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Mor Weizer: So good morning, everyone. Thank you all for attending today. It's good to see a lot of familiar faces here. So on to Slide 2. I'll begin with the highlights before handing over to Chris, who will take you through the financials and the outlook. I'll then update you on our progress against our strategic priorities. Turning now to Slide 3. I'm pleased to report a strong performance in the first half with adjusted EBITDA of EUR 92 million, consistent with the upgraded expectations communicated in last month's trading statement. The overall performance reflects the revised terms of Caliente Interactive agreement. We saw solid underlying growth within the B2B business. At the same time, we continue to make excellent strategic progress in core markets, in particular, the Americas, where we have laid the foundations for significant growth in the U.S. and Brazil. The disposal of Snaitech, which completed in April, has bolstered our balance sheet, giving us the flexibility around capital allocation. Given the solid start to H2, we are on track to deliver full year adjusted EBITDA for 2025 ahead of expectations. As we transition back to our roots as a pure-play B2B business, the Board remains confident in our ability to execute our strategy over the medium term. I will now hand over to Chris, who will take you through the financial performance and outlook. Chris McGinnis: Thanks, Mor. And on to Slide 5, please. Before we look at the numbers, I think it's important to note the 2 major events that took place in the first half of this year, which are, of course, the completion of the sale of Snaitech as well as the revised terms of our agreements with Caliente Interactive taking effect. These big changes have fundamentally reshaped Playtech, and we are pleased that the financial performance of the group, which includes these -- the impact of these changes has come in ahead of expectations. Now looking at the numbers. Group revenue for the first half came in at EUR 387 million, down 10% year-on-year due to the impact from the revised agreement with Caliente Interactive. As a quick reminder, under the revised agreement, which came into effect on the 31st of March, the additional service fee will no longer be collected, reducing revenue while direct costs are also slightly reduced. As previously communicated, our share of income from associate as a 30.8% direct equity holder is now included within group adjusted EBITDA. We've put a slide in the appendix that walks through the comparison and changes at revenue and EBITDA level, so you can see the effect of the new Caliente Interactive agreement has had in the period and how underlying group earnings have grown. Excluding the Caliente Interactive impact, group revenue was flat year-on-year in the first half. This performance also absorbed several headwinds we saw in the first half of the year, such as the Brazil regulatory transition issues, the implementation of the VAT in Colombia and the exit of a major operator from Asian markets. Adjusted EBITDA in the first half came in at EUR 91.6 million, ahead of consensus expectations prior to our August trading update. On an underlying basis, adjusted EBITDA grew 5% year-on-year in the first half, reflecting the strength of our core operations. We have maintained a strong balance sheet, ending the period in a net cash position due to the net proceeds from the Snaitech sale. Finally, our free cash flow generation in the first half was impacted by the timing of dividend payments from Caliente Interactive totaling USD 20 million, which were received post period end. Turning to Slide 6. Looking at the B2B division in more detail, H1 revenues declined 9% to EUR 348 million. On an underlying basis, revenues grew by 3%. Also, on an underlying basis, Latin America saw revenue growth of 5% as the tailwind from Brazil's inclusion within regulated markets in our reporting was partially offset by the previously flagged headwinds in Brazil and Colombia. The U.S. and Canada region continues to see very strong momentum with revenues increasing 64%. Looking at Europe, excluding the U.K., revenues grew 4%, driven by Poland and Spain. In the U.K., revenues declined 3% due to the continued impact of an operator in-sourcing their self-service betting terminals. Elsewhere in unregulated markets, revenues declined, reflecting the reclassification of Brazil as a regulated market. From a cost perspective, and you can see more details with the breakdown in the appendix, continued investment into strategic areas such as Live in the Brazil and the U.S. was largely offset by tight cost control, which resulted in B2B costs increasing by only 2%. Now on to Slide 7, where I will take you through the performance of our B2C division. B2C revenue declined 17% year-on-year to EUR 41 million in the first half, while adjusted EBITDA loss narrowed from EUR 4.3 million to EUR 1.5 million. HappyBet saw a 10% decrease in revenue -- sorry, 19% decrease in revenue, driven by the closure of the Austrian business and the ongoing winding down of the German operations. Adjusted EBITDA losses narrowed significantly to EUR 2.3 million for the same reasons. As announced in May, we have initiated the disposal process with another German operator, which includes the transfer of HappyBet's German franchise partners and associated hardware subject to negotiations. This marks a key step in our exit from the noncore HappyBet business. Elsewhere, our Sun Bingo and other B2C operations were impacted by enhanced regulatory requirements in the U.K., which contributed to a 17% decline in revenue and a reduction in adjusted EBITDA. Turning now to Slide 8, where we look at our net debt bridge from the end of 2024 to the end of June 2025. Following the disposal of Snaitech and the payment of the special dividend, we received just over EUR 300 million in net proceeds. As a result, we ended up with a net cash position of EUR 77 million as at the end of June. It's worth flagging that this net cash position is elevated as there are outstanding liabilities from the Snaitech disposal totaling just over EUR 90 million. These liabilities, which are not due until 2026 and 2027, include a portion of management bonuses related to the deal, taxes on the Snaitech sale and dividends to holders of unvested LTIPs. Adjusting for these on a pro forma basis, we would have had a slight net debt position of EUR 15 million at the end of the period. Turning to our borrowing facilities. In Q2, we successfully repaid the remaining EUR 150 million outstanding under our EUR 350 million March 2026 bond using a portion of the Snaitech proceeds. This leaves us with a single EUR 300 million bond, which matures in June 2028, alongside our recently secured EUR 225 million revolving credit facility, which replaced our previous facility and currently remains fully undrawn. On to Slide 9, Playtech continues to maintain a strong balance sheet, which provides us with the flexibility to allocate capital in a disciplined and strategic manner. Our approach is focused on driving long-term growth while delivering value to shareholders. We are actively deploying capital to high-growth areas such as the U.S., Brazil and Live Casino, where we see strong momentum and scalable opportunities. In addition, we're investing in both new and existing structured agreements that support our expansion into regulated markets and reinforce our B2B leadership. Our M&A strategy remains disciplined. We are open to accretive acquisitions that align with our strategic priorities and regulatory trends with a clear focus on enhancing Playtech's position as a pure-play B2B technology provider. At the same time, we continue to evaluate mechanisms for returning capital to shareholders, including dividends and buybacks, ensuring that any action taken is both sustainable and value accretive. This balanced approach allows us to invest in growth, maintain financial resilience and deliver returns, all while remaining agile in a dynamic market environment. Turning to Slide 10. As you recall, at our 2024 full year results, we introduced a new medium-term adjusted EBITDA target of EUR 250 million to EUR 300. We have a starting point of approximately EUR 150 million in adjusted EBITDA for 2024 when you adjust for the revised Caliente Interactive agreement. I'll now walk you through the key levers we're deploying to reach this target. First, our U.S. business is in growth phase and as a result, has annual losses of approximately EUR 15 million. This is primarily due to the significant investment being made within the Live segment as we have 3 studios now operational in the U.S. with small but rapidly growing revenue. Given the structural growth drivers and demand from operators, we see a clear path to profitability over the coming years, a strong operating leverage on the revenue growth translate into narrowing EBITDA losses and then ultimately positive EBITDA. Secondly, we have identified underperforming businesses within the Playtech Group that contributed more than EUR 20 million in annual EBITDA losses. Of that, a significant amount relates to HappyBet, which we've discussed and where there's a process underway to wind down that business. The remaining underperforming businesses will be addressed in the coming periods with actions already being taken. Next, as Mor will talk about in more detail, we are well positioned in markets such as Brazil and Mexico, partnering with the biggest and most ambitious brands, which should drive further earnings growth over the medium term. Finally, we continue to identify inefficiencies across our processes and footprint while taking steps to eliminate duplication. This will ensure our B2B business operates with the right cost base and that our resources are focused on the growth areas that we've just discussed. And finally, moving to Slide 11 and our outlook. We've seen a solid start to H2 with performance tracking in line with normal seasonality. We plan to continue to increase investment in the second half, particularly in the U.S. and Brazil, where we see strong and sustained demand for our products. Despite the increased investment, we're on track to deliver full year 2025 adjusted EBITDA ahead of expectations, reflecting the strength of our core business. For guidance, we now expect full year 2025 CapEx, which includes capitalized development to be between EUR 80 million to EUR 90 million, which is a reduction from our previous guidance of EUR 90 million to EUR 100 million, which is due to lower capitalization rates and a disciplined approach to capital spending. We maintained our effective tax rate guidance of between 25% to 28%. our financial performance and good strategic progress in the first half of the year keeps us firmly on track to meet our medium-term adjusted EBITDA and free cash flow targets of EUR 250 million to EUR 300 million and EUR 70 million to EUR 100 million, respectively. With clear strategic priorities, strong execution and a strong balance sheet, the Board remains very confident in Playtech's prospects for the remainder of 2025 and beyond. I'll now hand back to Mor to take you through our strategic priorities. Mor Weizer: Thanks, Chris. On to Slide 13. I'll begin by highlighting 2 landmark milestones completed in H1 that fundamentally reshaped Playtech into a highly focused B2B business. Let's start with Snaitech, a transformational deal and a clear example of our commitment to deliver shareholder value. We acquired Snaitech in 2018 for EUR 846 million at an attractive EV/EBITDA multiple of 6.1x. Alongside the Snaitech team, we successfully transformed this business from a predominantly retail operator into a higher-margin, less capital-intensive technology-driven omnichannel leader. In September last year, we announced the sale of Snaitech to Flutter Entertainment for EUR 2.3 billion, representing a premium EV/EBITDA multiple of 9x. This transaction completed in April 2025, delivering a cash return of more than 3x our initial investment with EUR 1.8 billion distributed to our shareholders through a special dividend paid in June. On to Caliente Interactive, our most successful structured agreement to date. After a challenging period, we restored our strong and collaborative relationship with Caliente Interactive by signing a revised strategic agreement in September 2024, which completed at the end of March this year. This agreement represents a good outcome for both parties and lays the foundations for the next phase of growth for our partnership. Under the new structure, Playtech now owns a 30.8% equity stake in Caliente Interactive, a newly formed U.S. incorporated holding company for Caliente's online business. And importantly, this partnership is already delivering cash returns. Caliente Interactive declared and paid its first dividends to Playtech in early H2. On to Slide 14, where I will outline Playtech's investment case. There are 2 elements that are important to understand when looking at the company and its prospects following the Snaitech sale. Firstly, operationally and commercially, we are a high-growth B2B business, providing technology to the majority of the leading brands in the industry. We provide these brands with our market-leading innovative content across a range of verticals, including the rapidly growing Live Casino segment, where we are gaining market share in key markets. One of our greatest strength is our presence in some of the fastest-growing regulated markets in the world, including the U.S., Brazil and Mexico. And we offer a range of innovative business models to ensure we are able to extract the appropriate level of value for the software and services that we provide. Taken together, we have an attractive set of levers that will see us deliver on our ambitious medium-term adjusted EBITDA and free cash flow targets set 6 months ago. Secondly, we have a collection of highly valuable assets on our balance sheet with a total book value of over EUR 1 billion. And of course, book value is generally regarded by the market to be a conservative estimate of realizable value. Nevertheless, in the interest of prudence, we will use this measure. The largest asset by far is our 30.8% equity stake in Caliente Interactive, which has a book value of EUR 726 million. Our other assets are at an earlier stage in their development, yet they have the potential to grow strongly and ultimately generate significant value for Playtech shareholders. In the U.S., our low single-digit equity stake in Hard Rock Digital gives us strategic exposure to a rapidly growing business with a market leadership position in Florida's online sports betting market. In Brazil, we also hold a nominal cost option on 40% of the equity in Galera.bet, which was amongst the first batch of operators to be granted a license in the newly regulated Brazilian market. I'm really excited about this business, and you'll hear me explain why in a few slides. In Colombia, we hold a nominal cost option on 50% equity in a leading online gaming operator, Wplay, representing a strategically valuable asset. Next, we have a valuable 49% equity stake in LSports, the real-time sports betting data provider covering over 100 sports with some of the lowest latency rates in the market, and the business is growing rapidly. Finally, we have equity stakes in various other assets such as Algosport, whose profits have continued to grow as well as assets such as Northstar and The Sporting News. And underpinning our investment case is our commitment to deliver shareholder value, including through shareholder distributions. So in summary, Playtech offers access to a high-growth B2B business complemented by highly valuable assets and a strong commitment to delivering shareholder value. On to Slide 15. Here, I'll briefly outline the strategic priorities that will drive our progress towards achieving our medium-term adjusted EBITDA target of EUR 250 million to EUR 300 million. Firstly, we will continue to prioritize regulated and regulating markets with a clear emphasis on those offering the greatest long-term growth potential. Markets such as the U.S. and Brazil are currently in the investment phase but we are confident they will deliver substantial returns over time. Others like Mexico are already highly cash generative and provide a strong foundation for scalable growth. Secondly, we will concentrate our product investments in areas with the highest potential for profitability and return on capital. Playtech is renowned for the breadth of its product offering but there are certain verticals that provide the greatest opportunity. We believe that live and casino present the greatest opportunity for growth supported by our market-leading PAM+ platform and our value-accretive services business. Thirdly, our transition into a highly focused B2B technology company is a natural moment to review our operational efficiency and agility, as Chris touched on. This means addressing underperforming businesses, streamlining operations, eliminating duplication and building a leaner, more responsible organization that can adapt quickly to changing market dynamics and customer needs. By executing on those core priorities, we will optimize resource allocation, reduce structural complexity and improve cash generation, positioning Playtech for sustained long-term success. On to Slide 16. Let's now turn to one of the most exciting strategically important growth drivers in our B2B business, our successful partnership with Caliente Interactive. The overall Mexican online market is set to grow 21% in 2025. But despite its scale, we think there is capacity for further growth in the years ahead. According to industry analysts, GGR per adult in Mexico averages $35. This compares to $65 in the Philippines, a market with similar demographics and digital infrastructure but a much lower GDP per capita, suggesting a significant opportunity for further growth in Mexico. As many of you know, Caliente Interactive has long been the undisputed market leader in Mexico's online sector. Over the years, its technology platform has been finally tuned to reflect the unique preferences and behaviors of local consumers, giving it a distinct competitive advantage. At the same time, Caliente's scale enables it to invest aggressively in marketing, reinforcing its leadership position. This sustained investment has created a brand that is unrivaled in Mexico. For example, Caliente sponsors 13 out of 18 teams in the Liga MX, the country's top football league. With Mexico set to cohost the 2026 FIFA World Cup, Caliente's dominance is expected to reach new heights as the tournament will significantly amplify its visibility and further solidify its brand leadership. Beyond Mexico, Caliente's ambitions extend to other markets. Later this year, the company plans to enter Peru's newly regulated market, marking the first step in a broader expansion strategy across Latin America. At the same time, Caliente is actively exploring other markets across the region, carefully evaluating the most exciting opportunities for future expansion. Moving to Slide 17, where I'll provide an update on the current and future growth drivers of our U.S. business. After signing partnerships with all of the major operators throughout 2024, we have seen very strong momentum in the first half of this year with revenue growth surpassing 100%. A key factor behind this growth has been our ability to expand wallet share amongst Tier 1 operators. Our Live Casino business made material progress following a successful launch with DraftKings across the 3 largest iGaming states. By the end of June, we were operating more than 50 active live tables in our U.S. studios, and we continue to invest in additional capacity to meet the strong and growing demand of our products. Our expansion with existing operators into new states creates a further avenue for growth. In June, we announced our entry into West Virginia, our fourth iGaming state, where we launched with major operators, including DraftKings, Rush Street and BetMGM. We also expanded our relationship with Delaware North, launching online sports in Arkansas and multiple products in West Virginia. Through our equity stake in Hard Rock Digital, we benefit from their unique leadership position in online sports betting in Florida. The cash generated from Florida supports Hard Rock digital expansion into other states across the U.S. and other international markets where we are also positioned to capture value from their growth. Margin-accretive platform deals are especially attractive given the value that accrues to Playtech when operators use both our PAM+ platform and content. We now have 3 U.S. operators utilizing our platform with revenue from this subset growing significantly, and we expect this to be an increasing contributor to our U.S. growth. Finally, we continue to prioritize the development of innovative content tailored to the U.S. audience as we look to increase wallet share amongst operators. In H1, we released 20 new games, including branded titles such as RoboCop: Collect 'Em and Deadliest Catch. Our content strategy is delivering results. Multiple Playtech titles consistently rank amongst the top 25 games in industry reports, underscoring our ability to compete with established suppliers and reinforcing the strength of our content portfolio. As we deepen our U.S. presence, our focus remains clear: Innovation; operational excellence; and supporting our partners to capture long-term growth opportunities. Moving to Slide 18. Let's turn to Brazil, one of the most exciting and fastest-growing markets in the world. The official launch of Brazil's regulated online gambling market in January marked a historic milestone for the industry and a major opportunity for long-term growth. Industry analysts project the market to grow at 15% annually, reaching GGR of $17 billion by 2030. That said, as with any major regulatory shift, there have been some well-publicized bumps in the road to begin with. Brazil introduced some of the strictest onboarding requirements globally, leading to unusually high KYC rejection rates and as a result, lower-than-expected volumes across the industry in the first half of the year. Given our strong partnerships with leading Brazilian operators, this has had an impact on us as a B2B supplier. But let me be clear, we see this as a temporary headwind. Our conviction in Brazil's future is reflected in our decision to invest further in the country. We are building a state-of-the-art live casino studio in Sao Paulo on track for completion by the end of 2025. This will allow us to deliver localized premium content with native-speaking live dealers creating an authentic experience for Brazilian players. To support this, we are scaling our local presence. Our team in Brazil is expected to grow to over 100 people this year, and we are continuing to invest in talent and infrastructure to capture this opportunity. We have signed partnerships with some of the country's leading operators, strengthened our position through our structured agreement with Galera.bet, and we are in the final stages of securing an agreement with a major player, which has the potential to be one of the largest operators in the Brazilian market. Let's now turn to Slide 19, where I'd like to cover our progress in Live Casino. Throughout the first half of 2025, we saw strong and sustained demand for live with revenues up 9% year-on-year. A standout region was the United States, where we delivered over 300% revenue growth following a series of successful launches with DraftKings across the 3 largest iGaming states. Across our 15 studios, we now have over 470 tables, an increase of 5% versus the end of 2024. In response to strong demand, we are investing in further capacity expansion across all of our U.S. studios to capture the growing opportunity we see. We are also expanding across Latin America. Live Casino is proving to be highly popular in Brazil. While our new Sao Paulo studio is under construction, we are expanding our Peru facility to meet the surge in demand and reinforce our leadership in the region. On the product side, we are building on the success of our landmark partnership with MGM Resorts International. Earlier this year, we launched a dedicated studio on the MGM Grand casino floor, bringing the energy of Las Vegas directly to online players in regulated markets outside the U.S. Along with the game show Family Feud, the studio also broadcast a variety of interactive table games, all hosted in a fully transparent glass studio on the MGM Grand casino floor visible to the public 24/7. We also introduced Vision Blackjack, a game that replicates the look and feel of a live table while operating entirely on RNG technology. Unlike traditional live dealer games, it eliminates the need for human dealers and video streaming, enabling faster gameplay, lower operating costs and highly scalable deployment. Live Casino continues to be a high-growth, high-margin vertical for Playtech. With strong performance in the U.S., expansion across Latin America and Europe and continued product innovation, we are well positioned to capture the next phase of growth in this space. On to Slide 20, where I want to highlight the growing importance of our services business, which is set to remain a key contributor to B2B revenue growth. Through partnering with over 200 licensees globally, Playtech has amassed significant knowledge on the gambling industry, including customer acquisition and retention, risk management and operational know-how. In addition, Playtech can optimize its products to maximize their value for operators. Our services have been hugely valuable to partners, particularly those with strategic agreements in place. This is a key competitive advantage and an important contributor to their success. To meet strong demand, we are now rolling out our services offering to a broader set of operators, enabling a greater proportion of our licensees to benefit from optimization of Playtech's products and our marketing and operational expertise. Given our revenue share model with operators, this should act as a tailwind to revenue growth, providing a win-win model for both Playtech and its licensees. Finally, Slide 21, where I summarize Playtech's investment case. Playtech has clear levers for medium-term growth. In terms of geographies, we see the greatest opportunity in the Americas, most notably the U.S., Brazil and Mexico. From a product perspective, we expect Live Casino to be an increasingly important contributor. Given the significant investment across these areas and our ongoing work on operational efficiency and addressing underperforming businesses, the foundations are in place to achieve our medium-term adjusted EBITDA and free cash flow targets. We own highly valuable assets such as our stakes in Caliente Interactive and Hard Rock Digital. Both of them, along with our other assets, occupy strong positions in their local markets, and we see significant potential for them to continue increasing in value. Our strong balance sheet provides the flexibility to pursue both organic and inorganic growth opportunities while also supporting future shareholders' returns. We are confident in continuing to deliver shareholder value over the medium term, and I'm really excited about what is in store as we embark on the next chapter at Playtech. Thank you all for listening. Chris and I will now be very happy to take any questions you may have. And a quick reflection on the age, right? So I just turned the glasses. I just turned 50 two weeks ago, a big milestone for me. And I just celebrated my 20th year anniversary with Playtech. So you should all go easy on me. Unknown Executive: So just moving on to Q&A. So we'll first take questions from inside the room. And then once all of those are exhausted, we'll then move to the conference call line and take any questions there. David Brohan: David Brohan from Goodbody. Three for me. Firstly, on the live from Playtech product. Is there any KPIs you can share on how this has performed versus comparable games in your Live business? And then on the SaaS business, another very strong period of growth. How long do you think the future runway of growth is in that business? And then finally, on the U.S., any kind of sense on timeline for the U.S. to get profitability? Chris McGinnis: The first one, David, can you repeat that live comparable? I didn't catch. David Brohan: Yes. So just any KPIs you can share on how customers -- customer metrics look on your Live from Vegas versus your other Live product? Chris McGinnis: Yes. I think the Vegas one, it was interesting. It was a new concept, right. And we were, I think, both MGM and us quite excited about it. Obviously, it's -- we're still ramping it up. And I think 12 months ago, when many of us were at G2E in Las Vegas, we had a couple of tables operational at De Bellagio and a couple at MGM Grand, which were dual play. But in recent months, we've opened the whole studio in the MGM Grand. And in parallel to all of that, we've been ramping it up with customers and rolling it out. Obviously, it's not available to anyone in the U.S. but it's being broadcast elsewhere. I think we had modest expectations but the KPIs have probably surpassed our expectations. It's still modest. I would describe it as a new adjacent product in terms of innovation and offering something new and a key part of what we're doing. So I think the KPIs are probably better than expected. However, overall, I would say, in terms of impact, it's relatively modest and you look at the 400-plus tables we have across the whole business, and you're talking relatively small number. But nonetheless, it's something we've been quite excited about. Mor Weizer: If I may just [ elaborate ] further, I think that it's too early to suggest and quantify it, right? I think that what we do see is a very strong demand by various operators that decided to take the product. You have to understand that when you roll it out and we indicated that it is for online customers outside of the U.S. in regulated markets, which means basically that we need to go through the certification and licensing in each and every country where we would like to offer that because it's a new product streamed from Vegas. We see strong demand for customers. The pipeline is there already secured. We are rolling out in different territories. And I think that we will be -- sometime next year, we'll be in a better position to quantify that but it's looking very, very encouraging. We are very excited about this opportunity as evidenced by the increased investments further extending the relationship to Family Feud game show and additional tables. So very encouraging, yet too early to quantify, still small in size, given that it's early stage, early days. On SaaS, maybe I'll pick up -- I'll continue with SaaS. We still believe that there are a long list of -- there is a long list of customers that will onboard onto our product. We use now SaaS not only as a model for small, midsized operators but also certain operators such as in the U.S., such as in Brazil, the long tail in each and every country, in each and every regulated country. And therefore, we still see a lot of demand, and we still see the pipeline growing. Having said all that, there is also a very, very attractive opportunity for Playtech to increase market share. Today, Playtech represents less than 5% on average, Playtech represents less than 5% of the overall market share for the small, midsized operators. If we only double that to become 7% or 8% or double it to 10%, we double the business together with the existing customers. So it's horizontally to additional customers in additional territories where existing customers extend together with us to additional countries, such as Brazil is a good example, even in the U.S. And beyond that, obviously, vertically where we can grow together with them and grow the market share of Playtech, we are developing -- we developed earlier this year an entire program of campaigns, working together campaigns, including promotions together with the operators to expose the Playtech portfolio within the portfolio that they had before. Remember, these are small, midsized operators. Some are also big operators, and they never had Playtech. It's for the first time they have Playtech, and we now work together with them on a program to expose Playtech, expose it to end user customers. And this is why we believe that it still has a lot of potential going forward. Chris McGinnis: Then on U.S. profitability, it's a bit of a -- to be honest, it's a bit of a moving target but that's a positive. In that what we're seeing in the U.S. is as we build the infrastructure, which is largely Live Casino but more than that but a big majority of the investment is Live Casino, both CapEx and then OpEx to run these facilities. As we're building and expanding, it's just leading to more demand, which then requires more building and expanding. So if we stopped sort of expanding, we could probably get to a breakeven in profitability in, I don't know, 18 to 24 months. However, that would not be the right thing for the medium to long term for Playtech. So at the moment, what we're seeing is a demand and we're sort of trying to keep up with it, to be honest. So that requires more investment. So that's going to delay profitability. So at this point, it's probably a few years away for being honest. But again, it's a very positive thing because we're seeing a lot of demand for our products in the U.S., particularly Live. Roberta Ciaccia: It's Roberta Ciaccia from Investec. So I have 3 questions on the same subject, actually. Sweepstakes in the U.S., there's been a lot of noise on the press regarding the court case in California. Other companies have been involved or haven't been mentioned but I wanted to know if you can. Firstly, if you can quantify what is your exposure to that business? Secondly, which states you actually operate in? And third, what is your position going forward? If you're doing it, do you want to keep doing it? Or will you select state by state? What's your view going forward on that? Chris McGinnis: I'll take the first part on quantifying it and then the rest to Mor. On quantifying, I mean, overall, we see it as immaterial. But just to give you a bit more color around that, circa 1% of group revenues or single-digit millions kind of amount on a revenue basis. So a small amount that we largely consider immaterial. Mor Weizer: Yes. And I'm happy that Chris started because he put it into context, right? It's 1% of overall group revenues. I will say that we always took a conservative approach. And this conservative approach meant that we only worked with a very selected few operators of size that we knew obtained certain legal advice alongside Playtech in only selected few states. So from the outset, Playtech has not been involved in many of the states that some other operators do operate in and other suppliers supply their software and services into. Our approach is very conservative. We monitor the developments. Our models in each and every state is somewhat different. I won't get into the individual states. There is a list, not a very long list, by the way, left. And we obviously take a very conservative and prudent approach towards sweepstakes. We were one of the first to pull out of California, even ahead of anything happening there. And -- but this is the nature of Playtech. Sometimes you pull out of the market. Sometimes you buy into Hard Rock Digital before the market is regulated when there is still certain -- obviously, certain concerns about whether Hard Rock will be able to operate in Florida. And I think that it's the natural development. Putting it back into context, it's 1% of revenues. We take a very conservative approach. We will follow the fluid -- the changing and fluid regulatory environment in the United States. And we will continue, and this is the most important thing, we will continue to further establish ourselves in the regulated states across the U.S. with the largest and leading online gaming operators, and this is our focus. It was the focus. It is the focus and will remain the focus going forward. I think it's evident by the growth, the 100% growth in the U.S., 300% growth in Live Casino. We only just started. And I think this, alongside the fact that it's only 1%, puts it in context and our approach to the U.S. and the activity in the U.S. altogether. Roberta Ciaccia: Can you just confirm these revenues are classified under unregulated revenues? Chris McGinnis: Yes. Mor Weizer: That is correct. As was Brazil before it was regulated, even though many refer to it as regulated. James Wheatcroft: James Wheatcroft from Jefferies. Just a couple from me, please. Firstly, just in terms of capital allocation, like a sort of newish slide. What would you be comfortable with in terms of leverage going forward, either for buybacks or M&A? Secondly, just in terms of U.K. tax discussions, have you got a view on what we should expect and the implications for Playtech? Chris McGinnis: Yes, I'll take the first one on capital allocation and leverage and then more can touch on U.K. regulation. On leverage, and this is -- there's no change. This is what I've said in the past but I see it more as a medium-term sort of target and not something we would look to get to immediately. But 1x to 2x net debt to EBITDA is, I think, where we feel comfortable operating. Obviously, the numbers you've seen today, we're in a net cash position, so it's very underlevered. However, I did flag some of the liabilities that sort of aren't captured in that number, which takes us to a small net debt position. But obviously, that gives us flexibility to increase leverage. I think we would do that in a measured way, not in one fell swoop but it's something I think we will look to do over time is to get that leverage back to a probably more efficient level. Mor Weizer: And the second question was the implication of the tax reform in the U.K., right? James Wheatcroft: And maybe if you have a view around what you think that might be? Mor Weizer: I don't think that we have a view. Remember that we are one step removed. We already adapted to any changing market conditions, including changes of regulations, regulatory changes as well as tax increases. However, I will say that we truly think that it is -- it's important that the government engage with the operators and understand the implications of such increase in taxes. We understand policymakers. We understand the fiscal pressures. However, sometimes there are some unintended consequences. You take the Netherlands, for example. What happened in the Netherlands, they increased the taxes and it pushed the industry towards illegal activity. At the same time, it created a shortfall in tax receipts of EUR 200 million. So sometimes there are some intended consequences for increases in tax I will add that it's not yet clear because we have gone through certain changes in other territories. However, we also changed from the -- we also experienced that in the U.K. when they first introduced the tax. And I can say that it's not yet clear how it will evolve and develop because sometimes what happens, like I said, some go to illegal, but the government -- the U.K. government has a better enforcement approach in the market but it does lead to operators leaving the market because it's not sustainable for them. And in this case, the type of customers that Playtech has, i.e., the largest and leading operators in the market, as a matter of fact, may over time benefit from an increase in tax. So increase of tax is, by definition, not a great thing day 1, may have unintended consequences but the longer-term implications are not yet clear for certain type of operators, i.e., the leading and largest, which are the type of operators that Playtech has. Ivor Jones: Ivor Jones from Peel Hunt. Happy birthday again. Mor Weizer: Thank you very much. Ivor Jones: I'll speak clearly. You talked about cost cutting. You talked about, I think, cost growth in the first half of around 2%. Can you just help us give some way of scaling what the cost-cutting potential is within the plans to increase investment in certain parts of the business, that building block towards the EBITDA target? Secondly, Brazil more, you talked about hoping to sign up another big licensee. With and without that licensee, is there a way of you talking about your percentage share of the Brazilian market? We can make a forecast of the total but what do you think your share might be of your part of that market? And then last one, following up on David's question about the U.S. It sounds like it's like a fully costed local business. So does that mean its mature margin is 20% EBITDA? Or is it drawing on a lot of group costs and it's a 40% or 50% contribution type of business? How should we think about scaling that opportunity? Chris McGinnis: Yes. So I can take the first and the third and Mor can take the middle one. Cost growth and cost cutting, I think when you -- if you look at the slide in the appendix, the numbers won't be exactly like that every time. But I think that's sort of our goal going forward in that. What you don't see in those numbers is that we've removed costs from the business. So costs have gone down. So you can see the lines like operational costs, things like that are generally flat. However, Live, an area of investment, you can see a significant increase in cost because we're still investing. And all of that together leads to a relatively modest increase in overall costs. So we're -- we took -- in 2024, we took over $20 million of costs out of the business. Again, cost overall still went up a little bit in 2024 but there was a, I'd call it, a significant amount of cost cutting that happened. The year is not over, so I won't give a number in 2025 but we've taken further costs out of the business but then continue to invest in other areas. One thing that I think is a given is the underperforming businesses that I flagged that have been a drag. Whether you consider that cost cutting or not, it's an underperforming area, which is a drag on EBITDA, and we will address that. We will not be sustaining $20-plus million of EBITDA losses indefinitely. Obviously, we've talked about the HappyBet business, and that's being addressed, and we're in that process, and we started processes around other assets as well. So that's an easy one to say that, that in the future, that $20 million of loss will not be there. Maybe just since I'm already talking, I'll jump to U.S. margins and more. So in U.S. margins, I think they will be lower than group margins. For the main reason, it's Live Casino and you have to build live casino facilities in each -- not necessarily every state but West Virginia is allowing you to use facilities in the other states. But the big states so far, New Jersey, Michigan and Pennsylvania have required you to have facilities in state. And obviously, Live Casino is a scale business. And you look at our facility in Latvia, Romania, some of the big ones, we can serve from there, many, many locations around the world. So you get a lot more operating leverage and scale benefits out of those facilities. The U.S., the way it's at least gone so far, it's not the same model, right? You need to build multiple facilities. So that will put a cap on margins, so to speak. So without putting numbers on it, I do think U.S. margins over time will probably be a bit lower than, say, some of the group overall. But that being said, the U.S. margin -- sorry, the U.S. opportunity is so significant, and we're so underpenetrated there still from a market share perspective. that, yes, maybe margins will be a bit lower than the group but the magnitude of the opportunity there for Playtech, it can be one of our largest markets over time. So we're as convinced as ever about the investment we're making in the U.S. Mor Weizer: Yes. On Brazil, as you know -- not probably, as you know, the market has turned into a regulated market in the beginning of the year. They introduced the strictest onboarding process and the strictest set of regulations worldwide, more than the U.S., which had a severe impact on the operators. Some operators saw an impact of 20%. Other operators saw an impact of 70% on their business. However -- and this is why we were very focused in the first 4, 5 months of the year in order to ensure that our software and our platform will accommodate the new onboarding requirements, and we'll do that at the best -- and we'll do that in the best way. Today, Playtech customers onboard fastest in the market. It's being measured every month. And within 4 to 5 months, not only we improved it, we are now market leaders in terms of the onboarding process in Brazil. Given the fact that the numbers are picking up, the levels of GGR that we see -- we saw in August is at the same level we saw before regulations were put in place after the market went backwards significantly. Remember that there is tax involved. So there is -- I'll be very open and say there is still a small impact from -- not small but there is still impact of the tax because it's now deducted. So from a royalties perspective, we are not yet where we need to be but it's growing. We see accelerated growth. We see all the operators improving the onboarding processes. In terms of market share, it's hard for me to estimate because we have a partnership where I know we are -- we have more than 50% market share across all content and products that are provided by the operators. And we have other operators, Betano, bet365 and a long list of other well-established operators where Playtech obviously is amongst many others, and it does not provide a platform and it does not provide sports. So we believe that our market -- our share of wallet is more 5% to 10%. I think that the way we approach it now that we -- now that the market is stable and growing fast, the way we think about it is growing organically with existing customers, extending to new customers that are not yet our customers or that we already secured an agreement with but have not yet gone launched -- or have not yet launched, sorry. Extended the relationship that we have with the group of Galera.bet, which consists of today 4 brands, right, not just Galera.bet, it includes also Luva.bet, F12 and Brazilbet. And as we indicated earlier, I can't name it as of yet but we are in advanced stages of discussions with what we believe will be one of the largest operators in Brazil. I can tell you that it's a name, it's a brand name. It's a company that I -- in my entire 20 years in Playtech, never had as many positive feedbacks about the potential of a company like that across all jurisdictions, including the U.S., just to put it into perspective. Again, we can't name them as of yet, but it's a massive opportunity for us. They have access into the market, and they are very well established in the market, not yet in online sports, betting and gaming but definitely a very significant opportunity for Playtech. So market is growing. Market has gone through the first cycle of regulatory changes that had a severe impact on the business. Now stable, fast growing. Playtech extends its reach together with existing customers, new customers, partner -- its partnership structured agreement with Galera.bet and hopefully soon, a new agreement that will have a significant -- that presents a significant opportunity for Playtech in Brazil going forward. Ivor Jones: Is the new relationship potentially another 2% on top of your 5% to 10% or another 10% on top of your 5% to 10%? Mor Weizer: What do you mean the 2% to 5%, sorry? Ivor Jones: You said maybe you thought roughly your market share of operators in Brazil? Mor Weizer: In certain operators in the largest well-established operators like the Betano, bet365 and others, I believe that Playtech is 5% to 10%, right, for each, right, amongst them. For the -- for Galera.bet, for example, given the fact that we work together, they use our PAM+ as part of their infrastructure. They have our sports. So they onboard through sports, they onboard through casino as well but a lot of the customers come from sports and then convert to gaming. Playtech has a 50% market share -- 50-plus percent market share. With this customer, I believe that Playtech will have a significant share. Ivor Jones: I understand now. Sorry, I didn't understand the first answer. I was trying to understand Playtech share of the whole Brazilian market. I think you're answering about Playtech. Mor Weizer: Yes but it's very hard to estimate. I need to do the -- I don't have it out on the top of my head. I apologize because I need to calculate the 50% of Galera.bet and its share within the market. And then the operators that we have the 5% to 10% of those we operate with, those that just launched, those that will be launched and then this new opportunity. But I think that the way I described it just indicates and is evident -- it's evidence that Playtech is -- why Playtech is so excited about Brazil. I will come back to you. I'm not trying to avoid it. I simply don't want to give you a number that I can't stand behind, right? So I'll do the calculation. And hopefully, by the end, later this year, we will have a clearer view because the numbers are also changing. Remember, some of our operators tripled over the course, those that went down 70%, right, tripled the business since the beginning of the year to date, right? So a lot of changing -- a lot of moving elements there. I will come back. I'll try to come back with some answers, so you can also model that, and we will try to be as helpful as possible in this matter. Richard Stuber: Richard Stuber from Deutsche. Two questions, please. One on of Caliente and another on Brazil as well. In terms of Caliente, you mentioned that they may be looking to expand outside Mexico. Are they a well-recognized sort of brand or have any sort of presence outside at the moment? And in that case, would you expect them to have to sort of invest quite heavily? And consequently, do you expect any impact on potential of dividend and payouts? Or do you expect dividend and payouts to continue to grow despite them having to invest in new markets? That's the first question. And in terms of Brazil, just to follow up what Ivor was saying. Is this new partner, which you will be announcing shortly, is that going to be more of a structured agreement? Or is it more just kind of a rev share, is it? So -- and would you expect over time to outperform the Brazilian growth market, so to grow more than 15%. So given your positioning at the moment in terms of in some of the larger names but partners with some of the smaller names, do you still expect to grow more than 15% over the next sort of 5, 10 years? Mor Weizer: Okay. So on Caliente, I will say that Caliente is a very well-recognized brand also outside of Mexico. They do a lot of marketing activities that are picked up by different neighboring countries. There is also one other or 2 elements that are kind of almost one and the same, and it is the marketing. You have to understand when people -- when someone advertise on ESPN, ESPN has a certain -- just as an example, right but it's the same for other media providers. Certain media providers are shared among certain countries, clusters of countries across Latin America. So when you advertise on ESPN, it will be picked up by definition. Caliente advertise on ESPN on a certain video stream, it will be picked up by all the audiences in the countries that ESPN streams into. And therefore -- and this is why not only not only it will be picked up, but it will be alongside people that follow the Mexican league. So some people will follow the Mexican league but you can argue that certain people in Peru will not follow the Mexican league. But the countries that they are looking into share the same media channels that they already use and invest into. And therefore, by definition, the end user customers are exposed to the brand Caliente. And this is part of the approach that they take when they select where it is best for them to establish themselves, also, obviously, the competitive landscape, the market entry point, market access, licenses, et cetera, et cetera. Has this answered the question? Richard Stuber: Yes. I guess the question is if they have to -- normally, when you enter a new market, they'll be of loss-making for a short time. I guess it's very cash generative in just Mexico at the moment. So will that impact your... Mor Weizer: One of the Yes. So I will say they look at the competitive, they look at the development of the market, right, how young the market is. So Peru is a relatively new market, right? It's only just been regulated. So it's level playing field, right? Secondly, the competition, they looked at competition. They saw that they can compete well against the other competitors. Yes, it will come with certain investments into marketing, specifically into Peru, alongside certain other marketing activities that they already do that are picked up by the end user customers in Peru. But they believe and we strongly support their view that they have more than a fair chance to become one of the leading operators in Peru. They will all operate it centrally from their existing operations, obviously. So there are some operational leverage there. So altogether, it answer it ticks all the boxes for them in terms of licensing, the development of the market, the competitive landscape, the marketing being used already, and the marketing investment they intend to allocate to the -- for the Peru market. Chris McGinnis: And maybe just to add, I think you were getting at financial implications. I think they -- I think they're going to be relatively modest in entering these new markets. So they're not going to come and be uber aggressive with marketing spend to the point where it's going to impact our share of income drastically or our dividends, right? There may be an impact or maybe you wouldn't see the same level of growth. Remember, there's still growth to come in Mexico, as more outlined on his slide. So I think they can balance continued growth and use some of that for expansion in these other markets without having a very material impact. Mor Weizer: Yes. On Brazil and the 15%, right, 15% is a big number. So I don't want to get ahead of myself and commit to more than 15%. However, I truly believe that we laid the foundations for accelerated growth that potentially can be more than the 15% or the market growth. If the market grows at 15%, that Playtech will be able to grow vertically with existing customers, horizontally with additional customers, alongside that with Galera.bet Group and alongside that with this potential customer of Playtech. I think that when you add all of that together, Playtech has the potential to exceed the market growth, whether it is 15%, 17% or 12%. But I'm not yet ready to commit. Once we announce, I believe that we will be in a better position because it will be another building block, which will be significant, which brings me to the second part of your question, whether it is a structured agreement. Structured agreement is -- the definition of structured agreement for us is the combination of software and services. So you can argue that it's structured agreement, but it will likely not be equity -- involve equity or an option for equity. It will be a very comprehensive relationship that will involve software and services that is very lucrative and attractive for Playtech. Unknown Executive: Are there any more questions in the room? Harvey Robinson: Harvey Robinson from Panmure Liberum. Just a quick question in terms of going forward in terms of disclosure and KPIs as you become more software and services again. Have you got intentions to give us much a feel for where gross margins would be on a more traditional basis? Would you be looking at things like net retention and churn that we would look in software? Are those things you might start talking to over time? I don't expect it to happen overnight but... Chris McGinnis: Yes. I think disclosure as a whole without necessarily referring to the specific KPIs you mentioned, Harvey but disclosure as a whole, I think is something we're looking at. It's something, I think, as any company evolves, your disclosure and KPIs you provide needs to evolve as well. And obviously, Playtech this year, in particular, has undergone significant change, kind of as Mor said, back to our roots as a B2B technology provider. So I think looking at the KPIs we provide and if there's -- are the ones we're giving now the right ones? Are there any additional ones? Or is something we do need to consider. And even just looking at our B2B business, it has changed a lot in recent years with SaaS that we've talked about. So I think alongside that, we need to keep looking at which KPIs we provide. And some of the ones you mentioned are certainly ones we'll give strong consideration to. Mor Weizer: Yes. I don't want to put Chris on the spot here but I will be keen to develop the conversation. I think that is extremely important now that we move back to our pure-play B2B status. I think that once people will understand the barrier to entry, the stickiness of the Playtech products as well as the low churn rates, I think that people will start understanding better the quality of the offering of Playtech, which will value -- which will allow people to value the relationship. Some of our relations -- I joined in 2005, like I said, 20 years in Playtech. So -- and I remember having -- I remember bet365 back then, right? And Betano is a customer from day 1 and still is the case. And so -- and it is the same with Betfred and the Tote that joined -- now the Tote is part of Betfred that are customers of Playtech for the last 20 years, never left us. And the same goes with other customers that joined Playtech, like I said, very low churn rates. So I'm very keen to better understand how Playtech and what KPIs will allow people to understand better Playtech and highlight the strength of Playtech because I think that there are a lot of strengths that are not fully understood, maybe understood but not fully understood by the market and the shareholders of Playtech, and it can be very helpful. It will also help us to improve where we need to improve, right? Ivor Jones: Ivor Jones from Peel Hunt. Can I go back to Rich's question? Is there cash sitting in Caliente to fund investment? Because I guess we would probably both assume it would come out of operating cash but is there a cash pile sitting there to fund it? And the second thing, on Slide 24, when you show adjusted EBITDA, excluding the Caliente impact, and you get to EUR 61.9 million, is that taking out the contribution in the first quarter from the old arrangements but not adding back in pro forma what you might have got under the new arrangements. Is it quite a hair surety number? Chris McGinnis: So the first part in terms -- so the first part of your question, they keep working capital. And now that can change if they're -- not that they've done an M&A but hypothetically, if they were doing small M&A, they could keep a little bit extra cash for a period. But generally, they keep a few months of working capital in line with the shareholder agreement we have in place. So they're not sitting on loads of cash or anything like that. They generally return it other than sort of a few months of working capital needs. In terms of the Caliplay numbers, maybe we take it offline and we can walk you all through it later, Ivor or anyone else. But generally, we've tried to adjust both numbers to make them apples-to-apples so that you can see the trend in the numbers on a like-for-like basis. But let's maybe take that offline, and we can walk you through it step by step. Unknown Executive: If there are no more questions in the room, can we move to the conference line and see if there are any questions from there that we can take. Operator: [Operator Instructions] We have a question from Andrew Tam with Rothschild & Co Redburn. Andrew Tam: Just one question for me. Could we get some more color on your unregulated exposures? So on my numbers, there's about 19% of group revenues in unregulated, and we've heard U.S. sites is just 1%. Can you give us some more color on where the other 18% is? And then second to that, can you give us an outlook on what you expect to happen to those unregulated revenues? Do you expect those to shrink? Are you actively shrinking those? Is that a part of the market that will be increasingly less of a focus over time and just naturally shrink by attrition? And then finally, I just wanted to think about, I guess, what are the longer-term impacts on that? Do you regard those exposures to be higher margin? And what do you think will happen as that shrinks? Chris McGinnis: Yes. So unregulated, I'll run through some of the numbers. I think our percentage might be a little bit higher than what you suggest, Andrew, particularly if you include Sun Bingo and HappyBet, which are fully regulated. So I think it's -- we're well into 80% being regulated. So a relatively small amount unregulated certainly compared to others in the industry. Unlike perhaps in the past at Playtech, we don't have a very high degree of concentration in any unregulated market is quite a long tail. But to give one example, one of the biggest is the unregulated parts of Canada. So obviously, Ontario and Canada goes under regulated but the other parts of Canada are unregulated. And I use that as an example because that's the type of unregulated markets we want. Similar to Brazil, which last year was an unregulated and now it's regulated, we expect further parts of Canada to regulate. So I wouldn't use the word attrition that you sort of used in your question, Andrew. I think it's more -- it's our strategy. Our strategy is to focus on regulated and soon-to-be regulated markets. So you'll see this transition over time. And yes, unregulated should go down, but it's not about us necessarily targeting to exit or reduce it. It's us targeting markets that we expect to regulate. So they'll stay in unregulated. Sometimes these unregulated markets grow like Brazil did in advance of regulation. So you might see it go up in a period but then it will take a step down when it moves to unregulated. So I think that's the way to think about unregulated both numbers and sort of how they fit into Playtech. So they are not a focus other than markets that are unregulated where we see a path towards regulation. So that's what we focus on. But there's no particularly high degree of concentration there, like I said, and it's markets like the unregulated parts of Canada, I think that make up most of that with a relatively long tail of different jurisdictions. Operator: We now turn to [indiscernible] with DNB Carnegie. Unknown Analyst: I just have one. Have Playtech or anyone affiliated with Playtech procured the so-called short report on Evolution AB written and released by the Israeli company, Black Cube back in 2021. Mor Weizer: I'm not sure what was the question. Unknown Analyst: Had Playtech or anyone affiliated with Playtech procured the so-called short report on Evolution AB written and released by the Israeli company, Black Cube in 2021? Mor Weizer: Obviously, we can't -- it's nothing -- not a question for us. It's a question for people involved in this matter. Operator: We have no further questions. I'll hand back to the speaker team. Unknown Executive: Right. If no more questions yet, that's it for now. So I'd just like to thank you all for attending, and the team will see you in 6 months for the full year results. Chris McGinnis: Thanks, everyone. Mor Weizer: Thank you.
