some of the benefits to the RevPAR stabilization. But more importantly, for us, S1 has been putting a lot of efforts over the last 6 months in terms to further enhance our, for example, the revenue management, as I mentioned in my prepared remarks, in terms of setting a new pricing strategy among different tiers of hotels like flagship new hotels and mature hotels. And therefore, I think -- but looking to the fourth quarter, because we are entering into the low season, there is still some of the uncertainties, so as of now, based on our revenue guidance, it implies our fourth quarter RevPAR, which is somewhere around flattish to slightly positive for the fourth quarter. In terms of business demand and leisure demand, of course, there are still some of the macro uncertainties. So to be very frank, the business demand is not that strong yet. But on the other hand, for the leisure demand, it was continuously growing. As I mentioned previously, for the Chinese consumers nowadays, the leisure traveling demand has become -- gradually becoming a necessity instead of discretional demand and especially for some emerging new demand such as concerts, marathon, sports events, and inbound traveler as well. So the leisure remained very strong. In terms of the outlook for the next year, we think it's a bit too early. It still takes time to see whether the stabilization in terms of the RevPAR and the supply-demand equivalent is sustainable. So we will give more color for our fourth quarter earnings. Thank you. Operator: Our next question comes from the line of Sijie Lin of CICC. Sijie Lin: My question is about RevPAR breakdown. If we look at ADR and OCC, we see that ADR performed better recently. So trying to understand the reason behind this and the sustainability. Also, if we look at the gap between blended RevPAR and same-hotel RevPAR, the gap remained at similar level with last few quarters. So is there any chance that the gap narrows in the future? And what measures need to be taken? Hui Jin: [Interpreted] In terms of the ADR, of course, for 2025, the improvement of RevPAR has been a very key task for our top management team. And of course, they have been putting a lot of efforts on that. So in terms of ADR, as I mentioned earlier, so we have doing a lot of works on further enhancing our revenue management capability, especially on the pricing for different layer of the hotel and different products. And of course, on the front line, we give a lot of various incentives to our salespeople to further motivate them to do a lot of sales activities. However, apart from these things we have been doing over the 6 months -- over the last 6 months, actually, the ADR increase in the third quarter is a result from our continuous efforts on the product upgrades, the quality improvements as well as our service excellence because we have been doing these things for many, many years and continuously doing so, and we have more and more recommendations from our customers. So that's why in certain areas or in certain regions, our products and service is definitely in a leading position, which gave us some of the pricing power, which led us to achieve a better ADR for the third quarter. And in terms of the like-for-like hotel or mature hotels, the gap, we are glad to see the year-over-year decline was narrowed significantly in the third quarter. On one hand, we -- in terms of the pricing, we use a lot of different layer for pricing the different products. Over the last 1.5 years, we opened a lot of high-quality hotels, new hotels in some of Tier 1, Tier 2 cities, which is creating some of the cannibalization to the existing hotels. But through different pricing -- in different pricing strategy for different products, I think we are seeing some of the improvements for our mature hotels. And fourth -- and more importantly, we keep doing a lot of existing hotels upgrades to further improve the hotel quality itself in order to rise -- improve the RevPAR as a whole. Operator: The next question will come from the line of Lydia Ling of Citi. Lydia Ling: Lydia from Citi. So I have a question regarding the brand, especially for the newly launched upper-midscale brand, Ji Icons. So could you actually share some -- your plans for this brand and such as your store opening plan and also the store economics like the CapEx and the payback period? And how actually your advantage versus like the current other leading upper-midscale brand in the market? And how is the feedback from the franchisees so far? Hui Jin: [Interpreted] Okay. So in terms of the Ji Icons brand, so obviously, the launch of Ji Icons brand has shown a very strong determination for H World to break through and development in the upper-midscale segment with multi-brand strategy. This trend is very clear. And secondly, based on the current culture confidence or Chinese culture confidence and also the preference from the Chinese consumers on our oriental culture or oriental service as well as oriental lifestyle that also basically support the launch of the Ji Icons brand. And as I said before, Ji Icons is going to definitely become one of the core brands in our upper-midscale segment. And we hope this brand can be the best brand or the best hotel that Chinese customers will like the most. So in terms of the UE, in terms of the CapEx you asked, we hope we can share more information after the first hotels opened. Thank you. Operator: Our next question comes from Simon Cheung of Goldman Sachs. Simon Cheung: The question is related to the hotel opening. In the third quarter, they've done very well in terms of hotel opening over 700. And I think in the first 9 months, they opened more than 2,000 hotels. That's on track or even exceeded the 2,300 hotel that they have targeted for the full year. Wondering whether there's any update for that and in particular, also on the new signing as well. And then on the related questions, given the focus and the strong momentum that they have seen in the upscale segments -- upper-midscale segments where they achieved 1,600 hotels secure. And we have seen similarly HanTing, they've done like 5,000 and that Ji Hotel done 4,000. Wondering whether they have any targets for the uppermid-scale in the longer run. Hui Jin: [Interpreted] Benefiting from faster new signings in 2023 and 2024 post COVID as well as further improvements in terms of our supply chain capability, which resulted improvements in conversion ratio from the pipeline to new openings. So we achieved a quite good new openings for the first 9 months, which is slightly more than 2,000. So therefore, for the full year, we could possibly open a bit more than 2,300 hotels as what we guided previously. But again, so we emphasized several times over the last several quarters' earnings call. In terms of the new signings and openings, we will focus more on quality expansion instead only looking for scale. So that the never changed. So we're going to continuously implementing this strategy for high-quality sustainable growth. In terms of the upper-mid segment, as I said, we have reached 1,600 in both pipeline and the operations, which also achieved a pretty rapid growth. But however, if you look into a longer term, for example, 2030, we're going to still focus on the mass market with the economy and the middle scale. So in terms of the proportion, economy and middle scale going to still contribute the majority. But in terms of the growth rate, we hope our upper mid segment could grow the fastest in the industry and become the leading players in China market by 2030. Operator: Our next question comes from Ronald Leung of Bank of America. Ronald Leung: Let me translate my questions in English. So I have two questions. My first question is about cost and margins outlook. The company has achieved very decent margin expansion in the past 2 quarters. Could management share with us the latest outlook on cost control and also margins? My second question is about the membership program. So the overall membership has grown decently to over 300 million by the end of 3Q '25. Could management share an update on the strategy on how to further enhance memberships loyalty and also marketing strategies to improve the conversion rates? Hui Jin: [Interpreted] Okay. So in terms of our members, so definitely, direct sales and membership is one of our core strategy. We are glad to see in terms of the member base as well as the room nights sold to our members continuously to grow. But we think that's still not enough. So that's why we have been doing quite a lot of jobs over the past several months. First of all, we introduced a price guarantee program, which is going to ensure our members to get the best price and service as also the unique experiences at the hotel. And secondly, we're also trying to fulfill more diversified demand from the leisure travelers and some of the emerging demand, for example, as I mentioned earlier, like sports events, like inbound travelers. So basically, the H Rewards membership program is gradually shifting from only business travelers to fulfill more diversified demand. And thirdly, we are also enhancing our capability to receive more business clients and corporate clients to further enhance our exposures. And lastly, we have been experimenting a lot of cross-industry cooperation with a lot of top-tier vertical players trying to enhance members' experiences and improve their engagement. Operator: Our last question comes from... Jihong He: [Foreign Language] Operator: Sorry, please go, continue. Jihong He: [Interpreted] Okay. Let me do the translation. So overall, the adjusted EBITDA margin improvement was mainly because of our asset-light strategy. So obviously, the M&F has higher margin compared to leased and owned. In terms of the cost control, in terms of the hotel operating costs, by leveraging our strong supply chain capability, we continuously to reduce the cost per room night sold. And for our leased and owned hotels, we're continuously seeking for more rental reduction, just trying to improve the profitability level of our leased and owned hotels. And on SG&A perspective, we're continuously optimizing our mid and back office and headquarter, just trying to control the cost. In terms of sales and marketing, we will based on ROI and do some of necessary investments on, for example, the hotel brand membership as well as the user -- new user acquisition. So as mentioned by Jin Hui, so we have been systematically improved our capability to improve our revenue management so as in the cost control side. So we are also doing a systematic capability improvement. Thank you. Operator: Thank you. We have come to the end of the question-and-answer session. That concludes the conference call for today. Thank you for your participation. