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Alfonso Ianniello: Good morning, and welcome to Codan's H1 FY '26 Results Presentation. I'm Alf Ianniello, Managing Director and CEO. And joining me today is our CFO and Company Secretary, Michael Barton. As announced this morning, after more than 22 years with Codan, Michael has informed us of his decision to retire at the end of August following our FY '26 full year results. Over that time, Michael has played a pivotal role in shaping Codan's financial discipline, capital allocation framework and acquisition strategy. On behalf of the Board and the broader team, I'd like to sincerely thank him for his contribution. I'm also pleased to confirm that Kayi Li, currently our Deputy CFO, will succeed Michael as our Chief Financial Officer. With nearly 19 years at the business, including senior finance roles at Codan since 2013, Kayi has played an integral role in our financial strategy and operational execution. We are confident her experience will support a smooth and seamless transition. In addition, Daniel Widera, our General Counsel and Joint Company Secretary, will become Codan's sole Company Secretary upon Michael's retirement. Michael will remain with the business for a structured 12-month transition period from August to ensure continuity and stability. Before we begin, please take a moment to review our standard notice and disclaimer. Today, we'll begin with our H1 FY '26 performance highlights, followed by a detailed review of each of our segments being Communications and Metal Detection. We also highlight 2 products that contributed meaningfully during the half, demonstrating how our engineering investment is translating into commercial outcomes. We'll then revisit our strategy and near-term priorities before closing with our outlook for the remainder of FY '26. Following our remarks, we'll move on to a live Q&A session, which will be hosted by Sam Wells from NWR. While Michael and I are working through the slides, you are welcome to submit written questions at any time [Operator Instructions] For those newer to Codan, we're a global group of technology businesses focused on critical communications and detection. Our technologies are designed for mission-critical environments, keeping people connected, informed and safe in demanding and often remote conditions. We operate across defense, public safety, gold detection and recreational markets, supported by a global footprint and strong engineering capability. At our core, we focus on reliability, performance and long-term customer relationships, particularly in environments where failure is not an option. Our strategy to build a stronger Codan remains consistent and disciplined. It is underpinned by sustainable organic growth, targeted and accretive acquisitions and continued engineering investment and strong operational execution. Diversification remains a key strength with Minelab delivering a strong cyclical performance and Communications positioned for structural long-term expansion driven by defense and public safety demands. Over time, this approach is building a more resilient and diversified earnings base with improved visibility and quality. At a high level, our H1 results reflect consistent delivery against our strategic plan, underpinned by disciplined execution and favorable market conditions in several key regions. Communications delivered another period of consistent and high-quality growth, supported by strong defense demand and the integration of Kagwerks. Metal Detection delivered exceptional performance, particularly in Africa, where elevated gold prices supported demand. Importantly, this performance was achieved while continuing to invest in engineering, systems and people, ensuring that our growth remains sustainable and repeatable over the longer term. Turning to the numbers. Group revenue increased by 29% to $394 million, reflecting strong organic growth and a full first half contribution from Kagwerks. EBIT increased by 52% and NPAT increased by 55% to $71 million, demonstrating strong operating leverage across the group. This reflects both revenue growth and improved product mix, particularly within Minelab. The Board declared a fully franked interim dividend of $0.195 per share, up 56% on the prior corresponding period, consistent with our disciplined capital management approach. I will now hand over to Michael to step through the financial detail. Michael Barton: Thanks, Alf, and thanks for the kind words at the start of your presentation. Also, I'd just like to thank you for your support of the succession plan to Kayi and Daniel, much appreciated. And thank you for making the time under your leadership so enjoyable and so successful. On to the numbers. So as highlighted, group revenue increased 29% during the half and pleasingly, the growth came from both our Communications and Metal Detection businesses. Our gross margins increased 58% and all profitability metrics were increased. Operating expenses increased primarily due to a targeted investment in shared services, higher performance-linked expenses, which are reflective of our strong results, product launch costs and the integration of Kagwerks for the full period. Tax expense was slightly higher at 25% with more of our increased Metal Detection profits taxed here in Australia. NPAT margin improved to over 18%, reflecting improved profitability and operating leverage. We continue to actively manage our foreign exchange exposure through our hedging program with contracts in place to mitigate approximately half of the expected USD exposure in the second half. Overall, the financial result reflects both strong performance and continued investment in capability. We closed the half with net debt of $88 million, an increase of $10 million compared to June, largely reflecting working capital investment to support growth and our increased activity levels. Leverage remains conservative at 0.4x EBITDA. With an undrawn debt facility of $140 million as well as an additional $150 million accordion capacity, we retain significant financial flexibility to pursue inorganic growth opportunities. This slide illustrates the key drivers of our net debt movement during the half, including the investment in operating cash flow into working capital to drive growth, our dividend payments and continued investment in our engineering programs. Engineering investment during the half was $36 million, representing approximately 9% of Group revenue. This level of investment is consistent with our long-term approach and supports product development pipelines across both Communications and Metal Detection. In Communications, investment is focused on advanced tactical platforms, next-generation waveforms and public safety applications. In Minelab, investment continues to support our product refresh cycles and our technology leadership. This sustained commitment to innovation underpins our organic growth trajectory. And back to you, Alf, to take a closer look at our business units. Alfonso Ianniello: Thanks, Michael. We'll now move on to the business units. Communications revenue increased by 19% to $222 million. Segment profit increased 17% to $58 million, with margins broadly stable at 26% as we integrate Kagwerks and manage the challenging trading period in Zetron Americas. The orderbook increased by 19% to $294 million at the 31st of December, providing strong revenue visibility into H2 and beyond. We remain focused on progressing Communications margins towards our 30% target by FY '27 as integration benefits and scale efficiencies materialize. DTC delivered strong growth, supported by defense demand and increased adoption of our unmanned system solutions. Revenue from unmanned systems increased 68% to $73 million. Approximately half of this unmanned revenue during the period related to operational defense application in conflict zones with the balance being driven by adoption of our technologies across non-conflict defense and security programs in Asia, the U.S. and Europe. Importantly, growth rates across both conflict and non-conflict markets were broadly consistent, reinforcing the structural expansion of the unmanned systems market. Kagwerks contributed in-line with expectations and continues to integrate effectively, enhancing our position within U.S. military programs and strengthening our ecosystem offering. Our presence across the U.K., U.S. and Australia positions us well to capture long-term defense program across allied markets. The BluSDR contributed meaningfully during the half and represents a strong example of our engineering capability translating into commercial success. It is an ultra-lightweight, high-performance software-defined radio platform designed for long-range, secure connectivity across unmanned and mobile applications and has proven particularly well suited for drone-based deployments. Its technical characteristics, including high output power, mesh networking capability and low size, weight and power reinforces DTC's competitive positioning in mission-critical communications. Trading conditions for Zetron Americas were temporarily impacted by slower procurement cycles across the state and local agencies that we serve, which extended sales cycles and deferred order timing during the half. Early indications in the second half of the year are encouraging with trading conditions showing signs of improvement as funding approvals progress. Outside the Americas, EMEA and APAC markets delivered stable performance. We continue to invest in next-generation 911 capability and the SALUS platform to enhance recurring revenue streams and strengthen long-term customer retention. Minelab's first half results were exceptional, with revenue up 46% versus prior corresponding period to $168 million. Segment margin expanded to 45%, reflecting a higher mix of gold detector sales and improved operating leverage. Africa delivered exceptional performance, supported by elevated gold prices and strong demand across West Africa. Rest of the world delivered high teens growth, which is an excellent result, reflecting continued strength across key recreational markets. Rest of world performance was supported by product innovation, retail expansion and the ongoing development of our direct-to-consumer platforms. This performance highlights both cyclical tailwinds and structural improvements in the business model. During H1, we launched the Gold Monster 2000. It delivers enhanced sensitivity to ultrafine gold and improved depth and accuracy in mineralized ground, critical attributes in many of our core gold markets. Early customer feedback has been positive, supporting continued momentum as distribution scales up. Now I'd like to move on to the strategy update section of today's presentation. Our strategy remains anchored in 3 core pillars: first, investing in ourselves, strengthening systems, process, people and product innovation; secondly, strengthening our core businesses, which means expanding addressable markets, improving revenue quality and increasing reoccurring revenue components; and thirdly, disciplined capital allocation, where we pursue strategically aligned and accretive acquisitions that enhance capability, scale and market penetration. Together, these pillars support sustainable, diversified earnings growth. In DTC, we are expanding towards a full system solution provider model, continuing investment in the next generation of waveforms and ecosystem integrations. In Zetron, we are focused on increasing reoccurring service revenue and expanding support contracts and also advancing next-generation command and control platforms. And in Minelab, we continue product innovation, retail footprint expansion and channel development with another new detector scheduled for release shortly. These initiatives support both near-term performance and long-term structural improvement. Now turning to our summary and outlook on Slide 23. Tying today's presentation together, market conditions remain positive in both Communications and Metal Detection, reflecting the diversified nature of the Group's portfolio and the quality of our business. Codan's strategy is to continue to invest in engineering programs to maintain product and technology leadership and to underpin long-term growth. In Communications, elevated defense spending and ongoing geopolitical tensions globally continue to generate strong demand for our unmanned systems products. Communications is on track to deliver FY '26 revenue growth within a 15% to 20% target range, supported by strong underlying demand and the full year contribution from Kagwerks. Minelab revenue in the second half of FY '26 to date is tracking in line with the strong first half performance. Based on Minelab's current trading conditions, we expect the second half performance to be at least in line with the first half, supported by favorable gold market conditions and a full 6-month contribution from recent product releases. With balance sheet capacity and a disciplined approach to capital allocation, Codan remains well-positioned to continue investment in the business and pursue future acquisitions that fit our product and technology road maps, which enhance the quality, resilience and the diversification of our earnings. The company will continue to keep shareholders updated as FY '26 progresses. Back to you, Sam. Sam Wells: As a reminder, the audience may ask questions to the management team. [Operator Instructions] There are a few pre-submitted questions, so I'll kick off with those before getting to the analysts. Firstly, just on Communications margins. You've talked about the moderating pace of margin expansion within Communications. Can you elaborate on the path from current margins to the 30% target by the end of FY '26? Michael Barton: Yes. Thanks, Sam. Yes, remain -- we've been very consistent that we remain focused on margin expansion. We did improve organically in the half, which was good. And we've been really consistent also on our revenue expectations for Communications, the 15% to 20% range remains the focus. As we deliver that and we see further revenue growth to be within that range in the second half, we would expect to see more improvement at the margin line as well. Sam Wells: And on Zetron, can you elaborate on the early encouraging signs in trading conditions in the Americas business? And are there any meaningful near-term opportunities specifically in the U.S.? Michael Barton: Yes. I think we posted a really pleasing increase in our order book at the half. So quite -- I think we're up 16% versus June, 19% versus last December. So we do go into the second half of this year with a stronger order book than what we entered the first half. So that's pleasing and sets us up to be within that 15% to 20% range that I mentioned. And I think we're also seeing -- while not yet in the order book, we are seeing some increased activity in the pipeline also in the U.S. market, public safety market for us. Sam Wells: And on Minelab Africa, an exceptional set of numbers within the Minelab business. How should we think about the sustainability of this performance, particularly in the context of 45% segment profit? Alfonso Ianniello: I think when you're looking at Minelab, I don't want to make it just an African discussion. We had a rest of the world high teens growth rate, really reflecting great execution from the Minelab team at a distribution, e-com level and direct-to-customer approach and new releases of great product. And then when you look at Africa, obviously, the gold price has been a tailwind for Minelab and then our great products have been a tailwind for Minelab. So the 45% is an exceptional number in its own right, and we believe it's maintainable in the future. Sam Wells: And just moving to unmanned. You printed some extraordinary numbers within the unmanned business. Can you help us understand how sustainable these opportunities are, particularly within the defense landscape? Alfonso Ianniello: Yes, it's really interesting. If you wind back 12 months, 18 months throughout these calls, we've referred to an unmanned market growing at 30% per annum globally. This is just increasing. The environment and the ecosystems in defense are very different today than they were previously. Our solutions back right into those unmanned platforms. And our ability to perform in conflicted environments well has really created a halo effect into other markets, hence, highlighting the success of the BluSDR-90, which was really born over the last 18 months through very high exposure to very conflicted environments. So we think the unmanned space over time will continue to be a significant tailwind for Codan. Sam Wells: Got you. And just shifting to some of those non-conflict opportunities you referenced in the presentation. Can you just elaborate on those? And where are the bulk of the revenues coming from in terms of specific applications? Alfonso Ianniello: Yes. So I won't talk about the specific applications. I'll talk more about the market -- the geographic markets that we are looking at. So if you look at, we did call out, we've started to see some positive work in the U.S., positive work in APAC, positive work in Europe. So if they're not in a conflicted environment at the moment, they're probably preparing for pre-conflict, I would say. So -- and again, let's take a step back and just reflect on the technology that we put in market, and that technology fundamentally is selling itself in these other markets at the moment. Sam Wells: Great. We'll move across to some of the analysts. First question comes from Josh Kannourakis at Barrenjoey. Josh Kannourakis: First, congrats, Michael, and wishing you all the best on the transition of your new steps and congrats to Kayi as well on the step-change in role. Good to see. Just jumping on to the first question just around regional exposure. So you did mention a bit of a step-up in terms of activity in the U.S. I know there's a lot of hoops to jump through in terms of getting into those programs and historically comms being dominated by a couple of those big local players. Is that a new incremental thing? Can you just give us some more detail on how recent that is? And maybe just specifically around the U.S., what you think the opportunity is across the broader comms space? And then obviously, specifically, unmanned as well? Alfonso Ianniello: Yes. I think when we look at comms in the U.S., we probably look at the dismounted soldier solution within the Kagwerks acquisitions and the unmanned solution giving us some good dialogue with potential U.S. customers. So there's a lot of -- as always, with these platforms, they're not plug-and-play. They are plug significant testing and evaluation and then you get an order. So we are comfortable that we're having the right dialogue with the right organizations, either at a defense department level or Tier 1s into the defense department. So that is positive. The other areas that we're actually having positive traction is APAC, and I won't go into the specific countries, but also there's been an uptick in European defense spend, and there's been some sort of shadowing of that application of that funding into unmanned systems and the DTC product category itself. Josh Kannourakis: Got it. That's really helpful, Alf. And just in terms of -- so just to understand it within the U.S. specifically because I guess my understanding was more that a lot of your volumes and things historically have been outside of that region. So you're sort of from a military perspective, within the sort of evaluation phase at the moment for that. So that's probably in terms of potential upside, that's significant if you can get through that. And -- but then on the other side, you're seeing traction in some of the nonmilitary sort of settings also. Is that the way to sort of read it through? Alfonso Ianniello: Yes, that's right. If you look at what we've seen over the last couple of months, we've been heavily involved in the border with our communications. So that's with government departments, not defense related. We are also heavily working with other sort of peripheral government departments in the U.S. that require our solution that in some ways, isn't defense related, it's more public safety related in theory, keeping the American public safe. So yes, and that's a great thing with the product categories. We can actually put it into dismounted soldier solutions, unmanned solutions, public safety solutions. Josh Kannourakis: Great. And just in terms -- I know you don't want to go into specific countries for obvious regions, but there's been some very large funding packages allocated to areas like Taiwan and in that sort of region. There's also a lot more flagged in terms of progressive step-up. How early in the journey do you think you are? Are you sort of -- do you have the right connectivity in place to capture what will obviously be a significant step-up in this broader region? Alfonso Ianniello: I would suggest, as we've said in the U.S., we are all part of the right conversations happening in APAC and EMEA being Europe. So yes, we're definitely having the right discussions with the right levels of people. Josh Kannourakis: Awesome. Final one from me. Just on M&A. I mean, obviously, it's been a pretty tumultuous environment across the software space. Defense on the other side has obviously has been a lot more favorable in terms of all the trends you've talked about. Can you maybe just talk about when you're thinking about it now the lens, how you're sort of seeing that in terms of the opportunities within both maybe comms and -- within comms within the tactical side, but also Zetron, especially with some of the potential in software, the AI-related disruption as well. Alfonso Ianniello: Yes. I think when you look at Codan and you look at our comms, the good thing we make products with software on it. So the -- any AI application is just an enhancements to the product and the end user, and that's how we actually see that. But we have pipelines of M&A targets. As you clearly mentioned, in the defense world, it's pretty hot at the moment. Multiples are far higher than we've seen in the past. People on the line would clearly know that we are very prudent when it comes to acquisitions about multiple and accretion levels. So we've been involved in processes. Some have worked. And then as in the past and the ones that we've been unfortunate on has been really the fact that we didn't believe we could extract the right value for it. But the process continues. We've invested heavily in structure at Codan. So we've got the right people working on it. We're looking heavily on how to enhance our technology road maps and our market positioning. So it's definitely a space where you just need to continue to be active in and ensure that you buy well and you can extract value for the future. So that's where we're at, Josh. Sam Wells: Next question comes from Mitch Sonogan at Macquarie. Mitchell Sonogan: And yes, congratulations to you, Michael and also Kayi as well. Just echoing Josh's comments. Just the first one, just on the outlook for Metal Detection or Minelab second half revenue to be at least in line with the strong first half. Just trying to get a little bit more color on that because obviously, you had pretty strong sequential growth. You've got, as you said, good gold conditions in that market and also still benefiting from new product releases. So just trying to understand what sort of visibility you have at the moment, how we should think about the second half potential upside risks. Alfonso Ianniello: Yes. Well, it's interesting if we talk about Minelab, that's probably the first time we've actually ever given a forward-looking number in Minelab. So yes, we've had a strong first half, right? We've got a lot of tailwinds either from a gold perspective -- gold price perspective, new product introduction, great performance in recreational. We sit here today, and we never comment on seasonality in Africa because we don't know. So we're not going to be a fact-based about that. But we do sit here today that we're saying there's the same tailwinds that existed in H1 exist in H2. And so I guess that's what our commentary was about, so okay? Mitchell Sonogan: Yes. And just in terms of -- obviously, you called out Africa being quite strong. But do you mind just giving a bit more color on other regions where you might have seen some big outperformance and other areas that you are more positive on the next 6 to 12 months as well? Alfonso Ianniello: Yes. I think I'll call out Australia. I think our work we've done in Australia has been exceptional on repositioning the way we go to market, big tick, some great work in APAC, big tick, LatAm, big tick. And then you've got Africa and Europe. We have been consistent in our approach either at a recreational level with e-comm, the marketplaces, the distribution point increases and new product introductions. So when I look at Minelab, it's very hard to fault anything they're doing in any market at the moment. And the most important thing is I'm as excited as with the gold detection and the gold sales as I am with the rest of the world sales because that high teens growth in a fairly flat consumer market is fantastic. So it just shows that where we're spending our money away from product development, it's working. Sam Wells: Next question comes from Evan Karatzas at UBS. Evan Karatzas: Just can we dive into Zetron a bit here. One of your larger competitors, Motorola, I mean they've been delivering some pretty consistent strong growth over recent quarters to their command center business. Can you maybe just speak to why you think there's such a discrepancy there to what you've seen in the U.S.? And anything you can, I guess, elaborate on around that order book for Zetron explicitly and how that's changed relative to 6 months ago, how you entered the year as well? Alfonso Ianniello: Yes. Good question. I think when you look at Motorola in the command and control space and you look at us, I don't think we're comparing apples-to-apples consistently on product offering. There's probably a bit more rolled up in that space of Motorola. And secondly, they're a Tier 1, Tier 2 player. We're a Tier 3, Tier 4 player. The way the funding and the grants work for Tier 3, Tier 4 are slightly different than they are in Tier 1, Tier 2. So -- and I think we also need to analyze Zetron over the last 4 years of Codan ownership, it's been well above market growth rate. So it's been an amazing acquisition for Codan. And so looking forward, what are we seeing in January, Feb when you -- just going further to what Michael said, yes, orders are being unlocked, so that they're pushing into the order book. There's far more activity in the pipeline. So the activity levels have come up from H1. It's a financial year. I think let's have a chat at the end of H2 and where these orders have rolled through. And let's not get away from the fact that we have entered H2 with an order book that is higher than most times. So that's the marketplace that public safety, it is. Also, let's not -- also let's understand the fact that we've been doing well in APAC and EMEA as well from a Zetron perspective, so. Evan Karatzas: Yes. Okay. No, all fair points. And just sort of coming back around to the DTC, the tactical comms, just around those investments you've been making, especially for contested environment, some of those new product releases, have they now been released into market? And then you can talk to about how early take-up or reception has been? And then also how that helps when you spoke about from a strategic sense with that expansion into your other growth regions like North America, Europe, Asia as well? Alfonso Ianniello: Yes. From a product perspective, I think the DTC product category is quite set. The feature content involves from market feedback. And that's the sort of the strength that we've had. We've been able to feed back those technical requirements from the field back into our product really quickly, either enhancing current product or creating new product like the SDR-90. So at the moment, we're heavily focused on feature content for the SDR range. And also we're heavily focused on feature content for the Kagwerks range as well. So probably less form factor changes, but more on feature content for the environment that these products work in. Sam Wells: We might just move on to the next question, please, from Tom Tweedie at Moelis. Tom Tweedie: Just the first one on Kagwerks. Are you able to give us a sense of the revenue contribution for the half for that business? And also just the color on the pipeline for program of record RFPs? Michael Barton: Yes. If I'd just give you the revenue range when we acquired that business, I think we were expecting high $40s million revenues into the low 50s. And I think we've commented, Tom, that it's been -- it's met our expectations. So it's been in that range over its first, what, 13 months of ownership. And Alf, do you want to talk about pipeline? Alfonso Ianniello: Yes. So when you look at, we've been heavily invested in supplying the Nett Warrior program, doing some international BD on other Army opportunities that we're looking at. I think what I've seen, which is very pleasing for us from a Kagwerks perspective is there's an evolution of movement from the standard DOCK Lite product, which is the base version to the DOCK Ultra product, which is the version with the radio and the AI technology and the edge computing technology. So that's what we're seeing happening in the Nett Warrior program itself. So that is significantly positive for us. And then like everything, we'll just keep doing the BD efforts with the other defense opportunities in the U.S. and internationally. Tom Tweedie: Very helpful. Just on Minelab and that side of the business, you called out detector launches. In the release, you've also mentioned one new detector to launch shortly. Just stepping back, can you remind us what the expectations are in the pipeline there over, say, the next 12-18 months for further models to come to market? Alfonso Ianniello: Yes. So we've released already an upgraded recreational detector, a new countermine detector and obviously, the Gold Monster 2000, great launches, great tech, keep moving forward. We've got a high, high-end gold detector coming out in the next couple of weeks, which is the GPZ, GPX range updates first time in almost a decade. So it will be -- it's probably anxiously being awaited by the users globally. Post that, the Minelab team has a road map on enhancing detection out 12 to 18-24 months. So -- and that's across recreational and gold and countermine, which is really the key areas. So there's no shortage of ideas from our Minelab. They are very good at creating products that exceptionally -- work exceptionally well in market. So like we always say, our ability to move that IP from an idea to a product is really the Codan superpower. Tom Tweedie: Awesome. And then one final one. You made a comment earlier around the distribution for Gold Monster 2000 still expanding. Are you able to give us a sense of -- is that in terms of key markets that you've still yet to properly launch the detector in? Or is there still more distribution to go in the second half? Can you give us a sense of what that comment related to? Alfonso Ianniello: Yes. I think that comment relates to launching a product. When you launch a product, we launched at the back probably in middle of Q2. So you're just ramping up supply chains, you're ramping up product to get into market. So at the moment, we're just in the ramp-up stage of Gold Monster 2000. So the scale up is to -- you just scale up production over time and you get into the supply chain into your customer base as more markets. And that's what that comment is about. So we are well on the way now, and that will continue over the next 12 to 18 months, I would suggest. Sam Wells: Next live question comes from Cam Bell at Canaccord. Cameron Bell: Just a couple of quick questions. So the Metal Detection comments you gave in the second half, flat revenue. Is it fair to say that with flat revenue, we can expect similar margins in the second half? Michael Barton: I think, Sam (sic) [ Cam ], we used the words at least rather than flat. So yes, in terms of the commentary on H2. At these revenue levels, we think 45% contribution margin out of Minelab is outstanding. We don't -- at these revenue levels, that would remain our expectation. I think it's fair to say at this level of revenue and that level of profitability, we are looking to reinvest in that business to continue the revenue growth that we've seen. So 45%, if that's what the contribution margin is in H2, that would be a fantastic result. Cameron Bell: Yes. Okay. I might stick with just 2 quick ones for you, Michael, to continue off on those. You might not miss these style of questions in a few months' time. Last half, you had a bunch of M&A costs unallocated. Is it fair to say there were some of those semi potentially nonrecurring M&A costs in this half? Michael Barton: Yes, probably not to the same extent. But yes, we did have M&A activity and ongoing integration costs across the business. We don't really call them out as one-off, Cam, because the business continues to evolve, and we continue to invest in different areas of the business to improve what we do. So the costs we've incurred in the first half is a fair representation of that cost base going forward. Cameron Bell: Okay. Sure. And then just last one for me. Is 25% tax rate the new norm? Michael Barton: Yes. I think with this mix of product, then yes, we're going to be in the mid-20s, whether it's 24%, 25%. But yes, I think we're in that range. Our Minelab business performing at this level, highly profitable. All that IP is generated here in Australia. We pay all of our -- majority of our Minelab taxes here in Australia at $0.30. So that caused that rate just to go up a percentage point or 2. Cameron Bell: Okay. Great. And congratulations, Michael, on everything you've achieved over the last 22 years. Michael Barton: 22 years, yes. Thanks, Cam. Sam Wells: And maybe just one last question here from James Lennon at Petra. Can we expect Codan's typical seasonal movement in working capital to repeat in FY '26, i.e., a wind down of working capital as the financial year progresses? Michael Barton: Yes. Historically, that has been the case, Sam. Look, we have had an increase in working capital over the first half. A lot of that was just activity related and the timing of that activity. So -- and we've had a really strong start to the year, the second half, a really strong start from a cash collection point of view. So some of that has unwound to start the second half. So yes. Sam Wells: And just one final question. What is DTC and Zetron revenue for the half? And would you consider disclosing DTC and Zetron revenue going forward? Alfonso Ianniello: I think we get asked that question a lot. And I think when we did the full year presentation for '25, we started talking about public safety ecosystems, defense ecosystems, unmanned, how it all comes together. If you see here today as Codan compared to 4 years ago, our Comms divisions are converging with the products that we have and how they work in market, right? So I guess a short answer to that is that we probably won't because a lot of our thinking is around public safety, which is heavily linked to Zetron, but there is creeping in on DTC products for that as that ecosystem evolves and not dissimilar to the defense ecosystem where you have unmanned systems, you have dismounted soldier solutions and you've got our standard core products in HF. So I guess the answer is that I see more converging rather than diverging today than I did probably 4 years ago. Sam Wells: Okay. Great. Thank you. We're just going through the hour. So I think that's all the time we have for live Q&A. If there are any follow-ups or unanswered questions, please feel free to reach out to us directly. And maybe with that, I'll just pass it back to you, Alf and Michael, for any closing comments. Alfonso Ianniello: Yes. Thanks, Sam. First, I'd just like to thank everyone for joining us today and the continued support you have for Codan as an organization. I think today, it just continually demonstrates our consistent approach in running Codan, our consistent strategy, our investment in product development, our investment in people and processes. We've actually steered into very good markets through M&A. So we sit here today, highly confident in our strategy, highly confident on our skills and execution and delivery and above all, that consistent approach. So I'd just like to thank everybody and we'll provide updates as we see fit for the rest of H2. Sam Wells: Great. Thank you very much for joining today's Codan's First Half FY '26 Results Call. Enjoy the rest of your day. Thank you, and good-bye.
Operator: Good day, everyone. My name is Megan, and I will be your conference operator today. At this time, I would like to welcome you to the eBay Fourth Quarter 2025 Earnings Call. [Operator Instructions]. At this time, I would like to turn the call over to John Egbert, Vice President of Investor Relations. John Egbert: Good afternoon. Thank you all for joining us for eBay's Fourth Quarter 2025 Earnings Conference Call. Joining me today on the call are Jamie Iannone, our Chief Executive Officer; and Peggy Alford, our Chief Financial Officer. We're providing a slide presentation to accompany our commentary during the call which is available through the Investor Relations section of the eBay website at investors.ebayinc.com. Before we begin, I'll remind you that during this conference call, we may discuss certain non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in our accompanying slide presentation. Additionally, all growth rates noted in our prepared remarks will reflect organic FX-neutral year-over-year comparisons, and all earnings per share amounts reflect earnings per diluted share unless indicated otherwise. During this conference call, management will make forward-looking statements, including, without limitation, statements regarding our future performance and expected financial results. These forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from our forecast for a variety of reasons. You can find more information about risks, uncertainties and other factors that could affect our operating results in our most recent periodic reports on Form 10-K, Form 10-Q and our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of February 18, 2026. We do not intend and undertake no duty to update this information. With that, I'll turn the call over to Jamie. Jamie Iannone: Thanks, John. Good afternoon, and thank you for joining us today. We finished 2025 with incredible momentum as we delivered Q4 results that meaningfully exceeded our expectations. Before I get into the details of the quarter, I'll start with some highlights for the full year. Gross merchandise volume grew by nearly 6% to approximately $80 billion globally in 2025, and while U.S. GMV grew by nearly 10%. Importantly, our growth was broad-based across all of our most established strategic priorities. First, focus category GMV growth accelerated over 12%. In addition, multiple years of investment in our consumer-to-consumer or C2C experience have reduced transactional friction and reinvigorated growth in this segment which makes up roughly 1/4 of our total GMV. Alongside these efforts, we've made significant investments in accelerating re-commerce on eBay, which we define as the sale of preowned and refurbished goods. We've invested in full funnel marketing to drive awareness and consideration of eBay for consumers shopping pre-loved. Innovations like magical listings have unlocked consumers closets, basements and garages to increase the supply of preowned goods on eBay. We have also introduced direct recommerce collaborations with iconic brands and strategically expanded inventory in key areas like certified recycled auto parts. This work has fueled the circular economy. And as a result, recommerce made up over 40% of GMV on the eBay platform in 2025. In aggregate, these strategic priorities, focus categories, C2C and recommerce comprised approximately 2/3 of our business in 2025 or more than $50 billion of unique GMV. This GMV grew by approximately 10% and accelerated throughout the course of the year, reinforcing the broad-based impact of our strategy on overall GMV growth. We saw equally compelling results on monetization front as we continue to scale our suite of eBay services. Revenue increased by nearly 7% to $11.1 billion, outpacing GMV by over 1 point, primarily driven by growth in advertising, which reached approximately $2 billion in annual revenue. We expanded our financial services footprint, driving incremental GMV through improved risk modeling and flexible payment options like Klarna, while working with partners to deploy working capital to trusted sellers. We also scaled managed shipping in the U.K. and accelerated our product road map for cross-border solutions to help our sellers navigate new tariffs and trade policy changes. Our top line outperformance throughout 2025 enabled us to accelerate investments in areas like eBay Live, vehicles and full funnel marketing to support key categories and geographies. We balance these investments in strategic growth vectors with operational discipline, which enabled us to grow non-GAAP operating income by roughly 7% to nearly $3.1 billion. Lastly, we created significant shareholder value by growing non-GAAP earnings per share by 13% to $5.52 while returning approximately $3 billion of capital to shareholders through repurchases and dividends. These results meaningfully outperformed our expectations entering the year, highlighting our ability to navigate a dynamic macro environment and an increasingly complex global trade landscape. We also shared some exciting news today alongside our fourth quarter results. EBay has entered into a definitive agreement to acquire Depop for approximately $1.2 billion in cash. This acquisition further strengthens our C2C value proposition, augmenting our organic momentum with a leading circular fashion marketplace that brings complementary strengths and demographic reach. I'll share more on this transaction shortly, and Peggy will discuss some of the financial details and forward-looking implications. But first, I'll discuss the key drivers of our strong Q4 performance. The collectibles category had another standout quarter and was the largest contributor to GMV growth in Q4, driven by continued strength in trading cards, growing contributions from our off-platform marketplaces, TCGplayer and Goldin and a notable acceleration in other subcategories like bullion and collectible coins amid unique demand for precious metals in recent months. Within trading cards, we continue to leverage AI to extend our industry-leading value proposition. In Q4, we launched early access to a new AI-powered card scanning experience powered by a set of proprietary models trained on over 40 million card samples. Now users can scan a single photo to instantly detect their exact card in parallel, while also servicing historical prices, PSA population data and other valuable insights. This eliminates time-consuming manual research and helps collectors decide when to buy, sell or grade valuable trading cards. Since we launched this beta feature in November, feedback has been overwhelmingly positive, and trading card enthusiasts have already scanned over 15 million cards to instantly identify and value their assets. We also continue to drive synergies with our off-platform collectibles marketplaces to better serve enthusiasts across every price point. In Q4, we launched a new search experience that services unique inventory from Goldin directly within eBay search results. This integration addresses an inventory gap for rare high ASP items, while giving Goldin sellers access to eBay's scaled global demand. In December, Season 3 of King of Collectibles: The Goldin Touch debuted on Netflix and ranked in the top 10 shows in 7 countries, including the U.S., U.K., Australia and Canada. This season featured Goldin's first on-the-ground collaboration with eBay in Japan, highlighting how our teams are working together to connect global Collectors with high-value inventory. Motors, Parts and Accessories, or P&A, also finished the year strong, contributing over 1 point of GMV growth for our overall marketplace in Q4. We are seeing a repair-over-replace trend among consumers maintaining aging vehicles. And with more than 800 million live P&A listings globally, our inventory depth uniquely positions us to meet this demand. In the U.S., we scaled our automated fitment capabilities, enhancing millions of domestic listings with billions of compatibility attributes in Q4. By leveraging our proprietary data to automatically populate these details on behalf of sellers, we are reducing friction while expanding the inventory backed by our guaranteed fit protection. Our easy and free returns program also continues to drive conversion lift while return rates remain stable, demonstrating that reduced friction builds confidence for auto enthusiasts. Fashion was also one of the leading contributors to growth in Q4, led by our luxury and pre-loved apparel-focused categories. Fashion overall generated well north of $10 billion in GMV globally in 2025. Similar to what we've done in collectibles, we've increasingly leveraged every aspect of our build-buy-partner strategy to improve our value proposition for fashion enthusiasts and accelerate GMV growth. On the build side, we've completely reimagined the selling experience through multiple iterations of our magical listing technology. We modernized the fashion shopping journey by expanding our AI-powered discovery platform from the U.K. into the U.S., Germany, Australia, Italy and France. We invested in technology and talent to broaden the Authenticity Guarantee program to cover more categories, brands and price points, including optional authentication to enhance trust for lower ASP goods, and eBay Live has been particularly impactful for fashion as the ability to story-tell and showcase inventory in real time enables sellers to build immediate trust with their community and ultimately drive greater sales velocity for the stores. Our work with key partners also contributed to notable improvement in consideration of eBay in fashion throughout the course of 2025. We partnerships with Love Island, Conde Nast and Vogue Vintage market helped elevate the perception of eBay as a trusted place to shop. Passionate eBay advocates like Chaperone and Emma Chamberlain, have raised awareness of eBay's fashion offering during some of the biggest cultural moments for enthusiasts like the Met Gala. Our collaboration with Marks & Spencer one of the U.K.'s most iconic retailers, enables consumers to drop off apparel at hundreds of store locations to be resold on eBay and our Certified by Brand and Pre-loved Partner programs have enabled many more of the world's leading brands and trusted resellers to increase the breadth and depth of fashion inventory on our marketplace. Our momentum in fashion has meaningfully benefited organic growth in our marketplace. With fashion serving as the second largest contributor to our U.S. GMV growth in Q4 with particular strength in C2C. We complemented this organic momentum with the recent acquisition of Tise, a leading C2C marketplace in Nordics, which further extends our value proposition globally. And now we're excited to further expand our total addressable market in C2C with the acquisition of Depop, which a natural strategic and cultural fit with our company, offering clear opportunities for synergies between our respective market places. Depop has established itself as a leading C2C marketplace that currently serves the base of approximately 7 million active buyers and 3 million active sellers with most of its audience under the age of 34. Depop facilitated approximately $1 billion in gross merchandise sales in 2025 and with nearly 60% year-over-year growth in the U.S. market. This acquisition is compelling on a number of fronts. Recommerce is one of the fastest-growing segments in global retail, led by Gen Z and millennial consumers who prioritize sustainability, individuality and value. These consumers are accelerating the shift towards circular fashion through social-driven shopping behaviors. Depop's mobile-first social forward experience has cultivated an extremely engaged user base that complements eBay's global scale. For instance, over 1/3 of Depop buyers listed 1 or more products on the marketplace in 2025. And this engagement fuels a sell-to-buy flywheel that drives sales velocity across a broad array of brands and price points. I'm confident this acquisition will drive meaningful benefits for users across both eBay and Depop. Depop seller and buyer communities will gain access to eBay's suite of value-added services, including financial services, shipping and cross-border trade solutions as well as trusted experiences like Authenticity Guarantee. Depop strengthens eBay's leadership in C2C, broadens our demographic reach and expand the presence in fashion and adjacent lifestyle categories. Similar to how we've demonstrated the power of cross-listing inventory with Goldin and collectibles, we see a clear opportunity to replicate that success with Depop, given its complementary range of brands and price points. Integrating Depop in the eBay's portfolio should further reinforce our customer proposition in a rapidly evolving recommerce environment and ultimately drive long-term value for shareholders. Another emerging growth vector we're excited about in 2026 is the momentum we're seeing in eBay Live. eBay Live is rapidly evolving into a multi-category shopping destination as we diversify our inventory and programming beyond collectibles. Fashion is becoming a more significant growth driver particularly in luxury watches. During the holiday season, we achieved a single day record for eBay Live GMV on Black Friday, including approximately $2 million of sales in a single event. In recent weeks, eBay Live GMV is tracking at an annualized run rate roughly 7x higher year-over-year, led by rapid growth in the U.S. market. In Q4, we expanded our global footprint by launching eBay Live in Germany and Australia, followed by recent additional launches in France, Italy and Canada in Q1. 