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Randall Neely: Good morning, and thank you for attending our midyear 2025 results call. I am joined today by Eddie Ok, our CFO, who will walk through the financial and operations highlights as well as Geoff Probert, our COO, who will provide a review of ongoing operations and provide more detail on the progress made to improve our production sharing contracts in Egypt. In addition, Nathan Piper, Director of Commercial, is also available for the Q&A session. Since myself, the new management team, Geoff, Eddie, Nathan and our entire Board joined the company beginning in 2023, we've made it very clear what our goals were. We intended to improve upon the base business in Egypt, reduce overhead and scale down or eliminate all nonviable activities of the company. To do that, we set out with our JV partner in Egypt, Cheiron to negotiate a new consolidated production sharing contract for the 50-50 jointly held contracts. That has been a major undertaking, and we announced earlier this year that we had achieved a major milestone with the government approval of those terms. Geoff will provide more detail on this process and outcome shortly. For those of you that perhaps have not been paying attention to our journey over the past 2 years, I'll remind you that we have exited all noncore activities, and we reduced our G&A burden by approximately 80%, including our staffing contingent, effectively rightsized the organization. As well, the company returned over $600 million to investors through dividends and share buybacks. Operationally, we have worked very hard to achieve technical alignment with our partner in Egypt, and we are very pleased with how that has progressed. Today, I can confidently state that Capricorn and Cheiron are working synergistically to improve the technical and financial results of the joint venture. When this team, Capricorn 2.0 joined, we all recognized that the company needed to instill financial discipline, which included a measured approach to funding investments in Egypt, effectively a self-funding model. Although with the improved fiscal terms and payment schedules, this approach may not appear as relevant today as it was 2 years ago. We do not intend to deviate from this mindset. With our initial goals principally achieved, we are turning our attention to increasing value for our shareholders. Our intent is to do that through 3 principal activities: First, realizing on the improvement of the base business in Egypt. The improvements to fiscal terms and lengthening of contract life will open up significantly new resource for the joint venture to pursue and exploit. Effectively, the amended contractual terms will allow the joint venture to pursue a very large existing resource base to have both reserves and production. Second, we, led by Nathan, our Director of Commercial, will continue to search for opportunities in the U.K. North Sea to realize on our historic position there. We have a strict set of criteria we measure every North Sea opportunity against. And although we have been deep into several processes, we have been unable to successfully conclude any of them. That's been either due to being outbid or the seller just effectively electing to retain the asset. And the third activity that we'll look to add value is looking for synergistic asset deals or business to add to the portfolio. Ultimately, all of these will lead the company to return value to the shareholders. Building business of scale and longevity. Over the past 2 years, the new Board, myself and the rest of the team have made a major effort to transform the culture, priorities and focus of Capricorn. This wheel is meant to capture very simply how we are approaching this. We focus on the small details. We finance the business and any new ventures conservatively. We approach every project with technical rigor and apply strict capital discipline and demand the same of our partners. We approach the business strictly through a self-funding business model and new ventures initiated will require the application of a prudent approach to risk management. I'll let Geoff take the next slide. Geoffrey Probert: Thanks, Randy, and good morning. You can see here on the graphic that we're on the last step of our journey to completing the consolidation of our 8, 50-50 concession agreements into a single extended and improved agreement. Improvements in concession longevity and fiscal terms are a catalyst to increase Capricorn's reserves and production with value and cash flow enhanced by increased investment self-funded from Egypt. For EGPC, this increased and more importantly, sustained investment delivers great production over the long-term for Egypt, and has potential to be a true win-win for all stakeholders. We continue to expect custom ratification in the near future, commencing investment consistent with the new terms in the second half of 2025 and expect new terms and commitments to apply to that investment. Back to you, Randy. Randall Neely: Thanks, Geoff. Now with many of our primary objectives having been achieved, our primary focus for myself and as well as Nathan is to get investors to recognize this value improvement. On the back of an envelope, you can see that we have a base business in Egypt that fully supports our market value. Note that our debt in Egypt has been paid down materially over this year and will continue to be paid down over the coming year. On top of that, we have the cash that resides in the parent company, a value improvement that will be realized upon ratification of our Egyptian-based business and the value that can be realized by future investment in the U.K. North Sea. All of these combined leave us with a near-term potential of doubling our share value, and that's before we expand our operations either in Egypt or elsewhere. I'll now turn the presentation over to Eddie Ok, our CFO, to provide a review of the financial and operating highlights. Eddie Ok: Thanks, Randy, and good morning, all. Production through the first half was in line with projections, and we continue to guide towards the midpoint of our published range of 17,000 to 21,000 BOE per day. Our focus on higher-margin drilling continues to perform as liquids remain slightly above forecast at 43% of production. OpEx is continuing to trend upwards as the currency devaluation impact from last year works its way through our cost structure. This is being exacerbated by declining production against a large fixed cost base, but we continue to work with the operator to ensure that costs are being controlled to the greatest extent possible. We slightly reduced our capital guidance as scheduling is going to push back some current year activity into the following year, but we remain on track to deliver the bulk of our development drilling in the second half. Next slide, please. As can be seen from our cash waterfall, the contingent consideration collected in the half has offset the slow pace of collections from EGPC. In the second half to date, collections have improved, and we're anticipating the collection of at least $90 million in the second half, which will help offset scheduled repayments of our outstanding debt. Up next, Goeff is going to take you through an operational overview of the remainder of the year. Geoffrey Probert: Thanks, Eddie. I'm going to very briefly highlight our first half 2025 Egypt operational focus, give a snapshot of where we expect to invest in '26 and look at our reserves and resources are trending, particularly in the context of the new agreement. This map shows our focus on liquids development and production, particularly in the BED, Abu Roash G reservoir area, and that was all in the first half of 2025. While new agreement has been finalized, we also drilled 3 wells to fulfill our legacy commitments on the 3 pure exploration concessions acquired as part of the Egypt acquisition in 2021. Those exploration commitments are now satisfied with a minor on spend of $750,000 on NUMB. Our joint venture with Cheiron, the operator has elected to further evaluate commerciality of 2 of these wells, and we expect those results later this month. You can also see here that the hatched areas indicated concessions that we expect to form the new consolidation agreements closely the prime contiguous land added for further development and exploration on trend. Next slide. This slide illustrates our expected 4 rig development drilling schedule, 4 rigs to reflect improved agreement terms encouraging us to invest in a longer list of economic wells. Alongside optimization of development well sequence, we continue to work with our JV partner Cheiron to also prioritize non-rig production generation, reinstating shutting wells, identifying additional perforation opportunities on bypass pay. Next slide. This last slide on reserves encapsulates the rationale behind Capricorn negotiating an extended and improved integrated concession agreement on our 50-50 concessions. We expect our ability to replace reserves and extend their life to be materially improved by the extended concession period and improved concession economic terms. We also expect the concession improvement will also impact our risk appetite to chase near-field exploration potential on our newly extended land and our existing land and to develop and mature our portfolio of resources. Capricorn has been working with opportunity hopper on the 50-50 new concession agreement acreage, not just near-term development options, but also contingent and prospective resources. We expect this work will help to underpin future reserve and resource bookings and may also direct and prioritize productive drilling activity. You can see here that internally, we've identified a working interest around 350 million barrels of oil equivalent unrisked best estimate contingent resources to mature. Near-term license extensions resulting from an approved integrated concession potentially support the early conversion of up to a working interest nearly 20 million barrels oil equivalent to reserves, with further reclassifications anticipated, all underpinned by 5-year investment plans. Once approved, we expect to rapidly move to drill wells to exploit those reserves additions. Thanks for your time and attention. Now I'm passing over to Randy to wrap up. Randall Neely: Yes. Thanks, Goeff. I trust that those of you that have been following the Capricorn story since this team took over will agree that we have had a strong record of delivering on company objectives. To summarize, we set out to improve the Egyptian business by making it both long-term sustainable and a platform for growth. We are very near the confirmation of that objective with ratification occurring in the near future. The new PSC will provide a catalyst for increases in reserves for investment and value improvements. Additionally, we are seeing and hearing reasons to be optimistic about the future reduction of our outstanding receivables and a more stable, consistent payment plan from EGPC. And while we have been slower than we hoped to be to deliver or realize an embedded value for us to reinvest in the U.K. North Sea, we remain steadfast in our goal to achieve this objective. Beyond our current operations in Egypt and our near-term goal of expansion in the U.K. North Sea, we are actively looking for synergistic opportunities in the areas of our capabilities and credibility that we have in Capricorn and our team. Well, that's it for our formal presentation. Thank you very much for dialing in, and we'll now take questions from analysts online. Operator: [Operator Instructions] We now take our first question from James Hosie of Shore Capital. James Hosie: A couple of questions for you. Just firstly, on the improved trade receivable position and the payment plan. You've already received $37 million since the midyear and the release mentioned today a $50 million payment being due in October. Just wondering if it's reasonable to think that Capricorn is on track to collect more in H2 than the minimum $90 million you referred to. And then second question is just wondering about the updated competent persons report you plan to publish once the new concession term is ratified. Should we expect that to include revised 2P production and CapEx profile? Are you simply just going to apply the assumptions you used in July CPR to the new concession terms? Eddie Ok: I'll take the AR question. Yes, you're right. We've received $37 million to date, and we're expecting a $50 million bullet here in the near term. We're remaining conservative about our collections assumptions. But yes, if all goes according to plan, we should be collecting in excess of that with a material reduction in our receivables possible by the end of the year. Geoffrey Probert: And Goeff here, I'll pick up the other question, James, on CPR revision. When we issue that CPR, yes, it will be the midyear actually to understand. It will include revised CapEx profile deductions for production. It will be a full update. Operator: And we'll now move on to our next question from Chris Wheaton of Stifel. Christopher Wheaton: A question for me also on working capital, but trying to look forward a bit further. What provisions in the license renegotiation has there been for working capital recovery? Because my concern when you start drilling and exploiting some of that upside resource potential is, you've got to start really putting CapEx in the ground first, then your production goes up, then you get the cash flow. Well, then you actually sell the oil, then at some point in the future, you get the cash flow. So there could be quite a significant working capital burn at least to start with unless Egypt are prompted in paying those receivables back because with the higher CapEx as well as the higher OpEx, then your receivables amount is going to start building quite quickly unless you get those regular repayments. Could you talk about how you've tried to mitigate those risks in the license renegotiation? And secondly, what that means for potential timing of dividend payouts because I still see your priorities as being first pay down -- first, you've got to keep investing in the drilling. Secondly, you've got to pay down the debt remaining in Egypt and then possibly shareholders could start to get some more cash back. So I'm interested in that implication for your future dividend payments. Eddie Ok: Chris, I'll take that. Yes. So we've got obviously a material investment sort of obligation opportunity in Egypt as a result of the modernized concession agreement and one that we're happy to deliver on given the economic return that's represented by that investment. Just keep in mind, we're still producing 20,000 barrels of oil equivalent per day in Egypt with the corresponding build in cost pools, profit oil, profit gas as well as our existing receivables position. And as you folks have seen historically, we're managing the business quite carefully with respect to invested dollars against realized dollars out. And so that philosophy is not going to change going forward. Part of the overriding imperative on this deal has to be that our shareholders realize a return. Now based off of historical decisions, historical investments, we've got a fairly really weighted debt burden hanging over this asset base. But we plan on honoring those debt commitments with repayments of that debt coming up over the next couple of years as well as delivering on these capital investments. And to your point, yes, after that, and as always, our overriding concern is going to be on shareholder value and how do we deliver that value in the asset base to the shareholders over time. Geoffrey Probert: Jack, I may just add one thing. That is the -- background to negotiations create, let's say, a more investable concession agreement and bond agreements and that creates relevance. I mean the whole purpose is not just to create value for the shareholders also to get paid. By improving the terms, we have an investable set of concessions where before, frankly, that it was a pretty weak place to be. Each we pays those who have the capacity to invest. And by that, I mean the places they can invest economically. So it's a bit of a symbiotic outcome for both we invest, we get great production, we get paid so that we can invest and we generate returns. They do accept that part of it. In terms of the overall commitments we have to make in terms of investment, the terms are -- if you look at our historical investment profile in Egypt on a working interest basis, they're quite modest. It's spread over a number of years -- if there happens to be a short-term problem around payments for a while, we can just dial back investments, while that happens and dial those investments back up again in the future. So we're pretty confident that this structure and the new concession agreement will generate the right opportunities for us to invest and be paid at the same time. Christopher Wheaton: Okay. Just to be clear, the concession doesn't include -- the revised concession agreement doesn't include a sort of contractual basis for this is how receivables will be paid and this is sort of [indiscernible]... Randall Neely: Yes. I'll take it. Yes. So Chris, that's in there already. Like, those terms are in the existing contracts. So... Christopher Wheaton: Right. They are totally fine. Randall Neely: Yes. What the situation is Egypt sometimes struggles to keep up payments just because of their own fiscal issues and where they're prioritized. But we're seeing -- we're seeing that mindset change. And that's because Egypt is short energy and they've struggled to sort of keep the production moving in the right direction given the local demand. And so that's what we're seeing change over the past 18, 24 months as they're moving into more reprioritizing IOC payments in order to at least maintain production rather than things slip off or go to other jurisdictions. Operator: Thank you. We have no further questions in the queue. I'll now hand over for webcast questions. So we've got a few questions from Charlie Sharp at Canaccord. First question, what liquid proportion of total production would you expect to be able to achieve over the next 6 to 18 months? Randall Neely: So actually, I didn't quite hear that. Operator: What liquid portion of total production would you expect to be able to achieve over the next 6 to 18 months? Geoffrey Probert: I don't anticipate a significant change in the overall proportion. We recorded rather a 42%, 43% liquids in the last half, and we anticipate that continuing going forward. It might now just a little bit, but it's not going to increase significantly in the next 6 months. Operator: Next question from Charlie. What sort of test results on the 2 exploration wells would support commerciality and what would the next operational steps to be? Randall Neely: So obviously, the rate and sustainability, so the pressure drop if there is the reservoir during the testing phase there are -- as is often the case in these Western Desert reservoirs or wells, there are multiple potential pay zones. We have to look at productivity, we have to look at sustainability. And we have to look at the distance to the nearest infrastructure. These wells are reasonably close to nearby infrastructure, but that doesn't make them seldom. So yes, that's pretty much how we look at the wells. In terms of the next steps, we take the data, we will evaluate it and with our partner, the operator Cheiron, we'll make a proposal if we see economic value to do so to complete and hook up those wells into nearby production facilities. Operator: Great. And final question, can you provide some guidance on expected year-end 2025 receivables? Eddie Ok: Sure. It's in the release. If you take a look at what our historic production is and the forecast going forward against what our projected collections are that you should be able to back into that number pretty quickly. And like I said, it's going to be a conservative estimate for the year-end, but that's what we're guiding towards. Operator: No further questions from the webcast. So I'll hand over to you for any closing remarks. Randall Neely: Thanks, Kelly. I just want to say thanks, everyone, for dialing in or listening in, afterwards, and we look forward to speaking to many of you live over the coming weeks. Have a great day.
Operator: Greetings, and welcome to the Darden Fiscal Year 2026 First Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded. [Operator Instructions] I'll now turn the call over to Ms. Courtney Aquilla. Thank you. You may begin. Courtney Aquilla: Thank you, Kevin. Good morning, everyone, and thank you for participating on today's call. Joining me are Rick Cardenas, Darden's President and CEO; and Raj Vennam, CFO. As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed this morning, and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call, which is posted in the Investor Relations section of our website at darden.com. Today's discussion and presentation include certain non-GAAP measurements, and reconciliations of these measurements are included in the presentation. Looking ahead, we plan to release fiscal 2026 second quarter earnings on Thursday, December 18, before the market opens, followed by a conference call. During today's call, I'll reference to the industry Chuy's results refer to Black Box Intelligence Casual Dining Benchmark, excluding Darden. During our fiscal first quarter, average same-restaurant sales for the industry grew 5% and average same-restaurant guest counts grew 2.6%. Additionally, due to the continued divergence between average and median results, we are sharing that median same-restaurant sales for the industry grew 3.3% and median same-restaurant guest counts grew 1.3%. This morning, Rick will share some brief remarks on the quarter, and Raj will provide details on our first quarter and share our updated fiscal 2026 financial outlook. Now I will turn the call over to Rick. Ricardo Cardenas: Thank you, Courtney, and good morning, everyone. We had a great quarter with same-restaurant sales and earnings growth that exceeded our expectations. For the first quarter, 3 of our 4 segments generated positive same-restaurant sales and traffic growth. The strength of our results is a testament to the power of our strategy. Across our portfolio, our restaurant teams remain focused on being brilliant with the basics through culinary innovation and execution, attentive service and an engaging atmosphere, all enabled by our people. And at the Darden level, we continue to strengthen and leverage our 4 competitive advantages of significant scale, extensive data and insights, rigorous strategic planning and the quality of our employees to further position our brands for long-term success. Olive Garden same-restaurant sales grew 5.9%, driven by compelling food news and the continued growth of first-party delivery. Early in the quarter, Olive Garden's marketing highlighted their Create Your Own Pasta platform from the core menu. Their television creative featured a new Spicy 3-Meat Sauce and Bucatini pasta starting at $12.99. This new sauce taps into guest evolving tastes for bolder, more flavorful offerings. It was well received and helped drive a significant increase in preference for the Create Your Own Pasta platform. Olive Garden built on the momentum of bold and spicy flavors by debuting Calabrian Steak and Shrimp Bucatini for a limited time during the quarter. The dish exceeded expectations and quickly became a new guest favorite, ranking among the top 10 entrees for preference. First-party delivery through our partnership with Uber Direct is helping capture younger, and more affluent guests who value convenience and crave Olive Garden. This represents a significant incremental opportunity for the brand as these guests have a higher check average and typically do not use Olive Garden for an in-restaurant dining occasion. Olive Garden's advertising featuring 1 million free deliveries concluded in the first quarter with all the free deliveries being redeemed. Average weekly deliveries doubled throughout the campaign. Following the campaign, delivery order volume has remained approximately 40% above the pre-campaign average. The team will continue to promote delivery across a number of channels. On our last call, we talked about putting a greater emphasis on sales growth and reinvesting to drive long-term growth. One of the ways we're doing this at Olive Garden is by strengthening affordability on the menu to give guests more variety at approachable price points. During the quarter, Olive Garden began testing a lighter portion section of the menu, featuring 7 of their existing entrees with reduced portions and a reduced price. These items available at dinner and all day during the weekend still offer abundant portions and come with Olive Gardens never-ending first course of unlimited Breadsticks and unlimited soup or salad. 40% of Olive Garden restaurants currently offer this menu and the initial response from guests has been encouraging, with affordability scores increasing 15 percentage points and high satisfaction with portion size. I have confidence in Olive Garden's initiatives for the year as well as their 5-year road map to sustain long-term growth and success. LongHorn Steakhouse grew same-restaurant sales by 5.5%, driven by continued adherence to their strategy rooted in quality, simplicity and culture. The team continues to raise the bar in food quality by consistently executing every dish on their menu to their high standards. This is reflected by LongHorn's #1 ranking among casual dining brands -- major casual dining brands within Technomic industry tracking tool for food quality, service, atmosphere and value. I'm really proud of the operational consistency at LongHorn and the work the team is doing to maintain their momentum. Same-restaurant sales for our Other Business segment grew 3.3% during the quarter, driven by strong performance at Yard House, Cheddar's Scratch Kitchen and Seasons 52. During the quarter, Yard House strengthened their competitive advantage of distinctive culinary offerings with broad appeal by enhancing their taco platform with higher-quality ingredients and more options for guests. As they have seen with similar investments in their burger and pizza platforms, this resulted in higher preference and guest satisfaction. To help strengthen their competitive advantage of a socially energized bar, Yard House held its third annual Best On Tap Competition during the quarter. What began as a test of knowledge and hospitality skills has grown into a cornerstone of the Yard House culture where every bar tender competes. Congratulations to this year's winner, Michelle Younes from the Yard House at City Center in Houston, Texas. The Cheddar's team leverages efficiency and Darden's purchasing power to provide great food served at a wow price. During the quarter, they introduced a Hawaiian sirloin, a center cut top sirloin finished with pineapple and a sweet Hawaiian glaze, starting at $16.49. This limited time offer also included a Honey Butter Croissant and 2 sides for that price. In Technomic most recent survey, Cheddar's ranked first among casual dining brands for both price and affordability. During the quarter, Cheddar's also saw strong off-premise sales growth driven by first-party delivery. Off-premise sales grew 15% during the quarter, and the Cheddar's team will continue to promote delivery through owned and digital channels as well as in restaurants. Same-restaurant sales for the Fine Dining segment was slightly negative for the quarter, but I'm encouraged by the actions each of our Fine Dining brands are taking to address the softness. For example, in the current environment, more guests are seeking price certainty, and Ruth's Chris Steakhouse introduced a 5-week limited time offer featuring a 3-course menu that drove positive comps for the quarter. For $55, guests could select 1 of 3 entrees as well as a super salad, an individual side and dessert. The offer was well received with strong guest preference and sales lift. Now I want to share a quick update on the sale of 8 Olive Garden locations in Canada that I referenced during our last call. On July 14, we closed on the sale of those locations to Recipe Unlimited, the largest full-service operator in Canada. At closing, we also entered into an area development agreement with Recipe Unlimited to open 30 more Olive Garden's over the next 10 years, 5 of which have already been approved. Our franchising team is focused on growing our global presence. Today we have 163 franchise locations, which includes 63 in the Continental United States and 100 outside the Continental U.S. Last month, we held our annual leadership conference, which provides a powerful way for us to engage with every general manager and managing partner across our brands, celebrate past performance and align on key operational priorities. This was also an opportunity for these restaurant leaders to learn about their brand's 5-year business plan and understand what they need to do to win today and into 2030. The opportunity to interact with this talented group of operators is one of the highlights of the year. I came away energized by the level of engagement and passion on display, which further reinforced the results of our most recent engagement survey, a new all-time high for Darden. Overall, I am pleased with the strong start to our new fiscal year. Our strategy is working, enabling us to grow sales and take market share while meaningful -- making meaningful investments in our business and returning capital to our shareholders. Beyond that, we have a larger purpose at Darden: to nourish and delight everyone we serve. One of the ways we do this is by fighting hunger. Once again this year, Darden is helping Feeding America add refrigerated trucks for 9 member food banks. With the addition of these new trucks, the Darden Foundation, with support from our partner, Penske Truck Leasing, has funded more than 50 vehicles to meet the increasing demand for food assistance in communities where we operate. Our philanthropic giving would not be possible without the efforts of our 200,000 team members and their passion to nourish and delight our guests and communities. Thank you for