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TMG.V 2025 Q4 财报电话会议

William Crossland: Good morning, everyone. I'm William Crossland, CEO of Thermal Energy International. Thank you for joining us today for our earnings call for the fourth quarter and fiscal year ended May 31, 2025. Our news release, financial statements, and MD&A are available on our website and have been filed on SEDAR. Following my prepared remarks, we will have a question and answer session, at which time qualified equity analysts joining us on MS Teams will be able to ask questions. If you're joining us online, you should be able to see our slide presentation on your screen now. Before we get started, I'll point out that today's earnings call may contain forward-looking statements within the meaning of applicable securities laws. Forward-looking statements are subject to risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information, please refer to our financial statements and our MD&A for the quarter and our other filings with Canadian securities regulators. Here's a quick overview of what I'll be highlighting in this morning's call. First, we had record fiscal year revenue of $29.8 million. And while revenue was down from the quarter, our gross margin and adjusted EBITDA margin improved in Q4. We significantly paid down our long-term debt both in the quarter and the year, and looking ahead, our record Q1 order intake positions us well for a strong 2026. Finally, we've identified a few key strategic opportunities to drive sales growth and margin improvement going forward. Now looking at our revenue on slide four, while our revenue for 2025 was down 9% year over year, we achieved record revenue of $29.8 million for the year. This slide is great at illustrating how our revenue can be lumpy from quarter to quarter and why we tend to focus more on the trailing twelve months. As you can see, our fourth quarter revenue was down each of the past two years, but our fiscal year revenue increased by 41.2% over the last two years. We remain profitable in the quarter and the year. In fact, despite our lower revenue in Q4, our gross margin improved to 53.9% and our adjusted EBITDA margin improved to 5.8% for the quarter. Fourth quarter adjusted EBITDA was about $400,000, down 6% from the prior year. Contributing to the decrease was an increase in foreign exchange loss of $349,000 and an increase in general operating costs of $280,000 related to the growth in our team. These amounts were partially offset by higher gross margin and a decrease in quarterly R&D expenses. For the year, we had adjusted EBITDA of $1.05 million, down from $2 million the year before. The largest driver of this year-over-year variance was that fiscal year 2025 operating expenses include an additional $813,000 related to the growth in our headcount, primarily in our sales, marketing, and engineering team. Also contributing to the decrease were the lower gross profit for the year and inflation-related increases to regular operating costs. Our net income was down for the quarter and the year, but also still positive for both. In addition to the drivers I just discussed, adjusted EBITDA, net income from the quarter was impacted by a lower amount of income tax recovery than the previous fourth quarter, and for the year, we had about a $5,000 increase in income tax expense. But again, the main driver for the decreases in adjusted EBITDA and net income was the growth in our headcount. We continue to have a very strong balance sheet with cash and cash equivalents of $2.8 million and working capital of $2.4 million at year-end. Importantly, we significantly paid down our bank debt, repaying $2 million in fiscal 2025, including $1.1 million in the fourth quarter alone. Over the past three years, we have repaid $3.6 million in acquisition and pandemic-related debt with just $329,000 remaining at year-end. The remaining balance will be fully repaid by January 2026. The full repayment of our debt should not only help our bottom line going forward but also give us more flexibility with future growth plans. While our revenue for fiscal 2025 was a record, our order intake of $21.8 million for the year was down from the prior year. Likewise, our order backlog of $12.9 million at year-end was down from the prior year. But those of you that have been following the story for some time know that our business can be quite lumpy at times, with significant variance in the timing of orders. The good news is that we saw a strong rebound in orders, coming in subsequent to year-end, with order intake of $11.4 million between June 1 and September 22. As a result, our backlog has grown to $24.3 million as of September 22, which is a record for this time of year. The rebound in order intake included $11.3 million in orders received in 2026, which is a record amount for our Q1 period and it is about four times what we had in the first quarter last year. Within that $11.3 million, there are four orders we announced back in June and July that had a combined total of about $7.5 million, including $5.1 million in follow-up orders from one of the world's largest pharmaceutical companies. It's important to point out that given the typical revenue pattern for large turn projects like these, most of the revenues from these previously announced orders are expected to be realized in 2026. As such, we expect overall revenues in fiscal 2026 to be weighted more towards the back half of the year. I'd also note that our business development pipeline remains strong with numerous repeated opportunities from existing customers and potential opportunities with prospective new customers. The substantial investments we've made in our business over the past two-plus years have weighed on profitability, but they've also positioned us to scale the business much better. Building on this foundation, we have several strategic initiatives to further scale the business and drive profitable growth. These include developing indirect sales channels in North America and Europe, developing and promoting standardized equipment packages, establishing BEI manufacturing in Europe, and leveraging our award-winning carbon reduction efficiency scoping tool, or CREST for short, for both our direct and indirect sales channels. I'll take a few moments now to provide a high-level overview of each of these initiatives. First, we look to add indirect sales channels in North America and Europe by developing and cultivating networks of independent representative companies, or IMRs for short, to focus on smaller equipment sales. Many industrial products, including boiler and steam system-related products, are often sold by networks of IMRs who are responsible for promoting, selling, and commissioning in their territories. IMRs usually also have service groups, including those people that provide ongoing service to boilers, burners, steam traps, etcetera. Importantly, these representatives have established relationships and are in regular contact with end users. While BEI's distribution model already uses a manufactured representation network, there is an opportunity for the rest of our business to leverage IMRs to cost-effectively increase sales of equipment. In addition to providing extensive geographical coverage, the potential benefits include the opportunity to further grow sales with less investment as IMRs operate on a 100% success-based markup basis. And having IMRs handling smaller orders will free up our internal sales team to focus on larger, more strategic opportunities. Next, we see an opportunity to increase sales by developing and promoting a line of standardized equipment packages and standardized pre-engineered heat recovery solutions for smaller or less complex projects. IMRs could then sell these from a line card along with their other products and services. For smaller projects, this would reduce project development times as there would be no bespoke design required, and we would expect to benefit from a faster sales cycle as these smaller projects could be quoted on and sold directly from CREST survey data, as we'll talk about in a minute. BEI and Heat Sponge have been a great business for us, but sales have been mostly limited to North America so far. We see significant potential for Heat Sponge sales in Europe. As a result, we see an opportunity to expand Heat Sponge sales by adding manufacturing in Europe. At first, BEI's existing US shop would supply components for assembly and testing in Europe. Then later, as orders increase, we may possibly move the European manufacturing business to a contract manufacturing shop in Europe. Europe is largely an untapped market for Heat Sponge, and having a manufacturing operation in Europe would result in shorter lead times and a more cost-effective way to service the European market. As mentioned earlier, each of these initiatives can be supercharged by CREST, our powerful mobile app platform that not only uncovers thermal energy savings and carbon reduction opportunities but also saves time, accelerates the sales cycle, and helps both our sales team and new independent representatives spot opportunities that might otherwise be missed, including cross-selling and other repeat business potential. Additionally, CREST can help reduce the time needed for internal salespeople and IMRs training and ramp-up time. So in summary, some key takeaways from the presentation are we have a strong balance sheet with little debt. Our record first quarter order intake and growing backlog position us well for a strong half of 2026. We have identified a few key opportunities to drive sales growth and margin improvement, including developing indirect sales channels so our internal sales team can focus on larger, more strategic opportunities, increasing sales of standardized equipment packages, expanding BEI into Europe, and leveraging CREST in each of these areas and throughout our business. This concludes my prepared remarks. I would now like to open the call for questions. I will turn it over to Trevor Heisler, and MBC Capital Market Advisors, who will moderate our Q&A session. Please go ahead, Trevor. Trevor Heisler: Thank you, Bill. If you're a qualified equity analyst joining us on MS Teams and would like to ask a question, please notify me now by using the raise your hand feature. And it doesn't look like we have any questions at this time, Bill. Please go ahead. William Crossland: Okay. Well, thank you for your continued support of Thermal Energy International. We look forward to speaking to you again next quarter. Have a great day.