2025 was also a watershed year for horizontal innovation, as our proprietary AI infrastructure enabled us to transition from generative AI pilots to scalable agentic experiences that actively do more of the hard work for our sellers and buyers. In Q4, we began rolling out the next generation of our magical listing experience, a true breakthrough that move beyond AI-assisted tools to a fully AI-native architecture. Unlike prior iterations where we integrated generative AI technology into legacy workflows, this new experience leverages AI agents from the start to autonomously build listings from images alone. Now any smartphone camera can act as an AI agent that guides you on which photos to take for your specific product to increase the likelihood of a sale. In the background, AI agents create the title, category and item specifics by leveraging advanced models and our product knowledge graph. AI also provides intelligent pricing recommendations based on real-time transaction data, helping sellers balance velocity and price realization to optimize their cash flow. The early results have been powerful. After making this the default listing experience for all new and reactivated listers on iOS and Android in the U.S., we have seen a more than 1/4 decrease in average listing time and greater than 50% increase in new listing creation rate, double-digit percentage increases in sold items and GMV per lister and customer satisfaction exceeding 95%. We are continuing to fine-tune the experience and are excited to bring this game-changing capability to more countries and seller cohorts over the coming months for unlocking our total addressable market in recommerce. For buyers, we are redefining discovery through a agentic search, which we started rolling out to a subset of our U.S. mobile traffic in December. This technology allows buyers to shop using natural language in a back and fourth dialogue, just like they would with a knowledgeable sales associate that understands their style, preferences and shopping history. As a result, new buyers are able to seamlessly filter results and more easily discover the amazing breadth and depth of inventory on eBay just like enthusiasts have been able to, do for many years. As this technology is built into the core search experience rather than off to the side, it's important that it's scalable. We've powered this experience using a set of lightweight proprietary models that leverage a query agent to classify intent, which enables us to effectively balance the trade-offs between latency, compute costs and query optimization quality. We plan to scale agentic search to more users throughout 2026, laying the groundwork for an even more personalized shopping journey for our customers. In October, we launched eBay International Shipping or EIS, in Canada, our third largest quarter for U.S. imports. This rollout brings the benefits of our U.S. program to Canadian sellers, including delivery duties paid functionality and the automated application of country of origin data. Our Canadian seller ramp has progressed ahead of schedule and we'll continue to expand seller and listing eligibility in 2026 as we refine our offering. In Q4, we also enabled business sellers in Germany to access SpeedPAK, our end-to-end cross-border shipping solution enabled through a joint venture, which was already offered in Greater China and Japan. SpeedPAK automates customs documentation and tariff calculations, simplifying compliance for small businesses that lack the resources to manage these changes independently. In Japan, where SpeedPAK has seen strong adoption, SpeedPak is now utilized for the majority of direct shipments to the U.S., ensuring a reliable transparent experience for buyers. Importantly, between EIS and SpeedPAK, we now have cross-border solutions in place for our largest corridors, importing goods to the U.S., and we'll continue to ramp shipping solutions to additional corridors throughout 2026. I'm also pleased to share that we closed out 2025 by exceeding our ambitious 5-year impact goals. From 2021 to 2025, we set out to drive $22 billion in positive economic impact from the sale of pre-loved and refurbished goods on our platform. Based on our outperformance in recommerce, we estimate we achieved a cumulative positive impact of close to $25 billion. We also helped prevent nearly 8.2 million metric tons of carbon emissions from entering the atmosphere above our target of 8 million. Lastly, we estimate over 360,000 metric tons of waste were diverted from landfills from recommerce on eBay, exceeding our target of 350,000. These results demonstrate how promoting the circular economy delivers tangible environmental benefits while creating meaningful economic value for our global community. In closing, 2025 was a milestone year for eBay. We accelerated GMV growth to nearly 6%, with 8% growth in the second half of the year. Roughly 2/3 of our GMV was driven by our most established strategic priorities: focus categories, C2C and recommerce. This GMV grew 10% in 2025 and exited the year growing even faster. I'm incredibly proud to see years of investment and execution reflected in the strength and momentum in our business. At the same time, I'm even more excited about the road map for 2026. In addition to scaling our established strategic priorities this year, we plan to accelerate emerging growth vectors like our secure, fully digital transaction solution for vehicles. which serves as a powerful multiplier for our broader eBay Motors offering. Each enthusiast vehicles sold on eBay unlocks further customer lifetime value, driving recurring demand for our P&A business as buyers return to maintain, modify or restore their newly purchased vehicle. We also have ambitious plans for eBay Live, which has evolved from a fast-growing U.S. pilot at the start of 2025, to a rapidly scaling commerce engine that's available in 7 countries today. By integrating live shopping directly into our core experience, we are building a new flywheel that allows enthusiasts to discover, interact and transact in real time across many of our strongest categories. Lastly, I've never been more optimistic about our AI road map as we start 2026, as we build upon the robust technical infrastructure and the foundry of proprietary models that we've developed over the past year. This foundation enables us to further raise the bar for innovation, unlock our decades of proprietary data and deliver hyperpersonalized agentic experiences that anticipate our customers' needs and drive tangible value for our business. I want to thank our employees for their incredible execution this year and our community of sellers and buyers for their continued partnership. With that, I'll turn the call over to Peggy to provide more details on our financial performance. Peggy, over to you. Peggy Alford: Thank you, Jamie. I'll start with our financial highlights for the fourth quarter. GMV grew over 8% to $21.2 billion. Revenue grew over 13% to $2.96 billion. Our non-GAAP operating income grew over 11% year-over-year to $775 million. Non-GAAP earnings per share grew nearly 13% year-over-year to $1.41 and we returned $756 million to shareholders through repurchases and cash dividends, demonstrating our continued commitment to capital returns. Now let's go deeper into the key drivers behind our strong Q4 performance. GMV grew over 8% to $21.2 billion on an organic FX-neutral basis. Foreign exchange provided a tailwind of approximately 150 basis points to spot GMV growth. Focus category GMV grew over 16% in Q4, outpacing the remainder of our marketplace by roughly 12 percentage points. Consistent with recent quarters, strength was broad-based across our business and was most pronounced in the areas where we have been actively investing. All focus categories contributed positively to GMV growth in the quarter, led by collectibles, P&A, luxury, refurbished apparel and sneakers. Within trading cards, while Pokemon decelerated as expected due to tougher year-over-year comparisons, GMV from the rest of collectible card games still posted strong growth and sports trading cards growth accelerated. Outside of focus categories, we also saw strong GMV growth in other collectibles like bullion, coins, action figures, comics and other toys. Looking at our business by geography. Our U.S. GMV growth was particularly strong, while our international performance was pressured by the relatively softer macro environment in Europe, and continued pressure on U.S. imports driven by recent trade policy changes. U.S. GMV grew nearly 19%, accelerating by nearly 6 points sequentially due to several factors. Our U.S. volume saw a disproportionate benefit from the strength in collectibles because of its higher mix in this category. Our U.S. business also benefited from strong growth in luxury and pre-loved apparel and an uptick in demand in certain electronics categories. Growing contributions from our emerging growth vectors, notably live and vehicles also benefited our U.S. growth as well as a favorable lower funnel marketing environment and continued strength from our Klarna partnership. International GMV declined nearly 1% on an organic FX-neutral basis with foreign exchange providing a tailwind of 290 basis points to spot GMV growth. International performance was impacted by challenging macroeconomic conditions in the U.K. and Germany and a deceleration in our cross-border volume growth due to U.S. trade policies, including the removal of de minimis exemption for all countries at the end of August. However, our focus categories continued to perform well internationally in Q4, reinforcing the resilience of our marketplace. Moving on to our buyer metrics. Our trailing 12-month active buyers totaled roughly 135 million in Q4. Excluding buyers from recently acquired Tise, active buyers were over 134 million up nearly 1% year-over-year organically. Enthusiast buyers were stable at roughly 16 million while spend per enthusiast buyer grew year-over-year to over $3,300 on a trailing 12-month basis. Our buyer metrics also reflected the divergence in our geographical performance. In the U.S., both active and enthusiast buyer growth accelerated in 2025, exiting the year at mid-single-digit growth. However, our enthusiast buyer count in international markets has been pressured by persistent macro headwinds as some buyers fell below the volume or frequency thresholds. Next, let's take a closer look at our income statement. We generated revenue of $2.96 billion in the fourth quarter, up over 13% on an organic FX-neutral basis with foreign exchange providing a tailwind of 160 basis points to spot growth. Our take rate was 14%, up 60 basis points year-over-year primarily due to the shipping, U.K. buyer protection fee, and advertising revenue growth. As a reminder, we eliminated final value fees for U.K. C2C sellers as a part of our C2C initiative in October of 2024, then progressively scaled our remonetization throughout 2025. By Q4, we had effectively completed our C2C remonetization efforts through our buyer protection fee and manage shipping mandate on eligible items. Trade policy changes and mix shifts in our business continue to apply some pressure on our take rate year-over-year. Last quarter, we noted returned and canceled orders had emerged as a headwind to our take rate in recent months. Encouragingly, we did see return in cancellation rates stabilize sequentially in Q4 as sellers and buyers adjusted to U.S. trade policies. Total advertising revenue was $544 million, representing GMV penetration of nearly 2.6%. Within the eBay platform, first-party ads grew over 17% to $517 million. Promoted listings comprised nearly 1.2 billion of the roughly 2.5 billion total listings on eBay while 4.8 million sellers adopted at least 1 promoted listing product during the quarter. We continue to deprecate legacy third-party display ads, which declined by 41% to $7 million. Off-platform advertising revenue was $21 million. Non-GAAP gross margin was 72.1% in Q4, declining by nearly 80 basis points year-over-year as tax-related tailwinds and cost of payment efficiencies were offset by managed shipping traffic acquisition costs related to promoted off-site ads and Authenticity Guarantee program costs. While these programs pressure gross margins as they scale, they provide meaningful strategic benefits to our marketplace by reducing transactional friction, driving sales velocity and enhancing trust. Our non-GAAP operating margin was 26.1% as marketing efficiencies were more than offset by product development expenses and transaction losses. The losses were primarily attributable to our recently launched shipping programs, which significantly improved the seller and buyer experience. Losses with these types of programs are typically higher initially and we expect them to decline over time as we gather data and optimize these programs. Overall, while we continue to reinvest a portion of our top line upside in strategic initiatives, we flowed through more incremental revenue to operating income in Q4 compared to the prior 2 quarters, resulting in 11% year-over-year operating income growth ahead of our guidance. Non-GAAP earnings per share was $1.41, up nearly 13% and GAAP earnings per share from continuing operations was $1.14. Moving on to our balance sheet and capital allocation. We generated free cash flow of $478 million in Q4 and ended the year with cash and fixed income investments of $4.8 billion and gross debt of $6.7 billion on our balance sheet. Our equity investments were valued at over $900 million. We repurchased $625 million of eBay shares in Q4 at an average price of nearly $86, and paid a quarterly cash dividend of $131 million in December or $0.29 per share. Before I discuss our outlook, I'd like to point out 2 accounting policy changes we are making, starting on January 1, 2026. First, we are adopting a new accounting standard for internal use software, and as a result, we will expense all product development costs starting this year, reducing the amount of capitalization. We are providing a recast of the 2024 and 2025 income statements in the appendix of our earnings presentation, which offers a comparable baseline to the financials we'll report starting with Q1. My upcoming comments on Q1 and 2026 growth rates are based on the recast financials. Second, since we first launched our U.K. managed shipping program over a year ago, we have expanded our partnerships with carriers and provided sellers with more choice and control over which shipping services buyers can select. Given the increased flexibility for sellers, we are switching our accounting treatment for this program from gross to net revenue recognition, which will modestly pressure our take rate in 2026. Now I'll share some thoughts on 2026 and starting with our outlook for the first quarter. We expect GMV between $21.5 billion and $21.9 billion for Q1, representing total FX-neutral growth between 10% and 12% year-over-year. Based on current exchange rates, we estimate FX would represent a roughly 450 basis point tailwind to spot GMV growth in Q1. Our guidance assumes continued strength from our strategic priorities, driven by focus categories, C2C and recommerce. Our year-over-year GMV growth is also expected to benefit from continued efficiency in lower funnel marketing and our corner partnership, which each emerged as more noticeable growth drivers in Q2 of last year. In addition, we do expect increased growth contributions from what we perceive as less durable growth drivers, including bullion and collectible coins. We forecast revenue to be between $3 million and $3.05 billion, implying total FX-neutral growth of 13% to 15% year-over-year. Based on current exchange rates, we estimate FX would represent roughly 310 basis points of tailwind to spot revenue growth. Our guidance implies a roughly 3-point delta between FX-neutral revenue and GMV growth year-over-year in Q1. Continued healthy growth in advertising is expected to be a contributor to this delta. A portion of this delta is also related to the lapping of our phased remonetization of U.K. C2C volume last year, but this component will no longer be a tailwind in Q2 as managed shipping revenue faces lapping pressure from the aforementioned accounting change. We expect non-GAAP operating income growth between 11% and 16% year-over-year in Q1, implying non-GAAP operating margin between 28.3% and 29.2%. Our strong operating income growth reflects disciplined reinvestments in strategic priorities and healthy flow-through to the bottom line. We forecast non-GAAP earnings per share between $1.53 and $1.59 in Q1, representing year-over-year growth between 12% and 16%. Our EPS guidance implies the net interest and other line item is roughly neutral in Q1 due to onetime items. Next, I'll share our preliminary views on the full year excluding the potential impact of the pending Depop acquisition, which I will outline separately. For 2026, we are planning our business around the assumption that year-over-year GMV growth is similar to 2025 on an FX-neutral basis, reflecting the continued momentum we're seeing from our established strategic priorities and increased contributions from emerging growth vectors this year. We expect this strong GMV growth despite the incremental impact of tariffs and other lapping considerations we identified last quarter. These impacts are not expected to be linear from quarter-to-quarter influencing year-over-year growth rates in 2026. However, on a 2-year stack basis, our commentary suggests GMV growth is relatively consistent between Q2 and Q4, implying strong underlying growth trends. We are planning for revenue growth to be in line to slightly ahead of GMV for the full year on an FX-neutral basis as healthy growth in advertising revenue is expected to be partially offset by mix shifts in our business, including higher growth contributions from live and vehicles. We believe these emerging growth vectors will contribute long-term top and bottom line growth and improve the health of our marketplace. We expect non-GAAP operating income growth between 8% and 10% year-over-year in 2026, as we balance reinvestments in our strategic priorities and emerging growth vectors with strong flow-through to the bottom line. Importantly, we will continue to be disciplined in our investments and drive operational efficiencies in our business whenever possible. We expect non-GAAP earnings growth to be relatively in line with non-GAAP operating income in 2026, due to below-the-line items that are expected to roughly offset the EPS accretion from our share repurchases. We anticipate our lower cash balance and higher interest expense would pressure the net interest and other line item year-over-year after Q1. Additionally, as we alluded to last quarter, we are increasing our non-GAAP tax rate assumption in 2026 to 17.5% to reflect the impact of global tax policies and our geographical business mix. Next, let me share a few thoughts on capital allocation. We forecast capital expenditures to be between 4% and 5% of revenue for the full year. As we outlined last quarter, we plan to target repurchases and cash dividends totaling between 90% to 100% of free cash flow in a normal year. For 2026, we are targeting roughly $2 billion of share repurchases, which is squarely within that range despite our planned acquisition of Depop, underscoring our ability to balance inorganic investments with strong capital returns to shareholders. In February, our Board authorized an incremental $2 billion under our stock repurchase plan in addition to our remaining authorization of roughly $800 million at the end of 2025. Our Board also declared a quarterly cash dividend of $0.31 per share for the first quarter to be paid in March, which is an increase of $0.02 from the quarterly dividends paid out in 2025. Now I would like to take a few minutes to walk through the financial implications of our pending acquisition of Depop. We have entered into a definitive agreement to acquire Depop from Etsy for approximately $1.2 billion in cash subject to certain purchase price adjustments. We currently expect this acquisition to close in Q2 of 2026, subject to the satisfaction of customary closing conditions and regulatory approvals. As Jamie noted, Depop is a great strategic fit and builds upon the significant organic momentum in our business, driven by years of investment in C2C and growing value proposition in fashion. Overall, Fashion is one of our largest categories, generating more than $10 billion in GMV for eBay annually. And in 2025, our U.S. market alone added over $500 million of incremental fashion GMV year-over-year, the majority of which came from C2C sellers. Our acquisition of Depop would add a business generating approximately $1 billion of annual gross merchandise sales, primarily in the U.S. market, where it grew by nearly 60% year-over-year in 2025. Upon completion of this transaction, we expect Depop would contribute 1 to 2 percentage points to total FX-neutral GMV growth year-over-year in 2026, assuming the deal closes as expected in Q2. Given the immense potential we see for this marketplace within eBay's portfolio, we plan to invest in Depop to support future growth and synergies between our respective marketplaces. Our current assumption is that the acquisition would represent a low single-digit headwind to the 8% to 10% operating income growth we forecast for the core eBay marketplace. This estimate reflects not only the current operating profile of Depop, but also integration costs and planned investments. We would also expect the acquisition to dilute our non-GAAP earnings per share growth by low single digits, with the EPS impact modestly higher than operating income dilution due to foregone interest income from the cash used for this transaction. Over the long term, we are highly confident this acquisition will be meaningfully accretive to operating income and EPS growth and drive significant value for shareholders. On a consolidated basis, including synergies, we expect the acquisition of Depop to become accretive to non-GAAP operating income in 2028. In closing, our Q4 results capped off a tremendous year for eBay. In 2025, we accelerated GMV growth to nearly 6%, increased non-GAAP operating income by roughly 7% year-over-year and grew non-GAAP earnings per share by nearly 13% year-over-year, marking our second consecutive year of double-digit earnings growth. We demonstrated our ability to accelerate growth invest in our strategic priorities and transform the eBay experience through AI, all while delivering strong bottom line results and healthy capital returns to shareholders. Despite a full year of impact from trade policy changes and the lapping considerations we've laid out, our outlook for 2026 implies another strong year of balanced top and bottom line growth with our investments supporting an exciting innovation road map for our customers. With that, Jamie and I will now take your questions. Operator: [Operator Instructions] Our first question will come from Nikhil Devnani with Bernstein Research. Nikhil Devnani: Jamie, it's pretty staggering to see numbers like 10% to 12% consolidated growth given where things were only a few quarters ago. I know you've acknowledged already some of the shorter-term benefits in a few categories. But when you look beyond that, it seems like there's been some sustained acceleration just generally for you in the U.S. So my core question here is, I guess, what's changed? Are you seeing -- have you seen step-ups in conversion rates? Have you seen influx of new customers to some of those other core categories? Like what's driven this improvement across the board in the domestic market? Jamie Iannone: Yes. Look, thanks for the question, Nikhil. What I feel great about regarding Q4 is the broad brand strength that we're seeing. The underlying health of the business is the strongest it's been since I've joined the company 6 years ago. And I think what you're seeing is that years of investment that we've made are paying off, and that's really evident across our strategic priorities. Focus categories, C2C and recommerce, each of these areas grew in the high single to low double digits in '25. And collectively, they drive a significant majority of our GMV. So we've been transparent and Peggy has talked about some of the unique tailwinds in recent periods. And we've been prudent about our go-forward assumption in those areas. But overall, I'd say we're really pleased with our performance in Q4, the broad-based nature of our growth and how that momentum is translating into early 2026. We had some specific commentary about bullion and collectible coin specific to Q1. But other than calling that out -- potentially less durable, we see that as less durable. Overall, we see the broad-based nature of our growth and that momentum really carrying through to 2026. Nikhil Devnani: And maybe a follow-on, sticking with GMV. For the guide for this year, how much contribution are you embedding from some of the newer emerging vectors like Caramel and eBay Live? Jamie Iannone: Yes. Look, we're excited by the new growth vectors in the business. But I would say the majority of what we're excited by is just the strength of the core business. When you look at our focus categories and the growth that we saw in Q4 and what we're seeing in Q1, that continues to perform -- those continue to perform really well. I'm excited by some of our newest categories that we have in -- or newest areas that we have with both eBay Live and with Vehicles. we're seeing a nice run rate in eBay Live, a 7x run rate for year-over-year. But I would say, in general, our strategic priorities around focus categories, C2C and recommerce are going to be consistent and strong drivers for us in 2026. Operator: Our next question will come from Colin Sebastian with Baird. Colin Sebastian: Great. Congratulations on the quarter and the year. I guess, first, on the International segment, I know the macro factors continue to weigh on growth, but also curious if you're seeing, Jamie, any changes in the competitive environment in key markets? And then likewise, are you seeing benefits from focus categories and AI tools or other platform initiatives as they do roll out in Europe? Jamie Iannone: Yes. Yes. Thanks for the question. Clearly, it's a dynamic macro environment and a clear divergence between the U.S. and our international markets in Q4. In the U.S., while we faced uncertainty relative to trade policy, consumer demand has been resilient, and we saw broad-based strength across categories in Q4. I would say in contrast, Europe has been more challenged as consumer confidence remains low and retail sales trends are subdued there. But what I would tell you is the focus category stuff that we've rolled out internationally has been performing well. The C2C initiatives that we've been driving continue to perform well in that market. We recently expanded eBay Live to a number of our other markets across Germany, France, Italy and Canada. And so overall, we feel like we're well positioned and the things that are working in the U.S. are working as well internationally. It's just a very different macro environment from what we're seeing in the U.S. Colin Sebastian: Got it. Okay. And then maybe my follow-up is on the agentic side. I know it's really early. But at a higher level, what sort of user behavior changes are you expecting as this rolls out on the buyer side? Does this impact your advertising business and also maybe the architecture for how you're building this out to connect with partners like OpenAI? Jamie Iannone: Yes. Look, we feel really well positioned to bring a differentiated experience to agentic commerce which makes us really confident we'll be a long-term beneficiary of this trend. The first thing I'd hit on is the experiences that we're building on eBay, leveraging this technology. Our next generation of magical listing is really a game changer. It's an AI-native solution that leverages our product knowledge graph that leverages 30 years of data and build this amazing experience where we essentially do everything for you in the background. I've been doing this for a long time in decades. And having a new product rollout with 95% customer satisfaction shows you the strength of what we're building using these tools. I would say the same thing with agentic search and what we're seeing as people pilot that and the ability to use natural language against our inventory. But the other thing I would tell you is that the other reason we feel well positioned is our inventory is really different from most marketplaces. Roughly 90% of our GMV is not new in season and 2/3 of that intersects with focus categories, recommerce or with C2C. So these are highly considered purchases of unique items, think used, refurbished, collectable or luxury items where conditions, scarcity and the human judgment matter. The last thing I'd say is that all the work that we've done in our experiences with trust, plays a huge differentiator for us and a real structural advantage. You think about seller feedback, Authenticity Guarantee and the post-transaction Protections that we provide, that's hard to replicate along with financial services and global shipping solutions really do kind of reduce the transactional friction for buyers and sellers. So all of these factors, I think, put us in an incredibly strong position to thrive in an agentic AI world. and I'm really excited by the investments that we're making and the customer responses to how we're using that technology on the eBay experience. Operator: Your next question will come from Ross Sandler with Barclays. Ross Sandler: Great. Hopefully, you can hear me. Jamie Iannone: Yes, we can hear you, Ross. Ross Sandler: Excellence. Okay. So just 2 questions. One on the full year '26 guide, you guys have talked about how we're going to lap some of these like nondurable things in the second half of '26. Could you just talk about how you're thinking about like the growth cadence throughout the year and some of the like durable versus nondurable as we get into the second half? And then on Depop, so those guys have done a great job in their U.S. side of the business. And I think the international has trailed the U.S. performance. So how is like combining eBay and Depop potentially going to advance the cause on like U.K. and Australia and frankly, just the overall fashion segment at eBay in general? Just curious to your comments on that. Jamie Iannone: Peggy will take the first one and I'll take the second. Peggy Alford: Sure. Thanks for your question, Ross. So we feel really good about the broad-based strength that we're seeing. As Jamie mentioned, they're really focused on our strategic priority areas, focus categories, C2C, recommerce. Our commentary reflects the continuation of the strength as well as we're really excited about the contribution that we're expecting from our emerging growth vectors like live and vehicles. In terms specifically on -- in terms of specifically on lapping, a couple of things to keep in mind. So we are expecting a deceleration in Pokemon growth in '26 just given the triple-digit growth that we saw in '25, although I will point out that we expect healthy overall growth in trading cards. We started seeing a little bit of the deceleration in Q4 of '25 and the comps get a bit tougher as we move throughout the year. Jamie mentioned bullion, we are expecting a significant amount of the acceleration that we saw from Q4 to Q1 was related to just the bulion and collectible uptick. And so we are planning for that to moderate during the year after Q1. We're lapping our U.S. Klarna partnership starting in Q2 of '26. And then we talked last year -- in '25 about our marketing efficiency gains in paid search, we'll be lapping those from a favorable competitive dynamic starting in Q2 of '26. So overall, I'd say we believe that the majority of the growth is durable and we remain very confident in the strength of our business. Just want to point out a few of those factors. Jamie Iannone: Yes. And then regarding your questions on Depop, Look, I'm really excited by the acquisition. I think it's really going to supercharge our C2C strategy in several ways, and it's building on strong growth that we're seeing today, particularly in the U.S. Our U.S. C2C business grew in the mid-teens year-over-year in 2025 with growth accelerating in '24. And our learnings across the globe have really helped drive that. We're also doing this acquisition from a real position of strength. We're seeing strong growth in Fashion, its an over $10 billion GMV category for us on eBay and we've been increasing our investments there. I've been talking about that over recent quarters. In 2025, U.S. fashion grew 10%, with even faster growth in C2C. So if you look at it, we added over $500 million of GMV in the U.S. in fashion alone. Depop as really prioritized the U.S. market in a world with limited investments. They've been really leaning in, and they've seen really great growth. They've seen 60% growth in the U.S. market, which is obviously great with the strength that we're seeing in the overall business. The last thing I'd say is that Depop brings a younger consumer base and they're amongst the fastest-growing demographic, especially in this sustainability, recommerce and fashion piece. And so we see it as a great strategic fit for eBay. It builds on the strong growth we're already seeing in C2C in fashion, and I'm excited about the strong growth potential for both marketplaces go forward. Operator: Your next question will come from Nathan Feather with Morgan Stanley. Nathaniel Feather: Congrats on the quarter. I guess, first, just to follow up on Depop a little bit. Interested to hear how do you think about the revenue synergies that are available through the Depop deal, and what is that opportunity to drive across the listing from both Depop to eBay and eBay to Depop? And then just a clarification, Peggy. You said that coins and bullion was the majority of the acceleration from 4Q to 1Q. So just to clarify, that means GMV is still accelerating even excluding the coins and bullion impact? Jamie Iannone: Yes. So let me talk first on what excites me about the Depop from that side and the integration. So first is, we'll keep Depop as a stand-alone brand experience, et cetera. It's resonating great with consumers. It's growing well as I talked about, et cetera. But we do see the opportunity to help support that growth and drive it even further, by bringing assets from eBay that we've developed over the last couple of years. So think about the Authenticity Guarantee work that we've done, the shipping and cross-border trade, payments and financial services in recent years, we've turned more of our back-end resources into services to really help grow not only core eBay Marketplace but other stand-alone platforms. And I'd probably draw a parallel here for you, Nathan, to what we've done in Collectibles. Years ago, we bought TCGplayer and Goldin Auctions, and you see us now integrating Goldin Auctions with a single sign-on experience. We've integrated Goldin Listings onto the platform. And I'm really glad we did those acquisitions because they're really helping accelerate the strategy of what we're doing in collectibles, and I'm similarly excited for that opportunity with what Depop has done with fashion of the ability to take the marketplace to the next level and drive synergies across a number of those areas. Peggy, do you want to take the second piece? Peggy Alford: Sure. Just a quick clarification. So as I mentioned, due to the increases in precious metals, we did see an acceleration in the demand for bulion and coins in Q4, and that continued into Q1. This -- what I meant to say was that, the bullions accounts for a significant portion of the sequential acceleration, not all of it. We continue to see broad-based strength going into Q1 and looking beyond some of the near-term unique dynamics that we called out, we feel very good about this broad-based and durable nature of the GMV growth that we're seeing. Operator: Your next question will come from Shweta Khajuria with Wolfe Research. Shweta Khajuria: Let me try 2, please. First is on earnings growth. So when we think about EPS growth, could you please talk about the puts and takes? So how would -- what would drive the potential upside and how you're thinking about buybacks? And then the second is a follow-up to a prior question on agentic commerce I guess, how do you think -- when we think about long term in terms of your position in agentic commerce, how do you see it evolve? And perhaps, is there -- what is your view on eBay's position in agentic commerce as it relates to shoppers perhaps potentially moving to these AI platforms. Is that a positive for you or negative? And are you compelled to partner with them? Jamie Iannone: Yes. Look, what you've seen from us with partnerships is we've always been open to making our unique inventory available on scaled third-party channels. We've done that with Google Shopping. We've done that with Facebook Marketplaces, which are 2 great examples. We're also thoughtful about where and how we do so, and we're taking the same approach here with agentic commerce. My first priority has been to build the agentic in-house capability. That's why I talked about agentic search. When I talked about the newest version of magical listing, and we've got an exciting road map coming up. But in regard with partnering with other platforms, we built a unified agentic commerce platform that enables us to plug into third-party agents and test different type of experiences to see what works best for our marketplace. For instance, we recently signed on to be an early participant in the OpenAI Ads Pilot Program to test that out. But when I take a step back, yes, we believe we're in a strong position to be a beneficiary of agentic commerce. And it's a lot because of what I talked about earlier. Our inventory is fundamentally different from most marketplaces. It's 90% non-new in season, and we've built a lot of trust and other things around it. When you think about our 70,000 -- sorry, our 16 million enthusiast buyers that we have on the platform that buy 70% of the they're really driving sales in this used, refurbished, collectible, luxury or more considered purchases. So we're going to be very thoughtful about how we do it, and I'm really proud of the technology that we've built to enable us to do so. And we'll continue to develop our platform to create more opportunities that promote discovery of our sellers' unique inventory while we continue to invest internally in loading the leading AI experiences for our enthusiast customers. Peggy Alford: In terms of your question on EPS and operating income growth, we are expecting strong non-GAAP operating income growth in Q1 and the full year, and we're expecting that the majority what's driving the EPS growth. In terms of our buyback policy and our capital allocation plan. It remains the same. We first -- our first priority is organic investment in the business because we believe that, that is ultimately what's going to drive EPS growth. When it comes to excess capital, we have a strong track record of returning cash to shareholders. In a normal year, we plan to target repurchases and dividends totaling between 90% and 100% of free cash flow. For 2026 specifically, we're targeting roughly $2 billion of share repurchase, which is within the range for a normal year, and that's despite our planned acquisition of Depop. This is reflecting our business performance. We have a healthy balance sheet and strong cash flow generation. And so we feel really good about this balance we've been able to achieve between investing in future growth and returning shareholder cash. Operator: Your next question will come from Tom Champion with Piper Sandler. Thomas Champion: Jamie, can you talk a little bit about eBay Live. Maybe give us the update there and your plans for this year? And curious what the long-term benefit is going to be there. Is that dollar volume of transactions? Is it a new customer demographic or is it engagement on the platform? Just curious any additional comments there. And maybe just relatedly, any update to the Facebook partnership? Jamie Iannone: Yes, Tom, thanks for the question. And it's really what's exciting about this opportunity, it's really all of the above on the things you mentioned. We see it as a really exciting opportunity, and I'm really encouraged by the traction we're seeing as we expanded into new markets and categories. It's really a natural extension of our marketplace, and it's already contributing to the double-digit growth that we're seeing in focus categories. And what we've been doing is investing and making Live more discoverable across the site, integrating into streams at relative points in the buyer journey. In Q4, we actually expanded Live into Australia and Germany, and we've since expanded it into France, Italy and Canada. We've been hosting high profile activations at the world's kind of biggest football game. We had Christian McCaffrey, Gronkowski, Jerry Rice raising awareness of what we're doing there. And to your question, we're seeing that it helps sellers because it builds this great new capability, right? You put it out there and you watch what sellers do with it, and it's pretty exciting, but it's also helping them grow their core business because they're building trust back in their core business with what they're doing with Live on the platform. It's helping us attract new buyers into the platform and drive more engagement out of our buyers because of the live streams and what we're seeing there, and that's why we've been scaling it up more geographically over time. I was excited to see that we did a single event. We did over $2 million of sales in a single live event that kind of shows you the scale of what's possible for our sellers to really drive GMV. And our scale, our global buyer base and our high bar for trust really differentiate eBay and live commerce. And while it's still early in our growth phase, we believe eBay Live can be a meaningful growth vector over time and an increasingly important part of how enthusiasts shop on our platform. To your question on the Facebook Marketplace, we continue to make progress on our partnership there. In Q1, we expanded our eBay inventory into Search, which is a new platform for us in the partnership or a new surface, if you will, that reflects higher intent user engagement earlier in the shopping journey. We're also expanding the volume and the categories of inventory shared on Facebook Marketplace, which benefits our existing presence in the marketplace feed. So we believe this partnership is great for the eBay seller community as we expose their listings to Facebook scaled audience, and it's great for Facebook Marketplace users as they discover our breadth and depth of unique trusted inventory. So I think both teams are encouraged by the continued progress and the learnings to date, including the new learnings that we're seeing with the new surface in search. Operator: Your final question will come from Michael Morton with MoffettNathanson. Michael Morton: My first one, I love the commentary on the trading card business, you've done some incredible things there. An investor question we frequently get is on the sustainability of that business. I know that there are some tough comps. But big picture, could you maybe talk about or quantify how you've grown the user base of people who sell trading cards on the website to help people appreciate that it's not just price appreciation. That would be my first question. And my second question, Jamie, I wanted to follow up on Colin's question a bit on Shweta's question. But on agentic and just trying to be really explicit on what we're looking for here, are you seeing any change in behavior from users who are sent from AI search platforms to eBay's website. You do have, exactly what you said, it's high consideration goods, are you seeing higher conversion rates when they come from these platforms because they're coming in with more intent? And does it change the amount of products they click on. Jamie Iannone: So what I would say first on the trading cards is, look, we continue to see a long runway for secular growth in trading cards, and we attribute much of the recent growth to the innovation that we are driving, which has fueled renewed excitement amongst hobbyists. If you look at the Q4 strength, Mike, it was really broad-based across sports, trading cards and collectible card games, Pokemon trains remained extremely strong despite GMV decelerating year-over-year due to tougher comps, but sports trading cards accelerated with the strong growth across the 3 major U.S. sports. And while emerging collectible card games, like there's this new one called One Piece, which is exciting now are starting to gain traction. To your question specifically though, encouragingly, we're seeing GMV growth driven by a balance of new buyers, sold items and ASP, and much of the ASP has been driven from a mix shift towards higher priced items. So stepping back, if you look at the innovation, whether it's live, the new AI card scanning thing that I talked about upfront, which we're seeing great momentum from consumers, we're really excited to see kind of the renewed energy based on the years of investment that we've had. And we believe most of the growth is broad-based and secular in nature. Our scale and our value proposition have really positioned us as a leader in this space. And I remain very optimistic about the multiyear growth opportunity ahead in collectibles. To your question on AI, I'd tell you right now that the traffic is very small. And it's not just for us, like in general, there's not a lot of traffic being driven. The traffic that is being driven is high intent. And so we are seeing kind of high conversion on that in terms of the traffic that's there. The other thing I would tell you is that what we're seeing in our own experiences on our platform with the agentic commerce -- or the agentic search that we're running there is that our enthusiast buyers, especially that are part of the pilot are really loving the ability to have this back and forth conversation. The ability to kind of refine and filter their items using agentic search and get to the things that they want, and it's really resonating on the platform. And then I would say the same thing about magical listing. I talked about the customer satisfaction of that being at 95%. But I think even more important, when you look at the stats of new listings that are coming on to the platform, it's achieving the goal that we've been working on for years now, which is the whole idea of having people say, well, if it's that easy to list it on eBay, let me start selling this, this and this. The average household has $4,000 of stuff that could be sold on the platform, and less than 20% of that is online. So we're really excited to bring that new capability and unlock all that inventory and really drive the significant TAM and recommerce. And we also think Depop is going to help us do that in a big way, too. So thanks for the questions. Operator: Thank you for joining. This concludes today's call. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Medical Developments International FY '26 Half Year Results. [Operator Instructions] I would now like to turn the conference over to Mr. Brent MacGregor, CEO. Please go ahead. Brent MacGregor: Thanks very much, and good morning, everybody. I want to welcome you to today's investor briefing for our FY '26 half year results. I am Brent MacGregor, I'm the CEO, and I'm joined today by Anita James, our Chief Financial Officer. So today, I'm going to share with you an overview of our results and the company's key achievements in the half year, and I'll take you through the drivers of our future growth. Anita will then speak to the financials in more detail, after which I'll give you some closing remarks. And of course, there'll be plenty of time for questions at the end of the presentation. So on that note, let's go to Slide 3. Thank you very much. So starting here, these are our key messages. So the results we have released today really illustrate the progress we are making on our strategy. Now having put the business on a sound financial footing in FY '25, our key priorities in FY '26 -- our key priority in FY '26 has been accelerating Penthrox's volume growth. And I'll come to that. So overall, our financial performance in the period was improved. Now if you take out foreign exchange movements, underlying earnings in our first half were stronger, and we're pleased to report positive operating cash flow for the period. It's a great result that reflects the margin improvements we've been implementing over the last 18 months and a stronger underlying performance for our Pain Management business. Now we progressed important initiatives that will support delivery of our future growth ambitions, and this includes progressing approvals for the pediatric label in Europe and some great initiatives related to data generation and real-world evidence to differentiate Penthrox from the standard of care. And our measure of progress is ultimately the demand for Penthrox. And on this, it has been encouraging to see volume growth in all of our regions. Now moving to Slide 4. Here we have our headline results for the period. So as you can see, group revenue was up 8%. Pain Management specifically delivered strong growth with revenues up 18%. Now with our Respiratory business, that's performed below expectation with revenues down 10%. And this has been driven mostly by soft demand in the U.S., where the market conditions have been particularly challenging. Now when you look at EBIT and NPAT, they were slightly down on the prior period. However, last year's results did benefit from significant unrealized foreign exchange gains. So if you exclude those FX movements, EBIT and NPAT were both improved by $0.5 million in the period. But a particular note is operating cash flow, which was improved by $1 million with positive cash flow delivered in the period. So moving now to Slide 5. These are our FY '26 priorities. You've seen these before. So as I mentioned already, our key priority in FY '26 and beyond is to accelerate volume growth for Penthrox while continuing to improve our margins. And on this slide, we want to share the key initiatives we're undertaking this year to support this long-term growth. So in our Pain Management segment, the growth will require us to continue driving behavioral change and to embed Penthrox as a standard of care, particularly in that hospital ED setting. Now we have several initiatives to drive an acceleration in Penthrox adoption. Now first, and you've heard it before, we will leverage the MAGPIE study data, that's the pediatric study that supports our partners in the launch of that pediatric label following all the approvals. Second, we'll generate real-world evidence that demonstrates the benefit of Penthrox from a patient and a health care provider experience perspective, but also from an efficiency perspective. And this growing bank of evidence will be critical to influencing behavioral change and product adoption. Third, we will expand commercial and medical investment overall to support these initiatives. Now enhancing our margins also remains a key priority, and I'll take you through some of the progress we have made in relation to these priorities in the coming slides. Now lastly here, our third priority is about growing share in the U.S. Spacer market. Now on this, we have clearly had some challenges, as I already mentioned. Now we expect the soft demand conditions experienced in our first half to persist in the near term. That evolving tariff regime in the U.S. also brings an added challenge, and we're going to have to, and we will continue to navigate the uncertain conditions with caution and with discipline, as we've been doing thus far. So let's move to Slide 6. And Slide 6 includes the progress we've been made -- we've made on several important initiatives that will support acceleration of Penthrox penetration in the future. Now firstly, once again, the MAGPIE study and the launch of a pediatric label in Europe. Now during this period, the first half of this fiscal year, the MAGPIE pediatric study was published. Now this is an important recognition of the outcomes of the study and of the application of Penthrox to children. It enhances the clinical evidence we already have and it supports pediatric positioning where approved. Now on the regulatory front, we are nearing the final steps in having Penthrox approved for use in children aged 6 years and over in Europe. As you'll recall, Penthrox currently approved for use in adults only, 18-plus. But just last week, we received a device approval, and we expect all final country-level approvals by August. We already have some country-level approvals. The August is -- the expectation is our largest market, the U.K. As I said, but for most countries, the launch plans are already well advanced and waiting for those final approvals to be in hand. Now the extension of the indication will broaden the addressable market for Penthrox, and it also addresses the barrier to entry in select ambulance trusts in the U.K. It is an important milestone that will underpin future growth for the product. Now the second area of focus for us has been on evidence generation. We spoke about this with the last raise that was in July of 2024. Improved data and real-world evidence supports differentiation of Penthrox versus the standard of care and will help drive clinical adoption. Now we have completed a health economic study that provided further evidence that Penthrox used in hospital emergency departments enables whole of department costs and operational savings. And we expect this study to be published by the end of FY '26. In addition to all of that, we're supporting several studies that will provide real-world evidence of the benefits of Penthrox in the emergency department setting. Now even though these studies are going to be generated in Australia, the outcomes of these studies will also support growth in other global markets and certainly with all of our partners around the world. Finally, we've also increased on-the-ground efforts of our medical and our commercial teams. This includes targeted medical and commercial initiatives to expand formulary access, to support protocol inclusion, and to strengthen clinical engagement across the hospital segment. Now as examples of this engagement, our team has represented the company and Penthrox at important scientific congresses, including the Australasian College of Emergency Medicine, the Council of Ambulance Authorities and the Australian College of Nurse Practitioners. Now speaking of nurse practitioners, a highlight in the period was the extension of Penthrox PBS prescriber bag eligibility to nurse practitioners in Australia. And this is going to enable an important health care professional group to have expanded access to the product. Now we recognize the changing long-held behaviors in favor of a well-regarded product like Penthrox takes time and a targeted effort, but I'm encouraged by the progress we're making. Now moving to Slide 7. A critical strategic pillar for us has been to establish a sustainable margin structure. Our target has been to achieve margins that fully reflect the value proposition of Penthrox in all markets and to operate with strong cost discipline. We made great strides in FY '25 and delivered materially improved margins and cost structures. Our work has continued on this front. In July of last year, we increased Penthrox pricing in Australia to customers that had not received a price increase in FY '25. This represented around 25% of our Australian volume. So all of our customers in Australia have moved to the new pricing, and this pricing is aligned with PBS pricing. And as a result of all of this, we should see a margin improvement of around $1 million in FY '26. Now in other markets, we will continue to implement pricing strategies that enable routine pass-through of inflationary movements as those opportunities arise. Now switching to Europe, we successfully transitioned supply in France and in Switzerland to partners. So we have Ethypharm in France and Labatec in Switzerland, and they've been making good early progress in growing Penthrox in those markets. Now while our margins in these countries are now lower, we have to share it with them, the transition is enabling us to reduce our cost to serve and is expected to accelerate product penetration over time. Our new partners bring greater market access and deeper customer relationships. And with stronger long-term volume outcomes now possible, we expect the financial impact of the operating model change to be positive over time. So okay, at this point, let me hand over to Anita, and she's going to walk you through our financial results for the first half in more detail. Anita? Anita James: Thank you, Brent, and good morning, everyone. Today's results reflect the good progress we are making in growing Penthrox and the financial discipline we continue to apply. Notwithstanding the challenges of our Respiratory segment in the half, our group results illustrate underlying improvement. At the top line, we delivered 8% growth. Pain Management was up 18%, mitigating the impact of lower revenues in the Respiratory segment, which was down 10%. EBITDA, EBIT and NPAT were slightly down on the prior year. But if we exclude the impact of foreign exchange movements, all were improved. Moving to Slide 10 and our Pain Management segment. Revenue for this segment was up 18% with higher volumes and improved pricing in Australia. In Europe, sales volumes were higher, driven by growth in underlying demand and inventory stocking of our new partner, Ethypharm. Underlying demand in Europe was up 10%, including growth in the U.K. and Ireland of 8%, growth in France of 10% and growth in the Nordic region of 16%. Average transfer prices in Europe were lower, as expected, following the transition to partner supply in France and Switzerland. Revenue for the region as a result was flat versus the prior year. In Australia, revenue was up 18%. Volume was stronger, up 9%, driven by growth in the Australian hospital segment of 26% and timing of sales into the Ambulance segment. Average selling prices in Australia were improved with the pass-through of the FY '25 PBS pricing to the remainder of the market. Revenue in our Rest of World markets was up strongly, driven by growth in underlying demand and the benefit of order timing. Overall, a very encouraging result. Our Respiratory segment on Slide 14 had a challenging half. Revenues in Australia and other markets outside the U.S. were generally in line with the prior year. However, demand in the U.S. was soft, delivering revenues here that were down 16%. Overall segment revenues were down 10%. We continue to watch this market closely and have been adjusting our costs and our stock levels to align with demand. Moving now to Slide 12 and the key changes to underlying EBIT in the half. It is encouraging to see the benefit of earnings to earnings of improved Penthrox volumes and pricing. Higher volumes in the Pain Management segment more than offset the impact of softer volumes in Respiratory with net earnings benefits in the period of $1 million. Higher average Penthrox pricing, mostly in Australia, delivered a $700,000 benefit to earnings. As expected, the transition to partner supply in France and Switzerland had a $600,000 impact to earnings. The earnings benefit of this transition will be realized in future periods as we reduce our cost to serve and our partners accelerate volume growth. Other changes, including higher spend on medical and commercial activities to progress strategy and inflationary impacts, reduced earnings by $500,000 and foreign exchange rate movements had a $1.1 million impact. Excluding exchange rate impacts in both periods, earnings were improved. Moving now to Slide 13 and cash flow. We have made material improvements to our cash flow over the last 18 months. And in the half, we were very pleased to report positive operating cash flows. Operating cash flow improved to $300,000, an improvement on the prior year of $1 million. Working capital management has been tight despite the challenges that uncertain demand in our U.S. respiratory business has created. CapEx was slightly lower and free cash flow was improved. Cash at the end of the period was $16.9 million with plenty of capacity to support our growth strategy. That concludes my comments on the financials. I will now hand over to Brent to close. Brent MacGregor: Thanks, Anita. So just moving to the final slide of our presentation. So in conclusion, we're encouraged by the momentum we've generated in the delivery of our strategy. In short, we've made good progress in our first half. Hopefully, we're able to demonstrate that in the slide deck. Penthrox volumes are stronger. Our financials are improved, and our balance sheet continues to remain strong. We're progressing several important initiatives that lay the foundation for stronger growth in future periods. So in terms of our second half, we expect to do a few things. We expect to finalize the approvals for the pediatric indication in Europe and to support that new label launch. More broadly, we'll continue to execute targeted medical and commercial initiatives to expand formulary access to support protocol inclusions and to strengthen that clinical engagement across the hospital segment. Now in terms of earnings, as mentioned, seasonally softer demand conditions in the Respiratory segment are expected to result in earnings that are lower in the second half of FY '26 compared to the first half. So that's our story overall for the first half. I want to thank you all for coming on the call today. And now let's open the floor for questions. Operator: [Operator Instructions] The first question that we have on the webcast, please comment on the early successes, including unit growth or otherwise from your partner in France? Brent MacGregor: Yes, we're encouraged. The French partner, Ethypharm, they did their training. They put their people into the field in September. So they were -- by September, October, the 16 people in the field were fully engaged. We've seen volume up versus the prior corresponding period by 10%. So we're encouraged by that, even though it's still early days. The medicines approval for the pediatric indication has been received by the French authorities already. So we're hopeful to see continuing growth through the second half of the year. But we're happy with the first half performance of Ethypharm. Operator: Our next question, what prepositioning sales is being done by your distributors to assist the introduction of Penthrox across ambulance services when pediatric use is approved? Brent MacGregor: I'm sorry, I couldn't quite capture all of that question. Could you Anita? Anita James: In pediatric use, what are our partners doing, Brent, in preparation for the pediatric launch? Brent MacGregor: Okay. All right. Sorry. Yes, we've had calls with -- our biggest partner is Galen. Galen is, as you may recall, is U.K., Ireland and the Nordic region. And so we had calls just in the last 2 weeks with them. They were sharing with us a whole range of activities on which they are ready to go, collateral involving their sales force, interactions they've already had with ambulance services. They've had them for some time. Now they need to be careful, of course, because you can't be speaking off label, what they can be doing. What they have been doing is informing the different ambulance trust -- I'm speaking of the U.K. now in particular -- informing the ambulance trust of the progress of the approvals. As I said, in the U.K., in particular, which is our second biggest market after the home market, it's going to take a few more months, as it always does with the regulator MHRA, but the device approval is in hand. We informed our partners of that yesterday. They have a whole range of activities planned. They have all the collateral ready, all the pieces ready to arm their sales force, and they've already trained their sales force. So they are just waiting now for the medicines approval. And in those countries that are waiting for the -- that have the medicines approval, they were waiting for the devices approval. There's a few additional administrative steps, but we're quite encouraged of all the content, all the training that's been done, all the preliminary interactions they've had -- our partners have had with key customers, again, speaking of the U.K. in particular, but also in the Nordic region. And we feel quite confident the start of pistol goes off and our partners are ready to promote that broadened label. I hope that answers the question. Operator: Our next question. We had strong Penthrox unit growth in ROW. The balance sheet suggests that there was no big jump trade receivable at December 31st. So can we assume that