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Roger Dent: All right. Well, it's 10:00 so -- hold on I'm just going to mute people here. All right. Well, welcome, everybody. And please welcome to the third quarter Quinsam Conference Call. I'm going to assume that everyone's already looked at the results and probably read the press release. So I'm not going to go into what's already there. Third quarter, basically, we were slightly in the black, which is not terribly dramatic one way or the other. And there wasn't a lot of activity in the quarter. So really, the key update is what's going on here in Q4. We have 2 of our private investments that are both at this stage, looking to list. The largest one, we've carried it under the name Peninsula. It's announced to go public financing with a syndicate of large investment dealers here in Toronto under the name of Renterz. It's a U.S. single-family rental business. It's out there in the market now trying to raise funds at $1.90, our carrying value is quite a bit below that. At this stage, they're in marketing. I understand that it's going sort of okay. We're hopeful that the transaction will complete. There's probably, I'm guessing, some risk in the $1.90 price, but we'll see. That's an important development for Q4. And obviously, we hope that it goes ahead. The other go public that we're looking at here in Q4 is a company called Electro Metals. That is -- it's a relatively traditional Canadian mining story, copper, gold properties. And the market, obviously, for mining is relatively good right now. They are awaiting final approval from the exchange to list. I understand they're down to the short strokes and that they expect to get final listing approval in the next week or 2. And once they have that listing approval, they believe that they have the funds lined up to close and then commence trading. So those are probably the 2 big things in front of us for Q4. Between the 2 of them, there's about $0.02 of NAV that are in play here. So we hopefully will see the amount of liquid investments move from the $0.06 level up to $0.08 and obviously, hopefully beyond that with the expected listing prices of both Electro Metals and Peninsula above where we're carrying them. Unknown Analyst: Excuse me, Roger? Roger Dent: Yes. Unknown Analyst: Quick question. Electro Metals, what are they into? Roger Dent: Well, it's a fairly traditional mining story. This is actually a company that we bought quite a long time ago as a cannabis company. Back in the day, it was called Ancient Strains, and it was run by Daryl Hodges, who used to run Jennings Capital. And he was a mining guy in his -- for most of his life. He's a geologist. He always focused on mining companies. And when the cannabis market turned, he decided to reposition it as a mining play. So he's been working with that for the last 2 or 3 years. He tried to list about 18 months ago, but obviously, mining markets were much less favorable than they are today. And that attempt did not go ahead. He couldn't get the money. But obviously, now we're looking at a much more favorable mining market. Unknown Analyst: What's the -- is it gold or is it... Roger Dent: It's copper, gold. It's sort of... Unknown Analyst: Copper, gold. Roger Dent: It's -- most of the NAV is copper, but it's got a significant gold byproduct. Both of those commodities are quite strong at this stage. And it's a pretty -- it's a very conventional asset. It's Ontario. It's got a resource in place, like it's a pretty conventional story, and it should be able to complete its financing and list. It's just a question of value, I would say. So those are on the private side, the 2 visible situations right in front of us. The other one that is progressing well, I would say is A-Synaptic, which is about $0.02 of NAV. A-Synaptic is developing a CBD treatment for epilepsy, and it's about to start a clinical trial. It's been approved by the FDA and Boston's Children's Hospital is going to do the trial. They also have been working informally on a second indication to use the same treatment for Parkinson's. And they've actually been given a $3 million grant by the Michael Fox Foundation to take it from its sort of informal trial. It's now like basically being given to some patients and has been for about a year outside of a formal trial with very good results. So the Michael J. Fox Foundation is funding it to go into a formal trial for approval for Parkinson's as well. So that -- it's progressing well. We hope to start doing a U.S. go-public process this year. It's not going to happen, I don't think, by year-end, but hopefully, early in the new year, that will begin its march to being public. Otherwise, as far as Q4 is concerned, we have one company, Newlox Gold, which it's under a cease trade at present because its financials are late. And we decided to be conservative to take it to a valuation of 0 in Q3. We definitely do not expect it ultimately to be valued at 0. It was trading around $0.05 or $0.06 before it was halted and it raised money at $0.07 as recently as about 6 weeks ago. So we expect it to be back and trading at those sorts of values in and around the end of the year. But to be conservative, we took that down. So that hopefully is money in the bank for Q4. We also have a few companies that are at this point, even with the sell-off of the last day or 2, above where they were at the end of the quarter, BluMetric, NeoTerrex, Royalties Inc. which won its lawsuit appeal and City View Green, which is now a cryptocurrency play, no longer a cannabis play. So with any luck, Q4 will be a decently profitable quarter. But obviously, there's volatility out there, and we'll have to see what happens over the next 6 weeks or so. And with that, I'll open it up to questions. If anyone's got a question, just take yourself off mute. Unknown Analyst: Question, Roger. Anything coming forward about a transaction? Roger Dent: Transaction. So we've had some very good discussions this quarter with a company that we're quite interested in. It's an American-based company. And because of that, there are some income tax complications for the main shareholders, like they obviously don't want it to be a taxable event, but there are some problems in making it not a taxable event for them. So they are kind of mulling some structural and tax issues. But it is quite promising. It's a company that's in a very interesting business. It makes nice cash flow. The valuation is reasonable. And their funding requirement is quite appropriate for us. It's -- they don't really actually have a funding requirement. They're a cash flow positive business. So really for them, what they find attractive is the ability to raise for them a relatively small amount of money with a small amount of dilution and have a company that would have a very tight float that they would be in a position to influence the share price of. So for us, it's quite interesting because we think we would get a quite decent win coming out of the gate. But this tax issue is something that -- it's got to be solved because if it can't be solved, then they're not going to basically take their whole company value into income tax -- into income and pay tax on it on go public. It's just not viable. Otherwise, I would have to say there's not too much going on. I mean we certainly could go and do a mining transaction, I think, quite easily if we chose to. It's really not what I would want to do. I'd much rather get into an operating business with cash flow or very, very near-term cash flow. Don't really want to go into a mining exploration situation where it's significantly cash flow negative and you're just kind of hoping for geology to work out your way. So that's something that it's certainly fine for an investment or 2. Happy to make those sorts of investments, but not sure I want to bet the whole portfolio on one mining situation. Unknown Analyst: Yes, I would have to agree with that. All right. That's good for me. Roger Dent: Any other questions? There's no further questions. Thanks for attending, and we'll talk to people later. Unknown Analyst: Thanks, Roger. Roger Dent: Bye-bye. Unknown Analyst: Thank you.
Operator: Good morning, and welcome to MiNK Therapeutics, Inc. Third Quarter 2025 Conference Call and Webcast. Please note this event is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the conference over to Stephanie Perna Nacar, Chief Communication Officer. Stephanie? Please go ahead. Stephanie Perna Nacar: Thank you, operator, and thank you all for joining us today. Today's call is being webcast and will be available on our website for replay. I'd like to remind you that this call will include forward-looking statements including those related to our clinical development, regulatory and commercial plans, timelines for data releases, and partnership opportunities. These statements are subject to risks and uncertainties. Please refer to our SEC filings available on our website for a detailed description of these risks. Joining me today are Dr. Jennifer Buell, President and Chief Executive Officer, Dr. Terese Hammond, Head of Development, and Christine Klaskin, Principal Financial and Accounting Officer. I'd like to turn the call over to Dr. Buell, to highlight our progress from this quarter. Dr. Jennifer Buell: Thank you, Stephanie. Good morning, everyone. This quarter marks a defining period for MiNK Therapeutics, Inc. We are now a fully independent operated company focused, agile, and singularly dedicated to the advancement of our INKT cell therapy platform. Over the course of this year, we have not only strengthened our science but also elevated our global visibility, presenting major new findings at ASCO GI, AACR IO, the inaugural meeting, and most recently last week at the Society for Immune Therapy of Cancer, the SITC Annual Meeting. MiNK was founded on a bold idea: that a single naturally derived immune cell type, one of the most highly conserved cells in immunology, the invariant natural killer T cell, a very potent subset of T cells, could be harnessed to both ignite and regulate immunity. In this quarter, that idea became a reality. We are going to go through this in some detail. At SITC this year in Washington, D.C., we presented updated clinical data from our ongoing trial of AGENT-797, our allo, off-the-shelf iNKP cell therapy. This product was administered alone or in combination with approved anti-PD-1 in patients with relapsed or refractory solid tumors. These were patients with heavily pretreated immune therapy-resistant and in most cases without remaining clinical options. What we observed was really nothing short of remarkable. Patients who received 797 in combination with PD-1 achieved a median overall survival of approximately 23 months. This is really unexpected given this Phase I clinical trial in a refractory setting, we would expect survival to really be under six months. We observed a complete remission in a patient with metastatic testicular cancer who had failed prior chemotherapy, stem cell rescue, and checkpoint inhibition. We also observed a durable partial response in the second-line gastric cancer patient who has failed prior therapies. We also saw disease stabilization with prolonged survival across multiple other difficult-to-treat cancers. These cancers include thymoma, cholangiocarcinoma, renal cell carcinoma, and adenoid cystic carcinoma, with survival extending beyond two, even three years in some cases. These observations demonstrate not only the durable activity of 797 but also its potential to restore immune function in patients who had exhausted all available therapies. And crucially, this was achieved without the hallmark toxicities that have limited other cell therapies. We observed no cytokine release syndrome, no neurotoxicity, no graft-versus-host disease. The most common treatment-related event was mild fatigue. In just a few moments, you are going to hear from Dr. Terese Hammond. She will delve deeper into our findings, the immune mechanisms underlying the results, the translational data that explains Agent-797's unique biology, and how these insights are shaping our next generation of trials. What we are seeing in our data is beyond a response. It's really a substantial improvement in immunity, immune restoration. These NKT cells are doing what the immune system was really designed to do: detect danger, coordinate a response, and resolve inflammation with precision. In the case of cancer, what we observed is a controlled inflammatory response that was correlated with prolonged survival and in some cases with deep, durable, and complete remissions in some cancer types. Mechanistically, 797 operates through dual pathways, both a T cell receptor-dependent and a T cell receptor-independent pathway. These cells recognize glycolipid antigens through CD1D. They are naturally engineered in that way, enabling them to target both malignant and cells in ways conventional T and NK cells cannot. At the same time, these cells can reprogram the immune microenvironment. We have published these data and presented them publicly from our clinical trials. What we have observed is that INKT cells can activate dendritic cells, repolarize macrophages towards an M1 pro-inflammatory phenotype in cancer, and reinvigorate exhausted T cells. The result is a potent but controlled immune reaction, a rise in interferon gamma, IL-2, TNF alpha within 48 hours of infusion that turns these cold, otherwise cold tumors hot without systemic toxicity. Our data over the course of this year really reinforced 797's position as a platform therapy, and that's how we intend to advance it. It also underscores how MiNK Therapeutics, Inc. has become the most clinically advanced company in the world developing allogeneic iNKT cells. Our science alone isn't the only component that makes MiNK unique. It's really how we are building with public-private partnerships and with very disciplined capital use and a clear sustainable strategy. I'll go into that in a little bit more detail. This quarter, we were honored to witness our leadership and Board of Director member Dr. Robert Kadlec participate in his confirmation hearing by the U.S. Senate. Dr. Kadlec is a national leader in biodefense and preparedness whose partnership has helped us forge deep collaborations with federal and academic institutions that have really propelled MiNK forward. As Dr. Kadlec continues his honorable life of service, and upon his recommendation, and to our tremendous enthusiasm, we also just recently welcomed Dr. John Holcomb to our Board of Directors. Dr. Holcomb is a U.S. Army colonel, trauma pioneer, and author of over 700 scientific papers whose work has saved countless lives. These two leaders embody what MiNK stands for: science with purpose, innovation, and service of human survival. Building on that foundation, we have established a strategic partnership with experts from the University of Wisconsin Carbone Cancer Center to advance our INKT program in immune reconstitution following stem cell transplantation. Each year, tens of thousands of patients face the risk of graft-versus-host disease, infection, and relapse following hematopoietic stem cell transplantation. And in fact, this impacts more than half of the patients undergoing stem cell transplantation. Our invariant natural killer T cells, by enhancing immune balance and also naturally preventing graft-versus-host disease, we believe, help prevent these complications and improve recovery and outcomes for these patients. We have two major public-private grants that are now supporting our work in delivering these therapies in the prevention and treatment of graft-versus-host disease. First, the Department of Defense and NIH STTR awards enabling MiNK and the University of Wisconsin teams to develop and test 797 in preclinical transplant models. And a second, a philanthropic clinical grant to our team at the University of Wisconsin that directly funds patient enrollment, immune monitoring, and biostatistical operations for the trial. These awards allow us to execute a first-in-human Phase I study with minimal capital impact, demonstrating how MiNK's partnership model can amplify scientific impact while preserving shareholder value. As we advance these programs, we are also preparing for a global Phase two, possibly Phase two/three clinical trial in acute pulmonary dysfunction with multidrug-resistant infections. This is a setting where immune failure drives mortality. The study will launch within weeks in collaboration with a network of critical care centers that mirror U.S. patient demographics. Our objective is to confirm that INKT can restore immune homeostasis, reduce ventilator days, and improve survival in critically ill patients. These studies are building on the phase one findings that Dr. Terese Hammond published in Nature Communications a short time ago. We believe that these cells and in this critically ill population can potentially transform how we treat immune collapse in both civilian and military populations. As we prepare for a more formal and comprehensive public announcement of the imminent launch of our grant-funded clinical trial in graft-versus-host diseases and the advancement of our late-stage program in severe pulmonary inflammatory disease, I want to underscore the clinical leadership now guiding these efforts. Today marks the first participation of Dr. Terese Hammond as a member of MiNK Therapeutics, Inc. Therese is a nationally recognized leader in pulmonary and critical care medicine with extensive experience advancing registration stage programs in severe pulmonary and inflammatory diseases. She has served as principal investigator on pivotal trials and including those at MiNK is the lead author of our landmark Nature Communications publication demonstrating the clinical impact of AGENT-797 in patients with acute respiratory distress syndrome. Importantly, Therese will be leading the charge as we advance our INKP platform into a broader range of inflammatory diseases, areas where patients face a profound lack of effective therapeutic tools. This includes interstitial lung disease, idiopathic pulmonary fibrosis, and other immune-driven conditions where our translational data and clinical observations point to compelling opportunities for impact. Her leadership, grounded in real-world ICU and pulmonary critical care medicine, will ensure that these programs are shaped by scientific insight and patient need. With that, I'm pleased to turn it over to Dr. Hammond who will take you deeper into the biology, mechanistic underpinnings, and the clinical findings that make these opportunities so meaningful for patients. Dr. Terese Hammond: Thank you so much, Jen, and good morning, everyone. At the heart of our work lies a fundamental question: What if the immune system could be retrained to heal itself? As both a physician and a scientist, I've spent decades caring for patients with cancer, respiratory failure, and severe infection. Watching them decline not because we lacked medicines, but because we lacked a way to reconstitute the requisite immune function. Our INKT cell data now show for the first time that such restoration may finally be possible. In much the same way that AGENT-797 has been able to rescue patients with heavily pretreated solid tumors, we've observed that these cells can also rescue critically ill patients in respiratory failure who have failed all available standard of care treatments. Building on Jen's summary of the Phase one solid tumor study, I want to emphasize the depth and breadth of what we've observed. We treated patients with relapsed or refractory cancers, 82% receiving AGENT-797 alone, and 18% receiving combination therapy with PD-1 blockade. These patients had a median of four prior lines of therapy, so heavily pretreated. Nearly half had already failed PD-1 ligand inhibitors, and most had exhausted every standard option. Yet AGENT-797 drove meaningful and durable activity across a diverse range of tumor types. The complete remission observed in metastatic germ cell testicular cancer, now ongoing for more than two years following a single infusion of AGENT-797 in combination with PD-1 blockade, is, to our knowledge, unprecedented in this population. The durable partial response in second-line gastric cancer is equally impactful in a disease where expected survival is typically measured in single digits. Beyond these published cases, we also saw exceptional survivors across both monotherapy and combination arms. A patient with myeloma treated with AGENT-797 monotherapy remains progression-free more than three years after a single infusion. This finding is scientifically intriguing given the immune dysregulation inherent to thymic malignancies and the association with autoimmune conditions such as myasthenia gravis. In the combination cohort, a patient with metastatic renal cell cancer and another with adenoid cystic carcinoma each demonstrated prolonged survival far exceeding historical expectations, remaining progression-free beyond two years. These cases underscore the potential breadth of the platform and reveal a consistent pattern: when you restore immune coordination rather than simply intensifying cytotoxic pressure, you get long-term survivors. What made these outcomes even more compelling was what we observed when we analyzed the patient's tumor biopsies and peripheral immune signatures. In responders, we saw dramatic infiltration of CD8 positive T cells, NK cells, and antigen-presenting dendritic cells into the tumor microenvironment. We also detected transient, well-regulated increases in interferon gamma, granzyme B, TNF alpha, and VEGF D, reflecting a localized and productive pro-inflammatory burst rather than systemic immune toxicity. RNA sequencing confirmed broad activation of cytotoxic pathways with gene set enrichment demonstrating strong cytolytic and innate immune signatures emerging after treatment. These findings collectively revealed that AGENT-797 does not merely lyse tumor cells; it reprograms the tumor microenvironment, shifting it from exhaustion to activation. Tumors that have been immunologically cold became immunologically hot, and previously exhausted T cells regained killing potential. Mechanistically, this makes sense. Our translational research work shows that AGENT-797 acts through dual TCR-dependent and TCR-independent pathways, recognizing glycolipid antigens presented by CD1D and stress ligands, such as MICA through NKG2D. This dual targeting enables direct cytolysis of malignant cells while simultaneously triggering a cascade of immune-modulating events. We saw dendritic cell activation and maturation, reversal of an immunosuppressive M2 macrophage phenotype back to the inflammatory M1 phenotype, and rescue of particularly exhausted tumor-specific T cells. In co-culture experiments, exhausted T cells that had lost killing function regained it in the presence of INKTs or even the soluble factors they secrete, the so-called secretome. Demonstrating that AGENT-797 acts both as a killer and as an immune orchestrator, which I think is the most profound statement here. This mechanistic foundation helps explain why long-term survivors emerge even from monotherapy and why the combination cohorts show such disproportionate benefit despite small numbers. This immune reprogramming capacity extends far beyond oncology. In preclinical ARDS and respiratory injury models, INKTs protected the alveolar barrier, prevented the runaway inflammation of cytokine storm we often see in the ICU, and reduced bacterial and fungal outgrowth in the lungs. They restore coordination between innate and adaptive immune systems in settings where this coordination usually collapses. These findings form the rationale for the upcoming global Phase two trial with potential expansion to Phase three in acute pulmonary dysfunction. Importantly, this trial uses endpoints already accepted by the FDA: ventilator-free days and 28-day mortality. Finally, our work in transplantation advances its immune restoration theme even further. Our University of Wisconsin graft study, supported by the Department of Defense STTR grant and a federal clinical grant awarded to UW, will evaluate AGENT-797 as a means to accelerate engraftment, reduce relapse, and prevent graft-versus-host disease, all without lymphodepletion. The concept is simple yet profound. Rather than suppressing immunity to control inflammation, we aim to reeducate the impaired immune system so it can function correctly from the outset. This is what sets MiNK apart. We are not layering another drug onto existing regimens. We are not iterating on old ideas. We are redefining the architecture of immune recovery in cancer, infection, critical illness, and transplantation. And the opportunities ahead are vast. I look forward to sharing more of our aggressive clinical and translational plans for 2026 during our next call. And with that, I'd like to turn the call over to Christine Klaskin to review the financials. Christine? Christine Klaskin: Thank you, Therese. During 2025, we executed and implemented an at-the-market sales agreement and ended the quarter with a cash balance of $14.3 million. Since quarter end, we have raised an additional $1.2 million through this program, providing a runway through 2026. Our net loss for the quarter ended September 30, 2025, was $2.9 million or $0.65 per share, compared to $1.8 million or $0.46 per share for 2024. For the nine months ended September 30, 2025, our net loss was $9.9 million or $2.39 per share, compared to $8.3 million or $2.24 per share for the same period in 2024. These results reflect ongoing support of our operations and the activities supporting our AGENT-797 programs discussed by Jen and Therese. I will now turn the call over to Jen for closing remarks. Dr. Jennifer Buell: Thank you, Therese and Christine. As you've heard, we've strengthened our leadership team with the onboarding of Dr. John Holcomb and Dr. Terese Hammond. We've also fortified our balance sheet and expect to continue to do so through strategic and collaborative partnerships. With this foundation in place, we're entering a period of meaningful execution. As Christine highlighted, there are select areas where our spend has expanded beyond the same time period of last year. And I want to reiterate some of these activities are reimbursed through our STTR grant and that the upfront spend associated with our pulmonary and GVHD programs is reimbursable under the innovative awards from our government and collaborators. In addition, we have prospectively acquired critical reagents to ensure a seamless and uninterrupted U.S.-based manufacturing supply of our allogeneic iNKT cells as our programs advance. These proactive steps reflect intentional and disciplined investment aligned with our development priorities. During 2025, we also executed and implemented an at-the-market sales agreement to leverage a substantial more than 700% increase in our equity price. This enabled us to access cash that limited dilution to shareholders and extend our cash runway through 2026, covering critical deliverables and meaningful inflections. In the coming quarters, we will advance our grant-funded GVHD study, progress our late-stage program in severe pulmonary disease, and broaden our INKT platform to inflammatory conditions where patients have few or no effective therapies. And by this time next year, we expect to have multiple clinical programs actively enrolling patients, early readouts emerging from our GVHD and pulmonary cohorts, and a clear line of sight towards pivotal enabling pathways across our inflammatory and critical illness portfolio. Each of these represents potential value-creating inflection points supported by strong biology, peer-reviewed activity, and data, and a defined regulatory framework. We look so forward to updating you as we continue disciplined, patient-focused execution. With that, I'll turn the call back over to the operator to open the line for questions. Operator: Thank you. To ask a question, press star then 1. To withdraw, press star then 1 again. And our first question comes from the line of Emily Bodnar with H.C. Wainwright. Your line is open. Emily Bodnar: Hi. Good morning. Thanks for taking the questions. I guess, first one, obviously, very nice to see long-term survival in some of the combination monotherapy patients that you presented at SITC. I was curious, given the combo portion was pretty small with six patients, have you thought about maybe expanding this cohort to include more patients or potentially initiate a dose expansion based on some of the tumor types that you've seen the most benefit in? And then separately, if you could provide a bit more details surrounding timing for the launch of the severe pulmonary disease trial and any kind of funding updates for that trial. Dr. Jennifer Buell: Thanks. Hi, Emily. Thank you so much for your call and your questions as always and your continued support. With respect to the combination with PD-1, as we are seeing an enormously growing population of patients who are previously treated with anti-PD-1 therapies, and what we've now published on a few occasions is that we could salvage patients who have failed PD-1 therapy, and we've seen this now in areas where PD-1 is standard of care as well as where it's being experimentally used. So the opportunity to add the cells on and see this salvage opportunity I think is really quite enormous. The patients that we have seen the most dramatic responses with are patients who have otherwise failed PD-1 but have continued it on. And indeed, the data that we've observed does set us up to expand this cohort. We're actually doing so very creatively right now, and we'll be announcing relatively soon an expanded cohort that will be moving into a phase two that we anticipate will be largely externally financed to support some of this effort in tumor types that we have previously demonstrated this combination benefit. The data that we've observed in second-line gastric cancer have set the stage for a study that is currently active at Memorial Sloan Kettering, and Yelena Janjigian's group presented data at AACR IO, and we'll continue to read out clinical findings now that we've achieved some lengthy follow-up time. That gives us an indication of the survival benefit. So we see immunologic activity, and next will be the clinically associated clinical activity in second-line gastric. Those data will help us understand where to take the program next in second-line gastric cancer or in an earlier disease setting, and that's something that we're currently discussing. Secondly, the data that we observed that was a complete clinical response in a patient with testicular cancer, seminoma, germ cell, opens up an enormous opportunity for us, we believe, in a cohort of patients that could be super selected. This is not the only case that we observed in the germ cell family where these cells have been quite active. So this is a study that's also very much under discussion. It allows us to homogenize the patient population and really interrogate dose and combination benefit in a population of patients that could enable a relatively rapid development pathway in an area of high unmet need. So the findings, I agree, have really set us now to do a deeper investigation. We have a small cohort where we saw some profound benefit and really quite remarkable long-term survival in a very refractory population. And so those data are now leading us to take these into extended cohorts, but really, I'd like to get them into a more formally designed phase two study as opposed to an expanded cohort in the phase one where we could have some stepping-off points with early signals of activity into rapid development pathways. Your second question was, I'm sorry. I forgot it. Can you remind me your second question? Emily Bodnar: Sure. Just around timing of launch for the severe pulmonary disease trial and any funding updates. Dr. Jennifer Buell: Uh-huh. Okay. So we are in the activation phase right now. And we're hosting the team is hosting a couple of activation visits really imminently as we speak, which will set us up for dosing of our first patient. We were targeting this year, but it will be no later than very early next year. So our goal is to work to get a patient on the cohort imminently this year, but we're working with the centers and the holidays, and so it's going to be at the latest very, very early Q1 of next year. So it's moving. Emily Bodnar: Great. Thank you so much. Dr. Jennifer Buell: Thank you. Operator: Our next question comes from the line of Mayank Mamtani with B. Riley. Your line is open. Mayank Mamtani: Yes. Good morning, team. Thanks for taking our questions. And appreciate the progress here on the broader allogeneic platform. So on the prior comment about the GVHD and the severe pulmonary inflammation condition, this program looks like multiple trials. Could you maybe share any details on the endpoints you're evaluating and maybe the number or kind of patients being enrolled? And, obviously, relative to where standard of care, for example, is in acute GVHD, what does clinical success look like? Would be good to hear. And then I have a follow-up. Dr. Jennifer Buell: Okay. Thanks very much, Mayank. There are a couple of clinical trials that are moving forward. There's quite a bit of interest in the products. And these are areas that we've been building on. Our preclinical models support advancing in our data now do so specifically in the pulmonary disease setting. Start with GVHD. This is a trial that's been funded preclinically and now clinically. So the preclinical activity is being conducted in advance in partnership with government collaborators at the NIH, the DoD, through an STTR grant. And those data are building off of one of our scientific advisors' really seminal findings that INKT cells have an important role. Not only do they prevent GVHD, they naturally do not induce GVHD. They prevent it and can mitigate it as well. Mechanistically, Jenny from the University of Wisconsin has elucidated that in some elegant publications. We are building on that work in both preclinical settings as well as now in the clinical setting. The clinical study will be funded and has been announced through the University of Wisconsin by an award that will enable us to interrogate number one dose, number two engraftment success. So dosing the cells after engraftment to increase the probability of success for engraftment. And currently, as you know, these cells do not require cytotoxic lymphodepletion and can be administered without the lengthy hospitalization that's required and sometimes intolerable to many patients that are undergoing these procedures. Therefore, there's an opportunity and an unmet need for patients who either cannot tolerate the toxic lymphodepletion or who are at high risk for engraftment failure or GVHD. The standard endpoints here from a regulatory perspective would be the GVHD presence or absence, essentially continuously, but finally, at day 100. So a relatively rapid readout in this setting. Based on the tolerability profile of these cells, the lack of a need for cytotoxic lymphodepletion, there is an opportunity that's really quite differentiated here. And we believe with the cell's durability of response, expect that this could be quite a differentiated therapy for patients beyond what is currently available. Success here currently still about half of the patients undergoing hematopoietic stem cell transplantation do succumb to GVHD. And so bringing that down by a fifty percent improvement or more would be substantially beneficial. And in fact, in interactions with experts in this field, even a twenty percent reduction could be really quite meaningful. But we're looking for not an incremental change, but a substantial benefit to patients. So that is moving along, and we're looking forward to continuing to announce some upcoming milestones associated with the program. And we'll also expect to have some clinical data early next year. We've already been meeting with teams on building on the findings based on some of the success observations we anticipate. And what would registration interactions with the agency look like. So we're in the process of those FDA interactions as well to ensure that this program is set up to move quickly. Pulmonary diseases. Well, I have no one better than Dr. Therese Hammond to speak to you about the selection of patients in this population. Now we will soon be posting the detailed eligibility of these of the patient population to clinicaltrials.gov the moment that formally activate the program for enrollment. So this will become publicly available relatively soon. In collaboration with Dr. Hammond, her experience with the cells in critical care and with patients who have really had a substantial benefit both on trial and through emergency use, we've designed a population of patients in which we're going to be able to interrogate a few very important endpoints. And I'll have Therese come on and speak a bit about the eligibility of those patients. We're being somewhat broad, effectively looking at patients with hypoxemic pneumonia. That's a substantial number of patients. We have some technical definitions that we've designed, and they're consistent with interactions with the regulators to interrogate survival, ventilator-free days, and other regulatory endpoints. What's different about our program is we also believe that we may, based on our observations from the phase one, we may also be able to prevent secondary infections as we had seen in a very strong signal of that in our earlier trials. And we may be able to combat some substantial challenges that we anticipate could be an important advancement, and those are atypical bacterial issues or fungal complications that could result in premature death in this population. So I'll turn it to Therese to build on that. Dr. Terese Hammond: Thank you, Jen, and thank you so much for your question and interest. I think all told, the idea behind this is to try to use endpoints that have been well established in acute respiratory distress syndrome and hypoxemic respiratory failure. So as Jen said, our primary endpoint will be 28-day mortality. But as we release more public information as we post this on clinicaltrials.gov, I think you'll find that there are some really intriguing secondary and also exploratory endpoints here. The concept of using these cells in respiratory disease and critical illness, I think, is really timely. I always say that I've learned so much of what I know now in medicine from listening to oncologists. And I think as a pulmonary critical care doctor, we are now the time is nigh for us to start incorporating cell therapies into the treatment of these really ill patients, patients that oftentimes have higher mortalities than most solid tumors or hematologic cancers these days. So the concept will be to look at a broad population of patients with severe pneumonia, who also have moderate to severe hypoxemic respiratory failure, and get a better sense both clinically and immunologically of what these cells are doing in this setting. So we're excited. I think we're excited on multiple fronts to use these cells and to see the results more as, almost as an agnostic treatment for a variety of organ failures. And I'll just sort of end this by saying that I think the integration between our knowledge in solid tumors, especially tumors that are very immunologically active like thymoma, and our increased interest in illness and pulmonary disease will be a very exciting avenue for us to pursue as we head into 2026. Mayank Mamtani: Super helpful color and look forward to that clinicaltrials.gov posting on the protocol. And then as you think about, like, having a product here, that can be commercialized, Jen, if you can maybe help us understand the manufacture scale-up activities, and how do you think of having a scale here, knowing that you've been investing in manufacturing for a little while, and how you may be thinking of maybe even a nondilutive financing or funding in case there are some stocking requirements for some of the use cases you are discussing? Thanks for taking my questions. Dr. Jennifer Buell: Fantastic question. And I'm remiss that I didn't bring this up sooner. The manufacturing team, as you know, has just have such an incredibly talented group of manufacturing experts and manufacturing scientists. We've been able to get ourselves, even since our last earnings call, we continue to exponentiate the number of cells that we can really pull out of some of our donors. We're working with a new team of donor groups that can bring in new donors. And what we're observing right now is that we not only can optimize our donors for enrichment, but also our manufacturing process could has continued to increase the number of cells. We're getting billions of cells per donor that give us not only substantial cost advantages but also the ability to stockpile. We currently have quite a bit of material on hand to launch our trials, and we're going to continue to build that stock. Now as I think about the future, and I particularly think about data that's coming out of this large study with potential multidrug-resistant organisms and benefits on mitigating those as well as addressing a substantial need in patients with severe pulmonary complications. We have, we expect and have launched some interactions for nondilutive financing that would allow us to expand beyond the current infrastructure that we have today. So I'll say stay tuned, but I think there's an opportunity for us. The cells are stable. We can store them for now stability beyond two and a half, almost three years. And we can demonstrate that they still function. Therefore, there's an opportunity for us to continue the production at scales that we as an organization don't necessarily need unless there is a substantial threat that would require a treatment beyond what our current commercial needs would be. And those are that's what we're getting ready for, and those are discussions that we currently have underway. And I think it's best fit for collaborators who either have substantial scale in the private sector or substantial interest which is in the public sector, and both of those discussions are actively underway. Mayank Mamtani: Thank you, Jen. Dr. Jennifer Buell: Thanks so much, Mayank. Operator: Seeing no further questions at this time, this concludes the Q&A session. I now turn the call back to Dr. Jennifer Buell for closing remarks. Dr. Jennifer Buell: Thank you all very much for your continued support. And I look forward to continuing to update you in the future. Operator: This concludes today's call. A replay will be available in the events and presentation section of our Investor website at https://investor.minktherapeutics.com/events-n-presentation. Thank you for participating. You may now disconnect.
Operator: Greetings. Welcome to the NET Power Inc. Third Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. Please note this conference is being recorded. I would now like to turn the conference over to Bryce Mendes, Director, Investor Relations. Thank you. You may begin. Thank you. Good morning, welcome to NET Power Inc.'s third quarter 2025 earnings conference call. Bryce Mendes: With me on the call today, we have our Chief Executive Officer, Danny Rice, and our Chief Operating Officer, Marc Horstman. Yesterday, we issued our earnings release for 2025 along with an updated presentation, both of which can be found on our Investor Relations website at ir.netpower.com. During this call, our remarks may include forward-looking statements. Actual results may differ materially from those stated or implied by forward-looking statements, due to risks and uncertainties associated with our business. These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward-looking statements. With that, I'll now pass it over to Danny Rice, NET Power Inc.'s Chief Executive Officer. Danny Rice: Thanks, Bryce. Thanks, everyone, for joining our call today. We are going to reference some slides in our latest Investor presentation. So I'd ask you to have this handy and follow along. Then after our prepared remarks, we'll open the line for questions from the analysts. Let's start on Slide three, talking about our mission. So back in 2021, the team at Rice Acquisition Corp. Two, which included myself, noted there had been a major underinvestment in baseload power generation for the better part of the prior decade. This is really driven by a confluence of three things. First, a broad social desire to decarbonize. Second, very healthy subsidies for renewables, which made these intermittent forms of power highly economic to deploy. And third, we had a very healthy grid system that didn't appear to need additional baseload power generation capacity. Load growth was flat. We could supplant existing baseload capacity with intermittent renewables and we'd be okay. However, what was really missing from this viewpoint was the reality that at some point, we'd eventually need to replace our nation's aging fleet of baseload facilities. In the U.S., the average active coal, gas, and nuclear plant is over 40 years old. And we ascertained that if we experience a load growth scenario, one that suddenly forces an industry that's been dormant for the last decade to have to begin building again and doing so in a regulatory environment that is increasingly making it harder, more expensive, and longer to get things built, we're going to be in a little bit of trouble. Unfortunately, that's the situation we find ourselves in here in North America. For the first time in a long time, we're seeing unprecedented demand growth for power primarily driven by artificial intelligence and data centers, also from reonshoring of U.S. manufacturing and growing residential demand for power. So it really begs the question, how do we balance the desire to reduce emissions without compromising access to affordable, reliable energy? The answer to that question will come from the companies that are innovating supply-side decarbonization solutions that don't compromise energy affordability or reliability. When most people think of clean power, they think of nuclear, hydro, geothermal, wind, and solar. But the metrics that really matter are carbon intensity, land intensity, water intensity, and air quality. Those are measurable. And more importantly, they are energy agnostic. So we took a somewhat contrarian view, one grounded in science and economics, that said, the lowest cost form of clean, reliable power can and should come from natural gas. Yes, we'll need to advance technologies to make it happen, but so too does every other form of energy in order to deliver the energy trifecta: clean, affordable, reliable power. We believed that back then, and we still believe today, that the lowest cost form of clean, reliable, affordable power will come from natural gas. And NET Power Inc. has stood out in its singular mission to transform natural gas into the lowest cost form of clean firm power. And we decided it was important that we pursue this mission in the public spotlight to educate and to help inform the paradigm-shifting narrative of natural gas as the cleanest, lowest cost source of baseload power. So the industry today is at a really pivotal point as are we at NET Power Inc. We can choose to continue to allocate our scarce resources, namely our financial capital and our human capital, towards what we've all been doing for the last decade or two, or we could take a step back, reassess, and allocate those resources towards solutions for what the world really needs looking ahead. The market is saying the highest value solutions are those that are reliable, scalable power that can be deployed as quickly as possible. This isn't just the hyperscalers saying it. It's local communities, grid operators who understand if we don't build new generation fast enough, the cost of power for ordinary Americans and small businesses will go way up. It's also the federal government who sees losing the AI race as an existential threat to America. The common denominator here across these cases is our ability to build reliable, scalable power as quickly as we can. And if this power can also be clean, that's the icing on the cake. With all things power, you can't have icing without the cake. Reliable, affordable power is that proverbial cake. I believe this is becoming an arms race for AI and this really is a call to arms moment for the energy industry. If you're a company that possesses the ability to design, build, and operate power plants safely, and in a timely manner, you should do it. If you have access to the natural resource inputs and outputs for power generation, I think you should find ways to utilize them towards power. If you know where and how to do this in a way that minimizes the impact on the environment, those resources should certainly be prioritized. That is the pivotal moment we really find ourselves at NET Power Inc. We have a choice to singularly keep our heads down the path of proving our oxy-combustion technology, which I would say is a very noble path and one that we believe is the right power solution long term. Or we can take our differentiated and valuable resources and skill sets and prepare to allocate them towards more pressing and more valuable near-term opportunities, ones that have proved to be successful will help fund our long-term ambitions in a more accretive way to our shareholders. The pivot that we'll discuss with you all today is one that stays true to our mission. To transform natural gas into the lowest cost form of clean, reliable power. At a cost that people can afford with reliability that we cannot afford to lose. And as I mentioned above, speed to market is paramount. We, as an industry, cannot afford to wait five to seven to ten years for new generation. We need to get building now for the benefit of our shareholders, our prospective customers, and the communities where power demand is increasing. That's what we intend to do. Responsibly, but with conviction. So turning to slide four. As we've noted on previous calls, the power sector faces unprecedented load growth through the end of this decade to support AI and data center build-outs. The market has shifted dramatically in favor of natural gas for all the reasons I've mentioned. Conventional gas turbines, reciprocating gas engines, all of them are being deployed as quickly as they can to meet data center demand. The U.S. is in a very fortunate place where we have over fifty years of ultra-low-cost natural gas reserves. In fact, we in the States have essentially stopped exploring for new gas many years ago simply because we possess a very deep inventory of proven reserves across the major sedimentary basins from Northeast Appalachia to Texas and everywhere in between. Our energy resources are totally different than any other country on earth. Unlike places like China, India, and most of Europe, the U.S. doesn't necessarily need to pursue new forms of energy today. We have the lowest cost energy to last us for many, many decades. What we really need to ask ourselves, are we advancing these other forms of energy because we need the energy or are we doing it to reduce emissions? Nuclear is probably the greatest example. It holds great long-term promise, but it's not necessarily needed to meet our energy needs today. Nuclear is more competitive in places that are short energy today and more so ones that are short natural gas. Europe comes to mind. But not here in the U.S. If the U.S. has sufficient low-cost gas to supply the AI industry, can we advance the technologies that reduce natural gas's environmental impact? Now if you thought we weren't going to need to build new gas power generation, you probably wouldn't think about CCS. But here we are at the beginning stages of a natural gas power super cycle and I think folks are just now beginning to see the relevance in the importance of CCS. For example, Google just signed the industry's first power offtake for a gas plus CCS project in Illinois. We think with the right projects in the right areas, there should be a lot more to come. Gas plus CCS can be meaningfully lower cost than any other scalable clean, firm power solution. That's always been our thesis, and we think it's about to begin playing out as such. So the signals beginning to form that natural gas with CCS is being embraced. Simply because natural gas power generation is quickly being accepted as the only scalable power solution that can be deployed on the hyper-accelerated timeline to meet accelerated need for 24/7 power. So let's flip to slide five and talk about the steps we're taking to best position our company for success. So we can call this an expansion of our business. We can call it a pivot. But at the end of the day, it's really focusing our resources on actionable opportunities to transform natural gas into clean, affordable, reliable power. Over the past decade, we at NET Power Inc. have built an incredible team of technical leaders to develop our oxy-combustion power generation technology. Which is arguably one of the most challenging and promising technologies in the energy sector second, probably only to nuclear fusion in both complexity and potential. And while the team has been diligently working to design, develop, and improve our technology both in the lab and at our pilot plant in La Porte, Texas, we've been assembling a small portfolio of ideal locations to site these NET Power Inc. projects. And you can really see that on the bottom of this slide. We really consider this setting the table for successful future commercial deployments. So within NET Power Inc., we possess a very good understanding of where our projects, where these NET Power Inc. projects make really, really good economic sense and also where they don't. And in most cases, for them to make economic sense, you really need three things. You need access to gas, the lower the cost, the better. You need proximity to a high-quality carbon sink. The lower the cost to transport and sequester, the better it is for the power economics. And if you can find someone to purchase the CO2 for an industrial use, that's even better. That just means lower power prices at the end of the day. And then there's proximity to high-capacity transmission lines. And in North America, the optimal combination of these features that I just mentioned are predominantly within deregulated competitive power markets, where anyone with the capability to build, own, and operate a power plant can do so. So for the last couple of years, we've assembled a couple of high-quality locations that were really meant to prove and commercialize our initial NET Power Inc. deployments. Because we had always been planning to license our oxy-combustion technology, we didn't really see the rationale to continue to secure additional high-quality locations in these and other areas. But I'll come back to the bottom of this page in a second. One of the setbacks we've faced at NET Power Inc. is the rising cost for our first facility and learning it was going to be much more expensive than we previously anticipated. And we've come to that hard realization that trying to fund and then build a $1.7 billion 200 megawatt first-of-a-kind facility before completing all of our testing is a low probability event. In a best-case scenario, we'd be looking at a COD of that first plant in 2030 or 2031. But just given the persistent inflation that we're seeing in the industry sector, in the energy industry sector, those costs could be higher in a few years. So we can either keep our heads down and continue investing 100% of our capital to advance our oxy-combustion technology, which we have great confidence can be the right long-term solution, or we can slow down that spending in order to free up some of our resources for near-term accretive opportunities. We strive to allocate our capital in a responsible manner that maximizes shareholder value and is aligned with our mission. The day that we can't do that will be the day we return that capital to shareholders. But today is not that day. I'm really excited to talk about the right side of this page for a few reasons. Conventional gas power with post-combustion carbon capture technology, or PCC for short, conventional power side of the facility, gas turbines and gas engines, are proven bankable technologies. The other half of that configuration, the PCC side, has also been proven, but it hasn't been widely deployed or as quickly as it should. And it's not necessarily a technology issue, it's been an economic and timing issue. It could take a long time to permit sequestration wells. It could take a long time to permit new CO2 pipelines. And if you're in areas where it's uneconomic to transport and sequester, or the underlying power project doesn't operate at sufficient uptime to justify the capital investment in PCC, in those instances, it's just not economic to install PCC versus just doing a simple cycle or combined cycle facility. But as we all begin to see the tangible support for adding new 24/7 power and the differentiated value the market is willing to pay for clean firm power, PCC becomes very interesting in the right geographies. So for us and everyone else in the power and data center space these days, speed is everything. We believe gas turbines with PCC can and should be the fastest to market and most cost-competitive clean firm solution for our prospective customers. So we connected with the Entropy team over the summer and discussed ways we could work together to accelerate the deployment of clean gas projects together in the U.S. Entropy, which I'll cover on the next slide, is a Canadian-based company. They're a bit under the radar here in the States, but they have the only operational natural gas CCS facility in North America and it's been running for a few years now. They've fine-tuned their solvent mixture for carbon capture from natural gas. And between our two companies, we recognized an opportunity to combine NET Power Inc.'s power generation and site origination skill set with theirs on PCC, to accelerate the deployment of clean gas power projects in the U.S. Which takes me back to the bottom of the page. One of the immediate commercial synergies we can realize with Entropy is the ability to accelerate deployment of their technology at NET Power Inc. sites, specifically starting with our Project Permian site in West Texas, and our second originated site in Northern MISO region. I think each of these locations is great in their own right. Our West Texas project has real potential to be the lowest cost clean firm power project in North America. We're targeting a below $80 LCOE for the first phase of this project and below $70 per megawatt hour as we scale to 300 megawatts and beyond. In our Northern MISO project, we can add much-needed 24/7 power to a grid system that is not seeing enough new baseload power showing up in the queue, not to mention zero new clean firm baseload showing up. So by utilizing our existing sites, we have the instant ability to deploy up to 600 megawatts in these key power markets with the ability to do even more through additional interconnect upgrades or behind-the-meter colocation. And through this exclusive partnership, both us and Entropy will have the ability to co-invest in equity of the projects we develop. So the price of this partnership is building high-quality, clean firm power projects in markets that value 24/7 clean power on an accelerated timeline. And over the course of the next several months, we'll be working several work streams in parallel with the Entropy team. First, we'll be finalizing definitive documents of the LOI. Second, we'll wrap up technical diligence to fully confirm this is the right path. As well as complete design work around our first project, which Marc will talk about in some detail. It's worth flagging that if we choose to complete this transaction, we'll be making a small strategic investment into Entropy to help fund their ongoing business and technical work supporting our joint development. I have to mention there's no binding obligation on the part of either of us or Entropy to consummate the transaction. But sitting here today, assuming everything continues to track the progress we've made to date, we expect to finalize the JV in 2026, in conjunction with preparations to FID the first phase of our West Texas project. So when we take a step back and we think about what NET Power Inc. is becoming, we're still a company with a singular mission to transform gas into the lowest cost form of clean, firm power. But instead of just having one solution to do it, we now can have two. And in a market that's operating with a very near-term focus, on scalable, reliable power, but still thinking about a cleaner end state, we think us having a high-impact deployable solution today to complement our game-changing long-term patented product is the optimal setup for our business, our shareholders, and our future power customers. Turning to Slide six, we wanted to briefly summarize the landscape of our new product portfolio, which has really evolved to prioritize speed to market and technology readiness. In summary, we have a technology in the oxy-combustion, the top line, that looks a lot like new nuclear. Ready in the 2030s, an LCOE in the mid one hundreds, with a pathway to sub-one $100 LCOE. Or lower with an extremely low environmental impact. We are keeping that technology in our arsenal and will methodically advance its development on the right timeline. But then skipping down to the bottom of the slide is where we'll be with Entropy today. Conventional turbines with capture, proven technologies, ready to be deployed today, in the right areas, areas that we control with very compelling breakeven economics. We think this can be the most competitive near-term solution that the market needs. Now. So turning briefly to Slide seven, I wanted to provide a brief overview of Entropy. As I mentioned before, we've signed an LOI to partner with them. To deploy its proprietary aiming-based solvent, solution for the build-out of clean firm power in the U.S. Entropy is based in Calgary and has a world-class ownership group that includes Advantage Energy, Brookfield, and the Canada Growth Fund. They operate the world's first and I believe it's the only natural gas facility equipped with post-combustion carbon capture and sequestration at the Glacier gas plant in Alberta, which has been operating consistently since 2022. 90% of CO2 emissions associated with gas power generation, we put it at the highest level of technology readiness, a TRL nine, which enables us to develop and deliver clean power hubs before the end of this decade. We're really excited to work with the Entropy team and get these clean firm power projects off the ground quickly because that's what the market wants. The Entropy solution coupled with our power generation knowledge and product approach, allows us to deploy a clean natural gas-fired solution meeting the current market demands. I think it would be helpful if we could share some of the early work we've already been doing around this program and these projects. So with that, I'd like to turn the call over to Marc Horstman, NET Power Inc.'s Chief Operating Officer. Marc Horstman: Thanks, Danny. Slide eight details how we'll be leveraging the existing infrastructure that has been established through our project permitting efforts to develop our first clean power hub. Where we're preparing to deploy gas turbines with post-combustion capture in a modular scalable configuration. This site represents a pathway to ultimately deliver up to one gigawatt of capacity as we expand over time. We are leveraging the existing Project Permian land position near Midland Odessa. Phase one is being structured around a 60 megawatt module and a clear expansion path to one gigawatt as demand and offtake agreements mature. Our gas turbines for Phase one are being prepared by Relevant Power Solutions or RPS. Carbon capture will be delivered through Entropy's proprietary amine solvent technology, which is designed to achieve greater than 90% CO2 capture. On the commercial side, we have already begun to set this project up for a successful FID in 2026. We've reached indicative terms with Oxy to purchase 30 megawatts and 100% of the captured CO2 under a long-term agreement. And we're in advanced discussions with another major oil and gas off-taker for the remaining capacity. One of the core advantages of this project is the ability to use the existing Permian infrastructure. Land, interconnect, gas supply, and offtake. With that foundation in place, we can deliver our clean firm power by utilizing gas prepared by RPS and paired with Entropy's PCC technology. This approach enables a faster development timeline and lower cost relative to greenfield alternatives. Strengthening Project Permian's position as a repeatable, scalable build-out platform. Our current schedule targets a financial decision in 2026. Assuming that is achieved, construction will begin in 2026 with commercial operation expected in 2028 or 2029. This project is structured to demonstrate speed, repeatability, and long-term commercial durability of our clean power product. Key steps in building a gigawatt-scale footprint in the Permian. Turning to slide nine. Slide nine focuses on our development pipeline. I want to provide an update on our Northern MISO project, which represents our next major clean firm power build-out alongside our Permian project. This project continues to progress on schedule. We're targeting commercial operations between 2029 and 2030. We secured the project site and are actively working with a local carbon capture and sequestration development partner. This partnership is central to our plan as the project is expected to utilize Class six sequestration for long-term CO2 storage. Our partner currently holds two Class six well applications and both are on track for permitting in 2028. Similar to the Permian, we're designing Phase one of this project to utilize gas turbines paired with Entropy's PCC technology. FID is targeted for 2027 and we expect commercial operations to come as soon as 2029. NET Power Inc. is in active dialogue with strategic off-takers for the power at this site. Overall, MISO is moving forward as an anchor site for our next phase of growth. Complementing the Permian program and reinforcing the scalability of our Clean Power product platform. Slide 10 shows that project permitting remains on track for its first power in 2028. Phase one is designed around a 60 megawatt module with more than 90% carbon capture and target availability of 95% plus. Our current estimates point to a levelized cost of energy or LCOE under $80 per megawatt hour. With interconnect capacity secured at 300 megawatts, we see a clear path to more than 750 megawatts of future expansion at this site. Our MISO project is progressing with first power targeted for 2029. The project features similar performance expectations, 95% availability and greater than 90% carbon capture. With a projected LCOE of roughly $100 per megawatt hour. This site also holds 300 megawatts of interconnect capacity and supports more than 400 megawatts of future phases. Moving to the right-hand side of this slide, we'll continue to leverage our people and skill to build a robust project pipeline. Following the same blueprint we have thus far. Finding the bright spots, securing interconnect spots, securing the pore space to sequester CO2, negotiating long-term supply and offtake agreements, and leveraging our strategic owners to establish clean firm power hubs that can scale into large multi-gigawatt campuses in the early part of the decade. These actions set the foundations for scalable, repeatable project execution. Big picture, we're designing these clean firm power hubs to come online beginning 2028 through 2030 with the potential to expand into multi-gigawatt campuses by the early to mid-2030s. We're excited for this next stage of our story and look forward to sharing updates on our progress in future quarters. With that, I'll pass it back to the operator to open up the line for Q&A. Operator: Thank you. We will now be conducting a question and answer session. Our first questions come from the line of Nate Pendleton with Texas Capital. Please proceed with your questions. Nate Pendleton: Good morning. Thanks for taking my questions. With the pivot you announced here, can you provide your perspective on what makes NET Power Inc. uniquely positioned to take advantage of this opportunity compared to some of the others, given your prior focus on the Oxy-combustion cycle? Danny Rice: Yes. Good to hear from you, Nate. That's a great opening question. I think when you really get down to it and you look at the skill set that NET Power Inc. has, you know, it's not just about the skills, but it's about, like, the resources and assets that we possess today. I think it starts with having a fundamental understanding of both power, really the above-ground piece, along with a really, really solid understanding on the subsurface. I think, you know, when we take a step back and you just ask yourselves, like, why hasn't, like, gas with CCS really taken off in the past? I think it's because when you look at all of these potential projects that have really been proposed on the CCS side for PCC, it's always been through, like, a first sort of approach. Where's the best place to put a power plant? And then secondarily is, well, can we do PCC here? And if you're not close enough to the sink, if you're not close enough to a high-quality reservoir, the PCC economics fall apart pretty quickly. So it's all about, like, location, location, location, and finding the best place to be able to put these sites. You kind of pair that up with, as I mentioned in, like, the prepared remarks, how long it takes to actually permit a lot of this stuff? This isn't something where you can just wake up tomorrow and say, let's start doing PCC here. It takes years to be able to permit the wells, years to be able to permit the pipelines. That will be changing over time as you see permit reforms start to accelerate and shorten those timelines to get this infrastructure built. But sitting here today, I think the biggest differentiator, who has actionable projects in the right areas to be able to deploy. So I think one of the unique synergies that I sort of mentioned earlier was we're kind of sitting in this unique position where over the last several years, we've started to originate high-quality sites to put these NET Power Inc. plants. And these sites work just as well for PCC as they do for NET Power Inc. Because it's the same exact inputs and outputs, the same quality of natural gas comes in and the same amount of high-quality, high-purity CO2 comes out. And so as we think about the best places to be able to put PCC, NET Power Inc. is sitting here today with a couple of high-quality sites to put these projects. And so part of just the obvious synergies that we saw with the Entropy folks is, hey, we've assembled, like, really great sites to be able to put on NET Power Inc. plants. The deployment and commercialization of those NET Power Inc. plants is many years away, so we're going to have interconnect ready for 300 megawatts in West Texas, 300 megawatts ready in Northern MISO that could potentially sit there unutilized if all we said was we're going to wait to deploy NET Power Inc. This opportunity that we see in front of us is we can actually accelerate the deployment of a clean gas technology on these sites much sooner than we would if we just waited for NET Power Inc. And so you kind of end up in this place where, you know, when Marc's talking about getting to FID in '26 and COD in that first plant in 2028, that positions us to have the first clean, firm gas power plant online in the United States. Years ahead of the next guy. And that's really just the first phase. Right? I think over the course of '28 through 2030, 2031, if we do this right, we're going to have the ability to scale and develop multiple phases across both West Texas and Northern MISO. And so I think when you get to 2031, 2032, when the next competitor's clean gas project comes online, we're going to have three to four years of operational run time as well as three to four years of multiple deployments under our belts by the time the next project comes online. But the key to all of this is having the right location in the right areas that are really conducive to clean gas power and NET Power Inc. just coincidentally possesses those today. Nate Pendleton: Yeah. It seems like a compelling opportunity. So thanks for laying that out. Then if I may, looking at Entropy, there seems like a phenomenal partner from what I understand about their history and what they've been able to achieve. So with our Glacier project and their Entropy 23 solvent, it does seem quite a bit better than what's in the market today. On an array of metrics. So can you maybe elaborate on why specifically you chose to partner with them? And what you see in that technology that may make post-combustion carbon capture truly competitive economically? Danny Rice: Yes. I'll start and then Marc can certainly fill in the holes. I mean, first and foremost, I think they're just a great group of people. And I think, like, one of the things I've learned over my career is it's always better to work with great people. It makes the experience a lot more fun. And I think that ultimately is what leads to, like, the best potential economic outcome at the end of the day, partnering with good people. And the Entropy guys are top of the class. I think what is really differentiating about the Entropy folks is their operational experience with the solvent technology. I think because the industry as a whole hasn't really gotten off the ground, the real differentiators are the ones that have actionable real projects in the ground today and the Entropy guys have done that. And as a result of being able to have, like, real projects, you're able to fine-tune the technology. You're able to fine-tune the assets to optimize for performance. And so being able to have three years of runtime on the facility, they've been able to optimize and improve the performance of their technology, which is both the infrastructure, but also the solvent technology. And so they've been able to optimize their essentially, cocktail for capture. I think when you take a step back and you said what differentiates one solvent from the next, you know, there's a couple ways to measure it. It's the amount of energy it takes to separate the solvent from the CO2. It's the capture efficiency of the CO2. It's the degradation rate of how long does it take before that solvent breaks down. And then it's also the inhibition of that solvent to or the amines to become nitrosamines, which is not good. And the Entropy solvent, they've done a phenomenal job, you know, essentially, like, building what is a peer-leading sort of technology. And so that's really where this whole synergy comes in is they have what we would say is a TRL nine product that should and can be deployed in the power markets that need clean power the fastest. That happens to be the U.S. And we have these sites that are ready for clean power projects. So this sort of coming together of us enables them to accelerate the deployment of their technology in the largest market in the world, the U.S. power market. And for us, it allows us to accelerate the deployment of clean power projects that stays true to our mission. And I think where we both sort of win is we both will be participating in the equity in the investment of these projects side by side. So the goal here is let's stand up and develop, build, own, and operate high-quality, clean, firm power projects leveraging Entropy's solvent and PCC expertise, combine that with our power generation and site development expertise, we end up with this win-win situation for both of our firms. Nate Pendleton: Got it. I really appreciate the detail and thanks for taking my questions. Danny Rice: Yeah. Thanks, Nate. Operator: Thank you. Our next questions come from the line of Martin Malloy with Johnson Rice. Please proceed with your questions. Martin Malloy: Good morning. I wanted to ask if you could maybe talk broadly about the financing strategy with Phase one and then follow-on projects. It sounds like from Marc's comments with Phase one, you've got potentially all the power, you've got an offtake for and as well as the CO2 going to Oxy. Maybe if you could talk about just broad terms of the financing strategy in terms of being able to put debt on these projects? And also, I did see on Entropy's website that Brookfield is an investor in them. If that plays a role here at all? Danny Rice: Yeah. No, Marty. Great to hear from you. Those are really awesome questions. Yeah. I think starting on just the financing of these projects, I think when you take a step back and you look at just what we were planning to do on the NET Power Inc. side because, you know, NET Power Inc.'s oxy-combustion technology was going to be a first-of-a-kind facility. One of the things we told the market is, hey, we're most likely going to have to equity finance the entirety of that first facility. It's talking about $1.7 billion of what would most likely need to be 100% equity finance because there's no, you know, quote, unquote, bankable technology within that plant. And that's okay. And that's sort of common across new first-of-a-kind technologies. I think you contrast that against what we're doing here with Entropy with the gas turbines and the PCC. Like I mentioned before, you know, half of that facility is existing proven bankable technologies, the gas turbine, steam turbine, the HRSG, that's all stuff that is financeable because these are proven equipment that has real value in the market. So you buy the equipment, it maintains its value if you want to transfer or sell it. So that becomes very financeable on the project financing side. And so the way we kind of look at it is we know we're going in with at least half of the CapEx very, very bankable. With just project financing. So it's not going to require equity financing. I think you kind of wrap this whole thing within long-term contracted cash flows. And, you know, we're talking ten to fifteen years. Contracted cash flows, and you get to a place where you could probably project finance a good chunk of the total CapEx spend of this project. That is really just because, like, sort of what we're targeting in terms of how competitive is this from an LCOE perspective. I think LCOE isn't the end all be all in what project economics are. But knowing if you're on, like, the low end of the LCOE range, and you're able to command a higher price for that power, that implicitly says these are going to be, you know, mid-single to mid-double-digit sort of IRRs, 10% to 15% on a levered after-tax basis. That provides sufficient capacity to be able to have project financing on the whole thing. And so as we look at the financing piece, this isn't going to be NET Power Inc. is going to have to put up 300 or $400 million of equity dollars for the first project. It's going to be a much smaller portion of that. And then one of the arrangements that we have with Entropy is their ability to participate alongside us in these projects. And that certainly becomes really interesting for Entropy's investors, for Brookfield and CGF and Advantage. And potentially for other Entropy investors to be able to participate through Entropy in these projects alongside us. So the equity capital burden that we're going to be looking at on West Texas phase one, but also on the future phases as we expand this thing, the equity capital needs are going to be a whole lot less intensive on a per megawatt basis, on a per dollar of CapEx basis. Than we would have otherwise seen with NET Power Inc. projects. So it's sort of like a perfect setup where we're enabled to deliver clean firm power sooner. It's more accretive to our equity dollars that we're investing. On an accelerated timeline in terms of speed to market with new power generation. Martin Malloy: Great. That was very helpful. And then, for a follow-up question, just wanted to see if you could share with us maybe any anecdotes of conversations that you have had with potential off-takers in the data center market that are looking for this type of solution for their power needs and might be willing to enter into a longer-term offtake agreement. How they're viewing this? And I know you mentioned the Google announcement recently. Danny Rice: Yeah. I mean, it's quite interesting. I mean, today is really, like, us like, this is sort of, like, our coming out party as far as starting to say, these are the projects. This is the timeline for the projects. This is the carbon intensity profile. This is the reliability profile. Of us doing this in both West Texas and in Northern MISO on these sites that we control. I think the conversations have historically been around the NET Power Inc. technology. Which is a great technology, but I think the one just challenge on the NET Power Inc. piece is you're talking about projects that would start in 2030 or 2031. And then the second plant in 2033 or 2034. And I think when you think about the urgency of power for the hyperscalers, for these data centers, for AI, 2030, 2031, is eons, I mean, in dog years or cat years or pick any other animal that has a really short shelf life, like, the way they think about time value is totally different than we do to, like, a traditional financial lens where we think of time value as like a 10% or 12% cost of capital from year to year. I think they're thinking about things like multiples, multiples, multiples of that. And a project that comes online in 2031 is a 100 times less valuable than the same project if it could come online in 2027 or 2028. And so these conversations that we can now start having with strategic off-takers become a lot more real and a lot more interesting because we're talking about projects on a very accelerated timeline than the conversations we've been having with them in the past about projects starting in 2031 or 2032. And that all plays into, like, why this sort of partnership eventually makes a whole lot of sense that accelerates not just the deployment of these projects, but it really starts to bring forward a lot of the strategic conversations around strategic offtake with folks that are in dire need for as much clean, reliable power coming onto these grids or behind the meters as soon as realistically possible. So, I think this really sets us up to have much more constructive, much more tangible and real conversations. But at the end of the day, it all depends on our ability to continue to progress these projects and deliver the right solutions on the right timeline. And I think this partnership with Entropy allows us to do that. Martin Malloy: Great. Thank you. That was very helpful. Danny Rice: Yep. Thanks, Marty. Operator: Thank you. Our next questions come from the line of Betty Jiang with Barclays. Please proceed with your questions. Betty Jiang: Hello. Good morning. I want to ask about slide 10. And then just unpacking the economics of the project, what enables the sub $80 LCOE in the Permian compared to roughly 100 in MISO. And if you could just speak to maybe how you're thinking about the CapEx cost and then some of the other credit stacking attributes on the Permian project. Danny Rice: Yeah. No. That's a great question, Betty. And I think this is an important one for everybody to understand. You know, it really comes down to, like, two simple things that make a clean firm power project in West Texas lower cost than anywhere else. I would say almost in the world. And it comes down to the cost of the energy feedstock for the power generation. And in our case, it's natural gas. It just happens to be lower cost in West Texas than just about anywhere else in the country. That's really thanks to the oil and gas industry that's been able to unlock the shale gas potential out there. So there's that factor. And then the other really, really important differentiating one, and this into the subsurface side of things is you have the ability to utilize that CO2 versus having to just permanently sequester. And so what that really means is we have active buyers of that CO2 that are able to ascribe real value to the CO2 because it has an industrial use. So most other places where you're just permanently sequestering the CO2 and there's no value, you're having to pay somebody to take the CO2, transport it, and permanently sequester it. And so that comes out of the 45Q proceeds that you get. So in a place like Northern MISO, you know, we're going to collect the $85. And then from the $85, you'll pay a certain fee per ton to transport and sequester the CO2. And that's the way it works. In most of these applications for CCS. West Texas is a totally different animal. West Texas is an area that's been purchasing, you know, 10, 15 million tons of CO2 per year. For industrial use. For enhanced oil recovery specifically. And so that's a market where they can ascribe the value to purchase the CO2. Without you having to then pay to transport and sequester it because they have real industrial value there. And so in a place like West Texas, the plant is going to get paid the $85 per ton. But rather than paying somebody 20 or 30 or 40 or if you're in a bad area, 50 or $60 per ton, out of that $85 that you're getting paid from the 45Q, you're actually getting paid on top of the 85. So you can kind of think about it as, like, carbon stacking where you're getting paid the $85 in the 45Q, and then you're collecting another amount per ton to sell the CO2 to an industrial user. And the biggest industrial user of that CO2 in West Texas is Oxy. They have been pioneers in enhanced oil recovery for a long, long time. We're going to be using oil in this country and in the world for a long, long time. And so there's real industrial value that then gets valued back to these plants. So what that really means is the more value that we can capture on the CO2 side of this facility, the lower the power price can be. And so that's really, like, the really interesting setup that we see in West Texas is this is arguably the lowest cost place to do clean gas power. And so I think a lot of people are now starting to see a lot more power projects pop up in West Texas more so than anywhere else. In the United States. And it's specifically because of the low-cost nature of natural gas there. Then I think if you take it a step further and you say, okay, well, where's the most economic place to do clean gas power projects? It also happens to be in West Texas. Because of the utilization of the CO2. So, you know, we kind of recognized this way back in the day with NET Power Inc. We said, hey. The absolute best place to do our first NET Power Inc. oxy-combustion project is West Texas. And so that's why we already have the infrastructure in progress with the interconnect, with the site, with the offtake stuff for the CO2 is because we've been working on it for the oxy-combustion the same thing applies to what we're going to be doing with Entropy on the PCC side of things. So it's a great place to be able to demonstrate that clean, reliable, affordable power can come from natural gas. In the right areas. And so that project Permian site is going to be a great place to be able to demonstrate that on a very accelerated timeline with the Entropy folks. Betty Jiang: Got it. That makes a lot of sense. My second question, bigger picture. So if I think about your business model now, or prior, it was capital light. It was a licensing model. And others spend the money on the big capital dollars to build these plants. And now since you're pivoting to a more capital-heavy model, where in order to scale you have to grow and spend more money to build these plants. So how are you thinking about the project financing or just the longer-term capital needed to scale this business? Danny Rice: Yeah. No. It's a great question, and I think that's one of, like, the exciting parts about what we're trying to do here. And it all comes down to making sure that we're sizing these things appropriately for what NET Power Inc. can accommodate with its balance sheet and its access to capital. I think one of the things you're seeing with what we're doing on phase one, you know, we could just as easily say, hey. Let's go do a 300 megawatt facility right out of the gates. There's really not going to be any technology scale-up risk because we're deploying this PCC technology in a very modular small-scale fashion. So we could do four or five of what we're doing in phase one. We could just replicate that to do full 300 megawatts right out of the gate. But in doing that, you're going to get to a really large CapEx number, which is going to require a lot more equity capital than NET Power Inc. has access to today. And that's a position we don't want to put our balance sheet or our shareholders in that position. What we're really doing is we're really right-sizing the scale of these facilities to be able to accommodate NET Power Inc.'s ability to participate to its fullest in the economics of these projects, to be able to participate for our full economic potential without it being dilutive to the balance sheet or to our share count. And so phase one of that project is going to be smaller, but it's smaller by design. Both to prove this modular concept, which isn't really a concept that we have to prove because this is what the Entropy folks have been doing. Up on their Glacier facility. But it's really sizing in the way that we can establish a commercial project that requires only a small portion of our existing cash on hand. And so we're in this unique position where, you know, we're going to exit the year with around $390 to $400 million of cash. And one of the capital allocation decisions that we're actively assessing is, okay, how do we slow down some of the spending that we're doing on the oxy-combustion side? Because that frees up capital that we can then allocate to an equity investment into economic commercial projects on the turbine and PCC side on an accelerated timeline. And so we're in this unique position where we're going to be able to get project financing, expect to be able to get project financing for a good chunk of the capital spend on this first project. But because we're doing it at such a smaller scale compared to what we ultimately could be able to do it at, it makes the equity requirements on our side a lot more manageable and a lot more palatable knowing that what we really need to do is establish clean firm power generation prudently and then prepare to scale quickly to the 300 megawatts and above. And that sort of strategy is really, like, what we're running with at both West Texas and at the Northern MISO site, where we're going to start smaller. These are going to be sites that are expandable up to a gigawatt or larger. And so we're going to do that very prudently using our available capital on our balance sheet. But we know that if we do it right, and we're able to demonstrate that these are highly economic, highly strategic, and differentiated projects, that will really open up the door on our access to additional capital because the real prize for us is if we can put billions of dollars to work in projects that generate 15 to 20% after-tax returns to us. Access to capital becomes a lot easier to get. So the first key piece for us is being able to demonstrate economic differentiated projects at a small scale and that's ultimately what we're going to be doing with the first phase of this West Texas project. Betty Jiang: That's great. Thank you. Danny Rice: Yeah. Operator: Thank you. Our next questions come from the line of Wade Suki with Capital One. Please proceed with your questions. Wade Suki: Good morning, everyone. Appreciate you all taking my questions. And I might have missed it, but maybe just to dovetail on, I think, the Betty and Marty questions. Can you give us a sense for what Phase one might cost in West Texas or MISO for that matter, sort of including the carbon capture component? Again, might have missed it, but wonder if you could clarify that for us. Danny Rice: Yeah. Absolutely. We didn't really provide any specifics, but, you know, I think, you know, we're still going through a lot of the final preliminary engineering work over, like, the scope of the facility. The rough number just to put it out there for everybody is total installed CapEx on that facility will be between, call it $375 million and $425 million. And then when you just kind of go through the math, Wade, in terms of what that could be on an equity piece to NET Power Inc. If we're doing 50% or 51% of the equity and Entropy is doing the balance, if we can get project financing for 50% to 70% of the total CapEx, you know, that leaves you with around $200 million to $150 million to $200 million of total equity. And so if NET Power Inc. has taken 50% of that, you're talking about $75 million to $90 million on the equity side. Now it could be a little bit more, could be a little bit less depending on where things shake out on total CapEx. And total financeability. But that's probably a good rule of thumb of where we're going to be in terms of potential capital invested in that project. Like, a pretty compelling setup in my mind because we're sitting here with $400 million, you know, at the end of the year, $390 to $400 million. And so you kind of have 2026, you know, capital spend allocated to this of $80 million to $90 million that leaves sufficient capital for us for any projects that we want to FID in 2026 or 2027, whether it's West Texas Phase two or whether it's MISO Phase one. I think the real timing of being able to FID those phases, it's probably less on, like, availability of the real key stuff, which is the turbo machinery. I think Marc's done a good job, an excellent job, not just with securing these turbines for the first phase of West Texas, but really designing this facility so we've become very turbine agnostic. This isn't going to be one where we can only convert, we can only fix this thing with one of, turbo machinery. This is going to be one where we want to do this with recip, we can. If we want to do it with small-scale turbines, we can. We want to do it with larger-scale turbines, we can. So the product design that we're doing on this integrated plant is going to be a lot different than how people have thought about PCC in the past, which is every single plant is bespoke. On the PCC and power side. This is going to be very customized to be flexible to accommodate any which number of turbines. And so we think about the supply chain looking forward for phase two in West Texas, phase one in Michigan, it's not going to be about the availability of the turbo machinery. It's really going to come down to our ability to be able to contract the offtake for the power. To be able to secure the gas supply, the inputs, and the outputs knowing that a good chunk of the economics is already spoken for. The 45Q. And that's, you know, $85 per ton for each ton that you're capturing. And that really is helpful to being able to, like, have, like, a fully contracted cash flow for, I mean, that's twelve years. That really helps underwrite a lot of the upfront investment and the financing that we can get in place for these facilities. So we're pretty excited about what the setup could be on that, the timing, the cadence, and really, like, how accelerated this thing could take off. But the key thing that we're really focused on is let's make sure we have a highly successful FID on this first phase in West Texas. Wade Suki: Fantastic. That's very helpful. Appreciate it. Would you mind just expanding a little bit on the Entropy investment to the extent you can at this point? Danny Rice: Our investment in Entropy? Wade Suki: Yeah. Exactly. Danny Rice: Oh, it'll be a small investment. I mean, the Entropy team is a fantastic organization. You know, as we look at collaborating with them on this program, it's going to require technical resources from both our side and their side to make this happen. Really, it's not so much on, like, the project side, but it's on, like, if you think about the product, and the product roadmap and the program that product is within, it's going to require engineering resources from both their side and ours. And so we said, hey. We'll make an investment on your behalf into your business. So it's a small equity investment. But it's an important one because it gives them the resources to be able to contribute their people and their skill set to ensure that we deliver the right product on this accelerated timeline. Wade Suki: Thank you. One last one if I could, Minh. I apologize. I don't mean to press it here. But, yeah, look. Just kind of taking a step back and, you know, you and I might have discussed this in a previous conversation, but as I look at the business now, kind of new strategy, I guess what's the rationale for being a public entity? And again, hate to ask, mean to be abrasive or anything, but just kind of curious how you think about that. The current chart pivot, I guess. Danny Rice: Yeah. I think, no. It's a totally fair question. It's a question I ask myself every day. And it's not because we don't like being a public company. I think it's really important that we're a public company. The access to capital as a public company is unparalleled. But I think it's really important that if you're a public company, you have the ability to access that capital and that is really a function of do you have places to invest that capital, right? And I think on the NET Power Inc. side, for the standalone oxy-combustion, it is pretty hard to justify why do you need to be a public company if you have all the dollars you need to advance the technology. And the capital needs you're going to need for that first project are way more than you'll be able to capture as a public company, it becomes a harder proposition for standalone oxy-combustion. I think when you now introduce a business that has real actionable projects that can use capital sooner rather than later, and use capital not for the sake of being able to spend money, but invest money into economic projects. That becomes a lot more compelling setup for us to be a public company. And then I think, like, the other part of it is there's no other clean, firm public power company in the space today. Going to have projects online this decade? Yeah. You have the nuclear folks that are out there, but they're in, like, 2030, 2040 sort of time frame. And so this new sort of NET Power Inc. I think, is really differentiated for public market both the institutional crowd, but also for the retail crowd of hey, at the beginning of a natural gas super cycle. What is the absolute best way to be able to play this thesis if clean firm power coming from natural gas is going to be the prevailing source of clean firm power for the next decade. Right now, there's really no the only way to play that really is NET Power Inc. But NET Power Inc., you're making a huge technology bet. A technology that's going to be commercialized in 2030 and beyond. Now, we really bring a whole lot of that actionability forward. With projects that can come online in '28. Years ahead of the competition. And so I think NET Power Inc. now becomes a really interesting position where we have the ability to be not just the premier clean, firm power company, but the one that's actually able to put more capital to work in a very accretive manner both at the project level, but also on behalf of our shareholders. So I think all of a sudden, we're now in a much more compelling place to be able to why it makes sense for us to be a public company. Wade Suki: Understood. Great. Thank you so much. Appreciate it. Danny Rice: Yeah. Thanks, Wade. Operator: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Danny Rice for any closing comments. Danny Rice: Yes. Thanks, everybody, for joining us today. I know the world is quickly evolving. The market is changing. Power demand is exploding, and it's an exciting, exciting time to be in power. And I think, what you really see from us here today is the ability for our team to proactively and at the same time responsibly adapt to this quickly changing market. And I think, you know, when we look forward a couple of years and look back on today, I think everybody hopefully, everybody says, wow, that was a really, really smart expansion of your business to be able to capture this market faster than everybody else. While still preserving not just the mission, but preserving this really differentiated oxy-combustion technology. That combined with our ability to become experts on all things clean gas, really sets NET Power Inc. up for long-term success. So this is the beginning of it. And we're really excited for your support. And we're really excited to come back and visit with you all in a few months and show the progress that this team's going to make. So thank you again for your time today, and we will always be available to answer any additional questions or comments you all have. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Enjoy the rest of your day.
