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Operator: Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Sisecam Investor and Analyst Call for 2025 Results Call on the 17th of February 2026. [Operator Instructions] Without further ado, I would like to pass the line to the CEO of Sisecam, Mr. Can Yucel. Please go ahead, sir. Can Yucel: Thank you very much. Good afternoon, ladies and gentlemen, and welcome to our 2025 full year earnings results webcast. I'm very happy to meet you all again to share our full year-end results. And today, I'm together with our CFO, Mr. Gokhan Guralp; and our Investor Relations Director, Ms. Hande Özbörçek. Now I would like to hand over to our CFO, Mr. Guralp, for the presentation and the review of our year-end consolidated financial results. Mr. Guralp? Gökhan Güralp: Thank you very much, Mr. Yucel. Good afternoon, ladies and gentlemen, and welcome to our 2025 full year earnings results webcast. I hope that everyone is safe since we last spoke. And I would like to thank you all for joining us today. We will commence today's webcast by presenting our financial and operational results for the full year 2025 with particular focus on performance of individual business lines. Subsequently, we will detail our cash position and capital allocation. Following the operational and financial review, we will conclude today's presentation by providing updates on recent developments in our company's sustainability initiatives. As always, we will pleased to take your questions at the end of the presentation. Please be reminded that the presentation and Q&A session may contain some forward-looking statements. Our assumptions and projections are based on the current environment and may therefore be subject to change. Before we start presenting our company's 2025 financial results review, it is necessary to remind you that pursuant to the Capital Markets Board decision, Turkish corporates, including our company are subject to IAS 29 inflationary accounting provisions since the end of 2023. 2025 full year financials and comparative 2024 results that will be present in today's call contain the financial information prepared and audited in accordance with Turkish financial reporting standards for the application of IAS 29 inflation accounting provisions and are finally expressed in terms of purchasing power to Turkish lira as of December 31, 2025. At the end of the operational and financial review section, you may also see a display of our key financial report based on IAS 29 standards and which are basically the set of info provided to our main shareholders as financial institutions are exempted from the implementation of IAS 29 standards. We concluded the year with a consolidated revenue of TRY 225 million, down by 8% year-on-year. The decline in revenue was largely due to performance differences from an individual business line perspective. Negative contribution of the mismatch between Turkey's annual inflation rate of 31% and the depreciation of the reporting currency by 29% to the top line performance was quite limited as it has tightened given the downward trend of the former. For glass business line sales volume performance was stable, thanks to positive architectural glass sales volume accompanied by flat to slightly growing volume in glass packaging and industrial glass operations, offsetting the impact of weaker glassware activities. Chemicals business line experienced a modest decline in annual sales volume due to global oversupply conditions. Product pricing improvements were visible in all glass businesses and across all geographies, while pricing in our chemicals operations underperformed the prior year in hard currency terms. Our EBITDA recorded at TRY 24 billion was up by 32% and translates into a margin of 11% compared to 7% in 2024. Despite tough market conditions, the increase was primarily a result of the management's focus on efficiency improvements and the operational optimization. Efforts to enhance productivity, prioritize value-added product offerings and strengthen capacity management practices contributed to margin expansion. Higher production efficiency helped reduce operational costs while better resource utilization supports overall profitability. Profitability improvement was also triggered by upward price revisions in our glass operations worldwide. Profit before tax almost tripled year-on-year. Parent Only net income soared by 50% and amounted to TRY 9.9 billion. Parent Only net income margin stood at 4.4%, up by 170 bps. Monetary gains recorded in the full year inched up by 13% to TRY 23 billion. During this period, we recorded a deferred tax expense of TRY 1.2 billion in contrast to a deferred tax income of TRY 3.5 billion in the previous year. This shift from income to expense arose from improved operational performance, which led to a decrease in deferred tax income. Additionally, the change in accounting methodology to exclude inflation accounting in statutory accounts in Turkey and revalue the books based on a rate lower than the annual inflation contributed to the deferred tax expense. Next slide. On this slide, we would like to demonstrate the underlying performance of our company, excluding the impact of inflation accounting. For this, we are using adjusted EBITDA figure that is defined as EBITDA adjusted for inflation accounting effect through the elimination of monetary gain loss impact on relevant P&L items. Please be reminded that we have been providing the breakdown of net monetary position in the notes section to our financial statements since 2024 year-end. And going forward, we will be presenting both EBITDA and adjusted EBITDA for the monetary gain and loss in our leverage calculation. With this graph, we addressed the negative impact exerted by the inflationary accounting framework on our company's reported performance. As can be seen, the sum of inflationary accounting impact of the relevant P&L lines was close to TRY 20 billion, more than 90% of it being related to the cost of goods sold account in 2025. With majority of industrial capacities concentrated in Turkey amidst a high inflation environment, the impact on cost is inevitable. This is seen by increased direct labor expenses and elevated production overheads. Inflationary accounting practices lead to inflated inventory values, thereby defying the inflationary impact on costs. inventory turnover inherent in the nature of the business further elevates the cost of goods sold. Accordingly, adjusted EBITDA calculation indicated a consolidated profitability figure amounted to TRY 43.7 billion. Adjusted EBITDA margin moved up by circa 250 bps to 20%. Moving on to Slide 6. We will review the segmental breakdown of our consolidated top line and EBITDA. Once again in 2025 [indiscernible] maintained a well-balanced structure with glass operations composing 2/3 of our revenue. Our largest glass operation with 4.6 million tonnes per annum flat glass gross production capacity composed of 15 active production lines in Turkey, Bulgaria, Italy, India and Russia as well as 1 line in Egypt in partnership with Saint-Gobain, architectural glass contributed 24% to our consolidated revenue. Notably, it ranked as the top EBITDA generator with 49% share in our consolidated EBITDA, thanks to improved pricing environment, growing demand with regulations favoring higher energy efficiency millings, which is introduced last year in Turkey and set to limit the energy consumed by the heating and cooling systems and the enhancements gained through the efficiency management program initiatives. The commissioning of a brand new pattern glass line as well as energy glass processing capacities in Tarsus greenfield facility in September last year has further supported the business line with higher concentration on value-added products in our sales mix. Based on our primary goal to position Sisecam as a global leader in glass producer investing in the future of glass while increasing its presence and market share, we aim to leverage our capacity to capitalize on the growing demand across regions. This demand is increasingly shifting from commodity products to value-added solutions, particularly those enhancing energy efficiency in buildings and enabling feasible energy generation. In line with this principle, we have prioritized the introduction of specific capacities dedicated to these types of products. As we announced in our last meeting, the commissioning of a new flat glass furnace and a coated glass line investment in Turkey will take place this year in addition to 2 coated glass lines taken online in the first quarter in Bulgaria and Italy. Our 3.3 million tonnes per annum glass packaging business line with its 25 online furnaces at 9 production facilities and in 3 countries was ranked as the second largest contributor, accounting for 23% of our consolidated revenue and 33% of our EBITDA. Please be reminded that very recently, we commissioned our Hungary greenfield investment with the aim to start the ignition of 1 furnace, which will increase the business line gross installed capacity by 6% to 3.5 million tonnes per annum. Our chemicals operations stood as the third highest performer in terms of contributions to both revenue and EBITDA with 21% in the former and 25% in the latter. Industrial glass business line, which accounted for 12% of our consolidated revenue had a positive impact on our EBITDA generation capacity with 8% share in our consolidated figure after an extended period. This improvement followed the implementation of operational efficiency measures, including but not limited to the consolidation of the encapsulation operations at a single facility in Slovakia. From our glassware operations with 9 furnaces in 5 facilities, 2 of which located in Turkey and the rest in Bulgaria, Russia and Egypt, we generated 12% of our consolidated revenue. However, the business line had a dilutive impact on our EBITDA given negative EBITDA profitability due to unfavorable demand dynamics, leading to higher days of inventory outstanding and amplified exposure to high inflation. Please be reminded that the relocation of handmade glassware production from Denizli facility to our automotive glassware manufacturing facility in Kirklareli was completed in close to December and as planned. We anticipate achieving cost improvements in our glassware operations by 2026 following this strategic move targeting to enhance the economic value of our nearly century of glassware tradition. Energy segment's performance resulting from our electricity trading operations came in with 6% share in total revenue and neutral impact on our operating profit. On Slide 7 and 8, we aim to present the key takeaways regarding the full year performance of our core business lines on an individual basis to provide you with a concise summary of our glass and chemical unit performance in comparison with the prior year from both operational and financial perspectives. Our sectoral glass business was resilient despite challenging market conditions. We announced that we advanced the cold repair process at our North Italy facility, and this helped us to maintain our output levels consistent with the previous year with higher capacity utilization rate. This recalibration of production levels enabled us to sustain operations without product shortages while benefiting from lower per unit production cost, thanks to 600 basis points higher capacity utilization rate year-on-year. Consolidated sales volume was moderate with 2% increase year-on-year. Looking at the region-wise performances in Turkey, from business line sold 64% of the full year volume. Domestic sales rose by 6%, thanks to reurbanization and renovation projects. Incremental flat demand of industrial clients for export purposes to the surrounding regions after processing has further supported the sales. Combined with the performance in direct export plant as a balancing component of the production and sales schedules majority of time, Turkish facilities overall sales volume moved by 3% year-on-year. Europe-based facilities sales grew by 3% in tonnes, driven by demand for value-added, particularly coated glass in the region. Europe emerged as the second largest contributor to the architectural glass segment consolidated sales volume with 22% share. India business performance was slightly up, while lower ton sales were experienced in Russia compared to 2024 due to ongoing market pressures. Strategic pricing actions in Turkey and Europe supported the revenue performance with euro-denominated product prices growing by an average of 6% year-on-year across all regions. Meanwhile, cost of sales declined by 12% in TRY terms, reflecting optimized production planning and improved cost efficiency resulting from higher capacity utilization. Consequently, architectural glass operations outperformed the inflation rate with 1% year-on-year increase in net external sales to TRY 54 billion. Segmental EBITDA margin widened from 11% to 21%. Industrial glass business line under which we report our automotive glass, encapsulation and glass fiber operations overperformed inflation by generating TRY 28 billion in net external revenue, up by 4% year-on-year. The Automotive glass and encapsulation division continued to be the major component of divisional revenue. And as a well-known Tier 1 auto glass and encapsulation suppliers, we have kept leveraging our production capacity and capabilities to get new nominations and operate with a sizable project pipeline. Consequently, the business line ended the year with 4% higher sales volume year-on-year on a ton basis driven by the scheduled deliveries to OEM clients, the automotive glass and encapsulation division. Auto replacement glass channel maintained its strategic importance, contributing 14% to the revenue stream. Average prices per ton in USD terms increased by 14% in this reporting period. In glass fiber operations, against weaker export sales due to pricing pressure of low-cost regions, domestic sales grew 4% year-on-year, primarily driven by strategic responses to demand conditions through benefiting from spot market opportunities. This led to limit consolidated sales volume decline to 14% year-on-year. As a result of enhancements attained through the efficiency management program, the business line recorded an impressive improvement in profitability, achieving a 7% EBITDA margin in 2025 compared to negative 9% in the prior year. Glassware business sales volume declined by 18% year-on-year, primarily due to weak consumer sentiment and a focus on essential spending amidst low risk appetite across key customer channels. Domestically, the market faced challenges from high inventory levels and the influx of low-cost imports. This weakness affected several sales channels, including retail wholesalers and national chain stores, which account for 84% of domestic sales. International sales also underperformed compared to the previous year for similar reasons. The overall average price per ton in US has increased by more than 15% year-on-year. However, the TRY 26 billion external revenue recorded in 2025 with 14% decline year-on-year fell short of keeping pace the domestic market inflation. EBITDA margin was delivered at minus 3%. Glass Packaging business line encountered a dynamic market landscape throughout the year. Segment production grew by 2% year-on-year with consolidated output supported by 96% capacity utilization rate average. Consolidated sales volume remained stable year-on-year, thanks to exports from Turkey, which accounted for 13% of consolidated sales and rose by 9% year-on-year. This growth was largely driven by expanded operations with our European customer base before the start of operations at our Hungary glass packaging facility scheduled to be ignited in quarter 1 '26. Sales initiatives, sales activities aimed at further penetrating the Americas have also contributed to the export channels performance. Meanwhile, domestic sales were modest, backed by positive contribution of the nonalcoholic beverage category. Sales volume in regions outside Turkey declined primarily due to weak consumer sentiment and a sluggish easing pace in the [ CIS ] regions. This was compounded by the ecological tax increase from 25% to 55% at the beginning of 2025, leading to higher retail prices for end products. The implementation of consistent pricing strategies addressing inflationary pressures and cost variations resulted in a 17% year-on-year increase in average prices per ton in USD. Consequently, glass packaging business line, net external revenue came in at TRY 52 billion revenue, up by 4% year-on-year. Material improvements were visible from a profitability perspective, thanks to pricing and cost improvement projects. EBITDA margin recorded at 16% was circa 550 bps higher year-on-year. Lastly, our chemicals operations. The global soda ash market showed mixed dynamics in 2025, largely due to ongoing oversupply pressures in the key APAC region. Additionally, cautious procurement and inventory management strategies among buyers restrained demand and hindered price growth. Our consolidated sales moved south by 5% year-on-year. Meanwhile, thanks to strategic new client acquisitions, our net sales per ton decreased by only 2% in USD. The chromium chemicals market was subdued globally, influenced by macroeconomic pressures and high inventories along with tariff-related tensions and lead up to 13% drop in sales volume. However, per ton average USD prices moved north by 4% during the period, thanks to shifts in our sales mix. Resultantly, the Chemicals business line reported TRY 48 billion net external revenue, a decrease of 15% year-on-year and 12% EBITDA margin. Moving on to Slide 9. With our production facilities located in 13 countries in the majority of 2025, diversified operations portfolio and a wide range of products, we continue to cater to our clients across the globe. Despite the significant challenges posed by the disparity between Turkish lira inflation and the reporting currency depreciation, we successfully maintained 59% share of international sales in our consolidated top line. Export revenue, 55% of which was generated from sales to Europe stood at USD 938 million. Including revenue generation of Sisecam facilities located in the region, Europe accounted for 29% of our top line. U.S. market exposure through sales from U.S. natural soda ash operations as well as exports stood at 11%. Accordingly, our developed markets exposure came in at 40%. On Slide 10, you may see the details on our liquidity position. We ended the year with USD 962 million cash and cash equivalents, including USD 72 million financial assets, of which USD 68 million Eurobond investment maturing in 2026. Gross debt stood at USD 3.8 billion with a term structure of 61% long term and 39% short term. 85% of the gross debt was denominated in hard currency and 94% of the remaining balance was in Turkish lira. The interest rate structure comprised of 70% fixed and 30% variable. The hard currency share of cash and cash equivalents, excluding financial investments stood at 36%. Resultantly, our net debt position amounted to USD 2.8 billion. We are pleased to announce that in line with our managerial targets and our forecast, thanks to efficiency management program initiatives, our company's EBITDA generation capacity has a decent improvement. Concurrently, we have reduced our indebtedness through stringent controls and refinancing transactions, enabling us to benefit from improving funding costs and extending our debt profile. As a result, our net leverage ratio has been moving in a downward trend and came in at 5x compared to 7.7x calculated in quarter 1 2025. Moreover, monetary gain loss adjusted EBITDA figure indicated a net leverage ratio of 2.8x, which is below the covenant determined by recently issued Sisecam 2023 notes. We had a net short FX position of TRY 12 billion, TRY 99 million short in US and TRY 189 million short in euro. Moving on to Slide 11. Our CapEx recorded at TRY 36 billion remained below the cash outflow in relation to investments in the prior year. The distribution of CapEx across business lines was as follows: 47% of total CapEx was attributable to architectural glass segment, mainly in relation with the cash outflows on the ongoing greenfield flat glass facility, furnace and coated glass projects investments in Turkey Tarsus, the new glass furnace and energy generation glass processing plants that were taken online at the same location in quarter 3 '25 as well as the new coated lines introduced in Bulgaria and Italy this year. Capital expenditures with regards to the greenfield glass packaging investment in Hungary, the commissioning of which we announced this month and payments made in relation with the coated [ glass ] processes in Turkey and Georgia corresponded to 28% of the total. Chemicals segment accounted for 10% of consolidated CapEx figure with payments mainly with regard to operational efficiency and maintenance investments in Mersin and Wyoming plants. The remaining balance was related to industrial glassware, energy and other segment maintenance and cold repair expenses. We ended the reporting period with a cash inflow from operating activities of TRY 40 billion compared to TRY 41 billion in the prior year. Including the monetary loss on cash and cash equivalents, we recorded a negative free cash flow of close to TRY 32 billion versus TRY 40 billion in the prior year, thanks to controlled management of investments. On Slide 12, you may see our key financials without the impact of IAS 29 as provided to our main shareholders for the consolidation purposes and as announced on the public disclosure platform or information symmetry. In the following section, we will update you with some key developments in our sustainability agenda. In line with the Turkey sustainability reporting standard TCRS issued by the Public oversight Accounting and Auditing Standards Authority, we published Sisecam's first TCRS aligned sustainability report on August 1. For the past 12 years, we have been voluntarily reporting our social and environmental impacts, including climate change, demonstrating that ESG considerations have become an integral part of our business strategy. With this new regulation, we have taken this approach as a step further, adopting a more comprehensive and advanced structure under the TCRS framework. In our TCRS report, we provide detailed information on our sustainability governance, our resilience to climate change, our risk and opportunity management practices and the role of our product portfolio in managing climate-related impacts. The full report is available in both Turkish and English on our website. In addition, we shared our long-standing voluntary sustainability report with a continued focus on transparency and accountability. In our 2024 report, we recorded notable progress across the teams of protecting the planet, empowering the society and transforming life. Under the Protective planet pillar, we launched the solar decarbonization road map as the second phase of our low-carbon production road map aligned with our 2050 carbon neutral target. Our certified renewable energy procurement reached 184,000 megawatts and our water withdrawal per unit of production decreased by 27.7% compared to 2020, reaching 3.4 cubic meter per ton. Within the empower society pillar, we participated in the Women Empowerment Principles in [indiscernible] pilot program to support gender equality. We provide a total 474,000 hours of training to our employees in Turkey and delivered approximately 200,000 person-hours of occupational health and safety training. Under the transform life pillar, we assessed 81 critical suppliers in our project focused on monitoring sustainability performance in the supply chain. Through our RPA Hackathons, we implemented 70 digital automation projects, achieving a time saving equivalent to 31 FTEs. We allocate 70% of our R&D expenditures to sustainability-related projects and recorded 41 patent applications, 18 patent registrations, 5 international patent applications and 492 design registration applications. Additionally, in 2025, we revised our responsible supply chain policy, which enables us to engage with our suppliers and business partners within the framework of universal ethical principles. In parallel with a EUR 200 million investment, we commissioned the flat glass furnace and energy glass lines in Tarsus, bringing significant additional capacity to Turkey's production landscape. Built with modern technology and offering an annual production capacity of 47 million square meters, this new line will produce high-quality glass with high transmittance performance, specifically designed for photovoltaic panel manufacturers. In addition, we proactively manage our ESG performance and continue to work towards strengthening our results each year. In this context, in the 2025 Carbon Disclosure Project assessment, our scores for both climate and water were at the B level. We sustained our strong performance with an A- rating in the Refinitiv sustainability score and maintained our place in the BIST 25 Sustainability Index. We achieved a score of 63 on Ecovadis. We continue to be listed in the MSCI Global Sustainability Index with BBB rating. Our S&P Global Corporate Sustainability Assessment score 2024 was announced at 47. According to Sustainalytics, we are positioned in the medium ESG risk category. At the World Soda Ash Conference, where we participated as a strategic sponsor, we brought together key industry representatives. During the event held in Spain, we had the opportunity to highlight our sustainability strategy, our approach to low-carbon soda production and our innovation-driven investments. In the previous years, we took part in numerous national and international events this year as well, sharing our sustainable strategy and vision with broad audiences. Through the Sisecam International Glass Conference we organized in Munich, we underscored the importance of collaboration and innovation in shaping the future of glass. Throughout the event, we hosted variable discussions on topics such as decarbonization, energy efficiency and material science, critical areas that will guide the future of industry. As part of our 90th anniversary celebration, we had the Global Supplier Summit, bringing together our international business partners. At the summit, we discussed key themes shaping today's business landscape, including sustainability, digital information and operational design. We also presented sustainability awareness awards to suppliers who stood up with the innovative and impactful practices. In addition to -- in addition, we participated in the TCRS assessment conference held during the year, where we contributed to sector-wide awareness by sharing our compliance journey approach and practices related to the new standards. At the Sustainability Development Association Turkey member meeting, we exchanged insights on our environmental strategies and cross-sector sustainability practices. Furthermore, within the scope of the ITU Glass Technologies Engineering certificate program, we engaged with university students through all our areas of expertise shaping the future of glass. We shared our knowledge and experience across a wide range of topics from Sisecam's production processes and investment strategies to our sustainability approach, communication activities, R&D and product development, sales and marketing operations, career development and Sisecam Academic programs. This was the end of the presentation. Now we can move to the Q&A section. Operator: [Operator Instructions] Our first question comes from Evgeniya Bystrova from Barclays. Evgeniya Bystrova: Congrats on results. I would like to ask you about profitability and margins. If we look at Q4 in more detail, I guess, quarter-on-quarter, there is like a slightly weaker margins on EBITDA side also on gross margin side. So I was just wondering if this is -- if this relates to seasonality or there was some impact on the OpEx side affecting Q4 margins compared to Q3? And also, if you could please comment on your outlook for EBITDA margin for 2026. Should we expect improvements on the glass side in terms of profitability, but weakness in chemicals given the market environment, that would be very helpful. And if you could also please touch on your CapEx outlook for this year, that would be also very helpful. Can Yucel: Thank you very much for the questions. This is Can Yucel. I'd like to answer the first part of your question about decreasing the margins in the last quarter of the year. This is something we've been anticipating. There is a level of seasonality as well, but the main reason is, especially on the chemical side, stemming from the margins on the solar business. As we are all aware, the oversupply in that market is clearly pressuring the margins on that business, and this is what we experienced in line with other players in the market. We will see positive improvements on that side in the following year. And our expectations on the overall margins for the following year, as we explained in our announcement and in this presentation. The main thing is the level of pricing, especially in Turkey and Europe is improving starting from 2025, and we're expecting to see the improvement continue in the following year or this year as well. But the most important opportunity for us is the value-added products. Till now, we've been serving the coated flat glass market with the existing capacities. And as we announced in the first month of this year, we've been introducing additional coated line capacities in the market, mainly focusing on the European market. Those 2 will be Bulgarian and Italian lines, which we introduced how will they perform and how much they will contribute will based on the pricing levels, but the positive EBITDA margin or improvement in the margin will come from that side. And maybe the last part of the question is the CapEx that we will undertake this year. Gokhan will comment more detail on that one. But one thing is very critical. 2025 is a very important or critical year for us because we've completed our major CapEx in this year. The openings or the ignition of the furnaces is starting from the first quarter of this year. We will see the contribution -- EBITDA contribution after the ramp-up period. Therefore, we will not be having any major CapEx in 2026. Our soda CapEx, which constitutes a major amount in the CapEx plan for Sisecam is currently being reassessed. I mean we've been following the pricing levels in the market and updating our forecast. So we are revising the plan on this side. We will see how much we will be investing in that CapEx in the middle of this year, and we will be announcing it correspondingly. Apart from that, the total CapEx we are expecting for this year is around USD 500 million, and it is mainly coming from the payments of the CapEx that's been realized in 2025, and these are the parts which will be paid in 2026. The remaining part is our usual maintenance CapEx. Gokhan, if you have anything? Gökhan Güralp: Yes. Can may explain in more details also to sum up, the level of the capital expenditures will not exceed [ 25 million ] in 2026. And by the way, we are almost commissioning most of the investments. And starting with the first quarter, we already ignited the furnace -- first furnace for glass pack in Hungary. And also we already ignited the coated glass investments in Bulgaria and also in Italy. By the way, in the rest of the year, we hope to also start productive in the remaining investments. So '26 will be the finalization of the investments. But by the way, of course, the payments for the remaining part of these investments will continue during '26. That's why we can conclude that the level of the CapEx will not exceed '25 levels, and that's why it will be around USD 500 million to USD 600 million during this year. Operator: We are now moving to the next question from [indiscernible], individual investor. Unknown Attendee: Congratulations for the results. Following your remarks, Can Bey, investments and efficiency were the highlights of the release. In this regard, I have a follow-up question. It is on the outlook of debt burden. Gokhan Bey has already briefly mentioned, but as cost repays and have investments left behind and can we assume still declines in that level and improvement in multiples? And if we have a time, I have a brief second question, actually, as a follow-up. Now my question is on share buybacks. Last time in earnings release, you have said it is finalized and over. program is over. As far as I know, there was no development in this team since then. Do you plan to sell these shares now or cancellation of the treasury shares? Is that also an option? Gökhan Güralp: Just maybe I can start with the share buyback program. Just as you mentioned, we announced that we already ended the share buyback program as of June 30, 2025. And after that, we didn't announce any new share buyback program. And nowadays, it is not in our agenda. Of course, about the treasury shares, the management is reassessing how to conclude it. By the way, we are following the markets. And accordingly, we will decide, but it is not decided yet. Unknown Attendee: It was on the debt burden. I think my question on investments is complete or have investments left behind? Gökhan Güralp: Yes, yes. Just I checked my notes in order to remember your first question, follow-up question. Of course, the level of the CapEx will be at the same level almost with 2025. Our main aim is, of course, to decrease the net debt level. But by the way, first of all, with the generation of additional EBITDA from the new online productive investments, of course, the level of the net debt will be decreased. But '26 will be just having -- starting to have the performance from the new investments. And our main aim is, yes, to keep the net debt level at least at the same level. By the way, yes, you can see our -- if you look at our free cash flow, CapEx is the main negative cash flow item -- cash outflow item. That's why we will try to keep the net debt level at the same level of '25. But with the generation of EBITDA, of course, the leverage will be decreased in '26. Can Yucel: In additional comment, delevering company is the main role of our team, and it is either through getting additional EBITDA from the new investments, which are finalized and which are expected to be more valued. And the second thing is we have in operative assets in our portfolio. These are our old assets that we used for production, but not available for production for the moment. We will be going through a sale process. And hopefully, we will realize the value soon and delever the company through that way as well. Operator: [Operator Instructions] Our next voice question comes from Gustavo Campos from Jefferies. Unknown Analyst: A few questions from my side. First of all, we see -- I was wondering if you could elaborate on your expected pricing dynamic in architectural glass in 2026. We saw a significant increase, especially in the fourth quarter. So pricing dynamic is increasing and accelerating. Do you expect double-digit pricing growth to persist into 2026? Or do you expect some kind of moderation from here? I was also wondering if you could please touch on your initiatives on idle real estate assets as well as your management of your precious metals portfolio. Are you indicating that you are looking to monetize more assets in 2026? If you could please give us some guidance on how much assets are you planning to monetize? And what are the expected use of proceeds from these assets that would be much appreciated. Those are my 2 questions. Can Yucel: Okay. Thank you very much for the questions. Again, let's start with the last one. For the overall value of assets, disposable assets for the moment is you can assume it to be around USD 500 million. And what we've done in 2025 is we realized or monetized part of it. We've done a sale, which is around USD 50 million, and it was accompanied by a sale of a portion of our precious metals portfolio. It was around USD 10 million as well. So we will be continuing that strategy. The important thing is how much of the value of the assets we can realize for the moment. And for the moment, we are able to attract some meaningful offers. And in the meantime, I hope you will see the results very soon. Going back to your pricing strategy question. Actually, our pricing strategy for the following -- for this year is we are changing the product portfolio in many ways. For the architectural glass, as we mentioned, we will be more active in the market through the coated glass lines, and we will be trying to attract the additional margin there. But the overall rule of cost pass-through will be available for this year as well. We started the same strategy in the Turkish market by the beginning of this year, and we will continue as much as we can for the following part of the year too. do you have another comment? Gökhan Güralp: Yes. Just to explain about the assets, yes, maybe our investors can follow the balance sheet, we already accounted most of the assets as investment property on hand. We are reassessing the sale of these assets in order to generate additional cash and accordingly, of course, in order to decrease the leverage. Unknown Analyst: Understood. So if I may clarify the amount of proceeds that you already monetized in 2025 and the expected amount of proceeds that you are planning to monetize in 2026. I know that it may not be certain yet, but did I understand it was something around $500 million expected like a targeted amount for 2026. Is that correct? Gökhan Güralp: Yes. Appraisal values of these assets are around USD 500 million. Can Yucel: This is not a targeted amount because the targeted amount depends on the market conditions. This is the total value of the portfolio. This is the appraisal value of the portfolio. And in any case, we find meaningful offerings or realized prices, then we will go through the sales process one by one. We cannot comment on how much of it we can realize for the moment because these are valuable assets and they are, I mean, high value per asset. So we will see how the market will react. But I can see -- you will see the improvements soon in the following months. Unknown Analyst: Understood. And you are still expecting to be free cash flow negative in 2026 even with these proceeds. Is that a correct assumption? Gökhan Güralp: Even with these proceeds, we cannot comment directly. But without taking into consideration of the proceeds, we -- based on -- because of the CapEx size that we mentioned around USD 500 million to USD 600 million, we are waiting for negative free cash flow. But with this additional cash generation from the asset sales, of course, we hope to decrease the level of the negative free cash flow. Operator: We'll now move to the next question from Matthias from BlueBay Asset Management. Unknown Analyst: My questions have been asked and answered. Operator: Our next question comes from [indiscernible] from Azimut Group. Unknown Analyst: I don't know if this was asked and answered, but you mentioned that you ignited the furnaces in the glass segment that were in 2025. Does this mean that your volumes are expected to be higher this year and margins will be better given that -- given the demand environment. And again, on the leverage, do you think -- I mean, as far as I understand, your net debt to EBITDA will be higher in 2026 compared to 2025. Is this correct? Can Yucel: The commission lines are basically aimed at high value-added products we quoted last time. So we will be increasing our capacity on that business. And the purpose of those investments are to achieve the higher-margin products, and we will see improvements in the margin, which will affect our financial position accordingly. Operator: Our next question comes from Erica Ive from MetLife. Unknown Analyst: The first one would be on EBITDA. I remember it was mentioned before that EBITDA from new investments -- commissioning of new investments would have been this year between USD 150 million to USD 200 million. Is it still the case considering what has been commented just before about margins and so on? Can Yucel: These are the non-I figures that you're expecting. These are still... Unknown Analyst: Yes. And in terms of -- it was mentioned as well in one of the recent updates that you would have used, yes, asset monetization, but possibly also factoring receivable discounting and supply chain facility. Could you give us an update of how much do you think to use basically to draw this year? Gökhan Güralp: Yes. By the way, yes, just Erica, we are following, of course, the opportunities in working capital financing activities. At the year-end in 2025, -- we didn't use factoring for receivables just we follow the market and accordingly, we didn't realize any factoring activity. But for the coming current year '26, of course, we will follow the market conditions and in order to have better working capital results, of course, we will continue to follow such kind of opportunities, of course. And in trade finance, in also factoring in additional tools, we are always following the market. If we see opportunities with good rates, of course, we will perform. Unknown Analyst: That's very helpful. And then if I may squeeze another question is that in all honesty, I was a bit surprised about the fact that in the final quarter of the year, you generated negative free cash flow because I remember you said it that you would have expected positive to breakeven free cash flow in the second half of the year in total. So -- and in fact, leverage went to 5x, where I think before we were saying below 5x. Is there a particular reason why you kept a very high level of CapEx bar just because you feel comfortable that ultimately you can deleverage where you are targeting? Or yes, can you just give me a bit of insight why is it that you took a decision to still burn some cash? Gökhan Güralp: Yes, Erica, just I can summarize quickly. In '25 and '26, as we mentioned, we do not expect any positive cash flow because of the size of the CapEx. And in the last quarter, especially '25 in order to accelerate the of the furnace in order to be productive starting with the first quarter of '26, we accelerate the CapEx in order to start to generate EBITDA as soon as possible and in order to decrease the level of the net debt, of course, and keep the net debt level at least at the same level of end of '25. So '25 and '26 almost will be the same will have the same free cash flow structure, negative free cash flow. And after ending these investments and starting to generate additional EBITDA, as you also asked with the additional USD 150 million to USD 200 million, we will start, of course, to generate most probably without any new CapEx, positive cash flow starting with '27. Acceleration of CapEx created, of course, the same level of the negative free cash flow in the last quarter. Operator: We are going to move to the last question of the call for today from Gokhan [indiscernible] from Istanbul Portfolio. Okay. Since we are unable to connect with Gokhan, I will pass the line back to the management team for their concluding remarks. Can Yucel: Thank you very much for your time and joining our presentation. We would like to thank you very much for the questions as well. I hope we answered all the questions. See you. Thank you very much. Bye. Operator: Thank you, everyone. We are now closing all the lines.
Operator: Good day, and thank you for standing by. Welcome to the Carrefour Full Year 2025 Webcast and 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 today, Mr. Bompard, Chairman and CEO. Please go ahead. Alexandre Bompard: [Foreign Language] Good evening, everyone. Thank you for joining us for the presentation of our 2025 results. As you know, we look forward to welcoming you tomorrow morning in Massy for the presentation of our new strategic plan. Today's call will mostly focus on 2025 achievements. On a strategic note, we accelerated our portfolio reshaping, taking full control of Carrefour Brazil, disposing of Carrefour Italy and signing an exclusivity agreement last week regarding Carrefour Romania. If I come to operations, we pushed our transformation on our investments forward in our 3 key countries, and we released today financial results that show steady delivery. In a nutshell, our performance was solid, with good commercial dynamics in France and Spain, a growing recurring operating income, excluding Cora and strong cash flow generation. If we deep dive on our 3 main countries. Carrefour France core delivered another outstanding year. We continued to invest in our commercial model and in price, narrowing the price gap with the market. These efforts were recognized by customers with satisfaction continuing to improve year-on-year on NPS up by 3 points in Q4. In parallel, we opened a record 456 new convenience stores, driven by a record number of new partners joining Carrefour. We also continued the conversion of hypermarkets and supermarkets to franchise and lease management models. As a result, our group's market share increased over the year, with a clear acceleration towards year-end, reaching 22%, its highest point since 2015. This performance was achieved while maintaining strict cost control and capturing purchasing synergies, enabling Carrefour core operating margin to reach the 3% milestone. Coming to Cora & Match integration. In 2025, the group rolled out its commercial model by implementing significant price cuts in the former Cora hypermarket, substantially increasing the share of Carrefour-branded products in the assortment, underlining the promotional policy with the denser promotional intensity of Carrefour stores. On one hand, these initiatives had a temporary impact on France operating result with a negative effect of EUR 120 million over the year. On the other hand, these initiatives helped revive Cora & Match with growing traffic and market share momentum towards the end of the year. Overall, we confirm our synergies target at EUR 130 million for 2027. To finish, in Q4, Carrefour France sales were slightly up in the market, marked by consumer trade-downs on festive products. In January 2026 public data confirmed that the environment was back to a positive trend. Let's move to Spain. In Spain, we benefit from a solid momentum in a dynamic market. Food sales showed strong growth, up 2.3% in 2025, driven by fresh products. Nonfood sales are also positive. We continue to strengthen our price leadership, and we have reached our best position in the market since 2022 while further expanding our convenience store network. As a result, profitability increased by 13.5% in 2025, driven by both retail and financial services with an improvement of 45 bps in profit margin. Let's move to Brazil, our third key country. After a strong 2024, the Brazilian market is facing a challenging environment, marked by record high interest rates and negative volumes, particularly in the Cash & Carry segment. In this context, our strict cost discipline helped protect margins. In Q4, inflation was lower and led to purchasing power games. As a result, volumes were more resilient from mid-single-digit negative in Q3 to low single-digit negative in Q4. The ongoing volume improvement in January seems to indicate that the cycle trough is now behind us. In total, our group continued to execute on its transformation road map. We strengthened our price competitiveness on customer satisfaction and delivered solid progress across all our key operational priorities, particularly in private label and e-commerce. At the same time, our cost savings plan remains fully on track, delivering EUR 1.1 billion, excluding Italy in annual savings as planned. As a result, recurring operating income increased by 2.2%, excluding Cora & Match. EBITDA was stable and net free cash flow amounted to EUR 1.5 billion, excluding Carrefour Italy. Beyond financial performance, we also delivered strong results on our social and environmental commitments. We achieved a CSR Index score of 113%. In particular, our Top 100 Suppliers program continues to deliver progress. 87 of our industrial partners are now fully aligned with [ 1.5% degree ] trajectory. Reflecting this solid performance, we will propose to increase the ordinary dividend to EUR 0.97 per share, in line with our guidance of 5% increase. Following the disposal of Romania and subject to the completion of the transaction, the payment of a special dividend of EUR 150 million will be proposed. To conclude, building on our financial performance and commercial achievements in 2025, we approach 2026 with confidence in both the underlying market dynamics and our model's ability to capture consumption momentum. I now leave the floor to Matthieu for more details on our financial results. Matthieu Malige: Thank you, Alexandre, and good afternoon to everyone. It's a pleasure to be with you to cover our 2025 financial results in detail. Let's start on Slide 8 of the presentation with the details of our Q4 sales. Total sales for the quarter reached EUR 24.3 billion. Like-for-like sales were up 1.6% over the quarter. Expansion and M&A had a negative contribution of minus 0.7% over the quarter, which includes perimeter adjustments in Brazil, notably after the divestment of Nacional and Bompre o stores. ForEx had an unfavorable impact on total sales growth of minus 2.3% over the quarter, essentially reflecting the depreciation of the Argentine peso and the Brazilian real versus the euro. Moving to Slide 9. Recurring operating income for the group amounted to EUR 2.158 billion or 2.6% of net sales. As you can see, this full year recurring operating income is penalized by 2 effects. First, a negative ForEx effect of minus EUR 102 million. And then the effect of the consolidation and integration of Cora & Match, which posted a recurring operating income of minus EUR 120 million over the year. This figure includes EUR 95 million of nonrecurring integration costs as planned and guided. We stated from these 2effects, recurring operating income shows growth in absolute terms and as a percentage of sales. Let's turn to Slide 10 with more details on the performance of France. At 0.4% like-for-like slowdown in Q4 in France compared to Q3. This is due to the market slowing down with consumers trading down on festive products during the Christmas campaign. This was a surprising trend that did not continue in January as evidenced by Circana data. Circana indicates that volumes in the market were down 0.4% in November and down 0.7% in December, and turned back to positive in January at plus 1.2%. Cora & Match still weighted on like-for-like with a decrease in the average product price following price investments. Excluding Cora & Match, like-for-like sales grew by 0.8%, supported by food sales up 1.3% with an encouraging trend in hypermarkets, where food sales increased by 0.8% in Q4. The convenience format continued to post a solid performance. In parallel, we continue to expand with 107 new convenience stores opened in the fourth quarter. Over the quarter, Carrefour maintained a stable market share and managed to further grow NPS by 3 points. Excluding Cora & Match, recurring operating income for the historical perimeter grew by a strong 11.3% in 2025 with a margin expansion of 31 basis points reaching 3% of sales. Let's move on to Slide 11 with more details on Cora & Match. First, as we shared last October, the integration process for Cora & Match has been completed in Q3. Total integration costs are slightly below initial targets, a sign that the integration process has been well controlled. Integration OpEx totaled EUR 145 million versus EUR 150 million expected. And integration CapEx amounted to EUR 85 million versus EUR 100 million expected. Recurring operating income was a negative EUR 120 million for Cora & Match in 2025, including EUR 95 million of nonrecurring integration costs. Excluding these costs, recurring operating income would have been minus EUR 25 million in 2025. This figure has suffered from a decline in gross margin rate versus historicals. As you know, we deployed Carrefour's commercial model within the ex-Cora stores over the summer of 2025. We aligned prices with Carrefour's, which were 6% to 7% lower. We rolled out Carrefour private labels, leading to a 10-point increase in private label's penetration. And finally, we deployed Carrefour's more intense promotional model. We have buying synergies to compensate for a great part of this investment. But overall, this new commercial model weighs on gross margin of Cora & Match. While this is a short-term headwind on our financial performance, we are already seeing a positive reaction from our customers with number of tickets up 2.9% in Q4 and market share gains since December and an improvement of 20 points in the Net Promoter Score following the integration. With this trend, we are confident in the dynamic for 2026. With this trend and cost synergies progressing well, we confirm the objective of EUR 130 million of synergies by 2027. Moving on to Slide 12. You can see the evolution of recurring operating income in France for our legacy perimeter. We have consistently increased recurring operating income booked in absolute terms and in terms of operating margin since 2018. In 2025, we have reached the 3% mark, up 31 basis points. On this long-awaited milestone is a confirmation that all the initiatives implemented in the frame of Carrefour '26, mainly on private labels, e-commerce, cost and franchise are making their way to the bottom line while allowing for further price competitiveness. Let's now turn to our European operations outside of France on Slide 13, where we have delivered a solid set of results, characterized by improving profitability and resilient top line growth. Like-for-like sales in the fourth quarter grew by 0.9%, closing a full year of positive momentum with full year like-for-like up 1.2%. This was achieved despite a contracting landscape across the region. Performance was led by Spain posting 2% like-for-like growth in Q4 on the back of a solid market showing both positive inflation and volume growth. Carrefour Spain maintained a strong momentum on the back of commercial initiatives that are resonating well with customers. In Belgium, the environment remained challenging yet our operations have shown resilience. We ended Q4 at a slight positive of 0.2% like-for-like, securing full year growth of 0.8% like-for-like despite persistent competitive intensity. Romania also remained in positive territory with plus 0.5% like-for-like in Q4 and 1.5% for the full year. Finally, regarding Poland, the market remained highly competitive and was marked by a slowdown in volumes. Looking at recurring operating income. Europe grew by 3.7% to EUR 481 million, up from EUR 464 million in 2024. This translates into a margin expansion of 9 basis points to 2.4%. The improvement was primarily driven by a strong increase in profitability in Spain, which combined with a sound execution in Belgium, more than offset the headwinds we faced in Poland and Romania. Let's move to Slide 14 with a focus on Spain, where we continue to see a positive and dynamic market, driven by both positive volumes and prices. Spain delivered a strong performance this year, confirming its role as a key growth engine for the group. We continued to invest in price over the second half, reaching our best positioning since 2022 and reinforcing our price leadership in the country. We maintained solid commercial dynamics underpinned by a sustained price leadership. Food sales grew by 2.3% on a like-for-like basis. This was powered by a strong performance in fresh products where our focus on quality and availability is clearly paying up. Carrefour Spain also posted positive growth in nonfood, up 0.7% like-for-like. The strong commercial activity has translated into material improvements in our financial results. Recurring operating income increased by 13.5% to EUR 463 million, with operating margin up 45 basis points to reach 4.2%. Moving on to Latin America on Slide 15. We faced a challenging environment last year characterized by volatile macroeconomic conditions and currency headwinds. In Brazil, our like-for-like performance was broadly flat in Q4. This primarily reflects the slowdown in inflation and a difficult backdrop as record high interest rates have continued to penalize the market and particularly the Cash & Carry segment. However, we have seen encouraging signs in the underlying trends as food volumes sequentially improved from mid-single-digit negative in Q3 to low single-digit negative in Q4. There was sharp deflation on certain commodities in Q4, helping partially restore household purchasing power. The retail segment showed again more resilience with food sales growing by 4.3% like-for-like, with positive volumes, notably driven by our commercial strategy towards B2B customers. In the meantime, we stabilized sales at Sam's Club, and we continue to grow our e-commerce business by 41% in Q4. In Argentina, Carrefour delivered 24% like-for-like growth in an environment that remains marked by pressure on consumption. We have successfully strengthened our leadership. We achieved steady market share gains throughout the year in both value and volume. In terms of recurring operating income, our performance in Latin America remained stable year-over-year at constant exchange rate. The decline in the reported figure is entirely attributable to a negative currency impact of minus EUR 101 million in the region. Brazil delivered a recurring operating income of EUR 709 million and 4% of margin. Margin was down 7 basis points on the back of negative volumes and price investments compensated by cost savings. Argentina contributed EUR 70 million to the group recurring operating income compared to EUR 115 million in 2024. All in all, while the context in Latin America remains demanding, our market leadership allows us to navigate these cycles with resilience. Coming to our global P&L on Slide 16. Our gross margin rate came down 22 basis points, reflecting our continued investment in prices and the structural shift of our business model towards more franchise-operated stores, which naturally impacts the gross margin rate but is accretive to recurring operating income. Our strict financial discipline continued to yield results. SG&A expenses stood at 14.4% of sales, an improvement of 16 basis points compared to last year. As mentioned previously, the integration of Cora & Match had a short-term dilutive effect on the operating margin. If we exclude the scope to look at the core performance, Carrefours' recurring operating margin actually expanded by 13 basis points to reach 2.9% for the year, meaning that our core profitability improved, demonstrating the structural dynamic of our model. Turning to Slide 17. Let's walk through the P&L items below the operating line. Nonrecurring expenses decreased to EUR 62 million, reflecting lower restructuring costs this year. Cost of debt remained stable. Other financial income and expenses normalized this year after 2024 was impacted by ForEx volatility and costs related to dividend payments in Argentina. The tax charge amounted to EUR 516 million compared to EUR 302 million in 2024. The increase compared to last year is driven by 3 main factors, the increase in our pretax income, the temporary extra corporate tax for large companies in France and certain nondeductible expenses in 2025. Net income from discontinued operations was minus EUR 657 million mainly corresponding to the exit of Italy. So bottom line, adjusted net income group share reached EUR 1.090 billion. This translates to an adjusted EPS of EUR 1.60 for the full year '25. Now let's move to the net free cash flow on Slide 18. We generated EUR 1.565 billion in 2025, excluding the impact of Italy, which was a negative cash flow of EUR 260 million. That number for Italy is higher than the EUR 180 million negative for 2024, mainly due to the closing date of the sale. Indeed, as we closed at the end of November, we did not capture the traditional positive cash generation of December. This was compensated by a lower cash contribution to the disposal, as I will detail in the net bridge in a minute. Besides, the cash flow profile for the year was driven by the following elements: first, a normalization of our financial results after being impacted by the negative effects in Argentina in 2024. Second, lower restructuring cash-outs, which decreased to EUR 189 million. Regarding working capital, the contribution also normalized at EUR 263 million. As anticipated, this is much lower than the exceptional inflow we recorded in 2024. We are now back in the EUR 100 million to EUR 300 million range of annual contribution to cash flow, as guided. Regarding inventories, the level decreased by 1.2 days in total. Finally, CapEx was reduced to EUR 1.523 billion in '25 on the back of lower investments in noncore countries as we post on a number of projects during the strategic review. Net free cash flow, excluding real estate CapEx and disposals is provided on Slide 19. Carrefour generated net real estate proceeds of EUR 264 million in '25, slightly up from EUR 227 million in 2024. Disposals were actually slightly down at EUR 517 million. Real estate CapEx were reduced in 2025 on the back of a slowdown in expansion in Brazil. Excluding real estate, net free cash flow totaled a bit more than EUR 1 billion in 2025. On Slide 20, we look back at our initial assumptions for full year cash flow as shared with you in July. As you can see, most parameters came exactly in line with our expectations. As already commented, EBITDA was only stable when we expected growth. Cora & Match and weaker markets in Q4 in France and Brazil explain most of the gap. Reversely, our capital expenditures came below initial outlook as we decided to slow down our investments in perimeters under a strategic review. Moving on to total net debt on Slide 21. Net debt amounts to close to EUR 4 billion on December 31, 2025. Net free cash flow over the last 12 months amounted to EUR 1.3 billion and covered dividend payments and tax paid on 2024 share buyback for a total of EUR 866 million. M&A was an outflow of EUR 106 million, including the acquisition of minority interest in Brazil. Finally, the sale of Carrefour Italy impacted net debt by EUR 181 million, a lower amount than the planned EUR 240 million cash injection due to the closing debt and working capital variation. Let me now detail a few numbers relating to the disposal of Carrefour Romania on Slide 22. This transaction is based on an enterprise value of EUR 823 million. This implies a valuation multiple of 4.8x 2025 EBITDA, which we believe is an attractive valuation of the asset. You will note that operating margin was 1% in '25 and net free cash flow was a negative EUR 53 million. The closing of the transaction is subject to customary regulatory approvals and is expected to take place in the second half of 2026. A quick word now on capital allocation on Slide 23. Carrefour continues to follow its disciplined capital allocation strategy, ensuring strong shareholder returns and maintaining a strong balance sheet. At the upcoming AGM in May, we will propose an ordinary cash dividend of EUR 0.97 per share, reflecting a 5.4% increase compared to last year. In addition, subject to the closing of the disposal of Carrefour Romania, we will propose a special dividend of EUR 150 million. This EUR 150 million represent roughly 30% of the enterprise value, excluding IFRS 16. This EUR 150 million represent EUR 0.21 per share, bringing the total dividend to EUR 1.18 per share. This represents a cash yield of approximately 8.3% on the basis of the share price as of December 31, 2025. This concludes my presentation. I thank you for your attention. Alexandre and I are now available to take your questions. Operator: [Operator Instructions] And our first question today comes from the line of Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: If I can maybe just get you to help us with 3 things. In terms of the outlook, you made some qualitative comments but there is consensus expectations out there for EUR 2.4 million of ROI. Is that consistent with what you see in your qualitative comments? So that's the first question. Secondly, Spain, if you could just explain a little bit more, there as a big step-up in the second half performance, it looks like. I think Spain was up 9% in the first half, and now it's up 13%, 14%. Was there anything to do with the base, i.e., provisioning in the financial services a year ago being higher and not as high this year. If you could just explain what else drove that really strong commercial performance in Spain? And thirdly, just very quickly on France, you've talked about improving position, underlying market share so seems to be grinding rather than firmly moving forward. Clearly, externally, also your price position has improved over the past 18 months. Is this enough? Or do you need to do something materially different in France to move back to firmly gaining market share. Alexandre Bompard: Thank you for the series of question. Maybe a few words on 2026 even if the main points will be developed tomorrow morning. But just to answer your question, we are confident in 2026 for a number of reasons coming from good market outlook, solid underlying business dynamics at Carrefour and supportive technical swings. So if I jump to the business outlook for our key markets, we do think that France has delivered a very solid performance when analyzed without Cora & Match based on our own strategy, but also on a solid French market that turned positive to volumes since Q2. We have positive volumes in the French market since. Q2. It remains extremely rational as we had expected, and we anticipate the same type of market trends for 2026. And the initial hampers for January reinforce our confidence. The public data shows that volumes are positive in January while it was negative in December because of trade-offs on festive products. So that's for France. Spanish market was solid -- very solid last year, probably the best in Continental Europe. We had a very, very good level of competitiveness. We are a price leader and we reinforce our price leadership. We see no reasons for a change in business trends there, but very solid macro drivers. And we see no reason why we wouldn't continue to reinforce our leadership in price. So we are very positive in Spain. Last, Brazil. So the conviction we have is that we probably turned the corner in Brazil with the macro. Volumes were better oriented in Q4, low single-digit negative, while mid-single-digit negative in Q3. As Matthieu said, we saw a decrease in commodity prices, which are an important part of our sales. It has strengthened our customers' purchasing power. And I would say, besides we know by experience that election years often mean government support to consumption, which should also help. So we really think we have turned the corner in Brazil with macro, and we have good prospects for 2026. And of course, it is reinforced by our price leadership, by the cost -- also by the cost-saving plans we have developed throughout the year. So the outlook of the market and the good business dynamics of Carrefour convince us that the 2026 year would be positive. Besides, we have a bunch of positive technical. The integration cost of Cora & Match are now behind us and they are complete. Since the end of the year, we see that the stores are ramping up, better ticket, better market share, better like-for-like as well as the synergies. And we do think that the year will be positive in terms of recurring operating income for Cora. Last one, the reduction -- the additional EUR 75 million reduction in cost of debt, thanks to the restructuring of the Brazilian debt last year. So all in all, you see that we have a good level of confidence with the market on our own business dynamic, reinforced by technical swings. So that's for the outlook. For Spain, you're right, the trend was very positive in the second part of the year. To be honest, we see this trend for a few quarters now. The team has made a very good job to reinforce the price positioning. The market was positive in Q4. Same thing in January. So we have a good level of comfort about our situation in Spain. And financial service contributes to the improvement of the recurring operating income also. When I come to your last question about France, we won't change what is working and the conviction we have is that we invested the right amount to stabilize our market share including Cora & Match in Q4. We plan to continue to invest in prices to drive more customers back to our stores and to retain them. We can finance that through our cost savings dynamics and our buying alliance, Concordis, and we will talk more about this tomorrow morning. Sreedhar Mahamkali: Got it. Just really to follow up. I'm trying to understand if that confidence equals to or is consistent with the expectations out there for 2026 operating profit? Or do you think it's a bit too early to talk to a consensus number in the year? Matthieu Malige: Let's keep it for tomorrow, Sreedhar. There will be much more granularity given including on '26. And so let's keep it. Operator: And your next question comes from the line of [ Fabien Lemoine ] from Bank of America Securities. Unknown Analyst: Two, if I may. First one, can you give a bit more color on the 30 bps margin improvement you see in France. So what was really the operating leverage that you've seen? Is it about volumes, cost savings, certainly combination of 2. But can you potentially explain a bit more -- give a bit more granularity on this 30 bps margin improvement in France, excluding, of course, Cora & Match? Second thing, we heard in the press that you would be potentially considering the disposal of some of the Cora stores. So any comment there? Are you happy with the 60 hypermarket that you've got there? And the last comment -- question is, can you give us the amount of synergies that you had for Cora in 2025 because it was positive, but how big was that? Alexandre Bompard: Thank you for the question. So you're right. In France, it's a very important milestone for us to reach 3% profitability. We have doubled this number in a few years. And that's the result, I would say, and this year also a very constant strategy. This year, we have delivered a high level of cost savings in France. It has enabled us to have a good dynamic in terms of market share in volume. The market was positive in volumes in 2025, and it will be in 2026. We have a good dynamic on e-commerce. We have a good dynamic also on convenience store with record number of opening this year. All in all, it has enabled us to reach this very important milestone, which is the result of a very solid, steady and constant strategy we are leading. Matthieu Malige: On Cora stores, so there's been rumors that there were discussions on a very small number of stores where we are thinking about the perimeter, which is, again, just a full maximum of stores, which is quite typical when you have made an acquisition. We are just checking if the stores will create most value in our network or in another network. But it's just high level thoughts, no decision taken. Can you exactly repeat your third question? Unknown Analyst: Yes. It was just about the synergy with Cora in 2025. You saw a chart when you obviously benefited already from some of the synergies in 2025, just to guesstimate what the amount was. Matthieu Malige: So as you saw on the graph, there is no specific amount. What's interesting is -- so it's a relatively small number so far, which -- to make it more interesting, which is a mix of, in fact, quite good cost synergies and the work has been done very, very well there. But this is compensated by negative so far commercial synergies, as you saw on the recurring operating income. So the net amount is relatively small so far. But as far as 2026 is concerned, we're quite comfortable because, again, the commercial dynamic is improving very, very quickly. And the cost dynamic is here and it's just going to be reinforced. So that's why we have quite good level of confidence and even visibility on the ramp up of the synergies for '26 and good level of confidence for '27 because we see that the underlying trend is here. It's gaining traction and customers are clearly accelerating their visit and even sales despite price decrease, even sales at [ tax costs ]. Operator: Your next question today comes from the line of Francois Digard from Kepler Cheuvreux. François Digard: First, on the convenience stores like-for-like in Q4, it's a bit weaker than it used to be. Is there any trend? Anything to comment on that? That's the first question. Then could you highlight the moving parts of your cost of debt with minority buyout financing on one hand, but the refinancing in Brazil starting to contribute on the other hand? And what should we expect in terms of level of financial cost next year? And third, if I may, it was quite surprising to see the CapEx going down. Could you help us to understand what is underlying in the amount? What is there to stay -- what -- how do you consider that in percentage of sales, for instance, to what do we have to keep in mind for the future, whatever the perimeter is going to be? Alexandre Bompard: I would take very quickly the first. No, nothing new on the dynamic of convenience. I would say maybe only the fact that they have probably suffered a little bit also by the trade-off on festive product at the end of the year. But the dynamic of the year has been very, very good under the number of new stores, the commercial dynamics, the implementation of the new concept that we have tested this year is very positive also. So everything is positive with the convenience and nothing special on the commercial dynamics in Q4. Matthieu Malige: On your second question, Francois, regarding financial expenses, so indeed, the -- so we're expecting as planned, an additional EUR 75 million of contribution to net free cash flow, which is a post-tax number for '26. We already had EUR 25 million captured in the 2025 cash flow. So the net cost of debt really that sub line for 2026 is planned to decrease quite significantly with that number, gross of tax impacting the line. Then CapEx. So a number of arbitrage have been made during the year. So first, expansion in Brazil has slowed down. It has slowed down in the market on the back of the environment that we described. It has also slowed down at Carrefour, and we know that this expansion at Atacadao is quite costly as there are some real estate involved. We have also cut a number of projects and development on the CapEx of the smallest countries. As part of the strategic review, we said that it was meaningful to make sure we have just the right and minimum level of CapEx in these markets given the review undergoing. And then in France, we increased the CapEx. You will see that in the detailed numbers, we increased the CapEx. As Alexandre announced at the beginning of the year, we want to invest more on 2 main topics. First one was in the transformation of the stores and development of some commercial concepts, and we talk more about that tomorrow. So we have invested more on that. And we have also invested more on our logistics, which was also part of the plan to ensure smooth efficiency of our operations and also reduce our logistics costs. Operator: And your next question comes from the line of Geoffroy Michalet from ODDO BHF. Geoffroy Michalet: I have 2 questions. First one is on capital allocation. What was the driver that led you not do a new share buyback? I mean how do you intend to use the Romanian proceeds since you will spend only, let's say, 30% of the proceeds in exceptional dividend. And the second question is on the relation with the unhappy franchisee in France. We've seen reports in the press. And my question was, how is your feeling or thought as of now with the latest development. Matthieu Malige: Thank you very much, Geoffroy. So indeed no share buyback. We still -- we know that we have this tax in France, which impacts us significantly. Then it's relatively small amount this EUR 150 million. So like we did last year, we have elected for special dividend. Then Romania, so we wanted to have a portion of the proceeds to come back to shareholders as the valuation was quite a good one. The rest remains on the balance sheet -- will remain on the balance sheet for flexibility and a number of opportunities. And so that will be discussed also tomorrow as part of the capital allocation section of the strategic plan. Alexandre Bompard: On your second question, you know the main numbers. So we opened almost 500 new stores this year. We have 6,000 candidates to new franchise stores. We are not far from 6,000 stores in France. So the convenience stores for the franchise is working extremely well. We have this agreement with a slight number of franchisees. I request that as we already told, the door is always open to discuss and to find a definitive agreement. And I'm sure that in the future, we will manage to do that. Operator: We will now take our final question for today. And our final question today comes from the line of Rob Joyce from BNP Paribas. Robert Joyce: Three from me as well. So the first one, just to understand the base and how we think about profit growth in France. So I think originally, Cora was going to be EUR 75 million of recurring costs in ROI. Is this now EUR 145 million, just to confirm? And then do any of these reverse next year? And should we be thinking of Cora? Do we have any more costs to incur in '26? Or is it growing profits from here? And second one is just thinking about that free cash flow target, I think you had at EUR 1.7 billion for 2026. Just want to understand if that's still one you're confident in achieving. And then the final one, potentially related, just in the main release, there seems to be quite a lot more disclosure on factoring of receivables, now mentioning France as well as Brazil on a total balance of around EUR 1.4 billion in factored receivables. Can you talk us through what you're doing in terms of factoring receivables and how this impacted the working capital in 2025? Matthieu Malige: Thank you, Rob. So first question on one-offs. So I mentioned -- so I refer to Page 11 of the presentation. So I think that there's 2 elements. So first, the total amount of integration OpEx accounts recorded on H2 '24 and full year '25 indeed amounted to EUR 145 million. That compares to an initial guidance of EUR 150 million. So as I said in my speech, we have very well controlled that amount. Now looking just at 2025, the extraordinary OpEx are just EUR 95 million, which are accounted in the recurring operating income of minus EUR 120 million. So let's be clear, integration is complete. There will be no more integration costs, OpEx, nor CapEx next year. This is done. So now Cora & Match is really a normal and going concern business. So that's why I flagged the minus EUR 25 million for the euro ex one-offs. I think this is the base. I have explained that we have some pressure from all the commercial investments that have been made, but the commercial dynamics, which was by construction, quite slow at the beginning is ramping up. So we have much more positive prospects for 2026. Now on free cash flow. So you're right, we have this EUR 1.7 billion target. So 2025 is at EUR 1.565 billion. There's a number of exceptionals in this number that I'd like to flag and which obviously will disappear. So for next year, obviously, the Cora & Match integration cost of EUR 95 million that I just mentioned will not be present. They have also weighed on the net free cash flow. Then we will benefit from EUR 75 million from the refinancing of Brazilian debt. And you may remember, I'm sure you remember, that in H1, we had a negative EUR 80 million working cap impact at Cora. That was the first time that we consolidated Cora on an H1, which is typically a negative net free cash flow semester due to the seasonality. Obviously, that would be part of the historicals in 2026. And so we won't have that benefit. So this is all in roughly EUR 250 million. So you see that the EUR 1.7 billion is at sight for 2026. We will come back in more detail on the outlook for '26, as I said to Sreedhar, tomorrow. Final question is on receivables. So we started, as you flagged, to disclose the number of receivables, which is sold. This is mainly -- and I think we already commented on that in the past. This is mainly the credit card receivables that we have in Brazil. As you know, we have a few years ago, started to accept credit cards. Then we used historically to accept only cash payments. Credit cards, you get the money after 30 days. So you have a receivables that is created. And we expanded the facility through 3x installments, which for our consumers, which is appreciated in the current environment. And so it means that we get the money after 30, 60 and 90 days, 1/3 each, obviously, creating more receivables. And so these receivables are sold not entirely, but that's a way to finance the increase of receivables. We don't even sell all receivables, so we finance a little bit of through our EBITDA generation, but that's the financial resources that we use, and that is disclosed in our financials. Robert Joyce: And what's happening in France, sorry, Matthieu, in terms of the receivables? Matthieu Malige: We have some receivables relating to franchisees. So the bulk is in Brazil. Then we have some receivables from franchisees, something we developed our activity with franchisees with an increase of receivables. And so again, a portion of the receivables is sold to financial institutions to limit the negative impact on the working cap. Robert Joyce: And the year-over-year impact, just to round out the question? You have the year-over-year impact overall? Matthieu Malige: So overall, selling receivables, it's neutral year-on-year. And so it means that the increase in activity and increase in receivables is somehow negative on the net free cash flow of the year. Operator: Thank you. That was our final question for today. I will now hand the call back to the room for closing remarks. Alexandre Bompard: Many thanks to all of you. See you tomorrow to discover what's next. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the DEXUS HY '26 Results Briefing. [Operator Instructions] There will be a presentation followed by a question-and-answer session. I would now like to hand the conference over to Ross Du Vernet, Group CEO and Managing Director. Please go ahead. Ross Du Vernet: Well, good morning, everyone, and thanks for joining us for our half year 2026 results presentation. I'd like to begin today by acknowledging the traditional custodians of the lands and waterways upon which we operate and pay our respects to elders past and present. Today, you'll hear from Keir on the financials, Andy on office, Chris on Industrial and Michael on Funds Management. Concluding the presentation, I'll provide a summary and open up to any questions that you may have. DEXUS is a unique investment proposition in the Australasian real asset market. Today, we manage $51 billion of assets across our platform with third-party funds under management at 2.4x our investment portfolio. We have scale and diversity across the real asset spectrum, $20 billion in office and around $10 billion in each industrial, retail and growth markets, which includes infrastructure, health care and alternatives. This scale is underpinned by our multidisciplinary team with deep expertise across each sector. Importantly, we have access to diverse pools of equity capital, which positions us well to capitalize on opportunities through the cycle. Our strategy is unchanged and our vision to be globally recognized as Australasia's leading real asset manager continues to guide our decisions. The strategy targets large growing markets, leveraging our multi-sector strengths in transacting, managing and developing across each. Our high-quality balance sheet portfolio, together with a large diversified funds management business continues to differentiate us. Today, the investment portfolio is anchored by prime office exposure across Australia's major CBDs. Over time, the investment portfolio will continue to become more diversified by investing alongside capital partners into a diverse range of opportunities. Our culture, the quality and scale of the portfolio and projects we have underway, coupled with our approach to people, enable us to attract, retain and develop leading talent to ultimately create value for customers, clients and you, our investors. Turning to our results. We delivered AFFO of $253 million and distributions per security of $0.193. This was the second consecutive six-month period of positive property portfolio valuations, which supported the delivery of a statutory net profit and an increase in NTA to $8.95 per security. Our office leasing volumes were almost double that of levels achieved in the prior corresponding half, including further progress at Waterfront in Brisbane, which is now 71% pre-leased and will deliver a premium product in the strong Brisbane office market. Our industrial portfolio, as we expected, delivered strong like-for-like growth and re-leasing spreads. We undertook $800 million of divestments for the balance sheet, including the recently agreed divestment of 100 Mount Street in North Sydney. If we turn to the funds business, we continue to work through some fund-specific matters while positioning the business for long-term success. Our flagship funds continue to outperform, DWPF outperforming its benchmark across all time periods, while DWSF, the Shopping Center Fund has outperformed since joining the platform. We raised over $950 million of equity, comprised $640 million of new equity commitments and the facilitation of more than $280 million in secondary unit transactions. We established a new fund series. We closed DREP2 above its initial target, and we continue to rationalize subscale funds to simplify the platform. In August, I outlined our action items for FY '26, aligned to our three strategic priority areas of transitioning the balance sheet, maximizing the contribution of the funds business and unlocking our deep sector expertise. In addition to the progress I mentioned on the previous slide, key development milestones were achieved at Waterfront in Brisbane. The DEXUS office and industrial portfolios delivered positive total returns over the 12-month period. And DEXUS has now secured $1.4 billion of divestments since 30 June 2024, progressing well towards our $2 billion target. We invested $170 million of seed capital into DSIT1, a new fund series, which we aim to reduce to $50 million during the year. We've reduced the real estate redemption queue by $1 billion. And post the APAC court date scheduled for April this year, we expect to make more progress on solving infrastructure redemptions. Overall, we've made solid progress and remain focused on the priorities that will position the business for long-term success. Our sustainability strategy focuses on three priority areas where we can make the greatest impact across climate action, customer prosperity and enhancing communities. Sustainability remains core to how we operate, and we continue to receive global recognition for our performance. Thank you, and I'll now pass you over to Keir. Keir Barnes: Thanks, Ross, and good morning, everyone. Turning to the results in detail. In line with expectations, total AFFO was $253 million, with a distribution of $0.193 per security, reflecting a payout ratio of 82%. Office FFO reduced primarily due to divestments and lower average occupancy, partly offset by contracted rent increases. Industrial portfolio income increased due to higher occupancy, development completions and contracted rent increases, partly offset by divestments. FFO from management operations decreased due to lower FUM as a result of divestments and slightly lower performance fees, with $19 million realized in the first half and $16 million secured for the second half. Finance costs were broadly flat with a higher cost of debt offset by higher interest income. As expected, trading profits were higher with the sale of Brookhollow, Chester Hill and continuing construction at Prestons, securing FY '26 guidance. Maintenance and leasing CapEx is skewed to the first half of the year, mainly due to the impact of incentives on deals secured in prior periods as well as the timing of maintenance CapEx. Looking ahead to FY '27, performance fees and trading profits are expected to be materially lower than FY '26. It has been positive to see the second six-month period of valuation growth across the office and industrial portfolios. Overall, for the six months to 31 December, the portfolio increased by 1%. Capitalization rates have stabilized with the valuation movement predominantly driven by rental growth. Our office portfolio, which is 77% weighted to core CBD markets increased by 0.7% and our industrial portfolio, which is 90% weighted to core industrial estates and distribution centers increased by 1.6%. Pleasingly, these outcomes demonstrate the quality of the portfolio. Moving to capital management. Our balance sheet remains solid with look-through gearing towards the lower end of the 30% to 40% target range, providing capacity to fund committed expenditure. During the half, we issued $500 million of subordinated notes at attractive rates and diversifying our funding sources. We have been active with refinancing, resulting in a weighted average debt maturity of 4.6 years, $2.5 billion of headroom and manageable near-term debt maturities. 95% of our debt was hedged during the half at an average rate of 2.9%, providing material interest rate protection. Looking forward, there's $1.2 billion of remaining spend on the committed development pipeline over the next four years, with $360 million expected to be incurred in the second half of FY '26. Thank you, and I'll now hand over to Andy. Andy Collins: Thanks, Keir, and good morning, everyone. I'll now take you through the performance of our office portfolio. We continue to own and manage the best office portfolio in Australia. Over the past five years, we have enhanced the quality and resilience of our portfolio. And as a consequence, we are well positioned to benefit from the market recovery that is now underway. Location remains a key differentiator, demonstrated by our portfolio occupancy of 92.2%, which remains well above the market average. Our average incentives of 29% are below market, reflecting the quality of our portfolio and notably, leasing deals done in Perth, Brisbane and North Sydney, where market incentives remain elevated. The effective like-for-like income decline of 2.3% primarily reflects downtime on select vacancies, including 80 Collins Street and 30 Hickson Road, and we expect this to improve into the full year. Our leasing activity was strong this half with leasing volumes of over 95,000 square meters, almost double the volumes achieved in the prior corresponding period. The portfolio delivered a one-year total return of 5.7% at December, reflecting the improved market conditions. Looking at our expiry profile, we aim to have no more than 13% of the portfolio expire in any single year. FY '27 expiries have improved to 12.3% following the recent divestment of 100 Mount Street with key expiries remaining in Australia Square and 385 Bourke Street. We remain focused on addressing the more challenging vacancies at 80 Collins Street in Melbourne, which represents 2.2% of portfolio income and 30 Hickson Road in Sydney's Western Corridor at 1.5% of income. While there is no conclusive answer regarding the potential impact of AI on office markets, we believe different parts of the workforce are likely to be affected unevenly. Our view is that high-value professional work, the kind concentrated in premium CBD buildings, reflecting the majority of our portfolio will be the most resilient to AI replacement risk and may even benefit and grow. We frequently monitor our customer base, which is well diversified with an average tenancy size of 1,000 square meters and our top 10 customers account for just 20% of our total property portfolio income. The staggered expiry profile, combined with our diversified tenant base, supports resilient income streams across the portfolio. Our development pipeline provides the opportunity to further enhance portfolio quality. Construction is progressing at Atlassian Central in Sydney with completion on schedule for late 2026. This development is 100% pre-leased on a 15-year lease with 4% per annum fixed increases in what is now an improving Sydney market. At Waterfront Brisbane, we have achieved an important development milestone with the Riverwalk opening earlier this month and the vertical structure coming out of the ground. The Brisbane market continues to strengthen with a positive outlook over the medium term. Pleasingly, Waterfront is now 71% pre-leased with the recent leasing deal reflecting a 40% improvement in net effective rent compared to the previous Waterfront deal struck two years ago. In aggregate, 83% of the committed development book is pre-leased with contracted 3.7% average fixed increases per annum, providing a secure income stream once complete. We have fixed price contracts in place with Tier 1 contractors with material collateral and security arrangements to protect against construction risk. A very high threshold applies to projects in our uncommitted development pipeline and Central Place Sydney has moved out of our uncommitted pipeline as the scheme is reconsidered. Turning to the office outlook. The evidence continues to suggest that we have passed the bottom of the cycle and are now in the early stages of a recovery. Office demand continues to gain momentum, driven by employment growth, return to work mandates and centralization trends. Net absorption has been positive across all four major CBDs with the strongest absorption in premium grade assets, which is exactly where our portfolio is positioned. Sublease space has continued to reduce and is now close to average levels. Importantly, upcoming office supply is low relative to long-term averages. This provides scope for vacancy rates to fall and rents to grow. Within our own portfolio, we are seeing examples of 15% net effective rent growth on comparable lease deals struck 12 months apart. Looking at our rental growth expectations over the next three years, we expect strong growth across all major markets with Brisbane and Sydney Premium leading the way, followed by solid growth in Sydney A-grade, Melbourne Premium and Perth. The Sydney CBD core is now 95% occupied with DEXUS at 98%. With the seven-year delay in new supply, there is meaningful upside to the Sydney premium forecast. DEXUS is well positioned to capture this upswing given our portfolio quality and location in core precincts of the major CBDs. Thank you. I'll now hand you over to Chris. Chris Mackenzie: Thanks, Andy, and good morning, everyone. Our industrial portfolio has delivered a strong result, including a one-year total return of 8.8%. Occupancy by income increased to 97% following leasing success across Sydney, Melbourne and Perth, which also resulted in like-for-like income strengthening to 8.7% as expected. Occupancy by area of 97.5% remains above the national average. We achieved strong re-leasing spreads of 33% across the stabilized portfolio. Average incentives increased to 21.5%, primarily driven by lease-up of key expiries in Melbourne's West and Sydney's Outer West. The portfolio is 8.9% under-rented and 20% is set to access rental reversion upon expiry by FY '27. On developments, we completed 102,000 square meters during the period, with construction continuing across a further 110,000 square meters. We leased 63,000 square meters across 10 development deals and 68% of our committed development book is now pre-leased with contracted annual increases of around 3%. Moving to our expiry profile. We have leased 24% of the portfolio over the past 18 months, derisking the expiry profile and capturing strong re-leasing spreads. We remain focused on leasing key vacancies at Matraville, which has now been repositioned along with Gillman. And we are in active discussions with potential tenants on both of these properties. The vacancies we have experienced over the past 18 months have been in older stock in New South Wales and Victoria. And pleasingly, we have achieved strong re-leasing results. Looking forward, 80% of our FY '27 expiries are represented by younger prime assets and provide the opportunity for positive reversion. Turning to the outlook. Supply under construction has moderated and remains at or below historic average take-up in all markets, while the picture for demand remains supported by strong Australian population growth, enhanced by e-commerce growth. Our portfolio with its focus on core industrial estates in strategic locations is well positioned to benefit from these trends. Thank you. I'll now hand over to Michael. Michael Sheffield: Thanks, Chris, and good morning, everyone. Our funds business manages $36 billion in third-party capital across a diverse range of real asset strategies for more than 150 institutional clients with retail and wholesale investors. We've maintained prudent capital structures across our pooled funds with average gearing remaining conservative at around 32%. We have both returned capital and raised equity in existing and new products, but the near-term revenue impact of providing liquidity is still working its way through. While there is more to do, we are positioning ourselves to capture the strong expected growth in pension capital over the medium term. Last year, we launched a new investment series focused on high-quality assets for long-term value creation, with the first fund in the series securing a 25% interest in Westfield Chermside. Offshore capital, particularly from Asia, is increasingly interested in Australian real estate with the office sector also seeing renewed interest. In the six months to December, we've reduced the real estate redemption queue by around $1 billion, and we continue to rationalize subscale funds. We expect to make further progress on infrastructure redemptions post the APAC court case scheduled for April 2026 with mediation to occur in March '26. We raised over $950 million in third-party equity, including facilitating more than $280 million in secondary unit transactions. DWPF continues to outperform its benchmark across all time periods, outperforming by circa 200 basis points for the 12 months to 31 December. This highlights the quality of the underlying portfolio and our active management approach. And the shops fund has also outperformed its benchmark since joining the DEXUS platform. And while operating -- while the operating environment remains challenging with some continued pressure in the near term, we are steadily repositioning the business for long-term scalability and growth. Thank you, and I'll now hand you back to Ross. Ross Du Vernet: Thanks, Michael. Underlying real estate markets continue to improve, supported by positive business confidence, constrained supply pipelines, stabilization in asset prices and improvement in transaction volumes. Barring unforeseen circumstances for the 12 months ending 30 June 2026, we reaffirm our expectations for AFFO of $0.445 to $0.455 per security and distributions of $0.37 per security. With valuations turning positive, transaction and fundraising markets recovering, our confidence in the long-term fundamentals of the business have strengthened. We are actively exploring opportunities to enhance returns and capital efficiency by increasing third-party capital participation in the $13 billion property portfolio. This would release capital in addition to the $2 billion divestment target. With the sustained disconnect between our equity market valuation and that of our underlying assets and businesses, we have activated an on-market securities buyback of up to 10% of DEXUS securities. We will execute the buyback at a pace consistent with maintaining balance sheet discipline as we progress asset sales and other initiatives to release capital. Thank you. That ends the formal part of today's presentation. I'll now take any questions that you may have. Operator: [Operator Instructions] The first question today comes from Adam West from JPMorgan. Adam West: I guess my first question today is just on the Atlassian development. I'm just wondering if you progressed any plans for a partial sell-down -- full sell-down of that asset? Ross Du Vernet: Adam, thanks for your question. This is certainly an asset that we have flagged that we'll be looking to introduce third-party capital into. I think we've been pretty consistent with the market that we think the best time for that is closer to practical completion. That is slated for the end of the year. We think it's a great investment product, 15-year lease fixed 4% increases. And so yes, that's one of the assets that we will be bringing third-party capital in over the course of the year. It might not happen before practical completion, but it will be towards the end of the year. Adam West: And I guess just my second question on the office portfolio. In terms of the core Sydney CBD portfolio in particular, I'm just wondering if you could talk to how much under-renting would potentially be in that segment. Ross Du Vernet: Andy, that's one for you. Andy Collins: Yes. No problem. Adam. So look, re-leasing spreads were positive in all of the CBDs, including Sydney CBD. And so re-leasing spreads obviously impact the extent to which the portfolio is over and under-rented. We're seeing a pattern of better effective re-leasing spreads driving or reducing the extent to which the portfolio is over-rented on an effective basis. And so the portfolio generally is around 7.5% over-rented on an effective basis. That's come in from 12.5% 12 months ago. And it's about 4.5% under-rented on a face basis, which is pretty stable with 12 months ago. Operator: The next question comes from Cody Shield from UBS. Cody Shield: Just firstly, on the buyback. My understanding was that you need to do more than $2 billion of divestments to get the buyback away. Is that still the case? Or are you sticking with that $2 billion target? Ross Du Vernet: I think we're very resolved around the $2 billion target. And I think what we're flagging is we see real value in the security price where it's trading. We instituted a pretty disciplined capital allocation framework when I stepped into the chair. Dare I say that has regard to the return on the investments we already have and also marginal uses of capital. So we are definitely resolved we're going to get through that $2 billion target. And as I have shared in my concluding remarks, we are actively looking at bringing third-party capital into the $13 billion investment portfolio. That has the potential to release a significant amount of capital. And certainly, given where we're trading today, the buyback would be a really good use of that. Cody Shield: Okay. That's clear. And then just turning to the leasing at Waterfront, looks like a good outcome. Just wondering whether there's some flex in that 5% to 6% yield on cost that you're targeting? Ross Du Vernet: I think I've been pretty clear. I always kind of think we're going to be at the higher end of that range, and there's always scope for us to outperform. We're really pleased. We have great belief in that product. I think that is validated and the strategy of the team to be kind of patient and wait for the market to come to us on the leasing there. So I think that's a tremendous validation of the product and the leasing strategy from Andy and the team. I would also kind of just flag that even at that yield on cost, we're going to be materially under-rented in that asset just given how much the market has moved. So I think there's going to be a great ultimate return for our security holders and DWPF, which is our co-investor there. And yes, I would like to kind of see the team surprise on the upside. Operator: The next question comes from Simon Chan from Morgan Stanley. Simon Chan: My first question relates to the buyback. guys. How much of the buyback do you think you'll actually do in the second half of fiscal year '26? And if you are genuine about kicking off the buyback in the second half of fiscal year '26, I would have thought there's scope for you to change your earnings guidance for the year because you're buying back stock at essentially 10% earnings yield and your cost of debt is 5%. Ross Du Vernet: So maybe I'll take the question in two parts. Are we serious about the buyback? The short answer is yes. I think it's not just a statement of intent, but we see real value in the company where it's trading. We see a disconnect. We have a very high-quality portfolio. Valuations have troughed. We see valuations moving north from here. And I think the market is fixated on maybe EPS growth and some noise in the business, be that developments or litigation, those sorts of things. So we see good value at the current level. We need to make sure that as we're executing that buyback, we're doing it in a disciplined way that we have regard to the balance sheet strength, which is really important to us. But I think I am getting more confident around the transaction market. It is improving. And certainly, I think bringing third-party capital into the platform and the confidence we have in doing that, there is scope for us to release a lot of capital. And as I said in previous responses, I think the buyback is a really good use of capital at current levels. So I can't predict where the stock price is going to be in three months' time, and we're not going to put that into guidance. But certainly, at current -- trading at current levels, if we can be more active on capital recycling, I think you're going to see us being very active. Simon Chan: Okay. Fair enough. My second question, in Slide 17, and I think Andy Collins might have touched on this. That's that last bullet point, high threshold to commence new development projects. I think he referred to that after talking about scrapping central place. What's your new threshold now? Like are you going to have a -- have you guys done the review and have settled on a high yield on cost hurdle before you kick anything off? Can you talk to that, please? Ross Du Vernet: I would say coming back to our capital allocation framework, this is something that is constantly assessed. And when we kind of look at alternative uses of capital, including things like a buyback, which we've announced today, there is a very high threshold for us to start new projects. So that's not to say that we're not going to do it, but where we do it, it needs to be capital efficient. We need positive economics from the management enterprise, and we need to believe that the underlying projects are going to deliver really good risk-adjusted returns. So -- that's how we... Simon Chan: I get that Ross. But previously, Central Place was -- you were guiding to, I think, 5% to 6% yield on cost and you've now scrapped it. So can I assume that 5% to 6% no longer custom? Ross Du Vernet: I think that's probably fair to say 5% to 6% yield on cost kind of depending on where cap rates are is a pretty skinny development margin. So that's not a good use of shareholder capital, and we won't be committing projects on that basis. Operator: The next question comes from Andrew Dodds from Jefferies. Andrew Dodds: In the remarks, you noted that $1 billion of real estate redemptions were satisfied in the period. I'd just be interested to hear where that redemption backlog is sitting today. I think it was around $3 billion back in the August results. Michael Sheffield: Andrew. Yes, redemptions are around about $2 billion. We satisfied about $1.5 billion during the half year period. And they're now around evenly spread between real estate and the infrastructure exposures. And infrastructure will obviously be dealt with in line with the APAC court case resolution, which isn't too far away. So our expectation is that the current redemptions will likely be dealt with within 12 months. Andrew Dodds: All right. That's a good outcome. And then just secondly, on trading profits, the expectation this year was for $40 million post tax. It looks like you have done that alone in the first half. So I guess just the expectations for the second half. And also just in FY '27, the slide on Page 59 in the presentation sort of shows pretty minimal opportunities for trading profits. So I mean, is it pretty safe to assume that there won't be any contribution in '27? Ross Du Vernet: Look, I might take the comment on '27 and Keir can talk to '26. I think what we're providing is in guidance that as we sit here today, the realization of meaningful trading profits and they have been a meaningful contributor in '26, the likelihood of that recurring in '27 at this point in time seems lower probability, and we're flagging that to the market. What I would say on trading profits is I am confident in the value creation that sits in projects that we currently have under our control and development in the trading book. I think it is just a matter of timing and the decisions that we're going to make in terms of the realization of those profits. So I think that's how I'm thinking about '27. But Keir, do you want to comment on '26? Keir Barnes: Sure. Thanks, Ross. So you are correct. The vast majority of trading profits have been realized in the first half. There will be a very immaterial amount coming through in the second half. So I wouldn't factor too much into your forecast. We're still expecting circa $41 million for the full year. Operator: The next question comes from Adam Calvetti from Bank of America. Adam Calvetti: Just on Atlassian, I mean, there's $610 million to spend, it's well above the current run rate that you've been spending CapEx at. I mean is there any financial implications if this was to be delayed? Andy Collins: Yes. So, Adam, it's Andy. So under the contract, it's a fixed price contract. We have the protections in the event of a delay. So from that respect, it's typical for a development like that. Are you -- is there more to your question from a financing perspective? Adam Calvetti: No, just any financial implications for DEXUS and then whether it's with the actual tenant, if that was to be delayed, it sounds like there's not. Andy Collins: Yes, that's correct. Adam Calvetti: Okay. And then just on office, I mean, of that 80-odd or 90,000 that you did over the half, I mean, how many tenants are expanding versus contracting in size? Andy Collins: Yes. Good question, Adam. So just like the breakdown of that leasing volume, about 20% is tenants upgrading. That's the first thing to note. About half of the tenants by area reflect renewals. That's the second thing to note. And in terms of growth, there are some great examples of tenants within the portfolio growing going from one tenant. One example is in 25 Martin Place, a financial services tenant going from one floor to two. And there are others with smaller tenants coming out of incubators, small suites moving up the curve into larger suites. And so that's about 25%. Adam Calvetti: But just to clarify that, so 20% upgrading, half are renewing and 30% are contracting? Andy Collins: I didn't say contracting, sorry, Adam. So you need to look at those proportions independently of one another. To answer your question directly, about 25% of tenants we dealt with grew. Operator: The next question comes from Ben Brayshaw from Barrenjoey. Benjamin Brayshaw: Could you just talk about the rationale for the issuance of the subordinated notes during the period, the $500 million? And could you also clarify the margin achieved on that new debt, please? Keir Barnes: Sure. Thanks for your question, Ben. So the issue of the sub-notes, I'd say that was a very prudent and opportunistic capital management initiative. It provides us with enhanced financial flexibility to pursue investment initiatives, certainly those with pretty attractive risk-adjusted returns whilst our planned capital recycling is ongoing. In terms of spreads, I mean, you'll have seen DCM spreads have narrowed and the sub-senior spread is now at historically tight margins. So the 5.25-year notes were issued at 1.75% over three-month BBSW and the 8.25 were swapped back to floating, and they reflected an initial margin of 1.85% over three-month BBSW. Benjamin Brayshaw: And will you receive equity credit from your rating agencies for those notes? Keir Barnes: That's right. We will. 50% equity credit. Benjamin Brayshaw: Terrific. And just in relation to your comments, Ross, on becoming more capital efficient to build the balance sheet portfolio. Do you have a target interest in mind in so far as ownership that you would like to maintain across the assets that you bring in capital partners for? Ross Du Vernet: Look, that's -- it's going to be considered on a case-by-case basis. I think the reality is we have a really high-quality portfolio. There's lots of options for us. We have existing JVs, which are 50-50, which we can bring third-party capital into. And we have existing assets that we own and control that we can establish new strategies around. So I think it's going to kind of depend on what clients want. And ultimately, we're going to run a bunch of options concurrently and choose those which are best for DEXUS security holders. I wouldn't see a scenario where if these are high-quality assets, which they are, we don't want to -- we want to have a meaningful aligned interest with our clients. So that's, call it, in the range of 10% to 20% would be kind of at the bottom end. Benjamin Brayshaw: Okay. And would Waterfront Place and Atlassian potentially form part of those capital and partnering transactions? Ross Du Vernet: I'm not going to be specific on assets, but I would say, as a general principle, we are open to looking at every asset in the platform and we'll be, as I say, running options concurrently to assess what is the best outcome for DEXUS security holders having regard to, to be frank, what we sell, but also the redeployment and what's left afterwards. Operator: The next question comes from Tom Bodor from Jarden. Tom Bodor: I just was interested in the passing yield on the circa $800 million of divestments. Ross Du Vernet: I don't know that we have that one to hand. We might come back to you on that. Tom Bodor: Okay. But I mean if I take something like 100 Mount Street, is it fair to assume that it's relatively high passing yield? Keir Barnes: There's a reasonable passing yield. I would say that asset has got a reasonable amount of CapEx coming in the next few years. So we think divesting at these levels is an attractive decision at this point in time. Tom Bodor: Okay. And then on the Waterfront project, just would be interested, can you confirm that you've allocated 100% of the podium costs to the first tower? Or have you pro rata it based on the square meters of the towers above or some other formula? Keir Barnes: So when we look at the total project costs that are quoted in the appendix, the cost of the podium is in the Stage 1 cost. In terms of the yield on cost, we strip that out, and we can go into a little bit more detail later today, if you'd like, around the methodology. But we take that out in terms of calculating the yield on cost for Stage 1, but it is included in the yield on cost that we quote for Stage 2. Tom Bodor: Okay. And then I guess just following on from that, in light of the positive momentum you've had on leasing there in that first tower, how do you think about the potential to get the second tower going in the next couple of years? Or is it really too early at this point to consider that? Ross Du Vernet: Look, I think that's a quality problem to have given the opportunities that we have in the portfolio. But I refer to Andy's earlier comments as a high threshold to commence. New development projects will be somewhat guided on that project as well by our partner there, which is the wholesale fund, DWPF. I think as there is increasing flow and interest from capital, that might be something that we reassess over the next 12 months, and there's certainly going to be some synergies in keeping continuity of contractor on site. So it's not really a decision for today. I'll just kind of make the point that for DXS, it's marginal capital, it's going to be a high threshold. So that is going to be a gating issue for us. Operator: The next question comes from David Pobucky from Macquarie Group. David Pobucky: Just a follow-up on the buyback and how you're thinking about balancing the buyback development and growth initiatives. I mean, DEXUS reset its target payout ratio, I think, almost a couple of years ago now to retain more capital for growth. So perhaps if you could talk a bit more about some of those growth initiatives you're working on, please? Ross Du Vernet: Look, I would certainly like to be growing the business more. And I think the market is increasingly conducive to where we kind of see the cycle and we see flow of capital from clients. But the reality is, given where we're trading is DEXUS security prices are really compelling proposition. So to be frank, new projects and opportunities are going to compete with that. So as long as we're trading at these levels, that's a pretty high bar. I would like to think -- and if I kind of take a step back, we have a significant balance sheet. And so the scope for us to undertake considerable capital recycling and releasing a lot of capital by bringing third parties into that investment portfolio actually, I think, gives us scope to do both. But obviously, we'll be assessing all those opportunities on a case-by-case basis at that point in time. So I can't predict where the share price is going to be. All I can say is as I sit here today, it looks very attractive from a marginal use of capital. David Pobucky: Just second question on Office. You saw a modest improvement in incentives in the period. Would you say FY '26 is the peak year for incentives? And what's the expectation around when that starts flowing through to earnings? Andy Collins: Well, David, just in terms of market incentives, so we've seen vacancy peak in Sydney and in Brisbane and in Perth. Vacancy is expected to peak in Melbourne shortly, next 12 months. And so that should flow through to market incentives. And of course, our incentives, we try to manage them lower than that market number. Keir Barnes: I think if we're thinking about just the pure dollar spend in terms of incentives. So I would expect this year, CapEx will be sort of probably a little bit below what it was in '25, but is expected to be higher in '27 off the back of the strong leasing that the team has been doing. Operator: The next question comes from Howard Penny from Citi. Howard Penny: I just wanted to ask about the equity raising. So they raised -- you guys raised $640 million in third-party equity commitments and $280 million secondary unit transactions. Could you describe where the equity interest is coming from domestic, international? And maybe just as far as possible, give us some background as to where these equity inflows are coming from? Michael Sheffield: Sure, Howard. We've seen a wide variety of interest from -- we've got a diversified platform with different channels of capital, and it's safe to say there's a wide variety of interest that, that attracts. So we've seen increasing interest from offshore investors, particularly in the pooled funds. And then from a domestic investor perspective, what they're increasingly looking to do is partner with us in some of our initiatives. So the DDIT trust, which was launched is the first in a series, and we've seen very, very pleasing demand from investors to essentially come into a club. That's been largely domestic, but I would say we've got a wide variety of interest from a wide variety of areas at the moment. Howard Penny: And my second question is just on cost of debt and where you see that potentially peaking over the next 2 years and refinancing risk on that? Keir Barnes: Thanks, Howard. I'll take that one. So the cost of debt, you'll have seen has increased. It went from 4.2% up to 4.7% for this half. I expect for the full year, we'll be sitting at the high 4s next year, sort of 5-ish. So we are pretty close to market at this point. In terms of refinancing risk, very minimal expiries coming up. We have been very proactive with refinancing. We just did more than $1 billion on average at about 15 basis points, tighter rates and an increase in tenor. So we will continue to take a proactive stance with our refinancings. Operator: The next question comes from James Druce from CLSA. James Druce: I was hoping you could comment just on the bucket of performance fees that you might have. I noticed you have the second half secured. I was just trying to get a sense of what's left after that. Ross Du Vernet: Is that -- sorry, in relation to '26? Or what's the longer-term outlook for performance fees, just to clarify? James Druce: Yes. You've got the second half secured. So I'm just wondering how you're looking for '27 and '28. Are there things behind that, that can come through? Or is this sort of a strong year for performance fees... Ross Du Vernet: So, the significant contributions in, to be frank, '25 and '26 was there was an infrastructure performance fee on a mandate that was crystallized on the sale, and there was a significant outperformance in the industrial strategy, the DALT portfolio, which was realized over a couple of periods. So I would say they were at the kind of the larger end of the scale. We are trying to introduce performance fees into new strategies and initiatives. They're not going to be straight line. They are going to be a little bit lumpy. And I think what we're kind of flagging is as we look towards '27, that level of kind of contribution is unlikely at this point in time. James Druce: Yes. Okay. That's helpful. And just interested in your Slide 18, just looking at the net effective rent forecast. I was sort of wondering, have you incorporated any AI impact into those forecasts? And how do you think about the sort of the uncertainty or dispersion that could create over the next 3 years? Ross Du Vernet: I just generally in relation to dispersion, we've kind of been calling this for a while we see increased dispersion in performance in assets across, I would say, both real estate and infrastructure. And to be frank, the better assets we think are going to do better and there will be assets that potentially get stranded or left behind. I think the good thing for us is whether it be in the balance sheet portfolio or our funds, we generally have those high-quality assets in those premium locations. So I'd say at a group level, we feel well positioned. And these are difficult things to predict. But Andy, I know you've got some views on this. Andy Collins: Yes. So I think difficult to predict is right. So in terms of how AI lands, no one really knows right now, but we -- what we're seeing in our portfolio through engagement with our customers is that it is resulting in some of our customers growing. And so I'll use an example where a law firm following implementation of an AI augmentation program actually leased more space because they could adjust their ratio of lawyers to non-lawyers. And so they needed more space. That's one anecdote. You can't apply that to the whole portfolio or to the market. But I think it's not as simple as drawing a straight line between AI implementation and like a blanket adjustment to office demand. Ross Du Vernet: And I would say, thematically, we do kind of see that the nature of work that is more likely to be impacted by AI is typically going to be middle or back office functions. And those -- that work is typically going to be in the suburban markets. And that is not a space that we are particularly exposed to. Operator: The next question comes from Yingqi Tan from Morningstar. Yingqi Tan: My first question is in regards to that $1 billion redemptions. Just wondering if you are able to quantify how much of these are secondary transactions and how much is of this funding actually left the platform? Michael Sheffield: So during the half, about $1.5 billion was set aside. Most of that was in -- there was also a special redemption in the shops fund. And then as we said, about $280 million of that was through secondary transactions, so obviously stayed on the platform and the rest were units being redeemed. So those units disappear. Yingqi Tan: And with the money that has been redeemed, could you also share whether it's sold to any external parties? Or is it I guess, within DEXUS other platform? Michael Sheffield: Essentially, the process is we free up cash to meet redemptions. So we'll sell assets or use debt. So by virtue of the fact that there's assets being sold, that would be off the platform. And to the extent it's debt, well, it's just an increase in debt in the fund. Yingqi Tan: That's clear. And my second question is to Andy. Would you be able to share what the office leasing spreads were in the past six months for the deals that you have achieved? Andy Collins: Yes, no problem. So face spreads were positive across all markets. For our portfolio, the face spread was up 9%. The effective spread trajectory has come in from 16% or negative 16% to negative 10% to now negative 5%. So just to clarify, the effective spread on the leasing that we've done in the first half is negative 5%, which is a material improvement. So in terms of the submarkets, in Brisbane, we achieved positive 10% effective spreads. Operator: The next question is a follow-up from Adam Calvetti from Bank of America. Adam Calvetti: Ross, I just wanted to follow up on your comments made to Simon earlier on the 5% to 6% yield on cost guidance, essentially not cutting the mustard, I think, is the term. I mean I'm looking at the uncommitted developments, we're still quoting 5% to 6% for Waterfront, 80 Collins and Pitt and Bridge. Does that mean to get revised going forward? Ross Du Vernet: We're not committing those projects yet, I think that's a question for when we're committing those. Adam Calvetti: Is that a target range? Or I mean why is that in there? Ross Du Vernet: I think we'll assess those when we're kind of close to the start line. Things like Pitt and Bridge Street are still years away. And the reality is they are income-producing assets. So it's not a decision for today. I think what we're -- the yield on cost is and we think about development margins, we have to have regard to where we think stabilized cap rates are. Again, that's an assessment that we kind of think we need to make at the time of starting those projects. So rest assured, if we're deploying capital into development projects, we're going to need to be compensated for the risk and it's going to meet our internal hurdles. Operator: At this time, we're showing no further questions. I'll hand the conference back to Ross for any closing remarks. Ross Du Vernet: Thanks, everyone. Enjoy the day, and we'll catch up with you over the next few weeks.