Nicola Fiore: Good afternoon to everyone and welcome to EL.En.'s Half Year 2025 Financial Results Conference Call. Today's call will be recorded and there will be an opportunity for questions at the end of the call. With me on the call are Andrea Cangioli, EL.En.'s CEO; and Enrico Romagnoli, EL.En.'s Chief Financial Officer and Investor Relations Manager. Before we begin, please note that there are management remarks during the conference call regarding future expectations, plans, prospects and forward-looking statements. Certain statements in this call, including those addressing the company's beliefs, plans, objectives, estimates or expectations of possible future results or events are forward-looking statements. Forward-looking statements involve known or unknown risks, including general economic and business conditions in the industry in which we operate. These statements will be affected if our assumptions turn out to be inaccurate. Consequently, no forward-looking statement can be guaranteed and actual future results, performance or achievements may vary materially from those expressed or implied by such forward-looking statements. The company undertakes no obligation to update the contents or the forward-looking statements to reflect events or circumstances that may arise after the date hereof. [Operator Instructions] But at this time, I want to give the floor to Andrea Cangioli. Please go ahead, Andrea. Andrea Cangioli: Good morning. Thank you, Nicola and thank you, Bianca, for introducing this call. And thank you, everybody, who's attending, for being with us in this call following the release of our financial report as of June 30, 2025. Enrico Romagnoli will be on this call with me and I thank him for taking care of the details of our financial reporting that he will be sharing with you in a very short time. The numbers are out since last night. So you have seen that our performance in the 6 months was good in revenue generation. Revenues exceeded on a consolidated basis to EUR 285 million, up more than 5% compared to the same period in 2024, meeting our guidance and confirming the positive trend of the first quarter. The goal of overcoming 2024's result wasn't met at EBIT level. EBIT result was, in fact, quite strong, reaching EUR 34.6 million, meaning 12.1% EBIT margin but was lower than the EUR 37.2 million of the corresponding semester in 2024. While by slightly exceeding the initial expectation given the overall condition of the economic environment, the medical sector delivered an excellent performance. Revenue growth in the industrial sector was weaker than expected and its lower contribution to consolidated EBIT constitutes in full the delay of 2024-'25 consolidated EBIT versus last year. When I mention the overall economic conditions, I am referring to an overall climate of uncertainty in international relations stemming primarily from the failure of international diplomacy to bring to an end the wars in Ukraine and Palestine and from the trade war initiated by the U.S. administration that is reshaping the trade relation and also the political relation between the most powerful countries in the world, including Europe. While the wars are now in place from so long that notwithstanding the risk of further escalation, the markets are acting like they are accustomed to this status. The trade war for the time being is impacting on our business, making it more expensive to sell our products in the U.S., making it less profitable due to a weaker U.S. dollar and also inhibiting the reduction of interest rates in the U.S. due to the expected tariff-driven inflation. We disclosed before how interest rate and expectations about the change of interest rates impact on our capital goods market, where our customers predominantly fund their investments with debt and therefore, are helped in their investment decisions by lower interest rates. Of course, the conditions in our specific markets are affected by this general situation and are confirmed by the business trend of the financial results that are available concerning certain competitors of us. Below the EBIT line, all the entries -- I'm talking again of the consolidated financial results of the EL.En. Group and below the EBIT line, all the entries contributed to widening the gap between the results of 2024 and the result of 2025. Foreign exchange rate differences hit financial income for roughly EUR 3.5 million. The contribution of the Chinese activities on the verge of being divested and sold was a EUR 4 million loss in 2025, worse than the EUR 3.2 million loss contribution booked as of June 2024. And we finally had in 2024, a EUR 5 million extraordinary income booked as a remeasurement of our financial debt no longer due at the time, an entry which, of course, could not be replicated in 2025. So what the very bottom line is showing, a wide gap between the EUR 27.3 million income of 2024 and the EUR 17.9 million income of 2025 is not adequately depicting and reflecting our current performance. But rather than on this gap, which is mainly generated by uncontrollable events or by area of business, which are not part of the group anymore at the Chinese facilities, I want now to concentrate on the remarkable achievements that we met this year. First of all, revenue and EBIT increase in the medical sector. Both were up by more than 5% and this is the envelope results of a set of more specific achievement and successes. With the release of the Magneto urology laser system in late 2024, the leadership of Quanta System in the laser devices for urology application was confirmed and strengthened. Almost 900 urology system, including TFL lasers as well, I mean TFL or the fiber laser source-based systems, those not only including solid-state lasers like the Magneto, were delivered in the first 6 months of 2025, exceeding EUR 35 million in revenues. And as the installed base increases and also the manufacturing capabilities of our plant in Samarate are progressively moving upward, the revenue for the sale of sterile optical fibers, the consumable needed for each and every surgical procedure materially increased, exceeding EUR 20 million in the 6 months with close to 180,000 delivered fibers. As demand in our main aesthetic application segment, hair removal, is experiencing progressive softening throughout the last years, we concentrated our efforts on one side in improving the performance and effectiveness of our laser hair removal systems in order to fight the market slowdown. And on the other side, we concentrated in improving the performance and effectiveness of our systems and technology dedicated to anti-aging procedures and in providing them an adequate marketing support. I'm talking of technologies which improve the appearance of the skin, removing smaller wrinkles which stimulate collagen regeneration, providing shine and elasticity to the skin, which are tightening the skin, providing remedies to laxity, which are removing redness from the face and from the [indiscernible]. I am talking of RedTouch PRO and Onda PRO by DEKA, of Discovery Pico by Quanta and TORO by DEKA and of the CO2 laser product range, including Tetra PRO by DEKA and [indiscernible] laser by Quanta System. As I said -- as said, revenues stemming from these application domains sharply increased in 2025, offsetting the softer demand in other disciplines. Even if the overall performance in the industrial sector wasn't successful nor satisfying, especially due to a soft demand in the manufacturing markets in Italy, we can count several activities that in these 6 months set the foundations for a marked improvement of the ability to compete of our companies. The Chinese business, which was not contributing anymore to the performance of the group, has been sold and is not constituting a burden for management and financial resources anymore. The European subsidiaries network started up by LASIT in the market domain in the last 2 years is stabilizing and becoming an increasingly reliable source of revenue, also contributing to profit at least for the older subsidiaries. A similar pattern is now pursued by Cutlite Penta, which in rapid succession incorporated 3 subsidiaries in Poland, Germany and Spain, which for the moment are obviously weighing on expenses and on EBIT but we count on them being soon accretive in profit generation. Cutlite gained control of [ Nexam ], a small company based here around Florence, specializing in the manufacturing of automation systems that are strictly complementary to Cutlite's high-power laser sheet metal cutting systems. When jointly installed with the laser system, automation system by [ Nexam ] improve the overall performance and productivity of the laser system, providing to Cutlite a means of differentiation on its very competitive market through increased performance of the system and more extensive customization ability. Cutlite is pursuing competitive advantage on one side through the expansion of the offer, integrating it with automation systems and on the other side, through an increased level of service and of proximity to the end user through the organization of local sales and service facilities. Another point I would like to mention, if you look at our financial performance, one of the worst performance in terms of financial results in the 6 months was the industrial division of EL.En., the mother company of the group. But the development work performed both on the mid-power range CO2 laser sources for special manufacturing application and also in the performance of the scanning units based on our proprietary galvanometers are promising to be the grounds for a future rebound in revenues. Under this profile, I'd like to mention that the performance of our 1.5 kilowatt RF excited CO2 laser source are currently reaching such a level of stability that we are working and counting on the release of a 2-kilowatt laser source within a reasonable time span. Such achievement will extend the maximum power of our product range, meeting a threshold that could open up several interesting application markets. Another item I would like to touch on in my remarks is cash generation. The balance of the net financial position decreased by EUR 20 million in the period. I don't see in this contingent trend any particular problem as seasonality of the net working capital balance is always unfavorable for the group in the first 6 months. And as we paid out dividends for EUR 80 million and change and booked investment for EUR 50 million, out of which 6, I would describe as midterm liquidity investments. For sure, the net financial position is one of the historical strengths of the group. It's one of the components of the wealth of the group. The other components are much more intangible and sit in the capabilities of this organization to continually evolve and innovate its high-quality product range, confirming its recognized position among the world's leading players also through several solid commercial relationships built over the years. Thanks to the uniqueness and differentiation of its offering, the group is able to maintain a high customer perception of its value, which can be defined as an excellent market positioning. Despite the macroeconomic uncertainties of recent months, the offerings of our business units remained attractive to customers, thanks to effective product development, marketing support, training and the excellent technical assistance that accompanies aftersales service in all markets. One last thing before I hand the microphone to Enrico, a comment on the U.S. tariffs. The 50% tariff, which our products are called to pay when entering the U.S. constitutes today a cost increase in the chain that delivers our product to our end users in the U.S. The tariff-induced cost increase could either be absorbed in full by our distributors that could accept the minor reduction on margins that the cost increase would represent given the high resale margin that they often apply or could, if reverted to end users, be considered marginal price increase and do not affect demand maintaining the price in a range where demand is, let's say, inelastic to price or such cost reversal to end user could push prices in a range where demand could decrease due to elasticity to price. Those are all the theoretical possibilities. Both in our industrial and medical distribution, a key element for selling in the U.S. has always been the innovative content and quality perception of the product that allow us to sell it at premium prices and margins, which means keeping the market positioning of the product in an area in which the tariff costs do not materially affect margins and volumes for our distributors. And again, this directly ties our chances to effectively sell on the U.S. market to our innovation capabilities. It is difficult today to predict the midterm market adjustments that the new tariffs will cause. As of today, the reaction of our American customer has been positive and demand fluctuation has been limited and more related to specific acceptance of single products than to the extra tariff cost. Under this profile, we have to note that the implicit tariff that the weakening of the U.S. dollar is anyway levying on our sales to the U.S. will be more effective in the second half of 2025 when average foreign exchange rate will be steadily in excess of $1.50 for EUR 1 and the presence of the extra tariff cost on our distributors will make it difficult to neutralize as we have done in other circumstances, the ForEx penalization on our margins. Please, Enrico, go ahead with your comments on the financial report. Enrico Romagnoli: Thank you, Andrea and good morning to everybody. As for the year-end, the half yearly report has been prepared in accordance with IFRS accounting standards, excluding the consolidation line by line of Chinese activities, both in 2025 and in 2024 due to the ongoing negotiation for the sale of the division in accordance with IFRS 5. The majority stake of the Chinese companies was sold on July 15. In the first half of 2025, the EL.En. Group recorded consolidated revenues for EUR 285 million, up 5.1% compared to the EUR 271 million on June 2024. The medical sector up over 5%, while the industrial sector up over 3%. Gross margin was EUR 106 million (sic) [ EUR 126 million ], up 5% compared to the EUR 120 million on June 2024, with an impact on revenue of 44%, in line with the last year. It should be noted that in 2024, the group recorded proceeds for insurance and government reimbursement relating to the damages of the flood on November 2023 for an amount of EUR 1.9 million, 0.7% of the revenues. While in 2025, Asclepion accounted EUR 1.3 million as R&D grants, 0.4% on the revenue. Excluding both of these nonrecurring income and the impact on gross margin on sales, the gross margin would have improved by 0.4% in 2025, attributable to the improved sales mix. Operating expenses increased in value and in impact on sales, mainly in G&A, R&D and IT cost and sales and marketing activities. Staff cost increased -- the increase in staff cost is due to an increase in headcounts and in salaries. EBITDA was positive at EUR 42.2 million, down 2.7% compared to the EUR 43.3 million on June 2024. And EBITDA margin in 2025 was equal to 14.8% compared to the 16% of 2024. Depreciation, amortization and provision amounted to EUR 7 million (sic) [ EUR 7.5 million ] in 2025 compared to the EUR 6.1 million in 2024. The main reason of the increase was the reversal of the provision for risk and charges in 2024 for EUR 1.6 million due to some legal disputes that were resolved more favorably than expected. Net of this amount, the overall cost aggregate is in line with the previous year. EBIT for the 6 months was EUR 34.7 million, down 7% from the EUR 37.3 million in 2024. The margin on revenue was 12.1%, down compared to the 13.7% of last year. As already mentioned by Andrea, financial management recorded a loss of EUR 2.6 million. In details, the first 6 months, the interest income generated by liquidity was EUR 1.7 million, while the interest expenses on debt was EUR 0.9 million. Exchange rate differences had a strongly negative balance equal to EUR 2.5 million. But in addition, there is a onetime exchange rate loss recorded in Q1 for around EUR 1 million, following the release of the currency conversion reserve resulting from the sale of the majority in -- with us. In other income, last year was accounted the onetime income of EUR 5 million due to the remeasurement of the liabilities related to the earn-out to pay to former minority Chinese shareholders in case of IPO of Penta Laser Zhejiang. Income before taxes showed a positive balance of EUR 31.7 million, lower than the EUR 42.3 million on June 2024. In discontinued operation is summarized the net contribution to consolidated result of Chinese activities under disposal. The negative impact was EUR 4 million compared to EUR 3 million of last year. The main reason of the negative impact in 2025 is due to the devaluation of KBF equity investment in the first 6 months of 2025. The effective tax rate in 2025 increased to 32% from 27% of last year. And the main reason for this increase is due to the nontaxability of the EUR 5 million accounted in other income last year. Moving on the analysis of the balance sheet amounts, we can see an increase in total noncurrent assets and net working capital, while the net financial position decreased. The value of ratio net working capital on sales is close with the value of last year. In detail, cash flow for the period showed a reduction of approximately EUR 20.6 million in the group net financial position from EUR 110.6 million at the end of 2024 to EUR 90 million at the end of June 2025. This reduction was also due to dividends paid by the group, EUR 18.6 million, capital expenditure for EUR 10 million in fixed assets, EUR 6 million in mid-, long-term liquidity investment, EUR 2 million has been invested in own shares. And the seasonality [ expensive ] trend of the net working capital components resulted in a cash absorption of approximately EUR 20 million in the 6 months. Regarding sales analysis, in the medical sector, system sales showed strong growth in all major segments. In the aesthetics segment, plus 3%, the very favorable trend for anti-aging application continued. Among surgical application, plus 14%, urology system continued to record significant growth in sales as performance in physiotherapy, plus 7% was also very satisfactory, thanks to the significant incremental innovation in the range of products offered, a more widespread and effective coverage of international markets, together with relaunch of sales in Italy. Sales of consumable and aftersales services remained very satisfactory, driven by the sales of optical fiber for surgical application, which kept service revenue growth to 6% despite the low of service contract revenue from Japanese companies with us whose majority stake was sold in February 2025. In the industrial sector, the cutting segment, which no longer includes Chinese companies, maintained growth of over 6%, thanks to the excellent sales result of the Brazilian subsidiaries, plus EUR 6 million of revenue in the first 6 months and the inorganic contribution of [ Nexam ], EUR 1 million, a company dedicated to the manufacture of automation system for Cutlite Penta laser system, a majority stake of which was acquired in early 2025. LASIT also performed well in the market segment with the increased weight of its subsidiaries, while performance was more -- while performance was more challenging for all of us and the industrial area of EL.En., highlighted by the reduction in revenue from sources for industrial application, after sales service revenue remained stable. For what concerns the breakdown by area, revenue growth in Italy was entirely driven by the medical sector, while in the industrial sector, despite strong order intake, which bodes well for the rest of the year, overall revenue failed to match the already poor results seen in the first half of 2024. In European markets, growth benefited industrial company, which are gradually building the direct distribution network. LASIT has branches, some of which are almost fully operational in Poland, U.K., Germany, Spain and France from 2025. Also Cutlite has just launched branches in Spain, Germany and Poland. In the European market, the sales in medical sector increase of 13%. Revenue in the rest of the world declined slightly in both sector, penalizing the industrial sector by lower demand from American markets and in the medical sector by the challenging performance of the Middle Eastern market. Andrea, please go ahead on 2025 guidance. And you'll hear from Andrea. Andrea Cangioli: Here I am. Excuse me, I was talking with the microphone off. So I will close this section of prepared remarks with a few comments on the guidance. I would like to add just a small shade of color to the very clear statements we made in the press release, the goal of beating 2024's EBIT is harder to meet given the delay that we have after 6 months and considering certain unfavorable circumstances I described earlier in the call. But we can rely on the relevant backlog of orders and as usual, on our capabilities. Therefore, within the frame I outlined during my comments, we confirm the annual revenue growth target compared to 2024. And in the absence of external factors that could hinder further order intake in the coming months, which is needed in order to reach the yearly targets, in the 2025 financial year, EL.En. aims to improve its EBIT as well. With this, we are done with the prepared part of this presentation and ready for your questions. Bianca Fersini Mastelloni: Okay. We now open the Q&A session and we have 2 analysts in our list. I give the floor to Giovanni Selvetti from Berenberg. Giovanni Selvetti: The first one is on the medical division, which is growing nicely. If I look just at the sequential trends in the Q2, I can see a sharp increase in the surgical applications but a reduction year-over-year in aesthetics. And I was wondering what's driving that. And also, if I look at your comment on the press release of Asclepion, it seems like that this is the only company within the group that is not performing. And as far as I remember, this has been like problematic for the past 2, 3 years in terms of, firstly, sourcing materials, secondly, now sales. So I was wondering what's the story there. Then on the last comment you were saying on the guidance that given the order backlog that you see, you seem confident in reaching the guidance. Is this mostly medical or it's like an improvement in the industrial that you see that apparently is based on what you were saying at the beginning, the major reason for the difference in H1. It's a mix of both. So if you can give a bit of more color on the order backlog. And the third one is probably on staff cost. I could see that the incidence of the cost of personnel is going up quite significantly year-over-year. Here, the question is more -- so what's driving this? And Enrico said it's a mix of higher salaries and more staff. Is this more, let's say, related to the hiring of salespeople for new subsidiaries that, of course, are fixed cost now with 0 revenues attached? Or it's like any different dynamics that we should be aware of? Andrea Cangioli: Okay. Let me answer your question one by one. Yes, you are right. I mean it's on paper. The revenue for laser system dedicated to aesthetic application marked a small decline in the first 6 months. And as I highlighted also in my remarks, this is mainly due to the softening of demand in our main application segment, which is and still -- which was and still is hair removal. So if we look at the single performance of hair removal, hair removal is declining. We though offset for most of the decline in hair removal with the increase in these other applications. And we are pleased by this situation also because we can hope that there will be or there could be rebounds in the hair removal. We are working for that as well. But we are also acquiring a stronger -- a progressively stronger position in those other application other than hair removal where the market is growing and is expected to grow. So this is the general picture. For what concerned Asclepion, there are 2 circumstances, I believe that in this moment are impacting Asclepion's ability to effectively compete -- not compete, to effectively perform while competing on the medical aesthetic markets. The first is that we went through reorganization of our R&D capabilities, which is not easy in this moment in Germany because even though -- because we are in a fully -- full employment city like Vienna, where, I mean, we do not have the possibility to easily access to a certain level of employees or we do have the possibility of doing it by increasing the cost. And this also answered partially your question on the staff cost. If you look at the increase of staff cost in medical, this -- part of it is coming from Asclepion, where we had a sensible cost increase due to the need in order not to have people go -- we need to increase the average salary or the overall salary cost. And the second reason why Asclepion is struggling a little bit because within the companies of the group, it is the most -- the company that mostly relies on hair removal. It has products also for anti-aging and other application historically. But its main product, the [indiscernible] star, it's hair removal as a system. So it is strictly tied to the hair removal market. Of course, we are investing to differentiate. We have a new product for hair treatment, hair, not hair removal for hair treatment, the hair that stays on the head, which is very promising in the cosmetic field. But in the moment, we are a little bit struggling, fighting this not very positive moment in hair removal. Again -- and now I jump to question #3, which is the staff cost because you give me the -- I had the opportunity to jump on it when talking about Asclepion. Asclepion is one of the staff cost increase drivers. But I need to say that the staff cost increase, especially when compared to revenues was most evident in industrial, where we're hiring all those people with the subsidiaries, where we're hiring people also for R&D and where, as I said, revenue increased but we were expecting a sharp revenue increase. And therefore, we have a higher impact of the cost of staff on revenue. Of course, when you mention the reasons for the increased cost of staff, there are several causes. One is, let's say, the response to inflation that comes with contractual agreements to increase the salaries. Another comes on the need to keep attracting people by giving salaries higher than the average and so by giving benefits, bonuses and salary increases. And the third is actually the number of employees is growing in certain activities. Of course, we get a little bit more rigid to revenue fluctuation. But if we don't hire those people and if we don't increase the number of employees for a set of activities, which not necessarily are sitting in production capabilities but more also in support capability lies in the regulatory, the R&D, we won't be able to see revenues growing. So this is the answer for the question -- to the question for staff cost. Finally, back to your question #2, Giovanni, the backlog. Yes, we are pleased with the overall backlog, both in medical and in industrial. The backlog is stronger than in other phases, recent phases we experienced recently, both in the medical and then the industrial. Then you must know, we already -- we always told you that typically, only a very small part of our backlog of our order books is secured. Therefore, we have orders to deliver but -- and the customer need to confirm at the moment that we deliver their willingness to pay the delivery. And so the order books is a very good key indicator for the health of our market. But as I mentioned on the press release, as I mentioned also in my remarks, of course, we need this tension in demand. I mean, this positive tension in demand to be maintained over the period in order to have the confirmation that all the order backlog is converted into sales and is converted into sales within the end of the year in order to contribute to the revenues that would make the yearly revenues increase and by leverage effect would improve the EBIT with respect to the first 6 months and also with respect of the previous year. Giovanni Selvetti: Okay. May I have a follow-up on the hair removal and then I'll get back in the queue and then if there's enough time, ask a few questions after. On hair removal, is -- well, you said that partly it's Asclepion that is not performing, which is tilted to hair removal. Is it also due to Cynosure partly, because the sales going maybe to Cynosure are declining on the back of the new, I'd just say... Andrea Cangioli: Yes, I didn't want to mention it because it was like trying to find excuses and not finding excuses and saying what happens. You're right, Giovanni. Part of the decline in hair removal is due to the fact that Cynosure new property, new management is basically discontinuing the product line, Elite iQ because they will source similar product from their Korean partner, Lutronic. And you're right, part of the decline in hair removal is due to the missing Cynosure relation. But as this is relevant because it represents probably more than half of the decline in the 6 months of the revenues in hair removal and it doesn't cover in full the decline and therefore, the general trend is there anyway. Bianca Fersini Mastelloni: Next -- the next -- we have another question comes from Carlo Maritano. Carlo Maritano: Three questions from my side. The first one is again on the industrial sector. If I look at the geographical breakdown, I see that the main reason is Italy, as you previously mentioned. I was wondering if you -- what's the reason given that last year was already weak, is still Industry 5.0 that is struggling or if there is any other reason that you think are the reason of this weakness? The second one is on the medical business. If I look at the geographical breakdown, I see rest of the world in the second quarter it is a little bit weak. I was wondering if it is related to the consolidation of -- with us or if there are any geographical area that is struggling. And the third one, I know that laser sources are quite a small business for you, but I see that in this period, they are struggling. So I was wondering what's happening in this division and if you think that will improve going on. Andrea Cangioli: Thank you for this question that gives me the opportunity to treat with a little bit more detail, something which I didn't want to, let's say, be too long in my presentation. Yes, the industrial market, the market for manufacturing in Italy hasn't had a very strong rebound. We are seeing a positive buildup on the order books but we have been quite struggling, both in the cutting and also in the laser marking, in both situations. So we count now on a recovery because you're right, we are comparing to a weak year and being weak again and we really counted on a rebound. And this is -- when I say that we were expecting a stronger rebound, I'm mainly referring to the Italian market in the industrial. Second question is rest of the world in medical. What happened in the second quarter with us? I was trying to peak into the numbers and to see if with us -- of course, with us is part of the decline because we don't have with us revenues anymore. But well, I wouldn't say... Enrico Romagnoli: 2024 -- in 2024 the -- can you hear me? 2024 revenues by -- with us are EUR 5.6 million, while in 2025 are EUR 1.4 million because we consolidated only until February. So the difference is EUR 4 million, EUR 4.2 million. Andrea Cangioli: So yes, we had this difference, then we had Cynosure that Giovanni Selvetti mentioned. We just to be -- I mean, give you some more information, we had an excellent performance in Far East. I mean, in all the -- we had an excellent performance, weaker in the United States. And of course, Japan is missing with us, while Japan is building up nicely in the other medical applications after a low point in 2024. The third question was -- you had another question, Carlo. Enrico Romagnoli: Laser, laser sources. Andrea Cangioli: Laser sources. Yes, yes, yes. We experienced a very difficult transition phase because we have a large part of the lasers, which are dedicated to textile. You know that we sell laser sources for stone -- for the laser stone washing of denim. The whole market of clothing has been struggling, as you know, from the luxury brands to the more standard brands. And we are being hit by this kind of stagnation in the textile and clothing market. We had interesting cooperations in other 2 segments, one which we feel is still very valid, which is digital converting. So it's the packaging, the automation in the packaging industry. And we had a very important cooperation, which hopefully is down to a low point again with an Israelian company. It's a listed company, which quite unexpectedly filed for bankruptcy in the first quarter. So not only we lost the expected revenues but we also booked a loss, which is booked into accruals, the accruals line, so below EBITDA line for about EUR 450,000, I mean. So this is impacting heavily EL.En.'s division for laser sources. And the other segment in which we were counting to work is the electric motors manufacturing. But again, since our customers are based in Europe, mainly in Europe, also this market for what concerns European demand is quite struggling. And also some of our partners are not in the most -- in the best shape, our final partners because we are manufacturing, we are providing laser sources for manufacturers of hairpin stripping systems and for the manufacturing of electric motors, which provide devices for companies like Magneti Marelli. And you know that Magneti Marelli for instance, again, at least in the United States, filed for protection from creditors. I wanted to mention this department, this small business unit in my prepared remarks because notwithstanding the poor financial performance and revenue performance in the quarter, we are investing in R&D and we believe that the products could be the base for a rebound in revenues in the next quarters, maybe not in 2025, maybe later on. But I believe that even though certain of our customers are going through an unfavorable phase, we have a very interesting technology and this technology will again be accretive to our revenue and to our profitability. Bianca Fersini Mastelloni: We have one more question from Andrea Bonfa from Banca Akros. Andrea Bonfa: Very quickly on the duties issue, it wasn't mentioned, the fact that now Brazil is subject to a 50% duty. And for what I remember, Brazil was supposed to be one of the platform to export industrial laser in the U.S. If you can comment on that, if that is really an issue for you or if you can reroute that business from Italy. That's essentially my question for today. Andrea Cangioli: Thank you, Andrea. Our sales to Brazil go to industrial manufacturers in Brazil that mainly manufacture for Brazil. So in the past, for certain markets, the plastic cutting, our Brazilian customers were exporting their product, not the system, their product cut with a laser in the United States. But currently, the Brazilian market is, for us, a market which is, of course, affected by heavy duties but those are the duties for exporting in Brazil. There, we end. We do not use Brazil as a hub for exporting anywhere else. By the way, the performance of Brazil was exceptionally positive in this first 6 months of the year. I mean they had record revenues summing up close to EUR 10 million, which means given the weakness of the real, an absolute record in revenues in Brazilian real. And still, we are [ tonic ] on the market. And so we do not see, as of today, any negative effects driven by the U.S. tariffs on the Brazilian market. Andrea Bonfa: So -- and if I may, now the question is, how is the situation of exporting industrial laser to the U.S. considering that they haven't got any local production there, if I'm correct? Andrea Cangioli: I believe that what I said in relation to the U.S. tariffs in my remarks can be applied to the distribution of industrial laser system as well. By the way, we are in a very important week because this year, the FABTECH is being held in Chicago and is currently being held. So this is the week for the presentation of our products, especially for Cutlite Penta, which has a very large spend this year. And so big investment, Andrea and we're hoping a big return. What I can say is that currently, our offer is so diversified. I confirm there are no U.S. manufacturers that are able to offer on the U.S. market anything close to what we are offering. In certain specific segment, luckily, there are no competitors worldwide. We can have the kind of offer that we are offering in certain specific and smaller segment. Therefore, on the tariffs, what applies is the following. Since our distributors are applying interesting markups, they are able to handle the cost increase without affecting volumes and with only marginally affecting their margin and without -- not asking us to further reduce our margin given the fact that we are reducing our margin by 10% and more due to the weakening of the U.S. dollar itself. Anyway, before the FABTECH was starting, our view and our order backlog on the -- for the United States for the sheet metal cutting was positive. And so we could -- we were optimistic about then, I mean, next week, I'm waiting for the people to come back from this very important trade fair and to understand if the perception of our market positioning, which is very positive in the United States, is still confirmed with a high level of differentiation. Again, what I was saying in my earlier remarks, as long as we can provide a differentiated product and needs to be differentiated with a high perceived value in comparison with U.S. manufacturers or with other worldwide competitors as long as we maintain this perception of value, the 15% tariff which on laser cutting system could be a little bit higher since there is a little bit of steel in, a little bit, there's a lot of steel included in the laser systems. Anyway, the 50% tariffs does not change completely the value chain of the distribution in the United States and we can continue to be optimists in seeing the United States as an interesting market for selling our products. Andrea Bonfa: And finally, if I may, last question. I mean, your working capital level at the end of last year was quite important. I mean you are coming from years where the procurement or raw material was complicated to say the least. Are you planning to structurally lower this working capital or the stock? Or what are your thoughts on this? Andrea Cangioli: We sell in general, products which have relatively high margins and we can never run the risk of not being able to deliver because we don't have available materials to manufacture high-margin products. For these reasons, we have to plan ahead. Typically, the planning cycle has its peak working capital expansion in Q2 -- at the end of Q2 and Q3 because we then close the number for the end of the year, which corresponds also with the highest demand quarter. So we plan to improve our programming capabilities. We are investing in resources, in people, in softwares but basically, it's not easy to reduce the structural impact of working capital. So when I say that overall, the working capital increased by EUR 20 million in this first 6 months and I don't consider this a big issue is because I believe that it will be lowering in the next months and it will maintain more or less the same levels. Then if we will be able to trim 1 or 2 or 3 percentage points in the impact of net working capital on sales, this we will need to see. We are putting down policies in order to try to reduce but we do not want to run the risk to run out of parts because we try to control inventory because it's really -- it wouldn't be worth. This we know from history. Then I concur the level of net working capital is quite high. But good thing to know is that most of the things we have in stock will not lose value over time because they don't have any intrinsic obsolescence. They have obsolescence also, excuse me, only with innovation and we try to control innovation cycles in order not to leave in inventory older versions as we innovate the versions of our products. Bianca Fersini Mastelloni: Next question comes from Emmanuel de Figueiredo from LBV Asset Management. Emmanuel de Figueiredo: I have just 2 questions. The first one is on the medical, on the tariffs in the U.S. Can you just explain a little bit what your competitors are doing in terms of pricing? Are they absorbing the tariff and hitting their margins? Or are they increasing price? What is your view on that? And what are you doing? And then secondly, again, on the medical, what is your best, let's say, best-performing product this year in the medical? You said that hair removal is weak but what is your best performing product. Andrea Cangioli: Thank you for the question. Good to see you. I don't really know in detail. I haven't seen movements on prices in the U.S. market. So I can assume that everybody is trying to absorb the tariffs somewhere in the chain. I mean, I don't know if it's at the origin. I don't know if it's at distribution level. But we are not seeing, as of today, abrupt price changes, even though the United States is affected by inflation. So year-over-year, there is an inflation in prices. So this gives room to somehow absorb -- not absorb, revert part of the tariffs to the end user without creating a big difference in the approach compared to our other competitors. And about the successful products in the medical, of course, the magneto and the urology lasers are very successful. In aesthetic, we have 3 very successful products. One is Onda PRO. Onda, you remember very well, I'm sure our technology, which is based on microwaves, Onda in Italian means wave and it was originally a body contouring device. Onda PRO, this evolution launched last year adds a third handpiece, which is used for the face. And therefore, the system becomes also a skin rejuvenation device, having the ability to treat the skin of the face in order to tighten it. So it's a anti-aging device for tightening. The second very successful device is the RedTouch, which is a innovation, which introduces a laser emitting in the red for rejuvenation on the face and on the [indiscernible]. And I leave the third, the most successful of our technologies, I touched this earlier -- in earlier conferences is the CO2 laser. The CO2 laser, which is the first technology, the oldest technology that EL.En. has offered on the market and the technology that we master. And we improved its effectiveness starting from the technology base. Who visited our company knows that our facility has 2 kind of technology for CO2 laser source, the glass technology, DC excited, the metal technologies, RF excited. The RF excited technology has come to such flexibility in the modulation of the beam, which allows extremely dedicated curing on the skin and is the winning technology on the U.S. market, by the way, particularly on the U.S. market for the rejuvenation application. So Onda PRO, RedTouch and Tetra Pro are the game winners in this moment and are the units which -- with increased sales in the U.S. and in Far East are offsetting -- at least partially offsetting the decline in other disciplines. Bianca Fersini Mastelloni: And now we have Giovanni Selvetti with another question for you, Andrea. Giovanni Selvetti: I promise this is the final one. No, it was more of a curiosity on hair removal because I see that there's been quite a decent growth of, let's just say, self-made hair removal devices, laser devices as long -- at least here in the U.K., you see that a lot. So I was wondering if this is partially in a way, eating the market on your side because if people can do this thing alone without going to, like let's just say, a specific place, well, the demand just flows one way to the other, right? So I was wondering if this is something you see or if it's something that you believe it's a real concern going on? Andrea Cangioli: Again, I don't want to be blamed as superficial. But the home, the devices that remove hair or claim to remove hair for household use are not able to remove hair by themself for a simple physical reason that they do not deliver enough energy to effectively remove the hair. They could be used for a maintenance after they use a professional use. And so in these terms, they could limit the number of visits that you make at a professional site. But generally speaking, I don't think they are effective enough to -- for the technologies available today to eat up market shares to our professional market. I see more a competition coming from lower-cost manufacturers, which improved their performance, which is eating up the low-level competition and forcing us to compete in a share of the market, which is still large, which is the high end but which is smaller than the whole market. We need to continuously differentiate and improve the performances in order to stay on this market effectively. The performances in term of both financial ROI and therefore, effectiveness of laser systems for hair removal improved dramatically in the last years. And our sales, we have in our pipeline further improvements of the technologies aimed of improving the effectiveness and the ROI for our customers. Sincerely, I don't think that the handheld home use devices are affecting our market. But I will study more deeply this situation, Giovanni and maybe be back to you with a more, let's say, acknowledgeable answer when we meet again in some time. Bianca Fersini Mastelloni: Okay. We have one more question right now from François [indiscernible]. Andrea Cangioli: I have seen his question. Unknown Analyst: Sorry for the time to connect the microphone. One question about your competition, especially in aesthetic sector from South Korea or from Israel. How is the relative competition evolving? Andrea Cangioli: Yes. Israelian and Korean are the front line of our competition in the aesthetic market with a wealth of companies, both companies that are on the market from a long time, both companies that are now offering on the market new products. Of course, when you think about Israel, you think about Lumenis, which is the long term -- the longest -- the oldest company competing on the market as well as Syneron and as well as Sisram/Alma Laser. They are all competitors of us. We don't feel that we lost competitive advantage versus these competitors in the last years. Then there is InMode, which is the leader in terms of market cap, which is actually not directly competing against us because they sell RF technology with a high marketing content, with the use of testimonials, they are doing quite well but we don't feel a direct threat from them anymore. And then there is a new company, which was just launched by the former founder of both Lumenis and Syneron-Candela, Mr. Shimon Eckhouse. The company is called Softwave. It's quite small. And it's also competing in rejuvenation and skin tightening device. This is for what concern Israel. For what concerns Korea, the longest lived company is Lutronic, which is now merged with Cynosure. And we feel their competition very strongly, first, because we lost the customer, Cynosure due to the merger. And of course, they were purchasing a technology from us. When they merged with a company that has more or less the same technology, they, of course, are going to source this technology from Lutronic. Lutronic has been very strong on certain European markets. For instance, on the French market, they are the leaders. We are the runner up. And they are extremely -- I mean, they are extremely good in developing technology. So they are high-level competitors. So we cannot treat Lutronic as we can treat several other competitors coming from Far East that still deliver products which are well below par in terms of reliability, technical specification and overall product specification and quality. There is another pair, which is now flourishing in Korea. It's a company, Classys I. It's a listed company. You can see how with revenue, which is in the order of magnitude of $100 million on a yearly basis today, if I'm not wrong, they have a market cap, which is outstanding, over $2 billion. This is due to the rapid growth they are forecasting and to the very high margin. Basically, Classys is replicating, on a Korean basis, the business model of InMode or at least their ambition is to replicate it. They sell a very low-cost device as high prices and they're very successful in this moment. And again, looking at all this company, we feel more threatened by the competitors from Israel, which compete with the same -- apart from InMode with the same technological infrastructure that we do than from the companies competing from the Far East where the product level is improving but it's still behind what we have in Europe and what the Israeli and the best Korean company are able to deliver today. Bianca Fersini Mastelloni: Okay. We have no more question registered at this moment in our list. I would like to ask investors still connected if there are any further questions from their side. No more question. Okay. Then ladies and gentlemen, the conference is over. If you have any questions to investigate in the future, please do not hesitate to contact Enrico Romagnoli, who will be happy to answer your queries. Thank you to all of you for attending this conference and we hope to have all you again next time. Goodbye to everybody. Bye. Enrico Romagnoli: Bye. Bye-bye. Andrea Cangioli: Thank you very much. Bye-bye.
Operator: Greetings, and welcome to the Vera Bradley, Inc. Second Quarter Fiscal 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. You may be placed in the question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Mark C. Dely, Chief Administrative Officer. Please go ahead, Mark. Mark C. Dely: Good morning, and welcome, everyone. We'd like to thank you for joining us for today's call. Some of the statements made during our prepared remarks and in response to your questions may constitute forward-looking statements made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from those that we expect. Please refer to today's press release and the company's most recent Form 10-Ks filed with the SEC for a discussion of known risks and uncertainties. Investors should not assume that the statements made during the call will remain operative at a later time. We undertake no obligation to update any information discussed on today's call. I will now turn it over to the call to Vera Bradley, Inc.'s Executive Chairman, Ian Martin Bickley. Ian? Ian Martin Bickley: Thank you for joining us today. It has been a busy two months since I took on the role as Executive Chairman. My team and I have hit the ground running to reinvigorate and reimagine Vera Bradley, Inc., an iconic brand with strong awareness and deep connections with consumers across generations. One thing that has become clear to me since stepping into this role is that our loyal customers love Vera Bradley. They truly want us to succeed. When we deliver the products and experiences they expect, they respond. We recognize there is much work ahead of us. But I want to be clear. We are implementing a comprehensive strategy to revitalize our market position by leveraging our brand's proven emotional connection with consumers. Our integrated approach spans strategic merchandising and product innovation, targeted marketing, and how we show up across shopping channels. All designed to reengage our loyal customer base while expanding our reach to new market segments. This disciplined focus on our core brand strengths, combined with data-driven consumer insights and seamless execution, will, over time, drive sustainable growth and restore our competitive advantage. To execute this strategy effectively, we're simultaneously transforming our operational foundation to improve focus, agility, and execution. We're streamlining decision-making processes, eliminating organizational complexity that has hindered our speed to market, and reallocating resources towards our highest impact initiatives. This operational discipline, combined with prudent cost management, will ensure we can invest meaningfully in the brand, innovation, and experiences our customers expect while delivering the financial performance our shareholders deserve. These structural improvements aren't just about efficiency. They're about building the agile, responsive organization needed to capitalize on Vera Bradley's iconic and distinctive brand positioning in the marketplace. On today's call, I will briefly discuss our second quarter performance, including several product and marketing wins that are giving us confidence we are moving the business in the right direction. From there, I will walk you through our key strategic initiatives informed by the work we have completed to date partnering with our recently established strategy and transformation committee. I will then ask Marty to provide a more detailed financial review of our second quarter performance, including an update on how Vera Bradley, Inc. is addressing current trade policies and the implications for our business. And we will wrap up with some time to answer any questions you might have. Before I begin, I want to take a moment to recognize and personally thank our entire organization for their exceptional commitment during this pivotal transformation. Our employees across all functions are not just executing this strategy. They are the embodiment of our brand values and the driving force behind our renewal. Their adaptability, creativity, and relentless focus on excellence will be the foundation of our sustained success. As we continue this journey together, I'm confident that our collective expertise and passion will deliver the results our customers, shareholders, and communities expect from Vera Bradley, Inc. I'd also like to provide a quick update on the nationwide search to find our next CEO, which I mentioned on our June call. This is a major focus for us, and we continue to meet with a number of promising candidates. We will keep you updated on our progress. Now our results. For the second quarter, we registered revenues of $70.9 million, a decline of approximately 25% to last year and roughly in line with our internal forecast. Notably, we saw sequential improvement versus the first quarter in our comparable store sales across our store fleet and on vb.com. And in each month during the second quarter. We are encouraged that this trend has continued and that our brand channels are leading the way. As I mentioned, back in June, we announced the formation of a strategy and transformation committee to assist with informing the company's strategic direction, identify future growth opportunities, and accelerate Vera Bradley, Inc.'s transformation. Through this cross-functional work, we have identified five key strategic initiatives that we are now implementing. Strategic initiative number one, sharpening our brand focus. We need to have a clear brand strategy and messaging that is consistent across all consumer touchpoints and that resonates with our loyal customers while engaging new audiences. This begins with product. Informed by consumer insights, and under new merchandising leadership, which we transitioned to in May, we are in the early stages of making meaningful adjustments to our product, design, and assortment. We are driving innovation back into our core DNA and what made Vera Bradley, Inc. successful. We were known for amazing occasion-based bags, for back to school, weekends, the beach, holiday, gift-giving, and more. Beginning in late June, we launched a back-to-school collection highlighted by product wins, including the return of compelling backpacks and lunch bag categories that we had not emphasized last year. This included the addition of a new extra-large backpack that became one of our best sellers across channels. As part of our fall and holiday assortments, we are bringing back iconic styles such as the Vera tote, along with exciting new product designs with great details. In addition, we are bringing back proven heritage-inspired prints from our archives such as Rachel Ditzy and Chambray, with our border iconography which have been a hit across all silhouettes during back to school. We are also expanding our range and increasing the depth of our investments in cotton, a material our customers love. Our assortments will be more balanced across fabrications, silhouettes, and prints. And we continue to have exciting IP offerings to surprise and delight consumers. Our Disney and Peanuts collections that launched during back to school were some of the best we have ever had. And our Gilmore Girls capsule, which launched just before Labor Day weekend, was incredibly well received, selling out in just five minutes. And we are super excited for the hero heritage reissue of the original 100 bag, a Vera Bradley, Inc. icon priced at under $100 just in time for the holidays. Available in heritage-inspired prints, seasonal patchwork, and pinnacle animations. The 100 bag will launch in October in our brand channels, supported by a compelling social media campaign featuring the iconic Radio City Rockettes, who are also celebrating their hundredth anniversary. On the marketing front, we have also completed some important work directly tied to our sharpening brand focus initiative. On July 12, we launched our "Don't Forget to Have Fun" back-to-school brand campaign. The social-first campaign leveraging a cast of carefully curated influencers, including Kate Steinberg, was well received with nostalgic and joyful tones, targeting brand consideration across a diverse range of consumers. Despite a significant reduction in our top-of-funnel marketing spend during this period, we drove meaningful increases in both recruitment and engagement on our Instagram and TikTok platforms, as well as new customer acquisition on vb.com. For reference, in the six weeks since launching this campaign, we gained more followers on Instagram than in the entire prior twelve-month period. While on TikTok, we gained more than double the number of followers than in the prior twelve-month period. We also saw a 23% increase in new customers on vb.com. Looking ahead, based on the success we are having, we will continue to lean into our social-first media strategy and the nostalgic and joyful tones that are clearly resonating with consumers. One remaining element of our sharpening brand focus initiative I'd like to mention today is our indirect business, including our wholesale strategy. The indirect segment has always played an important role in the brand position, growth, and profitability of the Vera Bradley, Inc. business, as it has allowed us to meet consumers in the venues where they choose to shop. In fact, Vera Bradley, Inc. began as a wholesale business, and many small specialty store partners throughout the country helped build recognition for the Vera Bradley, Inc. brand on a national scale. While the overall retailer landscape has changed dramatically over the years, we are confident that this will continue to be an important channel to engage with our consumers. We are taking a fresh look at our wholesale strategy with the goal of refining our approach to better match product to the consumers and the venues they choose to shop and ensure that it is aligned with our brand positioning efforts. As part of this, we will be continuing our partnership with major retailers such as Dillard's and Von Moore, and rebuilding the relationships with several of our important specialty accounts. While at the same time evolving new partnerships with important retailers like Anthropologie, that are resonating with a new generation of consumers that we believe will be attracted to Vera Bradley, Inc. Additionally, we have already secured some important new retail partnerships and collaborations for our upcoming fiscal year, which we are not yet ready to announce, but will enable us to reach new consumers in exciting ways. Licensing the Vera Bradley, Inc. brand for specific non-core categories that can expand reach and awareness is also something we will continue to pursue both from a strategic and commercial perspective. And already have several initiatives in the pipeline. Strategic initiative number two, developing a cohesive omnichannel strategy. Simply put, we are working to create more cohesion between the various platforms and channels where consumers engage with our brand. This is a comprehensive go-to-market assessment anchored on an omnichannel approach to the Vera Bradley, Inc. customer experience. In an effort to remove friction points that exist today. One straightforward example, we were running different promotions through our online outlet channel and outlet stores, creating both customer confusion and operational business inefficiencies. We now have our digital and store channels running the same promotions. Not only has this resulted in greater brand consistency, it has also resulted in improved margin rates as we have effectively reduced discount levels overall. There is more to come here, as we are just in the early stages of this work, but capitalizing on the obvious choices and low-hanging fruit where we can. Strategic initiative number three, Outlet 2.0, updating our outlet strategy. Our outlet channel is an important component of our omnichannel mix. It is where many consumers interact with us and where perceptions are formed. Today, it is primarily used for deep discounting and clearance. At the same time, the vast majority of our Vera Bradley, Inc. outlet stores are located in premium and luxury outlet malls where customers are increasingly looking for positive brand experiences in addition to value. With Outlet 2.0, we see an opportunity to shift the paradigm of our outlet stores by focusing on elevating the customer experience through improved assortments, including select full-price product, visual merchandising and display, and labor optimization. Outlet 2.0 will drive positive brand engagement by making it a more fun and joyful experience while bringing sharper focus to the Vera Bradley, Inc. value proposition in environments where we have a high number of footsteps and eyeballs on the brand. Outlet 2.0 can have a major positive impact on both our store productivity and profitability, while simultaneously accelerating our brand transformation. We are taking a test and learn approach to Outlet 2.0, in pilot in a handful of locations that we are planning to run during the holiday season. We are also adjusting our staffing models in select stores to better align with peak shopping periods, driving higher labor productivity and conversion rates. We will evaluate the results for potential rollout in 2026 after the holiday season and look forward to updating you on Outlet 2.0 progress on future calls. Strategic initiative number four, improving our operating model. We are taking a comprehensive look at our operating processes to evaluate how we can run our business more efficiently. We are looking at every aspect of our operating model, spanning product development and design, store allocation, store labor, promotional strategies, and more. This is a holistic examination of our operating model and go-to-market strategy. Importantly, we are changing how we are looking at the business and instituting a focus on fundamentals and key retail KPIs across channels. And how we can bring focus to the highest impact initiatives for the enterprise and improve execution. Our strategic focus is to direct decisions towards winning areas of the business as opposed to a democratic approach. Lastly, our fifth strategic initiative, reimagining how we work. We are reexamining our organizational structure and culture to improve the way we work to be more creative, collaborative, and efficient. While we recognize the need to continue to bring costs more in line with the current operating scale of the business, we must now redesign the organization and structure enhancing our talent and leadership to be more aligned with the key growth areas of the business. Strategy needs to lead our organizational and operational transformation as we take out the next layers of cost. In closing, while it is still very early, the current trends in our business give us some confidence that our improved focus and execution and the changes we have undertaken in our product pipeline, the tonality and reach of our marketing, and the ongoing work across our channels of distribution are moving Vera Bradley, Inc. in the right direction. We look forward to updating you on our progress. Now I will turn the call over to Marty to discuss the financials. Marty? Michael Schwindle: Thanks, Ian. Good morning, everyone, and thank you for joining us. I have a few brief comments to make about our performance for the quarter. For the sake of clarity, all of the numbers I am discussing today are non-GAAP and exclude the charges outlined in today's press release. Complete detail of items excluded from the non-GAAP numbers as well as a reconciliation of GAAP to non-GAAP can be found in that release. For 2026, our consolidated revenues totaled $70.9 million compared to $94 million in the prior year second quarter. Net loss from continuing operations for the second quarter totaled negative $500,000 or negative $0.02 per diluted share compared to net income from continuing operations of $2.6 million last year or $0.09 per diluted share. In terms of segment performance, Vera Bradley, Inc.'s direct segment revenues for the second quarter totaled $60.5 million, a 16.2% decrease from $72.2 million in the prior year. Comparable sales similarly declined 17.3% driven by conversion declines in our full-line outlet and e-commerce channels. Total revenues were also impacted by 10 new store openings and 13 store closures over the past twelve months. Vera Bradley, Inc. indirect segment revenues for the second quarter totaled $10.3 million, a 52.5% decrease from $21.8 million in the prior year quarter. The decrease was related primarily to a decline in key account orders as well as liquidation sales. Gross margin totaled $35.4 million or 49.9% of net revenue compared to $46.8 million or 49.8% of net revenues in the prior year. The slight increase in year-over-year margin rate resulted from lower liquidation sales, partially offset by incremental shipping costs driven by channel shifts from brick-and-mortar stores to online sites. SG&A expense totaled $36.3 million or 51.2% of net revenues compared to $43.6 million or 46.4% of net revenues a year ago. The $7.3 million decrease in expenses was primarily due to restructuring activities undertaken over the past year which resulted in lower compensation expense, primarily driven by reduced headcount, coupled with a reduction to advertising expense. Operating loss from continuing operations totaled negative $600,000 or 0.8% of net revenues, compared to operating income from continuing operations of $3.3 million or 3.5% of net revenues in the prior year. We remain focused on driving operational discipline to enhance execution and deliver improved sales, margins, and profitability. We are pleased with the early progress in this effort as demonstrated through sequential improvement in comps across three of our four direct channels, and sequential gross margin improvement. The team continues to review our processes and actions to identify opportunities for new approaches to how we work. Turning to the balance sheet. Cash and cash equivalents at the end of the quarter totaled $15.2 million. We had borrowings of $10 million against our $75 million ABL facility at quarter end. Second quarter inventory decreased 13.2% to $96.7 million compared to $111.4 million at the end of the second quarter last year. We recognize that inventory performance is a key opportunity for our business, and are focused on developing strategies to improve our turns over the next twelve to eighteen months. Immediate actions include aligning receipt plans more closely with sales expectations, and evaluating our SKU assortments to identify opportunities to reduce overall counts allowing for greater depth and high-performing colors and patterns. With regard to tariffs, we estimate a total annualized impact of $11 million. Our sourcing teams are working with our suppliers to mitigate the impacts, while also evaluating our go-to-market strategies to understand which levers to adjust. We expect over time the combination of these efforts to offset the dollar value of tariffs, but in the end, all actions will be driven by market dynamics. Given our transformation journey, and the dynamic consumer environment, we are currently not providing guidance. While this remains a challenging environment, we are identifying and implementing to enhance operational discipline. And these actions are already contributing to sequential improvements on a quarterly basis. We will continue to build on this progress, while accelerating our efforts to drive further improvement in our financial results. This concludes our prepared remarks. Now we will be happy to take your questions. Operator? Operator: Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. And once again, that's star 1 to be placed into the question queue. We reached the end of our question and answer session. And that does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Nicola Fiore: Good afternoon to everyone and welcome to EL.En.'s Half Year 2025 Financial Results Conference Call. Today's call will be recorded and there will be an opportunity for questions at the end of the call. With me on the call are Andrea Cangioli, EL.En.'s CEO; and Enrico Romagnoli, EL.En.'s Chief Financial Officer and Investor Relations Manager. Before we begin, please note that there are management remarks during the conference call regarding future expectations, plans, prospects and forward-looking statements. Certain statements in this call, including those addressing the company's beliefs, plans, objectives, estimates or expectations of possible future results or events are forward-looking statements. Forward-looking statements involve known or unknown risks, including general economic and business conditions in the industry in which we operate. These statements will be affected if our assumptions turn out to be inaccurate. Consequently, no forward-looking statement can be guaranteed and actual future results, performance or achievements may vary materially from those expressed or implied by such forward-looking statements. The company undertakes no obligation to update the contents or the forward-looking statements to reflect events or circumstances that may arise after the date hereof. [Operator Instructions] But at this time, I want to give the floor to Andrea Cangioli. Please go ahead, Andrea. Andrea Cangioli: Good morning. Thank you, Nicola and thank you, Bianca, for introducing this call. And thank you, everybody, who's attending, for being with us in this call following the release of our financial report as of June 30, 2025. Enrico Romagnoli will be on this call with me and I thank him for taking care of the details of our financial reporting that he will be sharing with you in a very short time. The numbers are out since last night. So you have seen that our performance in the 6 months was good in revenue generation. Revenues exceeded on a consolidated basis to EUR 285 million, up more than 5% compared to the same period in 2024, meeting our guidance and confirming the positive trend of the first quarter. The goal of overcoming 2024's result wasn't met at EBIT level. EBIT result was, in fact, quite strong, reaching EUR 34.6 million, meaning 12.1% EBIT margin but was lower than the EUR 37.2 million of the corresponding semester in 2024. While by slightly exceeding the initial expectation given the overall condition of the economic environment, the medical sector delivered an excellent performance. Revenue growth in the industrial sector was weaker than expected and its lower contribution to consolidated EBIT constitutes in full the delay of 2024-'25 consolidated EBIT versus last year. When I mention the overall economic conditions, I am referring to an overall climate of uncertainty in international relations stemming primarily from the failure of international diplomacy to bring to an end the wars in Ukraine and Palestine and from the trade war initiated by the U.S. administration that is reshaping the trade relation and also the political relation between the most powerful countries in the world, including Europe. While the wars are now in place from so long that notwithstanding the risk of further escalation, the markets are acting like they are accustomed to this status. The trade war for the time being is impacting on our business, making it more expensive to sell our products in the U.S., making it less profitable due to a weaker U.S. dollar and also inhibiting the reduction of interest rates in the U.S. due to the expected tariff-driven inflation. We disclosed before how interest rate and expectations about the change of interest rates impact on our capital goods market, where our customers predominantly fund their investments with debt and therefore, are helped in their investment decisions by lower interest rates. Of course, the conditions in our specific markets are affected by this general situation and are confirmed by the business trend of the financial results that are available concerning certain competitors of us. Below the EBIT line, all the entries -- I'm talking again of the consolidated financial results of the EL.En. Group and below the EBIT line, all the entries contributed to widening the gap between the results of 2024 and the result of 2025. Foreign exchange rate differences hit financial income for roughly EUR 3.5 million. The contribution of the Chinese activities on the verge of being divested and sold was a EUR 4 million loss in 2025, worse than the EUR 3.2 million loss contribution booked as of June 2024. And we finally had in 2024, a EUR 5 million extraordinary income booked as a remeasurement of our financial debt no longer due at the time, an entry which, of course, could not be replicated in 2025. So what the very bottom line is showing, a wide gap between the EUR 27.3 million income of 2024 and the EUR 17.9 million income of 2025 is not adequately depicting and reflecting our current performance. But rather than on this gap, which is mainly generated by uncontrollable events or by area of business, which are not part of the group anymore at the Chinese facilities, I want now to concentrate on the remarkable achievements that we met this year. First of all, revenue and EBIT increase in the medical sector. Both were up by more than 5% and this is the envelope results of a set of more specific achievement and successes. With the release of the Magneto urology laser system in late 2024, the leadership of Quanta System in the laser devices for urology application was confirmed and strengthened. Almost 900 urology system, including TFL lasers as well, I mean TFL or the fiber laser source-based systems, those not only including solid-state lasers like the Magneto, were delivered in the first 6 months of 2025, exceeding EUR 35 million in revenues. And as the installed base increases and also the manufacturing capabilities of our plant in Samarate are progressively moving upward, the revenue for the sale of sterile optical fibers, the consumable needed for each and every surgical procedure materially increased, exceeding EUR 20 million in the 6 months with close to 180,000 delivered fibers. As demand in our main aesthetic application segment, hair removal, is experiencing progressive softening throughout the last years, we concentrated our efforts on one side in improving the performance and effectiveness of our laser hair removal systems in order to fight the market slowdown. And on the other side, we concentrated in improving the performance and effectiveness of our systems and technology dedicated to anti-aging procedures and in providing them an adequate marketing support. I'm talking of technologies which improve the appearance of the skin, removing smaller wrinkles which stimulate collagen regeneration, providing shine and elasticity to the skin, which are tightening the skin, providing remedies to laxity, which are removing redness from the face and from the [indiscernible]. I am talking of RedTouch PRO and Onda PRO by DEKA, of Discovery Pico by Quanta and TORO by DEKA and of the CO2 laser product range, including Tetra PRO by DEKA and [indiscernible] laser by Quanta System. As I said -- as said, revenues stemming from these application domains sharply increased in 2025, offsetting the softer demand in other disciplines. Even if the overall performance in the industrial sector wasn't successful nor satisfying, especially due to a soft demand in the manufacturing markets in Italy, we can count several activities that in these 6 months set the foundations for a marked improvement of the ability to compete of our companies. The Chinese business, which was not contributing anymore to the performance of the group, has been sold and is not constituting a burden for management and financial resources anymore. The European subsidiaries network started up by LASIT in the market domain in the last 2 years is stabilizing and becoming an increasingly reliable source of revenue, also contributing to profit at least for the older subsidiaries. A similar pattern is now pursued by Cutlite Penta, which in rapid succession incorporated 3 subsidiaries in Poland, Germany and Spain, which for the moment are obviously weighing on expenses and on EBIT but we count on them being soon accretive in profit generation. Cutlite gained control of [ Nexam ], a small company based here around Florence, specializing in the manufacturing of automation systems that are strictly complementary to Cutlite's high-power laser sheet metal cutting systems. When jointly installed with the laser system, automation system by [ Nexam ] improve the overall performance and productivity of the laser system, providing to Cutlite a means of differentiation on its very competitive market through increased performance of the system and more extensive customization ability. Cutlite is pursuing competitive advantage on one side through the expansion of the offer, integrating it with automation systems and on the other side, through an increased level of service and of proximity to the end user through the organization of local sales and service facilities. Another point I would like to mention, if you look at our financial performance, one of the worst performance in terms of financial results in the 6 months was the industrial division of EL.En., the mother company of the group. But the development work performed both on the mid-power range CO2 laser sources for special manufacturing application and also in the performance of the scanning units based on our proprietary galvanometers are promising to be the grounds for a future rebound in revenues. Under this profile, I'd like to mention that the performance of our 1.5 kilowatt RF excited CO2 laser source are currently reaching such a level of stability that we are working and counting on the release of a 2-kilowatt laser source within a reasonable time span. Such achievement will extend the maximum power of our product range, meeting a threshold that could open up several interesting application markets. Another item I would like to touch on in my remarks is cash generation. The balance of the net financial position decreased by EUR 20 million in the period. I don't see in this contingent trend any particular problem as seasonality of the net working capital balance is always unfavorable for the group in the first 6 months. And as we paid out dividends for EUR 80 million and change and booked investment for EUR 50 million, out of which 6, I would describe as midterm liquidity investments. For sure, the net financial position is one of the historical strengths of the group. It's one of the components of the wealth of the group. The other components are much more intangible and sit in the capabilities of this organization to continually evolve and innovate its high-quality product range, confirming its recognized position among the world's leading players also through several solid commercial relationships built over the years. Thanks to the uniqueness and differentiation of its offering, the group is able to maintain a high customer perception of its value, which can be defined as an excellent market positioning. Despite the macroeconomic uncertainties of recent months, the offerings of our business units remained attractive to customers, thanks to effective product development, marketing support, training and the excellent technical assistance that accompanies aftersales service in all markets. One last thing before I hand the microphone to Enrico, a comment on the U.S. tariffs. The 50% tariff, which our products are called to pay when entering the U.S. constitutes today a cost increase in the chain that delivers our product to our end users in the U.S. The tariff-induced cost increase could either be absorbed in full by our distributors that could accept the minor reduction on margins that the cost increase would represent given the high resale margin that they often apply or could, if reverted to end users, be considered marginal price increase and do not affect demand maintaining the price in a range where demand is, let's say, inelastic to price or such cost reversal to end user could push prices in a range where demand could decrease due to elasticity to price. Those are all the theoretical possibilities. Both in our industrial and medical distribution, a key element for selling in the U.S. has always been the innovative content and quality perception of the product that allow us to sell it at premium prices and margins, which means keeping the market positioning of the product in an area in which the tariff costs do not materially affect margins and volumes for our distributors. And again, this directly ties our chances to effectively sell on the U.S. market to our innovation capabilities. It is difficult today to predict the midterm market adjustments that the new tariffs will cause. As of today, the reaction of our American customer has been positive and demand fluctuation has been limited and more related to specific acceptance of single products than to the extra tariff cost. Under this profile, we have to note that the implicit tariff that the weakening of the U.S. dollar is anyway levying on our sales to the U.S. will be more effective in the second half of 2025 when average foreign exchange rate will be steadily in excess of $1.50 for EUR 1 and the presence of the extra tariff cost on our distributors will make it difficult to neutralize as we have done in other circumstances, the ForEx penalization on our margins. Please, Enrico, go ahead with your comments on the financial report. Enrico Romagnoli: Thank you, Andrea and good morning to everybody. As for the year-end, the half yearly report has been prepared in accordance with IFRS accounting standards, excluding the consolidation line by line of Chinese activities, both in 2025 and in 2024 due to the ongoing negotiation for the sale of the division in accordance with IFRS 5. The majority stake of the Chinese companies was sold on July 15. In the first half of 2025, the EL.En. Group recorded consolidated revenues for EUR 285 million, up 5.1% compared to the EUR 271 million on June 2024. The medical sector up over 5%, while the industrial sector up over 3%. Gross margin was EUR 106 million (sic) [ EUR 126 million ], up 5% compared to the EUR 120 million on June 2024, with an impact on revenue of 44%, in line with the last year. It should be noted that in 2024, the group recorded proceeds for insurance and government reimbursement relating to the damages of the flood on November 2023 for an amount of EUR 1.9 million, 0.7% of the revenues. While in 2025, Asclepion accounted EUR 1.3 million as R&D grants, 0.4% on the revenue. Excluding both of these nonrecurring income and the impact on gross margin on sales, the gross margin would have improved by 0.4% in 2025, attributable to the improved sales mix. Operating expenses increased in value and in impact on sales, mainly in G&A, R&D and IT cost and sales and marketing activities. Staff cost increased -- the increase in staff cost is due to an increase in headcounts and in salaries. EBITDA was positive at EUR 42.2 million, down 2.7% compared to the EUR 43.3 million on June 2024. And EBITDA margin in 2025 was equal to 14.8% compared to the 16% of 2024. Depreciation, amortization and provision amounted to EUR 7 million (sic) [ EUR 7.5 million ] in 2025 compared to the EUR 6.1 million in 2024. The main reason of the increase was the reversal of the provision for risk and charges in 2024 for EUR 1.6 million due to some legal disputes that were resolved more favorably than expected. Net of this amount, the overall cost aggregate is in line with the previous year. EBIT for the 6 months was EUR 34.7 million, down 7% from the EUR 37.3 million in 2024. The margin on revenue was 12.1%, down compared to the 13.7% of last year. As already mentioned by Andrea, financial management recorded a loss of EUR 2.6 million. In details, the first 6 months, the interest income generated by liquidity was EUR 1.7 million, while the interest expenses on debt was EUR 0.9 million. Exchange rate differences had a strongly negative balance equal to EUR 2.5 million. But in addition, there is a onetime exchange rate loss recorded in Q1 for around EUR 1 million, following the release of the currency conversion reserve resulting from the sale of the majority in -- with us. In other income, last year was accounted the onetime income of EUR 5 million due to the remeasurement of the liabilities related to the earn-out to pay to former minority Chinese shareholders in case of IPO of Penta Laser Zhejiang. Income before taxes showed a positive balance of EUR 31.7 million, lower than the EUR 42.3 million on June 2024. In discontinued operation is summarized the net contribution to consolidated result of Chinese activities under disposal. The negative impact was EUR 4 million compared to EUR 3 million of last year. The main reason of the negative impact in 2025 is due to the devaluation of KBF equity investment in the first 6 months of 2025. The effective tax rate in 2025 increased to 32% from 27% of last year. And the main reason for this increase is due to the nontaxability of the EUR 5 million accounted in other income last year. Moving on the analysis of the balance sheet amounts, we can see an increase in total noncurrent assets and net working capital, while the net financial position decreased. The value of ratio net working capital on sales is close with the value of last year. In detail, cash flow for the period showed a reduction of approximately EUR 20.6 million in the group net financial position from EUR 110.6 million at the end of 2024 to EUR 90 million at the end of June 2025. This reduction was also due to dividends paid by the group, EUR 18.6 million, capital expenditure for EUR 10 million in fixed assets, EUR 6 million in mid-, long-term liquidity investment, EUR 2 million has been invested in own shares. And the seasonality [ expensive ] trend of the net working capital components resulted in a cash absorption of approximately EUR 20 million in the 6 months. Regarding sales analysis, in the medical sector, system sales showed strong growth in all major segments. In the aesthetics segment, plus 3%, the very favorable trend for anti-aging application continued. Among surgical application, plus 14%, urology system continued to record significant growth in sales as performance in physiotherapy, plus 7% was also very satisfactory, thanks to the significant incremental innovation in the range of products offered, a more widespread and effective coverage of international markets, together with relaunch of sales in Italy. Sales of consumable and aftersales services remained very satisfactory, driven by the sales of optical fiber for surgical application, which kept service revenue growth to 6% despite the low of service contract revenue from Japanese companies with us whose majority stake was sold in February 2025. In the industrial sector, the cutting segment, which no longer includes Chinese companies, maintained growth of over 6%, thanks to the excellent sales result of the Brazilian subsidiaries, plus EUR 6 million of revenue in the first 6 months and the inorganic contribution of [ Nexam ], EUR 1 million, a company dedicated to the manufacture of automation system for Cutlite Penta laser system, a majority stake of which was acquired in early 2025. LASIT also performed well in the market segment with the increased weight of its subsidiaries, while performance was more -- while performance was more challenging for all of us and the industrial area of EL.En., highlighted by the reduction in revenue from sources for industrial application, after sales service revenue remained stable. For what concerns the breakdown by area, revenue growth in Italy was entirely driven by the medical sector, while in the industrial sector, despite strong order intake, which bodes well for the rest of the year, overall revenue failed to match the already poor results seen in the first half of 2024. In European markets, growth benefited industrial company, which are gradually building the direct distribution network. LASIT has branches, some of which are almost fully operational in Poland, U.K., Germany, Spain and France from 2025. Also Cutlite has just launched branches in Spain, Germany and Poland. In the European market, the sales in medical sector increase of 13%. Revenue in the rest of the world declined slightly in both sector, penalizing the industrial sector by lower demand from American markets and in the medical sector by the challenging performance of the Middle Eastern market. Andrea, please go ahead on 2025 guidance. And you'll hear from Andrea. Andrea Cangioli: Here I am. Excuse me, I was talking with the microphone off. So I will close this section of prepared remarks with a few comments on the guidance. I would like to add just a small shade of color to the very clear statements we made in the press release, the goal of beating 2024's EBIT is harder to meet given the delay that we have after 6 months and considering certain unfavorable circumstances I described earlier in the call. But we can rely on the relevant backlog of orders and as usual, on our capabilities. Therefore, within the frame I outlined during my comments, we confirm the annual revenue growth target compared to 2024. And in the absence of external factors that could hinder further order intake in the coming months, which is needed in order to reach the yearly targets, in the 2025 financial year, EL.En. aims to improve its EBIT as well. With this, we are done with the prepared part of this presentation and ready for your questions. Bianca Fersini Mastelloni: Okay. We now open the Q&A session and we have 2 analysts in our list. I give the floor to Giovanni Selvetti from Berenberg. Giovanni Selvetti: The first one is on the medical division, which is growing nicely. If I look just at the sequential trends in the Q2, I can see a sharp increase in the surgical applications but a reduction year-over-year in aesthetics. And I was wondering what's driving that. And also, if I look at your comment on the press release of Asclepion, it seems like that this is the only company within the group that is not performing. And as far as I remember, this has been like problematic for the past 2, 3 years in terms of, firstly, sourcing materials, secondly, now sales. So I was wondering what's the story there. Then on the last comment you were saying on the guidance that given the order backlog that you see, you seem confident in reaching the guidance. Is this mostly medical or it's like an improvement in the industrial that you see that apparently is based on what you were saying at the beginning, the major reason for the difference in H1. It's a mix of both. So if you can give a bit of more color on the order backlog. And the third one is probably on staff cost. I could see that the incidence of the cost of personnel is going up quite significantly year-over-year. Here, the question is more -- so what's driving this? And Enrico said it's a mix of higher salaries and more staff. Is this more, let's say, related to the hiring of salespeople for new subsidiaries that, of course, are fixed cost now with 0 revenues attached? Or it's like any different dynamics that we should be aware of? Andrea Cangioli: Okay. Let me answer your question one by one. Yes, you are right. I mean it's on paper. The revenue for laser system dedicated to aesthetic application marked a small decline in the first 6 months. And as I highlighted also in my remarks, this is mainly due to the softening of demand in our main application segment, which is and still -- which was and still is hair removal. So if we look at the single performance of hair removal, hair removal is declining. We though offset for most of the decline in hair removal with the increase in these other applications. And we are pleased by this situation also because we can hope that there will be or there could be rebounds in the hair removal. We are working for that as well. But we are also acquiring a stronger -- a progressively stronger position in those other application other than hair removal where the market is growing and is expected to grow. So this is the general picture. For what concerned Asclepion, there are 2 circumstances, I believe that in this moment are impacting Asclepion's ability to effectively compete -- not compete, to effectively perform while competing on the medical aesthetic markets. The first is that we went through reorganization of our R&D capabilities, which is not easy in this moment in Germany because even though -- because we are in a fully -- full employment city like Vienna, where, I mean, we do not have the possibility to easily access to a certain level of employees or we do have the possibility of doing it by increasing the cost. And this also answered partially your question on the staff cost. If you look at the increase of staff cost in medical, this -- part of it is coming from Asclepion, where we had a sensible cost increase due to the need in order not to have people go -- we need to increase the average salary or the overall salary cost. And the second reason why Asclepion is struggling a little bit because within the companies of the group, it is the most -- the company that mostly relies on hair removal. It has products also for anti-aging and other application historically. But its main product, the [indiscernible] star, it's hair removal as a system. So it is strictly tied to the hair removal market. Of course, we are investing to differentiate. We have a new product for hair treatment, hair, not hair removal for hair treatment, the hair that stays on the head, which is very promising in the cosmetic field. But in the moment, we are a little bit struggling, fighting this not very positive moment in hair removal. Again -- and now I jump to question #3, which is the staff cost because you give me the -- I had the opportunity to jump on it when talking about Asclepion. Asclepion is one of the staff cost increase drivers. But I need to say that the staff cost increase, especially when compared to revenues was most evident in industrial, where we're hiring all those people with the subsidiaries, where we're hiring people also for R&D and where, as I said, revenue increased but we were expecting a sharp revenue increase. And therefore, we have a higher impact of the cost of staff on revenue. Of course, when you mention the reasons for the increased cost of staff, there are several causes. One is, let's say, the response to inflation that comes with contractual agreements to increase the salaries. Another comes on the need to keep attracting people by giving salaries higher than the average and so by giving benefits, bonuses and salary increases. And the third is actually the number of employees is growing in certain activities. Of course, we get a little bit more rigid to revenue fluctuation. But if we don't hire those people and if we don't increase the number of employees for a set of activities, which not necessarily are sitting in production capabilities but more also in support capability lies in the regulatory, the R&D, we won't be able to see revenues growing. So this is the answer for the question -- to the question for staff cost. Finally, back to your question #2, Giovanni, the backlog. Yes, we are pleased with the overall backlog, both in medical and in industrial. The backlog is stronger than in other phases, recent phases we experienced recently, both in the medical and then the industrial. Then you must know, we already -- we always told you that typically, only a very small part of our backlog of our order books is secured. Therefore, we have orders to deliver but -- and the customer need to confirm at the moment that we deliver their willingness to pay the delivery. And so the order books is a very good key indicator for the health of our market. But as I mentioned on the press release, as I mentioned also in my remarks, of course, we need this tension in demand. I mean, this positive tension in demand to be maintained over the period in order to have the confirmation that all the order backlog is converted into sales and is converted into sales within the end of the year in order to contribute to the revenues that would make the yearly revenues increase and by leverage effect would improve the EBIT with respect to the first 6 months and also with respect of the previous year. Giovanni Selvetti: Okay. May I have a follow-up on the hair removal and then I'll get back in the queue and then if there's enough time, ask a few questions after. On hair removal, is -- well, you said that partly it's Asclepion that is not performing, which is tilted to hair removal. Is it also due to Cynosure partly, because the sales going maybe to Cynosure are declining on the back of the new, I'd just say... Andrea Cangioli: Yes, I didn't want to mention it because it was like trying to find excuses and not finding excuses and saying what happens. You're right, Giovanni. Part of the decline in hair removal is due to the fact that Cynosure new property, new management is basically discontinuing the product line, Elite iQ because they will source similar product from their Korean partner, Lutronic. And you're right, part of the decline in hair removal is due to the missing Cynosure relation. But as this is relevant because it represents probably more than half of the decline in the 6 months of the revenues in hair removal and it doesn't cover in full the decline and therefore, the general trend is there anyway. Bianca Fersini Mastelloni: Next -- the next -- we have another question comes from Carlo Maritano. Carlo Maritano: Three questions from my side. The first one is again on the industrial sector. If I look at the geographical breakdown, I see that the main reason is Italy, as you previously mentioned. I was wondering if you -- what's the reason given that last year was already weak, is still Industry 5.0 that is struggling or if there is any other reason that you think are the reason of this weakness? The second one is on the medical business. If I look at the geographical breakdown, I see rest of the world in the second quarter it is a little bit weak. I was wondering if it is related to the consolidation of -- with us or if there are any geographical area that is struggling. And the third one, I know that laser sources are quite a small business for you, but I see that in this period, they are struggling. So I was wondering what's happening in this division and if you think that will improve going on. Andrea Cangioli: Thank you for this question that gives me the opportunity to treat with a little bit more detail, something which I didn't want to, let's say, be too long in my presentation. Yes, the industrial market, the market for manufacturing in Italy hasn't had a very strong rebound. We are seeing a positive buildup on the order books but we have been quite struggling, both in the cutting and also in the laser marking, in both situations. So we count now on a recovery because you're right, we are comparing to a weak year and being weak again and we really counted on a rebound. And this is -- when I say that we were expecting a stronger rebound, I'm mainly referring to the Italian market in the industrial. Second question is rest of the world in medical. What happened in the second quarter with us? I was trying to peak into the numbers and to see if with us -- of course, with us is part of the decline because we don't have with us revenues anymore. But well, I wouldn't say... Enrico Romagnoli: 2024 -- in 2024 the -- can you hear me? 2024 revenues by -- with us are EUR 5.6 million, while in 2025 are EUR 1.4 million because we consolidated only until February. So the difference is EUR 4 million, EUR 4.2 million. Andrea Cangioli: So yes, we had this difference, then we had Cynosure that Giovanni Selvetti mentioned. We just to be -- I mean, give you some more information, we had an excellent performance in Far East. I mean, in all the -- we had an excellent performance, weaker in the United States. And of course, Japan is missing with us, while Japan is building up nicely in the other medical applications after a low point in 2024. The third question was -- you had another question, Carlo. Enrico Romagnoli: Laser, laser sources. Andrea Cangioli: Laser sources. Yes, yes, yes. We experienced a very difficult transition phase because we have a large part of the lasers, which are dedicated to textile. You know that we sell laser sources for stone -- for the laser stone washing of denim. The whole market of clothing has been struggling, as you know, from the luxury brands to the more standard brands. And we are being hit by this kind of stagnation in the textile and clothing market. We had interesting cooperations in other 2 segments, one which we feel is still very valid, which is digital converting. So it's the packaging, the automation in the packaging industry. And we had a very important cooperation, which hopefully is down to a low point again with an Israelian company. It's a listed company, which quite unexpectedly filed for bankruptcy in the first quarter. So not only we lost the expected revenues but we also booked a loss, which is booked into accruals, the accruals line, so below EBITDA line for about EUR 450,000, I mean. So this is impacting heavily EL.En.'s division for laser sources. And the other segment in which we were counting to work is the electric motors manufacturing. But again, since our customers are based in Europe, mainly in Europe, also this market for what concerns European demand is quite struggling. And also some of our partners are not in the most -- in the best shape, our final partners because we are manufacturing, we are providing laser sources for manufacturers of hairpin stripping systems and for the manufacturing of electric motors, which provide devices for companies like Magneti Marelli. And you know that Magneti Marelli for instance, again, at least in the United States, filed for protection from creditors. I wanted to mention this department, this small business unit in my prepared remarks because notwithstanding the poor financial performance and revenue performance in the quarter, we are investing in R&D and we believe that the products could be the base for a rebound in revenues in the next quarters, maybe not in 2025, maybe later on. But I believe that even though certain of our customers are going through an unfavorable phase, we have a very interesting technology and this technology will again be accretive to our revenue and to our profitability. Bianca Fersini Mastelloni: We have one more question from Andrea Bonfa from Banca Akros. Andrea Bonfa: Very quickly on the duties issue, it wasn't mentioned, the fact that now Brazil is subject to a 50% duty. And for what I remember, Brazil was supposed to be one of the platform to export industrial laser in the U.S. If you can comment on that, if that is really an issue for you or if you can reroute that business from Italy. That's essentially my question for today. Andrea Cangioli: Thank you, Andrea. Our sales to Brazil go to industrial manufacturers in Brazil that mainly manufacture for Brazil. So in the past, for certain markets, the plastic cutting, our Brazilian customers were exporting their product, not the system, their product cut with a laser in the United States. But currently, the Brazilian market is, for us, a market which is, of course, affected by heavy duties but those are the duties for exporting in Brazil. There, we end. We do not use Brazil as a hub for exporting anywhere else. By the way, the performance of Brazil was exceptionally positive in this first 6 months of the year. I mean they had record revenues summing up close to EUR 10 million, which means given the weakness of the real, an absolute record in revenues in Brazilian real. And still, we are [ tonic ] on the market. And so we do not see, as of today, any negative effects driven by the U.S. tariffs on the Brazilian market. Andrea Bonfa: So -- and if I may, now the question is, how is the situation of exporting industrial laser to the U.S. considering that they haven't got any local production there, if I'm correct? Andrea Cangioli: I believe that what I said in relation to the U.S. tariffs in my remarks can be applied to the distribution of industrial laser system as well. By the way, we are in a very important week because this year, the FABTECH is being held in Chicago and is currently being held. So this is the week for the presentation of our products, especially for Cutlite Penta, which has a very large spend this year. And so big investment, Andrea and we're hoping a big return. What I can say is that currently, our offer is so diversified. I confirm there are no U.S. manufacturers that are able to offer on the U.S. market anything close to what we are offering. In certain specific segment, luckily, there are no competitors worldwide. We can have the kind of offer that we are offering in certain specific and smaller segment. Therefore, on the tariffs, what applies is the following. Since our distributors are applying interesting markups, they are able to handle the cost increase without affecting volumes and with only marginally affecting their margin and without -- not asking us to further reduce our margin given the fact that we are reducing our margin by 10% and more due to the weakening of the U.S. dollar itself. Anyway, before the FABTECH was starting, our view and our order backlog on the -- for the United States for the sheet metal cutting was positive. And so we could -- we were optimistic about then, I mean, next week, I'm waiting for the people to come back from this very important trade fair and to understand if the perception of our market positioning, which is very positive in the United States, is still confirmed with a high level of differentiation. Again, what I was saying in my earlier remarks, as long as we can provide a differentiated product and needs to be differentiated with a high perceived value in comparison with U.S. manufacturers or with other worldwide competitors as long as we maintain this perception of value, the 15% tariff which on laser cutting system could be a little bit higher since there is a little bit of steel in, a little bit, there's a lot of steel included in the laser systems. Anyway, the 50% tariffs does not change completely the value chain of the distribution in the United States and we can continue to be optimists in seeing the United States as an interesting market for selling our products. Andrea Bonfa: And finally, if I may, last question. I mean, your working capital level at the end of last year was quite important. I mean you are coming from years where the procurement or raw material was complicated to say the least. Are you planning to structurally lower this working capital or the stock? Or what are your thoughts on this? Andrea Cangioli: We sell in general, products which have relatively high margins and we can never run the risk of not being able to deliver because we don't have available materials to manufacture high-margin products. For these reasons, we have to plan ahead. Typically, the planning cycle has its peak working capital expansion in Q2 -- at the end of Q2 and Q3 because we then close the number for the end of the year, which corresponds also with the highest demand quarter. So we plan to improve our programming capabilities. We are investing in resources, in people, in softwares but basically, it's not easy to reduce the structural impact of working capital. So when I say that overall, the working capital increased by EUR 20 million in this first 6 months and I don't consider this a big issue is because I believe that it will be lowering in the next months and it will maintain more or less the same levels. Then if we will be able to trim 1 or 2 or 3 percentage points in the impact of net working capital on sales, this we will need to see. We are putting down policies in order to try to reduce but we do not want to run the risk to run out of parts because we try to control inventory because it's really -- it wouldn't be worth. This we know from history. Then I concur the level of net working capital is quite high. But good thing to know is that most of the things we have in stock will not lose value over time because they don't have any intrinsic obsolescence. They have obsolescence also, excuse me, only with innovation and we try to control innovation cycles in order not to leave in inventory older versions as we innovate the versions of our products. Bianca Fersini Mastelloni: Next question comes from Emmanuel de Figueiredo from LBV Asset Management. Emmanuel de Figueiredo: I have just 2 questions. The first one is on the medical, on the tariffs in the U.S. Can you just explain a little bit what your competitors are doing in terms of pricing? Are they absorbing the tariff and hitting their margins? Or are they increasing price? What is your view on that? And what are you doing? And then secondly, again, on the medical, what is your best, let's say, best-performing product this year in the medical? You said that hair removal is weak but what is your best performing product. Andrea Cangioli: Thank you for the question. Good to see you. I don't really know in detail. I haven't seen movements on prices in the U.S. market. So I can assume that everybody is trying to absorb the tariffs somewhere in the chain. I mean, I don't know if it's at the origin. I don't know if it's at distribution level. But we are not seeing, as of today, abrupt price changes, even though the United States is affected by inflation. So year-over-year, there is an inflation in prices. So this gives room to somehow absorb -- not absorb, revert part of the tariffs to the end user without creating a big difference in the approach compared to our other competitors. And about the successful products in the medical, of course, the magneto and the urology lasers are very successful. In aesthetic, we have 3 very successful products. One is Onda PRO. Onda, you remember very well, I'm sure our technology, which is based on microwaves, Onda in Italian means wave and it was originally a body contouring device. Onda PRO, this evolution launched last year adds a third handpiece, which is used for the face. And therefore, the system becomes also a skin rejuvenation device, having the ability to treat the skin of the face in order to tighten it. So it's a anti-aging device for tightening. The second very successful device is the RedTouch, which is a innovation, which introduces a laser emitting in the red for rejuvenation on the face and on the [indiscernible]. And I leave the third, the most successful of our technologies, I touched this earlier -- in earlier conferences is the CO2 laser. The CO2 laser, which is the first technology, the oldest technology that EL.En. has offered on the market and the technology that we master. And we improved its effectiveness starting from the technology base. Who visited our company knows that our facility has 2 kind of technology for CO2 laser source, the glass technology, DC excited, the metal technologies, RF excited. The RF excited technology has come to such flexibility in the modulation of the beam, which allows extremely dedicated curing on the skin and is the winning technology on the U.S. market, by the way, particularly on the U.S. market for the rejuvenation application. So Onda PRO, RedTouch and Tetra Pro are the game winners in this moment and are the units which -- with increased sales in the U.S. and in Far East are offsetting -- at least partially offsetting the decline in other disciplines. Bianca Fersini Mastelloni: And now we have Giovanni Selvetti with another question for you, Andrea. Giovanni Selvetti: I promise this is the final one. No, it was more of a curiosity on hair removal because I see that there's been quite a decent growth of, let's just say, self-made hair removal devices, laser devices as long -- at least here in the U.K., you see that a lot. So I was wondering if this is partially in a way, eating the market on your side because if people can do this thing alone without going to, like let's just say, a specific place, well, the demand just flows one way to the other, right? So I was wondering if this is something you see or if it's something that you believe it's a real concern going on? Andrea Cangioli: Again, I don't want to be blamed as superficial. But the home, the devices that remove hair or claim to remove hair for household use are not able to remove hair by themself for a simple physical reason that they do not deliver enough energy to effectively remove the hair. They could be used for a maintenance after they use a professional use. And so in these terms, they could limit the number of visits that you make at a professional site. But generally speaking, I don't think they are effective enough to -- for the technologies available today to eat up market shares to our professional market. I see more a competition coming from lower-cost manufacturers, which improved their performance, which is eating up the low-level competition and forcing us to compete in a share of the market, which is still large, which is the high end but which is smaller than the whole market. We need to continuously differentiate and improve the performances in order to stay on this market effectively. The performances in term of both financial ROI and therefore, effectiveness of laser systems for hair removal improved dramatically in the last years. And our sales, we have in our pipeline further improvements of the technologies aimed of improving the effectiveness and the ROI for our customers. Sincerely, I don't think that the handheld home use devices are affecting our market. But I will study more deeply this situation, Giovanni and maybe be back to you with a more, let's say, acknowledgeable answer when we meet again in some time. Bianca Fersini Mastelloni: Okay. We have one more question right now from François [indiscernible]. Andrea Cangioli: I have seen his question. Unknown Analyst: Sorry for the time to connect the microphone. One question about your competition, especially in aesthetic sector from South Korea or from Israel. How is the relative competition evolving? Andrea Cangioli: Yes. Israelian and Korean are the front line of our competition in the aesthetic market with a wealth of companies, both companies that are on the market from a long time, both companies that are now offering on the market new products. Of course, when you think about Israel, you think about Lumenis, which is the long term -- the longest -- the oldest company competing on the market as well as Syneron and as well as Sisram/Alma Laser. They are all competitors of us. We don't feel that we lost competitive advantage versus these competitors in the last years. Then there is InMode, which is the leader in terms of market cap, which is actually not directly competing against us because they sell RF technology with a high marketing content, with the use of testimonials, they are doing quite well but we don't feel a direct threat from them anymore. And then there is a new company, which was just launched by the former founder of both Lumenis and Syneron-Candela, Mr. Shimon Eckhouse. The company is called Softwave. It's quite small. And it's also competing in rejuvenation and skin tightening device. This is for what concern Israel. For what concerns Korea, the longest lived company is Lutronic, which is now merged with Cynosure. And we feel their competition very strongly, first, because we lost the customer, Cynosure due to the merger. And of course, they were purchasing a technology from us. When they merged with a company that has more or less the same technology, they, of course, are going to source this technology from Lutronic. Lutronic has been very strong on certain European markets. For instance, on the French market, they are the leaders. We are the runner up. And they are extremely -- I mean, they are extremely good in developing technology. So they are high-level competitors. So we cannot treat Lutronic as we can treat several other competitors coming from Far East that still deliver products which are well below par in terms of reliability, technical specification and overall product specification and quality. There is another pair, which is now flourishing in Korea. It's a company, Classys I. It's a listed company. You can see how with revenue, which is in the order of magnitude of $100 million on a yearly basis today, if I'm not wrong, they have a market cap, which is outstanding, over $2 billion. This is due to the rapid growth they are forecasting and to the very high margin. Basically, Classys is replicating, on a Korean basis, the business model of InMode or at least their ambition is to replicate it. They sell a very low-cost device as high prices and they're very successful in this moment. And again, looking at all this company, we feel more threatened by the competitors from Israel, which compete with the same -- apart from InMode with the same technological infrastructure that we do than from the companies competing from the Far East where the product level is improving but it's still behind what we have in Europe and what the Israeli and the best Korean company are able to deliver today. Bianca Fersini Mastelloni: Okay. We have no more question registered at this moment in our list. I would like to ask investors still connected if there are any further questions from their side. No more question. Okay. Then ladies and gentlemen, the conference is over. If you have any questions to investigate in the future, please do not hesitate to contact Enrico Romagnoli, who will be happy to answer your queries. Thank you to all of you for attending this conference and we hope to have all you again next time. Goodbye to everybody. Bye. Enrico Romagnoli: Bye. Bye-bye. Andrea Cangioli: Thank you very much. Bye-bye.