Frank Stoffel: Good morning, everyone, and welcome to Allianz's Third Quarter and 9 Months 2025 Media Conference Call. Thank you for joining us today. My name is Frank Stoffel, Head of Financial Communications and Valuation Relations, and I'm here at our headquarters in Munich with our Chief Financial Officer, Claire-Marie Coste-Lepoutre; and our Group Head of Communications, Lauren Day. Today's conference call is scheduled for 60 minutes. And as usual, we will answer your questions following our presentation. With this, it is my pleasure to hand over to our CFO, Claire-Marie Coste-Lepoutre. Claire-Marie Coste-Lepoutre: Thank you very much, Frank, and good morning to all of you. I'm very pleased to report on another very strong quarter for the group, which is building to an excellent contribution to the year and our 3-year plan. Our results are supported by both an ongoing top line momentum and an attractive margin development. Across the organization, we are working on our 3 strategic levers of smart growth, productivity and resilience, with first signs of materializations into our numbers. As you can see on Page A4, year-to-date, our business volume growth continues to be very strong at 8.5%. As previously, this growth is diversified from a segment perspective and within the segment across businesses and geographies, which gives us a lot of strength for the future. Our operating profit is now up by more than 10% year-to-date. The number FX adjusted would even be 13%. Here as well, we see positive developments in all our segments. Our core net income growth is accelerating compared to the first half of the year. Year-to-date, it grows by 10.5% or actually 8% adjusted for the disposal gain of the Life JV with UniCredit in Italy that we did book in the second quarter, and as well as the anticipated tax effect of the disposal of our stake in Bajaj that we did book in the first quarter. Our core EPS adjusted for this exact same 2 effects is now up 10%, which is very strong and ahead of our 7% to 9% target range. Similarly, our core ROE is above 18% and well ahead of our target level as well. Our solvency ratio emerged at 209%, and our operating capital generation continues to be very strong, which gives us flexibility for current and for future capital deployment. Given the excellent performance of the organization at the end of September, I'm very happy to indicate that we have adjusted our outlook upward yesterday night, and that we expect to end the full year at least at EUR 17 billion operating profit. Of course, the year is not over, and we can still see NatCat or market movements. But clearly, we are very confident with the overall outcome. Let me move to Page A5, and let's have a look at our P&C business. Here, we have another excellent quarter, which is building on previously excellent quarters. We are achieving another level of -- another record level of operating profit, now 15% up versus last year, as you can see on the right-hand side of this slide. Year-to-date, our total business volume is at plus 8%, which is excellent. This 8% growth is ahead of our assumed medium-term growth rate of 6% to 7%. Approximately half of the growth is volume and the rest is price. Compared to the first half of the year, the volume growth has been accelerated from both retail and commercial. Our internal top line growth for the third quarter is in line with what we have seen for the second quarter as is our rate change on renewal for the full book, which is now at around plus 5%. We have achieved a very good level of combined ratio at the end of the third quarter at 91.6%, with both retail and commercial performing, as you can see. Also, you can see in our material, how broadly spread the performance remains. In particular, I'm very happy with the development of our attritional loss ratio with more than 1 percentage point of progress year-to-date. This has been particularly driven by our retail business, with the benefit of the underwriting and pricing actions, which are earning through. Also, our constant focus on productivity continues to deliver with our expense ratio down by around 30 bps, just below 24%. And the third quarter was very mild from a natural catastrophe's perspective, but we booked no runoff overall. So we further increased our reserve confidence during the quarter. Overall, our P&C business is doing excellently. We see volume growth, which reflects a mix of strong ongoing developments, especially in retail and targeted growth in commercial as we manage the cycle. Our profitability is not just a reflection of more benign natural catastrophes, but also very strong attritional improvement, relentless focus on productivity and significant prudence when it comes to the recognition of runoff. Let me now move to Life Finance on Page A6, where you can see that we are fully on track to meet our targets there. The numbers are as well more impacted by FX and P&C. And you may remember that we have disposed the UniCredit JV, which is now showing up in the numbers as of the third quarter. Our value of new business is up 4% FX adjusted, with our PVNBP up 5% at a very stable new business margin, which is as well above our 5% ambition level. So we see good developments across the businesses. Our life new business can always be a bit lumpy. And last year, our third quarter was extremely strong, where we are benefiting from various promotions. You may remember that our U.S. life business was up 60% last year in the third quarter. And we also had some large ticket transactions, in particular at Allianz Leben last year in the third quarter. So I think to get a good sense of the fundamental growth in new business of our Life & Health portfolio, this is actually really good to look at the 2 years development between the 9M 2025 and the 9M 2023, where we have been growing by 20%, which gives us an estimated annual growth rate of approximately 10% FX adjusted, which we also consider is the right level of appreciation if you just purely were normalizing the number between 9M '24 and 9M '25. If you look in more details at the profile of our business development, you will see as an example that we continue to grow at 93% in our preferred line of business, that our health business in Germany continues to show exceptional momentum once again with year-to-date new business profit up 56%. Italy is also worth a special mention to highlight with a growth of 13%, excluding the UniCredit business with the vast majority of that business coming into united. Let's move to the contractual service margin. And as you know, the net CSM development is a much better indicator when it comes to the real reflection of the future stock of profit to be earned by us. The net CSM year-on-year is at 5% or is at 8% FX adjusted. This is clearly well on track for our targets as is the normalized growth of the CSM, which is just under 4% at the end of the third quarter. Our Life operating profit emerged at EUR 4.2 billion, growing 6% adjusted for FX. This puts us well on track against our targets. Overall, our Life business momentum is good. Our new business profitability is at a very attractive level, and our IFRS profitability is emerging as expected from a very diversified portfolio. Let's move to Asset Management on Page A7. And here, you can see how structurally our business is doing well at navigating the market environment, delivering outstanding net flows, performance and profitability. We had our best third quarter ever in terms of net inflows at EUR 51 billion, which brings the annualized year-to-date growth rate to around 7%, which is a very impressive level. Net flows in the third quarter are positive, both at PIMCO and AGI across various strategies, platform and geographies. Our asset management franchise continues to be supported by the performance we deliver to our clients with 92% of our third-party assets under management outperforming their benchmarks on a trailing 3-year basis at the end of the third quarter. If you look further in our material, you will see that our third quarter revenues are up 9% FX adjusted. The revenues are supported by the higher average asset under management, the continued resilience in fee margins at both our asset managers together with performance fees in solid territory. Overall, this leads to revenues at EUR 6.2 billion at 9M, which translates into EUR 2.4 billion of operating profit for the segment. This is supported by the continued focus of both our asset managers on productivity, which is fueled by cost discipline, the operating leverage as we grow our revenues, overall resulting in a cost/income ratio improving 60 bps year-to-date, now below 61%. So overall, on Asset Management, we see an attractive diversified franchise with growth momentum and profitability. Let me move to Page A8, where you can see the development of our solvency ratio, which is characterized by a continued very strong operating capital generation, which is fueled by the excellent performance of our P&C business in particular. This capital generation continues to support our attractive payout, both dividends and share buyback with some of our recent -- together with some of our recent capital deployment like the investment into Viridium or the partnership with the Royal Automobile Association in South Australia. As part of our Capital Market Day commitment, we are focusing on the implementation of our capital management framework, and we are confident to achieve our full year objective of more than 20% in terms of operating capital generation. Our sensitivities are almost unchanged at a low level and continue to offer confidence of the resilience of our profile. So overall, we are in a very good position, both in absolute level, sensitivities and our ability to generate solvency through our business portfolio. While we benefit from some positive one-offs in our operating capital generation this year, there are fundamentally a lot of positive elements to be appreciated there this year so far. Let's move to Page A9. And Page A9 is focusing on the special event we had this year. As you can see, we are celebrating the 25-year partnership between PIMCO and Allianz following the completion of our first investment into PIMCO back in 2000. We thought it's very worthwhile to do a zoom on this. And clearly, it has been an exceptional partnership we are very proud of, which has generated considerable value. Let's move to next page to have a look at that at some metrics. PIMCO has, for instance, grown its assets under management sevenfold, its operating profit ninefold, the latter now making up nearly 20% of Allianz Group operating profit. PIMCO is as well adding value through its strong management of almost 50% of the group's assets. PIMCO's franchise as a leading active fixed income manager has been underpinned by consistently strong investment performance. Here again, at the end of the third quarter, for example, 97% of our assets under management were outperforming on a 3-year basis. As I have already mentioned, PIMCO has seen outstanding flows this year and continues to capture a high market share of the flows seen by the industry into active fixed income strategies together as well with the support of some of the more recent initiative, as an example, the active ETF product that I also already mentioned in the second quarter. We continue to look for ways to further increase the synergies between PIMCO and the wider Allianz Group as we leverage the benefits of an integrated asset management and insurance group. The relationship is very symbiotic alongside PIMCO being a manager of our general account assets, Allianz insurance businesses can seek new strategies for PIMCO and help expand distribution as well. PIMCO as well is supporting and benefiting from our third-party capital optimization vehicles like Sconset that we have deployed for Allianz Life in the U.S. Beyond all of this and what may be less identified in the case of PIMCO is how innovative this business is. The success of PIMCO plays as well in its ability to constantly look across the business at new and better ways of acting or investing. You have many examples of that actually also in the presentation of Christian Stracke in the Capital Market Day presentation. So looking ahead and as we outlined at the Capital Market Day last year, we are very positive about PIMCO's future as a leading active manager with skills in both the public fixed income markets and across a broad range of alternative strategies, which are a first part of its business. The focus is there mainly on asset-based finance strategies that support the real economy, as an example, the investment in data centers. So after 25 years of success, we clearly look forward to many more years of working together, sizing growth opportunities and delivering excellent performance to our clients. Let me wrap up on Page A11. So clearly, we have an excellent year so far where our delivery momentum continues across all our segments. Here, I want to take a small pause to say a big thank you to all our employees for their work and engagement in delivering such results. Together, we are working on executing the Capital Market Day levers, including the focus on higher capital generation and the strengthening of the resilience. As part of that, both the fundamentals and the diversity of our business continue to give us confidence even if the environment can be volatile or uncertain. With all of this in mind and given the performance achieved at the end of the third quarter, we have confirmed yesterday in our ad hoc EUR 17 billion to EUR 17.5 billion range for the outlook. This is subject to the traditional caveats, but clearly, we are very confident. With this, I will be very happy to take your questions, and I hand over back to you, Frank. Frank Stoffel: Thank you, Claire-Marie. We are now very much looking forward to taking your questions. But before we start our Q&A session, let me, as usual, remind you of the housekeeping items. We will answer your questions in English. But if you are more comfortable to ask your questions in German, please feel free to do so, and we will repeat it back in English for everyone else on the call to understand. [Operator Instructions] The first question of the day comes from Michael Flämig, Börsen-Zeitung. Michael Flämig: Mrs. Coste-Lepoutre, Mr. Stoffel, I have 2 questions, please. You said it's an excellent year for Allianz. Mrs. Coste-Lepoutre, indeed, we are experiencing an extraordinary success story in the property and casualty insurance. What risk do you see for the current level -- high level of profitability? And the second one, the share buyback ended some weeks ago. You said there is more room for capital management. When we -- when will you decide about a new share buyback program? Claire-Marie Coste-Lepoutre: Well, thank you very much for your questions. Maybe let me start with the second one. So we have clearly highlighted in the Capital Market Day what is our total payout approach, which is made of 60% level of dividend and then minimum 15% additional payout, which can be under the shape or form of share buyback, obviously. That 15%, we want to give us flexibility, obviously, and we want to return back to our shareholders over a 3-year period of time. So that's our total payout approach. This is unchanged at this point in time. And we just finished -- we did just conclude our share buyback that we had announced together with our full year numbers. So it's definitely too early to discuss another one at this point in time. Then I think your second question was around P&C and basically, what are the drivers for the strong performance in P&C, if I am right, right? It was not in particular about rates? Michael Flämig: That's right. And what are the risks there in the future? Claire-Marie Coste-Lepoutre: Yes. So a very good question. I think like -- so what we see in P&C is, first of all, from my perspective, so we need to distinguish between retail and commercial. And maybe let me start with retail. I think clearly is a very strong driver for the performance in retail is the fact that we have been working very strongly on -- I mean, on addressing the inflationary effect on one end, which has led to us taking quite early initiatives, which have fueled both the underwriting, the rate development, but as well, simply the overall pricing action. So that's one driver of it. Clearly, we see that the way we have been able to do that is translating itself in particular into our attritional loss ratio. So that's why I'm always very carefully looking at that dimension. But that's only one part of the story, I believe. The second part of the story is that across the organization, there is a lot of focus on generating good growth and engaging both with our clients, but also working on higher retention and cross-sell, so basically working on the overall growth triathlon that we have been mentioning in the Capital Market Day, for which we see good early signs in some of the geographies like Germany, like France, like Latin America, like Australia or Switzerland. So we see across our portfolio that this focus on those actions are starting to come into actions, and I expect more of them to continue as we progress into our plan. The second dimension, which is very important as well for retail, is the fact that we did not go only with price increase, we have been working a lot on productivity and in particular, around claims, right? So there has been a lot of actions to optimize our processes, also leveraging AI, but also leveraging one of the company we have in-house solved to really secure that we are paying less for the spare parts and so on and so forth. So a lot of actions as well to minimize the pain associated to the inflationary trends and to basically enter that back into our pricing also to fuel the growth. So I think those will be some drivers on the current performance on the retail. Obviously, we had also good support or very good support from the mild NatCat environment. But as you have seen in our numbers, we have offset that almost entirely by a lower level of run-off. So clearly, that's not one of the driver of the overperformance. Maybe moving to commercial, which is a different dynamic. So commercial, as you know, first of all, our book is very different compared to our competitors. Our commercial business is very diversified. We have the large corporate and specialty business there, but we also have Allianz Trade. We also have -- sorry, Allianz Partners and our mid-corp business. So we see very good dynamic into our mid-corp business, which is fueled by the Allianz commercial initiative with also still good stability of rates. So I think for the future makes us confident in terms of focus. Then Allianz Trade continues its excellent trajectory. And on partners as well as part of our platform play, we continue to see very good development both in terms of growth and margin development. So that's also very supportive of the dynamic. Obviously, there is market softening for the large corporate and specialty business that we are maneuvering with, and we are cautious about that as well for the future. So now if we step back and you were asking about the overall dynamic, we are confident on the momentum we are on, and we will be also managing cautiously as it's planned for and as it was anticipated in the Capital Market Day when it comes to the cycle effect on the commercial side. Frank Stoffel: The next question of today comes from Jean-Philippe Lacour, AFP. Jean-Philippe Lacour: Yes, hello to Munich. Bonjour, Madame Coste-Lepoutre. Maybe can you again explain when Allianz sales performance has been supported by underlying improvements, can you explain what does that mean first of all, on the premiums policy, did they raise or did they remain stable? And on the exposure on the other hand, exposure to certain risks. So can you maybe elaborate on this? And one question I can maybe ask again is we have to understand when -- I mean, when the things are tough and there is a lot of claims, so we can understand that maybe the insurer has to write the premiums and then the things are going very well this year. So the profits are high. So how do you return this either to shareholders, we understand it. And on the premiums policy maybe for the clients. So that will be my 2 questions. Claire-Marie Coste-Lepoutre: Yes. Thank you very much, and bonjour. So maybe like starting on your second question, which is -- so I think -- maybe let's take the example, let's illustrate the example with the case of Germany. If you look at -- in retail, right, if you look at our price position in Germany retail, we are competitive in the German market. And this is also very clear when you look at the growth trajectory of our retail business in Germany actually. And then if you look at the overperformance of the German business currently in the third quarter, you have a couple of drivers there. The main driver is the fact that we have a very -- I mean, very significantly improved natural catastrophe experience, by 7 percentage point of combined ratio. So that's a massive effect, right? Obviously, there was no negative weather this quarter or actually this year on the German business. Does not mean that natural catastrophes are not going to materialize themselves either in the fourth quarter or going forward, right? So that should be part of what we are ready to cover our clients for. Secondly, there is an improvement, which is coming from the very, very strong focus of the German colleagues on productivity. So we have a better expense ratio, but we also have a lot of productivity, which is coming as an example, from the processing of the claims, from also the way we are managing the cost of the spare parts and so on and so forth, as I have already mentioned. And then basically, the fundamental effect of the actions which are needed, and I will come back to that in a minute in terms of having the offset of the pricing effect into the numbers is coming in the better attritional loss ratio, which has been improving year-on-year, but exactly as expected and as needed as well to meet the cost of capital that we have for our business. Now if you look at the inflation we see in our dedicated markets, it's a very different type of inflation compared to the headline inflation. So the inflation continues to be high. So typically, in motor, as an example, the inflation is still in the high single-digit level for -- in Germany, but actually across Continental Europe. So we need to reflect that as required in our pricing, but we try to dampen that effect via all the actions I have been mentioning so that we minimize the effect or the replication of that effect into our clients. So I think that's the way to think about the overall dynamic there. The topic of affordability for us, rest assured is a fundamental one, and we are very focused on this and working as extensively as we can as an organization on that aspect. No, go ahead. I was going to your first question. So please go. Jean-Philippe Lacour: Sorry. No, no, go on. Claire-Marie Coste-Lepoutre: No, no. Go ahead. I was going to your first question. So please go. Jean-Philippe Lacour: Please, the first question on the underlying improvement, yes. Can you maybe explain for [Foreign Language] what you mean with that? Claire-Marie Coste-Lepoutre: Yes. I think so the underlying improvement I was mentioning is exactly -- what I was referring to is the fact that when we look at our loss ratio, so loss ratio is the total level of losses we are paying against the premium we receive. We are tranching that loss ratio into different components. So that's becoming a bit technical, but we have what we call the attritional, which is a pure type of both frequency of severity of normal losses which are happening, and then we have what is related to the very exceptional losses and what is related to the natural catastrophes. So when you look at the pure technical development of the business, you need to look at what are the standard losses making. And that's a very important aspect in particular in retail because that's the way we are driving the portfolios. And here, what we see now is that with all the actions that have been taken, we see the improvement of this fundamental piece of our loss ratio. So that's what I call the fundamental improvement, and that's a very important aspect for us in terms of overall steering. Jean-Philippe Lacour: I have a question on New Caledonia. There are news to saying about the claim you had with others. And generally, are you still active in this market? Or did you retire from New Caledonia? Claire-Marie Coste-Lepoutre: So I think on New Caledonia, the key point on New Caledonia is what is the overall legal frame and environment into which we can operate or not when we are insuring. So I think it's very important for us when we are underwriting a contract with our clients, that we have clarity on how typically the state will react in a certain environment. So the issue we had with New Caledonia is the fact that while we were thinking there will be the state intervening in terms of riots, that did not materialize itself at all. So then you are in a different type of environment compared to the environment against which you were providing the insurance coverage. So that's part of the conversation if you want for us to decide this or no, in general, to be ensuring our clients. Frank Stoffel: Next question will come from Tami Holderried from Handelsblatt. Tami Holderried: Allianz was recently victim to cyber attacks in the U.S. in the summer and more recently in the U.K. Maybe you could comment on if you're planning on changing your cybersecurity efforts as a consequence? And if you're expecting, I don't know, financial impact from these attacks? Claire-Marie Coste-Lepoutre: So thank you very much for your question. So we have a very strong cybersecurity setup in place. We have always had. So I cannot share with your numbers, but you will be astonished if you were to know how many cyber attacks we are withstanding every day and basically coping with. So we have a very strong setup. Obviously, we always are revisiting our cyber prevention setup because this is a risk that is constantly evolving, and so we have to be on top of it as much as we can constantly, right? So maybe if you allow me on both the U.K. and the AZ Life attacks, those are very specific attacks on well-known or well-reported cyber attacks that went into specific systems. So the Oracle e-business suite for the U.K. and third-party cloud-based CRM system at AZ Life. Both events are absolutely isolated and did not and have nothing to do with the broader Allianz Group. So you need really to look at those 2 as independent event entirely separated. So that's the way to look at it. Maybe on the U.K. one, which is the most recent one, it has been -- it's an incident where we have obviously taken all the actions that are needed, where we have also reported to both the authorities and the investigation set up the matter very, very quickly. But the incident only affects Allianz U.K. and represents less than 0.1% of our total customer in the U.K. So it's a very, very small base. There is no operational impact. And obviously, the business did entirely continue as normal. As a result of that event, we have 80 current clients and 670 past customers. And obviously, we have notified them and we are engaging with them in case of questions. And as always, we are very sorry for what happened to them, and we are available to support them as required. But overall, clearly, completely isolated, completely separated, very small and as well, we are reactive to be ready to cope against those situations in general. Frank Stoffel: Our next question comes from Ben Dyson. Ben Dyson: I've got a couple of questions, if I may. What was just on the -- you mentioned earlier that the benefit from lower natural catastrophes that was offset by lower contributions from runoff. I was just wondering if you could say a bit more about why there was lower contribution from runoff. And if it was -- if that meant that you've been strengthening reserves in some areas. And if so, where -- what that was for? And then the second question I had was around the collapse of First Brands and Tricolor in the U.S., whether -- I just wanted to ask whether Allianz had in the exposure either on the investment side or on the underwriting side, for example, through Allianz trade to those collapses. Claire-Marie Coste-Lepoutre: Thanks a lot for your question. So on your question on NatCat and the runoff, so indeed, we have increased confidence in our reserve level as part of this offset. And then on your question on First Brands. So we -- as you know -- I mean as a matter of policy and also for trust and confidence of our clients, we never comment on individual exposures on a single-name basis. What I can just mention to you is that in the overall context of Allianz Trade, first of all, you have seen, again the excellent numbers of Allianz Trade. Allianz Trade is very good at maneuvering the type of environment we are into. And obviously, the automobile sector has been under quite some scrutiny in the current environment, given the tariffs in particular and also the various effects on the supply chain. So Allianz Trade is always very good at looking at early signs and acting proactively when it comes to this type of exposure. So that suggests the overall approach and the way that the Allianz Trade credit has performed as a business. Frank Stoffel: Thank you, Ben. A question from [ Maximilian Voltz from Plato ] has reached us via e-mail. I would just read it out for the benefit of everybody. The question about the business as a whole. In Germany, we are seeing many insurers increasing their share of European business at the expense of German business because the German market is saturated. How is this affecting you? Is the share of German business in your European business declining? And what is your strategy? Claire-Marie Coste-Lepoutre: So I think clearly, I was mentioning excellent momentum in our P&C portfolio. So Core Continental Europe, you can see that we benefit from a very strong level of growth across the portfolio, including for the German business that is performing extremely well, and has done a lot of work to secure and to leverage, I will say, the growth [indiscernible] that we see translated in sales into practice as we speak. So clearly Allianz France is seeing a very nice and positive development. We also see very nice and positive developments on our Allianz Direct business. So Allianz Direct has seen an internal growth of 14% into the quarter and actually 7% is volume into that business. So we are comprehensively on a good trajectory, I would say, in the overall setup. Frank Stoffel: I see in the line, a follow-up question from Tami Holderried from Handelsblatt. Tami, do you have a follow-up question? Tami Holderried: Yes. Sorry. Ms. Coste-Lepoutre, you mentioned the Viridium deal that just went through this summer. On that, do you plan on leveraging the Viridium IT platform and transferring life insurance policies from Allianz to Viridium in European markets? Maybe even without telling them, but maybe just using the IT platform and having Viridium manage some growth portfolios? Claire-Marie Coste-Lepoutre: So I think -- for Viridium, so for Viridium, maybe just overall, let me let recap a bit. So Viridium is an investment for us. First of all, I like this investment because it comes with good expectations when it comes to return, right? So that's a good investment on a stand-alone basis. The second aspect of the Viridium investment is the fact that it's part of our play between the asset management and the life insurance business, so basically offering good opportunities as well for PIMCO and AGI in terms of assets under management. And the last piece is indeed related to the fact that we believe, as a company and as an organization also together with other insurers, that we need to have a high-quality back book operator, a life back book operator available in Europe, and we believe we can support as part of that setup in doing so. And you are right that for some of our portfolios, there could be opportunities for us to be ourselves a client of Viridium, not in Germany because today, if you look at our unit cost, given the size of Leben, there is no interest whatsoever to go into that direction, but that can be interesting for some of -- some other European markets where together maybe with other insurers, we would also be interested in doing so. So that required to -- that will require to optimize indeed the IT system of Viridium, which is today a German market system. So you need to enhance the features of the system to make it working for other markets. So that's part of the strategic initiative that Viridium is looking at to balance investment into a new platform and the market opportunity. So I cannot speak for Viridium, but certainly that's the work they are doing at this stage. Tami Holderried: And I guess you cannot give more detail on what countries you're looking at specifically, right? Claire-Marie Coste-Lepoutre: No, not really, yes. But I think you could identify that fairly easily. As an example, if you were to look at our Capital Markets Day material, you will see some insights. Frank Stoffel: Thank you, Tami. We have another follow-up question from Ben Dyson from S&P. Ben Dyson: Okay. Thanks for taking my followup question. I just had a quick question on reinsurance. So almost with particularly property catastrophe prices coming down. I was just wondering if there's anything that you're going to change about your reinsurance buying strategy at January 1 this year. Claire-Marie Coste-Lepoutre: Thanks a lot. So indeed, we see the softening cycle on the reinsurance side, so which for us is a positive, as you mentioned, right, because we are a net buyer of reinsurance, so that's a good thing for us. I mean, at this point in time, we are really happy with our reinsurance program. You may remember that we actually had to adjust a bit our insurance program when the market -- when the reinsurance market did go into hardening, so we had to increase some of our retention and so and so forth, but now those retentions have not moved. So if you want the economic value -- the implicit economic value of the retention is down and up for us. So that's -- so we like overall the program. What we may do is that if the conditions are really good and if we see appetite from some of some -- I mean, from the reinsurance market for certain type of more optimistic coverage, which gives us maybe high level of risk return profile like trading, as an example, volatility against more certainty in particular at a lower return period, there we need -- we may adjust our reinsurance program. But overall, short answer would be positive for us, and we are not planning adjustments to our program. Frank Stoffel: This appears to be the last question for today. Thank you very much for your active participation during this call. Just as usual, for your calendars, we will report our financial results for the full year on February 26, and we look forward to continuing our exchange then. This concludes today's media call on our 3Q and 9 months' financial results. Have a great remaining day. Thank you, and goodbye.
Operator: Good morning, and welcome to Vallourec's Q3 2025 presentation hosted by Philippe Guillemot, Chairman of the Board and Chief Executive Officer; and Sascha Bibert, Chief Financial Officer. [Operator Instructions]. And now I would like to hand the call over to Connor Lynagh, Vice President of Investor Relations. Please go ahead, sir. Connor Lynagh: Thank you. Good morning, ladies and gentlemen, and thank you for joining us for Vallourec's Third Quarter 2025 Results Presentation. I'm Connor Lynagh, Vice President of Investor Relations at Vallourec. I'm joined today by Vallourec's Chairman and Chief Executive Officer, Philippe Guillemot; and Vallourec's Chief Financial Officer, Sascha Bibert. Before we begin our presentation, I would like to note that this conference call will be recorded. A replay will be available following the call. You can find the audio webcast on our Investor Relations website. The presentation slides referred to during this call are also available for download here. Today's call will contain forward-looking statements. Future results may differ materially from statements or projections made on today's call. The forward-looking statements and risk factors that could affect those statements are referenced on Slide 2 of today's presentation. These are also included in our universal registration document filed with the French Financial Market regulator, the AMF. This presentation will be followed by a Q&A session. I will now turn the call over to Philippe Guillemot. Philippe Guillemot: Thank you, Connor. Welcome, ladies and gentlemen, and thank you for joining us to discuss Vallourec's third quarter 2025 results. In the third quarter, we delivered solid results once again with group EBITDA margin rising to 23%, the highest level since the first quarter of 2024. With this, we have now maintained our EBITDA margin around the 20% level and generated positive cash flow every quarter for the last 3 years. Our strategic initiatives are paying off, demonstrated this quarter by the closing of the Tubes profitability gap versus our primary peer. You can see today's agenda on Slide 3. I will move to Slide 5 to discuss the highlights of the third quarter. Our third quarter results were in line with our expectations. EBITDA of EUR 210 million was at the midpoint of our guidance range. We recorded very strong net income of EUR 134 million. Our net income has recently been added by the execution of strategic projects, in this case, the sale of Serimax. Group EBITDA margin was 23%, driven by the robust performance in Tubes. Tubes EBITDA per tonne improved by more than 25% sequentially to EUR 621 Total cash generation was positive for the 12th straight quarter. We reduced net debt to EUR 140 million. Looking ahead, we expect fourth quarter EBITDA to range between EUR 195 million and EUR 225 million. Our full year outlook confirms the expected second half versus first half EBITDA improvement. We have seen some positive trends in the business despite a volatile macro environment. In the U.S., our fully integrated domestic operation is benefiting from high levels of customer demand. Recent bookings have been strong. In Brazil, we secured a major contract with Petrobras, which will expand our OCTG market share. This contract further demonstrates Vallourec's ability to deliver high-value solutions from our domestic manufacturing base. Meanwhile, in select markets in the Eastern Hemisphere, we have seen delays in some customers' activity. These delays will result in some orders being invoiced in 2026 later than initially planned. This delay is embedded in our fourth quarter outlook. Turning to capital allocation. We further optimized our capital structure in the quarter, redeeming 10% of our 2032 senior notes. In addition, today, we announced a special meeting for holders of Vallourec warrants. The key proposal will be to allow Vallourec to satisfy its warrants obligation with existing or new shares. The current terms of our agreement only allows the delivery of new shares. This will enable maximum flexibility in our capital return options over the next year. Let's move to Slide 6. The 2 goals of the new Vallourec plan were to crisis-proof our business and deliver best-in-class profitability. Today, I am pleased to announce that Vallourec has achieved another major milestone. In the third quarter, we fully closed the margin gap versus our primary peer. This is thanks to our core principle of value over volume and our relentless focus on operational excellence. We also continued our strong trend in return on invested capital in Q3. I assure that our journey will not stop here. We have many initiatives underway to further improve our return on invested capital. Let's turn to the current market environment on Slide 8. We start here with the U.S. OCTG market. While crude prices remain volatile, oil drilling activity bottomed in August. The oil rig count increased modestly through the third quarter. Gas directed drilling has stabilized at a healthier level after rebounding in H1. Recent strength in U.S. gas pricing could drive higher activity. OCTG consumption per rig is also a tailwind. Since 2015, OCTG intensity per rig has increased nearly 5% per year, as shown on the right-hand chart. The drivers are clear. Our customers are drilling longer laterals and rigs are drilling at faster rates. The push towards long laterals has driven strong demand for our high-torque connections. Because of this, one of our return-enhancing initiatives is the construction of our new training line in Ohio, which we announced earlier this week. This line will serve the strong and increasing market demand for high-torque connections with a high return on capital. Let's move to Slide 9. On the left side, you can see the import trend. While recent data is unavailable due to the U.S. government shutdown, we believe imports have started to decrease. This is particularly true for seamless products. Our order intake has been robust in recent months, reflecting healthy demand level and an improvement in our market share. This is likely at the expense of some of these imports. Seamless spot pricing was stable in Q3 with the latest survey showing a slight increase. We have seen divergence in welded versus seamless pricing in some recent industry surveys. This validates the differences in import economics we highlighted last quarter. Let's move to the international OCTG market on Slide 10. Demand, as measured by the rig count remains at a healthy level in most regions. On the left, we highlight that activity trends have not been uniform across key geographies. Middle East activity, particularly offshore, has shown a downward trend over the past several months. This was particularly driven by activity reduction in Saudi Arabia. Our premium portfolio is outperforming the overall market. Still, we have seen some delays in customer activity in select countries, especially in the Middle East and North America region. Meanwhile, activity in other international markets has moderated very slightly. Many of our core markets, such as Brazil, have been stable and look set for further growth. Market prices according to Rystad Energy are consistent with the change in activity. There has been softening in the Middle East relative to offshore markets like North Sea. Our product mix is skewed toward more premium grades and connection that is indexed. Our pricing has remained more stable, including in the Middle East. Looking at the long term, our key international customers continue to advance ambitious capacity growth plans. This will inevitably lead to higher drilling activity and higher OCTG demand well into the future. The structural shift towards increased gas and unconventional fields and the resilient development of deepwater basins is a tailwind. These resources require high-tech solutions, including new fit-for-purpose solution that we are developing today. Before I hand over to Sascha for his last participation to Vallourec's analyst call, I would like to warmly thank him for his contribution next to me to the successful execution of the new Vallourec plan, which I announced in May 2022 and that Sascha will recap in his presentation. We all wish him the best for his future challenge in Germany. Sascha Bibert: Good morning, everyone. Thank you, Philippe. Yes, I'm leaving with a lot of gratitude and also some pride when looking back on what we have achieved as a team. Under your leadership, Philippe, we have executed the new Vallourec plan, including the closure of plants and implemented a change in the business mix towards high value-add products, which allowed us to generate cash consistently. This opened the door for the refinancing and the initiation of shareholder returns. Meanwhile, our shareholder base has transitioned from Apollo and SVP Global towards ArcelorMittal and many global investment funds. Similarly, we have established a new banking group and are now fully transitioning towards an investment-grade balance sheet. In short, the chapter has closed and a new one is opening. The Vallourec team will go towards the next level of efficiency, continuing to further optimize our return on capital. This will offer new opportunities, but will also benefit from new skills and fresh energy. I will join the BASF Group to support them with the carve-out and IPO readiness of the Agricultural Solutions business. It was a fantastic journey with Vallourec, and I thank you all for your support during those years. Let me also highlight important changes in our Investor Relations team. Connor will continue to lead the team until early '26. however, then transition the IR leadership to Daniel Thomson, who recently joined us from Exane BNP Paribas. I think many of you know Dan. Sometime in H1 2026, Connor will then fully concentrate on his new responsibility as Finance Head for our North American operations. Furthermore, we have another addition to the IR team, Igor Le Blan, who brings with him lots of valuable experience from his former Vallourec roles, including for sales in Northern Africa. Let's start with Page 12. This slide shows the impact of the new Vallourec plan. As part of our premiumization strategy, we have changed the business mix and increased prices. We also worked hard on our cost, reducing fixed costs and thereby increasing our resilience to market cycles. The combination of higher prices and higher efficiencies have contributed to an EBITDA margin that is now consistently around 20% for the last 3 years. We additionally focused on the bottom line, both in the P&L and manage for cash. With diligent working capital management, we have improved contractual payment terms with our suppliers, focused on the cash profile of our customer contracts and are continuously optimizing our inventory levels. This has led to a balance sheet with basically 0 net debt and ample liquidity, giving us the flexibility to operate successfully in any market environment and allowing for attractive shareholder returns. On Page 13, you have the group KPIs. Q3 was another quarter that added to the execution track record I just referred to. Our EBITDA came in right at the midpoint of our guidance, though again, we had some foreign exchange headwinds. Let's look at our Tubes segment on Page 14. Tubes volumes increased sequentially and so did the average selling price. We have recently recorded some important customer wins, for example, in Brazil. The new LTA with Petrobras will lead to revenues starting in H2 '26 and then fully from '27 onwards. Tube's profitability is shown on Page 15. In line with our value over volume strategy, based upon a clear selection of where to play while making use of our premium capacity, we also increased profitability in the Tube segment to one of the highest levels in recent quarters. As Philippe outlined, we are now also closing the margin gap with best-in-class peers, though there are many more performance initiatives to come. Over to Page 16. Mine & Forest earnings reduced sequentially, but are still higher than the normal run rate we have guided at our Capital Market Day. Volumes were slightly down sequentially, while the quality of the ore sold remained high. As expected, cost went up slightly, though still leading to an attractive EBITDA margin for the segment of more than 40%. Moving to net income on Page 17. Net income was strong, additionally supported by a capital gain recorded as part of the Serimax disposal and a favorable tax rate. Looking at the right side of the chart, Vallourec has clearly moved away from being a company with a predominant capacity and top line focus towards managing for the bottom line, both in the P&L and in cash. Page 18 shows our cash flow. Total cash generation came in at EUR 67 million despite of a EUR 43 million increase in working capital. Restructuring charges and asset disposals offset each other in the quarter following the disposal of Serimax. Cash conversion was once again high. Page 19. In line with positive cash generation, net debt improved and also gross debt came down following the repurchase of 10% of our outstanding bonds. The reduction in gross debt will continue in the next quarter as accrued interest will then reduce subsequent to the payment of the coupon. Philippe, back to you. Philippe Guillemot: Thank you, Sascha. Let's turn to Slide 21 to discuss our outlook. Starting with our tubes business. In the fourth quarter, we expect volumes to increase slightly sequentially. EBITDA per tonne should remain similar to Q3. For Mine & Forest, we expect production sold to be around 1.4 million tonnes in the fourth quarter. The sequential decline is in line with typical seasonal patterns. We expect full year production of around 6.2 million tonnes. EBITDA in the Mine & Forest segment will be contingent on market prices for iron ore. That said, we have hedged a portion of our production, so our results will not be fully exposed to further price developments from here. At the group level, we expect our fourth quarter EBITDA to range between EUR 195 million and EUR 225 million. Looking at the full year, we confirm our prior year guidance for EBITDA improvement in the second half. Based on our Q4 outlook, full year EBITDA is expected to range between EUR 799 million and EUR 829 million. Let's conclude on Slide 22. We remain focused on improving our profitability and return on invested capital as we drive Vallourec towards operational excellence. We were very pleased to close the profitability gap versus our priority in the third quarter, but we will not stop there. Our vertically integrated U.S. footprint is paying dividend with customer demand remaining strong. Finally, we strive to be one of the most shareholder-friendly companies within our peer group. Today, we announced a key step to improve flexibility in our shareholder returns. By allowing our warrants to be satisfied with existing shares, including treasury shares, we can approach our shareholder return in 2026 in a more holistic way. Thank you again for your attention. Sascha and I are now ready to take your questions. Operator: [Operator Instructions] Now we have a question from Matt Smith from Bank of America. Matthew Smith: A couple, please, both reflecting on some of the prepared remarks. So I mean the first one would be around the international business. You commented on some delays to customer activity, sort of orders from 4Q into '26. I guess I just wondered if your confidence level that this is sort of simply order deferrals. I guess you already have visibility on that, but perhaps that sort of leads into some wider comments on the international business for '26 might be useful if you could, and you could talk to the visibility that you already have there from the order book. I think that would be useful. And then secondly, coming back to the warrants that proposed in those modifications to the terms today. I just wondered if you could talk to sort of the intention and what you would see as the sort of ideal outcome and resolution from all of this, please? Philippe Guillemot: Okay. Thank you for the question. Well, first, as you know, our long-term agreement with customers do not have quarterly volumes commitment. So we make an estimate of our activity levels in certain countries has been -- activities has been slower than forecast. In addition, customers have some control over when we deliver and invoice orders. So we have some highly contributed orders that push out of the year. So it's just a question of time. We have these orders. It's just a question of when customers will need the pipe so we can invoice them. And that's why what we don't invoice as expected in Q4 will be invoiced somewhere in 2026. Overall, about the market we are in, I think we are confident. I think our customers have capacity increase plan they are executing. And so far, we have no reason to think they won't do so, especially as you have seen that OPEC+ is ramping up production. So that's for your first question. As far as the second one is question, as we indicated, as I indicated, we want maximum flexibility in our return to shareholder. And with the change of terms of the agreement with the warrants orders, I think we will open the door, obviously, to potentially buy shares in order to have treasury shares that could be used at the time warrants will be exercised and not only to use new shares. Operator: Now we have a question from Guilherme Levy from Morgan Stanley. Guilherme Levy: Sascha, wish you, of course, all the best in your next steps. I have 2 questions, please. The first one, if I may, you commented on your perception of lower imports into the U.S. recently. So I was just curious to see how quickly you think that inventory levels can fall in order for you to see a more significant increase in terms of prices and margins on the back of the recent import tariffs in the country? And then the second one, thinking about this new investment in the dredging line in Ohio, could you perhaps share with us more examples of small-scale investments that you have in mind that you could make over the coming quarters? And how should we see your maintenance CapEx and also your total CapEx, including these small initiatives over the coming years? Philippe Guillemot: So yes, what we start to see is the impact of the tariff on the U.S. imports as even though there is no statistic available, it looks like imports are decreasing. By the way, one of the European player who used to sell to the U.S. has announced yesterday that they will go from 3 shifts to 2 shifts, so lower volume, which is a first clear indication that importing pipes in the U.S. given the tariff may not be as viable as in the past or as profitable as in the past. So this, as a consequence, favor domestic players. And I remind you that 100% of what we sell on the onshore market in the U.S., we make it in the U.S. from steelmaking to finishing that we are the second player on the seamless pipe OCTG business in the U.S. So as far as inventory is concerned, yes, they were up because of the imports in anticipation of the tariff, but now they are obviously slowly but surely depleted. And we think that we will see even more of this happening in 2026. That's the reason why, as I said, we see strong demand for our product and premium product, as I mentioned earlier. Trading line. So the trading line investment in the U.S., USD 48 million, we announced on Monday, and we had, by the way, a groundbreaking ceremony in Ohio to do so is a clear illustration of what we are doing First, value over volume. Here, we are talking about increasing capacity to deliver high connection to help our customers to generate productivity gains. So we are really at the heart of their success. Second, we invest with, obviously, a state-of-the-art line. But I can guarantee you that this is a good example of an investment that will further improve our return on invested capital. As far as CapEx is concerned, we stay very disciplined. And what we have in mind doesn't mean that we are going to increase CapEx envelope in the next few years. I think we are in the EUR 200 million range, and we have no intent to exceed this amount. By the way, talking about return on invested capital, which is a key metric we are focused on, and we will be even more focused in the next few years. Another example is our investment in Thermotite do Brasil, the thermo insulation business in Brazil. We more than doubled the value we can sell to customers. And I can already tell you that this acquisition, this new plant is already fully loaded for next year to thermization, to thermal insulate Vallourec pipes. So another good example of the investments we are making to further improve our return on invested capital. Sascha Bibert: Just adding one addition to what Philippe said on CapEx. for the current financial year, looking at what we have spent at the 9-month stage and acknowledging there's only the fourth quarter left, I think we will come out quite a bit below the EUR 200 million, i.e., in the Capital Market Day, we have mentioned maybe a long-term average of EUR 175 million. I think we'll be closer to that in this fiscal year. And thanks for your wishes, Guilherme. Operator: Now we have a question from Kevin Roger Kepler Cheuvreux. Kevin Roger: And first of all, Sascha, well done for everything that has been done in terms of financial, but also in terms of communication, frankly, it has been very appreciated by anyone. So good luck also for the next journey, wishing the best. The first question, if I may, just going back on the shifting of the volumes from Q4 to 2026. I was wondering if you can provide a bit of magnitude the impact on Q4 in terms of volumes. Making some math, I'm finding that maybe we are thinking about 30,000 tonnes of tubes that will be missed in Q4 compared to the previous expectations. So maybe some words around that, please? And the second one, sorry for this stupid accounting tax question. But implicitly with the new mechanism on the variant, you are telling us that potentially you would buy back some shares. In the current French tax environment that is evolving every day, can you just try to summarize and of course, I understand that it will be subject to what we have in terms of budget in the coming weeks, but what it would imply for the tax payment on any buyback for you, notably related to difference between the cash payment and the book value, et cetera, please? Philippe Guillemot: So going back to Q4 volume and invoicing. First, I remind you that we will invoice more in Q4 than Q3. And I won't give you any indication of how much we could have invoiced had customers ask to be delivered as we forecasted. And again, it's only a forecast. And every quarter, we have to forecast what customers will ask for. But again, I'm talking about orders we have. As far as warrants are concerned and tax treatment, I remind you that the tax in France is such on share buyback is such that if we don't cancel the shares, so we use them. And as an example, we can use them for management incentive plan. We -- they are not tax -- so we are immune to this. And as far as the amendments that have been voted at the parliament, what I understand is that it's not likely to be in the final budget as it is totally incompatible with European laws and other regulations. Operator: Now we have a question from Guillaume Delaby from Bernstein. Guillaume Delaby: Thank you, Sascha, for all your help over the past few years, especially if I remember between Christmas and New Year Eve a few years ago. Three questions, if I may. The first one is the -- two first ones, in fact, are for Philippe. So I've been impressed by your average selling price, which is up 8% sequentially, while globally OCTG prices have still remained flattish. We didn't have yet an increase in OCTG prices. So what has been your secret sauce during Q3? Is it a question of mix, more connection? If you can elaborate a little bit? That's my first question. My second question is on your 2026 outlook. Many services companies have provided a much more constructive 2026 outlook at the Q3 that what could have been expected. So just curious to see what is your -- whether or not your view on 2026 has evolved. You mentioned probably more drilling at some stage. And the third question is about the warrants. Sorry to be long, just to fully understand. So basically, what is going to happen? So the warrants are going to be exercised. So you are going to get some cash with additional shares. Am I understanding correctly? Or if not, please correct me. Philippe Guillemot: Okay. So our secret sauce, but now I think you start to see it in the numbers, value over volume. We are very serious about it. What we sell is high value-added products, which obviously give us some pricing power. And again, we don't only sell tubes. We sell solutions. We sell tubes and service associated. So this is a combination of all this. And as I've said since I joined, our focus is to develop the right portfolio of customers and markets that are in need of these high value-added products. So yes, definitely, what we sell, and that's what I mentioned when we compare our average selling price to the Hat index, nothing to compare. We are much more stable than what you see on that chart. So it's just an evidence that the strategy and the change of strategy I made when I joined is working. '26, I won't guide for '26. But as I said, U.S. market is good. We see demand -- very strong demand month after month. And so far, no reason to think it won't continue that way. And as far as drilling activity is concerned with some international customers or you see that Petrobras is obviously very active. They're even talking about exploration of the Amazonian area. And in Middle East, I think Aramco has seen some decrease in their rig count, but it may increase next year again. So again, so far, I think demand is still there for our high premium solutions. As far as -- so warrants, the question was... Sascha Bibert: Yes. Guillaume, your principal understanding is correct. Provided that the conditions are satisfied in the summer of '26, the warrants will convert, and this will lead to a capital inflow to the tune of EUR 300 million and a bit to Vallourec. There is no change to that. The change, if any, that we have announced today is that we want to create flexibility in how we serve the warrant holders with shares. The existing documentation allows us to create new shares and new shares only, while after the approval from the warrant holders, we would then also have the opportunity to deliver existing shares. Philippe Guillemot: So again, we stick to our return policy. We said we would return to shareholders between 80% and 100% of the total cash generation of the year before. So as you have noticed, we have year-to-date generated cash and obviously, even more at the end of the year. So all this cash is available and obviously, it is supposed to be returned to shareholders within our policy. So with the warrant agreement terms change, we have the flexibility to use existing shares once warrants will be exercised at the latest end of June next year. And obviously, we may decide to buy back shares in order to have them available in due time. Sascha Bibert: Philippe, when it comes to the secret sauce, maybe you also want to just remind people about the current stage of our North American onshore business, which I think is also doing quite well and added to the ASP development that we have seen. Philippe Guillemot: Yes. On the U.S. market, as you see and when we announced the investment on the [ ITO ] connection, it means that, yes, the mix we are selling in North America is more high value-added than it used to be. And as a consequence, lead to higher average selling price, too. So what we see -- what you see on the overall group average selling price is true in all regions. And same thing for Petrobras. The long-term agreement we have signed with Petrobras that will start to fall in our numbers in the second half of '26 is obviously with mix of products of high value added, including larger diameter, 18-inch and above that we, in the past, were not able to produce in Brazil, but now we are able to produce in Brazil, thanks to the investment, which were part of the new plan. Guillaume Delaby: Maybe just a follow-up on the warrant. It means that practically, you are likely or you have the option or the flexibility to buy back and to reduce some of the dilution which will be caused by warrants. Am I correct? Philippe Guillemot: You are correct. If all warrants are exercised and we deliver only new shares, it's roughly 15% dilution. So if we buy back shares and we use existing shares, obviously, we will reduce the dilution. And that's obviously the option we want to have. Operator: Now we have a question from Paul Redman from BNP Paribas. Paul Redman: I just wanted to delve a little bit down into the shareholder distributions for next year. So you've been paying out dividends for the past couple of years as part of the 80% to 90% -- 80% to 100%, sorry, of total cash generation paid out to shareholders. Is this new buyback possibility part of that 80% to 100%? Or does it go beyond it? And if it's part of the 80% to 100%, do you have a minimum level of dividend you would like to guide us towards and the rest possibly coming through buybacks? And then Sascha, I just wanted to ask you, you've been at the company and the company has changed a lot over the past few years. I wanted to ask, have you got any key highlights that you can say have been your biggest successes over the past few years? Philippe Guillemot: So before I hand over to Sascha, Yes, again, we will stick to our return policy. So we are very disciplined, as you know, in everything we do. So we will stick within the EUR 80 million to EUR 100 million. So we'll see how much total cash will be generated in '25, and we will use this to potentially execute any share buyback to, as I said earlier, reduce dilution at the time of warrant execution. But as you rightly said, we will cash in more than EUR 300 million end of June. And this cash, obviously, will have to be returned to shareholders within the same return policy we -- I stated earlier, 80% to 100% of total cash generation. Sascha, over to you. Sascha Bibert: Yes. Well, thanks for the question. But to be honest, I'm not sure whether I had too many successes. But as a team, we had a lot, and that's what we are proud of. I think ultimately leading to the establishment of a track record and therefore, the recreation of trust, I'd say, with many stakeholders, equity and credit alike. So I think it's the sum of many of the operational initiatives from the team, the refinancing, some work on the financial infrastructure that we have been doing that ultimately led to the stage where we are. But again, we don't get tired of hammering the point home that we have done a lot of good, but there's more to come. Vallourec will go into the next phase of optimization. And this is why, for me, the story is ending, but for Vallourec, it's just the beginning. Philippe Guillemot: Maybe Sascha is too modest, but you remember, we have refinanced our balance sheet in 2024. And it was obviously good to see that we managed to refinance it the way we did. On top, you remember that Fitch has awarded an investment-grade rating, and I hope more to come. So again, for a company that was almost bankrupt in 2021 being where we are today with all the -- obviously, the opportunity we have to further create value through a much higher return on invested capital than our weighted average cost of capital is very rewarding. And again, I thank Sascha for having been next to me to deliver this super performance so far. Operator: We have a question from Baptiste Lebacq from ODDO BHF. Baptiste Lebacq: First, Sascha, congrats for the very impressive job you have done, even if it's a job -- a team job, but very impressed by the way you did it and good luck for the future. One question regarding, let's say, working cap in Q4. You mentioned some delays in terms of deliveries. We have seen some tension in working cap already in Q3. How should we think about, let's say, working cap at the end of the year? And second question regarding your, let's say, optimization of Brazilian assets. Is it now fully on stream? And if I'm not wrong, you could sell some, let's say, lands in this country. How is it evolving? Philippe Guillemot: Well, as far as Q4 working cap, we expect a modest increase. So no big deviation versus where we are. As you know, since the beginning of the new alloy plan, I think we have been very focused on working cap. And as shown by Sascha in one of his slides, I think you can see that the working cap expressed in days sales has steadily decreased over time, and we continue and we see room for further improvement in the future. So you refer to maybe, yes, some -- first, as we are very focused, and this is what's going to drive the next 5 years till 2030, return on investment capital, we challenge every asset in Ball. And so that's the part of the challenge. So the forest, obviously, is an asset, as you know, that doesn't generate EBITDA, but is used to produce veg charcoal. So again, as any asset in Vallourec. And you remember when I said when I joined, there is no room for asset which is not generating cash. So each asset in Vallourec is challenged, and that's what just we do again and again. Operator: Now we have a question from Jean-Luc Romain from CIC Market Solutions. Jean-Luc Romain: Congratulations to Sascha and to Connor for his promotion. My question relates to the second phase of investment in the mine in Brazil. Could you update us on where you are there and when it should start? And what are the benefits you are expecting from this second phase of expansion? Philippe Guillemot: Yes. On the mine, thank you for the question. You remember at the Capital Market Day in September '23, we gave you some numbers on what we were doing and what we were expecting. And I'm glad to tell you that we delivered exactly what we said, even better. especially in H1 where we had the opportunity to extract high-quality iron ore from our mine. So the expansion is well on track, Phase 1, Phase 2, and we expect to deliver the EBITDA we mentioned at that time, so up to EUR 125 million between EUR 100 million and EUR 125 million as we go. So very pleased with the progress of the mine. And on the mine, I insist that we are applying the same secret sauce that we do on the tube business, value over volume, and that's the reason why tonnage may be less, but quality is higher. And the way we operate the mine enable us to extract more iron ore from existing room. So again, another good example of a value over volume strategy impact. Jean-Luc Romain: So as a follow-up, do you have in your mind kind of what do your geologists say better -- enough resources of better quality ore, which can help you continue increasing the value. That's what we should understand? Philippe Guillemot: No, we are -- Yes, obviously, iron ore is what it is in the mine, and it may change from where we export from over time. But the way we process the iron ore, that may lead to higher iron ore content, so salable value at the end of the day. So that's exactly what we are doing. I won't go into the details, but... Sascha Bibert: Jean-Luc just remind that we are externally selling the vast majority of our ore production. Philippe Guillemot: We deliver what we said we would deliver. But again, applying the secret sauce, value over volume, so less tonnage, but same EBITDA. Operator: Now we have a question from Jamie Franklin from Jefferies. Jamie Franklin: So 2 from me. So firstly, you mentioned the divergence between seamless and welded. And looking at the historical data, it actually appears to be the highest point on record, the gap between the 2. Can you maybe talk about whether you see any risk here in terms of substitution of welded for seamless given that the differential is so high? And secondly, if I can just push one more time on the Middle Eastern volumes. So I think previous expectation was that 4Q volumes would be substantially up in the third quarter in order to reach around 1.3 million tonnes in 2025. Now if we assume that 4Q is only slightly better than 3Q, we're going to get closer to 1.2 million for the full year. So can we assume that the entire delta there shifts into 2026? And finally, Sascha, congrats on the great job you've done at Vallourec, wishing you all the very best in your new role. Philippe Guillemot: Yes. I assume when you talk about divergence between seamless versus welded, you talk about the U.S. market. So yes, dynamic is -- again, we illustrated in our last quarterly communication, how these 2 markets diverge. Seamless imports are in proportion less than they are in welded. But at some point, it becomes noneconomical -- with the tariff, it becomes faster, noneconomical to import seamless and welded in a nutshell. And that's why we see in our business, which is only seamless, faster, the impact of the tariff on our business. Substitution, we don't think so because as we said, the market is more and more premium and this [ ITO ] connection are seamless pipes, and they will continue to be seamless pipes. As far as volume are concerned, yes, which -- again, we have a slight increase in volume, maybe not as much as we could have expected, thanks to our forecast. So they are delayed because customers ask us to deliver pipes later in '26. This will happen in '26. So we'll see what the volume will be. But as I said, we see drilling activity being back on the increase with some customers, to name one Aramco as an example, in Middle East. So we will see. But again, it's always a question, every quarter, we have to forecast what -- how much volume customer will call off from the orders we already have. It's a question of just delivering the order to match their needs. Operator: There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. Philippe Guillemot: Thank you again for joining us for today's call. We are very pleased with the track record of execution since the launch of the new Vallourec plan in May 2022. We see further room to drive higher returns in our business. We will continue to optimize our capital allocation and capital return framework to deliver maximum value to our shareholders. Thank you again. Operator, you may close the call.