most of the cash had been received for the ROW shipments? Anita James: I'll take that, Brent. ROW, that is rest of world, that's our rest of world markets, a few moving parts there. And yes, I think it's reasonable to assume a good portion of that will have been received in the half. We also had timing with that order shipment to France in terms of inventory stocking for Ethypharm, that will have been paid in the half as well. But equally, there will have been some shipments that have probably gone in November and December that will probably receive cash flow in the second half. But certainly, there's been benefits of that rest of world invoicing in the first half. Operator: Our next question. Can you explain why gross margins are lower today than they were in 2015, given today's much higher volumes and the introduction of continuous flow manufacturing? Brent MacGregor: Lower than... Anita James: I'll take that Brent. Brent MacGregor: Yes, lower today than 2015. Go ahead. Anita James: Firstly, I'm not sure we necessarily report gross margins, and I'm not sure back in 2015 what those gross margins may have been. But I think fundamentally, the makeup of the business is quite different today than what it was in 2015. If you go back in time, the business had arrangements with partners where they would receive upfront milestones. They were accounted for through amortization in the P&L. So very difficult when you're looking at revenue there relative to the cost because a lot of those revenues effectively have no cost because they were amortization of something received in prior periods. The business is much bigger than it was today. Its portfolio is different in terms of the products that it has. We've exited the vet business. So it's very difficult to compare today to 2015, but certainly happy to take that question offline, and we can dig into that a little bit more in detail. Operator: Next question is for Anita. Just to be constant currency EBITDA is around $0.8 million versus $0.2 million on PCP. Is that the right math? Could you give us a thought on 2H FX impact? Anita James: Yes, that's about the right math. I think if you look at the specific unrealized -- without worrying about impacts across the P&L in terms of currency, the currency movements I referred to were specifically around the gains and losses reported in the P&L on our monetary items. And looking at that math, EBIT last year adjusted was around $0.5 million loss versus this year, which is breakeven. In terms of the second half, well, that's anyone's guess really, certainly, the Aussie dollar has strengthened versus where it was for the same period last year, really getting us back to similar positions of where we were before the end of the first half of last year. There's a lot going on in the world that probably will have an impact on that. In terms of our outlook, we're assuming that FX rates from here are stable and therefore, no material gains or losses generated from where we are effectively in December, January. Operator: The next question is for Brent. Can you please take us through the steps in the process between getting the approvals in August all the way until you get the device to the patient in those geographies with some indicative time lines? Brent MacGregor: Yes, sure. So, yes, it's a convoluted process. I realize it's the nature of a regulatory environment in health care, but I'll walk you through the -- from last August until where we are today. So last August, the reference body, which is the HPRA, which is in Ireland, it granted its approval. And what that did was it triggered all the other regulatory agencies in the markets where we are registered in Europe to begin doing its own review. And in some cases, those regulatory agencies conducted that review quickly. For example, ASMR in France, I think the medicines approval for them came nearly days after HPRA's approval. Other regulatory authorities, whether they be across the Nordic region, Switzerland, Ireland, well, HPRA approved as a reference and then approved as well for their own home market, Ireland. Those medicine approvals took a little bit longer. As we stand here today on the medicines front -- we'll talk about devices in a second. As we sit here today on the medicines front, the only 3 markets that remain to approve the enhanced label are the U.K., as I mentioned, our most important market, plus Czechia and Slovakia. Now on the devices front, because that required approval too by a notified body, in this case, the DQS, that process began late last year, and that's what's been just received. So that's been the rate-limiting step in those markets that already have granted a medicines approval. So in those markets -- and as I said, it's all the markets, except for U.K., Czechia and Slovakia. For those markets, we are now close to being done. So now in terms of what are the next steps from this point, the next steps from this point are -- for the regulatory agencies, for the summary of product characteristics which is required to be updated, that needs to be uploaded on to the website of regulatory authorities. That take -- these are administrative steps now. They will take whatever amount of time they take. You may ask, okay, what amount of time? Anywhere from a couple of days to 2 or 3 weeks. It's hard for us to know. But that's the step we're at right now with all the markets, except for U.K., Czech, Slovakia. And so to the question, where do we -- where does it go from there? Once those updates are done and the enhanced label is now official, that's where the teams that I mentioned, our partners' teams go out into the field, they go the day of, and they are in a position at that very moment to begin promoting Penthrox much more broadly than they had the day before. And so that is all to say that ideally, within a few short weeks from now, maybe even before the end of this month, but again, I'm speculating, within a few short weeks from now, those sales forces, those commercial and medical entities in the markets that have already approved the medicine, given the medicines approval, they'll be out there. And as I mentioned in answering the previous question, what we're encouraged by, the partners are all ready. All the work is done, all the approvals have been received, all the revised collateral has been prepared and they are ready to go. So what remains and why -- I'll give one last comment and answer the question. What remains and what you heard earlier in the slide deck, when -- I think I made a comment around by the end of August of this year, all the approvals should be in hand. That's for the most part speaking about the U.K., which is the biggest market. So it's not -- it's far from inconsequential. It's very consequential. But that's why I said August. But all these other approvals, all these other markets, those efforts should be commencing forth with -- within a couple of weeks right now. Operator: Next question. You've stated in the presentation that costs remain controlled. However, comparing the Q2 quarterlies this year and PCP, your product manufacturing and staff costs are increasing exponentially, with these costs significantly up over PCP. What steps are being undertaken moving forward to achieve best-in-class manufacturing, staff costs, so pricing is not the only lever available to you to achieve revenue growth? Anita James: Yes. Thanks. I'll answer this question initially, Brent. No, that's a great question and draws us to an important point that is really important to understand, is that the quarterlies and what is reported in the quarterlies is cash, is cash flow. And that will be impacted in any particular quarter by our investment in working capital. So what will come through in those quarterlies, in the manufacturing costs particularly, will be purchases for raw materials to supply our customers. There was a previous question earlier around rest of world markets and the timing of sales. Some of our customers might only buy from us once a year or once, twice a year. And so our working capital movements are actually a little lumpy as we prepare for getting product available for those customers and those shipments. And depending on the timing of that, that will move from quarter-to-quarter. So it is a little misleading to look at Q2, for example, of this year against Q2 of last year and use that as a guidepost to say things are either better or worse. Cash at the end of the day is king. And so looking at cash improving over time is absolutely the right measure to look at. And that's why we're particularly pleased about the results in the half with operating cash flow actually improved on last year. Probably a better thing to understand, I think the issue that you're getting at is, in fact, the earnings in the P&L in the half year accounts. And if you look at the half year accounts for something like employee costs as an example, it will be up, and it will be up mostly because of inflation and because we've put on 2 headcount specifically associated with our delivering strategy, particularly around commercial and medical activities. But we are being very controlled on headcount. We're being very controlled elsewhere in the organization, with a focus very much about progressing strategy. Ultimately, the greatest efficiencies we can get will come from improved volumes, and on that, when you look at employee costs, we're actually starting to see some of those efficiencies come through now. So effectively, we're manufacturing more volume. Our volumes are up, and the cost of the people involved in doing that manufacturing process, as an example, has been held strong. Sorry, just one other point to make on the manufacturing costs in the half, when you look at the P&L, they will be up because our volumes are up. And so you look, particularly in the Penthrox business, volumes are up quite strongly in most regions. And so our raw material costs as a result will be up. So absolutely, efficiency, reducing our cost and our unit cost is absolutely a focus. And whilst we can't see step change improvements this year, they are certainly there, and that certainly remains a key strategic focus for us. Operator: The next question, what do you believe is driving the disconnect in the market value of the company and the future strategy you have communicated given the share price is at best stagnant or in reality significant decline, whilst the ASX is at or near record highs? Brent MacGregor: Yes. It's a difficult one for us. It's one we grapple with even as -- our primary focus on the day-to-day is on our operations and growing our business, which we're doing. Yes, it's not lost on us that even our quarterly cash reports, which we believe are showing good progress towards the strategy that we're pursuing, is not translating into share price increase. So what we see is it goes up for a period of time and then absent anything in particular, it goes back down. I know that -- we understand that the market perhaps in the past couple of years had anticipated a higher growth rate than has been generated. We've learned a lot about the growth and the challenge of bringing a product that works so well, like Penthrox, into those segments. But we are we are very committed to the strategic approach that we're taking, and we're very pleased with the achievements we made on executing those strategies into the ED, continue to grow volumes, getting the pediatric indication, which was years in the making, and we're on the doorstep of doing it. We realize it hasn't shown through in our share price yet. We are hopeful that as we continue to communicate as we're doing today and the confidence we feel in what we're doing and in the organization that we've sized to the aspiration that we have, we're hopeful that the market will respond accordingly and in a positive way to this news and to the progress we're making. Operator: There are no further questions at this time. I'll now hand back to Mr. MacGregor for closing remarks. Brent MacGregor: Okay. First and foremost, thank you to all of you for coming on the call today, and thank you, in particular, for the questions that you asked. We're very open to hearing from you. And even if there's a question or questions you have for us after this call, we do hope you won't hesitate to send them through, and we promise we'll respond to them. On that note, I want to thank you again for being on the call. I hope the messaging we were trying to convey came through. And we're pleased with the performance of the first half and looking forward to continuing to drive our strategy forward in the second half and beyond. Thank you all. Have a good rest of the day. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Good afternoon, and welcome, everyone, to the Omnicom Fourth Quarter and Full Year 2025 Earnings Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Greg Lundberg, Senior Vice President, Investor Relations. Please go ahead. Gregory Lundberg: Thank you for joining our fourth quarter and full year 2025 earnings call. With me today are John Wren, Chairman and Chief Executive Officer; and Phil Angelastro, Executive Vice President and Chief Financial Officer. On our website, omc.com, you will find a press release and a presentation covering the information that we'll be reviewing today. An archived webcast will be available when today's call concludes. Before we start, I would like to remind everyone to read the forward-looking statements and non-GAAP financial and other information that we've included at the end of our investor presentation. Certain of the statements made today may constitute forward-looking statements. These represent our present expectations and relevant factors that could cause actual results to differ materially are listed in our earnings materials and in our SEC filings, including our 2025 Form 10-K, which will be filed shortly. During the course of today's call, we will also discuss certain non-GAAP measures. You can find the reconciliation of these to the nearest comparable GAAP measures in the presentation materials. We will begin the call with an overview of our business from John, then Phil will review our financial results. And after our prepared remarks, we will open the line for your questions. I will now hand the call over to John. John Wren: Thank you, Greg, and good afternoon, everyone. Thank you for joining us today. It's been 11 weeks since we closed the acquisition of Interpublic, creating the world's leading marketing and sales company, and I'm extremely encouraged by the momentum we've seen in such a short period of time. Today, I'll start with the progress we have made to position the new Omnicom for sustained growth, and Phil will then cover our fourth quarter and full year 2025 results. Throughout our year-long approval process, our integration teams created detailed road maps for how we would come together. That preparation allowed us to move more decisively and with strategic clarity on day 1. We announced our new Connected Capabilities organization and leadership team, bringing together the exceptional capabilities and talent to address our clients' growth priorities. We reinforced our enterprise-level client strategy through a newly formed Growth & Solutions team to drive new business and expanded our Client Success Leaders group to grow our services to existing clients. We formed a combined platform organization and launched the next generation of Omni, integrating Acxiom's Real ID, Flywheel's Commerce Cloud and Omni's proprietary data as well as strengthening our talent and industry leadership in data identity and AI. And we began integrating our operations across real estate, IT, shared services and procurement, among others, which will result in significant operational improvements and cost efficiencies. Following the acquisition's close, we began simplifying and realigning our portfolio to position Omnicom for stronger, sustainable growth and profitability. Our core focus is to deliver integrated services, connecting media, creative content, commerce, consulting, data and technology. These Connected Capabilities underpinned by Omni bring together high-growth strategic services that drive business outcomes for our clients. As part of our portfolio realignment, we've identified certain smaller markets as well as operations that are not strategic to our business that we plan to sell or exit. We will move from a majority to a minority-owned position in these smaller markets, which represent approximately $700 million in annual revenue. These markets remain important to many of our clients. And through continuous ownership in these agencies, we will provide the same level of service we have in the past. We identified nonstrategic or underperforming operations with approximately $2.5 billion in annual revenue that we plan to sell or exit. We've already sold or exited some of these businesses, representing annual revenue exceeding $800 million. We expect to execute the remaining sales and exits over the next 12 months. Our retained portfolio of businesses generated revenue of $23.1 billion for the 12 months ended September 30, 2025. This portfolio positions Omnicom to drive stronger growth and deliver measurable business outcomes for our clients. Our integration planning enabled us to identify significantly greater synergies than we had initially communicated at the announcement of the IPG acquisition. We now expect our annual run rate synergies to double from our initial estimate of $750 million to $1.5 billion over the next 30 months. We expect to achieve $900 million of these savings in 2026. The key areas for these synergies are as follows: $1 billion from reductions in labor costs through the elimination of duplicative corporate network and operational functions, streamlining our regional country and brand structure and optimizing utilization by shifting to more unified resourcing model, including accelerating outsourcing and offshoring. Additionally, across every area of our business, we are evaluating and deploying automation and AI to improve how we service our clients and run our operations. $240 million of synergies related to real estate consolidation, and $260 million of synergies from G&A, IT, procurement and other operational savings. Finally, as part of our capital allocation strategy, our Board of Directors authorized a $5 billion share repurchase program. And today, we are launching a $2.5 billion accelerated share repurchase program. Phil will provide more color on this ASR program during his remarks. We will also continue our historical use of cash for dividends and acquisitions. In December, we announced an increase to our quarterly dividends to $0.80 per share. Our investments will focus on strategic tuck-in acquisitions and organic growth initiatives to maintain our leading positions in media, content, commerce, consulting, data and AI. As we do this, our capital structure is strong and our liquidity and balance sheet positions us to maintain our investment-grade credit rating. Our efforts across these areas are enabling us to move forward as a company with a clear mission to help our clients drive enterprise growth in this new era of marketing defined by data-led AI transformation. More than ever, we're seeing brands ask for an enterprise-level partner that can orchestrate their marketing investments across platforms and optimize performance across the entire consumer journey from engagement to sales. The new Omnicom delivers a 5 competitive advantage directly aligned to what our clients are asking for. We have the world's largest media ecosystem with unparalleled market leverage and intelligence, the deepest bench of award-winning creative talent that fuses human imagination with machine computing to deliver superior personalized content at scale. Connected commerce that transforms every consumer touch point into a driver of measurable sales growth for our clients; an enterprise transformation consultancy that can reengineer clients' marketing operations for speed, intelligence and growth; and a gold standard data and identity solution that gives brands an unparalleled privacy-first understanding of their consumers. Together, these advantages provide a competitive edge across every dimension of modern marketing and sales and will deliver strategic solutions that address our clients' most important growth priorities. As a nod to our strategic advantages, just yesterday, Forrester named Omnicom a leader in their Commerce Services Wave evaluation. Omnicom showed a significant lead versus the competition, proving that our advantage in connected commerce is differentiated by spanning demand and loyalty across physical stores, online marketplaces and direct-to-consumer experiences. The evaluation noted that clients praised Omnicom's ability to operate as a single agency, providing them with access to a large pool of highly qualified talent. Our strategic advantages are translating into client wins, which is the ultimate validation of what we're building. We've secured new business and extended contracts with leading brands such as American Express, Bayer, BBVA, BNY, Clarins, Mercedes and NatWest. These client wins as well as the significant progress we've made as a new organization in a few short weeks are a direct result of our people's unwavering focus, commitment and exceptional work during this pivotal period. I'm extremely grateful to them for their efforts. Overall, I'm very pleased with how we've executed as the new Omnicom. This momentum positions us for strong growth in the years ahead. I look forward to sharing more about our organization strategy and financial performance at our Investor Day on Thursday, March 12. With that, I will turn it over to Phil to walk through our quarterly and year-end financial results. Phil? Philip Angelastro: Thanks, John. Before reviewing our financial results, please note that our fourth quarter and full year 2025 amounts include Interpublic results for only the month of December 2025. Since John already covered the first few slides, let's now look at an overview of our fourth quarter income statement on Slide 7. The IPG acquisition closed just before Thanksgiving on November 26, 2025. Upon closing, and as John referred to, we immediately began the implementation of our strategic plan. We have separated the impact of several parts of the plan on this slide. We recorded severance and repositioning costs of $1.1 billion related to severance, real estate impairment charges and contract exits. We recorded a loss on planned dispositions of $543 million related to businesses that we are in the process of disposing that were recorded at their net realizable value. And we recorded acquisition-related costs of $187 million related to transaction and integration costs. Note that this does not include any potential gains on the sale of certain businesses in this group because we are not permitted to record gains on Omnicom assets until the transactions are completed. Additionally, any expected gains on the sale of IPG assets were included in the fair value adjustment recorded on the balance sheet at the closing date. Excluding these amounts, adjusted operating income or EBIT in Q4 was $876 million and adjusted EBITA was $929 million and a 16.8% margin, an increase of 10 basis points compared to last year. Net interest expense in the fourth quarter of 2025 increased primarily due to the IPG acquisition and the related exchange of IPG debt into Omnicom debt. Interest income increased slightly in the quarter. The tax rate on our non-GAAP adjusted Q4 pretax income was 25.8%, flat with the prior year non-GAAP adjusted tax rate of 26%. Our effective income tax rate on the reported operating loss was 12.7% compared to a more typical reported tax rate of 26.4% in the prior year. The lower tax rate this quarter reflects the impacts of the lower tax benefit associated with the charges I just discussed relating to severance, repositioning, the planned dispositions and the IPG acquisition-related costs, some of which are not deductible in certain jurisdictions. For planning purposes, we expect a similar tax rate of 26% for 2026. Non-GAAP adjusted net income per diluted share of $2.59 was based on weighted average shares outstanding of 233.8 million, which were up from last year due to shares issued for the IPG acquisition. Note, the additional shares issued for the acquisition were outstanding for 1 month. We closed out the year with 313.1 million shares outstanding as of December 31, 2025. Let's now move to revenue. Given the size of the acquisition of IPG and the scale of the implementation of our integration strategy across service lines, geographies and our operating platforms as well as our plans to reposition the business through disposing of certain parts of our portfolio, we have not included our usual organic revenue growth metrics in our slide deck. Had we calculated organic growth consistent with our prior practice, excluding planned dispositions and assets held for sale, organic growth in Q4 2025 would have been approximately 4%. Slides 8 and 9 show the breakdown of our revenue by discipline and by major markets. The primary driver of year-on-year growth resulted from the addition of IPG effective December 1. Foreign exchange changes increased our revenue in the quarter by approximately 2% and a little less than 1% for the year. We expect FX will continue to be positive in 2026 and assuming recent FX rates stay the same, will benefit our reported revenue for the year in excess of 2%. Regarding revenue by discipline, the Media business performed very well in Q4 as did the Experiential business. On the negative side, during the year, our PR business, excluding the acquisition, experienced negative growth due to the challenging prior year comps from national elections in the U.S. Additionally, although small, our Branding and Execution & Support disciplines continue to be challenged in the current environment. As John mentioned, we have moved quickly to integrate the IPG businesses into our Connected Capability organization through geographic and brand alignments. Given the scale of these integrations as well as our strategy to reposition the portfolio, we do not plan to include our historical organic growth metric slide in our 2026 quarterly presentations. With regards to the planned dispositions, approximately 40% of revenue to be disposed of relates to the Execution & Support and Experiential disciplines, and 25% relates to the Advertising group, which is included in the Media & Advertising discipline. The balance of planned dispositions is spread across the rest of our disciplines. Regarding revenue by region, our businesses in the U.S. had strong growth, led by Media as did our European markets and our businesses in the Middle East. Our businesses in France, the Netherlands and China struggled in Q4, and the Latin America market was strong. Slide 10 is our revenue weighted by industry sector. Given these numbers only include 1 month of IPG and our portfolios are very similar, the comparisons to prior periods only show differences of a point or so in a few categories. Now please turn to Slide 11 for our year-to-date free cash flow summary. The increase relative to last year was driven by the improvement in Omnicom's business over the course of the year and the addition of IPG in December 2025. Our free cash flow definition excludes changes in operating capital. However, our use of operating capital improved throughout the year, and we were positive for the full year. You'll note in the reconciliation on Slide 18 that the change in operating capital was a positive of approximately $700 million, a significant improvement in the change in operating capital of over $900 million from 2024. Approximately $170 million of that improvement resulted from Omnicom's businesses, excluding IPG. The balance reflected the timing of the IPG closing and positive working capital growth from IPG's businesses in the month of December 2025. For the year ended 2025, our primary uses of free cash flow included $550 million of cash paid for dividends to common shareholders, and another $83 million for dividends to noncontrolling interest shareholders. Dividend payments decreased due to an increase in share repurchases during the quarter. This excludes our recent 15% increase in the quarterly dividend to $0.80 per share, which was declared prior to the closing of the acquisition. Capital expenditures were $150 million, roughly in line with last year. Total net acquisition and disposition payments were actually a source of cash of $914 million. This included $1.1 billion of net cash received from the IPG acquisition, which was partially offset by acquisition-related payments of approximately $186 million, including $117 million in payments for acquisitions of additional noncontrolling interests and payments of contingent purchase price obligations on acquisitions completed in prior periods. Finally, our share repurchase activity for the year was $708 million, excluding proceeds from stock plans of $27 million. As of Q3 2025, we had repurchased 312 million of shares. And during Q4, we repurchased 396 million. Slide 12 is a summary of our credit, liquidity and debt maturities. At the end of Q4 2025, the book value of our outstanding debt was $9.1 billion. Legacy Omnicom debt was flat with last year, but we assumed approximately $3 billion of IPG debt. As you are aware, our $1.4 billion April 2026 notes are now classified as current on our balance sheet, and we will be addressing that maturity in the near term. As John mentioned, our Board approved a $5 billion share repurchase program, including a $2.5 billion accelerated share repurchase plan, which we initiated earlier today. We also plan to repurchase an additional $500 million to $1 billion of shares during the balance of 2026 as part of the share authorization program. As a result, we estimate the reduction to our shares outstanding compared to the balance of shares outstanding at December 31, 2025, of 313.1 million shares will decline by approximately 9% to 11% by the end of 2026. With weighted average shares outstanding for the year estimated to be reduced by approximately 7% to 8%. Net interest expense is expected to increase by approximately $210 million in 2026 compared to 2025. The change is primarily driven by higher interest expense, including approximately $125 million from the addition of IPG's long-term debt, including $14 million of noncash interest expense resulting from the fair value adjustment to IPG's debt recorded as a result of the acquisition. We are also estimating an increase of approximately $50 million to $55 million, resulting from the refinancing of our $1.4 billion bond, which has a book effective interest rate of 4.07% and which is due in mid-April, and incremental commercial paper borrowings related to our share buyback program, including the ASR. Together, these items are estimated to increase interest expense by approximately $175 million to $180 million. In addition, interest income on net cash balances is expected to decrease by approximately $30 million, primarily due to lower forecasted short-term interest rates on invested cash. In total, these factors result in a projected increase in net interest expense of approximately $210 million in 2026 compared to Omnicom's prior year 2025 actual amount of $167 million. Please note that the total and net leverage ratios for 2025 reflect the full assumption of IPG's debt, but only 1 month of IPG's EBITA. This results in distorted leverage ratios for the period when calculated directly from our reported financials. However, at December 31, 2025, we were in compliance with the leverage ratio covenant in our credit facility, which makes pro forma adjustments for the acquisition. Comparable calculation of our total debt to pro forma adjusted EBITDA would result in a total leverage ratio of 2.4x for the full year ended December 31, 2025. Lastly, our cash equivalents and short-term investments at the end of the year were $6.9 billion, up $2.5 billion from last year, largely due to the IPG acquisition and the strong performance managing working capital and cash we just discussed. Our liquidity also includes an undrawn $3.5 billion revolving credit facility, which backstops our $3 billion U.S. commercial paper program. Before I hand this call over to Q&A, I would like to take a moment to address a framework for how we plan to forecast for 2026. In the appendix on Slides 22 to 24, we present combined Omnicom and Interpublic income statement data based on each company's reported results for the last 12-month period ended September 30, 2025. These are the last 4 quarters in which both of us operated independently. We also use this combined methodology when we announced the transaction in December 2024. For the LTM September 30, 2025 period, combined revenue was $26.3 billion and combined adjusted EBITA was $4.1 billion. These 2 numbers are very close to published analyst consensus estimates prior to the IPG closing for fiscal year 2025 on a combined basis. Because the combined presentation doesn't reflect our planned dispositions, we've used the estimated disposition revenue amounts on Slide 3 to adjust the combined base, which we plan to use for forecasting 2026. The adjusted total EBITA margin for the businesses we plan to dispose of was approximately 10%. Given the IPG acquisition recently closed, we have not yet completed our 2026 planning process. As a result, we will provide additional details on our expectations regarding revenue growth and EBITA growth for 2026 at our Investor Day on March 12. In closing, we've accomplished a lot in the past year to position Omnicom for sustained future growth. As John said, we have great momentum across the company, including revenue initiatives and cost efficiency initiatives, and we are deploying these benefits through the share buyback program announced today. We understand that there is a lot of material to digest. We look forward to updating you on these topics and some new ones at our Investor Day on March 12. I will now ask the operator to please open the lines up for questions and answers. Thank you. Operator: [Operator Instructions] We'll take our first question from Steven Cahall at Wells Fargo. Steven Cahall: So it sounds like you're going to talk more about organic growth at the Investor Day in a few weeks. But John, you just -- you've done a ton of work around the operations and bringing the Connected Capability together. I think a much bigger percentage of the business is now Media, and it sounds like it's performing well. So I was wondering if you could give us any sense of what your expectations are in organic growth for the retained business this year? Or if that's a little too specific, maybe you could at least give us a sense of how you would expect the Media business to perform this year, and how big within the overall business that one is? And then, Phil, thanks for the color on the margins of the businesses that you are divesting. Is the right way to think about margins for this year that we back out those 10% margins that are being disposed of and then we kind of layer on the synergy targets, net of cost to achieve that you've given, and that's kind of the math that we need to do to think about margins for the next few years? John Wren: Thanks for your question, Steve. We'll certainly give you more color on March 12 to the extent that we're done completing our review of the combined companies and the detailed plans. If I was guessing, which I probably shouldn't do, I would think Media going forward will be, I would say, in the mid 50% of our revenue, which is a change. It increases that segment of our organization. But that needs to be finalized, which we were doing in the coming weeks. Advertising will be, again, the same type of caution, but less than -- slightly less than 20% of our total revenue. But as I said, we're working through those areas as we speak. We did get some very early profit plans, but we haven't had the time to go through and interrogate them the way we generally can before we have this call. So that's what we'll be doing in the coming weeks as we prepare for that. Philip Angelastro: Just to clarify, Steve, the Media reference, I think, includes what we would consider Media and related or connected to media. So that percentage probably includes Precision as well as Commerce, which is in our Precision Marketing category. So it's the connected media component of the business. With respect to the second question on margins for '26, certainly, as I said in my prepared remarks, we'll have some more detail and color on our expectations for '26 at the Investor Day. But I think your assumption is certainly a good one to start with, and then we'll get an update at the meeting in March. Operator: We'll go next to David Karnovsky at JPMorgan. David Karnovsky: John, I know it's early in the integration, but can you speak a bit more to what the reception has been so far to the combined company offering, both from existing clients and recent RFPs? And then for Phil, you mentioned a 4% organic figure for the fourth quarter. Can you just clarify what this specifically refers to? And for the assets identified for sale, exit or moving to minority, is this all going to assets held for sale immediately? Or does it get spaced out? And then can you say anything about what the kind of organic growth for some of these agents or what these agencies were in aggregate for what's moving? John Wren: I'd say in all the major markets that we operate in, there's been a lot of enthusiasm on the part of the groups that we've combined and the -- just the attitude and the optimism that is shared all the way down through our employee base about what position Omnicom now is in, what capabilities we have when we join these 2 groups together, and the resources that we'll have to pivot and change as to where necessary and making the correct investments to keep us in a leadership position. So across the board, it's far better than I fully expected, because I always anticipate that there'll be some negativity, but we haven't seen any of that, any particular place in the group. I'll leave the second question to Phil. Philip Angelastro: Sure. So I'll start with the businesses that we've identified as disposals and assets held for sale. So as you referred to, a portion of that and as was referred to in the slide and in John's prepared remarks, a portion of that relates to us intending to move from a majority position to a minority position in certain smaller markets around the world. Those businesses are solid businesses. They service some of our important clients in certain of those markets. But we're really taking that action more for simplicity of the organization and managing the organization than underperformance or the businesses are not strategic to where we're headed in the future. We just don't need to be in all markets with subsidiaries that come with a lot of compliance requirements and other things. So the organization, as a result, will become much more efficient, and we'll still be able to provide the quality service that we need to for our important global clients that might have operations in those markets where we go from majority to minority. The rest of the businesses that we've targeted for disposals and/or sales essentially are made up of either nonstrategic businesses or underperforming businesses. And as John had referred to, we've completed about -- we've completed dispositions of about $800 million of revenue to date. And certainly, we're committed to completing those transactions during the next 12 months. And we've made some good headway recently an Experiential business within the IPG portfolio, Jack Morton, that sale closed this week. So we've got a good head start on moving forward with the plans as far as assets held for sale go. And we'll give a little more color and a little more update at the Investor Day. As far as organic goes, what we did and what I referred to in my prepared remarks was we did the calculation consistent with how we've always done it with one exception. We excluded the organic growth related to those companies that we intend to dispose of and sell. And as a result of doing that, the calculation yielded a growth rate in the quarter of 4%. I'd say, certainly, because those businesses are either the bulk of the businesses are either nonstrategic or underperforming, the organic growth rate related to those businesses is likely lower than what we achieved on the businesses that we intend to invest in going forward for the quarter. But the businesses that are -- where we see the most opportunity, the growth opportunity and the investment opportunities, that's what yielded the 4%. Operator: We'll move next to Thomas Yeh at Morgan Stanley. Thomas Yeh: Just that was very helpful on the 4% organic growth explanation. Just to put a finer point on that, that also excludes the incoming assets in terms of IPG? Or is it pro forma for both of them? And if you could just add some color on where you're seeing the areas contributing to that acceleration in growth beyond the upward bias that is being seen from the dispositions, that would be very helpful. Philip Angelastro: If you could just repeat the second part of that, Thomas, that would be helpful. Thomas Yeh: Yes. Just in terms of the sequential acceleration beyond what you mentioned as the benefit associated with stripping out the planned dispositions, maybe talking about just particularly areas of strength in terms of media and advertising, like maybe talking about specific segments and contribution. Philip Angelastro: You want to take that one? John Wren: Well, the 1 month that we owned IPG was included in the calculation. We weren't permitted because we didn't own them in September and October. Otherwise, we'd have 12 months of IPG numbers. So it was 12 months of Omnicom, 1 month of IPG. So that's in what became the calculation. The $2.5 billion in companies that we had -- that have annual revenue were a combination of both Omnicom companies, but they were primarily, believe it or not, in terms of the revenue size, Omnicom companies. And so the calculation basically excluded the pros and the cons, the pluses and the minuses from that group of companies. And it turned out there are many things which would have contributed to a higher organic growth calculation and a few that would have taken it in the other direction. But it was nothing material in the aggregate. I don't know if you want to add anything, Phil? Philip Angelastro: Yes. No, I think that's accurate. In terms of the other areas where we're focused and where we see the business headed, certainly, it's in the more strategic areas of Media, Precision Marketing, Commerce, data, and the holistic platform organization, we think there's an awful lot of opportunities for growth in those areas and certainly incorporating our content solution and creative solution into that is a critical part of that solution. So those are the areas that we're certainly most interested in investing in, in addition to that, certainly bringing together the Healthcare businesses of both portfolios, we think, is going to be a very powerful selling opportunity for us going forward and a growth opportunity for us going forward. John Wren: You shouldn't lose sight of the fact that we didn't do this merger. It was an acquisition, but we treat it as a merger, looking at the short term. We were not looking to shut them at all. We're looking at strengthening those areas we think are going to be important to clients well into the future and going to contribute to our income and revenue growth. And so it's all full steam ahead, but nothing was done because we were worried about the calculation of this month or that month in any manner, shape or form. Hello? Operator: Jason, please go ahead. You have your mic muted. Jason Bazinet: Okay. I just had one quick -- oh, I do? Can you hear me? Operator: Yes, we can hear you. John Wren: Yes, we can hear you, Jason. Jason Bazinet: Okay. Great. I just had one clarifying question on the margins on the disposed businesses. Is that on the $2.5 billion? Or is that on the $3.2 billion? John Wren: It's -- Phil can answer that. I can. It's more or less on the $2.5 billion, I think... Philip Angelastro: Yes. John Wren: And the remaining assets, the ones we're planning to go to minority on, we're still going to collect a very healthy dividend of being a minority owner of those companies. Philip Angelastro: I think -- Jason, that the margin is -- it's the weighted margin from the entire group. So the $3.2 billion. I think in terms of the pieces, the larger group is probably a little lower than that average margin of 10%, and the majority of the minority group is probably higher than the average of 10%. Operator: We'll go next to Nicolas Langlet at BNP Paribas. Nicolas Langlet: Two questions for me, please. First, on the Omni platform. So you unveiled the next generation of Omni platform earlier this year. Could you share, first, the key feedback you have received from clients so far? Second, how the platform distinguish itself compared to peers and walled garden solutions? And three, whatever the platform is now considered complete or if additional building blocks are still required? And secondly, on the margin trajectory. So regarding the cost synergies benefits you expect, do you plan to redeploy a portion of the $1.5 billion cost synergies into growth initiatives? Or we should assume the majority will flow directly through [ 2029 ]. John Wren: I'll ask Paolo to answer the first question, and then we'll tell you how we're going to reinvest. Paolo Yuvienco: Sure. Nicolas. So with respect to the platform, so far, all of our clients are very excited about the capabilities that is currently available and the new capabilities that we'll be launching, which will incorporate the capabilities across various platforms, including our legacy Omni platform, the legacy IPG Interact platform, Flywheel Commerce Cloud, which has already been part of the legacy Omnicom ecosystem. And then, of course, the really exciting part, which is all of this being underpinned by Acxiom and the Acxiom ID (sic) [ Real ID ]. So the response from existing clients and potential new clients has been overwhelming, to be honest. And everyone is very excited to get their hands on the platform when we formally launch it at the end of Q1. But all of the existing capabilities that the combination of those platforms have today have been driving outcomes for our clients on both sides of the IPG and Omnicom organizations. Philip Angelastro: So the second question regarding margin trajectory, I think certainly, there's going to -- we expect a substantial portion of the '26 benefit to flow through during the calendar year '26, and we'll provide some additional detail at the Investor Day. And when we look out to the total for the 3 years, the expectation of the $1.5 billion of synergies, we're confident that we'll achieve those synergies in terms of achieving the cost reductions associated with them over that period of time. But 3 years is a long time. I think that there's certainly a number of initiatives that we're going to continue to pursue both on the cost front and on the revenue synergy and revenue growth front, and we've been pursuing those and planning for those pre-deal and have accelerated that now that the deal is closed. So it's hard to say exactly how much of that will be reinvested in the business. But certainly, a lot may change over that 3-year period in terms of what's happening in the market, what's happening with technology, what's happening in the industry, what's happening with our clients and what are they most focused on in the future. But certainly, we're going to continue to invest in our platforms and our businesses, and we do expect a substantial portion of the '26 benefit to flow through. And we do also expect to take the cost out in those out years of '27 and '28. And we'll talk a little bit more about it at the March 12 meeting. Operator: We'll go next to Michael Nathanson at MoffettNathanson. Michael Nathanson: I guess I have two quick ones for you, Phil. One is the $3.2 billion of disposals, did I get that right that half of the revenues are legacy OMC and half is legacy IPG? Is that the right way to think about it? Or did I mishear that? Philip Angelastro: I think there's certainly a mix. It's both businesses in our portfolio and in IPG's portfolio. In terms of the size of the revenue, as I indicated, there's about 40% of the businesses relate to the Execution & Support category. That includes the one Experiential business that was in IPG's portfolio that we've sold. The rest of that component is Omnicom businesses. And then I mentioned the Advertising businesses that are in that group as well, about 25% of the number. That's probably distributed across both Omnicom and IPG. And the rest of the businesses, I think when you look at them, there's probably -- maybe it's an equal amount, IPG and an equal amount Omnicom. I think we weren't necessarily focused on whether they were Omnicom business or IPG businesses. We are focused on the strategy ultimately where we wanted to invest and what businesses were underperforming and needed to -- we needed to exit from the portfolio longer term. So I think that gives you a little bit of perspective in terms of the numbers and the split, but it certainly wasn't a focus of ours to determine we're going to exit businesses in the IPG portfolio that we inherited or we're going to focus on reshaping the Omnicom portfolio. It's a combined business. And certainly, we were focused more on the businesses that we're keeping and the investments we were going to make and how we were going to provide for strategic growth going forward. That was first and foremost. Michael Nathanson: Okay. And my second one is just a housekeeping one. I appreciate Chart #4 in the deck; you give us all the revenue and disposals. Could you try to help us just to give us a range of what the last 12 months would be if it ended 12/31/25. So $23.1 billion is where you ended September, but you -- knowing what you know, can you give us a sense of what the range would be what the base would look like exiting '25, so we can help model '26? Philip Angelastro: Yes. That approximates what the base would be if we had full year numbers for both IPG and Omnicom. And as I indicated in my prepared remarks, that actually -- it's actually pretty close both in terms of revenue and EBIT -- and EBITA when you look at the consensus analyst estimates for calendar year 2025. So even though there is no published set of numbers for Omnicom only for 2025 and IPG for only 2025, those LTM numbers are very close to what analyst estimates were and to what the numbers we believe would have been, except they just haven't been published that way. I think there'll be a pro forma done in accordance with the pro forma rules in the 10-K, but the pro forma rules are pretty specific in particular. And you need to show the -- or make an estimate of what the acquisition would have been or what the impact would have been on our numbers had the acquisition been completed as of January 1, '24. But any and all of those ways, the numbers aren't very different than the combined numbers we've included in the back of this deck. And for our own internal planning purposes and forecasting purposes, that's the baseline that we believe is the most appropriate to use, and that's ultimately how we're going to be looking at the business. Operator: And we'll take our next question from Tom Nollen (sic) [ Tim Nollen ] at SSR. Timothy Nollen: I'm interested in the new corporate operating structure. If you could give a bit more color, please, around the decision to create the new divisions that you announced back at the close of the deal. So consolidating some of the creative agencies, keeping and I think all the media agencies separate production unit, PR unit, et cetera. Just maybe a little discussion around why you organize things that way. And then the Connected Capability that you're talking about, maybe talk a bit, please, about what that encompasses. I get that it takes the Omni capabilities, feeds it through the media planning buying operations, but does that also go into all the other Omnicom divisions that you've now laid out? John Wren: Sure. The structure that we concluded on largely was reflective of Omnicom structure prior to the transaction. The media companies, and I don't -- maybe you need to clarify for me, whether you're talking about the crafts or are you talking about the number of brands that we wound up with? Philip Angelastro: Yes. Let me just try and clarify one thing for you, Steve (sic) [ Tim ], based on the terminology. So the Connected Capability reference is essentially in the -- by the way, I know they called you Tom (sic) [ Tim ], but sorry about that. I just didn't -- I didn't want to forget. But anyway, the Connected Capability reference is really what we used to refer to as our practice areas and networks. So the IPG businesses were brought in and integrated into our Omnicom existing structure, as John had said. The Connected Capability terminology is what was new. We introduced that in the press release upon the closing of the deal. So certainly, the Media business and businesses were integrated into Omnicom Media Group and Omnicom Media Group runs their operation as one global group with multiple brands. The brands still exist, but they run the operations as one combined coordinated, integrated operation. And we brought the IPG businesses into those connected capabilities across each of our major disciplines. So Media, Omnicom Advertising, Precision Marketing, PR, Healthcare, et cetera. I'm not sure if that clarifies the structure for you, but that is how we kind of looked at it. I don't know if you want to add to that, John. John Wren: No, that's largely correct. I mean -- you just using Media as an example, where there were 6 brands before the deal, there remain 6 brands. The operations and investments that we make and the type of deals we can accomplish on behalf of our clients, those are done as one group. And then culturally, as you go across the different groups or 6 brands, you'll find differences, which allow us to attract the best and brightest talent into the groups where they'll best fit and be in the best position to service our clients. So the other area where there's probably the largest amount of change was in the Media -- I mean, excuse me, in the Advertising business, where we went in with 5 global network brands, and we decided that we would be best served by going forward with 3 brands. And there's name changes and some other changes in terms of management, but anyone that was contributing revenue prior to the deal and still contributing revenue is still working for us -- that just their business card say something different. I don't know if that helps clarify or not? Timothy Nollen: That helps. Both the explanations you gave is great. Operator: And we'll move next to Craig Huber at Huber Research Partners. Craig Huber: I got a few questions. I'll just do one at a time to make it easier. I'm looking at your Slide 5 here, where you've talked about going from $750 million to $1.5 billion synergies over 30 months or so. The $1 billion number that are labor related, can you touch on with AI out there, is that capability partly allowing you to take out more heads than you originally were planning? Maybe you can also touch on, is any of this labor-related stuff, the $1 billion that you're taking out? Is it people that are of any significance, people are directly related to the revenues of your company? Or are they all back-office stuff? Because in the past, you've said it wasn't going to be related to revenue-generating folks. That's my first question. John Wren: Yes. Go ahead. Philip Angelastro: I think the bulk of the labor-related synergies really relates to a number of things. AI is not necessarily the primary driver of how we looked at this. There were certainly some duplication of roles when you bring together 2 public companies, first off, a number of corporate roles, both at Omnicom and IPG. Unfortunately, we had to make some difficult decisions because you couldn't keep 2 of everything. So there were certainly some headcount reductions related to that. There's also some regional organizations and corporate organizations within the practice areas of Connected Capabilities that were also duplicate roles, which were certainly part of it. Going into the deal, we expected there would be those areas to focus on. But really, we didn't have a lot of data to do the due diligence on. And as we planned for the transaction and executed post close, senior management of both IPG and Omnicom were involved in making the decisions, as John has referred to several times, the goal was to select the best player for the role, not necessarily to have a bias towards only selecting Omnicom folks, and we think we've been successful in achieving that. But there are a number of other areas where we expect the labor synergies to come from, which are areas around nearshoring, offshoring outsourcing in the areas of facility management, shared services, technology, et cetera. There are a lot of opportunities certainly for efficiencies that we expect to achieve. We've started on a number of these paths prior to the deal, but certainly, coming together with IPG, we're accelerating those efforts in all those areas. And we've accomplished quite a bit to date, and we expect to continue to make progress in those areas over '26 and beyond. Craig Huber: And my second question on AI, John. In the past, you've talked about if your clients end up being able to get services from you guys, but less time involved because you're using AI out there to save time and money. In the