Operator: Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Full Year 2026 Consolidated 3 Months Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Jacopo Laschetti, Stakeholder and Corporate Sustainability Manager of SeSa. Please go ahead, sir. Jacopo Laschetti: Good morning, and thank you for joining the SeSa Group presentation. Representing the group today are Alessandro Fabbroni, Group CEO; Caterina Gori, Investor Relations and Corporate Finance and M&A Manager; and myself, Stakeholder Relations and Head of Sustainability. Earlier today, the Board of Directors approved the consolidated financial results for the first quarter of fiscal year 2026 ended July 13, 2025 (sic) [ July 31, 2025 ]. The corporate presentation is available on the SeSa website and will serve as a reference throughout today's conference call. Alessandro will begin by providing an overview of our key business developments and achievements. Alessandro Fabbroni: Good morning, and thank you all for joining today's call. In the first quarter of the new fiscal year, SeSa returned to growth, confirming the achievability of the guidance of the new industrial plan. Overall, first quarter 2026 shows a solid recovery in consolidated revenues and EBITDA, along with a significant improvement in net profitability, supported by a substantial reduction in financial expenses and the improvement of the net financial position compared to April 30, '25, with a clear and progressive reversal of the main trends of revenues and profitability. In the first quarter, on a consolidated basis, the group recorded revenues for EUR 846 million, up 8%, and EBITDA of EUR 61 million, up 7.2% year-on-year, and an adjusted net profit for EUR 29.8 million, up 6.4% year-on-year, with an adjusted group net profit equal to EUR 27.9 million, up by 4.5% year-on-year. The trend in [ human ] people shows 6,593 employees as of July 2025, with a moderate growth up 0.9% compared to April 30, '25, in line with our target of growing operating efficiency of the new industrial plan. On organic basis, revenues increased by 2.2% year-on-year, EBITDA by 4% year-on-year and adjusted group net profit by 2.3% year-on-year compared with the pro forma figures as of July '24, restated to include the quarterly results of Greensun, company acquired last November '24. Consolidated revenues by sector show a positive trend compared with fourth quarter '25. ICT VAS, with revenues for EUR 497 million, down 2.7%, entirely organic, showing progressive recovery from the 8.2% decline in fourth quarter '25, with return to growth expected from second quarter 2026, following the double-digit increase in the July and August 2025 backlog. Digital Green VAS, with revenues for EUR 111 million, up 24.7% year-on-year, driven by 20% organic growth and strong business demand, supported by rising energy needs related to digitalization and the high adoption. Software and System Integration sector with revenues for EUR 220 million, up 2.8% year-on-year despite a slower demand in some key Made in Italy districts and the re-engineering activities in some business units. And finally, Business Services sector, with revenues for EUR 37 million, up by 3.0% year-on-year, which continues to grow entirely organically, supported by the increasing focus on digital platforms and vertical applications, and the expected acceleration in upcoming quarters, thanks to new agreements with some major Italian banks. Consolidated EBITDA increased by 7.2% year-on-year, reaching EUR 61 million, up 4% versus the pro forma figures, and driven by the 20% growth of Green VAS and Business Services sector, while the ICT VAS and Software System Integration sector remained broadly stable year-on-year. ICT VAS achieved an EBITDA of EUR 22.2 million, down 0.9% year-on-year, with an EBITDA margin equals to 4.5% as of July '25, up from 4.4% as of July '24. Digital Green VAS reported an EBITDA of EUR 6.2 million, up 18% year-on-year, with an EBITDA margin of 5.6% as of July '25, slightly down from 5.9% as of July '24. Software and System Integration sector achieved an EBITDA of EUR 23.5 million, down 2.7% year-on-year, with an EBITDA margin equals to 10.7% as of July '25 compared to 10.8% in the full year '25. This reflects the re-engineering operations in some business units, with EBITDA margin expected to stabilize in full year '26, the same level of the full year '25. Business Services reported an EBITDA equals to EUR 7.3 million, up by 25% year-on-year, with an EBITDA margin of 20%, driven by the progressive focus of revenues on proprietary digital platforms and vertical applications developed over the past 2 years. Adjusted consolidated EBIT was equal to EUR 47.3 million, up 4.2% year-on-year after depreciation and amortization of tangible and intangible assets equals to EUR 12.7 million, up 15% year-on-year and provisions for around EUR 0.7 million. As expected, in the new industrial plan, net financial position show a significant reduction equals to 12% compared to first quarter '25 and equals to 36% compared to fourth quarter '25, driven by lower interest rates and efficiency measures in group financial management. The first quarter adjusted consolidated net profit was equal to EUR 29.8 million, up 6.4% year-on-year, reflecting stronger operating profitability and a reduction in financial expenses. The adjusted group consolidated net profit reached EUR 28 million, up 4.5% year-on-year and up by 2.3% versus the pro forma figures as of July '24. Finally, consolidated report in that financial position as of July 2025 equals to a net debt for EUR 65 million shows a significant improvement compared to EUR 75 million as of April 30, '25, thanks to operating cash flow in the quarter and lower investment compared to the previous year, with CapEx and M&A equal to approximately EUR 11.5 million in first quarter '26 alone. Now I'll give the floor to Caterina to present our new strategy in terms of M&A and the main resolution of the last shareholders' meeting held on August 27, 2025. Caterina Gori: After years of significant M&A investments, our new FY 2026, 2027 industrial plan marks a strategic shift, focusing on group simplification and organic growth. We will leverage the capabilities and business model we have built over the years to drive sustainable growth, supported by dedicated CapEx in AI and automation to enhance efficiency, scalability and market penetration. As a result, annual M&A investments are projected to decline to around EUR 30 million, guided by a selective value-driven strategy, while CapEx is expected to remain at approximately EUR 50 million per year. In the first quarter of FY '26, we further strengthened our international presence through only 2 strategic acquisitions, with total investments of approximately EUR 7 million. Visicon GmbH in Germany, an SAP consulting specialist, with EUR 5.3 million in revenues; and [ Delta Informaciones], Spain, an AI-driven player in digital identity with EUR 2 million in revenues. Both companies delivered EBITDA margin above 10%. These acquisitions confirm our strategy, a selective approach to high-value M&A in Europe, combined with strong investments in digital transformation areas such as AI, automation and digital platform. As outlined in 2026-2027 industrial plan, we are focused on generating strong cash flow and delivering solid returns to our shareholders, as demonstrated by our last shareholder meeting on August 27, 2025, where we approved a dividend of EUR 1 per share in line with the previous year, a significant increase in the share buyback program from EUR 10 million in FY '25 to EUR 25 million for the coming year, almost 3x the previous amount to further enhance the shareholder value by increasing the payout ratio from 30% of the last year to 40% of the current year. We have already started the program the day following its approval, underlining our commitment to create sustainable value for our shareholders. Then the cancellation of treasury shares up to a maximum of 2% of SeSa share capital over the next 18 months. As of August 27, 2025, approximately 1% of shares had already been canceled. I now invite Jacopo to present our ECG (sic) [ ESG ] results for the first quarter of FY '26. Jacopo Laschetti: Good morning, and thank you, Caterina. In terms of sustainability path, in light of the new CSRD regulations and the new ESG standards, we confirm our strong commitment to value generation for our stakeholders, and we continue to invest in sustainability and environmental protection, supporting intensively our customers to be responsible on the management of natural resources. By the way, our Digital Green sector contributes significantly to reduce overall CO2 emissions, thanks to our leadership position, which allows to improve the sustainability profile and performance of our partners. In line with our ESG growth path, our sustainability plan for 2026 and 2027 defines priorities, targets and specific actions to integrate sustainability in our business model, contributing to the creation of long-term value for stakeholders. On this point, our last results were characterized by a significant improvement in ESG performance and the achievement of some relevant sustainable development goals set. We reinforced our group purpose that confirm our corporate values and goals of long-term sustainable value creation for the benefit of all stakeholders. Digital innovation, long-term value creation, sustainability and digitalization continues to be the core pillars of our strategy, defining the group's purpose. We also continue to extend our main group certification, confirming all of our ESG ratings. In terms of HR management, we are facing a consolidation phase with an increasing focus on work and collaboration efficiency and the progressive integration of digital enablers in our organization and the way we work. After big improvement of our human capital over the last 4 years, in the first quarter of the new fiscal year, we increased the headcount by 0.9% only, in line with our strategic industrial plan. We continue to work to further improve our loyalty rate, reinforcing at the same time our education, hiring and welfare programs with wider and specific measure to support parenting, diversity, well-being and work-life balancing, thanks to dedicated programs in favor of diversity and inclusion. Now I give the floor again to Alessandro for the final conclusions. Alessandro Fabbroni: Thank you, Caterina and Jacopo. I will now share the final remarks and conclude our session. Three months ago, we presented our new industrial plan, aiming at group's transformation by focusing on organic growth of our core businesses, organization streamlined, growing operating efficiency and market penetration by reinforcing our role as a leading digital integrator and partner of customers' digital transformation. In the first quarter of '26, we worked strongly to deliver the main strategic targets of the industrial plan, driving organic growth across the group sectors, streamlining legal entities and adopting AI and digital enablers to boost operating efficiency. In particular, in the first quarter of FY '26, we achieved a 25% growth in profitability of Business Services sector, driven by the expanding market penetration of our proprietary digital platforms and vertical applications developed over the past 2 years, a double-digit organic growth in both revenues and EBITDA for the Digital Green VAS sector, fueled by strong business demand and rising energy needs driven by digitalization and AI adoption, recovery in ICT VAS trend compared to fourth quarter '25 with a double-digit backlog growth in the month of July and August '25, supporting an expected return to a year-on-year growth from the second quarter '26. And we also achieved a significant reduction in the net financial expenses, down 36% compared to fourth quarter '25, and down by 12% compared to first quarter '25, reflecting the ongoing recovery trend, supported by lower market interest rates and the efficiency measures implemented during FY '25. Thanks to our strategy, we strengthened our position as a leading digital integrator with a strong focus on cybersecurity, AI, automation, vertical application and digital platforms. And at the same time, our Business Services sector continued to grow in the financial services industry, driven by rising demand for specialized vertical platforms and applications. In the light of our first quarter 2026 strategic achievements and the disciplined way we have been executing the new industrial plan, today we confirm our commitment to deliver all growth targets that we have outlined last July for the new FY '26. This means a 5% to 7.5% growth in revenues, a 5% to 10% increase in EBITDA, and about 10% improvement in net consolidated profit, confirming that we are on track to achieve the main value generation targets for our shareholders. Considering the positive trend of our net financial position improving by around EUR 10 million compared to April 30, '25, we are delivering the planned 40% payout ratio compared to the 30% of the previous year by executing the new EUR 25 million buyback program approved by our last shareholders' meeting. Now we will continue to execute the new industrial plan with strong discipline, focusing on organic growth, operating efficiency, the adoption of digital enablers and inspired by a corporate vision oriented towards sustainable growth and digital innovation. Thank you very much for your kind attention. Now we open the Q&A session. Operator: [Operator Instructions] The first question is from Andrea Randone, Intermonte. Andrea Randone: My question is about the outlook you provided for the business segments. We can see that Digital Green is performing slightly ahead or I can say, ahead of initial expectations, while maybe Software and System Integration is a bit softer. So my questions are, what is the visibility you have on the most recent months? And if you can provide some indication on the full year profitability you are expecting compared to what we have seen in the first quarter? And any further comment on this -- the expected evolution of the business segment is welcome. Alessandro Fabbroni: Andrea, thank you for the questions. So first of all, the trend of business segment is characterized by growing focus on proprietary digital platform. So that means, as a result, growing level of EBITDA margin that we achieved record 19.9% of revenues. So we grew by 3% in terms of revenue. We expect to accelerate the trend of revenues, considering also several main contracts that we won during the first quarter that we will account starting from the second quarter. So our guidance continues to be a double-digit growth in terms of revenues and in particular, in terms of profitability. In the Digital Green, we capitalized the great effort we did in the last quarter. So the merger between PM Service and Greensun created a leading player in Italian market. We increased our market share in the business segment. There is a great demand of energy for renewable sources, considering the low prices that stabilized. So the trend of prices were stable in the quarter. So the lower level that we achieved over the past 1.5 years made very competitive the green energy solution, and there's a great demand from corporate organization in that direction. So the trend of the market is a trend of high single-digit growth, and we plan to be able to perform to continue to grow double digit, thanks to our competitive advantages and our market share we achieved in the Italian market. The situation of the Software and System Integration in the quarter characterized by a recovery of EBITDA marginality in comparison to the fourth quarter because we performed with a 10.7% compared to 10.2%. We expect to stabilize this level around 10.8%, 11%. And so to start increase also in terms of EBITDA quarter-by-quarter. So our feeling is that the first quarter of that fiscal year was the most difficult to face because we are in the beginning of the industrial plan, but the actions that we perform, we will disclose most of their effect in the upcoming quarters. So that is the reason that we confirm the consolidated guidance for the whole group with a visibility level that increased a lot compared to 3 months ago. Operator: [Operator Instructions] The next question is from Gabriele Berti, Intesa Sanpaolo. Gabriele Berti: First question on CapEx, considering you mentioned a shift in the CapEx mix used from M&A and internal development, where do you see CapEx in this fiscal year? And how much will be dedicated to internal development? And if you could also provide some color on which kind of projects are you developing? And then second question, if you could elaborate on the driver behind the acceleration in the backlog for the VAS segment? Alessandro Fabbroni: Gabriele, thank you for the question. Yes, in terms of CapEx, including M&A investment, we have around EUR 11.5 million in the first quarter, of which EUR 7 million M&A. So that means we are more or less on track because our full year indication is an indication of EUR 75 million, EUR 80 million, of which EUR 30 million, EUR 35 million dedicated to selected M&A. So the internal development refer mainly the so-called digital enablers adoption. It means AI automation and also the development of digital platforms and vertical application for penetrating the market and also for our organization. In terms of trend of ICT VAS, first of all, we closed the quarter with an upturn in comparison to the trend of the fourth quarter. So we declined 2.5% compared to a decline of 8%. But in particular, we closed the quarter with very, very positive trend in the backlog. The backlog increased by over than 10% in July, over than 10% in August with a good start in September. And so considering also the trend we had in the previous year, now we expect to recover a positive increase in revenues starting from the second quarter. I remember that our indication for the full year is to grow low single digit in terms of revenues and EBITDA and double-digit in terms of profitability. And in fact, in the first quarter, we increased in terms of net profitability in this sector by around 17%. So that means we are on track not only in terms of trend of revenues and EBITDA, but in particular also in terms of profitability and net income. Operator: The next question is from Guy Breeden, Quilter Cheviot. Mr. Breeden, your line is open. Maybe your line is on mute? Unfortunately, we cannot hear you. Could you please open up your line? Maybe you are muted? [Operator Instructions] The next question is from [ Paolo Cipriani ], a private investor. Unknown Shareholder: Alessandro, can you hear me well? Alessandro Fabbroni: Yes, very well, yes. Unknown Shareholder: Yes. I have a question regarding the financial expenses that are improving and should be expected to improve further. Could you just maybe help me to understand whether a bit more just to say something a bit more on what they are related to. I mean just are they, for example, related to the acquisition of the previous small companies acquired in the previous years, I mean, related to the working capital management of these companies? And maybe just say something about the full effect of cost optimization initiatives that seems to improve these financial charges? Alessandro Fabbroni: Thank you for the question. So first of all, we are capitalizing 2 main factors. The first one is the lower level of interest rates. I remember that in any case, we will benefit in a progressive way because several financial costs are accounted for in advance for 3, 6 months. And so we will benefit moving forward. The second one is obviously the improvement that we are achieving in working capital management and also in several other measures that we are introducing starting from 1 year. So the lower number of legal entities, the adoption of cash flow and obviously planning and, generally speaking, the identification of planning and several targets for any group's legal entity. So the start of the fiscal year was positive because of the comparison with the previous year in terms of first quarter 2025 was a comparison with an improvement by 12%. But if we compare the first quarter '26 with the fourth quarter '25, we improved by 35%. So that is the reason we expect to accelerate in our progressive improvement quarter-by-quarter. Operator: [Operator Instructions] Gentlemen, Mr. Laschetti, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Jacopo Laschetti: Thank you very much. As usual, we stay available for any additional information, and thank you very much for your participation. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Matthew Moulding: Good morning, everyone, and thank you for joining us for THG's half year results presentation. As I said in the statement this morning, trading momentum continues to build positively with the strategic changes implemented last year across both THG Beauty and THG Nutrition now bearing results. H1 was a performance of 2 halves. We entered the year following a period of focused execution, implementing significant strategic initiatives and model changes across the group, including the completion of the demerger of our Tech and Robotics division, Ingenuity. In THG Beauty, we disposed of some of our smaller operations, commenced the cycle of investment in our portfolio of own brands and took the decision to prioritize retail trading in the U.K. and the U.S. In THG Nutrition, the Myprotein global rebrand was a major talking point last year, and it's been important to gauge sentiment from existing D2C customers, new consumers and our developing network of retail and license partners. It's clear the positive reaction to the new positioning of Myprotein is starting to speak for itself with accelerating sales growth and a rapid rollout across offline retail. In a dynamic consumer environment, our results demonstrate the resilience of our digital-first model. And as we move through Q3, I'm pleased to say the group is delivering positive growth across both our businesses. Three key achievements from H1 stand out. First is the successful return to growth for our THG Nutrition division, which delivered 3% revenue growth, driven by a return to growth in new customers as well as significant expansion of our off-line retail offering across Europe, the U.S. and Asia. Secondly, in THG Beauty, we delivered a resilient trading performance despite a slower start to the year. While strategic changes impacted the headline number in the second quarter, we saw our U.K. Beauty retail business grow at its fastest rate since Q1 2024, proving the strength of our market-leading platforms and active database quality. And finally, we've strengthened and de-geared our balance sheet by extending facilities to December 2029 and reducing gross debt by GBP 374 million. Alongside the refinance, following an unsolicited approach in half 2 2024, the group sold Claremont Ingredients, a small manufacturing business within THG Nutrition. The proceeds have been received, which accelerates our plans to move the group towards a net cash position. Claremont is the U.K.'s leading independent flavor manufacturing lab for sports nutrition and was acquired in late 2020 for GBP 52 million to accelerate Myprotein's product development and global licensing ambitions. The disposal for over GBP 100 million marks a significant return on that investment with Myprotein supply chain protected through a long-term supply contract, ensuring we continue to benefit from Claremont's capabilities while also gaining access to the broader international expertise of the Nactarome Group. These actions, combined with remaining focused on cost-saving initiatives have laid a strong foundation for the second half of the year and beyond. Okay. So let's turn to the headline financial performance for half 1. Group revenue was GBP 783 million, which was 2.6% down on the prior year, reflecting the significant strategic actions we've taken, particularly within THG Beauty. The majority of Beauty's H1 revenue decline can be attributed directly to the planned discontinuation of certain operations and disposals as well as the effect of withdrawing from certain sales activity in Europe and Asia. Encouragingly, Beauty is back in growth in Q3 as expected, reflecting the benefits made from last year's model changes. THG Nutrition's return to growth in both Q1 and Q2 reflected the positive response to the global rebrand, helping to drive new customer growth as well as a rapid rollout of our offline model. As previously announced, group adjusted EBITDA for the period was GBP 24 million at an EBITDA margin of around 3.1%. Despite strong sales growth, continued high input costs in Nutrition weighed on margin performance for the business during H1. Myprotein has a much shorter supply chain than peers, and so sharp movements in commodities are felt sooner. The wider market has now caught up, allowing Myprotein's vertically integrated D2C model to return to strength with both sales and margins now returning to growth. Beauty Retail, the largest part of our Beauty division, performed well in Half 1, especially in Q2, supported by a strong and resilient U.K. beauty market. In our Beauty Own Brands division, the timing of large orders into major customers has fallen later this year, which impacted profitability of our Perricone MD brand during Half 1. An improved order pipeline is in place across our key beauty brands for H2, including for Perricone. Turning to our balance sheet and cash flow. Our financial health remains robust with cash and available facilities of around GBP 270 million at Half 1, which is prior to the Claremont disposal proceeds and prior to our seasonally strong cash generative period for the year. We maintained strong capital discipline with capital expenditure materially reduced, helped by the demerger of Ingenuity. Looking at our businesses in more detail. THG Beauty revenue stood at GBP 480 million with U.K. performance a real highlight, gaining market share in the second quarter. This is reflected in our brand health metrics with prompted awareness for Lookfantastic reaching its highest level in Q2 this year. We've launched over 70 major new brands on site and refined our product listings to keep our proposition fresh. The underlying health of our Beauty customer base is strong, and our loyalty programs continue to grow, now reaching well over 3 million members. These customers purchase more frequently and have a higher spend per account. Revenue from returning customers has increased, reflecting the success of these loyalty programs. Average order values and conversion rates via our apps continue to grow as well, and there remains a significant opportunity to enhance app functionality to deliver an even more personalized experience for our customers. In THG Nutrition, we returned to growth, delivering revenue of GBP 304 million for the half. D2C new customer growth returned in the first half, reflecting a shift in marketing investment to open funnel campaigns to build brand equity following the rebrand. Our offline retail expansion across all key geographies, including the rollout of Myprotein products in U.S. Walmart stores also supported both revenue growth and brand awareness. Product innovation remains a core strength where we've successfully launched over 200 products across 4 very different categories. These launches use multi-touch campaigns that help expand our category-leading ranges and meet changing consumer preferences. Our nutrition customer metrics tell a positive story. Myprotein is clearly the U.K.'s most preferred sports nutrition brand, leading the category in brand consideration. Our offline performance has been exceptional with more customers purchasing the Myprotein brand than ever as our offline channels rapidly expand. We now sell over 750 different product lines across 5 distinct categories through the offline retail channel, and our products are already available in over 34,000 doors globally. Now let's look ahead. The second half of the year has started well, and we are now entering the key trading weeks of the second half with THG Beauty back in growth, helped by strengthening home market demand. The launch of our advent calendars has been the strongest in our history, and we expect gross profit margins to remain at our medium-term target levels, supported by improving performance from our own brands. To prioritize long-term market share gains and customer loyalty, Myprotein will limit price increases, underpinning further acceleration of its installed base in global offline retail as well as supporting D2C new customer growth. We are confident in this strategy to protect long-term market share and loyalty. Our guidance for the full year 2025 remains unchanged, while our performance and strategic actions give us confidence in our medium-term targets. So in summary, THG has delivered a resilient first half performance, underpinned by a pleasing Q2 performance. Both businesses are now back in growth as we enter the key trading period of the year, and we've opted to deleverage the balance sheet with cash from a strategic high-return disposal. Thank you again for joining us this morning, and we will now open the floor for questions. Operator: [Operator Instructions] First, we have Patrick Folan from Barclays. Patrick Folan: Just a couple for me. How should we think about the Nutrition margin going forward as you find the balance between margin improvement and top line growth while whey prices hang in the balance? Then secondly, looks like we're in a time period where protein is the most invogue category in the consumer world. Can you maybe share with us any expectations you have on your Walmart launch? And if there's anything else you are excited about within your portfolio, especially considering the second half top line guide for Nutrition? And if I can squeeze one more in. Can you update us on the U.K. VAT situation regarding protein powders? Matthew Moulding: Okay. Look, so 3 questions there. The guys will prompt me on what they were, Patrick. But the first one was around the margins. How should we look at that given whey pricing remains elevated at record highs. I mean, look, stability is always a good thing for our business model. So what's the problem for us is when you get sharp movements. Obviously, sharp movements down in pricing are attractive because we will see the benefit of that quicker than anybody else and sharp movements up, we'll see the adverse impacts of that quicker than anybody else. And that's all driven by our supply chain. We're a vertically integrated D2C business with a short supply chain. So on average, we're probably carrying no more than -- when we get the raw materials into our warehouse, that's probably starting to be in the customers' hands within 9 weeks, whereas for offline channels, you can imagine that's probably more like 9 months. And so there's a much greater delay in raw materials feed into our supply chain so much sooner than everybody else. Now we are in a sustained period now of where pricing is stuck where it has really at these kind of record levels, and we are comping that with the prior year now as well at the same time. So that stability means that all of our peers have got that in their supply chain. And so as a result, our business model starts to operate well. And as a result, we're seeing our online D2C margins grow quite considerably year-on-year. And I wouldn't -- I can't disclose, I guess, the specifics of it, but it's hundreds of basis points better and nothing's changed in particular in the supply chain. But pricing is going up in the market as the peers are pushing their prices up, having to deal with this. Now so we're in a very strong position with that. As then you will see that why pricing starts to fall at some point, then if it's a very gradual fall, great, it doesn't matter. We're all in a level playing field. If it's a fast fall, then we'll see the benefit very quickly in terms of that. And so what I would say is we've then looked at the off-line retail opportunity, and we have been pricing to go into the offline retail opportunity at a very competitive rate. So if you were to go into any of the off-line channels, you will see that you've got Myprotein as the highest quality product on the market, priced at an incredibly cost efficient for the consumer. And as a result, we're leading the category quite typically. When we go into offline retail with a retailer, Myprotein will typically lead that category from the off, especially in the U.K., I mean, almost certainly in the U.K., that would be the case. As you then talk about, I think you mentioned Walmart, you look at places like Walmart. Obviously, U.S. is a very, very big market, and Myprotein doesn't have the same position in the U.S. as it does in the U.K., where we're clearly the #1 in the U.K. That said, the sales that have gone through Walmart so far, we've been very pleased with, and I believe everyone is very pleased with. And we have got that disruptive model at the same time that goes into it. We will continue to be disruptive. I think we announced that with the Claremont deal. We want to get that installed base across the world way beyond the 34,000 doors that we're currently. I think we're at about 45,000 by the end of the year. We've pre-released in the past that we know about. Obviously, we're targeting 100,000, and that would give us an incredible position from a standing start only a couple of years ago. So we are investing some of that D2C margin growth to a degree in the offline channel, where we're running that broadly at a breakeven for now tight position, which is a very sensible place to be as we then get category leading in all those retailers, we naturally can then push our pricing up and do push our pricing up, and we'll be doing that accordingly, which then further enhances your margins, especially into 2026. So that was the margin question, Patrick. I'll let you come back in a second to see if there's any further questions on that. The other 2 questions you had, one was on the VAT position. As we understand, well, we do understand that HMRC have been refused their right of appeal against the decision. And as a result, they've now got, I don't know, another week or so left, 2 weeks left maybe to come back and see whether they're going to try and fight this in the highest courts or not. I think we pre-released that there's a GBP 30 million contingent asset for us there. If that was to come to pass, that's actually looking more like GBP 45 million. We've obviously put our claim in accordingly and protected our position and that then continues to grow going forward. We still continue to charge VAT on the products as a matter of prudence. And even though the HMRC has lost the case because it's a position we've now been operating in for a period of time and just think that's the right thing to do. So look, let's see, but it's quite an interesting position with, at the moment, a GBP 45 million potential asset to come back into the business there. And then -- the Walmart launch Yes, the Walmart launch. So -- and we're doing -- across the U.S., we're making some really good progress there. I'm super pleased with what the team are delivering on the offline retail across the U.S. and the U.K. I think you asked are there any other interesting partnerships to come. We've -- in the detail of what we've released today, you will see a couple of licensing deals, which are quite exciting. We can't name them specifically, but you'll see that the success of the Muller has been really good. The Iceland deal is great. These are millions of products a month going into consumers' hands with serious retail value attached to them at the same time. We're now moving into the ready-to-go lunch market with a major player in the -- for the U.K., which will hopefully expand into Europe pretty quick as well, which would see us have millions of more products in consumers' hand in high protein lunchtime provisions. And then the other thing is one of the largest confectionery groups in the world, we've done a deal where we're licensing those brands in from Myprotein products, and they should be in consumers' hands, hopefully, the first of them in time for Black Friday and Cyber Week as well. But the licensing side of the business is a fantastic pipeline of licensing in and licensing out. Operator: Our next question now comes from Andrew Wade from Jefferies. Andrew Wade: A couple from me. The first one, you mentioned Beauty orders impacted by focus on active customer mix. Could you give us a little bit more detail on that? Is that reflecting sort of territory pullback? Or is that another factor as well? That's the first one. Shall I fire all of or do you want to answer? Matthew Moulding: Fire all off, Andrew. The guys are writing notes in case I forget. Andrew Wade: Nice one. So that was the first one. Second one, you talked a little bit about the investment cycle in your own brands. Could you talk about what the catalyst has been for that and sort of what impact you're expecting from that sort of period of investment? And then the last one on Claremont. Clearly, a valuable asset that you've monetized from within the group, but many haven't been thinking about. Could there be other opportunities like that within the THG table? Matthew Moulding: All right. So there was the Beauty life cycle, any other Claimants in the group? And the first one again... Unknown Executive: First one was Beauty and the... Matthew Moulding: Active customers. Yes. So look, so on the Beauty side of things, it's -- as you say, really, it's really around pullback in certain territories where we're not seeing immediate levels of profitability. I think we flagged it a while back. Our focus -- we've got real strength in the U.K. and U.S. and we've got a fantastic distribution across Europe, but it comes from Poland. And so what we've done is we focused on making sure that those customers that can deliver the requisite level of return for us on day one in key territories is where we've put our energies and focus. And so that's been the key factor there. The second question around Catalyst for the own brand. Yes. So look, the truth is as any brand owner would know, maybe not everyone talks about it, but you go through cycles with brands. You've just seen it with Myprotein, where we've had a hell of a year last year with Myprotein, and we're now reaping the rewards of that. And so quite often, the catalyst with any brand is as much as looking forward and thinking, well, do we need to tweak the path of it or something like that. We're always doing that. Beauty brands are a little bit slower, I've got to say, than nutrition. So you don't ever need to do dramatic big moves ordinarily with the Beauty brand. It's around tweaking, changing direction a little bit, et cetera. What we're really talking about here with the Beauty brands is more about the timing of some of the big customer orders. So some of the strategic things we might do is put less focus into certain channels and new focuses into other channels. But there are -- the real factors that have been affecting the brands or Perricone in particular, has been around some large orders that were in the first half of last year and fall into the second half of this year, principally. Net-net, actually, there's a bit less volume order going through it with some of those customers as there's been some volatility with some of those customer channels. But that's the principal reason for it. But we are always tweaking our brands and Beauty is just less of a requirement for major overhaul than more of your fast-moving consumer brands like Myprotein. The final point, I think, was, Andrew, around what have you got in your group that we're not thinking about, but it was an unsolicited approach that came to us in second half of last year for Claremont. We've got lots of assets in the group similar. We spent hundreds of millions through the years building additions to our business model. So even in Nutrition, we have a bar manufacturer that manufactures for some of the biggest brands in the world as well as for ourselves. We paid GBP 55 million, I think, for that 5, 6 years ago. We have a drinks manufacturing business where we similarly drinks for ourselves and other people, et cetera. In Beauty, we have the U.K. manufacturing business. We have the U.S. manufacturing business. Those businesses combined, we've probably spent the best part of GBP 250 million on getting those in position. What we've done with all of these assets, and there's others as well, but we've done with all of those assets is they're just part of the concept of how do we make the mothership a better, stronger business and the mothership would be in Nutrition, Myprotein, in Beauty, it would be Cult Beauty, Lookfantastic in particular, being the biggest in derm store in America. And everything else we do around that is at that point in time, we're just trying to make those businesses stronger and have more competitive advantage. Naturally, if at some point, we sit there and think there's a reason or a value or an unsolicited approach that needs serious consideration, then we'll do that. But long-winded way of saying, Andrew, we've got plenty of these things in the business, and we could do one of those, just a small one of those, win the VAT and you're probably pretty much at net cash, right? So without too much change to your business model, people wouldn't even notice a change in our business model, but that's how we've built the group. Operator: [Operator Instructions] And next, we move to a question from John Stevenson from Peel Hunt. John Stevenson: Again, 3 questions again. On Retail Media, obviously been around for a while, and you look to formalize your approach to the creation of THG Beauty Media. Can you talk a little bit about how that's going to accelerate the benefits of Beauty and sort of what you're doing there? On apparel, obviously, showing really strong growth through the first half. Can you give a bit more detail behind that sort of rate development and future plans? And then finally, on Nutrition, looking at progress in convenience in particular, if you get to the ready-to-eat ready-to-drink. You talked about, I guess, some of that with the licensing deals. Again, can you sort of rate your progress into convenience and how much that's going to change over the next 12 months? Matthew Moulding: All right. Look, the ones I remember, I'll start with straight away, if that's all right. The -- in terms of athleisure wear, clothing under the Myprotein, I mean, look, it's been a journey. I don't mind admitting because when you're -- there's no other sports nutrition brand in the world that's moved into serious athleisure wear. And I think what we've proven is that we've gone from doing spring vest that you buy that the average weight lifter would buy with a bag of protein now to a serious proposition of very high-quality leisure wear, gym wear, et cetera. And a point at the minute, it's triple-digit growth in there. And that's principally driven by females as well, right? So you're also bringing a lot of female customers into the ecosystem that maybe 5, 6 years ago was a bigger challenge to do. And that's been particularly pleasing. Look, I think the model itself, we have a big customer base on Myprotein globally. We have a great influencer roster of all different types of people as well. And then we have this full range from bars, snacks, all these other product categories by -- it almost just all helps itself in the flywheel because if you're somebody that wants to make a living out of being in health and wellness and being an influencer, that actually, if you work with Myprotein, you're not just pushing one product every day. You've got this whole plethora of your lifestyle in which you can push, which includes really top quality clothing at the same time. And then add to that, things like Hyrox, where we've become the global partner there, which has gone particularly well. And all of our athletes are competing in there. It's really just started to gain some real traction this year. The rebrands played a big part as well. Women don't necessarily want to walk around with big logos and things like that. And you've got -- we've now got the Micon product quality is outstanding. So I just think it's a whole long list of factors that are coming together as ever with these things, right? What we've got to do then is keep the momentum going on top of that? It's no good just growing by 100% one year and then being flat the next year or down a bit to go forward a bit, so on and so forth. So there's a lot of focus in the background on that. The other -- Retail Media and Beauty. Yes. Retail Media and Beauty. Look, it's something Amazon has led the world on this hasn't it? They're a fantastic media business with ads there. We're a big data business ourselves. And so as a result, we've seen incredible success from rolling that out through the years. And we just know there's much more for us to be able to do working with the brands in this regard, and we can show people fantastic returns by saying spend the money here on the marketing, and this is the return you get the other side. So we're just following through that consistently. One of the exciting areas actually in the years to come, we'll be able to put that into Myprotein where obviously, we've launched this brand hub where lots and lots of health and wellness brands now operate on there, and that should expand quite significantly. It's only launched in the U.K. currently. But as we expand that globally, we'll also want to put the Retail Media through there and be able to show those brands, listen, if you invest here, this is the return you're going to get. So it's just been a consistent deliver for us year after year since we launched it a few years ago, and we're just getting stronger and better at it. So that's the simple kind of mechanic that we've got there. The... Unknown Executive: This progression into convenience, nutrition. Matthew Moulding: How would you rate it? Look, I think it's been pretty outstanding in the U.K. I think we can do better in Europe. And the U.S., we're in the offline model, but we're not doing much in the way of licensing across the U.S. and the move in that regard. So I think from the U.K. perspective, we've nailed it. Still lots and lots more to go reflected in the announcement we've mentioned today around the lunchtime, but we've got the rest of the world to really get on with here. And Europe is somewhere where we're making progress, but there's -- we're scratching the surface really there. Operator: That concludes today's Q&A session. So I'd like to hand the call back over to you, Matt, for any additional or closing remarks. Matthew Moulding: All right. Well, I think everyone will be fed up with my voice, but thank you very much. And I'd like to thank the staff in particular. It's been a brutal sort of 12, 18 months of hard work and dedication, but I think they can see the rewards from that now. So thank you.
Mary Vilakazi: Good morning, everyone, and welcome to the FirstRand's Annual Results Presentation for the year ended June 2025. Let's start with the operating environment. The macroeconomic environment over the last financial year was characterized by ongoing global fracturing and reorientation of the global economic policy. The ongoing conflict in Ukraine, Middle East and the uncertainty around U.S. tariffs serve as a few examples of this environment. Economic policy uncertainty has lifted well above levels seen in the midst of the COVID pandemic. Sticky inflation and ever-increasing sovereign indebtedness have raised the funding cost of several systemically important economies. This increase is seen in the graph on the right-hand side of the slide, which shows 10-year bond yields in some of these economies. On a comparative basis, South Africa is biking the global trend with the reduction in bond yields supported by the country's structural reform prospects alongside lower inflation expectations. The uncertainty in the global environment spilled into the South African economy weighing on business and consumer confidence. Consequently, private sector investment was particularly weak. The figure on the left-hand side of the slide shows the progression of GDP growth focus as reflected in the Bloomberg consensus survey. At the start of this financial year, consensus expectations for GDP growth for this year at about 1.6%. At the last survey, expectations put growth for 2025 at 1%. There were, however, signals of support to the economic activity in South Africa. Interest rate cuts and lower inflation provided some support to households and businesses, while the reform implementation through Operation Vulindlela continues. We, however, expect this high interest rate environment to persist over the next 2 years with the repo rates falling to 6.5% by June 2027 driven by an average inflation of 3.8%. The operational environments in the broader Africa portfolio were somewhat a mixed bank. Encouragingly, countries that suffered the consequences of sovereign debt restructurings and the lack of reforms over the last few years are starting to turn the corner. In Ghana and Zambia, inflation and interest rates are reducing and economic activity is gradually lifting. And these signs that -- there are signs that the long-awaited economic reforms in Nigeria are paying off. While economic activity in Namibia continued to perform in line with expectations, Botswana's economy has suffered significantly from the fall in demand for natural diamonds creating a challenging operating environment. The Mozambican economy is another one that continued to present headwinds in the face of economic imbalances. A challenging fiscal backdrop and tariff uncertainty has kept a lid on economic activity in the U.K. While interest rate cuts provided some relief, it was not enough to offset the negative impact of business tax increases and cost of living pressures. In this environment, the Bank of England was limited from providing faster interest rate relief. And moving on to unpack the group's operating performance against this macro background. This slide highlights the key performance metrics included -- including the impact of the large provision for the U.K. motor commission matter. These metrics clearly demonstrates the strength of the operational performance delivered by the business, which we are very pleased about. For completeness, I would like to contextualize the results relative to our guidance in the trading update we issued in June. At that time, we were expecting growth of 16% in normalized earnings of last year's base, which included the first motor commission provision, and we guided as such. However, subsequent to the guidance, we did raise a further provision, which, in our view, is prudent given the regulatory uncertainty in the U.K. The strong earnings capacity generated by the group allowed us to absorb this provision and still deliver what in our view is solid earnings growth of 10%. To absorb a further provision of ZAR 2.7 billion and still deliver normalized earnings growth ahead of our long-term stated range and a superior return on equity is testament to the quality of the group's portfolio. The high ROE and ongoing generation of capital also allowed us to deliver growth in dividends ahead of normalized earnings growth, which I will cover in more detail later. All in all, despite the challenges we continue to navigate in the U.K., our businesses continued to consistently outperform in terms of growth. Growth in net asset value and economic profits, the 2 key shareholder value metrics, they remained pleasingly strong. The group's superior ROE benefited from an improved return on assets increasing by 6 basis points. This was again a result of the quality of our operational performance, in particular, strong growth in investment income, improved operational leverage and a stable credit outcome. Gearing decreased this year and the cost of equity remained unchanged at 14.65%. Worthwhile noting that at prior year gearing levels, ROE would have been 20.9%. This is a snapshot of operational performances delivered by our client-facing franchises. All the large domestic franchises performed well. Some of them ahead of our expectations 6 months ago. In a highly competitive environment, FNB retail and commercial delivered good earnings and growth on the back of customer growth and healthy volumes. A call-out here for WesBank, which delivered excellent growth and an impressive ROE given how fiercely competitive the market is. Another call-out is the improvement in RMB's ROE. This came despite another challenging year for the global markets business, but private equity provided mitigation for that. And also the originate and distribution strategy executed in the business in the second half of the year supported the returns outcome. I will now unpack across 3 -- I'll now unpack the performance across 3 themes, similar to when I presented the results in March. These themes represent key differentiators and are foundational to first strength structurally higher and sustainable ROE relative to other traditional sector players. So let me start with the strength of the group's origination franchise. Our story here has been consistent. Our origination philosophy and mix of advances is deliberately anchored to growing the balance sheet, meeting the needs of our clients and at the same time, achieving appropriate risk-adjusted returns. This means we have continued to grow our market share in good quality credit supported by the appropriate allocation of financial resources through our FRM process. In retail, we have remained focused on how lending to low- to medium-risk customers with capacity to borrow. And in commercial and corporate, we have targeted growth in sectors aligned to macro growth themes. A particular example of this has been the tilt to supporting SMEs. Specific balance sheet optimization strategies have also created the necessary capital and funding capacity to support our origination franchises. This slide shows that across brands, customer segments and product lines, we have seen good growth in lending. Standouts here are WesBank, FNB commercial and Aldermore. The pie chart on the right unpacks the results of the sector-specific lending strategies we have been pursuing. The U.K. operations did very well to deliver book growth and continue to anchor origination to protecting margins in a competitive market, combined with soft macros, particularly for mortgages. The embedment of FRM principles in the U.K. has also resulted in improving risk-adjusted margins. What this slide shows is that the originate and distribute strategy designed to improve margins and ROE and create funding capacity gained momentum in the year under review. So whilst year-on-year advances growth looks subdued at 1%, gross origination at 8% remained healthy. These activities help match assets originated by the bank to better balance sheet with lower regulatory friction costs. Overall, the credit performance based on the group's origination approach is well within expectations. As guided, the retail credit loss ratio has moved into the TTC range as pressure on households start to ease. Commercial credit loss ratio has trended into the midpoint of the TTC range. And this is to be expected given where we are in the cycle and the front book strain emanating from our strategy to lean in and lend to SMEs that are well positioned to benefit from the early structural reform activity in South Africa. Outside our expectations are the 2 specific concepts in the commercial enterprise subsegment, but these are fully collateralized. The next theme I will unpack is the result anchored to our strategy to grow the deposit franchise, which is a key underpin to the group's ROE. It is extremely pleasing to see that all of the group's deposit franchises delivered good growth during the year. RMB's corporate deposit franchise continues to show increased momentum, the steady strategy to build in-country deposit franchises in the broader Africa portfolio is also gaining traction. In South Africa, retail and commercial deposits continue to increase off an already high base with a significant milestone reached during the year as FNB deposit base exceeded ZAR 1 trillion. The group's margin was up 5 basis points and up 6 basis points when excluding U.K. operations. Asset margins benefited by 4 basis points from improved pricing, offset by 2 basis points due to mix. Deposit margins did experience margin compression, but supported better customer value propositions. These outcomes are a consequence of deliberate strategies to reward customers for their savings and ensure appropriate risk-adjusted pricing for lending. As an example, amidst fierce competition in home loans, particularly as this is a switch lever for main bank relationships. FNB home loans managed to improve front book pricing and margin, lifting the home loans portfolio margin by 4 basis points, a commendable outcome in the circumstances. The group margin uplift was supported by the balance sheet management activities already mentioned as part of the distribution and risk sharing undertaken by RMB. This slide, again, demonstrates the benefit of the group's active management of interest rates and ALM risks, ensuring the group earns appropriate value from interest rates and credit premium. In the current year, the strategy produced an additional ZAR 300 million compared to an opportunity cost of ZAR 1.5 billion in the prior year. This represents a ZAR 1.8 billion year-on-year change, thus contributing around 2% to NII growth. With interest rates forecasted to reduce further, the ALM strategy is expected to yet again outperform as shown in the gray shaded area on the graph. I will now move to the third theme the group's strategy to grow and diversify sources of NII. The group has consistently focused on diversifying sources of NII, and this slide shows this diversification and how it's provided mitigation for a disappointing trading income result. I will cover these in more detail, but just to point out the fee and commission income unpacked on the left-hand side of the slide. We can see that FNB benefited from new customer acquisition and improved volumes growth. FNB also benefited from growth generated by value-added services sold into the core transactional base, including FNB Connect, Send Money, eBucks and [ NAV ]. With FNB Connect alone generating volumes worth ZAR 22 billion. 3 million customers use these value-added services. And the revenue from these services grew 15% to more than ZAR 2.9 billion in retail only, an encouraging outcome of FNB's platform and app capabilities to scale offerings. This slide shows the resilience of the FNB fee and commission income, which continues to grow. It also unpacks the customer growth at a segment level. The Personal segment continues to face heightened competition. Customers with stand-alone products where the relationship is not entrenched are easily switched. In addition, FNB's strict application of new tax and FATF regulations resulted in constraints to onboarding new customers and furthermore resulted in accounts deemed noncompliant being closed. The business is, however, executing on a number of strategies to reverse the current attrition levels. FNB Retail, Private and Commercial segments continue to acquire new customers as well as benefits from customer migration, which has provided a solid underpin to fee and commission growth. The shifting payments landscape is something we are very focused on with dedicated senior resources building out the response to defend and attack designed to address risks but also to capitalize on the growth opportunities that are going to arise. The scale presented by the group's customer base combined with the payment rails we can provide to those customers cannot be underestimated. However, we are not complacent. Customer behavior, regulatory changes and the nature of new competitors means we need to be front-footed. We have a clear road map of actions, which is unpacked in this slide. This slide demonstrates the continued health of FNB's retail and commercial transactional franchise despite the highly competitive environment. Shareholders will recall we took a knock to NIR last year when we repriced for the introduction of PayShap. What we can clearly see here from the growth in volumes is that this was the right outcome for customers who have adapted to the new payment rail. These volumes reflect organic growth driven by actual customer choice and usage and is supported by other cash to digital initiatives. I talked earlier about RMB's investment bank origination engine. Here, we can see the continued growth in knowledge-based fees driven by the healthy origination levels, which I have touched on earlier. And these have produced material structuring and advisory mandates. Structuring and arranging fees account for about 80% of the knowledge base fees with advisory making up the rest. RMB's NIR also continues to benefit from further private equity realizations and stable annuity income flows. The business has adopted a more proactive management approach to increase the velocity and timing of exits to create a more consistent realization income stream going forward. A noteworthy call-out is that ZAR 2.6 billion of new investments made in the portfolio in the past year, providing an underpin to future annuity income and realizations. The unrealized value of the portfolio now sits at ZAR 8 billion. As I mentioned earlier, the weak performance from global markets impacted overall NIR growth. There were some specific reasons including the delivery strategy to derisk concentrated sovereign exposures in broader Africa. However, this was a disappointing year for the business. The team is busy executing on our strategy to reposition the GM business to build new capabilities and significantly improve operational efficiencies. In-force APE for insurance business is a measure of the size and scale of the insurance book, which is currently sitting at about ZAR 10 billion. We are not only seeing steady growth in funeral, but we are seeing strong momentum across the newer product lines underwritten and short-term insurance, and we are gaining traction into the commercial segment. The group strategy has been to build a diversified insurance business and the last number of years has seen significant investment in capabilities to enable this. Pleasingly, non-credit life business now accounts for 75% of this portfolio. In this portfolio, profitability has, in the past, been generated by the credit life and the core life businesses. And we are now at a stage where the other product lines are expected to be profitable in the next 12 months, which will materially lift the growth from the insurance business. We continue to generate good top line growth in new business for insurance businesses. Credit Life new business APE was impacted by lower levels of unsecured lending in FNB this year. We also saw reduced sales of the life simplified product due to risk appetite changes. The claims experience was adverse and a decision was made to reprice that product. However, the rest of underwritten business is 15% up largely supported by growth in our advisory channel, which now accounts for 50% of the sales for underwritten policies. Moving on from NIR specifically, I wanted to touch on geographical diversification. This slide shows that the group's current geographic mix has mitigated for sluggish asset growth in the past. In 2023 and 2024, the broader Africa portfolio delivered excellent growth against a muted performance from the domestic business. The U.K. also contributed to the group's outperformance last year. This year, the picture has reversed to some degree. Looking forward, we still believe that our current mix supports profitability over the medium term. This slide is a quick snapshot of the performance metrics from the broader Africa portfolio, which continue to build good underlying franchise value demonstrated in growth in customers and deposits. The ROE is very healthy at 23%, supported by economic profits of ZAR 1.6 billion impacted by increases in regulatory capital but to a greater extent, the global market strategy to reduce concentrations in sovereign exposures. The macro conditions in markets that have been impacted by sovereign distress and reforms, as I mentioned earlier, are expected to improve, providing opportunities for growth for the in-country and the cross-border businesses going forward. The U.K. operational performance, excluding the impact of the motor provision was pleasing. The performance was driven by healthy lending growth across all 3 core lending franchises. The operational efficiencies are starting to emerge with focus on improving the cost-to-income ratio to mid-40s. The U.K.'s strong capital position allowed Aldermore to pay a dividend of GBP 125 million to FirstRand, the first since Aldermore's acquisition in 2018 and aligns with Aldermore strategy to distribute excess capital as they optimize their capital stack. This is expected to be supportive to an improving ROE from the U.K. operations going forward. I would like to spend some time on 2 specific growth strategies that we believe will be supportive of ongoing growth going forward. Our focus on SMEs and the informal economy and secondly, the scaling of our corporate bank. The group has consistently focused on SME leading as it leans into the macro expectations that this subsegment will be an early beneficiary of structural economic reforms underway in South Africa. This focus has resulted in a franchise representing 1.2 million customers and a significant lending book and deposit franchise. Just as a point of reference, customers in SME have revenues -- have businesses where the turnover of the business is below ZAR 60 million. In addition, the group has made strong headway in its strategy to service the needs of the informal economy. This has resulted in a sizable business within FNB commercial representing over 0.25 million customers. FNB has a demonstrable track record here, and we believe there's significant runway for growth. Significant risk appetite has been facilitated through risk-sharing partnerships with DFIs. Products have been created and successfully rolled out to meet the specific needs of this client set, such as FNB Merchant Cash Advance, which is a [ stutter limit ] credit card that enables users to build a track record and single invoice discounting. Additionally, supply chain financing was recently launched for mid-corporates into the value chains of their commercial partners. Development is also underway for a bespoke asset-based finance product. We are excited about the prospects of the subsegment, and we believe it represents a growth trajectory far above system growth. This slide shows the current size of the group's corporate bank, which sits across 2 silos in RMB and FNB, and which has created some drag to unlocking growth opportunities from this client set. Large corporates and MNCs have been serviced by RMB, and you can see the size of that franchise on the left. On the right, you can see FNB's enterprise subsegment, which sits in commercial, representing 45,000 clients. These building blocks to a fully integrated corporate bank, which will be further enhanced by the corporate and MNC franchise that we are acquiring early next year from HSBC. The opportunity set to unlock here is meaningful, which is why we created a brand-agnostic group executive role to establish what we refer to as commercial, corporate and MNC ecosystem. This will accelerate cross-sell, particularly in the FNB enterprise segment where they are many sizable corporates requiring the same products as RMB clients. This will also improve our ability to service clients with broader Africa ambitions, and the strategy will also create growth for Global Markets business, which is currently subscale and would benefit from the much needed flow from market access and risk management being part of a client ecosystem. The group CET1 ratio over the past 12 months reflects both the return profile and active management of financial resources. The increase in CET1 was supported by strong earnings that even net of dividend exceeded risk-weighted asset consumption by 24 basis points. Risk-weighted asset optimization further added 34 basis points lifting the group CET1 ratio to 14%. Accreting ZAR 8 billion in capital over the past 12 months alone, leaves the group in a strong position to support ongoing growth opportunities. The group's high return profile and solid capital position together with sustainable active FRM allows for a dividend cover at the bottom end of the board approved range of 1.6 to 2x. This generous dividend cover of 1.6x still leaves the group with sufficient financial resources to deliver on the group's growth objectives. I will now hand over to Markos to take us through the financial review and a detailed unpack of the U.K. provision matter, and I'll come back to close. Markos Davias: Thank you, Mary, and good morning, everyone. I'm pleased to present the FirstRand Group financial review for the year ended 30 June 2025. Despite a tough operating environment and the requirement to raise an additional provision for the U.K. motor commission matter, the group has delivered a resilient financial performance with normalized earnings increasing 10% at a return on equity of 20.2%. This has resulted in NIACC growth of 12% and good net asset value accretion of 11%. The key drivers of this performance are reflected in the 6 basis points improvement in return on assets, which Mary highlighted earlier. A key additional call-out is that improved operational leverage resulted in a significant improvement in the cost-to-income ratio to 50.8%. And this is despite the additional income statement impact of the provision raised of GBP 115 million or ZAR 2.7 billion during the period. The group CLR remains below the midpoint of the TTC range and continues to benefit from the group's origination strategies including the overall advances mix and diversification. The group's normalized earnings waterfall reflects the resilient top line growth during the period and the benefit of the positive cost jaws and the slowing credit emergence. Earlier, Mary covered the operational performance and unpack some of the key income drivers across NII and NIR. My portion of the presentation will therefore focus on the financial review of the overall credit performance and operating expenses and includes a more detailed unpack of the U.K. motor commission matter. The group's credit impairment charge increased 12% during the period. Notably, this outcome was achieved despite the significant base impact of the GBP 46 million or ZAR 1.1 billion provision release related to the prior year closure of the U.K. NOSIA matter. Excluding this large base impact, the group's impairment charge increased 3% and is overall in line with our expectations considering the tough macroeconomic backdrop. The group CLR remains anchored at the bottom end of its stated TTC range and excluding the NOSIA base impact, improved by 3 basis points to 85 basis points. In addition, the SA and broader Africa combined CLR trended marginally lower to 108 basis points with an improvement in the domestic retail portfolios, offset by the emergence of some strain in commercial I will unpack these further shortly. The group's overall credit performance remains resilient. Last year, I noted that the group believed excluding the NOSIA benefit, our CLR had peaked at 92 basis points and should trend lower in the 2025 period. Pleasingly, this has played out. And despite book growth, the absolute 6-month rolling impairment trend also remains positive. In addition, the group's impairment coverage remains appropriate for the current cycle and notably includes a centrally raised geoeconomic credit overlay of ZAR 300 million for the potential forward-looking impact of the latest tariff announcements by the U.S. Overall, performing coverage has reduced to 1.44%, driven by new origination and lower IFRS 9 forward-looking indicator provisions as the interest rates and inflation economic forecasts have marginally improved during the period. The retail CLR has performed better than expectations at this time last year, when customer affordability pressures were coupled with a shallow rate cutting cycle, sticky inflation, persistent debt counseling inflows and weak house prices that at the time resulted in a weak credit outlook for retail. Retail's origination thesis and proactive responses to some of these challenges, including improved collection processes has resulted in a better income than expected at the time. The full year CLR has improved to 1.98%, with slowing NPL and debt counseling inflows and overall improved arrears. The secured portfolio's performance continues to be dependent on asset values with homeland LTVs remaining under pressure despite the gradual improvement in overall house prices. We expect that it will take some time before house price growth exceeds the NPL interest roll-up, but the overall trend during the period is viewed as net positive. WesBank VAF continues to perform ahead of expectations with its credit charge driven mainly by the front book strain from strong advances growth of 10%. Turning to the unsecured CLR. It benefited from lower front book strain than the prior period, with advances up 3% this year. Credit performance has improved in the second half of the year, and we expect advances growth to pick up as new origination vintages are showing better resilience. As a note, the FNB card CLR tended slightly up, but this is predominantly due to sluggish book growth and flat average balance utilization, which impacted the overall denominator in the CLR formula. As a final comment on retail, improving inflation and interest rate outlook have positively impacted the performing portfolio's FLI impairment stock. As expected, the commercial arrears emergence has lagged retail by 12 to 18 months, and we note that the commercial CLR has trended much higher during the period, a significant increase in the second half of the year. Key drivers of this growth can be attributed to the 10% total growth in commercial advances, which results in Stage 1 front book strain and in particular, the multiyear strong high double-digit growth in the SME unsecured advances portfolio, which has seen some arrears emergence. The strain is predominantly attributed to older credit vintages originated around 18 to 24 months ago under a less mature scorecard at the time. The business utilizes a data-led credit strategy and has made significant improvements to its scorecard since then. New origination under the refreshed scorecard has resulted in dramatically improved underlying arrears performance, and the back book credit emergence has been adequately provided for. In addition, the 2 customers that went into default during the period resulted in a 13 basis points impact to the overall commercial CLR. Both these migrations into NPL have a client-specific circumstances and factors that we do not believe inferring to the rest of the portfolio. Whilst the workout process is expected to be lengthy, there is good collateral underpin to the value of the exposures. And notably, one of the customers has made a partial repayment post year-end. RMB's credit performance continues to perform ahead of expectations with an overall good outcome. The main call-out is similar to that noted during the interim presentation, whereby a few counters migrated from Stage 2 to NPL during the first half of the year. These are debt restructures that were already in the group Stage 2 watch list and adequately provided for in anticipation of migration to Stage 3 during the period. As a final comment, overall RMB coverage remains prudently struck at 1.66%. The U.K.'s operations credit performance remains a little noisy due to the base impact of the NOSIA provision release. Normalizing for this reflects an improving overall underlying CLR performance from 0.14% to 0.1% and includes some further cost of living overlay releases as overall customer affordability continues to gradually improve. Furthermore, advances growth picked up in the second half of the year particularly in buy-to-let property finance, which resulted in some front book strain. Broader Africa's credit performance was impacted by various country-specific pressure points, particularly in Mozambique, Namibia and Botswana. But despite this, the overall core credit performance of our client segments remained robust with the broader Africa CLR remaining below the TTC range. Only the Namibia commercial portfolio had some emergence of client-specific credit strain and has been adequately provided for with the appropriate credit responses implemented to date. I've already covered some of the key call-outs on the NPL formation for the group. But in summary, NPLs remain sticky with year-on-year growth of 10%. Most of this growth manifested in the first half of the year and relates predominantly to the RMB and commercial NPLs, I've already highlighted. Turning to costs. Operating costs are up 2%, including the impact of the U.K. motor provision. And without the provision, core cost growth also came in below average inflation at just under 3%. This outcome is as a result of management's deliberate focus on reducing the absolute level of the group's variable cost base. Furthermore, the group is evolving its cost management strategy to institutionalize costs under its financial resource management frameworks, which focuses on managing costs as a finite resource with similar allocation discipline as capital and funding. Whilst it is still early days, we believe this focus has achieved and is generally showing directionally positive results. During the period, a deliberate decision was also made to invest in frontline marketing, advertising and sponsorship costs as our franchises invest in long-term customer growth and embedded brand value. This marketing investment spend was offset by a reduction in some of the controllable costs in other expenses. On this slide, other expenses also includes the U.K. motor provision raised during the period of ZAR 2.7 billion and I will cover the provision in detail shortly. Structurally, costs were also lower due to the at acquisition Aldermore intangible asset that was fully amortized in the prior period and also benefited from the non-consolidation of MotoVantage due to the current period held-for-sale classification. I can also note that the sale process for MotoVantage has already been concluded in the new financial period. IT and platform costs continued to grow above inflation as the group invests in modernization initiatives and maintaining the in-force tech stack. Staff costs make up around 61% of the total group cost base and increased 5%, which is generally in line with the average salary increase during the period and was partially offset by a reduction in contingent staff costs. This good cost outcome has resulted in an improvement in jaws of 3.7% which translates into a significantly improved cost-to-income ratio of 50.8% and 48.8% without the provision. Once the impact of the provision is out of the base, the group expects its cost-to-income ratio to be anchored below the 50% level. In summary, the group has produced a very resilient overall top line performance that was enhanced by good cost and credit outcomes. And I will now turn to unpack the motor provision in some more detail. Upfront, I'd like to note that the group welcomes the U.K. Supreme Court judgment, which has given legal clarity on this matter, and we're pleased to have successfully appealed the key grants related to the duties of credit brokers under common law. As a note, we have included a detailed write-up in the analysis of financial results booklet to summarize the pertinent facts related to this matter, and I will use this presentation to lift out some of the key items that are relevant in understanding the group's current position. A key starting point is to first recap how we got to where we are and how the matter has evolved from claims in the lower county courts and complaints to the Financial Ombudsman Service into a potential FCA redress scheme. If we go back to January 2024, the FCA had noted a large influx of commission-related claims in the lower county courts. Importantly, at that stage, the group was successfully depending the majority of these on the basis of the underlying facts thereof. At the same time, the FOS ruled against 2 other lenders on DCA matters. These and other factors led to the FCA launching a Section 166 skilled persons review. Shortly after this, the FCA also noted that firms should at all times maintain adequate financial resources based on their own understanding of their data and complaints processes. This led at the time to the group raising an accounting provision of GBP 127.4 million, which considered only DCA agreements between the period 2007 to 2021 and was based on a wide range of scenarios and possible outcomes as there was limited information available at the time. It also considered some of the factors and approaches observed from the lower courts and previous redress schemes. In October last year, the U.K. Court of Appeal released its judgment on 3 cases, namely Johnson, Wrench and Hopcraft. Over this period, the group was granted leave to appeal on all 6 grounds and at the time, chose not to revise its provision as it was the appellant to 2 of the claims. However, we noted other lenders not involved in the court appeals chose to increase their provisions for possible outcomes from the Supreme Court process during their own respective reporting periods. The U.K. Supreme Court process concluded in early April and its decisive judgment was subsequently handed down on Friday, the 1st of August 2025. Critically, the U.K. Supreme Court overturned the most substantive appeal grants, which relates to the fact that motor dealers in their role as credit brokers do not owe fiduciary duties to customers and therefore, all the related grounds to this matter, including a tort for bribery or lender dishonesty was superseded. However, in the Johnson case only, the Supreme Court decided that there was an unfair relationship under the U.K. Consumer Credit Act. After the judgment, the FCA announced its plans to consult on an industry-wide redress scheme related to motor commissions and noted that post the Supreme Court judgment, it would also consult on including non-DCAs or fixed commissions in the scope of the scheme. Off the back of these new developments, FirstRand decided to increase its U.K. motor provision to GBP 240 million, and I will now unpack some of the considerations in arriving at this. The provision continues to consider multiple probability-weighted scenarios using all the additional information obtained from both the Supreme Court judgment and the statements made by the FCA to date. And this slide summarizes some of the key assumptions and judgments as well as noting that the group's financial disclosures include a sensitivity analysis on some of these. At a high level, both sensitivity tests resulted in a potential provision impact of well less than 10%. The provision approach resulted in an increase of the provision to GBP 240 million with an increase in the redress costs relating to the MotoNovo front book, driven predominantly by the inclusion of scenarios for non-DCA post 2021. I won't be able to cover all the specific details driving the increase, but at a high level, the first key impact relates to the unfairness ruling by the Supreme Court and the financial measures they considered in determining this as well as the remedy awarded. Assumptions used do not specifically include fact-specific considerations that the Supreme Court stated must be considered in an unfairness assessment, and we'll await the FCA's consultation process to consider these further. Management did, however, include additional scenarios for the potential remedy outcome based on the Johnson case, which included a full commission refund plus commercial interest. The second important update relates to the inclusion of non-DCAs post 2021, which I have mentioned is the largest driver of the Aldermore provision increase. Thirdly, the considerations around a potential opt-out scheme does result in higher operational and legal costs that would arise from a long-dated -- long back-dated redress scheme. One positive is that the proposed interest rate by the FCA is much lower than management considered when arriving at last year's provision. It is important to note that there are some considerations that have not been included in arriving at the provision. As of now, the provision does not cater for any contingent recoverable amounts, including, for example, any credit broker potential liability. In addition, it is FirstRand's opinion that there is a counterintuitive commercial challenge when using the commission as a percentage of total charge for credit as a stand-alone factor when considering whether it contributes to a potential unfair relationship. As context, the charge for credit component of this calculation is made up predominantly of the sum of interest to be paid by the customer over the term of the agreement. With this understanding, a simple illustration to best depict our concern is that in a basic fixed commission agreement where the numerator is also fixed for a customer who has offered the lowest possible interest rate, let's for say, example, 5%, the dealers' commission as a percentage of the total charge for credit would result in a higher percent -- percentage versus if the same customer had received a much higher interest rate of, say, 15%. Therefore, if the customer gets the best possible interest rate, he or she could be flagged as treated unfairly because of the dealers' commission as a percentage of total charge, which would -- for credit, which would appear much higher. In our view, a similar approach to the Supreme Court, which recommended multiple financial and nonfinancial factors will be required in the overall balancing act to assess potential unfairness and harm. Management also believes the inclusion of non-DCAs in the final redress scheme will require some consideration and debate as they have a different inherent risk profile in determining customer outcomes to that of DCAs. In closing, something that will be important to assess in the overall outcome will also be proportionality. Thank you all, and I'll now hand you back to Mary to cover the group's prospects. Mary Vilakazi: Thanks, Markos. Good job. And I mean, I think it was important for Markos to unpack the U.K. motor provision, the assumptions we made at arriving at the GBP 240 million provision. Although this provision is material, it is still significantly lower than the amount we would have had to set aside if the substantive arguments on fiduciary duty made to the U.K. Supreme Court had been unsuccessful. So we welcome the Supreme Court judgment, which provides useful legal clarity. The subsequent statements by the FCA, however, have unfortunately created further uncertainty and we await the consultative paper on the proposed redress scheme, which is scheduled for October. The accounting provision, which we believe has been conservatively struck in light of this ongoing uncertainty. This provision does not take into account any potential recoveries, which we believe we would have a basis to pursue. But FirstRand believes that any FCA redress scheme must be proportionate and fair. It must be in accordance with the FCA's own principles that they have communicated that they will undertake in applying a redress scheme. And we also believe that the FCA redress scheme needs to comply with the legal principles as determined by the U.K. Supreme Court. If this does not prove to be the final outcome, the group reserves its right to protect the interest of its various stakeholders. We hope that in the next year ahead, this matter will be behind us. So as I finally come to prospects, the macro underpin in our prospects is an expectation of a further easing in South African monetary conditions and a greater degree of inflation certainty. That said, ongoing global policy and economic uncertainty, alongside the government's tighter fiscal stance are significant risks that could upend the expectations of further policy relief. We expect Botswana and Mozambique to continue tough macro conditions. And we expect -- although the structural economic reforms taking place in South Africa look like they are slow, but we do expect that there will be positive momentum and trickle-down effect that starts coming through the system. I'm excited by the group's prospects looking ahead despite some of the challenges we continue to face. I expect FirstRand to deliver another strong operational performance in the coming year, the drivers of which are unpacked on this slide. Again, the group is expected to significantly outperform its long-term stated target range for earnings growth and the ROE will trend up to the top end of our 18% to 22% target range. The combination of growing the top line and managing costs will result in positive jaws, something this management team is fully committed to. This brings me to the end of the results presentation. I'd like to thank employees across the FirstRand Group for their diligent efforts in looking after our franchises and ensuring that the group executes on its vision of delivering shared prosperity to our customers, employees and the communities that the group serves. You can be proud of what the group has delivered for our shareholders. Lastly, thank you to our customers across the group. Your trust in us inspires us to innovate, to support your current and evolving needs. I will now take -- I will now pause here and take questions. I am joined by various members of the senior leadership team to field any questions that Markos and I feel they can add better context to. Thank you. We start with the questions of the people in the room as we get the online questions. Unknown Analyst: Congratulations on the results. I'm a little confused on the numbers of your U.K. provision. If you look at Page 29. The provision is set to grow from GBP 127 million to GBP 240 million, which is GBP 113 million. Then if you go to Page 17 -- sorry, excuse me, on Page 22, you talk about GBP 150 million and I'm afraid those numbers don't make sense to me. Mary Vilakazi: Thank you for the question, Markos, I think provide some clarity here. Markos Davias: Yes. So there is some context that is in the booklet around this. I think I didn't hear you clearly. I think it's GBP 115 million on that slide. On which slide is that, sorry? Yes, 115, sorry. It was GBP 115 million. Yes, GBP 115 million. And the difference of around GBP 2 million was that in setting up the scheme for last year, some of the operational costs were utilized against the provision, but only the delta raised in the current year in the income statement. So there's a small difference between the two. Apologies for that. Mary Vilakazi: Thank you for keeping my accountant in check. Unknown Analyst: In your slide on the bottom, what is covered by the distribution cost against the origination? Is that your operating costs? Mary Vilakazi: So that is our strategy where RMB, in particular in this year, originated assets and assets that we believe are probably better placed onto other balance sheets. So assets that ultimately get owned by pension funds as an example. So those are longer tenured assets, for example. So RMB undertook this activity this year to distribute these assets. So that's what we refer to as distribution. So they originated up to 8% and then manage to syndicate and pass on some of those assets to different parties. Unknown Analyst: [indiscernible] significant part of your business? Mary Vilakazi: It's something that we would like to ensure that we continue doing because RMB, as I showed, the structuring fees are quite -- the structuring and advisory fees we get from these mandates are quite significant. And in certain instances, the bank's balance sheet, due to higher regulatory capital requirements is not actually the best place to put those long-tenured assets. So this is something we'd like the business to continue doing. We're pleased that they got going this last 6 months. Unknown Analyst: Your ROE in Aldermore of 10.7%. What would you say is a long-term target ROE? Mary Vilakazi: So our aspiration for this business is for the ROE to be between 14% and 15% in pound terms. So that's obviously still way off. The one place where the strategy execution lagged in this year was the capital optimization. So because of the uncertainty with the court, we took long for us to start getting a dividend from Aldermore. So as I mentioned, we started that process. The other two places where it's going to improve in the ROE is, I think if they carry on with the origination as they are doing at good margins, be a lot more efficient because that's the one place where we look at the business and we -- our cost-to-income ratio could be a lot better. And I think ultimately, that's what's going to -- and then obviously, an improvement in our motor business ROE, which we said that's actually the one that's got a drag. So if we get all those things right, the ROE should lift. And that is still our strategy for the medium term. Okay. There seem to be no more questions in the room. Sam Moss: Okay. Mary, we've got some questions from the webcast. Warren Riley from Bateleur I think you've answered his first question already. His second question is, will the investment in the U.K. be reviewed post the U.K. motor matter conclusion? Mary Vilakazi: So the simple answer is that I think we, as a disciplined management team, have to review all our businesses on an ongoing basis. We are quite comfortable that the strategy execution that the Aldermore business is on that I think we are on track. So that part is fine. What we've had to navigate in this last year is reputational issues as a result of the industry matters. So it's obviously quite important to see where the FCA redress scheme lands. If it's obviously not proportionate and fair, it leaves us with very little resources as we think about going forward. So I would have to say that, okay, we've got the legal cases behind us, the court cases behind us, let's wait to see the FCA redress, understand what the U.K. market presents. But let's separate issue from the U.K. market to also our business, which I think you need to trust us that we will manage the business prudently, grow it and do the right thing. Sam Moss: So there's a few questions from Charles Russell. So the first one is, can you comment on the impact of lower diamond prices on your Botswana business, noting 7% increase in FNB Botswana in full year '25? Mary Vilakazi: Andries, can I pass this one on to you. Did you hear the question? Andries Du Toit: So Botswana is going through a very difficult macro environment linking to the diamond prices. Through our Botswana activities closely involved with government and the various actions they've deployed, they've also hired international advisers. But through the short to medium term, we see more headwinds than tailwinds. And from a forecast both on GDP and inflation will be obviously GDP low and high, but we actively manage as part of the ongoing balance sheet. Sam Moss: So actually, James Starke has got some follow-up questions on Botswana, Andries. He said, what mitigations can be put in place, if any? And to what extent preemptive provisions have already been taken? Andries Du Toit: Okay. So first of all, it is a, let's call it, a macro crises, fiscal crisis for the country. Fortunately, Botswana has high investment grade. They're sitting with 5 months reserves and have capacity to borrow. So I can't -- only from a fiscal, that's where to start. So we assume that if the [ fiscus ] make the right decision, but obviously, we, as a banking institution, first and foremost, is a robustness and stability of our deposit and country. And we've already taken strengthening origination franchises, also lengthening the profile and also reduce some of our long-term funding in that business. Mary Vilakazi: Yes. But Botswana is one that we are concerned about. As Andries says, we are watching this closely. And, I guess, already some provisions have been taken in light of the fact that it is going to be a tougher macroeconomic environment going forward. Sam Moss: I'll go back to Charles' second question. What do you think the probability is of further provisions post the FCA consultation later in the year? Mary Vilakazi: Look, I mean I think we have gone to great pains to say, okay, we've now raised this provision despite not having full information on the redress scheme, but we've made assumptions where we believe we've been conservative. And it's all based on what we know now. I mean, I think we obviously await the redress scheme. But from where we sit, beyond this number, I think it's really inconceivable to think how that's possible at this point in time. But all of that is qualified by the fact that I don't know. But I believe Markos has been very conservative in setting up this provision. Sam Moss: So Ross Krige also has a question on this, which I'll just cover before I go back to Charles. He's asking what are the key sensitivities in your assumptions that could have the largest impact on an eventual liability? Mary Vilakazi: Are we still in the U.K. provision? Sam Moss: Yes, we are. Mary Vilakazi: It's great to come back to the rest of our group and our franchises. But Markos, please answer that. Sam Moss: We're nearly at the end of these questions. Markos Davias: Thanks, Ross. I mean, there's -- obviously, it's multiple scenarios. And I guess kind of using the anchors that if you think back to the Supreme Court judgment on that percentage charge of credit, the percentage of advance as a calculation from a financial perspective, some of the factors that in the booklet, you'll see we call-out that the FCA is going to use from a qualitative perspective and how those all measure. The most sensitive factor will be where they decide harm begins on those as a starting point. Sam Moss: Okay. Charles's last questions about WesBank, please. Can you elaborate on the increased risk appetite in WesBank in recent months? Mary Vilakazi: Harry, can I give this one to you. I'm looking at the execs and... Hetash Kellan: So I mean, you would have a consideration around where you look at the macro environment and the rate environment -- interest rate environment. And that actually is a forward-looking view of customer affordability rate cycle. And as Mary has covered, we are expecting one more rate cycle and then effectively a pause that way, you would see marginal change in terms of the risk appetite for higher risk. You would see something similar in home loans as well. So it's in the secured asset classes that you'll see both sides. Mary Vilakazi: And Ghana, I mean, not so long ago, you were the CEO of WesBank. Do you want to add? Ghana Msibi: Yes. Thank you for that. So I think on top of what Harry is saying is our deeper play into the FNB bank base allows us to be able to go deeper on the back of the data that we've got. So I think that's helping us quite substantially. And I think the backdrop of the strength of the partnerships that we've built over the last 2.5 years equally allows us to better price and better select as a function of the schemes that we're able to put together. So I think it's a combination of factors, but we still remain, I think, quite disciplined in terms of the parameters where we're playing from a risk perspective. Mary Vilakazi: Okay. Thanks Harry and thanks Ghana. Sam Moss: I'm going back to Ross' second question. Do you expect a strong recovery in global markets NIR after the worse-than-expected second half performance? Or will this take a bit longer to eventuate? Mary Vilakazi: I will start by saying I do expect a better performance on global markets, but I'll give Emrie to give color to this expectation. And Emrie, I think you can comment on how the last 2 months have been. Emrie Brown: Thanks, Mary. Yes, I think that for us, the last year, as Mary and Markos have said, has been a disappointing performance, but we have thought deeply about our strategy. And the focus really for us is to build this part of our business to be more diversified from a client geography and product perspective. And in that, we are confident that we'll see the necessary lift in our NIR line. And to Mary's point, the first 2 months have already been a strong performance in that part of our business. So we have made the necessary investments in our systems and our platforms, and now it is really about growing our top line. And the big thing in the last year was the concentrated positions, and that is being actively addressed by the team. So we believe that outlook for global markets is good. As Mary has also indicated on a slide where she spoke around corporate and enterprise banking that is a part of our client base that we have got significant growth opportunities in, and that part of our strategy comes together nicely, which actually further supports our outlook for that part of our business. Mary Vilakazi: Thanks, Emrie. Sam Moss: Question from Harry Botha. How should we think about full year '26 NIR growth potential, excluding private equity realizations? Mary Vilakazi: With private equity realizations, I think we've said with -- at least overall NIR -- expectations of NIR growth is to grow strongly. And the private equity realizations, we think that we are at a level where the run rate is sustainable. And I think the big recovery on that NIR line is going to come from global markets. I think the other sources of NIR will continue at similar rates to how they've been growing. So -- and the big shift really will be global markets. Anything else you are expecting, Markos? Markos Davias: No, I think you've covered it, Mary. I think on the private equity side, if you think about the base created this year, most of the guidance is actually coming from the rest of the portfolio, the other factors in NIR actually. Sam Moss: Yes. Laurium Capital. Previously, you spoke about insurance as a major driver of growth. It's not listed today as a growth focus in this year's presentation. Is it fair to say that they have found it more difficult to compete in underwritten life and the open short-term insurance market? Mary Vilakazi: I did cover insurance. I think there were 2 slides that we used to reflect on the insurance business. But in short, I can say it's still an important strategy of diversifying our NIR of further entrenching our customers and our solutions in the group. And I also highlighted the fact that to date, non-credit life business. So that is underwritten life, core life, the business we sell into commercial, that all of that accounts now for 75% of the insurance business. So I think all of that shows the growth that's happened in all these other product lines that we've been investing in. Underwritten life has been difficult. And I think we considered that clearly, this is an advice. It's a product line that requires advisory capacity. We started investing in increasing the number of advisers we have. And it's pleasing now that I think the contribution they're making is starting to come through. So underwritten life, when you look at our booklet, it's down 15%, but that's because the life simplified product. I think that we have reduced sales on significantly because the claims experience was not great. But the core underwritten life, I now believe that we are on track to start growing it because now we've actually got a fair number of advisers, and we continue to invest in that channel. So I don't think we've -- I mean, we found it difficult, but I think we have made plans along the way to have the right strategies to provide advice. And short-term insurance, by the way, I think they made a record -- they had a gross written premiums at ZAR 1 billion this year. So it is a business that is growing. Sam Moss: Question from Chris Steward from Ninety One. Is the current structure of the corporate banking entities across the group sustainable? Or is the more fundamental restructuring required to achieve the full benefit of the opportunity available to the group? Mary Vilakazi: Chris, I'll say that I think what we have is a big start -- is a bold start. And let's see. I mean, I think we've got Muneer Ismail that's joined us from July. He is working very well and closely with the teams. And I think we will be able to understand what needs to be done in the business to unlock the strategy. But he's working closely with the FNB and FNB teams and commercial and as well as Emrie in RMB. So, so far, I think we are on track. And I think if there's anything that requires to be changed, I'm sure they will do it as a normal course of business. Anything you want to add there? Unknown Executive: No. All good. Okay. Mary Vilakazi: Yes, Chris, we at least have started the journey. Sam Moss: Okay. A question from Stephan Potgieter from UBS. Cost growth has been very low at 2.7%. Could you unpack the initiatives driving this and to what extent this is sustainable? Mary Vilakazi: Markos? Markos Davias: Thanks for the question. I guess I called out two large items that are more structural in nature. One is that we have completely amortized the intangible assets from Aldermore at acquisition. That had a base impact, if you check in the booklet from last year that is now no longer there this year. And the second one is, obviously, we're looking to optimize our variable cost base, which this year, we structurally reduced some of the property-related expenses, if you look in other costs quite significantly, and we don't expect those to have a significant bounce back in cost base. They're now lower as we've exited some of the costs themselves. The piece that we remain focused on is obviously some of the larger technology contracts reprice, and we have to renegotiate. So we remain focused on those renegotiations and ensuring that we get the best outcome for the group from those renegotiations. So really, I mean that point I made on focused on variable costs or controllable costs has really delivered this year, and that has created the step change in that core cost outcome. The MotoVantage sale has obviously also removed the gross-up of those costs on consolidation from the base on a permanent basis and the new structure that will be in place will not have those repeat going forward. So those are kind of some key call-outs to give you a feel for the cost outcome. Sam Moss: A question from Chris Logan. In looking ahead, FirstRand is pleasingly set to deliver higher earnings growth and ROE in the year ahead. Does FirstRand believe this positive outlook will lead to growth in NIACC or economic profit, which has been flattish over the last number of years? Mary Vilakazi: Thank you. I think the -- yes, the growth in earnings and the return profile that we aim to sustain will result in growth in NIACC unless our cost of equity goes up, that naturally should flow through. And Chris, I mean, I think if I look at -- we've disclosed the numbers at the bottom of the slide where we show economic profit, and we show you the impact of that U.K. provision on economic profit. So I think the ZAR 2 billion [indiscernible] economic profits over the last few years is really the reason why our NIACC has actually not gone up. But it remains a key performance measure for the group. And we are confident that when we have this noise behind us, that those [indiscernible] only just go up. 12% increase in this current year to ZAR 11.5 billion is decent. Sam Moss: That was the last question on the webcast, Mary. Unknown Executive: Mary, there might be a question from the conference call. Irene, are there any questions? Operator: At this time, we have a question in the queue from Simon Nellis of Citi. It seems there's no response from Simon's line. And we have no other questions in the queue. Mary Vilakazi: Okay. With no further questions, let me thank you for listening into our results presentation and attending, and I wish you a good day further. Thank you.