Joshua Schulman: Good morning. We actually have some seats here in the front row. This is like the first day at school. No one wants to be -- it's not like a fashion show because at the fashion show, they really want to be seated in the front row. It's all about your seat. In any case, good morning, and welcome to our interim results and our update on the Burberry Forward strategy. I'm Josh Schulman, CEO of Burberry, and with me is Kate Ferry, our Chief Financial Officer. One year into Burberry Forward, my belief in this extraordinary British luxury house is stronger than ever. Since we met last November, we have moved from stabilizing the business to returning to growth. I am encouraged by the signals I'm seeing throughout the business, which provide initial proof points that our Burberry Forward strategy is working. With our timeless British luxury brand expression and an improved product offer, our brand has become more desirable. We're attracting new customers to the brand while welcoming back existing customers, resulting in sequential improvement in customer growth. And these customers are responding strongly to our autumn and winter collections with a significant increase in sell-through rate compared to last year. We're accelerating our momentum in our iconic categories, outerwear and scarves, and now this growth is extending into additional categories. In Q2, we returned our retail business to comp sales growth for the first time in 2 years. And now our most important wholesale partners are seeing the momentum as well. We recently completed our Summer 2026 wholesale market, and the reaction has been very positive with a significant increase in orders from key opinion leading partners in the U.S. and Europe, an incredible vote of confidence in our product and Burberry's relevance. While I am pleased with what we've achieved in our first year of Burberry Forward, these are just the first steps to reigniting desire. There is a lot more to do, and I am looking forward to building on these foundations in the year ahead. I will now turn it over to Kate to take you through our first half financial results, and I will then update you on our strategy, our progress and our priorities as we look to year 2 of Burberry Forward. Catherine Ferry: Thank you, Josh, and good morning, everyone. For the first half, comparable retail sales were flat with sequential improvement between quarters. In the second quarter, we delivered growth of 2%, our first positive comp growth in 2 years. Total revenue was GBP 1.03 billion in the first half with adjusted operating profit of GBP 19 million. Free cash outflow was GBP 50 million, an improvement from this time last year and in line with our expectations for the half. When we launched Burberry Forward a year ago, we talked about actions to drive sustainable performance. We've returned to adjusted operating profit in the first half. Our gross margin is recovering, up 410 basis points at constant exchange rates versus last year to 67.9%, driven mainly by a healthier inventory position. We continue to bring scarcity back to our inventory model. We have tightly managed buys throughout the half with net inventory down 24% versus last year. Following the expanded restructuring program announced in May, we're on track to deliver GBP 80 million annualized savings by the end of the year. And finally, we continue to invest our capital where we know we can get the highest returns with continued focus on cash generation. I'll now take you through a more detailed review of performance, starting with revenue by channel. I'll refer to changes at constant exchange rates. Retail revenue declined by 1% during the half. Space reduced by 1%, while comparable retail sales remained flat year-on-year. Wholesale revenue decreased by 11%, slightly better than our guidance of a mid-teens decline, reflecting phasing and some uplift in in-season orders from our key strategic partners following improved sellout of Autumn '25. Licensing revenue was down 8% versus last year with ongoing strength in our fragrance and beauty businesses, including the Goddess and Her franchises, offset by the planned destocking of older fragrance lines. As a result, total revenue for the first half declined 3% at constant exchange rates or 5% on a reported basis. Turning now to regional performance. Comparable retail store sales were flat or positive in all 4 regions in the second quarter. Traffic at our stores remained challenging throughout the first half of the year, but we're pleased with the improvement in conversion we've seen. Greater China led with the strongest improvement as compared with Q1 with 3% comparable retail sales growth in the second quarter. This was supported by a strong Chinese Valentine's Day. Globally, the Chinese customer group slightly lagged the regional performance with growth in locals offsetting the decline in outbound tourist flows. Asia Pacific also improved to flat in the second quarter with the first half down 2%. Japan returned to growth in the second quarter, up 2%, offsetting decline in South Korea. Americas saw 3% growth in the second quarter and the first half. The region is continuing to benefit from new customers, offsetting lower tourist spend in the United States during the summer months. EMEA remained in line with the first quarter despite reduced tourism activity, growing 1% in Q2 and the half, supported by growth in local and returning customers. Moving on to the income statement and staying with changes at constant exchange rates. Gross margin was 67.9%, a 410 basis point improvement year-on-year. I'll give more detail on this in just a moment. Adjusted operating expenses were down 5% year-on-year at constant exchange rates following the delivery of our expanded cost savings program as well as nonrecurring store impairment headwinds in the prior year. We remain on track with our cost program, expecting to deliver GBP 80 million in annualized savings by the end of the year. As mentioned the last time we spoke, we're investing behind our journey to reignite desire, restore growth and continue on our path of sustainable value creation. We've prioritized investment in the first half using some of these savings to invest in consumer-facing areas such as marketing. This year, we continue to invest a high single-digit percentage of sales in our brand with a focus on maximizing our return on investment. We delivered an adjusted operating profit of GBP 19 million with an operating margin of 1.9%. Adjusting items amounted to GBP 37 million. This primarily related to restructuring costs resulting from the transformation program announced in May. The business has demonstrated resilience during this period, allowing us to progress swiftly through the program over the summer. Our full year guidance remains unchanged with restructuring costs expected to be around GBP 50 million. As a result, we've reported an operating loss of GBP 18 million for the first half. The net finance charge was GBP 30 million, of which GBP 23 million was interest charge on lease liabilities and GBP 7 million was other financing interest. Gross margin benefited mainly from the non-repeat of inventory actions taken last year. As a reminder, these inventory actions were a combination of provisioning and discounting. This year, we have significantly less inventory, down 24% at the end of the first half. We're also seeing the benefits of our transformation program in gross margin. We experienced a free cash outflow of GBP 50 million in the first half, an improvement versus this time last year. Working capital was GBP 43 million outflow given the seasonal inventory buildup ahead of the festive period, albeit still reflecting tighter inventory management than this time last year. Capital expenditure for the period was GBP 38 million, with investment targeted to those projects with the highest return on investment. In our retail network, we're focused on amplifying our most iconic categories. We've launched over 100 scarf bars to date and are on track to deliver 200 by the end of the year. We also opened a new showroom at our headquarters here in London, which is already driving cost efficiencies and enabling closer collaboration across our global retail teams. Borrowings reduced by GBP 221 million following the repayment of our September 2020 bond, and we closed the period with net debt of GBP 93 million or GBP 1.1 billion, including lease liabilities. At the end of the period, net debt to adjusted EBITDA was 2.2x. We remain comfortable with our liquidity and headroom and are focused on continuing to reduce our leverage through the actions we are taking to rebuild profitability. Turning now to the outlook for full year '26. While we remain in the early stages of our turnaround, we're encouraged by the progress made so far and expect to see the impact of our initiatives build into the second half and beyond. The macroeconomic environment remains uncertain, but our focus this year is to build on the momentum and reigniting brand desire as a key requisite to growing the top line. We will deliver continued margin improvement with a focus on simplification, productivity and cash flow. To help you with modeling, in full year '26, we expect no changes to our guidance with retail space remaining broadly flat and annualized savings of around GBP 80 million alongside a GBP 50 million restructuring charge. Within wholesale, we expect a mid-single-digit percentage revenue decline for the full year, slightly ahead of our original expectations and returning to growth in the second half. This reflects our key wholesale partners' confidence in our new direction. We expect capital expenditure of around GBP 120 million, slightly lower than initial guidance as we've been very intentional in our investment approach, focusing on the highest return on investment projects during this year of transformation. And finally, we expect currency to be a headwind of around GBP 50 million on revenue and around GBP 5 million on operating profit, all based on the 24th of October spot rates. Further detail can be found in the appendix of this morning's statement. As we move into our second full year of Burberry Forward, we are confident that we can build on the progress we've made in quality of earnings, continuing to improve performance and driving sustainable long-term value. I will now hand back to Josh. Joshua Schulman: Thank you, Kate. As we move into the second year of Burberry Forward, we are increasingly confident that we're on the right path to build brand relevance and value creation. If the strategy for the next year of Burberry Forward looks very similar to what we presented last year, this is intentional because we are now focused on accelerating and delivering on our 4 pillars with consistency, placing the summer -- sorry, placing the customer at the center of everything we do. We will continue to anchor Burberry Forward in timeless British luxury as we enhance our product, marketing and customer experience to engage a broad luxury audience. This will be underpinned by an organization that is fit for purpose and executing at pace. Starting with our brand. Our traffic and sales inflected in August as we launched our Chinese Valentine's Day campaign, followed by the Back to the City campaign focused on a more polished expression of city dressing against a backdrop of iconic London landmarks appealing to our investor customer. Next, the elegance of our winter runway campaign set in a quintessentially English country house attracted our opinionated customer, while the winter wardrobing campaign showcased looks that could be worn every day, appealing to all of our customer archetypes. Collectively, these campaigns have driven an improvement in brand engagement in September. In addition to these fashion campaigns, we have continued our institutional outerwear campaigns with the latest installment of It's Always Burberry Weather: Postcards from London, which launched in October across all of our channels. [Presentation] Joshua Schulman: Looking forward, we will continue to fully embed our timeless British luxury brand expression across all touch points, creating universally recognizable stories and imagery, balancing town and country. And our marketing initiatives will celebrate our customers' cultural occasions around the world with a dose of British warmth and wit. We are looking forward to celebrating our 170th anniversary next year with a series of campaigns and activations to celebrate our iconic trench. This will include disruptive amplifications across product and marketing initiatives to drive broad global appeal. Even global icons are leaning into our most beloved Burberry codes and showing that when we have -- where we have the most opportunity, where we have the most authenticity. When influential personalities of the world come to Burberry, they are selecting to wear our most beloved brand codes. From Olivia Dean wearing a modern interpretation of our iconic Check to Tommy Paul and Jack Draper dressed in our Ready-to-Wear and Dua Lipa wearing a full Check dress. It's clear that Burberry continues to resonate in popular culture. Just last week, we launched our festive campaign, bringing a warm and joyous rendition of the British holidays to our customers around the world. Amid the charm and commotion of party preparations, Jennifer Saunders is joined by an all-star cast, including Naomi Campbell, Rosie Huntington-Whiteley and Son Heung-min, who each share beautiful Burberry gifts with their friends and family. [Presentation] Joshua Schulman: We are so excited about the early reaction to Twas The Knight Before..., our festive campaign. And we look forward to bringing other extraordinary experiences, including at Claridge's, where Daniel is designing a special tree decorated with Burberry textiles alongside a pop-up shop featuring iconic Burberry gifts. Building on our momentum in China, we are looking forward to celebrating Lunar New Year, the Year of the Horse. We will be increasing our investment in product and marketing with a more complete product capsule and an immersive campaign, including 4 well-known ambassadors. Moving to product. Our customers are clearly responding to the timeless British luxury brand expression and the synchronicity between our runway looks and the commercial core that is allowing us to reach a broad luxury audience. Here, you can see how the spirit of our runway shows has been interpreted to appeal to a broad luxury audience. On the left is an extraordinary, fringed runway trench from Daniel's Winter '25 show. The item retails for almost GBP 10,000, and we had preorders from our most elite clients from the moment this walked down the runway. And now Daniel, together with our merchandising team, has reworked this inspiration into different silhouettes appealing to a wider audience. These looks are among our best sellers for the season, retailing at around GBP 2,500. Building on our success with Winter '25, on the right, you can see we are taking the same approach to our Summer runway collection. Summer '26 captured the intersection between fashion and music and was yet another uniquely British story that only Burberry could tell. You can see the beautiful leather fringed trench that walked the runway and how this inspiration has been reinterpreted into classic gabardine with leather detailing to reach a broader audience. The product mix and strategy is capturing the attention of new customers and attracting existing customers to return with sequential improvement in customer growth over the course of H1. In particular, we're seeing new customer growth among Gen Z. I was just in China a few weeks ago and walking stores with our teams there, and they were sharing how the evolution in our collection architecture is attracting different customer profiles to the brand. These customer profiles are now fully embedded in our product development cycle. Looking forward, we will be integrating even deeper consumer insights to ensure we're meeting all of our customers' wardrobing needs. As we enter the second year of Burberry Forward, we now have significantly greater knowledge of our customers, which is informing our product strategy. One of our priorities is to refresh our heritage rainwear assortment in the new year. We will be introducing lighter tropical gabardine and strengthening the trans-seasonal appeal of our iconic trench. This will enhance customer centricity, allowing our trench to be worn in global markets year-round. Another observation is that we are only scratching the surface with wardrobing. Building on our foundational strength in outerwear, we are now completing the look with a stronger assortment of knitwear, trousers, skirts and dresses. Across the assortment, we are developing with customers' needs in mind, including the right fabric, the right fit and the right silhouettes for men, women and children. And in accessories, we've made progress on our foundation with the amplification of scarves and resetting the base in handbags. Looking forward, we are strengthening our assortment of leather goods and shoes with a focus on both subtle and overt branding, driving commercial shapes with clear brand signifiers. Across categories, we now feel more confident to place bigger bets on selected families of newness to fuel our growth and improve our productivity. Moving to distribution. In our stores, we are creating more warmth and desire by increasing product density, enhancing our displays and encouraging cross-category selling. We are so excited to have the majority of our scarf bars open for the festive season. These stores are already outperforming, positioning us strongly for the season ahead. Our stores now offer a richer experience, one I hope that you will all enjoy during the festive season. Our e-commerce channel was the first to turn positive and continues to outperform. We've elevated our product storytelling, seamlessly integrating shopping journeys with rich editorial imagery and improved our styling across the offer. Building on the success of our monogramming and scarf personalization services, we're expanding our personalization offer to knitwear and capes launching in the weeks ahead, just in time for festive. Looking ahead, our focus is on driving productivity. Building on our momentum with scarf bars, we're launching more category destinations in the year ahead, including for trench coats and polo shirts. We are also investing in clienteling capabilities, deploying new AI-enabled tools to support our client advisers and serve our customers with a warm and personal approach informed by data. And while wholesale only accounts for around 13% of our business, it serves several very important purposes. Our opinion-leading digital wholesale customers are the ideal place for customers to discover the evolution of Burberry alongside our luxury peers. As I mentioned, we've seen growth in our wholesale order book from these opinion-leading wholesale customers globally who are enthusiastic about the new direction of Burberry. Being present on luxury platforms allows us to share our refreshed brand expression with a broader array of consumers than visit our own sites. And our omni-channel department store partners provide visibility in key locations. I am so excited to get on a plane next week and go to New York. We are literally lighting up the facade of Bloomingdale's, an iconic flagship, with an enormous sparkling Burberry Check scarf. And this activation is going to -- is anchoring dedicated Burberry windows and pop-up shops throughout the store in the flagship and in key branch stores, which tell our brand story. One of the things I am most proud of this year is reigniting our culture. I continue to be encouraged by our incredible team around the world whether it's the product triangle of design, merchandising and marketing coming together, the regions working with the center or our teams across stores, manufacturing sites and warehouses, delivering exceptional service for our customers. We are rekindling the creative and commercial alchemy that is unique to Burberry. We continue to uphold our commitments to social and environmental responsibility. This remains an integral part of who we are and is important to our colleagues and customers around the world. As we move into our 170th year, we are embedding the spirit of Burberry Forward into our purpose. [Presentation] Joshua Schulman: In the first year of Burberry Forward, we moved at pace to execute our strategy and stabilize our business. With the consistency of our timeless British luxury brand expression and an improved product offer, we now have begun to capture the attention of new customers while seeing existing customers return to the brand they love. This has resulted in comparable store sales growth for the first time in 2 years. As we look ahead, our ambition is to deliver sustainable performance, growing the top line while expanding our profit margin and delivering strong free cash flow. As I mentioned earlier, my belief in this extraordinary British luxury brand is stronger than ever. We now have proof points that illustrate that Burberry is at its best when it forges its own path, grounded in timeless British luxury and guided by authenticity. Although it is still early days and there is a lot more to do, as we approach our 170th anniversary, we are confident that Burberry Forward is the right strategy to build brand relevance and value creation. I will now hand it over to Lauren for Q&A, and Kate and I will take your questions. Thank you. Lauren Leng: So we'll kick off the Q&A. I'll just ask that you limit to 2 questions each so we can reach everyone in the room, and please state your name and your firm before you ask your questions. I can see Carol here right in front of me and then we will move over to this side to Luca, Erwan and then I think I saw Grace as well and Thomas. I thought you were there, too. Thank you. Carol Mathis: Carol Mathis from Barclays. So 2 questions then. The first one, I think you mentioned that you went to China or Asia just recently. So can you come back on what you're seeing there in terms of trends mostly on the macro environment? Any sign of stabilization that you saw on the ground on top of, I guess, you've been doing some more work to see improvement of your China performance down there? That's the first question. Second one is about the improvement of, I guess, increasing new consumers at the brand. When you think of the chart you talk about the consumer being investor, conservative, hedonist, what kind of new consumers were you able to attract more if there is a way to put them in those categories? Joshua Schulman: Yes. Two great questions. So I'll start with China. It was a really wonderful trip that I took with several of my colleagues to China. And ironically, it was 1 year to the date that I took my first trip to China last year as part of Burberry. And so literally, we could see the difference in the market year-on-year, but we could also see the difference in the expression of Burberry year-on-year and hear from our field teams, the people who interact with customers every day. In terms of the market, clearly, I do think there is a little bit of stabilization happening in the market. I do think that our inflection in China this quarter was probably driven more by our internal changes that we've made. It was really wonderful to walk through our store estate and to hear about customers literally returning, people who they had been trying to get in for the last couple of years who didn't see themselves in the product that we were offering. And now they were coming in and they were -- and their conversion was way up. We really saw customer engagement globally improve as we went through the quarter but particularly in China. Our earned reach was up 129% in China, which translated into new customer growth of 10% in China. And so they really led. And on a global basis, we had 18% customer growth customer in Gen Z with substantially higher growth in Gen Z in China. So this -- I think, in the past, there may have been an idea that in order to attract younger customers in China, you need to be super edgy and kind of do what other brands are doing. But actually, what's working in China now is this authenticity, the timeless British luxury, the authenticity, and we're seeing that across all of our customer archetypes. We're seeing that against younger, cooler customers. We're seeing that against more mature, sophisticated customers. And the breadth of our customers coming back to the brand in China and globally and starting to attract new customers, especially in China and in the Americas, has been one of the most gratifying things that we've seen in the last couple of months. I would also say that if you double-click on some of these metrics, you really see the quality of the business changing year-on-year in terms of the types of products we're selling, in terms of the channel mix, in terms of the breadth of customers that we're touching. So it just gives us a lot of encouragement for what lies ahead. Luca? Luca Solca: Luca Solca from Bernstein. I have a question on these metrics and the double-clicking in particular, what you're seeing in terms of full price sell-through. One of the pushbacks we're getting is that Burberry has been discounting a lot and is discounting a lot. But I think -- and I assume that, that is connected with the phasing out of the old Burberry. And if you could give us a couple of data points on how you see that has been evolving and how that is impacting, for example, your used dependence on off-price and factory outlets and discounts. Maybe a second question, again, going back to the point about China. I see that there's a lot that you're doing yourselves in terms of improving your predicament there. Do you have a view based on what you see from the landlords and the shopping malls where you operate, how the broader Chinese consumer nationality is doing? Joshua Schulman: Okay. So I really appreciate both questions. But on the first, let me walk you through how we're thinking about this and why I'm so encouraged about what I call the quality of sales. Normally, we don't talk about what's happening in the full-price channel versus the outlet channel. But I think it's important in this case because what we saw in the quarter was that the strength in the newness that we were delivering in our full-price channel fully offset the declines that we were having in the outlet channel, the declines in traffic that we were having in the outlet channel. And traffic has been challenging in that channel in general, but also, we just have less inventory going through that channel now, and we are discounting less. And so all of that is really good for brand health and for brand heat. And you'll see that really across the business. In our full-price stores, last year, we did an exceptional public clearance, and we did that online and in stores, and that contributed about 3 points to our comp in the festive quarter. This year, we're not doing that. We're reverting to our normal end-of-season activities, which are substantially smaller, more discrete, shallower and less. And all of these are contributing to what I call the quality of earnings. Finally, in our wholesale channel, where we're seeing the growth is from our strategic partners. These are the luxury pure-play digital partners. They're the U.S. department stores. They are even travel retail. And they're coming back because they're seeing their sellout of Burberry in the autumn and winter collections. Their sellout is going up. They're coming to our showroom, enthusiastic about finding opportunity, and they loved what they saw from the summer collection, and they believe that their customers will likewise love it. And so that builds a virtuous cycle with the strategic wholesale partners, and that is helping us to offset the planned decline in nonstrategic partners. So overall, I would say [ this print ] is, as you said, no drama, but under -- if you double-click under the covers, there's a lot going on that we feel very positive about and that sets us up in a good way looking forward. In terms of China, what I would say is there does feel to be a little bit of a market stabilization that is happening. But what we understand is that it's very bifurcated and very specific in terms of how a brand is performing there, probably more polarized than the rest of the world. Erwan Rambourg: Erwan Rambourg from HSBC. Congrats on the consistency of messaging and execution quarter after quarter. So I'll stick to 2, even though I have probably 15. So you historically talked about good, better, best coming back with maybe more palatable price points after being disconnected for a while. You just flipped positive in terms of like for like. Can you maybe just talk about the role of volume as part of that equation? I suspect mix is negative. I suspect pricing is limited. But yes, maybe can you talk about how that like for like is built up and what we can expect for the longer term? And then you just mentioned that the disposition channel, the cleanup of obsolete inventories last year meant a 3% headwind on comp for H2. How should we feel about like for like for H2 in that context? And I think historically, Kate, you mentioned whether you were comfortable or not with consensus, so I'm going to be the one to ask the question. What do you think about consensus in terms of sales and EBIT? Are we at a reasonable level today? Joshua Schulman: So Kate, why don't I let you start on the headwind and the -- our view on consensus, and then I'll come back on the other piece? Catherine Ferry: Yes, sure. So yes, I think it's the usual veiled ask about current trading. So I think as usual, I'll say we're not going to comment too much on current trading at this stage, but I will say that Q3 has started well in line with the previous quarter. But Josh has already helpfully highlighted the very public markdown that we had last year. As Josh said a moment ago, that was 3 points on last year's comps, so we're not repeating those activities. So I will just highlight that again. And of course, although we're pleased with performance so far in the quarter, we're mid-November. We've got Thanksgiving, Christmas, Lunar New Year, everything to come, so it would be premature to call it. But in terms of, I guess, half 1, half 2, we would anticipate sequential improvement there. I think on the consensus point, probably similar answer in that, look, we're broadly happy with consensus. Again, really, really important trading period ahead of us. So I think it would be premature to change guidance at this point, but I would just add that we also want to leave ourselves some firepower to invest. So depending on where we get to, you've heard it in the presentation there, we are spending more year-on-year on the kind of consumer-facing areas, specifically marketing. You heard there, we are investing more in Lunar New Year, for example. So I think leaving consensus where it is today feels the right thing to do for the business. Joshua Schulman: So then I'll pick up on the retail equation and what we're seeing in terms of pricing. So we start -- our inventory is down 24%. And then when we look at our traffic in the stores, traffic remains challenging across the board and continues to remain challenging. However, our conversion is up in the low teens, and our AUR is down slightly, which was planned because we did the realignment of pricing along good, better, best and with certain key categories like scarves outperforming, so all what we would want to see at this point in the turnaround. Erwan Rambourg: And the element of pricing in any market? Joshua Schulman: Not so much. We took some surgical increases in the U.S. specifically earlier this year, but pricing is relatively in line globally. And any pricing that we took on individual items was somewhat offset by the difference in mix. Lauren Leng: Grace and then Thomas. Grace Smalley: Grace Smalley from Morgan Stanley. My first question would just be on marketing. You mentioned a few times there that you've increased the marketing spend. You seem very happy with the results you've seen from the marketing campaigns. So just how are you thinking about the return on marketing spend and whether you're still tied to that marketing as high single digit as a percentage of sales or if there's actually room to further increase that and take kind of, I guess, capitalizing on this moment in time and shouting about what you're doing in terms of the brand? Joshua Schulman: Yes. Well, I mean, I think this also relates to what Kate was saying about consensus. We want to leave ourselves more firepower to invest in marketing. And my Chief Marketing Officer is in the front row over there, so he's listening very carefully to this. But we're very focused on having an ROI, and we're pleased that the initiatives we've had have resonated. We are seeing a direct impact from the marketing into the sales. So a year ago, we didn't have that luxury to even consider given where the P&L was. And now we want to be very mindful of those opportunities and not let a moment pass without investing appropriately. I don't know if you have anything to add, Kate. Catherine Ferry: No. And I think the key is, yes, for now, maintaining the high single-digit percentage of marketing, but let's see where we get to. Grace Smalley: Very clear. And then my second one would just be on gross margin. Thank you for the helpful bridge slide. As you think about gross margin in the second half, could you just perhaps talk through those dynamics in terms of the inventory benefits, transformation benefits? And then also given the -- Josh's comments on the improved full-price sell-through, how we should think about that impacting gross margin in the second half as well? Catherine Ferry: Yes. So I mean, recap, obviously, H1, you can see that, that -- there's that -- it's 330 basis points, which essentially is the tailwind from this time last year, all of that inventory actions. I then did flag that we had, which was probably the bit over and above what you might have expected, was what we have badged as transformation benefits. And I think the message there is that although most of the transformation benefits have been in OpEx, we've been looking at cost across the business, and we have actually seen some benefit in gross margin. In terms of then what to expect for the full year, which will help you with the second half, I think guidance there remains the same. We talked about a 300 basis point tailwind for the full year, and that remains the same. You'll remember that, of course, in the second half, in terms of phasing, the trend of the last 2 years has been for H2 to be lower than H1. You'll see that again. But in terms of absolute H2-to-H2 margin improvement, yes, you'll see that because you'll remember, it really was this time last year where we did a lot of nonrepeatable heavy discounting. So I think you'll certainly see that come back, so remaining the same on full year gross margin guidance. Lauren Leng: Thank you. Let's go to Thomas. Thomas Chauvet: Thomas Chauvet from Citi. Two questions. The first one on product newness and categories. If we look at your H1 performance, retail, wholesale by category, I know it's a bit diluted by the wholesale performance, but womenswear was already positive in the half, which is quite an achievement. Menswear, accessories, down 3%, 4%. Has menswear and accessories improved sequentially in Q2? And then when you look at your upcoming spring/summer product, is there anything that excites you in terms of menswear, accessories offering to drive a bit of a catch-up and bring these categories back to growth where they should be? Joshua Schulman: So we are very pleased that the initial improvement in the strength of outerwear and scarves is now spreading, and we're obviously seeing that, first and most importantly, across women's, which historically has been challenging for Burberry. And yes, both men's and accessories improved sequentially during the quarter. As we moved into, I'd say, mid-August, September and that winter wardrobing came into the stores, that has really ignited those categories, specifically on leather goods and shoes. So again, if you double-click here, we reduced our inventory the most in leather goods. So this is really where we really took out a giant amount of inventory, and we said that we would test and learn this year. And we have been doing that, and we have some areas where we have green shoots where now we're going back and building those back. So I think we talked about the B Clip bag. Last time, that family has been strong. We've recently refreshed -- done the first stage of a refresh of our iconic vintage Check. We introduced a vanity case, which has been very strong. We currently have a novelty color in ruby, which is performing well. And we -- and this is all in advance of a bigger relaunch of vintage Check in the coming seasons. And so we've been very deliberate in how we've approached that category. But it's interesting because there's -- we're seeing success in the good, better, best strategy across the estate even in a category that we don't talk about a lot like shoes. And on the runway, there were these beautiful riding boots. And we took a big bet on those beautiful riding boots, even though we had no history of selling very elevated product with minimal branding, frankly. It's GBP 1,500 and up for the Cavalier boots. And they have become among our best shoes and are meaningfully contributing to the growth of this small category. And that was such an important lesson for me because it's such a quintessentially Burberry item. It's something that, in your mind, you would think that you could go to Burberry and find a beautiful English riding boot. And when we put it there, in the context of that beautiful fashion show collection, the customer responded, and actually, it was one of the items leading to customer acquisition. So I know I sound like a broken record with our team talking about the timeless British luxury brand expression and the good, better, best pricing architecture, but it really is resonating with our customers. Thomas Chauvet: My second question on licensing. Could you give a bit of an update on your relationship, first, on eyewear with EssilorLuxottica and of course, beauty? I think Coty's CEO, Sue Nabi, gave interesting numbers recently, implying Burberry has been growing at about mid-teens percentage since 2019. So curious to hear your view here. And just on the cleanup of the older fragrance line that impacted your licensing revenue down high single digit in H1, I understand it will be the case also in H2. That shortfall of licensing revenue, if you gross that up to wholesale, i.e., Coty sales, there's quite a big number of bottles. So I was just curious what's happening to these models. Are they heavily discounted by Coty? Are they being destroyed, gifted? What is Coty doing to drive such a big decline in revenue given Goddess and Her, your top fragrance line, are actually doing very well? And as I said, Sue Nabi mentioned mid-teens sales for Burberry beauty in the last 6 years. Joshua Schulman: Yes. So broadly speaking, we think we have 2 best-in-class licensing partners in Luxottica and Coty, and we are pleased with the trajectory. Within beauty and fragrance specifically, the fragrances that you mentioned, Her and Goddess, have been very strong. And similar to what we're doing in the core brand of focusing on the quality of sales, they're doing the same. They are -- because Goddess and Her are in a position of strength, they're able to destock on some of these lines that are older and less relevant. And so that is why you see this significant decrease this quarter in the channel. Kate, I don't know if you have anything to add. Catherine Ferry: Yes. I mean, I think the key being that we're still seeing good steady growth in those core lines. And in terms of the look forward, obviously, it's not something that's just done in the quarter, so we would actually expect the destocking to continue into the second half. Thomas Chauvet: And be over by the end of fiscal '26? Catherine Ferry: Yes. Lauren Leng: I think we've got one final from Daria. Daria Nasledysheva: It's Daria from Bank of America. And congratulations on your results. I have 2 questions. The first one, could you please talk about what you're seeing in the U.S. market? You saw flattish, no acceleration in trends in this geography. So I was just wondering, could you please help us understand how it's shaping up into the holiday season? And if I can just ask my second question straightaway, outside of some marketing reinvestment that, Kate, you already mentioned, are there any other initiatives that we should be aware of for the cost savings for the second half, like bonuses, remuneration, anything that we should be modeling? Joshua Schulman: Kate, do you want to take the cost savings, and then I'll talk about the U.S.? Catherine Ferry: Sure. So yes, I mean, I guess there are a number of moving parts within cost. We've been very open about the incremental investment in marketing. Of course, the other pieces to consider, as always, there's inflation in our cost base. We've got a very high fixed cost base, 80% of fixed costs. That will be inflating at around 2%, 3%. You talk about people costs. Yes, there's the usual merit in there, and there will be potentially incremental performance-related pay reflecting the performance being below what we would have expected for the last couple of years. And I guess those are probably the key moving parts. It will be people, inflation and marketing. And then the U.S.? Joshua Schulman: And then in the U.S., the U.S. was the first region to return to growth for us. And what we've seen is that the brand expression and the way that we're showing up at retail in exciting ways is really resonating with the customer there. Our team in the U.S. has been very creative in terms of how in a market where retail traffic is so, so, how they're really going to the customer. They hosted over the summer. They hosted an exciting VIC event in the Hamptons, inviting customers from across the country to stay with the Burberry team and have a one-of-a-kind experience in the Hamptons. They're planning something similar for the VICs for Aspen, and that's really for our top-of-the-pyramid customers. And then we also have an opportunity there to really build on the broad universal appeal of the Burberry brand. And that's why this Bloomingdale's takeover -- facade takeover and activation is so powerful for us, because it gives us an enormous stage to share with people the Burberry story and who may or may not come into our network of stores. And so it's that mix of how we do really high-end elite events and then customer-centric events with broad universal appeal for customer acquisition. And so we're really excited about the trajectory there. I would just kind of step back from the U.S. specifically and just reiterate, as we're at the end of the -- I think we're at the end of the Q&A. I would reiterate that after our first year of implementing Burberry Forward, that we are more confident. I am more confident than I was 12 months ago. 12 months ago, this was really a thesis. It was a thesis that we were too niche. We were trying to be kind of a me-too of other brand strategies and that we weren't true to our own unique DNA. And as we've leaned into that at all levels from the runway to the marketing campaigns to the type of visual merchandising you see in stores to our sites, that's resonating with customers. It's resonating with the customers we want to have. And long term, I see this as a bigger opportunity than I envisioned a year ago. We're going to do the right thing with the brand and do it in a steady, slow way, and we're not going to chase sales for the sake of it. But we're feeling confident in the Burberry Forward framework that this is the right path for value creation and for the brand relevance. Lauren Leng: Great. Thank you, Josh. I'll hand over to you for closing remarks. Joshua Schulman: I think I made the closing remarks, but I'll come up here. So really, as we approach 170 years, I want to thank all of my colleagues around the world who have been working so hard to drive Burberry Forward. You only see Kate and I up here, but this is literally the work of thousands of people around the world. And I'd also like to thank all of you, our investors, analysts and partners who have supported us on this journey. So thank you.
Steve Wadey: Thank you, Stephen, and good morning, everybody, and welcome to our half year results for FY '26. Whilst we continue to operate in challenging market conditions, we have taken decisive action to improve our short-term performance and drive long-term growth, creating value for shareholders. And thanks to the dedication and hard work of our highly skilled employees, we've continued to support our customers' operational needs, delivering mission-critical technologies and services. Today, we'll take you through our half 1 results and the actions we've taken to address both near-term challenges and strengthen our market positioning for the long term. A great example is shown here, which illustrates the successful completion of the synthetic trials we undertook with BAE Systems to demonstrate how drones can operate alongside combat aircraft like Typhoon. This was a significant milestone in developing critical sovereign capabilities needed to defend the U.K.'s national interests. Let me start with our key messages for today. First, in tough near-term market conditions that have delayed orders in the U.K., we have delivered robust operational performance and our restructuring program in the U.S. is on track. Secondly, our mission-critical capabilities remain highly relevant to our customers' needs in a growing defense market and combined with our significant order book and substantial pipeline, provide very good visibility for long-term growth. Thirdly, despite near-term headwinds in our home markets, we have focus and visibility to maintain our full year guidance, and we continue to deploy capital with discipline. In summary, we are delivering the actions to improve business performance in the short term and are well positioned to capitalize on increasing defense spending so that we deliver compelling value creation for shareholders. Our agenda this morning expands on these messages. I'll start by giving you our half year in review. Martin will provide a commentary on our financial results. I'll then come back and give you an overview of our strategic outlook. Finally, we'll open up for questions. So to our review of the half year performance. In response to the market backdrop, we have taken proactive and disciplined portfolio actions, achieving good progress on our U.S. restructuring program as well as rightsizing other areas of the business. The improvement actions are delivering benefits and building resilience that will improve both short- and long-term performance. Overall, our first half financial performance was robust in tough near-term markets. We saw this particularly in the U.K., where we experienced delays to orders on our engineering services and R&D framework contracts, in part due to our customers prioritizing major equipment programs. This reduced our underlying book-to-bill to less than 1, excluding the LTPA contract award. We achieved 2 strategic milestones that strengthen our company for the long term. In May, we secured the GBP 1.5 billion extension to transform the LTPA for future warfare through to 2033. As a result, we closed the half with a significant order backlog and substantial pipeline, providing very good visibility for long-term growth. And in September, we announced the strengthening of the EDP contract to accelerate defense productivity by expanding the partnership and augmenting our high-value engineering skills with artificial intelligence. Together, these strategic milestones show how we are playing our part in delivering on the ambitions of the U.K. government's strategic defense review. As normal, we delivered a healthy cash conversion, enabling investment in the business and increased shareholder returns through our progressive dividend and multiyear share buyback program. Looking forward, we have approximately 90% of revenue under contract for this year, which is the same as last year. Whilst market headwinds continue, we're focused on execution and have visibility to deliver our full year forecast. Martin will take you through a bridge of this later in the presentation. I now want to address our half 1 performance and the progress we are making in each of our segments. Starting with EMEA Services. Due to market conditions in the U.K. and ongoing defense budget pressures in the Australian market, we delivered flat revenue with good margin. In the U.K., we grew 2% as a result of delayed orders on our framework contracts. And in Australia, our revenue was lower, predominantly due to the loss of the Land Systems work package under the MSP framework. In response to these dynamics, we took some resizing actions to build resilience whilst protecting core skills for the future. Our performance was underpinned by successful program execution across our long-term contracts. On the EDP contract, delivery performance was strong with 98% of all milestones delivered on or ahead of schedule. In September, we announced changes to the LTPA that will make it easier and cheaper for SMEs and new entrants to use our test and evaluation capabilities across the U.K. The launch of our T&E Innovation Gateway will help drive greater defense innovation and support wider economic growth across the U.K. Notable new contracts in the half include the strategic win GBP 25 million to deliver collective training for the Royal Navy to improve war fighting readiness at pace. This 5-year contract will see us deliver an immersive virtual training environment that realistically simulates the threats and missions that Navy personnel can expect to undertake in the future. Whilst near-term trading conditions remain tough, we have a clear pipeline of orders to win and deliver in the second half. Turning to Global Solutions. During the first half of the year, we've been focused on executing our plan to address the market challenges and operational issues that we highlighted in May. We've made good progress on the U.S. restructuring program. Key actions completed include the disposal of the U.S. Fed IT business, significant headcount resizing and cost base reduction as well as an improved control of labor rates and inventory. This progress puts us on a stronger foundation to move forward. As we forecast, revenue declined with lower margin compared to the prior year. Half of the decline was due to a lower volume of non-U.S. product sales versus a strong prior year comparator and the other half was in the U.S., principally due to the impact of DOGE on our Fed IT business that we have now disposed of and our planned resizing actions. As the U.S. market changed, we repositioned the business to build resilience and be better aligned to national security priorities. Our strategy is now focused on 4 capabilities where we have differentiated long-term incumbent positions and see good growth potential. These 4 areas are space & missile defense, maritime systems, advanced sensors and persistent surveillance. During the half, we secured $290 million of funded orders with a U.S. book-to-bill of 1.5x. Whilst we continue to focus on improving operational performance and winning longer-term programs, this strong book-to-bill underpins our second half forecast for Global Solutions. To summarize, we're making good progress. Whilst we finished the half with a smaller U.S. business, it is more aligned to national priorities and is well positioned to deliver long-term growth. I'll now hand over to Martin to take us through our financial results. Martin Cooper: Thanks, Steve, and good morning, everyone. As usual, I'll start with the financial highlights before moving on to the key financial metrics at a group level and details on our 2 reporting segments. I'll finish with capital allocation and guidance. And for reference, the U.S. dollar rate for the half averaged $1.34 compared to $1.29 last year, which has provided a headwind to the reported values. So turning to the results for the half. Order intake for the half was GBP 2.4 billion, which drove a closing order backlog of GBP 4.8 billion, both reported records for the group. Revenue was 3% down on an organic basis at GBP 900 million, resulting in a book-to-bill of 0.9x, reflecting the sale of our Fed IT business and trading conditions in H1, which impacted contract awards. Underlying profit was down GBP 10 million versus H1 last year at GBP 96 million, but margin at 10.7% was ahead of our half year expectations and underpins our full year target of around 11%. Underlying basic earnings per share of 14.2p were in line with last half as the lower profit was offset by the enduring benefit of the enhanced level of share buyback. Turning profit into cash remains strong at 85%, which again underpins our full year guide of around 90%. The strong operating cash performance, combined with the sale of our U.S. Fed IT business has enabled effective and value-accretive capital deployment. This has enabled us to not only reduce net debt half-on-half, but also to significantly enhance shareholder returns, which totaled GBP 101 million as we made excellent progress on our ongoing 2-year share buyback program and paid the final dividend. And return on capital employed remained strong at 21.1%. Moving to the key group financials and starting with orders. The book-to-bill of 0.9x, as Steve raised, resulted from delays in contract awards in the U.K. impacting EMEA Services. And within Global Solutions, the year-on-year impact on the federal IT market was particularly stark in the order flow in the business we have now disposed of. Whilst book-to-bill was down, total orders at GBP 2.4 billion was a record when incorporating the 5-year LTPA award. This meant we closed the half with an order backlog of GBP 4.8 billion, which does include GBP 0.4 billion of U.S. unfunded backlog, providing good visibility for future growth of core long-term business frameworks. Revenue at GBP 900 million is down 3% on a like-for-like basis when adjusting for FX and the sale of the Fed IT business. EMEA was lower on reduced volumes in Australia, where we lost a competitive land systems work package. And as Steve mentioned, despite being impacted by delays in orders, the U.K. business did grow 2% half-on-half. Global Solutions declined due to U.S. short-cycle revenues, of which a significant part was in the business now disposed of. In addition, our restructuring activities have resulted in us exiting some business lines as we focus on 4 major areas for long-term profitable growth. Within Global Solutions, our products business was lower against a high year-on-year comparative, but demand and outlook remains robust, and we expect a better second half. Recognizing the step-up required in H2 to deliver our revenue guidance, we have detailed on the chart the drivers that bridge us from half year to our year-end assumption of circa 3% organic growth -- like-for-like growth. So taking each in turn. Revenue cover at the half stood at 89%, in line with last year's assumed outturn at this stage, and that includes the core frameworks of EDP and LTPA, established positions on the likes of Naval Combat Systems and MSCA, Maritime training following the MCAST win and in the U.S., the TARS Persistence Surveillance contract and the work we do with the Space Development Agency. Secondly, our Period 7 order flow has added a further 2% to the cover and includes the mission-critical Typhoon support uplift. Thirdly, we have around 7% of orders, which are extensions of current positions or where we are close to finalizing the awards. Examples include the DragonFire laser weapons contract and target sales with predominantly repeat customers. Finally, we have a good visibility on a pipeline of further awards that we assume we shall win and deliver in year to cover the remaining around 2%. Whilst there are clearly market headwinds prevailing in the U.S., U.K. and Australia, we currently have good visibility and are hence maintaining our full year guidance. Moving to operating profit, which was down GBP 10.6 million against last year, reflecting lower revenue and the impact of the group's restructuring activities. Margin at 10.7% was ahead of expectations at the half with good consistent program execution against our backlog, especially in EMEA Services. In May, I talked about rebuilding margin from 9.6% to around 11%, and we are on track through driving strong program execution, cost base efficiency actions and the portfolio actions in the U.S. As usual, we have detailed the table reconciling underlying operating profit from segments to statutory profit. The income from RDEC and intangible amortization are standard reconciling items and predictable. The other 2 major reconciling items reflect the actions being taken to improve the long-term performance of the business. Firstly, our digital investment has increased in the half, driven by a major rollout to over 60% of the business. As a reminder, this is part of a wide -- of a program to enable growth strategy and wider business efficiency. Secondly, we have booked a further GBP 22.6 million of restructuring costs, driven by the portfolio work in the U.S., coupled with the rightsizing activity in Australia and ongoing efficiency activity in the U.K. To complete profit, the sale of the Fed IT business led to a GBP 0.5 million profit on disposal. Now turning to the segmental split of the group performance, starting with EMEA Services, which had a good operational half in difficult near-term market conditions. Orders increased to GBP 2.2 billion. Excluding LTPA, the book-to-bill was down to 0.8x with delays in contract awards in the U.K. and Australia driving the shortfall, albeit as mentioned in the revenue bridge, some of those orders have come through since period end. Revenue was broadly stable with the U.K. defense delivering growth, but this was offset by order delays and lower revenue in Australia with the loss of the land MSP work package. Program performance and cost control was good, ensuring consistent margins at 11.5% and funded backlog is now at a record high GBP 3.9 billion, which supports second half delivery and longer-term visibility. Next, Global Solutions, which posted orders of GBP 247 million at a book-to-bill of 1.3x, including annual funding on our core U.S. franchise contracts of Tethered Aerostat Radar System, Strategic Capabilities Office and Space Development Agency. These contracts also saw good on-contract growth. Securing these orders in the half helps to derisk second half revenue given the ongoing government shutdown. Orders were down half-on-half due to restructuring of the U.S. portfolio and timing of targets and product awards. These dynamics impacted revenue, which was 16% lower at GBP 192 million. And as covered in the bridge, the book-to-bill gives us a foundation to drive the required second half performance. Margin was down half-on-half at 7.4%, but up from last year as we work through the U.S. restructuring actions and was in line with our expectations at this stage. Moving to cash, where operating cash flow continued to be good at GBP 128 million and was in line with last year, delivering a high conversion ratio of 85%. Capital expenditure was GBP 36 million, of which GBP 21 million related to the LTPA. And in line with guidance, we would expect higher spend in the second half with a total for the year around GBP 100 million. To complete the cash analysis, the movement in net debt from year-end is shown here. We generated GBP 63 million of free cash flow. And with the proceeds from the Fed IT sale, that allowed us to deliver a significant step-up in shareholder returns at GBP 101 million as we accelerated the pace of the buyback program and grew the dividend 7%, in line with our progressive policy. Net debt, therefore, closed at GBP 180 million at a leverage ratio of 0.6x, up from year-end, but a GBP 10 million lower net debt than last half year. Turning to capital allocation, which is unchanged. The business is delivering good consistent cash flow and the focus and priority is driving sustainable organic growth at good margins whilst investing in the business. We maintain a rigorous approach to the deployment of our capital, scrutinizing organic investments against shareholder returns and ensuring we have a balanced and value-accretive deployment of capital. During H1, we've demonstrated our disciplined capital allocation policy by investing in our organic growth through CapEx, research and development, digital and major competitive bids. We provided a 7% progressive dividend, completed the sale of our noncore Fed IT business in the U.S. and used the funds from the sale to accelerate our share buyback program. We have a strong balance sheet, which gives us flexibility to drive organic growth and provides optionality for value-accretive capital deployment in excess of the GBP 200 million share buyback already announced. So pulling all that together and moving to guidance, which is unchanged. For the revenue bridge, we still expect to deliver a circa 3% organic growth on a like-for-like basis when adjusting for the sale of the Fed IT business and the higher exchange rate versus original guidance. Margin, we expect to be around 11% and with the buyback progressing at pace, EPS growth of 15% to 20%. Cash, we expect to be around the 90% conversion level and leverage around 0.5x at year-end. As usual, to help with your models, we've included additional technical guidance in the backup slides. This has been a robust half against a difficult market backdrop. And with the action taken and in train, have the visibility to deliver this full year guidance. I'd like to thank all our teams for delivering critical capabilities to our customers and for this half year result. With that, back to you, Steve. Steve Wadey: Great. Thank you, Martin. So to our strategic outlook. Let me start by explaining why we are a differentiated company, highly relevant to the increasing threat with strong fundamental growth drivers structurally aligned to the increasing defense spend. The threat environment has changed the market dynamics. We are in a new era of defense. Our customers have committed to long-term spending increases as we have seen across NATO and are driving major procurement reforms as they seek to rapidly scale existing capabilities and create new disruptive capabilities to overmatch the threat at wartime pace. We are not standing still. Our mission-critical capabilities shown here on the right are highly relevant and are directly aligned to our customers' priorities. We are a horizontal integrator, developing new technologies, testing new platforms and delivering frontline mission support. We play an essential and vital role in helping our customers accelerate capabilities into service and increase war fighting readiness to counter the threat. As the market is changing, we have adjusted our strategy to increase focus in 3 areas: firstly, partnering more closely with our customers to help them build greater resilience, rapidly modernize and deliver innovation at pace; secondly, continuing to pursue focused growth in each of our key domestic markets; and thirdly, leveraging our capabilities to expand and grow into European NATO markets. Let me take each of those in turn. We are increasing our competitive advantage through greater partnering and innovation with our customers and industry to deliver operational advantage and drive growth. We are a strategic partner to the U.K. government and the fourth largest defense supplier to the U.K. MOD. Our capabilities are aligned to the ambitions of the Strategic Defense Review, and we have increasing opportunities to leverage our expertise in partnership with the government into major export programs, such as our engineering services and mission data capabilities into the recent win of Typhoon into Türkiye. On Monday this week, Luke Pollard, the Minister for Defense, Readiness and Industry, visited us in Farnborough and has welcomed our commitment to proactively transform the way that mission-critical engineering services are provided to the U.K.'s armed forces that I mentioned earlier. This includes our investment in new digital and AI technologies to augment our high-value engineering skills, significantly increasing U.K. productivity and innovation. To stay ahead for the long term, we remain focused on investing capital into our people, technology and capabilities. We achieved a major milestone in the half with the successful transition of U.K. and Australian employees onto our new digital workplace to improve our ways of working and business efficiency. And investing in cutting-edge defense technology continues to be a key driver for our future growth. Our long-term R&D created the laser technology that is critical to the growing DragonFire laser weapon program. Investing in the business is core to our strategy to ensure we have a differentiated portfolio and are well positioned to capitalize on increasing defense spending and drive organic growth. The longer-term opportunity in our domestic markets remains significant, and our mission-critical capabilities are focused on areas of priority for our customers, which are robust and set to grow. In EMEA Services, we have deep expertise that we are leveraging on next-generation technologies, capabilities and programs. This includes the launch of our DroneWorks initiative to help SMEs access our expertise and facilities to accelerate drone development for rapid deployment. And we are delighted with a recent significant competitive win to further develop our disruptive laser technology for next-generation laser weapons beyond DragonFire. In Global Solutions, we now have a U.S. business with much greater focus on the 4 differentiated capabilities that I described earlier. As a result, we have delivered significant on-contract growth across our large multiyear contracts that Martin described, SCO, TARS and SDA. And we see significant growth potential for space and missile defense, where our capabilities are highly aligned to multiple U.S. space programs. From a wider product perspective, we are continuing to invest in our maritime, targets, sensors and secure navigation capabilities where we have differentiated offerings to drive organic growth. Our portfolio is now focused and structurally aligned to national security priorities of our domestic customers, underpinning our long-term perspective. We're also increasing our focus to position the business and drive organic growth in adjacent markets by leveraging our core capabilities across the AUKUS nations and into European NATO and allies. We are collaborating with our customers across the AUKUS nations to develop new opportunities. Examples include sharing laser technology from the U.K. into Australia, leveraging our R&D expertise. We're also sharing our engineering services experience to help shape the future of the EDP and MSP contracts, and we are applying our world-leading maritime T&E capabilities in the U.K. to support the T&E opportunity for the AUKUS submarine program in Australia. Over recent years, we have made good progress with European NATO and allies, where we have differentiated capabilities. We've grown the use of our unique U.K. test and training capabilities from nations such as Germany, Italy, Spain and most recently, Japan. We're also increasing our export focus and a key opportunity progressing well is the export of our electronic warfare and mission data expertise into Belgium. And whilst Poland remains an upside opportunity, we're actively shaping further persistent surveillance opportunities in Eastern Europe and the Middle East beyond our U.S. program. We're also well positioned to capitalize on NATO's increasing defense spending, and we see our addressable market growing. With a focused approach to our international expansion, we are creating value across the company to drive further organic growth. Having secured the LTPA extension, we have a significant order backlog of GBP 4.8 billion, providing a firm foundation for the company. This backlog, combined with our qualified pipeline of GBP 11 billion, provides good long-term visibility at 8x our FY '25 revenue. We have built this visibility by focusing on our customers' needs, partnering with industry and winning larger, longer-term programs. On the left, I'm showing our major domestic programs where we have strong incumbent positions that build up to approximately 70% of our annual revenue. This solid base in our domestic markets gives us a platform to deliver on-contract growth and win new programs in our pipeline. This solid base also gives the platform to leverage our capabilities to expand internationally, shown here on the right, including opportunities to leverage both our services and product capabilities into European NATO markets. Whilst we may not win all of these, our pipeline is robust and prudent with many additional growth opportunities beyond the GBP 11 billion shown here. Overall, our significant backlog, combined with our healthy pipeline, gives us very good long-term revenue visibility and underpins our confidence in creating long-term value for shareholders. So in summary, we've taken the necessary actions in tough near-term market conditions, strengthening our portfolio to improve our performance. The fundamentals of the business remain strong, and our mission-critical capabilities continue to be highly aligned to our customers' needs in a growing defense market. Combined with our backlog and pipeline, this gives us very good visibility for long-term growth. Whilst near-term headwinds continue, we're focused on execution and have visibility to maintain our full year guidance. 10 years ago, we launched our growth strategy. As you can see from the chart on the right, this year is a transition year. Having taken decisive action and significantly grown our backlog, we have a strong platform to capitalize on increasing defense spending. This gives us confidence to drive sustained long-term growth and deliver compelling value creation for shareholders. Martin and I'd be happy to take your questions. Steve Wadey: Okay. Rich, first question. Richard Paige: It's Richard Paige from Deutsche Numis. Could you just give a bit more detail about what's going on in Australia, please, and circumstances there? And on -- second one on U.K. Intelligence, again, sort of dig between there because it feels as though you're reasonably confident that there hasn't been a significant deterioration in trading in that business. And then thirdly, just on exceptionals and digital innovation. If you could just outline thoughts for the full year on both of those numbers and particularly digital innovation, how long they -- how long that persists as an exceptional charge, please? Steve Wadey: Okay. Maybe, Martin, I'll start on Australia. Maybe we do exceptionals, and I'll finish off with U.K. Intel. Okay. So I mean, I think on Australia, I think it's a tough market. In some ways, the Australian market has been very similar to some of the dynamics that we've seen here in the U.K. It's absolutely not unique to us. As you heard in my presentation, right at the start of the year, we had a loss of a competitive work package. Whilst we're not the prime through the team that we're on under the MSP program, that has resulted in lower revenue for us. But I think we need to put that in perspective, Rich, Australia now about 6% of the group. And I think what's been important is that in understanding that market dynamic, whilst we've taken the resizing actions, we've also taken actions to strengthen the portfolio and focus on the programs that are going to give us long-term underpinning growth looking forward. Those key areas, if you are interested in those, there are really 4 big drivers that we're focused on for the future in Australia. The customer is going through an exercise in the coming calendar year, so 2026, looking at what program will replace MSP. It's called future MSP. We expect there to be an RFI and RFP for that, and we're in a market shaping phase. I mentioned sharing experience between the U.K. and Australia customers to secure a prime role and position ourselves for the next phase of engineering services. Secondly, we're continuing and we're delivering really well on our threat representation business through the acquired Air Affairs business. That's under our JATTS contract. We expect a renewal of that contract imminently, and that provides long-term underpinning growth. Thirdly, you have heard me talk about lasers. We have quite a lot of progress on lasers. I'm sure we might get some questions on this in the U.K. in a moment. It's really a strong long-term growth driver, but there's a lot of collaboration between our customers and our teams looking at next-generation lasers in Australia, where we're very, very well positioned. And the final driver that I mentioned in my presentation is related to the AUKUS submarine program, again, where we expect over the next 1 to 2 years, a significant program opportunity on providing the range capability or the test and evaluation capability for both the AUKUS submarine program as well as surface fleet. So yes, it's been a tough year. It's not unique to us. There are plenty of businesses, as you know, having to take resizing actions and improve business efficiency we have. But we need to put it in perspective, and we've got some really good solid positions to grow going forward. Do you want to do exceptionals? Martin Cooper: Yes. Thanks, Rich. I mean I think on -- as I covered in my script, then we've had a pretty significant rollout in the first half across a lot of our workforce on one major work stream within that package. So it was GBP 12 million -- just over GBP 12 million in the half. I'd expect the second half to be a little bit less, but a few models, I'd model about GBP 22 million for the year, and then we'd expect it to start to step down next year and then finally complete in FY '28 for us. Richard Paige: [indiscernible] Martin Cooper: Clearly not by the nature of exceptionals, but I mean, you'll notice just to cover the restructuring point, I mean, I think you -- that could be split into 2 major halves, one around sort of roughly 50-50 around headcount impact and headcount reductions. And then as I mentioned, again, as a reflection of some of the work streams we've either exited or really rationalized down in the U.S., then there were around GBP 10 million plus of further write-downs in the U.S. that went through that line. So you should think a bit of headcount reduction and then sort of final balance sheet cleanups. But obviously, we wouldn't expect anything else material in the second half on either line. Steve Wadey: And I think on U.K. Intelligence, I mean, you'll know U.K. Intelligence had a tough year last year. So this year has very much been a transition year for U.K. Intelligence. And I describe the wider context of the U.K. market has been tough, and we've seen a delay to orders, particularly around the R&D, DSTL areas and engineering services. But I think that UKI is positioned well for this year. It actually did relatively well on its orders in the first half and has got a very good pipeline to deliver a much stronger second half performance that we are planning on. And included in that, the business is also well positioned. You would have seen me mention a couple of export-related orders, particularly in the EW emission data area where certainly in the next, let's call it, 1 year, we would expect some of those export-related orders to positively contribute to the rebuild and next phase of growth for U.K. Intelligence. George Mcwhirter: George Mcwhirter from Berenberg. Maybe coming back to Australia again. Just in terms of the competitive land systems package that you mentioned that you lost, can you just talk about the size of that contract, please? And what lessons you can take from that loss? And the second question is on the U.S. What proportion of the business would you say is shorter cycle now that you've disposed of the federal IT services business? And have you seen any impact from the government shutdown? Steve Wadey: You need to start on the Australia side. I'm happy to talk about lessons. Martin Cooper: Right, George. So certainly, the value of package of work was about AUD 50 million. Most of that was reflected in our guidance at the start of the year. We had hoped to perhaps pick up a little bit of subcontract work, but that's not really materialized. So around $50 million impact, but it was baked into the guidance in essence at the start of the year. Steve Wadey: And I think lessons, George, I think, is similar to what we've discussed before and certainly, I'm seeing that is our focus in the U.K., which is really understanding the pressures and the drivers on our customers, all of our markets, our customers, whilst defense is a high priority, they're all trying to get more for less out of their budgets. So therefore, really thinking through innovative proposals and being focused on areas where we can differentiate and be more competitive is absolutely key. There are many examples I could talk about in the U.K. where we're doing that. And the 4 areas that I mentioned in answer to Rich's question is really about how we become more competitive and more innovative to differentiate and then build those longer, larger sustainable positions going forward. Start on the U.S. of short cycle? Martin Cooper: Yes, I mean I think, George, to sort of turned it around a little bit, the 4 major sort of work streams we're focusing on now that Steve outlined reflects more than 80% of the revenue work that we now do in the U.S. And I think as you remember, as we went into this year, we didn't include really any material values on the likes of robots and sort of short-cycle book-to-bill work. And so the coverage that we've got through the half year book-to-bill relies very little on short-cycle impact at all, and that's where it is. Now you'll all know that in the U.S., you do also have annual contracting. So you could describe that as short cycle in some instances as to where it is. But a lot of that real sort of what you would have traditionally called as short-cycle volatility was stripped out at the start of the year and is not in our bridge for full year as we look forward. And I think in respect of the government shutdown, the reflection that we had a very strong book-to-bill in the first half in most of those big contract awards on the likes of TARS, SCO, SDA, the forward-funded contracts came in, in September, which drove the strong book-to-bill, which has given us that cover now like all defense contractors and all contractors. If there's another government shutdown in January again and/or these things get protracted, then obviously, there could be impacts further down the line or for further orders. But in the short run, then we're fine. Steve Wadey: And I think more broadly, I think, as I said in the presentation, we're really pleased with the progress that we're making. I mean the U.S. restructuring program is on track. The disposal of the Fed IT business was a key milestone. As you heard, we've taken some significant cost out and headcount out to resize the business in line with the market that we see. Hence, my comment about we have now got a smaller business. But as Martin has just said, that smaller business is really well positioned because we've now focused on these 4 revenue streams where we have long-term positions, and we can see that growth potential, which reduces the exposure to that short-cycle volatility that you are pointing out. And as Martin says, the book-to-bill of 1.5x gives us the ability this year to drive through that performance then really focus on these growth drivers for the long term. Hopefully -- does that answer your question, George? Great. Joel Spungin: It's Joel Spungin from Investec. Steve, one for you, sort of a big picture question, and I've got a couple for Martin as well. But I was wondering if you could talk maybe just sort of thinking out beyond FY '26 as we look into fiscal '27, '28. You go back and QinetiQ used to grow roughly double nominal sort of defense budget growth for a long time in terms of organic growth. Is that still something you think is achievable even in a world where nominal defense budgets in the West are rising at an unprecedented rate, i.e., could this business get back to being a high single, even low double-digit organic growth business? Steve Wadey: Yes. I think this is a good question. And I think there are a number of things to say. I think, first of all, we're very confident we've taken the right actions. We've taken the right actions to deal with the dynamics as we came into this year. And that ultimately, hence, your question, puts us on the right trajectory to return to higher rates of growth. And we have an exceptionally strong backlog and exceptionally strong pipeline. You've seen that there with 8x FY '25 revenue cover. And therefore, I think your question is a question of timing. And actually, how do we really make sure that we control the things that we can control. And what we've shared with you today is that we are in control of everything that we can. But there are some market dynamics that will determine partly the answer to your question about how quickly we will return to that from a timing perspective. But we're absolutely doing all the things that we can. And then if you go further into that question and say, well, what are the drivers though? But what are the drivers that could -- that become the bridge from this year into that multiyear phase of returning to that higher level of growth. And it is worth just mentioning them because I think that it will help everybody understand how the company returns to those higher growth rates. So the first one absolutely is in our core strength of test and evaluation. The long-term partnering agreement on a multiyear basis is absolutely going to be a contributor to our growth. The modernization work of bringing in hypersonics directed energy, autonomous systems, the increasing in tasking that we expect to see through our test and evaluation Innovation Gateway, the DroneWorks initiative that I mentioned. And I didn't mention it in the presentation, but we've just won a contract to expand quite considerably the capacity of the ETPS training school, which is going to be considerable increasing capacity both for our domestic and international customers. So that's a really important growth driver. The second is actually, and we've talked about this as our strategy for several years, how do we leverage our test capability into training. Note the strategic win of the MCAST contract. It's GBP 25 million. You might say, well, that's not big, but it's a strategic win as we move into training, and that training is absolutely complementing our test capabilities, and there are quite a considerable number of incremental opportunities above MCAST in a short-term period that will add to growth. The thirdly is U.S. I've mentioned this a few times actually in answers. I think we're really well positioned around space and missile defense. Our capabilities with the SDA. We have SATCOM capabilities, and we also have broader sensors capabilities. Space is a very large growing opportunity in the U.S., and we're well positioned in that and alignment with programs that you all know such as Golden Dome, we're positioning to win a role on that. And separate to that, I think it's in our unfunded order bridge. We did actually win an option, a ceiling option with the Space Development Agency worth up to $95 million to provide additional support to them in this coming year. So that's the third growth driver. Fourth one is around advanced weapons. You go back a year, we talked about -- in fact, it was May, wasn't it? We talked about the 2-year renewal on the weapons sector research framework. That is really starting over this next multiyear period to bring benefit, particularly in the directed energy area, both radar frequency as well as lasers. Martin mentioned the importance of DragonFire. And I just mentioned, we've had another win in next-generation laser technology. And then finally, the focus on Europe and 2 particular areas I would highlight. The framework contract that we signed now 2 years ago with NATO to allow access to our T&E ranges continues to bring and be attractive to nations like Germany, Italy, Spain, Netherlands. And the second area I mentioned in response to Rich's question is our greater focus on export. And we're in a really mature partnering position with HMG and looking at exports together. I mentioned 2 examples around our EW emission data capability with Belgium and with Türkiye opportunity on Typhoon, and those will contribute. So those 5 areas, I think, answer your question is the bridge from this year to those higher rates of growth. Clearly, not everything there is under our control. So it's a matter of timing. But certainly, over that few year period that you've mentioned, I would expect us to really get back into much higher growth rate. So hopefully, that answers your question. Joel Spungin: Can I -- sorry, just a couple of quick ones, Martin, I'm a bit more dull. The -- sorry, I lost you a bit on the guidance, the GBP 22 million. Is that the digital investment that you expect for the full year? Or is that the... Martin Cooper: Yes. So the total cost of digital investment, I expect to be around the GBP 22 million. Joel Spungin: Right. And you're not at the moment, expecting any more restructuring charges? Martin Cooper: Correct. Joel Spungin: Right. Okay. And then sorry, very final one. Fed IT, I was just wondering if you could say how much did Fed IT contribute to revenue and profit in the half? Martin Cooper: Yes. So in revenue in the half, it was about -- you should have modeled around GBP 10 million to GBP 11 million, so around $13 million to $14 million. And it does have a second half weighting, which is why when you're adjusting your models, you'd expect more like $20-plus million in the second half, which is why we want obviously the adjustment in the full year guide. It is fairly low margin. We will get to you, sir. Sash Tusa: Sash Tusa from Agency Partners. Just a very quick one first. I think that you slightly implied that there have been some delays to target orders in the first half. If I understood that right, is that something that has subsequently occurred or that you sort of expect to occur in the second half? Steve Wadey: So do that one first. Yes. So you are right, there has been a slight slowdown. Nothing particular in the market other than a general slowdown. But as Martin showed in our bridge, targets are part of a pickup that we expect in the second half. It is worth saying that we did achieve some initial target sales in the U.S., relatively small in the half, but we did. And we expect to be focused on additional task orders through the ATS-3 contract that we signed 12 months ago in that second half bridge. Sash Tusa: And then just a sort of broader question about U.S. space and Golden Dome and so forth. I mean clearly, you've seen an awful lot of hopes for procurement reform over your careers. And it's possibly quite jaundiced about sort of claims that politicians make for that. But Secretary Hegseth does seem to want to go faster and break a lot of things. And he doesn't seem to be particularly in favor of what he calls legacy contractors, which might be a category that you fall into. How do you make yourself relevant to new defense technology companies whose business model seems to be extravagant claims on PowerPoint, build stuff, it blows up, moves on as opposed to a rather more measured approach in terms of test and evaluation. Steve Wadey: How long have you got? You make a number of points. I mean, first of all, you touched on space and SDA. We have an excellent relationship with the SDA. We're the largest contractor working in with them. And therefore, we partner very closely with them, and we help them deliver their programs at pace. So by being relevant, by deeply partnering and helping them achieve, to your point, their programs faster, that's how you position well. And I think SDA contract was an example of significant on-contract growth in the half. That comes down to good performance and good partnering. And please note what I mentioned about the option that we've had added to that contract for the next few years, which could build even greater on [indiscernible]. So I think the core in that is being close to your customers, understanding the drivers. I think more generally, I think all of our markets are looking for reform. I don't think that's specific in the U.S. And I think that is a nature of what is being driven by the threat. And therefore, all of our governments, whilst they want to spend more money, that money is going to take time to come. And therefore, they want to get more from their money quickly, and that means doing things differently. And I come back to how well positioned we are. And if you look at our 4 capabilities, creating new technologies that create disruptive military capabilities to overmatch the threat quickly. Lasers, the case in point is really good. Focused on engineering services. I mentioned, I think, twice the importance of proactively investing in how do we augment our high-value skills with artificial intelligence. That's not about replacing our people. That's about doing what we do faster and at greater scale to help them drive efficiencies and scale their capabilities. So I think these are the dynamics, Sash, and I could go on further that by being really relevant and partnering, but coming up with different ways of working to support them on their reform, that's how you grow in difficult markets and position yourself well for the long term. I think that's the fundamental ethos. We have 2 more questions behind you. Benjamin Pfannes-Varrow: Ben Varrow, RBC. On the -- maybe kicking off with the second half growth, I think you've addressed it in the slides there, but just maybe on EMEA Services, looking at the second half, I think you need to grow around high single digit. Is the message from the slide there that those prospective orders coming in are pretty much derisked, so you're not concerned there of meeting those numbers. Is that the general takeaway? Steve Wadey: I'll do that one. Maybe I can start generally. I mean we've sort of talked about the market being difficult. And clearly, we've had delays, Ben. But we've got really good focus on execution and what the bridge that Martin showed is the visibility. If you're referring to the 7%, there are really 3 main drivers for that. The first is around EDP-related task orders. Secondly is around laser-related programs. That's not just DragonFire. It also includes the win that I've just mentioned on next-generation lasers because that was post AP7. In fact, it was last night. And then thirdly, targets. They are the 3 biggest drivers in there. And what really we're showing is in that 7%, they're really specific and identified, and therefore, they are high confidence. And we also have a pipeline of further awards that go beyond that and hence, the way that Martin presented it. Benjamin Pfannes-Varrow: Two more. In terms of maybe asking Joel's question slightly differently, over the next couple of years, you've spoken you can get back to that sort of high single digit, low double digit. Is there anything to be mindful of that's working against you or prevents you from getting there over the next couple of years to keep in mind? Steve Wadey: Well, I guess the most straightforward is the things that aren't in our control. So the market dynamics are partly the timing that I mentioned to the answer to Joel's question, but are we doing all the proactive thinking of investing, changing what we're offering, engaging with our customers. We're absolutely all over that. So we're doing everything in terms of the actions on short-term performance and positioning us to shape and win these proposals. So I think it's the things that aren't in our control, which is actually just the flow of orders really. But no, I think we're very well positioned, hence, the answer to Joel's question. Benjamin Pfannes-Varrow: Last one on the sort of upcoming U.K. defense investment plan, thoughts or expectations what could come out there? Steve Wadey: Yes. I mean we've been through a lot in the U.K. market this year. We had a strategic defense review in June, defense industrial strategy in September, defense reform initiative, July, was it? And then we've got the defense investment plan let's say, before Christmas, wherever it's going to be. So we've been through a lot. And I think that getting through, in some ways, the last big block of this reset and renewal of defense in the U.K. will be good. I think it will bring clarity. It will bring confidence. And I think what we expect from it is with that clarity, I think there will be a lot of focus on innovation and R&D and building different capabilities. Clearly, we're well positioned for that. And then more fundamentally, I think it will be calling even more so for initiatives of innovative capabilities to do more for less. And hence, some of the proactive changes that we've been making around the future of EDP and the AI-related investments. So I think clarity and confidence is going to be good. We'll welcome that. And then we really expect innovation and bringing proactive proposals to be part of the implementation and then sort of build that position as support to our government going forward. David Richard Farrell: David Farrell from Jefferies. Two questions for me. Just going back to the exceptionals and the digital platform. Could you just remind us what capabilities that will give you as an organization? What exactly are you doing? What efficiencies does it drive? Steve Wadey: So if we go back a couple of years maybe to when this whole project was launched, I think we talked very openly that the company infrastructure had been built really on the back of a legacy IT infrastructure from the U.K. government. And it went back 20 years. Hence, why this was a fundamental discrete investment project to fundamentally build a digital platform and set of applications for the company globally. And really, that project has been in 3 phases. The first phase was to put a fundamentally different secure network in place across the company using state-of-the-art digital technologies. That is done and complete. Secondly, the next phase was then effectively migrating our people onto the new devices. As both Martin and I have said in our presentations, that is largely complete. And now we're on the sort of the final phase, which is really now all about migration of apps and then new tools, whether that's engineering tools or a project that's very close to Martin's heart, which is around the business system finance tools. So hence, this was that multiyear discrete project to really bring the company digital infrastructure into state-of-the-art capability. And I think it's going very well. And I think both of us use slightly different language. This will change the way that we work. It will allow us to share information, share technology, drive collaboration and also build greater business efficiency into the way that we operate. Feel free to add. Martin Cooper: Yes. I mean I think, David, I think -- I mean, this actually enables us to bid into some contracts as well and be prime lead in some areas Steve mentioned Australia and other areas by having these advanced and better systems that will enable us to actually bid and hopefully win more work going forward as well. I would also make the point that we meant there, and you might be about to touch on margin anyway. But I mean, I think anyone who's been through these digital rollout programs, it is quite disruptive to organizations. And you'll remember at the start of the year, we were a little bit cautious, more cautious on margin just around that operational impact, and there has been some impact and that continue there will be for the rest of the year whilst we're going through that. But as Steve says, we're getting on with it and it will have long-term efficiency benefits as well. David Richard Farrell: I see my second question was about growth. I've really touched on the Polish TARS opportunity. But can you just kind of detail how that works? Who selects the winner? Is it the U.S. government? Is it the Polish government? Has the U.S. government shutdown in any way delayed the award of that project? Steve Wadey: Yes. I mean the first thing is a reminder to ground us all, Poland is not in our base plan, and it is not in our forecast. So just to be really clear on that. In terms of the process, it's an FMS sale from the U.S. government to Poland. Therefore, the decision-making is with the U.S. government. But clearly, they will have dialogue and exchange with the Polish government. And to your point, partly related to shutdown, I mean, there is no public announcement so that remains, as I would think about it more as an upside opportunity. But I think more important to that, you mentioned the phrase TARS, is really thinking about our TARS capability, which if everybody is not familiar, this is where we are running a really significant national program along the Southern U.S. border, providing persistent surveillance between U.S. and Mexico. That is another contract. There are 2, in fact, one called TARS, one called [ TAS ]. And both of those also have delivered good on-contract growth over recent years. And from our perspective, we're really positioning to grow that capability as one of our 4 priority streams, and we're positioning to grow that both domestically in the U.S. We expect further on-contract growth to come this year, and we also expect to grow it internationally, and we're actively shaping a number of opportunities in different countries around the world, both in Eastern Europe and Middle East. Unknown Analyst: It's [ Francois ] from Barclays. Just coming back to the digital investments you've been doing. You mentioned the fact that you can increase your win rates because of that investment on the line. So -- which is obviously good for growth. But just in terms of margin, is this investment going to generate any margin benefits down the line? Or is it just a function of making your business better positioned to win new contracts and fund growth? And then secondly, going back to the U.S. business with those 4 key areas you outlined before. Can you discuss the medium-term growth profile for the business there, compare that with the rest of the group? And then how should we think about the margin in the U.S. in the medium to long term? That would be very helpful. Martin Cooper: I'll start with the digital. I mean, just to be clear, I mean, this is -- as Steve says, this is around also building good long-term business resilience, and you'll all be very aware of, obviously, heightened cyber threats and other things. So this is predominantly around, obviously, having the right systems to be effective for our employees and other things. It does give us the opportunity in some parts of the world where we don't have the current capabilities to be able to bid into things, but this is predominantly an efficiency thing, but also we do need to clearly continue to invest in the business. So I wouldn't want you to think this is going to make a huge step-up in margin going forward as we work through this program, but it should definitely help efficiency drive as we go there. Perhaps in the U.S., just on margins, and then I'll hand over to Steve around growth. I mean, clearly, all the actions we're taking are about designed to drive margin up in the long term. I referenced a couple of areas where we actually also actively took ourselves out of some contracts in the first half because they were lower margin and were noncore to us and things. But I think you should think about this business in the long run as more of the sort of high single-digit margin business in line with sort of peers, so sort of in the 7% to 9% would be the margin, and that would then, therefore, push Global Solutions more up into around the 10% level, as I think we've outlined in the past, but that's the kind of benchmark that we're pushing that business through these actions. Steve Wadey: Yes. And rather -- on the U.S., I mean, rather than giving growth rates and comparisons because as we know, we'll be giving an update on our growth in May. Maybe what I can talk about is the growth drivers. I've sort of talked about a few of them. So just to go back over. So space and missile defense is an absolute growth driver where we are positioned. And I use the phrase multiple space programs. It's worth just touching on. So clearly, we have the SDA program. We also have a SATCOM related engineering services program. And I've just briefly touched on Golden Dome, where we can see some of our engineering services and our sensors capability relevant for that. So we have a series of capabilities, and we're well positioned in our customer relationships to see good growth coming from that program. Second one, Maritime Systems. We know if we look back in time, the company has been very well positioned in its relationship with General Atomics and the U.S. Navy as part of the electromagnetic launch and recovery system on the Ford-class carriers. The Ford-class carrier is a long-term franchise program for us, and we see good opportunity, particularly coming in the next year and bringing further growth on the carrier program. Many of you will remember about 3 years ago, we said we would take those capabilities and position into the submarine program. We initially won some business on to the Virginia-class carriers. That has expanded on to 2 or 3 subsystems. And in the last 12 months, we're very pleased that our track record of performance in Maritime Systems has led to us winning business on the Columbia-class submarine. So we have strong performance with the carriers moving on to Virginia. We've now moved on to Colombia, and we see that -- we see steady but good long-term growth coming on a multiyear basis and then moving into surface fleet programs as well. So that's the second driver. Third one is around Advanced Sensors. This is from our prior MTEQ capability where we have some really good advanced R&D and next-generation sensors. What might be a small win in the half was winning a Phase 0 contract on a program called FALCONS. This is the next generation of really long-range IR sensor for the U.S. Army. It's potentially a very large program of record in the U.S. We've got a very novel and clever design, and we're delivering that Phase 0 program and looking at key strategic partnerships of how we will position ourselves to win. That's a multiyear opportunity. And the last really is the broader franchise opportunity that I discussed around persistent surveillance, which is TARS, [ TAS ] and the domestic growth that we expect on that and then our focus on the wider international expansion. Those really are a bit more color in the growth of those 4 areas. Any more questions? Any questions online from anyone? Operator: There are no questions coming through from our conference call. I'd like to turn the conference back to Steve Wadey for any additional or closing remarks. Please go ahead. Steve Wadey: There's one more opportunity in the room. Okay. Well, thank you very much for your time. We'll both be hanging around if anybody in the room would like to follow up with any additional questions. Thank you.