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good morning, everyone, and thank you for waiting. Welcome to Cosan's Third Quarter 2025 Earnings Release Conference Call. [Operator Instructions] The conference call is being recorded and will be available on the company's IR website at cosan.com.br. [Operator Instructions] Please note that the information contained in this presentation and in statements that may be made during the conference call regarding Cosan's business prospects, projections and operating and financial goals are based on beliefs and assumptions of the company's Executive Board as well as information currently available. Forward-looking considerations are not a guarantee of performance as they involve risks, uncertainties and assumptions and refer to future events that depend on circumstances that may or may not materialize. Investors should bear in mind that overall economic circumstances market conditions as well as other operating factors may affect Cosan's future performance and lead to results that differ materially from those expressed in such forward-looking statements. I will now turn it over to Mr. Rodrigo Araujo. Rodrigo Alves: Hi, everyone. Welcome to our earnings call of the third quarter of 2925. Here, we have the disclaimers about future projections and future assumptions with respect to the company's results. Next slide, please. So looking at the financial highlights of the third quarter of 25, you can see that we had an EBITDA under management of BRL 7.4 billion that's about BRL 1 billion less than 2024 and mostly impacted by the results of Moove, Radar and Raizen that we're going to detail later on. We also had given the lower EBITDA and the higher financial expenses, we had a lower net income in the period, negative BRL 1.2 billion. Our net debt was relatively stable in the quarter, slightly higher than Q2 '25. We had a quarter with lower dividends received. Of course, we have a concentration of dividends in the beginning and end of the year. So that's reflected in dividends for Q3. And in that sense, we also have our debt service coverage ratio of 1x. And this is, of course, one of the main reasons why the company needed to improve and enhance its capital structure and did the transactions that we announced recently. And in terms of safety, we continue to have positive metrics, low metrics in terms of incidents. Of course, there's an increase compared to Q2 '25, but still highly efficient ratios. And we continue, of course, to have safety as a priority for the company and continue our journey of improving safety over time. Next slide, please. In terms of operational performance for Q3 '25, we had in the case of Rumo, we had largest -- an increase in the transported volumes but also a reduction in the average tariffs that resulted in an increase in EBITDA of 4%. The company has been repositioning itself over the course of the year to improve its competitiveness in the Brazilian logistics market. In the case of Compass, we had higher distributed volumes in the quarter, also an increase in the participation of the residential segment that has healthier margins and it's quite accretive for the company as well. We continue to see the increase in the volumes sold by Edge in the unregulated market in Brazil. So we saw a growth of 6% of Compass EBITDA in the quarter. In Moove, something that we've been talking about. We already see the company having stable volumes compared to '24. When we compare to the second quarter of 25, there was a 13% increase in the volumes sold. So the company is gaining back its track in terms of volume, even though the EBITDA was 7% lower, and we are working on eliminating the logistics and tax inefficiencies of the new production settlements settings for the company after the fire in the Rio de Janeiro plant. We continue with the CapEx of the reconstruction of the plant. And in terms of insurance, the company has already received until October roughly BRL 500 million of proceeds in insurance. In the case of Radar, we had the sale of properties that impacted positively the results in 2024 that didn't occur in '25. So that's the main reason for the difference year versus year, and we will have the land appreciation review in the fourth quarter. We expect increase in the value of the portfolio given the current market environment. Finally, in Raizen, we have an increase in the pace of harvesting that was favored by weather conditions. So the sugarcane crushing increased in the quarter, even though we had lower sugar prices that affected EBITDA. And we also have an overall lower volume given the drought and fires that affected the company's production for this year. In the fuel distribution segment, we see a very healthy environment. We see operations of the federal police in Brazil and the crackdown of irregular players that's translating into higher margins and healthier margins. So we have quite relevant margins in the fuel distribution segment in Raizen. Next slide, please. In terms of liability management, you can see that, as I mentioned, gross debt relatively stable, net debt slightly higher, interest coverage about 1x. And in terms of the amortization schedule, we continue to have a duration of roughly 6 years with an average cost of CDI plus 90 bps. So no relevant change in terms of the debt structure of the company. And finally, when we look at the cash position through the quarter, we have no relevant events in terms of liability management. We only have the dividends received and interest payments in the quarter. So those were the only events that happened this quarter compared to the second quarter. So that's the main reason for the changes in the cash balance. So next slide, please. So thank you for participating in our earnings call of the third quarter of 2025, and we continue with the remaining of our earnings call. Thank you. Thank you for joining. Operator: [Operator Instructions] Before we begin the Q&A session, Mr. Marcelo Martins would like to say a few words. Please go ahead, Mr. Martins. Marcelo Martins: Good morning, everyone. Thank you for joining us at our earnings release conference call. And before we move on to the Q&A session, I'd just like to make a few comments because this is a key time for the company. I'd like to talk about what Cosan is going through right now. Since there's been a change in management at Cosan, more specifically when Nelson stepped down as a CEO and went to Raizen and I joined as a CEO, roughly 12 months have gone by. So a year after that change, and that's when we first started discussing our objective to improve Cosan's capital structure very objectively, and we discussed different alternatives. We've always made it clear that we wanted to as efficiently and constructly as possible, preserve the portfolio and look for an encompassing solution that would be definitive and to provide a positive perspective for the business and for Cosan. All of you who have taken part in conversations with us, with me here at Cosan or at other events will know that we've always made it clear that our first option was to potentially divest from some assets, but we also wanted to preserve the quality and integrity of our portfolio to continue to be a compelling company for future investments. And that's precisely what we did. We looked at what Brazil was going through, what the market was going through and came to the conclusion that the best option was to find relevant shareholders that could make significant contributions to the future of the company at an investment size that would also make sense. So in our pursuit, we identified a few potential investors, and I am completely confident that we ended up with the best investors possible for the future of this company. We were able to not only increase capitalization significantly, so reducing the company's issues substantially. So even if we still have a residual divestment balance so that we can reduce Cosan's debt to 0 or close to 0 in the near future, which is another commitment I've made to investors. We looked for a relevant transaction with the contribution of these new shareholders as the main factor and also some subscriptions to this new public offering that ended last week. I'm very happy to say, and I can speak for myself, for Cosan and Rubens as a controlling shareholder of Cosan that we are extremely happy to have highly valuable shareholders who have huge credibility in the market. They're very successful. They're fantastic risk managers, portfolio managers. They are very familiar with the infrastructure sector and considering our portfolio right now, they will make amazing contributions to the future of this company. So before anything else, I wanted to thank Boston and their commitment the level of involvement they've shown to the process and the fact that we were able to conclude this transaction. So looking forward, very excited and fully confident in the future of this company. That said, we know that as of now and over the next few months, probably the next year, we will be focusing entirely on integrating the new shareholders with a shareholder getting to know the companies in depth. You know the level of contribution they'll be making and what we expect as well at the Board at Cosan and the invested companies. The objective is to fully engage this group of shareholders, looking at future investments, that should bring the company's debt to 0 or close to 0. We also want to make it very clear that we do have divestment priorities, but this plan will be executed at the right pace so that we can really create value without any pressure to sell assets at any price. That is not going to happen, has not happened and will not happen, especially now that we are in a much more comfortable position when it comes to capital structure. So we will be focusing on our portfolio on identifying the priorities at Cosan looking forward and divesting so that we can execute our plan as efficiently as possible. And we're going to look at growth options down the line once we know the way forward, then we'll be able to look at assets that will become part of this portfolio in the future because, obviously, we want to unlock value and to use the levers we've always used in the past, but which hasn't been possible for the time being, given that we'll be focusing on rebalancing our capital structure. That's the main change now. We have a completely open horizon whilst a while back, there was quite a high level of uncertainty. So that was basically what I had to say. These are just my opening remarks, and we can now begin the Q&A session so that Rodrigo and I can answer any questions you might have about our results. Operator: We will now begin the Q&A session with Mr. Marcelo Martins, Mr. Rodrigo Araujo, and Ms. Camila Amorim. [Operator Instructions] Our first question is from Gabriel Barra from Citi. Gabriel Coelho Barra: My first point based on what Marcelo said is about supply. What was the allocation rationale in terms of supply and the outcome? I know Marcelo touched on it, but if you could provide us with a bit more detail, it would be really interesting to hear about that. And second question, also touching on what Marcelo said is after this capitalization, the company is a bit more comfortable and can now think about restructuring the portfolio, selling assets. If we could talk specifically about Raizen, even if the company is in a more comfortable position now with a better capital structure, Raizen has been burning cash and you've changed the perspective of the second offering to strengthen the subsidiary company's capital structure. So could you tell us about Cosan's strategy considering the subsidiary companies? Will there be a third entrant? What are the options on the table? Could you tell us about that? So those are my 2 questions. Rodrigo Alves: Thanks Barra. I'll start with your first question, and Marcelo can answer your second question. About the offering, this transaction was big enough to be relevant for the company's capital structure and for new partners to come in with expertise in infrastructure in Brazil with a long-term strategy and an amazing plan with the new partners. And that can be seen in the stats of the offering. The first offering was 10x the demand. The second offering was also significant. So we had 2 very successful offerings. And an interesting challenge in terms of allocation. For the first offering, we kept what we said to the market when we announced the offering, so we prioritized existing shareholders. The first offering had one non-shareholder that was long term strategic and was allocated. The rest were all part of the company's existing base. The second offering was a priority offering but we went beyond that and gave allocation priority to the existing shareholder base. 2/3 of the offering was allocated to the existing base. So we've really prioritized the company's long-term shareholders who've been with the company a long time, believing in our recovery journey. So in summary, we had 2 successful offerings where we kept what we had said that we were going to prioritize our existing shareholders. I'll turn it over to Marcelo so he can talk about our capital structure. Marcelo Martins: Well, Gabriel, adding to what Rodrigo said, we were very happy with the level of interest and demand for our first and second offering, which is a clear testament to the fact that the market is betting on the future of the company as well as knowing that this was the