all you do. Now I'll turn it over to Raj. Rajesh Vennam: Thank you, Rick, and good morning, everyone. The first quarter was another strong quarter for Darden. Sales and earnings growth exceeded our expectations as our sales momentum from the fourth quarter continued into the first quarter. This strong top line sales growth and our significant scale provide us with the opportunity to keep a long-term perspective and continue investing in our business. In addition to the menu investments Rick mentioned, the largest investment we made over the past several years is pricing below total inflation. During the first quarter, our pricing was 30 basis points below inflation. We generated $3 billion of total sales, 10% higher than last year, driven by same-restaurant sales growth of 4.7%, the acquisition of 103 Chuy's restaurants and the addition of 22 net new restaurants. Both our same-restaurant sales and same-restaurant guest counts for the quarter were in the top quartile of the industry. Adjusted diluted net earnings per share from continuing operations of $1.97 were 12.6% higher than last year. We generated $439 million of adjusted EBITDA and returned $358 million to our shareholders this quarter by paying $175 million in dividends and repurchasing $183 million in shares. Now looking at our adjusted margin analysis compared to last year. Food and beverage expenses were 20 basis points lower, driven by pricing leverage as commodities inflation was approximately 1.5% for the quarter. Restaurant labor was 20 basis points unfavorable as a result of high performance-based compensation expense, including a higher 401(k) match for our restaurant teams. Total labor inflation of 3.1% was fully offset by pricing of 2.2% and productivity improvements. Restaurant expenses were 10 basis points higher as sales leverage was more than offset by Uber Direct fees and the brand mix with the addition of Chuy's. Marketing expenses were flat as cost savings in marketing helped fund additional marketing activity in the quarter. This resulted in restaurant-level EBITDA of 18.9%, 10 basis points lower than last year. Adjusted G&A expenses were 30 basis points favorable. Synergies from the acquisition and leverage from sales growth were partially offset by unfavorable mark-to-market expense on our deferred compensation. Due to the way we hedge mark-to-market expense, this unfavorability is fully offset in the tax line. Interest expense increased 10 basis points due to the financing expenses related to the Chuy's acquisition. Our adjusted effective tax rate for the quarter was 10.5%, helped by the mark-to-market hedge I mentioned earlier. Our effective tax rate would have been approximately 12.5% without this impact. In total, we generated $231 million in adjusted earnings from continuing operations, which was 7.6% of sales. Looking at our segments for the quarter. Total sales for Olive Garden increased by 7.6%, driven by strong same-restaurant sales and traffic growth. The sales from the addition of 18 new restaurants more than offset the sales loss from the refranchising of 8 Canadian restaurants. Their sales momentum continued from the prior quarter with same-restaurant sales in the top decile of the industry and outperforming the industry benchmark by 90 basis points. Olive Garden delivered a strong segment profit margin of 20.6% for the quarter, which was only 10 basis points below last year, even with the investments in affordability and the impact of delivery fees. At LongHorn, total sales increased 8.8%, driven by same-restaurant sales growth of 5.5% and the addition of 18 new restaurants. The sustained sales and traffic outperformance resulted in same-restaurant sales in the top quartile of the industry for the 13th consecutive quarter, with this quarter ranking in the top decile. The LongHorn team is doing a great job of staying focused on their strategy and maintaining momentum within the business despite continued cost pressures. Higher-than-expected beef cost towards the end of the quarter and pricing below total inflation of approximately 100 basis points resulted in segment profit margin of 17.4%, 60 basis points below last year. Total sales at the Fine Dining segment increased 2.7%, driven by the addition of 5 net new restaurants. While same-restaurant sales for the segment were slightly negative, the strong performance of the limited time offer at Ruth's Chris helped to offset the continued challenges within the Fine Dining category. Overall, segment profit margin was lower than last year. The Other Business segment sales increased 22.5% with the acquisition of Chuy's and positive same-restaurant sales of 3.3%. The positive sales momentum and continued productivity improvements in multiple brands within the segment resulted in segment profit margin of 16.1%, 90 basis points higher than last year. Now turning to our financial outlook for fiscal 2026. This morning, we updated a few items in our guidance, taking into consideration actual performance year-to-date and the evolving commodities outlook for the remainder of the fiscal year. We are raising our expected total sales growth and tightening the range of same-restaurant sales to reflect the outperformance in the first quarter, acceleration in our new unit pipeline and any incremental pricing we may take to partially offset the additional commodities costs. We now expect total sales growth of -- for the year of 7.5% to 8.5%, same-restaurant sales growth of 2.5% to 3.5%, approximately 65 new restaurant openings and total inflation of 3% to 3.5% with commodities inflation of 3% to 4%. All other aspects of our guidance remain unchanged, including adjusted diluted net earnings per share between $10.50 and $10.70. While we are reiterating our full year earnings per share guidance, we expect the lowest year-over-year EPS growth to be in the second quarter, driven by the significant step-up in beef costs and our measured approach to pricing for these costs. We expect our pricing for the second quarter to be approximately 100 basis points below total inflation. We have a proven track record of successfully navigating through higher costs, and we'll continue to take a disciplined approach to ensure the long-term health of our business. We believe our strategy remains the right one for our company. Now we'll take your questions. Operator: [Operator Instructions] Our first question today is coming from Brian Harbour from Morgan Stanley. Brian Harbour: Maybe just on that last point first, Raj, could you talk about sort of contracting through the balance of the year and sort of what gives you visibility that you've kind of encompassed the range of food cost outcomes? Rajesh Vennam: Yes, Brian, I think if you look at what we published this morning, we -- our coverage is less than typical, especially in beef. Right now, we only have about 25% coverage in beef for the next 6 months. And that's one of the biggest opportunities in terms of where we're seeing the biggest headwinds. And I think as you all know, there's been a significant spike in beef costs recently, especially tenders and rebuys, so -- and we don't believe these price levels are sustainable, and that's why we don't have as much coverage, and that's part of the reason. And given the significant price increase, there are -- we are starting to see some demand disruption in retail. So I guess, really the big picture, beef is the biggest variable here. And then the other component here where you're seeing a higher inflation is on seafood, primarily due to the tariffs on shrimp. And our team is working through to figure out how to mitigate some of that. And that's really the reason why we're taking the inflation up from 2.5% at the beginning of the year to now 3% to 4%. But this situation is still very fluid here. Brian Harbour: Rick, maybe just on the comments about sort of the new portion sizes at Olive Garden. What -- are you seeing sort of a different guest that is asking for that? Do you think this is actually sort of a traffic driver for Olive Garden? Or I guess, on the other hand, do you think this is check dilutive in some sense? Like how are people actually sort of approaching that? What are you seeing from those items? Ricardo Cardenas: Yes, Brian, it's still pretty early. We do believe in the long run, this is a traffic driver. It will dilute our check a little bit if people trade from a higher portion size item to a lower portion size item. But we believe that's the portion that those guests want. And it's very early indications are that we're seeing a little bit more frequency. But it's not necessarily new guests because we haven't marketed it, and we put it in restaurant without even any fanfare and it's just people are gravitating towards that. It's not significant preference gravitating towards it, but there is some preference moving there. Operator: Next question is coming from Jon Tower from Citi. Jon Tower: Great. Maybe kind of in the same vein, that -- the affordability pivot and -- this quarter as well as the Uber Eats amplification or build in the quarter. Can you maybe speak to how that hit on the cost line during the period? And I noticed that, obviously, the restaurant margin, you didn't lever that as much on a pretty solid comp in the period. So maybe, Raj, if you could speak to those costs during the period and what you're expecting going forward as well. Rajesh Vennam: Yes, Jon, let me first start by saying these are things we planned on and we had in our plan. And I think we said -- that's why we said we're actually exceeding our plan. And it's actually -- the fact that the segment profit margin is only down 10%, they're still north of 20%, is a testament to the strength of the business model at Olive Garden. Now with that said, let me explain a little bit more detail. First of all, we still priced below total inflation. Olive Garden's pricing was only 1.9%. So that's a pretty low price in this environment given that, again, the total inflation. Second, specific to those 2 items, they were roughly on the margin, if you just purely look at the margin percentage impact, they are probably about 20 basis points each. So if you put that back, I mean, we would have been positive 30, right? But that's, again, even with pricing below inflation. So I think that's sort of a key metric that we need to take into consideration because we believe, long term, these are the right decisions we're making. And I think any business would envy a 20-plus segment profit margin. Jon Tower: And then maybe just drilling a little bit more into the delivery business at Olive Garden. Can you talk about -- Rick, you had mentioned that you're pleased with how, obviously, you're seeing younger guests make their way in, more affluent. Can you give us any more information on the frequency of those guests? Are they coming more so than what you're seeing within the store in terms of frequency and how they're using it even, obviously, it hasn't been a year yet, but seasonally, how they're maybe using that channel relative to in store? Ricardo Cardenas: Yes, Jon. We've said -- as we said in the past, we are getting higher frequency for delivery guests than we are in dining guests. It's still early. We haven't had the delivery for a year yet, as you mentioned. As to seasonality, the one thing that Uber told us is normally, over the summer, delivery orders start to kind of fall off. And we really hadn't seen that. So we'll know a little bit more about the seasonality of delivery after we've passed a year or maybe even 2 years, because it continues to grow for us. That said, we're very excited about how delivery is going. And as Raj mentioned earlier, we are using some of that extra guest count and extra margin to invest for all guests, and we feel really good about that for the long term. Operator: Next question is coming from David Palmer from Evercore ISI. David Palmer: Aside from the beef cost question, I think there's probably 2 areas that are major areas of curiosity, and I certainly share them. And one is the strong performance of the casual dining segment, which is becoming increasingly unusual after fast casual has slowed through the year, through the middle of this year. And another, I think, is Olive Garden against more difficult comparisons later in your fiscal year. How will it do and what are you lining up against that? So those are really my 2 questions. What are your thoughts about why casual dining is doing as well? And do you think that will continue? And then separately, Olive Garden, you're rolling out a pretty large test on small portions, but what are your thoughts? And what are you kind of lining up to keep the momentum going as you get into lapping some of the good stuff you've been doing in the last 3 or 4 months? Ricardo Cardenas: Yes, David. I believe the strong casual dining segment is driven by, generally, less pricing than other segments of dining, for the segment itself, for casual dining itself. And for the larger players in casual dining, even lower pricing than casual dining total. So there's -- the guests are starting to see the value that casual dining brings. Now we've been seeing that for a few years now, as you know, it's just others are kind of following in line with that, and we're seeing that the guests see the value. Also, when they're trying to figure out where they spend their money, they're going to places where they can connect and engage with their friends and family. There may be less snacking going on and less kind of munching, but when people are going out to eat, they're going out to where they can feel they can get a great meal at a great value and have time with their friends. In regards to Olive Garden for the back half of the year, we have plans to continue the momentum. We do know that the comparisons get a little bit more challenging. But the Olive Garden team is working on things that we could do in the back half of the year. We've got a great plan. We do believe that, over time, the affordability items on the menu, the lighter portion -- I don't want to call them affordability. They're the right portion size for the right price for a group of consumers, that will eventually drive more traffic. It might not drive it in the back half of the year because we're not talking about it yet. That said, we may start talking about it in the back half of the year. So there's a lot of things that we're going to do. We've got a great team. And we'll react to whatever the sales trends look like at Olive Garden, and we'll go from there. Operator: Next question is coming from Jim Salera from Stephens. James Salera: I was hoping you could give us a breakdown on LongHorn, just the comp split between traffic and ticket. And then as a follow-up on that, have you seen any increased engagement with consumer -- you mentioned, obviously, pricing 100 basis points below inflation. Should we kind of expect that similar gap to progress through the year? Or any thoughts around how we should expect pricing to trend? Rajesh Vennam: Yes. So let's start with the LongHorn traffic versus -- LongHorn traffic was up about 3.2% for the quarter. The same-restaurant sales were 5.5%. So the check was 2.3%. Their pricing was 2.5%. They had a little bit of a negative mix, primarily [indiscernible], of 20 basis points. In terms of pricing versus inflation, at LongHorn, as we said, we -- there was a bigger spike in beef prices. That was a little bit of a surprise at the end of the quarter. But we also had planned on having some gap to pricing. So it further widened, I guess, by the time we ended the quarter, a little bit. As we look through the year, we expect second quarter, at the Darden level, without getting specific segment level here. At the Darden level, we expect pricing to be about 100 basis points below inflation, and we expect that gap to narrow as we go through the year. And so you would expect the pressures on the margin to be -- kind of follow that, right? So we probably have the biggest gap in Q2, maybe cut that in half by the time you get to Q3 and then try to narrow that further as we get to Q4. But consistent with our philosophy, our pricing for the full year will probably be -- we'll end up being below inflation. Is it going to be 30% or 50%? I don't know. We're working through that. I think our -- we've been always very thoughtful about what cost do we actually price for. And we don't want to price for temporary costs. We want to price for, over time, find other ways to solve for these incremental costs. And that's what our team is focused on. James Salera: Great. And then you guys mentioned the value-focused menu expansion at Olive Garden. Is that something that we could see maybe in a more limited fashion at LongHorn as well, maybe focus on like appetizers or smaller plate items? Or is that something that right now it's just Olive Garden focused? Ricardo Cardenas: Yes. We're doing this at Olive Garden to see how that works out. And if other brands think that it makes sense for them and they get the learnings from Olive Garden, maybe they will implement. But right now, the focus is the Olive Garden and it's the Olive Garden team that's driving it. And as I said, we'll see how that goes. Now there might be some things that LongHorn does in the future or other brands do in the future, but they'll make those decisions as those times come. Operator: Next question is coming from Eric Gonzalez from KeyBanc Capital Markets. Eric Gonzalez: Just a few quarters ago, you talked about some strength among the lower income consumers. Obviously, most of your peers, particularly on the fast food side, are talking about weakness among that cohort of income. So if you maybe you could talk about what you're seeing from an income perspective, and are you gaining share among lower-income consumers? Do you think that part of the equation is actually holding yourselves up relative to your peers? And are you seeing some maybe trade into the category from some of the higher-income folks, particularly on the casual dining side? Ricardo Cardenas: Yes, Eric, specific to casual dining, all our casual dining brands saw an increase in visits year-over-year from guests across all income groups, but specifically those in higher income groups. So you would expect that would have been -- that could have been some trade down, but it could be trade up from a lower income group to a great value in casual dining. We are seeing a few shifts in behavior and that guests are going towards what price certainty, so they know what they're going to pay before they come in, or greater perceived value even if the item is a high price. So if you think about the Calabrian Steak and Shrimp that we had at Olive Garden, great preference, great perceived value. It was the highest priced menu item on the menu. But we are seeing, as I said, for casual dining brands, growth among all income groups. Eric Gonzalez: Great. And then on the -- just to close the loop on the commodity discussion. Based on where the commodities are now and what you've locked in, I know you're a little bit lighter on the beef side, what do you think that implies for store-level margins? And what's embedded in the guidance? In the past, you talked about modest margin expansion you still think you can get there based on what you did in the first quarter and where you are locked in. Rajesh Vennam: Eric, I would refer you back to our long-term framework, which basically talks about our earnings after tax from 0 to 20 basis points growth. So if you look at our guidance, even at the low end, we're basically either flat or growing margin at the Eat level. We don't want to focus too much on any one line item, and for us, ultimately, if we're able to achieve our long-term framework and get the targets we want to get to by investing more in the guest, we want to do that. If that means that the segment profit margins are down year-over-year, that's not something we're concerned about. I think our focus ultimately is on -- at the Eat level, at the earnings after tax level, are we staying flat or growing margins? And that's -- we feel like we're still on a path to get there. Operator: Next question today is coming from David Tarantino from Baird. David Tarantino: Rick, I had a question about your views on the overall health of the consumer spending environment. Certainly, you had a great quarter. But I guess over the last few months, we've seen a lot of crosscurrents related to the job updates and whatnot. So I'm just maybe wanting to get your thoughts on where we are from the state of consumer spending and whether you think anything's changed recently relative to maybe where you thought it was at the start of the year. Ricardo Cardenas: Yes, David, I can't say that anything has changed dramatically from where we saw it at the start of the year. We are ahead of where we thought we'd be right now. There's a lot of talk about the job revisions, but those jobs didn't exist. So that's what people were working. And so we're dealing with what was actually happening, not what was thought to be happening. And so I believe that the August retail sales were up pretty significantly, and we had a pretty darn good August too. So I don't see any dramatic change to what we thought the consumer was. David Tarantino: Great. And Raj, one quick clarification. You mentioned the inflation versus pricing gap is expected to narrow as you get into maybe the second half of the year. Is that because of the price components going higher or the inflation components coming down? I guess, could you explain kind of how that might work? Rajesh Vennam: Yes. Sure, David. It's primarily the -- we are taking a little bit more price as we go through the year. We mentioned that at the beginning of the year, right? We started pretty low in the first quarter. We expect to get for the full year to be in the mid- to high 2s. And we started with 2.2, as you can see, as the year progresses, that moves up a little bit. And then there's also some near-term pressures that we expect, because like I said in the commentary around beef, we don't think all these high prices are sustainable. I mean these are pretty punitive to the consumer, and we're trying to protect them by not pricing for it. Operator: Next question is coming from Sara Senatore from Bank of America. Sara Senatore: I wanted to ask about the idea of sort of investing and growing top line, more of a top line-driven growth algorithm. You mentioned pricing below inflation and, obviously, affordability is something that your brands are known for in terms of value for the money. But I guess I could also characterize marketing as a way to do that or even perhaps subsidizing delivery fees. So I was just curious, as you think about the kind of different investments, is marketing something -- I know you said you got some leverage, so marketing dollars were higher though, perhaps a little bit light of what we might have expected. And you talked about delivery fees as perhaps margin pressure. So I wasn't sure if that's because you're not fully covering them with what you charge your customers. But perhaps you could -- and I know it's free delivery this quarter, so perhaps that's an exception. But maybe you could talk a little bit about as you think about investing behind top line, these other possible ways to do that. And then I do have another quick follow-up. Ricardo Cardenas: Yes, Sara, we do believe that marketing can help drive traffic. And while our marketing as a percent of sales didn't seem to grow, I think Raj mentioned in the prepared remarks, we had some cost saves in marketing that offset our actual marketing growth. So we actually had more TRPs out there, our other brands that are not on linear TV or testing connected television and other digital aspects, Cheddar's has their first ever 30-second commercial on a connected television. So we are increasing our marketing activity because we believe that will drive some traffic. But we're not doing it at deep discounting in the ways that we had done it in the past. And you did -- I think you answered your question on the delivery fees. There are other ways that we can do things to drive delivery. But this quarter, the 1 million free deliveries did impact a little bit of the margin. Sara Senatore: Great. And then just the follow-up was, I think, Rick, you alluded to less snacking or munching. I was curious, is that like a GLP-1 reference in terms of like how people are changing their eating patterns? Or was it more people are prepared to give up some of these sort of convenience or impulse occasions and spend behind really good experiences like they get at Olive Garden or LongHorn or your other brands? Ricardo Cardenas: Yes, I think it's a little bit of both. There are some people on GLP-1s that when you do the research on them, they eat smaller portions or they eat out a little less, but when they eat out, they actually eat out more in casual dining. And so there is a little bit of that. But I think it's maybe even a consumer that says, "I'm just trying to be healthier or eat a little less." And so maybe there is a little less snacking. And at the lower end consumer, they probably don't have as much resource to go out as much as they did, and it's probably impacting another category more than it is impacting us. Operator: Next question today is coming from Jeffrey Bernstein from Barclays. Jeffrey Bernstein: Great. Rick, for fiscal '26, you raised your comp guide modestly. But clearly, that's in spite of maybe what many people expected, a slightly tougher macro and concerns of a consumer slowdown, and we know about the tougher compares. I think you mentioned the first quarter was modestly above your plan. But any color you could share on your confidence in raising that guide? And as we think about the current fiscal 2Q, the compares are definitely much tougher. I know, last quarter, you were willing to frame kind of what you expected for the current quarter versus your full year guide, wondering whether you think the fiscal second quarter will come in above or below kind of that new range. And then I had one follow-up. Ricardo Cardenas: Yes, Jeff, I'll start by saying we wouldn't have increased our guidance if we didn't feel confident about it. So as we look at our same-restaurant sales and our total sales -- part of the reason we raised our total sales is we're really confident in our unit count in development. We increased the number of -- well, we got rid of the low end of our range for development and we say now we're approximately 65, partly because we are -- most of the restaurants are either built or being built or open already, and some of them are coming in earlier than we thought. So we feel really good about our development pipeline. And I'll let Raj talk about the cadence of our comp, but -- for the second quarter and beyond. Rajesh Vennam: Yes, Jeff, I'd say, look, we expected as we went into the year for the back half to be not as strong in comps as the first half. But I think as the year is progressing, we're learning more and we feel really good about how even the second quarter started off, and that's all taken into consideration as we provided this guidance. But I think ultimately, the cadence will still be the fact that we still expect the back half to be lower than the first half. Jeffrey Bernstein: Understood. And then just a follow-up on your Uber partnership. I know it's still early, but it seems like you're having success with Olive Garden and Cheddar's with the 1P. I'm just wondering, first, whether you'd consider a next brand to embrace that 1P Uber delivery and whether there's any updated thoughts on potential for using Uber for the order aggregation part of things, not just delivery. Ricardo Cardenas: Yes, Jeff. We are pleased with our first-party delivery, both at Olive Garden and at Cheddar's. It continues to grow for us. We do have another brand that's wanting to embrace it, and we would expect that brand to be on the platform sometime in Q3. I won't tell you what brand that is, but they're very excited to jump into the first-party delivery. In regards to marketplace or third party, whether it's Uber or anyone else, we still have some challenges with the model. We're focused on first party right now. And we've talked about the things that we don't like about third party. If a provider can come with every solution that we have for third party or the reasons that we don't like it, then we would definitely consider it. But right now, we're very comfortable and very pleased with how first-party delivery is going. Operator: Next question is coming from Jacob Aiken-Phillips from Melius Research. Jacob Aiken-Phillips: Yes, I first wanted to double back on unit growth acceleration over like the medium to long term. I know you took away the lower end. Just how should we think about that ramping up, especially with -- I know there's some new prototypes, there's some acceleration in Canada and a couple of moving parts? Ricardo Cardenas: Yes. The development is our owned restaurants, so 65 of our restaurants. Canada is all franchised, so that doesn't count in our unit growth. We get a lot of good royalties from that, but that doesn't -- isn't a unit for us. In regards to how we're going to ramp up our, 5-year plan, has us solidly in our long-term framework of 3% to 4% of our sales growth coming from new units. And so you would expect our unit growth percentage to ramp up a little bit year-over-year. Jacob Aiken-Phillips: Great. And then just on -- I know that there were like some prototypes of like smaller, but then also some competitors are saying they're seeing some higher construction costs from like imported stuff. Any comments there? Ricardo Cardenas: Yes. We've got a couple of brands -- actually, all of our brands, especially Olive Garden and LongHorn, over years, worked on the right prototype size. Yard House and Cheddar's have just come out with new prototypes that are smaller, much more efficient and the costs are lower than it would be for building our existing prototype-size restaurants. And we've opened a few of them and they're doing really well and they're able to generate the sales that our existing prototypes are generating in general. In regards to costs, our costs are much closer and actually sometimes under our budgeted amounts, which is very different than it was before. Tariff