Operator: Welcome to the GURU Organic Energy Third Quarter 2025 Results Conference Call and Webcast being recorded today, September 11, 2025, at 10:00 a.m. Eastern Time. [Operator Instructions]. GURU's press release, MD&A and financial statements are available in the Investors section of its website and on SEDAR+. During the call, the company may refer to certain non-GAAP measures. Reconciliations are available in its MD&A. Also, note that all financial figures are expressed in Canadian dollars unless otherwise indicated. I would also like to remind you that today's presentation may contain forward-looking statements about GURU's current and future plans, expectations and intentions, results, level of activity, performance, goals or achievements or other future events or developments. Please take a moment to read the disclaimer on forward-looking statements on Slide 2 of the presentation. I will now turn the call over to Carl Goyette, GURU's Chief Executive Officer. Please go ahead. Carl Goyette: Thank you, operator. [Foreign Language] Good morning, everyone, and welcome to GURU's Fiscal 2025 Third Quarter Results Conference Call. Joining me this morning is our CFO, Ingy Sarraf. Let's turn to Slide 5. Q3 2025 was a record-breaking quarter for GURU from top line to bottom line. We are very proud of GURU's team accomplishments in 2025. Through their hard work and dedication, we achieved these results much earlier than expected. Since taking full control of our Canadian distribution activities last quarter, we generated record net revenues of $10.4 million, a 32% increase versus last year. Gross margin was 71.3%, reflecting the benefits of our new business model and a onetime change in estimate related to the termination of our Canadian distribution agreement. Excluding this adjustment, gross margin was 65.9%, up from 55.4% last year. And for the first time since going public in 2020, we achieved profitability with a quarterly net income of $1.3 million, the highest in our history. Turning to Slide 6. These results demonstrate that our model can deliver sustainable profitability while we continue to invest in growth. Our key drivers this quarter included strong execution of our Canadian distribution transition, positive momentum in the U.S., successful launches of our Zero Sugar innovations and operational discipline across SG&A and the supply chain. Turning to Slide 7. In Canada, Q3 marked the successful execution of our transition back to a direct distribution model. By July, we had partnered with 27 distributors nationwide. Strong in-store activations and display contributed to record sales in July. Innovation launches, including Zero Ruby Red, Ice Pop and the Strawberry Watermelon supported increased consumer demand. This transition provides GURU with a closer relationship with retailers, stronger execution and greater agility moving forward. Turning to Slide 8. The U.S. remains a very solid growth engine. Q3 sales increased 16.4% year-over-year to $1.8 million. Amazon had its best month ever in July with Prime Day sales up 96% in the U.S. compared to 2024 and up 40% in Canada. Consumer metrics were also positive with record total customer count and a significant bump in new-to-brand consumers. Innovation is gaining traction. Zero Wild Berry at Whole Foods is showing strong early velocity and is on track to become our #1 SKU at that banner. These results validate the U.S. strategy of focusing on innovation, velocity, loyalty and online strength. We also refreshed our brand identity, and it's resonating with consumers. This brand direction reinforces GURU's positioning and generates significant awareness and engagement. The Strawberry Watermelon campaign achieved engagement rates more than 3x above industry benchmarks. These activations translated into record Amazon sales, subscriber growth and gains in new-to-brand customers. Turning to Slide 9. Behind the scenes, our supply chain team performed flawlessly. We scaled our operations to support the transition of our Canadian distribution while maintaining a 99.5% fill rate. And we launched Strawberry Watermelon on time and in full, demonstrating the resilience, agility and scalability of our operations during a major transition. Turning to Slide 10. Looking ahead, in Q4, we successfully launched Island Breeze Punch in Quebec and online across North America. We also rolled out the 18-pack Zero variety pack in Costco. Early sell-through has exceeded expectations with replenishment orders already placed. These successes, combined with the U.S. expansion, direct distribution in Canada and continued brand activation position us for sustained growth momentum. Importantly, Q3 results demonstrate GURU's ability to deliver profitability through disciplined execution while investing in innovation and capturing the significant white space opportunity in the better-for-you energy drink category. Profitability is now within reach every quarter, unless we choose to invest to accelerate growth through targeted sales and marketing investments. That flexibility is our strength, considering our strong financial position with over $24 million in cash and no debt. I will now turn over the call to Ingy, our CFO, to discuss our financial results in more details. Ingy, over to you. Ingy Sarraf: Thank you, Carl, and good morning, everyone. Turning to Slide 12. Here are the highlights of our financial performance in Q3. Let's start with our record revenue. Net revenue was $10.4 million, the highest in our history and up 32% year-over-year. This growth was driven by strong performance in Canada, innovative product launches and the replenishment of retailer pipelines following the end of our former exclusive distribution agreement. These results also include a onetime change in estimates related to the termination of this agreement. For the 9-month period, net revenue was $24.6 million, up 6.7% or 13.5% when excluding last year's U.S. club rotation. Next, our record margin. Gross profit reached $7.4 million with a gross margin of 71.3%. Excluding the onetime adjustment, the underlying margin was 65.9% compared to 55.4% last year. Regarding expenses, SG&A was $6.3 million, down 9% from last year. Sales and marketing investments decreased by 16% as we continue to optimize our spend. Turning to profitability. Net income was $1.3 million or $0.04 per share, a significant improvement over the $2.2 million loss reported last year, representing a net margin of 12.4%. Additionally, adjusted EBITDA reached $1.6 million in Q3 compared to a $1.5 million loss last year, reflecting revenue growth, margin expansion, including the change in estimates and cost discipline. On a year-to-year basis, net loss improved 79% to $1.4 million and adjusted EBITDA loss improved 90% to $0.7 million in the last 9 months. Finally, cash and liquidity remains strong. We ended the quarter with $24.2 million in cash and short-term investments, no debt and $10 million in unused credit facilities, providing the flexibility to balance profitability with growth investments. With that, I'll now turn the call back over to Carl for closing remarks. Carl Goyette: Thanks, Ingy. Let's turn to Slide 14. Q3 2025 was a defining quarter for GURU. During the quarter, we flawlessly executed a complex Canadian distribution transition, and we are now building strong momentum in the U.S. online and through innovation. In addition, we delivered record revenue, record gross margin and our first profitable quarter as a public company, proof that our model can generate substantial earnings while providing the flexibility to invest in growth whenever we choose. Above all, we now call all the shots. We are now better positioned than ever with a refreshed brand identity, a winning Zero Sugar line, a new strong Canadian distribution model, growing U.S. and online traction and a robust financial position. This quarter proves our ability to achieve profitability while investing in growth. With expanding margins, energized partners and strong innovation tractions, we have full confidence in our strategy and our ability to scale GURU in this growing category. [Foreign Language], thank you. Operator, we will now open the call to questions. Operator: [Operator Instructions]. The first question is from Martin Landry with Stifel. Martin Landry: Carl, and Ingy, congrats on your results, impressive revenue growth, very, very strong. And that's probably where I'd like to start with my questions. Obviously, at 30%, 31% revenue growth, there was a little bit of channel fill in there because I know you were out of stock starting -- you had some out-of-stock position starting the quarter. So how can we look at your revenues in Canada and maybe normalizing for the channel fill? Is there any way you can help us out a little bit? I know it's hard to quantify, but is there any way you can help us out maybe understand what the proportion of the revenues were what you consider channel fill? Ingy Sarraf: Yes, for sure. So we did have, of course, some channel fill like you mentioned, but we also had some returns from our exclusive distributors since it was the end of the agreement. So all in all, we took back a similar amount that we sold in, so it nets out. Martin Landry: So okay. And then your pricing has changed as well, right? We're not comparing apples-to-apples when we look at pricing this year versus next year. So of the revenue growth, what was the impact of the new pricing structure? Is that possible to parse that out? Ingy Sarraf: Yes, there is, for sure, a proportion that's due to the new pricing structure, like you mentioned. I think I like to look at it from a gross margin standpoint. And if we look at gross margin, when we look at, like we said, the 65.9%, the recurrent margin versus last year's at the same period, 55.4%. When you look at that, the difference between both, you could say that 2/3 of it is due to the change in business model, while 1/3 is really due to our optimization in pricing, the timing of our promotional periods. So that's the way I'd like to view it. Does that help you? Martin Landry: Yes. Okay. We'll back it out into dollars offline. That's good. And then if we look on a go-forward basis, Carl, your distribution transition is completed. Trying to understand a little bit what's your reach right now in Canada? And how does it compare versus previously? I assume you may have lost a couple of doors, but some of them may be insignificant in terms of volume. So is it -- could you talk a little bit about your all commodity volume -- all commodity value right now versus last year? Carl Goyette: Yes, of course. If you look at Canada from a Quebec perspective, where we're from and where we're very strong, I would say we're pretty much back to the same -- just at the same level of ACV. In the rest of Canada, English Canada, we're still rebuilding that. I don't have the exact number top of mind, but clearly, we did lose a few banners in this transition, some of which we're going to regain. We also lost some stores, lost some SKU. I would say that from a Quebec perspective, for example, when I look at scan data in Quebec in the scan data last month in August in convenience stores was roughly equal to last year. So it means we've completely recovered from the impact of the transition that we mentioned in our Q2 call. From a grocery channel point of view, it's not a store count impact, right? So much. There is -- we lost a few stores in the transition, but we gained them back. But we still are working on assortment. We're still working on shelf space and reducing some of the out-of-stocks that we're seeing. It seems like the transition in the grocery channel is taking a little bit more work because this channel is a little bit more complex. We need to retrain the staff on making sure they take the orders, adjusting inventory. So long answer, Martin, but it's not the same everywhere, right? I would say -- so the short answer is in Quebec, we're pretty much back to where -- the same levels of distribution. While in rest of Canada, there is impact. But as you mentioned, these were not the most productive doors. They were lower velocity doors, and they were not our first focus, obviously, [indiscernible] on this over the course of the next few weeks to recover on -- especially on the most productive doors that we had. Martin Landry: And then maybe just last question. Just -- I don't know if -- did you -- were you talking about scan data for August? Or did I hear you correctly? Because... Carl Goyette: Yes. Martin Landry: Okay, so that's post quarter end, right? Carl Goyette: Yes, post quarter end. Yes, if you remember, in Q2, we spoke about the impact of the transition leading up to -- there was significant out of stocks before the end of the distribution agreement, right? And so we -- that was impact in scan, we were transparent in that. And now we're actually happy to report that we've almost completely recovered from that, right? And we have outstanding momentum with Costco, which is not tracked, as you know, right? So this is not something that's visible in the tracked channel, but our Zero Line right now is performing extremely well, and we're very excited about that. So this is something that's driving momentum in the business. Martin Landry: Okay. So fair to say that the momentum is continuing in August and early September? Carl Goyette: Oh, yes, there is real momentum in the business right now. Operator: The next question is from Sean McGowan with ROTH Capital Partners. Sean McGowan: Carl, and Ingy, I want to follow up on a couple of Martin's questions on kind of the sustainability and unusual factors going in here. Can I ask you to repeat, Ingy, the 2/3, 1/3, what was the 1/3 due to? Ingy Sarraf: Yes. So when I look at gross margin differential between the same period last year and this year, the 65.9% versus last year's 55.4%. I had to explain that 10-point gap, I would say that 1/3 is due to our pricing and the timing of promotional activities and 2/3 is really due to the change in business model in Canada. Sean McGowan: Okay. So I guess that raises the question then is what should we expect to be kind of a sustainable ongoing level, particularly in the light of pricing pressure maybe from some input costs, et cetera. I mean, is 65% plus kind of the new base level? Or is it -- are there some potential pullbacks from that? Ingy Sarraf: Yes. I would talk about a range and looking at our past life, right? Through the distribution agreement, we always range between the 62%, 63% to the 67% mark. So I'd say that it is within that range. Sean McGowan: Okay. That's super helpful. And just to, again, clarify the comment that you gave to Martin's question. Are you saying that the channel fill effect was neutralized by the return? So there really is no net revenue impact of replenishment and that this really represents kind of this 31% or whatever or 35% in Canada really represents real demand? Ingy Sarraf: Yes. That's what I'm saying because of these 2 items, yes. Other than that, there was like we mentioned, the onetime adjustment with the exit of this agreement. So there was a onetime cleanup there, and that's the impact on the gross margin that I mentioned. Sean McGowan: Okay. Okay. A couple of other cost questions. So sales and marketing was lower than I would have thought. Do you think that this either in dollars or as a percentage of revenue, is this kind of a normal level of sales and marketing spend? Carl Goyette: I would say, Sean, this will modulate. Obviously, this will modulate depending on every quarter. I think we're -- what we're very clear is that there is momentum in the business, and there's significant opportunities ahead of us. And we're in a strong financial position. So we will vary this depending on the quarter. So for example, in Q4, I just spoke about the momentum we have in Costco. We want to invest behind that to maintain that success. We just launched a very successful product, the Island Breeze Punch. So there is activation, there's media, there's aggressive promos that goes against this. We will be aggressive in some promos, both in the U.S. and Canada this fall because fall for us is an important season, especially with our strength with students and university campuses. So it's hard for us to look and give you a clear guidance. Obviously, we want to make sure that profitability is always in sight. So we -- whenever we invest more, I think what we can commit is to give you full transparency on what we're going to be investing on and what opportunities we're tackling on, right? So obviously, this is where the money we have in the bank, this is where we want to invest, right? We want to invest in sales and marketing to go aggressively against growth. And so yes, we're in 2020 -- finalizing the 2026 plans right now. And we don't have -- we still intend to be very aggressive and pursue growth as much as possible. Sean McGowan: Well, I'm just trying to adjust to life without parenthesis around the operating income numbers. So... Carl Goyette: Absolutely. We're trying to adjust to that as well without losing any growth opportunities... Sean McGowan: So maybe I shouldn't put them in cold storage forever, but get ready to jettison them. Great. Taking a bigger picture look for a second, at least in the U.S., and I think this is true in Canada, the category over the last 12 months or 15 months or so has been kind of weird where it got surprisingly weak kind of in the summer months down to the point where it was actually negative for a period, at least scan data through Circana late last year and then came roaring back this year. So what's your take on what's going on with the [ category ]? Why did it go down? And why has it come back so much? Carl Goyette: It's really hard to say, but there's no doubt that the category is on fire. There was a few months last year where it slowed down. I don't know if anybody knows exactly what happened at the time. I think some experts attributed it to some lower traffic in convenience stores that seems to have been resolved. But if I look at now and what we see for the future, I think innovation is clearly driving growth. Like if you look at innovation in Zero Sugar is what's driving pretty much all of the category growth. And this is driven by either perceived better for you or real better for you, like there are a lot of zero sugar products. Most of the zero sugar products that are growing are full of sucralose and aspartame. Obviously, that's our difference. We don't use these chemicals. We use only healthy ingredients. So we think that we're going to benefit from that movement to zero sugar because people will look for better-for-you options, real better-for-you options. So innovations, move to zero sugar, move to healthier options. There's other theories around energy being closer in price point to soda, right? So the trade-up to energy is not as big as it used to. So that might explain why the category is growing so much. And then retailers are just embracing, I think overall, retailers are embracing the energy drink category, especially in CNG. They're seeing the growth. So they're giving it more space. They're giving it more promo, they're executing better. So all this combined just creates a very big growing profitable category that's ripe for disruption with better-for-you brands. Sean McGowan: Great. And my last question is on -- we haven't heard the word tariff. Does it have any impact? Is there kind of a derivative negative or even a derivative positive to you guys on all this tariff? I understand it can change overnight and it will. But just talk generally about what you think the impact is, if there is any? Ingy Sarraf: Well, of course, the tariffs are causing some cost pressures. But thanks to the way we've adjusted all our sourcing and our stable freight nowadays, we've contained it so far. So our COGS are actually in a good position. And I know that they've also lifted some reciprocal Canadian tariffs recently. So that also helped us well on the ingredient side. So we're in good standing. If there's more pressure in the future, then we never know with the U.S. right now. But we're on the watch point, and we're doing well so far. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Carl Goyette for any closing remarks. Carl Goyette: Well, thank you, operator, and thank you, everyone, for choosing Good Energy. Have a great 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 Hooker Furnishings Corporation's Second Quarter 2026 Earnings Webcast. At this time, 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. Please be advised that today's conference may be recorded. I will now hand the conference over to your speaker host, Earl Armstrong, the company's CFO. Please go ahead, sir. Earl Armstrong: Thank you, Olivia, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2026 second quarter, which began May 5 and ended August 3, 2025. Joining me this morning is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation today. During our call, we may make forward-looking statements, which are subject to risks and uncertainties. A discussion of factors that could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filing announcing our fiscal 2026 second quarter results. Any forward-looking statement speaks only as of today, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call. The results across segments were mixed for the fiscal 2026 second quarter. On the Hooker legacy side, Hooker branded net sales were 1.3% year over year, and domestic upholstery net sales were consistent with the prior year second quarter. Hooker Brand had reached breakeven compared to a $329,000 loss in the same quarter last year, despite absorbing $655,000 in restructuring costs, primarily related to severance. Domestic upholstery recorded a $152,000 restructuring cost this quarter, reducing its operating loss from $1,300,000 to $408,000. These improvements reflect the progress of our cost reduction and restructuring initiatives. In contrast, Home Meridian net sales were down 44.5% compared to the prior year second quarter, as this segment was heavily impacted by tariff-related buying hesitancy and persistent macroeconomic pressures among its value-focused customer base. Additionally, shipments in its hospitality business declined compared to the prior year second quarter due to the timing associated with the project-based nature of this business. The loss of a major customer due to its bankruptcy last year accounted for about 25% of Home Meridian's sales decrease. As a result, consolidated net sales for the second quarter were $82,100,000, down $13,000,000 or 13.6% from the same period last year, driven primarily by sales declines at Home Meridian. Consolidated operating loss was $4,400,000 compared to $3,100,000 in the prior year quarter, reflecting lower sales volume and unfavorable customer mix at Home Meridian, as well as $2,000,000 in total restructuring costs. The consolidated net loss was $3,300,000 or 31¢ per share. During the first six months of fiscal 2026, consolidated net sales declined by $21,000,000 or 11.2% compared to the same period last year. The decrease was also driven primarily by lower sales at Home Meridian due to the factors just discussed, along with a modest 1.7% decline in domestic upholstery, reflecting soft demand. Including $2,500,000 in restructuring costs recorded during the period and significant sales volume decline, the consolidated operating loss of $8,000,000 remained consistent with the prior year period, reflecting improvements on the legacy Hooker side. Net loss for the six-month period was $6,300,000 or 60¢ per diluted share. Now I'll turn the call over to Jeremy for his comments on our fiscal 2026 second quarter results. Jeremy Hoff: Thank you, Earl, and good morning, everyone. Hooker Furnishings is taking decisive steps to return the business to profitability. Our cost reduction efforts and focus on growth initiatives will position the company to maintain resilience in today's challenging environment and to strategically capture growth when demand returns. As Earl mentioned, Hooker Branded broke even in the quarter despite weak demand and $655,000 in restructuring charges. Domestic upholstery reduced its operating loss nearly 70% even including $152,000 of restructuring cost. At HMI, we have de-risked it significantly over the last several years and continue to further that effort. These actions have been obscured by weak demand in the home furnishing industry due to an extremely weak housing environment and tariff hesitancy in the market segment in which HMI competes. By the end of our fiscal 2026 third quarter, we believe HMI's fixed cost structure will be aligned to support what we believe to be a sustainable business and one in which sales can be significantly scaled from current levels when demand returns. Barring additional tariffs or other significant disruptive events, we expect HMI's performance to be significantly enhanced by the end of the current fiscal year. We are confident that the actions we've taken scaling fixed cost, reducing debt, and launching compelling new product lines provide the foundation for long-term value creation. Importantly, we are on track to have our new expense structure largely in place by the end of the third quarter, supporting a path to profitability even at current revenue levels. Our multi-phase plan to scale our fixed cost structure for sustained profitability in a downturn is on track and beginning to yield results. While HMI results were challenged by tariff concerns and unfavorable customer and product mix, we had a $1,200,000 improvement in operational results at Hooker Branded and Domestic Upholstery during the second quarter despite the inclusion of about $800,000 in restructuring costs in the results. We are becoming leaner and more efficient, underscored by efforts within domestic upholstery, where our focus on improving labor to revenue ratios is showing early progress and already reflected in stronger factory performance metrics. We are on target for our new expense structure, which reduces our fixed cost from fiscal 2025 by 25%, mostly in place by the end of the fiscal 2026 third quarter. We believe our enhanced operating discipline will support a path back to profitability in future periods even as macroeconomic challenges and uncertainties persist. Critically, the thoughtful and deliberate way in which we are implementing restructuring will not limit our ability to grow or fulfill orders and serve customers as market conditions improve. While our comprehensive restructuring efforts continue across all three segments, we continue to adapt to the changing industry and invest in the highest growth opportunities. Our upcoming Margaritaville launch at the October '27 ahead of the launch and expected benefit our new Vietnam fulfillment warehouse is already delivering on its promise of shortening container lead times from six months to roughly four to six weeks and creating new opportunities for customers to mix product collections on containers. Additionally, we believe these efficiencies will lower our overall global inventory. Finally, I'd like to comment on our adjustments to tariffs on imported furniture and components. In late July, the US government announced a 20% tariff rate on imports from Vietnam, the main source country for Hooker and the home furnishings industry, effective August 1, 2025. Each of our segments is taking a different approach to mitigating the Vietnam tariffs. For domestic upholstery, the impact is on component parts and fabrics, and we are able to mitigate through incremental measures such as new fabric sourcing. For Hooker Branded, we remerchandised the line to manage the impact of the 20% tariff, evaluating pricing on a SKU by SKU basis rather than a blanket price increase. At HMI, we believe we have implemented near-term mitigation efforts to balance the value equation in the more price-sensitive and competitive segment. Now I want to turn the discussion back over to Earl, who will outline the details of our cost reduction strategy as well as discuss highlights in each of our segments. Earl Armstrong: Thank you, Jeremy. We are well into our multiphase cost reduction plan to eliminate $25,000,000 or 25% of our fixed cost. This includes an estimated $11,000,000 in warehousing and distribution expenses, which is reported in cost of sales, and $14,000,000 in selling and administrative expenses. In fiscal 2025, we identified $10,000,000 in expense reductions and were able to achieve $3,000,000 in savings in that fiscal year. In fiscal 2026, we identified an additional $15,000,000 expense reductions. In the '26, we achieved $3,700,000 in expense reductions despite having recorded $1,700,000 in restructuring charges. We expect to achieve additional savings in the second half of the year from both initiatives, and we believe we are on track to achieve $25,000,000 in annualized cost savings beginning in fiscal 2027, which should largely be in place by the end of the fiscal 2026 third quarter. Now I'd like to review our segment reporting versus prior year periods. Hooker Branded. The Hooker Branded segment posted modest growth in the '26 with net sales up $465,000 or 1.3%. Higher average selling prices drove the increase, partly offset by higher discounting. For the first six months, sales rose $766,000 or 1.1%, reflecting higher unit volume partially offset by discounting the balance inventory mix and levels. Gross profit declined $167,000 in the quarter with gross margins down 80 basis points, mainly due to lower margins and discounted items, and to a lesser extent tariff-related product costs. For the six-month period, gross profit decreased $560,000 with margin down 100 basis points due to the same factors. Hooker Branded achieved breakeven operating results for the quarter and six-month period. Restructuring costs of $655,000 and $782,000 were recorded in these periods respectively. Incoming orders grew by nearly 11% during the quarter. The quarter-end backlog remained consistent with the previous year's second quarter end but increased by nearly 20% from fiscal year end. Home Meridian. The Home Meridian segment's net sales declined $13,600,000 or about 44.5% in the '26. About 40% of the decline came from the project-based hospitality business where two large projects entered the shipping phase in the second quarter of last year. 35% of the decline came from traditional furniture channels due to macroeconomic pressures and tariff-related hesitancy. And 25% of the decline came from the loss of a major customer that filed for bankruptcy last year. Average selling prices also dropped sharply due to unfavorable product mix, inventory liquidation at the Georgia warehouse ahead of its closure. For the six-month period, net sales fell $21,200,000 or 37.2%. Gross profit decreased $4,900,000 in the second quarter, primarily due to lower net sales. Gross margin decreased driven by unfavorable customer and product mix, higher warehousing consolidation expenses, severance costs, and losses from inventory liquidation at the Georgia warehouse. For the six-month period, gross profit decreased $5,600,000 while gross margin contracted 590 basis points. Home Meridian incurred operating losses of $3,900,000 for the second quarter and $6,800,000 for the first half. Restructuring costs of $1,200,000 and $1,400,000 were recorded for the quarter and the six-month period, respectively. Incoming orders and backlog decreased significantly due to reduced demand from traditional channels and the loss of a major customer due to its bankruptcy. Reduced demand was compounded by fewer orders in the project-based hospitality business. Domestic Upholstery. The domestic upholstery segment's net sales were essentially flat in the second quarter compared to last year. Three divisions in the segment posted sales increases, while the Outdoor brand saw sales fall around 10% due to supply chain disruption in Vietnam and China, which stabilized after quarter end. For the six-month period, segment sales declined $1,000,000 or about 17%. Gross profit for the segment rose $659,000 in the second quarter and $1,200,000 year to date, with margins expanding by 220 and 240 basis points, respectively. Direct material cost remained steady, while labor and indirect cost declined supported by improved absorption from higher sales and increased production capacity. Warehousing and distribution expenses also decreased across most categories, further strengthening profitability. Our domestic upholstery divisions are making strides in operational efficiency. We are focused on improving labor to revenue ratios and early progress is already reflected in stronger performance. Domestic upholstery significantly reduced operating losses by $877,000 or 68% and $1.6 million or 61% compared to the second quarter and first half of last year, respectively. Restructuring costs of $152,000 and $265,000 were recorded for the quarter and six-month period, respectively. Incoming orders in that segment increased by 1.6% with quarter-end backlog increasing by about 7% from the prior year second quarter and year end. I'd like to conclude my remarks with comments on our capital allocation strategy. Over the past year, we reduced debt, strengthened liquidity, and continued returning capital to shareholders through dividends. Supported by the extensive cost-saving measures we've embedded throughout the organization. These efforts are enhancing near-term liquidity and creating a foundation for strategic growth. As of yesterday, the company had approximately $1,900,000 in cash on hand, no outstanding amounts due under its credit facility, with $67,900,000 in available borrowing capacity, net of standby letters of credit. As we progress through the year, our focus will remain on the capital allocation strategies that drive long-term value creation, and balancing our cost initiatives with key growth priorities. Now I'll turn the discussion back to Jeremy for his outlook. Jeremy Hoff: At the beginning and end of the quarter, we saw encouraging momentum in Hooker legacy orders with July orders up 24% year over year at both Hooker Branded and Domestic Upholstery. For the quarter, Hooker Branded orders were up nearly 11% and Domestic Upholstery were up 1.6%. That said, the home furnishings industry continues to face headwinds from low existing home sales, elevated mortgage rates, and persistent inflation, all of which are weighing on consumer confidence and demand. We remain focused on factors within our control, scaling our cost structure for profitability, preparing for the October debut of the Margaritaville Collection, and pursuing growth in hospitality contract and outdoor channels supported by the new Vietnam warehouse. These initiatives position us well to navigate near-term challenges and capitalize on opportunities when the market recovers, creating long-term value for our shareholders. This ends the formal part of our discussion, and at this time, I will turn the call back over to our operator, Olivia, for questions. Operator: Star 11 on your telephone and wait for your name to be announced. To withdraw your questions, simply press star 11 again. Please stand by while we compile the Q&A roster. Now first question coming from the line of Anthony Lebiedzinski with Sidoti. Your line is now open. Anthony Lebiedzinski: Good morning, and thank you for taking the questions. Morning. First, hi. Good morning, Jeremy and Earl. So my first question is what's driving the increased orders or the momentum that you're seeing at Hooker Branded and Domestic Upholstery? Jeremy Hoff: I think there's some subtle macro improvements happening at the retail level. We heard from a lot of our partners that, you know, Labor Day was very good for a lot of our customers. And I think there's some, like I said, somewhat subtle momentum. I don't, you know, no one knows if, you know, that's gonna continue, but it seems to have, you know, been a pretty good push at least that time of the year. Anthony Lebiedzinski: Gotcha. Okay. Yeah. So Labor Day is an important holiday. So was this kind of across the board that you heard this, holiday momentum here, in September, or, or did you see any sort of pockets of, you know, particular strength in some markets versus others? Jeremy Hoff: It really was pretty consistent. We make a habit of talking to as many as we can, you know, across the country to get a read on whether it's regionalized or more of an overall push, and it seemed to be pretty consistent across the board. Anthony Lebiedzinski: Gotcha. Okay. That's definitely encouraging to hear. So you've done a lot with HMI to improve the business. You know, it's still, unfortunately, still your kind of biggest weak spot. So how do we think about just getting that segment back to profitability? I don't know if it's an easy answer for you guys to say, but, I mean, how much annual revenue do you guys need to get that segment to at least breakeven? Jeremy Hoff: I'm gonna generalize because I have to, but, you know, the main driver to getting to short-term profitability, meaning, you know, call it getting to that end of the third quarter when we've said that our cost savings will really be mostly intact, which is, you know, a 25% reduction from fiscal 2025 until the end of the third quarter. That's how much we will have saved in our overall spending. Much of that has come out of the HMI overhead picture. So really, right now, for us, that's a big key to what you're asking. And once we're there, I believe we have really good ways of growing that business too. And that really comes down to a lot of focus on the customers that we drive that business with and really focusing more on what matters to driving the revenue at that company. Anthony Lebiedzinski: Gotcha. Okay. Understood. And I guess, you know, last question, just to clarify some of the restructuring impact. So it looks like it was overall $2,000,000 for the quarter. Just roughly speaking, how much is that cost of goods versus selling and administrative costs in terms of how we think about the impact that had on the quarter? Earl Armstrong: Impact on the quarter, about two-thirds was in COGS and one-third in SG&A roughly. And that would apply for the six-month period as well. Dave Storms: That's very helpful, Earl. Well, thank you very much, and best of luck. Earl Armstrong: Thank you, Anthony. Operator: Thank you. Our next question coming from the line Dave Storms with Stonegate. Your line is now open. Dave Storms: Good morning. Just wanted to start maybe with Margaritaville, you know, great to have that on the horizon. Anything more you can tell us about maybe the logistics remaining before the reveal or any early indicators of interest there? Jeremy Hoff: Sorry. I missed part of your question. Did you say the logistics? Dave Storms: Yeah. Both the logistics to launch remaining and maybe any early indicators of interest before the launch. Jeremy Hoff: You know, it's been a massive undertaking from a product development standpoint. Mainly because we see it as such a large opportunity for the company. So, you know, it's gonna be a significant number of SKUs. It's gonna be a really significant presence in our showroom, this October market for Hooker. Hooker Legacy and really Sunset West as well. So yeah, we're really excited. I'd say it's been an eighteen-month progression as far as when we started this to now and, you know, we've had some really positive early indicators from, you know, our partners that we're close with and talk to frequently about the direction, the name, how much that brand means, and how much, you know, people recognize that it's a really different level for us from a brand perspective than really what we've ever experienced. I mean, Hooker's a good furniture brand, but it's not a consumer brand. And I think that has the potential to be pretty large for us. Dave Storms: Understood. That's very helpful. Thank you. And then I was also hoping to get your thoughts around the price increases. I know you mentioned that you're evaluating pricing on a SKU by SKU basis. Just curious as to when you think you'll maybe have your arms fully around that, or is that gonna be more macro-driven? Jeremy Hoff: I would say that anything additional coming out that stays at the 20% I would say our arms are clear around it at this point, and, you know, we went through the industry went through so many gyrations of costing because, you know, you go back to the pandemic, you had all the ocean freight increases and everything that was so volatile for a pretty significant period of time. And a lot of companies, including us, did what I would call more of a, you know, peanut butter approach, you know, raising overall prices, lowering prices, and that's why on this particular thing, we went back and said, you know, over time, you lose some of your merchandising strategy if you don't really do the exercise SKU by SKU. So we really took that time. It took us a little longer than we usually like to take in these things, but I think, you know, in this situation, right is more important than fast, and we took the time to do what I feel was a great exercise for the company. David Storms: And are you seeing, understanding downstream of that? Or are you seeing any major sticking points for those increases? Jeremy Hoff: We really aren't. You know, our company has a history, particularly on the hooker side of it, of honoring our backlog for our customers. So really, from our standpoint, the timing of increases coming in versus the timing of our price increase settling into our backlog and shipping is always a little off. But, due to the high percentage of what domestic warehouse shipment of that business, it can turn fairly quick compared to a container business overall. Because of the lead times being quicker. So you can turn your backlog quicker, so that's not as big of a factor on the hooker side as it is usually. David Storms: Understood. That's super helpful. One more for me, if I could, more of a modeling question. It was mentioned that you're expecting an additional $2,000,000 in charges in the '26. Is it safe to assume that those are going to be timed in 4Q to coincide with the Savannah warehouse exit? In October? Is there anything else we should maybe be keeping an eye out for there? Earl Armstrong: You're correct. It should be most all related to the closing of that warehouse. David Storms: That's perfect. Thank you for taking my questions, and good luck in the next quarter. Operator: Thank you. And I'm showing no further questions in the queue at this time. I will now turn the call back over to Mr. Hoff for any closing remarks. Jeremy Hoff: I would like to thank everyone on the call for their interest in Hooker Furnishings. We look forward to sharing our fiscal 2026 third quarter results in December. Take care. Operator: Ladies and gentlemen, this concludes today's conference. Thank you for your participation.
Stephen Kelly: Today, I want to walk you through Cirata's results for the first half of our 2025 financial year and share how we're positioning the business for long-term success. I'm pleased to report that in the first half of 2025, Cirata delivered solid growth. Revenue rose to $4.8 million, up from $3.4 million a year ago, an increase of over 40%. Bookings increased to $3.8 million, a 58% year-on-year rise. Importantly, our cash overheads fell to $8.5 million, a sharp reduction from the $11.8 million of last year. This improved efficiency has had a real impact. There is further evidence of operating leverage. Our adjusted EBITDA loss halved, moving from $8.6 million loss last year to a $4 million loss this period. As at the end of June, we held $6.1 million in cash with a further $1.3 million in receivables, giving us the cash plus receivables position of $7.4 million as we move into the second half of the year. So we're encouraged by our progress we've made in reducing costs, focusing the business and strengthening our balance sheet. However, we still have to deliver results and consistent scalable growth with an emphasis on new logos and new customer names. A major driver of the growth and momentum is our data integration business, which is the core focus for Cirata's future. Bookings in this segment reached $3.1 million, up over 200% year-on-year. During the first half, we signed 20 contracts, including our first enterprise-wide license agreement with one of the world's top 20 retailers, a renewal with a top 5 Canadian bank and a new partnership win through our collaboration with Databricks. This first half momentum comes on the heels of our Q4 FY '24 announcement of our contract with a top U.S. bank. Q4 FY '24 and Q1 FY '25 were $3 million bookings quarters, and this level of performance showed some early signs of recovery. However, we need to demonstrate quarterly progress, and this was not the case with the Q2 results where we've expressed our disappointment. Successful sales into highly complex enterprise environments with our Live Data Migrator product is hugely encouraging. LDM Live Data Migrator addresses a real pain point for our customers. However, I'm not satisfied with the speed of execution, particularly as it relates to new customer acquisition. We know we need to execute better, both direct with the customer and working with our partners. We continue to strengthen our strategic partnerships. And in the second quarter, we signed an agreement with Microsoft Azure as part of their storage migration program. This opens up a new channel for bringing our Live Data Migrator product to more enterprise customers worldwide. In addition, we're pleased with our first DMaaS project data migration is with Databricks and a new partner for Cirata. As we exit the first half year, we continue our momentum. In August, we took an important strategic step by completing the divestiture of our DevOps assets to BlueOptima. This transaction will yield up to $3.5 million in cash and importantly, allows us to focus entirely on data integration, where we see the greatest growth potential for the company. The company was subscale to compete effectively with two totally different product sets into two totally different buyer communities. So along with this, we've taken decisive actions to align our cost base with our growth strategy. By the end of the third quarter, we expect our annualized cash overheads to be in the range of $12 million to $13 million, down from $16 million to $17 million earlier in the year and over 70% lower than the peak levels of 2 years ago. I know we still have much to prove, but it's encouraging to see the early operating leverage with increasing revenues with a cost base of less than 1/3 of the peak. The company's challenges have been well documented, and we've been transparent during the rescue and recovery phases. The top priority after hardening the product for enterprise workloads is the go-to-market, GTM as we call it. The company has failed to deliver consistent high-performance sales and marketing execution. Since I've joined pretty much the whole of the go-to-market team has changed. As a result, I'm very pleased to welcome Dominic Arcari as our new Chief Revenue Officer, who is appointed in July. Dominic brings 4 decades of enterprise software experience, and he's already making an impact by strengthening our sales execution in both North America and international markets. Our outlook remains unchanged from the guidance we shared earlier this year. We expect bookings to be weighted towards the second half of the year with strong growth in data integration continuing. We remain confident that with the actions taken, divesting noncore assets, cutting costs and focusing on execution, we will not require further working capital fundraise in FY '25. Our focus is for the data integration business to continue at triple-digit growth. Strategically, we've been working hard on looking at future enterprise data modernization demands. And as a consequence, we're broadening the applications of our live data migrator product, expanding into new use cases for large data modernization. This includes leveraging open table formats like Apache Iceberg and advanced orchestration capability that will serve enterprises undergoing digital transformation to become an AI-centric enterprise in an AI-centric world. This will be covered extensively in some new product announcements in the second half of 2025, which will expand the total addressable market and position Cirata for category leadership in the emerging data orchestration market. To sum up, the first half of FY '25 shows that Cirata is on a path to sustainable growth. Revenues and bookings are growing. Costs are coming down, and our data integration business is gaining momentum in some of the biggest brand name consumer companies in the world. Already, Dominic Arcari is having a positive impact on customer engagement, pipeline build and lead generation. The demand for artificial intelligence and advanced analytics is in creating an unprecedented need for secure, scalable, vendor-neutral data movement. Cirata is uniquely positioned to meet that demand. Finally, I want to thank our shareholders for your continued support, our customers for your trust and commitment and our colleagues for their passion and energy. Together, we are building a stronger, more focused Cirata, one that is set to exit FY '25 on a clear growth trajectory. Thank you. Unknown Executive: So turning to a short Q&A now. Stephen, the first half of '25 is now complete. How is the scorecard looking relative to your plan coming into the year? Stephen Kelly: We had a very strong first quarter. In fact, it was the strongest start for the company since 2019. We're also pleased to land our first enterprise-wide license contract with a major U.K. retailer and our first data migration project through Databricks. But our Q2 performance missed our internal plan. Despite a weak Q2, our first half data integration bookings were up over 200%. I'm also pleased that operating leverage is beginning to become very apparent. We've taken a lot of cost out of the business in the last couple of years, and this is always a challenging process, but we're growing revenues year-on-year on now 1/3 of the cost base. Also, I would add on the subject of leverage that the divestment of DevOps also signals further cost optimization and an important focus on data integration for the whole company. As we exit Q3, we can expect cash overheads to reduce further to between $12 million and $13 million from its current $16 million to $17 million per annum. Unknown Executive: Can you talk a little more about the decision to sell the DevOps assets? Stephen Kelly: Yes. Perhaps the first thing I should say is that we're delighted to find such a good home for the DevOps business and product and the team that supports it. BlueOptima is a first-class company that will continue to support and leverage the DevOps products and customers into their growth plans. Honestly, Cirata was subscale to support 2 different product lines selling into 2 different user profiles. And as we've shared, we completed the strategic review back in 2024. The headlines resulted in the divestment of the DevOps business and the new product innovation into the emerging data orchestration marketplace and more of that to come later in the year. The 2 obvious pluses for Cirata with this divestment are the resulting focus on data integration, which we view as our core growth opportunity and the further rationalization of the operating structure and progress in that part of the business. For the first time in my tenure, we have a company that has an operating structure and a product profile that is aligned with our singular focus on the growth opportunity ahead of us in the data integration marketplace. By divesting our legacy DevOps assets to BlueOptima, we've sharpened our focus on data integration. We've strengthened our balance sheet. We've reduced our running costs and removed any drag on growth. Unknown Executive: Now Stephen, you said in your prepared remarks and disclosures that you're not happy with the speed of execution. Can you expand on that? Stephen Kelly: Yes, I've been unhappy with our ability to source opportunities, accurately qualify and move them through the sales process and pipeline. We've not been doing the sales basics well enough. We need to accelerate the acquisition of new customers. This is now what we're demanding from our internal efforts in the go-to-market team. Key to us, and I think our investors is new logos. This is the land part of the strategy where we must do better. However, we've done a good job of rebuilding trust with our existing customer base and partners. We've demonstrated in the bookings announcements over the last several quarters, the expanding volume of data movement and new use cases with our blue-chip customers. This expand part of the strategy, I think we're showing good progress. So overall, the strategy of land and expand, more to do on land, but doing a reasonable and good job on the expansion with customers. Unknown Executive: Can you talk a little bit more about the go-to-market and the decision to appoint a new CRO? Stephen Kelly: Yes. Dominic Arcari joined the company in July. So it's early days for Dominic. However, he is a seasoned professional with over 40 years' experience in selling into complex enterprise environments and has held a number of leadership roles over that time. We were failing, as I said, to do the sales basics consistently and well. Now I've known Dom for close to 30 years, and I feel fortunate to have been able to persuade him to join us on what he and I believe to be an exciting opportunity. Dom will continue to develop the go-to-market function and have sole day-to-day responsibility for its execution from lead generation to pipeline build to closing contracts with customers. We can expect at the margin, our investments will be going into sales and marketing as we scale and grow the business. So lots of new energy, focus and importantly, experience going into the go-to-market function. Unknown Executive: Now in the last few quarters, you've talked a little bit about product development and new opportunities for Cirata. Can you expand on that? Stephen Kelly: Yes, I'm really proud of the efforts of the product, the engineering and customer success teams over the last couple of years. They've worked really hard to bring the existing Live Data Migrator product to a standard that is enterprise hardened and ready. The environment we sell into are complex, demanding and often mission-critical to our customers. Alongside this effort on our core data integration product, we have been planning for a growth future that addresses something we've referred to as data orchestration. More to come on that in the second half. In addition to Live Data Migrator core value proposition, we see opportunities positioning Cirata's product offering into a broader and deeper marketplace for enterprise-wide data orchestration at scale. We'll say more about this in the coming weeks and months, -- and I'm personally very excited by what the team have developed in the labs. So stay tuned. Unknown Executive: So Stephen, what can we expect from the second half of full year '25? Stephen Kelly: Well, as I have alluded to much more detail on product positioning and market opportunity, continued improvement in the operating cost structure and by extension, the sustainability of the business. We will also start to transition the KPI reporting metrics to better reflect the year-on-year improvements in the business as we exit FY '25, including annual contract values and revenues as well as looking at total contract values. This should allow the market and investors to get a better sense of our underlying growth rates and quarterly momentum. With the added KPIs, the growth trends will be clearer. However, our recovery will continue to be lumpy and nonlinear. Our outlook for the full year has not changed since our disclosure on the 9th of January 2025. And then as we said, the year will be back-end loaded. Obviously, I'm always pushing for us to be moving faster in the near term. However, we're making steady progress in product positioning on the cost base and the go-to-market. We've never been more focused or better aligned on the opportunity ahead of us. With the announcement on the product side in the second half of the year, we're very excited about the potential for the business and looking forward to the growth journey ahead.