Operator: Welcome, everyone, to the half year -- Welcome, and thank you for joining Exor's Half Year 2025 Results Conference Call. Please note that the presentation materials and the related press release are available for download on Exor's website, www.exor.com under the Investor and Media Financial Results section and any forward-looking statements made during this call are covered by the safe harbor statement included in the presentation material. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to turn the conference to Exor's Chief Financial Officer, Guido de Boer. Sir, you may now begin. Guido de Boer: Fantastic. Thank you for this introduction, and happy to have this half year results call. And as you'll see in the new format of our half year report. I hope that gave good insights, and I want to take you through the highlights in this presentation. So our NAV per share outperformed the MSCI World Index by about 5%, largely aided by the EUR 1 billion buyback. Companies did well, but a mixed bag of performance across the different companies, which we'll address a bit later. We're particularly pleased with the performance of Lingotto performing with an 11% increase, mainly from the public investment part in the backdrop of the declining market. And this half year saw us monetizing EUR 3 billion of Ferrari stake as well as some other items leaving us with good firepower to monetize, to invest in the future. And it leaves us with a very healthy debt ratio at 5.5% of our GAV. So moving to the key figures at the half year. Our gross asset value went down by EUR 2.5 billion, partly from value changes, partly from the buyback and our NAV moved in line with that, while our NAV per share saw an increase and our loan-to-value, as mentioned, is more or less half than what it was at the end of 2024. So our NAV per share growth went up by 0.9%, and 3.2% of that growth is attributed to our buyback, given that we buy back our own shares at a discount the positive impact on NAV compared to the number of shares that we reduce is delivering this growth. So even ex buyback, our portfolio has done better than the MSCI World index. And this is an important measure because we want to outperform relative to the index. We also want to show absolute returns. And in that sense, obviously, we're disappointed that our TSR, even though better than the market is negative, and we aim to improve that in the coming period. So if we move to the overview, I first would like to present to you a new classification. And rest assured, I don't want to make a habit of this so that you need to change your models all the time. This was actually intended to provide you further insight and probably also ease for building your models. Given that Exor Ventures is now managed by an external investor. We moved that to the other funds moved by third parties into others. And you really see separately the performance of Lingotto, which are the funds operating under our own management. And we thought it's useful not to group cash and cash equivalents under others but show separately also, if you want to look at a net debt basis to facilitate your analysis. So hope it's helpful. And if you have any comments or suggestions or requests for historical data, please feel free to reach out to the Investor Relations team. So if we then move to the drivers of change in gross asset value in this new format and maybe starting on the right-hand side, you see the change that I mentioned previously of a GAV of EUR 42.5 billion to EUR 40 billion, which split in EUR 1.1 billion of shareholder distributions, around EUR 100 million of dividends and EUR 1 billion of buybacks. So it's a decrease of GAV, but not necessarily reflective of performance, adjusted capital distribution. And you see EUR 1.4 billion decrease in value, which is the real metric of our performance on GAV. If we then move one column to the left, cash and cash equivalents. Here, you can see well the movement in our cash flow, where we've invested EUR 1 billion in new investments. We realized EUR 3.5 billion of disposals and obviously, the EUR 1.1 billion in distributions. So if we take the EUR 1 billion in investments, you'll see and we'll go into more detail later. EUR 4378 million went into listed companies, principally Philips and a minor part in Juventus and then a bit in commitments on Lingotto and EUR 428 million in others, which we invested in bioMérieux. The disposals line for EUR 3.5 billion breaks up quite simply in EUR 3 billion for Ferrari and almost EUR 0.5 million of proceeds from the reinsurance fee costs that we invested in as part of the sale of PartnerRe. Now we have the line change in value, which I propose we address in a bit more detail in the following slides. So performance of listed companies. I mentioned already the investments behind Philips, Juventus and the disposal of Ferrari. If you then look in the change in value, you basically see that the change in value of Ferrari is marginal, where it started on the first of January and where it landed on the 30th of June. We were quite lucky in our timing that we did the trade at the all-time high in that period, but a very flat movement in between start and the end of the period. CNH, a similar story, and we measure our returns in euros and in euros, it was flat, notwithstanding a strong movement between the dollar and the euro. The big driver of the decrease in value was the disappointing share price movement of Stellantis as well as that of Philips, which started the year a bit above EUR 24 was at the half year at EUR 20 and now ranges around EUR 24 again. So the good thing is the EUR 700 million of loss has rebounded in the year-to-date, large. And then obviously, the positive news in the half year was also the strategic transaction on Iveco which in the run-up to that transaction led to a significant increase in the share price. And that is a monetization for Exor at a very attractive price, as well as a good home for Iveco for the future is that the pending transaction will complete in 2026. So those are the key moves in listed companies. If we then move to unlisted companies. We had some smaller investments between -- behind Via Transportation where there was some shares available ahead of the IPO. And I'm happy to say that following the successful IPO on NYSE last week, we'll move Via to the listed companies in the following reporting and some existing commitments we have on TagEnergy and ShangXia. And you'll see the movement in value, where the largest ones Institut Mérieux on the back of the increase in share price of bioMérieux, Via Transportation based on its strong performance. Welltec and The Economist actually largely FX movements and the other amounts are relatively smaller. So if we then move to Lingotto and others. You see we invested in private strategies around EUR 166 million. And you see a very strong performance of the public investments, notwithstanding the equity capital markets in general, declining. So we're very happy with how the Lingotto funds deliver returns, which are less correlated to the rest of the portfolio and outperforming the market. We then move to others. There, you see funds managed by third parties. So that also now includes Exor Ventures. And it was also including the reinsurance vehicles where you see the half billion of disposals. So we're quite positive. The funds are doing quite well. The minus EUR 72 million is actually EUR 427 million negative FX and both Exor Ventures as well as the reinsurance vehicles in local currency have been performing well. In listed securities, you see, again, the investment of EUR 317 million in bioMérieux and the change in value is largely due to the decline in share price of Neumora and smaller investment that we've done in the past. And I think those are the main items to highlight in Others. So Cash and Cash Equivalents, I largely mentioned this previously, we had strong dividend inflows of EUR 624 million, of which we distributed again EUR 1.1 billion to our shareholders. We raised disposals between EUR 0.5 billion, which we reinvested for EUR 1 billion, and we repaid bank debt for EUR 547 million and a bit of a bond, which leads us to a cash position now of EUR 1.5 billion, which is obviously very, very healthy. And that's in line with gross debt that, as I mentioned, with the reduction in bank debt and the bonds now stands at EUR 3.5 billion rather than the EUR 4.1 billion at year-end. And as you know of us, we try to have a very stable maturity profile. So we have no cliff payments and on the short-term obligations that we have here can easily be filled out of our cash positions. So with that brief summary, I would like to open the floor to Q&A. So over to you at the operator. Operator: [Operator Instructions]. We will now take the first question from the line of Monica Bosio from Intesa Sanpaolo. Monica Bosio: I have three. First of all, on the future investments. My perception is that maybe the group priorities are more on the health care side. Or do you see real true opportunities in the luxury segments? I'm just wondering because in the last conference, the company didn't see real opportunities in the luxury segment. And the second question is on the size of the potential acquisitions. The press speculated a lot on this. Any comment from you on this side? And do you have any time horizon for the completion of the new investments? And the very last is not only investments but mainly on disposal, should we expect in the coming future, some other disposal on top of [ Lifenet ]? Guido de Boer: Fantastic. Thank you, Monica. Good questions as usual. So in terms of priorities for us when evaluating a potential acquisition, we look at fundamentals. Does it have the right strategic fit our financial fundamentals, cultural alignment with us as an owner, what our leadership strength with us their governance proposals. And we base this on analysis of each individual company. So it can be health care. It can be luxury. These are in particular industries where we have domain knowledge within the team, but it could even be outside that, if the investment opportunity is sufficiently attractive for us. So there is no priority preference of health care over luxury. In terms of size, we basically have said that we are considering to do transactions, which are meaningful in the perspective of our total GAV and 5% is a percentage where this is -- becomes meaningful. But again, we look at every individual opportunity to decide if it's attractive or not. And on disposals, we continuously evaluate our portfolio to decide whether we should increase our stake like we've done on Philips in the period or whether it's a good time to dispose. If there's anything to update, obviously, you will be the first one to know. But for now, there's nothing further to mention. So Monica, I hope this answers your questions. Operator: We will now take the next question from the line of Martino De Ambroggi from Equita. Martino De Ambroggi: The first question is on the financial flexibility because once you divest Iveco stake, you will have another EUR 1.3 billion cash in. So would you prefer to look for one more big ticket, as you mentioned, 5% of GAV or buyback could be another priority. And specifically on the buyback, you don't need any divestiture to continue to buy back shares. You already finalized EUR 1 billion buyback in one shot, but why you are not starting additional buyback considering the high discount to net asset value. And the third question is on the -- well, sorry to be more specific on the name, but Armani is I don't know, up for sale, probably not shortly and so on. But just from a theoretical point of view, so just theoretically, could it be an interesting asset for you or you're absolutely out of the game, even if today, it's too early to talk about it? And very last on Ferrari, when you