impacts, we don't believe, are too dramatic to construction costs. And so we feel really confident about our pipeline and being able to build them at a very good return for us. Operator: Next question is coming from Jake Bartlett from Truist Securities. Jake Bartlett: My first one is on delivery. I'm hoping you can frame the mix that delivery was in the first quarter, but also what the exit rate was after the promotion. Also, whether you expect to promote similar promotions in the -- as we go forward in '26. And then I have a follow-up. Ricardo Cardenas: Yes, Jake, I'll speak specifically to Olive Garden. I think that's what you're asking for. So for Olive Garden delivery in the first quarter was about 5%. We exited at about 4%. As we mentioned, when we stopped 1 million free deliveries, we exited a little bit lower, but still 40% above where we were before the promotion. I think that was... Jake Bartlett: That was the question. And whether you expect to doing a similar promotion to 1 million... Ricardo Cardenas: Sorry. I don't know if we may do another 1 million free deliveries. I don't know, but we do have marketing funds that Uber gives us based on our volume. And so we're going to utilize those somehow. Whether it's 1 million free deliveries or doing something different, we will utilize those funds. Jake Bartlett: Got it. In terms of the Never Ending Pasta Bowl promotion, I think time is similar to last year. I'm wondering, you made a comment about consumers really grabbing -- taking towards on price certainty, some momentum in August. I'm wondering whether you can comment on how you expect Never Ending Pasta Bowl to perform this year versus last and maybe how it is performing, whether it's particularly resonating with consumers right now. Ricardo Cardenas: Yes. I will say that Never Ending Pasta Bowl is off to a good start for us. It's really at the center of Olive Garden's core equity of Never Ending Craveable abundant Italian food. And preference is up versus last year, and the team is doing an amazing job ensuring that guests get refilled. So the refill rate is way up. So I think guests are understanding that promotion more and more as we brought it back and they really understand the value that it brings. And I will say that the performance to date is in our guidance. Operator: Next question is coming from Peter Saleh from BTIG. Peter Saleh: Great. Maybe just one question, on the beef situation. Can you elaborate a little bit more on maybe what's driving it higher in the near term or more recently? And why do you think this is not sustainable? And then just more specifically, if these prices are sustained or maybe even go higher, would you take a little bit more price at LongHorn in the back end of the year? Just trying to understand the strategy there if beef prices actually go a little higher from here. Rajesh Vennam: Yes, Peter, let's just start with the dynamics, right? Right now, supply is constrained from a few things. One, there have been some pack or cutbacks and also Mexican cattle imports have been halted because of the screwworm outbreak. So those are kind of the drivers of the supply constraint. In addition to that, tariffs on Brazil are causing a significant reduction in beef imports into the U.S. So that's also creating a constraint. So those are on the supply side. The part of the reason we don't believe that kind of price increase, especially double-digit price increase you saw, we're seeing are not sustainable, is because the consumer can't afford these. And over time, there will be some -- there should be some demand destruction. And also, the amount of cattle on feed has actually been fairly consistent month to month. And at some point, this cattle has to be -- has to go to -- put to work, I guess. So those are the reasons how we think about where the prices might go. Who knows exactly? We don't know. We're just -- but we're a lot more open for those reasons. Now as we think about what would we do, yes, if these price -- if prices stay very high, that means that the demand is also very high, which means we should be able to take some price. We're not -- that's not our preferred path, but if the dynamics lead to a place where we feel good about demand, then yes, we'll take some price. Operator: Next question is coming from John Ivankoe from JPMorgan. John Ivankoe: I want to go a couple of different directions. First, Raj, in your prepared remarks, you did talk about seeing some demand destruction at retail. I wondered if you're actually seeing that, if it's recent. Some of the data that I've seen, I thought it was recent, was actually showing quite high demand at the retail level. So I just -- hopefully, got your facts being better than mine, just to kind of correct me what we're seeing in retail and if we are seeing any material signs in any slowdown in retail because that could certainly help us on the restaurant side from a supply perspective. Rajesh Vennam: Yes, John. So you're right in the fact that if you go back a few months, it's been pretty robust. But if you look at the last month of data, you're starting to see that decline. Actually, the data we have shows that the volume actually declined in the low single digits year-over-year at retail. That wasn't the case for prior, call it, 4, 5 months or so. So there was -- yes, there was some resiliency in that, but it's starting to -- at least we saw 1 month of data where it slipped into low single-digit decline year-over-year. John Ivankoe: And that's maybe just classic growing season being over and people are just shifting to other things. That's helpful. So... Rajesh Vennam: No, John, it's year-over-year. Sorry, I just want to clarify, we look at year-over-year. So seasonality is captured in the year-over-year. John Ivankoe: Yes. But it's -- we're speaking the same language, I just said that awkwardly. So it was interesting, hearing things like reduced portion prices of some -- reduced prices and some portions of some core menu items, things like Hawaiian Steak. I'm not going to name the brand that it reminds me of 20 years ago, but -- and this wasn't a Darden concept, but I've seen this done actually quite unsuccessfully over time. In other words, when consumers kind of expect to see a certain amount of food on the plate, especially at dinner, that's not something that you're necessarily happy with even if they are paying lower prices. So Rick, I'm sure you know exactly what I'm talking about. But was there anything to learn about previous history lessons in casual dining specifically? I think this was probably tried around 2007, 2008 where smaller portions at smaller prices were tried, but weren't successful. And things like Hawaiian Steak way back when, which are tried that a few people like, but it's really a lot of people different. Where are we on that stage gate process today in 2025, maybe versus some of the lack of success, the overall industry had 20 years ago? Ricardo Cardenas: John, I'll start with the Hawaiian Steak. It's not a smaller portion size. It's a Cheddar's. It's a great portion for Hawaiian Steak. And by the way, LongHorn ran Hawaiian Steak and did really well with it a few years back. So maybe there's different tastes now than they were back then. And in regards to portion size, I think if you go back 20, 30 years ago, overall portions were maybe a little bit smaller in the dinner menu already. And so if somebody brought even smaller portion, it went a little bit too far. And then -- but the way we're thinking about it is there is a consumer group out there that believes in abundance, but abundance is different for everybody. And by bringing some smaller portion sizes to the dinner menu at Olive Garden, there are still abundant portion sizes, but it also adds price breadth to the menu. So consumers can choose. We're not changing our entire menu to make it a smaller portion. We are putting items on there that are smaller with a compelling price point. And at Olive Garden, you still get the unlimited soup or salad and you get all the Breadsticks you want. So it's still a great -- it's still abundant. John Ivankoe: And maybe our consumers finally evolved that you don't need to have uneaten food on the plate to feel that you've gotten good value. You can just see just the right amount of portion and be happy with it. So that would certainly be a change versus the old America, but that would obviously be a good direction to go. Operator: Next question is coming from Lauren Silberman from Deutsche Bank. Lauren Silberman: So, I just want to go back to top line. A lot of questions, obviously, what's going on in the restaurant industry broadly. You talked about strong August. Can you just help unpack sort of what you saw in terms of cadence of comps during the quarter? Any more color on September from that? And then any differences in performance that you're seeing across the regions? Rajesh Vennam: Yes, Lauren, I think from a cadence of comps, actually, the gap to the industry was the biggest for us in August. In fact, when we look at our own internal comps, we were actually -- July was our weakest. And so for us, June was pretty strong. July was still strong, all positive, but just if you look at the weak month-to-month, July was weaker than June and August. And actually, like I said, August had the biggest gap to the industry. As far as regionality, there isn't a huge amount of regionality. It's actually what we're seeing is fairly similar to what we see -- what you kind of see in Black Box with certain markets still not performing as well, such as Texas, and Florida is starting to pick back up so it feels like Florida is getting better. And then depending on the brand, California had some decent strength. So that's all I can share regionally. There's not a lot of other stuff to get into there. Lauren Silberman: And then just a follow-up on the commodity side. What are you expecting in terms of cadence to get to the 3% to 4% for the year? I understand like there's a commodity price dynamic, but do you expect like 2Q to peak in terms of actual commodity inflation? Rajesh Vennam: At this point, yes, we think Q2 will probably the peak. But Q3, Q4, probably not that much lower. I mean by the time we get to Q4, we expect it to be a little bit better than where we would be. But Q1 would be the lowest that we just had, right? It was 1.5%. I think pretty much every quarter going forward is, we're expecting to be north of 3%, and that's how you get to the 3% to 4% guide. But Q2 is probably the peak. Operator: Next question is coming from Danilo Gargiulo from Bernstein. Danilo Gargiulo: Maybe a year ago or so, you started talking about the relevance and importance of improving the speed of service and maybe, arguably, with the increased focus on affordability or right portion for the right price, there could be even more of an overlap between consumers who might be choosing casual dining over fast food. And so I'm wondering if you have any early signs or any KPIs that are showing some momentum that you're picking up in the improvement in speed of service so far. Ricardo Cardenas: Yes, Danilo, across our brands, we're seeing some brands with some improvement and other brands that haven't really made a whole lot. And so we had a refocus on that this year at our general manager conference, and we would expect to see greater improvement in speed of service in the upcoming years. Recall, when I mentioned that, I said this is going to take a while. And it is taking a while. But the managers are really getting on board with it over the last year, and the reinforcement of our conference gives me great confidence that we're going to get better. In regards to, do we have any data to say that we're taking share from other categories, the only thing I can say is all of our consumer groups and all of our income groups were positive year-over-year in casual dining, which is probably the best chance to take share from other categories. And those other categories have had a little bit more traffic decline. So maybe we're taking share or maybe they're just losing some share. Danilo Gargiulo: And then it sounds from Raj's response that there's not a lot of regional differences maybe with the exception of Texas and maybe pockets in California. So if you're stepping back and analyzing the delta between the top-performing stores within the same brand and the bottom-performing stores within the same brand, what is the one characteristic that is driving the increased performance? And how can you make that more standardized across the rest of the group? Ricardo Cardenas: I will say this is a tried and true thing in restaurants, the thing that drives the most performance within a brand is the quality and consistency of the managers in that restaurant, and the team. And so as turnover gets better, if you've got a great general manager and a great team of managers that are running things to our standards, you have better performance. And so that's going to be restaurants for the rest of our lives. You can have restaurants that are in a market that's doing great, but the restaurant is not doing great. It all comes down to leadership. Operator: Our next question today is coming from Dennis Geiger from UBS. Dennis Geiger: Just wanted to ask if anything to note -- else to note on sort of behaviors that Olive Garden, LongHorn or broadly across the portfolio as it relates to performance across daypart or even kind of within the menu side, desserts, alcohol, anything to call out there? Rajesh Vennam: Yes. Look, I think we are seeing -- I mentioned a little bit about alcohol. There is less -- we're seeing some lower preference on alcohol across most of our brands. There is -- some brands at LongHorn, for example, has grown lunch more than their dinner, but all dayparts are growing there. And then in Fine Dining, I think we're seeing a little bit more drop-off in the business travel that's leading to some weekday weakness. But those are some of the dynamics from a consumer perspective that I can share. Operator: Next question is coming from Chris O'Cull from Stifel. Christopher O'Cull: Rick, the conversation around eliminating the tip wage seems to be ramping up. Do you believe there's a risk that it could be eliminated? And how are you thinking about any potential impact it could have on the business? Ricardo Cardenas: I would start by saying this industry has really diverse business models. And we believe that the policy environment should reflect the level of diversity in the model. As a full-service operator, our business model continues to be the best choice for our guests and our team members. And I will tell you that whatever happens, we're going to be okay with it, okay in the way we react. So I don't foresee a big change in that. But if it does, we will work through those things and come out okay. Operator: Next question is coming from Brian Vaccaro from Raymond James. Brian Vaccaro: Just two quick ones, if I could. First on the housekeeping side. Raj, could you break out the Olive Garden comps between traffic and check? And as we think about check at Olive Garden, I think it's been exceeding pricing for the last several quarters. Is it still reasonable to expect check to exceed price as you think about the next few quarters? Rajesh Vennam: Yes, Brian. Let me start with the breakdown. Olive Garden same-restaurant sales was 5.9%. Their traffic, as we measure was 2.8%, but then they also had catering of 80 basis points. So I would categorize that as 3.6% traffic growth. And then when you think about the check, the pricing was 1.9%, and Uber fees, basically the delivery service fee net of the discount, was about 40 basis points. So yes, as we go into the future, do we expect check to be a little bit higher than pricing? Yes, but it will be because of the delivery fee and service fee. That's really the driver. Yes. Brian Vaccaro: And then just as a follow-up, obviously, talking about investing in the guest experience, as you've been doing for a while, but thinking about fiscal '26 specifically as well. When you look at labor in the first quarter, it looks like labor per operating week as we look at it, was up 4.5%, maybe closer to 5%. You talked about the higher incentive comp, and obviously you have higher traffic, which takes more labor to service. But I'm curious to what degree that also reflects some reinvestments that you're making in the guest experience. And maybe you could provide a few examples of the specifics on those reinvestments. Rajesh Vennam: So Brian, let me just start by saying, from a labor perspective, our total inflation was 3.1%, right? So if you look at -- you mentioned 4.5% increase on dollars, but if you take the 3.1%, that is part of it. Then it was up about 1 point or so, but our traffic was up closer to 3% once you take into consideration the catering for -- at the Darden level. So that means we're actually getting some leverage on that traffic. And so that's really what's happening. And that's why I mentioned in the script that we were -- we had productivity improve actually year-over-year. We continue to look at ways to invest in labor. I don't think we need to get into specifics, but some of the things that Rick mentioned about speed, those are places where we're looking at. How do we help ensure that? But that doesn't translate necessarily into a labor deleverage because you actually get more throughput when we make those investments. Operator: Next question today is coming from Andrew Charles from TD Cowen. Our next question is coming from Jim Sanderson from Northcoast Research. James Sanderson: Just had a few follow-up questions. Going back to the delivery segment, have you discussed what percentage of sales mix was incremental? I think that's been a little bit of a moving target, especially given the promotions. Maybe you could update us on what you expect incrementally out of delivery for both Olive Garden and Cheddar's. Ricardo Cardenas: Yes, Jim, I'll speak specifically outside of the promotion. It's about 50% incremental. During the promotion, when you get free delivery, some of the people that would have gotten normal to go probably shifted into delivery. But outside of that, it's about 50%, both at Cheddar's and Olive Garden. James Sanderson: So relatively stable with what it has been, let's say? Ricardo Cardenas: Yes. James Sanderson: And just a follow-up question on Olive Garden, when you were talking about the breakdown of same-store sales. I didn't really detect any negative mix. And I was wondering, does that mean that the smaller portions and the promotions aren't having any meaningful impact on check? Is that the right way to look at that? Rajesh Vennam: Well, they have -- that specifically has a negative impact, but it was offset by other mix. So we are seeing -- we had -- I think we mentioned on the call, we had the Calabrian Steak and Shrimp that had a higher price, but we actually had -- saw a pretty strong preference there, that helped. So it was mostly entree mix itself tended towards higher value, sometimes maybe higher price items. Operator: Next question is coming from Andrew Charles from TD Cowen. Zachary Ogden: Yes. This is Zach Ogden on for Andrew. Could you just elaborate on where the strength is coming from for Other Businesses? Are there certain brands that are outperforming others and what would be leading to that? Ricardo Cardenas: Do you mean in the Other Business or other business? I just want to make sure I understand the question. Zachary Ogden: Yes. So the Other Businesses segment, so the 3.3% in 1Q. What was the strength coming from there? Ricardo Cardenas: Well, we mentioned that 3 of those brands were all positive, some more positive than others. I think Cheddar's was the most positive and then Yard House after that and potentially Seasons are right around there. But I think Cheddar's had the highest comp in that segment. Zachary Ogden: And then could you just comment on what you're seeing from the younger cohort more broadly, maybe just beyond delivery? Are you seeing certain -- or, I guess, relative strength or weakness among Gen Z? Ricardo Cardenas: They're fairly similar to the rest of our consumer group. Operator: Thank you. We reached end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments. Courtney Aquilla: This concludes our call. I want to remind you that we plan to release second quarter results on Thursday, December 18, before the market opens, with a conference call to follow. Thank you for participating. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Research Solutions' financial and operating results for its fiscal Fourth Quarter and Full Year ended June 30, 2025. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Steven Hooser, Investor Relations. Steven Hooser: Thank you, David, and good afternoon, everyone. Thank you for joining us today for the Research Solutions' Fourth Quarter and Full Fiscal Year 2025 Earnings Call. On the call with me today are Roy W. Olivier, President and Chief Executive Officer; Bill Nurthen, Chief Financial Officer; and Josh Nicholson, Chief Strategy Officer. . After the market closed this afternoon, the company issued a press release announcing its results for the fourth quarter and full year [indiscernible] the release is available on the company's website at researchsolutions.com. Before Roy and Bill begin their prepared remarks, I would just like to remind you that some of the statements made during today's call will be forward looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied due to a variety of factors. We refer you to Research Solutions' recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. Also, on today's call, management will reference certain non-GAAP financial measures, which we believe provide useful information for investors. A reconciliation of those measures to GAAP measures is included in the earnings press release issued this afternoon. Finally, I would like to remind everyone that this call will be recorded and made available for replay via the company's investor relations website. I would now like to turn the call over to Roy W. Olivier, Roy? Roy Olivier: Thank you, Steven. Good afternoon, and warm thanks for joining us. Overall, we're pleased with the progress of business in FY '25. We set many new records for the company's performance, including $21 million in ARR we grew ARR 20% in FY '25 and remain focused on hitting our $30 million platform ARR target by the end of FY '27 this is not guidance, but a BHAG or a Big Hairy Audacious Goal. Our acquisition pipeline is strong, and we have several opportunities that we believe would allow us to hit that goal faster. To do that, we need to execute well on several fronts. First, we need to execute from a product perspective in terms of providing unique value delivered at the right time in the customer journey. Much of this involves development of our existing products and expanding how AI can help researchers accelerate research in a copyright compliant way. While we can always improve, we continue to make good progress in this area. Second, we need to continue to execute in our marketing and sales teams. Market has done a great job in building top of funnel leads through marketing activities, including digital spend, webinars, white pay more, we see strong results in this area. As you know, we brought a new Chief Revenue Officer in November of 2024 and have seen strong B2B sales in the second half of the year. We expect that to continue in FY '26. Third, we seek organically and through acquisitions, unique value that can be software tools, content or a combination of content that we believe are not only unique today but will remain unique in the AI world. We'll discuss this a bit later in the call in terms of how we think about our strategy going forward. Finally and most importantly, we need to have the right strategy. We have been a company in transition from a transaction-based company into a vertical SaaS company for many years. We are now in what may turn out to be a period that will drive massive change in the segments we serve due to the MPI will have on research workflows. Over the past several years, we have built a great set of software and other research tools to support research. As we look forward, large LOMs have the potential to drive massive change to research workflows so we must pivot our strategy to be where the customer is and deliver unique value at the right time, at the right place in the research workflow. In short, we will continue to improve software tools for our customers to simplify and accelerate the research process, but we will also need to improve our software APIs and create new AI-based solutions to support larger customers who will standardize on one LLM but need some unique value data that we can provide. Our AI-based products are organically growing at almost 4x the pace of our legacy products today. We expect to see strong tailwinds from AI in the next few quarters, and we think we are uniquely positioned to take advantage of that as we update and expand our products. Josh Nicholson will provide some context about that. updated strategy later in the call. For now, I'd like to pass the call over to Bill to walk through our fiscal fourth quarter and full year 2025 financial results in detail, and then I'll come back with some additional comments. Bill? . William Nurthen: Thank you, Roy, and good afternoon, everyone. I will start by first summarizing the fourth quarter results, and then we'll discuss the full fiscal year results. Please note for comparisons between the fourth quarter 2025 in the fourth quarter of 2024, those comparisons are fully organic. For fiscal year 2025, the results include 12 months of contribution from the site acquisition compared to approximately 7 months in fiscal year 2024. The fourth quarter was another really strong quarter for our business and served as further validation of how our ongoing shift to SaaS revenue is translating into expanding margins, profitability and cash flow. Total revenue for the fourth quarter of fiscal 2025 was $12.4 million compared to $12.1 million in the fourth quarter of fiscal 2024. Our platform subscription revenue increased 21% from the prior year quarter to approximately $5.2 million. The growth was primarily driven by growth in both B2C and B2B platform revenue including for the latter, a net increase of platform deployments and upsells and cross-sells into existing customers. As a mix of total revenue, platform revenue accounted for over 40% of the revenue in the quarter for the first time at 42% compared to 35% in the prior year quarter. We ended the quarter with $20.9 million in annual recurring revenue, or ARR, up 20% year-over-year. The result included another impressive quarter of B2B ARR growth. You may recall that in our last quarter's call. I commented that net ARR growth in Q3 was a company organic record of $736,000, this quarter was very close to that result as net B2B ARR growth was $724,000, which compares to $407,000 in the prior year quarter. We also added 38 net new platform deployments. The last quarter, the growth was well balanced between new sales and upsells and occurred across both Site and Article Galaxy products. The total company ARR at quarter end breaks down as $14.2 million in B2B ARR and approximately $6.7 million in normalized ARR associated with sites B2C subscribers. We did experience a modest sequential decline in B2C ARR as the late spring into summer is seasonally a difficult time for that product. As a result, the net total incremental ARR growth for the quarter was approximately $567,000. We see today's press release for how we define and use annual recurring revenue and other non-GAAP items. Transaction revenue for the fourth quarter was approximately $7.3 million compared to $7.9 million in the prior year quarter. We started seeing some year-over-year declines in paid transaction order volumes in February of 2025 and that trend continued through our fourth quarter. Our total active customer count for the quarter was 1,338 compared to 1,398 in the same period a year ago. Gross margin for the fourth quarter was 51% a 450 basis point improvement over the fourth quarter of 2024. This was the first time in the company's history that blended gross margin has been in excess of 50% for a quarter and platform gross profit contributed over 70% of the total gross profit in the quarter. The platform business recorded a gross margin of 88.5% compared to 85.3% in the prior year quarter. This was an unusually high result and I suspect it could come down some in future quarters, but not materially. Gross margin in our Transaction business was 24.1% compared to 25.4% in the prior year quarter. The decrease was primarily attributable to lower fixed cost coverage due to the lower revenue base. I expect transaction gross margins to look more like this quarter's result in future quarters, should we continue to experience similar year-over-year declines in transaction revenue. Total operating expenses in the quarter were $5.1 million compared to $5 million in the prior year quarter as increased sales and marketing expenses and general and administrative expenses were partially offset by lower stock compensation costs. I will comment that while sales and marketing expenses were up year-over-year, they were down sequentially. This is due to some seasonality we have in our accruals that typically produce a sequential reduction in sales and marketing expense between Q3 and Q4. As a result, I expect sales and marketing expense to look more like what we saw in the third quarter of 2025 as we look ahead to future quarters. Lastly, the Q4 result for general and administrative expenses did include over $100,000 in severance-related charges that were accrued at year-end. Other income for the quarter was $1.2 million and was primarily attributable to a favorable adjustment to the final earnout determination per site. Other expenses for the prior year quarter totaled $3.5 million, which included a $4.3 million charge related to an earn-out adjustment in that period per site. Net income for the quarter was $2.4 million or $0.07 per diluted share compared to a net loss of $2.8 million or $0.09 per diluted share in the prior year quarter. Adjusted EBITDA for the quarter was $1.6 million, which was a 13% margin