best solution possible considering the different alternatives and that we were committed to the market to resolve our capital structure this year. That's why it was so important to deliver on all these elements within 2025. As for Raizen, yes, we do understand solutions for the company's capital structure are required urgently. And I just want to say that I'm very happy with what the company's management has been delivering. And considering all of our expectations concerning what was to be delivered, I'd say management has complied with what we had expected for this year, 100%. Despite the challenging scenario, deliveries have been very positive. And a lot of points were addressed during the call on Friday. We know that this is the best way possible and it will be very positive for the portfolio and for the companies in the future. But obviously, capital structure challenges remain our conversations with Shell have progressed considerably. On a number of aspects that can be potential solutions or solution, we have made progress, although we haven't yet come to a conclusion about the way forward. I'd say that in our conversations with them, the clearest direction compared -- is much clearer than we had a few years -- weeks ago, but we haven't come to a final conclusion yet to announce to the market. We have been working hard on it. This is a massive priority for me and Cosan's team. After Cosan's capitalization we know that we need to focus on that, and we'll continue to work on it with a sense of urgency and closely with Shell so that we can come to a conclusion. I can't share with anything with you for the time being because we're still working on it. We haven't come to consensus on their side or on our side. So no conclusions yet. What we did do recently during the second offering was to announce that we might be using proceeds from that offering to capitalized companies, broadly speaking, and Raizen is included in that. So that remains, obviously. We have already disclosed that because we think that's a key consideration when it comes to Cosan. And depending on the solution, if it's a broad solution with a positive effect, we will definitely consider that capitalization. As I said, we haven't decided on the terms yet. And in fact, the structure to be pursued so that we can continue to deleverage the company hasn't been decided on yet. But our commitment to get to the right solution and to potentially making a capital contribution remains as we had said previously. Operator: The next question is from Isabella Simonato from Bank of America. Isabella Simonato: You touched on many different points, including the new shareholders and Raizen's process. And on Friday, during the call, you also announced several Board changes to the directors. I would imagine that comes from a shareholders' agreement that was signed. But if we could also talk about the context of the changes in directors, which at the end of the day also had an impact on Raizen at a crucial time, as we all know, when they're working on the balance sheet. So if you could provide us with more color about that, that would be very helpful. Marcelo Martins: Well, yes, those changes to the Board are a consequence of the new partners coming in. We had agreed that those changes would take place. And obviously, totally in line with the new partner's contributions to the company. Not only were we expecting those changes, but we also believe that they are extremely positive to the future of the company. Another point, which I didn't mention during my opening remarks, but I will now, before I address the financial changes is that we have been making significant changes at Cosan to streamline the team and to streamline the company itself. We believe that in line with Cosan's future and the contributions the company will have to make to its portfolio, it is important to streamline the holding company and to generate more efficiencies, which is something we've been thinking about for a while and now is the time to do it. I think that streamlining process will be very accretive in terms of value to Cosan. Streamlining the holding company and reducing expenses will also be a huge contribution in addition, obviously, to the capital increase. So that's how we're going to proceed. As for the changes in CFOs. Now that Rodrigo is leaving and with the objective of bringing in people from inside the company who have the knowledge and who can run this area with in-depth knowledge of the portfolio and the process, it had to be somebody from the company. Bergman has been with us a long time, 14 years, I think. He's been through many companies in the group. He has a lot of experience within the group. So he's highly qualified to take on the job. And since the holding company is focusing on the portfolio, the partnership with the new partners and focusing on the portfolio more constructively, it was key to bring in someone, if I may use a word in English that could hit the ground running. So he is somebody who is going to come in and hit the ground running and continue to manage things as we expect them to be managed now that Rodrigo is leaving. And somebody who is going to come into Rafa's place to make the right contributions, who had experienced enough to run such a complex company as Raizen. Hence, Lorival is now taking Rafa's place. What I wanted to say is that during the 2 years, Rodrigo spent with us, he made massive contributions even though it wasn't a long time, he was extremely active. He had a huge role to play and made exceptional contributions to the company. When we said we were going to sell our stake at Vale and with the current capitalization, that means we move BRL 20 billion in the Brazilian capital market in 12 months. That's a historical milestone for any company in Brazil, especially considering current times. So I really want to thank Rodrigo for his contribution, and I wish him the greatest of successes in his next professional stage. Isabella Simonato: Excellent. Marcelo, if I can have a follow-up question, please. Looking at the shareholders' agreement, it's clear that the new shareholders can join the Board, and it's slightly different at Raizen. Rubens -- and will be more in charge of the JV and the JV decisions. Did you make that decision? Did Shell have an opinion? And also, congratulations, Rodrigo, on the last 2 years. And I wish you success on your next stage. Marcelo Martins: These are actually, our new shareholders' agreement will keep the same terms as the pre-existing shareholders agreement. And these were the terms for Raizen already. So what we agreed with the new partners is that we wouldn't change anything. We would keep the same terms. There was no reason to change it, and that is our agreement with Shell. That's why Raizen was the exception. We have kept the appointment of the Board members in line with the shareholders agreement that is in force. As Rodrigo leaves, we're going to replace him at Raizen. We have an idea of who's going to do that, and we should be doing that soon. I just wanted to make that clear. And obviously, it won't be anyone appointed by the new partners for the reason I have just given you. Operator: The next question is from Thiago Duarte, BTG. Thiago Duarte: Good morning, everyone. Marcelo, Rodrigo pleasure to talk to you. If we can go back to Marcelo's opening remarks about the role the holding company has to play in this new context. Historically, Cosan has been going through different formats as a holding company, diversification, then simplification, eliminating holding companies along the way. In the last few years, there's been a significant investment cycle at the holding company and the subsidiary companies. And now with the offering, things are much more tangible. You're talking about a significant simplification with new partners coming in the controlling shareholders group, not only in terms of reducing expenses, but also bringing down the company's debt to 0. So given that context, once this process is concluded or is on the right track, a significant part of it has already been done. What will be the role that Cosan as the holdco will have to play in the future? And I also have a second question. Considering the funds that you raised and considering that a major part of it, if not all, will be used to reduce the holdco's debt, as you said. My question is what part of that debt would you be tackling? Do you think it will be the cost of debt or the maturity, the duration? What kind of an impact will that have on your liability and liquidity? Rodrigo Alves: I'll start with your second question, Thiago, and then I'll turn it over to Marcelo to talk about the holding company. Yes, you're right in terms of how the funds will be used. Substantially, they will be used to pay for the debt, we had already announced that during the offerings. In terms of priorities, there is a cost packing order to be tackled because the duration is compatible. And there's a lot that can go into call in the short term. And the trade-off will end up being positive between a high cost, but also a duration contribution. In terms of the duration itself, I think there is a first stage where there will be a reduction but once the company's credit improves, we'll have more opportunity for tactical operations in the long term. We don't have anything maturing by 2028. So in terms of that kind of pressure there isn't any. And a really good duration for the holding company's horizon. So we'll be focusing on costs, but naturally, there will be an opportunity for a part of the debt, which is callable in the short term to have a positive impact on the duration as well. I'll turn it over to Marcelo so he can answer your first question about the holding company. Marcelo Martins: Well, Thiago the last time Cosan had a capital increase before this one, obviously, was in 2007. So that was roughly 18 years ago. And that capital increase took place before we started diversifying our portfolio because the first acquisition of sugar and ethanol took place in 2008 when we acquired Esso Brasileira de Petróleo. So in practice, all the financing of these acquisitions of the companies in the portfolio took place in the last 17 years, which means that if we had leveraged the company in time because, obviously, that capital increase was crucial for that acquisition, but not enough to build up a portfolio that leveraging took place gradually over time. And it wasn't efficient because it's -- this is a pure holding company. Up to the point where the macro scenario changed, interest rates, skyrocketed and that coincided with the recurring leveraging of our stake at Vale. So we started going in a direction to where to resolve the company's capital structure, either would have to make a significant sale in the portfolio or have a capital increase somehow, which is what we did. So the holding company played a role in the last 17, 18 years that has changed. It doesn't make any sense continuing to use Cosan as a leveraging tool for future growth. First, because it's been clear to us for a while, especially our experience with Vale that we shouldn't develop any other verticals using Cosan's resources. So future investments will be made through the controlled companies when that makes sense again when the time is right. So there's no sense in continuing to leverage Cosan over time. It doesn't make financial sense. It's fiscally inefficient. So the holding company, regardless of our active participation in portfolio management, the holding company will no longer be a vehicle for future investments. We need to consider creating efficiencies and streamlining it over time, and that is our objective for now. Now what will happen once we get to a size that makes sense and the leverage that makes sense, then we'll discuss it again. But right now, we want to create efficiencies and streamline it. Operator: The next question is from Matheus Enfeldt from UBS. Matheus Enfeldt: My first question is based on what Marcelo said about timing. I know it's hard to say, but there's a lot of news about Cosan being in a hurry to resolve investments, to reduce the