Operator: Good afternoon. Welcome, ladies and gentlemen, to cbdMD Inc.'s December 31, 2025, First Fiscal Quarter of 2026 Earnings Call and Update. This afternoon, the company issued a press release that provided an overview of its first quarter results, which followed the filing of its quarterly report on Form 10-Q. Today's conference call is being recorded and will be available online along with our earnings press release covering our financial results and non-GAAP presentation at cbdmd.com in accordance with cbdMD's retention policies. [Operator Instructions] I would now like to turn the conference over to Mr. Brad Whitford, the company's Chief Accounting Officer. Welcome, Brad. Bradley Whitford: Thank you, Jim, and thank you all for joining cbdMD's December 31, 2025, First Quarter of Fiscal 2026 Earnings Call and Update. On the call today, we also have Ronan Kennedy, our Chief Executive Officer and Chief Financial Officer. We'd like to remind everyone that various remarks about future expectations, plans and prospects constitute forward-looking statements for purposes of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. cbdMD cautions that these forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated, including risks described in the company's annual report on Form 10-K -- excuse me, 10-Q for the first quarter ended December 31, 2025, and our other filings with the SEC. All of which can be reviewed on the company's website at www.cbdmd.com or on the SEC's website at www.sec.gov. Any forward-looking statements made on this conference call speak only as of today's date, Tuesday, February 17, 2026, and cbdMD does not intend to update any of these forward-looking statements to reflect events or circumstances that would occur after today's date, except as may be required by federal securities laws. With that, I'd like to turn the call over to Ronan. T. Kennedy: Good afternoon, everyone, and thank you for joining us. The first quarter of fiscal 2026 represents another important step forward in stabilizing and rebuilding cbdMD. While we continue to operate in a challenging regulatory environment, we are encouraged by the underlying trends we are seeing across the business. Most notably, we now have 3 quarters of sequential revenue growth, generating just over $5 million in revenue, representing a 12% increase from the fourth quarter of fiscal 2025. Importantly, both December 2025 and January 26 generated the highest monthly revenue levels in the respective months since 2022, which we believe is a clear indicator that our core business is trending in the right direction. Over the past several years, we've executed a deliberate reset focused on reducing fixed costs, simplifying operations, strengthening the balance sheet and repositioning the platform for durable regulated growth. This quarter reflects continued progress against that strategy. From a channel perspective, direct-to-consumer remained our largest channel, representing approximately 72% of total revenue, while our wholesale business represented 28% of revenue and showing a year-over-year growth of 17% versus the prior quarter. That wholesale growth is important. It reflects improved execution in our core cbdMD brand as well as ongoing progress with our beverage brand Oasis. Regulatory challenges impacted both categories during the quarter, creating some packaging and appliance-related confusion amongst customers tied to proposed and newly enacted regulations. Despite that backdrop, we were encouraged by the wholesale momentum. Across our core CBD and Paw CBD brands, we remain focused on high velocity SKUs, disciplined acquisition funnels and margin protection. While revenue remains below historical peaks, the trend direction has improved meaningfully, and we believe recent monthly performance supports that conclusion. Historically, our capital structure limited our ability to pursue accretive M&A. Since converting our Series A preferred in May and regaining full NYSE American continued listing compliance, we've been able to reengage meaningfully on strategic opportunities. As a result, in mid-January, we completed the acquisition of the assets of Bluebird Botanicals, a respected and long-standing brand in the CBD category. This transaction is strategically important for several reasons. It adds incremental revenue and a loyal customer base, allowing us to build a broader wellness portfolio beyond just CBD. It brings valuable intellectual property, including grass status for full spectrum CBD to balance out our safety and clinical data on our THC-free broad-spectrum CBD. And it strengthens our regulatory and scientific position. Our focus in the second quarter is on integration, consolidating supply chain, marketing and other operational areas while extracting both cost and revenue synergies. We structured the acquisition with limited upfront equity and performance-based earn-out to mitigate risk, and we believe Bluebird provides a step function increase in revenue at attractive contribution margins. We continue to evaluate additional opportunities that are accretive, defensible and align with our regulatory strategy. Another key area of progress this quarter was our balance sheet. As a result of the efforts throughout fiscal 2025, we received notice from the NYC in early December confirming we regained compliance with continued listing requirements that our temporary status have been removed. In December, we completed an approximate $2.25 million in Series C preferred financing, strengthening our liquidity and working capital. As of December 31, 2025, we ended the quarter with approximately $3.4 million in cash and $5.4 million in working capital, both meaningfully higher than at fiscal end. In addition to the Series C financing, we structured a $20 million equity line of credit, which provides greater flexibility to strengthen the balance sheet opportunistically under favorable market conditions while minimizing costs and dilution. During the latter half of the calendar year 2025, we saw our stock price and volume react very favorably to some news announcements, and we're unable to fully capitalize on these. We believe the ELOC will allow us to prudently capitalize on these potential positive stock movements going forward. We continue to manage cash carefully with a focus on preserving flexibility while supporting initiatives that can drive sustainable, improving operating results. The regulatory environment remains active and at times uncertain. As we noted previously, the restrictive hemp language, including H.R. 5371 legislation enacted in November could have industry-wide impact if left unchanged. That said, we are encouraged by recent bipartisan efforts to revisit restrictive hemp legislation, such as the HEMP Act introduced in January. We support the HEMP Act as it would enact more reasonable per serving limits and ensuring stronger consumer protections, clarity and enforcement consistency. We continue to engage constructively with industry organizations, policymakers, including time on [ Capitol Hill ] to help educate on sensible regulation. We continue to pursue efforts and incur costs associated with participating with the CBD programs referenced in the December 17 executive orders regarding CBD usage for Medicare ahead of the April pilot program. We believe increasingly regulatory clarity will favor well-capitalized compliance-focused operators. CBD has invested for years in cGMP manufacturing, rigorous safety and quality standards and proven effective formulations, and we view this as a competitive advantage as the category matures. I'll now turn the call back over to Brad to discuss financials. Bradley Whitford: Thanks, Ronan. Turning to the financials for the first quarter of fiscal 2026. Net sales totaled $5 million compared to $5.1 million in the prior year period and increased 12% sequentially from the first quarter of -- from the fourth quarter of fiscal 2025. Gross margin totaled 60% for the quarter, down from 66% over prior year. This is mostly attributable to the increase in our warehouse expense during the year and a shift in revenue mix to more wholesale, reflecting product mix and continued pricing discipline. Loss from operations was approximately $286,000 compared to a loss of $86,000 in the prior year period. Net loss attributable to common shareholders was approximately $325,000 or $0.04 per share compared to a net loss of approximately $1 million or $1.73 per share in the prior year quarter, a substantial improvement on a per share basis. This improvement was primarily driven by the elimination of our Series A preferred dividend during fiscal 2025 and the resulting conversion of the Series A into common stock. Adjusted non-GAAP EBITDA loss for the quarter totaled just $36,000. We are laser-focused on generating positive EBITDA. The first fiscal quarter tends to require more working capital than other quarters. Cash used in operating activities was approximately $812,000, reflecting our minimal EBITDA loss along with ongoing $200,000 investment in inventory, a $225,000 increase in prepaids, which include annual insurance and ERP contracts and an approximate $300,000 reduction in some of our payables. Excluding the acquisition of Bluebird, we do not anticipate the same working capital build in the next quarter. Cash and cash equivalents increased by approximately $1.1 million to $3.3 million during the quarter, driven by the Series C preferred equity financing. Overall, we believe the quarter reflects continued stabilization, improved liquidity and meaningful progress toward positive income while maintaining discipline around costs. With that, I'll turn the call back to Ronan. T. Kennedy: Thanks, Brad. Looking ahead, our priorities are clear: continue driving sequential revenue improvement in the core business, successfully integrating Bluebird and unlocking synergies, maintaining cost discipline and margin focus and navigating the regulatory landscape responsibly. Importantly, we believe we have a meaningful long-term runway supported by a strong cash position relative to our current EBITDA profile, even before considering the incremental benefits from the Bluebird acquisition. This balance sheet strength provides flexibility to execute our strategy deliberately rather than reactively. While challenges remain, we believe the foundation we built over the past several years is beginning to show through in the numbers. We are encouraged by recent monthly trends and believe we are entering the remainder of fiscal 2026 on firmer footing. I want to thank our employees, partners and shareholders for their continued support. And with that, I'm now happy to take some questions. If there are no further questions, thank you for attending the call, and we look forward to our update after our annual meeting. Thank you. Operator: Gentlemen, I do apologize. This is your operator, Jim. I was addressing you as well as the group, with my mute on. Ladies and gentlemen, I apologize. Operator: [Operator Instructions] We'll hear first from Thomas McGovern at Maxim Group. Thomas McGovern: Yes. So congratulations on the acquisition of Bluebird Botanicals. It sounds like we're still entering a large integration phase. But maybe just if you can give us a little bit more insight on that, kind of what you're expecting with that? Will there be opportunities to bring people on board from Bluebird into kind of the broader company? Or are you guys looking at potential SKU rationalization for -- if there's any overlapping products? Anything like that would be helpful for our understanding. T. Kennedy: Sure, Thomas. Look, they have a small team that we've been able to bring over several of those people. But really, I think what attracted us was access to a new customer base and the ability to look at sort of our supply chain, our SKU base and SKU mix and be able to sort of find opportunities and where we think there's some gaps in their portfolio as well as some -- leveraging some of our sort of expertise on building some acquisition funnel. So we see opportunity for sort of growth, not only sort of improving some of the marketing activities, but also servicing some of the needs of customers through bringing some of our SKUs under the Bluebird label where it aligns with their customer. Thomas McGovern: Understood. And do you plan on integrating their e-commerce capabilities with your own or kind of keeping them separate as like the brand identity that you guys have called out in the past is fairly strong with those companies. Are you planning on kind of marketing them as 2 separate label -- separate companies? Or will there be some integration in the future? T. Kennedy: Yes. Look, at this time, we intend to maintain them as separate brands. The customer is a slightly different customer. And I think given the size of the business, I believe there's opportunity to continue to grow and build on that customer base, which is slightly different than the cbdMD customer base. Thomas McGovern: Understood. And last question for me, and then I'll hop out of the queue here. But we've been continuing to see updates on the Herbal Oasis line of seltzers. Just curious, I know you haven't necessarily provided exact numbers in the past, but what percent of sales is this making up? Do you guys have any kind of idea of when this might start contributing materially to the top line? Is it already contributing materially? Just kind of any insight on that line of the business would be very helpful as well. T. Kennedy: Yes. Thomas, I don't think we've published any specific data. It's still -- the D2C still fits under sort of -- and wholesale still fit within their respective sort of categories. It is starting to contribute, but it's still small relative to the overall size of the core CBD brand. We expect that throughout this year to continue to improve. And as we see those gains, we'll reassess sort of what we're willing to disclose. Operator: [Operator Instructions] Well, Mr. Kennedy and Mr. Whitford, gentlemen, we have no further signals from our audience. I'm happy to turn it back to you for any additional or closing remarks that you have. T. Kennedy: Great. Well, thank you, everyone, again for your support and your time today, and we look forward to our update after our -- as part of our annual meeting. Operator: This does conclude today's teleconference, and we thank you all for your participation. You may now disconnect your lines. Have a great day.
Operator: Welcome to the Vicat 2025 Full Year Results Presentation. [Operator Instructions] Now I will hand the conference over to Guy Sidos, Chairman and Group CEO; Hugues Chomel, Deputy CEO and Group CFO; and Pierre Pedrosa, Head of Investor Relations. Please, sir, go ahead. Guy Sidos: Thank you. Good afternoon, ladies and gentlemen. Welcome to Vicat's 2025 Results Presentation. I'm Guy Sidos, Chairman and CEO of the Vicat Group. Alongside me, I have Mr. Hugues Chomel, Deputy CEO and CFO; as well as Pierre Pedrosa, Head of Investor Relations. On Slide 2, as a preliminary remark, I would like to draw your attention to the fact that the forward-looking information presented here reflects our current assessment of expected trends across the group's various markets and should not be regarded as forecast. On Slide 3, 2025 is part of a solid and sustainable performance trajectory, illustrating the strength and resilience of Vicat's business model. Consolidated revenue amounted to EUR 3.85 billion in 2025, reflecting an average annual growth rate of nearly 7% over the past 5 years. EBITDA reached EUR 771 million which representing average growth of close to 7% over the same period. ROCE remained stable at 8.1% [indiscernible]. Lastly, the group's leverage ratio continued to decrease, reaching 1.49x in '25 [indiscernible] Vicat's financial structure. These results once again demonstrate Vicat's ability to consistently combine operational performance with financial discipline in a demanding environment. Let's move to Slide 4. As a reminder, Vicat's business model is built on several key pillars that underpin its resilience. First, a family shareholding structure and a long-term vision grounded in continuity, which enable us to pursue a consistent and sustainable industrial strategy. We are a cement-focused business and benefit from [indiscernible] high-performing industrial asset base vertically integrated across the value chain. We have [indiscernible] decentralized organization which [indiscernible] needs of a markets. [indiscernible] long standing collection of innovation [indiscernible] capabilities [indiscernible] invention of [indiscernible] in [ 1817 ] today is low-carbon cements such as [indiscernible] we're positioned as a key player of our industry in decarbonization. Firstly we benefit from geographically diversified portfolio across both developed and emerging markets. This [indiscernible] and provide a foundation for [indiscernible] model fully aligned with the ongoing [ confirmation ] of our sector. Slide 5 provides an analysis of the group's investment cycle over the past 10 years and how we have balanced our strategic priorities with financial discipline. Following an initial phase between 2015 and 2018 during which investment levels remain stable, we made the decision from 2019 onwards to accelerate capital expenditure at a time when funding conditions were [indiscernible]. Since 2023 in a context of [indiscernible] we've been to capitalize on discuss [indiscernible] [ eye catch flows ] [indiscernible] deliver of investment consistent [ reach over ] initial goals. Turning now to the key highlights of 2025 on Slide 6 in a complex international environment is a group delivered solid results. Organic revenue growth came in at 3.3%, accelerating to 8.1% in the first quarter. EBITDA reached EUR 771 million, representing organic growth of 3.7% compared to a record year in 2024. However, foreign exchange headwinds had a significant impact in a slight EBITDA decline on a reported basis. For the third consecutive year, the group generated strong free cash flow amounting to EUR 324 million in '25 and continued to reduce its net debt. [Firstly] we made further progress on decarbonization reached an important milestone in securing the financial of VAIA of flagship carbon capture project in France with the award of 2 subsidies at both the Europe and France levels. Altogether, these elements once again illustrate the strength of Vicat's model, which is able combine operational performance and [indiscernible] decarbonization. In France, as shown on Slide 7, the residential market has gone through an unprecedented slowdown and is now at the lowest level in 25 years. As far as we are concerned, we have lost [ 600, 000 tons ] of cement over the past 3 years, representing nearly 20% of our production. Despite this [indiscernible] France showed remarkable resilience in 2025. After 6 consecutive quarters of decline, volumes stabilized in the second half of 2025 at a low level with a slight rebound in the fourth quarter. While visibility remains limited, notably due to the political concept and the upcoming municipal elections in France, this development is encouraging in the context of reduced interest rates. Let me remind you that residential need in France aiming very [indiscernible] is specifically intended to address this situation [indiscernible]. As a result [indiscernible] aligning for [ moderate ] and progressive recovery from 2026 onwards. [indiscernible] long standing roots in France which represents 31% [indiscernible] revenue. A very [ bad ] capacity Vicat is very well positioned to benefit from [indiscernible]. As soon as [indiscernible] France as shown on Slide 8 it's a TELT project [indiscernible]. So this project [indiscernible] [ mature ] to [ agility ] in 2025. It is [indiscernible] largest civil engineering project and construction year ago. [indiscernible] which is commissioning of the [indiscernible] boring machines is expected to [indiscernible] cement construction in 2026. And develop [indiscernible] from '27 onwards. Overall we've [indiscernible] secured more than 1.3 million tonnes of cement. As well as around 4 million tonnes of [indiscernible] like to come into the project. I will show [indiscernible] which a [ cage ] name CO11 which we won jointly Vinci. Just [indiscernible] treatment of [indiscernible] material into [indiscernible] 24 million tons of material will be sorted with the objective of recycling of [indiscernible] and we have [indiscernible]. And today is a 10th project for [indiscernible] operation in France, it will provide [indiscernible] support to our volumes over the next 7 to 8 years. More broadly, the outlook for the infrastructure segment in France is [ promising ] with good visibility over the coming years. The launch of the French access work for TELT which is in addition to the main [indiscernible] probably near over [indiscernible] plant. [indiscernible] it's a new generation of [indiscernible] in France in [indiscernible] this are a few jump [indiscernible] activity in [indiscernible] U.S. In Brazil now on Slide 9 [indiscernible] performance in 2025 [indiscernible] market momentum and sustained [ commercial ] development in [indiscernible] and the state of Goias. In 2025 we completed acquisition of Realmix a readymade concrete [indiscernible] this [ construction ] [indiscernible] ocean and 2 additional cement and [indiscernible] use. Also you get [indiscernible] 1st of September of 2025 [indiscernible]. Realmix made with the [ automation ] [indiscernible]. In Brazil we generated EBITDA EUR 63 million in 2025. Even by your market growth. A strong performance of [indiscernible]. The contribution of [indiscernible]. It was noted on [indiscernible] on Slide 10. [indiscernible] strongly in 2025 [indiscernible] EBITDA inching EUR 58 million up by nearly [35%]. A [indiscernible] wide across [indiscernible] increased by 19% in 2025. The construction market in this region [indiscernible] demographic trends which population we are getting from [indiscernible] 2023 of stretch towards [indiscernible] . [indiscernible] in 2025 [indiscernible] project [indiscernible]. We are also seeing some production capacity being directed towards export markets, which favors domestic players such as [indiscernible]. And in the current inflation on environment who have been able to adjust of [indiscernible] protective market. On Slide 11 in Egypt, the remarkable turnaround of our performance continued in 2025. EBITDA once again increased sharply, reaching EUR 61 million, up by nearly 79%, sorry, with margin rising to 37.3%. Export volumes remain sustained and the rebound of the domestic market was confirmed in the second half of the year [indiscernible] launch of [indiscernible] projects [indiscernible] continues to [indiscernible] for the group up to [indiscernible] who potential of [indiscernible]. At this finally turned to Senegal on Slide 12. Where we are made a major adjustment over the first few years. That it was started in June 2025, [ '26 ] as continue to run [indiscernible]. Delivering first [indiscernible] financial confirmation [indiscernible]. As a reminder of [indiscernible]. high performance facility is intended to replace in 3 and 4 and to [indiscernible] and will generate cost saving of EUR 20 per ton of cement in the coming years. The ramp-up of [indiscernible] will continue this year and will be a key driver of the group's performance in Africa in '26 and '27. I will now hand over to Hugues Chomel for a more detailed review of our financial statement. Hugues Chomel: Thank you, Mr. Sidos, and good afternoon, ladies and gentlemen. I will start with the main highlights of the group consolidated income statement on Slide 13. Revenue amounted to EUR 3.854 million, representing an organic growth of 3.3%, but remaining broadly stable on a reported basis due to a negative foreign exchange impact of EUR 242 million. EBITDA reached EUR 771 million, up organically by 3.7%, in line with the plus 2% to plus 3% target communicated last July. The EBITDA margin, therefore, stood at 20%, consistent with our medium-term priority. Net income group share increased by 6% at constant scope and exchange rates, reaching EUR 275 million. Despite a particularly negative foreign exchange impact in 2025, the quality of the group results demonstrate once again our ability to deliver solid operational and financial performance in a challenging economic environment. On Slide 14, you can see the evolution of the revenue by region in 2025 compared with 2024. At constant scope and exchange rates, the solid organic growth delivered across the group reflect contrasting trends from one region to another. France recorded a slight increase on a reported basis, supported by the gradual stabilization of the cement business in the second half of the year, as mentioned by Mr. Sidos, and by the positive contribution of the integration of Cermix since Jan 1, 2025. The Europe region grew by 7.9% on a reported basis, benefiting beyond the appreciation of the Swiss Franc from the recovery of the market in Switzerland, VGA's exposure to major infrastructure projects as well as the commercial success of our low-carbon offering. Americas posted a decrease, mainly reflecting the slowdown in United States. This decrease was, however, partly offset by the strong performance in Brazil. In U.S., interest rate remained high throughout the year, penalizing the housing sector. Uncertainty resulting from the tax and tariff changes created a climate of instability, which impacted the non-residential markets. In this environment, the group performance was contrasted across regions with growth in the Southeast and a sharp decline in California. In Asia, revenue recorded a slight organic decline of 1.5% Activity in India remained volatile due to a highly competitive environment, particularly in the south of the country, which put pressure on pricing despite an improvement in the second half of the year. The Mediterranean region stood out, delivering organic growth of more than 30%. Lastly, Africa posted a slight decrease of 2.9% despite the strong performance in Senegal, notably driven by an acceleration in aggregate sales following the restart of major public infrastructure projects. As you can see on the chart on the right of the slide, the group organic growth accelerated throughout the year, reaching plus 8.1% in the fourth quarter. Now turning to Slide 15 to the evolution of EBITDA, whose main drivers are illustrated on this chart. The increase at constant scope and exchange rates is mainly explained by a positive volume effect in cement, concrete and aggregates. Overall pricing developments allowed to offset cost increases, which were notably driven by wage inflation. Industrial performance also contributed positively, notably in Senegal. Foreign exchange had a negative impact of EUR 46 million. This reflects the depreciation of all currencies in which the group operates against the euro with a notable exception of the Swiss Franc. Let me remind you that 59% of the group revenues is exposed to non-euro currencies. Overall, EBITDA recorded a moderate decrease of 1.6% compared to 2024, which was a record year for the group. Therefore, this can be considered a very solid performance given the environment we faced in 2025. Moving to Slide 16. 2025 was also characterized by a strong cash generation. We maintained strict investment discipline. Net CapEx amounted to EUR 299 million, down compared to 2024. CapEx was split more or less evenly between maintenance CapEx and strategic CapEx, including the cash outflows related to Kiln 6 in Senegal. This discipline will be maintained in 2026 with expected CapEx of around EUR 290 million. For the third consecutive year, the Vicat Group generated strong free cash flow amounting to EUR 324 million in 2025 and illustrating the highly cash generative nature of our business model. As shown on Slide 17, this free cash flow of EUR 324 million notably reflects a further reduction in working capital requirement and as I just mentioned, control over CapEx. The cash conversion rate stood at 42% in 2025 On basis and taking into account the group's market capitalization at the end of January. Vicat free cash flow yield is around 9%, one of the highest in the industry. This highlights both the strength of our cash generation and the rerating potential that remains significant despite the share price increase over the past year. This cash generation enabled us to continue our deleveraging trajectory. As shown on Slide 18, the group net debt decreased by EUR 85 million in 2025 to reach EUR 1.151 million. The leverage ratio stood at 1.49x EBITDA, marking a further reduction in line with our priorities. On Slide 19, you can see a detailed breakdown of the group net debt at the end of 2025. It is characterized by a well-balanced maturity profile with an average maturity close to 5 years. Average interest rate was 3.86% before hedging in 2025, down significantly year-on-year. Gross cash at EUR 528 million and EUR 877 million of available undrawn credit lines, the group benefits from strong liquidity and the resources needed to continue pursuing its development. Thank you for your attention. I will now hand it back to Mr. Sidos. Guy Sidos: Thank you, Hugues. Let me now briefly comment on Vicat's climate performance in 2025 on Slide 20. We made further progress towards our 2030 targets across all key indicators, particularly in Europe. In France, we continue to pursue a particularly ambitious trajectory [indiscernible] below 80%. [indiscernible] an increase in the alternative fuel rate to more than 70% of 5 percentage points year-on-year. This made us [ concrete ] machine [indiscernible] of their old performance. In 2026 the [indiscernible] in France focused on [indiscernible ] as well as [indiscernible] with regard to alternative fuels should accelerate the reduction of our emissions. [ Auctions ] were to extent renovation you can see 2 examples on the left-hand side of this slide. [ Product ] innovation with Progresso that makes the first concrete of Switzerland with emissions of less than 100 kilograms of CO2 [attribute] better. [indiscernible] innovation [indiscernible] catch for climate which will be [indiscernible] and aim to facilitate CO2 capture while reducing the [ costs]. You can see on Slide 21 that at the group level, low-carbon cements accounted for nearly 1/4 of total sales volume in 2025. This indicator which we are presenting for the first time today is calculated in accordance with the methodology defined by the International Energy Agency and adopted by France Ciment. In France, the commercial success of [indiscernible] continues. In Switzerland nearly 100% of [indiscernible] classified as low-carbon [indiscernible] products such as Progresso which I mentioned earlier and which is also remarkable commercial success. We're also a leading player in low-carbon cement in California and Brazil. The carbon footprint of our products continues to improve in line with our climate road map. This road map is supported by initial investments and by acceleration of low-carbon innovations. Turning to Slide 22 now. Regarding VAIA of carbon capture project in France, we reached a major of a new milestone with the award of 2 subsidies at both the European and French levels. These awards demonstrate the credibility of our approach and our commitment. I remind you that the VAIA project aims to capture and sequester 1.2 million tons of CO2 per year at the Montalieu-Vercieu cement plant largest facility in France. The captured CO2 will be transported by pipeline to Fos-sur-Mer which should then be liquefied before being shipped to its storage site in the [indiscernible] at each stage I mean [indiscernible] shipping and storage. The subsidies awarded to us for this project amount to [ EUR 340 million ] combining French [indiscernible] and the European Innovation Fund grant. [indiscernible] expected to be [indiscernible] contractual agreements of as coming months. As a reminder the estimate in investment for the [indiscernible] VAIA project alone amongst to EUR 700 million [indiscernible]. [indiscernible] essential connection for the project [indiscernible] of making the final investment decision by Jan of 2027. Slide 23 illustrates[alludes] important performance [indiscernible] walking on for many years Artificial Intelligence. Which we have to bring as an [ occasional ] tool to support our businesses. Artificial Intelligence initiatives are led by Digital Factory 1817 at the year of invention of [indiscernible] cement. [indiscernible] 22 people also works for external clients. We the [indiscernible] twofold. First, at the service of industrial performance across all cement plants. Also [indiscernible] time optimizer solution [indiscernible] productivity gains in our facilities it improves quality and enhances [indiscernible] installation. This tool as already been deployed at several pilot sites [indiscernible] in Switzerland and Kalburgi in India. And we intend to accelerate its rollout. We are targeting productivity gains of at least 5% this is a near beginning. At [indiscernible] level this tool [indiscernible] capacity by around [indiscernible] this represents [indiscernible] fund additional cement position line with a very, very [ limit ] investment. [indiscernible] AI as a powerful tool for [indiscernible] there are many potential uses cases and [indiscernible] improving concrete formulations optimizing concrete and aggregate logistics [indiscernible] for sites and those of our customers and [indiscernible] our processes. Artificial Intelligence is [indiscernible]. Turning now to 2026 on Slide 24. Growth momentum is set to continue despite persistent macroeconomic and geopolitical uncertainties and foreign exchange rates are likely to remain volatile and unfavorable. In this context, we remain confident in the group's ability to continue delivering robust performance supported by its strong operational fundamentals in 2026 at this early stage of the year we [ socially ] expect slight growth in sales on a like-for-like basis, slight growth in EBITDA on a like-for-like basis and net CapEx of around EUR 290 million. [indiscernible] capital allocation in the Slide 25 [indiscernible] free cash flow generation and consistent financial [indiscernible]. This [indiscernible] built on 3 pillars. The first pillar preservation of a solid financial [indiscernible] of strong liquidity. [indiscernible] to investment we intent to maintain the figures discipline while investing consistently [indiscernible]. Finally this [indiscernible]. dividend aim to maintain an attractive description [indiscernible] earnings information. [indiscernible] investing safety [indiscernible]. attractive return to our shareholders. So let's now move naturally to the dividend on Slide 26. Based on this 2025 results I'm confident in the group's ability to keep delivering profitable growth, the Board of Directors has decided to propose to shareholders the distribution of a dividend of EUR 2 per share, which stands out for its stable and highly predictable distribution policy. I will remind you that the dividend has never been reduced in the past few years. Let us switch to Slide 27. Vicat is proceeding consistent growth trajectory as [indiscernible] 3 mid-term [indiscernible] priorities which we are confirming to first maintain an EBITDA margin of at least 20% over the [ '25, '27 ] period. [indiscernible] continue over deleveraging. Finally [indiscernible] with strong omissions to [indiscernible]. This [indiscernible] priorities under [indiscernible] growth. On Slide 28 to conclude [indiscernible] goes in coming years we'll be super [indiscernible] drivers, several of which are already underway today. First, in 6 in Senegal, as [ Hugues ] already mentioned it is a major lever of competitiveness. That we have [ material ] impact on [indiscernible] how performance in the [indiscernible]. So once it's [indiscernible] project it's confirmation to a cement and you'll get a sales already visible and it is expected to intensify supporting our activity in France over the coming years. Also in France [indiscernible] residential market is [indiscernible] to look on which was significant [indiscernible] potential in more than 30% of [indiscernible] France. The [indiscernible] is very well positioned to benefit for this upturn when it materialize. Similarly in the US residential construction is going [indiscernible] potential of [indiscernible]. Finally the [indiscernible] significant mid-term [indiscernible] potential reconstruction needs that [indiscernible] confidence in [indiscernible] mission to pursue disciplined, sustainable and value-creating growth. Operator: [Operator Instructions] The next question comes from Tom Zhang from Barclays. Tom Zhang: So 3 questions from me, if I may. The first one, you've talked about significant price hike announcements in France this year. I know it's early in the year. We don't know enough about how this will develop. But I wanted to ask in your guidance for slightly higher sales and EBITDA, what kind of realized pricing are you assuming in Europe? Would that be sort of low, mid, high single digit? Some color there would be interesting. The second question, just on the U.S. You talked about price absorbing the impact of cost inflation. Could you please elaborate a bit? Should we expect positive price cost in the U.S.? And can you differentiate between the Southeast and the West Coast? And then the last one, just on CapEx. So you guide for EUR 290 million, even though we have Senegal rolling off, which I think was about EUR 50 million of CapEx. Can you just give some color on the projects that you're now investing in that means the CapEx is fairly stable? Is that mostly growth CapEx, climate CapEx, maintenance catch-up? Guy Sidos: I will leave you Chomel. Hugues Chomel: Tom, thank you for your questions. Indeed, we -- as you know, the French market has some specific cost drivers, the evolution of electricity cost and the start of the implementation of CBAM that push us to announce high single-digit to low double-digit price increases in the market. As you mentioned in your question, it is early in the year to tell where we stand. I would say, to mid- high single digit would be a good realization probably, and that would translate in a positive price cost differential. Regarding U.S., it is even earlier in the year to give you a solid answer. We did announce price increases in both regions, substantial. But as usual, they do apply on April 1. And our ability to get them through and to have them stick will heavily depend on market context when they roll out. And that's a little bit early for me to give you a projection on that. We assumed in our guidance, I would say, a neutral price cost differential. If they would fully materialize, that would be an upside. Regarding CapEx, indeed, we did guide to EUR 290 million, a new reduction compared to last year. This has always is including about half of maintenance CapEx, still last amount regarding Senegal with the last milestones of the contract and first acceleration in decarbonization spend to secure our 2030 objectives. Tom Zhang: That's clear. Sorry, could I just follow-up just on the European pricing. So you very hopefully said for the U.S., you're assuming in the guidance a neutral price cost differential. And then you said mid or high. Hugues Chomel: You talk about France, Tom, not Europe. Tom Zhang: That was for France. Okay. So a neutral price cost differential is in your guidance for France? Hugues Chomel: Slightly positive. And I didn't mention the Europe, which has a slightly different cost base, specifically on electricity, where we do expect a positive price environment. Operator: The next question comes from Ebrahim Homani from CIC. Ebrahim Homani: I have 3, if I may. The first one is on France. In France, the operating leverage is huge. In case of a 1% increase in volume, what could be the impact on the EBITDA? My second question is on Senegal. Do you confirm that the EBITDA contribution will be higher in 2026 than it was in 2025? And my last question is on CapEx. Could you give us the part of maintenance CapEx? And what's your level of flexibility to reach your 2027 leverage targets, please. Hugues Chomel: Yes. You are right in France, we do have a high leverage -- operational leverage in cement. We as well have a large share of our activities. You will understand that this is quite sensible information. We do not disclose as is, but you can observe from the volume impact from the past years, the tremendous impact of volume fluctuation. In Senegal, indeed, as mentioned by Mr. Sidos earlier, the initial startup of the kiln was in June. It did ramp up very gradually and start to regularize a little bit in Q4. So the initial contribution comes out of Q4 only. So we do expect it to contribute more heavily and to have gradually improve both energy efficiency and alternative fuel increase. I remind you that as mentioned by Mr. Sidos during the presentation, the midterm saving objective is EUR 20 per tonne of cement sold by the facility. On CapEx, I believe I just gave the information to Tom, but indeed, we do expect about half of our CapEx to be maintenance. So roughly EUR 140 million to EUR 150 million. Operator: [Operator Instructions] Unknown Executive: We have 2 written questions from Investment Research. So first question on the guidance. With price increase in France, savings from the new king in Senegal, strong Egyptian exports and improving condition in Turkey, it seems organic EBITDA growth in those regions will be more than slides. [indiscernible] guidance suggest a sharp EBITDA drop in the U.S. and India? Or is it simply [indiscernible] earlier in the year with room to upgrade. I will hand it over to management for the answer. Guy Sidos: Yes. The answer is in the question. Everything you said there is a momentum where you said, but we are very cautious at this time of year. And guidance could be disappointed, but I would like to share a few comments guidance growth of sales and EBITDA on a like-for-like basis which is expression for cautious optimism of a positive orientation of our main markets with an acceleration in H2. In France, you see after stabilizing in H2 '25, residential market is expected to continue with soft landing with a gradual recovery from '26 onward. We'll have unforgettable base of [indiscernible] each one and municipal elections for the [indiscernible] for construction. Material or quicker recovery will constitute an upside, and we expect a positive price environment. You were talking about markets believe that [indiscernible] industry market should remain well oriented [indiscernible] Senegal will benefit from the ramp-up of 6 kiln for year and India is [indiscernible] to remain volatile in a growing market so at this time of the year, we [indiscernible] opportunities this year to be more precise [indiscernible] upend actually. Unknown Executive: Second question, how do you interpret the recent political comments in France and Germany around potentially lower CO2 prices and the ETS adjustment? What will lower CO2 price mean for your carbon capture strategy and long-term cash generation in France and Switzerland. Guy Sidos: Well, there was remorse in fact, the [ nothing ] is changing on a short-term basis and [ nothing ] is changing on a long-term basis. Things could change on a midterm basis changed in the past. And basically it could be positive for industry to decrease the rate of -- to lower the rate of free quotas decrease. It will mean we've little bit more [ means ] to fine tune of strategy as you know this we've some of this [indiscernible] to reduce it's carbon footprint [indiscernible] of equipments [indiscernible] we place [ coal ] by [ waste ]. And then [indiscernible] and these 3 levers brings money. It's a [indiscernible] then it's last deliver is CCS or CCU [indiscernible] main project as a [indiscernible] decision will be taken at the end of '27. So we have time to fine tune [indiscernible] what's happening now about [indiscernible] this I would say, a regular adjustment of the European policy. And I feel it's positive for industry if it's like [indiscernible]. Operator: The next question comes from Tom Zhang from Barclays. Tom Zhang: The first one was just a follow-up actually to that point on EU ETS. I hear what you're saying that perhaps not much is changing and this is, as you say, a regular adjustment of policy, but ultimately, the CO2 price has declined by 25% in the last month. How has not change in EUA prices affected your via CCS decision-making? And then the second question was just, could you speak a little bit about what you've seen in January and February so far, the run rate that we've had in Q1, how does that match against your pricing and volume assumptions, especially in France? Hugues Chomel: Yes, thank you for your question. For the VAIA project, first of all, it's probably first reminder, our CO2 reduction objective for 2030 are based only on the 3 first layers that Mr. Sidos, presented, the traditional levels that have their own paybacks. We have said for a long time that CCS will contribute in a second step in a longer run, notably because of weaker economic model. Indeed, if carbon price comes down, that will probably lead to review the space of those projects, but we still are fully committed that both technology will be needed to reach the 2050 ambition. It's not just a matter of time, which may create opportunities in terms of technologies as well. So that's the first point. Second point regarding current trends that's very early in the year to give you comments on where we stand on pricing. I mean, we have announced them. We are, of course, getting them through, but January is never a month you can extrapolate to the full year. So I will stay away from any comment. Operator: There are no more questions at this time. So I hand the conference back to the speakers for the closing comments. Guy Sidos: Hello ladies and gentlemen, thank you for joining us today. We look forward to seeing you at our Annual General Meeting on the 10th of April in [indiscernible], the beautiful department of [indiscernible]. Thank you very much. Thank you. Have a nice day. Bye-bye.
Unknown Executive: Good morning, everyone, and thank you for joining us today for MFG's interim results briefing for the 6 months to 31 December 2025. My name is Emma Pringle, and I am MFG's Head of Investor Relations and Sustainability. Before we begin, I would like to acknowledge the traditional owners of the land on which we meet, the Gadigal people of the Eora Nation, and pay my respects to Elders past and present. Turning to today's agenda. Speaking first will be CEO and Managing Director, Sophia Rahmani, who will provide an overview of MFG's first half performance, including the key achievements of the period. Dean McGuire, MFG's Chief Financial Officer, will then provide detail on the Group's interim financial results before Sophia returns to cover our investment management business and strategic partners, as well as second half priorities for the business. We will then open to Q&A from the phones and online. Today's presentation is being recorded, and a replay will be available on our website. I will now hand over to Sophia. Sophia Rahmani: Thank you, Emma, and thank you to everyone online for joining us this morning. The headline for MFG's interim result is straightforward. We have continued to execute our strategy, strengthen the diversity and quality of earnings, and maintained disciplined capital management. The first half delivered solid financial results, with operating EPS of $0.486 per share, up 5% on the prior corresponding period. MFG has declared an interim dividend of $0.395 per share, fully franked, reflecting a payout ratio of 80% of Operating Profit, in line with our newly stated policy. The dividend is up 50% on the same time last year. Our balance sheet position remains strong, with over $500 million in liquid capital as at 31 December, providing strategic optionality for the Group. MFG's earnings are becoming structurally more resilient and less dependent on a single line of business. As highlighted on this slide, over the first 6 months of the year, we have delivered increasing operating EPS. Strategic partnership income of $25.7 million, more than doubling year-on-year. And we closed the half with assets under management of $39.9 billion. This half, we returned $105 million to shareholders through dividends and our on-market buyback, with the repurchase of $38 million in shares contributing to growth in earnings per share. During the half, we also made important progress in positioning the business for long-term value creation. We successfully completed our brand refresh, which sees MFG as our parent company and Magellan Investment Partners as our outward facing distribution brand. We have recently finalized the last step in this process, being the name change of our U.S. entity. And we are pleased to now have the full breadth of our distribution business unified under a single brand. We held our next adviser -- national adviser roadshow, reaching more than 500 advisers across 5 cities and reinforcing the importance of active management in increasingly disrupted markets. We continued our product review, which has seen MFG simplify our offering where it has made sense and bring to the market contemporary products to meet evolving client needs. And we achieved strong product and client validation through ratings, mandate wins and renewals across each of our investment boutiques, with a robust institutional pipeline in play. We also continued to invest in systems and people, strengthening our leadership bench and embedding operating disciplines to support the growth of strategic partnerships. On the governance front, which remains a key enabler of our business success, we are pleased to have Peeyush Gupta AM join the Board as an Independent Non-Executive Director in November, and we completed a governance review which enhanced Board processes, committee structures, and risk frameworks. These are foundational initiatives designed to support long-term growth. Overall, the half reflects steady strategy execution, operational progress, and improving earnings quality. This slide encapsulates how we now think about MFG. I have spoken before about MFG's evolution to become a focused financial group spanning investment management and specialist financial services. Magellan investment partners is our outward facing distribution brand, bringing to the market investment solutions managed by MFG's teams: Magellan Global Equities, Magellan Global Listed Infrastructure, and Airlie Funds Management, and that of our Strategic Partner, Vinva Investment Management. Our other strategic partners, Barrenjoey and FinClear, round out the Group. This structure is deliberate. It reflects our belief that in today's environment, the strongest asset managers will be those that combine investment management capability with distribution strength, and diversify earnings across complementary, high quality financial services businesses. Supporting our whole business is an institutional grade platform spanning client service, distribution, finance, HR, operations, product, risk, compliance, legal and technology. This platform is increasingly becoming a competitive advantage both for our own investment teams and for the partners we work with. I will now hand over to Dean to cover MFG's interim financial results. Unknown Executive: Thank you, Sophia, and good morning, everyone. I will turn to Slide 9, which shows the details on our financial results for the half. Operating profit was flat for the period, primarily driven by strong growth from our strategic partners being offset by lower investment management revenue. Distributions from fund investments grew 14% over the period, with interest revenue falling as a result of capital deployment into the buyback. On a per share basis, operating profit is up 5%, inclusive of the accretive impact of the buyback throughout the year. Statutory profit is down 27% on the prior period, primarily reflecting mark to market movements on fund investments. Moving now to Slide 10, our investment management result. Management fees were down 8% as a result of a 13% reduction in the average fee rate, partially offset by a 6% increase in average AUM. Base management fees averaged 55 basis points over the period, down 8 basis points on first half 2025. The reduction in the level of base management fees is primarily a consequence of compositional changes in our AUM, with outflows in higher margin products in Global Equities. Our average run rate management fee at 30 June is 54 basis points. Sub-advisory fees were $4.8 million for the half across the $2.2 billion in AUM within the Vinva funds on Magellan's platform. Turning now to Slide 11 on our partnerships and fund investments result. Our strategic partnerships continued to deliver strong growth in the period, with MFG's share of profit up 109% to $25.7 million, comprising 31% of operating profit for the half. Barrenjoey delivered growth across all business lines, with revenue up 45% on the prior corresponding period, driving significant profit growth. We received a fully franked dividend from Barrenjoey of $8 million during the half, double the level of the prior year. The Vinva business continues to deliver, with excellent investment performance and business outcomes. MFG's share of income grew over the period, with increases in AUM over the last 12 months driving an increase in base management fees. Vinva paid a fully franked dividend of $9.8 million during the period. Fund investment income grew 14% over the period, with cash distributions of taxable gains remaining at elevated levels within a number of underlying funds. This line will continue to be volatile. Moving to Slide 12. This half represents the first period of operation of the revised dividend policy announced in August 2025. The Group has declared a fully franked interim dividend of $0.395 per share, representing a payout of 80% of operating profit. The buyback continued to be active during the half, with $38.4 million of shares repurchased utilizing cash reserves. The buyback program remains on foot, with liquid capital of approximately $500 million providing strategic optionality for the Group. We continue to carefully assess uses of capital to grow and diversify the business, consistent with our strategy and the aim of creating long-term shareholder value. Thank you. I will now hand back to Sophia. Sophia Rahmani: Thank you, Dean. I will now turn to investment management and discuss AUM, flows, performance, and how we are positioning the business. Starting with assets under management. As at 31 December 2025, our AUM was $39.9 billion, representing net growth of 3.4% year-on-year and roughly flat since 30 June 2025. The underlying drivers are important. We saw positive institutional flows into Airlie Australian Equities and Global Listed Infrastructure, as well as retail inflows into MFG's Vinva Systematic Equity funds. These inflows were partially offset by continued outflows in Global Equities, particularly from retail channels. Our clients remain diversified across region and channel, with the balanced mix supporting greater earnings stability over time. This next slide shows indexed AUM growth by strategy over the last 2 years. Airlie Australian Equity and Vinva equity funds have experienced steady AUM growth due to positive net flows. Global Listed Infrastructure AUM has remained largely flat, as limited retail outflows were offset by offshore institutional wins during the first half of '26. Global Equities has remained in net outflow over the past 2 years. However, institutional outflows have materially reduced, averaging $100 million per quarter since the last quarter of FY '24, with retail outflows having stabilized at an average of $500 million per quarter since that period, excluding the MGF conversion in early FY '25. As you can see on the chart, inflows have increasingly been directed towards lower margin strategies, which has been a key contributor to the margin compression Dean spoke to earlier. Across our investment teams, fund performance was mixed. Our newer solutions, which are increasingly aligned to current client demand and include the Magellan Global Opportunities Fund and the Vinva Systematic funds, have delivered strong performance and remain top quartile since their respective inception dates. That said, we recognize that performance is not where we would like it to be elsewhere across our product set, and this remains a key priority for our teams. The Magellan Global Fund, which is designed to deliver 9% per annum net of fees through a cycle of 5 to 7 years while reducing the risk of permanent capital loss, has achieved these objectives since inception and across longer term time frames. However, over the last year, this low volatility, quality focused investment philosophy has seen the fund lag behind the MSCI World Index in a market that has been heavily driven by growth and momentum. Importantly, many of our holdings have continued to demonstrate strong fundamentals and improving earnings expectations despite weaker share price performance, and we remain confident in the long-term evidence supporting quality investing. Our portfolio managers remain disciplined and continue to manage the fund in line with our investment philosophy, rather than chasing short-term market momentum. In Global Listed Infrastructure, returns in the first half were supported by strong demand for high quality defensive assets amid ongoing policy uncertainty, geopolitical risk, and moderating real interest rates, which provided a tailwind for longer duration infrastructure assets. While 6-month performance was modestly behind the benchmark, both strategies remain ahead on a gross basis over 12 months and continue to align with our long-term objective of CPI plus 5%. Importantly, we retained a major sovereign wealth mandate during the half and expanded another large institutional relationship, with both strategies maintaining strong research house support. In Australian Equities, where the market environment has been marked by elevated volatility, Airlie's performance has been impacted by an underweight allocation to lower quality, highly leveraged companies and resource stocks, particularly gold. This is to be expected given Airlie's long-term focus on quality and valuation discipline, which is well understood by clients. The experienced team led by Matt Williams and Emma Fisher has recently been strengthened with the addition of experienced investors in Ray David and David Meehan, and remains committed to its proven investment process. This next slide captures a critical point: the quality and reach of our distribution capability is one of MFG's core strengths. Magellan investment partners provides the scale and expertise to meet client needs in a world of evolving market dynamics. We have deep global relationships and a trusted experienced distribution team. We believe this platform is a real differentiator, and it is increasingly valuable in supporting both organic growth and strategic partnerships. We have continued to invest in the platform over the half, with new appointments supporting clients and relationships in Australia and Asia Pacific, and have been rewarded with a strong client response. Momentum has been particularly pleasing in the U.S., where the team has secured new institutional wins for our Global Listed Infrastructure strategy. I will now turn to our strategic partnerships, which have become an increasingly important driver of earnings diversification and long-term value creation. Barrenjoey. Barrenjoey has maintained its strong momentum to cement its place as one of Australia's highest quality financial services franchises. It is now 5 years old, employs around 450 staff across 5 offices, including Abu Dhabi and Hong Kong, and has market leading franchises across corporate advisory, equities, fixed income, and private capital. For the half, Barrenjoey more than doubled its NPAT to $54 million, with revenue up 45% to $295.3 million and strong growth across every business line. We continue to view Barrenjoey as a high-quality strategic holding, with meaningful long-term optionality and strong operating leverage as the business continues to mature. Our partnership with Vinva, a high performing systematic equities investor with a long heritage and a strong performance track record, is now 18 months old and gaining real traction in the market. The 4 Vinva funds offered by MFG are each now approved on at least one key ratings house, in place across all major platforms, and we are seeing increased support and adoption from asset consultants and dealer groups. We closed the half with $2.2 billion in AUM across these funds and strong momentum, now that key building blocks are in place. We have been pleased to see the partnership's mutual value reinforced with additional institutional mandates jointly secured for Vinva, including a second CFS mandate and a new overseas client for a Global Equity mandate, won in December and funded last week. This is in addition to the strong growth we have seen in the first CFS mandate. Importantly, this progress represents only one component of Vinva's broader growth trajectory, with total AUM having more than doubled since the strategic partnership was established, driven primarily by growth in Vinva's Global Equities strategy and strong traction across a diversified client base. This is an excellent example of our distribution strength combining with Vinva's unique investment capability to increase access to markets and clients, and an indicator of the partnership model we are looking to replicate over time. FinClear continues to improve underlying financial performance as the business gathers momentum and market share across its core businesses. Revenue increased 20% year-on-year, supported by growth in trade execution, FX revenues, and the FCX platform. Its cash and FX platform is now fully operational, and FCX is ramping up following its launch, including its first major transaction during the half. FinClear remains a strategic investment for MFG, with improving fundamentals and meaningful long-term potential as private market transaction infrastructure evolves. I will now conclude with a review of progress and our priorities for the second half. First, the review. In first half '26, we made progress across each of our strategic priorities. We strengthened our distribution platform with a unified global brand and senior hires and saw validation in the form of client wins and the strong pipeline that is building. We have continued to evolve and focus our product set in-line with client needs and maintained momentum in our newer funds, with investment performance, ratings, and platform approval supporting new client flows. Our strategic partnerships contributed strongly to earnings during the half, more than doubling on the prior period, reflecting strong momentum at both Barrenjoey and Vinva. This is exactly the earnings diversification we outlined when articulating our strategy to evolve into a broader financial services group. The partnership model is delivering both capability expansion and more resilient earnings. Our people are what sets us apart, and we have continued to focus on embedding a high performing culture. This quality of our teams was evident early this year with MFG's inaugural innovation month, an internal initiative that saw teams from across the business come together to ideate on ways to meaningfully improve how we serve clients, operate our business, and build for the future. MFG has always been known for its innovation, and continued innovation is critical to our long-term success, especially in the face of ever evolving markets and an increasingly competitive landscape. We were delighted with the energy and innovative thinking at play and look forward to progressing several of the submissions to the next phase. We have also continued to invest in systems and leadership capability to support a scalable operating model and maintain strength of governance during the period, including enhancements to our risk management framework, board processes, and committee structures. Importantly, these are not short-term initiatives. They are building blocks for long-term value creation which will support MFG in our next phase of growth. Looking ahead to the second half of the year, our strategy and priorities remain clear and consistent. First, we will further utilize and strengthen our global distribution platform to win new clients and deepen existing relationships, while keeping long-term investment performance at the center of our focus. Second, we will broaden our client offering through a combination of strategic partnerships and organic capability development, ensuring our solutions remain aligned with evolving market demand. Third, we will continue to actively assess strategic partnership opportunities across investment management and complementary financial services. Fourth, we will continue to cultivate a high-performance culture to attract and retain talent and align our people around delivering consistently strong outcomes for clients and shareholders. And finally, we will remain focused on ensuring we have strong operating core to support efficiency and excellence across our business. To close, the first half results reflect continued strategic progress and strengthening earnings quality. Despite ongoing headwinds across active management, we have delivered earnings growth per share, stable AUM, increased strategic partnership contributions, disciplined cost management, and a strong capital return to shareholders. We remain cash generative, capital disciplined and well positioned to continue executing our strategy and creating long-term value. Dean and I will now be happy to take your questions. Thank you very much. Unknown Executive: Thank you, Sophia and Dean. We will now move to questions. [Operator Instructions] But we might first move to any questions from the phone lines. Operator, over to you. Operator: The first question comes from Julian Braganza at Goldman Sachs. Julian Braganza: Just the first question on expense growth. Looks like first half '26 was quite positive, with only 1% growth over the half. Just maybe how you are thinking about expenses over the second half and into the medium-term just given some of the investments that you are flagging on the expense side, and in particular the second half. Unknown Executive: Yes, thank you for the question. The expense growth in the first half reflects our ongoing focus on operational efficiency. And so I think that is a focus for the group that will continue both in the second half but also into the medium-term. In relation to the view on the full year, we had previously stated that expenses would grow at or about the level of inflation. I think we will do better than that across the full year. I do expect there to be growth in expenses in the second half as we look to invest in technology and other areas to improve the efficiency and the effectiveness of our business. But overall, we are looking to balance those investments with operational efficiency opportunities in the balance of the business. So overall, no change to the medium-term outlook. Julian Braganza: Okay. Got it. And that is super clear. And then just in terms of fee margin for the business, just interested in expectations from here. Exit around 54 basis points, average over the period 55 basis points, suggests that a level of bottoming out given the deterioration we saw half -- over the half. Just be interested in how you are seeing that play out. Or alternatively, where are we bottoming out on that fee margin line? Unknown Executive: The trend in the fee margin is largely a consequence of the increase in the institutional component of the AUM. We are now 60% institutional, 40% retail. And so depending upon the relative flows over the next 12 to 18 months, that will determine where that average fee rate ends. Clearly, we are still very focused on growing in the retail market, and that's a key strategic objective of the business, but in terms of where that fee rate goes, it will be primarily driven by the compositional elements. Julian Braganza: Okay. But just to be clear, was it stabilizing towards the end of the period, just given the average and the exit are quite closely aligned? Is there a little bit of stabilization there, or? Unknown Executive: So it was a fairly linear trend over the period. So 54 at period end, we did have the conversion of the high conviction fund to Global Ops during the period, which is the kind of the 2 bips drop we note in the in the pricing. That won't repeat going forward. But throughout the period, the run rate was fairly linear. Julian Braganza: Okay. Got it. That is good. Just the last question for me in terms of Barrenjoey. Obviously very strong revenue growth, very strong NPAT growth. Just how should we be thinking about this from here? Any one-offs that sort of normalizing in the second half, or is this sort of a continued level of underlying trends that we should be expecting? Just some color around that. Unknown Executive: Sure. Barrenjoey is now quite a diversified business both within its business lines and across them. So our view is that, even with a strong result in the first half, we think the outlook there is quite positive. So we're not seeing an outlook where we will get an enormous skew between different periods. Given the nature of that business though, there is always timing elements that are at play in relation to transactions. But overall, we think the outlook for that business is quite positive. Operator: The next question is from Elizabeth Miliatis from Macquarie. Elizabeth Miliatis: First one just on Barrenjoey, just to circle back on that. I think we at 100%, we generated $54 million profit for the half. Last full year was $59 million, so you have almost doubled the run rate of previous halves. I mean, how do we think about this going forward to sort of circling back on it, because it is really difficult to forecast this given the lack of disclosures? Unknown Executive: One of the dynamics we see now at play in Barrenjoey is the increasing contribution of -- from the operating leverage of the business. So in the investments in that business over the last 5 years to get it to this point have now resulted in a revenue growth, we talked about 45% for this period, but driving over a doubling of net profit. And so we see that being a key enabler of profit growth for that business as we go forward. The different business lines are all contributing positively. So each of those have growth opportunities. That management team is very focused on growing that business, and we are a very supportive shareholder. But in particular, the growth in this period has been aided by that historical investment now really yielding returns from an operating leverage perspective. Elizabeth Miliatis: Okay. And was there anything -- any sort of big one-offs supporting the result, or is this just more BAU strength? Unknown Executive: Given the nature of the business there is always elements that are specific to a particular period. What I would call out is that we are seeing the diversity of that business, the maturation of each of those business lines, meaning that as we look between periods, there's more natural offsets and complementarity between those businesses. And so we are seeing a far more resilient earnings profile as we go forward. Elizabeth Miliatis: Okay. Got it. And then just on Vinva, I am not sure that you have disclosed the FUM at the total business level anywhere. Are you able to give us that number at 31 December and then maybe where we're at the moment? Sophia Rahmani: Sure, Liz, and thank you for your questions. Vinva closed the period with around $43 billion under management. They have had some subsequent inflows already this half and continue to have a strong pipeline. Definitely from an institutional perspective, which they look after as a business and they've done really well there, but we have also on the retail fund side had some wins and have a decent looking pipeline there as well. Elizabeth Miliatis: Yes. Okay, got it. And maybe just final one, and then I will go back to the end of the queue. Just given the significance that the associates are now as a sort of part of the business, so 31% of earnings this half. Are you perhaps starting to rethink about the levels of disclosures there? Obviously you are -- they are just associates, but it is just challenging to forecast these without too much color and it seeming to have a big swing factor to the results going forward. Unknown Executive: Yes, thank you for the question. It is something we're focused on, and we continue to work with our partners on how we can give more disclosure and more color to the market on the businesses. So we take that feedback and we appreciate it. It is a growth component of the business, and as we get to the full year, we will be reviewing what levels of disclosure we can give. Noting, of course, that these are private businesses, founder led, and that is part of the strategy, but we acknowledge the feedback and the perspective. Operator: There are no further questions from the phone at this time. Unknown Executive: Thank you, operator. We will move to questions submitted via the webcast. The first question is: Given the volatility in the performance of active managers in Australia, would you look to diversify your domestic product offering in areas such as fixed income, where there will be a growing need for yield focused products as hybrids roll off? Sophia Rahmani: Thank you for the question. We, absolutely, are looking to continue to diversify our product offering, both for domestic clients as well as our offshore clients. A core plank to the strategy, and hopefully you can see that strategy in action with the early success and momentum we have built around our partnership with Vinva. Would we look specifically at fixed income in Australia? Absolutely we have, and we continue to be open minded about how we diversify our business, definitely with a focus on client needs and how we can solution for our clients and be very relevant to them, in this evolving market and as things change, so we definitely are focused on all of that. Unknown Executive: The next question is: How actively are you reviewing strategic partnership opportunities? Do you expect to announce any new strategic partnership opportunities in H2 '26? Sophia Rahmani: Thank you for that question. I would say we are very actively reviewing strategic partnership opportunities. Again, consistent with our strategy, we are fortunate enough to have the capital on our balance sheet to have that optionality, so yes, we do dedicate time to that. We have initially certainly through calendar year last year, been very focused on doing a very good job of embedding the partnership with Vinva. But as the year ticked on, we did certainly progress a couple more discussions with strategic partnerships and have a couple of live discussions right now. I certainly can't make any commitments on when they will be announced, and certainly what gets to that point where we do announce a transaction and enter into a partnership, but I can say we continue to stick to our strategy, and again, this result shows the benefits of that for our shareholders. Unknown Executive: The next question online is: There appears to be a high realization on profits in fund investments while the unrealized loss part is carried away. How should we think about this trend on realization of profits going forward as it appears at some point this would need to converge? Unknown Executive: Thank you. In relation to the profits that sit within the operating profit line, they are not necessarily realized gains on sale; they are distributions from our fund investments. They are cash backed and they go to all investors, including MFG. What I would say though is, is that line continues to be elevated versus historical levels, and that is a consequence of the taxable gain position in the underlying portfolios. That element will be volatile period to period as we have called out. In relation to the unrealized loss in the statutory result, we focus primarily on the long-term performance of those investments, and the total returns over time have been quite positive. In this period, the total return was about $6 million and net of the distributions, with the unrealized component being just unit price movement over the the half. Unknown Executive: The next question is: Is there a medium-term plan with Barrenjoey to list or otherwise realize the value of the investment? At some point will the employees want a way to realize the value of their share of ownership? Sophia Rahmani: Thank you for the question. Look, I mean, I think with the Barrenjoey success that we are seeing, I am sure that there is a lot of happy shareholders like ourselves in the success that we are seeing in that business. Probably much of this is a matter for the Barrenjoey management team, and they will be discussing that internally on employees, but we still do have a long time to run with those employee share plans, and certainly as a shareholder in the Barrenjoey business, like we are in the Vinva business, we are incredibly pleased with the performance of those underlying businesses. Unknown Executive: The next question online is: How is the search for a new Global Head of Equities going? Sophia Rahmani: Thank you for that question. I will say we don't actually have an open search for a new Head of Global Equities underway. As we have talked about in other forums with Arvid's departure, we were very pleased to have the strong bench strength with Al Pullen and Casey McLean there already co-PMs of the global fund and ready to step in as interim co-heads of that business. So for now, we are very pleased with how that has gone, and we continue to monitor overall resourcing of that team. Unknown Executive: The next question online. Across the underlying businesses, performance fees have declined substantially over 1H '26 versus 1H '27. I think that should be 1H '25 versus 1H '26. Has this contributed to any loss of morale across analysts and portfolio managers behind these products? Sophia Rahmani: Thank you. I am happy to answer that question. I would say if we look at the last the 12 months prior to this period, we had performance fees coming from our High Conviction Fund predominantly, and then the second period we had performance fees coming from our Infrastructure Funds. As part of the changes we made to High Conviction in August last year, we removed the performance fees as we converted that strategy to the Global Opportunities strategy; we completely changed the fee structure for that. I would say that is a great example which was very well received by the Global Equity team and the distribution team to have, a 75 basis point flat fee in the market which hopefully is well received by our clients as well, and again we are seeing some early attraction to that. So I would say from a -- any kind of loss of morale from a performance fee perspective, which I don't think we saw, has actually been offset by us seeing a contemporary product with a strong performance like Global Opportunities with some sharp pricing made available to our clients. Unknown Executive: Can you explain what sort of investments in AI you are looking to make? How do you see this investment improving the overall MFG business? Is this expected to drive a material increase in expense growth? Unknown Executive: Thank you for the question. Our investments in AI are in 2 primary areas. The first is in relation to our investment teams and putting into production tools which improve the effectiveness of the investment process and the capabilities of the research function. And that goal is primarily aimed at improving performance, also being able to expand the universe in which the team covers and to be able to be more efficient in the way in which they allocate their time and energy. On the second element, we are looking at operational efficiency and productivity improvements across the entire business. And those will be ongoing over the remainder of this year and into next year as well. And those will be primarily in the areas of productivity, both in back of house but also in client reporting and client experience. From an expense perspective, we are focused on funding that from our existing cost base. So as I have mentioned previously, I don't expect that to drive an increase in expense growth at the group. It is an -- a reallocation of our resources and our energy towards those areas. Unknown Executive: There are no more questions online. Operator, can we check if there are any more questions on the phone, please? Operator: [Operator Instructions] There are no questions from the phone at this time. Unknown Executive: Thank you. Given there are no more questions, that will be the conclusion of today's interim results update. Thank you all for joining us.