sold the stake, you mentioned there was an excessive concentration in terms of asset value. Today, Ferrari is roughly 90% of the net asset value. So the issue of too high concentration could come back. But what's your way of thinking about it for future in case the concentration further increases? Guido de Boer: Yes. Thank you, Martino, and good to have you on the call again. So on buybacks, they are part of our resource allocation process. And in a sense, the buyback, the discount is also an opportunity for Exor to reinvest capital. And for investors that want to remain on to benefit from a NAV per share increase from that, which you've seen in this half year. We've just done EUR 1 billion of capital return. So in terms of our market cap that is something that's very, very sizable. But -- as I mentioned, every time we do our portfolio review, we consider to increase or reduce the holdings in existing companies. We consider new investment opportunities that we have and we consider buybacks, and we decide on what we feel is the most attractive choice or multiple choices between those. So we'll continue to do that and consider buybacks as part of the process. Armani, don't really have anything to comment on the individual transaction as we obviously never do that. And Ferrari, the concentration has nicely reduced. It was 43% when we did the transaction, we're now at 39% of our gross asset value, which is the way we look at it. Indeed, if you look at it as our market cap, you probably meant 90% of market cap rather than net asset value. That is high, but then you could almost see Exor as buying Ferrari and getting the rest for free. So in that sense, I would see this as a great opportunity for investors to buy into the extra stock. And concentration, maybe to have that as a general point, we like concentration because our belief is that if we buy 1 share of every stock in the index, we perform like the index, and we want to outperform. So we invest in companies where we have conviction. And Ferrari is absolutely one where that holds true. So I hope this addresses the point you raised, Martino. Martino De Ambroggi: Yes. Thank you, Guido. And you are right. I mentioned as a percentage of NAV, but it was on market cap. One more follow-up on Lingotto which made a great job because the performance was very strong. Could you remind us what were the main drivers for this performance? And in terms of strategy, are you planning to open the doors or to accelerate on third parties asset? Or this is something that is not in your -- on your table? Guido de Boer: So one for us to invest more or less behind Lingotto strategies is part of the portfolio review process, as I mentioned. And if we would invest more behind existing strategies or if there's new ones, we'll obviously announce that to the market. For us, our strategy is not to grow assets under management and gain management fees. Lingotto was created to deliver performance to us. So I think that is critical. We want to grow our assets under management through performance rather than capital inflows. And as you see, we are delighted by the performance at it, showed in this half year, which it has been showing over a longer period now. So the quality of investors that we've been able to attract makes us obviously very pleased with having put the funds behind Lingotto. Martino De Ambroggi: And about the first half performance, is there any specific driver leading to such a good performance? Guido de Boer: I think they're great investors that know how to find the stock that perform well. Operator: We will now take the next question from the line of Joren Van Aken from Degroof Petercam. Joren Van Aken: A lot of great questions have already been asked. But just one from my side. I remember Mr. Elkann saying a while ago that private valuations were higher than listed assets and not long after that you bought the Philips stake. Today, I'm hearing that high-quality assets in the private market still have very high valuations. Do you think that the bid-ask spread has narrowed sufficiently on the private side? Or do you think that listed is still more attractive today? Guido de Boer: I'm not sure if I've seen too much reduction in price expectations from private assets. So I don't think that much has changed on private asset valuations and public market valuations, I think that's your day job. So you know much better than me, but also there, I would say there is a big disparity between certain type of companies like the large tech companies versus some slower-growing companies or companies that have 1 quarter earnings miss, which have then a disappointing share price performance. So I think if you look in public markets, there's definitely opportunities to be found but also private assets can have their individual situations that the valuations are attractive. So apologies for -- not trying to evade your answer with your question with a clear answer. But I think there's not a one size fits or response to your question. So Joren, I hope that's clear how we look at this. Operator: We will now take the next question from the line of Hans D'Haese from ING. Hans D'Haese: And I wanted to state first, Guido, that really happy with the new tables layout and increase even better transparency already was happy with IFRS 10 change and how this really helps also with the valuation drivers for listed companies and so, a very good job. Then regarding portfolio, we've seen that you've been very explicit in what sectors Exor would like to increase its exposure and for what, so thank you for that. In the meantime, we only saw a considerable increase of Philips. So we are waiting for other stuff. If now opportunities arise for acquiring minority stakes in other companies, companies, for instance, that you already are an important shareholder like, for instance, The Economist. Would you consider to increase the stake? Is this something that would fit in the portfolio? Or are you sticking to it should be health care literally? That's one question. And then the second one, in light of market expectations of further U.S. dollar weakness and considering that your stakes in CNH and Clarivate and Lingotto are dollar sensitive. What is your hedging strategy? Are you considering -- are you doing something? Or is this something that is not part of the strategy of Exor? And then third and last question, what are your considerations about investing in Bitcoin and cryptocurrencies? Do you see them as an alternative for your cash position? Or do you see them as a different asset class? Is this -- just do you want to share your thoughts about this? Guido de Boer: Yes. With pleasure. Thanks, Hans. First, for the compliments, much appreciated because we've been working hard on providing information to you and all our other stakeholders, which is as clear as possible so that we can talk more about fundamental activities like you now asked about. So much appreciated. On portfolio, whether we would consider investing in existing companies versus like, for example, The Economist or in only health care technology and luxury. We are, in a sense, agnostic. Why have we said health care, technology and luxury? Because these are sectors where we think there are structural tailwinds and where we've built up a domain knowledge. So we know all the good players in the industry. We know subsectors of those industries, which we like. And in that way, we feel we can uncover opportunities that maybe others don't see. So that's why our focus is there. But if we see another opportunity either in our portfolio already, which obviously has many advantages because we know that asset or outside, we're very open to consider those as well. So we're not married to investing in health care, luxury or technology. On the U.S. dollar, we don't do any hedging. Hedging, I think, is a useful measure for covering short-term exposures, which you cannot offset for a production company, hedging your fixed cost if you import into a country when your sales and you cannot change your prices. But for us, as a long-term investor, we don't see hedging as a valuable tool. There might be actually a short-term opportunity to say maybe with the devaluation of the U.S. on a relative basis, U.S. companies have become more attractive than 6 months ago. So we look at it more from that perspective. And then utilizing the dry firepower that we have now. We're quite conservative on that and put it in cash spread over euros and dollars across multiple banks, including many of you who are in this call. So stable banks across currencies at a decent return because this is not where we want to make our money. So that's why crypto or Bitcoin would not be places where we would park our money. Where we want to take risk is in the long-term investments that we do and not in the short-term liquidity storage that we hold. So that's how we look at it today and not voicing an opinion on Bitcoin or crypto because there's many people who are much better positioned than I to speak about this. Operator: We will now take the next question from the line of Alberto Villa from Intermonte SIM. Alberto Villa: A couple from my side. Many have been already asked. But again, on Lingotto, congratulations to the team, a very great performance. Now it's 8% of the GAV. Is there any internal limitation you put yourself in terms of size of the investment of your funds in Lingotto or it could grow further in the future? The second question is a more general question is about the -- let's say, when you consider investing in a company with the current geopolitical uncertainty and turmoil, if you're now looking more specifically to some regions rather than others, if there is any, let's say, change in the approach on a geographical standpoint compared to the past due to what has been happening in the recent past and presumably will continue to be a very volatile environment on that side. Guido de Boer: Thank you, Alberto. So on Lingotto, I think the limitation breaks down maybe in 2 parts. One on individual funds and two on allocation to Lingotto in a whole. So as I mentioned earlier on Lingotto as a whole, we always take Lingotto as part of our portfolio review strategy and we see do we want to allocate more to existing strategies or new funds, and we decide what kind of returns, risk, reward do we get against this, and we make an investment decision based on that. In terms of limitation, and I think it's a very important question, which goes to the core of Lingotto. For us, it's key that the investors behind the Lingotto funds focus on performance and outperformance. So the limitation is the size where adding further assets under management would go at the detriment of performance, and that would be the limitation. And that's obviously different for different types of strategies, whether it's public or listed and which markets they are. But that's where the key limitation probably is for individual Lingotto strategies. And then geopolitical, it is an important investment consideration, obviously. It is also a potential opportunity if those have led to significant price movement because we are a long-term investor. So we do take that into account, but I cannot say that, that has