company's balance sheet in the very short term, which diverges from what you said, Marcelo which is that you now have the time to do it gradually. So I'd like to hear about that timing difference. When do you think we'll be able to see new decisions about the company's portfolio? And also in terms of timing, the message about Raizen sounded very different to my ears in the sense that Raizen doesn't need capital immediately, that it's in no rush, that it can perhaps wait for 2 or 3 years. Whereas what you said, Marcelo, is that they want to resolve it in the short term. So could a potential solution for Raizen happen in the next 6 months? Or do you think it will be over the next 2 or 3 years? So that's my first question. Second question is about Moove. We haven't talked about Moove yet. I'd like to hear more about the company's results. You had quite a solid result. How much of that came from operations? How much of that is a result of insurance proceeds or tax credits? I'd just like to hear about what's recurring and how the operational business is running? Rodrigo Alves: Thanks for the questions. I'll start with your question about Moove and Marcelo can talk about the company's balance sheet and timing. Let me just recap what we showed during the presentation. In terms of volume, the company is well covered. If you compare it to the same period last year, you can see that there's been significant volumes recovery, the reconstruction CapEx. Obviously, the dismantling and reconstruction of the Rio de Janeiro plant is ongoing. And given the volume solution, the company is focusing on eliminating tax and logistics complications in the setup, which transfer interstate products, a return of ICMS credits. The logistics is much more complex than if it was centralized in a single asset. So the company is working on that so that it can land on a new production setup. It's not just about the real plan, part of what was going to be done that will be done to the facilities that we've been acquiring over time, especially in Sao Paulo. So the company is on track to position itself competitively. And given everything that happened, that's quite remarkable. In terms of the insurance proceeds, yes, there was a considerable recognition in the second quarter, another BRL 200 million in the third quarter. But the main thing than the accounting recognition was what we expected that would happen, which is significant cash coming in, BRL 300 million in the second quarter, in October another BRL 200 million, which we have announced and that reiterates our confidence in the process. And we are confident that the company will recover. And again, the Rio de Janeiro plant reconstruction CapEx, as I said, part of the insurance was associated to property. So we expect that Rio's plant CapEx will also be covered and realized over time. I think that's it. And I'll turn it over to Marcelo. Marcelo Martins: Matheus, let me make it very clear so that there is no doubt. Our sense of urgency at Raizen is obviously much more along the lines of 6 months than 2 years. There's no question about that. As we continue to talk and define a strategy with Shell, not only will we announce that, we will also start executing on it as soon as possible. And there is definitely a sense of urgency. No, we do not think that we can wait for 2 years before we find a solution for Raizen's capital structure. The point is that it has been delivering significantly but that's part of the equation. The sense of urgency is there. As for the portfolio, what I said was there is no need for any fire sale of assets. In other words, we will do what's best to solve the company's indebtedness and the portfolio's prospects without burning assets. That doesn't mean there is no sense of urgency, but it's changed with the capitalization. So we have resolved a major part of the capital structure. And the rest will be done, delivered and announced will be executed in a time frame that makes sense, in a schedule that makes sense, for the price that makes sense and the right mood in a coordinated and organized fashion. We don't want to give anybody the impression that we're rushing around trying to sell assets. We didn't do it in the past when we needed to raise funds. So obviously, we're not going to do it now, considering that a major part of that solution has been found. Operator: The next question is from Monique Greco from Itaú. Monique Greco: I have a couple of questions. If you could provide us with more detail about some of the things you've already touched on. First question is if you can comment on the streamlining measures at the holdco level. Have you mapped them? Have you started implementing them? Do you have a time frame in mind to get to the streamlined level you would like? I heard that you are hoping to cut annual expenses by half at the holdco level. My second question is about the divestment agenda. Could you comment on the order and the pipeline? What would make a sense focusing on first? Rodrigo Alves: Thank you, Monique, and thank you for the questions. Well, with regard to implementing measures, as Marcelo said, we have mapped a process to streamline the structure at the holdco level, partly decentralizing some the rules, which is something we had already been doing. Now looking forward, we want to bring the holdco to a level that is strictly necessary. So we'll be focusing on what will remain in the portfolio. For next year, considering this personnel streamline, we should be saving about BRL 30 million for next year. That 50% reduction entails a few other initiatives. As you know, our prospectus announced that we are looking into the company's ADR because of its relevant annual cost. It's over BRL 10 million when we consider all the associated costs. So that's something we're considering, and other things as the physical space as well as other expenses based on what the company has been doing and will take place over time. So without giving you a time frame, we believe that it is very doable to bring -- to cut down on costs by half. As Marcelo said that is key in terms of capturing the value of the deal we announced. So it is in our interest to implement those measures as quickly as possible so that we can capture them also as soon as possible. And Marcelo will tell you about our divestment agenda. Marcelo Martins: As we've been saying to the market, Monique, divestments should take place following the order of capital allocation priority within the portfolio. And obviously, considering that we should start with Radar. So if you look at our portfolio and the level of priority of the business is looking forward, I think Radar is possibly the company where we might consider thinking selling a more considerable share. The rest will come as a consequence of that first step, obviously, depending on the size of the divestment, then we can allocate it to the other businesses as we consider a combination of value, size of the business and the future strategy for investment in those businesses. That's why it's the asset that makes the most sense to start with at the moment. Operator: The next question is from Regis Cardoso from XP. Regis Cardoso: Good morning, Marcelo, Rodrigo. Congratulations on the offering. Your exit will surprise, Rodrigo, but it will leave an important legacy. Marcelo you just talked about Radar, would it make sense to sell more assets or a stake in the company itself? And if you could talk about Rumo, would it make sense to sell a stake? Is there a minimum stakehold and needs to have to remain as a controlling shareholder? And the same applies to Moove, I would imagine that in time, a decision to raise funds at Moove would depend on resuming production. And I don't know if there's anything else on your radar in terms of when it would be possible to normalize things. Marcelo Martins: Well, first of all, with regards to Radar, it's a combination of factors. We can continue to sell properties that are part of the portfolio or sell a part of Cosan's stake. Obviously, there is a trade-off between speed and what makes the most sense in terms of adding value. So we'll look into that to make a decision on the best way forward. We know that, that is compelling to many investors. We have an exceptional portfolio, one of the best portfolios in Brazil. Its size is considerable and a performance track record that is also exceptional. So those are all very positive factors when we consider a significant divestment in that business. As for the other businesses, and I can speak for all other businesses, they are considered very relevant to the portfolio with the potential to create huge value, all of them without exception. If we are effectively going to consider selling a stake in some of them, more diluted stake in more than one of them or if we're going to concentrate it more in one rather than the others, will depend on, first, understanding our strategy looking forward as well as potential buyers and opportunities that may arise. Always, always bearing in mind that value is key. We have built this portfolio over time. We've made considerable progress in terms of growth investments. And obviously, we will make divestments that make sense for the right price depending on the demand, but also obviously considering what is key to the portfolio as a priority. Regis Cardoso: May I ask a follow-up question, please? What about capitalization at Raizen? Is there a maximum amount that you'd be willing to contribute? Marcelo Martins: Well, that is under discussion, but in the context of the offering, I think we've made it clear where that amount would be, right? Where that value would be. We're currently discussing that. I mean it will depend on how our conversations with Shell goes. It depends on what they will be willing to do. It depends on many other factors. But on our side, let's remember all of our statements, the first offering, the second offering and the context. So it will be within those thresholds that we announced to the market. Operator: This concludes the Q&A session. I will now turn it over to Mr. Marcelo Martins for his closing remarks. Marcelo Martins: Well, thank you again for joining us. And this has been a very exciting journey. Our objective is to resolve Cosan's capital structure and more broadly speaking, all the group's companies. We are extremely happy with where we've got to and very excited with the prospects for the group, its portfolio and a clear notion that we will be able to create significant value, again, as we have done in the past. So we want to stop just resolving the company's capital structure and start building again. But until we do so, that's what we'll be focusing on. Construction will come after that. Once again, I want to thank Rodrigo and the whole team for their huge effort, the professionalism, everyone at Cosan, even through tough times when we're talking about cutting down on our personnel, as we know, their level of commitment and professionalism is unique. We are undoubtedly one of the best companies in terms of its people. I want to thank my own team. I want to work -- to thank everyone who works for the companies in the portfolio, and thank you for joining us. Thank you. Operator: Cosan's Third Quarter 2025 Earnings Release Video Conference Call is now concluded. For further questions, please contact the Investor Relations department. Thank you so much for joining us, and have a great afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Niu Technologies Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Ms. Kristal Li, Investor Relations Manager of Niu Technologies. Ms. Li, please go ahead. Kristal Li: Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss Niu Technologies results for the third quarter 2025. The earnings press release, corporate presentation and financial spreadsheets have been posted on our Investor Relations website. This call is being webcast from company's IR site as well, and a replay of the call will be available soon. Please note, today's discussion will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, uncertainties, assumptions and other factors. The company's