and a new company quarterly record compared to $1.4 million in the fourth quarter of last year. Now let me turn to our results for the full fiscal year 2025, which was also another record year for the company in many respects. Total revenue for fiscal 2025 was approximately $49.1 million, a 10% increase from fiscal 2024. Platform subscription revenue increased 36% to roughly $19 million. From an ARR perspective, we added over $2.1 million in net B2B ARR for the fiscal year. And total deployments ended the year at 1,171, up 150 for the year. Net B2C ARR increased just under $1.4 million for the year. Transaction revenue for fiscal 2025 was $30.1 million, a 2% decrease from the prior year. The decrease, as previously mentioned, is attributable to the declines in order volumes we experienced in the second half of the fiscal year. Gross margin for fiscal 2025 was 49.3%, a 530 basis point improvement over fiscal 2024. The result represents a 23% year-over-year increase in the company's gross profit. Total operating expenses in fiscal 2025 were $21.7 million compared to $20.4 million in the prior year. The increase is attributable to higher sales and marketing expenses, offset by lower general and administrative expense and lower stock compensation expense. We intentionally invested in sales and marketing expenses in fiscal 2025 and believe we are seeing some of that pay off with the recent quarterly performance in net B2B ARR growth. Other expense for the year was $1.2 million compared to other expense of $2.9 million in fiscal 2024. And -- both years reflect net adjustments -- net expense adjustments of $1.7 million and $5.1 million, respectively, made related to the site earn-out. Net income for fiscal 2025 was $1.3 million or $0.04 per diluted share compared to a net loss of $3.8 million or $0.13 per diluted share in the prior year. Adjusted EBITDA for the year was $5.3 million, a company record compared to $2.2 million in fiscal 2024. It also represents the first time in the company's history that full fiscal year's adjusted EBITDA margin crossed the 10% threshold. Before I discuss cash flow on our balance sheet, I would like to take a minute to discuss the final determination of the site earn-out. The final earn-out was determined to be $15.4 million. This was to be paid 50% in cash and 50% in stock over 8 quarters. However, through an offer to site shareholders, we increased the cash mix portion of the earn-out payment to approximately 62%. We made this offer given the confidence we have in our cash flow and the desire to issue less shares as part of the overall transaction purchase price. We made the first payment on the earnout in August, which consisted of approximately $1.3 million in cash and approximately 265,000 shares. Future cash payments will be approximately $1.2 million each quarter and the shares to be issued will change quarterly based on a market calculation of their value prior to the distribution of the shares. The payments will be every 3 months and will be completed in May 2027. Turning to cash flow. It has been very satisfying to see the transformation in cash flow in the business over the past few years. Our cash flow has continued to outperform our adjusted EBITDA which I think is a testament to the quality of our earnings and the validity of our SaaS revenue mix shift model. In fiscal 2025, we generated over $7 million in cash flow from operations which has almost double the result from the last year of approximately $3.6 million. This cash flow has translated into a nice cash build on our balance sheet. I'll remind everyone that when we completed the site acquisition in December 2023, our cash balance dropped to $2.7 million. Now only 18 months later, we were able to end fiscal year 2025 with a cash balance of $12.2 million, and there are no outstanding borrowings under our $500,000 revolving line of credit. As a result, barring any strategic M&A-type activities, we expect that we can make the site earn-out payments in fiscal year 2026 and still end the year with a higher cash balance than we have today. As we look ahead, we are enthusiastic about the momentum in our B2B ARR growth and believe that can continue. There are some competitive pressures we are experiencing in the B2C space that may affect near-term growth, but we remain positive regarding the long-term prospects for that business as well as our ability to convert certain groups of B2C users to larger B2B platform sales. Lastly, transaction revenue growth was challenging in the back half of fiscal 2025. We expect it to continue to be challenging in the first half of fiscal year 2026, but are optimistic about a flattening of the decline or even a possibility of a return to low levels of growth as we get into the back half of fiscal 2026. From an expense standpoint, we will continue to invest in sales and marketing as well as in technology and product development, while aiming to reduce our overall general and administrative. From an adjusted EBITDA perspective, I expect to follow the same seasonality as last year with the first quarter being potentially a slight dip sequentially from this quarter, but a beat to last year's Q1 result. Q2 will likely be our weakest quarter and then our strongest quarters will be in the back half of the year. All things considered, we remain on track to have another record year of performance. Further, our present cash balance, paired with our expanding adjusted EBITDA and cash flow, leave us better positioned than ever to execute on M&A opportunities. I'll now turn the call back over to Roy. Roy Olivier: Thanks, Bill. A few additional comments about our FY '25 results. As a reminder, we made several investments during the year, some of which are, we invested in a new Chief Revenue Officer, who joined in November of '24 and has overhauled the way we go to market. These changes have driven nice results in the second half of the year, and we expect to continue to see that in FY '26. As a result of his efforts, we have signed more large contracts in recent months, including several over $100,000 in ARR than we've closed in the company's history. We've also seen strong results from the new academic focused sales team we formed in early FY '25. It's our fastest-growing segment and generated new bookings equal to the long-standing corporate focused team. That said, our business remains 80-plus percent corporate customers. We made a change in leadership over our transactions business. As previously noted, that business has seen headwinds, but we have some levers we can pull to improve results. The new team is aggressively evaluating ways to do that and working with our product management and software engineering teams to implement those improvements. We have seen some short-term successes and we'll report more in our Q1 call. We've also made several changes to the software engineering and software development teams over the year. We believe those changes will accelerate development velocity, and provide more high-value features to our customers as we go through FY '26. We revamped how we identify and pursue acquisition targets, as a result of the changes we made, we have a large pipeline in place today. The targets we have are actionable, meaning valuation expectations seem realistic and add new workflows or content that we believe will fit well into our customer base. In addition, we believe our products are fit into their customer base. I'm confident we'll be able to move forward with one or more deals in FY '26. In addition, given our strong cash generation, I believe we can finance those deals primarily through senior debt and cash. I have a strong bias towards sellers who want to stay with the company and grow the combined business and want stock to do so. However, I expect deal structures will be more weighted toward cash at close. We also invested resources in time to create a new source of revenue with the recently announced AI rights product. Every customer of ours is concerned about copyright compliance and wants to make sure they have the rights they need when they need them. The best example of that recently is AI rights. Our solution allows the customer to know what rights they have in a single click and acquire rights as needed. It allows the customer to use AI, provides new revenue source to the publishers and add real value to our product. It's been very well received by customers and our publishing partners, including some of our largest customers. I've got a few more comments about the future, but right now, I'd like to pass it over to Josh, our Chief Strategy Officer, to walk you through some of the things we're doing to drive growth in this new AI-driven world. Josh? Josh Nicholson: Thanks, Roy, and hello, everyone. Today, I'd like to highlight some of the broader shifts we're seeing across the web with the rise of LLM and chat bots and how these changes are creating new challenges as well as opportunities for us. Increasingly, more people are performing what the Wall Street Journal called zero-click search, that is people are turning to AI as answer engines and getting good enough answers without having to click through to the underlying data, whether that is a news article or Reddit thread or in our case, a scientific article. As Roy and Bill have highlighted, this is manifesting on our side with [indiscernible] transaction revenue slipping and publishing partners reporting declines in traditional usage-based statistics such as full text reads and downloads. . Our internal surveys from users point specifically to AI being the reason people are acquiring less articles. In short, AI is shifting demand from article retrieval to structured reasoning, which means the future of research and our products must be task and databased. Over the last few calls, I've highlighted how our AI strategy is to focus on specific researcher based workflows with AI, differentiating ourselves from more general tools by focusing on the first and last mile of the researcher journey, something that might be too small or too complex for a generic tool to accomplish. We will continue to focus on specific researcher needs as we develop our products and go-to-market approach, but we will also increasingly look to be where the customer is or what we call a headless strategy. We see site and article galaxy increasingly being used as an API-first platform. Our customers are no longer just logging into a single interface. They are embedding site directly into their own systems, dashboards and even generative AI assistance. This headless strategy is intentional by decoupling our services from a fixed UI, we enable developers and institutions to full citation graph, evidence summaries and right cleared full text content directly into their workflow. Already, we have deployed various API first deals across both products, some of which have been our largest contracts ever for our respective product site in Article Galaxy. This approach allows us to go where the user is through integrations into internal built tools, third-party products and to shift our focus from an arm's race to an ARM supplier. We have launched an AI TDM rights offering that allows our customers to easily and securely get AI rights for articles they have acquired. And while many publishers might negotiate these rights directly, it's important for us to display that information for our users and to make it possible to acquire the rights where necessary. Closely tied to this, we are exploring working directly with publishers to enable AI models and agents to discover content and source AI rights from a single pan publisher resource called an MCP or Model Context Protocol. We believe such infrastructure is the future of how large language models interact with research articles, presenting the path for AI models to securely clear scientific articles, retreat citations, verify claims and integrate trustworthy literature directly into its reasoning process. In practice, this means that whether you're a pharmaceutical company building an in-house assistant and academic using a generic AI your company has licensed or a publisher enabling AI-driven services Research Solutions becomes the compliant safe bridge between proprietary content, licensing and reliable AI output. Taken together, these initiatives mean Research Solutions is no longer just a distributor of articles or a platform for positioning ourselves as the building blocks of scientific AI, the infrastructure that ensures research content is accessible, reliable and legally cleared for the age of generative AI. I'm excited by our progress as a team and I think we're uniquely positioned to serve the needs of publishers and researchers in an AI-native world. Thank you again, and I'll now turn it back to Roy to wrap up. Roy Olivier: Thanks Josh, I mentioned in my introductory comments, the things we need to execute on in FY '26 and beyond. The most important one of those things is strategy. We have spent a lot of time in FY '25 looking over -- looking -- thinking about all the different things we do and what we might do that is unique. A few of those things are managing the customer's library of scientific research, including what rights came with those articles, the ability to easily access rights the customer needs when they need it. The site badge, which is like a FICO score or Rotten Tomato score for an article being evaluated and that is unique in the market today. The site search, which includes searching beyond the paywall for most of the world's content. This generates better results, is copyright compliant and actually improved sales of articles for the publisher. Generally, the large LLM search abstracts and have near 0 behind the paywall access. Because of all of this, site generates far fewer hallucinations in its results. We also deliver articles from 2,000-plus publishers, a vast majority of those are delivered in a few seconds. And we integrate curated data from several sources to improve AI-generated output. We have the ability to do that today given the databases we acquired as part of the Resolute acquisition. That is a big part of our headless strategy because it will offer our customers curated databases to include insights assistant or other AI-generated output. . In short, I think we're on the right track in terms of an updated strategy that will position us well in the new AI world. We also think the operational improvements and investments mentioned above will enable us to execute that strategy, both organically and through acquisitions. One final comment. I did mention in the pre-release of our earnings back in August, that we were focused -- or that we continue to be focused on the weighted rule of 40. We -- in FY '25, the calculation was a 34 in the rule of 40, and as we think about our FY '26, we expect to make continued progress toward the 40 number. Just to -- as a reminder, the weighted rule of 40 is your ARR growth rate as a percentage times 1.33 plus our adjusted EBITDA margin as a percentage times 0.67. So with a little more weighting on growth, we continue to lean toward investing in growth to make it to the weighted rule of 40. After all that, we remain excited about where we are, how we're positioned and where we're going. And I'd like to turn the call back over to the operator for questions. Operator? Operator: [Operator Instructions] We'll take our first question from Jacob Stephan with Lake Street. Jacob Stephan: Maybe just first, wondering if you could touch on the nice sequential uptick in ASP. Maybe help us kind of think through some of the drivers of this? Was it more cross-sell, upsells or kind of larger new deal activity? Roy Olivier: Bill, do you want to take that one? William Nurthen: Yes, sure. No, we are -- I mean, part of what we've seen with the onboarding of the new CRO and some of the sales training that we've been doing is that we are actually getting larger deals. And so I think Roy mentioned we had -- we've got announced just recently a couple of hundred thousand dollar deals in. And these are in the past few months, we've seen some of the larger deals in our company's history. I'll also say there was sort of a period where we had some churn from Resolute in the past, which was traditionally more of a larger deal where that basically caused a decline in our ASP. And so that has kind of leaned off and now we're at a place where we can sort of build back ASP. And I think it will be a focus as we do additional sales training, bring on some better salespeople over time and again, continue to see some larger deals. Also just as it relates to some of the API type deals that Josh was talking about. Jacob Stephan: Okay. Got it. And you kind of ask one question further on Resolute. Obviously, you noted some churn issues kind of starting off there. But how are you using the product? How do you see the Resolute software adapting to your new strategy of being the API provider for LLMs? Roy Olivier: Well, Resolute has always had a strong API and has not necessarily had a strong UI in their software. So Resolute works much better in this headless strategy than it works as a product unless we go in and rewrite big parts of the product. which we have not wanted to do. So we haven't talked about Resolute in a number of quarters because it's a product we don't focus on. We focus on a heavy investment in site and heavy investment in Article Galaxy, which, of course, are driving all of our growth. However, as we develop this headless strategy we talked about, being able to plug in the 13 additional databases via API into the workflow kind of resurrected that product in terms of selling that data to customers. And Josh, you may have a few other comments on that. Go ahead, if you do Josh Nicholson: Yes. I'd really just emphasize that there are these 13 highly curated databases kind of coming to us for an API to get and access to the article, to get clinical trials, to get research articles, to get news articles, all these different things is a big value add for customers. And so I'm personally excited because it's kind of been right there in front of us for a while, and it's very easy to execute on. The one thing I would also say about the API-first deals is that by embedding ourselves into the infrastructure of some of these large companies, I think those contracts become very sticky. And so I'm personally quite excited by the Resolute databases really coming back to life as a focus for us. Jacob Stephan: Okay. Maybe just one last one, more on the kind of competitive environment in this headless strategy. Are you aware of anybody else that's kind of doing -- running the same API strategy to kind of plug in with the larger LLMs? Roy Olivier: Do you want to take that, Josh? Josh Nicholson: Yes. I think I think what we're starting to see in the ecosystem is some publishers doing this. And so if you look at why we, I think the third largest publisher, they are directly opening up their articles or segments of their articles to LLM providers such as Anthropic. On their recent earnings call, they talked about leaning more into AI and specifically AI licensing deals. And so I think we're going to start to see this across the ecosystem from publishers themselves. I think publishers will have somewhat of a challenge becoming a pan-publisher source for this, largely because competitors don't want to give their content to other competitors. And so this is what we're talking about when we say we're pretty uniquely positioned is that we work with virtually all publishers. We're already driving them revenue. And this is really, as Roy and I have said in the past, kind of a shift from [indiscernible] . And so I increasingly see these bits of articles or chunks of articles and specifically the data from articles being something that's valuable that integrates directly into tools, whether that's a hyperscaler or whether that's an internally licensed LLM at a large corporate or even an academic institution. So I think it's an exciting time, and I think there's a lot of people kind of looking at this and trying to say, how do we bridge this gap between research articles and AI. Operator: We'll take our next question from Richard Baldry with ROTH Capital. Richard Baldry: Same question I asked last quarter, the COGS line was actually slightly down on the platform side, while revenues were up pretty good. Can you talk again about sort of the trends there, whether this is sort of getting the peak optimization, I think about it that way? Or is there further cost improvements that can come on the platform side even as the top line is scaling? Roy Olivier: Bill, do you want to take that? William Nurthen: Yes, sure. Yes, some of this is effectively using our cash. I mean really where this is coming from is we sort of stabilized the labor base there that grows kind of just was like not a lot of additional headcount, but just cost of living increases, things like that. But we've really tried where we could to lower or limit the increase in the hosting cost. And some of what we've been able to do is take the cash flow that we've had and apply that to some prepayments where we prepay some of our space with Amazon Web Services and other providers. And as a result, we're actually getting it cheaper over time by prepaying. So I'm not sure how much we can do that going forward to sort of see it decrease, but I think we can do that to the extent that it will increase less than at the pace that we're growing the revenue, which again is why I think you're seeing some very high numbers on the gross margin side for platforms. We're also seeing in certain areas, AI becoming cheaper, so as we grow, some of the AI providers we use get cheaper over time. And so that's impacting the number as well. Richard Baldry: Okay. Then on the AI-related deals being 4x the growth rate of non-AI, do you think that can continue at this pace? Is there sort of eventually the scale of that base gets big enough that it can't keep up at that sort of delta? How do we think about that headed into the next sort of year or 2 as a driver? Roy Olivier: Yes. I think we expect to see similar results in the B2B space. In the B2C space, we don't expect it to grow as much as it did in FY '25 simply because the base is getting bigger and it is getting more competitive. But Josh or Bill, I'd invite you to add any comments you might have. Josh Nicholson: Yes. I mean I would just again emphasize I think with this headless strategy, this is internal tools or internal companies using internal AI and this allows us to price based on like the usage of this, right, the calls that they're making to our API. And so what we're seeing is as these tools ramp up, it's less looking at here's a 100-person seat license versus here's a company-wide integration into a tool that they're heavily training on. And so I think that will command larger check sizes at B2B. And I think as we started to prove that out, those will continue to grow because we're going into places that companies are already investing a lot of money into. Richard Baldry: Great. And last for me would be, can we dig a little deeper into the strength in the deals above $100,000? So are you going after a different type of customer? Or are you going after a different value prop? Are they larger deals per customer? And how are you achieving that on sort of a similar customer base? Or is it different verticals? How are you getting sort of larger deals out of what presumably is a similar customer set? Roy Olivier: Yes, there's a few moving parts. One is the new sales process and the new CRO has brought in a number of new people who are not kind of preprogrammed with an expectation of what we should sell a product at. And a big part of the new sales process is spending time qualifying the customer and understanding what their pain points are, what value we can use to address those pain points and what the economic impact to them will be if we do. And then the products are being priced accordingly. So I think part of it is -- and I think it's probably a big part of it is sales execution and the way we're selling now. Secondarily, we did wholesale change the pricing on the academic segment of the business, not much of that is reflected in FY '25. But what we did do in '25 is we experimented with different pricing points. In other words, when we acquired site, they had a fairly set pricing model for libraries. We sold at that price point. We sold at price points way above that price point, and we kind of played around with pricing in FY '25 until we figured out a new model that we recently implemented. So some of it is just our standard pricing has changed. And I guess that would be the 2 main drivers that I can think of. Bill, is there any more that you can comment on? William Nurthen: Not too much. I do think it's a sales execution thing. And really, before we frame a proposal to a customer, really trying to understand their pain points and how much value the product is going to deliver for them and then pricing that value accordingly. Operator: [Operator Instructions] We'll take our next question from Derek Greenberg with Maxim Group. Derek Greenberg: The first question I have is just on a recent partnership you guys announced with LibKey and the integration there. I was wondering if you could just talk a little bit more about this partnership and the opportunity there. Roy Olivier: Yes. As that address -- I'll jump in and Josh, you can add some comments. But basically, in the academic segment, LibKey is a big player in the library, providing a product that's called a Link Resolver. And Link Resolver, what it basically does is when you do a search and you get an answer to your search in terms of a scientific article, it kind of resolves where you go to get to the link to obtain that article. And they've been doing that for a number of years, private company successful. And we also work with, frankly, 3 other link resolver companies that we worked with for a number of years. And so putting together the Third Iron deal, Third Iron is the company that owns and -- I'm sorry, the LibKey product. We've run a number of webinars in conjunction with them, which introduce us into their libraries. And keep in mind, academics is new to us. I don't think we have more than 200 academic customers. There are 10,000-plus libraries out there that we can sell into. So we view partnering with Third Iron around LibKey as an opportunity to expand our academic business as well as kind of revisiting the partnerships we have with some other providers that provide a product like LibKey to expand into their academic library business. Josh, anything you want to add? Josh Nicholson: I don't have too much to add except to say that we look at a variety of different services that Roy mentioned to get our users access, whether that's subscription-based access that they have from their university or whether they're an individual at a university, access to the content as quickly as possible. And so there's really kind of like a hierarchy of needs and looking at how can we make sure we're facilitating access for the end user in the most robust and kind of efficient way possible. And I think leveraging our partnership with LibKey is one piece of that. Derek Greenberg: Okay. Got it. Turning to the cross-sell between Site and Article Galaxy. I was wondering if you have any statistics you're willing to provide in terms of what percent of Article Galaxy customers are also customers of Site. I recall previously, you said this was single digits and you were looking to get to double digits. I was just wondering how things are progressing on that side. Roy Olivier: Yes. We have not disclosed that number. I can tell you that -- and Bill, correct me if I'm wrong, a vast majority of the site sales in FY '25 are to what we call a new, new customer. In other words, we're not doing business with them on the Article Galaxy side. We do some cross-sells and a lot of times, those cross-sells are pretty big from an ARR perspective. But I think if you look at it from a logo perspective, vast majority of the logos are new, new customers. Bill, anything to correct that? William Nurthen: Yes. I would still describe it, excuse me, as low to mid-single-digit penetration on the Article Galaxy customer base. Derek Greenberg: Okay. That's helpful. My last question is just on margins. We saw some really good improvement this year. EBITDA margins growing 5%, doubling year-over-year. I was wondering, looking towards '26, how we see expansion relative to this year in margins and how you expect, I guess, operating expenses to grow compared to revenue? Roy Olivier: Bill? William Nurthen: Yes. I think part of the question for us is how much do we invest back into sales and marketing and tech and product development. As I said, we're trying to basically try to keep investing in the sort of those 2 top lines on our expense base, sales and marketing, tech product development while cutting sales -- excuse me, cutting G&A, things like stock comp where we can. But I will say -- so in other words, I think we'll definitely cross the 10% margin threshold for the year. We want to stay above that. I think next year, we can be above where we are today, but we may temper that a bit. In other words, I think we could run 15 plus, but I don't think we're going to do that. I think we'll invest back into it. And so we'll kind of be somewhere in between that kind of 10% to 15% range, and that's where I expect we'll kind of end up from an EBITDA margin. I think gross margin will continue to expand. That will be 50%-plus for the year next year. And expense base, tough to say. I mean, again, I think it could -- we'll kind of pull levers where we need to pull levers. But again, could be 10% growth on the sort of SG&A type bucket. But again, I think I'll have more update on the Q1 call as we see our Q1 results come in and as we sort of further define and chart out how we're going to manage expenses and invest in growth for the rest of the year. I do think transactions are a key element of this. And on our own internal models, as I said, we're modeling those down at least for the first half of the year. And so if you are sort of building models and such, I would do similar from that standpoint until we start to see that turn the other way. But given that, I still think we'll be kind of at the levels I talked about as we look ahead to '26. Roy Olivier: I did get one question via e-mail. Can we explain the strategy to stem the decline and resume growth in the transactions business? To address that, what I would say is the current thinking is product improvement to improve conversion percentages. And I think part B of that is understanding what's driving the change. In other words, we're seeing a significant year-over-year increase in monthly average users and weekly average users which is great. But what we're seeing is a big increase in them acquiring free documents and not paying for documents. As Josh mentioned, we recently did a survey that suggested some of our customers, around 10%-ish of our customers are buying less documents because they can get a good enough answer from AI. So our current thinking is to improve -- we have a massive amount of traffic in site, and we have a massive amount of traffic in Article Galaxy. And so our current thinking is to work to make -- to improve the conversion rate to also take advantage of the opportunity, you just bought this article, here's 3 other articles like it. You just bought this article, here's 5 articles that have a supporting statement in them related to the one you acquired or have a contrasting statement in them related to the one that you acquired. Do you want to buy these? So it's really -- I use the comment internally, we want to be the Amazon of Docdel. We want to make it super easy. It's not as easy as it could be today. We want to suggest it sell. We don't really do that today at all and do some other things. As I mentioned, we already took action on one barrier and saw a pretty nice improvement, which if it were to continue for all 52 weeks because we look at weekly data, would be a high 6-figure improvement in revenue to that business. And as you know, that's a pretty EBITDA profitable business for us. So we've got a number of things in the works, but strategically, we focus on SaaS revenue and AI, but we do have a fairly large around 60 people that work on the Docdel business. The leader in that business now is a guy who's very technologically savvy, and he's gone through every internal process, every customer process that we have with the intent of how do we make this more seamless and more suggestive to drive more sales in that business. Back to you, operator. Operator: And there are no further questions on the phone line at this time. So I'll turn the program back to you, Roy, for any additional or closing remarks. Roy Olivier: Okay. Well, thanks, everybody, for your time, and I look forward to connecting in November to discuss our first quarter fiscal 2026 results. Have a great day. Operator: This does conclude the Research Solutions fiscal and operating results for its fiscal fourth quarter and full year ended June 30, 2025. Thank you for your participation, and you may disconnect at this time.
