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Operator: Good afternoon, ladies and gentlemen, and welcome to Scancell Holdings plc Full Year Results. [Operator Instructions]. I would like to remind all participants that this call is being recorded. I will now hand over to Mary-Ann from Investor Relations to open the presentation. Please go ahead. Mary-Ann Chang: Good morning and good afternoon to all our listeners. It's my pleasure to welcome you to Scancell's Results Call for the year ended 30th of April 2025. My name is Mary-Ann Chang, Investor Relations for Scancell. With us presenting today, we have Phillip L’Huillier, our CEO and Sath Nirmalananthan, our CFO. Following the presentation, we'll be taking questions directly from analysts as well as written questions from our audience which you may submit at any point during the webcast. Next slide, please. Before we begin, I'd like to draw everyone's attention to this statement. Today's discussion will include forward-looking statements, which are based on current expectations and assumptions. Actual results may differ, so we encourage you to review our filings for more details. With that, I'll now turn the call over to our CEO, to get us started. Phil? Phillip L'Huillier: Hello, and welcome, everybody. Thank you for joining this business update and year-end results for Scancell. As Mary-Ann has just said to you, I'm joined to present today by our CFO, Sath. This slide gives you a snapshot of Scancell today. As a reminder, for those that have listened in previous presentations, but also a summary for anybody new that's joined us. During the term, we formed a major partnership with the cancer vaccine Launch Pad, just one of our highlights from the year. You are right to ask me what is new? And there's a number of important things to mention. First and foremost, from our SCOPE study, we selected the iSCIB1+ product to move forward within further development in advanced melanoma, just one snapshot of the data. For iSCIB1+, we're seeing the progression-free survival, the PFS at a level of 78% in our target population. If you compare this to historic doublet checkpoints or standard of care, that's around 46%. So there's a whopping difference that we're seeing here. I mentioned the PFS to you and focus on this because now we are progressing forward into further development. And as many of you will have seen, the FDA is very much focused on progression-free survival and overall survival in patients as we go into these later-stage developments. So this is what really counts as the end points going forward. Another aspect that is new is we told you back in July that we were going to accelerate our planning for further development, and we delivered on that. We have submitted documentation to the FDA and other regulators and have scheduled review meetings with the regulators about our plans for randomized studies towards registration for iSCIB1+. And I have to just give kudos to the Scancell team here. It's been a herculean effort to get the documentation ready, prepared in a very quick and very efficient way such that it's been submitted. We told you last time that we were going to go to the FDA. Of course, we need to do that. But also, we are in conversations with EMA and HRA, that's about being able to consider randomized studies in multiple territories, but it's also about hedging our bets in an uncertain world that's out there. What's also new is we've been able to confirm we've got a commercial scale manufacturing process now for iSCIB1+. It's a high-quality formulation, and the long-term stability that we're seeing with this formulation is really quite amazing. I hope you can see from what I've summarized here is we now have a focus and an eye on the registrational development of this drug, but also one eye on the stage after that, the commercialization. We'll talk you through more on the SCOPE study and iSCIB1+ as we go through the presentation. Let me also remind you that we have other assets in the pipeline, Modi-1 and GlyMab assets. Modi-1 is in the ModiFY study, a Phase II study being conducted across centers in the U.K., being tested in both head and neck cancer, and we shared some early data from that study showing a benefit over and above standard of care. And we also have a study running in renal cell carcinoma. And that study is recruiting well and looking good, and we anticipate sharing data from the renal cohort towards the end of the year. During the year, we also established GlyMab Therapeutics. This was a strategic initiative, giving us optionality about how we could develop that portfolio. To me, there's a little gold mine there that it was difficult as we were structured to apply significant resource to move that preclinical pipeline forward by forming GlyMab Therapeutics, putting the pipeline, the platform and the IP into that entity we can potentially bring focused investment but also focused management to move forward those assets. We did a financing late in 2024, raised GBP 12.1 million from new and also from some of our existing investors. And I want to acknowledge the support -- ongoing support of our investors. That financing was in fact, in my first 2 weeks. So it was a bit of a baptism by fire, but a successful financing for the company. And that gives us a strong financial position for us to move forward, and Sath will talk you through that later. We have upside on that cash runway from our partnerships with Genmab. And there are -- as I hope you can see multiple near-term and longer-term value creation opportunities here. Let me remind you of our pipeline as it stands today. And I'd like to go back and just mention the monotherapy study that was conducted in the adjuvant setting in melanoma with SCIB1. I raise this because monotherapy activity is an important pharma conversations in it. So an important study that the company has done. We're now, of course, developing in combination with checkpoints in the advanced setting. Why did we move from the adjuvant setting to the advanced setting? Well, adjuvant studies are pretty long-term studies and not easy studies necessarily for a biotech company to do. The readouts in the advanced setting tend to come more quickly, so hence moving into that setting. I touched on Modi in the ModiFY study in head and neck and 2 of the assets of several assets in the GlyMab Therapeutics pipeline. Let me remind you about our platforms, 2 very novel platforms in the clinical part of Scancell with some key features that are important to the overall success of the products and of the company. The first one is the ImmunoBody body platform, a DNA-based immunotherapy. And the second one is the Moditope platform, which is a peptide-based immunotherapy. Both have unique mechanisms of action and a very, very novel platforms, the lead out of the DNA ImmunoBody platform is iSCIB1+, and the lead out of the Moditope platform is the Modi-1 platform. As some of you have been -- that have been involved for a while, we'll, of course, recall, there are other products out of these platforms, but we've got those on the shelf at the moment whilst we're developing our leads. Some of the key features that are really important as we move forward to partner and to go into commercialization with these products is the fact that they are off the shelf. So that means they're straightforward in terms of cost, scale, et cetera. They are conveniently delivered to patients and accessible to patients. There are also -- we're seeing from the clinic excellent safety and the products are very well tolerated. And that means they are what I call easily combinable with other therapies, which is the way cancer therapy is going. And as I said to you, there's unique novel mechanisms or another way of saying it is, these are not me-toos. These are very, very novel products. Let me come back to iSCIB1+ and remind you, first of all, of the unmet need that's here in melanoma. The checkpoints have made a big difference to patients in melanoma, but unfortunately, still 50% of patients really do not respond very well or don't respond for long. And so there's a big unmet need still there. We're working with iSCIB1+ in the unresectable melanoma, the late-stage metastatic disease population. And we have calculated that, that's a market opportunity in the order of $3 billion. There are additional upside to this, and this is shown in the middle of the slide here. The potential to take the product into the neoadjuvant and adjuvant setting. So patients that could get surgery, have their melanoma removed and then have therapy after that. You can see that's an even larger market opportunity and that's where many of the pharmas have now focused their checkpoint therapies. So we want to also, at some point, explore the possibility of moving to this earliest -- earlier disease setting. So large market opportunities here. I want to pause on this slide because I think in one slide, it summarizes nicely the drug, the features of the drug that we have and the characteristics. So first of all, what's the product? iSCIB1+, the second gen of the SCIB drugs, the first gen was SCIB1, and it was designed to work in patients with an A2 haplotype. So a profiler, A2 HLA haplotype. Lindy Durrant and the team went back after seeing some activity with that drug and then designed iSCIB1+ where the i is an immune modification and the plus is additional HLA haplotypes for which it was predicted would stimulate T-cells in patients. And amazingly, it's doing what it says on the tin. We're seeing that it's stimulating T-cells and bringing clinical benefit to patients in the clinic. This represents 80% of melanoma populations. Just a little bit of scientific detail, but here's the mechanistic understanding. And to me, in pharma conversations, they want to see the data, but they also want to know how this drug works, what's the translational data coming out of these studies. And we know that well here. We know that this drug is dual acting direct and indirect targeting of the CD64 receptor on activated dendritic cells. That's a unique mechanism. It was built with epitopes or peptides from 2 melanoma proteins, gp100 and TRP-2. These play key roles in melanin. And the epitopes that we've put into these 2 products were actually isolated from patients that had spontaneously recovered from melanoma. So we know the immune system sees them. Here's the real crunch, the clinical data. We've demonstrated effective monotherapy activity in the adjuvant setting, and we've now demonstrated a strong meaningful clinical benefit in the combination setting in metastatic disease. And just a few really important headlines of this data. We're seeing T-cell responses in 72% of patients to both TRP-2 and gp100. Why do I emphasize that? Well, that means because we're seeing T-cells to both of those epitopes that reduces the likelihood of immune escape. So it gives the prospect of a longer-term immune control. And again, I come back to the PFS, it's a whopping delta over the standard of care, and it's being well tolerated into the clinic. And then a feature that could be really important going forward, now that we know that the drug works on the patient profiles that it was designed to, we can actually reverse that and use that as a selection tool to select for patients into the Phase III that we know will respond. This basically enhances the chances of success. And it's very, very rare that you have a selection marker for an I-O therapy. Let me come back to some of the data. We shared this data with you on July 22, but it's worth going over it again. This is the combined data for the target population for both Cohort 1 and Cohort 3. Now ask me the question, why do I combine this data? Well, I know from my pharma experience, they want to see good, sizable data sets. And the only difference between the 2 cohorts here was one is SCIB1 and iSCIB1+, but they all are in the target population, all receiving our drugs on top of ipi/nivo at all having very much the same demographics. So I'd just remind you here that the PFS in this target population is 69% at 22 months versus a historic control population, which is shown here just as an illustration. This is not a randomized study for Checkmate-067. The medium PFS was 11.5 months. So that's 50% at 11.5 months, we are 69% at 22 months. That's a whopping delta. As one of my Board members said yesterday, if you're a metastatic melanoma, you would really want to get this stuff, wouldn't you? And another example that I was alerted to yesterday, antidote, could say for one patient. We had one patient that was on the study for a little over a year on the therapy. For whatever reason, the patient and the doctor decided to stop the therapy. And whereas when on therapy, there was good control of the tumor a few weeks after going off therapy, they have progressed. A nice example of the power of this therapy, this patient had probably an extra year of life. Now digging in a little bit more, we want to look at iSCIB1+ because that's the drug we're taking forward. This is the PFS curve in the target population, and this is impressive compared to the nontarget patients and also compared again to the standard of care. So here, 78% at 11 months versus 50% for this non-target population where the vaccine wasn't predicted to stimulate T cells. This really is very superior, the target population to the nontarget population and markedly better than the historic control. Let me come back to the SCOPE study and just remind you of this. Of course, Cohort 1, 2 and 3 are fully recruited, and we've got data coming in for those cohorts as we're showing you. Cohort 4, which is iSCIB1+ with accelerated dosing and with intradermal delivery is recruiting well, and we will have data coming out of that cohort later in the year. So really on track with this overall study. Let me come back to overall response rate and disease control rate. And this is the data we showed you in July, but I want to remind you of the waterfall plot on the left, but perhaps more importantly, the spider plot on the right, a patient responds, you see the lines go down and then they're pretty damn flat. This is impressive. You are right, the eagle eyed amongst you to ask me why is the overall response rate now at 65%. Let me show you that on this slide and explain that. We have now a full set of patient profiles. The patient demographics they are called and what we've seen looking at that data is our patients are very similar to Checkmate-067. And so we want to be able to really compare more precisely to 067. When we first put this data out we took out a couple of patients from the target population that had not -- that had progressed or died before their first scan. Now we realized that in Checkmate-067, that wasn't done. So we've put these 2 patients in the target population back into the data. So we can all strictly compare with Checkmate-067, and we've got 20 patients showing a response out of 31%, a 65% response rate we are still waiting for a further 7 patients to read out. We screened patients as they came on to the study for the target HLA Haplotypes, but we also took patients that were on target. And as it represents, the target population represents 80% of patients we did have some patients that were nontarget and that ended up to be 11 patients. And what we're seeing here is a response rate of 27%. And I showed you earlier the PFS curve there where it's at about 50%. So I do think that this nontarget population could be a representation of what the double checkpoints do without iSCIB1+ generating a response in this patient population. So now I think we didn't add up all the numbers in this cohort well previously. Now we're doing that. There's 50 patients in this cohort, 38 target patients and 11 nontarget patients and 1 patient got through screening with active brain mets. We've taken that patient out. Active brain mets were not included in Checkmate-067. This slide shows you the safety read out now. It's quite a bit of data here, but perhaps the message to take away is when we add iSCIB1+ or SCIB1 on top of the checkpoints, the drugs are very, very well tolerated. We're not seeing any major toxicities from adding these drugs on, which is great. We can combine them with these checkpoints or potentially in the future with other therapies. Let me summarize where we are with this program. We're seeing really good efficacy for iSCIB1+ in the wider population that represents 8% of melanoma patients, very strong PFS coming out of the study versus Checkmate-067 versus SCIB1 and perhaps iSCIB1+ is slightly better on PFS, reflecting the Avidimab modification. But PFS, as I touched on earlier, is the critical endpoint now for registrational studies. I told you we are confident about our commercial scale manufacturing. A reminder, we have the PharmaJet partnership for the Stratis needle-free device for intramuscular delivery. That's what we're moving forward within the further studies. And then I also told you about the biomarker or the selection tool that's available to us to use to select patients into the Phase III study, and that will likely enhance success. I showed you some commercial figures. What's the opportunity? What's the size of this opportunity. You can look at it in another way here that ipilimumab was available for this advanced melanoma populations, BMS the combination study adding nivo to ipi. And because of the delta out of that study, ipi/nivo has captured 65% to 70% of the U.S. market for metastatic melanoma, the delta or the advantage iSCIB1+ adds on top of ipi/nivo is not dissimilar. So it's a way of sizing the commercial opportunity that's here with us. Let me quickly summarize the other assets in the pipeline, Modi and GlyMab Therapeutics. And in some ways, a reminder, we are evaluating Modi in the ModiFY study in head and neck and in renal cancer. We showed you data from head and neck earlier in the year, showing a delta over standard of care, which is pembrolizumab, that cohort continues, and I expect data readout later in the year. But on top of that, we have the renal cell carcinoma cohort, which is Modi-1 on top of ipi/nivo going also and that cohort is recruiting well, and I anticipate having data readouts towards the end of the year from that cohort. So I'm pleased how Modi is going. We are seeing benefit in patients from Modi, and we continue to recruit and build that data set. I told you earlier that we have formed GlyMab Therapeutics with this set of assets, the anti-glycan antibodies. There's a unique expertise in Scancell to generate these high-affinity IgG1 antibodies to the -- the tumor-specific glycans on tumors. The lead is SC134 targeting fucosyl GM1 and in some ways, this is validated -- this is validated in the clinic from the work that BMS is doing. We've done a lot of work recently developing this as a T-cell engager and are moving it forward towards the clinic. SC27 is the second product targeting Lewis Y, and that targets a broader set of cancers. And we're developing that as an ADC and also moving that towards the clinic. And the team are also working on building other targets out of this platform. And of course, you'll remember we have industry validation here with the 2 licenses with Genmab. Let me pause now and hand over to Sath to talk to you about the financials and the outlook. Sathijeevan Nirmalananthan: Thank you, Phil. Next slide, please. I'm pleased to update you all on the financial results for the year ended 30th of April 2025, including some post-period highlights. Starting with revenue. We reported revenues of GBP 4.7 million in the period. This relates to the second commercial license agreement with Genmab for antibody SC2811. We received USD 6 million in total upfront payments and there are up to $630 million in further milestone payments with low single-digit royalties on commercial sales. To reiterate, this is the second commercial license deal with development of the first out-licensed antibody, SC129, also to Genmab on track for further milestone payments. Building on the success of these deals, we have established GlyMab Therapeutics. This is a wholly-owned subsidiary of Scancell Holdings plc with the intention it will hold our in-house portfolio of antibodies with a transfer of trade planned. This move provides us with strategic optionality as we look to unlock the right value in these assets. Research and development expenses were GBP 14.7 million, slightly higher than prior year. As a reminder, our R&D costs predominantly reflect expenditure on our in-house clinical, manufacturing and research costs. During the year, these were focused on SCOPE and MODIFY studies. We made an additional investment in the period to ensure readiness for the next stages of development. This includes the previously mentioned commercial scale iSCIB1+, GMP manufacturing process, which has resulted in a high-quality formulation and long-term stability leaving us well prepared for late-stage clinical development with iSCIB1+. Administrative expenses was GBP 4.8 million, lower than prior period, with a focus on controlled expenditure despite continued investments in our organizational capabilities, including the recruitment of our CEO and CMO in the period. This leaves our operating loss at GBP 15 million lower than prior year, primarily due to the revenue reported in the year. We recorded a small loss in finance and other income of GBP 0.3 million and recorded a tax credit of GBP 3 million, resulting a loss for the year of GBP 12.3 million. During the period, we also announced the extension of the maturity date of the convertible loan notes by 2 years. These majority dates are now August 2027 and November 2027 and following a small partial redemption, the remaining loan notes totaled GBP 18.2 million. Our cash of GBP 16.9 million at year-end was boosted in the period by a financing in late 2024 raising proceeds of GBP 11.3 million, with participation from new and existing life sciences investors. We anticipate this will be enhanced by the FY '25 tax credit, which will be at similar levels as in the past. This leaves our cash runway in line with previous guidance of Half 2 2026 beyond key developmental milestones and with a good runway for our ongoing partner discussions. We have upside opportunities on this runway, too, namely, the development of the first out-licensed antibody, SC127, which is anticipated within the next 12 months. Furthermore, I highlight the discretional nature of our spend, which allows us to take decisions if required. Next slide, please. Here are the key milestones for Scancell. As Phil has mentioned, we are making good progress across our programs with significant milestones already achieved from our clinical programs. In Q4, we expect further Cohort 3 data with iSCIB1+ and early Cohort 4 data. We expect this additional data to inform our development plans rather than prolong them which is why we are accelerating both regulatory and business development conversations. Regulatory discussions, as Phil has highlighted, are already scheduled with feedback anticipated this year, and we believe we have the right data set to generate partnering interest. Based on regulatory feedback and business partnering discussions, we will evaluate the right next step forward, including assessing out-licensing, partnering and further financing but all with timely development and shareholder value in mind. Outside of iSCIB1+, Modi-1 continues in the ModiFY study following early validation in head and neck cancer in early 2025 , highly anticipated clinical data from Modi is anticipated in Q4 in renal cell carcinoma in combination with the checkpoint inhibitors. And with the establishment of GlyMab Therapeutics, we highlight SC134 and SC27 as key assets we are looking to progress under GlyMab Therapeutics. Next slide, please. Finally, I'd like to end on why Scancell, why now? Firstly, we have compelling science that is now clinically and commercially validated. We have over 100 patient data in the SCOPE study with iSCIB1+ and SCIB1. This is supplemented by Modi-1 showing early clinical validations in the settings evaluating that. The licenses with Genmab provides commercial validation of the GlyMab platform also. We are well prepared for late-stage development. We have good data. We have manufacturing in place. We have a strategic license with PharmaJet covering development and commercialization and building the team with broad experience, ensuring we have the components for late-stage development. We believe all of our assets have substantial markets where there are unmet needs. iSCIB1+ has a clear development pathway to commercialization as well as growth areas in early disease settings. Modi-1 has the potential in multiple tumor types with the highly anticipated renal cell carcinoma data informing efficacy in the combination setting. And GlyMab Therapeutics cover a preclinical portfolio of antibodies, which as previously highlighted, has potential to be developed as T-cell redirecting antibodies, or ADCs. So we have a Phase III-ready asset with a clear pathway to market and other assets in Modi-1 and GlyMab Therapeutics providing our shareholders value creating opportunities in the near to medium term. Thank you for listening. I'll now turn over to the operator for questions. Operator: [Operator Instructions] Your first question comes from the line of Julie Simmonds with Panmure Liberum. Julie Simmonds: Congratulations on the progress over the last 12 months, most impressive. A couple of questions. Firstly, with the sort of selection of the patients for the registration trial, I mean, it seems to make a lot of sense to recruit those who are most likely to respond. Is the HLA typing done as a standard test? Or would that be something that would be done specifically for use of iSCIB1+? Phillip L'Huillier: Thank you for the question, Julie. It is a standard or widely available test, and we would use that test to screen our patients. It's actually perfect in the sense that we don't have to develop a biomarker ourselves in parallel with the therapeutic. This is a test that's widely available. And there are examples of companies that use this type of testing. The Kimmtrak from Immunocore is an A2 specific product. So they are testing patients for A2 positivity before they go on to therapy, as an example. Julie Simmonds: Brilliant. That sounds very good news. And then on the manufacturing side of things, good to hear that, that process is -- has gone to plan. In terms of any -- is there any sort of lead-in period that's required in terms of the manufacturer for doing a clinical trial? Is that going to cause any delay in process once you've obviously got it signed off and anything to get the active product necessary? Phillip L'Huillier: That's a good question, Julie. No, we don't anticipate any delays. We're in fact, factoring in and it's factored into our runway that Sath just summarized further manufacturing to have material ready to start the Phase III study on the time line that we've laid out. Sathijeevan Nirmalananthan: And I'd just add, Julie, that's the investment that we made in the last period to make sure we were ready and could have a seamless transition into a late-stage study and not have good data and not be able to continue because we needed a better manufacturing process. So we will be yielding the benefits of that earlier investment because we've got a good process now that should be late-stage ready. Operator: Your next question comes from the line of Edward Sham with Singer Capital Markets. Edward Sham: Congratulations on your results. I think it's clear to see that you guys are on a journey to becoming a late-stage biotech. I've got a few questions. If I just start with the first one. So you say you're having accelerated discussions with the FDA, EMA and MHRA. I just want to kind of understand how aligned are those agencies in terms of trial design endpoints and data expectations? Phillip L'Huillier: Yes, that's a good question. It's early days. We haven't had the conversations yet. We are wondering to have the scientific exchange in the Phase II conversations all in parallel. So in fact, we could get to the point of having a single protocol for the study going forward. But sometimes, in my experience, you do find that there are some differences between agencies so you do end up with slight differences in the protocols that are there. We have -- we've developed a -- I think, a really robust study design. We've all seen recent activity from the FDA, and I'll mention one in relation to Replimune that didn't get their BLA, which surprised us all. So we're taking into account what we're seeing and hearing with the FDA and other agencies and have made sure we've got a robust design that I am very, very hopeful will satisfy all of the agencies that we're talking to. Edward Sham: That's really helpful. And then maybe just on the time line you've indicated. So you suggested you expect to initiate randomized studies in 2026. So is it safe to assume that you're confident in either a partnership or financing before that trial starts or the randomized study start? Sathijeevan Nirmalananthan: I'd say so, Ed. So yes, we are confident. We have the bulk of the data. We are in active conversations, and I think we've got the runway to get through the initial steps on regulatory as well. And I'd highlight we do have upside opportunities, as you know. So I think that gives us a good runway to make sure we're ready. Obviously, we need to find a partner and/or financing, but we're confident that we have the ingredients to move in a timely fashion. Phillip L'Huillier: Perhaps it's worth adding Ed, that we have accelerated the regulatory conversations for, of course, that time line for us, but also, perhaps more importantly, for the partnering and investor conversations, they're asking us the question, what does the FDA or EMA think of this study. So we have accelerated those conversations to coincide with our investor and partnering conversations also. Edward Sham: Great. That's really encouraging. And then just my last one is just on the Genmab licensing deal. So you've mentioned that you're now on track for near-term milestone payments. Is that a positive surprise? Is that something that's moved faster than expected? Or is that simply the timing you've always expected? Sathijeevan Nirmalananthan: I think we got a recent update, which is increasing our confidence that this is continuing on its development pathway. So I think that is something incremental I think we would obviously like development to move as quickly as possible, but we remain confident that these are going to happen. And to remind you, I didn't put that in my runway guidance, it is upside. But based on recent interaction, I think we're growing in confidence that this will happen. Operator: [Operator Instructions]. And it seems there are no further questions on the conference line. We will now address the written questions submitted via the webcast page. I will hand over to Mary-Ann Chang, Investor Relations to read these out. Mary-Ann Chang: So a question for Phil, and it's again about the discussion -- upcoming discussion with regulators. Is there a realistic accelerated or fast track route for iSCIB1+. And second part of this, how is it differentiated from Moderna and BioNTech's cancer vaccine program? Phillip L'Huillier: Thank you, Mary-Ann. So taking the first question, the answer is iSCIB1+ is yes, absolutely. There is a real possibility of breakthrough or accelerated development here. We -- for the FDA, we have to go through the conversation with the FDA, submit our IND and then be able to then have a conversation, first of all, about breakthrough, but then accelerated approval. But if you look at the data that I was sharing with you, then I think we are a very, very good prospect. Mary-Ann, sorry, there was a second part of the question. Mary-Ann Chang: Yes. That was on the differentiation between iSCIB1+ and Moderna and BioNTech's programs. Phillip L'Huillier: Yes. A couple of components to mention here. We are working in different settings of melanoma. So we're in advanced metastatic melanoma, unresectable melanoma. BioNTech and Moderna are working in the resectable, the earlier-stage disease setting. So we're talking about different markets, different patient populations. The other thing that I think is worth adding back to our platform that both of those are using personalized therapies with all the associated cost and time line to collect the material sequence, develop algorithms and then develop material to go back into the patients. That's a logistical hurdle to overcome, but also a very high cost of therapy. We are off the shelf. So I see us being more widely available to health systems once we get through to approval. So very different modalities also. Mary-Ann Chang: Great. Okay. One for Sath. How much of the planned iSCIB1+ registration trial is already funded and what's the expected financing gap? Sathijeevan Nirmalananthan: Sure. So we -- within our runway, the guidance I previously guided to, we have all of the regulatory spend planned and a little bit more in manufacturing to make sure we are ready to initiate the study. The actual study of funding the study we will evaluate our options following the active conversations we're having with partners right now. So based on those conversations, based on their feedback as well as the confirmation from the regulators that we've got the right study design, we will come back and update you on what that right financing will be. So we're confident we've got the runway to do it. We don't have it funded yet, but we have the data and the conversations ongoing, and we hope to update you in due course, not too long about how that next stage of development will take place. Mary-Ann Chang: That's great. Somewhat related to that, and Phil, you may not be able to fully answer this, but I'll go ahead with the question. Will you partner iSCIB1+ before 2026 randomized studies. You mentioned previously, you were revisiting discussions. How are these discussions progressing? Or are you preparing to do it alone? Phillip L'Huillier: Thank you for the question. I see my job always as taking a two-pronged strategy. The first being be opportunistic about the possibility of partnering. And with this data set and our push on regulatory conversations, we're very confident that we will have serious conversations about partnering and partnering in the broader sense. And also possibilities around investment further. But alongside that, the second part of the strategy is to make sure we have the resource in terms of the expertise and the people and the drug but also the finance to go it alone because we don't necessarily control the timing on partnering activities. So we -- I always want us to be taking this two-pronged approach. Mary-Ann Chang: Good. A question again, Phil. Can you indicate how long the iSCIB1+ trial will take? And when might it start? Phillip L'Huillier: Is this in reference to a randomized study? Mary-Ann Chang: I think it must be, yes. Phillip L'Huillier: Yes. Yes. So as it's designed, we anticipate starting in mid-'26. We've designed it to have an interim PFS readout 17 months into that study if recruitment goes according to the design. And then at 27 months, we'll have our readout of PFS and an early readout on OS. Mary-Ann Chang: Very good. Okay. Question for Sath. When is the next Genmab payment due? Sathijeevan Nirmalananthan: Yes. It's on IND submission, phase I initiation. So that's in the first antibody and the same milestones exists on the second antibody too. As I said in my answer to Ed, we've got a recent update and things are looking good, increasing our confidence, and I anticipate them within the next 12 months. Obviously, the timing is reliant on Genmab. Mary-Ann Chang: Great. Okay. And a follow-on for you. What was the logic of the CLN redemption and size? Sathijeevan Nirmalananthan: Yes. So firstly, I'd say Redmile are very supportive investor. They continue to hold their equity stake. The partial redemption relates to some old funds that were requiring a little bit of liquidity. And given our runway and our confidence in our runway, there was a small partial redemption. Mary-Ann Chang: Yes. Thank you. Okay. Comment on the Modi-1 renal study. There was a question, has the study been delayed a quarter? And why? Phillip L'Huillier: No, I don't think it has. It's certainly recruiting well, and we're collecting data from patients as we speak for that. I think we've signaled the second half of the year, and now we can be a little bit more precise on the timing of that. But there's been no delay in recruitment or readout of data from that cohort. Mary-Ann Chang: Good. Okay. Finally, we have one question for Sath. On the share price, the questioner is asking if there was a seller and if you can give any idea about whether or not that any exit that may have been happening has now been completed? Sathijeevan Nirmalananthan: Yes. I'll answer this as best I can. Firstly, I'd say I think we're all disappointed in our share price performance. I don't think it reflects our intrinsic value and the value that we are building in the company. And as a reminder, all 3 of our covering analysts have increased their target price in recent weeks. And so we strongly believe we are building value. And I juice based on my feedback and my interactions that this is related to low volumes and certain compliance nature of selling from large institutional investors who have been very historical supporters, but for various reasons, need to sell out. Nothing related to our data and the progress that we're making. We continue to work through some volume, but I'm confident that once that clears, that we will continue on the path to reflecting the right share price as well. So I'm confident about the future, and we're working very hard to make sure that the share price reflects our intrinsic value. Mary-Ann Chang: Great. Thank you, Sath. There are no further questions. So I'll hand back to Phil for closing remarks. Phillip L'Huillier: Good. Thank you. We're excited. As my CMO says, we've got an active drug in our hands here, and we need to get this to patients as quickly as we can. The next quarter or so, we're knocking on many doors to find partners and investors to help us move forward into the clinic for further development to get this drug to patients, and we'll develop the rest of our pipeline. So we continue to build our plans to execute the randomized studies towards registration, whether it's in partnership or going it alone. Thank you for listening, everyone.
Operator: Hello, everyone, and welcome to Aviat Networks' Fourth Quarter Fiscal Year 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Andrew Fredrickson, Vice President of Corporate Finance and Interim CFO. Thank you, and you may begin. Andrew Fredrickson: Thank you, and welcome to Aviat Networks' Fourth Quarter Fiscal 2025 Results Conference Call and Webcast. You can find our press release and updated investor presentation in the IR section of our website at www.aviatnetworks.com along with a replay of today's call. As a reminder, during today's call and webcast, management may make forward-looking statements regarding Aviat's business, including, but not limited to, statements relating to fiscal guidance, financial projections, business drivers, new products and expansions and economic activity in different regions. These and other forward-looking statements reflect the company's opinions only as of the date of this call and webcast, and involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements. Additional information on factors that could cause actual results to differ materially from the statements expressed or implied on this call, can be found in our most recent Annual Report on Form 10-K filed with the SEC. The company undertakes no obligation to revise or make public any revision of these forward-looking statements in light of new information or future events. Additionally, during today's call and webcast, management will reference both GAAP and non-GAAP financial measures. Please refer to our press release, which is available on the IR section of our website at www.aviatnetworks.com in the financial tables therein, which include a GAAP to non-GAAP reconciliation and other supplemental financial information. At this time, I would like to turn the call over to Aviat's President and CEO, Pete Smith. Pete? Peter Smith: Thanks, Andrew, and good afternoon. Let's review the highlights from the fourth quarter. Total revenues of $115.3 million, non-GAAP gross margin of 35% (sic) [ 34.7% ], and record adjusted EBITDA of $15.1 million, up 27% (sic) [ 26.7% ] versus the year-ago period. This marks our third consecutive quarter of setting a new record adjusted EBITDA figure, non-GAAP EPS of $0.83, up 15% year-over-year. These quarterly results are a testament to our entire team and reflect the hard work, dedication and commitment we have to our customers and our shareholders. Let's discuss our end markets and key developments. In private networks, Aviat continues to deliver for our public safety and critical infrastructure companies including utilities and oil and gas companies with our reliable secure backhaul, complemented by our access and routing portfolio. In public safety, we remain a leader with sustained share of demand and expect a good environment in the year ahead. Industry research shows that overall city and state budgets for fiscal year 2026 are growing by 4% and 6%, respectively, even more relevant for Aviat allocations to city police and fire budgets are growing by 5%, and states are growing public safety budgets by 8%. This backdrop of funding growth aligns with land mobile radio or LMR network upgrades to better support video and data communications which creates growing demand for Aviat's suite of backhaul radios, routers and services. Our backlog in North America remains high, thanks to multiple large statewide public safety networks. Although our federal business is relatively small compared to our state and local government business. There are expanding opportunities as a result of the One Big Beautiful Bill Act, which has allocated $17 billion for the support of state and local law enforcement of border security and $6 billion for border technology. This will create opportunities for Aviat, given our leadership in public safety networks. Moving on to our mobile service provider market. The fourth quarter represented a rebound in spending from U.S. Tier 1 versus earlier in the fiscal year and strong revenues from certain APAC countries, our revenues from Pasolink are in line with our goal of $140 million in annualized revenues. We made a commitment to our shareholders that Pasolink revenues would be at this level exiting fiscal 2025, and we are happy to have delivered. Looking ahead, we believe that fiscal 2026 will have a broader set of opportunities for Aviat to grow versus fiscal 2025 based on mobile service providers' CapEx plans globally. Many emerging market operators are still early in building out their 5G networks, and we believe there will be opportunities for Aviat to participate in these network build-outs. The North American Tier 1 market should also be stronger than in previous years, thanks to efforts to build out fixed wireless access. Regarding our rural broadband business and the Broadband Equity Access and Deployment program, we see increasing utilization of wireless solutions for this segment compared to initial estimates which we think is wise given the speeds and capacity delivered and the cost and speed to deploy wireless versus fiber. For example, New Mexico's final BEAD proposal awards 40% of serviceable locations to fixed wireless access providers and Washington State awarded of 39%. Kansas awarded 50% of locations to hybrid and fixed wireless access solutions. This technologically neutral approach will create more opportunities for wireless backhaul, and we look forward to working closely with the states and rural broadband providers to service this program. We continue to believe that we will not see revenue impact from BEAD until calendar year 2026 and will not include it in any financial guidance until we have better visibility. Last quarter, we said that we anticipated an impact to Aviat from tariffs, but we had the goal of offsetting most, if not all, of the impact on our bottom line. Thanks to the tireless work by our operations, finance and sales teams, we have indeed seen minimal impact to Aviat's profitability as a result of tariffs thus far. We have moved nearly 1.5 million worth of supply purchases from China. We continue to execute on our plans to mitigate the impact of tariffs and are pleased with the progress Aviat has made. On the product development side, Aviat Networks recently introduced our new European Telecom Standards Institute Compliant or ETSI radio. This opens up a new market opportunity for us, thanks to industry-leading power which allows customers to build networks over longer distances with fewer towers and smaller end tenants which substantially reduces total cost of ownership. The radio is all-indoor design also simplifies maintenance, enhances safety, providing a reliable and cost-effective solution for mission-critical applications. This radio has been a leading solution in North America, and we are excited to bring it to our international markets. I would now like to turn the call over to Michael and Andrew to review the financial results of the quarter before coming back for closing remarks and our fiscal 2026 guidance. Michael? Michael Connaway: Thank you very much, Pete. I would like to say a few words before turning it over to Andrew. When I decided to join Aviat, it was because the company was successfully executing its strategy to scale in the wireless communication industry, had a strong technical offering for its customers, and was made up of great team members. All of these things remain true today. Aviat is in very good hands with Pete and Andrew at the helm. Andrew, over to you. Andrew Fredrickson: Thanks, Michael. I'll review some of the key fiscal 2025 fourth quarter results. Please note that our detailed financials can be found in our press release and all comparisons discussed are between the fourth quarter of fiscal year 2025 in the fourth quarter of fiscal year 2024, unless otherwise noted. For the fourth quarter, we reported total revenues of $115.3 million as compared to $116.7 million for the same period last year, a decrease of $1.3 million or 1.1% year-over-year. North America, which comprised 50% of our total revenues for the quarter was $58.0 million, an increase of $1.8 million or 3.2% from the same period last year due to growth in private networks. International revenues were $57.3 million for the quarter, a decrease of $3.1 million or 5.2% from the same period last year. This was driven by timing of certain international mobile network projects. Our trailing 12-month book-to-bill was over 1x, in the quarter. Backlog as of the end of fiscal 2025 was $323 million versus $292 million a year ago, up 11%. This growth signals continued demand for Aviat's products and services and sets the company up to execute on our growth plans in fiscal 2026 and beyond. Gross margins in Q4 were 34.2% on a GAAP basis and 34.7% on a non-GAAP basis. This compares to 35.3% GAAP and 35.9% non-GAAP in the prior year. The change in gross margin is primarily due to regional and customer mix in the quarter. Fourth quarter GAAP operating expenses were $30.6 million versus $35.7 million in the year ago period. Non-GAAP operating expenses which exclude the impact of restructuring charges, share-based compensation and deal costs were $27.1 million, a decrease of $4.1 million versus the prior year. This decrease is due to disciplined cost management and increased efficiencies at Aviat. Fourth quarter operating income was $8.9 million on a GAAP basis and $12.9 million on a non-GAAP basis. This compares to $5.5 million GAAP and $10.6 million non-GAAP in the year ago period. GAAP income before taxes in the fourth quarter was $10.2 million versus $4.6 million in the year-ago period. This is an increase of $5.6 million or 121% and represents a quarterly record for Aviat. The fourth quarter tax provision was $5.0 million. As a reminder, the company has over $450 million of net operating losses or NOLs that will continue to generate shareholder value via minimal cash tax payments for the foreseeable future. Fourth quarter GAAP net income was $5.2 million and non-GAAP net income which excludes restructuring charges, share-based compensation, M&A related and other nonrecurring expenses and the noncash tax provision was $10.7 million. Fourth quarter non-GAAP earnings per share came in at $0.83 on a fully diluted basis, up by $0.11 or 15.3% versus the year ago period. Adjusted EBITDA for the fourth quarter was $15.1 million or 13.0% of revenues, an increase of $3.2 million or 26.7% versus last year. This is our third consecutive quarter of setting a new record on quarterly adjusted EBITDA for Aviat. This achievement is thanks to the execution of the entire Aviat team. Moving on to the balance sheet. Our cash and marketable securities at the end of the fourth quarter were $59.7 million. Our outstanding debt was $87.6 million, bringing our net debt position to $27.9 million. With that, I'll turn the call back to Pete for some final comments. Pete? Peter Smith: Thanks, Andrew. We are happy that we were able to deliver another set of strong results for shareholders and close out fiscal 2025 with momentum heading into fiscal 2026. As part of our year-end audit, we did identify material weaknesses in our controlled environment. While we made progress in improving our control environment over the last year and remediating 2 material weaknesses identified last year, we still have more work to do in the year ahead. We will continue to invest further to improve our resources processes and testing to remediate our material weaknesses. Moving on to our fiscal 2026 guidance. Based on our current outlook, we see full year revenues to be in the range of $440 million to $460 million, full year adjusted EBITDA to be in the range of $45 million to $55 million. We expect that our business will build throughout the year with the first quarter being the lowest revenue quarter and the fourth quarter being the strongest revenue quarter. With that, operator, let's open up for questions. Operator: [Operator Instructions] One moment for our first question that comes from the line of Theodore O'Neill with Litchfield Hills Research. Theodore O'Neill: Great. I wanted to go back and ask about fixed wireless access for business and multi-dwelling unit opportunities. It seems like every telco is promoting this right now. And I'm wondering, is that -- do you have any sense if that's because they're discontinuing DSL over copper or it's BEAD funding or there's no fiber access? What's driving that? And what's making that work right now? Peter Smith: Well, I think one, the buildings in the U.S. our single-family housing is not being emphasized, but multi-dwelling units or when I was a kid was known as apartment buildings are being preferred and they achieve price points. So with that, that's what's driving the kind of the residential units. And then beyond that, with respect to access, it's -- in dense cities, fiber makes sense. But as you get away from the urban center, wireless applications become more interesting or more prevalent, is that helpful, Theo? Theodore O'Neill: Yes. And on the BEAD program, are you seeing any delays in there that are [ coming ] out by the government trying to delay certain funding of different programs? Or is that just moving along as you expect? Peter Smith: It's hard to say that the BEAD program is moving along as anyone would expect. But in our script, we noted several states that are taking advantage of the technological neutrality and changing the mix from fiber to wireless. So we're extraordinarily encouraged by that. With that said, we would also say the BEAD would be -- the BEAD funding will be impactful in calendar year 2026. So 1 of the problems with BEAD is it's always been a tomorrow story, a tomorrow story. We've never put it in to our guidance, it's still not in. But we're seeing the most positive signs around BEAD funding flowing that we've seen since the program was announced. Operator: One moment for our next question that comes from the line of Tim Savageaux with Northland Capital Markets. Timothy Savageaux: Congrats on another strong quarter. My question was relative to your outlook for fiscal '26. And in the middle of that range, I think you're at sort of 4%-ish type growth. And I want to try and relate that to some of the commentary earlier in the call. I think I can't remember the exact metrics, but you talked about funding increases, 5% to 8% in state and local, 11% backlog growth where it looks like you got basically 3 quarters in backlog. So I guess, is there anything out there that's going the other way that might meet that growth outlook, especially given the weakness you had in September a year ago that you would point us to relative to what appears to be a stronger environment. Peter Smith: Tim, it's a fair question. A year ago, Q1, we underperformed. And until we put that year-over-year quarter in the rearview mirror. We want to be conservative. I think you properly noted the environmental drivers, and we want to acknowledge that. And we also want to prove ourselves 1 more quarter, another quarter before we would get ahead of ourselves. Timothy Savageaux: Okay. Understood. And then with regard to the, well, Tier 1 carrier environment, and you could take this both North America and globally, do you see any kind of differing trends if you look at North American Tier 1s versus your global 5G customers from Pasolink. And then maybe any comments about the carrier versus private network market, do you see any meaningful difference in growth rates there in '26? Peter Smith: Okay. Let me start with the last one first. We would think -- we would anticipate better growth from the private network space compared to the carrier market. Unfortunately, I think we finished up the year a little bit over 55% private networks, 45% and -- that's about 55%, 45%. So fortunately, our portfolio is aligned with the higher growth segment. The North American wireless decline going back in 2024. And we see the back half of this year into next year, a slight growth. And it's harder to answer the international segment but we are weighted towards emerging markets which don't have the connectivity that say, more mature economies have. So that looks to be favorable and that will be -- we're project-based. So I think some quarters will be good and some quarters will be -- the demand will be digested. But we think they're set up -- we made a remark in the script about the setup for this year being better than last. And I would say it comes from public safety and utilities in our private network segment and the emerging economies and their connectivity and that would be on the network operator side. Operator: [Operator Instructions] Our next question is from Scott Searle with ROTH Capital. Scott Searle: Congrats on record EBITDA quarter. And Mike, I just want to say it's been a pleasure working with you, and congrats and best of luck in your future endeavors. Guys, maybe to just dive in on the quarter, the revenue mix was heavily skewed towards services, and higher gross margins on that front. I'm wondering if you could talk us through some of the dynamics in the June quarter that got us to that point. And then as we look out immediately into the September quarter, how are you seeing the product revenue correct and gross margins on that front? And then I had a follow-up. Andrew Fredrickson: Okay. Yes, Scott, so this is Andrew. On the services versus product for the quarter, services was strong. And really, the margins were good across all regions and had improved sequentially across all regions. And so part of it is just a mix of the products that we had -- or sorry, the projects we had in the quarter for being higher as a portion of overall revenue. But I'd note there, particularly that margins improved on our services really across all regions. Scott Searle: Got you. And then, Andrew, looking forward into the September quarter, how does that correct? And maybe to follow up on Tim's question earlier, it sounds like there's a lot of good in what you're seeing. It sounds like the demand environment seems pretty healthy. Private networks seem like they're starting to build both from a government federal standpoint, local standpoint as well as private as well. And it seems like the carrier environment is even recovering at least from a Tier 1 North American standpoint. So is it conservatism that you're just looking at the fiscal '26 outlook? Or is there something specifically going on from the services and more project-based revenues that just is for -- translate to some more immediate caution in the September and December quarters. Peter Smith: So Scott. Our business is "lumpy" or episodic or project based. And we see the build quarter-over-quarter. We see Q1 to be at the low point in the quarter. Q2 and Q3 are likely to be even with each other in Q4 should be the highest. So I mean it could be Q1 low, Q2 high, Q3 a little bit back and Q4, the highest again, which is our emerging pattern as we have -- as our portfolio we lap year-over-year, we're getting more used to operating core -- well let's go back in time, core Aviat, the Pasolink portfolio and the 4RF Aprisa. So that's why understanding the revenue cycles for each of those customer bases has been a bit of a challenge with respect to the seasonality or calendarization. And this is what we're feeling comfortable with given our history with the whole portfolio. Scott Searle: Congrats on the quarter. Operator: [Operator Instructions] As I see no further questions in the queue, I will conclude the Q&A session and pass it back to Mr. Smith for concluding comments. Peter Smith: Okay. Thanks, everyone for jumping on the call on short notice. We look forward to updating you after our September quarter gets done, and we get ready to publish our next set of results again. Thanks, everyone. Operator: And with that, we thank you for participating in today's conference, and you may now disconnect.