led to exclusion of certain regions or countries where we would say we're absolutely not looking there. Operator: [Operator Instructions]. We will now take the next question from the line of Andrea Balloni from Mediobanca. Andrea Balloni: Few questions from myself. My first one is a follow-up to the one of Martino and sorry for asking again, which is about Ferrari. I was wondering if you find some very good opportunities to invest in -- would you even consider another partial disposal of Ferrari to finance the investment? Or on the opposite, the current stake you have in Ferrari is a level you are not willing to lower? And my second question is about current holding discount that we see at 50% despite the material share buyback you have recently done, what could be, in your view, a way to shrink this holding discount as of today? And my very last question is on Philips. I remember when you have announced the acquisition of this stake, you mentioned that you were convinced to be able to extrapolate some value from a company that was clearly undervalued by the market. But just to understand what time horizon you had in mind for this asset? Guido de Boer: Thank you, Andrea. So on Ferrari, our view remains as what we said earlier in the year that our commitment to Ferrari is as strong as ever. And we didn't do this disposal about reducing our interest of the company. It was really a strategic decision to reduce our portfolio concentration as well as creating room for the next opportunity. So we're actually extremely happy that Ferrari is still a significant part of our portfolio. And as I said, we do like concentration and are confident that Ferrari will be a strong contributor to future results. So on the holding discount. What are we doing about it? I think calls like now based on clear and transparent communication are one important part of it. But even more important is we need to continue to show a sustained outperformance, both on an absolute and on a relative basis. And I think it's interesting also to have a look at the long-term performance of Exor versus the MSCI World Index because that's really why we want people to invest in our stock because we are long-term investors and by compounding better returns than the index over a long time, we will create significant value for our shareholders. So that's something we'll just continue to do. But if you have other views of actions that we could take, always happy to hear them from you and either reading it in your report or to have a call on that, if you like. So Philips, we continue to believe that the company has a huge potential and that it's delivering on its potential. So we're quite excited by its operational performance and our conviction also remains strong and happy with the progress that they're making. So our time horizon is long. We're there for the long term. We don't have any specific horizons where we say at this moment, we exit. So there's not a year that I can mention you of our planned horizon for an investment like this. Operator: This concludes the Q&A session. I would like to hand back over to Guido de Boer for closing remarks. Guido de Boer: I would love to thank all of you for your very thoughtful questions. I think this was all valuable and also gives us some good inputs to sharpen our strategy. So very happy you all joined this call, and please reach out via the usual channels, if you have any further information request or I would like to speak to us in any other way. So thank you, everyone, and have a nice day. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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FDX 2026 Q1 财报电话会议

Operator: Good day, and welcome to the FedEx First Quarter Fiscal 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to FedEx Vice President of Investor Relations, Jeni Hollander. Jenifer Hollander: Good afternoon, and welcome to FedEx Corporation's first quarter earnings conference call. The first quarter earnings release, Form 10-Q and Stat Book are on our website at investors.fedex.com. This call and the accompanying slides are being streamed from our website. During our Q&A session, callers will be limited to 1 question to allow us to accommodate all those who would like to participate. Certain statements in this conference call may be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press releases and filings with the SEC. Today's presentation also includes certain non-GAAP financial measures. Please refer to the Investor Relations portion of our website at fedex.com for a reconciliation of the non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures. Joining us on the call today are Raj Subramaniam, President and CEO; Brie Carere, Executive Vice President and Chief Customer Officer; and John Dietrich, Executive Vice President and CFO. Now I will turn the call over to Raj. Rajesh Subramaniam: Thank you, Jeni. We delivered a solid quarter in line with the Q1 outlook we shared in June, despite significant volatility and uncertainty around the global trade environment. Our results demonstrate the resilience we have built into our network. They also reflect the dedication of our world-class team who have adapted quickly to serve customers with excellence through an evolving demand environment. I'm very appreciative of Team FedEx. We continue to reduce structural costs while deploying Tricolor, advancing Network 2.0 and improving our European operations. These strategies are enabling us to flex the network faster than ever before and lowering our cost to serve, all while providing our customers with high-quality service. Importantly, we are continuing to win new business in high-value verticals, driven in part by our differentiated digital tools that are enhancing the FedEx value proposition and customer experience. We also continue to make meaningful progress preparing for the spin-off of FedEx Freight, which remains on track. Following the spin-off, Freight will be a separate public company with the best customer value proposition in the LTL market and a proven track record of strong operational execution. Turning to our consolidated Q1 results. Revenue was up 3% year-over-year, driven by strength across our U.S. domestic package services. We achieved our targeted $200 million in transformation-related savings and grew adjusted operating income by 7%. Similar to last quarter, the results at Federal Express Corporation, or FEC, demonstrate the operating leverage that we built into our business. On a 4% year-over-year increase in FEC revenue, we grew adjusted operating income by 17% and expanded adjusted operating margin by 70 basis points. Notably, we achieved this result despite continued headwinds from the trade environment and the U.S. Postal Service contract expiration. Consistent with the industry trends that we have seen in recent quarters, revenue at Freight remained pressure. That said, despite the prolonged weakness in the industrial economy, the LTL market remains rational, and we are well positioned with our disciplined approach to strategic growth. I'm proud of the results our team is delivering across the enterprise, despite industrial economic weakness. While an industrial recovery is not required for long-term value creation at FedEx, I'm confident that we'll unlock significant upside across the enterprise when the demand environment improves. Last quarter, I spoke about the degree to which we flexed our networks to better match the demand environment amid global trade shifts. As policies and demand evolved throughout the first quarter, we further adjusted capacity, thanks to our Tricolor strategy. For example, we reduced our purple tail transpacific Asia outbond capacity by 25% year-over-year. And nearly 10% versus the prior quarter. We also decreased our third-party or white tail capacity by similar percentages. At the same time, we shifted capacity to capture profitable revenue on the Asia to Europe lane. With the full removal of the de minimis exemption in the United States late last month, we have been working closely with our customers, helping them maintain effective and efficient access to the vital U.S. market. Given a significant portion of our de minimis volume exposure previously came from China, we were able to use learnings from our experiences in May to help shippers elsewhere navigate the more recent exemption elimination. This level of connectivity extends to how we're advancing the elements of our transformation that are unique to FedEx. The Network 2.0 rollout is progressing well and customer feedback, especially when it comes to the consolidated pickup experience remains very positive. In the first quarter, as planned, we optimized approximately 70 additional U.S. stations. Our total optimized station count across the U.S. and Canada is now approximately 360, enabling us to exit September with nearly 3 million in average daily volume flowing through Network 2.0 optimized operations. Looking beyond Network 2.0, improving profitability in Europe remains a top priority, and I am especially pleased with the team's year-over-year improvements in labor and on-road productivity metrics. Q1 also marked our best new business quarter in Europe in the last 2 years. Driven by Express parcel growth on both the intra-European and Transatlantic lanes. Importantly, this business was well balanced between B2B and B2C customers demonstrating our focus on growing in premium B2B and longer haul export B2C segments. This commercial strategy, combined with our rigorous focus on cost management led to a meaningful contribution to our year-over-year FEC profit improvement. I talked earlier about how our Tricolor strategy enabled us to flex the network to adapt to changing demand patterns. Tricolor is also driving greater densification and reduced unit costs across our Purple, Orange and White networks. The strategy is simultaneously focused on enhancing service quality and mitigating congestion at major sort locations. Our execution on this important initiative is bolstering end-to-end solutions for global customers as we grow profitably in the global airfreight market. This strategy supported an impressive 14% year-over-year Q1 revenue growth in international priority and economy freight with high flow-through. Data and technology remain foundational to our business, but we are entering a new chapter in how we leverage them. Our founder's vision more than 45 years ago, that information about the package is as important as the package itself has proven precious. Today, FedEx operates an advanced digital twin that goes beyond tracking. It is becoming an intelligent system that anticipates disruptions provides optimized route information in real time and creates predictive customer experiences. We moved 17 million packages through our network daily, generating 2 petabytes of data and 100 billion transactions across software applications. But the real value is in the volume. It is in the unique nature of this data. Our position at the intersection of global commerce gives us an unmatched view of physical supply chain patterns, seasonal demand shifts and emerging trade corridors. This real-world operational data platform cannot be replicated by any competitor or a