Operator: Good morning, everyone, and thank you for participating in today's conference call to discuss Sow Good Inc.'s financial results for the third quarter ended September 30, 2025. Joining us today are Sow Good Inc.'s co-founder and CEO, Claudia Goldfarb, and Chief Financial Officer, Donna Guy. Following their remarks, we will open the call for analyst questions. Before we go further, I would like to turn the call over to Mr. Cody Slach as he presents the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead. Cody Slach: Good morning, everyone, and thank you for joining us in today's conference call to discuss Sow Good Inc.'s financial results for the third quarter ended September 30, 2025. Certain statements made during this call are forward-looking statements, including those concerning our financial outlook, our competitive landscape, market opportunities, and the impact of the global economic environment on our business. These statements are based on currently available information and assumptions, and we undertake no duty to update this information except as required by law. These statements are also subject to a number of risks and uncertainties, including those highlighted in today's earnings release and our filings with the SEC. Additional information concerning these statements and the risks and uncertainties associated with them is highlighted in today's earnings release and in our filings with the SEC. Copies are available on the SEC's website or on our investor relations website. Furthermore, we will discuss adjusted EBITDA, a non-GAAP financial measure, on today's call. A reconciliation of adjusted EBITDA to net income or loss, the nearest comparable non-GAAP financial measure discussed on today's call, is available in our earnings press release at our Investor Relations website. With that, I will turn the call over to Claudia. Claudia Goldfarb: Good morning, everyone, and thank you for joining us today. Q3 2025 was a quarter of steady progress and operational strengthening as we continue positioning Sow Good Inc. for long-term sustainable growth. Over the past several months, we have made strategic decisions to align our cost structure with current demand, streamline operations, and enhance efficiency across every part of the business. These initiatives have simplified our footprint, reduced fixed costs, and reinforced our foundation for scalability. While our results reflect a transitional period, they also highlight the meaningful strides we have made toward becoming a leaner, stronger, and more agile company. One that is well prepared to capture the opportunities ahead. We completed lease amendments on our Mockingbird and Rock Quarry facilities, resulting in more than $5 million in annualized rent savings while maintaining full production capacity through automation and improved workflow design. We have completely vacated our Mockingbird facility, reducing our footprint by over 50,000 square feet and delivering immediate cost savings. In addition, we will fully vacate our Rock Quarry facility by January, which will further reduce our footprint by more than 320,000 square feet. Together, these consolidations represent a major step forward in optimizing our operations, driving efficiency, eliminating redundant costs, and positioning us for long-term scalability. We also implemented payroll efficiencies that lowered monthly costs by approximately $40,000 while still preserving our consistent quality and innovation. Together, these actions have strengthened our path toward profitability and positioned Sow Good Inc. to scale efficiently as new growth initiatives come online. Importantly, the operational groundwork we have laid in 2025 provides a direct bridge to a return to profitability in 2026, positioning us to leverage increased capacity, broaden retail reach, and expand into new high-margin product categories. Beyond our operational progress, in March 2026, we are launching two new SKUs with a national retailer in our branded displays that will also feature 10 more of our top SKUs. Our international distribution partners remain excited with our performance and are substantially expanding influencer marketing and retailer marketing partnerships for 2026 to continue supporting the Sow Good Inc. brand. We also reached an exciting milestone in our retail strategy, securing our first private label partnership with a 100-store national retailer for our new caramel crunch SKU, with shipments beginning in 2026. Caramel crunch will be our first fully vertically integrated product, made with no artificial dyes, flavors, or preservatives, and produced using our proprietary long-cycle freeze-drying process. It features real caramel made in-house from scratch with naturally derived colors and flavors, aligning perfectly with the industry-wide movement toward cleaner, simpler ingredient decks. This innovation not only strengthens our leadership in the clean snacking space but also opens the door to a wider range of retail opportunities as buyers increasingly prioritize clean label confectionery products. It reflects where the market is headed and where Sow Good Inc. excels. At the same time, we are seeing a slowdown in traditional SKUs that mirror the broader category softening, while growth and retailer demand are shifting toward our new innovative SKUs, particularly those featuring proprietary textures, novel flavors, and clean ingredients. This shift reinforces our commitment to continuous innovation and to leading the next generation of freeze-dried snacking. Furthermore, we are engaged in ongoing discussions with several national retailers regarding additional private label opportunities, including potential expansion into freeze-dried yogurt melts and other innovative product formats. While these conversations are still early, they demonstrate the growing interest in Sow Good Inc.'s manufacturing capabilities, innovation expertise, product quality, and vertically integrated platform. As the freeze-dried category continues to mature, Sow Good Inc. remains an innovation leader, combining unmatched product quality with proprietary technology and vertical integration that sets us apart in taste, texture, and efficiency. Finally, to support our working capital needs, we have received commitments for additional capital, with insiders personally committing $1 million. This continued insider support underscores our leadership's confidence in Sow Good Inc.'s strategy, execution, and long-term potential. With that, I will turn it over to Donna to walk through the financials. Donna Guy: Thank you, Claudia. It is a pleasure to be here with all of you today. Diving into our financial performance for the third quarter, revenue in 2025 was $1.6 million compared to $36 million for the same period in 2024. The decrease is primarily due to lower average selling prices associated with the closeout of discontinued SKUs. Gross loss for 2025 was $8.9 million compared to a gross profit of $600,000 for the same period in 2024. Gross margin was negative 576% in 2025, compared to 16% in the year-ago period. The decline is primarily attributable to approximately $8.5 million in non-cash charges to inventory associated with discontinued SKUs as the company executes its strategy to streamline its product portfolio and focus on its more innovative upcoming offerings. Operating expenses in 2025 were $3.7 million compared to $3.8 million for the same period in 2024. A year-over-year improvement in operating expenses was driven by lower payroll costs and professional fees as we continue to optimize operations. Net loss in 2025 was $10.9 million or negative 90¢ per diluted share compared to a net loss of $3.4 million or negative 33¢ per diluted share for the prior year period. The decrease was largely attributable to lower revenues coupled with non-cash inventory reserve charges, partially offset by a non-cash gain of $1.7 million upon the exit of two leases. Adjusted EBITDA in 2025 was negative $10.9 million compared to negative $1.9 million for the same period in 2024. The decreased adjusted EBITDA is predominantly due to inventory charges previously mentioned, partially offset by increased non-cash compensation. Moving to the balance sheet, we ended the quarter with cash and cash equivalents of $387,300, compared to $3.7 million as of December 31, 2024. We ended the quarter with a stronger and more efficient cost structure. The actions we have taken to streamline operations, lower fixed costs, and optimize payroll are setting the stage for better leverage as demand grows. Our systems are stable, retail momentum is building, and we are seeing encouraging progress in new product categories. As we close out the year, we are focused on driving growth with discipline and maintaining the financial rigor that is now embedded in how we operate. This concludes my prepared remarks. I will now turn the call back to Claudia. Claudia Goldfarb: Thank you, Donna. Sow Good Inc. is entering the next phase of its growth journey with strong operational discipline and a focused path toward returning to profitability. The foundational work we have completed has made us more efficient, more resilient, and better positioned for sustained profitability. Our focus remains clear and consistent: optimizing our cost structure and conserving cash, expanding retail distribution and private label partnerships, and executing with discipline to deliver long-term growth and a return to profitability. With our facility consolidations and payroll optimization now complete, we are moving into 2026 leaner, focused, and ready to scale profitably. Our private label expansion, beginning with the caramel crunch and the potential addition of yogurt melts, represents a powerful opportunity to diversify revenue while deepening relationships with key national retailers. We also expect the actions we have taken, combined with automation, SKU rationalization, and vertical integration, to drive gradual margin improvement beginning in mid-2026, further supporting our path to profitability. In parallel, we are advancing a number of forward-looking strategic initiatives, including digital asset and partnership strategies designed to strengthen our balance sheet, diversify our funding base, and enhance long-term shareholder value. These initiatives reflect our ongoing commitment to innovation not just in product development, but also in how we think about capital formation, value creation, and financial resilience. We are actively meeting with a range of partners and advisers to explore opportunities that can help unlock new sources of liquidity, improve capital efficiency, and position Sow Good Inc. at the forefront of responsible financial innovation. We are approaching these discussions with discipline, prudence, and a clear focus on shareholder alignment, ensuring that any steps we take are accretive, transparent, and supportive of our long-term strategy. The level of engagement and interest we are seeing reinforces our belief that Sow Good Inc.'s next chapter has the potential to be both transformative and value-driven. As we head into 2026, we do so with optimism and confidence. Sow Good Inc. is leaner, more agile, and more efficient, and better aligned for sustainable growth, supported by exceptional retail partnerships, category-defining innovation, and a culture built on excellence. The work we have done this year positions us to translate operational progress into financial performance, and we are committed to delivering measurable results that drive shareholder value in 2026 and beyond. We appreciate the continued trust and support of our shareholders, partners, and team members, and we look forward to sharing our progress in the months ahead. Operator, we will now open the call for Q&A. Operator: Thank you, ma'am. As a reminder, to ask a question, please press 1 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. And our first question comes from Peter Thomas Sidoti with Sidoti and Company. You may proceed. Peter Thomas Sidoti: Hi, Claudia. Just some quick questions. Please, can you provide any more details on the financial commitments that you have in hand at this point? Claudia Goldfarb: So it is $1 million, and it is me and Ira. Peter Thomas Sidoti: I got that. Alright. Yeah. What do you think your current cash burn is on a monthly basis at this point? Claudia Goldfarb: It is going to decrease pretty significantly after January. Once Rock Quarry comes off. So, you know, this $1 million gives us the runway we need to put into effect the private label. Some of the DAP strategies that we are looking at, so we feel comfortable that this will get us through, you know, the short term. Peter Thomas Sidoti: Okay. And is this $1 million coming in as equity debt? Or it is not formal yet at this point? Claudia Goldfarb: It is not formal yet at this point. It should be within the next week. Alright. Good luck. And thank you. Eric Des Lauriers: So on revenue, when do you think you need to do revenue to break even at this point? Or after January? Claudia Goldfarb: That is a really good question. A lot of it is going to depend on the yield and throughput for the caramel crunch SKU. And so, you know, I think that we are going to have much more visibility as to what our breakeven point is going to be, you know, probably starting March or April. Okay. But right now, you know, we are getting our cost down significantly to where we are probably going to be at about a $4.50 to $5.50 range on a monthly expense. Eric Des Lauriers: That is great. And the caramel coat crunch business, are the economics very similar to your other products, or is it higher volume growth? Claudia Goldfarb: Very similar. So the advantage to the caramel crunch, and I think that in the later half of the year, we will start seeing improved margins on the caramel crunch as we just start fine-tuning the manufacturing process. Because it is super exciting. We are making it from scratch. And so, you know, we just expect to see some raw material savings in that and just really good margins once we get fully operational. Eric Des Lauriers: Okay. And one last question, though. Get off the phone. I know you have expanded your sales effort quite a bit. Can you talk about how effective that has been and how happy you are with the results so far? Claudia Goldfarb: Sorry. I missed the first part of that piece. You have expanded your sales effort. Eric Des Lauriers: The sales team there. Claudia Goldfarb: Yes. You know, I think that they have done a great job in a very trying time. Right. You know? And I think that we are seeing that in, you know, the private label space. Landing this customer was definitely a big deal, and it is going to be a significant achievement, you know, for next year. ACE, Orgill, you know, expanding to non-retail environments. I think it just really speaks to their dedication and determination to find, you know, great retail partners for us. So Right. We I am very happy with the work they have done. You know, we are looking at private label yogurt melts and other opportunities in adjacent categories. And so they are grinding it out. And so you know. Eric Des Lauriers: Okay. It sounds like everybody is grinding it out. So well, I appreciate it. Thank you very much, Claudia. Claudia Goldfarb: Thanks, Peter. Operator: Thank you. And as a reminder, to ask a question, please press 11 on your telephone. One moment for questions. And at this time, this concludes our question and session. I would now like to turn the call back over to Claudia for any closing remarks. Claudia Goldfarb: Thank you, everyone, for your continued support. We are entering 2026 leaner, more efficient, and well-positioned for sustainable growth that we really believe will set the stage for a return to profitability next year. We remain disciplined and energized and committed and want to thank you again for joining us, and we really look forward to updating you on our progress in the quarters ahead. Eric Des Lauriers: Thank you. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning and welcome to Spire's Fiscal 2025 Year End Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist followed by 0. Please note this event is being recorded. I would now like to turn the conference over to Megan McPhail, Managing Director, Investor. Please go ahead. Megan L. McPhail: Good morning, and welcome to Spire's fiscal 2025 year-end earnings call. On the call with me today is Scott Doyle, President and CEO, and Adam Woodard, Executive Vice President and CFO. We issued an earnings news release this morning, and you may access it on our website at spireenergy.com under newsroom. There is a slide presentation that accompanies our webcast that can be downloaded from our website under Investors, then Events and Presentations. Before we begin, let me cover our safe harbor statement and use of non-GAAP earnings measures. Today's call, including responses to questions, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although our forward-looking statements are based on reasonable assumptions, there are various uncertainties and risk factors that may cause future performance or results to be different than those anticipated. These risks and uncertainties are outlined in our quarterly and annual filings with the SEC. In our comments, we will be discussing non-GAAP measures used by management when evaluating our performance and results of operations. Explanations and reconciliations of these measures to their GAAP counterparts are contained in both our news release and slide presentation. Now here's Scott, who will start on page four of the presentation. Thanks, Megan, and good morning, everyone. Scott Edward Doyle: Thank you for joining us for Spire's year-end fiscal 2025 update. We appreciate your continued interest and support as we review our financial results, discuss recent developments, and share our outlook for 2026 and beyond. I am incredibly proud of what we accomplished during the year to advance our strategic goals both operationally and financially. We made significant progress towards setting Spire up for long-term success. This includes the pending acquisition of the Piedmont Natural Gas Tennessee business from Duke, which I will provide an update on in a moment. We had a great year, and none of this would be possible without our 3,500 dedicated employees. I want to thank them for everything they do for our customers and the communities we serve. The commitment and hard work of our employees are the heart of these strong results and the opportunities ahead. We are continuing to build a strong leadership team, and I am delighted to welcome Steve Greenlee, our new Executive Vice President and Chief Operating Officer. Steve has over 25 years of utility operations experience and will oversee our gas utilities in addition to our midstream segment. We are excited about the expertise and collaborative leadership style Steve adds to our team. I am confident that he will play a key role as we continue to advance our strategy. Turning now to our fiscal 2025 results. Adjusted EPS came in at $4.44, up 7.5% from $4.13 in fiscal 2024, reflecting growth across all segments driven by infrastructure investments. In fiscal 2025, we invested $922 million, with close to 90% being spent at the utilities, enhancing the reliability and safety of our systems for our customers. On the regulatory front, we are pleased to reach a positive settlement and outcome in the Missouri rate case, and new rates were effective in October. In Alabama, we are currently in the rate stabilization and equalization or RSE rate setting process and are working closely with the key stakeholders to update rates. We remain focused on achieving consistent and constructive regulatory outcomes in all of our jurisdictions, leading to a more sustainable financial performance trajectory. Despite significant critical investments in our systems, customer rate increases over the past several years in both Missouri and Alabama have been in line with the rate of inflation, reinforcing our commitment to affordability. Natural gas remains the most affordable energy source for heating, water heating, and cooking. Across our service territories, electricity is two to three times more expensive than natural gas. In Missouri, new legislation passed establishing a future test year as the rate setting model. This legislation is the result of collaboration among numerous stakeholders across the state. The new forward-looking approach will allow natural gas and water utilities to set rates based on projected costs rather than historical expenses, enabling prudent planning, attractive investments in energy infrastructure, and fueling economic growth statewide. The bill's passage marks a major milestone, and we are grateful for the support that helps strengthen Missouri's regulatory framework for both utilities and their customers. This morning, we issued fiscal 2026 adjusted EPS guidance in the range of $5.25 to $5.45. This range excludes the results of the pending acquisition of the Piedmont, Tennessee business and includes a full year of earnings related to our natural gas storage facilities. Today, we are also providing fiscal 2027 earnings per share guidance of $5.65 to $5.85, which reflects a full year of expected earnings contribution from the Piedmont, Tennessee business and excludes earnings from Spire Storage due to the expected sale of the assets. Our long-term adjusted EPS growth guidance is 5% to 7% using the fiscal 2027 guidance midpoint of $5.75 as a base. Our ten-year capital plan, including expected capital needs in Tennessee, totals $11.2 billion, demonstrating confidence in the long-term fundamentals of our business. I am pleased to say that the Spire Board of Directors approved a dividend increase of 5.1%, bringing the annualized rate to $3.30 per share. Spire has continuously paid a cash dividend since 1946. 2026 will mark the 23rd consecutive year that the dividend has increased. As you can see on Slide five, we checked all of the boxes on our fiscal 2025 key business priorities and more. It was a year of strong execution, and we are committed to delivering strong results in fiscal 2026 and beyond. With a solid foundation, we are confident in our ability to deliver sustainable value for our customers, communities, and shareholders in the years ahead. Let's turn now to Slide six for an update on our pending acquisition of the Piedmont, Tennessee business, which remains on track to close in 2026. We completed the Hart-Scott-Rodino review in September, marking an important milestone in the approval process. We recently received approval from FERC for the transfer of Piedmont, Tennessee's gas supply contracts. Tennessee Public Utility Commission approval is pending, and we continue to work closely with the commission. Turning to our financing plan, we are pursuing a permanent capital structure that is consistent with Spire's current credit ratings. Our approach remains largely the same and includes a balanced mix of debt, equity, and hybrid securities, ensuring we maintain financial flexibility and strength. We expect a minimal amount of Spire common shares to be issued as a percentage of total financing, and we have launched a process evaluating the sale of our gas storage facilities as potential sources of funds. We are targeting calendar year-end for the completion of this evaluation process. Transition planning for the acquisition is well underway. A seamless transition for both customers and employees is our top priority. We are led by an experienced integration team and have an 18-month transition service agreement to provide continuity of support once closed. We are making solid progress on all fronts—regulatory, financial, and operational—and are excited about the opportunities this acquisition brings. We are committed to delivering value to our customers, employees, and shareholders as we move forward. Turning to slide seven. With the addition of Tennessee, Spire will operate across states with constructive regulatory frameworks and minimal regulatory lag. This strengthens our ability to deliver consistent and balanced growth across our utility businesses, improving diversification and stability of earnings. Importantly, each jurisdiction is supported by recovery mechanisms that encourage investment in critical infrastructure. Looking ahead, by fiscal year 2030, we expect our total rate base and capitalization to grow to $10.7 billion from an estimated $8.2 billion at the end of fiscal 2026, driven by our robust capital plan. Our long-term adjusted EPS growth target is supported by compound annual rate base growth in Missouri of about 7% and compound annual growth in Tennessee of approximately 7.5%. We also expect 6% regulated equity growth in Alabama and Gulf. As a reminder, under the RSE mechanism in Alabama, we earn on regulated common equity rather than rate base, which is expected to outpace the total capitalization growth rate. Now I will turn the call over to Adam for a financial review and update on guidance and outlook. Adam? Adam W. Woodard: Thanks, Scott, and good morning, everyone. Let's review our fiscal 2025 results and our guidance for 2026 and beyond. In fiscal 2025, we reported adjusted earnings of $275.5 million or $4.44 per share compared to $247.4 million or $4.13 per share in the prior year. These results included a fourth-quarter adjusted loss of $24 million or $0.47 per share, reflecting the seasonality of our businesses. In the quarter, adjusted earnings were $3.5 million or $0.07 per share above last year but fell below our expectations due to higher utility O&M expense. Looking at the full fiscal year for our business segments, gas utilities earned $231 million, up almost 5% or over $10 million from last year, as ISRS recovery in Missouri and new rates in Alabama were partially offset by slightly lower usage in Alabama, higher O&M, and depreciation expense. Usage net of weather mitigation in Missouri was comparable in fiscal 2025 to the prior year. Midstream delivered earnings of $56 million, up almost $23 million from last year, driven by additional capacity and asset optimization at Spire Storage, partially offset by higher operating costs from higher activity and scale. Gas Marketing earned $26 million, an increase of $2.5 million, reflecting the business being well-positioned to create value. This was partially offset by higher storage and transportation fees. Finally, other corporate costs were $38 million, nearly $8 million higher than the prior year. This reflects the absence of the prior year benefit of an interest rate hedge and higher interest expense in the current year. Turning to Slide 10 and our updated capital plan, which includes the anticipated Tennessee spend. Our latest five-year investment plan totals $4.8 billion from fiscal 2026 through fiscal 2030, and we project a ten-year capital plan of $11.2 billion. The majority of this investment, 70%, is dedicated to safety and reliability, highlighting our commitment to upgrading distribution infrastructure and ensuring the integrity of our systems. Another 19% supports customer expansion and new business connections, helping us to safely deliver reliable and affordable natural gas to more homes and businesses. As a reminder, almost all of our ten-year capital expenditure plan is targeted towards utility investments, and we expect to recover a significant portion through forward test year rate making, true-up mechanisms, or other constructive regulatory tools, helping balance infrastructure investment with customer affordability. Turning now to our growth outlook on Slide 11. As Scott mentioned, we are reaffirming our long-term adjusted earnings per share growth target of 5% to 7%, anchored on the midpoint of our fiscal 2027 guidance range of $5.75 per share. This growth is supported by expected rate base growth of approximately 7% in Missouri, 7.5% in Tennessee, in addition to 6% equity growth at Alabama Utilities. This also reflects timely recovery of investments across all of our jurisdictions. For fiscal 2026, we have issued an adjusted EPS guidance range of $5.25 to $5.45 per share. At the midpoint, that represents over 20% growth from our 2025 results, driven by the rate case outcome in Missouri. This range excludes the pending acquisition of the Piedmont, Tennessee business but does include a full year of anticipated earnings from our gas storage facilities. We will revise our earnings expectations if the outcome of the storage asset sale evaluation materially affects our outlook. Looking ahead to fiscal 2027, our adjusted EPS guidance range is $5.65 to $5.85, which incorporates a full year of earnings from Piedmont, Tennessee, and excludes storage facilities due to the expected sale of the assets. At the midpoint, that is 7.5% growth over the 2026 guidance midpoint and nearly 10% compounded annual growth from our prior long-term base of $4.35 in fiscal 2024. Scott Edward Doyle: This strong growth is driven by execution on infrastructure investment, constructive regulatory outcomes, and the strategic acquisition of Piedmont, Tennessee to expand our gas utility business. Turning to our business segment guidance on slide 12. We anticipate our gas utilities will generate between $285 million and $315 million next year due to the combined impact of new Missouri rates effective October 24 and anticipated ISRS revenues from a filing expected later this month. New rates in Alabama and Gulf under the RSC mechanism are also expected to benefit earnings beginning in December. Partially offsetting these favorable items, we are targeting O&M expense to increase below the rate of inflation in addition to higher depreciation and interest expense. Turning to gas marketing. We anticipate adjusted earnings of $19 million to $23 million, reflecting expectations on our current market conditions. Midstream adjusted earnings are projected to range between $42 million and $48 million in fiscal 2026, including a full year of storage and pipeline operations. Within the storage business, we expect to realize the full benefit of the Spire Storage West expansion. Offsetting this are higher operating costs, increased interest, and depreciation expense in addition to a decline in year-over-year optimization-related earnings. We anticipate the midstream business mix to be 65% storage and 35% pipeline during fiscal 2026. I would like to note that FERC approved our request to merge the STL and Mogas pipeline with the merger targeted for completion by January 1, 2026. Finally, Corporate and Other is anticipated to be in the range of negative $31 million to negative $37 million, an improvement from last year's loss of $38 million, primarily driven by lower interest expense resulting from reduced long-term debt rates. We have updated our three-year financing plan for our base business as outlined on Slide 13. The plan does not include financing related to the pending acquisition of the Piedmont, Tennessee business, which we expect to update along with the conclusion of the storage asset sale evaluation. Our equity needs through fiscal 2028 are minimal and are expected to be managed through our ATM program. Turning to the long-term debt needs. For our current base business, our three-year financing plan assumes refinancing of maturities and incremental debt of approximately $625 million. This includes the $200 million of first mortgage bonds issued by Spire Missouri last month. We continue to target FFO to debt of 15% to 16%, providing 300 basis points of cushion above our S&P and Moody's published downgrade thresholds of 12-13%, respectively. With that, let me turn it back over to you, Scott. Thanks, Adam. As we look ahead to fiscal 2026, our priorities are clear and aligned with Spire's commitment to operational excellence, regulatory engagement, financial discipline, and strategic growth. First and foremost, we remain focused on safely delivering reliable natural gas service to our customers. We are executing on our capital plan for the year, targeting safety and long-term infrastructure resilience while maintaining customer affordability through disciplined cost management. On the regulatory front, we are working toward constructive outcomes across all of our jurisdictions. A key step will be preparing to file a future test year rate case in Missouri to ensure timely cost recovery and support ongoing investments. From a financial perspective, we are committed to delivering on our fiscal 2026 adjusted EPS guidance of $5.25 to $5.45 while maintaining a strong balance sheet that supports both our growth strategy and long-term shareholder value. Finally, we are making significant progress with the acquisition of the Piedmont, Tennessee business. Our focus is on financing and closing the transaction, which includes completing the evaluation of the sale of our natural gas storage assets. We remain laser-focused on ensuring a seamless integration for customers and employees. Together, these priorities position Spire to deliver strong operational and financial performance and sustainable long-term growth. We are confident in our path forward and energized by the opportunities ahead. Thank you for your continued support and interest in Spire. We will now take your questions. Operator: We will now begin the question and answer session. The first question comes from Julien Dumoulin-Smith with Jefferies. Please go ahead. Paul Zimbardo: Hi, good morning team. It's Paul Zimbardo on for Julian. How are you? Hey, Hi, good morning. Thank you for the update. The first question I have is just if you could give a little bit more details and color on the long-term growth rate. And just really, are you expecting continued improvement in earned ROEs within that path? And just any commentary you can share on how to think about gas marketing midstream growth in that profile as well? Scott Edward Doyle: Yes, sure. This is Scott. So clearly we provided two years of guidance on this call. And the primary reason for that is there's a lot of things happening within the business over the next twelve months in this fiscal year. And then using 2027 as perhaps a cleaner year based on the assumptions that we provided in the prepared remarks. So to the point when we think about earned returns within the utility coming out of the Missouri rate case, there's a step up associated with that as we've brought capital into base rates from an extended period over the last several years, capital that had not passed through our ISRS mechanism. And so when we think about earned returns in the utility, particularly in Missouri, we're getting closer to our allowed returns in Missouri. We'll file another case in Missouri in the fall of next year and we'll need to prosecute that case. That case will be based on a future year. But the outcome of that case is not going to be reflected in the FY '27 time period. So when you think about the guide that we're looking at for FY 2027, the earned returns in Missouri will be a little less than what they are in 6% when we think about Alabama, the earned returns are close to or allowed. As we have a forward-looking mechanism there that works annually and we're currently in the process of having it reviewed right now. Marketing and midstream. So as we think about the guide, clearly all of midstream is in the guide for the year. But as we said on the call, we pulled storage out for FY 2027. And then marketing, as you know, we rebase every year and it's not part of our growth story. When we think about how it supports the overall growth picture or at least the guide for 5% to 7%. Paul Zimbardo: Great. So it does sound like you would expect using that '27 base some tailwinds on earned ROE based on that cadence you described, if that's fair? Megan L. McPhail: Yes. Yes. Paul Zimbardo: That's correct. Okay. Megan L. McPhail: Okay. Paul Zimbardo: Great. Then any additional detail on the FFO to debt target, the 15%, 16%? Just how does that also evolve if we use a 2027 kind of jumping-off point? Where in that range do you expect to be? And how does that trend over time? Thank you. Scott Edward Doyle: Yes. Paul, as we've talked, we're at the bottom of the threshold ranges now. But that's a lot of that is premised on just getting back into the right recovery path for Missouri. And so we see a pretty steady movement up into the middle of the threshold bands, both Moody's and S&P going forward, really premised on the recoveries in Missouri. But we're also taking, I think, a very deliberate financing tact with Tennessee to make sure that that is also credit positive as well. Indeed. Yes. Okay. Thank you. That makes sense. Paul Zimbardo: Appreciate it. Megan L. McPhail: Thanks, Paul. Operator: The next question is from Gabe Moreen with Mizuho. Please go ahead. Gabe Moreen: Hey, good morning everybody. I just wanted to ask a question on the financing mix and timing. Adam, has anything shifted in your mind, I guess, since you announced the acquisition, just kind of your latest thoughts? You mentioned the minimal common equity issuance. Just maybe latest thoughts on the financing mix and timing. Adam W. Woodard: Yes, no big update. We continue to feel confident about taking a very balanced mix of debt and equity. Obviously, we're taking on these assets debt-free. So we need to recapitalize rate base at Tennessee. So you can expect that. And then we obviously, part of that is our evaluation of the storage business and more to come there. We don't have an announcement there, but those are terrific assets and we are seeing quite a bit of interest there. But we will be making an announcement at some point in the not too distant future. Gabe Moreen: Gotcha. Thanks, Adam. I appreciate that. And then maybe if I can ask just on your O&M assumptions kind of going forward, it seems like 2026 you're below and aiming to stick below inflation. Does that stick for the rest of the plan? And I guess, just have an overarching basis with the interaction or sorry. The integration planning going on between the utilities any best practices or major initiatives that you think you'd share between the two that would, I guess, keep a lid on O&M? Scott Edward Doyle: Gabe, this is Scott. Great question. Yes, O&M, our guide for this year is to be below the rate of inflation. And historically, that's been our guide year over year, and that would be actually our performance this year was below the rate of inflation. When you think about the integration activities, we're in the very early stages, but that is our theme as we step into the integration activities. Anytime we go through these, we look to best practices across both organizations. And as those that know us or have followed our story for a long time, we have been through this before. And, when we do that, we find things that others do well. We want to make sure we incorporate that into our go-forward business. So we'll have more to talk about that as we get a little further into the integration planning and start working more closely with the assets themselves once we close. Megan L. McPhail: Thanks, Scott. Operator: The next question is from Paul Fremont with Ladenburg. Please go ahead. Paul Fremont: Thanks. I guess my first question is, with the future test year rate adjustment taking place in 2028, could 2028 be a year that falls outside of that 5% to 7% range? Scott Edward Doyle: Given the fact that you'll be further potentially narrowing your under-earning in Missouri. Yeah. Hey, Paul, it's Scott. Maybe Adam and I will both tag team this. I think a couple of things to think about when you pivot to future test year, we're going to bring forward some capital into that process. And so we'll have to get through the process before we know what that will be as well, but within the range of what we're providing, we're basing that based on what we know right now and the best guess that we have. Yeah. We don't get too far ahead of rate making. I think given that that's another couple of years out. But I think your implication, Paul, of a more fully earned ROE is usually the implication around future test year. So we don't want to get ahead of that, but we would expect certainly some improvement there. Paul Fremont: And it sounds to me like you're more confident about your decision to sell storage. I think, on the last call, you know, you had indicated that would depend on levels of interest. I assume the levels of interest are strong enough that you now feel that it will be sold. Scott Edward Doyle: You know, Paul, we're still in the evaluation process. As I mentioned earlier, we do have seen quite a bit of interest and strong interest in the assets, but more to come there. We'll make an announcement once we get to a conclusion of that process. Paul Fremont: Great. And you're expecting to make an announcement one way or another between now and the end of the year, right? Adam W. Woodard: Yes, we're targeting by the end of the calendar year. Paul Fremont: And then just going back to sort of your original comments, if you were to sell the storage, the remaining sort of balance of equity and debt, has that changed since your last call? Adam W. Woodard: Well, that certainly figures into the mix of financing. So that we will, I think, once we get to the point of an announcement, we would shed some more light on that. Paul Fremont: Okay. And last question, can you be more specific in terms of, in other words, if you're not issuing straight equity, what else would sort of fall into the category of fulfilling your equity needs? Adam W. Woodard: I mean, there are certainly other securities that we would have access to markets to that would provide equity-like coverage there, whether those are equity-linked securities, hybrids, or what have you, but there are some other options there. Paul Fremont: And junior subordinated debt, is that included as well? Adam W. Woodard: Yeah. I'm using that sign, you know, along with high. That would use that terminology with the hybrid. Yeah. Paul Fremont: Got it. Okay. That's it for me. Congratulations. Scott Edward Doyle: Thanks, Paul. Thanks, Paul. Operator: The next question is from Alex Kania with BTIG. Please go ahead. Alex Kania: Good morning. Thanks for taking my question. Just would you mind reminding me again, just on the within midstream, just the rough split? I think it was one-third, two-thirds on, you know, kind of pipelines versus storage. And would that be earnings or would it be EBITDA as well as fair? Scott Edward Doyle: Yeah. It's one-third pipeline, two-thirds storage, is kind of the split. And depending on which way you cut the data, it's about the same. So whether it's EBITDA or earnings, about the same. Alex Kania: Great. Thanks. And then, maybe, you know, maybe we're just taking kind of a step too far down that path of an asset sale. But just if there was a decision to move forward with the sale, would that be big enough to sort of change your kind of long-term balance sheet targets, thresholds, and things like that as you look forward? Scott Edward Doyle: You know, given the unregulated assets? Yes. I mean, too early to comment. That's part of the evaluation process. There'll be more as we announce the conclusion of the evaluation process. Alex Kania: Okay, great. Thanks. And my last question just is on the transition to the Ford test here in Missouri. You know, do you anticipate, or I guess, do you think that all parties are sort of on the same page in terms of how the process is going to look as they kind of think about the rate making kind of a slightly different paradigm as it's been in the past? Is there any education that needs to be done or any twists that we should be kind of aware of leading up to the filing? Scott Edward Doyle: Yes. No. I think you're spot on. It's a case of first impression. And so, all the parties are going to need to work together in order to understand both what the filing requirements would be and how to prosecute inside that paradigm. And so all parties will work together. That's historically how it's worked here. And so we look forward to that process and going through it together. Alex Kania: Great. Thanks very much. Adam W. Woodard: Thanks, Alex. Operator: The next question is from Selman Akyol with Stifel. Please go ahead. Selman Akyol: Thank you. Good morning. Two quick ones for me. Maybe you're at the higher end of your growth range. And so could you remind us just in terms of how you think about the dividend in terms of payout ratios and sort of growth going forward? Adam W. Woodard: Yes. Hi, Selman, it's Adam. We would continue to expect the dividend to grow basically at our earnings growth rate. And we do target the kind of the common payout ratio for utilities in that 55% to 65% range. Selman Akyol: Very good. And then also as you think about your sort of long-term capital needs and you gave a ten-year sort of outlook. Can you just remind us in terms of how much equity you're thinking about that for overall? Adam W. Woodard: Yes. So we did refresh our financing needs in this, and you can find that at the back of, I think, the earnings deck. But we really continue to see a minimal amount of equity per year that some of that as some additional support for the utility CapEx program, but when I say minimal, it's kind of in that $0 to $50 million range. So not anything particularly significant. Selman Akyol: Alright. Thank you very much. Scott Edward Doyle: Thank you, Selman. Operator: This concludes our question and answer session. I would like to turn the conference back over to Megan McPhail for any closing remarks. Megan L. McPhail: Thank you for joining us this morning. We look forward to speaking with many of you in the coming weeks ahead. Have a good day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, thank you for standing by. Welcome to the LM Funding America, Inc. Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Cody Fletcher. Please go ahead, sir. Cody Fletcher: Thank you, operator, and thank you all for joining LM Funding America's third quarter 2025 earnings conference call. Joining us today are Chairman and CEO, Bruce Martin Rodgers, President of US Digital Mining Ryan H. Duran, and CFO, Richard D. Russell. For today's call, we have uploaded an accompanying supplemental investor presentation which can be found under the events section of LM Funding's investor relations website. Before we get started, please note that our remarks today may include forward-looking statements. These statements are subject to risks and uncertainties, and actual results may differ materially. We will also reference certain non-GAAP financial measures today. Please refer to our 10-Q filing and our website for a full reconciliation of these non-GAAP performance measures for the most comparable GAAP measures. For a more comprehensive discussion of these and other risks, please refer to our filings with the SEC, available on sec.gov in the investors section of our website at lmfunding.com/investors. I'll now turn the call over to our CEO, Bruce Martin Rodgers. Bruce Martin Rodgers: Thanks, Cody. Good morning, everyone, and thank you for joining us. The third quarter was one of execution, integration, and disciplined capital allocation as we continued building LM Funding America, Inc. into a vertically integrated Bitcoin miner with a simple ambition: increase Bitcoin per share and grow intrinsic value over time. We entered the quarter with momentum from our Oklahoma site and growing Bitcoin treasury. As summer progressed, we added meaningful scale and strengthened our foundation. In August, we bolstered our balance sheet with $21 million of capital designated primarily for Bitcoin accumulation. We quickly deployed a large portion of those proceeds to purchase 164 Bitcoin, accelerating our treasury growth. Just weeks later, we closed on the acquisition of an 11-megawatt facility in Columbus, Mississippi, bringing our total capacity to 26 megawatts across two wholly controlled sites. This move expanded our operational base, our power and climate exposure, and gave us full control of energy and uptime across a second location. By September, we had integrated and energized additional capacity and exited the month with approximately 304.5 Bitcoin in treasury, valued at nearly $35 million, versus a market capitalization of roughly half that amount. That disconnect between our treasury value alone and our equity valuation underscores what we are working toward. Then in October, we advanced two core priorities simultaneously. We enhanced our per-share economics and positioned our mining fleet to improve productivity. In a private securities repurchase, we retired more than 3.3 million shares and over 7.3 million warrants in a single transaction, reducing dilution, simplifying our capital structure, and increasing our Bitcoin per share. Subsequently, in early November, we announced a $1 million stock buyback, further committing our resources to increasing Bitcoin per share. During the same quarter, we secured Bitmain S21 immersion cool machines to grow our immersion systems at our Oklahoma site. We expect these machines to come online in December. Importantly, October is also our first full month with Mississippi operating at steady state, and the results validate our strategy. Bitcoin production increased 28% sequentially, rising from 5.9 Bitcoin in September to 7.6 Bitcoin in October. Taken together, Q3 and October were about strengthening control of our energy, expanding our mining footprint, growing our treasury, and reducing our share count, all in service of improving Bitcoin ownership on a per-share basis. We strongly believe in Bitcoin as a growth asset and built our company to take advantage of Bitcoin's growth and long-term value proposition. We find inexpensive power machines to add to our Bitcoin holdings, and we are active in the capital markets trying to increase our total Bitcoins held and our Bitcoins per share. It's a long game, and it starts with sound mining operations. With that, let me turn it over to Ryan H. Duran for an operational update. Ryan H. Duran: Thanks, Bruce. Operationally, the last four months were about turning owned infrastructure into accelerating hash power and building an asset base that compounds efficiency over time. We moved from a single-site facility at roughly 0.48 exahash in June to exiting October with roughly 0.71 exahash energized, plus additional growth coming online in December, representing roughly 50% hash rate in one build cycle. That growth came from owning and controlling our power, upgrading fleet mix, and integrating our second site at Mississippi. The acquisition added roughly 7.5 megawatts of energized capacity and approximately 230 petahash of installed hash rate at an attractive 3.6¢ per kilowatt-hour power cost, giving us a second low-cost self-managed facility and a diversified operating base. Equally important, we quickly integrated Mississippi, and the site immediately started contributing to our mining operations. When we reached our first full month of steady-state operation in October, total production of the company increased, as Bruce mentioned, 27% month over month from 5.9 Bitcoin to 7.6 Bitcoin. This gain reflects not only expanded capacity but also the compounding benefits of tighter operational control, optimized firmware, refined curtailment and power sales scheduling, and more efficient fleet deployment in warmer months. We now operate approximately 6,700 machines across the fleet and additional units staged for deployment behind immersion. Our energized hash rate held stable through high heat periods, supported by curtailment and energy sales that directly improve our margins. We position the fleet for stronger winter uptime when performance conditions naturally improve. Looking forward, we are entering our next efficiency phase. We secured Bitmain S21 immersion-cooled units that will add roughly 70 petahash of compute power to our Oklahoma site and are scheduled to energize in December. This upgrade is meaningful. Immersion cooling improves heat transfer, reduces thermal strain, tightens fan load overhead, and increases uptime, especially during seasonal peaks. Combined with the S21's efficiency profile, this gives us a step change in efficiency and should meaningfully increase Bitcoin per megawatt at the site. This is the same philosophy that guided our site acquisition: combine owned power with modern generation hardware and operate it with discipline. We now operate a cleaner, more efficient, and fully controlled mining platform, improving uptime and next-gen hardware and emerging coming online. The foundation is built. From here, the focus is simple: increase production, efficiency, and Bitcoin per share. With that, I'll turn it over to Richard D. Russell to walk through the financials. Richard D. Russell: Thanks, Ryan. For the third quarter, revenue was $2.2 million, up approximately 13% sequentially and 74% year over year. The sequential increase reflects stronger average Bitcoin pricing of $114,000 and contributions from the newly operational Mississippi facility for September. Mining margins improved to 49%, driven by a shift from hosting fees to self-mining, utilizing our curtailment and energy sales to offset mining expenses and higher fleet efficiency. Curtailment in energy sales totaled $152,000, down from $223,000 in Q2 due to cooler seasonal temperatures. We reported a net loss of $3.7 million and a core EBITDA loss of $1.4 million, both driven by increased staff costs and payroll expenses. Following quarter-end, we executed a substantial balance sheet and equity enhancement initiative, completing an $8 million private repurchase of around 3.3 million shares and 7.3 million warrants, financed for our $11 million Galax facility secured by Bitcoin. This transaction removed a large warrant overhang and materially reduced the share count, improving per-share economics and shareholder alignment. We paired that with a newly authorized $1.5 million public share repurchase program, which gives us flexibility to act opportunistically when our value trades meaningfully below our Bitcoin holdings and infrastructure value. In terms of our balance sheet, at quarter-end, LM Funding held cash and cash equivalents of $300,000 and 304 Bitcoin valued at $34.7 million, nearly double our market cap, while our equity was $50 million, nearly three times our market cap. As of October 31, our Bitcoin treasury stood at approximately 295 Bitcoin valued at roughly $31.9 million or $2.60 per share compared to a stock price near $1.07 on 12.2 million shares. Our liquidity, treasury, and credit capacity give us flexibility to support operations, growth, and continued share repurchases while limiting dilution and preserving long-term value for shareholders. The numbers tell a clear story: expanding hash rate and improving operating leverage, disciplined cost control, and a balance sheet and cap table built to improve per-share value over time. Bruce Martin Rodgers: Thanks, Rick. Our focus remains clear: increase Bitcoin per share, expand owned infrastructure, and close the gap between intrinsic value and market value. We built a vertically integrated platform that gives us operational control, cost efficiency, and treasury leverage. With Mississippi fully online, Oklahoma adding immersion, and Bitmain S21 machines coming online in December, we are entering a phase where scale, efficiency, and productivity converge. From a capital strategy standpoint, we will continue to balance Bitcoin accumulation, strategic investment, and opportunistic share repurchases that we will use only when it strengthens the balance sheet without sacrificing per-share value. We have no interest in growing for growth's sake. We are interested in growing per-share Bitcoin and per-share intrinsic value. We believe deeply in the long-term value of Bitcoin. We believe just as deeply in the long-term value of LM Funding America, Inc. Every action we take, every machine deployment, every site decision, every capital move, is designed to improve per-share ownership, per-share cash flow, and per-share Bitcoin. We like the path we are on, and we like the structure we have built. LM Funding is one of the few micro-cap miners with active invested management. We have built this business to endure volatility and to scale into the next cycle. Our focus is to keep executing methodically, patiently, and with conviction. Thank you for your continued support. We'll now open the line for questions. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment, please. Our first question is going to come from the line of Matthew Galinko with Maxim Group. Your line is open. Please go ahead. Matthew Galinko: Hey, good morning, guys. Thanks for taking my question. Congrats on all the progress over the last few months. With your mining infrastructure pretty radically different from where it was entering '25, I'm curious if you could maybe give us some thoughts on how you think about your path in '26 as far as the Bitcoin mining infrastructure and equipment go? Bruce Martin Rodgers: Sure. The Mississippi acquisition has worked really, really well. First off, it's doing what it was supposed to. And then secondly, Greene's left behind some low-hanging fruit. And they did some things to grow there that they didn't take advantage of that we are now kind of slipping into. And so we've got a nice runway there that we didn't. So I look for more growth there and on the magnitude of what we've achieved this year. It seems foreseeable. So that's there. Oklahoma, we're adding the two immersion machines in there. We'll have that thing built out pretty soon. And then it just starts paying for itself and making money after that. That is going to be a long-term Bitcoin mining site. Even the energy pricing there. And this is Rick. We also have the ability to expand in Mississippi by an additional four megawatts. Matthew Galinko: Got it. Okay. So if I read between the lines there, it sounds like you're not necessarily pursuing or close on any additional site acquisitions or that something you're still exploring, but just nothing appealing at this point? Bruce Martin Rodgers: We always have people exploring site acquisitions when we do it based on where the energy tariffs are, and then we look for property that goes with those energy tariffs. Matthew Galinko: Got it. And last question for me, and I'll jump back in the queue. Just with the perspective that you have the mandate now to maximize your Bitcoin per share, how do you think about allocating between mining business and directly acquiring additional Bitcoin? Bruce Martin Rodgers: We always say you have to take a dollar and decide whether the price of Bitcoin, the price of the infrastructure, etcetera. And then it's a target of where in the future you want that to pay off. And so we kind of play a long game five years on that. Looking at what do we think the price of Bitcoin is. And that means you don't necessarily make a dollar-to-dollar decision based on the current circumstances. You have to make it on a pro forma basis. Which makes it a little more black magic. I get it. But it's a long game. So growing the mining helps pay the bills, and it has the potential to be accretive to the overall treasury strategy. And then the treasury strategy is a balance between your equities market and the Bitcoin market. Operator: Thank you. And we'll move on to our next question. Our next question comes from the line of Kevin Dede with HCW. Your line is open. Please go ahead. Sky Moore: Hello, Melissa. This is Sky Moore calling for Kevin Dede. Thanks for taking my call. I've got two questions for y'all. The first is going to be with about 15% of your old machines in storage as reported in the company's October update. Are you guys managing your fleet of these machines going forward? Bruce Martin Rodgers: Ryan, do you want to handle that? Ryan. Sorry. Hey, Sky. Ryan H. Duran: A second to get off mute there. So yeah. Those machines are kind of sitting in the wings. As we've hit on, we do have build-out capacity available already immediately at Mississippi. And as Bruce already alluded to as well, we're exploring other opportunities, and we feel strongly that having those machines in the wings is a great way to quickly deploy once that power becomes available. And then as we're doing in Oklahoma, we kind of set our roots in and then, you know, upgrade the fleet from there. So that's generally our strategy. Sky Moore: Awesome. Thanks for that. My final question is, you know, you mentioned more efficient machines being placed at your current sites. Could you guys provide a current cost of mining one Bitcoin or perhaps a range of mining one Bitcoin? Richard D. Russell: Yeah. This is Rick. Our current mining costs right now for Bitcoin for this most recent quarter was $66,000. Last quarter, it was, like, $70,000. So we've been able to reduce by direct mine cost quarter over quarter. Sky Moore: Awesome. Thank you so much for taking my questions, and I look forward to speaking with you guys next earnings. Operator: Thank you. This will conclude today's question and answer session. Ladies and gentlemen, this will also conclude today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.