John Messenger: Great. Good morning, everybody. Thank you for being with us this morning for the Barratt FY '25 full year results meeting. Just a couple of points of housekeeping. There is no fire alarm expected. So if there is an alarm, follow Mike through that door, because he will be the first off or through this door with myself. We're going to start with David in a moment. So David is going to do a first intro, then pass it over to Mike, and then return to David, and then we'll open it up for Q&A. But with that, I'll hand over to David. Thanks, David. David Thomas: Thanks, John, in your comparing role. So good morning, everyone, and welcome to the first full year Barratt Redrow presentation. So as John said, Mike and I are going to take you through our FY '25 performance and current trading as well as updates on sales outlets and also building safety. We'll conclude by looking at the market and the underlying fundamentals and why Barratt Redrow is best place to perform across the cycle. First of all, I'd like to just take you through some of our key messages for today. In FY '25, the market clearly remained challenging. Affordability was a constraint for many and consumer confidence remained low with political and economic uncertainty persisting. Despite this, the business has produced a very resilient performance, both operationally and financially, alongside completing the majority of the Redrow integration whilst delivering cost synergies well ahead of target. The business remains financially robust, underpinned by our strong balance sheet. And now through our acquisition of Redrow, we have 3 distinct brands that position us well for future growth. So looking in a little more detail at the operational highlights from last year. Bringing the Redrow brand into the business was, of course, a particular highlight, allowing us to reach most of the market as well as capitalize on synergy opportunities. We received CME clearance in October 2024 and as mentioned, have already completed the bulk of the integration. This allows us to concentrate on maximizing the benefits of the combination and driving the total business forward. In the year, we remained active in the land market, enhancing our land position through strong approval levels utilizing our numerous land channels. We delivered 16,500 homes, which is a significant achievement in what is a challenging market. I would also like to take a moment to highlight some of our externally accredited achievements over the past year. Our repeated success in the HBF ratings and the NHBC Pride in the Job Awards are testament to the dedication of our teams across the business as well as the quality of the training and the customer first culture we maintain across the group. This quality is also reflected in our Trustpilot scores given by our customers, which award all 3 brands with the highest rating of Excellent. Mike will cover the financials in much more detail, but just to pull out a few highlights. Whilst our completions came in modestly below guidance, our adjusted profit before tax and PPA was in line with market expectations. This reflected our rapid progress on cost synergy delivery with GBP 69 million confirmed in the year and GBP 20 million crystallized in FY '25, double our previous forecast. Our return on capital employed, excluding PPA, improved to 10.7% from 9.5%. We finished the year with a strong net cash position, supporting our growth and capital allocation plans. Now looking at reservations. Our growing portfolio of PRS partners helped to increase our overall reservation rate to 0.64. Additionally, some improvement in mortgage competition and availability provided a boost to our net private reservation rate, excluding PRS and other multiunit sales. However, the improvement in the rate was offset by the reduced number of sales outlets and our opening order book. Turning now to completions. Our total completions were down 8% compared to the aggregated figure for FY '24. This was due to a reduction in affordable completions, reflecting the nature and timing of these types of deals. However, we were pleased that our underlying private completions in the year were up around 3.5%. Our average selling prices saw price inflation of around 1% with customers remaining very sensitive to both increases in headline prices and reductions in incentive levels. Other increases in underlying private ASP were largely due to increased delivery of larger homes outside of London. For more detail on reservation rates, completions and ASPs, please see the information in the appendices. Our land bank supports our medium-term growth ambitions. Our multiple land pipelines allow us to source high-quality land throughout the cycle. While planning remains a slow process, we are very optimistic about the reforms and the positive changes we will see once the legislation is passed. Gladman remains an important part of our business and will also benefit from the planning reforms, being the partner of choice continues to benefit us in the land market as well. In the year, we announced the MADE partnership alongside Homes England and Lloyds Banking Group, and also the West London partnership with places for London, giving us access to further high-quality land opportunities. Moving on to outlets. The proposed planning reforms, as I've said, are extremely positive. However, they have taken longer to come into law than we expected. Therefore, as announced in our July trading update, we expect outlet numbers in FY '26 to be largely flat. From FY '27, we will start to see organic outlet growth plus the benefit of our revenue synergy outlets. As seen on this graph, the vast majority of our FY '27 outlets are already open or have detailed planning concern. In FY '28, there is still a relatively low proportion of forecast outlets that rely on future planning approvals. This provides us with excellent visibility over the next few years and gives us confidence in our growth forecasts. On current trading, in July and August, we saw our net private reservation rate, excluding PRS, increased slightly compared to the same period in FY '25. However, we recognize that the market remains subdued. And after speculation about stamp duty, some customers are going to wait to see the impact of the budget in late November. Meanwhile, the lack of PRS reservations in the period simply reflects the timing of deals. Our year-to-date completions are marginally ahead of last year's and our forward sold position is in line. So we are very pleased with the solid start to the financial year. So I'm now going to hand over to Mike who will take you through our FY '25 performance and financials. Michael Scott: Thanks, David. Good morning, everyone. So as David said, I'll take you through our FY '25 performance and also spend a few minutes this morning on building safety. This slide shows FY '25 performance against the reported position for FY '24, which obviously excludes any impact of the Redrow acquisition. I'll touch on the P&L metrics shortly. But you can see here our total home completions of 16,565 homes and strong closing net cash position of GBP 773 million after the payment of GBP 249 million of dividends, GBP 50 million spent on the share buyback and just over GBP 100 million spent on building safety remediation. So if I move on now to a more meaningful comparison of performance as Barratt Redrow. As we did at the half year, we're focusing on the FY '25 performance stripping out the impact of deal purchase price allocation adjustments, which I'll touch on later. And these are noncash accounting adjustments, which largely fall away from FY '26 onwards. We think this is the best view of underlying trading in the business during the year. In the comparative for FY '24, we're including Redrow here from the 24th of August 2023, but without any adjustment for accounting policies. And we've put a more detailed slide in the appendices if anyone has the appetite which shows the reconciliation of all of these amounts to ensure you've got full transparency. So several points to highlight. First of all, total home completions, as David said, were down 7.8% as a result of lower outlet numbers during the year. Despite the lower volume, adjusted gross profit was broadly flat at GBP 970.3 million, and gross margin improved by 30 basis points to 17.4%, which mainly reflected modest sales price inflation and the positive mix effect of more recently acquired land coming into production. Adjusted operating profit was up 2.9% at GBP 595.4 million, with margin up 50 basis points at 10.7% reflecting the benefit of cost synergy delivery during the year. Adjusted profit before tax was GBP 591.6 million, slightly ahead of guidance in July, and adjusted EPS was 30.8p, which delivers a full year dividend up 8.6% to 17.6p. So overall, we're pleased with the performance of the combined group delivered in the year despite the reduced total home completions and particularly positive to see both gross and operating margins moving in the right direction. This slide updates on the accounting fair value adjustments that have been finalized since our provisional position at the half year, and 4 changes to draw out here. First of all, the uplift on land and work in progress is now GBP 120.4 million, that's up from GBP 93 million at the half year, and that reflects the final valuation of sites in the opening balance sheet. Secondly, as I mentioned back in February, the recognition threshold for building safety liabilities is lower than normal for Redrow because we were required to bring contingent liabilities onto the balance sheet by the accounting rules. As we detailed in the July trading statement, we've increased Redrow's building safety provisions to take into account concrete frame issues in London, and this has increased this adjustment to the GBP 144.5 million shown here. The final changes relate to the tax effect of the fair value adjustments, resulting in a GBP 94 million adjustment to deferred tax. So goodwill recognized on the Redrow transaction is, therefore, GBP 321.9 million and that's up from the provisional estimate of GBP 259 million. So again, just to note that most of these fair value impacts have actually already unwound in FY '25 with a reduction of GBP 103.3 million in adjusted profit before tax. We're expecting a further GBP 20 million charge in FY '26 before this becomes immaterial to future years. So moving on to land, and this is the updated position on embedded gross margin in the land bank. And pleasingly, the land bank margin continues to improve, up 90 basis points since half year to 19.2% at the end of June. So with little net inflation impact, roughly 1/3 of the improvement came from the utilization of land in the half and the remaining 2/3 from the new sites that we've added to the land bank. And as you know, we remain focused on improving this position over the medium term to our current gross margin hurdle rate of 23% by optimizing price, managing build cost inflation effectively and bringing new land into production. So moving on to look at adjusted operating margin in FY '25. And from last year's Barratt only operating margin, we saw a reduction of 120 basis points from reduced volume. That was almost all offset by improved pricing across the year. And as we've said previously, build cost inflation was broadly flat in FY '25. Looking at our same site, same house type measure of inflation, which covers around 1/3 of our volume, like-for-like sales price inflation was around 1.4% in the year. Last year, we saw a step-up in completed development costs, but these have normalized this year, resulting in a positive margin benefit of 80 basis points. The impact of other mix effects, including Redrow coming into the group, contributed 70 basis points together with a further 30 basis points from the cost synergies we realized during the year. Our adjusted operating margin before the impact of fair value PPA adjustments was therefore 10.7%. And you can see the impact of those PPA adjustments, which take margin to 9%, flat on the Barratt only margin from last year. So now just to update on cost synergies. We're making really good progress on realizing the cost synergies target of at least GBP 100 million with GBP 20 million included in the income statement in FY '25. With 9 office closures confirmed, 6 were completed by year-end and 3 are in the final stages of closing at the end of June with GBP 23 million of savings confirmed. The head office rationalization is also underway, and will complete shortly with GBP 21 million confirmed at the 29th of June. And on procurement, we're making good progress in aligning pricing and terms across key materials categories with GBP 25 million confirmed at the 29th of June. As we said, our operational leadership was aligned and effective from the 1st of July 2025, and the IT integration is in progress with the migration of 6 remaining divisions expected to complete in FY '26. Having crystalized GBP 20 million of cost synergies in FY '25, we're well on track to deliver an incremental GBP 45 million in FY '26. So on revenue synergies, just to give you the latest numbers to date, we've now submitted 25 planning applications at the end of August, and we've already received planning permission on 9 of those sites. We expect to submit the remaining applications during the course of FY '26, and we're very much on track to see the first incremental outlets ready to open at the start of FY '27. So now I'd like to spend a few minutes just updating on building safety. So as you know, our approach from the start of this issue has been to focus on the safety of the buildings we've built and the people who live in them. We've been very engaged with government, and we were the first housebuilder to create a unit dedicated to remediation, and we commit significant time and resources to support it in delivering our program. We apply a rigorous process in assessing buildings within the scope of our obligations. That includes using reputable fire engineers and seeking peer reviews of all fire risk assessments undertaken on our buildings. We're also making some progress with recoveries from the supply chain, where we have a robust case to pursue them for substandard workmanship or design. So looking at our building safety provisions, we currently have GBP 886 million on the balance sheet relating to fire and external wall system issues. During the year, we brought the Redrow provision of GBP 184 million onto our balance sheet. And as we announced in July, within the Barratt legacy portfolio, we've provided GBP 109 million across 3 areas. Firstly, GBP 76 million in relation to developments in our Southern region, which related to a specific build typology we don't think is repeated anywhere else in the group. We've also seen GBP 17 million of incremental costs at an existing remediation project in London. But other than that, the underlying position was relatively stable with a net GBP 16 million movement of costs, which was offset elsewhere in the income statement by supply chain recovery. Moving on to look at the provision for concrete frame issues. We carry a provision of GBP 187 million at the end of June. During the year, no new buildings came into scope in the Barratt portfolio. As we updated in July, we identified concrete frame issues similar to those identified on legacy Barratt development at up to 4 Redrow developments. And we booked GBP 105 million to the opening balance sheet provision for these issues. But based on the reviews we've carried out today, we don't expect any further buildings to come into scope for these frame related issues going forward. So on to the balance sheet, and here's our usual balance sheet breakouts. And in the appendices, we've included a slide which reflects the impact of the consolidation of Redrow at fair value and also the movements from underlying trading. So 2 points to highlight here. First of all, the ongoing organic investment in land. And as well as bringing Redrow's land into the balance sheet, we invested an incremental GBP 181 million across FY '25. The significant increase in land creditors saw an additional GBP 167 million added over and above Redrow's consolidation. So land creditors remained below the target range of 20% to 25%, but moved up to 15.9% this year, and we're looking to ensure that we add land on deferred terms to take us into that 20% to 25% range. Part exchange has increased by GBP 39 million, which is a reflection of its importance of a selling tool in a tough market, but more than 2/3 of the 549 homes in our portfolio had already been sold by the 29th of June. And as you know, we keep tight control of part exchange stock. So here's the cash flow bridge for Barratt Redrow from reported operating profit on the left to the net cash outflow on the right and really just a couple of things to point out from this slide. Firstly, a step-up in tax payments was the prime driver of the GBP 101 million outflow in interest and tax. And as I've already noted, building safety spend totaled GBP 101 million. Our operating cash inflow was GBP 50 million, and we brought Redrow's cash onto the balance sheet and also made some further investment into additional timber frame facilities at our Oregon factory in Scotland. With dividends paid and the share buyback of GBP 50 million, the net cash outflow for the year was GBP 96 million. So just to update on capital allocation and just reiterating our unchanged capital allocation priorities here. Clearly, our enhanced scale and balance sheet strength with net cash of GBP 772 million and committed lending facilities of GBP 700 million put us in a very strong financial position looking forward. We're focused on investing in our business to drive our future growth. David detailed our sales outlook profile, and we're focused on delivering land to accelerate development using our 3 brands. We remain committed to innovation and development and we'll continue to invest in opportunities like the timber frame facilities and also our sustainability initiatives. And finally, we have a clear approach on shareholder returns, including our ordinary dividend at 2x cover and the ongoing share buyback program of at least GBP 100 million per annum. So turning now to guidance. Most of these points have been covered, but just to highlight, we expect our adjusted administrative costs to be around GBP 400 million. This reflects the additional period of Redrow's overhead base, which will impact FY '26, underlying cost inflation and the benefit of incremental synergies of approximately GBP 30 million. We're anticipating total synergies of GBP 45 million with the balance of GBP 15 million crystalized in cost of sales. A finance charge of approximately GBP 50 million, which is dominated by noncash charges in relation to land creditors and legacy property provisions as well as modest cash interest income on a reducing cash balance. In relation to land, we expect to operate at broadly replacement levels and spend between GBP 800 million and GBP 900 million on land and land creditors in FY '26. On building safety spend, we estimate spend will be around GBP 250 million for FY '26. And within this, I'm assuming that around half of our building safety fund costs will be paid during the year, so that's around GBP 70 million. Looking at net cash at the end of June 2026, we expect to be between GBP 400 million and GBP 500 million. So finally, to summarize, we believe we've delivered a solid financial performance in FY '25 in what was a tough market. Adjusted profit before tax was delivered slightly ahead of expectations for the year. And notwithstanding the tough market backdrop, our balance sheet remains strong. We've delivered cost synergies ahead of schedule whilst also making good progress on revenue synergies and the wider integration program. Our land bank and strong balance sheet give us a great platform to grow the business. And finally, we've put in place both clear capital allocation plans with an updated dividend policy alongside the annual GBP 100 million buyback program. And with that, I'll hand back to David. David Thomas: Thanks very much, Mike. And now just turning to look at the market. So I think whilst I've covered earlier that the current market clearly has its challenges, I think we need to bear in mind that the fundamentals of our industry remain very strong. Housing is clearly a top priority for government and the demand for homeownership remains steadfast. When consumer confidence returns, the policy environment becomes clearer and the planning reforms kick in, we can expect to see a strong uptick in planning approvals, outlet growth and opportunities to increase sales and volumes through our 3 leading brands. We remain confident that Barratt Redrow is best placed to navigate the market at all points of the cycle. Fundamental to Barratt Redrow are our 3 high-quality differentiated brands, and we have the skills and experience to deploy them effectively. These brands allow us to operate in a variety of locations and local markets with the optimal divisional infrastructure to match. Our customer focus is clearly demonstrated and recognized by our numerous third-party credentials. We have demonstrated that we are a reliable partner, allowing us to be flexible and innovative. Our reorganized divisional structure and brand portfolio positions us well for growth over the medium term. And finally, we remain financially strong with a solid balance sheet, a robust net cash position and cost synergies, which will increasingly drive higher profit margins. So in summary, we remain confident in the medium-term guidance that we gave in February. Outlet growth on which we have good visibility will allow us to reach our outlets goal, which will flow through to 22,000 total home completions. Our progress on cost synergies has enabled us to deliver on profit expectations, and we will continue to benefit the business financially as we move forward. Savings through synergies as well as greater efficiency of our fixed -- on our fixed cost base will help us to drive our operating margin back to 15%. We will be increasing our use of line creditors, which will aid our return on capital employed, recovering back to 20%. Also helping us to improve return on capital employed will be the effect of multi-branding of developments using our 3 high-quality and differentiated brands. And finally, as we've touched on, we remain financially robust and that gives us confidence in our growth aspirations and also providing stable shareholder returns. Thank you very much. And Mike and I will be happy to take questions, which John is going to host. Thank you. John Messenger: Thank you, David. We're going to open up for Q&A. [Operator Instructions] We'll start in the front row with Will, if you could, please. William Jones: Will Jones at Rothschild & Co Redburn. Try 3, please, if I can. First, just referencing, I think, in the statement, you talked about additional risk given the obvious and understandable around the budget in November. And I think the need for a normal autumn. Could you just expand on what the normal autumn might look like? And perhaps just remind us of the -- roughly the full year sales rate you're assuming? Second one was actually back to building safety, 2 parts to it. To what extent is there still risk around the building count with respect to inactive buildings maybe coming into scope? And perhaps you can expand on the other side, the recovery process. I think you talked about some steady progress there, but what's the potential for that over time? And then the last one is maybe just around build cost. I think you've reiterated your guidance for the current year and you've got good visibility, but just wondering what -- how you think things might shape up for the conversations that start to take place at the end of the year, start of calendar of '26 with suppliers, subdued market for you guys? Will it be, I guess, subdued for them in terms of what they end up achieving? David Thomas: Well, first of all, good morning, Will. Good to see you in the front row. So Mike will pick up in terms of building safety and also on build costs. I mean if I just touch in terms of the budget, I mean, I think really kind of 2 points to make. I mean one is, look, we're pleased with what we've seen through July and August. So that's the first thing. And we've also provided that information in terms of reservations through July and August. I think it's understandable that we would flag that speculation relating to the budget can affect customer sentiment. And we recognize that, that can be both positive and negative. So what we've got to do is we've just got to concentrate on trading our business, making sure that we're putting attractive offers in front of our customers, and we feel that we're doing that effectively, given the market conditions. In terms of rates of sale, we would normally see some tick up as we move into the autumn. So we've clearly provided rates of sales through July and August. I think the tick up in the autumn or the tick up in the spring has probably been less substantial than it used to be. Primarily, I think because we've just seen strong trading through, say, January, February or strong trading through July and August, which we haven't necessarily seen previously. And I mean overall time, I think we said earlier in the year that somewhere around about 0.6 is the kind of rate of sale that we're looking at as a group. Mike? Michael Scott: So if I pick up building safety first. So first of all, on the portfolio that's provided, I think we've got increasingly good visibility on costs and progress there. So about 90% of that portfolio has now been through some kind of tender process on costing or we're actually actively remediating it. So I think the visibility we've got on that is really good. On inactive buildings, I mean they have been through a process, albeit largely desktop in terms of documentation around the status of risk assessments, the build typology, the external wall systems and so on. So there's been an element of process there already. And that's why we don't believe that there's work to do, and they're not in the active bucket. And then if you look at the flow-through of buildings from that sort of inactive group into the provision over time, actually, it's very, very low in the second half of the year, literally just a couple of buildings that moved across. So I think as we move through time, we are increasingly confident of the position. The problem with it is you can't say that nothing will come out as we get into buildings and time passes. But I think our visibility and confidence is increasing. On the recovery process, I mean, we're engaged in a number of conversations. Obviously, we can't talk too much about them for commercial reasons, obviously. But I think we are engaged in that process. We recovered GBP 60 million from the supply chain during the year, and we're actively engaged on a program to do that as we go forward. Moving on to build cost. So I mean, I think we're still comfortable with the 1% to 2% guidance range for the year from everything that we've seen. As we said previously, a little bit more pressure on labor and the subcontractor side than on materials. And I think some of that's now the flow-through of the national insurance increases and the other labor cost