tech solution. Simply put, FedEx owns one of the richest logistics, intelligent assets in the world. I'm excited to welcome Vishal Talwar, our new Chief Digital and Information Officer and President of FedEx Dataworks, who joined us last month. As the former Chief Growth Officer at Accenture Technology, Vishal brings deep expertise in enterprise AI and understands how to leverage our unique physical digital assets into next-generation AI-led capabilities. Under Vishal's leadership, we will continue accelerating 2 key priorities: scaling AI across the enterprise from enterprise function to how we operate and sell our customers and exploring new revenue models that leverage our unique assets. We're also strengthening our cybersecurity posture to protect our strategic advantages. Before I turn the call over to Brie, I'd like to update you on our expectations for the remainder of the fiscal year. Based on our current assumptions, we expect full year adjusted earnings to be $17.20 to $19 per diluted share. This reflects a range of scenarios in what remains a dynamic global operating environment. As it continues to evolve, we will remain focused on executing on our commercial priorities, dynamically matching capacity with demand and delivering on the $1 billion in transformation-related savings we shared previously. Brie and John will provide more details on the key variables and underlying assumptions for this outlook shortly. We have made tremendous progress on our transformation, and there is much more to come. To that end, we are excited to announce that our next FedEx Corp. Investor Day will be held in Memphis on February 11 and 12, 2026. I look forward to seeing many of you there. Where we will provide more detailed updates on our strategic initiatives and our longer-term financial targets. Now over to you, Brie. Brie Carere: Thank you, Raj. I'm very proud of our entire global team for how they are supporting our customers in the current trade environment. Our strong value proposition, including superior weekend coverage, supported 3% year-over-year revenue growth across the enterprise. This is the highest quarterly rate we have seen since the pandemic. At FEC, revenue was up 4%, driven by U.S. domestic package revenue strength. This was a direct result of profitable share growth in the U.S. domestic market. This strength was partially offset by continued weakness at FedEx Freight due to the continued pressure for the industrial economy. Our value proposition is helping us deepen our customer relationships and win business. For example, in Q1, Best Buy names FedEx as their primary national parcel carrier. Leveraging our advanced visibility tool, Best Buy will provide real-time tracking data and customer order communication, improving their customers' experiences. By providing customers with more timely and accurate updates, the company also expects to reduce support calls, cancellations and reship costs. We are excited to partner with Best Buy to create a smarter, more reliable supply chain that further strengthens their customer trust. We were pleased to deliver a 5% increase in U.S. domestic ADV year-over-year, with growth across the majority of our services. In line with our expectations and consistent with the trends we saw in May, international export volumes declined, particularly on the China to U.S. lane. Knowing our strongest international lane would be under pressure. We pivoted the commercial team, and they have done a tremendous job capturing demand out of Southeast Asia and Europe. This provided a partial offset against the headwinds to demand on the China to U.S. export lane. The team has also done a great job maximizing U.S. outbound capacity. We are seeing improving trends in both outbound weight and volume, supported by strong growth in our health care vertical. At FedEx Freight, along with broader industry trends, average daily shipments declined. Weakness in the industrial economy and excess capacity in the truckload market continue to pressure our results. That said, Freight made excellent progress in the quarter continuing to stand up its dedicated sales team. This team is focused on improving the customer experience and maintaining strong yields. As the industrial economy improves, Freight is poised for growth and margin expansion. The parcel pricing environment continues to improve. We have achieved strong capture from our pricing changes in the quarter, which included an increase in our fuel surcharge index. At FEC, U.S. domestic package yield was up 3%, driven by strength across all services. International export package yield grew 4%, driven by higher fuel surcharges, favorable exchange rate impacts and the reduction in lightweight e-commerce volume due to the change in the de minimis exemption. Our Tricolor strategy continued to drive growth in international priority and economy freight, where we delivered a 9% increase in revenue per pound. At FedEx Freight, revenue per shipment declined 1%, driven by lower revenue per hundredweight and lower fuel surcharges. While weight per shipment was flat year-over-year, we are encouraged by the sequential improvement in weight for shipment over the past few quarters. And FedEx Freight revenue per hundredweight remains amongst the highest in the industry. We announced our demand surcharges in July, which are needed to offset the incremental cost at peak to deliver outstanding service while protecting profitability. Earlier this month, we announced a 5.9% general rate increase effective in January. We expect strong capture from both. In Q1, we prepared for the ramping of our new Amazon business, which was minimal in the first quarter as we expected. We believe the onboarding will be complete by the third quarter, which will support continued U.S. domestic revenue growth in the quarters ahead. This profitable business will skew towards larger, heavier weight packages. We are cautiously optimistic about peak season growth based on what we are hearing from our customers currently. As a reminder, this year's peak season will last 1 day longer than last year. With that in mind, we are expecting a modest increase in peak ADV versus fiscal year '25 and a mid- to high single-digit increase in year-over-year total peak volume, with growth driven by our larger B2C customers. Regarding the full year outlook, we are currently planning for revenue growth of 4% to 6%. The top of this range assumes that current favorable trends in the U.S. Domestic segment continue, and the lower end assumes incremental pressure on U.S. demand, particularly in the second half of the fiscal year. On the international side, the top of the revenue range assumes the current level of international export revenue pressures continue through the rest of the fiscal year, while the lower end assumes an acceleration in these pressures. At FedEx Freight, we expect revenue to be flat to up modestly year-over-year, depending largely on the market conditions in the second half of the year. We continue to advance our commercial priorities, sharply focused on B2B, small and medium-sized businesses, Europe and of course, global airfreight. Within B2B, we continue to onboard new health care business in Q1, building on our momentum from prior quarters. This includes strong health care-related growth within our global air freight business. Later this month, we are launching a new flight linking Dublin and Indianapolis. This new flight will move goods 1 day faster, supporting health care and other high-value verticals with shipments between Ireland and the U.S. We grew our U.S. domestic small business revenue by more than 10% year-over-year in the first quarter. This was fueled by focused and targeted sales execution and a close alignment between our sales and our operations teams. This collaboration is accelerating onboarding, shortening deal cycles and driving meaningful new acquisition. We are also scaling high-impact support to deliver exceptional customer experiences during this complex environment. FedEx Rewards, our loyalty program, which is unique in the industry continues to see significant growth while deepening our SMB customer relationships. In closing, I am very proud of our team's strong execution in this dynamic environment. We are helping our customers manage through evolving policies and changing demand patterns. We remain disciplined in our approach to revenue quality. We are ready to continue providing outstanding service to our customers before, during and after peak. And with that, I'll turn it over to John. John Dietrich: Thanks, Brie. Our Q1 results reflect the tenacity and agility of the FedEx team in providing outstanding service while delivering on our strategic initiatives and increasing stockholder returns. We executed very well in Q1, with results above the midpoint of our adjusted EPS outlook range. We also maintained our disciplined approach to capital expenditure, continue to repurchase stock and grew our quarterly dividend. Turning to our financial results. On a consolidated basis, in the first quarter, we delivered $3.83 in adjusted earnings per share, up 6% year-over-year. And we delivered these positive results despite significant headwinds from reduced international export demand and the expiration of the U.S. Postal Service contract. Overall, we delivered revenue growth of 3%, which supported 20 basis points of adjusted margin expansion and 7% adjusted operating income growth. As Brie mentioned, our yield management and strong commercial execution resulted in higher revenue growth from U.S. domestic packaged services, which contributed to our year-over-year adjusted operating income improvement. We grew adjusted operating income by approximately $90 million despite the $150 million headwind from the global trade environment, $130 million of headwind from the U.S. Postal Service contract expiration and continued softness at FedEx Freight. As a reminder, will lap the expiration of the Postal Service contract at the end of this month. Additionally, our Q1 results reflect a higher-than-expected Q1 GAAP tax rate of 27.3% and which was unfavorably impacted by a nonrecurring income tax expense related to the examination of prior year tax return filings. Turning to performance by segment. At FEC, adjusted operating income increased by $168 million, up 17% and adjusted operating margin expanded by 70 basis points. This marks the fourth consecutive quarter of year-over-year adjusted margin expansion for FEC. This was driven by higher yields, continued cost reduction efforts and increased U.S. domestic package volume. These drivers were partially offset by higher wage and purchase transportation rates and the headwinds I mentioned earlier. As expected, due to the evolving trade environment in the quarter, we experienced a material headwind on our Asia to U.S. lane, largely from China outbound, driving most of the $150 million international export headwind to adjusted operating income. At FedEx Freight, adjusted operating income declined by just over $70 million and adjusted operating margin contracted 250 basis points. Though the current operating environment is challenging for the entire LTL sector, FedEx Freight is uniquely positioned to see strong