past, you thought that clients most likely would take those savings and plow it back into marketing through your company, so the net-net, you would not be a loser of your company with AI out there. Is that still your position? John Wren: Yes. My position evolves every day as generative AI is evolving constantly. The initial -- and I'll ask Paolo to comment on this as well. What we're seeing today are efforts that we're testing with our clients, we're starting to utilize with certain other clients that are creating tools for our people, which enhances their ability to do their job. That's one category of people. There are other categories where we believe there are technologies or we're investing in them, which will allow us to eliminate certain positions that are done kind of manually today, but can be done in an automated fashion with generative AI. And as we build out agentic capabilities and are able to connect the processes with how we interface with clients' agentic databases and everything, that will result in further savings. And those are all things we're exploring at the moment. Paolo is living this day-to-day, so I'll ask him to add to my comments and what he's saying. Paolo Yuvienco: Sure. Craig. So look, I know the narrative is always about how do we do the same with less. But the reality is, is that what AI and generative AI is allowing us to do is to do more than we've ever been able to do. And more importantly, it's allowing us to do things that we haven't been able to do in the past. So just to give you some specifics around this, historically, creative teams would typically put 2 to 3 different concepts in front of our clients for a specific campaign. The reason is because it takes time, and it takes a lot of effort to actually bring those concepts to life. Today, with the use of the tools that John is talking about with the agentic capabilities that we put in place, our teams can now test 20 concepts, can test 50 concepts. More importantly is that they can test them synthetically so that we can understand what the impact and value of that work could be, we can predict that before we even spend a single dollar on media. So we have a good sense and confidence level of what the outcome will be with the things that we're putting in front of consumers. So I think the ability to do more and the ability to do more with a higher degree of confidence is really what's driving kind of the whole generative AI institution around us. It's not necessarily about how do we reduce the number of people around this. It's really about increasing the impact and output that we're driving for our clients. John Wren: The other thing I'd add to that, Craig, is we're embracing this. every employee, every group within the company, we're not looking at this as a threat to our jobs, but embracing it as how we're going to be able to create a better product. Craig Huber: But John, is it too early to know if you do things more efficiently for the benefit of the client here, those dollar savings here, is your position still you think your clients will plow that money back into marketing, et cetera, services through your company, so you won't be a net loser. That's what I'm trying to get to here. John Wren: Yes. No, I can understand that is a conclusion where you can see that is happening. There will be other clients that we're able to negotiate with as to performance goals and the methodology in which our work gets judged and rewarded will change. And if our ideas generate lots of money, we'll be expecting to get paid for that as well. With all the hype and everything that's out there, and it will continue for a good long time. But you gave everybody in the world the same tools. What differentiates one group from another group. It's that intellectual creative capability and the ability to source on a global basis, those most likely to be influenced to buy your product, right? And what is going to be needed, what's going to motivate them to buy. We have all those tools, and we have them at such a scale that it's going to be very difficult for many competitors to catch up at this point for a good long while. So just think about it, everybody is doing your job and everybody you listen to on the phone call today and what's going to differentiate one of you from the next one of you. And that's why we're embracing it because we know how good we are, and we know how deep our capabilities and skills go. And that's why I think we'll be a winner in all of this. Operator: And that concludes today's question-and-answer session and today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by, and welcome to Zip Co Limited Half Year '26 Results. [Operator Instructions] I would now like to hand the conference over to Director of Investor Relations and Sustainability, Vivienne Lee. Please go ahead. Vivienne Lee: Good morning, and thank you for joining Zip's 2026 Half Year Results Briefing. To open, I'd like to begin by acknowledging the traditional owners of the land on which we meet today, the Gadigal of the Eora Nation and pay our respects to elders past and present. This conference call is also being webcast and will be available on Zip's website. I'm joined today by Zip's Group CEO and Managing Director, Cynthia Scott; Group CFO, Gordon Bell; and U.S. CEO, Joe Heck. We will start this call with some prepared remarks and then open up for Q&A. With that, I'll now hand over the call to Cynthia. Cynthia Scott: Thanks, Vivienne, and good morning, everyone. On behalf of the Zip team, we're pleased to be reporting another very strong set of results, delivering financial performance within each of our full year guidance ranges provided in August. For the half, we delivered record cash earnings of $124.3 million and significant operating margin expansion, underpinned by accelerated momentum across both markets. These results, together with 10 quarters of consistent group profitability, reinforce the strength of our platform and our ability to deliver long-term value creation. Zip today is a high-growth, efficient and sustainably profitable business with clear strategic differentiators. We operate a scaled 2-sided network with strong customer engagement, growing merchant penetration and increasingly diversified distribution networks. We take a customer-first approach to innovation with a proven track record as a responsible lender backed by more than 12 years' experience delivering flexible credit solutions to millions of customers. Our AI-powered decisioning capabilities built on significant sets of proprietary data, deliver responsible lending outcomes and exceptional experiences for our customers and merchants. This capability is a core competitive advantage and increasingly important as we continue to scale. Moving to the next slide. Our results demonstrate the power and momentum of our platform in action. Total transaction volume reached a record $8.4 billion, up 34% year-on-year, driven by 55 million transactions. Active customer numbers increased 4.1% to 6.6 million as we delivered on our strategy for customer growth while deepening customer engagement, demonstrating the demand for our products and the trust customers place in Zip. Merchant growth also accelerated, up more than 10% to over 90,000 merchants, supported by expanded channel partnerships, including Stripe. Turning to the next slide. We've continued to deliver top line growth while importantly, maintaining the strong unit economics and the operating leverage that we've developed. Gross profit increased 33.5%, reflecting lower funding costs and strong credit discipline. Net bad debts remained comfortably within management targets, while active customers grew by 10% in the U.S. A key highlight was record cash earnings of $124.3 million, up 86%, driven by significant operating margin expansion to 18.7%. As well as strong cash earnings in the first half, on a statutory basis, we also delivered net profit after tax of $52.4 million. Moving to Slide 8, which demonstrates we're now driving outstanding earnings growth in both markets. In the U.S., which represents around 80% of divisional earnings, cash EBITDA increased 70%, which is 1.5x the rate of revenue growth. In ANZ, cash earnings more than doubled as revenue in Australian receivables returned to growth and excess spread expanded 241 basis points, a material improvement. The performance across both regions reflects the strength and scalability of our model. Moving to Slide 9. We're executing with discipline against our FY '26 strategic priorities. Across both markets, we strengthened customer engagement, delivered record outcomes through the peak holiday period and signed large merchants in targeted verticals. We continue to innovate and expand our products, unlocking greater flexibility and value for our customers and merchants. Joe and I will cover these highlights in more detail in the regional updates. We've also continued to strengthen our platforms to support long-term scale. During the half, we completed the $100 million on-market share buyback, optimized and diversified our funding programs and strengthened our core systems and processes, including through scaling AI, which is firmly embedded in how we operate, how we build and how we differentiate. Turning to Slide 10. Our ESG focus remains aligned to long-term value creation. In the U.S., we partnered with Opportunity Knocks, a PBS television series supporting underestimated Americans through hands-on financial guidance, reflecting our commitment to financial inclusion. Across the group, 100% of our team have been equipped with secure enterprise versions of generative AI tools and training to support engagement and accelerate innovation. We also continue to invest in carbon offsetting projects with the aim to offset our greenhouse gas emissions. Turning to the next slide. Dual listing on the U.S. stock exchange continues to make strategic sense for Zip given the scale of our U.S. business and the material growth opportunity ahead of us in that market. As we announced late last year, we submitted a confidential draft registration statement to the U.S. Securities and Exchange Commission in November 2025. We'll continue to monitor market conditions, and we'll only undertake a dual listing when it's in the best interest of Zip shareholders. The potential dual listing still remains subject to a number of required processes, including regulatory and Zip Board approvals. So with that, I'll hand over to Joe to cover our U.S. performance in more detail. Joe Heck: Thanks, Cynthia. I'm now on Slide 13. The U.S. delivered another outstanding set of results for the half. We now have a larger and more efficient platform that drove record TTV and revenue while adding over 400,000 customers and over 2,300 merchants. With over $4 billion in TTV and $292 million in revenue for the half, growth accelerated to 44.2% and 46.4%, respectively, and we set a record day and month during the holiday period. Our results reflect deeper customer engagement with customers now transacting over 11x per annum, up 20% on year. We continue to innovate and evolve our offering to meet real customer needs, including making our Pay-in-2 solution available to all customers in February of 2026, providing greater flexibility and choice for smaller everyday purchases. We're piloting a my Bills feature in app to support customers with recurring payments. And we're progressing our Money Coach, our agentic guided cash flow management experience, which we piloted with U.S. zibsters. These initiatives will continue to be rolled out in the second half. Our platform is converting top line growth at a stronger operating margin, and we deliver credit outcomes within our target range and operating leverage at scale. Turning now to Slide 14. We have a compelling and exciting market opportunity in the U.S. where BNPL represents less than 2% of the $12.8 trillion total payments market and 6% of e-commerce, far below more established markets. Zip serves a unique customer, the everyday American, of which we estimate there to be over 100 million nationally. This group has been underestimated by traditional services -- financial services providers and are increasingly using short-term installment products such as Zip to smooth their everyday cash flow. Moving on to the next slide. Our product design and experiences are built to meet our customers needs and preferences, supporting increased usage of our products. Since FY '24, we've invested in personalization and enhanced customer experiences, which has delivered quarter-on-quarter growth of transactions and spend per customer. This represents annualized growth of 24% and 31%, respectively. Moving to the next slide. Slide 16 shows how we're able to leverage our experience with everyday Americans. As we underwrite more customers and transactions, we're able to rightsize spending power faster and accelerate customer engagement in newer cohorts. In fact, our most recent July 2025 customer cohort experienced a 21% increase in average spend over 6 months. The 18- and 24-month data points on the right demonstrate these trends continue over longer-term horizons. Turning to Slide 17. A key highlight for the half was the acceleration in active customer growth, up 10% year-on-year, which compared to growth of 6% at this time last year. Importantly, we continue to acquire customers efficiently, especially as our merchant network and channel partnerships grow, which increases awareness and adoption of our products. Our new brand campaign "in you we trust" reflects our belief that people deserve financial tools that work with them, not against them. Double-clicking into our experience with our customer base, we've decisioned and processed more than $23 billion in installments across 177 million transactions to date. Our proprietary credit models leverage 1.4 billion unique data points from over 13 million first-party customer records, delivering strong credit outcomes when compared to traditional approaches to underwriting. Turning to Slide 18. We've successfully expanded our channel partnerships, which is driving merchant growth, customer acquisition and increased customer engagement. We reached general availability in Stripe in August of 2025, meaning any of the millions of merchants on Stripe can enable Zip in less than 30 seconds on their dashboard. This enables us to scale efficiently, both distribution costs and shorter sales cycles through a one-to-many approach. While it's still early days, we've added over 1,400 Stripe merchants in the first half alone, noting we've only been live for 4.5 months. To increasingly meet our customers where they live, work and entertain, we've signed large enterprises such as JD Sports, Goat Group and also went live with Temu. We also launched a new customer activation initiatives, including collaborations with national brands like Major League Baseball. Our integration with Autofill on Google Chrome serves as a customer acquisition and engagement tool. Customers can now find Zip at checkout when using the Chrome browser and if approved through their acquisition flow, are prompted to save their Zip details in their browser, delivering a more seamless experience of repeat usage. Customer feedback to date has been positive with 86% of surveyed Zip customers expressing intent to use the feature again. On to Slide 19. We are constantly listening to our customers to understand how they want to pay and manage their everyday spend. Our TTV is increasingly derived from nondiscretionary categories with health, education, auto and transport, representing some of our fastest growing. Our Pay-in-2 product is another example of how we're empowering customers with alternatives to traditional high-interest credit products, enabling customers to split a purchase into 2 installments paid over 2 weeks. The product has been well received with future use centered on everyday needs like groceries and bills and 95% of surveyed pilot customers expressing intent to use Pay-in-2 again. Turning to the next slide. We've actively pursued and achieved very strong TTV and customer growth while managing losses comfortably within our 1.5 to 2.0 target range. Given the short duration of our product, we remain well placed to proactively manage our portfolio outcomes. We will continue to drive new customer growth initiatives, which position us well to deliver future profitable growth underpinned by our strong unit economics. Given recent performance in our portfolio, we are confident net bad debts will remain stable within the top half of our targeted range in the second half. Moving to the next slide. We have an efficient and capital-light business, which is driving significant operating margin expansion as our platform scales. This half, we've converted every incremental dollar of revenue into $0.34 of cash earnings. Turning to Slide 22. We are strategically set to deliver our next phase of growth by capitalizing on structural tailwinds with digital payments and BNPL adoption set to increase, growing our customer base and increasing Zip share of wallet, expanding our distribution and merchant network to enhance the efficiency of our growth engine and evolving our product set to meet more of our customers' cash flow management needs. Digging deeper into this on Slide 23. We see a tremendous opportunity to lean further into everyday nondiscretionary spend, given the mismatch between the income structures and the rising essential costs that everyday Americans are facing. While we are supporting customers today in the point-of-sale installment credit market, there are additional opportunities for us to meet even more of our customers cash flow needs. An example of this is my Bills, which I mentioned earlier and is due to roll out in the coming months. We will continue to explore other product adjacencies that resonate with our customers, complement our short duration portfolio and expand our revenue streams such as rent and earned wage access. We are excited and energized by what we can unlock for our customers, merchants and partners as we capture our growth potential and reshape how everyday Americans manage their cash flow. With that, I'll now hand back over to Cynthia. Cynthia Scott: Thanks, Joe. Turning now to Slide 25. The ANZ business delivered an excellent performance this half, achieving 138% increase in cash earnings. This was driven by a material improvement in excess spread and strong momentum in Zip Plus, which as of this month, is now being offered to new customers at higher limits of up to $20,000. We added several large enterprise merchants to the platform, including Didi, Australian Outdoor Living and White Fox Boutique and executed strategic integrations, including with Xero via Stripe and Mint Payments. Our customer value proposition has been enhanced through new Google Wallet features, which have been adopted by more than 170,000 customers. Our AI-powered chatbot Ziggy is providing increasingly personalized experiences and is now resolving 65% of interactions without human intervention. Turning to Slide 26. Excess spread expanded by 241 basis points, underpinning strong earnings growth. This reflects very strong outcomes on receivables financing over the last 2 years as well as net bad debts remaining at their lowest levels since FY '23. Arrears rates, a leading indicator of future bad debts, continues to perform well, down 21 basis points year-on-year. With portfolio yield remaining healthy, the business is well positioned to continue to deliver profitable growth. Moving to the next slide. Our comprehensive product suite provides flexibility and choice, driving strong customer engagement and satisfaction. Transactions and TTV per customer increased 23% and 20%, respectively. This performance was driven by enhancements to our app and in-store experience, along with new strategic go-to-market initiatives, as shown on the right-hand side of this slide. We achieved a record number of transactions and Zip Anywhere open loop spend during Black Friday, Cyber Monday. Consistent with our increasing frequency, we're seeing strong growth in everyday spend categories such as groceries, health care, education and utilities. We're also seeing higher spend across all age cohorts with the strongest growth amongst more mature customers, including in discretionary categories such as restaurants, travel and entertainment. Turning to Slide 28. We're very pleased with the momentum in ANZ and are investing in future growth. We've undertaken strategic go-to-market initiatives, including around peak trading events. We've also simplified and strengthened the resiliency of our core technology systems, including our credit decisioning platform, enhancing our speed to market. These investments support both top line growth and cost efficiency, positioning the business to deliver sustainable long-term value. I'll now hand over to Gordon to cover our financial performance. Gordon Bell: Thank you, Cynthia, and good morning, everyone. I'll start with Slide 30. Zip has had a very strong start to the year. We've achieved material new active customer growth in the U.S. and converted substantial top line revenue growth at an increased operating margin. Our financial results for the first half are all within the full year 2026 target ranges provided to the market in August 2025. A key highlight was our primary metric, the group's operating margin, which expanded 569 basis points to 18.7%. This has been a focus in the year-to-date, and we're really pleased with the outcome and the momentum. On a statutory or GAAP basis, our net profit after tax more than doubled to $52.4 million, an outstanding result. Moving to the income statement on Slide 31. Our focus on operating leverage, disciplined cost management and ongoing investment in our business drove the following outcomes: a 33.5% increase in cash gross profit to $314.3 million, an 85.6% increase in cash EBITDA to $124.3 million and a 127.6% increase in statutory net profit to $52.4 million. On an underlying basis, we delivered $54 million of improvement in net profit after tax with no one-off items recorded for the period. Further details are in the appendix to the presentation. Slide 32 covers our unit economics. The group had another fantastic half, growing TTV in both regions to a combined $8.4 billion or up 34.1%, while maintaining a strong cash net transaction margin of 3.8%. Interest expense as a percentage of TTV improved 38 basis points year-on-year to 1.3%, primarily driven by lower margins on over $2 billion of receivables refinanced in Australia over the past 18 months. Net bad debts were 1.7% of TTV, reflecting our targeted approach to balancing top line growth and losses. Turning to Slide 33, which covers the accounting provision for ECL or expected loss for the U.S. business. In alignment with International Financial Reporting Standards, we recognize expected credit losses for our customer receivables book. This is a noncash item in our P&L. For our short duration U.S. products, this provides a useful leading indicator of future portfolio performance and loss trajectory. Commensurate with our strong momentum through Q1 and Q2, we saw a nominal increase in our U.S. provision. This shift is a direct reflection of our strong volume growth and delivery of new active customer growth of circa 10% year-on-year, both in line with our U.S. strategy. The lower U.S. provision as a percentage of receivables at the end of the second quarter reflects both seasonality and continued proactive management of our short duration book to deliver profitable growth and to deliver actual losses within the management target ranges. Moving to operating efficiency on Slide 34. Our prioritization of cost discipline has supported material operating margin expansion of 569 basis points to 18.7%, whilst also growing group TTV and revenue north of 30%. This has been achieved while continuing to invest in attractive opportunities that support our growing businesses in both regions. The increased investment in people, processes and information technology was driven mainly by the U.S. to support additional scale. During the period, we invested in marketing to drive strategic growth by building brand and product awareness across both markets. Total marketing spend remained at approximately 0.4% of TTV. At the corporate level, costs increased in the first half due to spend on activities announced associated with our potential dual listing as well as innovation initiatives through our [indiscernible] lab to drive the next horizon of growth in our businesses. The next few slides, starting with Slide 35, cover the group's liquidity, funding and capital management. We have a very strong balance sheet with available cash and liquidity of $239 million at 31 December, materially up on the full year '25. This outcome reflects Zip's strong cash flow generation, driven by continued operating results. Cash inflows for the first half totaled $178.3 million, which accounted for CapEx, working capital and funding requirements. Nonoperating cash flows of $77.1 million included on-market capital management activities. Slide 36 outlines the financing facilities in place for Zip's receivables and the capacity for future growth. In Australia, we continue to benefit from constructive funding markets, a significant increase in investor interest and strong corporate performance. Our $400 million 2-year public ABS term deal priced at BBSW plus 1.37% in November 2025. Pricing was well inside levels achieved in previous public transactions. In early February 2026, we took the opportunity to further extend portfolio duration with an innovative $300 million 5-year public ABS term deal, which priced at BBSW plus 1.62%. This transaction was supported by domestic and global investors and highlights the significant investor appetite for Zip's longer duration issuance. In the U.S., we established a $283 million warehouse facility. The 2-year facility provides enhanced capacity for future growth, delivers a material improvement in funding costs and further diversifies our funding program. We continue to assess opportunities to optimize our U.S. funding portfolio with work well progressed to refinance our $300 million warehouse later in the second half of the year. Moving to Slide 37. This slide outlines our capital management framework, which establishes principles for the allocation of financial resources to maximize long-term shareholder returns. We executed 2 key initiatives during the half. Firstly, we completed our $100 million on-market share buyback program in December with 34.9 million shares repurchased at an average price of $2.86. Secondly, we acquired 5.9 million shares on market via our employee share trust to neutralize the impact of share-based incentive programs. Looking ahead, we will continue to focus on investing capital efficiently to drive long-term value guided through a lens on risk, expected return and strategic alignment. Slide 38 provides a snapshot of our key group performance metrics, demonstrating the outstanding results achieved this half. This financial information is further detailed in the appendix of the presentation as well as the Appendix 4D financial statements lodged with the ASX this morning. I'll now hand back to Cynthia to cover the group strategy and the FY '26 outlook. Cynthia Scott: Thanks, Gordon. I'm now on Slide 14. Our FY '26 strategic priorities remain unchanged. In the second half, we'll continue to enhance our customer and merchant value propositions, including scaling Pay-in-2 in the U.S. and unlocking greater spending for Zip Plus customers in Australia. We'll drive innovation across our portfolio -- excuse me, across our products, people and processes through leveraging our in-house capabilities and AI advantage. We're really excited to execute on future growth opportunities and to meet our customers' evolving cash flow management needs. In the U.S., as Joe outlined, this includes the rollout of My bills and our Agentic Experience Money Coach as well as continuing to assess new product adjacencies. In ANZ, we've advanced capital-light propositions through our Fearless Frontiers team led by Peter Gray and expect to have a new offering in market during the second half. As part of our announcements today, we've also shared my intention to relocate to the U.S. This move reflects our growing presence and significant growth opportunity in the U.S. market, our primary earnings driver. I look forward to deepening engagement with key U.S. stakeholders, including our customers, merchants, strategic partners and investors. Moving to our upgraded FY '26 outlook on Slide 41. Firstly, we reconfirm our guidance for revenue margin and cash NTM ranges. Following a strong performance in the first half, we've upgraded our operating margin expectation to be greater than 18% and for cash EBITDA as a percentage of TTV to now be above 1.4%. Taking into account these targets, we expect second half cash EBITDA to be broadly in line with the first half. In closing, the first half of FY '26 has been a period of accelerated momentum for Zip. We're confident in the continuation of our growth momentum, supported by our U.S. business delivering strong TTV growth of more than 40% across 4 consecutive quarters. Our ANZ business having successfully returned to growth, having the right strategic settings and scalable platforms in place to drive increased profitability and significant opportunities in both markets to unlock further value. On behalf of the group executive team, I'd like to thank our incredible Zipsters for their passion and focus and our shareholders for your ongoing support. That concludes our formal presentation, and we'll now open the call for Q&A. Operator: [Operator Instructions] And your first question comes from the line of Jonathon Higgins with Unified Capital Partners. Jonathon Higgins: Congratulations on the U.S. growth there and also good luck for your forthcoming move to the U.S. Cynthia. Just a couple from me today. Firstly, probably just on Pay-in-8, Pay-in-2 and some of the things that are occurring there. I think there's probably quite a few questions, I'd imagine coming through just on the bad and doubtful debt performance. You've guided for the second half there. Can you talk about some of the moving parts on that guide into the second half towards those sort of targeted levels, please? Cynthia Scott: Yes. Thanks, Jon. Look, I'll make some initial comments, and I will ask Joe to give a little bit more detail. So you're right, we launched Pay-in-2 -- sorry, excuse me, Pay-in-8 more than a year ago. So we've now had it in market, and we've now seasoned it. So we've been able to see what the performance of Pay-in-8 has been. And as you've noted, it's been really well received by customers and now represents about 20% of our portfolio. It does come with higher losses, as we've talked about, given the longer duration of the product and the larger AOV of the product. So we have indicated that in terms of portfolio construction, we are comfortable keeping Pay-in-8 no greater than 20% of the portfolio. Now that we've launched Pay-in-2, that obviously, the proportion of Pay-in-8, Pay-in-2 and Pay-in-4 in the portfolio will again change. I might ask Joe just to give you some color given that we've now got Pay-in-2 out in market, just to give you some perspectives on how we're thinking about portfolio construction and also the loss performance that we're seeing or what we're expecting going forward. Joe Heck: Yes. Thanks, Cynthia. I'll just reiterate a couple of things Cynthia just said is like as we now have a full year of Pay-in-8 under our belt, and it represents about 20% of the portfolio. It does run just to the longer duration risk. It does run a higher loss rate. But we've also put on significant new customer growth as well. And always the first transaction with new customers is always our risk is transaction. But I'll reiterate maybe the tightening of our range. We feel very comfortable we're going to stay under the 2% I'll go back to the chart on losses where even early-stage delinquency is down 10% quarter-over-quarter. And so feel good that the tightening of the range is really the maturity of the portfolio and feel like we're in a good spot there. And then to maybe go towards Pay-in-2, it's an exciting rollout that we see really strong early signs of success with, both from a customer uptake and credit performance standpoint. It's an even shorter duration product than we have. So I'll just reiterate again what we said on the call is the 1.75 to 2-point range is we feel very confident we will be under that 2% moving forward. Jonathon Higgins: Understand. I appreciate the context. Maybe just a couple more that are sort of around as well in terms of portfolio composition. So on your outlook, you've retained the 3.8% to 4.2% cash NTM margin guidance coming at 3.8%. I think second quarter is always a little bit lower because of revenue yield. This might also help a little bit with expectations in the future. But evidently, with U.S. losses probably moving a little bit higher as guided by you guys, but a little bit of a headwind on interest rates and the U.S.A. business is dominating growth, which has a lower blended NTM margin. In terms of on the revenue yield side of things with the new products in the U.S. portfolio, like would we expect potentially some reasonable sort of additive growth in revenue margins in the U.S. so that we can get up to that cash NTM guidance? I suppose asking in a roundabout way, obviously, losses are a little bit higher on the back of Pay-in-8, but do we get better margins out of them at the top line? Cynthia Scott: Yes, John, I'll throw to Gordon. I mean, as you've noted, there's actually a lot of moving parts. You're talking about the change in the portfolio construction. Obviously, losses on Pay in 2 are lower than on Pay-in-4 and Pay-in-8. Typically, it's a shorter duration product. So that will also have an impact over the second half and going forward. We would still indicate to you an overall portfolio revenue yield in the U.S. of 7% is the right number to think about. But Gordon, do you want to add anything in relation to cash MTM guidance? Gordon Bell: Yes. Thank you, John. I'll just run through the components because I think you're on the right direction there. So the bad debt is a portion of that. Joe has outlined where we're at and the range that we are targeting specifically for the second half to balance what we feel is growth and margin. So we're comfortable there. On the interest cost side, the other big component of cost of sales, we've got some really nice tailwinds from the refinancing of our facilities, both in Australia. And now we're starting to see the benefit of the refinancings coming through in the U.S. So you do have to take that into account with the bad debt sort of percentage going the other way, and hence, why we're comfortable with that range of 3.8% to 4.2%. And then what I would say is, and I think you called out in one of your notes, you've also got to take into account the weighting there, where the U.S. is a lower MTM business compared to the Australian business. And as the volumes grow there at a faster rate, that also has an impact, too. So those are all the component parts, but comfortable with that range for the full year. Jonathon Higgins: I might grab one last one, sorry, I'll give the call to everyone else. But -- in regards to the new product mix and the like, I mean, if I sort of think back 12 months ago, we didn't have a lot of new product iteration sort of in market. We're at the beginning of new active customer growth, and we've had some large partnerships come through. And like many of those things like Pay-in-2, you publicly said it's gone live this calendar year. Pay-in-8 has obviously gone out of the customer base. And then you've got things like the Stripe partnership. I mean, is there potential in the second half for a pickup in sort of group run rates or volume? Just interested in what you're seeing in the U.S. Cynthia Scott: Yes. Look, I'll ask Joe to add some comments. But you're right, John, there are a number of levers that give us the confidence to continue to guide that the U.S. will grow more than 40%. And it does include things like the Stripe partnership really beginning to hit momentum now with 1,400 new merchants. as Joe said, from possible millions of merchants on their platform as well as the penetration of Google Chrome improving as well as us signing our own large enterprise merchants. So there's a lot going on, on the enterprise merchant side, and we continue to acquire net new customers. But Joe, is there anything in addition to that, that you wanted to add? Joe Heck: No, I think you hit on the major points. I think the increased flexibility that we're seeing from ANZ and the increased efficiency we're seeing just in how the platform is built and how we operate it makes us feel very confident in the numbers we're guiding to. Operator: Your next question comes from the line of Tim Lawson with Macquarie. Tim Lawson: Just really interested in your expectations for sort of OpEx growth in the second half, given you've provided that sort of flat versus first half, second half cash EBITDA guidance, but obviously, there's momentum still through the top line. Cynthia Scott: Yes. Thanks, Tim. I might -- I'll ask Gordon to address it because again, there's a couple of different factors at play there in terms of the performance in OpEx that we saw in the first half versus the second half. Gordon Bell: Yes. Thanks, Tim. I would say that it's fairly balanced. What I would note is we did see some nice operating margin performance. If you have a look at the unit economics slide, from a slightly reduced cash OpEx spend in the first half. And that really comes down to not a -- I wouldn't say not a lack of investment, but it's opportunities for investment. So Joe and Surya take the opportunities in front of them and invest where they see they're going to get a return from that investment. In the second half, we've got plenty of things that are on the, what I call the long list for investment, and we'll appraise those as and when they come up. So it's all very much looking forward to investing in the second half to get there. I think the second point I'd make just overall is we did upgrade that operating margin metric. So we did have 16% to 19%, and we're now saying for the full year, we'll be above 18%. So that should give people comfort that we're still investing, but we're doing it in a disciplined manner. Tim Lawson: And just a clarification on Slide 20. Can you just -- it's obviously providing that range on the net bad debts to TTV is very clear. But can you just on that bullet point 3, you talked about Pay-in-4 losses remained stable over the half and then Pain volumes continue to season. It's just hard to sort of reconcile that comment with the numbers. So I just maybe you can unpack that comment a little bit, please. Gordon Bell: Yes, sure. Tim, it's Gordon. I think that if you recall at the first quarter, we talked about losses and forecasting, and it was becoming increasingly difficult because on a cohort basis, your pay-in-8 is twice the duration. So you're starting to mix 2 products at a time where one was growing part seasoning, whereas the others -- the other product pay-in-4 was pretty stable. So hence, why we've gone to more of an actual percentage of TTV, which is avoids that apples and oranges piece. So that's just sort of the composition piece. What I would say is the Pay-in-4 performance is as the wording suggests is very stable, very comfortable with the product. And we've been -- frankly, we've been calibrating Pay-in-8, Pay-in-4 and top line growth to make sure that we are hitting the overall economics we want. So it's stable, and we continue to calibrate on the margins to drive the outcomes we want. Tim Lawson: So effectively, what you're trying to tell us is that while there's a lot of growth, and that's obviously driving losses on new business, whether it be pay-in-4 or pay-in-8, and that's what's driving that into the target range, that 1.84 that overall, the performance is stable. So it's more a mix thing that's driving up that loss rate. Gordon Bell: Yes, that's spot on. And I think the only add to that, so what you said is right, the only add to that, Tim, is that if you recall, as we came into FY '26, we had a very conscious new customer acquisition strategy, which has allowed -- which Joe and the team have executed on superbly, and we've been growing new active customers at 10% year-on-year. So it's the new customer is probably the only add to what you stated. Operator: And your next question comes from the line of Phil Chippindale with Ord Minnett. Phillip Chippindale: Just firstly, on the second half guidance for cash EBITDA to be broadly in line with the first half. Clearly, FX translation is going to be a headwind here. Can you tell us what sort of FX number you've assumed? Or if I can ask it another way, if FX had been flat versus first half, what sort of difference would we be talking sort of half-on-half in dollar million terms? Gordon Bell: Let me run through how we've -- how we see the FX, and you can tell me if it covers your question. So first half '25 average FX rate was about $0.67. First half '26, the average was about $0.67. So similar like-for-like. So the first half, you didn't see a lot of impact on a half-on-half basis, Phil. Second half '25 average FX rate was again about $0.67. As we sit here today from January, the FX rate was about $0.70, and I think the forward points are about $0.70, $0.71 for June. So straight away, you've got that sort of $0.03 to $0.04 difference if things -- if the forecast from the big 4 banks is appropriate. So $0.03 to $0.04, I use the U.S. earnings from half 1, which was approximately USD 75 million, USD 76 million. If you do the sensitivity there, it's about $5 million on the numbers I've just given you. We do have some U.S. dollar calls in place. We put some hedging on in the first half, which will mitigate some of that currency risk. So I would say up to $5 million based on the numbers I've given you. And then you've obviously got to run your sensitivities for the currency moving more than that. Does that run through it for you? Phillip Chippindale: Yes, that's really useful. And then just as a follow-up, just in terms of seasonality, I think Jonathon covered it off earlier. Typically, you see better revenue margins, particularly in the March quarter. But just from an OpEx perspective, is there anything we should be taking into consideration here that sort of is a bit of a drag in the second half to sort of bring us back to that flat number? Gordon Bell: The main one will be, as we've been consistent in that we're not going to starve growing businesses. So the U.S. has especially got great opportunities to drive growth into '27 and '28. And there's a number of initiatives, which Joe and the team are looking at in our Q3 and Q4. Q4 is certainly a spend quarter with back-to-school, summer holidays, et cetera. So we are keeping -- certainly keeping the spend up to make sure that we can deliver in future years, probably the best way to describe it. Operator: And your next question comes from the line of Lucy Huang with UBS. Unknown Analyst: So I just have a question on TTV momentum coming into third quarter. I know you're quite confident on second half TTV growing 40% plus in the U.S. But I think some of your payment peers offshore have called that there's been a bit of pull forward of spend into Black Friday. So just trying to see whether you can give us some early trading trends as to whether you are seeing a bit of a slowdown in trading or whether that kind of mid-40s growth momentum is still continuing. Cynthia Scott: Yes. Thanks, Lucy. Look, we actually did put in the slides on the outlook slide, we have actually given an indication of January U.S. TTV performance. And the short answer to your question is no, momentum is still continuing. We're not seeing a slowdown or a pullback. Unknown Analyst: [Indiscernible]. I might have missed that. Cynthia Scott: It was just in addition to the slide. So -- but we are explicitly saying that the momentum that we've seen in U.S. TTV continues into January. Unknown Analyst: Yes. Understood. And then just a piece on customer growth. Like how are you thinking about the balance of driving new customers to the platform versus net bad debts? Because I think for us, customer numbers are a bit softer in the U.S. Like do you think there's scope to reaccelerate adds, but that may come at a compromise to bad debt? Like how do you think about that balance over the next couple of quarters? Cynthia Scott: Yes. Thanks, Lizzy. So look, it's the same dynamic as we've spoken about before. Driving net new customers is important. And I think 10% growth in new customers in the U.S., particularly driving those customers onto the platform ahead of our busy trading period of Black Friday, Cyber Monday was really important. So it's about driving net new customer growth, but also then once they're on the platform, engaging them. And that's why we've given you more detail around the cohort analysis of more recent customers and how they're accelerating that engagement faster than customers who've been on the platform for longer. And then yes, so having new customers on the platform will drive TTV, but we also need to balance new customers also typically bring slightly higher losses. And so the thing about the way that we manage customer growth is that we then season those customers quite quickly. And so it really is that balance. I might just see whether, Joe, is there anything else that you wanted to add in terms of customer growth and just what we're seeing in terms of where the demand is coming from perhaps? Joe Heck: Yes. I would just say probably referencing some of the merchant expansion and partnership expansion, but also probably a reminder of how we think about the customer. It's a pretty low and grow strategy. So as we gain experience with the customer, we rightsized their spending limits pretty aggressively. So this way, we limit exposure on that new customer growth. But ultimately, as you would see, particularly on Slide 17, this is a seasonal business. We grew customers for the first time in a while, H1 to H2 in '25. And that set us up for the seasonal back-to-school shopping. Again, we've had growth again in this season. So I would say we're actually very -- feeling very good about the 10% growth and nearly 400,000 customers. Operator: And your next question comes from the line of Siraj Ahmed with Citi. Siraj Ahmed: can you hear me okay? Cynthia Scott: We can, Siraj. Siraj Ahmed: Just a question on the U.S. MTM percentage, right? I understand there's quite a few moving parts, but 3.1% in the second quarter was a bit lower than we expected. Just trying to understand how we should think about this into second half within your guide and also more importantly, into FY '27 because I can see the net adds is increasing, but maybe revenue a little bit better. So just that will be quite helpful because I think the trajectory of 27% is what I'm thinking about. Gordon Bell: Yes. Siraj, it's Gordon. Look, we absolutely -- as part of the -- as part of the conscious active customer growth in Q1 and Q2, we've been, again, very conscious that, that does come with -- to Joe's point, with higher initial losses, and then we manage and season that throughout the portfolio. So we do accept the slightly lower U.S. cash NTM in the quarter to take that into account. And then we look to balance that and grow it as we go further. So in the second half, you can expect that number to go up. And then that will then contribute to our full year meeting our full year range. So it is a conscious acceptance, if you like, and we expect that number to go up as we go forward. Siraj Ahmed: So Gordon, just clarifying, so in the second half, even with the net bad debt's going up with reaching a slide, you still think [indiscernible]? Gordon Bell: Yes. You've got other tailwinds, though. You've got interest cost tailwinds, which contribute to that as well in the second half, Siraj. Siraj Ahmed: Yes. And then just -- I'm thinking at 27%, I know it's a bit early, but keeping 3.8% to 4.2% would be a bit tough given the U.S. is growing strongly, right? Is that fair? Gordon Bell: We'll talk about 27%, I think, at the end of the year is probably the best way to put it. Siraj Ahmed: Okay. And just one quick thing. In terms of keeping it at 20%, maybe one for Joe. Is that just -- is that a reflection of that maybe the economics is not as strong because the momentum in 4Q is quite strong and you're saying let's keep it in 4Q '25 was strong, right? And you said let's keep it at 20%. Just wondering, are you just managing for the losses being a bit higher, so let's keep it at 20%. Joe Heck: Yes, happy to jump in on that. Siraj, the 20%, I would say it's more of the shape of the portfolio than anything. We save Pay-in-8 for our best customers, and we continue to refine that model. And we're continuing to just optimize across now what it will be pay-in-2, Pay-in-4 and Pay-in-8. So it's just an ongoing management of the book more so that we're starting to see it level out now at that 20% threshold. Gordon Bell: Siraj, it's Gordon. The other thing on your question around NTM, which I remiss of me not to state is the other piece that we take into consideration is the gross profit and the dollar increase and the longer-term piece -- longer term there. So we do actively target customer growth and conversion. And then the gross profit per customer or in the longer term is beneficial to us. We obviously have to calibrate that with the initial losses as we've talked about. So it is a balancing game overall. And right now, cash gross profit growth being at 33.5% year-on-year is very healthy. So it is a balance in terms of short term versus medium term, and that's probably something we look to there on the GP percentage. Siraj Ahmed: So yes, so the TTV and the spend this half yes, strong... Operator: And your next question comes from the line of John Marrin with CLSA. John Marrin: Just wanted -- just a quick clarification because I think it's pretty important. I think, Gordon, you said that there's about $5 million of impact from FX on that recent swing on the AUD USD. And I guess some of that is including the hedge that you have in place. Is that -- did I hear that correctly? I mean, a pretty important point. Gordon Bell: No. Yes. I'll slightly amend that. So I think based on the numbers I gave you, so again, if you take the -- I've just used the average of the FX forecast to say they're forecasting $0.70, $0.71 at June. So again, you have to take a view on that. And I'm looking at it versus the average of this sort of the second half last year and saying that today's numbers would tell you there's about a $0.03 to $0.04 difference there. So on that, I'll just use the sensitivity of the cash EBITDA we live in the U.S. in the first half being roughly $75 million, and that gets you to a number of sort of $5 million to $6 million. We do have some hedges on. We bought some U.S. dollar calls in the first half. And so that gives us some protection. It's not going to change that number materially. But if the currency gets a lot worse, we'd obviously that protection would become more valuable to us. So I still think circa $5 million is probably the right way to look at it based on today's numbers. Again, you need to take your own assumption on FX forwards. But based on today's numbers, I think that's the best estimate. John Marrin: Okay. Yes. Look, it's going to be substantial, and I think we've got to bake that in. But -- okay. You also mentioned that your marketing performance in the first half was strong enough to help you think about being on your front foot in terms of growth investments in the back half. And I just want to pick at that a little bit. And maybe just focusing on marketing spend in the back half and kind of thinking about what that dollar impact might be from the national brand -- national advertising campaign that it seems you guys have rolled out and what other investments you're thinking about when you say that? Cynthia Scott: Yes. Thanks, John. Maybe I'll just start by just clarifying that, and then I'll throw it to Joe just to give you some specific examples about how we're thinking about marketing and spend in the second half. But the marketing spend, including the brand campaign, would still come in under that same bucket of no more than 0.5% of TTV. We obviously, in the first half delivered underneath that. I think it was 0.4% of TTV in the first half, and that would include the spend on the brand that we refresh and launched this week. Joe, did you want to add anything in terms of the second half? Joe Heck: Yes. We continue to expand our partnerships on the merchant side. But I'll reiterate what Cynthia just said. We're conservative on just brand spend in general. We look at the growing share of wallet that BNPL is taking within the U.S. It's a little bit under 2% of total and 6% of e-com. So there's significant headwinds in just customer adoption there. So I would say we're kind of taking a very pragmatic approach given the shape of the business. One exciting thing I think you'll see us push into is we have a new brand campaign that just launched, but that's to accompany kind of the nondiscretionary everyday spend associated with pay-in-2 and my bills as we push deeper into the engagement model of that nondiscretionary everyday American spend. So that's where our focus will continue to be. Operator: And our next question comes from the line of Ware Kuo with Bank of America. Ware Kuo: Just one question from me. So for the U.S., you guys talked to 7% revenue take rate at the portfolio level. But if I'm just looking at the Pay-in-8 product, the fees on the Pay-in-8 product looked higher than, let's say, Pay-in-4. So I would have thought the revenue take rate on Pay-in-8 would be let's significantly higher. And then maybe if you can talk to just the net transaction margins on Pay-in-8 overall, taking into account the revenue take rate and the losses versus the Pay-in-4 product. Gordon Bell: Thanks, it's Gordon. I'll -- Joe can talk about some specifics. But you're right. 7% is the blended take rate. There's sort of a few ups and downs in that depending on when customers repay and so forth. So hence, why we guide to that number. And then in terms of the U.S., I guess, on a go-forward basis, again, we still see that as the best forecast going forward. Joe and team will obviously toggle with Pay-in-2 and the schedule on that as we start to see momentum in that product, just like they did with Pay-in-8 to make sure that we're balancing sort of those losses versus take rate versus NTM. So it's not static is what I would say. It does develop as the product seasons. Joe, do you want to give a little bit more color on that? That's probably the best way I can describe it. Joe Heck: No, I think you did a good job. I think the net out is we use the portfolio to attract and retain and engage our customer base. So it's important to us to have the flexibility across the quick everyday spends like groceries, pay-in-2, pay-in-4 really help with that. Pay-in-8 is a valuable tool for us in the longer duration, larger purchases, but not getting so far out with this customer base. But it continues to be something we manage very, very actively availability of each product to make sure that we're optimizing the spend. And I'll maybe point back to our users are now up to 11x per year with Zip and we continue to push that forward and having diversity of product options for our consumer is really important. Ware Kuo: Got it. And if I can just ask a quick follow-up question. I'm not sure if you can disclose this, but just wanted to know about the loss rates, the relationship between the different duration products. So let's say, pay-in-8 versus pay-in-4, would the losses be because you're lending it for double the duration, would the losses be, let's say, double for pay-in-4 and then half for paying 2? Is that how we think about it from a modeling perspective? Cynthia Scott: Well, yes. So we don't disclose losses at a product level, but we have given you what the AOV is and what the duration is. And as a general comment, yes, you will have higher losses on a pay-in-8 and lower losses on a pay-in-2. But beyond that, no, we don't give product level loss disclosures. Gordon Bell: I think the other piece I'd just add, is that spot on with Cynthia's comment is we -- I talk quite often about calibration. And I do it because one of the conversations that I know Joe is having these daily with his lending team, and he and I talk about it every week. It's that calibration between losses, growth, new customers that we're constantly toggling. And with the Pay-in-8 product, we've just got 1 year under our belt of seasoning. So it's quite hard to sort of pick specifics there. It's kind of an always-on management technique, and it will be the same for Pay-in-2. So it would probably be a little irresponsible for us to try and give you more specifics than that, maybe in years' times when these products are far more mature, we can. But right now, it's part of our sort of ongoing calibration. And unfortunately, that is all the time we have for questions today. I'll hand now the conference back to Ms. Scott for closing remarks. Cynthia Scott: Thank you. Look, I just want to say thanks, everyone, for joining us and for all of your questions. I know there's probably a few more questions, and we are probably going to see most of you in meetings over the next couple of weeks. But in the interim, if there's any specific questions you have, please feel free to contact Vivienne in the first instance. Thank you.