Operator: Thank you for standing by, and welcome to the Haivision Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Thank you. I'd now like to turn the call over to Mirko Wicha, President and CEO. You may begin. Miroslav Wicha: Thank you, Rob, and thank you, everyone, on the call for joining us today to discuss the third quarter of our fiscal year 2025, which ended back in July 31. As mentioned on our earnings call, way back in January, we are now well into our 2-year strategic plan. And now we are demonstrating the company is delivering the double-digit revenue growth, we have been discussing in the past several calls. Our double-digit revenue growth will also help us return Haivision to our historical CAGR growth rate of approximately 20% per year, since the founding of Haivision. The focus this year and the next is all about building high revenue growth. As mentioned, 9 months ago, we have seen the bottom of the revenue curve back in January. Our key fundamental business model for the controller market, which is the move away from being an integrator to manufacturer, has been complete for a couple of quarters now. We are seeing a solid increase in our long-term sales pipeline. Our business forecast is compelling, and we are seeing strong orders and a revenue increase in this market, not just in the U.S. but worldwide. In fact, our poor product revenue in this market has now surpassed our revenue levels, which included all the third-party products such as the screens, which make up most of the deal revenues. As you are aware, we have been investing in many new product development initiatives and introductions throughout this year and some which are yet to come during our fiscal 2026. Now back in May, we also launched an exciting next-generation AI-based hardware tactical edge processor for the defense and ISR markets called the Kraken X1, the KX1 for short. It was extremely well received as it delivers incredible performance of AI-enabled and coding in real time. The KX1 is a ruggedized and AI-capable video processing appliance engineered for demanding ISR deployments, combining real-time encoding, transcoding, metadata processing and NVIDIA powered AI capabilities in a fanless and compact design. Now we expect the KX1 to be available and shipping in volume by the end of this quarter, and should create lots of excitement within the ISR community during fiscal '26 and beyond. We have also successfully showcased our next-generation transmitter platform called the Falkon X2, at the NAB Show back in April. And we are demonstrating it all this week at IBC show in Amsterdam. The Falkon X2 is also planned to be shipping in volume by the end of this quarter. Now the Falkon technology and platform is the beginning of our transition for our entire line of transmitters to advanced 5G private networking capabilities. We have incorporated some revolutionary technologies and create a lower cost structure, which will result in a better price performance and highly competitive product offerings for the future. This is another initiative that will help maintain our healthy margin profile over the long-term. Haivision has also won the prestigious IBC Innovation Award, the past 2 consecutive years, thanks to our strategic role for live 5G video at the Paris Summer Games last year, and we are poised this week to potentially win for a third straight year, which would be a rare feat as we are nominated and featured in the IBC Accelerator program to showcase what's named Conquering the Air Waves private 5G from land to sea to sky. Now this is really a first of its kind workflow, which was proposed by OBS, which is the Olympic Broadcasting Services, [indiscernible] with Neutral Wireless and of course, Haivision. This project looks to take private 5G to the skies, unlocking new creative possibilities by harnessing dynamic mobile connectivity for broadcasters to bring audiences closer to the action, while also enhancing athlete safety and event coverage. Now strategically, the company is landing landmark defense contracts installing large multinational operational controlling deployments, demonstrating clear leadership in private 5G networking and gaining industry recognition for our technology leadership. All these efforts are already bearing fruit as seen from our Q3 results and will continue throughout our fiscal 2026 and beyond. Now in closing, I would like to finish with a time glimpse into our fiscal 2026 direction, which happens to begin in about 6 weeks. Now our plan is to maintain a flat OpEx over 2025, while delivering double-digit revenue growth. This will obviously result in a healthy increase to our overall EBITDA as our cost structure and gross margins are well in control. Now double-digit EBITDA and double-digit revenue growth is what we expect for 2026 and 2027 and 2028 and 2029. This is what we have been working hard towards the past 18 to 24 months. In summary, I couldn't be happier with our Q3 double-digit revenue performance as we reiterate our continued focus and attention on revenue growth and higher profitability. Dan, please continue with the detailed financials. Dan Rabinowitz: Thank you, Mirko. Good morning, everyone, and thank you for joining us today. On our last call, I described the quarter as the end of the transition and the start of momentum. This quarter, we're beginning to see that momentum show up in the numbers. While there still work ahead, our third quarter demonstrates profitable growth and a stronger foundation for the future. Let's begin at the top line. Q3 fiscal 2025 revenue was $35 million, that's up 14.3% or $4.4 million over last year. Year-to-date, revenue was $97.5 million. That's still 1.9% behind last year, but we've made up a lot of ground since the weak first quarter. Both Q2 and Q3 exceeded prior year levels, closing the gap. Exchange rates, which helped us last quarter normalized this quarter. So unlike Q2, where FX tailwinds gave us a top line lift, Q3 performance came from the business itself. Importantly, revenue from our control room solutions, excluding third-party components has now surpassed last year's levels with those components. For the 9 months just ended, third-party component sales are down to 1/3 of last year's level, and we expect it to remain at that low level going forward. Our recurring revenue from maintenance, support contracts and cloud services continues to be a bright spot. This quarter, recurring revenue was $7.3 million, that's up 12% year-over-year. And year-to-date, it's at $21.5 million, an increase of 12.4%. Recurring revenue now represents 20.9% of Q3 revenue and 22.1% of year-to-date revenue. We continue to expect to see sound year-over-year growth in recurring revenue, as our total revenues continue to build. This is healthy, sustainable growth and because these contracts tend to be sticky, that give us visibility and stability looking ahead. Gross margins in Q3 were 72%. That's 300 basis points lower than last year. The biggest factor was the timing of deliveries under our U.S. Navy contract. On a year-to-date basis, margins are 72.3% essentially in line with our long-term average and only slightly below last year's 73.1%. As we've mentioned in prior calls, some quarter-to-quarter fluctuation is expected based on the timing of Navy deliveries, the seasonality and the mix of products shipped and software-only or virtual machine deployments, which have higher-than-average gross margins. Total expenses this quarter were $24.9 million. That is up $3.1 million from last year. The main drivers were about $900,000 in sales compensation and trade show activity, reflecting stronger selling efforts, roughly $800,000 in additional R&D investments consistent with our plan to add engineering resources for new products and business opportunities. About $500,000 is related to currency impacts from the weaker Canadian dollar and another $500,000 from noncash share-based payments, which can vary based on the nature and the timing of those grants. Adjusting for foreign exchange volatility, operating expenses have leveled off. While trade shows can shift the timing quarter-to-quarter, the underlying expense base is relatively fixed. Looking ahead, fiscal 2026 third quarter brings a significant milestone, the 4-year Anniversary of the CineMassive acquisition, which we now refer to as Haivision MCS. At that point, the technology purchase as part of the acquisition will be fully amortized, reducing amortization expenses by at least $600,000 per quarter or more than half of our quarterly amortization. For the 9 months, expenses totaled $75.6 million. That is up by $8.1 million from last year, but the increase reflects a number of factors. $1.9 million from currency impacts, although FX has stabilized, we've launched hedging programs on euro-denominated assets and liabilities to reduce the Canadian dollar exposure to such fluctuations. And this is going to be in addition to our hedging program for U.S. denominated assets and liabilities as well. $1.7 million of the increase is related to the nonrecurring litigation expenses related to the Vitec case. Although Vitec has appealed the judge's ruling, we have recorded the full liability, including damages, interest fees and trial costs. As a reminder, the award represented just 0.5% of Vitec's claim, a clear victory for Haivision. $1.7 million in incremental sales and marketing, again, primarily related to commissions, but it also included travel expenses and an increasing marketing calendar. And then $1.5 million in operations and support, we had built up our operations and support investments late in fiscal 2025, which continued through fiscal 2025. And then finally, or I should say, in addition, $1.4 million were those planned R&D investments that we conveyed earlier this year in support of new product introductions. And then lastly, $800,000 from non-share -- noncash share-based payments. The higher revenue in Q3 contributed to an incremental $2.2 million of gross profit, but with expenses up $3.1 million, operating income came in at $300,000 trailing last year by about $800,000. Year-to-date, the modest revenue shortfall reduced gross profit by $2.2 million, about 1/3 of which relates to year-over-year margin differences. Expenses had risen by $8.1 million for the reasons I outlined earlier, the result is an operating loss of $5.1 million compared to operating income last year. That's a swing of $10.3 million. We believe, though, adjusted EBITDA gives a clearer view by stripping out noncash and nonrecurring items like depreciation, amortization and share-based payments. So for Q3, adjusted EBITDA was $3.5 million compared to $4.1 million last year. The adjusted EBITDA margin was 10.1%. On a year-to-date basis, adjusted EBITDA was $5.8 million compared to $14.4 million last year. Now much of that decline in year-over-year adjusted EBITDA is tied to our first quarter. Revenue in our first quarter trailed the prior year by $6.4 million, resulting in gross profit trailing prior year by $4.9 million. The result of the revenue shortfall was that adjusted EBITDA in just that first quarter of fiscal 2025 was only $400,000, down $4.8 million from the prior year. That single quarter accounts for more than half the year-to-date gap. I think third quarter performance now demonstrates that we are back on track. We ended Q3 with $10.9 million in cash, that's down $900,000 from last quarter. Key drivers to the decline were a $2 million reduction in payables, a $1 million increase in trade and other receivables, $1.6 million that we spent repurchasing shares, $600,000 in loan and lease repayments and $300,000 in capital expenditures. These were partially offset by the $3.5 million of adjusted EBITDA and a modest $600,000 increase in our line of credit balance. So far, in fiscal 2025, we purchased about 885,000 shares for cancellation for an investment of $4 million. Over the last 2 NCIB programs, we purchased about 1.7 million shares for cancellation at a total cost of $7.6 million. Our credit facility remains strong at $35 million, with only $8 million drawn today and room to expand if strategic opportunities arise. Total assets at quarter end were $139.1 million, a modest decrease of $2.2 million from the end of fiscal year 2024. The decrease in total assets is largely related to the $5.6 million decline in cash, the $3.2 million decline in tangible assets, largely the result of ongoing amortization expense. And these declines were offset by increases in our income taxes and receivable and other receivables totaling $6.2 million. Total liabilities at quarter end were $47 million, that is an increase of $2.5 million from the end of fiscal 2024. The increase in liabilities is largely the result of the $5.7 million increase in the amount outstanding on the line of credit, but was offset by decreases in deferred revenue, lease liabilities and term loans and decreases in other payables. I suppose, at this point, no earnings call is complete these days without a few words about tariffs. So as a reminder, as a Canadian company, our proprietary products are covered by the USMCA trade agreement. So currently, there are no tariffs on products manufactured in Canada when sold into the U.S. Our transmitters, on the other hand, are still manufactured in France and as of August 29, are subject to a 15% U.S. tariff. For now, the impact is limited since transmitter sales into the U.S. are still an early initiative. And we're actively planning ways to mitigate the impact of these 15% tariffs with upcoming transmitter product launches. So for the time being, we intend to stay the course. So to summarize, in Q3, we delivered double-digit revenue growth, solid recurring revenue expansion and stabilized operating expenses. With that momentum, we've returned to double-digit adjusted EBITDA margins. And as growth continues, we're confident in reaching our long-term goal of 20% adjusted EBITDA. Although still in the planning stages for fiscal 2026, we expect overall revenues to approach volumes that will clearly illustrate the operational efficiencies we've discussed on earlier earnings calls. With that, I'll turn it back to Mirko for Q&A, and thank you again for joining us on today's call. Miroslav Wicha: Thank you, Dan. Rob, let's open up for questions. Operator: [Operator Instructions] Your first question today comes from the line of Robert Young from Canaccord Genuity. Robert Young: I thought I'd maybe lead off the question with a question just around guidance for the full year, if that's something that you're -- if I missed it, sorry, but I was hoping that you could update that. Or if not, is that expectation of double-digit growth, double digits EBITDA? Is that something we should be thinking about for this year or next year? Maybe you can put some time line around that, some consistency expectations quarterly, that would be very helpful for modeling. Dan Rabinowitz: Well, I think we are looking for double-digit revenue growth for 2026 and beyond. I think we're going to be knocking on that magical $150 million number that will actually be able to demonstrate that we can get to that EBITDA margin of 20%, although I just want to caution everyone when we threw out that $150 million number as where our belief would be to be able to recognize that 20%. That was a number of years ago. And that number may have gone up a little bit because of inflation and increased costs overall. But I think that is where we're looking at 2026 at the moment. We'll continue to be growing the EBITDA margin. We'll continue to be growing revenue at double digits, and that should set us up for a very buoyant 2027 and beyond. Robert Young: Okay. That's very helpful. Second question would just be around the -- if you could give us a little bit of insight into the growing commitments with NATO and where those would map to opportunities in your business? I know there's a number of products, a number of projects and programs that you have running with U.S. government in different ways that might be used by other NATO partners. And so I was hoping you could just maybe widen that out and give maybe a broader explanation of the opportunity there? Miroslav Wicha: Well, I can probably try to tackle that. I mean I think right now, what we're seeing is definitely an increase in activity within our international group, which includes obviously NATO and The Five Eyes. I think it's still a little bit too early to give any kind of indication, but we're seeing a very good strength in the U.S. as well as all throughout NATO. So it's all positive. We're also, by the way, seeing an increase in activity in just pure security, not just defense related, which is encouraging. So as defense ISR are proving to be strong, we're also seeing it in the cybersecurity, the banking industry, the utilities industry. So within our enterprise sector, where we have a huge customer base for control rooms, that's really picking up steam as well. So we're seeing it in all fronts. Robert Young: Is there a way to segment maybe give a rough idea of how much revenue today is driven by those end markets? Miroslav Wicha: Dan, I think that's some dissection, but we don't really go that deep. From a mission perspective, overall, we're roughly about 2/3 of our revenue, right, and 1/3 is our live sports and broadcast. Dan, do you have any other color you can add that? Dan Rabinowitz: Yes. I think it's -- I think it's a little bit difficult because we're seeing growth in both areas. And so we're not seeing that one area is outgrowing the other in any significant fashion. But I do think that we've been seeing the size of our pipeline growing. Those are the number of opportunities that are in front of us growing and the number of larger opportunities are also growing. So those are our signposts for future backlog and perhaps future sales, I should say, backlog that will eventually result in future sales. Miroslav Wicha: Yes. I mean the challenge, Robert, we have is that also the challenges, I would just add that within the mission market or the controller market, it's a much longer lead sales cycle, right? So that's very different from all of our other businesses. So it's kind of hard to -- at the moment to gauge exact revenue impact. What we're seeing is we're seeing a nice increase in the pipeline/forecast/bookings, but it translates into revenue a little bit longer than something like in our broadcast sports market, right, or our traditional encoder market. Robert Young: Okay. That's all very helpful. And then maybe last question for me would just be around the gross margins. I know there was the slight decline. You gave a bunch of drivers, Dan. Like there's one specific thing or maybe like are there a couple of things that might have driven that decline just to be more precise there? And then I'll pass the line. Dan Rabinowitz: Well, I would say that the timing of the Navy deal was -- had the largest impact on gross margins year-over-year. Sales or deliveries are tend to be a little bit bulky. And depending on which quarter they hit, they can have a big impact or a smaller impact on the business. I think when we were giving guidance before, we believed that most of the deliveries would take place in the fourth quarter. We had significant deliveries in the third quarter that brought down the third quarter margin earlier than what we had expected. So our fourth quarter expectation is that our margins will be a little bit better than what we had anticipated internally, but it doesn't change our overall view that the Navy transaction would impact margins by about 60 basis points for the year. Robert Young: Great to see the return to growth. Operator: [Operator Instructions] Your next question comes from the line of Jesse Pytlak from Cormark Securities. Jesse Pytlak: Just a single question for me. Just hoping to maybe get an update on how the training program is going with your international channel partners with respect to the MCS business? Miroslav Wicha: Good question. We've actually had several training sessions already in Atlanta, we actually built a professional training center in our facility. And we've been holding nonstop training classes now for the last several months. So it's ongoing. We're getting a lot of people through it. We did try to prioritize the U.S.-based partners in the beginning, but even though they do have reach into international, and we are now starting to see some of the international partners flow through. So it's progressing very, very well. I expect it's going to continue to be booked solid right through for at least the next 6 months because we're already backlogged on the training that's already being requested. So all in all is doing good with our new release 4.4 that we launched. That's what it's all -- the training is all based on. So we're very encouraged. Operator: And there are no further questions at this time. I will now turn the call back over to Mirko for some final closing remarks. Miroslav Wicha: Perfect. Well, thank you very much. That was like the least amount of questions I think we've ever had. Dan Rabinowitz: We gave them all the answers... Miroslav Wicha: I guess in close -- I guess, so I'd just like to say in closing, again, we're committed, right, to maximizing long-term value for all of our shareholders. And we're confident in our ability to execute on our strategic revenue growth plan and deliver solid growth for the future as promised. And I just want to thank all of our shareholders and analysts on the line today for their continued support of Haivision and look forward to speaking with all of you in around mid-January when we will discuss our Q4 performance as well as our entire 2025 year-end results. So thank you very much, and speak to you in January. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, and welcome to the Gym Group Half Year Results 2025. If you're joining us on Zoom, automated subtitles are available, and you can turn this feature on or off within your Zoom app settings. But please note, this is an automated service and transcription errors sometimes occur. I'm now going to hand over to Will Orr, CEO. Will, please go ahead. William Orr: Good morning, and welcome to the 2025 half year results presentation for the Gym Group. Thank you for making the time to join us in the room and on the dial-in. After the presentation, we'll take your questions in the room first and then on the webcast. Our CFO, Luke Tait and I will be doing the presenting today. And here's what we plan to cover. I'll start with an overview before handing to Luke to share the 2025 half year financial results. I'll then provide a progress report on our next chapter growth plan before summarizing and taking your questions. So starting with the overview. I'm pleased to report strong performance for the first half of 2025. Closing membership was up 5%, with revenue for the period up 8%, 3% on a like-for-like basis. With this performance and strong management of costs, EBITDA less normalized rent was up 24%. The market we're in remains highly attractive, and gym penetration has again reached new highs, supported by structural growth tailwinds. And within our next chapter growth plan, the program to strengthen the core continues to drive mature site performance, underpinning confidence in further progress on mature site ROIC, which we'll report on at full year results. And when it comes to new sites, we're on track to increase openings to 14 to 16 in 2025, in line with our plan to open circa 50 new sites over 3 years, funded from free cash flow. So the momentum continues. And with that, I'll hand over to Luke for the financial results. Luke Tait: Thanks, Will. Good morning. So starting with a summary of our financial KPIs. The key revenue KPIs, which were released in July have both shown good growth year-on-year. We had average members across the first half of 953,000, up 4% versus last year, and average revenue per member month was GBP 21.16 for the first half, also up 4% on prior year. As a result, revenue was GBP 121 million, up 8% on last year. The additional revenue converted well to profit with EBITDA less normalized rent of GBP 27.4 million, up 24% on prior year. Statutory profit before tax was GBP 3.3 million, up GBP 3.1 million on prior year. Free cash flow of GBP 25.1 million was up 8% on prior year and enabled a net debt reduction of GBP 10.1 million to GBP 51.2 million, reducing the net debt-to-EBITDA leverage ratio to 1x. We will look at each of these key financial metrics in more detail in the following slides. Turning to the income statement. EBITDA grew strongly in the first half of the year, up 24% versus last year. Revenue was GBP 121 million, up by GBP 8.9 million year-on-year. Approximately 1/3 of the incremental revenue year-on-year was generated from like-for-like gyms and 2/3 from new openings since December 2022. Costs in the first half evolved in line with expectations. Site costs of GBP 57.9 million benefited from a reduction in electricity costs from lower commodity rates, resulting in site cost margin improvement of 2%. I'll come back to the other key site cost movement shortly. Central costs grew by 7%, with the growth rate expected to slow further in the second half, and therefore, the central cost margin is expected to drop to circa 11% as guided in March. Normalized rent increased by 7%, reflecting a combination of new site growth and underlying lease inflation. EBITDA was GBP 27.4 million, with EBITDA margin at 23% for the first half, an improvement of 3% versus prior year. Moving on down the P&L. The noncash charge for share-based payments of GBP 2.5 million was higher than prior year due to the delay in the commencement of the new scheme last year. Net financing costs of GBP 10.4 million remained flat year-on-year, as lower interest rates offset an increase in property lease liabilities. The charge consists of GBP 8.1 million relating to property lease interest and GBP 2.5 million relating to our borrowing facilities. Profit before tax and non-underlying items was GBP 4.9 million, up GBP 4.4 million on prior year. Non-underlying items of GBP 1.6 million principally relates to the implementation of a new member management and payment system. Finally, profit before tax for the 6 months was GBP 3.3 million, up from breakeven last year. Revenue grew by 8% in the first half. Average revenue per member per month grew by 4%. This was principally down to a combination of yield increases in their like-for-like estate, and the optimization of yield in the new site openings, including coming off introductory headline rate discounts. The average headline rate of a standard membership was GBP 25.10, up by GBP 1.16 year-on-year. Like-for-like revenue was 3%, in line with guidance, with the average membership remaining at 100% year-on-year and the average yield increasing by 3%. Looking at site costs in more detail. We've been able to control site costs in the first half despite the ongoing inflationary environment. In the first half, like-for-like site costs were down by 1%. This was driven by a further reduction in electricity commodity prices and our energy optimization program. For example, we have now installed 120 voltage optimization units across the estate. Efficiencies in the staffing model and cleaning have partially offset the National Living Wage and NIC increases in Q2. And rates rebates have partially offset the Q2 increase in the UBR. In the second half, we expect site cost inflation to return, bringing the full year in line with our guidance of like-for-like site cost growth of 2%. This is as a result of an increase in the non-commodity element of the electricity cost from Q4 as well as 2 quarters of National Living Wage, NI (sic) [ NIC ] and UBR increases. Turning now to the cash flow. Strong cash flow generation in the year enabled us to self-fund our expansionary CapEx, buy shares for the EBT and pay down debt. The working capital inflow of GBP 8 million reflects the cash generative nature of the business model when growing, and a higher proportion of payout front memberships, although some unwind of this inflow is expected by year-end. After deducting the cash spend on maintenance CapEx of GBP 7.3 million, operating cash flow was GBP 28.1 million. The cash element of non-underlying costs was GBP 0.5 million, bank and lease interest was GBP 2.5 million. It's worth noting that due to losses incurred during COVID and accelerated capital ounces, we do not expect any cash tax until 2028. Free cash flow was GBP 25.1 million. Expansionary CapEx was GBP 12.6 million. And after refinancing and EBT share purchase costs, net debt reduced by GBP 10.1 million during the first half. We continue to invest to grow the business and ensure a well-maintained estate. Total cash CapEx in the first half of the year was GBP 19.9 million. Maintenance CapEx across both property and tech was GBP 7.3 million in the first half. Property maintenance of GBP 6.2 million was 5% of revenue. Tech and data maintenance CapEx of GBP 1.1 million was spent on hardware, including CCTV upgrades and on our data infrastructure. Expansionary CapEx was GBP 12.6 million, with the main spend being on new sites as we target 14 to 16 new sites this year. Tech and data expansionary spend relates principally to investments in the website to enable next chapter growth initiatives such as product add-ons and website conversion optimization. Spend on replacement member management and payment systems was GBP 0.7 million and is expected to increase significantly in the second half as this project ramps up. We continue to expect total CapEx to be approximately GBP 50 million for the full year. Turning now to net debt. The strong free cash flow in the first half has allowed good progress on leverage reduction. Non-property net debt was GBP 51.2 million at the end of June, down GBP 10.1 million from the year-end. The debt consisted of GBP 59 million of bank debt and GBP 1.5 million of finance leases. As a result of the reduction in debt, the net debt-to-EBITDA multiple reduced to 1x EBITDA, down from 1.3x at year-end. Given the second half weighting of CapEx and an unexpected element of working capital unwind, year-end net debt is expected to be at a similar level to last year end at circa GBP 60 million. In June, we agreed an amend and extend of our current facilities with our bank syndicate, increasing the total facilities to GBP 102 million and extending the maturity to 2028. The new sites continue to perform well. The 25 sites opened in 2022 are expected to deliver ROIC of 30% this year. The small 2023 cohort is on track to deliver an average ROIC of 25% with one site having been impacted by an unusual level of competitors' openings. And although early in their tenure, the 12 2024 sites are progressing well with strong initial membership volume. Overall, our confidence remains high on returning 30% on new openings. Finally, turning to current trading and outlook. Current trading momentum has continued through July and August. We're now entering the key student acquisition period. We've opened 5 new gyms so far this year with another 8 gyms currently on site. For the full year, like-for-like revenue is expected to grow at circa 3% and like-for-like cost growth is expected to be circa 2%. Given the current trading momentum, we now expect EBITDA at the top end of market expectations. We do not expect to pay any cash tax before 2028. We're on track to open 14 to 16 new openings in 2025, in line with our March guidance, with total CapEx of circa GBP 50 million expected for the full year. Therefore, net debt is expected to trend back to last year's level by year-end. I will now hand over to Will. William Orr: Thank you, Luke. In March 2024, I set out our next chapter growth plan and wanted to provide you with a further update on the strong progress we're making. Firstly, a reminder of investment case, sustained growth from free cash flow and why we think it's so compelling. Starting at 12:00 on the circle, health and fitness is a very large market that's benefiting from continued structural growth. And in gyms, the high-value, low-cost sector is growing fast. As with other categories, we're benefiting from consumers' appetite for no-frills great value propositions and from new more committed generations of gym goers. This winning proposition has high levels of customer satisfaction and is delivered by a strategically advantaged labor-light business model. We also have multiple drivers of growth listed on the right-hand side of the slide with detailed plans on each of them. Strong execution on those growth drivers is increasing returns in our existing estate, in turn, funding the organic rollout of quality new sites. This virtuous circle of sustained growth is being powered by data and technology, 2 areas we continue to invest in is the foundation for any successful digital subscription business. Demand for gyms continues to grow. U.K. consumers now spend GBP 6.5 billion on gym memberships with 11.3 million of us being members. That penetration continues to grow with another strong increase in 2025 to 16.6%. And as you can see, low-cost gym growth is strong. With the proposition that's high quality and affordable, we're introducing new generations of gym goers to something they really value as well as benefiting from the continued trade down from the mid-market. And in this growing market segment, we're 1 of 2 brands that account for 80%-member share. Seeing the way future generations, particularly Gen Z, are embracing gyms is one of the reasons we're so optimistic about the Gym Group's future. With around 40% of our members being in this cohort, we now publish a Gen Z fitness report based on a regular independent survey of over 2,000 respondents. The most recent results are again encouraging. Nearly 3/4 of this group now saying they're making time for fitness at least twice a week. And their fitness is their top priority when it comes to discretionary spend. For a growing number of this generation, fitness is a nonnegotiable. These are consumers who are highly engaged in fitness for its physical and mental health benefits, who have a growing appetite for strength training, best done in a well-equipped and affordable gym and who increasingly see going to the gym as part of their identity and social life. And I should add that these trends extend beyond Gen Z and into our membership base as a whole. The future is bright for fitness and gyms. To take full advantage of the market with structural growth, you need a winning proposition and ours resonates more than ever. For any subscription business, usage is a good health indicator. And the proportion of members visiting us 4 times a month or more increased again year-on-year. While the proportion of members rating us 5 out of 5 in satisfaction surveys has risen to a remarkable 62%. And when it comes to Google reviews, we lead the market with every one of our gyms scoring 4 out of 5 or better. So the Gym Group is growing in a growing part of a growing market, benefiting from structural market growth and an advantaged labor-light business model that delivers a winning proposition. The Gym Group also has a clear growth plan. As a reminder, there are 3 elements to the next chapter. Strength in the core is focused on increasing returns from our existing sites, principally by growing like-for-like revenue. It's the program that helped us deliver our 25% midterm target for mature site ROIC in full year 2024 ahead of schedule, and is generating the cash to accelerate our organically funded rollout of quality sites in the U.K. As we said in March, those first 2 COGS are very much where our executional focus is for the time being because we see so much headroom here. I will, however, also update on the third COG, broaden our growth later in the presentation. Turning in more detail to strengthen the core. We've again delivered multiple wins across 3 levers of customer revenue growth. On pricing and revenue management, we're seeing a sustained upside opportunity based on our strong value-for-money credentials and I'm confident we have the data and capability to continue growing yield. When it comes to acquiring new members, we're using data, ad technology, brand management, local targeting and e-commerce skills to create a highly efficient acquisition engine. And thirdly, on member retention. We continue to increase the average tenure of our membership by taking a systematic approach. On the next few slides, I'll give you some examples of the progress we're making in these areas. In explaining why, we see such a sustained opportunity on pricing and yield, I wanted to start with the U.K. gym market as a whole. At the Gym -- at The Gym Group gym, you get a large, clean, well-equipped, well-maintained gym with friendly expert people. You also get 24/7 access, and you're not tied into a contract. And yet, because of our advantaged business model, we're able to offer all this at prices that as well as being marginally lower than the direct competition are comprehensively lower than the rest of market. And as I'll touch on shortly, we have ways to keep enhancing the perceived value of what we offer without adding to our costs. So our market position gives us a strong long-term pricing and yield opportunity. And critically, that opportunity exists in the minds of our consumers. The graph on the left-hand side is output from a large quantitative study we refreshed again in H1 with Simon-Kucher Partners. It plots perceived value on the X-axis against perceived price on the Y-axis and shows that the high-value low-cost gym sector remains underpriced in the minds of our target consumer. In other words, they continue to perceive more value than they pay. And when you consider the value proposition I just described, that large, well equipped, well maintained 24/7 gym for about GBP 25 a month, that's not surprising. It is a phenomenal piece of value engineering. And as you can see on the right-hand side of the chart, this delivers strong value, for money scores, which remains stable despite increasing prices again over the last 12 months. With this opportunity in mind, we delivered several wins again in H1, all these have been underpinned by analytics and AB testing, derisking our decision-making as we execute. Firstly, we've increased our headline rates for new members, while remaining cheaper than the competition in competing sites. We note that our main competitors continue to take a similar approach with JD Gyms particularly aggressive in the period and further pure gym price increases noted already in H2. Secondly, we've continued to test and innovate on promotions, seeking to optimize for return on spend. This has included more targeted treatments at site level and ongoing deployment of our churn-reducing stepped kickers. Thirdly, we've continued to revenue optimize our product range, including offering premium features like Guest Pass and Multi-Site Access as add-ons to standard membership. And finally, we've developed a data model to assess site level headroom in the mature estate, enabling even more targeted pricing and volume interventions as a result. I'll return to this data model later. Turning to acquisition. We're also taking a targeted approach here. As I've described before, to maximize return, we're spending our marketing money close to our sites where the demand will naturally be. And as you can see in the graph, unprompted awareness within 3 miles of our sites is growing. When it comes to then converting prospects into sales, our program of web conversion improvements continues with 9 successful AB tests completed and adopted in H1. We're also progressing initiatives to be as relevant and attractive as possible to our core audience of Gen Z consumers. This includes growing our footprint in social media and enhancing the presentation of our brand and our sites. To expand on this a bit further, as you can see on the left-hand side of this chart, our social media reach, both at national and local level continues to grow at pace with well over 0.5 million people interacting with us in social. This is a key channel for quality fitness advice, engagement and, of course, sales, and we'll continue to prioritize this area. We're also evolving the aesthetic presentation of the Gym Group in marketing activity and in our gyms. This is one of the ways we'll continue to build our perceived value in the minds of members, supporting pricing and revenue growth. And I'll return to what evolves in gym design in more detail shortly. Our focus on retention is one of the reasons we've been able to hold like-for-like membership constant, while pricing up and where the average tenure of our members continues to grow. Churn rates are highest in the first 45 days of the members' tenure, which is why we developed our early life plan. Part of this plan is encouraging new members to visit more often in their first month, and in H1, we launched targeted nudge messages in the app to encourage visits. As well as this, we're enhancing all aspects of the new joiner experience. For example, we've renamed and better promoted the free Kickstart induction session we offer new members. Kickstart introduces the new member to the gym and helps them get the most from it. We've seen a 37% increase in participation and 10% higher retention rates among participating members. Rejoins are also an important part of our member mix, with members benefiting from our flexible proposition. We have a program of enhancements to capture as many returning members as possible and increase the 6-month rejoin rate by 6% in H1. And finally, we continue to grow our base of members on a longer-term commitment. We call these 6-, 9- and 12-month product savers and have enhanced them in several ways, growing this base by 37% in H1. So that's a few examples of the many ways we're strengthening the core of the business and improving mature site ROIC. To remind you, we grew that measure 4 percentage points in full year 24% to 25%, and look forward to reporting further progress on this metric at full year results. Now turning to the second part of the plan. In line with our strategy and capital allocation policy, we're currently deploying free cash flow to accelerate the rollout of quality sites in the U.K. PwC estimates 10 years plus of U.K. white space for low-cost gyms. So the opportunity for sustained rollout is clear. And we're taking a disciplined returns-focused approach to unlocking that opportunity. We opened 12 new sites in 2024 at the top end of guidance and are on track to open the guided 14 to 16 in 2025. Using data to isolate the characteristics of our best-performing mature sites, we're then applying that formula to the new sites we open. And as a result, I'm pleased to say that the 5 sites we've opened so far this year are performing ahead of expectations. Given the power of data-driven site selection, we continue to enhance our methodology. In H1, we devoted a new fully bespoke site selection model with more data sources and machine learning to further increase accuracy and speed of appraisal. And as referenced earlier, we're elevating design aesthetic and kit innovation in new sites. I'll provide some more detail on that now. We have great gyms with strong customer ratings and improving returns. But we've identified headroom to elevate the gym experience further, driving those high value perceptions and supporting sustained revenue growth. The evolved approach is being applied to all new sites and as I'll cover in a moment, being rolled out in our mature estate in a commercially targeted way within our existing maintenance CapEx program. The work to do this, which has included input from a world-leading retail design agency was based on 5 principles. Firstly, this is a careful evolution, so we wanted to build on the strengths we have and continue to create welcoming gyms for all our members. That said, we're evolving the look to be more on trend and premium. This includes some darker colors, more use of original building features, more use of neon and lighting design, black kit, better change rooms and better zoning. Thirdly, kit is a very important part of why customers choose the Gym Group. So we're innovating here with more advanced strength training equipment and in the introduction of some sort after kit brands like Booty Builder and [ ExCo ]. We're also being more conscious about creating spaces for members to socialize in an environment suited to posting on social media. Finally, and critically, through thoughtful cost engineering, we're doing all this without adding to fit-out costs. And here are some visuals of the new approach. I'm pleased to say the performance of the 8 sites we've opened so far with the new approach has been strong. The rate at which we fill these gyms with members is well above our historic growth curve, and at an average of 4 out of -- 4.8 out of 5. The feedback on Google reviews is excellent, too. As well as opening new sites with this improved approach, we want to apply it to the mature estate within our existing CapEx budget. And we'll prioritize this maintenance spend based on likely return. To aid this, we recently completed a multi-variant statistical model to analyze potential membership headroom across the estate. This is allowing us to prioritize our refurbishment program, where the returns should be highest. It will also help us to target local marketing and pricing as well as those in gym enhancements. Here's an early example of the approach. The model identified membership headroom in Bristol Longwell Green. We business case the site investment within our maintenance CapEx budget and rolling refurb program. And then we reopened with a new design approach and some local relaunch marketing. I'm extremely encouraged by the early results we're seeing. And across new and existing sites, we expect around 40 of our gyms to benefit from the new design approach in the full year 2025, with a program then continuing into 2026. So that's some examples of the progress across the first 2 COGS of our growth plan. As I said earlier, we see headroom in both of these areas, headroom to further strengthen the core of the business by continuing to improve mature site ROIC and headroom to accelerate our organically funded rollout of quality sites into ample U.K. white space. And that's why these 2 areas remain the majority of our focus. We have, however, continued to analyze opportunities to broaden our sources of growth. So a brief update on this part of the plan. One area we've explored here is channels to market, new scale channels delivering incremental members. Wellhub is a B2B2C channel, providing a platform of fitness and wellness benefits to 1.5 million eligible employees across 450 U.K. companies, including the likes of Santander, Tesco and Nationwide. We recently started a 6-month pilot on the platform with a robust framework to assess incrementality when it comes to new members. If the pilot delivers in line with our estimates, and we've seen an encouraging start, we'll roll this out nationally as a new source of like-for-like membership growth. We also continue to investigate other significant adjacencies, well aligned not just a fitness, but also to our core competencies. We'll, of course, update on this in more detail at the appropriate time. So that's the progress report on the next chapter growth plan. I'd like to take the opportunity to thank the committed expert people across our gyms and support center for delivering the progress you can see. We'll very shortly take your questions. But before that, I'll briefly summarize today's presentation. The Gym Group operates in a large market with structural growth. We have an advantaged labor-light business model that delivers high value at low cost and limits exposure to national living wage and national insurance increases. With a clear growth plan and significant white space, H1 saw 24% growth in EBITDA less normalized rent, underpinning confidence in full year progress on mature site, ROIC. Profit growth is converting into strong cash flow, and that's allowing us to accelerate our organically funded expansion. As a result of this strong progress and our current trading performance, we're now expecting 2025 EBITDA less normalized rent to be at the top end of analysts' forecast range. Thank you, and we'll now take your questions. Operator: [Operator Instructions] Sahill Shan: Sahill Shan from Singer. Three questions from me. Just on the ending of your presentation, Will, in terms of broadening our growth part of the presentation. Should we assume that as part of our strategy, moving overseas could be an option over the medium term? Second question is given the strength of the free cash flow and self-funding and where leverage is now, how should we be thinking about capital returns going forward? And the final question, I suppose, this is for you, Luke, any update in terms of what's happening to site costs relative to previous guidance? William Orr: Thank you. I'll take the first one. So in terms of broaden our growth, I mean, as I said, we see a lot of U.K. headroom, both in terms of sort of mature site performance and white space. So that's very much where our focus is for the time being. To the international piece, we wouldn't rule out anything. And periodically, we sort of assess the landscape. But for the time being, we're very much focused on the U.K. So that's that one. And perhaps, Luke, do you want to talk buyback and cost. Luke Tait: Sue. So, as you know, it was 18 months ago, we set out our capital allocation policy, which I think still essentially remains the same. First priority is making sure that net debt leverage remained below 2x. It is now down to 1x as we just reported, but will increase again a bit towards year-end. So obviously, well within scope there. The second was to prioritize organic growth as long as we had high-level confidence on achieving 30% ROIC. I think we're still there. And then the third was if we felt we had excess free cash flow, we would consider returns to shareholders. And we're very much still looking at that actively. The returns are pretty good, and in theory, at least risk fee. That said, there is still quite a big gap between those returns and the returns we think we can get from deploying the CapEx on organic growth. So for the time being, we're still concentrating on that organic growth, but it is something that is under active consideration by the Board. And we may well make changes in the future. The third question was around site costs. So we had a very strong first half in terms of site costs -- like-for-like site costs actually down year-on-year, driven by that commodity -- continuing reduction in the commodity rate, which actually we continue to see going into the future. We had only 1/4 of the sort of changes imposed on us around Living Wage, NI and rates. We will have 2 quarters of that in the second half, so that adds to the inflation burden, and we will also see non-commodity rates increase in the final quarter, as I said. So if we're down one in the first half and then up 2 for the full year. You can see that second half will -- we will have a much sort of more significant increase. From point of view of what that means going into next year, that non-commodity increase will last for a year, and its 2-year contract will then be flat thereafter. So it's kind of one hump to get over if you see what I mean. And then on the National Living Wage for next year, I'd be interested in your view, so -- but we'll find out in November. And I think we'll guide when we know more, which is probably early January. Sahill Shan: Sorry, my third question, I was thinking more about CapEx per new site much have been reduced...? Luke Tait: Oh, sorry. So get CapEx on new sites, essentially running in line, I think, to sort of more general levels of inflation. So we do see some increase from wage costs coming through. That said, everything is tendered to minimum of 3 contractors. And as a result, we're not seeing massive increases year-on-year. The biggest variation really is down to site level sort of dimensions such as, is it Central London or London? Or is it outside of London? Is it a complex site to develop? Or is it a nice clean sort of industrial-type box. But no, nothing more than sort of headline inflation rates. Ross Broadfoot: Ross Broadfoot for RBC. You referred a few times to average tenure continuing to grow. I was wondering if you could give any color on sort of where it's been and where it is, just to give that a bit more sort of scope. Number two, you talked about strong volumes at the enhanced new sites. And just question, to what extent discounting has played a role in the strong volumes or whether those sort of normal volume growth, if you see what I mean? And then thirdly, off-peak now 13% of the mix. I think previously, you've said mid-teens is where you sort of see it maturing? Any update on that at all? William Orr: So yes, on tenure, I mean, the average tenure of our membership is sort of around 18 months with a very significant sort of dispersion around that, the average of 18 months and it's been sort of ticking up nicely over the last couple of years. So that's that one. And yes, we continue to work on that. I think volume at new sites, yes, well ahead of historical averages. I would say, we've been moderately more aggressive on kind of opening offers because strategically, we think it's good to fill new sites fast and then yield up thereafter, but it's not been a sort of huge change to our sort of historical approach. So yes, there's a little bit of promotion in there. But I would still say that I think what we're seeing from the kind of the new aesthetic and so on, I think is encouraging, very encouraging in its own right. So that's that one. Off peak, do you want to take. Luke Tait: It's not off peak, Ross. So yes, I think that guidance of sort of mid-teens still is sort of our best direction. And I think in around off-peak has performed pretty much as expected from the trials, has some multifunctions. It has added some volume, which has helped offset some of our price increases. It's also enabled us to price more aggressively in the other essentially 85% of members, 87% of members, and it also gives us that sort of excellent marketing low headline rate, which we use. I think we'll continue to optimize it. So we do literally set that differential in pricing at a gym level. And therefore, we can sort of control that volume depending on what we think will maximize revenue. Harold Jack: It's Douglas Jack, Peel Hunt. Three questions, if that's okay. First one is, are you seeing much difference in terms of regional performance across the U.K., i.e., London versus outside in particular. And are you seeing any changes in terms of competitor behavior in terms of expansion? And in terms of the refurb program, how many are you doing at the moment per annum? And what does that mean in terms of that pipeline applying your latest format to the mature estate. William Orr: Yes. I mean, maybe I'll start with the last one and then sort of work up from there. Yes. I mean, I think I said that between the new sites that we're opening this year and the sort of significant refurbs, we'd estimate about 40 of our sites by the end of this year. We'll sort of -- would have had a sort of -- will either be the new look because it's a new site or have had a sort of significant refurb. There's actually over 100 sites in the refurb program gets some form of treatment, let's say, upgrade. So -- yes, sort of I think happy with the pace of that, and then it will continue into 2026. And I think I'm sort of excited by this now more granular ability to try and assess how we should prioritize that maintenance program. But I think we will -- as we move into next year, we'll have a sort of a significant proportion of the estate with that kind of new and more premium look and feel, if that answers that question. I think on competitor behavior. I think as we've said before, we continue to think the market is rational, I think rational on pricing, rationale on sort of site selection and sort of looking at trade areas and those sorts of things, I think we noted JD being particularly aggressive on pricing in H1. And as I say, PureGym doing some pricing already in H2. So that direction of travel looks to be very sort of consistent. And then in terms of rollout speed, PureGym are going faster than us, but opening quite a lot of small sites, and we're principally sticking to our sort of tried and trusted formula of larger sites. But I think the market continues to be to be rational. There's a lot of white space. I think there's a lot of room for everybody to be on this among us and PureGym. And then on regional performance, I don't think there's any particular change, and we have strong performing sites right across the U.K. I mean, London -- Greater London has always been a good area for us, but we haven't seen any real change in that. Jack Cummings: Jack Cummings at Berenberg. My first question is just on-site openings. And it's a bit H2 weighted this year and obviously, it's accelerating next year. Could you just give us a little bit more kind of color in terms of your confidence behind those targets and also what phasing we should expect in 2026? You mentioned the new add-ons like guest passes, multisite access, et cetera. What sort of penetration are you getting for this? And has this been rolled out across the entire estate and all of your members? And then the final one is just going back to the prioritizing of that mature estate investment. Is there potentially a discussion internally actually accelerating the amount of maintenance CapEx, given this headroom and the returns that you could get from it? William Orr: [indiscernible] one answer and I'll try the first and third. So phasing of new openings, I think we are confident about our guided 14 to 16 for this year. We've opened 5. We're on site at another 9. So we -- I think we're on track there. It is going to be back weighted for sure this year. And then in terms of 2026, I think we actually -- the pipeline for 2026 is looking strong already. I think we're sort of further ahead at this point than we have been historically, not sure of the exact phasing of all of that in next year. But I think net back weighted this year, but confident on guidance and looking really promising actually for next year as we step up. So that's that one. I think on the mature estate investment, I think as I said, various times in that presentation sort of trying to do it within the existing sort of envelope at the moment. But to your question, we assess the performance of every newly refurb site. It takes a bit of time to assess that performance because it needs to go through sort of a bit of a trading cycle. But if we see really strong returns and really strong improvements then we would potentially accelerate that. But I think we'd sort of guide if that's something we thought we were going to do. Luke Tait: Yes, Jack, on the add-ons, it's very early in the launch process. So I think it's probably premature to give stats on that. William Orr: I think we're on site at 8, not 9. I saw Catherine looking at me in a horrified way. But yes, I think we're on track for our 14 to 16. Timothy Barrett: Tim Barrett from Deutsche Numis. The first question was about yield. Obviously, the 3% price increase you put through certainly wasn't greedy versus the competition. Do you feel you might go faster in 2026? Is there scope for more catch-up? And then Slide 32 is really interesting about local market headroom. Can you give us an idea of what the scale was on that chart? And does it include the workforce-centric gyms. I'm just thinking whether you might be able to recoup some of the previous lost members there. Luke Tait: Yes, sure. Thanks, Tim. So yes, on yield, as you said, I think sort of 3% which was proportionate to the inflationary pressures we were seeing, I think. So I don't -- I think there is definitely sort of continued, as we also set out in those slides, continued midterm opportunity to take yield. And whilst our input inflation isn't a driver, it's definitely an important consideration. And we do know that particularly around that noncommodity utility rate, we will be seeing some more inflation next year. So we will definitely wait and see what happens through the budget on other cost lines. But I think depending on the inflationary pressure, I think we will sort of flex our pricing plan to match that. William Orr: And then on that headroom piece, I think that the headroom in certain sites, as you see on the left is significant. That's not to say it can be automatically unlocked and it's a statistical model, and we're now applying it to sites like the one I showed and sort of assessing the performance. So we've got to sort of test the model. But yes, I mean, there's definitely a number of sites on there that look like they had good headroom. And then I think the second part in terms of workforce, yes, the model would suggest that there's some opportunity there, but I don't think it would be our first priority, to be honest. But it's something that we'll sort of continue to keep under review. And I think you are sort of seeing incremental return to office working and so on. So I hope that answers the question. So I think some good headroom in that model. We need to prove that out. But I think were -- those sort of that small handful of workforce is unlikely to be the top priority for the deployment of that effort. Unknown Analyst: Jane from Ocean Wall. Can you help us a bit with the algebra on the ex workforce ROIC calculations, because in the 2025 presentation, you showed the 184 mature sites delivering this huge uplift in ROIC. But with the same EBITDA margin as the ex workforce 159 sites in the 2023 presentation. So it just seems strange that the EBITDA margin, admittedly one includes rent-free, one doesn't, I think. But why isn't the margin showing a bigger improvement? And is -- does that mean that we should be worrying about the workforce gyms? Or put it another way, is there still a 200 basis point drag from the workforce gyms, then -- and the portfolio is 25 mature gyms bigger, should we be -- is there a deterioration in the workforce gyms? I suppose is a long-winded way of saying that. Luke Tait: So I'm not sure I totally followed all of your numbers in the first part of the question. But to the second part of the question, I don't -- we're not seeing any particular deterioration in the workforce dependent gyms. And I would anticipate a similar level of drag by year-end. So I don't think that will have changed at year-end. Unknown Analyst: So even though the portfolio is bigger the drag is the same, so it should be getting smaller, shouldn't that? Luke Tait: The portfolio will have increased by 4%, whatever it is. So -- yes, it will have got a bit smaller, but it won't be -- I don't think it will be material there. Unknown Analyst: And can I just follow-up on rents? Are they inflation linked by and large, and the [indiscernible]...? Luke Tait: They are, by and large, inflation linked with colors and caps. Anna? Anna Barnfather: Anna Barnfather from Panmure Liberum. A lot of questions have been asked already. Can I just drill a bit deeper on marketing costs? Obviously, you changed your approach to be more local. Can you give us a sense of where that is as a percentage of revenues and how that will trend? And then a bit of a technical one, Luke, on business rates. You talked about sort of inflationary impact of the rise in the second half. Business rates may well be reviewed in the budget, who knows. Can you just give me a sense of what business rates are as a percentage of revenue as well? Luke Tait: Yes, sure. So marketing costs, I think we've historically said marketing costs are around about 5% of revenue, and we are not materially outside of that. I mean I think what we would say is as we continue to sort of optimize the way we spend the marketing money on media and get a better and better understanding of CPAs and particularly incremental CPAs, I think we will -- we are trying to move into a world where we see marketing costs more -- almost more as a variable cost as in if we think by deploying more in a given moment that we can drive new members that write incremental CPA, then we would do that. But I mean, essentially, I think for modeling purposes, probably 5% of revenue is the right assumption. On business rates, I don't think we've ever sort of given that as a margin. I mean it's a significant cost, but not the biggest cost. We have seen UBR rates, I think, increased to 6% this year. So it was sort of similar -- 6% to 7%, similar to living wage. What we've heard about rates going into next year is that there'll be quite a meaningful reset where I think the ratable values are expected to be increased quite significantly, but offset by reductions in UBRs, particularly in properties, which have rental -- annual rental charges of less than GBP 0.5 million, which broadly speaking, is us. So I don't know what will happen in November, but there is a possibility of some good news. Anna Barnfather: Just on the marketing then. Sorry, just a follow-up on the marketing cost. So maybe I asked as a percentage of revenues. Do you look at it internally acquisition member cost of acquisition per member? Luke Tait: Yes, absolutely. I mean, there are... Anna Barnfather: And is that trending down? Luke Tait: It varies by month within the year. And generally speaking, there is inflationary pressure on media costs, but we have been able to offset the majority of those through continued efficiencies in how we deploy it. But media, there has been inflation in media historically, if that makes sense. William Orr: But with that, the percentage staying largely constant, we'd expect marketing spend to increase, but only in line with revenue growth. Luke Tait: And on CPA specifically, if we if we decided to push a bit harder, you might actually see your CPA go up, but we'd only do that if the LTV of the acquired members justified that incremental CPA. Harold Jack: Douglas Jack at Peel Hunt. Just a couple more rather boring accounting questions. IFRS 16 is still a headwind in these results. When do you think it will become a tailwind to you? And the second question is, historically, fixed asset depreciation precise being much higher than what you've had to spend on maintenance CapEx. You've been very conservative on that. Can we expect depreciation per site to perhaps come down in the future? Luke Tait: Thanks, Doug. Yes. So on IFRS, I expect the drag to be about GBP 2 million this year, and I think most of that should be gone within the next 2 years. And then in theory, we're actually in a place where we will see a benefit. And then on fixed asset depreciation, yes, you're right. I mean a big chunk of the leasehold improvements will never be replicated through maintenance CapEx, and therefore, we should continue to see maintenance CapEx below fixed asset depreciation. And as the estate matures, which is obviously also a driver that IFRS point, we should see sites starting, as you say, to come off that original maintenance depreciation cycle, and therefore, it should be a benefit. Operator: [Operator Instructions] Ross Broadfoot: Ross again. Just a quick one on the pilot, the B2B2C. When do you think we'll hear more about how that sort of pilot is going? And is that something you would expect to see nationwide? And sort of part 2, could there actually be a benefit then for the workforce dependent gyms? William Orr: So 2 parts to that. I mean the pilot is a sort of roughly 6-month pilot. So I'd expect we'd update on that in March potentially. And then the second part of the question is this isn't specifically a workforce site play. Already, we're seeing participation sort of right across the estate because it's more about where we have gyms that fit with that particular employer. So it's a sort of like-for-like volume play right across the estate, but very early days, but I should think by March, I'd expect we could give an update on that. Operator: Thank you for all your questions. I will now hand back to Will for any closing comments. William Orr: Well, thank you for coming. Tube strikes, notwithstanding. Thank you, and I think that's it. Thanks.
Operator: Good afternoon, ladies and gentlemen, and welcome to the First Quarter Evertz Conference Call. [Operator Instructions] This call is being recorded on Wednesday, September 10, 2025. I would now like to turn the conference over to Mr. Brian Campbell, Executive Vice President of Business Development. Please go ahead, Mr. Campbell. Brian Campbell: Thank you, Constantine. Good afternoon, everyone, and welcome to Evertz Technologies conference call for our fiscal 2026 first quarter ended July 31, 2025, with Doug Moore, Evertz' Chief Financial Officer; and myself, Brian Campbell. Please note that our financial press release and MD&A will be available on SEDAR and on the company's investor website. Doug and I will comment on the financial results and then open the call to your questions. Turning now to Evertz results. I'll begin by providing a few highlights, and then Doug will provide additional detail. First off, sales for the first quarter totaled $112.1 million, including $51.6 million in software and services revenue, representing 46% of total revenue. Our sales base is well diversified with the top 10 customers accounting for approximately 50% of sales during the quarter with no one customer accounting for more than 9% of sales. In fact, we had 114 customer orders of over $200,000. Gross margin in the quarter was $68.8 million or 61.4% up from 59.4% in the prior year. Net earnings were $11.9 million, up 22% from the prior year, while fully diluted earnings per share were $0.15 for the quarter. Investment in research and development totaled $37 million in the quarter. Evertz' working capital was $202.6 million, including cash of $124.3 million as at July 31, 2025. At the end of August, Evertz' purchase order backlog was more than $252 million and shipments during the month of August were $41 million. We attribute the strong financial performance and robust combined shipments and purchase order backlog to channel and video service proliferation, increasing global demand for high-quality video anywhere, anytime, the ongoing technical transition to IP, IT and cloud-based architectures in the industry and specifically to the growing adoption of Evertz' IP-based software-defined video networking solutions, Evertz IT and cloud solutions, our immersive 4K, 8K ultra-high definition solutions and Evertz' state-of-the-art DreamCatcher IP replay and live production suite with BRAVO Studio featuring the iconic Studer audio. Today, Evertz' Board of Directors declared a regular quarterly dividend of $0.20 per share payable on or about September 25. I'll now hand over to Doug Moore, Evertz' Chief Financial Officer, to cover our results in greater detail. Doug Moore: All right. Thank you, Brian. Starting with revenue. After a slow start in May of 2025, sales were $112.1 million in the first quarter of fiscal 2026, a slight increase compared to $111.6 million in the first quarter of fiscal 2025. Hardware revenue increased quarter-over-quarter from $55.7 million to $60.5 million, while software services revenue decreased from $55.9 million to $51.6 million in the current quarter. Revenue from the Software Services segment there represented approximately 46% of the total revenue in the quarter. Looking at regional revenue. Quarterly revenues in the U.S./Canadian region were $79.5 million compared to $73.9 million in the prior year, while quarterly revenues in the international region were $32.7 million compared to $37.7 million in the prior year. The International segment represented 29% of total sales in the quarter as compared to 34% last -- the same period last year. Gross margin for the quarter was 61.4% as compared to 59.4% in the prior year and slightly above our target range. While the gross margin was above our target range for the second quarter in a row, that's largely being driven by product mix, including a relatively high proportion of higher-margin software service revenue in the quarter. Turning to selling and admin expenses. S&A was $18.6 million in the first quarter, an increase of $1 million from the same period last year. And selling and admin expenses as a percentage of revenue were approximately 16.6% as compared to 15.8% for the same period last year. Sequentially, S&A is down approximately $2 million from Q4. That's largely driven by the non-reoccurrence of NAV, which we attended in April of this year. R&D expenses were $37 million for the first quarter. That represents a $0.3 million decrease over the same period last year. As a percentage of revenue, R&D expenses were 33% compared to 33.5% in the prior year. The higher percentage is largely being driven by softer revenue in Q1 this year and last. Investment tax credits for the quarter were $3.3 million. Foreign exchange for the first quarter was a gain of $0.7 million as compared to a foreign exchange gain of less than $1 million in the first quarter last year. U.S. dollar closed at approximately $1.38 on July 31, not significantly different from its closing rate as at April 30. Turning to a discussion of liquidity of the company. Cash as at July 31 was $124.3 million, increasing compared to cash of $111.7 million as at April 30. Working capital was $202.6 million as at July 31 compared to $206.9 million at the end of April 30. The company generated cash from operations of $33.5 million. That includes $18 million change in noncash working capital and current taxes. The effects in the change in noncash working capital and current taxes were excluded from the calculation, the company would have generated $15.5 million in cash from operations during the quarter. The company used $0.5 million for investing activities, which was principally driven by the acquisition of capital assets of $1.4 million and partially offset by proceeds of disposals of $900,000. The company used cash and financing activities of $20.2 million, which was principally driven by dividends paid of $15.1 million and the repurchase of capital stock under our NCIB plan of $3.8 million, which translated to approximately 317,000 shares purchased and canceled in the quarter. Finally, looking at our share capital position as of July 31. Shares outstanding were approximately 75.5 million and options and share-based RSUs outstanding were approximately 2.1 million at the end of the quarter. During the quarter, approximately 2.7 million options expired. Weighted average shares outstanding were 75.5 million and weighted average fully diluted shares were 76.6 million for the year -- or the period ended July 31, 2025. That concludes the review of our financial results and position for the first quarter. Finally, I would like to remind you that some of the statements presented today are forward-looking, subject to a number of risks and uncertainties, and we refer you to the risk factors described in our annual information form and the official reports filed with the Canadian Securities Commission. Brian, back to yourself. Brian Campbell: Thank you, Doug. Constantine, we're now ready to open the call to questions. Operator: [Operator Instructions] Your first question is from the line of Robert Young from Canaccord Genuity. Robert Young: First place I'd like to start is the gross margins, strong. Can you remind us what your target is and whether there's any intent to adjust that? And then I think you said that software was down in the mix year-over-year in the quarter, but you also said that the gross margins were driven by high-margin software. So if you could just maybe provide a little more color around, you may bridge between those 2 things so I can understand what's going on there. Doug Moore: So first of all, note that there's a lot of volatility in our margin. It's driven by product mix. So we haven't -- we're not changing our target at this point. It's 56% to 60%. We have had 2 quarters now that have exceeded that. But of course, just 3 quarters ago, we were at 57% before we adjust our target range, we had a greater track record of variance there. Yes so the comments on the -- driven by the software and service revenue. So first of all, that includes software and services. And year-over-year, you're correct, it's down the software and services year-over-year, even as a proportion. But as a proportion over the past 3 quarters, it's increased. So our software revenue is generally higher margin than, of course, services or hardware. And being at 46% is part of the reason why that product mix pushed it up. So even Q1 last year was high 59s, so with a high proportion. But it's not a direct mathematical calculation, but there's certainly a correlation between higher proportion of software and services and margin. Robert Young: Is there anything worth calling out like product-wise, what is the -- like what is the product that is driving the high margin? Like a category you'd highlight? Doug Moore: No. I mean there's a significant portfolio of products that are within software and services, right? So I will remind that there's 2 different types of software and services recognized that's some over time. So whether it's SLAs, warranties, and then there's other components that are -- could be a software site acceptance that triggers a release of revenue. So it is -- fortunately, it's a fair mix of products that go into that category. Robert Young: Okay. So what could have happened here is like a milestone in software revenue recognition at high margin or something like that? Is that good... Doug Moore: That happens every quarter projects that get released in that manner. Robert Young: Okay. And then the other notable thing that jumped out to me was the cash balance, quite high. Maybe I know that you always say that it's a decision driven by the Board, but I was hoping you can give us some insight into the thought process, how you would go about deploying that capital, whether it's M&A or dividend. If you can give us a sense of the thought process, that would be helpful. Brian Campbell: So Rob, the thought process is quite consistent. We have distributed via regular quarterly dividends, which have been increasing in each of the last 5 years. Now cash has been building up to a very significant level. We are -- we do continue to look at acquisition opportunities. But again, the acquisitions have to align with our growth and long-term strategic plan such that they provide very good shareholder value over the long haul. And those -- that thought process is what the Board considers each quarter. Doug Moore: I will also highlight that Q2 often has a large negative cash flow swing in working capital. Last year in Q2, we used cash from -- and working capital of $30 million, including $20 million payables. That's coinciding with looking ahead to past Q2s are forward and behind. That's often we pay our incentive plans out in Q2, which is cash. Looking ahead, we're also looking at acquiring a building that we are currently leasing for CAD 2.5 million to CAD 3 million. So there is some significant today, the cash balance, but we do expect the cash to decrease over the next quarter. Brian Campbell: And not a normal course issuer bid is in effect. Robert Young: Okay. And then the last question before I hand it off to someone else. Just a high-level product question, 2 part. You're just fresh at IBC. But maybe you could give us a sense of what the areas of interest in the Evertz product lineup are? And the second part would be just everyone is looking at the Oracle results this morning and there's enormous amount of infrastructure build in the data center. And I thought maybe there's an opportunity for you to talk about potential applications for your IP switching product given the deterministic nature and if there's an application inside of that data center build or something that you're looking at, and then I'll pass the line. Brian Campbell: So Rob, IBC does begin on Friday. So yes, we are looking forward very much to seeing our customers over the weekends and resuming the relationships. So we're very excited by the lineup of products that we're releasing and reinforcing our long-term commitment to investment in R&D and innovation. Of course, the IP-based and cloud-based solutions are a very integral part of our product portfolio and a big driver. So we are excited by those opportunities and not just in the data center, but in customer facilities as well to on-premise and in the cloud. Operator: The next question is from the line of Thanos Moschopoulos from BMO Capital Markets. Thanos Moschopoulos: Just with respect to M&A opportunities, we've heard the comments from some other companies that there's kind of more stuff available as of late. PE has been kind of looking to monetize assets and so forth. Are you seeing more M&A opportunities in the past or anything you see on that front? Brian Campbell: Thanos, you were breaking up. I didn't hear all of your question, but I believe you asked, are we seeing more opportunities than in the past? Thanos Moschopoulos: Yes. Brian Campbell: I would say it's a fairly consistent level of acquisition opportunity. So there are targets available. And as I said, we do investigate and analyze those opportunities, but we're very selective in terms of ensuring that we've got alignment with Evertz' portfolio of products and our growth areas that we're looking at, whether it's in our core markets or adjacent markets. And so that is an ongoing process. Thanos Moschopoulos: Okay. Can you update us on your U.S. expansion, how that's proceeding and whether we should be mindful of any cost or margin implications as that continues to ramp up in the near term? Doug Moore: So I can give you an update for sure. So our location in India, Pennsylvania, just outside Pittsburgh, we're continuing to ramp up capacity there. It's not fully operational in the sense that we can't manufacture everything there at this point, but we're continuing to ramp that up. To date, we've -- in that part of that expansion, we've incurred about a little over $2 million in costs that we've already incurred. And then we do -- that's a building we currently lease that we will be planning on purchasing and hopefully closing this quarter, which will cost an extra $2.5 million to $3 million. I'm sorry, I don't know if there was a second part of that question, but... Thanos Moschopoulos: Yes, just whether we should still got any margin implications as you continue to ramp up production there and that becomes maybe a larger part of the relative mix? Doug Moore: There will be certainly some additional -- as there already is, some additional costs incurred by having some, say, redundant staff, you would say, having people here and there doing similar things. But at this point, it's not overly material. So it's not -- I'm not able to specifically quantify a significant impact. I don't expect a significant impact at this time. Thanos Moschopoulos: And any update you can provide in terms of what you're seeing from customers outside of broadcast and media, so be it in AV or in other parts of other end markets? Brian Campbell: So we continue to have good traction and success in the adjacent markets, specifically our Evertz AV. However, the press releases are somewhat sparse from that customer set. Oftentimes, government and military installations do not provide those press releases. So that is very much a focus of part of our business and a successful part. However, I can't provide you additional color. Thanos Moschopoulos: On a relative basis, can you comment on whether that's growing any faster or slower than the broadcast media market? Brian Campbell: It has greater potential for us as it's a newer market. Operator: Thank you very much. There are no further questions at this time. I'd like to turn the call back over to Mr. Brian Campbell for closing comments. Brian Campbell: I'd like to thank the participants for their questions and to add that we are pleased with the company's performance during Q1 of fiscal 2026, which saw sales of $112 million, including $51.6 million in software and services revenue. Strong gross margins of 61.4% for the year, up from 59.4% in the prior year, along with continued investments in R&D totaling $37 million in the year. We closed the first quarter of fiscal 2026 with significant momentum fueled by combined purchase order backlog plus August shipments totaling in excess of $293 million, by the growing adoption and successful large-scale deployments of Evertz' IP-based software-defined video networking and cloud solutions by some of the largest broadcast, new media service provider and enterprises in the industry and by the continuing success of DreamCatcher BRAVO, our state-of-the-art IP-based replay and production suite. With Evertz' significant investments in software-defined IP, IT and cloud technologies, the over 600 industry-leading IP SDN deployments and the capabilities of our staff, Evertz is poised to build upon our leadership position in the broadcast and media technology sector, providing high reliability reliable, innovative solutions to customers and delivering to shareholders. Thank you. We look forward to having many of you join us on Wednesday, the 1st of October at our Annual General Meeting. Good night. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Matthew Oppenheimer: Good afternoon. I'm Matt Oppenheimer, Co-Founder and CEO of Remitly. Thank you for joining us today in New York and around the world at our first-ever product launch event, Remitly Reimagine. Archbishop Desmond Tutu, one of my personal heroes, once said, "My humanity is bound up in yours for we can only be human together." That belief is as true in global migration as it is anywhere. Miles may separate us, but our humanity binds us together. For as long as humans have moved, they have carried more than just themselves across borders. They've also carried their families' futures and their obligations to those back home. From the earliest migrations built on the hope of prosperity to modern journeys for work, opportunity and freedom. People have crossed oceans and continents to build new lives. And with every step, our customers live that truth every day. They leave behind what is familiar, not only to build a better life for themselves, but to support the people they love. In this world of division and angst, it's easy to think we are so different. But what I found running Remitly is that our core drivers are identical, providing for our families, creating success during our limited time on earth and having pride in making your corner of the world better, even for our customers if it means leaving it. Their duty, their courageousness, their generosity remind us that sending money isn't just a transaction. It's an expression of connection, of responsibility, of humanity. That is why Remitly exists. To transform lives with trusted financial services that transcend borders. For the last 14 years, our customers have trusted us with one of the most important financial responsibilities, sending money across borders. We make global transfers fast, affordable and convenient so they can support loved ones and participate in the opportunities of a connected world. That trust has fueled us. We have built one of the best global payout networks in the world, connecting billions of bank accounts and mobile wallets, hundreds of thousands of cash pickup locations in more than 170 countries, all supported by world-class regulatory expertise and compliance. And most importantly, a trust of over 8.5 million customers earned one transaction at a time. Here's one story. Earlier this week, I had the privilege to talk with Guadalupe, a Remitly customer who moved to the U.S. from El Salvador a few years ago. Since then, she sent money back home to support her kids twice a week. For Guadalupe, Remitly isn't just an app. It's how she pays for her kids' food. It's how she keeps them in school. It's how she ensures their futures. In her own words, my children are my savings and investments. Guadalupe's story is one I've heard from many of our customers. Around the world, our customers already look to Remitly to move money quickly in urgent moments to manage their finances across borders and to grow towards long-term goals for their families. It is a powerful reminder of our vision, but it also challenges us to do even more. On that note, we stand at the precipice of one of the most pivotal moments in financial history. The era of instant payments, digital wallets and stablecoins make it possible to radically deliver on our vision, a world where anyone can access the money they need anywhere they are. And now 2 innovative technologies are accelerating this future, AI and stablecoins. Let's start with AI. I believe AI is one of the most transformational technologies in history, and we are already using it to solve real-world customer problems at scale. Last year, we launched our first proprietary AI assistant. It now handles millions of customer questions, freeing up our support team to focus on the toughest issues. This spring, we brought that assistant to WhatsApp, the most popular messaging app in the world. Customers can check exchange rates, ask questions, even initiate transfers in the same app where they talk to their loved ones. Sending money just became as easy as a conversation. But this is just the tip of the iceberg. In an AI-powered world, the most valuable resource isn't models or computers. It's data tokens. Not crypto tokens or payment instruments, but the small pieces of structured information that AI models can read, learn from and act on. I believe many tokens that train AI models like publicly available information on the Internet will become commoditized. Companies with proprietary tokens will have a significant competitive advantage. At Remitly, every token we generate is based on data protected by the same rigorous safeguards that we apply across all of our services. Three types of tokens are especially powerful. First, transactions, which are billions of secure signals from payments across 170 countries that help us understand and predict flows. Second, identity or how customers prove who they are, which lets us increase speed and trust while reducing fraud. And third, usage patterns around the world, when and where money is moved, which helps us improve security and anticipate customers' needs. These tokens enable us to enhance our AI tools and deliver smarter, more secure customer experiences. We can make creditworthiness assessments more accurate and expand access to credit. We can speed up transaction times while reducing friction. We can create support experiences that feel familiar and personalized. And we can keep finding and solving problems for our customers at scale. The knowledge we've gained from 14 years of delivering for our customers is the foundation that makes this possible. Tokens plus trust, that's our edge in the AI era. At the same time, stablecoins unlock the ability to hold and move value 24/7, 365 days a year in something stable like the U.S. dollar. This solves a real need in emerging markets where local currencies can lose value overnight. With one of the most capable global payout networks in the world, we can do what others can't, turn stablecoin savings into everyday value. Where other stop of the blockchain, Remitly can deliver school fees in Turkish lira, rent in Argentine pesos or protected savings in Zimbabwean dollars. Given the strong foundation we've built and the tremendous opportunity ahead of us to enhance our global platform with AI and stablecoins, we have raised our sights and inspired our teams to do the same. To evolve Remitly from a cross-border payments provider to a trusted financial partner, our customers can rely on every day, a partner that helps them move, manage and grow their money with the same peace of mind they already expect from Remitly, further expanding their ability to share in global opportunity. At the heart of all of this is trust. In consumer financial services, trust is not optional. It is everything. It's earned transaction-by-transaction, relationship-by-relationship. And today, we are beginning the next chapter with the launch of Remitly One, a financial membership built for global life. Remitly One is built on the strength of our global platform, accelerated by AI that powers everything from fraud protection to customer support to personalized experiences and strengthened by stablecoins, which make value more stable and accessible across borders. Remitly One launches in the U.S. today, laying the foundation for the next decade of Remitly innovation. Just as we began with one remittance corridor when we founded Remitly, U.S. to the Philippines and grew into a global network spanning over 170 countries. Today's launch is the first step towards bringing this membership to our customers worldwide. And to show you what this looks like in practice, the launch of Remitly One here in the United States and the road map for what comes next, I will hand it to Remitly's Chief Product and Technology Officer, Ankur Sinha. Ankur Sinha: Thank you, Matt, and thank you all for being here. For the last 14 years, our customers have trusted us to deliver on some of their most important financial responsibilities. That trust sets a high bar. It gives us both the permission and the responsibility to grow with our customers. We've proven we can deliver in the moments that matter most, but the dreams of our customers extend far beyond a single transaction. They want stability when life is uncertain. They want tools to manage their money across borders. And they want opportunities to grow wealth and secure their families' futures. Today, we honor them with something transformational. We are launching Remitly One, a trusted financial membership for global life. This all-in-one experience brings together a suite of Remitly products in the same app customers already trust and can now use to build a strong financial future. Remitly One launches today with a set of benefits and 3 core products designed to meet the financial needs our customers face every day. Flex, Wallet and Cards. To bring these products to life, you'll be introduced to Sophia, Annika and Matteo, whose stories are inspired by thousands of conversations our teams have with customers that shape what we built. They illustrate how Remitly One will help people move, manage and grow their money with the same peace of mind they've always expected from Remitly. The first product, Remitly Flex, is designed to help customers move and manage their money across borders in urgent moments. Moving to a new country often means starting from scratch without a credit history or a financial safety net. When cash is tight, even small emergencies can quickly turn into big ones. Flex was built to change that. Remitly Flex is our flexible funding solution that lets customers send now, pay later with a no interest cash advance up to $250 for free with funds available in 3 days. But Remitly One members unlock more value, instant access to funds, multiple withdrawals up to their approved limit and flexible repayment on their own schedule. To show you how Remitly Flex can add more breathing room to our customers' everyday financial lives, meet Sophia, a sales associate in San Diego. Sophia gets an urgent WhatsApp message from her father in Mexico. His car has broken down and needs help paying for repairs. Cash is tight until her next paycheck. In the Remitly app, Sophia sees the option to send now pay later with Flex. By becoming a Remitly One member, she gets instant access to a no interest cash advance. She sends her dad the money he needs immediately right inside the app, she already trusts. No transfer or wait time required. After sending her dad the money she needs, she turns on AutoPay, so she doesn't have to think about it again later. We began testing Flex with customers this year and early results are strong. Repayment rates are high. Most customers who try Flex come back. And when they do, they also send more with Remitly, deepening their relationship with us. That kind of engagement tells us that we're solving a real problem in a way that earns trust and deepens our relationship with customers. We will continue building on this foundation, exploring ways to use AI to strengthen risk management and underwriting as our offerings expand, always with customers at the center. The second product we're launching today is Remitly Wallet, built to help customers manage and grow their money. Wallet is our store of value product, offering a secure place to hold funds inside the app our customers already trust to send money. For many, it's the first time they've had a reliable store of value that works seamlessly across borders. Remitly Wallet is free to use. And with Remitly One, it delivers even more value with a 4% annual boost cash reward on USD balances, turning everyday savings into steady progress towards future goals. Later this month, we'll also start to roll out access to multicurrency accounts, including the ability to store funds in USDC stablecoins, offering more options to plan, save and stay in control. To show you how Remitly Wallet can help our customers' money go further, let me introduce you to Anika. Anika is a nurse who wants to contribute something special to her sister's wedding in India. She has used Remitly in Canada to send money to her grandparents in India. With 8 months until the wedding, she opens Remitly Wallet with a USD balance and joins Remitly One, earning a 4% annual boost on her balance. Because her wallet is connected to Remitly's global payout network, she's able to access her funds whenever she needs to. As we were building the Remitly Wallet, I spoke with Alberto and Diana, a couple whose lives are split between the U.S. and Mexico. They travel often to see each other, and they need a simple way to use their money in both countries. In Diana's own words, if I can pay by card, I prefer to use the card. Their experience showed us something important. Sending and saving money is not enough. Our customers also need everyday access to it. So we built it. This is the new Remitly card. We're starting to roll this out to Remitly One members in the U.S. starting today. They will be able to spend directly from their wallet anywhere with a debit card that has no foreign transaction fees. Just add it to Apple or Google Pay and tap a checkout. And while this may sound like a simple convenience to many of us using a card with value to spend easily, we know that for many of our customers who lead global lives, instant global access to funds can be a hard thing to come by. Imagine Matteo, for example. His permanent address is in the U.S., but he travels often and works from different countries. He wants to grow his savings, but he needs easy access to multiple currencies. So he keeps extra cash in his Remitly wallet, steadily growing with annual boost rewards. Now Matteo would be able to add his Remitly debit card to Apple Pay and tap at the checkout counter in Boston or Bogota, instantly using the money is already stored safely in his wallet with no FX surprises and no waiting. And every time he does, he will earn rewards. If Annika, the nurse we met earlier, wants to pay for lunch in Vancouver or a gift for family in Mumbai, she can tap thematically debit card and pay instantly. No transfers, no hidden fees. In addition to Flex, Wllet and Cards, another way we grow towards a stronger financial future is with rewards that turn everyday actions into steady progress. Members can earn cashback every month through simple things they're already doing to manage their finances, like adding funds to their wallet or setting up AutoPay for Flex. Annika and Sophia, 2 customers navigating very different realities are both earning a little extra money to use however they choose. Cashback is one of the first rewards we're offering members, but it won't be the last. We're already testing new rewards as well as third-party benefits like identity protection and credit monitoring. These benefits are powerful on their own, but together, they're the start of something much bigger as we establish deeper, more meaningful relationships, supporting our customers' ability to achieve their dreams. Here's what's next for Remitly One. For many of our customers, arriving in a new country means becoming credit invisible. In the U.S. alone, more than 30 million people have little or no credit history. They may be working hard to earn a living, but the lack of history can be a huge barrier to rent an apartment, finance a car or even qualify for jobs. We wanted to change that. Starting next spring, Remitly One members in the U.S. will be able to access a line of credit designed to help establish their credit history through simple activities by reporting everyday financial activities like sending money home to a U.S. credit bureau will help customers establish the recognized credit profile they need. Starting this month, Remitly One members will also be able to store value in USDC stablecoins in their wallet. And later this year, they'll be able to send it to compatible wallets. We've partnered with Circle and Bridge to harness the power of stablecoins for cross-border payments. Long term, this will enable us to move value instantly, reduce friction in liquidity and treasury and give customers the ability to hold their savings in something stable like the U.S. dollar. Remitly has spent 14 years building the compliance and regulatory frameworks, FX capabilities and local partnerships that make stablecoins practical for customers. Holding USDC in a wallet is only valuable if you can easily use those funds in your local economy. Remitly's robust global payout network spans billions of bank accounts and mobile wallets and hundreds and thousands of cash pickup locations worldwide. That last mile access is what turns stablecoin savings from an abstract idea into something people can rely on in their daily lives. With Remitly One, we're building on the trust our customers have placed in us, fulfilling that responsibility by giving them borrowing power in urgent moments, savings that grow steadily, everyday spending that works seamlessly across borders and rewards that add up over time. Remitly One launches at just under $10 per month and customers can join the waitlist today by going to remitly.com/one. Remitly One will enable us to deliver on our audacious vision to transform lives with trusted financial services that transcend borders by strengthening the most valuable part of our business. The relationship we have with our customers. By offering everyday tools to move, manage and grow their money with confidence, customers will engage more consistently and stay with us longer. Remitly One will become our highest value customer offer, bringing current and future services into a single holistic membership and driving deeper customer engagement and retention. With Remitly One, we've taken the first step in our evolution from a payments provider to a true financial partner, helping customers prosper, build better lives and share in the opportunities of global innovation. We'll meet customers in the moment they choose us to move money and stay with them from covering an emergency expense to planning for a child education, Remitly One will be there. This is how we move from transactional to transformational. This is Remitly One, a financial membership built for global life and a foundation for the next decade of Remitly innovation. Let's watch it come to life. [Presentation] Ankur Sinha: Thank you all for coming.