incremental margins in the eventual market upswing. Moving on to capital allocation. During the quarter, we opportunistically purchased $500 million worth of stock, which, alongside our increased dividend payout demonstrates our unwavering commitment to increasing stockholder value. We have $1.6 billion remaining under our 2024 stock repurchase authorization and subject to business and market conditions, we expect to continue repurchasing shares during the remainder of FY '26. FedEx maintains a healthy balance sheet with $6.2 billion of cash on hand exiting Q1 and with investment-grade credit ratings from the major agencies. I'm also very pleased that our recent euro-denominated bond offering was significantly oversubscribed, a testament to the strength of our business, balance sheet and capital allocation strategy. Q1 CapEx was $623 million, driven by Network 2.0 related facility enhancements of modernization and continued investments to maintain our fleet of aircraft and vehicles. And we continue to target $4.5 billion in annual CapEx for FedEx Corp. in FY '26. With regard to pension contributions, given the well-funded status of our pension plan, we are reducing our expected pension cash contribution. We now anticipate making up to $400 million in voluntary pension contributions to our U.S. qualified plan in fiscal 2026 compared to our prior forecast of up to $600 million. Moving to our FY '26 adjusted EPS outlook, which is based on the information that is known to us today. Though the global operating environment remains fluid with dynamic economic conditions across geographies, our value proposition remains strong, and we continue to execute effectively. As a result, we expect to deliver adjusted EPS of $17.20 to $19, which reflects a range of potential scenarios for the year. Factors that will determine where we ultimately fall in the outlook range include the evolution of global trade, the health of the industrial economy, the U.S. domestic demand environment, traction in our higher-margin B2B verticals and inflation. Adjusted EPS of $18.10, which is the midpoint of our range assumes consolidated revenue growth of 5% and $1 billion in transformation-related savings from our structural cost reductions and Network 2.0 and associated One FedEx savings in FY '26. We expect adjusted operating income offsets to include a $1 billion headwind due to the global trade environment, recognizing this number could flex in either direction as the environment evolves, and a $160 million headwind to adjusted operating income from the expiration of the postal contract. We expect our FY '26 effective tax rate to be approximately 25% and EPS to be supported by our share repurchase program, as I mentioned earlier. At the midpoint of our range, we anticipate a 6% increase in Federal Express revenue with adjusted operating margin down slightly. Also at the midpoint, we expect low single-digit improvement in FedEx Freight revenue with margin down year-over-year. Now turning to our FY '26 adjusted operating income bridge. We're introducing a new view of this bridge to provide deeper insights into the expected drivers of profitability this year. The bridge shows the year-over-year elements embedded in our outlook in one of the scenarios at the midpoint, resulting in adjusted operating income of $6 billion. Of course, the assumptions behind the variables at the midpoint may flex as the environment changes. In this scenario, for FEC volume-related revenue net of variable costs associated with this volume, we expect a $400 million tailwind driven largely by U.S. domestic package services, offset by a material headwind from reduced international export demand. With respect to FEC yield, we expect a $2.3 billion tailwind, demonstrating our commitment to revenue quality and continued pricing discipline. Offsets to these tailwinds include a $2.1 billion base expense increase across the business, excluding FedEx Freight, a $300 million headwind from direct trade-related expenses, including higher customs clearance costs, the $160 million U.S. Postal Service contract expiration headwind I mentioned earlier, a $100 million decline in adjusted operating profit at Freight and a $100 million headwind from the net impact of foreign exchange fluctuations. Embedded in our assumptions are the previously mentioned $1 billion in headwind to adjusted operating profit from the global trade environment and $1 billion in transformation-related savings from DRIVE and Network 2.0. And while DRIVE began as a cost reduction program, it is now fundamental to how we run our business. With regard to Q2 we anticipate a sequential improvement in adjusted EPS. At FEC, we expect to maintain or improve operating margins sequentially. And at FedEx Freight, we expect the year-over-year decline in adjusted operating margin to begin moderating sequentially in Q2. Before turning to Q&A, I want to provide an update on our spinoff of FedEx Freight, which is progressing well and on track for the June 2026 separation. In August, we submitted our confidential Form 10 to the FEC and in September, we submitted a request for a private letter ruling on the tax treatment of the transaction to the IRS. These are important milestones as we move toward the tax-efficient spin-off. Freight now has about 200 frontline LTL sales and sales support personnel on board and is well on its way towards our goal of 400 sales specialists prior to the spin-off. I'm confident that both the expanded dedicated sales force and our ramping technology investments will continue to improve the customer experience. Once separated, FedEx Freight will be a separately traded public company listed on the New York Stock Exchange under the ticker symbol FDXF. And we plan to host our FedEx Freight Investor Day in New York City in spring of 2026 prior to the separation. Overall, I remain confident that the FedEx Freight separation and the continued execution of our strategic priorities will unlock significant stockholder value in the years ahead. And with that, let's open it up for questions. Operator: [Operator Instructions] The first question comes from Jordan Alliger with Goldman Sachs. Jordan Alliger: Thanks for the color on the midpoint. I'm curious on the low and the high end of your EPS range. Is it simply a function of where it comes out in that revenue range? Or is there other things that could help impact where it winds up sitting? John Dietrich: Yes. Thank you, Jordan. It's John. I'll start by saying it's really important to note that we're basing this outlook on the information available today. We did center on the midpoint of our range and I think it's fair to say that where we ultimately land will be determined by a variety of variables. And I touched on them in some of my prepared remarks, including the evolution of global trade and its impact on demand, the health of the industrial economy, U.S. domestic demand and so forth. So it's not any one factor. It's a variety of factors, and we're going to be monitoring those closely. It's going to be a very dynamic environment that we intend to capitalize on. Operator: The next question is from Ken Hoexter with Bank of America. Ken Hoexter: And thanks for the details on the cost there. I just want to dig into that a little bit to understand because if I look at the incremental margin growth of 4% to 5% -- 4% to 6%, yet the incremental operating gains are not keeping pace. So is that because of those the headwinds that you ran through, maybe, John, maybe you can refine that a little bit on the $1 billion cost, the $300 million headwind on the trade expenses? I just want to maybe parse that out a little bit further. John Dietrich: Sure. Yes, there will be pressure. I mean, what we're talking about here is $1 billion of headwind as a result of some of the environmental impacts. So our full year assumption, it does include the removal of the de minimis exemption for the rest of the world that went to effect in the end of August. But I think it's fair to say that, that $1 billion will be something that we'll be focused on, but something that will be a challenge for us as we go forward. Rajesh Subramaniam: If I can add to that, Ken, I think that is a big headwind for fiscal year '26. We're doing everything in our power to make sure that we can improve our customer experience and mitigate the costs as we move forward. The underlying business is very strong as we move into '27 and beyond. Operator: The next question is from Bascome Majors with Susquehanna. Bascome Majors: Raj, you leaned a little further into the data side of the business post the hire Vishal I know we just started a month ago. I don't know if he's on the call or could talk a little bit high level about strategy, particularly where you're talking about finding new revenue models to monetize that part of the FedEx story? Or if not him, just a little more thought on where you're heading in that and how big a business that might be for FedEx going forward? Rajesh Subramaniam: Well, thank you, Bascome, for raising that question. One of the things that we are clear about is the value of the data that we have. We move 17 million packages a day, 2 petabytes of data. As I said earlier, it's not just the volume of the data. It's the value of the data, especially in the dynamic world that we live today. The important thing is that we started this work back in 2020, and we started organizing and engineering this data on a platform basis for some time now. And that's what gives us the edge, especially as AI has now evolved and is moving quickly, the fuel for AI is data. And have engineered data and the high-value data of what we have is now super critical as we move forward. It's already bearing fruit. It's bearing fruit in our operations as deep learning models are enhancing our predictability. We couldn't have done Network 2.0 without the data platform that we have and the technology we have. It's already bearing fruit from a differentiation perspective. We have premium monitoring and intervention tools for our customers and the health care business that Brie's team is winning, 40% of them or on the around platform, which is essentially based on the data platform and AI tools that we have. We also launched the commerce platform FDX, and that essentially is now becoming a workflow tool for our customers or orchestrating their supply chains. And especially in this complex trade environment, those kind of -- it's the added value as we improve our value proposition for moving things across borders and being predictive using GenAI to create value from HS classifications and so on. That area is quite nascent, and we have a long road in runway ahead of us. So our mission and vision has evolved to make supply chain smarter for everyone. It begins with our data platform and the insights that we have on supply chain and the role of AI and the tools that we have. So I think as you look ahead, we'll talk more about this in February as it becomes an enabler for our operations, a differentiator from our customers' point of view, and new revenue models that we can create based on this. So thank you again for that question. Operator: The next question is from Scott Group with Wolfe Research. Scott