Operator: Ladies and gentlemen, greetings, and welcome to the Quantum Corporation Third Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. It is now my pleasure to introduce your host, Quantum's Vice President, Corporate Affairs and Corporate Secretary, Tara Ilges. Please go ahead. Tara Ilges: Good afternoon, and thank you for joining today's conference call to discuss Quantum's Third Quarter fiscal 2026 financial results. With me on today's call are Hugues Meyrath, Quantum's CEO; and William White, our Chief Financial Officer. Following management's prepared remarks, we will open the call to questions from analysts. Before we begin, I would like to remind you that comments made on today's call may include forward-looking statements. All statements other than statements of historical fact should be viewed as forward-looking, including any projections of revenue, margins, expenses, adjusted EBITDA, adjusted net income, cash flows or other financial, operational or performance topics. These statements involve known and unknown risks and uncertainties that we refer to as risk factors. Risk factors may cause our actual results to differ materially from our forecast. For more information, please refer to the detailed descriptions we provide about these and additional risk factors under the Risk Factors section in our 10-K and 10-Qs filed with the Securities and Exchange Commission. The company does not intend to update or alter forward-looking statements once they are issued, whether as a result of new information, future events or otherwise, except where required by applicable law. Please note that today's press release and management's statements during today's call will include certain financial information in GAAP and non-GAAP measures. We will include definitions and reconciliations of GAAP to non-GAAP items in our press release. With that, it's my pleasure to turn the call over to Quantum's CEO, Hugues Meyrath. Hugues Meyrath: Thank you, Tara, and good afternoon, everyone. Thank you for joining us for our third quarter earnings call. As announced earlier this afternoon, revenue EBITDA exceeded the high end of our forecasted range. These results reflect our efforts to maintain disciplined execution of our strategy. Over the past two quarters, we've put a deliberate structure and focus in place to execute our operating plan. As a result, we've seen meaningful improvement in revenue, pipeline and backlog. We also continue to strengthen our financial foundation. Through restructuring initiatives, we've lowered our cost structure in support of our near-time goal of achieving positive cash flow. During the third quarter, shareholders approved a proposal to exchange the term debt held by Dialectic for convertible notes, reducing our outstanding term debt by approximately 50% to historically low levels. We continue to evaluate options for remaining term debt as we work towards further strengthening our balance sheet. To better frame up our results, let me first address the broader market environment and the conditions impacting infrastructure decisions across the industry. As AI use cases continue to accelerate, customers are feeling the real impact from cost, power, cooling and the volume of data that must be retained for the long term. At the same time, AI-driven demand is increasing pressure on global supply chains. Critical components, particularly memory, disk, and flash are becoming increasingly difficult to procure and prices are rising as a result. In just the last 10 days, we've seen pricing double and in some case triple. This is not unique to Quantum. It's affecting the entire industry. In addition to pricing volatility, lead times are extending into weeks and sometimes even months. Similar to the early COVID period, the timing and path to stabilization remain unpredictable. Against this backdrop, it's important to highlight that we delivered a strong Q3, and we believe we're off to a strong start to Q4. We are executing on our sales plan and have now delivered 2 consecutive quarters of healthy backlog. Early in Q4, we secured multiple million dollar purchase orders from enterprise and hyperscale customers, reinforcing the strength of demand for our solutions. That said, given the pricing dynamics and component availability, we're erring on the side of caution with our Q4 forecast. The uncertainty is not about the demand or our expectations for execution on our plan. It's about when we can fulfill and ship orders as supply chains continue to fluctuate. This is a prudent approach in an environment that is changing in real time. These conditions also reinforce where Quantum is uniquely advantaged. Tape is in Quantum's DNA. We are early inventors and long-standing innovators in tape with decades of engineering leadership and deep intellectual property. Quantum's Scalar tape libraries are designed to be modern, high-performance systems that deliver near-line accessibility for AI workloads. It also offers the lowest cost and lowest power consumption of any storage medium available. As flash and disk become more expensive and harder to secure, we believe tape provides customers with a practical way to offload massive volumes of data to a core tier, freeing up primary storage while meaningfully reducing power, cooling and operating costs. This is especially critical as customers retain more data than ever for AI compliance and long-term reuse. We are already seeing this shift clearly in our results. Our tape sales doubled quarter-over-quarter as customers pivoted toward architectures designed to reduce dependence on constrained components and deliver predictable economics at scale for warm and cold data. As a recent example, in Q3, we secured a 7-figure deal with a large multinational production studio, driven by cost, power efficiency, durability, and security of Quantum's cold storage architecture. The customer selected ActiveScale cold storage integrated with our Scalar tape libraries. This customer was able to repatriate content from the cloud to an on premise archive with predictable long-term economics while maintaining nearline access to archive data for AI-driven repurposing and reuse. The initial deployment is 100 petabytes with plans to scale to 400 petabytes over time. As the cost of flash and disk continues to rise and availability becomes more constrained, customers are increasingly looking for reliable, low-risk ways to move data off expensive primary storage without disruption. This is where Quantum StorNext creates a unique opportunity for us. StorNext is a leading data movement platform with thousands of customers worldwide. And like traditional data movers, StorNext can seamlessly and reliably migrate data from virtually any storage platform across vendors and architectures directly to tape. This allows customers to offload data from high-cost primary storage to tape with confidence and reclaim valuable capacity. It also allows customers to avoid continuously provisional additional primary storage amid rising prices and component shortages. Together, StorNext and Scalar tape enable customers to reduce their dependence on constrained components, lower costs and extend the life of their existing primary storage infrastructure. Given StorNext's proven reliability and broad installed base, we see this as a meaningful opportunity for incremental growth as customers reassess their storage strategies in today's market environment. We also continue to execute our broader go-to-market initiatives. We strategically realigned our North America sales model to mirror the successful approach used in EMEA, where we have seen strong results improving focus, coverage and execution. The alignment is driving tighter account prioritization, stronger coordination across sales, marketing and our channel partners and greater consistency in how we pursue and close opportunities. At the same time, our lead generation initiatives are gaining traction, delivering higher quality opportunities into the field and supporting pipeline growth. These efforts are resulting in larger, more strategic multiproduct opportunities as customers increasingly look for trusted partners to help them navigate cost pressure, supply constraints and also long-term data growth. We're seeing channel partners lean in more actively, particularly around tape and StorNext as customers reassess their storage infrastructures. Before turning the call over to review our financial results in greater detail, I'd like to take this time to welcome our newly appointed CFO, Will White, who's joining us on today's conference call. Will brings an exceptional combination of financial discipline, operational leadership, and strategic vision to help drive Quantum's execution in this next stage of our growth. I look forward to working more closely with Will for his contributions to our future financial strategy and operations. With that, I will now turn the call over to Will. William White: Thank you, Hugues. Good afternoon to those joining us on the phone and webcast. I will provide an overview of the company's GAAP and non-GAAP financial results for our third fiscal quarter 2026 ended December 31, 2025. Revenue in the quarter was $74.6 million, an increase over the $62.7 million in the prior quarter and $68.7 million in the prior year third quarter. The higher-than-expected revenue was partially driven by strong backlog coming into the quarter as well as a strong shipment into the quarter end. The positive variance to the preliminary result was due to a conservative assumption related to deferred revenue contracts. We exited the third quarter with a strong backlog of over $20 million, which is significantly above our historical run rate of $8 million to $10 million. We expect backlog to remain meaningfully above our historical run rate in the fiscal fourth quarter, reflecting the continued success of our revitalized sales organization. GAAP gross margin for the third quarter was 38.8% compared to 37.6% in the prior quarter and 40.6% in the fiscal third quarter of 2025. Although we still have more work to do in order to expand gross margins back above 40%, the sequential increase in the third quarter reflects the initial improvement in operating efficiencies from our restructured service organization. As Hugues mentioned, we are also seeing volatility in pricing and component availability throughout the industry, which may be a headwind to our 40% margin target in near term. GAAP operating expenses for the third quarter were $30.1 million compared to $31.7 million in the prior quarter and $35.6 million in the year ago quarter. The increase in GAAP operating expense from our preliminary results announcement is due to additional provision for the outstanding receivable balance with Quantum Storage Asia, also known as QSA, following the termination of their distribution rights in fiscal Q2. We believe that this is prudent for our GAAP results. However, we are now seeking alternative measures to recover these balances to protect our customers' ability to make valid service and warranty claims. As mentioned in last quarter, QSA is not affiliated with Quantum and is not authorized to use our name or sell our products or support. Operating expenses on a non-GAAP basis for the third quarter were $26.9 million compared to $24.8 million in fiscal second quarter of 2026 and $30.1 million in the year ago quarter. The sequential increase preliminarily reflects higher variable sales and marketing expenses related to higher commissions. The year-over-year decrease reflects the realized savings from a lower cost structure following our more recent restructuring actions in the current fiscal year. GAAP net loss in the fiscal third quarter was $27.8 million or a loss of $2.03 per share compared to a net loss of $46.5 million or a loss of $3.49 per share in the previous quarter and a net loss of $75.3 million or a loss of $15.35 per share in the year ago third quarter. The current GAAP net loss includes $28.9 million in debt extinguishment costs related to the most recent amendment to our term loan in which we converted term debt for a senior secured convertible note. The convertible note was issued in exchange for $54.7 million of term debt and was recorded at a fair value of approximately $76 million. Each quarter, we will record an adjustment to the fair value for both the convertible note and the forbearance warrants, which will be largely driven by our stock price. This requirement will introduce some volatility into our GAAP earnings on a go-forward basis. Non-GAAP loss for the third quarter was $4.9 million or a loss of $0.36 per share compared to a net loss of $7.1 million or a loss of $0.54 per share in the prior quarter and a net loss of $7.8 million or a loss of $1.59 per share in the same quarter a year ago. The improvement in non-GAAP net loss for the quarter reflects a combination of the revenue increase in the quarter, combined with a significant reduction in operating expenses while we continue to bear approximately $5.9 million of interest expense. As we execute on our plan to further strengthen our balance sheet, we expect to benefit from reduced interest burden. Adjusted EBITDA for the third quarter improved sequentially and year-over-year to a positive $2.9 million from a positive $0.5 million in the fiscal second quarter of 2026 and $0.8 million in the prior year quarter. The significant improvement in adjusted EBITDA was primarily driven by the execution of our restructuring initiatives that significantly lowered our cost structure over the prior quarter. Turning to an overview of debt and liquidity at quarter end, cash, cash equivalents and restricted cash at the end of the fiscal third quarter were approximately $13.8 million. Total outstanding debt split between term debt and our convertible notes was $54.6 million and $75.9 million, respectively. At the end of the quarter, the company's net debt position was approximately $116.7 million. The significant decrease in our term debt reflected the successful completion of our strategic debt exchange in which we issued senior secured convertible notes to Dialectic in a dollar-for-dollar exchange for approximately $54.7 million of term debt previously held by Dialectic. Turning to the company's outlook for the fiscal fourth quarter of 2026. As Hugues discussed, we are erring on the side of caution with our Q4 forecast due to increasing difficulty in procuring critical components across the entire industry. It is not a question of demand or our ability to execute on our plan. It is about when we can fulfill and ship orders in a challenging supply chain environment. In light of the industry-wide supply chain challenges, revenue for the first quarter is expected to be approximately $68 million, plus or minus $2 million. We expect third quarter non-GAAP operating expenses to be approximately $27 million, plus or minus $2 million. As a result, non-GAAP adjusted net loss per share for the fiscal fourth quarter is anticipated to be negative $0.33, plus or minus $0.10 per share based on an estimated 15 million shares outstanding. Adjusted EBITDA for the fiscal fourth quarter is expected to be breakeven, plus or minus $2 million. With that, I now hand the call back to Hugues. Hugues Meyrath: In closing, I'm pleased with the continued progress the team is making in our sales and operating initiatives as evidenced by our third quarter results. Our revitalized sales team is executing and delivering meaningful improvements to our pipeline and backlog with a growing number of multimillion-dollar deals. We've also significantly lowered our cost structure while further strengthening our balance sheet. We're cautiously navigating the industry-wide pricing dynamics and component shortages. And I believe Quantum is uniquely positioned with our portfolio of Scalar tape libraries, ActiveScale cold storage and StorNext platforms to reduce customers' dependence on constrained components and deliver predictable economics at scale for hot, warm, and cold data. With that, I'll now turn the call to the operator for the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Eric Martinuzzi: Congrats on the good results for Q3 and on the healthy guide for Q4. I wanted to dive into the different product segments here just based on the 10-Q filing. It looks like there was good strength in secondary, but the primary systems were -- I hate to judge by one particular quarter, so I'll go with the 9-month contraction here. It looks like it was down about 23% in the 9 months versus 9 months a year ago. What's behind that? Typically, that would be a StorNext, it would be flash related. What can you tell us about the primary storage systems? Hugues Meyrath: I would say we started the year probably very, very slow. And -- but going into fiscal Q3, we saw strength across all the product lines. So we feel confident right now that we're on a strong path for primary storage. Eric Martinuzzi: Okay. And then as far as the backlog goes, you talked about, hey, it's elevated, it's $20 million when it typically runs $8 million to $10 million. The expectation that, that's going to stay high, is that driven more from the demand side? Or is that driven more from the lack of component availability side? Hugues Meyrath: The demand continues to be very strong. In fact, we had a very healthy January as well. So we expect the backlog to be healthy going into our fiscal Q4, but it's -- both demand is very strong. We do have some shortages in components, but like it's -- the backlog is growing faster right now than anticipated for sure. Eric Martinuzzi: Okay. And then the services business, we've been in contraction mode here for a while. It was down a little bit less in Q3 than it was for the 9-month period. Are we getting to a point where that could potentially flatten out here, and we're no longer seeing that contraction in services? Hugues Meyrath: I would think so. I think we still struggle a little bit from an execution perspective in terms of getting the most of our services from customers. We tend to discount services too much on a blended basis, which is why we have kind of this SSP mechanism in place that we allocate. So I would think right now, it's more of our ability to execute a little bit better on services and not discount so much. That's more of an issue than the contraction. I think we got to do a better job there for sure. Eric Martinuzzi: Okay. And then last question for me. You talked about gross margins being somewhat impacted by the price of the components that you need to acquire, but you still are looking at a 40% target. We've seen good progress throughout the year with the non-GAAP gross margins rising in Q3 versus Q2 and Q2 versus Q1. What should we expect for Q4 based on the product mix and the services mix that you're thinking about for Q4? Do we go up sequentially? Do we retrace based on mix? Hugues Meyrath: I think this quarter is actually quite hard because the supply chain issues are hitting everybody in the industry like everybody, and it's pretty bad across the board from server delivery to memory to any storage that you're trying to acquire. The prices are going up. So when prices go up, by the time you turn it over to a quote and you try to build the product and ship the product, it's been very hectic environment. And there are a lot of examples in the industry that prove that that's an issue industry-wide. So it's really hard to guide to margin right now. Eric Martinuzzi: Okay. So a conservative view would be to say equivalent would be a good achievement equivalent to Q3. Hugues Meyrath: It would be -- yes, it would be a very good achievement if we could stay there and rising prices. And I mean, we're hearing examples of people literally like prices changing on the docks of some of our partners in the supply chain business until things are inventory flux. So it's quite a challenging environment right now from a pricing perspective and lead times are definitely stretching as well. Operator: Our next question comes from the line of Nehal Chokshi with Northland Capital Markets. Nehal Chokshi: Congrats on a good sustained demand here with the -- as evidenced by the elevated backlog. You made a comment, Hugues, that tape sales doubled Q-over-Q. Could you give some color here in terms of where that demand is coming from with respect to hyperscalers versus non-hyperscalers? Hugues Meyrath: [indiscernible] is very strong across the board right now. But what we're seeing mostly from a growth perspective is people are just running out of storage. And with ActiveScale cold storage, they found a way for -- to keep storage on-prem for longer. So some of it, we see people that are migrating back from the cloud because they want to use data and ActiveScale cold storage allows them to use and reuse the data. We've seen some wins in the Fed space last quarter. So I mean, it's pretty much across the board. Hyperscalers also have capacity upgrades planned. Some of them are not realized yet. They're more coming as well. So I think in general, I'm very optimistic on tape because people are running out of storage, and I think that's creating a new wave of demand in additional to what we have today. So it's not just object store, but I think people are going to need to offload some of their primary storage data somewhere because clearly, the demand is way for storage, is way ahead of the supply right now. Nehal Chokshi: Okay. And then you also mentioned that you have a growing number of multimillion dollar deals. Is that with respect to pipeline or in backlog? Hugues Meyrath: It's -- we have a bunch of them in backlog, yes. Nehal Chokshi: Okay. And can you give us a sense of the composition there, again, with respect to hyperscalers versus non-hyperscalers? Hugues Meyrath: It is the multimillion dollar deal, like we're talking mainly -- I mean, we expect hyperscalers to be multimillion dollar deals than they are. So in general, what we're talking about there is our typical customers right now are adding more to their orders. So you can have a combination of StorNext and ActiveScale and cold storage and an order where we feel so people really building larger and larger like environments, especially with regards around like an i7, for example. So you can actually have good like AI content like around that solution with ActiveScale. Nehal Chokshi: Okay. And you already talked about backlog levels. You said at the end of December quarter, it was already at [ $20 million ]. It's growing faster than anticipated. over the last 6 weeks, which then implies that it has gone up as the quarter has progressed. It sounds like it's a function of demand as well supply. But I guess we're trying to frame up though that demand is -- your core demand from the enterprises is up year-over-year and then also the hyperscalers are helping there as well. Is that a correct read-through on the description that you're giving here on backlog and the trajectory there? Hugues Meyrath: Yes. It's -- January has been -- it's been strong Q3, but it's fiscal Q3, but January has been strong as well, and we don't fulfill as many orders in January. So the backlog keeps growing, but we'll probably exit next quarter with a much greater backlog as well as the number we guided to. So we're seeing strength across both enterprise and hyperscalers for sure. Nehal Chokshi: At this point in time, do you see supply -- it sounds like you see supply actually worsening. So if demand continues to sustain at this current level, you would anticipate then that backlog would continue to grow from whatever level that it is right now? Hugues Meyrath: At our guidance level, the backlog will grow, yes. Nehal Chokshi: Okay. Last question for me is that -- you've been in the seat now for about 9 months, right? And I know that you've gone through a lot of restructuring, reorganization. But you have a really deep storage industry experience. And as a result, do you have some perspective as far as like what sort of long-term margin structure you can achieve? Hugues Meyrath: Yes. I mean -- look, I mean, going back into the 40% long-term margin with the products we have right now on -- in our go-to-market we have right now is obviously possible. I mean I'm more concerned right now with the way the supply chain is working these days, it's -- you can go listen to anybody else. It's not clear how there will be relief from a supply perspective in the near term, right? So it feels like a COVID era right now. It's hard to get lead times. It's hard to get commit from suppliers. It's hard to get pricing from the suppliers, right? So right now, we're just trying to manage the business that's ahead of us and what we can get our hands on what the prices are and make sure we treat our customers and partners with the utmost respect, right? Now from a long-term perspective, I don't know when that is, but the supply chain needs to normalize. We'll get back into the 40s. I think we've done the restructuring needed to be in the 40% margin business and continue to improve it. But right now, it's kind of a little bit across the industry and charted territory from a pricing and lead time perspective. So -- but I think the restructuring is definitely paying dividends for sure. Operator: There are no further questions at this time. And with that, this concludes today's webinar. You may disconnect your lines at this time. Thank you for your participation.
Operator: Hello, everyone. Thank you for joining us, and welcome to the RB Global Fourth Quarter 2025 Earnings Call. [Operator Instructions] I will now hand the call over to Sameer Rathod, Vice President, Investor Relations and Market Intelligence. Please go ahead. Sameer Rathod: Hello, and good afternoon. Thank you for joining us today to discuss our full year and fourth quarter 2025 results. On the call with me today are Jim Kessler, our Chief Executive Officer; and Eric Guerin, our Chief Financial Officer. The following discussion will include forward-looking statements, including projections of future earnings, business and market trends. These statements should be considered in conjunction with the cautionary statements contained in our earnings release and periodic SEC report. On this call, we will also discuss certain non-GAAP financial measures. For the identification of these measures, the most directly comparable GAAP financial measures and the applicable reconciliation, please see our earnings release and SEC filings. At this time, I would like to turn the call over to our CEO, Jim Kessler. Jim? James Kessler: Thanks, Sameer, and good afternoon to everyone joining the call. 2025 was a year of disciplined execution and deliberate strategic progress at RB Global. Across the organization, our teams advanced initiatives that are designed to strengthen our competitive standing, expand our partner relationships and position the company for durable long-term growth and shareholder value creation. That discipline was evident again in the fourth quarter. Adjusted EBITDA increased 10% on a 4% increase in gross transaction value, reflecting continued operating leverage, strong execution and tight cost management, even as we made intentional choices to support future growth. Before diving into the details, I want to clearly frame how we are approaching growth and profitability. Over the past year, we have been highly disciplined and selective in the contracts we've signed and deals we've executed. We are prioritizing scale, longevity and strategic positioning with a clear focus on expanding market share and increasing partner stickiness, enhancing lifetime value. Turning to the automotive sector. We delivered another solid quarter with unit volumes increasing 8% year-over-year, excluding the impact of cat volumes in 2024. This marks the fourth consecutive quarter in which we have outpaced the market. I am proud that our team continued to deliver at a very high level and exceeded all of our service-level commitments in the fourth quarter, even as volumes grew meaningfully, underscoring the operational strength of our platform. Within the last 12 months, we've had several wins for our business. As part of these successes, we have signed a new multiyear agreement with one of our two largest partners while reaching an agreement in principle with the other. These agreements help to provide long-term visibility into expected volumes and deepen our strategic alignment with those customers and the industry. These renewals reinforce the trust of our partners place in RB Global and reflect the exceptional service, quality and execution we consistently deliver on at scale. Gross returns or salvage values as a percentage of pre-accident cash values continue to expand, supporting approximately 7% year-over-year growth in the U.S. insurance average selling price. This reflects ongoing improvements on the buying experience. During the quarter, we introduced new features that indicate when an item is guaranteed to sell, which we believe will increase buyer confidence and drive stronger pricing. We also enhanced our website to deliver more localized content and support, making it easier for customers worldwide to bid and buy seamlessly. Looking ahead to the next few years, we are energized by the strength of the request-for-proposals pipeline, with a significant portion expected to come from prospective partners with whom we currently have no business. Even modest penetration into these partners could represent meaningful incremental market share opportunities for RB Global. Many of these organizations will be joining us again at our upcoming Industry Leadership Summit in Florida, providing a valuable forum to deepen engagement and showcase the differentiated value of our platform. We are expecting a record number of attendees this year and we believe their participation reflects the trust our insurance partners place in RB Global to enhance their profitability. The more effectively we communicate and demonstrate our value proposition upstream of the transaction, the better positioned we should be to capture additional market share. In automotive, this means enabling our partners to optimize the vehicle towing to the most appropriate destination, whether that is one of our yards or a repair facility. Across the industry, billions of dollars are lost annually due to inefficient vehicle routing after an accident. In 2026, we plan to provide another innovative tool to help address this gap with the upstream rollout of IAA total loss predictor, designed to enable dynamic vehicle routing and is expected to deliver meaningful cost savings and operational efficiencies for our partners. While this initiative will take time to scale, we view it as a foundational capability that will strengthen partner economics and increase our long-term stickiness. Turning to the commercial construction and transportation sector. Our growth strategy continued to deliver with GTV increasing 10% year-over-year, excluding the impact of Yellow Corporation bankruptcy. We remain cautiously optimistic as seller confidence shows early signs of improvement, supported by stabilizing used equipment values, lower interest rates and continued strength in mega projects and civil infrastructure. Our strategic initiatives are laying the foundation for sustained long-term growth. A key element of the strategy is to seek to offer solutions for every customer's disposition need. In response to growing customer demand, we are expanding our international channels by launching a new reserved auction format on rbauction.com. Reserved auctions are designed to provide sellers greater control over price realization by guaranteeing minimum value thresholds while maintaining flexibility to optimize liquidity. This format helps to enable sellers to manage time to liquidity. And if liquidity is wanted sooner, assets can be transitioned into our unreserved channel. As we look toward 2026, we are also focused on continuing to improve our territory manager productivity. We recently launched AI-enabled role plan, essentially a flight simulator for customer conversations. Territory managers, whether new or tenured, can now practice value messaging and channel and product knowledge with an AI consignor, receive immediate scoring and coaching and track team-level progress. This capability is expected to provide a scalable, cost-efficient way to standardize best practices, accelerate new hire ramp and enhance conversation. I will now pass the call to Eric to review the financials and provide our 2026 outlook. Eric Guerin: Thanks, Jim. Total GTV increased by 4% in the fourth quarter. Automotive GTV increased 3% in the quarter, driven by a 2% rise in unit volumes. Excluding the impact of catastrophic activity in the fourth quarter of 2024, GTV and unit volumes grew approximately 12% and 8%, respectively. Unit volume growth reflected continued new wins in the sector as well as organic growth from existing partners. Throughout 2025, the inflation differential between automotive repair costs and used vehicle pricing continued to narrow, though it remained positive in the fourth quarter. This dynamic continues to support an increase in the total loss ratio with CCC Intelligent Solutions estimating the total loss frequency across all categories increased by 10 basis points to 24.2% compared to the prior year period. It is important to note that the last year's ratio was elevated due to various catastrophic events, making the year-over-year comparison more challenging. The average price per vehicle sold increased approximately 1% in the quarter or roughly 4%, excluding catastrophic impacts, driven by continued strength in U.S. insurance vehicles, partially offset by a higher mix of remarketed vehicles compared to the prior-year period. GTV in the commercial construction and transportation sector increased 9%. Excluding the impact of Yellow Corporation bankruptcy, GTV and unit volumes grew approximately 10% and 9%, respectively. The average price per lot sold increased primarily due to improvements in the asset mix. The favorable mix reflects the decline in lot volumes from the rental and transportation sectors, where assets typically carry lower average selling prices. For the full year, total GTV increased 2%, driven by new wins in our automotive sector, partially offset by cyclical pressure in our CC&T sector. Moving to service revenue. Service revenue increased 5% in the quarter, driven by a higher GTV and a modest increase in service revenue take rate. The service revenue take rate increased by approximately 10 basis points year-over-year to 21.4%, primarily due to a higher average buyer fee rate. For the full year, service revenue increased 4%, reflecting similar dynamics. Adjusted EBITDA increased 10% in the quarter. Growth was driven by higher GTV and take rate expansion, partially offset by a lower inventory return. Our team remains focused on managing our cost structure to maximize profit flow-through. This discipline, combined with our continued emphasis on operating efficiency, drove solid improvements in the quarter. Adjusted EBITDA as a percent of GTV expanded to 8.9%, up from 8.4% in the prior year. Full year adjusted EBITDA increased 7% on GTV growth, expansion in the service revenue take rate and higher inventory returns. Adjusted earnings per share in the fourth quarter and full year increased by 17% and 15%, respectively, driven by a higher operating income, a lower net interest expense and a lower adjusted tax rate. Our adjusted and GAAP tax rates came in below prior guidance due to additional discrete tax deductions captured in our 2024 U.S. federal tax return. Moving to our outlook for 2026. We expect full year gross transaction value to grow between 5% and 8% as we expect to continue to gain market share in 2026 across our sectors. We expect full year adjusted EBITDA between $1.47 billion and $1.53 billion, representing approximately 7% growth at the midpoint. Consistent with our strategy, we remain focused on growing service revenue and view 2026 as a year of expected volume-led growth. We will continue to execute the operational excellence program with the goal of efficiently translating incremental volume into EBITDA growth. As such, we remain focused on what is in our control, advancing cost savings initiatives, deploying technology that improves yard-level efficiency and executing against our operating model to drive productivity and operating leverage. Moving to CapEx. We currently expect full year capital expenditures, which includes PP&E, net of proceeds and additions to intangible assets to be between $350 million and $400 million. We also expect our full year 2026 GAAP and adjusted tax rate to be between 23% and 25%. With that, let's open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Sabahat Khan with RBC Capital Markets. Sabahat Khan: Just the first question on the 2026 guidance and the commentary that you shared around market share capture. Can you just maybe elaborate on, are those just the annualization -- are those comments around the annualization of wins you've already announced on the IAA side? Is that expected gains that maybe you haven't announced publicly? Maybe you can just shed some light on sort of the market share commentary reflected in your '26 outlook. Eric Guerin: Yes. Thanks for the question. As Jim had mentioned in his prepared remarks, we've signed with one of our large carriers and have reached agreement in principle. So that is including all of the information that we have in front of us today is included in my guidance. So that would include, yes, run rate year-over-year and any additional terms that we have agreement to. Sabahat Khan: Great. And then just, I guess, on the sort of the flow-through of the GTV to revenue, if you can maybe just talk to -- I know the GSA went from -- last year had a different take rate structure. But maybe you can just help us think through how we should think about this 5% to 8% GTV flow-through to revenue? And sort of are you able to sort of just comment directionally on how that could shake out for the rest of the year? Eric Guerin: Yes. I think what we're going to see is a little bit of pressure on the take rate, but we're really happy with the unit economics that we described with the GSA contract. I think Australia, we're really happy how that's progressing, but that profile is a little bit different. So as I said in my prepared remarks, we're really focused on making sure that the unit economics fit into our model and driving volume. So we may see a little bit of pressure on the take rate percentage, but again, from a unit perspective, we are very pleased with the direction we're going in 2026. Operator: Your next question comes from the line of Gary Prestopino with Barrington. Gary Prestopino: Jim, a couple of questions here. In the CCT sector, you said you're seeing early signs of improvement. Could you maybe give us some idea, a little more granularity on that comment? James Kessler: Yes. Look, I'll just start with -- this is still hard to decipher. We're in such a unique environment with tariffs and interest rates and everything that has been going on externally, but we are starting to see our partners talk in a different manner than they have in the past, what gets us excited about what it could mean in the future. But we're still in early stages to really know are we getting back to a normalized cycle that we haven't had since 5 years ago. But we're starting to hear different conversations than what we had over the last 2 years, and you can kind of see in the third and fourth quarter, some momentum going in our favor. Gary Prestopino: Okay. And then second question was on the salvage side. You talked about you're rolling out a new product or service, a total loss predictor. Could you maybe elaborate a little bit on that? James Kessler: Yes. The one thing that we've been working with our partners, and we call it the ultimate way to get efficient is if you think about a car gets in an accident, and at the scene of accident, the ability to be able to get that car to either a repair facility or a salvage yard using our predictor, which is in the high 90s of being able to do it with the four-corner picture of a car. If you do that, you cut out a lot of expense, storage, rental car fees, everything else that goes along with it. So that's where our partners are focused and that's where our -- and we're using AI to really help us innovate in this area. And at this point, we've tested the predictor multiple times and multiple different partners, and we feel really confident that we have a product that we can use to really add value to our partners. Gary Prestopino: So at the point of an accident, your predictor can say, okay, this car is totaled... James Kessler: Yes. The great thing is, look -- you got it. At the point of an accident, we can do it. Also, if it goes to a collision center by mistake, we could do it at the collision center and they don't have to do a teardown, right, which adds -- takes away value for the car. We can do it there. We can do it at a storage yard. So the great thing is it constantly can be used in multiple different areas. But the place where you get the most value is at scene of accident. Operator: Your next question comes from Krista Friesen of CIBC. Krista Friesen: Congrats on the quarter. Maybe just to follow up on the last question as an example. So you've developed this AI internally. Are you seeing maybe your customers, the insurance companies develop this sort of AI as well or even just new entrants into the business? And I guess, kind of more broadly, I'm just trying to get at what you're seeing in terms of AI from competitors and/or clients? James Kessler: Yes. Look, I think the one thing when you think about the range of insurance carriers from the #1 in terms of how many people they have under-insured to a smaller insurance carrier, everyone has a different capability of where they invest capital and where they have a need, right? So you might have some of the biggest insurance carriers that want to build their own tech, and what we would do is plug into that, right? They need to know to be able to do the calculation what is the auction value and we can easily plug in through APIs to their technology. And think about medium-sized to smaller carriers that are looking for an end-to-end solution, we can provide that whole solution for them. So I think there's going to be a different range of how people partner. I can see us with a lot of different third parties and towers, right, that necessarily might not be under our control. That could be a third party that an insurance carrier uses where we plug into their APIs. So what we're really focused on is we know there is a big effort for our partners to be able to reduce advanced charges, and how do we play a role in that. In some cases, that could be our technology. In other cases, we're plugging in an API and providing a piece of the puzzle that they need to be able to make that correct decision. So we're open to all the above. And what we're really trying to do is listen to our partners and what are their needs and how do we plug in and add value when we can. Krista Friesen: That's really great color. And then maybe just my follow-up. Just on the CapEx guide. Are you able to give us maybe a little bit more of a breakdown as to maybe what -- how much is going into these investments on the kind of ancillary services versus your other calls on capital? Eric Guerin: Yes. I think the breakdown I can share is, what we've typically spent and I think this is about the mix for '26 is about 1/3 on technology related and 2/3 related to traditional PP&E, whether that be land or other types of physical assets that we'd be acquiring. So it's a 2/3, 1/3 mix on capital. Operator: Your next question comes from Steven Hansen with Raymond James. Steven Hansen: Just a point of clarification first. The new multiyear contract that you described, [ the MOU, ] just to clarify, those are renewals and not incremental volume from existing customers? Or do you anticipate growing scope with those contract renewals? James Kessler: Yes. Let me start, and Eric, feel free to jump in. So they are renewals. And look, I'm not going to get into specific contracts, but I'm just going to reiterate what Eric said in the beginning. Our expectation is that we're going to be able to continue to gain share in that, which means our expectation is that we're going to get incremental cars as we proceed going through it. Eric, do you have any... Eric Guerin: No, I think that's where we are. Our expectation is we will gain incremental share related to the volume and contracts that we're working through. James Kessler: Yes. And Steven, just to make sure we're clear, we think we're well positioned to grow faster than the market in '26. It's probably the easiest way of saying it. Steven Hansen: Okay. That's fair. That's actually quite helpful. Just want to circle back as a follow-up here on the cost to serve and the services gross margin, quite an improvement in the period. Do you want to maybe just give us a sense for what's driving some of that? And how you feel like your cost structure has evolved here recently? I know you took a ton of cost out through the back half of last year. But just trying to get a sense for how should we expect that going forward? Eric Guerin: Yes. I think what I would point to is Jim and I have been really focused and clear on, our expectation is that the business is going to continue to create operating leverage, and that is where we continue to focus. So whether that be in the ops model that we described earlier in 2025, whether that be in how do we become more efficient in our yards, we'll just continue -- where we can improve on SG&A and how do we ramp our sales reps faster or our territory managers faster, as Jim described in his prepared remarks, we capture GTV sooner. So we just continue to look for opportunities to optimize across the full P&L. And that is just our ongoing operations. It's not a project, it doesn't have an end. It's really evergreen, and that's just how we approach the business. James Kessler: And I think just to make sure for the group that we're being very clear of something that we're never going to stop as long as this management team is in place, we are going to be looking for ways to consistently grow our top line, we are going to be looking at how do we drive incremental margins to our business and how do we do it in the most efficient way when you think about SG&A and expenses and how we manage that. Like that process is never going to stop, right? So we're constantly going to strive to over-deliver on what I just mentioned. And then, of course, as we think about capital, we want to make sure we get the highest return we can if we're spending capital on anything. And I think the great thing is, over the last 2 years, for Eric and I and the leadership team, we've built this culture. And now it's starting to get ingrained in everything we do. But I just want to make sure these aren't onetime things, right? These are things of focus, a philosophy and a culture that we've built that's starting to really get ingrained inside the organization. Operator: Your next question comes from Michael Feniger with Bank of America. Michael Feniger: You guys generated nearly $1 billion of cash from ops this year. You touched on the CapEx side of how you're thinking 2026. Just curious, Eric, if there's anything we should be aware of in terms of the conversion rate for cash flow from EBITDA this year? And I know you talked about in terms of how you're thinking about allocating capital for the best returns. I'm just kind of curious how you guys are thinking about with the volatility in the shares at times, if there's a share repurchase program or maybe a more formal program around that, given some of the volatility there and that you guys have this favorable outlook in the next few years of share gains and a good backdrop. Eric Guerin: Yes. Thanks for the question. As you know, we ongoing look at our capital allocation strategy. We'll continue to look at opportunities from paying down our debt, which we've continued to do, I think we ended the quarter at 1.4x net debt-to-adjusted EBITDA; invest in the business, as you described, on capital; look at tuck-in acquisitions and opportunities there like we've done with the Smith Broughton that we just closed and some of -- the J.M. Wood that we did early in the year. So we'll continue to do that and focus on dividends as well. We also look at, as you're alluding to, what's the right time to have an authorization in place, and we review that with the Board on a quarterly basis and at the appropriate time, when that makes sense, we'll continue to evaluate that. And if it does make sense, we would put that in place to deploy that capital in the way. Michael Feniger: And Jim, I'm kind of curious, when you think of autonomous vehicles, is this becoming more and more in the conversation. Just how do you guys think big picture about autonomous vehicles? When you think of the dynamics of the market, [ like ] salvage, your own competitive moat and some of your physical assets. Just kind of curious if you can touch on that as it seems like every couple of quarters, we hear more about autonomous vehicles being part of the auto market. James Kessler: Yes. No, no. It's a great question. And look, I just want to start to remind everyone with my background. So I've been either in rideshare, collision, salvage. So I have been probably for over 10 years dealing with the similar question in different markets. So look, we don't see any near-term risk. Long-term safety features such as ADAS, autonomous vehicles, look, it could reduce collision rates and vehicle ownership. But it's too early to speculate on first and second order impacts. What's certain today is there are over 600 million vehicles on the road in between North America and Europe. And I look at it, we are well positioned to remain a critical player in a salvage vehicle market when I think about this. So that's really how I look at it. And look, I've been -- this question has been coming up for over 10 years. And I think we just stated our position. Michael Feniger: Great. And just lastly, just to squeeze one more in. I mean, you guys reported 4% GTV growth and 10% EBITDA growth. So we all saw the flow-through there. And just to understand the puts and takes. I know you guys walked through this. You guys are investing for growth. In a normal environment, is a 50% to 60% flow-through the right sense on an auction basis? Is '26 maybe a bigger increase in investment for you guys for the long term? Or is that just going to kind of be a continual thing in '26, '27? Just kind of trying to get a sense of the investments and how we should think about the flow-through there. James Kessler: Yes, yes. So let me just start with philosophy first, right? And I'll let Eric speak to numbers. So he'll handle that part. But look, whatever our flow-through is, the one commitment I have, as a management team, we're never going to stop how do we improve it. Like nothing is ever going to be good enough. And I'm never going to put a limit on what it could be, right? Obviously, there's one number that's the highest number it could ever be, right, which is 100. But look, the way I look at this, our job as a management team is how do we constantly improve that and continue to grow it. And look, as the world evolves, it's constantly going to evolve what strategies we use of how do we do it. But for me and my team, we -- our philosophy is it's never good enough, right? We'll constantly looking for ways, and I'll let Eric speak to actual numbers at this point. Eric Guerin: Yes. I think the way I would look at it is, as Jim described, look, we're going to continue to look to optimize the P&L, but we're also going to make sure that we are looking at it long term. So there are opportunities as we go into '26 that we will make some investments in the business and then the flow-through will be a little bit later in the year. I would give you an example of Australia, like we said, in '25, right? We do the investment a little ahead of time and then you start to see the flow-through. So I would say, longer term, I'm fully aligned, obviously, with Jim, that we will optimize the P&L, but we will not do things that are shortsighted, that will impact our customer experience or not enable us to grow. So I think that's what you're seeing a little bit in '26 as we're doing some of these investments, and we'll continue to focus on driving top line growth and making the P&L as efficient as possible. Operator: Your next question comes from the line of Maxim Sytchev with NBCM. Maxim Sytchev: Jim, I was wondering if you don't mind just commenting a little bit more around the repair versus scrap. Maybe not a debate, but any puts and takes there, especially as used cars inflation appears to slow down. Maybe any commentary there would be super helpful. James Kessler: Look, Max, just want to clarify. Look, I'm not going to speak to the collision space and repairable space. I think that's up to someone else to do. But just give me a little bit more color that you would want on our space specifically, I'm happy to give it. Maxim Sytchev: No. Just in terms of sort of the overall trends, I mean, we discussed this in the past around the weight of vehicles, et cetera. So it doesn't seem there's be -- any incremental changes from that perspective, right? James Kessler: No, no, no. I'll pass that to Sameer. Sameer Rathod: Yes. Max, great question. I think if you look at the recent data, as Eric noted in his prepared remarks, that spread between cost of repair inflation versus used car vehicles was narrowing throughout 2025. But I think if I look at the most recent data, that started to go the other way, which we see favorable for the total loss ratio to expand. I think in terms of longer-term drivers of salvage, I think we've discussed the average vehicle is getting heavier, there's dynamics around that, amongst other things that could continue to drive that loss ratio higher. So I would say no changes structurally, if anything, incrementally looking a little better. Maxim Sytchev: Okay. Great. And then just in terms of the reserve auction channel for international buyers and sellers. Jim, do you mind maybe commenting in terms of how big of an opportunity that could be down the line? James Kessler: Yes. Look, when we look at certain countries, one of the disadvantages on the Ritchie side that we have, and I'll take Germany and the Nordics, specifically, they typically operate in a reserve model, and we're typically an unreserved model. So it limits our ability to go out and get market share. So what I'm really happy with, we're really giving the tools to our territory managers now to go out and really press to get market share. But it's a country-by-country thing of culture and what they're used to and how they go to market. But look, some of the biggest countries in Europe, in the Nordics and Germany typically operate in this reserve model. And look, as we go into different cultures and countries, it's easier for a consignor and a seller to get used to a reserve model with a little bit of a backstop and then jump into an unreserved model. So we're just really happy to be able to now give our territory managers everything they need to compete. Operator: Your next question comes from John Gibson with BMO Capital Markets. John Gibson: Just wondering what did you see for total volumes across the auto salvage business for you and your peers, particularly given the lack of cat events in 2025? And then what is your outlook for total salvage volumes that's incorporated into your 2026 expectations? Eric Guerin: Yes. We haven't -- we don't break down our guide to that level of detail. I think from our perspective, our point of view is we are going to continue to gain share and grow faster than the market. And I think that was in Jim's prepared remarks as well as mine. So that's our outlook from a salvage perspective. Sameer Rathod: Yes, John, I would just add, if you look at our financials, we give you total unit volumes in automotive. So that gives you some sense. So we don't provide disclosure beyond that. John Gibson: Great. Congrats on the quarter. Operator: Your next question comes from the line of John Healy with Northcoast Research. John Healy: Kind of wanted to go and reverse a little bit. We were talking AI earlier in the call. I think this time last week was probably when the marketplace stock started getting people concerned that they could be AI casualties. So Jim, I would just love to get your thoughts just high level, do you see AI as more of a friend or a foe to the business? Obviously, there will be positives there will be negatives I'm sure. But could you just get to maybe an overarching view, how you and the Board are thinking about it? What kind of safeguards or evolution you're making maybe beyond just some of the tools that insurers can use to ultimately expedite their decision to total-out or repair a vehicle? James Kessler: Great question and happy to do it. Look, when I think about AI. I think our advantage is really built on scaled and trusted execution that AI can't really easily replicate. Our physical infrastructure, the embedded workflows that we have with each and every partner, the full scale of the transaction ecosystem that we built over 70 years, the data that we have, that is our [ proprietary ] data all working together to drive this experience of bringing buyers and sellers together and the outcomes that we produce for our partners, I think it's just going to be really hard for AI alone to be able to disrupt that. But look, we've long viewed technology as an enabler for us. We use innovation to improve our customer experience, how we add value, increase productivity for our teams, it's really helping us drive operational efficiencies, right, where we don't have to add a person every single time. We do believe AI will change how work gets done. And -- but it won't change like who ultimately wins in this space, right? But look, we think there's good that comes with AI. But when we think about our business getting disrupted, we think we have a lot of things like I already mentioned that enable us to use AI as an enabler and not affect our business. John Healy: Great. And just one follow-up question to that. When I think about the assets of the salvage side, in particular, as well as the CC&T business, I mean, to me, the biggest assets are your real estate, your brand and just the reach of your customer knowing you. So when you look at AI, the piece that I think I get most curious about is real estate. Does this evolution have the potential to change the way cycle times work in the industry? And do you think either business has vulnerability to it from a real estate standpoint, meaning that you would potentially need less real estate going forward. And does that maybe open the door to competition? So I'd just love to get your thoughts on AI and the angle of real estate as well. James Kessler: Well, John, look, I'll just give you an example. I am down here in Orlando this week for our big event. We have 200 acres that is completely full with equipment right now that we've had to inspect, take care of, manage. We have people walking our yards to look at this equipment. They're about to spend a ton of money on this equipment, $200,000, $400,000. I don't think AI is going to be able to disrupt that as we go. But I do think AI can help us turn inventory quicker in our sites, which we -- which we're using today to do that. If you look at the IAA side, we've actually opened up some capacity that we can use for other productive things and how we monetize the business. So we're going to use it to become more efficient. But look, when I'm sitting here in Orlando today, it's hard for me to get my mind wrapped around how AI is going to disrupt what I'm looking at right now. Operator: There are no further questions at this time. I will now turn the call back to Jim Kessler for closing remarks. James Kessler: Thank you so much. Just in closing, I want to thank our RB Global team around the world for their disciplined execution and ongoing commitment, which continue to drive our performance and momentum. We are well positioned for the opportunities ahead and remain focused on executing our strategy, delivering on our commitments and creating long-term value -- shareholder value. Thank you for your continued support and interest in RB Global and talk to everyone soon. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Thank you for standing by, and welcome to the DEXUS HY '26 Results Briefing. [Operator Instructions] There will be a presentation followed by a question-and-answer session. I would now like to hand the conference over to Ross Du Vernet, Group CEO and Managing Director. Please go ahead. Ross Du Vernet: Well, good morning, everyone, and thanks for joining us for our half year 2026 results presentation. I'd like to begin today by acknowledging the traditional custodians of the lands and waterways upon which we operate and pay our respects to elders past and present. Today, you'll hear from Keir on the financials, Andy on office, Chris on Industrial and Michael on Funds Management. Concluding the presentation, I'll provide a summary and open up to any questions that you may have. DEXUS is a unique investment proposition in the Australasian real asset market. Today, we manage $51 billion of assets across our platform with third-party funds under management at 2.4x our investment portfolio. We have scale and diversity across the real asset spectrum, $20 billion in office and around $10 billion in each industrial, retail and growth markets, which includes infrastructure, health care and alternatives. This scale is underpinned by our multidisciplinary team with deep expertise across each sector. Importantly, we have access to diverse pools of equity capital, which positions us well to capitalize on opportunities through the cycle. Our strategy is unchanged and our vision to be globally recognized as Australasia's leading real asset manager continues to guide our decisions. The strategy targets large growing markets, leveraging our multi-sector strengths in transacting, managing and developing across each. Our high-quality balance sheet portfolio, together with a large diversified funds management business continues to differentiate us. Today, the investment portfolio is anchored by prime office exposure across Australia's major CBDs. Over time, the investment portfolio will continue to become more diversified by investing alongside capital partners into a diverse range of opportunities. Our culture, the quality and scale of the portfolio and projects we have underway, coupled with our approach to people, enable us to attract, retain and develop leading talent to ultimately create value for customers, clients and you, our investors. Turning to our results. We delivered AFFO of $253 million and distributions per security of $0.193. This was the second consecutive six-month period of positive property portfolio valuations, which supported the delivery of a statutory net profit and an increase in NTA to $8.95 per security. Our office leasing volumes were almost double that of levels achieved in the prior corresponding half, including further progress at Waterfront in Brisbane, which is now 71% pre-leased and will deliver a premium product in the strong Brisbane office market. Our industrial portfolio, as we expected, delivered strong like-for-like growth and re-leasing spreads. We undertook $800 million of divestments for the balance sheet, including the recently agreed divestment of 100 Mount Street in North Sydney. If we turn to the funds business, we continue to work through some fund-specific matters while positioning the business for long-term success. Our flagship funds continue to outperform, DWPF outperforming its benchmark across all time periods, while DWSF, the Shopping Center Fund has outperformed since joining the platform. We raised over $950 million of equity, comprised $640 million of new equity commitments and the facilitation of more than $280 million in secondary unit transactions. We established a new fund series. We closed DREP2 above its initial target, and we continue to rationalize subscale funds to simplify the platform. In August, I outlined our action items for FY '26, aligned to our three strategic priority areas of transitioning the balance sheet, maximizing the contribution of the funds business and unlocking our deep sector expertise. In addition to the progress I mentioned on the previous slide, key development milestones were achieved at Waterfront in Brisbane. The DEXUS office and industrial portfolios delivered positive total returns over the 12-month period. And DEXUS has now secured $1.4 billion of divestments since 30 June 2024, progressing well towards our $2 billion target. We invested $170 million of seed capital into DSIT1, a new fund series, which we aim to reduce to $50 million during the year. We've reduced the real estate redemption queue by $1 billion. And post the APAC court date scheduled for April this year, we expect to make more progress on solving infrastructure redemptions. Overall, we've made solid progress and remain focused on the priorities that will position the business for long-term success. Our sustainability strategy focuses on three priority areas where we can make the greatest impact across climate action, customer prosperity and enhancing communities. Sustainability remains core to how we operate, and we continue to receive global recognition for our performance. Thank you, and I'll now pass you over to Keir. Keir Barnes: Thanks, Ross, and good morning, everyone. Turning to the results in detail. In line with expectations, total AFFO was $253 million, with a distribution of $0.193 per security, reflecting a payout ratio of 82%. Office FFO reduced primarily due to divestments and lower average occupancy, partly offset by contracted rent increases. Industrial portfolio income increased due to higher occupancy, development completions and contracted rent increases, partly offset by divestments. FFO from management operations decreased due to lower FUM as a result of divestments and slightly lower performance fees, with $19 million realized in the first half and $16 million secured for the second half. Finance costs were broadly flat with a higher cost of debt offset by higher interest income. As expected, trading profits were higher with the sale of Brookhollow, Chester Hill and continuing construction at Prestons, securing FY '26 guidance. Maintenance and leasing CapEx is skewed to the first half of the year, mainly due to the impact of incentives on deals secured in prior periods as well as the timing of maintenance CapEx. Looking ahead to FY '27, performance fees and trading profits are expected to be materially lower than FY '26. It has been positive to see the second six-month period of valuation growth across the office and industrial portfolios. Overall, for the six months to 31 December, the portfolio increased by 1%. Capitalization rates have stabilized with the valuation movement predominantly driven by rental growth. Our office portfolio, which is 77% weighted to core CBD markets increased by 0.7% and our industrial portfolio, which is 90% weighted to core industrial estates and distribution centers increased by 1.6%. Pleasingly, these outcomes demonstrate the quality of the portfolio. Moving to capital management. Our balance sheet remains solid with look-through gearing towards the lower end of the 30% to 40% target range, providing capacity to fund committed expenditure. During the half, we issued $500 million of subordinated notes at attractive rates and diversifying our funding sources. We have been active with refinancing, resulting in a weighted average debt maturity of 4.6 years, $2.5 billion of headroom and manageable near-term debt maturities. 95% of our debt was hedged during the half at an average rate of 2.9%, providing material interest rate protection. Looking forward, there's $1.2 billion of remaining spend on the committed development pipeline over the next four years, with $360 million expected to be incurred in the second half of FY '26. Thank you, and I'll now hand over to Andy. Andy Collins: Thanks, Keir, and good morning, everyone. I'll now take you through the performance of our office portfolio. We continue to own and manage the best office portfolio in Australia. Over the past five years, we have enhanced the quality and resilience of our portfolio. And as a consequence, we are well positioned to benefit from the market recovery that is now underway. Location remains a key differentiator, demonstrated by our portfolio occupancy of 92.2%, which remains well above the market average. Our average incentives of 29% are below market, reflecting the quality of our portfolio and notably, leasing deals done in Perth, Brisbane and North Sydney, where market incentives remain elevated. The effective like-for-like income decline of 2.3% primarily reflects downtime on select vacancies, including 80 Collins Street and 30 Hickson Road, and we expect this to improve into the full year. Our leasing activity was strong this half with leasing volumes of over 95,000 square meters, almost double the volumes achieved in the prior corresponding period. The portfolio delivered a one-year total return of 5.7% at December, reflecting the improved market conditions. Looking at our expiry profile, we aim to have no more than 13% of the portfolio expire in any single year. FY '27 expiries have improved to 12.3% following the recent divestment of 100 Mount Street with key expiries remaining in Australia Square and 385 Bourke Street. We remain focused on addressing the more challenging vacancies at 80 Collins Street in Melbourne, which represents 2.2% of portfolio income and 30 Hickson Road in Sydney's Western Corridor at 1.5% of income. While there is no conclusive answer regarding the potential impact of AI on office markets, we believe different parts of the workforce are likely to be affected unevenly. Our view is that high-value professional work, the kind concentrated in premium CBD buildings, reflecting the majority of our portfolio will be the most resilient to AI replacement risk and may even benefit and grow. We frequently monitor our customer base, which is well diversified with an average tenancy size of 1,000 square meters and our top 10 customers account for just 20% of our total property portfolio income. The staggered expiry profile, combined with our diversified tenant base, supports resilient income streams across the portfolio. Our development pipeline provides the opportunity to further enhance portfolio quality. Construction is progressing at Atlassian Central in Sydney with completion on schedule for late 2026. This development is 100% pre-leased on a 15-year lease with 4% per annum fixed increases in what is now an improving Sydney market. At Waterfront Brisbane, we have achieved an important development milestone with the Riverwalk opening earlier this month and the vertical structure coming out of the ground. The Brisbane market continues to strengthen with a positive outlook over the medium term. Pleasingly, Waterfront is now 71% pre-leased with the recent leasing deal reflecting a 40% improvement in net effective rent compared to the previous Waterfront deal struck two years ago. In aggregate, 83% of the committed development book is pre-leased with contracted 3.7% average fixed increases per annum, providing a secure income stream once complete. We have fixed price contracts in place with Tier 1 contractors with material collateral and security arrangements to protect against construction risk. A very high threshold applies to projects in our uncommitted development pipeline and Central Place Sydney has moved out of our uncommitted pipeline as the scheme is reconsidered. Turning to the office outlook. The evidence continues to suggest that we have passed the bottom of the cycle and are now in the early stages of a recovery. Office demand continues to gain momentum, driven by employment growth, return to work mandates and centralization trends. Net absorption has been positive across all four major CBDs with the strongest absorption in premium grade assets, which is exactly where our portfolio is positioned. Sublease space has continued to reduce and is now close to average levels. Importantly, upcoming office supply is low relative to long-term averages. This provides scope for vacancy rates to fall and rents to grow. Within our own portfolio, we are seeing examples of 15% net effective rent growth on comparable lease deals struck 12 months apart. Looking at our rental growth expectations over the next three years, we expect strong growth across all major markets with Brisbane and Sydney Premium leading the way, followed by solid growth in Sydney A-grade, Melbourne Premium and Perth. The Sydney CBD core is now 95% occupied with DEXUS at 98%. With the seven-year delay in new supply, there is meaningful upside to the Sydney premium forecast. DEXUS is well positioned to capture this upswing given our portfolio quality and location in core precincts of the major CBDs. Thank you. I'll now hand you over to Chris. Chris Mackenzie: Thanks, Andy, and good morning, everyone. Our industrial portfolio has delivered a strong result, including a one-year total return of 8.8%. Occupancy by income increased to 97% following leasing success across Sydney, Melbourne and Perth, which also resulted in like-for-like income strengthening to 8.7% as expected. Occupancy by area of 97.5% remains above the national average. We achieved strong re-leasing spreads of 33% across the stabilized portfolio. Average incentives increased to 21.5%, primarily driven by lease-up of key expiries in Melbourne's West and Sydney's Outer West. The portfolio is 8.9% under-rented and 20% is set to access rental reversion upon expiry by FY '27. On developments, we completed 102,000 square meters during the period, with construction continuing across a further 110,000 square meters. We leased 63,000 square meters across 10 development deals and 68% of our committed development book is now pre-leased with contracted annual increases of around 3%. Moving to our expiry profile. We have leased 24% of the portfolio over the past 18 months, derisking the expiry profile and capturing strong re-leasing spreads. We remain focused on leasing key vacancies at Matraville, which has now been repositioned along with Gillman. And we are in active discussions with potential tenants on both of these properties. The vacancies we have experienced over the past 18 months have been in older stock in New South Wales and Victoria. And pleasingly, we have achieved strong re-leasing results. Looking forward, 80% of our FY '27 expiries are represented by younger prime assets and provide the opportunity for positive reversion. Turning to the outlook. Supply under construction has moderated and remains at or below historic average take-up in all markets, while the picture for demand remains supported by strong Australian population growth, enhanced by e-commerce growth. Our portfolio with its focus on core industrial estates in strategic locations is well positioned to benefit from these trends. Thank you. I'll now hand over to Michael. Michael Sheffield: Thanks, Chris, and good morning, everyone. Our funds business manages $36 billion in third-party capital across a diverse range of real asset strategies for more than 150 institutional clients with retail and wholesale investors. We've maintained prudent capital structures across our pooled funds with average gearing remaining conservative at around 32%. We have both returned capital and raised equity in existing and new products, but the near-term revenue impact of providing liquidity is still working its way through. While there is more to do, we are positioning ourselves to capture the strong expected growth in pension capital over the medium term. Last year, we launched a new investment series focused on high-quality assets for long-term value creation, with the first fund in the series securing a 25% interest in Westfield Chermside. Offshore capital, particularly from Asia, is increasingly interested in Australian real estate with the office sector also seeing renewed interest. In the six months to December, we've reduced the real estate redemption queue by around $1 billion, and we continue to rationalize subscale funds. We expect to make further progress on infrastructure redemptions post the APAC court case scheduled for April 2026 with mediation to occur in March '26. We raised over $950 million in third-party equity, including facilitating more than $280 million in secondary unit transactions. DWPF continues to outperform its benchmark across all time periods, outperforming by circa 200 basis points for the 12 months to 31 December. This highlights the quality of the underlying portfolio and our active management approach. And the shops fund has also outperformed its benchmark since joining the DEXUS platform. And while operating -- while the operating environment remains challenging with some continued pressure in the near term, we are steadily repositioning the business for long-term scalability and growth. Thank you, and I'll now hand you back to Ross. Ross Du Vernet: Thanks, Michael. Underlying real estate markets continue to improve, supported by positive business confidence, constrained supply pipelines, stabilization in asset prices and improvement in transaction volumes. Barring unforeseen circumstances for the 12 months ending 30 June 2026, we reaffirm our expectations for AFFO of $0.445 to $0.455 per security and distributions of $0.37 per security. With valuations turning positive, transaction and fundraising markets recovering, our confidence in the long-term fundamentals of the business have strengthened. We are actively exploring opportunities to enhance returns and capital efficiency by increasing third-party capital participation in the $13 billion property portfolio. This would release capital in addition to the $2 billion divestment target. With the sustained disconnect between our equity market valuation and that of our underlying assets and businesses, we have activated an on-market securities buyback of up to 10% of DEXUS securities. We will execute the buyback at a pace consistent with maintaining balance sheet discipline as we progress asset sales and other initiatives to release capital. Thank you. That ends the formal part of today's presentation. I'll now take any questions that you may have. Operator: [Operator Instructions] The first question today comes from Adam West from JPMorgan. Adam West: I guess my first question today is just on the Atlassian development. I'm just wondering if you progressed any plans for a partial sell-down -- full sell-down of that asset? Ross Du Vernet: Adam, thanks for your question. This is certainly an asset that we have flagged that we'll be looking to introduce third-party capital into. I think we've been pretty consistent with the market that we think the best time for that is closer to practical completion. That is slated for the end of the year. We think it's a great investment product, 15-year lease fixed 4% increases. And so yes, that's one of the assets that we will be bringing third-party capital in over the course of the year. It might not happen before practical completion, but it will be towards the end of the year. Adam West: And I guess just my second question on the office portfolio. In terms of the core Sydney CBD portfolio in particular, I'm just wondering if you could talk to how much under-renting would potentially be in that segment. Ross Du Vernet: Andy, that's one for you. Andy Collins: Yes. No problem. Adam. So look, re-leasing spreads were positive in all of the CBDs, including Sydney CBD. And so re-leasing spreads obviously impact the extent to which the portfolio is over and under-rented. We're seeing a pattern of better effective re-leasing spreads driving or reducing the extent to which the portfolio is over-rented on an effective basis. And so the portfolio generally is around 7.5% over-rented on an effective basis. That's come in from 12.5% 12 months ago. And it's about 4.5% under-rented on a face basis, which is pretty stable with 12 months ago. Operator: The next question comes from Cody Shield from UBS. Cody Shield: Just firstly, on the buyback. My understanding was that you need to do more than $2 billion of divestments to get the buyback away. Is that still the case? Or are you sticking with that $2 billion target? Ross Du Vernet: I think we're very resolved around the $2 billion target. And I think what we're flagging is we see real value in the security price where it's trading. We instituted a pretty disciplined capital allocation framework when I stepped into the chair. Dare I say that has regard to the return on the investments we already have and also marginal uses of capital. So we are definitely resolved we're going to get through that $2 billion target. And as I have shared in my concluding remarks, we are actively looking at bringing third-party capital into the $13 billion investment portfolio. That has the potential to release a significant amount of capital. And certainly, given where we're trading today, the buyback would be a really good use of that. Cody Shield: Okay. That's clear. And then just turning to the leasing at Waterfront, looks like a good outcome. Just wondering whether there's some flex in that 5% to 6% yield on cost that you're targeting? Ross Du Vernet: I think I've been pretty clear. I always kind of think we're going to be at the higher end of that range, and there's always scope for us to outperform. We're really pleased. We have great belief in that product. I think that is validated and the strategy of the team to be kind of patient and wait for the market to come to us on the leasing there. So I think that's a tremendous validation of the product and the leasing strategy from Andy and the team. I would also kind of just flag that even at that yield on cost, we're going to be materially under-rented in that asset just given how much the market has moved. So I think there's going to be a great ultimate return for our security holders and DWPF, which is our co-investor there. And yes, I would like to kind of see the team surprise on the upside. Operator: The next question comes from Simon Chan from Morgan Stanley. Simon Chan: My first question relates to the buyback. guys. How much of the buyback do you think you'll actually do in the second half of fiscal year '26? And if you are genuine about kicking off the buyback in the second half of fiscal year '26, I would have thought there's scope for you to change your earnings guidance for the year because you're buying back stock at essentially 10% earnings yield and your cost of debt is 5%. Ross Du Vernet: So maybe I'll take the question in two parts. Are we serious about the buyback? The short answer is yes. I think it's not just a statement of intent, but we see real value in the company where it's trading. We see a disconnect. We have a very high-quality portfolio. Valuations have troughed. We see valuations moving north from here. And I think the market is fixated on maybe EPS growth and some noise in the business, be that developments or litigation, those sorts of things. So we see good value at the current level. We need to make sure that as we're executing that buyback, we're doing it in a disciplined way that we have regard to the balance sheet strength, which is really important to us. But I think I am getting more confident around the transaction market. It is improving. And certainly, I think bringing third-party capital into the platform and the confidence we have in doing that, there is scope for us to release a lot of capital. And as I said in previous responses, I think the buyback is a really good use of capital at current levels. So I can't predict where the stock price is going to be in three months' time, and we're not going to put that into guidance. But certainly, at current -- trading at current levels, if we can be more active on capital recycling, I think you're going to see us being very active. Simon Chan: Okay. Fair enough. My second question, in Slide 17, and I think Andy Collins might have touched on this. That's that last bullet point, high threshold to commence new development projects. I think he referred to that after talking about scrapping central place. What's your new threshold now? Like are you going to have a -- have you guys done the review and have settled on a high yield on cost hurdle before you kick anything off? Can you talk to that, please? Ross Du Vernet: I would say coming back to our capital allocation framework, this is something that is constantly assessed. And when we kind of look at alternative uses of capital, including things like a buyback, which we've announced today, there is a very high threshold for us to start new projects. So that's not to say that we're not going to do it, but where we do it, it needs to be capital efficient. We need positive economics from the management enterprise, and we need to believe that the underlying projects are going to deliver really good risk-adjusted returns. So -- that's how we... Simon Chan: I get that Ross. But previously, Central Place was -- you were guiding to, I think, 5% to 6% yield on cost and you've now scrapped it. So can I assume that 5% to 6% no longer custom? Ross Du Vernet: I think that's probably fair to say 5% to 6% yield on cost kind of depending on where cap rates are is a pretty skinny development margin. So that's not a good use of shareholder capital, and we won't be committing projects on that basis. Operator: The next question comes from Andrew Dodds from Jefferies. Andrew Dodds: In the remarks, you noted that $1 billion of real estate redemptions were satisfied in the period. I'd just be interested to hear where that redemption backlog is sitting today. I think it was around $3 billion back in the August results. Michael Sheffield: Andrew. Yes, redemptions are around about $2 billion. We satisfied about $1.5 billion during the half year period. And they're now around evenly spread between real estate and the infrastructure exposures. And infrastructure will obviously be dealt with in line with the APAC court case resolution, which isn't too far away. So our expectation is that the current redemptions will likely be dealt with within 12 months. Andrew Dodds: All right. That's a good outcome. And then just secondly, on trading profits, the expectation this year was for $40 million post tax. It looks like you have done that alone in the first half. So I guess just the expectations for the second half. And also just in FY '27, the slide on Page 59 in the presentation sort of shows pretty minimal opportunities for trading profits. So I mean, is it pretty safe to assume that there won't be any contribution in '27? Ross Du Vernet: Look, I might take the comment on '27 and Keir can talk to '26. I think what we're providing is in guidance that as we sit here today, the realization of meaningful trading profits and they have been a meaningful contributor in '26, the likelihood of that recurring in '27 at this point in time seems lower probability, and we're flagging that to the market. What I would say on trading profits is I am confident in the value creation that sits in projects that we currently have under our control and development in the trading book. I think it is just a matter of timing and the decisions that we're going to make in terms of the realization of those profits. So I think that's how I'm thinking about '27. But Keir, do you want to comment on '26? Keir Barnes: Sure. Thanks, Ross. So you are correct. The vast majority of trading profits have been realized in the first half. There will be a very immaterial amount coming through in the second half. So I wouldn't factor too much into your forecast. We're still expecting circa $41 million for the full year. Operator: The next question comes from Adam Calvetti from Bank of America. Adam Calvetti: Just on Atlassian, I mean, there's $610 million to spend, it's well above the current run rate that you've been spending CapEx at. I mean is there any financial implications if this was to be delayed? Andy Collins: Yes. So, Adam, it's Andy. So under the contract, it's a fixed price contract. We have the protections in the event of a delay. So from that respect, it's typical for a development like that. Are you -- is there more to your question from a financing perspective? Adam Calvetti: No, just any financial implications for DEXUS and then whether it's with the actual tenant, if that was to be delayed, it sounds like there's not. Andy Collins: Yes, that's correct. Adam Calvetti: Okay. And then just on office, I mean, of that 80-odd or 90,000 that you did over the half, I mean, how many tenants are expanding versus contracting in size? Andy Collins: Yes. Good question, Adam. So just like the breakdown of that leasing volume, about 20% is tenants upgrading. That's the first thing to note. About half of the tenants by area reflect renewals. That's the second thing to note. And in terms of growth, there are some great examples of tenants within the portfolio growing going from one tenant. One example is in 25 Martin Place, a financial services tenant going from one floor to two. And there are others with smaller tenants coming out of incubators, small suites moving up the curve into larger suites. And so that's about 25%. Adam Calvetti: But just to clarify that, so 20% upgrading, half are renewing and 30% are contracting? Andy Collins: I didn't say contracting, sorry, Adam. So you need to look at those proportions independently of one another. To answer your question directly, about 25% of tenants we dealt with grew. Operator: The next question comes from Ben Brayshaw from Barrenjoey. Benjamin Brayshaw: Could you just talk about the rationale for the issuance of the subordinated notes during the period, the $500 million? And could you also clarify the margin achieved on that new debt, please? Keir Barnes: Sure. Thanks for your question, Ben. So the issue of the sub-notes, I'd say that was a very prudent and opportunistic capital management initiative. It provides us with enhanced financial flexibility to pursue investment initiatives, certainly those with pretty attractive risk-adjusted returns whilst our planned capital recycling is ongoing. In terms of spreads, I mean, you'll have seen DCM spreads have narrowed and the sub-senior spread is now at historically tight margins. So the 5.25-year notes were issued at 1.75% over three-month BBSW and the 8.25 were swapped back to floating, and they reflected an initial margin of 1.85% over three-month BBSW. Benjamin Brayshaw: And will you receive equity credit from your rating agencies for those notes? Keir Barnes: That's right. We will. 50% equity credit. Benjamin Brayshaw: Terrific. And just in relation to your comments, Ross, on becoming more capital efficient to build the balance sheet portfolio. Do you have a target interest in mind in so far as ownership that you would like to maintain across the assets that you bring in capital partners for? Ross Du Vernet: Look, that's -- it's going to be considered on a case-by-case basis. I think the reality is we have a really high-quality portfolio. There's lots of options for us. We have existing JVs, which are 50-50, which we can bring third-party capital into. And we have existing assets that we own and control that we can establish new strategies around. So I think it's going to kind of depend on what clients want. And ultimately, we're going to run a bunch of options concurrently and choose those which are best for DEXUS security holders. I wouldn't see a scenario where if these are high-quality assets, which they are, we don't want to -- we want to have a meaningful aligned interest with our clients. So that's, call it, in the range of 10% to 20% would be kind of at the bottom end. Benjamin Brayshaw: Okay. And would Waterfront Place and Atlassian potentially form part of those capital and partnering transactions? Ross Du Vernet: I'm not going to be specific on assets, but I would say, as a general principle, we are open to looking at every asset in the platform and we'll be, as I say, running options concurrently to assess what is the best outcome for DEXUS security holders having regard to, to be frank, what we sell, but also the redeployment and what's left afterwards. Operator: The next question comes from Tom Bodor from Jarden. Tom Bodor: I just was interested in the passing yield on the circa $800 million of divestments. Ross Du Vernet: I don't know that we have that one to hand. We might come back to you on that. Tom Bodor: Okay. But I mean if I take something like 100 Mount Street, is it fair to assume that it's relatively high passing yield? Keir Barnes: There's a reasonable passing yield. I would say that asset has got a reasonable amount of CapEx coming in the next few years. So we think divesting at these levels is an attractive decision at this point in time. Tom Bodor: Okay. And then on the Waterfront project, just would be interested, can you confirm that you've allocated 100% of the podium costs to the first tower? Or have you pro rata it based on the square meters of the towers above or some other formula? Keir Barnes: So when we look at the total project costs that are quoted in the appendix, the cost of the podium is in the Stage 1 cost. In terms of the yield on cost, we strip that out, and we can go into a little bit more detail later today, if you'd like, around the methodology. But we take that out in terms of calculating the yield on cost for Stage 1, but it is included in the yield on cost that we quote for Stage 2. Tom Bodor: Okay. And then I guess just following on from that, in light of the positive momentum you've had on leasing there in that first tower, how do you think about the potential to get the second tower going in the next couple of years? Or is it really too early at this point to consider that? Ross Du Vernet: Look, I think that's a quality problem to have given the opportunities that we have in the portfolio. But I refer to Andy's earlier comments as a high threshold to commence. New development projects will be somewhat guided on that project as well by our partner there, which is the wholesale fund, DWPF. I think as there is increasing flow and interest from capital, that might be something that we reassess over the next 12 months, and there's certainly going to be some synergies in keeping continuity of contractor on site. So it's not really a decision for today. I'll just kind of make the point that for DXS, it's marginal capital, it's going to be a high threshold. So that is going to be a gating issue for us. Operator: The next question comes from David Pobucky from Macquarie Group. David Pobucky: Just a follow-up on the buyback and how you're thinking about balancing the buyback development and growth initiatives. I mean, DEXUS reset its target payout ratio, I think, almost a couple of years ago now to retain more capital for growth. So perhaps if you could talk a bit more about some of those growth initiatives you're working on, please? Ross Du Vernet: Look, I would certainly like to be growing the business more. And I think the market is increasingly conducive to where we kind of see the cycle and we see flow of capital from clients. But the reality is, given where we're trading is DEXUS security prices are really compelling proposition. So to be frank, new projects and opportunities are going to compete with that. So as long as we're trading at these levels, that's a pretty high bar. I would like to think -- and if I kind of take a step back, we have a significant balance sheet. And so the scope for us to undertake considerable capital recycling and releasing a lot of capital by bringing third parties into that investment portfolio actually, I think, gives us scope to do both. But obviously, we'll be assessing all those opportunities on a case-by-case basis at that point in time. So I can't predict where the share price is going to be. All I can say is as I sit here today, it looks very attractive from a marginal use of capital. David Pobucky: Just second question on Office. You saw a modest improvement in incentives in the period. Would you say FY '26 is the peak year for incentives? And what's the expectation around when that starts flowing through to earnings? Andy Collins: Well, David, just in terms of market incentives, so we've seen vacancy peak in Sydney and in Brisbane and in Perth. Vacancy is expected to peak in Melbourne shortly, next 12 months. And so that should flow through to market incentives. And of course, our incentives, we try to manage them lower than that market number. Keir Barnes: I think if we're thinking about just the pure dollar spend in terms of incentives. So I would expect this year, CapEx will be sort of probably a little bit below what it was in '25, but is expected to be higher in '27 off the back of the strong leasing that the team has been doing. Operator: The next question comes from Howard Penny from Citi. Howard Penny: I just wanted to ask about the equity raising. So they raised -- you guys raised $640 million in third-party equity commitments and $280 million secondary unit transactions. Could you describe where the equity interest is coming from domestic, international? And maybe just as far as possible, give us some background as to where these equity inflows are coming from? Michael Sheffield: Sure, Howard. We've seen a wide variety of interest from -- we've got a diversified platform with different channels of capital, and it's safe to say there's a wide variety of interest that, that attracts. So we've seen increasing interest from offshore investors, particularly in the pooled funds. And then from a domestic investor perspective, what they're increasingly looking to do is partner with us in some of our initiatives. So the DDIT trust, which was launched is the first in a series, and we've seen very, very pleasing demand from investors to essentially come into a club. That's been largely domestic, but I would say we've got a wide variety of interest from a wide variety of areas at the moment. Howard Penny: And my second question is just on cost of debt and where you see that potentially peaking over the next 2 years and refinancing risk on that? Keir Barnes: Thanks, Howard. I'll take that one. So the cost of debt, you'll have seen has increased. It went from 4.2% up to 4.7% for this half. I expect for the full year, we'll be sitting at the high 4s next year, sort of 5-ish. So we are pretty close to market at this point. In terms of refinancing risk, very minimal expiries coming up. We have been very proactive with refinancing. We just did more than $1 billion on average at about 15 basis points, tighter rates and an increase in tenor. So we will continue to take a proactive stance with our refinancings. Operator: The next question comes from James Druce from CLSA. James Druce: I was hoping you could comment just on the bucket of performance fees that you might have. I noticed you have the second half secured. I was just trying to get a sense of what's left after that. Ross Du Vernet: Is that -- sorry, in relation to '26? Or what's the longer-term outlook for performance fees, just to clarify? James Druce: Yes. You've got the second half secured. So I'm just wondering how you're looking for '27 and '28. Are there things behind that, that can come through? Or is this sort of a strong year for performance fees... Ross Du Vernet: So, the significant contributions in, to be frank, '25 and '26 was there was an infrastructure performance fee on a mandate that was crystallized on the sale, and there was a significant outperformance in the industrial strategy, the DALT portfolio, which was realized over a couple of periods. So I would say they were at the kind of the larger end of the scale. We are trying to introduce performance fees into new strategies and initiatives. They're not going to be straight line. They are going to be a little bit lumpy. And I think what we're kind of flagging is as we look towards '27, that level of kind of contribution is unlikely at this point in time. James Druce: Yes. Okay. That's helpful. And just interested in your Slide 18, just looking at the net effective rent forecast. I was sort of wondering, have you incorporated any AI impact into those forecasts? And how do you think about the sort of the uncertainty or dispersion that could create over the next 3 years? Ross Du Vernet: I just generally in relation to dispersion, we've kind of been calling this for a while we see increased dispersion in performance in assets across, I would say, both real estate and infrastructure. And to be frank, the better assets we think are going to do better and there will be assets that potentially get stranded or left behind. I think the good thing for us is whether it be in the balance sheet portfolio or our funds, we generally have those high-quality assets in those premium locations. So I'd say at a group level, we feel well positioned. And these are difficult things to predict. But Andy, I know you've got some views on this. Andy Collins: Yes. So I think difficult to predict is right. So in terms of how AI lands, no one really knows right now, but we -- what we're seeing in our portfolio through engagement with our customers is that it is resulting in some of our customers growing. And so I'll use an example where a law firm following implementation of an AI augmentation program actually leased more space because they could adjust their ratio of lawyers to non-lawyers. And so they needed more space. That's one anecdote. You can't apply that to the whole portfolio or to the market. But I think it's not as simple as drawing a straight line between AI implementation and like a blanket adjustment to office demand. Ross Du Vernet: And I would say, thematically, we do kind of see that the nature of work that is more likely to be impacted by AI is typically going to be middle or back office functions. And those -- that work is typically going to be in the suburban markets. And that is not a space that we are particularly exposed to. Operator: The next question comes from Yingqi Tan from Morningstar. Yingqi Tan: My first question is in regards to that $1 billion redemptions. Just wondering if you are able to quantify how much of these are secondary transactions and how much is of this funding actually left the platform? Michael Sheffield: So during the half, about $1.5 billion was set aside. Most of that was in -- there was also a special redemption in the shops fund. And then as we said, about $280 million of that was through secondary transactions, so obviously stayed on the platform and the rest were units being redeemed. So those units disappear. Yingqi Tan: And with the money that has been redeemed, could you also share whether it's sold to any external parties? Or is it I guess, within DEXUS other platform? Michael Sheffield: Essentially, the process is we free up cash to meet redemptions. So we'll sell assets or use debt. So by virtue of the fact that there's assets being sold, that would be off the platform. And to the extent it's debt, well, it's just an increase in debt in the fund. Yingqi Tan: That's clear. And my second question is to Andy. Would you be able to share what the office leasing spreads were in the past six months for the deals that you have achieved? Andy Collins: Yes, no problem. So face spreads were positive across all markets. For our portfolio, the face spread was up 9%. The effective spread trajectory has come in from 16% or negative 16% to negative 10% to now negative 5%. So just to clarify, the effective spread on the leasing that we've done in the first half is negative 5%, which is a material improvement. So in terms of the submarkets, in Brisbane, we achieved positive 10% effective spreads. Operator: The next question is a follow-up from Adam Calvetti from Bank of America. Adam Calvetti: Ross, I just wanted to follow up on your comments made to Simon earlier on the 5% to 6% yield on cost guidance, essentially not cutting the mustard, I think, is the term. I mean I'm looking at the uncommitted developments, we're still quoting 5% to 6% for Waterfront, 80 Collins and Pitt and Bridge. Does that mean to get revised going forward? Ross Du Vernet: We're not committing those projects yet, I think that's a question for when we're committing those. Adam Calvetti: Is that a target range? Or I mean why is that in there? Ross Du Vernet: I think we'll assess those when we're kind of close to the start line. Things like Pitt and Bridge Street are still years away. And the reality is they are income-producing assets. So it's not a decision for today. I think what we're -- the yield on cost is and we think about development margins, we have to have regard to where we think stabilized cap rates are. Again, that's an assessment that we kind of think we need to make at the time of starting those projects. So rest assured, if we're deploying capital into development projects, we're going to need to be compensated for the risk and it's going to meet our internal hurdles. Operator: At this time, we're showing no further questions. I'll hand the conference back to Ross for any closing remarks. Ross Du Vernet: Thanks, everyone. Enjoy the day, and we'll catch up with you over the next few weeks.