Gavin Ferrar: Good morning, and welcome to the Central Asia Metals Half 1 2025 Interim Financial Results. We'll start off on the results summary slide, where I'll just run you through some of the production and finance highlights. We can move to the next slide, please. Thank you. Next one. I'll start off with a summary of production and financial highlights. And you can see on the right-hand side of your slide there that we produced 6,218 tonnes of copper from our Kounrad operation in Kazakhstan, and from our Sasa lead zinc mine in Macedonia, produced 8,692 tonnes of zinc and 12,613 tonnes of lead. All this was done in a very safe fashion. We're very pleased that we achieved 0 lost time injuries for the first half. These operations drove a good financial performance. We generated revenue of $99.5 million, and EBITDA of $39.9 million for a margin of 40%. Importantly, today, we announced a dividend at 4.5p and supplemented by a $10 million share buyback program, which will commence today. That keeps our cash returns to shareholders consistent and comparable to the half 1 2024. We have a strong balance sheet and positive cash flow, $47.7 million in the bank, and that will be boosted by returns received related to the New World Resources transaction of both the break fee plus also the sale of shares in that company. Kounrad maintains its position on the cost curve and capital projects at Sasa effectively completed for the year. Now that gives you the backdrop to the financials that Louise is going to run you through right now. Louise Wrathall: Thanks, Gavin. If we go to, yes, market conditions slide, thank you. So yes, if we just spend a minute looking at the market conditions, which frame the results that we're announcing this morning. In terms of commodity markets, we saw a lot of volatility in middle of the period due mainly to the Trump trade wars. Taking everything into account for the full 6 months and comparing that with H1 2024, we saw a 3% increase on the average copper price we received, a 1% increase on the average zinc price and a 7% decrease on the lead price that we received. In terms of treatment charges, right now, it's a good time to be a miner rather than a smelter. And I think as we've mentioned before, our treatment charge contracts run from April to April. What we are seeing is a reduction in treatment charge for this year versus last year of around about 40%. And for the first half of this year, that translated into a reduction of treatment charges of around about $3 million. Looking at foreign exchange, some good news for us and bad news for us at Kazakh tenge that weakened by about 10% period-on-period, and that helps us when we come to report our costs in U.S. dollars. On the flip side, though, the Macedonian denar, which is pegged to the euro, was stronger versus the U.S. dollar. And that adversely affects our U.S. dollar costs for the Sasa operation. So looking now at the income statement. As Gavin mentioned, we've reported revenue of $99.5 million. That was very similar to revenue for the first half of last year, just 2% lower. And that reflects lower sales volumes across all the metals, but that was impacted on the positive side by the lower treatment charges that I just mentioned. Cost of sales were up by 14% or around about $7 million. Lots of factors at play there really, a lot of those related to the Sasa operation. We had an increase in the revenue royalty that we pay in North Macedonia for the metal that we produce called the concession fee. That increased from 2% to 4% from January. And that accounted for over $2 million in fees, up from $1.2 million last year. We also had higher wages at both operations, although at Kounrad, that was mitigated largely by a weaker tenge. There was the currency effects that I've just mentioned of the weaker dollar versus the Macedonian denar. We also have some additional depreciation because now we've started using the dry stack tailings plant and landform that we completed in the first half, and we also paid over $2 million extra for the silver that we buy for our silver streaming commitment. We see that effectively canceled out on the higher revenue number as well, but that does contribute to an increased cost of sales. If we look at our admin costs, they look like they were up quite significantly at 24% increase. But that relates to -- that works out at just less than $3 million. And all of that really is related to our business development activities, $2.3 million of that additional BD costs, which was related to the New World Resources attempt to acquire that company. We also spent $1.1 million on exploration both for CAML X and Sasa, and that was up from around $0.3 million in the first half of last year. And we also disposed of Copper Bay, and we incurred fees for that of $0.4 million during the year as well. So all in all, taking the revenue and costs into account, we've announced this morning EBITDA of $39.9 million at a margin of 40%. If we look quickly at the profit after tax, that's adversely affected by some quite significant noncash share-based payments, which we changed the way we report those as effectively cash settled rather than equity settled last year. We had a $1.8 million swing on foreign exchange. And we also look like we've got a higher effective tax rate. That's really due to consistent taxable profit in Kazakhstan, where our CIT is at 20%. If we look at the cost of the two operations. At Kounrad, we had a very good result cost-wise for the first half, where our C1 cost base in absolute terms decreased by $0.6 million. That's mainly due to the Kazakh tenge devaluation, but also there were some lower variable input costs, mainly reagents, and that was both usage and cost of those as well. Our C1 costs rose by $0.01 per pound, and that's just due to the slightly lower copper production versus the first half of last year. We did give our workforce an 8.5% wage increase, which was based on inflation figures, but that's largely been mitigated by the devaluation of the Kazakh tenge during the period. So all in all, we reported a margin of 72% for Kounrad, which is exactly the same as H1 last year. Turning to Sasa. Our run of mine costs increased at Sasa during the first half of this year from around $60 a tonne last year to about $65 a tonne this year. That's about an 8% increase. We've already covered some of the reasons why that was. There was the weaker dollar. There was also increased salaries and pay rises. We also incurred some higher costs for the new tailings disposal method. So we had a full period of operating the paste backfill plant, and we also began to operate the dry stack tailings plant and the landform as well. Also, our electricity costs were higher than the first half of last year by just under $1 million as well. If we look at our C1 cost base, though, that was actually only a 3% increase from $31 million to $32 million, and that was positively impacted by the lower treatment charges that I've already mentioned. And for the first half of 2025, we've reported an EBITDA margin of 26% for Sasa. Capital expenditure for the period, we've spent $7.4 million. Of that, $6.3 million was sustaining CapEx at both of the operations, $4.2 million at Sasa and $2.1 million at Kounrad. That's higher than the usual run rate at Kounrad, but we've had a good program of replacing anodes and cathodes and that cost us about $1.1 million there. We also, I think, previously told you, we're planning on moving some material called Dump 15 further away from a railway line so we could easily leach that. We spent some additional money there, moving the material in Dump, 15 and we've since completed that post the period end. Our capital projects are basically concluded now at Sasa. We spent $1.1 million on those, and that was really finishing off the dry stack tailings plant and the landform as well. We are still expecting to spend the additional $11 million to $14 million of CapEx this year. We only just started the raise boring program that just commenced in the first half of the year, and that will go -- carry on throughout the second half. We've got an extension to the landform that we're planning to get started on this year. We still have some additional underground equipment to buy and also some additional underground development. So all in all, we are reiterating our CapEx forecast and guidance for the year of $18 million to $21 million. Looking at our balance sheet. Just a few things to pull out of interest for you there. PPE looks like it's increased considerably notwithstanding depreciation, and that really reflects the weaker U.S. dollar versus the Macedonian denar. Our group cash balance of $48 million, that includes the cash and also $0.3 million restricted cash. It excludes $1.8 million of what through the audit process we clarified as being cash in transit. We had added that into the cash figure that we reported in the Q2 production numbers. So that's been adjusted for these results. It's worth pointing out that post the period end, we sold the shares that we had acquired in New World Resources to try to push ahead with that transaction. We sold those for $18.7 million. We also received a break fee of $1.6 million. So our cash position has been bolstered by that plus the cash in transit. Bank overdrafts, we built up an overdraft to $6.6 million as of 30th of June. That's substantially reduced by now around about $1 million as it stands now. One of the small things to point out, we did have a line in the balance sheet, assets classified as held-for-sale. That was Copper Bay. That's now quoted as nil for the 30th of June position because we sold Copper Bay in April. Final slide for me. Looking at our cash flow and our free cash flow. We generated $34 million cash from our operations during the first half of 2025. We paid $20.6 million in dividends. That was the 2024 final dividend. We paid taxes, that's income tax and withholding tax of $16.3 million. That was $8.1 million higher than it was in the first half of last year. We spent $7.4 million on CapEx that we've talked about, and we spent the $16.7 million on buying those New World Resources shares during the first half as well. We drew down $5.9 million of our overdraft. So we ended the period with a cash of $47.7 million. In terms of our free cash flow, we're reporting adjusted free cash flow of $16.2 million. And just to reiterate that post the period end, we have received the USD 18.7 million in cash from selling the shares, the $1.6 million break fee and the $1.8 million of cash in transits as well. I'll hand back to Gavin now, who will run through the operations. Gavin Ferrar: Thanks, Louise. So we kick off on Kounrad. Some of the highlights there really, just yet another consistent and reliable performance from Kounrad over the period with that 6,218 tonnes of copper that we produced. And that means we're on track to meet our guidance of 13,000 to 14,000 tonnes for the year. As I said, steady as you go. So not a huge amount to report yet. The solar plant, though, if you remember, we built that and commissioned it back in November '23. That's actually playing around 17% of our power requirements at Kounrad now. So that's really starting to pay for itself with some of the electricity costs going up there. And we actually received -- sorry, achieved a record in May, where we actually produced 22% of our electricity requirement from that little plant of ours. So that's all gone quite well. But as I said, steady as she goes at Kounrad, producing really well. And if we look at the next slide, We -- as Louise said, that relocation of Dump 15, that's all complete now. And we've had some additional CapEx. And part of the reason for that is just to maintain production and keep the plant fully invested so that we can extend it all the way to the 2034 and potentially beyond. If you look at that leach curve at the bottom there, the Western Dumps are outperforming and the Eastern Dumps have also outperformed over their life. So all of that points to the original forecast of 79,000 tonnes that we still have. We're calling that now the minimum recoverable given the outperformance of both West and Eastern Dumps. So that might lead us to think about extending the life of that license at some point as well. But there's quite a lot of work to be done around that. Sustainability activity, still a good part of our business. We think it's important to support local communities, and we do that through the foundations plus also some other donations. But most importantly here, we've had 0 LTIs, lost time injuries at Kounrad since May 2018, which is a simply amazing achievement and when you think about the various hazards that exist around mining projects and assets. Some of our sort of newer activities include a biodiversity management plan that's been put in place at Kounrad. And we've also instituted a big safety and occupational health assessment there as well. As I said, local communities remain important. And through cultural, medical, educational and youth initiatives, we continue to support the local communities around Kounrad. If we move on to Sasa. As we mentioned earlier, we produced 8,692 tonnes of zinc and 12,613 tonnes of lead. If we look at the table on the right-hand side, I'm pleased to report that the tonnages of the ore mine has actually gone up 8%. And if you recall from last time we presented to you, that was one of the key targets that we set ourselves, to get back up to that sort of 800,000 tonne level. That's what we've been targeting. Unfortunately, you'll notice that the grades for both zinc and lead are lower. And that's because we're still having a few teething problems with the new mining methods that's causing a little bit of dilution. And we're also encountering variable geology at depth in the mine, and we'll talk about that on the next slide. But you would have seen this was apparent through H1 with both lead and zinc production being down when we announced back in July. So we've reduced our guidance modestly and currently on track to achieve that guidance. If we go to the next slide. So what we've done at Sasa because of these issues is effectively implemented a full strategic review. We started this in about middle of H1 just to have a look at the whole operation at Sasa. We expected the ore body to narrow at depth, but -- and which is one of the reasons we're putting these new mining methods in place. But what we did encounter and what we weren't expecting was a high level of variability, both in terms of geometry and also grade as we moved into the lower levels of the mine. As I said earlier, there was a little bit of dilution from the new mining methods. And as we get better at doing those, that will reduce. But we really need to understand that ore body better. So we're drilling more holes. We're creating more drill platforms and making sure that we understand the ore body so we can plan ahead and utilize these mining methods to their best abilities. We're also tightening up on grade control and we're reviewing all aspects of the mine. This goes mining, processing, laboratories, admin, the works. And we've also -- in addition to a lot of internal initiatives that we've come up with, we've also had some external consultants just as a fresh pair of eyes over the operation as well to assist us. We're basically coming up with some recommendations. And we've already started implementing some recommendations. We'll continue to do that through H2 looking to sort of improve that performance at the Sasa operation. Sustainability, again, we've got 0 LTIs for the half, which is a good result for Sasa, much more complicated than Kounrad, underground operations, lots of moving equipment and a full sort of more mechanical looking plant, plus 2 new plants as well. So a really good result from the guys on site there. As Louise said, we've now completed our dry stack tailings plant, and we've placed around 60% of our tailings during the first half either onto that dry stacked landform or back underground as cemented paste. And that's getting us some way towards approaching our target of 70% that we're looking to achieve by 2026. We've tested an emergency alarm system that relates to the wet tailings facility, the TSF 4. That was partly due to the GISTM conformance that we announced about this time last year plus also some local regulations, and that's gone really well. And we've also continued educational support both on-site and in the communities around us as well as starting a little kick-starter program for businesses in the region as well to formulate some longer-term sustainable programs there. In terms of exploration, as you know, we've got 2 programs underway here. One is the investment in Aberdeen Minerals in Scotland, looking at their Arthrath nickel copper cobalt project, currently drilling what we call Phase 2b, that's following up on Phase 2a. Phase 2a effectively prove the geological hypothesis that there was mineralization at depth. Now it's basically chasing that mineralization and looking to sort of bulk it up into -- and guide us towards resource development there. And we expect to make a decision on whether or not we invest a further GBP 2 million into the business by the end of the year, and that will be based on the results from that Phase 2b drilling program. Early-stage exploration in Kazakhstan. We've got 4 licenses active there. We've done a lot of surface work there both in terms of geophysics and geochemical surveys, which have been completed on 2 of the licenses and underway on the other 2. Those will hopefully lead to us being able to make decisions on whether or not to drill these licenses in 2026. So good progress in Kazakhstan as well. And we've also set up an entity in Kazakhstan to look at more advanced projects than these early-stage exploration things as well. And there's some very interesting projects coming into that pipeline as well. Right. So going on to capital allocation which, as I mentioned earlier today, there's a few changes there. So we've got the 4.5p dividend and we're compensating that with that $10 million share buyback. Total cash returns, around $21 million, and that is comparable to several previous periods where we've paid these dividends. And that brings our total shareholder returns that we've announced to over $400 million since IPO. Over time, we're looking to revert back into our dividend policy of 30% to 50% of free cash flow. But we remain committed to capital returns to shareholders whilst the company is looking to find a future growth opportunity as well. So a little bit of a change there, but similar returns with the ultimate goal of getting back into policy and setting the company up for future growth. So in summary, as I said, Kounrad is on track to achieve its full year guidance. Sasa is on track to achieve guidance, but there are challenges there, which I said we're basically looking to confront over this half and improved productivity and production at Sasa. Capital allocation, just talked through that. We've got sustaining CapEx at both projects now, now that the actual capital projects are complete. We've got that 4.5p dividend up to the shareholders this morning plus that $10 million buyback, which is active right now. And we're still looking for a material growth opportunity. Now the New World Resources activities over the first half, which I'm sure many of you followed closely, basically prove a few things now. I think as a business, we're able to identify these opportunities outside of sort of usual auction processes or things like that. We're able to finance them and we also got really positive feedback from our major shareholders at the announcement of that potential transaction because we thought it was accretive and a good thing to do. And then also the timing of our withdrawal just demonstrating that sort of discipline and fiscal discipline that we've always shown as a business. Our balance sheet remains flexible with a strong cash position, as Louise talked you through earlier. And that will allow us to access debt and to finance growth in future. So at that point, I'll stop and invite questions from the floor. Thank you very much. Operator: [Operator Instructions] First, we have a question from Will Dalby from Berenberg. William Dalby: Yes. Just a couple of questions for me. Maybe starting with Sasa, just looking to maybe get a bit more color in light of that review you've had with external consultants. How should we be thinking about the mine plan there now? Is this sort of adapt and rebase lower situation in terms of grades and mining rates? Or is it more kind of wait and see how these improvement measures turn out? I guess more specifically, what sort of grades and mining rates can we expect from Sasa going forward? That's the first one. Gavin Ferrar: Yes. Thanks, Will. I think the mining rate certainly as we demonstrated are -- it's possible to get back up to that 800,000 sort of level with the new mining methods and potentially beyond that. But I think what we're trying to do is identify the areas that we can improve, not only in mining, but also processing right the way through to laboratory and other processes that we've got on the operation. So we just thought it was worth having a look at everything there. Clearly, we'll be prioritizing those things towards production initially and then rolling out the rest at the appropriate times. In terms of the grade, yes, we have confronted slightly -- being confronted with slightly lower grades, but also a highly variable ore body. So we just need to make sure we understand that a little bit better, and that will improve the dilution metrics I was talking about earlier and also our planning as we go ahead. So we'll be running additional mine plans and various other things in the background just to make sure that we still got a good handle on the asset. But at the moment, I think what we're trying to do is stick to the current plan and just make all of these improvements to ensure that we can get the metal out of ground within that guidance range. William Dalby: And then second, just on Copper Bay. So what's -- just interested to get your understanding of the development progress there given the contingent payment structure, where -- when are you modeling receiving those payments? Gavin Ferrar: Look, I mean, I think we sort of handed over a project that was fully permitted and with a full DFS. Now it's completely up to the new owners as to the -- whether they're going to reconfigure any of that project or whether they're just going to start constructing. I think they're probably still in a process of getting their team together and putting a construction team together. So really, the best outcome there would probably be, if you think about standard construction periods for these things, it's probably going to take them 18 months to 24 months to construct. And then there's ramp-up. And as you recall, the milestones on those payments are related to actual copper produced. So we got to wait for them to produce that amount of copper. So it could well be 3 years up plus. William Dalby: And then I think just the last one and I'll then free up the line is around the dividend buyback decision. I just -- obviously, the shares have had a bit of a negative reaction this morning. Kind of reading into that potentially could be some of the commentary around returning or looking to return to the dividend policy of 30% to 50%. I just wonder whether you could maybe give a bit more color on your rationale behind opting for the buyback. I know the buyback plus the lower dividend sort of nets out sort of the run rate that you've had in recent periods. But yes, I think it would just maybe be helpful to have a little bit more color there. Gavin Ferrar: Look, I mean, I think it's been a big debate at the Board for the -- the last few times we've debated the level of dividend. And I think what we've got to do is sort of balance the shareholder returns against our sort of strategic ambitions as well. And I think that is one of the key areas that we thought with the share buyback, we had a little bit more flexibility around that. So we put the share buyback in place. and ensure those returns to shareholders that are consistent. But if we had a large transaction to finance, then we'd have the option to deploy that cash in that direction. And it just gives us a little bit more flexibility. But I think the sort of overall philosophy remains fairly similar in terms of both returns to shareholders, plus also in the absence of a material transaction, then we have the option to sort of either continue that buyback. And if something comes up, then we can pause it or put it in a band somehow. So I think it just gives us a lot more flexibility around the capital returns program to our shareholders. Operator: And up next, we have a question from Julio Mondragon from BMO Capital Markets. Julio Mondragon: So just a couple of questions from my -- on my side, sorry. In terms of the operational review performed by external consultants, right, you just mentioned that to Will, but what are the key outcomes of it? I think like what things are to improve at Sasa? And also, is there any material CapEx or OpEx related to these improvements? Or how do you expect to see the results of these improvements? Gavin Ferrar: So look, I think the first point I'd make is that there's a combination of both an internal review, which has been undertaken plus the external review. And the recommendations are a compilation of both of those really. I'll answer your second question first. There's no material CapEx around this. I think what we're trying to look for is a lot of incremental improvements in terms of the way we operate in order to achieve the tonnages we're targeting, get the throughput through the mill at the sort of optimized rate as well and, therefore, produce as much metal as we can. So I think that's the overall philosophy. One of the areas that might take a little bit more understanding, as I said, is the geology, which has actually turned out to be -- the deeper we drill, the more different it turns out to be than our original interpretations. So we need to look quite carefully at that and just make sure that we've got a better handle on the geology and the lower levels of the mine so that we can, a, plan ahead appropriately and b, deploy the correct mining method to the geometry and width of the ore body that we're confronted with. Julio Mondragon: Perfect. And one more question, if I may. So in terms of your operational costs, what's the outlook for the rest of the year, right, what in H2 '25 -- I mean, into 2026? And what is your exposure to domestic currency at both operations? Gavin Ferrar: Well, I can talk a little bit about the cost. I think we're looking to -- I'd love to say we're going to improve those costs, particularly at Sasa, but I think we've still got some work to do there. So there's -- we're clearly looking to save money where we can and improve things as quickly as we can at Sasa, but some of these programs may take a little longer to roll out. In terms of the 2026, I think, is when we're going to start seeing -- again, I'm sort of open to correction here, but I think that's when we start looking at improvements late '25, early '26 really to start coming through on that front. In terms of the proportions of exposure to local currency, have you got those numbers? Louise Wrathall: About 60% to 70% in Kazakhstan. And then effectively, it's a large number. It will be a pretty significant number, probably higher than that in Macedonia because a lot of the costs are either denar or euro. Obviously, in Kazakhstan, we've actually seen the tenge continuing to weaken into the second half. So that would have a positive impact. But actually, unfortunately, we've seen the opposite with the denar and the euro. So that's continued to strengthen versus the dollar into the second half. The only other thing I'd point out is that the dry stack tailings plant and landform, we've run that for our part of the first half. And obviously, in the second half, we're going to be running that for the full 6-month period as well. Electricity, we are hopeful that, that could come down, and we could get some savings there. But a lot of the other aspects will be sort of pretty much fixed in. But just to add to what Gavin said about the strategic review that's underway with both our internal ideas and external consultants, that's focused on both productivity improvements and cost improvements as well. So it's not just productivity that we're looking at. Operator: [Operator Instructions] And we have another question now from Laura Chan from RBC Capital Markets. Laura Chan: My question is about the New World acquisition and, I guess, with not being successful in it going through, I guess just keen to hear your thoughts about learnings moving forward and acquiring something else and what could you have done differently? Gavin Ferrar: Thanks, Laura. Look, we're all really disappointed by the outcome there. But I think, ultimately, what we were confronted with was an interloper with very deep pockets and absolutely determined to purchase this asset at whatever price. So could we have done anything differently? I think probably not in this case because ultimately, it was always going to come down to price. And we got to a point where we thought, looking at it from various angles, the acquisition cost, the risks of execution of the project, risks around CapEx, various other things, it was starting to get to a point that it no longer made sense for our shareholders. So that's the decision we made then was we thought a rational decision to pull out. And I think the -- but what it did demonstrate, as I said earlier, is our ability to identify, finance and then present something to the market that had a positive impact on our business. So I think we'll be taking a lot of comfort from that moving forward. And as we repopulate that business development pipeline, we've got a fairly good handle given the interaction we had with our shareholders through the process of where their sensitivities lie, where our sensitivities lie and, therefore, how to configure the next one when it comes along. Operator: Thank you. And as there appears to be no further questions at the moment, I would now like to hand the call back over to you, Mr. Ferrar, for any additional or closing remarks. Gavin Ferrar: Thanks. So thank you very much to all of you who attended this morning. The presentations are available on our website. I think there's going to be -- this presentation will be uploaded as well at some point. But we appreciate your continued support and interest in the business. Thanks very much.
Operator: Good morning, everyone. Hello, and welcome to James Fisher and Sons plc 2025 Interim Results Earnings Call. [Operator Instructions] Finally, please note the disclaimer on Slide 2. And with that, I will now hand over to our Chief Executive, Jean Vernet. Jean Vernet: Thank you, Sam, and good morning, everyone. Thank you for joining our 2025 interim results earnings call. I am joined by our Chief Financial Officer, Karen Hayzen-Smith, and we'll start by walking through our business highlights for the 6 months ended June 30, 2025. Karen will provide an overview of our financial results at group and division level, and I will conclude by giving an update on our turnaround progress and how we are positioning the group for the future. This will then be followed by our outlook before we turn back to Q&A. So let's start with the highlights. We have delivered a solid first half performance. I am encouraged by the trading with our turnaround progressing as planned. We are committed to following our principles of focus, simplify and deliver with improved synergies being achieved through the One James Fisher model. We have a clear plan in place to achieve our vision, while we are building our resilience to adjust course if it becomes necessary in a world of growing uncertainties. Our path to 10% underlying operating profit margin will be delivered through executing on supply chain integration, self-help, turning around underperforming businesses in our portfolio and scaling JFD. We are making progress across all these priorities. Conditions in our key end markets have been largely supportive through the first half of 2025 despite growing macro and economic uncertainties. This, alongside our focus on business improvement, enabled us to deliver a solid financial performance with steady revenue and encouraging operating profit levels after adjusting for the impact of disposals. We also have seen an improvement in underlying return on capital employed, the key metrics for our group. Covenant leverage at the half year was 1.6x, slightly above our target range of 1 to 1.5x. This reflects 1H investments in key Energy and Defense subsegments where we see opportunity for growth. The first stages of our turnaround have helped us rebuild the fundamentals of our business, resulting in a strengthened balance sheet and a simplified portfolio. We are a leaner, more coherent company with a stronger culture of accountability and performance across the business. While we continue our turnaround, we have a number of exciting accelerators we discussed at the last year-end that are positioning the group for growth. These have driven the Defense order book up 45% year-on-year to GBP 350 million. I will cover on this in more details later. We are James Fisher. We presented a snapshot on our activities at our year-end results in March. Let me quickly go through our portfolio. Across the three division verticals, we solve our customers' complex challenges in the blue economy in a unique, innovative and agile way. The Energy division helps our customers to meet growing energy demand globally, more efficiently, safely and sustainably as they progress through their energy transition road map. The Defense division supports and rescues lives underwater, thanks to our global leadership in submarine rescue, stealth mobility solutions for special forces and rebreathers for combat divers. We deploy and serve our customers wherever they need us in the world, promoting a viability and interoperability across partner nations. Maritime Transport ensures on-time delivery of critical energy products for coastal shipping in selected geographies, but also enables ship-to-ship transfer of oil and gas third-party cargoes globally. We have the highest reputation for safety and quality, and this explains why we have many customer relationships extending over decades. I will now hand over to Karen, who will walk us through the financial results. Over to you, Karen. Karen Hayzen-Smith: Thank you, Jean, and good morning, everyone. I'm pleased that we have been able to make progress in the first half of the year and to deliver a solid set of results. The business has stabilized from the disposal of RMSpumptools and Martek last year, and we have managed to reduce costs as appropriate given the drop in revenue, whilst also bringing new capabilities and investing in CapEx and new innovation to position the group for growth. I will start today with the headlines. Disposals in '24 have had an impact on the financial comparatives, and therefore, it is more appropriate if we consider the results adjusted for these and illustrate movements on a like-for-like basis. Revenue was steady across the group when compared to the H1 '24 period with an operating profit up 14.4%, resulting in a margin of 5.8%. Net debt was GBP 72 million on a covenant basis to give a net debt-to-EBITDA ratio of 1.6x at June '25. This is slightly above our target range but reflects investments in growth made in the first half. Lastly, return on capital employed also increased slightly to 5.1%, a 20 basis point uplift. The next slide shows the movements in revenue over the period. The overall decline in revenue related to the disposals that we made in the second half of '24. Excluding these, though, revenue was up, but this was more than offset by the impact of FX. Overall, there was good revenue growth in Energy Services, which continued to have a strong performance in Well Services and also in renewables through the Bubble Curtains product offerings. Maritime Transport Tankships had a solid performance, but Fendercare was down as a result of low LNG market despite an increasing demand in Brazil. Moving on to operating profit. We saw an increase in profit to GBP 11.1 million and a net increase in margin contribution by GBP 2.2 million as a result of improving underperforming businesses and cost reductions. The H1 period in '24 included a GBP 3 million one-off gain on the sale of life of field assets, which offset a GBP 3 million loss on the decommission business. This business has now turned to profitability, which represents a GBP 3 million uplift on the prior period. We've also made cost savings across the group, such as reduced insurance premiums, audit legal fees and savings associated with restructuring of businesses and functions to consolidate and reduce duplication. However, we have used part of these savings to invest in areas required for growth, such as customer excellence, including strengthening sales teams together with technology and innovation. Therefore, overall, we have made around a GBP 5.2 million improvement on '24. The overall net result is a margin improvement to 5.8%. And there are, of course, more opportunities to reduce our cost base as we continue to simplify the group whilst we build capabilities required to position for scale. The next slide shows the margin improvement that we have made on a like-for-like basis over the last few years. We have been focused on turning around businesses and becoming more efficient to provide a platform for growth and achieve our 10% margin target. The margin dropped following the disposals, but is increasing in the period. And as outlined previously, there are steps we will take to increase margins further, which Jean will talk about in more detail shortly. If we now turn to look across the divisions, overall, Energy had a solid first half with revenue slightly down. However, if revenues adjusted for the impact of the legacy Mozambique port project, which will not repeat and was completed in the period, revenue would have actually been up 6.9%. This contract had around GBP 7 million higher revenue in H1 '24 than in '25. Energy Services had a good performance throughout the period with continued demand for compressors and Well Services. We have experienced a delay in some projects in Africa moving to '26, but otherwise, markets have been robust. In Renewables, there was improved revenue from offshore wind construction activities, which uses our Bubble Curtains technology, and we have managed to turn around the decommissioning business, which is now profitable with an increasing pipeline of opportunities. On a like-for-like basis, operating profit was up just under 17% as a result of the stronger performance in the restructured Subsea and Decommissioning business with a margin up 180 basis points to 11.3%. We continue to see demand for all activities across both oil and gas and renewables and across the existing markets of the Middle East and Asia. The U.S. offshore wind market has seen projects paused and resumed as they are reviewed by U.S. administration, but this is not expected to impact revenue materially in '25. Moving on to Defense. Revenue increased year-on-year by 3% to GBP 37.6 million, driven by solid performances across the majority of the product lines together with an increase in operating profit. Submarine Rescue was down slightly as a result of the phasing of customer exercise schedules. The H1 outturns do not fully reflect the revenue generation from the orders secured in Q4 '24, and we should start to see progress coming through in the second half as activity on the contracts build given a higher percentage of secured revenue going into the second half. The order book at June '25 was GBP 315 million, up 45% compared to the prior year. We are investing in development expenditure for innovation and new product development, and we have incurred costs investing into new markets such as the U.S. The Defense market continues to be supportive, and we continue to see growth potential in Defense across all product lines. Moving on to the Maritime Transport division. Tankships saw revenue up 5.9% as a result of improved rates and good utilization to GBP 42.8 million. The Cattedown business had a solid period with petroleum and dry cargo volumes remaining consistent through the port. And on a like-for-like basis, Fendercare's revenue was down 10.8% to GBP 25.7 million in the first half. Results for the business, though do not fully reflect the improvements made in Fendercare in the first half with a restructured team and our focus on increasing sales and building new customer relationships. Brazil had a good performance, and we have entered operations in Uruguay, having our first operation in September, and Fendercare should see an improved second half. I'll now pick up in some other areas of the income statement. The benefit from the debt reduction and refinancing last year can now be seen clearly in the period with finance charges, including lease interest, down from GBP 14 million to GBP 8 million. The GBP 8 million comprises of GBP 4.4 million of bank interest expense, GBP 0.5 million of facility fees and around GBP 3 million of lease interest. The tax expense on underlying profits from continuing operations for the period is GBP 4.1 million, with the increase in the prior period coming mainly from increased taxable profits in Brazil. Given that we've not been able to take credit for certain tax losses across the group, the calculated underlying effective tax rate is significantly higher than you would expect. The effective tax rate, though, is still around 29% when companies with tax losses are excluded. If we turn to the statutory reporting figures, the majority of the costs here relate to transformation and restructuring of the group, including redundancy costs and certain project costs. There were also various legal costs related to the finalizing of disposals in previous periods and some other ongoing matters. On to cash flow. Working capital continues to be a focus with DSO days below previous levels, but they have increased slightly to 45 days from 42 days in '24, which was mainly the result of the timing of payments in Africa. CapEx, including development expenditure, was GBP 19.2 million, and this reflects investment in further compressors to meet continuing demand and expenditure on our new products across the group. Net finance interest paid was GBP 3.7 million with an average interest rate of around 8.5% for the half year, made up of GBP 4.8 million bank interest, offset by around GBP 1 million interest income. Lease interest payments with interest increased in the year as a result of entering into a longer vessel lease and also contracting additional vessels. As outlined at the trading update, net debt increased in the period from 31st of December '24 by GBP 7.2 million, largely reflecting the first half weighting of CapEx and development expenditure together with working capital phasing on certain contracts. I'll now turn to look at our borrowing position. The significant reduction in debt was outlined in detail in our year-end results in March early this year. And this slide shows the impact of the drop in debt and interest costs from where we were last year and emphasizes the progress made. And although net debt has increased in the period, it is as a result of investment for growth. Right-of-use liabilities increased due to new vessel leases in Tankships and in Fendercare's Brazil operation, where we sought to secure a vessel given the increased volume of work in the region. Looking forward to the remainder of '25, trading to the end of August has been in line with expectations and guidance for the '25 year is unchanged. Just a few points of technical guidance to finish. CapEx and development expenditure is expected to be at similar levels as previously guided at GBP 30 million to GBP 35 million. We remain focused on affordability payback and meeting our hurdle rates before expenditure is approved. On bank interest, a rate of around 8.5% is expected before any base rate reductions. And lease interest in H2 is expected to be similar to H1, assuming a similar vessel portfolio and terms. And on tax, we are continuing to guide to a tax rate of around 29% in respect of tax payable entities. But as outlined earlier, the tax rate could be impacted by not recognizing tax credit on losses. Therefore, just wrapping up on the financial update, the first half delivered a solid set of results. This included turning around the decommissioning business to profitability, and we continue to assess those other businesses not performing to our hurdle rates. We have reduced costs, allowing us to increase margins and strengthen in areas such as commercial excellence and product innovation, and we'll continue to do so. And we have also been investing for growth, but in a measured way to maintain debt levels. I'll now hand back to Jean to take us through the rest of the presentation. Jean Vernet: Thank you, Karen. Now let's look at the progress on our turnaround. The last 2 years, we're focused on fixing and stabilizing the businesses, and we achieved a lot. Everyone contributed to driving and executing on this agenda through incredibly hard work. And I would like to take this opportunity to recognize our employees for their grit and resilience. I'm immensely grateful for their efforts. We fixed the financial foundations of the business and are gradually improving our UOP margin and ROCE, while we have reset our debt leverage down to more normal levels. We have made good progress to define, refine and establish our core model. We remain committed to delivering on the remaining priorities of the turnaround, building on what we have completed so far in prior years while kicking off initiatives that position the group for growth. These are enabled by creating a culture where our people can thrive, harnessing innovation and technology and bringing new products to market across the globe, expanding our reach and market presence. Let's discuss the progress on these priorities we shared with you during our full year results. Exceptional safety remains our #1 priority, and it is central to our business model. This is measured through a reduction in total recordable case frequencies, which is a standard measure of safety. And while the numbers do not yet reflect the change of culture so far, when I look at where we are after 3 years of efforts, I can see a deep positive shift across the enterprise. Customer excellence places our customers at the center of the business. We are implementing a commercial framework of the highest standard consistently across all our divisions. We are progressing against these profitability targets underpinned by revenue growth. On people, we continue to execute on our 5-year strategy to attract, retain and invest in our talent and expertise. We gauge progress through our engagement score, and we are on track to deliver our annual employee survey in 4Q. I will delve deeper into some of our people strategy shortly. In new product development, we are driving technology and innovation through a pipeline of unique products and solutions. This is monitored through the market introduction of a number of products every year and are measured by revenue vitality. We are progressing with discipline, but a lot of work remains to be done, and we will communicate vitality levels at the year-end. In strong supply chain, we are building on progress we started in 2024. We are continuing to build and integrate a stronger supply chain, which is measured through our cost savings and is a key contributor to gross margin and ROCE improvements. We are on track to achieve our 2025 targets and with further potential areas identified. I will now walk through the bridge to achieving our 10% UOP margin, a key measure of our turnaround. We have 4 tactical levers in achieving our 10% OP margin, each equally balanced as far as their contribution. The slide shows how we are tracking progress starting with business performance. Every component of our portfolio must achieve the returns above our hurdle rates. We have seen good performances in Energy Services and Maritime Transport Tankships. Our efforts on the commissioning are paying off, while we continue to focus on improving other parts of the portfolio such as IRM, James Fisher Renewable and Fendercare. We also see additional opportunities to improve performance across the board. In 2024, we also launched a self-help program to calibrate and reshape our support functions, providing better support to the division as they scale, driving productivity that will lead to higher profit fall-through. We are seeing positive progress aligned to our geographic growth plans. Number three, as we move to Defense, revenue has been subscale. And whilst the first half of this year has seen an improvement in revenue, we still expect to achieve a lot more. As Karen mentioned earlier, we have booked some early successes for JFD and our order book continues to grow. This step-up in revenue will result in a healthy fall-through to operating margin. The unprecedented commitment for larger Defense spending around the world is attracting sharper competition, but our focus is on regaining our leadership in this dynamic environment. Finally, we started a 3-year supply chain transformation journey to integrate and strengthen the function. We are making good progress becoming a leaner, fitter practice that can strategically support our business as it positions for growth. Now we will not intend to stop our ascent once we get to 10% UOP margin, but we must first reach that first milestone. As part of our transformation journey, we are now positioning the company for growth. We are doing this in three ways: first, aligning closely to our strategic markets for Energy and Defense, while Maritime Transport provide predictable cash flows; second, focusing on developing our people to leverage our innovative and global culture of service as a key differentiator. And third, accelerating the introduction of new products to markets where we can drive the value to our customers, supporting the megatrends of security, autonomy and electrification around the world. Now let's spend a few minutes on each one of these. When it's about aligning to strategic market, within Energy, in the first half, we have extended our decommissioning offering into offshore wind, initially with the development of the world's first mono pile removal system in partnership with a major developer. In Norway, we are contributing to the country's decarbonization ambitions, investing in electrifying the rig through our well service fleet. We made good progress on key contract wins in renewable and decommissioning while maintaining our market-leading position for Bubble Curtains in the U.S. and in Asia. We also established a new base of operation in Guyana. Now in Defense, we have invested in new product development across tactical diving vehicles, submarine capabilities and our next-generation stealth multiple rebreather. We also have won long-term contracts in defense diving and submarine solutions across the U.K., the U.S. and Asia. This includes a large contract award with submarine platforms, an important win and a large contract award with the U.K. MoD. In the U.S., we were awarded a foreign comparative testing contract for our Carrier Seal tactical diving vehicle, and we secured an important rebreather order for combat diving as part of the 5-year replacement program. We also have sealed a strategic collaboration agreement with Saab for the Swedish and international markets. Geographically, we opened two new bases in Australia and entered into a U.S. special security agreement anticipated to complete in the second half. Now in Maritime Transport, we have continued with our fleet replacement construction with 4 vessels due over 2026 and 2027. We started embedding new product development with the first market introduction for Fendercare due for launch in the second half of this year. We also secured a memorandum of understanding with the U.K. MoD to provide support in times of needs. Last year, we pioneered the world's first ammonia STS transfer, which we repeated in the first half in Holland. We also made -- sorry, we have also acquired 2 new vessels, cementing our commitment to the Caribbean coastal shipping market. Geographically, we opened a new base in Uruguay to underpin our expansion in Latin America for Fendercare. I'm also pleased that we have made progress on our One James Fisher geographic expansion, including the launch of our Japanese entity in the first quarter of this year, acting as a support to all three division developments in that country. I'll move to the next slide to outline how we are investing in our people to enable that growth. Today, we employ around 2,000 people globally across 25 countries in most major operating regions. We differentiate as trusted adviser to critical customers with deep expertise working in complex and hazardous environments. This is demonstrated through credibility, superior service and our ability to innovate. We continue to invest in our strategy to attract and retain talent. Our recently appointed CHRO is doing a fantastic job at building the foundations of our people strategy. By embedding robust HR and talent management frameworks, we are equipping the team at every level with tools, support and our opportunities to perform at the best. We are launching our One James Fisher leadership framework that will see nearly 400 current and future leaders complete this 2-year program. This initiative contribute to building a strong pipeline of talent who will execute our strategy. We are a service technology company at heart, and our people are the driving force of our business. Now moving on to our technology and innovation. James Fisher is naturally innovative. That's innate to us, but our past approach was inconsistent, and we were slow to commercialize new products. Following the appointment of our Chief Technology Officer in early 2024, we have developed and embedded a new product development approach that is being deployed across the entire company. This discipline follows a strict process that enables us to translate our customer needs into innovative solutions that solve their most critical issues. By levering partnerships with customers, academia and supply chain, we can deliver an agile innovation pipeline, and I'm happy to report that the progress made on that front are ahead of my expectations. In 2025, as I touched on earlier, we have maintained a sharp focus on new product development that will support our growth ambition across the three divisions. Initial launches are expected across all divisions by the end of the year. So in conclusion, we delivered a solid first half financial performance in 1H '25, and we continue to progress our turnaround. Our focus remains on delivering our priorities and positioning the group for growth. Innovation forms a key part of our growth plans, and we made great strides in the first half with new product development with encouraging engagements from our customers. We will continue to target investments in these growth areas where we have the greatest opportunity to differentiate ourselves and accelerate our offering to customers, mostly within Energy and Defense verticals. We are now a leaner, more agile group with a strengthened balance sheet and a simplified portfolio. We are well placed to achieve efficiencies and synergies with a more coherent enterprise. This enables us to consider a broader range of investment opportunities. The market was largely supportive in the first half. And looking ahead, we anticipate that some growing macroeconomic uncertainty may affect oil and gas in the second half of the year. We remain cautious, but do anticipate the market will return from 2026 onwards. For now, the second half started with trading to date in line with management expectations, reflecting our second half weighing seasonality. With a continued focus on cost discipline, continued self-help and driving our strategic priorities, our outlook for the year remains unchanged. So we have concluded our half year 2025 presentation, and we'll now turn to questions. Back to you, Sam. Operator: Our first question comes from Gerald. He types, what is involved in the U.S. special security agreement? Is that market really open to non-U.S. companies? Jean Vernet: So we have had some ongoing business in the U.S. either directly from overseas, from the U.K., from Australia for years, but these were by definition limited. And we also have promoted our products through local channels, in particular, in the rebreather segment. By establishing the special security agreement, which is attached to our JFD North America company, we can now directly interface with the various military organization in the U.S., be it under our name. And because of what we bring is being so unique to the market, in particular to the U.S. market, we see that as a fantastic future opportunity for growth. The size of the market is massive. And this will require for us to increase our local presence for sure. But because of the special security agreement, it kind of breaks some boundaries that we were subject to before. So it's actually quite an important milestone for us. Operator: We have a couple of raised hands. We'll start with Thomas Rands. Thomas Rands: Well done on the results. Just three questions from me, if I may, I'll take them individually just to help you, if that's all right. The first one was just, could you give us a bit more detail on this -- the U.S. award for the foreign comparative testing contracts and the Carrier Seal tactical diving vehicle. Is there any more kind of info color you can give? I know you just made a comment around the U.S. special agreement, but more detail would be great, please. Jean Vernet: Yes. So the framework of this award is a purchasing program from the U.S. military to overseas supplier directly. So that's an example where we contract from our entities here in Europe directly with this program. For, in effect, assessing, testing in situ and training the special forces to use our craft, we see that as a fantastic bench for the community to validate that our product really fits their needs and hopefully gives way to being the provider -- the special provider of this type of product for future years in the U.S. Thomas Rands: Okay. And then linked to the rebreather contract that you mentioned, in the same kind of bullet point there about the new 5-year replacement program. Is that linked to the previous rebreather contract that you won that then got canceled? Or is this a separate one? And also, could you just talk around the selective investments you're making in next-gen rebreather, please? Jean Vernet: Right. So this award is a different product than the one we discussed in prior years. This one is for special force combat diving, so more shallow diving. It's part of a 5-year program, which needs to be rebudgeted every year, but that's really a 5-year program replacement for which we were awarded the opportunity and this year was the first year of the 5 years. Your second question was -- sorry, what was it? Thomas Rands: On the investment in next-gen rebreather. Jean Vernet: Yes. So this is a launch we did back in May. If you happen to visit DSEI in London, you see some -- you'll see a sample of it. This is the next-gen system that allows for deep as well as shallow long diving. That's why it's called multi-task. It's totally stealth for demining application. It's a product that encompass all our expertise and knowledge in terms of easiness of use, easiness of breathing. But the key element of it is its versatility. It's a product that can be configured to different missions and embeds a whole new generation of technology around monitoring, around sensors and fantastic product. If you have the chance to go to DSEI, you'll see the product on our booth. Thomas Rands: I'm going this afternoon after this call, so I'll have a look. And then the third one was just around the decommissioning opportunity in renewables. Obviously, we're mainly focused on kind of putting new turbines in the ground, not taking old ones out. So I was just wondering how big the opportunity is and what sort of time frame we should be thinking about for that kind of that new opportunity. Jean Vernet: Right. So this job was decommissioning of a pile, which had -- which was just part of fixing a construction challenge that the customer faced. What's unique in it is the size of the pile and how smooth the job went. And it was a fantastic sea trial for us to demonstrate that our technology developed and used for oil and gas, which is in itself a massive market, can be cross used for offshore wind. As the wind farms reach the 20 years of age, they must be decommissioned and refurbished. To give you an idea, by 2030, there's going to be about 34 gigawatts of capacity of offshore wind farm that will reach their end of warranty. That doesn't mean they need to be yet decommissioned, but this gives you an order of magnitude, 34 gigawatts. That's about 40,000 piles, that when they reach 20 years, will have to be decommissioned, right? So it's potentially a massive market. Like oil and gas, it's immune to the cycle because it's by regulation, those things have to be decommissioned after 20 years. And we are gearing up for that. Operator: Our next question comes from Alex Paterson. Alexander Paterson: I've got three questions for you as well. And again, it might be easier if I ask them individually. Firstly, if I think about your Defense business, you've made very good progress in that. You've signed an agreement with Saab. And I'm just wondering if there's anything that you think that you can do that you've not been able to do that can expedite sort of contract awards in that area. And I'm just sort of thinking, is it that you would benefit from increased distribution in any market or other partnerships a bit like the one that you've done with Saab? Jean Vernet: Yes. Alex, thanks for the question. This is an example of, first of all, the trust and credibility we bring to the space through this partnership with a major OEM provider of submarines and other subsea technologies. So that for us allow not only to approach in a much deeper, broader way, some of the Scandinavian navies, but also to go along with this partner around the world through their international expansion. I see that both as a fantastic amplifier of our reach around the world, one of many, but also as a great opportunity to deepen where we can make a difference through tailored innovation to a particular configuration of OEM, right? So it's really for us a double whammy. But I really want to stress that it reflects years of past cooperation with Sweden, with Saab and the Swedish Navy, which allows us to reach that stage. Alexander Paterson: Understood. The second thing I was going to ask was the -- you mentioned that there had been a reduced timetable for submarine rescue exercises in the first half of the year. Can you give any indication of what sort of financial impact that had? And also what the outlook for exercises is, i.e., does it stay subdued for a while? Or do you expect it to pick up again? Jean Vernet: So the submarine rescue exercises are part of the long tail of what I call aftermarket service opportunities that we have with the navies we supply. And from -- these are typically once a year or twice a year exercise depending on the various navies. And from time to time, it happens that one of them has to be either postponed or delayed or shortened for various reasons, one of them being weather, by the way. So I wouldn't take this as a significant pattern. It's just those things happen. But certainly, because these are quite high stake, it impacted our revenue. But that's kind of a reason of some of the revenue in H1, but those actually have resumed since then, right? So it's just a one-off. Alexander Paterson: Got it. Understood. And then the last question I was going to ask was, can you say a bit more about your -- the Japanese entity that you've set up? Is that -- did you establish it because you're seeing some activity in Japan and you think that you can accelerate that with -- by having some more resource there? Jean Vernet: Right. So Japan is important for us for many reasons. One of this is that it's located in Northeast Asia, which both for offshore wind and Defense are critical markets. And that's what drew the impetus of setting that entity because our approach to customer engagement is wherever it's possible to have a direct engagement. So a little bit like in the U.S., we have had decades of business with Japan in the past, mostly for commercial diving, saturation diving. But we see both on the defense side and the offshore wind side, a huge chasm in the sense of on the military side, massive increase in defense spending. On the offshore wind, this is one of the only way together with nuclear energy where Japan can decarbonize. And it's an inflection point for us in this market, very much like in Korea, by the way, South Korea or other places in that region. And to succeed in Japan in a deep way, I believe that we have to have a direct connection with the military, a direct connection with the developers very much like what we have created in the U.S. So we look at this with extreme excitement. Operator: Thank you. There are no more questions at this point. And with this, we will now close the call. Thank you for joining, and you may now disconnect.