actual results may be materially different from those expressed today. Further information regarding the risk factors is included in company's public filings with the Securities and Exchange Commission. The company does not assume any obligation and update any forward-looking statements, except as required by law. Our earnings press release and this call included discussion of certain non-GAAP financial measures. The press release contains a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results. On the call with me today are our CEO, Dr. Yan Li; and CFO, Ms. Wenjuan Zhou. Now let me turn the call over to CEO, Yan. Yan Li: Thank you, Kristal. Hello, everyone. Thank you for joining us today. In Q3, we delivered solid and sustained progress across all key strategic priorities, supported by disciplined execution in product innovation, channel expansion and brand elevation. Our results reflect the continued growth of our core China business and early signs of transition in our overseas operations, laying a strong foundation for the next phase of growth. For the third quarter of 2025, the total sales volume reached 465,000 units, representing a strong 49.1% year-over-year increase. This growth was driven primarily by exceptional performance in China, where sales rose to 451,000 units, up 74% year-over-year, supported by our strengthened product portfolio and effective channel expansion. Overseas volume reached 14,000 units, declining year-over-year, mainly due to weakness in the micromobility sector. Our total revenue grew 65% year-over-year to RMB 1.69 billion, accompanied by gross margin expansion to 21.8%, up 8.0 percentage points from the prior year or 1.7 percentage points sequentially. This improvement was driven by a favorable shift in the China product mix with increased contribution from higher-value models. Notably, sales of models priced above RMB 8,000 accounted for over 10% of China sales. Net profit for the quarter was RMB 81.69 million, extending the profitability momentum established in Q2. This improvement reflects daily efficiencies from higher volume and our continued focus on operational excellence. Those results underscore our ability to execute with discipline and resilience amid evolving market dynamics. We remain confident in our long-term strategy and the progress achieved this quarter provides a strong foundation for sustainable growth. China remained our primary growth engine in Q3 with unit sales rising 74% year-over-year to 451,000 units. A key driver was the channel inventory buildup ahead of implementation of the new national standard for electric bicycles, which provided a substantial short-term boost. This performance was also supported by successful product launches, strong brand-driven demand and steady channel expansion. The momentum built through 2024 and into 2025 reflects our refined strategy, enhanced competitiveness and growing consumer preference for Niu. In Q3, the China electric bicycle market entered a critical transition phase under the new national standard. While production of noncompliant models ceased after August 31, retail sales of existing inventories are permitted until November 30, 2025. This prompted distributors and retailers to build inventories in July and August, effectively pulling forward demand from October and November and created a temporary sales boost in Q3. Now to prepare for this regulatory shift, we emphasized on 3 actions: upgrading the existing high-end electric bicycle models to capture the short-term demand, rolling out the new electric motorcycles unaffected by this regulation to target lower-tier cities and redesigning and retuning our entire electric bicycle lineup to fully comply with the new standard for the rollout in Q4 2025 and Q1 2026. First, to capture is premium electric bicycle demand surge under the old standard, we launched the upgraded flagship models, the NXT Ultra 2025 and FXT Ultra 2025 version, each priced at RMB 11,999. The NXT Ultra 2025 introduced 10 major upgrades with 77% of core components redesigned to elevate the benchmark standards across safety, power intelligence. The FXT Ultra 2025 featured a futuristic performance-driven design on the same technology platform as the NXT Ultra equipped with automotive-graded millimeter-wave radar and dual-channel ABS setting a new safety benchmark for the segment. Together, those Ultra models contribute 8% of total Q3 sales, effectively serving high-end demand during this regulatory transition. Electric motorcycles are more prevalent in the lower-tier cities, Tier 3 and below due to a more relaxed regulations. This segment has historically been underserved in our portfolio and the channel footprint, making it a key growth priority for us. As highlighted in the previous earnings calls, expanding presence in lower-tier cities is a core strategy reflected in our store expansion and strengthened product line. In Q2, we completed a full N-Series motorcycle portfolio covering mainstream price points from entry-level NS at RMB 3,000 above and NL at RMB 4,000 and NXL at RMB 6,000 to the performance oriented NX just under RMB 10,000. Starting Q3, we extended the strategy to the F-Series, broadened the price band and enhanced the performance to value offerings. Now despite Q3 being a channel stocking period focused on electric bicycles, our enhanced motorcycle portfolio supported a healthy 14% revenue contribution from motorcycle sales. We expect this share to increase in the coming quarters. A key milestone in Q3 was the successful launch of FX Windstorm version on September 28. Known for its sharp distinctive styling that resonates strongly with Gen Z riders, the FX Windstorm reinforced F-Series' positioning as a performance powerhouse. Priced at RMB 4,799, it targets the RMB 4,000 segments at its first high-speed motorcycle for the young riders, equipped with 3,000 mass motor reinforced frame and a full-size TFT display and 4% disc brakes. It delivered performance comparable to model price above RMB 10,000, including mile 80-kilometer power top speed and 0 to 50 kilometer power in 4.7 seconds. The FX Windstorm was instant success with 14,000 units sold in the first 5 hours and generated RMB 68 million in GMV and ranked #1 on Douyin, Tmall, JD.com and Kuaishou in GMV and popularity. This success validates our strategic expansion into the electric motorcycles and create strong momentum for upcoming launches such as FS targeting the entry-level users. Now alongside the high-end electric bicycle motorcycles, we dedicated significant R&D resources to the new standard compliant electric bicycles. The updated regulation requires substantial redesigns from the limit usage of plastics to form factors. We now plan a full rollout of compliant products beginning in late November and extending through Q1 2026. The portfolio will include the renewed and new series offerings and also introduce new series designed to reach product consumer segments, including products optimized for female riders. Beyond the new product development, we continue to invest in core technologies, including the smart riding system, powertrain innovation and R&D platformization to enhance efficiency and capabilities. Our smart riding under AI efforts focus on 3 areas: expanding the foundational safety technologies such as ABS and millimeter-wave radar, developing assisted riding features for premium models such as the 2-way throttle and [indiscernible] Assist and building intelligent ecosystem to broader third-party integrations. Through partnership with Apple and Oracle with other industry leaders, we expand the cross-device connectivity, including the off-bike safety alert and Apple Wallet T access, enhancing overall user experience. In the powertrain system, we advanced several next-generation initiatives through a deeper motor controller R&D and the close collaboration with our battery partners. Our efforts focus on 2 key objectives: delivering higher peak current output for stronger acceleration and a fine-tune overall system efficiency to extend lower riding range under the diverse conditions. The NXT FX Ultra and FX Windstorm are the strong example of this R&D achievement. The enhanced powertrain architecture enables 0 to 25 kilometer power acceleration in just 1.92 seconds, setting a new benchmark for urban performance. For the FX Windstorm, the upgraded 3 kilowatts high-efficiency motor and optimized controller delivered top speed of 80 kilometer per hour while maintaining stable power delivery, improved thermal performance and consistent power output even during the extended high-speed riding. Those advancements not only elevate writings performance, but also form a foundation for the new generation of new powertrain platform that will scale across future product lines. Now lastly, our product-based R&D strategy continues to deliver a meaningful operational benefit. In Q3, it accelerated product iteration, strengthened manufacturing consistency and increased economy of scale. The improvement supported smooth delivery of 450,000 units, surpassing our previous peak by roughly about 20%, while enhancing margins through shared components and module design cross product lines. Now in Q3, we continued elevating the new brand and deepen engagement with our core audiences, particularly in premium consumers and Gen Z riders, our approach integrated lifestyle campaign, product launches and target digital engagement to strengthen brand equity and drive conversion. We acted on a series of youth-focused lifestyle campaigns, the Summer Ride and Splash campaign embedded new into the outdoor leisure experience such as lake diving and quick hiking across major cities generated 130 million impressions across online and offline channels. Following the FX Windstorm launch, we hosted large-scale test ride events in Chengdu and Chongqing engaged riders in real mountain environment. This created authentic word of mouth within the key user segment to provide valuable feedback. Our launch event continued to highlight news technology leadership. The June 17, Du Ultra flagship launch generated about 20,000 units sold in 5 hours with GMV exceeding RMB 228 million. The FX Windstorm launch delivered 14,000 units sold in 5 hours and 93% positive ratings, resonating strong with the Gen Z and delivery riders. Now strength in both offline and online channels as of Q3 Niu surpassed 4,500 stores nationwide with 238 net new stores added in Q3 and 800 year-to-date. Nearly half of new stores were in the lower-tier cities, supporting deeper market penetration. Our digital ecosystem also scaled rapidly. Niu now managed 9 official flagship accounts supported by 1,062 dealers operated accounts. In Q3, the network generated 30,000-plus live streams, 69,000 content pieces and [indiscernible] million impressions. The online sales representing close to 70% of our total work. We also expanded on to a new e-commerce platform Meituan, piloted with 10% stores generating RMB 40 million to RMB 50 million in monthly sales. We plan to expand store coverage and motorcycles next. On Kuaishou local services, over 2,200 stores have joined and FX Windstorm ABS launched ranked #2 nationally, reinforce our brand resonance among Gen Z riders in the lower-tier market. Now turning to our overseas market. Q3 unfolded as expected transitional quarter as we continue to optimize operation and preparing for our next growth cycle. The overseas sales volume reached 14,000 units with decline in micromobility, offset by encouraging progress in electric motorcycle. Despite Q3 being a seasonal low for European 2-wheeler demand, our electric motorcycle sales reached approximately 2,500 units, up 160% year-over-year. The self-operated sales accounted for 76% of total. We further accelerate our self-operated dealer network expansion. Dealers in those direct distributor regions grow from 120 at the start of the year to 289 in Q3, exceeding our initial target of 250. This reflects the strong brand recognition, product competitiveness and the growing retailer confidence in direct distribution model. With channel foundations now established, we will shift from capability