Operator: Good day, and welcome to the Precision Optics Reports Second Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead. Robert Blum: All right. Thank you very much, operator, and thank you to everyone joining the call today. As the operator mentioned, on today's call, we will discuss Precision Optics' second quarter fiscal year 2026 financial results for the period ended December 31, 2025. With us on the call representing the company today is Dr. Joe Forkey, Precision Optics' Chief Executive Officer; and Wayne Coll, the company's Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If you dialed into the call through the traditional teleconference line, as the operator indicated, please * star, then 1 to ask a question. If you are listening through the webcast portal and would like to ask a question, you can submit your question through the Ask a Question feature in the webcast player. Before we begin with prepared remarks, we submit for the record the following statement. Statements made by the management team of Precision Optics during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results, or strategies, and are generally preceded by words such as may, future, plan or planned; will or should; expected, anticipates, draft, eventually, or projected. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risks that actual results may differ materially from those projected in the forward-looking statements as a result of various factors and other risks identified in the company's filings with the Securities and Exchange Commission. All forward-looking statements contained during this conference call speak only as of the date in which they are made and are based on management's assumptions and estimates as of such date. The company does not undertake any obligation to publicly update any forward-looking statements, whether as a result of the receipt of new information, the occurrence of future events, or otherwise. All right. With that said, let me turn the call over to Dr. Joe Forkey, Chief Executive Officer of Precision Optics. Joe, please proceed. Joseph Forkey: Thank you, Robert, and thank you all for joining our call today. When we spoke last quarter, we described Precision Optics as operating at a new level, driven by record systems manufacturing revenue and sustained strength in our 2 largest production programs. I'm pleased to report that in the second quarter of fiscal 2026, that momentum not only continued, it has accelerated. Revenue for Q2 reached a record $7.4 million. That total consisted of $6.0 million in production revenue, net of tariffs, up 92% year-over-year and up 9% sequentially, and $1.0 million in engineering revenue, which was down 29% year-over-year, but up 47% sequentially. This sequential growth in engineering, along with continued growth in engineering bookings, is particularly important as it reflects the early stages of the recovery we discussed on our last call. It has become clear that our production business is, on its own, acting like a successful start-up company. This does not mean the 2 sides of our business are not tightly interwoven. They are. Production programs are the result of the sales and execution of our engineering or product development team. However, we have experienced growing pains as significant production programs have ramped, while we were under-resourced in terms of line management, production support, and other functions that a rapidly growing production business requires. Recognizing we were not addressing operating challenges in a sufficiently aggressive fashion, we changed leadership with the addition of Joe Traut as COO in October. By the end of the year, production was running better, and it has continued to improve in early 2026. Concurrently, we have invested in sales leadership and marketing efforts, and our pipeline of product development opportunities is growing. While the gross margin and bottom line performance in the second quarter were not what was expected, we are making solid progress week in and week out and can see results continuously improving. Today, I'll focus my remarks on 4 primary areas: first, updates on our manufacturing programs; second, the operational improvements underway and their expected impact on gross margin and adjusted EBITDA; third, positive developments in product development and the rebound we are seeing at Ross Optical; and finally, our updated guidance and outlook for the remainder of fiscal 2026. Let me begin with production, which continues to be the primary driver of our revenue growth. Our top-tier aerospace program generated $2.7 million in revenue during Q2. This marks another quarter of sustained high-volume performance at the same record levels set in Q1. As a reminder, this program involves a highly specialized optical assembly used in a next-generation aerospace platform. The product has stringent performance and reliability requirements, and we have become a trusted strategic sole-source supplier to this customer. Demand remains strong. Our joint forecast with the customer, combined with our internal capacity planning, supports an increase from the shipment levels of approximately $2.5 million in the second quarter to over $3.5 million for the fourth quarter of this fiscal year. Importantly, by the end of Q2, our operations team had updated the line to enable more than 50% higher maximum throughput compared to the end of Q1. The team also made good progress improving operating efficiency, and we are already beginning to see tangible throughput increases, which we expect will have a positive impact on our financial results in Q3 and more substantially in Q4. One of the most compelling aspects of this program is its operating leverage. Quarterly volumes could increase by 50% without requiring any increase in headcount. In fact, with steady material flow to avoid start-and-stop production patterns and line-down inefficiencies, we could potentially add approximately $1 million of incremental quarterly revenue with minimal incremental costs beyond materials, translating into significant gross margin and bottom line expansion as volumes increase. This remains a cornerstone program for Precision Optics and a powerful contributor to our path toward profitability. Our single-use cystoscope program for a surgical robotics company generated $2.0 million in revenue during Q2 compared to $1.5 million in Q1, marking the sixth consecutive quarter with record revenue. End market demand remains extremely strong, and our customer continues to push for higher output. However, gross margins on this program remains challenged in Q2 as yields have been below expectations and labor utilization has been suboptimal due to training time and other inefficiencies in production line operations. During the second quarter, we made substantial progress on improving operations that should drive improved gross margins in the third and fourth quarters. First, 2 significant updates, one to the product design and the second to the supply chain, both in development for several months, are scheduled for implementation this quarter. These updates were delayed primarily due to the complexity and added care required to make changes to an FDA-cleared product already being used clinically. Because these updates represent reductions in cost and improvements in yield, they both will have a strong impact on gross margin. In fact, because the yield improvement is at the final assembly stage, it represents virtually 100% variable margin. We expect these changes to result in a $150,000 to $200,000 quarterly increase in gross profit at current production rates. In addition to these updates, our new operations team has successfully stabilized the main production line and significantly increased throughput on a second partial line. Production and shipments are now predictable, enabling better planning and higher efficiency, which contribute to higher gross margin, a stable line, and stronger customer confidence. We expect that the anticipated improvements in our single-use and aerospace programs would bring the company to break-even levels of adjusted EBITDA even before other anticipated positive developments. Beyond our 2 lead programs, a third key production program, a single-use ophthalmic device, is now ramping significantly and should contribute towards continued growth in the second half of the fiscal year and beyond. In calendar 2025, revenue from this program was limited, as we built only 1,000 units, and start-up margins were significantly negative. We expect the next order will be for 10,000 to 15,000 units and will support $2 million to $3 million in revenue this calendar year with gross margin greater than 30%. The operational progress on this scope has been dramatic and highlights the benefits of our new operations management team, as well as learnings from our other single-use program. In November, yields were approximately 60%. Today, yields are routinely above 90%, and we are pushing to exceed 95%. In November, we produced approximately 6 units per day. Today, we are producing 20 to 25 per day and working to increase to 35 per day. In summary, our production revenue levels continue to validate the strength of demand across our key programs and markets. However, as we discussed in detail last quarter and again here, gross margins remain challenged due to manufacturing inefficiencies associated with scaling operations, yield challenges on our single-use programs, and outsized impacts from production scrap. These issues contributed to negative adjusted EBITDA in Q2, despite the large increase in revenue. That said, we are already seeing meaningful improvement as we enter the second half of our fiscal year. The impact of the new operations leadership team began to materialize toward the end of the quarter. We saw measurable operational improvements in December, improvements that we expect will carry forward into Q3 and expand further in Q4. We acknowledge that this is an approximate 1-quarter shift to the right from our original expectations, but we believe we now have the people and systems in place to execute on an improved manufacturing optimization plan that is already improving profitability and will lead to positive adjusted EBITDA beginning in Q4. In recent quarters, our Ross Optical division has produced lower results than we have seen historically, largely due to the impact of tariffs and the associated changes in customer purchasing trends. This now has begun to turn around. Ross Optical delivered revenue above $1 million for the second quarter in a row, and we enter Q3 with the highest backlog in over 3 years. This provides strong evidence that the market rebound we anticipated is beginning to take shape. Because the Ross Optical division can support higher revenue without significant incremental fixed costs, revenue increases here carry strong variable margins. Accordingly, we expect Ross to experience improved margins in the second half of fiscal 2026. Product development, or what we sometimes describe as engineering revenue, increased sequentially and is forecasted to continue to increase in Q3 and Q4. This forecast is supported by the second consecutive quarterly increase in product development purchase order bookings in Q2, which were at the highest level in over a year. As we've discussed in earlier calls, the aggressive time line for the development of the single-use cystoscope product, combined with the transfer to production a 1.5 years ago, resulted in an abrupt reduction in engineering work that has taken some time to recover. We attribute the recent success and increased bookings in part to the renewed marketing efforts we initiated over the past year, and we expect bookings increases to continue through Q3, Q4, and beyond. Our primary pipeline for new customer programs continues to be minimally invasive medical devices. And while we still receive inquiries about reusable devices, the trend, as expected, is continuing to move to single-use. As we've discussed on previous calls, this strong market interest is based on the benefits of virtual elimination of cross-contamination, superior image quality, and ease of use. While the single-use endoscope market has grown substantially over the last couple of years, market studies still predict annual growth rates to continue in the mid-to-high teens over the next 10 years. With the successes of our first few programs that have gone to production in this area, we are well positioned to take advantage of the ongoing growth in this market. We also continue to see strong interest in our technologies from the defense aerospace market, with a particular emphasis on next-generation aeronautic and satellite systems for both commercial and government use. The specific segments that we target have seen heavy investments in recent years, supporting expectations for double-digit annual growth rates over the next decade. Our large production aerospace program, along with some of our recently announced new programs, fit squarely into these market segments, and we believe there are additional opportunities for us in this area. Several programs already in our product development pipeline continue to advance toward production, with 4 programs scheduled to transition in the next 12 months. Three of these are for reusable products used in sinoscopy, urology, and otoscopy, and one for a single-use product for a specific arthroscopic procedure. Each of these programs is expected to contribute roughly $1 million to $3 million in annual revenue when they transition to production. Importantly, as more of these programs enter production, we expect significant leverage of the operations management and support teams that we have been investing in over the last few quarters, resulting in higher gross margins across all programs. Given stronger-than-anticipated production demand, we are increasing our full year revenue guidance to a range of $26 million to $28 million, which is up from the $25 million we estimated previously. However, the timing shift in margin recovery by about 1 quarter results not only in an additional quarter of adjusted EBITDA loss, but also pushes positive adjusted EBITDA quarters out of this fiscal year into the next, removing the opportunity to recover this year from the EBITDA losses in the first half. Combined, this results in revised full year adjusted EBITDA guidance of negative $2.5 million to negative $3.0 million. We expect Q3 to be a strong improvement over Q2 and Q4 to improve to positive adjusted EBITDA. Importantly, our long-term prospects remain strong, as evidenced by sustained top line growth, improving operational discipline, increasing bookings, especially for product development, and a strong overall backlog entering Q3. We remain confident that our business model and the markets we are serving can sustain substantial growth over the coming quarters and years. With that overview, let me turn it over to Wayne to review the financials in more detail. Wayne? Wayne Coll: Thank you, Joe. Let me expand on some of Joe's comments on the financial results, starting with revenue. For the second quarter, revenue was $7.4 million compared to $4.5 million in the year ago second quarter and up compared to $6.7 million in the prior sequential quarter. Breaking it down, production revenue was approximately $6.4 million compared to $3.1 million in the year ago quarter and $6.0 million in the prior sequential quarter. Product development, or engineering revenue, was $1 million compared to $1.2 million in the year ago quarter and $700,000 in the previous quarter. Our aerospace program contributed $2.7 million in revenues, while the cystoscope program achieved $2.0 million. As we discussed last quarter, we successfully negotiated agreements with these customers to pass through tariffs without markup. The tariffs are treated as revenue and correspondingly as cost of goods sold. Net of tariffs, the aerospace program had revenue of $2.5 million and the cystoscope program, $1.8 million. Total revenue, net of tariffs, would have been $7.0 million. For the quarter, gross margins were 2.8% compared to 14.2% in the prior sequential quarter and 23.6% in the second quarter of a year ago. Joe touched on many of the key impacts on gross margins, but to summarize: high levels of manufacturing scrap and temporary tariff impacts, the yield and throughput on our cystoscope line was below optimal levels, profitability of our product development group was negative due to underutilization during the quarter, and our optics lab experienced a delayed reorder of a key defense program that we expect to begin building now in the fourth quarter. We believe improvements made by our new operations team, both those already implemented and those currently underway, will dramatically improve efficiencies and result in improvement to gross margins in the second half of the year. Turning to operating expenses. Total OpEx was $1.9 million during the quarter compared to $2.0 million in the year ago second quarter. Breaking it down, SG&A expenses were $1.7 million during both this quarter and the comparison quarter a year ago. R&D spending in the quarter decreased slightly to $250,000 from $318,000 in the year ago second quarter. The decrease is a result of progress made in prior periods in the development of the Unity platform, a key driver of our new product development engagements. As a result of the factors I've discussed, our net loss was $1.8 million for the quarter compared to $1.0 million in the year ago second quarter and compared to a net loss of $1.6 million in the sequential first quarter. Adjusted EBITDA, which excludes stock-based compensation, interest expense, depreciation and amortization, was negative $1.5 million in the second quarter of 2025 compared to negative $0.6 million in the year ago quarter and compared to a negative $1.2 million in Q1. Cash at the end of December was approximately $900,000 and bank debt was $1.6 million. We are making progress in negotiations to increase the use of debt capital to fund both our continued business expansion plans and working capital needs, and we believe the outcome will be favorable considering the positive trajectory of our business and recent discussions with potential partners. We expect to announce expanded loan facilities during the third quarter. As Joe mentioned, we have had to make revisions to our fiscal year outlook based on the first half results. We now expect revenue to be $26 million to $28 million, up from the $25 million previously outlined. Our adjusted EBITDA is now expected to be negative $2.5 million to negative $3.0 million compared to a positive $500,000 reported previously. With year-to-date adjusted EBITDA already negative $2.7 million, our outlook implies we will have approximately break-even adjusted EBITDA for the remainder of the fiscal year. I will now turn the call back over to Joe for some final comments. Joseph Forkey: Thank you, Wayne. Before we take questions, let me recap a few points. Q2 revenue reached a record $7.4 million, driven by expanded production revenue, which grew 105% year-over-year. Our aerospace shipments remain at record levels with meaningful increases expected in Q3 and Q4. Our cystoscope operations have stabilized with margin improvement expected in Q3 and Q4, and our ophthalmic program ramp is accelerating with yields now above 90%. Product development bookings are at the highest level in over a year, and the Ross Optical backlog is the strongest it has been in over 3 years. And finally, operational improvements driven by the new operations team are in place and gaining traction with margin recovery underway and expected to accelerate in the second half of the fiscal year. In many ways, fiscal 2026 remains a transition year, one in which we are building the infrastructure and processes required to support a significantly larger production business. This should be expected. It is an investment that is worth making, as we believe the production business is on a long-term growth trajectory that will create significant value for shareholders. We believe the production business over time can create value on its own, well beyond POC's current market capitalization. The success we're seeing is not unexpected. This is the result of much of the hard work over the last few years, and we're excited to see this part of the business growing as rapidly as it is. With that, we'd be happy to take any questions. Operator: [Operator Instructions] Robert Blum: All right. Nick, this is Robert here. While we wait to see if anyone dials in through the teleconference line, I want to remind everyone on the webcast that if you'd like to ask a question, you can type it into the Ask a Question box there on the webcast player. Joe and Wayne, we have a few questions that have come in here. First one, can you clarify if the design revisions required to fix these yield shortfalls are currently within your internal manufacturing control? Or are you waiting on your customers to approve engineering changes? Furthermore, what is the exact lead time for these revisions to hit the P&L, and can you bridge the gap to that date without a dilutive equity raise? Joseph Forkey: Let's see. There's a lot there. It's a great question. So the design piece of the yield improvement that we expect to see on the cystoscope line, we have been working on for many months. The design change has been approved by our customer. We have received initial parts for that design change, and we've done the engineering builds that are required in order to qualify the design change. So there are a number of sort of documentation and some more testing that has to happen. There has to be some formal approval from our customer, which we're quite confident we will get because they've been part of the process all along. So we anticipate that this design change will go into production sometime in the next month or so. And I'll let Wayne comment on the latter part of that question about how we get there from a financial standpoint. Wayne Coll: Thanks, Joe. Yes, we've had advanced discussions with lenders over the last several months, as I mentioned, and with due diligence proceeding, we do expect to announce a new loan facility during the third quarter. We also received -- recently received grant funding from Massachusetts, the impact of which we're still quantifying. We always consider equity financing as one option. But at the moment, we are uncertain how much equity capital, if any, is going to be needed to close any potential funding gaps. Robert Blum: Once again, if you have any questions on the webcast player, please type those into the Ask a Question feature there on the webcast box there. The next question is, can you comment on facility changes and when they will all be up and running? I know there's a little bit of an overlap there, but anything else you can expand upon? Joseph Forkey: Yes, sure. So we've talked on earlier calls about a fairly substantial plan with regard to facilities, and we reported that we've already made facilities updates in our main operation, the operation in the state of Maine, as well as some of the buildings in our Massachusetts facility. So we moved to a new headquarters, which we're talking to everyone from, I think, for the first time today. So those facility updates are complete, and everyone's moved in. This includes our engineering group. The last piece that we have to update is our production facilities. And right now, we're updating it as we need it. And over the next, I would say, 6 to 12 months, we're looking at a more substantial and complete overhaul in order to be prepared for the next couple of years. But in the meantime, we have the facilities that we need to execute on the programs that we're working on now and all of the programs that I talked about in the comments today. And so we see this as a longer-term effort that we have to move through. And as Wayne said, there are a number of funding options we can look at for that, including some programs through the state and otherwise to be able to support that facility's update for the production in the long run. Robert Blum: All right. Very good. Once again, if you're on the live dial-in line, please press star, then 1, to ask a question. If you're on the webcast, you can go ahead and type it in there. You have a couple more questions here. Can you -- and again, you've touched on this, but can you talk about your loan discussions and how certain you are that you'll be able to reach positive EBITDA without dilution? Joseph Forkey: I think Wayne already answered that. The loan discussions are quite advanced. We look at funding from multiple different sources, but we're quite confident that the discussions that we've been having with the banks will be successful. Robert Blum: Barring any additional questions that might come in, this looks like the last question. What's the long-term return you expect on the investments the company is making in its production infrastructure? Joseph Forkey: Yes. So we talked a lot about production infrastructure on the call today, and I just want to clarify. We see a lot of the investments that we're making in the operations team. So I just commented on the long-term investments we'll need to make on the production facilities. Some of what we've been doing over the last couple of quarters does include facilities updates, updating cleanrooms, adding new fixtures and tools. But really, the piece that is most substantial in terms of the impact that it will have on the next couple of quarters is on the infrastructure. And we talked about putting in place a new Chief Operating Officer. We have a new Senior Director of Operations. We have a number of new quality engineers, manufacturing engineers. We're really building out that personnel infrastructure. And so I'll answer the question this way. There's significant leverage that we can benefit from when it comes to the size of the production business that can be supported by the management infrastructure and the support infrastructure that we've been putting in place for production. It probably came through in the script here, but we -- I think we underestimated how much we needed to invest in that management team and that support structure. So those folks will be able to support a much higher level of production, even than we're talking about having in Q3 and Q4. So I think there will be substantial leverage that we obtain as we continue to increase the number of production programs. Beyond that, I think the investment is a very safe investment because from a baseline standpoint, the 2 programs that we already have in place that are driving the increases in volume, we have strong indications that those will continue for a long period of time. In one case, the program is a product that's a replacement of a product that's on the market already and has been for many years. In the other case, it's a product that's used in a satellite system that has a limited lifetime. And so we know that there will be a need for replacement of those systems. So from a baseline standpoint, we're quite confident that the programs that we've built this infrastructure for will be there for a long period of time, and we believe that we can support significantly higher production revenue with the operations management and support team that we put in place. So we expect significant return on those investments. Robert Blum: Actually, we do have a couple of additional questions that have come in. The next one here talks about your guidance increase in revenue for the year. Can you talk about which program or programs is getting higher-than-expected order flow from your original expectations there? Joseph Forkey: Yes. So it's really the 2 big production programs. It's the aerospace program and the single-use cystoscope. I believe the aerospace program is the one that's coming in at a faster rate. It's ramping faster of the 2. But both of them are really coming in at a higher level than we had originally anticipated, which is great news. Robert Blum: And maybe there's something you can help clarify here, because there's a question, is it primarily the borescope business that is driving aerospace? So maybe you could help clarify when you talk about defense and aerospace and how the borescope program relates to that. Joseph Forkey: Sure. So here, I can be very complete. We have 2 major defense aerospace programs that are in production. One is the aerospace program that we talked about an awful lot today that's running at a few million dollars a year. That one -- sorry, a few million dollars a quarter. That one is a system that's supporting a satellite program. The second one is the one that we've talked about on previous calls that we manufacture in our micro-optics lab. That's a program that we're still waiting for a reorder on. That one typically runs at a couple of million dollars a year. That one, we don't know -- we don't have visibility into what the final product is. And then the -- so those are the 2 production programs that are already running. We have a couple of product development programs, the one that the question is about is the borescope program. That program is in the product development phase of our business or a section of our business. And that program is substantially contributing to the increase in the product development revenue, which we're very anxious to get back up to levels that it was at a couple of years ago. So just to be clear, the borescope program is in the product development phase. It's a substantial part of the increase in the product development work that we're doing. It probably won't go into production for another year, I would guess. But when it does, we expect it to increase the production revenue at that point. Robert Blum: All right. Very good. Well, I am showing no additional questions at this time. So Joe, I will turn it back over to you for any closing remarks. Joseph Forkey: Great. Thanks, Robert, and thank you all for joining us today on the call. I look forward to talking with all of you soon. Thank you, and have a good evening. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Spark New Zealand H1 '26 results. [Operator Instructions] I would now like to hand the conference over to Ms. Jolie Hodson, CEO. Please go ahead. Jolie Hodson: Thank you. [Foreign Language] Good morning, and thank you for joining us today for Spark's half year results for the period ending 31 December 2025. This morning, I'll provide an overview of our performance and progress we've made under our new SPK-30 strategy. I'll then hand over to our CFO, Stewart Taylor, who will take you through the financials in more detail before we open for questions. Before turning to the results, a brief word on the broader operating environment. Through the first half, the New Zealand economy showed signs of finding its footings, while conditions are still -- were still mixed. Consumer activity improved, and there was a growing sense of stability as the period progressed. That backdrop supports the progress we're seeing in our business, particularly in consumer and gives us confidence as we move into the second half. With that context, I'll now turn to Slides 3 and 4 to summarize our financial performance. So in terms of the difference between our reported and adjusted results, adjusted revenue and EBITDAI include the data center business for both H1 FY '26 and H1 FY '25. Adjusted EBITDAI excludes $9 million of DC sale transaction costs in H1 '26, which will form part of the gain on sale calculation to be reported in FY '26 and the SPK-30 transformation costs incurred in half 1 FY '25. I'm now going to speak to our adjusted numbers as these provide the best like-for-like year-on-year performance comparison. In a mixed demand environment, Spark delivered a clear step-up in profitability in the first half. Adjusted revenue of $1.917 billion was down 1.1% or $22 million Around half or $10 million of this decline was driven by the divestment of Digital Island in FY '25, the remaining decline driven by muted business project spending and service management and legacy voice. This was more than offset by improving mobile service revenue and disciplined execution of our cost-out program, delivering a 5.1% increase in adjusted EBITDAI to $471 million. Adjusted NPAT of $73 million was up 30.4% driven mainly by higher EBITDAI. Free cash flow strengthened to $107 million, up 84%, reflecting the operating leverage in the business as performance improved driven by higher EBITDAI and the reduction of cash tax payments. Stewart will provide more detail on the free cash flow for the half and full year shortly. Capital expenditure for the half was $271 million, including $54 million of strategic CapEx used to secure the data center land, in line with guidance. BAU CapEx of $217 million was down 8.8% on the prior year as our 5G rollout matured. The Board has declared an interim dividend of $0.08 per share, 50% imputed. Turning now to mobile on Slides 5 to 7. Spark's total mobile service revenue grew 1.6% as performance continued to improve, and we saw positive momentum across the key underlying drivers of value. In consumer and SME pay monthly, connections were broadly flat, while ARPU grew 5% driven by product innovation, plan refreshes and increased competitiveness of high-value brands and improved mix. We also saw a 15% uplift in pay monthly mobile acquisitions with interest repayments, consistent with attracting high-value customers and supporting stronger retention. In consumer prepaid, connections stabilized in our highest value segment of New Zealand packs, which accounts for around 90% of our revenue, following recent plan refreshes and targeted promotional activity. Prepaid ARPU was down slightly, reflecting the competitive dynamics of this segment. However, with the stabilizing base, we have a strong platform to grow ARPU over time, both through cross and upsell as further products and offers are launched. The Skinny prepaid New Zealand base grew 2%, driven by a strong uptake of long-term plans launched during the half. In enterprise and government, connections and ARPU further stabilized since the close of FY '25. We won more business than we lost during the half with a small connection decline driven by fleet shrinkage and the 3G shutdown. Pressure on ARPU remains. However, the rate of decline continued to moderate with H1 FY '26 ARPU down 7.8% year-on-year compared to a 13.4% decline at the end of FY '25. In the context of the broader market, Spark's mobile service revenue grew at a slower rate than the market, resulting in a small contraction of 0.5 percentage point of share. The highest growth during the 6 months was in the MVNO segment, of which Spark accounts for around 40% of connections. Our revenue growth in this segment was consistent with the MVNO market growth. Overall, we remain market leader by some distance, and our focus is on growing this leadership ahead. On that note, as we look ahead to the second half, we have a strong pipeline of activity that will support continued momentum in mobile, and that's outlined on Slide 8. A few notable examples include the rollout of text and data satellite to mobile capability in H2, including calling over satellite-enabled apps like WhatsApp; a refreshed international roaming product set designed to compete more effectively in an increasingly competitive Eastern market and deliver better experiences for our customers; and a new MySpark app experience to further cement our CX leadership with clearer usage information, easier self-service and enhanced support. If I move now to Slide 9 across our broader connectivity and IT portfolio, performance reflected a tough market alongside areas of resilience and progress. While broadband connections were down in a competitive market, revenues remained stable at $303 million as increasing fiber costs were passed through. Wireless broadband remains a clear opportunity as 5G continues to mature and we explore bundling with mobile. Voice revenue was down 16.7%, and that's consistent with the long-term decline of this legacy product. Other connectivity products was down 10.4%. About 1/3 of this reduction was driven by the divestment of Digital Island and the balance primarily driven by managed data and networks as customers continue to transition away from legacy products to lower ARPU alternatives. In IT, cloud revenue grew 1.7%, reflecting the continued customer migration from private cloud and expansion by existing public cloud customers. Service management remained challenging, with revenue declining 19.7% as businesses continue to defer or scale back larger projects. Our cost program continued to deliver material benefits in the first half as outlined on Slide 10. The program underpinned the improvement we saw in EBITDAI and free cash flow during the half. New network and technology partnerships have been effectively embedded into our operations during the half and are on track to achieve their forecast benefits. Overall, we achieved $51 million in net cost savings, reflecting $55 million of net labor cost reductions from the changes made in calendar 2025; $12 million in product cost reductions, which were originally envisioned to fall in other OpEx, partially offset by a $16 million net increase in other OpEx, primarily driven by $11 million of increased marketing spend to support business growth and costs associated with our new technology delivery model. So looking to the second half, the mix of savings shifted the majority of FY '25. Labor reductions have now been realized, while product cost savings continue and we absorbed the full year impact of our technology delivery model and inflationary cost pressures. Overall, we remain on track to deliver the multiyear productivity benefits previously outlined with the FY '26 cost-out target narrowed to $40 million to $50 million supporting EBITDAI growth and enabling reinvestment in network and customer experience. As outlined on Slide 7, our network and customer experiences are a strategic priority in line with the SPK-30 strategy. During the half, we extended our 4G coverage leadership position to also include 5G as independently rated by Opensignal. This was supported by more than 100 site builds and upgrades and the transition of network traffic to our 5G stand-alone core, delivering improvements in peak speeds of around 75%. We also introduced new network safety features, including automated blocking of malicious websites while working with Aduna to explore further use cases in the space for the future. Our measure of customer satisfaction, iNPS, rose 5 points year-on-year, driven by simplified journeys, faster support and improved digital experiences within our app. Our AI program is accelerating our network in CX ambitions, delivering improved network efficiency, faster speed to market for new products and quicker resolution of complex challenges for our customers. Sustainability remains embedded in the way we operate, and we continue to make progress towards our ambitions as outlined in Slide 12. Our Scope 1 and 2 emissions are 32% lower than the path required in H1 to meet our 2030 emissions reduction target, and that reflects the benefits of our solar energy partnership and the improved grid mix. Our focus on ethical supply chain management continued to mature, and digital inclusion remains a priority with Skinny Jump now supporting more than 34,500 households nationwide. Shortly after the close of the half, we completed our data center transaction, which is summarized on Slide 13. As you'll be aware, Spark has retained a 25% stake in the new stand-alone entity, now named TenPeaks Data Centres. This provides Spark with ongoing exposure to significant long-term growth opportunities in the market with strong structural tailwinds. Spark received initial cash proceeds of approximately $453 million, with up to $98 million in deferred proceeds contingent on performance milestones through 2027. The proceeds strengthen our balance sheet and provide additional financial flexibility as we execute our strategy. Slide 14, we provided an update on how we're tracking against our FY '30 ambitions. At the half year, our SPK-30 ambitions remain on track. Financially, we delivered growth in EBITDAI, NPAT and free cash flow, supported by cost discipline and improving mobile performance. Looking at nonfinancial ambitions, we strengthened the foundations of long-term value, including network coverage leadership, a 5 point lift in iNPS, rising employee engagement and continued progress on our sustainability commitments. I'm now going to hand over to Stewart to speak to the financial results in more detail. Stewart Taylor: Thanks very much, Jolie, and good morning, everyone. I'm going to start with Slide 16 and 17, which summarize the result, probably focusing more on Slide 16. We've got our reported results on the left-hand side of Slide 16. Now this excludes our data center business from the headline EBITDAI and top line P&L numbers; the net earnings contribution booked as a one-liner and that discontinuing operation line, which you'll see there called out as a separate line, just above total net earnings after tax expense. So for the adjusted results, the data center contribution is actually included in the applicable P&L lines rather than being classified as a discontinued operation, hence, why you don't see any numbers in that line for the adjusted numbers. So looking at growth rates, reported EBITDAI was up 10% in H1 '26 versus H1 '25, the equivalent growth rate of 5% for adjusted EBITDAI growth over the same period here, the difference here largely due to the lower H1 '25 reported earnings base given the data center adjustments and the transformation costs, which were booked in H1 of '25. Just for clarity, so the discontinued earnings of $10 million showed a significant increase on the previous comparable period. This was because the data assets held for sale were no longer being depreciated in H1 '26. I'll now move over to Slide 18, and I'll talk to capital expenditure. So you'll see in H1 '26, on the right-hand side there, so the right-hand column there, total CapEx was $271 million, and that excludes spend on spectrum. This was $19 million or 8% higher than the prior comparable period. And the key driver of that increase has been the $54 million in strategic CapEx associated with the data center business. This is something we outlined in our guidance at the beginning of this year. So if I exclude that strategic CapEx, Spark's BAU CapEx was 9% or $21 million lower than in H1 '25. Now this reflects lower network spend, so our 5G rollouts matured. We've had been through a period of accelerated spend there, and our spend on IT systems, fixed networks and international cable capacity has been broadly consistent with that in 1H '25. Now in the first half of this year, we've also reported $7 million spend on new spectrum. This is the net present value of 18-year rights we acquired from Tu Atea for 20 megahertz of 5G spectrum. Now looking forward, with the exception of $1 million spent on the data center business in January before that transaction completed, we are not expecting any further strategic CapEx going into H2. So looking forward to H2, the focus of capital expenditure and beyond will be on projects that align with our SPK-30 strategy and drive our core connectivity business. We'll also be taking the discipline we've employed in H1 forward, and we remain on track to deliver to FY '26 BAU CapEx within our guidance range of $380 million to $410 million. So this implies that H2 '26 BAU CapEx will be in the range of $163 million to $193 million. So moving to the free cash flow page, this is Slide 19. Again, we remain focused on the conversions of earnings to free cash flow given the importance this plays in determining our dividend. So overall free cash flow in H1 '26 was $107 million. This was 84% higher than H1 '25. And this was impacted predominantly by 2 lines in the table that you can see on the right-hand side there. The first is the 10% increase in reported EBITDAI between periods. The second is a significant reduction in cash tax paid, which is largely related to timing and would normalize in the second half of the year. Just running through this note that, year-on-year, there was an increase in cash paid on leases. This is because the H1 '25 payment was lower than we'd have expected due to a one-off cash benefit from the corporate office move to 50 Albert Street at the end of calendar '24. Now near the end of December, we announced the sale of our interest-free payments or our IFP receivable book for $240 million. The positive impact of the sale has been adjusted from the free cash flow number, and this has been done net of growth in the IFP book since the start of the year, which was around $27 million. And having entered into a finance agreement with Challenger on the IFP book, we will undertake regular sales of that book going forward, which means we can continue to grow this book without impacting our working capital balance. Again, importantly, remain on track to meet our FY '26 free cash flow guidance of $290 million to $330 million. And this does imply in H2 weighting of free cash flow, which will be driven by our EBITDAI profile in the second half, lower CapEx in the second half, an improvement to our working capital balance, and this will be partially offset in the second half by higher cash tax payments. So if I go to Slide 20, debt and dividends, what we've seen is an overall reduction -- a further reduction in the overall level of net debt in the last 6 months. This has been supported by the sale of the IFP book and offset in part by higher strategic CapEx. So if I exclude leases, net debt now sits at $1.39 billion, 5% lower than at 30 June '25. The net debt-to-EBITDAI ratio's steady at 2.2. This isn't materially impacted by the sale of the IFP book. Now you'll see in the chart on this slide that we've put a bar over on the far right there, indicating what we consider to be our pro forma debt position as at the end of January 2026 based on the completion of the data center transaction. Now as a result of that, net debt ex leases reduces by $453 million to around $940 million. But more importantly, our net debt-to-EBITDAI ratio would be reduced to around that 1.7 level, which is consistent with that required for our targeted credit rating. The final point to note here is our interim dividend of $0.08 per share, and this is based off our full year free cash flow guidance. The interim dividend has been imputed at 50% as we seek to bring that imputation credit balance back to a sustainable level and manage our balance sheet as efficiently as possible. Slide 21, we've outlined our key debt metrics. I'll note 2 things briefly here. Firstly, the absolute amount of debt we carry forward will lead to lower interest costs. However, some of this benefit will be moderated by our residual debt profile. And secondly, interest cover based on our EBITDAI over financing cost remains very healthy at 8x. Now finally from me, the Slide 22, which is reaffirming our FY '26 guidance and given the completion of the data center transaction, we've obviously focused our guidance on excluding DC earnings from the last 5 months of the financial year. In all cases, the guidance has not changed since we supplied it to the market in August last year. One thing we have done is we've updated the strategic CapEx to $55 million, having completed the sale of DCs. Again, this reflects the $54 million we spent in H1 '26 and an extra $1 million we spent in the month of January. Importantly, we retain our EBITDAI guidance of $1,010 million to $1,070 million, which is -- which, if I took the midpoint at $1,040 million, would imply a more normal first half to second half earnings split of 45%, 55%. On that, I will hand back to Jolie to provide a final summary. Jolie Hodson: Thanks, Stewart. So to summarize, despite soft market conditions persisting in parts of the portfolio, Spark delivered a clear step-up in performance during the half. Our strategic focus on core connectivity is gaining traction. Mobile showed clear signs of momentum with ARPU strengthening and connection stabilizing. While broadband remains -- revenue remains stable. Our cost reduction program delivered material benefits and when combined with mobile, supported a return to EBITDAI, NPAT and free cash flow growth. The drivers of our market competitors, our network and customer experiences continue to strengthen and differentiate Spark. And the completion of our data center transaction in January has reduced net debt back to targeted levels for H2. There's more work to do, but this progress reinforces our confidence in the strategic direction we set under SPK-30 strategy. And Spark's becoming a more focused, efficient and resilient business, well positioned for the second half and beyond. We're now going to open the floor to questions. So I'll hand back to the operator. Operator: [Operator Instructions] Your first question comes from Entcho Raykovski with E&P. Entcho Raykovski: My first question is just around the cost out target for the full year. I guess, given that you've effectively delivered the cost out target in the first half but the top end of the full year cost out guidance is unchanged, can you talk about the expected uplift in other OpEx in the second half, which offsets any further cost savings? And if you can sort of -- as part of that question, if you can talk to whether that then trends into FY '27 because I presume that there will be some carryover. Jolie Hodson: Okay. Thanks, Entcho. Maybe I'll kick off and then if Stewart's got anything he wants to add. So if you look at the overall savings reductions you saw in the first half, we obviously saw a number of labor changes in the back half of FY '25. So we had the benefits flow through in '26. While there's still some simplification work, we also have costs like severances and other things that will sit within our existing cost for this year. So what we've done is delivered upfront the labor savings, the product cost savings and other OpEx. So if you look forward then, what are some of the things that are impacting the second half, we've cycled, as I said, quite a bit of that labor savings. We had a lower H2 last year off the back of that. Our new network technology delivery model, that always had reduction in labor but increase in some of the other OpEx costs and then like every business has some inflationary costs within it. So really what we're saying is, over the year, we'd expect to deliver in that $40 million to $50 million range around our cost program. We have achieved most of that in that first half. Yes. Sorry, the other thing I just would call out is marketing would normalize in the second half as well. So we had an upweighted investment of around $11 million in the first half, but we'd already lifted that in the second half of '25. So we don't have that same flow-through in the second half of '26. And if I think -- maybe just to the second part around '27, like any business, we'll continue to have simplification that we will be looking at that looks at both use of technology, what we're doing around both our product and our business overall. So that doesn't sort of indicate that we've run out of cost to focus on. It's really more, if we think about what's happened in the year, we've already delivered most of the costs that we needed to within that. Entcho Raykovski: Okay. Great. And my second question is just around wireless broadband. Subs were marginally down in the half -- half-on-half. I guess, is that a reflection of the fixed wireless market as a whole? Or are you perhaps seeing some share losses in wireless broadband? And I think you've talked about a plan refresh in the second half. Are you able to give us any more color around what you're planning? Jolie Hodson: Yes. So I think if you look at the overall position of wireless broadband, we do have very strong, way above our ambient share of our market share, so -- and it's a competitive marketplace. So as others look to compete in that space, we would expect that you would see potentially some movement on that. With the plans, we have looked at refreshing both price and the products that we bundle that with as well. So that's what we would expect to see in the second half. The other thing also, of course, is as 5G rollout continues, you have a broader addressable market to consider within that and therefore, the ability to lift up those wireless broadband connections as well within that. Entcho Raykovski: Okay. And my final question is around mobile. The recovery you're reporting, particularly in consumer and SME, are you seeing some of the competitive intensity coming out of the mobile market? Or is it perhaps driven by that economy stabilizing that you've talked about? I suppose if you can sort of expand on what you're seeing on the competitive front from the other operators. Jolie Hodson: I think if you think about the broader economy, obviously, as that stabilizes and starts to improve, that has a flow on a peak. There's a range of things from that -- that impact that. If we think about competition, I don't think we're in any less competitive marketplace. But what we have seen with some of the plan changes we've done, the overall value offering we've got, we've seen people stepping up in terms of -- and the plans, the mix over $65 plans growing within that reporting period. We also saw quite a strong IFP sale. And the work we've done around our IFP as well in terms of -- sorry, when I say IFP sale, the Apple launch, the new handset launch and linked to that, the step-up in IFP within that. We're seeing customers generally just looking for more value but also the opportunity to spend around that. So that's where the improvement has been in SME and consumer. I think in enterprise, what we have seen probably is while it's still a competitive market, much of that change that particularly was ARPU led has been reflected in the base during 2025. And then we have seen -- we did expect to see some in '26, and we have done, but that is stabilizing as well and connections have within that. Operator: Your next question comes from Phil Campbell with UBS. Philip Campbell: Just 3 quick questions for me. I just wanted to maybe ask a question, Jolie, just kind of standing back a little bit. Obviously, there's been quite a lot of change going on in Spark in the last kind of 12 to 18 months, a lot of head count reduction and obviously the new focus on connectivity and the new rebranding. And just kind of from your perspective, like, how are you feeling internally like in terms of the morale of the business? You're feeling as though you're getting some momentum back after that period of kind of change and disruption? Jolie Hodson: Yes. I mean we have come through a period of significant change, both in the marketplace but in our organization. The new strategy, I think, has given us a very clear focus on core connectivity, which is really at the heart of what we're doing within that mobile. I think people's excitement around the opportunity to continue to invest and see that grow and we're seeing it in those early results within that, is lifting both engagement and the overall, I guess, feeling within the organization, you can see that, too, and some of the nonfinancial metrics that we put up in terms of increase we've had in engagement over the last half. So yes, we feel like we are focused on the right things. We are seeing progress in marketplace and our people who engage with that. Philip Campbell: Okay. Awesome. Just a quick question for Stewart just on the data center final payment. Obviously, that was about $33 million lower than what was announced in middle of last year. I'm assuming that was due to the fact that the CapEx was a bit slower. But then when I look at the CapEx numbers being reported today, it doesn't really feel as though the CapEx was much lower. So I just wanted to get an explanation as to what's driving -- what am I missing there in terms of that $33 million difference in the proceeds? Stewart Taylor: Yes. No, I think broadly, Phil, you're spot on. So we -- I think when we guided in August, we guided to a range on that CapEx, and so the initial purchase price was based at the -- based on the top end of that strategic CapEx range. And those were -- I mean much of that money was spent on always commitments that we've made on land purchases, so form part of that transaction perimeter. I mean there will be other small adjustments there in terms of various working capital balances, employee liabilities and other things as we sort of work our way through what that final -- I guess what that final price is and what the final asset base is that gets transferred. Philip Campbell: So just so I think the original guidance was CapEx of $50 million to $70 million. You're obviously coming in at like $55 million. So is the kind of balance for that $33 million, is that just working capital and other stuff that's... Stewart Taylor: Yes. I mean there will be a series of other purchase price adjustments that we make in there as well, and you've also -- we probably need to consider the fact that we also have transaction costs as well. Philip Campbell: Right. Got you. Just the last question for me is just wanted to get a sense, when I speak to industry context within IT services, what they're saying to me at the moment is you are seeing a number of New Zealand corporates really kind of starting to get on the AI train and starting to wanting to deploy AI workloads and stuff like that. And then also, I think following that, Manage My Health cyber incident, there seems to be a number of customers increasingly concerned about cyber, and that was potentially generating some work. I just wondered if you guys are seeing any of that in the market kind of the side of Christmas. Jolie Hodson: I think prior -- there is more business activity than there was. But if you think about some of the bigger programs and those sorts of things, we have not seen as much prevalence of it. As we look to the second half, I think some of that activity starts to come through because also when you think about the larger sort of IT projects or things we might be involved in, there's a reasonable amount of time to contracting to then delivery to -- and that's really wherein, say, service management, we're seeing the most impact of some project work, not the annuity type of work that we have within that place. So I think there are some green shoots, but we are way off being back anywhere close to where it was previously. Operator: Next question comes from Arie Dekker with Jarden. Arie Dekker: First question just in relation to a couple of areas of guidance in terms of what's possible in 2027, particularly given 100% payout of free cash flow for the dividend this year means that the sustainability of it, there is a bit of a tightrope. So the first one, I guess, is you've sort of signaled that the 5G rollout is maturing. Can you give a bit of color as to how much of the FY '26 BAU CapEx can be removed in FY '27 associated with that 5G spend coming off and any other areas? Jolie Hodson: I think if you think about it maturing, Arie, in the 2 years prior, we invested heavily ahead of that. We'd accelerated that. So we'd put quite a lot more capital investment into both building a stand-alone core, which we now have stood up and then also acceleration. So as we look at '26, we've already bought that back from where it was, and so both '25 and '24. And I think that broadly reflects what I'd say as an ongoing normal level of mobile investment. We'll still have work to do, and I touched on, we've got about 100 more sites that we will upgrade or build out in the second half, and that will continue in '27. So I don't think mobile will be a significant reduction ahead. All we're saying is that, in this year, it has slowed a bit from where it was because we'd over -- we'd upweighted that investment. Arie Dekker: Any other areas then? Jolie Hodson: I think across other areas, we'll continue to manage. We've set out the 10% to 12% is really a focus for us in terms of the CapEx to revenue, and there's nothing that we're stepping off in relation to that. And I guess, in any given year, you can be at one end or the other of that. But given we're not out yet providing sort of '27 guidance yet, I think probably more that just focus of -- on '26 of delivering within what we have set out. Arie Dekker: And then in terms of the process for Meta, which is well underway, I mean I don't know if you want to give an update on that, sort of talked to it in the materials. But in terms of the cash burn there, have you set a drop-dead date, for example, at the end of FY '26 where you'll commit to just closing it down if you can't bring in a party to sort of help fund that going forward? Jolie Hodson: I think what we've shared is that we have a process underway. We are focused on it. We will have an update at August to provide on that. I don't have a drop-dead date for that, but clearly, we will be considering all areas of investment we make in the business, and we'll make an informed decision. Arie Dekker: Okay. Just moving to the reorganization of the revenue segments and security and high tech ex health moving into other connectivity. I mean can I read into that, that sort of further refining what sits in and out of the perimeter of core versus noncore business and then, I guess, ask if you are progressing towards a strategic review of the noncore IT businesses comprising, I guess, what's left, cloud security and procurement? Stewart Taylor: I think, Arie, Stewart here. I think probably it's more just me looking to simplify some of the disclosures. So in particular, those areas where we'd probably get, we see less questions on and less significant in the total picture. So I wouldn't read much more into it than that. Arie Dekker: Perhaps to you, Jolie, like is there a consideration being given to strategic review of the IT businesses? Jolie Hodson: I think we indicated when we did the strategy at the end of last year, our first focus is really on simplification of those businesses. We've already made quite a lot of adjustment to operating models that support those, particularly in the labor cost, which you can see flowing through. We will always continue to review all parts of our portfolio to determine whether we are the best owner at any point in time, and that will continue to be the case, whether it's IT services or another component. Arie Dekker: Yes, just a quick one. Just announced in mid-September that a COO was to be appointed, obviously, sort of 5 months on from there. Can you just give any update on the status as to that vacancy, which is obviously quite an important one [ in the process ]. Stewart Taylor: We are in the process of that recruitment. We have very competent acting COO at the moment within the business. And when I have something more to share on the process, I'll -- we'll, no doubt, update the market. Arie Dekker: And then last one for me, just returning to broadband. Just interested in what you see happening in urban versus rural with regards, I guess, churn and also in particular, fixed wireless. So I guess one of the questions I have is what are you seeing happening on the conversion of your copper disconnections and rural to fixed wireless over customers going to Starlink. And for fixed wireless, is it more competitive now in rural than it is in urban for you because of satellite's growing penetration? Jolie Hodson: I think it would be reasonable to assume that there is more competition as satellite, particularly on that copper removal process or the loss of copper connections within that, and therefore, satellite plays a role in solving it. So yes, there's definitely some component of that, that is more competitive in that space. Overall churn rates for wireless are pretty consistent, and they're consistent with our fiber as well. So it's not that we've got a load of customers coming off that. And sequentially, if you look, we -- broadly kind of the base has been stable. There's still opportunity out there. But I think as we've talked about, that's linked to further rollout of the 5G. We are looking at some plan changes within that as well, and we have already made some at the higher end of that around pricing as well. So we will look to continue to compete in that area, but there is no doubt that in rural, there would be a little bit more competition than there has been historically. Operator: Your next question comes from Wade Gardiner with Craigs Investment Partners. Wade Gardiner: I've got a couple of questions. I'll start with the guidance, small print on Slide 22. You say that the data centers were accounted for as an associate for the remainder of FY '26. But what about for the first half? Does this guidance include the data centers in there for the first half in EBITDAI? Because my understanding was the old guidance before this guidance that you gave back in August excluded the data centers. Stewart Taylor: The -- so the guidance we provided, so the -- so adjusted EBITDAI includes the first 7 months of the data center business on a consolidated basis. And then going forward, as we're a 25% owner of that, we'll obviously account for it based on our share of associate earnings. Now we provide -- the guidance we provided at -- in August had -- we had an excluding data centers set of guidance there and what that did, Wade, is that included 6 months' worth of the results, i.e. fully consolidated and based on the fact that we were then going to deconsolidate for the remaining 6 months. So it's pretty much on a like-for-like basis to that. Wade Gardiner: Right, by the 1 month. Stewart Taylor: Correct. Yes, which in the big scheme of things, we don't consider to be material. Wade Gardiner: Okay. No, no. So my understanding was that the guidance in August excludes the data centers, but... Stewart Taylor: Exclude, yes. Jolie Hodson: We provided both, so you can see, excluding and including, but the numbers are consistent to what we provided folks leading -- yes. Wade Gardiner: What about asset sale gains, which were $24 million in the half? And previously, they've sort of run -- I mean I know they jump around a bit, but I'd say, typically, they run an annual rate of sort of 25 to 30. So what have you gotten there in the guidance for those sale gains this year? Stewart Taylor: Yes. So on the full year guidance, so the other gains, and this excludes any gain on the data -- on the sale of the data center business, we'd expect that to run at about $30 million this year as well, Wade. So that's what -- that has been more heavily weighted towards 1H. Jolie Hodson: As it was last year. So you had $23 million last year. You got $24 million this year. There's no real change and neither is near around the end point of about $30 million. It's very consistent. Wade Gardiner: Okay. The enterprise and government connections, can you just sort of -- you talked about you've added 7 with some losses in the half. What should we assume that happens to ARPU as a result of that? Jolie Hodson: So ARPU doesn't really change that much as a result of that because, basically, we see the losses as more so from low connection, a bit of 3G closure and a little bit of fleet shrinkage. So where we've won new customers, they've come on, that's sort of been reflected in our overall forecast of where we thought those ARPU declines would be. So they have -- so if you think about the end of FY '25, that ARPU decline was sitting at around 13%. Now it's about 7.8%. So it's moderating because a lot of -- our book has already experienced some of that change, and we continue to win new customers in marketplace as well. Wade Gardiner: Okay. So another way to put it. I mean, you went from sort of 13% to 7.8%. What -- are you willing to put a number around or a range around what we were likely to see in the second half for ARPU in the segment? Jolie Hodson: One thing, you'll still have customers that will renew under new rates over that time. I think keeping it at around about a rate of that sort of 7% across the year is probably about right because we think about it. Contracts last for multiyears, so they don't all come up at the same time. But we feel like a large component, the government shift happened last year, not this year. Wade Gardiner: Okay. And just on Slide 8, you talked about strong pipeline of market activity. How much of that would you argue is chargeable where we should see a positive ARPU impact versus the impact really and retentions and connections rather than ARPU? Jolie Hodson: Well, I think in terms of -- well, from an ARPU perspective, we've taken pricing. We've seen mix improvements. And I think if you think about what some of this helps support, it does help support the higher value plans. You've got more to offer in there if you think about satellite, for example. In terms of stand-alone capabilities, you're looking more at new forms of enterprise charging for in relation to those private networks because they're generally around distribution-type businesses or where logistics are involved. Roaming, again, that's about making sure we remain -- we're competitive in the marketplace and things like the customer experience. So there'll be a range that will be -- attract new customers and allow you to support a shift up into higher plans. And there will be a range of things that is about just maintaining that sort of retention of customers, which when you think about our base and we've got -- we're about 6% -- up to about 5% to 6% market share higher than our sort of competitor set, then that's a really important part of what we do as well in terms of retaining the customers we already have. Operator: Your next question comes from Ben Crozier with Forsyth Barr. Ben Crozier: Just a quick question on guidance. If we look at rolling 12-month, EBITDAI is sort of sitting at $1.08 billion. And there's no DC contribution of that EBITDAI line in that second half. But if we look at what the guidance is implying for the second half. At the midpoint, I get sort of minus 5% year-on-year if we take out DCs. Can you just sort of step through what are the moving parts in the second half, sort of costs and gross profit and maybe in a few of the key revenue items? Stewart Taylor: I think -- so I mean, the way I look at it, Ben, is that we're going to deliver about 45% of our EBITDAI at 1H and about 55% in 2H. So if I look at some of the drivers -- I mean, if I look at some of the drivers of that, so some of that will be the benefit of the momentum we've got in the mobile business. There'll also be ongoing -- so half-on-half, we consider we'd continue to see ongoing reductions in labor costs. So we've got the run rate benefit of the [ RIF, FTE ] reduction in the first half. That flows through to the second half if I look on a half-on-half basis. We will have a lower OpEx base in the second half, and we'll also work -- we also have to see significant reductions in our product costs as well. So we're looking to offset some -- we're looking to book some benefits there as well. So those are broad brush where you'd see that sort of step-up half-on-half. Ben Crozier: You're still talking like labor cost savings, lower OpEx, but EBITDAI year-on-year is down. Like I assume gross profit then, your budgeting is down year-on-year. Is that fair to assume? Stewart Taylor: That's -- I think year-on-year, we'd end up pretty flat yet, adjusting for data centers. Ben Crozier: Yes. And then just on the sort of legacy business lines, other connectivity. So if you call out this migration of legacy products to modern lower ARPU solutions, sort of how far through that migration do you think you are? Are we sort of at the start of it? Are we nearing the end? Are we somewhere in -- halfway in between? Jolie Hodson: I think it depends on the different products that you're talking about. In service management, we are a reasonable way through as the customers move across into that. We've been doing that for a period of time. If you look at some of the other areas, like managed data, that will continue to happen as you see the shift from legacy WAN to SD-WAN. So probably, you still got a reasonable, I think, maybe a 30%, 40% done and still 60% to 70% to go across that because when you think about enterprise products, particularly, they're long -- you've got customers on longer-term contracts. Those changes happen as they renew or move off, but with them, often comes a lower cost of supply as well. Ben Crozier: And maybe just last one on marketing cost. Obviously, you stepped up quite a bit of the new brand campaign out there. Is this sort of the level we should expect going forward? Or do you think it will revert back to where it was a couple of years ago? Jolie Hodson: I think we -- it's important to continue to support investment in our brand and business growth. As I sort of flagged, you shouldn't replicate the first half and the second half because we've already -- we stepped that up in the prior year. But if you were to look at a kind of total year investment being the step-up you've seen in half 1 plus sort of taking H2 '25, that would give you a good sense of the kind of level. Operator: There are no further questions at this time. I'll now hand back to Ms. Jolie Hodson for closing remarks. Jolie Hodson: Okay. Thank you, everyone, for joining the call and for your ongoing support.