Operator: Greetings, and welcome to Alliance Entertainment's Fourth Quarter and Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I will now pass the call over to Paul Kuntz, a member of Alliance Entertainment's IR team at RedChip. Paul? Paul Kuntz: Thank you. Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent the company's current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements which reflect the company's opinions only as of the date of this presentation. Please keep in mind that the company is not obligating itself to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Throughout today's discussion, management will attempt to present some important factors relating to the business that may affect predictions. You should also review the company's Form 10-K for a more complete discussion of these factors and other risks, particularly under the heading Risk Factors. During this conference call, management will discuss non-GAAP financial measures, including a discussion of adjusted EBITDA. Management believes non-GAAP disclosures enable investors to better understand Alliance Entertainment's core operating performance. Please refer to the investor presentation for a reconciliation of each non-GAAP measure to the most directly comparable GAAP financial measure. A press release detailing these results crossed the wire this afternoon at 4:01 p.m. Eastern Time and is available in the Investor Relations section of Alliance Entertainment's website at aent.com. Your host today, Jeff Walker, Chief Executive Officer; and Amanda Gnecco, Chief Financial Officer, will present the results of operations for the fourth quarter and fiscal year 2025 ended June 30, 2025. At this time, I will turn the call over to Alliance Entertainment's CEO, Jeff Walker. Jeffrey Walker: Thank you, Paul, and good afternoon, everyone. I'm pleased to welcome you to today's call. Alliance Entertainment is the premier distributor and fulfillment partner at the center of the growing collectibles ecosystem. With over 340,000 SKUs in stock and fulfillment relationships across 35,000 retail storefronts and 200 online platforms, we connect fans to the entertainment properties and pop culture products they collect from vinyl, CDs, DVDs, Blu-ray and collectible SteelBooks, the video games, licensed toys, tabletop games, and stylized vinyl figurines. Our business is built to serve collectors, enthusiasts and retailers alike. We simplify how physical media and collectibles are sold, stocked and shipped, delivering speed, scale and accuracy across B2B and DTC channels. We've built category leadership in film, music and collectibles over the past 2 decades through a series of 15 acquisitions that form the foundation for our capital-light omnichannel fulfillment network. We believe Alliance is uniquely positioned at the intersection of retail, content and fandom. We've aligned our strategy around where the market is and where it's heading, and that clarity is driving stronger margins, improved earnings and long-term value creation. This slide offers a quick snapshot of our performance. Amanda will walk through the full Q4 and fiscal year financials later in the call, but I wanted to briefly highlight a few key metrics that reflect the strength of our business model and the progress we're making. In fiscal 2025, we delivered $15.1 million in net income, a 229% increase from the prior year. Adjusted EBITDA grew 51% to $36.5 million with gross margin improving from 11.7% to 12.5% year-over-year. Our earnings per share rose to $0.30 more than tripling the $0.09 we delivered in fiscal 2024. These results reflect a more profitable product mix, continued automation benefits and disciplined expense management across the business. We also made significant progress on the balance sheet. We reduced revolver debt by 22%, improved inventory alignment and ended the year with $26.8 million in cash flow from operating activities. Our capital-light model, combined with improving working capital efficiency, has enabled us to unlock stronger profitability without sacrificing growth or flexibility. In Q4 alone, we delivered $5.8 million in net income and earnings per share of $0.11, up from just $0.05 in the prior year. Gross margin expanded to 15.8% and adjusted EBITDA margin exceeded 5%, up from 0.9% in the prior year both demonstrating the strength of our product mix, cost structure and operating discipline. We believe these margins are sustainable going forward, and we expect them to hold as we scale into fiscal 2026 and beyond. This momentum is already carrying into the new fiscal year. Consumer demand remains strong, as we head into the holiday season, we have a highly anticipated release from Taylor Swift on October 3, that will be a great start to what should be a very strong second quarter fiscal year 2026. Taken together, our infrastructure, exclusive content partnerships and financial discipline provide a strong foundation for continued scale and profitability. As retailers and licensors seek efficient omnichannel solutions, Alliance is increasingly the partner they trust to meet that demand. We've built a differentiated platform, not just to participate in the collectibles and physical media market, but to lead it. And with the momentum we're carrying into fiscal 2026 we are just getting started. With that, I'll now turn it over to Amanda to walk through our fourth quarter and fiscal year financial results in more detail. Amanda Gnecco: Thanks, Jeff. Let's begin with our fourth quarter results. For the quarter ended June 30, 2025, we generated net revenue of $227.8 million compared to $236.9 million in the fourth quarter of fiscal year 2024. Gross profit increased 34% year-over-year to $36 million with gross margin improving to 15.8%, up from 11.4% in the prior year period. This margin expansion reflects our improved product mix and continued benefits from our operational efficiency initiatives. Profitability improved significantly in the quarter. Net income was $5.8 million or $0.11 per diluted share compared to net income of $2.5 million or $0.05 per share in Q4 last year. That is a 130% increase in net income. Adjusted EBITDA grew nearly fivefold to $12.2 million up from $2.1 million in the prior year period. This improvement was driven by margin gains, automation benefits and disciplined cost management. At the operational level, our automation investments and warehouse consolidation continue to deliver measurable cost savings, helping drive approximately 1% year-over-year reduction in distribution and fulfillment expenses as a percentage of revenue. Overall, our fourth quarter reflects strong execution, meaningful profitability gains and improved efficiency even against a backdrop of modestly lower top line revenue. Now turning to the full fiscal year ended June 30, 2025. We generated $1.06 billion in net revenue compared to $1.1 billion in fiscal year 2024. The modest year-over-year decline primarily reflects product mix shift, partially offset by strong performance in high-margin categories like physical movies and vinyl. Gross profit increased to $132.9 million, up from $128.9 million last year, with gross margin improving to 12.5% compared to 11.7% in fiscal year 2024. Earnings growth was especially strong. Net income rose to $15.1 million or $0.30 per diluted share, more than tripling the $4.6 million or $0.09 per share reported last year, that is a 229% increase. Adjusted EBITDA grew 51% year-over-year to $36.5 million compared to $24.3 million in fiscal year 2024. This underscores the progress we've made in expanding margins and improving operating leverage. We also strengthened our balance sheet and liquidity. Revolver debt was reduced by 22%. Operating expenses declined by more than 10% and interest expense fell nearly 14% year-over-year. These actions, combined with improved working capital discipline enabled us to generate $26.8 million in cash flow from operating activities, further supporting growth investments and financial flexibility. Our ability to deliver stronger earnings, expand margins and improve cash flow even in a flat revenue environment highlights the resilience of our model and discipline of our execution. With that, I'll turn it back to Jeff for closing remarks. Jeffrey Walker: Thanks, Amanda. One of the most important drivers of our performance and our differentiation in the market is our exclusive distribution and licensing strategy. These agreements give us access to unique in-demand products that can't be sourced elsewhere, whether it's a limited edition box set, exclusive label content or collectible formats for major entertainment brands. This will continue to create increased margins and profits in the future. In fiscal 2025, our exclusive partnerships accounted for more than $350 million in revenue or more than 1/3 of our total sales. These deals not only strengthen our supplier relationships, they also create a competitive advantage around our catalog and reinforce our role as a preferred partner for retailers. A great example is our home entertainment license agreement with Paramount Pictures, which went into effect on January 1, 2025. Under this partnership, Alliance is now the exclusive U.S. and Canadian distributor of Paramount's full physical media catalog including DVD, Blu-ray, Ultra HD and SteelBook titles. We are already seeing a meaningful contribution from this relationship, and we believe there's still significant room for growth as we expand placement and assortment across our refill network. With our complete B2B and DTC sales solutions, we can maximize the ability of movie and TV fans to build their video collection. We also continue to serve as the exclusive distributor for a broad range of partners in music and film, including over 150 movie studios and music labels. These include marquee brands as well as rising independence, giving us a diverse and defensible portfolio of content across formats. On the film and television side, the latest season from Paramount's Yellowstone franchise, top the DVD chart on Amazon for multiple weeks after launch, underscoring both the enduring appeal of premium physical media and Alliance's ability to deliver blockbuster content to the market. We also saw early preorders for Mission Impossible Dead Reckoning: The Final Chapter, outpacing prior installments, further highlighting the strength of our pipeline. An exciting recent addition to our exclusive portfolio is our vinyl figure brand Handmade by Robots, which we acquired in December of 2024. In its first 2 full quarters under Alliance, the brand has already launched its first anime collectibles with My Hero Academy, a limited edition Hello Kitty at San Diego Comic-Con and an exclusive Costco campaign featuring mega-size horror icons. Looking ahead, we're preparing for significant new releases in the first half of fiscal 2026, spanning beloved franchises such as DC Comics, Disney, Godzilla, Harry Potter, more Hello Kitty, Jurassic Park, Marvel, Peanuts, Sonic the Hedgehog, SpongeBob SquarePants, Star Trek, Star Wars and Toy Story. These initiatives reinforce our view that Handmade by Robots is well positioned to become a breakout brand in the licensed collectible space. In addition, we strengthened our collectibles portfolio through a new exclusive distribution agreement with Master Replicas, adding premium products from some of the most iconic Sci-Fi properties, including Blade Runner, Dune, Doctor Who, Stargate, Star Trek and Mass Effect. By continuing to add new exclusive partnerships, we are extending our reach across categories and expanding our leadership in high-value fan-driven collectibles. Across film, music and collectibles exclusivity is what sets Alliance apart. And it's a win for all parties. Retailers gain access to unique inventory, content owners tap into our scale and fulfillment expertise and Alliance deepens its leadership across the physical media and collectibles market. In addition to exclusive content, our consumer direct fulfillment model is another key growth and margin driver for Alliance. This model allows our retail partners to offer a vastly expanded online assortment without holding physical inventory, while Alliance fulfills the orders directly to the end consumer. We ship on behalf of major retailers under their brand using our infrastructure, which means we're delivering value to both our partners and their consumers. It's a win for everybody. Retailers reduce inventory risk and expand their digital shelf, consumers get fast, reliable delivery, and Alliance benefits from higher margin revenue with greater fulfillment control and operational efficiency. During fiscal 2025, CDF accounted for 37% of gross revenue, up from 36% in fiscal 2024. That growth reflects broader retailer adoption and rising consumer demand for collectibles and specialty products that aren't often stocked in store. Most importantly, this is a scalable capital-light channel. It allows us to expand SKU count, serve the long tail of consumer demand and drive continued margin expansion, all without significant working capital investments. As retailers accelerate omnichannel and digital-first strategies, we believe our role as a trusted fulfillment partner will only grow stronger and we are continuing to invest in the systems, automation and relationships that make this model even more efficient. Another critical driver of our margin expansion is the efficiency gains we've achieved through automation and warehouse optimization. Over the past 2 years, we've modernized our Kentucky fulfillment hub with advanced systems that increase the throughput, reduce labor intensity and optimize storage. These investments have already delivered millions in annual savings while enabling us to process higher volumes with greater speed and accuracy. In fiscal 2025, automation was a key factor behind the approximate 1% reduction in distribution and fulfillment expense as a percentage of revenue that Amanda highlighted earlier. Just as important, it has given us the flexibility to scale high-growth categories like collectibles and direct-to-consumer fulfillment without adding significant overhead. In the fourth quarter, we also launched a company-wide AI initiative designed to drive both sales expansion and operational efficiency. This program builds on our existing investments in automation with the goal of improving merchandising, demand forecasting and fulfillment speed while lowering costs. Looking forward, technology is not just a cost lever for Alliance, it's a growth enabler. From automation to AI, these initiatives support the scalability of our consumer direct fulfillment channel, enhanced service level for our retail partners and strengthen our ability to capture new opportunities across physical media and collectibles. As demand continues to shift towards specialty products and online channels, our infrastructure is built to handle it with efficiency and margin discipline. To wrap things up, I want to highlight one of the most important drivers, long-term value for Alliance, our disciplined merger and acquisition strategy. We have a proven track record of building scale through acquisitions with 15 completed to date. Each has been aligned with our goal of expanding content, capabilities and margins while reinforcing our leadership in physical media and collectibles. The acquisition of Handmade by Robots is a recent example. In just over 2 quarters, we've expanded its retail footprint and licensing pipeline, laying the groundwork for what we believe will be significant growth ahead. While the early results are encouraging, we're only at the beginning of realizing this brand's potential. Handmade by Robots exemplifies our M&A approach, identifying differentiated assets with passionate fan followings and scaling them efficiently through our platform. Looking ahead, we continue to evaluate a robust pipeline of opportunities, including proprietary brands, licensing partnerships and tuck-in distribution deals. We look at each opportunity with the same disciplined lens, accretion, operational synergy and long-term strategic fit. By focusing on capital-light growth we can leverage our infrastructure and retail relationships to maximize returns. As we move into fiscal 2026, our strategy remains clear. Scale high-margin categories, deep and exclusive content partnerships and strengthen our fulfillment model. With the margin profile we delivered in Q4, including a gross margin of 15.8% and adjusted EBITDA margin above 5%, we're entering the new fiscal year with a performance baseline, we believe, is sustainable. This level of profitability reflects structural advantages in our model and we expect it to carry forward into fiscal 2026 and beyond. This margin enhancement will significantly grow our earnings per share in fiscal 2026 and create lasting value for our shareholders. Before turning it back to the operator, I'd like to thank our employees, customers and partners for their support and execution throughout fiscal 2025. We're proud of the progress we've made and excited about the opportunities ahead. Operator, let's open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Thomas Forte with D.A. Davidson. Thomas Forte: Sure. Thomas Forte from Maxim Group. I have 3. So I'll go one at a time. It sounds like things are progressing really well with the Paramount deal, how should investors think about your ability to sign similar deals with other studios? Jeffrey Walker: This is Jeff Walker, CEO. Welcome to the call there. We are diligently working on that. We see that as a long-term opportunity in the consolidation of physical DVD distribution. So we are definitely looking and working on those conversations. Thomas Forte: Excellent. And then, Jeff, my second question is, I think the answer to this one is that you're not very much impacted, but I did want to ask about tariffs. So how are you impacted by tariffs? And what efforts are you undertaking to mitigate the impact of tariffs? Jeffrey Walker: Yes. We're in a unique space in music and video, where we have really no impact on the tariffs in that aspect of our business. They're very minimal if there are some in there. On the collectibles side of our business, for Handmade by Robots, in particular, we do manufacture in China. So we are incurring the current China tariffs. We've been able to manage that within our cost structures and so forth there. So it hasn't had a major impact on that brand. And then other collectible products that we buy from the manufacturers and wholesalers and such, we are seeing some price increases there on those products. And ultimately, those price increases come to us and they go through to the refill price of the product. And there have been some increases. We don't feel they've been very significant, but they've really impacted the overall consumer demand and sales of those products. So while the pricing on them is going to move up a little bit, we don't see a huge decline in the volume in those products. Thomas Forte: Great. So my last one and thanks for taking my questions. From a capital allocation standpoint, can you talk about your preferences regarding reinvesting in the business, paying down debt, strategic M&A where you have an excellent track record and then potentially buying back your stock? Jeffrey Walker: Well, I'll start with the paying down debt. We operate with a line of credit and asset based line of credit. So every day, all of the cash we've collected for that day sweeps through our line of credit and reduces our line balance and our interest cost there. And so that's why you also see a fairly minimal amount of cash on hand in our financials, that's really the last day of the quarter's cash on hand. From an aspect of buying back stock, we have a pretty small amount of stock out in the market today. So we really have no desire to buy back stock. And I think that the paying cash to the business is generating, we're actively looking at how we deploy that cash into strategic acquisitions as well as some internal investments to help grow the business. So we're really reinvesting our cash at this point. Operator: And there are no further questions for now over the phone. And therefore I hand it over to Paul Kuntz for any questions via the webcast. Paul Kuntz: Thank you. Great. And we actually have had several questions come in already. Our first question how sustainable is the lift you've seen from the Paramount Pictures exclusive license? Do you expect incremental growth in fiscal '26 or was fiscal '25 more of a onetime step-up? Jeffrey Walker: Okay. On Paramount Pictures, our license agreement with started effective January 1, and we ramped that up in the first quarter of calendar 2025. And so we got a partial of the business in that first quarter. The second quarter that we just completed and reported, we had all of the Paramount product sales on the Alliance side there. So as we move into the current quarter that we're in right now as well as calendar Q4, we have not seen the -- we are generating those sales, and we were going to see the impact of that in this year. We will also see a small impact in Q1 of 2026, and then we'll be in Q2 of 2026 will be comping, but we just completed in the last quarter. So it's a huge win for us. And the other thing that we're really focused on, on the last part on the Paramount side is, we're really focused on growing the sales and the sales opportunities there. And all the different channels that we touch from brick-and-mortar to direct-to-consumer and e-commerce to expand those sales from what they were previously. And the one last thing I want to mention on Paramount side. We are pretty excited about the Skydance acquisition of Paramount. That is our initial indications looks like they're going to invest in additional content, theatrical movies and television there. So we do think the slate of products coming through Paramount will be growing in the future. So that's an unexpected win for Alliance on that side as well. Paul Kuntz: And our next question is, the earnings release mentions Walmart selected you as its video category adviser. What does that mean for the company? Jeffrey Walker: Yes, this was a big win for us to be selected by Walmart as the video category adviser. This went live just recently in August 11th. And what it is, is Walmart has a designated category adviser that helps with overall planning in the video category with strategic planning, space planning, everything to do with how that department is going to operate on the video side. And it includes all the studios as far as working together. And we were designated the category adviser. It moved over to us, as I said. And it's an independent group of people on the alliance team that manage that because it's managed on behalf of all the studios. And it was a big honor for us to get that from Walmart that they believed in the capabilities that Alliance has and also the long-term strategy that we share with Walmart with respect to physical movies and TV series were both very long on continuing to stock and support the fans of physical media in the movie category. Paul Kuntz: We have another question that came in. Fantastic results. It seems like your M&A activity is highly curated. Can you share the profile of your current M&A pipeline? And would your current capital structure support such inorganic initiatives? Jeffrey Walker: Well, as most of you know, M&A has -- I think it's -- we've done a lot over the years, it's more of an art, I think, than a science. There's definitely science and mass and those aspects to M&A. But the art aspect is really what fits with putting the 2 companies together. What's the strategies there? What's the willingness of the seller? Is the seller a willing seller or a maybe seller? And there's just a lot of pieces to put together and trying to get an acquisition over the line. I think we've learned over the years that we stay in acquisition conversations ongoingly not just with a lot of different people, but sometimes an acquisition conversation may have started 3 or 4 years ago. And and now is the time for it to happen. And there's different aspects with the sellers and with us trying to match all those things up. I will say that we're actively in a lot of conversations because I think it's -- that's the way that acquisitions work is you really have to be in a lot of conversations at the same time. And but -- and then you're in a position where you can execute on the right one at the right time. We don't want to be in a situation where we have very few opportunities, and we're over chasing a few opportunities. So we have a pretty robust net of conversations happening right now, and we're continuously evaluating them as to what fits for us at each different time and what fits with the seller at that time. Paul Kuntz: Thank you, Jeff. The next question, with the big jump in earnings per share and adjusted EBITDA, can you walk us through how much of that margin expansion is structural versus cyclical or onetime factors? Jeffrey Walker: Yes. They're definitely not onetime factors. It's a structural improvement in the company overall. And it really comes from 2 areas you're seeing the margin enhancement, that part on the gross profit that we're generating. That's coming from different licensing and moving into more higher-margin products there. And then on the other side, we communicated some significant cost savings. And as some of you might know, we exited a big warehouse facility in Minnesota in May of 2024, for that was a big operational savings for us in fiscal 2025. We are exiting this month a smaller facility in Minnesota as well, but it's not going to be as significant of a savings as the large facility was there. So from that perspective, we're seeing an ongoing economies of scale by running through our -- primarily through our Kentucky facility. Paul Kuntz: Thank you, Jeff. And somewhat related to the last question, I guess, you mentioned launching an AI program to boost sales and efficiency. Can you explain in simple terms how AI can help the business? Jeffrey Walker: Yes. As we all know, AI is here to stay, and I firmly believe the companies that focus on it and use that technology to help their business grow and advance the businesses are going to be the winners in the future. And so over the last 6 months, we've really hopped on an AI initiative here at Alliance. And it's coming from several different areas. The first and foremost is really the implementing or using Copilot as our AI internally, we're ultimately a Microsoft house here for most of our products. And we've got over 250 people in the organization on Copilot right now. We've been doing weekly trainings with Copilot and best practices, and we're all learning a lot about that really quickly right now. And I kind of look at it and go, we started this about 6 weeks ago. What they're going to look like a year from now with all of us working on a weekly basis and seeing how each one of us can individually use it in the organization. So I'm pretty bullish about what that's going to look like for us a year from now. And that aspect is really from the standpoint of helping each person do their job more efficiently. We do also have GitHub going for our programming side, that's in place right now. And then one of the big projects we're working on, we're going down the path and we're going to integrate HubSpot for our sales and marketing initiatives. It's an implementation we're in the middle of right now. And it's going to help consolidate our sales functions as well as their AI technology helping us drive sales going forward. And so a big part of our AI initiative is really the power we use in AI to drive sales. And as everybody knows on this call, we have a huge warehouse full of products that consumers want, and it's our job to sell those products through more retailers and to more consumers. And so we're really working to double down on our sales focus right now and help with technology that's going to assist our sales seem to be more efficient and expand our sales opportunities. So that's how we're focused on AI today, and we're -- we have a lot of conversations in the organization. A lot of people, senior leadership people in it. And I will also say that across the board, our entire team is really excited about what this technology can do and how it can help us make the business better. So we're really happy with how our teams really gravitated to it and focused on it. And we're going to see over the course of the next 12 months what the benefits of all that time and energy on AI is going to produce. Paul Kuntz: And another question, you've made progress diversifying into collectibles, but physical media still accounts for the vast majority of sales. How do you balance investing in legacy categories versus building out higher growth, higher-margin segments? Jeffrey Walker: Well, we still see the legacy categories. Vinyl -- we'll start with vinyl in particular. We're still seeing growth on that, we're still seeing demand, we're still seeing unique collectible products. We're working on some unique initiatives in vinyl that will be coming out here shortly. And we see some really good growth in that long-term side, that legacy side. And then with respect to our video, we're definitely seeing growth and video opportunity for us and so forth there. So we're definitely investing in those as well as new initiatives going forward. Paul Kuntz: And what gives you confidence, Handmade by Robots can really break out and become a bigger part of Alliance? Jeffrey Walker: Well, as some of you know, I'm a huge fan of the Handmade by Robots. I love the brand. I love the style of it, and I love the name. It's a very appropriate name right now with robotics and robots being a huge worldwide growth area, and it's a collectible that a robot would make. And that business model, we have a good style and design, a good design style, I guess, you would say, and a good name brand. And the industry that, that is in is in-licensed IP. And we don't create the IP, we don't create the characters, the movie studios, gaming companies, even humans and people are the characters and the IP there. So we definitely see just an unlimited opportunity of new characters and new versions of those characters. And it's a very creative, robust brand and opportunity. We are setting up and queuing up for our first Handmade by Robots booth at New York Comic-Con. So we'll be there with all of our key titles and products that we've got coming out this quarter. And we do see it as a great opportunity. We have a very aggressive growth strategy for the brand and you will continue to see a lot of initiatives coming out of that. I will also say that it is a very strong margin in that licensing brand. We're also developing retail sales from it through the website and so forth. And last thing I want to say is, it's an interesting aspect for Alliance to do this because we get to focus on the design and the characters and the sales of those characters. And we already have a huge warehouse and operational system to manage the product coming in and the product shipping to customers and all of that. So it's a very different situation for Alliance to do it versus somebody to start up and you have to deal with all the back-end aspects of the business. So this is -- when you look at that scale and scope that Alliance has and the ability to bring on a brand like this and scale that brand. We're only scaling the brand. We don't have to scale our warehousing and our operations and all that kind of stuff. That's us already in place and scale for us. So you can see what the opportunity then is when you get a new brand like Handmade and you can focus on licensing, designing characters and selling those characters. That's the part of the business that we have to focus on there. And we don't have to worry about setting up an accounting department, a warehouse and all those other functions that stand-alone business and that would have to do. And so one last piece that also goes towards where we look at in some aspects of acquisitions. Are there other brands and other things that could fit into the model that I just spoke about. So we're super excited about it. We've got a lot of people on the team working on it, and we're definitely seeing the sales come from that. Paul Kuntz: We have like one final question here. You said exclusive partnerships accounted for over 1/3 of revenue. Can you explain why exclusivity is such a big advantage for Alliance? Jeffrey Walker: Yes. a little back story, came up as we started the business as a one-stop and a one-stop is a distributor wholesaler that is buying product from all the manufacturers and then you're selling to all the retailers, and you're in a dog fight with all the other wholesalers that are doing the same thing. And as we move down the road, as alliances move down the road into the different exclusive divisions, then you become the exclusive seller. So when you look at, let's say, Universal Music or Sony Music or Lionsgate video, they are the manufacturers and sellers of that product. So if you want to buy it, you buy it from them. And so fast forward that to Alliance, when we have Alliance Home Entertainment with Paramount product and we have AMPED, our indie distributor on the music side, and all those titles that those divisions sell that everybody wants to buy those titles buys it through Alliance, then you can see how important that aspect is. And I'll even go into the Handmade by Robots, why did we want that? Well, we were selling Funko and other collectibles into retailers and across the board all over the world. And we still do that. We still are a big wholesaler for collectible products. And when we got Handmade by Robots, now we're the exclusive supplier of that. So if a big retailer wants to buy it direct, now they need a vendor right, they need to open a vendor ID for us in their collectible department and so forth there. So it's a really big driver of -- on that exclusivity side. So we're going to continue to focus on that aspect where we can gain exclusivity of products because that opens up all the -- also last part of it opens up all the big accounts. So Amazon, Walmart, Target, Costco and so forth, all the big retailers, they buy direct through the companies that have the exclusive distribution of products. And so those companies and those sales through those big retailers all come through you, and that's the opportunity from the exclusive side. Operator: Thank you. And we have reached the end of the question-and-answer session. And also, this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation. Jeffrey Walker: Thank you, everybody. Thank you.
Operator: Welcome to the African Rainbow Minerals Results for the Financial Year Ended 30 June 2025. Thank you to those of us -- those of you joining us online via LinkedIn and a special thank you to those who have made an effort to be here with us in person. After the presentation, we will go into Q&A. We will start with questions from the floor, and then we will move on to webcast. Please help me in welcoming ARM's Executive Chairman, Dr. Patrice Motsepe. Patrice Motsepe: Thank you so very much. This is going to be a very brief presentation to allow as many questions as possible. I want to thank everybody and the very special thanks to our Nonexecutive Directors, our Chairman of Audit, Tom Boardman. Tom is online? He is online, okay? And our Lead Independent, Dr. Noko and the Chairman of Investments, Bongani, thank you so much, [indiscernible] and the whole of the Board members who are joining us. And also a special thanks to Phillip. Very proud of the good work you're doing and Tsu and Andre, [ Marek, Kajal ], everybody else, I see Johan [Mike ]. Mike is [indiscernible], thank you so much. And to the rest of the management team. We are in an industry that goes through ups and downs and I'm very clear in my expectations. I always want us to be the best at all times because we are judged by our results consistently. And the management feels that they need to give me all sorts of explanations why headline earnings are down because the abnormal impact of -- where is Jacques and Imrhan, yes, you can, good Imrhan and everybody relax [indiscernible] so they -- and Thabang as well, of course, she's doing all the good work. [Indiscernible] Thank you so much. Doing all the good work to engage with our shareholders. And thanks to all the shareholders who are here and everybody else. So it's very, very fundamental for us that despite what the commodity prices are doing, which is something that we don't control and despite what the rand is doing, which as well is something we do not control, we have to consistently, consistently based on results, be very competitive because the results at the end of the day, you are judged by your results And no matter how it justified the explanations because the facts are what are we doing with our volumes, what are we doing with our production, what are we doing with our profitability? And very importantly, what are we doing with our dividends because part of our commitment is to be a consistent dividend payer. And I really want to apologize for the late trading statement because I come from a very conservative background, particularly when you know that there are issues that you want the market to be aware of as quickly and as soon as possible. And do all of these explanations in terms of the discussions relating to Bokoni and there'll be -- we will be going on a roadshow to have detailed questions because I know many of the shareholders say that they prefer to ask some of these questions in a one-on-one, and that's very, very important because we have a huge obligation to, at all times, keep our shareholders and the market informed with what is happening. And sometimes, you have to focus a little bit more on the bad news and get it out. And the bad news being the prices, the prices, I mean, if you look at Bokoni, Bokoni is world-class and Bokoni will make good money for us. And the performances in ARM Ferrous and in the various other commodities that we have, I'm told that Sandra is here, where is Sandra? [indiscernible]. You look as young as you've always done Sandra. I knew Sandra many years ago. I was with Sim a few days ago, and I can't say what Sim said over the phone -- not over the phone, sorry, over the -- in public because Sim was a young smart, loyal [indiscernible], Sim Tshabalala, the CEO of Standard Bank. But good to see you, and thank you so much for coming and passing my regards to everybody at [indiscernible] to [ Patrick ] and [ Des ] and to all our other partners who are here. Thank you so much for your contributions. Now what we usually do is we take questions, and we'll take questions at the end. And the management team will stay behind. And there'll be a roadshow and in the roadshow, some of our big shareholders and some of our smaller shareholders, all shareholders are import, whether you've got 1 share or whether you've got 1 million shares, we've got a fundamental obligation to you. And often the ones who've got 1 share, they need a dividend. And we've got a huge obligation to make sure that they don't have to buy all the share. They can buy many other shares, but we have to consistently give them a convincing reason and try and make them believe based on our track record and what we do that it's good for them to remain being a shareholder. The rest of the team will do a little bit more of a detailed presentation on some of the issues that I will discuss very briefly and the issues that I will discuss broadly, okay? So the headline earnings for this financial year, the past one decreased by 47% to ZAR 2.7 billion, as I said, mainly due to the decrease in the prices of iron ore and the increased cost at Bokoni. And Phillip will give a little bit more details on Bokoni. We declared a dividend of ZAR 6 per share. We are a consistent and committed dividend player. Our financial position remains very good, robust. We've got a net cash of ZAR 6.6 billion. And you will see that, we've had discussions with our partners. There's about ZAR 9.5 billion free cash flow in Assmang and we've been in discussions with our partners to make sure that the dividend is a dividend that's good for them and good for us. And those -- it's good that to have such a strong balance sheet and to have a significant amount of -- the attributable to is ZAR 4.5 billion, more or less, ZAR 4.5 billion as we stand right now, okay. Okay. All right. We go to the next one. And I like it when there are women in the photos. They make the photos look much smarter. And they perform at some of our operations, the best drivers of these big underground trucks the women anyway, good. And you will see that the headline earnings, ARM Ferrous decreased by 31% to ZAR 3.5 billion. ARM Platinum decreased by 42%. Now this is as at the end of June, you saw that the price of PGMs have risen significantly, which is good. So we expect that in terms of -- in the medium term, we expect that the prices will more or less stay in this positive trend. And then ARM Coal went down by 88%. So this is the sort of industry we're in, and there are times when things are very positive and you've got a super cycle and we've got a huge amount of excess cash and you take that cash, this is where the ZAR 6.6 billion comes from. Put it aside for times when there are challenges and when there are challenges, that's when you grow. That's when you make deals and that's when create opportunities for partnerships because when everybody makes money, it's not a good environment. So you have to make sure that the ZAR 6.6 billion as well as the attributable ZAR 4.5 billion at Assmang and our ZAR 6.6 in particular, you keep your powder dry and positioned for growth. We've given everybody a copy of the booklet, so I'm not going to go into greater detail because you can see what is contained in the booklet and just ask whatever questions. Now if you look at our dividends per share, you look at 2022 very well. You look at 2021, 2023, you look at 2024. And then if you go backwards before 2020, you will see this continuous cycle. There are times of good performance and your management has to focus 100%. It's not what we say, it's what we do. And what we do is reflected in our results. And we are unforgiving and unrelenting and uncompromising, [Foreign Language] and of course, [ Alison ] says, why don't I say hi to her, "Hi [Alison ]." So -- and [ Busi ] as well, of course, and everybody else. I always get into trouble, why do you identify others and don't. So you see where the dividends are, and we've kept this policy, this principle that the aim is always to make sure that the second half of the year that we maintain that process of an increase, even though in 2023, the first half was higher than the second half. Dividends received went down by 10% to 4.5% and the dividends received from the investment in Harmony. I'm always surprised when shareholders who've been with us for many, many years, say, yes, but if we -- Dr. Motsepe, if we look at the name Harmony, we see the ARM logo there because those of us who were there in the beginning have a key understanding that Harmony is a merger between ARM Gold and Harmony. And at the time, there were all of these discussions, are we going to call Harmony an ARM Gold or Harmony Gold, ARM Gold as it is. Let's just call it Harmony, but in the logo, leave the ARM. And some shareholders say we want to talk to you about ARM. And then they say, no, no, we have a clear understanding of what the plans are. We're as confident as we've always been. And we've been in this company for many years. We don't just invest in ARM. We invest in various other companies. We understand the mining industry. It's this Harmony that we want your thinking as a partner.. I'm not -- we are not the executive. [Foreign Language] I'm not the executives say Chairman, hold on, ARM and you, in particular, over the last 20 years have provided a huge amount of confidence and stability and a huge amount of the success in Harmony is because of the excellent leadership that has been provided at the Board and the role that the Chairman and various -- so they give us and they give me -- and I can say that a little bit more credit than we deserve because I'm proud of what [ Bayer ] is doing, and I'm proud of what [ Massimulla ] is doing and the team. But as I said -- and thank you, Bongani for the excellent work that you are doing there as well. So Harmony is doing well. And our strategy in relation to Harmony, we said it and it stays the same and we'll continue along those lines. And as I said, you must ask whatever questions you want and our primary concern is at all times to do what's in the best interest of ARM shareholders. Segmental EBITDA split by commodity. It's there for everybody to see significant segmental EBITDA contribution from iron ore. Iron ore is very important. Many, many years ago, we said we want the other minerals and the other portfolio assets we have to significantly contribute to earnings and to growth and to dividends without the Ferrous decreasing. And you saw that there were 2 years where we were laughing with Andre. Andre, when the Platinum was contributing more than -- more than ARM Ferrous. And Andre said, we'll fix that because what is part of the plan. And you will see that we've looked at copper in Canada. We are engaged in discussions in South Africa and worldwide to identify the appropriate opportunities because this is the mining industry. You've got to think 3, 5, 7, 10 years. And the problem with copper, in particular, is that because it's a commodity that is in so much demand, the prices are exorbitant, and you've got to be careful because you can overpay. But we are confident that in the medium to long term, we will continue to grow ARM. And the performance of ARM in the first instance is -- and the assessment is by our shareholders. Just put aside what we are saying, we say what we have to. But what is more important is to hear what the shareholders are saying as well as the investment community and the market. And as I said, what I at times want to focus on is those areas where the market is saying that there are areas of weakness, there are areas where there can be improvements. Those are the things we focus on because it's important for us that we take account of that and consistently show positive results. We may not always agree, but the starting point is to get exposed. And safety and health, critically, critically important. I think I want you just to go into a little bit more detail because we are spending so much time at our operations and you and Mike and the team and Andre, you guys and Thando and Johan do excellent work. Safety is a critical, critical part of our operations. We've got a huge, huge obligation and commitment to every one of the employees that we have the privilege to work with. And we cannot do more than enough to make sure that there's 0 harm and 0 fatalities. Responsible environmental management. We are committed to climate protection and people talk about climate change. Our strategy is we are a responsible company globally that has a huge obligation to nature, to conservation, to the environment. And we do -- in relation to coal, in particular, we fully support this process of the just transition. But we are part of the ICMM, which is the largest and the most successful mining companies in the world. And it's a privilege to be there because I stood there with the top CEOs in the world, and you get exposed to the huge commitment. We have to deliver competitive returns to our shareholders consistently. And side-by-side with that, we've got to be a responsible miner that is aware of the obligations we have to our communities in the first instance, but also to rehabilitation, the areas where our mines are and contribute towards the reduction in global emissions, okay? My apologies. And then the ARM Strategy, we've spoken about that many times in the past. We've own operator. We've got an entrepreneurial management. We invest in our employees. We partner with communities and other stakeholders, critically important. Partly why we've been so successful in Bokoni despite the challenges, why we've been so successful in Modikwa and in various other operations is just the huge amount of trust that we've built with the communities. I will be visiting Khumani next week, Monday, on the 16th or something. I'll be visiting Khumani. I used to spend a lot of time visiting our operations and sometimes the management complained and said, every time you come, the workers demand even more money and the communities demand even more jobs and demand even more tenders. And it just -- please can you just come as little as possible. And then because we meet, we work with all of these communities through the Modikwa Foundation and also through the good work that African Rainbow Minerals is doing through the trust and various other deep, deep obligations and commitments we have to the communities where we operate, but also a deep obligation to the country and the people of this country, okay? I'm now going to ask that we clap hands to our young CEO who's going to come and continue with the operational review. Phillip? Phillip Tobias: Welcome to everyone, those who are attending in person and online. Thank you very much, Chair, and also to our nonexecutive directors in attendance, our joint venture partners, the executive team and the operational management at large. Despite the tough market and operating environment, we were able to achieve the following: Production volumes at our iron ore and manganese operations increased by 3% and 4%, respectively. Underpinned by improved water supply at Khumani, also addressing the critical skills shortage and ore qualities at Black Rock Mine. You'll remember that during the financial year, those were identified as challenges in that mine. And pleased to say we have really got ahead of the action plan to turn that operation around. Despite the facility and excessive rain in the first half of the year at Modikwa, production in the second half increased, resulting in an overall improvement of 1% on the tonnages that were produced. And that really continued to remind us that safety is our license to mine and that a safe mine is a productive and a profitable mine. Over the past 12 months, we have faced numerous challenges, including low commodity prices, a weaker dollar and logistic constraint. Cost containment remains a key focus and progress is reflected in our divisional unit cost performance, basically continue to emphasize about those things that are within our control. Given the volatile PGM market, we took a prudent decision to stop the Early Ounces at Bokoni and suspend the ore and mining and milling at the operation by the end of the financial year, and I will deliver it as we proceed. We remain focused on enhancing quality, making sure that we improve grade, that we basically mine to reserve grade and that we reduce waste and dilution. ARM Ferrous headline earnings were 1% lower, driven by a 15% reduction in the USD price. That was partially offset by 120% increase in headline earnings in the Manganese Division as a result of additional volume performance and also cost control. Higher headline earnings in the Manganese Division were driven by an increase in Manganese ore sales, volumes and also by prices. And then just going back, sorry, on that as well, just talking to the ARM Platinum, the PGM sector basically had losses increased by 42% due to higher operational losses at Bokoni. And I basically mentioned the issue of Early Ounces Project. In the Financial year 2025, Bokoni ramped up its operation. However, it was negatively impacted by operational challenges, higher fixed costs with Early Ounces production and increased mechanized development. What does the Early Ounces production mean? When we took over, we identified an opportunity at the back of the higher PGM basket prices to recommission and restart the 60-kilotonne UG2 concentrator and also to utilize and explore all the raise lines that were actually left hold by previous owners. To that effect, we employed the services of a contracting company because it was going to be a short-term measure. However, because of the shallowness of the ore body, there has been some several challenges that were actually achieved that we actually experienced. I mean, we've had issues of key blocks because of lack of horizontal clamping forces and other operational challenges. I mean, to that effect, a lot of interventions were actually put together to a point of expediting and accelerating the open pit mining. Unfortunately, also there were some other challenges that were experienced in that. And to that effect, we ended up really making a decision to really put a stop on that mining and milling and then focus on the ore reserve development to open up the ore body to at least 120,000 tonnes per month from Middelpunt Hill and to make sure that we set that mine up even as we have already mentioned. On the ARM Coal, the earnings declined by 88%, driven by a reduction in the realized coal price as well as lower sales volumes from GGV and PCB. Just giving color to our headline earnings variance analysis, I mean, if you look at this, what stands out really is almost approximately ZAR 1.6 billion just from the Ferrous division. Had we not really done anything, I mean, the major impact was coming from our lower iron ore prices and also the stronger rand exchange rate. Had we not done anything, I mean, we would have really lost 1.75 just from the dollar price, ZAR 450 million from the exchange rate amounting to ZAR 2.1 billion. But that being the case, the operations basically responded positively by increasing the volumes at Black Rock and also by increasing the sales tonnages and also focusing also on costs. As I said, things that were within and are still within our control. In terms of the EBITDA margin slide, it actually decreased across the board, except in the manganese ore operations where we saw a 4% improvement. Looking at the segment results variance analysis, very evident if you -- when you look at the top left, that impact of price, you can see the positive contribution from the volumes and also a positive contribution as well from others, which spoke to the issues of cost and as I said, increase of volumes as well. Total iron ore sales decreased by 15%, driven by lower offtake at Beeshoek. I mean, all of us will remember that AMSA did announce in October 2024 that they will be shutting down a Newcastle. That is where we had some negative impact in terms of our deliveries on that. The unit cash cost at Black Rock increased by 9% due to inflationary cost increases, higher labor headcount due to filling the key production vacancies because we did talk to the skills shortages previously, so we were really deliberate and intentional in terms of addressing that and also higher run of mine volumes. Just zeroing in on our iron ore business, the Chairman said he will be visiting Khumani. Khumani is still our Tier 1 asset with more than 20 years of life remaining, high grade and low strip ratio with an installed capacity of over 14 million tonnes. World-class safety stats at our Ferrous operations, both Khumani and Beeshoek are 6 years fatal-free. Total iron ore production volumes increased by 3% due to improved water situation. You remember that we did mention that this has been an ongoing thing, but we're pleased to mention that during the second half of the financial year, we didn't experience any water challenges because of measures and actions that we actually put in place. Khumani's mine unit cost increased marginally by 1%. Inflationary increases were offset by lower diesel prices and higher mining production. However, the biggest risk to our iron ore business includes, among others, the short life of Beeshoek because of our local customer. So given that, because we don't have any long-term offtake agreement at this point in time and also due to the status of that, we have actually taken a step to really wind down that business. So that effect, the Section 189 has already been issued, and that will impact a number of colleagues as we wind down that business. With regard to Black Rock, it's a high-grade, low-impurity long-life ore body with an installed capacity of 4.5 million tonnes per annum. Production volumes at Black Rock increased by 4% as a result of addressing the ore quality issues and the requisite skill set. Production was negatively impacted by the stoppage following the fall of ground fatality in April and also that loud message that safety is our license to operate and a safe mine is a productive and profitable. So we are taking the learnings and making sure that we can really turn things around and continue to really maintain that lead that we have really provided within the industry. Local sales volumes were higher due to increased uptake from our local customer. Various cost-saving initiatives are ongoing to ensure that the unit costs are contained. The objective is to make sure that we are in the right quartile of the industry cost curve so that we increase our margins and have sustainable profitability. Total capital expenditure for the Manganese ore operations decreased by 27% due to consistent effort to preserve cash given the low market prices. Reminding you that when we started the financial year, the prices were as high as $9 per dmtu, and we have really seen them really go even below $4 per dmtu.. In terms of the alloys, the high-carbon manganese alloy unit cash cost at Sakura decreased by 12%, mainly due to a 23% increase in iron ore prices -- in manganese prices and a 25% decrease in reductant prices. Cash cost and finances efficiencies were well managed despite the above inflation increases on inputs like your power and input materials. As part of our strategic restructuring, we have made difficult but necessary decisions to address underperforming and loss-making operations by closing Cato Ridge, and most of you would have heard and seen that announcement and disposing of our investment in Sakura as well as recently initiating, as we mentioned, Section 189 on the Beeshoek, dealing decisively with loss-making asset. By strategically disposing of Cato Ridge and Sakura, we avoided additional losses amounting to hundreds of millions for ARM, which would have negatively impacted our profitability and cash flows and we can now focus and allocate corporate resources towards our high potential core assets at our Khumani and Black Rock mines, thereby strengthening our overall financial position and paving the way for the future growth. Production at Cato Ridge ceased at the end of May, employees exited by the end of August. Now we are focusing on selling the final stocks, closure, responsible closure and rehabilitation. By doing so, we are repositioning ARM to be a more agile, profitable and better aligned with our long-term vision for success. And I'm confident that these steps will drive sustainable value for our shareholders and position us strongly for future achievement. Moving into the Platinum business, the U.S. dollar PGM prices recovered towards the latter part of financial year 2025 compared to the prices achieved in financial year 2024. The average prices in 2025 for platinum and rhodium were raised in 6% and 8%, respectively. However, the average palladium price declined by 8% when compared to the previous year. The bucket price was flat with an only 1% increase on year-on-year. Looking at Two Rivers Platinum, the unit cash cost increased by 5% due to marginally lower production, partially offset by cost-saving initiatives. Mining through very high geological disturbed areas called for increased mining on our waste redevelopment meters, thus also adding costs that were not foreseen. Coming down to Modikwa Platinum mine, the unit cash costs were up 3%, mainly due to marginally lower PGM ounces production and partially offset by cost-cutting initiatives. Production volumes were marginally down at both Modikwa at minus 3% and Two Rivers at minus 1% year-on-year comparatively. Capital expenditure decreased by 68% to ZAR 2 billion due to considered effort to preserve cash. And you'll remember that in the previous year, I mean, that was really the year when we made a decision to really stop the Two Rivers and Merensky project and put it on care maintenance. Subsequent to that, we only saw a very small portion of that CapEx coming into 2025. We remain focused on creating mining flexibility, especially for both Two Rivers and Modikwa, making sure that we create an enabling environment. We continue to focus on grade improvement, cost optimization and increased volumes, which will have a positive impact on our unit cash cost. We continue to focus on factors within our control. Maybe just giving an update on Bokoni mine, 4 things that I would really like to cover, just expansate on the superiority of that mineral resource. I mean, this UG2 resource at a grade of 6.18 is the highest and is relatively attractive and also the relatively attractive purchase of concentrate that we have for 23 years is basically the foundation to establish a mining operation with sufficient economies of scale. 60 kilotonnes didn't have that sufficient scale. High fixed cost, low volumes. And as a result, we ended up really being loss-making. So the investment thesis that we have at ARM is on developing a large mechanized mining operation that can unlock economies of scale and deliver competitive ramp per tonne operating costs. In terms of the Early Ounce Project, as I already mentioned, this was approved in 2023. And then with the intent to put it as a precursor towards the bigger picture, we believe that the minimum optimal size for Bokoni is 240,000 tonnes per month, in line with Modikwa, in line with where we started even with Two Rivers. So the disciplined deferral, taking into account the performance of the market and the outlook and also the PGM sector, we actually had to take a decision to defer the full implementation of that 240,000. And as a result, the 60 kilotonnes could not really deliver the economic of scale, resulting in the suspension of mining and milling at the end of the financial year. What are we doing now? We are assessing a phased development strategy, as I said, to open up the ore body, especially at Middelpunt Hill decline, thus setting it up for a phased approach towards the 240 kiloton. An update on Nkomati. We did mention that we have really entered into a sale transaction with our partners. That was actually concluded. All conditions precedent were met by the end of July. And as a result, we are now the sole owners of Nkomati. What does Nkomati bring to the table? It's an only proven nickel resource in South Africa. Its sulfide polymetallic reserve base and established infrastructure provides several relatively low capital-intensive value-enhancing options for ARM, which are currently being considered. And what are we doing at this point in time? We have just wet commissioned the chrome washing plant with an intent to treat the stockpiles amounting to about 500,000 tonnes over the next 12 months, whilst we're basically mitigating the [indiscernible] maintenance costs so that we can reduce the cash calls from the center that every business unit needs to stand on its own feet. Moving on to ARM Coal. GGV's average received export price declined by 8% to $82 a tonne, whilst PCB's average received export price also declined by 12% to USD 75 a tonne. Regarding the next one, with regard to -- due to the decrease in the coal price, trucking was significantly reduced in the financial year 2025 because previous years, we actually had to bring in the trucking but this year, because of the price being where it was, it was actually not economically viable to really truck. So as a result, that decision was made to stop that, and that resulted in the reduction in the export sales volume. On mine unit production costs at GGV increased by 14% as a direct result of the reduced saleable production and reduced capitalization of box cut. Unit price at PCB increased only by 5% as cost-saving initiatives reduced the impact of inflationary cost increases. Our investment in Surge Copper, I mean, we've announced that we took a 15% stake in this high-quality copper deposit, porphyry deposit that has actually molybdenum and silver in it. And the early indications with the progress of the studies where they are now is that Berg has the potential to become a Tier 1 asset, combining competitive C1 cash cost and capital intensity with the advantages of operating in a well-established mining jurisdiction. Given Surge's strong progress on its feasibility study, which remains on track for the completion in 2026, ARM is in the process of increasing its equity stake in Surge to 19.9% and securing a position on the Surge Board and starting to really have the meaningful input in terms of the direction that this project is going to take. ARM will continue to closely monitor progress and evaluate current and future involvement in Surge. In addition to its substantial copper endowment, the Berg project is uniquely positioned to benefit from its polymetallic resource base with significant molybdenum and silver byproducts included in the measured and indicated mineral resources, estimated at 633 million pounds and 150 million ounces, respectively. With positive trends and strong demand outlook for its byproduct, molybdenum and silver, the Berg is expected to realize substantial byproduct credits, which will contribute to industry-leading C1 cash cost when calculated by net of byproduct. The Chairman has already spoken about our strategic investment in Harmony. Harmony is currently in a strong financial position with a net cash balance to pursue its growth ambitions. ARM will continue to evaluate all options relating to its strategic investment in Harmony with the objective of unlocking and creating value for ARM, its shareholders and stakeholders. Many of you would have really seen the announcement of the Harmony collar hedge that we entered into, I mean that ARM implemented a hedging collar transaction involving 18 million shares in Harmony Gold, representing 24% of our equity in Harmony. The collar and related arrangement provide ARM with access to funding in the future of efficient terms if and when required for its strategic objectives while allowing ARM to retain further upside exposure to the Harmony share price up if that are not on the subject to call. The put option has strike price of ZAR 234.85 per share, while the call option is actually at ZAR 562.40 per share. What have we been doing? I mean, when we saw an opportunity to really create value for and unlock value for shareholders, we went into a mode of a share buyback activity. And to that effect, we can confirm that we really bought shares to an amount of ZAR 500 million, thus really reducing 7% of the shares in issue from ZAR 221 million to just approximately ZAR 207 million. The closure of Cato Ridge Works and Alloys, disposal of assets of Assmang and Assmang's interest in Sakura, those are some of the corporate actions that the team has been doing. In closing from my side, just a focus on ARM's key focus areas. What are we doing? I mean, decisive actions on underperforming assets, that including the decision that we have just made on Bokoni. The decision that we have made on Nkomati, exploring alternative options to make sure that there's no call from the -- cash call from the center and both the Cato Ridge and Sakura closure and divestment. Disciplined capital allocation, making sure that we allocate capital based on competitive margins and returns. And if you look at the year-on-year performance on CapEx, you would see that certain prudent decisions were made to make sure that we don't just spend for the sake of spending. Defer capital expenditure where appropriate. And lastly, just making sure that we continue to pursue value-enhancing growth opportunities, and that increase of our stake in Surge is a testament to that. The chrome recovery washing plant, looking at alternative revenue enhancement measures is what we are exploring across all our business. Sustainable value creation for stakeholders and various corporate actions, and we will continue to really explore and exploit any opportunities that will really enhance value and unlock value for our stakeholders. Thank you very much. I'm going to hand over to Tsu. Tsundzukani T. Mhlanga: Thank you, everyone. Chairman has asked that I recognize some of our partners that he didn't also mention before in addition to [indiscernible]. So we just want to formally recognize Sumitomo, Valterra Platinum as well as Implats. Thank you so much for joining us. In Glencore, apologies, in Glencore at our [indiscernible] operations. So when we look at our capital allocation guiding principles, during the year, we prioritized investing in our existing business, and that was in the form of sustaining capital expenditure or what others call stay in business capital expenditure. And we spent approximately across the group on an attributable basis, ZAR 2.4 billion -- ZAR 2.5 billion. And now when we look at our capital allocation, we then actively seek to also grow our existing business in addition to looking after our existing business. And we make sure that we pursue acquisitions that make sense for ARM. So what was different this year compared, I think, to a number of years, I think the last time we did this was back in 2020. As mentioned by Phillip, we completed a share repurchase program where we bought ZAR 500 million worth of ARM shares at an average price of ZAR 154.27. And those shares we subsequently canceled and delisted. So we're always on the lookout for those opportunities and ensuring that we return capital to shareholders, whether in the form of dividends or share buybacks. Now how we look at opportunities when they come across our table. We look at a number of metrics or measures before we decide on which project to pursue. And those include, and this is not an exhaustive list. We look at the payback period. We look at the maturity of the project. Obviously, brownfields are better than greenfields, so that's always prize #1. But then we also look at the return on capital employed as one of the things that are paramount. So I think in terms of capital allocation, and I think Chairman has already mentioned it, I mean, we remain committed to declaring dividends and returning capital to shareholders, which I think we have demonstrated, particularly this year and in prior years, but this year in the form of the ZAR 6 final dividend in addition to the ZAR 4.50 interim dividend as well as the share repurchases that we have completed during the year. This slide just shows how we generated cash and how that cash was allocated during the year ended 30 June 2025. So in terms of the operations, we generated ZAR 45 million, and this was a decrease of 97% compared to the corresponding period. So in F2024, that amount was circa ZAR 1.8 billion and also takes into account an increase in the net working capital of ZAR 1.2 billion. If we look at the next block, you see there are ZAR 4.9 billion in green. So included in that amount, we received ZAR 4.5 billion in dividends from our Assmang business, which is ZAR 500 million lower than the dividends received in the prior corresponding period. During the period, we also received dividends of ZAR 192 million and ZAR 240 million from our investment in ARM Coal and Harmony, respectively. In terms of how we actually applied these funds during the year, so we invested, as I mentioned earlier, into our business in the form of capital expenditure, ZAR 2.7 billion, and that was the largest outflow. However, if you compare it year-on-year, this was a decrease of ZAR 3.6 billion. Now the majority of the spend during the year was for stay-in business capital totaling about ZAR 1.8 billion, with the spend being on mining development and infrastructure on -- infrastructure-related capital expenditure at TRP as well as normal capital expenditure at our other operations. Just another highlight is that in terms of outflow, we paid dividends totaling ZAR 2.6 billion to ARM shareholders during the period, which is 25% lower year-on-year. If we look at our net cash position, total borrowings increased by ZAR 906 million during the period to a balance of just over ZAR 2 billion as at the end of June 2025. The increase was due to a revolving credit facility of ZAR 1.75 billion and term loan of ZAR 1.25 billion taken out by Two Rivers to complete the Merensky project and also to finance other essentials. I think despite that loan funding that was taken out, ARM still has a relatively low interest-bearing debt and closed the year at a net cash to equity position of 11%. And then just to mention that the net cash that we show there of ZAR 6.6 billion excludes the attributable cash sitting at Assmang of ZAR 3.6 billion as at the end of June 2025. So the capital expenditure for the reporting period was covered by Phillip in each of the divisions sections. Some things that you could note. So segmental capital expenditure on an attributable basis was just over ZAR 4 billion, so that ZAR 4,020 million that you see there on the screen for the year under review, which is ZAR 4.5 billion lower than the prior corresponding period. Most of this was spent as follows. So we spent ZAR 2 billion at our ARM Platinum operations, ZAR 1.8 billion at our Ferrous operations and ZAR 275 million at our ARM Coal operations. And just to note that the ARM Ferrous capital expenditure includes capital waste stripping costs of ZAR 848 million on a 100% basis. If we compare that to the prior corresponding period, that amount was ZAR 1.3 billion. Apologies, just forgot something quickly. Just in terms of the guidance for the ensuing years, you'll see that the guidance for F2026 shows a marginal increase of ZAR 173 million, and it now has increased to ZAR 4.5 billion, and that's relative to the ZAR 4.4 billion that we had communicated at the March results. Now CapEx for F2026, '27 and '28 includes approximately ZAR 4 billion of normalized sustaining capital expenditure per annum with capitalized waste stripping costs at our iron ore operations expected to increase to about ZAR 1.5 billion on an attributable basis. Thank you very much. We will then move to questions. Patrice Motsepe: You're going to take over now. There are questions. I think what we should do is take questions from the floor and then we'll give a mic and then we'll take questions and you lead us on the questions, a few things I want to deal. Just give a mic quickly and we'll take questions from -- and take questions from -- can we have questions here quickly? Martin Creamer, who else? And I see another hand there. Okay. Can we write on the questions and deal with them and then I'm going to ask Thabang to lead with the global -- with the questions offline. Martin, can we start with you? Martin Creamer: I just want to refer to decarbonization at this stage. Initially, when you decarbonized with platinum, you built the solar yourself, and that's coming in, in next year. Now that you've looked at it again for ferrous, you are wanting to buy it out. So there's a different approach that you're going to get from IPP. That's my first quick question. The second one I ask is I'd be great if you please provide an update on the narrow-reef boring technology that ARM has planned for Bokoni and also the tunnel boring that proceeds that. And then finally, an update on the research and developing energy-efficient smelting, SmeltDirect technology on which investments have been made in the Machadodorp. Patrice Motsepe: Brilliant, brilliant questions. And you will deal with -- Andre will deal with Machadodorp and Phillip, you and Mike will deal with some of the questions you asked. Just write them down. Okay. Next question. Thank you. Just introduce yourself and which company you're from. Brian Morgan: Brian Morgan from RMB Morgan Stanley. Three questions from my side, if I may. Just on Bokoni, could you just give us an update on how much you expect to spend just CapEx or OpEx whatever it is over the next 12 months at Bokoni? And coming to feasibility, you say you come to feasibility in 2026, assuming that's bankable and it's approved, what would we be looking for 2027? Would the CapEx start immediately and the project get going at that point? And then I don't want to get too deep into the retail, but see just on the tax treatment with this impairment, it's a big part of the earnings miss here. So I just want to get an understanding of what actually went on there but I don't really understand it myself. And then sorry, just back to a project question. Merensky, you developed 2 levels of the project, 2 is Merensky. I think you said in the past, you need 5 to get going there. Just an idea of how much CapEx would be required to get Merensky up and going? Patrice Motsepe: Excellent questions. Mike, you will deal -- Mike? Yes, you and Phillip, and I think Johan may want to add as well later on the Bokoni. Tsu, you will deal with the impairments. Brilliant questions, okay? Other question there? Thobela Bixa: Thobela Bixa from Nedbank CIB. Some questions, one on the PGM assets. We see that your guided volumes for Two Rivers and Modikwa continue moving lower over the number of years. Could you just take us through as to what the thinking is behind the lower numbers? And then on the CapEx, so could you just explain as to -- or give us a breakdown because you're no longer spending some CapEx at -- for [indiscernible], but your CapEx still continues to increase. Maybe just give us a breakdown as to what is -- what are some of the cause for the CapEx increase over the years? Patrice Motsepe: Brilliant questions. Phillip, you and Mike and Johan Jansen will deal with some of those questions. I saw another hand here. No other questions on this side? Questions on this side? Sorry. Any other questions? Okay. All right. Okay so Phillip, do we start with you? Have we got a mic with you [indiscernible] you've got you up properly. Phillip Tobias: Thank you very much. Thank you for those questions. Patrice Motsepe: Then later Thabang will help us with the questions online. Phillip Tobias: Thank you very much, Chair. Thank you for those questions. I mean I'll start with the Two Rivers Platinum Merensky question. I mean the question was asked, how much capital basically is still outstanding for us to really ramp up to full production? So when we stopped, we had already developed and opened the ore body up to 3 level of the 5 levels. So we still need to do Level 4 and Level 5. But of the 3 levels, only Level 1 and 2 are currently equipped. And you remember that when we put that mine on care maintenance, we had already done some wet commissioning. So we know that the concentrator basically works. So approximately, it will require about ZAR 2 billion to complete the Merensky project, and that will be spent most probably within a period of about 24 months. And just moving into the question about the PGM guidance that it seems as if there's basically a downward trend. I mean this takes into account the geological challenges that we have experienced at Two Rivers. As we mentioned that there were quite a lot of geological structures that we went through. Phase and flexibility was a challenge, but pleasing to mention that, I mean, we had been able to negotiate beyond the South to fall block, and we have exposed basically half a level included into that. And we've increased our redevelopment with an intent to create and improve the phase length flexibility, especially mining the higher portion of the Speed Riff. So with Modikwa, we have one of the actions that we took was to shut down South 1 shaft because it was loss-making and subsequent to that, we replaced the UG2 production with South 3 open pit mining. And that is basically ramping up to the volumes of about 50,000 tonnes per month, just to make sure that we basically fill up and sweat our installed capacity at Modikwa. So and that will be taking place for the next 6 to 8 years. And maybe I can ask Mike just to talk on the Bokoni CapEx, and then I'll hand over the tax question to Tsu on the impairment. Patrice Motsepe: No, no, no. Mike, I want to be last. And Mike, after Mike, I want to go to Johan Jansen and Thando and then Andre Joubert on the ARM Ferrous and [indiscernible] and then Tsu will be -- will deal with the impairment. Okay, Mike? Unknown Executive: Sure. I can start with Bokoni, but I'd like to go straight back on to [indiscernible], if I may. The Bokoni investment was premised on full mechanization going forward, premised on where we see the price and the outlook, we decided to curtail some of that development and focus really on the primary waste and opening up the ore body. So the capital will go down over the next year relative to what we saw this year, and there were 2 gentlemen that asked that. And most of it will be on the primary waste development. The indications of this year is just over ZAR 1 billion of capital, and that's the type of expenditure we see over the next 3 years. And obviously, that then subject to Board approval on the full feasibility, which we present towards the end of the year. The capital that's gone into the mine is to reestablish the mine from what was historically a Merensky to UG2. We've, in that period yet commissioned a 60-kt plant. We've also built and commissioned the chrome plant. We've also put down a decline shaft right into the ore body to concentrate all the ore from 1 shaft instead of the historic 3 shafts and then to focus as of now on the UG2 development. It's still the preferred grade and the preferred ore body with the preferred returns. We anticipate within the next 3 years to recommission the 60 phase up to 120 and ultimately phase back to 240. I think that really covers the Bokoni issue. Martin, if I can come back to you on the narrow-reef cutting and come back to you on the tunnel boarding. So the test work on surface, all the trials have gone through rigorous processes of surface cutting, various grade densities and hardnesses on concrete slabs, performing exceptionally well. In the meanwhile, we've gone ahead and reestablished a complete new site for the underground trials. That's far advanced. The site establishment is done. The portals are ready. We're busy taking up electric cables. We will start commissioning mid-November. And by March, we'll be very well advanced with the cutting that's the tunnel boarding. And in March, the narrow-reef cutting follows through in March, and then we will probably go for a final commercialization or commercial decision by June next year. But it's going exceptionally well. It's meeting and beating all of our expectations. So I'm very confident that we'll deliver on those 2. Thanks, Martin. Patrice Motsepe: Thank you. I think let's go to Andre. Andre Joubert? André Joubert: Martin, thank you for that question. I think on the -- I'm going to start on the ARM Ferrous or [indiscernible] side in terms of the solar process, where we completed a bankable feasibility study to build our own solar plant at our operations. But there's still too many questions to answer about the potential legislation and how Eskom is going to react now that everybody is building their own site, which I mean to be fair to Eskom can only supply electricity during the day and then Eskom is going to still supply the power during the night. So in that transition phase, there's still uncertainty how Eskom is going to change their tariffs. And because of that, we decided to delay the installation of our self-built solar plant. And the IPPs have also come up now -- come forward to shorter-term contract. You don't have to enter into 20-year contracts with them anymore. So you can do like a 3-year contract or a 5-year contract. And that's what we're going to do. So basically to [indiscernible] time, literally to [indiscernible] time while still saving on our electricity costs and reducing our carbon emissions so that we have more clarity on the legislation and the tariff structure of Eskom into the future. So that's why we did what we did in that regard. In terms of the SmeltDirect Technology, I just -- if I may correct you in the public forum, it's not R&D anymore. So we've gone way beyond that phase now. And we've actually completed the full unbankable feasibility study on making ferrochrome at [indiscernible] Gold works. And at this stage, we are engaging with various partners in terms of partnering with us in terms of commissioning such a new plant or commercializing our new technology, which saves for everybody who don't know, which saves more than 70% of electricity consumption if you want to produce the same amount of ferrochrome alloys. And it also reduces your carbon emissions by about 60%. So it's really -- and it puts you on the bottom of the cost curve. So we're doing a lot of work. We're engaging with other chrome producers. We're engaging with the IDC and also with the various parties abroad in terms of commercializing this technology. But it's going to take quite a lot of effort because, I mean, you've read in the newspapers, chrome smelters are now shutting down one after the other. We ourselves has cut our ferromanganese production, the last person left site at the end of August. So I think there's going to be a huge level of cooperation from an industry level and from government level that we can revigorate industrialization and smelting in South Africa. And another positive thing that we picked up from this research that we've done is that there's also a very good application for this technology in terms of producing green steel, and we are even engaging with major steel producers at this point in time to advance that process. So it's very encouraging, and we're making very good process, but not ready to announce a project at this stage. Thank you. Patrice Motsepe: Thank you. For some weired reason, I thought Thando is still actively involved in Modikwa, so as -- Johan can you deal with those platinum issue and Thando will comment on the excellent work that he's doing in Thando. Thando, you'll talk after Johan Jansen [indiscernible] coal, and Nkomati as well. Johan? Johan Jansen: TThank you, Chair. Good afternoon. In I can start with Bokoni. Previous speakers rightfully mentioned that Bokoni is an exceptional ore body. You're looking at grades in the region of 2 grams per tonne higher than the other operations in the area. Now what we've done is Mike mentioned, we stopped the mechanized development. We moved that equipment across to the conventional development. And with the development that had been done on the conventional section before our purchase of Bokoni, we really moved directly into starting, physically doing development. We've been at it for the past 2 months. And I'm pleased to say that we have a good team on the ground and that we are achieving the development advance rates that we're planning. In addition to that, we've also put down a new decline system, the decline cluster, which we call Cliphut. Cliphut is in close proximity of where we are currently developing. And one of the constraints that had been in the UG2 mining section was the fact that the conveyor belt going to surface through the existing tunnels had been limited to about 60,000 tonnes a month. Now equipping Cliphut with a conveyor will give us the capacity to do 240,000 tonnes a month. There's also a drive through towards the eastern side, so we can very quickly start up a second cluster of declines. I'm not going to share firm numbers. We're still busy with the feasibility study, but initial indications are really very positive for the future of Bokoni. Looking at Modikwa, you are correct in observing that the volumes has dropped. We've fixed it. We started up the Merensky project. Now Merensky typically does not come with the same grade as UG2, but we've put in a lot of effort to reduce the sloping heights in the Borden pillar section. We've also introduced conventional proves, which is giving us a much higher grade in the Merensky section. So we're doing about 50,000 tonnes a month from the Merensky section at very good cost. Then we opened up the open cost section, open pit mining, initially closer to the mine on the -- just on the southern side of the mine. We've recently moved to South 3, where we've got a huge reserve that would probably last us for about 8 years, going only to a depth of about 50 meters. That will increase, but we're looking at fairly good grades and the recoveries is also good. So the open cast works for us. Two Rivers, we had challenges with geological intrusions. We've put 3 additional crews in at Two Rivers, had been doing redevelopment for about a year, and we're also now starting to see the impact of the redevelopment at Two Rivers. So I'm very positive about improvement in the ounces from both Two Rivers and Modikwa and delivering a successful feasibility study at Bokoni. Thank you, Chair. Patrice Motsepe: Thank you. Thando? Thando Mkatshana: Thank you, Chair. I think the questions related to coal on Nkomati haven't come up yet. Yes, absolute. We will wait for those questions to come if there are any. Patrice Motsepe: And how are things going at Nkomati? Thando Mkatshana: Yes. To an extent that Phillip has covered in his presentation Nkomati, we're really quite pleased that now we've got full control of that asset. It simplifies decision-making and the strategic direction. At this stage, while we're finalizing some of the options, we've already recommissioned the chrome plant, chrome washing plant, which we're going to treat stockpiles. As Phillip highlighted, we've got 500,000 tonnes of stock sitting there. The production coming out of that will be in the range of 6,000 to 7,000 tonnes a month of chrome. And given the fact that it is coming from the stockpile, it will be a very low-cost production. We are forecasting in the range of about ZAR 180 to ZAR 200 per feet ton, giving us about 700 ton, just under 900 tonnes of chrome produced. So those are the numbers that we are looking for at this point. Obviously, when we finalize our feasibility and the options that we are looking at, we'll be able to give more color to the market. Patrice Motsepe: Thank you so much. I'm trying to quickly go to closure, take those questions. And of course, two is still coming. And because I've been getting some notes that some of the people here want to ask more one-on-one questions when the media briefing has ended. And the whole team will stay behind for as long as required. And then thereafter, I think Phillip and others will go to the questions on TV and other broadcast. Tsu? Tsundzukani T. Mhlanga: Thank you very much, Chair. So I think just to address Brian's question on the Bokoni impairment. So you asked on the tax impact. So there was no tax impact on the Bokoni impairment loss. And the reason being is that Bokoni hasn't had tax expenses due to it being in a loss position. We do, however, have a deferred tax asset related to Bokoni and it arose on acquisition where we recognize some of the taxable benefits that were residing within Bokoni when we bought or when we acquired Bokoni. In terms of that deferred tax asset, we expect to utilize it over the short-to-medium term. So we're looking at a period of circa 5 years in order to realize that. Patrice Motsepe: Thank you. And if you want further information, Tsu will be around. How many questions have you got Thabang? Yes. Okay. Because I want to take as much as we can, deal with it and close the media. And as I said, you and the team will be meeting and you stay behind and deal with any private and direct questions that may require further information. Please proceed, Thabang. Thabang Thlaku: Thanks, Chairman. So the first question we have on the webcast is from Shilan Modi from HSBC. He's asking regarding PGM prices, where do you think is the incentive price in rand per 4E ounce? Patrice Motsepe: The incentive price? Thabang Thlaku: Correct, Chairman. Patrice Motsepe: Incentive price. Thabang Thlaku: That's correct. Patrice Motsepe: I don't know what that means. But anyway, yes, I assume it means the price at which it makes sense for us to continue. Thabang Thlaku: To invest. Patrice Motsepe: Exactly. Thabang Thlaku: Correct. So the incentive price to sustain old shaft? And where do you think that incentive price is for new projects? His second question is... Patrice Motsepe: So Phillip, you will take the first one. Thank you. Thabang Thlaku: The second question is, given your ambition to build a large Bokoni mine, what returns would you anticipate from the project at spot PGM prices? Given that we are still in DFS, I think we will be able to come back to the market later once we've got the results from that? Patrice Motsepe: Very good question. Mike, you will take that? Mike, did you hear that question? Unknown Executive: I did not. Patrice Motsepe: He didn't. For Mike, can you just repeat that, please? Thabang Thlaku: The question is, Mike, given your ambition to build a large Bokoni mine, what returns would you anticipate at current spot prices? Unknown Executive: Now that sound came so nicely. Patrice Motsepe: Let's keep it on. We want the good things to continue, please. What other question have we got? Thabang Thlaku: We've got 2 questions from Warren Riley from Bateleur Capital. He's saying, please update us on the Two Rivers Merensky project. What production will be targeted? So I think questions around CapEx have already been asked, but he's asking about production, unit costs and cash margins. And his second question is, what options are there around Beeshoek? Can in time -- sorry, in time, can you export Beeshoek output as [indiscernible] turns around Patrice Motsepe: Okay. So you will take the Beeshoek. Andre and then Mike, you will, Mike because they are related, you will deal with his first question, okay? Thabang Thlaku: And then Chairman... Patrice Motsepe: Phillip, you can add on to that, yes. Thabang Thlaku: We've got a question from David Fraser at Peregrine Capital. At spot prices, it appears that coal must be close to being loss-making. What action are you taking to avoid cash burn in this business? Patrice Motsepe: Okay. Thando? Thabang Thlaku: And then a question again from Shilan Modi. Do you still think Bokoni would be a second quartile producer on the cost curve? And would this mean that it would be in the third quartile after accounting for the POC agreement? Chairman, that's it for now. Patrice Motsepe: Thank you. So that's it because we're going to close that, okay? And we'll deal with -- and all the questions that they have, they can contact Thabang and as always, and we'll answer them. Can we start with you, Phillip? Phillip Tobias: Thank you very much for the question. The question that was asked was the incentive price for the breakeven. I mean for the old shaft or old operations, the PGM basket price of ZAR 850,000 per kilogram, it's basically what we require, which is about -- works out to about ZAR 22,000 per ounce. And that is basically inclusive of your stay in business capital as well. And to go to major CapEx, you would want at least an incentive price that is 30% higher than that at about ZAR 1.1 million per kilo. And you remember that when we made a Bokoni investment decision, the prices were actually hovering around ZAR 1.1 million, ZAR 1.2 million per kilogram. And then the question was asked about Two Rivers to say what sort of production profile are we looking at? You remember that the Two Rivers Merensky project, it's a 200,000 tonnes per month project. That is going to be a step change to increase the production from current installed capacity of 320,000 tonnes per month to 500,000 to 520,000 tonnes. And the rationality, remember that we had transitioned to a split reef, which is actually lower than the original reef that was mined. So it's going to basically be transformed into high-volume, a high-margin asset to really dilute your overhead fixed cost and make sure that it remains in the cost in the second quartile of the industry cost curve. The question is asked about Bokoni. Is Bokoni going to be a second quartile of that? The studies are currently underway. Our investment thesis is we want all our assets to be in the second quartile of the industry cost curve. And with that, it's going to enable us to weather all the storms that comes our way. I mean we've just been through a tsunami now in the past 2 years on the PGM. So we want our operations to still have a margin even when the prices go down. So the studies the options that will really be evaluated and assessed, we'll have to make sure that we do that. And new technology -- appropriate new technology is also being considered as Mike has already alluded to that, and we'll come back at the right time. Patrice Motsepe: Mike? Unknown Executive: Yes. I think Phillip actually addressed the questions you've asked me too, but I want to make just a comment. There was a gentleman that asked it appears on our PGM outlook that we actually continue to go down. And whilst that is reflective, remember, those numbers are only based on what has been approved, budget approved numbers without the work that's been done. Subsequent to this report, we've already got approval to continue expanding on the Modikwa and getting that and Johan's elaborated on that. And Two Rivers, Phillip just elaborated on what's going to happen. It is obviously subject to Two Rivers Board, and that is imminent with our partners. There's absolutely no reason why we won't beat the forecast this year and going forward is to improve the outlook of the PGMs, and I exclude Bokoni out of that. Definitely, Phillip made a call, when we looked at Two Rivers Merensky at the time and put it on impairment, we went in with assessed prices of about ZAR 750,000 per K and today, the Merensky is touching on ZAR 900,000. And on the UG2 Bokoni, that -- all that feasibility work was done and approved at ZAR 240,000 on ZAR 740,000 per K and it's over ZAR 850,000. And I'm talking realized price. So it may not be the number you're looking at, Brian, but these are realized prices that we work with. So the current outlook is very, very positive. And there's absolutely no reason combined with some of the technology that we are putting in place, which I've touched with Martin that we can't see that even in an environment when there's no absolute long-term certainty of our PGMs, we will reposition our businesses below the 50th percentile and stay very relevant into the future. Unknown Executive: Thank you, Chair. Yes, no, it is correct really that the current prices of coal do put pressure on the operations. However, I think one thing that perhaps today, we haven't touched on is the improved performance of TFR. That gives us a huge opportunity to be able to move and export more volumes, and it will increase our revenue generation. We do have that flexibility at GGV. If you look at the performance of GGV, we dropped the production because of the limited logistic capacity as we stopped tracking. Now with the performance of TFR, we'll be able to move more volumes. Secondly, then at the mines themselves, we are reviewing our capital spend, particularly to preserve cash and as well in terms of looking associated with the increased volumes, looking at areas where we could expedite the increase in the mining, particularly GGV. GGV is sitting quite well, being a low-cost operation. I think it will give us good flexibility in there. Thank you. André Joubert: I'll deal with the Beeshoek matter, and that's very unfortunate and sad. But Beeshoek is -- or let me rather say, and it's in the public domain that AMSA is Beeshoek's only customer. So AMSA made the announcement that they're going to shut down their Newcastle plant and there's some other challenges they have at the Newcastle at the [ Fenabel Park ] plant. So since the 27th of July, we haven't delivered any ore to AMSA and that -- and we're also in the situation that we could not renew our 3-year offtake agreement with AMSA. And because of that, we cannot continue with our operations at Beeshoek and as was said previously, we initiated very sadly Section 189 process, which during this last month. And of course, we looked at various other options. But unfortunately, with Transnet and the export capacity of Transnet, if you looked at our forecast for iron ore exports, you will see that next year -- this year that we're in now, we went from 12.3 million tonnes to 12 million tonnes. So we cut back even what we had by 300,000 tonnes. And that's because Transnet is going to do 2 periods of where they stop the line and they do the maintenance work during those periods. The first period is now going to be in October and the next period will be early next year. So typically, there's a 10-day shutdown period. Now it's going to be double that, and that is impacting our output. So there is -- so Khumani Mine, which is actually a 14 million tonne mine is already reduced to 12 million tonnes. So there's no ways that we can take additional volume through from Beeshoek. So we are exploring various options. But unfortunately, none of these options delivered economically viable results. And therefore, we're going to go through the Section 189 process. And as I said, we've started with that process, and it's going to impact the lives and livelihood of about 660 direct employees and about 400 contractors. So -- and that is unfortunately the state of the play at this point in time. Unknown Executive: Thank you, Chair. Chair, what we -- our key priority at this stage on all 3 of the mines is safety, health, sustainability. So there is a very big drive on making certain that people do not get injured in the mine. Secondly, we're building relationships with the communities. So we need to foster that culture of working together to make the success of the mines. Then the focus is on quality of work, excellent operations, achieving the best grades, cost management and quite frankly, we project managed the living daylight out of everything we do. And that's going to give us the results going into the future. And lastly is the enabling fractors, equipping of [indiscernible], extension of conveyor belts, making certain that we put people in a position where they can actually deliver on our commitments. Thank you, Chair. Patrice Motsepe: Okay. Thank you. As we go towards closure, just 2 quick remarks. This press conference has been about ARM, has been about the commitment that we've always had to make sure that African Rainbow Minerals is world-class and globally competitive. And we've always recognized that it's important for African Rainbow Minerals and the mining industry to operate within a country where there's very good partnerships that are built with the communities that are near our mines and with all stakeholders and essentially with the workers. And the perception of South Africa as a globally competitive investment destination is critically important. We need investors in South Africa to invest in the mining industry, but we also need to persuade, to convince investors outside South Africa to see the mining industry and the mining companies, not just African Rainbow Minerals, but others as well to be competitive investment companies. So why I'm mentioning this because it's very, very important as we go towards closure. I have always recognized my role and the duty I have over many years. I was President of the coming together of Black and White business and part of that was the enormous obligation that I have and those who worked with us to make sure that South Africa as a country is a good place for investment. But at the heart of that was creating jobs, at the heart of that was creating a future, ensuring that there's security, ensuring that -- and security entails we want people to be safe and more importantly, zero tolerance of crime. Now it's easy for people like myself to stand by the sideline and say, those are problems of the government and those who are in power and please don't burden me with those responsibilities. And we've never had any doubt. I've had never any doubt that I have an enormous obligation -- an enormous obligation to the people of this country and to South Africa. And it makes me proud when I meet with some of the top businessmen in the world. I was in New York a few weeks ago, and you meet the CEOs of the largest companies in the world, the largest in the world, and they engage with their government to build an environment that is good for business, but also the proven way to create jobs and to improve the living conditions of people worldwide is to make sure that the private sector finds your country as a good place, a competitive place and an attractive place for investment. Now why do I, towards closure, say some of these things? It's simply because many, many years ago, I get asked all sorts of questions in relation to what my plans are long term. And of course, there's no doubt about what my plans are in relation to the obligations I have in African Rainbow Minerals, and we will continue. That's a huge priority and the various other companies that we have and the good work that's been done via the philanthropy. But I was a bit taken back when and this issue has been raised consistently that I somehow have turned my back against the country. And of course, I'll never turn my back against the country. But I think this is because of people who -- when you go into detail, it relates to something I said many, many years ago. And I was [indiscernible], somebody gave me a seperate [indiscernible]. [indiscernible] quoted on [ 702 ] what I said 20 years ago. 20 years ago, they asked me, are you ever going to get involved in politics? And I said politics are for mad people. Now of course, I can't say that loud. And they asked Tokyo, and I forgotten I said that, but it is correct. What is correct is not that they are mad people, but that I said that because there was a whole lot of issues that were raised. So Tokyo said that I remember many years ago when he was President of [indiscernible] because part of my duty was to bring Black and White together. And we formed -- I was the President of Black business because they came and asked me to be President of [ NASCO ] and President of Black business. And part of the issue was to bring together, unite business, to unite all South Africans. And end the all of these questions. But -- so this issue that I somehow -- and of course, a few years ago, the editors of the major newspapers asked me the same thing. Are you at some stage going to get involved in politics? And my answer was always, in order for me to make my contribution, the enormous contribution, in fact, the enormous duty I have to the people of this country, I don't have to get into politics. But the issues, as I said, I have somehow turned my back and all sorts of things are being used that betrayed, which is not correct. I will continue, as we have in the past, work together with all political parties across the board. We've been privileged as a family to donate to all political parties. And those who criticize and I say to them at times, I will not give you -- you don't need my money. They all don't need my money. But the ones I sometimes say to them jokingly, if you stop criticizing me, I will not give you money at all. And they continue to do what they have to do. This country has got some really exceptional people in business, but also in politics. And we have to support and work together and encourage those who really are committed to building this country. And as I said, I'm so proud of some of the top businessmen and some leaders, some religious leaders, I have the privilege to work with the traditional leaders, the kings who recognize that, of course, everybody has to do what they do in their respective responsibilities, but also to try and unite our people, to try and work together to try and make this country a better place. So as I said, I will continue to engage and to work together and make my humble contributions to all of the people of South Africa. And there's another brother of mine. We need to unite all South Africans from all political parties, of course, within the ANC as well, the ANC is Mandela's party, I grew up in that party and but the fact that I grew up hasn't prevented me from working together and donating to others, and I'll continue to do so. I've got a brother who said that politics is not about football. He is my brother, they're all my brothers. And I'm told [Foreign Language]. So when you say [Foreign Language] it means what he said was correct. It's the truth. And whoever is elected by the ANC, I will support as I have in the past. And as I said, I will work together with all other political parties. And the people of this country are special people. So it's easy to stand by the sideline and say those problems have got nothing to do with me. I will continue. My family is in comfort and we are okay. That's not who we are. That's not how we were brought up. And that's not what we've done over the years, and we will continue in our own humble way to work together with everybody. This country has got exceptional people. And I'm confident that despite all the problems, and there are serious problems, and there are huge problems. But this country has got exceptional people, and we will succeed. Thank you very much, and we'll stay behind and deal with whatever question. Can we clap hands for the people who made their presentation. Thank you. So the team is here, engage, ask all of those individual and private questions that are required. Thank you so much.