Group: So any color on the magnitude of sequential earnings growth that you'd expect? And then just -- that was for Q2? And then just bigger picture. If I think about the last couple of years, we've heard we're reducing costs and growing earnings despite lower revenue. And then whenever we get the revenue growth the operating leverage is going to be really strong. And now we've got 5% revenue growth and $1 billion of cost reduction and buyback, but earnings are flat. I guess, why aren't we seeing the better operating leverage? I get the global headwind, but you're still -- you're growing revenue 5% even with that $1 billion global headwind. John Dietrich: So Scott, thanks for that. Let me start with the Q2. And we have focused our commentary on the full year guidance and are not giving Q2 guidance. But that said, as Brie mentioned, we're cautiously optimistic about peak season demand. And we do expect consistent with last year's sequential earnings improvement in Q2 and versus Q1 383, but we're not guiding to Q2 being up or down on a year-over-year basis. We expect continued benefits from our transformation-related savings and large trade-related OI headwind than in Q1 of the $150 million. But just pivoting to your second question on kind of the flow-through. I'll repeat what I said before, we're facing a $1 billion headwind due to the trade environment. In Q1, we experienced $150 million of that to adjusted op income primarily driven by reduced demand out of China on the U.S. lane. And so for the full year, and just to give a little bit more detail, we're assuming a material revenue headwind from the global trade environment. Operating income at the midpoint of the range will require us to execute, but there's going to be pressure. So the flow-through is not as great, given some of the pressures. The $1 billion is embedded in lost opportunity in our FEC volume net of cost line. The direct trade-related expenses for things like customers clearance and staffing and base expense increases. So there's a fair amount of pressure there from which we intend to deliver on and we'll be focused on staying in the range. Operator: The next question is from Tom Wadewitz with UBS. Thomas Wadewitz: John, I guess it's maybe a little more on that same topic that Scott was just asking about. The global trade headwind, I still feel like I don't really understand what it is. If I look at your international export revenue, I think, was up a little bit in 1Q. And then I think on one of your slides you were pointing to some nice reduction in hours in flight hours on Asia, U.S. and both purple tail and white tail. So I guess it's not clear to me what that $150 million in 1Q is. It doesn't seem to be revenue. It doesn't seem to be clear where the cost impact is. So I really just wanted to see if you could just help us understand that a little bit better? And also why that gets meaningfully worse on a full year basis to like $1 billion instead of versus the $150 million in 1Q? Brie Carere: Tom, it's Brie. I'll take the top line question and then certainly let John kind of add in the color on the expense increase. So what we saw in the first quarter is the vast majority of that $150 million was impact from reduction in top line revenue. Specifically, the majority of that is de minimis impacted in coming out of the China lane. We anticipate that, that will continue to flow through the year. In addition to the $150 million per quarter as we are planning for incremental pressure because of the global de minimis change, which took place at the end of August, we've got $100 million of bottom line pressure throughout the year. And then we have $300 million of incremental expense. So to be really clear that $1 billion of headwind is predominantly an impact of top line revenue reduction because China to the U.S. is a very profitable lane for us. John? John Dietrich: Yes. No, Brie, just to add what I mentioned before, I mean, you touched on the direct trade related expenses of the $300 million for additional custom clears and related capabilities and also running through the base expense increases that coupled with the top line that you mentioned. Operator: The next question is from Jonathan Chappell with Evercore ISI. Jonathan Chappell: I think we're all trying to get to the same place here. So I'll just layer on top of Tom and Scott. If this is all the top line impact from the global trade $150 million in the first quarter, yes, [ $850 million ] for the rest of the year, which is close to $300 million. So it's almost doubling the impact in fiscal 2Q,3Q and 4Q. You have to get to the midpoint or even the low end of the full year revenue guide, the rate of change will have to accelerate from the 3% in the first quarter and your year-over-year comps and even 2-year stock comps are more difficult. So can you just help us bridge where the revenue acceleration comes from if this anomalous headwind is intensifying, potentially doubling? Is it all from price and yield? Are you expecting some significant volume pickup at some point absent the global tariff headwinds in de minimis? Brie Carere: Jonathan, it's Brie. So great question. So yes, we were very pleased with the 3% revenue growth in the first quarter. To get to the midpoint of 5%, first of all, we do expect the majority of trends will continue. So right now, what we're seeing in September looks a lot like August with a continuation of trend with a couple of really important notes. Number one, in the first quarter, we had a $280 million top line headwind because of USPS. That goes away in Q2 and beyond. Two, we are still onboarding some of the wins from Q1 -- or Q4 of last year and early Q1. And as I mentioned, as an example, Amazon is still onboarding and it had very little impact in Q1. There are several other examples of onboarding. And then in the back half of the year, we do expect FedEx Freight to have modest yield improvement and better than the first quarter or the first quarter and the second quarter from an expectation perspective. So we do think the midpoint is very realistic, and we're clear-eyed about how to get from Q1 to the rest of the year's range. Operator: The next question is from Brandon Oglenski with Barclays. Brandon Oglenski: Brie, I appreciate all those details. I was wondering if maybe you could walk through the outlook for domestic volumes on the package side again. And it's no secret that your largest competitor is shrinking here. So can you talk about maybe the competitive landscape? What's presenting for market share opportunities and pricing? Brie Carere: Great question. So from a domestic perspective, we're not -- and I'm speaking specifically to parcel. We're not expecting a massive trend chain. We are expecting, as I mentioned, the onboarding. I think you'll see the mix look very similar from a different package profile. A couple of things, the team has done a really good job from an execution perspective. We've had the best momentum in SMB in the last quarter that I've seen for a while, so that's helping our yield growth. From a yield -- the other thing to note is, of course, fuel was very helpful in the first quarter, and that will continue through the year. In addition to that, we executed some price changes that came in, in the middle of the quarter. and those will be helpful Q2 and beyond. So net takeaway, I don't see a massive trend change. This is self-help, if you will. This is market share, strategic profitable market share acquisition and we expect it to continue. To your point on price, we're really focused on winning with the value proposition. We're winning in health care. We're winning in small business. We're winning because of our 7 day. I think you all heard the Best Buy example. Pricing is improving in the market and I think very rational, competitive but rational. Operator: The next question is from Chris Wetherbee with Wells Fargo. Christian Wetherbee: I guess maybe I just wanted to ask about the range. So 4% to 6% on the top line and $17.20 to $19 on the bottom line. Midpoint is 5% of revenue for the midpoint of the EPS. Should we assume that 4% revenue growth lines up with 17.20 and 6%? Is it the $19 side? And then maybe just a quick clarification point. What exactly is the $300 million of direct related expenses on the trade side? Just want to get a sense of what that is? John Dietrich: Yes. Chris, it's John. I would not make that direct connection between the factor you described on the 4% leading to on the low end. As I said before, this is a dynamic environment. There's going to be a lot of puts and takes as we go forward here, and we're going to be aggressively monitoring and managing it. That was just -- we just gave one scenario. As we mentioned when we talked about how we get to the midpoint, there could be a number of others as well. With regard to your second question, I'm just trying to recall if you could -- the $300 million, yes, I'm sorry. That was customs clearance and related staffing and related administrative expenses as a result of adapting to the current trade environment. Operator: The next question is from Richa Harnain with Deutsche Bank. Richa Harnain: Okay. So regarding the top end of your guidance, you said it's predicated on the continuation of strength in domestic. I guess this question for Brie. You saw some of the best conditions you said since like COVID period, your pricing was certainly the best, we believe, since 2022. Volume growth third consecutive quarter of mid-single-digit plus growth in domestic volumes. Brie, you said SMB best momentum you've seen in while. So maybe you can help us understand what's really driving the share gain what do we need to see to make it sustainable? And then regarding the onboarded the business you're onboarding, what does it look like? What's the profitability profile, et cetera? Brie Carere: Thanks for the question, Richa. Honestly, from an execution perspective, we're really focused on strategic segments. SMB, we are selling direct. Our primary competitor sells through more platforms and third parties, and we've really seen some just outstanding execution momentum. We have a loyalty program that is highly effective and we've been very focused on making sure customers are aware and engaged in loyalty program, and that is working from a health care, that's why you're seeing the premium volume momentum that we have seen over the last 2 quarters essentially. So we're pleased with that. Health care is very sticky revenue. It is high service expectations very, very custom SOP and who it is profitable, but it's also very sticky. And then, of course, from an e-commerce perspective, you have seen that HD ground economy bundle working. We are growing there. We are faster than our primary competitor. We have rural coverage that they don't have. And of course, we now cover about 65% of GDP on Sunday. So really pleased with the team's focus, equally pleased with their revenue quality. We've been pulling pricing levers as appropriate and that definitely benefited us in the first quarter, and we anticipate that we'll get a high capture throughout the year. Of course, we're also planning very rigorously for peak surcharges are in place. They are working. The team has