Operator: Good day, and welcome to the Creative Media & Community Trust Corporation Third Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Steve Altebrando, Portfolio Oversight. Please go ahead. Hello, everyone, and thank you for joining us. Steve Altebrando: My name is Steve Altebrando, the portfolio oversight for Creative Media & Community Trust Corporation. Also on the call today are David A. Thompson, our Chief Executive Officer, and Barry Neil Berlin, our Chief Financial Officer. This call is being webcast and will be temporarily archived on the Investor Relations section of our website, where you can also find our earnings release. Our earnings release includes a reconciliation of non-GAAP financial measures discussed during today's call. During this call, we will make forward-looking statements. Forward-looking statements are based on the beliefs of assumptions made by, and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and other factors that are beyond our control or ability to predict. Although we believe our assumptions are reasonable, they are not guarantees of future performance and some will prove to be incorrect. Therefore, actual future results can be expected to differ from our expectations. Those differences may be material. For a more detailed description of potential risks, please refer to our SEC file which can be found in the Investor Relations section of our website. With that, I'll turn the call over to David A. Thompson. David A. Thompson: Thanks, Steve, and thank you to everyone for joining our call today. I'll begin with an update on the progress we're making with our strategic initiatives and then review our results for the quarter. As a reminder, our key priorities remain focused on two main goals: strengthening our liquidity and our balance sheet and growing our multifamily business. To advance these objectives, which we first outlined last September, we've been executing a significant refinancing program and evaluating selective asset sales. Earlier this week, we announced that we have entered into a definitive agreement to sell our lending business. This business is primarily focused on originating SBA seven loans for limited service hotels and it was considered a non-core asset for the company. As of September 30, the purchase price was estimated to be approximately $44 million and yield the company about $31 million after repayment of debt transaction and other expenses. The transaction remains subject to Small Business Administration approval as well as certain closing conditions. At the same time, we continue to make meaningful progress on our refinancing initiatives. Since last September, we completed financings on seven assets and put in place a warehouse facility for our lending division. This facility will be retired at the close of our sale transaction. We are also working on an upsize of our mortgage up on Penfield, our creative office asset in Austin. After closing this financing earlier this year, we signed a lease with an investment-grade tenant, which should allow us to upsize the loan. We're now finalizing the loan documents with the lender. Taken together, these actions were important steps for the company. They provided proceeds that allowed us to significantly reduce our recourse debt, including the full retirement of our $169 million recourse credit facility earlier this year. They also supported our growth initiatives, including lease-up activity at our Beverly Hills, Culver City, Brentwood, San Francisco, and Austin properties. We completed renovations at our hotel asset and new loan originations in our lending business enabled us to continue paying preferred dividends. Overall, we're encouraged by the progress we've made in improving liquidity. We are working to position the company to benefit from a recovering commercial real estate market, which is supported by lower interest rates, a significant uptick in office leasing activity, and improving economic conditions in the San Francisco Bay Area. Turning to third-quarter results, our core FFO was negative $10.5 million, reflecting several items that impacted performance during the quarter. Our overall net operating income was $7 million compared to $9.8 million in the prior quarter. Within our office segment, NOI declined by approximately $500,000 from the second quarter, largely due to lower appraised value at one of our JVs. NOI modestly increased at our wholly-owned properties. Hotel NOI was $850,000 in the quarter compared to $4.2 million in the second quarter, primarily reflecting disruption from our renovation of the public space. Q3 is also a seasonally slower quarter for the hotel. Multifamily NOI increased by approximately $600,000 from the prior quarter. Improvement was primarily due to a lower appraisal at one of our JVs that impacted Q3 results as well as a decrease in real estate tax expense at our consolidated properties in Q3. And finally, NOI from our lending segment increased by approximately $360,000, primarily due to a higher reserve taken in the second quarter. Looking ahead, we see opportunities to improve cash flow in 2026, supported by several key drivers. Continued improvement in office leasing activity, the full completion of renovations at our hotel asset, and steady gains in multifamily performance through higher rental rates, improved occupancy, and delivery of new units. We also expect to benefit from a more favorable interest rate environment. Before I turn the call over to Steve to provide more detail on the portfolio, I want to take a minute to thank Barry Neil Berlin for his years of service. As part of the sale of our lending division, Barry will be stepping down as CFO in order to join the acquirer of the lending business. Brandon Hill will assume the role of CFO once the transaction is closed. Brandon has been intimately involved in Creative Media & Community Trust Corporation for years, and we expect a seamless transition. Steve? Steve Altebrando: Thanks, David. We remain focused on improving property-level performance across all segments and growing our premier newer vintage multifamily portfolio. This continues to be a key growth area for us. Including our joint ventures, we now have four operating assets: 1150 Clay and Channel House in the Bay Area, and 701 South Hudson and 1902 Park Avenue in Los Angeles. We are making steady progress on the lease-up of 701 South Hudson, the residential portion of our partial office-to-residential conversion completed late last year. Multifamily occupancy at the property was approximately 81% at the end of the third quarter, up from 68% at the end of the second quarter. As a reminder, the top two floors of the building were converted into 68 high-end residential units, while the Ground Floor creative office component known as 4,750 remains 100% leased. As mentioned on our prior calls, we believe there's an opportunity to develop additional units on the back surface lot of the property given recent zoning changes, and we continue to make progress on those plans. Our fifth project, 1915 Park in Los Angeles, will deliver this month. This 36-unit ground-up multifamily development is a joint venture with an international pension fund and is located adjacent to our office building at 1910 West Sunset in Echo Park, a highly desirable walkable submarket with attractive dining and entertainment options. In Oakland, we saw a modest improvement in total occupancy during the quarter. We believe our properties will benefit from limited new construction in the Oakland residential market, as well as the ongoing recovery across the broader Bay Area. In San Francisco, multifamily properties continue to improve with area vacancy at its lowest level since 2011. The third-quarter rent growth of 5.2% in San Francisco is the strongest year-over-year growth rate since 2015. In addition, in January 2026, Samuel Merritt is opening its new campus, which is located just steps from our class A multifamily asset at 1150 Clay. The new campus is expected to draw 2,000 students and 500 faculty members. We see meaningful opportunities to grow our multifamily net operating income through a combination of rising rents, increasing occupancy, lowering operating costs, and the delivery of our fifth asset this month. Turning to the office segment. Earlier this year, we noted that our leasing pipeline was very active, and that translated into very strong leasing activity. Through the first nine months of 2025, we executed 159,000 square feet of leases, a 69% increase compared to the same period last year. This follows 176,000 square feet of leasing activity in 2024. At the end of the third quarter, our office portfolio was 73.6% leased. Excluding our one Oakland office property, our lease percentage was 86.6%, which was up from 81.7% at the end of 2024. Importantly, we believe the headwinds from COVID are largely behind us, and we're now beginning to see the benefits of return-to-office trends, which are creating tailwinds for our portfolio. Turning to our hotel, we believe we're entering 2026 from a position of strength following a couple of years of renovation-related disruption. We're nearing completion of our $11 million renovation of the public space at the Sheraton Grand Sacramento. This project includes upgrades to the ballroom, banquet space, public space, and food and beverage areas. The renovation was funded through a combination of $8 million of key money received as part of the extension of our management agreement with Marriott, cash flow from the property, and future funding on the mortgage. As a reminder, we also renovated all 505 guest rooms last year. With that, I'll turn the call over to Barry, who will provide an update on our financial results. Thank you, Steve. Good morning. Barry Neil Berlin: I'm going to spend a few minutes going over the comparative year-over-year financial highlights for 2025 versus 2024, starting with our segment NOI, which was $7 million in 2025 compared to $7.6 million in the prior year comparable period. Broken down by segment, the decrease of approximately $600,000 was driven by decreases of $400,000 for our office properties, $174,000 from our lending business, and $123,000 from our hotel property. Partially offset by an increase of $284,000 from our multifamily properties. Our office segment NOI for Q3 2025 was $5 million versus $5.4 million during Q3 2024. The decrease was primarily driven by a decrease in NOI at an office property in Los Angeles, California, and at an office property in San Francisco, California, attributable to lower rental revenues resulting from a decline in occupancy, as well as NOI at an office property in Austin, Texas, as a result of higher real estate taxes. Our lending division NOI was $314,000 compared to $688,000 in the prior year comparable period, primarily due to a decrease in interest income as a result of loan payoffs and lower interest rates, partially offset by a decrease in interest expense resulting from net loan paydowns and a decrease in additions to current expected credit losses. Our hotel segment NOI for Q3 2025 was $850,000 compared to $1 million in the prior year comparable period. The decrease was driven by a decrease in food and beverage sale revenues, partially offset by an increase in room revenue. Operations at our hotel property were negatively impacted by our lobby renovation project during Q3 2025, and our room renovation project during Q3 2024. Our multifamily segment NOI was $792,000 during Q3 2025 compared to $508,000 from the prior year comparable period. The increase was primarily driven by reductions in real estate taxes at our multifamily properties in Oakland, California, during 2025. Partially offset by a decrease in revenues at our multifamily properties in Oakland, California, as a result of declines in occupancy and monthly rent per occupied unit net of rent concessions compared to the prior year comparable period. Below the segment NOI line, we had an increase in depreciation and amortization expense of $922,000 due to incremental increases to the depreciable asset base at our hotel property following our renovation projects, as well as an increase in interest expense of $782,000 driven by higher aggregate debt outstanding. Our FFO was negative $11.1 million, negative $14.75 per diluted share, compared to negative $28.4 million in the prior year comparable period. The positive results in our FFO were primarily driven by decreases in redeemable preferred stock redemption expense of $16.1 million and through a reduction in redeemable preferred stock dividends of $2.7 million. Partially offset by the previously discussed decrease in total segment NOI and the increase in interest expense. Our core FFO was negative $10.5 million or negative $13.96 per diluted share compared to negative $11.5 million in the prior year comparable period. This increase in core FFO is attributable to the previously discussed reductions in redeemable preferred stock dividend offset by the decrease in segment NOI and higher interest expense. Core FFO calculations reconciliation items to determine FFO, that relate to preferred stock redemptions, transaction-related costs, and deemed dividends. I would like to conclude by thanking David A. Thompson for his guidance over my roles with Creative Media & Community Trust Corporation since becoming public in 2014. More importantly, as my mentor for my roles in CIM, since then. Thank you, David. And while I am very excited to be following the lending division over to its new home, and I'm looking forward to helping its ownership grow and expand its horizons in the lending arena. I will truly miss the interaction with the ownership and executive management team at CIM that has supported me in my roles with the firm. And lastly, to the amazing teams that I've had the pleasure to work with and that have made my job easier. That includes Brandon Hill, who was on the call today, who has guided the financial oversight for Creative Media & Community Trust Corporation since before I took the CFO position and who has patiently awaited his opportunity to take on the job of CFO. He is well suited to take on the role, and I congratulate him on being provided this opportunity. With that, we could open the line for questions. Operator: We will now begin the question and answer session. To join the queue, please press star and then two. It appears there are no questions. I would like to conclude the conference. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the Edible Garden AG Incorporated 2025 third quarter business update conference call. At this time, all participants are in a listen-only mode. The floor will be open for questions following the presentation. If anyone should require operator assistance during the conference, please note this conference is being recorded. I will now turn the conference over to your host, Ted Ayvas, Investor Relations, Crexendo Communications. Ted, the floor is yours. Ted Ayvas: Thanks, Jenny. Good morning, and thank you for joining Edible Garden AG Incorporated's third quarter 2025 Earnings Conference Call and Business Update. On the call with us today are Jim Kras, Chief Executive Officer of Edible Garden AG Incorporated, and Kostas Dafoulas, Interim Chief Financial Officer of Edible Garden AG Incorporated. Earlier this morning, the company announced its operating results for the three months ended September 30, 2025. The press release is posted on the company's website, www.ediblegarden.com. In addition, the company has filed its quarterly report on Form 10-Q with the US Securities and Exchange Commission, which can also be accessed on the company's website as well as the SEC's website at www.sec.gov. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. Before Mr. Kras reviews the company's operating results for the quarter ended September 30, 2025, and provides a business update, we would like to remind everyone that this conference call may contain forward-looking statements. All statements other than statements of historical facts contained in this conference call, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations are forward-looking statements. The words aim, anticipate, believe, could, may, plan, project, strategy, will, and the negative of such terms, in other words, and terms of similar expressions, are intended to identify forward-looking statements. These forward-looking statements are based largely on the company's current expectations and projections about future events and trends that it believes may affect financial condition, results of operations, strategy, short-term and long-term business operations, and objectives, and financial needs. These forward-looking statements are subject to several risks, uncertainties, and assumptions as described in the company's filings with the SEC, including the company's annual report on Form 10-K for the year ended December 31, 2024. Because of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this conference call may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although the company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, level of activity, performance, or achievements. In addition, neither the company nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The company disclaims any duty to update any of these forward-looking statements except as required by law. All forward-looking statements attributable to the company are expressly qualified in their entirety by these cautionary statements as well as others made on this conference call. You should evaluate all forward-looking statements made by the company in the context of these risks and uncertainties. With that said, I'd now like to turn the call over to Mr. Jim Kras, Chief Executive Officer of Edible Garden AG Incorporated. Jim? Jim Kras: Thanks, Ted. Good morning, and thank you to everyone for joining us today. The third quarter marked an important step forward for Edible Garden AG Incorporated as we continued executing our strategic evolution towards a CEA-informed consumer packaged goods (CPG) model. In Q3, traditionally our seasonally softest period, we delivered a 9% year-over-year revenue increase, underscoring our strategic growth driven by our product realignment focus on nonperishable product expansion, and the resilience of our higher-value branded portfolio. This growth was driven by key initiatives, the continued expansion of our retail footprint, strong performance from our shelf-stable portfolio, and the early benefits of our operational realignment following the natural shrimp asset acquisition. Together, these actions reinforce our progress in repositioning Edible Garden AG Incorporated as a next-generation sustainable food company that combines innovation, brand strength, and operational efficiency. Building on our heritage in fresh herbs and produce, where sustainability, traceability, and freshness define our brand, we've expanded into categories with stronger margins and greater scalability. Our CPG products, including clean label and functional offerings, extend the Edible Garden AG Incorporated brand beyond fresh produce into shelf-stable products that meet consumer demand for better-for-you plant-based nutrition. During the quarter, we continued to expand our retail footprint, launching our USDA organic fresh herb line at Kroger and introducing Edible Garden AG Incorporated branded herbs at The Fresh Market. We also strengthened our Midwest presence through partnerships with Pete's Fresh Market and Angelo Caputo's Fresh Markets. Internationally, we expanded our reach through key partners, including PriceSmart and Amazon. Collectively, these relationships underscore the growing appeal of the Edible Garden AG Incorporated brand and the momentum of our expanding global platform. Demand for better-for-you CPG products continues to accelerate, creating a powerful tailwind for our business. Globally, the functional food and beverage market is projected to expand from approximately $400 billion to $610 billion by 2030, according to Virtue Market Research. In the US, sales of natural, organic, and functional products are expected to reach $386 million by 2028, according to the Nutrition Business Journal. These trends reinforce the strength of our strategy and highlight the significant opportunity ahead for Edible Garden AG Incorporated as we align our product portfolio with these macro trends. Our CPG portfolio continues to be an important driver of growth, anchored by brands such as Kick Sports Nutrition, Pickle Party, Pulp, and Vitamin Whey. These brands represent a key pillar of our transformation into a diversified, innovation-driven CPG company and highlight the versatility of Edible Garden AG Incorporated's platform. Kick Sports Nutrition continues to build momentum with a clean, better-for-you performance line designed for athletes and active consumers seeking natural energy and recovery solutions. The brand is gaining meaningful traction across both online and retail channels, supported by rising consumer interest in plant-forward performance nutrition. Earlier this year, Kick entered a major Midwest big-box retailer, expanding its brick-and-mortar presence while growing its online footprint to broaden awareness and engagement. By leveraging our expertise in clean functional ingredients, Kick delivers products that combine taste, convenience, and nutritional value—attributes that resonate strongly with the fast-growing health and wellness segment. Vitamin Whey, our protein and supplement line, complements Kick by addressing the broader market for functional nutrition. Pickle Party highlights the engaging, flavor-forward side of our CPG strategy, offering a line of fresh fermented pickles and sauerkraut crafted with clean label, non-GMO ingredients, and natural fermentation. The brand combines bold, craveable flavors with a focus on gut health and sustainability, striking a balance between indulgence and wellness. Its distinctive identity as both fun and functional continues to resonate with younger consumers and health-conscious shoppers seeking better-for-you alternatives in the condiment aisle. Finally, Pulp, our line of organic refrigerated fermented hot sauces, continues to expand through new retail placements and regional growth. The brand has gained meaningful traction through rollouts at Target and Meijer and most recently at ShopRite, further broadening its reach and consumer visibility. Pulp brings culinary innovation to the forefront of the Edible Garden AG Incorporated portfolio, offering bold, clean label condiments that reflect our commitment to flavor, sustainability, and the better-for-you principles driving today's consumer demand. Collectively, these brands showcase how we're leveraging our expertise in sustainability, flavor, and functional nutrition to build a high-margin, scalable portfolio that extends the Edible Garden AG Incorporated brand far beyond fresh produce and positions us to capture meaningful share in the growing clean label CPG market. Turning to our produce business, we remain a trusted provider of sustainably grown herbs and leafy greens. Our new organic program with Kroger is gaining traction, while our presence at The Fresh Market and established retail partners, including Pete's Market and Angelo Caputo's Fresh Markets, continues to broaden retail penetration and increase brand visibility across key markets. Operationally, we've strengthened our platform for growth through enhanced efficiency and scalability. Innovation and sustainability remain central to our strategy, guided by our zero-waste-inspired approach. We're pursuing new categories, including nutraceuticals, sustainable proteins, and functional foods that align with our commitment to health, flavor, and environmental responsibility. As we move into the fourth quarter and beyond, we believe that Edible Garden AG Incorporated is positioned for continued growth. Our focus remains on disciplined execution, expanding retail partnerships, and advancing product innovation to build long-term shareholder value. I'm extremely proud of our team; their dedication and commitment to quality, sustainability, and innovation have been instrumental in driving our progress and momentum heading into year-end. With that, I'll turn the call over to Kostas Dafoulas, our Interim CFO, who will review the financial results for the quarter ended September 30, 2025. Kostas? Kostas Dafoulas: Thanks, Jim, and good morning, everyone. Revenue for the quarter increased 9% to $2.8 million compared to $2.6 million in 2024. With our strategic exit from the floral and lettuce categories now complete, this quarter reflects the strength and resilience of our repositioned portfolio. The growth of $200,000 or 9% was primarily driven by strong performance across our shelf-stable product portfolio, including Kick Sports Nutrition, Vitamin Whey, Pulp, and Pickle Party. Within our core herb portfolio, we saw strength in hydro basil, specifically, this portfolio grew 54% year over year in Q3, up 21% year over year, and wheatgrass, up 59% year over year. Gross profit totaled approximately $300,000 compared to $700,000 in the prior year quarter, reflecting higher labor, freight, and raw material costs as well as inflationary pressures within the nutraceutical supply chain. Selling, general, and administrative expenses were $3.8 million compared to $2.2 million in the same period last year, primarily due to expenses related to the asset pursuits from natural shrimp and the associated depreciation, legal, audit, and accounting expenses. Net loss was $4 million compared to a net loss of $2.1 million in 2024. We ended the quarter with $800,000 in cash and equivalents compared to $3.5 million at year-end 2024. Furthermore, the company refinanced its outstanding debt, securing a lower interest rate and more favorable terms. This refinancing is expected to reduce annual interest expense and reduce financing cash outflows, providing greater flexibility to support the company's strategic initiatives and growth objectives. We continue to manage working capital with discipline, optimizing inventory turnover through improved production planning and distribution efficiency. At the same time, we are diversifying our sources of liquidity at a lower cost of capital to ensure that we have the flexibility to act decisively on strategic opportunities as they arise. With that, I'll open the call for any questions. Thank you very much. We are now opening the floor for questions. Operator: If you would like to ask a question, please press 1 on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press 2 if you would like to remove your question from the queue. For anyone using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please wait a moment while we poll for questions. Our first question is coming from Anthony V. Vendetti of The Maxim Group. Anthony, your line is live. Anthony V. Vendetti: Thank you. Just in terms of the natural shrimp facility that you acquired, can you talk about the build-out of that? How you intend to utilize that initially, and then over the next six to twelve months? And then what specific product lines will be going in there? Any color on that would be helpful. Thanks. Jim Kras: Sure, Anthony. Good morning. How are you? Thanks for being on the call. Well, first of all, it's an impressive facility. So we're gonna be 6.2 acres. It's about an hour from Des Moines airport. It's right there in the center of the country and gives us access to all types of different raw materials and whatnot to do all types of products, some of which we've already started. Our near-term plan is, the facility is going through a gap analysis right now with a third party. We will be doing some R&D for next-generation products. Whether they're nutraceuticals or food is sort of in the works right now. We have some major opportunities with our retailers. One of the great things about Edible Garden AG Incorporated, and there are many, is that we have significant relationships with major retailers. Being on trend with the type of products that we're offering, clean labeled, fermented, all those products that we are currently pushing out are only growing in demand as people are focusing on having less processed products. Walmart, for example, just came out and said, within the last month, that they're mandating their suppliers of their private label to remove all artificial colors and dyes and sweeteners from their products. Something Edible Garden AG Incorporated has been doing for the last year and then some. The fact that we are growers, and we grow the actual raw ingredients, plants that go into many of these products, and can harvest some of the therapeutics without additives and without artificial dyes or colors or things that just aren't really needed. That trend, we're at the forefront. We're being asked by major companies to come in, work on their private label products. Many of which I think will go into Harlan. I think it will be an incredible nutritional hub and sustainability hub in that part of the country. We couldn't be more excited. Timing and happenstance sometimes work to your advantage, and I think we're just at that intersection of having the ability, the right products at the right time. Now we're gonna have the right vertical integration to deliver on it. I couldn't be more excited. It's all come together quite well. A lot of it's really the team as well. I want to give the people that work with us quite a bit of credit because it's been a big effort here to not only tool up with the facilities that we currently have but to get focused, get efficient, let some of the business that we knew was a drag on the business kind of go, and bite the bullet the previous quarters a little bit. But we're back on track. Q4 is always a strong season for us, and we're excited about that. It looks great. We're in the heat of the battle right now with Thanksgiving, which is our Super Bowl. Once again, Kroger, Fresh Market, ShopRite, they're all coming to us not only for our branded product but some of these other innovative things that we're doing. I think Edible Garden Prairie Hills, which is what we named Iowa, will be at the forefront of driving that innovation and volume for us, frankly. Anthony V. Vendetti: Okay. So just to follow up, it sounds like the big grocery stores in particular are where the largest opportunity is. Would you say that's also the largest opportunity moving into '26? Jim Kras: It's the ShopRite's, the Kroger's, the Fresh Market. These bigger grocery chains where you see the most opportunity in 2026? Yes. I see our core business is that we're a business that has excelled in produce where many have failed. Whether established companies that have been around for quite some time or upstarts that came in sort of drafting us and spinning a similar story. We're one of the last standing, and we're accelerating the business. So, yes, what's happening is not only is it our produce business, it's the existing branded business that we have in there, whether it's Kick Sports Nutrition or Pickle Party. Then there's private label. We have a substantial private label business currently with key players like Meijer. We're getting asked to do more of the next-generation products from the likes of the big-box retailers coming to us and saying, alright. We love what you're doing. You're on trend. The current political environment is pushing for less processed foods. Research is coming back and saying as such, what can you do for us under our label? We like what you're doing. We can do some in your label, but a lot of it's being driven by these big-box retailers saying, hey. Private label is such a powerhouse now. What can you do to allow us to be in step with you with these innovations and have those offerings out on our shelves as quickly as possible? 2026 is gonna be a great year, and, yeah, it's gonna be driven by retailers coming to us and saying, hey. What can you do for us? Because we like what you're doing, and we want more of what you have. It's a great place to be, and it doesn't always happen. Timing is just on our side, and a lot of it's just driven by who we are and what we've been doing for the last decade. It might end up looking like overnight success, but, ultimately, it's been ten years in the works to get to this place. Anthony V. Vendetti: So on the margin side, Jim, so you know, sometimes private label is tougher to get a larger margin on, but if they're asking for the natural products, the ones with less additives, that's right in your wheelhouse, are you able to push back and say, look. We can do that for you. But those are higher-priced products. You know? And then maybe talk about the margin related to that as well as your Kick Sports Nutrition program, you know, the protein. How's that doing, and what do you see the outlook for that in '26? Jim Kras: So I think on the private label piece, yes, to a certain extent, I think you can. That's, you know, I think some of it's also sort of modulating the words that we use. Right? I think "commands" is a strong word. I don't think you know, I think when you're Edible Garden AG Incorporated, we're a smaller company that's nimble and can move quickly. I've always told my crew that we're a customer service company that makes things. I think that's boded well for us because we are quick to respond. I would tell you that I think there's an opportunity to have a fair margin, but what you're getting is volume. You're gonna get contracts, consistent volume. You're gonna have a relationship with major retailers that, like we have currently with some key retailers now that we're doing private label, where you build on. So, yes, there's the margin play, but there's the additional products. There's a deeper relationship, and it's long-term. Most private label relationships come with a contract and commitments to take a certain base amount of product. You can call it an off-take agreement. It's key, and it's key to the business. It gives us security that we can support the facilities. It also gives us visibility down the road for a long period of time that we know that as long as we don't do anything catastrophic to the business, or there's a black swan event, we are in business with a major retailer making something that has their label on it that's got upside. So, yeah, there is that pushback that will allow you to say, hey. You guys are getting this first. We're putting the focus of the company on this. But the idea is, you're gonna get all this. This is how you grow the business, frankly. Ideally, you have a blend. You have a blend of retailers, private label, and then you have, obviously, your branded products, and then maybe you even make stuff for other brands that can command a higher margin. That gives you a blended margin on the manufacturing. That's where we're going. With Iowa, with some of the new products that I can't disclose, but that we're gonna be putting in there that are gonna offer significant upside. I think you had another question regarding Kick Sports Nutrition. I don't know if I answered that or not. Anthony V. Vendetti: Yeah. So let's say you want guaranteed product availability of certain products that are private label that maybe aren't as high margin. But we'll provide that to you. But, you know, alongside that, you have to take our higher margin protein product even if you're using somebody else's, or you have to take some of our branded products as well. There's some of that leverage there? Jim Kras: Okay. Yeah. There's some of that. I mean, look. It's business. Right? It's not an exact science. It's in everybody's best interest to support, especially if you're a major retailer. I mean, pick one, and whoever it is, it could be CVS, I don't know, somebody who, let's say, we're doing our nutraceutical product, for example, for them. You know that it's usually a two or three-year contract, sometimes longer. We always want the longest ones possible. They realize it's in their best interest to support the company because it takes time to tool up. When you look at a facility like Iowa and the things that we're looking to do, that takes, and we've already started spending money on getting the place up and running last quarter, and we'll continue to get the place ready for prime time. These retailers understand it's in their best interest to put other products in, maybe your branded product or a higher margin private label that they know will help underwrite the higher volume, lower margin business that they want to compete in. Those are the type of strategic conversations that we're having at multiple major retailers. You're already starting to see some of that come to fruition, and you will see more as we move forward into 2026. So, yeah, there is that type of relationship. It's like anything else. You gotta have something that they want, you gotta work hard with them. There's a whole certification process, and their people come in and inspect everything. We've gotten pretty good at it, and we got a great crew. I couldn't be more excited. But yeah. So, yeah, that's definitely the way that it should go. Not everybody does that, but they should work with you understanding it's in their best interest to help give you some fuel to build out the business. You can't just rely on us to bring in our own capital. Some of that's gotta be cushioned with products that they know are established that they give to us that allow us to offset. Sorry that was so long-winded, but yeah. Yes. I guess there is that opportunity. Did I answer your Kick Sports Nutrition question, Anthony? I don't know if I did or not. Anthony V. Vendetti: Yeah. No. That was good. I'll hop back in the queue. Appreciate it. Jim Kras: Alright. Thank you, Anthony. Operator: Thank you very much. Just a reminder, if there are any further questions, you can still join the queue by pressing star one on your phone keypad now. Wait to see if anybody else jumps into the queue. Okay. I'm not seeing any further questions in the queue. So I will now hand back over to the management team for any closing comments. Jim Kras: Thanks again, everyone, for joining us today. The third quarter was another important step forward for Edible Garden AG Incorporated. We're executing our strategy with focus, expanding our retail reach, growing our higher-margin CPG brands, and strengthening our operations to support scalable, profitable growth. Momentum continues across Kick Sports Nutrition, Pickle Party, Pulp, and Vitamin Whey. These brands show that our approach is working and that consumers are responding to clean label, better-for-you products. At the same time, our core produce business remains strong, grounded in freshness, sustainability, and quality. As we approach year-end, our priorities are clear: continue executing at a high level, advance our innovation pipeline, and deliver lasting value for our shareholders. We're excited about where we're heading and look forward to sharing more of our progress in the months ahead. Thank you. Operator: Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day and a wonderful weekend. Thank you for your participation.
Mark Allan: Welcome to the presentation of Landsec's 2025 Half Year results. So we continue to see clear positive momentum across all parts of our business. Our primary focus is on delivering sustainable income and EPS growth, and we continue to do so effectively. I've been saying for some time that owning the right real estate has never been more important, and our performance over the past 6 months illustrates this yet again. Following our significant portfolio repositioning over recent years, our best-in-class office and major retail assets now make up over 90% of our income. And driven by the high quality of our market-leading platforms in both sectors, we have again delivered strong like-for-like net rental income growth and positive rental uplifts on relettings and renewals across both office and retail. We see no signs that the strong customer demand for high-quality space, which underpins this positive trend is abating. So this will remain the key driver of near-term income and EPS growth with further asset rotation and residential expected to enhance this over the longer term. As a result, we are raising both our near-term and medium-term EPS outlook, which means we are well placed to deliver material shareholder value as we move to higher income, higher income growth and lower cyclicality over time. To deliver our strategy, we set out 9 key objectives back in February, and we are on track or ahead of plan on each of these. In the near term, most of our EPS growth will be driven by our current platforms, the assets we own today. So that is what the first 5 objectives are built on. We continue to capture the growing reversionary potential in our office and retail portfolios and today raise our guidance for like-for-like income growth for this year to around 4% to 5%. We have also raised our overhead cost savings target, which now implies a saving of more than GBP 10 million against financial year '25 by next financial year. We are on track to deliver half of our 3-year target to reduce our capital employed in predevelopment assets by GBP 0.3 billion during year 1. And we have sold 1/3 of our retail and leisure parks, whilst we are seeing an increasing number of acquisition opportunities in major retail coming to the market over the next 12 to 18 months. Our 4 longer-term objectives are designed to ensure that in 3 to 5 years' time, our asset mix is such that we are still as confident about this outlook for income growth at that point as we are today. Again, progress on each is positive as we've sold nearly GBP 300 million of offices over 12 months ahead of plan. We set a clear expectation for our income growth in retail at our recent Capital Markets Day in September, and we have made good planning progress in residential. Still, as returns in retail continue to look most attractive, we do not plan any meaningful new development commitments over the next 12 to 18 months. And that means that our committed development exposure is set to come down to just GBP 200 million by mid-2026. And we expect this to remain meaningfully below the current GBP 1 billion level beyond that. Our sharper focus on sustainable EPS growth as our primary financial objective that we set out earlier this year is providing real clarity of focus and clarity in decision-making. And we're seeing the benefits of this across all parts of the business. Across the whole portfolio, we have driven 5.2% growth in like-for-like income, and our occupancy is now at a decade high. We have had a highly active half year in terms of shifting our portfolio mix with the sale of GBP 644 million of assets, which generated limited or no return, and we're expecting further capital recycling in the second half. Meanwhile, our capital base remains solid, supported by continued growth in rental values. And we are committed to further improve this as we now target net debt to EBITDA of below 7x within the next 2 years. That's down from a previous target of below 8x. All of this translated into a positive set of financial results for the half year. Our strong like-for-like income growth and continued overhead cost savings meant that EPS was up 3.2%, whilst our dividend is up 2.2%. NTA per share was down slightly at 1.3%, but principally driven by the sale of nearly GBP 650 million of low-returning assets that I mentioned earlier. Aside from the finance lease income on Queen Mansions, the impact on EPS from these disposals was broadly neutral and the cost to NTA about 1%. Our LTV is now 38.9%, and our net debt to EBITDA was up as expected, yet we expect this to come down to below 7x within the next 2 years as our current developments complete and lease up and future development exposure reduces, whilst we expect LTV to reduce to below 35% over time. Reflecting our positive performance, we raised our outlook for EPS growth for the full year and now expect this to be at the top end of our 2% to 4% guidance range. This is before the disposal of QAM, which turns the residual finance lease on the asset from a receipt of income across 2025 and '26 into an upfront capital receipt on completion of the sale next month. So although the amount of cash we receive is effectively the same, this reduces reported earnings for the year by GBP 7 million. In addition, we have also raised the outlook for our financial year '30 EPS potential from around 60p to 62p, and that's a 20% increase in our earnings growth objective. driven by higher growth in retail income, lower overhead costs and lower development. Any upside from our planned medium-term investment in residential only becomes meaningful beyond financial year '30. We'll continue to pursue opportunities to further improve on this, but this now implies a compound annual growth in earnings per share of 4% to 4.5%, adding further to our attractive existing income return. So now on to our operational review. Customers unquestionably remain focused on the best space in both office and retail. So driven by our high-quality operational platforms, our leasing performance remains market-leading and our relative outperformance against the wider market continues to widen. Our occupancy is up to a decade high as our portfolio is effectively full, which is driving growing competition for space. This, in turn, is driving up rental values. So rental uplifts are rising, principally in retail and like-for-like income growth is trending higher. Reflecting this, we now expect like-for-like net rental income to grow around 4% to 5% this year, up from our initial guidance of 3% to 4%. And this established trend remains a key driver for our near-term EPS growth. Turning to offices in more detail. We continue to see growth in utilization rates with turnstile tap-ins up 11% over the 3 months to October compared to the same period last year, even though TFL tube traffic was slightly down over the same period. Mirroring the experience we see across our own portfolio, the majority of active demand in the overall London market comes from businesses looking to increase space. So as the availability of high-quality office space in locations with the right transport connectivity and attractive amenities is limited, this continues to drive rents higher. And that is not just for brand-new developments, but also for existing high-quality assets. And we see the evidence of this in our 2.3 million square foot estate in Victoria, which is 100% full, and we are now achieving rents on existing buildings in line with what just 2 years ago were record rents for a new development. All this is reflected in another set of market-leading operational results. Our office occupancy is now nearly 99%, and that's significantly ahead of the overall London market at 92%. Like-for-like income was up 6.8% with uplifts on relettings and renewals of 6%. And we signed or in solicitors' hands on GBP 19 million of lettings on average 9% ahead of ERV. This drove 3.1% ERV growth over the 6 months, which is well on track against our guidance of broadly similar full year ERV growth to last year's 5%. As our portfolio is now effectively full, capturing this market growth in like-for-like income is increasingly a function of lease events and will therefore be more balanced over time than it has been over the past 6 months. Yet our growing reversionary potential continues to support a positive outlook for like-for-like rental growth from here. This positive customer demand extends to our near-term office completions. Over the next 9 months, we will see 4 new projects complete, including the repositioning of an existing asset to Myo flex office space and a small full purchase that we agreed back in 2021. Now in total, we expect these projects to generate around GBP 58 million of net effective, i.e., P&L rent once let with an associated incremental GBP 43 million of annualized interest expense. The outlook for FY '27 EPS is, of course, sensitive to the pace of lease-up of these schemes, but current engagement with prospective customers is encouraging as we have interest in the form of active negotiations, requests for proposals or live engagement equating to an excess of 100% of space across our nearest term completions. Now not all of that will translate into actual leasing, but in our FY '27 EPS outlook, we currently assume around 40% of the 2 main schemes to be let by the time they complete and for all space to be let around 12 months post completion. And we are comfortable that these assumptions reflect those current activity levels. In retail, brands continue to focus on the best locations as these provide the best access to consumer spend and the highest sales growth. As the chart on the left shows here, the top 1%, 60 of all U.K. shopping destinations capture some 30% of all in-store retail spend. And so this is where major brands focus their investment with, for example, around 90% of all Apple and Intertek stores in these locations. And it's also where close to 90% of our portfolio is focused. The quality of our assets and our platform is driving superior footfall, which in turn is driving substantially higher sales growth than the wider market. Indeed, whereas overall U.K. shopping center retailer sales have increased just 3% over the past few years, sales across our portfolio are up nearly 20%, and the gap in performance continues to widen. And this is why brands want to be in our locations. And as our portfolio is now nearly full, this is why rents continue to grow. And this is clearly reflected in our operational performance. Rental uplifts continue to trend higher, as shown here on the left, whilst occupancy is up 50 basis points year-on-year to almost 97%. This means that like-for-like income growth remains attractive at 5%, and we expect this to continue. We signed or in solicitors' hands on GBP 33 million of leases on average 10% above ERV, which drove 2.2% growth in ERVs over the 6 months, comfortably on track with our expectation of similar growth for the full year to last year's 4%. And as we set out at our Capital Markets event in Liverpool in September, the outlook for future income growth from retail is firmly positive. Building on the unique data and insights that our market-leading U.K. platform provides, we continue to invest in creating experience-led places. The growth in footfall and sales that this then creates continues to attract leading brands. So alongside enhancing our social eating, dining and leisure offer, this creates an environment and experience, which in turn attracts higher footfall, higher sales and so on. Our growth outlook is further enhanced by selective investment in highly accretive smaller CapEx projects. So combined with growing turnover income and commercialization income, this is what underpins our target to deliver between 4.5% and 7% compound annual growth in net rental income from our existing retail platform over the next 5 years. So turning now to capital allocation. We continue to prioritize our capital allocation decisions based on this clear framework. This looks at how our investment decisions contribute to income and EPS growth in the short term and how they shift our portfolio mix such that it can continue to deliver sustainable income and EPS growth for the longer term, underpinned at all times by our commitment to maintain a strong capital base. We continually monitor for any changes in risk and return prospects, but as things stand for the next 12 to 18 months, our priority is further investment into major retail destinations given the high income returns and attractive income growth on offer, funded by further rotation out of lower return assets, including London office assets as we have done over the past 6 months. And we do not plan to commit any meaningful capital to new development over that period, creating further investment capacity. Based on the clarity that this framework provides, we've had a very active period of capital recycling. Our largest disposal was Queen Anne's Mansions, an asset which generated 0 total return despite the high short-term income profile as the valuation depreciates in line with every rent receipt until the end of the lease. Aside from the impact of turning the residual finance lease income into an upfront capital receipt, as I mentioned earlier, this has essentially no impact on earnings and derisks the value of the site by transferring planning risk for a change of use to the buyer. We also sold 2 predevelopment assets, which generated a negative income return as well as 4 retail parks. Combined, these parks comprised around 1/3 of our portfolio of retail and leisure parks. And whilst they delivered a reasonable income return, income growth has been limited. All in all, this means we have sold nearly GBP 650 million of assets, which generated limited or no return in just 6 months. This came at a cost to NTA of 1% when comparing sales to March book values, but will enhance our future income and EPS growth prospects, a clear example of our decisions being guided by a focus on EPS growth. We expect to remain active in terms of capital recycling in the second half. Investor interest in London has picked up from its low point. So whilst we already are ahead of plan in terms of office disposals, this provides us with an opportunity to recycle further capital to fund accretive investment in retail, where we are seeing more opportunities come to market, although not all of those will be opportunities for us. We will, to some extent, be pragmatic on disposal values as our principal focus should be less on NTA per se and more on ensuring that the NTA delivers growing cash flow, growing earnings and growing dividends for our shareholders. So in that respect, the roughly 200 basis points positive yield spread between office and retail, coupled with the superior income growth prospects for the latter is meaningful, which is underlined by the excellent track record of the GBP 1 billion of retail acquisitions that we've made over the past few years, where in all cases, performance is tracking well ahead of our initial underwrite. We expect to see further opportunities like this to add to our market-leading platform. So this remains our key focus in the near term. So whilst we do have a number of development projects that we could start in the near future, we currently see more attractive risk-adjusted returns elsewhere. So we're not planning to commit any meaningful capital to this. In London, we very much see the potential for continued rental growth. But as I explained earlier, our existing portfolio is benefiting from this trend as well. So taking into account the differing levels of risk, we see little upside in selling high-quality existing offices to fund the development of new ones. Although we do see an opportunity to leverage our skill set by working with third-party capital to bring projects forward. For residential development, the picture is a little more nuanced, partly because it would help shift our portfolio towards the higher income growth and lower cyclicality asset mix that we aim for, but also because we are seeing a shift in public sector policy, which could be supportive to returns. For example, with the recently announced reduction in affordable housing requirements and community infrastructure levy in London, which for our London projects could add between 50 and 75 basis points to our current net yields on cost of around 5%. Our near-term focus here is now on locking in this upside. So the outlook for returns could look different in 12 to 18 months' time. Until then, CapEx spend will be very carefully controlled and very limited. Looking beyond the near term, we plan to move to structurally lower levels of development exposure over time in any event as having large amounts of capital tied up in development for prolonged periods has a negative impact on our risk profile and on EPS growth, particularly so in a higher cost of capital environment. Part of this is reflected in our objective to release half of our roughly GBP 700 million capital employed in predevelopment assets, where we're making very good progress. But we also plan to keep our own exposure to committed development closer to about half of the roughly GBP 1 billion that it has been in the past. This means that our balance sheet will have a greater proportion of income-generating assets in the future, which supports our objective to grow EPS in a sustainable way and means that our cash-based leverage measures will also improve. With that, I will now hand you over to Vanessa. Vanessa Simms: Thank you, Mark, and good morning. We have had a positive start to the year with strong operational performance. Our occupancy is at a record high. We're leasing well ahead of passing rent and our like-for-like income growth of 5.2% is well ahead of our full year guidance. Reflecting this and the continued positive outlook from here, we have raised both our near-term EPS guidance and our medium-term EPS potential. For the half year, our strong like-for-like income growth and further reduction in overhead costs meant EPRA EPS was up 3.2%, supporting a 2.2% increase in the interim dividend. Our portfolio valuation was effectively stable with NTA per share down slightly at 863p. This was principally driven by our capital recycling as we sold nearly GBP 650 million of assets, which generated limited or no return, which came at a cost to NTA of 1%. Our capital base remains robust with LTV at 38.9% pro forma for the disposal since the end of September. And our net debt-to-EBITDA ticked up in line with the guidance that we set out in May, but we target this to reduce to below 7x within the next 2 years as our current on-site developments complete and they lease up and we move to a structurally lower level of development exposure in the future. Now turning to income and EPRA earnings. Overall, our net rental income was up GBP 15 million, supported by GBP 12 million like-for-like income growth. This increase was despite the fact that the prior half year benefited from GBP 4 million increase in the recovery of previously provided bad debts, principally relating to a few assets where we bought the management in-house. Surrender receipts were low as well at just GBP 3 million, which means almost all of our rental income for the half year was regular recurring income as the benefit of one-off receipts was limited. Our focus on operational efficiency meant our gross to net margin improved by 130 basis points to 87.7%. And overhead costs were down GBP 2 million with further reductions to come. Finance costs increased as expected, principally relating to the increase in average borrowings following our acquisitions in the second half of last year and a small rise in our weighted average cost of debt. All combined, this meant EPRA earnings were up GBP 6 million or 3.2%. And this slide shows the movements of how this translates into growth in earnings per share. Our high-quality office and retail assets continue to benefit from strong customer demand and our strong operating platforms. And combined, these assets make up 90% of our income. In total, like-for-like income growth drove a 1.6p or 6.4% increase in earnings per share for the half year. And further overhead savings, which added 0.3p offset the increase in like-for-like finance costs. Year-on-year movements in other items, which include lower surrender receipts and the bad debt recovery reduced EPS by 0.9p. But the overall benefit to EPS from both items is minimal now and it's unlikely to have a meaningful impact in the future. The net impact from investment activity was also positive with overall EPS up 3.2%. And as I will explain in more detail in a minute, the outlook for EPS from here remains positive. Our continued growth in income is further enhanced by our improving efficiency. Back in February, we set out a target to reduce overhead costs to less than GBP 65 million by financial year '27. But we've now increased our target savings, and we expect overhead costs next year to be in the low GBP 60 million. This reflects the benefits from our investments in data and technology, which I've talked about previously, and a cultural shift in our organization to sustain efficiency and maintain a structurally lower cost base going forward. We now expect overhead costs next year to be more than GBP 20 million lower than they were in financial year '23. That's despite GBP 9 million increase from wage costs and inflation. So in total, this marks a reduction in costs of over 25%. Turning to portfolio valuation. Our successful leasing drove 2.5% growth in ERVs over the past 6 months, with 3.1% growth in office and 2.2% in retail, both well on track versus our guidance for the full year. The positive impact of ERV growth was partly offset by the continued wind down of the valuation of QWAM as the asset is nearing the end of its leases, so the NPV of the future income continues to reduce and an increase in the business rates at Piccadilly Lights. Combined, these 2 factors reduced our overall portfolio valuation by 0.5%. But as we have agreed to sell QAM and the business rates review was the first since 2021, neither are expected to be continuing factors in the future. This means our overall portfolio valuation was effectively stable. Our main focus is ensuring that we turn this value into growing cash flow, growing earnings and growing dividends for shareholders. With that in mind, we said in February that we would be pragmatic about the value in terms of capital recycling. And the last 6 months have been an example of this. We sold GBP 650 million of assets, which generated little or no return, which came at a cost to NTA of 1% when comparing the proceeds to the book value. Ultimately, these disposals materially enhance our future income growth, yet this is the main reason our NTA was down 1.3%. And this continues to be underpinned by our robust capital structure, which will strengthen further in the near future. Our average debt maturity remains long at 8.9 years, and we have no need to refinance any debt until 2027 at the earliest. I mentioned in May that we expected our net debt-to-EBITDA to exceed 8x this year as our 2 on-site office developments in London are nearing full investment, but they do not produce any income until they complete in the 6 to 9 months' time. Combined with our predevelopment assets, this means we currently have around GBP 1 billion of capital that's invested in assets that do not produce income. So we carry all the debt for this, but none of the EBITDA. As these projects complete and they lease up and we move to a lower level of development exposure in the future, our net debt-to-EBITDA ratio will naturally fall. So we're now targeting a net debt-to-EBITDA of below 7x, down from the previous target of below 8x, which we expect to achieve in the next 2 years. We also expect our LTV to reduce below 35%, down from our current 38.9%. Our financial risk profile will, therefore, be even lower in the future, which further underpins the attraction of our growing income and EPS. And the positive, the outlook for both of these is positive. So following the strong first half of the year, we have raised our guidance for like-for-like income growth for the full year to circa 4% to 5%, up from our initial guidance of 3% to 4%. Combined with further cost savings, this means we now expect EPS growth at the top end of our 2% to 4% guidance range that we provided in May. This is before the impact of the sale of QAM, which turns the residual finance lease income of this asset into a cash capital receipt on sale. The overall amount of cash that we receive is effectively the same, but as we will now receive the cash when the sale completes next month rather than as lease income over the rest of 2025 and '26. This reduces EPRA earnings for this year by GBP 7 million. For next year, we expect like-for-like growth and cost savings to continue, yet the exact outturn in terms of EPS is also dependent on the pace at which we lease up our office developments. As Mark outlined earlier, we are seeing good engagement from potential customers. So we assume our 2 main projects on average to be 40% let by the time that they complete and leased up in full over the 12 months thereafter. On this basis, we currently expect EPS growth for financial year '27 to be broadly similar to financial year '26, again, before the impact of QAM, which reduces earnings for financial year '27 by a further GBP 15 million. As the impact on EPS from the sale of QAM is beyond financial year '27 is minimal, this means we're on track for our medium-term EPS growth potential that we've outlined. So turning to that in more detail. Back in February, we set out the potential for EPS to grow by around 20% to 60p by financial year '30, including the headwinds of QAM and the higher finance costs. We now raised this outlook to 62p driven by higher income growth in retail, a further reduction in overhead costs and a move to a lower level of development exposure. So let me just take a moment to explain the movements -- the moving parts in a bit more detail. So starting with last year's 50.3p. The sale of QAM, which I just explained, had an impact of just under 3p. By far, the biggest part of future growth is capturing the growing reversion in our existing portfolio. As you can see from our strong operational performance, we have a good track record of this with 5.2% like-for-like income growth for the first half across the whole portfolio, building on a 5% like-for-like growth that we reported last year. Our office portfolio is 12% reversionary, and our numbers here assume that we deliver like-for-like rental growth of 3% to 4% per annum, which is a more normalized level than over the last 6 months, given that our office portfolio is now effectively full. At our Capital Markets Day in September, we set out how we target to deliver income growth across our retail portfolio between 4.5% and 7% over the next few years. where rental uplifts are now up to 14%, turnover income is growing, and we're seeing the benefits of accretive CapEx. This outlook is based upon the midpoint of this range. The upside from further overhead savings I set out earlier equates to about 1.5p, and we have a good track record of delivering on this too. Our recent acquisitions and disposals, which include Liverpool 1 and the sale of our retail parks have a net benefit of around 1p. And as Mark mentioned, we are ahead of plan in terms of our objective to halve our capital employed in low and non-yielding predevelopment assets, which will add around 1.5p per share from interest cost savings. And the lease-up of our near-term office completions will add around 2p. The upside from future asset rotation effectively reflects our plans to recycle more capital out of lower return assets and invest a further GBP 1 billion into major retail destinations. As our planned capital recycling out of offices into residential is broadly EPS neutral on this time frame and will mostly benefit EPS growth beyond financial year '30. So taking into account the expected rise in finance costs, all this equates to just over 4% annual growth. Delivering sustainable income and EPS growth will, over time, result in an attractive return on equity. So with a strong capital base and attractive existing income return, we are well placed to drive substantial shareholder value. And with that, I'll hand back to Mark. Mark Allan: Thanks very much, Vanessa. So I'm now going to wrap up with a summary of what you can expect to see from us in the near future, where we see the differentiation opportunity for Landsec before we then open for Q&A. So the updated strategy that we set out back in February provides real clarity in terms of our key objectives and our primary target to deliver sustainable income and EPS growth for our shareholders. This means all of our priorities and decisions flow from this, creating a real clarity of focus across the business. For our best-in-class office platform, we are focused on capitalizing on the continued strong customer demand for space, and that's both for our near-term completions as well as across our existing estate. And this is similar to our market-leading retail platform, where we have robust plans to deliver 4.5% to 7% growth in income over the next few years. As investment activity continues to pick up, we will look to rotate further capital out of offices into retail to capture the superior risk-adjusted returns. Meanwhile, in residential, we are focused on locking in the positive impact of strengthening public policy support as this remains a highly attractive opportunity in the longer term, supported by strong growth fundamentals. So we have now created a clear differentiation in our positioning. We have 2 unquestionably best-in-class irreplaceable portfolios operated by 2 market-leading platforms of real scale and stature. Our primary focus on sustainable income and EPS growth as our principal performance measure provides absolute clarity across our entire business. And our clear capital allocation framework means that we're clear-eyed and rational about investment decisions in pursuit of our primary financial objective as reflected in our decision to significantly reduce our future development exposure, which underpins our move to an even stronger capital base with a net debt-to-EBITDA below 7x. At the same time, the outlook for income growth remains firmly favorable. Strong customer demand for the best office and retail space continues to drive ERV growth, and our overall occupancy is at a decade high of 98%. Both our office and retail rents are highly reversionary, underpinning future income growth, which on an earnings level is supported by additional overhead savings. This provides us with the confidence to raise our guidance for FY '26 earnings per share and increase the outlook for our financial year '30 EPS potential, with dividends expected to grow alongside growth in EPS and a strategy which is seeing us move to higher income, higher income growth and lower cyclicality over time, we are well positioned to deliver significant value for shareholders. Ladies and gentlemen, thank you very much for attending this morning and listening to our presentation. As usual, I'm now going to open for Q&A. We'll start here first in the room here. So please, if you have a question, raise your hand and wait for a microphone. And then we've also got people attending via webcast and conference call, and we'll go to both of those in turn as well. So a couple of questions here at the front first, and then we'll go to a question at the back in the middle. Marios Pastou: It's Marios Pastou here from Bernstein. If I maybe turn to your longer-term plans in residential. I think you've quantified now kind of policy changes that will actually support your development yields within your kind of London schemes, for example. Would that uplift be enough for you to commit to those projects? Or are you looking for more upside potential from other maybe cost savings, for example? Mark Allan: So we've indicated that we think -- and we have to be clear at the moment, what we have is policy announcements from government and GLA together to reduce affordable housing and community infrastructure levy charges. We need to see how those things actually play through in the detail to individual projects. So -- but the indication we provided is if those land at a project level, that would be 50 to 75 basis points improvement. And that would take us to somewhere in the high 5s as a yield on cost, which for a sector which has got structural growth and annual capturing of rental growth feels a pretty attractive starting point. But it's a decision really for us to look at probably in -- towards the end of 2026 when we have more clarity at a project level, we also have an understanding of what the other opportunities to deploy capital look like and what the relative risks and returns look like. It is unquestionably positive in terms of the direction of travel policy support, but it will be a decision ultimately for later in 2026 when we can look at things with a greater degree of certainty. Marios Pastou: Okay. Very clear. And then also just turning to retail. I think you've mentioned again, you're expecting more potential investment opportunities to come to market, and that's where the focus is today and putting capital to work there. It feels also quite crowded with what we're seeing in the market. So are you confident on being able to allocate that capital and at the levels of returns you're previously targeting? Mark Allan: We are in short. There is more capital coming -- starting to look at the market. But I think we have to remember sort of a couple of things. It is a very operational market. I think having relationships with brands, having the operational expertise, having the data around consumer behavior are all critical to be able to successfully operate a shopping center. One of the reasons we have deliberately targeted that sector is because we have a demonstrable capital advantage. If you look at where we are today, our major retail portfolio has 40% more reach in terms of footfall than the next largest U.K. retail platform, and our plan is to build and grow on that. I think the bigger the lot sizes get, the more difficult it is for some of the other investors might be coming into the space to capitalize that and to underwrite an exit. So I think it's good news. You've got more investors looking at the sector in terms of validating what we see within it. I don't think it's enough at this stage for us to be overly concerned about capital deployment. But it does mean one of the reasons we think it's a 12- to 18-month window. And one of the reasons we've accelerated office sales to rotate into that window is we don't want to do things over too long a period of time and find that the cap rate is 6.5% rather than 8% when we start to deploy capital. Jonathan? Jonathan Kownator: Jonathan Kownator, Goldman Sachs. Three questions, if I may. First question is on retail ERV. When are we going to see this grow? You're obviously letting 10% ahead. So how do you think this is going to evolve? First question. Second question, share buybacks were on your allocation charts. How are you thinking about this? Would you need more disposals to do share buybacks? Are you considering those at this stage? And third question, you're obviously willing to redeploy in residential. We've talked about the economics. We've talked about the time frame. Given the long time frame for development as well, would student housing be something that you would consider instead of doing residential development? Mark Allan: Thank you. So just first on retail ERVs. I'll make a comment and then perhaps ask Vanessa just to explain a little bit in the context of valuation. My personal view is that the ERVs that they're putting into valuation metrics are not particularly meaningful on the basis that we see our letting evidence is consistently so far ahead of those ERVs. But I think there's been an issue over recent years of particular lettings being done and then a question of what does that provide rental evidence that can be ascribed to other demises within retail. And when occupancy was lower and there was a variety of different types of occupier demand, I think there were perhaps reasons to say, well, let's be a little bit more cautious on that. I think when you're 97% full and you're leasing, if you look at in solicitor's hands, double digits ahead, I think the evidence is clearer and clearer. For us, in terms of our decisions, we look at our leasing evidence, and we look at our leasing pipeline, and we base it on our conversations with retailers. So whether we find that ultimately finding its way into valuations is a sort of secondary point as far as we're concerned, we're looking at the cash on cash and how does it help us grow our earnings. Jonathan Kownator: And is that your impression that that's increasing, so the letting that you're doing is increasingly at better rates? Mark Allan: Yes. Yes. And I think you saw a chart in the chart which shows retailer sales across the portfolio, which I think is really quite striking. At the end of the day, as a retailer, what are you trying to do? You want space that can help you grow your top line and grow your margin. So to see 19% growth over 3 years across our portfolio in total retail sales compared to a market movement of plus 3%, which is substantially below inflation over that period shows that retailers are focusing on the best locations and so -- and that gap is widening. And so if the gap in terms of sales performance is widening, I think it follows that the room for rental values to grow is also widening. Is there anything, Vanessa, from a valuation point of view that you'd want to add on that? Vanessa Simms: I mean, no, I think the leasing stats speak for themselves that when you're leasing 10% ahead of ERV, you've got 2.2% reflected in your valuation. And we continue to lease ahead of ERV and ahead of passing rent. I think that kind of shows that there's -- we've a bit more successful leasing than probably the wider market. Mark Allan: So on to your second question, we've quite deliberately included share buybacks on our capital allocation framework. And you should take from that as it is something that we, as a Board, will continue to actively consider. You've seen the 2 axis of how we think about how we allocate capital, what does it do to our near-term earnings and how does it help our portfolio mix over time get us to a position that we think can support long-term earnings growth. At the moment, selling out of lower-yielding assets, including offices and deploying into retail is the most accretive use of our capital. We can buy an ungeared yield, which is higher than the implied ungeared yield on our shares. So that will definitely be where we would deploy. I think the second thing is then to make sure that we have a really solid balance sheet. And so we would always look at that quite cautiously. But I think one of the things you've seen with us today is talk about effectively taking development down to me, as things stand at the moment, if we were just looking at -- if we didn't have those other options, we would look at share buyback as being preferable to development deployment, for example, because it would have the same effect in terms of portfolio mix, but it would have much more benefit on earnings accretion. So it will remain on our framework, but we're very clear as things stand deploying into retail is the most accretive use of our capital. Jonathan Kownator: And how long do you wait? There's obviously a different execution risk in both products, right? Mark Allan: There is a different execution risk. There's also a different scarcity value. No one is building any more of these shopping centers. So if we can add 2 or 3 further locations to what is already the leading platform by quite a margin in the U.K., those chances aren't going to come around again. So if we were to say, well, let's do something short term in buying our stock and then not have the capital available in 9 months' time to buy an asset, which isn't going to be on the market again for maybe another 10 years, I think that would be a real shame. And then lastly, just on residential, you understand the time frame, you understand the direction of travel on build-to-rent. That's where we think there's opportunity over the medium to long term to leverage our skill set. We considered student housing as one of a number of living sectors when we looked at our strategy last year before the February announcement. I think it needs real expertise. I think there are some interesting questions about what the long-term growth characteristics of that sector look like. So it's not something that we would plan to deploy capital into. I might just -- if I may, in the interest of the -- oh, I've got my front at the back, sorry. So I know there's a question at the back, we'll go to first. And then I think there are a couple more in the second row here. Unknown Analyst: [indiscernible]. It might have some overlap to the previous question, but given the 1% pool of retail assets that you said you're interested in shopping in, you mentioned maybe about 30 centers, and you obviously haven't made any acquisitions yet since the CMD in February. If no assets do come to market available at the price or yield that you like, how does that kind of shift your larger strategy in terms of capital deployment? Mark Allan: Yes. I mean I think it's a largely hypothetical question because I think those assets will come forward, and they will come forward at returns that will make sense for us. But the reason we have that capital allocation framework is to make sure that we keep that discipline. So I think if we got to a position where in that hypothetical scenario, you had earnings accretion that was meaningfully below the alternative of buying our own stock, then we would need to reassess at that point in time. But as things stand, I think you've still got quite a lot of centers that are owned by investors either individually or collectively that are not natural long-term holders of these assets. As liquidity improves, I think one of the benefits that has is it will encourage some of those existing owners to bring assets forward to market that perhaps weren't available to invest in previously. So I think we'll see the market balance out. As I said to the earlier question, I mean, the operational component of this Plus, I think on some of these assets, the CapEx requirements on some of this, I think they will be, I think, reasons for investors without the real expertise in this sector to be a little bit cautious. Unknown Analyst: That's clear. And just quickly on the GBP 200 million of accretive CapEx, is there opportunity to increase that slightly in the interim if the opportunities are slightly delayed? Mark Allan: There might be. I think there's also hopefully opportunity to try and deliver the same for less, which will probably be our primary focus if we can get the benefit of the return from that GBP 200 million by only spending GBP 180 million, we'd rather do that. But I think there will always be investment opportunities across the portfolio, but we're really focused on the cash-on-cash yield that we can get from those things. There's a question -- we'll start in the middle of the row and then work that way, if that's okay. Unknown Analyst: Bjorn Zietsman from Panmure Liberum. You mentioned increasing opportunities in retail for acquisition. Can you give us a sense of the composition of those opportunities? Are they shopping centers, retail parks elsewhere? Mark Allan: Yes. So the comment was intended really to talk about shopping centers, which is the only sort of segment that we would look at. And within that, there will be some that would not be of interest to us. They don't have the dominance in the catchment. They're not in a strong enough catchment. We don't see the opportunity to leverage our platform sufficiently. So it will be the larger and more dominant of those that would be the likely area that we would look towards. Unknown Analyst: And just on capital recycling, can you give us a sense of on the pace, quantum and timing as well as composition of any disposals? Mark Allan: So it will be capital recycling for the first. So we will use disposals to fund acquisitions. I think that's the first important thing to say. So I think you can judge on the basis that if we're hoping to invest into retail meaningfully on a 12- to 18-month view, that will need to be funded from disposals over a similar time frame. We've said lower-yielding assets, including London offices. So looking at the composition of the portfolio, that will need to involve ongoing disposals of London office assets as we've signaled. Robert Jones: It's Rob Jones from BNP Paribas. This might be a question that's better offline, but we'll try it now to start with. Mark Allan: That sounds like fun. Robert Jones: I was excited when I wrote the question, put it that way. I don't know how you can get to your FY '27 EPS guidance that you published yesterday, which is 53.3p on your website. And the reason why I can't get there, but you'll be able to help me is, for '25, obviously, you did 50.3p. You've then got, let's say, 4% earnings growth for this year to March '26, which adds, say, 2p a share to 52.3p. I've then got to strip out 0.9p for Queens Anne's Mansions, it gets me to 51.4p roughly for FY '26. I then look forward to FY '27. We've got, as you said, the second impact of Queens Anne's Mansions of GBP 50 million, call that 2p a share. So my 52.3p for March '26 goes to 49 -- sorry, 51.4p goes to 49.4p ex Queens Anne's Mansions in FY '27. And then you need to obviously then grow income ex Queens Anne's Mansions from that 49.4p to the 53.3p that you've currently got as your analyst consensus on your website, but that's an 8% growth for '27. And let's say we do 4%, does that mean that consensus is 4% too high? Like what have I missed? And I definitely missed something. Mark Allan: I can't imagine why you thought that might be better offline. But perhaps I might as Vanessa just to comment, there might be a couple of sort of big moving parts in that. I mean... Robert Jones: You can come back if you want, honestly. Mark Allan: We wouldn't -- the number wouldn't be out there if we didn't have the component parts as well. Robert Jones: Or analysts are 4% too high. That's the other option. Mark Allan: I just have a -- is anything headlines to... Vanessa Simms: I'm happy to have a quick -- a bit more detailed offline. But effectively, you've got the continuation of like-for-like growth from leasing performance, cost reductions. We don't have any major refinancing coming through in that year, so a pretty stable position. But there will then be the development completions, which we've had really from now over the next 12 months or so. So we get some -- we're assuming in the bit of leasing performance and then you offset the QAM movement. Robert Jones: So you don't think that 53.3p FY '27 today is too high. Is that any fair? Vanessa Simms: I'll have a quick look at that, if you like afterwards. I haven't actually seen what you specifically talking about. John Cahill: John Cahill from Stifel. Just one question, please. As you say, one of your differentiating factors now is your risk profile is vastly reduced from what it once was. Leverage is going to be lower still, reducing the pace of developments. And in isolation, lower risk, of course, is a positive. But there must be a degree to which that slows down the rate at which you get to your 2030 diversified portfolio. Should we think of this as it's the executive's view that on a risk-adjusted basis, these are the best returns? Or is it that the shareholders via the Board are saying, well, yes, we want you to get where you're going with the resi developments, but actually, we're just going to put the brakes on you a little bit. Mark Allan: Yes. It's very much a -- I mean the capital allocation framework that we set out on the chart there with the exception of adding in share buyback is no different to the capital allocation framework that we set out with the strategy in February. And if you look at the objectives that we set the short term and the long term, the short term included invest GBP 1 billion in retail. The longer term is rotate office into residential. There's no change to that strategy. I think what we might reflect on post February is that there's a lot of focus on residential and perhaps say we needed to do a better job on explaining the time scales and that we were sharing a 5-year view of how we shift the portfolio mix over time. And that, I think, got conflated with what drives near-term earnings per share guidance. What we've sought to do since then and particularly with today is show, look, the earnings guidance near term is, of course, driven by today's portfolio. We're very, very happy with the quality of that. We think retail continues to be the best place for us to deploy capital and leverage our expertise. We still think the rotation into residential is the right thing to do, and we still think the time frame for that is medium to long term. So no change in that respect. I think just trying to be a little bit sharper on what's happening over the next 1 to 2 years, which is -- tends to be -- I may even be giving them a little bit more -- giving markets a little bit more credit, but that tends to be the sort of time frame that markets are more focused on. I think that's what we've sought to do. I may just pass to Paul, it's convenience, and then we'll come to Tom at the front. Paul May: Paul May from Barclays. Three questions from me. Given the losses on disposals on non-income-producing sites, have you proactively written those down in the first half? -- ahead of expected sales further forward? Or should we expect further losses on those as you're being pragmatic? Second one, if recent press comments are correct, sorry, apologies. Are you disappointed having lost out on Merry Hill? Just get some color there. And then final one, as you know, I applaud the earnings-based strategy. I think it'd be a shame if the market doesn't wake up to it and see the earnings growth potential because I think it brings to question the whole European listed sector. But I just wondered what more do you think you could do to convince people and what pushback do you get from investors on that? Mark Allan: Sure. So Vanessa, the first question around sort of, I suppose, where valuations sit relative to ongoing transaction activity? Vanessa Simms: Yes. So the disposal losses that we saw in the first half really related the majority of them to some development site sales where we're seeing that developers are really looking for a higher IRR from development activity than probably in the past they have. So I think that it's quite specific to those sort of assets. So we have reflected that through into our valuation for the first half of the September valuation. So we've been through the discussions that we have, as you would expect, with all the valuers. So we would -- we believe that our valuation now properly reflects what activity we are seeing and experiencing in the market. And we've been pretty active, as you can tell from having sold almost GBP 650 million over that period, we've been pretty active. So I'm sat here pretty confident that our valuation at this point reflects where we see the market position. Mark Allan: And of course, we have reasonable visibility on our own capital recycling plans and are comfortable in that respect as well. Your question on Merry Hill, you won't be surprised, I won't sort of comment on specifics. I guess what I will say is that there are a number of assets, including Merry Hill that are being marketed. And in how we look at those assets, we will look at what's the opportunity to leverage our platform, bring brands in that perhaps aren't there, reposition assets through investment using consumer data to see what might be missing or what might drive performance. And what do we think the CapEx bill is likely to be in order to affect those changes or to deal with backlog maintenance, which will be a feature on a lot of these assets. So that's what we will always look at. So I think you can be confident that anything we do acquire, we will have answered those questions in the positive, and there will be a decent number of assets we look at that we either won't spend much time on at all because we don't feel that they're right or we might spend a fair bit of time on, but struggle to get ourselves comfortable at the sort of levels others may end up being. But again, I think we're comfortable we'll get to our capital deployment targets with what we can see on the market at the moment. And then I think with respect to earnings growth and what more can we do. I mean we post our strategy, had a considerable number of meetings, both then and through results cycles and over the summer and into the autumn, we engage regularly with all of our shareholders. We certainly have had a pretty consistent message back that earnings growth and confidence and credibility in that earnings growth trajectory is what matters most to generalist investors, if that's the right term. Certainly, and you all understand this better than me, but the dynamic of investing in our sector is very different to where it was 10 years ago in terms of specialist versus generalist. I think it is the wider equity markets that we need to be able to talk to in a convincing way of how we are creating value for them. And I think that's a far more convincing story to be able to point in a quite granular way to how we're growing earnings and how you can form a view as an investor on the deliverability or otherwise of the different components of our earnings bridge to 2030 than pointing to a valuation and an NTA where I think there's -- certainly for investors that look globally, NTA is not necessarily a feature in other markets. So I think we're moving in the right direction. We certainly wouldn't be doing it if we didn't feel that. We've got to then deliver and execute on it. And the more we do that, the more confident market should become. Paul May: Sorry. And just on that last bit in terms of that is a bit with Rob's question as well, that consistency of earnings delivery into next year, what would be good to provide comfort for investors that you do have that into next year given the headwinds, as Rob mentioned. But also, are there any acquisitions baked into that FY '27 earnings assumption? Mark Allan: So we put the FY '27 earnings number up there. I think within that, we will assume there's a small amount of recycling based on what we can see today, but not a significant amount in terms of undue reliance on achieving massive amounts of recycling to achieve a number with respect to earnings next year. The biggest sort of sensitivity is the pace of development leasing, and we provided some color in the statement on what a sort of plus/minus 10% on the sort of average occupancy on those assets through the year would do to earnings. And I think that's the one that we're probably most focused on. Tom, on the front here. Thomas Musson: It's Tom Musson at Berenberg. Sorry, I just wonder if I can pin you down slightly on share buybacks. I appreciate what you're saying where you see best use of capital today, but markets are volatile, especially today. I'm just wondering at what share price or perhaps what earnings yield does it suddenly make sense for you to buy back shares? Are we close or still some way away? Mark Allan: We don't have a precise number in mind. I think it would probably be unwise to have that. I would point back to my earlier answer around the scarcity of the alternatives. So I think buying major retail is much less about just a comparison of the spot yield and much more about what does that do to the long-term earnings potential of the business, the quality of the underlying portfolio. So comparing a sort of a spot rate to a genuinely scarce asset, I think, is something that we would be cautious about doing. So at the moment, the cap rates that we believe we can invest in, in major retail would still make that very clearly the right place to deploy capital. And I think there is an opportunity to add some scarce assets to an already market-leading platform on a 12- to 18-month view. That's got to be the right thing to do for the long-term value of the business. Are there any other questions in the room? Otherwise, I'm going to go to the conference call. Okay. So we'll go to the call. I think there are a couple of questions on the call. So let me open up to the operator on the call. Thank you. Operator: Your first telephone question for today comes from the line of Zachary Gauge from UBS. Zachary Gauge: Can you hear me okay? Mark Allan: I can. Zachary Gauge: Sorry, I'm not there in person. Yes, just 3 questions for me, hopefully quite quick. Could you disclose what the discount to book was specifically on the GBP 72 million of development site sales that you had in the first 6 months? The second one is on the overall office acquisition. Just interested to see how that fits into your new strategy, particularly around obviously the office holdings and the location being close to South Bank. And lastly, on the current developments, based on my calculations, when you strip out CapEx, Timber Square dropped by about 5% in value over the period. Just interested to see what was driving that. And also, if you could touch on why Thirty High, which 12 months ago was guided to be completing October 2025, now has a June 2026 completion date. Mark Allan: Zach, I've written down your questions, and I've written the first one down so badly, I can't read my writing. Sorry, what was your first question? Zachary Gauge: The discount to book on the GBP 72 million. Mark Allan: Right. Yes. Yes. Well, look, on the first one, we don't disclose the specific sort of deal by deal of sort of achievements relative to book. I think what Vanessa mentioned earlier with respect to sales is that where we've been selling development sites, there's tended to be in the market a higher IRR requirement than had previously been the case and the valuations are reflecting. What I would say, though, is things are pretty sensitive, and we've got examples of other sites where we're talking to partners that are quite a different outcome to what we saw in the first half, including ones that would point to positive outcomes relative to book. So it is very sensitive, but it is a relatively small part of the portfolio that will, I think, be largely sort of taken care of during the current financial year. The overall acquisition dates back to 2021, very good quality assets just delivered within the last month or so, as you'll see from the schedule, good occupier demand. The thinking of that at the time was looking for assets with a good value entry point in terms of price, perhaps slightly different in terms of local amenity playing to what was quite a different occupier dynamic back in sort of COVID era times. And so we looked at a relatively small acquisition to test that. I think we're pretty happy with the way the occupier demand is shaping up on that particular asset. But as things have moved forward now, we've set out a very clear priorities of where we're looking to allocate capital. And I think you understand where office investment sits in that Thirty High, I'll just talk to briefly and then ask Vanessa just on the Timber Square sort of movement. So Thirty High, yes, I mean, an existing building where the contractors have some challenges within the existing building as a refurb, which has pushed the program back a little bit. We're indicating around middle of next year, there is a recovery program opportunity, which could outperform that. But it's important for us to set a clear date, particularly as we're starting to see quite significant incoming occupier demand, and there's quite short lead times on the sort of people that are looking to take, say, 10,000, 11,000 square foot floor plates. So we need to have a date that we're very confident committing to for those occupiers. So we've moved that guided completion date back for those reasons. And then Timber Square. Vanessa Simms: Yes. So Timber Square as an asset, actually, the valuation because it's pretty close to completion was -- has transitioned to a cost to complete basis. So looking at the end asset with the cost to go. And then it's then therefore, valued at the moment as an asset that's 100% vacant because we haven't actually signed any of the leases at this stage. So as we go throughout the remainder of the next 6 months until that completes on the basis we're expecting to lease that asset, we'll get to a position whereby the yield will shift to reflect that as a leased asset rather than a vacant office with cost to go. So it's just a nuance in the way that the valuations on developments transition over the life of development. Mark Allan: So a point in time factor. Vanessa Simms: Yes. So it's not necessarily any change to any major assumptions on that front. Mark Allan: Is that okay, Zach? Zachary Gauge: Yes. Mark Allan: I think we may have at least one more question on the conference call. Operator: The next question comes from the line of Adam Shapton from Green Street. Adam Shapton: Just one from me on the thinking around residential development returns. I know you had 1 or 2 questions on that already. But I'm going to preface the question by saying I realize there's political dimensions to the communication on this, but hopefully, we can put that to one side. If I look back to the February Capital Markets Day, you were pointing to net yield on cost of 5%, 10% to 12% IRR and described that as attractive. Today, swap rates are a little lower, your share price is broadly the same, and you're saying a 5% net yield cost is not sufficient. Could you explain why that stance has changed or correct me if my sort of February inference was wrong or I'm not comparing apples to apples. And then more broadly, can you explain how you think about what would be a sufficient yield on cost or IRR for you to commit more capital to resi in the medium term? Mark Allan: Yes, certainly. So I think 6 months on looking at what's happened across the wider market, not just residential, and I would include our development sales and what people are looking for an office development, et cetera, to the earlier question within this. I think our view on IRRs will probably be point to something a little bit higher than 10% to 12% being where we need to be. I think we would also take a slightly more cautious view on exit cap rates, which, of course, has a fairly sensitive impact on IRRs. So we're now suggesting, and as I stressed earlier, this is subject to all of this flowing through to the actual projects in detail. So it needs to be very heavily caveated. But at a headline level, the reduction in affordable, the reduction in sale looks like it could add 50 to 75 basis points. That would take us into the high 5s on a yield on cost basis, which with sensible cap rate assumptions, I think, delivers a better -- a decent increase on that 10% to 12% guide on IRR. So I think where we are now, and I think this would also be consistent with a lot of the shareholder discussions we had post strategy is pointing to a need for IRRs to be higher than that 10% to 12% range yields on cost, which we think, frankly, is the most important measure because that's what ultimately is going to flow through to our earnings and earnings growth longer term, high 5s feels a more sensible level at which to be seeking to underwrite these. Adam Shapton: Okay. Understood. And then just on those -- on the additional yield that might come from the policy changes, you would -- is your expectation or your hope that those become permanent rather than temporary or of time-limited measures, which I think is what we're looking at the moment. Mark Allan: I mean, at the moment, they're positioned as acceleration measures. One would hope that if those acceleration measures achieve the desired acceleration, there's a better chance of them being come permanent than if they don't. Certainly, from our point of view, without those changes, we'd have been unable to take any residential projects forward. Other questions on the conference call line. Operator: The next question comes from the line of Paul Gory from CTI. Unknown Analyst: Can you hear me okay? Mark Allan: We can. Unknown Analyst: Yes, just a quick follow-on from Rob Jones' question. I'm looking at Slide 28 and basically, the FY '27 outlook for earnings looks flat against FY '26. So I'm just trying to understand, is that correct? Is that the right interpretation? -- flat year-on-year '27 versus '26? Mark Allan: Is that before the QAM adjustments? Unknown Analyst: That's after the QAM. Mark Allan: After the QAM. Sorry, I haven't got it in front of me. Unknown Analyst: I'm just looking at the -- sorry, yes, it's like purple bars, the deep purple taking QAM fully into account. It looks like is flat year-on-year from Vanessa's comments. It sounded flat year-on-year. Vanessa Simms: Take out the finance lease -- if you take the finance lease income from QAM out because that basically we're receiving that as a cash receipt in the next month as opposed to through the finance lease income that comes through in those 2 years. So if you look at the underlying portfolio, how that performs, that will be the growth -- the guidance we've given is the 2% to 4%. And then if you net out the QAM, that's where it is, which I think goes back to Rob's point earlier, when I just had a quick look. I think what's happened is since we've announced the sale of QAM, not all of the analysts out there have adjusted for the impact of QAM, even though the announcement we were quite specific on the impact over those financial years. So I think that's where the difference is to the roll-up of the consensus that sits out there. So with all the moving parts, when you actually look at the reported, it would be flat, whether you look at the underlying performance of the portfolio, it would be the 2% to 4%. Mark Allan: Any more conference call questions? No, I think we're -- we've either cut them off or are any more questions. So we'll head to the webcast. A couple of -- a few questions coming down on the webcast. So first, with the business plan seemingly on track was the credit rating downgrade a surprise and our corrective measures called for from Mike Prew. So Vanessa, just on credit. Vanessa Simms: Yes, happy to talk about that. We had a Fitch rating that was reflecting of last financial year's position. That rating was reflecting the -- following the acquisition of Liverpool One, our debt was slightly higher as we talked about in our results being slightly higher. But it's worth noting that S&P have just reaffirmed their rating, I think a couple of weeks ago of AA rating, so still a very high investment-grade rating. And overall, we still have one of the -- we are the highest -- have the highest investment-grade rating in the sector. So there's no need for necessarily corrective measures our plan that we have in place at the moment, as we talked about with net debt to EBITDA improving and naturally improving positions us well and our capital operating guidelines position us well and commensurate with high investment-grade rating. So our plans for the future put us in a good position. Mark Allan: Thank you. Then a couple of questions from Alan Clifford. So on future London office development, talked about partnering with third parties to leverage platform. What capacity do you have for this? And how capital light is this likely to be? So I mean, we have, at the moment, following the 2 development site disposals that we've already made, we have 2 further city-based assets plus an additional one in the South Bank, all of which are well advanced in terms of being able to commit capital to and where we are in active discussions on how we best take those projects forward. That's what gives us the confidence to make reference within the statement here to opportunities to work with third-party capital. If you take that in alongside our comment within the results to not planning to commit any significant capital to development ourselves on a 12- to 18-month view, I think you can infer from that, that these would be very capital-light options should we choose to take them forward. And then with regard to the wait-and-see comment on resi, how does this impact progress on the currently owned schemes with planning consent. So that has no bearing at all on what we need to do on those, such as the detail required to take forward schemes from a resolution to grant planning plus deal with the additional requirements of the building safety regulator whilst finalizing detailed designs but more moving on site. even if we wanted to go as fast as we possibly could on those residential projects, it would be mid-'27 with a following wind before we could put a spade in the ground on any of those. So at the moment, there is no bearing. So that gives us the opportunity without spending significant amounts of capital because we've got the consents in place to now work through the viability of those projects by mid next year to then be able to make the decisions I talked about across the second half of 2026 without having any bearing on the delivery time lines of the projects we're looking at. And I think that is the last of the questions. So all that leaves me to do is to thank you all for taking the time to either attend here in person or to dial into the call, and we look forward to further discussions with you over the coming few days and weeks. Thank you very much. Vanessa Simms: This presentation has now ended.