increase is coming through. And again, it's the early-stage trades. It's the ground workers and so on that we're seeing a little bit more pressure on. But we obviously also have the benefit of the cost synergies through our procurement program. And again, we've had really good engagement with the supply chain on that. We're able to get very good forward visibility of the growth of the business, which is helpful. So overall, we're comfortable with 1% to 2% for this year. John Messenger: Aynsley from room. Aynsley Lammin: Aynsley Lammin from Investec. Just 2 from me, please. One, if you could just provide a bit more color on incentives and pricing and what you're doing going into the autumn selling season in relation to that? And then secondly, just on the planning, obviously slow to come through at the local level. Could you just remind us of the time line of what happens from here when you expect that to actually start to impact positively at a local level when the legislation comes in, et cetera? David Thomas: Yes. Aynsley, so I mean, first of all, in terms of incentives, I mean, the short answer is no real change in relation to incentives or incentive levels. I think when you look at our incentives, I mean, I won't run through them all, but if I just highlight 2 or 3 of those incentives. So for example, for first-time buyers, we will offer a deposit match. So if the first-time buyer has a 5% deposit, we will effectively match that deposit. It allows the first-time buyer to get on to a 90% loan to value, and that is an attractive proposition. Secondly, we have, for a period of time, accelerated post COVID, run a key worker discount. So primarily aimed at blue light workers, but a broader range has been brought in of key workers. I don't think analysts are in that range. But we can expand it, and that is a really attractive proposition. So we're typically offering a 5% discount subject to ceiling. So it probably blends at about 3.5%, 4%. And then the third offer is part exchange. So part exchange is probably our most expensive offer. We don't look to make profit on the part exchange offer, but it is a very attractive offer for consumers. So if you were a second or a third time buyer, then clearly taking all of the pain out of the move process is attractive. And I think we tend to see that when the second hand market, the existing home market is a bit slower than part exchange becomes much more attractive. But we're still seeing overall incentive levels as we've set out sort of 6% plus in terms of overall incentive levels and quite a bit of that is driven by part exchange. In terms of planning and infrastructure, we've said very consistently that the government coming in, in July '24, have really tried to take a transformational approach to planning. We have to remember that if you go back to March, April '24, we were going backwards very, very rapidly from a planning point of view. And I think the government has set out what I see as being a very bold and ambitious agenda in terms of planning, not just for residential development, but for commercial development, for infrastructure and so on. Most of that is contained within the planning and infrastructure bill. I think it has taken a bit longer than we would have thought back in July, August '24. And our understanding of the time lines presently is it's going through the review within the House of Lords. And we'd expect that perhaps November, December, it will come into legislation. And then all local authorities will need to comply with the requirements of the planning and infrastructure bill. So we should start to see that taking effect during 2026. John Messenger: Chris? Christopher Millington: Chris Millington, Deutsche. First one, I just wanted just to kind of gauge your steel behind the outlet opening profile. Obviously, we had a delay last time. They're still obviously subject to third parties kind of moving in line just how front or back-end loaded in those periods, do those outlets come through. So that's just the first one. Second one is looking more at the longer-term shape of the balance sheet. There's obviously quite a lot of demands on cash over the next few years. Where would you start getting uncomfortable with regard to adjusted leverage? It does look like the net cash balance is probably going to be eliminated in the next couple of years? And the next -- the last one, I thought a really helpful slide on the land bank margin really good to help us build it up. Perhaps you can give us some sort of guide as to the evolution of that maybe something like when do the sub-15% gross margin categories get eliminated or something to that effect? David Thomas: Thanks very much, Chris. If I pick up on outlets and then Mike will pick up in terms of the sort of shape of the balance sheet and cash and land bank margin. So think in terms of outlook, so we recognize that we had a revision of guidance for outlets for FY '26, which we updated the market with that in July. I mean I think our confidence regarding outlet delivery is twofold. One, we're putting it up on a slide, we've broken it down in detail, and I'm presenting the slide. So I think that demonstrates a strong level of confidence. We wouldn't normally give that level of detail. I think the second point I would say is that this is unusual. I mean I've been here 16 years, and I think at any point over the last 16 years, if we had put up an outlet profile, we would have had much less with detailed consent or much less with planning submitted. And that's just a byproduct of 2 things. One is that since we've gone back into the land market post 2022, we have acquired sites that can be single, dual or triple branded. So that gives us good outlet delivery. And secondly, through the combination with Redrow, we've identified that 45 sites can be delivered. And obviously, we see that there are more than 45 potential. So we take a reasonably conservative view and say we can deliver 45. And that's also entirely in our control, and Redrow are already on those sites or Barratt are already on those sites, and we're effectively either doing a plot substitutional or we're doing a replan. So yes, we have a high level of confidence regarding delivery. As I touched on a moment ago, I think everyone in the industry is very positive about the government's approach in relation to planning. I mean why would you not be? But I think it has been more protracted than anyone would have expected because we're now 14 months later, and we still don't have the legislation. So -- but we are where we are. The legislation will come, and it should be effective from the beginning of '26. Michael Scott: If I just pick up on the balance sheet first. So I guess the first point to make is we're starting from a really strong place. GBP 770 million of cash at the end of last year. We flagged in February that there would be a couple of years of investment in web and infrastructure to get the new outlets open and get us up to the 500 outlet target in a few years' time. So we do expect to be in that phase. We expect to use that net cash over the next couple of years, but then we start to generate cash at the end of the plan as those outlooks come into production and we sort of stabilize outlet numbers. I think when you step back from it, the shape of the balance sheet over the last 3 or 4 years has probably been the outlier in a sense with the level of net cash that we've been holding. If you look over a longer period of time, we'd normally have targeted very small level of net cash at year-end. And that's probably where we'll end up getting back to trust. But I think we're starting from a very strong place. We've got good line of sight to those investments and work in progress and infrastructure to get the new outlooks open. And we've said many times that the strength of the balance sheet is a real priority for us and the board as we go forward. On the land bank margin, I mean it's difficult to predict exactly when those sites will roll off, but average site length is sort of 3.5 years. So you think over the next 2 or 3 years, you'll see those lower site margins roll off. We've given the medium-term target of getting to the hurdle rate of gross margin of 23 and then 24 when the procurement synergies have kicked in. So you'd expect to see that evolution continue over the next few years, 90 basis points up in the year this year with the land we've added. We're carrying on adding land hurdle rates that will blend up over time. So again, it will take a few years to get there, but we're confident that that's directional travel. John Messenger: Great. Ami? Ami Galla: Ami Galla from Citi. A couple of questions for me. One was on the gross margin in the land bank. Can I clarify, is the synergies on top of that, the procurement synergies associated with the gross margin, will that be on top of that? Or is that included in the land bank gross margin that we see? The second question was really on the WIP investments linked to outlets. You've talked about this previously, but can you remind us how should we think about that investment profile over the medium term? And the last one was on the ASP in the land bank. That's also marginally higher, and I presume that's mix as well. Can you give us some color as to how is that -- how is the shape of that mix adjustment over the next 3 years? Michael Scott: Sounds like 3 for me. So gross margin in the land bank does include procurement synergies. So that's fairly straightforward. On work in progress, so I think we're guiding this year that we'll have GBP 200 to GBP 250 million of incremental with investment as we go through this year. And again, that's investing in outlet openings that we'll see coming through both at the end of this year and into FY '27. And then we're not guiding for '27, but we've been at that level of GBP 200 million to GBP 250 million for the last couple of years. And on ASPs in the land bank, it is largely reflective of mix. And clearly, in the land bank now we're reporting Redrow as well, which operates at a slightly higher ASP than Barratt and David Wilson did previously. We're not seeing any particular sales price inflation at the moment. Our sort of like-for-like measure is broadly flat on selling prices. So the increase in ASPs that you're seeing is coming through the mix of sites rather than inflation. John Messenger: Clyde? Clyde Lewis: Clyde Lewis at Peel Hunt. 3, if I may as well. Firstly, on the desire to grow the deferred terms around the land buying, how easy do you think that's going to be? And do you think that's going to limit your choice in any way in terms of what you can buy? Second was around the sort of bulk sales mix in terms of the volume guidance this year, what sort of contribution are you expecting to see from bulk sales? And the third one probably was going back to your comment, David, about being up at the company with 16 years, pretty much in every one of those years, you will have seen some sort of demand incentive from the government, whether it's stamp-duty holidays or specific first-time buyer help. Do you think this government actually understands that it's probably going to need some of that to try and get the overall housing market back to where it wants to be, despite all the extra money they put into the affordable housing sector? David Thomas: Yes. Okay, Clyde. Thank you. I think if I just pick up on the deferred terms and Mike will pick up in terms of multi-unit bulk sales, and then we'll just talk -- I'll about the demand side. So I think on deferred terms, I mean -- I think it obviously depends on the position of the land owner, but I would say as a generalization, we are buying sites that are larger than average and the ability to secure deferred terms is greater. So I don't see anything that will change that because we see that when we're bidding maybe on a site that might be 150 to 200 plots, there can be a huge amount of interest in those sites, whereas if we're looking at sites that are maybe 750 plots and above, there's just a limited number of buyers, probably ourselves, Vistry, maybe a couple of the other majors might be in that market. And so I think there is an ability to structure deals, which is -- it's got to work for both sides, but securing deferred terms for us has always been important, and we're just going to place a little bit more emphasis on it going forward. So that's the kind of deferred terms. I think on the demand side, and you've seen everything unfold in terms of the way that the markets evolve. So all the 16 years I've been here apart from the last 2 years, there has been a government-backed program in the market. So since 2009 without interruption. The programs have changed in their nature. And as you know, in the early days, the house builders either participated by providing 50% of the shared equity loan or the house builders paid to access the scheme. And with Help to Buy, the house builders were not asked to pay to access the scheme. And we've said Barratt Redrow, and I know many other house builders said that we would happily pay to access the scheme. We see that when you look at affordability in areas such as London or London in the Southeast, affordability for first-time buyers is at record levels of challenge. We've not seen the kind of metrics on affordability previously. And therefore, you can see that particularly in London, as you know, London for us is a relatively small part, 5% to 7% of our completions in London. But the reality is that affordability challenges in London are acute. And you can see that coming through in terms of the numbers. So our message to government has been the house builders are happy to contribute towards a scheme. It should be targeted at first-time buyers and there should be a particular focus on areas of acute affordability. Michael Scott: And then just on multiunit sales and so on. I think on the affordable side, we are seeing slightly more appetite from the registered providers to do additionality. Again, that was probably backed off a little bit over the last 12 or 18 months, and we're seeing good levels of grant funding come through into some of those deals that we're doing. So I think they'll definitely be a feature for us this year. And then on PRS, as you know, we sort of focused on 2 or 3 key relationships on PRS, the most significant of which is Lloyds Living. And we've talked about the framework we've got in place with them, want to do about 1,000 units a year over time. And in general, as we grow the business to 22,000 homes per year, we think PRS will be about 2,000 of that 22,000. So I think for this year, we'd probably expect multiunit sales in PRS to be just over 1,000 units in the completion mix again. But we're seeing -- we're still engaged in good conversations with the PRS providers. I think that there are still deals there, pricing that we're comfortable to do the deal. And it will just be part of our mix going forward, I think. John Messenger: Charlie? Charlie Campbell: Charlie Campbell at Stifel. Just a couple of questions, please. Just firstly, on mortgages, some changes in stress tests and loan to income. Just wonder if that's had any impact yet and whether we should expect that to have some impact going forward? And then secondly, on Section 106 and HAs, affordable housing, has that appetite return back to normal after the hiatus or do we need to wait for things like the prospectus to come out for the affordable homes program? David Thomas: Charlie, okay. If I pick up both of them. And first of all, I think that everyone is conscious of the fact that there was very substantial tightening of the mortgage lending rules post the financial crisis. And I think we recognize that there is some concerns about a rapid relaxation of those rules. But we would welcome the relaxation that has taken place, and we think that the scope for further relaxation, particularly around multiples of joint income multiples. So I think it's very difficult to disaggregate that from exactly what is the impact. But clearly, it is a positive impact in terms of allowing more lending to take place in the market. And there has been quite a lot of documentation published around the way in which it improves affordability. So that has to be a positive. In terms of the Section 106, I mean, look, at a headline level post the announcement by government, I would say, at June '25, we found the closure of Section 106 agreements in aggregate to be much easier than at June '24. I'm not saying it was easy, but it was much easier. And I think beyond that, it is an assessment on an HA by HA basis. And I think where housing associations have got challenges regarding cladding and cladding remediation, and the government have done something to alleviate that by allowing the housing associations to access the building safety fund. And also where housing associations have got particular challenges around the remediation of existing housing stock, i.e., it needs to be brought up the standard under Awaab's Law. I think the reality is that housing associations have got some cash and funding challenges. So I think it is the housing association specific. And the industry is very definitely flagging that it is not a resolved issue for government. And there's a consultation in terms of the effectively, the equalization of rentals. But that consultation is not closed. And so the equalization of rentals is another very important thing for the HAs in terms of the financial impact it has on the HAs. John Messenger: Allison? Allison Sun: Allison from Bank of America. 3 questions from my side. The first one on the ASP for next year, I don't know what's your expectation is overall. Do you think it's going to still be positive, stable? Or you just still a lot of uncertainties there given the budget impact? Number one. And number two is on the PRS because we also saw the news like the government might impose some landlord tax or the national insurance on the investors. Do you see it's going to be a negative impact for the future investment demand for the PRS? And thirdly is on this future home standard, which I understand we still haven't got full details yet. And I heard there are some builders saying, if there is a mandatory requirement on the solar panel installation, there could potentially be a negative or the downside risk to the earnings for that particular builder. But I wonder if you heard anything on the regulation and what's the progress for the Barratt portfolio? David Thomas: Yes. Certainly. Mike, can you take the ASP one? So if I just pick up on PRS initially. I mean I think this just falls into a category of the sort of budget speculation. And clearly, we don't know whether there is any intention to put national insurance on rental income. So we just have to wait and see. I would think that if you're an institutional investor, then you're going to want to look at that fairly carefully, I would assume. But we'll find out in November about directionally where that is going to go. In terms of the Future Homes standard, so I chair the Future Homes hub. So I'm sort of very close to the Future Homes standard of what's happening with the Future Homes standard. So I think the first thing is that the Future Homes standard has been delayed. It depends on at what point you're measuring, but the Future Homes standard is probably 12 months to 18 months behind when it was originally anticipated to be. And that is giving all participants in the industry more time to adjust. And when the standard comes into effect, we expect the standard to be published prior to Christmas. There will be a transition plan, and that transition plan will run through certainly '26, '27, '28, but the transition plan will be published. And then thirdly, there is a subconsultation about the number of -- the amount of solar panels that will be required on properties. And certainly, from the Future Homes point of view, we've just effectively said that there has to be a balance to that. We shouldn't be in a situation that we're mandating very large quantities of solar panels because the standards can be achieved in different ways, not simply through the provision of solar panels. But when the standard is published in December, we will see the outcome from that. But again, I would emphasize it will be over quite a long transition period. Michael Scott: And then on ASP. So on pricing, generally, we said that using our like-for-like measure last year, pricing was up 1.4%. So that's the sort of underlying pricing position. Year-to-date, that's been flat. So clearly, the pricing position has been more challenging in recent months. And so looking forward into FY '26, we're not expecting any benefit from sales price inflation in the numbers. There will be a small increase in ASPs just coming through the mix effect. We'll be blending in Redrow. And that will be slightly offset by a higher proportion of affordable housing in the year, but I'd expect it to be very slightly ahead year-on-year. I don't think there will be significant movements in the ASPs. John Messenger: Alastair? Alastair Stewart: Yes. Alastair Stewart from Progressive Equity Research. A bit of a niche series of questions all based in Scotland, no vested interest there, of course. Yes. Just a bit of color on Scotland. First of all, you did a couple of deals with Springfield. Any further organic opportunities north of the Borden? Also, the Scottish government seemed to have changed tack quite a lot on -- especially build to rent, but just generally seem to be a bit more pragmatic, let's say. Any color on that? I suppose it's a question for you, David. David Thomas: Yes. I feel well qualified to answer. Yes. Look, we have a big business in Scotland. So we're based in Glasgow, Edinburgh and Aberdeen. And we've had a big business in Scotland over a long period of time. I think that the Springfield deal that you touched on is reflecting two things. One is we have a very positive view of the market in Scotland. It is a market that operates under different regulations and different policy from England. So for example, Scotland never had a government support program, not in the same way. And policies in Scotland have probably been a little more slanted towards affordable housing generally. But we see it as being a positive environment. And therefore, we acquired the sites from Springfield, and they've obviously gone through a restructure of their activities to be more focused in terms of the north of Scotland. So we're positive about that opportunity. Again, I would say that the rent controls in Scotland adversely impacted the buy-to-rent market. And the institutional investor, I think, was less enthusiastic. But that position seems to be altering and therefore, we should see the opportunity for more private rental, particularly for Edinburgh. I think Edinburgh is a very, very strong market or a very strong potential in terms of private rental. And then the other area, which Mike, maybe just touch on, is just on building safety because, again, I think that -- do you want to just touch on building safety? Michael Scott: Yes. I mean, I guess, it's been an open conversation for a while in terms of where the standard for remediation would end up compared to the standard in England and Wales. I think that has moved during -- this year has moved towards the England and Wales position, which clearly for us is positive because that's the basis that we've approached building safety in Scotland, but still not concluded, but I think closer to conclusion and in a more positive sort of state. John Messenger: Marcus? Marcus Cole: Marcus Cole from UBS. Just one question on timber frame. Obviously, you all went up to the factory earlier this year. I'm just thinking about how that's progressing. Any learnings you have there? And how do you think about more about vertical integration on the back of those learnings? David Thomas: Yes, we're very positive about timber frame. I mean, if you -- just to go back to Scotland very briefly, when I came into the business, we were almost entirely brick and block in Scotland. And we're now almost entirely timber frame. So 95% plus in terms of what we're doing in Scotland is timber frame. It would only really be on higher apartments where we would move away from that. So I think that the use of timber frame is going to become more and more prevalent in England. And you can see that through the majors that most people have either got agreed sourcing arrangements or they have their own factories. I mean -- and that's the reality. It's very much the direction of travel. So we are very positive about it. The factory -- the new factory in Derby is progressing well and we see volumes rising. Ultimately, we see capacity between the 2 factories up to 9,000 frames. But I think the opportunity goes beyond that in terms of being able to do more and more within the factories. So having closed panels, being able to put services into the panels, whether it's windows, doors, plumbing, et cetera. There's a lot of stuff that can be done within the factory. So we see that -- what we have in Scotland and what we have in Derby is very much a platform for us to grow from over the next few years. In terms of vertical integration, I mean, I would say our starting position is that we would prefer not to vertically integrate. You'll find that many of the products that we buy we are a relatively small part of the manufacturers business. And what we don't really want to be doing is running a business where because of the economics of the business, we're having to provide a lot of product to other companies. We want to be able to like with timber frame, bring something into our portfolio where it can provide exclusively to Barratt Redrow. And therefore, when you look at the sort of volumes that are involved in certain production areas, that just wouldn't be possible. You wouldn't be able to run the sort of economies on our volumes alone. So I think we're very, very selective about what we would vertically integrate on, but where we see an opportunity like our acquisition of Oregon or for example, we run our own in-house wardrobe factory, then we're certainly happy to further integrate those types of businesses. John Messenger: Any more questions? Hope we exhausted everyone. Thank you, everyone. One more? Yes, of course. Chris? Christopher Millington: Sorry, Chris Millington, Deutsche. It's just about what your thinking is about the proportion of affordable going forward. Do you think it can keep pace with the private growth within the business on volumes? Or is there an assumption that will lag slightly because of the funding issues we've seen historically? David Thomas: I think if you look at a policy level, then I think you would expect the proportion of affordable to increase slightly going forward on the basis that for greenfield sites under the planning and infrastructure build, there will be a higher assumption in terms of affordable for example. So I think you would say that the general trend would be an upward trend on affordable. I think the funding question is we've touched on that, that's a kind of separate question. And the funding challenge is real. I mean the government obviously announced a huge funding program over a 10-year period, but short term, the funding challenge is real. And I think the final point, and we -- this has been well documented in London is that 35% or 40% or 50% of nothing isn't benefiting anyone. And I think we've consistently seen this over 20 or 30 years is that as there is an attempt to take more value from the land, the landowners have an opportunity to say, actually, we won't participate or sites get bogged down in viability arguments. And that clearly is what's playing out in London presently. John Messenger: Great. Thank you, everyone, for coming along. If there are any follow-up questions, don't hesitate to get in touch with myself. But thank you, and we'll close proceedings. Michael Scott: Thank you. David Thomas: Thanks very much. Thanks, everyone.