Operator: Good afternoon, and welcome to AtriCure's Fourth Quarter and Full Year 2025 Earnings Conference Call. This call is being recorded for replay purposes. [Operator Instructions] I would now like to turn the call over to Marissa Bych from the Gilmartin Group for a few introductory comments. Marissa Bych: Great. Thank you. By now, you should have received a copy of the earnings press release. If you have not received a copy, please call (513) 644-4484 to have one e-mailed to you. Before we begin today, let me remind you that the company's remarks include forward-looking statements. Forward-looking statements are subject to numerous risks and uncertainties many of which are beyond AtriCure's control, including risks and uncertainties described from time to time in AtriCure's SEC filings. These statements include, but are not limited to, financial expectations and guidance, expectations regarding the potential market opportunity for AtriCure's franchises and growth initiatives, future product approvals and clearances, competition, reimbursement and clinical trial outcomes. AtriCure's results may differ materially from those projected. AtriCure undertakes no obligation to publicly update any forward-looking statements. Additionally, we refer to non-GAAP financial measures specifically constant currency revenue, adjusted EBITDA, adjusted EBITDA margin and adjusted loss per share. A reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures is included in our press release which is available on our website. And with that, I would like to turn the call over to Mike Carrel, President and CEO. Michael H. Carrel: Thank you, and good afternoon, everyone, and thank you for joining us. 2025 was an exceptional year at AtriCure with achievements across our business. We closed the year with total revenue of $534 million, reflecting 15% growth over 2024 and made substantial improvements to profitability and cash generation with nearly $62 million in adjusted EBITDA and $45 million in cash generated in 2025. More importantly, 2025 demonstrated the power of our innovation engine. We accelerated worldwide revenue growth in 3 of our 4 franchises, driven by newer product launches such as our cryoSPHERE MAX Probe and AtriClip FLEX-Mini device, continued adoption of our therapies, notably with the EnCompass Clamp and launched two new products during the year, our AtriClip PRO Mini and cryoXT PRO, as a result of our strong operational execution and meaningful progress across these strategic priorities, we are well positioned for the year ahead and reaffirm our guidance for 2026 revenue growth of 12% to 14% growth. It is now almost 1 year since we hosted our March 2025 Analyst and Investor Day, where we featured several catalysts for our business and established long-term financial targets. We committed to sustained double-digit revenue growth, expanding profitability and meaningful cash generation, and we have delivered on all three, simply put, we are outpacing the plan. We generated revenue growth of 15% for the year, and the operating leverage in our business is becoming increasingly visible. R&D spend is leveling off with the completion of the enrollment in LeAAPS. Our commercial team is driving efficiency gains in SG&A and our new product launches are contributing to gross margin improvement. In addition to our financial progress, we have advanced key strategic initiatives outlined at our Investor Day. First, our groundbreaking LeAAPS clinical trial completed enrollment of more than 6,500 patients last July, well ahead of expectations. This trial is evaluating the benefit of our AtriClip devices on non-AF patients undergoing cardiac surgery representing a global opportunity of nearly 1.4 million patients each year. Interest and participation from our trial investigators was outstanding, with more than 500 surgeons across 137 different sites who enrolled in the LeAAPS trial. During the years ahead, we will continue to follow LeAAPS patients as we await the results of the trial. Following LeAAPS enrollment, we initiated our BoxX-NoAF clinical trial, a 960 patient randomized controlled trial aimed at reducing the onset of postoperative Afib in cardiac surgery patients who do not have preexisting Afib. Up to 50% of cardiac surgery patients without Afib will develop postoperative Afib, making it the most common complication in cardiac surgery. The stark reality is that these patients tend to see worse acute and long-term clinical outcomes. Postoperative Afib is also associated with higher health -- higher health care cost burden, with estimates exceeding $2 billion annually in the United States alone. Using our EnCompass Clamp and AtriClip devices, we believe this trial will demonstrate the benefits of ablation for non-AF patients during cardiac surgery. We are pleased with our progress on the site initiation and enrollment today and look forward to updating you throughout the year. In addition to these landmark clinical trials, we are also advancing development efforts on our dual energy EnCompass Clamp. Our goal for this program is centered around shortening RF ablation times and introducing PFA as a complementary energy source. On its own, our innovative EnCompass Clamp technology was a significant step in streamlining cardiac surgery ablation procedures, leading to increasing adoption. Now by pairing advanced RFA with PFA in our EnCompass device, we will deliver unprecedented speed and flexibility for surgeons. During 2025, we reached two milestones with our development partner and completed first-in-human treatments in December with excellent results. In the year ahead, we expect to finish device and generate development in preparation of the initiation of a clinical trial, marking another key milestone in our product development pipeline. At our Investor Day, we shared our strategy for building upon the greenfield opportunity in surgical pain management, including expansion into amputation procedures. We launched our cryoXT device for pain management and amputation procedures in the third quarter of 2025 and continue to receive overwhelmingly positive surgeon feedback. Patients are recovering faster than ever, experiencing less acute postoperative pain and in many cases, with reduced phantom limb pain as well. We are being deliberate in our rollout with each Cryo Nerve Block at focusing on one account at a time to ensure adoption is sticky before expanding our user base. As we cultivate this opportunity, we expect cryoXT to contribute more meaningfully to revenue in the back half of 2026. Taking a step back, each strategic initiative coupled with continuous product innovation that is the hallmark of AtriCure supports our vision to create standards of care across all of our markets. BoxX-NoAF and LeAAPS also share an objective that is truly transformational for our company, moving standards of care in cardiac surgery towards preventative treatment of Afib and related complications. Both trials enable AtriCure and AtriCure alone to unlock massive market expansion opportunities and future growth acceleration. Now on operational highlights from each of our franchises from the fourth quarter and full year 2025. Starting with pain management. In the fourth quarter of 2025, we achieved 24% growth, driven by continued increasing adoption of our cryoSPHERE MAX device. The time savings offered by this device compared to our legacy probes have been compelling to surgeons, particularly there was in thoracic surgery. For the year, worldwide revenue grew 33% in 2025 and marking an acceleration for 2024 growth. We ended the year with roughly 500 accounts in the U.S., choosing our cryoSPHERE MAX device and saw growth in accounts utilizing Cryo Nerve Block worldwide. In addition, during 2025, we reached over 100,000 patients treated with our cryoSPHERE probes, framing the tremendous growth and patient impact of this franchise since launching in 2019. Turning now to appendage management. We delivered fourth quarter growth of 15% globally, with open left atrial appendage growth well outpacing our MIS left atrial appendage devices. We are pleased with the consistent momentum of our open appendage management business, which powered full year worldwide revenue growth for our left atrial appendage franchise of 19% and again, marking an acceleration over 2024. AtriClip FLEX-Mini and AtriClip PRO Mini largely drove this acceleration in growth with the surgeons drawn to the low profile of our mini AtriClip devices. Much of our growth is volume driven, though we also benefit from a favorable price mix as surgeons convert from legacy devices. We exited 2025 with over 300 active accounts purchasing FLEX-Mini and saw FLEX-Mini contribute 18% of our worldwide left atrial appendage management revenue in 2025, leading to increased market share in the United States. We believe our innovation along with our robust clinical evidence and superior product performance has and will continue to differentiate our AtriClip devices from the competition. Within our Afib ablation franchises, open ablation growth came in over 17% for both fourth quarter and full year 2025 with the EnCompass Clamp being the primary contributor. The durability of EnCompass growth since launch in 2022 exemplifies the staying power of AtriCure innovation. As I mentioned earlier, EnCompass dramatically reduced procedure times and simplified open-heart ablation enabling a deeper penetration in treating Afib concomitant to cardiac surgery. Our EnCompass Clamp is now present in over 830 accounts worldwide, reflecting a mid-teens increase over 2024. In the U.S., our EnCompass utilization is further along we are seeing adoption largely improve in penetration of CABG procedures. That said, the treatment of pre-op Afib patients undergoing cardiac surgery remains vastly underpenetrated. At the most recent Society of Thoracic Surgeons, STS conference last month, we were excited to learn that concomitant Afib treatment is no longer optional. It will be a quality metric in which hospitals will be evaluated and graded by their adoption of this metric. By early next year, it will be included in star ratings, which patients and physicians use to determine who provides the best care. This is only the second time in the past 25 years, where a therapeutic treatment has become a quality metric in cardiac surgery, and we want to recognize the contributions of our physician partners to this effort. They have put a stake in the ground related to the treatment of Afib, which will benefit tens of thousands of patients moving forward. This change builds upon existing societal guidelines that recommend treatment, and AtriCure's specific technology, which makes it feasible to treat, placing a spotlight on the opportunity for continued growth in open heart procedures. And finally, in minimally invasive Afib treatment, our hybrid Afib therapy continued to feel the pressure of PFA adoption in the U.S. in 2025. This was a tough headwind for our business. With full year worldwide revenues declining 26% for 2024. We believe there's a compelling clinical value for Hybrid AF therapy in patients with long-standing persistent Afib. However, it is undeniable that PFA catheters are dominating the stand-alone Afib treatment right now. As we exited the year, we saw an encouraging sign with sequential revenue improvement in the U.S. from the third quarter to the fourth quarter and added accounts performing the conversion procedure. While these signals are positive, we are looking for evidence for further stabilization of a Hybrid franchise, which reflects broad-based and repeatable trends across our customers. We remain prudent in our outlook and are assuming continued pressure in our U.S. Hybrid business in 2026, although we are anticipating a lower rate of decline than in 2025. We remain committed to this market in the millions of patients with advanced Afib who can benefit from our approach. And our team and infrastructure remain ready to scale as the market recognizes the value of Hybrid AF therapy. In closing, 2025 was a year of substantial growth and remarkable execution for AtriCure. Our progress is a testament to the dedication of our talent of the extended team who remain committed to advancing our mission and our goals. We are delivering better than promised growth, financial and strategic initiatives and are excited for our momentum to continue in 2026. and we will work to transform standard of care in each one of our markets for many years to come. And with that, I will turn the call over to Angie Wirick, our Chief Financial Officer. Angie? Angela Wirick: Thanks, Mike. For the fourth quarter 2025, worldwide revenue reached $140.5 million, representing growth of 13.1% on a reported basis and 12.1% on a constant currency basis when compared to the fourth quarter of 2024. U.S. revenue grew 12.6% to $114.3 million from the fourth quarter of 2024, supported by robust contribution from newer product launches in pain management and open appendage management, specifically our cryoSPHERE MAX and AtriClip FLEX-Mini devices, along with continued adoption of our EnCompass Clamp in open ablation. International revenue totaled $26.2 million, up 15.3% on a reported basis and 9.9% on a constant currency basis as compared to the fourth quarter of 2024. While our international markets delivered solid growth overall, our fourth quarter results were impacted by a decline in sales in the U.K. due to ongoing funding and reimbursement uncertainty with the National Health Service. The U.K. has been our fastest-growing European market in 2023 and 2024, so this created a meaningful impact in the fourth quarter. Sequentially, worldwide sales grew $6.2 million or 4.6% over the third quarter of 2025. Gross margin for the fourth quarter of 2025 was 75%, an increase of 45 basis points from 2024, driven primarily by favorable product mix. Research and development expenses decreased $10.5 million on a reported basis, largely due to the upfront payment of $12 million for our exclusive licensing and co-development agreement for PSA Technology in the fourth quarter of 2024 and offset by a $1 million milestone payment in the fourth quarter of 2025. Excluding these charges, R&D was approximately 2% higher in the fourth quarter of 2025 compared to the prior period, with a decrease in LeAAPS clinical trial costs offset partially by enrollment activity in our BoxX-NoAF clinical trial. SG&A expenses increased $6.2 million or 8.5% over the fourth quarter of 2024, showing continued leverage when compared with 13% revenue growth. In the fourth quarter, we also continued to build on our momentum on the bottom line, delivering both positive adjusted EBITDA and net income. We drove positive adjusted EBITDA of $19.9 million for the fourth quarter 2025 compared to $12.7 million in 2024. And net income of $1.8 million versus a $15.6 million net loss in 2024. Earnings per share in the fourth quarter of 2025 was $0.04 and adjusted earnings per share was $0.06, representing a significant improvement over fourth quarter of 2024, which reported a loss per share of $0.33 and an adjusted loss per share of $0.08. Now to review full year 2025 results. Worldwide revenue was $534.5 million, an increase of 14.9% on a reported basis and 14.4% on a constant currency basis, well ahead of our initial 2025 guidance range of 11% to 13% growth. U.S. sales increased 13.7% to $435.4 million, international sales increased 20.2% on a reported basis and 17.5% on a constant currency basis to $99.2 million. U.S. open ablation sales increased to $143.8 million or 16.3% growth over 2024, driven by continued strength from EnCompass Clamp sales, which ended the year contributing over 60% of our U.S. open ablation revenue. Our U.S. pain management franchise grew 32.5% to $81.9 million propelled by rapid adoption of the cryoSPHERE MAX probe in both new and existing centers. U.S. appendage management sales reached $178.1 million, a 17.5% increase over 2024, with approximately 24% growth in open appendage management devices offset by a 6% decline in MIS appendage management devices. The primary driver of open appendage management growth in 2025 was the adoption of our AtriClip FLEX-Mini device. And finally, U.S. MIS revenue was $31.5 million, reflecting a 31.2% decline over 2024 as customers prioritize PFA catheters over our devices. Our Hybrid business was a strong headwind throughout 2025, with a $16 million total decline in our U.S. MIS ablation and MIS appendage management devices. However, taking a step back, the combined strength of our U.S. open ablation, open appendage management and pain management franchises grew U.S. revenue by nearly $69 million or 22% in 2025, more than offsetting the pressure from Hybrid. International revenue saw robust growth across major geographic regions of franchises, except for pressures in the U.K., as mentioned previously. We were pleased to see continued strength in our appendage management devices across international markets in 2025, and the acceleration of our open ablation franchise growth, partially due to the launch of our EnCompass Clamp in Europe. Gross margin for the year ended at 75%, an increase of 29 basis points from 2024, driven primarily by more favorable product mix as well as the continued production efficiencies as we scale. Turning to operating expenses. Full year 2025 operating expenses increased 5.9% to $410.2 million, up from $387.5 million in 2024. Research and development costs as reported expanded by $3 million or 3.2%. Research and development costs include the upfront payment associated with our PSA partnership agreement in '24 as well as the milestone payments in 2025. Excluding these charges, 2025 research and development expenses grew approximately 11%, driven by LeAAPS and BoxX-NoAF trial costs and a modest increase in head count and related spend. SG&A expenses increased $19.7 million or 6.7%, primarily on increased head count and demonstrating improving leverage. Going forward, we remain committed to funding key R&D initiatives that support innovation and growth while expanding our total operating leverage across the business. Full year 2025 adjusted EBITDA was $61.8 million compared to $31.1 million in 2024, an improvement of $30.6 million. Our loss per share was $0.24 in 2025 compared to a loss per share of $0.95 in 2024, and adjusted loss per share was $0.11 and $0.67, respectively. We ended 2025 with $167.4 million in cash and investments, reflecting full year cash generation of approximately $45 million. With these results, we continue to bolster our balance sheet, showing efficient capital management and ensuring financial flexibility to support future growth. And finally, turning to our outlook for 2026. Consistent with our guidance in early January, we expect to achieve between $600 million and $610 million in revenue for the year, translating to growth of 12% to 14% over the full year 2025 results. From a franchise standpoint, we anticipate pain management will lead growth again in 2026, followed by open appendage management and open ablation growth more closely aligned to the overall guidance range. As Mike mentioned in his remarks, while we remain cautiously optimistic about minimally invasive ablation and MIS appendage management, we do expect a decline in revenue in 2026, although at a moderated rate. Geographically, we anticipate both the U.S. and international businesses to deliver growth at rates that are more closely aligned during the year, as our outlook contemplates ongoing uncertainty in the U.K. for the duration of 2026. Finally, in terms of quarterly cadence, we expect typical seasonality to broadly shape the year on a sequential basis, with first quarter revenue tracking roughly in line to down slightly with the fourth quarter of 2025. From a margin perspective, we anticipate that we will see modest gross margin expansion in 2026 and from the benefit of product and geographic mix as well as cost savings initiatives. Additionally, as we've shown in 2025, we would anticipate some variability each quarter based on product and geographic mix. Looking at operating expenses, we will continue to exercise disciplined capital allocation, focusing our investments on the next generation of growth drivers for AtriCure. We project research and development expenses to moderate slightly, growing in low teens on an organic basis and mid-teens on factoring in PFA milestone payments in 2025 and 2026. Additionally, we expect SG&A spending to continue to grow below top line growth rates, supporting further improvements in overall profitability. On the bottom line, we are excited to reaffirm our 2026 expectation for adjusted EBITDA range of $80 million to $82 million and full year net income. With the expected cadence on top line and normal first quarter activities, our adjusted EBITDA margin will step down from the fourth quarter 2025 exit rate and gradually build during the year. Our adjusted EBITDA guidance corresponds to full year earnings per share of approximately $0 to $0.04 and adjusted earnings per share of $0.09 to $0.15. We also anticipate another year of positive cash generation. As a reminder, we typically experience higher cash outflows within the first quarter of the year due to annual variable compensation payments, share vesting and operational investments. And with that, we anticipate a net cash burn in first quarter of 2026, followed by positive cash generation for the remainder of the year and full year 2026. Overall, we delivered strong results in 2025 and the outlook for our business demonstrates our commitment to expanding profitability while also enabling key strategic growth initiatives. We will continue the trajectory from 2025 to exceed our long-range financial targets discussed at our Analyst and Investor Day last March, driving double-digit revenue growth towards our $1 billion revenue goal in 2030 and while improving profitability over 20% adjusted EBITDA margin and all with a focus on creating long-term value for our shareholders. With that, I'll hand the call over to Mike. Michael H. Carrel: Thanks, Angie. In closing, I want to recognize our team for an outstanding year. You remain focused on patients, executed with discipline and never lost sight of the standards of care we are trying to build. We are well positioned to raise the bar again in 2026, and I am confident in our ability to continue delivering operational excellence across the business. And with that, we'll turn it over to questions. Thank you. Operator: [Operator Instructions] Our first question comes from William Plovanic with Canaccord Genuity. William Plovanic: Great. Just first off, obviously, some news from a competitor a week or so ago had a pretty significant impact on your stock. I was just wondering if you would like to just comment on your thoughts on them entering the market and what that might do competitively to your position? And then secondly, just on the LeAAPS trial, you continue to enroll. I mean -- I'm sorry, you continue to do follow-up. I know you've talked about we'll see data, I think, at 50% and 75% of the event rate. Just wondering if there's been any change in when we'd expect to see some of that data, if it might grow faster than expected or if it's on the time lines? Michael H. Carrel: Thank you and I appreciate that. And obviously, we're very cognizant of the competitive entry into the market. From our perspective, as I've mentioned on this call before, we kind of take it in a really positive way that it validates our market. It tells you that you've got two major top 5 medical device companies that have decided that cardiac surgery is a market that matters. It's a market that is a growth market that people are coming after and coming into, and we've established a leadership position in this market, and we're pretty proud of that. And so we welcome that competition. Like we saw with the previous competitor that came into the space, it grew our revenue growth rate. If you just look at 2025, we grew 24% on the open left atrial appendage management business that is up from the growth from 2024 from 2024 to 2025. So we're really seeing this impact on our business in a positive way. more people are in conversations. They're talking about managing the appendage, you now see it in the quality metrics, they're recognizing a trend we saw 10 years ago, if not more, that this is a very large underpenetrated big market opportunity. And on top of that, I think we are well positioned for the competitive landscape when it comes in because we've made the investments over that 10- to 15-year period to make sure that we did not stop innovating. We're on the 10th generation of the product. We've got minimally invasive products. We've got open chest products, we are established globally as a leader in this space with over 750,000 implants with an incredible safety rate of 0.07 to demonstrate this product works safely every single time. It is an incredible product from that standpoint and the efficacy we know is excellent. And we've continued to innovate, as you've seen with our FLEX-Mini product that has established and accelerated growth as well, the PRO Mini product we rolled out last year. And as we've mentioned, we've got another new product coming out in 2027. So we're not going to stop innovating or investing in clinical evidence. And you're seeing that clinical evidence, as Bill, you talked about the LeAAPS trial, 6,573 patients were enrolled in that trial. That trial includes the AtriClip only in the trial. So half the patients got an AtriClip, half the patients got nothing. The idea there is to demonstrate stroke reduction in patients that are undergoing cardiac surgery who do not have pre-op Afib, we believe that will create even more differentiation on top of the fact that we've already studied over 21,000 patients in over 100 peer-reviewed and published articles over the last 10 years. So we feel like we are in a great position on that front. To your question, Bill, specifically around when LeAAPS data will come out? We're not going to release data on when we hit the 50%. What we get is a thumbs-up continue. And so we've already passed 5% to 50% in terms of the number of events thumbs up, continue the trial is ongoing and in a good place. We actually don't see the data. We just get a positive thumbs up from the committee from the DSMB at that point in time. That will happen again at 75%. And then obviously, results will be finalized at 100% of all the events. So if there was any kind of confusion on that front, what we get is a positive thumbs-up and not specific data that we're going to be able to release necessarily early on that front. But it is a really positive sign that the DSMB basically came back with a big thumbs up and gave us all the encouragement to continue to go forward. Operator: Our next question comes from Matthew O'Brien with Piper Sandler. Anna Runci: Anna this is on for Matt. So maybe to start for the guide for the year, I appreciate you reiterated the metrics you provided earlier this year, which is really good to see. I guess just with this new competitive entry in the Clip business, any color you can provide on how that might be contemplated into the guidance that you've set out today? Angela Wirick: Anna, it's Angie. I think as we started to form our guidance range for 2026, we were expecting this kind of news to come out. I think it was discussed pretty widely with the investment community last year. So not a big surprise here as we look through the year, have factored in with any of our franchises kind of a range of outcomes there that goes into the overall guide and feel very confident we're reaffirming the guide today, the 12% to 14%. And we have factored in some very, very mild competitive pressures as we think about the back half of the year. I think we're focused on within our business controlling what we can, which is continuing to spread the adoption of the FLEX-Mini Clip. It is an excellent product and want to make sure that as many customers as possible, have their hands on this prior to the competitive entry. And ultimately, we think by doing that and continuing to focus on our markets, both Afib and non-Afib patients that will ultimately square up for a really good year from a growth perspective. Anna Runci: Got it. Super helpful. And then, I guess, a little bit more on the Clip business. It came in a little bit softer than we were modeling this quarter, particularly in the U.S. So just any more color you can provide on the dynamics there and how you're thinking about that business going forward? Angela Wirick: Yes. The softness that we saw, particularly in the U.S. came in are minimally invasive Clip, we were down about 6%. We had a nice quarter in the third quarter, I think, with a lot of accounts choosing to adopt the PRO Mini product, the new product that we launched in 2025 kind of middle of the year and saw a bit of softness there. I think until our Hybrid ablation business sees kind of growth in procedures year-over-year. And on a repeat basis would expect some variability on that end. I think, if you take a step back and open appendage management, we were high teens growth in that area of the business for the fourth quarter. Mike talked about in his prepared remarks, open appendage management growth for the year. And I think that's showing the testament of the innovation with our FLEX-Mini Clip and growing awareness and interest in treating appendages during cardiac surgery. Operator: Our next question comes from Mike Matson with Needham & Company. Michael Matson: So I have one, just on LeAAPS. Since the enrollment stopped, I was wondering if that had any impact on your AtriClip business. I guess, can you remind me, were you getting paid for the clips that were used in that? Or were you guys covering the cost of those? Angela Wirick: Mike, we were -- we do get paid for the devices that were used in the trial. As Mike mentioned, the LeAAPS clinical trial was randomized 1:1. So half of those devices ultimately would have been revenue generating for us as a business. I think when you take a step back and look at the volume of open appendage management devices that we do, it's a minimal contribution in any 1 quarter that we were doing enrollment. Would also say, and I think we've talked about this quite a bit with investors, there were a number of surgeons who were enrolling in the trial who believe in prophylactic treatment. So by them enrolling in the trial, they were forced to randomize their patients 1:1. So I think there are probably some areas where we were losing revenue, so to speak, offset by other surgeons who were enrolled in the trial and weren't necessarily prophylactically treating. The overall message here is, yes, revenue contributing, but I'd say on the volume that we were doing, not significant to any 1 quarter. Michael Matson: Okay. That's helpful. Just trying to figure out what it means. I know it was kind of last summer, but -- okay. And then just on EnCompass, I mean, obviously, this has been a home run product for AtriCure and you're working on the dual energy version, but that's going to require some trials and probably take a couple of years. So do you have any kind of new versions or enhancements planned kind of in the interim to maybe continue to drive the price mix and just increased penetration into CABG. Michael H. Carrel: Yes. We don't necessarily have a new product iteration coming out. If you recall, we first released something the long version of it. And then last year, we released the short version, which obviously was a needed acceleration into the market from that standpoint. The penetration is low in CABG, and we're going to continue to kind of market talk to those customers, get them trained up and do the work associated with that. In addition to that, we're obviously running the BoxX-NoAF trial, which is exclusively using the EnCompass Clamp with the AtriClip. So there is -- that gives us an opportunity to talk to more and more sites that are becoming involved in that trial. Some of them were not EnCompass users before. And so that's obviously an area of getting kind of exposure to some surgeons that want to be a part of that trial at major academic institutions, et cetera. It's really important to kind of get them to be part of it. So we will definitely get traction from a variety of different angles with the EnCompass Clamp, but no net new innovation at this point in time, nor do we think that it's necessary. Right now, that product is actually showing that we can get the times down to less than 10 minutes of total procedure time. So it's quite remarkable how we're able to get an incredible ablation in that really short period of time. We're getting more and more articles published. We recently actually had one that was a peer-reviewed article published, it was almost 90% success at 1 year coming from that in over 150 patients. So this is something that we're seeing really, really good results with, and we just need to kind of continue to be out there talking about it and talking about the benefits of getting a full ablation in. Operator: Our next question comes from Marie Thibault with BTIG. Marie Thibault: I wanted to see, maybe it's a little too in the weeds, but I wanted to see if you could help us size the part of your U.S. appendage management business that might be directly in competition with the new entrants. One way I was thinking about it as maybe thinking about those open clips that are used in concomitant valve surgeries. And I wondered if you were able to size that for us against sort of the 2025 U.S. revenue you did in appendage management. Michael H. Carrel: We haven't given really specific guidance on those particular areas. As we know that the overall market in this space is there's about 300,000-or-so patients that undergo cardiac surgery. With the combination of the LeAAPS trial and the Afib patients overall, we believe that, that's obviously a very large market opportunity. About 170,000 to 180,000 of those patients are coronary bypass patients. So you've got the breakdown that, that is obviously a market that we will be in and is not obviously connected to the valvular space. I think you guys can see the numbers that it's what, 35,000 to 40,000 or so mitral valves and something similar along those lines, maybe a little bit higher on the aortic valve side, depending on which reports that you look at overall. And then there's obviously other surgeries that kind of happen to kind of make up the total number overall. When you break down that particular market, when you look at it that way, we're obviously very strong in the valvular market. today. That is where a great deal of penetration is, but we also have great advantages in that market, in the sense that usually when people are treating in the mitral valve space, they're also doing in ablation at the same time. that ablation is critical to the success of that surgery to the recovery of those patients. Penetration is much higher in the mitral valve space in that area, something around 60% to 70% of patients with Afib are actually getting treated, with something whether it's an EnCompass Clamp or our PRO devices or other RF devices combined with AtriClip at the same time. It's part of the Cox-Maze procedure that is there. And so we feel like we've got a built-in advantage in the sense that we've got over 300 people out in the field that understand how Afib is treated, how you need to treat it properly in the combination of the AtriClip with the ablation devices is a critical understanding that we have that others don't necessarily have from that standpoint. As we look at the CABG market, obviously, that is a greenfield approach, and we're the only ones really in that space exclusively from that standpoint. Marie Thibault: Yes. That's great detail, Mike. A quick follow-up for Angie. I heard your discussion of modest gross margin expansion, which we're excited to see. On the OpEx leverage, we're seeing SG&A leverage. Could we get a little bit of R&D leverage as well this year as you kind of switch out the trial cost that you're going on? Angela Wirick: I think you nailed it, Marie, I'd say on all angles expect modest gross margin improvement. We are seeing the newer product launches, particularly with the strength and uptake in the U.S. markets. contributing to an improvement in our gross margin. Our operations team has also been very focused on some of our highest selling products like the EnCompass Clamp. I can't necessarily call it a new product launch because it's been in the market for a couple of years now in the U.S., but streamlining those costs there. So you're seeing the benefit of that. You saw that more in earnest as we exited 2025 and expect for that to continue into 2026. Expect SG&A growth to be below top line growth. That was an area of leverage for our business significantly in 2025 should be an area of leverage in 2026. And the last point on the R&D costs with the conclusion of enrollment in LeAAPS, we are seeing a step down in those clinical trial costs. We still follow patients, so there is still spend in the P&L. We are expecting a pretty strong year from BoxX-NoAF enrollment perspective. but the mix, the different trial design and size of both of those trials says you're going to start to see some pretty natural leverage coming through within R&D. What we said in our prepared remarks is expect on an organic basis kind of low teens growth in that area. Operator: Our next question comes from Lilly Lozada with JPMorgan. Lilia-Celine Lozada: Great. Maybe I'll start with one, on profitability. You already hit the 14% adjusted EBITDA guidance that you pointed to at your Investor Day this current quarter. And you still have a few years to go before getting to the end of the LRP. So is the 14% just conservatism? And if not, what other dynamics will we be keeping in mind as it relates to the progression of adjusted EBITDA moving forward? Angela Wirick: Good question, Lilly, the 14%, super happy with the performance, obviously, in the fourth quarter on the bottom line, a big milestone for our company, not only the 14% adjusted EBITDA, but pulling in positive net income for the quarter. As we think about going forward, I would expect there to be a step down. So 2026, the full year shouldn't look like full 14% but we are significantly ahead of our LRP estimates when it comes to the bottom line movement there as well as our top line growth rate. So I think the dynamics to focus on when we say we're kind of ahead on the bottom line, we've been talking about driving efficiency within the P&L and in our business for a very long time. I think you're seeing the benefit of size and scale and previous investments ultimately driving us to this point here. As we look forward, our main priorities are continuing to invest in kind of game-changing clinical trials, LeAAPS and BoxX-NoAF are both those and also making sure that our product portfolio and platforms continue to meet market needs. Each one of our markets is significantly underpenetrated even still today. So we see a lot of opportunity and internal development efforts are a clear priority for us. So we're pleased with the progress on the bottom line would expect to well exceed kind of the '28 goal here in the near term from an adjusted EBITDA perspective and look forward to continuing to charge towards the 20% EBITDA margin towards the end of the decade. Lilia-Celine Lozada: Great. That's helpful. And then just as a follow-up, open with EnCompass has continued to be really strong. Can you talk through how many patients you've treated with EnCompass in 2025 and where penetration for the product stands relative to the total opportunity? And can you help quantify how meaningful of an opportunity you think the inclusion in the star rating is. Michael H. Carrel: Yes, maybe I'll hit on it. If you look at globally, there's 2 million patients that undergo cardiac surgery. And in 2025, we treated about 50,000. So we're still obviously very underpenetrated in that market. both the LeAAPS and the BoxX-NoAF trial are international trials. So the idea is not just to get a label in the U.S., but to also get additional reimbursement and market expansion opportunities in countries throughout the world. By including them in the trial, I think that makes it a lot easier and smoother to kind of get that for a trial of that size and scale to go after those markets. So on a global basis, we are very under-penetrated overall in the market, not just on EnCompass, but on cryoRF, et cetera, because there some there are obviously a lot of surgeons that continue to use some of the original technology that we have that work incredibly well and treat patients today. EnCompass obviously is a big growth driver. You can see there's just lots of opportunity for us. Operator: Our next question comes from Danny Stauder with Citizens JMP. Daniel Stauder: Yes. Great. So just first one for me. On international sales, you called out the U.K. budget issues. Did that have a more notable impact to any specific segment it looked like international pain management was down slightly. So maybe it's there. And then how much was that in terms of headwind to total sales as well as maybe on a segment basis during the quarter? And how should we think about this going forward in 2026? Angela Wirick: Yes. Danny, when you break down the different franchises in the U.K., the two areas where we saw the most impact was our pain management device for which the NHS pulled reimbursement and said they felt like it was should be covered under different codes. So we saw a significant reduction in the procedures there. The other area that we saw was in stand-alone treatment of AFib. So our minimally invasive ablation business. That's an elective procedure. So saw a bit of weakness there as they're prioritizing the more emergent procedures. A little bit less of an impact when you think about our open cardiac procedures. Those tend to be emergent need to be done. But those are the areas that were impacted broadly across the U.K. We talked about this as one of our fastest-growing markets in Europe over the past couple of years. We were on about a $4 million run rate per quarter. and saw that drop down a little over $1 million in the fourth quarter, which is really when we saw the big impact for 2025. Daniel Stauder: Got it. No, that's helpful. And just one follow-up for me on cryoXT. You mentioned you were being more deliberate with your rollout. This might be because it's a little bit different of a sales point. So I was curious if there are any more substantial training with surgeons compared to your prior launches? Or any more nuance on this cryoXT launch as we think about our model and as it ramps up? Michael H. Carrel: Yes. I think it's a great question, and it's kind of the way that we approach new product areas that we're getting into with cryoXT, in particular, very similar to when we went with EnCompass and felt like we had a really big CABG opportunity there, and we wanted to make sure we took our time. If you recall, this is exactly how we did the rollout with EnCompass. The first 6 to 12 months, we really were holding back a little bit as we made sure that we learned about the procedure, understood kind of how it worked in this particular surgeons or physicians' hands. Got feedback on that enabled our training, educated us as we kind of went forward to better train surgeons as we got forward. And -- that's once we did that, we opened up the box really kind of go after everybody. Same thing with XT. This is a very new area. We're talking to vascular surgeons though, orthopedic surgeons. These are not surgeons that we had -- typically have relationships with, we want to make sure that we get it right, that we get feedback from them that we learn from them as we kind of roll it out to additional sites and go forward. We're in that learning phase right now. But by the end of this year, we do anticipate or middle of this year, we do anticipate that we're going to open that up quite a bit. But we're getting great feedback. All of the XT has been positive, but you do learn as you roll that out, especially as you're going into a new therapeutic area like this with new surgeons that you've not worked before. Operator: Our next question comes from John McAulay with Stifel. John McAulay: First one on the PFA program. I was hoping for an update there. A couple of dynamics. I noticed one versus our model, and we might have been mismodeling it, but costs that you paid in the quarter was lower than we were expecting to your PSA partner. And could you just clarify if that was, again, mismodeling our part or the charge was pushed out? And then just any potential impact on timing there and when we can expect our next update and for a trial to get going? Angela Wirick: Yes, John, I don't think it's mismodeling. We had said kind of a range of potential milestones that we would thought could be met within 2025, the third milestone roughly, call it, $4 million pushing into 2026. Everything is on progress. I think the big news coming out of this particular work is that we had first-in-human use to really good results as we thought -- work through the back end of 2025. Michael H. Carrel: And it doesn't change the time line to add to that. I think the second part of your question was as we look forward and get ourselves ready for a clinical trial design on that front, we will be ready in the same kind of time frame we talked about at the Analyst Day. John McAulay: That's helpful. And I think it was last month, you made some comments about CONVERGE and some improvements in a few accounts, so I understand the dynamics are still fluid. You're still expecting declines this year, albeit at a lower rate. Just wanted to get an update about 1 month on just the state of the field for CONVERGE, what you're seeing on the ground and particularly post the Afib symposium, just any meetings of customers there. And how the dynamics are looking now versus either a month ago or a year ago, however, do you think you'd optimally frame it? Michael H. Carrel: I think that we continue to feel like there is optimism and light. We're seeing many sites that had previously done, CONVERGE went away from it as they got in the PFA are now starting to do -- but it's just not enough cases to feel confident to come out with a number that says, okay, I've got confidence that consistently every single quarter, we're going to be at a point that we can grow that. But you are seeing those sites come back. They want to get retrained or they want to kind of look at their workflow again. And so the good news is that we've got a lot of new sites kind of coming on board from that standpoint, just not enough to move the number at this point in time. So it's a positive outlook, but not ready to kind of commit to anything relative to numbers as we look out throughout this year. But it is moving in the right direction as we saw in Q4, and we do feel like we're in a good place, and we're having a lot of good conversations with customers right now. Operator: Our next question comes from Danielle Antalffy with UBS. Jayna Renee Francis: It's Jayna on for Danielle. I know we're in the early innings of pain management expansion. And I know that you said reps are staying in one account until it's sticky. But I was just wondering, those reps that have successfully been executing. How long are they in the accounts before they're pivoting to the next account? Michael H. Carrel: It's not about time that's about getting the number of cases down with them and making sure that they've got -- they're doing it properly. They've got a protocol right, not just with the surgeon, but also with the kind of after intensive care unit once they kind of have a step-down units in those areas and how they care of these patients. We do believe that, that -- takes, let's say, it's a 3-month or so process, but it really means they've got to get 10 to 15 cases underneath their belt to really feel really comfortable before we're ready to move on and get that consistency going that we can learn from them on that front. But we're seeing good progress in a lot of different accounts. And almost every 1 of our reps has an account that is actually using the product today. So they're already down that pathway, and we've got a pretty good size field team out there. Jayna Renee Francis: That's great to hear. And then on open ablation, specifically, how much runway is left from a CABG perspective? And then also, I know you're talking about getting more implanting physicians from the new trials like BoxX-NoAF. I was just curious if you could comment on the percent penetration on that perspective as well. Michael H. Carrel: Specifically to CABG, if you look at Afib patients alone, it's around 20% of the patients that undergo carditis have Afib and they're undergoing it for coronary bypass, about 20% of those patients get it. But if you look at it in totality, when you start to think about BoxX-NoAF and the expansion opportunity that exists there, that number is obviously much less than 10%, and when you add in the non-Afib patients. So big market opportunities still sitting in front of us. Operator: And our final question comes from Suraj Kalia with Oppenheimer. Suraj Kalia: Mike, Andy, can you hear me all right? Michael H. Carrel: Yes. Angela Wirick: We can. Suraj Kalia: Perfect. So Angie, one question, and forgive me if it's a little long. Just wanted to follow up on an earlier question. So Angie, if you look at the U.S. AtriClip, right, for the last 3 quarters of 2025 being roughly flattish. Is -- can you help us reconcile some of the dynamics here -- so your comment about MIS drop-off picked up by open, fair enough. Can you give us some idea about how much was LeAAPS contribution? And at the same time, obviously, there is new product introduction. So what was the ASP lift. Just too many moving parts here and trying to get our bearings right. And Mike, quickly for you, if I could, what is preventing let's say, [indiscernible] is launched next year, right, Q1, Q2 of '27. What is preventing [indiscernible] to be used prophylactically post any cardiac surgery because there is a time gap to LeAAPS data comes online. Angela Wirick: All right. I'll start, Suraj with your questions. I'd say the dynamic when you're seeing some of the variability on our appendage management line item franchise, it is primarily within our MIS clipping. So we talked about in the third quarter, we had a stronger quarter with adoption of the PRO V or PRO Mini product, I should say. If we've seen MIS appendage management devices throughout the year, see quite a bit of variability for that to grow in earnest, we need to see growth within our hybrid ablation franchise, which obviously was on a downward trajectory throughout 2025. When I take a step back, we've seen strong growth within our open appendage management devices throughout 2025. When I take a step back in any 1 quarter, it is a couple of points for our open appendage management products as AtriClip FLEX-Mini takes hold. That is the difference between volume and overall reported revenue growth. It's a couple of points that is pricing related. We are seeing a lot of customers switch over to our FLEX-Mini device. They like the lower profile that, that device provides, and it comes with the track record and strength of our previous AtriClip platform. Michael H. Carrel: Sure. And to answer your question about whether or not -- or what is the preventative measure that is out there kind of upon a launch? I mean as I described earlier, and you look at the advantages that we have in the market today, both with exceptional products on the safety and the efficacy side of things, we feel like we've got incredible products and new product launches coming out. We've got our own next-generation product coming out the middle of next year. We believe our products are going to be superior to all products that are on the market. We've got over 21,000 patients that have been studied using our product today showing exceptional closure. Again, I'm rementioning the 100 peer-reviewed articles that have been out there on top of the fact that we've got an implementation of safety rates that is quite exceptional on that front. So I think our products alone demonstrate that, and our customers understand that. They also understand that we're the ones investing in the data that is coming out. Every cardiac surgery program, both in the U.S. and around the globe understand there's only one company that is making the investments that we're making in clinical evidence. That's [indiscernible]. We're doing big randomized controlled data trials underneath this. And you've seen this in other areas, those that invest in the data, those that invest in proving it out that way wind up winning in the long run. The combination of having the best products with the best clinical evidence today and coming usually wins in the market long term. You can look at -- you've seen it in the left atrial appendage market already and when you look at the occlusion market. And I would say that you're going to probably see it in this market as well. That doesn't mean that we're not getting ourselves ready for competitive competitors coming in, trying to ride our totals on the things that we put out there and the trials that we've run and helping out with guidelines and those types of things, we understand that, and we're very well aware that they're very good competitors. And that the -- and we respect them from that. We will never do that. We've got to earn the business of our customers every single day, and we're going to do that through 1 innovation, to clinical evidence. And the third piece is our team that is in the field is second to none in the world. That is across both our field team, our clinicals and our education team that are out there and understanding how does that appendage work? How does the Afib work and how do you manage that every single day. So I've got a great deal of confidence in our team. Again, that doesn't mean that they're not going to come in and make some noise. This is also why markets grow. I mean I think that when you look at in big markets, when WATCHMAN came to market, then you have [indiscernible] to market. The market actually grew when big competitors come into their space. And so we believe that the market overall is going to grow, and we are going to get our fair share given all the positives that I just talked about relative to our products and our team. Operator: This concludes the question-and-answer session. I would now like to turn it back to Mike Carrel for closing remarks. Michael H. Carrel: Great. Everyone, thank you for joining us on the call today. We look forward to a great Q1 and talking to you again in the April, May time frame. Have a great night. Bye now. Operator: This concludes today's conference call. Thanks for participating. You may now disconnect.
Hamza Fodderwala: Good day, everyone, and welcome to Palo Alto Networks Fiscal Second Quarter 2026 Earnings Conference Call. I'm Hamza Fodderwala, Senior Vice President of Investor Relations and Strategic Finance. Please note that this call is being recorded today, Tuesday, February 17, 2026 at 1:30 p.m. Pacific Time. With me on today's call to discuss our fiscal second quarter results are Nikesh Arora, our Chairman and Chief Executive Officer; and Dipak Golechha, our Chief Financial Officer. Following our prepared remarks, Lee Klarich, our Chief Product and Technology Officer and Board member will join us for the question-and-answer portion. You can find the press release and other information to supplement today's discussion on our website at investors.paloaltonetworks.com. While there, please click on the link for quarterly results to find the Q2 '26 supplemental information and Q2 '26 earnings presentation. During the course of today's call, we'll be making forward-looking statements and projections regarding the company's business operations and financial performance as well as the company's recent acquisitions. These statements made today are subject to a number of risks and uncertainties that could cause our actual results to differ from these forward-looking statements. Please review our press release and recent SEC filings for a description of these risks and uncertainties. We assume no obligation to update any forward-looking statements made in the presentation today. This presentation contains non-GAAP financial measures and key metrics relating to the company's past and expected future performance. Non-GAAP financial measures should not be considered a substitute for financial measures prepared in accordance with GAAP. The most directly comparable GAAP financial measures and reconciliations are in the press release and the appendix of our investor presentation. Unless specifically noted otherwise, all results and comparisons are on a fiscal year-over-year basis. I will now turn the call over to Nikesh. Nikesh Arora: Thank you, Hamza. Good afternoon. Thank you, everyone, for joining us today for our earnings call. We delivered a strong Q2 fueled by robust demand for cybersecurity and continued execution against our platformization strategy. This led to strong organic results in Q2, with NGS ARR up 28% and revenue growth of 15%, excluding the impact of recently closed Chronosphere. We saw broad-based strength across our products from SASE, software firewalls and XSIAM in through our emerging leadership in AI security and Prisma AIRS. We paired this growth with improving profitability achieving a 30% plus operating margin for the third consecutive quarter. We're excited to head into the second half of the year having closed both the CyberArk and Chronosphere acquisitions, and I want to extend a warm welcome to both teams. Both companies continue to deliver record numbers in their most recent quarters, and we look forward to building on the momentum as we hit the ground running on our integration plans. These investments are a direct response to the inflections we see taking shape in the market. And while it's still early, initial feedback from our customers has been very encouraging. We believe we are now entering the next phase of AI adoption. Large enterprises are moving beyond experimentation and beginning to integrate foundational models into real workflows. As AI becomes embedded in day-to-day work, the central question that organizations face is shifting from capability to control. That shift has meaningful implications for security. As AI becomes more pervasive across the enterprise, it expands the attack surface area, more agents, more infrastructure, more machine-to-machine activity and new classes of risk that simply did not exist before. In that environment, security cannot sit on the sidelines. Despite the current sentiment about AI and software, we firmly believe that security is enabling layer that allows innovation to move forward safely and at scale. And as AI agents become autonomous employees, the old security playbook is not just slow, it's obsolete. Security must operate in real time at the critical control points where decisions are made across network, endpoint, cloud, browser and identity. This is where Palo Alto Networks operates. And as [ AI ] becomes more embedded across the enterprise, those control points are converging. A fragmented defense of disparate products is no longer a viable strategy. The risk is simply too high and adversaries are moving at machine speed. Our latest Unit 42 research confirms this, end-to-end attacks are now 4x faster than a year ago. And in nearly 1/4 of the cases, attackers were able to break in and exfiltrate data in under an hour. The good news is that 90% of those breaches were preventable, caused by basic gaps in visibility and controls across multiple attack vectors. This is why we committed to our platformization strategy a few years ago. A platformized approach built on a real-time data-driven model that gets smarter with scale is the only way to secure the modern enterprise and our results continue to prove that out. In Q2, we delivered approximately 110 net new platformizations, a quarterly record outside of our seasonally strong Q4. This brings our total platformization count to approximately 1,550, up 35%. The success of this strategy is also reflected in our best-in-class net retention rate amongst platformized customers, which stands at 119% with low single-digit churn. This proves that once customers adopt our platform, they not only stay, but continue to invest more with us over time. This momentum isn't accidental. It is a result of a deliberate flywheel motion we've built. When we committed to our platformization strategy years ago, we're betting the shift that has now become an industry standard. This approach allows us to not only solve today's problems, but also provides the foundation to address new ones as they emerge. It starts by providing multiple clear landing paths. In network security, customers can begin with SASE, hardware or software firewalls and now AI security with Prisma AIRS. In the SOC, they can land on our Cortex platform via XDR, cloud security or directly under XSIAM. From any starting point, customer experienced the superior outcomes of an integrated platform, which leads them to adopt more deeply across our ecosystem. In a market changing this quickly, we believe our responsibility is to anticipate the next inflection and ensure our platform is ready. That philosophy guides our strategic investments and results give us the confidence to continue. A secure browser, for example, was one such early investment that is now accelerating our SASE business with over 9 million licenses sold to date. Similarly, in AI security, Prisma AIRS, launched just a few quarters ago and already rapidly scaling with over 100 customers ending in Q2. This is the discipline we now plan to apply to 2 large established markets poised for inflection, identity and observability. If AI becomes a new interface for how work gets done, identity security will be required to create the permissions and boundaries that teams can trust. And as AI introduced unprecedented scale, observability is essential for building resilient systems that can operate reliably. By bringing our platformization discipline to these new pillars, we believe we can deliver even greater value to our customers and solidify our role as their trusted partner to navigate the complex security and data challenges of the AI era. Let me share a few examples of how this strategy is translating into deeper, more strategic customer relationships. First, a global automotive leader selected us for a major security transformation. Their goal was to modernize their security architecture and dramatically improve efficacy. This resulted in an over $50 million deal, including $30 million for SASE and $20 million for XSIAM to run their global SOC. Similarly, a global technology supplier selected us for our transformation initiative for over $40 million, choosing XSIAM to modernize their security operations globally while expanding their investment in SASE. Finally, a transaction with a leading IT service provider perfectly illustrates our flywheel. Building on existing investments, they committed for a $20 million expansion centered on XSIAM and have now platformized across network security and security operations. These aren't just transactions, they're architectural decisions. When the stakes are highest, these wins validate that industry leaders are choosing the superior outcomes delivered by Palo Alto Networks. With that, let's dive deeper into the individual performance of our platforms, starting with our largest segment. Our Network Security business delivered a standout quarter demonstrating the power of a platform designed to meet customers wherever they are in their hybrid journey. In Q2, our SASE business continued to go from stand to stand, surpassing the $1.5 billion ARR milestone while growing approximately 40% year-on-year, solidifying our position as the fastest-growing SASE provider at scale. What's particularly telling in the shift we are seeing in the market, many early adopters of SASE, who made choices 4 or 5 years ago during the pandemic are now finding that those early solutions are not comprehensive enough for today's threats and complexity. As a result, they are reconsidering their first-generation point products in favor of a platform approach that provides a single unified architecture to secure the entire hybrid environment. from the data center to the cloud and the remote workforce. A key driver of these wins is also our secure browser, which stems from a strategic bet we made a few years ago with the acquisition of Talon. Our thesis was that the browser is the most critical unmanaged edge for users, data and now AI agents intersect. The results show our customers agree. As of Q2, Prisma Browser has been adopted by over 1,500 customers 10% of which are in the Global 2000, with an additional 2 million licenses seats sold in Q2. This success has clearly not gone unnoticed. It's encouraging to see others in the industry waking up to the idea that they must secure the browser layer validating the importance of this increasingly critical control point. While many of these approaches similarly extend existing architectures into the browser, we continue to believe the browser itself should function as a native security platform, architected for real-time control rather than retrofitted through extensions. We also continue to see strong momentum in our software firewall business. Last quarter, we called it our hidden gem. That was validated once again in Q2. Our ARR growth was approximately 25%, driven by the need to secure increasingly dynamic multi-cloud environments, a need that grows as AI workloads scale. This is complemented by our strongest hardware performance in several quarters revenue up nearly 10%, driven in part by early adoption of our latest Gen 5 firewalls. Finally, we remain focused on where the market is going, and that includes preparing our customers to the post-quantum era. The threat is already here. Adversaries are using a harvest now decrypt later strategy, stealing encrypted data today to break in the future. We're seeing this become a C-level priority in our early customer conversations. The broader interest in this topic was confirmed by nearly 5,000 attendees at our quantum summit last month. This is a critical part of our customers' long-term road map, and we believe we are uniquely positioned to guide them through this coming architectural uplift and shift. Now moving to Cortex. Customers continue to partner with us on their AI SOC modernization. In Q2, XSIAM surpassed the $0.5 billion ARR milestone. We welcomed almost 150 new customers, bringing our total base to over 600, paying an average of nearly $1 million in ARR. But the key story here remains not just the growth, it's the outcomes. Over 60% of our deployed customers are now achieving meantime remediation of less than 10 minutes, a profound shift from the days or weeks they measured before. The success of XSIAM is a great example of our ability to identify a market inflection early, invest aggressively and execute to scale. We made a bet on the AI-driven SOC well before he became an industry-wide team. The results are showing at scale just 3.5 years after GA. The same focus on what's next led us to develop AgentiX. The simplest way to think about it is we're enabling our customers to build a workforce of autonomous AI agents, but the key differentiator and what makes this a real breakthrough is where these agents can operate. Unlike traditional security tools confined to their own ecosystem, our agents can securely extend into first and third-party infrastructure. This means an agent can not only detect the issue in XSIAM, but then can go out and or to remediate it directly in a cloud console, an identity provider or a firewall and machine speed. This capability already enabled by 200 XSIAM customers is the key to delivering true enterprise-wide automation. This is a powerful example of how we use to create better security outcome. But that's only one part of our AI security strategy. Over the last couple of years, we have expanded our AI security capabilities aligned to what our customers need as they deploy AI at scale. We're bringing those capabilities together as part of a universal AI security platform. One designed to protect AI deployments of models, agents and the environments in which they operate. It starts with Prisma AIRS to secure AI models and AI-powered applications across our life cycle from model sanding and red teaming to runtime defense. We launched this platform just a few quarters ago, and its adoption has been remarkably strong. From Q1 to Q2, we more than tripled our customer count to over 100. While bookings also doubled during the same period with the 9-figure pipeline already materializing is clear, the market has been waiting for a comprehensive platform to secure AI. At the same point, we're also seeing a new class of autonomous agents emerge, software that can perform to us and interact with local systems on its own. This naturally extends security requirements to the endpoint. This is why I'm excited to announce our intent to acquire Koi, a pioneer in securing the next major inflection point in security, the agentic endpoint. Koi will enhance our endpoint capabilities within XTR 2.0, while also becoming an integrated part of our universal AI security platform, extending security and governance to autonomous agents at the device layer. We are witnessing a dramatic shift in now software lives on the endpoint, traditional security tools are often blind to the new AI layer of software. The massive rise of MCP servers, browser extensions, plug-ins, an [ ephemeral ] code that bypasses standard security controls. This represents a significant unmanaged attack surface. We identified this new threat vector early and Palo Alto Networks has been a customer of Koi since summer of 2025. On my recent trip to Israel in December, Lee Klarich and I met with the Koi team and were immediately impressed by their foresight into the next generation of endpoint threats. Since then, we've seen the risk pattern intensify, including security concerns that have been recently popularized by the widespread adoption of open cloud. We believe this is the latest example of what the future of an AI attack surface will look like and Koi will help our XDR platform remain well positioned to provide the most innovative security solutions to our customers. After closing, Koi will also be able to buy unique extensions to Prisma AIRS and Prisma browser to ensure that our customers have visibility to any AI software and browser that are only present on the endpoint, resulting in the most comprehensive visibility to the AI attack surface. Over time, this will help ensure that the end point becomes more agentic, our customers will remain fully protected. Now this focus on visibility is critical. But to act with precision, you first need to see with clarity. This is why a new level of observability is so essential which brings me to Chronosphere. In the age of AI, Chronosphere offers a unique value proposition, delivers observability at a massive scale, proven in production today by many of the world's leading born-in-the-cloud and AI native companies. During Q2 and after we closed the Chronosphere acquisition, we signed a multiyear 9-figure expansion deal with the leading AI model provider, a testament to Chronosphere's ability to scale in the largest and most complex environments. The momentum is clear in the numbers with the company generating approximately $200 million in ARR as of Q2, well above our expectations. The end-to-end observability platform is also getting traction with over 80% of new logos last year, landing with multiple products such as metrics, logs and traces. By combining Chronosphere deep visibility with the automated reaction of AgentiX, we are enabling our customers to build a self-healing autonomous enterprises of the future. So we have prevention, we have visibility and we have automation. But every action, whether by a human or any agent is governed by an identity, which brings me to our newest major pillar. We're delighted to have closed the acquisition of CyberArk early in Q3 and are ready to execute on what I believe is a massive opportunity in identity security. As many of you noticed earlier this month, CyberArk is coming off an exceptional December quarter, the record net new ARR and 30% of subscription ARR growth at scale. We've been rigorously building and refining our integration plans and we're moving fast to put these plans into execution. This includes aligning our go-to-market engines, we're already well underway on detailed account planning and aligned sales incentives to ensure our teams are collaborating from day 1. From a product perspective, innovation road app here is massive. We aren't just looking at legacy IM which, in our view, is basic hygiene. We're building a next-generational identity security platform that protects across humans, machines and AI agents. We also look forward to delivering machine identity and certificate life cycle management to our 65,000-plus firewall customers. Longer term, we remain excited about the opportunity to address the growing needs of identity to secure AI agents. We bought CyberArk because when AI agents start logging in at machine speed, logging in becomes a primary attack factor. We believe we are now the only company that can verify the who has secure the what simultaneously. Given the momentum in the business currently and our innovation road map, we believe we are well positioned to become the largest energy security player over time. In summary, we continue to execute against our platformization strategy in Q2 with momentum building across multiple areas of business. Our core innovation engine remains strong with great traction in new products like AIRS and AgentiX and are ready to put our integration plans into action with CyberArk and Chronosphere. Before I hand over to Dipak, I want to take a few minutes to reflect on the recent advancements in AI. We're seeing significant innovation in new agentic platforms targeting the enterprise. And while it's still early, it is causing some companies to reassess how the applications are built, our workflows are automated and decisions are made. Long-standing assumptions about systems of record are being revisited and perhaps even more so, the analytics layer built on top of them. In many enterprise applications, data reflects structured business processes within defined workflows. Security data is different. In our case, it is real-time threat activity generated at the control point where our platforms operate and continuously refine through more than 30 billion attacks blocked daily and 15 petabytes of telemetry processed in our AI SOC. That distinction matters. When we say precision AI, it is not AI layered on to a feature set. It is AI-trained on our proprietary asset and embedded directly at those critical control points. As AI begins interacting autonomously across application infrastructure, fragmented security introduces delay at precisely the wrong moment. Security must operate as according to system, unified, consistent and real time. Because our platform sits at these control points, we see these shifts as they happen. They data generated across the network, cloud, identity, endpoint and browser continually informs our models, creating a feedback loop that compounds at scale. But scale is not enough. Sustaining leadership requires a willingness to adapt and challenge our own assumptions. Technology cycles change, architectures evolve. For the past 7.5 years, we have consistently aimed to invest ahead of inflection points and technology even when the path is not fully defined. Maintaining this discipline is vital to ensuring that we remain the digital guardian for our consumers. However, the technology stack could evolve. With that, I will hand over the call to Dipak to review the quarterly results in detail. Dipak Golechha: Thank you, Nikesh, and good afternoon, everyone. As Nikesh noted, our strong Q2 results reflect the consistent execution of our platformization strategy, coupled with a robust demand environment. The increasing adoption of our platforms is most evident in our next-generation security ARR, which grew 33% to $6.33 billion. This includes a $200 million contribution from our recent acquisition of Chronosphere. On an organic basis, NGS ARR was up 28% year-over-year and net new ARR was up 11% year-over-year. This performance was driven by an acceleration in SASE and software firewall ARR, alongside continued momentum in XSIAM. A key contributor to our software firewall growth in recent quarters is Prisma AIRS. As customers increase their AI deployments, they're looking for a trusted partner to secure this critical transformation. Prisma AIRS directly addresses this need. And as Nikesh mentioned, it is scaling rapidly with over 100 customers ending Q2. Our remaining performance obligation, or RPO, grew 23% to $16.0 billion. This includes approximately $150 million of RPO from our Chronosphere acquisition. It's important to note that RPO balances for Chronosphere can fluctuate from period to period given usage-based pricing with ARR and revenue being more representative of business performance. Our current RPO, which represents a near-term revenue realization was $7.1 billion, representing 18% growth. Total revenue was $2.59 billion and grew 15%. Given the close of our Chronosphere acquisition came near the end of fiscal Q2, the revenue contribution was immaterial during the quarter. Product revenue was up 22% with 45% of the product revenue coming from software form factors over the trailing 12 months, which was up from 38% in the trailing 12 months ending Q2 '25. This was driven in part by strong demand for software firewalls as noted earlier. Our software growth was complemented by improving hardware demand led by the adoption of our latest Gen 5 firewall appliances and SD-WAN. Total services revenue grew slightly above 13%. Within this, subscription revenue was up 14%, while support revenue grew 12%. From a geographical perspective, we saw broad-based strength across all of our major theaters with the Americas growing 14%, EMEA growing 17% and JPAC growing 17%. Moving further down the income statement, our disciplined focus on profitability and operational leverage continued to deliver strong results in Q2. Given the timing of the Chronosphere acquisition, the impact of this transaction to our P&L financials was immaterial. Our total gross margin for the quarter was 76.1%. Within this, product gross margin was 78.2%, an increase of 150 basis points year-over-year, driven by a higher software mix compared to last year. As noted earlier, we did see improvement in our hardware business during Q2. Therefore, on a sequential basis, the higher mix of hardware and product revenue resulted in a 180 basis point decrease to product gross margin versus Q1. The services segment delivered gross margin of 75.6%, down 100 basis points year-over-year. The year-over-year change in services gross margin reflects a positive mix shift towards a high-growth SASE offerings, which remain in the earlier part of their scaling curve. We continue to be pleased by the growth of our SASE offerings and remain focused on driving efficiencies here. Now turning to the supply chain. We observed a marginal impact on product COGS this quarter from higher memory and storage pricing, but we believe we are well positioned to manage through these dynamics. First, our high and growing software mix provides a natural hedge. Second, we will leverage our scale, deep supply chain expertise and lessons learned through COVID and prior supply chain constraints. And third, pricing actions taking effect later this fiscal year will help offset corresponding cost increases. We have proactively factored these considerations into our Q3 and full year outlook. We delivered our third consecutive quarter of 30%-plus operating margins with Q2 operating margin of 30.3%, a 190 basis point expansion versus Q2 of last year. The strong expansion reflects our ability to drive consistent scale and efficiency across all OpEx line items. Our diluted non-GAAP EPS reached $1.03, which once again came in above the high end of our guidance. Q2 adjusted free cash flow was $502 million. On a trailing 12-month basis, we generated $3.75 billion in adjusted non-GAAP free cash flow, representing a margin of 37.9%. Our cash and cash equivalents for the period was $7.9 billion, reflecting a $2.6 billion cash consideration for the Chronosphere acquisition. Given the recent close of our CyberArk acquisition, we expect the $2.3 billion cash outlay in Q3. This results in a total combined cash outlay of $4.9 billion. In connection with our acquisition of CyberArk, we guaranteed the payment obligations on the CyberArk's convertible senior notes due 2030. The acquisition resulted in a make-whole fundamental change under the notes, and we will be making an offer to repurchase the notes in the coming days. We also issued 112 million shares in consideration for the CyberArk acquisition. Before I turn to guidance, I also want to extend the warm welcome to the over 4,000 talented individuals from CyberArk and Chronosphere. We're thrilled to have them on board and excited to execute on our integration plans to unlock the full value of these acquisitions. Our focus is on a frictionless onboarding experience for our new colleagues. And within just the first few days, we've provided access to collaboration tools for every individual to work as one cohesive team. We remain confident in our ability to deliver significant scale and leverage across every line of each of our financial statements. From an operational standpoint, integration is being executed with the same rigor that we apply to running our core business. We've established clear governance, defined work streams across all functions, including IT, finance, IT, HR, product and go-to-market and implemented measures to ensure continuity for customers, partners and employees. Our priority is maintaining business momentum while methodically bringing platforms, reporting structures and operating rhythms together. Taken together, we believe this disciplined approach to integration reinforces our confidence in delivering sustained growth and operating leverage, enabling us to achieve our target of 40% free cash flow margin by fiscal 2028. And our longer-term goal of $20 billion in NGS ARR by fiscal 2030. Now let me take you through the guidance. Please note that our Q3 and full year 2026 guidance is inclusive of both the CyberArk and Chronosphere acquisitions, which have been aligned to our fiscal year and our definitions of certain non-GAAP metrics. This includes NGS ARR, which reflects only the subscription portion of CyberArk's ARR and has been conformed to our standard revenue-based definition. Our Q3 and full year 2026 guidance assumes reported NGS ARR for CyberArk will be approximately 2% to 3% lower than the equivalent on the CyberArk previous bookings-based ARR definition. Please see the appendix of our earnings presentation for more detail on the comparison of the 2 ARR definitions. For the fiscal third quarter 2026, we expect NGS ARR to be in the range of $7.94 billion to $7.96 billion, an increase of 56%. This includes a $1.47 billion contribution from M&A, remaining performance obligation of $17.85 billion to $17.95 billion, an increase of 32% to 33%. This includes a $1.6 billion contribution from M&A. Revenue to be in the range of $2.941 billion to $2.945 billion, an increase of 28% to 29%. This includes a $340 million contribution from M&A. A fully diluted share count of 812 million to 817 million shares, which accounts for the close of the CyberArk acquisition on February 11. Diluted non-GAAP EPS to be in the range of $0.78 to $0.80. For the fiscal year 2026, we expect NGS ARR to be in the range of $8.52 billion to $8.62 billion an increase of 53% to 54%. This includes a $1.52 billion contribution from M&A, remaining performance obligation of $20.2 billion to $20.3 billion, an increase of 28% which includes a $1.6 billion contribution from M&A, revenue to be in the range of $11.28 billion to $11.31 billion, an increase of 22% to 23%. This includes a $760 million contribution from M&A. Operating margins to be in the range of 28.5% to 29%, diluted non-GAAP EPS to be in the range of $3.65 to $3.70 per share. Our fully diluted share count of 768 million to 773 million shares, which accounts for the close of the CyberArk acquisition and adjusted free cash flow margin of 37%. We have included our typical modeling points in the presentation for your review, but I would like to highlight a few now. First, note that under our accounting policy, the upfront portion of term licenses and any perpetual license revenue from CyberArk will be recognized as product revenue, all of our Chronosphere revenue will be included in services. For Q3, we expect product revenue growth of 25%. And for the year, we expect product revenue growth in the low 20s. With that, I will turn it back to Hamza for Q&A. Hamza Fodderwala: Thank you, Dipak. [Operator Instructions] First, we've got Rob Owens from Piper Sandler, followed by Brad Zelnick from Deutsche Bank. Robbie Owens: Nikesh, looking back at 2018, 2019, there was a prevailing fear that cloud computing would render parts of the Cybersecurity stack obsolete. At that time you leaned in via M&A, and repositioned the portfolio. Obviously, the business has tripled since that today. Now we entered this AI era and the narrative feels oddly similar. Could you compare that existential nature of this AI shift to what we saw in cloud, maybe what areas you think will be obsolesced. And then specifically, is M&A the primary lever again this time around? Or does your starting position differ at Palo Alto from where you were, let's say, at the start of the cloud cycle. Nikesh Arora: That's the long one question, Rob. Nice to see you again. So that's a good question, Rob. Look, I think when we looked at in 2018, '19, we were trying to manage 2 challenges. One challenge was, how do we get customers to get off on-prem to cloud and then deliver them cloud security. And the other challenge was how do we deliver services off the cloud, the customers would accept because they're being delivered from the cloud. And that's kind of where us, we had to refactor our entire security service in the firewall, delivered them from the cloud, which was a huge opportunity. We made a lot of acquisitions to deliver cloud security. We fundamentally architected XSIAM at that point in time as a cloud-delivered SOC, which is generally not a prevailing trend. I think this time, I'm still confused why the market is treating AI as a threat to at least cybersecurity. I can't speak for all the software because one thing we're definitely seeing that customers have figured out that they need to drive more consistency in their security stack to be able to respond faster using AI. You cannot respond fast if you've got 70 different vendors who have different data, different logs, different APIs running. So we are seeing a trend towards more consolidation, more platformization and that's evident in what we said. We did our best number of platformizations this quarter, and we've ever done, barring the Q4, which is seasonally strong. So I think that's one trend we're seeing. And the other trend arcing is slow adoption on the enterprise side, slower than the consumer side of AI, but as the adoption is beginning to happen, we're begging to hear conversations around security, which as you see with Prisma AIRS, we delivered 100-plus customers. This is much faster than we did in cloud security. So people are adopting it faster. So from my perspective, AI is inevitable. It's going to be used by enterprises. As enterprises start putting more critical functionality in the hands of AI, they will want control of AI agents or of their AI infrastructure. That requires more security. So I think generally, it's a positive trend towards more security adoption. I particularly believe it's a bigger trend towards platformization and consistency of data and harmonization of data in the enterprise. We're not collecting enough data right now to get good security outcomes. Hamza Fodderwala: Next, we have Brad Zelnick from Deutsche Bank, followed by Saket Kalia from Barclays. Brad Zelnick: Great. Nice to see everybody. Nikesh, I pay close attention to the acquisitions you make and the things that you tell us because you've proven very astute at identifying future opportunities. As we think about XSIAM and the AI-driven SOC, I've heard investors concerned lately that LLMs are going to kill SIEM tools. How do we think about the balance of opportunity and threat of LLMs doing a lot of the things that we relied upon SIEMs for. And even if you're competitive from a product standpoint, is there a risk that you now face a new strong competitor for these modernization opportunities? Nikesh Arora: So I think, Brad, the LLMs are a net positive and additive to our capability to diverse security. Like LLMs are very useful for data classification or doing DLP, because we've relied on very traditional approaches towards matching -- exact matching data and trying to do DLP, and LLM are much able to understand context and say, no, this definitely looks like something that is data that is restricted or PII. So I think there are certain examples where generative AI and LLMs are extremely useful. All the examples you see, they're really good at looking at patterns and finding gaps and you'll see an offensive security or red teaming, LLMs are being helpful. I think the challenge that LLMs will face or do face in providing comprehensive security is it's not the 95% of the time they're right. It is the 5% of the time they're not right, you need to be right, right? This is like we're fighting bad guys who had to be right at once. We have to be write 100% of the time. So LLMs until they get to 99%, 99.9% accuracy are not a threat to delivering security. They are tools that can be used to summarize capabilities. There will be agentic actions that can be used to get a lot of the prework done from a precision AI perspective and get data together. So I think AI helps the cause. Every security company is going to have to use AI to deliver the capabilities that they deliver today. So I think it's not a secret. Every one of us is working hard. Almost every security product has some version of a copilot that now runs in tandem with the product. This helps you understand the pattern, understand the capabilities and be able to answer questions faster. I don't think it's going to replace the security product anytime soon. And don't forget that, one more thing is, in most cases, our security products sit at edges and create new data and logs that didn't exist for everything that's around them. So to the extent we are creating proprietary data and security, that is not going to be replaced by an LLM. We're not a system of record. We're not a system of work. We are generating specific domain specific data based on threats we see out in the environment and then using that analytically to figure out how the customers should protect themselves. Hamza Fodderwala: Next, we have Saket Kalia from Barclays followed by Meta Marshall from Morgan Stanley. Saket Kalia: Congrats on closing Chronosphere and CyberArk. Nikesh, maybe on that point, I'd love to dig into the joint pipeline opportunity with CyberArk a little bit. You have a big go-to-market machine that we can leverage here. So I'm just kind of curious how you think that opportunity unfolds. And maybe relatedly, Dipak for you, you gave some breadcrumbs earlier on CyberArk, but -- on inorganic. But wondered if you could help us bridge maybe how much ARR we can include for CyberArk this year as we kind of think about that buildup of organic versus inorganic? Nikesh Arora: So Saket, the good news is that CyberArk has a phenomenal team out there in the field, so does Palo Alto Networks. We have very carefully sort of been working with them after the close. Both teams have been made aware of how to pursue joint opportunities together. We understand our pipeline. We understand their pipeline. We've built a road map for overlapping pipeline where both customer has opportunities in the fray in the next 3 to 6 months. And we've already armed the teams with plans as to how to address the joint opportunity. But what's fascinating is just anecdotally, just as you were informing the teams, we already have had CyberArk reps coming us to have an opportunity for Palo Alto's products in an account. They're particularly strong at. And I know that [ Peter Jenkin ], their President, was on a call over the weekend, trying to help close a customer for CyberArk's reps with Palo Alto capability. It's happening in both directions, but I think it's early days, but I think the opportunity is real. And as the teams get to know each other, as they get to know each other processes, I think, we're going to see more and more momentum with both the teams. It is going to be a bit of a crawl, walk, run because right now, both our systems are different. So we have to do this stuff manually, and we have people helping us build sort of a central acceleration team, which drives both. But as CyberArk teams understand more and more of the Palo Alto products and the capability of the platform and as the Palo Alto teams understands the CyberArk capabilities and also as we work with CyberArk team to build the next generation of products that we've been sort of ideating with them recently, I think, we're going to see continued momentum in both those pursuits. Dipak Golechha: Yes. And then if I can just take the breakout. So look, we're not breaking out every M&A deal that we do separately all the time. However, just as a baseline, Saket, we did say that CyberArk NGS ARR was about $1.2 billion at the -- as of December 2025. And I just said that in my prepared remarks that $200 million of ARR came from Chronosphere. And then I've also guided what the total M&A contribution is. So I think it's -- hopefully, you'll agree that it's a lot more than bread crumbs to be able to allow you to do the math there, yes. Nikesh Arora: Full English breakfast. Hamza Fodderwala: Next, we have Meta Marshall from Morgan Stanley, followed by Josh Tilton from Wolfe Research. Meta Marshall: Great. Congrats on the quarter. Maybe just a question for me on the SASE business. We saw nice reacceleration in that business in fiscal Q2. Just any commentary about what you're kind of seeing driving some of that strength? Lee Klarich: Good question. We're obviously very excited by seeing that business accelerate at scale. The -- I think Nikesh said it fairly well when he talked about sort of this notion of a first-gen adoption of customers that was tended to be more sort of point product type adoption. They're trying to solve a particular problem. And the existing solution at the time, we're pretty good at solving that one problem. And now we're seeing both new customers as well as many of those customers come back and look for a more comprehensive solve. Their employees might all in one day, show up to an office and work, work from home and work while traveling. And if they get 3 completely different experiences and application access and everything else, it doesn't work for them from a productivity perspective. And so what we're able to do by delivering this as a platform is we can bridge how we apply network security from a hardware perspective, software perspective, SASE protective and even all the way down into the browser with Prisma browser, all in a very consistent way, both for security outcomes as well as the end user experience and the productivity they achieve. Like that is the overarching trend that I see and what's driving the business right now in SASE and the customer excitement about what we do. Hamza Fodderwala: Next, we have Josh Tilton from Wolfe Research followed by John DiFucci from Guggenheim. Joshua Tilton: Maybe just a high level one for me. What are you guys seeing in regards to the volume of network traffic from your customers as they move more out of the experimentation phase and actually start to really adopt agents enterprise-wide. And how, if at all, will that impact the demand for the broader network security suite, whether that's firewall or SASE. Nikesh Arora: It's too early to tell. I think if you look at the AI adoption in the enterprise, there is a surge of adoption in the coding space. So people using Codex, Cursor, Claude Code and equivalent. You're seeing a lot of that. Those are very application-specific. And actually, that fits exactly where Koi operates. Because when you start doing coding and Vibe coding off your desktop, you'll see server -- MCP servers and clients spun up on edge -- edges. You'll see a whole bunch of code that is sitting at the edge, which is not visible to traditional XDR capability. And that's why that was a solution we were using Koi and there's where we saw they had traction. They had 40, 50 customers, and we were a customer of theirs. So this is an unsolved problem in security, and this is kind of where all the action is from an enterprise adoption perspective. Outside of that, there is now enterprise adoption that we're beginning to see where customers are running perhaps millions of tokens in 1 or 2 particular applications they're working with some of the LLM providers on, and that's where we see the traffic. That traffic is again more within the network. I don't think it's traffic that networks cannot handle. I think the challenge right now is consolidating that traffic. How do you get all the AI traffic to be in one place. So you can understand it, provide visibility, look at the ability to control it and be able to act on it. So I think that's going to be the next bastion as to how do we figure out the solution for all this traffic that is beginning to have a different nature in enterprise, and it needs a different set of controls and tools, but it's not really impacting the network level traffic yet. And I say yet because as adoption grows, I fully expect, I mean, you can't build $600 billion worth of data centers and not expect traffic to grow and you can't expect that not to happen. So I think that's going to happen. The data centers being built. It's early days, and consumer actually are far outstripping enterprise for the moment, but we expect enterprise will surely and slowly get on that bandwagon. Hamza Fodderwala: Next, we have John DiFucci from Guggenheim followed by Gabriela Borges from Goldman Sachs. John DiFucci: Nikesh, I agree with you on, everything you said... Nikesh Arora: Thank you, John. I am going to sleep better tonight. You can stop now. It's good. Great question. John DiFucci: I don't always agree with you, but I really do on this. I really do. I agree with you on everything you're saying about AI, its positive effects on security. I actually really like the acquisitions you've done here. But if AI is going to be good for security, and I think it will -- in both cases, both you need to secure AI. Also AI is going to -- I could be a hacker if I want to be. But if that's the case, when are we going to see it? Because it doesn't show up in the number -- it doesn't show up -- I mean, not that -- it doesn't show up in your numbers yet. It doesn't show up in anybody's numbers yet, really, maybe a couple, but not really. I mean when -- is this -- I don't know. Nikesh Arora: No. I think that -- look, I think, John, if you -- I think the best analogy I can give you is we look at cloud security. You didn't see cloud security numbers for a while because typically, cloud adoption in enterprises lagged the consumer. And then even then, it was literally a 2-year cycle, a 3-year cycle before enterprises fully got all their applications and workloads moved onto the cloud. So I expect the -- right now, if you look at it, tell me how many enterprise AI apps are you using which are driving tremendous amounts of throughput. And I can't think of anything but coding apps. Now coding apps are not resource-intensive on your infrastructure, they are resource intensive on the endpoint. So like endpoint capability and LLMs are where all the action is. So I think it's early days. What I'm heartened by the fact is that our number of customers with Prisma AIRS is kind of following the same trajectory as XSIAM. The volume isn't there because the throughput is not coming through LLMs right now. So I think it's early days. Look, you have to have 1 or 2 beliefs, John. You have to be in one camp or the other. Either you have to believe that the $600 billion of data centers are being built are going to be consumed. And if you believe that, which most people seem to do, so that consumption is going to be 80-20, 80% consumer, 20% enterprise. But those data centers is yet to be built. I think what's happening is we're all laying the groundwork right now is a bit of a sort of an arms race to try and see who can get the AI security sort of platform up and running as quickly as we can. And you can see innovation is happening in every direction. That's why you see us buy protect.ai, which is now well integrated. We took the firewall, made an AI firewall. Now we're taking Koi. We see that that's where the action is. The next question is going to be how do you consolidate all AI traffic in one place. So I think you're seeing the piece parts being built [indiscernible] right. I think you just have to be a bit patient. Hamza Fodderwala: Next, we have Gabriela Borges from Goldman Sachs, followed by Adam Tindle from Raymond James. Gabriela Borges: This one is for Lee. It's a CyberArk question, but it's a product-based CyberArk question. If we think about CyberArk historically being strong for privileged users at the high end, what is the technical lift that has to be done to make that technology more accessible for every user. And I'm curious what you've learned in the last 6 months or so from your customer base on the method to securing agentic identity between PAM, IGA and IAM. Any learnings from the last 6 months, would be curious to hear. Lee Klarich: Good question. First, let me start with the first question. The -- I think just the general space of Privileged Access Management has largely been a more sort of sophisticated category. And as such, it's been the more sort of security-conscious enterprises have been the biggest adopters. And there's already sort of a transformation underfoot of sort of this notion of modern PAM and moving to just-in-time controls and 0 standing privileges and things like that. And part of that is actually improving security, but part of it actually is also about making it easier for the end user to actually interact with these systems. We -- so that's already happening. The further we have ideas for how we can leverage integrations between CyberArk and, for example, Prisma Browser in terms of how do we integrate capabilities in the place where the user is already doing work in order to make it even easier for them to take advantage of these capabilities. So -- we -- there's already a lot of progress and we have more ideas for how we're going to continue to make that easier, so we can drive broader adoption across the existing customers, but also make it easier for noncustomers to adopt. And ultimately, we think that leads to the broader sort of full human identity solution that we're excited about. Now as that is happening, yes, there is the agentic identity sort of market that is rapidly forming. And look, the -- my view on agentic identity is it's going to have sort of aspects of machine identity and privileged users sort of wrapped into one. And this is partly why I think CyberArk is well suited for being able to go after this because of their leadership in both of those foundational spaces. And then it's how do we adapt, add to and then optimize for agentic use cases. And again, some of that will be sort of call it, send alone CyberArk from an identity platform perspective. And some of it will be how we think about that in concert with Prisma AIRS where we already have hooks into the AI infrastructure, and we'll have, again, integration opportunities to be able to bring solutions to our customers. Hamza Fodderwala: Next, we have Adam Tindle from Raymond James, followed by Shaul Eyal from Cowen. Adam Tindle: Nikesh, in your comments, you talked about it with Chronosphere, a 9-figure expansion deal with a leading AI provider. I just want to pick on that and just ask about the key attributes that help Chronosphere get that level of commitment. Were you displacing an existing vendor, the timing for that, the rationale for it? And maybe even the pipeline beyond that and just a quick clarification, Dipak, just because I know this is coming up in after hours after you talked about ARR in total. Think investors are shipping out the $1.47 billion from Q3 NGS ARR and looking like organic net new NGS ARR is down a lot. I think there's probably some flaws to that, but I just want to toss that out there to have you clear the air. Nikesh Arora: All right, Adam. First thing first, look, Chronosphere is a highly scalable solution and its scalability is dependent on a net new architecture design for observability, which is different from what the current incumbents in the space have. So that capability allows them to deliver those capabilities at approximately half the price, if not more, than or less than some of the other players out there. So they are displacing another vendor in that space. They have been partnering with the large language model over the last 6 months or so, and they have passed every technical hurdle, which allowed them to make a commitment to Chronosphere. We expect the full transformation over the next 6 to 12 months or a full transition from the other vendor. Part of the $200 million ARR is from one of those large LLM vendors. We expect that to continue to grow. In addition to that, they have other customers who are significant customers, and they are going to pursue significant customers over the next 3, 6 months in partnership with us. But that's why we bought the company because of the scalability, because of the capability from a technical as well as a commercial perspective. And we're at least going -- we can talk more about the product capabilities that we're going to give it. But we hope that will allow it to be a full sort of full-scale replacement option for both DIY. Many customers do DIY in the situation as well as being able to compete effectively with some of the big observability players out there. Lee Klarich: Look, I'll just give you a high level. There's -- look, they've built something very unique for that very high end of the market, scalability and the economic aspects even the start of some of the AI analytics and that will complement with AgentiX. The next phase is going to be how do we build out a lot of sort of enterprise sort of off-the-shelf kind of features that make it just really easy to do integrations to basically replace existing incumbent infrastructure, whether that's commercial products or open source. We think in both cases, the Chronosphere will scale down into that large enterprise segment very nicely. Dipak Golechha: And then, Adam, just on your question on NGS ARR just to be clearer, organic NGS ARR is roughly in line with consensus for Q3 and we reiterated the full year. So maybe folks just haven't fully appreciated that Chronosphere closed for 4Q, but we'll make sure that's all cleared up. Hamza Fodderwala: So next, we'll go with Adam Borg at Stifel, followed by Gregg Moskowitz from Mizuho. Adam Borg: Great. Maybe, Nikesh, you talked about a little bit in the prepared remarks about the quantum opportunity. You talked about a little bit last quarter. Love to hear more about kind of the early learnings from kind of the discussions with the customers from the panel a few weeks back and ultimately how you're thinking about the opportunity in coming years. Nikesh Arora: As part of the CyberArk deal, we've acquired Venafi. And I'm going to have Lee talk about a new capability we're building called the next-generation trust subscription plus our quantum capability. We have been in discussion with 100 customers who are experimenting or beta customers of product. We have tremendous feedback from them. Our quantum capability is not just for Palo Alto firewalls. It actually looks at the enterprise capability. So we have actually integrated 10 other vendors worth of quantum data into our quantum sub, but I'm going to let Lee talk about the sub. Lee Klarich: I think the -- yes, the -- in both of these cases, whether it's cryptography and PQC or certificates and managing the -- the alternative is largely a very manual sort of human-centric repetitive kind of task approach. It's either some poor person or people that have to constantly sort of manually go look at certificates, look at the renewal dates and ages and other things like that and then redo them manually or we can do it through technology. The same is true with quantum cryptography. It's either a lot of manual consultation going through and trying to figure out what exists or we can use technology. And so in both cases, we figured out. Obviously, Venafi in one case that we'll be joining the team and then the NetSec team is how do we use technology, largely our next-gen firewalls, but not only our next-gen firewalls, other data sources as well to do that discovery to be able to technologically discover everything that is needed and then through automation to then also be able to automate the process of remediation. And so this has obviously security benefits, but it also has reliability and uptime benefits as well because you have to remember, in both of these cases, these are fundamental to how production systems operate. Hamza Fodderwala: We'll end it here with Gregg Moskowitz from Mizuho. Gregg Moskowitz: All right. Last question. Thank you, Hamza. So closing in Palo Alto's 2 largest ever acquisitions within a couple of weeks of each other. It's exciting. The potential is tremendous. But it could also add an unprecedented amount of stress on the management team, engineering, go to market teams, et cetera. Nikesh, how do you keep everyone's eye on the ball, yourself included, and not be subject to execution or distraction issues? Nikesh Arora: Well, Gregg, these acquisitions, at least in the case of Chronosphere, has been in the works for the last 2 or 3 months, and CyberArk has been in the works for the last 7 months. I've visited their Boston facility spend days there with them. Lee and I were in Israel with the team and spend time with them. So CyberArk just didn't come upon us this week. It has been in the works for the last many 6 or 7 months. As you might have read, we had worked for the management team to fully understand what role every employee at CyberArk was going to have. So we were able to, on the date of close, inform every employee with their role in the future joint organization was going to be, what their plans are. Gave OKRs, give targets to every one of them. So they all have that within the first 48 hours. So it's not like we've been waiting. There are some system transitions that we do in the case of CyberArk, which the teams are working in hard, fast and furious on. We have had the opportunity to plan where they need to be. So where we have our eye on the ball. That's our job, right, from a CyberArk perspective. And Chronosphere is, honestly, other than the fact that the price tag was big, that it's still a 250 people engineering team that does observability, which is fundamentally different from anything we've done. The only point of product interaction is they're working hard with the Cortex team to figure out how to incorporate AgentiX into their platforms, so they can have agents solve the observability problem just not just sort of be an observability company. And separate to that, because they are sort of they are whale hunters, they go after big observability clients. We are able to selectively and surgically help them on a client-by-client basis to help them drive what they need to do. So this is our thirty second or thirty third acquisition between 2 of them. We have a lot of lessons from prior acquisitions, which we have brought to bear. Our teams have been working really hard over the last many months, and we have been actually adding capacity at our end to make sure we can handle some of these transitions that are required. Hamza Fodderwala: That concludes the Q&A portion of this call. I'll pass it back to Nikesh for any closing remarks. Nikesh Arora: Well, I just want to say thank you to all of our customers, to all of our employees around the world and thank you to all of you for joining us on our conference call. We will see you guys next quarter.