Operator: Good morning, and welcome to the Matrix Service Company conference call to discuss the results for the fourth quarter of fiscal 2025. [Operator Instructions] As a reminder, this conference call is being recorded. I'll now like to turn the conference over to today's host, Ms. Kellie Smythe, Senior Director of Investor Relations for Matrix Service Company. Kellie Smythe: Thank you. Good morning, and welcome to Matrix Service Company's Fourth Quarter Fiscal 2025 Earnings Call. Participants on today's call include John Hewitt, President and Chief Executive Officer; and Kevin Cavanah, Vice President and Chief Financial Officer. Following our prepared remarks, we will open the call up for questions. The presentation materials referred to during the webcast today can be found under Events and Presentations on the Investor Relations section of matrixservicecompany.com. As a reminder, on today's call, we may make various remarks about future expectations, plans and prospects for Matrix Service Company that constitute forward-looking statements for the purposes of Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements because of various factors, including those discussed in our most recent annual report on Form 10-K and in subsequent filings made by the company with the SEC. The forward-looking statements made today are effective only as of today. To the extent we utilize non-GAAP measures, reconciliations will be provided in various press releases, periodic SEC filings and on our website. Finally, all comparisons today are for the same period of the prior year, unless specifically stated. Related to investor conferences and corporate access opportunities, we will be participating in the D.A. Davidson 24th Annual Diversified Industrials & Services Conference in Nashville, Tennessee, September 17th through the 19th. If you would like additional information on this event, I would like to have a conversation with management, I invite you to contact me through the Matrix Service Company Investor Relations website. I will now turn the call over to John. John Hewitt: Thank you, Kellie. Starting with safety at Matrix, the physical and mental safety of our employees as well as that of anyone on our project sites or in our offices is core to who we are, an expectation for all employees and a commitment we uphold for all stakeholders. Today, I want to talk [Technical Difficulty] similar to airport security today, if you see something that does not look right, that could create a hazard for yourself or fellow employees, then please say something. At Matrix, this is not only a right our employees have when they come to work for us, but it is an obligation and expectation for everyone, and we expect our leaders to listen and act without retribution. This authority is a critical part of our culture and creates a safer work environment. And we find many times in near misses and incidents that the use of Stop Work Authority or the honoring of that authority by leadership could have been avoided an incident. In fiscal 2025, we made significant improvements in both our total recordable incident rate, or TRIR, and our DART rate, which is a measure of injury severity and stands for days away, restricted or transferred due to an injury. Our TRIR improved from 0.91 in fiscal 2024 to 0.51 in fiscal 2025, and our DART rate improved from 0.28 to 0.21 for the same period. And while we are proud of these achievements, we understand that achieving and maintaining a 0 incident safety performance is a relentless journey, and we will continue to prioritize safety in everything we do as we work towards this goal. So as we conclude fiscal 2025, on behalf of the company's leadership team, I would like to thank everyone at Matrix as well as our subcontractors and others on our project sites and offices for your unwavering commitment to our safety journey and building the kind of culture that we expect. The effort you invest in fostering a safe work environment at work and at home makes a profound difference. And together, we can achieve our goal of 0 incidents. And to our team members, remember, Stop Work authority is a right, an obligation and an expectation for everyone. As I reflect on fiscal 2025, the financial results certainly did not meet the expectations we had at the start of the year nor does it accurately portray the positive underlying performance of the business. It is essential to look behind the numbers to recognize the progress achieved and the fundamental strength in the business. It is important to understand that the impact from a single isolated event alongside a couple of legacy legal issues from 2021 and restructuring costs incurred to improve the organization does not reflect the company's underlying performance or its future potential. Kevin will provide more detail on these impacts in his remarks. But before he does, I want to highlight a few key takeaways. First, our project teams are executing well and producing strong consolidated results on our projects and maintenance activities across the enterprise, as evidenced by an above-plan DGP level, even including the labor productivity issues from a crude storage project that was noted in our earnings release. In short, we are executing on the backlog and new awards above plan on a consolidated basis. Second, while the full year's revenue was below our expectations, over half of the revenue shortfall was related to the late start on previously booked work, which is now in full flight and significant weakness in the planned growth for our T&D business, which led us to exit that service line in the back half of the fiscal year. The trend of growing revenue did occur as expected [Technical Difficulty] quarter-over-quarter, just not to the level we anticipated, and we expect revenue to continue to grow in fiscal 2026. Third, awards in the year of $726 million allowed us to maintain a near record backlog of approximately $1.4 billion. As a result, we are entering fiscal 2026 with approximately 85% of the planned revenue booked with nearly all of that underway. Additionally, this year's awards support our core market objectives in specialty storage, LNG facilities and electrical infrastructure, some of which are directly associated with the East Coast data center build-out and its demand for reliable power. These new awards and performance on existing backlog are creating new and reinforcing existing client relationships, which will lead to more award opportunities as the demand for energy, power and industrial infrastructure continues to heat up. Many of our clients are looking to commit to contractors that they trust and have high-performing teams to ensure their work gets built. Finally, as the year unfolded, we took steps to make sure the business is prepared for what we see as a strong future, a future of opportunities and growth in our target markets. We looked at the business core strategic pillars of win, execute and deliver to assure that every part of the business, from sales to operations to shared services to administrative support is properly aligned. In the end, we flattened the organization, closed underperforming offices, consolidated operational support services, restructured business development to better align with core market and growth objectives and integrated our engineering and construction operations to improve competitiveness, market alignment and delivery. While we did incur some costs associated with these initiatives, the changes are crucial to ensuring Matrix can capitalize on the significant opportunities ahead. As these efforts begin to bear fruit, they will serve as a key catalyst for our continued strategic growth and solid execution in 2026 and beyond. Now let's talk about strategy. Our strategy begins with our people, our purpose and the core values of who we are as a company to deliver on this purpose, we must ensure a culture of safety, both physical and mental and imperative to our business, maintain our Great Place to Work environment, especially considering the demand for talent for professional and craft, remain growth focus to gain scale and durability, achieve consistent performance, excellence in all aspects of our operations, including safety, quality, timeliness and margin outcomes, innovate and lead in the application of technology, including AI and face change with a positive attitude, and finally, create value for all of our stakeholders. These objectives are central to how we lead, set expectations and create value and are embedded in the pillars of when, execute and deliver which underpins our strategy. Our win pillar is not only about awards, building backlog and growing organically, but also making sure we pursue awards with the right risk and financial profile aligned to our strategic market focus areas. In addition, win also means hiring the best talent, having an industry-leading brand and building strong client relationships. Our strategic market focus can be broken into 2 categories: our current business with the opportunities for consistent and stable revenue combined with specific growth opportunities that are available in markets that fit our brand profile, skill sets and leadership, in engineering, construction and maintenance for LNG, NGS, ammonia, midstream and downstream energy products, mining and minerals, aerospace and electrical and new high-growth markets where our presence is currently limited, but opportunities are significant. Our experience and skill sets overlap for baseload and backup power generation, fuel storage, electrical interconnects and mechanical systems that are being driven by growth in power demand from fleet retirements, electrification of everything, expansion of AI and data centers and advanced manufacturing. Our opportunity pipeline of $5.9 billion is largely made up of our current business market focus areas. Over time, we will add to this pipeline with new high-growth markets, which will provide further strength. Both our current and new high-growth markets are supported by numerous multiyear megatrends in line with our long-term financial targets and provide the expectation for organic and inorganic growth of the business in 2026 and beyond. Moving on to our execute pillar. We must take the work that we win and execute it with 0 safety incidents, high quality, in line or better than budget on time and with overall outcomes that strengthen our brand and client relationships. The realignment and streamlining of our organization, which has been strategic and intentional has been key to ensuring we continue to win and execute at a high level. Finally, the deliver pillar of our strategy is really the culmination of the first 2 winning and executing our work and a consistent and high-quality manner that allows us to deliver value to all of our stakeholders, invest in our company, our people and fixed assets, providing a fuel for inorganic growth, growth opportunities for our people, supports the community and a return to our shareholders. As it relates to inorganic growth, we have said previously that our focus has been on returning to profitability. We are at that inflection point now. Looking forward, our priorities to ensure durable return-focused growth through organic, supplemented with focused M&A. As we move through the year, we will become more intentional and active in the search for inorganic opportunities that meet the strategic needs of the business to support our market objectives. We expect fiscal year 2026 full year revenue to be between $875 million to $925 million, representing year-over-year growth of 17% at the midpoint of the range. This outlook is underpinned by the strength of our current business, a healthy bidding environment and a robust backlog. As mentioned earlier, at the midpoint of our guidance, approximately 85% of expected fiscal 2026 revenue is supported by backlog already in hand and nearly all that backlog is related to projects that have already broken ground or risk of delay is minimal. 2026 will be a crucial year in our strategic journey marked by revenue growth, a return to profitability and continued execution against our strategic priorities. We are forecasting the first quarter of the year to be similar revenue level to the fourth quarter of fiscal 2025 with a steady improvement in revenue and profitability through the course of the year. With our strong financial position, our realigned organizational structure, backlog and robust opportunity pipeline, we are confident in our ability to leverage the significant ongoing infrastructure investment cycle to continue our transformation into a scalable and resilient growth platform. Kevin will now provide more details on the numbers. Kevin Cavanah: Thank you, John. Yesterday, we released our results for the fourth quarter of fiscal 2025. Those results were revenue of $216.4 million, EPS of a $0.40 loss and adjusted EBITDA of a $4.8 million loss. Those results included 4 items that masked the continued improvement in the ongoing business. First, we lowered our recovery expectations on a legacy project that is currently in a dispute resolution process, which resulted in a $6.4 million reduction of revenue and operating income. This was related to a crude terminal project that we completed back in calendar 2021. The project was impacted by the COVID pandemic and incurred significant project scope changes directed by the owner. We've been pursuing our outstanding contract balance from the customer since that time. Arbitration proceedings occurred last month, and we are awaiting that final decision in fiscal 2026. While the outcome of legal proceedings is uncertain, we believe we have appropriately reserved for our exposure on this issue and expect a positive cash inflow upon resolution. Second, we incurred an additional $3.8 million charge on a crude project impacted by lower-than-anticipated labor productivity. You may recall we discussed this project last quarter when we began to incur productivity issues. While we work hard to avoid any issues during our projects and our industry, issues will occur from time to time. When they do, our focus is on reducing any financial impact and maintaining our strong relationship with our customer. We are pleased to report that the team worked through the issues, completed the project earlier this quarter as planned and did so in a manner that further solidified our relationship with an important customer. Third, we incurred a $1.3 million charge related to an unexpected court decision on a project completed in calendar 2021. In this case, a subcontractor of ours failed to pay certain vendors even though he had been paid by -- even though we had paid the subcontractor. As a subcontractor is no longer able to pay their obligations. The court ruled, we had to make good on the amounts owed to the vendors, effectively requiring us to pay the obligations twice. Finally, we incurred $3.4 million in restructuring costs related to the organizational improvement actions John previously discussed. As those actions continue to fiscal 2026, we expect to incur a similar amount of restructuring costs in the first quarter. These actions were mainly designed to improve operational efficiencies, but they also reduced our annual overhead cost structure by approximately $12 million as we have experienced higher inflation for the past couple of years and other cost pressures, these changes will allow us to keep our annual cost structure flat during a period of strong revenue growth. The combined impact of these items was significant to the quarter. It decreased our revenue by $6.4 million to the reported $216.4 million, which was just below our implied fourth quarter guidance range. It negatively impacted EPS by $0.53, which resulted in the $0.40 loss I previously referenced, and it decreased our adjusted EBITDA by $11.5 million to a $4.8 million loss. We believe discussing the results in this manner is necessary to demonstrate the fundamental performance and improvement in the underlying business. We have previously discussed our fiscal 2025 focus was to improve operating results and return to profitable performance due to the growth in our revenue run rate, effective project execution, and leverage of our overhead cost structure. The revenue grew each quarter of the year as large projects ramped. That growth continued in the fourth quarter with revenue being 31% higher than the start of the year. The revenue run rate has now reached a level that supports positive earnings. As previously mentioned, our project execution was strong enterprise-wide as the underlying business produced double-digit direct margins, excluding the items discussed. We have a quality backlog, and we'll continue to focus on effective project execution. The leverage of our cost structure improved throughout the year but the impact of the under-recovered construction overhead reducing from 620 basis points in the first quarter to 160 basis points in the fourth quarter. Finally, SG&A leverage also improved from 11.2% of revenue in the first quarter to 8.1% in the fourth. As we move through fiscal 2026, additional revenue growth combined with the efficiency actions taken will allow us to materially eliminate the under-recovery of construction overhead to further leverage SG&A toward our 6.5% target. Moving to the segments. Storage and Terminal Solutions segment revenue increased 37% to $96.1 million in the fourth quarter of fiscal 2025 compared to $70 million last year due to increased volume of work for specialty vessel and LNG storage projects. Gross margin in the fourth quarter of fiscal 2025 reflects improved operating leverage resulting from higher revenue. However, gross margin was a negative 1.1% in the fourth quarter compared to a positive 3.1% last year as a result of labor productivity issues on crude terminal project and lower recovery expectation on the legacy project, both of which were discussed previously. Utility and Power Infrastructure segment revenue increased 12% to $73 million in the fourth quarter compared to $65.3 million in the same period a year ago, benefiting from a higher volume of work associated with natural gas peak-shaving projects. Gross margin was 9.1% in the fourth quarter compared to 4.2% last year, an increase of 4.9% due to strong project execution and improved construction overhead cost absorption. The fourth quarter gross margin was also impacted by a $1.3 million charge related to the unfavorable court decision discussed previously. Process and Industrial Facilities segment revenue decreased to $47.3 million in the fourth quarter compared to $54.2 million last year, primarily due to lower revenue resulting from the completion of a large renewable diesel project last year. In addition, we have lower revenue from thermal vacuum chambers, partially offset by higher revenue volumes or refinery work. Due to the change in mix of work, gross margin was 5.9% in the fourth quarter of fiscal 2025 compared to 15.4% last year. Now let's discuss backlog, which stands at almost $1.4 billion as of June 30, 2025. Project awards totaled $186.3 million in the fourth quarter resulting in a book-to-bill ratio of 0.9. While economic uncertainty has impacted the timing of project awards overall, the Utility and Power Infrastructure segment had a strong quarter with $121.9 million in awards and a book-to-bill of 1.7. These awards were related to LNG peak-shaving projects and substations. The year-end backlog level is supportive of strong revenue growth in fiscal 2026. And moving to the balance sheet. Our cash increased an additional $39.1 million in the fourth quarter related primarily to working capital changes. For the year, our cash balances increased $109 million to $249.6 million as of June 30, 2025. Available liquidity has increased to $284.5 million and is comprised of $224.6 million of unrestricted cash and $59.8 million of borrowing availability under the credit facility. The company also has $25 million of restricted cash to support the credit facility, and our debt position remains at 0. Subsequent to year-end, the company executed an amendment to the credit facility, which extends its term until September of 2029. The company entered fiscal 2026 in a strong financial position, that provides liquidity needed to support the execution of our backlog and to deploy capital towards growth. With that, I would like to turn the call over to John for some final remarks. John Hewitt: Thank you, Kevin. In closing, I'd like to reiterate the following takeaways: First, despite some legacy legal issues and other noise during the fourth quarter, our team grew revenue consistently quarter after quarter, through the year and is executing above plan from a direct gross profit perspective on the work on hand. Second, our strategy is working. We are winning work in our key focus areas, maintaining our near-record backlog even in the face of the uncertain macroeconomic environment, our organizational realignment is strengthening our platform and positioning the company for sustained profitable growth, both organically and inorganically. And third, our momentum into fiscal 2026 is strong with robust backlog and a strong opportunity pipeline. We're guiding to 70% revenue growth next year with 85% of that revenue from backlog that is already in progress. So with the tremendous momentum that exists across the business, we believe we are entering a prolonged period of growth. Above all, we remain committed to delivering sustainable shareholder value by building a platform capable of consistent profitability, backlog growth and cash generation. I'm proud of what our team accomplished in fiscal 2025 and even more excited about the road ahead. By remaining disciplined, focusing on safety and quality and continuing to improve our operations, we are confident in our ability to drive growth, create long-term value for our shareholders as we successfully win, execute and deliver. With that, we'll open the call for questions. Operator: [Operator Instructions] And our first question comes from the line of John Franzreb of Sidoti & Co. John Franzreb: John, last quarter, you kind of referenced the fact that some of the jobs are being pushed to the right due to economic uncertainty. Are you still seeing that? John Hewitt: Yes. I mean it's -- I would say there's kind of an overhang across our industry. And -- but we're only really -- I say we're really only able to point a finger at a couple of projects that were in our sites that you could say we're directly impacted by what's going on with tariffs and some of the global events and I think it just sort of feels like there's an overhang. And most of those projects are probably really related to things that have more of a global involvement, meaning things that are exporting some kind of energy product, let's say, the internal stuff, the LNG peak-shaving and backup fuel supply, there continues to be a lot of energy around those, no pun intended, and that I think the large -- we're still seeing a lot of smaller projects kind of come through the pipeline, the major projects. Those are just timing things, and they come and go and they take a while for those to germinate. But we have some of the larger LNG peak-shaving projects in our sites. And it just takes some time for those projects to develop. So from a domestic standpoint, I think we see -- we feel pretty good about the timing of an opportunity for rewards there. Certainly, there's more attention from our clients around material escalation from tariffs and those kinds of things become part of how we price and how we negotiate our contracts with various clients. But we've been fairly successful working through those risks with our new and existing clients. John Franzreb: Got it. And when you look at the opportunity profile and you just referenced some larger jobs that are out there maybe, do you expect to exit fiscal 2026 at a near 1.0 book-to-bill or is that too much to ask? John Hewitt: No, I think -- I certainly think that opportunity is out there. You've been around us long enough that you know the timing of those awards certainly have a major impact if things can slip a month here or there. And -- but certainly, what we see in our pipeline, the opportunity for us to book inside the, let's just say, our guidance range -- revenue guidance range. I think those projects are out there. And the thing -- when we have these big upticks in our backlog, they come from a major project that we booked that's in the $300 million, $400 million kind of range where we have a couple of those in our backlog today, and we're looking for opportunities to replace those and build on those moving forward. So this year, I think our award cycle is going to be made up of smaller kind of -- or normal sort of bread-and-butter projects, but smaller projects that are in $50 million to $150 million kind of range. But we think those are out there and the opportunity for us to windows and hit a book-to-bill of 1 is certainly available to us. John Franzreb: That's good to hear. And -- just what's your confidence level of returning to profitability and that kind of time line? How does that play out as the year progresses? John Hewitt: I would say our confidence is high. We feel good about the quality of the backlog we have and the fact that the high-quality backlog is in flight and that how that backlog is going to roll out over the course of the year plus even some of the backlog that we added in fiscal '25 helps to fill some of the holes in fiscal '26 already. And so I think we feel pretty good about our revenue levels and after revenue levels we're projecting, we're going to be in a position to be able to return to profitability. John Franzreb: And one last question, I'll get back in the queue. The cash position is building. Just could you just talk a little bit about how much is that advance payment from customers and how much is Matrix? Kevin Cavanah: So I'll take that. The cash position has built considerably this year. We've got a lot of long-term projects where we have seen some upfront money, but the balance sheet is strong. So we'll definitely use a good portion of that $250 million of cash for the projects. But we probably have cash available for just a normal level. If you look at what the working capital investment is currently what the cash level is of $50 million to $70 million that's kind of built up cash for just operating the business and it could also support growth activity. So we feel good about where we've got this balance sheet. Operator: And our next question comes from the line of Brent Thielman of D.A. Davidson. Brent Thielman: I guess first question just would be kind of back to some of the moving pieces of the quarter. Are you able to comment on other potential COVID era legacy jobs that you're in dispute that we need to keep in the back of our minds? Or do we feel like we're kind of beyond this at this point? John Hewitt: I think we're -- I think anything of any materiality works pretty much beyond. This one -- Particularly this one particular project that we're talking about that took the $6 million charge as Kevin had noted, we've been fighting that. We reached mechanical completion on the job back in early '21. And we've been in a dispute with a client since then. And we have attempted numerous occasions to get that settled and was unable to do that and ended up in, as Kevin said, in arbitration last month, but yes, that's really kind of the final material legacy pandemic issue that we've got. Brent Thielman: And then maybe a 2-parter to the restructuring actions you're taking would be, one, Kevin, if you don't mind just your expectations for the cost savings impact you should get from this and I guess, two, any early indications or evidence of some of the things that you're doing that's allowing you to win more work. Where are you seeing the positives of what you've been doing here to potentially, I guess, the bookings or any other measure we can look at? John Hewitt: So I'll hit the second part of your question, and Kevin can hit the first part. So we made a lot of significant changes over the last 5 months. And right now, we are kind of settling in -- so we moved people around in the seats and got rid of some of the seats and so it created opportunities for some of the people in the organization to step up and take some different new leadership roles. So I think we've created a lot of energy in the organization. You can feel a lot of energy in the organization. Like we said, we've flattened and streamlined the decision-making process and so we are still kind of settling in the key strategies and objectives with the organization. We just met with the Board 2 weeks ago and reviewed our strategy and our plans with them. And so -- but I think we're already seeing an improved alignment between different elements of the business and what we need to do to support each other, what we need to do to win work, what our real focus areas are from a market perspective. And so I think this change and as recalling a realignment in the organization is really going to bear some fruit for not only on how we win work but our ability to execute work, particularly around work that's EPC-related where we've got the critical engineering deliverables and then the -- our ability to execute that work on our projects. Kevin Cavanah: And when you look at the cost, we -- as I mentioned, we've cut out about $12 million with these most recent actions. That's split about 50-50 between construction overhead and SG&A. So it will -- we -- our SG&A has been running just under $18 million a quarter in fiscal 2025. I think you'll see it in the $16.5 million range per quarter in fiscal '26. The construction overhead impact will help us address the construction overhead, combine a little bit lower cost structure with the increasing revenues. We'll continue to focus on eliminating the COH. So I think we made the right steps in the last couple of quarters. Brent Thielman: Okay. I guess my last question is a little bigger picture, John. There's been some fairly significant announcements here over the last few days and then related to the data center theme. And I guess the question for me would be, maybe if you could just elaborate. Where does Matrix play into this, whether directly or kind of second derivative of the things that are happening in that market that only seem to be getting bigger and bigger as we look out over the next few years. Where do your cards deploy? And how does that pipeline that you have? What is it -- how does it inform you about your opportunity there? John Hewitt: Yes. Good question. So I mean, we are not going to be the person who builds the data center, right? That's just not -- that's not who we are. We don't envision being out there doing that. That's a fairly highly competitive light industrial kind of market. And so to make that step would be a pretty big leap. But where we are going to play a role in both directly and indirectly is the demand for additional power generation everywhere and the demand for backup power and the fuel for that power related -- directly related to data centers the AI computing, advanced manufacturing. So we see significant opportunities there. And if you recall, you've been around us long enough, I mean, we had a position in the gas-fired turbine construction market, both for in simple cycle mode and in combined cycle for baseload generation. So we have those skill sets. We turned our focus to other areas of construction as that market 5, 6 years ago kind of went in hibernation. But this growing demand for power, which we don't see as something that's going to stop. And so it's related not only to the increased demand related to what we talked about here in data centers and AI. But just in general, the general electrification of everything, it's just requiring more power generation, you've got more -- in spite of some of the rhetoric coming out of Washington, we're still probably going to be retiring coal fleets and moving more to our gas-based power generation economy. So -- and then you got the opportunity for interconnect, for substation work, we've done -- for a couple of data centers, we've done the substation work and the interconnect work for them. A lot of those data centers have high demand for cooling. And so some of that is more of a -- more complex process installation than what you might normally have in a light industrial facility, which could create opportunities for us. So our opportunities and our work around there will be a little bit more on the fringe. And then just the demand for generation, not only the installation of baseload generation and backup generation, but also the gas required to fuel it, pushing that back into the utilities with the work that we're doing and peak-shaving facilities, the work that we're doing in and backup fuel supply for utilities, the upgrading -- a couple of our awards in the quarter here were related to existing LNG peak shaving facilities that hadn't been updated for 30 years. And so we're going in and doing -- in some cases, the full EPC to update the process equipment and not even necessarily the storage, but the process equipment of those existing LNG [Technical Difficulty]. Operator: I'm showing no further questions at this time. I would now like to turn it back to Kellie Smythe for closing remarks. [Technical Difficulty] Please standby. Your call will begin momentarily. And I see you are back in line. You may begin. Kellie Smythe: Marvin, this is Matrix. Can you hear us okay? Operator: Yes. You're back. Kellie Smythe: Okay. We think you have dropped off the call. Operator: Okay. No closing remarks? Kellie Smythe: Yes, we do. We were still answering our question. Kevin was still answering our question. We're going to finish the answer to that question. Operator: Okay. You're back on that. Kevin Cavanah: Well, so I think we're back online. Sorry about that. We had some technical difficulties. Brent, I was going to follow up on if you're still there, a follow-up on the cost question you had. An important aspect of what those actions do it is also decreases our breakeven point. The amount of revenue we need in order to get to breakeven performance. In the past, we've talked about that. It was around $225 million per quarter with these reductions. Now it's down to $210 million to $215 million per quarter and so that's definitely a benefit to us increasing the earnings power of the business as we move forward. So I just want to follow up with that and turn it over to Kellie for closing remarks. Kellie Smythe: Thank you, Kevin. As a reminder, we will be participating in the D.A. Davidson 24th Annual Diversified Industrial & Services Conference in Nashville next week, September 17 through the 19. If you are attending, we look forward to seeing you there. Additionally, if you'd like to have a conversation with management, please contact me through Matrix Service Company Investor Relations website. You may also sign up to receive MTRX news by scanning the QR code on your screen. Thank you so much for your time. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Langa Manqele: Good morning, everyone, and welcome to our half year results for the period ended 30th June 2025. I am Langa Manqele, the Head of Investor Relations for the Old Mutual Group. Today, we will be taken through our presentation by our new Group CEO, Jurie Strydom, and he will be joined on stage by our Group CFO, Casper Troskie, to present the results. As a reminder, Jurie served in the OML Board as an Independent Non-Executive Director prior to joining the group. We are pleased to have Jurie on board. As you can see on the screen right now, our results can be accessed directly on our website using the QR code that is presented. And we are pleased to also announce that we have added some additional disclosures on segmental CSM and EV. Turning into the agenda for today. Jurie will kick us off with the CEO update, followed by the highlights, which will also include the segmental overviews. Casper will then take over from there to provide the financial review. After which, he will hand over to Jurie, who will come back on stage to cover the outlook and the concluding message. I will then take over from there to facilitate the questions-and-answer session. And at that point, I will ask the operator to just remind everyone about the procedure for asking questions over the Chorus Call as per the norm as well as for submitting written questions over the webcast. And with that, I'd like to hand over to Jurie. Thank you. Johann Strydom: Good morning, everyone. It's great to be with you. My name is Jurie Strydom. My first set of interim results. I've been in the job for just about 100 days. We're talking the proverbial 100 days, just over. But what a privilege for me to be here and delighted to present these to you. I think we thought that given the fact that it's 100 days, we would start with just doing a little bit of a CEO update, giving some clarity on some of the things that we've been talking about internally and that we've aligned upon internally from a strategic point of view and to give you a sense of where we're going before we move to the financial highlights. I think first, just to give a real credit and thanks to the Old Mutual team internally and externally, external stakeholders, staff, leaders just for the warmth that I've received in coming into the group role. And particularly, Iain Williamson, I think just thanking Iain. Iain, thank you for all those coffees and handover conversations and transitions. So I think because we've had a smooth and effective transition, I think we are in a position relatively quickly to give you some clarity on really what are the key focus areas for us as a group going forward and what are the significant shifts that we're making. I think the first thing to highlight is a shift towards really understanding what we mean by creating shareholder value and a focus on creating shareholder value. And you will see that we are moving towards a pivot to group equity value, return on group equity value and cash generation as our strategic KPIs. And those are -- we will give you more detail on those at the Capital Markets Day. We are prioritizing a Capital Markets Day for quarter 4, and we will firm up the date for that shortly. I think if we start to think about the shareholder value creation, there are a couple of things that immediately stand out. I think earning the right to deploy capital for us as a group is key. And I think you'll see -- later on when I get to that slide, you'll see a reference to our multiple 3-year capital horizon framework that will give you a good sense of how we think about earning the right to deploy capital. I think the second key element is demonstrating resolve on cost. I think as you'll see also in our results that there's a real focus on generating margins as a key driver of returns going forward. Now as we move into that, a key element, of course, is in sharpening execution. And you will see already from the 1st of August that we've made some significant operating model changes. Now these operating model changes are really designed to create a sense of clarity on the role of the group as capital allocator and looking after some -- the deployment of capital and governance and as a result of that, moving towards a leaner corporate center. But at the same time, moving towards the creation of clusters that are able to operate in the different segments in an empowered and accountable way. We want to create end-to-end value chain to enable the achievement of group targets to be cascaded down into clusters. We believe that the simplification of the structure for the group is going to go a long way to enable us to be competing better in each of our segments through the clusters. So you'll see the watchwords of accountability, execution, delivery. I mean, these are the things that we're talking about internally, and that -- you'll see that coming through very strongly, I think, in the conversations we have. Just to confirm then the changes we've made in the operating model from the 1st of August, you'll see the appointment of Prabashini Moodley as the CEO of Old Mutual Life and Savings. Old Mutual Life and Savings is the cluster of 4 of our largest businesses that are at scale in the South African market: the Mass and Foundation, Personal Finance, Wealth Management and Corporate. And that really is signaling a need for us to simplify our structures and to -- within Life and Savings, really double down on the scale that we've got in those businesses, and we'll talk more about that in a moment. And then Clarence Nethengwe, of course, the CEO of OM Bank being given executive oversight of Old Mutual Finance and Old Mutual Transaction Services. So those are the initial moves. And I think -- and so the implementation of that is running over the course of this year. And I do believe that being able to move quickly with a smooth and effective transition and to be able to align around these issues is enabling us to actually catch our planning cycle, which, of course, kicks off in Q3 and Q4, and puts us in a position gives us a bit of a head start in terms of mapping out what we want to do for 2026 and beyond. I think these 4 key focus areas really capture, I suppose, our priority from a competitive and from a capital allocation point of view. As we think about value creation, I mentioned earlier that we really are focused on what value creation means for us. We see it for Old Mutual in 2 buckets. The one is a value unlock bucket, and the second one is in generating growth. They are, to some extent, overlapping, but there's also an extent to which it's sequential. And so our first focus area is driving competitiveness of our South African business. There, it's really about improving margins, delivering efficiencies, executing the basics well. We do believe that creating end-to-end accountability and the cascading of targets clearly and simply down into the businesses is going to make a big difference and going to be able us to both improve margins and also drive market share recovery. I think when we look at our OMAR region, owned by the Africa regions, we're drawing a distinction between our Southern African businesses where we have been present for a long time, a market like Malawi, we've been in for 70 years. And there, we see ourselves building scale in those markets, really being able to extract value from -- and margin from our key positions and our brand positions in those markets. So we see that as a particular area for the future. And then as we move -- and we do think that there's a value unlock opportunity there as well. We do think that we can improve the margins and the returns in those Southern African markets. Then as we move into the space of generating growth, OM Bank is, of course, a key initiative for us. One of the big pivots you've seen -- will have seen from 1 August is an acceleration of moving towards leveraging our group assets in this space, and I'll talk more about that when I get to that section. And then finally, I think looking at our growth markets, we do -- we acknowledge that getting into growth markets is tough. It hasn't always been easy for us. You've got to break new ground. You've got to establish yourself in a new market. And so we're calling out the -- kind of evaluating and pivoting in those growth markets. That's, of course, referring to East Africa, West Africa and China. And what we're focused on there is really a turnaround in margins and in returns in those space in order to justify allocating more capital. And so again, earning the right to deploy capital is the key phrase there. I think in terms of capital allocation, I referred to this earlier as giving you clarity around how we think about our capital allocation framework, and we've broken it up into 3 horizons. And those are really driven by where our returns are relative to targets. So you'll see there, relative to the 15% to the 17% target range, whilst in this half, we have achieved 15.5% return, of course. That has been buoyed by returns, I mean, in equity markets. If you normalize for that or allow for that, then actually that return is below the target range. And so our aspiration is to move through these horizons into Horizon 2 and ultimately Horizon 3, where we really are in value-accretive territory from a return point of view. And so our capital decisions will be guided by where we are, in which horizon we're in. You will see this morning that we announced a ZAR 3 billion capital share buyback. So that is a demonstration of confidence that we have both in our own balance sheet as well as in our business. And I think you'll see us being determined to be really clear as we deploy capital in terms of how tightly coupled any opportunity is, to our 4 focus areas as well as the economics of each opportunity. Turning then towards the highlights. I think just reference to the macro environment first. We, of course, have mentioned the role that equity markets have played, most notably the market in Malawi. And of course, there is an inflationary element to that. But I think if you look through to South Africa and you look at the local environment, we do see what we're calling, I suppose, a constructive outlook. We think it's constructive in the cycle. There's been an improvement in consumer confidence and also an easing of interest rates. And so that's constructive. I think we would point though that particularly in the value unlock phase in Old Mutual, we do think that we are not necessarily reliant on macro tailwinds to implement some of the things -- some of the strategies that we're talking about. So -- and I think we -- our outlook on growth in South Africa, of course, like everyone else, we are concerned about growth and lifting growth levels, and we will continue to play our role as Old Mutual with our partners in what we can do to alleviate the impediments to growth in South Africa. I think the highlights themselves, a few key points to make here. I think the first is a strong earnings story, and 19% growth in RFO per share, 31% adjusted headline earnings per share. Both of those numbers strongly supported by equity markets and the turnaround at Old Mutual Insure, turnaround in the margin there, which I'll talk about in a second, supporting also a 9% growth in our dividend to ZAR 0.37 per share. You'll see reference there to ZAR 18.40 is our group equity value per share. Just to call out that with the return on group equity value being a really important metric for us going forward, our primary value creation metric along with cash generation, we really are now focused on that as a base for us to generate returns. Ultimately, our ambition is to achieve a return on group equity value that is value accretive in the sense of above our cost of equity. So calling out again the Capital Markets Day in quarter 4, we will be giving more detail on targets and more substance to this conversation. But I think to focus on the ZAR 18.40, there have been some assumption and methodology changes that have come through in that, the most notable of which is the adjustment to the assumptions for MFC persistency. Now the pressure on persistency has been present for a number of years. We have been -- we've taken a look at this half at the extent to which we think there's -- it's a structural change in the market. We do think that there's some significant structural change. And so the lion's share of that negative variance has been brought in to our assumptions. And that then if I go to competitiveness and efficiency, you'll see is the biggest impact in taking value of new business margin, down to 1.3%. So I think at that level, 2 stories. On the one hand, in the Life and Savings world, Life APE only up 1%. I think we've had pressure on that along with many of our peers, particularly a pullback in guaranteed annuity sales in South Africa, which have been strong for the last couple of years. But it's really that margin and that is the thing that we're focused on and on returning that margin from 1.3% back into the range of the acceptable range of 2% to 3%. And again, further detail to follow on that. I think the positive story for us in these results is the OM Insure outcome, and you can see there, significant improvement in underwriting margin from 0.9% last year in the half to 9.7%. And I think that whilst we acknowledge that there's a market element to this, and you will see that in our peer group, of course, significant -- also improvements through the cycle, and we think we are in a good place in the underwriting cycle, we do want to call out the operational improvements that have happened in our business that we believe gives us sustainability to our position. So just spending a moment then on each of the clusters. This is the Life and Savings cluster, the first time I think that we really are presenting it as a business cluster in this form. Just to point out the scale of this business, the largest umbrella fund in South Africa, ZAR 187 billion. The second largest in-force book by a number of policies. And a very large wealth management business, often an underappreciated scale of that business at ZAR 442 billion, assets under management and administration. There has been pressure here, as I've said, on new business and in a persistency environment that has been particularly difficult in the Mass and Foundation cluster. So that's where that margin you see in for the cluster margin coming in, VNB margin coming at 1.4%. But you'll see there -- I mean the real focus here is to be decisive on implementing our new operating model, driving through cost efficiencies as a first lever. Remember, when it comes to VNB margin, there's sort of 3 levers we think about. The one is the cost efficiency, and the second is persistency, and the third is sales growth. And I think it's almost in that order in the near term and in the medium term that one can drive action. And so a lot of action in that space, and we will be giving further detail on that in due course. I think in the banking space, we really just want to point out the considerable group assets that we've got in banking in South Africa. We've got a ZAR 15.5 billion profitable loan book in Old Mutual Finance, a branch footprint of 346 branches through which we are originating credit. We've got ZAR 1.5 billion in money account deposits and almost 400,000 money market account customers. So if I look at the banking strategy and the milestones, you'll see that in H1 of this year, we have gone live to staff. In H2, what we're doing is going -- we've been going live to -- going through our branches and gone live to the public through that process. What we're essentially doing is activating our branch network, targeting our money account customers and in the process also have gone live to the public and so are -- able to also onboard new to Old Mutual customers. And so our focus here really is for the balance of H2 and also into 2026, acquiring customers and demonstrating traction in this space. We have talked about guidance of ZAR 1.1 billion to ZAR 1.3 billion [loss] for next year and setting aside capital of ZAR 1.6 billion for the bank. So that's the guidance that we've given. We will certainly be giving much more detail on the banking strategy at the Capital Markets Day. But suffice to say for now that the pivot to leveraging our group assets and cross-sell is a key part of our positioning that we believe is vital to our success in what is a competitive market. Old Mutual Insure is a great positive story in these results. You can see there, the margin, which we've alluded to. I think we would just point out to -- I've had the benefit of being on the Board actually as a nonexecutive of Old Mutual Insure for the last 18 months. And I think the fixing of business fundamentals, the operational turnaround is something that we would point to as well as obviously the benefit from the market. And also the successful acquisition and integration of a number of strong businesses that have diversified our income streams in this business. And what we'll be looking for going forward is the sustainability of these earnings. Old Mutual Investments, these -- I think, a credible 9% growth in RFO. The big standout here is the performance of the alternatives business, ZAR 3.4 billion alternatives capital raise, 33% growth in alternatives revenue. So very strong and a market-leading business. We, in fact, have a portfolio of excellent businesses in Old Mutual Investments. We are well aware of the OMIG fundamental SA equity performance challenge and track record. And so -- and this is a real focus for the team in OMIG in implementing their turnaround plan. But besides that, also a focus on delivering on the strong credit origination pipeline that we've got. Old Mutual Africa regions. I think, again, just drawing a distinction between the Southern -- strategically between Southern Africa and East and West Africa, but really just pointing out -- and whilst there's been a 13% growth in RFO and a lot of work has gone into optimizing the balance sheet and the repatriation of cash remittances from these businesses that has improved significantly, there has been significant pressure on top line and on margins. So muted growth in Life APE and on the short-term side, VNB in Namibia has had a difficult time in this half [with] changes in that market and also medical insurance in East Africa. So a focus really here on cost containment, addressing pricing and underwriting and optimization of the balance sheet. So finally, I think just to highlight our commitment to sustainability has been recognized. We recognized a leader in the space. MSCI, just to call out, has improved our rating from AA to AAA and also to celebrate our Moneyversity+ platform, our online education platform that's won the Tech Impact Award at the Africa Tech Week Awards. So with that, I'm going to hand over to Casper to give us a more detailed financial review, and then I'll be back a few moments after that. Casper Troskie: Good morning. Jurie, thank you for guiding us through the highlights with such clarity and insight. I will now take us into the financial review, where we will go through our performance through the lenses of value, capital and earnings. And starting with value. As Jurie mentioned, we are pivoting to return on group equity value or GEV as our key value metric. We are currently reviewing and refining our methodologies given the focus on return on GEV, ensuring that we have a robust foundation from which to drive growth. In the current period, the change in GEV was driven by both business impacts and methodology changes. Business impacts included an increase in property and casualty valuations following sustained improvement in Old Mutual Insure performance and a decrease in embedded value following the persistency change in Mass and Foundation cluster. Valuation and methodology changes included a reallocation of ZAR 3.1 billion in OMAR from covered to non-covered business. This did not have an impact on overall GEV but changed values across the lines of business, a change in the valuation of OM Bank, where we have adjusted the valuation methodology to reflect the unlock of value as we meet critical rollout milestones and embedded value assumption and model changes, which I will discuss later. Total embedded value decreased due to high capital and dividend outflows of ZAR 7.7 billion and assumption and model changes amounting to ZAR 3.7 billion. Dividend and capital outflows included strong cash remittances from OMLACSA to the group, and which totaled ZAR 4 billion as well as the OMAR reallocations mentioned previously. Assumptions and model changes included a methodology change of an increase in the non-hedgeable risk capital charge from 2% to 3.5% across the business and a business change following a comprehensive review of persistency experience, which identified systemic shifts in the funeral market in recent years. This has led to an updated long-term persistency basis, negatively impacting financial results for the period. The annualized return on embedded value was 6.9%, supported by profitable new business, positive experience variances and partially offset by assumption and model changes. As Jurie already mentioned, our South Africa Life and Savings business was the primary driver behind the decline in the group's value of new business this period, resulting from assumption and model changes I just described. Recovering our VNB and our VNB margin is a central focus area for us, and this is clearly reflected in our group's strategic priorities moving forward. Moving to the contractual service margin, or CSM. This represents the store of future life profits for the bulk of our Life business. Despite the reduction caused by significant assumption and model changes, the CSM still increased driven by new business value and interest and positive experience variances. Our annualized allocation to profit was at the upper end of the range at 11.6%. Turning to capital. We remain committed to our capital management framework, consisting of considered capital deployment, balance sheet efficiency and balance sheet strength as a means of enhancing value and returns for shareholders. Our capital deployment decisions will be guided by horizons linked to our RoNAV trajectory, as Jurie described earlier. We expect cash remitted to be between 70% and 80% of adjusted headline earnings before optimizations and special dividends. Ongoing optimizations drove strong growth in cash remitted from subsidiaries, representing 115% of adjusted headline earnings. Our South Africa Life and Savings segment continues to be the leading contributor to cash generation for the group, while Old Mutual [Insure] turnaround in sustainable earnings also resulted in a healthy contribution. Discretionary capital increased by ZAR 2.5 billion after paying ordinary dividends of ZAR 2.3 billion. This then brings us to our discretionary capital balance. We are expecting to capitalize OM Bank to the amount of ZAR 1.6 billion, which represents their capital needs for 2026. The OMLACSA special dividend of ZAR 1 billion was approved by the Prudential Authority in August and will increase our discretionary capital balance in the second half of the year. ZAR 3 billion of discretionary capital is committed for the share buyback approved by the Board and the Prudential Authority. Our current year RoNAV of 15.5% is within our target range, supported by earnings and ongoing balance sheet optimizations. Excluding higher-than-expected market returns, return on net asset value would have been 170 basis points below the target. Our RoNAV, excluding the bank, was 18.7%. Moving on to earnings. AHE was up 29%, driven mainly by shareholder investment returns, where equity market performance in South Africa and Malawi was substantially above expected returns. This was further supported by strong operating earnings growth. Despite the increase in AHE, IFRS profits and headline earnings decreased significantly due to reduced profits from the Zimbabwean business after the transition of its functional currency from Zimbabwe gold to the U.S. dollar. The impact on net asset value was limited as a result of lower currency translation losses reported in equity. We have seen a continued upward trend in RFO over the last few years, even after our ongoing investment in OM Bank with the following being noteworthy. The turnaround in Old Mutual Insure, which has seen significant earnings growth, with material contributions to group earnings from OMAR over the last 3 years. And we have seen increased performance from our Life and Savings and Investment businesses. Turning to segment-specific RFO performance and starting with the Life and Savings segment. Mass and Foundation declined by 15% as a result of the change to the persistency basis, partly offset by favorable economic variances and the one-off impairment on the Old Mutual Finance secured lending book in the previous year. Personal Finance RFO increased by 40%, off a low base in half 1 2024, impacted by poor mortality experience and was further bolstered by positive economic variances. Wealth Management profits increased by 19%, reflecting the continued growth in average asset levels and positive economic variances. And Old Mutual Corporate RFO increased by 8%, off a high base, following a [once-off] provision release in half 1 2024, a modeling change in our risk book and positive economic variances. Old Mutual Insure RFO saw excellent growth of 71%. This segment is now sustainably contributing to group RFO and supported by good top-line growth and outstanding margin improvement. Whilst recent acquisitions have performed well, continued focus remains on expense management. We continue to see the benefits of our diversified Old Mutual Investments business with consistent strong growth in alternatives, supporting our diversified revenue stream and profit outcomes with RFO increasing by 9%. Non-annuity revenue remains a major differentiator from our peer group. This revenue is more volatile but provides substantial economic value through the investment cycle. Despite the pressure on VNB in our OMAR business, we continue to see a strong contribution from the Southern region. This was across all lines of business, except property and casualty, where elevated weather claims impacted earnings. The increase in the Southern region is partially attributable to the inflationary conditions in Malawi. The losses in our banking and lending businesses in East Africa reduced significantly as we saw the impact of the 2024 restructuring exercise in Faulu contribute to lower interest and operating expenses. Although we continue to see headwinds in our property and casualty portfolio across the regions, we are seeing the benefit from exiting our loss-making Nigeria businesses. Net results from group activities no longer includes the investment in OM Bank, which is now reported under the Old Mutual Banking segment. Shareholder operational costs includes a restructuring provision of ZAR 440 million, which has been incurred to reduce future spending. Excluding the restructuring provision, shareholder operational costs decreased by 6%, in line with our previous commitment. Interest and other income increased due to elevated cash balances and favorable fair value movements on financial instruments. We have delivered a positive set of results and in particular, continued excellent results in Old Mutual Insure. Excluding higher-than-expected market returns, return on net asset value would have been below the target range. Improving our value and efficiency metrics remains our top priority, including improving group RoNAV and VNB margins to be sustainably within our target levels and improving our RoNAV consistently over the medium term. Our capital deployment strategy remains focused on short to medium value enhancement, thereby maximizing returns on net asset value and investments will be carefully targeted to growth opportunities that directly support our strategic priority areas. With that, over to you, Jurie. Johann Strydom: Thanks, Casper, and thank you for going through those financial results in more detail. We just thought we would spend just a minute recapping on some of the key messages. I think in essence, it's been a very positive period with a smooth CEO transition. I think it's been smooth and effective. I think it's fair to say we've been able to move quickly on getting clarity and alignment as a senior team [and] at Board level and also increasingly in the business around the changes we wanted to drive. I think to summarize those sort of key changes, the one is a clear articulation around what it means to create shareholder value and a pivot to return on group equity value and cash generation as our key metrics. We are clear on earning the right to deploy capital, which is linked to return on net asset value and also demonstrating result on cost where improvement in margin is required. I think we've made significant progress in implementing our new operating model that simplifies the group that creates, over time, a leaner corporate center and more empowered clusters to be able to cascade in a simple and understandable way, the key targets that we're driving as a business. And of course, we have our 4 focus areas that we've spoken about. I think just to point out to the Capital Markets Day in quarter 4, we will be firming up that date shortly. And there, you will see more detail on our financial metrics as well as the targets that we're looking to those metrics. Just to point out again, return on group equity value and cash generation really being our key value creation metrics and then what we're calling our efficiency and competitiveness metrics, which is new business volumes, value of new business margin and net underwriting margin and return on net asset value. And I think highlighting, of course, in this set of results, the key role that the value of new business margin will play going forward for us to enable us to be able to move into the aspiration of achieving a return on group equity value that is above our cost of equity. So more detail on that to come. I think with that, Langa, I'm going to move to you so we can move to questions. Thank you. Langa Manqele: Thank you very much, Jurie, and thanks to you, Casper, for covering those 2 sections. We will now turn over to the question and answers. As per the norm, I would like to start by just saying I will take the questions from the Chorus Calls. The questions will then be fed into the room by those who are already [queued] up on the call. I'll then move on to take the questions submitted to us via the webcast. At this stage, I would like just to ask the operator to please remind us of the procedure for putting through the questions. Over to you, operator. Operator: [Operator Instructions] The first question we have comes from Andrew Sinclair of Bank of America. Andrew Sinclair: Just a couple for me. First, [ thank you very much for ] the CSM splits, very helpful. If I just look at the organic CSM growth, so new business plus interest accretion minus the CSM release, it looks like there's really very little growth other than Mass and Foundation, barely anything in Personal Finance and Wealth despite that being the biggest portion of the CSM and Corporate, not much higher. Just really -- what's the scope to accelerate those numbers? What do you see as sustainable levels of growth over the medium term? That's the first question. And then the second is, just -- great to hear a focus on expenses and efficiency. Just wanted to know, Jurie, how do you think about expenses and efficiency? I personally like to think about cost-income ratios, but how do you think about measuring it? We've had a lot of cost [saved] targets in the past, but sometimes it's hard to see kind of objectively from outside that improvement in efficiency. Langa Manqele: Thank you, Andrew. You were not as clear. I will start with Jurie's question, and then I'll ask Casper to just comment on the CSM growth. And if -- Ranen, you can also please add. Over to you. Johann Strydom: Andrew, maybe a couple of comments. I think that there has been pressure on the guaranteed annuity sales in South Africa, which I think you've seen has created pressure across the market, and as you noted, some of that money then flows into linked investments, but that is spread over a wider group of competitors. I think on your point on targets, I would point you to -- obviously, the Capital Markets Day is a key moment where we're going to be putting down targets. And I think we will also there talk about growth targets and in particular, in a low-growth environment, what are our aspirations around growing market share for Old Mutual, which I think is -- I think one has to assume that South Africa is not going to become high-growth environment. And so that will be key. I think from an expense point of view, our cost ratios are difficult for a group like us. I think what we're likely to show you at the Capital Markets Day is more cluster level KPIs for expenses. But what I will say to you is that our North Star is [getting] return on group equity value into value accretive range, which is above cost of equity. And with that -- likely to achieve that, you obviously have to get your experience variances contributing and you've obviously got to get your value of new business margin into the range of 2% to 3%. And so when we think about expenses, that's a significant way in which we frame it. Value of new business margin, of course, doesn't only -- it's not only expenses, but it is the most direct short-term controllable lever. Casper, if you want to add to that? Casper Troskie: No, I think, Jurie, you've covered the 3 important areas that I would have mentioned, which is increasing our value of new business through both volume and expense management. Looking at improving our variances and making sure that we can improve those. I think it's also important, I mean, not to just look at the CSM because we have disclosed a lot more -- we've put more disclosure into our booklet, so you can look at what the growth of our [ non-IFRS 17 ] business is also bringing through. So you get a complete picture of the growth in value. Langa Manqele: The next question, please. Operator: The next question we have comes from Francois Du Toit of Anchor. Francois Du Toit: Can you hear me? Johann Strydom: Yes, we can Francois. Please go ahead. Francois Du Toit: Your Life embedded value statement shows that economic variances added ZAR 1.7 billion after tax to earnings in the period. In the past, you've given us the split and a recon between how much of that was operational and how much of that investment return and capital, and also how much of that is contributed by markets, and how much of that was contributed by economic basis changes, in other words, really interest rate changes. Can I ask for you to please provide that recon price in future? And for this opportunity, for this question, just if you can split it roughly for me, just give me a sense of how much of that -- and that's a ZAR 2 billion swing on the base period. How much of that swing was operational? How much of that came through the investment return on capital line? Or can we use the IFRS investment return on capital as a proxy for that? Yes, just trying to get a sense of how much -- how repeatable this Life earnings level is. How much of it came from the trough of markets? That's the first question. Second question relates to the positive experience variances. You've made big basis changes. Is the -- and also it looks like the unwind and the basis changes reflect -- sorry, the unwind and experience variances reflect the basis changes that's taken place already. Is that the case? Or is the experience variances on actual assumptions that existed at the start of the year? Just can you clarify that for me? Is it experience variances on the changed basis or on the year-end basis? That's the second question. Langa Manqele: Thanks. Francois. Please just hold it there on those 2. I'll ask Nico to just walk us the high level through. We do add on the disclosures, and on the one-on-ones, we'll go through too much detail. But if Niko, you could please just cover it at a high level. Nico van der Colff: Yes, Francois, you can definitely use the IFRS investment information that gets -- given as an indication of what's happening to shareholder investment returns. So there is disclosure on that. The embedded value was a bit more complicated this time around because there were a couple of method change type items in there, too. So not as material as the ones that have already been mentioned. And so you can see that information in the system if you look at [ A&W ] versus [ VF ]. Then the question on basis changes, they're all on the opening basis. But remember that the opening basis already for MFC had a material reserve against weaker persistency in 2025. And so that's why you're not seeing as big a negative variance. Effectively, the basis change that's been spoken about has a lot more to do with assuming ongoing weaker persistency beyond the first couple of years for the systemic parts of weaker persistency rather than cyclical parts of weaker persistency. Langa Manqele: Thank you, Nico. Operator, the next question, please. Just as a reminder, 2 questions per person. Operator: At this stage, there are no further questions on the conference, sir. Langa Manqele: Thank you. I will now just turn over to some of the questions that were submitted. The first one came from Baron Nkomo from JPMorgan. Please elaborate on the structural change in the market, which you believe is driving persistency. That's the first question. The second one, please explain the material decrease in the Rest of Africa embedded value, which contrasts with the positive CSM growth. Jurie, I would like you to just maybe comment briefly on the first part. Johann Strydom: So I think that there's greater competition in the funeral market. I mean that's certainly the case. I do think that there's macro headwinds South Africa, but I wouldn't overemphasize it. I think actually, there's been a big competitive shift. And I think if you think about the overlaps between banks and insurance companies, I think that there's a blurring of the lines. There's a moving of banks into insurance and likewise, insurance moving into banking. And I think what we've -- whilst we certainly have management actions to improve persistency and there are things that we can and are continuing to do, and we do believe those will bear fruit. We do think it's wise to recognize the structural change of higher churn of funeral business than perhaps we had before, and our business must adapt to that. Langa Manqele: Thank you very much, Jurie. I'll hand over to Clement, our MD for Old Mutual Africa regions to cover the question on EV and CSM growth. Clement Chinaka: Okay, thank you. The CSM growth is mainly driven by investment returns, largely in Malawi and also changes that we had in the fees on the guaranteed fund in that market as well. Then the embedded value reduction, there are 2 things. The first thing is, there was a reallocation of the adjusted net worth between the various lines of business. So we took quite some -- about ZAR 3 billion from Life to non-covered business. So that's one thing. And then the next one was an allowance for expected currency devaluation in Malawi. So there is a haircut that we put through there. Langa Manqele: Thank you very much, Clement. I will proceed with the next question from Michael Christelis from UBS. The first question from Michael is, can you explain what have you provided for in the ZAR 440 million corporate center expense provision? It doesn't look like for your FY '26 guidance that has changed. It remains for FY '22 plus inflation. I will ask Casper to take that one. But the second one, also from Michael Christelis is, what level of price to give are you prepared to continue buying the share buyback? I'll also ask Casper to comment on that with Jurie, adding a level. Casper? Casper Troskie: Michael, on the price to give, we're not disclosing that externally. We don't want people trading against us. So I think that's important to understand, that will be kept confidential. The first question on the restructuring provision. Those relate to 2 components. Those relate to headcount reductions that we finalized where we had a constructive obligation. So we finalized them by 30 June, where we had once-off costs that will reduce future expenditure. And it's the cancellation of one of our IT contracts where we have upfront settlement, which will reduce future expenditure. Those are the 2 components. Langa Manqele: Thank you very much, Casper. Operator, I would like to come back to the Chorus Call and check if we have a question there. Casper Troskie: Sorry. Operator: We have. Casper Troskie: Sorry. Just to add, Michael, we won't. We will obviously continue doing buybacks where we feel it's accretive and stop if we feel we're overpaying on the buyback. Langa Manqele: Thank you very much, Casper. Question from the Chorus Call? Operator: We have a follow-up question from Francois Du Toit of Anchor. Francois Du Toit: Maybe if you can give us a bit of color on the reduction in the regulatory solvency ratio from 170% to -- well, 180% to 170%? And how does that gel with the strong cash generation and the increased excess capital that you disclosed as well? And just around that, maybe just discuss your -- whether there's been a reduction therefore in your targeted solvency ratio for the long term as well? And then the second question just on Old Mutual Insure. I think last time I asked this question, you suggested that 5% is unlikely to be exceeded this year in terms of underwriting. Maybe if you can give us a sense of how long you think the strong cycle will be with us and whether you are considering changing your band -- your target band long term for Old Mutual Insure? Langa Manqele: Thank you very much. I will ask Jurie to take the OM Insure and ask Casper to just comment on your first question, Francois. If there is a need, Nico, you may just overlay Ranen there. Thank you. Jurie, over to you. Johann Strydom: Yes, I think we will -- at the Capital Markets Day, you'll see -- in those targets, we talk about underwriting margin as one of our key targets going forward. So we will update that for our medium-term target. I think we do all recognize that we are in a good position in the cycle. And so it's very hard to call exactly where that cycle goes. But I would point you to the Capital Markets Day probably for more detail in that conversation. Casper Troskie: Francois, just to remind you that we have to accrue for our dividends and the actual buyback in our capital ratio at the period end, if we've announced that because it's a firm commitment. We also saw quite a big increase in markets during the period. So what that does is it increases the prescribed equity shock that we're required to hold. So that would not just impact on equities that we held, it will also impact any subsidiaries, the shock that we apply to the net asset values of those subsidiaries where they're not regulated in terms of either -- where they fall outside of the sort of normal insurance solvency provisions. Langa Manqele: Thank you very much. There are no more questions from the Chorus Call. I will just maybe read 2 more questions and then bring it all to a close. From RMB Morgan Stanley, that's Warwick Bam. Warwick asked, improving the performance of MFC looks like one of the biggest opportunities for the group. What needs to happen in the core insurance business of MFC? And what time line are you looking to achieve that? I will ask our CEO for the cluster, Prabashini, to take that question. Prabashini Moodley: Thanks, Langa. Thanks, Warwick, for the question. So in our MFC business, we continue to take action on persistency. We've taken some management actions this year already to make it easier for customers to actually pay any missed premiums, and that's already giving us some very early green shoots. Then when it comes to the market and addressing the shift in the market, I think from a proposition perspective, there is some work that we can do. And we do have building blocks within the Mass and Foundation business where we can put together, for example, through our Two Mountains acquisition and improve the differentiation of the proposition that we take out. Productivity and the management of our distribution channels remain really, really good. And it's just giving those advisers the right solutions to take out and improving our premium collections. And I think we will see improvements. Thanks. Langa Manqele: Thank you very much. I think just to close off, there's -- 2 set of questions, I'll sort of combine them, if, Casper, you could just address these 2. They are related to costs. The first one is from [ Allan Grey ]. He has asked, may you please give us more color around the ZAR 440 million restructuring provision? What was allocated to that? And how will it fall -- how will it fall away going forward? There's also another similar question from [ Patricio ] that is asking, where do you see the biggest opportunity to reduce costs across the group? And can you talk around the guidance of cost reductions going forward? Casper Troskie: So just going back to the ZAR 440 million restructuring provision. As I said earlier, this relates to headcount exits that were finalized at 30 June. So where you have upfront costs. So the future salary costs, we won't be carrying. So that will be a reduction in costs. And as I said, the software costs that we accrued for that -- for stopping that software agreements, there will be no future payments, so you have upfront cost on that. So that will also reduce our expense payments going forward. We communicated to you over the last 2 years that there are a number of areas certainly in the central functions where we are looking at cost reductions. We communicated that we're running elevated costs in the center and that we're targeting to get back to 2022 plus inflation on the center line. I think the further cost reduction opportunities comes through the fact that we've rearranged our operating model, as Jurie took you through, as well as the fact that we'll be running a leaner center function. So those are the biggest opportunities. Thanks. Langa Manqele: Thank you very much, Casper, and thanks, Jurie, for all the clarification as well as to the MDs for helping us conclude the Q&A. So that concludes our Q&A session. We look forward to engaging you at our upcoming Capital Markets Day, as Jurie has already mentioned, where we'll give you more color on our strategic priorities as well as targets. Once again, on behalf of our Board and the management team, I'd like to thank you all for joining us. Have a good day further. Thank you.