got a very, very focused plan for peak that I'm excited about. Operator: The next question is from Ravi Shanker with Morgan Stanley. Ravi Shanker: A two-parter, if I may. On the de minimis, kind of what has been the customer reaction to the expiry of the rule? And do you think that is a new normal going forward? And also, does it feel like there's been much pull forward in international volumes that may have benefited you in fiscal 1Q? And kind of what does that kind of normal run rate look like for the next kind of several quarters as well? Brie Carere: Thanks for the question. I'm certainly not going to speculate on the future trade environment. But I will tell you, obviously, from a customer perspective, it has been a very stressful period. I'm really proud of our clearance operations team and our commercial team because they are lockstep with customers and has been particularly challenging for small exporters because they do not have the expertise and the staffing, and that's where our teams have come in and really partnered with them to help, as Raj talked about, automate some of their clearance inputs from a digital perspective. So we're very, very focused from a partnership perspective, but it has been -- it has been really tough on small customers and exporters. As far as the pull forward, I will remain optimistic the American consumer from our numbers has been resilient. We do not see any indication in either airfreight or our domestic parcel business that this is all forward. I will absolutely acknowledge July was quite strong for us, especially the Prime Week. We saw a lot of U.S. retailers sales in market, and they were affected. We saw strong volumes in July, but I don't necessarily see that as a pull forward. And like I said, right now, from our forecasting, we both peak in the back half, we're confident in the range we put out from a top line perspective. Operator: Next question is from Brian Ossenbeck with JPMorgan. Brian Ossenbeck: Maybe Brie, just to start off by elaborating a bit more on the peak. It sounds like some of its visibility to maybe some of these new contracts that are onboarding, some of it's more of a the macro. So maybe you can separate just how much of the peak strength is FedEx related versus what you see in the underlying market? I think that would be helpful. And also maybe a little bit of context on freight. We didn't get too much color on that, but certainly a tough market and tough quarter, but it sounds like you expect things to stabilize and improve pretty significantly from here. So I wanted to get some additional thoughts on what's embedded in that outlook. Brie Carere: Okay. I think I got it all, Brian, but stop me if I don't hit all of it. From a peak perspective, yes, when we look at kind of the number of operating days in the season of peak, we are expecting kind of from an ADV perspective, sort of a low to moderate growth from an ADV, but total volume will be up because we have that extra day. I do think a relatively significant portion of this volume growth is our acquisition that we took in the back half of last year. And so you're going to have that lapping benefit for us from a peak perspective, I anticipate our numbers will be slightly elevated versus market. I also, from a performance perspective, we do see this driven by large B2C retailers and brands. That's definitely heavy from a peak perspective. Rest assured, we have the revenue quality strategy and the peak surcharges in place. The team has done really good job or lockstep with Scott Ray and the surface team to manage capacity and service. So we feel very good from a peak perspective. But to your point, I don't necessarily think that it is an indicator of overall market performance. From a FedEx Freight perspective, you've all tracked the pressures on the industrial economy, we are the FedEx -- where FedEx is the market share leader in the LTL industry. And so of course, we are feeling that pressure. The team's #1 priority at FedEx Freight and take this responsibility very seriously is revenue quality. We will have the benefit of the lapping in the back half. So we do anticipate that yields will increase in the back half, but we remain very disciplined and very focused. Operator: The next question is from Bruce Chan with Stifel. J. Bruce Chan: Maybe just one on the broader airfreight market. We've been hearing about some potential supply constraints as the global fleet sort of ages here. I guess, first, are you seeing signs of that? And then so how do you think about the flow-through with Tricolor. I imagine you've got some good flexibility to shift volumes sort of between the purple tails and third-party capacity. Brie Carere: Yes. From an airfreight perspective, again, we're a relatively small market share participant from a global airfreight perspective. We are being selective and really focused on premium freight I am particularly proud of the airline team this quarter. They shifted capacity and equally proud of the commercial team. We knew because of the trade environment that our China to U.S. lane, and we are the market share leader there would be pressured. And so we pivoted. We are growing between Asia and Europe, which is a large lane. We're being selective there. And then equally important on the Purple tail that we balance capacity, and the team did a really good job from a U.S. perspective. I'll give the health care team a shout out almost 50% of the weight growth from a U.S. expert perspective came from health care, airfreight, so our health care strategy is working there, too. Rajesh Subramaniam: Bruce, if I can jump in on this Tricolor, if you remember the conversations that we have had before, the idea was to decongest the hubs and to have a truck-fly-truck network so that it links all our networks together optimally and densification of our network. All those are being tracked at KPI level very carefully, and I'm happy to report that the team has done a tremendous job and it's working. And that's what enables us to provide the value proposition to our customers to strategically and profitably grow in these segments. So again, we are in early innings on Tricolor, but the implementation has been stellar. Operator: The next question is from Jason Seidl with TD Cowen. Unknown Analyst: This is [ Elliot Alper ] on for Jason Seidl. So in terms of Network 2.0 and heading into peak season, are you planning for any changes in the process like putting some stations on hold in busier markets as you work through peak. Could that affect any timing in terms of the cadence of the $1 billion in cost savings or anything to think about there? Rajesh Subramaniam: Well, thank you for the question. We are very encouraged by the progress on Network 2.0. The Canada transition is complete and the service levels there are very strong. We're obviously moving forward in the U.S. market underway as we planned. There is no change to the plans that we have set in place. We have exiting Q1 with 18% of our U.S. ADV running through the Network 2.0 model. We have close to about 140 facilities and integrated 360 stations in the process. And at the end of the day, I want to -- that's pretty much as planned, and that's what we will continue to execute going forward. You had rumor that Network 2.0 is an efficiency story, but also a growth story as we improve our customer value and customer experience that this becomes what efficiency part of the equation and also ability for us to grow in this segment. Brie Carere: I think it's important to note, we never plan for a new optimization in the middle of peak. So our rollout schedule it's a given that, that just doesn't happen in peak because service is our top priority for our customers. Operator: The next question is from David Vernon with Bernstein. David Vernon: So John, I wanted to kind of come back to this question on operating leverage and try to help better understand the bridge that you laid out here. When we think about first quarter, is there anything in the comp on a year-over-year basis that may be added to the leverage, whether it's incentives or anything like that? And then as we think about the remainder of the year, right, obviously, there's a lot of things happening on trade and things happening top line, bottom line. Is the answer here of why we're not getting more leverage just that the mix is shifting to less profitable traffic? I'm just trying to kind of really understand this thing at a high level, like if we've got $1 billion worth of costs taking out that would offset the headwind and then we got 5% of revenue growth, like why isn't there more falling to the bottom line? John Dietrich: Yes. As I mentioned before, there's a variety of factors in play here, including kind of the opportunity cost of the hit to revenue as a result of the change in the trade environment. Mix shift is a factor to lower-yielding mix. But I should say it's profitable, it's profitable mix, I want to be clear on that. But that is certainly a consideration. But there's a whole dynamic environment of factors that are putting pressure on us that run the range that are factored into that $1 billion. Operator: The next question is from Ari Rosa with Citi. Ariel Rosa: So just on the revenue growth target, maybe you could help us understand how much of that is coming from new business wins because I don't think that's been totally clear. So like is there a way to segment how much of the 4% to 6% is driven -- is organic versus kind of new business wins? Anything you can give us on kind of the margin contribution of that? And then if I can squeeze one other one in the $600 million of Freight spin costs, maybe you could just give a little bit of color on what that is? John Dietrich: Well, I'll start with the Freight spin costs and then turn it over to that like with any large transaction, there's a significant amount of cost that's incurred it's largely driven by the IT and the systems and enhancing the systems have freight to improve the customer experience. There are some staffing costs, but I would say those are small in the scheme of things. We talked about the sales force and so forth but largely IT-related and systems-related. Brie Carere: Yes. As far as the revenue range, it's a combination of factors, as I talked about. We've got execution from a share gain perspective, we've got execution on getting the right business in and the yield. The one thing that I can emphasize that as we look at the difference between the Q1 and Q2 through Q4, the domestic momentum. One of the larger factors there will be continued onboarding, but we'll also be pushing on yields. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Raj Subramaniam for any closing remarks. Rajesh Subramaniam: Well, thank you, operator. In closing, our Q1 results demonstrate our ability to support customers through this dynamic environment and I'm incredibly proud of the FedEx team for their outstanding commitment to our customers and for driving such strong performance in this quarter. I'm confident that the momentum we have established positions us well for the peak season ahead. Thank you very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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