Operator: Good morning, ladies and gentlemen, and welcome to the IP Group Plc Half Year Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and we'll publish their responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, as usual, we would just like to submit the following poll. And if you'd give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from IP Group Plc. Greg, good morning, sir. Gregory Smith: Good morning, and thank you to Jake. And as always, thanks to everyone at Investor Meet Company for again hosting our half year results webinar. I was reflecting -- I was reading my FT on Saturday, and I almost choked my yogurt, I guess, these days, I've sort of had to move on from corn flakes for longevity reasons. But I saw the headline, the U.S. market for IPOs has exploded back to life with the busiest week for 4 years, and that's not something I've seen for a few years, I guess, maybe obviously based on the cycle. But it was an interesting reflection that the public markets have had quite a positive impact on the portfolio in more ways than one so far in 2025. And hopefully, there is more opportunity that arises for us in future as a result. I'm Greg Smith. And as CEO, I have the honor of leading IP Group and our excellent team on our mission to accelerate the power of science for a better future. And with me on today's call, we have our managing partner, Mark Reilly; and our CFO, Dave Baynes, both in the room really and virtually. As usual, this presentation will be uploaded on to the IR section of our website with a few appendices. Before we start, please note all the usual disclaimers and you can read that in the time I'm going to spend on the slide and good luck, but this covers all the information, particularly any forward-looking statements that we may make during the course of the next hour or so. So in terms of what we're going to cover, I'll provide an overview of the Group's performance in the first half, then I'll pass on to Mark, and he'll give an update on a number of our key balance sheet holdings and then some other notable development actually. And then Dave is going to run us through a summary of the numbers, and then we'll head into Q&A. As Jake said, as always, please post your questions up in the Q&A section. And as always, we'll endeavor to cover them all either live in the session or afterwards by platform as we run out of time. So for the half year, I think the main message is, overall, we made strong progress in the first half. We saw a number of encouraging developments in the portfolio. And indeed, the pipeline of significant milestones remains good through to the end of 2027. The public markets were more of a contributor in terms of fair value. And then there were a number of other positive developments in the private portfolio. That public side included the successful IPO of Hinge Health in May and strong half year results from Oxford Nanopore who beat city expectations. We recorded total cash proceeds of GBP 30 million. That's 9x what we saw in the first half of '24. And as a reminder, I said at the full year that we were targeting GBP 250 million of exits by the end of 2027. So what we've seen year-to-date means that we remain confident in achieving that target. And we had a small overall loss for the first 6 months. However, NAV per share essentially stabilized in the reporting period and has subsequently increased since the period end to about GBP 1 a share. We continue to be in a strong balance sheet position and have good liquidity, and we still got gross cash of GBP 237 million. And obviously, that's significantly up from this time last year when we had the Featurespace exit and others during the period. And then a final note is we are seeing increasing momentum in our efforts to add to our private scale-up capital under management. And the market hasn't necessarily moved as quickly as we hoped or expected on this front. However, we have good confidence of securing at least one new mandate by the time that I talked to you at the time of our full year results. So on the portfolio, coming into the year, 4 out of our top 5 holdings have seen encouraging developments in the year-to-date. As Mark and DB will cover briefly later, the fifth Oxa, while it's making encouraging underlying progress, is yet to close its latest funding round. And so our revised valuation has been pegged back to reflect that position. On Hinge, we were delighted for Dan and Gabe and the team to have the opportunities to ring the New York Stock Exchange opening bell on May 22. PitchBook described their successful IPO as a pivotal moment for digital health, signaling the reopening of the health tech public markets after a 3-year drought, and Mark will cover more on this shortly. But in summary, the company has traded very well since IPO is up about 80% off the back of strong Q2 numbers. Oxford Nanopore, they delivered a strong first half of trading. They beat analyst expectations on both revenue and on a lower EBIT loss. I think our observation was that growth was strong across all sectors and geographies. So by customer category, they grew in academic and in all of the 3 sort of applied sectors. And then by regions, even despite the sort of some of the headwinds in America, Americas was up, APAC was up, EMEA was up. So we're confident in the outlook for that company. By way of context, we are now the second largest holder behind EIT, The Ellison Institute of Technology, which is backed by Larry Ellison, as many of you will know. Of course, Larry recently became briefly the world's richest man, and he obviously has quite an incredible track record of delivering value through Oracle. I thought it was quite interesting that the U.K. press has started to pick up more recently on EIT and its Oxford Ambitions. And Nanopore is very relevant. If you go to the website, you can see how relevant it is to their focus on 2 of their big themes. One around health, medical science and generative biology and the other around food security and sustainable agriculture. In terms of our position, as a reminder, we invested about GBP 80 million into the company over time. We've realized about GBP 110 million to date. So we've already covered our costs in full. And as you'll have seen in our portfolio data for this year and last year, we've taken a small amount of liquidity on a couple of occasions. And as you'd expect, we continue to very actively monitor the company against where we consider fair value to be at any given time. But as I said, we remain really confident in the medium-term outlook for the business. And we -- our feeling was that the full year '25 guidance was maybe a bit conservative given the strong first half update. So we're confident in our holding. We look forward to further commercial updates from the company. There's clearly a number of interesting commercial relationships brewing there in biopharma and in clinical and also the deeper dive on their refined commercial strategy, which will be coming out in Q4, particularly around how they intend to exploit the sort of $13 billion to $14 billion of TAM that they've identified in what they call the higher priority segments. And then on Istesso, following the news that the -- their most recent trial didn't meet its primary endpoint back in February, the management team has worked hard to progress that program through to value. And the company published a peer-reviewed paper in The Journal of Pharmacology and Experimental Therapeutics, JPET, to its friends, and that was outlining the impact of its compounds on various chronic diseases where tissue damage occurs. So rheumatoid arthritis, as you know, but also things like osteoporosis, fibrosis and interestingly, sarcopenia or muscle loss. And that last bit, I think, led to the paper being picked up by some of the longevity publications because muscle loss is particularly relevant at the moment around the weight loss drugs very common side effects of some of the GLP-1s. And during the period, the company also added a very experienced nonexec, Dr. Mike Owen, delighted to have Dr. Owen joined the Board. And he -- you might recognize the name. He was a co-founder of Kymab, which sold to Sanofi back in 2021 for -- I think it was a GBP 1.1 billion upfront. And when he joined, he said Istesso's old approach to reversing tissue damage could fundamentally change the treatment paradigm for chronic diseases and therefore, holds enormous clinical and commercial potential. As I mentioned a few months ago at the full year results, the company has got funding to carry out a further trial and the location and design of which is well underway, and we anticipate that will commence before the end of the year. On exits, we had a good period for cash realizations. We set an internal target of GBP 50 million for full year '25 coming into the year and the momentum into half 2 and I guess, a more elevated level of inbound interest in the portfolio gives us a high degree of confidence that we'll achieve that and likely exceed it. Of the examples shown here, 2 companies were outright company acquisitions and one Centessa was a partial realization. For our remaining holding in Centessa, the company recently gave a positive update at the Morgan Stanley Global Healthcare Conference. And we anticipate the readout of the Phase II in narcolepsy is pretty imminent, and that will be the next catalyst for our remaining holding. In addition to these examples, also worth mentioning, we realized a small amount of our Hinge holding at the time of the IPO. And as I mentioned, the balance has gone up by around 80%. So our lockup expires on that in November. On what we've done with that cash, as a reminder, our policy is a commitment to deliver cash returns to supplement capital growth using a proportion of the exits that we make in any given year. At the moment, we are using buybacks, and we said that we'll do that until the discount gets to a lower level than 20% and given that persistent discount at the time of our full year results back in March, we announced the intention to use a greater proportion of our realizations in 2025, and we will again review that towards the end of this year based on our capital forecast for going into 2026. The current program is GBP 75 million, and that includes GBP 20 million that we announced in June. At today's date, as of yesterday, we've got about GBP 9 million left to run on that program. And so as we make further realizations, we'll look to add to that total. I think it's worth noting the acceleration this year has been quite significant. In fact, yesterday, I was looking at the numbers, our share count fell below 900 million shares for the first time, which means that we've now retired 15% of our capital in issue. We focused lots of our capital in the last couple of years on the buyback and on existing portfolio and getting those with the highest value potential through to their milestones and value realization. And I've -- we're starting to see as sort of performance and market appetite continues to return, we'll start to selectively add a few more new holdings to the balance sheet portfolio, including from Parkwalk and the wider ecosystem. But before I hand on to Mark, I just want to sort of briefly look forward quickly a reminder of the IP Group investment case, 3 things to believe. The first is that there is significant value potential in U.K. science and technology. I've talked about this and exemplified this at our Capital Markets Day back in June. The second is that IP Group is well positioned to exploit this given the team, the track record, the sourcing and the portfolio and that this represents an attractive shareholder opportunity, particularly given the discount to NAV against which we currently trade. To reiterate again, this is something that I've covered in the past few updates. This in a single slide, I guess, depicts the capital strategy that we are following to be able to exploit that opportunity. From the perspective of a developing science and technology business, we're one of the few investors that can support development from the very earliest stages to relative maturity at the sort of venture growth end of the journey. And complementary private funds are strategically important in terms of pipeline, particularly in the case of Parkwalk, but also development capital for our businesses, and they also contribute fees to mitigate our net overheads. In terms of scale and ambition, Parkwalk, we're aiming to maintain around GBP 0.5 billion of assets there, successful exits of balancing off against new subscriptions. On the balance sheet, we're focused on NAV per share delivery, and that obviously includes that GBP 140 million of cash that we've returned to shareholders over the last couple of years and is appropriate for where we are in the cycle. And then on the scale-up fund side, under which you'll remember Hostplus increased their commitment by a further GBP 125 million last year. And that's where there is a real growth opportunity to scale available capital to ensure strong returns from our balance sheet and our sources of -- for our various investors. On the first bit of that, just a quick update on our differentiated U.K. sourcing platform, Parkwalk. The business here, as you'll see from the numbers, as I mentioned, has about GBP 0.5 billion of assets under management there, which are all EIS tax advantage capital, and we partner with many of the U.K.'s leading universities to source new spin-out opportunities. I'll just pull a couple of highlights out from the first half. And so one, in addition to the alumni funds that we have with Oxford and Cambridge and Imperial and Bristol, we were very pleased to add a new fund in collaboration with Northern Gritstone, which covers Leeds, Liverpool, Manchester and Sheffield. And then similar to the theme that we're seeing on the balance sheet side, last week, we were delighted to announce the acquisition of one of our portfolio companies in the funds, [ Cytora ], which gave a good return to our EIS investors. And for our Plc shareholders, that generates additional fund management fees that contribute to lowering our net overheads. And then at the other end of the -- of that sort of capital strategy is our objective to add further scale up capital. I mean the context here continues to move in our favor. Our overall observation is that the public and private sectors are starting to align in terms of their policy and their approach. And during the first half, there have been quite a lot of important points of progress and those things like updated mandates and increased funding for the British Business Bank and the National Wealth Fund, which you can see there on the left-hand side. And a lot of that is highly aligned with the industrial strategy in the U.K. and the sectors that we focus on in turn, aligned with those. The pensions bill is currently passing through and the commons, how long that's quite going to take, but that removes some of the widely cited barriers to pension funds and similar long-term capital investing more in private productive assets in the U.K. And the Mansion House Accord, which is about 17 of the largest workplace pension providers in the U.K. committed to a voluntary commitment to have 10% of their default schemes in private markets by 2030, including half of that capital going into the U.K. So there's been quite a lot of sort of sector activity. Our experience and probably that of the wider market when you look at mandates is that there hasn't been very many VC commitments, perhaps with the notable exception of the Phoenix, Schroders joint venture future growth capital. But there's not been much that's really at scale. And our view is ultimately, that's what's needed and where the big opportunity lies. I would say encouragingly, the number and the stage of conversations with potential funders has seen quite an increase since the time of the Match House Accord, and we've added some additional experienced resource to our team to help exploit that. As I said at the start, we've got a good degree of confidence in securing at least one new mandate by the time I next talk to you for the full year results. And then quickly before I hand on to Mark, I thought I'd just cover a few of the companies or trail a few of the companies that we are excited about and particularly those that have either presented or are going to present at our events this year. So OXCCU, our sustainable airline fuel business. Mark is going to talk about that one shortly. Andrew, the Co-Founder and CEO, will be at our flagship scale-up event in October. Intrinsic, you might remember that the Co-Founder and CTO of Adnan presented at our Capital Markets event. There's a video on our YouTube channel. If you like a lot of technical detail, that's quite a technical one. They are producing the world's smallest nonvolatile memory, and they have a sort of tape-out coming towards the back end of this year. That does have very significant commercial potential given the company is initially targeting a segment of the memory market that's worth more than GBP 50 billion. And then genomics at the Capital Markets Day back in June again, David Thornton, who is the President there, gave a very compelling overview of the technology and its commercial applications. You also say right till the end to update everyone that revenues will grow by more than 100% this year and will do so again in 2026, taking them to $70 million, $80 million. He said they'll be EBITDA positive by the end of this year. So that's another of our top 20 companies to watch. And then on the therapeutics, our current clinical stage portfolio is worth about 23p per share, and there's a good number of clinical milestones coming up between now and the end of '27. Again, Mark is going to cover a couple of those shortly. And then just one other quick thing to mention just briefly on our licensing portfolio. We don't speak much about this. We have a licensing portfolio of IP predominantly from Imperial, and that contributes a few hundred thousand to our net overheads. There are 3 main projects in that portfolio. But I mentioned at the start that the public markets have contributed in more ways than one this period. And back in January, Metsera, Therapeutics business IPO-ed in the U.S. and actually, we licensed the core IP to Metsera. Now of course, it's early days, but if successful, there could be quite a meaningful source of royalty income over time. So we'll keep you updated on that one. So with that, I will hand on to Mark to talk a bit more about the portfolio. Mark Reilly: Thank you, Greg. Good morning, everybody. So there have been a few notable events over the course of the first half, perhaps arguably the standout one certainly for me personally having sort of witnessed the whole journey of Hinge Health. I recall, I think it was 2012, 2013 when its founder, Dan Perez who remains the Chief Executive of Hinge Health, walked into our office and very confidently said I'm going to make you guys a lot of money. And I think you can say that some confidence that, that was accurate now with a 50x overall return on our investment so far on to -- that asset. So the company, of course, we were the first investor when Dan was still a PhD student in the University of Oxford. It went on to raise substantial sums in -- from some of the top Silicon Valley investors, underwent very impressive growth and had that successful IPO in May of this year. We were able to sell a small amount at the IPO, and we did sell a larger chunk of our holding prior to that at a very good valuation in the private markets 2 or 3 years ago. But we still have a remaining holding that was worth just under $40 million at the half year and some share price continues to trend upward since then, which is good news. So that holding is locked in now until end of November, but we still have that holding [indiscernible] in the company has since put out some announcements of its latest results, its Q2 announcement and again, exceeded expectations, did very well. Revenue reported is increasing at 55% year-over-year, and they're now at $140 million of revenue in that period, and they're projecting 40% of the year-on-year growth going forward. So still very strong commercial progress there. I saw there was a question in the Q&A. The first question that came in, in the Q&A was why sell Hinge Health when there are lots of other smaller holdings in the portfolio that are -- that were described as nonlisted and nonrelevant in the question. So I would, first of all, highlight that Hinge was one of those nonrelevant nonlisted holdings until relatively recently. And so we think there is value in holding stuff that has potential that could hit that inflection curve. I think also the reason why you as investors have us holding shares on your behalf that there are some rationale for doing that, which is that we have this technical expertise internally that we can kind of arbitrage technical risk. We can judge that better than others. We have influence on these companies. We have extra visibility of a lot of these companies that others don't. And when those things become less true as the companies mature, that's less of a kind of rationale for us to hold them and so where that liquidity exists. That's where we start to consider divesting those positions. So just running through some of the other -- the top firm assets by value in the portfolio, just to update you on what's been happening at some of those assets. Greg spoke quite a bit about Nanopore, so I won't spend too long on that one other than to reiterate the fact that it continues to outperform its peers. They had a positive set of results that beat the market expectations, 28% rise in revenue, up to GBP 105 million now. And the key thing that we were looking for in those results was a diversification of revenue, a demonstration that they're moving into applied markets into clinical markets as well as this strong base of research revenue that they've already demonstrated over the past several years. And we really saw that this time. The revenue grew by over 50% in the clinical domain and 27% in the applied domain. So that's really showing that they're moving into those big market opportunities, and that's very encouraging. On [indiscernible] as Greg said, this was frustrating that they missed this endpoint in the first Phase II trial, but frustrating because it also demonstrated there's so much potential in this drug. And as Greg said, there was some data from that trial published in the Journal of Pharmacology and Experimental Therapeutics that demonstrated that this ability to elicit tissue repair, not just sort of preventing degrading the tissue, but actually showing that it's repairing the tissue, which has a lot of implications, but it showed these improvements in bone erosion and disability and fatigue. And so that has a lot of implications for sort of slowing aging and to slow the progress and even reverse the progress of some of these really detrimental conditions that people suffer from like this, their focus is currently on rheumatoid arthritis. So that publication certainly increased market confidence that there's a mechanism of action here that's really interesting. The efficacy of this drug is real that there's a range of clinical indications and diseases where it could be used. So we're sort of frustrating because of this potential. And unfortunately, that benefit didn't manifest in particular primary endpoint chosen over the time scale and over the cohort of this first trial. But we've learned a lot from that. They're going to do another trial now that implements those learnings and focuses on the things that they think they can really create a difference with, and they're well-funded to do that trial. So that's positive in that respect. So I remain optimistic about the sort of long-term prospects of that company. And finally, on this side, amongst our most valuable assets, Pulmocide. So they -- not a huge amount to report there because things are going well. The trial is on track. That's progressing according to plan. This is developing these respiratory treatments [indiscernible] inhaled treatments for respiratory infections like invasive pulmonary aspergillosis is a very nasty thing that you get wrong with your lungs and sort of mold infection in the lungs. And the trial is recruited well. And so we're still expecting that to read out in sort of H2 of '26 and have some results from that next year. Finally, not on this slide, but Greg also mentioned Oxa. So Oxa, we have taken this impairment on the holding there. It continues to make good technical progress. We've got very encouraging commercial progress. The company is doing well. It has been harder than we hope to raise money for the company, a bit frustrating because we have sort of the building blocks around, but it's -- we're just not quite over the line with that yet, but we are quite advanced now in discussions with some major potential cornerstone and I hope to have some good news on that asset soon. So that's sort of the higher-value stuff in the portfolio. That's the kind of top end. But another -- just picked out another handful of assets to mention because of some exciting developments in those assets. So Artios you may recall, is a company that's developing DNA damage response-based cancer therapies, and they are focused on hard-to-treat solid tumors. It's now public that they're targeting pancreatic and colorectal cancers, both of which have a huge, unfortunately, unmet clinical need. So a big market opportunity for the company, a big commercial opportunity. They did publish some of the sort of early data from the current trial, the Phase II trial at the American Association for Cancer Research Conference, and that data was very well received. They're funded to continue that trial and to explore the indications that they're seeing. And so we expect to see results from that end of next year, sort of early 2027 is the most likely time [indiscernible] I have to sort of qualify all of these clinical trial expectations that there are always things that can go off track and it can be delayed. But at the moment, as far as we know [indiscernible] both on track and expecting the same time scales that we've already guided. Then finally, there's 2 assets to mention in our Cleantech portfolio. So OXCCU, I don't know we maybe haven't spoken a huge amount about this company in the last few presentations, but this is a company in Oxford that spin out of Oxford University that's developing the world's lowest cost, lowest emission methods of making sustainable aviation fuel. So you use sort of waste carbon, and you turn it into fuel for airplanes and it's a good news for those of us who would like to continue traveling without, I think, quite the impact on the environment that it currently has. So that company raised GBP 28 million in a Series B round during the period. And the exciting thing about that is the sort of incredibly impressive list of strategic investors who came in to really validate the proposition that OXCCU is working on. So it was -- round was led by Safran, which is the world's second largest aircraft equipment manufacturer. The energy company Olin came into the round. IAG, which is the parent company of British Airways, came into that round. So a real kind of validation of their proposition based on the strategic interest that they've had in strategic financial support that they've got. They've built a demonstration plant. It sat on the top of my head there in Oxford Airport that's kicking out jet fuel. It's working. It's producing jet fuel now, and they started the process to develop a full-scale commercial project in the U.K. So that will be the sort of next scale up of their project. And finally, Hysata, we've talked about Hysata in these presentations before, a very compelling proposition. They have a hydrogen electrolyzer, a machine that produces hydrogen at 95% efficiency, which is well above anything that you will achieve if you buy a hydrogen electrolyzer off the shelf today. So their 100-kilowatt system, it is slightly delayed, but we anticipated there was a possibility that there will be a delay on this 100-kilowatt system. So that's built into their funding road map with the money that we raised with them last time. So they're still fund to produce that system, and we're still expecting it to be commissioned during Q3 as in this quarter of this year. They've also got a field trial going on a [indiscernible] machine running on a customer premises in Saudi Arabia. So this is not set in Hysata facility it's halfway around the world, and that is working, and it's -- they've reproduced that world-leading efficiency at that customer site. So they've demonstrated the ability to put machine in different places probably that [ where we need ] efficiency. And with that, I will hand back to David now. David Baynes: Thank you very much. Thanks, Mark. Yes, financial results, nice to review again as always. I'm going to go through this fairly quickly. It pretty much just pulls together all the things we've been talking about. Overall, cash, very strong again, GBP 237 million cash, that's actually up 47% from this time last year, and that's because of a very successful exit Featurespace at the end of last year, which of course, has generated significant amount of cash. We are, of course, slightly down from the year-end if we make investments, and I'll give you the cash flow in a minute to talk you through that. There was a small loss in the period, that 1.5% to about GBP 43 million loss. It is worth making the point as you've already heard that since the year-end, all of that has reversed actually for improvements in Nanopore and Hinge, about GBP 35 million of that's come back. And it means combined with share buyback, actually our NAV per share is now actually up. So it was briefly down at the half year from 97 to 96. We're now about GBP 1 a share. So that's, as I say, a combination of the improvement since year-end and also the share buyback which improves the NAV per share as we go along. And net overhead is down about 14% period-on-period. I'll do a slide on those in a minute and talk you through it. This next slide could be long, could be short. I'm certainly going for the short option increase and as disclosed in the interim results. There's a number of kind of uplifts over 5 or 6 companies and a number of write-downs over a similar number of companies and a foreign exchange loss of GBP 14 million, which relates to the pound being strong when we convert some of our American-denominated assets in particular, that may or may not reverse at some stage, depending on currency. But those elements just eliminate, quite frankly. And then you've got really just to do with 2 funding rounds really, Artios and Oxa, where actually, as you've already heard, the company is performing well, but actually, we've not either completed or have started a full funding. And as such, we have no choice but to actually make some kind of provision against both. And those -- that accounts for sort of GBP 9 million of that. So pretty much that is the story of the half. But just adjusting for those 2 assets in that small loss, but that loss has now been eliminated between the year-end and today. That's why when we now look at the assets here, assets are down a small amount from about GBP 1 billion to GBP 900 million, those are rounded, it's actually down about GBP 60 million. So it's a combination of that small loss and also shares we bought back because, of course, the buyback does actually balance sheet slightly smaller as we buy back shares. The concentration hasn't changed. So that next bit of the slide telling you there's no news. It was about exactly 56% of the top 10 at the year-end, and it is now. It's pretty much the same sort of ratio of how the portfolio looks. And actually, the next slide is also no change. This is a slide I always do but talks about how well the portfolio itself is funded because of course, that's very important. And actually, we've increasingly seeing this pattern whereby it's about 1/3 that is funded to profitability. You don't need to worry about that. And then there's about 1/3, which over the next year, 1.5 years need funding and then another 1/3 that doesn't need funding until '27 and beyond. So much of the portfolio is pretty well funded, but there will always be funding challenges and companies requiring funding at any point in time. So that kind of 1/3, 1/3, 1/3 rule is beginning to come pretty well solid as a rule. And now this just pulls it all together. So