Operator: Good afternoon, and welcome to the Edison International Fourth Quarter 2025 Financial Teleconference. My name is Michelle, and I will be your operator today. [Operator Instructions] Today's call is being recorded. I would now like to turn the call over to Mr. Sam Ramraj, Vice President of Investor Relations. Mr. Ramraj, you may begin your conference. Sam Ramraj: Thank you, Michelle, and welcome, everyone. Our speakers today are President and Chief Executive Officer, Pedro Pizarro; and Executive Vice President and Chief Financial Officer, Maria Rigatti. Also on the call are other members of the management team. Materials supporting today's call are available at www.edisoninvestor.com. These include our Form 10-K, prepared remarks from Pedro and Maria and the teleconference presentation. Tomorrow, we will distribute our regular business update presentation. During this call, we'll make forward-looking statements about the outlook for Edison International and its subsidiaries. Actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our SEC filings, please read these carefully. The presentation includes certain outlook assumptions as well as reconciliation of non-GAAP measures to the nearest GAAP measure. During the question-and-answer session, please limit yourself to one question and one follow-up. I will now turn the call over to Pedro. Pedro Pizarro: Well, thanks a lot, Sam, and good afternoon, everyone. Edison International's 2025 core earnings per share of $6.55 was above our guidance range, that extends our 2-decade track record of meeting or exceeding annual EPS guidance. Importantly, this also marks the successful delivery of the long-term core EPS growth target that we established in 2021. Our performance reflects disciplined execution across the enterprise and continued focus on cost management, operational performance and capital efficiency. Maria will provide more details in her remarks. Today, I'll focus on three themes: Our commitments to customers, communities and investors, our strength in regulatory visibility and our confidence in our multiyear plan. Starting with the first theme. We are committed to the customers and communities who count on safe, reliable and increasingly clean energy. Safety remains our top value. And SCE continues to carry out extensive work to strengthen the electric system and reduce wildfire risk. We are proud that in the Q4 2025 residential customer engagement survey by Escalent, SCE had the highest absolute brand trust score among the large California investor-owned Utilities. Customers and public trust remain the core of SCE's mission. The utility has now installed more than 7,000 miles of covered conductor in high fire risk areas, representing over 90% of its planned grid hardening effort. This work continues to play a critical role in reducing ignition risk and strengthening reliability for the communities we serve. SCE now has fast-curve settings on 93% of its distribution circuits in high fire risk areas, a prime example of how it is using technology to reduce risk by detecting and addressing faults even more quickly. All of this work demonstrates SCE's ongoing wildfire risk reduction leadership. This progress benefits not just the utility's own customers and communities who fund this critical work, but also many peers across the nation. Safety and affordability remain at the core of our commitment to customers. Earlier this year, SCE announced a 2.3% rate decrease for residential customers and a 5.3% decrease for small- and medium-sized business customers. This is starting from a place of having the lowest system average rate by a margin of 20% among California's major investor-owned utilities. SCE has invested more than $12 billion for customer safety and reliability over the last two years. Currently, a typical non-CARE residential customer pays about $188 per month, which is modestly higher than the $180 paid two years ago. This reflects the utility's disciplined cost management to support customer affordability. We will continue to work to keep rates affordable for customers. We are also committed to the investors whose capital makes it possible to build the infrastructure that is essential to deliver safe, reliable, affordable electricity. Our commitment begins with a regulatory framework that enables SCE to consistently earn its authorized returns, which supports a strong investment-grade balance sheet and lower financing costs for customers. Our capital contributors, including pension funds, mutual funds and insurers, depend on stable, transparent long-term performance. Credit rating agencies continue to evaluate California specific risk factors, underscoring the importance of maintaining a durable and predictable regulatory environment that provides confidence for long-term investment and protects customers from higher costs. To that end, we are actively engaging with policymakers and state leaders to reinforce the value of a stable framework and the SB 254 process will be a central venue in 2026 for strengthening the regulatory durability that supports both capital contributors and customers. SCE remains committed to resolving wildfire-related claims fairly prudently and responsibly. To date, more than 2,300 claims have been submitted under the wildfire recovery compensation program with associated payments underway. As always, we are guided by our commitment to transparency, accountability and customer trust. Building upon this, today, SCE announced enhancements to the program, providing stronger support for displaced renters and increasing coverage for legal expenses. Regarding the Eaton fire, as you see on Page 4, the investigations remain ongoing. To recap our prior statements, while SCE has not conclusively determined that its equipment caused the ignition of the Eaton fire, a viable explanation is that the energized idle SCE transmission facility in the preliminary area of origin was associated with the ignition of the fire, and SCE is not aware of evidence pointing to another possible source of ignition. Absent additional evidence, SCE believes that it is likely that its equipment could have been associated with the ignition of Eaton Fire. Given the complexities associated with estimating damages, we currently are unable to reasonably estimate a range of potential losses. Nonetheless, based on the information we have reviewed thus far, we remain confident that SCE will be able to make a good faith showing that its conduct with respect to its transmission facilities in the Eaton Canyon area was consistent with actions of a reasonable utility. The company continues to prioritize a recovery of impacted community members. Edison International is donating $2 million to the Pasadena Community Foundation to help meet the needs of community members in the Altadena area recovering from the Eaton fire. My second theme today is our strength in regulatory visibility given 2025 was a significant regulatory year for SCE, which you see on Page 5. With the GRC cost of capital proceeding, TKM and Woolsey settlement agreements and other wildfire proceedings concluded, SCE enters 2026 with substantially greater clarity into capital plans, revenue requirement and operational priorities, not only for the GRC period but into the next decade. Our team members across Edison International and SCE continue to demonstrate their ability to execute, through complexity, respond to the evolving conditions and stay focused on long-term goals. Turning to the legislative front. The upcoming session will be pivotal for shaping the next phase of California's energy and resiliency policy. A central focus this year is the SB 254 natural catastrophe resiliency study being authored by the California Earthquake Authority and subsequent legislation. Our focus remains on a whole-of-society solution to mitigate and respond to catastrophic wildfires that enhances public safety, improves affordability and supports predictable long-term investment in a clean, reliable energy system for California. In December, SCE and the other IOUs jointly submitted white papers along with dozens of other stakeholders, providing input into the CEA's process. We continue to be actively engaged with relevant stakeholders, the governor's office and legislative leaders about the potential for enhancements to the policy framework. Moving on to my third theme today. Our confidence in our multiyear financial outlook. We are introducing core EPS guidance for 2026 and 2027, reaffirming our 2028 outlook and extending our expected core EPS growth rate target through 2030. Maintaining the 2028 target while extending the horizon underscores the growing clarity and stability in our multiyear plan, supported by a constructive regulatory foundation and a robust pipeline of necessary investments of the utility. With an attractive dividend yield of approximately 5%, and a long-term core EPS growth target of 5% to 7%, EIX shares offer a compelling case for total shareholder returns of 10% to 12%. This combination of income and growth reflects the strength of our regulated business model and our commitment to delivering sustainable value for customers and capital providers. Let me close where I began with commitment. Our commitment to communities and customers and to the capital contributors whose support makes our work possible. Our commitment to strengthening the grid, enhancing safety, improving reliability and supporting affordability. Our commitment to clarity and transparency as we move into a period of greater regulatory stability and our commitment to deliver on the objectives we have shared with you today. We have the right strategy, the right plan and the right team in place, and we are confident in our ability to execute that plan for 2030. With that, Maria, let me turn it over to you. Maria Rigatti: Thanks, Pedro. In my comments today, I will discuss fourth quarter and full year financial results. Our focused areas for 2026, provide an update on our refreshed capital, rate base and EPS growth guidance and discuss other financial topics. For the fourth quarter, EIX reported core EPS of $1.86. Full year 2025 core EPS of $6.55 exceeded the high end of our EPS guidance range. Pages 6 and 7 provide the year-over-year variance analysis. I would like to note two items embedded in our results. First, fourth quarter core EPS includes $0.06 of costs attributed to the preferred stock tender offers and redemption at EIX and SCE completed in December. Second, we recorded a $0.46 true-up following the final decision in the Woolsey cost recovery proceeding. Excluding the Woolsey true-up, EIX's full year 2025 core EPS still exceeded the midpoint of our guidance. I will echo Pedro's comments that this marks the successful delivery of the long-term core EPS target we established for 2021 through 2025. Over that period, we successfully managed a number of unforeseen headwinds. Record inflation, the first rising interest rate environment in over 15 years, growing wildfire claims related debt, several changes to SCE's authorized cost of capital and additional cost pressures, yet we delivered on our commitment. Today, we are reaffirming our 2028 guidance and extending our 5% to 7% EPS growth target to 2030. You should share this leadership team's confidence that we will continue to deliver on these commitments and build on your trust. You can see on Page 8 that delivering strong financial results was just one accomplishment and another year of strong execution in 2025. Page 9 summarizes the key management focus areas for 2026. SCE continues to execute its wildfire mitigation plan and its focus on operational excellence to reduce costs for customers. Utility also plans to execute on its $7 billion capital plan for the year to meet customers' needs. As Pedro mentioned, the legislative process will be a major focus for the year. In the regulatory area, the utility will be driving toward a final decision on its NextGen ERP program and filing an application for its Advanced Metering Infrastructure or AMI 2.0 program. Both of these are large programs that provide significant long-term customer benefits. Lastly, we look forward to another year of delivering on our annual core EPS guidance and executing efficient financings across the enterprise. Let's turn to SCE's updated capital and rate base forecast shown on Pages 10 and 11. The extended capital plan of $38 billion to $41 billion from 2026 through 2030, continues the company's essential work in load growth-driven programs, infrastructure replacement and wildfire mitigation. Additionally, our updated forecast now includes nearly $1.5 billion of capital expenditures through 2030 from SCE's upcoming AMI 2.0 application. The total request will exceed $3 billion with spending expected to continue through 2033. We forecast a step up in our capital deployment opportunities to as high as $9 billion per year in the next GRC cycle. This is driven by the essential investments in the grid to meet customer needs and support California's clean energy objectives. The resulting projected rate base growth is approximately 7% from 2025 to 2030. Page 12 shows our 2026 and 2027 core EPS guidance. We have also provided modeling considerations on Page 15. Our core EPS guidance for 2026 is $5.90 to $6.20, and for 2027, it is $6.25 to $6.65. As you're aware, Edison's core EPS over the years has not been linear. Let me provide some additional insight into our outlook and trajectory towards achieving our longer-term targets. You will see that 2026 core EPS represents growth of about 3.5% at the midpoint compared to the $5.84 baseline. We have provided a bridge on Page 13 to help you understand the puts and takes. This muted growth is driven by three items, which amount to $0.25. First, SCE has fewer regulatory decisions in 2026 than last year. Therefore, the associated earnings contribution from recognizing prior year earnings is about $0.11 lower. Second, asset mix differences versus the original GRC forecast creates depreciation and property tax related variances of about $0.07. Third, financing-related variances, tax law changes and other items reduced core EPS by approximately $0.07. The drivers behind the $0.25 impact are baked into 2026 and thus are not expected to result in negative variances in later periods. Consequently, we expect EPS growth in 2027 to be at the high end of our 5% to 7% range. This is supported by SCE's 7% rate base growth, and we do not expect any large discrete variances from the rest of SCE's operations. Turning to Page 16. We are extending our 5% to 7% EPS growth target to 2030. We are also reaffirming our 2028 guidance and both of these are measured from the $5.84 baseline for 2025. On the financing front, I want to emphasize that we project no equity needs for the next five years through 2030. Our balance sheet remains strong, and we continue to finance the business efficiently within our 15% to 17% FFO to debt framework. Last month, the utility filed its Woolsey Securitization application with the CPUC. Once approved, the utility will securitize about $2 billion in costs associated with the approved Woolsey settlement agreement. SCE's proposed schedule would allow for this transaction to close in mid-2026. As we have shared before, proceeds from this transaction would be used to offset normal course debt issuances at SCE rather than paying down specific issuances. I will conclude by echoing Pedro's earlier comments about commitment and trust. Deploying capital for the resilience, reliability and readiness of the grid helps deliver on our commitments to customers and maintain their trust. We are committed to collaborating with stakeholders to advance a clear, durable and predictable framework. And to our capital contributors, you have seen us deliver consistently on our annual and long-term commitments to earn your trust. This leadership team remains committed and confident in continuing to do just that going forward. That concludes my remarks. Back to you, Sam. Sam Ramraj: Michelle, please open the call for questions. As a reminder, we request you to limit yourself to one question and one follow-up so everyone in line has the opportunity to ask questions. . Operator: [Operator Instructions] Our first caller is Nick Campanella with Barclays. Nicholas Campanella: So I guess just -- on the Eaton losses, I think you disclosed that you recorded about $1.1 billion of losses so far, just from the settlements under the wildfire recovery compensation program. And I guess just as you're continuing to get more visibility on the total liability, like when do you think you would potentially have the low end of losses for the total event? And what is kind of the complicating factor at this point? If you could kind of maybe expand on that at all? Pedro Pizarro: Yes. Thanks, Nick, for the question. I'll start on this one. Let me share some -- reinforce some numbers for perspective. I think I mentioned that we've had -- SCE has had over 2,300 claims submitted so far. There are 18,000 properties that are eligible for the program. You might have multiple claimants per property. For example, if you have a multiple tenant kind of property. So we could certainly see a few tens of thousands of claims ultimately, if everybody wants to participate through the program. And so in that context, 2,300 claim applications, and we're -- now I think I checked this morning, SCE has now crossed the 590 offer mark. That's a really good strong start. Those are good numbers for just three months into the program, but it's just a minuscule number compared to the potential pool here. And so in terms of when we would be able to estimate, we really don't have an estimate for that yet because it really depends on the pace of this. Maria Rigatti: And Nick, maybe just a clarification. You referenced $1 billion or so that we've recorded. That's a combination of what we paid under the WRCP program, which Pedro just described, that is a very minor part of the total. The rest of it is associated with subrogation claim settlements that the company has entered into. So it's both of those things. Pedro Pizarro: Yes. Thanks, really clarification, Maria. We've announced a couple of subrogation settlement so far. So that's what -- on the insurance side, the subrogation side, similarly, there's been two settlements at around an average of $0.55 in the dollar, but there's many more insurance companies in that. So we really can't estimate when we might have enough critical volume to be able to have even a low end of the [ estimated ] range with the confidence required by GAAP. Nicholas Campanella: Okay. And then just maybe expanding on the comments about the 5% to 7% and being at the high end '27. I know your rate base growth is 7%, and you're not issuing any equity, which is great, but I assume you do have some financing drag. Just what are kind of the consideration the nonlinearity to think about for '28 and '29? Do you kind of plan to be at the high end in those years in the 5% to 7% range? Or are there just further considerations there? Maria Rigatti: Thanks, Nick. So you can see sort of like through the '28 period, again, 2026, some muted growth due to variances that are now in the year and will not create variances on a go-forward basis, which then does mean that we're at the high end of the range for the next couple of years. We don't really see any large discrete activities that are driving things in one direction and the other over the course of the years, it's really rate base growth. . Obviously, we still continue to see things like AFUDC come through. We're going to continue to manage the business across all the different elements and areas, similar to what we've done in the past. Then as you get out to '29 and '30, again, right back down to rate base growth. I mean, that is really the driver here, and you can see the potential step-up in '29 and '30 as we file for a new General Rate Case decision. That will be filed actually in May of 2027. So we're closing in on that now. Operator: And the next question comes from Carly Davenport with Goldman Sachs. Carly Davenport: Maybe just on some of the updates on the capital plan through 2030. On the AMI 2.0 application, just once you file that what do you anticipate to be the timing on clarity of approvals? And then just how does that interplay with the timing of the capital dollars that are embedded in the plan through 2030? Maria Rigatti: Sure. So we'll be filing later next few months likely. And we'll ask for a typical schedule, which would get us a decision hopefully in about 18 months or so. The capital that's embedded in the forecast right now, the total request will be in the neighborhood of $3 billion. About $1.5 billion is in the period that we have portrayed here through 2030 with another $1.5 billion that would get spent post that by and large through 2033. So that's sort of the pace of what we're anticipating. Carly Davenport: Great. Okay. That's super helpful. And then maybe just on the SB 254 processes getting closer to the April 1 CEA report deadline. Any updates that you'd call out in terms of thematics that are coming out of the updates we've gotten so far? And just how you feel we're progressing into that deadline and what that could mean for timing of getting some clarity on legislation? Pedro Pizarro: Yes. Thanks, Carly. I'd say the process is certainly underway. It's good to see robust participation from so many stakeholders across the economy. The legislature set this up, they set it up to be truly across economy sort of exercise. And so that engagement is important. It's been important to see the approach that the CEA is taking in marshaling the process, making sure that there's good participation, good engagement, good transparency into the various positions that different parties are bringing in. It is certainly in the process. So really not able to comment on specific solutions or potential solutions yet. But seeing the recognition that this is an economy-wide issue, that really needs to touch all sectors, everything from upstream, securing of buildings, hardening of buildings, decreasing the risk of ignition, decreasing the risk of spread and a consequence focusing as well on shoring up the insurance market, focusing on having ultimately solutions that if heaven forbid, there's another catastrophic fire in the state that there's a way to equitably socialize that impact across the economy. Those are all constructive, our themes that keep coming up. I would also point to the report that the CPUC issued a couple of weeks ago. We thought that, that was very constructive, and acknowledged that central theme that ultimately utilities, and therefore, their customers and shareholders simply cannot continue to be the insurers of last resort, the bearers of all this risk that even if you have a catastrophe that starts with the utility ignition, the catastrophe has so many other components, right? The tragedy can include, weather conditions, can include, challenges in mitigating the fire can include issues that led to faster spread. And so recognizing those kind of things is really important, and it was good to see that show up in the CPUC's conclusions. Maria, anything you'd add? Maria Rigatti: Maybe just one other thing, Carly, and it's really not an add. It's just -- it's underscoring. Pedro talked about sort of the focus on safety and risk reduction on timely and fair recovery for the people who are impacted by an event. But also, it's very important and part of the conversation that we're having is that you need a predictable framework that supports access to well-priced capital. Because at the end of the day, it's about affordability for customers. And so having that conversation and making sure that we are emphasizing that is a really important part of what the IOUs are doing. Operator: And the next question comes from Paul Zimbardo with Jefferies. Paul Zimbardo: The first one I had was just a follow-up on Nick's question a little bit. If I have the maths right, and it's late in the day, so I might not. But if I have the maths right, it looks like about an 8% rate base growth from that '28 to 2030. So I don't know if there's any other factors we should be considering, because kind of your rate base growth is translating into the net income and earnings growth. Should we think about a potential faster trajectory in the back end of that plan from 2028 to 2030? Maria Rigatti: Paul, I think you know how we approach this. We definitely run a lot of different scenarios. We plan conservatively. Looking at all various outcomes and how they play together allows us to have confidence in the 5% to 7%. I would focus on that now. I think we're not seeing anything other than rate base growth as we move out in time. We're always going to be doing things to help benefit the growth, but -- and also benefit affordability. So we'll be focusing on efficient financing. We'll be focusing on over time, further operational excellence efforts. But I think that's how I really view the entire five-year period. It's based on a lot of scenarios, a lot of scenario planning, a lot of scenario analysis and some conservative valuations. Paul Zimbardo: Okay. That is clear. And then I do want to follow up a little bit on the 2026 drivers and the variances you mentioned. I understand on the regulatory true-up. But could you elaborate a little bit on why we shouldn't think about the depreciation and kind of those tax other items that $0.14 is recurring, that would be helpful. Maria Rigatti: Sure. So while they are variances in this year like relative to '25, but now that they're built in, they're just going to -- they continue on a go-forward basis, but they won't actually be affecting or diminishing the growth year-over-year. So maybe that's a clarification that might be helpful. What are they with more specificity as you get into any rate case cycle, and I know we've chatted about this in the past, you can start to deploy assets or invest in assets at a slightly different pace or in slightly different buckets than are in the GRC authorized revenue requirement. You get those depreciation and then also property tax-related variances. Again, built in now. So on a go-forward basis, they don't expect the year-over-year trajectory. Tax and financing. There were some tax law changes last year around charitable contributions. There's a couple of pennies around that. And then because year-over-year, we have more wildfire debt outstanding, you see just a variance in the financing cost, again, because the average amount outstanding changes as we continue -- as we continue to pay claims back in 2025. Again, now built in. We also have a lot of visibility into that with the settlements behind us, so not a variance going forward, which brings you back to rate base growth as the driver for our earnings growth. Paul Zimbardo: Okay. They're very comprehensive and thank you for giving the 2027 as well. Operator: And the next question comes from Ryan Levine with Citi. Ryan Levine: As the compensation program continues to execute, would you look to continue to tweak the program to achieve your objectives? And any color you could share around the rationale for the recently announced changes? Pedro Pizarro: I had a little hard time picking up. Maria Rigatti: Yes. So Ryan, we did -- Pedro did mention earlier some small changes or some changes we're making in the program. I think all of that ties to the information gathering and the community feedback we continue to get. But I think, Pedro, if you want to... Pedro Pizarro: I'm sorry, Ryan, it was just a little bit of static when you're asking the question, so I had a hard time picking it up. Yes. So we made a couple of modifications to the WRCP program. One is to provide some added support for tenants. The original protocol provided three months of compensation at the actual rent level that the tenants were paying prior to the event. But as we dug into this more and got more feedback, it became clear that there was at least some number of tenants in Altadena, who perhaps have been longer-term tenants, and were continuing to pay rents that were under market levels. So now we are making an adjustment to use the calculator or the engine that we have to calculate or estimate fair market value for rent, and allowing tenants to recover three months of either the higher of their actual rent payments or that fair market value rent. The second adjustment we made was you might recall that the program provided support for attorney fees, voluntary program, you can participate without an attorney, but if claimants choose to use an attorney, then the program provided 10% of net damages as an increment to help cover attorney fees. We were also hoping that the attorney community would recognize that this program represents a fairly straightforward approach and hopefully, less work for -- less effort for them, and perhaps they could provide lower fees for clients. But as we got feedback from the clients themselves, from the claimants themselves, we decided there was appropriate to increase the -- what we're providing for legal fees to 20% from the 10% of net damages. Both of these changes will be applied retroactively as well. So we have claimants who have already received their compensation or -- we've already received an offer, we'll be making the adjustment for them automatically and won't require effort on their part. Maria Rigatti: And Ryan, I think you asked about what we continue to tweak to meet our objectives. The objective here is to have fair timely compensation, which also helps preserve the funds in the wildfire fund, reducing interest costs, reducing escalation, et cetera. The objective -- that is the objective. And then in terms of additional changes, we really are trying to respond to the community, but we think we've gotten a lot of feedback at this point. Pedro Pizarro: I think our advisors on this. Also I've highlighted the importance of having a stable, understandable program. So I don't think it would be helpful to have a constant stream of changes either. Operator: The next question comes from Aidan Kelly with JPMorgan. Aidan Kelly: Just wanted -- just wondering if you could elaborate a bit more on the L.A. District Attorney's investigation to determine whether criminal violations occurred. I noticed the new 10-K disclosure here. So I'd appreciate any color on how you think about the scope of this investigation. Any thoughts on the potential magnitude? Pedro Pizarro: Yes. Thanks for the question. And as you might imagine, investigations, I think are often to be expected when you have events of the scale of the Eaton fire. We don't have a lot of visibility into timing, et cetera. Certainly, our team will be collaborating with the attorney's office as they ask for any steps. But importantly, as we continue our investigation, and I think as I said earlier, as we look at the events here, we continue to be confident that SCE will be able to make a good faith showing that its actions were those of a reasonable utility operator. And so that gives us a lot of comfort as we look at whether it's that investigation you mentioned or just the broader investigations into the event and looking ahead to ultimately looking for the CPUC to affirm -- CPUs -- SCE's prudency in the future. Aidan Kelly: Understood. And just one last one for me. Can you confirm whether the out-of-service transmission tower in Eaton is grounded or not? Pedro Pizarro: We have shared before that transmission line, the idle line was grounded at both ends. We have also shared that we had photographic evidence at the far end of the line that showed some anomalies and potential issues with that grounding and we've been transparent about all this from early on. We have also shared that as you take a look at practices across the utility industry, there really is no common practice or standard for grounding of idle lines. In fact, we've identified at least a couple of utilities that choose not to ground idle lines at all. In an abundance of caution and in the spirit of continuous improvement, and it's one of our values as a company, as we continue to learn and or hypothesize too about what may or may not have happened here, you might also recall that probably it's like a month or two after the event, we also disclosed publicly that we were going -- in fact, we already did this, change SCE's protocols and policies to now require the grounding of idle lines at not only the endpoints, but for longer lines at least every two miles. And that could be shorter depending on the particular topography of any line. It's probably more than you wanted on idle lines there, but I want to make sure you have the complete picture. Operator: And that was our last question. I will now turn the call back over to Sam Ramraj. Sam Ramraj: Thank you for joining us. This concludes the conference call. Have a good rest of the day. You may now disconnect. Operator: Thank you. This concludes today's conference call. You may now disconnect at this time, and have a good rest of your day.
Operator: Good day, and thank you for standing by. Welcome to Sonic Healthcare's Financial Half Year Ended 31 December 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Dr. Jim Newcombe, CEO and Managing Director of Sonic Healthcare. Please go ahead. James Newcombe: Thank you, and good morning. My name is Dr. Jim Newcombe. I'm the CEO and Managing Director of Sonic Healthcare. I'm joined by Mr. Chris Wilks, Chief Financial Officer of Sonic Healthcare; and Mr. Paul Alexander, Deputy Chief Financial Officer of Sonic Healthcare. We will be available for questions after the presentation. It's my pleasure this morning to give the financial and operational review for Sonic Healthcare for the half year ended 31st of December 2025. In the first half of FY 2026, Sonic Healthcare had revenue of $5.445 billion with EBITDA of $907 million and net profit of $262 million. Earnings per share were AUD 0.531. We are on track to achieve full year earnings guidance with strong revenue growth, including organic growth of 5%. EPS is improving and remains a top management priority, which will drive improvements in return on invested capital. Operating leverage and synergy realization are demonstrated by EBITDA margin enhancement for the majority of the business. Management has an ongoing focus on cost control across the business, including labor. An operating review of the U.S. business is underway, including rationalization of anatomical pathology operations. Several capital management initiatives are progressing, which we will update you on today. Today, we are maintaining EBITDA guidance previously issued in August and reaffirmed in November of $1.87 billion to $1.95 billion on a constant currency basis. In other guidance, depreciation expense is forecast to be $770 million to $780 million on a constant currency basis, which has been reduced from previous guidance. Interest expense has been tightened to be an increase of 15% on a constant currency basis versus the prior year with an effective tax rate of 27%. This guidance excludes any gains from sale of properties, includes completed acquisitions only with no regulatory changes assumed and current interest rates assumed to prevail. Operating leverage and synergy realization is demonstrated by EBITDA margin enhancement for the majority of the business. This table shows adjusted EBITDA margins when accounting for, first, acquisition costs of $8 million in the first half of 2026; second, the German KV fee quota minimum level change, which took effect from 1 January 2025 and is now cycling through as of 2026 calendar year; the LADR acquisition, which settled on 1 July and has had a lower initial margin than Sonic's average as expected and previously advised. The HWE, Herts and West Essex contract margin is improving, but still dilutive as expected and also previously advised. We experienced a margin decline in the U.S. operations due to low organic revenue growth and restructuring costs. This has less impact on the group margin expected to take place in the second half of this financial year, and we will provide further details later on in the slides. Overall, the adjusted EBITDA margins show a 30 basis point increase from first half 2025 to first half 2026. Our capital management priorities remain: first, to maintain an investment-grade balance sheet; then to maintain a progressive dividend with medium-term target dividend payout ratio of 70% to 80% of net profit. We are focused on strategic selective synergistic acquisitions; and finally, on share buybacks using surplus capital, for example, from sale and leaseback or other property sales. Today, we announced a progressive dividend of AUD 0.45, an increase of 2.3% on the previous financial year interim dividend. This interim dividend is 60% franked with a record date of 5th of March and a payment date of 19th of March. Our credit metrics remain strong with a debt cover ratio at historic levels of 2.5x. Recent increases in net debt relate to the acquisitions of the LADR Group and Cairo Diagnostics. Our currently available headroom is at $1 billion before the interim dividend payment. We would like to advise of several capital management initiatives, including a series of sale and leaseback transactions. A process is underway for the sale and leaseback of our Brisbane hub laboratory with a targeted completion of June 2026. We are expecting a significant gain on sale with potential tax capital gain partially sheltered by past capital losses. Further property sale and leaseback transactions are under consideration also with potential gains on sale. In addition, we have a conditional heads of agreement in place to sell a separate surplus Australian property with expected settlement next financial year. These capital management initiatives present an opportunity to use proceeds from property transactions to fund a possible on-market share buyback in the future. Our first half FY 2026 revenue split highlights the diverse global portfolio of medical practices in Sonic Healthcare. All of our positions are leading in stable and growing markets, which all present attractive growth opportunities. In Germany, we achieved 40% revenue growth on a constant currency basis with organic growth of 5%. Organic growth was impacted by the change to the minimum KV quota for statutory insurance fee schedule, or EBM, effective from the 1st of January with a 1% revenue impact as expected. Our LADR Laboratory Group acquisition settled on 1st of July, and integration is proceeding well across 16 separate work streams and proceeding to plan, including our first laboratory merger completed in Berlin. A large cycle of laboratory infrastructure investments has now been completed with the new Bremen National Reference Laboratory go-live planned for April 2026, and this follows laboratory projects and mergers in Biovis, Hamburg, and Munich. The combination of strong organic growth, synergy capture and strict cost control is driving significant margin expansion in our German market. We are successfully diversifying into high-value medically led direct-to-consumer testing through our dedicated [indiscernible] brand, which importantly is leveraging existing national infrastructure. We are aware of the proposed reform of the GOA private fee schedule. At this point, there is no certainty that reform will proceed nor its potential timing or impact. Moving to Australian Pathology, where we achieved strong organic revenue growth of 5% in H1. Annual indexation of 2.4% occurred on 30% of the Medicare schedule fees for Pathology from the 1st of July. and we have had successful ongoing implementation of private billing for selected tests, including vitamin B12. We are showing particularly strong growth in the specialist and hospital segments with the commencement of services at Australia's largest private hospital, the Hollywood Private Hospital in Perth from this month. We have recently acquired and commenced fit out of our new hub laboratory in the Docklands region of Melbourne, which will consolidate 4 Sonic Healthcare facilities and create vital capacity for future growth in this important market. A major laboratory platform procurement process was completed in this half, delivering substantial savings, which will continue into the future. We are awaiting the final determination from the Fair Work Commission's gender undervaluation review. Our industry association is in good faith discussions with the Department of Health on offsetting funding options. In the U.S., underlying organic growth once adjusted for the Alabama major payer contract loss and planned restructuring of anatomical pathology operations was 2%. An operating review with multiple improvement initiatives is underway across all U.S. operations. This includes the rationalization of 9 anatomical pathology practices with the aim of improving profitability and completing this financial year. Our wind down of Alabama operations has now been completed. The enhanced revenue collection system previously advised to the market is delivering benefits, but this is slower and likely less than previously expected. We are very excited to discuss our expanded advanced diagnostics division, which combines Cairo Diagnostics, ThyroSeq and other highly specialized reference and esoteric testing, which is maturing to a nationwide product offering. In addition, our ongoing digital pathology rollout is supporting optimization of workload distribution and productivity and proceeding according to schedule. Over 60% of our dermatopathology volume is now on our proprietary PathologyWatch platform. Finally, PAMA fee cuts were recently deferred and industry group lobbying for a permanent solution continues. In Switzerland, we achieved organic growth of 2% on a constant currency basis. Important to remember, there was a very strong organic growth of 6% in the previous comparison period due to respiratory illness epidemic at that time. Synergy realization in Switzerland is proceeding to plan with margin expansion achieved following the acquisitions of Synlab Suisse and the Dr. Risch Group. This includes laboratory mergers already completed in Geneva, Lausanne, Zurich and Ticino. The 2 largest mergers in this schedule for the hub laboratories in Berne and Lucerne are on schedule, including Berne in the second half of this financial year and Lucerne next financial year. And these include major upgrades to laboratory infrastructure and automation. As in Australia, we had continued strength in the specialist and hospital segments in Switzerland, including winning a new hospital contract in Zurich last month. We have harmonized core IT platforms, including our laboratory information system and ERP, standardized instruments and our logistics network, all of which lay the foundation for further integration and ongoing organic growth. In the United Kingdom, strong organic growth of 24% was driven by the Hertfordshire and West Essex NHS contract, which commenced in March with integrations proceeding well to plan. Our new hub lab in Watford is expected to go live in July, servicing the HWE contract and creating additional capacity for further growth in this important region. We continue to successfully bid for new pathology contracts in both the public and private sectors. For example, the prestigious Royal National Orthopaedic Hospital, where we commenced service for another 11-year term in November, and we won a large private specialist outpatient group contract from October. We announced the acquisition of Cellular Pathology Services, a small anatomical pathology laboratory in London, which completed in November. This creates important capacity for growth in the private AP market moving into the future. In our Radiology division, we achieved organic revenue growth of 7% with EBITDA growth of 5% once normalized for IT cost reallocation. Annual Medicare fee indexation of 2.4% occurred from 1st of July, and we continue to have an ongoing focus on higher-value growing modalities such as CT, MRI and PET/CT. 7 greenfield sites opened last financial year and a further 3 are planned for this financial year with one already completed in H1, all of which are initially margin dilutive as expected. 23 of our existing MRIs became fully licensed from July 2025 following changes to Medicare licensing. We are very proud to partner with the Australian government on the National Lung Cancer Screening Program, which has added to CT revenue growth from July 2025 and already has shown life-saving benefits for our population. We continue to invest in AI and other systems to drive productivity gains across radiology, including in CT chest scans. Finally, Sonic Clinical Services showed revenue growth of 5%, primarily driven by the recent acquisition of the National Skin Cancer Clinics and EBITDA growth of 20% off a low base. National Skin Cancer Clinics are now integrated with our existing skin business and performing well. Recent increases to Medicare funding for general practice from November are showing initial benefits to revenue and consultation numbers in general practice and increasing accessibility of general practice across our population. Within Sonic Clinical Services, a range of cost management initiatives underway, including site rationalizations and realization of operational synergies, including in back-office functions. To conclude, I'd like to discuss Sonic Healthcare's value proposition. Our value proposition is centered around our unique medical leadership culture. First, Sonic Healthcare's focus on and delivery of personalized service for doctors and patients makes us a trusted partner for doctors, patients and health care systems around the world. Respect for our people leads us to being an employer of choice, including in highly competitive specialized labor markets and creates a passion for service excellence that helps our people go the extra mile. Sonic Healthcare's company conscience is our mission to care for our global communities, making us an integral part of our communities and a critical component of health care systems. Our well-known operational excellence drives operating leverage through organic growth, efficiency gains and innovation at a global scale. And finally, our unmatched professional and academic expertise creates a leading position in highly specialized diagnostics and personalized medicine, both of which are high-growth areas in a time of rising complex and chronic health care needs. Before we go to questions, I would like to take a moment to thank our management teams and 45,000 staff for their dedicated service and commitment to patient care. Our amazing people care for our communities' day in and day out and have delivered these excellent results. Thank you for your attention, and over to you for questions. Operator: [Operator Instructions] And I show our first question comes from the line of Andrew Goodsall from MST Marquee. Andrew Goodsall: Welcome, Jim. Just starting with phlebotomist wages. I know you're still waiting on details there. Your competitors have given us a little bit of detail talking about the 1.8% impact in the fourth quarter. They've got variation between because of where their current EBAs are. I was wondering if you could talk to where your EBAs are versus Fair Work Commission, just talking more broadly. James Newcombe: Yes. Thank you, Andrew, for that question. So there's a few things to unpack there in that question. The first thing is to say that we have particular strength and growth in the specialist market in Australia, and that does mean that our volume and revenue growth are less tied to collection centers than perhaps our competitors are. And we have gone through a strategic rightsizing of our ACC network, which has continued through H1 but slowed down. And during that process, significantly improved the productivity of our collection centers, including through our supercenter strategy. And then finally, we do have a higher baseline of pay for our phlebotomists, and that comes from really valuing their contributions. They're very important frontline workers for us, caring for our communities. And we've also significantly invested in their skills training and development over decades. So all of that leads to our expected impact for this financial year for the phlebotomist changes being sub-$2 million, and that includes a one-off readjustment for leave provisions. So that has been taken into account with the guidance we've just talked about. And we believe the impact is proportionately lower than competitors because of the reasons that we've just gone through. Andrew Goodsall: And sorry, just to stick with that a little bit. Obviously, there's still the health service professionals to pick up. Are they sort of reasonably material to you? And I think that's more of a '27 impact. And just flagging overnight, I think we have a bit of crossover with an award that the Victorian government has generously made to their health services professionals of about 12.5% over 2.5 years. So just any color you can add there would be great. James Newcombe: Yes, it's a good question. As has been mentioned earlier in the week, we don't have a final determination from the Fair Work Commission on the health professionals component of the gender undervaluation review. We know it won't affect this financial year, as you've rightly said. So we await that determination before we can model out the impact and particularly the phasing of it is up in the air. As we talked about, our industry body is in discussion with the Department of Health about possible offsetting funding options, and we know they've done that for other industries with similar changes. Andrew Goodsall: And final one for me. Just maybe this one for Paul, but just trying to get a sense of FX impacted spot, just what that might look like in the second half, obviously, being a lot of movement in some of the key peers. Paul Alexander: Andrew, yes, there certainly has been some movement in the exchange rates. So if we were to assume current rates prevail for the rest of the year, we certainly won't see the level of tailwind that we've seen in the first half. But we haven't sort of tried to express that in our presentation, et cetera, because the rates are moving around quite a bit. more recently. But yes, the tailwind will be less for the full year than it has been in the half based on current rates. Operator: And I show our next question comes from the line of Sacha Krien from Evans & Partners. Sacha Krien: Can I just clarify that answer to that last question, Paul. Are you saying that it will still be a tailwind. I think you were talking about a $70 million tailwind in August. It sounds like it's still going to be a tailwind, but a more modest one. Paul Alexander: That's correct. Tailwind for the full year. I can just reiterate based on current rates, which can move every day, of course. Sacha Krien: Yes, sure. My main question was just on some of the proposed German private market reforms. I'm just wondering if you can take us through some of the potential range of outcomes there. And is it fair to say this is going to be a bigger risk for you than the changes that came through for the public market on 1 Jan '25? James Newcombe: Yes. I mean thank you for the question. And to reiterate, there really is no certainty at the moment that, that reforms of the GOA, if we're talking about the GOA will proceed. And underlying that is also total uncertainty about any timing or potential impact. These are broader changes for health care remuneration than just pathology. They have much broader implications for other health care professionals as well. And there's a political process underlying that, that needs to play out. So at this time, it is -- it will be premature to speculate on what those impacts might be. Operator: And I show our next question comes from the line of Craig Wong-Pan from RBC. Craig Wong-Pan: Just wanted to ask about the German and Switzerland businesses. In the slide, it talks about margin expansion. I know you don't like disclosing actual margins, but could you talk about what sort of margin expansion you've seen in those markets? Christopher Wilks: Yes, Craig, you're right, we don't normally disclose that sort of information. And so I guess in this Q&A, we don't want to be providing information that hasn't been provided more broadly. But I think what we have said is in both of those countries that the synergies that we expected to achieve are on target for both Switzerland and for the LADR acquisition in Germany. And when we did announce those transactions, we gave some indication of where we're aiming to get to. So I think probably I'd head you back to some of those previous disclosures and our confirmation now that we're on target to achieve those outcomes. Craig Wong-Pan: Could you remind us, when you expect to achieve those? I mean, I guess, I'm trying to get a sense of how much did you achieve in the second half [indiscernible] how much. Christopher Wilks: Yes. Look, there are some early wins that you get from things like procurement by bringing these businesses onto our purchasing contracts. I think with LADR, we said that we would get to an after-tax ROIC of something like 11% within 3 years. That's still our plan with that one. With Switzerland, it's a bit more complicated because there's 2 acquisitions there, and they've each got kind of 3-year plans. We've spelled out in the slides a little bit about what we're doing there with mergers. Again, there's some benefits that come from procurement quite early, although in Switzerland, there needed to be some changes to platforms to achieve those. So that takes a little longer. But look, I probably don't really want to be drawn into talking about margins, but all of that's on track, and you'll see more of it flow through into the second half, which then flows into our guidance. Craig Wong-Pan: Just second question, the sale and leaseback for the Brisbane site, I just wanted to understand why that site and yes, I guess, the potential for other ones? And what kind of, I don't know, details for that sale and leaseback, like kind of is like the time frame for that? Yes, if you could provide any color around that, that would be great. Christopher Wilks: Yes. Look, the Bowen Hills is one of our largest property holdings. We recently just spent $80 million doing an extension to that. So it's pretty -- that finished in 2024. And the project, the sale and leaseback process will be launched early next week. We've been preparing for it. You might see some press about it next week. And it comes down to just a broader capital management strategy with properties like this. There's yields of kind of circa 5%. I think our view is that with that extra capital, we should be able to get a much better return than that. And with things like triple net leases, we can still effectively control the building. It's any repairs, maintenance. It's kind of like ownership without the capital tied up. So that's the first one. We alluded to the fact that there could be others. I think you're probably aware that we've bought the old Costco site at Docklands. So that did have an effect on our CapEx in this period because it settled on the 1st of July, circa $100 million for the site. The builders FDC are in there now. That's something like an $80 million spend between now and April, May '27. So that's another site when it's finished that we -- that might be a sale and leaseback. And likewise, with our site up here in New South Wales. So we've had a fair bit of property on the balance sheet for a while. And I guess we've made a decision that we can control them as we need to operationally without having to own them and that will provide some nice capital to hopefully drive better returns to the shareholders over time. Operator: And I show our next question comes from the line of David Stanton from Jefferies. David Stanton: Perhaps we could talk to the U.S. Firstly, how much is anatomical pathology as a percentage of total U.S. revenue? Would you be willing to give us that number? Paul Alexander: David, it's about 1/3 of our U.S. revenue. So something like $400 million out of $1.4 billion-ish. David Stanton: And what's the longer-term view of those U.S. operations? Where do you see that going over the medium to longer term in terms of the splits and willingness to earn, please? James Newcombe: So our focus, as we've said today, is on the operating review there. There's a lot of work, really positive work going on there on that, including already completed work in terms of withdrawing from loss-making operations in Alabama, a lot of work in rationalizing those AP operations as well. Important to point out, we've got a lot of strength there in advanced diagnostics with the recent Cairo acquisition, and we're expanding that in that advanced diagnostics division, cross-selling that in our geographic regions and markets to make sure we get this more national penetration of that offering, and it really is market-leading what we offer there in those areas. So there's a lot of opportunity for top line growth there. The digital pathology rollout is really successful and a positive thing, not just in terms of quality of the medicine that we deliver, which is, of course, really critical in terms of particularly the AI tool with PathologyWatch, but also workload optimization. It's a great marketing tool as well to enable dermatologists in the U.S. to themselves see the slides virtually through the PathologyWatch platform. So we're seeing a lot of really good success there. And again, just to go back to the organic growth, we've reported at 0% constant currency, but the underlying organic growth is still at 2%, and that's after adjusting for that Alabama major payer contract loss and the restructuring costs that we're doing there, and we expect that will continue to -- in terms of the impact of those changes, we'll continue to see improvements in terms of margin impact moving forward. So we're invested in that operating review and moving forward on that basis. David Stanton: Understood. And I guess moving on to radiology, which I must admit I don't ask about that often, but organic revenue growth of 7%. But I do note that Medicare is talking to -- with a caveat here, review, Medicare is talking to a growth of 9% in the Medicare market in the 6 months. Firstly, where do you think you'll -- are you growing in line to above market? Or -- and if not, is it because the MRIs, you have less MRIs, as a percentage of total revenue in that space than perhaps your peers? James Newcombe: So we have seen strong growth in MRI revenue as well, and we'd say that 7% is in line with long-term growth rates for the industry. And we are, as you would know, cycling much stronger organic growth in recent years. So we still see a lot of positivity. We believe the change in MRI licensing has effectively grown the market and not impacted our business negatively. And as I said, we actually are growing in that space as well. David Stanton: Understood. And would you be willing to give us some CapEx guidance then, Chris, for the full year, please? Christopher Wilks: Yes. Look, in answer to a previous question, I've mentioned a few things. So our CapEx for this year was higher than the PCP, mainly because of property-related costs, the Docklands acquisition, which I mentioned, also some costs associated with building out the Watford facility for HWE in the U.K. and some of the Swiss lab work as well. I think in the second half, there will still be some effect from property, particularly the build-out of Docklands. So over the course of the next 6 months, I don't know exactly know what that is, but it's probably $20 million, $30 million, something like that in the next 6 months. But underlying CapEx, if you adjust for those properties, those property transactions, underlying CapEx is kind of growing at about the rate of the growth of the business. So I think that's probably the -- that's it in a nutshell. And I think going forward, as we alluded to with the focus on some sale and leasebacks, the property cost side of things will probably start to in future years drop off a bit, and you probably get a bit more transparency on the underlying CapEx, the maintenance CapEx, if you like. David Stanton: Understood. Sorry, just a follow-up just to make it clear for me. So first half is going to be slightly above second half, it sounds like in terms of CapEx, , total CapEx. Christopher Wilks: Yes, quite a bit above because it had the $100-plus million for the purchase of the Docklands site. Operator: And I show our next question comes from the line of Laura Sutcliffe from Citi. Laura Sutcliffe: One on the U.S. to start with, please. You mentioned you're expecting margin improvement in the second half and you've mentioned a few things connected to that. But is that expected improvement mainly driven by the closure of the anatomical pathology centers that you've mentioned? Or are some of those other factors material? I'm just keen to understand the scope of the review in the U.S. and just to confirm that it's an operational review rather than a strategic review, where you might consider divesting all of the U.S. James Newcombe: Yes. Thank you for that question. There's a bit to unpack there. I think the first thing to say is that we it is indeed an operating review of the U.S. operations, and that's our focus. In terms of the particulars, what we're talking about is less -- what we've unpacked in that slide in the presentation today is a decrement in margins impacted the group margins. And I think for not just for the U.S., but for the other points listed in that slide. And the point we really want to make there is to really expose just how strong the majority of our business is in terms of operating leverage that we are exercising and that we are -- we have grown adjusted EBITDA margins of 30 basis points in the majority of those operations outside of those adjustments. Looking at the U.S., what we're -- the point we're trying to make is that the decrement moving forward is expected to be significantly less because of that work that's been done in Alabama, and that's not just AP in Alabama, it's pretty much all operations because of the loss of that major payer contract loss. Two of those AP practices were in Alabama, but 7 were not. And the important point to make there is that there may be some closures there, but really, what we're doing is rationalizing moving that work to other centers and retaining the top line as much as possible, whilst doing the cost control at the bottom. So that will have significant benefits to margin, as you would expect. In terms of the top line, we are seeing great growth in the Advanced Diagnostics division that's really driving top line growth and margin growth. So they're all important. They're all reflective of great discipline in our management teams. And the operating review is widespread. We're telling you today about some details, which have happened and are happening. So you have some detail around that, but it is across all U.S. operations as we've advised. Laura Sutcliffe: And if I may, one on the possible buyback that you've mentioned. Would you plan to put most of the cash from any property transactions that you could achieve towards a possible buyback? And if you don't know, what are the main decision-making factors for defining that? Christopher Wilks: Yes. Good question, Laura. Look, we haven't come to a landing on that, and that's something that would need to be discussed with our Board, obviously, once that transaction has completed, but that's a possibility that the majority of that could be used for that purpose. But as things unfold, there might be -- we mentioned some of the prior capital management priorities. There might be acquisitions that we're considering that might change our view on the scale of a buyback. So it will be considered at the time when the cash is in the bank. And -- but we just thought it was worthwhile letting the market know what we're planning with this because it will become public about the sale pretty quickly and to let people -- let the market know one of the thoughts we had in terms of the use of the proceeds. And balancing the investment-grade structure of our balance sheet is also important. And I think our gut feeling is that with what we're expecting in the second half that we're going to be in good shape on that front. So it should probably free up that capital for the purpose we've mentioned. Operator: And I show our next question comes from the line of Davin Thillainathan from Goldman Sachs. Davinthra Thillainathan: Jim, maybe a question for you to start off with. Clearly, you've made some changes here with the U.S. review property sale and leaseback changes as well. But curious sort of what other observations you've perhaps come out with having looked at the business as CEO over the last few months? James Newcombe: Yes. Thank you for that question. I think the first thing to say, which is remarkable is that going around and meeting people and seeing our operations around the world, just how strong our medical leadership culture is and what a great competitive differentiator that is. I think so much of our value medically comes from our values internally and our culture, which drives this incredible contribution we make to our communities around the world. And it really is kind of humbling to go around and see the amazing work that we're -- that all of our staff are doing for their communities. And building on that, really, our focus has to be -- has always been and has to be continuing delivering that high-value medicine, and that will drive continuing financial value and shareholder returns. I think as long as we're focused on that and looking after our people and looking after the medicine, the rest will flow. But we are prioritizing margin accretion, as we mentioned at the AGM, which, of course, will drive EPS growth and improve return on invested capital. We've talked a lot today about the work that -- some details about the work ongoing in that area, which is really exciting and promising, and I've seen it firsthand in going into the operations that we're realizing the synergies from the past acquisitions, that we're having great organic growth. We're partnering with governments and other health care systems around the world in a really positive way. And we're focusing on that operating leverage, which I think has been the cornerstone of Sonic Healthcare's success through cost control and a focus on innovation. And you mentioned capital management, and again, that's -- we've talked a bit about that today. I think that's very important to understand that we have a very disciplined focus on capital management and looking at maximizing shareholder return through that capital management strategy as well. Davinthra Thillainathan: And my next question is -- if I look at the EBITDA margin -- sorry, EBITDA guidance for the year, consensus numbers would suggest you would land towards the top end of that range. Can you perhaps sort of help us understand what drivers we should be thinking about from a half-on-half split for that guidance range, please? Christopher Wilks: Yes. Look, we don't want to put too much more detail into the guidance that we've already given. But I think you're probably well aware that there's a seasonality to our business, particularly with our Northern Hemisphere operations, where the summer period is fully in the first half. And so look, I probably don't want to add too much more than the detail we've already given. We've given a bit more below the EBITDA line, some more detailed guidance on depreciation and interest. than we had -- have in the past. But look, we remain confident that we should be in for a solid second half with the various initiatives. Jim has talked about some of the stuff that's happening in the U.S. Australia is looking very solid with its growth rates and some of them move to some private billing. So I probably don't really want to add any more than what we have given. Otherwise, we'd be changing the guidance we've set out in the deck. Paul Alexander: Certainly, the biggest factor in terms of where we might end up within our range is, as usual, organic growth. If we see even stronger organic growth in markets, then that has -- the operating leverage will add that to the bottom line. And so that's probably the biggest swinger, if you like, in terms of where exactly we'll end up across the different markets. Operator: And I show our next question in the queue comes from the line of Steve Wheen from Jarden. Steven Wheen: I just wanted to go back to the U.S. At the time when it was originally raised that the Alabama contract was going to be lost. It was indicated that New Jersey was a potential offset to that. Just wondering what has played out within that state and whether you are actually seeing some offsetting factors there from that payer contract? James Newcombe: Yes. Thank you for that and for raising New Jersey. So we have won that contract, as you pointed out, and we're really excited about the growth in that quite large state, which has a fantastic location in terms of our operations there already with a lot of automation there that's looking for -- that can handle increased capacity. So our local teams are really focused on that in the Northeast. We have a lot of business development efforts going on, particularly in the northern part of the state that we're excited about. So it's absolutely a focus there, and we're building up to move strongly into that state based on that contract win. Steven Wheen: Can you give us an indication as to timing when we might actually see some benefit from that? James Newcombe: I think it's fair to say that we can't expose more at the moment in terms of exact timing. I think we just have to say that, listen, it's a real focus. We're seeing some early gains there in terms of contracts, but I can't give you more detail around that at this point. Christopher Wilks: Pretty fair to say, Jim, that it will take a little time to build up. One is lost immediately. The other one takes some time to build up. So it will take a little while before there's an offset there. Steven Wheen: Second question was also in the U.S. And again, just sort of going back to earlier sort of commentary, there's been a fairly strong expectation that the revenue collection system was going to generate USD 20 million to USD 25 million of earnings benefit, which you're now, I guess, going a little bit more cautious on since the review. Just -- if you could help us understand why you're backing away from that guidance and what the issue is? And is this something that's even longer dated or it's just not going to happen? Christopher Wilks: Look, it is happening, Steve. It's taking a bit longer than we'd expect, and some of the benefits are offset by some other little changes that are happening in the market that affect PPA as well. So the team -- we just spent some time over there a few weeks ago. The team is working with -- it's a product called [indiscernible] that I think we've probably mentioned before to work out the best ways to continue to push those benefits and optimize them. It's quite -- it's not just a matter of using the software. It's a matter of us setting up customer portals and directing patients to those portals. So information is made available more easily. So it's quite an implementation process, and it's probably just taking in our biggest lab, CPL, which was the last to go live. It's taking a bit longer than we thought. But we still remain optimistic that, that sort of benefit will ultimately flow through, but it will probably be more into '27 than what we're hoping was going to be into '26. Steven Wheen: So we're not -- that's not part of the reason why you've got expectations of a stronger second half in '26. I just -- Christopher Wilks: It's a little bit of -- but I think there's lots of initiatives. There's multiple initiatives that are happening. Even the acquisition of Cairo, which is performing well, we'll own that for the whole second half. So that will be contributing to the second half performance as well. Growth in ThyroSeq, there's multi factors that probably give us confidence that the second half should be reasonably strong. Steven Wheen: Just while I got you, I wonder if with this sale and leaseback focus, I'm just curious as to [ your thoughts ] on what you're anticipating with regards to the terms of those arrangements. what that will do to the AASB 16 accounting for rent in FY '27. Is that likely to change the depreciation and right-of-use asset interest costs? Christopher Wilks: It's a good question. It's -- in terms of the -- Paul Alexander: The short answer is yes. I mean, clearly, part of the sale and leaseback is that we're taking on a significant lease in the case of the Bowen Hills one -- Christopher Wilks: It's pretty -- it's circa $25 million is the rent. But I think the way we'll be structuring it is that I don't think there's not going to be an adverse impact on the AASB 16, but there will be more cost than we're currently paying because we own it now. And so there's just the interest associated to the cost. So there will be an impact going through that effect. But then we'll have the benefit of a chunk of money in the bank as well. So there's offsetting benefit. Steven Wheen: Yes, that's clear. So roughly, we'd be anticipating $25 million for that lease alone potentially being a delta shift in depreciation and interest in FY '27? Christopher Wilks: The way AASB 16 works is that in the early years of a lease, your actual expense through the D&I lines is higher than the rent you pay. It obviously evens out over the period of the lease. But initially, the impact will actually be higher than the [indiscernible]. Operator: And I show our next question comes from the line of Andrew Paine from CLSA. Andrew Paine: Just coming back to previous guidance that you had, I think, at the AGM where you were talking about a 45% to 46% split for EBITDA in the first half. Just wondering if that's still the case? And is that in relation to constant currency or reported expectations? Christopher Wilks: It's definitely on a constant currency basis. That's the basis of all of our guidance. And we said at the time, approximately 45%, 46%. And if you work on either of those 2 numbers and the result from the first half, you'll get a constant currency number that is within our guidance range. So yes, probably not much more to say. Andrew Paine: Could I also just ask about -- I know you've touched on it, but the FX there. And just you mentioned before it will still be a tailwind for FY '26. But does that mean it's flat or negative or a little bit of a tailwind in the second half? Are you able to give any insights there? Paul Alexander: It's -- you can look at the rate -- like we've given you the rates in the first half. It is a headwind in the second half, which is why the tailwind for the full year will be less than the tailwind in the first half if rates continue, where they are today. Andrew Paine: And just on depreciation and interest, are you able to give us an indication of the magnitude of the FX there as well? Paul Alexander: We -- again, you can look at what's happened in the first half, and we obviously do have our natural hedge in place, where our borrowings are largely in the currencies of our operations. And so the effect of the FX at net line is significantly less than at revenue or EBITDA, but we haven't given any specific numbers around that. So I probably can't help you too much further. Andrew Paine: And just on the Swiss acquisitions, I know you didn't want to get drawn into margins around these businesses. But just keen to know how far you have progressed in terms of the integration of those businesses there. I believe you said there was a 0% margin business or acquisition to begin with. So just really trying to understand the ramp-up and the ramp-up into our outlook and get a sense of if you're a quarter way there, halfway there or further progressed in terms of that contribution to margin? James Newcombe: So yes, thank you for that. So the -- I think we said at the time that we would like to see the EBITDA margin heading towards 20% over 3 years for each of those acquisitions, and we are tracking to target on that. That's the 3-year time frame as advised and everything is proceeding on track. Andrew Paine: Are you able to give us -- are you halfway there or more? Or you want to be drawn into that. James Newcombe: I think it depends on the acquisition. So I mean, Chris alluded to earlier that there's not a totally linear process. It's punctuated as well as probably weighted forwards rather than towards the front rather than the end. So it's really hard to give you that total detail. But in terms of the broad analysis of it, we're tracking to target on track for that 3-year time frame for each of those acquisitions. And we've given you some detail today about some punctuations in terms of lab mergers and new hub labs, which will be important on that journey. Christopher Wilks: I think maybe just to add, Jim, that we mentioned in the slide that the 2 biggest mergers are still yet to come. So you probably appreciate that that's probably where you're going to get more bang for your back out of those larger mergers. And so there's one in late in the second half of '26. and then in '27. So there's still a bit of a journey to go. Operator: And I show our next question comes from the line of Lyanne Harrison from Bank of America. Lyanne Harrison: Thank you very much for solid result today. I was wondering if I could come back to the United States, 2% organic growth there. Do you think that's reflective of the market? And also with some of your initiatives that you have in place in the United States around operating review, do you think you could grow ahead of that for the second half? James Newcombe: I think -- thank you for that question. And of course, our focus is on driving organic growth. We do have a lot of -- in the U.S. and across the business, we do have some tailwinds, as we mentioned, in terms of our Advanced Diagnostics division, which is performing really well and the dermatopathology division. So it's -- we're not forecasting to organic growth, but certainly, we'd like that to grow over the 2%. And the efforts that we're making both at top line, in particular, will, we think, drive that. Paul Alexander: I think it's probably worth mentioning that Quest and LabCorp sort of quote larger organic growth numbers, but we don't know for sure, but they also do quite a lot of hospital deals. And I think there's some aspects of those that find their way into organic growth that it might be the specialist referral testing and the like. So I don't think to the extent that you're looking at some of their growth numbers, you should think of that as necessarily the market growth. Lyanne Harrison: And if I could come to Australia, 5% organic growth, that was certainly ahead of your peers, they reported this week. Can you comment on your pathology trading to date? I know some of your peers in their results commented on maybe some softness in January. Are you seeing the same thing? Or are you seeing solid growth through the first part of this half? James Newcombe: Well, I think we have -- we're very, very happy with the organic growth that we've seen. There's nothing to change in terms of that story that we can see. It does come, we believe, from a few different initiatives, which are really bearing fruit. I think at base, it's the fact that we are focused on the quality of the medical diagnostics that we deliver, and that's a true competitive differentiator. But it also comes back to our logistics and operational excellence. Our collection center network and particularly that focus on supercenters in terms of a great patient experience has been a real differentiator in the market. And so, we continue down that strategy. But that specialist market growth, we talked about the hospital market today and our partnership with Ramsay at -- in Perth is really exciting. And that's a real trend that we're seeing continuing and not slowing down at all. In fact, the opposite. So we're excited about that because we're focusing on that high-value medicine, and that's really delivering that growth that we're confident about into the future. Operator: And I show our next question comes from the line of David Bailey from Morgan Stanley. David Bailey: Just a very quick one for me. Paul, you mentioned those currency impacts. If I run the average of the second half, I'm getting an EBITDA headwind of $20 million in the second half. If I run spot, it's about a $35 million headwind. So can you just confirm for the full year, we should be thinking of an FX impact to EBITDA in the range of flat to maybe up [indiscernible]. Paul Alexander: We're not guiding to that. So I won't be drawn on a precise number. You've done the numbers yourself. Christopher Wilks: I think those are a bit overcooked. I think -- Paul Alexander: Well, I don't know what today's rates are. Christopher Wilks: I guess, it moves around. But if you're using today's rates or the last few days rates, I think that sort of headwind for the second half is a bit more than I think we were thinking. David Bailey: But just to be clear, it's a headwind in the second half versus a benefit of [indiscernible] in the first half. Paul Alexander: Yes. Christopher Wilks: Yes. Correct. Operator: And I show our next question comes from the line of Saul Hadassin from Barrenjoey. Saul Hadassin: Just a quick question for me as well. The revenues that you generate in Germany, can you remind me what percentage is now funded through EBM versus the GOA? Paul Alexander: So the GOA represents about 30% of our German revenue with the EBM more like 40% to 45%. And then the balance is a bucket, if you like, of work where we can effectively set or negotiate prices, hospital outsourced contracts, clinical trial works, work we source from outside Germany, et cetera. So that's kind of the split. Saul Hadassin: Sorry, Paul, you're a bit soft when you mentioned the GOA percentage. Can I just check what you said there for GOA? Paul Alexander: About 30%. Operator: And I show our next question comes from the line of David Low from UBS. David Low: Jim, you commented on the Fair Work Commission and talking with the government. I mean, the impression I got from your answer was that you're pretty confident that the government will step up and help fund the additional wage pressure. Just wondering whether that's the right interpretation. James Newcombe: Thanks, David. Listen, I think that the -- these are good faith discussions. It's positive that there's engagement there from our industry body. I can't speculate about outcomes. I think it'd be very premature. We are focused on doing the right thing by our employees, always have been and we'll continue to do so. We are focused also on the high-quality medicine and sometimes that will require increased funding in order to deliver that. So we're making those points. But at the moment, they're just good faith discussions. Christopher Wilks: I think you alluded to the fact there were some precedents in aged care and child care, but whether or not that's relevant, who knows? Time will tell. David Low: Would you care to put a time frame on it? I mean, you said it's premature at the moment. I mean, are we talking about this budget coming up? James Newcombe: I honestly can't say. We're not -- personally in those discussions, they're being led by Australian Pathology, which is our industry group, and I think it would be unfair of me to speculate on those. David Low: But the wage pressure come through pretty much back end of this financial and into next year. So frankly, if you're going to get -- if the industry is going to receive it, presumably, it needs to come in FY '27 for not to lead to that reduced quality of medicine that you've spoken about. James Newcombe: Yes. I mean that's the facts of the Fair Work Commission decision. We know the phlebotomist change comes in from 1 April and it's phased through 1 January next year. And then the facts as they are is that the health professionals is likely to come in on 1st of July this year and then be phased in an unknown way. So we do have some uncertainty still around that, as we mentioned, in terms of the timing and impact. But absolutely, the initial impact that we know of is going to happen this financial year, and we've quantified that. So yes, it's something which we're keen to progress, but I can't comment on how that's progressing. David Low: Just changing topics. Slide 5 sets out 140 basis points of headwinds, can I need to talk to what we should expect second half go forward? I mean, which of those items is going to no longer be a headwind? I think in particular, the U.S. looks like a 350 basis point or margin hit roughly on my numbers, but some of it's restructuring. So it's a little hard for me to unpick what's ongoing and what's perhaps really weighted towards the first half. James Newcombe: Yes, it's a great question, David. So we can go through them in turn. Clearly, acquisition costs were particularly high in H1 because of the LADR acquisition, in particular. The German KV quota change is cycled through. So we don't expect any margin decrement in H2. The LADR acquisition, we've talked about some of the great synergy realization work that we're doing and there's improvements in margin there. And similarly, with the Herts and West Essex contract. So in the U.S., we've unpacked a lot today about what we're doing there. So all of them, we expect to improve in terms of the year-on-year margin decrement. I'm not sure if Paul or Chris, you want to comment. Christopher Wilks: Yes, that's a good summary. David Low: Can I just push a little bit more on the U.S. because given there's a restructuring charge, are we going to see restructuring charges in the second half? Or is that done? James Newcombe: Yes is the answer to that. There is still work to do there that we're working hard to do. And so there will be some restructuring costs in H2. Paul Alexander: But it's probably fair to say de minimis in the scheme of Sonic so. James Newcombe: Yes. Paul Alexander: It's a few millions rather than anything more significant. David Low: And that could commence on the first half or just on the second half? Paul Alexander: That's the second half. Operator: And I show our last question in the queue comes from the line of Sacha Krien from Evans & Partners. Sacha Krien: Look, I just got a question on the balance sheet. It looks like net debt, excluding lease liabilities, is come in a fair bit above market expectations, and it looks like it's working capital and CapEx. I think you touched on the CapEx question. But if you could maybe remind us what you think maintenance CapEx is for the business mix you now have? And then also address the big step-up in working capital as a percentage of sales, if there's anything that might reverse out there? Or is that just the new business mix? James Newcombe: Just maybe on the maintenance question. Look, I talked a bit about it in answer to a previous question, but I think the maintenance percentage of revenue, maintenance CapEx percentage of revenue ignoring properties is probably kind of somewhere between 3%, 3.5%, excluding intangibles as well. So that's probably kind of a little bit of a rule of thumb without excluding any property investments. Just your second part of the question, just remind me. Sacha Krien: Just looks like -- it just looks like working capital has stepped up and really on a big decent decline in payables. Just wondering if there's something that's going to reverse there? Or is that the sort of new normal? Paul Alexander: Yes. So there are -- obviously, we've had the growth of the company, including the addition of LADR. But the other thing, and you'll see some discussion about this in the 4D in relation to cash flow, there is this Change Healthcare issue that is ongoing in our U.S. business, where Change Healthcare, which is an outsourced billing and payments provider that we use for a large part of our anatomic pathology business and in fact, has some connections with our clinical pathology business as well in the U.S. had a cyber breach way back in February 2024, which meant that parts of our business were unable to bill and/or collect revenue for a very extended period of time. And so, our debtors balances and to some extent -- and so Change Healthcare and its related parties loaned us funds to offset that loss of debtors collections and those advances are sitting as a liability in our creditors. We've repaid part of it, as you'll see in the commentary, but we've still got some sitting there. And our debtors balance is still inflated in relation to that. So we think that situation will resolve itself by 30 June, but that is an issue affecting the balance sheet at the moment. Sacha Krien: And do you think that's still a drag on the organic growth of the U.S. business, that Change Healthcare issue? Paul Alexander: There's no doubt it upset our referrers during that period when we couldn't bill. And so patients would get a bill late and they'd be upset by that and they complain to their referrers, et cetera. So it hasn't been helpful that that's true, but we're probably moving on from that now. Christopher Wilks: We've pretty much cycled collections and the effect that, that would have had. Operator: This concludes the Q&A session and today's conference call. Thank you all for attending. You may all disconnect at this time.