Jarle Dragvik: Good morning, and welcome to HydrogenPro's third quarter presentation. As usual, I'm accompanied by my excellent CFO, Martin Holtet, who will present the financial results. I will take you through the highlights and our recent developments, market updates and our partnership strategy. For those of you who do not know us yet, HydrogenPro is an OEM company, focusing on core technology, which is well suited for renewable energy sources. Our products are pressurized alkaline electrolyzers and a gas separation unit skid. Addressing market for decarbonization of selected large-scale industry segments, which are already using gray hydrogen or where decarbonization is hard to achieve through electrification. HydrogenPro is delivering to 2 of the largest projects in the world. Right now, a 220-megawatt project, which is starting up these days and 100-megawatt project, which we have delivered, all the main components, and now we are producing our third-generation electrodes in our new factory in Denmark. Few other electrolyzer OEMs are delivering to projects of the same scale. Of the recent highlights, our revenue last quarter ended at NOK 35 million. with a gross margin that improved to 55%. We continue our strong focus on technology improvement and expanding our electrode testing and development. The previous announced partnership with Thermax is on a good track. And also our work to establish a foothold in the Middle East is making very good progress. And last but not least, I'm very happy to announce the embarkment of a new Head of Sales and Commercial. Martin, please. Martin Holtet: Thank you, Jarle. Then I will walk you through the Q3 financials. So in the quarter, revenues came in at NOK 35 million, and those revenues are mainly related to deliveries on the ACES project. On top of that, deliveries of electrodes to the SALCOS project also then commenced in the quarter. Gross margin came in at 55% versus 22% in the second quarter. If you recall, in the second quarter, the gross margin was negatively impacted by some cost provisions on the SALCOS project in particular. So we could say that it's -- now we're back more to normalized levels. Personnel expenses was up NOK 4 million, and that increase is due to that we have made severance payments, which is then related to the reduced activities at our factory in Tianjin. The number of FTEs is considerably lower with a lower payroll now going forward. Other operating expenses increased by NOK 9 million in the quarter compared to the second quarter. And the main driver behind that is, first and foremost, project deliveries, where we then accrue more costs when we make a delivery, which is then -- also then sort of accounted for as -- in our financials with revenues and costs simultaneously. In addition to that, we had also some lower level of grants, which means we have then a reduction in the deduction of expenses compared to the second quarter. So the EBITDA came then in at minus NOK 45 million in the quarter. Then let's look into the development in the liquidity position in the quarter. The cash balance at the start of the first quarter was at NOK 107 million, and it ended at NOK 121 million. So the changes in the cash position were as follows: we had an EBITDA then of minus NOK 45 million, changes in net working capital of minus NOK 3 million. NOK 6 million was spent on investments, mainly in the production line in Denmark. So on the production line in Denmark, we have a total budget of NOK 60 million, where we, as of end of September, have spent NOK 42 million. And that line now is fully operational and -- meaning that the remaining investments, which we are now taking, will be then related to further improvements on the line. Financing of NOK 68 million, mainly reflects LONGi's equity investment that was settled in July this year. And last here, the backlog then decreased from NOK 284 million to NOK 252 million, a function of revenue recognition in the quarter and no order intake. On the cost side, so at the start of the year, we set a target to reduce our cost base with NOK 40 million of annual costs or call it roughly 20% of our cost base when we do not include project-related costs. We have now completed that cost program. The number of employees in the quarter were reduced from 147 at the end of the second quarter to 89 at the end of the third quarter, and that is mainly then due to a reduction of the staff in China. So please be aware that the cost program that excludes all project-related expenses, and it's important for us to keep now some competence -- the core competence in the organization in order to deliver on projects. One of our competitive advantages is to maintain a low cost base. And we will, of course, assess further measures going forward in line with the market activity. But our business model with strong partnerships enable us to have a global reach, win contracts on a global scale, but at the same time, remain a lean organization with a low cost base. So with that, I'll give the word to Jarle to give an update on the market. Jarle Dragvik: We have to ascertain that the year has been more challenging than what we saw at this time last year. It's a slower growth than most expected. Only 30% of green hydrogen projects has advanced -- have advanced. However, some completions and feasibilities we do see going forward to FEED and into approvals. But again, 90% of the 2023 and 2024 CODs projects are delayed with more than a year. But we can also see that the delays are getting shorter year-by-year, as we're coming up to 2025 and 2026. As said, we must ascertain that growth is slower than expected. But according to Global Hydrogen Review, the underlying growth is showing strong progress. The installed capacity grew with as much as 145% from 2024 to 2025. Much of the growth is driven by China, but we also see significant growth in other parts of the world, among others, HydrogenPro's project in Utah, United States. Another positive trend is the number of countries developing a hydrogen strategy is growing, which again supports continued growth in project development. So despite a slower growth than expected, a solid progress shows strong underlying fundamentals. Well, this is a busy slide, and I do not intend to go through this in detail, but it is available for the interested reader on our website. The table as such, is not exhaustive, but it is a snapshot of some selected regulations in markets which are in focus for HydrogenPro. And what we see is that more and more of regulations are introduced as well as adaptations of existing regulations like in Europe, where not all regulations have worked according to its intent, but now being adjusted or amended. IEA just issued its annual World Energy Outlook for 2025. Here, they expect the green hydrogen production to increase 70x during the next 10 years. Their forecast is based on adopted policies, proposed measures backed by a market and infrastructure support. The train might be rolling slower than previously expected, but it is for sure rolling. The stated policies are charting the path to a large potential of green hydrogen. And I am very pleased to now introduce Michael Caspersen as new CCO in HydrogenPro. Michael has a strong background, both technically and commercially. He comes from Boston Consulting Group, where he has led several projects along the hydrogen value chain. In addition to several years in Siemens, where he had a key role in starting up and commercializing their electrolyzer business. Michael holds a PhD in hydrogen technology and will, with his background and experience, bring great value to HydrogenPro's management team. His extensive technical and commercial experience will be instrumental in delivering our future growth. Erik Bolstad will continue assuming the role as Director of Partnerships and Key Account according to our strategy. The commissioning of the ACES project is progressing well. All trains have been through the initial start-up. A train here means 2 electrolyzer connected to one gas separation unit. And the electrolyzers are doing their job as the project goes into next phase of operation. On the SALCOS project, we are now delivering the Generation 3 electrodes from our new production line in Denmark. I was recently a few weeks back in India, and I met with several potential customers. And we are now building up a pipeline by submitting firm quotations to project owners, having won in India's hydrogen auctions. Also on the technology side, we are supporting Thermax in developing their gas separation assembly station, and we are progressing well on the Indian market rollout. Based on our strategy, we are also progressing on establishing a foothold in the Middle East. We see that Middle East, together with India, having the lowest cost for producing green hydrogen and are expected to have the lowest cost in 2030. On the way of getting a foothold, we are working together with selected partners and governments where we are building a good relations. As an example, we have appointed now Sheikh Rashid Al Maktoum's Sustainability Adviser, Claudia Pinto, as also adviser to HydrogenPro. The market is driving more and more in the direction of customers requesting total EPC and a complete solutions from power in one end of the plant to direct compressed gas in the other end. This is much driven by strong industrial project developers. HydrogenPro is focusing on core hydrogen equipment. But the customers, they are also occupied with hydrogen equipment and its performance, but then bundled in a total EPC. And together with partners, we fulfill the scope demand, meeting all customers' selection criteria. The electrode coating line in Aarhus is in full operation, producing electrodes for Salzgitter project. We have expanded our testing and development capacity and are now testing electrodes in various conditions, new enhanced materials and longtime effects, and it gives results. As we are developing new and even better coatings combined with technology and design for reducing shunt currents, we are testing out and proving better results with lower energy consumption for producing hydrogen. The goal is to get the power consumption with as little kilowatt hour per cubic meter produced hydrogen with as high current density as possible. The red line in the graph, which is already a very good compared to general market, but as you can see, with a shape which is common for electrolyzers. The bottom green line shows the results of our latest development, which we will now continue to develop for commercialization. The technology strategy and roadmap is to continue to reduce power consumption, commercialize the 30-barg solution, lower the cost by reducing weight of the electrolyzer and optimize the hydrogen production train with increased current density. We have a clear and detailed plan for development and maintaining a forefront position technologically. During the year, projects in our pipeline have been postponed and with further delays. But the pipeline projects, they are being very robust with high-quality company and owners. In Europe, there is a strong traction together with ANDRITZ and JHK with projects ranging from 20 to 200 megawatts. They have been moved from 2025 FID, but now to 2026. Based on funding and regulatory compliance, we believe to see these materialize during next year. And also India, we are now seeing a buildup of a strong pipeline, which we expect some to FID in 2026. 2025 has been a slow year, but based on the pipeline projects, we are remaining optimistic for 2026. And with that, I thank you and invite Martin also for the Q&A session. Unknown Executive: Here comes some questions from the audience. The first one, why does Mr. Espeseth sell so much of his shares and stocks? Jarle Dragvik: We have no influence or saying on shareholders buying or selling shares. Obviously, we welcome every shareholder who is buying shares and are equally saddened with those selling, but there are several motivations for selling and buying shares. And obviously, we're also dependent on the volatility in the shares. To the explicit of Mr. Espeseth, that question has to be asked to him. But we know that, for instance, in Norway, we are burdened with what you call -- [ fortune ] tax, what we call it? Martin Holtet: Wealth tax. Jarle Dragvik: Wealth tax, thank you, which can be one reason, but this would be speculation from our side. I don't know his personal situation. Unknown Executive: What deliveries remain to ACES project, excluding the service agreement? And do you expect any deliveries to the project in Q4? Jarle Dragvik: Martin? Martin Holtet: No. So with regards to deliveries, of course, we are doing now some on-site work still. But as Jarle explained earlier today, the project is now soon to start up. And of course, then there will be sort of the -- call it, the final handover of the project to our clients from our side. But with regards to equipment, everything is delivered from our side. Unknown Executive: And is it possible to disclose how much of the order backlog that consists of the service agreement with ACES project? Martin Holtet: Yes. So we do not provide sort of a breakdown of the backlog on projects. But I think we have previously indicated some sizes of that. And the majority -- the far majority of the backlog is related then to the service agreement on the ACES project, while the -- call it, the other remaining part of the backlog is related now to the outstanding deliveries on or remaining deliveries on the SALCOS order, which is then the electrodes now being produced in Denmark. Unknown Executive: There are several questions regarding the LONGi partnership. So how is the partnership progressing? Jarle Dragvik: The partnership is progressing very well. We are in good discussions and planning of consolidation of the manufacturing capacity in China. We also have discussions on technology side and share of experience and also developing cooperation in other areas, but things like this does take time, but we have an excellent cooperation with LONGi. Unknown Executive: And one question is with all the future optimism and growth prospects you see, why are the insiders not buying stocks to show a commitment? Jarle Dragvik: Well, there are several reasons. First of all, there are some programs of options that has been running. Some has now, what do you call it, been running out in time... Unknown Executive: Expired? Jarle Dragvik: Expired. Thank you. And also, we are often confronted with positions of being an insider position. A small company like HydrogenPro with -- being negotiations with customers, future orders, it could be other strategic discussions, are limiting the windows for buying shares. Unknown Executive: And what would you highlight as the main explanations for the delays in FIDs in Europe? Jarle Dragvik: It's several, and I think we have touched upon it in also previous presentations -- previous quarters, but unclarity in regulations is clearly one major reason. Another reason is that it does take time to build the value chain. So the offtake side, which, again, also dependent on the regulation side has also caused delayed. And then we have had behind us, as we know, a period with high inflation and cost increase, increases in energy prices, which has made a lot of the project owners having to recalculate their investment projections and calculations. And all this together basically has caused much of the delays. Unknown Executive: And how are the contract values allocated between you and Thermax for potential orders in India under your current partnership? And would your electrolyzers carry the same pricing and margin profile as in other markets? Jarle Dragvik: Yes. Good question. Well, in terms of the revenue profile, I think we can say that it's a bit similar profile as you would see with our partner, ANDRITZ in Europe, where Thermax will take the full EPC and basically sell the total plant more or less in a turnkey setting. We will then sell our part of the equipment to Thermax. Now India is a very price competitive market, no question about it. We have yet to finalize, obviously, final contracts with customers in India, although we are in good discussions. But until then, we will see. But I think we have to be realistic to also see that India is competitive. Unknown Executive: And do you -- do the recent project awards in this market represent kind of early signs of recovery or green shoots in your opinion? Jarle Dragvik: Well, recent -- there has been some -- I don't know if the question refers to some of the announcements here in Norway. It's very small projects, although giving a positive sign that project owners are taking the steps toward FID. We see also same kind of movements on larger projects in some place of Europe and also other parts of the world that we have mentioned. So I think we see that project owners are getting more confident and ready to take FID. Unknown Executive: One big news is the recruitment of CCO. So what does this indicate about HydrogenPro's ability to attract strong competence? Jarle Dragvik: I think if you look at the recent recruitment, but also not just that, if you look at the recruitment we have done over the last 1 or 2 years, see that it's very high quality and good competence that we have been able to attract. And I'm very proud that a company like HydrogenPro is able to attract competence several people with PhD and also Masters, but also on the engineering side, commissioning engineers, et cetera, that we have attracted over the year shows that we are attractive. I think it also shows that a lot of people are still looking into -- going into sustainable energy and the green sector and wanting to make a better world and therefore, coming to companies like HydrogenPro. Unknown Executive: And some detailed questions about the projects. So how many projects with LONGi and the Thermax are in FID, if you are able to disclose? Jarle Dragvik: No, we do not disclose details of our pipeline. We will announce projects that's being awarded in due course. Unknown Executive: Okay. Jarle Dragvik: Thank you very much. Unknown Executive: Thank you. Martin Holtet: Thank you.
Operator: Ladies and gentlemen, welcome to the Analyst Call Q4 Fiscal Year 2025. I'm Moritz, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Tobias Hang. Please go ahead, sir. Tobias Hang: Good morning, and a warm welcome to the Siemens Energy Q4 Fiscal Year '25 Analyst Webcast. Today, we are here in the factory in Berlin. First of all, I really have to say that we are sorry that you had to wait for 5 minutes. Of course, we're going to add that -- the 5 minutes up on the end of the call, so that should happen, please excuse for that. As you probably noticed already, we pre-released our results yesterday night and published all the documents around 9:00 p.m. on our website. Now I'm pleased to have with me here President and CEO of Siemens Energy, Christian Bruch; and Maria Ferraro, our CFO. And in the next 30 minutes, Maria and Christian will take you through the developments of the last quarter and the fiscal year 2025. Thereafter, we will continue with our Q&A. For the entire webcast, we estimated roughly 1 hour. So with that, I would hand over to Christian. Christian Bruch: Yes. Thank you very much, and also good morning, everybody, also from my side, and thank you for joining our quarter 4 call. We do it here from the factory in Berlin, and that is something I wish you could see it really continuously because we have our products around us, and this gives a good atmosphere. As we wrap up fiscal year 2025, I would like to take a moment to reflect on Siemens Energy's journey over the past 5 years. And when we listed Siemens Energy on September 28 in 2020, we had a clear ambition, focus and deliver on fundamentals, co-create innovations with customers and partners and start the energy transformation, all this based on our purpose, reenergize society. And since then, we have come a long way. We are offering the right products, solutions and services to serve our customers in a changing energy world, driven by higher electricity demand and the need for energy security. The trust of our customers placed in us and the strength of our portfolio is reflected in our continuous revenue growth since our listing in total by 40% to almost EUR 40 billion in fiscal year 2025. At the same time, our order backlog has increased by around 75%, bringing us to another record high level of EUR 138 billion at the end of fiscal year '25. This is underlining the confidence of our customers and our ability to deliver complex critical infrastructure energy projects and the strong order backlog provides us good visibility for fiscal year 2026 and beyond. Our journey has not been without challenges. We started in a world which was determined by COVID. And in fiscal year 2023, we were confronted with severe challenges at our wind business. Our focus on operational discipline and stringent execution brought us back on the successful path. And since then, the resilience of the company has been strengthened. The result of this journey, a 350 basis point profit margin improvement since our listing and a 1,500 basis point improvement since fiscal year 2023. Looking at this development, I want to thank everyone working at Siemens Energy, our team purple to make this happen. I'm proud of what the team at Siemens Energy has achieved together so far and the journey has just started. If the past 5 years have been about building the foundation and fiscal year 2025 was the start of a growth journey with continuous margin expansion. Earlier this year, we upgraded our guidance at our half year results to reflect our confidence in the development of our business. And I'm pleased to report that we have achieved the top end and partly overachieved our upgraded targets. Fiscal year 2025 has been a year with strong performance. We saw 15% revenue growth, driven by robust demand across our core segments. We achieved significant margin improvement of 500 basis points year-over-year, thanks to operational excellence and the execution of more profitable orders, which we signed in the last couple of years. And finally, we generated an excellent level of free cash flow. While Siemens Gamesa continues its turnaround journey, the rest of our portfolio has demonstrated remarkable performance. For the fiscal year 2026, we have set ourselves ambitious targets. We also upgraded our midterm targets for fiscal year 2028 substantially. For fiscal year 2026, we target a profit margin before special items of 9% to 11% and revenue growth between 11% and 13%. Midterm, for the fiscal year 2028, we are aiming for a low teens percentage range revenue growth and a profit margin before special items of 14% to 16%, more than doubling current margin levels within 3 years. And these targets are based on a robust order book, a culture of accountability and operational excellence. Looking into the development of orders and revenue in the different regions in fiscal year 2025, we have seen strong market momentum and are confident that this will continue in the next years and be a strong base to achieve our midterm targets. During the last year, all our regions, Europe, the Americas, Asia Pacific and the Middle East delivered consistent expansion in demand. The underlying favorable trends are intact and continuing for the foreseeable future as the demand for electricity and the need for modernization and expansion of the electrical infrastructure should proceed to increase. Our portfolio covers to a large extent, today's and future technologies to meet this demand. And next to the coal to gas shift, peaker demand and the generally higher electricity demand from developing societies as well as increase of electrification, 2025 order intake has been substantially supported by the electricity needs for data centers. Especially in the U.S., this has driven unprecedented demand for gas turbines and grid infrastructure and translated into record high order volumes for Siemens Energy in fiscal year 2025. We almost doubled the number of gas turbines sold globally from 100 units in 2024 to 194 units in 2025. Grid technology more than doubled the sales to hyperscalers to over EUR 2 billion in fiscal year 2025 driven by North America, but also across all other regions. It is for us a deliberate target to diversify the origin of our orders, ensuring that our growth is balanced and resilient. Based on the current growth momentum, we are adapting our footprint and aligning our operations to regional demand and customer needs. The increasing regional setup helps us to mitigate the continuous geopolitical challenges like tariffs, which we, for example, experienced in the second half of fiscal year 2025. Let me give you some additional highlights on new projects from the last quarter. In our gas service business, we sold in the quarter 5 gigawatts of gas turbines and signed 11 gigawatts in reservation agreements. And this was mainly driven by Saudi Arabia and the U.S. With that, the total commitments increased to 54 gigawatts in fiscal year 2025, thereof 26 gigawatts orders and 28 gigawatts reservations, 12 gigawatts are related to data center. Pricing momentum for gas services continued to be favorable and is expected to continue that way in the foreseeable future. Grid Technologies achieved the strongest quarterly order intake in fiscal year 2025, driven by substantial demand growth across all regions and the highest quarterly revenue in history driven by both product and solution business. We are confident that the profitable growth we aspire for fiscal year 2026 and beyond is supported by a strong electricity market. Fiscal year 2025 was marked by several milestones that provide a foundation for future success and shareholder returns. And due to our solid financial performance throughout the year, we were able to exit the bond guarantees, improve our credit ratings and lift the dividend ban for fiscal year 2025. Our net cash position and robust liquidity profile allows us to pursue strategic growth and shareholder returns without compromising financial discipline. We have put the right measures in place to continuously drive profitability. This includes optimizing our cost structures, reducing nonconformance costs and being selective with the projects we take on, ensuring they align with our target margins and long-term strategy. Our portfolio optimization efforts are well underway, but we will continue to review our portfolio elements. The divestment of our Indian wind business, which we have agreed in 2025 with a group of investors led by TPG is an important step to focus our onshore wind power on selected regions. Throughout the whole year, we were investing in the growth of our core business and the further strengthening of the supply chain. Examples were the acquisition of RWG and CIC this year, which will help our gas service businesses to deliver on their commitments. We have been and are investing in the expansion of our factories. Strong focus is here by the expansion of existing sites to achieve effective use of the capital spend and short payback times. I'm pleased that also the development of partnerships to enhance our offerings into the market made good progress in fiscal year 2025. Here to mention Rolls-Royce in the area of small modular reactors and Eaton in the field of data centers. You will see a lot more details on our future journey during the Capital Market Day in Charlotte, and we are excited to discuss these measures together with you. We are positioning Siemens Energy to lead in the field of resilient energy, pursue profitable growth and deliver sustainable shareholder returns. With that, let me hand over to Maria for the numbers. Maria? Maria Ferraro: Thank you very much, Christian. Hello, everyone, from my side. A very good morning and also a very warm welcome. I'm pleased to share with you our Q4 and full year financial results. As always, I'm happy to answer any questions you may have afterwards. Before I go into the performance of the specific business areas, I would like to start with an overview for Q4 and full year 2025 at the Siemens Energy Group level. So overall, we had a very strong finish to the financial year. Quarterly revenue exceeded the EUR 10 billion mark for the first time with strong quarterly figures recorded for orders, profit and cash flow. Fiscal year '25 is a record year, and we reached the top end of our guidance for all KPIs. Now looking at Q4, orders reached EUR 14.2 billion, and we saw a continuing strong demand, specifically in GS and GT. For the full fiscal year, we ended up just shy of EUR 60 billion in orders. This marks a record high since the listing. On a geographic basis, growth was broad-based, all regions reporting recorded increases. For fiscal year '25, orders were driven by a significant increase of 21% in our new unit business. Here, we saw exceptional growth in Gas Services with a remarkable 94%. Our service business grew by 16% compared to fiscal year '24. The book-to-bill ratio in fiscal year '25 was at 1.51 for the group, and the order book climbed once again to a new record high of EUR 138 billion. Revenue in Q4 reached an all-time high since the listing, like I mentioned, of EUR 10.4 billion. This is a 9.7% increase on a comparable basis. The improvement of this quarter was primarily driven by GT and TI with both growing by more than 19% on a comparable basis. For the full year, we ended up just shy of EUR 40 billion in revenue, which also marks a record high since the listing. Full year revenue grew significantly in both new unit at 18% and in service with 13%, both on a comparable basis. In Q4, profit before special items was EUR 471 million. This is significantly above the negative EUR 83 million in prior year's quarter, ending the fiscal year almost at EUR 2.4 billion. Again, this is another record for Siemens Energy since the listing. Here, our profit increase was mainly due to increased volume and related productivity effects, but was also driven by improved margin quality of the processed order backlog. Profit was negatively impacted by tariffs in the quarter with a high double-digit million euro amount. As already indicated in Q3, this was mainly due to the changes in the custom regulations between Europe and U.S. Additionally, in Q4, the amendment of Section 232 came into effect, which impacted mainly Siemens Gamesa. In special items, we see adjustments mainly in Siemens Gamesa related to the sale of the Indian wind business, as expected as well as the continued restructuring efforts. Net income for Q4 was EUR 236 million. Free cash flow pretax was more than $1.3 billion for the quarter and therefore, significantly above last year's quarter level, mainly driven by the sharp increase at Gas Services. I will talk a little more in detail about the drivers of our free cash flow on Slide 11. So now let me turn to our order backlog on the next slide. So looking at our backlog, as we mentioned, we ended the year at $138 billion. And for fiscal year '26, so this coming year, the revenue coverage is already more than 85%. And in fiscal year '27, we see this as approximately 60%. We also see an improved order backlog margin development in fiscal year '25. I will stop there because I will provide further details on the backlog margin development by BA at our Capital Market Day next week. So please stay tuned. So now let me talk in more detail about the drivers of free cash flow. Free cash flow pretax, as I mentioned, was EUR 1.3 billion for the quarter, roughly EUR 400 million more than Q4 of prior year, again, mainly due to improved profitability impacting our net income. Positive cash contributions from our net working capital is mainly driven by an increase in contract liabilities and a decrease in inventories. Additionally, we continue to have incoming reservation fees. This is also adding to our cash flow generation. So very quickly, an update on Siemens Gamesa's quality cash outs. For Q4, this amounted to EUR 157 million. And for the entire year, it was approximately EUR 450 million. This is in line with our mid-triple-digit million euro amount that we indicated for this fiscal year. And also, we expect a similar amount for fiscal year '26. Looking at CapEx, we spent $685 million in Q4 or roughly $1.7 billion for fiscal year '25. This is to fuel our future growth mainly for expansion and capacity extensions. For example, the ramp-up in Siemens Gamesa offshore as well as investments for capacity expansions in Gas Services and Grid Technology. The amount spent in this fiscal year was lower than anticipated at the beginning of the year just due to timing and reallocations. So therefore, please stay tuned also in terms of how we see target of CapEx for fiscal year '26. We'll look at that a little more in depth, of course, at our Capital Market Day next week. So now looking at net cash on the right-hand side of the slide. Overall, we have $9.2 billion in cash and cash equivalents. Our financial debt stood at EUR 4 billion, of which $2.4 billion is long term. This is an increase of approximately EUR 0.3 billion versus Q3, mainly due to increased leasing obligations. And taking into account pension provisions of EUR 406 million, this brings us to an adjusted net cash position of EUR 4.8 billion at the end of September compared to just EUR 2 billion a year ago. So overall, we continue to have to build a strong balance sheet commensurate with an investment-grade credit rating profile. So now this is a perfect segue to a question we receive very often from investors over the last few months regarding capital allocation. For this as well, we will provide more details at our Capital Market Day next week. However, one message which we can already reveal today is the dividend proposal for fiscal year 2025, demonstrating our commitment to shareholder return. We will propose a dividend of EUR 0.70 per share for fiscal year '25, subject to approval at our Annual General Meeting in February 2026. So now let's have a quick look at the financial performance of our 4 business areas, starting with our Gas Services business. In GS, we had a very strong finish to an exceptional fiscal year '25. Congratulations to the entire Gas Services team. The Q4 orders of $4.8 billion were up by roughly 38% from prior year quarter, again, driven by strong demand in the U.S. and Saudi Arabia as well as significant growth in service business, which was up roughly 48%, ending fiscal year '25 with a record order intake of EUR 23 billion. Book-to-bill was an impressive 1.89 for the fiscal year. This led to a record order backlog of $54 billion, another all-time high for our GS business. In Q4, Gas Services booked a total of 19 gas turbines for power generation in oil and gas, 11 of those were large gas turbines. Our gas turbine greater than 10-megawatt market share for power generation stood at 14% and for large gas turbines greater than 100 megawatts at 19%. Q4 was always expected to be a bit lower compared to the previous quarters solely due to timing. For fiscal year '25, overall, Siemens Energy achieved #1 position in gas turbines greater than 10 megawatt for power generation with 31% market share. In large gas turbines greater than 100 megawatts, we have secured #2 position with a 26% market share. Again, a fantastic performance, and we are really grateful for the confidence our customers have placed in us and for our team's ability to secure those orders. Q4 revenue was $3.1 billion, a 15.5% increase on a comparable basis. This ends fiscal year '25 with a record revenue of more than EUR 12 billion and a comparable growth of 14.2%. This is above the fiscal year '25 guidance range of 11% to 13%. In Q4, new unit business showed significant growth of almost 34% comparable and service business of roughly 15% comparable. Q4 profit before special items was EUR 251 million. This was a margin of 8.1%. This is 300 basis points versus prior year Q4, again, showing some of the normal seasonality pattern, but also reflecting the improved margin quality for the processed order backlog and new units business. This ends fiscal year '25 with a record profitability of almost EUR 1.6 billion and 13% at the top end of the 11% to 13% fiscal year guidance range. Lastly, but certainly not least, free cash flow for the fiscal year came in at a very strong EUR 3.2 billion for Gas Services. This is a cash conversion rate of just over 2. Again, a fantastic job GS. So now let's take a look at our Grid Technologies business. This was also a record year for Grid Technologies, well done. Q4 orders of EUR 6.9 billion, up 31% year-over-year. This was driven by strong growth across all regions, but specifically in the U.S. and an exceptionally high demand for product business. This ends fiscal year '25 with a record order intake of more than EUR 21 billion. Book-to-bill ratio for fiscal year '25 was at 1.9, again, resulting in another record order backlog of $42 billion. Quarter 4 revenue reached a new quarterly high and grew by 19% on a comparable basis to $3.1 billion. This is ending fiscal year '25 with a record revenue of more than $11 billion for GT and a comparable growth of 25.4% for fiscal year '25, which is within the upper end of the guidance range of 24% to 26%. Revenue increase was supported by the steady processing of the order backlog with the short-cycle business exceeding the solutions business. Q4 profit before special items was EUR 463 million. This was a margin of 14.7%. This is also plus 450 basis points versus prior year quarter 4, ending fiscal year '25 with a record profitability of almost EUR 1.8 billion and 15.8%, again, well at the upper end of the 14% to 16% guidance range for fiscal year '25. Free cash flow for the fiscal year for GT came in at EUR 2.8 billion and a cash conversion rate of just over 1.55. Excellent job. Thank you so much. And again, well done to our GT team. On the next slide, we take a closer look at our Transformation of Industry business area. Fiscal year '25 was a record year for TI with regards to revenue and profitability. Q4 orders were EUR 1.6 billion. This was the highest quarterly order intake for the fiscal year. However, a decrease of approximately 20% versus prior year on a comparable basis. This was due to an exceptionally large order in prior year orders in compression and in sustainable energy systems. The full year came in with EUR 6 billion. The book-to-bill ratio for '25 was just over 1 at 1.01, and the order backlog at the end of the quarter amounted to EUR 8 billion. For TI, Q4 revenue grew by just shy of 20% to EUR 1.6 billion, mainly due to substantial growth in the compression business. This is ending fiscal year '25 with a record revenue of $5.7 billion and a comparable growth of 13.5% Q4 profit before special items was EUR 177 million, almost double compared to Q4 of last year, resulting in a margin of 11%. This is a plus 420 basis points versus prior year Q4, ending fiscal year '25, again, with a record profitability of almost EUR 646 million and 11.3%, above the 9% to 11% fiscal year '25 guidance range. Here, the biggest contribution to the improvement in Q4 came from industrial steam turbines and generators with plus 420 basis points and compression with plus 300 basis points compared to previous year's Q4. Again, huge congratulations to the TI team. They have really been on a successful turnaround path for the last couple of years. On that, when the TI business area was established, we emphasized the turnaround nature of most of its businesses and as a result, provided additional voluntary disclosure for the independently managed businesses or IMBs. Given the successful turnaround of key businesses such as compression and steam turbine generators, this additional disclosure no longer will be provided. Accordingly, beginning with fiscal year '26, reporting for TI will be standardized in line with the group's approach and the other business areas and the separate IMB disclosure will be discontinued. So therefore, as of now, so for Q1 of fiscal year '26, TI will be reported in the exact same manner as all the other business areas. So moving on to the next slide, where we take a closer look at Siemens Gamesa. Here, Siemens Gamesa finished fiscal year '25 in line with expectations despite the strongest headwinds from tariffs. Q4 orders came in at EUR 1.1 billion. This is a similar level as last year's Q4 number if adjusted for roughly EUR 3 billion large offshore order in the North Sea in the prior year quarter. Orders overall for fiscal year '25 are EUR 9.3 billion. The book-to-bill ratio for '25 came in at 0.9 and the order backlog is EUR 36 billion. Q4 revenue of EUR 2.7 billion, representing a decline of roughly 9% on a comparable level to prior year's quarter. In Q4, a significant increase in the offshore business could not offset the expected decline in the onshore business. However, overall revenue for fiscal year '25 was 10.4 billion, well above the fiscal year '25 guidance range of -- with 4.7%. Q4 profit before special items came in at negative EUR 303 million, significantly better than prior year's quarter level, but remained negative, ending fiscal year '25 at around negative EUR 1.3 billion, which is exactly in line with our guidance. This quarter, we did have more underlying operational improvement, which was held back by certain negative effects, for example, tariffs imposed by the U.S., which we already indicated in our Q3 closing. In the Q4, the direct negative impact for tariffs forcing in Gamesa was a low to mid-double-digit euro million amount and again, mainly driven by onetime effects related to long-term service agreements in the U.S. So now let me move on to our outlook for fiscal year '28 and raised fiscal year '28 targets. First, our financial outlook for fiscal year '26. For SE overall, we expect 11% to 13% comparable revenue growth and a profit margin before special items of 9% to 11%, this is at the midpoint, a step-up or increase of 400 basis points compared to fiscal year '25. We also expect a net income of $3 billion to $4 billion and a free cash flow pretax of $4 billion to $5 billion. Looking at the business areas when it comes to revenue growth, all business areas will grow in fiscal year '26 with Grid Technologies leading at 19% to 21%, then followed by Gas Services with a growth of 16% to 18%, both of them in the high teens. All business areas are demonstrating continuous year-over-year improvement and delivering double-digit profit margins or high. The most significant step change will be the anticipated breakeven of Siemens Gamesa. In addition, all other business areas are targeting a margin uplift of approximately 200 basis points compared to the fiscal year '25 target ranges. So now just quickly, the updated financial targets for fiscal year '28. As indicated in Q2 of last fiscal year, when we upgraded the guidance for fiscal year '25, we did use the time to update the midterm targets accordingly. For Siemens Energy Group, we are aiming to achieve a compound annual growth on a comparable basis in the low teens percentage range through fiscal year 2028. In addition, we target a profit margin before special items in the range of 14% to 16% by fiscal year '28. This represents a step-up of approximately 400 basis points compared to previous targets. The business area targets for revenue growth and profitability have been outlined accordingly. So in summary, all business areas foresee continued revenue growth. For profitability, the most significant step change by '28 will include an uplift of approximately 600 basis points for Gas Services and 500 basis points for Grid Technologies compared to prior targets. And with this, thank you very much for your attention. And I now hand back to Christian for some closing messages. Thank you very much. Christian Bruch: Thank you very much, Maria. Thank you. And I will keep it very, very short because, obviously, I look forward to see you next week on the Capital Markets Day when we have more time to discuss, and we will provide you with more details on our different businesses and the way forward of the company. Summarizing 2025, it was a successful combination of an attractive market environment, products from our side, which are really needed by the market and resilient business models, which now provide a very solid foundation for the future. We at Siemens Energy are excited to improve our company further and have kicked off with the new fiscal year, our program, Elevate Performance, which we will talk more about during our Capital Market Day. Our increased midterm guidance for 2028 underlines the performance commitment of the whole organization, driving disciplined execution, innovation and a relentless focus on customer and shareholder value. And for now, let me hand it over to Tobias again for the question-answer session. Thank you. Tobias Hang: Thank you so much, Christian. Thank you so much, Maria. So now we will start our Q&A session. [Operator Instructions] I already see that we have quite a lot of people in the line. So I would always call up the next 3 names so that you already prep for your question. And the first question will go to Sebastian Growe afterwards, it's Ajay Patel and then Max Yates. So Sebastian, please go ahead. Sebastian Growe: First question would be around free cash flow and the pretax target here is EUR 4 billion to EUR 5 billion, which is implying apparently around 100% conversion from the adjusted EBITDA. So could you please help us with the key parameters going into this, such as CapEx, especially in the wake of that you spent EUR 4.3 billion less than earlier guided last year, also the budgeted cash out at Siemens Gamesa. And could you also comment on what the cash impact from slot reservations has been in '25 and how you view the conversion of the now 28 gigawatts in reservation agreements in the year '26. Maria Ferraro: Hello, Sebastian and thank you very much for your questions regarding cash flow. And of course, looking at the guidance to EUR 4 billion to EUR 5 billion. So as you rightly mentioned, we do expect a CCR of 1 in fiscal year '26. And of course, we do continue to see a positive impact from payments with respect to our order growth for the year and our continued backlog growth. Again, looking at CapEx, we'll provide more details on that next week at the Capital Market Day, but consider that the CapEx continues to exceed depreciation. And of course, we also have some shifts back and forth between the 2 fiscal years. And as mentioned earlier, with respect to Siemens Gamesa cash outs, there was around EUR 450 million of cash outs relating to the provisions booked before for the quality topics, and we expect a similar amount for next year. So those are the other aspects that went into the EUR 4 billion to EUR 5 billion cash flow guidance. Tobias Hang: So the next person would be Ajay Patel. Could you please limit your questions to one because we have so many people on the line. Ajay Patel: Congratulations. My focus is just on your guidance. I'm looking at the '28 target. And I just want to compare it with '24 to understand the margin progression and the 2 main drivers. I was thinking, is there any way you could roughly give us the improvement in margin from '24 to '28? How much is driven by productivity? How much is driven by pricing for service and technologies, please? Christian Bruch: Maybe I take this, and I would do this, with, once again, clear invite to next week. I mean we break down for every business more next week, and we want to really to understand the details behind it. So until then, I would keep it relatively generic. I would say the majority is productivity, the minority is pricing on this uplift on the margin. And this obviously helps us a lot that we have a very good planning base, volumes are high. So it allows us a good leverage in productivity that also going forward. Obviously, yes, I mean, backlog margin has continuously improved, and this is what Maria is going to walk through next week. But I would suggest let's take it really up next week when we in detail explain it step after step. Ajay Patel: And that was for both divisions, right? Gas Service and Grid Technologies, that comment? Christian Bruch: Was is what? Ajay Patel: Was for both divisions, right? Christian Bruch: Yes, correct. Yes. Maria Ferraro: It covers. Actually, Ajay, you'll see that -- those details for all of the business areas next week, which show the backlog improvements. Ajay Patel: I will be there. Tobias Hang: The next question goes to Max Yates, please. Max Yates: I wanted to ask about the Gas Services margin guide for 2028, 18% to 20%. I think that's probably the one that has surprised maybe me and the market the most this morning. So I guess I just wanted to understand what is it that has given you the confidence to really put that up sort of as aggressively as you have? Is this mostly around the gross margin expansion on new equipment? Are you also now sort of becoming more optimistic on some of the pricing in services? And maybe just sort of finally within that, I know you won't give us the kind of target by equipment and aftermarket, but is it right to think sort of qualitatively that the margins of those 2 businesses are broadly converging within that target? So that's my question. Christian Bruch: Thanks very much, Max. And also there, I mean, you will see a great presentation on Gas Services next week with a lot of the details. But let me put a couple of comments in there. First of all, what we absolutely do see, and this is different to 2 years ago, we see the gas order intake, gas business level substantially higher than before. And this gives us a long-term planning base, and that has been a substantial uplift, which also helps us to drive the margin because that is also about absorption, the factory, more productivity measures, better supply chain management. So there's a lot of elements into that. On your comment with regard to service and new unit, be a bit careful because actually, the proportion of the new unit business is going to be, let's say, growing faster and bigger than the service business. Some of the service business, which is going to be related to the new units business is only going to kick up in '28 and thereafter. So that is something what you have to see. There is still a decent difference in the margins on the different businesses. But what we are really benefiting from now also going forward is keep in mind, when we started a couple of years ago, we were just introducing the large units, HL. So we have a lot of learnings also through that. And that is where we get better and better really every year. We see that. We know what we need to do. And this is things which are now obviously behind us. But Karim will be there next week also and walk you in detail through the different matters, but that has been mainly it. And yes, the pricing in gas is still very favorable, but I would not underestimate really the productivity elements, which we see really in the business area. Tobias Hang: So the next 3 questions go to Gael de-Bray, Vivek Midha and Alex Jones. Gael de-Bray: So if I have to stick to one question. Let me ask about the 2026 outlook. When I look at the margin guidance for the divisions and put them together, the weighted average implies a margin that is clearly higher than the 9% to 11% range you're guiding for at the group level. So is this because the breakeven for Gamesa is not a real breakeven, but rather start with a minus or is there anything else to consider? Maria Ferraro: I'll take that. Hello, Gael and thank you for the question. And let me just be clear, it does not indicate -- and you're right in your calculations, but that does not indicate any lack of confidence in the BA ranges, not at all. It is correct that if you do the math, of course, there's some, let's say, conservatism in relation to the BA ranges. We want to deliver what we promise, and we try to ensure that we have certain estimates for that because no doubt, the environment in which we operate continues to be dynamic. And headwinds are present in various areas. So for example, last year, of course, in fiscal year '25, we experienced the tariffs. Of course, that's very much under control, we have that embedded in our guidance for next year. But of course, we always are ensuring that there is some -- if headwinds are present that we are able to handle that. And I know it maybe sounds silly, but there's also an element of rounding, of course, within all of it, trying to be as precise as possible as we can be with the BA ranges. But still, I do want to ensure you that there is no lack of confidence on the BA ranges in this regard, not at all Gael. Tobias Hang: Thanks so much, Maria. Gael de-Bray: For Gamesa, what is the sequential path to breakeven that we have to consider for 2026? Maria Ferraro: You want to take that -- the sequential path for -- well, I'm happy to take it, and please jump in, Christian, if you'd like. I mean, look, you see in fiscal year '25, we've done a number of things right in the Siemens Gamesa business. They've been able to ensure that they're starting to look at how does the productivity look in all of their facilities that they're ramping up. We have an example here in Germany, where one of the facilities, the productivity has increased year-over-year by 30%. And as a result, you see that also in their ability to exceed their revenue forecast for this year. They continue to very clearly look at optimizing footprint, ensuring that in terms of cost efficiency, supply chain, et cetera, all of those levers they're bringing into this fiscal year. Please don't expect a linear progression to breakeven. We do expect that the first half or the first quarter for sure, continues to be negative. Q2 and Q3 really then brings us to a positive Q4 for Siemens Gamesa in fiscal year '26. Tobias Hang: So the next question goes to Vivek Midha from Citi. Vivek Midha: I just have a follow-up around the reservation activity. It looks like you had a really good quarter, 11 gigawatts of new reservations in the quarter. You called out Saudi Arabia and the U.S., but it will be great if you might be able to expand on the makeup of the incremental new regions, on frame types and so on. Christian Bruch: I would once again hit a lot next week where we try to give you the breakdowns. But let me say a couple of comments to what you said. Obviously, yes, U.S. has been generally a strong market for us in '25. What I would like to highlight is really our success across all different frames at Siemens Energy. The good thing is, obviously, we have small gas turbines, midsized gas turbines and large gas turbines. And what you have seen that all of the frames are in good demand and really also have helped us sometimes to accommodate timing needs of customers. In terms of markets, also, as I said in the last quarters, we try to keep the balance. Yes, obviously, U.S. with 31% market share in the market -- in the order intake was a good one. But Middle East, it's not only Saudi, you see UAE obviously also now getting very active. You see orders we get in other parts of either North Africa or places like Iraq, where we were successful. So this is really across the board, but I would really ask for your patience, join us next week, much better. Karim is the right person to dive deep into that, and you will see a lot of great information. Tobias Hang: Next question goes to Alex Jones from Bank of America. Alexander Jones: Christian, I think earlier today, you made a comment that there are fewer synergies between onshore and offshore within Gamesa than perhaps is expected from the outside. Could you expand a little bit on that -- those comments and whether that signals an openness to exit onshore once you reduce cost and fix the current issues? And if that's not something you've already decided, what are the key criteria you're looking at for making that decision over the coming years? Christian Bruch: No, thanks for the question. And I -- let's say, don't overrate it. But what I want to flag up is that from my perspective, each of the business has to prove their existence. This might be in a different time frame because they're developing time-wise differently. But I look similar to other parts of the business, I look on it really business unit by business unit. So 1 level deeper or 2 level deeper is to say, and this has to be a good one. And yes, there are some synergies on the administration costs. There are less synergies on the market side because offshore, by and large, is 2 handful of countries. Onshore is a little bit more diverse in the countries. And obviously, on the factories, most of our factories are either producing offshore or either producing onshore, and we have not seen that as a main lever. In both areas, obviously, we tap into wind, turbine technology knowledge. So that is something. But what I wouldn't do is to say, let's say, you definitely can only run it together, but our target is to make both businesses successful look on it like this in that regard, that was the logic behind the statement because we don't have the one factory where we do all products from and just that this is understood. Tobias Hang: Thanks so much. So the next 3 questions go to Akash Gupta from JPMorgan then Uglow from Oxcap and Sean McLoughlin from HSBC. Akash Gupta: I have one on Siemens Gamesa. And maybe if you can provide a bit more color on this almost EUR 1.36 billion loss in last fiscal year between onshore, offshore and service. And when we look at the breakeven, can you also help us what are you assuming for each of the 3 businesses? Christian Bruch: You want to take this... Maria Ferraro: You can start... Christian Bruch: I start maybe one thing to always look at, I think I said it in one of the calls before. Keep in mind, if you talk about the EUR 1.3 billion, there are some one-offs in '25, which I don't expect to reoccur in '26. So the jump-off point is slightly different. In terms of the breakdown of the businesses, maybe, Maria, you take this. Maria Ferraro: And this is what we've always said, Akash, is on our way to the breakeven that we have to have, of course, the onshore has changed in terms of the dynamic, of course, because with the sales stop, et cetera. The offshore revenues, as I mentioned earlier, are now starting to come into the revenue stream. We continue to have a strong service business. The one-offs that Christian is mentioning is actually related to the service business in fiscal year '25, and that's really the components, if you'd like, that will make sure on top of other levers, of course, to get us to our breakeven for fiscal year '26. Akash Gupta: Is it possible to quantify roughly these one-offs so we know idea what underlying profit? Maria Ferraro: No. Those one-offs, of course, are generally project-related in nature. But in terms of the split, I can say that 2/3 is onshore and service and 1/3 is offshore. Tobias Hang: So the next question goes to Ben Uglow from Oxcap. Benedict Uglow: I was interested in the kind of market share commentary. And in particular, if we look at the 194 units, there is this mix shift going on in your business from the large gas turbines to the industrial, the SGT-750 and 800s, et cetera. And when we look across the whole market, if I think about Caterpillar, et cetera, we can see that. I guess my question is, the assumption is that this is all to do with timing and availability of the engines. My question is, is this shift just a temporary thing? Or do you actually think it could be a bit more structural? And the reason why I ask this is there are some aspects of the, let's call it, smaller machines that are more relevant or more appropriate to data centers. So I just want to know your general sense on that. Christian Bruch: Yes. No, happy to take this, Ben. First of all, the big increase also on the MGT side, so the midsized gas turbine side is not only data centers. There is a good amount in data centers also because of shorter delivery times and sometimes of the flexibility to have multiple trains and providing actually also with the build-out of the data centers a better ramp-up curve. But there has been, for example, a very decent amount going to floating power, so gas turbines on a ship, right? There has been quite a decent amount going also on the industrial side afterwards on the compression side. So it's -- I don't want to create the picture that is just because of AI. That's not the case for the midsized gas turbine. This is also -- and we show it also next week, why we decided to increase the capacity on our Swedish facility, and Karim will share this next week in more detail. The good thing is, honestly, today, I cannot tell you, if you would say, long-term picture after 2030 or whatever, I don't know. But what we are doing at the moment is we are doing investments into capacity expansion with a very short payback time. This is what drives us. And so where I'm very sure is that the investments we are doing at the moment in the sites to expand capacity will pay off. That's I'm confident about. But structurally after 2030, to be seen, there is a lot of logic to have a multi-train solution with a robust turbine, what the midsized gas turbine is, but they will not be able to replace whatever an HL unit afterwards. I think this is what we're not going to see. Tobias Hang: So next question goes to Sean McLoughlin from HSBC... Sean McLoughlin: Just latching back on to the comments around productivity. I'm just wondering specifically on capacity. I mean, how much of the real increase on the top line for Gas Services, Grid Technologies is faster-than-anticipated capacity ramp? I mean you've highlighted challenges of ramping and tightness with supply chain previously. Has anything materially changed in your ability to scale faster than you expected versus a year ago? Christian Bruch: I would put it the other way around. The concerns have not materialized. And if you see the output of the factories, it was not a given for me in '25, particularly also with the ramp-up we had on the Grid Technologies side that we are able to get the volume out, which we finally got out. So I think good job done. And we had decent concerns with the ramp-up. We are, I think, also better in the compared to 5 years ago in terms of really standardization of really workflows and waste to producers. And the same obviously applies to the gas turbine. I think the gas turbine is now, let's say, going through this curve. And we see it obviously also on the blades and vanes production, which we have in Florida, the uplift is now happening. But by and large, I would say the main point for me compared to before, the teething pain concerns have not realized in the sense of what we were fearing before. In that regard, it was a good job. Sean McLoughlin: If I could maybe just follow up on Gamesa as well. I recall that the offshore ramp issues, if you like, were part of the big profit warning a couple of years ago. You're still talking about ramp for '26. I mean what about risks or, let's say, lingering risk or where are we on that standardization productivity? Christian Bruch: On the productivity in terms of what I do see and what the team has done in 2025, they have achieved really increases in the factory productivity of around 30%, right? It depends a bit on the factory, but that was a great job, right? And so I see the path is working out. What you have to keep in mind, we switched certain models, also switched certain blade lens in 2025. And this means you have to replace the tools, you have to start new, you have to say, we work the factory shop floor, and this costs productivity. Now it's really of doing the same thing over and over again. All what I have seen now in '25 gives me the confidence that this journey continues in 2026. Tobias Hang: Thank you so much, Sean. So next 3 questions go to Vlad Sergievskii from Barclays, Lucas Ferhani from Jefferies and William Mackie from Kepler Cheuvreux. Vladimir Sergievskiy: Very solid 15% growth in service business in Gas Services last year. Would you be able to give us some idea of the split of this service growth between long-term agreements and transactional business in 2025? Christian Bruch: No, I really struggle also from the top of my head that I give you the right answer. And I would really say next week, I think in terms of breaking it down, happy to discuss it, but I think I would otherwise give you no wrong numbers from the top of my head. Vladimir Sergievskiy: No worries. Even, I can quickly follow up on the gas turbine pricing through the course of last year. Have we been sequentially improving through the year? Have we plateaued at certain point? Christian Bruch: Yes, slightly, right? But I would also -- we will never be a quarter-over-quarter business. In that regard, I do look really on the sum of '25. What I would say is the pricing trend in gas end of fiscal year '25 still is intact and good. Tobias Hang: Next question goes to Lucas Ferhani. Lucas Ferhani: I just wanted to follow up on the gas business and the duration of the cycle. Can you talk a bit more about kind of the confidence kind of post 2028 that it's not, let's say, the best we see and there's more to go. And specifically, there's a lot of discussion on maybe the upside there is at the moment from hyperscalers and data center and whether that would normalize, what would happen to the overall market post that date? Christian Bruch: No, thank you for the question. And I think our midterm -- revised midterm guidance underlines that we very clearly say gas is here to stay. And that is a stronger message than we gave 5 years ago or 3 years ago. And in that regard, we -- if you look towards 2028, we're confident that this continues. We also believe we see the demand towards the end of the decade. Anything thereafter, I think it's really difficult to project and -- to say. But what I would say is what we are now trying to do and also with the build out of the capacity, we are trying to increase our fleet in the market. Whenever it turns, we sit on a super strong service business. That is the logic of Gas Services. But for the time being, for the next years to come, yes, we are confident that this trend remains. And then let's see after '28, what else is coming. Tobias Hang: Thank you so much. So Will Mackie from Kepler Cheuvreux. It's your turn, please. William Mackie: My question goes back to the guidance setting process and the future shape from '26 out to '28. Maybe given we're talking high level today and detail next week, you can just flesh out how the process was built top down, bottom up, how the shape of the guidance should unfold? Is it linear? Or is it very back-end weighted that you deliver on the growth and the profit projections? And to what extent are the elements of ramp-up costs and learning effects as you build through the GS and GT businesses weighing on the '26, but releasing in terms of the performance into '27, '28. Christian Bruch: Do you want to... Maria Ferraro: I can ask... Christian Bruch: So why don't you take the first shot. Maria Ferraro: I'm going to take the first shot. So how was the guidance composed or how did we put it together? I think, well, generally speaking, it's part of our overall planning process. And as Christian mentioned, in certain aspects, we didn't see or foresee such a momentum continuing for as long as we see it even as of our last planning cycle in last year. So how it was put together was very methodically, looking at the momentum that we see in GS and GT, seeing the market positivity that we see there. And I think you said something around linearity or nonlinear or is it back-end loaded. I would suggest it really is a constant, like I said earlier, a constant improvement year-over-year in those businesses. And why is that? That is because it's built on the backlog that we have, of course, in-house of EUR 138 billion, which gives us the visibility. Again, don't forget, 90%, almost 85-plus percent of our revenue is already in-house for this year, an additional 60% is in-house for next year. So really, that gives us a very strong basis for planning in terms of the figures. And then from a market perspective, and this is -- I'm sure what Christian will want to add, we've coupled that and said, okay, how does that factor into growth, et cetera. I mean, as you rightly -- or we've talked about, we have capacity coming on board. But again, it's all built on the back of our backlog plus our market expectations. Christian Bruch: Yes. And plus a couple of programs, which we also drive operational excellence in the organization. We will talk about this next week. The one nonlinear element in the -- if you look '26 towards is really wind, right? I mean there's a big step up next year. And then it's more step by step. This is what you have to keep in mind. The rest is really evolving the backlog and driving operational excellence. Tobias Hang: Absolutely. So thanks a lot, Will. As we started a bit later, we have 2 more questions to squeeze in. So the first question would be going to Kulwinder Rajpal from AlphaValue and the second one to Alex Hauenstein from DZ Bank. Kulwinder Rajpal: So my question was related to Gas Services and particularly the nuclear market. How do you see customer discussions shaping up so far? And if you could expand on the partnership with Rolls-Royce and how this positions you for the nuclear market. Maybe this is a key market for you beyond FY '28. Maybe we expect some details on it in the Capital Markets Day as well. So any thoughts here would be helpful. Christian Bruch: Yes. I mean, to some extent, we addressed it next week. But I mean, always, nuclear market is for us twofold. The one thing is a service market for the large turbines, which obviously we have a good installed fleet, and that is -- continues to be a nice service-driven business, which used to be in the mid- to high triple-digit million or so roughly depending on the year, depending who goes into, let's say, bigger maintenance cycles. And then you have the SMR pieces, as you said, with Rolls-Royce. And you have maybe seen the announcement this week. But this is something for us to 2030 in terms of realization, right? I mean this is long out. This is what we are now preparing. This is an important collaboration for us because we believe as a future project in this, but this will not influence our '26 or '28 or whatever that's not decisive there. That's more thereafter. Tobias Hang: So Alex Hauenstein from DZ Bank, please conclude with your last question. Alexander Hauenstein: I have a question with regards to the German government that speak about strategy to build new gas power plants and to bring them online by 2031. I saw on Bloomberg that you commented a bit on the press -- sorry, but I missed on that one. Nevertheless, maybe you could elaborate a bit from your point, beyond the point you made this morning about what that means for you in terms of potential new orders, if any, to come soon, especially in light of the capacity constraints which you have already. I mean, how realistic is this 2031? And I would be also interested to hear about what -- in terms of size and gigawatts, what you expect to get out of that or any indication on that would be great. And lastly, I would be curious to hear your thoughts about the requirements to build in green hydro readiness for these turbines. Christian Bruch: Yes. I mean, first of all, we are ready here, right, in terms of we are waiting for these projects, and I cannot wait really until they finally pull the trigger to do the auctions. We have -- I said it before, with a certain amount of customers, we have free agreements where it's even you go, we go type of setups. In other customers, we have at least free alignments. It is an open competition with our peers, but we will definitely would like to secure projects in that. How much of this chunk and let's assume it's the 8 giga first and then the 2 giga later, I don't know yet, right? But one thing I can ensure we have planned it in, it's feasible also with the 2031, if they now move ahead. I mean, obviously, it depends on the start date, but we would be more than willing to fight for it, and we will try to secure a fair share out of these different projects. There was the last hydrogen piece. Yes. I mean, we test hydrogen for all our turbines. Most of the turbines take -- all of the turbines take a certain portion of hydrogen anyway. Smaller turbines, we have tested and operated on 100% turbine hydrogen already. And the development program for us is really projected towards 2030. So if we stay in this time schedule, I'm okay also with the hydrogen request. We will make this happen. The turbine will be available for that. Tobias Hang: Thank you so much. So with that, we would conclude our Q&A session. And Christian, do you have any last words? Christian Bruch: See you next week. Hopefully. That's my last word. Looking forward to talk to you and hopefully in person, but the ones who are then online also will be great to have a joint discussion. Thank you. Maria Ferraro: Looking forward. Tobias Hang: Thanks a lot. So with that, we're going to conclude this call. Thanks. Maria Ferraro: Bye-bye.