Operator: Greetings, and welcome to The Lovesac Company Second Quarter Fiscal 2026 Earnings Call. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Caitlin Churchill, Investor Relations. Thank you. You may begin. Caitlin Churchill: Thank you. Morning, everyone. With me on the call is Shawn Nelson, Chief Executive Officer, Mary Fox, President, and Keith Siegner, Chief Financial Officer. Before we get started, I would like to remind you that some of the information discussed will include forward-looking statements regarding future events and our future financial performance. These include statements about our future expectations, financial projections, and our plans and prospects. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the company's filings with the SEC, which includes today's press release. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them except as required by applicable law. Our discussion today will include non-GAAP financial measures, including EBITDA and adjusted EBITDA. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of the most directly comparable GAAP financial measure to such non-GAAP financial measure has been provided as supplemental financial information in our press release. Now I would like to turn the call over to Shawn Nelson, Chief Executive of The Lovesac Company. Shawn? Shawn Nelson: Good morning, everyone, and thank you for joining us. I'll start today by sharing a high-level overview of our second quarter results, provide an update on our Design for Life product platforms, and touch on our views for the remainder of the year before passing the discussion over to Mary Fox, our President. Mary will discuss our tailored customer acquisition engine and key growth enablers. Finally, Keith Siegner, our CFO, will review our financial results and provide more detail on our Q3 and fiscal 2026 outlook. Turning to our second quarter. Overall, we are pleased to have delivered results in line with or slightly favorable to our expectations across all metrics, representing another quarter of top-line growth driven by our secular growth initiatives across Design for Life product platforms and efficient customer acquisition engines. For the second quarter, total net sales were $160.5 million, reflecting a year-over-year increase of 2.5%. These results reflect market share gains, despite the ongoing headwinds facing our category, which we estimate declined approximately 4% for the comparable period. Total omnichannel comparable net sales increased 0.9% for the quarter, with additional growth coming from new and non-comp touchpoint contributions. Our balance sheet remains very healthy, with inventory levels and net cash providing substantial flexibility to weather tariff distractions, accelerate growth, and enhance returns on capital. This is a very exciting time for The Lovesac Company. While the home category and high-ticket consumer goods in general have been under pressure for years now, with many in our industry waiting for an eventual recovery to the housing market and a normalized furniture replacement cycle, we've been both controlling expenses for efficiency and protecting significant investments in innovation to create meaningful long-term value for all stakeholders. And we've done this while maintaining annual profitability and a very strong balance sheet. In our December 2024 Investor Day presentation, you may recall, we used the analogy of an oak tree to represent the brand that we are focused on building here at The Lovesac Company. Wide, tall, strong, and durable. Currently, the outside world sees only a few of the branches of this tree, namely the sectionals and the sacks, along with a few accessories and ancillary products around the edges. But we promised new branches over the next coming years, some representing entire new rooms of the home. It was then that we unveiled the first new platform launch or brand new branch to this tree, a platform still in the living room, the EverCouch. The new EverCouch is in the midst of its debut with new, fresh advertising support rolling out right now. Mary will speak to our observations and successes with EverCouch in more detail in just a few minutes. But as we refined our strategic roadmap for this pivotal transition from a product-focused company to a true brand, it became clear that we needed to sharpen and focus our position through a brand evolution refresh for The Lovesac Company. This brand evolution work has been going on over this past year in collaboration with a world-class branding and design firm. And it's been fortuitous that our talented new CMO, Heidi Cooley, is fully onboarded now and able to spearhead this effort to its completion. This work has laid a clear and reliable foundation whereon we can build The Lovesac Company into a multifaceted home brand with an organized and prioritized product hierarchy and merchandising strategy. This will not only allow us to confidently extend the brand further but also deeper into the categories where we already have strength in order to compete even more vigorously for market share. To that point, we see many opportunities to rapidly harvest The Lovesac Company brand equity, earning more revenue and margin dollars from existing markets and customers through incremental new product development and channel expansion. We believe this is our fastest and most credible path to more profitable and secular growth in the near term as we strengthen the core at The Lovesac Company. Even before we utilize this broader framework to compete in the new rooms, in pursuit of the more radical growth opportunities that are still more than a year away. This brand evolution work and new product hierarchy has also led us to rethink everything from new product naming to some new products themselves and the channels through which some of these new and even existing products can and should be offered. More to come on that, but, yes, we see significant new channel opportunities, particularly some of the new products that we are close to announcing that are still in the living room space. Meanwhile, to better align with this new product and channel strategy, we have chosen to rename the EverCouch product line to be called Snug by The Lovesac Company. The advertising went live this week with a fresh new look and feel, as you'll likely see on TV and digital platforms over the next few weeks. It suits the product better. As the Snug product line, consisting of the Snug sofa, the Snug loveseat, and the Snug chair, is everything that The Lovesac Company has to offer. It's washable, upgradable, shippable, movable, snugly, and comfortable, but in a bit smaller package that can always fit any space and look forever new. We're excited about its performance to date and its rollout recently expanded to 100 of our physical locations already. We promise to share in more detail the results of our brand evolution work, our product roadmap and hierarchy, and channel strategy over the coming quarters as we bring incremental elements to life. But rest assured, while we are proud to have taken significant market share even in these tough years for the category, remember, we were recently ranked number nineteen on the largest home furnishings retailer list by 3.7% from May through July, with July being the best of the three months. It's too soon to count on July as a bend in the trend since we've seen stronger months arise occasionally in the past year. As such, our baseline for planning purposes remains unchanged from our initial outlook, which is a full-year furniture category that is down mid-single digits. As for net sales, we remain focused on what we can control. Like I said earlier, we aim to leverage our secular growth initiatives to drive growth. We grew in the fiscal first and second quarters, and as Keith will detail later, we forecast growth for the full year even without the category supporting us. Within our original annual net sales guidance. As for profitability, these are very unusual times with the rules changing on us regularly, especially as it pertains to tariffs. Last quarter, we highlighted that barring materially different scenarios, we felt we could cover the potential impact of tariffs, increased competitive discounting, and the Best Buy exit fees with our previous annual guidance. We have numerous tools available to us given our unique model with high product margins, geographic redundancy, and strong vendor relationships. We've made solid progress on mitigation, including select price increases taken early in the fiscal third quarter. However, with incremental worsening in the tariff backdrop and continued pressure on competitive discounting, we have lowered our gross margin range and impacted the bottom line ranges accordingly. Importantly, we have identified additional measures that will benefit gross margins beginning later this year as well as over the coming quarters, which we believe will support the high fifties near 60% level we previously discussed over time. Keith will provide our updated guidance ranges in a few minutes. But in short, we estimate fiscal 2026 to be another solid year of market share gains with absolute growth in a down category. Through selective pricing, tightly managed controllable expenses, and efficiencies in marketing spend, we believe we can expand bottom line profit margins and dollars to the midpoint of the range and end the year with a strong foundation for the future. In conclusion, we are committed to delivering on our objective. Leveraging The Lovesac Company's innovative product offerings, strong consumer relationships, and operational excellence to grow irrespective of the category in the near term while maintaining clarity around long-term thinking and value creation. Our refreshed brand evolution work now unlocks the next phase of execution against our ambition of reaching our goal of 3 million Lovesac households by 2030 and building the most loved home brand in America. And while we aren't sitting around waiting for it, we believe that when the replacement cycle for comfort seating ramps up and housing turnover reaccelerates, which is one day closer than it was yesterday, The Lovesac Company will be ready to capitalize on it immediately. This added revenue growth should drive even more flow through of top-line growth to bottom-line growth and additional margin expansion beyond that that is supported by our secular initiatives. Finally, I want to thank our dedicated team members who worked tirelessly to bring our innovations to market and deliver an exceptional customer experience. Every one of you is helping to reshape the home furnishings industry with products that are designed for life and thereby creating long-term value for all stakeholders. Before I hand it over to Mary, we'd ask everyone on this call for a moment of silence to remember the victims and survivors of the 9/11 attacks, the brave men and women who responded that day, and the families who continue to grieve. We'll do that now. Mary Fox: Thank you, Sean, and good morning, everyone. Building on Sean's overview of our Design for Life and our strong results for quarter two, I'll now focus on our second superpower, our customer acquisition engines that are uniquely tailored to each of our Design for Life platforms as well as our growth enablers that are fueling our momentum. As a reminder, what makes our customer acquisition engines so powerful, a superpower in effect, is our ability to leverage different mixes of brand and performance marketing, digital configurations through lovesac.com, incredible showroom experiences, and efficient partnerships to optimally affect by product platform. Done wisely, we can efficiently generate customer awareness, convert that awareness into customers, and ultimately build long-term relationships and brand love. Starting with brand and performance marketing, Sean shared some initial highlights of our brand evolution work and what's to come. And you'll see a lot more of this work cascade through marketing in coming quarters. That said, we are already beginning to optimize our marketing mix as we build awareness of our brand and excite our customers both with our core Design for Life platform and our new innovations. In quarter two, we leaned into mid-funnel tactics. Encouragingly, traffic and return on ad spend increased versus last year, driven by our refocus on CTV and YouTube, with plans to expand these partnerships in the second half of the year, as well as leveraging answer engine optimization with Google and Microsoft. Our social media and partnerships team did a stellar job in quarter two, keeping love on the forefront of culture spanning all of our product lines. We partnered with influencer and author Eli Rallo to host an on-trend book talk themed event at Bibliotech in New York City. Key editors and influencers attended to experience the Pillow Sac Chair firsthand and listened to a special reading from Eli's upcoming book release, garnering over 227 million earned media impressions and 1.1 million social media impressions from 51 influencers. We also had two amazing partnerships in quarter two. For the final week of the 2025 FIFA Club World Cup, Michelob Ultra and The Lovesac Company popped up at the Pitchside Club in New York City. The Lovesac Lounge was the ultimate comfy spot to watch the matches, complete with Sactionals with StealthTech and custom Michelob Ultra soccer ball-themed sacks and specimens. We then collaborated with Van Leeuwen, a Brooklyn-based ice cream brand, for their national ice cream day campaign that celebrated the tenth anniversary of their best-selling flavor, Honeycomb. We created three limited edition Van Leeuwen ice cream snack cupboards inspired by their fan-favorite flavors, including honeycomb, strawberry, and Sicilian pistachio. This was a 360-degree partnership with PR, influencer, events, organic social, email, SMS coverage, and website placement, and garnered over 40 million total earned impressions. The Lovesac Company's unique positioning combined with activation capability allows us to move quickly at the speed of culture. And in quarter two, we jumped into viral trending topics such as Coldplay Kate, Love Island, and Lububu, which performed two times stronger than our benchmark. Before moving on to our digital configurations, let's spend a minute talking about our most recent innovation, Snug, a massive opportunity for us which puts The Lovesac Company squarely into the $14 billion couch category. This new product line, which features not only stylishly adaptable couches but also loveseat and chair options, was soft-launched in quarter two in 27 showrooms and on lovesac.com with a learning agenda focused on our selling experience. Initial results from the soft launch look promising, and this will build as we've already expanded the number of showrooms in quarter two to 100 and growing. However, beginning earlier this week, and with full rebranding in place, we launched our formal marketing campaign. You'll see many of the brand and performance marketing elements we've already discussed coming to life. It all begins with an engaging campaign leveraging one of the hottest and culturally relevant celebrities, Britney Snow. This is just the beginning of many new ways we plan to effectively build The Lovesac Company into a home brand that is trusted and loved by customers. All informed by the brand evolution work we're completing, and we look forward to sharing more in coming quarters. Second is our digital configurations and how we bring The Lovesac Company to life online. As we launch new product lines, Snug, we continue to invest in optimizing the digital experience. Through our research, we know that customers shop differently for sectionals versus couches and chairs, and our digital team undertook extensive testing of both the website and homepage design. And as a result, we significantly improved the top navigation, implementing a more intuitive design based on furniture shopping behaviors and quicker product finding. Since launch, customers are more engaged, and they're converting at a higher rate with improved bounce rate. All contributing to one of our highest recorded digital customer scores in quarter two. Also continue to advance our customer reengagement center, MyHub, always with a goal of being a frictionless omnichannel experience for new and repeat purchases. In quarter two, over 20% of EverCouch, now Snug transactions, from existing customers. Which further illuminates the opportunity for us to connect with our current customer base as we launch new products. Third is our showroom experience, the physical brand amplifiers of our Design for Life products, and the linchpin of our omnichannel model. In quarter two, following on from the soft launch of Snug in 27 locations and lovesac.com, we continued our expansion of this product line to just over 100 locations at the end of Q2, with a plan to complete the balance of the chain in quarter three. To support this exciting new program, our training and operations team, along with Sean, conducted full-day hands-on training sessions across our key markets. Early results are encouraging, and we've seen customers adopting this new platform even ahead of our national launch campaign. In addition to the updates to performance-based compensation that we shared in quarter one, we've advanced our efforts to provide performance visibility across the field in quarter two through the launch of improved performance dashboards. We're supporting our retail chain through improved visibility into sales and team performance, labor efficiency, and customer experience. We've also launched a digital quote management tool, which not only supports increased quote conversion but also strengthens the omnichannel customer experience through the delivery of consistent quote follow-up and communication nationwide. Finally, complementing our showrooms is our partnership model. As we shared in quarter one, we've continued to evolve our thinking to support our customer acquisition engine, which includes enhancing our focus on more profitable growth and improved customer experiences. This led us to end our Best Buy partnership, we outlined last quarter. I'm pleased to share that we've successfully completed our Best Buy exit on September 2, ahead of plan and under budget. In regard to our Costco partnership in quarter two, we piloted and scaled an enhanced Costco display model that elevates The Lovesac Company experience within a compact footprint. Updates included the addition of StealthTech demonstration capabilities, supported by a new StealthTech video test in two key markets, which is planned to expand to new markets throughout the remainder of the year. The updated tower design optimizes the footprint, creating space for recliner demonstrations and the addition of the Snug chair. These enhancements position us to flex our assortment and deliver enhanced customer experience throughout our Costco roadshow event. When combined, these four elements of our customer acquisition engine create an unmatched customer experience that drives brand love and enables long-term relationships, and we are reinforcing this even further with our customer-facing services. Since our quarter one launch of Love to Buy Love Sac in Texas, our new resale platform has rapidly expanded into five additional states, giving even more customers access to pre-loved products. With additions like the Pillow Sac Chair and StealthTech combination, we're not only expanding our range offering, we've laid the foundation to unlock trading capability for our customers. This will begin with a customer pilot later this year and will ensure a seamless experience before scaling next year. And all of these actions strengthen our value proposition of Design for Life products that are built to last, designed to evolve, and ready to be loved again. Key to us sustaining this long-term profitable growth are our growth enablers, within our supply chain playing a pivotal role. As I shared before, our supply chain is purpose-built for scalability and designed to support new product and platform introduction. Our team has done a terrific job both in transforming our supply chain and also delivering strong progress in mitigating the industry-wide exposure tariff costs as evidenced in the outlook that Keith will share shortly. To address tariff headwinds, we deployed a four-point mitigation plan back in April. And I'm pleased to report strong progress across all fronts. The first is focused on managing costs by working with our long-term vendors for concessions. We've received support from every key vendor enabling us to reduce costs. Second is manufacturing diversification, including the work to further diversify manufacturing away from China with our long-term partners. We remain on track to be mid-teens for China for the full fiscal year but with an exit rate well below that. Third is strategic pricing. And as I shared before, we took some informed price increases. These increases were determined following a deep dive into our overarching competitive price positioning against numerous options in the consideration set for our customers. We feel very comfortable with where and how The Lovesac Company is now positioned. Appropriate for the quality, style, features, and benefits each of our products has to offer. Additionally, the work helped us better understand the elements of our value proposition. We immediately developed and rolled out training and tools throughout the field organization, making it easier for all of our team members to convey to customers the specific value inherent in our Design for Life product platform. And the final initiative for us was cost efficiency. We've achieved and continue to identify cost savings across the business. Lastly, I really want to recognize our team for their swift and strategic execution. Thanks to their efforts, we believe that this four-point plan will mitigate the majority of the current tariff pressures. And with that, I'll now hand over to Keith to share more on our financial performance and outlook. Keith? Keith Siegner: Thanks, Mary. Let's jump right on into a quick review of the second quarter, followed by our outlook for the rest of the fiscal year. As we begin with performance metrics, please note that all references to the second quarter refer to fiscal 2026 unless otherwise noted. Net sales increased $3.9 million or 2.5% to $160.5 million in the second quarter compared to the prior year period. Showroom net sales increased $10.3 million or 10.4% to $109.1 million in the second quarter compared to the prior year period, driven by an increase of 0.9% in omnichannel comparable net sales and the net addition of 16 new showrooms. Internet net sales decreased $1.8 million or 4.1% to $42.5 million in the second quarter compared to the prior year period. Other net sales, which include pop-up shop sales, shop-in-shop sales, open box inventory transactions, and the Loved by Lovesac program, decreased $4.5 million or 33.6% to $9 million in the second quarter compared to the prior year period. The decrease was primarily attributable to the company's decision not to engage in any barter transactions during the current period. By product category, in the second quarter, our SAC net sales increased 4.6%. SAC net sales decreased 22.5%, and our other net sales, which includes decorative pillows, blankets, and accessories, increased 2% over the prior year. Gross margin decreased 260 basis points to 56.4% of net sales in 2026, versus 59% in the prior year period. Primarily driven by increases of 110 basis points in inbound transportation costs, 50 basis points in outbound transportation and warehousing costs, and a decrease of 100 basis points in product margin driven by higher promotional discounts. SG&A expense as a percent of net sales was 40.9% in 2026 versus 47% in the prior year period. The decreased percentage is primarily related to lower professional fees, credit card fees, and other overhead costs, as well as higher net sales. The improved expense leverage compared to our prior guidance reflects tighter expense management as well as lower Best Buy costs during the transition period and to the final exit of the relationship. On that front, during the quarter, we incurred approximately $1.9 million of total nonrecurring expenses related to the exit of our relationship with Best Buy, inclusive of fixed asset impairment, closure, and payroll expenses. Despite this expense, we reported a decrease in selling, general, and administrative expense dollars. This was primarily related to decreases of $2.1 million in professional fees, $500,000 in credit card fees, and $1.7 million in other overhead costs, partially offset by $1.5 million of impairment charges related to the Best Buy partnership termination, and increases of $600,000 in payroll, $500,000 in equity-based compensation, and $100,000 in rent. Rent increased by $100,000 related to a $500,000 increase in rent expense from our net addition of 16 showrooms, partially offset by a $400,000 reduction in percentage rent. We estimate nonrecurring incremental fees associated with the restatement of prior period financials were approximately $400,000 in the second quarter. Advertising and marketing expenses increased $200,000 or 0.7% to $23.5 million for the second quarter compared to the prior year period. Advertising and marketing expenses remained relatively flat at 14.6% of net sales in the second quarter as compared to 14.9% of net sales in the prior year period. Operating loss for the quarter was $8.8 million compared to $8.4 million in the second quarter of last year, driven by the factors we just discussed. Before we turn our attention to net loss, net loss per common share, and adjusted EBITDA, please refer to the terminology reconciliation between each of our adjusted metrics and their most directly comparable GAAP measurement in our earnings release issued earlier this morning. Net loss for the quarter was $6.7 million or negative $0.45 per common share compared to a net loss of $5.9 million or negative $0.38 per common share in the prior year period. During the quarter, we recorded an income tax benefit of $2.1 million as compared to $1.8 million in the prior year period. Adjusted EBITDA for the quarter was $800,000 as compared to $1.5 million in the prior year period. Turning to our balance sheet. We ended the second quarter with a healthy balance sheet to provide substantial flexibility to invest in growth to enhance long-term value creation for shareholders. We reported $34.2 million in cash and cash equivalents while retaining $36 million in committed availability and no borrowings on our credit facility. First, our total merchandise inventory levels are in line with our expectations that we last quarter. We began reducing excess core inventory levels in the second quarter, which helped offset the working capital required for building EverCouch, now Snug, weeks of stock. We feel very good about both the quality and quantity of our inventory and our ability to maintain industry-leading in-stock positions and delivery times. And believe we can end fiscal 2026 with lower dollars of inventory than that held at the end of both the second quarter and at the end of fiscal 2025. Second, nothing has changed in our strategy to allocate excess capital opportunistically. A focus on long-term value creation and enhancing returns on capital. Given significant uncertainty and macro backdrop owing to tariffs and consumer spending in the near term, we did not repurchase any of our common stock during the second quarter. Year to date, we've repurchased $6 million of our common stock outstanding, we have approximately $14.1 million remaining under our existing share repurchase authorization. Please refer to our earnings press release for other details on our second quarter financial performance. So now for our outlook. As Sean mentioned, we experienced modest but not overly material improvement in category trends in the fiscal second quarter, but nothing significant enough for us to alter our assumption in our plans for a 5% full-year category decline. While our new ranges imply improving net sales growth rates in the fiscal fourth quarter, we have many secular tailwinds helping counter the category outlook and providing optimism. These factors range from annualization of fiscal 2025 major product launches, our recent launch of Snug with the marketing program having just launched this week, a broader reboot of our marketing strategies, informed by our brand evolution work that Sean just discussed, growth in physical showrooms, more compelling financing offers through The Lovesac Company credit card, and an easy comparison given missteps during the cyber five holiday period last year. For the full year fiscal 2026, we are tightening our net sales guidance range to reflect 4% to 9% growth for the fiscal year. We are also favorably adjusting our forecast for controllable expenses within SG&A, for efficiencies in marketing. However, while we have made great progress managing the impacts of ever-changing tariffs and, to an extent, competitive discounting pressures, our guidance ranges assume some pressure from gross margins flow through to adjusted EBITDA, net income, and EPS. These will be most pronounced in Q3. We have identified additional measures that we expect will benefit gross margins beginning in Q4 and supporting a path to achieve the high fifties near 60% level we previously discussed over time. Specifically for the full year, we estimate net sales of $710 to $740 million. We expect adjusted EBITDA between $42 million and $55 million. This includes gross margins of 57% to 58%, advertising and marketing of approximately 12%, as a percent of net sales, and SG&A of approximately 40% to 41% as a percent of net sales. We estimate net income to be between $8 and $17 million. We estimate diluted income per common share in the range of $0.52 to $1.05 and approximately 16.3 million estimated diluted weighted average shares outstanding. For the third quarter, we estimate net sales of $151 to $161 million, representing mid-single-digit revenue growth at the midpoint and representative of our near-term plans for tariff mitigation. We expect adjusted EBITDA loss between $1 million and $7 million. This includes gross margins of 56% to 57%. Advertising and marketing of 14%, as a percent of net sales, and SG&A of 47% to 49% as a percent of net sales. We estimate net loss to be between $8 and $12 million, estimate basic loss per common share, to be $0.51 to $0.83, with 14.7 million weighted average shares outstanding. In summary, stabilization of the category and an eventual return to category growth are ahead of us even if that's timing is unclear at the moment. In the meantime, we are balancing prudence and efficiency with our belief that it's essential to stay focused on the big picture. That's the massive long-term opportunity for tremendous value creation for all The Lovesac Company stakeholders. We are building The Lovesac Company brand and investing in new product innovation that spans style, function, and category to support a powerful multiyear secular growth outlook with macro upside exposure as icing on the cake. With that, back to you, operator. Thank you. Operator: At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you'd like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Maria Ripps with Canaccord Genuity. Please proceed with your question. Maria Ripps: Great. Good morning, and thanks for taking my questions. First, so as you undertake your brand evolution sort of refreshed, do you anticipate any changes to the customer acquisition approach or maybe marketing effectiveness here in the near term? Shawn Nelson: Yeah. We have so much happening on the brand and marketing front that, you know, that I think that's gonna be a major theme actually for the next few quarters. We have, as you know, this brand refresh just coming to prime time. We have the Snug campaign that launched this week. And we have a new CMO onboard who's insanely talented and really excited to, you know, be taking those controls. And so I think that you're going to see a lot change in the way that we go to market at The Lovesac Company and the way we deliver our advertising, in the way we communicate. And I think you can already see it reflected in this campaign with Snug, which is, you know, really unique. We've got one of the hottest celebrities out there right now representing this product, aligned with the brand. You know, you'll be seeing Britney Snow on all the social channels. You'll be seeing a lot of really it's not just exciting creative, but you know, a new aesthetic to it. And I guess the cool part is because of the timing of that particular launch, at least forced through a lot of the change in tone. In the way that we go to market and spend our money to reach prime time faster even with Heidi Cooley's, you know, more recent onboarding. So it's all coming together great. And, Mary, I don't know what you might add on customer acquisition and our spend. Mary Fox: No. I think, you know, Maria, you know, Sean said you you'll see it. Hopefully, you got to see the Snug campaign launched earlier this week, and, you know, it's just so critical for us in in terms of kind of the campaign is around showing the couch category that anything they can do we can do better. And I think we're just getting a lot more confident and clear in our messaging around our value proposition, and really how do we find the eyeballs that are, you know, considering, you know, a purchase in their home and and how we get them to see us as the right choice and and to be able to convert them. Meanwhile, we can continue to just build the full funnel as we always have, and you see that in our results in terms of the success of continually, you know, gaining market share. For everything. But every platform we have, we're just very targeted. In how we approach it. As Sean talked about, some of the work under BrandEVO, we, you know, we've built out a very clear product hierarchy. We'll share more with you over time. It's just gonna enable us to be a lot more targeted in terms of how do we maximize, you know, the potential for all of our products, whether it be in all of our showrooms or even honestly, getting a much greater level of velocity, you know, on our website. So it's just been really good work, to really help us be able to pull open the brand in this multifaceted strategy that we have for the home and and know, we'll be delivering over, you know, Sean said, the coming week with all the campaign and then, you know, months and years as we really are building this for the long term. So thank you for the question. Maria Ripps: Got it. That's that's very helpful. And then I wanted to ask about Snug and sort of now that it's the product is launched in more than 100 showrooms, can you maybe help us think about sort of the type of partnerships or distribution partnerships that would would be sort of most complementary for this platform? Shawn Nelson: I think it's too early to speak to any specifics, but let's go to first principles. It's always where I like to start. You know, the reality of Sactionals is that it is a wildly it is the simplest wildly complex product platform you could imagine. Right? Just buy a bunch of seats, buy a bunch of sides, build anything you want. It could be deep. It could be long. You can deep pillows, and and all of a sudden, the platform, you know, has complexity. That is really of course, indicative of its design for of designed for life nature. This is the product to be with you the rest of your life. Snug is much simpler. You still get almost all of The Lovesac Company benefits you're used to. Right? It's washable. It's somewhat changeable. But it doesn't require the intricate demo in-person experience that, for instance, Sactionals has. And this product platform's ability, therefore, to appear perhaps in environments that aren't The Lovesac Company owned and operated and and staffed is apparent. And it's really influenced our thinking about, you know, future products as well. You know, you could imagine future products more analogous to Sactionals that deliver an extremely high design for life ranking that that that require some hand holding and some demonstration. And you can imagine, more products like Snug that represent the brand well, have the best quality, but don't require such intimate demonstration experiences. And so the first and most important channel for Snug is our website. You know, this is this is a beautiful sofa that sits amazingly well, has storage big enough to to fit Britney Snow in it. As you'll see, her climbing inside of it actually in some of the campaigns. Pretty funny. And, but but, represents the brand well, but doesn't you know, necessarily need as much demonstration and whatnot. And so I'm giving you a haphazard description of this product hierarchy that we are not haphazard about. We have now a much clearer picture of how we can deliver sales. And to that end, expand our channel strategy with these products that don't require in-person demos. That's the key to it. And so I'll just leave it at that because it's too soon to announce new partnerships. But we are excited about, both online and offline opportunities with products that can represent the brand in this way. Maria Ripps: Got it. That's, that's very helpful. Thank you both. Operator: Thank you. Our next question comes from the line of Michael Baker with D.A. Davidson. Please proceed with your question. Michael Baker: Okay. Thanks. You talk about a little bit more detail on what has changed in terms of the EBITDA outlook versus a few months ago? You said tariffs, you said promotional activity. Is one of those bigger than the other? And and on tariffs, maybe don't if you can help us with a little more specificity. I thought, you know, sort of tariffs are coming in lower than expected. At one point, you know, we're expecting over a 100% in in China. So so what are the tariffs is worse than expected, and how much of the reduction in guidance is due to the promotional activity? Mary Fox: Hey, Mike. Look, I'll take the tariff piece and then I'll turn back to Keith in terms of the EBITDA outlook. So I think when we last reported back in June, you'll remember the reciprocal rates for many of the key countries that we source from, such as Vietnam, Malaysia, and The were actually sitting at 10%. And then, you know, more recently, they actually it pretty much doubled, with most of at 20 or 19. So I think that's has stepped up. From when we last reported. So that's built in to the guidance that, you know, obviously, Keith shared through. And in the meantime, you know, we just continue to work on moving more products, you know, out of China, which, you know, have the heaviest weight of tariffs, the team have done a good job on that. Some things are a little bit slower. To move out such as some of the technology and and if custom fabrics. So it's just put a bit more waiting for us. But Keith, I'll turn to you for Mike's question on the EBITDA outlook. Keith Siegner: Yes. Thanks, Mary. So and thanks, Mike. It it really is a a gross margin topic, Mike, as you're aware. I think the as you could see through the other line items think we're doing it you know, we're doing a great job managing the controllable expenses, leveraging and gaining efficiencies through the marketing. So let's talk a little bit more about that gross margin piece and also as you look to the year over year deltas in the fourth quarter, we're closing that gap somewhere. We anticipate closing that gap somewhat. Let's talk about that for a second because the pressures are really twofold. It's sort of the perfect storm of the tariffs and to be frank, the requirement that we increase the promotional discounts that we're offering given the competitive backdrop. You know, those the combination of those two things were more punitive to the model in the near term than we had expected last quarter when we gave you the guidance. So let's talk about the fourth quarter step up for a second there in terms of the year over year delta. Look, it's important to note that the fourth quarter lap for us from a gross margin perspective is easier than it was in either the second or third quarter. That's because last year's fourth quarter saw a meaningful step up in our effective discount level we ramped promotions following that tough start to the holiday selling season. This is the largest single driver of the improved year over year delta in Q4 as it compares to Q2 and Q3. The other piece of this is is partially tied also not only just to the change that Mary mentioned in the the in the effective tariffs on a few of countries, but it has to do with our exposure to China sourced goods. It's gonna be lower. We anticipate it's gonna be lower in Q4 than what Q3 or Q2. And that lessens the tariff burden on the P&L. But the price increases we took in Q3 actually remain consistent. So here here's two things that kind of happened. First, it's been harder to get custom and stealth tech manufacturing out China than we originally anticipated. We've made great progress. We have good visibility into it now. But it did take a little longer than we thought last quarter. And the second piece of this is a little bit of what we anticipated from the China sourcing to hit into February moved into 3Q. Which concentrates that effect. It's substantially higher as a percentage of net sales in Q3 than it is in Q4 or Q2. And, again, you you know, that that was a little bit on the timing related to our prior guidance. These are these are very unusual and exogenous factors that we're dealing with here. But, you know, as Sean mentioned earlier and as I mentioned, as well, we've got quite a few plans in place to get us back to those, know, let's call it, like, long term levels over time. That we've discussed in the past. Michael Baker: Okay. Thanks for that color. If I can ask one question of Sean. Sean, I think you had said new new maybe I don't know if you simply call it the new room, but but it sounded like a a big new launch new room potentially. You said at least a year away. That sounds like the end of calendar 2026. Is that I thought it was gonna be sort of earlier in 2026. Maybe maybe I misinterpreted that. But is that new launch, new room, that you have teased, is that being pushed out at all? Shawn Nelson: No. I mean, it's a general comment about these big changes coming in the future. I will say the idea that it would come early in calendar '26 is is not realistic. I think that we do have actually a lot of action between here and the new room if you can believe that. We have a lot of, really exciting things to be announcing over the next few quarters. But as it turn as as we me put it this way. As we look at advancing into the next room, we've been very clear that that's coming. We will be entering that realm in a fulsome way. And that I think is going to be really exciting and and pretty game changing for the brand. And it's not going to be a trickle. And so we still got a little bit of time between here and there. I think that's a decent breadcrumb. But, in the meantime, we also have, lot of really exciting products to launch in the living space that, you're familiar with. So it's a good call out. Michael Baker: Got it. Okay. One more if I could. Any change? I mean, I presume not. We haven't talked about it, but any change in that sort of long term outlook that you guys talked about at your Analyst Day, which which again, requires a pretty big ramp in in in terms of growth beyond 2025. So the 2025, a little bit of a off year and then and then growth in calendar 2026 and 2027. You know, and beyond, a much much greater ramp. Is that still the idea? Shawn Nelson: Yes, Mike. That's still the idea. Look. This year with all the tariffs stuff has been a little bit of a wonky year relative to that plan. Obviously, you know, there was no way to include that into that algorithm, and we're managing through it. And I think we've got good plans to to get through it and then get back on on track. So there's always gonna be a couple little things like that. You you know, it's interesting. When you're at the margin level, we are at particularly at the bottom. You know, little deltas and basis points can make a big big difference at the bottom line EPS. But that's the opportunity here too. And we get through this tariff stuff. We get back on the algorithm. There's tremendous upside at the bottom line with very small changes in basic points and flow through from the top line. So nothing fundamentally has changed on that. Little bit of noise this year because of the distractions, but still feel great about the the long term. Michael Baker: Right. Thank you for the call. Operator: Our next question comes from the line of Eric DeLonier with Craig Hallum Capital Group. Please proceed with your question. Eric DeLonier: I appreciate the commentary you provided on sort of the the puts and takes on the EBITDA revision. Certainly sounds like it's mostly gross margin issue here. Could you expand on the levers you have to pull on expanding gross margins sort of midway through Q4 and into next year? It sounds like you're you're pretty confident, on your ability to do that and would love to just get some more color if you have it. Keith Siegner: Yeah. Great question. So let's first step back for a minute and look at some historical context here because I think it's important for the overall conversation. For a number of years, The Lovesac Company reported gross margins in the low to mid fifties range. However, over the last couple years, we completely rebuilt the inbound logistics program. We implemented automated systems. We found other in operating procedures. In effect, we structurally reset gross margins to the high fifties, near 60 level. Right? And that's kind of what we were discussing in our investor day last year. While our latest full year guidance for this year reflects a range of 57 to 58, so still high in the historical context. It is below the high fifties near 60 level. We have identified measures to get us back on that path just like you talked about. So here's five I'll give you that we think can help. First, the outbound logistics opportunities still remain for us. We've made it through most of the inbound pieces, but now we can optimize warehousing. We can optimize last mile shipping. Test for these things are in the works, they're underway. That's number one. Number two, we continue to work on realignment of our countries of origins to minimize tariff and other costs. That's a much bigger conversation we're happy to get into. We are not done with that effort. There's a lot of opportunities still to work there. Some of which will take a couple years to put in place, but that that's a big part of this. And we're actively pursuing those levers. Number three, we're gonna implement new optional delivery service levels for payment. We also have new return policies and other things that can help us mitigate some of the gross margin pressures. Number four, as part of this brand evolution product hierarchy work, the Sean and Mary have talked about, we're gonna evolve our promotion strategy moving away, as Mary said, from sort of a broad based everything is included promotion, and more toward a variable strategy across products and channels. Right? We're we're this will be coming soon, and I think what that will do is help us in reducing aggregate discount levels, which puts pressure on the gross margin. And it's a big part of that change in EBITDA that I talked about a little while ago for this year. Look. In the last definitely not the least piece of this, is hopefully, when we come out of this you know, category decline and get back to growth or normalization even, the competitive promotional environment settles in and takes some of the pressure off the big tent pole moment. So, like, all of these things, we've got good you know, visibility into action plans that we're gonna be putting into place. So, you you you know, hopefully, that gives you some color. Eric DeLonier: Yeah. No. That that was that was very clear and helpful here. One one kind of follow-up here. You cited the product hierarchy. In that answer there. It was it was come up a couple times, previously in this call. Just just to make sure I understand that here, is is is that sort of the differences that between the Sactional and the Snug? Now, for example, you know, one is sort of a more, you know, complex hands on, requires a lot of demos. The other is is, you know, more simple and, you know, perhaps know, easier to sell online kind of thing. Is is that what you're referring to by product hierarchy, or is there, other aspects of it that I might be missing? Shawn Nelson: That is a I guess, front end outcome of the product hierarchy. We haven't revealed and discussed, like, this overall product hierarchy that I'm kinda talking about. But it's a good representation of of that kind of thinking, and it's been evolving in real time. You know, we we came up with the EverCouch invention in a approach to building beautiful super comfortable, sofas, armchairs, loveseats in a smaller package. You know, a a a while back as we've cooked up the product and whatnot, as the brand's been evolving, we've been going to this brand evo work with the with the outside agency. So as all of this has kinda converged, which you know, manifested itself, for instance, in the name change to Snug, which is a better name for that product line, and it fits within this product hierarchy I'm alluding to. You get that outcome. But the, so we'll we we have we'll have more to share, perhaps even next quarter. About this BrandEVO work what it, you know, what it implicates for the brand, the product hierarchy, etcetera. Again, you're gonna see us already living with it in real time as we launch now. You'll see this change in tone in the advertising and our approach to marketing in general. And it's a just a really, really exciting time for The Lovesac Company, and, frankly, I think it sets us up well further out for these bigger changes that are to come. But in the meantime, as I said, just a few minutes ago, you know, given this new point of view on on products for for new channels, products for the Internet especially, that just don't require so much handholding. You're gonna see a lot of action from The Lovesac Company over the next number of quarters that that we can be really excited about. Eric DeLonier: Great. I appreciate that, that color there, and we'll look forward to that. Last one for me here. Just on the, you know, overall sort of marketing shift here, you know, EverCouch to Snug. It sounds like you know, there'll there'll be some more, you know, overall Lovesac. You know, fully brand wide refreshments here. I'm just wondering, you know, how how long this has been in the works. You know, it seems like this this switch from EverCouch to Snug is somewhat more more recently. I'm wondering if there's any sort of increase in marketing expenses that that you're expecting, you know, over the next quarters or years here to kinda support this? And, I I guess just a bit more color overall on, some of the, timing around this this brand refresh and the overall strategy behind it? Thanks. Shawn Nelson: Yeah. Nothing meaningful in terms of marketing expenses. In fact, we should become more efficient with our marketing. You'll see a lot of tactical changes. Right? Like like, historically, you've seen The Lovesac Company. Evi on linear TV. It was a formula that worked really well for us. I think you'll see a pretty meaningful shift to digital. So it'll be a shift in dollars and whatnot, but nothing we're not, you know, we're not thinking about increases. We feel really good about our marketing spend levels. You can see us controlling our SG&A. And the good news is is that we've made this investment already. This brand refresh is now, you know, almost complete. And we've been absorbing those kinda hard costs. You know, with the agencies and everything required to do this. All along the way. And this is something I'm super proud of at The Lovesac Company. You know, as we've said, a number of times, the past three years have been brutal to the home category. You know, it's been a it's been a really tough time overall, and I think The Lovesac Company weathered it well, not just hunkering down. We are controlling SG&A and whatnot. That's pretty obvious. But we've been investing, and this is just one of. One of the many investments that we've made in you. So you're gonna see the fruits of those labors unfold in real time all the way, you know, through holiday season this year. Well into next year. And like I said, a continued, launch cadence of new products that you you you nailed it. Are really appropriate for online sales especially. And, you know, new representation in in the execution of those advertisements. And everything else. Eric DeLonier: Alright. And I appreciate that color. It's great to hear. Thanks for taking my questions. Operator: Thank you. Our next question comes from the line of Thomas Forte with Maxim Group. Please proceed with your question. Thomas Forte: Great, Shawn, Mary, and Keith. Thanks for taking my questions. One question and one follow-up from me. So, Shawn, as you know, I cover Apple and I had to think about the prospect of an iPhone made in the USA. So how should investors think about the potential for The Lovesac Company made in the USA? Shawn Nelson: Yeah. For anyone following, close enough, you know, this is a passion point for me. It has been for years. I'm sorry that we haven't delivered it sooner. It's but we have not stood still. And the answer is, we are running this down really hard. For for every obvious reason. But back to first principles, let's This is a brand that promotes sameness. In a way that no other brand does. A way that's good for consumers. Right? You buy into a Sactionals platform or even EverCouch. You'll be able to upgrade it, change it, even don't know, swap out the arms with the same fabric that you bought. Maybe four or five years ago. That will still match because that's the way not only we build the product, on a component basis, but we, you know, try not to drop our fabric so that you can do what I just described. That said, you're buying into a platform that, you know, demands us to maintain sameness. These same basic SKUs, the components that make up our designed for life clever products. Should be made closer to consumers delivered over shorter distances more sustainably, and, more readily. More ready more readily. And that's exactly what we're chasing down. On a first principles basis. We're closer to it than ever. So not ready to, you know, make any announcements yet. But I'm very confident that a significant portion of our manufacturing will be moving domestic over the next number of of quarters even. And and like any big shift, that will require a a lot of you know, it'll require a a folding in. It, you know, it won't be overnight, but within our grasp. And and and and I think we have a better path to that than almost anyone in our business because of the component basis of how we approach these inventions. It it really gives us a lot of economies of scale that others may not have. So we're excited about those prospects. Thomas Forte: Great. Thank you for that. And then for my follow-up, to provide an update on your e-commerce efforts. Seems like that could be a great way for you to provide extra value consumers at a time they may be looking for it. And then also a way to mitigate the impact of tariffs. Mary Fox: Yeah. No. Thank you, Tom. It's a great question. And, yeah, we are thrilled. As, yeah, as you remember, we announced back in quarter one about launching Love by Love Sac. Which is our resale platform. And, you know, initially, we went live in one state in Texas. We've now added five more states. And you're gonna see a lot more states, being added, and and you're absolutely right. I think it helps build our value proposition. Because it really shows that you can have this product for the rest of your life if you choose to. Then if you change your mind, you want different covers because you just want a different aesthetic. Then, you know, we will be able to build out that trade in element that we've also talked about. We're doing a pilot at the end of this year and then we'll have that really rolled out you know, next year. And I think, you know, we've always talked about activating the right size of our flywheel, enabling that customer lifetime value. It's a huge advantage for us. No one else can do it. It's something that we can do very profitably and effectively. But then also build that loyalty for our customers. So, just very excited to start to see that building. And look forward to sharing more as we continue to expand the state. So thank you for the question, Tom. Thomas Forte: Thanks, Mary. And thanks for taking my questions. Operator: Thank you. Our next question comes from the line of Matt Koranda with ROTH Capital Partners. Please proceed with your question. Matt Koranda: Yes. Thanks. Just wanted to touch on the progression of the quarter. You mentioned the category improved, I think, across the quarter, and sustained into July. And perhaps into August. But did you see a pickup that was kind of commensurate with that in your own comp performance during the quarter? And and how have you tracked sort of relative to the category, quarter to date? Mary Fox: Yeah. No. Thank you, Matt, for the for the question. So I think quarter to date, you know, we feel really good in terms of our underlying performance. Obviously, you know, having got through Labor Day events, you know, that's obviously a very key tempo moment for this quarter. And all of that is baked into our guidance and demonstrates continuing to gain share. Because while Sean talked about it at the beginning, the category showed a little bit more improvement. It's still down. You know, and as we've shown with our results, you know, we continue to gain that market share. I still see it being promotional, you know, and I think you're always very close to you know, tracking us and seeing what's happening in the category, and and it's just not stepping down from those holiday peaks, which is why Keith talked about that promotional pressure. So you know, for for us, it's it's really, you know, how do we continue to plan knowing that the macros are still challenging, customers are still a little bit more reserved around, you know, big purchases. So, you know, the tax around personalized offers and really driving them into the showroom. Is so important. But what's also really you know, positive for us is we're not seeing any trade down. So Lovesoft is actually at its highest level of penetration that we've seen for a long time. And you know that's a premium filter. Choice. Recliner is is the best innovation that we have launched, and it's you know, being factored into so many customers you know, purchased with us. So, you know, we just see a lot of of opportunity when we give them great product. Even though there are those pressures that, you know, we can win. So you know, we stay very close. We continue to test and learn through, you know, what continues to be challenging. As Keith touched on on the promotions. But, you know, very similar you know, through the quarter and and as we plan for the rest of the year. Matt Koranda: Okay. Appreciate that, Mary. And then just curious the customer response, to some of the pricing actions you guys have taken on Sactionals, especially in the last few months. Has it changed conversion from the quotation pipeline in any way? Are you seeing sort of responses where folks trade into the, I guess, now Snug? What's what's the way to think about sort of the customer response to those pricing actions? Mary Fox: Yeah. I mean, I think the one I'll I can really talk to because it's been a market for longer is, you know, we did a price increase back in quarter two. But we did see a very clear in terms of kind of our value prop and and all our competitors have taken price for years and even at the beginning of this year. So, you know, we feel very, very good around where we're positioned. But, certainly, from that, we haven't seen any trade down, you know, which I think kind of you your question down to opening price point fabrics from some of the higher fabric choices. And not seeing any shift from that increase in terms of the units that people are collecting. So, you know, I think that one, we feel very good on. The second one, we just put in place, so it's very early days. So we're just gonna keep a read on it. Customers, you know, they expected increases because I think they hear about tariffs and price increases pretty much every day at the moment. And and certainly, as our team, one of the key superpowers we have is around just the direct communication with our teams and really giving them great tools, the value proposition work we've just done actually made us feel even more confident about how great our product is. And really, you know, no one else comes close to it. So we've equipped them with even more tools to be able to tell that story and, you know, and and not seeing any resistance to date. But, again, you know, we've gotta stay close to it. Certainly, as the tariffs will put more pressure more broadly on the customer. Matt Koranda: Okay. I appreciate that, Mary. And then maybe just for Keith, the gross margin progression, I know it's been covered a little bit, but I just wanna make sure I understand clearly. Third quarter, the headwind is really we're we're still not lapping the heavier promotions from last year, so we have the the heavier promotion putting pressure. On product margins and then heavier tariff pressure as well in the third quarter. But then that slipped to the positive or, I guess, flattish to positive gross that's implied in the guide comes from basically just lapping promos from last year and maybe just help us on help me understand that a little bit more. Keith Siegner: Yeah. So couple things there. Number one, generally speaking, you you're you're right there, which is we didn't really step up the pace of promotional offers until the Q4 after the initial start for the cyber five holiday came in below our expectations. That's when we dialed up the the promotional intensity with gift with purchase, surgical offers that, you know, that were that were available to our showroom folks to get conversion rates higher, all that kind of stuff. That started mid Q4 last year. It had a meaningful effect on that quarter. So we still have a lower promotional intensity lap in Q3, which is a meaningful headwind. That largely goes away in Q4. That that that's the biggest piece. The second piece is if you think about it from a tariff impact as a relationship to sales because the I can't use dollars because the sales volumes are so different by quarter. But if you think about it from a, like, a relationship to sales, it's several 100 basis points more impact in Q3 from China tariffs and others than it was in Q2. And that eases off quite a bit in Q4. Not quite to the Q2 levels, but well below Q3. You put those two things together, and the midpoint of the range is really more like a flat grow sort of like flattish gross margin year over year. If you think of it that way, we're not actually calling for expansion in gross margins in Q4 year over year. But those two pieces actually give you the vast majority of the, you know, of the answer right there. Operator: Our final question this morning comes from the line of Brian Nagel with Oppenheimer and Company. Please proceed with your question. Andrew Chasanoff: Hi. This is Andrew Chasanoff on for Brian. Thanks for taking our questions. Just a few quick ones. In terms of just gross margin, are you guys thinking about what the unmitigated tariff cost for LOVE is right now? And does your guidance contemplate any further pricing actions in addition to what you already discussed? Keith Siegner: I'm not sure about the first part of the question. We are not building in any incremental changes to the tariff regimes right now? So, for example, press that's been in place about additional considerations for furniture is a category that is not factored in. The guide. So we are we are using the current ineffect tariff rates as the basis for our outlook. There are many plans we have in place as I discussed that are gonna you know, some of which you know, take a little bit longer to put in place to get the gross margins back to the target low levels as I'd explained earlier. You know? And look. If the tariff regime changes again, all those plans will change again. Not just for us, but for competitors as well. So you you know, look, we as I said, we have lots of things we're working on in the background to improve the gross margins. We're not counting on those for the guide that you see in Q4. Right? That's more of a long term several quarters get us back there play. But, you know, we'll we'll continue to react accordingly as will most of the peer group. And, you know, if there is anything either know, materially negative or favorable that comes out of this, we you know, we're ready to adapt. Andrew Chasanoff: Awesome. And then I can just follow-up quickly on a expense side. Understand that you discussed kind of the marketing in detail, but is there any reason to think that the expense profile of the business is changing as we go into back half twenty five and into '26? Keith Siegner: No. Nothing material. The only thing I would point out to remind everybody is in Q4 of last year, we had an unwind of incentive compensation given a the the weaker than expected performance within the Q4. So this year, as we've said all year, we expect to have higher SG&A as a percentage of sales in Q4 than we did in Q4 of last year because, again, as we've been planning, we're not planning for an unwind of previously accrued incentive compensation like we saw year. So that that's the only thing to call out. You'll see that when you back into what Q4 guidance is. It is a higher SG&A in Q4, but that's the reason why there's there's there's nothing else. Which you can get to pretty cleanly from the full year minus the Q3. More structurally, as the growth continued to hopefully pick up, and we get some category support, you know, that in effect will drive same store omnichannel comparable sales for us. Which has far greater flow through. Than than some of the other pieces. So, look, again, if the category bounces back, the you get a big acceleration and step up in the amount of top line that flows through to the bottom line. So that's what we're hoping for. We're not counting on it. But we'll take it. Andrew Chasanoff: Awesome. Really appreciate it. Thank you. Operator: Thank you. This concludes our question and answer session. I'll turn the floor back to Mr. Nelson for any final comments. Shawn Nelson: Just a big thank you to the investors that support The Lovesac Company and our pursuit of building the most loved home brand in America and to all those sackers out there that have made this company so great, onto a bright future. Thank you. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to Zumtobel Group's conference call on the Q1 results for the 2025-'26 financial year. With me on the call are Alfred Felder, our CEO; and Thomas Erath, our CFO. Alfred will walk you through the highlights of the quarter, while Thomas will discuss the financial performance. After the presentation, both gentlemen will be available to answer your questions. In case you have not a copy of the report and the presentation, you may find both documents for download on our web page. After the call, a playback of this conference call will be available on our web page as well. And with this, I hand over to Alfred. Alfred Felder: Good morning. Welcome, ladies and gentlemen, and thank you for joining us today for our Q1 '25-'26 call. This first quarter was again not an easy one for us. Market environment remains very, very challenging. In addition, the geopolitical environment also difficult. And the demand of the new construction, especially in our core markets in Europe is weak, triggered by a lot of shifts and delays. And obviously, that has resulted in figures what we will show in a minute. But before I go into this, as usual, I would like to share with you a couple of highlights, what shows that our strategy, what we have implemented in the beginning of '24 in the different growth areas is materializing. And here a couple of projects. One brought in our headquarter city of Dornbirn, where we are the lighting solution provider, where we have installed the state-of-the-art IoT connected luminaires based on the Saga sockets with our [indiscernible] ready, so the connected solution. It's the product what we have from Dornbirn, the Isaro Pro, what is installed here across the city. Another one, which is part of the core strategy growing in the arena in the sports and here an indoor stadium in Dresden equipped with our Altis, where we have now all type of products, including full color comes with DMX controls, includes a complete turnkey solution with commissioning involved. The next one is a shopping center in Belgrade in Serbia, where we have our factories both for components and luminaires, a refurbishment project with really our complete bandwidth of products called [indiscernible], where we have installed. On the bottom left here, the Campus Founder Lab in Heilbronn in Germany, innovation campus. Here, this is a typical high-end brand Zumtobel product with our high-end products [indiscernible], also including the whole emergency products. And last but not least, in the Italian part of Switzerland in Bellinzona, the fortress here, which is a UNESCO world heritage, where we have done refurbishment products. So the outdated sodium vapor lens from the '90s were replaced by energy-efficient [indiscernible] contrast LED spotlights and the result achieved has been the close collaboration what we had with the local authorities, the lighting designers and the technology suppliers. And with that, on Page 4, let me just give you an overview, and Thomas will then share the details on our financial performance in the first quarter, a period that, as expected, was strongly characterized by our economic uncertainty in the persistently weak market environment. These conditions were also reflected in our business performance. So we have a revenue declined by 7.8% to EUR 266 million. And on the segments, you see the Lighting segment generated a revenue of EUR 210 million, while the revenues of the components remained at EUR 70 million, so which means almost 12% below the previous year quarter 1. Adjusted EBIT at EUR 6.6 million, corresponding to adjusted EBIT of 2.5%. And the figures clearly show that the challenges facing our company remain strong. It is therefore particularly important that we continue to focus on resilience and sustainability within the entire group across the segments. And that includes also, of course, the review of our cost structures. And as part of this, you see on Page 5, we have decided to take the strategic decision to close our unprofitably relatively small U.S. production site in Highland in New York, so Upstate New York, 2 hours from New York City. This measure is part of our Focus+ strategy, what we have revised last year and updated. It will allow us now to focus strongly on our core markets and align our global production network accordingly. And this we will do relatively short term so that the measures are taking -- are contributing to our results. Despite this planned closure, our sales presence in U.S. will remain intact. We aim to continue to provide reliable service to our customers, especially on our international accounts, what we are servicing across all the continents, including the planners, the OEM, as I said, and the architects. And with this, the American markets where we have been mainly with our brand, Zumtobel, we will serve out of our global production network. But also let me turn to a more long-term program. As part of our updated corporate strategy, we analyzed in our first stage our global SG&A costs in an initial phase. And based on this analysis, we are currently developing a global package of measure that will be implemented by the end of the fiscal year '28-'29. The first measures have already been defined. This aim to reduce organizational complexity, minimize the efficiency and optimize the process and overhead, increase decision speed and therefore, enable more customer-facing roles. As you see here from this slide, over the next 4 years, we plan to achieve a significant cost savings in the SG&A area, and the savings will increase annually and are expected to reach a volume of EUR 30 million to EUR 40 million in the fourth year, and that is the financial year '28-'29. The main levers are the leaner organization, as I said, the expansion of our shared service centers. We have them already in Serbia in 2 locations, one in Belgrade, one in our factory location niche and in Portugal and in further process automation. We do expect to see the first effects as early as the current fiscal year with 80% of the savings to be then achieved in '27-'28. The associated restructuring costs will be in the single-digit million range annually up to the including '28-'29 fiscal year. In the Phase 2, what we are currently starting, our efficiency program will also involve the review the areas of operations, purchasing and R&D. And this program will build the foundation for steering our company and our employees safely through these challenging times. At the same time, we will ensure that we are well prepared for future development. This also applies to the economic recovery that the industry is hoping for, especially we will see it later in the page, the signs are turning a little bit more positive for the next 18 months, and we are already positioning our company to strengthen its competitive position. Ladies and gentlemen, with these measures, we are convinced that we can strengthen our company in the future and sustainably long term and be ready for hopefully the ramp-up of the business with a better cost structure with a leaner organization. And with this, I would like to hand over to Thomas, who will explain the Q1 results in more detail. Thomas Erath: Thank you, Alfred. Good morning, ladies and gentlemen. A warm welcome from my side. Let me start with the Lighting segment. Q1 revenues in the Lighting segment amounted to EUR 210.7 million and were 7% below the previous year. The sales increases in parts of Southern and Eastern Europe were unable to offset the negative developments in the U.K. as well as in the Asia Pacific region. The fixed cost savings were not high enough to offset the decline in sales. Adjusted EBIT in the Lighting segment decreased from EUR 20.1 million to EUR 11.4 million. Our adjusted EBIT margin declined to 5.4%. Let's move to the Components segment. On Slide 8, you see revenues in the Components segment declined by 11.8% to EUR 70.9 million. The difficult economic environment led to declining sales across all regions. Adjusted EBIT in the Components segment declined to EUR 1.3 million in the first quarter. The adjusted EBIT margin stood at 1.9%. Slide 9 shows the overall Q1 results for the group. Revenues in the first quarter declined by 7.8% to EUR 266.4 million, mainly as a result of declining revenues in the U.K. and weak sales performance in Asia Pacific. Adjusted EBIT decreased from EUR 20.2 million to EUR 6.6 million. The negative revenue development had an adverse impact of EUR 14.1 million. The adjusted EBIT margin was at 2.5%. Slide 10 provides you with more information on our income statement. As indicated, adjusted EBIT stood at EUR 6.6 million. Special effects were negative EUR 7.4 million and mainly include the cost of the closure of our U.S. plant. After deduction of these special effects, our EBIT totaled minus EUR 0.8 million. Our financial results amounted to minus EUR 3 million. Net financing costs amounted to minus EUR 2 million and other financial income and expenses totaled minus EUR 1 million. They include interest expense for pension obligations, FX and hedging valuation. After the deduction of income taxes, our net profit for the first 3 months amounted to minus EUR 4 million. As a consequence, earnings per share were at minus EUR 0.09. Let's move to our cash flow statement. Cash flow from operating results fell from EUR 32.4 million to EUR 12.8 million. The change in other operating items amounted to minus EUR 11.8 million, mainly this is the result of leasing accruals for variable salary components. Cash flow from operating activities stood at EUR 1.3 million in the first quarter. Cash flow from investing activities amounted to minus EUR 11.9 million for the reporting period. In addition to investments in property, plant and equipment, this also includes capitalized development costs of EUR 5.3 million. As a result, free cash flow equaled minus EUR 10.6 million. Cash flow from financing activities amounted to EUR 12 million for the full year. Let me finish with Slide 12 and give you some comments on our balance sheet. The balance sheet structure remains stable. The equity ratio is almost flat with 41.9%. Net debt increased to EUR 134.4 million. This figure includes the extension of the Spennymoor lease agreement by a further 10 years. Our debt coverage ratio is at 1.98. And with this, I hand back to Alfred. Alfred Felder: This slide, you know already the current market outlook. Before I'm turning into that, let me share some sector insights. We do see after 2 very challenging years, first signs of recovery in Europe, especially on the nonresidential sector. You see it here on the graph from Euroconstruct published in June. And there's a progress in both the renovations and the new build, although the growth remains different in the different countries in Europe. Looking ahead, construction actively is expected to pick up, particularly in the education, health care sectors, while the growth in storage facilities starting to slow. We are still seeing momentum, especially when it comes to data center builds and the new technologies based on artificial intelligence. In short, we are seeing early signals of recovery in the construction market, even if the base differs across the regions. And our strategic focus will be on leveraging these opportunities in renovation and position our group both from components and the lighting level in this area. And let me add, the lighting industry typically comes late in the construction cycle. So the positive momentum will reach us with some delay, especially if I'm referring to the huge investment plan what the German government has issued. Ladies and gentlemen, the overall market and here on Page 14 remains highly challenging with the geopolitical instabilities, what we are all seeing, the ongoing conflicts and the rising protectionism that continues to create significant uncertainty in all our markets. And this makes short and midterm forecasting increasingly complex with low visibility. We are seeing customers adopt a more cautious approach with longer decision-making cycles, more frequent project delays and especially on the components business with very, very short-term projects, what we see in the business. And these dynamics will have an impact on our business. But that said, there are also reasons for cautious optimism. After 2 years of recession, the European nonresidential construction sectors is explained, showing signs of moderate growth. And therefore, we believe we can participate. Taking all this into account, we are anticipating a single-digit percentage decline in the revenues compared to the previous year. Our priority is clear. We are driving operational efficiency, delivering on long-term initiatives and on our updated Focus+ strategy, including the 2 I highlighted here in the start of the call. Given the current revenue pressure and the time required for our measures to take the full effect, we are expecting an adjusted EBIT margin to be in the range of 1% to 4% and continue with our planned CapEx for this year of EUR 50 million. With that, I would like to conclude. Thank you for your attention. And Thomas and myself will be ready and happy to take your questions. Thank you for listening. Operator: [Operator Instructions] And we have the first question coming from the line of Michael Marschallinger from Erste Group. Michael Marschallinger: I got 2. Firstly, on the regional development. Your most important region, DACH, we saw some small decline in the fourth quarter, now some slight growth again in first quarter. And if I understood you correct, you see more positive on the outlook. So I assume we would this trend to continue in the next quarters. Is that correct? Alfred Felder: Yes, thank you for your questions. That's correct. So obviously, in the DACH region, we have 2 very strong countries, which is Austria and Switzerland. And in Germany, we are seeing a slow momentum. But as indicated previously, we are late in the cycle and a lot of these investments are still to be released in construction. But especially when it comes to refurbishment, we believe that we will be able to continue with a slight recovery in the DACH. Michael Marschallinger: Okay. Understood. And then secondly, on this announced restructuring measures on the Slide #6. On this listed measures, where do you see the biggest lever for the announced measures? Organization, I assume, is more footprint in reductions similar to the U.S. Is that correct? And maybe on the time line, if you can comment. Alfred Felder: Yes. So what we have done over the summer, so from late spring to summer, we have analyzed the entire SG&A structure, which means the administrative structures in our headquarters, but as well as the sales territory. And when it comes to leaner organization, just to give you an example, we are planning more to go into the sleep country concept, which means in smaller countries, we are having then a much flatter hierarchy. Let me say, if you have countries like Poland, Hungary, Slovakia, Czech Republic, they are under one leadership. So we are saving some costs in the leadership and having more horsepower than directly out. So the leaner organization has not to do per se with closing sites, but to be more efficient. And in the headquarter, we are, of course, looking into all the processes what we can streamline to get faster and therefore, also reduce cost. Time line, I think you have seen it. We plan to have the first impact already in '25-'26, which is small and then the second one in '26-'27 and more or less reaching 80% of the same. So this is a EUR 30 million to EUR 40 million have been identified with clear measures, with clear, let me say, projects and the plan is now to execute it over time. I mentioned the excellence centers, what we plan to establish more professionally in Serbia and in Portugal. And obviously, you can imagine that this will be a transformation of jobs, what we will then build up there and more or less after that, those jobs in high-cost countries will then be removed. And we are also planning to do this smoothly based on the natural fluctuation. Operator: The next question comes from Elias New from Kepler Cheuvreux. Elias New: I hope you can hear me. My question is really on the sort of year-on-year margin bridge and sort of just trying to understand where that margin decline is coming from. Is that mostly attributable to negative volume growth? Or are there any other main drivers that you can call out? And secondly, if we talk about volume growth, is your expectation still that we will return to growth in the second half of this fiscal year? Thomas Erath: Well, you are right. The main driver is volume. Volume is basically the whole impact of our decline in profitability is volume. Alfred Felder: And your second question, obviously, we do see, and I said this at the beginning, still an extreme weak demand. Like I said in the last call, nothing has changed. We believe that maybe in the second half of calendar year '26, we might see the first impact on recovery simply because we are late in the cycle. So if the German government is issuing the budgets for infrastructure, what comes earlier is refurbishment, and we believe that, that might come as early as second half of '26. So with that said, we believe it will be rather flat also in the second half of this fiscal year, both for the Components business as well as for the Lighting Solutions business. Elias New: That's very clear. And if we just return maybe to sort of the different regional trends. I mean, could you comment on what you're seeing in Europe compared to the U.S.? Because one of your competitors is speaking of a better environment in the U.S. So just wondering if that's something that you are seeing as well. And particularly, I know we spoke about the DACH region already, but maybe there are other sort of regional developments in Europe. So what you're seeing in Eastern Europe relative to Western Europe and Southern Europe? Alfred Felder: Yes. In Eastern Europe, we are seeing a moderate, also flat development, fortunately, not shrinking. In the core countries, what we had -- so we had a very good momentum in U.K. last year, and that is easing out a little bit. So we are not seeing the growth here. Italy, okay, France, weak and also some of the Nordic territories. As you know, our U.S. business never was big. So we are mainly there with high-end Zumtobel products for museums, art galleries, working with international architects. So it's not a substantial revenue here. And Tridonic is also having small revenues in the U.S. Of course, the U.S. market with a full portfolio of what local companies have is in a better shape than Europe, as we know economically. Elias New: Great. Very helpful. And then maybe just final question. I was just wondering what you're seeing on the customer side of your Components business. I mean, specifically with regards to inventory levels, whether you think those are sort of currently elevated or normalized? Any commentary surrounding that would be very helpful. Alfred Felder: No, the inventory levels, what we have in Tridonic internally are on a normal level, so to speak, slightly higher simply because the customer behavior now is even more short term than it was in the past. So obviously, Tridonic customers, the OEM customers, our competitors, Photon and Zumtobel, they are -- if they are winning a project, then they are placing the orders to avoid inventories and it needs to be shipped within a couple of days. And that's a little bit the behavior what we see in the market. Thomas Erath: So -- but -- the question with the inventory of the customer is that they have low inventory levels, but expect Tridonic to deliver within very short notice. They have no destocking, but low inventory levels. And if they get an order, they place it to Tridonic and its competitors and want to have the material on short notice. Elias New: That's great. Very helpful. And just a final question for me on the pricing development in the Components business. What the expectation is for this year and maybe sort of over the midterm, do you expect it to be at the current level or pricing -- price erosion to fade or deteriorate? Any comment around that? Alfred Felder: We are looking it up what it is at the moment. But basically, we are back to the normal behavior with something like 3% price erosion, so to speak. Of course, customers -- or let me put it that way, competitors do all have capacities available. So when it comes to projects, price is important. But luckily, Tridonic has products what are more in the mid- to high end, but everybody can apply for it. Thomas Erath: As Alfred said, 2% to 3% is the price erosion. Operator: The next question comes from Patrick Steiner from ODDO BHF. Patrick Steiner: Three questions from my side, if I may. I'll take them one by one, if that's okay. First one, how much of the Phase 1 savings expected to come from personnel savings and how much is coming from other sources and which are they, if you could maybe give 1 or 2 examples? Alfred Felder: You mean on the SG&A project, right? Patrick Steiner: Yes, exactly. Alfred Felder: So we are not having all these details ready now on what exactly is the personnel savings. But it's a mix of, let me say, savings on, let me say, an example, marketing expenses, but the majority of the savings will be in the range of 66%. Thomas Erath: 70% to 80% will be personnel savings. Patrick Steiner: On the time frame of 4 years, what is this depending on? And could we see a probability of the actual execution of the cost savings program to be quicker than the planned 4 years? Alfred Felder: As I said, one quite significant part of the cost savings will be that we are having a key position with current and future skills built up in the excellence centers in Serbia and in Portugal. And obviously, we have calculated that it will take some time to hire these people, to train these people to give them the responsibility. And therefore, we believe that this is quite an aggressive plan here what we have with reaching 80% in '27-'28. Maybe we can accelerate a little bit what we do in '26-'27. It depends also how this whole setup is working in the different countries. Patrick Steiner: Okay. That's helpful. Last question. The Phase 2 cost savings, can you give us some kind of quantifiable range with accepted cost savings? And also when do you expect to start the second phase of the program? Alfred Felder: It's currently starting. We are going into that with a similar approach like with the SG&A. We are not having the details yet, but we are also expecting a double-digit million savings with that second phase. Operator: [Operator Instructions] There are no more questions at this time. I would now like to turn the conference back over to Alfred Felder for any closing remarks. Alfred Felder: Yes. Ladies and gentlemen, thank you very much for listening. Thank you very much for your interesting questions. Outlook, as I said, is a little bit shaky with a continuous weak environment, but we are positioning our company for the future, and we will update you on the progress in the next conference call after the half year. Thank you so much for listening, and have a great day ahead.