Operator: Thank you for standing by, ladies and gentlemen, and welcome to Tsakos Energy Navigation Conference Call on the Second Quarter 2025 financial results. We have with us today Mr. Takis Arapoglou, Chairman of the Board; Mr. Nikolas Tsakos, Founder and CEO; and Mr. George Saroglou, President and Chief Operating Officer; and Mr. Harrys Kosmatos, Co-CFO of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I'd like to advise that this conference is being recorded today. And now I pass the floor over to your host, Mr. Nicolas Bornozis, President of Capital Link and Investor Relations adviser to Tsakos Energy Navigation. Please go ahead, sir. Nicolas Bornozis: Thank you very much, and good morning to all of our participants. I am Nicolas Bornozis, President of Capital Link and Investor Relations adviser to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the 2nd quarter and 6 months ended on June 30, 2025. In case we do not have a copy of today's earnings release, please call us at (212) 661-7566 or e-mail us at ten@capitallink.com, and we will have a copy for you emailed right away. Please note that prior to today's conference call, there is also a live audio and slide webcast, which can be accessed on the company's website on the front page at www.tenn.gr. The conference call will follow the presentation slides, so please we urge you to access the presentation slides on the company's website. Please note that the slides of the webcast presentation will be available and archived on the website of the company after the conference call. Also, please note that the slides of the webcast presentation are user controlled and that means that by clicking on the proper button, you can move to the next or to the previous slide on your own. At this time, I would like to read the safe harbor statement. This conference call and slide presentation of the webcast contain certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect TEN's business prospects and results of operations. And at this moment, I would like to pass the floor to Mr. Arapoglou, the Chairman of Tsakos Energy Navigation. Please go ahead, sir. Efstratios-Georgios Arapoglou: Thank you. Thank you, Nicolas. Good morning, good afternoon to everyone. In the tanker market with still strong fundamentals, we continue to form extremely well. sticking to our well-known industrial model that the CEO, Niko Tsakos, has described many times, generating healthy contracted revenue under very strict cost control, as you see in the numbers. At the same time, we're selling all the vessels and replacing them with new state-of-the-art ships keeping a young fleet attractive to our customers. I will remind you that some time ago, we identified the lack of good rating on VLCCs. We are correcting this now. And as you've seen, we've gone ahead to order 3 new VLCCs with scrubbers [indiscernible] and 1. So we are rebalancing the portfolio, and we are filling a gap that we always wanted to fill. So again, the results, well done to Nikos Tsakos and his team, best wishes for every success going forward. So over to you, Nikos. Nikolas Tsakos: Yes. Thank you, Chairman, and good morning to everybody. It's a pleasure to be here. After the short summer lull, whereas in TEN, we did not experience such a lull because the company was very active during the summer months. We find it always interesting to make sure that during the slow seasonal months of the summer, perhaps is the best time do business when not everybody is around his desk. So we've been busy in August at the order in the 3 plus 1 vessel, taking delivery of in August and in July starting from June of our Suezmaxes and our shuttle tankers with long employment, selling older vessels and ordering, as the Chairman said, supporting the VLCC segment of our company, we have been traditionally a company with a larger number of VLCCs. And we renewed part of the fleet some years ago, and now it's very much time to come up with a strong environmentally friendly vessels, all of them built in South Korea in the traditional yards that we have been supporting over the years, like Hyundai, I mean we must be one of the very few companies, but we are very proud to take delivery of our vessels, thanks to our new building capacity and capability, we are just to deliver over 150 million new building in the last -- less than 30 years. And these vessels have been delivered from what I would say is the core peer group of shipbuilders in the world. We started in April with in Samsung. We moved in June to Hyundai in Korea, and we just renewed our relationship with what used to be called Daewoo, which we're just right now building VLCCs there. So the company is following this model of quality comes first. We are not -- we have not through the years, we have never cut corners. We have always done things the correct way by the book. And I think we are a proof but things can work when you actually follow your strategy follow the rules and always aim towards quality. This -- as mentioned in the press release, this has -- the beginning of the year and the first 6 months have been a period of turmoil mainly because we are big supporters of the open seas. And whenever sanctions and tariffs are imposed. Of course, this puts question mark and uncertainty in the market that we are facing. However, we have been able to navigate this, I would say, interesting new times successfully. We paid our first dividend in July. We're looking forward to pay the next dividend to announce it in November. And in the meantime, we are happy to see the appetite of the major oil companies for good quality vessels at very, very accretive rates. And with that, I would like to ask George Saroglou, our President, to give us a more detailed analysis, not very detailed, George, more detail of what has happened in the last 6 months and this subsequent period. George Saroglou: Thank you, Nikos. We are pleased to report today another profitable quarter. Tanker markets have remained healthy through 2025 to date. Energy majors continue to approach our company for time charter business. And as we speak today, total fleet contracted revenue, the backlog that we have today, the minimum is approximately $3.7 billion... Nikolas Tsakos: Which coincides -- equates to more than $120 per share, just to put it in share perspective. That's the limit. George Saroglou: TEN is one of the largest transporter of energy in the world. We have started with 4 vessels back in 1993, and we have turned every crisis the world and shipping has faced into a growth opportunity. Today, we have a pro forma fleet of 82 vessels, thanks to the company's crisis resistant model. During these 32 years, we have combined self-generated cash traditional bank lending and countercyclical capital markets fundraising in order to build the corporate fleet. Fleet modernity is an integral part of our operating model. We built vessels at the best shipyards. We acquired very modern, high-specification tonnage, and at the same time, we sell some of the older vessels in the fleet. We have built a young, diversified and versatile fleet covering both the conventional and specialized transportation requirements of our clients, which are mainly major energy concerns, blue-chip names with global risk. In Slide #4, we list the pro forma fleet of all conventional tankers, both crude and product carriers. The red color shows the vessels that trade in the spot market and our new buildings under construction. Since our last earnings call, we have added 3 new building VLCCs to boost our presence in a sector that we felt we needed to increase the number of vessels we operate. and with very good solid fundamentals as a big part of the VLCC fleet in the water is over 15 years. With light blue, we have the vessels that are on time charter with profit sharing, and with dark blue the vessels that are on fixed rate time charters. In the next slide, we list the pro forma diversified fleet, which consists of our 2 LNG vessels and our 16 vessel shuttle tanker fleet. We are one of the largest shuttle tanker operators in the world following the recently announced deal with Transpetro in Brazil for 9 high-specification shuttle tankers to be built in the Samsung shipyard in South Korea. We have 6 other tankers in full operation after recently taken delivery of both Athens 04 and Paris to 24, which commenced long-time charters to an energy major. If we combine the 2 slides and account only for the current operating fleet of 61 vessels, we have 24 vessels or 39% of the operating fleet with market exposure that is spot and time charter with profit sharing, while 53 tankers or 87% of the fleet is in secured revenue contracts, time charter and time charter with profit sharing. The next slide, we list our clients with whom we do repeat business through the year, thanks to our industrial model. ExxonMobil is the largest revenue client as we speak. Equinor, Shell, Chevron, Total and BP follow. We believe that over the years, we have become the carrier of choice to energy majors, thanks to the fleet that we built the operational and safety record, the disciplined financial approach and a strong balance sheet. The left side of Slide 7 presents the all-in breakeven costs for the various vessel types we operate in TEN. Our operating model is simple. We try to have our time charter vessels generate revenue to cover the company's cash expenses that is paid for the vessel operating expenses, finance expenses, overheads, starting costs and commissions. And we let the revenue from the spot trading vessels contributed to the profitability of the company. Thanks to the profit sharing element for every $1,000 per day increase in spot rates, we have a positive impact of $0.10 in the annual EPS based on the number of 10 vessels that currently are exposed to the spot markets. We have a solid balance sheet with strong cash reserves and the fair market value of the fleet is $3.8 billion against [ $1.8 billion ] debt, and the net debt to cap is around 42%. Fleet renewal and investing in eco-friendly greener vessels has been key to our operating model. Since January 1, 2023, we further upgraded the quality of the fleet by divesting from our first-generation conventional tankers, replacing them with more energy-efficient new buildings and modern secondhand tankers, including dual fuel vessels. In summary, we have sold 17 vessels with an average age of 17.3 years and capacity of 1.4 million deadweight ton and replaced them with 33 contracted and modern acquired vessels with an average age of less than a year and 3.4x the deadweight capacity of the vessels we sold. We continue to transition our fleet to greener and dual fuel vessels. We are currently one of the largest owners of dual-fuel LNG powered Aframax tankers with 6 vessels in the water. The fundamentals continue to be good as global demand grows year after year. OPEC Plus really accelerated further the voluntary production cuts, economic sanctions, wars, sanctioned list and tankers and geopolitical events affect our tanker market positively the savings happening on freight rates. And while the tanker order book remains at healthy levels as a big part of the global tanker fleet is over 20 years and it needs to be replaced soon. And with that, I will pass the floor to Harrys Kosmatos, who will walk us through the financial performance of the 2nd quarter. Harrys Kosmatos: Thank you. Thank you, George. So let me start with the first half highlights. With a slightly larger fleet, both in terms of vessels and deadweight tons when compared to the first half of 2024, TEN during the first 6 months of 2025, continued to place more tonnage on time-charter contracts to adhere to the long-term needs of its clients. As a result, during the first 6 months of 2025, TEN secured charters, including those with proper [ term ] provisions increased by about 14%, while spot contracts experienced a marked decline by about 27%. A point of note, however, is the company's continued belief in the market, which despite TEN's limited exposure in the inherent volatile spot market, which has happened somewhat from prior periods of the recent past has increased its presence in profit sharing contracts by about 28% from the 2024 1st half in order to capture the upside on are expected to provide starting with the upcoming winter months. In addition, during the first 6 months of 2025, 5 vessels underwent scheduled dry dockings from 8 in the same period of 2024, which when combined with the shift in employment patterns explained above, resulted in an increase of fleet utilization from 91.9% in the first half of 2024 to 96.9% in the first half of 2025. As a result, TEN's 62 vessels in the water fleet generated $390 million of gross revenues during the first half of 2025 from $415 million in the spot heavy 2024 first half, averaging a healthy $30,754 per ship per day. The aforementioned shift in employment patterns led to a material reduction in voyage expenses from $83.4 million in the first half of 2024 to about $68 million in the 2025 first 6 month, a $15.5 million reduction. In a similar fashion, charter hire expenses fell from $11 million to $6.6 million, a $4.5 million improvement during the equivalent 6 months time frame. Vessel operating expenses, reflecting the somewhat larger fleet, both in terms of numbers and vessel sizes were at was $102.3 million, slightly higher than 2024 first half level, equating to a daily average expense of a still competitive $9,743 per vessel. A similar pattern was evident in both depreciation and amortization expenses, which closed the first half of 2025 at $83.2 million, up $6 million from the 2024 period. Unlike the 2024 first half, these results included a near $49 million capital gain from a series of vessel sales. Such gains for the 2025 1st half were reduced to just $3.5 million as a result of the sale of the 2009-built Suezmax tanker during the 1st quarter of 2025. Inclusive of these gains during the first half of 2025 TEN's operating income settled at near at about $111 million. Interest and finance costs during the 2025 was part of a somewhat lower interest rate environment and 2 refinances of lower margins were $49 million from $35.2 million in the same 2024 6-month period and over $6 million improvement. Interest income during the first half of 2025 reached $5.5 million. general and administrative expenses for the first half of 2025 were $23.1 million, incorporating a management incentive and stock compensation plan. Reflecting all the above, the company generated a net income for the first half of 2025 or $64.5 million or $1.70 per share. Adjusted EBITDA for the first 6 months of 2025 came in at $193.2 million, while total debt net of $287 million of CASA fund settled at $1.4 billion, leading to net debt to capital of accountable 43.6%. And now let's go into the 2nd quarter highlights. During the 2nd quarter of 2025, the employment shift to world secured employment was equally evident as available under time charters and profit-sharing contracts increased by 12% from the 2024 2nd quarter, while based on the spot voyages dropped precipitously by 31.5% and leading to fleet utilization increasing to 96.6% from 92.4% in the 2024 2nd quarter. Worth highlighting here is the 30% increase in total debt of profit-sharing contracts emphasizing intense employment strategy of downside protection with upside optionality. Resulting from the above and reflecting again a somewhat softer but still healthy market from the 2024 2nd quarter and after having the 3 vessels in dry dock TEN's fleet generated $193 million of gross revenues equating to $30,767 per vessel per day, a healthy performance. Voyage expenses, again, due to later days of spot contracts declined by about $10 million from the 2024 same period, while short hire expenses also experienced a drop to settle at $3.3 million from $5.1 million in the 2nd quarter of 2025. Operating expenses and not indicated earlier due in the first half overview were just $3 million higher from the 2024 2nd quarter at $52.7 million or $9,982 per ship per day. A still competitive level, thanks to the efficient and profit management performed by TEN's technical monitors. Depreciation and amortization costs during the 2025 2nd quarter and again reflected a slightly higher vessel classes in the fleet were at $42.1 million from $39.5 million in the 2nd quarter of 2024. During this 2nd quarter, there were no gains or losses on vessel sales registered compared to the 2024 2nd quarter, which recorded capital gains of $32.5 million. As a result, operating income for the 2nd quarter of 2025 settled at $50 million. increase in finance costs during the 2nd quarter of 2025 were $5 million lower from the 2024 2nd quarter up $25 million while interest income reached $3.2 million. Taking all the above into consideration TEN during the 2nd quarter of 2025, generated a net income of $26.8 million, which equates to $0.67 per share. In ending adjusted EBITDA for the 2025 2nd quarter was up approximately $94 million. And with this, I'll pass it back to Nikos. Thank you. Nikolas Tsakos: Thank you, Harrys, for your detailed analysis. And with this, we would like to open the floor for any questions or input that you may have. Thank you. Operator: Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] My first question comes from Poe Fratt with Alliance Global Partners. Poe Fratt: Can we talk about the new build orders for the VLCCs? As you mentioned on the last quarterly call, you previewed -- it seemed to preview that. Can you talk about how you decided to go forward with new builds versus acquiring assets in the open market? Nikolas Tsakos: Yes. Thank you. Well, we are always looking for good quality vessels in the open market also. So I mean, we do not exclude this to happen. We took advantage of the strong secondhand market to sell vessels -- so perhaps it is -- when it's a good time to sell vessels and we made a significant cash profit and the profit overall on the sale of 18-year-old vessels, it means that it's not perhaps the best time to acquire secondhand vessels because they are pricey. So I believe that it's very, very good for us. We are very competent and experienced new building site offices in Korea and Japan in the past. So it has been -- it makes much more sense since we are building a big number of vessels in the first class Korean yards with the site officer to build the environmentally friendly vessels of the future. that are actually following all the upcoming regulations, and they are built at the yards to traditional build ships. So I think VLCCs has been part of our portfolio that we are lagging behind. And I think that's a very good opportunity to find -- we believe the reason we are able to run ships at, I would say, significantly lower operating expenses than a big part of our peer group is because we tend to build good quality ships and sister vessels, and that helps us very, very much in keeping operating expenses and the experience of our seafarers, the crew and the captains. It's like running, let's say, a very similar fleet of airplanes or a very similar fleet of Boeings or -- in order for -- to have the training for the crew, the spare parts for all the vessels, and it gives us a lot of flexibility. Poe Fratt: Great. And then if you could clarify whether you exercise the option that you had when you first announced the VLCC new builds? And then secondly, typically, you -- when you have a newbuild, you typically have a contract or a time charter set up in advance of delivery. Do you currently have a time charter in place? Or when do you anticipate securing a time charter for the Vs? Nikolas Tsakos: Yes. I think what we did is we opted for the option and we actually got an extra option for another couple of months. because we believe that it's good to maintain this price levels going forward in a very uncertain environment. So the options are always valuable. So actually, yes, we have 3 foreign vessels right now, plus an additional option in the same yard in the same quality. The -- right now, the VLCC market is a very hot market. We have actually 3 of our existing VLs are opening in the next 6 months, and we see a lot of appetite. I mean we're in the process of renewing some of the existing VLs going forward with significant increased base rates and profit sharing arrangements. And the new orders,, we are -- there is a lot of appetite, but it's still early to make a decision. So we will be taking care of more of the 3 existing ships, very young ship also themselves. But it gives us with 6 VLs and perhaps more coming it's starting to get critical mass in that very I would say, interesting segment of the tanker market. Poe Fratt: Great. And then could you preview -- I know that you talked about declaring the second half dividend in the November time frame. Can you preview it at this point in time? Or is it just too early? Nikolas Tsakos: Well, I think it is early, but we are looking at a healthy market. So we are expecting to -- for the Board to opt for a healthy dividend. So I think we are in a good space, I would say. Poe Fratt: Okay. And then on the last call, you talked about potentially given the current valuation in the equity market, you talked about potentially restructuring the company or looking at alternatives maybe splitting the company into a company that has twofold: 1 with long-term time charters in place, especially on the -- when you look at the shuttle tankers versus assets that have shorter-term time charters. Any progress or any comments on that type of move? Nikolas Tsakos: First of all, we are not restructuring the company. We have never restructured any part of our debt or the company. So I think TEN is one of the few companies that, I'm just joking, but we're not restructure. We're always thinking out of the box. I think we are very -- we are very happy to where we are today with the growth of the company, with the profitability of the company. One thing that I would say, like other shipping companies, but especially ourselves, we are disappointed is with share performance, and we're trying to -- I think our company should be -- should have easy the market cap of $2 billion from where it is today. But -- so we're always thinking of ways to get shareholders' interest and appreciation. We are -- I think we are going through a period that, with inflation being around, we are going through a period where real assets matter. So I think this is -- and we have very, very, very real assets and quite undervalued real assets. So I think what we want to do is to be able to have a much more efficient -- to make it more efficient for our shareholders. So we have thought of perhaps having one of the largest tanker fleets plus a lot of long-term business and specialized vessels to do something down the road in the next 8 quarters, I would say, and perhaps putting the more specialized vessels in a vehicle that, of course, TEN will be by far the major shareholder. But I guess, these are ideas that we are discussing with our investment bankers, but there's nothing imminent, I would say, for the next 4 quarters. Poe Fratt: Okay. And then could you preview or give me an idea of sort of the direction of OpEx and G&A over the second half of the year. It looks like the first half G&A especially might have had some onetime items in it. Nikolas Tsakos: Yes. Well, I think we are putting a lot of emphasis, we are running things hands on and we look at our technical management -- managers almost on a weekly and monthly performance. We are facing some inflation issues, but I think we have been able to cap the majority, and we still have an average for such big diversified fleet, which includes DP vessels, which the operating expense of those ships are in the high teens. And we're still under $10,000 on operating expenses. So I think we put a lot of emphasis in running a tight ship literally. I believe that we will be able to maintain the expenses there. Operator: There are no further questions at this time. At this point, I'd like to turn the call back over to Mr. Tsakos for closing comments. Nikolas Tsakos: Well, again, thank you for attending our call. In the first 6 months and I think moving forward has been an exciting time for the energy markets. I believe that we are here to see even more solid results coming forward. The energy part of the world economy is becoming more and more important. The players right now are getting more. We're seeing shipping energy part of the business, where really you have a 2-tier market. You have vessels and they're growing in numbers that are, I would say, they do not serve the core part of the business. And this which allows us with modern high-specification vessels to be able to have more opportunities in order to serve our major clients. So I believe I am optimistic that we're going to be seeing at least in the near future, another 18 months over a very solid, perhaps getting even stronger market. And we see also actions from the administration in the United States to support shipping, which is important because shipping and energy transportation have always been in the background. I mean, we provide a significant service, a very big service for the world economy. But in a way, we are kind of the unsung sailors, not heroes, the unsung sailors of the world economy. And I don't think it's good to see that people are paying much more attention to actual the services we're doing, be it on the LNG, be it on the crude or on the product segment. I will be in the United States in the next couple of weeks, having meetings specifically on ways where simple transportation and especially energy transportation is going to be appreciated and more and assisted more. And I think we have -- it is going to be good for the charterers and the ship owners. So I think we have an optimistic view going forward. And with that, I would like to thank everybody. Ask Mr. Arapoglou, our Chairman, if he wants to have a closing statement. Efstratios-Georgios Arapoglou: Thank you, Nikos. Just to say that we believe that market does not -- continues not to appreciate the nearly $4 billion of minimum contracted revenue for TEN. and keeps looking at us like any other shipping company with high volatility and low predictability of income and revenues. We feel that perhaps the market has begun focusing on it, but we feel that the value of the stock is much higher than where it is today. And as far as dividend is concerned, the CEO just mentioned that the Board is going to look at the results of the third quarter and be able to perhaps announce -- make a decision on the dividend in a few months' time. So we continue to be very positive on that front. So with that, thank you very much. Thank you, Niko. Nikolas Tsakos: Thank you. And I think we are -- we will be -- I think the team will be attending events in London, on for London International Shipping Week, including capital league event where our CFO is going to be a speaker and the following week in New York. So hope to see you face-to-face. And thank you very much, and have a good rest of the day. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Thank you for standing by, ladies and gentlemen, and welcome to Tsakos Energy Navigation Conference Call on the Second Quarter 2025 financial results. We have with us today Mr. Takis Arapoglou, Chairman of the Board; Mr. Nikolas Tsakos, Founder and CEO; and Mr. George Saroglou, President and Chief Operating Officer; and Mr. Harrys Kosmatos, Co-CFO of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I'd like to advise that this conference is being recorded today. And now I pass the floor over to your host, Mr. Nicolas Bornozis, President of Capital Link and Investor Relations adviser to Tsakos Energy Navigation. Please go ahead, sir. Nicolas Bornozis: Thank you very much, and good morning to all of our participants. I am Nicolas Bornozis, President of Capital Link and Investor Relations adviser to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the 2nd quarter and 6 months ended on June 30, 2025. In case we do not have a copy of today's earnings release, please call us at (212) 661-7566 or e-mail us at ten@capitallink.com, and we will have a copy for you emailed right away. Please note that prior to today's conference call, there is also a live audio and slide webcast, which can be accessed on the company's website on the front page at www.tenn.gr. The conference call will follow the presentation slides, so please we urge you to access the presentation slides on the company's website. Please note that the slides of the webcast presentation will be available and archived on the website of the company after the conference call. Also, please note that the slides of the webcast presentation are user controlled and that means that by clicking on the proper button, you can move to the next or to the previous slide on your own. At this time, I would like to read the safe harbor statement. This conference call and slide presentation of the webcast contain certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect TEN's business prospects and results of operations. And at this moment, I would like to pass the floor to Mr. Arapoglou, the Chairman of Tsakos Energy Navigation. Please go ahead, sir. Efstratios-Georgios Arapoglou: Thank you. Thank you, Nicolas. Good morning, good afternoon to everyone. In the tanker market with still strong fundamentals, we continue to form extremely well. sticking to our well-known industrial model that the CEO, Niko Tsakos, has described many times, generating healthy contracted revenue under very strict cost control, as you see in the numbers. At the same time, we're selling all the vessels and replacing them with new state-of-the-art ships keeping a young fleet attractive to our customers. I will remind you that some time ago, we identified the lack of good rating on VLCCs. We are correcting this now. And as you've seen, we've gone ahead to order 3 new VLCCs with scrubbers [indiscernible] and 1. So we are rebalancing the portfolio, and we are filling a gap that we always wanted to fill. So again, the results, well done to Nikos Tsakos and his team, best wishes for every success going forward. So over to you, Nikos. Nikolas Tsakos: Yes. Thank you, Chairman, and good morning to everybody. It's a pleasure to be here. After the short summer lull, whereas in TEN, we did not experience such a lull because the company was very active during the summer months. We find it always interesting to make sure that during the slow seasonal months of the summer, perhaps is the best time do business when not everybody is around his desk. So we've been busy in August at the order in the 3 plus 1 vessel, taking delivery of in August and in July starting from June of our Suezmaxes and our shuttle tankers with long employment, selling older vessels and ordering, as the Chairman said, supporting the VLCC segment of our company, we have been traditionally a company with a larger number of VLCCs. And we renewed part of the fleet some years ago, and now it's very much time to come up with a strong environmentally friendly vessels, all of them built in South Korea in the traditional yards that we have been supporting over the years, like Hyundai, I mean we must be one of the very few companies, but we are very proud to take delivery of our vessels, thanks to our new building capacity and capability, we are just to deliver over 150 million new building in the last -- less than 30 years. And these vessels have been delivered from what I would say is the core peer group of shipbuilders in the world. We started in April with in Samsung. We moved in June to Hyundai in Korea, and we just renewed our relationship with what used to be called Daewoo, which we're just right now building VLCCs there. So the company is following this model of quality comes first. We are not -- we have not through the years, we have never cut corners. We have always done things the correct way by the book. And I think we are a proof but things can work when you actually follow your strategy follow the rules and always aim towards quality. This -- as mentioned in the press release, this has -- the beginning of the year and the first 6 months have been a period of turmoil mainly because we are big supporters of the open seas. And whenever sanctions and tariffs are imposed. Of course, this puts question mark and uncertainty in the market that we are facing. However, we have been able to navigate this, I would say, interesting new times successfully. We paid our first dividend in July. We're looking forward to pay the next dividend to announce it in November. And in the meantime, we are happy to see the appetite of the major oil companies for good quality vessels at very, very accretive rates. And with that, I would like to ask George Saroglou, our President, to give us a more detailed analysis, not very detailed, George, more detail of what has happened in the last 6 months and this subsequent period. George Saroglou: Thank you, Nikos. We are pleased to report today another profitable quarter. Tanker markets have remained healthy through 2025 to date. Energy majors continue to approach our company for time charter business. And as we speak today, total fleet contracted revenue, the backlog that we have today, the minimum is approximately $3.7 billion... Nikolas Tsakos: Which coincides -- equates to more than $120 per share, just to put it in share perspective. That's the limit. George Saroglou: TEN is one of the largest transporter of energy in the world. We have started with 4 vessels back in 1993, and we have turned every crisis the world and shipping has faced into a growth opportunity. Today, we have a pro forma fleet of 82 vessels, thanks to the company's crisis resistant model. During these 32 years, we have combined self-generated cash traditional bank lending and countercyclical capital markets fundraising in order to build the corporate fleet. Fleet modernity is an integral part of our operating model. We built vessels at the best shipyards. We acquired very modern, high-specification tonnage, and at the same time, we sell some of the older vessels in the fleet. We have built a young, diversified and versatile fleet covering both the conventional and specialized transportation requirements of our clients, which are mainly major energy concerns, blue-chip names with global risk. In Slide #4, we list the pro forma fleet of all conventional tankers, both crude and product carriers. The red color shows the vessels that trade in the spot market and our new buildings under construction. Since our last earnings call, we have added 3 new building VLCCs to boost our presence in a sector that we felt we needed to increase the number of vessels we operate. and with very good solid fundamentals as a big part of the VLCC fleet in the water is over 15 years. With light blue, we have the vessels that are on time charter with profit sharing, and with dark blue the vessels that are on fixed rate time charters. In the next slide, we list the pro forma diversified fleet, which consists of our 2 LNG vessels and our 16 vessel shuttle tanker fleet. We are one of the largest shuttle tanker operators in the world following the recently announced deal with Transpetro in Brazil for 9 high-specification shuttle tankers to be built in the Samsung shipyard in South Korea. We have 6 other tankers in full operation after recently taken delivery of both Athens 04 and Paris to 24, which commenced long-time charters to an energy major. If we combine the 2 slides and account only for the current operating fleet of 61 vessels, we have 24 vessels or 39% of the operating fleet with market exposure that is spot and time charter with profit sharing, while 53 tankers or 87% of the fleet is in secured revenue contracts, time charter and time charter with profit sharing. The next slide, we list our clients with whom we do repeat business through the year, thanks to our industrial model. ExxonMobil is the largest revenue client as we speak. Equinor, Shell, Chevron, Total and BP follow. We believe that over the years, we have become the carrier of choice to energy majors, thanks to the fleet that we built the operational and safety record, the disciplined financial approach and a strong balance sheet. The left side of Slide 7 presents the all-in breakeven costs for the various vessel types we operate in TEN. Our operating model is simple. We try to have our time charter vessels generate revenue to cover the company's cash expenses that is paid for the vessel operating expenses, finance expenses, overheads, starting costs and commissions. And we let the revenue from the spot trading vessels contributed to the profitability of the company. Thanks to the profit sharing element for every $1,000 per day increase in spot rates, we have a positive impact of $0.10 in the annual EPS based on the number of 10 vessels that currently are exposed to the spot markets. We have a solid balance sheet with strong cash reserves and the fair market value of the fleet is $3.8 billion against [ $1.8 billion ] debt, and the net debt to cap is around 42%. Fleet renewal and investing in eco-friendly greener vessels has been key to our operating model. Since January 1, 2023, we further upgraded the quality of the fleet by divesting from our first-generation conventional tankers, replacing them with more energy-efficient new buildings and modern secondhand tankers, including dual fuel vessels. In summary, we have sold 17 vessels with an average age of 17.3 years and capacity of 1.4 million deadweight ton and replaced them with 33 contracted and modern acquired vessels with an average age of less than a year and 3.4x the deadweight capacity of the vessels we sold. We continue to transition our fleet to greener and dual fuel vessels. We are currently one of the largest owners of dual-fuel LNG powered Aframax tankers with 6 vessels in the water. The fundamentals continue to be good as global demand grows year after year. OPEC Plus really accelerated further the voluntary production cuts, economic sanctions, wars, sanctioned list and tankers and geopolitical events affect our tanker market positively the savings happening on freight rates. And while the tanker order book remains at healthy levels as a big part of the global tanker fleet is over 20 years and it needs to be replaced soon. And with that, I will pass the floor to Harrys Kosmatos, who will walk us through the financial performance of the 2nd quarter. Harrys Kosmatos: Thank you. Thank you, George. So let me start with the first half highlights. With a slightly larger fleet, both in terms of vessels and deadweight tons when compared to the first half of 2024, TEN during the first 6 months of 2025, continued to place more tonnage on time-charter contracts to adhere to the long-term needs of its clients. As a result, during the first 6 months of 2025, TEN secured charters, including those with proper [ term ] provisions increased by about 14%, while spot contracts experienced a marked decline by about 27%. A point of note, however, is the company's continued belief in the market, which despite TEN's limited exposure in the inherent volatile spot market, which has happened somewhat from prior periods of the recent past has increased its presence in profit sharing contracts by about 28% from the 2024 1st half in order to capture the upside on are expected to provide starting with the upcoming winter months. In addition, during the first 6 months of 2025, 5 vessels underwent scheduled dry dockings from 8 in the same period of 2024, which when combined with the shift in employment patterns explained above, resulted in an increase of fleet utilization from 91.9% in the first half of 2024 to 96.9% in the first half of 2025. As a result, TEN's 62 vessels in the water fleet generated $390 million of gross revenues during the first half of 2025 from $415 million in the spot heavy 2024 first half, averaging a healthy $30,754 per ship per day. The aforementioned shift in employment patterns led to a material reduction in voyage expenses from $83.4 million in the first half of 2024 to about $68 million in the 2025 first 6 month, a $15.5 million reduction. In a similar fashion, charter hire expenses fell from $11 million to $6.6 million, a $4.5 million improvement during the equivalent 6 months time frame. Vessel operating expenses, reflecting the somewhat larger fleet, both in terms of numbers and vessel sizes were at was $102.3 million, slightly higher than 2024 first half level, equating to a daily average expense of a still competitive $9,743 per vessel. A similar pattern was evident in both depreciation and amortization expenses, which closed the first half of 2025 at $83.2 million, up $6 million from the 2024 period. Unlike the 2024 first half, these results included a near $49 million capital gain from a series of vessel sales. Such gains for the 2025 1st half were reduced to just $3.5 million as a result of the sale of the 2009-built Suezmax tanker during the 1st quarter of 2025. Inclusive of these gains during the first half of 2025 TEN's operating income settled at near at about $111 million. Interest and finance costs during the 2025 was part of a somewhat lower interest rate environment and 2 refinances of lower margins were $49 million from $35.2 million in the same 2024 6-month period and over $6 million improvement. Interest income during the first half of 2025 reached $5.5 million. general and administrative expenses for the first half of 2025 were $23.1 million, incorporating a management incentive and stock compensation plan. Reflecting all the above, the company generated a net income for the first half of 2025 or $64.5 million or $1.70 per share. Adjusted EBITDA for the first 6 months of 2025 came in at $193.2 million, while total debt net of $287 million of CASA fund settled at $1.4 billion, leading to net debt to capital of accountable 43.6%. And now let's go into the 2nd quarter highlights. During the 2nd quarter of 2025, the employment shift to world secured employment was equally evident as available under time charters and profit-sharing contracts increased by 12% from the 2024 2nd quarter, while based on the spot voyages dropped precipitously by 31.5% and leading to fleet utilization increasing to 96.6% from 92.4% in the 2024 2nd quarter. Worth highlighting here is the 30% increase in total debt of profit-sharing contracts emphasizing intense employment strategy of downside protection with upside optionality. Resulting from the above and reflecting again a somewhat softer but still healthy market from the 2024 2nd quarter and after having the 3 vessels in dry dock TEN's fleet generated $193 million of gross revenues equating to $30,767 per vessel per day, a healthy performance. Voyage expenses, again, due to later days of spot contracts declined by about $10 million from the 2024 same period, while short hire expenses also experienced a drop to settle at $3.3 million from $5.1 million in the 2nd quarter of 2025. Operating expenses and not indicated earlier due in the first half overview were just $3 million higher from the 2024 2nd quarter at $52.7 million or $9,982 per ship per day. A still competitive level, thanks to the efficient and profit management performed by TEN's technical monitors. Depreciation and amortization costs during the 2025 2nd quarter and again reflected a slightly higher vessel classes in the fleet were at $42.1 million from $39.5 million in the 2nd quarter of 2024. During this 2nd quarter, there were no gains or losses on vessel sales registered compared to the 2024 2nd quarter, which recorded capital gains of $32.5 million. As a result, operating income for the 2nd quarter of 2025 settled at $50 million. increase in finance costs during the 2nd quarter of 2025 were $5 million lower from the 2024 2nd quarter up $25 million while interest income reached $3.2 million. Taking all the above into consideration TEN during the 2nd quarter of 2025, generated a net income of $26.8 million, which equates to $0.67 per share. In ending adjusted EBITDA for the 2025 2nd quarter was up approximately $94 million. And with this, I'll pass it back to Nikos. Thank you. Nikolas Tsakos: Thank you, Harrys, for your detailed analysis. And with this, we would like to open the floor for any questions or input that you may have. Thank you. Operator: Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] My first question comes from Poe Fratt with Alliance Global Partners. Poe Fratt: Can we talk about the new build orders for the VLCCs? As you mentioned on the last quarterly call, you previewed -- it seemed to preview that. Can you talk about how you decided to go forward with new builds versus acquiring assets in the open market? Nikolas Tsakos: Yes. Thank you. Well, we are always looking for good quality vessels in the open market also. So I mean, we do not exclude this to happen. We took advantage of the strong secondhand market to sell vessels -- so perhaps it is -- when it's a good time to sell vessels and we made a significant cash profit and the profit overall on the sale of 18-year-old vessels, it means that it's not perhaps the best time to acquire secondhand vessels because they are pricey. So I believe that it's very, very good for us. We are very competent and experienced new building site offices in Korea and Japan in the past. So it has been -- it makes much more sense since we are building a big number of vessels in the first class Korean yards with the site officer to build the environmentally friendly vessels of the future. that are actually following all the upcoming regulations, and they are built at the yards to traditional build ships. So I think VLCCs has been part of our portfolio that we are lagging behind. And I think that's a very good opportunity to find -- we believe the reason we are able to run ships at, I would say, significantly lower operating expenses than a big part of our peer group is because we tend to build good quality ships and sister vessels, and that helps us very, very much in keeping operating expenses and the experience of our seafarers, the crew and the captains. It's like running, let's say, a very similar fleet of airplanes or a very similar fleet of Boeings or -- in order for -- to have the training for the crew, the spare parts for all the vessels, and it gives us a lot of flexibility. Poe Fratt: Great. And then if you could clarify whether you exercise the option that you had when you first announced the VLCC new builds? And then secondly, typically, you -- when you have a newbuild, you typically have a contract or a time charter set up in advance of delivery. Do you currently have a time charter in place? Or when do you anticipate securing a time charter for the Vs? Nikolas Tsakos: Yes. I think what we did is we opted for the option and we actually got an extra option for another couple of months. because we believe that it's good to maintain this price levels going forward in a very uncertain environment. So the options are always valuable. So actually, yes, we have 3 foreign vessels right now, plus an additional option in the same yard in the same quality. The -- right now, the VLCC market is a very hot market. We have actually 3 of our existing VLs are opening in the next 6 months, and we see a lot of appetite. I mean we're in the process of renewing some of the existing VLs going forward with significant increased base rates and profit sharing arrangements. And the new orders,, we are -- there is a lot of appetite, but it's still early to make a decision. So we will be taking care of more of the 3 existing ships, very young ship also themselves. But it gives us with 6 VLs and perhaps more coming it's starting to get critical mass in that very I would say, interesting segment of the tanker market. Poe Fratt: Great. And then could you preview -- I know that you talked about declaring the second half dividend in the November time frame. Can you preview it at this point in time? Or is it just too early? Nikolas Tsakos: Well, I think it is early, but we are looking at a healthy market. So we are expecting to -- for the Board to opt for a healthy dividend. So I think we are in a good space, I would say. Poe Fratt: Okay. And then on the last call, you talked about potentially given the current valuation in the equity market, you talked about potentially restructuring the company or looking at alternatives maybe splitting the company into a company that has twofold: 1 with long-term time charters in place, especially on the -- when you look at the shuttle tankers versus assets that have shorter-term time charters. Any progress or any comments on that type of move? Nikolas Tsakos: First of all, we are not restructuring the company. We have never restructured any part of our debt or the company. So I think TEN is one of the few companies that, I'm just joking, but we're not restructure. We're always thinking out of the box. I think we are very -- we are very happy to where we are today with the growth of the company, with the profitability of the company. One thing that I would say, like other shipping companies, but especially ourselves, we are disappointed is with share performance, and we're trying to -- I think our company should be -- should have easy the market cap of $2 billion from where it is today. But -- so we're always thinking of ways to get shareholders' interest and appreciation. We are -- I think we are going through a period that, with inflation being around, we are going through a period where real assets matter. So I think this is -- and we have very, very, very real assets and quite undervalued real assets. So I think what we want to do is to be able to have a much more efficient -- to make it more efficient for our shareholders. So we have thought of perhaps having one of the largest tanker fleets plus a lot of long-term business and specialized vessels to do something down the road in the next 8 quarters, I would say, and perhaps putting the more specialized vessels in a vehicle that, of course, TEN will be by far the major shareholder. But I guess, these are ideas that we are discussing with our investment bankers, but there's nothing imminent, I would say, for the next 4 quarters. Poe Fratt: Okay. And then could you preview or give me an idea of sort of the direction of OpEx and G&A over the second half of the year. It looks like the first half G&A especially might have had some onetime items in it. Nikolas Tsakos: Yes. Well, I think we are putting a lot of emphasis, we are running things hands on and we look at our technical management -- managers almost on a weekly and monthly performance. We are facing some inflation issues, but I think we have been able to cap the majority, and we still have an average for such big diversified fleet, which includes DP vessels, which the operating expense of those ships are in the high teens. And we're still under $10,000 on operating expenses. So I think we put a lot of emphasis in running a tight ship literally. I believe that we will be able to maintain the expenses there. Operator: There are no further questions at this time. At this point, I'd like to turn the call back over to Mr. Tsakos for closing comments. Nikolas Tsakos: Well, again, thank you for attending our call. In the first 6 months and I think moving forward has been an exciting time for the energy markets. I believe that we are here to see even more solid results coming forward. The energy part of the world economy is becoming more and more important. The players right now are getting more. We're seeing shipping energy part of the business, where really you have a 2-tier market. You have vessels and they're growing in numbers that are, I would say, they do not serve the core part of the business. And this which allows us with modern high-specification vessels to be able to have more opportunities in order to serve our major clients. So I believe I am optimistic that we're going to be seeing at least in the near future, another 18 months over a very solid, perhaps getting even stronger market. And we see also actions from the administration in the United States to support shipping, which is important because shipping and energy transportation have always been in the background. I mean, we provide a significant service, a very big service for the world economy. But in a way, we are kind of the unsung sailors, not heroes, the unsung sailors of the world economy. And I don't think it's good to see that people are paying much more attention to actual the services we're doing, be it on the LNG, be it on the crude or on the product segment. I will be in the United States in the next couple of weeks, having meetings specifically on ways where simple transportation and especially energy transportation is going to be appreciated and more and assisted more. And I think we have -- it is going to be good for the charterers and the ship owners. So I think we have an optimistic view going forward. And with that, I would like to thank everybody. Ask Mr. Arapoglou, our Chairman, if he wants to have a closing statement. Efstratios-Georgios Arapoglou: Thank you, Nikos. Just to say that we believe that market does not -- continues not to appreciate the nearly $4 billion of minimum contracted revenue for TEN. and keeps looking at us like any other shipping company with high volatility and low predictability of income and revenues. We feel that perhaps the market has begun focusing on it, but we feel that the value of the stock is much higher than where it is today. And as far as dividend is concerned, the CEO just mentioned that the Board is going to look at the results of the third quarter and be able to perhaps announce -- make a decision on the dividend in a few months' time. So we continue to be very positive on that front. So with that, thank you very much. Thank you, Niko. Nikolas Tsakos: Thank you. And I think we are -- we will be -- I think the team will be attending events in London, on for London International Shipping Week, including capital league event where our CFO is going to be a speaker and the following week in New York. So hope to see you face-to-face. And thank you very much, and have a good rest of the day. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. I'm Vassilios, your Chorus Call operator. Welcome, and thank you for joining the Sarantis Group conference call and live webcast to present and discuss the Sarantis Group's Half Year 2025 Financial Results. With us today, we have Mr. Ioannis Bouras, Group CEO; and Mr. Christos Varsos, Group CFO. [Operator Instructions] The conference is being recorded. [Operator Instructions] Please be reminded that this presentation contains the formal disclaimer with regards to forward-looking statements. The presentation and discussion are conducted subject to this disclaimer. At this time, I would like to turn the conference over to Mr. Ioannis Bouras, Group CEO. Mr. Bouras, you may now proceed. Ioannis Bouras: Hello, everyone. I would like to thank you for joining the call today. We're very happy to have you all here. We are ready to start. So first of all, I would try to highlight -- we give some highlights at the glance of the first 6 months of 2025. What we would like to confirm is that our strategy remains the same. We are consistent and very precise with our strategy designed over the last 3, 4 years and consistent execution is also critical for our performance. This year, the first half of 2025 has been massive in terms of investment and energy behind the CapEx investments in our group, and we are on track on that, where all these CapEx are supporting the growth for the future. The Stella Pack integration is in the final stage as we are working right now on combining warehouses in Poland for the local operations plus all the networks in the markets. And of course, a significant part of our CapEx investments directed to Stella Pack upgrade -- factory upgrade, supporting our regrnulation capabilities in Poland. On the digital transformation, we are well on track. It's also a significant amount of energy from the team to deliver our digital agenda. We are -- of course, we'll have some details later on that. 2025, we continue our investments in our people as the capability enhancement of our people and of course, the leadership development is critical for our future of our business. And another highlight is the expansion of our footprint in the U.S. market via our Sun Care brand, Carroten, which is well advanced and has been also significant for the first half of the year. From a commercial excellence point of view, the priorities and strategy remains the same. The HERO SKU philosophy continues and even we are working towards that. We're applying a lot of rules of revenue growth management in the market, focusing on the mix of the portfolio, the investment strategy, promotional strategy and how we are delivering the growth via the categories that are improving our profitability as a business. On the innovation side, many new things coming through. And of course -- but as always, we are focusing on fewer and bigger initiatives. And the international expansion, as I mentioned, is driving growth and strengthening, of course, our select international markets that is one of our key priorities in our strategy. So in terms of numbers, of course, from a top line point of view, plus 0.5%. It's -- we're keeping -- just to remind you that last year, first half was very, very strong. So we're keeping our power in the market. On gross profit, we have also equivalent growth. But when it comes to EBITDA, EBIT and EBT and net profits are double-digit growth is coming through. And this is happening, of course, because of our operational efficiency, cost controlling and of course, all the work happened over the years to make the organization much more efficient, plus the mix of some of the categories are helping towards this direction. Now when it comes to category, as you can see clearly here, as we always present, Beauty and Skin and Sun category has provided significant growth in the first half of the year, plus 22.7%. This is, of course, includes the international markets growth where U.S. also is critical to this journey. Personal Care. Personal Care, there are some pressures in this category. Of course, intensive competition is coming to the game. There are things happening in the market that are affecting the top line growth, but still is one -- it's a very big category for us. Home Care Solutions, also similar. We have a pressure in the market where it's coming from demand from specific markets. And this is also something that we are working on. Strategic partnerships, we have a 2.1% growth, and this is coming mainly because of the work that we are doing with our strategic partners on some of the innovations they are providing for us, plus some new smaller businesses that they are coming to our portfolio. Private label has been minus 16.7%. We have discussed this in the past that private label is a business that is supporting our supply chain agenda for Home Care solutions category. So key priority for us also is the profitability of this category. It's not -- as you will see later, it's not a massive profitable category for us. So we have to balance between the growth and the profits at the same time. So although the category for us is dropping by 16% from a profit margin point of view is not significant. On the right-hand side, you can see that the branded business of Sarantis Group for the first 6 months is growing by 2.5%, while in private label, we are dropping by 16.7%. Now a bit of an update on international expansion. As we said, Skin and Beauty is a significant growth category for Sarantis Group as a whole. And within that category, the international expansion of beauty and skin is a critical part in our agenda. We have set up this priority 2, 3 years ago. The projects that we are running in different parts of the world are doing very, very well with, of course, U.S. been exceptionally -- running exceptionally well for the first half of 2025. We are working with some of our portfolio from a planning point of view and becoming a very successful in the U.S. market in different retailers, either online retailers or offline retailers, where this year, of course -- and this is also increasing our appetite for further initiatives in the market for the years to come, right? So this is something that is helping us a lot. And of course, we'll put a lot of energy and efforts behind. On top of U.S., though, we have on the other side of Earth is Australia, where the news are that we have listed in one of the leading retailers in Australia, one of the 2 biggest retailers in Australia. So it's going to hit the market in the coming summer for summer, meaning Australian summer, November, December this year. With Philippines, we continue with our Bioten very strongly. Of course, the brand is launched many years ago. So we are now quite mature. But of course, the product is developing nicely there together with Clinea. And recently, we had some openings in the Middle East with Saudi in the #1 retailer in Health and Beauty and United Arabic Emirates with the second -- #2 retailer in Health and Beauty with our Carroten brand in Middle East. So plenty of initiatives here. And of course, as a team, we are working behind all this and some others that they are rising over the last period. When it comes to geographies, so here is the usual table about the different markets. As you can see, Greece is growing nicely. It is not only the international markets that they are growing by 52%, but also Greece domestic market, which is the biggest, it would a growth of 3.5%, which is very, very positive. And Poland is -- overall, if you see, there is a minus 4.7%, but this is mainly due to the private label business, which is included in Poland country. While in the branded portfolio, we are growing 1.1%. Romania, the first 6 months has been challenging for Romania market. There are several issues on the market. We believe that going forward, things will get better. There are some political things happening in the market affecting the overall demand from the consumer. When it comes to Czech and Slovakia, very, very good growth and continuing growing from the previous years. West Balkans also have been facing some challenges, especially in Serbia over the last months. Ukraine, yes, minus 12%. But just to remind you here, we have disposed some business from Stella business that we bought last year, mainly private label or tactical business that they had in Ukraine. So if you compare like-for-like, this is minus 1.2%. So actually, Ukraine business for us is flat versus 2024. When it comes to Bulgaria, it's again, a smaller market, flat, and then Hungary is developing by plus 5.2%. So this is a picture from the geographies point of view. And now regarding all the things that I mentioned at the beginning of the highlights, 3 major pillars here. One is the digital transformation. So if you remember, we said before that we are implementing new SAP for our business and plus other systems together with that. So where we want to build a unified data platform across our markets. So the go-live of SAP went first in Greece, Czech Slovakia and Hungary, very successfully in the Q1 of 2025. And now we are preparing the Wave 2 for January '26, which includes West Balkans, Romania and Bulgaria. The whole project on this one will be concluded beginning of '27 with Poland and Ukraine. So we are well advanced now with our plans. Team is very confident, and I think the implementation is successful and without disruptions. Now the integrated business planning completed. This is already completed in June this year. So we have a new platform for planning and for the whole organization, critical to manage our complexity to include our commercial planning together with the supply planning. and, of course, be more accurate in our forecasting and our planning accuracy. The new -- we have new digital tools coming together with the new systems that are helping to optimizing our operations and workflow and processes. So this is critical. On the manufacturing upgrade, as I said before, the Stella Pack regranulation update is well on track. And of course, the whole project will be completed by Q4 2025. And I think this is critical as the investment is around EUR 15 million, and this investment is critical for making sure that our supply chain of garbage bags is one of the most competitive supply chains in Europe. And of course, having a fully recycling granulated materials for producing our garbage bags, which is a differentiator for us as well. Our [ Innovita ] plant because of the expansion of our Skin Care business and our export business of the sun care, we have another EUR 10 million investment program that is going to be completed by Q1 '26. But of course, the majority of that will be happening also this year, increasing our capacity for our Beauty and Skin and Sun Care sales. All of these CapEx investments are linking also our sustainability and ESG agenda, where energy efficiency is also critical for the business. And of course, all the automations around our plants in Greece and Poland are critical also to improve our productivity. On the ESG agenda, we have commitments. We are following through properly our agenda on delivering the commitments that we promised. Now we are in the position to validate with SBTi our near-term climate targets. Also, we are working on with the digital agenda to have a proper accurate and fast way of measuring our progress. So everybody will be accountable and dedicated to the delivery. We are working with the ratings right now, CDP and EcoVadis to get proper rating and also -- and this is also part of our agenda of ESG. So that's an introduction from my side with the basic numbers. I will hand over to Christos right now, Varsos, our CFO, to give us more detail about the numbers and the financial results. Christos Varsos: Thank you, Ioannis. Let me now provide some details behind the key numbers Ioannis described. Our net sales grew marginally compared to 2024 with focus on our core categories in Beauty Skin and Sun Care, which influenced favorably the mix of sales. I remind you that we are cycling a very strong half year 1 in 2024 when we had very hot summer across Europe, which was not the case this year for several of our countries. Our gross profit grew marginally with a gross profit margin remaining at 38.6%. EBITDA grew significantly by almost 16% to EUR 48.3 million, leveraging on the mix of categories of our core portfolio with strong growth, as mentioned, our beauty skin sun care category, supported by our export business, cost benefit from initial phase of commercial integration of Stella that was completed last year, while controlling OpEx overall in our business. EBITDA margin grew by 200 bps coming to 15.9%, plus EBIT at EUR 37.5 million, an 18% increase versus EUR 31.8 million last year and EBIT margin of 12.3%, an increase of 181 bps. Financial expenses in 2025 improved significantly following the early prepayment in the last quarter of 2024 of EUR 18 million of debt, combined with lower interest rates. We will continue prepaying early debt, supporting further improvement in our earnings per share. Following the improvement of financial expenses, our earnings before tax grew by 21% to EUR 36.5 million from EUR 30.1 million in 2024 and PBT margin grew by 200 bps to 12% from 9.9% last year. Net income, EUR 29.2 million, up by 20% versus EUR 24.3 million in 2024 and EPS at EUR 0.46, a 22% decrease to prior year of EUR 0.37. Moving now to our product categories, so you can understand more about the dynamics in the first 6 months of the year. Beauty, Skin and Sun Care. As we have already mentioned in our 5 years plan, achieving disproportional growth in the Beauty skin and sun care category is a key pillar where we build our organic growth strategy. In half year 1 2025, we grew by 22.7% to EUR 55 million, supported by our Sun Care sales that continued accelerating this year with the help also of our export business that Ioannis described. Category EBIT grew by 72% and EBIT margin by 800 bps to almost 29%, affected by the mix within the category. Personal Care. In terms of Personal Care, which is a core profit generator for us, we have a decline of 3.5% of net sales, as Ioannis described, compared to prior year, but EBIT grew by 13% to reach EUR 8.5 million EBIT with EBIT margin of 16.7%, an improvement of almost 250 bps compared to prior year. Home Care Solutions. Home Care Solutions declined by 2.9% to EUR 101.7 million, affected by pressure in some of our markets like Ukraine and West Balkans, which are mostly represented in this category. EBIT declined by EUR 1.5 million to EUR 11.1 million, largely affected by the sales and the [indiscernible] expenses of Stella supply chain as we are optimizing our supply chain network while continuing investing heavily. However, the real support and the benefits from these investments and from the optimization will be benefiting mostly 2026 rather than the current year. Private label sales were mainly impacted by continued rationalization of the private label product portfolio, especially in terms of Stella Pack products. We expect that the completion of our CapEx investments in the granulation lines will support us not only to be more cost efficient, but also will improve our overall competitiveness, both for our private label and branded portfolio. As mentioned in the past, we use private label on a tactical basis to absorb costs from branded business will over time increase branded business and decrease the private label portfolio. Strategic partnerships. Finally, in our strategic partnerships, we had a healthy performance, increasing our sales by 2%, while improving our EBIT by 9% to EUR 2.8 million, improving slightly also the margin. As mentioned in the past, we use the category for market leverage, and we are focusing in fewer and better relationships. For the total group, we had a solid net sales performance, reaching EUR 304 million of net sales. EBIT grew, as mentioned, by 18% to EUR 13.5 million, and EBIT margin grew by 180 bps to 12.3%. Now turning to our geographies. As discussed in the past, we wanted to share with the investor community the different dynamics outlining our performance. For Greece, we are splitting the sales between the domestic market and the exports to selected international markets. For Poland, we're splitting Poland between branded products and private label as this affects mainly the geography of Poland. Greece grew in total to EUR 97 -- almost EUR 98 million, an increase of almost 10%. In terms of EBIT, this grew by 56% to EUR 19.3 million and EBIT margin grew by 600 bps to 19.8%. If we look at the subsegments, Greece domestic business net sales showed a healthy growth rate, posting an increase of 3.5% despite citing a very strong half year 1 2024 due to Sun Care sales with an EBIT of EUR 12.1 million, a 32% increase to prior year and 15.1% margin, an improvement of more than 300 bps affected by mix of categories and cost control. In export markets, we grew by 53% to EUR 17.6 million and EBIT to EUR 7.2 million, which is more than double compared to prior year. As you see, exports have much higher EBIT of almost 41%, and that's why we strongly believe in this segment as an accelerator to our growth for our 5-year plan. In Poland, the total business had net sales of almost EUR 90 million, a 4.7% decrease versus prior year, with EBIT also declining affected by the private label portfolio. The branded portfolio grew by 1% to EUR 64.3 million, while EBIT decreased by 7.6%, coming to almost EUR 6 million, including also supply chain integration expenses, as already mentioned. Private label declined by 6.7% on the back of rationalization of contracts in the product portfolio, especially for Stella, with EBIT being similar to prior year. In other territories, we had a mixed picture driven by specifics in each country. Romania, as already mentioned by Ioannis, had a slower start this year with EUR 46 million of net sales, a decline of 5% versus prior year, cycling a strong performance in prior year. In terms of EBIT, Romania achieved almost EUR 7 million, representing a decline of 7% with flattish EBIT margin at 15%. Czech and Slovakia accelerated growth by adding 8% more net sales, reaching almost EUR 25 million with EBIT of EUR 3.4 million, a 23% increase to last year. In terms of EBIT margin, this improved by 160 bps, reaching 13.8% West Balkans showed a decline in the net sales of 4% to EUR 19 million, mainly impacted by the Serbian market with some arrest in the year and market pressure. However, in terms of EBIT delivery, West Balkans managed to grow EBIT by 5.6% to EUR 1.6 million and EBIT margin 8.6% with support from cost control. For Ukraine, it is a year of pressure in the results as identified already from our full year results discussion. However, Ukraine specifically was also impacted by the sale of Stella Ukraine completed at year-end. Stella Ukraine for the record had EUR 1.4 million of sales in half year 2024, EUR 100,000 EBIT. Without this impact, the net sales would be almost flat and the EBIT would be growing by 4.5%. As mentioned, we are working with resilience in Ukraine and expanding our portfolio outside the Home Care category, which is the key category for Ukraine, which still -- and still it is a leading business in the area. Moving now to our healthy and strong balance sheet. As we have discussed also in the past, we maintain a strong balance sheet, which can support our organic growth, the next steps on our transformation agenda and M&A activities. As of 30th of June, we had a net debt of EUR 32.8 million compared to EUR 43.9 million net debt as of 30th of June 2024. I remind you that due to the seasonality, our lowest net debt position -- our worst net debt position is on 30th of June, whereas the best is on 31st of December. Already today, today, I'm talking about today, 10th of September as we speak, our net debt has improved more than EUR 20 million compared to the June numbers, standing today at around EUR 12 million. Thus, by year-end, we should be again close to net cash position. During half 1, we have received the EUR 20.8 million installment from Estee Lauder with the final one expected for January 2028. As discussed also in the full year results, in the last quarter of 2024, we have made early debt prepayments of EUR 18 million, reducing our financing expenses. We have now committed and formed one of our lenders for EUR 5 million early prepayment to be executed next week and further enhancing further our earnings per share. In half 1 2025, we have generated free cash flow of EUR 13.4 million with our working capital improving compared to last year by 2.3 days. Enhancing our shareholder value is key for us. EPS reached EUR 0.46 from EUR 0.37 last year, an increase of more than 22%. During the first half, we paid dividend of EUR 20 million or EUR 0.31 per share, representing a 33.3% increase compared to the EUR 15 million paid last year. This represented a 43.5% payout ratio versus 38.2% payout ratio last year. And as you remember, as per our dividend policy, we said that floor or the minimum we're going to pay will be 38% and more. I would like now to provide an update on our CapEx for this year. We are assuming less CapEx this year with respect to the distribution center next to our Nova factory due to later commencement of the project. We are now in the competitive process to commission the construction company that will build it for us, so we expect to start within the next month. This will mean that only EUR 1.5 million from the EUR 7 million initially assumed will be spent this year and the remaining amount of EUR 5.5 million will be invested next year. The rest of CapEx remains the same as per our guidance back in March. Thus, our new CapEx expectation for 2025 is EUR 34.5 million from EUR 40 million we communicated earlier this year, while '26 -- 2026 will be EUR 35.5 million from EUR 30 million initially communicated. This will impact obviously favorably the free cash flow generation delivery by -- for full year 2025 by EUR 5.5 million. Finally, we would like also to update you on our 2025 outlook. We reiterate our 2025 profitability guidance. I remind you that our estimations for 2025 are EBITDA of EUR 92 million, improved by 12.7% versus 2024. EBIT to EUR 70 million improved by almost 3% versus 2024. For net sales, we now expect a growth of 2% versus 2024, which will bring our net sales for 2025 to EUR 612 million. Thank you. Operator: [Operator Instructions] The first question comes from the line of Svyrou Natalia with Eurobank Equities. Natalia Svyrou Svyriadi: I was wondering if you could -- if you have any indication on how we are -- exports are running into Q3 as we entered because we are talking about products that are summer care products. Should we assume that these are continuing also in Q3 and running rates are holding in this period also? And as I understand, with the expansion into Australia, we're trying to get the seasonality there. So maybe you could give us also an indication about the exports you are expecting in the other markets. And based on the experience you've already seen, what are you thinking? What numbers are you thinking there? That's one question. I also have a question again regarding exports. If you could remind us -- this is just a reminder, these are higher-margin products, higher margin actually and the products we are talking about. Could you remind us a range there? How much this boosts our EBIT line? Okay. These are the questions I have for now. Ioannis Bouras: Yes. Okay. On the export side, because, yes, Sun Care products is the majority of the growth coming for the export business. So the seasonality is critical. So until the first half of June of 2025, the majority of the sales are in -- so the second half of the year will not be the same, not the same momentum. Definitely, though, Australian business like Australia will help. But what we know is that it's not going to be near to the ones have in U.S. in the first half of the year. So you cannot put the same second 6 months for the exports. It's a slower pace, of course. And this is also helping, of course, the first half of the year from this category point of view. So just to remind you that last year, total year exports were EUR 19 million for the full year. And this first half is EUR 17.5 million, if I'm not mistaken, right? You said... Christos Varsos: EUR 16.5 million. Ioannis Bouras: EUR 16.5 million. So our expectation -- and also just to remind you, in the 5-year plan, we said that by 2028, we'll get to EUR 30 million. So it looks that this one is coming much faster. So the expectation of the year will be something a bit below -- in the area of EUR 24 million, EUR 25 million, right, just to give you the perspective. Christos Varsos: So practically, we'll bring this from 2028, most likely will be at this range in '26. Ioannis Bouras: But of course, you cannot expect the same rate of sales for the second half of the year because the majority still is in Northern Hemisphere is not in the South, is only in Australia in the South. So it's not enough to do the same. Now regarding the margin, I think Christos presented that the EBIT margin for export is around... Christos Varsos: 41%. Ioannis Bouras: 41%. So this is the accelerator from a profitability point of view, is presented in the presentation, right? So it is a margin that it is really accretive to the margin due to the structure that we have discussed in the past. So this brings much more. Natalia Svyrou Svyriadi: Okay. Great. Yes, I remember the margin around 30%. That's why I wanted to get this clear. Okay. Well, that's a good business coming in. Also, I wanted to ask something -- a follow-up. I just thought about that. Poland has been running, if I recall correctly, 1%, 1.5% on sales, the local market. But should we expect this to continue at this rate? Or should we see there -- not the private label products, the rest of the -- should we expect an acceleration there? It's one of your big markets. So I'm wondering how this should evolve? Ioannis Bouras: We're expecting to be higher. We don't have exactly the number to share with you right now. But of course, if you remember also because this is a general comment, this is not taking the opportunity because in the 5-year plan, we talk about 4.5% to 5% -- 4% to 5% growth, organic growth every year. So this year, what we said right now, we are guiding for 2% at the end of the year, including private label, including all the roles of the different categories. We are not changing the thinking and the mindset for the organic growth for the coming years. We believe that 2025 has been a little bit challenging in the sequence of some markets. And -- but we are not changing our strategy or say we are keeping our 5-year mindset and thinking behind the growth and organic growth. So we believe that -- and all the action plans we are taking in every country, in every category is to deliver these numbers. right? So what we are expecting coming to your question specifically is not only in Poland, but also in other markets that today showing a drop for the first half of the year to go back to growth and go closer to the numbers that we have in our 5-year plan. Operator: [Operator Instructions]. Christos Varsos: We can look at the questions that we have already received also in writing, so we can start answering that. And as if people want in the meantime, they can also continue asking questions. Operator: Okay. Great. There are no further audio questions. We will now accommodate any written questions from the webcast participants. The first written question comes from Iakovos Kourtesis with Piraeus Securities. And I quote, "What is your CapEx estimate for full year 2025?" Christos Varsos: We have actually, we included in the presentation. So as I said, we'll just -- we had EUR 40 million, now we have almost EUR 35 million, EUR 34.5 million. And we're only switching EUR 5 million to next year because of the later start of the distribution center in [ Nofta. ] So for this year, instead of EUR 40 million will be EUR 35 million, EUR 34.5 million. Next year instead of EUR 30 million will be... Operator: The next written question comes from [ Giorgio Andreopoulos ] with Piraeus Asset Management. They quote, "Given the slowdown in sales within the Personal Care segment, do you anticipate this trend continuing into the second half of the year and into 2026? Additionally, what strategies are you implementing to remain competitive in that market? Finally, should we expect any changes to the sales guidance provided in the Q1 report for this year or subsequent years, 2026, 2027 and 2028 sales growth of 5.5%. And what should we expect in terms of EBITDA margin in the medium term?" Ioannis Bouras: Now starting from the end, I think I said something before, but now I can reinforce, as we speak right now, we are keeping the 5-year plan and the guidance of the top line and the EBIT margins the same. Of course, this year is 1 year as we are moving on following the closure of the year in March and of course, the guidance for 2026, things can be a little bit -- but this is what we keep right now, haven't worked another plan. So that's the plan that we have. Of course, as you remember, it was doubling the EBITDA when we presented. So it's a strong and challenging plan. But this is what we keep and the mindset of the growth as a company, organic growth is still here with our strategy that we are implementing. Regarding the Personal Care specifically, I think I also -- Christos mentioned about the top line in the first half, but also the profitability growth. these categories are quite competitive, and we have strong plans behind to bring back to growth and of course, to even further grow in our coming years. So this is a continuous battle in the stores. And of course, with everybody participating in this category. So competitors in this category coming from new product, innovation, coming from promotional strategies, from advertising strategies, all this mix that is critical for all FMCG companies. So we are working on all these plans behind with our big brands and our hero brands in different markets or the whole region. Operator: The next question comes from Iakovos Kourtesis with Piraeus Securities. And I quote, "Do you expect the recent VAT rate increases in Romania as of 1st August 2025 to further affect demand in the country? Do you have a specific strategy to cope with this?" Ioannis Bouras: Definitely, any measurements that are affecting the consumer income, they are not positive for the market, right? But this is something is not only in Romania, but other markets have other measures. So the #1 priority for us is to be competitive and of course, adaptable to the new reality, and this is what we do. Competitiveness, meaning that you have to be aware about the consumer disposable income. And of course, what is your promotional strategy and how you're promoting your brands and taking every little opportunity from the market. This is the way we work. This is the way we worked before, and this is the way we keep working right now. So there is no magic recipe. There is one thing. We have to do multiple things right in order to compete. But definitely, things like that are affecting the consumer demand. This is for sure a reality. Operator: The next written question comes again from Iakovos Kourtesis with Piraeus Securities, and I quote, "Could you provide us with an update on the third quarter 2025 trading for specific international markets, Poland, Romania and Serbia. Do you see improved trends in these markets?" Ioannis Bouras: In the third quarter, of course, not ending. So September is a significant month for all these markets because it's true that July and August are months that are not heavy in terms of sales and, of course, of activities. So we have to wait to see the closure of September. But again, the things are not like they are on flying. There are, of course, continue there have been challenges in these markets, right? But of course, we still need to wait the closure of September. Christos Varsos: We're going to announce the third quarter end quarter in 24th of October or something like that. So we will have a full view on the September. And by then, we'll have also a portion of October. Operator: The next question comes from Emmanuel de Figueiredo with LBV Asset Management. And I quote, "Could you give more color on the seasonality of the business as skin and beauty grow more, does this mean the company become more have to weighted?" Christos Varsos: Thank you for the question. So if you remember the season in terms of seasonality, Q2 is a very strong period every year because of the sale of sun care. I remind you that we sell the sun, we start selling the sun. We produce it late in the year. Then first quarter, we actually send it to the stores and especially in the second quarter, then the stores sell it on the third quarter. So practically in every year, the first 6 months is the growth due to the sun care, which is seasonal, is much stronger. Obviously, we have seasonality at the year-end with gifting and with our selected business as well. But in terms of half 1, it is always the stronger pace in terms of growth of our revenue. In this respect, the duty scheme is growing, obviously, not only the Sun Care. So the Sun Care is what we're talking about. But as Ioannis already mentioned, we have the exports will be a slower growth on the second part of the year. So to your question, we're not becoming much more heavy half 2 weighted. We are still largely half 1 weighting. But again, this supports also the difference in the profitability. Operator: The next question is again from Emmanuel de Figueiredo with LBV Asset Management and I quote, "For 2025, should we expect a stronger second half than first half?" Christos Varsos: I think you have seen the first half and you have seen the guidance for profitability for the full year and for revenue. So in this terms, it is -- it's almost 50-50 in terms of net sales, if you think about it, EUR 304 million versus EUR 612 million. In terms of profitability, we maintain at the same pace. So I don't think that we're talking about stronger or less strong half 1. We mentioned about the exports and everything that continue growing, which improves also the EBIT margin. Operator: The next question comes from Georgia [indiscernible] Securities. And I quote, "Can you please elaborate on the reduction in your OpEx? Can you please discuss the impact of the changing product mix on your EBIT margin? Can you discuss your strategy on private label?" Ioannis Bouras: I think on the OpEx side, elaborate. I mean, all the investments that we started a few years ago, and of course, we are accelerating in 2025 with more digital investments and everything, including our way we do business. This is helping, of course, the cost of doing business, and that's one of the major objectives. And this is what we are doing. It's not a magic recipe, plus making an efficient organization. Of course, we can grow without increasing our costs. This is also critical from this side. This is meaning also we are challenging the way we do things. with new systems in place, we can challenge the way we did things in the past that were not that efficient. So efficiency in our business, meaning lower cost, right, definitely. Christos Varsos: It is a sequence of events as well. Don't forget that last year, we started integrating Stella, and we started getting the commercial integration, which has finished last year. So we're reaping the benefits now. Now we're doing the supply chain optimization, and we're actually controlling this, which you'll see much benefits coming in 2026. So the OpEx is not a drastic type of thing. It is -- we built on it, and we built the culture as well to be able to have this saving moving forward. Now... Ioannis Bouras: Product mix. Christos Varsos: Product mix. As you remember and we have discussed even in the 5-year plan, in our plan for organic growth over 5 years in order to double our EBITDA to EUR 120 million, we said that we want to disproportionately grow Beauty, Skin and Sun Care because this has the highest margin. And I think this 6 months is pretty obvious of this because we are improving largely in a product category that we're gaining large EBIT margins, whereas at the same time, we're rationalizing a category like the private label, which in terms, it didn't have a strong EBIT. So practically, we removed, if you think about it, we removed the balance that you see removed in private label really affected the bottom line. So this, you can see it going forward, and we believe that the acceleration also of the Beauty, Skin and Sun Care categories and the export, obviously, as discussed, will support very much the mix towards the direction that we've already communicated in the 5-year plan. Ioannis Bouras: On the private label because I think we said during the call, we said before private label in [indiscernible] is complementary to our supply chain as an activity. It is a big size. It's important for us for 2 things. One is fulfilling capacities and of course, keeping our competitiveness. On the other side, we are not going to build more capacity to serve private label. This is that we made it clear. And our objective is to build and grow our branded business over the years and gradually removing capacity from private label. Operator: The next question comes from Dimitris Giannoulis with Researchgreece and I quote, "What level of EBIT do you expect for the private label segment post rationalization? Which countries contributed in international sales in first half besides the U.S.?" Ioannis Bouras: In the EBIT of the private label, we don't expect to be -- it's going to be a single-digit EBIT, right? So this is positive. So this is going to happen. It's not going to change significantly our profitability because of the rationalization. Regarding the countries contributed national sales, we have countries like Middle East, Philippines, we have Australia and of course, we have some Middle East, as I said. And we have countries, the U.S. is a big part of the H1. Operator: The next question comes from John Kalogeropoulos with Beta Securities, and I quote, "What about further expansion abroad, examining any further opportunities?" Ioannis Bouras: Yes. I mean what we say internally, I mean, this is one of our growth pillars for the future, in line with our skin and beauty strategy that we have as a strategic pillar. And of course, some of the initiatives that we are doing in the markets are giving us the signal that our brands, whether it's skin care brands, Bioten, Clinea or our Sun Care brand, Carroten, they are well accepted by consumers in different markets because of the quality, because of the claims that we have, the seriousness behind the production and of course, the competitiveness in general. So as we speak right now, of course, we are scoping other markets around the world. Just to remind you, international business, meaning markets outside our territory, right? So whether markets can be in Western Europe can be an activation place for us, for our brands. And of course, accelerating markets like Australia and U.S. because U.S. we just started a year ago, less than a year ago. So we are having plans to expanding our distribution in the U.S. or bringing more products into the market, and we are well advanced with these plans for 2026. More news on that, we will have on -- either on October this year in the 9-month results or in the results of the year-end in March 2026. Operator: The next question comes from Bruno [indiscernible], and I quote, "The Romanian economy is currently slowing fast. What level of sales are you expecting for the full sales are you now estimating?" Ioannis Bouras: What we're estimating for the full year is to have a flat year for Romania or minus 1%. This is the number that we are looking at right now. Operator: The next question comes from Emmanuel de Figueiredo with LBV Asset Management and I quote, "How likely are you to perform any M&A? Do you have any open due diligence ongoing for bolt-on acquisitions?" Ioannis Bouras: Starting from the end, we have no any due diligence at this moment in time. From the M&A point of view, as you already know, Sarantis is always open and active on this field. As long as there are any targets that are in line with our strategy, where the strategy is in our categories that we operate in our markets that we operate here in the Eastern Europe and in our channels. So at this moment in time, we have no active due diligence process. But of course, there are opportunities out there, which may arise anytime soon or not. I don't know right now. I can't give you any information on that. Operator: The next question comes from [indiscernible] and I quote, "Anything in the M&A pipeline considering the potential return to net cash by year-end?" Christos Varsos: Starting from a net cash position, as you know, we are a cash flow generative business. Obviously, we have also committed debt and we have committed lines if we want to buy something. So in this sense, we have the framework, and we're actually in the market, as Ioannis described to have -- and we have things that we would like to buy. Obviously, they need to be -- wanted to be sold as well at a reasonable price. So in our strategy, we maintain and want to do bolt-on acquisitions. Obviously, it's a matter of timing. But we have all the capability internal and the funding to actually do larger things as well. Operator: The next question comes from John Kalogeropoulos with Beta Securities and I quote, "You mentioned lower CapEx and potential shareholders reward uptick. To what extent?" Christos Varsos: I mentioned lower CapEx, and I mentioned that we have higher free cash flow by EUR 5 million. What I mentioned as well was that we have a policy, a dividend policy that we're paying at least 38% of our net income as dividend. This year, when we saw also the profitability this year, we actually gave 43%, and that was the EUR 20 million. So it is not that it will be anything outside of our policy, and we'll continue making sure that we provide a good return to our shareholders and the good value for our shareholders. Operator: The next question comes from Bruno [indiscernible] and I quote, "Please explain what caused the large drop of sales in the private label segment. What is the outlook for sales in the private label market in second half?" Ioannis Bouras: I'll take the first part. I think we mentioned also while presenting that it has to do with rationalization of our contracts, especially of contracts, and we wanted to make sure that they actually are much more profitable. That's why you saw that despite the difference in the net sales line, practically nothing changed. So actually, we're doing -- we're removing the correct contracts out of the case. So... Christos Varsos: And also just to add here that some of the big customers that we have in private label, they have a bit of slowdown in sales as well. So we are not -- we are depending on also their activities in the private label. So this is also affecting. From the H2 on the private label, we don't expect any significant change versus H1. Maybe we expect things to improve. So we'll bring the level of sales minus 10% versus 2024. This is what we see right now. But of course, these things are changing right now. And of course, new discussions are happening in every -- with different types of customers for the year to go. Operator: Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you. Ioannis Bouras: I would like to thank you for participating in the call. I hope we explained and present our case properly. Thank you very much for the participation and the questions and talk to you soon in our future interactions, right? Christos Varsos: Looking forward for our next announcement in late quarter and obviously, to the continuous discussions with you, understanding more of our case and the execution of our 5-year plan. Thank you. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good evening.