Operator: Good day, everyone, and thank you for joining us, and welcome to the Cineverse Corporation Fiscal 2026 Third Quarter Earnings Call. My name is Luca, and I will be your operator today. [Operator Instructions] I would now like to turn the call over to Gary Loffredo, Chief Legal Officer, Secretary and Senior Adviser for Cineverse. Please go ahead. Gary Loffredo: Good afternoon, everyone. Thank you for joining us for the Cineverse Fiscal Year 2026 Third Quarter Financial Results Conference Call. The press release announcing Cineverse's results for the fiscal third quarter ended December 31, 2025, is available at the Investors section of the company's website at www.cineverse.com. A replay of this broadcast will also be made available at Cineverse's website after the conclusion of this call. Before we begin, I would like to point out that certain statements made on today's call contain forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions. The company's periodic reports that are filed with the SEC describe potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements. All the information discussed on this call is as of today, February 17, 2026, and Cineverse does not assume any obligation to update any of these forward-looking statements, except as required by law. In addition, certain financial information presented in this call represent non-GAAP financial measures, and we encourage you to read our disclosure and the reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics. I'm Gary Loffredo, Chief Legal Officer and Senior Adviser at Cineverse. With me today are Chris McGurk, Chairman and CEO; Erick Opeka, President and Chief Strategy Officer; Tony Huidor, President of Technology and Chief Product Officer; Mark Lindsey, Chief Financial Officer; Yolanda Macias, Chief Motion Pictures Officer; and Mark Torres, Chief People Officer, all of whom will be available for questions following the prepared remarks. On today's call, Chris will briefly discuss our fiscal year 2026 third quarter business highlights. Then Mark will follow with a review of our financial results, and Erick will provide further details on our 2 most recent acquisitions. I will now turn the call over to Chris McGurk to begin. Chris McGurk: Thanks, Gary, and thanks, everyone, for joining us on the call today. I'll first give a brief overview of our results and the anticipated impact of the 2 transformative acquisitions, Giant Worldwide and IndiCue that we made after the end of our fiscal third quarter. Then Mark will go into our financial results and outlook in more detail, plus further outline both acquisitions to underscore why we believe they will be very accretive and we were done with very attractive valuations and have deal economics that will dramatically improve our financial growth and profitability outlook. After that, Erick will get into more detail about how these 2 acquisitions transform Cineverse into a powerhouse, comprehensive AI-powered technology services provider to the entertainment industry with assets and reach that we believe none of our competitors can match. Then we'll take your questions. Okay. So we have been negotiating the Giant and IndiCue acquisitions for months. And while we realized the dramatic impact both would have on our market position, go-forward strategy and financial outlook, our first order of business, while we aggressively moved to close both deals, was to improve operating results in our base businesses to further set the stage for financial success in the future. And so in this last fiscal quarter, we concentrated on improving our cost structure and operating margins in our base businesses. And we generated some strong results, improving our direct operating margin to 69%, up from 48% in the prior year quarter and generating adjusted EBITDA of $2.4 million, a $6 million improvement from the prior sequential quarter. This was a result of our intense and ongoing efforts to manage the cost side of the business, including leveraging Cineverse Services India, even as we ramped up operations on the technology side of the business in anticipation of these 2 acquisitions. And we are extremely pleased that we were able to successfully acquire both Giant and IndiCue. This one- two punch immediately transforms our company financially by adding significant revenues and adjusted EBITDA. Both acquisitions bring large, durable and scalable streams of recurring revenues to the company and significantly solidify our position as a leading end-to-end AI-powered provider of technology services and infrastructure solutions for the entertainment industry. They both have an A+ level roster of industry clients and will be easily integrated into our industry-leading Matchpoint technology ecosystems. Both acquisitions also bring very strong, experienced and highly motivated management teams that clearly see the synergies and share our larger vision for the future of Matchpoint and Cineverse. Like the Cineverse team, they are joining, our new team members have incentive plans based on generating explosive future growth in revenues, margins and profits. And in the case of IndiCue those incentives also include a very significant earnout potential over 3 years. So we believe we are completely aligned with our new team members to generate strong financial results and create significant value going forward. And already, the integration of Giant has been going very smoothly and the overwhelmingly positive industry response to joining Matchpoint has exceeded our expectations. If there are any doubts about the long-term potential of Matchpoint, those doubts have been roundly dismissed. The immediate response we received within days of our announcement proves the merging Matchpoint with an established media delivery company with highly coveted approved vendor badges is the ideal profile for the type of service provider entertainment companies seek. In the days following our announcement, Giant received more work orders than they have in the history of the company. And at this early juncture, we confirm our prior expectations for Giant's short- and long-term revenue and profit contribution, and we feel very, very positive about how things are looking so far. And in addition, IndiCue has consistently outperformed their own internal monthly revenue and profit forecast over the last several months while we were in negotiations. So both of those factors combined with the financial improvement we generated in our base business this quarter give us great confidence in the financial guidance we just issued for fiscal year 2027, which starts this April 1. We project $115 million to $120 million in annual revenues and $10 million to $20 million in adjusted EBITDA from our consolidated operations this next fiscal year. In the end, these acquisitions were the result of a long-term thesis built on closely tracking our industry's delayed transition to true AI integration and automation. The content volume needed to compete in the streaming wars accelerated yet the video delivery infrastructure remain manual and slow to market. While costs for video and high volume became untenable. This created the opportunity for a unified intelligent platform with a unique monetization component that redefines the current ecosystem. I believe we finally achieved this. And with that, I will now turn things over to Mark and then Erick to get into all this in more detail. Thank you. Mark Lindsey: Thank you, Chris. First, a few highlights from our fiscal third quarter. Revenues were $16.3 million, up from $12.4 million last quarter and down from $40.7 million in the same fiscal quarter last year. If you recall, the prior year fiscal year -- prior year fiscal quarter included the theatrical results of Terrifier 3, which were in excess of $20 million. Our net loss for the quarter was $875,000, a $4.7 million improvement over the prior quarter. Adjusted EBITDA for the quarter was $2.4 million, a $6 million improvement over the prior quarter. We ended the quarter with $2.5 million of cash and $4.2 million of availability on our East West Bank revolver. Now let's talk about the exciting subsequent events this quarter. As Chris noted, we closed on 2 acquisitions after quarter end. Giant was an all-cash asset acquisition for $2 million with only a $350,000 initial payment on closing and $1.65 million in deferred payments over the next 4 quarters. This for a business that we conservatively expect to generate revenues of $15 million to $17 million and adjusted EBITDA of $3.5 million to $4 million for our 2027 fiscal year. The ability to acquire assets that will perform at this level were just 0.5x adjusted EBITDA with no leverage or dilution is the first step of our company's financial transformation. The IndiCue acquisition was step 2. This acquisition was a business combination for 100% of the equity of IndiCue for base consideration of $22 million. $12.8 million of which was paid at closing and included deferred consideration of $9.2 million due within 1 year of closing in cash or equity at the company's discretion. Total consideration could increase to $40 million if IndiCue meet certain future revenue and gross profit milestones over the next 3 years. In addition, the acquisition included $3 million of cash and $750,000 of net working capital at closing. The additional earn-out consideration is payable in cash or equity at the company's discretion. IndiCue is expected to contribute more than $38 million of revenue and $7 million of adjusted EBITDA for our 2027 fiscal year. We financed the IndiCue acquisition with $13 million of convertible notes with existing long-term Cineverse shareholders at company-friendly terms, reflecting the investors' strong conviction in our investment strategy and long-term valuation creation of this acquisition for our current shareholders. Importantly, the capital came from aligned long-term investors with no warrants attached and the additional equity raise was priced at or near market with fundamental investors. The entire Cineverse C-team also invested alongside the transaction, reinforcing our alignment with shareholders. The combined acquisitions are expected to contribute in excess of $50 million of revenue and $10 million of adjusted EBITDA for our 2027 fiscal year. As a combined entity post Giant and IndiCue acquisitions, we are providing guidance for fiscal year '27 of $115 million to $120 million of revenue and $10 million to $20 million of adjusted EBITDA. The combined impact of the Giant and IndiCue acquisitions represent a financial transformation for the company and are expected to create significant shareholder value in the future. Separately, from the acquisitions, on February 12 and closed this morning, the company sold 1.725 million shares of common stock at a purchase price of $2 per share for net proceeds of $3.2 million. We intend to use the net proceeds for working capital and for general corporate purposes, including the financing of content acquisition and development. With that, I'll turn the floor over to Erick to discuss our operating highlights and the acquisitions in greater detail. Erick? Erick Opeka: Thanks, Mark. So I want to start with a quick recap of what we've delivered operationally this quarter and then spend the bulk of my time on why the Giant, IndiCue acquisitions are so strategically important to where we're positioning Cineverse for the next chapter. So on the operational side, we continue to see strong momentum across our streaming ecosystem. We reached 35.5 million unique viewers on a monthly basis over the quarter with our SVOD subscriber base growing 15% year-over-year to 1.55 million. On a monthly basis, we're streaming about 1.14 billion minutes each month. Our content library now exceeds 66,000 total assets, including nearly 58,000 films, seasons and episodes, plus over 8,500 podcasts. Our social footprint has now grown to more than 25.4 million followers. These aren't vanity metrics. This is reach, engagement and content gravity that matters when you're building distribution advantages. And specifically, on the Cineverse channel, our namesake channel, we added approximately 45,000 subscribers in calendar 2025, giving us room momentum heading into our new fiscal year. I also want to highlight our operating leverage. Our direct operating margin hit 69% this quarter, up from 48% a year ago. That's a significant inflection. On the cost side, between personnel optimization, vendor eliminations and cost renegotiations, we've already realized approximately $1.9 million of the targeted $7.5 million in projected cuts across our studio operations and corporate overhead. We expect to see most of the remainder come through over the next 2 quarters. You're starting to see the company find its operational rhythm. That foundation is a critical context for what I'm about to describe with these acquisitions. So let me talk about Giant and IndiCue because they're not really about getting bigger for the sake of it. They're about filling a specific gap we identified in the market and then building the architecture that solves for it. For years, we've been building Matchpoint as an advanced infrastructure layer for digital video distribution. We invested heavily in machine learning, automation and what I'd call the operational plumbing that the streaming industry desperately needs. But the deeper we got into conversations with studios, distributors and platforms, the clearer it became. The industry is hopelessly fragmented. Content distribution is separate for monetization. Monetization is separate from data, and that fragmentation creates friction inefficiency and critically, it leaves money on the table. So first, Giant Worldwide has been serving top Hollywood studios and streaming platforms for over 2 decades. Digital preparation, and coding, quality control, standards and practice compliance and delivery across every format. They're trusted by 4 major studios and top independent distributors, and they hold approved vendor status with those studios and the key platforms. So this isn't something you just get. It's earned over years of reliability, security and quality, and it's a substantial moat. But Giant was operating on traditional infrastructure with manual workloads and labor-dependent processes. And critically, they were actually turning away business because they couldn't scale hiring people fast enough to meet studio demand. So as we started integrating Matchpoint's, AI video and audio quality control, automated ingest, frame-by-frame analysis and transparent mastering workflows, we are already starting to see immediate efficiency gains. We're seeing -- we're already achieving 60% to 70% efficiency improvements in coding delivery in the short time we've already been deploying them. Matchpoint is capable of ingesting and -- to remind you, Matchpoint is capable of ingesting and mastering over 15,000 titles per month and can scale far beyond that. So that's the power of automation and genuine scale. And I want to be clear. We haven't even fully optimized Giant for software-like margins yet. That's a future state. So right now, Matchpoint is solving the scale problem and the whole margin optimization opportunity is still largely ahead of us. So the market opportunity here is substantial. On a global basis, post and media services is a $25 billion fragmented market growing at 11% CAGR and expected to hit globally $74 billion by 2034. The industry is shifting from these labor-led workflows to AI-powered platform-led workflows. And that transition is happening, whether companies are ready or not. So we're positioning Matchpoint to lead it, and the market response has confirmed our thesis. The announcement was the right message at the right exact moment for this industry. In our first month of operating Giant under the Matchpoint umbrella, we saw a nearly 470% increase in business over the prior year period. And that trend has accelerated into February as studios and platforms are telling us they really need this. They need the scale, they need the automation and they need it from a partner they can trust. So now IndiCue is the other critical piece. IndiCue built a proprietary connected TV monetization platform, ad serving, supply side, demand side, SSAI or server-side ad insertion, on a very scalable infrastructure. So we have real control over that stack. They have over 40 live clients today with 75 more onboarding, including major names like IMAX, Freecast, Cannella and more. They're projecting $38 million of revenue at about $9.6 million EBITDA for calendar '26 with a 25% margin. And those are the economics of a platform that works. But here's what really matters. IndiCue is the monetization layer we were missing. So Matchpoint gets content to market at scale but how you sell ad inventory, optimize yield, price and package ads, that was happening in a completely separate silo. So IndiCue closes that loop, distribution, data, monetization now work as a single system, with a real-time feedback engine. We see performance, can act on it immediately and improve results for our own content and for some of the largest media companies in the world. So what we've built is something the industry has never had an independent full-stack white label solution that unifies content delivery and ad monetization that's actually integrated, not loosely connected. And the combined teams are already developing new ad tech products on the Matchpoint stack that neither company could have built on. So I want to spend a moment on why this positioning matters beyond today's customers. There's a structural shift underway in tech right now that's directly relevant. In the AI era, value is migrating away from interface layers and towards platform and infrastructure layers. AI agents don't need dashboards. They need real platforms with real underlying data beneath them, systems that can execute thousands of decisions per second. The companies that own the infrastructure and data are the ones that will matter, and that's exactly what we've built. So Matchpoint is the platform layer. Giant brings proven infrastructure, trust and customers, IndiCue brings monetization engine. Together, combined with our Matchpoint platform, they create a system of record for the entire media supply chain from ingestion through encoding, quality control, delivery, yield optimization. It's not a dashboard that sits on top of someone else's stack. This is an actual operating system. And because monetization is integrated directly into that infrastructure, data is flowing in real time. That means higher CPMs, better yields and smarter targeting for advertisers, better calibrated ad loads for consumers. And when these systems are disconnected, everyone loses. So we've closed that gap. So to close this out, with these 2 acquisitions, we've made a deliberate strategic choice. We're building what this industry does not have, a unified, automated architecture for the entire media supply chain, that's the moat, and it positions us to serve not just today's market where consolidation means customers need scale, speed and transparency, and we are meeting that today, but also the future market where intelligent systems will be making the vast majority of decisions in tandem with media companies. So across the company, our focus remains clear. We're building for scale, for margin and for durability. We now have multiple high-growth engines that reinforce one another supported by technology data and a fast-growing audience footprint, and we feel very well positioned for the quarters ahead and for the long term. So with that, operator, we can open the line for questions. Operator: [Operator Instructions] First question comes from the line of Brian Kinstlinger, of Alliance Global Partners. Brian Kinstlinger: Great. Can you hear me? Chris McGurk: Yes. Brian Kinstlinger: Congratulations on the strategic positioning through these acquisitions. My first question is, when I q at the filings on IndiCue, their business went from virtually no revenue in 2023 to $10 million, and to $32 million each of the last few years. Can you talk about the evolution of this business? I think there are 3 customers that make up the majority of the revenue. And is this recurring? And how? And is the growth generally penetrating new customers? Or is it penetrating the wallets of those existing customers? Chris McGurk: Brian, I think Erick will take that question. And I think the concentration has improved quite a bit year-over-year. So go ahead, Erick. Erick Opeka: Yes, sure. So I think there is a moment in time that IndiCue really was built for, and that's independent CTV monetization platforms with the prior acquisitions of companies like Springserve and Publica, the need for real independent platforms has emerged. It's not uncommon in early-stage businesses like IndiCue to have pretty high concentration early on as they leverage strong, long-term relationships of the founders and so on. And that's what happened in this case. But that underlying concentration has been improving pretty dramatically, looking at the rearview mirror of the filings, the concentration has only improved, both on the supply and demand side. But I think one of the things that's very compelling and differentiated from, say, other network plays and other things is the combination of the technology and the volume of business that's flowing through leads to a much stickier and durable relationship than people that don't own the tech or that partners have not built their businesses decisioning on top of. So that durability, some of the core customer base, one, represents a large holdco that has beneath that hundreds of different advertisers flowing through it and spending through it. And some of the other players are very large-scale players. So I think it's important for a business like this to build strong nodes of consistent recurring business that is mutually beneficial and expand from there. And I think that's exactly what they've done also on the supply side, adding in major CTV partners and OEMs that have dramatically diversified the business over the last few months. So really, it's having the right product at the right time for a market that needs autonomy and independence from SSPs to be able to allow companies to do the things that they need to do to maximize their returns and yields in the CTV market that's maturing. And I think this is sort of the exact right product at the right time for that. Brian Kinstlinger: Great. My one follow-up and then I'll get back in the queue. I think you guys want us to keep to 2, is maybe an update on Matchpoint. It looks like in your press release, you talked about announcing 4 new customers, ATPN, The Asylum, Spark and Waypoint, can you size these wins, what they mean in your revenue guidance for next year? And did they include the full stack that you acquired? Or will they grow as you add those new capabilities as part of Matchpoint. Erick Opeka: Yes. So I'll defer to Tony on how sort of the business will evolve. But I think with most of our customers, we really have a -- they're coming to us through 1 door for a specific need. Some of them are coming to us for media processing. Others are coming through for quality control. Others are coming through because they need an app platform. And still others now are going to be coming through because they need monetization. So with that base of customers, most of those customers came through because they needed either an app platform solution or an encoding solution. I think we're following a pretty classic land-and-expand type model where we get the customer in and they have a lot of other integrated services that they can add and layer on. So Tony, I don't know if you can speak to sort of total value of these types of customers without specifics on any 1 specific. I think I'd characterize them as kind of lower mid-market customers but steady, stable customers. Tony, do you want to take that? Mark Huidor: Yes. I'll take that. Thank you, Erick. So Brian, I think what you -- what we haven't really spoken a lot about is really the synergy between Giant and Matchpoint. So think of a lot of the work that we've been doing with Matchpoint over the last 2 years has been really on gaining a foothold within the market, market validation, traction. And we had started kind of on the low end of the ecosystem by doing deals with channel operators, FAST channel providers and so on. And as you may recall from earlier meetings, some of the studio deals, there was interest, but the vetting and the process to get onboarded was a year or 2 years. It's just a very long, slow process. So by doing the Giant acquisition, overnight, we had deep studio relationships with 4 of the largest studios and slew of other large media companies. So now what we've done is the synergy that the Giant deal brings us is we now have the ability to start selling Matchpoint, not just delivery services, but other parts of the Matchpoint stack to this -- to these big media clients. Some of these clients, one of the studios we were talking to, we were going through the vetting process. Once we acquired Giant, we no longer had to go through that process. We were an approved vendor. And so think of it that way that Giant really short circuited the vetting process that could have taken Matchpoint a year for us to get into market. So now to Erick's point, we have the ability to land and expand with these big media clients and start selling more services than just what Giant was providing. So some of these, I would say, our largest studio partner they were spending roughly $1 million a month with Giant. We think we could double that. easily. And that's just for the existing services. There's substantial upside there. It's a little early to say how high the ceiling is, but we think that there's tremendous growth opportunity there. Operator: Your next question comes from the line of Dan Kurnos of Benchmark. Daniel Kurnos: Great. First and foremost, let me just say congratulations. I mean, it took a lot of time, effort and guts to completely change the narrative here. So kudos to you guys for basically shifting the premise, which I think is great and completely derisking the other side of the business. So with that in mind, Tony kind of just answered the first question I was going to ask, but maybe I'll ask it in sort of a broader sense, which is, we got some color from all 3 of you now basically on sort of the synergistic elements of these deals and how they work together. So within the confines of the guidance that you guys have given, you've got cost cuts, you've got other synergies, you can make -- you can improve Giant margins. Like how much of the combined synergies are we anticipating over the next 12 months? And how much do you think things could ramp if you guys kind of get the execution right, fold this all in and then really show what the consolidated entity can do. So I'm just trying to understand what you guys have embedded in the guide for fiscal '27. And I'll ask a follow-up after. Chris McGurk: This is Chris. Dan, I just want to thank you for those comments. But I think probably, Erick and Mark Lindsey, are probably best to respond to your specific questions about fiscal 2027 and the guidance. Erick Opeka: Yes. So I'll tee it up. I think I'll give the general sort of basket of these things. I'll let Mark Lindsey talk some specifics about forecast synergies as part of the forward guidance. I'll talk in generality. So if we really kind of think about what is -- how are we stacking up the various elements here to get to those EBITDA and revenue numbers. First and foremost, just to rehash the cost, the cost reductions in the studio business is really to get that business refocused and aligned on recurring revenue growth out of the streaming business at high margins. Obviously, getting the studio model to a place where it's more predictable, and I think smoother revenue ramps, and 1 of the ways to do that is obviously push the margins as high up as we possibly can, and that will help absorb the natural volatility you see in a movie releasing business. Hopefully, we increased the throughput of movies to smooth out the volatility on that studio business. But that's sort of job #1 in the studio. So that's realizing about $7.5 million of cost reductions. We also have a plan to move a lot of the content costs that today were being borne by our balance sheet -- off balance sheet into other financing mechanisms, that are kind of industry standard for studios to make that business look even better. So that's job #1 there. Job #2 is on these 2 acquisitions, what are the immediate synergies that can be provided. So we're talking about IndiCue, Mark Lindsey, you can confirm this. I believe we're looking at somewhere up to, between $8 million and $9 million of potential synergies by deploying IndiCue's capabilities across our media portfolio on the revenue side. Mark, can you speak to that a little bit on the revenue and potential EBITDA synergies as we kind of deploy IndiCue into monetization and improvements in our existing sort of ad-based infrastructure? Mark Lindsey: Yes, sure, sure. Absolutely. So I'll hit on a few of them. I definitely don't want to reset our guidance because they're good numbers as they are. But there's some significant revenue synergy upsides from both Giant acquisition and IndiCue and how they integrate with Matchpoint. And then as well as the revenue synergies that come from IndiCue and their ability to leverage our existing infrastructure and our ad platform and our various channels. So we -- as Brian noted earlier, IndiCue had a significant growth profile. As Chris mentioned, they've exceeded estimates, exceeded their forecast for the last 3 or 4 months. So they're growing rapidly. They're very profitable. There are, we believe, revenue synergies that we're going to have the opportunity to execute on and realize that we don't have built into our guidance. This guidance is clearly numbers that we think we're going to be able to obtain. So there's some upside there. There's a lot of revenue synergies that are attainable, but we want to put a fairly conservative number out there. And we have bigger numbers for fiscal '28 and fiscal '29 as it will take a few months to ramp up and see those synergies take place and have traction. So without putting specific numbers out there, the $110 million to $120 million, that's including mid-$50 million of revenue combined from the 2 acquisitions and $10 million plus of EBITDA coming from the acquisitions, but we think there's definitely some upside there related to the synergies. And Erick mentioned, there's about $7.5 million of cost savings that we have fully built into the adjusted EBITDA guidance that we put out there. So while it's aggressive numbers, we think they're very attainable, and there's definitely some upside there. Erick Opeka: And then -- and I'll just finish up the last bit on the -- talking a little bit about the margin improvement on Giant. One, so today, if you think about that business model, it's a labor dependent with sort of labor and SG&A costs or depending how it's characterized in some cases, it could be OpEx costs, tracking with revenue. So there is no scale benefit to that business. If you book more revenue, you got to hire more people where we saw the limits of that, that was happening over the last couple of months with them where just not enough, you can't scale people enough to meet the demands of the industry. We look at and see about 70% of the work can be done for encoding and delivery part of that business which is the lion's share of the revenue, can operate within Matchpoint's automation platform which would kind of flip gross margins from low 30s to mid-70s, give or take. So that in and of itself is, I think, 1 of the biggest parts of the transformation is not only is the volume, I want to call it infinitely scalable but near so, but it also more than 2x-es the margin out of the business. So we have to build -- obviously, build the mechanisms and systems that make it easy. The good news is porting that over is not exactly the most challenging technological thing in the world. It's more workflow and process in the early days, and it will be more automated in the later part of the year. But I think that also reflects on some of the cost basis. And then the last piece is we kind of look at these 2 businesses, we don't really need to do -- these are very differentiated businesses. There are some improvements we made on Giant pre-acquisition was an asset purchase. We didn't take all the people, all the cost structure. So we -- on day 1, we improved the cost structure there. There are minor things you do in any business, but that business for the most part, the cost realization. A lot of it's done already. And IndiCue is a small, lean, highly profitable, smartly structured company that we don't have to do, there's not really any synergies to reap there. So most synergies are going to be coming from optimizations to the business models of the respective companies on either side of the equation. Daniel Kurnos: That is incredibly comprehensive. Thank you for that. Very helpful and don't worry Mark. No one includes revenue synergies and acquisitions, so I think you're fine. The only other thing I'd ask for you guys because I know this is going to be a sort of an unprecedented or at least in recent times, question, which is, how should we think about free cash flow conversion now that you guys are going to have real meaningful EBITDA. And I know we have the really favorable convertible note that's out there, but you guys are going to have to think about now what to do with the cash that you're going to start generating. Erick Opeka: I'll tee it up and then Mark, you can kind of dig into that. But the good news on these 2 businesses is not big CapEx, no big CapEx investments really are going to be required. They've been -- they're -- the improvements and the sort of synergies and benefits to growth are coming from over a decade of investment into our software platform. So we start to realize the benefits of those applying those to other scale economics, and/or they've built out many years more capacity than we'll need to. So realistically, free cash flow flows back into growth initiatives for the company. So I think that's 1 of the core benefits here is we see an environment where there's a lot of companies similar to Giant and IndiCue that are highly accretive and add to the flywheel of this platform as sort of a baby version of what Salesforce did years ago, bolting things on or other things, that can scale this up even larger. It also allows for other areas of investment and growth of things that we've been discussing internally. So that's a good place to be where we can leverage free cash flow as opposed to, say, dilution for some of these growth initiatives. Daniel Kurnos: That's it, Mark, if you got something, go ahead, but I just -- congrats. So whatever you want to finish up with. Mark Lindsey: I'll just kind of summarize what Erick said. I mean this is a great position to be in. It's a little bit different than where we've been in the last few years. We're 5 weeks on 1 acquisition, and 2 days or 3 days into the other one. So still some time to get our arms around them. But definitely an opportunity to put some dry powder on our balance sheet, reduce the outstanding balance on our revolver. As Erick alluded to, there's some unique opportunities out there for us for some tuck-in acquisitions to continue to help grow the company. That will be day 1 accretive that we feel like we can get at a great price. And hopefully, we're in a position where we can utilize cash and/or equity, as a capital to make those acquisitions. So we can talk free cash flow in next quarter and start reporting on it. So I know you're excited to see that number. So we'll start doing it. Operator: [Operator Instructions] Your next question comes from the line of Laura Martin with Needham. Laura Martin: Can you hear me okay? Chris McGurk: We can hear you now. Laura Martin: So congratulations. It seems like you've made transformative acquisitions here. Chris, my first question is for you. So the studios absolutely need to cut cost and then automate their workflows. But I sort of feel like the studio system -- look, I think Wall Street has a consensus that generative AI tools are going to lower the cost of content creation and proliferate content makers, and that's going to ultimately hurt the studios over a longer-term frame. So my question is when I think about Matchpoint, which I saw a demo at CES and I thought it was fantastic already. It's going to be even better now. Is there -- are there tools and features at Matchpoint that are applicable to the next generation of content creators through run lean, right? There's 5 guys, and they have their great software narrative guys. So is there something here that is applicable to the next generation? Chris McGurk: Yes. Well, first, Laura, thank you very much for joining the call. We're very happy that you listened in. Thank you. One of the things that I really like about what we're doing on the AI front is we're putting forth, I think, positive AI tools that help the industry, whether it's what we're doing here with Giant where we're using AI in our technology basically to power fulfillment and drive down costs for the studios or what we're doing on cineSearch with Ava, our Siri for streaming search. They're done in a way that doesn't have any negative impact at all on the creative side of the business, and yet they're positive applications of AI within the industry. We just made an announcement the other day, and I'm going to turn this over to Tony about how we're going to be developing AI tools on the creative side of the business. So Tony, do you want to respond to that question? Mark Huidor: Yes, of course. Thanks, Chris. Laura, thanks for the question. Yes. Obviously, as an AI forward company, we continue to monitor and watch all the key developments within the industry. On Monday, we announced the formation of the Matchpoint Creative Labs. That's essentially our R&D unit for GenAI so we're already working with some clients on taking GenAI and using it for ad creation, which would tie in with IndiCue. We're also using it for channel branding station IDs and so on. And this is a service that we can provide our Matchpoint clients, they use Matchpoint Blueprint or FAST channels. But we continue to invest in that area. I think in terms of your question, definitely where we are compared to the rest of the industry, we're pretty far ahead. Agentic AI is something that Erick spoke about during his portion of the of the script. I would say agentic AI and creating an intelligence layer related that sits on top of the data that we manage is a big focus of ours that we'll be doing some announcements later this year. But we get it. We're very invested in this space, and I think we have a very good handle in terms of how we can leverage AI in what we feel is an ethical way that doesn't hurt the business. But we're here ultimately to build as we say, picks and shovels to help the rest of the entertainment industry move forward, and we think we have a huge foundational head start compared to any of our competitors. Erick Opeka: And I'll add 1 thing, Laura. So I think your question really is whether the studios catch up and start to focus on AI and they're sort of an innovator's dilemma play there or if other companies emerge. I think our position is that, it is going to massively increase the volume of total content. So if anything, a platform that can organize, monetize, route it, is going to become even more critical, apply other tools to make it distributable into beyond just YouTube and other sort of social platforms because we believe looking at the quality leaps, generational leaps that are happening. This is going to democratize the quality available, and the volume of content, but we think that this is -- this will make what we do being able to ingest, normalize the metadata, so it can go into the various sales and monetization channels, doing things like localization, tracking rights, delivery to all the FAST AVOD other platforms, performance tracking, providing real-time data and feedback that can inform the models that are making it. That's where I think our platform actually is going to add massive value if that is the future universe that happens. And so -- and we believe that's likely. So we think we're in a very good position to handle that explosion of content. Laura Martin: Great. And then my second question, and then I'll stop there is, you guys just made transformative -- you transformed the business with these 2 acquisitions. So what next? Are we done? Are we done with acquisitions? Do you need more stuff? Do you listen to your clients about what they need and they lead the way in what you add or bolt-ons to these acquisitions? What happens next on the M&A front? Erick Opeka: So I would add that, number one, we've got a lot of work to do to digest these 2 acquisitions. So the short term is about post-merger integration, making these all work, getting all the teams aligned to the growth that we're putting out there. But I think the environment that we find ourselves where the media services industry, the processing the packaging data. There are a lot of companies that were private equity and other buyers, corporate and strategics bought these businesses at the peak of COVID, high valuations or under thesis that don't make sense anymore. And those companies are going to become available over the next months and years. And we think finding the best of the best that have strong assets that fit with our flywheel, stripping out cost structures and the same way we're doing here and automating them to capture scale and more value is a model that we think is worthy of pursuing. And first, we're going to prove the thesis though over the next months and quarters here. Chris McGurk: I agree with that, Erick. But I would just say, if you look at these 2 deals, if you drill down into these 2 deals, they're going to be enormously accretive. They were done with great valuations and there are incredible synergies between the 2 companies. And even though, it's always a challenge to integrate companies together, we think in the grander scheme of things, both companies are very easily integratable into Matchpoint. So -- and the short answer is, if we can find other opportunities like Giant and like IndiCue that we think just have enormous upside. Of course, we're going to do that because it's in the best interest of our shareholders. Operator: There are no further questions remaining. So I'll pass the conference back over to Chris McGurk Chairman and CEO of Cineverse for closing remarks. Chris McGurk: Thank you. Thank you all for joining us today. Please feel free to reach out to Julie Milstead with any additional questions you might have from this call. So we look forward to speaking to you all again on our next quarterly call. Thank you all very much. Operator: That concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by, and welcome to Caesars Entertainment, Inc.'s Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Brian Agnew, Senior Vice President, Corporate Finance, Treasury and Investor Relations. Please go ahead, sir. Brian Agnew: Thank you, Jonathan, and good afternoon to everyone on the call. Welcome to our conference call to discuss our fourth quarter 2025 earnings. This afternoon, we issued a press release announcing our financial results for the period ended December 31, 2025. A copy of the press release and our investor presentation are both available in the Investor Relations section of our website at investor.caesars.com. Joining me on the call today are Tom Reeg, our CEO; Anthony Carano, our President and Chief Operating Officer; Bret Yunker, our CFO; Eric Hession, President, Caesars Sports and Online; and Charise Crumbley from Investor Relations. Before I pass the call to Anthony, I would like to remind you that during today's conference call, we may make certain forward-looking statements under safe harbor federal securities laws, and these statements may or may not come true. Also, during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. Please visit our press releases located on our Investor Relations website for a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure. I will now turn the call over to Anthony Carano. Anthony Carano: Thank you, Brian, and good afternoon to everyone on the call. Caesars delivered solid results in 2025 with full year same-store enterprise net revenues increasing $266 million or 2% year-over-year. These strong results were driven by the diversity of our portfolio, our omnichannel focus and the delivery of unique experiences for our guests. Turning to the fourth quarter. Results were in line with our expectations. Our diversified portfolio delivered fourth quarter consolidated net revenues of $2.9 billion, up 4% year-over-year and adjusted EBITDAR of $901 million, up 2% year-over-year. During the fourth quarter, our Digital segment delivered an all-time quarterly EBITDA record of $85 million despite experiencing poor hold in October. Our Las Vegas segment delivered a quarterly sequential improvement in occupancy and rate trends as expected, leading to a 6% EBITDA decline in Q4, an improvement versus Q3. And finally, our Regional revenues were up 4% year-over-year, driven by continued strong returns in our Danville and New Orleans and the benefit from strategic reinvestment in our Caesars Rewards customer database. Regional EBITDAR declined slightly and was negatively impacted by poor winter weather in December. Absent the weather impact, Regional EBITDAR would have grown year-over-year. Starting in our Las Vegas segment, we reported same-store adjusted EBITDAR of $447 million versus $477 million last year. Segment results were driven by 92% occupancy versus 96.5% last year and an ADR decrease of 5%. During the fourth quarter, we benefited from a strong event calendar, which produced a record F1 event for Caesars, a strong New Year's Eve and 17% group and convention room night mix during the quarter. We continue to elevate the customer experience in Las Vegas during the quarter with the addition of 2 new presidential villas at the top of the Colosseum Tower as well as 29 new Sky Villas at the top of the Octavius Tower, both at Caesars Palace. I'm excited to say feedback from our VIP guests on this product has been very strong. These recent investments into our flagship Caesars Palace asset, including a fully remodeled Palace Court slots area, helped the property set the all-time record for slot volume in 2025. We also remain excited about additional upcoming CapEx projects in Las Vegas, including a new OMNIA Dayclub by Tao at Caesars Palace, a complete remodel of the Augustus Tower at Caesars Palace, a full renovation of Palace Court, our high limit table games area and salons, the rebrand of the Cromwell to the Vanderpump Hotel and the recently announced Project 10 by Luke Combs that will occupy the vacant Margaritaville space at the Flamingo, just to name a few. These projects continue our commitment to reinvest in our assets while providing our guests with unique experiences. As we look ahead to the outlook for Las Vegas, we continue to see trends improving sequentially throughout the year, driven by stabilizing leisure trends and a strong group and convention calendar. In our Regional segment, we reported adjusted EBITDAR of $407 million, down slightly to last year. Absent the negative winter weather in December, EBITDAR would have grown in Q4 on a year-over-year basis. Results from our strategic customer reinvestments remain promising, driven by strong rated play trends in the quarter. As we mentioned last quarter, we will continue to refine our marketing approach as we remain focused on delivering strong returns on these investments. As we look ahead to 2026 in our Regional segment, we expect to benefit from a strong group mix in Reno, the transition of Windsor from a managed to an owned property in March, the completion of our $200 million Tahoe master plan renovation this summer, hosting of select property events around the World Cup and continued return on investment on recent changes in marketing. And finally, we're looking forward to the opening of our newest managed property, Harrah's, Oklahoma, which is expected to open on April 9. I want to thank all of our team members for their hard work during 2025. Their dedication to exceptional guest service has been the driving force behind our accomplishments this year. And with that, I will now turn the call over to Eric for some insights into the fourth quarter performance of our digital segment. Eric Hession: Thanks, Anthony. During the fourth quarter, Caesars Digital delivered net revenue of $419 million, adjusted EBITDA of $85 million and hold normalized adjusted EBITDA of $90 million. Flow-through during the quarter was better than target at 56%. Our core KPIs remained strong during the quarter with mobile sports handle growing 4% and total parlay mix improving by approximately 210 basis points year-over-year. In addition, we saw growth in average legs per parlay and a higher cash out mix versus the prior year period. In i-Casino, we delivered 28% net revenue growth driven by continued strength in volume and average monthly active users. We continue to elevate our product offering during the quarter to include new in-house games, improved bonusing capabilities and an elevated live dealer product. Overall, in Q4, our total monthly unique payers increased by 19% to 585,000. Our strong Q4 results drove our full year net revenues to $1.4 billion, up 21% year-over-year and EBITDA to $236 million, up 100% year-over-year, the combination of which resulted in flow-through of 50%, in line with our target. From a tech perspective, we continue to convert new jurisdictions to our universal digital wallet and proprietary player account management system, which is now live in 26 jurisdictions and should be live in all jurisdictions by the end of this quarter. This enhancement gives our customers a significant upgrade to their wagering experience. During the quarter, we also successfully launched sports betting in Missouri, which was the first state, where we offered a shared wallet experience to our customers on day 1. As we look forward to the full year of 2026, I'm pleased with the significant progress on the technology side of the business that's driving strong customer engagement in both sports and i-Casino. The continuous progress we are making is showing up in our top line results and our focus on spending efficiency will drive solid flow-through to EBITDA. We continue to see a business capable of driving 20% top line growth with 50% flow-through to EBITDA, which keeps us on track to achieve our goals. I'll now pass the call over to Bret for some comments on the balance sheet. Bret Yunker: Thanks, Eric. In 2025, we continue to reduce debt alongside executing opportunistic share repurchases. As we move into 2026, we expect to benefit from decreasing CapEx, decreasing interest expense and well below $100 million of cash taxes. Our nearest debt maturity is our relationship bank financing, which matures 24 months from now. Over to Tom. Thomas Reeg: Thanks, Bret, and thanks, everybody, for joining. For some additional color, last we talked to you, we were coming off a very, very soft summer in Vegas with the softness dominated by the leisure traveler. The leisure traveler still remains soft on a year-over-year basis, but not as pronounced as it was this summer. We told you that group business would help us fill in, in the fourth quarter, and you saw that, that happened and our -- on a sequential basis, the year-over-year decline was less. As I look into '26. You'd excited expect first quarter the same thing, group business offsetting leisure softness and further improvement on a sequential basis versus fourth quarter. And then as we get into second quarter, group business, including our -- the State Farm conference at our properties should put us in a position, where we're looking at year-over-year gains. And then you get to the summer where it will be dependent on leisure recovery, but we feel good generally about the rest of the year. In Vegas, the way I'd characterize the business is peak events, peak weekends, big conferences the cities and all of our properties are doing quite well. It's the shoulder periods when there's not a big event or a big conference, where demand is challenging. And from an operating perspective, that's a unique challenge for us and all of us in the market because you're operating a property in a softer period that may be occupied for us in the 80s for others lower and then you're ramping up to fully occupied that weekend or that next event. So it's quite a labor staffing challenge. So Sean and his team in Vegas did a fantastic job of managing the business through that volatility in the fourth quarter and continue to -- you can see our margins are still holding in the mid-40s, which we're proud of. In the Regional business, as Anthony said, October and November were quite strong for us, significant year-over-year growth. The last 2 weeks of the year, we had some ill-timed snow that probably cost us a little over $10 million of EBITDA, but we ended up flat for the quarter. As you look out, recall the first quarter last year had the Super Bowl in New Orleans. So that's a little over $10 million of incremental EBITDA in New Orleans that does not recur in the first quarter. But post the first quarter -- at the end of the first quarter, early March, Windsor comes online. You get the largest group of bowlers in Reno, that's primarily second quarter. You've got Tahoe's completed expansion coming online for the third quarter. So we feel very good about regional growth for the year and particularly in the back 3 quarters of the year. Digital, as Eric said, we're still pacing kind of 20% top line growth with 50% flow-through. Everybody knows the targets that we have out there for digital. We still expect to exceed them as we move forward. One thing to call out in digital, fixed marketing expense is going to be significantly different in '26 and '27 as we have big contracts roll off. In '26, there's a little over $35 million that runs off that will primarily impact the second half of the year, the majority of that hits in the second half basically in football season. And then you've got another $20 million plus in '27, also football season, so first half of that year. The vast majority of that should flow straight to EBITDA, but we will take some of it and reinvest in marketing that has a return. So we think that, that's a significant booster for growth for us as we move forward. Prediction markets, I know everybody's got prediction markets questions we're no smarter than you in terms of what will happen. To me, this is clearly gambling. I think it will take a couple of years to wind its way through the courts, and you'll have a patchwork of states where they're not allowed, states where they're allowed. In our -- in the current regulatory environment, you shouldn't expect us to be participating in prediction markets. We are -- some of our most valuable assets are our gaming licenses in each of the states that we operate, and it's been made clear to us in a number of states that if we pursue that avenue, some of our bricks-and-mortar licenses could be at risk. You shouldn't expect us to do that. But notwithstanding, if there becomes clarity that there is a legal path for prediction markets that satisfies regulators on the brick-and-mortar side, we will find a way to participate. But I would tell you, unequivocally, we view this as gambling that should not be regulated. These are not swaps. They're not miraculously finding the other side of a 5-team parlay at the same time one side comes in, but we'll let that play out through the courts. Notwithstanding, our handle grew you in the fourth quarter, continues to grow. We're not seeing any impact that we can see in our regulated markets as we operate today. And Bret touched on, we expect to be a significant free cash flow generator in '26. We were in '25. And you should expect us to utilize that cash between a mix of debt paydown and share repurchases. And with that, I will open the line to questions. Operator: Certainly, and our first question for today comes from the line of Dan Politzer from JPMorgan. Daniel Politzer: Tom, I was hoping to just check in on Vegas here. I know you spent a good amount of time talking about that leisure customer and the uncertainty there. But as you look out in terms of the booking window in terms of the kind of near-term trends, are you gaining any traction? And what do you think needs to be done from either a promotion or a value proposition perspective that needs to -- in order to get that customer back? Thomas Reeg: I think this is normal economic cycle activity in leisure for us. You've got -- there's a unique flavor of what's going on with Canada in terms of international visitation. But I think this is just a kind of normal economic cycle. What we are seeing is F1 was a very strong event for us. Super Bowl, despite what you read on social media was an extremely strong event for us year-over-year. The big event weekends, the big conferences are delivering. It's those soft patches in between. And keep in mind, we were, what, 92.5% occupied for the quarter across 20,000 rooms. If you look back over the history of Caesars in Vegas. This was probably the third or fourth best fourth quarter of all time. So there's really no crisis happening in Vegas. It's normal cyclicality, and it will play itself out. We -- I know that the pricing gets focused on social media. I'm sure if I say the wrong thing in the next 30 seconds, I'll read it on Bloomberg or in the Journal tomorrow. But that's not really what's driving what's happening in Vegas. Center Strip is holding up quite well. The mix of what's available in Vegas, Bill and team at MGM do a good job of running down between the Sphere and the Raiders and all of the entertainment and the food and beverage and all of the options you have here they're unsurpassed. And the fact that we're 93% instead of 96% occupied, of course, we're going to work to get back to 96%, but this is not -- there's nothing unusual happening here. I'd expect it to recover as time goes by, and we're already seeing that happen over fourth quarter and into first quarter. Daniel Politzer: Got it. And then just turning to the digital side. In terms of iGaming, there's been headlines certainly in Maine and more recently in Virginia in terms of the potential legalization. I guess where do you stand in terms of the expectation there and the possible lift? And I mean, are these -- how close to these being done are they from a regulatory perspective? Thomas Reeg: So I'm not a good predictor of politics, but Maine appears highly likely to launch. And you should think of an iGaming state like Maine, something along the lines of what we saved in the NFL contract in terms of EBITDA at maturity for us. Virginia, as I'm sure you're aware, there's a bill that passed the House. There's a separate bill to pass the Senate. It will go to conference and then to the governor's desk. The fact that we're still alive at this point in the session is a good sign for brick-and-mortar operators. There's make well payments as part of the legislation that would benefit us. So our fingers are crossed in Virginia, that would be a very good outcome for us. I would say just -- I get asked to predict what's the next one to go. I would tell you, in both Maine and now Virginia, weeks before we were in the position that we're in now, we would have told you we don't -- we're not particularly optimistic. So this stuff can come together very, very quickly and not necessarily on our radar on anyone's radar what will be next. The overarching truth is you've got a lot of states that have budget issues that are looking for revenue, in many cases, with new leadership, Virginia has a new governor that's looking for revenue sources. that can be a good outcome for the casino business. I know in the last 18 months, that's been not a great outcome. We've seen taxes on OSB move up. We've seen per wager taxes were due for some good news in the political cycle, and it looks like there may be some coming. Operator: And our next question comes from the line of Lizzie Dove from Goldman Sachs. Elizabeth Dove: I guess sticking with Vegas, obviously, a lot of moving pieces. I appreciate your comments on leisure and the peak weekends and whatnot. You've got some capital investments that you've mentioned. Obviously, some good guys from conferences first half of this year and one for you, especially in 2Q. So just thinking -- I know it's early, but high level, how are you thinking about those puts and takes of how Vegas might play out this year overall? Thomas Reeg: Okay. Let me -- I don't -- we don't provide guidance, as you know. But I'd tell you, as I said, first quarter, I'd expect continued sequential improvement versus fourth quarter. Second quarter starts to look even better. The second half of the year is dependent on what happens with that leisure customer. One take that I should highlight is we're redoing the Octavius Tower at -- I'm sorry, the Augustus Tower at Caesars Palace over the summer. That's a little less than 1,000 rooms. So we'll time it so that it's -- the bulk of the work happens in that softer leisure period. And we'd expect to have those rooms back online for F1, but that is one take for us by -- in '26 that you should consider. Elizabeth Dove: Got it. That makes sense. And then I guess on the OpEx side, you've done a pretty good job of managing that overall and your margins are still higher than certainly some of your public peers and one of your private peers that comes to mind. How do you think about that long term in terms of where you can still kind of manage that cost side over time? Thomas Reeg: Lizzie, we manage it every day as do everybody else in the market. The labor contract increases are more manageable starting last year than they were in the first year of the deal. But we're -- as I said, -- what will help is as occupancy smooths out, it's much easier to schedule. You're not running 1,500 basis point occupancy swings during a week in a property. So I would tell you the margin numbers that we put up in the fourth quarter, that was about as challenging a period as you'll have in a non-COVID environment. I would expect that, that will get better as demand continues to firm. Operator: And our next question comes from the line of Brandt Montour from Barclays. Brandt Montour: So first is on regionals. Looking at the flow-through in the fourth quarter, it looks like it got a little bit worse quarter-over-quarter. You mentioned calling back some of the programs that you have in place next year is a key tailwind for growth. When do you think we'll see that metric flip? And when you talk about it as a tailwind for growth, what are you sort of baking in for that sort of -- that factor to sort of turn into a tailwind? Thomas Reeg: Yes. I think you started to see it in the third quarter, fourth quarter when you get hit by -- when you get by a weather events that hit visitation, you had costs associated with promotional events that were happening in those periods that you can't recoup. So it looks that number -- it makes that number look a little janky. I don't think it's changed for us. You should expect to see continued improvement in first quarter and then on through the year. I think what you saw in fourth quarter was really the last 2 weeks of the year. Brandt Montour: That's great. And then just a follow-up on Las Vegas. I was hoping we could maybe go one more layer deeper on some of the more tangible pain points that you kind of referenced international inbound, but California, interstate traffic, discount airline seats, some of these things that we can kind of put some at least qualitative feelings around, what's gotten better into the first part of the first quarter here? And what's sort of still staying as depressed as it was in the fourth quarter? Thomas Reeg: I mean I would say between the fourth quarter and the first quarter, I wouldn't say there's been a meaningful shift in any of what you named. The difference is there's more group business in first quarter than there is in fourth quarter, generally speaking. What you've talked about -- what you touched on with Canadian business is a small percentage of total visitation to the market, but was an outsized percentage of room night loss in '26. Southern California drive-in was softer in '25. That was coincided with immigration crackdowns that left people, let's call it, less willing to leave home and drive hours away. And I think as you put more quarters behind you from when those administrative -- when the administration made those changes, I think it will gradually come back. The allure of the market has not changed. And we're optimistic as you move through '26 and beyond. Operator: And our next question comes from the line of Steven Pizzella from Deutsche Bank. Steven Pizzella: As you look at the free cash flow generation you expect to generate in 2026, how are you thinking of balancing debt reduction and buybacks considering where the stock is trading today? Thomas Reeg: So that we're looking at the same thing you're looking at in terms of the free cash flow yield on the stock. You're going to look at how much cash flow you generate in the quarter. First quarter is a low free cash flow quarter. Actually, second quarter is a big one. So if you think about timing-wise, you should expect us to be more active in the second quarter than the first in a normal year, but we're going to continue to balance as you've seen us throughout '25 as we go forward. Steven Pizzella: Okay. And then in Las Vegas, it looks like the other revenue line item was up about 7% year-over-year and a nice increase sequentially. Can you talk about the drivers of that line item and how we should think about that moving forward? Thomas Reeg: Let us get you to that on a call back. I don't have that level of detail off my head -- off the top of my head. Operator: And our next question comes from the line of John DeCree from CBRE. John DeCree: Maybe one broad question. I don't think we touched on yet, and I know it's difficult to quantify, but kind of early days in tax refund season. Tom, how are you thinking about from your consumers' perspective, any uplift possibly from tax cuts under the Big Beautiful bill, what you'd typically see? I'm not sure if property managers have kind of reported anything at this point, but do you think that's a meaningful tailwind for either regionals or Vegas? Thomas Reeg: Yes. I agree with you, John. I think that's a tailwind this year. You're just -- obviously just now getting to refund season, but you're in withholding change, January 1. So I think people are starting to see my checks a little bigger in '26 versus '25 and money that comes to consumers like that in kind of an unexpected fashion. I don't know that the average consumer is focused on tax policy as much as the sample size we have on this call, as that money comes into the system, that's the kind of money that benefits all consumer discretionary businesses, entertainment-based businesses. So we think that can be a tailwind across the enterprise in '26. John DeCree: Maybe another kind of topic for this year, Olympics, World Cup, key events. Maybe Eric, specifically, have you seen any kind of material volumes around the Olympics? And do you have any expectations for World Cup as it relates to the digital business for this year? Eric Hession: Yes. There's always interest around the Olympics. The Summer Olympics, though really drive a lot more volume than the Winter Olympics. And candidly, it's 80% on basketball. The Winter Olympics are fine, and we offer a great menu for the customers, but it doesn't drive a huge amount of volume for us. Conversely, we do think that the World Cup will be very interesting. We plan to offer a number of promotions. We're planning to really revamp the offerings that we have in terms of the markets that we list for soccer leading up to the World Cup. And so from that perspective, the World Cup is something that will drive significant volume and some hopefully good outcomes on the winter side. Operator: And our next question comes from the line of David Katz from Jefferies. David Katz: I wanted to just look at Regional Gaming holistically. And it certainly looks like there's -- not just for you, but for everyone, there is sort of a lot of pressures from a number of different directions. If I'm characterizing the right way, whether it's skill games in some places or HRMs and others and potentially iGaming, if you would consider that a competition. How are you thinking about sort of the Caesars value proposition in that context, which looks like just a busier landscape than it's been? Thomas Reeg: I mean our benefit there is Caesars Rewards. It's -- we have a unique offering. We used -- as you know, David, we used to run a one card program at Eldorado. And the reality was not a lot of people wanted to go from Erie, Pennsylvania to Shreveport, Louisiana or to Reno between those places. The difference in Caesars is we've got 20,000 rooms on the strip. We've got destination properties likely Tahoe, New Orleans, Atlantic City that really create that hub-and-spoke system and allows us to differentiate ourselves, to your point, the convenience-based slot dominant product it is hard to differentiate yourself from the product standpoint. So you do it in service and everybody -- us and all of our peers would tell you we're very good at service. We're better than others. As we know, that can't be the case for all of us, but we all believe that. But the Caesars Rewards network is truly a unique animal in that space and has been beneficial in Regionals for us for a very long time. If you look at the legacy Eldorado properties that came into Caesars Rewards in the merger, your average revenue lift was in the mid-single digits. And that was purely by entering the Caesars Rewards network. So that is our chief benefit in our chief calling card in Regionals. David Katz: Okay. Got it. And if I can just go back to Las Vegas for a minute. One of the debates we have with everybody around the sort of K-shaped economy. When you talk about sort of leisure weakness, are you able to sort of segment some of that weakness between higher end, lower end and whether that's discernible and whether you'd call it out and whether you'd classify it as K-shaped or not? Thomas Reeg: I mean I would say premium does hold up better. But I would point you to look at our -- look at our hotel numbers and look at MGM's hotel numbers for the quarter, they're pretty similar. And MGM has a higher skew toward premium play or premium room, sorry, premium properties. So it's not as simple as the low end is not doing well, the high end is doing well. That is part of it. But I think also location in the market plays a part. Center strip has held up better than either end. And going back to the MGM and Caesars comp, MGM has more down at the south end versus our center, and maybe that explains why the numbers look fairly similar. But I think it's too simple to just say premium, good value, bad. There's a little more nuance in there. Operator: And our next question comes from the line of Steven Wieczynski from Stifel. Steven Wieczynski: So Tom, kind of sticking to what David's question just was, -- you've mentioned a couple of times the leisure traveler is still somewhat soft, but has stabilized. And I guess what I'm trying to figure out is, is there any kind of data point that you could point us to that would make you say you've kind of indeed seen a bottom here in that traveler. And I'm not sure the right way to ask that question, but obviously, that customer booked very close in. And is there anything whether there you're starting to see those folks book a little bit further in advance or anything else you could point to? Thomas Reeg: The booking window is not changing much, Steve. What I'd tell you is we -- our best measure is activity among our rated players, and that's been improving since the summer. But it's still not back above where it was, but it continues to get better. And then you roll in stronger group calendar, that's how you get to sequential improvement as we move forward. Steven Wieczynski: Okay. Got you. And then, Tom, you talked about the reinvestments you guys have done in the Regional markets. It sounds like that's going well given you mentioned there. Rated play was strong in the fourth quarter. Anything you could point to that would help us maybe a little bit understand better that those reinvestments are working like you expected? Thomas Reeg: Yes. I look at what you saw third -- I'm sorry, second quarter, third quarter, fourth quarter, I wish you saw in November, December on its own. We're seeing it flow and we're getting better at calling what's not working. I think you'll see more of that in first quarter. Part of it is what we're doing, part of it is you get further from competitive openings in terms of properties that are facing a competitor that added or just came into the market that has not anniversaried that's a lower percentage than it's been in prior quarters. And then as you look out to the rest of the year, we have more kind of Caesars or Caesars market-specific stuff that helps us like the Bowling calendar in Reno, the spend in Tahoe coming online and Windsor going from a managed property to an owned property. So our Regional picture should look pretty attractive in '26. Operator: And our next question comes from the line of Barry Jonas from Truist Securities. Barry Jonas: There's obviously been activity in Virginia now beyond just iGaming. There's a bill for a Northern Virginia casino and one for skill games legalization. Tom, how are you thinking about those expansion bills? Would you be interested in participating if the Northern Virginia happens? And any thoughts on impact from skill games beyond what you've already commented? Thomas Reeg: Yes. I would say we're always open to looking at new opportunities. Obviously, Danville, Virginia for us was a huge success. So that's a state that we have warm feelings -- the Commonwealth, we have warm feelings for the Commonwealth. Skill games, you're not going to see us involved in skill games. But if there's an opportunity in Northern Virginia, yes, we would take a look. Barry Jonas: Got it. Okay. And then just as a follow-up, I think there remains a real variance between wholly-owned versus leased EBITDAR performance. Just curious how we should think about that variance playing out over time. Thomas Reeg: There's nothing unusual happening in terms of how we operate, wholly-owned versus leased-leased was -- has been and I guess, over impacted by competitive openings. If you think about our properties that have faced significant competitive openings in the last couple of years, they tend to more likely be leased rather than wholly-owned. That's coincidental. As you move forward and that impact abates, I'd expect leased and owned to look similar in terms of performance. Operator: And our next question comes from the line of Stephen Grambling from Morgan Stanley. Stephen Grambling: Maybe to piggyback on that, certainly starting to see interest rates come down, even some modest cap rate compression in broader real estate. I know you've been thinking about monetizing real estate on the strip in the past. But as you look at the broader landscape and think about the structure of some of these agreements, how would you balance monetizing real estate on the strip going forward? Thomas Reeg: Yes. I mean, Steve, when we've talked before, we are always open for business. So if there's interest in any of our assets, we're happy to talk about them. You shouldn't expect to see us running a process on an asset anytime soon. While the capital markets -- the debt markets are strong -- the debt market has been strong for quite some time. And these are chunky assets that have a fairly short list of potential buyers. So it's more likely not a change in the capital markets that drives activity. It's somebody deciding I'd like to own a strip asset and becoming aggressive. Stephen Grambling: Fair enough. And then maybe one other one on the digital front. I saw strong monthly actives year-over-year, particularly relative to the growth in sports betting handle. Can you elaborate a little bit more on how these new consumers or customers compare and contrast to the base? And are you finding generally this is more iGaming customers first? And does that change your view of the mix of online sports betting versus iGaming contribution to EBITDA longer term? Eric Hession: Yes. I would say that there really hasn't been a change in the value of the customers that we're signing up. We are improving our retention slightly so that if you look at the lifetime value of the average customer, it does trend up somewhat as the retention improves. The cost of acquisition has fallen slightly, however. So we're actually able to spend slightly less money, acquire slightly more customers and then those customers tend to retain a bit longer. And so when you look at our monthly active users, it is trending up through a combination of those factors. Operator: And our next question comes from the line of Chad Beynon from Macquarie Capital. Chad Beynon: Sticking on the digital value. I know lately, there's been some valuation declines just on the back of the Prediction Cloud. Obviously, it sounds like there hasn't been much of an impact to you guys or others in the space. So hopefully, that understanding or valuation changes. But how are you thinking about spinning out this business, kind of the path of that, that you've talked about before? Or maybe just providing any more spotlight on the value of this business? Thomas Reeg: Yes, Chad, I'd say we're -- we will do what maximizes value to shareholders over the long term. I would say given what we've seen in valuations in the space over the past 6 to 9 months, this doesn't seem like a market that screams you should come and offer some equity of any kind. So unlikely you see something in the near term. And what we've told you in the past is our focus is on hitting our numbers, scaling the business, proving it's scalable. And we're still in the midst of that and making great progress, expect to continue to make more. But in the current market environment, it's unlikely you should see us pursue a separation transaction. Chad Beynon: Okay. And then lastly, on just AI benefits, whether it's searching for travel on the leisure side. I know that's been a big topic this quarter, GEO versus SEO and maybe some potential savings. I'm not sure if there's still opportunities there, but maybe just in terms of search or other marketing or purchasing, should we expect any financial benefits from AI improvements that you guys are doing in-house or using with some vendors to help in the near term? Thomas Reeg: Yes. The short answer is yes, Chad. We price all sorts of stuff, every day, hotel rooms being an obvious example. That's a place where AI can be helpful. AI can be helpful in the digital business in terms of the trading aspect of it. You think about how customers make reservations, how they interact with you on the front end, there's opportunity there. There's a lot of different areas, where we're looking at applying AI to further enhance our profitability and our margins, and you should expect to see benefits from that over time. Operator: And our next question comes from the line of Jordan Bender from Citizens. Jordan Bender: Eric, maybe to start with you on the long-term structural targets. It looks like on average, about 100 basis points of improvement every year. Is it kind of fair to assume that trend line continues and we can see 10% by '27? And I just to unpack that maybe a little bit more, kind of like what's left in the tank between like parlay mix, average legs, improvement in the trading teams, anything that kind of helps us bridge between what we're seeing today to how we get to that 10%? Eric Hession: Yes. I think you've done it -- said it pretty well. It's -- we've consistently improved our hold, and it's not through any single action that's taken. It's through a combination of lots of different efforts towards basically creating a product that the customers want. So what we do is we go through, we say, what are they trying to bet and why is it that they're not able to get their bet through? Or why is it that we're not able to offer this product or what are the types of things that they want to do that our app is causing them to be unable to do. And then we fix those things or make it easier for them to find or bet. And typically, what customers like to do is they like to bet more parlays and they like to bet live parlays and they like to bet it with more legs and then cash it out. And all those things contribute to hold. And so the pricing department is not so much determining what specific margin we're going to charge for various wager. What they're doing is making sure that the pricing is available and that the price is up so that the customers can bet it whenever they want. And then through the simple weighted average expected value that we get per bet, that increases over time as those higher hold bets come through with a higher frequency than the lower hold bets. And so what you're seeing is that. I do feel very confident that we're going to get to 10% and hopefully, we'll do better than 100 basis points in 2026. But as you've seen, it's been pretty steady for the last 3 years. Jordan Bender: Great. And Tom, just a follow-up. On the Regional side, I think you said you feel good about growth for the whole year, but you feel better about the last 3 quarters of the year. We kind of talk to the puts and takes in the first. Is it fair to assume you're implying 1Q could be down and then the remainder of the year should be up? Was that what you're kind of saying? Thomas Reeg: I was saying 1Q, we've got to overcome a little over $10 million of Super Bowl benefit in New Orleans to grow. And then we have really nothing, but tailwinds the last 3 quarters of the year. Operator: And our next question comes from the line of Trey Bowers from Wells Fargo. Raymond Bowers: I just wanted to build a little on an earlier question around the monthly unique payers. You guys are really a standout in that category, especially against some of the peers out there. Just curious, one, how high do you think that number can go? Is this the right KPI for us to focus on? Should that growth continue to accelerate? I know you talked about retention, but at 19% growth in the quarter, and that's accelerated every quarter last year. Just would really like you guys to dig in a little more there because it seems like a real standout in the industry. Eric Hession: Yes. I appreciate the compliment on standing out. This is -- it's a metric that we mainly report because it's an industry metric that others use. What we do is we try to drive the components up that contribute to that metric. So like I had mentioned, retention is a big one for us. Number of active wagers per customer is also important because that indicates their retention is going to be higher. Number of states where they play with us. If they go to a brick-and-mortar property, that customer becomes very loyal. And so what we try to do is provide them opportunities to do that. And through a combination of all of those things, it really is a metric of retention. The acquisitions that we get go up and down based on competitive natures and states opening. But really, if we can change the retention over, say, an 18-month period by even a few points, what you'll see is a shift fairly significantly in these unique players. And so I would expect it to continue to increase. 19% is strong. So I don't really have any guidance on that. But every activity that we do from the tech perspective, from the customer service perspective and from the marketing perspective, all ultimately result in that improvement in terms of the unique customers that are using our product. Operator: And our final question for today comes from the line of Daniel Guglielmo from Capital One Securities. Daniel Guglielmo: Just one for me. With Caesars Windsor moving into the Regional segment this March, you obviously had to do some work with some of the folks in Canada. Are there additional opportunities for expansion up north? Or was this just a unique situation that worked out? Thomas Reeg: This was a unique situation for us, Daniel, in terms of we're a long-time manager of the asset. We effectively bought the OpCo EBITDA at 2x what it's doing now and think we'll be able to improve upon that as a wholly owned entity. We would look elsewhere in Canada, but I'd tell you, most of what you find in Canada comes with to get a property the scale of Windsor, you have to operate a number of very, very small properties in tough locations, and that's not typically been interesting to us. Operator: Thank you. Thomas Reeg: All right. Thanks, everybody. We'll see you next quarter. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Graham Kerr: Good morning, everyone, and thanks for joining us today. On the call with me is our Deputy CEO, Matt Daley; our Chief Financial Officer, Sandy Sibenaler; and our Chief Operating Officer for Southern Africa, Noel Pillay. I'd like to start with safety, where we're seeing improvements in key measures following our sustained effort to improve performance through our global safety improvement program. During the half, we achieved further significant improvement in significant hazard frequency, which demonstrates improved hazard awareness and a more proactive reporting culture. We've also seen positive reductions across our lagging indicators. While the data is encouraging, we're determined to continuously improve our safety performance. Moving to our financial results. I'm pleased to say we have delivered strong financial results for the half, underpinned by our operating performance and higher prices for base and precious metals. Our FY '26 production unit guidance is unchanged across our operated assets off the back of our continued focus on delivering safe and reliable operating performance. This performance enabled us to capture the benefits of the positive market conditions for our key commodities. We've delivered underlying EBITDA of USD 1.1 billion with group operating margin of 28.2% and growth in underlying earnings of USD 435 million. Our balance sheet remains strong with net debt of USD 25 million at the end of the period, enabling us to invest in both high returning growth and deliver returns to our shareholders. Looking ahead, commodity price tailwinds, coupled with planned drawdown of inventories at Mozal is expected to add to the group's cash generation in the second half. Our strong financial performance has translated into high returns for shareholders with today's announcement of a fully franked ordinary dividend of USD 175 million in respect of H1 FY '26 and USD 100 million increase in our USD 2.6 billion capital management program with USD 209 million remaining to be returned to shareholders. We're continuing to work to increase our production of copper, zinc and silver into structurally attractive markets. During the half, we advanced construction of our large-scale long-life Taylor zinc-lead-silver project. And across our broader Hermosa complex, we returned further high-grade copper exploration results from the Peake deposit, which supports the potential for a continuous copper system connecting to Taylor. As part of the scheduled project execution at Taylor, an assessment of project milestones and capital expenditure will be completed in H2 FY '26 and will be informed by the pricing of additional underground and surface infrastructure packages scheduled to be awarded during this period. At Cannington, we announced today a 28% increase in the underground ore reserve while also targeting further potential growth through both underground and open pit development options. Sierra Gorda progressed options to grow future copper production. We have defined an exploration target at Catabela Northeast adjacent to the Catabela pit, ranging from $1.1 billion to $2.9 billion -- billion tonnes, sorry, highlighting the potential for future mine life extension. In addition, the feasibility study for Sierra Gorda's fourth grinding line is nearing completion with an independent review of the feasibility study to be completed by the joint venture partners to support a potential joint final investment decision in mid-calendar year 2026. We're also pursuing further growth in copper and zinc through our Ambler Metals Joint Venture in Alaska. In closing, I'd like to thank our teams around the world for their work to deliver these results. Our operations are performing to plan, capturing the benefits of higher commodity prices. Our balance sheet remains strong, and our performance is translating to increased returns for our shareholders. Looking ahead, we're focused on continuing our positive momentum into the second half of the year and delivering our growth projects in base metals. Thank you. I'm now happy to take questions. Operator: Your first question comes from Izak Rossouw from Barclays. Ian Rossouw: Just a follow-up on what you were saying in the previous call, Graham, around Sierra Gorda. Just wanted to better understand some of the changes you've made there around management, what's driven that? And I guess, obviously, there's been some delay on the engineering and sort of approvals of the fourth grinding line. So just wanted to get a bit more of a background on that. Graham Kerr: Yes. Thanks, Ian, and I appreciate the question. Look, Sierra Gorda for us, obviously, is an asset that we think gives us the right exposure to copper. It was one that we believe when we acquired it was undervalued in terms of its current performance, but also its future options. And those options include the fourth grinding line, that oxide material sitting on the surface, but also exploration potential. So it's great to see the work that's been done to sort of get towards Catabela Northeast, and I think there's a lot more work to be done on that. And obviously, the oxide facility is something we'll have a look at once we settle on the fourth grinding line. The fourth grinding line itself had a number of issues we had to resolve around some work around additional thickness and bringing the thickness up to scrap where we can get a solid state of about 62% to be able to get to that next level of licensing to basically expand the facility. But if I was going to be honest, look, we -- both ourselves and Sierra Gorda probably weren't quite happy with the project Directors' performance. And as a consequence, that probably reflected on the person who is leading the Sierra Gorda business at the same time. So we agreed to make a change about halfway through last calendar year. And as part of that, we brought in a new asset leader as well as a new project director to sort of move into that fourth grinding line role. And obviously, both of them have bought a little bit of a fresh perspective on the project, certainly got it moving in the right direction now, which we're far more comfortable with. Now it's the case of finishing the engineering, having an independent review and then going back to both partners to basically approve it going forward. I wouldn't say materially, there's been a major change in technical capabilities or project execution. It's more been about the quality of the people leading the project, which I think were in much better shape today, plus some of those conditions precedent around the solids, et cetera, that we had to do. Ian Rossouw: Okay. And then just a follow-up on Hermosa around the awarding of some of the surface contracts. You said you're going to do a few more of the underground and surface in the second half. How are we tracking so far against budgets and time lines? You'll do a reassessment in the second half, but just wanted to get a sense of how are we tracking at this stage? Graham Kerr: Yes. So the second half, we always plan to sort of do this review based on when we knew the packages of work were coming in. So to date, if you look at the total spend to date, you're talking about just over $1 billion, and that's about 48% of the schedule we had in the budget. What has worked really well for us has been the first 2 surface packages have come in at the price that we would have expected as part of the estimate. What's also worked well is things like the mobile equipment at the same time. I think the shafts themselves, we just finished the first piece of lateral through development on the 3680 level for the bench shaft, and that was executed slightly ahead of budget and on cost. The shafts, if you look at the bench shaft, that's about 56% complete, so 459 meters of 824. Now that we've finished that first underground mining at 3680 level, we'll start resuming the sink in quarter 3 FY '26. The bench shaft has had some challenges along the way in terms of steel supply, but probably more importantly, a little bit of water at the start, even though water is less than what we expected and some underperformance by Redpath on their side. Main shaft, we're at about 370 meters versus 898 meters. So it's about 41% complete. And the main shaft has certainly taken some valuable lessons from the bench shaft and continues to make much better progress. In saying that when we look at the schedule to date and the trend lines, we don't see any major movements in dates and production -- expected production and capital costs. But again, I'm always saying until we get to the bottom of those shafts because both of those contracts will be time and materials, I'm always nervous. And as we get in the second half of this financial year, we expect to have come in the next 2 packages of surface construction work. We will also have the quote in for basically the underground lateral development. And by the time we start our review, it means probably 80% of the capital would have been committed which sort of puts you in a much better position to do a complete rebaseline. Not certainly raising alarm bells at the moment. It's a normal part of the process. The one unknown besides the shaft for us is also around the tariffs. To date, we haven't seen any material impacts. But in saying that it just bounces around from day to day, never quite knowing where it lands, but that's the environment we're operating in for a period of time. What I would say, what is going really well, all the foundations work on the process plant, the cable trays are all in. And at the same time, our approval, our draft EIS came out in the fourth quarter of our financial year '25. We expect to have the final EIS out in this half. This is our second half of financial year '26. And we're still expecting to have a record of decision, so full federal permits for Taylor, Clark and Peake in the first half of FY '27. So that's been a real great process for us. Ian Rossouw: Great. And then maybe just lastly on the labor side. Obviously, you've previously said where the project is located, there isn't much competition for sort of skilled labor. Is that still the case? Is that still been okay from, I guess, competing against some of the other projects in the north? Graham Kerr: Yes. So I think -- the way I think about it at the moment, we have seen very low rates of turnover in our professional people. We still managed to attract good quality people as the project grows and we start thinking about commissioning and operating and getting prepared for that. People has not been an issue for us. And while there's a lot of projects in the U.S. talked about, there's very few that are actually in the midst of execution like we are. I also think Tucson is not a bad place to base yourself. And the project itself has certainly got a lot of momentum in the U.S., which I think is super helpful compared to other projects that have self started. And I think most people in the industry over there appreciate that we're going to get a federal approval within 4 years, even though we don't need it technically to 8 years into production. Ian Rossouw: Okay. And then maybe just on Brazil aluminum. What were sort of the underlying issues around the performance there? Obviously, it's not something -- an asset you're operating, but just wanted to get a bit more color there. Graham Kerr: Yes. Look, from outside, it's incredibly frustrating because it has been a long, painful drawn-out process, and we've got our third piece of, if you like, revised guidance from Alcoa over the journey of the restart. The most recent event is they experienced some instability in December last year, where they had an unplanned, if you like, outage of 80 pots that need to be taken offline. So that means at the moment, we're back to about 565 pots online versus a capacity of 710, which is about an 80% capacity. Alcoa have deployed a set of specialist people from their operating center of excellence, and they've worked from down there. They provided some more supervision. They've revised the plans. Disappointing to see now the production guidance for '26 has been guided down to 135,000 tonnes. at 140,000 tonnes in FY '27 versus the capacity of 179,000. These are obviously South32 share. We have offered to provide some assistance if we can, particularly as you think about Mozal, Portuguese speaking, a very well-run smelter. It's up to [indiscernible] want to take it on. They certainly are the operator. They certainly understand that we're frustrated and disappointed in this performance. Operator: [Operator Instructions] Your next question comes from Myles Allsop from UBS. Myles Allsop: Maybe -- obviously, it looks pretty clear that with Mozal, it's beyond the point of doing a U-turn and it's going on care and maintenance. I mean what is the estimated cost of restarting it just to give us a sense as and when we come through. Also just on Hillside as well, obviously, there's a bit of a kind of clock ticking towards the power contract renewal. You've talked about decarbonizing Hillside in the past. And if you can't get a green power source, then it may not be part of the portfolio. Could you just give us a quick update on the Hillside side as well? Graham Kerr: Yes. So maybe start with the basics around Mozal just for people on the call. We use about 940 megawatts an hour, 940 megawatts in terms of capacity of power. The smelter is on 24/7, 365 days. So it's a perfect load for utility. We have generally drawn all our power from the Cahora Bassa, which is owned by the Mozambique government by an entity called HCB. Around this time last year, they started to tell us that after 2 years of severe drought that they were lacking the ability to provide Mozal's power needs. That would be at least probably 2 years for the basin to recharge and then they have some maintenance that they need to do, which means we're probably not going to have full power somewhere between the next 2 to 4 years, a little bit unknown. The challenge for that is you need power. It's 1/3 of your cost base, no power, no aluminum smelter. We've been trying to engage to actually get some power off of Eskom. There is no real incentive for Eskom to do that. If you look globally today outside of China, less than 1% of Western smelters have a power contract in excess of 50. The current regulatory environment at the moment and the only formal offer we've seen from Eskom is for us to pay megaflex, which is closer to USD 100 megawatt hour, which makes it totally untenable. So that does mean we have been talking about this for a while about going into shutdown. We were hoping, obviously, that we would have maybe some breakthrough by Eskom. That gives a big impact for our people, roughly 4,000 to 5,000 people that depend on this in terms of contractors, our people and another knock-on impact of about 20,000. People are impacted. It's about 1 in 3 jobs in Maputo. It's probably about 3.9% of GDP. So it will be a significant loss of the government of Mozambique and the Mozambique's economy. So we are planning to go into care and maintenance even if you got me a power contract today that was affordable, it made sense. We have run out of pitch and coke over the next couple of weeks and the lead time on those items are somewhere between 5 to 8 weeks, which you're never going to get it in time to keep the pots running when the power contract runs out. We made the decision in December to stop buying materials because we did not see a breakthrough coming, if you like, on the power contract, and hence, we didn't want to keep pouring money out the door that you were never getting back. Now to actually keep the smelter in care and maintenance, you're probably talking about an ongoing cost of about $5 million a year, 100% terms. The closure and rehab estimate is about $119 million. We wouldn't be looking -- obviously work closely with the government of Mozambique. We wouldn't be looking to go into full closure mode until the HCB power contract and future was understood because once they do come back online, they've got a lot of power and not a lot of offtakers. So this could become viable going forward. The challenge I would say is as you've seen with Brazil, restarting a smelter over a number of years is very difficult. It's not like a mine. So that will be the challenge. Now when it comes to Hillside, Hillside is powered by Eskom. Today, we're allocated pretty much coal-fired based on the grid factor. The reality is Eskom every single week and year is making progress on renewables and nuclear coming into their network. We are working closely with them over time to get a more balanced solution. What we do have is time in that space. We have time because the current power contract doesn't expire until 2031. From a regulatory environment in South Africa, unlike exporting power to Mozambique, there is what's called a heavy industrial tariff that allows Eskom to be more flexible, if you like, on power, considering what impact that has on the country, but also their own performance. The other thing is we sell roughly 30% of our aluminum from Hillside downstream, which goes to people like Hulamin and other, if you like, suppliers who make products out of it. There's a hell of a lot more jobs dependent on this in South Africa and particularly in an area that's sensitive to the ANC around KZN. So we have a lot more confidence in how Hillside is going. And I think certainly, the interactions with Eskom have given us no reason to doubt that they see Hillside is an important part of the equation for them going forward. Myles Allsop: That's helpful. Just maybe in terms of the transition with Matt, can you give us a kind of a quick update on the timing when you'll be handing over the keys? And what advice are you giving that over the next kind of sort of 3, 6 months? Graham Kerr: Yes. Look, absolutely. So Matt joined us last week for his first week, and I'll get him to say a couple of words in a second. Matt had his first week with us in South Africa, where we had a Board meeting for most of the week, he visited HMM. Obviously, this week, he's been in our head office and also going through results presentation and he's on this call. He'll be coming on the road with me for -- on the East Coast to meet all our investors, and he'll be doing the U.S. and other places around the world. And in between that and over the next couple of months, he'll be visiting all the operations. So Matt now has accountability for all the operations reporting to him, and that gives him a chance to understand our business very quickly. And the reality from my side, my #1 objective is to set Matt up for success. So when he feels comfortable and he's ready to go, well, he showed a run going forward. I guess the piece of advice I'd always give him is the key, I think, for our assets because of the geographic spread, because of the age and some of the complexity. Yes the focus there is on making sure that, a, we run our business safely and reliable. The base business needs to deliver on its safety production costs and cash flow commitments to fund the growth of the business. And the next piece for me is delivering on our growth projects because once you come out the other side of Hermosa and Sierra Gorda, you'll be very longed in cash. You've also got some other options in the growth pipeline that I think will be super exciting like Ambler, Catabela Northeast, Clark and some other exploration. But maybe, Matt, a good chance for you to say a couple of words. Matthew Daley: Yes. Thanks, Graham, and nice to meet everyone. Looking forward to getting to see some of you in the coming weeks as I travel with Graham. Listen, early days for me, definitely only week #2, but focus at the moment is getting a really good understanding of the business. So lots of listening and learning, visiting the assets and talking to people across the company. What stands out thus far is you've got a really great quality of assets in the portfolio, generating cash, lots of optionality and obviously, the organic growth projects that Graham has mentioned. And I think the way the team thinks about investment decisions with a real focus on value has just been really, really pleasing. Opportunity for me going forward is just to build off that really strong base, right? So to focus on improving operational performance, managing risk and allocating capital really well. So yes, excited to be joining the team, and thanks very much, Graham. Graham Kerr: Thanks, Matt. Does that help with questions? Myles Allsop: Yes. No, that's very helpful. Maybe one last one because we're getting asked by investors as well around the potential for consolidation in Alumina in Western Australia. And do you think there is a lot of value that can be created? Or do you feel that you're in a relatively much stronger position given where you are with the permitting? Graham Kerr: Look, I think, obviously, we're in a great position in terms of having the approvals for our next series of mine developments. Alcoa was going through that process, which was a long painful process. And obviously, they have different landholdings than we do, some water issues to deal with that we don't. So they're better to comment on that. But certainly, we're very pleased to be past that piece and actually executing on our projects going forward, and they're actually going well. Look, I think in the Southwest, there's been a long history of engagement around things like land swaps, technology exchange. Do I think potentially there is more synergies to be had there? Look, I think that is a conversation absolutely worth revisiting over time. But probably like we were very focused on getting our next approvals. I'm sure Alcoa are very focused on that in the short term. Operator: Your next question comes from Alexander Robert Pearce from BMO. Alexander Pearce: Graham, you've previously highlighted the potential upside from the Sierra Gorda oxide project. Have you got any update on where this project stands at the minute? And has the recent improvement in copper prices made any difference to kind of bringing that study forward? Graham Kerr: Yes. Look, I mean, we probably -- if you think about the order priority, I guess we're sort of focused on the fourth grinding line first because that 20% production throughput increase, I think, is important, lower cost, more copper, et cetera. Catabela Northeast is to understand how attractive could the fourth grinding line to be to feed it. I think the oxide material, we've still got some work to be done on that. There's some early thinking done on it, but I guess we're trying to focus our best people on the other 2 opportunities first. But if you think about that opportunity, that oxide material, we got about 110 million tonnes stockpile there, and it's probably got a grade of roughly about 0.38. I think what we're looking for at the moment is we're completing a feasibility study to understand what we could do around lost low-cost heap leaching. And I think at the same time, there's a number of other operators who are close by that potentially have some capacity. So the key for us is to understand what would it cost to do it ourselves versus what could we do in terms of toll treating it through someone else's plant and what are we willing to pay. And hopefully, we have a greater sense of that towards the back end of this calendar year. Operator: [Operator Instructions] You do have a follow-up question from Ian Rossouw from Barclays. Ian Rossouw: Just a follow-up on that, Graham, around the Sierra Gorda, Spence and some of the other operations in the area. I mean, is there an opportunity for more sort of operational, I guess, synergies? And I guess, as you say, using some of the other capacity, but sort of a more regional consolidation. Just wanted to get your thoughts on that. Graham Kerr: Look, in all these things, there's 3 obviously mines that are super close within the stone throw of each other. If you had your time again, you'd sit back and say, why didn't they sort of do one major piece of infrastructure and then actually use the different products to actually feed that mill would have made the best economic sense. Obviously, that decision was made a long time ago by different people who don't sit in the chairs now. I do think longer term or even medium term from our perspective, there is opportunities to explore synergies between those existing operations and one would clearly be the oxide material at Spence. But also as we understand Catabela Northeast and how big that could be, that gets closer and closer towards Spence. So I think there is a discussion to be had there when the time is right. The challenge in all these things is when you have more and more players involved, it's a bit harder to sort of get, if you like, to a position where everyone feels comfortable. Operator: Your next question comes from Tim Clark from SBG Securities. J. Clark: Congrats on the results. I'm just interested in just a little bit more color on Cannington. You've had a nice reserve increase, which is positive. And then there was a bit of commentary around underground resources and seeking open cost and underground opportunities. There's obviously been quite a big move in the silver price. And in the past, you've spoken about having a very conservative silver price sort of forecast in the mine plan. I wonder if you could just give us a little bit more color on how you're thinking about Cannington and how you see it evolving over the next year or so? Graham Kerr: Yes. Look, I'd start with a couple of points that I think are worth sort of drawing out and some of these were including in our slide presentation today. And the first one is when you look at Slide 11 in our pack, we talked about the zinc-lead-silver margin, which obviously today is Cannington despite the fact that Cannington is almost, what, 28 and a bit years old, and it tells you how old I am because I was a graduate when we were actually building that and I was working there. We're still making margins between the last 3-ish years, 46% to 53%. So it is a high-value business. You've already got the capital infrastructure there. You've got the workforce in place. So anything we can do to extend the life of Cannington I think, is super important and a low-cost option and a return for our shareholders. We would be fair to say probably 18 months ago, I was probably less optimistic about the team's ability to extend the life. This isn't driven by what price in terms of what's happened with the silver price, and we'll come back to the silver price in a second. This has probably been more around the discovery of bit areas of new, if you like, sources of material we can bring to the underground. It does require us to spend a little bit of money in the short term. So over '27 and '28, we will spend roughly USD 65 million to USD 80 million, and that's on some ventilation electrical shaft infrastructure, but that does potentially allow us to increase even further the underground. So what we did announce today was about a 28% increase in the Ore Reserve from 3 million tonnes to 13 million tonnes. And that adds about 2 years life, if you like, to the underground. We think there's more work to be done on that could potentially open up more ore to be added and extend the life of the underground. And one of the slides I did love in the presentation that we shared with people today, again, when you go back to the age of Cannington and you think about when we actually started our journey some of the short life assets from day 1, everyone was asking, well, how long is Cannington going to last for because our Ore Reserve in FY '15 was only 21 million tonnes. We've already mined out 26 million over the time frame to today. We've added back in another 17 million, and we've got 13 left to go. So that sort of gives you a sense of the work that the team has done. And the underground resource itself has about 45 million tonnes. So the job of the team is going to be how much can we extend the life out. We have also done a bit more work on the open pit to have understood the potential of the underground. That allows us to redesign the pit in a different way and probably focus, if you like, on a more value-add way to take it forward as well as we've done some work on some of the remnant old low-grade stockpiles that existed on surface that have been historically difficult to process through the concentrator and the team have found a way through that they can manage that far better. So I think that what that does mean is Cannington has a lot of optionality, if you like, on the base production and how we can continue running it. That's before you consider the silver price. So we would have probably been using a silver price south of $40 when we did all this work. The question is how long does the silver price last for. But certainly, we would expect to complete more work on this over the next, if you like, 12 months and be in a much greater position to know what the future looks like at Cannington, but it certainly is looking optimistic. J. Clark: Very useful. And thank you very much for all of your support over time if we don't get to catch up with you again. It's been much appreciated. Operator: There are no further questions at this time. I'll now hand back to Mr. Kerr for closing remarks. Graham Kerr: Thank you, and thank you, everyone, for taking the time today. I'm sure you're all very busy. I would like to take the opportunity to thank our teams again around the world for the hard work they've done to deliver these results. I think we are running our operations to plan at the moment. We are, therefore, capturing the benefits of higher commodity prices. As always, we pride ourselves on our capital decisions and our balance sheet remains strong. Our strong performance is leading to increased return for our shareholders as our model is designed to. And looking ahead, if you look at some of the spot prices versus the first half, there's more upside. We haven't changed our cost or our production guidance. And at the same time, we've got a series of growth projects in our base metals business to continue to reshape our portfolio. But thanks, everyone, for your time today, and have a safe day.