Annie Bersagel: Good morning, and welcome to the presentation of Orkla's third quarter results. My name is Annie Bersagel and I'm the Head of Investor Relations and Communications. Our President and CEO, Nils Selte, will begin with a summary of the highlights from the quarter. After that, our CFO, Arve Regland, will go into a deeper dive in the financials. Nils will come back with some concluding remarks before we go over to the Q&A. So just a reminder, we have a video Q&A with analysts first. And after that, we will take all of the questions that come through via the web. So you're welcome to submit your questions via the web at any time. So with that, I think I will now leave the floor to you, Nils. Nils Selte: Thank you, Annie, and good morning, everyone. This quarter, we continued to execute on our active ownership model and capital allocation strategy. The focus is on improving our core business in the portfolio companies and investing in opportunities that drive long-term value. To start with a highlight this quarter. In Q3, Orkla delivered 4.4% organic growth across our portfolio companies. Of this volume mix contributed positively with 1.3%. Underlying EBIT adjusted growth grew by 1.1%. This quarter, we see a mixed development across the portfolio companies. Adjusted earnings per share was NOK 1.85, a 9% increase year-on-year. And the IPO, Orkla India. I said at the Capital Markets Day in November 2023 that we were initiating IPO readiness study. Last week, we reached a major milestone with the IPO of Orkla India. It is the result of a year of steady work, and I'm proud of the persistence shown by our team in India and at headquarters to reach this point. Since we bought MTR Foods back in 2007, we have had an amazing journey starting with strong local brands and strong local management team. Orkla India acquired Eastern -- in Eastern in 2021, and have steadily grown the company to what it is today. Let me be clear, this is not -- this IPO is not an exit for Orkla. Orkla will remain committed -- a committed major owner of the company. As a listed company, Orkla India now has its own currency and the flexibility that comes with it, a tool that will support growth over time. The proceeds from the sale of Orkla India provides additional financial contribution alongside Orkla's robust cash flow from operation. To optimize the capital structure and return excess capital to shareholders in line with our capital allocation policy, we have decided to initiate a NOK 4 billion share buyback program. The program will begin on November 17, 2025, and conclude by the end of December 2026 at the latest. Moving on to organic growth development for the consolidated Portfolio companies here shown over the past 2 years. Nearly all of the Portfolio companies contributed to growth in this quarter. Orkla Food Ingredients and Orkla India had the largest positive contribution to volume mix. Orkla Snack, also a larger positive contributor to price growth due to extraordinary cocoa price situations. Turning to a breakdown of the Portfolio companies' performance. We see a more flattish development in the results this quarter compared to a strong quarter last year. With our continued focus on long-term value creation, we see positive underlying development in several of the companies. Profitability varied across our Portfolio companies, and Arve will present a more detailed picture of the individual companies, but a couple of developments deserve mentioned. Jotun continued to deliver strong results during this quarter with double-digit underlying EBIT growth in local currencies, while maintaining the high margin levels. Orkla Food Ingredients delivered lower EBIT growth compared to past quarters. This led to a weaker development in the Bakery segment, in addition to volume growth, in lower-margin categories in plant-based. The positive growth in the Sweet segment continued. Excluding the impact from Cocoa, Orkla Snacks continued to have a positive underlying development. Moving on the 12 month -- the trail rolling months, EBIT adjusted margin for the consolidated portfolio companies held at 10.3% in the third quarter, a 0.3% improvement year-on-year. This improvement was broad-based with corresponding margin improvement in 7 of the 9 consolidated Portfolio companies. In terms of input cost, the development remains polarized. We continue to expect raw materials prices in sum to stabilize in 2025, excluding cocoa. Beyond 2025, we expect a continued polarized cost development across sourcing categories and for the Portfolio companies with an overall neutral cost outlook despite inflationary market sentiment. At our Capital Markets Day, we laid out our 3-year financial targets for the consolidated Portfolio companies. At the same time, I said that improving the performance of our existing portfolio will create the most value in the short term. I'm impressed by the progress of our Portfolio companies so far delivering EBIT adjusted to compound annual growth rate of 11.8%, margin expansion of 1.3 percent points and an improvement in return on capital employed by 2 percentage points. All in line with our financial target for this strategy period. At the same time, a lot of work remains. We will be fully focused on delivering on each of these goals in 2026, concentrating particularly on continued organic growth, cost management and capital discipline, achieving our 2024-2026 target is central to delivering top-tier long-term shareholder return, which is our overarching mission. I'll now hand over to Arve to walk through the quarter in more details. Thank you so far. Arve Regland: Thank you, Nils, and good morning. Let's start with the income statement highlights for the third quarter. Operating revenue was NOK 17.9 billion, up 4% year-over-year, and EBIT adjusted was NOK 2 million, up 2%. Lower cost in Orkla ASA and the business service companies contributed positively. Other expenses was NOK 401 million in the quarter, and the main element was a write-down of NOK 240 million of trademarks in Orkla Health and a write-down of NOK 130 million in the European Pizza Company equal to the remaining goodwill in New York Pizza's German operations. Profit from associates, which is mainly Jotun, was NOK 603 million, up 10% year-over-year and then landed at profit before tax at NOK 2 billion. And the improvement compared to last year is mainly due to the substantial impairment charges last year. And as Nils mentioned, adjusted EPS at NOK 1.85 per share, up 9%. Year-to-date cash flow from operations was NOK 4.8 billion. We are around NOK 400 million below record last year for 2 reasons. Some working capital buildup due to higher trade receivables and inventory, and increased net replacement investments primarily related to Orkla Foods, Orkla Food Ingredients and Orkla Snacks. These include replacement project at various factories, ERP projects and new long-term leases. Dividend from Jotun is unchanged versus last year at NOK 948 million, and we received the second installment in the third quarter. Turning to capital allocation bridge, and I will comment on specific development in the quarter. Expansion CapEx is around NOK 400 million year-to-date, of which NOK 250 million in the third quarter. And the increase in the quarter is related to -- mainly to increased production capacity in Orkla Snacks and Orkla Food Ingredients. Purchase of companies increased with roughly NOK 100 million and is related mainly to bolt-on acquisition in Orkla Food Ingredients. We maintain a robust balance sheet with a net debt at NOK 17.7 billion, equal to 1.7x EBITDA and 1.3x excluding Orkla Food Ingredients. Moving to some more details on the Portfolio of companies. And as usual, we'll start with Jotun. And please note that the figures and graphs relate to Jotun is the end of August year-to-date as Jotun do not publish Q3 results. However, I will discuss some highlights from the quarter. Operating revenue declined 2% in the quarter, excluding negative currency translation effects, the sales growth was plus 4%. This follows a continuing trend, revenue growth driven by higher volumes as well as increased premium sales in the decorative segment. EBITA increased by 6% over the quarter and 12% excluding the currency effects related to a stronger Norwegian krona. Both higher sales volumes and gross margin from lower raw material cost contributed positively. Jotun had financial gains related to currency hedging in the quarter, but the amount is still much smaller than the negative impact to EBITA related to the stronger NOK. We guided that we expect to report 2025 results on par with last year. We continue to expect currency headwinds to negatively impact growth year-over-year in the fourth quarter. That said, given the strong underlying operational development year-to-date, Jotun's contribution to Orkla results for 2025 tracks ahead of our outlook. Orkla Foods had organic growth of 0.8%. It was a temporary negative volume mix impact in Q3 due to ERP modernization in the Czech Republic. And the go-live process created challenges for our main warehouse resulting in lost sales. Adjusted for this, volume mix growth was slightly positive for Orkla Foods in total. Orkla Foods Norway had a negative volume mix but with a significant improvement compared to the second quarter. Market share in growth categories increased in line with the strategy communicated at the Capital Markets update. Underlying EBIT growth was 2.4% and came primarily from increased sales. Input costs increased during the quarter and Orkla Foods expects higher prices for beef, dairy, marine and berries to continue into next year. Orkla Snacks had organic growth of 7.5%, driven entirely by price. The Chocolate segment was the main driver of the price growth as well as a drag on volumes. Organic growth in the Snacks category was flat in the quarter, while biscuit contributed positively. Underlying EBIT declined 8.4% year-over-year reflecting impact of higher cocoa prices. BUBS launched in the U.S. in September through a production and distribution agreement with Mount Franklin Foods. The BUBS U.S. launch was promising, but was not material in Orkla Snacks P&L for the quarter. We expect limited EBIT effect from BUBS in the coming quarters as we continue to invest in A&P and SG&A to support the rollout. Orkla Home & Personal Care had organic growth of 0.9%, driven by continued volume mix growth in Norway and Sweden. And this was partly offset by lower volume mix in contract manufacturing and Finland. Underlying EBIT growth was 7.6% year-over-year, primarily cost-driven. Organic growth in Orkla Food Ingredients was 8.3% with 3.9% from volume mix. The plant-based cluster drove the volume mix growth but on lower margin products with limited impact on EBIT growth. There was a volume mix decline in Bakery across business units impacted by softening consumer sentiment and intensified competition. Underlying EBIT growth at 1.6% for the quarter was impacted by continued improvement from sweet ingredients, offset by a loss of volume in Bakery as well as lower margins in plant-based, as mentioned. Organic growth in Orkla Health was 2.5%, with volume mix growth of 1.6%. The main positive contributors were Wound Care and Food Supplements in Europe. The growth was offset by continued weak development in both Oral Care and Functional Personal Care categories for B2B customers. Underlying EBIT decline was driven by contribution margin pressure, increased SG&A costs and higher advertising spend in food supplements. The new Orkla Health CEO, Mats Palmquist, joined in mid-August, and initiatives are launched to reduce complexity and improve growth. And we will find the right opportunity in 2026 to present an update on Orkla Health to the Capital Markets. Orkla India reported quarterly results yesterday, so I will only name a few points here. And please note that Orkla India reports to the Indian Stock Exchanges in local currency according to Indian Accounting Standards with the financial year starting April 1. The quarterly numbers we report are according to IFRS, given in NOK and presented on a calendar year basis. Organic operating revenue growth was 4.3%, with positive volume growth and a decline from price. Underlying EBIT declined by 1.8% due to higher advertising costs related to early festive season. Transition expenses associated with recent sales tax reform in India and also Orkla India recorded financial incentives from the government of India in the same quarter last year. Excluding the impact of government grants, underlying EBIT adjusted growth was 6.2%. Organic growth in the European Pizza Company was 2.2% in the quarter with consumer sales growth in the Netherlands, Finland and Poland. Underlying EBIT increased with 7%, driven by consumer sales growth and cost control. And lastly, Orkla House Care had a top line organic growth in the quarter, while the development was flat in the Health and Sports Nutrition Group. But there were substantially improved profitability in both companies compared to the same quarter last year. With that, I'll hand it back to you, Nils, for the closing remarks. Nils Selte: Thank you, Arve. Having now entered the second half of our statutory period 2024 to 2026, I'm pleased with the progress we have made across the 3 strategic pillars presented at our Capital Markets Day. Driving organic value in our existing portfolio, simplifying the portfolio structure and executing value-adding structural transactions. As we enter the last part of the strategy period, we remain committed to delivering on these 3. At the same time, we have initiated development for our next strategy plan, which will guide Orkla through 2030. This work is being carried out in close collaboration with our Board and grounded on the same principles of focus, discipline and long-term value creation. We look forward to presenting the next strategy plan to the market towards the end of 2026. In closing, I want to thank our employees across Orkla and our Portfolio companies for their hard work and our owners for continued support. We entered Q4 with determination to finish the year strong and with confidence in the path ahead. We have more work to do, but we are pleased with the direction. Thank you for your attention. Arve and I are now happy to take your questions. Annie Bersagel: Welcome back. We are now ready to begin our Q&A. [Operator Instructions] So our first question is from Hakon Nelson from Kepler Cheuvreux. Hakon Nelson: I have 2 from me. The first is about Jotun, they delivered a very solid quarter. Could you elaborate on the key drivers by the solid volume growth and margins? And whether do you see this level of performance as sustainable into 2026? And the second is regarding the transformation and exit portfolio. How should we think about the remaining assets in terms of timing? And are there business outside the current transformer exit classification that you could consider opening for a strategic review or potential sale if the right conditions arise? Nils Selte: Let's start with the Jotun question. I think as we describe the result and the good performance of Jotun is very much due to the higher volume and also improved gross margin. I think also we have said that we guide now ahead of what we guided for the total year 2024. So we are -- I think we will be a bit above what we guided early this year. We don't want, at this stage, guide for 2026, but I guess we will get back to that on the Q4 presentation. So can you repeat -- so when it comes to transform or exit portfolio, we have 2 companies left we have never guided on structural deals. So I think we will stick to that policy and not guide on any structural deals. And that goes for the whole portfolio to say so. Annie Bersagel: Our next question is from Ole Martin Westgaard from DNB Carnegie. Ole Westgaard: I'll start with a quick 1 on Foods. You highlighted delivery issues in the Czech Republic in this quarter. Just to be clear, are these issues now resolved? Or is this -- will this also impact Q4? Arve Regland: They are resolved. So that's -- this is also a Q3 incident in relation to implementation of the ERP system, which had -- we had some problems in the main warehouse related to that, but that's resolved at the end of Q3. So it shouldn't be impacting Q4. Ole Westgaard: Yes. And on Snacks, can you be specific on how much snack or sort of chocolate demand was down in Q3? And when do you expect this to stabilize or has it stabilized now? Arve Regland: It has stabilized, but we don't give any clear guidance on exact numbers. But as we have said earlier, we have at least a 10% volume decline on -- due to chocolate price increases. But it's stabilizing, but it's still obviously affecting the numbers year-over-year, as you can see in the report. Ole Westgaard: Yes. And then on the write-downs. I understand this is -- majority of this is related to Nutrilett. What is the remaining book value of Nutrilett on your balance sheet as of now? Arve Regland: There's nothing left on Nutrilett, but it's also several trademarks in Orkla Health that was written down in the quarters. Nutrilett was 1 of them, but they are also consolidated a few other trademarks into Sana-Sol as a new main brand for some of the trademarks or it's a combination of several trademarks that's written down, which then in total was the number, as I presented. Ole Westgaard: Yes. And then last 1 on Foods and Snacks. Can you comment on how you see your market share development in this quarter and how the competition is from private label? And I'll join back in the queue. Nils Selte: I think, in general, we see that we are flattish, more flattish when -- if you look at the prioritized categories within Foods, we see that we are taking market shares. Otherwise, in the other categories in Foods, we are more or less flat. Also that goes for -- but it's a few variation between the different categories in Snack, but all in all, it's more a flattish development this quarter. Annie Bersagel: And it looks like the next question we have is from Petter Nyström in ABG Sundar Collier. Petter Nystrøm: So just a very quick question for me. And that is, could you share some insight on how you see raw material prices developing into 2026 versus 2025? Nils Selte: As I talked about that briefly in my presentation earlier this morning, and I think this -- we are expecting flat development, including cocoa prices going into 2026. And that's the picture we see as of today. A bit fragmented, there are a big variation between the different categories, and it might see the different Portfolio companies differently. But in general. Annie Bersagel: I see Hakon Fuglu has a hand up, if you have another question. Hakon Fuglu: This is the first. But yes, I have a couple of ones, and I'll take them 1 by 1. In the second quarter, you talked about inventory rebalancing within Food for a couple of your clients. Did we have any impact on that this quarter as well? Arve Regland: That was a very limited impact this quarter. Hakon Fuglu: Okay. And looking at your headquarter costs, they continue to decline sequentially also in this quarter. Are we sort of reaching a sort of more normalized level in this quarter? Nils Selte: We don't want necessarily to guide on the headquarter cost. But I think this quarter, we see a reduction in FTEs in the IT part of the Orkla IT AS, and we also see a reduction in number of FTEs in the headquarter, as well as a reduction in bonus cost due to the share price development in this quarter. But we don't want to guide for going forward. Hakon Fuglu: And final 1 from me. Talking about your hero brands. Elevating those brands, now you're going to sort of help and what sort of the expected impact for the other Portfolio companies there? And are you seeing any impact from the ambitions that you launched on the CMU? Nils Selte: Implementing new ways of actually running our portfolio of different brands takes a lot of time, and it takes also time before it gets effect into your performance as well. So I think all the companies are now implementing this new way of thinking. And we presented the Snack and Food, how they are working on the Capital Markets Update in May this year. So this is work going on. We see progress as we have said that in prioritized categories in Food over the last few quarters. And I think that's a good sign on that this will work and this is working, but it takes time before it hits into the P&L to say so. Annie Bersagel: And I see our next question is from Ole Martin Westgaard in DNB Carnegie. Ole Westgaard: Another question for me. When it comes to your marketing spend in this quarter, how is that year-on-year? And what was the underlying margin improvement adjusted marketing spend? Arve Regland: Yes. We haven't given a clear number of that, but it's fairly flattish compared to the last year. Ole Westgaard: Yes. And then just on BUBS. You -- can you say a bit more on how you see the performance of BUBS in Q3 relative to your expectations? How has it changed any perception of how you view the attractiveness of the U.S. market? Arve Regland: No. In U.S., it's still early days. So as we also stated in the report, it's a promising launch in the U.S. Limited, however, limited impact to the numbers in the third quarter given that we launched at the end of the quarter. And we are also now very keen to support that rollout, meaning that we're going to support the sales with SG&A resources and also A&P. So on the back of that, it's promising, but I wouldn't expect a huge impact to the P&L in the coming quarters due to the efforts that we put behind the rollout. Nils Selte: We will in that for the long term in the U.S. market when it comes to BUBS. Annie Bersagel: That seems to be the last video question. So we're going to turn it over to questions from the web. It looks like we've had a couple coming from Marcela Klang, Handelsbanken. The first question from Marcela is on the strategy. Can you give an indication of the continued strategy plan that you will present towards in 2026? What areas are you contemplating on targeting real estate, M&A? Nils Selte: I think that's way too early. I said this is a process that we just started with the Board. It's ongoing discussions, and we have made a plan on how to make a good strategy for the future heading towards 2030. We also, in this process, will dive into the Portfolio companies, and the Portfolio companies will make their own full potential plans and strategy plans, and we need to see the totality before we can give any guidance to the market. And we would wrap in the end of 2026 with a new Capital Markets Day to tell about our strategy for 2030. Annie Bersagel: And the last question from Marcela here is, do you expect the NOK 4 billion share buyback program to be spread across Q1, Q2, Q3, Q4 2026 evenly or more in the first half? Arve Regland: The share back program will be run according to the MAR regulations meaning that we will buy a volume not affecting the share price, meaning up to 25% of the volume in the recent periods. So that it will take the time it will take. And we're not going to give a clear guidance on how many months it will take, but obviously, it will take some time to accumulate that volume in the market. Annie Bersagel: And that appears to be the final question on the web. So before we conclude, let me just remind you that we will report results for the fourth quarter on February 12. So with that, thank you for joining, and please enjoy your day.
Operator: Good afternoon, everyone, and thank you for joining us today for Nagarro SE's Q3 9 Months 2025 Earnings Call. [Operator Instructions] With that, it's my pleasure to hand you over to Michael. Michael Knapp: Great. Thank you, Sami, and good afternoon, everyone. My name is Michael Knapp, and I'm part of the Investor Relations team at Nagarro. If you have not yet received a copy of our Q3 2025 earnings release, you can find it as well as a copy of today's presentation in the Investor Relations section at nagarro.com. Joining me today is Manas Human, our Co-Founder and Custodian of Entrepreneurship. Manas and I will be covering the results and strategic updates for the quarter. Before we begin, please note that some statements made during this call may be forward-looking and are subject to risks and uncertainties as outlined in our earnings release. Additionally, please refer to the release for important information regarding non-IFRS measures. And with that, I'm pleased to hand you over to Manas. Manas Fuloria: Thanks, Michael. Once again, welcome, everyone, and thank you for joining us on this earnings call. We are taking a slightly different approach this quarter and hosting just 1 combined call so that we can expand on our prepared remarks a little and still have time to address your questions. We'll start by briefly highlighting our strong Q3 results, but perhaps even more importantly, underscoring the important and sustained actions we have been taking to address investor concerns, improve corporate governance and enhance our financial reporting and transparency. I also want to discuss how we have set the stage to drive better shareholder returns through improved execution and a disciplined capital allocation strategy. The operational changes we have made are already driving measurable improvements in our results, which perhaps have been overshadowed a bit at this time by a subdued demand environment and FX noise, but we believe we are still at the very early stages of showing the benefits from some of these new initiatives and processes that we have put in place, especially on the sales execution side. I'd also like to talk more about the future and in particular, about our vision of Fluidic Intelligence. We would like to explain that to you. We are promising our clients significant productivity improvements by unlocking the intelligence that already exists within their organizations. We are removing barriers for our clients between their people, their data, their decisions, creating low-friction enterprises that adapt faster and execute with clarity. And I'm excited to say that we're already seeing a very positive response from our clients around this promise, this theme of productivity improvements, and we will present an example of this. And finally, we'll be happy to take your questions. Now we are pleased with our execution in Q3, which demonstrates the strength and resilience of our business model despite all the ongoing macroeconomic challenges. Our teams delivered exceptional service to our clients, and we focused intently on operational discipline. During Q3, our revenue growth accelerated and is tracking to the guidance we provided last quarter. This is a testament to the stability of our customer base and the confidence our loyal customers place in us. Importantly, we're also seeing significant outperformance in profitability. Both our gross margin and adjusted EBITDA margin are ahead of expectations, reflecting the positive impact of the efficiency measures that we have implemented. In fact, the adjusted EBITDA margin of over 17% is the highest level we have seen since 2022. This margin expansion positions us well to generate strong earnings and cash flow moving forward. Over the past few quarters, we have prioritized making fundamental structural improvements to the way we operate. To that end, we have taken a number of decisive actions to improve corporate governance, financial reporting and transparency. We're already seeing tangible improvements in our internal process and operations. I'll talk more about this shortly. But these changes are not simply about meeting regulatory requirements. They're about building a world-class company about strengthening the foundation of trust and operational excellence that will support our growth ambitions for years to come. Our success is directly linked to our client success, and we are intensifying our efforts to deliver quantifiable business impact to help them win in their markets. We are actively showing clients how we drive significant measurable improvements to their businesses. We aren't just selling hours. We are pitching outcomes. And importantly, clients are responding. The quality of our relationships is improving, evidenced by the increase in client satisfaction scores and a strong pipeline of new high-value contracts. This focus on value creation ensures that our services remain essential and deeply embedded in our clients' strategic initiatives. Finally, in line with our disciplined approach to capital allocation, we remain committed to enhancing shareholder returns. We are pleased to announce that we are extinguishing approximately 75% of our treasury shares. We're also buying back EUR 20 million worth of stock. We believe there's a clear disconnect between the current share price and the intrinsic value of our share. The current share price even after today's jump does not reflect our strong financial performance, our expanding margins and improving operational structure. We believe the buyback program is one of several tools we are using to deploy capital, while signaling our confidence in the company's long-term outlook. We are confident that as we continue to execute on our strategy, the market will recognize the sustainable value that Nagarro has been building and in fact, has been building for a couple of decades now. Digging a little deeper into the numbers, we are pleased to report that our Q3 revenue growth reached 9.4% year-over-year at constant currency. This solid performance in a subdued demand environment keeps us on track with the revenue guidance we provided earlier. Turning to profitability. Our focus on operational discipline continues to yield impressive results. Our Q3 gross margins came in at 33.1%, which is over 300 basis points better than the guidance that we have provided. This significant outperformance is a direct consequence of our increased focus on margin expansion through targeted initiatives, including the successful implementation of the margin support program that we have earlier talked about. This program has optimized resource allocation, improved utilization rates and driven efficiencies across our organization. Our Q3 adjusted EBITDA margins were over 17%, which is above the high end of our guidance range. These strong margins are a clear highlight of our quarter and underscore our deliberately improved operational efficiency and our ability to translate top line growth into meaningful bottom line results for our shareholders. And all in all, we are maintaining the guidance we provided last time. But when you look at our tracking to our guidance for 2025, please also keep in mind the significant headwind presented all year by foreign exchange rates, especially the conversion between dollars and euro. To put this in perspective, if we were to adjust our revenue for the full 9 months to account for the foreign exchange impacts from the dollar and euro, our revenue would be approximately EUR 719 million, which would have placed us right near the midpoint of the initial 2025 full year guidance that we had issued back in January '23. Further, as you will see on the next slide, if currency exchange rates have not moved, our adjusted EBITDA would also have been at or above the midpoint of the initial 2025 full year guidance we issued in January. This ability to deliver what we promised at the start of the year despite the highly volatile environment, underscores the fundamental strength of Nagarro's business and the fundamental strength of Nagarro's positioning in the market and the fundamental strength of our relationships with our clients. Beyond these financial metrics, our long-term focus on delivering a superior client experience remains the primary driver of our sustained success, our commitment to our intimate partnership, innovation and measurable outcomes for our clients. By deeply understanding their strategic challenges and exceeding their expectations, we ensure that our services remain indispensable and embedded in the long-term digital transformation road maps. We believe the quality of our client relationships is our most valuable long-term asset. We believe that we can double our revenues well within this decade simply by doing more for the 187 clients we already have today that generate more than EUR 1 million in revenue each with us. Operator: We have lost connection to Manas, please bear with me regaining connection. Manas Fuloria: Coming out of this -- let me just talk again on the slide, and I hope, I'm not repeating my words too much. I want to take a few minutes to provide a clearer view of our underlying profitability. We recognize that our reported adjusted EBITDA figures for recent quarters have been significantly impacted by fluctuations in foreign exchange rates, specifically related to noncash impacts on loans between different companies within the Nagarro Group. Here, I want to highlight what our adjusted EBITDA margins might have looked like for the past 3 quarters, if we had corrected for this FX impact on intercompany loans, the resulting adjusted margins would have been materially higher and more representative of our sustained and resilient operational efficiency. We believe that this adjusted view provides a better picture of the fundamental robust earnings power of our business than the numbers that we have reported. This is also tangible evidence that the margin discipline we have been driving throughout the business is taking hold. We have now started to work similarly to elevate our sales execution. We are confident that as we continue to embed these operational improvements, the strength and stability of our business will shine through regardless of market conditions. Now as you know, we have taken a number of actions over the past several quarters to address investor concerns to improve our corporate governance and enhance our financial reporting and transparency. I want to highlight some of these by putting them all on one page. First, KPMG was appointed as Nagarro's external auditor. KPMG approved the 2024 annual financial statements without qualification, hopefully putting to rest many of the allegations that have been made against the company since we have been public. Working with the Tier 1 auditor has also led to enhanced reporting and disclosures, including how we account for purchase price allocation for deals and a combined management report that aligns to the specific broad topics defined by GAS 20. Then we developed new programs to drive a basic level of profitability across our business units and introduced an expanded bonus component for senior people, linking compensation directly to the company's margin performance. And now we are expanding that incentive linked to growth. Then we added 3 new members to the Supervisory Board with outstanding backgrounds as leaders at global companies. Martin Enderle is an experienced Chairman. Jack Clemens is an excellent Chair for the Audit Committee, and that's having an impact. And then Hans-Paul Bürkner has been an excellent mentor, a sparring partner for me in his role as the Chair of the Strategy Committee, and all of this change has been fantastic. Next, we have outlined a commitment to a disciplined capital allocation policy that included share buybacks, dividends and M&A. We have done all of these. We bought back EUR 52 million worth of stock to date. We intend to buy back another EUR 20 million as we announced this morning. We also paid out a EUR 12.6 million dividend and continue to pursue smaller tuck-in acquisitions. We are on track to announce soon a very small, but meaningful acquisition in the Japan, India tech services corridor. So that's that. And then we have some more good news this week, just a couple of days ago, our sustainability commitment was validated by an EcoVadis Gold Star rating, which is up from bronze that we had. This places our sustainability management system in the top 5% of assessed companies. And I would like to congratulate the Nagarro team that worked on this. We continue to uphold our dedication to becoming a more sustainable organization through ambitious science-aligned climate targets following the science-based target initiative. We have run a CFO search process and should have good news for you soon on that front. And finally, Nagarro has been developed from the first day on strong principles of ethics and full regulatory compliance. But in order to ensure that even in the decades to come, we are continuing to maintain the highest standards of integrity, compliance and operational resilience, we are further enhancing our processes and governance frameworks across the organization. Now our customer diversification across industries continues to provide both growth and stability. But in the meantime, there has been an evolution in our thinking given the tighter market conditions that have now persisted for a couple of years. We are going to be a bit more deliberate about targeted growth and more deliberate about where we place our bets. We're going to give a little extra emphasis in terms of sales efforts, where we have the right to win in those verticals and topics where we feel we can go big. While we do this, we continue to explore meaningfully our big secular growth opportunities that we have outlined in past calls in Japan and for Japan Inc. around the world. German Mittelstand in hardware and IoT and now in a fledgling way in the supply chain. We are developing playbooks around many of these topics and are improving our discipline around these. We see this improved discipline of execution and improved focus on commercial excellence as a new phase in Nagarro's evolutionary journey. Just a few words on our geographies. You know that our diversification extends to geographies as well. The U.S. and Germany remain of top importance for us. The Middle East has been a nice addition to growth in the last few years. We fully expect Japan to play this role in the coming years. Michael, with that, do you want to now discuss the balance sheet and cash flows? Michael Knapp: Absolutely, Manas. Thanks. The chart on the left shows our financial position at September 30, 2025. Financial liabilities were EUR 301.2 million and lease liabilities were EUR 70.8 million. Our cash balance remained strong at EUR 129.4 million, implying net liabilities of EUR 242.6 million, which leads to a net leverage ratio of 1.7x. The company's liquidity position at the end of the 9-month period was comfortable with working capital of EUR 223.5 million. In the interim consolidated statement of cash flows for 9 months of 2025, Nagarro has included the unrealized loss on intra-group loans within the Nagarro Group of EUR 15.8 million that was formerly under other noncash income and expenses into net cash flow from operating activities. And this is leading to a positive impact on it and a corresponding decrease in effects of exchange rate changes in cash and cash equivalents. For Q1 and first half 2025, this reclassification has a positive impact on net cash inflow from operating activities with a corresponding negative impact and effects of exchange rate changes on cash and cash equivalents of EUR 7.4 million and EUR 15.9 million, respectively. The numbers for comparable periods in 2024 are not material. Overall, there's no change in cash and cash equivalents and total changes in cash and cash equivalents in the statement of cash flows for Q1 and the first half of 2025. Cash flow for the 9-month period ended September showed a total cash outflow of EUR 49.2 million versus an inflow of EUR 33.1 million for the comparable period last year. Operating cash flow for the current 9-month period increased to EUR 77.1 million versus EUR 64.9 million for the comparable period last year. This was primarily due to other noncash incomes and expenses of EUR 7.2 million. Days of sales outstanding improved from 88 days at year-end 2024 to 85 days at the end of September. Kindly note that we calculate DSO based on quarterly revenues and include both contract assets and trade receivables. Cash flow from investing activities for the current 9-month period was an outflow of EUR 8.9 million, and CapEx was EUR 6.1 million. That's less than 1% of 9-month revenue, which reflects our asset-light model. Cash outflow from financing activities for the current 9-month period was EUR 117.4 million, mainly due to purchase of treasury shares amounting to EUR 50.1 million, net repayment of bank loans of EUR 24.3 million, lease payments of EUR 16.6 million, interest payments of EUR 13.8 million and the dividend paid during the period amounting to EUR 12.6 million. Turning to our capital allocation initiatives, which are designed to create shareholder value. We bought back a total of 684,000 shares that amounts to EUR 50.1 million. And we are pleased to announce this morning that we're continuing the buyback program and intend to acquire up to EUR 20 million worth of shares. In addition, we plan to redeem approximately 75% of the roughly 1.1 million treasury shares currently held to enable further share buybacks and adjust capital levels to appropriate levels for the company's business needs. We announced and paid a dividend of EUR 1 per share amounting to EUR 12.6 million or 13.1% of 2024 EBIT. This was declared during our AGM in June, and we expect to sustain our dividend policy of distributing between 10% and 20% of our EBIT annually. Our inorganic growth strategy remains highly disciplined, and it's focused on synergistic tuck-in opportunities rather than large transformative M&A. These smaller strategic acquisitions are crucial for filling specific technological, geographical and client-specific gaps. And we believe this measured approach ensures rapid integration, minimizes operational disruption and provides a clear path to immediately enhance our service portfolio and deepen client value. And with that, I'll hand it back to Manas. Manas Fuloria: Thank you, Michael. Now we spent the first half of this call talking about all the good work we have done in the recent past. I would like to shift gears and look towards the future a bit. We believe that in the next few years, every company in every industry will have to find significant double-digit productivity gains. Competition around this will heat up. A company without a clear path to realizing these productivity gains with AI will be lost. It will be a bit like a consumer company without a website in the '90s or 2000s or today, a consumer company without a social media presence. So this productivity movement is a big transformation ahead of us that will cut across each and every industry. Now as you know, Nagarro has been a big proponent of agile, and we have helped a large number of our corporate clients make the move to agile. In the next years, we're going to help them make the move to what we call Fluidic Intelligence. Let me spend a few minutes explaining what we see as Fluidic Intelligence. When we say Fluidic Intelligence at Nagarro, we are describing a fundamental shift in how individuals, technology and enterprises will operate in the age of AI. It's a deep rethinking of how human judgment and machine capability will come together to create step change outcomes. So let's start with individuals and take the example just of engineering and software engineering. So there's a big revolution ongoing in the software front, as you know, where engineers are no longer just writing code. They're orchestrating entire systems alongside AI assistants and agents. They're debugging complex distributed systems faster. They're exploring architectural options that they may not have considered otherwise and shipping micro services in days instead of weeks. But the real shift is that the nature of work has changed. The engineer is now the decision maker, the strategic decision maker setting direction, applying judgment, teaching the AI what good looks like in that project's context. And the result is a seamless and fluid collaboration between the human engineering nutrition and the AI capability. And we believe that this is the way the future will work and all individuals and teams that are not working this way will be simply too slow to compete. And this is what we call Fluidic Intelligence at the individual or small teams level. But if you look then beyond this at technology inside large enterprises, most organizations sit on 10, 20, 50 years of operational knowledge. Much of it is scrapped in systems that only some experts understand or it's in the head of -- heads of managers or experts or buried in some spreadsheets or logs. And when an issue takes place, whether it's a quality issue, supply chain issue or whatever, the disruption just has to trigger teams spending days piecing together this tribal knowledge from here and there to diagnose what's going on. With Fluidic Intelligence, AI can surface the right insight at exactly the right moment by understanding every bit of adjustment, anomaly, recovery pattern that's stored across the enterprise historically. So the real unlock isn't just data, it's the accessible contextualized decision-making knowledge. And this is the technological dimension of Fluidic Intelligence. And it goes beyond technology to the enterprise itself. Most organizations are like cities that grew organically. They are built with a certain old context in mind, the departments that don't talk to each other, they work in silos. They have independent objectives, independent incentives, independent budgets, workflows create friction and information moves slowly. And even a simple change to a simple topic may take weeks or months and may require many changes to many systems. And in this friction-free future enterprise that we see powered by Fluidic Intelligence, that same scenario is intelligently orchestrated end-to-end in minutes or hours, pulling context on the right systems, checking constraints, routing decisions to the right humans, automating everything else. So Fluidic Intelligence for us in some is at one level, human AI collaboration, at one level, the knowledge fluidity across different technology platforms. And the third is like the friction free flow at the enterprise across departments. And we think it's the architecture of how the next generation of intelligent organizations will operate. Now given Nagarro's own context of not only being an agile software engineering company, but trying to build an agile company, given our deep engineering expertise, given our history of engaging with clients on the agile transformations and other complex and challenging cultural topics, I think this is work we are uniquely positioned to deliver. Now in a minute, I'll show an example of what Fluidic Intelligence looks like in practice because it's the best way to understand it is to actually see an example. But first, a few words on how we are going to deliver it using special intellectual property that we have developed. What we are doing is we have, in the past several months, centralized our IT investments that used to exist in the BU silos. We have consolidated them all these AI accelerators and platforms into a portfolio that we call the Fluidic Forge. At a high level, it includes 4 streams of activity broadly. The first is the operational intelligence to run the business where work actually happens. This is a front line with orders and fulfillment and exceptions and incidents, and you want to bring predictability to the messiest part of operations, which is this. The second is more around decision planning intelligence. This is where strategy and map come together to improve the business. The third is around the technology integration and orchestration across the ERP, CRM, order management, warehouse management, finance, HR and whether it's legacy mainframes or the latest data platforms by using agents that work across systems and inside every workflow. And the final pillar is the modernization of the mission-critical core of data across legacy mainframes as well as data platforms. So this vision is about what an organization needs to do to move to this new world. It's not about small pilots in some corner, but rather about transforming the enterprise end-to-end. And we feel that Nagarro is just the right size. We are big enough and embedded enough at our clients to take on such transformational work, but we are also technical enough and agile enough to work on every little piece that needs to come together for this transformation at our clients. Now let's take a real-world example of how this transformation is achieved. And this example is the example of Dublin Airport and of modernizing Dublin Airports operations. And I believe most of us would be frequent travelers, frequent air travelers, so we will be able to relate to this example. Dublin Airport is Ireland's national Gateway and the 12th largest airport in Europe. It handles over 30 million passengers annually. It operates in a highly dynamic system with thousands of different processes with interdependent, airside logistics coordination, retail management, security, ground transportation and so on. And every decision impacts passenger experience, safety and operational agility. Now despite its evidence and the scale of the airport, it has faced frequent disruptions and challenges in decision-making. Data critical decision-making is scattered across silo systems, baggage handling, for example, passenger information, for example, gate management, air traffic control, ground operations and many more. And this fragmentation resulted in delayed awareness, reactive operations and inefficiencies. And a lot of the operational intelligence of the airport was not in the systems, but facet knowledge held by experienced staff insights that were not captured or shared across teams. And to manage this complexity as the airport plan to scale, it needed to evolve into a Fluidic system, where data decisions and intelligence flow seamlessly across teams and technologies. So this is what Nagarro did. We came in, mapped the airport as a single connected system. We revealed the fragmentation across these different operational and decision-making layers. We identified these critical knowledge assets and key friction points that were limiting the agility and cross-functional decision-making such as challenges with operational command visibility and unified control into flight operations, passenger operations, the limited ability to anticipate passenger flows or peak loads or queue congestion and not being able to drive retail and other non-aeronautical revenue and leaving money on the table and not being able to optimize the utilization of pavement and assets stands, taxiways, runway users and so on. And we use the Fluidic Forge AI accelerator that I just talked about to address these friction points, creating this sort of connected intelligence and predictive control and optimization with measurable business outcomes. Now I won't go into the details, but the airport has now much more data streaming, real-time event-driven dashboards, AI models for flow prediction, for congestion alerts. And these are integrating all kinds of data, like weather data or airline schedules or how people are coming through security and so on. There's agent-based modeling for dynamic workforce planning. There's a digital twin of airfield operations, there's AI maintenance schedulers and so on. So -- and the outcomes are, of course, how -- everything is optimized, how airlines use the airport, how the revenue and yield from retail locations is optimized, efficiency and ground handling, better experiences for passengers. And if you think about it, it's also going to drive better regulatory compliance and also agility to respond to things that may happen in the environment, which all comes from this unified data fabric with intelligence sitting on top of it. And this collaboration with Dublin Airport is not a one-off thing. It continues as the airport expands its AI native capabilities from passenger flow forecasting and retail intelligence and so on to sustainability analytics and other new frontiers setting this global benchmark for frictionless airports of the future. So in this example, we talk about how we brought Fluidic Intelligence to this airport, to Dublin Airport. But from the vantage point of where Nagarro sits, we have like hundreds of such clients. We have this opportunity to deliver similar results on data and AI to many great clients across various industries. And as you know, we are privileged to work with some of the world's most recognized and forward-thinking companies, companies that are not just leading their industries today, but actually reimagining what the future will look like across how we live, how we move, how we work, how we bank, how we connect and so on. And these are loyal clients. These are not just one-off partnerships. These are loyal clients who work with us year after year. They include, for example, 3 of the top luxury car manufacturers, 3 of the top 5 global leaders in industrial automation, 5 of the leading global retailers, 2 of the top 3 global hotel groups, 2 of the leading global cities. And then there are these niches like half -- almost half the top banks in the Middle East. 3 of the top 4 management consulting companies and so on. I could just go on and on, right? So there's a huge base of loyal clients where we can bring these capabilities to them. And with these clients, we will work towards the future, we work towards inventing what comes next. And with that sort of like a little bit of framing of where we sit and to speak into how we see Nagarro evolving into the future, maybe we transition to the Q&A. Maybe the operator can switch to Q&A. Operator: Our first audio question comes from Nicolas David from ODDO BHF. Nicolas David: I have a few questions. The first one is regarding the overrun environment. Manas you said that the demand is still soft. But I understand that this comment is more on a 9-month basis because, I mean, you showed a pretty good Q3, both on a year-on-year basis, but also on a quarter-on-quarter trend. So did you see, nevertheless, an improvement in the trend recently? And how do you see Q4? Do you see further improvement? Or are you worried about potential big furlough by the end of the year? So my first question would be around the overall environment. And regarding that, also, could you comment please on the pricing environment. Some of your competitors have been mentioning further pricing pressure be it linked or not to the AI evolution? And my last question is regarding the profitability. So if we take the midrange of your annual guidance, it implies a 14% EBITDA margin. Excluding the write-off of your intercompany loan, it would be like 15.8%. Is this profitable level sustainable for the next years? Or do you need some investment? Or is that something that could push downwards the margin for the next year? Manas Fuloria: Thank you, Nicolas, for these questions, and I'll take them one by one. I think that the demand environment is still soft, but I think the degree of clarity and confidence that now exists about where AI is going to take us, has not been there for a long time. So it's difficult to predict how the quarters will look, but I think the 3-year, 5-year horizon is really bullish now, I would even say bullish because the transformation is here. I think we had this period when the technology had been introduced. There were lots of questions about whether it would be capable enough to bring about changes, how it would impact the IT services sector and so on. I think these questions are by and large, behind us. I think there is a fair amount of tangibility into how the future will look. Q4 is a quarter with fewer working days typically. So there is some of that. And again, I would not want to predict quarters, but I think that in general, the outlook is bullish. In terms of pricing pressure, I think there's pricing pressure in large multiyear deals because there's some doubt about where the productivity improvements will take us. But I think that in general, Nagarro's business is still majority T&M business, and we don't see that much pricing pressure there as maybe in multiyear managed services deals. Finally, in terms of profitability, I think a couple of years ago, we had said that we believe that when we spun off the company, we said that 15% adjusted EBITDA was our target. And a few years later, we said 18% is where we want to gradually get to, I think that's where our target is. I think that we will need to make some more investments, but we also see still a lot of opportunities to rationalize our costs and to pool our resources and make more targeted bets. So I think that we will -- we do expect profitability to keep improving in the years to come. Nicolas David: And if I may, regarding the outlook, you mentioned more the AI visibility driving the demand. It's you really believe that it's really technology and AI, which has been driving up and down. It's even more than the macro itself? Or macro has still an important role to play. And if so, what is your view regarding the macro? Is it really unchanged there or slightly better? Manas Fuloria: That's a great question, Nicolas. I think that there have been periods in this -- in the last few years, where the macro has played a role but in general, I think technology is seen as a must invest, when it becomes critical to competition. And I think we are entering a phase where it will become a must invest when it comes to productivity improvements. That's why I'm very bullish about this. I don't think that companies will pare back their budgets only to spend more money in terms of reduced productivity. So I think the technology changes will prompt the macro. That's my personal reading. Operator: Our next question comes from Fabio Holsch from M.M. Warburg. Fabio Holscher: Starting with maybe can you confirm that the sequential margin improvement now in Q3 was mainly driven by FX in the other operating results compared to Q1 and Q2? And then how we should think about FX revaluation risk going forward? That's my first question. And then second question, can you comment on what drove the decision to redeem the 75% of treasury shares now? And how aggressive you plan to be with the EUR 20 million buyback? Manas Fuloria: Sure. So the margin improvement is -- I mean, it's a secular trend. The underlying margin improvement with the reported adjusted EBITDA margin because we don't correct for this revaluation of intracompany loans, it has shown a weakness in the first 2 quarters, but with the adjustment, you can see that there's a secular trend of being over 15% and now in a 17% range. So I think that the revaluation risk remains because if the dollar drops dramatically to -- against the euro, then the adjusted EBITDA margin that we declare will be affected. On the other hand, if it rises, it will be affected. But I think we're also going to be talking to our auditor about potentially restating our adjusted EBITDA to account for this intracompany loan topic because we think it's not -- we think it's distracting and doesn't fully reflect the operations of the business. So that's that. I think in general, the margin improvement is not predicated on FX. It's actually the underlying effect is really about all the operational efficiency that we're working towards. On the redeeming the 75%, we keep looking at our balance sheet from time to time and monitoring it and seeing what's best. And at the moment, we have I mean, currently, we have decided to redeem 75%. And the share buyback, I think we have certain regulatory, I think how much we can buy on any single day, but we will be trying to buy this EUR 20 million as soon as possible. Fabio Holscher: Okay, perfect. And if I may squeeze in 1 more. Can you elaborate on your growth plans and Fluidic Intelligence, how that is concentrated in the specific verticals or geographies, which ones you maybe prioritize? Manas Fuloria: So we are actually in the middle of a strategic review, and we will have more clarity by the beginning of next year. But in general, we -- if you look back over the last years, we have seen that the U.S. and Germany continue to be our largest market. And we see excitement across the Middle East and Japan. So I think these are the markets where we have the real focus. And outside that, in terms of verticals, we are doing very well in industrial, and we're doing well in retail and CPG, life sciences. So there are a few verticals that we can easily see that are bucking the trend and then there are some verticals which are really big for us and really important, like banking, for example, or automotive, to some extent, even if they are not doing very, very well at this particular moment. So I think that in general, we are -- we have already started to shift away from some of the verticals that we used to report like horizontal tech. I think from -- for the last 5 years, we've been kind of shifting away from that. But there may be a few others that we decide at least not to invest too much in. It's not that we shut down accounts or anything like that. I think it's just that we don't want to be -- we want to be playing in a tight market where we have a very good chance of winning. And that's the philosophy going forward. So the company has been a very entrepreneurially driven company, but we also have the ability, I believe, to be strong and to take decisive decisions centrally to steer it in certain directions, and that's kind of what we have been kind of playing out in the last few months. Operator: [Operator Instructions] And I'd now like to hand over to Michael for text questions. Michael Knapp: Great. Thanks, Sami. So first question, Manas. Congratulations on strong quarterly results and clarity of the presentation, wanted to ask about the recent significant reduction in equity through the cancellation of treasury shares. Can you elaborate on the strategic objective behind this move? And how we should interpret it in the context of your future capital allocation policy? Manas Fuloria: Well, I think it's just -- thanks, Michael. I think it's just an assessment of the levels of capital needed to run the company, and that's the reason for the exhibition of the shares. And our capital allocation policy continues along the lines of what we have described before, we will take a good look at it as the new CFO in place and come out with a fresh update. But at the moment, this is our -- we are on track with our -- we're in line with the current capital allocation policy. I don't see this as a departure. Michael Knapp: Great. Thanks, Manas. The next question is in 2 parts. First is can you please elaborate on your strong expense control, noting that your SG&A declined by EUR 12 million sequentially. And then secondly, can you explain what changes were made to the stock compensation and incentive plan, which was called out as EUR 11.5 million in your quarterly report. Were those related in any way or discrete items? Manas Fuloria: So on the first, I think the main change that we have made is to try to push towards a certain minimum margin in every business unit. And what this has led to has been streamlining of the spend that we have in practices, which are mainly sales and presales oriented. I think that when we spun off in 2020, our target was that we were aim for 15% EBITDA and really invest in practices and capabilities to drive a global footprint across different industries. Because that was the nature of the situation, we found ourselves beautifully placed to ride the wave of digital transformation, and we felt that we should take full advantage of that wave to build out as many footprints as possible across different industries and different verticals, different offerings. And what this is, is a little bit more of a rationalization. It's also a realization and recognition that the AI revolution is going to be a lot more common to different industries. So it's better to invest in a central way than in all these different practices across the BU. So that's the main theme. On the stock compensation and incentive side, my guess is that's coming from just revaluation based on stock options, et cetera, but I'm not totally sure maybe we can reconnect separately and go over that line item. Michael Knapp: Great. Next question is a 3-parter. Do you have any visibility on returning to double-digit growth in 2026? And then what free cash flow conversion target do you have for the coming quarters? And do you have an estimated net debt level by year-end? Manas Fuloria: Sure. So we don't like to predict the short-term future. It's always more difficult and volatile -- but I think that double-digit growth in the medium term is absolutely where we need to be at. And we don't know, when it will come, but the company is just gearing up to ensure that no matter what the market conditions, we are able to deliver that. And that's the first part. It involves a lot of different changes that we are making to the way we run our business units, but also the way we run our different geographies and the way we run key accounts and the playbooks we use and how sales is organized. But that's definitely something in our future. In terms of FCF, we are not -- we don't talk to set targets because the faster you grow, the more your cash flow suffers. So we are really focused more on growth and margins rather than FCF. And in terms of net debt level, we have obviously an outer bound that we have always declared of 3x adjusted EBITDA, but typically, we like to steer at the 2x EBITDA level to keep that as a -- and maybe go up a little bit beyond that. But 3x is the outer bound. We don't expect the net debt level to change. I mean, let me not give a prediction for the year-end, but that's a general approach to stay around the 2x mark. Or rather, actually also a question of how much cash you want to keep. And typically, we're trying to keep between EUR 100 million to EUR 125 million of cash across our different offices. So that's kind of where we kind of end up with the net debt. Michael Knapp: Great. Thanks for that, Manas. Next question would be you're seeing big tax implications that the dividend payment had this year? Are you exploring ways to improve this? Manas Fuloria: Yes, we have been obsolete transferring cash that was at different parts of the organization upstream towards the [ SE ] and there have been some tax implications of that. And yes, we are definitely working on how to reduce those and normalize those in the years to come. Michael Knapp: Okay. The next question is the current narrative for the sector seems to be that AI could disrupt the IT sector, implying clients are focusing most on their budgets, most of their budgets on hyperscalers, meaning that could be less for companies like Nagarro. Could you please share your view on this? Manas Fuloria: No, I don't think that's the right way to think about it personally. I think that if you want to use more compute and do more things with technology, you need to know what you are doing, right? So the challenge is not in -- it's not just a question of harnessing more chips. But as each one of us knows enterprises are horribly complex. And the example of Dublin Airport totally is one example that we all can relate to, but I think we see similar frictions in every experience that we have, whether it's on a hospital chain or insurance or banking or there are all these different frictions that we have or in cities and governments and so on. And I think the opportunity to actually drive change with AI and with what we call Fluidic Intelligence, is going to be dependent a lot on the people who get it done, who have done this many other companies, and they can bring it to you and they can tell you how it's done, what works, what doesn't work, and that can actually design it in a way that doesn't lock you in as a customer, that keeps you flexible to jump on the next wave of innovation that happens. So I don't at all believe that IT services is -- or the IT services sector is going to be depressed. I think it has good room to grow. There's, of course, intermediate adjustments that we have been seeing in the last couple of years. But I don't think that this -- I'm very excited about the medium-term outlook for the sector. Michael Knapp: Okay. The next question is, should we expect the head count to keep on rising in the following quarters? Manas Fuloria: We try to -- again, I'm always very wary of giving predictions. I think we do -- personally, I would say, I guess, head count will keep rising gradually. But it's a lot more about what we do with people than the number of people that are deployed. So there is a big change to retrain, to improve the productivity, the people we already have and then to choose a different kind of person when you are hiring. So for example, in India, our fresher hiring, which we hire the most people fresh from colleges has now moved to the AI business unit so that the people that we are hiring are all AI native. And we see that there is a whole new level of capabilities that people like that can bring. So I think it's a reorientation of how people are added to a company, but I don't think it's an end of people growth. We do expect the growth to be a bit more conservative in the next few quarters, but maybe picking up after that. Michael Knapp: Perfect. Thanks for that. The next question is what impact will the potential higher act in America have on your business? Manas Fuloria: At the moment, we don't expect any significant impact, but we keep waiting and watching. We don't expect any significant impact. Michael Knapp: Okay. And the next question is how much growth is expected to come as a percent of revenues from joint ventures in Japan? And when will we start to see them contributing to revenue? Manas Fuloria: That's an interesting question. So whether it's joint ventures or partnerships, I think we are going to have like double-digit millions next year. And hopefully triple-digit millions by -- in a 2 years, right? So we have a very strong pipeline. It's -- as you know, the Japan is a complicated environment to work in because there are cultural nuances, there are language topics. And that's why the acquisition that I just mentioned briefly is important because it allows us to work with -- work globally with the language trained workforce, for example. So I think we're putting the pieces in place, and we have the pipeline, and we expect it to take off in the next year or 2, but I must say that at this moment, we probably have already a 3-digit number of leads and opportunity for separate projects that we are looking at. Michael Knapp: Great. And the final question is around conversations with your clients for 2026 digital transformation spending, how are those evolving so far? I know it's still early and companies are finalizing their 2026 budgets. But according to conversations so far, they are still conservative? Or do they look more optimistic about ramping up projects next year? Manas Fuloria: I think that in general, it is better than it's unit for the last few years. But I won't say that spring is here and summer can't be far behind. I think that it is definitely a stronger base than we are projecting out than we have had in any of the last few year ends, but let's wait and see. I don't want to be -- go out on the limb and forecast a recovery, but it does look better than it has been in the last years. Michael Knapp: Great. Well, thanks for your feedback on those points, Manas. I want to thank everyone for joining us today. We really appreciate your interest in Nagarro, and we look forward to connecting with you again soon. Manas Fuloria: Thank you very much. Operator: Thank you, everyone. This now concludes Nagarro's Q3 2025 earnings call. You may now disconnect your lines.