Operator: Good morning, and welcome to the Sonic Automotive Fourth Quarter 2025 Earnings Conference Call. This conference call is being recorded today, Wednesday, February 18, 2026. Presentation materials, which accompany management's discussion on the conference call can be accessed at the company's website at ir.sonicautomotive.com. At this time, I would like to refer to the safe harbor statement under the Private Securities and Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the company's products or market or otherwise make statements about the future. Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Please refer to the non-GAAP reconciliation tables in the company's current report on Form 8-K filed with the Securities and Exchange Commission earlier today. I would now like to introduce Mr. David Smith, Chairman and Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference. David Smith: Thank you very much, and good morning, everyone. Welcome to the Sonic Automotive Fourth Quarter 2025 Earnings Call. Again, I'm David Smith, the company's Chairman and CEO. Joining me on today's call is our President, Jeff Dyke; our CFO, Heath Byrd; our EchoPark Chief Operating Officer, Tim Keen; and our VP of Investor Relations, Danny Wieland. I would like to open the call by thanking our amazing teammates for continuing to deliver a world-class guest experience for our customers. 2025 marked the third consecutive year of delivering all-time record customer satisfaction scores for our franchise dealership guests. And EchoPark once again retained the highest guest satisfaction rating among pre-owned vehicle retailers. We believe our strong relationships with our teammates, guests and manufacturer and lending partners are key to our future success. And as always, I would like to thank them all for their continued support and loyalty to the Sonic Automotive team. Turning now to our fourth quarter results. Reported GAAP EPS was $1.36 per share. Excluding the effect of certain items as detailed in our press release this morning, adjusted EPS for the fourth quarter was $1.52 per share, a 1% increase year-over-year. Consolidated total revenues were $3.9 billion, down 1% year-over-year. Fourth quarter record consolidated gross profit grew 4% and consolidated adjusted EBITDA was flat compared to the prior year fourth quarter. For the full year, reported GAAP EPS was $3.42 per share, and adjusted EPS was $6.60 per share, an 18% increase from 2024. Consolidated total revenues were an all-time annual record of $15.2 billion, up 7% year-over-year, and consolidated total gross profit was an all-time annual record of $2.4 billion, up 9% year-over-year. For 2025, consolidated adjusted EBITDA grew 10% to $615 million. Moving now to our fourth quarter franchise dealership segment results. We generated reported revenues of $3.4 billion, flat year-over-year and down 5% on a same-store basis, driven by an 11% decrease in same-store new vehicle retail volume, offset partially by a 5% increase in the same-store used vehicle retail volume year-over-year. Fourth quarter new vehicle volume faced headwinds from pull-forward consumer demand for electric vehicles ahead of the expiration of the federal tax credit in the third quarter, combined with strong luxury demand in the prior year fourth quarter. Reported franchise total gross profit was a fourth quarter record, up 4% and declined 2% on a same-store basis. Our fixed operations gross profit was a fourth quarter record, and F&I gross profit set an all-time quarterly record, up 8% and 6% year-over-year, respectively, on a reported basis. These two high-margin business lines continue to increase their share of our total gross profit pool, once again contributing over 75% of total gross profit for the fourth quarter, mitigating the tariff headwinds on new vehicle volume and margin to our overall profitability, while also leveraging our SG&A expenses more efficiently than incremental vehicle-related gross profit. Same-store new vehicle GPU was $3,033 per unit, down 7% year-over-year, but up 6% sequentially due to a higher luxury mix in the fourth quarter. On a reported basis, new vehicle GPU was $3,209 per unit, down 1% year-over-year and up $208 or 7% sequentially from the third quarter. On the used vehicle side of the franchise business, same-store used GPU decreased 2% year-over-year and decreased 10% sequentially from the third quarter to $1,379 per unit. Our F&I performance continues to be a strength with fourth quarter record franchised F&I GPU of $2,624 per unit, up 8% year-over-year and up 1% sequentially. Turning now to EchoPark. Adjusted segment income was a fourth quarter record $3.6 million, up 300% year-over-year, and adjusted EBITDA was a fourth quarter record $8.8 million, up 110% year-over-year. For the fourth quarter, we reported EchoPark revenues of $481 million, down 5% year-over-year and fourth quarter record gross profit of $54 million, up 9% year-over-year. EchoPark segment retail unit sales volume for the quarter decreased 6% year-over-year, and EchoPark segment total GPU was a fourth quarter record $3,420 per unit, up 15% per unit year-over-year and up 2% sequentially from the third quarter. For the full year, EchoPark segment adjusted EBITDA was an all-time record $49.2 million, up 78% year-over-year. Going forward, we remain focused on increasing our mix of non-auction sourced inventory to benefit consumer affordability and retail sales volume and GPU. When combined with the strategic adjustments we have made to our EchoPark business model, we believe we are well positioned to resume a disciplined store opening cadence for EchoPark beginning in late 2026, assuming used vehicle market conditions continue to improve. In the long term, we intend to expand our EchoPark platform to reach 90% of U.S. car buyers, selling over 1 million vehicles annually while continuing to provide a superior guest experience. We believe investment in brand marketing will be key to our long-term EchoPark growth plan, and we expect to begin to invest in this effort during 2026, potentially increasing advertising expense by $10 million to $20 million this year. Turning now to our Powersports segment. We generated fourth quarter record revenues of $36 million, up 19% year-over-year and fourth quarter record gross profit of $9 million, up 25% year-over-year. Fourth quarter combined new and used retail volume was up 18% year-over-year, and we are beginning to see the benefits of our investment in modernizing the Powersports business and the future growth opportunities it may provide. Finally, turning to our balance sheet. We ended the quarter with $702 million in available liquidity, including $306 million in combined cash and floor plan deposits on hand. Our focus on maintaining a strong balance sheet and liquidity position allows us to strategically deploy capital in a variety of ways to deliver value to our shareholders. During the fourth quarter, we repurchased approximately 600,000 shares of our common stock for approximately $38 million, bringing the full year share repurchase to 1.3 million shares for approximately $82 million. In addition, I'm pleased to report today that our Board of Directors approved a quarterly cash dividend of $0.38 per share payable on April 15, 2026, to all stockholders of record on March 13, 2026. We continue to work closely with our manufacturer partners to understand the potential impact of tariffs on vehicle production, pricing and volume forecast, vehicle affordability and consumer demand going forward. The full year 2026 outlook and guidance on Page 13 of our investor presentation considers these uncertainties and represents our current expectations for 2026 financial results. As always, our team remains focused on executing our strategy and adapting to ongoing changes in the automotive retail environment while making strategic decisions to maximize long-term returns. This concludes our opening remarks, and we look forward to answering any questions you may have. Thank you very much. Operator: [Operator Instructions] Our first question is from Jeff Lick with Stephens Inc. Jeffrey Lick: Congrats on a standout quarter. It's pretty impressive results relative to the others in Q4. I was wondering if you could talk a little bit about EchoPark. I was just curious, if you think about the -- the used car options that are out there right now, and there's obviously big players like Carvana, CarMax, [indiscernible]. I'm just wondering, as you're starting to understand the EchoPark business better, where do you guys see how you fit into the used car ecosystem in terms of when someone is looking to buy a new car, a used car, where do you guys view as like where you really kind of over-index and solve a problem for a customer. Where do you fit in the used car ecosystem? Frank Dyke: This is Jeff. We've always kind of looked at EchoPark as the Costco sort of the pre-owned world. There are 35 million to 40 million pre-owned cars sold every year in this country. And if you look at what Carvana is doing 500,000, 600,000, you look at CarMax in the 800,000, 900,000 range, there's a lot of room for us. And prior to COVID, we said we'd be at 90% coverage of the country and sell over 1 million vehicles. We feel very comfortable over the last 3 or 4 years. We worked very hard on the model. We can slowly and accurately build stores. Like we said, we're going to open 1 or 2 in the fourth quarter of this year. We'll open more in '27, and we will methodically grow the EchoPark business. But we're the low-cost provider in this arena. And when you look at how we price our vehicles and you compare to those two competitors, we're anywhere from $3,000 to $6,000 cheaper than those guys. And it gives us the ability to sell a lot of vehicles on a per rooftop basis versus our competitive set. And we're seeing that. We see it in the 17 stores that we have opened now. And we believe that being that low-cost provider and really taking care of our guests like we do with our great guest satisfaction scores, which are industry-leading, that combination is just going to be really hard to beat as we slowly begin to grow this brand. Heath R. Byrd: And Jeff, this is Heath. I'll add one point is exactly what Jeff was alluding to is that, that objectively, we are the lowest cost provider. You can look at the data and the facts are there. Objectively, we have the best customer experience. We've won for the last 16 quarters with reputation.com comparing to Carvana, CarMax and others. And now that we are starting the expansion again in a disciplined way where we still have profitability going forward. You combine that with our brand initiative, which we mentioned earlier in the press release and in the statements. Now people know. I mean, I think the biggest thing is that we get our name out there, and you've got the two main things that people are looking for, and that's just going to give additional tailwinds to EchoPark, especially as the inventory is returning, it's going to be a really nice situation for growth for EchoPark. Jeffrey Lick: Yes. Just a quick follow-up. You talked about non-auction sourcing. I'm just curious, you had a little bit of a hiccup with the commercial rental car fleet returns and that gumming up sourcing a little bit. Just any updates on where you're sourcing non-auction related and then how you see the sourcing unit availability for your business model in 2026? Frank Dyke: Yes. We are. We're incentivizing our team to buy vehicles all over the country. And we're finally beginning to leverage our new car franchised dealerships for inventory. We've always kind of kept that separate. And we have found a way, we believe, to leverage the heck out of that as lease returns begin to come back as we can trade for more cars out of those 111 franchise stores. And we'll begin to see. The beginnings of all this and the inventory sort of feeding into EchoPark will start in March and April time frame of this year. And so we're very excited about that and reducing our dependence on the auction lanes. And that's happening, but it's methodically happening with a very strategic plan around that. And buying more cars off the street certainly is happening and engaging our experience guides in that kind of model is going to make a big difference for EchoPark as we go forward. It's a very important part of our growth plan. Operator: Our next question is from John Babcock with Barclays. John Babcock: I guess just first question while we're on EchoPark. When do you plan to do the advertising spend? And then also, is that going to be more focused on building the brand or driving trade-ins? How are you thinking about that? And then also, if you could just talk regionally about whether you're going to target certain regions or if this is going to be more of a broad-based nationwide type advertising? Frank Dyke: Yes. That $10 million to $20 million is brand-based and focused on that -- strategically focused on that. We'll start spending that money, call it now, beginning of second quarter, somewhere in that time frame. And we've got to build commercials and do different things. We've got a lot of fun ideas that we'll present to the public. But I wouldn't expect any of that to be put into action for the public and you guys to see until the fourth quarter as we begin to launch stores again. So that will all kind of come together. Unfortunately, you guys start spending some money now, so the return doesn't come until fourth quarter or '27. And then that will be focused on our markets. But then as we move into '27, we'll even start marketing our brand in markets that we don't exist in. We've seen some of our competitors do that, and they've done a great job with that. So as Heath was saying earlier, we're going to bring the EchoPark brand to life, and we're going to start sharing with the world what our pricing model is and how great our guest experience is. And that's a one-two punch is going to be very difficult to deal with on top of an amazing selection of inventory. So put all that together, and we think we're sitting in the catbird seat, and we've got a lot of runway in front of us, and there's a lot of pre-owned cars being sold in this country. So we're very excited about it. David Smith: And this is David. And something to note is that, remember, the first EchoPark store opened in 2014. So this is something that factually we know that when people know us, like in markets like Denver, that we get a far higher market share. We get more for our cars. They know about us. They refer their friends and family to us. We've got a lot of people who bought from us over and over again. So it's not something that we're wondering, well, what if we advertise, will it work? It absolutely works. They just need to know about us. John Babcock: All right. That's very helpful. And then my last question, just on GPUs, fared pretty well in the fourth quarter. Just kind of curious how you're thinking about the cadence of that in '26. Frank Dyke: Yes. From -- this is Jeff. From a new car perspective, we put it out there in our franchise segment of $2,700 to $3,000 a copy, could be a little stronger than that in the first quarter of the year, maybe April, tax return season, all the good things. We're going to see what happens with tariffs. I mean, thank God for our manufacturer partners last year in '25, they made up -- you saw their balance sheets and what they all lost and what they've done for our industry. They are going to pass those expenses on. Our average retail selling price just got to $60,000 in the third quarter, over $62,000 in the fourth quarter. These are all-time record high prices. So the affordability issue, while maybe not being felt in '25, we believe as you get into May, June, July, August, you're going to start feeling it as new car prices have nowhere to go but up, and that's a difficult situation. It's a great situation for us with EchoPark because it's going to put us in the catbird seat with affordability from an EchoPark perspective and our used car business on the franchise side. That's exciting for us. But I think that everybody needs to keep a real close eye out on the inflationary effects and what's going to happen with new car pricing as we move into the early parts of the summer, late spring here and these -- our manufacturer partners start moving that cost on to the consumer in a more -- in a way that we did not see in 2025. John Babcock: Actually, as a quick follow-on to that, are you starting to see indications that the OEMs are planning to push on more costs? I don't know if you have any additional commentary there. Frank Dyke: Absolutely. They're lowering margin rebates that we get. The prices are going up. There's no question that you're going to see that. They're not going to sit back and lose billions and billions of dollars. They can't. It's just not going to happen. And so it's going to be really interesting to see the elasticity in new car pricing as we move forward over the next 6 months. And look, January was a hell of a month. Without the snowstorms, it would have been a magnificent month. So we'll see. I don't know if it's the tax stuff that's helping that. But definitely, prices are higher. And so maybe there's some great elasticity, but it does bring in the affordability discussion, and it really rings the bell from a used car perspective. We're going to have that gap that we've been missing between new car and pre-owned cars again. And that's just going to be fantastic for the industry and really, really good for EchoPark. Operator: Our next question is from Rajat Gupta with JPMorgan. Rajat Gupta: I just wanted to quickly follow up on the EchoPark commentary. Just given the store openings later this year, the increase in advertising, it looks like the year-over-year growth should accelerate in the back half. Are you setting up for 2027 to be an even stronger year from a growth rate perspective than the high single digits this year? Is that the right takeaway from these investments? Frank Dyke: Yes. 100%. Rajat Gupta: Got it. Okay. That's helpful. And maybe I want to pivot to like parts and services. Understandably, warranty comps were tough here in the fourth quarter. Could you give us an update on where you ended up with respect to same-store technician growth? And any targets for 2026 that you're going after there? I would be curious. Frank Dyke: I think since March of '24, where we started our technician focus, we're now plus 400 technicians from that original date that we started talking about this. And that's been a big part of our success since then from a fixed operations perspective. We're all in Houston right now at our annual meeting, and our whole annual meeting today is focused on fixed operations and our ability to grow this business significantly. We think we've got $100 million a month in fixed operations gross that we can do. That's $1.2 billion. We did a little over $1 billion in '25. So we're really excited about the opportunity here. There's just too many customers that -- and for the industry that don't come back to a new car store to have their vehicle serviced. And it's like 50-50. And we think we can attract a lot of customers. We've got the time to sell. We've got the base. We've got the technicians, and we're going to take advantage of that as we move forward here over the next year or 2. Rajat Gupta: Understood. And then just on your balance sheet leverage, just a question on capital allocation. It looks like the way you define it, it's 2.1 in terms of net debt to EBITDA based on the add-backs are allowed from rating agencies. I'm curious how much could you stretch? And would you plan to stretch that in '26 or in the medium term to maybe deploy more capital into either more M&A or buybacks? Heath R. Byrd: Yes. If you look at that rate, I think we are the first or #1 or #2 in leverage ratio, and we're comfortable with that. We want to have a very strong balance sheet. We would be comfortable going to a 3.5, but there's -- we can actually execute our plans for next year and still maintain that low leverage ratio. If a nice acquisition shows up that requires some debt funding, then we could do that as well. We have plenty of room. But we've got enough dry powder to implement our plan for '26. You can see we had a big acquisition in 2025. That was the majority of our capital spend. You can see that from a returning capital to shareholders, dividend, that's been increased by $200 plus over the last several years. And so that's always something we want to stay within 20% to 25% payout on the dividend. That's our target. And share repurchase, that's one of the things that when we see opportunity, when we have a price that pencils out and it's the best return, we're going to continue that as well. And then the last piece is returning -- basically investing back in the business. And as we start growing EchoPark, you'll see that bucket fill up a little bit more as we build new EchoPark stores. So very comfortable with our balance sheet, all of our covenants and got the dry powder we need to execute for '26 and forward into '27. David Smith: And Rajat, this is David. I think just on M&A, just to note that these opportunities in our industry come along and they can come along quickly and just -- and we're excited so far about our big acquisition of the JLR stores last year. It's been a great acquisition. And that one came along pretty darn quickly, and it was a great one. So hopefully, we'll see some more like that and some great opportunities to grow the business and grow earnings. Operator: Our next question is from Bret Jordan with Jefferies. Bret Jordan: Slide 13, I guess -- down in '26 roughly by the amount of your marketing advertising expense. Do you see that inflecting positively in '27? Or is there sort of ongoing rollout expense as you start rebuilding the business? Frank Dyke: You broke up right there at the beginning. Is that on EchoPark? Heath R. Byrd: Yes, Slide 13. Bret Jordan: Yes. I was wondering, do you see that in '27 accelerating as you're sort of passing this initial marketing expense? Frank Dyke: Yes. That's exactly how you should look at it. We're going to have some initial spend here while we get prepared for launch. That's really not going to happen until the fourth quarter as we begin to open a few stores. And then we'll have a cadence of stores that we can open next year and a different level of spend that we'll talk about as we begin to grow the brand across the country and focus on driving our $1 million-plus sales and our 90% coverage. And as we go through the quarters, we'll continue to update you guys on where we are in the progress that we're making. We gave you a $10 million to $20 million range, kind of we can narrow that gap a little bit as we get towards the fourth quarter for you, but that's exactly how you should look at it. Danny Wieland: And just to add to that, Bret, this is Danny. We guided to high single-digit volume growth for EchoPark in '26. But as Jeff said earlier, that really doesn't reflect any benefits from this brand investment. So you can look at that as accelerating in '27 and beyond as we get the benefits of the brand investment and increase our store base. So that will help drive both the volume-based growth that we're projecting as well as some EBITDA leverage in '27 and beyond. Bret Jordan: Okay. Great. And then a question on Q4, some of your peers talked about luxury consumers acting a little softer than normal for that seasonal period. And you guys didn't mention that. Do you see any behavioral change, whether it's people pushing back on these high ASPs in luxury or in the parts and service? Or is there any move to decline recommended services? Anything at the consumer we should read through? Frank Dyke: Yes. That's what I was saying earlier. I'm concerned about the tariffs and from a pricing perspective, what's going to happen as we get into the early summer. If you'd have sat been with us and you were looking at October and November and the cadence, you'd gone, holy, cow, you guys better have a big December. This is going to be a rough fourth quarter. And then December came along, and it was just -- it was one of those great Sonic Decembers that we always count on, and it was just amazing. We sold a lot of everything, in particular in our luxury segment. And surprisingly, 62-plus-thousand average selling price as that mix change to luxury, and we were prepared. We've been doing this for so long together as a team. We had the right inventory mix, our manufacturer partners stepped up. And so we had a great quarter, we think was a great quarter and an amazing December. And then we came in and had a really good January. When we report, we can talk about it on the first quarter, but the snowstorm slowed things down a little bit, but it was still a great January even with the damn snowstorm. David Smith: If we've not had that, right? Frank Dyke: No, had we not had that, wow. And so we'll see. I am cautioning and concerned about what is going to happen, how far, how much elasticity can we deal with or can the consumer deal with from a new car perspective. And something is going to have to give here. The prices are getting -- are just getting too high. And now didn't show up in January. It's really not showing up in February. We'll see. I think a lot of people are counting on big tax returns. We'll learn a lot this summer. Great news is the service business is great and has lots of upside. The F&I business is great. And then the used car business should just be fantastic as that gap widens. You really want your average retail selling price for a used car to be half that of a new car, and we're beginning to see that gap come back. And during COVID, it got all the way to 80%, 90%, sometimes 100% depending on the brand. So a lot of great opportunities as we move into the year, but a big caution on exactly what's going to happen from a pricing perspective on new. Bret Jordan: Do you have visibility as to what the OEs are going to pass through in higher price -- sort of on a same SKU basis? If the BMW X Series was 50, is it now 55 with the pass-through? Frank Dyke: I don't -- I mean I'm -- from based on what I've been seeing, we're seeing 3% to 5% increases and that can be a 1% to 2% increase on a normalized basis, right? So they're definitely passing on. But they're also doing a great job of cutting spending where they don't need to spend and cutting programs that were nice to have. And so -- and I've spent a lot of time on a bunch of different dealer boards, and that's a great topic of conversation with the manufacturer partners. So they are making some really good decisions on spend so that they don't have to impact pricing and they don't have to impact margin. But the tariffs are too high on some of these brands, and you're going to -- they're going to pass pricing on. It's already happening. They're going to cut margin. It's already happening. And they paid for it all in '25, and that's a big point here. They really paid for it, and you can see it in their reported numbers and the amount of money that some of these manufacturers were losing in the billions of dollars. That's just not going to -- that's unaffordable. That's not going to continue to happen and something is going to change as we move into this year, and we'll see. It's -- we've got to really pay close attention. I was calling this out, if you all remember, in the third and fourth quarter, watch these numbers. And I'm telling you, watch these numbers, watch new car pricing as we move forward, in particular, on luxury. Luxury buyer will push back at some point. Operator: Our next question is from Chris Pierce with Needham & Company. Christopher Pierce: Just kind of looking at fixed ops. I was just wondering if maybe you could speak to possibly like the subscription nature of this business? Or -- I mean, I know I guess you're trying to bring people back into the funnel. But when people buy cars, I know there's a prebuy option for 3 years of service, that type of thing. Is that something you're seeing and that gives you confidence in growing this business? Or is that so small right now that it's not really a factor? Frank Dyke: No. I mean I think that we have an opportunity to sell more products like that for sure to bring the customer back. But the industry as a whole is doing something wrong if 10 customers come in and buy cars and 5 of them don't come back to a dealership to have their vehicle service. And some manufacturers high as 70%. This is something as an industry we must address. Why would you not come back to a dealership where you have ASE-certified technicians, you've got the best equipment, the best parts, the best service you can get and they're going to mom-and-pop store, half of them are going to a mom-and-pop store down the street. That would indicate that there's a pricing opportunity from my perspective. And there's an opportunity. We fill the bucket up with technicians and the amount of hours that are available. Now we need to put that to work for us. And that's where we are at this point in time of our journey is really sharpening our pencils, making sure that we've got the right pricing out there and that we're bringing customers and the marketing, and we're bringing customers into our service drives. There's more out there to get, a lot more out there to get a lot of upside, and we're just scratching the surface from my perspective. David Smith: We've got to get the perception versus reality where the customer knows that our prices are actually competitive or better than the independent down the street. Heath R. Byrd: And I was going to say literally, the marketing is a new concept from the Sonic perspective. We have a focus to sales force. We have a focused campaign now, which we used to never have that on the service side. So that, coupled with having products, warranty products that drive the consumer back to the franchise dealer, those two things are going to help our market share. Danny Wieland: And one other point there. We guided to mid-single-digit percent growth in fixed ops on a same-store basis. Fourth quarter, our warranty was only up 2% year-over-year. That had been growing 20%, 30%, 40% year-over-year for the last several quarters. So we're finally seeing kind of a normalized level there. But we think that these opportunities on the customer pay side are what's going to drive sustained mid-single-digit growth above that long-term 2%, 3% average, but continued opportunity with the additional technicians, the marketing efforts, the efficiency of selling the hours and loading the base. There's some real upside there in that piece of the business. That just crested $1 billion in gross for the first time this year. So it's the larger numbers with a mid-single-digit percentage is significant opportunity from a gross profit growth perspective. Christopher Pierce: And just on that, is it something -- I know you guys have to take the ball and run with it, but it's something the OEMs can help with as well? I know the cars are getting smarter. You don't just see a check engine light, you can actually push a message what needs to happen, maybe the price. Like do the OEMs help on this front as well with the cars getting smarter? Or is it 100% you guys have to kind of take this and execute here? Frank Dyke: Yes, 100%. You sit down and talk with many of our OEM partners. They see the exact same issue, and it's at the top of discussion with all of them is how do we drive more customers that we're selling cars to now back into our service drive and what products do we need to use in order to make that happen. I had this exact conversation with the leadership of Toyota and Lexus not too long ago. It is a big, big focus point. And we need to drive more customers that we're selling cars to back into our service drive. And we can do it. The industry needs to do it, but we're certainly going to make that happen at Sonic Automotive. And it's awareness, as David was saying earlier, it's making sure that our door rates and our pricing are in the right areas in terms of being competitive with the mom-and-pops up and down the street. That data is readily available for us all now, and I think you'll see us make a big impact as we move forward. David Smith: And I think it sounds like you're also thinking of the technology side of it where the customers will have apps for their BMW and Mercedes, Porsche, et cetera. And the app will tell them, okay, come on in, and that's going to drive a lot of business for us. Christopher Pierce: Okay. So that's something that's not quite happening now, but can get better. Okay. Got it. 100%. Okay. And then just one on EchoPark. Do you feel like you need like a buy button on EchoPark given what digitally only like what Carvana is seeing as far as growth in units? Or is it just about convey the value to customers, convey the price and then versus peers. And from there, that should get the customers in the store, and that has consistently got the customers in the store in your older locations? Frank Dyke: Part of that $10 million to $20 million spend is you will see a launch of the EchoPark app, which we're incredibly excited about. And we're building and investing in a digital retail solution that we think will be industry-leading once complete. We've got a great team that's dedicated to that. And we're very, very excited about that exact opportunity for EchoPark. Yes, we need it. We need in an omnichannel environment, whether the customer wants to come in and test drive the car or sit at home in their underwear and buy a car. We need to be in a position where we can take care of that guest all the way through that buying journey. And it's great because at EchoPark, they can come, they can test drive a car. Many of our competitors, you can't even test drive a car, you just got to buy it. And we want to put ourselves in a position where they can do all of that, and that is part of that spend. So great, great question, much appreciated. Operator: Our next question is from Michael Ward with Citi. Michael Ward: What are -- you mentioned some variables that are giving you confidence. I don't know if they're internal or external to step up the growth again at EchoPark. Can you talk about some of those? Heath R. Byrd: This is Heath. One of them is obvious, the external triggering is the inventory returning. That's going to be a big part of it. And we've said that from the beginning that once that inventory starts returning, and I think we all believe it's going to take the [ 28 to 29 ] to get back to the 2019 number, but that's the external. And the other -- the internal is the fact that we've seen we can actually make really good EBITDA even at these lower units that are being sold. And so a lot of the efficiencies that we have seen and done internally gives us confidence that now we can grow and the branding that David was mentioning at our older locations, we can command a higher price and get a higher GPU because it's been there long enough that the word-of-mouth branding is working. So that, coupled with the inventory coming back, coupled with the things we've learned with this lower unit environment are the things that give us confidence that it's time to grow again. Michael Ward: To do that number -- go ahead, I'm sorry. Frank Dyke: Well, we've said for the last few years, as soon as inventory begins to return, you're going to see us methodically start and strategically growing. Inventory is returning, and we're going to start methodically and strategically growing. Heath R. Byrd: And one of the things that's most impressive because of the environment we were in, we got a lot better of finding alternate sources to buy, better buying off the street. And so all of that is going to help us as we grow as well. David Smith: This is David. Also, the economics of what a new EchoPark location and the money we're going to spend on those is going to be far less than some of the locations we've had, some of our current locations. So it's going to be a lot easier. We have to sell a lot fewer cars at those locations to actually break even. So you're going to see those locations are going to be highly profitable. Michael Ward: Did I hear the number right, your goal is to get to 1 million units? Frank Dyke: That is correct. David Smith: Over 1 million. Frank Dyke: Yes. It's 1 million-plus units. And so that's not a new number. If you go back and you look at our growth trajectory from '18, '19 before COVID hit, we were saying this exact same thing. We're on our way to making that happen. And we were well on our way and the whole world changed. Now methodically and strategically, we're on our way again, and we darn well believe that, that is something that we can do. And we know we've got the pricing methodology. We've got the inventory management, and we've got the guest experience. We're adding technology, our branding. We've been doing this for a long time, and we're very excited about this day. It's a long time in coming. Michael Ward: Yes. It's a big deal. Secondly, two of the headwinds that kind of hit in 3Q were BEVs and JLR. You didn't mention you had a JLR acquisition. What's the inventory situation like with JLR? And how did the -- what's the latest trend on the BEV side? Frank Dyke: Yes. So we saw a lot of BEVs because of the tax credit going away in the third quarter, that significantly dropped. And we'll see what happens in this upcoming calendar year, but maybe settle in, in the 5% to 7% range, who knows. JLR's inventory was impacted by a multitude of things, but coming back now. And we're right on plan with our acquisition there, which is great. We were real green with those guys, really understand that brand. And the acquisitions that we made in California, I mean, JLR, Beverly Hills, it all goes together. That's a great in Newport. That's a great fit for us. And so yes, we're very excited about that acquisition. Their inventory is returning. But there are another one that are going to be faced with the tariff issue, right? There's not a plant here and they're faced with this, as is Porsche, as is Audi. These are all things that they're going to pass on expense to the consumer, but fantastic product and our inventory is improving as every month goes on with them. David Smith: Yes. Unfortunately, the JLR customers, people love those cars. We've got multiple customers that have more than one in the garage. So it's a great brand. We're excited about that acquisition. Danny Wieland: And Mike, on the BEV mix, we saw north of 12% of our sales mix in the third quarter was EV with the pull forward demand from the federal tax credit expiration, but it was only about 4% of our mix in the fourth quarter. And you've seen our inventory mix of EV become more in line with that kind of 4%, 5%. So it's benefiting GPUs relatively speaking. BEVs are still $100 headwind in the fourth quarter to blended GPU, but that was down from $300 in the third quarter. And so as we go forward, if the OEMs can continue to produce the right BEVs for the right markets as importantly, I think that becomes less of a headwind for us going forward. Operator: [Operator Instructions] Our next question is from Glenn Chin with Seaport Research Partners. Glenn Chin: Just revisiting the pricing discussion. Jeff, you mentioned a few times OEMs cutting margins. Can you just clarify, is that a reference to dealer margin? Frank Dyke: Both. I mean you've got dealer margin in some manufacturers being cut. You've got price increases, 1%, 2%, 3%. You've got all kinds of different things going. And then you've got manufacturer partners doing a great job from my perspective on their part, cutting spend where the dealer and the manufacturer got together and said, we really didn't need this program. And so they're doing everything they can to fight this tariff battle. But again, if you go back to '25 and you look at some of the losses that some of our manufacturers took, it was a lot and they did an amazing job fighting this battle. They're not going to fight that battle by themselves forever. It's just not going to happen. They're going to have to pass on. And I just -- we'll see what happens from a pricing perspective, from a margin perspective. We're working incredibly close with all of them. And everybody's got the right mindset. Everybody wants to do the right thing, but there's only so much room before you have to start passing on price increases to the consumer. Glenn Chin: Yes. And on a related note, are you seeing any signs of them decontenting, taking out equipment? Frank Dyke: Absolutely. I mean everybody is looking at it is what can we do to pare down the price of a vehicle, whether it's wheels, you name it. That's something that is a topic of conversation across the board. Glenn Chin: Any items in particular, Jeff, that stand out to you? Frank Dyke: No. I mean I could probably go get you some detail, but not off the top of my head. I mean wheels definitely are part of that. The infotainment systems are certainly changing. And really, we're heading in one direction when BEV first launched because of the amazing technology in those vehicles. I think that's being tightened up and more to come. We're really sort of at a crossroads, an inflection point as manufacturers put their arms up and say, enough is enough. Dealers certainly can absorb those kinds of hits and pricing is going to have to change or something is going to have to change. Glenn Chin: Interesting times. Okay. And then just a question on the outlook. You're expecting a 10% increase in floor plan interest expense. Is this a function of higher store count? I know you guys acquired those JLR stores last year. Or is that a function of you expecting to carry higher inventory levels or both? Danny Wieland: It's really on store count and brand mix as well as the inflationary cost of vehicles. Our floor plan is based on the dollar value of the invoice cost. And if the OEMs are going to pass along with the model year '26 increases we've seen as well as what we expect in '27. And then compound that with -- we carried a higher floor plan offset balance for most of the last year, depending on what we do from a capital deployment perspective going forward, you could reduce the benefit that we see against floor plan somewhat. So it's a combination of factors. Glenn Chin: Okay. Yes, that makes sense. But just to confirm, your floor plan rates are variable. So any reduction in rate -- right, the rate environment should be a favorable offset to that. Is that accounted for in your outlook? Danny Wieland: Yes, and that's accurate. Operator: There are no further questions at this time. I'd like to hand the floor back over to David Smith for any closing comments. David Smith: Thank you very much, everyone. We'll speak to you next quarter. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Alfonso Ianniello: Good morning, and welcome to Codan's H1 FY '26 Results Presentation. I'm Alf Ianniello, Managing Director and CEO. And joining me today is our CFO and Company Secretary, Michael Barton. As announced this morning, after more than 22 years with Codan, Michael has informed us of his decision to retire at the end of August following our FY '26 full year results. Over that time, Michael has played a pivotal role in shaping Codan's financial discipline, capital allocation framework and acquisition strategy. On behalf of the Board and the broader team, I'd like to sincerely thank him for his contribution. I'm also pleased to confirm that Kayi Li, currently our Deputy CFO, will succeed Michael as our Chief Financial Officer. With nearly 19 years at the business, including senior finance roles at Codan since 2013, Kayi has played an integral role in our financial strategy and operational execution. We are confident her experience will support a smooth and seamless transition. In addition, Daniel Widera, our General Counsel and Joint Company Secretary, will become Codan's sole Company Secretary upon Michael's retirement. Michael will remain with the business for a structured 12-month transition period from August to ensure continuity and stability. Before we begin, please take a moment to review our standard notice and disclaimer. Today, we'll begin with our H1 FY '26 performance highlights, followed by a detailed review of each of our segments being Communications and Metal Detection. We also highlight 2 products that contributed meaningfully during the half, demonstrating how our engineering investment is translating into commercial outcomes. We'll then revisit our strategy and near-term priorities before closing with our outlook for the remainder of FY '26. Following our remarks, we'll move on to a live Q&A session, which will be hosted by Sam Wells from NWR. While Michael and I are working through the slides, you are welcome to submit written questions at any time [Operator Instructions] For those newer to Codan, we're a global group of technology businesses focused on critical communications and detection. Our technologies are designed for mission-critical environments, keeping people connected, informed and safe in demanding and often remote conditions. We operate across defense, public safety, gold detection and recreational markets, supported by a global footprint and strong engineering capability. At our core, we focus on reliability, performance and long-term customer relationships, particularly in environments where failure is not an option. Our strategy to build a stronger Codan remains consistent and disciplined. It is underpinned by sustainable organic growth, targeted and accretive acquisitions and continued engineering investment and strong operational execution. Diversification remains a key strength with Minelab delivering a strong cyclical performance and Communications positioned for structural long-term expansion driven by defense and public safety demands. Over time, this approach is building a more resilient and diversified earnings base with improved visibility and quality. At a high level, our H1 results reflect consistent delivery against our strategic plan, underpinned by disciplined execution and favorable market conditions in several key regions. Communications delivered another period of consistent and high-quality growth, supported by strong defense demand and the integration of Kagwerks. Metal Detection delivered exceptional performance, particularly in Africa, where elevated gold prices supported demand. Importantly, this performance was achieved while continuing to invest in engineering, systems and people, ensuring that our growth remains sustainable and repeatable over the longer term. Turning to the numbers. Group revenue increased by 29% to $394 million, reflecting strong organic growth and a full first half contribution from Kagwerks. EBIT increased by 52% and NPAT increased by 55% to $71 million, demonstrating strong operating leverage across the group. This reflects both revenue growth and improved product mix, particularly within Minelab. The Board declared a fully franked interim dividend of $0.195 per share, up 56% on the prior corresponding period, consistent with our disciplined capital management approach. I will now hand over to Michael to step through the financial detail. Michael Barton: Thanks, Alf, and thanks for the kind words at the start of your presentation. Also, I'd just like to thank you for your support of the succession plan to Kayi and Daniel, much appreciated. And thank you for making the time under your leadership so enjoyable and so successful. On to the numbers. So as highlighted, group revenue increased 29% during the half and pleasingly, the growth came from both our Communications and Metal Detection businesses. Our gross margins increased 58% and all profitability metrics were increased. Operating expenses increased primarily due to a targeted investment in shared services, higher performance-linked expenses, which are reflective of our strong results, product launch costs and the integration of Kagwerks for the full period. Tax expense was slightly higher at 25% with more of our increased Metal Detection profits taxed here in Australia. NPAT margin improved to over 18%, reflecting improved profitability and operating leverage. We continue to actively manage our foreign exchange exposure through our hedging program with contracts in place to mitigate approximately half of the expected USD exposure in the second half. Overall, the financial result reflects both strong performance and continued investment in capability. We closed the half with net debt of $88 million, an increase of $10 million compared to June, largely reflecting working capital investment to support growth and our increased activity levels. Leverage remains conservative at 0.4x EBITDA. With an undrawn debt facility of $140 million as well as an additional $150 million accordion capacity, we retain significant financial flexibility to pursue inorganic growth opportunities. This slide illustrates the key drivers of our net debt movement during the half, including the investment in operating cash flow into working capital to drive growth, our dividend payments and continued investment in our engineering programs. Engineering investment during the half was $36 million, representing approximately 9% of Group revenue. This level of investment is consistent with our long-term approach and supports product development pipelines across both Communications and Metal Detection. In Communications, investment is focused on advanced tactical platforms, next-generation waveforms and public safety applications. In Minelab, investment continues to support our product refresh cycles and our technology leadership. This sustained commitment to innovation underpins our organic growth trajectory. And back to you, Alf, to take a closer look at our business units. Alfonso Ianniello: Thanks, Michael. We'll now move on to the business units. Communications revenue increased by 19% to $222 million. Segment profit increased 17% to $58 million, with margins broadly stable at 26% as we integrate Kagwerks and manage the challenging trading period in Zetron Americas. The orderbook increased by 19% to $294 million at the 31st of December, providing strong revenue visibility into H2 and beyond. We remain focused on progressing Communications margins towards our 30% target by FY '27 as integration benefits and scale efficiencies materialize. DTC delivered strong growth, supported by defense demand and increased adoption of our unmanned system solutions. Revenue from unmanned systems increased 68% to $73 million. Approximately half of this unmanned revenue during the period related to operational defense application in conflict zones with the balance being driven by adoption of our technologies across non-conflict defense and security programs in Asia, the U.S. and Europe. Importantly, growth rates across both conflict and non-conflict markets were broadly consistent, reinforcing the structural expansion of the unmanned systems market. Kagwerks contributed in-line with expectations and continues to integrate effectively, enhancing our position within U.S. military programs and strengthening our ecosystem offering. Our presence across the U.K., U.S. and Australia positions us well to capture long-term defense program across allied markets. The BluSDR contributed meaningfully during the half and represents a strong example of our engineering capability translating into commercial success. It is an ultra-lightweight, high-performance software-defined radio platform designed for long-range, secure connectivity across unmanned and mobile applications and has proven particularly well suited for drone-based deployments. Its technical characteristics, including high output power, mesh networking capability and low size, weight and power reinforces DTC's competitive positioning in mission-critical communications. Trading conditions for Zetron Americas were temporarily impacted by slower procurement cycles across the state and local agencies that we serve, which extended sales cycles and deferred order timing during the half. Early indications in the second half of the year are encouraging with trading conditions showing signs of improvement as funding approvals progress. Outside the Americas, EMEA and APAC markets delivered stable performance. We continue to invest in next-generation 911 capability and the SALUS platform to enhance recurring revenue streams and strengthen long-term customer retention. Minelab's first half results were exceptional, with revenue up 46% versus prior corresponding period to $168 million. Segment margin expanded to 45%, reflecting a higher mix of gold detector sales and improved operating leverage. Africa delivered exceptional performance, supported by elevated gold prices and strong demand across West Africa. Rest of the world delivered high teens growth, which is an excellent result, reflecting continued strength across key recreational markets. Rest of world performance was supported by product innovation, retail expansion and the ongoing development of our direct-to-consumer platforms. This performance highlights both cyclical tailwinds and structural improvements in the business model. During H1, we launched the Gold Monster 2000. It delivers enhanced sensitivity to ultrafine gold and improved depth and accuracy in mineralized ground, critical attributes in many of our core gold markets. Early customer feedback has been positive, supporting continued momentum as distribution scales up. Now I'd like to move on to the strategy update section of today's presentation. Our strategy remains anchored in 3 core pillars: first, investing in ourselves, strengthening systems, process, people and product innovation; secondly, strengthening our core businesses, which means expanding addressable markets, improving revenue quality and increasing reoccurring revenue components; and thirdly, disciplined capital allocation, where we pursue strategically aligned and accretive acquisitions that enhance capability, scale and market penetration. Together, these pillars support sustainable, diversified earnings growth. In DTC, we are expanding towards a full system solution provider model, continuing investment in the next generation of waveforms and ecosystem integrations. In Zetron, we are focused on increasing reoccurring service revenue and expanding support contracts and also advancing next-generation command and control platforms. And in Minelab, we continue product innovation, retail footprint expansion and channel development with another new detector scheduled for release shortly. These initiatives support both near-term performance and long-term structural improvement. Now turning to our summary and outlook on Slide 23. Tying today's presentation together, market conditions remain positive in both Communications and Metal Detection, reflecting the diversified nature of the Group's portfolio and the quality of our business. Codan's strategy is to continue to invest in engineering programs to maintain product and technology leadership and to underpin long-term growth. In Communications, elevated defense spending and ongoing geopolitical tensions globally continue to generate strong demand for our unmanned systems products. Communications is on track to deliver FY '26 revenue growth within a 15% to 20% target range, supported by strong underlying demand and the full year contribution from Kagwerks. Minelab revenue in the second half of FY '26 to date is tracking in line with the strong first half performance. Based on Minelab's current trading conditions, we expect the second half performance to be at least in line with the first half, supported by favorable gold market conditions and a full 6-month contribution from recent product releases. With balance sheet capacity and a disciplined approach to capital allocation, Codan remains well-positioned to continue investment in the business and pursue future acquisitions that fit our product and technology road maps, which enhance the quality, resilience and the diversification of our earnings. The company will continue to keep shareholders updated as FY '26 progresses. Back to you, Sam. Sam Wells: As a reminder, the audience may ask questions to the management team. [Operator Instructions] There are a few pre-submitted questions, so I'll kick off with those before getting to the analysts. Firstly, just on Communications margins. You've talked about the moderating pace of margin expansion within Communications. Can you elaborate on the path from current margins to the 30% target by the end of FY '26? Michael Barton: Yes. Thanks, Sam. Yes, remain -- we've been very consistent that we remain focused on margin expansion. We did improve organically in the half, which was good. And we've been really consistent also on our revenue expectations for Communications, the 15% to 20% range remains the focus. As we deliver that and we see further revenue growth to be within that range in the second half, we would expect to see more improvement at the margin line as well. Sam Wells: And on Zetron, can you elaborate on the