building towards product rollout and deeper channel market penetration. The product lineup unveiled at EICMA position us strongly for multiyear growth. At EICMA, the largest 2-wheeler show in Milan, we showcased our international product road map, expanding from smart e-scooters to broader electric mobility portfolios. Highlights included 2026 NQi X-series with Google Map integration, featuring 125-kilometer per hour NQiX 1000 launching Q3 2026, the all-new FQiX Series for working commuters in L1e and L3e version for Q3 2026, the expanded XQi Series, including the 110-kilometer per hour XQi 500 Street version for second half of 2026. And lastly, the Concept 06, forward-looking 155-kilometer per hour platform featuring AI assisted intelligence, advanced safety. The new NQi 500 was awarded Top Award 2025 by German leading motorcycle media outlet 1000 PS, a strong validation of our product excellence. Our micromobility volume reached to 11,900 units, down 77% year-over-year, reflecting market headwinds in the U.S., Europe and Asia. Europe saw intensified price competition, while the U.S. shifted towards a lower price model due to tariff dynamics. In Q3, we intentionally reduced promotion and shipment to avoid overstocking and protect margin during a period of pricing pressure and supply chain transition. Given the current inventory levels in Europe and the U.S., we expect the structural adjustment to continue for the next couple of quarters. Now look ahead, we'll continue executing our strategy of driving fast growth in the China market and scaling our international electric 2-wheeler business while strategically adjusting the micromobility operation. We expect China to remain our primary growth driver of strong execution across the first 3 quarters. We break out product each quarter, demonstrating our capability in product definition, channel activation and brand influence. However, we expect some uncertainty and softening in Q4 this year due to the timing of the new standard implementation. The retailers are preloading inventory in Q3, shifting some demand from Q4. And a new standard compliant product will ramp up from late November through Q1 2026, shifting part of the Q4 demand into Q1 2026. Combined, those factors will likely result in a relative flat year-over-year volume in Q4. We expect growth to reaccelerate in Q1 2026 as the regulatory transition completed and the market stabilized. The fourth new standard electric bicycle lineup, along with 300 to 400 new stores additions in Q4 will support a strong momentum into 2026. Now turning into the overseas market. For electric 2-wheelers, we expect strong year-over-year growth in Q4, supported by ongoing expansion of direct distribution network. The new product introduced at EICMA will fuel the multiyear growth starting in 2026. In micromobility, we will continue prioritizing profitability or skills in Q4, reducing promotions that focus on clearing existing inventories. This will lead to a lower Q4 volume. We expect the adjustment to conclude in first half of 2026 with margin return to the normal level second half of 2026. Now with that, let me turn the call to Fion. Wenjuan Zhou: Thank you, Yan, and hello, everyone. Please note that our press release contains all the figures and comparisons you need, and we have also uploaded cell format figures to our IR website for your easy reference. As I review our financial results, I'm referring to the third quarter figures unless I say otherwise. And all mandatory figures are in RMB if not specified. As Yan just mentioned, our total sales volume for the third quarter was 466,000 units, up 49% compared to the same period of last year. Among this, 451,000 units sold in China and the remaining 14,000 units overseas. Nearly 50% of our sales volume in China came from our top 3 models this quarter and the number of franchise stores in China was 4,542 at the end of third quarter. Total revenue for the third quarter amounted to RMB 1.69 billion, an increase of RMB 670 million or 65% compared to the same period of last year, and the result came in slightly ahead of our guidance, primarily due to the robust sales volume growth in China during the peak season in third quarter. China revenues were RMB 1.62 billion, increased at 84% year-over-year and accounting for 95% of total revenues. Of this, the scooter revenue were RMB 1.48 billion, and this growth was primarily driven by a 74% increase in sales volume and coupled with a higher ASP. China scooter ASP was RMB 3,283, representing a nearly 7% year-over-year growth and remaining largely stable compared to the previous quarter. And this growth was primarily driven by a favorable shift in our product mix. In Q3, our top seller NT with a retail price range from RMB 3,699 to RMB 4,599 continue to perform well. In the meantime, complemented by a strong contribution from the new products like the [NLT] and NXT range from RMB 3,899 to RMB 6,299. Collectively, these 3 top sellers accounted for nearly 50% of our total sales volume this quarter. Overseas revenue was RMB 77 million, representing 5% of total revenue. Scooter revenues, including electric motorcycles and mopeds, kick scooters and e-bikes amounted to RMB 67 million, down from RMB 130 million in the same period of last year, and this decline was driven by decreases in sales volume and ASP of kick scooters. Overseas scooter ASP increased 90% year-over-year and 41% quarter-over-quarter to RMB 4,648 and driven by a greater proportion of revenue coming from the higher-priced electronic motorcycles and mopads. Revenue from accessories, spare parts and services were RMB 145 million, representing 8.6% of total revenue and a 51% increase compared to the same period of last year due to the increase in spare parts sales in China. Gross margin this quarter -- gross profit this quarter exceeded RMB 370 million, marking a significant improvement compared to RMB 142 million during the same period of last year and RMB 252 million last quarter. The gross margin was 21.8%, 8 ppt higher than the same period of last year and 1.7 ppt higher than the previous quarter, marking our best quarterly gross margin performance this year. And this improvement was driven by the ongoing cost reduction initiatives and the economy of scale from higher sales volume in China market. Operating expenses for the third quarter were RMB 297 million, increase of 48% compared to the same period of last year and the OpEx ratio down to 17.5% dropped from 19.6% in the same period of last year and 21.1% in the previous quarter. Selling and marketing expenses rose by RMB 87 million year-over-year to RMB 215 million, primarily driven by higher spending on marketing and online promotion campaigns in China. Selling and marketing expenses representing 12.7% of revenue compared to 12.5% in the same period of last year and down from 16.1% last quarter. R&D expenses increased by RMB 13 million year-over-year to RMB 43 million, primarily due to the higher staff costs and share-based compensation. R&D expenses representing 2.6% of revenue compared to 3% in the same period of last year and down from 3.5% last quarter. G&A expenses decreased by RMB 4 million year-over-year to RMB 39 million, mainly due to the improved cash collection from account receivable, which resulted in the reversal of bad debt provisions and G&A expenses representing 2.3% of revenue, down significantly from 4.2% in the same period of last year, while up from 1.5% last quarter as the company benefited largely from foreign currency exchange gains in the previous quarter. The net income was RMB 82 million with a net margin of 4.8% on the GAAP accounting compared to a net loss of RMB 41 million for the same period of last year and net income of RMB 5.9 million for last quarter. The non-GAAP net income was RMB 88 million. And turning to our balance sheet and cash flow. We ended the quarter with RMB 1.8 billion versus RMB 1.1 billion last year-end in cash, restricted cash, term deposits and short-term investments. And our operating cash inflow amounted to RMB 433 million. The CapEx amounted to RMB 73 million, reflecting an increase of RMB 32 million compared to the same period of last year. And this can be attributed primarily to an increase in the opening of new stores and modules cost in China. And now let's turn to guidance. We expect the fourth quarter revenue to be in the range of RMB 737 million to RMB 901 million, representing a year-over-year change of minus 10% to plus 10%. And please be aware that this outlook is based on the information available as of the date and reflects the company's current and preliminary expectations, which is subject to change due to uncertainties relating to various factors. And with that, we'll now open the call for any questions that you may have for us. Operator, please go ahead. Operator: [Operator Instructions] Seeing no more questions in the queue, let me turn the call back to Mr. Li for closing remarks. Yan Li: Thank you, operator, and thank you all for participating on today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Brady Corporation Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ann Thornton, CFO. Please go ahead. Ann Thornton: Thank you. Good morning, and welcome to the Brady Corporation Fiscal 2026 First Quarter Earnings Conference Call. The slides for this morning's call are located on our website at www.bradycorp.com/investors. We will begin our prepared remarks on Slide #3. Please note that during this call, we may make comments about forward-looking information. Words such as expect, will, may, believe, forecast and anticipate are just a few examples of words identifying a forward-looking statement. It's important to note that forward-looking information is subject to various risk factors and uncertainties, which could significantly impact expected results. Risk factors were noted in our news release this morning and in Brady's fiscal 2025 Form 10-K, which was filed with the SEC in September. Also, please note that this teleconference is copyrighted by Brady Corporation and may not be rebroadcast without the consent of Brady. We will be recording this call and broadcasting it on the Internet. As such, your participation in the Q&A session will constitute your consent to being recorded. I'll now turn the call over to Brady's President and Chief Executive Officer, Russell Shaller. Russell? Russell Shaller: Thank you, Ann, and thanks, everyone, for joining us today. This morning, we released our fiscal 2026 first quarter financial results. We had a good start to the year with organic sales growth of 2.8% and adjusted earnings per share growth of 8%. Our Americas and Asia region reported strong organic sales growth of 4.7%, and our Europe and Australia region reported a significant improvement in adjusted segment profit of 15%. This was a direct result of the actions we took to streamline our cost structure in the region last year. Our team executed well, and we have started the year on a positive note. . Before we go into Brady's financial details, I want to talk a bit about our connected products. Brady has spent the last several years building out a marking and tracing solution that is uniquely easy to use for our customers. As an example is our fantastic new app called BradyScan, which is available in Android and Apple versions. It is an industrial barcode scanning app that consolidates the entire scanning workflow and communicate seamlessly with our printers. You can instantly generate scannable barcodes with both image to barcode and speech-to-barcode technology. A built-in security check monitors from malicious QR codes and error correction automatically repairs damaged QR codes, resulting in maximum readability. You can scan and input barcode values directly into Google sheet with no download or export required. And every barcode scan is automatically geotagged, allowing for complete traceability with location accuracy. Our goal with this app is to make barcode reading, barcode generation and barcode printing an entirely seamless experience for our users, making track and trace easier than ever before. With this software, our