Unknown Executive: Welcome to Dentsu FY 2025 Third Quarter Earnings Call, and thank you for joining us today. My name is Morishima. I'm from the Group IR Office, and I will be your conference operator today. Please be reminded that today's call is being recorded. This call will be held in Japanese and English with simultaneous translation for those joining online. Please choose your preferred language from the bottom of the Zoom screen. For those joining on the telephone line, you will only be able to hear the original language spoken. Today's presentation material is available on our website. Joining me today. Global CEO Dentsu, Hiroshi Igarashi. Hiroshi Igarashi: [Foreign Language]. Unknown Executive: Global COO Dentsu and Chairman and Acting CEO Dentsu Americas, Giulio Malegori. Giulio Malegori: Hi, everybody. It's Giulio here. Hi. Unknown Executive: CEO Dentsu Japan and Deputy Global COO Dentsu, Takeshi Sano. Takeshi Sano: [Foreign Language]. Unknown Executive: And Global CFO Dentsu, Shigeki Endo. Shigeki Endo: [Foreign Language]. Unknown Executive: They will be responding to your questions after the presentation. Today's agenda will begin with business and strategic update from Hiroshi Igarashi, followed by a financial update from Shigeki Endo. We will invite you to ask questions after the presentation. Mr. Igarashi, please start your presentation. Hiroshi Igarashi: Thank you very much for joining the third quarter FY 2025 earnings call today. Let me start with the 9-month summary and outlook. The 9 months organic growth rate was 0.3%, in line with our expectations, while the operating margin reached 13.0%, exceeding both the previous corresponding period and our expectations. Based on these 9 months results and the outlook for the fourth quarter, we are upgrading our full year profit guidance. As for the year-end dividend forecast, which is currently undetermined, we will announce that once it is determined, based on profits from business, progress on asset sales and future capital allocation. As we announced in August, to achieve fundamental improvements in our international business, we will continue to explore and implement strategic alternatives, including forming comprehensive and strategic partnerships. Lastly, we will review the current midterm management plan as necessary with the aim of achieving sustainable improvement in corporate value to maximize shareholder value. Let me move on to the highlights of the third quarter and the recent period. We secured a 3-year media count for Vodafone across EMEA. And also won a new Vodafone 3 account in the United Kingdom. We also won Carlsberg Britvic in the United Kingdom, while we continue our global relationship with Carlsberg. In Japan, we have a new client, Zurich Insurance, to which we will offer the integrated solution of media and creative. In the United States, Hy-Vee, a leading supermarket chain, has appointed us as their media agency. This expands upon our existing retail media partnership. In APAC, we have welcomed the fashion brand, COS, as our new clients. In addition, in the creative domain, we have been recognized at various advertising awards this year, including being named MAD STARS Agency of the Year. Additionally, at the MINSKY Awards, one of India's largest AI festivals, Dentsu Global Services was selected as a leading global capability center in the AI innovation category. Next, a business update. The Japan business is performing strongly, driven by growth from existing clients and revenue recognition from new clients. The key to this success is our integrated growth solutions. For example, even when a project starts as a simple media assignment, we identify the core challenge and go beyond addressing it directly. We explore and propose solutions across a broad range of domains that truly support our clients' growth. Our strengths lie not only in advanced marketing powered by AI, data and technology, but also in our broad capabilities spanning BX and DX, combined with our proven execution capabilities. Our track record of accurately capturing clients' needs, proposing optimal solutions, and delivering them to completion builds trust. This contributes to our competitiveness that drives high-pitch win rates. Looking ahead, we will continue to expand our integrated growth solutions to ensure stable growth for our Japan business. As outlined in our midterm management plan, Dentsu is working on advancing our Media++ strategy in our international business. Media++ is a strategy designed to drive clients' business growth by integrating media with CXM, creative and data and technology, while elevating the core value of media services by harnessing the power of AI, data and new insights to deliver greater added value. By incorporating new media such as retail media and social commerce, Media++ aims to deliver a more integrated and performance-driven approach that maximizes clients' marketing return on investment. Media++ has already contributed to a new business win with Dollar General, one of the largest discount retail chains in the United States in the retail media category. In EMEA, we have seen strong traction in major media pitches such as for the Vodafone and BMW, enabling us to secure wins in those pitches. The positive impact is becoming increasingly evident across regions. Looking ahead, we will further accelerate its expansion across markets, including the U.S., the UK, Germany, and China. Media++ will be positioned as a key growth driver of our international business, and we will be focusing our internal investments more intensely in this area going forward. Next, I would like to talk about the progress of our midterm management plan. First, the rebuilding of our business foundation. As of the end of the third quarter, we recorded a cost of approximately JPY 8.6 billion. For the fiscal year, we expect to record approximately JPY 28 billion. While we will continue to book costs from fiscal 2026 onward, we remain on track to achieve the anticipated annual cost reduction in fiscal 2027 that will be needed for us to achieve an operating margin of 16% to 17% in that fiscal year. Next is about our internal investment. After a thorough review, we are now allocating approximately JPY 12 billion this year to internal investment, with a strong focus on enhancing our AI as well as data and technology capabilities. Moreover, we will further sharpen our focus on the Media++ strategy in order to restore our competitive advantage. Now I'll hand over to our Global CFO, Shigeki, to give you an update on our financial results. Shigeki Endo: This is Shigeki Endo. Let me take you through the financial results for the third quarter of fiscal 2025. I will start with our key metrics. The organic growth rate in the first 9 months was 0.3%, which was in line with our guidance disclosed on August 14. For the 3 months of the third quarter, it turned positive at 1.4% year-on-year. Following on from the first and the second quarters, the Japan business continued to perform well in the third quarter, exceeding our August expectations. Meanwhile, the international business showed mixed results by region. The Americas and EMEA were generally in line with expectations, but APAC fell short. While organic growth was positive, the negative impact of exchange rates and other factors led to the group net revenue to JPY 851.3 billion, a 0.8% decrease year-on-year. Subsequently, underlying operating profit was JPY 111.0 billion, a 14.1% increase, and the operating margin increased 170 basis points year-on-year to 13.0%. Operating margin for the 3 months of the third quarter was 15%, higher than 12% for the same quarter the previous year and our August expectations. The year-on-year increase is mainly due to the strong performance of the Japan business. On a statutory basis, an operating loss of JPY 7.4 billion and a net loss of JPY 61.5 billion were recorded. The difference between the underlying operating profit and the statutory operating loss was mainly due to the goodwill impairment loss recorded in the international business in the second quarter. I will now explain the results by region for the first 9 months. Japan, the largest region accounting for 42% of the group's net revenue, continued to perform well in the third quarter, with high organic growth exceeding 5%, as it did in the first and the second quarters. Meanwhile, all regions of the international business recorded negative organic growth rate for both the 3 months of the third quarter and the first 9 months. By market year-to-date, the United States, the United Kingdom, China, and Australia reported negative organic growth, while Spain, Poland, Taiwan, and Thailand saw positive organic growth. Moving on to the detailed explanation of each region. Japan saw organic growth of 6.8% in the first 9 months, with both net revenue and underlying operating profit reaching record highs. It marked the 10th consecutive quarter of positive growth and the 4th fourth consecutive quarter of growth of 5% or more. The 9.9% organic growth rate in the 3 months of the third quarter was due to strong growth in all of the domains, including BX and DX. In particular, internet media led the Japan business, achieving double-digit growth and turnover for the 7th consecutive quarter, driven by business expansion with existing clients, and revenue recognition from new clients won through pitches. Events, such as sports events and turnover of TV media, increasing year-on-year for the first time this fiscal year, also contributed to Japan's performance. In Japan, we have increased staff costs as we continue to enforce talent expansion for future growth, but the increase in net revenue more than offset this, resulting in a high operating margin level of 24.6%, continuing the trend from the first and the second quarters. I will explain in more detail later, but based on the strong performance, we are raising our full year forecast for the Japan business. In the Americas, which accounts for 28% of the group's net revenue, organic growth in the first 9 months was negative 3.4%, which was generally in line with our August expectations. By business domain, CXM is relatively stabilizing as we confirm the sequential improvement by quarter in the organic growth rate. However, given the ongoing uncertainty in the macro and industry environments, we will continue to carefully monitor the situation. On the other hand, as mentioned at the time of second quarter earnings announcement, creative saw reduced client spends and losses, resulting in a low single-digit decline in the first 9 months. Media continued to remain stable, with results broadly at the same level as the previous year. Hence, the top line decline as a result of the SG&A expenses control, the operating margin for the first 9 months improved 220 basis points year-on-year to 22.7%. However, as mentioned earlier, this also included the impact of the allowance of trade receivables recorded in the third quarter of the previous year. EMEA's organic growth in the first 9 months was negative 1.9%, broadly in line with our August expectations. By business domain, CXM and creative were weak, while media remained stable. For the 3 months of the third quarter, the U.K. continued to face challenges in CXM, while Italy showed weakness due to client losses in the previous year. In contrast, Spain recorded positive growth in all domains, maintaining its mid-single-digit organic growth. As for operating margin, it remained at 7.9% for the first 9 months of the year, despite our efforts in controlling the SG&A expenses. APAC's 9-month organic growth rate was negative 10.1%, below our August expectations. By business domain, CXM and creative continued to struggle with double-digit negative growth. Meanwhile, media remained stable. In the 3 months of the third quarter, India and Thailand showed solid performances, with Thailand in particular maintaining favorable momentum with a high market share. Meanwhile, Australia continued to face difficulties. Despite continued efforts to control SG&A expenses, APAC recorded underlying operating loss for the 9-month period, as was the case at the end of the first half-year period. Next, I would like to explain the year-on-year changes in the underlying operating profit. Underlying operating profit for the 9 months increased from JPY 97.2 billion to JPY 111 billion at this fiscal year. Net revenue increased by JPY 22.8 billion in Japan, but decreased by JPY 22.3 billion in international business, excluding currency impact, resulting in a JPY 500 million net revenue increase for the group as a whole. Staff costs increased by JPY 9 billion in Japan, mainly due to talent expansion, but decreased by JPY 12.5 billion in total in the international business, primarily in the Americas and APAC, resulting in a group-wide cost reduction of JPY 2.6 billion for the period. As for operating expenses, Japan recorded a reduction of JPY 1.8 billion and international business a reduction of JPY 9.3 billion. Consequently, the group as a whole registered a decrease of JPY 11.7 billion during the period. This decrease in the international business does include the impact of the allowance for trade receivables recorded last year, as I mentioned earlier in the Americas part. However, even if we exclude this impact, we were still able to reduce operating expenses. Lastly, I would like to go through our guidance for the fiscal year. As explained earlier, consolidated organic growth rate for the 9-month period was in line with the guidance announced in August and with the international business falling short and the Japan business exceeding our expectations. In light of these factors, we have maintained our full year guidance for consolidated organic growth rate at broadly flat. However, we will update our regional forecasts with Japan business revised up from circa 3% to circa 4%, and the international business revised down from circa negative 2% to circa negative 3%. As for the Americas and EMEA, forecasts remain unchanged. As for underlying operating profit, we will upgrade our August guidance of JPY 141.6 billion, to JPY 161.2 billion in reflection of the strong performance of the Japan business, scrutiny of internal investments, and the anticipated realization of some cost reduction effects from our initiative in rebuilding our business foundation. As a consequence, we will upgrade our consolidated operating margin guidance from circa 12% to in the 13% range. With the upgrade of underlying operating profit guidance, we will also upgrade our guidance for statutory numbers with operating loss of JPY 3.5 billion, revised up to operating profit of JPY 17.6 billion. And a net loss attributable to owners or parent of JPY 75.4 billion, revised up to a net loss of JPY 52.9 billion. While these revisions in our guidance primarily reflect improvements in profitability, our international business is still expected to post negative growth for the full fiscal year. As such, we acknowledge that the situation remains to be uncertain. In concluding my presentation, I would like to stress that rebuilding our business foundation that we have been focusing on this year is making steady progress. With a month and a half remaining this fiscal year, we as the management remain fully committed to driving the reform and in achieving the guidance presented today. Thank you for your attention. I will now hand back to the operator. Operator: We will now begin the Q&A session. [Operator Instructions] The first question is from Abe-san of Daiwa Securities. Please state your name and affiliation before asking questions, please. Masayuki Abe: My name is Abe. I'm from Daiwa Securities. I have two questions. One is about Japan business. 10% increase in profit given the TV media business is very difficult. Well, CXM need a good change. And in the next year, can we expect the same level of profitability? My second question has to do with the impact of cost reduction initiative. I think the probability of success is rising. That's my impression. But of the JPY 52 billion cut target, how much will you achieve this fiscal year? And what would be the pace of achieving toward JPY 52 billion next year. So the intention must be to achieve upside through cost reduction next year, but I would like to ask about that. Unknown Executive: Abe-san, thank you for your question. Unknown Executive: Thank you for your questions. Two questions. So your first question regarding Japan business, 10% profit increase in TV media. Given the CXM business, further growth can be expected next fiscal year. So what is the kind of situation we are envisioning for this business next year? Sano-san will respond. So cost reduction of JPY 52 billion must be achieved, it is assumed. And so what is the amount that's achieved this fiscal year and how much is expected next year? Endo-san will respond to that. Okay. First, over to Sano-san. Takeshi Sano: Abe-san, thank you very much for your questions. Yes. 9.9% growth, which was very good this year. What's going to happen next year? Of course, we will see some impact from Fuji TV, but it's not just TV media, but internet media is also growing at a very high level. As I mentioned earlier, business transformation, digital transformation, and AI, these areas are growing. We are receiving lots of orders. So to a certain extent, I think we will be able to achieve a robust growth. However, as was explained earlier, last fiscal year, Q4 was 8.4%. So 5 consecutive quarters, we've been achieving above 5%. So there's pressure to achieve more year-on-year. We cannot promise anything at this moment, but mid-single-digit growth is something that we can expect -- we hope. Thank you. Shigeki Endo: Endo speaking. With the midterm management plan announced in February, JPY 50 billion of expenses to be spent on rebuilding management foundation. So investing that amount and 2027 and onward, a JPY 50 billion of cost reduction impact is to be achieved. This year, we're expecting to invest about JPY 28 billion. And in December, mainly staff, we will see impact in terms of staff in December. So in terms of the effect or the impact next year and onward, I think we are likely to see an impact of over JPY 50 billion. For the numbers this year, we're still examining them at this moment. Operator: The next question is from Mr. Harahata from the Nomura Securities. Ryohei Harahata: My name is Harahata from Nomura Securities. Also I'd like to ask two questions. The first is in regards to international business. I understand that you are considering various alternatives. I think you said that previously and this time as well. What is the most important thing, things that you don't want to change? In terms of your customers, what are things that they don't want to see changes in you? So if you could share that as a hint to understand your course of direction going forward. Second is in regards to cost. My question overlaps some of Abe-san's question that the cost is the key point. That's what I wanted to ask about. And so what is the cost to be achieved next fiscal year for the three years? And were there any changes in terms of internal investment amount? These are my questions. Thank you. Unknown Executive: Thank you very much Mr. Mr. Harahata for your question -- two questions. So in terms of the partnership for the international business, was -- for your first question, we are considering various alternatives. What are things that we don't want to change? Or, from the perspective of the clients, what are things that they don't want to see changed? I think that was your question. And I will answer that question. And the second question was to do with cost. Now this fiscal year, so what are some of the costs that have been kind of delayed in terms of being realized? And how much will there be in the next fiscal year onwards? And Mr. Endo will respond to that question. So please allow me to answer the first question, partnership for the international business. And so this is something that we communicated in August. So in many ways, we have been working on comprehensive and strategic partnership. We've been considering to look into this. Now we have been working on the various initiatives that we are trying to rebuild our business foundation. We are focusing on internal investment as well. And so to ensure strong growth, is something that we are focusing on. And in that regard, we want to work with partners who are able to contribute that. So to be able to secure that element is an absolute necessity. So in what areas are we going to enhance? And where are we able to secure growth? This is what we are currently looking into and reviewing right now. From the clients' perspective, I think they are quite varied. And the clients have entrusted us for many years and the value that we provide. And they have assessed this favorably. And for those customers who have continued to work with us and continued to be partners, to be able to continue, that is probably something that the clients don't want to see changed the most. And the enhancement that we are doing for us to achieve growth and then to raise the expected level of the expectation from the client perspective, that's the kind of partnership that we want to realize. So that's all from me. Endo-san will respond to the second question. Shigeki Endo: This is Endo speaking. And so as I said earlier, the amount of investment this fiscal year is JPY 28 billion, and majority of that is onetime expenses, retirement allowances related to people. So in this regard, now in the third quarter, we've invested about JPY 8.6 billion, and the remainder will occur in the fourth quarter. And as for the total amount, in the midterm management plan, we have already shared the number, and that's JPY 50 billion. And if we see the breakdown, about 80% will be onetime expenses, retirement allowances. The remaining 20% is essentially improving the efficiency, automation and also standardization of business or the expenses related to that. So for that part, the amount of investment has not changed in a significant way. It essentially remains the same. That is all for my response. Ryohei Harahata: And just a follow up. So there were no -- the execution that has been delayed in comparison to the -- in comparison to the previous announcement, the amount has changed, but there is nothing that has been delayed. That's what I wanted to ask. Shigeki Endo: This is Endo speaking. We are making progress in accordance with the plan, but partially for Europe, in particular, in regards to onetime retirement allowance in Europe, we still need to get the acknowledgment of the person in scope. So in that portion, that could potentially be pushed back into the next year, but the amount of reduction, amount that we will realize as a target, remains unchanged. Operator: The next questions will come from Tokai Tokyo Intelligence Lab. Yamada-san, please. Kenzaburou Yamada: Yes, Yamada from Tokai Tokyo. So I would also like to ask two questions. First, I would like to ask about the details of the background to Japan business, which is performing very well. Internet media is growing fast. TV media is robust as well. It seems that Dentsu is doing better than your competitors. So internet media is growing very robustly. What is the background to that? If you could please elaborate? As you said, integrated solutions are being increasingly appreciated by your clients. Is that the case? As a result, you are getting more orders and expanding business? That's my first question. Second question is as follows. This is also about the Japan business. Next fiscal year. Internet media growth expectation. How much growth are you expecting next year? Well, this year, you are performing very well. So the hurdle must be higher for next year. Do you think you will be able to outperform the market's average growth next year? Unknown Executive: Yamada-san, thank you very much for your questions. Two questions. Regarding Japan business. So the background of Japan's well-performing business, it seems that one of the factors behind this strong growth in internet media. Why? So before we were talking about proposals for integrated solutions that had a positive impact, but is that the answer today as well? And second, again, on internet media business, what is the expectation next fiscal year? Do you expect to outperform the market next year? Both questions will be answered by Mr. Sano. Takeshi Sano: Sano speaking. Thank you very much for your questions. And we have recorded and remembered my answer that I gave previously. Thank you. As you mentioned, internet media is a means for clients. The purpose is to improve our marketing ROI. And various medias are combined in our proposals, and we're chosen. As a result, internet media business is outperforming our competition. So as you rightly mentioned, that is the factor behind our success. As I said, business transformation is ongoing, and that is broadening. As a result of that as well, we are performing well. There are some market forecasts that are put out. Compared to this fiscal year, 2025, next year's market growth will be somewhat slower, but it will continue to grow. Is Dentsu going to be able to outperform the market? Sorry for being conservative, but so that we can outperform the market, we would like to further strengthen our integrated solutions, make proposals based on that so that we will be able to outperform the market next year as well. That's all for my answer. Operator: The next question is from Barclays, Julian Roch-san, please. Mr. Roch, can you hear us? Julien Roch: Can you hear me? Operator: We can hear you. Julien Roch: Thank you very much for letting me ask questions. Two, if I may. The first one is, if I put together your three regions outside of Japan, your organic in the first 9 months was a decline of 3.8%. How much of that decline was net new business loss versus how much was existing clients spend declining? And the second question is following up on the strategic review of the international business. In your previous answer this morning, you said you were looking for partners that could help you accelerate growth while continuing to service your existing clients. Can you give us any idea in what areas you believe you would need partners? Media, creative, Merkle, somewhere else? Unknown Executive: Thank you very much, Mr. Roch, for your question. I have received two questions. The three regions other than Japan for the 9-month period, we ended up with a minus 3.8% organic growth. So the loss of the existing client? Or are we losing the new client? In terms of pitch I think you're asking about. So asking as to whether these were the factors behind the minus 3.8%. I would like to ask our Global CEO of Dentsu Group, Giulio, to respond. And for the second question, in regards to us looking at the partnership, what are the partnerships for accelerating growth or what area? I will respond to that question. So I would like to ask Giulio to respond to the first question. Giulio Malegori: Thank you. Thank you, guys. And thank you, Roch, for the question. It depends on the practices, I would say. So your question is, how much is existing client and how much is lost client? Well, when we look at the media practice, it's not there are some losses, but most of it is also decline on spend from existing client, I would say, which is probably 60-40 in that regard. When we look at the Merkle, the CXM business, clearly this is a project-based business, so it's not that much losing, not the loss of client, but it's more the variation on the number of projects for existing clients. So I would say that on the CXM area, there are no major losses of clients. It's just a number of projects by clients that diminished. On the contrary, when we look at the creative practice, which, as you probably know, is the smallest of the international business, there has been a component of lost clients. These are especially in the US. So for the creative practice area, probably I would say that 70% of the decline is lost clients. The net wins have not been able to compensate the loss. There is variability, of course, on the client portfolio, especially in project-based business like creative, but the issue has been that we didn't compensate some of the losses with enough win, and this resulted in a negative. So I hope this answers your question, Roch. Thank you. Hiroshi Igarashi: So this is Igarashi. Please allow me to respond to your second question. In regards to partnership, so partnership for accelerating growth. And so your question was, what we refer to as our practice, our business domain, whether it be media or creative, or is it CXM? In which area are we going to seek partnership to enable acceleration in growth? I understand that was your question. So my response is that we are considering all types of different possibilities in looking at partnership. It's not the case that we are focusing on one particular area. So we are not just looking at a single area. Of course, there are various processes, and we are looking at whether we can make contribution to enabling growth in certain areas. Of course, we will look at all that. But in regard -- so we are not limiting the partnership consideration to a certain area. We want to achieve a comprehensive growth, and we are looking for partners who will contribute to enabling overall growth. This completes my response. Operator: The next question will come from SMBC Nikko Securities. Maeda-san, please go ahead. Eiji Maeda: Yes. Maeda from SMBC Nikko Securities. I also have two questions. First, comprehensive partnerships that you are examining. To pursue them, unless you have the specifics, you will not be able to announce, I would assume. But partner selection, partner negotiations, in terms of those, do you think you are making progress successfully in terms of seeking partnerships? Or do you think that the hurdle is pretty high for identifying a partnership? And what is the timeline? Are you looking for a partner by the end of next year, for example? My second question. The other day, Hakuhodo, their North America consulting business is recovering, they said. And AI transformation type of business is increasing for Hakuhodo. Well, in your case, DX demand has run its circle. It's deteriorating. But with respect to AI transformation, do you think that the business environment is improving for you as well. Going forward, do you think that AI transformation type of business will be a tailwind for you? So global consulting business, especially centering around North America and other adjacent areas. What are your thoughts? Hiroshi Igarashi: Maeda-san, thank you very much for your questions. To address your first question regarding partnerships that we are studying, and is the process of considering partnerships going well? And when are we going to have a conclusion? Is it a plan for next year? That will be answered by Igarashi myself. Your second question regarding North American consulting business is becoming active due to AI transformation need according to Hakuhodo. Well, at one point in the past, it was not very good, but consulting business in North America is now on a recovery track. What is the prospect? That was your question. For that, the Chair of Americas, Giulio, will be answering that question. So to address your first question, partnerships without restricting ourselves to constraints, as I said, we will consider various types of partnerships. So on a broad ranging basis, we are considering a variety of potential partnerships. The process that we envision, is it moving? Well, I would say that we are moving through the process as planned. However, in partnerships, there are counterparties that we have to work with. So frankly speaking, I will not be able to suggest a timeline at this moment. However, this is something that requires speed given the severity of the external environment and the changes happening in the environment. We need to respond to such changes. And we must enhance the value of our proposals to our clients. So in that regard, at the earliest possible stage, we would like to come to a conclusion on a partnership that we're going to have. So I would like to turn to Giulio for the second question. Giulio, please? Giulio Malegori: Thank you very much, Maeda-san, for the question. In the North America business, you know, the DX offer is part of the offer that we ended, the work that we do at Merkle level in CXM, and therefore, is developing and is recovering slightly. When we look at the AI impact on that as an acceleration, this is more centered on the Media++ strategy. I would say that there's been -- in the recent wins that Igarashi-san mentioned at the beginning of the call, there's been clearly a component of the element of the digital transformation for our clients in terms of integration and delivery of different capabilities within the digital offer. And more specifically, the acceleration that we are looking at in AI is once again referred to the deployment on the Media++ strategy. A good example of that is clearly the AI platform of dentsu.Connect, which is helping our client by using generative audiences and enabling AI-driven target setting, consumer profiling, and last but not least, communication planning. And the same is for generative audience, where, again, this helps within the Media++ strategy in the development of the digital transformation. Thank you. Eiji Maeda: May I ask a follow-up question? Just one, please? So Media++ that you talked about and acceleration through the use of AI. At this moment, in the stock market, your international business is having difficulty on its own, and it seems that the views are pessimistic about your international business next year as well. But through such initiatives that you talked about, do you believe that you will be able to bring the business back to organic growth? Excluding the media environment, because of the factors that you have on your own, do you think that you will be able to come to a turnaround point? Hiroshi Igarashi: Thank you for the question. Igarashi speaking. This is a follow-up question for North America. So let me focus on North America. Regarding North America, as Giulio answered, in the area of CXM, just to explain, we have an asset called the Merkle there, and the portion of North America in that business is very large. For many years, the area of CXM has had challenges, and I think that is understood by Maeda-san and other people. Earlier, Endo reported on our Q3 performance. As he said, CXM in North America, the area covered by Merkle, continues to be tough, but negative growth is becoming better and better quarter after quarter. It's improving. Rather than the whole market improving overall. The new management system that we have put in place since February this year has been conducive in addressing client challenges, and that is leading to an increase in the number of leads. We are also looking at reviewing the pipeline. So month after month, we are seeing recovery. I think -- and next year, I'm sure that we will be able to head toward a more positive direction. Now, another point regarding media. One of the topics is the consolidation of the agencies, and the scale merit is very much focused upon. Our Media++ strategy is generating good results because it combines media and retail media and others, as we discussed. So in this area of media, we are expecting strong growth. The value of international business, especially the United States, which commands a high portion, it is essential that we achieve a turnaround in that business, and that is something that we're looking to achieve so that our corporate value will be acknowledged. Thank you. Operator: We are nearing the conclusion time, but we still have many hands up, so we'd like to extend and respond to your questions. The next question is from Mr. Nagao from BofA Securities. Yoshitaka Nagao: This is Nagao from BofA Securities. I have two questions. First, in terms of internal investment, do you plan to invest JPY 12 billion this year? But AI is causing changes in clients and changing the behavior of consumers more than expected initially. So on that basis, is JPY 12 billion sufficient? And so what will be the size of internal investment that you're thinking of next fiscal year? The second question is in regards to the dividend. And the year-end dividend remains to be undetermined at this point in time, but you have the plans. You should be able to anticipate the profit from business in terms of asset sales. I think this will be management revision as to whether you will sell or not. And the plan that you've changed for this year, so the profit attributable to owner of parent still about minus JPY 40 billion. So I don't know whether you're in an environment of having to make a dividend. Given the fact that you have investment for AI as well, I think in terms of capital allocation, you have more important areas of spending money. But if you could explain as to why you have continued to remain undetermined for the year-end dividend? Hiroshi Igarashi: Thank you very much, Nagao-san, for your question. I received two questions. The first question is in regards to internal investment and for AI. Whether it be customers or the consumers, we are seeing significant changes. And so in that regard, you feel that there is a need to make investment into the AI. So the JPY 12 billion of internal investment for this fiscal year is sufficient, particularly given the fact that you need to invest in AI. And also you wanted to ask about the thinking for next fiscal year. This will be responded by myself, Igarashi, and Endo-san will respond if there is addition to make. And in terms of dividend, the business state and asset sales, and looking at the net profit level, if you take all these into consideration, and also the capital allocation perspective as to whether to pay dividend or not, you should be able to come up with a course of direction and what needs to be focused upon given the fact that you have the investment for AI and that you have referred to earlier. Now, that question will be responded by Endo-san. So I'd like to respond to your first question. In terms of internal investment, we are assuming about JPY 20 billion initially. And so we scrutinize the internal investment for this fiscal year. So the amount has been reduced to JPY 12 billion, as I have explained. In particular for AI, is it sufficient or not? So that was your point. Now, in that regard, our thinking regarding AI is that, of course, we will be making investment on AI on a standalone basis ourselves. But a unique initiative that we have is that we have initiatives with various platforms, and we've been ahead of others in this area for quite many years, whether it be data, whether it be the area of content creation. We have been working with the various platforms, and we have moved in this area ahead of others. So how can we use that in responding to the clients' issues? Now, we have many options to choose from, and we are able to combine those to provide the appropriate AI solution. We are in an environment to be able to enhance that. So it's not just the amount of internal investment as to whether our investment is sufficient or not. Is that sufficient in strengthening our solution? That is not only the perspective that should be used as a basis to make your decision. And for next fiscal year as well, I suppose leading initiatives with the platform providers at the center. We have various unique capabilities that we have, which we will work on enhancing. So that's the major course of direction for us going forward. And here, we want to do a sufficient amount of customization with our clients. And for us to engage in this type of initiatives of others, and that is the unique element of our initiatives with the platform providers. So that is my response. The second question will be answered by Mr. Endo. Shigeki Endo: This is Endo. And please allow me to explain from a few perspectives. First, in terms of the capital allocation and how we think about that. Now, from our perspective, what we are working on right now, we are working on rebuilding our business foundation. And over a medium to long-term perspective, we are focusing on achieving growth, and we're making internal investment to realize that. And we also have the dividend aspect. And also, we need thorough communication with the supply side. We want to engage in such communication with the market too. And on that basis, right now, when it comes to dividend, the securing profit that is distributable, and we are focusing on that. So we've been selling the strategic shareholding. And so dividend of returned earnings from subsidiaries. We are also considering the disposal of some real estate as well. But at the year-end forecast. In that regard, at this point in time, as of the third quarter, we have not registered impairment as yet. But the situation overseas remains uncertain. And so I am unable to say that we are completely free of the possibility of having to take impairment this fiscal year. And as I've explained at a previous occasion in regards to impairment, when we look at the forecast for this year, whether it be net revenue or whether it be for revenue, but the medium to long-term growth of our net revenue from next fiscal year onwards, that will be used in calculating the impairment possibilities, interest rate, the foreign exchange rate. These factors also need to be taken into consideration in discussing with the accounting auditor in the end. So at this point in time, as for dividend, so we want to secure a distributable profit as much as possible, and whether it be strategic shareholding sales, but we will do our utmost to be able to secure those amounts. Yoshitaka Nagao: May I ask a follow-up question? So you're going to make maximum effort in terms of management to secure the profit for distribution, but there could be plus or negative of international business impairment. So that is the reason as to why the dividend remains to be undetermined at this point in time. Am I right? Shigeki Endo: Yes, your understanding is correct. Operator: Next, Mr. Russell Pointon from Edison Group. Russell Pointon: Good morning. I have two questions, if that's okay. First of all, there's been a good mix in the account wins of extending existing relationships and new business wins. So are you able to talk about what you think has helped to contribute to those wins from what you've done in your business? And my second question is, I think there's a slower rate of restructuring spend. So does that mean there's a slightly slower rate of profit improvement through to 2027? Hiroshi Igarashi: Mr. Russell Pointon, thank you for your questions. So account wins, regarding that. Existing customers as well as new customer acquisitions. The pitch wins. The mix is pretty good, and you asked about that. The status of current our accounts for existing customers and new client acquisitions. What is our assessment? How do we view that? Well, I would like to respond to that. If there are any additional comments from Endo, I will ask for them later. And the second question that you asked is about the slow speed of restructuring or the slow spend of restructuring. 2027, toward that, the restructuring spend cost, is it progressing as planned? Do we think that we will be able to hit the goal? That will be answered by Endo-san. First, regarding the status of accounts, we have various pitches we're making and the circumstances surrounding that. While talking in particular about our international business, media, creative, and CXM, in all practices, net wins are accumulating. That is where we are overseas. The current pipeline, of course, we have different projects. And 83% of media pitches are offensive. Creative, 74% is offensive pitches. So maintaining existing customers, that is our overriding assumption. Plus, how many new customers can we acquire? We are looking at that. As a result, we're having this pretty good mix, as you pointed out. So first and foremost, that we're focusing on maintaining existing clients, and that will continue into the future. With respect to CXM, this is a long-range business. We have a new business pipeline, and the pipeline is increasing and growing. Therefore, for CXM as well, inclusive of cross-selling to existing clients and acquiring new clients, how to go about doing that is something that we always focus on. I think we're in a pretty good situation in that regard right now. For Japan, pitch wins are pretty high in different areas. Frankly, here in Japan, we're not having losses of existing clients. So the fact that we're having increasing pitch wins of new customers is contributing greatly to our good performance. And so we have to make sure to achieve pitch wins in all practice areas. That is something that we would like to continue to ensure in the future. Regarding restructuring, I would like to turn it to Endo-san for an answer. Shigeki Endo: Endo speaking. The status of restructuring, we announced our midterm management plan in February. Targeting 2027, we have set several KPIs. One of such KPIs is operating margin percentage. That is to be 16% to 17%. That is the target toward 2027 based on that. The cost base right now, with that as a baseline, we would like to achieve a cost reduction of JPY 50 billion. And so that is the target. Well, achieving JPY 50 billion is not the goal per se. Our ultimate goal is to achieve operating margin of 16% to 17%. As a result, vis-a-vis our competition, we would like to ensure good competitiveness on our part. JPY 50 billion, we are confirming where we are every month as to how much progress is being made. And we're spending part of that for retirement allowances. And there are to be paid considerably in December onwards. We will be seeing that impact next year. So at this moment, we are progressing on plan. And of course, we would like to be speedy to work toward the 2027 target. With the target of achieving JPY 50 billion or more, we are taking actions, and we're on plan. That would be all. Operator: With that, we would like to conclude the earnings call. Once again, thank you very much for taking time out of your busy schedules to join us today. Please disconnect. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Thank you for standing by. This is the conference operator. Welcome to WildBrain's Fiscal 2026 First Quarter Earnings Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Kathleen Persaud, Vice President of Investor Relations. Please go ahead. Kathleen Persaud: Thank you, everyone, for joining us today for WildBrain's First Quarter 2026 Earnings Call. Joining me today are Josh Scherba, our President and CEO; and Nick Gawne, our CFO. Before we begin, please note the matters discussed on this call include forward-looking statements under applicable securities laws, which reflects WildBrain's current expectations of future events. Such statements are based on a number of factors and assumptions that management believes are reasonable at the time they were made and information currently available. However, many of these factors and assumptions are subject to risks and uncertainties beyond WildBrain's control, which could cause actual results and events to differ materially from those that are disclosed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to, changes in general economic, business and political conditions. WildBrain undertakes no obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as explicitly required by applicable law. Please note, all currency numbers are in Canadian dollars unless otherwise stated. After our remarks, we will open the call for questions. I will now turn the call over to our President and CEO, Josh Scherba. Josh Scherba: Thanks for joining us. Fiscal 2026 is off to a strong start, reflecting the continued execution of our strategy to focus on our core brands in higher growth areas across Global Licensing, Content Creation and Audience Engagement. As you can see in the results announced after market yesterday, we're demonstrating the value of our strategy to focus on franchise building across content, engagement and licensing, supported by a simplified operating model. We are encouraged by the underlying strength of our business today and continue to see significant opportunities ahead to grow our profit across these core segments. Global Licensing once again led the way, delivering strong double-digit growth in Q1 of 29% year-over-year, driven by sustained momentum across our key franchises, Peanuts, Strawberry Shortcake and Teletubbies. Demand remains broad-based across many categories and markets around the world. Underscoring the strength of our 360-degree franchise strategy, the depth of our local expertise and the worldwide appeal of these evergreen properties. At Brand Licensing Europe in October, the leading consumer products and licensing trade show in Europe, there was tremendous enthusiasm from partners and retailers for both Strawberry Shortcake and Teletubbies, which continue to benefit from refreshed creative direction and robust consumer engagement. There was huge buzz for Peanuts as well, which celebrates its 75th anniversary this year. With a healthy pipeline of new licensing deals across all key markets and the holiday selling season on the horizon, we remain increasingly confident in the sustained momentum and visibility of the Peanuts business. Our franchise management team hosted its second annual summit with retail partners this week in Los Angeles. Building on last year's inaugural event, attendance more than doubled and a clear sign of the growing momentum behind our WildBrain brands, we saw nearly as many attendees for WildBrain brands as we did for Peanuts. Fan engagement for Strawberry Shortcake continues to remain strong, which is translating into licensing revenue. Watch time on YouTube was up 20% and average view duration was up nearly 300% for Strawberry Shortcake in the quarter, and we continue to see social media engagement rising. Consumer demand for Strawberry merchandise continued to grow with consumer products revenue for Strawberry up 115% year-over-year with healthy diversification across licensees. Looking at Teletubbies, revenue was up more than 20% with strong performance, particularly with our POP MART collaboration, which taps into the collectible nature of the Teletubbies and merchandise has been flying off the shelves. The licensing pipeline for Teletubbies continues to build as we're ramping up to the brand's 30th anniversary in 2027 with a global activation program designed to celebrate and amplify the strong fan affinity for these beloved characters. Similarly, watch time and average view duration on YouTube plus social media engagement were all up year-over-year. In Peanuts, we had a strong quarter across nearly all geographies with particular strength in North America, APAC and EMEA. The 75th anniversary is continuing to drive increased awareness and engagement. And as we've said before, the success we're seeing in anniversary promotions unlocks further licensing opportunities and collaborations. The Touring Blue Dragon Art Exhibition, which celebrates Peanut's 75th anniversary through immersive art, fashion and experiential installations has proven highly popular with fans in APAC, and we continue to see meaningful growth potential for Peanuts in the region. WildBrain CPLG is also off to a great start to the year with growth across all regions and revenues from Peanuts, WildBrain brands and third-party brands, all up year-over-year. CPLG is a unique and highly differentiated business within the licensing industry, and we saw that in spades at Brand Licensing Europe. The buzz around our portfolio was palpable and the strong execution by our team continues to attract new partners. Over the past few months, WildBrain CPLG has expanded the licensing program for PLAYMOBIL, rolled out a robust international program of brand activations and cross-category partnerships for Strawberry and Teletubbies and was appointed agency rights for the highly popular miraculous franchise and the Van Gogh Museum. This performance highlights the strength of CPLG's global infrastructure and its ability to translate brand momentum into meaningful commercial outcomes across regions and categories. Turning to Content Creation and Audience Engagement. Subsequent to the quarter, we were thrilled to announce the renewal of our multiyear partnership with Apple TV for Peanuts content extending through 2030. This renewal includes a continuation of the Peanuts library deal, which will be recognized in our Q2 numbers and a new commitment from Apple TV for more original series and specials. The renewal reaffirms the enduring demand and substantial value of the legacy content, while the commitment for new content further reinforces the long-term value of this iconic brand. In Audience Engagement, our AVOD and FAST channels continue to grow steadily. These platforms build awareness and affinity for our brands, create incremental monetization opportunities and extend the life cycle of our content. Owned franchises like Degrassi and Strawberry Shortcake as well as partner brands such as Pokémon remain consistently in front of fans worldwide, keeping them top of mind and fueling demand that carries through to consumer products licensing. Our channels are distributed across major platforms, including Samsung, Roku and Amazon Video, ensuring our content reaches audiences wherever they're watching. WildBrain is already the global leader in FAST for kids with approximately 180 channels launched. And as the FAST ecosystem matures, we are well positioned to monetize this growing opportunity across both our owned and partner IP. We are the scaled and trusted partner for platforms seeking high-quality kids and family content. In Media Solutions, our in-house advertising and brand partnership arm, we held our first ever upfront in London this October. An upfront event is a key commercial touch point where platforms highlight their capabilities and the successful event has already generated some meaningful deals with new partners. We're increasingly confident in the growth potential for this business. Media Solutions offers a differentiated capability within WildBrain. Very few kids media companies combine global brand management and channel reach with in-house media sales and activation at this scale. The rising engagement across our digital platforms, growing pipeline of Media Solutions and the significant growth in licensing all underscore how we are building a meaningful platform at the center of the ecosystem where today's kids and families are watching content and engaging with brands. Our scale across YouTube, FAST and AVOD not only keeps our brands front and center with global audiences, but also demonstrates the strength of our model in driving awareness, engagement and monetization. Before I hand over to Nick, I'd like to provide a quick update on the asset review we've referenced in recent quarters. We've been approaching this work with a clear set of objectives to sharpen our strategic focus, enhance balance sheet flexibility and create long-term value for shareholders. With the progress we've made simplifying the business and focusing on high-margin brand-driven growth, we continue to actively evaluate further opportunities to simplify and unlock value for WildBrain and our stakeholders. As we updated you in our full year report in September, the process is continuing to advance in line with our expectations and discussions with a targeted group of interested parties are ongoing. While these conversations remain confidential, we're encouraged by the level of progress and expect to have more to report soon. We remain focused on outcomes that strengthen the company and position us for sustained growth. We've had a strong start to the fiscal year. We have great brands, which were on full display of Brand Licensing Europe in October, where Strawberry Shortcake and Teletubbies drew tremendous excitement from partners and retailers. We also have a strong offering in FAST and Media Solutions that positions us to capture emerging opportunities as viewing and engagement models evolve. And we continue to see positive returns from our focus on premium content capabilities, reinforcing the strength and long-term value of our Content Creation business. With that, I'll turn it over to Nick to review our financial results. Nick Gawne: Thanks, Josh. As a reminder, in accordance with IFRS accounting rules, in Q2 and Q3 of 2025, we have classified Canadian Television Broadcasting as held for sale and presented the historical results of this business as discontinued operations. With the termination of the television sale agreement in August, the segment no longer met the threshold for held for sale in Q4 of 2025 and Q1 2026. And we have reinstated the Canadian Television Broadcasting unit back into held for use. Television will return to discontinued operations in our Q2 2026 results, reflecting the cessation of the business in October 2025. All the results I'll be referencing include television, unless I specifically refer to them as being excluding television. First quarter revenue was $126 million, up 13% year-over-year. Revenue, excluding television, was $121 million, up 16% year-over-year. Global Licensing revenue in the quarter was $81 million, up 29%. The growth in licensing reflects management's deliberate focus on high-growth, higher-margin brands. By leveraging our expertise to drive engagement through social and digital strategies, we've expanded consumer reach, attracted new licensees and translated that momentum directly into revenue and profitability. We also saw strong growth in WildBrain CPLG, which continues to benefit from its unique globally integrated platform that brings together brand strategy, retail expertise and best-in-class execution. The team had an exceptional reception at Brand Licensing Europe, where partners responded enthusiastically to our portfolio and the expanding opportunities across our owned and represented brands. Revenue for Content Creation and Audience Engagement in the year was $40 million, down 3%. The revenue decrease in the period was driven by a reduction in content distribution revenue in the quarter, offset by stronger production revenue as compared to the prior year. Television revenue for the quarter was $5 million. As mentioned, television ceased operations in October and the broadcast licenses were surrendered to the CRTC. As a result, WildBrain is no longer subject to applicable Canadian control restrictions under the Broadcasting Act. Gross margin percentage for the first quarter was 51% compared to 47% in the prior year, driven by a mix shift towards Global Licensing. SG&A was $29 million, an increase of 7%, up due to the impact of translating foreign currency-denominated expenses at less favorable rates than in the prior year and also due to higher variable compensation. Adjusted EBITDA was $21 million, up 37%. Adjusted EBITDA, excluding television, was $17 million, up 53%. Net loss in the quarter was $33 million compared to net loss of $11 million in the prior year. Free cash flow in the quarter was negative $11 million compared to positive $5 million in the first quarter of 2025. Q1 2025 benefited from lower interest payments in that quarter, driven by the timing of our refinancing. And in addition, first quarter tends to be our lightest period for collections within our Global Licensing business. Our leverage at the end of the quarter was 4.96x, comfortably in compliance with our financial covenants. Turning to guidance and our outlook for fiscal year '26. We reaffirm our previous guidance and expect strong growth in the core underlying business. In that core business, which excludes television, we expect revenue growth of approximately 15% to 20% and adjusted EBITDA growth of approximately 15% to 20%. In September, we provided incremental color on our growth drivers. First quarter results are in line with our expectations on those drivers. Licensing continues to deliver strong momentum, while we are seeing some headwinds in content distribution as anticipated. Within Global Licensing, we continue to expect growth across the full portfolio of our owned brands as well as growth within WildBrain CPLG. With Peanuts, we are building on our social media strategy, expanding category presence and deepening penetration in key markets. With WildBrain brands, we expect to grow -- we expect growth in new territories, while WildBrain CPLG is expected to deliver growth both through representation of owned brands as well as third-party brands, with WildBrain brands and CPLG contributing at higher margins at EBITDA level. As we conveyed last quarter, in order to fully capture the growth opportunity in our Global Licensing assessment -- segment, we need to invest upfront, both in franchise marketing and SG&A, which acts as a light headwind for fiscal '26. However, for Peanuts, Strawberry Shortcake and Teletubbies, the data points, demand and pace of growth we've seen over the past 15 months, in addition to third-party research we've undertaken tell us that the upside opportunity is significantly larger. The headwind today with SG&A up an expected 10% creates a tailwind for the future. In Audience Engagement, we expect Media Solutions, our direct advertising business to meaningfully grow. In FAST, we expect new third-party revenue opportunities as brands like Pokémon look to leverage our established presence in the market. While monetization still likes the engagement we're seeing, we're fully confident that this discrepancy will result into a significant opportunity in the future. Traditional distribution remains constrained across the broader industry. Timing on this part of the business is always variable due to point-in-time revenue recognition. In fiscal '26, we have the benefit of some deals that slipped from '25, such as the Peanuts renewal we closed in Q2 this year. In Content Creation, we expect continued growth driven by the Peanuts feature and episodic content for high-quality partners like LEGO. Including the television business, we expect revenue of approximately $560 million to $590 million and adjusted EBITDA of approximately $80 million to $85 million. Moving on to our expectations for free cash flow. This is subject to material timing variances. Fiscal '25 did have some timing benefits, which we do not expect to repeat in this coming fiscal year. Additionally, with television ceasing operations, we expect free cash flow to be down year-over-year. With a more streamlined cost structure and clearer focus, we're positioning WildBrain for stronger financial performance and sustainable value creation over the long term. I'll hand it over to Josh as we wrap up. Josh Scherba: Thank you, Nick. As we look ahead, our priorities remain clear: driving growth in Global Licensing, advancing our premium content partnerships like Peanuts with Apple TV, and leveraging our Audience Engagement platform to build global reach for our brands and our partners. We're confident in our strategy and in the power of our IP portfolio to deliver continued growth. With a strong start to fiscal 2026 and a focused team, WildBrain is well positioned to build momentum through the balance of the year and beyond. With that, I'll open up to questions. Operator? Operator: [Operator Instructions] And your first question today will come from Drew McReynolds with RBC. Drew McReynolds: I'll start with the Peanuts renewal and deal, I think, through 2030. Just, Josh, can you just kind of comment on what's necessarily kind of new in this agreement versus kind of just the extension? I know in your opening remarks, you provided a little bit on that, but just wondering if you could provide a little bit more. Second, on Teletubbies, could you kind of remind us -- I know it's smaller, much smaller than the Strawberry Shortcake franchise at the moment, but kind of how do you see Teletubbies being kind of sized up here relative to Strawberry Shortcake as we go forward? And then lastly, just a quick update on third-party service revenue, the extent to which kind of that volume of business has come back or what your expectation is for the rest of the year? Josh Scherba: Thanks, Drew. So I'll kind of go in order here. So starting with the Apple deal. So look, Apple has been a tremendous partner for us and for the Peanuts brand. Beyond the distribution platform that they provide and the funding of content, they've also -- we've also had the added benefit of additional programs like the Snoopy watch, screen savers that we've done for iOS devices. So there are some -- there's additional benefits that a partner like Apple bring to the brand, and we continue to value that. Their commitment to the classic specials for the next 5 years is a meaningful component of this deal. And the fact that we're on our third renewal continues to demonstrate the long-term viability of these classic specials. And also a commitment to new content shows that they are valuing what we've been producing for their platform. So overall, it's more of what we've been doing with Apple, but that's ultimately a really good thing. And I would also note that our presence on YouTube is increasing with some of the content that we've produced with Apple over the years. And they've proven -- they've shown more flexibility in this space than they had historically. which is also a really good thing in terms of our exposure for the brand to drive further growth. The next question, I think, was around Teletubbies. And while we haven't been sizing that specifically, I think that we are bullish on what we can achieve on Teletubbies. I referenced the POP MART collaboration in the script. And those are really kind of vinyl -- collectible vinyl toys in the vein of LABUBU. And those are selling extremely well, which I think is really showing the viability of the brand in the cultural zeitgeist. And so I would categorize that growth as non-kids related. That's really nostalgia driven. And as we're seeing with strawberry and with Peanuts, the appeal of multigenerational brands is really important these days. So the opportunity to be able to do deals that tap into how adults want to remember their childhood with certain products as well at the same time, growing a kids business. And I would say on Teletubbies, that's where the biggest upside is for us. We continue to invest in new strains of content. And as those roll out in the coming months and years, and when I say investing in content, we're really talking about social content and digital-first content that is intended for YouTube as well as other social platforms. We expect to grow the fandom and engagement amongst kid audiences, and that has the ability to unlock tremendous upside from a consumer product standpoint. Drew McReynolds: Yes, that's great, Josh. Just -- yes, the third-party service piece? Josh Scherba: Yes. So are you -- when you're referring to third party, are you referring to our CPLG business or the Content Creation business, kind of our studio work? Drew McReynolds: Yes, just the studio work. Josh Scherba: Sure. So look, why don't I take an opportunity to talk a little bit about the content market in general then because I think that plays into it. So look, there's no question there's been challenges in the content market over the past few years. Really, in kids and family, you've had Netflix and to some extent, Apple being the commissioners that were actually moving projects ahead. The conclusion of the merger of Skydance and Paramount and Paramount kind of taking decisive action around reinvesting in content, we think is a really positive development for the industry. We think that while there's still some uncertainty around the future of Warner Bros., that will be resolved sooner than later. And we think that once this is resolved and kind of reset, we'll be bringing back a dynamic to the market that's really important, some competition. And I think one could argue that over the past few years, the lack of investment, particularly in kids and family, will demand some sort of catch-up period where there will be increased investment from these streamers. Not that we're seeing that at this point in any meaningful way. But I would say that our pipeline of projects at the studio, there -- we're putting up more bids today than we would have been a year ago. So I would -- while I don't think we're seeing that return to competition yet amongst the streamers, I will say that there is more activity happening, which gives us confidence in our slate for the next couple of years. And I think we look -- we spent a lot of time talking about the -- what is now the traditional content market, including all of the streamers. And in the meantime, there is this new form of content distribution and platforms that have become really meaningful, specifically non-YouTube, AVOD and FAST. It's a space that we've been in really since 2019. And we've seen our engagement and viewership grow every year since we've been in the space. And it's getting to a place now that it's maturing and becoming a place of -- an area of profit. Specifically, Tubi mentioned in their last quarter that they achieved profitability for the first time. Tubi has been commissioning original content, and they've signaled that they're going to be doing more in this space. For us, we've -- again, we've been really encouraged by the engagement. But as Nick mentioned in the script, the monetization has lagged. And over the last year, we've been investing more and more in our Media Solutions team who have expertise at selling inventory against kids content. And kind of worth noting that there are added challenges to selling inventory against kids content. There's COPPA compliant requirements that really put some guardrails on how you can sell against this content. And we've built a group of experts that know how to sell this inventory. And so the goal for us is really to take on inventory from these AVOD and FAST platforms that is currently being underutilized by sales teams that aren't experts in selling against kids. So we see that as an area of high consumption right now and an area of increased monetization as we move forward. So I apologize for the long-winded response, but I think it's worth kind of giving a whole picture of the current content landscape because it is expanding just beyond those handful of streamers that have been the key commissioners over the past few years. Drew McReynolds: Yes, Josh, yes, that's a really thorough answer. And you got my fourth question there on the monetization side. Just for clarity, when you talk about maybe taking over some of the monetization, is that all kind of through the Media Solutions piece of your business? Josh Scherba: Yes, that's right. So we would be taking back inventory from these AVOD and FAST platforms where we'd have the ability to sell inventory. They will continue to sell inventory as well, the platforms directly, but for us to take on some of this inventory. And really, what we do is we add -- it really becomes a value add for agencies and advertisers because we can take this inventory, which when you think about it, is really the closest analog to linear inventory. And you think about all of the money that has flowed out from Nickelodeon and Cartoon Network and services like this over the years, this is a really logical place for it to go because it looks and feels like linear television. So we can take that inventory and then we combine it with our premium inventory on YouTube. And that packaging of it together, we're finding as a real value add for agencies and advertisers. Operator: [Operator Instructions] This will conclude our question-and-answer session and today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning, everyone, and thank you for participating in today's conference call to discuss SUI Group Holding's financial and operating results for the third quarter ended September 30, 2025. Joining us today are SUI Group's Chairman of the Board, Marius Barnett; Chief Investment Officer, Stephen Mackintosh; Chief Executive Officer, Douglas Polinsky; and Chief Financial Officer, Joseph Geraci. By now, everyone should have access to the company's third quarter 2025 earnings press release, which was issued yesterday afternoon at approximately 4:05 p.m. Eastern Time. The release is available on the Investor Relations section of the company's website at www.suig.io. This call will also be available for webcast replay on the company's website. Following management remarks, we'll open up the call for your questions. Please be advised this conference call will contain statements that are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. The forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that can cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements, which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements. For important risks and assumptions associated with such forward-looking statements, please refer to the company's SEC filings. Marius Barnett: Thank you, and good morning, everyone. I'm pleased to welcome you all to our first earnings call as SUI Group Holdings. I'd like to start by giving you a brief background on myself and why we believe the Sui ecosystem is one of the most promising blockchain ecosystems in the world. By way of background, I'm the Co-Founder of a London-based hedge fund named Karatage, focused on emerging technologies across digital assets, AI and gaming. Throughout my career, I have focused on identifying high-impact technologies with global adoption potential, and I believe Sui blockchain represents one of the most promising technological platforms of our time. What initially drew me to Sui was the unmatched intellectual capacity and technical pedigree of its founders, now known as Mysten Labs. The team was originally hand selected by Mark Zuckerberg to develop Diem, formerly Libra, Meta's ambitious blockchain project aimed at building a global digital currency. These engineers designed the Move programming language and the underlying blockchain architecture that enabled secure, high-speed and scalable transactions within Meta's ecosystem. When Diem was discontinued, its core architects carried their vision forward, founding Mysten Labs in 2021 to create what would become Sui. The same world-class engineering rigor that began at Meta now powers the Sui network, and it was this combination of technical excellence, scalability-focused design and real institutional credibility that made me believe that the Sui ecosystem has the ability to define the next era of blockchain infrastructure. For those of you who are unfamiliar with Sui, Sui itself is the next-generation Layer 1 blockchain designed for speed, scalability and real-world application. Its object-centric architecture and horizontally scalable design allow for near-instant finality, enabling use cases across finance, gaming, artificial intelligence, stablecoins and beyond. We see SUI as the infrastructure layer for the next chapter of the Internet, a blockchain built for mainstream institutional-grade adoption. The Sui stack represents one of the most advanced comprehensive architectures in blockchain infrastructure today, purpose-built to support real-world high-throughput applications. At its core is Move, Sui's native programming language, which enables fast, secure and scalable smart contract execution. Layered on top of powerful tools like Walrus for decentralized storage, DeepBook for on-chain liquidity and Seal for enterprise-grade data security. Beyond its scalability and security, Sui is purpose-built for the next era of agentic AI, a world where autonomous software agents can independently transact, learn and execute tasks on behalf of users and institutions. Its [ paralyzed ] architecture and programmable transaction blocks make it capable of handling the high-volume, low-latency activity required for real-time AI-driven commerce. This design was recently showcased through the agent to payments AP2 protocol, a collaboration between Google and Mysten Labs, which demonstrated how Sui enables multiple verifiable transactions to settle atomically within a single block. By combining sub-second finality, secure on-chain execution and identity solutions like zkLogin, Sui provides a technical foundation for a new class of machine-to-machine transactions with digital agents to manage value, permissions and data autonomously. In short, Sui is the only blockchain designed to power the coming intersection of AI, automation and decentralized finance, positioning it at the center of agentic Internet. Our conviction in the Sui ecosystem is not theoretical; it is both strategic and operational. When we first partnered with the Sui Foundation earlier this year, our vision was clear: to position SUI Group as the first publicly traded company with an official relationship with the Sui Foundation and to build a foundation-backed digital asset treasury company anchored to the native cryptocurrency of the Sui blockchain. Through this relationship, we are aligned with the foundation's mission to advance decentralized technologies that can scale globally, and we believe this partnership positions SUI Group to deliver both institutional exposure and deep insight into one of the fastest-growing blockchain ecosystems in the world. Since launching that initiative, we have executed by establishing our Sui treasury, completing our corporate rebrand and scaling our holdings to over 100 million SUI tokens as of quarter end, transforming our vision into measurable progress. On the regulatory front, we are encouraged by the momentum emerging across the digital asset landscape, which continues to support our long-term strategy. The GENIUS Act is helping clarify the treatment of yield-bearing stablecoins, establishing a framework where transparent on-chain yield models can operate within defined regulatory boundaries. The CLARITY Act, if passed by Congress in its current form will provide long-overdue guidance distinguishing digital commodities from securities, a critical step towards unlocking broader institutional participation in blockchain markets. In parallel, Project Crypto, a joint initiative by the U.S. Treasury and Federal Reserve is exploring the use of blockchain-based settlement systems signaling the federal government's recognition of distributed ledgers as the future foundation for financial infrastructure. Collectively, these developments create a constructive regulatory tailwind for platforms like SUI Group. We've also seen SUI recognized at the forefront of agentic commerce innovation through its participation in Google Cloud's Agents to Payment Protocol (sic) [ Agent Payments Protocol ] initiative. This new framework enables AI agents to autonomously initiate and settle payments using blockchain infrastructure. Sui was selected as a launch partner for AP2, where it demonstrates how its programmable transaction blocks and object-orientated architecture can support concurrent multiparty transactions in a single atomic block, exactly the type of scalability required for AI-driven financial activity. The collaboration with Google DeepMind and the broader AP2 ecosystem highlights how Sui's architecture is uniquely suited for the coming convergence of AI, digital identity and real-time programmable payments. For SUI Group, this further validates our decision to align our treasury and infrastructure strategy with the Sui blockchain, positioning us to participate directly in the next era of intelligent autonomous finance. Before turning it over to our Chief Investment Officer, Stephen Mackintosh, I want to emphasize that this is a long-term infrastructure thesis, one grounded in scalability, transparency and value creation. We believe Sui is capable of defining the next generation of decentralized applications and that SUI Group will stand at the center of that transformation. With that, I'll pass it over to Stephen to walk you through our third quarter operational updates. Stephen Mackintosh: Thank you, Marius, and good morning, everyone. Before diving into our operational updates, I'd like to take a moment to share my background. Prior to joining SUI Group, I worked alongside Marius as a Co-Founder of Karatage. My career is centered around identifying and scaling emerging technologies at the intersection of AI, automation and digital assets. Prior to Karatage, I served as Chief Commercial Officer at Re:infer, a natural language processing company that was acquired by UiPath in 2022, where I helped integrate machine learning into enterprise automation. I've also served as an adviser to the Web3 cohort at Entrepreneurs First, an incubator that has launched more than 600 start-ups with a combined valuation of over $11 billion. That background, combining venture investing, AI commercialization and Web3 strategy is what informs how we're building SUI Group's digital asset platform today. We launched SUI Group with a simple promise to create the world's first publicly traded digital asset treasury company with an official relationship with the Sui Foundation. The digital economy is entering a new phase where blockchain networks, AI and real-world assets are converging, and institutional investors need a regulated transparent vehicle to participate in that growth. Our goal is to meet that demand through a treasury model that combines the discipline of traditional capital markets with the scalability and yield generation of blockchain infrastructure. At its core, SUI Group was designed to drive long-term shareholder value through 3 key objectives: accumulate and stake high-quality digital assets, beginning with SUI, the native token of the Sui blockchain to generate recurring yield and price appreciation potential; deploy capital into an on-chain ecosystem opportunities that produce real returns such as validator operations, lending and stablecoin infrastructure; increase SUI per share, our primary performance metric by executing accretive capital raises, using proceeds to acquire additional SUI at favorable terms and repurchasing shares when trading below net asset value. Every decision we make from partnerships to treasury deployment is designed to expand our SUI per share, enhance our earning capacity through staking and DeFi yield and strengthen our alignment with the broader Sui ecosystem. In short, we are working to build a scalable yield-generating digital asset balance sheet that provides value for shareholders while advancing one of the most innovative blockchains of our time. Our vision is to build a robust Sui treasury that serves as the liquidity engine and capital allocator for the Sui ecosystem. As our holdings scale, we aim to operate as a strategic focal point within the network, deploying capital where it accelerates infrastructure growth, capitalizes ecosystem adoption and generates sustainable SUI-denominated returns. Rather than limiting our treasury to passive staking, we intend to structure creative, yield-accretive partnerships with core infrastructure providers, DeFi protocols and application builders on Sui , financing the deployment of real businesses that enhance network utility while delivering returns that outperform native staking yields. With our experience at Karatage and long-standing relationships across the digital asset industry, we have the institutional credibility, operational depth and capital discipline to execute this strategy. In essence, we believe SUI Group could function as the on-chain balance sheet of the Sui ecosystem, a scalable source of liquidity designed to strengthen the network's economic foundation while compounding long-term value for Sui shareholders. A key example is our collaboration with Ethena and the Sui Foundation to launch suiUSDe and USDi, the first native stablecoins on the Sui blockchain. This initiative represents an industry-first collaboration between a publicly traded digital asset treasury company, a blockchain foundation and a leading stablecoin issuer. The structure is expected to be capital efficient, launched at low cost to our business and designed to generate cash flows that will be used to grow our Sui treasury and strengthen our balance sheet. These stablecoins leverage Sui's high-speed composable Layer 1 infrastructure to combine dollar stability with decentralized performance, unlocking new utility for DeFi applications, payments and institutional use cases. The formation of this partnership marks a step in our evolution from a traditional treasury company into an infrastructure builder, driving ecosystem liquidity, fostering adoption of the Sui network and creating scalable recurring economic value for shareholders through yield, token buybacks and ecosystem participation. More recently, we launched a partnership with Bluefin, the leading decentralized exchange on the Sui blockchain to expand institutional participation across the Sui ecosystem. Under the agreement, we will lend 2 million SUI tokens to Bluefin. And in exchange, we will receive a 5% revenue share from Bluefin payable in SUI. This partnership is intended to extend beyond just capital. It is about building the bridge from Wall Street to Sui, leveraging Bluefin to accelerate the entry of hedge funds, asset managers and market makers into decentralized markets. As adoption scales, Sui shareholders are expected to benefit from the growth of institutional trading activity on the Sui blockchain, creating a differentiated recurring value stream separate from the traditional staking yields. We are proud to partner with the Bluefin team to deliver a leading trading experience on-chain, demonstrating our ability to deploy liquidity strategically, drive network adoption and capture long-term ecosystem value. To summarize, over the past quarter, we expanded our treasury holdings, established innovative partnerships and completed certain value-accretive share purchases, all while laying the groundwork for new revenue-generating initiatives within the Sui ecosystem. Under our new authorized $50 million stock repurchase program, we repurchased approximately 276,000 shares of our common stock, a high-conviction investment that we believe is immediately accretive to existing shareholders and underscores our confidence in our long-term fundamentals. These actions reflect our commitment to building a scalable, transparent and durable platform that aligns long-term shareholder value creation with the growth of the Sui network. I will now turn the call over to Doug Polinsky, SUI Group's Chief Executive Officer, to provide an update on our specialty finance operations. Doug? Douglas Polinsky: Thank you, Stephen, and thank you, everyone, for joining today's call. For those who are new to our company, SUI Group's legacy nonbank lending and specialty finance business originated under Mill City Ventures III, providing short-term secured lending solutions to businesses and individuals seeking nonbank financing for real estate, inventory and other liquidity needs. These loans typically have maturities under 9 months and are backed by collateral or personal guarantees, generating revenue through interest income, origination fees and closing fees. Our legacy lending business continues to perform well, providing a profitable and cash-generative foundation for SUI Group. All outstanding loans are performing as expected, generating consistent returns through both interest income and origination fees. For the quarter, we reported approximately $1.6 million in interest and origination revenue, more than double the $711,000 recorded in the same period last year. We also recognized $525,000 in unrealized gains on our investment portfolio compared to an unrealized loss of $305,000 in the prior year period. Together, these results highlight the strength of our lending operations, a profitable nondilutive business that limits cash burn and provides steady earnings and liquidity to support the growth of our digital asset treasury initiatives. While we remain opportunistic with our specialty finance opportunities, our primary strategic focus has now evolved towards building an industry-leading digital asset treasury platform aligned with the Sui blockchain. With that, I'll turn the call over to our Chief Financial Officer, Joseph Geraci, to take you through our financial results. Joe? Joseph Geraci: Thank you, Doug. A quick reminder, as we review our third quarter financial results, all comparisons and variance commentary refer to the prior year quarter unless otherwise specified. Please note that these results reflect only 2 months of our activity from our newly implemented Sui treasury strategy, which launched on July 31, 2025. Due to our recent strategic shift from our specialty finance business toward blockchain native treasury management, our historical financial condition and results of operations for the period presented may not be comparable. Gross revenue and portfolio investment income for the third quarter of 2025 increased to $2.6 million compared to approximately $711,000 in third quarter 2024, driven by the generation of staking revenue following the adoption of our new treasury strategy. Our third quarter 2025 results included $60.7 million noncash unrealized loss related to mark-to-market accounting adjustments on our Sui holdings. Please note, this is a U.S. GAAP required treatment that reflects changes in estimated fair value and does not represent an actual outflow of cash or impact to our liquidity. As a result, total operating expenses, excluding net realized and unrealized gain on portfolio investments in the third quarter of 2025, were $64.7 million compared to approximately $420,000 in the third quarter of 2024. Excluding the aforementioned unrealized loss on digital assets and stock-based compensation, operating expenses for the third quarter of 2025 were $1.7 million. Net loss for the third quarter of 2025 was $44.3 million or $0.72 per share diluted compared to net income of approximately $464,000 or $0.07 per diluted share in the third quarter of 2024. The decrease was primarily driven by the aforementioned noncash unrealized loss on our Sui holdings. As of September 30, 2025, cash and equivalents were $42.7 million compared to $6 million as of December 31, 2024. As of September 30, 2025, the last day of the quarter, SUI Group held 105,681,292 SUI with a net value of $344.5 million. This concludes our prepared remarks. We will now open it up for questions from those participating in the call. Operator, back to you. Operator: [Operator Instructions] Our first questions come from the line of Brian Kinstlinger with Alliance Global Partners. Brian Kinstlinger: When evaluating deployment of capital to companies like Bluefin or other protocols, what key metrics or criteria do you prioritize: yield, security, network activity or something else? How do you weigh counterparty risk versus returns? And then lastly, on Bluefin, what's the duration of that agreement? Marius Barnett: Brian, thanks for that. First of all, the duration of that agreement is 3 years, and it's in our options, SUI Group's option to extend that agreement for 3-year terms at its election. In terms of looking at the counterparty risk here, currently, they're annualizing approximately $14.5 million per annum of fees. Looking at that, that represents circa 15% return year-on-year in SUI paid in SUI, which gets paid on a bimonthly basis. In terms of looking at the counterparty risk, this is a group that is very well known to the Sui ecosystem, interacts with the Sui Foundation on a daily basis. We conducted due diligence on this together with the Sui Foundation, including all the founders. And we believe it's a very robust business that's supported by the Sui Foundation. They continue, as part of their DeFi rewards program, to support their perps [ stake ] and all the other products, and we're very bullish on their products that they are currently bringing to market. One of their new products is the Vaults [ section ], where they're now running many different vaults on the decks, and we will work with them very closely to continue to expand that business. Brian Kinstlinger: Great. That's helpful. And then can you talk about the application development progress being made on Google's Agentic Payment Protocol, maybe when you might see some of the initial apps and when you expect it will generate early transaction volumes? Marius Barnett: Sure. Steve? Stephen Mackintosh: Brian, thank you for the question. The agentic framework stack is expanding quite rapidly on Sui at the moment. In addition to the Google AP2 partnership, there was a company announced just in the past 2 weeks called Beep, which has a founding executive team from PayPal and also from, I think, Walmart, who've been in the payments and merchant space for a long time. And that agentic wallet is now live on Sui, where users can deposit into that wallet, speak to the wallet's UI through a natural language [ combined ] online interface and actually get automated agentic yield return. As part of the Google partnership and in answer to your question, it's actually a broad consortium of different partners, so it's very much up to the different industry players to come together to start pushing through those agentic use cases into production. I think that when there will be an announcement for the public, we will be sure to communicate that through the Sui Foundation. But as of right now, I would just stay tuned into the social pages and the official channels to see which of the industry partners are demonstrating how that comes to life. Brian Kinstlinger: Great. My last question is maybe you can just touch on your native stablecoin launch, how you'll generate -- for investors, how you'll generate incremental revenue in SUI from that? Marius Barnett: Sure. We're looking at launching that in the next 2 to 3 weeks. We believe that it will launch with approximately $100 million of liquidity in that stablecoin. There are 2 stablecoins. One is suiUSDe and the second one is USDi, which is a one-to-one DAT stablecoin. We have a revenue share agreement with the various parties, including Ethena and Sui Foundation, who all participate in it. It is variable in terms of what we're looking at earnings depending on how much is used in the ecosystem. But long term, we believe that this can be a very good core driver of accumulating Sui in the ecosystem. Operator: Our next questions come from the line of Devin Ryan with Citizens. Devin Ryan: A couple, I would say, maybe high-level questions. First off, on just the theme of agentic AI. So obviously, you've touched on why Sui is kind of differentiated there. But can you just talk about functionally how you see AI and blockchain coming together over time? And we're still in the very early days of both technologies so kind of your vision of that, why it's important, where you see kind of value developing? And then if you can just maybe just weave in a bit, too, around why Sui is truly differentiated in your mind from some of the other blockchains. Stephen Mackintosh: Thank you, Devin, for the question. Yes, I would like to, first of all, kind of address it by drawing a line of differentiation between the Sui blockchain architecture and some of the other high-performance blockchains that the kind of community and the investor audience might be familiar with such as Ethereum, Solana, Avalanche. Those 3 blockchains and many others in the ecosystem are all account-based models, whereas Sui is an object-orientated blockchain. And that came from the team's background as the heads of research and heads of product on the Libra and Diem initiatives at Facebook, which was a rather ambitious goal to release a blockchain network out to 3 billion users. At the time, the Sui team realized that in order to achieve that type of scale, there needed to be a new implementation in the smart contract programming language. So the team invented Move. And when the Libra and Diem project kind of disbanded, the team left and they created Mysten Labs, which built Sui. An object-orientated model is very interesting because it allows for really limitless programmability, which is exactly what you need to execute on the agentic payments future or the agentic commerce kind of future by treating every asset or every agent as an object. What that means is that it can scale in parallel across the network. So account-based models, typically, everything has to settle through one till, one ledger, whereas in the object-orientated blockchain like Sui Move, objects can be agents and assets can be objects, and they can all have parallel settlement, and that can scale really across the network in a number of different use cases. Right now, we have a huge bottleneck when it comes from going intent -- from intent to action with these LLM interfaces. And what the Sui team realized when they set out on this ambitious journey to build a blockchain network that can scale to 3 billion users, they built core pillars of infrastructure that come together to support the canonical high-performance blockchain Sui. They built a protocol called Walrus, which is decentralized programmable storage. They built a product called Seal, which is for key encryption and secrets management. They built a product called Nautilus, which is for verifiable off-chain computation. And they also built a very novel identity protocol called zkLogin, which allows both humans and agents to log in with perhaps your Google single sign-on credentials. And when you put all of those things together, that's actually what's called the Sui stack. And a good parallel is to think through the SaaS industry that's proliferated over the past 10 to 15 years that had really kind of core pieces of infrastructure such as Kubernetes on GCP. They had compute storage, identity querying. All of that came together to allow SaaS to flourish. In Sui now, we have all of those products that come together to resemble the Sui stack, and that's what will allow agentic commerce to flourish. And as I mentioned from my previous response to Brian's question, we're now starting to see the breakout use cases. Beep went live on the network 2 weeks ago. The announcement with Google AP2 was announced about 6 weeks ago, and there are many more kind of exciting agentic breakthroughs coming to the network in the next 6 months. Devin Ryan: That's excellent. And then as a follow-up, obviously, some nice momentum on partnerships with Bluefin and the connection with Ethena as well. Can you just talk a little bit about the pipeline of partnerships and kind of where you guys are having conversations and where you expect kind of from a use case perspective, kind of next partnerships to come from? Marius Barnett: Sure. I think from that perspective, we've spoken about this previously that we believe that there's a few core fundamentals of building the business out in the long term, one being liquidity and how we drive liquidity. That includes the partnerships such as Bluefin. The second piece being infrastructure, and that's where we bring on infrastructure to the whole ecosystem, which drives the flywheel of the whole ecosystem. That example is the Ethena stablecoin, and we're looking at various different partnerships, one -- the next one being an ETF -- of launching an ETF in the U.S., which will drive that and we'll again be able to participate in the fees long term of the ETF and being able to drive those types of innovations across the stack. So we have about 5 or 6, but the main priority going forward is the ETF. Operator: Thank you. That does conclude our question-and-answer session. And with that, I would like to bring the call to a close. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.