Operator: Thank you for standing by, and welcome to the Sims Limited HY '26 Results Call. [Operator Instructions] Today's presentation has been lodged with the ASX, along with the results release. It may contain forward-looking statements, including statements about financial conditions, results of operations, earnings outlook and prospects for Sims Limited. These forward-looking statements are subject to assumptions and uncertainties. Actual results may differ materially from those experienced or implied by these forward-looking statements. Those risk factors can also be found on the company's website, www.simsltd.com. As a reminder, Sims Limited is domiciled in Australia and all references to currency are in Australian dollars, unless otherwise noted. I would now like to hand the call over to Stephen Mikkelsen, Group CEO and Managing Director of Sims Limited. Please go ahead. Stephen Mikkelsen: Thank you, and good morning from Sydney. Today, we are here to resume our half year results for FY '26. Presenting with me today is Warrick Ranson, our CFO. We are fortunate today to have all of our business unit leads here with me in Sydney. So we have John Glyde, our ANZ Managing Director; Rob Thompson, our President of North America Metals; and Ingrid Sinclair, our President for SLS. The presentation has been launched with the ASX, along with the results released. First up, I will provide an overview of the results and strategy, Warrick will then take us through the financial results. At the end, I will return to talk about the outlook, after which we will have Q&A. I will turn straight to Slide 5, which looks at our strategy and strategic priorities. By now, the left-hand part of this slide should look familiar as it has guided us for the last few years. I'm going to focus on some of our recent key strategic achievements. From a customer and supplier perspective, we have made great strides in increasing our unprocessed intake, particularly in NAM, and this is definitely driving increased margin when we process it into higher-value material. We have signed a couple of significant key supply agreements in ANZ with New Zealand Steel and Alter, and SLS is expanding into Ireland. Looking at operational efficiency. NAM has really improved its logistics infrastructure, particularly the ability to deliver domestically through rail, and this has allowed us to take advantage of the domestic shred premium. Work on Pinkenba continues at pace, including a fines plant. And rail infrastructure works at Otahuhu will allow us to effectively service the Glenbrook EAF. From an innovation agile perspective, we are transitioning to an outsourced global shared services model, which will improve our service offering, lower costs and improve our ability to integrate new operations as we grow. We've just about completed relocating the SLS senior management team to Irvine in California and are already seeing the benefits around innovative thinking and ideas from the increased collaboration. We've also added a new position to the senior team with a Chief Digital Officer. Given the strategic importance of deeper integration with hyperscalers, we've appointed a dedicated role to drive closer alignment with their operational workflows. The first 3 bullet points under invest responsibly are linked. Warrick and I will talk more about Tri-Coastal, the Houston land base, and the property strategy lead role in the coming slides. It is also worth noting that we have extended our debt facilities by 12 months as we position our balance sheet for further growth. Moving on to Slide 6. Firstly, safety on the left-hand side. Total recordable injury frequency rate for the first half has been maintained at best-in-class historical lows. And just as importantly, we are tracking well on our lead indicators. As a management team, we all continue to focus on making sure our employees can go home each day just as they came to work. On the right-hand side, you can see that we are progressing nicely across governance, systems, strategy and risk assessment in support of our climate commitments, including the integration of climate data into financial and operational systems to enhance transparency and decision-making. Moving on to Slide 7, and I'm conscious that Warrick is going to take us through the financial results in some detail. So I'm only going to highlight a few points from the consolidated result. Metal sales revenue was flat despite sales volumes being down 2%. This is all about the price and contribution of nonferrous, whether it be copper, aluminium or zorba. The market is very strong revenue is up nearly 70% and repurposed units are up close to 18%. SLS has had an incredibly strong first half driven by the demand for DDR4 memory. And we will talk about this in subsequent slides. A more subtle point to highlight is the flat metal trading margin percentage despite the significantly higher revenue from nonferrous, which has a high absolute margin, but lower margin percentage. This means that we have grown our ferrous trading margin percentage through disciplined buying of non-dealer material. I'm very happy with our cost control. And it is also pleasing to see the growth in return on invested capital. Returns have improved materially over the last 2 years, and we remain focused on closing the gap to our cost of capital. Slide 8 separates the main performance highlights between Metal and SLS. The only additional points I would comment on here is the 3.5 percentage point increase in unprocessed scrap in metal, driving higher shredder capacity utilization in metal, and the 7.7 percentage point increase in EBIT margin for SLS. Slides 9 and 10, look at the factors influencing our metal businesses. Let's look at Slide 9 first. The top 2 slides actually show how tariffs are providing protection for NAM and SAR in North America. You can see on the top left-hand side, the falloff in U.S. construction activity over the last year or so. All things being equal, this would have resulted in quite a depressed steel market in the U.S. But look at the right-hand top slide, and you can see the falloff in steel imports commencing with the introduction of Section 232 in 2018 and then continuing with the tariffs. U.S. steel manufacturers have benefited more from the fall in U.S. imports than they have suffered from falling construction spend. What these charts indicate for the scrap market is that domestic pricing has been supported by strong demand although softer construction activity continues to constrain intake volumes. The bottom chart explains ANZ's dilemma and depressed ferrous results. Quite simply, global ferrous scrap prices have fallen as Chinese exports have risen. Slide 10 shows why nonferrous is in many ways the hero of the metal results, and it is quite simple. The chart shows the price in Australian dollars that Sims actually realized for its sales of ferrous and nonferrous products. Ferrous has fallen from a bit under $570 to around $545. Nonferrous combined has risen from around $4,100 to nearly $5,000 on a blended basis. Focusing on NAM on Slide 11. These 4 charts capture the progress we have made at NAM and explain not only the turnaround of FY '25, but now the continued improvement in FY '26. Firstly, the top left chart shows the benefit of focusing on profitable tons. We have grown trading margin percentage by 5 percentage points over the last 2 years. This has been achieved by focusing on, amongst other things, unprocessed ferrous, which has increased by 12 percentage points over the same period, and this has increased shredder utilization by the same amount. Those shredder tonnes are producing more zorba, which like all nonferrous products has risen nicely in price. Finally, you can see that we are exporting less as we have grown our domestic channels to market. This is particularly so for shred, where domestic premiums to export have been growing and currently sit at $50 per tonne. As a point of interest, we sold around 85% of our shred domestically from the East Coast. This would have been around 10% just a few years ago. It is important to note we still maintain our export optionality if market dynamics change in the future. Slide 12 summarizes the Tri-Coastal acquisition we announced last week. As I said at the time of the announcement, over the last couple of years, we had materially turned the Houston business around, but we needed access to better options, both domestically and internationally to really drive performance. We had a suitable piece of land to achieve this at Mayo Shell but the capital cost to upgrade the port at Mayo Shell and the size of our existing ferrous business did not justify the CapEx. TCT gives us this deep-water access and therefore, optionality, but it also materially increases our presence in the market in excess of another 350,000 tonnes, significantly reduces our operating costs through the Enstructure service agreement contract, and it frees up the sale of all our land in Houston. We estimate in excess of USD 100 million, including Mayo Shell. From a numbers perspective, we have paid a bit less than 4x EBITDA post-synergies. The combined businesses and by that, I mean, our existing ferrous and nonferrous operations plus the TCT acquisition, are expected to have an annual EBITDA of USD 25 million and a return on invested capital of over 20%. Turning to Slide 13, SA Recycling. As the chart shows, SA Recycling has done a great job in ensuring resilience and its trading margin percentage. They have been pretty consistent at around 30% for the last 5 or 6 years. In the last 2 years, this has been achieved by increased revenue from nonferrous, including zorba, and this has combated the more depressed ferrous market. SA Recycling has strategically developed a really strong hub and spoke model in regional markets. It now has a very consistent source of unprocessed material being fed from around 150 feed yards into its 24 shredders. This means more zorba from shredding and more opportunity to attract retail nonferrous from peddlers. I expand on this theme a little more on Slide 14. Firstly, you will note the deliberate acceleration of the hub and spoke model. Since 2021, SA Recycling has acquired 76 yards compared with 52 for the 10 years preceding 2021. And you can see from the map that it is still a highly fragmented market, so there remains considerable further opportunities, and there is significant headroom in its existing shredders. Its strong cash flow and balance sheet strength support the growth. SA Recycling has developed a real expertise in integrating these small bolt-on acquisitions in implementing its operational and commercial practices. What all this means is that the business is underpinned by strong unprocessed inflows and strong nonferrous markets. This provides a very solid earnings base in the current market conditions. And when the ferrous market cycle turns, SA Recycling is very nicely positioned to capture the upside. Moving to Slide 15. There is no doubt that ANZ continues to operate in a subdued global ferrous environment, and it does not have the prediction of the tariffs that NAM and SA Recycling enjoy in the U.S. It does have a very strong nonferrous business, a good hub and spoke network and good domestic access for sales. In many ways, it is a business that is structured very similarly to SA Recycling. It is worth noting that the nonferrous contribution is even more important to ANZ as the fierce market conditions are considerably worse than North America. However, it will also benefit from an upturn in the ferrous market. With over the next couple of years, this is largely dependent on a meaningful reduction in Chinese exports of steel, which seems unlikely. Beyond 2 years, however, the structure of the ANZ market is likely to change as domestic EAFs come online and this is the focus of Slide 16. The chart shows that currently about 50% of the scrap generated in Australia is exported. However, by 2027, maybe 2028, this could reduce to under 20% as a result of increased EAF demand and additional charging of scrap and blast furnaces. This local demand is likely to support prices and potentially delink Australia and New Zealand from the full impact of Chinese exports. In our view, our Pinkenba site in Queensland will play the major logistics role in facilitating scrap finding its way to the right location at the most efficient price. This could well include importing scrap from our facilities on the West Coast of the U.S.A. No other participant in Australia or New Zealand has the capability to manage scrap flow between all states, New Zealand and the West Coast of the U.S.A. I now want to turn to SLS on Slide 17. The chart on the right tells the headline story of the dramatic rise in DDR4 chip prices. But what has driven this? There are 4 interrelated points I want to make. One, we still need DDR4 chips as they are the workhorse of many of our devices and the Internet of Things. Two, manufacturers are switching to making DDR5s with the demand from hyperscalers building AI data centers is almost insatiable. Three, this has created a structural supply-demand imbalance for DDR4s. High-quality repurposed DDR4s are a practical solution, but they are also limited. Fourth, a number of suppliers and market commentators are saying that the imbalance is likely to persist beyond 2027. I want to provide an update on our SLS expansion into Ireland, and this is on Slide 18. Firstly, the expansion is well underway, and we expect we will open the 120,000 square foot facility in early April. There will be some ramp-up in other costs, so I expect meaningful contribution to EBIT will not happen until sometime in June, maybe July. As the analysis shows, Ireland is an ideal place for expanding our data center infrastructure services. It is a major hyperscaler hub in Europe where we already have a presence. We have a proven track record in these types of facilities, and I expect it to look very similar to our Nashville site, which a number of you have visited. We currently anticipate growing the business over the next 2 years to repurpose approximately 1 million units per annum with a skew towards DDR4s. This is an exciting opportunity for us, and is driven by an existing relationship we have with a major hyperscaler. I'll hand over to Warrick now for a more detailed look at the financials. Warrick R. Ranson: Many thanks, Stephen and good morning, everyone. Despite mixed construction activity in Australia, continued elevated Chinese steel exports and softer U.S. consumer sentiment impacting prices, ferrous scrap markets remain supported assisted by the progressive expansion of EAF capacity globally. With export markets exposed to global scrap dynamics, we continue to leverage the arbitrage in our key domestic and international markets, and sold volume proactively between the 2 to maximize margins, reflecting the significant agility and flexibility embedded within both our inbound and outbound logistics chains. In parallel, nonferrous markets delivered a structurally strong performance and provided meaningful earnings stability, with LME copper increasing by approximately 13.5% year-on-year while aluminium prices rose by 9.8%. The Asian spot price for aluminum reached its highest level since 2022, supporting considerable zorba price increases, as Stephen mentioned. Not surprisingly, nonferrous trading accounted for over 40% of group revenue in the half, up from around 35% in the comparative period. Concurrently, of course, prices for DDR4 memory continued to increase exponentially, rising by over 450% year-on-year as demand continued to increase against diminished supply with manufacturing shortfalls and a focus on new generation cards continuing to uplift repurposing and resale activities. Across the business, we continue to deliver disciplined cost efficiency initiatives. Current activities such as moving to a global shared services platform and the operational changes now targeted for our Houston operations will continue to provide performance improvements in the business. We saw our overall cost base remain relatively flat despite increases from higher inflows of unprocessed material and NAM and volume growth in SLS and of course, general inflation across the board. I'll come back and talk about our cost performance shortly. Our statutory result reflects our targeted restructuring initiatives and noncash hedge book mark-to-market adjustments associated with the significant rise in copper and aluminum prices at period end. We continue to work on the recovery of our U.K. metal receivable following collapse of that third-party business in an extremely difficult market. But in line with prudent accounting practice, we updated the potential credit loss on the residual by a further GBP 30 million to reflect current estimates. Although we have effectively reversed our prior accounting position on the sale, we remain pleased with our decision to exit the U.K., the price we got for the business and the way we were able to maximize cash flow, particularly given the number of subsequent business failures in the industry there of late. Moving to Slide 21 now. And I've touched on the principal drivers of most of these already, so I won't dwell on this slide. Positive contributions by both the NAM and SAR businesses absorbed the impact of the current market pressures on ANZ. While the strong performance from our SLS business and a range of cost reduction initiatives, as I've mentioned, contributed further to the uplift in underlying results, reflective of the strength of the geographic and diversification aspects of our business. I'll expand on some of the other factors driving these various movements in subsequent slides. Moving to the metal business, more specifically, and in North America, total material inflows remained consistent with the prior comparative period and converted metal volume moderated by 3% as we prioritized unprocessed intake in line with our value strategy, improving our overall margin position. While this added to comparative costs, the team were able to generate a number of offsets through further site restructuring and productivity initiatives. Period-on-period, we actually experienced around a 5% reduction in average realized ferrous prices, generating a circa $13 million impact on the underlying EBIT for NAM, which we mitigated through that margin discipline and our cost-out initiatives. In ANZ, ferrous margins were again impacted by the subdued international market, which also flowed on to domestic prices. Favorable nonferrous prices provided overall revenue support and helped offset shredder downtime at our St. Mary's operation in the first quarter. Notwithstanding elevated consumable input costs, particularly in the areas of waste disposal and electricity charges, net operating costs continue to be well controlled here as well, noting the current result does include an $8.8 million reclassification reduction. While U.S. steel spreads improved over the course of the half, influenced by tariff-constrained imports, which are reflective of the U.S. domestic market, in December, our Sims Adams joint venture actually reported its first upmarket for ferrous pricing since April. Despite the comparative headwinds, the joint venture was able to close out the half year strongly, driving the uplift in nonferrous prices as zorba continued its surge. Our global trading platform was able to keep its costs flat. They saw reduced broker revenue following the cessation of trading activities for Unimetals in the U.K. early in the period. Moving to SLS now, and Stephen covered a number of the drivers here already. As we've noted, the business continues to see significant growth in the number of repurposed units as well as benefiting from the dynamics of the market. Pleasingly, we also expanded our hyperscale service offerings, adding diversification to the business' revenue streams. Increases in operating costs reflect both volume gains and expansion activities and the team continues to look at additional opportunities around automation and robotics to support its cost management program. The results further validates SLS's positioning within a structurally expanding hyperscaler ecosystem and its connected drivers. Moving to Slide 24 and touching briefly on central and functional costs now. As previously mentioned, we continue to look for cost out efforts in this area. We recently relocated our corporate office to further reduce costs as well as successfully transitioned our purchase to pay function to our new global shared services hub as part of a more extensive shared services model being progressed over the next 2 years. Following stabilization of the company's SAP platform implementation, project costs fell by $2.5 million, noting that we continue to incur costs in developing our new yard management software, which we hope to take live later this year. As previously advised, we elected to cease work on the development and commercialization of the plasma-assisted gasification technology that was being undertaken by Sims Resource Renewal during last year. This further reduced the central cost pool by some $10 million to $12 million per year. Moving on then to our overall cost performance for the half, and we continue to look for opportunities to simplify and optimize our organizational structure as well as further rationalize the existing operating portfolio. At a group level, we were once again able to keep total costs relatively flat over the period, limiting the increase to just on 4% of the rebased comparative half. Included in this was $16 million in additional variable costs related from the increase in unprocessed material and the higher repurpose units at SLS. Labor remains our largest cost element at around 40% of operating costs and ongoing labor efficiency initiatives continue to provide significant benefits in this area and in line with our previous cost-out commitments. The group completed the year with net assets of just on $2.5 billion at balance date, broadly consistent with June, reflecting a stronger comparative Australian dollar at period end, dividend payments and the further provisioning of the Unimetals receivable. Of note, this includes a $200 million expansion on working capital levels from the uplift in nonferrous prices impacting both our inventory and receivable values and a $72 million transfer to broker deposits related to our derivative trading activities following the run-up in copper and aluminium prices. And I'll talk a little bit more about the impact of this on the next slide. Pleasingly, as a result of our positive trading performance, the Board has determined an interim dividend of $0.14 per share payable in March. So a little bit more on our working capital movements and the group's focus. On Slide 27, we've isolated the overall movement to show the impact of those higher nonferrous prices on the business, which has been quite significant on a number of fronts. The impact of the run-up in the copper price from October in particular is certainly reflected in our numbers. Working capital performance through better managing inventory levels, receivable conversion rates and payment terms continues to be a key focus for us. Moving to Slide 28, and we put up this slide last week as part of our announcement on the Tri-Coastal acquisition. We've highlighted the potential to generate better returns from our property portfolio a couple of times now, and I just wanted to reinforce our focus on this area. We broadly categorized our properties into 4 areas with the third category, the most complicated and the area where we're most likely to spend a fair bit of time working through. As Stephen has previously mentioned, these are the sites where it's becoming obvious that over the next 5 to 10 years, the most valuable use of that land will not be in metal recycling. In most cases, this will require comprehensive planning, permitting and other dependencies to fully capitalize on value. As such, we're committing to a dedicated resource to ensure full management of the opportunity going forward and continuing our approach to disciplined capital recycling and unlocking embedded asset value. All that summarizes into our overall cash movement for the last 6 months. I've talked about most of these already, but just to touch on capital. The majority of this spend occurred in our North American operations primarily focused on improved metal recovery and incremental throughput initiatives, including the completion of channel dredging at our Claremont operations. In ANZ, investment continues into the redevelopment of our Pinkenba site, including the construction of a new copper recovery plant. We expect to remain within our previous guidance in this area of between $120 million to $140 million of sustaining capital for the full year. We've pulled out the restricted cash allocation on the derivatives to better reflect underlying EBITDA to operating cash conversion, noting these deposits will unwind in the second half. In October, we made our final dividend payment of $25 million in relation to the 2025 financial year. And as previously noted, the board has determined an interim dividend of $0.14 per share, fully franked, for 2026, in line with our capital management framework after taking into account the restricted cash impact. Back to you, Stephen. Stephen Mikkelsen: Thanks, Warrick. Let's turn to the outlook on Slide 32 (sic) [ Slide 31 ]. In our view, the outlook for secondary market pricing of DDR4 chips remains very strong, and it is the DDR4s that are materially driving the excellent performance in SLS. This strength comes from the demand for DDR5 chips driven by AI. Global production of chips is understandably heavily focused on DDR5s, and this is creating a structural imbalance in the supply and demand for DDR4s. We also anticipate continued strength in the nonferrous market, underpinned by the substantial copper and aluminium requirements for global renewable energy implementation and product electrification. Tariffs are expected to continue to provide some protection for our North American ferrous businesses, and this is likely to result in the continued premium for domestic shred sales in the U.S. Furthermore, whether be in the United States, Australia or New Zealand, rising EAF capacity provides a strong outlook for our ferrous scrap products. Finally, we cannot ignore the impact Chinese exports are having on ferrous prices, particularly for our business areas exposed to markets outside the domestic U.S. market. While it appears that prices have been trading at or near floor for a while now, there is little evidence to suggest China will reduce exports from current levels. Importantly, much of our recent improvement in earnings has been self-help driven. As market conditions normalize over time, we believe the business is structurally better positioned to benefit from cyclical recovery. Before we open for Q&A, as always, I want to thank our employees for their drive and commitment in delivering on our purpose and most importantly, doing that safely. Back to you, operator. Operator: [Operator Instructions] Your first question comes from Will Wilson from UBS. William Wilson: Congrats on what looked like a strong result. Just on ANZ, it looks like conditions picked up post the AGM trading update, you mind talking us through just the moving pieces there and what happened to the end market? Stephen Mikkelsen: Sure. We've got John in the room. So John, why don't you take us through that? John Glyde: A couple of things. Certainly saw improved volumes in the second quarter, particularly in nonferrous and zorba on pricing. We also, as you would remember, we had the outage in the first quarter, and we largely caught that up in the second quarter. As I said, volumes were up a little bit. We managed to take a few -- a bit of volume from our competitors, good cost control. We delivered a little better than expected. William Wilson: Cool. And then just more broadly across the metals business with nonferrous, just curious about how quickly those price rises result in more benefit -- more volume will benefit to the business more broadly, conscious that the rising price has been going through a while now, but you really had a step up over the last quarter, say, copper, for example, have you seen a kind of corresponding move in activity in that sense in volume activity? Stephen Mikkelsen: Let me give sort of a few general comments, and then maybe Rob can talk about NAM and John about ANZ. So I think overall the answer to that would be, yes. I mean, higher prices, by definition, drive more volume out of the market. That relationship has been here for a while now. And you're right. You're right to say that the nonferrous has been very firm for the last 18 months, but particularly for over -- like the run-up we had in price leading into December was quite extraordinary, and you would expect to see that drive more volume out, and we're well positioned to take that. But maybe, Rob, a little bit on how you see it from NAM's perspective. And John, and -- by zorba as well, by the way, too. I mean -- we'll talk about that a little bit later, then John, maybe ANZ's perspective. Robert Thompson: Yes. The only thing I can add is from a NAM perspective, about 2 years ago, we started to embark on our nonferrous improvement story, if you will, and fully integrated now with Alumisource, fully integrated now with our Northeastern metal trading copper granulation company. Those relationships -- those consumer relationships dovetailing with the infrastructure of data centers going up in every neighborhood in North America. It's been phenomenal. Stephen mentioned zorba. Utilization of our shredders is up 10% over 2 years, and the capture for that demand is definitely there. So volumes up, margins are absolutely playing a part in our turnaround story. John Glyde: Yes. What I would add, obviously, zorba, as Stephen mentioned, we saw considerable improvement in server pricing late in the half, but over the half. And you must remember that zorba really is a byproduct of our shredding activity, and therefore, any gain in that price sort of in some way or another filters through to revenue and quite frankly, EBIT. So that certainly helped. But from an ANZ perspective, ferrous markets are incredibly still very, very difficult. Obviously, in very recent times, we've seen the Aussie dollar strengthened, which isn't helping our translation on an FOB basis on export sales. And I think Warrick mentioned even on our translation on domestic sales on an export parity basis. So strengthening dollar certainly isn't helping, but still difficult ferrous, nonferrous is pretty strong. Stephen Mikkelsen: I mean I think as I said in my commentary, I really would describe nonferrous is the hero of this 6 months result from a middle point of view, and we'll just summarize it, it is -- it will get more volume out of the market. It must do its logical for that to happen. William Wilson: Yes. Okay. I mean it's hard to see what changes there in that regard. But just one last quick one for me on SLS. I'm just curious about the lags between DDR4 pricing and when it flows through to SLS, I'm somewhat a little bit surprised of being honest in terms of you gave your guidance 45-50 back in November, you saw another step-up in December in pricing, that, that didn't come through. But yes, maybe touch on the -- and then you came into the top end of guidance, I know, but just if you wouldn't mind touching on the lags there. Stephen Mikkelsen: Yes. I'll get Ingrid to maybe comment more specifically, but my overall thought on that is our contract position is pretty set as we go into December, we know what volumes we're getting, we know what sales we've made. So there is definitely a lag on that. I wouldn't say it's a particularly long lag. Ingrid, any further comment on that? Ingrid Sinclair: No, I think that's spot on, Stephen. We're normally a month or 2 months out from what you see in the price increasing. So obviously, we'll start seeing it in this year, this half. Stephen Mikkelsen: With the second half year. William Wilson: So fair to say that the December price rise and even in the back end of November really had no -- it was too late to kind of flow through that first half. Stephen Mikkelsen: Yes. I mean, some of it. A little bit of a got through. You see like we were at the top end of -- I mean -- to be frank, I'm getting my head around how we provide this guidance on SLS because we haven't done it before. So we're at the top end of what we provided, which sees that some of it is coming through. But you're right to think that, as Ingrid said, it's a month or 2 before it fully comes through. William Wilson: Okay. Yes. I held back from asking about SLS guidance, but that's really helpful. Stephen Mikkelsen: I'm sure we're going to get that question. Operator: Your next question comes from Peter Steyn from Macquarie. Peter Steyn: Yes. So perhaps curious on 2 angles as it relates to SLS. Firstly, is just run rate, it sounds like you would basically say that the run rate for the second half is probably incrementally higher than what you finished the second quarter at. And then I'm also interested in how one thinks about the Irish facility, you mentioned that you'd be sort of running at full tilt in June, July. But how material would this facility be in the context of the network sort of give me the sense that it is quite material. Stephen Mikkelsen: Yes, sure. And I'll get Ingrid to cover off Ireland because she's been heavily involved in that development. Maybe I'll cover off the implied question about second half for SLS. So the first overall comment I'd make, you're right, the strong pricing that we saw in December is now flowing through into our results. And it's fair to say that the start to the year for SLS has been very, very good. In terms of what does that mean for the full year, I'd make the comment that we're only 1-month in, and I think it's probably best what we've decided is best that we will provide some additional guidance next month at the March investor presentation in Nashville. By that point, we will have a -- we'll have a pretty good idea of where our first quarter is coming in and what pricing is looking like for the balance of the year. So -- but we just asked for some patience on that. We will do that additional guidance in March. But suffice to say that, yes, absolutely, the volumes are still good coming out of SLS as -- and it's very, very obvious the prices are still high, and we've got lots of reasons why we believe that -- those high prices remain. I think there is absolutely a structural imbalance there. So certainly a very good start to the half for SLS, but we'll provide more guidance in -- additional guidance in March. Ingrid, how are you thinking about Ireland? Ingrid Sinclair: Ireland. Yes. So Dublin will be ramping up in the second half of this year, and we expect to deliver full run rate sometime in fiscal year '27. So that's when we'll start seeing the full impact in '27. Stephen Mikkelsen: It's probably fair to say it is material to SLS's result because it's a big facility. I mean it's at ramp-up, we're expecting to repurpose another 1 million units out of there and it's -- Ingrid, is oriented towards or skewed towards DDR4s. Ingrid Sinclair: Very similar to the site in Nashville. Stephen Mikkelsen: Yes. So it is material, Peter. Let's just see when it's up and running, how things are. But it's -- we've highlighted it because it is important to the future of SLS. And I think it also signals potential further expansion outside the U.S. Our strong growth has been U.S. No doubt about it. Absolutely no doubt about it. But Europe is a market where we have a presence. But I think with the likes of Ireland, now our presence is going to become much more meaningful. Peter Steyn: Could I ask Ingrid just a quick follow-up. So the 1 million units, is that backed by the existing contract, i.e., so you're on full run rate at some point in '27. Will that be your run rates of units repurposed? Ingrid Sinclair: So yes, at the start of ramping up, it will be off of an existing contract that we have now in an existing client relationship. So yes, that will be... Stephen Mikkelsen: Yes, I agree with that. But I wouldn't -- I mean, it's certainly not a capacity. There will be room -- there will be -- yes, there will be room -- in the later years, they really, let's focus very much on servicing a very important customer. But I think in later years, there's further capacity in Ireland for other inflows there. Peter Steyn: Got you. So the 1 million is an eventual target for repurposed units and your initial start in your initial contract does not necessarily supply that level of volume. Stephen Mikkelsen: No, I think it's there. The 1 million is the initial and it's how do we grow beyond 1 million with the -- with additional activity. Peter Steyn: Perfect. Sorry, I'm going to sneak one last one in for Ingrid. Just around the customer relationships, how you think about the pull and -- push and pull from a commercial point of view. You're obviously making a lot of money out of this activity, Ingrid. Just curious how your customers view that? And if -- with current prices, they think differently about economic sharing. Ingrid Sinclair: Well, we have several relationships -- commercial relationships going on. And there -- it took us years to get here into this market, right? The quality that we deliver, the loyalty we have built with this particular client, and it's really truly a partnership. We offer services -- servicing, which is a flat fee. But then on the resale is where we share revenue. And that is an agreement we have negotiated with them and remain so even as pricing changes. Warrick R. Ranson: It's Warrick here, Peter. I think it's fair to say that we didn't -- we haven't set up Ireland with the hope of gaining customers. We actually set up Ireland in response to a customer request. And the -- we've been quite -- well, obviously, have a transparent relationship with that customer. They understand our operating model and our earnings, et cetera. So we're actually responding to the customer need. And I think that really sort of signifies, as Ingrid said, the relationship that we've been able to develop. As Stephen said, the million is a starting point, it's a strong growth area we'll be looking to hopefully grow that business -- that part of the business further. Ingrid Sinclair: Right. The 1 million is a... Operator: Your next question comes from Lee Power from JPMorgan. Lee Power: Stephen, I kind of -- I get the reticence of not wanting to give 2H guidance now on SLS given the moving parts. But can you maybe chat a little bit about what you saw on a backward-looking basis? Like what did SLS actually contribute EBIT-wise in the second quarter? Stephen Mikkelsen: Yes. Again, so -- okay, it contributed obviously more in the second quarter than in the first quarter. But I think what I -- probably the most relevant thing I can say is that, that ramp-up has continued into the first half. That's probably the best way to put it. And that's -- we -- pricing is still strong and volumes are good. And that's -- so the activity that happened in the second quarter has continued and frankly grown as we come into the first quarter, which is -- into the third quarter -- sorry, the first quarter of the calendar, third quarter of this year, which is why -- look, I'm very conscious that we will need to provide some more guidance around that. I just need to think -- we just need to get that first quarter under our belt. And by the time we speak next month we will -- we'll have the actual results for January and February, and we do find it easier to predict that result for March than we might for the metal business. So we'll have a very good understanding of what that March quarter is like. I'm expecting it to be good. And then I think based off that, we'll be able to provide some additional guidance on where we think the year-end is going to come in at. Lee Power: Okay. So through the back half or the first half, so through the second quarter, like is there much volatility within the quarter? Was that trend continuing because the pricing only really lifted in the back -- very back end of the calendar year, right? Stephen Mikkelsen: So let me -- so first of all, it was a strong half. It wasn't just a strong quarter. It was a strong half. And yes, there is some volatility. But in some ways, it's the right expression self-induced volatility. Maybe that's not the right expression, but it's volatility that we're not particularly worried about because it's just whether or not we -- does it suit our customers to ship the DDR4s at the end of the quarter or the beginning of the next quarter. So there is definitely some volatility, but we get a good understanding of what that volatility is going to be well before it happens, which is why I think we were -- by our standards, we're pretty accurate at the prediction of the SLS result for the full -- for the half. Lee Power: Okay. And then maybe for Ingrid, it sounds like your comments to Peter just around the commercial rate relationships and revenue sharing that you think the leverage to pricing holds. Like obviously, the battle, I think that everyone is having is that you look at what the pricing has done. I get the lags, but it kind of averaged $18 a unit for the pricing, the DDR4 pricing that you gave for the first half, and it's tracking at like $67 for the half currently. So it's obviously a very material dollar move half-on-half as well. So just any sort of color you can give us around the revenue sharing piece or that leverage might not come through for the business? Ingrid Sinclair: Well, no, as I mentioned the revenue share that we've negotiated stays in and the partnership that we have, in particular with this client is very strong where we're investing back into the business. So the expectation is that we will increase productivity through automation, and use some of this just to improve the business for them. And moving into Ireland really is to meet their capacity needs, and this is what we do throughout. So I don't see that a clawback trying to occur. This is a very solid relationship, and the market fundamentals are strong. We just don't see that. Stephen Mikkelsen: Well, I agree with that. And the thing I would say that, which I think I said the last time I would add, to that, having now visited a number of these clients is that this is not a core business for them. This is, our front office, their back office. And while it is absolutely meaningful to us and well, that's clear, is hugely meaningful to us. Their focus is very much on their front office, which is about giving us much of these hyperscaler data centers built as they can, getting AI rolled out, putting their resources into that area. So this is nowhere near as material to them as it is to us. And so therefore, what they're valuing is they value that we do it safely. They value we do it securely. They value that every single SLA that we've put to them we achieve, and that's through -- to me, frank, from Ingrid's perspective, that's through 5 or 6 years of hard work of building up these relationships. And just to repeat myself, yes, very material to us. I'm not so sure that they would want to switch suppliers to save themselves maybe a few $10 millions of a year and run the risk that they don't get the same level of service that they do from us. And that's what's hugely important. Ingrid Sinclair: If I can add, what's value to them is getting the repurpose DDR4, right? It's not the money. So we have this client who's starting their decommissioning earlier because they need the parts and new builds. So it's very much value on getting the tested repurposed DDR4s going back into their data centers. So that's really where the value. Stephen Mikkelsen: Yes. And I mentioned, if we turned up late and we promised that you would have the DDR4s on this state and they're not. I mean that's the risk that they run by going with someone else. And we've now got a really strong track record over the last 4,5 years to prove that we can do it. Lee Power: Yes. And then maybe just 1 more if I can sneak it in. So John, like -- I feel like you've undersold yourself a little bit given ANZ was breakeven in the first quarter, and you've delivered $22 million of EBIT for the half. Can you just maybe chat a bit about when we think about using that second quarter number going forward around like what the catch-up was or seasonality or something else going on because it's obviously a pretty solid quarter given what the backdrops are... John Glyde: So obviously, Lee, the second quarter was always going to be stronger than the first simply because of that catch-up process, which I got to say we, quite frankly, completed quicker than I thought we would. So we largely got it all done in the second quarter. So what -- I guess, where you're leading to is how should we look at the second half. As I said, ferrous markets haven't improved internationally, I would argue that we're sort of bouncing along or near the bottom in U.S. dollar terms. Nonferrous markets are strong. There's no doubt about it, both in retail nonferrous and zorba. But I guess the other headwind aside from Stephen mentioned a lot about China and the amount of semifinished steel making its way into our markets and our consumers is the Aussie dollar. And that's certainly what have we seen in the last sort of 6-week period, 8-week period, we've seen the Aussie dollar go from around $0.67 to $0.71. So that is certainly hurting. So I would have said second half at this point, and I will say, Lee, we are 1 month into it. We are in January, but I would say I think our second half is broadly going to be in line with our first half. Operator: Your next question comes from Brook Campbell-Crawford from Barrenjoey. Brook Campbell-Crawford: I just had one on SLS and trying to kind of understand how it all works like some of the others here on the call, but maybe just for the first half on Slide 23, you talked about sort of 70% of revenue uplift relating to price. So that implies a $90 million increase in sales because of price. And then the total EBIT for the business is of $35 million. Just can you kind of talk to that, why would you have a greater drop-through from revenue to EBIT, given the majority of it is driven by price. Warrick R. Ranson: It's Warrick here. Brook, remember, we don't get -- the revenue is gross, and then we obviously take out the percentage of -- that we retain in terms of the sales, so you don't get the full swing through. Brook Campbell-Crawford: Got you. Okay. That's the revenue share? Warrick R. Ranson: Yes. Brook Campbell-Crawford: Great. And then maybe just one on, I guess, on the Dublin side. I mean is the way to think about this 1 million units, we can see what the DDR4 price is, we can assume, let's say, a 30% revenue share and then an EBIT margin in line with what you've just delivered to kind of resulted in AUD 5 million EBIT from that facility once it ramps up? Is there -- that's obviously very simplified, but would there be any large flaws with making those assumptions? Stephen Mikkelsen: One is that some of the units will go back to be repurposed, not resold and repurpose as a service fee, which is less than... Ingrid Sinclair: Fixed fees. Stephen Mikkelsen: Yes, less than the resale. Just what -- I didn't quite hear, what number did you come up, I'm not going to say whether it's right or wrong. I just want to understand what number you came up with that back of the envelope. Brook Campbell-Crawford: Yes. Listen, I was just using your 1 million unit comments. And we can see that DDR4 price is like USD 70 a unit, I'm pretty sure. And then we could assume a revenue share of 30%, call it, and then just use the EBIT margin for the division of even 15% in the half, which I think gives you around AUD 5 million EBIT from that business. I was just using that framework and were to get some sort of steer if that's sensible out. Stephen Mikkelsen: I just need to go through your math here, because I'll be frank, I think that's a little light. it is frankly a little light. So just -- let's just think about your math on that because I'm just not quite sure that last that you're coming into. Maybe we can talk a bit about that. But again, maybe part of it will be in March, we'll be able to provide much more color with this additional guidance. But my initial reaction to that is that feels very light. Operator: Your next question comes from Daniel Kang from CLSA. Daniel Kang: Just continue with the SLS discussion. Maybe Ingrid, I just wondered if you can talk about the market share position of SLS at the moment. I think the initial plan was to get to round about 10% share of the addressable market. Are you there already? And maybe if you can shed some color on the competitive landscape on what the others are doing, given that you're branching out into Dublin. What are the capacity plans as well? Ingrid Sinclair: Well, I don't think we're anywhere near 10%. I think the market share is continuing to grow just as AI is exploding and this adjacent market is exploding accordingly. So I don't think we've captured anywhere near 10%. There's still a lot of upside to go. Our competitors, we talk a lot about Iron Mountain, SK Tes. But it also is the hyperscalers themselves taking it in-house. We don't see hyperscalers doing it because they're competing with their data centers, and they make more margin in their data centers versus switching to what we do. So we don't see much movement there, certainly for SK Tes and Iron Mountain. They are in Ireland already. So the Ireland is the -- basically the nucleus for Europe -- for European data centers. It's all located there. Still plenty of market. Stephen Mikkelsen: Is it fair to say that our biggest opportunity to grow market share is to -- is the work we're doing around showing to the existing hyperscalers who are not either doing it themselves or not doing at all that there's significant value by using SLS services. I think that's 1 of our main growth levers. Ingrid Sinclair: Definitely, because this is a way to get material at a cost-effective price point. Stephen Mikkelsen: It's a big market, Daniel, to get 10% aspirational that would be fantastic. It's a big market. There's plenty to go. Daniel Kang: Maybe a question for John. I think you commented on ferrous scrap markets still being pretty tough out there. What are the things that are you looking for, for the markets to improve? So can we see some improvement into the back end of this calendar year? John Glyde: A couple of things that Stephen has talked long and hard around the self-help piece and that doesn't go away. Ongoing cost discipline, ongoing discipline around buying, trying to direct more unprocessed products for our shredders is all sort of internal self-help. But I would say the other things that we've got coming on stream is Glenbrook, the New Zealand EAF comes on late Q4, around May, I think, is sort of power on and then there will be a ramp-up here from that. That would be good for us. We're very well positioned with the investment we've made there in rail infrastructure to service their needs. We've also got 2 fines plants that we're currently -- that are currently under construction now, and they will go through a commissioning late Q3 into Q4, and we'll start seeing some very significant benefits more so in F '27 from those 2 plants. We've got the MRP upgrade in Auckland, which is again, as Stephen talked about, self-help, metal out of waste, very good returns on that sort of investment. So it's a mix of things. As Stephen said, we don't -- and you guys on the call probably as well positioned or better positioned than us around the whole piece around China and when they're going to -- and if they go in to change direction. But ongoing strength in nonferrous markets, strong -- really strong zorba pricing, driven by the underlying copper and aluminium pricing. Ferrous is still tough. What we are seeing, and this leads to a conversation about well positioned. We are seeing that a lot of our competitors are doing it tough. And I think that will present us with some opportunities down the track around industry rationalization and consolidation. Operator: Your next question comes from Chen Jiang from Bank of America. Chen Jiang: Stephen, Warrick, John, and Ingrid. Maybe first question to Ingrid, SLS. A big increase of the revenue share from resale, I guess, majority due to higher memory prices. I'm just wondering what is the strategy for SLS to grow your earnings, if it's structured versus one-off sugar hit when the DDR4 prices normalize. I guess the SLS business is not only solely DDR4 prices. What are the levers you can pull from here, given the market is still, you mentioned very fragmented and you are less than 10% of the market share. Ingrid Sinclair: Yes. Well, that's very true. It's not all just DDR4. So we're also seeing increase in pricing in hard drives and the other elements we sell. So we don't just sell memory. We sell all components that are accessories to the data centers. How we're going to go is through volume. So we're going to see more volume coming through our current contracts and expanding geographically. And don't forget that once DDR4s have run their course, we'll start seeing DDR5s coming out so that this will replicate and just go on to the next technology shift. Stephen Mikkelsen: Can I have one more thing, Ingrid. Chen, you made an interesting comment about prices normalizing. And look, it's a very valid and interesting point. But the way we're looking at it, and this is a very unusual market structure. But the way we're looking at it is what does normalizing mean? Because you've got 2 really interesting things going on. Firstly, DDR4s, as I said before, DDR4s are the workhorse of the Internet of Things, are the workhorse of our computers. DDR4s are not going away anytime soon. So you don't have this falling demand in the next couple of years. You just don't have it. So you've got this demand, which is strong. But what you have is this falling dramatically falling supply, which has been absolutely turbocharged by AI and anyone who can make chips is making DDR5. So that's what they're turning to. No one is setting up new factories to make DDR4 of any quality because why would you? You might have put all your resources into DDR5. So from an economics point of view, you've got this -- weird is not quite the right word, but you've got this unusual situation where you've got strong demand and supply not there to meet that demand. And normally, you would think it would because it's been completely diverted somewhere else. So I'm not sure to say -- I mean, time will tell on how it plays out. But I'm not sure what normalizing means when you've got that market dynamic. Chen Jiang: Sure. I mean, normalizing. I mean, it almost trades like a commodity. So I'm not talking about demand, but more like a price given how the price has been over the last... Stephen Mikkelsen: Where it doesn't behave like a commodity. And I keep watching we're grappling ourselves with this because this is a new -- this is new for everybody, what AI is doing, where it doesn't behave like a commodity. When demand goes up or demand -- and pricing is going up, you would normally -- a commodity there'd be more supply come on, people would invest in things and more supply would come off on and that would dampen the demand -- dampen the price and normally, they overinvest. And so down price goes and then they will pull out in the commodity cycle. This doesn't really follow that cycle because you just can't -- you can't bring on more supply. Chen Jiang: Right. That's a very good point, Stephen. I appreciate that. And second question, if that's okay, again, focusing on SLS. Are you being able to provide any color on the resale revenue sharing across corporates or hyperscaler? Is that like how the contract work, understand, Ingrid, your team spent 4 to 5 years -- over the last 4 or 5 years, built a very strong relationship with hyperscalers and hyperscale revenue has been growing CAGR like 40% or 50%. But if you can give us any color on your existing contract position as well as if any new contract rather than just leverage to the DDR4 prices? Ingrid Sinclair: That's -- I don't think we can get into too much detail it's commercially sensitive on our contracts and what we've negotiated. But once we do, our contracts do run 3 to 5 years long. The percentages are negotiated upfront and just fixed through the contract. Stephen Mikkelsen: Yes, I think I agree. There's a lot of commercial sensitivity in that, Chen. But I'll go back and remake the point that why are we successful and why is Ingrid's team successful. It's around we've spent the last 5 or 6 years building up our proven capability to deliver and delivery, particularly when repurposing, which has the benefits that we get some resell as well. It's really important for these hyperscalers. But yes, I'm with Ingrid. I just don't want to get into detail on commercial contracts. Chen Jiang: Understand. Absolutely -- I fully understand. Well, let's put it another way from like contracts or relationships or even how your revenue model work? How is that different to your competitor, Iron Mountain and other small competitors given it's such a very fragmented market. I don't know if that's perfect competition or... Stephen Mikkelsen: Ingrid, I don't -- but for me, the business model is fundamentally the same across the industry. That's not it's... Ingrid Sinclair: Pretty much. I mean what -- what we are doing though as far as repurposing DDR4s, going back into the data center, we are the only ones that are doing that. Stephen Mikkelsen: We're absolutely... Ingrid Sinclair: Testing, reprogramming, and it's going back into data center. So it's competing against virgin material. So that is something very special that we do, and that is in strong demand by the hyperscalers. They need the parts, because they can't get it on the market. Stephen Mikkelsen: That is a good point, Ingrid. That's a big differentiator. The industry structure generally, but it's actually a very good point around that service that we're particularly good at. Operator: Your next question comes from Owen Birrell from RBC. Owen Birrell: Just a few questions from me. As with everyone's first question on SLS, a couple of angles here from my perspective. The first 1 is just looking at Slide 23, useful revenue by segment splits between resale, service and other. I'm wondering if you can give me a sense of the 5.3 million repurposed units during FY '26 -- first half FY '26, what split of those units by volume went to resale versus service? Stephen Mikkelsen: Just let me -- I mean, we -- obviously, we know that number. I'm just thinking just from a commercially thing, does that -- Warrick, what's your thought? Warrick R. Ranson: Let us have a think about that and we'll come back to you. Owen Birrell: Okay. Well, then let me ask a subsequent question to that. Is that split likely to change going into the second half? Like do you have forward commitments for more service volumes as opposed to resale or vice versa? Ingrid Sinclair: We do have service commitments, but the way it works, Owen, when you get in a rack, there is only a certain percentage that is fit for purpose to go back into a data center. So technically, there's only a certain percentage that can go in. So regardless of the increased need to go back into a hyperscaler, there's still a percentage that is for resale and revenue share. So the increased need would be met by a faster decommissioning cycle because they need the part. Owen Birrell: So indicatively, the splits between resale and service volume perspective are largely constrained and therefore don't fundamentally change from period to period. Is that kind of what I'm getting from that comment? Ingrid Sinclair: Yes, right. Because in a fully populated rack, there's only a certain percentage that can go back in. Stephen Mikkelsen: So I guess the other way of looking at it, we would not be expecting second half splits to be materially different to the first half. Ingrid Sinclair: I would expect the volumes to go up because they need more parts. Owen Birrell: Okay. Excellent. And just on [ NFSR ], I guess, in terms of -- from our perspective, understanding how the business -- the operating leverage flows through -- given the lease model that you operate, is it fair to say that it's a very high variable cost business. And are you able to give us a sense of, I guess, what the fixed to variable splits in the operating cost basis. Ingrid Sinclair: Yes. Well, the way we're attacking that, Owen, is we're automating. So we're going to automate wherever possible so we can bring productivity into the process and control that variable cost. But yes, normally, as you would scale, you would expect costs to increase, but we're going to attack it with automation. Owen Birrell: I mean my understanding was a lot of that automation was actually going to be leased anyway, so it essentially becomes more of a variable cost. Stephen Mikkelsen: Some of it is we do have a -- you're right. We -- the stuff we showed in Nashville was a -- on a volume base, yes, that's correct. But I think there's -- I think what Ingrid is talking about is we will end up to be charging. I think there's 2 things about SLS going forward. One is we will turbocharge automation because I think there's definitely productivity savings to be had there where we can effectively use our lease facility 24 hours a day through automation. And the other thing I would say -- the other thing I would say is moving forward, expect to see some additional expenditure going into R&D because what we know for sure is that in 3 or 4 years' time, the DDR5s that are going in now are going to come out. And they present a completely different challenge to DDR4. Some of them are in the good cooling. Some of them are more sensitive. So we are going to spend some money on R&D to make sure that we've got a business here that has the potential to last for decades because there's constant replenishment cycle with new equipment. Owen Birrell: Okay. Just final question for me, for Warrick. Free cash flow conversion was quite weak during this period. And I understand there's often seasonal swings and trade swings. Just were there any sales booked very late in the period that you haven't received the cash flow yet? Warrick R. Ranson: We always have some sales. I wouldn't say it's a material amount. I'd probably dispute the cause about free cash flow being weak. I mean I think you have to sort of, for us, you have to back out the amount, like in our working capital, we have to include the margin deposits. And we had, as I pointed out, effectively, we had sort of $200 million sort of come through because of nonferrous pricing. We managed to maintain our total working capital balance at around about pretty much the same level. So actually converting our activity into cash has actually been quite strong. So like if you take out that $70-odd million that went into those margin deposits, EBITDA to operating cash was pretty close to sort of 95%. So... Owen Birrell: It's just timing. I guess what I'm getting at is just timing and it should have potentially rectify itself into the second half. Warrick R. Ranson: Correct because yes, those margin deposits, et cetera, will come back down. Stephen Mikkelsen: One thing I would -- and the risk of -- as Rob's got a great expression breaking into jail. The one thing I would add to that, though, is that if nonferrous prices keep rising, we see them keep rising and rising and rising. 2 things will happen. That will boost profitability. But it also puts -- I mean, we've always been on this. It puts more money into working capital. We've done a huge amount to hold our inventory levels. And I think we -- I think Warrick is right, we've done a great job. The team has done a great job in managing that. But rising nonferrous prices boost profitability, but they absolutely increase our working capital requirement. So for the end of this year, at the end of 2026, we have another surge in prices on nonferrous. You will see a similar thing happen. Owen Birrell: Sure. Just one final question on SLS. You talked about sort of that pricing, I guess, sort of 1 month in advance. Is there a risk that you get a, I guess, the opposite trajectory? I mean, if prices come back down, is there any exposure that you have to falling pricing environment from an input cost perspective? Or is it purely just revenue share? Stephen Mikkelsen: It's revenue share and service fees. So I don't think so because it would flow through this. So we're not -- we don't take it. I think of what your question is, do we take inventory risk, we... Owen Birrell: Basically. Stephen Mikkelsen: Yes. There is a small amount, but it's not massive. You can't be perfect... Ingrid Sinclair: It spreads over pretty quick. Operator: Your next question comes from Harry Saunders from E&P. Harry Saunders: I'll start off with NAM for the sake of variety. So came in ahead of guidance, I mean anything you would call out to not sort of use this as a run rate for NAM in the second half given sort of current market conditions, perhaps? Stephen Mikkelsen: I think you're right. We've got Rob in the room and for the sake of rise, I think Rob is feeling a little... Robert Thompson: Harry, no, I think you could safely say that, as John said, we're only 1 month into our third quarter. The domestic market has increased twice in this third quarter for us, $30 in January and another $30 or so depending on the grade. Some markets are good. Nonferrous pricing is holding. If you recall last year, we had some severe weather where we operate. That is reoccurring this year as well with inbound flows. But I would say margins are going to hold this year and we'll have a better third quarter than last. Stephen Mikkelsen: It's probably fair to say, Rob, from an EBIT point of view, the impact of the cold weather has been nothing like it was last year at all here. Harry Saunders: Right. So this implies overall reasonable increase year-on-year in 2H EBIT, [ that's your call ]. Stephen Mikkelsen: I think that's a fair conclusion to draw. But I know Rob's comment, we're 1 month and we're 1 month in. Harry Saunders: Great. And I will go back to SLS now. I'm just wondering if you can outline the percentage of SLS revenue that is resale that was 61% in the first half, like what is memory within that? Stephen Mikkelsen: DDR4 memory in particular. Warrick R. Ranson: I think that comes back to Owen's question. We'll take that offline, Harry, and have a think about coming back to you on that. Stephen Mikkelsen: Yes. Obviously, to the extent we do dispose something, we'll disclose it to everybody. But we're just [ grappling ] in our minds what is commercially sensitive and what is sensible to talk to everyone about, which doesn't impact our business with either our competitors or our customers. But let's get back on that one. So -- and we'll definitely will. Harry Saunders: Okay. Then I'm going to ask this anyway. And I know you probably won't answer, but if the memory price does hold at the current level and based on -- you were saying earlier, the repurpose versus resold -- or reuse versus resold units don't vary materially in percentage terms. You must have some idea of what the pricing benefit should be in the second half. So I mean, can you talk through the potential benefit there in terms of quantifying, please? Stephen Mikkelsen: Holding -- I mean you're right, if you hold all those -- if you hold all of those things constant, you would expect the second half to be materially better than the first half because the prices rose into the first half. And if they come into the second half, we're clearly going to have increased absolute resale. We will without a doubt, we -- volume is looking good, so we would expect some increase in service fees. So that is -- yes, so if you hold all of that equal, you would expect a materially -- a material improvement in the second half versus the first half. What we'll do in March is try and provide some additional guidance on -- from what we've actually is happening where we think that number is. Harry Saunders: And then maybe just asking Brook's question in a different way. I mean, any reason not to look at Ireland is the 1 million annual units as a ratio of your existing -- or you did 5.3 in the first half, so call it 10 or 11 annualized, looking at that as just an EBIT ratio to unit? Stephen Mikkelsen: I think the mix is different. So when you're looking at the whole business, and I think this is a correct answer. You're looking at the whole business, which includes much more than just hyperscaler activity. And so it would skew higher than the business as a whole. Harry Saunders: Okay. Last question, if I may, on SLS. Just wondering if you get a pricing benefit from customer reuse or if that's kind of a fixed dollar amount. So you're only benefiting on the actual resale percentage? And also just the revenue share, I mean, is there anything to stop customers lowering that percentage when the contract is eventually renewed? And are there any major renewals coming up? Ingrid Sinclair: There aren't any major renewals coming up shortly. We're still another couple -- 2, 3 years out on our existing contracts. Stephen Mikkelsen: So the service fee is a fixed percent. Ingrid Sinclair: Service fees are fixed, that's correct. And we're -- it's volume. Stephen Mikkelsen: Yes. But Ingrid made a really interesting and valid point before, is that, in terms of the service fee of putting it back in, it's -- when a rack comes out, it's not a 100% redeploy it back into the unit. There is a substantial amount of those DDR4 that are not suitable to go back in and they find their way to the resell market. So just because we're getting -- if we get more -- well, in fact, we get more activity around -- around the service revenue, we will pick up more resale revenue with that as well. Harry Saunders: Okay. I'll sneak one more in. Just are you seeing any new competitors enter the market recently in SLS? Ingrid Sinclair: As Stephen has mentioned before, it took us years to get here and to get to the level of qualification with the clients to make their technical specs, the security specs, data security. So we are not, at this moment, seeing anybody -- any new entrants. It takes years just to... Stephen Mikkelsen: Our biggest competitors remain the hyperscalers doing it themselves or not doing it at all. Those are the -- that's where -- that's our next frontier. Operator: Your next question comes from Scott Ryall from Rimor Equity Research. Scott Ryall: I'm going to start, if that's okay, on Slide 22. And it's a question, I guess, for Rob and John. Specifically looking at the trading margin, just an observation first. Rob, I hope you're giving John a bit of a needle about beating them for the first time in 5 years, I say, based on my numbers. And I guess my question for both of you. So Rob, is your aspiration to get your trading margin up towards SA Recycling over the medium term? And John, is that decline? I mean you've spoken about the top line and the ferrous markets and nonferrous markets. How much of an impact on the trading margin did the outage has in the first half, please? John Glyde: I'll go first. As I said, over the half, we actually managed to clear most of the inventory that was accumulated during the outage. So we've got a small amount of overhang that will wash out in H2. So over the half, it was pretty much clear. The other thing I should point out around trading margin is proportionately having higher nonferrous volumes and higher nonferrous pricing actually impacts trading margin in percentage terms as opposed to dollar per tonne terms. So actually doing more volume at higher pricing in nonferrous has a negative impact on trading margin percentage-wise. Scott Ryall: Is it fair to say that's the biggest driver then, John? John Glyde: Sorry. Scott Ryall: Is that -- is it fair to say that that's the biggest driver -- the trading margin... John Glyde: No. ferrous is extraordinarily challenging. Robert Thompson: I guess, Scott, first of all, thank you for noticing that. A lot of work to the team. In terms of SA Recycling, they're a heck of a model to aspire to be. And I think the simple answer I can give you will be that, yes, through examples like TCT, the recent acquisition and some road map activity that is yet to be released to the market, some of the feeder yard, bolt-ons that we've talked about over the last several years, that's where we differentiate with SA largely. They have more than twice as many shredders and more than 2x the feeder yards where they're able to collect material at a much lower level of volume, but also at a higher margin. So NAM in the past has been built on big cities, big populations, we can have something in the middle. So yes, there's more work to be done, and we're going to continue clawing at it. Scott Ryall: Right. Okay. And then my second question is predictably for Ingrid. But it's a bit different, I think. I guess what I'm wondering, just when you're planning your business, Ingrid, what is the visibility that you actually have on a rolling 6- or 12-month basis? And you mentioned there's about 2 months lag for pricing. So do you -- does that mean whatever the traded prices now you're getting in 2 months, and therefore, in 3 months, you're not -- you can take an educated guess, but you're not quite sure what the price will be. And then I guess the same for the units. Do you have pretty clear line of sight on a rolling 3- to 6-month basis? Or is it longer based on your contract like what you've just done in Ireland. I just be interested to hear how your business settings actually work. Ingrid Sinclair: Scott, a tool that we use, which you can also subscribe to is TrendForce.com, and that gives some visibility certainly in this market, on the memory market pricing and so forth. Depending on the client, we do have some visibility because we're in their inventory systems. They're in our inventory system, so we can see the decommissioning cycle. So we don't necessarily know what's coming out of there, but we can see when racks will be decommissioned and come to us. So that does give us some planning visibility. Stephen Mikkelsen: And Ingrid, it's probably for you to say that when it's varied from that, it tends to come earlier, not later is what we've found. So that's been our planning challenge if something has arrived earlier than we do. Yes. Scott Ryall: But when do you feel most comfortable with making 95% confidence level as opposed to, say, 80% or something or 75%. When -- is that -- do you feel really confident on a 3-month basis as opposed to 6, 12, those sorts of things? Stephen Mikkelsen: I can say from my -- and Ingrid I'll let you think. By definition, the price is something that 2 months out gives you a lack of confidence in terms of what it's actually going to be, we've got confidence around what we think drives it. So when I look at our results, I feel pretty confident about what Ingrid's predicting 2, maybe 3 months out. Beyond that, there is just some very bit of what do you think the price is going to be. Is that probably the main variability. Ingrid can show me what the volumes are. I think 3 months out, we're reasonably confident on volumes and maybe it's going to come in earlier, which is, I guess, why we think we've chosen the March -- the March date should give us some degree of confidence around additional guidance for June. I mean whether it's at the 95%. 95% feels a little bit like a utility. We're not there. But it's certainly -- it's a reasonable level of confidence. Scott Ryall: Yes. Okay. And so just with that in mind and I know you've got very good reasons for having, followed a customer to Ireland. But -- so how much -- when you go and spend the money and I know what you're saying, Stephen, about R&D and automation and things like that. How do you get -- there's no business plan in the world that's riskless. But how do you get the confidence of at least making a minimum return on capital for that investment decision, please? Stephen Mikkelsen: Maybe, Warrick, you think a lot of that capital maybe. Warrick R. Ranson: Well, I think the beauty of the SLS model is it's capital light. So our investment there is, in terms of -- is really around the lease commitment and how we structure that. So we obviously cater for that within the way in which we approach that. But from a capital investment perspective, it's actually -- it's a great model. It doesn't -- there's not a huge amount of capital that goes into it. Operator: Your next question comes from Ramoun Lazar from Jefferies. Ramoun Lazar: Just a couple of questions on NAM and SA Recycling. Just on NAM, comments at the AGM for a meaningful step-up into the second half. Could you maybe build on Harry's question around NAM and how to think about the second half given the seasonality that we saw last year. And I guess what you're seeing there with the step-up in nonferrous pricing, what could we expect from NAM in that second half period? Stephen Mikkelsen: For me, it's around market -- I'm going to Rob answer the question. But to me, it's around market pricing and our operations within that market. But Rob, you think about this all day every day? Second half. How do you feel about second half and what's driving it differently from last year? Robert Thompson: Yes. I would say this to you. The way we've structured and I think the presentation that you've been able to see, the pivot over towards domestic consumption, whether it's ferrous or nonferrous and having those customers, it's a self-hedging margin preservation. So I'm buying and selling in the same markets. The international side, we're optimizing when it suits and we're dramatically changing the compositions of our cargoes based on best prices by commodity. So -- and nonferrous resilience is there. I think the scarcity of copper and aluminum, and really the demand pull has been good. In terms of what Warrick mentioned earlier about construction spend, I think we're coming into the season in the next 45 days or so, where we'll start to see some more construction demand. The steel mills are running in the high 70% utilization rates. Their margins are tremendously good, and they're not going to miss a heat. So they're looking for raw materials. We're looking pretty solid in the second half. Ramoun Lazar: Okay. I guess the step up in nonferrous would have given you more confidence around that meaningful step-up versus what you said at the AGM? Is that fair? Stephen Mikkelsen: I think unlike ANZ, I think in NAM, you need to be thinking about ferrous as well. So ferrous does gives us -- ferrous, we do have some confidence in nonferrous as well, unlike -- I mean ANZ, we're fairly confident that China is going to keep depressed and there's nothing going to happen in ANZ -- everything is about nonferrous. NAM, the domestic shred premium, what we've done around our logistics to make sure that we can sell domestically. And that number I said before, is quite amazing. 85% of our East Coast Street went domestically. 2 years ago, we would have been capable of doing 10%. So the increased demand in there's more [ AIs ], there is more [ AIs ] have come online. Rob's right around the construction activity. So we are feeling reasonably good about ferrous as well in North America versus first half. Ramoun Lazar: Okay. That's helpful. And then SAR, I guess, a pretty meaningful step up there in the first half versus PCP, and that far off the strong second half '25 result. I guess how are you sort of framing that business into the second half. Anything to think about in terms of headwinds or costs or anything like that, that could... Stephen Mikkelsen: No, I don't think there is, Ramoun, I think SAR is -- will enjoy the same market structure that ANZ than NAM is. What I would add to it, they can continue to produce a lot of zorba and we don't see zorba coming off in any meaningful way when things always strong. We don't see copper coming off. We don't see aluminum coming off. They have a good non-retail ferrous. I'm not seeing headwinds in the second half versus the first half. But you're right, second half of last year was very, very strong for them. And that would be great if they could replicate that. But we're 1 month in. Operator: Your next question comes from Charles Strong from Jarden. Charles Strong: I was just wondering whether you could quantify the impact of trading margins in percentage terms, there has been [ from greater ] nonferrous mix, whether at the regional level or across metals? Stephen Mikkelsen: So not specifically, but what I would say is, by definition, greater nonferrous lowers our trading margin percentage because we make greater margin per tonne on a much, much higher. So when you're selling copper, I don't know, $12,000, $13,000 a tonne, your trading margin percentage is always going to be lower because you're making more in absolute dollars. So if I then say why I think that's been -- when NAM has done particularly well is despite that dynamic, NAM has actually grown its trading margin percentage, which I think goes back to Ramoun's question a little bit, which has come from ferrous. It's grown quite nicely. Charles Strong: Just one more, if I may. You had net corporate cost saves. Do you see any further opportunity there with the outsourcing shred services or anything of the like? Warrick R. Ranson: There's always opportunity. I think what we've said before, we took a fair amount of cost out of the business sort of a year, 18 months back. We did say that we would start to plateau in terms of those major structural changes to the business. But we're always looking for sort of cost out, but I'd say they're more on the fringe. And it's really about just sort of maintaining our cost levels at sort of current rates at the moment, Charles. Stephen Mikkelsen: The only thing I would add on cost, Charles, is if nonferrous was the hero of the result in many ways, costs were a pretty good support act. I mean if you back out the variable costs that came from increased unprocessed and increased activity in SLS, the actual underlying cost base has performed really well in some still pretty inflationary times. I agree with Warrick. It's relentless the cost program, and we will continue being relentless. But I think probably the major, major cost reduction programs, well, I think we're more continuous improvement now, Warrick... Operator: There are no further questions at this time. I'll now hand back to Mr. Mikkelsen for closing remarks. Stephen Mikkelsen: Well, thanks, everyone, for joining the call. Thank you for the interesting questions, very good questions, and I will see a number of you -- we will all see a number of you over the coming days as we get out and about. Thanks very much. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Mark Chen: Good morning, everybody, and a warm welcome to those in person and online to Challenger's 2026 Half Year Results Briefing. I'm Mark Chen, Challenger's General Manager of Investor Relations. We're pleased to come to you today from 5 Martin Place in Sydney. Before we begin, I would like to acknowledge the Gadigal people of the Eora Nation, the traditional custodians of the land on which we are hosting this event today and pay my respects to both elders past and prison. Today's presentation will be delivered by our Chief Executive Officer, Nick Hamilton, and Chief Financial Officer, Alex Bell. It will then be followed by a Q&A session. You can ask a question either in person via the online portal or through the telephone. As you'll see from today's presentation, we've made a great start to 2026. That demonstrates both resilience of our earnings and the progress we're making in positioning Challenger for the next phase of growth. In the half, we've delivered earnings growth and returns above target alongside book growth, driven by rising demand for income and financial securities as retirement income tailwinds continue to strengthen. This performance is underpinned by disciplined capital management and a very strong balance sheet. Our capital position remains a clear differentiator providing flexibility to support growth and deliver shareholder returns as reflected in increased dividend and on-market buyback we have announced today. Overall, this is a result that Challenger -- it shows the Challenger is in great shape. It's delivering consistency through the cycle, and it is strongly capitalized and strongly positioned to capture the growth opportunity ahead. I'll now pass to Nick to take you through the results. Nick Hamilton: Thank you, Mark, and thank you for everyone for joining us. So this year, it marks a significant moment for Challenger, as we step into a new era of opportunity and growth for our business and more broadly, Australia's retirement income market. We are a business that's been committed to providing -- to supporting financial confidence for those approaching or entering retirement for more than 4 decades. Our experience and quality reputation as a leader in guaranteed retirement income has made us a trusted voice with the industry, government and regulators on ways to develop Australia's retirement income market. After many years of seemingly waiting, the industry is now moving and the difference in a year is stark. Retirement is fundamentally different and the decisions an individual makes into and through retirement, requires something distinct to what we have today, and that is now recognized. We are months now from entering a new capital regime for annuity providers. And for Challenger, this is a very material moment. Any way that you look at the changes, they will be extremely positive for our business. Today, we've announced our first half results, a buyback for our shareholders and more details on the growth opportunity that has arrived for our business. We'll talk through each of these this morning, and I'm joined by our CFO, Alex Bell, who will provide more details on our first half 2016 financials. Let me start with an overview of the 3 key points in our announcement today. First, we're financially strong. We've grown earnings, maintained our disciplined expense management approach and increased returns to shareholders. Second, we have the capital flexibility we need to grow and deliver returns. And third, we are positioned to grow due to strong momentum behind our strategic initiatives, including our contribution to APRA's review of capital standards, which will see some of the biggest changes for providers of longevity products in a generation. Establishing key partnerships with super funds and advice technology platforms, expanding our offshore reinsurance partnership and delivering our transformation program across customer investment and data platforms, which will usher in a very contemporary and digitally enabled business model. Looking at the first half headline numbers. At the halfway point for the year, very pleasingly, we are delivering earnings growth in an environment where credit spreads are at historically tight levels. Alex will say more on this in her presentation. The significant increase in our statutory result reflects our positive asset experience and gains across our investment portfolio. Strong book growth in the period was driven by a record level of annuity sales. Domestic annuity sales were up 37% to $3.1 billion, and offshore sales up 13%, also to a record level. Our longer-term annuity sales also increased, driven by higher domestic Lifetime and MS Primary volumes. Our group return on equity at 11.4% is above our full year target of 10.7%. We're extremely well capitalized, providing us flexibility to support our growth and deliver returns to shareholders. Our performance demonstrates the strength of our fundamentals, and we've continued to build for growth. Today, our growth opportunity is underpinned by unique demographic and industry tailwinds. We have a world-class accumulation system that is projected to see retirement assets grow nearly fourfold to $4 trillion during the next 20 years. An aging population is one of the most significant trends, around 780 Australians retire every day, or the equivalent of a city the size of Wollongong retiring every year. However, as Australians move from accumulation to decumulation, the vast majority are not transitioning to solutions designed for this stage of life. This is despite our own research, showing 78% of people would be happier with at least partial guaranteed income for life. Unlocking demand for retirement solutions is core to our focus and where we have been driving changes during recent years. At the same time, we're seeing significant increases in demand for income from higher net wealth investors, particularly through private credit strategies as more people search for investment options that provide higher income. Our other major tailwind is a growth in offshore reinsurance markets, particularly in Japan and more broadly Asia. More than 35% of the population in countries, including South Korea, Hong Kong and Japan, will have populations aged over 65 in 2050. This year, we'll mark 10 years of our reinsurance business with MS Primary in Japan where we have recently surpassed $7 billion worth of new business cumulatively written. The strength of the partnership will see us further expand how we deliver offshore reinsurance, including a significant opportunity for growth. As a leader in retirement income over 4 decades, Challenger has developed unique competitive advantages that will allow us to shape the future of retirement in Australia. We have competitive advantages across our customer proposition, distribution capability, asset origination and as a manager of long-term insurance investments and capital. On customer we have invested to maintain our strong brand awareness for retirement income. The future customer experience will deliver simple end-to-end integration into the financial ecosystem. The replatforming of our customer technology to a modern registry and new customer interfaces will put Challenger in a unique position in the retirement market. This half, we delivered the first phase of our customer technology uplift and Phase 2 is now well advanced. And once complete, we'll open our business to customers in entirely new ways. And as we say here, it will be on customer time. We have an expansive distribution footprint, and our partnerships will drive new momentum as the market develops on the premise of a retirement income system. We have established partnerships with some of the largest superannuation funds, platforms and advice technology providers in the country. Our 2 recently announced platform and superannuation partnerships with BT and MLC will launch real innovation in how retirement solutions are delivered at scale. And through the design of new retirement advice in the Iress Xplan and iff planning tools, for the first time, financial advisers will be able to model retirement plans, which incorporate guaranteed lifetime income. We're continuing to discuss partnerships with a number of other providers in the retirement sector, and we're very optimistic about further partnership opportunities over the coming months. We're also remaining focused on the offshore opportunity as our annuity sales reached record levels. Challenger has operated with a limited Bermudan license since 2016. We are working with the BMA to expand our offshore reinsurance business, which will allow us to reinsure products more broadly than we can today. Our asset origination capability remains key as we look ahead. Quality asset origination supports our life business, and it will also enable us to expand fee-related earnings under the Challenger brand. We recognize that the market environment has changed. Demand for Australian credit has risen. Our own demand is growing and will be driven by changes to our asset allocation and our growth. During the first half through the strength of our fixed income asset origination capability, including our whole loan transaction team, we raised $5.9 billion in origination volumes, which included $2.5 billion of private credit originations. And as noted in our announcement on Monday, 9 February, we are in talks with Pepper Money on a potential transaction to acquire an equity stake of up to 25% as part of our broader asset origination strategy. Whilst there is no certainty of a transaction at this stage, we will keep the market informed on any material developments. On investment excellence, we are focused on delivering superior returns to customers and meeting their evolving needs. A key part of this is continuing to innovate the retirement and savings products we offer. In September, we launched our LiFTS income notes platform, the first of its kind in the market. And we acquired an equity stake in London-based Fulcrum Asset Management, a leading liquid alternatives manager. We are focused on being disciplined managers of capital. As part of our capital management framework, we're making Challenger a less capital-intensive business that is pointed for growth and has capital flexibility. Today's announcement of a proposed $150 million buyback is an initial step ahead of the changes to capital standards. This action demonstrates our strong capital position. We will continue to look at our capital management initiatives as the standards come into effect. And with that, I'll now hand to Alex to present our first half financials. Alexandra Bell: Thank you, Nick, and a very good morning to everybody. I'm delighted to now present to you our financial performance and outlook for the first half of the 2026 financial year. At a time when credit spreads remain near cyclical lows and market conditions are tight, we're delivering exactly what investors look for in this environment. We have grown earnings, we have generated returns above our targets, and we have increased dividends, all supported by a strong balance sheet and disciplined capital management. The key message for this half is consistency. We are delivering earnings growth despite a challenging reinvestment environment. By holding a more defensive portfolio at this point in the cycle, we can take advantage of attractive opportunities when they arise, and we're not taking undue risk to achieve higher returns. We achieved a normalized earnings per share of $0.333, representing a 2% increase. with normalized net profit after tax of $229 million, also up 2%. Statutory NPAT reached $339 million, a particularly strong result, reflecting positive total return across each asset class in the Life investment portfolio. We've increased value creation for our shareholders with normalized return on equity of 11.4%, which remains above our target. Outperformance against this target increased to 70 basis points, up from 40 basis points in the prior comparative period, reflecting the Board's confidence in our outlook, we have increased the fully franked interim dividend by 7% to $0.155 per share. These outcomes highlight our ability to generate consistent returns through the cycle, maintaining capital strength and flexibility. Turning to the key drivers of our earnings result. Group net income increased 1% to $487 million driven by Life cash operating earnings, which benefited from higher average investment assets and funds management fee income supported by higher non-FUM-related revenue. Importantly, we're continuing to demonstrate strong cost discipline, with total expenses flat on the prior period at $154 million. Inflationary pressures, especially on technology costs were offset by realized efficiencies in our operating model. As a result, the cost-to-income ratio improved 30 basis points and outperformed the target range of 32% to 34% for the period, the lowest we've ever delivered for a half. For the Life company, we delivered reliable spread earnings despite cyclical dynamics in credit spreads. Life normalized NPAT was $226 million, up 1% and supported by higher average investment assets and ongoing pricing discipline. Book growth of 5.8% and annuity book growth of 7.4% resulted in a 5% increase in our average investment assets, which will underpin future earnings and returns. This slide highlights the cyclical dynamics impacting COE earnings. This half, our margin has moderated to 2.95%. Credit spreads across the fixed income spectrum remain historically tight, which has reduced reinvestment spreads in the near term. Our disciplined approach to pricing has moderated the impact of this effect. To support the change in sales mix this period, we've deliberately increased our allocation to liquid assets with cash and equivalents of $3.3 billion at 31 December, up 27% or $700 million on the prior period. This strategy reflects attractive opportunities in liquid assets to back some of the shorter-duration institutional business we've written this half as well as providing flexibility to deploy capital into higher-yielding assets as opportunities arise. Like many insurers globally, this approach ensures we are not prioritizing short-term yield at the risk of long-term value. Sales momentum in life was particularly strong this half. Total life sales increased 11% to $5.1 billion, driven by record annuity sales of $ 3.8 billion, up 32%. Domestic annuity sales rose by 37%, supported by strong institutional demand and continued demand for guaranteed income solutions. Lifetime annuity sales of $0.7 billion were up 12% for the period. Our offshore reinsurance annuity sales also reached a record, increasing 13% to $0.7 billion, further diversifying our liability book and demonstrating our strong relationship with MS Primary, the expansion of which is a strategic priority for future growth. The balance sheet continued to exhibit a stable composition by asset class. What has evolved is the increase in high-quality fixed income assets within the portfolio. In the last year, we have invested $1.6 billion of additional fixed income, almost all of this being deployed into cash and AAA securities. This move up in quality ensures we are well positioned for any repricing. As evidence of our commitment to investment excellence, we've achieved a strong scorecard this period with total return across all asset classes significantly exceeding the COE investment yield that we include in our normalized result. This generated a substantial after-tax asset experience of $105 million for the period, which supports a strong statutory earnings result. Now turning to Funds Management. Funds Management delivered normalized NPAT of $29 million, up 7%, driven by higher net fee income and continued cost efficiencies across the platform. While average funds under management were lower period-on-period, the focus here is flow, quality and margin sustainability, not just headline fund. 2025 and the start of 2026 has been one of the most difficult periods for active equity managers domestically and globally. Fidante continues to showcase the strength of its multi-affiliate model with total net flows of $1.5 billion for the half. The platform remains one of Australia's largest active managers with 83% of strategies externally rated as recommended or highly recommended. During the half, we recognized $12.6 billion of FUM from adding Fulcrum Asset Management to the affiliate platform. and derecognized $2.9 billion upon completion of the Ares distribution agreement, demonstrating the success of our diversification strategy, alternatives now represent 15% of Fidante's FUM. This shift demonstrates the platform's ability to adapt to evolving investor preferences and broaden its investment offering. A strategic priority for Challenger has been to grow our Challenger Investment Management business and to scale originations for Challenger Life and third parties. Challenger Investment Management continues to deliver on its mandate to grow third-party capital and scale origination for the Life company balance sheet. This investment team will form part of our group investment capability under our new group CIO, going forward. Third-party FUM has increased at a 38%, 4-year CAGR to $3.1 billion, supported by investor demand for credit and income strategies and by the listed CIM LiFTS notes launched this period. For our Life company balance sheet, the originations remain well diversified with $5.9 billion of new originations across public and private opportunities. Our capital strength remains a key differentiator. This period, S&P upgraded the capital rating for CLC and Challenger Limited by 1 notch to and A+ and A-, respectively. S&P noted that the upgrade in ratings reflects CLC maintaining its market leadership position in the Australian annuity market, better regulatory settings and strong retirement savings trends that will support earnings. At 31 December, the Life company had $1.7 billion of capital above APRA's minimum requirements, with a PCA ratio of 1.58x based on the current capital standards. This capital position supports ongoing organic growth, continued dividend growth and disciplined capital management initiatives such as an undertaking to do an initial buyback of $150 million. This slide serves as a reminder of our capital allocation framework and the progress that we have made to maximize shareholder returns. In addition to supporting meaningful organic growth this period, we have announced a $0.155 per share fully franked interim dividend that is up 7%. In respect of capital returns, we intend to undertake an initial on-market buyback of $150 million, subject to market conditions and regulatory approval. This reflects our confidence in our ability to support organic growth and return excess capital to shareholders. Last Monday, we announced that we were exploring an investment in Pepper Money. Whilst not finalized a modest minority stake like this would require no integration and would be just one of the ways to accelerate the expansion of our asset origination capability. Importantly, we are maintaining a strong and resilient balance sheet through these actions and remain disciplined and focused on delivering shareholder value, demonstrating that we are good allocators of capital. Although not yet effective, I wanted to spend a couple of minutes reminding investors why APRA's proposed changes to capital standards are so important and what to expect from the 1st of July 2026. Using our 31 December '25 balance sheet, our reported PCA ratio of 1.58x is expected to increase 16 basis points to a pro forma of 1.74 on day 1. If spreads were at their long-term average, the improvement in PCA ratio from applying the new standards would be even greater, equivalent to an increase in pro forma PCA to around 1.82x. These numbers reflect the lower PCA requirement from the enhanced liability offset within the credit spread stress and the interaction of the standard and advanced illiquidity premium approaches on CET1 through the cycle. We view these reforms as very supportive of financial resilience reducing capital procyclicality and creating a more favorable environment for retirement income innovation, consistent with the objectives that APRA has outlined and the sector's policy focus. Then as we move forward with the implementation of APRA's capital standard changes, we anticipate a meaningful shift in our asset allocation mix over time with an increased emphasis on fixed income assets, and a corresponding decrease in growth assets. This change is expected to lower capital intensity of our portfolio and reduce earnings volatility throughout the economic cycle. By adopting a higher proportion of