customers can use their phone to create barcodes, instantly send those barcodes to a Brady printer, print them on our high-performance adhesive labels and create a time and location stamp with our geolocator. This is one of the many steps we are taking to integrate our lasers, readers and printers into a single easy-to-use platform. Now I'll turn it over to Ann to provide more details on our financial results. Ann? Ann Thornton: Thank you, Russell. We had a good start to the year. Organic sales grew 2.8% in the quarter, which was led by our Americas and Asia region with organic growth of 4.7% in the quarter. We also reported strong growth in our adjusted pretax income as well as our adjusted diluted earnings per share in the quarter, while funding a significant increase in R&D. And we finished the quarter in a net cash position, which continues to give us the ability to invest in both organic opportunities and strategic acquisitions in the future. Slide #4 details our quarterly sales trends. Organic sales were up 2.8%. Acquisitions added 3.2%, and foreign currency translation increased sales by 1.5% for total sales growth of 7.5% in the quarter. Turning to Slide #5. This details our quarterly gross margin trending. Our gross profit margin was 51.5% this quarter compared to 50.3% in the first quarter of last year. In last year's first quarter, we closed on the acquisition of Gravotech, which requires purchase accounting adjustments to recognize the fair value of inventory acquired. These adjustments reduced last year's reported gross profit margin by 110 basis points in the quarter. So without this acquisition-related adjustment, gross profit margin was 51.4% last year. Our gross profit margin continues to be strong as we realize the benefits from our sales growth coming from our engineered products. Turning to Slide #6, you'll find our SG&A expense trending. SG&A was $117.6 million this quarter compared to $111.8 million in the first quarter of last year. As a percent of sales, SG&A was 29% compared to 29.7% last Q1. If you exclude amortization expense from each of the periods presented as well as other nonrecurring acquisition-related costs incurred in last year's first quarter, and SG&A was 27.7% of sales in the first quarter compared to 28.3% of sales in last year's first quarter, which is a decline of 60 basis points. We continue to invest in growth through acquisitions and to our sales -- or excuse me, through additions to our sales force as well as selected geographic expansion in Southeast Asia, which we're more than funding with efficiencies throughout our SG&A support functions. Slide #7 details the trending of our investments in research and development. We continue to increase our investment in R&D within both our organic business as well as our acquisitions from last year. R&D expense was $23.3 million or 5.7% of sales this quarter, which was an increase from $18.9 million or 5% of sales last year. We funded a 23% increase in R&D in the quarter and still grew the bottom line. We've proven over time that our best ROI comes from our engineered products. Russell just discussed our new app, BradyScan, and we have a very exciting lineup of products set to launch this year. Turning to Slide #8. This shows the trending of our pretax earnings. Pretax earnings on a GAAP basis increased 16.5% from $58.8 million to $68.5 million in the quarter. If you exclude amortization from both periods and exclude other acquisition-related charges we incurred in last year's Q1, pretax earnings increased to 7.6% from $68.6 million to $73.8 million. Slide #9 details the trending of our net earnings and EPS. Our net income increased 15.3% in the quarter from $46.8 million to $53.9 million. Excluding amortization from both periods as well as the other acquisition-related charges from last year, our net income increased 7.1% from $54.2 million to $58 million. GAAP diluted earnings per share was $1.13 compared to $0.97 per share last year. Excluding amortization from both periods and the acquisition-related charges from last year, our adjusted diluted earnings per share improved from $1.21 per share from $1.12 per share last year, which was an increase of 8%. We had another strong earnings quarter resulting from our organic sales growth and the cost reduction actions that we took last year in selected parts of our business. Slide #10 details our cash generation. Operating cash flow increased 42.5% to $33.4 million in the first quarter of this year compared to $23.4 million in the first quarter of last year. And free cash flow increased 38.8% to $22.4 million in Q1 of this year compared to $16.1 million in last year's Q1. We're constantly focused on making the best cash-based decisions throughout our organization, which gives us the ability to invest in our business and return funds to our shareholders through share buybacks and dividends. Turning to Slide #11, you'll find the impact that our historical cash generation has had on our balance sheet. As of October 31, we were in a net cash position of $66.8 million. Our approach to capital allocation is consistent, which is to fund organic sales growth and efficiency opportunities. This includes investing in new product development, sales generating resources, capability-enhancing CapEx and automation-focused CapEx. We have the ability to invest throughout the economic cycle so that we're always positioned to drive future sales growth and profit improvements. And we're focused on consistently increasing our dividends. In September, we announced our 40th consecutive year of annual dividend increases, which was an incredible milestone and is a streak that we're very proud of. From here, we're disciplined and opportunistic for both acquisitions and share buybacks. We're focused on identifying acquisitions with clear synergies to Brady, and we have the ability to fund our organic business, our dividend, M&A opportunities and share buybacks. We repurchased 55,000 shares for $4.1 million in the first quarter, which was an average price of $73.69 per share. Slide #12 outlines our fiscal 2026 guidance. We are increasing the bottom end of our full year fiscal 2026 previously announced adjusted diluted EPS guidance range from $4.85 per share to $5.15 per share to -- with the new range of $4.90 per share to $5.15 per share, so a $0.05 increase to the bottom end. Our GAAP EPS guidance range was updated to reflect acquisition-related amortization as well as to increase the bottom end also by $0.05, which we now expect to range from $4.57 per share to $4.82 per share. Our adjusted diluted EPS guidance range represents a range of growth of between 6.5% to 12% over 2025. We expect organic sales growth in the low single-digit percentages for the full year ending July 31, 2026. Other elements of our fiscal year 2026 guidance include an income tax rate of approximately 21%, depreciation and amortization expense of approximately $44 million and capital expenditures of approximately $40 million. Potential risks to our guidance, among others, include potential strengthening of the U.S. dollar, inflationary pressures that were unable to offset in a timely enough manner or an overall slowdown in economic activity. Now I'll turn it back over to Russell to cover our regional results and to provide some closing thoughts before Q&A. Russell? Russell Shaller: Thanks, Ann. Slide 13 details the financial results of our Americas and Asia region. Sales were $268.9 million this quarter, which were up 9.6% from Q1 last year. Organic sales growth was 4.7% and acquisitions added the remaining 4.9% of our growth. We saw growth in most of our major product lines with significant growth of nearly 19% in the Wire Identification product line. Wire ID has been leading our organic sales growth company-wide for the last 3 years, with data centers being a key end market. Our high-performance adhesive materials are ideal for the critical labeling requirements in data centers. Our Asia business performed well with total organic sales growth of 11.9%, which was led by our business in Japan. We saw growth throughout the region, including China, where we grew slightly by 0.8%, which means that our business outside of China combined for nearly 20% growth in the quarter. Asia also contributed a significant amount of growth in segment profit in the Americas and Asia region in the quarter, which was a result of both organic sales growth and the cost reduction actions that we took in China last year. Our reported segment profit in Americas and Asia region increased 9% to $59.9 million and segment profit as a percentage of sales was 22.3%. If you exclude the impact of amortization in both the current quarter and last year's Q1 as well as our other nonrecurring acquisition-related expenses last year, segment profit increased 6.3%. Similar to past years, we are increasing our investment in R&D, which is the driving factor of our organic sales growth, both now and in the future. We are experiencing a tariff headwind in the U.S. compared to last year's Q1. While we continue to take steps to reduce their impact, last quarter, we projected net incremental expense of between $8 million and $12 million for fiscal 2026. As of the end of Q1, we are now projecting full year impact to be at the low end of this range, so approximately $8 million. Slide 14 details the financial results of Europe and Australia region. Sales were $136.4 million this quarter. Organic sales declined 0.8% and foreign currency translation added 4.3% for total growth of 3.5% in the region this quarter. Both Europe and Australia continue to operate in challenging macro conditions for industrial manufacturers, yet we nearly returned to organic sales growth in the quarter. Sales declined in our People Identification and Safety and Facility Identification product lines, but we saw growth in our Wire ID products in the quarter. Organic sales in Europe declined 0.9% and increased slightly by 0.3% in Australia. Despite the 0.8% decline in organic sales, we reported a significant improvement in segment profit in the region. Our reported segment profit in Europe and Australia increased 42.8% in the quarter to $18.7 million, and segment profit as a percentage of sales was 13.7%. If you exclude the impact of amortization in both the current quarter and last year's Q1 as well as other nonrecurring acquisition-related expenses last year, segment profit increased 15% compared to the prior year. We took several actions last year to reduce our cost structure in both Europe and Australia, and we're seeing this payback in our profit results this year. We started the year with some solid momentum. We're growing organic sales mid-single digits in America and Asia, and we're nearly returned to growth in Europe and Australia. Even with the subdued global macroeconomic environment for industrial companies, I am super excited about the business we acquired and over the past year as well as fantastic technology that we are adding to our portfolio, such as the BradyScan app that I truly believe the addition of our direct part marking product line and the ease-of-use features we are adding throughout our product portfolio enables us to help our customers improve their productivity. With that, I'd like to turn it over for Q&A. Operator, would you please provide instructions to our listeners? Operator: [Operator Instructions] Our first question comes from Steve Ferazani with Sidoti. Steve Ferazani: I appreciate the detail on the call. Russell, I was a little bit surprised on the strength of the gross margin better than it was in the second half, sort of flat versus if you adjust the year ago quarter, but the year ago quarter didn't include tariff impacts. So I'm trying to figure out, one, is it getting better compared to 3 and 4Q because you're more effectively offsetting with price? Or was it just a particularly strong mix quarter? If you can help us out a little more detail on the gross margin? Russell Shaller: Yes. The biggest impact was both price and working on our supply chain and moving things around a little bit. As a truly global manufacturer, we do have some ability