Operator: Good day, and thank you for standing by. Welcome to Daktronics First Quarter FY 2026 Financial Results Conference Call. 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 this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brittany Jacobson, Corporate Administration Supervisor. Please go ahead. Brittany Jacobson: Thank you, Michelle. Good morning, everyone. Thank you for participating in our first quarter earnings conference call. During today's presentation, we will make forward-looking statements reflecting our expectations and plans about our future financial performance and future business opportunities. These forward-looking statements reflect the company's expectations or beliefs about future events based on information currently available to us. Of course, actual results could differ. Please refer to slide two of the presentation that accompanies today's call, our press release, and our SEC filings for information on risk factors, uncertainties, and exceptions that could cause actual results to differ materially from these expectations. During this presentation, we will also refer to non-GAAP financial measures. You can find the reconciliation of each non-GAAP measure to the most directly comparable GAAP measure in the appendix to the accompanying presentation slide, which may be found on the Investor Relations page of our website at www.daktronics.com. Our earnings release for the 2026 first quarter, which was furnished to the SEC on a Form 8-K this morning, also contains certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures as well as a discussion of certain limitations when using non-GAAP financial measures, are included in the earnings release which has been posted separately to the Investor Relations page of our website. I'll turn the call over to Brad Wiemann, Interim President and CEO. Brad Wiemann: Good morning, everyone, and thank you for joining our first quarter 2026 fiscal 2026 call. I'm joined on the call this morning by Howard Atkins, board member and acting chief financial officer. We will review our fiscal 2026 Q1 results and accomplishments and then take your questions. Turning to our slide presentation on slide three. The main message we will be sharing with you today is emphasized here. We delivered a strong beginning to fiscal 2026, and to our three-year plan. Ending cash balance of $136.9 million, and backlog of $360 million, which sets us up well for future revenue generation. Our selling teams are capturing customer demand and drove strong growth led by live events, high school park and recreation, and international. We were successful in winning three of the three large major league sports projects in Q1, along with several college and university projects. In addition, we experienced record order growth from our high school park and recreation business. This supported 35% order growth year over year, strengthening our backlog and setting us up well as we head into the remainder of fiscal 2026. We continue our work to preserve gross margins through improved value-based pricing, strong fixed cost leveraging, as well as cost control. The mix of revenue across businesses also contributed to improved gross margins. The business and digital transformation plan is in place, and our execution of that plan is on track and is driving results. We also generated cash in the quarter and expanded our cash flow from operations by 34% year over year. Now turning to slide four. This is our market verticals, and I'll start with our live events business. We won three of the three large major league sports projects. Two Major League Baseball, and one NHL Arena. In addition to multiple college and university orders, driving orders 81% year over year and plus 10% sequentially. These projects include a variety of applications from main video, auxiliary video, fascia, ribbon, and scoring displays. We continue to enhance our products and service offerings as we expect continued growth in the live events business. For both in mobile applications but also outside the bowl as more emphasis is placed on entertaining and informing fans through digital technology throughout the venue. This aligns with our control system capabilities, our service and subscription offerings, and our narrow pixel pitch product offerings. Our teams continue to focus on winning business aligned with our corporate transformation objectives on long-term profitable growth. Pictured here is David Booth, Kansas Memorial Stadium at the University of Kansas. In our commercial business, overall demand for digital advertising solutions across the on-premise, and out-of-home advertising markets saw an increase of orders by 5% from last year and a decline of 10% from 2025. This business is conducted primarily through signed company resellers and an AV integrator channel. In the on-premise area, customers are continuing to successfully transition to the next generation fuel price products which offer quick deliveries and feature-rich enhancements. Demand in our out-of-home has been up strong throughout the year, which reflects greater optimism that has been developing in both the national and independent billboard operators. Who are more often choosing Daktronics due to our recognized brand strength, in image quality and reliability as well as service responsiveness. The new generation digital billboard product released in 2025 is being well received by customers. Our investments in AV integrator channel continue to pay off which is important to our indoor application growth. Pictured here is from Quickstar, which is part of the QuickTrip chain of full-service convenience stores. In our transportation business, orders tend to be large, which creates order variability from quarter to quarter. Orders decreased 4% from last year, and decreased 7% from 2025 due to large order variability. We secured key aviation orders at Philadelphia, Spokane, and Southwest Wyoming airports. We are also strengthening the airport market pipeline developed through strategic partnerships. This growth is being driven by customers interested in our chip on board solution which provide better overall performance over legacy surface mount technology products. Going forward, we are focused on growing our ITS market, by winning new agency approvals The Buy America Act or BAA goes into effect in October 2026. We expect to benefit as a US manufacturer and our teams are actively promoting the Buy America Act. Pictured here is from Texas DOT, El Paso District. Moving on to international. Our international business, which serves all end markets, our domestic segments serve outside of North America, has been an area of concentration and focused development for the past several quarters. These efforts are paying off with orders growing 22% from last year and declining 32% from a strong 2025. Our largest growing market in this quarter were government and advertising. On the indoor solutions, demand for indoor solutions continues remains high for both government, retail, and industry customers. Pictured here is a recent installation at El Arabia in Dubai. Moving on to High School Park and Recreation. In our high school park and recreation business, we drove record order bookings for the quarter, Orders grew 36% year over year, 7% sequentially. Industry-leading value propositions allow the sales team to implement value selling, separates us from our competition. We are experiencing strong adoption of professional services, particularly in curriculum developing and development and sports marketing. Two notable wins for the high school market include Mobile Alabama County School District, project for nine stadiums, across the entire district for video display systems that included audio, Daktronics frameworks, services, and deck classroom subscriptions. The second project highlighted is for Pat McAfee, and his support of his home high school the Plum Mustangs in Plum, Pennsylvania. Through his partnership with FanDuel. This included a video display system for football and basketball, Pat McAfee specifically mentioned how much our employees cared about the project and how much he genuinely appreciated that an endorsement that is very gratifying for our team. The high school park and recreation market continues to convert traditional scoreboards to full indoor and outdoor video. Schools of all sizes are purchasing video with the help of Daktronics Sports Marketing. In addition, Daktronics curriculum, a SaaS product, teaches students career-ready production skills. Pictured here is Plum High School in Plum, Pennsylvania. Turning to slide five. New products and services are essential for continued market growth and value-added differentiation. In the first quarter, we added new models of our indoor narrow pixel pitch product to our offering. And we enhanced our indoor and outdoor fascia ribbon displays. We plan to release additional display products in the fiscal year, including LED street furniture for the out-of-home advertising market, a next-generation indoor video display, a large digit fuel price system for convenience store market, and additional narrow pixel pitch products for The US market. Photos shown are for a narrow pixel pitch product from the x from four in Australia. As well as an outdoor fascia ribbon display for the Charlotte Knights baseball team in Charlotte, North Carolina. Turning to slide six. Respect to business transformation, we made progress on these initiatives in the first quarter and our implementation plan is on track and driving results. Action we have taken to date include price adjustments on some products and services, aligned with value selling, allowing us to preserve our value-based products and services positioning. Launch of software as a service SaaS trials to target customers, focused approach on prioritized growth areas, both business verticals and geographies, driving faster inventory turnover and improved inventory efficiency, by leveraging our platform designs to reduce complexity. We released a modernized service software system that will help us to enhance customer experience through better service management and enablement of self-service options. Further utilization of previously released artificial intelligence guided troubleshooting and technical services. Making increased use of our purchasing power to improve our input costs, and simplifying some of our products which allows us to bring them to market more quickly. And notably, we improved our operating cash flow in the first quarter. Supported by the business transformation efforts. Turning to slide seven. Significant progress was made in digital transformation during 2026. We are successfully operating on our modernized service software system that was released in May. And continued technical build-out of our corporate performance management tooling was accomplished. Our digital transformation goals are to build our systems to scale our operations for our growth ambitions. While increasing internal efficiency and improved business engagement. For customers and partners During the remainder of 2026, we have slated these items in the digital transformation journey. Quoting platform tool change as part of our road map for driving faster, more efficient quotes, while capturing the data that's that the system generates for capacity planning. An AI experimentation road map and government governance development, tool updates for project management to scale our teams for continued growth, continued service platform enhancements for customers, tool update for subscription management, and preparation for an ERP system upgrade. Additionally, we have made plans to make we have plans to make further progress in our enablement of subscription management and corporate performance management. Initial release for fulfillment performance reporting, and furthering our data and analyze ecosystems road map and making progress on it to enhance and drive data-driven culture and build up data management practices. With that, I will now turn this over to Howard Atkins, our acting chief financial officer to even renew our financials. Howard? Thank you, Brad, and good morning, good day to everybody. Howard Atkins: Thank you for your continued interest in Daktronics. I will go over our first quarter financial results, including some key references to the year-over-year quarterly comps and where relevant, the company's sequential trends. This first slide includes both last year's first quarter as well as last year's fourth quarter actual results to highlight these particular references. Working up from the bottom line on this slide, Daktronics net income rose to $16.5 million or $0.33 per fully diluted share in the '26. Last year's first quarter loss was largely the result of the $21.6 million fair value adjustment on the convertible notes that have since been converted. And the '25 loss was largely a result of an allowance for credit losses on an affiliate loan of $15.5 million as well as $5.6 million in nonrecurring consulting, legal, and management transition expenses as specified in last quarter's release. We did not have any material one-time expenses in the first quarter results just released. Our effective tax rate continues to run at about 25.9%. Now on a pretax basis, our operating results for the quarter were a solid $23.3 million. The prior quarter result was impacted by the same nonrecurring items I just mentioned, A key difference between this year's $23.3 million operating income and last year's $22.7 million in operating income is the tariff expense before manufacturing mitigation which was $6 million in the first quarter compared with only $1 million in the year-ago comparable period. I should also mention that this year's first quarter benefited from having fourteen weeks of profit instead of just thirteen weeks of profit. If you do the math on that, 14 divided by 13 times the result, you get about a million and a half worth of extra profit in the first quarter of this year. So what drove this year's solid result? A couple of things. First, we had another quarter of strong orders, as Brad mentioned. As $239 million orders in the first quarter were up 35% from a year ago and were our third consecutive quarter of year-over-year order growth in excess of 10%. Just to dimension this, the $479 million in total orders over the last two quarters that would be the '5, First quarter just ended. Was the second highest orders for two consecutive quarters in the company's history. Second, as described in last quarter's report, we ended last year and came into this year with a revenue tailwind from the growth in Waters that I just described during the last February '25. Now the tailwind benefit that I just alluded to coming into the first quarter of this year was supplemented by two important items. First, as I mentioned, we had strong new orders in the '6. Second, while orders and revenue in the quarter were broad-based, particularly revenue was broad-based, The revenue in the quarter contained a little bit higher percentage of higher margin businesses like HSPR, which had a record quarter as Brad mentioned. And which also tend to produce their revenue a little bit quicker in relationship to the orders than some of the longer-lived businesses such as live events. So we had, as a result of all that, a third consecutive quarter of sequential revenue growth, Revenue was down slightly, about 3% from last year, but remember that in last year's first quarter, a number of multi-period revenue-producing projects were coming to completion whereas this year, the order backlog in the first quarter went up by $18.7 million during the quarter. Finally mentioned, while the increase in the orders backlog does maintain now a good revenue tailwind coming into the rest of this year, I would remind you that some of the quarter and backlog won't go into installation and revenue production until later this year or even early fiscal 2027. And, again, that's a result of the backlog containing a higher percentage of the longer live later start projects like in live events. Third, we made very good progress on completing the business transformation initiatives, including value-based pricing, which is reflected in revenue, of course, and supply chain management, particularly tighter inventory and labor manufacturing capacity. This resulted in improved project gross profit margin, along with the revenue mix and growth items I mentioned before, Although as revenue comes onboard from the backlog, the amount of inventory and labor we may need may be stepped up to complete the projects and obtain that revenue. As mentioned, gross tariff expense in the quarter totaled $6 million including pre-reciprocal tariff of about $1 million. Now tariff expense remains, of course, a highly uncertain aspect of our income statement. We're currently in pause with China, but don't yet know what rates will be or how markets, our competitors and customers will react post the pause, such as when it occurs. Let me now turn to the balance sheet and investments on slide nine. We ended the first quarter with a cash balance of $137 million an increase of 7% from 2025 and that's after taking into account $10.7 million worth of shares repurchased in the quarter and the conversion of the convertible note since last year. Our operating cash flow is $26 million up 34% on solid earnings and the completion of our initiative to better utilize spare inventory. Inventory to sales ratio is now at 49%. Inventory levels are likely to increase somewhat. Perhaps as we position for fulfillment of the high backlog. As mentioned, we repurchased $10.7 million worth of shares in the quarter at a volume-weighted average price of 16.43 We have done had had no borrowings, of course, under the company's bank line of credit, and none are contemplated. In terms of investment spend, the combined information technology and product development spend was $17.2 million in the quarter, The combination of IT and product development spend will remain high as the company completes its digital transformation work, and as critical new product development for the future for future growth occurs. Daktronics' legacy was founded on leadership and product development and innovation, and we are carrying that banner forward. CapEx depreciation and amortization in the quarter was $4.8 million in line with the prior four-quarter average of $4.9 million. On the next slide on our transformation plan, we embarked on this journey, as you know, to generate better returns for all of our shareholders. We are targeting performance aligned with higher operating margins of 10% to 12% on average over time, operating in the top quartile ROIC target of 17% to 20%, and achieving a compound annual growth rate of seven to 10% by fiscal year 2028. Our plan is in place. We're executing on it, and we have work to do. The team is committed to its success. We remain on track with the many, many objectives initiatives and most importantly, on track with our growth and margin objectives. We've also continued to introduce new best practice initiatives throughout the company, including improved financial planning protocols, as well as incentive comp plans as previously announced a week or so ago. That better align the compensation of the company, with shareholder value and with annual operating performance. And with that, I'll turn the call back over to Brad. Brad Wiemann: Okay. Thank you, Howard. Turning to slide 11, we'll talk about our outlook. For fiscal 2026, demand for our best-in-class dynamic video communication displays and control systems remain strong. Our teams are winning and have created a large and growing backlog providing for revenue tailwind. We are executing on efficient revenue conversion and successful inventory, supply chain, and manufacturing cost management. Our balance sheet strength supports our growth objectives, including a very strong cash position. Although there continues to be tariff uncertainty, we remain agile and ready to pull levers from our management system toolkit to mitigate impact. We are the global industry leader in best-in-class video display communication displays, and control systems. We are the only US manufacturer of scale with a global footprint, and servicing by geographic market. We remain focused on differentiated leading product introductions and supporting growth through high return product development investment spend. We are excited and committed to our future and are executing toward our growth and return objectives outlined in our transformation plan. I want to thank the entire Daktronics team for their hard work and dedication. And with that, I will now turn this back over to the operator for questions. Operator: Thank you. As a reminder to ask a question, please press 11 on your telephone and wait for your name to be announced. Our first question is going to come from the line of Aaron Spekella with Craig Hallum Group. Your line is open. Please go ahead. Aaron Spekella: Yes. Good morning, Brad and Howard. Thanks for taking the questions. Maybe first for me on live events, good to see the pickup in order activity there. Can you maybe just talk about the pipeline and what that looks like for order growth the rest of the year? And then any thoughts on just the cadence of kind of revenue? You mentioned some potentially in FY '27 just given scheduling. But can that segment, know, get to that high watermark we saw a couple of years ago given activity levels? Brad Wiemann: Yeah. So as I mentioned in the call, we were three for three on large projects, two major league baseball and one NFL stadium or excuse me, NHL arena project and we're excited about that and excited to win all three. And I also mentioned in there that we continue to see growth and expect growth in the live event space. Both from our in-bowl opportunities and outside the bowl. So we continue to expand on our product offerings and service offerings to provide that expansion both in control systems and displays and services that we offer throughout the venue. We're seeing some growth in that. We're seeing a nice growth in the out-of-bowl side of it, so our NPP products. Provide new opportunities to expand and bring know, the in-bowl experience to the outside of the bowl and throughout the concourse. So we continue to see growth there. Our pipeline can't get into specifics about the pipeline, but we're excited about what the live events business, both in the college university space, as well as the major league sports side of the business is providing. Howard, anything additional you wanted to add to that? Howard Atkins: No. I think that's key. I mean, as you said, the pipeline is good. And know, we'll see how quickly everything comes in. Aaron Spekella: Alright. Thanks for that. And then maybe second, you know, good strong gross margin performance. Just curious if you kind of highlighted the mix, was there any other you know, any one-time items? It sounds like not. But, you know, just curious on you know, we have some seasonality, obviously, in the business later this as we kinda move forward. year, but just how sustainable, those gross margin trends are is. Howard Atkins: We did have a mixed benefit as I alluded to. So you know, going forward, it depends on the mix is gonna look like. And know, we'll have to see about that. We did as Brad mentioned, continue to have better alignment between particularly, our manufacturing expenses and revenue production. That helped, and that's, you know, where we intend to operate going forward. We had a small benefit this quarter. I shouldn't say benefit. We had a benefit. We had a cost a year ago in the margin from some unusually high warranty expenses, which normalized this quarter. So it's a little bit of that. But yeah, I mean, you know, what we saw in the quarter was a combination of kind of fixed cost leverage on revenue as well as the mix effect that I just mentioned. Aaron Spekella: Understood. Thanks for that. And then maybe last for me, just given the balance sheet can you just maybe talk a little bit about thoughts on M and A what you're seeing in the market, any areas of interest, valuations, just some color there would be helpful. Thanks. Howard Atkins: Brad, do you wanna start that? And I'll chime in. Brad Wiemann: Yeah. You know, we've been presented many M and A opportunities in the past. Most continue to come towards us. We're being very strategic about it. About what we wanna do, but certainly the cash position puts us in a place where we could take a little more serious look at that opportunity. Nothing specific to talk about at the moment. We continue to be open to opportunities as they come forward. Aaron Spekella: Alright. Thanks. I'll turn it over. Operator: Thank you. And one moment for our next question. Our next question will come from the line of Anja Soderstrom with Sidoti. Your line is open. Please go ahead. Anja Soderstrom: Hi. Thank you for taking my questions, and congrats on the nice progress here. I'm just curious with three live events that you won, how is the competitive process there? And did you replace anyone for that? Brad Wiemann: Sorry. Anja, I missed that last part of your question. Competitive space and what else? Anja Soderstrom: Yeah. And were they currently using someone else and decided to use you instead? Brad Wiemann: The question being asked about the competitive factors and our the consideration for other companies and whether or not what our competitive factors might be. Anja Soderstrom: Yes. Brad Wiemann: Yeah. And that varies across each of our businesses and each of our markets. We you know, the opportunities and when we hit the major league sports markets, there's a lot of competition across all our spaces. We put a lot of effort in, of course, in the upfront process to get specified and put ourselves in a position for our products and services. To win those projects. But there is competition on almost every bid we have out there. Now in certain markets, we see opportunities where we can lead in with our services and bring financial tools to the process, which are highly beneficial. So that reduces that overall, you know, competitive thing. And improves our margin space. Anja Soderstrom: Okay. Thank you. And that's it. Sorry. There's some my side, don't know if that's I don't think that's on my end. Just gonna ask about the gross margin as well. You touched on it already in the Q and A, but what's the main driver for the better improvement there, the revenue mix? Brad Wiemann: Or was that more the efficiencies that you've been implementing? Howard Atkins: Yeah. Certainly. It hurt maybe I should let Howard talk about this, but the fixed cost leverage is very important. Of course. Having plants loaded up and operating at a high rate, that was very positive. The mix was also a key thing, and you can see that in our revenue mix as you look back over the quarters. A higher mix of higher profit business was beneficial to that. But not to doubtfully, the things that we've been working on and improving upon value-based selling bringing some of that to the table, both in products and services, not broadly, but across certain areas. Have improved that overall gross margins. But the work that we've done and the plants around inventory management, working with our vendors to improve our overall purchasing power. Those are all coming into fruition, and helping us along that road map. Anja Soderstrom: Okay. And then you're still in the process of implementing systems and undergoing this digital transformation. Is that then gonna help driving the operating expenses lower, or is it also gonna aid the gross margin? Brad Wiemann: Well, we expect to see efficiencies certainly and improved benefits to our customers and internal teams. So the efficiencies derived from many of those both the business transformation and the digital transformation, There is added expense during these, and we kinda laid out a timeline for that, and we'll buy our IT as well as product development, and Howard alluded to that in the call. We expect to, you know, invest in those as we bring those on and those are part of our plan that we've laid out. So a little bit of expense increase, but also benefits on the other side of it. Through efficiencies. That we expect to gain. Howard Atkins: I'd say, Anja, most of the product development is of a nature of remaining on the leading edge of product innovation in our markets. Which has been a hallmark of the company for a long time, and our effort here is to stay ahead of that curve. As a means of both making our product more competitive as well as being able to value price for our products. On the IT side, I think it's a combination of things like making it easier for our customers to do business with us, you know, by having front end, you know, pricing availability and things like that, as well as helping make the company internally more efficient. So you've got the combination of that on the IT side. Anja Soderstrom: Okay. Thank you. And then you touched on the strong balance sheet here already in terms of M and A. But how do you think about the buybacks? How much do you have left on the current authorized program? And are you in talks with the board to extend that? Howard Atkins: Yeah. As I mentioned in the quarter, we bought back a little over $10 million worth of shares. We have at the end of the quarter, we had about just under $10 million under that original authority. And you know, our board has been very open to considering additional authorities as we've requested them, and we'll see how that goes. But we certainly have, we will certainly have a cash position to have a very flexible approach to managing our capital position and our share count. Anja Soderstrom: Okay. Thank you. That was all for me. Operator: Thank you. And as a reminder, if you would like to ask a question, please press. Our next question is going to come from the line of Eric DeLamartier with Half Moon Capital LLC. Your line is open. Please go ahead. Eric DeLamartier: Thank you. Last couple of quarters, you've had some consulting and other associated costs related to the transformation plan. Were there any of those costs that can residually been born in Q1 here? Howard Atkins: That maybe are one time in nature we should consider adding back. No. No. I mentioned that before. The bulk of the transformation consulting costs were connected with a consultant that we had in last year for close to half the year almost, maybe a little bit longer than that. And those consulting fees are now behind us. Eric DeLamartier: Understood. Thank you. Operator: Thank you. And I'm showing no further questions at this time. And I would like to hand the conference back over to Brad Wiemann for further remarks. Brad Wiemann: Hey. Thanks, for joining our call today. We plan to present next week at the Sidoti Conference. And in November at the Craig Hallum Alpha Select Conference. We look forward to speaking with you on our second quarter call. Have a great day. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone have a great day.
Operator: Good afternoon, and welcome to Quantum Corporation's Fiscal First Quarter 2026 Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded today, Wednesday, September 10, 2025. I would now like to turn the call over to Tara Ilges, Quantum's Vice President of Corporate Affairs. Tara, please go ahead. Tara Ilges: Good afternoon, and thank you for joining today's conference call to discuss Quantum's First Quarter Fiscal 2026 Financial Results. With me on today's call are Hugues Meyrath, Quantum's CEO; and Laura Nash, Chief Accounting Officer. Following management's prepared remarks, we will open the call to questions from analysts. Before we begin, I would like to remind you that comments made on today's call may include forward-looking statements. All statements other than statements of historical fact should be viewed as forward-looking, including any projections of revenue, margins, expenses, adjusted EBITDA, adjusted net income, cash flows or other financial, operational or performance topics. These statements involve known and unknown risks and uncertainties that we refer to as risk factors. Risk factors may cause our actual results to differ materially from our forecast. For more information, please refer to the detailed descriptions we provide about these and additional risk factors under the Risk Factors section in our 10-Qs and 10-K filed with the Securities and Exchange Commission. The company does not intend to update or alter forward-looking statements once they are issued, whether as a result of new information, future events or otherwise, except where required by applicable law. Please note that today's press release and management statements during today's call will include certain financial information in GAAP and non-GAAP measures. We will include definitions and reconciliations of GAAP to non-GAAP items in our press release. With that, it's my pleasure to turn the call over to Quantum's CEO, Hugues Meyrath.. Hugues Meyrath: Thank you, Tara, and good afternoon to everyone. Thank you for joining us on our first fiscal quarter and business update conference call. I'm pleased to be joining you for my first investor call as Quantum's CEO. It's an exciting time to lead the company as I believe Quantum is on the cusp of a new chapter in its transformation journey. With over 30 years of experience in the networking and data storage industry as a supplier to Quantum, an employee, a competitor and a Board member, I've interacted with this company from every angle. And my career spans from my early beginnings in the disk drive and tape drive business as a supplier to Quantum to holding executive roles at EMC's Backup and Recovery services as well as Juniper Networks and Brocade. This knowledge and direct experience give me a unique perspective to step into the role and begin taking decisive action toward our goal of improving our financial position and sales execution. Before diving deeper into the business and go-forward strategy, I'd like to first turn the call over to our Chief Accounting Officer, Laura Nash. Laura has been with Quantum since 2019, initially serving as our Controller before being named Chief Accounting Officer in 2023. She'll walk through a brief overview of our recently reported financial results, and then I'll talk more about the steps I've taken since my appointment to improve our go-to-market strategies and operational initiatives. Laura, please go ahead. Laura Nash: Thank you, Hugues. Good afternoon to those joining us on the phone and webcast. I will provide an overview of the company's GAAP and non-GAAP financial results for our first fiscal quarter 2026 ended June 30, 2025. Before I begin, I would like to emphasize that all comparisons to financial figures in prior periods reflect the company's recent restatement of financial results as well as certain revisions to immaterial misstatements of previously published quarterly financial results for fiscal year 2025. Revenue in the quarter was $64.3 million compared to $61.3 million in the fiscal fourth quarter of 2025 and $72.3 million in the prior year first quarter. The decrease in revenue primarily reflects a shift in product mix as we've continued to transition towards a higher-value business. Backlog at the end of the first quarter was approximately $10 million, which is at the higher end of our target run rate of $8 million to $10 million. GAAP gross margin for the first quarter was 35.3% compared to 39.6% in the fourth quarter and 37.4% in the fiscal first quarter of 2025. The sequential and year-over-year decrease in gross margin is primarily attributable to an increase in our inventory provisions for certain end-of-life products in addition to import tariffs incurred during the quarter. This was partially offset by improvements in operational efficiency in our service organization. GAAP operating expenses for the first quarter were $35.3 million compared to $35.8 million in the prior quarter and $43.9 million in the year ago quarter. The $8.6 million year-over-year decrease in operating expenses primarily reflects the significant nonrecurring accounting and legal expenses incurred in the year ago quarter associated with the company's previously completed restatement of financial results for the prior fiscal years ended March 31, 2022, and March 31, 2023. Operating expenses on a non-GAAP basis for the first quarter were $30 million compared to $29.4 million in the fourth quarter and $30.8 million in the year ago quarter. While the company did realize savings due to restructuring plans executed in fiscal 2025 and the first quarter of 2026, these savings were largely offset by increases in the cost of compliance relating to auditing and legal fees. GAAP net loss in the first fiscal quarter was $17.2 million or a loss of $1.87 per share compared to a net loss of $7.7 million or a loss of $1.26 per share in the previous quarter and a net loss of $19.9 million or a loss of $4.15 per share in the year ago first quarter. The reduction in GAAP net loss compared to the year ago quarter was largely driven by the aforementioned cost of restatement. Non-GAAP loss for the first quarter was $14.5 million or a loss of $1.58 per share compared to a net loss of $12.3 million or a loss of $2.01 per share in the prior quarter and a net loss of $7.6 million or a loss of $1.59 per share in the same quarter a year ago. The higher non-GAAP net loss for the quarter reflected a combination of lower revenues, coupled with the increased inventory provision and increased import tariffs previously discussed. Adjusted EBITDA for the first quarter was a negative $6.5 million compared with a negative $3.9 million in the fiscal fourth quarter and a negative $2.2 million in the prior year quarter. The lower adjusted EBITDA for the fiscal first quarter was primarily a result of factors that contributed to the previously mentioned higher net loss. Turning to an overview of debt and liquidity at quarter end. Cash, cash equivalents and restricted cash at the end of the first fiscal quarter were approximately $37.5 million. Total outstanding term debt at quarter end was $104.3 million. During the quarter, the company utilized proceeds from the sale of shares through its existing standby equity purchase agreement with Yorkville Advisors to pay down the full outstanding balance of its previous revolving credit facility. As a result, there was no outstanding balance on the revolving credit facility as of June 30, and the company subsequently terminated this credit facility on August 13, 2025. At the end of the quarter, the company's net debt position was approximately $66.8 million, representing a reduction of more than 40% from the net debt position at the end of fiscal 2025. Now turning to the company's outlook for the fiscal second quarter of 2026. Revenue for the second quarter is expected to be approximately $61 million, plus or minus $2 million. We expect a significant reduction in second quarter non-GAAP operating expenses to approximately $27 million, plus or minus $2 million, reflecting the anticipated realized benefits from our most recent cost reduction actions. As a result, non-GAAP adjusted net loss per share for the fiscal second quarter is anticipated to be negative $0.26, plus or minus $0.10 per share based on an estimated 13.3 million shares outstanding. Adjusted EBITDA for the fiscal second quarter is expected to be approximately breakeven. With that, I'll now hand the call back to Hugues. Hugues Meyrath: Let me now outline our path forward and areas of operational focus. Since my appointment in early June, I've been dedicating a significant portion of my time to conducting in-depth reviews of the business operations with our internal teams as well as meeting with key customers and partners. Quantum has a solid foundation of high-value assets with a tangible opportunity to improve sales distribution and execution as part of a bolder product-first approach. The company's solutions and road map are very well aligned with growth trends in AI, media and entertainment, data protection and long-term archiving. I believe in operating with transparency, honesty and urgency. I expect the same from our team. We need to be clear about the work ahead, honor our commitments and move quickly to deliver results. That's the standard I hold myself to and the standard I expect across the organization. In my first 90 days, we've taken critical steps. We established a new Board operating plan. We raised funds to improve our financial position, reduced operating expenses and rightsized the organization to align with current revenue and growth. These were not easy decisions, but they were necessary to stabilize the company and strengthen its financial position to improve EBITDA results and achieve positive cash flow. We've also strengthened our executive team and Board with accomplished leaders who bring the expertise we need to guide this next chapter. As a first step, I recruited Tony Craythorne, as Chief Revenue Officer. Tony brings more than 25 years of executive sales and marketing experience across the U.S., Europe and Asia at companies that include Index Engines, Zadara, Komprise, Brocade and Hitachi Data Systems. Having worked with Tony before, I know he brings discipline and energy to scaling sales organizations. We also appointed Gregg Pugmire as Vice President of Americas Sales. Gregg has more than 30 years of experience delivering high-impact solutions across storage, cloud and software. His customer-first leadership style makes him the right person to lead our sales execution across the U.S., Canada and Latin America. We added 2 highly accomplished Board members. Tony Blevins brings over 20 years of experience in supply chain management and operations at Apple and IBM. And Tony was named the 2022 Captain of Industry by the International Institute of Industrial and Systems Engineering. Jim Clancy brings more than 30 years of sales leadership in data protection and cyber recovery at Dell and EMC and will help us refine our sales and go-to-market model. With these additions, our Board is now aligned with each part of the business, including R&D, finance, sales, operations and supply chain, bringing greater oversight and guidance. As you likely noted, we recently terminated our outstanding revolving credit agreement after paying down the outstanding balance. In addition, we continue to make progress with our current lenders with respect to potential transactions to restructure our remaining outstanding term debt. We expect we will be in a position to announce something more definitive before our next earnings call. As a key step towards this goal and to improve overall liquidity, we've raised approximately $83 million in new capital from the previously announced standby equity purchase agreement through our partner, Yokville Advisors. This has been a highly successful partnership and equity vehicle, providing immediate access to capital in support of our ongoing operations while also strengthening our balance sheet. With this stronger foundation in place, our attention is now squarely on product and sales level execution. In sales, this means sharpening our discipline, using metrics and numbers to guide decisions and building a culture of accountability. We are restructuring teams to align with our growth model and ensure every part of the sales process from forecasting to customer support operates with precision and discipline. At the same time, we're placing a greater focus on our channel partners. We are giving more attention to our top partners in each region, helping them cross-sell and upsell across the portfolio and providing stronger incentives. We're also bringing in new partners that specialize in data protection and cybersecurity, key areas of growth for us. And we already made swift changes in APAC, adding new distributors in South Asia, India and China to expand our reach, strengthen support and drive increased sales in fast-growing markets. As we build momentum, our portfolio remains one of the greatest strengths, and we're focusing our resources on the solutions where we deliver the most differentiated value. This quarter, we launched 2 new DXi T-Series models that deliver the industry's first one new all-flash deduplication appliances, offering up to 480 terabytes and built for fast recovery. These extend our award-winning T-Series line and position us to capture share in a multibillion-dollar backup market. At the same time, the explosion of AI and data growth is fueling unprecedented demand for the cold storage and long-term archiving at the lowest possible cost. Quantum is uniquely positioned to meet this need. We provide not only the fastest primary storage for AI and media and entertainment workflows, but also the lowest cost archiving solutions used today by most of the world's largest hyperscalers. ActiveScale cold storage and the Scalar i7 RAPTOR Tape library give customers unmatched price performance and scalability, anchoring our long-term archive strategy and meeting the data challenges of the AI era. We are also turning our attention to StorNext, reinvigorating one of Quantum's most trusted solution and the gold standard in media and entertainment for performance, scalability and reliability. Customers can now connect however they prefer, Ethernet IP or fibre channel without sacrificing performance. Our Ethernet-based parallel client delivers aggregate read performance of up to 90 gigabytes per second, making StorNext one of the most capable shared storage systems for modern creative workflows. Just as important as the products themselves is how we develop them. We are building a tighter cycle of feedback between sales and product so that the voice of customers and their specific use cases flow directly into development. This ensures we're targeting the right markets, aligning our road map with real-world demand and delivering solutions that drive adoption and revenue. That closed loop of listening, building and executing will be central to how we operate going forward. In closing, our focus, both inside and outside the company comes down to 3 things: integrity, ownership and urgency. We will do what we say we will do, take full responsibility for our commitments and move quickly to achieve results. The decisive steps we've taken in my short tenure are only the beginning. We are strengthening our financial foundation, sharpening sales execution, deepening our partner ecosystem and innovating across our portfolio. While there is more work to do, I'm confident in our path and our ability to deliver long-term value for our customers, partners, employees and shareholders. With that, I will now turn the call over to the operator for the Q&A session. Operator: [Operator Instructions]. And our first question comes from Eric Martinuzzi with Lake Street Capital Markets. Eric Martinuzzi: I was curious to know if there was a change in strategy at all plan. I noticed you went through kind of the product mix that we're all familiar with. You talked a little bit about the DXi and the Tape libraries. Any change in emphasis or go-to-market with products such as Myriad or ActiveScale? Or is it kind of, hey, this is the product portfolio. Let's go out and sell what we've got. Hugues Meyrath: Thank you for the question, Eric. Well, first, we have to sell what we have, right? I mean DXi has been in the portfolio for a long time. So as ActiveScale cold storage, I do believe we have tons of opportunities with DXi. As you can see, like Jim Clancy, like joined the Board from the Dell side and has plenty of experience with [ D domain ]. So we're going to push DXi hard in the next few quarters because we feel we're underperforming and there's an opportunity for us. ActiveScale cold storage, I think, is a great product as well. People will need very affordable solutions for long-term data retention. So we feel like we -- it's also a place where we can do a lot more. We've -- Tony and I, Tony Craythorne and I spend a lot of time on the road talking to channel partners and customers. And StorNext the last 2, 3 years has been underinvested into. So we're heading over to IDC in Europe, but we're making changes to StorNext. We're pushing the Ethernet IP version of StorNext right now, which is very demanded. So we feel like StorNext requires more investments and the push in the Ethernet IP side of the business, and we feel that's closer to what the channel partners and customers want. So these are some of the immediate things we're going to do. In the longer term, you can expect to see us refine the portfolio and the solution. So it's a little bit early to go there, but now let's go focus on those. Eric Martinuzzi: Got it. And you mentioned some of the management changes as well as the changes on the Board. Are we filling other open positions that you're looking to fill as far as your direct reports go? Hugues Meyrath: Well, we've changed a lot right now. So there may be maybe a tweak or 2, but I don't expect some radical changes going forward at this point. We've tried to be very swift in the changes we've made, so we don't disrupt the business too much. It's a lot to change the management team. It's sometimes a little bit confusing for some of the customers or partners, but the reception was very, very warm. I think everybody was very collaborative and everybody is on Quantum scam. So I feel very confident that we're on the right path right now, and we have a very strong management team. Eric Martinuzzi: Okay. And then last question for me is on the operating expense. You mentioned a recent restructuring. So bridge me from the $30 million of non-GAAP operating expense that we had last quarter to the $27 million midpoint. Was that all -- did all of that change take place July 1. So we're going to see $30 million become $27 million kind of overnight? Or is there a chance this kind of rolls into Q3, Q4? Hugues Meyrath: Yes. I'm going to have Laura answer that, but we've made a lot of changes. There are some restructuring expenses. Some of the headcount is also transitioning out over a few months, so she can help with more details on that. Laura Nash: Yes, absolutely. So there have been certain restructuring events that had happened in fiscal Q1 as well. Those coupled with the changes that happened in early July are expected to materialize in fiscal Q2 to a large extent, which is causing the expected changes in our operating expenses. Also, there are some additional costs we incur during our fiscal Q1, which are not likely to repeat in our fiscal Q2, but our normal run rate business. Operator: Your next question comes from Nehal Chokshi with Northland Capital Markets. Nehal Chokshi: Yes. And good to see that your overall debt has been reduced, the revolver specifically and that your net debt significantly reduced here through the use of [indiscernible] . For the term debt that you do have, can you remind us what's the interest rate on it? And how much of that is paid in kind? Laura Nash: We make -- yes, thank you. Sorry. Thank you for your question. Yes. We make full disclosure of that in our 10-Q, and that will be included in our footnote 4 to the 10-Q. Nehal Chokshi: Okay. And is that filed now to the 10-Q? Laura Nash: Excuse me, sorry, can you repeat the question? Nehal Chokshi: Has the 10-Q been filed for the June quarter yet? Laura Nash: And the 10-Q will be filed shortly. Nehal Chokshi: Got it. Okay. And then I think Eric asked this question, but I'm going to ask it in a slightly different way. Based on the EBITDA guidance, which is going to improve from a negative $6.5 million from the June Q to what you're guiding to breakeven for the September quarter on a midpoint $3 million Q-o-Q revenue decline. Does that presume basically a flattish gross margin Q-over-Q? Laura Nash: Yes. So we do have certain onetime expenses in our current gross margin, including the inventory provision for certain end-of-life product. While the expected impact of tariffs is -- we are anticipating will continue, we're expecting a gross margin more in line with our fiscal Q2 2025 in our guidance. However, I would like to caution that does depend on our revenue mix. And so as we see increases in hyperscaler activity, that does impact our gross margin as well as the macroeconomic environment. Nehal Chokshi: Okay. And it sounds like the actual non-GAAP OpEx, you're expecting that to be about flattish Q-o-Q as well from June to September quarter? Laura Nash: From June quarter to September quarter, we are expecting a decline in our OpEx. This is due to the realization of the restructuring activities that happened early in the quarter as well as some run rate expenses that are seen in Q1 that we are not expecting to recur in Q2. Nehal Chokshi: Okay. So that's like about a $6 million to $9 million Q-o-Q decline in OpEx then? Laura Nash: From a GAAP OpEx perspective, we have not guided that number. However, from a non-GAAP perspective, we're anticipating approximately a $3 million decline. Nehal Chokshi: Okay. All right. And then what is the typical seasonality for the September quarter? And any reasons for any divergence from what is typical seasonality? Laura Nash: I'll take that one. So thinking about our seasonality, we experienced our peak ordering in our fiscal Q3. We do see some strong business in our fiscal Q2. However, we believe that the guidance we have put out is accurate, and we are not expecting any deviations from kind of our normal experience. Nehal Chokshi: Okay. I feel like fiscal year '18 to fiscal year '23, typically, fiscal Q2 was up Q-on-Q, and that may have had a lot to do with the federal vertical buying. I'm not sure. Is that correct? Laura Nash: Yes. We do see the Fed year-end hitting in our fiscal Q2. That is correct. Nehal Chokshi: Okay. But that -- from your lens of perspective, that doesn't typically produce an overall Q-over-Q increase in revenue? Laura Nash: That does depend quarter-over-quarter and year-over-year. So we -- as I said, we're expecting the guidance that we've put out to be accurate. Nehal Chokshi: Yes. absolutely. I would expect that as well. Okay. And then I'm sure this will be disclosed in the 10-Q, but if you could disclose it now, the segment data? Laura Nash: Yes, that will be provided in Q2. That will be in our footnote 12. Nehal Chokshi: Okay. All right. Hugues, you mentioned that you want to be pivoting to areas in the market where you believe Quantum delivers the most value. Can you detail what are those areas where you believe Quantum can -- has the most differentiated products here? Hugues Meyrath: Yes, for sure. First, like I said earlier, I do feel like we have a given right to play in the DXi space because we actually invented data [indiscernible]. So I think we took it for granted for a long time and just left like this asset on the line for a bit. But with our recent products that have like a one new flash-based extremely fast, both from backup and instant recovery, I feel like we have a great solution. I would say the Tape market is interesting, right, and ActiveScale cold storage as well. We've been behind like a lot of the hyperscalers. And I do believe that going forward, you can look at AI, you can look at the media entertainment space. Everybody is going to go see a lot of data growth in the next 2, 3 years, and people are concerned about the spend. And from what we can see, people are looking back at Tape with a different eye right now. We have different technology for Tape. We have Erasure coding. We have all types of security behind it, and we can present Tape like as a pool of storage through ActiveScale cold storage, which makes it very easy to use. So when I was talking to all the channel partner and customers, unexpectedly, ActiveScale cold storage became this really interesting topic to everybody that's struggling with cost right now. So I think that's something we need to put some strong execution behind. We have great customers at Quantum. Unfortunately, I can't give the list of all the customers. But if you watch TV, if you have a favorite sports team, a TV show, a movie or if you store files in the cloud, everybody is using Quantum one way or another, and you just don't know it, right? So I feel like we have a strong story. We have great customers. We need to figure out how to upsell and cross-sell through those great customers we have. And with the restructuring in sales and the team right now is super motivated to go to those customers and ask for a fair share of the business. So I feel really optimistic about that. Nehal Chokshi: Great. On that first area that you talked about, the deduplication space, backup space, you guys have been out with your all-flash product, I think, for more than a year now. And if I recall, Quantum executives were pretty excited about initial demand indications there. Did that not transpire or it transfer it's just too small to be driving the top line here? Hugues Meyrath: Yes. I think as we're going through the process right now, what we're finding out is our lead generation all the way to the conversion is not that great. We have to change the process. So we've consolidated sales and marketing right now into one group. So I think it's important right now that you don't have a sales and marketing finger pointing. We're going to change the way we drill the generations. We've changed the sales compensation programs because there are gaps and we can get excited. But if the salespeople don't get paid or the incentives are in the wrong places, then it just doesn't work as well. And we also have, frankly, to go build like an enterprise channel for DXi, right? So Quantum has been focused in North America, mainly on media and entertainment. So we're going to need new partners, and we're going to have to train them. So the whole flow, the whole process anyway from leads to sales compensation to partners to partners test and everything is being retooled right now between Gregg Pugmire and Tony Craythorne. Operator: And there are no further questions at this time. So with that, we will conclude today's conference. Thank you for connecting, and all parties may now disconnect. Have a good day.