Operator: Good morning, ladies and gentlemen, and welcome to Zumtobel Group's conference call on the Q1 results for the 2025-'26 financial year. With me on the call are Alfred Felder, our CEO; and Thomas Erath, our CFO. Alfred will walk you through the highlights of the quarter, while Thomas will discuss the financial performance. After the presentation, both gentlemen will be available to answer your questions. In case you have not a copy of the report and the presentation, you may find both documents for download on our web page. After the call, a playback of this conference call will be available on our web page as well. And with this, I hand over to Alfred. Alfred Felder: Good morning. Welcome, ladies and gentlemen, and thank you for joining us today for our Q1 '25-'26 call. This first quarter was again not an easy one for us. Market environment remains very, very challenging. In addition, the geopolitical environment also difficult. And the demand of the new construction, especially in our core markets in Europe is weak, triggered by a lot of shifts and delays. And obviously, that has resulted in figures what we will show in a minute. But before I go into this, as usual, I would like to share with you a couple of highlights, what shows that our strategy, what we have implemented in the beginning of '24 in the different growth areas is materializing. And here a couple of projects. One brought in our headquarter city of Dornbirn, where we are the lighting solution provider, where we have installed the state-of-the-art IoT connected luminaires based on the Saga sockets with our [indiscernible] ready, so the connected solution. It's the product what we have from Dornbirn, the Isaro Pro, what is installed here across the city. Another one, which is part of the core strategy growing in the arena in the sports and here an indoor stadium in Dresden equipped with our Altis, where we have now all type of products, including full color comes with DMX controls, includes a complete turnkey solution with commissioning involved. The next one is a shopping center in Belgrade in Serbia, where we have our factories both for components and luminaires, a refurbishment project with really our complete bandwidth of products called [indiscernible], where we have installed. On the bottom left here, the Campus Founder Lab in Heilbronn in Germany, innovation campus. Here, this is a typical high-end brand Zumtobel product with our high-end products [indiscernible], also including the whole emergency products. And last but not least, in the Italian part of Switzerland in Bellinzona, the fortress here, which is a UNESCO world heritage, where we have done refurbishment products. So the outdated sodium vapor lens from the '90s were replaced by energy-efficient [indiscernible] contrast LED spotlights and the result achieved has been the close collaboration what we had with the local authorities, the lighting designers and the technology suppliers. And with that, on Page 4, let me just give you an overview, and Thomas will then share the details on our financial performance in the first quarter, a period that, as expected, was strongly characterized by our economic uncertainty in the persistently weak market environment. These conditions were also reflected in our business performance. So we have a revenue declined by 7.8% to EUR 266 million. And on the segments, you see the Lighting segment generated a revenue of EUR 210 million, while the revenues of the components remained at EUR 70 million, so which means almost 12% below the previous year quarter 1. Adjusted EBIT at EUR 6.6 million, corresponding to adjusted EBIT of 2.5%. And the figures clearly show that the challenges facing our company remain strong. It is therefore particularly important that we continue to focus on resilience and sustainability within the entire group across the segments. And that includes also, of course, the review of our cost structures. And as part of this, you see on Page 5, we have decided to take the strategic decision to close our unprofitably relatively small U.S. production site in Highland in New York, so Upstate New York, 2 hours from New York City. This measure is part of our Focus+ strategy, what we have revised last year and updated. It will allow us now to focus strongly on our core markets and align our global production network accordingly. And this we will do relatively short term so that the measures are taking -- are contributing to our results. Despite this planned closure, our sales presence in U.S. will remain intact. We aim to continue to provide reliable service to our customers, especially on our international accounts, what we are servicing across all the continents, including the planners, the OEM, as I said, and the architects. And with this, the American markets where we have been mainly with our brand, Zumtobel, we will serve out of our global production network. But also let me turn to a more long-term program. As part of our updated corporate strategy, we analyzed in our first stage our global SG&A costs in an initial phase. And based on this analysis, we are currently developing a global package of measure that will be implemented by the end of the fiscal year '28-'29. The first measures have already been defined. This aim to reduce organizational complexity, minimize the efficiency and optimize the process and overhead, increase decision speed and therefore, enable more customer-facing roles. As you see here from this slide, over the next 4 years, we plan to achieve a significant cost savings in the SG&A area, and the savings will increase annually and are expected to reach a volume of EUR 30 million to EUR 40 million in the fourth year, and that is the financial year '28-'29. The main levers are the leaner organization, as I said, the expansion of our shared service centers. We have them already in Serbia in 2 locations, one in Belgrade, one in our factory location niche and in Portugal and in further process automation. We do expect to see the first effects as early as the current fiscal year with 80% of the savings to be then achieved in '27-'28. The associated restructuring costs will be in the single-digit million range annually up to the including '28-'29 fiscal year. In the Phase 2, what we are currently starting, our efficiency program will also involve the review the areas of operations, purchasing and R&D. And this program will build the foundation for steering our company and our employees safely through these challenging times. At the same time, we will ensure that we are well prepared for future development. This also applies to the economic recovery that the industry is hoping for, especially we will see it later in the page, the signs are turning a little bit more positive for the next 18 months, and we are already positioning our company to strengthen its competitive position. Ladies and gentlemen, with these measures, we are convinced that we can strengthen our company in the future and sustainably long term and be ready for hopefully the ramp-up of the business with a better cost structure with a leaner organization. And with this, I would like to hand over to Thomas, who will explain the Q1 results in more detail. Thomas Erath: Thank you, Alfred. Good morning, ladies and gentlemen. A warm welcome from my side. Let me start with the Lighting segment. Q1 revenues in the Lighting segment amounted to EUR 210.7 million and were 7% below the previous year. The sales increases in parts of Southern and Eastern Europe were unable to offset the negative developments in the U.K. as well as in the Asia Pacific region. The fixed cost savings were not high enough to offset the decline in sales. Adjusted EBIT in the Lighting segment decreased from EUR 20.1 million to EUR 11.4 million. Our adjusted EBIT margin declined to 5.4%. Let's move to the Components segment. On Slide 8, you see revenues in the Components segment declined by 11.8% to EUR 70.9 million. The difficult economic environment led to declining sales across all regions. Adjusted EBIT in the Components segment declined to EUR 1.3 million in the first quarter. The adjusted EBIT margin stood at 1.9%. Slide 9 shows the overall Q1 results for the group. Revenues in the first quarter declined by 7.8% to EUR 266.4 million, mainly as a result of declining revenues in the U.K. and weak sales performance in Asia Pacific. Adjusted EBIT decreased from EUR 20.2 million to EUR 6.6 million. The negative revenue development had an adverse impact of EUR 14.1 million. The adjusted EBIT margin was at 2.5%. Slide 10 provides you with more information on our income statement. As indicated, adjusted EBIT stood at EUR 6.6 million. Special effects were negative EUR 7.4 million and mainly include the cost of the closure of our U.S. plant. After deduction of these special effects, our EBIT totaled minus EUR 0.8 million. Our financial results amounted to minus EUR 3 million. Net financing costs amounted to minus EUR 2 million and other financial income and expenses totaled minus EUR 1 million. They include interest expense for pension obligations, FX and hedging valuation. After the deduction of income taxes, our net profit for the first 3 months amounted to minus EUR 4 million. As a consequence, earnings per share were at minus EUR 0.09. Let's move to our cash flow statement. Cash flow from operating results fell from EUR 32.4 million to EUR 12.8 million. The change in other operating items amounted to minus EUR 11.8 million, mainly this is the result of leasing accruals for variable salary components. Cash flow from operating activities stood at EUR 1.3 million in the first quarter. Cash flow from investing activities amounted to minus EUR 11.9 million for the reporting period. In addition to investments in property, plant and equipment, this also includes capitalized development costs of EUR 5.3 million. As a result, free cash flow equaled minus EUR 10.6 million. Cash flow from financing activities amounted to EUR 12 million for the full year. Let me finish with Slide 12 and give you some comments on our balance sheet. The balance sheet structure remains stable. The equity ratio is almost flat with 41.9%. Net debt increased to EUR 134.4 million. This figure includes the extension of the Spennymoor lease agreement by a further 10 years. Our debt coverage ratio is at 1.98. And with this, I hand back to Alfred. Alfred Felder: This slide, you know already the current market outlook. Before I'm turning into that, let me share some sector insights. We do see after 2 very challenging years, first signs of recovery in Europe, especially on the nonresidential sector. You see it here on the graph from Euroconstruct published in June. And there's a progress in both the renovations and the new build, although the growth remains different in the different countries in Europe. Looking ahead, construction actively is expected to pick up, particularly in the education, health care sectors, while the growth in storage facilities starting to slow. We are still seeing momentum, especially when it comes to data center builds and the new technologies based on artificial intelligence. In short, we are seeing early signals of recovery in the construction market, even if the base differs across the regions. And our strategic focus will be on leveraging these opportunities in renovation and position our group both from components and the lighting level in this area. And let me add, the lighting industry typically comes late in the construction cycle. So the positive momentum will reach us with some delay, especially if I'm referring to the huge investment plan what the German government has issued. Ladies and gentlemen, the overall market and here on Page 14 remains highly challenging with the geopolitical instabilities, what we are all seeing, the ongoing conflicts and the rising protectionism that continues to create significant uncertainty in all our markets. And this makes short and midterm forecasting increasingly complex with low visibility. We are seeing customers adopt a more cautious approach with longer decision-making cycles, more frequent project delays and especially on the components business with very, very short-term projects, what we see in the business. And these dynamics will have an impact on our business. But that said, there are also reasons for cautious optimism. After 2 years of recession, the European nonresidential construction sectors is explained, showing signs of moderate growth. And therefore, we believe we can participate. Taking all this into account, we are anticipating a single-digit percentage decline in the revenues compared to the previous year. Our priority is clear. We are driving operational efficiency, delivering on long-term initiatives and on our updated Focus+ strategy, including the 2 I highlighted here in the start of the call. Given the current revenue pressure and the time required for our measures to take the full effect, we are expecting an adjusted EBIT margin to be in the range of 1% to 4% and continue with our planned CapEx for this year of EUR 50 million. With that, I would like to conclude. Thank you for your attention. And Thomas and myself will be ready and happy to take your questions. Thank you for listening. Operator: [Operator Instructions] And we have the first question coming from the line of Michael Marschallinger from Erste Group. Michael Marschallinger: I got 2. Firstly, on the regional development. Your most important region, DACH, we saw some small decline in the fourth quarter, now some slight growth again in first quarter. And if I understood you correct, you see more positive on the outlook. So I assume we would this trend to continue in the next quarters. Is that correct? Alfred Felder: Yes, thank you for your questions. That's correct. So obviously, in the DACH region, we have 2 very strong countries, which is Austria and Switzerland. And in Germany, we are seeing a slow momentum. But as indicated previously, we are late in the cycle and a lot of these investments are still to be released in construction. But especially when it comes to refurbishment, we believe that we will be able to continue with a slight recovery in the DACH. Michael Marschallinger: Okay. Understood. And then secondly, on this announced restructuring measures on the Slide #6. On this listed measures, where do you see the biggest lever for the announced measures? Organization, I assume, is more footprint in reductions similar to the U.S. Is that correct? And maybe on the time line, if you can comment. Alfred Felder: Yes. So what we have done over the summer, so from late spring to summer, we have analyzed the entire SG&A structure, which means the administrative structures in our headquarters, but as well as the sales territory. And when it comes to leaner organization, just to give you an example, we are planning more to go into the sleep country concept, which means in smaller countries, we are having then a much flatter hierarchy. Let me say, if you have countries like Poland, Hungary, Slovakia, Czech Republic, they are under one leadership. So we are saving some costs in the leadership and having more horsepower than directly out. So the leaner organization has not to do per se with closing sites, but to be more efficient. And in the headquarter, we are, of course, looking into all the processes what we can streamline to get faster and therefore, also reduce cost. Time line, I think you have seen it. We plan to have the first impact already in '25-'26, which is small and then the second one in '26-'27 and more or less reaching 80% of the same. So this is a EUR 30 million to EUR 40 million have been identified with clear measures, with clear, let me say, projects and the plan is now to execute it over time. I mentioned the excellence centers, what we plan to establish more professionally in Serbia and in Portugal. And obviously, you can imagine that this will be a transformation of jobs, what we will then build up there and more or less after that, those jobs in high-cost countries will then be removed. And we are also planning to do this smoothly based on the natural fluctuation. Operator: The next question comes from Elias New from Kepler Cheuvreux. Elias New: I hope you can hear me. My question is really on the sort of year-on-year margin bridge and sort of just trying to understand where that margin decline is coming from. Is that mostly attributable to negative volume growth? Or are there any other main drivers that you can call out? And secondly, if we talk about volume growth, is your expectation still that we will return to growth in the second half of this fiscal year? Thomas Erath: Well, you are right. The main driver is volume. Volume is basically the whole impact of our decline in profitability is volume. Alfred Felder: And your second question, obviously, we do see, and I said this at the beginning, still an extreme weak demand. Like I said in the last call, nothing has changed. We believe that maybe in the second half of calendar year '26, we might see the first impact on recovery simply because we are late in the cycle. So if the German government is issuing the budgets for infrastructure, what comes earlier is refurbishment, and we believe that, that might come as early as second half of '26. So with that said, we believe it will be rather flat also in the second half of this fiscal year, both for the Components business as well as for the Lighting Solutions business. Elias New: That's very clear. And if we just return maybe to sort of the different regional trends. I mean, could you comment on what you're seeing in Europe compared to the U.S.? Because one of your competitors is speaking of a better environment in the U.S. So just wondering if that's something that you are seeing as well. And particularly, I know we spoke about the DACH region already, but maybe there are other sort of regional developments in Europe. So what you're seeing in Eastern Europe relative to Western Europe and Southern Europe? Alfred Felder: Yes. In Eastern Europe, we are seeing a moderate, also flat development, fortunately, not shrinking. In the core countries, what we had -- so we had a very good momentum in U.K. last year, and that is easing out a little bit. So we are not seeing the growth here. Italy, okay, France, weak and also some of the Nordic territories. As you know, our U.S. business never was big. So we are mainly there with high-end Zumtobel products for museums, art galleries, working with international architects. So it's not a substantial revenue here. And Tridonic is also having small revenues in the U.S. Of course, the U.S. market with a full portfolio of what local companies have is in a better shape than Europe, as we know economically. Elias New: Great. Very helpful. And then maybe just final question. I was just wondering what you're seeing on the customer side of your Components business. I mean, specifically with regards to inventory levels, whether you think those are sort of currently elevated or normalized? Any commentary surrounding that would be very helpful. Alfred Felder: No, the inventory levels, what we have in Tridonic internally are on a normal level, so to speak, slightly higher simply because the customer behavior now is even more short term than it was in the past. So obviously, Tridonic customers, the OEM customers, our competitors, Photon and Zumtobel, they are -- if they are winning a project, then they are placing the orders to avoid inventories and it needs to be shipped within a couple of days. And that's a little bit the behavior what we see in the market. Thomas Erath: So -- but -- the question with the inventory of the customer is that they have low inventory levels, but expect Tridonic to deliver within very short notice. They have no destocking, but low inventory levels. And if they get an order, they place it to Tridonic and its competitors and want to have the material on short notice. Elias New: That's great. Very helpful. And just a final question for me on the pricing development in the Components business. What the expectation is for this year and maybe sort of over the midterm, do you expect it to be at the current level or pricing -- price erosion to fade or deteriorate? Any comment around that? Alfred Felder: We are looking it up what it is at the moment. But basically, we are back to the normal behavior with something like 3% price erosion, so to speak. Of course, customers -- or let me put it that way, competitors do all have capacities available. So when it comes to projects, price is important. But luckily, Tridonic has products what are more in the mid- to high end, but everybody can apply for it. Thomas Erath: As Alfred said, 2% to 3% is the price erosion. Operator: The next question comes from Patrick Steiner from ODDO BHF. Patrick Steiner: Three questions from my side, if I may. I'll take them one by one, if that's okay. First one, how much of the Phase 1 savings expected to come from personnel savings and how much is coming from other sources and which are they, if you could maybe give 1 or 2 examples? Alfred Felder: You mean on the SG&A project, right? Patrick Steiner: Yes, exactly. Alfred Felder: So we are not having all these details ready now on what exactly is the personnel savings. But it's a mix of, let me say, savings on, let me say, an example, marketing expenses, but the majority of the savings will be in the range of 66%. Thomas Erath: 70% to 80% will be personnel savings. Patrick Steiner: On the time frame of 4 years, what is this depending on? And could we see a probability of the actual execution of the cost savings program to be quicker than the planned 4 years? Alfred Felder: As I said, one quite significant part of the cost savings will be that we are having a key position with current and future skills built up in the excellence centers in Serbia and in Portugal. And obviously, we have calculated that it will take some time to hire these people, to train these people to give them the responsibility. And therefore, we believe that this is quite an aggressive plan here what we have with reaching 80% in '27-'28. Maybe we can accelerate a little bit what we do in '26-'27. It depends also how this whole setup is working in the different countries. Patrick Steiner: Okay. That's helpful. Last question. The Phase 2 cost savings, can you give us some kind of quantifiable range with accepted cost savings? And also when do you expect to start the second phase of the program? Alfred Felder: It's currently starting. We are going into that with a similar approach like with the SG&A. We are not having the details yet, but we are also expecting a double-digit million savings with that second phase. Operator: [Operator Instructions] There are no more questions at this time. I would now like to turn the conference back over to Alfred Felder for any closing remarks. Alfred Felder: Yes. Ladies and gentlemen, thank you very much for listening. Thank you very much for your interesting questions. Outlook, as I said, is a little bit shaky with a continuous weak environment, but we are positioning our company for the future, and we will update you on the progress in the next conference call after the half year. Thank you so much for listening, and have a great day ahead.
Operator: Greetings, and welcome to the Frequency Electronics First Quarter Fiscal 2026 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Any statements made by the company during this conference call regarding the future constitute forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements inherently involve uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences are included in the company's press releases and are further detailed in the company's periodic report filings with the Securities and Exchange Commission. By making these forward-looking statements, the company undertakes no obligation to update these statements for revisions or changes after the date of this conference call. It is now my pleasure to introduce your host, Thomas McClelland, President and Chief Executive Officer. Thomas McClelland: Thank you. Good afternoon, and thanks for joining the Frequency Electronics First Quarter Fiscal Year 2026 Earnings Call. With me today is our Chief Financial Officer, Steve Bernstein. On our fourth quarter fiscal 2025 earnings call in July, I told you that particularly strong execution allowed the company to produce revenue on certain programs in fiscal 2025 that we had originally expected to produce over a more extended period of time in fiscal 2025, '26 and beyond. So while we do not provide guidance given the inherently lumpy nature of contract awards and customer-driven activity, we did want to point out in July that the previous quarter, the highest revenue quarter in 25 years, should not be viewed as the near-term new normal. We anticipated instead that the fiscal first quarter of 2026 would look more like the first 2 quarters in fiscal 2025. This would have been the case, but for customer-driven delays on a few key programs that pushed revenue recognition out of the fiscal first quarter. Recall that the allocations for space and defense-related programs that were enacted by Congress were first finalized in early July with only a few weeks left in the quarter, which created some late quarter customer scrambling. Critically, this revenue will still be earned in the coming quarters and predominantly in this current fiscal year. These are neither cancellations nor contract reductions. In fact, we expect at least one of these programs to be meaningfully increased in total contract value. Now that we're 6 weeks into this second fiscal quarter, I can clearly state that the issues we saw in the first quarter related to customer-led delays are now behind us, and we're making significant progress towards a bigger book of business. When we have a quarter like this first one with lower revenue than recent trend levels, while we're still investing in growth for the future, we can see temporarily lower levels of profitability. But make no mistake, this is not your grandfather's FEI. We have fundamentally transformed this business over the past few years to be a larger, more profitable, more cash-generative company that invests in the future and rewards shareholders for years to come. One indication of our future success is that our funded backlog remains at historically high levels, but we're also actively bidding on new programs and anticipate meaningful new business in the near term. Some of the programs we're bidding on are larger than the typical contract wins we've previously reported. Furthermore, these programs have significant follow-on potential over the next decade and beyond. Both space and non-space defense activity point to continued healthy growth in our core markets, both for our legacy products and our next-generation technology. Notable programs we're involved in include Golden Dome, Patriot missile system, B-2 bomber, and Terminal High Altitude Area Defense system, or THAAD, as well as other multi-domain defense systems. To support these markets as well as our new initiatives in quantum sensing, the company recently opened an engineering facility in Boulder, Colorado and hired senior scientists formerly with the National Institute of Standards Technology, Time and Frequency Division. These physicists and others who are expected to join FEI at the Boulder facility in the near future will support ongoing company programs and new technology efforts. We anticipate that the Boulder facility will contribute positively to the bottom line by the third quarter of this fiscal year. In addition, as noted previously, we're pursuing external government funding for research and development with significant activity underway, particularly in the area of quantum sensing, which is a large emerging market for us. Building on the enthusiastic response and strong encouragement from last year, our company will host its second annual Quantum Sensing Summit in New York City this October. This scientific conference will convene leaders from government, academia, industry and other laboratories to explore emerging technologies, discuss strategies for realizing their full potential and reinforce our nation's leadership in this critical field as well as FEI's expanding strategic role in advancing this technology. We're excited about the enthusiasm, which has developed around this event. Additional details related to this event are available on the Frequency Electronics website. We have always been a quantum physics organization. Quantum is at the heart of atomic clocks that we have designed and produced for many years. This area of our business is robust and taking on more meaning in the position, navigation and timing, high reliability security complex, and our solutions are critical elements of mission assurance and surveillance. What has changed over the past year or so is that our customers need quantum solutions, particularly in sensing that are real and timely in order to deal with an increasingly tech-focused and conflicted global defense landscape. We are in a prime position to deliver solutions given our technology expertise in defense, space and quantum. Our opportunity set is not only the best we've seen, but we believe is also the best in our industry, and our relevancy is critical to the mission of the defense of our country and allied partners. Although this quarter showed a temporary decline in revenue and earnings, our strong fundamentals remain unchanged. We continue to generate profitability in our core technologies and are actively investing in innovation to drive long-term growth. With a debt-free balance sheet and the unwavering commitment of our talented workforce, we're confident in the company's continued strength and bright outlook. Our leadership in position, navigation and timing has never been more paramount in the industry. Traditional customers as well as emerging leaders are engaging with FEI, recognizing our unparalleled and growing technical leadership, coupled with manufacturing expertise. We have also now proven our ability to execute complex contracts with greater speed and precision than industry norms. In recent years, we have returned cash to shareholders via 2 significant special dividends while still investing in the business for future growth. Today, the company announced a $20 million authorization for the repurchase of shares, and we remain committed to both investing for the future and finding ways to return cash to shareholders. Please see today's 8-K for further information. Before I turn the call over to Steve to discuss our financials in greater depth, I want to highlight an issue making global headlines that goes to the heart of our mission, the growing battle to protect time. As the Financial Times recently reported, the ultra-precise clocks that power GPS and other satellite systems are increasingly at risk. From war time jamming and spoofing to accidental outages and even potential attacks on satellites themselves. This isn't just about navigation. Time is the invisible utility that keeps the world running. Financial markets, power grids, telecom networks and emergency services all depend on precise secure timing. Even a small disruption can ripple through critical infrastructure with serious consequences. In one recent case, suspected Russian GPS interference forced the European Commission President's plane to abandon satellite guidance and land in Bulgaria reportedly using paper maps. That's why governments worldwide are accelerating investments in resilient timing. The U.S. has unveiled its most advanced atomic clock. The U.K. and France have pledged to strengthen infrastructure together. Sweden is upgrading national timing systems to secure 5G communications. For FEI, this is powerful validation. Our technologies in alternative PNT and quantum enhanced timing are designed precisely to close these vulnerabilities. We're not just a supplier, we're a strategic partner helping ensure that our nation and our allies can rely on resilient, secure and sovereign sources of time. In summary, we remain highly confident in our continued upward but not necessarily linear trajectory and our increasing strategic importance in the industry. We look forward to demonstrating this in the quarters and years to come. I'll now turn the call over to Steve, and I look forward to taking your questions in a little bit later in the call. Steven Bernstein: Thank you, Tom. Good afternoon. For the 3 months ending July 31, 2025, consolidated revenue was $13.8 million compared to $15.1 million for the same period of the prior fiscal year. The components of revenue are as follows: revenue from commercial and U.S. government satellite programs was approximately $6.5 million or 47% compared to $8.3 million or 55% in the same period of the prior fiscal year. Revenues on satellite payload contracts are recognized primarily under the percentage of completion method and are recorded only in the FEI-New York segment. Revenues from non-space U.S. government and DOD customers, which are recorded both in the FEI-New York and FEI-Zyfer segments were $6.9 million compared to $6.3 million in the same period of the prior fiscal year and accounted for approximately 50% of consolidated revenues compared to 42% for the prior fiscal year. Other commercial and industrial revenues were approximately $439,000 compared to approximately $544,000 in the prior fiscal year. The revenue for the 3 months ending July 31, '25, is lower than expected due largely to several externally imposed program delays, which halted work on the affected programs. Importantly, these delays are not expected to result in overall program revenue reductions and the revenue shortfall from the first quarter of fiscal '26 is expected to be made up in the upcoming quarters, predominantly in this fiscal year. For the 3 months ending July 31, '25, both gross margin and gross margin rate decreased compared to the same period in the prior fiscal year. The decrease in gross margin was primarily due to the decrease in revenue and the decrease in gross margin rate was attributable to quarterly fluctuations in the mix of business activity between higher-margin programs and lower-margin programs. As we have stated in the past, gross margin on the manufacture of existing products are generally high, whereas gross margin on development efforts and new products are typically lower. For the 3 months ending July 31, '25 and '24, selling, general and administrative expenses were approximately 26% and 19%, respectively, of consolidated revenue. The increase in SG&A expense during the 3 months ending July 31, '25, was primarily related to onetime expenses related to investments in the future growth of the company, including expansion into Colorado and quantum sensing and an increase in payroll-related expenses. R&D expense for the 3 months ending July 31, 2025, decreased to approximately $1.1 million from $1.5 million for the 3 months ending July 31, a decrease of approximately $400,000 and were approximately 8% and 10%, respectively, of consolidated revenue. Fluctuation in R&D expenditures will occur in some periods due to current operational needs supporting ongoing programs. The company plans to continue to invest in R&D in the future to keep its products at the state-of-the-art. For the 3 months ended July 31, '25, the company recorded operating income of approximately $364,000 compared to an operating income of approximately $2.4 million in the prior fiscal year. Operating income decreased due to lower revenue and gross margin, as previously mentioned. Other income expense net is derived from various sources. The majority of the approximately $200,000 investment income for the 3 months ending July 31, '25, was from interest income and unrealized gains on assets held in the Frequency Electronics deferred comp trust. This yields a pretax income of approximately $556,000 for the 3 months ending July 31, '25, compared to an approximately $2.6 million pretax income for the 3 months ending July 31, '24. For the 3 months ending July 31, the company recorded a tax benefit of $77,000 compared to a tax provision of $133,000 for the same period of the prior fiscal year. Consolidated net income for the 3 months ending July 31, '25, was approximately $634,000 or $0.07 per share compared to approximately $2.4 million or $0.25 per share for the same period of the prior fiscal year. Our fully funded backlog at the end of July 25 was approximately $71 million compared to approximately $70 million for the previous fiscal year ended April 30, '25. The company's balance sheet continues to reflect a strong working capital position of approximately $30 million at July 31, '25, and a current ratio of approximately 2.3:1. Additionally, the company is debt-free. The company believes that its liquidity is adequate to meet its operating and investing needs for the next 12 months and the foreseeable future. I will call -- turn the call back to Tom, and we look for your questions shortly. Thomas McClelland: Thanks, Steve. I think we're now prepared to take questions. Operator: [Operator Instructions] And the first question today is coming from George Marema from Pareto Ventures. George Marema: Thanks, Tom. Back in the beginning of the year, this last winter, you kind of outlined some of your various clock technologies, including the rubidium vapor clock, the mercury ion clock, of course, quantum sensing and NV Diamond magnetometer and you kind of gave some time lines on that. I just wonder if I can get an update on sort of the progress on these, the productization of these things and sort of like an updated time line on when these might be convert to actual product. Thomas McClelland: Okay. Well, keep in mind that we have atomic clocks that are available off the shelf at this time. And in fact, we're actively producing. In particular, we have a satellite grade state-of-the-art GPS atomic clock for GNSS satellite systems that we're actively producing. But to address some of the more advanced things that we are working on, in particular, as you stated, we're working on mercury ion, atomic clock. And we are actually beginning to produce prototypes at this point in time in collaboration with the Jet Propulsion Laboratory. And we anticipate that this will be ready for low-rate production in another year or so. We're also, as you stated, working on various magnetometer technologies. This is primarily to support a very important field at this point in time, which is alternate navigation sources that are completely independent of GPS and related satellite navigation systems. We have externally supported programs to develop this technology, in particular, NV Diamond magnetometer technology. And we anticipate by the middle of next calendar year to have prototypes available to support testing done by some of the -- our potential customers. And roughly a year after that, we're anticipating that we'll have a next generation higher performance devices available. Let me leave it at that. George Marema: Okay. And I had one more question, which is kind of a 2-part question about quantum sensing. The first one is just sort of a general update on where we are on the space application. But -- and I know you guys focus on space applications, but I was wondering, there seems to be some emerging research on how quantum sensing can also be used in other areas like quantum computing, for example. Has there been any thought, discussion or interest in applying your technology to anything outside of space? Thomas McClelland: Yes. So quantum computing doesn't necessarily exclude space. So the space, it's not like those are opposites, space and quantum computing. But certainly, we also don't need to do quantum computing in space. I think that at this point in time, we are not investing directly in quantum computing. But a lot of the technologies that we're working on potentially have applications in quantum computing. And I think our approach is that quantum computing is a very tricky kind of business. I think everybody realizes it's not ready for prime time right now and an awful lot of people working on it. And instead, we're focusing on some aspects of quantum sensing that it's very clear that we can make a contribution very quickly in the near future. At the same time, I think we are aware of what's going on in quantum computing, and we're trying to put together a workforce that's part of the reason for our investment in the Colorado facility so that we put together an engineering team with the kind of expertise that can potentially contribute to quantum computing in the future. George Marema: Okay. Thank you, Tom, for your outstanding leadership. I appreciate it. Thomas McClelland: Thanks. Operator: [Operator Instructions] And there were no other questions from the lines at this time. I will now hand the call back to Thomas McClelland for closing remarks. Thomas McClelland: Okay. Well, I would like to thank everybody for taking the time to listen and to participate in today's earnings call. We look forward to providing further updates in the coming months. Thank you. Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the ADF results for 3 months and 6 months ending July 31, 2025 conference call. [Operator Instructions] This call is being recorded on Thursday, September 11, 2025. I would now like to turn the conference over to Mr. Jean-Francois Boursier, Chief Financial Officer. Please go ahead. Jean-François Boursier: Good morning, and welcome to ADF's conference call covering the second quarter and 6 months ended July 31, 2025. The I am with Jean Paschini, Chairman of the Board and CEO of ADF, who will be available to answer your question at the end of the call. I will first update you on our quarterly and year-to-date results, which were disclosed earlier this morning by press release and then proceed with a quick update about our operations, including our multiyear contract announcement from last July 23rd and also about last week's acquisition announcement. First, a word of caution. Please note that some of the issues discussed today may include forward-looking statements. These are documented in ADF Group's management report for the second quarter and 6 months ended July 31, 2025, which were filed with SEDAR this morning. Revenues for the quarter ended July 31, 2025, at $53 million were $21.9 million lower than last year. Year-to-date, revenues stood at $108.5 million compared to $182.3 million for the 6-month period ended July 31, 2024. While the corporation's order backlog is more than adequate, exceeding $468 million as of July 31, 2025. The uncertainty surrounding the U.S. tariffs has created a nonrecoverable delay in fabrication hours, mainly at ADF plant in Terrebonne, Quebec. As such, and as previously announced, a work-sharing program was implemented at ADF plant in Terrebonne, Quebec and remained in place for virtually the entire quarter ended July 31, 2025, thus, reducing fabrication hours and consequently, revenues for the same quarter and year-to-date. We closed the second quarter ended July 31, 2025, with gross margin of 20.7% as a percentage of revenues down from the exceptionally high 36.9% margin for the quarter ended July 31, 2024. While the year-to-date gross margins as a percentage of revenues at 21.3% is also down from the 32.3% margin for the 6-month period ended last year, July 31, 2024. As I just mentioned, the decrease in revenues required ADF to implement a work-sharing program at its Terrebonne plant. This program has allowed the corporation to mitigate the negative cost impacts of the decrease in fabrication hours but not entirely. Tariffs also had an indirect negative impact on the corporation margins, impact which is caused by the increase in the price of steel set by the U.S. steel mills. Adjusted EBITDA for the quarter ended July 31, 2025, at $3.7 million compared to $24.9 million for the same quarter ended a year ago, while year-to-date adjusted EBITDA stood at $14.1 million compared to $48 million for the 6 months ended a year ago. It is worth mentioning that while the financial results for the period ending July 31, 2025, are severely impacted by the tariff and associated turmoil, last year's results were impacted by an exceptionally favorable product mix. Again, this quarter, the mark-to-market valuation of our DSUs and PSUs impacted our SG&A expenses. For the quarter, and considering the increase in ADF share price during that quarter, SG&A expenses at $8.8 million were $4.6 million higher than last year. The stock price variation for the full 6 months was not as significant. As such, year-to-date SG&A expenses stood at $12.2 million actually $1.7 million lower than for the 6 months ended July 31, 2024. We, therefore, closed our second quarter with net income of $898,000 or $0.03 per share compared to $16 million or $0.51 per share for the corresponding quarter a year ago. Year-to-date, net income stood at $9.6 million or $0.34 per share compared to $31.3 million or $0.98 per share for the same period ended July 31, 2024. We closed our second quarter with $50.9 million in cash and cash equivalents, $9.1 million lower when compared to the January 31, 2025, closing balance, while working capital as of July 31, 2025, reached $105.5 million. Year-to-date, operating cash flow reached $7.4 million for the 6-month period ended July 31, 2025, while we spent $3 million on property, plant and equipment and intangible assets acquisitions, including an update of ADF ERP system, which is scheduled to take place over the next 3 fiscal years. In addition, and as mentioned with the July 23 multiyear contract announcement, we will be investing in new equipment at our Terrebonne site, which should bring our full year CapEx investment at approximately $11 million. Yesterday, our Board of Directors approved the payment of the second semiannual dividend, which now stands at $0.02 per share. This dividend will be paid on October 16 to shareholders of record as of September 26, 2025. Finally, we closed the quarter and 6 months ended July 31, 2025, with an order backlog of $468 million. It should be noted that the order backlog as at July 31, 2025, does not include the option to extend the contract announced last July 23 by 5 years. We cannot escape from the negative impact of the U.S. tariffs on our year-to-date results. This said, we have chosen to look ahead and find innovative solutions to these new challenges. In light of the new economic realities, we have put in place solutions that will allow ADF to not only continue its growth, but also to protect itself against the uncertainties brought about these changes in trade policies. First, we announced a few weeks ago a 5-year term contract, including an option to extend it by -- to extend it 5 additional years for a new infrastructure project in the energy sector in Quebec. Moreover, on September 2, we also announced that ADF had entered into an agreement to acquire, subject to the approval of the Superior Court of Quebec, the Group LAR and certain of its subsidiaries. Briefly, Group LAR is a Canadian leader in the design, manufacture and installation of mechanically welded steel structures, primarily focused on the rapidly expanding large-scale hydroelectricity market, the LAR Group also offers customized overhead crane solution for the heavy industry. The LAR Group generated close to $81 million in revenues for the fiscal year ended December 31, 2024, and had an order backlog of $104.5 million as of July 31, 2025, which should progressively be realized before the end of ADF fiscal year ending January 31, 2027. This backlog is not included in the -- in our previously confirmed July 31, 2025, for $468 million backlog and will not be until the transaction is completed. We expect this transaction to close in the next few days. Once closed, we will be able to provide you with more information. These 2 announcements should not only provide recurring revenues to ADF for the next years, but allow us to significantly increase the Canadian content of our order backlog, thus, reducing our exposure to the U.S. market and recent uncertainties thereof. Thank you for your interest and confidence in ADF. Jean and I will now answer your questions. Operator: [Operator Instructions] Your first question comes from Nicholas Cortellucci with Atrium Research. Nicholas Cortellucci: First thing I wanted to ask about here was I saw in the MD&A, there was a mention of you guys achieving a nuclear certification. So just wanted to see if you had any more color on that and if that's a new sector you guys are working to break into? Jean Paschini: Yes. We just received our certification of nuclear. There's quite a bit of work coming in Ontario. So that's going to be a big market for the next 5 to 10 years. Right now, we have -- our people working with the general contractor and companies down in Ontario, and we should see something by I would say, beginning of next year. Nicholas Cortellucci: Okay. Got it. And that's -- you guys haven't done work in the sector before from what I understand? Jean Paschini: Yes, we did 5 years ago. We did a project in Ontario. So right now, we are certified. We have everything. So it's a go for us. Nicholas Cortellucci: Okay. Awesome. All right. And then shifting to LAR. Maybe just walk us through the rationale behind it from a geographic perspective and how that changes your guys' geographic mix and client mix going forward? Jean Paschini: Well, listen, with what's happening right now in the U.S., it's tougher to get work here in Terrebonne, okay? Because of the tariffs, we don't know exactly what's going on. It could change from one day to the other. So right now, what we're doing, Great Falls, it's full, okay? We're -- they have quite a bit of work, U.S. work in California, Oregon and all those places. So they're good for the next year. They have a nice big backlog. Here in Terrebonne, we have worked for the next -- the second half of the year is going to be good, okay? Plus then our project in infrastructure is going to kick in beginning of next year. So that's -- and then we are looking to get more work here in Terrebonne. In Métabetchouan LAR, they have good work. They didn't have any bonding in the last few months. So the last jobs, but not the job that we announced, they have $108 million, if my memory is good, $104 million on the backlog. So right now, once the acquisition is done, while they're going to get bonding, they're going to get everything. So I would say by the end of this year, backlog is going to go up. And most -- what they do is mostly in Quebec, Ontario and BC. So with the financial support with the bonding company -- with our bonding capacity, backlog will go up in the next 6 months. I've got no doubts at all. So backlog is going to go out. Backlog is going to go up. So there's quite a bit of work we're going to be able to do here in Terrebonne for them. And so I would say that it's going to be fantastic for the Terrebonne shop. It's going to be fantastic in Métabetchouan, the LAR shops and then our U.S. facility in Great Falls, no, they have work, and we're bidding quite a bit of work down there. So I want to book them at least 150% of their capacity. So if you look at all the 3 entities, it looks good for the future. Nicholas Cortellucci: Okay. Makes sense. That's good to hear. And then what are kind of the integration steps that you guys need to go through? And what are those synergies that you're looking for? Jean-François Boursier: Well, as we mentioned, we'll start by closing the deal. So that's really the first step we need to do. We obviously are in discussion with them. So we're in the process of laying out not only from a production standpoint, but also from an administrative standpoint, how we will be working together to get those synergies. I think the first one should the deal be closed or once the deal is closed and hopefully within the next couple of days, as we mentioned previously. But one of the first synergy for LAR is that they'll be able to bond jobs going forward. That was obviously because of their actual -- the present financial -- their financial position. They had a tough time getting bonding agencies to follow them. So that will all be solved just because of the strength of the balance sheet of ADF. So they'll be able to get back on the bidding process because there's -- not only do they have a good backlog as it stands now, but the pipeline is really, really good. So that's going to be the first impact, but then there's -- we won -- we did mention it also in the press release, we want to invest. We're also in discussion to make sure that we do the right thing. We want to increase their capacity. We want to provide them with additional equipment because the fact of the matter is that they were performing really well with the type of equipment they were getting. So if we can improve the equipment and to adding their know-how and their experience, they were bound to just there to improve on the efficiency and obviously, that would show up on the margin. But this is all coming up. Again, as we mentioned, we need to close the deal. And once we -- the deal is closed and that we can actually move forward with what we need to do, we'll be able to provide more color to this acquisition. Jean Paschini: Yes. But I think what we're going to do is once the deal is closed, we'll do another conference call with all the investors to tell you exactly what's our game plan. Nicholas Cortellucci: Okay. No, that makes sense. And then just last one, JF. I know you mentioned CapEx for the full year, you're targeting to be about $11 million. So that's a pretty big jump from the first half. So what does that entail? What are you guys looking to do with that? Jean-François Boursier: It's basically for the project we announced at the end of July. So we need to add equipment at our Terrebonne shop to be able to especially since it is a long-term project, at least 5 years, most probably 10 years. So we want to equip ourselves to be able to deliver that project more efficiently. Once we do the -- once we -- again, once we finalize the close and as I just mentioned, we're also looking at investing for the -- for Group LAR. So the $11 million obviously doesn't include anything that would be -- that would happen between now -- between the close and the end of the year for -- specifically for LAR. So that too will be done in an update once we close the deal. But based on ADF, as we know it today, excluding LAR as at July 31 and including the requirement for the new project we announced, the $11 million is based upon these assumptions. Operator: [Operator Instructions] Your next question comes from Abigail Zimmerman with Lowell Capital. Abby Zimmerman: I guess, first of all, we find the company very attractive. Our question would just be, given your exposure to fixed-price contracts and large customer concentration what would you say are the key strategies that help you manage the contract risk? Jean-François Boursier: We -- well, historically, this is something that's really part of the way our business is done. We are signing a few contracts, and we've always had the concentration from a revenue standpoint, and it's been the case for the past years and has been with the company for 15 years and even longer than that. So obviously, in light of that, we have a certain set of rules when we negotiate and sign contracts. First, we only deal with really major clients, general contractors and clients, so which by themselves are financially strong and with strong balance sheet. And additionally, when we sign contracts, there are a number of contractual clauses that we just won't budge from or deviate from. So we will considering that although getting bigger, but we do sign a big contracts, and there's always the huge potential of the contracts going sideways. We need -- we manage the risk pretty closely. We do spend a lot of time making sure that we are not only comfortable with the operational requirement from each project, but most importantly, that we are 100% comfortable with the contractual clauses. In the past, we have passed on really interesting contract that would have provided good revenues, good margin, but the contractual clauses were just not acceptable for us. So we passed on those projects. And I think this is -- not I think, but this is something that ADF has been doing for the past years and has enabled us to be able to be 100% comfortable with our backlog and the fact that the backlog would deliver positive results and not have a really huge backlog, but with so many risks that you end up announcing contracts, but then you end up 1 year, 1.5 years, 2 years later announcing write-offs. So this is something from a strategy standpoint that is well known in the market. This is something that's been the mantra for ADF for the longest time. And at the end of the day, it might not be as sexy from a contract announcement standpoint, but it does assure a steady growth to our company and also a profitable growth to our company. So this is really the way we handle these contracts and the fact that we are bound and we are stuck with having year-over-year 1, 2 or 3 major projects being the majority of our revenues. This is something also that's part of the -- of our market. So hopefully, it answered your question. Abby Zimmerman: Yes. That's helpful. And my other question is just given your exposure to these government and large-scale corporate projects, would you say that you would describe yourselves as more of an infrastructure company? Or is that the right way to think about the business? Or is there a different way you prefer investors to kind of frame ADF's role in the market? Jean-François Boursier: Well, I'm not sure how to answer that question. We're really -- we're not specific to -- we're in the industrial, commercial market. We've done airports. We've done sports complex. We've done -- so we're basically pretty much in all the complex structure market, not -- we do work on the private side. We also do private public work. Obviously, for public work in the U.S., most of the public projects are tied to the Buy American Act. So those projects, we are able to take, but they need to be manufactured from our Montana plant. So we're compliant with the Buy American Act from that standpoint. So it's really -- we are able to tackle pretty much all the projects. It's just that over the years, because of our experience, because of our equipment, we're definitely better known and really good at working on the more complex work, the heavy work, the fast-track project. So that's where -- really where we differentiate ourselves from the others. So that would explain the environment and the market that we're working in. Operator: Your next question comes from Jesus Sanchez Leon with Castañar Investment. Jesus Sanchez Leon: I want to get your insights about the current situation. Obviously, there is a lot of talk about tariffs, a lot of talk about how contracts are lost, how contracts will have to stop. But I see a growing backlog in our company. I see $468 million plus $100 million of LAR plus $40 million of the big contract we won recently that puts us in $600 million. So it's kind of like my numbers are telling something different than narrative. Am I losing something in the narrative? Or what's your take on that? Jean-François Boursier: Well, just to clarify, the $468 million does include our announcement from last July. So the $468 million is as of July 31. LAR, the $100 million from LAR, that's their backlog. But as long as the acquisition, as I mentioned, is not closed, this is not part of the backlog. So to your point, as of July 31, including the contract we announced at the end of July, our backlog in Canadian dollars, ADF Group is $468 million. Should we close or once we close the deal by consolidating LAR, yes, we'll be picking up about $100 million of new backlog once we're done. And the nice thing about that backlog is it's entirely Canadian volume. So it will reduce our exposure to the U.S. market. So I just wanted to clarify. This said, considering in light of the tariffs, the negotiation historically and still today from a steel manufacturing standpoint, the U.S. market is the biggest market for us, and that will remain. Because of the tariffs, signing contract in the U.S. is really, really difficult. We know and Jean mentioned that before on the call, we know the rules and the exclusion and how the tariffs work today. But what we don't know is how long those exclusions or these rules will be in place because there is nothing that tells us that they won't -- the administration won't change the way they apply the tariffs. There is no -- nothing telling us that they won't change the actual rate of the tariff store altogether get rid of the tariff. So we can only work on what we know now, and that's what's created the issue because, obviously, when you negotiate a contract with a U.S. client today, we're able to confirm what the reality is today. But when they ask what happens if they change their mind, the U.S. administration changes their mind in the next week, 2 months or what have you. Since we signed contracts that normally between the time we signed the contract and we end the project, it's anywhere between a year or 2 years, sometimes more. We can promise them that if the tariffs rules change and we end up having an additional 35% or even 50% or even 85% additional tariffs should they be added together, we can't tell the client that we'll absorb all these costs. And that's when you get into this what-if discussion, that the negotiations start stalling and take forever. So factually, the market -- the U.S. market is still good. There's still lots of opportunities. It's just that it definitely takes longer. We've been able to announce contract in July 31 -- the end of July contract we announced a multiyear contract is a contract in Quebec. So that's Canadian content. As I just mentioned, LAR if once we close, would bring additional Canadian content also. So as much as we can, we try to steer away from the -- at least to add Canadian content to balance out to not to be as subject to U.S. tariff. But the fact is that we do have a plant in Great Falls. We'll try to maximize the plant in Great Falls with U.S. volume, and that's really the approach we were taking. But -- and we'll see it in the next quarters. The market or the contract signing or the negotiation process are definitely tougher than they've been. It creates a lot of uncertainty. People are obviously -- clients are obviously concerned about potential additional costs going forward, as are we, and you try to navigate through all of these, which makes for longer negotiation. But we'll try to optimize. We have the chance to have a really efficient plant here in Terrebonne. We do have a chance to have a really efficient plant in Montana that's able to handle those U.S. contracts without tariffs issues. So we'll maximize our operation. We'll maximize the different solutions we have to all of these concerns and go from there. But as you've seen in our results, it did put a strain on the results. It does add cost to our cost base. So it's a tough environment. Jesus Sanchez Leon: Understood. Just another one for me. We have an NCIB in place, but we stopped buying back at the end of May i.e., now in retrospective, we see that there was an acquisition there that we now are facing more CapEx expenditures to fulfill this big contract. But on the other hand, we are a no debt company cash generative. What are your thoughts about the NCIB? What it's going to be? Jean-François Boursier: Yes. Well, we -- as you mentioned, we did complete the NCIB that was put in place in December. So it was in total just under $1.8 million. We completed it at the beginning of our second quarter. So the NCIB, we initiated last December is done. By TSX rules, we cannot put a new NCIB in place before next December. But to your point, considering the acquisition, considering the additional CapEx and without -- we haven't discussed the second NCIB, but should the deal go through, we will also look at additional CapEx investment for Group LAR and we'll also need to support the initial working capital of LAR, just to keep them going from an operational standpoint. So we haven't made a final decision on NCIB, but if I'd be putting something in -- if you want to have my take on it for now, I don't think we'll be putting a second -- a new NCIB program in place when December comes when we would be able to do it in light of everything I just mentioned. Operator: Your next question comes from [ Richard Kochan ], an investor. Unknown Attendee: I would love to do this in French, I will stick with English.[Foreign Language] is going to shift the capacity. Is there a capacity number at which Montana is running right now? Jean Paschini: Right now, we're running -- I would say we're running right now at about 60%. Unknown Attendee: And this is more of a political nature. And I don't want to -- you probably won't be able to answer. But even though you're based in the U.S. knowing that you're a Canadian owned company, is there -- do you feel any resistance bidding for projects out there with your -- obviously, your big one was [ Lilly ], I think, in the past? Or is there -- is this all about pricing and delivering the goods on time? Jean Paschini: No. Right now, we don't see -- it's the price and delivering the good on time. And we don't see any resistance because we're a Canadian company. Bear in mind, over there, it's all U.S. people. And when we sign a contract, they want to make sure that it's going to be done in Montana and in Terrebonne. So there's no problem. Unknown Attendee: Okay. And with all these pharmaceutical announcements of new plants and data processing center, are these things that you could be potentially bidding in the short term? Or that's par for the course? Jean Paschini: Well, it's part of the next year bidding. Unknown Attendee: I guess it's fair to say with our friends at Hydro-Quebec going full tilt with the CapEx for the next 10 years. And our friend, Mr. Carney, our Prime Minister announcing all these infra that these are the 2 main, I guess, guiding avenues on which you're going to be focusing on in the next year or 2? Jean Paschini: Yes. And we will be focusing on all the projects in Canada. Unknown Attendee: Okay. And just -- this is more technical from an accounting point of view. The revenues and gross margins were more or less as expected, a little weak. But where the net income and EBITDA were down a lot because of the PSU and the DSU, I mean, these are like your stock performance units and your deferred share units. Is this going to continue being either an expense or the volatility of stock will determine how you account for that? Jean-François Boursier: Well, actually, I should be asking you the question because that depends on how the market reacts. So obviously, if the stock goes up, it means that we need to increase the -- our DSU and PSU provision because we need to carry the DSUs and PSUs at market value and market values is established per the stock price. So if the stock goes up, it means my provision goes up and my SG&A go up. If the stock goes down, provision goes down and the SG&A goes down. So it's sort of a good news, bad news. It's if the stock goes up, everybody is happy, just that it does have an impact on our SG&A provision and the provision we carry for those DSUs and PSUs. Unknown Attendee: Maybe to reassure the market because there was a lot of noise, as you know, in the last 1.5 years, what percentage of shares does the family own as we speak today? Jean Paschini: We own about 13 million shares. Jean-François Boursier: So it's about 40% of the total shares and it's 85% of the voting shares. Unknown Attendee: Okay. So it's fair to say you still have skin in the game? Jean Paschini: Absolutely. Jean-François Boursier: Actually a bit more than skin so... Operator: There are no further questions at this time. I will now turn the call over to Mr. Jean-Francois for closing remarks. Jean-François Boursier: Thank you for your interest and confidence in ADF. Again, we wish you to thank you for your interest and support of ADF Group. Have a nice day. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Ignacio Sison: Good morning to all. Thank you for joining Del Monte Pacific's results briefing for the first quarter ending July of fiscal year 2026. Representing Del Monte in this call are Cito Alejandro, Chief Operating Officer of Del Monte Pacific and President and COO of Del Monte Philippines; Parag Sachdeva, CFO of DMPL and DMPI; and I'm Iggy Sison, Chief Corporate Officer of DMPL. This morning, we'll go through some financial and market slides just to provide an overview and then proceed to the Q&A. Parag Sachdeva will now present our results followed by Cito Alejandro. Parag Sachdeva: Good morning, everybody. Sharing with you on this slide, the key financial highlights. DMPL did sustain its growth trajectory in first quarter of 2026 following a strong Q4 performance in last fiscal year. Our sales of $203.7 million was up 13%, driven by both the domestic business in Philippines as well as international markets. Our net profit at $5.5 million increased from $0.4 million, driven by improved sales and margins. I would also like to highlight that effective 1st May 2025, the company's U.S. business has been deconsolidated from DMPL. Next slide. In terms of strategic priorities and outlook, very consistent with last quarter. DMPL remains focused on growing the Asian operations to drive long-term growth and profitability. DMPL's subsidiary, DMPI, continues to perform well with resilient consumer demand in both domestic and international business and supported by a strong and stable supply chain. The immediate key priorities include reinforcing market leadership in beverage, culinary and packaged fruit that constitutes our core business in Philippines. And we continue launching new products in adjacent categories to broaden the consumer base. From a channel perspective, convenience stores, away-from-home drug stores and schools continue to provide avenues of accelerated growth. On the international side, we continue to maintain leadership in fresh MD2 pineapples across North Asia. Operations also has been seeing very favorable trajectory and that's also reflected in our gross margins, which we will dwell into in a minute. And cost management-wise, the focus continues to proactively reduce waste, manage inventory and lower inventory write-offs. Capital structure, which is one of the biggest priorities for us. We continue working on all avenues to raise equity to lower leverage and offset the NPLs capital deficit resulting from U.S. impairments in fiscal 2025. And barring unforeseen circumstances, the company does expect to be profitable in fiscal 2026. Next slide. Now a deep dive into our first quarter results. Our turnover grew at $203.7 million grew 12.9% with a very good mix on both pricing as well as volume. From our Philippines market perspective, we achieved a double-digit growth in local currency, and that was equally helped by pricing, which was in line with inflation and wall mix, which grew at 7%. When it comes to international business, overall, we saw a growth of 6.4%, driven mainly by fresh, which grew double digit at 10.2%. In terms of our gross profit, the growth was significant at 32.8%, driven by improved pricing across both international business as well as Philippines, increased volume. We also saw favorability in mix. Let me give you an example of that. Our fresh business had higher sales of Deluxe variety, which obviously augurs well for us from a gross profit and margin perspective. And similarly, we saw sales of our key core businesses in -- in Philippines market to grow that have higher margins. On the plantation side and calorie side, we saw improvement in cost. That was driven by a favorable trend on processed pineapple productivity, which was at 150 metric tons per hectare. And more importantly, the trajectory of this has continued to improve in line with our previous commitments that Cito had outlined. So with that, gross margin driven by pricing, favorable mix and improved productivity across operations has meant that we improved by 490 basis points in the first quarter. EBITDA in line with gross margin improved and despite an unfavorable impact from unrealized FX loss of close to $5 million that has been booked in Q1, we achieved an 11% improvement in EBITDA. The unrealized FX impact was mainly due to devaluation of peso at the end of July, where it spiked to 58.2 versus average levels of 57. Net profit driven by operating profits, EBITDA at 5.5 million was significantly higher than last year. And debt also at $1.02 billion was lower by 5% as we continue to generate internal cash and stretch our working capital to lower our leverage. In terms of net debt to EBITDA, there was an improvement of 2.6x and cash flow from operations, as I mentioned before, driven by profitability and continued focus on working capital has improved significantly at $76.8 million. With that, let me hand it over to Cito and Iggy to cover the balance of the presentation. Luis Alejandro: Good morning, everyone, and welcome to this investor meeting. I shall now talk about the Philippines. First of all, the NPL sales, 13% up versus a year ago at $204 million. Philippines sales at $88.4 million, 10% in peso terms and 15% up in USD terms. We continue to realize growth in the Philippines, driven by strong demand across our core categories. And if you were to summarize our growth strategy, it would be twofold. Number one is market share grab, particularly in categories with deep competition. And the second is increased usage of the product among current as well as tapping into new users. In the beverage category, we continue to strengthen leadership by sustaining relevance with health-conscious consumers. 100% pineapple juice led by Heart Smart, reinforcing juice as part of a heart healthy daily habit. Also functional benefits such as digestive wellness with fiber enrich and immunity building with the 100% ACE juice. Innovation also took a part in our growth with the successful launch of our Fruity Zing and Fit 'n Right Green Apple, which expanded the company's footprint in the ready-to-drink PET segment, targeting younger lifestyle-driven consumers. In culinary, we drove penetration through -- by positioning most of our culinary products as a nutrient-rich ingredient with Lycopene, vitamins A and C and iodine to improve family nutrition. This was further supported by our nationwide Nutrilicious advocacy, which aligned the brand with the national agenda of addressing malnutrition by promoting nutritious, delicious and affordable meals for everyday consumption. In packaged foods, we are seeing traction in our sales and marketing efforts to extend usage beyond holiday occasions into year-round celebrations and everyday dessert. At the same time, nutrition-led campaigns expanded the role of pineapple as a super food for everyday cooking, highlighting its phytonutrients that support immunity when paired with proper diet and exercise, okay? Let's now go to the international business. Okay. Sales in International grew by 6% to $98 million. This was primarily driven by higher fresh pineapple sales, particularly in China and Japan, supported by improved product mix and better pricing. Our premium S&W Deluxe pineapple, which is now our hero product, if I may say so, continues to grow and now accounts for a higher share of the company's exported fresh pineapple. We have also introduced and are seeing some increased traction in our fresh cut-packs in China to further boost demand for the company's pineapple product. Pleased to note that S&W was awarded Supplier of the Year by Good me, China's biggest food chain with more than 10,000 stores across the country. And in Japan, fresh pineapple sales increased by 20% due to higher demand of fresh cut in retail plus the entry of the S&W Deluxe pineapple with a new customer. In summary, if I were to look at the market share of fresh in North Asia, we now have a commanding leadership share of 50% in North Asia. And this is driven by our leadership share of 72% in China, leadership share of 42% in Korea and our strong #2 position in Japan at 23%. So that about sums up our -- the status of our business, both in the Philippines and international. So Iggy, we will now open the floor to questions. Ignacio Sison: And Jennifer Luy will moderate the Q&A. Thank you, Cito and Parag. Jennifer Luy: [Operator Instructions] We have some questions sent in advance. So I will start with these questions first. The first question is gross margin increased significantly to 32.5%. Will this be the norm for the next 3 quarters? Or is it just an extraordinary instance? Parag Sachdeva: So thank you for the question. We expect the margins to sustain. And we are seeing the same trajectory, both from a revenue perspective as well as costs are also trending the same way, including commodities. So we expect the margin improvement to be sustainable in the coming quarters. Jennifer Luy: Thank you, Parag. Related to that, what kind of savings or cost reductions have been achieved at the DMPL holding level given only one remaining operating subsidiary? Parag Sachdeva: So we have a clear outlook and our focus, as you know, is mainly to optimize our leverage. That's what we are focused on, and that's reflected in our debt reduction. That's the majority of the cost that we have at the holding company level. And as you can see, over the last 12 to 18 months, the parent debt has considerably reduced, thereby having a lower interest cost at the parent level. So that's what our focus is when it comes to our holding company financials. Jennifer Luy: Thank you, Parag. For Cito, how sustainable is the growth in international sales? Luis Alejandro: It is fairly sustainable, if I may just summarize it. There are 2 components in international sales. The first component is the processed pineapple products, mostly canned products. That part of the business is very much sustainable because we anticipate an undersupply of the market in the next 3 to 4 years. And this is primarily driven by the lower tonnage -- pineapple tonnage right now in Thailand. And as you know, in Thailand, the farmers have shifted to other commodities where they would be more profitable and earn money. And more than 10 calories in Thailand have already closed down. So that is a critical development for us as far as sustaining our package business is concerned because in the past, Thailand was the #1 country, not just the #1 competitor, but the #1 country in pineapple tonnage. So that is the part of the packaged pineapple business, where there are really just 2 big players in packaged pineapple in Asia, meaning Del Monte Philippines or PhilPaC, which is our export operation and also the other big plantation in Indonesia, PT Great Giant. So that is going to be sustainable. The second part of the business in international is the fresh business. Even though we are seeing a lot of higher market share in the categories in the countries we compete in we have not yet exhausted the demand. As you know, the health consciousness of global consumers have actually escalated. In fact, even in other countries, you will see that more of the packaged fresh pineapple are the ones that are growing faster. And this is the same trend that we are seeing in Asia Pacific. From a fresh pineapple standpoint, we're not yet maxed out in China. We have not yet exhausted Tier 2 and even Tier 3, Tier 3 cities, we're not yet there. We're just in the core and entering the Tier 2 cities. And that is going to be our greatest driver. As far as competition is concerned, there are really 2. One is Fresh Del Monte, and they have a farm actually in Mindanao, but our tonnage and our spans of control is bigger. And the other one, of course, is Dole, which is predominantly focused on the Japan and the Korea market. And we are also selling in Japan and Korea. Beyond that, we also have shipments to the Middle East. So from a global or region demand standpoint, it is solid and growing. From a supply standpoint, it is undersupplied in packaged pineapple. But as far as fresh pineapple is concerned, we are the largest actually in Asia right now. We are ahead of Dole and Dole is the other player and other small players as far as hectarage and total shipments are concerned. Jennifer Luy: Thank you, Cito. Next question is with the deconsolidation of DMFI, does it mean DMPL will get nothing from this investment? Parag Sachdeva: That's what we are -- what we have assumed in our fiscal '25 results. We have taken a view that considering continued losses that have been incurred in fiscal '24, '25 and a significant increase in financing costs. Parent has decided not to invest. And accordingly, we have impaired our investments to 0 in our fiscal '25 results that have been recently finalized and were also shared with you on an unaudited basis at the end of July. Jennifer Luy: Thank you, Parag. Still on the DMFI, since DMPL still has significant ownership, what are the lenders, bondholders or the new Board doing with the DMFI? Were they able to turn things around or find a seller? Parag Sachdeva: As we know, the selling process is underway and is expected to conclude by November or December of 2025. So we will have to wait and see as to how the final process concludes. They have appointed -- the Board has appointed an investment banker to manage the process, and we continue to get updates through our Board members from time to time. In terms of performance, as we understand, the Board is focused on managing and optimizing cost, working capital and also focusing on growing the branded business and further downsizing any private label or nonstrategic businesses. Jennifer Luy: Thank you, Parag. On our loans of around $1 billion, what is the average lending rate? And how much will a 1% drop in interest rate affect the cost this year? And are the loans in U.S. dollar or in peso? Parag Sachdeva: Thank you, Jen. Most of our loans are in U.S. dollars. The split between U.S. dollar-denominated and peso-denominated loans would be around 80-20. That's the rough split. In terms of our average cost of borrowing, it's around 6.5% to 7%. That's what we are able to secure on our borrowings and 1% drop in interest rate would mean a reduction in interest expense by around $7 million to $8 million annually. Jennifer Luy: Thank you, Parag. Okay. Is there any update on capital raising activities such as the IPO of DMPI? Any time line for these activities? Parag Sachdeva: The process has been initiated by our DMPL and DMPI Boards. And clearly, this is a big priority for us. In terms of specifics due to confidentiality reasons, it would be difficult to share more details at this stage. Jennifer Luy: Thank you, Parag. From the internal cash flows, how much of our debt can be paid this FY '26? Parag Sachdeva: As we have demonstrated, our debt continues to be lowered. We were at $1.04 billion at the end of April. We are down to $1.02 billion to $1.03 billion. So we continue to lower our debt. But at this point of time, the main avenue of addressing capital -- addressing leverage would be some sort of an equity injection or a selected sale of assets. So that would be the main focus because there is a limit to which we can stretch working capital across the board, which we have done very well in the last 2 to 3 years. So main source would be of leverage reduction would come from equity raise, which we are prioritizing. Jennifer Luy: Thank you for the clarification, Parag. Our last question is, how much dividend is paid to the holding company to pare down the higher cost debt at the holding company last year? Is there any dividend payment policy for your subsidiary? Parag Sachdeva: Yes. In the last couple of years, our focus has been to upstream dividend from DMPI to DMPL so that the parent could continue meeting its obligations on a timely basis, which we have delivered on. Overall, the dividend payout has been between 75% to 100%. That's what we have followed and we think that would pretty much continue until we change the capital structure in the coming quarters or coming year. Jennifer Luy: Thank you, Parag. We don't have any more questions. So in case the audience has questions that they want to send, you can e-mail to me at jluy@delmontepacific.com, j-l-u-y@delmontepacific.com. Ignacio Sison: So thank you for [ joining ] our results briefing.