to move things around and to look at which companies -- countries, excuse me, we should be producing and sourcing from. So I think like any good manufacturer, you do what you can to offset macroeconomic effects, and that's basically what we're doing. I'm happy to say we were projecting $8 million to $12 million. I think through a lot of efforts from a lot of people at Brady, we're headed towards the very low end of that range. And that was also contributed to why we bumped the bottom end of our guidance up $0.05. Steve Ferazani: Got it. That's helpful. The higher R&D we've seen over the last couple of quarters, is this a more reasonable run rate? And is that primarily because of the acquisitions you've made? Or you just feel like there's better returns that can be made from some of these product investments? Russell Shaller: So certainly, the 5%, 7% or so that we're at right now is due to the acquisitions. And over time, probably the next couple of quarters, we'll decide if there's overlapping R&D efforts, there's probably some at the margin. I would consider 5.5%, give or take, kind of the situation we should be in for the next few quarters. So there will be a little bit of a streamlining of that effort, not really significant. We did have some onetime events in R&D. But as you point out or as I point out in the call, R&D continues to be the absolute best investment we can make organically. And I don't really have a per se target on where it should be, but we can say directionally 5.5% for the next year or so. Steve Ferazani: Okay. That's helpful. When you're thinking about the cost-out actions you took last year, did we see most of it this quarter, that the plant consolidation and some of the workforce reductions? Have we seen the full benefit? Or is there more to come? Russell Shaller: I would say there's probably 80% plus you've seen in Q1. There's still some more things that we're going to get. We certainly don't need to and won't take any additional restructuring charges. We have nothing anticipated at this point. But again, like everybody that's managing their company, we continue to look for ways to improve our efficiency and drive a little bit more to the bottom line. So I'm going to say 80% done, still a little bit more to go. Steve Ferazani: Excellent. And if I could just ask briefly on cash conversion. It was better than it was the year ago quarter. Typically, Q1 is your lowest, but are you expecting you can get cash conversion back closer to 100% this year? Or is that a little bit too much of a reach? Ann Thornton: That's a reasonable target, Steve. And good observation on your part that usually it is a little bit lower for us in Q1. That's just due to timing of annual incentive payments and things like that. But we're definitely pleased with the improvement in Q1. We expected that to come. Last year was a little bit more suppressed than we would typically see in Q1. A lot of that was due to timing and our cash conversion kind of normalized out a little bit more toward the end of the year. So that's a reasonable expectation to see that cash conversion level improve this year. Steve Ferazani: If the inventory line still seems pretty high, is that because of the acquisitions or the consolidation or a few things? Ann Thornton: A few things, honestly, there's a little bit due to the acquisitions, but they're not overly very large either. So we made some decisions a few years ago to stock more of our absolute highest running products. It's like that's a few years some changes in our supply chain. We did move production of several printer lines as planned quite a while ago in Asia that also requires higher. So a little bit of everything kind of around the edges that's causing that increase in inventory. And we're always looking for opportunities to work on those levels, but we would -- and we would expect it to probably not increase too terribly much from here and kind of normalize working capital to more of a neutral level. Russell Shaller: I would say, if I could add one more piece of color. A lot of the traditional Brady businesses, the signage and the identification products are very quick conversion cycle from the time we get an order to -- through manufacturing and selling it. And so you don't need to have as much inventory as, say, a laser or a reader, which is really a finished good. So all things equal, we absolutely will be in a higher inventory position than what traditional Brady would have been, not a lot higher because that's still a small percentage of our sales, but that is going to add a couple of points to our overall inventory. Operator: Our next question comes from Keith Housum with Northcoast Research. Keith Housum: Russell, I noticed your guide for the Australia and -- I'm sorry, Europe and Australia segment suggests perhaps low single-digit growth by year-end, but you guys had a slight decline this quarter. Anything that you're seeing out there that gives you further confidence that, that segment will be able to turn it around based on some of the challenges they have in the macro environment as we see today? Russell Shaller: Yes. So I'm basing this on what I read in a lot of economists that have said that the calendar year of 2026 is supposed to be better than the calendar year of 2025. Frankly, we really haven't seen much. It hasn't gotten any worse over the last several quarters, but we haven't seen what euphemistically are called green shoots. The services sector, which we don't participate in, seems to be doing a little bit better in Spain and some of the vacation countries. But if you look at core manufacturing in Germany, France and the U.K., just not seeing a lot of movement. Not getting worse, not getting better, but we -- if we're going to turn the corner, it's at least 1 or 2 quarters out from now. Keith Housum: Great. And in terms of BradyScan, first off, congratulations. I know it's been on your list of things to get done for a while now. Is it out now? And I guess, perhaps any color you can provide in terms of who you think the target audience will be for that? Is it your entire base? Or is there a certain segment? And then finally, how many of your products will be linked to or be able to benefit from BradyScan? Russell Shaller: Yes. So there's 2 parts to it. One is we're being, I think, good friends to the economy in general. So the BradyScan app has a consumer version that has no adware, no bloatware and isn't trying to take your data backhauling it to wherever. So that's a free version for 50 scans or so a month, which I think for most consumers is more than enough. The industrial version actually is going to form part of the backbone of our connected products. Right now, it works seamlessly with our printers and our readers, which I talked about. The next step will get it to engage directly with our lasers and our other marking technology. So it's -- I'm going to say we're about halfway through it. There's still a lot more software that needs to get done. But I love the first iteration. I think it's a very clean and easy-to-use app. Understanding it's really more tailored towards industrial users. We just kind of threw in the consumer users as a nice freebie for some of our customers and friends. But you're encouraged to download it. It's got an Apple version and it's got an Android version. And as of this weekend, it had just gone up, and we only had 5-star reviews. So there you go. Keith Housum: Congratulations. And then it's been a year since you add Gravotech. You guys added Mecco, hopefully I was saying that right, early this quarter. Any line of sight to revenue synergies coming from the -- I guess, both of the acquisitions and then just the progress you've made over the past year? Russell Shaller: Yes. So a couple of things. We've absolutely gone through a product road map and decided which businesses focusing on which end markets. With that said, I think they are working in a very tough environment, in fact, more than Brady as a whole because the core segment that we're looking for them to excel at is heavy industrial manufacturing, which is amongst the weakest segments currently out there. So the fact they're doing okay in what I think is a pretty awful environment is good. We really need that to turn around. One of their key customers is the automotive and automotive supply chain, not a great place right now, but it will come back. We're very confident. And we -- more importantly, we're confident in going after midsized manufacturers, which is really kind of the heart of Brady's business. So we feel good, very, very early. Brady makes long-term strategic bets. We have a core thesis that we believe everything is ultimately going to get marked in production. And this is -- ensures that we have that capability over the next 5 to 10 years. So still a work in progress. We feel good initially, but with a lot more to go. Keith Housum: Great. Appreciate that. And final question for me. Gross margins, another solid quarter for you guys, even with the tariff headwinds. I know you guys are hesitant to suggest that gross margins can be above that 50% range, but yet you guys have been able to deliver that with the challenges that you've had. And I know you also merging -- a lot of your growth coming from your emerging products. Any more thoughts about gross margins and where they perhaps can go going forward? Russell Shaller: Yes. So -- and I sound like I'm very repetitive on this because I answered it always the same way. Our engineered products, all things being equal, are probably 60-ish percent gross margin versus our more commodity products are 40-ish. So the more we have engineered products, the more our gross margin will expand. But we don't have a target because all of these products are delivering significant cash flow and return on invested capital. So yes, there's a little bit of help due to our portfolio as it slowly changes. Right now, of course, the offsetting effect has been some tariffs that hasn't helped by any stretch. But I do not have a target. We know we could push pricing higher to expand our gross margins at the expense of demand reduction. So we're really trying to spend most of our time getting more Brady products into more people's hands because even at our gross margins, the money flows through to the bottom line. So we need to keep pushing on growth more than margin expansion. Thank you. Operator: I'm showing no further questions at this time. I would now like to turn it back to Russell Shaller, CEO, for closing remarks. Russell Shaller: Thank you for your time today and for your questions. Brady is on a journey to help our customers have a safe and productive workplace. Our visual Safety and Facility Identification portfolio, combined with Brady's productivity solutions help our customers comply with a wide variety of regulations, including the upcoming GS1 standards and new European Union product labeling requirements. Even with a challenging tariff regime and a tough manufacturing macro environment, we are growing sales and increasing profitability. As always, we're keeping our focus on what we can control and continue to move forward with long term consistently in mind. Our increased investment in R&D is a direct reflection of our view on the long term as our engineered products have proven to be the primary driver of our growth. We pride ourselves on the diversity of our end markets and our R&D investment gives us the ability to engage with an ever broader set of customers. We do expect to continue to be impacted by incremental tariffs, but we believe that our global manufacturing presence and largely in-country manufacturing as well as our geographic diversification helps us to mitigate some of this effect. We're being creative and we're adapting quickly, and I'm very proud of the team and their tireless efforts in this changing environment. I'm optimistic for the rest of the year and the long term for Brady's ability to continue to deliver improved results for our shareholders. Thank you for your time this morning. Operator, you may disconnect the call. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.