fixed income, we aim to achieve more predictable spread income, which will then be further supported by the expansion of capital-light fee income streams. Although investment gains will continue to vary over time, we expect them to remain positive through the cycle. The overall effect of these changes will be a relative improvement in return on equity as we gradually shift away from capital-intensive assets that currently yield lower relative ROEs. In managing our equity base, earnings per share will remain a key focus, guiding our efforts to optimize earnings with the most efficient use of our equity capital base. The proposed changes to APRA's capital standards in FY '27 will be an opportunity to revisit our existing normalized cash operating earnings framework that we use for management reporting and ensure that it is fit for purpose as Challenger evolves. With the appointment of Damian Graham as Group Chief Investment Officer, we are aligning our investment capability under a single leadership structure. So consistent with this, we intend to evolve our internal and external reporting away from separate business unit segments to a more integrated Challenger group view. Looking ahead, we reaffirm our FY '26 normalized EPS guidance of $0.66 to $0.72 per share, with $0.333 delivered in the first half. Our through-the-cycle targets for ROE, cost-to-income and capital remain unchanged, and we continue to see strong structural tailwinds across retirement income, advice integration and asset origination. In summary, the first half of FY '26 was characterized by solid financial delivery and continued strategic momentum. During the period, we've delivered earnings growth and returns above our target. Our focus on disciplined capital management allows us to maintain significant capital flexibility, ensuring that we remain well positioned to respond to market opportunities and challenges as they arise. I will now hand back to Nick, and I look forward to taking your questions as part of Q&A. Nick Hamilton: Thank you, Alex. I'll now cover our key focus areas as we look ahead. So we have a clear strategy that meets a significant demographic and retirement tailwinds. Launching our new customer technology platform before the end of this financial year will deliver simple end-to-end integration into the financial services ecosystem for our customers. We're embedding partnerships with some of the largest superannuation platform and advice technology providers, which will help to deliver retirement advice and sales at scale. And we're actively expanding our reinsurance business in partnership with MS Primary to capture the growth opportunities we see offshore. We will continue to expand our asset origination capability through the scaling of our private credit functions to underpin our long-term growth. We're driving innovation and investment excellence, and we're targeting our second LiFTS note issue in the next 6 months. In Fidante, we have an impressive global network of investment firms. We're focused on supporting their ongoing growth and the investment capabilities they provide to customers. And against the backdrop of the APRA capital standards reform for retirement income products, we're becoming a less capital-intensive business. To close, a reminder of our key points today. We have financial strength, and in the first half, we've continued to deliver our key initiatives. Our capital position is enabling strategic flexibility and growth while delivering returns to shareholders. And finally, we've done the work to position Challenger as a growth-enabled business with a significant opportunity that has arrived in the retirement income market. We'll now move to Q&A. Operator: [Operator Instructions] Mark Chen: Just a reminder of the process, we'll take questions first in the room. We'll then go over to the telephone and via the online portal. In terms of protocol, can I please ask you, when you ask your question, please introduce yourself and if possible, because there's a number of people in the room asking questions, just ask all your questions at once, and you'll just enable an efficient process. We'll start off in the room. So we start off with Simon over there first. Simon Fitzgerald: Simon Fitzgerald here from Jefferies. I'll ask the 3 questions at once then just really quickly. Firstly, I wanted to just take you back to the slide that you put up when we talked about the capital changes, which I understand still haven't come into place. But the $150 million buyback, and I know that's independent of those changes. But just wanting to know if you wanted to point out that any other uses of that excess capital such as perhaps repayments of hybrid capital or anything like that, that you might want to point out? Secondly, just on the short-dated sales. There's now 2 big lumps that you've done in the first quarter and the second quarter. So just wanting a little bit of help in terms of how dilutive that would be to the margin, but also in terms of -- it doesn't seem like you had the assets there to begin with, given that we've seen an increase in the cash as well in terms of the investments. So interested to know a little bit more about the dynamics of that. And then lastly, a little bit more on the margin in terms of any effects you might want to call out -- sorry, about any cap bonds or ILS securities that didn't turn up this time that we normally see in the second half. Anything you could add to that? Nick Hamilton: Thanks, Simon. I might -- let me just kick off on the sales one to start with, and then we can come the uses of capital and margin. So I think what you -- if you step back from the sales, what you're seeing is we're continuing to focus on longer-dated sales, like that is a priority. The message to the team as we move towards our new technology that will integrate into the system where it doesn't today is just continue to drive longer-dated sales through the retail market. We're benefiting from strong growth that MSP is seeing, and you're seeing that coming through the reinsurance volumes. Over the course of this period, there's been a bit of a switch in the institutional business where sales that you've typically seen in Index Plus have been coming in to the term annuity side, institutional term side. And there's explanations for that. But what I want to make absolutely clear is we're right in this business to meet our returns. So with our Liquids team have identified some opportunities in markets that they can deploy capital into. The pricing environment in institutional term has been more attractive to us right now than it has been for a long while. And so we have been able to map attractive pricing dynamics with investment opportunities there for that shorter-dated business. So very much consistent with meeting the ROE. But our focus is bridging through to the new technology, driving longer-dated sales as we can, and then the strategic partnerships running into to step change at medium term. But your comment there on dilutive, it's clearly it has to be because it goes into the denominator. And that's just an out working. But as we've said many times, we run the business, particularly around pricing. We run the business to meet the ROE target and pleased with that. On the first question, which was uses of capital... Alexandra Bell: Yes, I can take it, yes. It's all good. So obviously, we do have the new APRA capital standards coming up, and that presents an opportunity on day 1 where we expect to have excess capital. I think hopefully, what you've seen today is that we're thinking about capital in a lot of dimensions. It's not binary. It's not one thing or another. We're trying to satisfy a number of different options from a capital perspective. You called out specifically any considerations for our Challenger Capital Notes 3. So we do note that those come up for their optional exchange date in May this year. But you'll understand from an APRA perspective, it's important that we don't set any expectations around our intentions for that. But you can rest assure that it's clearly a consideration for us as we think about the optimal capital stack. From a buyback perspective, look, what we've signaled today is $150 million. We recognize that that's not large. That's not what we're saying the capital excess is on day 1 of the capital standards. We're operating under the current capital standards today. So it's something sort of really modest and executable that we can do today. And what we're hoping investors will take away is a signal of our intent around ensuring that we are optimizing the uses of capital and doing that in advance of those changes to capital standards. And then I think you had a last question just around the margin. So look, there is sometimes a little bit of seasonality between the first half and the second half. We've seen cat bond distributions typically more slightly weighted to the second half. But I think if you take a step back, Nick's point are right, what we should be focusing on is meeting the ROE. So we have written some shorter duration business this period, but at good ROE. So what you should hear is that the business we're writing is meeting or exceeding those ROE targets. Mark Chen: Can we go to Freya and then to Sid? Freya Kong: Freya Kong from Bank of America. Can you help me reconcile the higher liquids holding in the portfolio versus a higher PCA capital intensity this period? Anything I'm missing in that? Second question on you're talking about offshore market opportunities. You've talked about Japan, but Asia more broadly, which regions are you looking at? And I guess, what's the strategic rationale for expanding this business versus focusing on the opportunity that you have domestically? Do you have enough bandwidth for both domestic and international growth? And then just lastly, clarifying, should we be viewing this buyback completely independent of any acquisition of Pepper Money stake? Nick Hamilton: Okay. So there's 3 questions there. Thank you, Freya. So I might -- let me start with offshore and give some context there because in many ways, this isn't new, new for us. I mean, we have -- since December 2016, we have been reinsuring business with MSP. And if you look at the volumes that we've been reinsuring even in the last 2 or 3 years, have almost doubled. And so our partnership with them is excellent. What we do note there are some products that we would like to reinsure which out of Australian jurisdiction are difficult. And by taking what is already -- we've got a long relationship operating with the BMA and expanding or building the platform to expand the products that we're able to reinsure is a really sensible adjacency for us. Now this is not new. You're not -- this is not something we're announcing we've just looked at in the last recent period. Members of the team have been working on this for coming up 2 to 3 years. So the capabilities that we have inside Challenger today, whether it be on the investment side, the LLM side, the actuarial teams, they are able -- and because they do it today anyway across for MSP, able to support the delivery of the new licenses that we'll achieve and consistent with new product development we've done for many years with MSP, new products that we'd look to reinsure. So it's a very sensible strategy because the partnership and it gives us a beachhead and an opportunity then without needing to make a business case on any grand business case. It gives us the opportunity to look at other markets. Because of the stability of that relationship, Challenger being a trusted brand in the region, well regulated, domiciled in Australia. There are just other opportunities that we believe in the fullness of time, we will be able to unlock but very much built around what we do with MSP today. Then we might go to -- do you want take the PCA one? Alexandra Bell: Yes. So I'll take the PCA one. So again, I'm sort of happy to take the PCA on offline too in terms of showing the insights of the calculation. But if you look at the capital intensity, the capital intensity of the balance sheet has remained roughly the same, particularly if you look at the asset risk charge and the overall composition of the balance sheet is steady. That cash balance was higher at 30 June too. So that increase is really comparing us now versus where we were at 31 December 2024 in terms of that increment. But there's no increase in capital intensity. And obviously, as we have written lots of new business over time, we have also invested in some alternative assets over that period, which is still highly capital intensive. So the relative capital intensity has stayed about the same. And then you had a question around the buyback as well. And so yes, we should definitely view that as completely independent of any considerations we might have around the proposed transaction with Pepper. The buyback is being done with a view to our long-term view around capital management as well as how we're feeling about APRA's new capital standards coming in. So yes, not contingent at all. Siddharth Parameswaran: Siddharth Parameswaran from JPMorgan. A couple of questions. Firstly, just on your Slide 22 where you show us an indicative view on what the ROE would look like under the new standards. I just wanted to firstly check, is that to scale and scale starting from 0 and at the bottom? And if that is the case, I mean, it would suggest that economically speaking, it makes a lot of sense under the new standards to just reallocate the capital that's backing the real estate alternatives and equity right to fixed income? It looks like it'd be like a 50% increase in your ROE from what you're getting at the moment on those assets. It suggest that's what we should be growing into. Is that the strategy rather than giving it back to shareholders. That seems economically what would make sense based on that chart. Am I reading that correctly? So that's question one. Question two is just around the guidance. I just wanted to make sure that I'm reading what you're -- where do you think you're likely to end up? You've kept the guidance range the same on EPS, but the midpoint would imply a 7% step-up from the first half levels. The top end would imply an even much bigger step up again. It seems like they're quite big step-ups given that the first half was -- saw quite a lot of margin contraction. So I just want to check where do we sit versus that guidance? And maybe just a final one, just on asset origination. Just wanted to check. Obviously, you're talking about geographic expansion in terms of product sales. Are you thinking about geographic expansion also in terms of asset origination. Nick Hamilton: Maybe just close off the last one first. We're not. We -- I mean, to the extent that organically, we have built out capability in London today, which has been in place for 5-plus years to manage access to assets, but we've got a number of really good partnerships across the world with global leaders in credit origination, which we use to support the balance sheet today, and will continue to do so in any growth environment, including to support growth in the offshore reinsurance, which is just stepping up from what we do today in any event. So there's no plans there to do more offshore there. Alexandra Bell: And maybe I'll take your other 2 questions, Sid. So on Slide 22, I was expecting the question about scale. I wondered if you bring a ruler. So it's not to scale the graph that we've done but it's intentionally there to try and show a directional impact. So it doesn't include expenses, for example, and how we've done the calculation, and it can be imperfect to come up with a perfect ROE by asset class because you've got to allocate target surplus across them. So the idea is to give you an indicative relative sense of what we're currently thinking about as the relative value and relative returns that we're earning on those asset classes. And it does then lead to the right conclusion that you've drawn, which is that if the current conditions around those relativities persist, you should see us swapping out growth assets like real estate, although doing that in a careful way, and we've sold 4 properties this period, selling out real estate and to some extent, some of the alternative assets too and putting those towards fixed income. Now you got to do that in a way that protects the EPS outcome for shareholders. And so you've got to manage that equity denominator at the same time in doing that. Nick Hamilton: The second one was on guidance. Alexandra Bell: And the second one was on guidance. So yes, from a guidance perspective, so $0.333 for the first half, reiterating the full range of $0.66 to $0.72 per share. And maybe just a reminder, of why we set that range. There's a number of headwinds and tailwinds that we think about in terms of where the business could go in the period and some of the contributors to our final outcomes are still variable. So things like performance fees and transaction fees can move us around that range. So can some of the distributions on our asset returns. There is a little bit of seasonality, which we spoke about before. But that's just to give you a sense of why we're stuck with the full range. Mark Chen: Just to remind on that chart, Sid, I mean, obviously, we have a footnote there. That is a pretax ROE target, that line, and its pre-expenses. So when you're doing your comparisons. I can see either Kieren or Nigel has the microphone. Nigel Pittaway: Nigel Pittaway here from Citi. Okay. A few questions. First of all, cost-to-income ratio, it looks like your guidance actually implies that goes up second half. So is that just conservatism? Or is there more sort of cost to come through second half to drive that ratio up? Secondly, probably overly simplistic view of the capital would be leasing $400 million from day 1 as a result of the new standard, $150 million is going on the buyback and $280 million is earmarked for Pepper Money. I presume that's overly simplistic, but if so, why? And then given you're going to need so much fixed income moving forward, whether or not the Pepper Money deal goes ahead, do you expect to have to do more such deals to guarantee your supply? And why does a minority stake in Pepper Money get you what you want? Nick Hamilton: Well, let me -- thanks, Nigel. Let me start. We'll go work from the back up again. So I guess first comment to say about Pepper, for the avoidance of doubt, is clearly the news flow was taken out of our hands. And the deal remains very much incomplete and there's no certainty that we'll execute an agreement. But if you went back to slides that we've put up since '22, we've talked about expanding the aperture of our asset origination capability. And in so doing, we have built out our own internal team further. We've also created a new whole loan servicing and origination capability. So we look at Pepper, likely look at our other partnerships where it gives us a whole lot of optionality about growth in the future. That is a really well-run business. It's a big originator, its growth has been really strong, and it's a business that we know well. So as you would expect. And the opportunity, to the extent anything was to -- we were to execute any agreements there, it would give us strategic access to assets not just for now but long into the future across a whole lot of lending verticals that Pepper today originate across. So that's the sort of the premise to it. And I would make a comment that we have, to this moment in time, being able to, as an incredibly reliable funder into the non-bank lending market and other originators in the domestic here in Australia, we have been able to meet our requirements. But we recognize that whilst supply of asset is growing, demand for assets will continue to grow over time, and our demand is going to continue to grow over time for the reasons not just the capital standard changes, but also the expectations on book growth through time. So we we're not flagging any other transactions here. That's definitely not the message. The news flow has been taken out of our hands. We really do look forward to the extent it's appropriate to update the market on that to provide more context on the sort of the structure in the agreement. Alexandra Bell: So maybe moving to cost-to-income ratio, Nigel. We're sitting just below the range of 32% to 34% for the first half. Again, there is some seasonality to our cost spend. So we do expect some of our project spend to be weighted towards the second half, but I don't expect that to move it materially. So being at or around the very bottom of that range is the right way to think about the cost-to-income ratio for the second half. And then your question around capital. Look, we've spoken about this a little bit. what's really important to take away is this idea of looking at the capital options and the uses of capital in their entirety and how to best ensure that we are sort of meeting the requirements of everybody equally, recognizing that organic growth for us is obviously a primary focus to the extent to which we are realizing the growth of the business, having capital to back that is a primary importance. But with the capital standard changes, returning any excess capital to shareholders is equally important to us. And so that $150 million, you should think about it as initial. We certainly are not thinking about it in the context of the remaining being for Pepper there. If that transaction were to complete, there are a number of funding options that we could look at. We were really explicit in our release last Monday that we definitely have no intention of raising fresh common equity, but the options are broad. Nigel Pittaway: [indiscernible] Alexandra Bell: So that's the -- yes. So I think Nick touched on that. A minority stake gives us a seat at the table with Pepper would, if it were to complete. And I think importantly, that gives us a level of access to assets that you would not be able to do just by an ordinary flow arrangement, many of which we have already today. Mark Chen: Can we go to Kieren? Kieren Chidgey: Kieren Chidgey, UBS. A couple of questions. I might just circle back to the Life margin trajectory, Alex, the credit spread compression you talked about, can you just be clear whether or not given you mark-to-market your entire book every half if we've seen the full impact of this lower credit spread environment in your margins yet? Or if there is a sort of flow through yet to sort of come through into the future period? Secondly, I guess, a follow-up question on Sid's guidance question. I'm just interested in what are the scenarios that land you in the top half of that range. Is it plausible? Or are we now sort of looking more at a sort of a best estimate that is in the lower half of the range for this year? And then thirdly, on the APRA capital changes, you've had some time to digest these. Now interested in your thoughts around where your target ratios are likely to land. Alexandra Bell: Okay. All right. I'll take you to those in turn. So I guess coming back to the COE margin. I won't reiterate the drivers in terms of where we've got to for this half. But we don't, as you know, guide to a particular exit rate in terms of how we're thinking about the second half, and that is fundamentally because it is just about working of the mix of the business that we write as well as the credit spread environment that we're in. To your point around how much of it has come through. Like credit spreads have been really tight for quite some time now. So if you think about the duration of our fixed income book, it's about 3 years. And depending on when you think it started being low, like it's been low for 18 months at least. So there is -- most of it is in that COE margin now. A lot of the higher-yielding fixed income has started to roll off as we think about the impact that, that has on that COE margin. So as I said, there's a little bit of seasonality to it, but it will more be a function of the book growth and the mix of the sales that we write, Remembering, of course, that some of that shorter duration institutional business as long as we're getting good pricing for it and it's meeting our ROE is still good business to write. And you will probably remember me sitting here last time talking about Index Plus in that way. It can be -- as long as it's meeting our ROE, it can be accretive to margin, but good for ROE and that's the right economic and rational decision for us to make from a management perspective. Coming back to the range, look, there are things that can move us around that range quite a lot, particularly some of the funds management variables. For the first half, that $0.333 per share is about 48% of the midpoint. I think last year, at this point, we've done 49% at the midpoint. So it's not a huge delta. So I wouldn't be pointing to any particular exact specific point within the range at this stage. And then from a capital standard perspective, look, we've looked at the outcomes in terms of kind of day 1. We've got an Investor Day coming up in May, and we'll provide much clearer guidance around the impact that it has on our ranges and metrics I spoke very briefly about the mention of maybe thinking about how our own COE framework evolves, too. And so we'll make sure that there's an education of the market around any changes we make to metrics and targets. Mark Chen: Okay. It looks like there's no more questions in the room. We'll move to the telephone. Operator, can we move to the first question? Operator: Your first question comes from Lafitani Sotiriou with MST Financial. Lafitani Sotiriou: Just one follow-up on the reinsurance update. Can you just go into a little bit more color on the expanded products that the expanding footprint in Asia, the language. I know you've been working on it for a few years. You've seen like quite a big step for you guys? And can you also add some color around what conversations or any, if any, that have occurred with Dai-ichi about reinsurance arrangements there? Nick Hamilton: Laf, thank you. Let me just try to bring it back a little bit to how we got here. So 10 years of reinsuring with a major Japanese group like MSP. Over that time, we have periodically, I think it was probably 2 years ago we moved to a new product. So we're probably reinsured about 4 to 5 different products with MSP. Within the Japanese market, demand and preferences change through time. And so our team have been able to work with them to meet the designs of new products and you're seeing the benefit of that coming through the sales. What we note, though, and starting to take offline, is there's certain of the products we're now limited from being able to in the Australian market reinsurer into Japan. And that is too -- that is a limitation. And it's something that if we can solve, which we are going to now solve with an extended license in Bermuda, that will allow us to use the MSP relationship as our beachhead to support a build-out of that capability, leveraging our own internal systems and capabilities. And then it gives us optionality around growth. So the first growth we would seek is through new product reinsurance with our existing partner in MSP. And I'll probably just round off, I mean, make the comment around Dai-ichi. I'd put Dai-ichi in the same category as other Japanese insurance. There is significant demand for panel reinsurers in the Japanese market. We think we offer a differentiated proposition. We've been able to prove how we can build through strong relationships with MSP, what is now a 10-year partnership. And so we do think there are other opportunities, and we wouldn't limit it just to one name or another. I make mention of the other markets simply because there are other opportunities in those markets. Challenger operates globally. We have an office in Japan. We have team members up and down all the time. So it's not a -- I would just not characterize it as a huge new, new for us. It's an exciting evolution of an existing business strategy that we have today. Lafitani Sotiriou: And just the timing of it. So how long do you think will license comes through? And will there be any other additional capital considerations? Nick Hamilton: So on the licensing, it will be this half, we're working towards. It's obviously subject to the BMA regulatory approvals, but it's something that we've been at for a while now. And the next steps there would be transitioning the portfolio with MSP, the statutory fund assets across. There'd be no implications to capital because it would use with the sort of almost convergence of Australian standards with international standards, the amount of capital that we would back up with is more or less equivalent to that, which we have today backing those liabilities. Operator: The next question comes from Julian Braganza with Goldman Sachs. Julian Braganza: Can I just ask, firstly, what is baked in your guidance just for book growth going into the second half. Are you expecting that to continue to be strong, consistent with the first half trend? Maybe I'll start with that one. Alexandra Bell: Thanks, Julian. So look, we don't talk explicitly around the book growth assumptions that we make. Remembering that the sales that we deliver in the second half of any year have very small impact on the actual profit outcome for the year. And so the 2 would not be that linked in any event. Julian Braganza: Okay. Okay. And then maybe just in terms of the pricing for growth. Are you setting this against your current ROE target? Or are you expecting this against potentially a lower ROE target under the new capital standards? Just want to be very clear how you are pricing for growth today. Alexandra Bell: Yes. Both very easy question for that. The pricing today is to our existing ROE target, not least because we are still very much operating under the existing capital standards until we're not on the 1st of July. Julian Braganza: Okay. Got it. And then just in terms of the funds management business, can you maybe just clarify how you're thinking about flows from here given the pressures that we've seen as well as the sustainability of the margin that we've seen over the first half? Nick Hamilton: Thanks, Julian. We'll give Alex a break there. So in terms of funds management, you break apart our 2 businesses. We have our Challenger investment management in the Fidante platform. Alex has a great slide in the pack there just showing the growth of Challenger Investment Management and as you'll be aware, that's been a strategic priority over the last number of years. We've seen, obviously, demand for income and higher income products really increase. I think the approach we've taken to growing it has been really strong and the announcement of the launch of our new LiFTS platform just gives us a pathway to support different channels within that domestic market. So really exciting what we're seeing coming through the CIM team. Within Fidante, you've really got to look at -- there's a broad range of strategies in there. The announcement around Fulcrum, which increases the alternatives business there at about 13% of FUM is very exciting because you were seeing really strong growth in alts managers, liquid alts managers globally as allocators are shifting between passive and active or thinking about the shift, I should say, from active and whilst they'll have significant exposure to passive, a lot of them are finding halfway houses in liquid alt strategies to provide portfolio diversification. So it's very much in line with where market dynamics are right now because the corollary of that is clearly the -- and it's not contained just to our business, but active equity fund management has found it very difficult in the last number of years to produce excess returns to the passive benchmarks. And you can find an argument on both ends of the spectrum here pretty -- depending on what your perspectives are. I think what we would say is when we look at our managers, they're incredibly highly regarded. They're well rated. They're sticking to their investment processes. And to the extent that we see a normalization across markets, they'll benefit materially in that environment. So there's a lot of support going on around the customer bases there. But then within the fixed income managers on the platform, there's some really strong performance in Fidante there and should be supportive of flows going forward. All of that comes to margin and mix is always a little bit hard to read. We've seen some benefits from a large denominator simply because we had some very large low-value money sitting in that book. which came out over the last 12 months. So there's always going to be a mix of things, but we're prioritizing clearly growth in those strategies and protecting margin across that book. Operator: Your next question comes from Andrei Stadnik with Morgan Stanley. Andrei Stadnik: Can I ask my first question around the last COE margin? Can you talk a little bit about the impact of tighter spreads isolated from the impact of lower cash rates? Alexandra Bell: Yes, sure. Thanks, Andrei. So the COE margin is, if you think about the math of it, you've got the earnings and the numerator and you've got your average investment assets in the denominator. So the first thing to say is we did grow earnings. Those earnings -- the numerator is up 2% period-on-period, but the average investment assets grew by more than that. So that's why you've got the margin coming down, and that's because of the book -- the strong book growth that we had during the period. That numerator then includes the investment yield that we are earning on assets, less the funding cost that we pay away to our annuitants. And so from a cash rate perspective, the cash rate impact, particularly of small movements and particularly in the short term, is really netted off between those 2. The impact on the investment yields then felt equal and opposite on the interest expense. So those sort of net off. The credit spread environment, though affects really just that investment yield. And so to the extent to which there is increased competition for assets more tricky reinvestment spreads to get that puts pressure on that investment yield, recognizing that a meaningful part of our balance sheet is in fixed income. Andrei Stadnik: Just to check on that. So I thought the earnings on shareholder funds went through there, so the impact of lower cash rate does have an impact. I appreciate it's not overly large. But how should we think about that and particularly going into the second half in terms of any lag, the impact of the rate cut versus the benefit of the rate increase that came through in February? Alexandra Bell: Yes. So I think the shareholder funds revenue does go through there, too. I guess that's the first thing to say. But the shareholder funds are made up of the same composition as the policyholder funds. That's also got 75% of fixed income in there. So there are assets that are more exposed to that cash rate like property over time, but small movements of 25 basis points here and there. And in 1 half, you're not going to see any big impacts from cash rates. Mark Chen: The other thing as well, Andrei, it will take a little bit of time to season through as well. So obviously, you're not going to get the full benefit come through from a cash rate increase over the last year in the current financial year. Andrei Stadnik: That's helpful. And look, for my other question, can I just follow up on what I think you were replying to Freya. I think the analyst pack, Page 48 shows a small increase in capital intensity. But how do we reconcile a small increase in capital intensity versus the move to hold more in liquid during the half? Alexandra Bell: Yes. Thanks, Andrei. So maybe we can show you the detailed calculation offline, too. If you look at Slide 48 of the analyst deck, you'll see the compositional parts of PCA. If you actually just look at asset risk charge over investment assets, it is flat. So the increase is really coming in the combined stress, where the biggest movement is actually in deferred tax assets. So there were larger deferred tax assets this period than they were in the previous period, which means we have to hold slightly more PCA. So it's not a function of the actual asset mix at all, but happy to show you that in detail. Operator: There are no further questions on the phone line at this time. I'll now hand the conference back. Mark Chen: Okay. Unless there's any further questions in the room, I think that closes today's briefing. Irene and myself, we're both on the phone today. So if there's any other questions, feel free to call through. Thanks again for your time and your interest in Challenger.
Operator: Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kerry Group Full Year 2025 Results Call. [Operator Instructions] I would now like to turn the call over to William Lynch, Head of Investor Relations. Please go ahead. William Lynch: Thank you, operator. Good morning, and welcome to Kerry's Full Year 2025 Results Call. I'm joined on the call by our CEO, Edmond Scanlon; and our CFO, Marguerite Larkin. Edmond and Marguerite will take you through today's presentation. And following this, we will open up the lines for your questions. Before we begin, please take note of our disclaimer regarding forward-looking statements. I will now hand over to Edmond. Edmond Scanlon: Thanks, William. Good morning, everyone, and thank you for joining our call. Beginning with the overview of 2025 on Slide 4 and starting with performance. We're pleased to report that we delivered another year of strong end market volume outperformance, margin expansion and earnings per share growth. While overall market volumes remained relatively subdued through the year, we continue to demonstrate our ability to consistently outperform our end markets with volume growth of 3%, highlighting the strength and relevance of our business. This growth was driven by a strong performance in the Americas throughout the year, led by foodservice innovation and increased nutritional renovation across a broad range of customers, given our positioning as a leader in sustainable nutrition with customers looking to address nutrition, taste, cost or sustainability aspects. We also delivered strong margin expansion of 80 basis points, with EBITDA margins just under 18%. And we're well on track to achieve our margin targets, which we will give you more color on later. Moving to earnings. We delivered constant currency EPS growth of 7.5% in 2025, which is stated after the dilution from the Dairy Ireland disposal in the prior year. This was on top of the 9.7% growth we delivered in 2024, and we're looking to achieve another year of high single-digit EPS growth in 2026. Earnings compounding has always been an important part of Kerry's story, and we reaffirm this with our high single-digit plus EPS growth target out to 2028 when we refreshed our margin and EPS targets last year. From a strategic perspective, we continue to evolve our business through targeted capital investments and portfolio development activity, enhancing our technology capabilities, supporting new innovations and delivering even more value for our customers. Just to touch on some of the key developments in the year. Firstly, on technology capabilities. These included the opening of our new state-of-the-art Biotechnology Centre in Leipzig in Germany, and a number of other technology developments, which I'll outline later when we look at each of the regions. On innovations, key innovations in the year included our next generation of fermentation-derived Tastesense Sweet and Salt reduction technology ranges; the launch of our new Plenibiotic postbiotic for digestive and skin health; a breakthrough enzyme system, which delivers significantly more effective natural sweetness; new fermentation-based solutions under our Kerry experience portfolio; and new natural cocoa replacement systems, which replicate authentic cocoa taste using less than half the cocoa raw materials. And on footprint and customer access, we extended our APMEA manufacturing presence into Egypt, and within East Africa while expanding our capacity in the Middle East and Southeast Asia. And we strengthened our customer innovation network through new centers in Frankfurt, Indonesia and Dubai. So to summarize, 2025 was another year of strong market outperformance, combined with continued strategic developments. Moving next to the business performance overview. We achieved group revenue of EUR 6.8 billion and EBITDA of EUR 1.2 billion. Volume growth was 3% for the full year and 2.8% in Q4, well ahead of food and beverage end markets, driven by good innovation activity and continued product renovation activity with our customers. Pricing was pretty flat in the year, with input costs turning deflationary in Q4. EBITDA margins were up 80 basis points, driven by accelerated efficiencies, portfolio developments, operating leverage and mix. Across our technologies, we had good growth across savory taste, Tastesense Salt and Sugar reduction technologies, botanicals, natural extracts, proactive health ingredients, taste solutions for high-protein applications, enzymes and biofermented ingredients. From a channel perspective, foodservice achieved volume growth of 4.6%, supported by strong innovation activity, including new menu items and seasonal launches. Growth in the retail channel was supported by a step-up in retailer brand innovation and renovation activity to enhance the nutritional profile across a range of customers. And finally, growth in emerging markets of 5.3% was led by a strong performance in Southeast Asia and LatAm. Moving next to our end-use market breakdown. Starting with the food EUM, where all categories delivered volume growth. In snacks, we had good growth, driven by our savory taste and Tastesense Salt reduction technologies. And in bakery, growth was driven by our enzymes preservation and taste systems. Moving to beverage, where growth was supported by the performance of our Tastesense Sugar reduction technologies, natural extracts and proactive health ingredients. And we had good growth in pharma through our proactive health technologies into supplement applications. Turning next to performance by region and starting with the Americas, where we had continued strong performance across both North America and LatAm. Revenue for the region was EUR 3.7 billion, with full year volume growth of 3.8% and 4.4% in Q4. EBITDA margins increased by 60 basis points to 20.3%. In North America, growth was again led by snacks, along with the dairy and bakery end-use markets as we enabled our customers to innovate and renovate within categories. By channel, we had good growth in foodservice through strong innovation activity despite soft traffic in places, and with good growth in retail across global, challenger and retailer brands, particularly around the area of improving nutritional profiles. Within LatAm, strong growth was achieved in Brazil and Central America across the snacks and meals end markets in particular. And in business developments in the region included investment in enhancing our coffee taste extraction capabilities in Pennsylvania, which continues to be an area of innovation focus for our customers across many different food and beverage applications. Moving to Europe, where a soft finish to the year meant volumes were slightly back in 2025. Revenue in the region was EUR 1.4 billion, with EBITDA margins increasing by 90 basis points. We had good volume growth in beverage across nutritional and refreshing beverages, with our integrated taste technologies and proactive health ingredients. Volumes in the retail channel reflected subdued market conditions, while foodservice achieved good overall growth despite a soft finish to the year. And business investments in the region included the expansion of our enzyme capacity in Ireland and our cocoa taste capabilities in Grasse in France. Moving next to the APMEA, where we had a good overall performance given market disruption in places. Revenue for the region was EUR 1.6 billion, with volume growth of 4.2% and EBITDA margin expansion of 70 basis points. Growth was primarily driven by Southeast Asia with solid growth in the Middle East and Africa and volumes in China remaining challenged. Across our end markets, growth was led by bakery through food protection and preservation systems as well as reformulation activity in areas including cocoa. Growth in our channels was led by foodservice with leading regional coffee chains and quick service restaurants, while growth in retail was led by good performance in taste with regional leaders. Finally, business developments across the region included new manufacturing facilities in Egypt and Rwanda, combined with continued expansion of capacity in the Middle East and Southeast Asia. And with that, I'll hand you over to Marguerite for the financial review. Marguerite Larkin: Thank you, Edmond, and good morning, everyone. Turning to Slide 12 and beginning with our financial overview. We achieved group revenue of EUR 6.8 billion in the year, reflecting volume growth of 3%, which represented a strong end market outperformance. EBITDA increased to EUR 1.2 billion, reflecting 5.7% organic growth. We delivered strong EBITDA margin expansion of 80 basis points, adjusted earnings per share growth of 7.5% in constant currency and 3% in reported currency. Return on capital employed was 10.6%, with underlying improvements being offset by a negative year-on-year currency effect of 20 basis points. And we achieved good free cash flow of EUR 643 million, representing an 81% cash conversion. Turning next to our group revenue bridge on Slide 13. Volume growth was 3%, as I mentioned, with slightly lower pricing of 0.3% and a transaction currency benefit of 0.1%. Foreign currency translation was 3.9% adverse due to the significant movement in the U.S. dollar and emerging market currencies versus the euro in the year. And acquisitions net of disposals was a net decrease of 1.4% in the period with disposals primarily relating to, firstly, the prior year revenue associated with the exit of a manufacturing agreement with Kerry Dairy Ireland, as previously communicated. And secondly, disposal of some noncore activities in Europe and North America to enable the efficient execution of our Accelerate 2.0 footprint optimization strategy and the contribution from acquisitions, primarily relating to the lactase enzyme business. Moving now to our group margin bridge on Slide 14. We are pleased with the strong EBITDA margin expansion of 80 basis points in the year. Looking at the key moving parts. Firstly, on operating leverage and mix, we had a 20 basis points improvement, with both operating leverage and mix contributing to the expansion. Our Accelerate programs contributed 40 basis points. This was primarily attributable to Accelerate Operational Excellence, which was successfully completed in the year, delivering annual recurring benefits ahead of expectations. We also initiated Accelerate 2.0 with initial benefits coming through in the final quarter. Foreign currency was a headwind of 10 basis points, and acquisitions and disposals contributed to a net positive 30 basis points, with 10 basis points from acquisitions and 20 basis points from disposals, as mentioned. Overall, we are well on track to achieve our targeted margins of 19% to 20% by 2028. Next, to free cash flow on Slide 15. We generated good free cash flow of EUR 643 million in the year, representing cash conversion of 81%. The main drivers were, firstly, our EBITDA increased year-on-year, as I just mentioned, noting that 2024 free cash flow comparative includes the contribution from Kerry Dairy Ireland. On the average working capital, the increase was driven by lower trade payables, mainly attributable to sourcing alternatives implemented as part of our tariff mitigation strategy and new procurement initiatives with some strategic suppliers. Point-to-point working capital was higher due to exceptionally low working capital days at the prior year-end and timing of other receivables at the year-end. The increase in net finance costs paid is principally due to the timing of bond interest payments across 2024 and 2025. And our net capital investment aligned to our strategic growth areas was EUR 300 million as we continue to invest to support our growth through the extension of our technology capabilities and capacities in all 3 regions, as Edmond referenced. Now turning to our debt profile and credit metrics on Slide 16. As you can see, the profile of our EUR 2.2 billion net debt is good, with a weighted average maturity of 6.5 years and no significant repayments until 2029. Our credit metrics are strong with a net debt-to-EBITDA ratio of 1.9x, and we have a very strong balance sheet, which will continue to support the further development of our business. Now to update you on Accelerate on Slide 17. In 2025, we completed Kerry Accelerate Operational Excellence, which focused on delivering manufacturing and supply chain excellence and efficiencies. The program's successful completion is delivering recurring annual benefits ahead of projections and has established a strong foundation for Accelerate 2.0, which will run until 2028, driving continued margin expansion through footprint optimization and embedding digital excellence across the organization. We initiated Accelerate 2.0 as planned during the year with good progress in both North America and Europe with the commencement of footprint optimization, including the disposal of some related business activities. We have reduced our manufacturing footprint from 124 facilities in 2024 to 119 at the end of 2025, and we will continue to optimize this appropriately over the coming years. Our digital excellence program is well underway, and we are making good progress. Some of the digital initiatives we advanced during the year include continued expansion of decision intelligence capability, utilizing agentic AI to automate a substantial volume of operational decisions in key areas of the business, including supply chain, new product development and enablement functions. At our GBS centers, we increased the use of robotic process automation to improve efficiencies and unlock capacity. In our manufacturing operations under connected plant, we are rolling out a number of initiatives, including digital-enabled predictive maintenance to optimize efficiency, related spend and asset reliability. And we commenced the use of digital manufacturing twins to simulate and standardize execution, reduce variability and increase production yields and throughput. From a commercial perspective, we are continuing to drive improved customer experience, leveraging our KerryNow customer portal, which provides our customers with real-time 24/7 access. These initiatives will improve our customers' and employees' experience, drive improved productivity and profitability while supporting growth and business development. Our continued progress on digital automation and accelerating how we scale AI across the business, supported by our recognition as a Microsoft Frontier firm will be an important enabler of our margin expansion targets. We will continue to update you as we progress on Accelerate 2.0, which, as a reminder, is expected to deliver a projected recurring annual saving of circa EUR 100 million by 2028 as a total net cost of circa EUR 140 million. Now moving to Slide 18 and other financial matters. Finance costs of EUR 52 million in the year reflected good cash generation and interest income. Non-trading items were an overall net charge of EUR 74 million, primarily relating to the progress we made under our Accelerate programs with the balance relating to disposals and acquisition integration activity. On the input costs, there was deflation in the final quarter, leading to small overall deflation in the year. We are currently expecting limited overall deflation in 2026. For taxation, we had an effective tax rate of 14.1%, and the current outlook is for a tax rate of 14% to 15% in 2026. Capital returns for the year included share buybacks of EUR 500 million and dividends paid of EUR 215 million. And we have announced we will be initiating a new EUR 300 million share buyback program today. On currency, the translation headwind on earnings per share in 2025 was 4.5%. And based on prevailing exchange rates, we are forecasting a headwind of circa 4% on the EPS in 2026. Finally, to summarize our financial performance for 2025. We are pleased with our overall performance where we delivered volume growth well ahead of our end markets, strong EBITDA margin progression, which supported continued good earnings per share growth. And with that, I'll pass you back to Edmond. Edmond Scanlon: Thanks, Marguerite. Before we move to our outlook for 2026, we'd like to give a progress update on our key metrics and medium-term targets on Slide 20. Having just completed the fourth year of our plan, we've made good progress across each of the key pillars of growth, return and sustainability. Starting with volumes. We've averaged 3.8% growth in this time frame. And while it's a little lower than where we'd like it to be, it's important to recognize that this represents a significant market outperformance of over 300 basis points. On EBITDA margins, we've delivered strong progress over the past number of years. We will achieve our 2026 target range in the year ahead, and we are well on track to achieve our 2028 target of 19% to 20%. You'll recall, we reinstated EPS growth as a key measure last year with our targets of high single-digit plus EPS growth up to 2028. Earnings compounding has been a key feature of Kerry's history, and we're laser-focused on delivering consistent high single-digit plus earnings growth. On returns, we stepped up our cash generation with cash conversion above 80% and ROACE improvements in recent years. And on sustainability, we've made great progress against our targets, reducing carbon by 52%, food waste by 54% and increasing our nutritional reach to almost 1.5 billion consumers globally. Finally, moving to the 2026 outlook. Our continued strong end market outperformance highlights the strength and relevance of our strategic positioning across our markets, channels and customer base. We will continue to further advance our strategic business development while supporting our customers as their innovation and renovation partner. We remain strongly positioned for volume growth and margin expansion with a good innovation pipeline despite the soft consumer demand environment. And we expect to deliver constant currency adjusted earnings per share growth of 6% to 10% in 2026. Before we move to Q&A, on behalf of the Board and the senior management team, I'd like to acknowledge our outgoing Board Chair, Tom Moran, who will be retiring following our AGM this year. Throughout his tenure as Chair, Tom provided strong Board leadership, particularly through the business transformation we undertook in recent years. We'd like to sincerely thank him for his valued contribution to Kerry over his tenure, and wish him the very best in the future. Fiona Dawson has been named Chair Designate. Fiona has been a Non-Executive Board Director since 2022, and brings deep industry experience given her executive career in the consumer food and beverage sector. A full announcement has been published this morning with further details. So with that, I'll hand you back to the operator, and we look forward to taking your questions. Operator: [Operator Instructions] Our first question comes from the line of Patrick Higgins with Goodbody. Patrick Higgins: A couple of questions on top line kind of outlook, maybe one for Edmond and one for Marguerite. Just in terms of volumes, Edmond, how should we think about volume growth for the year ahead? How should we -- how are you viewing end markets versus the kind of flattish that you've been flagging in the past year? And maybe talk through the regional outlook. And then, Marguerite, on input cost inflation, you flagged limited, so I assume that means limited pricing as well. How should we think about pricing? But then also disposals, obviously, disposals a bit of a feature in '25. KDI now has been lapped. Should we expect more disposals associated with the Accelerate program? Edmond Scanlon: Thanks, Patrick, and I'll kick off here. So just in terms of the volume outlook, we're taking a similar approach in 2026 as how we approach 2025 at this time of the year. So currently, we're seeing overall market volumes being similar to last year. Against the backdrop, we're looking at our volumes being in the same zone as we had in 2025. In terms of the outlook by region for 2026, as you can see, the Americas had a very good year in 2025 with volume growth of 3.8%, 4.4% in Q4, and we look to continue that strong market outperformance in 2026. I think then in Europe, let's say, volumes are back overall in 2025, and we would expect to be in growth in 2026. And in the APMEA region, we're looking to make progress in 2026 well into that mid-single-digit volume range and moving towards high single-digit volume growth for the region over the next year or 2. And maybe just I'll finish in terms of channel. We're looking at volumes in the foodservice channel to continue to outperform and to be ahead of retail in 2026 as well. Marguerite Larkin: And Patrick, just on your 2 other points. Firstly, on the input costs and pricing. For 2026, we currently expect some limited overall deflation in the year on the input costs. And as you say, consequently, some limited deflationary pricing. In terms of the disposals and the outlook for 2026, we made very good progress, as you will have seen on our footprint optimization plan during 2025. And in terms of the impact of those in 2026, you should expect disposal revenues of circa EUR 60 million or less than 1% of revenues from those divestments. Based on current plans, we expect limited further business disposals in connection with the footprint optimization. Operator: Your next question comes from the line of Ed Hockin with JPMorgan. Edward Hockin: My first one is on Europe that took a bit of a step back in volumes in Q4, whether you could elaborate a bit how you're expecting this region to perform going forward, especially now you've got the new President of the region, Marcelo. What is it you think he can be doing to try to stimulate volumes growth in the region, which has been flat to slightly negative for the past 2 years? And then my second question, please, is coming back on the channel mix, it looks as though foodservice accelerated a bit in Q4, and you say foodservice should be ahead of retail in 2026. Can you maybe give us an indication how you're seeing some of the kind of KPIs of traffic and reformulation activities, limited time offerings, promotional intensity with your customers and how you'd expect some of those leading indicators, how they're looking now and expect them in 2026? Edmond Scanlon: Thanks, Ed. The key change in Europe in the quarter was soft volumes in the foodservice channel towards the very end of the year. So year-to-date September, foodservice in Europe achieved mid-single-digit volume growth, and then volumes turned negative at -- towards -- in Q4, and that was partly due to year-on-year performance of seasonal products and LTOs in the channel as well as traffic in general. And retail volumes were slightly back in the quarter and in the full year as well. I think in terms of, let's say, our approach to Europe, I mean, obviously, it's going to take a little bit of time. The dynamics in Europe versus North America are quite different. That said, we do expect 2026 to be better than 2025. We will be in positive territory in 2026. And look, let's see how the year progresses. Then maybe your question with regards to foodservice. And let's say, North America being a key driver of that. Despite flat to negative traffic in North America, we had very, very strong growth, and we're very pleased with the overall performance in foodservice in the final quarter. And maybe just to give some details on that on the quarter itself, we did have significant launch activity in Q4. We had flagged that, that level of activity was quite elevated. The second thing was the performance of LTOs was strong and slightly ahead of expectations. The reality is that limited time offerings and seasonal offerings are actually at an all-time high in the foodservice channel as players continue to strive to connect and reconnect with as many consumers as they possibly can and to try and bring as much excitement to the menu as they possibly can. And then the third point is we did see also an increased level of customer promotion activity as well also in the quarter, and that promotional activity for sure impacted -- positively impacted our performance in Q4. In terms of let's say, the go forward, I think it's fair to say, look, we had an exceptional Q4 in foodservice. We don't expect, let's say, every quarter to repeat what we saw in Q4 2025. With that said, we do expect another strong year of performance in foodservice. And like we've said in the past, we believe we can deliver at least 400 basis points on average market outperformance in that channel, and our view hasn't changed. I think in terms of, let's say, the key underpins there, we have to wait and see. Will that level of promotional activity continue into 2026? I think based on, let's say, what we saw at the end of '25, I think customers would be encouraged to continue on that promotional activity, and we don't see any let-up in LTOs. In terms of reformulation, specifically within the foodservice channel, reformulation there is more kind of around value offerings. And it's also about -- it's also about, let's say, trying to bring excitement to the menu. So probably less of a feature is nutritional reformulation within the foodservice channel, that's more so in the retail channel. And I would say, reformulation in foodservice is around cost and around bringing as much efficiency to that operator as possible. And we don't see that changing as we look out into 2026. Operator: Our next question comes from the line of Alex Sloane with Barclays. Alexander Sloane: A couple of questions from my side, if that's okay. Edmond, if I can just sort of dig in on Europe a little bit further. So obviously, slightly weaker in the fourth quarter. You've explained that was kind of foodservice, but an outlook to be in growth for '26. Could you just talk to the kind of phasing there? I mean, could we be expecting it in the first half to be in growth? Or is this more kind of a second half phasing to that recovery? And the second one for Marguerite. The net debt was a bit higher than consensus for the full year, free cash flow a bit lower. I wondered, is there any kind of one-offs or phasing impacts within that free cash flow delivery, perhaps on working capital? Or is it just a case that consensus was in slightly the wrong place? Edmond Scanlon: Thanks, Alex. I'll kick off here. I would say, from an overall perspective, so from a total group perspective, we wouldn't be calling out any phasing as we look into 2026 across the quarters as we sit here today. But in Europe, we do see, let's say, that, let's say, improvement of that progression basically happening over the course of the year, probably slightly second half weighted rather than first half. But at a corporate level, we wouldn't be calling out any kind of phasing H1, H2, but specifically in Europe, maybe slightly more H2 weighted. Marguerite Larkin: And Alex, just on the free cash flow and working capital, yes, there are some timing impacts at the year-end. Our working capital days are a little bit higher than we expected. And maybe just to give you a little bit of color and context. Firstly, it's important to note that the 2024 year-end working capital days of 29 days were exceptionally low. And we said at the time, you might recall, that working capital days in the mid-30s was a more normalized level. And our working capital days at the year-end came in at about 41 days, which as I referenced, is a little higher than we expected. A couple of drivers on the year-on-year increase. Firstly, lower trade and other payable days. And 2 primary drivers within that. Firstly, mainly due to business decisions taken on sourcing alternatives implemented primarily as part of our tariff mitigation strategy and also reflects some new procurement initiatives with certain strategic suppliers. The second component, more of a timing one, reduction year-on-year in relation to performance-related incentives. And then the second component on our working capital, we had higher trade receivables just given organic revenue mix in the second half of the year, which was driven by the Americas and APMEA and some timing on other receivables, which will reverse in 2026. In summary, I would say, Alex, we expect working capital days to move back to between circa 35 and 40 days in 2026. And we expect FY '26 to be a year of good cash conversion of 80% plus and similar or better on a point-to-point basis. So hopefully, that gives you some better context on the moving parts. Operator: Our next question comes from the line of Fulvio Cazzol with Berenberg. Fulvio Cazzol: Yes. I suppose most of my questions have been answered, but I was just going to ask a question on capital deployment, how your M&A pipeline is looking? Are you looking to potentially add any other technologies or businesses in some of the more strategic developing markets? If you can just add a bit of color on anything you see there. Edmond Scanlon: Yes. Thanks, Fulvio. In terms of M&A, we did make 2 small bolt-on acquisitions through the course of 2025, one in the area of coffee extraction that we talked about earlier in the year, and that helped us to increase both our capability and capacity for coffee extraction, a key, I would say, a growth area and focus for us now and into the future. And the second bolt-on was a -- or basically our first manufacturing footprint in Egypt. And Egypt is an important market in itself, but having a manufacturing footprint there not only gives us access to that market, but also gives us the opportunity to serve better the North African markets. In terms of the pipeline going forward, basically, we're calling out 3 areas. Firstly, we will continue to look at expanding our presence in emerging markets, similar to what I just described with that bolt-on in Egypt. The second area is around proactive health. We have had a very strong performance in the year in proactive health. We see supplements as a space that has been growing close to double digits. And we feel we have already a nice portfolio in our proactive health portfolio, but we are out there looking for technologies that have strong science and clinical foundations and those opportunities are continuing to be evaluated. And the third area then is around fermentation. Again, it's a space where we have invested in recent years. We continue to invest organically, but we continue to be out there also looking for opportunities to build out our capability and capacity in fermentation. Operator: [Operator Instructions] Our next question comes from the line of Matthew Yates with Bank of America. Matthew Yates: Just a couple of small ones really around the Accelerate program. Just wondering, on the European performance, is there any effect here from either the footprint rationalization or a more sort of proactive and conscious decision from the management there to sort of focus on the margin at the expense of volumes? Or is this purely an illustration of sort of end market conditions? And then just in terms of the 2026 guide, I think your bridge, your waterfall chart showed about 40 basis points of margin improvement last year from the Accelerate program. Are we talking a similar order of magnitude in '26? And associated with that, a similar order of magnitude in exceptional costs, I think it was EUR 47 million last year. Edmond Scanlon: I might kick off there, Matthew, and Marguerite might want to add. As we think about Europe, and bear in mind -- or when we think about Europe, it's a Western Europe geographic, let's say, footprint that we're talking about here. Our expectations for Europe at the best of times is that we expect volume growth to be in that 1% to 2% zone. Clearly, we're shy of that at the moment. And like I said previously, we do expect Europe to be in positive territory in 2026. In terms of margin development in Europe, despite the lower volumes, we had very strong performance in margin expansion in Europe, and that was down to the Accelerate program. We are running that program extremely well. The execution of that program is very, very strong. We closed and exited 7 facilities throughout the course of the year. That was ahead of expectations, and a significant portion of that was in Europe. But like I said, the dynamics in Western Europe have been challenging. We believe we have the right team in place. We believe they're focused very hard on the right level of customer engagement, being super proactive with customers. And we expect all that work to start paying off here as we move towards the -- as we move towards 2026. Marguerite Larkin: And maybe just to add on the contribution from Accelerate. So in the context of the costs that we expect in FY '26, we expect circa EUR 50 million in the year in relation to Accelerate 2.0, as Edmond has referenced. We're making very good progress on Accelerate 2.0. It will be the primary driver of expansion in 2026. And looking overall from a margin perspective, we're looking at another year of good margin expansion of 60 basis points or greater for 2026. And as I say, Accelerate 2.0 will be the primary driver of this expansion with some operational leverage, mix and portfolio benefits coming through. So well on track in terms of that margin expansion delivery. Operator: Our last question comes from the line of Cathal Kenny with Davy. Cathal Kenny: A quick follow-up on margin, Marguerite, is it the expectation that all 3 regions will see a margin increase in '26, just in the context of that 60 basis points or greater? And one question on the regions, China. Just interested to know the outlook for the Chinese business is for '26. Edmond Scanlon: Thanks, Cathal. I might kick off here. In terms of, I guess, maybe the APMEA region, when we look at the APMEA region, we kind of look at it in 3 portions. Middle East, Africa, we continue to see solid performance there; Southeast Asia, quite strong performance; and China, while volumes were slightly back on the prior year, we did see some progression H2 versus H1, but probably not the level of progression that we expected, so slightly short of expectations. We do feel that 2026 will be a year of progression in China. We feel that there's 2 areas in particular that we're really focusing on in terms of driving that progression. Number one is there is a shift in China with some of our key customers on the retail side that they are putting more of an emphasis on export markets. And we feel we're very well positioned to enable those customers to be successful in those export markets, whether it's into Southeast Asia or back into the Middle East and Africa. And the second area is that there's been, I would say, a very fast acceleration from a consumer perspective around clean label and healthier products, and this is coming from some government guidelines around the 3 lows, meaning low salt, lower sugar and low saturated fat. And again, you can see based on our performance in North America and the Americas, especially around snack and bakery, we're exceptionally strong as it relates to reformulating. That has been driving growth in those end-use markets, and we expect to be deploying those types of technology solutions, both from a portfolio perspective and a capability perspective, the similar opportunities that we expect to see in China. So the market seems to be moving in our direction in China, which is a real positive. And we believe we have the portfolio and the capability to help on that reformulation drive. And that has been a key underpin of growth for us in the Americas in 2025 and 2024, and expect that to continue into 2026. Marguerite Larkin: And in terms of the margin expansion, no major call-outs by region. You should expect all regions to have good margin expansion in the year ahead. Operator: And at this time, we have no further questions. I will now turn the call back over to Kerry for closing remarks. William Lynch: Thank you, everyone, for joining us on the call today. We just wanted to note that we are presenting at the CAGNY conference this Thursday, and hopefully, you get the opportunity to join us or to listen into that conference presentation where we will give further insight in terms of the strategy and the execution thereof over the year ahead and the following years. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. Have a pleasant day.
Stefan Wikstrand: Good morning, everyone. And whilst we're waiting for the attendee list to fill up. [Operator Instructions] And then we'll answer them when we get to that point on the agenda. But I think attendee list seems to be not moving anymore. So then I will hand over to Vlad for the remarks for the fourth quarter. Vladislav Suglobov: Thank you, Stefan. Welcome, everyone, to our report. I'll start by giving you a brief overview of the quarter. Stefan, can we move on to the next slide, please? So revenue declined 9% year-over-year in USD terms. But because of the exchange rate changes, it went down 21% when expressed in Swedish krona and was SEK 221 million for the period. Sequentially, it was down 2% from Q3 to Q4 in USD terms. And looking at the 3 main pillars of our revenue generation, our 3 main games, we have achieved stabilization of 2 of these. Hidden City had a strong performance during the quarter. It grew sequentially 8.3% from Q3, really strong result. Sherlock declined sequentially by 5% after delivering a strong performance in Q2 and Q3. And looking at the same -- looking at the game year-over-year, it declined only by about 5%, which was significantly less than before, even in the first half of the year. Its performance was negatively affected by specific events that happened in November. But outside of November, the underlying trend remained consistently strong. So we consider that Sherlock and Hidden City are stabilized in revenue. But at the same time, we have the Jewels family of games that declined year-over-year by 19% in USD and sequentially by 12%. And the performance of Jewels family of games is the reason we continue to see the revenue decline for the group. The team has a plan to fix this performance, but it is not a fast plan to execute. We expect to see improvements by the middle of the year, or we will consider what we call harvesting the game, which is optimizing the team to the minimum to produce the best cash flow while the game continues to decline. So that's basically the reason you're looking at negative trend in the top line in this quarter. Monthly average gross revenue per paying user hit a new record of USD 71.7. Our gross margin reached an all-time high of 71.6%. That's up from 69.1% last year, thanks to the continued success of G5 Store. During the quarter, we continued to build momentum in strengthening the top line revenue performance. We increased UA spend to 23% of revenue on the higher end of the previously communicated range compared to 17% last year. We intend to remain on the higher end of this bracket going forward in an effort to stabilize and turn around the top line trend. We will continue to invest profitably in the growth of our portfolio revenue through existing and new games in order to turn around the top line dynamic. Earnings in the quarter were impacted on one hand by the currency exchange related to the weakening USD, which is the main currency of our revenue generation, and on the other hand, by the increased UA spend. At the end of the quarter, our cash position stood at a strong SEK 216 million. It is actually virtually unchanged compared to the end of Q3, if adjusted for working capital fluctuations and USD-SEK exchange rate. We remain debt-free, and we continue to have a strong balance sheet, something we are very proud of. And on the right side, you can see the chart of G5 Store continuing to take over the percentage of the total net revenue generation in the company quarter after quarter. With that, let's move on to the next slide. And let's talk about G5 Store with a bit more detail. It continues to deliver solid growth. It became our second largest distribution channel now, up from being the third, and the way it's going, it may soon become our #1 distribution channel. We wouldn't be too surprised. The low single-digit processing fees have increasingly become a key driver of our margin performance, given that third-party app stores typically charge between 12% and 30%. This cost efficiency directly contributes to our improved profitability and the expansion of our gross margin. During the quarter, G5 Store accounted for 23.4% of total gross revenue, up significantly from 16% last year. And furthermore, the G5 Store played a key role in stabilizing Sherlock and Hidden City as these games continue increasing the audience and revenue on G5 Store for over 5 years now. Gross revenue growth for G5 Store in USD terms was 20% year-over-year and 3% sequentially. In addition to the continued progress with G5 Store, we continue to gain momentum with processing payments of our players on mobile platforms directly. Web shop and other G5 systems that internally we started calling G5 Pay, allow players on mobile platforms to make payments directly to G5 through their browser, which dramatically lowers the payment processing fee. During the quarter, such directly processed revenue accounted for 6.4% of total net revenue from mobile platforms, a substantial improvement compared to only 3% in Q3. And we believe that this percentage has more room to grow in the coming quarters. As mentioned in the previous quarters, we will further scale the revenue of G5 Store by opening it up for distribution of third-party games that are or were successful on mobile platforms. We have now launched the first 2 games late in the fourth quarter. And we see very encouraging results. We consider it proven at this point that distribution through the G5 Store can create a very attractive incremental revenue for mobile developers. Based on what we see so far, after only 1 month on the G5 Store, quality games can make up to an additional 15% of their mobile revenues through the G5 Store. We will scale this initial success, both through acquiring users into the distributed games, and through bringing more great third-party games to the G5 Store. The interest in the distribution on the G5 Store is growing among third-party developers and the number of new games are already added to the G5 Store. Our goal is to have a curated catalog to bring more high-quality games to the G5 Store and maintain high player satisfaction. As we increase the number of games on G5 Store and expand user acquisition, it may start positively affecting the overall top line dynamic in the coming quarters. I would also add that this initiative with third-party game distribution in G5 Store leverages our experience as a publisher. As you know, we've had a lot of success publishing premium and then free-to-play games on mobile platforms. And we've created some very prominent hits through these partnerships. So the developers know us. There is good traction in attracting games to the G5 Store, because it's a well-known business model for the company, and we have very good understanding of what developers need. And for the majority of developers right now, an incremental revenue from other platforms is a very important thing to have. So I think we are doing it at a good moment in time. With that, let's move on to Slide #5 and talk about -- look a bit more in detail on the quarter leading up to another record gross margin. So our own games accounted for over 70% of net revenue and active own games accounted for 61% of total net revenue, down slightly from 62% last year. This has to do with the improvement of the performance of Hidden City. Our gross margin reached a record high of 71.6%, up from 69.1% a year ago, primarily due to the continued growth of the G5 Store. Monthly average gross revenue per paying user reached a new high of USD 71.7 and it increased 1% sequentially and 9% year-over-year. This reflects the continued trend for the improvement of the underlying quality of our audience. G5 Store is a key factor with its generally higher paying users, players and overall smaller player numbers than on mobile platforms. In the quarter, we also saw at first in a little while a sequential improvement in the broader audience numbers, where MAU and MUU grew by 1% and 2%, respectively, while DAU and MUP declined 1% and 2%, respectively. All in all, basically a stable sequential performance when it comes to audience metrics, which is a significant improvement compared to previous years and a testament to the stabilization of Sherlock and Hidden City. Let's move on to the next slide. Let's look at our operating profit for the quarter. Operating loss for the period came in at SEK 6 million compared to profit of SEK 32.8 million last year, and this resulted in an EBIT margin of minus 2.7% compared to positive 11.8% last year. The lower EBIT was impacted by foreign exchange revaluations. Adjusting for that, the EBIT margin would be positive 0.8% compared to 9.6% last year. And even bigger impact on EBIT was the increase in the amount of user acquisition that I spoke about, that we have deployed during the quarter to stabilize the revenue of 2 main games, Sherlock and Hidden City, and also to support the scalability test of the game called Twilight Land, which was unfortunately discontinued based on the results of this test. So UA increased by 6 -- by whole 6 percentage points compared to Q4 2024. And during the quarter, the net capitalization impact on earnings was SEK 0.8 million compared to minus SEK 3.0 million last year. Now let's turn to the next slide to talk about our cash position. Capitalization impact on cash flow was minus SEK 23.2 million, less than the minus SEK 25.5 million last year. The movement of working capital was negative minus SEK 26.4 million compared to minus SEK 21.5 million last year. We have large fluctuations in working capital between the quarters with a few large counterparties. In Q4, we also see some year-end effects from earlier payments. Total cash flow during the third quarter was minus SEK 31.1 million compared to positive SEK 18.9 million last year. Total cash at the end of the period stood at a strong SEK 216 million, down from the same period last year. But, again, one has to remember that our business primarily is denominated in USD and that we are holding our reserves in our functional currency in the USD, which declined about 16.5% to SEK compared to the close of 2024. In USD, we closed the quarter with USD 23.5 million compared to USD 25 million a year ago, not that much of a difference. And also buybacks of SEK 2.7 million were made during the fourth quarter. All right. And that was the last slide on performance, and let's sum it up and some outlook for the future. As we enter into 2026, we have multiple strategic initiatives that we are pursuing. We will continue to execute on the G5 Store strategy and expand our third-party offering with additional selected high-quality games from the initial launches that we have made. Once again, we see that high-quality free-to-play games have the potential to earn up to 15% in incremental revenue from launching of G5 Store. We will continue developing G5 solutions for processing payments from players on mobile platforms directly. These are web shop and other modules that together we call G5 Pay. We want to see the percentage of payments for mobile platforms made directly to us grow over time. We'll continue to work on stabilizing and growing our main revenue pillars. Sherlock and Hidden City are starting to perform better and the road map of improvements will be implemented for Jewels of Rome in the first half of the year. For user acquisition, we will continue to be in the higher bracket of our previously communicated range of 17% to 22% of revenue. We have promising games in the pipeline, one of which is showing the best metrics we have seen in soft launch. That's cautiously encouraging. We have also formed several smaller agile teams that are rapidly testing innovative game concepts at a higher pace. So -- and we are excited to see what will come from that area in the next few quarters. Resources that were freed up from the Twilight Land game, that was closed as I mentioned, were reallocated to strengthen these strategic initiatives or let go. We will continue to work actively on the cost structure to maintain the high momentum we have in the product and in the G5 Active store development, while also being fiscally responsible to be able to continue to fund these initiatives from operations. We continue to have a strong balance sheet and 0 debt, a foundation to be able to pursue all the initiatives that we have going as we enter into 2026. And thanks to our stable performance, we are proud that the Board was able to propose a dividend of SEK 2 per share, corresponding to approximately SEK 15 million. With that said, I would like to thank the whole G5 team for their outstanding work in 2025, and I look forward to a prosperous year ahead. This concludes our presentation, and let's open the call for questions. Stefan Wikstrand: [Operator Instructions] We have a few of those already there, so we'll get back to those. But we'll start with Simon Jonsson from ABG. Simon, you're -- there you go. Simon Jönsson: I have first a few questions on G5 Store. And I wonder what's your visibility in third-party games joining? Do you have like a prospects lined up? Or how does it work? Vladislav Suglobov: Well, we have -- we know -- we happen to know a lot of studios that we worked with over the years or that we know through industry contacts. And we have a business development team that basically knows the industry, and they know developers of a certain caliber, that we believe is the sweet spot for us, for the G5 Store, that we believe can really benefit from launching their games on G5 Store. So there's a balance to be found between the quality of these games and the size of their business so that this additional revenue through the G5 Store can be sizable enough for them, but the games are successful enough that we can expect them to perform really well on G5 Store. So you can think of developers that have games that are roughly the size of our games, for example, or approaching that. And we -- as I mentioned, we have very large developers actually very, very much interested because the situation in the market is that everyone is looking to maximize the revenue through -- incremental revenue through different channels. And in that sense, G5 as a channel, as we've seen with the first 2 games that we've launched, really delivers. So we are being thoughtful about who we invite on G5 Store and a little bit selective, but we also want to try some genres that we actually do not have in our catalog, as you can see from the first releases, but we can be even more bold and try genres that are further away from our core offering. So a number of deals is already signed and the developers are working on providing the builds that we will launch in G5 Store. This is already ongoing and new deals are being negotiated as we speak. So there's -- a little pipeline of games is formed. We don't want to bring tens of games or at least not yet to G5 Store in 1 year, but we will look at the performance of the new releases and decide as we go. Simon Jönsson: All right. Yes, that makes sense. Then on the cost side, I mean, are you taking costs for this -- the third-party initiative right now, like upfront costs, which is weighing on the margins? Or is this -- are those potential costs quite negligible? Vladislav Suglobov: Well, we certainly have to develop certain SDKs and frameworks to be able to launch external games. So -- but the team -- the platform team that does it is relatively small compared to teams that actually do make games. So it's not very significant. When it comes to the deal terms, I wouldn't want to reflect on specific deal terms, but it's kind of a usual industry standard for distribution of games. And they are -- they're not very costly, so to speak, as usually in distribution, because we're not talking about funding the development or exclusive publishing. So these -- the commitments that distributors make, they're relatively limited. Simon Jönsson: All right. In terms of you making like some kind of payments for the rights or something like that, is that something you think will occur? I mean, we have seen it in other cases in the industry when companies are using other platforms for distribution. There's sometimes some kind of fee for that, some right. Is that something you think you will have to pay as well? Or do you think that it will be more revenue sharing? Vladislav Suglobov: Well, again, I think that there's clearly a need for the developers that are similar in size for incremental revenue. And it is not the -- I think the practice that you're saying that it exists, it's a practice from different kinds of games and casual games. I don't think that practice even exists. I think developers are quite eager to distribute their games on alternative channels. And I think we are aiming at finding the right partners. The space is very fragmented, as you can imagine. There are many games that are making sizable amounts of money, but they're not like top hit games, and these games can really use incremental revenue. But we're not looking to obtaining like super brand, high -- like high brand recognition games, at least not yet. So that's just -- I wouldn't say that it's relevant to our business model at the moment. There are many developers out there who just want to find additional revenue for their games, and this is what we are providing. Stefan Wikstrand: Yes. But I think I see where Simon is coming from, but it's not like we're paying huge amounts for some exclusive rights that would be kind of significant or take any kind of significant balance sheet risk if we would capitalize that either. So if I would answer that question shortly, if I interpret you correctly, I would say, no. Vladislav Suglobov: Yes. The short answer is no. And again, we're not talking about any exclusive distribution or exclusive partnerships. So it's just a distribution through G5 Store, while developers are free to distribute their games elsewhere. So it doesn't cost us outrageous commitments and everything is within very reasonable, and we're more than satisfied with the initial launch. Simon Jönsson: All right. That's helpful. Then just a final one on the capital allocation. You reduced the dividend as a result of lower earnings, of course. But what's your view on share buybacks now? Is -- Have you changed your view on that in some kind of way? Or what's your view or the Board's view? Vladislav Suglobov: No, we still have the mandate from the Board. We still do make buybacks. We did buybacks in Q4. We're likely to continue doing it in the future. That's -- the position hasn't changed. Stefan Wikstrand: Then we have Erik Larsson from SEB. Erik Larsson: Let's see. Now you can hear me, I think. Great. Yes, I just wanted to follow-up on some of the distribution of third-party games. So it sounds pretty promising, but could you just speak a bit more to how did this -- these initial signs were -- or how did it come in versus your expectations? Have you had to do like material changes along the way these first few weeks? Or just any flavor there would be interesting. Vladislav Suglobov: Essentially, what we are doing with new releases is we are letting them be exposed to the audience that we have accumulated in G5 Store and that continues growing through user acquisition in our own games. And as you know, as always with mobile free-to-play audiences, there is a percentage of people who pay and they drive virtually all of the revenue. And then there's a very large percentage of people who never pay anything at all, but they still play these games. And what is achieved by widening the offering is that we are -- we're making it possible for those audiences that are not monetizing in the games that we have, to monetize in the games that we bring in. We obviously have to think a little bit about the cannibalization. That's why we want to have a curated experience, at least for now and bring in games carefully by sort of complementing the games that we have in our store rather than competing with them. And our thinking was that basically, because we are in a situation where our games are not doing terribly well on mobile, but they continue to grow on G5 Store, we thought there can be other developers in exactly the same situation where they are a little bit stuck on mobile, and they're looking how to increase their revenues, but they cannot do it on mobile. And it may work exactly the same way as it works for our games, which are stable on mobile, but they're growing on G5 Store. And that's exactly what we tried, and that's exactly what we saw is that these games that we brought to the G5 Store, they are very stable. They're unable to grow on mobile stores in the present market environment. But once we put them on the G5 Store and expose them to our audience, they found players, they found paying players and their revenues started growing fairly quickly pretty much organically. And this confirmed our thesis that if we had more games in G5 Store, the G5 Store would be even more successful. So we just need to -- we can help other developers earn incremental revenue, but also bring even larger audience to the G5 Store and improve the offering of games that we have in the G5 Store. So it's an interesting snowball sort of to try and roll down the hill. We've been working on G5 Store and on bringing people to G5 Store for over 5 years now. And we've gathered in G5 Store some of the highest paying users actually, driving the revenues within G5 Store, people who are very loyal to the brand, people who really love these casual games and really love playing them on large screens. So that's our thinking there. And so far, we see confirmations of the original idea that it's worth pursuing. Erik Larsson: Okay. And then just a final question on, I guess, materiality, because it does sound very promising, but at the same time, it sounds like you want to manage expectations. So for 2026, how much impact could this be? Are we talking low single-digits, high single-digits or even double-digits in terms of share of revenue? Just to get a sense if you could comment that? Vladislav Suglobov: From these external games? Erik Larsson: Yes. Vladislav Suglobov: Well, I wouldn't want to set expectations too high. So I think low mid-single-digits would make more sense than aiming even higher. But we -- the truth is we do not know. The games are in route to G5 Store. It's not entirely dependent on us. Developers have to allocate resources to create these versions. We have to test them and so forth. It usually takes time. Time line moves a little bit. We'd like to release as many of the games that we have signed in G5 Store already this year. And then some of the games that we will be bringing into G5 Store this year, they are very big on mobile, but also some are in genres that are a little bit off from our core offering. So we don't know exactly how well they will perform, but it's very exciting to try and launch something very different. So it's really hard to say, but we want to move there as fast as we can and try things. Stefan Wikstrand: And then we have Hjalmar Ahlberg from Redeye. Hjalmar Ahlberg: So yes, also a kind of a follow-up on the G5 Store there. A bit curious on how you see -- I mean, in terms of growth of the total, so to say, players that find G5 Store, I guess you see potential that more players come into these new games, but you also kind of invest UA in terms of getting players that have not found your games coming directly to the G5 Store, if you understand my question? Vladislav Suglobov: Yes. Again, the logic is that we're basically doing for other developers what we have achieved for ourselves in G5 Store, where we have managed to find a way to continue to grow our very high-quality, casual free-to-play games within a PC environment, within our direct store distribution, even when they don't really grow in the current market situation on mobile platforms. And not -- I mean, not only we see organic traffic in G5 Store, and we see a substantial amount of organic traffic in G5 Store, we also do user acquisition as well. We do it for our own games, and we want to try exactly the same thing for third-party games because there's -- nothing is different, except that we will only operate this game within the G5 Store, and we can acquire organic traffic or rather improve our offering within G5 Store, which should benefit organic traffic, but also bring in -- use our knowledge of user acquisition in this environment to bring in users into these new games in the G5 Store in order to cross-pollinate, so to speak, all of these games. And we do have cross-promotion between all the games. So the games that we bring in, they benefit from our existing audience and the cross-promotion exposure within our existing games. But then there's probably going to be situations where our games will benefit a little from the audience that we bring into the other games, third-party games that we bring to the G5 Store. As always, like I said, like 95% of people, or 90% of people never monetize, right? So you can -- you don't have to move around the 10% that monetize, and we try to avoid it as much as possible, basically just try to leave people be if they monetize. But we can move around people who do not monetize in the hopes that they will monetize in some other game that they will particularly like. And so by expanding our offering and by bringing more users through profitable user acquisition in these games and ours, we can continue growing G5 Store, but we can continue growing it with more games than we have now, right? Because right now, our selection is offered to our own games. And when we open it up to games of other developers, this selection can grow several times over very easily. And these games can be really, really good. If our game that makes a certain amount of money on mobile platforms is still growing on G5 Store, there's a good chance that another game that's making this amount of money, about this amount of money on mobile platforms, cannot grow there, can still grow on G5 Store. And that's the thesis that we have. And so far with the first 2 games, we see the confirmation. Hjalmar Ahlberg: Okay. Sounds promising there. And also a question on -- I mean, Jewels, you've been able to kind of stabilize Hidden City and Sherlock, as you said. Are you hopeful for Jewels or do you see that it's more difficult with that -- those games compared to the other 2? Vladislav Suglobov: Yes. Well, this game, unfortunately, has the most game design debt, so to speak. Our thesis is that the match-3 genre has sort of moved a little bit away from this type of games. It's been, I think, about 6 years since we released it. So some catching up needs to be done. And there are some major changes that are coming into the game, which we think will benefit it in any way. Question is whether this will benefit the game by expanding its life cycle and just, like kind of increasing its terminal value, or are we going to be able to actually go back to stabilization and possibly growth. So we will find out in the next couple of quarters. That's the ambition. Hjalmar Ahlberg: Okay. And looking at your pipeline of new games here, I mean, Twilight, as you see, didn't work out to be a global launch, but you still have some new promising games there. How do you think about the process here? I mean, you've changed development funnel to a few years back. Twilight was quite a long time in soft launch. Is this the kind of way it can be going forward? Or do you think it will be quicker processes going forward, I mean, comparing for -- to Twilight, for example? Vladislav Suglobov: So Twilight Land is actually quite old game. So we launched it even before we've changed the new funnel process. So it's the last one that we had in development, which was initiated before the process was put in place. Since the new process was put in place, we've killed quite a number of games and usually in the early stages. I do not think we brought a single game to the scalability phase under the new funnel. So this one that I'm cautiously excited about is the first game that actually made it to the scalability phase, and it was initiated after we have the new funnel process. So we think about it the same way. The problem is that the bar is very high in the market for a number of reasons, including decisions on how mobile user acquisition is being made by large players by their action or in action. It is a very high bar to be able to create a game that is scalable. We will still be doing it. However, this is what makes us exciting about -- excited about G5 Store. That it's -- at some point, you start thinking, well, it's really hard to acquire users on mobile and you have to pay this tax to the app stores, which is quite insane actually. So you are essentially investing money to pay this tax to them, which doesn't make a lot of sense. It did make sense some years ago. Now it's almost impossible to do business this way. So you have to have either a groundbreaking game, which we hope to have. We just need to raise the bar, aim higher or we have to find an alternative way to work with our players. And this is where G5 Store and G5 Pay come into play. If you look at the G5 Store, the size of G5 Store business, it's pretty significant already, and it continues growing. So I think it's time we open it up for other games. And we try to work even more actively on expanding the G5 Store as a direct way to reach our players just by passing mobile app stores entirely. Stefan Wikstrand: Okay. We have one question in the Q&A box currently. [Operator Instructions] What we have currently is from [ Olle 898 ]. I don't know if we have a new Olle or if he just added an 8 in the end. But can you say anything about what happened in Sherlock in November? Vladislav Suglobov: Yes. So let's call it a live ops incident. There were actually several incidents, which affected the revenue. And conclusions were made from that. We hope they will not be repeated. Sometimes it happens. It doesn't happen very often. But live ops is driving a lot of monetization in G5 Store and then mobile stores. And if something doesn't work, there can be material consequences in the percentage of revenue that's lost. And so we had a few hiccups, unfortunately, in November, which affected the performance of Sherlock specifically. Stefan Wikstrand: Okay. That was the last question as far as I can tell. Yes, I think then we'll just wrap it up here. Vlad, any final remarks? Vladislav Suglobov: No. Thank you so much. Very thoughtful questions, and you gave me opportunity to talk about G5 Store, my favorite topic. Thank you again for joining our call today. I wish you a good rest of your day. Stefan Wikstrand: Thank you all. Thank you all. Bye. Vladislav Suglobov: Bye.