early encouraging signs in trading conditions in the Americas business? And are there any meaningful near-term opportunities specifically in the U.S.? Michael Barton: Yes. I think we posted a really pleasing increase in our order book at the half. So quite -- I think we're up 16% versus June, 19% versus last December. So we do go into the second half of this year with a stronger order book than what we entered the first half. So that's pleasing and sets us up to be within that 15% to 20% range that I mentioned. And I think we're also seeing -- while not yet in the order book, we are seeing some increased activity in the pipeline also in the U.S. market, public safety market for us. Sam Wells: And on Minelab Africa, an exceptional set of numbers within the Minelab business. How should we think about the sustainability of this performance, particularly in the context of 45% segment profit? Alfonso Ianniello: I think when you're looking at Minelab, I don't want to make it just an African discussion. We had a rest of the world high teens growth rate, really reflecting great execution from the Minelab team at a distribution, e-com level and direct-to-customer approach and new releases of great product. And then when you look at Africa, obviously, the gold price has been a tailwind for Minelab and then our great products have been a tailwind for Minelab. So the 45% is an exceptional number in its own right, and we believe it's maintainable in the future. Sam Wells: And just moving to unmanned. You printed some extraordinary numbers within the unmanned business. Can you help us understand how sustainable these opportunities are, particularly within the defense landscape? Alfonso Ianniello: Yes, it's really interesting. If you wind back 12 months, 18 months throughout these calls, we've referred to an unmanned market growing at 30% per annum globally. This is just increasing. The environment and the ecosystems in defense are very different today than they were previously. Our solutions back right into those unmanned platforms. And our ability to perform in conflicted environments well has really created a halo effect into other markets, hence, highlighting the success of the BluSDR-90, which was really born over the last 18 months through very high exposure to very conflicted environments. So we think the unmanned space over time will continue to be a significant tailwind for Codan. Sam Wells: Got you. And just shifting to some of those non-conflict opportunities you referenced in the presentation. Can you just elaborate on those? And where are the bulk of the revenues coming from in terms of specific applications? Alfonso Ianniello: Yes. So I won't talk about the specific applications. I'll talk more about the market -- the geographic markets that we are looking at. So if you look at, we did call out, we've started to see some positive work in the U.S., positive work in APAC, positive work in Europe. So if they're not in a conflicted environment at the moment, they're probably preparing for pre-conflict, I would say. So -- and again, let's take a step back and just reflect on the technology that we put in market, and that technology fundamentally is selling itself in these other markets at the moment. Sam Wells: Great. We'll move across to some of the analysts. First question comes from Josh Kannourakis at Barrenjoey. Josh Kannourakis: First, congrats, Michael, and wishing you all the best on the transition of your new steps and congrats to Kayi as well on the step-change in role. Good to see. Just jumping on to the first question just around regional exposure. So you did mention a bit of a step-up in terms of activity in the U.S. I know there's a lot of hoops to jump through in terms of getting into those programs and historically comms being dominated by a couple of those big local players. Is that a new incremental thing? Can you just give us some more detail on how recent that is? And maybe just specifically around the U.S., what you think the opportunity is across the broader comms space? And then obviously, specifically, unmanned as well? Alfonso Ianniello: Yes. I think when we look at comms in the U.S., we probably look at the dismounted soldier solution within the Kagwerks acquisitions and the unmanned solution giving us some good dialogue with potential U.S. customers. So there's a lot of -- as always, with these platforms, they're not plug-and-play. They are plug significant testing and evaluation and then you get an order. So we are comfortable that we're having the right dialogue with the right organizations, either at a defense department level or Tier 1s into the defense department. So that is positive. The other areas that we're actually having positive traction is APAC, and I won't go into the specific countries, but also there's been an uptick in European defense spend, and there's been some sort of shadowing of that application of that funding into unmanned systems and the DTC product category itself. Josh Kannourakis: Got it. That's really helpful, Alf. And just in terms of -- so just to understand it within the U.S. specifically because I guess my understanding was more that a lot of your volumes and things historically have been outside of that region. So you're sort of from a military perspective, within the sort of evaluation phase at the moment for that. So that's probably in terms of potential upside, that's significant if you can get through that. And -- but then on the other side, you're seeing traction in some of the nonmilitary sort of settings also. Is that the way to sort of read it through? Alfonso Ianniello: Yes, that's right. If you look at what we've seen over the last couple of months, we've been heavily involved in the border with our communications. So that's with government departments, not defense related. We are also heavily working with other sort of peripheral government departments in the U.S. that require our solution that in some ways, isn't defense related, it's more public safety related in theory, keeping the American public safe. So yes, and that's a great thing with the product categories. We can actually put it into dismounted soldier solutions, unmanned solutions, public safety solutions. Josh Kannourakis: Great. And just in terms -- I know you don't want to go into specific countries for obvious regions, but there's been some very large funding packages allocated to areas like Taiwan and in that sort of region. There's also a lot more flagged in terms of progressive step-up. How early in the journey do you think you are? Are you sort of -- do you have the right connectivity in place to capture what will obviously be a significant step-up in this broader region? Alfonso Ianniello: I would suggest, as we've said in the U.S., we are all part of the right conversations happening in APAC and EMEA being Europe. So yes, we're definitely having the right discussions with the right levels of people. Josh Kannourakis: Awesome. Final one from me. Just on M&A. I mean, obviously, it's been a pretty tumultuous environment across the software space. Defense on the other side has obviously has been a lot more favorable in terms of all the trends you've talked about. Can you maybe just talk about when you're thinking about it now the lens, how you're sort of seeing that in terms of the opportunities within both maybe comms and -- within comms within the tactical side, but also Zetron, especially with some of the potential in software, the AI-related disruption as well. Alfonso Ianniello: Yes. I think when you look at Codan and you look at our comms, the good thing we make products with software on it. So the -- any AI application is just an enhancements to the product and the end user, and that's how we actually see that. But we have pipelines of M&A targets. As you clearly mentioned, in the defense world, it's pretty hot at the moment. Multiples are far higher than we've seen in the past. People on the line would clearly know that we are very prudent when it comes to acquisitions about multiple and accretion levels. So we've been involved in processes. Some have worked. And then as in the past and the ones that we've been unfortunate on has been really the fact that we didn't believe we could extract the right value for it. But the process continues. We've invested heavily in structure at Codan. So we've got the right people working on it. We're looking heavily on how to enhance our technology road maps and our market positioning. So it's definitely a space where you just need to continue to be active in and ensure that you buy well and you can extract value for the future. So that's where we're at, Josh. Sam Wells: Next question comes from Mitch Sonogan at Macquarie. Mitchell Sonogan: And yes, congratulations to you, Michael and also Kayi as well. Just echoing Josh's comments. Just the first one, just on the outlook for Metal Detection or Minelab second half revenue to be at least in line with the strong first half. Just trying to get a little bit more color on that because obviously, you had pretty strong sequential growth. You've got, as you said, good gold conditions in that market and also still benefiting from new product releases. So just trying to understand what sort of visibility you have at the moment, how we should think about the second half potential upside risks. Alfonso Ianniello: Yes. Well, it's interesting if we talk about Minelab, that's probably the first time we've actually ever given a forward-looking number in Minelab. So yes, we've had a strong first half, right? We've got a lot of tailwinds either from a gold perspective -- gold price perspective, new product introduction, great performance in recreational. We sit here today, and we never comment on seasonality in Africa because we don't know. So we're not going to be a fact-based about that. But we do sit here today that we're saying there's the same tailwinds that existed in H1 exist in H2. And so I guess that's what our commentary was about, so okay? Mitchell Sonogan: Yes. And just in terms of -- obviously, you called out Africa being quite strong. But do you mind just giving a bit more color on other regions where you might have seen some big outperformance and other areas that you are more positive on the next 6 to 12 months as well? Alfonso Ianniello: Yes. I think I'll call out Australia. I think our work we've done in Australia has been exceptional on repositioning the way we go to market, big tick, some great work in APAC, big tick, LatAm, big tick. And then you've got Africa and Europe. We have been consistent in our approach either at a recreational level with e-comm, the marketplaces, the distribution point increases and new product introductions. So when I look at Minelab, it's very hard to fault anything they're doing in any market at the moment. And the most important thing is I'm as excited as with the gold detection and the gold sales as I am with the rest of the world sales because that high teens growth in a fairly flat consumer market is fantastic. So it just shows that where we're spending our money away from product development, it's working. Sam Wells: Next question comes from Evan Karatzas at UBS. Evan Karatzas: Just can we dive into Zetron a bit here. One of your larger competitors, Motorola, I mean they've been delivering some pretty consistent strong growth over recent quarters to their command center business. Can you maybe just speak to why you think there's such a discrepancy there to what you've seen in the U.S.? And anything you can, I guess, elaborate on around that order book for Zetron explicitly and how that's changed relative to 6 months ago, how you entered the year as well? Alfonso Ianniello: Yes. Good question. I think when you look at Motorola in the command and control space and you look at us, I don't think we're comparing apples-to-apples consistently on product offering. There's probably a bit more rolled up in that space of Motorola. And secondly, they're a Tier 1, Tier 2 player. We're a Tier 3, Tier 4 player. The way the funding and the grants work for Tier 3, Tier 4 are slightly different than they are in Tier 1, Tier 2. So -- and I think we also need to analyze Zetron over the last 4 years of Codan ownership, it's been well above market growth rate. So it's been an amazing acquisition for Codan. And so looking forward, what are we seeing in January, Feb when you -- just going further to what Michael said, yes, orders are being unlocked, so that they're pushing into the order book. There's far more activity in the pipeline. So the activity levels have come up from H1. It's a financial year. I think let's have a chat at the end of H2 and where these orders have rolled through. And let's not get away from the fact that we have entered H2 with an order book that is higher than most times. So that's the marketplace that public safety, it is. Also, let's not -- also let's understand the fact that we've been doing well in APAC and EMEA as well from a Zetron perspective, so. Evan Karatzas: Yes. Okay. No, all fair points. And just sort of coming back around to the DTC, the tactical comms, just around those investments you've been making, especially for contested environment, some of those new product releases, have they now been released into market? And then you can talk to about how early take-up or reception has been? And then also how that helps when you spoke about from a strategic sense with that expansion into your other growth regions like North America, Europe, Asia as well? Alfonso Ianniello: Yes. From a product perspective, I think the DTC product category is quite set. The feature content involves from market feedback. And that's the sort of the strength that we've had. We've been able to feed back those technical requirements from the field back into our product really quickly, either enhancing current product or creating new product like the SDR-90. So at the moment, we're heavily focused on feature content for the SDR range. And also we're heavily focused on feature content for the Kagwerks range as well. So probably less form factor changes, but more on feature content for the environment that these products work in. Sam Wells: We might just move on to the next question, please, from Tom Tweedie at Moelis. Tom Tweedie: Just the first one on Kagwerks. Are you able to give us a sense of the revenue contribution for the half for that business? And also just the color on the pipeline for program of record RFPs? Michael Barton: Yes. If I'd just give you the revenue range when we acquired that business, I think we were expecting high $40s million revenues into the low 50s. And I think we've commented, Tom, that it's been -- it's met our expectations. So it's been in that range over its first, what, 13 months of ownership. And Alf, do you want to talk about pipeline? Alfonso Ianniello: Yes. So when you look at, we've been heavily invested in supplying the Nett Warrior program, doing some international BD on other Army opportunities that we're looking at. I think what I've seen, which is very pleasing for us from a Kagwerks perspective is there's an evolution of movement from the standard DOCK Lite product, which is the base version to the DOCK Ultra product, which is the version with the radio and the AI technology and the edge computing technology. So that's what we're seeing happening in the Nett Warrior program itself. So that is significantly positive for us. And then like everything, we'll just keep doing the BD efforts with the other defense opportunities in the U.S. and internationally. Tom Tweedie: Very helpful. Just on Minelab and that side of the business, you called out detector launches. In the release, you've also mentioned one new detector to launch shortly. Just stepping back, can you remind us what the expectations are in the pipeline there over, say, the next 12-18 months for further models to come to market? Alfonso Ianniello: Yes. So we've released already an upgraded recreational detector, a new countermine detector and obviously, the Gold Monster 2000, great launches, great tech, keep moving forward. We've got a high, high-end gold detector coming out in the next couple of weeks, which is the GPZ, GPX range updates first time in almost a decade. So it will be -- it's probably anxiously being awaited by the users globally. Post that, the Minelab team has a road map on enhancing detection out 12 to 18-24 months. So -- and that's across recreational and gold and countermine, which is really the key areas. So there's no shortage of ideas from our Minelab. They are very good at creating products that exceptionally -- work exceptionally well in market. So like we always say, our ability to move that IP from an idea to a product is really the Codan superpower. Tom Tweedie: Awesome. And then one final one. You made a comment earlier around the distribution for Gold Monster 2000 still expanding. Are you able to give us a sense of -- is that in terms of key markets that you've still yet to properly launch the detector in? Or is there still more distribution to go in the second half? Can you give us a sense of what that comment related to? Alfonso Ianniello: Yes. I think that comment relates to launching a product. When you launch a product, we launched at the back probably in middle of Q2. So you're just ramping up supply chains, you're ramping up product to get into market. So at the moment, we're just in the ramp-up stage of Gold Monster 2000. So the scale up is to -- you just scale up production over time and you get into the supply chain into your customer base as more markets. And that's what that comment is about. So we are well on the way now, and that will continue over the next 12 to 18 months, I would suggest. Sam Wells: Next live question comes from Cam Bell at Canaccord. Cameron Bell: Just a couple of quick questions. So the Metal Detection comments you gave in the second half, flat revenue. Is it fair to say that with flat revenue, we can expect similar margins in the second half? Michael Barton: I think, Sam (sic) [ Cam ], we used the words at least rather than flat. So yes, in terms of the commentary on H2. At these revenue levels, we think 45% contribution margin out of Minelab is outstanding. We don't -- at these revenue levels, that would remain our expectation. I think it's fair to say at this level of revenue and that level of profitability, we are looking to reinvest in that business to continue the revenue growth that we've seen. So 45%, if that's what the contribution margin is in H2, that would be a fantastic result. Cameron Bell: Yes. Okay. I might stick with just 2 quick ones for you, Michael, to continue off on those. You might not miss these style of questions in a few months' time. Last half, you had a bunch of M&A costs unallocated. Is it fair to say there were some of those semi potentially nonrecurring M&A costs in this half? Michael Barton: Yes, probably not to the same extent. But yes, we did have M&A activity and ongoing integration costs across the business. We don't really call them out as one-off, Cam, because the business continues to evolve, and we continue to invest in different areas of the business to improve what we do. So the costs we've incurred in the first half is a fair representation of that cost base going forward. Cameron Bell: Okay. Sure. And then just last one for me. Is 25% tax rate the new norm? Michael Barton: Yes. I think with this mix of product, then yes, we're going to be in the mid-20s, whether it's 24%, 25%. But yes, I think we're in that range. Our Minelab business performing at this level, highly profitable. All that IP is generated here in Australia. We pay all of our -- majority of our Minelab taxes here in Australia at $0.30. So that caused that rate just to go up a percentage point or 2. Cameron Bell: Okay. Great. And congratulations, Michael, on everything you've achieved over the last 22 years. Michael Barton: 22 years, yes. Thanks, Cam. Sam Wells: And maybe just one last question here from James Lennon at Petra. Can we expect Codan's typical seasonal movement in working capital to repeat in FY '26, i.e., a wind down of working capital as the financial year progresses? Michael Barton: Yes. Historically, that has been the case, Sam. Look, we have had an increase in working capital over the first half. A lot of that was just activity related and the timing of that activity. So -- and we've had a really strong start to the year, the second half, a really strong start from a cash collection point of view. So some of that has unwound to start the second half. So yes. Sam Wells: And just one final question. What is DTC and Zetron revenue for the half? And would you consider disclosing DTC and Zetron revenue going forward? Alfonso Ianniello: I think we get asked that question a lot. And I think when we did the full year presentation for '25, we started talking about public safety ecosystems, defense ecosystems, unmanned, how it all comes together. If you see here today as Codan compared to 4 years ago, our Comms divisions are converging with the products that we have and how they work in market, right? So I guess a short answer to that is that we probably won't because a lot of our thinking is around public safety, which is heavily linked to Zetron, but there is creeping in on DTC products for that as that ecosystem evolves and not dissimilar to the defense ecosystem where you have unmanned systems, you have dismounted soldier solutions and you've got our standard core products in HF. So I guess the answer is that I see more converging rather than diverging today than I did probably 4 years ago. Sam Wells: Okay. Great. Thank you. We're just going through the hour. So I think that's all the time we have for live Q&A. If there are any follow-ups or unanswered questions, please feel free to reach out to us directly. And maybe with that, I'll just pass it back to you, Alf and Michael, for any closing comments. Alfonso Ianniello: Yes. Thanks, Sam. First, I'd just like to thank everyone for joining us today and the continued support you have for Codan as an organization. I think today, it just continually demonstrates our consistent approach in running Codan, our consistent strategy, our investment in product development, our investment in people and processes. We've actually steered into very good markets through M&A. So we sit here today, highly confident in our strategy, highly confident on our skills and execution and delivery and above all, that consistent approach. So I'd just like to thank everybody and we'll provide updates as we see fit for the rest of H2. Sam Wells: Great. Thank you very much for joining today's Codan's First Half FY '26 Results Call. Enjoy the rest of your day. Thank you, and good-bye.
Operator: Good day, and thank you for standing by. Welcome to Auckland Airport Interim Results 2026. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Carrie Hurihanganui, CEO. Please go ahead. Carrie Hurihanganui: Thank you. [Foreign Language]. Welcome, and good morning to everyone on the line. I am joined today by Chief Financial Officer, Stewart Reynolds, and we are pleased to be able to share the interim financial results from the first half of FY '26 with you. Listen, overall, it's been a promising start to the financial year. We've seen strong momentum across the business as travel demand and seat capacity has continued to build along with increased cargo movements. The focused cost management and solid commercial performance. Customer journey times continued to improve with robust operational performance, all while making significant progress on our aeronautical investment program with key projects delivered in the period and our new integrated domestic jet terminal firmly on track. As we look ahead to the remaining 6 months of the financial year and beyond, we're feeling optimistic, and that's based on the recent trading momentum and continued growth in demand across aeronautical and commercial opportunities as well as a pipeline of additional new air connectivity and the continued substantial progress of our infrastructure program. Now of course, that is notwithstanding the complexity and challenges that naturally come with a program of the scale that it has in a live operating environment. Now plenty to run through today on the half year performance and outlook before we jump into Q&A as normal. So let's jump to Slide 4. We'll kick things off with an overview of the first half results. I'd summarize the half year really about reflecting a growing momentum. First half '26 revenue increased 4% to just under $520 million, reflecting the combination of an increase in aero charges, increased passenger numbers and higher commercial income. Operating EBITDAFI lifted from the prior comparable period by 6% to $371.3 million, and that resulted in a lift to the EBITDAFI margin. Net underlying profit after tax is also up 6% at $157.1 million and total reported profit after tax, which included revaluations down 5% to $177 million. An interim dividend of $0.065 per share will be paid on the 2nd of April with total dividends declared at $110.2 million. Capital expenditure was almost $431 million in the first half with assets commissioned in the period of more than $743 million. If we move to Slide 5 and look at some of the key highlights that underpin the half year results, you can see there that total passenger movements increased 2% to $9.64 million, and that was made up of domestic passengers at 4.37 million, up 2% and international, including transit, also up 2% to $5.27 million. We also saw almost 86,000 tonnes of international cargo movements worth $20.3 billion, and that was up a healthy 37%. The ongoing focus, collaboration and investment is making a tangible difference for our customers. We've been working together with our airport partners and border agencies, and we've seen the introduction of new technology and digital enhancements and an expanded arrivals area, resulting in improved customer satisfaction measures and importantly, shorter customer journey times. In the commercial space, we've continued to see growth across key business lines of car parking, retail, investment property and rental income, up 5% to just under $240 million. Of the $743.5 million of assets commissioned in the period that I mentioned a few minutes ago, $724 million of that was aeronautical projects across terminals, transport and airfield. Moving ahead to Slide 7. Fundamentally, we continue to build for the long haul, and it has certainly been a busy 6 months. And that 6 months has been focused on delivery and progress in creating capacity, increasing resilience and uplifting the customer experience and business performance. Moving to Slide 8. Auckland Airport, we've been incredibly proud to serve as a critical gateway and enabler of economic growth for both Auckland and New Zealand. International travel here at the airport is an essential driver of the economy, generating over $35.1 billion in economic output in trade tourism and employment per annum with Auckland Airport serving more than 90% of long-haul flights into and out of New Zealand. Or another way to look at it is $1.4 million of economic value for every international aircraft that lands into Auckland Airport. Now we've seen inbound tourists through Auckland up 2% in the 12 months to December at 2.4 million, and that makes up 67% of New Zealand's international visitor arrivals. Auckland also has 89% share of New Zealand's international airfreight by volume and 93% by value. In the period, that equated to $8.2 billion worth of goods exported by Auckland, which was up 75% and $12.1 billion imported, which was up 19%. Moving to Slide 9. Listen, we've been really pleased to see more seats and greater choice coming into the market for travelers. And the most significant of that, particularly in the international space, a highlight was the launch of China Eastern's Shanghai-Auckland-Buenos Aires service in the first half, and that was made possible through years of collaboration between China Eastern Auckland Airport and government partners. Now overall, the China market growth is positive with forecast around 50,000 additional seats during FY '26 versus FY '25, and that's primarily been driven by China Eastern, China Southern and Hainan Airlines. It was also positive to see Air New Zealand growing its network from Auckland with seat capacity to Australia up 8.4% and capacity to the Pacific Islands increasing by 7.3%, primarily driven by their incremental A321neos. Now that Tasman growth was also complemented by capacity increases from both Jetstar and Qantas, which lifted seat capacity from Auckland to Australia by 4% and 7.3%, respectively, during the period. It was great to see Qantas Group announce their new samoa and Gold Coast routes that will commence in the second half. And it's worth noting that [ CF's ] launch of Auckland samoa introduces competition to that existing route and the Gold Coast Auckland launch sees the Qantas full-service airline brand now come on to that route. Moving to Slide 10. A huge highlight for us. We were delighted to see the strengthening of Southeast Asia connectivity with Thai Airways announcement of their planned resumption of services in the back half of 2026, and that will restore a long-standing long-haul connection between New Zealand and Thailand. And really, for us, it's an important milestone as we think about the rebuild of long-haul connectivity to and from New Zealand. It adds real value for travelers between both countries while also strengthening our connections into Asia's wider aviation network. Moving to Slide 11. There's been a tremendous amount of work underway between business and government and working together to stimulate tourism recovery. And it's really positive to see outbound tourism by Kiwis fully recovered and inbound tourism seeing a 5 percentage point lift to 90% from the prior comparable period. As New Zealand's Gateway Airport, Auckland Airport actively promotes New Zealand abroad through strategic route development and working with airline partners to launch new international services to strengthen our country's connectivity to key global markets. And this connectivity matters. Each daily wide-body fleet to Auckland delivers annual tourism spend of more than $150 million and $0.5 billion in high-value airfreight. Now Auckland's international seat capacity was up 4% over the peak period, which was that November to March period. And this has been assisted by the gains made over the past year on tourism with business and government, both combining efforts to see things such as tangible progress on visitor visa turnaround times. What's been really interesting is the November introduction of that simplified visa requirement for Chinese travelers who already held an Australian visa, enabling them to come to New Zealand. That's driven a 44% year-on-year increase in Chinese traveling between Australia and Auckland for the months of November and December. And finally, the announcement of the $70 million events in tourism package as well as investments in the wider regions such as the opening of the convention center, excuse me, and the City Rail Link are all key in driving economic activity. Slide 12. If we dive in a little bit deeper, growth in the domestic jet and international capacity is providing greater competition and the resulting impact of that is, therefore, travelers with more choice. Overall, it's been a promising start for international travel at Auckland as both seat capacity and passenger volumes are growing. International seat capacity increased 1.8% during the first half compared to the prior year and reached 89.3% of 2019 levels. Non-transit pax movements reached 93.2% of 2019. In December, what we did see was the international load factors were 5 percentage points up on the FY '19 equivalent and clearly indicating that demand is not the problem as it continues to outpace supply. And it is something that we are very cognizant of. We are seeing the passenger demand trajectory as positive, but we do also see and expect the ongoing global fleet shortages to continue to weigh on the availability of new seat capacity supply and pace of growth in the near term but also have a clear line of sight that we see that washing through. Now if we turn our sights to the domestic market, first half '26 saw the largest boost to domestic jet seat capacity in a decade. So it was up 5%, albeit I acknowledge still not at 2019 levels. But the growth is positive. The additional 181,000 seats in the domestic jet market helped to make flying just a little more affordable on key routes with the average jet airfare costs falling by around 6% during the period. Moving to Slide 13. We are continuing to invest in driving efficiency and improvements across the customer journey. Now this extends to the ongoing close collaboration with airport and government border agency partners as we look to optimize the ecosystem alongside the infrastructure improvements. And that's things such as the expanded arrivals area, the new security screening technology and the new express pathway for eligible arriving travelers. Now delivering infrastructure improvements in a 24/7 airport is highly complex. And despite increased customer and passenger activity, we have continued to deliver tangible operational improvements, making traveler journeys more streamlined than ever. Over the summer peak period, which is that December to January time frame, median international departure processing times were 21% faster at 6.5 minutes compared to the same period last year, while international arrivals were 10% faster at 18 minutes. So from smoother passenger processing to reduce queue dwell times to providing enhanced customer experiences at airside, such as lounges and retail. These improvements are enabling the airport to both manage growing demand and do so efficiently while maintaining a reliable and positive experience for travelers. Moving to Slide 14. We are New Zealand's Gateway Airport, and it is critical that we continue to invest in greater capacity and resilience. The first half marked a significant milestone in the infrastructure plan with over $700 million of assets commissioning in the period. This includes the $465 million Northern Airfield expansion, assets at the eastern end of the international terminal that we refer to internally as the stitch into the new domestic jet terminal, a new direct cargo airside access point, a major upgrade of the stormwater network, the Western truck dock, critical airfield pavement renewals and works associated with the contingent runway. So in short, it was a very busy but productive first half. Moving to Slide 15. The integrated domestic jet terminal remains on track for completion in 2029. We've seen steady progress achieved across both the terminal and airfield works in the first half. And the new terminal structure is now clearly visible to all airport visitors. And in November last year, the project reached a key milestone with the physical connection to the existing international terminal building, which you can clearly see on this slide. Approximately 60,000 square meters of airfield has been temporarily closed and made available to support construction of the domestic jet terminal pier and aircraft stands with piling underway, fuel system installation progressing and airfield pavement works now commencing. The scope and scale of activity at the new domestic jet terminal will only increase further in the year ahead with more workers on site as the footprint availability in both the head house and the pier continues to increase and the structure becomes more enclosed, allowing some of the interior fit-out to get underway. Slide 16. Looking ahead, as travelers to the airport precinct, they are going to see in the international terminal building construction activity becoming even more visible as we transform the check-in area. Travelers will experience some changes with the opening of a new temporary check-in facility and change to passenger access routes heading into quarter 4 of this financial year. This next phase of the build is an essential step in delivering the future long-term capacity, resilience and improved customer experience travelers have been asking for. And while travelers can expect some temporary disruption as it gets underway, we are working very closely with airlines and government agency partners to minimize those impacts as much as we possibly can. Moving to Slide 17. In retail, the partnership we have with our new duty-free partner, French global travel retailer, Lagardere, ensured a smooth transition at the start of the half year and is focused on a competitive proposition that delivers both customer value and future growth. The new offering is already proving popular with travelers as Lagardere starts to significantly upgrade the store experience for customers, offering new brands and more choice. And while travelers will notice construction activity in the duty-free stores, the work is being undertaken in a very carefully staged manner throughout 2026 calendar year to minimize the disruption and travelers will continue to be able to access and buy their favorite brands. Our retail income in the period was $92.3 million with total PSR up 2%. It's actually 5% if you excluded FX, and that's versus the prior comparable period. Income per pax of $9.76 was down 4% with a change of sale mix noted as part of that. Lower concession rates are driving higher sales volume with duty-free basket sizes increasing and sales growth outpacing the pax growth. And in a sluggish retail environment, both on the high street here in New Zealand and in travel retail more broadly, to be able to grow basket size and PSR is a pleasing outcome with the duty-free business outperforming most regional peers. Moving to Slide 18. Investment in our parking product range with the opening of the transport hub and the Park and Ride South is delivering improved customer choice and revenue. Revenue was up 14% to $41.1 million, reflecting the full 6 months operation of the transport hub, an uplift in premium product, an increase in average duration of stay, growth of international passenger numbers and growth in total car park exits by 1%, with international up 3%. However, we did see domestic car park exits reduced by 7% due to weaker corporate demand, the ongoing domestic economic backdrop and the loss of circa 700 spaces due to the expansion of the regional airfield capacity program. This was partially offset, however, by the resilient performance of the Valet and Park and Ride products. Moving to Slide 19. Manawa Bay celebrated its first birthday in the period and is performing well. We've been seeing increased footfall of 6% and increased sales of 18% for the comparable November and December periods. And it's providing a valued shopping amenity for around 75,000 people who engage with the airport every day, including airport workers and the Auckland community. Taking it to Slide 20. Investment property rental growth continues with the existing commercial property portfolio seeing a 9% growth in investment property rental income in the first half and a 2% increase in the rent roll to $195.4 million, which all came from growth in the existing portfolio and further Manawa Bay leases. Now softer market conditions have contributed to a slower-than-expected investment property activity during the period. However, we are continuing to see strong interest from prospective commercial property tenants. Hotels are seeing an average occupancy of 83%, which is up from 78% in the prior period. And the ibis refurbishment program is on plan with the first of the 2 stages now complete in the period, and the second is going to kick off from April. Slide 21, a few key updates in the regulatory space. In December 2025, the High Court declined the appeals lodged by airports in relation to the Airport Services input methodologies, merits review and Auckland Airport has elected not to pursue the matter further. And related to this, the Commerce Commission has advised that in March, it will commence consultation on amendments to the airport cost of capital input methodologies in light of the coding errors that informed the 2023 input methodologies. Auckland Airport will be making submissions as part of this process, and the commission has indicated it is targeting a final decision in June 2026 on those amendments. Last month, the commission began its process to consult on the information disclosure requirements for major airport investment in line with the earlier recommendation by MBIE. The commission is targeting to complete this process by the third quarter of 2026. And finally, following consultation, the final master plan is expected to be published midyear 2026. So with that, I'll now hand over to Stewart to take us through the financial performance in more detail. Stewart? Stewart Reynolds: Thank you, Carrie, and good morning, everyone. It's a pleasure to be sitting here today and presenting Auckland Airport's interim results for the 6-month period to December 2025. Turning to Page 23, where we summarized our financial performance for the half. As Carrie mentioned, the first 6 months of 2026 financial year has indeed been a very busy one for the company with the continued recovery in aviation activity flowing into improved financial metrics and delivering what I would describe as a good start to the financial year. Higher tax movements, particularly international, combined with improved performance across the commercial lines of business drove a 6% lift in revenue for the 6 months, excluding interest income. With careful cost management in the period, the increase in revenue flowed through to a lift in EBITDAFI, up 6% to just over $370 million in the period. And with that, pleasingly, a lift in EBITDAFI margin on the prior period from just under 70% to 71.5%. Net profit for the year was down 5% to $177 million, largely as a result of a reduction in the investment property revaluations that we saw in the prior period, with underlying profit, that is profit excluding noncash movements associated with revaluations and derivatives in the period, rising 6% to $157 million, with the lower cost of debt and improved performance from our investment in Queenstown Airport and the hotel JVs, partially offsetting below-the-line impact of asset commissioning. Turning now to Page 24, where we've set out a breakdown in revenue across the different lines of business. In the half, it was pleasing to see aircraft movements at Auckland Airport return to a positive trajectory with an increase in both domestic and international movements on the prior period. During the 6 months, this increase was driven by higher value, larger aircraft with the [indiscernible] increasing ahead of both PAX and aircraft movements in the period. This increase in higher-value aircraft movements, combined with the lift in PAX movements and higher aeronautical charges associated with the significant investment in aeronautical infrastructure has resulted in total aeronautical revenue up 7% in the period to a combined almost $240 million. The increase in passenger activity was a key driver to the improved performance across most of our commercial lines of business with improved performance in car parking and the airport hotels, whilst also supporting our retail business in what has been a more challenging market for travel retail. Starting first with retail. Income declined 2% in the period to $92.3 million as the combined effects of lower concession rates to support customer value, promotional activity and a change in customer buying patterns to a larger proportion of lower-margin categories such as technology, resulted in higher sales and average transaction values, but resulted in a lower income per passenger in the period. On a category basis, duty-free traded well with sales up on the prior period. And as indicated at the full year results, the new contract has evolved with industry trends to support more flexibility to drive greater basket size and with it, customer value. In addition, food and beverage, destination, news and books categories also traded well in the half, reflecting the attractiveness of the retail proposition. However, also reflecting the difficult New Zealand retail environment, luxury and foreign exchange continued to underperform in the period with the latter remaining challenged as the industry continued its migration to new technologies. In car parking, income rose 14% on the prior period as the combined effects of a full period contribution from the transport hub, migration towards products closer to the terminal and pleasingly, an increase in over 20% in the duration of stays across all of the parking categories all contributed to a lift in revenue. You will recall previously, Carrie and I have spoken to the airport seeing a migration of parking to more remote, cost-effective options as the effects of the economic cycle were seen in our transport business. We are now seeing a reversal of this trend with migration from these more remote parks to those more proximate products. The reversal of this trend and the lift in demand has enabled Auckland Airport to also reduce promotional activity that occurred in the months following the opening of the transport hub. Property and other rental income rose by $8 million or 9% in the period, driven by new assets commissioned of close to $5 million and just over $2.5 million from the growth in the existing portfolio. And finally, Auckland Airport booked $3 million in the period of income associated with the insurance proceeds from the January '23 flooding event and lower interest income as the business cash reserves have been gradually utilized to fund infrastructure investment. In summary, the investment in commercial products in recent years has delivered an overall 5% lift in our commercial revenue in the half complementing the 7% growth in aeronautical, highlighting the continued strength and balance of our diversified revenue base. Turning to Page 25. Despite the increase in both aviation activity and also commercial and construction activity in the period, we are very pleased to report operating costs were down on the prior period as the continued focus by management on managing costs has resulted in operating expenses declining 1% in the 6 months to just over $148 million. In particular, our match-fit program of focusing on cost management whilst carefully investing in activities that improve the operation of the airport, reduce risk or improve the customer journey is working with over $20 million in costs saved and in some cases, redeployed to higher priority areas. Key to this has been improvements in procurement, a full 6-month benefits of organizational changes made in the prior period and focus on optimizing asset management throughout the life cycle that has enabled the business to reduce costs while still supporting ongoing investment in the customer experience and importantly, investment in new digital capability. As outlined on the page, marketing and promotional costs declined in the half, reflecting no repeat of the activities to support the launch of the new commercial activities in the prior period. And rates and insurance expenses have increased by $2.5 million or 12% in the period, reflecting a growth in the value of the asset base, a portion of which can be recovered from tenants and is reflected in our rates recoveries or other income. Turning to nonoperating costs outlined on the page. Depreciation costs rose substantially in the half, up over $19 million or 20%, reflecting the combined effects of the full period effect of assets commissioned in the second half of the prior financial year, which drove close to $14 million of this increase and commissioning, as Carrie mentioned, over $743 million of assets in the current half. In addition, for the first half of the financial year, we also included $2 million of accelerated depreciation for assets whose useful lives were shortened due to the decommissioning required as a result of the aeronautical investment program. Finally, gross interest expense declined in the period to $68.4 million, a decline of $6.2 million or 8% on the prior period, reflecting the full period benefit of cash from the equity raise undertaken in late 2024 and lower interest rates in the half, albeit the effect of the latter, moderated by our relatively high fixed debt component. Reflecting the significant number of assets commissioned in the half, capitalized interest dropped $3.7 million or 12% to $27 million as compared to just over $30 million in the prior period. As a result, the net interest expense that you see on the page for the 6 months dropped to $41.4 million or 6% on the prior period. Now turning to Page 26, where we outline a bridge in EBITDAF between the prior half and the first half of FY '26. Over the last couple of years, our EBITDAF has been impacted by one-off events that are not reflective of trading in the underlying business. In particular, the financial impact of the January '23 flood event and additional interest income earned from the 2024 equity raise have colored our EBITDAF. When you strip these out, you can see from the slide the improvement in trading within the core business and with it, a lift in normalized income of 6%, supported by the reduction in costs I talked about, resulting in an 8% lift in EBITDAF. Now turning to Page 27, where you can see our aeronautical investment program is gaining real momentum. CapEx in the period spanning both aeronautical and commercial investment totaled $430 million, with spend on terminal integration of over $219 million in the half, up 21% on 1H '25 or over 8% on the last 6 months of FY '25. For those of you who have been out to the airport recently, you'll see the scale of activity continues to increase with more workers and trades on site across the head house and connecting peer with work on the airfield recently underway. CapEx on the airfield works, as you'll see on the slide, has dropped in the period following the commissioning of the Northern Airfield in the stands and the team now is pivoting to more renewal work and upgrade of activities out on the airfield. With 229 projects on the go, 200 of which are in the construction phase of CapEx activity, we're expecting to see a step-up in activity in the second half due to several milestone payments relating to plant for the new systems as well as a full month -- sorry, full 6 months of activity on the airfield around the new domestic jet terminal after the project team took possession of the site in November. Reflecting the step-up in activity, we were pleased to see CapEx in January come in at $86 million despite it being a short month. Finally, closing WIP at December totaled $1.1 billion, down on the $1.4 billion you'll recall at 30 June 2025 as the 6-month period saw the significant commissioning of not only aeronautical but other assets across the period that Carrie touched on earlier. Now finally, before I hand back to Carrie, on Page 28, we outline our credit metrics. Despite the ongoing significant level of capital expenditure in the period, Auckland Airport continues to maintain a strong liquidity position and robust credit metrics. Total drawn debt at 31 December amounts to circa $2.6 billion with undrawn bank facilities of just over $1 billion. And this is in conjunction with or in addition to cash reserves, I should say, of $361 million. At 31 December, Auckland Airport's key credit metrics remain strong with its FFO to interest cover and FFO to net debt on a spot basis remaining well above their respective tests. With almost 87% of our borrowings fixed and a measured debt maturity profile, it gives us confidence and good visibility of the funding costs over the medium term. As Carrie mentioned, Auckland Airport has declared an interim dividend of $0.065 per share in the period, up from the $0.0625 in 1H '25, and we'll retain a dividend reinvestment plan for the interim dividend, offering those shareholders who elect to participate at a 2.5% discount. In the period, we were pleased to see ongoing strong shareholder support for the DRP with a participation rate in excess of 40% for the second straight period. In conclusion, the 1H '26 result represents a solid start to the year with the continued recovery in travel, improved performance across our commercial lines of business and continued success from the focus on cost control translating into strong underlying financial result. With that, I'll now hand back to Carrie, who will take you through the outlook for the remainder of the financial year. Carrie Hurihanganui: Excellent -- thank you, Stewart. And as we do look ahead to the remainder of the financial year, we can see demand is strong, and we can also see that challenges remain with the global issues impacting the supply of jets. However, we are optimistic based on the recent trading momentum, the continued growth in our aeronautical and commercial activity. The pipeline of additional new air connectivity that we have and the continued substantial progress of our aeronautical construction program. And as I mentioned earlier, we do acknowledge that there is complexity and challenges that come with the program at scale, but we have planned and anticipated those in our look ahead. So reflecting this and our growing confidence in the passenger forecast for F '26, Auckland Airport is narrowing its guidance to underlying profit after tax to between $295 million and $320 million with domestic and international passenger numbers of circa 8.6 million and circa 10.6 million, respectively. Capital expenditure guidance, we are narrowing that to between $1 billion and $1.2 billion in the year. And as always, the guidance is subject to any material adverse events and other criteria as highlighted on the slide. So at this stage, let's move to questions. Operator: [Operator Instructions]. First question comes from Andy Bowley from Forsyth Barr. Andy Bowley: A couple of questions from me. The first is on retail. So it was good to see the PSR going up, albeit average concession yields coming off modestly during the period. And the question is really around those concession yields. You both talked about sales mix being an issue that we've got to think about. But I'm kind of curious around the like-for-like concession yields that you've achieved in the new duty-free contract versus what you'd have had previously? And any discernible trends that you're seeing elsewhere in retail categories? I guess being blunt, are we seeing structural pressures on retail concession yields. Carrie Hurihanganui: Andy, I'll kick off, and then I'm sure Stewart will love to jump into that. I mean in terms of the like-for-like, the terms of the contracts are clearly commercially confidential. So we won't talk specifically on those. But I think there's an element we had over the last couple of years, even when that RFP was out. I know we talked several times about the fact that we were seeing trending changes. We were seeing elements around trends in both regional and global travel retail evolving. You were seeing it moving away from liquor in some instances towards fragrance, beauty and technology, et cetera. And that very much -- that trend continues. And so that's certainly in the sales mix and what you see there. But Stewart, do you want to talk more on the yield question in particular that Andy has asked? Stewart Reynolds: Yes. So Andy, in terms of your question, so in short, yes, we are seeing pressure on yields and -- but this is not unique to us. You see that across the region and more broadly and some of the well-publicized departure of retailers from New Zealand is a good example of that. So I think that's how I would just answer your question. Andy Bowley: And I guess following on from that, your desire strategically is to try and push that PSR further than what we've achieved in recent times, I mean, kind of the last 10 years or so where PSR has been relatively lackluster, but PSR to try and combat the concession yield issue? Stewart Reynolds: Yes, Andy, the way I would summarize it, and look, I'm not a retailer, but I'd say we like to push activity. We don't want the airside retail to be a shop window that people walk past. So we're keen that consumers step into the store and engage. And so to do that, we are taking a more active posture that we've talked about in terms of retailing, and that involves everything from promotional activity to bundling goods, et cetera. So trying to ensure that retail remains relevant to the consumer as they move through the airport. Andy Bowley: Great. And then second question on OpEx. The reduction in OpEx was pleasing. Now could you talk about the direction of travel here, please? And by that, firstly, the level of OpEx you anticipate through the second half? And then secondly, also the shape over the next few years as you commission additional assets leading up to the ITB in 2029? Stewart Reynolds: Yes. Look, I'll touch on that, Andy, and then I'll hand to Carrie to what talks about in terms of the challenges of trying to do