Operator: Hello, everyone, and welcome to the Chewy Second Quarter 2025 Earnings Call. My name is Emily, and I'll be coordinating your call today. I would now like to hand over to Natalie Nowak, Director of Investor Relations. Natalie, please go ahead. Natalie Nowak: Thank you for joining us on the call today to discuss our second quarter results for fiscal year 2025. Joining me today are Chewy's CEO, Sumit Singh; and Will Billings, our Chief Accounting Officer and Interim Principal Financial Officer. Will is a respective leader with extensive finance and accounting experience, and we appreciate his dedication to Chewy as he takes on this expanded role while we continue to search for a permanent CFO. Our earnings release, which was filed with the SEC earlier today, has been posted to the Investor Relations section of our website. In addition to the earnings release, a presentation summarizing our results is also available on our website at investor.chewy.com. On our call today, we will be making forward-looking statements including statements concerning Chewy's financial results and performance, industry trends, strategic initiatives, share repurchase program and the environment in which we operate. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve certain risks, uncertainties and other factors that could cause actual results to differ materially from our forward-looking statements. We encourage you to review our SEC filings, including the section titled Risk Factors in our most recent Form 10-K for a discussion of these risks. Reported results should not be considered an indication of future performance. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We assume no obligation to update any forward-looking statements, except as required by law. Also during this call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are provided on our Investor Relations website and in our earnings release. These non-GAAP measures are not intended as a substitute for GAAP results. Additionally, unless otherwise stated, all comparisons discussed on today's call will be against the comparable period of fiscal year 2024. Finally, this call in its entirety is being webcast on our Investor Relations website. A replay of the audio webcast will also be available on our Investor Relations website shortly. And with that, I'd like to turn the call over to Sumit. Sumit Singh: Thanks, Natalie, and good morning, everyone. Q2 net sales grew by nearly 9% year-over-year to $3.1 billion, exceeding the high end of our guidance range. Moreover, against an industry backdrop of low to mid-single-digit growth, our Q2 performance demonstrates a clear share gain outcome. Strength of our Autoship program in categories such as consumables and health anchored Q2 net sales performance. Second quarter Autoship customer sales of $2.58 billion represented 83% of our Q2 net sales, reaching a new record high for the company. Growth in Autoship customer sales once again outpaced overall top line growth increasing by nearly in Q2. We are also pleased to see the continued strength within our hard goods business, which grew over 15% in the second quarter, primarily on the back of structural volume growth. And finally, a rapidly strengthening CES program exceeded our expectations in the second quarter. I will comment more on our progress with this program in a moment. Moving to customers. We ended the second quarter with 20.9 million active customers, reflecting 4.5% year-over-year growth. Importantly, the strength and quality of our new customers continue to improve. New customer NSPAC for the Q2 2025 cohort strengthened quarter-over-quarter and is trending mid-single digits higher on a year-over-year basis relative to the comparable Q2 2024 cohort. For total Chewy, we continue to expand customer share of wallet in the quarter with NSPAC reaching $591, representing 4.6% year-over-year growth. Moving down the P&L to profitability. Gross margin reached 30.4% in the quarter, expanding on both a sequential and year-over-year basis by nearly 80 and 90 basis points, respectively. For Q2, main drivers of gross margin were both our fast-growing sponsored ads business and favorable mix into premium categories. Pricing and promotion remained rational and did not have a material impact on gross margins in the second quarter. Continuing on the topic of profitability. We generated $183.3 million of adjusted EBITDA in the quarter, representing a 5.9% margin and a year-over-year increase of over 80 basis points. We also generated nearly $106 million of free cash flow in the quarter. Our robust profitability and compelling free cash flow generation enabled us to not only invest in our strategic growth initiatives, but also return meaningful capital to shareholders as reflected by the nearly $125 million we deployed towards share repurchases in the quarter. Now I would like to provide an update on some of Chewy's strategic initiatives. The Chewy Vet Care, or CVC network continues to outperform relative to expectations in terms of demand generation and driving broader ecosystem benefits. We are consistently observing that CVC customers drive both the highest and fastest netback curves for Chewy. Additionally, we remain on track to open 8 to 10 new practices in fiscal year 2025 to reach a total count approaching 20 by year-end, and we look forward to keeping you updated on our progress. Shifting gears, let's talk about Chewy+, our paid membership program. As a reminder, today, Chewy+ members receive the following benefits: free shipping on all orders, 5% rewards to redeem on future orders, limited time seasonally relevant member exclusive offers and a 30-day free trial period. At the end of the free trial period, members pay an introductory price of $49 per year and convert to paid members. As I shared in my remarks earlier, the Chewy Plus membership program is rapidly strengthening, indicating a strong product market fit. In the month of July, roughly 3% of Chewy's total monthly sales were to Chewy Plus members. Importantly, we are observing strong incrementality in spend, NSPAC and positive contribution profit per customer across Chewy+ customers compared to nonmembers. Furthermore, other key leading indicators of success are promising. These customers are buying at a higher frequency and attaching a higher number of products to their orders. Additionally, we are observing incremental Autoship adoption and greater mobile app usage from Chewy Plus members relative to nonmembers. All of this is leading to both higher as well as accelerated NSPAC curves for Chewy+ customers compared to nonmembers, which in turn is contributing positively to Chewy's net sales flywheel. As we exit this year, we expect approximately mid-single-digit percentage of our net sales to go through the Chewy P+ program. Further, we expect the program to generate positive gross profit dollars in fiscal 2025, though at a gross margin rate below Chewy overall, reflecting both the ramp that we anticipate in the second half of this year and the mix of paid versus free trial members. As we scale, we will remain disciplined in evaluating the program structure, including pricing and member benefits. Moving on. Now let's talk about Chewy Private Brands. I am excited to share that in August, we launched Get Real, our new Chewy exclusive private brand of healthy fresh dog food. The fresh and frozen segment represents a fast-growing TAM fueled by trends of humanization and premiumization in pet. Consumers believe that their pets deserve fresh and nutritious food, leading to longevity and an overall higher quality of life for their beloved pets. Get Real, a new line of minimally processed fresh dog food available only at Chewy comes in 3 different POP-approved recipes, including chicken and Brussels sprouts, beef and sweet potato and Turkey and Cranberry, all available as both full meals and meal toppers made with 10 or fewer ingredients plus vitamins and minerals. Additionally, this premium product is delivered to your doorstep in pre-portioned ready-to-serve meals just tap and serve. Although the product has only been in market a few weeks customer reception is strong. Customers are pleased with the palatability, quality and overall experience, which includes shopping, delivery and consumption. I am also pleased to share that we have already built up sufficient capacity through 2028 to support our growth in the Fresh Frozen segment broadly, both for Get Real and for our national brand partners while remaining very much at the lower end of our previously set CapEx guidance range of between 1.5% to 2% of net sales. With the capital investment behind us, we are now in process of scaling to a national footprint by leveraging our existing fulfillment center topology. By the end of 2025, we expect to be ready to deliver a majority of our fresh food offering to customers within a 1-day transit time. Furthermore, Get Real is exclusively an Autoship subscription business that results in high gross profit per unit at scale, supporting both broad leverage across our operational infrastructure and our aspiration of becoming a leading profitable player in the fresh and frozen segment. While still early, we are pleased with the launch of this product and the positive response from our customers. Beyond get real, we are working on bringing other Chewy branded product innovation to market in the second half of 2025, and I look forward to keeping you updated on our progress. Before I turn the call over to will, I would like to leave you with a few closing thoughts. The first half of 2025 has been an exciting and productive period for Chewy, reflecting the strength of our differentiated value proposition and the momentum across our business. Looking ahead, we expect the second half of the year to be even more dynamic given the evolving macro. As many retailers prepare to pass tariff-related costs on to customers, we believe Chewy is well positioned to mitigate these pressures. Our higher mix of consumables and health and proactive investments in onshoring incremental discretionary inventory provide meaningful safeguards. These actions will help deliver a superior customer experience by selectively evaluating pricing while protecting product margins. Additionally, instead of absorbing these pressures, we plan to lean into growth by investing behind the expansion of programs like Chewy+ and our private brands. Customers are embracing these initiatives for their compelling value proposition, and we are equally encouraged by their strong return on investment. Overall, we see the second half of 2025 as an opportunity to further accelerate market share gains in the U.S. and position Chewy for even greater long-term success. With that, I will turn the call over to Will. William Billings: Thank you, Sumit, and thank you all for joining us today. Let's review our financial results and outlook. Second quarter net sales grew 8.6% and year-over-year to $3.1 billion, exceeding the high end of the Q2 guidance range we provided last quarter. We reported second quarter gross margin of 30.4% and representing approximately 90 basis points of margin expansion year-over-year. Shifting to operating expenses. Q2 SG&A, excluding share-based compensation and related taxes, came in at $592.8 million or 19.1% of net sales, deleveraging approximately 30 basis points year-over-year. Q2 deleverage was driven by the ongoing ramp of our Houston fulfillment center, which launched in April, coupled with the wind down of certain shifts at our Dallas facility. We also incurred higher inbound inventory processing costs, primarily within hardgoods to ensure we have the right assortment for pet parents as we head into the peak holiday periods, while also allowing us to mitigate impact from tariffs in 2025. Additionally, a smaller contribution came from increases in wage and benefit cost within the period. Importantly, we believe these increases are primarily temporary in nature, and we continue to expect to deliver modest SG&A leverage in fiscal year 2025. Second quarter advertising and marketing expense was $200.6 million or 6.5% of net sales, in line with our expectations and consistent with our previously stated target of 6% to 7% of net sales. Q2 adjusted net income was $141.1 million, representing a 34.8% increase year-over-year and we delivered $0.33 of adjusted diluted earnings per share within the guidance range we provided last quarter. Second quarter adjusted EBITDA came in at $183.3 million representing a 5.9% adjusted EBITDA margin, which reflects 80 basis points of year-over-year margin expansion. We reported Q2 free cash flow of $105.9 million, which reflects $133.9 million of net cash provided by operating activities and $28 million of capital expenditures. For full year 2025, we reiterate our expectation to convert approximately 80% of adjusted EBITDA to free cash flow and CapEx will be at the low end of our previously stated range of 1.5% to 2% of net sales. In the second quarter, we repurchased approximately 3 million shares for a total of approximately $125 million. At the end of Q2, we had $359.8 million of remaining capacity under our existing program for future repurchases. We ended the quarter with approximately $592 million in cash and cash equivalents, and we remain debt free with an overall liquidity position of approximately $1.4 billion. Now I'd like to discuss our third quarter and full year 2025 outlook. We expect third quarter 2025 net sales of between $3.07 billion and $3.1 billion or approximately 7% to 8% year-over-year growth, and we are raising and narrowing our full year 2025 net sales outlook to between $12.5 billion and $12.6 billion or approximately 7% to 8% year-over-year growth when adjusted to exclude the impact of the 53rd week in fiscal year 2024. This represents $175 million increase to the midpoint of our guidance range. Moving to profitability guidance. We are maintaining our full year 2025 adjusted EBITDA margin outlook of 5.4% to 5.7%. As Sumit shared in his remarks, we believe it is prudent to remain on the offense in the second half of 2025 and invest to strengthen Chewy's share position in the pet category. The midpoint of our guidance range indicates 75 basis points of adjusted EBITDA margin expansion year-over-year. Furthermore, at the midpoint of our 2025 net sales and adjusted EBITDA margin guidance ranges, we expect to deliver approximately 15% and adjusted EBITDA flow-through for the year, in line with our previously stated long-term target. Importantly, and consistent with our comments last quarter, we continue to expect approximately 60% of of our adjusted EBITDA margin expansion to be driven by improvements in gross margin, confirming that we expect to continue to deliver healthy gross margin expansion year-over-year in fiscal 2025 with Q2 being the high point for the year. And finally, we also expect Q3 adjusted diluted earnings per share in the range of $0.28 to $0.33. For the full year 2025, we are also reiterating our previously stated expectations related to share-based compensation expense, including related taxes, of approximately $315 million and weighted average diluted shares outstanding of approximately $430 million. 2025 net interest income of approximately $25 million to $30 million, and we continue to expect our effective tax rate to be between 20% to 22% for 2025. Before we open the call for questions, I'd like to reiterate that our strong Q2 results underscore the continued momentum in the business and strength of execution by our Chewy team members. We believe that Chewy remains exceptionally well positioned to continue to deliver share gaining growth and enhanced shareholder value. With that, I will turn the call over to the operator for questions. Operator: Our first question today comes from Doug Anmuth with JPMorgan. Douglas Anmuth: Sumit, can you talk more about the investments that are required in the back half and into 2026 just as you lean into growth, a little bit more detail on those? And then also just how are you promoting and increasing awareness of some of the new offerings like Chewy+ and Get Real? Sumit Singh: So let's start with the second question first because it will give you a sense for the investments that we're thinking about. So as you know, we have a very large base of customers, which continues to grow. This customer base is sticky and the programs like Chewy+ allow us to enhance the process of discoverability and get customers to attach both explore, discover and then attach even a greater set of product or a greater range of products and services offered by Chewy. So our first attack strategy is to essentially expose Chewy+ to existing members. And so far, we have not spent any incremental dollar on marketing the program externally, and we don't intend to do so as we ramp the program up. We're seeing really good participation of existing 2 members converting to become Chewy+ members. So the marginal cost of that acquisition is 0 or nearly 0 to us, and most of the exposure is being provided by on-site and funnel shopping experiences. Now coming to Get Real, our approach is very similar. Large audience, we have what we believe really good recognition of what looks like premium cohorts and consumables for us. So our strategy is much more leaning into the broader value proposition of Chewy externally as the place, which is a destination for you to take care of your pets and providing food supplies, health and other services and really gearing ourselves for conversion, right, rather than consideration building when customers come to our website. And so from that standpoint, the inputs that we've been really focused on is getting the quality of the product, the palatability of the product exactly where we want it. And we're pleased to see the customer response. Number two, we're price competitive. There are many products out there that are priced much higher. And we believe the value prop or the balance of quality and price that we deliver really passes good value to the consumer. Third, if you explore this product in the way that we've built it, this is not a standard product listing page experience. We've built a curated experience that allows customers to engage with this category in a manner that it allows them to seek the education, have the content at their fingertips. We've paired that up with really high CRM capability internally. And that will be our strategy moving forward as well. So from that standpoint, we're not -- you shouldn't expect us to lean very heavily in marketing dollars. Currently, we're pairing get real with a strong acquisition offer, but candidly, Get Real customers or fresh and frozen customers are high NSPAC customers, you're looking at plus $2,500 spend full meal customers and running into the high hundreds for topper customers. But these customers are also really propense towards health and wellness and other high spend categories. So broadly, we see tremendous potential for this category being the highest gross profit per unit category in the company. The fact that we've already spent the money in building CapEx or capacity should essentially make you comfortable to the point that we don't have incremental CapEx investments coming up through 2028. Of course, if the program exceeds our expectation in a major manner, then that's a high-quality problem to have, and we'll talk about it at that particular point. But broadly speaking, these are high-margin sales, high sales, high-margin verticals, and we're excited to be finally leaning into them. and driving even stronger netback consolidation. Operator: Our next question comes from Nathan Feather with Morgan Stanley. Nathaniel Feather: [indiscernible] encouraging momentum here a question on the SG&A deleverage. And you may to put some guardrails on the magnitude of temporary costs here and how much maybe we can attribute to some of the FC changes versus the hard good processing costs. And because of that, how should we think about the leverage path into the back half? Sumit Singh: Yes. Nathan, me provide broader commentary on SG&A and also answer your question very specifically. So First of all, as we discussed on the call, we expect roughly 60% of our adjusted EBITDA margin expansion to come from gross margin and 40% to come from OpEx leverage. So we do expect to deliver SG&A leverage in 2025. And by inference of our first half performance, you can expect that, that leverage will come in the back half of the year. Number two, yes, the amount of SG&A leverage on a year-over-year basis in '25 will be lower than 24%. But I think that's the ebb and flow of SG&A, right? Let me kind of elaborate on that a bit. So this will ebb and flow in cycles a bit. As we elaborated in our Capital Markets Day in December '23, we set a target of roughly 200 basis points to deliver. So far, roughly 2 years out, we've already delivered 100 basis points or 50% of that target. The majority of that leverage has come from us ramping 4 fulfillment sites, which are automated 2G sites and roughly flowing 40-plus percent of the volume through these states of automation within the company, right? By Q2 of next year, we expect nearly 50% of our volume will be automated, especially as Houston ramps up. Now let me talk about the specifics in the quarter. So there's a couple of things that are happening in the quarter and in '25, right? So we launched Houston in April of this year, and it takes roughly 6 months for a Gen 2 facility to ramp sufficiently to start delivering leverage. And I went back and checked my notes from Q1 and perhaps we should have been a little more clear on that point upfront, right? So this facility is ramping well. It's ramping as expected, but it takes about 6 months for a Gen 2 facility to ramp for it to deliver sufficient leverage. As such, we do expect to see leverage out of the facility beginning in the second half of this year. Now the second thing that's going on in SG&A is, look, the faster we grow in 2025. And as you can infer, we're growing purely on the basis of units. Its structural growth, which is comping first half growth where we had pricing benefit. And so what you'll see is that SG&A that is a variable cost element, right, will essentially be enhanced, the faster we grow on the basis of units. But that's a high-quality problem to have because it builds density. It allows us to extract more cost out and get the economies of scale as our facilities fully ramp up. So again, that's a transitory thing and we expect this to be a lot easier and better as we step out from '25 into '26. Now let's talk about the onetime elements. So we picked up incremental inventory in hard goods because as you can see from the commentary in the market, prices are expected to rise in the back half of the year, right? And so we wanted to both shore up the inventory to deliver and immaculate customer experience from an in-stock point of view. But you know what, we might invest in price, right? We may invest in price to take share while everybody else is raising price, Chewy becomes another destination for pet parents to really extract the maximum value. So temporarily, we believe this is a situation which is opportunistic and we should lean in and improve our share position. You talked about -- and so roughly, we spent about $3 million to $5 million in this particular element in higher inbound processing cost, right? And the last component that we talked about in the script was higher wages and benefits and higher wages and expenses, which was a smaller element, which is sometimes cyclical, and that was about $2 million to -- $2 million to $3 million per se. The important takeaway is that you can expect SG&A costs to moderate in the back half of the year relative to the first half, and we expect to deliver SG&A leverage in '25. Operator: Our next question comes from David Bellinger with Mizuho. David Bellinger: Let me just squeeze a few together here. Maybe if we could just start on the Q2 gross margin improvement. You mentioned the premium products. That seemed like somewhat of a shift also maybe talking about some of this price investment in the back half. So can you unpack all that for us and how we should think about the drivers of gross margin expansion in Q3 and Q4? And then also just on the new OpEx investments, can you help us understand, is all this fully in your control and making decisions to further accelerate the top line and share gains versus something more reactionary or something changing in the external marketplace is forcing you to do this. Can you just help us understand that split in chewy+ and fresh and frozen, this might impact the 15% incremental EBITDA margins for the business? Sumit Singh: Yes. Sure. No, it's a good question. Let's dive into it. So there's a couple of questions built into that. So let's carry on the part. So gross margin first. We're pleased with the gross margin expansion that we've delivered this quarter, right? And the drivers of gross margin, David, have remained very consistent over the past few quarters and overall in line with our story or the narrative that we brought to the street, right? They include product mix across our merchandising led businesses. So you've heard us talk about health, premium consumables. Now hard goods is starting to grow double digit, albeit at a smaller contribution, but still were encouraged to see kind of where this goes. So that's kind of why we use the word product mix across merchandising led businesses because it isn't just pharmacy, which has continued to contribute. It is health and wellness supplements, it's premium consumables. It's hard goods growth, et cetera, et cetera, et cetera. So number 2 -- so the drivers of gross margin include product mix across merchandising led businesses, increasing auto ship penetration and scale that provides economies of scale and our ramping sponsored ads initiative, right? So that's very consistent commentary. For Q2, the promotional environment remained highly rational, right? And we don't expect the promotional environment to be irrational in the back half of the year. So as Will mentioned in his remarks, the high point of gross margin for the year, and I especially want to note that gross margin will fluctuate on a quarterly basis, right? And that would be helpful to remember. This is the case because while we pride ourselves on being disciplined, we also pride ourselves in being able to run the business dynamically each quarter. So for example, we will lean into opportunities where we believe July will benefit long term. For instance, we may lean into Autoship subscription growth if we're seeing the right conditions that signals from our marketing teams or on the program ramp supplier ramp, the ramp of phasing the suppliers and sponsored ads may lead to 1 quarter being more meaningful than the other in terms of contribution. The important point to remember for 2025 and in general, is that we plan on delivering a healthy level of gross margin expansion on an annualized basis. So specific to '25, if you recall our guidance, we expect approximately 60% of 25% EBITDA margin expansion to cover gross margin. So clearly, the inferring here is that we do expect to deliver meaningful gross margin expansion this year as well. So where are we investing in the back half. So if you look at our guidance, I'll just sort of like plan mass it out for us, right? At the midpoint, our guidance is expanding by roughly $175 million, 15% of flow-through, you'd expect call an incremental $20 million, $25 million to flow to the bottom line. But we're choosing, right, to invest that back into the growth of the company. whether that's growing the Chewy+ membership program that we believe is going to be super incremental. And part of that incremental incrementality is reflected in our top line guidance or whether it's continuing to grow autoship stronger or whether it's opportunistically evaluating the market in the back half and seeing if there is selective pricing lean and opportunity? If there isn't, then great, we'll take it to the bottom line. But we've sort of left ourselves open to play the marketplace. And SG&A, structurally, this is all within our control. So these are 2 different things that are happening in the way that we will invest in the growth of the business. And the SG&A story, which is a very standardized certain onetime elements, but generally the ramp of our fulfillment facility. Operator: Our next question comes from Rupesh Parikh with Oppenheimer. Rupesh Parikh: So just going back to Get Real and some of your fresh frozen efforts at this juncture, how big do you think the business can go over time? And then I know it's early, but just any characteristics of the initial customers that you're getting into the franchise. And in this sense, are you getting sense of -- do you have a sense of whether you're actually getting new customers just given that launch? Sumit Singh: Sure. Yes. So if we look at the TAM of the category today, we believe it's somewhere in the $3 billion, $4 billion range. And over the next several years, we expect this category to be north of $8 billion, so somewhere in the $8 billion to $12 billion range. The category is growing at mid-teens levels. It was growing faster up until last year. Now it's growing at mid-teens level. And that's a really healthy growth rate for us to be able to get excited about, right? Number three, there is a lot of interest in this category from around the industry, right? You've seen some de novo players already leaning in. You've seen national branded players start announcing their announcement or their product offerings. We're really excited to be partnering with the national branded partners as they bring their products to life in the back half of this year. And alongside that, right, get real we expect to have a meaningful amount of share as the category grows. What is meaningful? We would consider roughly a share position commensurate to Chewy's share position in the industry to be a meaningful share outcome, right? Now given that we've built the capacity, given that we've built the topology to be a 1-day network, right, and given the sophistication that we have in our supply chain, we expect, right, the high gross margin possibility of the vertical to efficiently translate into high EBITDA as well, right? And alongside, you asked about the quality of the customer. Let me answer that now. So, so far, it's early days. We've been at it, what, less than 4 weeks, 5 weeks. And so far, we're seeing roughly 70% of the customers are existing customers, 30% of the customers are net new customers. And that is -- as my earlier comments to Doug indicated, we'd expect that, right? So we're benefiting from the general traffic that the industry will create in marketing the product and we are priming ourselves for conversion using our site experience with Get Real. We'd expect the net pac of this customer to be north of $800 for toppers because we believe they will attach 2 or 3 more categories. And for full meals, we expect this to be a plus $2,500 customer on an annual basis. So we're excited about it. Operator: The next question comes from Curtis Nagle with Bank of America. Curtis, your line is opened, please proceed with your questions. We are not receiving a response, and so I will move on to the next question, which comes from the line of Shweta Kajaria with Wolfe Research. Shweta Khajuria: Okay. Let me try 2, please. Sumit, could you please talk about the advertising environment is the conversations you've had through the quarter? And what is top of mind across advertisers as we think about the back half of this year and potentially even next year? And how it is and how ad revenue is trending or I guess, advertising business, not revenue is trending for you versus your expectations? And then the second question is, generally, what are your expectations as we think about the macro in terms of net household formations for the remainder of this year and also next year. And I asked because there could be inflationary pressure. So how are you thinking about the mix of customer growth versus pricing? Do you still expect it to be call it, low to mid-single-digit percentage growth rate in the back half? Or is there potential for acceleration in the back half of this year? Sumit Singh: Okay. There are 3 questions there. State of the industry and key inputs, our composition of new customers and NSPAC and then 3 [indiscernible] pricing. So let's take them 1 by 1. So in terms of the lay of the land, so let's start with pet household formation trends. Overall, the trends that we spoke about last several quarters have remained consistent, and we're not seeing notable changes relative to those comments, right? With respect to data, the shelter channel, net adoptions remain stable and relinquishments continue to trend down year-over-year. And so overall, we expect at households to be broadly flat to slightly up in 2025, right? So the point on industry continues to normalize, seems to be holding true. Now across the conversations that we're having with our suppliers and interpreting the market from a consumer standpoint, we believe the back half of the year or generally for 2025, the industry remains in low single digit to kind of perhaps the low end of the mid-single-digit range in terms of growth. And so we are clearly taking share, growing on a 52-week basis between 10% and 8% and 53-week basis, the 6% range or so. which we're excited about. And this is on top of the fact that we have tougher comps that we're comping as we move into the back half of the year. So we're excited about that. Now let's talk about our composition. So our growth algorithm, as we've guided long term is a combination of active customers growing low single digit to mid-single digit and NSPAC growing mid-single digits, right? And so we're pleased to essentially maintain that for the rest of the year. We're encouraged by the steady and consistent return to active customer growth that we have delivered over the past several quarters and we expect that to continue on a sequential basis, right? I would remind you that we will be lapping our return to active customer growth in which will result in modestly tougher comps for us in Q4. And even with the tougher comps, we continue to expect to grow active customers at the high end of the low single-digit range in 2025, right? And then when you look at NSPAC, we delivered 4.5% growth in Q2. That is in a normalized environment, which would -- where there is some pricing benefit. Right now, there is no pricing -- or no material pricing benefit flowing through. So we're growing netback at 4.5%, and we would expect, right, NSPAC to continue to trend in that 4.5% to 5%, 5.5% range as we move into the back half. And again, this is through stronger auto ship, stronger product mix, programs like Chewy+ that are driving consolidation. So it makes a lot of sense for us to lean in and continue to capitalize on the growth that we're seeing. And then your final question on advertising, the market -- competitive intensity is side. We don't see generally from a lean end point of view, either suppliers nor competitors lean out. So competitive intensity remains high. We are really pleased with the metrics that we are seeing on our side. For example, our net traffic was up 14% in the quarter, number of sessions. And then on the mobile app side, right, sessions were up over 25% year-over-year. And so broadly speaking, we're attracting customers, and we like that translation layer. When we think about sponsored ads, that continues to resonate really loudly. And we feel good about the continued progress that the business made on ads this quarter, which, again, grew sequentially and we have strong conviction in our long-term target of the 1% to 3% that we have brought to the table. Operator: Our next question comes from Michael Morton with Towers. Michael Morton: Question for Sumit. Bigger picture and then maybe a more near-term one. But Chewy has done an excellent job kind of disproving the fears around competing with retail giants and there are the obvious competitive advantages like customer service. But we were wondering if you could maybe speak to some of the aspects that are missed by us on the outside, where you think your real opportunity is to continue gaming incremental share? And then maybe just internally how this is reflected in your outlook as pet household formation continues to improve? And then just on the hard goods recovery, maybe just a little bit details on volume versus ASP would be helpful. Sumit Singh: So let's start with the second question. It's all primarily volume. There is a very little ASP benefit right now in the hard goods recovery. The primary drivers of hard goods recovery are, as you've heard me talk about it last quarter, I will reiterate that a rapid acceleration and expansion of in stock, higher more products for customers to choose from. We've onboarded over 1,500 brands this year already, and customer reception on the freshness of that inventory is really encouraging for us to see. Number two, our in-stock levels have remained really high, and we want to keep them high and hence, the investment in inventory in Q2 as we move into the back half of the year. Number three, continued exposure for hard goods customers in the way that we're communicating with them, both on-site and off-site. And so overall, we're encouraged by what we are seeing in hard goods and don't expect it to slow down as we've played Q3 so far. So a good story there. And then you -- your higher order question around differentiation. And look, we really always interpreted the playing field as much broader than food and supplies. And when you essentially interpret $140 billion, $150 billion TAM, right, which is increasingly online. The value prop that we are bringing to the market, which is credibly connecting food suppliers, the entire health ecosystem alongside B2B or B2B2C type services options. And then really keeping customers in our funnel and building that layer cake. We do it, in my opinion, in 1 of the most efficient and powerful ways relative to anybody out there. And so there are reasons for that, right? So in the food and supply side, you would think that we are a scaled e-commerce player, but with the personalized service you would expect in a local neighborhood pet store. And that combination is very hard to achieve. And we continue to achieve and outperform and are never satisfied with our performance when you think about it at the scale that we're operating. Then next to it, we have stood up a very large and compelling health TAM, which now we're playing in nearly 100% of the $50 billion Health TAM that is growing at 2x the rate of food and supplies and within that, we've built a very credible set of offerings. So whether it's the fact that less than 1/4 of our customers are interacting through verticals like pharmacy which gives us tremendous headroom to continue to grow in pharmacy, particularly as the vertical continues to move more and more online or whether it's the growth of our compounding business. We haven't talked about compounding for a while. That -- the gross margin -- the compounding -- there's only 2 credible compounders in the country, and we stepped into compounding to offer the first B2C offering for customers, but we're also becoming a more and more choice product for veterinarians who want to lead into compounding services. And the gross margins for compounding are even higher than gross margins for pharmacy and the barriers to entry are really high, right? Next to it, we've built a very credible B2C and B2B software business, which continues to ramp. And so broadly speaking, and now with CVC ramping higher than expectation, it's only excitement that we can sort of project moving in the future. Chewy+ is a program we're excited about, and that's why we believe it was important to inform you that the program is quickly ramped up to become 3% of net sales, exiting the last month of last quarter, and we expect it to continue, right? We see this program in line with the Amazon Prime or Costco membership or a Walmart Plus with similar benefits and similar returns. And so our job is to position it as the best cat membership program in the industry. We're excited about that. So there's lots -- there's lots in front of us that allows us to compete without really being concerned about competitive intensity, that's always -- we are observant of that, but we're really obsessed over our customers. Operator: We have time for 1 final question. And our last question today comes from the line of Dylan Carden with William Blair. Dylan Carden: Sumit, curious, you had some earlier comments about sort of the quality of cohorts improving year-over-year. And I was just wondering if you could elaborate on that. Is that just sort of simply the industry itself stabilizing and improving? Are you doing things to kind of stimulate that? And the growth maybe sort of a related topic, but the growth in auto ship and the outperformance there, which has been relatively sustained over the last 3 quarters. How long do you think that runs? Sumit Singh: So the quality of the cohorts improving is a result of 2 different things, Dylan, and they're both complementing us. One is -- the more customers we push into programs like AutoShip or bring in through programs like Chewy+, the more our ability to keep them in the funnel get them more opportunities we have to talk to them to get them to consolidate their NSPAC and the faster netback consolidation that we see from them. So within the program itself, then we have worked towards improving settlement rates. So for example, if you think about auto ship, there's a -- it's a 2-sided far, right? We're bringing in growth subscription and then we're retaining net subscribers. So we will grow book -- our rate of gross subscription add to autoship has increased, and our second order, third order, fourth order settlement rates into autoships has improved, which then means that the net retention in auto ship is much better. And you see that layer cake building pretty effectively that continues to push a greater portion of our sales moving through ownership. With Chewy+, we're seeing a similar effect, right? Chewy+ members are engaging with and adding and on an average, 3 more categories than nonmembers to their baskets, right? And the mix of cohort is really interesting to us because it opens up Chewy right, to all of the low spending cohorts where we can rapidly consolidate baskets and it's opening us up for high-spend cohorts to expand and discover other products, which are also expanding basket size. So on an average, we see really strong incrementality and the quality of cohorts of the Chewy+ program is healthy. Then we have a large and growing health business and a premium consumables business. Remember, every time I've talked about this in the past, we've mentioned that when it comes to the low-end value segment of the market, which is roughly, in our opinion, 12% of the market or customers it's slightly not the place for Chewy, but everybody else, right, Chewy is the place. And then the final thing is more and more people move in online. So clearly, online is consolidating share from off-line and once we lock these customers in, which we were not doing as well, in my opinion, in '22, '23, you're seeing the results sort of come through here. Dylan Carden: And just curious, Chewy+, I get that it's early days as far as sort of mid-single-digit revenue penetration. But for a lot of loyalty programs, you mentioned Prime, as kind of the majority of the business. Is that part of the intention here. And just from a margin standpoint, let's assume it's the majority of the business, that would be margin accretive. Sumit Singh: So look, I mean, I think we've shared the stat in the fact that in the past that at some point, we did the survey not so long ago, 3/4 of our customers are prime members, right? And so I think that's probably well understood, given how broad the penetration of that program is. But candidly, what we're observing is what we've also shared in the past is that our -- generally, it is well understood that we retain a very high percentage of our customers from going into year 2, right? And so our attrition is de minimis, past kind of a 30-month mark. And you saw that in the way that our pandemic cohorts have settled out, right? And so what happens is that once we have a customer past the 30-month mark, in the past, right, they would rapidly consolidate their share of wallet over to Chewy, right, regardless of whether they are a prime member or not. And now with Chewy+, we're seeing that, that consolidation is happening even faster, right? With Autoship, we're seeing that, that consolidation happens even faster because we've improved the proposition on the Autoship program itself. So that was my point on why we're seeing it both accelerated as well as credibly built netback curves on the back of these 2 programs. And then your other question was around margin. Yes, we expect Chewy+ to be margin accretive right? So as the program ramps, obviously, we're leaning in into the 30-day free trial period. There is the mix of new members to paid members. It will take a few months for the netback consolidation to start coming through. But broadly so, yes, the program will be gross margin rate dilutive, but on a dollar basis, it will be highly accretive and on a contribution profit basis, it will be highly accretive. And so I think you would essentially underwrite a business case where we came to you and said, "Hey, we're investing x basis points, but we get 6x the return in top line, okay? I think that [indiscernible] something that we will underwrite. Operator: Thank you. Those are all the questions we have time for today. And so this concludes our call. Thank you all for your participation. You may now disconnect your lines.
Operator: Good morning. My name is Elliot, and I will be your conference operator today. At this time, I would like to welcome everyone to Root's Second Quarter Earnings Conference Call for Fiscal 2025. [Operator Instructions] On the call today, we have Meghan Roach, President and Chief Executive Officer; and Leon Wu, Chief Financial Officer. Before the conference call begins, the company would like to remind listeners that the call, including the Q&A portion, may include forward-looking statements concerning its current and future plans, expectations and intentions, results, level of activities, performance, goals or achievements or any other future events or developments. This information is based on management's reasonable assumptions and beliefs in light of information currently available to Roots, and listeners are cautioned not to place undue reliance on such information. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. The company refers listeners to its second quarter management's discussion and analysis dated September 9, 2025, and/or its annual information form for a summary of the significant assumptions underlying forward-looking statements and certain risks and factors that could affect the company's future performance and ability to deliver on these statements. Roots undertakes no obligation to update or revise any forward-looking statements made on this call. The second quarter earnings release, the related financial statements and the management's discussion and analysis are available on SEDAR as well as on the Roots Investor Relations website at www.investors.roots.com. Supplementary presentation for the Q2 2025 conference call is also available on the Roots Investor Relations site. Finally, please note that all figures discussed on this conference call are in Canadian dollars unless otherwise stated. Thank you. You may now begin your conference. Meghan Roach: Thank you, operator. Good morning, everyone, and thank you for joining our Q2 2025 earnings call. On the call today, I will discuss the highlights of our financial performance and strategic initiatives in the quarter before passing it on to Leon Wu. Roots performance in the second quarter was exceptionally strong. Q2 2025 sales of $50.8 million rose 6.3% year-over-year, driven by direct-to-consumer comparable sales growth of 17.8%, our highest comparable sales growth since the company went public in 2017. Our sales reflect the continued execution of a cohesive, multipronged omnichannel strategy focused on creating a compelling product offering, a seamless omnichannel experience for our customers and investing behind engaging branding and marketing. During the second quarter, our lifestyle, active and sweats categories all experienced growth, which speaks to the positive impacts of our diversification efforts. In late July, we also launched a new addition to our active category, the Roam collection, one of our most significant innovations to date. Designed to life on the move, it further enhances Roots usability for travel. Roam incorporates proprietary breathing technology, which delivers performance at every layer while preserving the signature Roots softness. The products have moisture wicking, odour-resistant properties and stain and water repellency while feeling incredibly soft in the skin. This collection gives our customers versatile functional options that bridge performance and lifestyle, staying true to Roots commitments to quality and innovation. Further supporting our sales during the second quarter, we executed two highly visible brand-right collaborations that were aimed at driving demand and engagement during the summer period and resonated nationally. Our Molson Canadian X-Roots co-branded drop featured the Canadian, Canadian can and the first ever insulated can holder crafted from our Salt & Pepper fleece. Time to launch around Canada Day, the collaboration included an event in Ontario Cottage Country alongside the chance to win products. The program delivered extensive media and social engagement around Canadian Pride and summer occasions. The Canada Dry x Roots limited edition summer collection was made in Canada capsule with a small selection of apparel and accessories inspired by [indiscernible] dry creative. It was supported by an experiential pop-up in Toronto in July and a second drop in late August. The activation combined product storytelling with sampling to deepen engagement and conversion. Together, these collaborations amplified brand heat, reinforced our heritage positioning and extended our reach for authentic Canadian cultural moments. We will continue to use selected partnerships and experiences to elevate brand perception and support full price sell-through into fall. Our brand ambassador program also scaled significantly this quarter with a number of partners in market doubling year-over-year. By developing content that spans the full marketing funnel, our ambassadors are helping us to reach targeted audiences in priority markets with authentic storytelling that strengthens brand affinity and drives conversion. This continues to be a cornerstone of our marketing strategy. We also increased our consumer engagement through events that brought the brand to life in dynamic and accessible ways. A highlight included our golf and tennis inspired activation, where we transformed a parking lot into a family and nature-friendly urban experience. Our direct-to-consumer sales growth also reflects improvements in our store footprint in the quarter. In early July, we opened our new Vancouver flagship and expanded in design forward space that showcases our latest retail concept. The store blends nature and technology, including a preserved moss wall with a custom moss bever, a commission light box ceiling featuring Stanley Park, allographic screens and large-format digital screens. This opening enhances our presence in the top Canadian market and provides a modern platform for product discovery. Since the opening, Roots has realized a notable increase in sales in the market. Our updated Mont-Tremblant store also reopened in July. As a year-round travel destination, this store plays [indiscernible] in the local area with a design that fits perfectly into its beautiful surroundings while adding modern touches such as digital screens to provide additional brand touch points for consumers. In addition to Root's impressive sales growth, gross margins also expanded 430 basis points year-over-year. This reflects both the continued strength of our direct-to-consumer margins due to Root's improved sourcing strategy and more disciplined markdown management as well as a shift to higher-margin business lines in our Partners and Other segment. The lower markdowns reflect our investments in AI-driven allocations and replenishment software as part of our commitment to building a more agile, efficient and technology-enabled organization. As mentioned in previous quarters, due to the seasonality of Roots with approximately 30% of sales generated in the first half of the year, seasonal fluctuations exist in our underlying earnings. And as a result, Roots typically generates a loss in the first half of the year and positive earnings in the second half. We were pleased to see the improved sales and gross margins lead to a 47.9% reduction in adjusted EBITDA losses, excluding the impact of the DSU revaluation in Q2 2025. As we enter an important second half, our balance sheet remains healthy, and our inventory positions us well to support our growth ambitions. I will now turn the call over to Leon Wu, our Chief Financial Officer. Leon Wu: Thank you, Meghan, and good morning, everyone. I'm excited to be sharing our second quarter results, reflecting the fourth consecutive quarter of strong growth in sales, gross margin and profitability while reducing our net debt. Despite the dynamic global operating environment, Roots continues to build positive momentum as we head into the second half of the year. Starting with sales. Total sales in Q2 were $50.8 million, increasing 6.3% as compared to $47.7 million in Q2 2024. The growth in our total sales was driven by our direct-to-consumer segment, which achieved $41 million in sales, marking a 12.7% increase relative to last year of $36.4 million. Notably, our comparable same-store sales grew 17.8% in the quarter, and the growth was equally impressive on a 2-year stack basis of 17.6%. Our DTC sales growth reflects a strong customer response to both our core favorites and lifestyle pieces from the spring and summer collections and the brand building excitement from our ongoing investments in brand campaigns, increasing out-of-home and digital media presence and through exciting collaborations and activation events. We continue to invest in our store fleet, focused on providing the best brand experience during every customer visit, while driving long-term comparable sales growth and boosting overall 4-wall profitability. This strategy involves prioritizing capital to update our stores in key locations and in certain instances, purposely consolidating or resizing our stores. As a result of this strategy, we operated with 5 less stores during Q2 2025 as compared to last year and had temporary store disruptions at two larger locations during the renovations that took place in Q2, which partially offset the strong DTC sales growth in our comp stores. Construction at our Robson Street flagship store in Downtown Vancouver and the renovation of our store in the heart of Mont-Tremblant Village in Quebec were both completed in July. We are very pleased with the early read on their results and the refined experience offered at each location. Our partner and other sales were $9.7 million in Q2 2025, down 14.2% compared to last year. The decline in this segment was driven by the reduction in wholesale sales to our operating partner in Taiwan as they continue to work through their inventory optimization initiatives during this year. Consistent with the prior quarter, this decline was partially offset by strong double-digit sales growth momentum in each of our other lines of business within the segment, comprised of China Tmall e-commerce, B2B wholesale and licensing royalties. Due to the higher margin of these businesses, the gross profit of the partner and other segment improved 10.1% year-over-year despite the temporary decline in the segment's sales. Total gross profit was $30.8 million in Q2 2025, up 14.5% as compared to $26.9 million last year. The growth in gross profit dollars was driven by the gross margin expansion in both segments and the higher year-over-year DTC sales growth. The total gross margin was 60.7%, up 430 basis points compared to Q2 2024. Q2 2025 DTC gross margin was 63.2%, up 150 basis points compared to 61.7% last year. The DTC gross margin expansion was driven by 170 basis point improvement to our product margin, driven by continued improvements to our product costing and lower discounting. This was partially offset by the unfavorable year-over-year foreign exchange on U.S. dollar purchases. SG&A expenses were $34.7 million in Q2 2025 as compared to $31.8 million last year, marking an increase of 9.1%. Within SG&A expenses, there was $0.6 million of incremental year-over-year costs recognized pertaining to the unfavorable revaluation of cash settled instruments under our share-based compensation plan, which is directly tied to increases in our share price. Excluding this item, SG&A expenses would have increased by $2.3 million or 7%, primarily reflecting the higher variable costs from our sales growth, supported by higher investments in marketing and personnel costs. This increase was partially offset by occupancy-related savings from our store fleet strategy. We have seen great initial results from our marketing initiatives over the last few months, balancing short-term sales driving marketing tactics with long-term investments that enable authentic brand storytelling, increased brand reach and memorable brand experiences. As we head into the peak fall and holiday seasons, we expect to accelerate our marketing investments to build on the brand momentum and support long-term growth. Our Q2 2025 net loss was $4.4 million, improving 16.1% relative to last year, and our net loss per share was $0.11, improving 15% year-over-year. Similarly, our Q2 2025 adjusted EBITDA was a loss of $2.1 million, improving 32% as compared to a loss of $3.1 million last year. The strong improvement in our profitability reflects the strong store sales growth and margin expansion achieved during the quarter. As a result of the continued appreciation in our share price during the quarter, we recorded a net incremental $0.6 million DSU revaluation expense in Q2 2025 as compared to Q2 2024. Without the DSU revaluation expense impacts, our net loss would have improved by 26.8% and our adjusted EBITDA would have improved by 47.9%. As mentioned last quarter, due to the seasonality of our business and with the first half of the year only accounting for approximately 30% of total annual sales, we typically generate small operating losses during the first 2 quarters, offset by earnings in the larger second half of the year. Now turning over to our balance sheet and cash flow metrics, which reflect the strong sales and profitability results in the quarter. Our Q2 ending inventory was $49.9 million, increasing 13.5% as compared to $44 million last year. The year-over-year increase in inventory, largely consistent with our DTC sales increase was primarily driven by improved inventory positions of our core collections and seasonal newness for the upcoming fall and holiday selling periods. Our Q2 free cash outflow was $6.9 million, improving from an outflow of $9 million last year. The year-over-year improvement in free cash flow were driven by sales growth, ongoing management of working capital and earlier receipt of inventory that would have been paid for in the first quarter of this year, but reflected in the second quarter last year. Due to the seasonality of our business, we typically see cash outflows as we build up our working capital ahead of our peak season before generating larger cash inflows through the higher volume fall and holiday season. During Q2, we repurchased 492,000 common shares for $1.5 million under our normal course issuer bid. As of the end of the quarter, we were eligible to repurchase up to 740,000 common shares under the current NCIB program, which is in effect until April 10, 2026. Our net debt was $38.1 million at the end of Q2 2025, down 6.5% as compared to $40.8 million at the same time last year. Our net leverage ratio measured as net debt over trailing 12-month adjusted EBITDA was approximately 1.6x. I will now pass it back to Meghan for closing remarks. Meghan Roach: Thank you, Leon. We were pleased with the performance of our business during the second quarter. The first 5 weeks of Q3, which include the back-to-school period, continue to show positive trends. Undoubtedly, uncertainty remains in the global economy. We remain focused on executing our strategic initiatives and managing those items within our control while navigating the evolving global landscape. We look forward to updating you on our fall and early holiday results in December. Operator, you may now open the call for questions. Operator: [Operator Instructions] We have a question from Brian Morrison with TD Cowen. Brian Morrison: I want to ask a question. So congratulations on the strong top line. I want to understand your marketing going forward. I understand the impact from seasonality this quarter. But just in terms of the strategy, do you continue to have elevated marketing plan for sales to grow into operating leverage? Or is this going to get pared back over time? Maybe just a little detail on your marketing campaigns? Meghan Roach: Yes. For this year, we do plan to have elevated marketing expenditures because we are planning to continue to emphasize the key aspects of the brand that I think we believe the market hasn't had a chance to really explore and see over the last couple of quarters or the last couple of years. So you will see us continuing that into the third and fourth quarter. And that will include things like increased investments on brand ambassadors, more events at store locations and more prominent individuals being part of our campaigns as we get into the fourth quarter. So that is something we anticipate being elevated for the rest of the year. However, we are looking at the business overall and trying to drive operating leverage. So although we are investing higher levels in marketing, we do hope this translates into higher sales. And over the longer term, we are really focused on driving continued operating leverage into the business. Brian Morrison: Okay. And then in terms of your store optimization, clearly, it's working here. But are you pleased now with both the number of stores you have and the format of the stores that you have? Are they where you want? Leon Wu: Yes, Brian, this is a strategy that we will continue to look on both opportunistically as well as based on our lease flow. Generally, all of our stores or most of our stores are profitable. We are happy with the evolution, especially with our top-tier stores. And as we look into the next few years, we do see a few stores on our road map that are great potential renovation stores and/or optimization stores. But it's something that we'll continue to look at. And we also brought our Head of Omnichannel, Rosie last quarter, which will together continue to work through that. Brian Morrison: Okay. And sorry, Meghan, it was tough to get on the phone with the operator, but I did want to ask your back-to-school comment, you said positive trends are ongoing. Does that indicate that -- to the extent she can talk about, does that indicate that trends are similar from a same-store sales perspective as to what we just saw in Q2 or just positive trends relative to year-over-year? Meghan Roach: Yes, we're looking at it on a year-over-year basis. So we've seen positive growth year-over-year. It's really early in the quarter. So we're not giving much more specificity around the quantum of that. As you can imagine, September, October as a whole are pretty big months also within our quarter. But we're happy with the way that things are trending and how our products are resonating with consumers. Brian Morrison: Okay. That's all for me. Congratulations. Operator: [Operator Instructions] We have no further questions. So I'll now hand back to Meghan Roach for any final remarks. Meghan Roach: Thank you for joining us this quarter. We are really happy to see our financial results and the great performance in the second quarter. We look forward to speaking to you in December. Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Ladies and gentlemen, welcome to the Baloise Group Half Year Results 2025 Conference Call and Audio Webcast. I am Mathilde, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Markus Holtz, Head of Investor Relations. Please go ahead, sir. Markus Holtz: Thank you. Good morning, and welcome to Baloise Q&A call about our half year results 2025. Today, we have our CEO, Michael Muller; our CFO, Carsten Stolz; and our CIO, Matthias Henny. We start with a quick overview of our results. For this, I hand over to Michael. Michael Müller: Thank you, Markus. Dear analysts and investors, ladies and gentlemen, I am happy to welcome you together with Carsten Stolz and Matthias Henny to present our half year results 2025. First half of '25 was a period marked by significant strategic decisions and operational successes. We not only successfully started to execute our refocusing strategy but also laid the foundation for further profitable growth with the planned merger with Helvetia, paving the way for a successful new area. In addition, and most importantly, our thoughts remain with the people of Blatten who were affected by the landslides in May. In these challenging times, we stood by our customers swiftly, compassionately and with a little bureaucracy as possible to offer the support they urgently needed. We again proved our commitment to being there when it matters most. Today, I am proud to present a strong set of half year results. Let me start with the key messages on Page 5. First, our refocusing strategy is working and fully on track. Over the past months, we have worked relentlessly on implementing our strategy and to further optimize our core business. This includes a broad set of measures to improve technical profitability and operational efficiency. These initiatives are proceeding as planned, including a targeted reduction of 250 FTEs by '27. After one year, we have already achieved over 50% of this goal. Second, I am very pleased to report that the strategic progress is also reflected in our financial results. Our combined ratio improved by 2.6 percentage points. Net profit increased by 26%. Return on equity rose to 15.5%. One year into our refocusing strategy, it's evident that we are making sustainable progress. Thanks to a clear focus, determined execution and above all, the dedication and hard work of our employees. I would like to extend my sincere thanks to all of them. And finally, we are well on our way in the preparation for closing the planned merger with Helvetia and are confident that we will obtain all necessary approvals in the coming weeks and months, enabling us to complete the planned transaction in the Q4 by year-end. Financial targets for Helvetia Baloise will be shared at the Capital Markets Day next year, together with the full year '25 results. IFRS and cash remittance will remain key KPIs. Now let's take a closer look at our half year figures. For that, I hand over to Carsten. Carsten Stolz: Thank you, Michael, and warm welcome from my side. The first half of 2025 shows progress in refocusing Baloise. We see growth in target segments. We see improved profitability. We are on track with our strategic targets, and we enhanced the return on equity. Let me go one by one. First, we grew in target segments in Non-life, especially due to a disciplined pricing approach where growth amounts to 3.1% in local currency if we adjust for the portfolio exits in Belgium. The investment type premiums rose sharply by 41.2%, thanks to increased contributions from Luxembourg and Belgium. The decline of 10.1% in Life mainly reflects the continuing trend in Swiss group life towards semi-autonomous solutions. Secondly, we improved profitability. Net profit increased strongly by 26% to CHF 276 million, driven by stronger results in Non-life and Asset Management & Banking. Life remained at the very healthy level of the previous year. The Non-life business benefited in particular from a very strong combined ratio, which improved by 2.6 percentage points to 90.6%. Third, based on our results, it is clear that we remain very well on track to achieve our target of remitting more than CHF 2 billion cash for the period 2024 until 2027. Finally, our capitalization remains on a strong level. While CSM and equity declined slightly, return on equity rose from 13% in half year 2024 to 15.5% in half year 2025. Slightly above our target range of 12% to 15%. The driver was the improved underlying profitability. The estimated SST ratio improved to around 215% as a result of slightly higher interest rates and higher market values of Swiss properties. Our rating of A+ was confirmed in June by Standard & Poor's. So in summary, we have earnings momentum, high earnings quality, rising capital productivity and sustained strong cash generation. Now let's take a look at Page 9 at our 4 core markets. In Switzerland, Non-life grew by 1.7%, mainly due to disciplined pricing. In Life, the market trend to semi-autonomous solutions continued. EBIT rose by 58.3%, mainly driven by Non-life, which benefited from an excellent combined ratio of 88% and a good financial result. In Belgium, we kept our focus on profitability over growth. This also included a far-reaching exit of the transport business as already mentioned in our full year 2024 results. Adjusting for this exit, growth was 1.2% in Belgium Non-life. Life grew by 15.1% driven by investment products. In Belgium, the combined ratio slightly improved to 92.5%. The proportion of claims covered by our group internal reinsurance was lower than in the previous year. This resulted in a lower EBIT. In German Non-life, premiums rose by 8.5%, supported by strong new business and price increases. EBIT increased by 11.9% due to operational improvements. Luxembourg showed solid growth in Non-life, plus 5.5% stemming from both price increases and volume effects. And in Life, plus 45.8%, driven by higher investment type premiums. EBIT declined due to a lower result from investments and financial contracts. Let's look now at our operating segments, starting on Page 15. In Non-life, EBIT reached CHF 229 million, a strong increase of 85.6%, driven by a variety of improvements. The insurance service result rose in line with a better combined ratio. The combined ratio improved to a very strong level of 90.6%. And benefited from the better loss ratio, which reflects an enhanced portfolio quality and lower large claims, including fewer nat cat events. The finance result rose to CHF 96 million, driven, among others, by a positive development of the Swiss property market. Other income and expenses finally benefited from our operational cost efficiency measures. Let's move on to the Life business. The Life EBIT remained stable at CHF 143 million on the very healthy level of the previous year while a higher insurance service result and lower costs were offset by a lower finance result. Also, the CSM release was on a similar level as last year. The CSM slightly declined to CHF 4.9 billion due to operating variances. The normalized CSM growth was positive at 0.5% with the expected business contribution and new business CSM more than compensating the CSM release. Please note that we aligned the presentation of the expected business contribution to market practice. It now includes a spread over the risk-free interest rate, which was previously captured in the economic variances. The nonannualized CSM release ratio amounted to 2.8%, slightly above the previous year value. Let's look at our Asset Management & Banking segment. The impact from our optimization measures is also reflected in the results from asset management and banking. We achieved in banking a higher fee and commission income and lower expenses. As a result, EBIT rose to CHF 26 million. This is also reflected in the improved cost/income ratio of 60.3%. In Asset Management, third-party assets increased due to higher contributions from multi-assets and real estate. The EBIT reached CHF 24 million, supported by an improved contribution from the third-party business. Thanks to these higher contributions from the bank as well as from Asset Management, the segment delivered a pleasant EBIT growth of 18.4%, up to CHF 50 million. In summary, we delivered a successful first half of the year with strong results across all segments, reflecting the quality of our business and the progress in optimizing our core business. The measures initiated and implemented in the refocusing strategy deliver financial results. With this, back to Michael. Michael Müller: Thank you very much, Carsten. Let's open directly the Q&A. As already mentioned, besides Carsten and myself is also Matthias Henny, our CIO here for the questions and answers. Operator: [Operator Instructions] The first question comes from the line of Simon Fössmeier from Vontobel. Simon Fossmeier: Just one question on the Life segment. I understand the decline in premiums. I'm surprised about the much lower new business margin. It's just -- it feels that interest rates haven't declined that much. Is that due to business mix? Or what's the driver here? Can you please explain that? Michael Müller: Thank you very much for the question. I think Carsten will go directly into this answer. Carsten Stolz: Yes. Simon, thanks for your question. It is exactly as you said, it is due to business mix, which explains the lower new business margin in half year. We have underwritten a lot of business, for example, in capital-light products. And this different business mix on the new business side in the half year explains the development of the new business margin. Operator: The next question comes from the line of Farquhar Murray from Autonomous. Farquhar Murray: Three questions, if I may. Firstly, just honing in on German Non-life. I wondered if you could detail what's driving the 8.5% growth in business there that ideally maybe split that 8.5% between tariff and volume effects. And then just on the other EBIT line, the minus CHF 63 million. Why is that more negative than the historic average? It looks like you might have put some costs through there? And then very finally, on the Life CSM development, what's driving the minus CHF 77 million operating variance this half? Michael Müller: Thank you very much. I will go to the first one. And after that, the EBIT on other and CSM bulk, give hand over then to Carsten for that. So as we already mentioned, this growth in Non-life in Germany, it's about 8.5%. It's coming from price effect, which is a little bit more than 50% coming from price effect and the rest is from volume effect. So it's from both sides, but slightly bigger part is coming from price effects. So tariff changes and things like that. And for the EBIT other, Carsten. Carsten Stolz: Thank you for your questions. So the development in the other line that you alluded to is linked to costs in connection with the refocusing strategy and the planned merger with Helvetia. And your question with regard to the CSM walk and the drivers of operating variances. This is linked to a portfolio development, mainly lower volumes in the Swiss Group Life business and the associated decline in premiums as well as updated of operating assumptions. Farquhar Murray: Okay. Just a quick follow-up on the other EBIT line. How much were the costs you put through there? Carsten Stolz: No, we have not detailed these costs. We don't detail them out. Operator: We now have a question from the line of Michael Huttner from Berenberg. Michael Huttner: My question is pretty much similar to those that have been asked, but maybe I can ask them differently. On the other line, what figure should we put in the full year? Because I mean the CHF 38 million to CHF 63 million, there's no trend here. So it -- and you presumably now know how much costs are still to come on either the merger or the refocusing strategy? And the second, Swiss real estate so lovely contribution from revaluations in Non-life, CHF 35 million. Is this a figure that we can now start repeating? Your lovely IR explained that the revaluation was 2%, but I just wondered what the trend is here. The other question is on Belgium. Why Belgium in your lovely chart by country. You said that the contribution of Belgium is down a lot. And I couldn't -- I mean, I heard your comments about refocusing volumes and stuff, but going from CHF 85 million to CHF 50 million seems kind of strange. And then the last question really is you actually virtually achieved your refocusing strategy target, so your 90.6% target, I think, is 90%. Is there anything here that you would say no, be aware there's seasonality and we're really not there? Or is it simply that the refocusing works much quicker? Michael Müller: Thank you very much, Michael, for these questions. I will start with refocusing strategy. So with the last question you had, and then also hand over for the EBIT part to Carsten and for the property in Switzerland to our CIO, to Matthias. So just starting the refocusing strategy. I think we are fully on track with our strategy. It's a half year result. Let's say, those are like that, it's always till end of year because it's also some -- sometimes it's also a question how many events you have in the first or the second half year. So for me, it's also -- let's see, at the end, but we are fully on track to our target of 90%. With 90.6%, yes, we are on a good track, but it's not fully reached. So we are also aiming for really going to the 90% overall. And I think that's where we stand at the moment. Also looking at indicated on another level, also FTE, I think we are really fully on track but it's worth to do also in the future. And it's looking at the portfolio and steering portfolio is daily business, I think. So we need also to go there in the future to reach all our goals over the time. But we are confident to reach them. Then we go to the EBIT on other, perhaps. Carsten first. Carsten Stolz: Yes, Michael, on the other EBIT, there will be effects also flowing through this line in the second half. But as we speak, we cannot provide a run rate or an outlook on this line but there will be further costs associated with the execution of the strategy and the planned merger. Michael Huttner: And just a follow-up, does this -- is this then all done in 2025? Or should I also have this slightly higher level going forward? Carsten Stolz: Well, when we talked about the way ahead and as announced on -- in April, the total integration time of the planned merger will take the next few years. And we indicated CHF 500 million to CHF 600 million of integration costs stemming from that. And the value created against these CHF 500 million and CHF 600 million is just to recall on top of the stand-alone strategies, the CHF 350 million in run rate synergies that should translate into more than CHF 200 million run rate improvement on cash remittance and 20% dividend uplift in terms of dividend capacity. So zooming in again on your question, there will be integration costs in the context of execution of the merger in the next years as indicated. And maybe I just also take the decision on -- or the question on the EBIT Belgium right away before I then hand back to Matthias for the property question. So on group level and on a consolidated level, Belgium is contributing pretty strongly and consistently also with the last year to group results. From a segment perspective, as you rightfully say, Belgium shows a lower result in the first half year. It is a group internal shift highly related to the internal reinsurance structures. But on a consolidated view, Belgium is -- this effect is more or less neutral. And with this, over to you, Matthias, with regard to the property valuation effect. Matthias Henny: Michael, the appreciation in investment property value, as you mentioned, is somewhat above 2%. If you combine Non-life and Life together divided by the overall property value that we have for insurance assets. It's mainly coming from Switzerland, where the real estate market is developing very favorably compared to, let's say, 3 years ago when we had much higher interest rates. Now interest rates have come back to 0 at the short end which drives, again, real estate prices. This is a general phenomenon. We see it across the market in Switzerland. And given the strong fundamentals, we expect this trend to continue. I mean we still have very solid or good economic development in Switzerland. We have immigration. We have limited land reserves in Switzerland as such. So fundamentals are still very favorable. And this also is then reflected, obviously, in our valuation of our properties. We continue to have a conservative approach in valuing our real estate. So even after this appreciation, we are still at the lower end of a typical pricing range in real estate valuations. Operator: [Operator Instructions] We now have a question from the line of Nasib Ahmed from UBS. Nasib Ahmed: Two on Life insurance and one on Non-life. Firstly, on life insurance, I understand the trend towards semi-autonomous and you're losing business and premium there, but it doesn't seem like you're recapturing it in Perspectiva because AUM is flat, a number of companies is flat as well. Who have you lost that business to? Second question on Life as well. The average guarantees in Belgium increased by 0.1% versus full year. So I think the 1.7% versus 1.6%. What's -- why have the average guarantees increased in Belgium? And then finally, on Non-life, similar question to Farquhar, but on Switzerland. What was the tariff increase with the volume increase in Switzerland over the first half? Michael Müller: Thank you very much, Nasib. So I will first take the Life part and then for the Life average guarantees in Belgium, I hand over to Carsten. For the Life part, yes, there is a trend to go to more to semi-autonomous solutions in Switzerland, and we have also our semi-autonomous solution with Perspectiva. It is a growing solution. During the last years, it was quite heavily growing. It's close to CHF 2 billion now assets, which are coming or invested in Perspectiva. But it's not the solution for all of these parts. It depends always also what clients are looking for. So not everything is going then into Perspectiva. But it's a growing part. I think a little bit of broader picture, I think, overall, we have also a growing part of third-party asset management, which is also coming from the -- let's say, from the same segment at the end because that's often also part is coming from the bank, which are more individual clients, but there is also a part coming then also for fund solutions in Switzerland, which is also a growing part in our business model. So overall, I think there is also some kind of a shift in different business models in that area. And second one is about the Life average guarantees in Belgium. Carsten? Carsten Stolz: Yes. Thank you, Nasib for your question. So in Belgium, we increased guarantees for some products, but it's products where there is full ALM matching for these products. So for example, there is no negative impact stemming from duration gaps or others. And therefore, these effects are neutralized. It's worth noting that these guarantees are time-limited guarantees and therefore, can adjust to different environments in subsequent years. And then with regard to the Non-life Switzerland price and volume effects, we -- the main effect in Switzerland is stemming from pricing measures. Nasib Ahmed: Yes. So 1.7% is pretty much all price and volume flat? Carsten Stolz: There's a positive price effect and in some areas intended negative volume impact in the context of steering the portfolio, but resulting overall in the stated growth that you mentioned. Nasib Ahmed: Okay. And just a follow-up on Perspectiva. Do we think about the loss of full insurance business as going into Banking, Asset Management and Perspectiva? So the third-party growth in AUM is driven by some recapture of the business. Is that correct? Michael Müller: Sorry, I didn't get the question. We had some problems in the line. Well, can you repeat, please? Nasib Ahmed: Yes, Sure. The third-party growth in AUM, in Asset Management & Banking, is that some recapture of the full insurance product in there back into Asset Management & Banking? Carsten Stolz: So the growth in -- that has been achieved in Asset Management & Banking from the asset management side with regard to third-party business is in the intended area of multi-asset and real estate, in particular, that's where the growth comes from. Matthias Henny: Yes, exactly. So it's fully in line with the strategy that we laid out a year ago. We focus on multi-assets, which is mostly sold over the insurance and banking channel and real estate in Switzerland, which is distributed mostly amongst institutional investors, pension funds, but to a certain extent, also wealth management mandates and the like. And we are well on our path to reach the goals that we set out a year ago. Operator: [Operator Instructions] The next question comes from the line of Rene Locher from ODDO BHF. René Locher: So the first question relates to Slide #6. There you see cash [ remittance ] is okay. You want to pay out 80% of the cash remittance per annum. So I did a calculation, if I go for like CHF 500 million run rate, 80% payout, I end up at CHF 400 million, divided by 45 million, 46 million shares with a potential dividend of [ CHF 8.80 ]. Now I can see in the market that a lot of my colleagues, they are going for a dividend of the combined ratio of CHF 770 million to CHF 780 million. So I was wondering a little bit if all shareholders are getting a lower dividend than the CHF 8.10 they received for last year. That's the first question. The second one, on the Non-Life market, I think with the half year results, we have seen quite a lot of companies with mid-high single-digit growth rate in Non-life and combined ratios well above 90%. Now on the other hand, we can see Baloise growth, 1.7%, combined 88%. So I'm wondering a little bit, Michael, perhaps you can comment a little bit what's the dynamic in the Swiss Non-life market. Then the third question, I guess this is for Matthias. I have seen that your Baloise Swiss property fund, you have a successful cap increase of CHF 135 million. Now you add 50 million in bonds and you are buying CHF 185 million market value real estate from the Baloise Insurance business. I mean just again, big picture, why are you doing this? And what are the -- yes, the impact on the numbers because you're losing rental income, I guess you will get the money from the fund. Just to get a little bit understanding what's the big picture here. Michael Müller: Thank you very much, Rene. So I will go for the first two ones and then hand also over to Matthias for the third one. So just for the first question you had, it's about our dividend policy. You refer to Slide 6, where we have our last year announced policy with a payout ratio of 80% or higher with our Baloise view on that. You did that's also some calculation about the future, which is a combined future planned merger with Helvetia. And for sure, that we have to align processes and the new Board, which then will, after closing be in charge also has to define common -- have to define a common view on the policy on payout ratios and also on the dividend strategy. I think something, which is already clear is that the dividend -- being a reliable dividend payer is something which will also be in the DNA for the future company. It's also something which both companies are already in. But just to be clear, the policy has to be defined by the new Board of Directors then starting after closing. Then for the Non-life market, I think you asked about this dynamic in the Swiss market. I think there is not one dynamic. I think you really also have to look on the different business lines there. Overall, I think at least what we see, we have our refocusing strategy and refocusing strategy means that we really want to go to look on our portfolios and also price it in the right level, which then also means that we are doing it during -- with the correct tariffs from our view. And that means also in some areas, perhaps market is not reacting in the same kind or is perhaps also slower or faster that you never know. And then -- but we are going for our part that means in some areas perhaps also that we are going for profitability and not for growth, could be -- I think in the long run, it always goes in both directions because at the end, I think everybody needs then also business which is profitable. So that's where we stand at the moment. But you cannot say now that there is a clear direction in every part or in every business line. I think something you see we had some kind of tariff changes also in motor business over the last months from our side. So I think overall, we have done and steered it as it is from our side, the most profitable view also to all of our stakeholders. And then perhaps, Matthias, about the third one. Matthias Henny: Yes. Regarding real estate in insurance assets and transfer to Baloise's Property Fund, you described well the mechanics that's going on. And the reason for that is that we have decreasing insurance assets in traditional life insurance. This is not something which is new, but it has been there for a couple of years. And this means we also need to reduce the balance sheet with fixed income and equities, it's quite straightforward. With real estate, it's either you sell it in the market, which we do also for some part of our real estate portfolio and the part we want to continue manage ourselves, and we move those properties into the Baloise Property Fund or, for instance, in the investment foundation that we set up a year ago. Like that, we can continue to manage these assets and become also a significant real estate player in third-party asset management area in Switzerland. Now regarding the loss of rental income, yes, that's the case. But that's a normal development if your total assets on an absolute level go down. The same happens to the current income, but on a proportional level, as we don't change the asset allocation on a relative basis, nothing changes. And given the attractiveness of real estate as an asset class, we stick to the maximum that we can legally invest, which is the 25%, which is the limit for tied assets for real estate in Switzerland. Operator: The next question comes from the line of Anne Risold from Octavian. Anne-Chantal Risold: I would have a question on your operational efficiency and FTE reduction and how are you managing the current FTE reduction, given that significant additional wave of staff cut that is expected, particularly in Switzerland with the upcoming merger. Michael Müller: Yes. Thank you very much, Anne-Chantal for this question. So overall, what we are doing at the moment that we have our efficiency program, which is coming from refocusing strategy. There we are fully on track. We are doing that in the same manner as planned. But we are preparing overall. It's also clear that at the moment, we are not -- so we look like we really have to hire people if there are some people going out. But overall, we do not see a higher rate of something which is higher than in earlier years. That's nothing we see. But what we are looking at also a little bit preparing then that we are not -- that we have it as smooth as possible also for the future because there, yes, you're absolutely right. There is a reduction for future and being prepared there is good for the overall situation we do have. Operator: [Operator Instructions] We have a follow-up question from the line of Michael Huttner from Berenberg. Michael Huttner: I had two. One, can you talk a little bit more about the cash? I know you said you're fully on track, but that still leaves -- well, I wonder if you could be a little bit more -- offer a little bit of granularity here, that would be really helpful. And then the CSM release rate in Life. The reason I ask is, although the increase is isn't much, I think it's got from -- well, the average for last year was 2.7% on the half year basis, now is 2.8%. But you're clearly well below your peers. So I'm just wondering here whether we're beginning to see this catch-up, which I think as analysts, we had been hoping for? Or is this just simply noise and we should ignore it? Michael Müller: Thank you, Michael for these questions. It seems to be two questions for Carsten. Cash is always not easy because it's flowing once per year, but -- with the dividend. But I hand over for Carsten for these two questions. Carsten Stolz: Thanks, Michael, for your follow-up questions. So as we are looking at half year results, which show growth, improved profitability and enhanced returns. This signals that also when we shift the perspective from IFRS to statutory accounts where ultimately cash is upstream and remitted from the operating entities that also from that perspective, the house is very much in order. And that's why we can draw the conclusion as we speak, that cash remittance is sustained and we can -- 2025 can contribute to achieving the overall CHF 2 billion target that we have set ourselves. So we are healthy in terms of the foundations to cash remit the success of the financial year 2025 and also up to the holding company. So that's on cash remittance. And with regard to the CSM release, the ratio is slightly up, as you say. It depends on many elements that influence the release. As you know, models play a role, business mix play a role and so on. So looking ahead, we'll move into a joint view for the combined Helvetia Baloise Group. And then we'll see how the picture will present itself. As we speak, our release ratio is the 2.8% that you mentioned, and that's our current situation. Michael Huttner: And can I just ask a very quick follow-up? It's not on this, it's a different topic. I know it doesn't appear on the current accounting, but it used to. What's the picture on PYD in the Non-life business. Have you -- are you releasing more or less? Or are you adding to buffers? Or just to get a feel for -- I know there are no numbers, but... Carsten Stolz: Yes. By and large, after the move from IFRS 4 to our [ IFRS 17/9 ] PYD as such doesn't -- it doesn't show up as such anymore. And that's why there's nothing special to flag about it. So with regard to reserving and the dynamics on the Non-life loss ratio side, nothing has [ changed ]. Michael Huttner: Another way of looking at it, but I know, I'm not sure, I'm walking on thin ice, I don't know what I'm talking about. Yesterday, I was asking a reinsurer and I said, well, one way of looking -- getting a feel for these kind of releases, buffers, whatever is the experience variance in the CSM. Now I have no idea if there is a CSM in Non-life. So I don't know, but is that a way of looking at it? Michael Müller: No, there is -- you can say that it is kind of an experience variance because it's a question of deviation from assumptions which is the basic idea in the Life CSM. In Non-life, there is no CSM because we -- it's handled under IFRS 17 under the premium allocation approach. And I would just reiterate that the guidance that we've given on Non-life side where we said that we have around 4% in large claims in a "normal year" in the new context, 2 to 3 percentage points stemming from discounting effects and those are the major effects that influenced the Non-life combined ratio on the [ IFRS 17/9 ]. I didn't say that there is no prior year loss developments included but they play less of a role. Operator: [Operator Instructions] We have a follow-up question from the line of Rene Locher from ODDO BHF. René Locher: Just a quick one for Carsten. I was wondering if you could quickly explain in a nutshell, how this IFRS 3 business combination will look like. Michael Müller: Okay. That's, I think, not an easy task in a nutshell. René Locher: But we can take it offline. It's okay. Carsten Stolz: So if you say in a nutshell, then I have a pretty small picture of a walnut in front of me. So if you allow me, I claim with -- if you open it, you have 2 nutshells. And if you allow me, I will use both of them. Probably not enough. So in a nutshell, due to the fact that accounting-wise, Baloise will be absorbed by Helvetia. Accounting-wise, Baloise moves into the direction of Helvetia. And that means, in a nutshell, revaluing and reclassifying the balance sheet of Baloise to Helvetia IFRS and then apply purchase price accounting to the combined new entity. So that means by the end of 2025, we will undergo this exercise. The Baloise balance sheet will move into a consolidated view under Helvetia following the [indiscernible] the business combination by absorption. And then from then on, the new clock will tick and we'll then see a new P&L for the combined entity for -- from 2026 onwards basically. [indiscernible] René Locher: No, no that's okay. But we should expect that we will get a kind of an opening balance sheet once , let's say, like in Q1 2026 as starting point, right? Michael Müller: Sure. There will be some opening balance sheet with closing at the end that will be the starting point for the new company. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Michael Muller, CEO, for any closing remarks. Michael Müller: Thank you very much. Ladies and gentlemen, let me summarize our results once again. First, Baloise refocusing strategy works and is fully on track. Second, our strategic progress is reflected in our strong half year '25 financials. Combined ratio improved by 2.6 percentage points, net profit rose by 26%, and return on equity increased by 2.5 percentage points. Third, the preparation of the planned merger with Helvetia are proceeding as planned. With the planned merger, we are on the threshold of a new chapter in our company's history. Together with Helvetia, we will strengthen our business, become one of the leading insurance in Europe and create a strong basis for further profitable growth. We hereby close the call. Thank you very much for joining, and have a great day. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good day, everyone, and welcome to the Methode Electronics First Quarter Fiscal 2026 Results. [Operator Instructions]. It is now my pleasure to turn the floor over to your host, Robert Cherry, Vice President, Investor Relations. Sir, the floor is yours. Robert Cherry: Thank you, operator. Good morning, and welcome to Methode Electronics Fiscal 2026 First Quarter Earnings Conference Call. For this call, we have prepared a presentation entitled Fiscal 2026 First Quarter Financial Results, which can be viewed on the webcast of this call or found at methode.com on the Investors page. This conference call contains certain forward-looking statements, which reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are subject to the safe harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Methode's expectations on a quarterly basis or otherwise. The forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission, such as our 10-K and 10-Q reports. On Slide 4, please see an agenda for our call today. We will begin with a business update, then a financial update, followed by a Q&A session. At this time, I'd like to turn the call over to Mr. Jon DeGaynor, President and Chief Executive Officer. Jonathan DeGaynor: Thanks, Rob, and good morning, everyone. Thank you for joining us for our first quarter earnings conference call. I'm also joined today by Laura Kowalchik, our Chief Financial Officer. Let's start with the key messages. Please turn to Slide 5. I'm happy to report the Methode transformation is firmly on track. There's still much more to do, but the trajectory is according to plan. We had another good quarter for Data Center Power Product sales with growth over the prior year. Our income from operations was up $9 million from the prior year. This was the result of reduction in SG&A costs and operational improvements that we have been sharing with you. This is clear evidence of Methode starting to earn the right as we like to say. Another example of excellent improvement is the third straight quarter of strong free cash flow and net debt reduction. Our management team is maintaining a key focus on both the income statement and the balance sheet. As we look to the remainder of fiscal '26, we are confidently affirming our guidance. Despite all the various headwinds that we are facing, the company still expects to double its EBITDA for the full year, even with a $100 million decline in sales driven by lower EV demand. The ability to affirm this profit growth is a direct result of the significant and tireless efforts of the Methode team. They put a lot of work into our transformation and the progress is tangible. Turning to Slide 6 and our results for the quarter. Our sales were $241 million, down $18 million year-over-year as we continue to navigate the transition in programs that we have previously communicated. We remain on track to launch over 30 new programs this year with most of the launches scheduled for the remainder of the year. In addition, the ongoing strength of our Power products activity was able to partially offset the program transition headwind. We recorded $9 million increase in operating income, driven by the SG&A reductions and operational improvements that I previously mentioned. At the adjusted EBITDA level, we delivered $16 million, up $6 million year-over-year. All of this is further evidence of the actions that we have taken to improve our operations, supply chain and product launch capabilities. In these 3 key areas, our performance in EMEA, particularly in Egypt, has notably improved while we continue to see solid ongoing performance in Asia. Both free cash flow and debt reduction continue to be good stories for us. The business delivered free cash flow of $18 million in the quarter which was the third quarter in a row of strong free cash flow. In turn, we reduced our net debt level also for the third quarter in a row, and we have now reduced it by $41 million over the 3 quarters. These results provide more evidence of an organization whose operating efficiency is improving. Turning to EV activity. Sales were down slightly year-over-year, but we were up on a percentage basis. For the quarter, they were 19% of our consolidated total, an increase from 18% last year. On a sequential basis, they were down from 20%. We do remain bullish on the long-term mega trend in EVs. However, the near-term outlook remains soft, mostly in North America, which is partially being offset by the strength in Europe and Asia. Based on customer EDI forecast and third-party industry projections, we still expect a significant overall rebound in EV sales in fiscal '27. Turning to Data Centers. Sales growth was a solid 12% year-over-year. As a reminder, we did have record sales in the fourth quarter of '25. So not surprisingly, our sales were lower sequentially. However, we still expect fiscal '26 sales to be similar to fiscal '25 with some upside potential. As I mentioned last quarter, we are achieving this performance based on our existing product technologies. We also have an opportunity to leverage our Power expertise developed over decades and honed by our EV activity to capture even more growth. The opportunity is being driven by vast increases in power density sought by data center operators for future installations. Again, too early to share any more details on this, but it is very promising for future growth in our Power Solutions enterprise. Turning to Slide 7. I want to spend a little more time on our Power Solutions enterprise. Power products are in Methode's DNA. Our experience goes back many years, to the time when we supplied busbars and sensors on the Apollo Lunar Landers and on the original IBM mainframe computers. Now those years of experience and expertise are being leveraged on today's power distribution needs in electric vehicle, data center and military and aerospace applications. As you can see from the chart on this slide, those applications have helped drive our Power Solutions sales to a healthy 30% compound annual growth rate over the last 3 years. Going forward, we see even more opportunities for sales growth. For Data Centers, the need for higher voltage busbars is driving further product innovation. In EVs, we are starting to supply interconnect boards for a more efficient power architecture. Lastly, from military and aerospace applications, we are supplying advanced products to meet the growing needs of defense equipment manufacturers. In all these cases, we are bringing our One Methode mindset to bear and drawing on our global creativity to drive innovation by listening to the customers' needs and bringing them solutions like cutting-edge high-voltage power products. Our Power history and DNA are providing Methode with a competitive differentiation in the marketplace. In regard to our forecast for fiscal '26 Power sales, given our guidance for flat Data Centers and decline in EV, our sales will moderate this year before reaccelerating next year. Power Solutions are clearly a long-term growth engine for Methode, and we are actively investing in this area. Turning to Slide 8. I'll give a brief update on where Methode is on its transformation journey. As I have said before, transformations are never easy, and I make a distinction between transformations and turnarounds. Quite simply, the transformation is about fixing a business in a way that enables it to evolve and positions it for future growth. The Methode journey is undoubtedly a transformation. Like any journey, the path is not linear. The first order of business was stabilizing the base, which included the significant organizational changes that we made in previous quarters. It meant focusing on executing program launches while simultaneously revamping plants and installing a new team, all in the face of numerous external distractions. We have worked hard to remediate practices that [ had atrophy ] or institute practices where they didn't exist. We now have better visibility into the business and are driving more global collaboration and efficiency, especially around engineering, product management and supply chain. The work is showing in many areas, but is exemplified in our improved working capital. We are now better positioned to leverage synergies and utilize core competencies to align with market megatrends like Data Centers and EVs. Our improvements are creating opportunities in other areas as well. We have seen a notable uptick in RFQs and RFPs, which is being driven by our ability to leverage our global footprint and respond to market changes. As a result, we are seeing potential future sales growth from takeover business. This takeover business is in both auto and non-auto markets, and it will likely result in even more customer diversity for Methode. While the financial results are not yet where we want them, our team has accomplished much since the beginning of our transformation journey, and a foundation has been laid for us to drive consistent and improved execution. At this point, I'll turn the call over to Laura, who will provide more detail on our first quarter financial results and guidance. Laura Kowalchik: Thank you, Jon, and good morning, everyone. Before I begin, I would like to address the cause of our delay in reporting first quarter earnings. Shortly before our original reporting date, we discovered an inadvertent miscalculation of dividend equivalents. This caused us to exceed our restricted payments basket for the first quarter as per our credit agreement. The amount was not material but was in excess of what the agreement allowed. We subsequently needed time to obtain a waiver from our banks, which we could not disclose until the matter was resolved. The waiver was successfully obtained. Please turn to Slide 10. The first quarter net sales were $240.5 million compared to $258.5 million in fiscal '25, a decrease of 7%. On a sequential basis, sales decreased 6%. The quarter saw continued growth in the sale of Power products, including data center applications. In the Automotive segment, sales were weaker in North America as we continue to experience a net negative impact from the transition from legacy programs to new ones. We also experienced continued sales weakness in commercial vehicle lighting applications. First quarter adjusted income from operations was $2 million, an increase of $6.7 million from fiscal '25. On a sequential basis, adjusted income from operations increased $23.6 million from the fiscal '25 fourth quarter. Please see the appendix for a reconciliation of all adjusted measures to GAAP. On a year-over-year basis, gross profit was relatively flat despite the $18 million on lower sales. The main driver of the improved operating income was a $9.6 million reduction in S&A related to lower professional fees and compensation expenses. In the sequential comparison, the fourth quarter of fiscal '25 included an excess and obsolete inventory expense and discrete inventory adjustments of $15.2 million. Overall, despite the $18 million sales headwind, Methode delivered operating income growth both over the prior year and sequentially. Please turn to Slide 11. Shifting to EBITDA, a non-GAAP financial measure. First quarter adjusted EBITDA was $15.7 million, up $5.9 million from the same period last year. On a sequential basis, adjusted EBITDA increased $22.8 million from the fiscal '25 fourth quarter. As with operating income, EBITDA increased despite the sales headwinds, driven mainly by a reduction in S&A and other operational improvements. Please turn to Slide 12. First quarter adjusted pretax loss was $5.1 million, an improvement of $4 million from fiscal '25. On a sequential basis, adjusted pretax loss improved $23.5 million from the fiscal '25 fourth quarter. Again, the pretax loss improved despite a 7% sales headwind year-over-year and was driven mainly by a reduction in S&A and other operational improvements. First quarter adjusted diluted loss per share was $0.22, a $0.09 improvement from the prior year and a $0.55 improvement from the fiscal '25 fourth quarter. Overall, our cost reduction efforts clearly bore fruit this quarter and set Methode up for improved margins when we return to sales growth. Please turn to Slide 13. The first quarter's net cash from operating activities was $25.1 million, up from $10.9 million in fiscal '25. First quarter capital expenditures were $7.1 million, down from $13.6 million in fiscal '25. The lower CapEx was according to plan as much of the program launch investments are behind us, and we are becoming more efficient in our spending on the new launches. First quarter free cash flow, a non-GAAP financial measure, was $18 million as compared to negative $2.7 million in fiscal '25, an increase of $20.7 million. This increase was mainly due to the lower working capital and lower capital expenditures. This was our third quarter in a row of strong free cash flow. Please turn to Slide 14. Just like free cash flow, we had our third quarter in a row of reduced net debt, a key focus of the Methode management team. Total debt was up $5.8 million from the fourth quarter. The increase was mostly driven by foreign exchange as the majority of our debt is based in euros. We ended the quarter with $121.1 million in cash, up $17.5 million from the fourth quarter. Net debt, a non-GAAP financial measure, decreased by $11.7 million from the fourth quarter to $202.3 million. We have now reduced net debt by $41 million over the last 3 quarters. Please turn to Slide 15. Regarding forward-looking guidance, it is based on management's best estimate and is subject to change due to a variety of factors as noted at the bottom of this slide. For fiscal '26, we are affirming our expectation for sales to be in a range of $900 million to $1 billion. Please note that fiscal '25 was a 53-week fiscal year and fiscal '26 will be a typical 52-week fiscal year. So we will have 1 less week in fiscal '26 compared to the prior year. We are also affirming our expectation for EBITDA to be in the range of $70 million to $80 million, and we expect the second half of the year to be higher than the first half. As you can see from the charts on the right of the slide, we expect fiscal '26 EBITDA to be higher than both fiscal '24 and '25 despite a significant reduction in sales over that same time period. As a percentage of net sales, we expect almost a doubling of EBITDA margin from 4.1% to 7.9%. In regard to free cash flow, as previously noted, we had a strong start to the year. For the full fiscal year '26, we expect free cash flow to be positive versus the negative $15 million in the previous fiscal year. The fiscal '26 guidance assumes the current market outlook based on third-party forecast and customer projections, the current U.S. tariff policy, depreciation and amortization of $58 million to $63, CapEx of $24 million to $29 million, interest expense of $21 million to $23 million and a tax expense of $17 million to $21 million, of which $10 million to $15 million is for valuation allowance on deferred tax assets. Our practice has been to non-GAAP the valuation allowance for our adjusted earnings calculation. So to echo John, this guidance represents a solid foundation for the Methode team to further build on. That concludes my comments, and we can now open it up to questions. Operator: [Operator Instructions] Your first question is coming from Luke Junk from Baird. Luke Junk: Jon, maybe starting with Automotive, clearly most challenging results relative to Methode overall still. I know there's a lot of countervailing factors there. Just hoping to better understand relative to the overall outlook for EBITDA to double this year. How you see the Automotive segment contributing to that incrementally, especially beyond some of the non-repeating operating items that were in the P&L last year? And then even beyond this year, assume out maybe a couple of years? Just kind of what you envision for that business at a high level on the operating side of the house? Jonathan DeGaynor: I think it's important that we separate out by region. That's why we specifically talked about the performance in EMEA and the transformation in Egypt. We have Automotive business around the world and our business in EMEA has significantly improved on a year-over-year basis. Part of the challenge that we have in North America, as you well know, is the transition of some of the historic programs rolling off that specifically hit us in Mexico. So the Automotive business globally, I would say the performance activities are impacted disproportionately in North America due to just the roll-off of that program and the subsequent delay in the EV programs, particularly with regard to Stellantis as we've mentioned to you. So we have a bit of a tremendous amount of progress in EMEA. We have stability and good performance in Asia and we have challenges both from an execution standpoint as we talked about in the Q4 call, but also from a revenue headwind perspective in North America. The second part of your question, where do I see it going forward? As we talked about, we expect to see the volumes start to stabilize and grow in fiscal '27 from an EV standpoint, that will create tailwinds for our Mexican facilities and basically for our North American business. And then you also see some of the Data Center activity that we're putting into Mexico that will help it. So I see leverage from all of our segments in our facilities, and that will help the business going forward. Luke Junk: And maybe a related question, just in terms of Asia. So I know there's been program roll off impacting that business in Automotive as well, if we look at the sales base following that roll off fairly limited on a quarterly basis right now. Just maybe at a high level, strategically, how you're thinking about Asia. And clearly, relative to EV is one of the trends that you're most focused on probably the most opportunity-rich region in China, especially. Jonathan DeGaynor: Yes. Our Asia team, really, in many ways, is leading our activity from development of new product for EV applications. The battery interconnects and some of the other advanced activities are being led out of -- from a manufacturing perspective out of Asia. So they become our -- in many situations, our launch facility and our first -- and our first product development and product validation location. So yes, true, we had headwinds for the roll-off of one customer's programs. But I see a lot of progress there. It's a very well-run organization from an operational and from an engineering perspective as well as from a working capital side. And they built -- they give us credibility with customers, both on the Power side and on the -- both on the Data Center and on the EV Power side, and give us a chance to grow around the world. Luke Junk: Got it. And then maybe just a quick one on the interface business. I know that in the bridge you've given us for the current fiscal year, there was an appliance program roll-off reflected in that bridge. Are we seeing that in the first quarter results yet and to what extent there might be any offsets from the transceiver business that we're seeing in the P&L right now? Jonathan DeGaynor: The reason we did put that bridge in there is the situation is consistent with what we have said in previous quarters. So the roll off, as we talked about in the fiscal year and how they're going to move year-over-year is consistent from 1 quarter to the other. So yes, you're seeing the impact of the roll-offs both from the user interface as well as from the Whirlpool business and then we see the ramp-up of some of the new programs as well as the backfill with some of the data center activity. Operator: Your next question is coming from John Franzreb from Sidoti. John Franzreb: I'm curious, last quarter you provided a slide that kind of really took a deep dive into the tariff outlook. Has there been any change in your tariff expectations, be it positive or negative? Jonathan DeGaynor: There has been no change, John. We had, what, $1 million worth of impact. That's more of a timing thing than it is anything else in the quarter. But we have been pretty consistent in our approach with regard to tariffs, we're not going to bear the extra cost. We worked with the customers on this. And so there has been no change different than what we said in the previous quarters, and we feel pretty confident to the greatest extent we can be confident with the changes in Washington. We feel pretty confident based on what we see right now as to where we're at and the relationships that we have with customers through this. The other thing that I would say is, and I mentioned it a little bit in the additional RFQs. The current tariff regime is actually creating opportunities for us because our facilities -- our ability to -- they are USMCA compliant and our ability to deliver in North America with 97-plus percent USMCA compliance. So it's creating opportunities in RFQs that we didn't see 6 or 9 months ago. We have customers that are new to us. John Franzreb: That's good to hear. And in terms of restructuring actions, can you talk a little bit about how far along are you in this process, Jon? You just got the low-hanging fruit at this point? And maybe some more color of what kind of we should expect maybe in fiscal 2026? Jonathan DeGaynor: Well, I mean, we've talked about the transformation of the leadership team. And in the last quarter, we talked about the move -- the consolidation of the headquarters facility. We're on track with regard to that and believe we'll have everything completed by the middle of this fiscal year, from the headquarters consolidation and facility consolidation. We continue to look at what we can do around the world with regard to reduction of whether it's engineering activities or whether it's warehouse activities or other facilities to take structural cost out. But there isn't anything at this point of a level of materiality. So the -- we reduced head count probably by 500 people, and we continue to refine that. And part of the transformation that -- part of the improvement that underlies the EBITDA growth and the performance growth is just headcount reductions in our different facilities, be it in Mexico or in Egypt in particular. John Franzreb: Got it. And just, I guess, when you look at the end markets, [indiscernible] truck, the ag and construction have been particularly favorable. I'm just curious about your thoughts on how those end markets play out in the year ahead based on what your customers are telling you? Jonathan DeGaynor: So we continue to get indications from our customers as well as from forecasting services like ACT that the commercial vehicle space is still down by 5%. We do expect it to rebound in '26, and we're starting to see -- we haven't seen that come through in EDI yet. What we are seeing is as we've -- our Lighting business has worked very hard to improve our relationships with customers. We're seeing additional RFQs. We're also seeing interest on the Power side from a commercial vehicle standpoint. That doesn't have -- that doesn't have near-term revenue impact, but it does have future impact, and it goes to John, what we've talked about with earning the right with customers from the standpoint of us being viewed as a trusted partner beyond just Lighting. So both on the commercial vehicle side and on the Ag and construction side, we still see softness in the end markets. But we are gaining business based on the improved execution of the organization. Operator: Your next question is coming from Gary Prestopino from Barrington. Gary Prestopino: Okay. A couple of questions here. First of all, when you reported Q4, you gave us a sales bridge for sales guidance for this year. Has anything changed dramatically in that bridge? I mean, are we still looking at a $40 million reduction in Stellantis programs and then about $48 million of other program launches positive on the sales side? Jonathan DeGaynor: And that's the reason why we didn't put the bridge back in again, Gary, as there's nothing to change. So as you think about how you model it, just go back and get that as the basis. Gary Prestopino: And just wanted to make sure there. Couple of questions here surrounding busbars for data centers, okay. Is this mostly a new construction market, what you guys are supplying? Or is there a repair and replace component of this market for these busbars for data centers? Jonathan DeGaynor: This is primarily new construction and everything that we talked about with regard to our guidance is what we would refer to as sort of current technology. We're working with them on future advanced activities. None of that is in our guidance. We're excited about those opportunities, but it's a little bit too soon to talk about from a revenue perspective. But everything that we're talking about here is sort of current product technology and is new construction with multiple end customers. Gary Prestopino: Right. Because the gist of my question is that, yes, it's new construction, I mean, who knows how long this is going to go on with growth in data centers. But I guess I'm getting -- what I'm leading to is -- are the plans -- can this business get to be fairly substantial relative to the whole pie. It looks like from the chart on Page 7, it looks like EV is maybe about 60% of the sales, data centers maybe about 35% of fiscal '25 sales. I mean, is there a way you can make it bigger? Or are you just range bound by the fact that it's a new construction market? Jonathan DeGaynor: No, we're not range bound because remember, we have a relatively de minimis share of the total. So what we've done, and we talked about it in previous calls, to be more responsive to our customers and offer them utilizing our global footprint in a more efficient way than what we've done in the past has allowed us to grow share on the current data center product. That's where you see the growth between fiscal '24 and fiscal '25, that also is giving us opportunities with expansion because we weren't on every one of their designs for the current data centers. But in addition to that, and so that's what we talked about is in our current guidance. In addition to that, then, as they look at putting higher voltages into their data centers and bringing high voltage closer to the rack, we are working to try to help them with that. And that's growth on top of what you see here. So the chart on Slide 7 is historical and yes it is Power activities, not just for data centers, but for Mil/Aero as well as EV. But what you heard me say earlier is now we're starting to talk about commercial vehicles. We're starting to talk about utilizing those core competencies in other pieces of our end markets and with our existing customers as well as what's the next product families with our existing customers like the data center customers. So we expect this as an opportunity for growth. That's what I mentioned in my script. Gary Prestopino: Okay. And then I want to also ask about the EV side of the business here. Can you give us an idea of the percentage of your EV sales that our products for EVs, I should say, that are outside the U.S., which will be mainly China and Europe, I suppose? Jonathan DeGaynor: So the -- we look at fiscal 2025, and that's probably the best way to look at it, so you don't get into one quarter versus another quarter. And remember that we sell things beyond just busbars into EVs. In fiscal 2025 for our total -- our total if you will, EV sales split, roughly $220 million of fiscal 2025 revenue went to EV products, as we said, the 20%; 55% of that was in EMEA, 16% of that was in Asia and 30% in North America. So when we say to you that our exposure isn't just a North American exposure to EVs, it's -- that's the basis for the data. Certainly, we had expected and you go back to the sales bridge that was the start of your question, we had expected significant growth in North America EV, particularly with Stellantis and a few other customers. That's where we see some of the headwinds in North America, but the overall split is balanced between the regions. Gary Prestopino: Okay. So in terms of what you're looking for this year, just particularly with the busbars to the EV market. It's safe to assume the majority of any growth is going to be coming from outside the U.S. just because of the Stellantis program reductions? Jonathan DeGaynor: Absolutely. Operator: Thank you. That concludes our Q&A session. I will now hand the conference back to CEO, Jon DeGaynor for closing remarks. Please go ahead. Jonathan DeGaynor: Yes, I want to thank all of you for joining us and for your interest in Methode and for your questions. We look forward to updating you on our progress in future calls. And have a great day. Operator: Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Langa Manqele: Good morning, everyone, and welcome to our half year results for the period ended 30th June 2025. I am Langa Manqele, the Head of Investor Relations for the Old Mutual Group. Today, we will be taken through our presentation by our new Group CEO, Jurie Strydom, and he will be joined on stage by our Group CFO, Casper Troskie, to present the results. As a reminder, Jurie served in the OML Board as an Independent Non-Executive Director prior to joining the group. We are pleased to have Jurie on board. As you can see on the screen right now, our results can be accessed directly on our website using the QR code that is presented. And we are pleased to also announce that we have added some additional disclosures on segmental CSM and EV. Turning into the agenda for today. Jurie will kick us off with the CEO update, followed by the highlights, which will also include the segmental overviews. Casper will then take over from there to provide the financial review. After which, he will hand over to Jurie, who will come back on stage to cover the outlook and the concluding message. I will then take over from there to facilitate the questions-and-answer session. And at that point, I will ask the operator to just remind everyone about the procedure for asking questions over the Chorus Call as per the norm as well as for submitting written questions over the webcast. And with that, I'd like to hand over to Jurie. Thank you. Johann Strydom: Good morning, everyone. It's great to be with you. My name is Jurie Strydom. My first set of interim results. I've been in the job for just about 100 days. We're talking the proverbial 100 days, just over. But what a privilege for me to be here and delighted to present these to you. I think we thought that given the fact that it's 100 days, we would start with just doing a little bit of a CEO update, giving some clarity on some of the things that we've been talking about internally and that we've aligned upon internally from a strategic point of view and to give you a sense of where we're going before we move to the financial highlights. I think first, just to give a real credit and thanks to the Old Mutual team internally and externally, external stakeholders, staff, leaders just for the warmth that I've received in coming into the group role. And particularly, Iain Williamson, I think just thanking Iain. Iain, thank you for all those coffees and handover conversations and transitions. So I think because we've had a smooth and effective transition, I think we are in a position relatively quickly to give you some clarity on really what are the key focus areas for us as a group going forward and what are the significant shifts that we're making. I think the first thing to highlight is a shift towards really understanding what we mean by creating shareholder value and a focus on creating shareholder value. And you will see that we are moving towards a pivot to group equity value, return on group equity value and cash generation as our strategic KPIs. And those are -- we will give you more detail on those at the Capital Markets Day. We are prioritizing a Capital Markets Day for quarter 4, and we will firm up the date for that shortly. I think if we start to think about the shareholder value creation, there are a couple of things that immediately stand out. I think earning the right to deploy capital for us as a group is key. And I think you'll see -- later on when I get to that slide, you'll see a reference to our multiple 3-year capital horizon framework that will give you a good sense of how we think about earning the right to deploy capital. I think the second key element is demonstrating resolve on cost. I think as you'll see also in our results that there's a real focus on generating margins as a key driver of returns going forward. Now as we move into that, a key element, of course, is in sharpening execution. And you will see already from the 1st of August that we've made some significant operating model changes. Now these operating model changes are really designed to create a sense of clarity on the role of the group as capital allocator and looking after some -- the deployment of capital and governance and as a result of that, moving towards a leaner corporate center. But at the same time, moving towards the creation of clusters that are able to operate in the different segments in an empowered and accountable way. We want to create end-to-end value chain to enable the achievement of group targets to be cascaded down into clusters. We believe that the simplification of the structure for the group is going to go a long way to enable us to be competing better in each of our segments through the clusters. So you'll see the watchwords of accountability, execution, delivery. I mean, these are the things that we're talking about internally, and that -- you'll see that coming through very strongly, I think, in the conversations we have. Just to confirm then the changes we've made in the operating model from the 1st of August, you'll see the appointment of Prabashini Moodley as the CEO of Old Mutual Life and Savings. Old Mutual Life and Savings is the cluster of 4 of our largest businesses that are at scale in the South African market: the Mass and Foundation, Personal Finance, Wealth Management and Corporate. And that really is signaling a need for us to simplify our structures and to -- within Life and Savings, really double down on the scale that we've got in those businesses, and we'll talk more about that in a moment. And then Clarence Nethengwe, of course, the CEO of OM Bank being given executive oversight of Old Mutual Finance and Old Mutual Transaction Services. So those are the initial moves. And I think -- and so the implementation of that is running over the course of this year. And I do believe that being able to move quickly with a smooth and effective transition and to be able to align around these issues is enabling us to actually catch our planning cycle, which, of course, kicks off in Q3 and Q4, and puts us in a position gives us a bit of a head start in terms of mapping out what we want to do for 2026 and beyond. I think these 4 key focus areas really capture, I suppose, our priority from a competitive and from a capital allocation point of view. As we think about value creation, I mentioned earlier that we really are focused on what value creation means for us. We see it for Old Mutual in 2 buckets. The one is a value unlock bucket, and the second one is in generating growth. They are, to some extent, overlapping, but there's also an extent to which it's sequential. And so our first focus area is driving competitiveness of our South African business. There, it's really about improving margins, delivering efficiencies, executing the basics well. We do believe that creating end-to-end accountability and the cascading of targets clearly and simply down into the businesses is going to make a big difference and going to be able us to both improve margins and also drive market share recovery. I think when we look at our OMAR region, owned by the Africa regions, we're drawing a distinction between our Southern African businesses where we have been present for a long time, a market like Malawi, we've been in for 70 years. And there, we see ourselves building scale in those markets, really being able to extract value from -- and margin from our key positions and our brand positions in those markets. So we see that as a particular area for the future. And then as we move -- and we do think that there's a value unlock opportunity there as well. We do think that we can improve the margins and the returns in those Southern African markets. Then as we move into the space of generating growth, OM Bank is, of course, a key initiative for us. One of the big pivots you've seen -- will have seen from 1 August is an acceleration of moving towards leveraging our group assets in this space, and I'll talk more about that when I get to that section. And then finally, I think looking at our growth markets, we do -- we acknowledge that getting into growth markets is tough. It hasn't always been easy for us. You've got to break new ground. You've got to establish yourself in a new market. And so we're calling out the -- kind of evaluating and pivoting in those growth markets. That's, of course, referring to East Africa, West Africa and China. And what we're focused on there is really a turnaround in margins and in returns in those space in order to justify allocating more capital. And so again, earning the right to deploy capital is the key phrase there. I think in terms of capital allocation, I referred to this earlier as giving you clarity around how we think about our capital allocation framework, and we've broken it up into 3 horizons. And those are really driven by where our returns are relative to targets. So you'll see there, relative to the 15% to the 17% target range, whilst in this half, we have achieved 15.5% return, of course. That has been buoyed by returns, I mean, in equity markets. If you normalize for that or allow for that, then actually that return is below the target range. And so our aspiration is to move through these horizons into Horizon 2 and ultimately Horizon 3, where we really are in value-accretive territory from a return point of view. And so our capital decisions will be guided by where we are, in which horizon we're in. You will see this morning that we announced a ZAR 3 billion capital share buyback. So that is a demonstration of confidence that we have both in our own balance sheet as well as in our business. And I think you'll see us being determined to be really clear as we deploy capital in terms of how tightly coupled any opportunity is, to our 4 focus areas as well as the economics of each opportunity. Turning then towards the highlights. I think just reference to the macro environment first. We, of course, have mentioned the role that equity markets have played, most notably the market in Malawi. And of course, there is an inflationary element to that. But I think if you look through to South Africa and you look at the local environment, we do see what we're calling, I suppose, a constructive outlook. We think it's constructive in the cycle. There's been an improvement in consumer confidence and also an easing of interest rates. And so that's constructive. I think we would point though that particularly in the value unlock phase in Old Mutual, we do think that we are not necessarily reliant on macro tailwinds to implement some of the things -- some of the strategies that we're talking about. So -- and I think we -- our outlook on growth in South Africa, of course, like everyone else, we are concerned about growth and lifting growth levels, and we will continue to play our role as Old Mutual with our partners in what we can do to alleviate the impediments to growth in South Africa. I think the highlights themselves, a few key points to make here. I think the first is a strong earnings story, and 19% growth in RFO per share, 31% adjusted headline earnings per share. Both of those numbers strongly supported by equity markets and the turnaround at Old Mutual Insure, turnaround in the margin there, which I'll talk about in a second, supporting also a 9% growth in our dividend to ZAR 0.37 per share. You'll see reference there to ZAR 18.40 is our group equity value per share. Just to call out that with the return on group equity value being a really important metric for us going forward, our primary value creation metric along with cash generation, we really are now focused on that as a base for us to generate returns. Ultimately, our ambition is to achieve a return on group equity value that is value accretive in the sense of above our cost of equity. So calling out again the Capital Markets Day in quarter 4, we will be giving more detail on targets and more substance to this conversation. But I think to focus on the ZAR 18.40, there have been some assumption and methodology changes that have come through in that, the most notable of which is the adjustment to the assumptions for MFC persistency. Now the pressure on persistency has been present for a number of years. We have been -- we've taken a look at this half at the extent to which we think there's -- it's a structural change in the market. We do think that there's some significant structural change. And so the lion's share of that negative variance has been brought in to our assumptions. And that then if I go to competitiveness and efficiency, you'll see is the biggest impact in taking value of new business margin, down to 1.3%. So I think at that level, 2 stories. On the one hand, in the Life and Savings world, Life APE only up 1%. I think we've had pressure on that along with many of our peers, particularly a pullback in guaranteed annuity sales in South Africa, which have been strong for the last couple of years. But it's really that margin and that is the thing that we're focused on and on returning that margin from 1.3% back into the range of the acceptable range of 2% to 3%. And again, further detail to follow on that. I think the positive story for us in these results is the OM Insure outcome, and you can see there, significant improvement in underwriting margin from 0.9% last year in the half to 9.7%. And I think that whilst we acknowledge that there's a market element to this, and you will see that in our peer group, of course, significant -- also improvements through the cycle, and we think we are in a good place in the underwriting cycle, we do want to call out the operational improvements that have happened in our business that we believe gives us sustainability to our position. So just spending a moment then on each of the clusters. This is the Life and Savings cluster, the first time I think that we really are presenting it as a business cluster in this form. Just to point out the scale of this business, the largest umbrella fund in South Africa, ZAR 187 billion. The second largest in-force book by a number of policies. And a very large wealth management business, often an underappreciated scale of that business at ZAR 442 billion, assets under management and administration. There has been pressure here, as I've said, on new business and in a persistency environment that has been particularly difficult in the Mass and Foundation cluster. So that's where that margin you see in for the cluster margin coming in, VNB margin coming at 1.4%. But you'll see there -- I mean the real focus here is to be decisive on implementing our new operating model, driving through cost efficiencies as a first lever. Remember, when it comes to VNB margin, there's sort of 3 levers we think about. The one is the cost efficiency, and the second is persistency, and the third is sales growth. And I think it's almost in that order in the near term and in the medium term that one can drive action. And so a lot of action in that space, and we will be giving further detail on that in due course. I think in the banking space, we really just want to point out the considerable group assets that we've got in banking in South Africa. We've got a ZAR 15.5 billion profitable loan book in Old Mutual Finance, a branch footprint of 346 branches through which we are originating credit. We've got ZAR 1.5 billion in money account deposits and almost 400,000 money market account customers. So if I look at the banking strategy and the milestones, you'll see that in H1 of this year, we have gone live to staff. In H2, what we're doing is going -- we've been going live to -- going through our branches and gone live to the public through that process. What we're essentially doing is activating our branch network, targeting our money account customers and in the process also have gone live to the public and so are -- able to also onboard new to Old Mutual customers. And so our focus here really is for the balance of H2 and also into 2026, acquiring customers and demonstrating traction in this space. We have talked about guidance of ZAR 1.1 billion to ZAR 1.3 billion [loss] for next year and setting aside capital of ZAR 1.6 billion for the bank. So that's the guidance that we've given. We will certainly be giving much more detail on the banking strategy at the Capital Markets Day. But suffice to say for now that the pivot to leveraging our group assets and cross-sell is a key part of our positioning that we believe is vital to our success in what is a competitive market. Old Mutual Insure is a great positive story in these results. You can see there, the margin, which we've alluded to. I think we would just point out to -- I've had the benefit of being on the Board actually as a nonexecutive of Old Mutual Insure for the last 18 months. And I think the fixing of business fundamentals, the operational turnaround is something that we would point to as well as obviously the benefit from the market. And also the successful acquisition and integration of a number of strong businesses that have diversified our income streams in this business. And what we'll be looking for going forward is the sustainability of these earnings. Old Mutual Investments, these -- I think, a credible 9% growth in RFO. The big standout here is the performance of the alternatives business, ZAR 3.4 billion alternatives capital raise, 33% growth in alternatives revenue. So very strong and a market-leading business. We, in fact, have a portfolio of excellent businesses in Old Mutual Investments. We are well aware of the OMIG fundamental SA equity performance challenge and track record. And so -- and this is a real focus for the team in OMIG in implementing their turnaround plan. But besides that, also a focus on delivering on the strong credit origination pipeline that we've got. Old Mutual Africa regions. I think, again, just drawing a distinction between the Southern -- strategically between Southern Africa and East and West Africa, but really just pointing out -- and whilst there's been a 13% growth in RFO and a lot of work has gone into optimizing the balance sheet and the repatriation of cash remittances from these businesses that has improved significantly, there has been significant pressure on top line and on margins. So muted growth in Life APE and on the short-term side, VNB in Namibia has had a difficult time in this half [with] changes in that market and also medical insurance in East Africa. So a focus really here on cost containment, addressing pricing and underwriting and optimization of the balance sheet. So finally, I think just to highlight our commitment to sustainability has been recognized. We recognized a leader in the space. MSCI, just to call out, has improved our rating from AA to AAA and also to celebrate our Moneyversity+ platform, our online education platform that's won the Tech Impact Award at the Africa Tech Week Awards. So with that, I'm going to hand over to Casper to give us a more detailed financial review, and then I'll be back a few moments after that. Casper Troskie: Good morning. Jurie, thank you for guiding us through the highlights with such clarity and insight. I will now take us into the financial review, where we will go through our performance through the lenses of value, capital and earnings. And starting with value. As Jurie mentioned, we are pivoting to return on group equity value or GEV as our key value metric. We are currently reviewing and refining our methodologies given the focus on return on GEV, ensuring that we have a robust foundation from which to drive growth. In the current period, the change in GEV was driven by both business impacts and methodology changes. Business impacts included an increase in property and casualty valuations following sustained improvement in Old Mutual Insure performance and a decrease in embedded value following the persistency change in Mass and Foundation cluster. Valuation and methodology changes included a reallocation of ZAR 3.1 billion in OMAR from covered to non-covered business. This did not have an impact on overall GEV but changed values across the lines of business, a change in the valuation of OM Bank, where we have adjusted the valuation methodology to reflect the unlock of value as we meet critical rollout milestones and embedded value assumption and model changes, which I will discuss later. Total embedded value decreased due to high capital and dividend outflows of ZAR 7.7 billion and assumption and model changes amounting to ZAR 3.7 billion. Dividend and capital outflows included strong cash remittances from OMLACSA to the group, and which totaled ZAR 4 billion as well as the OMAR reallocations mentioned previously. Assumptions and model changes included a methodology change of an increase in the non-hedgeable risk capital charge from 2% to 3.5% across the business and a business change following a comprehensive review of persistency experience, which identified systemic shifts in the funeral market in recent years. This has led to an updated long-term persistency basis, negatively impacting financial results for the period. The annualized return on embedded value was 6.9%, supported by profitable new business, positive experience variances and partially offset by assumption and model changes. As Jurie already mentioned, our South Africa Life and Savings business was the primary driver behind the decline in the group's value of new business this period, resulting from assumption and model changes I just described. Recovering our VNB and our VNB margin is a central focus area for us, and this is clearly reflected in our group's strategic priorities moving forward. Moving to the contractual service margin, or CSM. This represents the store of future life profits for the bulk of our Life business. Despite the reduction caused by significant assumption and model changes, the CSM still increased driven by new business value and interest and positive experience variances. Our annualized allocation to profit was at the upper end of the range at 11.6%. Turning to capital. We remain committed to our capital management framework, consisting of considered capital deployment, balance sheet efficiency and balance sheet strength as a means of enhancing value and returns for shareholders. Our capital deployment decisions will be guided by horizons linked to our RoNAV trajectory, as Jurie described earlier. We expect cash remitted to be between 70% and 80% of adjusted headline earnings before optimizations and special dividends. Ongoing optimizations drove strong growth in cash remitted from subsidiaries, representing 115% of adjusted headline earnings. Our South Africa Life and Savings segment continues to be the leading contributor to cash generation for the group, while Old Mutual [Insure] turnaround in sustainable earnings also resulted in a healthy contribution. Discretionary capital increased by ZAR 2.5 billion after paying ordinary dividends of ZAR 2.3 billion. This then brings us to our discretionary capital balance. We are expecting to capitalize OM Bank to the amount of ZAR 1.6 billion, which represents their capital needs for 2026. The OMLACSA special dividend of ZAR 1 billion was approved by the Prudential Authority in August and will increase our discretionary capital balance in the second half of the year. ZAR 3 billion of discretionary capital is committed for the share buyback approved by the Board and the Prudential Authority. Our current year RoNAV of 15.5% is within our target range, supported by earnings and ongoing balance sheet optimizations. Excluding higher-than-expected market returns, return on net asset value would have been 170 basis points below the target. Our RoNAV, excluding the bank, was 18.7%. Moving on to earnings. AHE was up 29%, driven mainly by shareholder investment returns, where equity market performance in South Africa and Malawi was substantially above expected returns. This was further supported by strong operating earnings growth. Despite the increase in AHE, IFRS profits and headline earnings decreased significantly due to reduced profits from the Zimbabwean business after the transition of its functional currency from Zimbabwe gold to the U.S. dollar. The impact on net asset value was limited as a result of lower currency translation losses reported in equity. We have seen a continued upward trend in RFO over the last few years, even after our ongoing investment in OM Bank with the following being noteworthy. The turnaround in Old Mutual Insure, which has seen significant earnings growth, with material contributions to group earnings from OMAR over the last 3 years. And we have seen increased performance from our Life and Savings and Investment businesses. Turning to segment-specific RFO performance and starting with the Life and Savings segment. Mass and Foundation declined by 15% as a result of the change to the persistency basis, partly offset by favorable economic variances and the one-off impairment on the Old Mutual Finance secured lending book in the previous year. Personal Finance RFO increased by 40%, off a low base in half 1 2024, impacted by poor mortality experience and was further bolstered by positive economic variances. Wealth Management profits increased by 19%, reflecting the continued growth in average asset levels and positive economic variances. And Old Mutual Corporate RFO increased by 8%, off a high base, following a [once-off] provision release in half 1 2024, a modeling change in our risk book and positive economic variances. Old Mutual Insure RFO saw excellent growth of 71%. This segment is now sustainably contributing to group RFO and supported by good top-line growth and outstanding margin improvement. Whilst recent acquisitions have performed well, continued focus remains on expense management. We continue to see the benefits of our diversified Old Mutual Investments business with consistent strong growth in alternatives, supporting our diversified revenue stream and profit outcomes with RFO increasing by 9%. Non-annuity revenue remains a major differentiator from our peer group. This revenue is more volatile but provides substantial economic value through the investment cycle. Despite the pressure on VNB in our OMAR business, we continue to see a strong contribution from the Southern region. This was across all lines of business, except property and casualty, where elevated weather claims impacted earnings. The increase in the Southern region is partially attributable to the inflationary conditions in Malawi. The losses in our banking and lending businesses in East Africa reduced significantly as we saw the impact of the 2024 restructuring exercise in Faulu contribute to lower interest and operating expenses. Although we continue to see headwinds in our property and casualty portfolio across the regions, we are seeing the benefit from exiting our loss-making Nigeria businesses. Net results from group activities no longer includes the investment in OM Bank, which is now reported under the Old Mutual Banking segment. Shareholder operational costs includes a restructuring provision of ZAR 440 million, which has been incurred to reduce future spending. Excluding the restructuring provision, shareholder operational costs decreased by 6%, in line with our previous commitment. Interest and other income increased due to elevated cash balances and favorable fair value movements on financial instruments. We have delivered a positive set of results and in particular, continued excellent results in Old Mutual Insure. Excluding higher-than-expected market returns, return on net asset value would have been below the target range. Improving our value and efficiency metrics remains our top priority, including improving group RoNAV and VNB margins to be sustainably within our target levels and improving our RoNAV consistently over the medium term. Our capital deployment strategy remains focused on short to medium value enhancement, thereby maximizing returns on net asset value and investments will be carefully targeted to growth opportunities that directly support our strategic priority areas. With that, over to you, Jurie. Johann Strydom: Thanks, Casper, and thank you for going through those financial results in more detail. We just thought we would spend just a minute recapping on some of the key messages. I think in essence, it's been a very positive period with a smooth CEO transition. I think it's been smooth and effective. I think it's fair to say we've been able to move quickly on getting clarity and alignment as a senior team [and] at Board level and also increasingly in the business around the changes we wanted to drive. I think to summarize those sort of key changes, the one is a clear articulation around what it means to create shareholder value and a pivot to return on group equity value and cash generation as our key metrics. We are clear on earning the right to deploy capital, which is linked to return on net asset value and also demonstrating result on cost where improvement in margin is required. I think we've made significant progress in implementing our new operating model that simplifies the group that creates, over time, a leaner corporate center and more empowered clusters to be able to cascade in a simple and understandable way, the key targets that we're driving as a business. And of course, we have our 4 focus areas that we've spoken about. I think just to point out to the Capital Markets Day in quarter 4, we will be firming up that date shortly. And there, you will see more detail on our financial metrics as well as the targets that we're looking to those metrics. Just to point out again, return on group equity value and cash generation really being our key value creation metrics and then what we're calling our efficiency and competitiveness metrics, which is new business volumes, value of new business margin and net underwriting margin and return on net asset value. And I think highlighting, of course, in this set of results, the key role that the value of new business margin will play going forward for us to enable us to be able to move into the aspiration of achieving a return on group equity value that is above our cost of equity. So more detail on that to come. I think with that, Langa, I'm going to move to you so we can move to questions. Thank you. Langa Manqele: Thank you very much, Jurie, and thanks to you, Casper, for covering those 2 sections. We will now turn over to the question and answers. As per the norm, I would like to start by just saying I will take the questions from the Chorus Calls. The questions will then be fed into the room by those who are already [queued] up on the call. I'll then move on to take the questions submitted to us via the webcast. At this stage, I would like just to ask the operator to please remind us of the procedure for putting through the questions. Over to you, operator. Operator: [Operator Instructions] The first question we have comes from Andrew Sinclair of Bank of America. Andrew Sinclair: Just a couple for me. First, [ thank you very much for ] the CSM splits, very helpful. If I just look at the organic CSM growth, so new business plus interest accretion minus the CSM release, it looks like there's really very little growth other than Mass and Foundation, barely anything in Personal Finance and Wealth despite that being the biggest portion of the CSM and Corporate, not much higher. Just really -- what's the scope to accelerate those numbers? What do you see as sustainable levels of growth over the medium term? That's the first question. And then the second is, just -- great to hear a focus on expenses and efficiency. Just wanted to know, Jurie, how do you think about expenses and efficiency? I personally like to think about cost-income ratios, but how do you think about measuring it? We've had a lot of cost [saved] targets in the past, but sometimes it's hard to see kind of objectively from outside that improvement in efficiency. Langa Manqele: Thank you, Andrew. You were not as clear. I will start with Jurie's question, and then I'll ask Casper to just comment on the CSM growth. And if -- Ranen, you can also please add. Over to you. Johann Strydom: Andrew, maybe a couple of comments. I think that there has been pressure on the guaranteed annuity sales in South Africa, which I think you've seen has created pressure across the market, and as you noted, some of that money then flows into linked investments, but that is spread over a wider group of competitors. I think on your point on targets, I would point you to -- obviously, the Capital Markets Day is a key moment where we're going to be putting down targets. And I think we will also there talk about growth targets and in particular, in a low-growth environment, what are our aspirations around growing market share for Old Mutual, which I think is -- I think one has to assume that South Africa is not going to become high-growth environment. And so that will be key. I think from an expense point of view, our cost ratios are difficult for a group like us. I think what we're likely to show you at the Capital Markets Day is more cluster level KPIs for expenses. But what I will say to you is that our North Star is [getting] return on group equity value into value accretive range, which is above cost of equity. And with that -- likely to achieve that, you obviously have to get your experience variances contributing and you've obviously got to get your value of new business margin into the range of 2% to 3%. And so when we think about expenses, that's a significant way in which we frame it. Value of new business margin, of course, doesn't only -- it's not only expenses, but it is the most direct short-term controllable lever. Casper, if you want to add to that? Casper Troskie: No, I think, Jurie, you've covered the 3 important areas that I would have mentioned, which is increasing our value of new business through both volume and expense management. Looking at improving our variances and making sure that we can improve those. I think it's also important, I mean, not to just look at the CSM because we have disclosed a lot more -- we've put more disclosure into our booklet, so you can look at what the growth of our [ non-IFRS 17 ] business is also bringing through. So you get a complete picture of the growth in value. Langa Manqele: The next question, please. Operator: The next question we have comes from Francois Du Toit of Anchor. Francois Du Toit: Can you hear me? Johann Strydom: Yes, we can Francois. Please go ahead. Francois Du Toit: Your Life embedded value statement shows that economic variances added ZAR 1.7 billion after tax to earnings in the period. In the past, you've given us the split and a recon between how much of that was operational and how much of that investment return and capital, and also how much of that is contributed by markets, and how much of that was contributed by economic basis changes, in other words, really interest rate changes. Can I ask for you to please provide that recon price in future? And for this opportunity, for this question, just if you can split it roughly for me, just give me a sense of how much of that -- and that's a ZAR 2 billion swing on the base period. How much of that swing was operational? How much of that came through the investment return on capital line? Or can we use the IFRS investment return on capital as a proxy for that? Yes, just trying to get a sense of how much -- how repeatable this Life earnings level is. How much of it came from the trough of markets? That's the first question. Second question relates to the positive experience variances. You've made big basis changes. Is the -- and also it looks like the unwind and the basis changes reflect -- sorry, the unwind and experience variances reflect the basis changes that's taken place already. Is that the case? Or is the experience variances on actual assumptions that existed at the start of the year? Just can you clarify that for me? Is it experience variances on the changed basis or on the year-end basis? That's the second question. Langa Manqele: Thanks. Francois. Please just hold it there on those 2. I'll ask Nico to just walk us the high level through. We do add on the disclosures, and on the one-on-ones, we'll go through too much detail. But if Niko, you could please just cover it at a high level. Nico van der Colff: Yes, Francois, you can definitely use the IFRS investment information that gets -- given as an indication of what's happening to shareholder investment returns. So there is disclosure on that. The embedded value was a bit more complicated this time around because there were a couple of method change type items in there, too. So not as material as the ones that have already been mentioned. And so you can see that information in the system if you look at [ A&W ] versus [ VF ]. Then the question on basis changes, they're all on the opening basis. But remember that the opening basis already for MFC had a material reserve against weaker persistency in 2025. And so that's why you're not seeing as big a negative variance. Effectively, the basis change that's been spoken about has a lot more to do with assuming ongoing weaker persistency beyond the first couple of years for the systemic parts of weaker persistency rather than cyclical parts of weaker persistency. Langa Manqele: Thank you, Nico. Operator, the next question, please. Just as a reminder, 2 questions per person. Operator: At this stage, there are no further questions on the conference, sir. Langa Manqele: Thank you. I will now just turn over to some of the questions that were submitted. The first one came from Baron Nkomo from JPMorgan. Please elaborate on the structural change in the market, which you believe is driving persistency. That's the first question. The second one, please explain the material decrease in the Rest of Africa embedded value, which contrasts with the positive CSM growth. Jurie, I would like you to just maybe comment briefly on the first part. Johann Strydom: So I think that there's greater competition in the funeral market. I mean that's certainly the case. I do think that there's macro headwinds South Africa, but I wouldn't overemphasize it. I think actually, there's been a big competitive shift. And I think if you think about the overlaps between banks and insurance companies, I think that there's a blurring of the lines. There's a moving of banks into insurance and likewise, insurance moving into banking. And I think what we've -- whilst we certainly have management actions to improve persistency and there are things that we can and are continuing to do, and we do believe those will bear fruit. We do think it's wise to recognize the structural change of higher churn of funeral business than perhaps we had before, and our business must adapt to that. Langa Manqele: Thank you very much, Jurie. I'll hand over to Clement, our MD for Old Mutual Africa regions to cover the question on EV and CSM growth. Clement Chinaka: Okay, thank you. The CSM growth is mainly driven by investment returns, largely in Malawi and also changes that we had in the fees on the guaranteed fund in that market as well. Then the embedded value reduction, there are 2 things. The first thing is, there was a reallocation of the adjusted net worth between the various lines of business. So we took quite some -- about ZAR 3 billion from Life to non-covered business. So that's one thing. And then the next one was an allowance for expected currency devaluation in Malawi. So there is a haircut that we put through there. Langa Manqele: Thank you very much, Clement. I will proceed with the next question from Michael Christelis from UBS. The first question from Michael is, can you explain what have you provided for in the ZAR 440 million corporate center expense provision? It doesn't look like for your FY '26 guidance that has changed. It remains for FY '22 plus inflation. I will ask Casper to take that one. But the second one, also from Michael Christelis is, what level of price to give are you prepared to continue buying the share buyback? I'll also ask Casper to comment on that with Jurie, adding a level. Casper? Casper Troskie: Michael, on the price to give, we're not disclosing that externally. We don't want people trading against us. So I think that's important to understand, that will be kept confidential. The first question on the restructuring provision. Those relate to 2 components. Those relate to headcount reductions that we finalized where we had a constructive obligation. So we finalized them by 30 June, where we had once-off costs that will reduce future expenditure. And it's the cancellation of one of our IT contracts where we have upfront settlement, which will reduce future expenditure. Those are the 2 components. Langa Manqele: Thank you very much, Casper. Operator, I would like to come back to the Chorus Call and check if we have a question there. Casper Troskie: Sorry. Operator: We have. Casper Troskie: Sorry. Just to add, Michael, we won't. We will obviously continue doing buybacks where we feel it's accretive and stop if we feel we're overpaying on the buyback. Langa Manqele: Thank you very much, Casper. Question from the Chorus Call? Operator: We have a follow-up question from Francois Du Toit of Anchor. Francois Du Toit: Maybe if you can give us a bit of color on the reduction in the regulatory solvency ratio from 170% to -- well, 180% to 170%? And how does that gel with the strong cash generation and the increased excess capital that you disclosed as well? And just around that, maybe just discuss your -- whether there's been a reduction therefore in your targeted solvency ratio for the long term as well? And then the second question just on Old Mutual Insure. I think last time I asked this question, you suggested that 5% is unlikely to be exceeded this year in terms of underwriting. Maybe if you can give us a sense of how long you think the strong cycle will be with us and whether you are considering changing your band -- your target band long term for Old Mutual Insure? Langa Manqele: Thank you very much. I will ask Jurie to take the OM Insure and ask Casper to just comment on your first question, Francois. If there is a need, Nico, you may just overlay Ranen there. Thank you. Jurie, over to you. Johann Strydom: Yes, I think we will -- at the Capital Markets Day, you'll see -- in those targets, we talk about underwriting margin as one of our key targets going forward. So we will update that for our medium-term target. I think we do all recognize that we are in a good position in the cycle. And so it's very hard to call exactly where that cycle goes. But I would point you to the Capital Markets Day probably for more detail in that conversation. Casper Troskie: Francois, just to remind you that we have to accrue for our dividends and the actual buyback in our capital ratio at the period end, if we've announced that because it's a firm commitment. We also saw quite a big increase in markets during the period. So what that does is it increases the prescribed equity shock that we're required to hold. So that would not just impact on equities that we held, it will also impact any subsidiaries, the shock that we apply to the net asset values of those subsidiaries where they're not regulated in terms of either -- where they fall outside of the sort of normal insurance solvency provisions. Langa Manqele: Thank you very much. There are no more questions from the Chorus Call. I will just maybe read 2 more questions and then bring it all to a close. From RMB Morgan Stanley, that's Warwick Bam. Warwick asked, improving the performance of MFC looks like one of the biggest opportunities for the group. What needs to happen in the core insurance business of MFC? And what time line are you looking to achieve that? I will ask our CEO for the cluster, Prabashini, to take that question. Prabashini Moodley: Thanks, Langa. Thanks, Warwick, for the question. So in our MFC business, we continue to take action on persistency. We've taken some management actions this year already to make it easier for customers to actually pay any missed premiums, and that's already giving us some very early green shoots. Then when it comes to the market and addressing the shift in the market, I think from a proposition perspective, there is some work that we can do. And we do have building blocks within the Mass and Foundation business where we can put together, for example, through our Two Mountains acquisition and improve the differentiation of the proposition that we take out. Productivity and the management of our distribution channels remain really, really good. And it's just giving those advisers the right solutions to take out and improving our premium collections. And I think we will see improvements. Thanks. Langa Manqele: Thank you very much. I think just to close off, there's -- 2 set of questions, I'll sort of combine them, if, Casper, you could just address these 2. They are related to costs. The first one is from [ Allan Grey ]. He has asked, may you please give us more color around the ZAR 440 million restructuring provision? What was allocated to that? And how will it fall -- how will it fall away going forward? There's also another similar question from [ Patricio ] that is asking, where do you see the biggest opportunity to reduce costs across the group? And can you talk around the guidance of cost reductions going forward? Casper Troskie: So just going back to the ZAR 440 million restructuring provision. As I said earlier, this relates to headcount exits that were finalized at 30 June. So where you have upfront costs. So the future salary costs, we won't be carrying. So that will be a reduction in costs. And as I said, the software costs that we accrued for that -- for stopping that software agreements, there will be no future payments, so you have upfront cost on that. So that will also reduce our expense payments going forward. We communicated to you over the last 2 years that there are a number of areas certainly in the central functions where we are looking at cost reductions. We communicated that we're running elevated costs in the center and that we're targeting to get back to 2022 plus inflation on the center line. I think the further cost reduction opportunities comes through the fact that we've rearranged our operating model, as Jurie took you through, as well as the fact that we'll be running a leaner center function. So those are the biggest opportunities. Thanks. Langa Manqele: Thank you very much, Casper, and thanks, Jurie, for all the clarification as well as to the MDs for helping us conclude the Q&A. So that concludes our Q&A session. We look forward to engaging you at our upcoming Capital Markets Day, as Jurie has already mentioned, where we'll give you more color on our strategic priorities as well as targets. Once again, on behalf of our Board and the management team, I'd like to thank you all for joining us. Have a good day further. Thank you.