Operator: [Foreign Language] Good morning, ladies and gentlemen, and welcome to the Transat Conference Call. Please note that this call is being recorded. I would now like to turn the conference over to Andrean Gagne, Senior Director of Communications, Public Affairs and Corporate Responsibility. Please go ahead, Ms. Gagne. Andrean Gagne: [Foreign Language] Hello everyone, and thank you for joining us for our third quarter earnings call ended July 31, 2025. Annick Guerard, President and CEO; and Jean-Francois Pruneau, our Chief Financial Officer; will provide an overview of the quarter and comment on the current operational situation and commercial plans. Jean-Francois will also discuss our financial results in detail. We will then take questions from financial analysts. Questions from journalists will be taken offline after the call. The conference call will be conducted in English, but questions may be asked in French or English. As usual, our supplementary disclosure has been updated and is available on our website in the Investors section. Jean-Francois may refer to it when he presents the results. Our comments and discussion today may include forward-looking information regarding Transat, outlook, objectives and strategies that are based on assumptions and subject to risks and uncertainties. Forward-looking statements represent Transat's expectations as at September 11, 2025, and are therefore subject to change after that date. Our actual results may differ materially from any stated expectation. Please refer to a forward-looking statement in Transat's third quarter news release available on transat.com and on SEDAR+. With that, I would like to turn the call over to Annick for opening remarks. Annick Guérard: Good morning. Thank you for joining our third quarter conference call for fiscal 2025. Over the quarter, we improved our operating and financial performance with a 4.1% increase in revenue to $766 million and adjusted EBITDA of $81 million. These results are in line with our expectations. That said, the beginning of our summer season produced mixed results. On the one hand, we are pleased by the performance of our South program. Although this was the offpeak season, demand exceeded expectations as traveler preferences shifted away from the U.S. in favor of Mexican and Caribbean destinations. On the other hand, lower industry demand for transborder traveling resulted in a reallocation of capacity to transatlantic routes in addition to planned increases. This shift in supply created a more challenging environment for European destination in our peak season, but we have been able to hold our ground with a relatively stable yields. Looking at our operating metrics. Capacity expressed in available seat mile increased 2.4% over last year with capacity for transatlantic routes up 4.2%. Customer traffic expressed as revenue passenger miles increased 1% over last year, reflecting continued demand for leisure travel. Yield improved 2.6% year-over-year as a result of higher traffic and disciplined capacity growth, thus maintaining the positive momentum experienced since the beginning of the year. Our load factor stood at 85% compared to 86.2% in 2024. Turning to our Elevation program, benefits began to materialize as anticipated during the quarter. The positive impact of the program, combined with higher revenues, rigorous control of operating expenses and lower fuel cost resulted in improved operating profitability. Exactly 1 year ago, we launched Elevation with the goal of generating $100 million in annual adjusted EBITDA by mid-2026. We remain on track to achieve our target and drive results through cost reduction and revenue generation initiatives. Turning to our operations. I am pleased to report a fifth consecutive quarter of improved on-time performance. Our operational discipline rooted in our culture allows us to offer a quality experience to our customers while maintaining tight control over our expenses. We currently have a fleet of 43 aircraft, of which 6 are grounded due to the ongoing Pratt & Whitney GTF engine issue. We expect that number to gradually improve for the upcoming winter season. Needless to say, this burden has significantly affected our performance for over 2 years now, even though we are doing everything we can to minimize its impact. As announced last month, we completed a sale and leaseback transaction for 2 additional spare engines, which were part of the compensation received from Pratt & Whitney for grounded aircraft for 2025. Jean-Francois will provide additional details on the transaction in a few moments. Turning now to our network expansion. Since the last quarter, we announced new nonstop service from Toronto to Istanbul, Turkey, operating twice weekly starting in December. We have also established a partnership with Turkish Airlines to strengthen service between our 2 countries, offering consumers more travel options to destinations across the Middle East, Asia and Africa. We also announced new nonstop service to Rio de Janeiro, Brazil, with 2 weekly flights from Toronto and 1 weekly flight from Montreal, offering Canadian travelers more opportunities to explore South America. These additions are part of an extended winter offering, which includes 14 new routes. For next winter, we will also be adding frequencies on several existing high-performing routes to the South and across the Atlantic, reinforcing our commitment to strengthening our core network. Altogether, our enhanced winter schedule represents about 5% to 7% capacity increase compared to last year, mainly driven by the gradual return to service of aircraft currently grounded along with higher aircraft utilization. This expansion reflects our ongoing efforts to diversify the network and broaden our international footprint. We will be announcing additional destinations for 2026 in the coming months, further building on this momentum and unlocking new growth opportunities. We are targeting high potential markets with strong VFR demand and low seasonality, which help drive year-round traffic. Importantly, the strong performance observed to date of recently launched routes supports our diversification strategy. Longer-haul routes such as Rio and Istanbul play a key role in maximizing aircraft utilization and allowing us to optimize fleet efficiency. Finally, I am pleased to report that our brand and customer satisfaction continue to shine. Air Transat has been named the world's best leisure airline at the 2025 Skytrax World Airline Awards for the seventh time. This award is based on passenger satisfaction and reflects the unwavering commitment of our teams to placing the client at the heart of every decision we make. Thanks to our team's openness, attention to detail and constant desire to go above and beyond what is expected, Transat continues to stand out from its peers. Looking ahead, we anticipate recent trends to continue over the next few quarters, and we remain cautious in light of pressures on consumer discretionary spending. At this time, we are witnessing softness in our Q4 load factors, which are down 1.2 percentage points compared to last year. Yields are 3.1% above last year, although they are currently trending downward. As we enter our winter season, we continue to see strong demand for South destination supported by a shift in consumer behavior away from U.S. travel. That said, given the current environment, it remains difficult to predict how demand will evolve in the coming months. In conclusion, I want to once again highlight the significant progress made in terms of improving our balance sheet as the refinancing represents a major step forward for the long-term sustainability of Transat. We are also pleased with our results after 9 months. The results show us that we are focusing on the right thing. But we will continue to remain prudent going forward, considering economic and geopolitical uncertainty and a more challenging competitive environment. This concludes my remarks for today. Jean-Francois will now review our financial results. Jean-Francois Pruneau: Thank you, Annick. Good morning, everyone. Before addressing the quarterly results, let me review a few financial and operational highlights. On July 10, we completed the restructuring of the government debt. This agreement represents a major step forward to substantially deleverage our balance sheet and paves the way for Transat to further implement its long-term strategic plan. As you will hear from the results, this has significantly reduced our total debt at the end of the third quarter and resulted in a onetime gain on long-term debt extinguishment of $345 million. The sale and leaseback transaction for 2 Pratt & Whitney GTF spare engines acquired using credits received as competition for grounded aircraft in 2025 was completed at the end of July. The transaction, valued at USD 45 million, will allow us to increase liquidity while continuing to use spare engines to power our A321 LR fleet. Following quarter end, we used CAD 30 million of the proceeds to redeem 6.2 million Series 4 preferred shares held by the Canadian government for a total amount of $16 million. As a result, the number of outstanding Series 4 preferred shares was reduced from 9.9 million to 3.7 million. The remaining amount of proceeds of $14 million was used to repay a portion of the principal amount of the 2035 debenture held by the government. After these repayments, the government made $30 million available to us in the form of working capital advances, which we subsequently drew upon. As Annick mentioned, the Elevation program delivered its anticipated benefits during the quarter, which slightly contributed to our profitability improvement. These benefits were driven primarily by improvements in our call center operations, savings from reduced external expenses, targeted revenue management strategies and select organizational restructuring initiatives. Now let's take a closer look at our results for the third quarter of fiscal 2025. Revenues amounted to $766 million, up 4.1% from the third quarter of 2024. This growth reflects a 2.6% year-over-year improvement in yield expressed in airline unit revenues and a 1% increase in customer traffic expressed in revenue passenger miles. Following the agreement with Pratt & Whitney, we also recorded a noncash revenue amount of $7 million. Adjusted EBITDA reached $81 million, up from $48 million in the third quarter of last year. In addition to the contribution from Elevation, this improvement reflects higher revenues, increased productivity and a 14% increase -- decrease in fuel prices compared to the corresponding period in 2024. For the third quarter of 2025, the corporation reported net income of $400 million or $9.97 per share compared with a net loss of $40 million or $1.03 per share last year. This year's net income was mostly driven by the $345 million gain on the extinguishment of long-term debt. On an adjusted basis, we had a net loss of $12 million or $0.28 per share in Q3 2025 compared to a net loss of $36 million or $0.93 per share last year. Moving to our cash flow and financial position. Cash flow from operating activities was negative $105 million in the third quarter of 2025 compared to a negative $91 million last year. The variation reflects a reduction in cash flow generated by the net change in noncash working capital balances, partially offset by higher profitability. As for investing activities, CapEx was $30 million, steady from a year ago and proceeds from the sale leaseback transaction in Q3 2025 were CAD 62 million. After accounting for investing activities and repayment of lease liabilities, free cash flow was negative $122 million compared with negative $169 million a year ago. Still, after 9 months, we have generated positive free cash flow of $149 million, which includes 3 Pratt & Whitney sell and leaseback transaction in 2025 compared to $92 million -- totaling, sorry, $92 million compared to negative $20 million in 2024. Turning to our balance sheet. Cash and cash equivalents stood at $357 million as at July 31, 2025, compared to $260 million as at October 31, 2024. Cash and cash equivalents and trust or otherwise reserved mainly resulting from travel package bookings was $306 million at the end of Q3 compared to $485 million as at October 31, 2024, reflecting the seasonal nature of our operations. Long-term debt and deferred government grant stood at $384 million as at July 31 versus $803 million as at October 31, 2024. This decrease essentially reflects our debt restructuring agreement, including the full repayment of the $41 million principal balance of the secured government debt. Long-term debt and deferred government grant, net of cash and cash equivalents, is $27 million, down from $543 million at the beginning of the fiscal year. Additionally, in September, we extended the maturity date of our revolving credit facility to fiscal 2028. As we look ahead to Q4, it's important to keep in mind that last year's revenues included the financial compensation of $34 million related to the Pratt & Whitney engine situation. The amount recorded at that time was significant as it represented cumulative compensation for years 2023 and 2024. In contrast, this year's compensation will reflect only the number of grounded aircraft during Q4. We also anticipate a modest year-over-year decline in capacity in the fourth quarter, resulting in a full year increase of 1% for 2025, as previously indicated. Finally, unlike the first 9 months of the year, Q4 should not benefit as much from the tailwind of lower fuel prices. Conversely, we will take advantage of reduced interest and charges following the debt restructuring, and we expect benefits from Elevation to gradually ramp up. So this concludes my prepared comments. We will now open the call for questions from analysts. Operator: [Operator Instructions] First, we will hear from Konark Gupta at Scotiabank. Konark Gupta: On the yield side, first, I guess, you guys pointed out that the quarter-to-date yield is tracking 3% above from last year. And I think you also mentioned that there's a downward trend you are seeing in that number lately. Can you help us understand; a, was the yield in the early part of this quarter, fiscal Q4, was it higher than 3% and that started to kind of taper down? And did you see any benefits from the Air Canada labor disruption that happened in August? Annick Guérard: Yes. That is brilliant. Just to come back on Q3, the South market has remained highly dynamic throughout the quarter with yields that were up 7% year-over-year, driven by a shift in demand from transborder routes to Sun destination. For Q4, we continue to see strong demand, but with September and October, we are getting into a lower season. So bookings are slowing down, which is normal. As for Europe, in the context of significant capacity increase from competitors on our key markets, and considering the entry as well of a French Bee and -- on Paris and Virgin Atlantic on London, we clearly see disruptive pricing on key markets. We were relatively pleased by our performance so far as we were able to maintain a decent yield and RASM. Now as indicated earlier, if we look at Europe for September and October, pricing from competition has been extremely aggressive since mid-August, and that is why we have been seeing a trend downward on the yields. And as you express, we substantially benefit from AC in August. So our yields went up for a couple of days. Load factors are up to 100% on several flights. So that caused the yields to go up 3% compared to last year, and now we're dealing with more competition for September and October. Konark Gupta: Okay. That's really helpful. And then in terms of your planning the upcoming winter, I think you guys are expecting 5% to 7% growth in capacity. I understand a lot of that could be driven by the aircraft that's ungrounding after 2 years or so. But do you -- like do you see the demand being enough to support that capacity? Or I mean, do you plan to kind of launch new routes as you said, where you expect to sort of stimulate the market demand? Annick Guérard: Yes. So as you said, for next winter, the number of grounded aircraft is expected to decrease from 6 last year to 4 to 5 this winter and with the potential further reduction for next summer. So we've done a lot of schedule optimization, and we've launched as well as part of our network program, longer-haul destination that are further enhancing aircraft utilization and driving natural capacity growth. So as a result, we're looking at a 5% to 7% increase this winter. We're still working on the program, so numbers could change a little bit again, but this is what we're anticipating so far. And as for demand, of course, it's still early to have clear visibility, but trends are encouraging so far. We remain cautious as airlines are currently making several capacity adjustments. We are seeing a significant increase on South destination. So -- but we see the same trends as we've seen over the last summer in terms of U.S. demand shifting to South destination. So we are encouraged so far. Konark Gupta: Okay. And last one before I turn over. On the Elevation program, so congrats on achieving the full benefits. And I think, hopefully, you're expecting some or most of them to show up as we go ahead in the next few quarters. My question on the Elevation now is, I mean, over the last year or so you have clearly made a lot of efforts to realize this $100 million saving. Any changes like on the positive side or negative side you have seen as you hopped on those initiatives, whether from supply chain or, I don't know, from macro or even like any new opportunities that surfaced? Do you see the $100 million as a good firm number? Or do you need to adjust that number as we go forward from here? Annick Guérard: So far, everything is on target. As we are progressing, we see additional opportunities to improve our overall performance, but we still need to be quantified. But we're very pleased with what we've seen so far. We have -- we now have reached our implementation target with current initiatives in place expecting to deliver the $100 million in adjusted EBITDA by mid-2026. Overall, the majority of the plan initiatives have been implemented. There's a few remaining initiatives are still being rolled up and should be completed by winter. So progress is tracking well against our plan, and we remain confident of the final results. Jean-Francois Pruneau: If I may add just one comment on that in terms of modeling and financial modeling, I should say. It's not a linear path, obviously. So the way to look at the initiatives and the benefits hitting our P&L, it's not going to be linear. So I think it's going to be accelerating over time and more back ended. But as Annick mentioned, we remain very, very confident about the $100 million being generated by mid-2026. Operator: Next question will be from Kevin Chiang at CIBC. Kevin Chiang: Maybe just following on some of the questions Konark have asked. I guess if I think of the 5% to 7% capacity growth next year, is there a way to break that down between how much of that is like from haul driven? It sounds like reduced grounding of some of these aircraft will provide that opportunity versus how much of that 5% to 7% is just increased capacity into existing markets? I'm just trying to get a sense of if the length of haul is a bigger contributor to that 5% to 7% growth? Annick Guérard: Most of the increase comes from less grounded aircraft and due to Pratt & Whitney engine issue. So we're going to have 2 additional aircraft, the A321 LRs, and this is what driving capacity up. So I would say that accounts for maybe 75% of the increase. The other 25% is around having changed our program or optimize our program to increase aircraft utilization. As we said, we deployed more long-haul routes. We are using more aircraft as well in a period that we were not necessarily using them last year. So it's based on our ongoing commitment to increase overall productivity from an aircraft perspective, but people perspective as well. We want to make sure that we optimize overall operation, making sure we maximize our crews, maximize our aircraft utilization, and that -- this is what's bringing the capacity up. Kevin Chiang: Okay. That's helpful. And just maybe on the competitive environment, it sounds like some of the increased competition you've seen in the transatlantic market in -- maybe in the recent months reflects increased competition from European carriers, it sounds like European lower-cost carriers. Just wondering as you look into the winter season, are you seeing a similar competitive dynamic emerge where Southern carriers may be looking to take advantage of the shift in Canadian travel dynamics here as Canadians travel more towards Sun and -- more towards Sun destination markets outside of the U.S.? Just wondering if you're seeing something similar in the winter season as you saw in the summer season here from some of your foreign competitors? Annick Guérard: Well, we're definitely seeing increased capacity to South destination from Canadian carriers overall. We're looking at the 10% increase if we consider all the major players. So we are increasing our share as well counting on where we anticipate that demand will be. So it's going to be competitive. But again, I think it's pretty much in line with demand that we're seeing so far. The U.S. demand is down. And as we are looking into our booking curve right now, looking at yields and load factor, we're pretty confident that the market is going to be able to digest this capacity increase. Kevin Chiang: Okay. That's helpful. Maybe just a last one for me. Again, congratulations on getting through the Elevation program. It felt like a lot of the Elevation program was focused on kind of improving the optimization of your organizational structure, so a lot of cost initiatives. I guess what's next after here? I guess I've always thought that you've had an opportunity from a revenue perspective, whether it's improving your yield management, whether it's maybe looking at loyalty programs. Just wondering, as you've kind of completed Elevation, is there an opportunity here to maybe address some of the lower-hanging fruit from a revenue management perspective? Annick Guérard: The revenue management initially is our part of the -- or at the center of the Elevation program as much of the cost-cutting initiatives. So it's -- we started working on the revenue management initiatives back at the beginning of the year, around January, and it's been progressing very well. We started seeing some results this quarter. It's going well. It's been encouraging, as we've discussed in the past. There's about 5 to 6 initiatives being implemented to maximize the algorithms, to maximize the modernization, the program. We've got help from specialists as well. We finalized [indiscernible] implementation. So it's really at the core of the Elevation program as well. So things are going well on that side. Operator: Next question will be from Cameron Doerksen at National Bank Financial. Cameron Doerksen: I wonder if you can talk a little bit about what you're seeing from a consumer behavior point of view. It's one of the things you've kind of highlighted here is some, I guess, shifts in consumer behavior and I guess the maybe some consumer concerns around the economic backdrop. I mean what can you kind of point to that gives you, I guess, maybe a little bit of concern about the ability for the consumer to continue to travel? Annick Guérard: Well, we see a little bit more last-minute demand. We've been seeing this for the last, I would say, 6 to 9 months. So people hesitate a little bit. There's a little bit less confidence maybe in terms of economic trends. We'll see what's going to happen for next year. Economy seems to be confident that things will improve in terms of the consumer sentiment for next year, but this is something that we're watching very carefully as our customers, of course, spend on discretionary budget. But we're not too -- I would say we're pretty much positive right now in what we see. Cameron Doerksen: Okay. That's helpful. Second question, I guess, on your relationship with Porter. Just wondering if you can update how that's kind of progressed through the summer and I guess the fee traffic that they provided to you. But I also wanted to ask, I guess, a bit about some of the new routes they've announced back in June to Sun destinations, some of which look like they may overlap with traditional Transat markets to the Sun. So I'm just wondering how -- I guess, how you kind of work with them to avoid competing with each other? Annick Guérard: Yes. So, so far, for fiscal year 2025, we were able to capture a little bit more than 160,000 connecting passengers between Air Transat in the Porter, representing 3.4% of our total traffic. The target is set at 4% right now. So revenue generated was up 20%, a little bit more than 20% compared to last year. So we were very pleased about that, and we continue to align our networks, align our pricing strategy to maximize connecting flights. As for the South program, as you said, in June, Porter unveiled their first flights to Mexico, the Sun destinations, different Sun destinations for next winter. Their program was coordinated under the terms of the joint venture, complementing Transat's existing offering. So we're all doing this collaboration making sure that we maximize our footprint on Sun destinations. Cameron Doerksen: Okay. No, that's helpful. So you're basically working in conjunction with them to, I guess, offer the best schedule that you can between the 2 airlines? Annick Guérard: Yes, exactly. Operator: Next question will be from Benoit Poirier at Desjardins. Benoit Poirier: Just to come back on Porter, really nice to hear that you're been able to grow. Any impact from the sharp decrease we saw between Canada and the U.S. travel, or they've been successful to replace the capacity elsewhere? Annick Guérard: Yes. Well, the -- of course, the connections to the U.S. have declined, but this segment is not a major component of our overall connectivity. The majority of connecting traffic continues to come from Canadian routes. So connecting their national domestic network to -- with our European network. So difficult to pinpoint the exact impact on Porters, but they've been able to adjust the network schedule to maximize the connecting passenger with us. Benoit Poirier: Okay. That's great. And just talking about partnership, Annick, you've announced a nice partnership with Turkish Airlines back in June. So I think it will start from Toronto to Istanbul in December 2025 on a weekly basis twice. So could you maybe provide more granularity about the expectation? How sizable could be the partnership for you down the road? Annick Guérard: Yes. So it's a first season for us. It's the beginning of a new relationship. So we have -- there are mutual commitments. We want this to be successful. We've operated Turkey in the past. So we pretty know how successful factor to this route. The partnership we anticipate will grow over time. We start small, but we have the ambition to make this stronger. Benoit Poirier: Okay. Okay. And could you also maybe provide an update on the potential you see at the Saint-Pierre airport with Porter? And also if you could give an update on the loyalty program rollout that would be great? Annick Guérard: Yes. In terms of Saint-Pierre, we don't expect to operate the Saint-Pierre. So that's pretty clear on our side. It doesn't fit with our network. So that's going to be a separate business for Porter. As for the loyalty program, it remains a key strategic project for us given its strong value creation potential. It will provide for a strong leverage to develop airline, but also non-airline partnerships, and of course, we want to increase customer loyalty. So we aim to launch towards the end of fiscal 2026. That was the calendar. We're still on that calendar, and we are currently integrating the program with the selected financial institution and working and offering a strong ecosystem. So things are going very well. And again, it's part of our priorities for 2026. It's been a priority for 2025, but it takes time to develop such a program, but we will be really ready to launch in '26. Operator: [Operator Instructions] Next, we will hear from Tim James at TD Cowen. Tim James: I just want to return to the Porter discussion for a minute. And I'm wondering if you could talk about sort of going forward remaining opportunities, initiatives that you have with Porter. For example, them potentially selling packages down the road, which I think might be an opportunity, which they would do with your assistance and expertise. Just if you can remind us what are sort of the remaining kind of building blocks in that partnership? Annick Guérard: Yes. Well, as we are growing, of course, developing into domestic, in the U.S. as well, we are aligning more and more our schedules, our network to optimize and maximize connecting passengers. So that's our first goal. In terms of South, the South destination, as we said, they are launching their routes this winter, and we are doing this in coordination to maximize the impact in the -- on South destination. Looking forward, and we've talked about this, when we launched the joint venture, as part of the agreement, there is a piece where we will act as a tour operator for Porter Airlines. So these packages will be branded under Transat brand, but operated with Porter flights. So that's part of the overall joint venture agreement. It's not for this upcoming winter, but should be in place for next year. Tim James: Okay. That's helpful. And will there come a time really when basically all Transat flights and Porter flights are sort of part of the joint venture? Is that -- or that passengers can connect from 1 airline on to the other? I mean, is that -- I don't recall where Europe is at on that front, but is that the ultimate goal eventually? Annick Guérard: What we're looking at right now is to maximize the agreement. We want to grow more connections together. The final state, I think it's still to be determined depending on the performance that we see. We need to adjust. Sometimes, we create value -- sometimes, we create value together, sometimes better to stay apart. So -- in terms of flight. So as we move along, we analyze the performance and we adjust. Operator: And at this time, we have no other questions registered. Please proceed. Andrean Gagne: Thank you, Sylvie. Thank you, everyone. As a reminder, our 2025 fourth quarter results will be released on Thursday, December 18. Thank you, and have a good day. Operator: Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the Currency Exchange International Q3 2025 Financial Results Conference Call. [Operator Instructions] Also note that this call is being recorded on Thursday, September 11, 2025. I would now like to turn the conference over to Bill Mitoulas, Investor Relations. Please go ahead, sir. Bill Mitoulas: Thank you, operator. Good morning, everyone. Welcome to the Currency Exchange International conference call to discuss the financial results for the third quarter of the 2025 fiscal year. Thanks for joining us. With us today are President and CEO, Randolph Pinna; and Group CFO, Gerhard Barnard. Gerhard will provide an overview of CXI's financial results with the latest perspective on the company's operations. Randolph will then provide his commentary on CXI's strategic initiatives, sales efforts and business activities, after which we'll open it up for your questions. Today's conference call is for shareholders, prospective shareholders, members of the investment community, including the media. For those of you who may happen to leave this call before its conclusion, please be advised that this conference call will be recorded and then uploaded to CXI's Investor Relations website page, along with financial statements and MD&A. Please note that this conference call will include forward-looking information, which is based on a number of assumptions, and actual results could differ materially. Please refer to our financial statements and MD&A reports for more information about the factors that could cause these different results and the assumptions that we have made. With that, I'll turn the call over to Gerhard. Gerhard, please go ahead. Gerhard Barnard: Thank you, Bill, and thank you, everyone, for joining today's call. These results are presented in U.S. dollars and my overview of the company, CXI, will also incorporate the results of the discontinued operations of Exchange Bank of Canada. As a reminder, on February 18, 2025, the group announced its decision to seize the operations of its wholly owned subsidiary, Exchange Bank of Canada. All customer activity has ceased as planned by the end of August 2025 and preparation for administration and financial statements year-end audits are underway to submit an application to the Minister of Finance in Canada to discontinue Exchange Bank of Canada from the Bank Act. The application to discontinue is expected to be made in the fourth quarter of 2025 with the actual discontinuance of the bank being subject to receipt of all necessary regulatory approvals. Starting in the second quarter of 2025 and following the Board's decision to discontinue the bank's operations, the group updated its financial statement's preparation and presentation to predict continuing and discontinuing operations separately in accordance with IFRS accounting standards. Therefore, included in the group's financial statements are the results of the United States operations under continuing operations and the results of Exchange Bank of Canada under discontinuing operations. Now the group reported net income of $4.2 million for the third quarter, 8% higher than the prior year and this reflects net income of $5.2 million from continuing operations and a net loss of $1 million from Exchange Bank of Canada. These third quarter results included a net restructuring credit of about $100,000 related to discontinued operations in Canada. Now management anticipates that certain operating expenses and personnel costs that are currently shared with EBC will be 100% borne by CXI after EBC's exits from Canada and the current annualized estimated cost would be approximately $3 million after tax. This estimate is subject to change throughout EBC's discontinuance proceeds. Before we go into the results, I'd like to note that the group measures and evaluates its performance using several financial metrics and measures, some of which do not have standardized meanings under General Accepted Accounting Principles, GAAP, and may not be comparable to other companies. We call these measures non-GAAP financial measures and/or adjusted results. Management believes that these measures are more reflective of its operating results and provides a better understanding of management's perspective on performance. These measures enhance the comparability of our financial performance for the current period with the corresponding period in 2024. Management included a full reconciliation of the key performance and non-GAAP financial measures in the MD&A. When we refer to reported results, we refer to the results reported in the financial statements based on IFRS. And when we refer to adjusted results, such as adjusted net income, we refer to performance of non-GAAP measures. With that, here is a summary of the third quarter's results comparing this year's third quarter to the prior year's third quarter. Revenue grew to $21.3 million by roughly $1.3 million or 7%. Now operating expenses increased to $13.1 million or just under $1 million, close to 8%. Our EBITDA grew by -- grew to $8 million by $0.3 million or roughly 4% over last year, and our reported group net income grew to $4.2 million by $0.3 million or 8%. So that's an important one. Net income grew to $4.2 million by roughly $0.3 million or 8%. Adjusted group net income was $0.5 million or 10% lower than last year due to EBC's revenue tapering during the current quarter as a result of the discontinuance of its operations. Let's look at the consolidated performance of the third quarter of 2025 compared to the prior year's quarter. Our revenue growth was driven by 24% growth in the payments product line and 4% growth in the Banknotes revenue, primarily through direct-to-consumer channels. Now wholesale banknotes grew roughly $0.25 million or 3% and represents 44% of the total revenue. And while trading volumes declined due to a weaker consumer demand for foreign currencies, this product line grew 4% over the last year due to the continued addition of new domestic financial institution customers in addition to certain large customer transactions at the end of the quarter. Direct-to-consumer banknotes grew roughly $0.4 million or 5%, and this represents 40% of our total revenue with growth coming mainly from the OnlineFX platform due to increased demand for exotic and foreign currencies and the addition of 138 new airport agents in various locations. Our Payments revenue grew $650,000 or 24%, now almost 16% of our total revenue. The growth was supported by a 30% increase in trading volume activity for existing financial institution customers and the onboarding of new customers. Following is a highlight of operating expenses from continuing operations for the third quarter '25 compared to the same quarter last year. CXI's operating expenses increased about $920,000 or 8% compared to the same period in the prior year. Now variable costs, mostly our cost of goods sold, post the shipping bank charges, sales commission and incentive compensation, totaled roughly $3.3 million, a 4% decrease compared to the $3.5 million of the prior year. Salaries and wages increased mostly driven by Google Vault staff growth and the addition of company-owned branch locations, in addition to general inflationary increases. Legal and professional expenses increased due to audit and tax services as well as other legal and advisory services provided in the normal course of business. Marketing and publicity increased as CXI continued to focus on marketing initiatives, campaigns, retail investments and establishing a customer referral program that supports corporate goals with a focus on the direct consumer business growth. Net foreign exchange losses for the current quarter were primarily driven by hedging costs and foreign exchange losses in the prior quarter were associated with CXI's banknote holdings in the Mexican pesos. Bank services charges are primarily driven by the Payments product line. In the current quarter, CXI continued to process certain payment transactions via EBC's correspondent bank and received a chargeback allocated via intercompany allocations. Now it's important to remind that intercompany allocations are excluded from the results of continuing operations as per IFRS 5. It is relevant to mention that CXI's payment processing has fully migrated away from EBC's correspondent bank during August 2025. Stock-based compensation includes a noncash amortization expense related to the vesting of the company's equity-based stock options in addition to certain cash-based awards represented by RSUs and DSUs. CXI incurred a net expense in the amount of $73,000 related to DSUs and RSUs, which is lower when compared to about $185,000 for the same quarter last year as a result of the decline in the stock price in the current quarter compared to the previous quarter. Interest expense decreased as a result of the decline in the average borrowing of funding EBC's operations and working capital requirements, and it's tapering significantly following the decision to discontinue operations in Canada. Average outstanding borrowings for the quarter was about $1.3 million compared to $2.1 million during the same quarter last year. The average interest rate is also decreasing, and it was 6.7% compared to 7.7%. Income tax expense in the current quarter represents taxable income growth over the prior year and reflected an effective tax rate of 26%. Summarizing the results of continuing operations for the 9-month period ended July 31, 2025 and 2024. As stated in the beginning of this document, all earnings from continuing operations have been revised to exclude EBC's results and all associated intercompany transactions. Now for the 9 months for CXI, the continuing operations, revenue grew to roughly $52.5 million or $2.1 million of growth, roughly 4%. Operating expenses increased to $35.5 million, $0.5 million higher or 1% more than the prior 9-month period. And EBITDA grew to $16.7 million, which is about $1.3 million higher than the prior year or 9%. Reported group net -- group net income grew to $7 million almost $1.7 million or 33% higher, while the adjusted group net income grew to $7.5 million, about $100,000-or-so and 2% higher than the prior year. Deep diving into the 9 months ended July 31, 2025. CXI's Payments revenue. So now we're just going to look at the 9 months income statement revenue growth. Payments for the 9 months grew 16% or $1.2 million with a 27% increase in trading volume activity where business grading volumes for the 9 months was roughly $4.7 billion compared to $3.7 billion in the prior year. Direct-to-consumer and wholesale banknotes combined grew 2% or $940,000, driven by growth in customer demand for certain foreign currencies such as euro and the Mexican peso, which offset the declining volumes from other currencies, such as the Canadian dollar. During the current year, that's the 9 months, CXI added 192 new non-airport agents and 2 new states to the OnlineFX platform, reflecting increased volumes from exotic currencies. The group reported net income of $7 million versus for the 9 months again, including the results from discontinued operations compared to $5.3 million for the same period last year. This included net income from continuing operations of roughly $9.6 million compared to $9.9 million from the same period last year. As I mentioned, the group had an adjusted net income of $7.5 million in the current 9-month period, 2% higher than the prior year. Now looking at the results of discontinued operations. And again, this relates to the Exchange Back of Canada. The bank had a net loss of $1 million in the third quarter compared to a net loss of roughly $1.2 million for the same period in the prior year. For the 9 months ended July 31, 2025, the bank had a net loss of $2.6 million compared to last year's $4.6 million in the same period. Diluted loss per share from discontinued operations was a loss of $0.17 for the third quarter compared to -- and a loss of $0.41 for the 9 months ending compared to roughly $0.18 and $0.70 in the same period last year. The application to discontinue is expected to be made in the fourth quarter of 2025 with the actual discontinuance of the bank being subject to receipt of all necessary regulatory approvals. Now reviewing the balance sheet as at 31st of July 2025, due to the company's business being subject to seasonality, CXI is using a trailing 12-month net income amount to calculate ROE, which was a consistent 12% over the last 12 months and it includes the discontinued operations results. Now CXI has net working capital of $67 million and total equity of $84 million and 100% available, a 100% available unused line of credit totaling $40 million, all debts were paid. Maximizing the return on capital to our shareholders through share buybacks remain a key focus. During the 9-month period ended July 31, 2020, the group purchased for cancellation to 190,300 common shares at the normal market prices trading on the TSX for roughly $2.85 million under its second share buyback program or Normal Course Issuer Bid. On August 20, the group announced a retroactive increase in its second NCIB. The Board of Directors and management believe that the market price of the common shares may not, from time to time, fully reflect the long-term value of CXI and between August 1 of this year and September 10, yesterday, the group had purchased for cancellation an additional 92,100 shares for a total of about $1.4 million. Our total repurchase shares through to September 10 is now 282,400 common shares, equivalent to roughly USD 4.25 million. Now at this time, I will turn the call over to Randolph Pinna, our CEO, for his perspective. Thank you, Randolph. Randolph Pinna: Thank you, Gerhard, and thank you all on the call. I appreciate everybody being available and especially those out West who are up early in the morning. As usual, I'd like to start with EBC. I think you've heard clearly, we are in the final stretch of our discontinuance according to our approved discontinuance plan. It was a sad day to see the last transactions here in Toronto, where I sit right now. And we are in the final phase of completely exiting Canada. I'm sitting in the EBC office, which is mostly vacant. And this month will be the last month that staff are in this office. As whatever staff is remaining will be working from home as we discontinue Exchange Bank of Canada. We will be filing, as I mentioned, this year, and we will be then waiting for regulatory approvals. Moving to CXI. As you can imagine, with no longer having a wholly owned subsidiary bank, we are in the final phase of updating our strategic plan for the next 3 to 5 years. In this process, we actually have went out and recruited the voice of over 1,000 U.S. consumers to get the voice of the consumer, whether they want to exchange money at their bank, at a Bureau they change, at an airport or what have you. We also did a deep dive and got the voice of our customer, not just to the banks and financial institutions, but also our agent customers and other customers to understand the customers' needs and goals for the next 3 to 5 years as well. And lastly, we have done quite a few meetings with our shareholders. And we do have that incorporated in our strategic plan as well, the voice of our shareholders. We are going to focus for the fiscal '26 year on continuing to grow our revenues while also focusing on efficiency, utilizing automation and simplification efforts. We hope that the '26 year will be a clean year, won't have all the noise of continuing and discontinuing. And so we are excited to embark on our new fiscal year with our updated strategic plan. On the actual business itself, as you see, we are continuing to grow in our consumer area with our online store with the new states, we're now well over 90% of the entire U.S. population can be serviced through their home and office should they not want to visit their customer bank, I mean their bank or their CXI locations. We are continuing to selectively add company-owned and operated retail stores. The new market in -- the new store in Phoenix, Scottsdale, Arizona has opened and doing very well. We're adding another location in New York, and we will continue to add selective locations each year. And most importantly, our agent program, as you see, is continuing to grow. We really enjoy the agent relationship. It is a win-win-win situation for all involved, and we will continue to focus on our agents. Overall, our consumer business is healthy, but we feel there's a lot more growth, both in the online agent and physical stores by adding additional products and services, utilizing the same infrastructure in place. Moving to the Wholesale business. We will continue to always focus on selling banknotes to financial institutions that is both banks and credit unions, but we are also complementary selling the Payment product. As you can see, we continue to invest our sales efforts and successfully adding new locations to continue to allow our Payment business to diversify our total group revenues. And lastly, I wanted to just talk about M&A. Gerhard and I have been quite busy reviewing and investigating opportunities that are strategic and would be accretive to the company. There's nothing imminent. However, we are continuing to explore and always looking for an opportunity that will complement our business and accelerate our growth. That's all I have for the -- my mini update, and I thought the best thing now would be to open it up for questions that Gerhard and I can answer for you, so thank you. Operator: [Operator Instructions] First, we will hear from Robin Cornwell at Catalyst Research. Robin Cornwell: I wondered if I could ask the first question is, if you could expand on the EBC referral agreements? You indicated that it's over a 4-year term. I wondered if you could give us some idea whether it's the material amount you'd be expecting? And what kind of potential income that might be generated from that? Randolph Pinna: Thank you, Robin. I appreciate the question. We have 2 referral agreements in place, one with a financial institution here in Toronto that is focused on the wholesale banknote business. We have not yet received the first report from that company. Although I have heard, they seem to be doing well. And we do not predict or forecast future earnings. As you know, we don't give guidance. And so I don't have an estimate to provide to you, but I do confirm that the existing bank note referral agreement with the Toronto institution is in place and customers have migrated to them. And so we will know more as it is reported in our next quarterly report, which I don't think will be highlighted as a separate line item since to be a separate line item, it would need to be more than 10% of total revenue. So it will not be that large, but you will see additional fee income from that. The second referral agreement is with a money service business based in Vancouver to take over payment clients. This is not expected to be as material as the bank notes since only 3 employees and their "book of customers" migrated to the new company, so that referral agreement would be less material indeed. So that is all I can comment on the referral agreements. Did that hopefully help answer the question? Robin Cornwell: Okay. And one little quick question. The payments revenue was up quite significantly, had any of that volume was it related to tariffs and the front-ending of imports and things like that in the United States, could you comment on that? Randolph Pinna: I don't know the direct impact of any tariff activity. I do know that the tariff activity has reduced foreign demand to come to America. And -- but as far as payment revenue, it has -- I don't think has had a material impact on it. Our payment growth increases is because we're continuing to add new clients as a result of the integrations we've done with the software providers that run bank software systems. And so the growth that you're seeing is real growth from new and existing relationships. And again, I don't have any insight into whether some of that is because of prebuying of the tariffs. I don't believe it is. Robin Cornwell: Okay. And Randolph one more... Gerhard Barnard: Robin, maybe to comment on that point. As Randolph mentioned, we saw that about $0.5 million of that growth or, let's say, close to 2/3 was by adding new customers and that just creates an annuity stream for us and existing customers also grew in that payment space that we have. So as you saw, the volumes continue to pick up, the additional payments that we do, you look at those billions of dollars of money that we move, that gives you a good sense of Payments current velocity. Robin Cornwell: Terrific. Okay. Thank you for that extra thought. Randolph, I do have one question for you, and it's a broader-based question. It's planning or how you plan to grow perhaps the Software-as-a-Service capabilities because you've invested a tremendous amount of money in the SaaS and you're using it now. But do you have any more insights as to where you might drive your business with the software? Randolph Pinna: Thank you for that question. And just as a -- for the whole audience, we're going to try to limit questions to 2 per person. I'm happy to do the third one, Robin. But if there are more, please requeue just out of respect for the other people on the call. But yes, I'm very excited about the fact that we have got past our pilot where we have some clients paying a fee to utilize the software since it is true payment rails for both foreign currency wires as well as U.S. dollar wires. And so we expect in '26 that we will be seeing a noticeable new fee income from a software licensing as opposed to our current model of where our banks get our software in return for doing their wires with us. We are pivoting that way where we are going to be seeing additional income from our Software-as-a-Service. So I don't -- like the other, I can't forecast what that number is. But I do confirm that, one, you're right, we have invested and built out an excellent system for both foreign currency and U.S. dollar wires. And this is being sought by quite a few banking companies, lots of which are customers using banknote services. So we have a captive audience to continue to expand this business line. Operator: Next question will be from Peter Rabover at Artko Capital. Peter Rabover: I have a big one for you, Randolph, and then I have a housekeeping one for Gerhard. But maybe now that you're kind of unencumbered from Canada, could you just talk about the big drivers and kind of give a scorecard of your business as it stands today, the U.S. business? And what's most sensitive to? And what are you seeing out there so just the conditions? Randolph Pinna: Thank you, Peter. First of all, yes, it feels good to not be having spent as much time in Canada, which will be going down to 0 soon. And so that allows me 100% focus on our overall business in the United States. And as I said, with the updating of the strategic plan, it is focused on our core areas of expanding our relationships with financial institutions across the United States for both banknotes and payments. And as I was just telling Robin, our payments business line will continue to grow with additional new clients as well as Software-as-a-Service fee income. In the actual currency exchange business, as I had said earlier, we see a lot of opportunity online. We feel that the fact that we can service 90% to 95% of the whole U.S. population, we will be continuing to invest into marketing and growing our online presence and selectively opening new stores with possibly a new service that could add fee income. We are very focused on our agents. We see that as winning a large national retail chain, adding the new service of currency exchange will be significant for us. And as I said, the wholesale business will continue to grow because of the new customers we add and the expansion and diversification of the Payment revenue. And lastly, we are looking and have identified opportunities. But again, we will only do a transaction if it's accretive and in line to our existing business. The voice of the shareholder revealed that 1 or 2 shareholders just basically want to stay focused on our core business and not "chase a shiny object." So you will see that the next 3 years will allow for a clean business here in the U.S., and it will -- that growth in revenue will come from both the consumer channel as well as our wholesale channel. So Peter, is that what you were looking for or was there anything... Peter Rabover: I mean, I definitely appreciate the color what the business drivers are. I was actually asking more on like what's going on today, what you're seeing in the macroeconomic kind of competitive conditions, but this was just as good. So I don't want to -- I mean, I have one more small question to Gerhard, but if you want to answer my... Randolph Pinna: Yes. So Peter, I didn't get -- I can't forecast what the tariffs are doing or the people getting shot in America and what international visitors are thinking of America right now. So I can't guess as to what the year ahead will be from a macro level. We just know that our focus is we have a valuable service to potential clients. We have a good revenue stream with a lot of expenses supporting that. And so we feel that we continue to double down on our sales and adding new clients, all while Gerhard and the entire company focuses on efficiency through internal automation and even elimination of certain items now that we're no longer a bank group and so no longer having that bank group structure will allow for improved efficiency in our current business in the United States. So that's the macro comment. Peter Rabover: Okay. And then my follow-up is on the cash line. There's a $12 million line of cash to be paid to shareholders. Is that basically the release of funds of the cash that was held by the bank back to the group that will be more available to you that wasn't available in the past? Is that the way to read that? Gerhard Barnard: So Peter, you're referring to Page 18 of the financial statements. That 18 is definitely a portion of it because we have to be reminded that this is at the end of July 2025. We still got 2 months of business to run. We -- as I mentioned, we've repaid intercompany loan accounts. We have lower working capital requirements. So if you look at that number, you have to consider the fact that there is various other items that has to be run through the cash mill, if I can call it that until the end of the year. We are still heading towards a repatriation of some capital at the end of the year and the full -- and once the working capital decreases to close to 0 as the bank continues its discontinuance. Peter Rabover: Okay. I mean that's great. But just -- I just want to be clear. The way to read that is that cash was not available because it was held by bank as part of capital requirements. And now it will -- whatever that number will end up being, and now it is more available to you as -- to use for acquisition and share buybacks. Gerhard Barnard: Absolutely right. Yes. And obviously take out working capital, take out intercompany transactions and then just running the bank for the next 3 months. But yes, you're on the right track. Operator: [Operator Instructions] Next, we will hear from Stephen Ranzini at University Bank. Stephen Ranzini: First of all, congratulations on a pretty good quarter operationally in the United States. We're very happy with our investment in CXI, because of the good job that you are doing. We've increased our ownership to 12.44% at a cost of less than book value. So I was very pleased to see the increase in book value. My question relates to the discontinuance of the bank in Canada, and it had some licenses, particularly with the New York Federal Reserve that you guys had been utilizing for the whole business. How are you going to handle those things that you don't have now that you don't have a Canadian bank to help you gain access to it? Are you losing any functionality? Do you have plans to replace that functionality? What are you doing? Will it have any other follow-on impacts? Randolph Pinna: Thank you, Stephen. Yes, I want to just point out that the Exchange Bank of relationship with the Federal Reserve Bank of New York through the FBICS program is completely ceased. We have closed our accounts with the Federal Reserve. But that business did not help CXI whatsoever because the license that we have with the Federal Reserve prohibited Exchange Bank of Canada to sell or buy U.S. dollars in America. So CXI had 0 benefit from that. We, of course, as a group, established a relationship, and so I'm very proud to tell you that our payment business is a part of the Federal Reserve Fed Direct program, and therefore, it has enabled our payment business to be more attractive to U.S. financial institutions. And as you can already see, the Payment revenue growth is well underway. And as one of the previous questions alluded to, there is a lot of opportunity in the '26 year. The other capability that Exchange Bank provided us was that CXI processed the majority of its wires through Exchange Bank, and hence, its correspondent relationship. As Gerhard mentioned in his commentary, we have totally migrated all of that activity away from Exchange Bank as a part of our discontinuance plan and that is currently being processed by 2 U.S. financial institutions with their global network. But we are always looking for additional strategic relationships. But the Fed relationship at Exchange Bank was in a specific wholesale banknote business product which was bulk U.S. dollars and, of course, other foreign currencies selling. We have exited that business line in Canada, and CXI is not replicating international bulk U.S. dollar activity globally. While we do have some select relationships that are international based in our Florida office, but that is not the same as what Exchange Bank was doing with banks that we had in France, in U.K. and Switzerland and so forth, so that wholesale banknote business will not be replicated, at least in the next year or 2 at CXI. Did that answer your question, Stephen? Stephen Ranzini: Yes, completely. My follow-up question, second and final question is with respect to Crown Agents Bank. You had mentioned previously that you're working on setting up some relationships with them. How is that going? What functionality are you gaining from that? Is there good progress volumes? Is this helping your business yet or not? Or do you think it will be material in the future or not? Randolph Pinna: So as I said, we are always looking to have strong strategic banking relationships. Crown Agents Bank specialty is with exotic currencies around the world, which is not a top wire that we do. So we do have a relationship with them, but there are limitations to their capabilities. And so the 2 primary U.S.-based financial institutions that are currently our wholesale correspondent bank have been sufficient. But we do, I would call it, cherrypick with Crown Agents as they do have some strengths that are attractive to payment providers like ourselves. So we do work with them some, but not as much as I would think we could have done, but because of some of their limitations. Operator: Next question will be from Jim Byrne at Acumen Capital. Jim Byrne: I just wanted to clarify on the expenses, want to see the run rate from this quarter continuing operations. Is that what we should expect kind of going forward, obviously, given seasonality? I just wanted to clarify, given your comments about that $3 million in expenses that will be absorbed. I just want to make sure that, that has been absorbed in this quarter. Gerhard Barnard: Jim, good question. As we stated, continuing operations excludes currently any intercompany transactions. So if you look at the stranded cost that we are reporting, we'd probably be $3 million after tax. That consists of roughly 40% as bank charges. Of course, the correspondent relationship we have with EBC, and we have fully migrated that relationship in the middle of August to CXI, hence, in the fourth quarter, pretty much half of all the bank charges will actually be in continuing operations. So 40% of stranded cost bank charges, 40% of stranded costs is basically salaries and wages as we obtain the 100% portions, the non-100% portions of the FTE. And then we've got about 1/4 of computer and systems, insurance and licenses. So what you see right now with continued and discontinued operations is not fully incorporating all the stranded costs because there is still expenses running through Exchange Bank of Canada, that is in discontinued operations. So if you look forward, you would probably be able to add about $100,000 to $150,000 a month to our salaries and wages line, which moves you closer to about $2.4 million per month. And then if you look at bank charges, as I mentioned, 40% of that $3 million after tax will start spilling over to CXI when we -- as we fully operationalize that new relationship of us, but we are actively, as a management and a Board, going through all our various expenses as part of our strategic plan in really mitigating that enhanced cost structure that's coming through. Jim Byrne: Okay. That's helpful. And then just as a follow-up, I wanted to just doublecheck on your IT spend. It's come down and is that, again, kind of the continuing run rate that we should expect? Gerhard Barnard: IT spend is -- well, you know what constantly depending on the systems and any additional pushes that we do. We -- I would not predict that -- or I would not determine that what you currently see as the run rate going forward. IT is extremely important to us as well as our cybersecurity and we continue to invest in it. So not an increase, but don't see a decreasing run rate in IT. As we know our payments business are growing, our volumes are growing and IT for us is a strategic driver with OnlineFX platform and so forth. So that is one item that we are comfortable to make the necessary capital investments in to continue to grow our business. Randolph Pinna: I can confirm that we have a very well-structured IT department. Our Senior Vice President, Paul Ohm, has ensured that we have a fully capable team. So we won't be hiring any new IT gurus or anything like that. So I think what Gerhard is trying to show you is that while we will continue to do integrations and so forth, hence, we have a pretty fixed cost structure in IT, and we are not going to be hiring any additional people in IT that would significantly increase that. But because the banks closed, doesn't mean you'll see a big reduction in IT because our cybersecurity is always a focus. And so we have a pretty consistent IT team now, and I don't think there'll be any radical changes in either direction. Gerhard Barnard: Yes, maybe just to complement that point. If you really go through our operating expenses, you'll see that IT is either we hold it fairly stable. If I look at the 9 months, it's about $100,000 higher than the prior 9 months. And if you look at the quarter, you can say, depending on 1 or 2 things that we've specifically done in this quarter, it might be $50,000 to $100,000 higher than the prior quarter. So that $731,000 for the 3 months ending July versus $517,000 for the prior year on Page 31, I would say our quarterly $0.75 million gives you a fair indication of the future projections, taking staff increases and inflation and so forth into account. Operator: Next question will be from Yale Bock at YH&C Investment. Yale Bock: Two questions. First, regarding the agent relationships. There was a dramatic increase in, I guess, the AAA. And if you could just provide a little color on duty-free and maybe with the cruise industry, there was an announcement of a partnership? And then the second one is your thoughts on the Genius Act and stablecoins and potentially how that might impact the foreign exchange market over time and how you're thinking about it? Gerhard Barnard: Okay. Thank you, Yale. Good to hear from you. To begin with the agent growth that is because of the AAA relationship, continue to grow. If you're familiar with the AAA structure, they have their "clubs" in each market. And the nice thing is there's still several clubs that are not under our umbrella. However, as we do CXI and AAA headquarters have a strong relationship and is encouraged that all clubs migrate to CXI. So you will continue to see that. Duty Free is still a good customer. Unfortunately, because of the challenges that, that business has had, it has not afforded the attention we required for us to add all of their southern locations, but we do hope that in fiscal '26, we will be adding their locations down south. And we are always looking for additional agent relationships, especially ideally with a national provider -- national retailer that has good real estate and a good audience, but does not offer currency exchange. So we are going to continue to focus on that. On the payment side, we have spent quite a bit of time keeping up with the change with stablecoins. And we -- from a practicality where banks, our customers that are moving their customers, corporations, money around the world -- we don't see that there will be in the next 3 to 5 years, a material impact on foreign wire transfers. We're seeing the stablecoin being a U.S. dollar-centric push. And whether how fast the adoption rate goes to stablecoins or even broader crypto activity is unknown. We still are tapping into existing flows of payments, and we feel that there is a lot of upside potential in our current payment model, which does not incorporate utilizing a stablecoin. Operator: Next is a follow-up from Peter Rabover at Artko Capital. Peter Rabover: One of my questions was answered on the $3 million and whether that was absorbed. So I guess I'll ask a question or I know you won't really be able to answer the way I would ask it. So now that you're a mostly U.S.-based company, would you -- or soon will be, would you say it's inefficient for the stock to be traded on a Canadian exchange? Gerhard Barnard: We -- one, I confirm in fiscal '26, we will be only a U.S.-based company, regardless, even if for some reason that our bank did not get the final regulatory approval. As I said, our here, and I'm sitting in Toronto, our lease here ends October 31. We will be actually exiting the building sooner than that, and we are basically going to have a clean empty shell that will be audited at fiscal year-end, and that will be the crux is supporting the application to discontinue. So in 2016, we will be a U.S. company only and not a bank group. And as far as our Toronto Stock Exchange listing of the Ontario Securities Commission and the TSX has been a very good, solid market for us. We have a large Canadian shareholder base. We do recognize we have also a good U.S. shareholder base. And so NASDAQ is being evaluated as far as what additional costs and increased regulatory concerns because this SEC, we imagine is much heavier than the OSC. So it is not a plan to move right away to Nasdaq, but it is being explored as an alternative to where our stock trades. But right now, because of our upgrade on the OTC market, we have seen an improvement and reaction from some U.S. shareholders that is good step. And of course, I believe where you're headed with this is you think we should be on Nasdaq, and we would consider it. But right now, I've asked our team to evaluate the total cost structure, not only just the listing fees, but the legal implications of that as well as any other costs, like Director and officer liability costs go up. And so we have to do a wholesome review of the costs relative to the reward of being on the bigger exchange. Peter Rabover: Okay. Well, I think you know how I feel, I think the reward is pretty good if you for -- especially for our companies undervalued as you. But I appreciate the -- at least the consideration of it. Randolph Pinna: No problem here. We understand, and it would be nice if we did. It got big enough to be on the Russell 2000 and so forth. So we do see the upside, but it is only prudent of us as the guidance of our company and all of our shareholder money, we want to ensure that we understand the full cost and ramifications of a potential stock market switch. Operator: Next is a follow-up from Stephen Ranzini of University Bank. Stephen Ranzini: Yes. The last question prompted me to make a follow-up. So I would encourage you to discontinue the Canadian filings and go and stay on the OTCQB. We're also on the OTC markets. Our bank holding company is not the OTC markets. We're simply UNIB. Every investment bank that I talked to, every institutional investors that I talk to does SEC registration and in our company history, we were a SEC registered at one point for well over a decade. Isn't a good idea unless you're able to be in the Russell 2000 index? And you spend a significant sum of money doing all the SEC filings, but the market being made in Nasdaq versus the market being made in the OTCQX in your case, is not materially different according to investment banks. It's only if you get to the Russell 2000 that the full benefit of being a Nasdaq is actually unleashed. So I don't know if you have any reaction to that, but that's the advice that I'm giving. Randolph Pinna: Thank you, Stephen. And as I just told, Peter, that is why we need to take a holistic view. We need to understand all the costs and all the benefits. So we can -- the Board and I can make a final decision. So we appreciate that feedback. And I do confirm it is something that is on our radar to consider. But that is why we did upgrade on the OTCQX and so we're comfortable where we sit now. However, being fully American, it does indicate or imply that you should probably be on an American exchange fully. So we will consider that and it will be discussed in the upcoming Board meetings. Operator: And at this time, gentlemen, we have no other questions registered. Please proceed. Randolph Pinna: Okay. Thank you. I just want to thank all of our shareholders for their interest and support of CXI. I wanted to thank our entire management team; a special call out for Katie Davis, our Group Treasurer; as well as the interim CFO of Exchange Bank, who's done a fabulous job sticking to our discontinuance plan in ensuring all the many, many, many pieces of completely exiting Canada are done and on time. So a real hats off to her. So thank you for that. But again, and all the people in Canada that have unfortunately had to find new jobs here. It is a bit of a sad day. But again, I want to give a big thanks to all of us together, both the shareholders and the team for getting us where we are and having a clear path ahead in the '26, years to come. So thank you. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.