that going forward because there's a number of sort of bigger considerations. So in short, we've managed to effectively optimize a lot of the spend in the business by ensuring we focused on what really mattered. And that meant that where we had greater discretion on the spend, and I highlighted some of the spend on promotional activity and consultants, et cetera, we took a very careful lens on that to ensure it made the boat go faster and redeployed that spend where it was required to higher priority areas. So that, in conjunction with some of the work we're doing on procurement, around asset life cycle management has resulted in a lot of those savings that we've talked about. So as we look into the second half of the year, then what we expect is that not only would we bank those savings, but we'll probably see a little bit of a lift in OpEx into the second half. But I would anticipate that would be in the low single digits, and that's just naturally reflecting the greater activity that's going on in the airport. And what I mean by that is the management of the disruption that Carrie alluded to around things like the check-in, et cetera, and we're trying to ensure that we manage the customer journey through that process. So it will be a little bit lumpy over the next 12 to 18 months. But notwithstanding that, as you then move forward into a longer period, we're trying to then normalize down and drive down that cost to serve, so to speak. Andy Bowley: You mean on a unit basis or in absolute terms? Stewart Reynolds: On a unit basis, first and foremost. Andy Bowley: Yes. Okay. And just to clarify, single-digit increase through the second half, you mean on top of the first half in dollars or percent or what's? Stewart Reynolds: Yes, in terms of dollars. Andy Bowley: On top of the first half. So a higher level of OpEx through the second half. Operator: Our next question comes from Wade Gardiner from Craigs Investment Partners. Wade Gardiner: A few questions from me. Can you -- given you've just given some guidance around the OpEx number, can you also sort of give a bit of guidance around what we should see around depreciation and interest given the assets being commissioned and the capitalized interest running off? Stewart Reynolds: Yes, I'll take that, Wade. So yes, it's -- I think at the full year results, I guided to the full year would be sort of around $300 million, and that would be essentially net of interest income for both depreciation and interest. And so when we're looking at the result for the first half, I'm still broadly comfortable with that number, but it might be somewhere between 2% and 5% sort of slightly higher. And that's really reflecting the slight change in the depreciation number that's flowed through the first half. Wade Gardiner: Okay. Just to clarify sort of following on from what Andy was saying on the duty-free concession, is there anything structural in that contract in regards to the period we're in now where there's fit-out construction. In other words, once they have done the fit-out, will we see any sort of structural step-up in that arrangement? Stewart Reynolds: Yes, Wade, I can't comment on the contract specifically. But I think if you go back previously, I think where your question is coming from is when we completed the expansion of the Phase 3 as we called it or the airside dwell and security processing area, there was a step-up as new space was deployed. And so we've tended to move away from those type of mechanisms. Wade Gardiner: Okay. While we're on retail, I mean, interesting to hear you talk about driving the PSR higher. How can you, as a management team actually do that versus just reliance on the retailers doing their thing? Stewart Reynolds: Yes. So you're right. It comes from, in short, a greater partnership with the retailer. And that was one of the reasons why we selected Lagardere. And it's -- so in working together and alignment around effectively ensuring that the retail environment is one where customers want to stop dwell and with that potentially spend ensures a greater outcome for all concerned. And so we work with them around promotional activity. We work with them around bundling as an example. And so you recall in the previous results, we talked about some promotional activity that we had in the liquor category as an example. And we also work with them around what [ Howard ] described as complementing some of the experiential elements that go on within the terminal and ensuring that travelers are aware of these sort of things before they turn up. So a big part of that is ensuring people get to airside relaxed and on time and are not rushing through that space. Carrie Hurihanganui: And if I could add to that, Wade, I think Stewart has covered it well. But one of the things that we also talked about back, you might recall when we were going from the 2 operators to the 1 and the way that we plan that, part of this refurbishment also moves away from, in effect, what -- even though we have one operator, it's still a duplicated or dual store layout. And so part of that also is we work together with them, and that was part of the agreement of how we move to a single integrated store, how we enhance layout, the brand visibility of the customer, all the things that Stewart was just referring to, but that's one of these key elements that goes alongside that as well. Wade Gardiner: Okay. And just finally for me, just -- I mean, $34 million on property in the first half. Can you give us an idea of what you're expecting in the second half? I mean I know you did say it will be down. And also what the sort of the medium-term outlook looks like for property CapEx? Stewart Reynolds: Wade, apologies, I can't quote that number for the second half, like Carrie and I have talked to what the long run rates of between $100 million and $150 million on commercial development, but that's very much on average over the longer term. And so you'll see from that number that we're expecting things to be a little bit more reflective of the subdued local market. We've obviously got some exciting developments underway at the moment, but I couldn't give you a CapEx number, I'm sorry. Operator: Next, we have Grant Lowe from Jarden. Grant Lowe: Can you hear me okay? Carrie Hurihanganui: We can. Grant Lowe: Perfect. Congratulations on a good result. It seems we all have very similar questions around retail and OpEx and the like. Just focusing on changing to the car parking side of things, quite a strong uplift and cycling some discounting and the like in the previous period. Do you see this as a new base for the car parking going forward and sort of inflationary and passenger growth from here? Carrie Hurihanganui: Yes, there isn't anything, Grant, that will make us think otherwise, particularly when it -- because we've had the full 6 months, obviously, versus the prior comparable period for the transport hub. We've got the change in mix in premium products pipeline. So some of those foundational elements are going to carry forward. I think probably the piece that interests us and we want to continue to build is probably the increased duration of stay. That's one that's getting under the skin of that and kind of understanding how do we continue to encourage that because that's been a key element for us. But the foundational elements have us seeing that as a carry forward. Grant Lowe: Yes. Okay. And then just looking at the route development and Thai Airways coming back at the end of the year, et cetera. I think they were sort of the key -- sort of the last of the missing pieces from pre-COVID times. Can you give us sort of any indication as to what sort of level of increase in capacity that return now gives on the international side? Carrie Hurihanganui: Well, the -- until a little bit in terms of its -- they have announced coming back daily. So -- but we -- they haven't landed on a specific date yet. So we're not in a position is until we know the start date for F '20 second half this year, but it will be around about 200,000 seats, which gives you an idea of the quantum. And then ultimately, they will confirm in the next while when exactly they will be starting in the second half of this year, and that will give them a better play-through of the impact to the forward impact for F '27 and beyond. Grant Lowe: That's great. And how does that compare to pre-COVID for [indiscernible] at least? Carrie Hurihanganui: At the time they were doing daily. So we were delighted that they didn't -- some airlines return, say, 3 or 4 and then build back into it. They've committed to coming back exactly in line with what they had exited during COVID. So we're really pleased with that. Grant Lowe: Okay. That's great. And then just going back to the retail side of things. So like I haven't been out to the international side of things for the last few months. But in terms of when exactly did that start? That was fairly late in the period, wasn't it? Stewart Reynolds: Yes. It started in -- some of the work was effectively in the fourth quarter of the calendar year, but there was work happening behind the scenes. So in the -- I think the store areas that the customers obviously don't walk through. So we've been progressively doing it behind the scenes as well. Grant Lowe: Yes. I guess where I'm going with that question is like there would have been fairly minimal disruption impact. And the second part of that question really is, are we expecting to see any sort of disruption impacts in the current half? Carrie Hurihanganui: Listen, on that, we would... Grant Lowe: In terms of spend and the like. Carrie Hurihanganui: We're doing everything to minimize that, which is part of the reason it's probably a little bit of a slower burn and throughout 2026 because we do want to minimize that impact, Grant. But will there be some? I think it would be very hard for us to say there would be 0, but we're certainly going to minimize that as much as we possibly can. Grant Lowe: Okay. So it hasn't had a big impact at this stage. Stewart Reynolds: Hard to measure, Grant, but I think your initial assumption, the initial works were behind the shelves, so to speak, and we've now stepped into that. But we're not seeing a measurable difference at this point. But like Carrie mentioned, it is a close focus of the team. Operator: Next, we have Rob Koh from Morgan Stanley. Robert Koh: Happy Lunar New Year. Just a question on Chinese passengers. I think you've called out that with the visa improvement, you started to see some better seat capacity. Should we be thinking that, that also flows through to the PSR results that you've seen? And then also, if you could maybe just give us any color on the timing of Chinese New Year impact this year so far? Carrie Hurihanganui: Yes, absolutely. As far as I take the first question in terms of do we expect that will flow through. Ultimately, we'd like to think it will. And I look at things that the change to the Australian visa holders that make them eligible travelers people who come to New Zealand. We've seen a 44% increase between Australia and Auckland in the month of November and December, sorry, and that was nearly 23,000 Chinese travelers using that route. So the indicators are all positive, but early days, right? We had kind of 1.5 months, but we'd like to think that, that will play through in that space. In terms of the capacity that's come through as part of Lunar New Year, we've had a significant uptick across multiple carriers adding in capacity through to, I think it's around, I want to say, the 2nd of March as far as their schedules. And again, because that's live now, we don't have any indication of how that's performing thus far. But we certainly, at the end of February, we'll be looking at our operating statistics as to what we kind of saw come through on that, but there was a significant uplift in that capacity over that period. Stewart Reynolds: And then, Rob, to your question on PSR, I think all things considered equal, yes, it should, but it's still too early to understand what we're seeing in that space. Robert Koh: Yes. Okay. All right. My next question, I just want to make sure I've got my kind of understanding of how to calibrate your revised guidance because you haven't changed your pax numbers that underlying that guidance, but it does seem you're a little bit more positive on seat capacity. So are you still thinking of those pax numbers as your central scenario? Stewart Reynolds: Yes, Rob, we are. When we put that guidance out, gosh, many moons ago now, there was essentially a bit of anticipation of capacity being deployed into that. And so that capacity, we have more confidence of it being deployed now, some of it, obviously, you see both domestically, but also internationally. So it's giving us greater confidence that, that target will be achieved. Operator: Next question comes from Marcus Curley from UBS. Marcus Curley: I just wondered if we could start with the CapEx, Carrie. It looks like -- well, it has been, let's call it, rounded down in terms of the year-end CapEx. My question is, should we -- or is there any associated further delays to endpoints on the major projects that we should read into that? Or is all of the major projects still on time to what you talked about 6 months ago? Carrie Hurihanganui: Yes. Thanks, Marcus, there's a few things, I think, in your question of trying to get an understand of that play forward, and I'm hearing beyond the next 6 months potentially as part of your question. I think if we do take this next half, the second half, a couple of things. Obviously, some of the revised guidance is that the higher levels of spend contemplated for commercial property that informed the top of that original guidance have not materialized. So that's one element that we certainly plays into the second half. And then as far as activity that we are expecting to pick up in the aeronautical space in the second half, we've got everything from kind of milestone payments relating to plant for the new baggage handling system. They fall in the second half as does a full 6 months of activity on the airfield around the new domestic jet terminal because they only took possession of that site in November. So only had kind of a month with Christmas close down. So we'll see the full 6 months play through that. And then we've got a number of other key projects moving from design to enabling to significant construction activity such as check-in expansion, payment renewals, et cetera. So those are things that give us the confidence for the next 6 months or so. Then I guess if your question is longer beyond that and some of the bigger projects that I'm hearing, consistent with our previous messaging, we do expect there have been some changes in that original forecast we had around PSE4 at the time of setting prices and PSE4, for example, assume that the Western stands on the new peer would be operational in the second half of FY '27, along with new regional stands. Now both of those are making great progress, but they are tracking slightly behind that period to land in that kind of first half of 2027. So -- but in terms of fundamentals of the programs, hitting the milestones and moving ahead, we have absolute confidence in those. Marcus Curley: And completion of the domestic terminal? Carrie Hurihanganui: Yes, that's on track for 2029. Marcus Curley: Yes. And then just secondly, you've obviously flagged again the downward trend in revenue from FX. I just wondered if you could provide any perspective in terms of the level of revenue exposure in that category? Or how should we be thinking about that over the next, call it, 3 to 5 years? Stewart Reynolds: Marcus, so I'd describe it as -- yes, I think it's just reaching that natural level now where there will always be some people who look to get foreign currency and take it to destinations around the Pacific or even into Asia. But over time, that number will reach a very de minimis number. So we described, I think, at the full year results is sort of that mid- to low single digits was the sort of revenue exposure there, and I can just see that continuing to trend in that direction. Operator: Our next question comes from Owen Birrell from RBC. Owen from RBC. Owen Birrell: Just wanted a question around, I guess, tourism outreach to international markets. Can you give us a sense on, I guess, what sort of activity is occurring at the moment broadly, I guess, at the government level to encourage tourism activity in New Zealand? Carrie Hurihanganui: Yes. I mean there's a number of facets moving across it, I guess, in terms of you've got what I would call the expected space, which is TNZ, and they've obviously been provided additional funding last year and into the year to promote that. There's -- that then carries forward. TNZ works in relevant markets like Australia and like North America and otherwise to build that out. Alongside that, we engage and often work if we think about kind of last year, we did work with RotoruaNZ and Tataki Auckland Unlimited to appeal to the Australian market, for example, what the North Island has to offer. We've also sponsored kind of 15 regional tourism organizations and came together with ourselves and Tataki Auckland Unlimited to create Kiwi North and again, how do we promote North Island to external markets and encourage them to. So there's a number of facets underway. And then you've got things like I mentioned earlier, that $70 million investment by government in terms of large events and bringing events to New Zealand, and you're seeing things like the state of origin and some of those other things starting to come through as well as the changes to Eden Park settings being proposed. And then obviously, with the convention center opening, they've got a really nice forward book in terms of large events coming. So it's a combination of pure leisure travel events and those things together that continues to gain momentum. Owen Birrell: I mean historically, we've seen some big pushes into Europe, India, a little bit of China. Is any of that sort of activity coming back at this point? Carrie Hurihanganui: Yes. Well, certainly, again, if you look at an organization like TNZ or [ Tosm ] New Zealand, sorry, they have offices and investment in all of the markets, so China, Europe, North America, all of those. So those are all part of that broader pace. And some of it also, I know in my discussions with TNZ things like Southeast Asia, we knew was, in particular, a bit of a missing piece of the puzzle. I said, hence, why we're so delighted with Thai Airways returning, but there's been a bit more of a targeted focus in Southeast Asia because we knew that was an area for New Zealand that needed to recover both the connections because you can stimulate travel, but you also need the connections to enable that to have kind of a multiplier effect, so to speak. So as we start to get recovery across some of those markets that have been missing like Southeast Asia, my anticipation would be that they'll look at those broader markets as well again. Operator: Our last question comes from Amit Kanwatia from Jefferies. Amit Kanwatia: Just a couple of questions. I mean you've given kind of guidance for operating expense, finance cost and D&A. I'm just wondering, I mean, if I look at the tax expense into first half '26, I think that tax rate was a bit lower as compared to the PCP fiscal '25. Maybe if you can give us a steer in terms of the tax rate that you expect for full year '26? Stewart Reynolds: Amit, what you should expect over time is we get trend back towards more the company tax rate. So I expect it will be closer to the 28% for the full year. There is obviously a number of moving parts within that, including the government's recent policy changes around the nondeductibility of depreciation on building structures. So there is a little bit of noise in that. But I think over the medium term, you should expect us to trend back to that overall rate. Amit Kanwatia: Okay. And then, I mean, if I think about the guidance range and you've increased the midpoint of the range, you've narrowed the range, $295 to $320. I mean you've kept the passenger expectations unchanged. Maybe if you can speak to kind of the swing factors to the -- from the midpoint towards the top of the guidance range? Stewart Reynolds: Yes. Certainly, Amit. So I think what I said at the full year was if we achieve those passenger forecasts and subject to any other unknowns that we could see ourselves getting into the top half of that guidance range. But the range really catered for the potential one-off costs that could come through in such a significant infrastructure investment program and managing the disruption with that and also some of the variability associated with as you commission assets and you disaggregate effectively what I would describe as the as built into specific assets, the variability in depreciation that comes. And the lack of, I think, one-offs that we saw in the first half has given us comfort around lifting the bottom of the range. And so I would come back to what I said at the sort of full year results that if we can achieve that passenger forecast as well as reduce the likelihood of any unknowns that appear, then we could be in the top half of that guidance range. Amit Kanwatia: Sure. That's very useful. And just back on -- I mean, if I still think back around the passenger guidance, I mean, international passenger growth, 3% for the full year. I mean the implied growth rate into second half is not too dissimilar to what we saw in the first half, slightly more. But if I think about the capacity outlook, I think that's improved over the last few months. Maybe can you talk to some of the thinking behind the expectation around the second half for passenger growth, particularly for international? Stewart Reynolds: Yes. So Amit, why don't I start with domestic and then move into international. And then I'll hand to Carrie to give her thoughts as well. So -- within the domestic system, we're obviously very cautious around the regional system. And as you've seen in our presentation and some of the commentary in the monthly traffic updates, we've been a little surprised to the downside in terms of the domestic capacity and travel numbers through there. But notwithstanding that, the addition of additional capacity on the jet side or trunk activity has been pleasing to see. And so we're confident overall of that domestic number, but it is essentially a 2-sided coin in many respects is where it's a watch on regional and positive on jet. On international, what you're seeing there is complementing some of that additional capacity that Carrie talked about in new services, you're getting additional frequency on existing routes as well. And so that's particularly the services that have been announced to date is what giving us confidence around that growth rate continuing into the second half as we get a full period effect of some of those services that turned up in the fourth quarter of the calendar year last year. Carrie Hurihanganui: And if I could add to that, it's this balance also of kind of the first half is what was actually phone, there's slots filed. So as we look forward, it's what we anticipate airlines to fly, but sometimes everything that's -- all the slots that are filed don't necessarily get operated. So there's a little bit of that. And then we're really positive. The optimism I talked about earlier was around things like I called out the Samoa and Gold Coast through Qantas Group. Those actually commenced in -- I think it's June. So actually, the pickup in this financial year is going to be minimal, but actually then carries forward. So we have a kind of a -- to Stewart's point, there's a mixture of things that are influenced, we have -- we're positive and optimistic about that, but there are those elements that we are just aware of in terms of those pulling through. Operator: Thank you. That concludes our Q&A. I will now pass back to Carrie. Carrie Hurihanganui: Well, thank you, everyone, for your time today. And as I said just before, we are optimistic is the word that I will use on the remainder of the year and beyond. We continue to be laser-focused on the successful delivery of the key enablers for growth across the business. And of course, that also includes our infrastructure investment program. It would be remiss of me not to take the opportunity to pass on my thanks to all the Auckland Airporters and our partners in terms of the positive performance in the first half has been a team effort, as they say. And so I want to pass an acknowledgment of the work that's gone into that. But we certainly look forward, Stewart and I to connecting with many of you over the coming weeks of investor meetings, both here in New Zealand and also Australia. So with that, have a fabulous afternoon. Thank you.
Operator: Thank you for standing by, and welcome to the Emeco Holdings Limited Half Year Results. [Operator Instructions] I would now like to hand the conference over to Mr. Ian Testrow, CEO and Managing Director. Please go ahead. Ian Testrow: Good morning, everyone, and welcome to Emeco's Financial Year 2026 Half Year Results Presentation. Thank you all for joining us today. I'm delighted to have our Chief Financial Officer, Theresa Mlikota, here with me as well as Adam Buckler, our new Deputy CFO. Welcome, Adam. Today's session will follow our usual format. We'll take you through the presentation lodged on the ASX this morning, after which we'll be happy to take any questions. Before we begin, I'd like to direct your attention to disclaimer on Slide 2, which covers important information regarding forward-looking statements. I want to start with Slide 5 and some of the key takeaway messages before we get into the more detailed presentation. Emeco continues to deliver strong operational and financial performance. We've worked hard to strengthen the business and now delivered 6 consecutive halves of period-on-period growth in earnings and cash flow. Our balance sheet is in the best shape it's been in 10 years since I've been CEO, and we've recently completed a refinancing of our debt facilities on better terms and conditions, which provides us with great flexibility to consider growth options going forward. I just want to call out Theresa and her team and the finance and legal teams for absolutely cracking finance, a fantastic work. Well done, team. Our strategy has evolved to focus on disciplined organic and inorganic growth while continuing to target 20% returns for shareholders. We're focused on growing our portfolio of fully maintained rental projects, winning stand-alone maintenance projects and also for the pursuit of adjacent maintenance services businesses. We're also actively monitoring our rental competitors for consolidation opportunities. Additional to this, we will further develop our existing artificial intelligence and operational technology capabilities to expand our competitive advantage. We believe our capabilities in the areas of asset management, condition monitoring and reliability engineering are unique and set us apart from our competition. Moving to Slide 6 and the first half financial highlights. Emeco has an excellent start to FY '26 with a strong operational and financial performance in the first half. Our simplified business model and focus on disciplined capital and cost management has continued to deliver positive results. We have again seen good growth in all metrics, including revenue, operating earnings, free cash flow and return on capital. Group revenue was up 9% to $421 million, operating EBITDA increasing 7% to $155 million. Operating EBIT was up 13% to $77 million on the prior comparative period. Margins were driven by revenue mix with high levels of maintenance work in first half '26 compared to first half '25. While maintenance work is lower margin, it's also low capital and has been a key driver of the continued improvement in return on capital. The positive financial performance flowed through to the bottom line with operating net profit after tax increasing by 21% to $46 million. Operating free cash flow was up 37% to $67 million, with excellent cash conversion of 110% through improved working capital in the period. Return on capital was up 100 basis points on FY '25 and 230 basis points on the first half of '25 and has now reached 18%, which is good progress on our journey to our target of 20%. We've made strong gains in improving our balance sheet and improving returns. Preserving these gains and our capital will be important as we grow the business going forward. Our focus continues to be achieving a return on capital target of 20%. These gains are illustrated in Slide 7, which summarizes Emeco's half-on-half performance history. The slide shows steady and consistent half-on-half improvement over the past 2 to 3 years. The result has been a strong profit uplift in operating earnings from the prior comparative period and a solid repeat delivery of really strong performance we generated in the second half of FY '25. This is in line with the expectations we set out at our AGM. The real highlight here is the uplift in free cash flow generation, which has increased by nearly 70% during the 2-year period. In dollar terms, the business has generated around $230 million in free cash flow since first half '24. Much of this growth is being delivered organically without investment in growth capital, in particular, the growth in earnings from maintenance services, which will remain a key focus going forward. I'll cover this in more detail later. The strong cash generation has driven a significant improvement in Emeco's balance sheet. Net leverage has improved from 1.1x in first half '24 to 0.5x in first half '26. This is an outstanding result and puts the company in a strong position for future growth opportunities, which I'll cover more in the strategy and outlook discussion. Finally, the slide also clearly shows the strong progress we've made towards our return on capital target of 20%. The business generated a return on capital of 15% in the first half of '24, and we've grown this to 18% in the first half of '26. This has been a 230 basis points improvement, and I'm confident the Emeco team can continue to drive this towards our 20% target. Slide 9 shows the group's safety performance over the last 5 years. The safety of our people is paramount, and safety remains a key priority for Emeco and all of our employees. We remain committed to providing a healthy and safe workplace. The total recordable injury frequency rate reduced from 3.4 at 30th of June 2025 to 2.5 at 31st of December 2025. The lost time injury frequency rate remained at 0. We'll continue to focus on reducing TRIFR with ongoing investment in training, which is a key focus. Slide 10 outlines the key highlights for our Rental business in the first half of '26. Emeco is Australia's largest provider of surface and underground rental equipment with a fleet size of 840 primary machines and a workforce of 480 people and net assets approaching $900 million. Emeco's Rental business delivered a strong operational and financial performance in the first half of '26, with Rental revenue increasing 14% to $342 million, driven primarily by the delivery of increased maintenance services across key contracts. Operating EBITDA increased 6% in the first half of '26 to $168 million, while operating EBIT grew to $94 million from $86 million, up 9% for the half. Operational highlights include the successful ramp-up of a new large fully maintained operation in Queensland, where Emeco provides mining fleet and full maintenance services to both Emeco and the customers' fleets. We also continue to roll out infill digital tools to enhance our service offering, improving quality and productivity. Surface fleet utilization remained healthy at 85%, while underground utilization increased to 69% and is currently running at 75%. We have good operating leverage within the existing capacity of our current fleet, which limits the needs of growth CapEx to grow our earnings. The outlook for the Rental business remains positive. Our competitive positioning via our fully maintained rental model positions the business well to capitalize on new opportunities. While wet weather remains challenging in Queensland impacting utilization in early second half '26, the medium-term production outlook remains robust as customers recover operations. Slide 11 outlines the key highlights for Force in the first half of '26. Force is strategically important to the group with our workshops, field maintenance, asset management and condition monitoring service capabilities, the key driver of Emeco's competitive advantage. These deliver cost-effective maintenance and rebuild capabilities to both our customers and to our own Rental business. Force operates across 7 workshops as well as fully mobile Australia-wide field maintenance capability with approximately 350 employees. Force workshops completed 84 machine rebuilds in the first half of '26 and also provided support services to XCMG for their battery-powered fleet in preparation for delivery to Fortescue. Force delivered total gross revenue of $141 million in the half. External revenue was down year-on-year as workshop capacity was redeployed to support our internal rental fleet. Trade labor utilization remained high. The business maintained relatively stable gross operating EBITDA of $18.3 million and a gross operating EBIT of $15 million. Cost efficiencies realized during the half supported stable margins. The focus for Force will be on business development and increasing external work in both the Eastern and Western regions. The integration of underground capability has opened new maintenance services opportunities, while field-based services remain in strong demand. I'd like now to hand over to Theresa to run through the financials. Theresa Mlikota: Thanks, Ian, and good morning, everyone. As with our prior presentations, we refer to operating results in our presentation today, which are non-IFRS. You'll find a reconciliation to our statutory results in the appendices. Slide 13 summarizes the group profit and loss. Without rehashing too much of what Ian has covered already, the high-level message from the accounts is that the business continued to deliver period-on-period top line and bottom line growth with strong returns on capital. The business maintained a momentum created in FY '25, mirroring the strong performance generated in the second half of '25 into the first half of '26. Importantly, revenue growth was driven by growth in low capital maintenance services, which continues to drive stronger returns for our business. Whilst margins from services are lower, the return on capital is much higher. We expect to continue to grow this low capital side of our earnings to reach our 20% ROC target. Another point to make about our earnings for the half, our hours of rental fleet utilization were very similar to our last half, but our fleet mix was made up of smaller fleet. This reflected an average price per hour as well as depreciation cost per hour, which were both lower this half. Statutory profit after tax of $38.7 million increased 15% compared to the prior corresponding period, while our operating profit after tax of $46.5 million increased 21%. Lower finance costs contributed to this with lower drawn debt and lower base rates in the half. Whilst our intention is to grow the business, we will continue to maintain discipline around the investments we make, and we will continue to have a laser-like focus on our ROC target, which, as Ian already mentioned, has increased by a further 100 basis points to 18% in the last 6 months. Slide 14 shows the major cash movements half-on-half. The key number here is operating free cash flow, which was up a strong 37% on the prior corresponding period. This was driven by a strong EBITDA-to-cash conversion of 110%. Strong debtor collections in combination with timing benefits on creditor payments drove the stronger cash conversion, releasing $11.3 million in working capital. We expect the timing benefits on working capital to reverse by year-end. Finance payments of $13 million were largely consistent with the prior comparative period. Stay in business CapEx totaled $90.7 million in the half, representing a 17% increase from $77.6 million in the prior corresponding period. Proceeds from disposal of property, plant and equipment were $4 million, resulting in a net CapEx of $86.7 million. Second half CapEx will be lower and will align with the guidance we have provided to the market for the full year. Free cash flow was again applied primarily to debt reduction, including lease liabilities and other financing obligations, which reduced by $13.7 million. No shareholder distributions were made as the company focused on debt reduction ahead of the company's refinancing. The net result was an increase in cash of $45 million bringing total cash to $171 million at period end, up from $126 million since June. As with the prior year, no income tax is paid due to the group's carried forward tax loss position, which was $74 million at period end. Moving to the balance sheet and capital management on Slide 15. Emeco's balance sheet is in great shape and shows the delivery of our deleveraging strategy with net leverage now reduced to 0.5x EBITDA. This provides substantial financial flexibility to manage business growth or to make shareholder distributions in the future. Just highlighting some of the numbers on the balance sheet. The $52 million reduction in net debt since June was driven by strong earnings and cash conversion. The reduction in net working capital was driven by the reduction in debtors with strong cash collections for the half. Prepayments and accruals were both higher, recognizing the renewal of the company's insurance program. Contract assets were higher due to fleet mobilizations to surface and underground projects during the period. $12 million in noncore or end-of-life fixed assets were transferred into held for sale. Trade creditors were higher due largely to timing, and tax liabilities are higher due to the consumption of tax losses. Value created for shareholders and equity totaled $39 million with NTA per share increasing $0.08 per share to $1.44. CapEx outweighed depreciation during the half, mostly due to timing, with, as I just mentioned, $12 million of fixed assets being transferred into held for sale assets as part of the group's fleet optimization program. Turning to capital management. Importantly, the company's debt facilities were refinanced in November 2025 and were used to take out the company's maturing facilities in January '26. A 5-year $355 million syndicated bank debt facility was secured on better pricing and conditions than the preexisting debt facilities and will provide us with better flexibility around the use of excess capital. Emeco's credit ratings were reaffirmed during the half with Moody's maintaining Ba3 and Fitch at BB-. Ian will talk to this a little more in coming slides, but we are actively assessing low capital vertical opportunities to complement core business and will actively monitor competitors for consolidation opportunities. We expect to see opportunities emerge over the next 12 months, which will be assessed using strong capital discipline principles, including our key target of 20% ROC. On that note, the Board have elected to preserve capital at this time and to prioritize flexibility for growth. Consequently, no shareholder distributions have been recommended by the Board in relation to the half. Slide 16 shows the maturity profile and liquidity position in a bit more detail. The main things to highlight here are that we successfully completed the refinancing of our AMTN, which has extended the bulk of our debt maturity profile to be on the 5-year mark. As I mentioned on the previous slide, the new facility was applied towards refinancing the group's existing financial indebtedness, including the replacement of the existing RCF and the redemption of the $250 million AMTN, which occurred on the 19th of January 2026. The group's liquidity position has improved since FY '25, increasing by around $50 million to $271 million, taking account of the note redemption, which took place after period end. Slide 17 outlines our progress towards our ROC target. Our target of 20% has been key to driving improved efficiency and performance across all parts of our business. Over the last 2 years, we have consciously reduced our level of growth CapEx and focused on improving the cost performance of our business as well as organically growing earnings through the value-added services we provide to our rental customers. These low capital earnings have grown through the expansion of field services, on-site maintenance for our fleet as well as customer-owned fleet in combination with condition monitoring and reliability support. We delivered another 100 basis point improvement in ROC for the half, which now stands at 18%. This compares to 17% in FY '25, 16% in the first half of '25 and 15% in FY '24. Our drivers to achieve the 20% target lay in increasing our equipment utilization, optimizing the fleet and increasing our low capital maintenance services earnings. If you recall, in Slide 10 on Force, the segment delivered $15 million of EBIT in the half from $3 million in net assets. So you can see the opportunity from continuing to grow lower capital intensity earnings. Similarly, we have further potential to increase utilization with strong commodity prices in gold and copper. We see opportunities to grow here and our BD teams are focused on achieving this. ROC improvement has been a direct driver of cash generation. Emeco has delivered around $265 million of free cash flow since FY '24. As you can see on the right-hand side, when the company is delivering an 18% return on capital, the business is expected to deliver around $120 million in free cash, which is a good guide for this year. At 20%, this increases to around $140 million. This remains our key target. As always, I'm happy to talk more to the finances in the Q&A section. I'll now hand it back to Ian. Ian Testrow: Thanks, Theresa. I'll now move on to strategy. On Slide 19, you'll find the pillars that guide our strategy and its execution. Emeco's core strategic pillars guide consistent execution and long-term sustainable value creation for shareholders. I want to briefly recap these given their importance. We're Australia's lowest cost, highest quality, technology-driven mining equipment rental and maintenance service provider. We use our scale to invest in maintenance services, condition monitoring and asset management, technology and development of our skilled workforce to create a competitive market advantage. Secondly, we'll build on our diversified portfolio of businesses and services, balanced by service line, customer, project, commodity and region. This gives us flexibility to service a broad range of customers across a range of sectors utilizing our core strength while also exploring complementary or logical adjacencies. Finally, Pillar 3, exercise disciplined capital management. This pillar provides some of the guardrails to ensure disciplined capital allocation. Setting a ROC target of 20% in combination with a more conservative leverage target will provide more robust investment decision-making. It is worth noting the reset of our target leverage of 0.5 to 1x. This has been reset to support resilience through mining cycles but also providing the flexibility of dry powder to make opportunistic investments should they arise. Being prudent in the consideration of our capital investments will drive us closer to our 20% return on capital target and will assist to maintain strong free cash flow whilst protecting the balance sheet for all the cycles. These targets provide the flexibility to reinvest in the business, pursue inorganic growth or return capital to shareholders. Moving on to Slide 20 and our scale and competitive advantage. We've worked really hard over the years to create a competitive advantage for our scale. As you can see by the map, we have operations all around Australia. We're truly national. We have a very large rental fleet, 840 pieces of equipment. We have the ability to rebuild those equipment and rebuild mid-life equipment, which gives us a cost and quality advantage. And we're supported by the Force workshop, which has workshops all around Australia and a very talented workforce. On top of that, we have our asset management team, which is based in Brisbane. They provide reliability engineering, asset planning, condition monitoring and a bunch of analysts that really are key to our business. Moving on to strategic priorities on Slide 21. These are presented across 3 broad time horizons. Our near-term focus will be on strengthening and optimizing our core by growing our fully maintained rental projects, expanding low capital earnings and maintenance offering. This includes organically growing our earnings for the provision of maintenance services for customer-owned fleet. We'll actively monitor competitors for consolidation, and we'll scale our artificial intelligence and operational technology capability. These opportunities will likely be within or adjacent to the mining sector. Over the medium term, we will extend our capabilities for adjacent low capital opportunities. This includes assessing adjacent maintenance services and asset management acquisitions, commercializing our artificial intelligence-driven operational technologies into a repeatable operating model and partnerships to accelerate entry into adjacencies. Over the longer term, our strategic focus will be on portfolio resilience by divesting our earnings base by expanding existing capabilities into new industries or sectors, strategically scaling up digital services offerings, positioning the business for the energy transition. I want to emphasize this does not mean that we're going on a buying spree. Each investment decision will continue to be considered utilizing strong guardrails aligned with the disciplined capital management, including key financial hurdles, capability fit or strategic alignment and a driver for growth. Slide 22 shows the growth of our workshop and maintenance services and just how significant a part of this business this is. This generates 50% of gross revenues and about 35% of gross EBITDA of the business from a small capital base. Maintenance services have been an important contributor to Emeco's financial performance. Low capital and maintenance services earnings have doubled over the last 12 months. The scale of this contribution demonstrates a strategic shift towards a low capital, high-return service offerings. This expansion has been underpinned by significant growth across fully maintained projects, including projects where Emeco maintains both our and our customers' fleets. The maintenance service expansion directly strengthens Emeco's competitive positioning through the differentiated service capabilities that extend beyond traditional equipment rental. It has been a key factor in recent rental contract wins and renewals while achieving high returns. By leveraging Force's mid-life rebuild capability and on-site service expertise in combination with its asset management, condition monitoring and reliability technology, the company has created a defensible competitive advantage that supports sustained earnings growth and improved capital efficiency across the business cycle. It's important that we show how management have organically grown this low capital side of the business significantly. We believe this is a strong avenue to deliver future earnings growth. We have a good delivery track record, and we'll seek to expand and grow this part of our business. I want to use Slide 23 to judge just how serious we are about technology as a competitive advantage. Our asset management, reliability and field service teams are applying artificial intelligence and machine learning to drive better equipment reliability, lower cost and longer asset life for our customers. We actively apply AI and machine learning to the data that we source from our oil samples analysis and machine telemetry to provide better predictive maintenance across our fleet and an increasing number of cases, our customers' fleet, with active condition monitoring through our in-house telemetry across more than 200 of our machines. We're developing first-generation in-house agentic reliability solutions using patent analysis and root-cause investigations to drive improved decision-making and response times. We're rolling out the digitization of all paper-based field and workshops activities to improve maintenance decision-making, quality and cost control. We're investigating the application of artificial intelligence and machine learning across asset knowledge, field quality, service delivery and commercial processes. We have performed early proof-of-concept work to assess its commerciality feasibility and business value. Slide 24 outlines a brief update on ESG. We continue striving to be a sustainable business that delivers creative solutions for our customers, a family feel for our people, support of our local communities and value for our investors. Emeco is committed to integrating environmental, social and governance principles into our business strategy and operations. We published a climate change position statement available on Emeco's website and are developing a decarbonization transition plan to work towards lower Scope 1, Scope 2 and Scope 3 emissions. Scenario analysis has been undertaken to identify potential physical impacts of climate change in our people, equipment and operations. Preparations for reporting under AASB S2 climate-related disclosures are well advanced with oversight through the ESG Committee, and Audit and Risk Management Committee. I touched on safety metrics for the first half earlier on Slide 9. We continue to focus on strengthening workplace, health, safety, well-being and training through targeted initiatives and improved consistency of execution. FY '26 HSET focus areas include ongoing uplift in critical risk and control insurance, continued enhancement of workshop safety controls and expansion of role-based leadership and workforce training. Governance assurance is underway with ongoing assessments and compliance monitoring to validate policy effectiveness and drive continuous improvement. Slide 25 lists our priorities and outlook for the second half of FY '26. I'll start with our priorities for the core business. We continued disciplined capital expenditure and cost efficiencies to drive returns and cash flow while increasing utilization by building a portfolio of fully maintained projects for a pipeline of opportunities and expanding the Force service offering. With regards to capital management and the deployment of growth capital, investment in fleet will be limited until our existing fleet is more fully utilized with current capacity to grow earnings without the need to buy more fleet, a key driver to achieving our 20% return on capital. We'll also actively evaluate potential M&A opportunities, including low capital intensity businesses to complement our core business, and we're actively monitoring competitors for sensible consolidation opportunities. We intend to preserve our improved balance sheet and capital position to provide maximum flexibility should the right opportunity present. We'll continue to invest in technology to improve efficiency and to build our competitive advantage. The focus will be on delivering the build phase of our D365 ERP project and continuing the digitization of operational technology. I mentioned ESG earlier. Our focus will continue to be on improving safety and health, continuing the development of our plan to reduce emissions, and preparing for the new FY '26 sustainability reporting requirements. The mining sector outlook remains supportive for the business with the medium-term production outlook remaining robust. This provides a stable foundation for continued demand for our equipment rental and maintenance services across the sector. For FY '26, we expect stay in business capital of approximately $170 million to $175 million. Depreciation is expected to be in the order of $160 million to $165 million, while nonrecurring spend is anticipated to be approximately $15 million. We expect positive financial performance in the second half subject to wet weather events in Queensland, impacting client operations. Just to conclude, we're confident that continued execution of our strategy will enable us to deliver sustainable growth and increase shareholder returns in FY '26 and beyond. I'd like to take this opportunity to acknowledge the efforts of our entire Emeco team for delivering another great result and an excellent start to FY '26. I'd like to thank our customers, suppliers, financiers and the community partners who play a crucial role in our ongoing success. With that, I'll hand over for questions. Operator: [Operator Instructions] Your first question comes from the line of Gavin Allen from Euroz Hartleys. Gavin Allen: Good numbers. Just a couple for me quickly. Just firstly, thinking about the journey to 20% ROC, which has been a long-term target now and you're obviously making very good progress on that front. Do we think about that directionally now as a sort of a 12-month or an 18-month or 24-month journey? Do you think -- not to hold you to anything, but just in terms of direction. Ian Testrow: Thanks, mate. Appreciate your support. Yes, that one, we've obviously -- can you hear me? Gavin Allen: Can, mate, yes. Ian Testrow: Yes. Cool. Yes. Thanks, Gav. The question you made, we've made great progress on that. We launched this objective at your other conference a couple of years ago, and I'm really proud of the progress that we've made towards our target of 20%, remains our target as we put through the pack. It's all in utilization, really. This -- what we're doing around the maintenance services has really helped improve our return on capital. But if you look at that utilization at about 85%, it's kicking that up to 90%. That really gets us to 20% at some point, which shows that there is operating leverage in the business and capacity for increased earnings on this fleet. Gavin Allen: Yes. That makes sense. So you can do it. You can do it quickly if you get to 90%. And if it's more steady, it might include some sort of, I don't know, continued growth in the maintenance side. Is that sort of one way to look at? Ian Testrow: Yes, it is. The maintenance side of things that earnings come through, which is really what I'm really proud of, to be honest, the team has done a fantastic job, really leverages that return on capital because it's not capital-intensive earnings. But ultimately, getting that fleet working harder gives us that uptick in earnings as well, so it's a combination of those 2 things. Gavin Allen: Yes. Good one. Just one more for me. So medium term, you're talking about adjunct acquisitions in the maintenance side and asset management side. Just wondering if you got any flavor on how you're finding the competitive environment on the M&A front. Do vendors seem sensible to you in terms of price as a general rule? Or where are we thinking about that in an M&A curve or cycle? Ian Testrow: To be honest, we haven't been overly active in that space this year. We're working hard on our strategy and working with our Board. We've been in the gym for a couple of years getting fit. We're getting that return on capital from 13% to 18%, getting that leverage from 1.1x down to 0.5. So we've been at the right to consider those options. So I wouldn't say that we've done a hell of a lot of work. A fair bit of work in regard to how do we position this thing. There's 2 areas of focus. One is consolidation, looking at competitors where their fleet aligns with us when we can take our maintenance services to improve their business. That's attractive to us. And the other thing is, is to have a look at what are we doing really well in maintenance. What's facilitated that growth? There hasn't been so much in our typical Force workshops. It's been growth in maintenance services in the field. What are we doing there? What are we doing well? Where can we improve on it? And where does that add value to look at M&A to improve that and broaden that value proposition? So they're the sort of 2 things that we're looking at in parallel together. Operator: [Operator Instructions] There are no further phone questions at this time. I will now hand back to Mr. Testrow for closing remarks. Ian Testrow: Thanks, everyone. I appreciate all the hard work from the Emeco team. I touched on it in the preso, but great work to Theresa and her team and our legal team, Penny and just the hard work on that refi. I think that's a great thing for the business. So thanks for that, and thanks to everyone. I appreciate it. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
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