here's the cash of what's happened, and you've heard, I think, all of these numbers now. We've invested GBP 35 million in the period. It occurred over a number of assets. Most in current assets, only about 12% of that total investment into new assets as a single new company in the period. Realizations, we've talked about at length, GBP 30 million. Share repurchases, GBP 25 million. It almost exactly what we realized we've used on buybacks. That's actually a coincidence. But we are this year committed to 50% of our realizations to be done in the form of buybacks. It just so happens that some of the buybacks we've done relate to last year. It doesn't quite work out the math. But in short, we will be during the course of the year, I think 50% of our realizations and buybacks. Overhead is down, as we've heard, the net debt, actually, we generated about GBP 2.6 million net income on interest, but we've made some repayments on the debt in the period, which means the actual total move just a small reduction overall. And then there's a relatively large working capital movement. That relates to the licensing, which we just started talking about a bit. What happens on the licensing, we own certain licensing assets on Imperial College. We're responsible for them. We often collect in the proceeds and then actually we keep some, some need to distribute to other parties, it's Imperial College itself. And that means you sometimes have these working capital movements where we're paying out money in receipt on behalf of others. And that's why you get a relatively large movement. But that's the story of the cash, cash still very, very strong. And overheads, I'm very glad to say pretty much exactly what we said they'd be. So that 15% this time compared with this time last year, but we're going to do what we said we'd do. When we did the cost reduction in the second half last year, we said we'd reduced the '23 number, which was about GBP 22.5 million net to about GBP 16.5 million net. That's what we're going to do, 23% reduction. That still looks like what we'll achieve at the year-end. So I think without further ado, I'll pass back to Greg. Gregory Smith: Thank you, Dave. So leaving some good time for questions. So a summary of the half year results. So we made good progress in the first half. We saw a number of encouraging developments in the portfolio, many of which Mark has touched on, the public markets were a particular fair value contributor, including that Hinge Health IPO and Oxford Nanopore's strong trading. We made good progress on exits of GBP 30 million, and that momentum into half 2 means we remain confident of our target of achieving GBP 250 million of exits by the end of 2027. As Dave just mentioned, our NAV per share essentially stabilized over the period and has subsequently increased since the period end to GBP 1 a share -- about GBP 1 a share. And on the scale of capital and expanding our resources as a group, our capital resources as a group, we continue to see a big opportunity. And while the market hasn't necessarily moved as quickly as we hoped or expected, good confidence of securing at least one new mandate by the time we next see you all on the IMC platform for our full year results. I'll just quickly remind you, looking forward, our investment case is based on these 3 sort of hypotheses. The first is that there's significant value in U.K. science and technology, given our world-leading position there. And the IP Group is one of the pioneers in this space and with a long track record is well positioned to exploit that and that we hope we've set out an attractive shareholder opportunity in the next 6 months and indeed out to 2027. And then just because I think this is a good form, these were the priorities and future areas of focus that I set out at the full year, which we are aiming to achieve over the course of the time between now and the end of the year in 2027 on the exits. And I think on all of those, we're making good progress. So I won't go through them each in turn, and I'll cover them all off when we report to you our full year results. So thank you, everyone, for listening, and we will now turn to questions. David Baynes: Great. Thank you very much. Well, that's gone well so far. We said we'd be 40 minutes, and we're 38. So we've got quite a lot of questions, maybe not quite as many as normal. So we may get through this now. Laurent Tess, if you don't mind, I think we've answered yours, you had a question about why you're selling Hinge and keeping some of the smaller positions. I think Mark answered that while he was presenting. So I'll move on to next. Kane, nice to have you, analyst from Deutsche. Nice to have you here, Kane. You've got 3 questions. I'm going to do them one at a time. Mark, I'll do the first one with you. Might the adverse uncertain conditions research in the U.S. for example, funding like the NIH create opportunities in the U.K. Mark Reilly: Maybe. And there are headwinds as well and some pharma investments being withdrawn from the U.K. newspaper a couple of week or so ago. So I think we frequently see -- remember a few years ago, this question was about Brexit and the time before that, it was about the recession. And so there are lots of these kind of ebbs and flows of funding. I think it takes time to have an impact on us because it takes time to then filter through to the funding of the science, and that takes time to filter through to the commercialization that's coming out of those research lab, I would say not in the short term, but maybe in the long term. David Baynes: Kane, your second question, I'm going to point out to you, Greg. Why do you think Larry Ellison is so keen on LNG? Gregory Smith: I think looking at the time the question came in, it might have been before I said why I think he's keen. I mean I think the commercial answer is that the technology is incredibly well suited to 2 of those big themes that they're trying to solve the big global challenges they're trying to solve through the Ellison Institute of Technology, particularly around sort of human health and genetics, but also on the sort of sources of food and agriculture. Clearly, they're building a significant position there, which is interesting. So I haven't spoken to them directly. So I couldn't say definitively, but it's a good sign if you -- he's had such an incredible track record, like 40 years of delivering value through being able to not necessarily be ahead of the curve on technology adoption but certainly delivering real cash value. So I think it's a good sign, but also, it's one to watch. David Baynes: Yes. I'm going to point the next one to you, Mark, we know it's coming. Hinge Health up strongly post period end. Will you be inclined to take some profits? Mark Reilly: Well, we're locked in at the moment, and we did take some of the IPO. Then as I said earlier, it's an evaluation of the liquidity and the value available to us at any given time also. David Baynes: Thank you very much. Gregory Smith: And as you'd expect, obviously, we don't want to tell you about our intentions on our quoted companies because there's smart people out there that can do things with that information. But yes, we're pleased with that holding, and it's a good source of liquidity over time. David Baynes: The next one, Sam. Nice to have you here. Another analyst at Berenberg, good to have you here, Sam. I'm mentioning this because people in the past have said, can you make it clear when someone is an analyst and when they're not, so I'm doing that. I'm going to split this question. I'll do the first bit, Mark, and then maybe give you the second, if that's all right. First, one sentence, but would you be able to provide more detail on your IP licensing portfolio? And then separately, and therapeutic programs, when do you expect licensing income to ramp up? I'll perhaps do a little bit on the licensing. Licensing traditionally has been a relatively small part of our business. We inherited the licensing as part of the acquisition when we bought Touchstone. They, as part of their remit used to do the licensing for Imperial College. A very large number of patents, some of what we call active, ones that actually we had an agreement around them and some of the ones that was just exploratory and still waiting for maybe some of the license. And we retained all of those active licenses. So there's a relatively big portfolio about 80 different licenses. The actual strengthen that's what question is. The actual strengthen is relatively small traditionally, we'd be recognizing something like GBP 500,000, GBP 700,000 income a year. That tends to be the patent licenses you have to have a large number, most of them generate relatively small amounts. And then from time to time, you can sometimes get some really big licenses, a single license can do 95%, 99% sometimes of your license income. We have kind of 3 licenses out there. Greg has already referred to the Net Zero one. It's early. It's early. We're not going to start making claims about their value. And we're not recognizing in the books. Actually, in accordance to accounting standards, it's unlikely we will recognize in the books until such time as actual license income is recognized. So you can't kind of recognize it like a potential intangible or something. But any of the top 3 have the potential to, in time, generate significant revenues. Net Zero are now about a GBP 3.8 billion company, a GLP-1 agonist and it looks promising at the end of a Phase II trial. There are some notes out there. If that got to a Phase III trial, if that then became a successful drug, there may in time be some decent license income that come to us and something we would be also shared with Imperial College. So that's probably what I can say at the moment. At the moment, no impact on the financials, no significant impact on the financials. But maybe in time, maybe -- and I'm thinking maybe 2 to 3 years' time, you may start seeing if some of the things go well, some decent licensing income, and we'll talk about that at the time. It's a bit of a wide one to talk about all therapeutic programs. Is anything you want to touch on, Mark, where we might treat that question as dealt. I don't know there's anything over and above what we've already talked about there. Mark Reilly: I wonder whether that was at 10:18 as well as we have couple... David Baynes: Yes, I think that is. Gregory Smith: It's worth saying in the appendices in our results presentation, we do a sort of a summary of the main holdings and where they are in their clinical development and our valuation. And so what we're sort of -- what we're seeing as milestones coming up. So that's sort of a ready reckoner and I'm very happy to talk about in more detail than any of the others we haven't covered when we next see you, Sam. David Baynes: I've got another one for you, Sam, you split yours. I'll give it to you, Greg. I mean, given the current cash position and potential exits over the next couple of years, is there any change in your thinking around buybacks? Gregory Smith: Well, we hope we've got a pretty clear policy out there. While the discount is greater than 20%, the proportion of cash that we allocate to returning to shareholders is being done by way of a buyback. We think that's most accretive way to do that at the moment. And at the moment, for this year, we're doing -- we're using 50% of our realizations to that end. We will, as always, look at that number for next year. Historically, it's been around 20% of realizations that we've returned, which we see as sort of a more sustainable steady state. But obviously, we'll look at the relative opportunities for buybacks of our own shares versus portfolio opportunities and some small number of new opportunities. So no real change in the policy. The application changes each year based on circumstances. David Baynes: Next, Josh L, not an analyst, of which I'm aware. I'll probably take this. How has there been no First Light Fusion fair value movement despite a complete change of strategy during the period? There has been a significant change in strategy and actually some very promising technical developments, which I won't try to talk to. You can ask Mark about those if you're interested. But actually, reviewing the valuation, one of the main considerations which is like the probability of funding, the likely valuation of funding. And when we reviewed it, we came to conclusion that actually the kind of value we carry it at looks pretty robust around what we'd expect to value that. Mark Reilly: Myr recollection is that the new strategy was fairly well advanced at the time of the full year valuation. So that was... David Baynes: Pretty much factored in, yes, exactly. And at the moment, I think from where I'm sitting in terms of technical side of valuing it, I think that actually we carry it where we sort of think it may be valued. We may be wrong, but we will see. But we -- after quite a lot of discussion, we felt it was fairly valued and the movement in its actual carrying value is that just related to money we've invested in the business. So it's gone from. So that [indiscernible] So next, who would this be? From MV, hi IP Group team, nice momentum in portfolio. Thank you. Any plans on a partial full sell down on Nanopore, particularly given the IT initiatives? Well, Greg has already mentioned unlikely to comment on that. I don't know if you want to say anything further, but we're unlikely to comment on ourselves to public companies. Maybe you want to add to that Greg [indiscernible] Gregory Smith: I don't think anything to add to what we've said on that front. We do look at it all the time. It's not -- I've said in the past; it's not our strategy to have big holdings in large, quoted liquid companies that our shareholders can access directly. So it's a matter of time, but we're very -- we're a happy holder given the progress in the portfolio, and we always look at liquidity. David Baynes: Next question from Bill H. Probably, Mark, is about you, what is the role of IP Group's managing partner? If you'd like to... Mark Reilly: Well, to deliver shareholder value to increase the value of our existing portfolio and to make exciting new investments into companies that will be future well-changing company. So I have responsibility across the portfolio. I'm the person that chairs our investment committee. So I sure that the decision-making is sound and as good as it can be. And I see all the decisions around transactions of investments and exits. David Baynes: Thank you. Again, I think one for you, Mark, how much you want to talk about this. Can you -- this is Milosz, another analyst, Edison this time. Milosz, nice to have you. Can you give us an update on the monetization of Ultraleap patents and what you're able to talk about on that, Mark, I think. Mark Reilly: I can. I wasn't sure if I could, but I [indiscernible] text the CEO and he told that they did a LinkedIn post on Monday actually on this that the transaction, you might recall, we had an agreement to sell the patent portfolio to a company called [indiscernible] specialist in monetizing patent portfolios. And we were way to close that transaction when we last spoke publicly about this. That transaction has now closed. And so that's very positive. And the company has received the proceeds for that initial part of the transaction. There is an earn-out agreement. So as [indiscernible] monetize that portfolio, funds flow to [indiscernible] very positive. We really believe in the value of that portfolio. There's a lot of places where we think those patents are valuable. So we're optimistic about future fund flows from... David Baynes: Thank you. Next one, there's more questions coming in actually. Questions are picking up page. Robin M, I'll give this to you, Greg. I think maybe you can talk a little bit about cash raise from private markets secondary sales, both in the past and going forward. Is this becoming an easier way to raise capital? I think possibly referring to the small deal we did last year. I'll let you... Gregory Smith: Yes, so yes, we did do a small secondary last year. I think there's another question further down that asked about how are the assets marked and all that sort of stuff. And I think at the time, we said that on average across the various holdings on the balance sheet, it was a slight premium. It was about NAV, maybe a tiny premium to NAV on the balance sheet, and it was across -- it was a secondary that was across a few companies on the [indiscernible] funds and a few companies on the balance sheet side. There was -- the exact total was around GBP 23 million, I think, across the 2 pools. And we also said that there were things like preemption rights and all that sort of stuff, which we -- which meant we couldn't complete the full transfers that we planned to. I think we did just over 2/3 of the GBP 23 million, I think that transaction is all played through. And we do look at other options like that. We've explored all the time that I've been at IP Group, which is sort of 15-plus years, we've always looked at are their ways that we can accelerate value through these sort of structured transactions. I think the secondary markets are interesting at the moment. And they're interesting potentially -- for us potentially as we think about how we access scale up capital and build some strategic relationships. But also the secondary market is quite interesting because we have a permanent balance sheet and our liquidity position is reasonably strong, relatively speaking. There is clearly an opportunity where in companies that we're existing shareholders of that we particularly like or even potentially companies that we've tracked over the last few years that have made significant developments, but perhaps the cap table isn't as strong as it could be, then clearly, there's secondary opportunities for us. So yes, we look at it on both sides, and we'll always consider those opportunities. David Baynes: Next one, I'll point towards you, Mark, from Milosz again. And it's one that probably just give a general feedback on. But what appetite for M&A and licensing deals do you see across the life science sector at present? It's quite a wide-reaching question. Mark Reilly: I mean it seems good. My context is perhaps lacking a bit because I wasn't responsible for life sciences until a year or so ago, but I don't have a full history of staying close to this market in a way that others might, but it's -- that we've had quite a lot of interest in particularly one of our portfolio companies, there's been some inbound interest from potential sort of license acquirers. So in the small sample set that we have, it's maybe not representative, but it seems positive. David Baynes: I'll have a next one. Congratulations. This is David R. Congratulations on a good set of results. Thank you for that. On what basis is the optimistic view of exits of GBP 250 million for the period through to '27? Well, it's basically on our internal projections. So you can imagine we're running the sort of capital allocation process all the time. So I'm always updating estimates of how much we need to invest, how much we think we're going to realize, therefore, what's the closing cash balance is going to be. And in that process, we're always running out 3-year projections what our realization is going to be. And we do feel relatively optimistic in the period at the end of '27, we will generate that level of realizations. And to be clear, that doesn't include Oxford Nanopore. There's no plan for selling that. Nanopore is not in that. So one would hope Nanopore itself, that's the number they're talking about, could easily grow to a GBP 200 million asset on its own share at least by that time. So that's separate. We do think looking -- particularly there's a number of the therapeutic programs, which we think will come through in that timeline reporting both in '26 and '27, which we feel if they are successful, could generate really quite sizable realizations for us. So when you look at our numbers, I mean too much detail. When you look at our estimates for what we think we're going to realize, we have weighted probabilities, all types of complexity to try and estimate it. But we're increasingly finding we're relatively accurate at it. Although it's sort of a balancing day with 10% probability of that and 40% probability of that actually, it seems to work out relatively well, which is why we've been able to manage our cash relatively well. So in short, it's based upon our current expectations of the portfolio as it stands, and there are quite a number of, as you can see, look at therapeutic readout, therapeutic quite big programs reading out, which if any one of those work could make a serious dent in that number. And we are certainly, as we've already said, on target to do the number we plan to this year already. Next one, Haran, I hope you don't think I'm ignoring you. I think this is a question around the secondary we did last year, which Greg referred to, and I think we've answered. So I'll have a next question, which could answer the last one I haven't read, but I will read it out. We'll see what we've got. This is from David R. Your ambition is simply to increase NAV rather than achieve a more typical target of, say, 15%, which might be expected for VC investing. Should shareholders assume either that you're very cautious or simply don't believe you can create typical value on this risk or asset class in the U.K. Greg, how about you have that one? Gregory Smith: We all have a view on that. David Baynes: Yes. We go for that. Gregory Smith: We've got to be realistic with the current environment that we're operating in. However, it's fair to say that our ambition or our objective is to deliver compelling financial returns that are consistent with that risk profile. And certainly, when the IC needs to consider any investment in a portfolio company, we're not looking at will we keep this holding flat. We're looking at VC type multiples and VC type IRRs. And so the objective is to have more of those successful returns, and we focused the investment strategy more into those areas where we've seen that those success returns in the past, but also importantly, where we think there is returns to be had in the future in delivering against the sort of science-back investing environment. I don't know, Mark, if you'd add anything particular to that. Mark Reilly: No, that's all. Gregory Smith: Hopefully, we're moving into a period where that the environment is a bit more accommodative, and we're seeing good pickup in M&A interest. I wouldn't say it's sort of like a wall of M&A interest, but certainly compared to the last couple of years, there's quite a marked increase in inquiries. So that's obviously what -- it's the sort of cash-on-cash returns ultimately, which are important. And I think if you look at the track record of things we've had, including feature space recently and others, the cash-on-cash record there is very good. It's sort of 5x, 6x and in the sort of 20%, 30% IRR. So that's what we're targeting. The NAV gives you an idea of how it's going over time. But sometimes we have NAV setbacks and that doesn't necessarily mean that the company is not going to deliver strong cash-on-cash returns in the future. David Baynes: I agree. I also -- but I think 15% is something we can certainly can achieve. And certainly when you look at some of the areas we now focus on, as Greg said, actually mathematically, you can see the past, no proof of the future, but you can see investing in those areas in the past, we have achieved those sort of returns. So it's certainly a number we have part to and believe we will achieve. Andrew M, next, talking about the fall in value of Oxa, which has been partially explained by Greg. Could we -- he has mentioned there's some good technical progress. Could we perhaps, Mark, a little bit more about how we feel the technical progress despite the fall in value. Mark Reilly: Yes. Yes, I get an e-mail from the CTO once every couple of weeks talking about some of the exciting technical progress in the -- most of it's in the context of deployment on actual vehicles in real-world applications. They're doing a lot of work. Some areas I don't want to go into too much detail of because this is sort of commercially sensitive information, but they're doing a lot of work deploying their software on to real-world vehicles. One is in Jacksonville in the U.S., where I got an e-mail from the CTO the other day saying they're now 1,000 journeys and over 4,000 kilometers traveled autonomously. And I believe all those passengers survived the experience. So that seems to be going very well. And the sort of equivalent proof point in the off-road domain currently fitting out the trucks that transport big containers around ports. And the CTO has been sending me videos of these trucks. Look, we've now got 2 of these things and they can drive around without driving into each other. And so its very rapid progress being made of deploying this software on unusual vehicles accommodating all the parameters of those vehicles and the different requirements of their environment and operating effectively in those environments. So yes, I think from a technical perspective, they move at a great pace at Oxford and it's very impressive. David Baynes: Thank you very much. I appreciate that. Going to the next one, Haran again. You do get your question at this time. There were reports in the press reg Hinge Health that some shareholders sold shares at the time of their most recent results. Could IP Group have sold at the time? Mark Reilly: Yes. I think that may refer to the staff sale I guess there was a provision which allowed them to sell in that period, which other shareholders couldn't. I'm in contact with the bankers and with the company pretty regularly. I spoke to them a couple of times around that time that the staff sales occurred. So... David Baynes: Yes. No, we can confidently say we couldn't have done no. We're aware that we've tested the market. We know what we can and can't do and we couldn't know. Next one, Andrew M, where GBP 5 million investment in First Light go, I think [indiscernible] effectively bridge funding, a standard way we often fund our companies. I don't know if... Mark Reilly: Yes, on this operating capital, it's paying the salaries of the people that are continuing the research, developing this product that they're selling to the people who are pursuing the nuclear fusion and the people who are selling that product. David Baynes: I should warn everybody, by the way, but we are exactly at 11:00. So those of you only have on that, we won't be offended if you leave, but we're going to carry on. I think I've got about 5 more questions, so we will carry on. So for those that are engaged, stay with us. I've been guessing about another 10 minutes. But thank you for those who have to leave. I'm going to hand this to you, Greg, slightly unusual, but interesting question. Which competitors do you use as internal benchmarks. Well, are there any public or private funding vehicles you view as best-in-class that you draw inspiration from? It's a good question. Gregory Smith: It's a good question. Competitors or comparators in the U.K. I mean there's a reasonably well-developed market in the U.K. for certainly the early-stage bit of commercializing U.K. science. And a lot of the comparators, and we don't really compete with them significantly more often because there's more opportunities in capital generally at the moment. And you're often looking to collaborate rather than compete. We do compete if it's competitive deal. So on the U.K. side, there's Oxford Sciences Enterprise, we've got a small holding in that. We were a founder, shareholder in setting that business up, same with Cambridge Innovation Capital, Northern Gritstone, we work reasonably closely with, and we just launched that fund I was talking about for early-stage EIS investing alongside them in the portfolio. We also work some of the other well-known VCs in the U.K., Amadeus. And then I suppose some of the people that I have looked up to in terms of scale of business, I guess it's businesses like ICG, who very successfully used their flagship credit product to build out a very scaled asset management business bringing in private capital to support their existing portfolio and indeed to then build that out. So I often look at those comparators as sort of ambitious directions of travel for the group because certainly, it does feel that there is a large amount of capital that wants to allocate to this space. And so clearly, being in a position where we're a public listed entity, we've got the professional valuations and the systems and the reporting and the track record puts us in hopefully in an attractive position for those partners who are looking sort of reputationally at working with people that have been around for a period of time. So yes, there's probably those sorts of businesses. And of course, there are some world-leading VCs who are focused in particular areas, and we look at those for best practice and various of the team have the sort of their favorite bloggers in VC space that we track their thought leadership. They're very well resourced on VCs on the West Coast, some of whom they're increasingly moving into the deep tech space where we are. And so looking at their pronouncements and how they're seeing the world is all useful information for us. David Baynes: Thank you. I'm going to move on to Ian. I'm going to point this from your direction, Mark, if that's all right. It's a question we sort of get from time to time. How are you finding the U.K. universities at present? Are their funding issues making much difference to the way they're approaching tech transfer? And sort of separately, but connected, are any of the government-funded schemes being impacted by budget constraints and has this affected you at all? Mark Reilly: I would say yes, but I would say that's been the case for the past 15 years. I mean, they've always had these constraints on budgets and that has always manifested in their approach to tech transfer, and it sort of varies by university based on recent success or lack of in the domain of commercializing innovation. I think some of the universities that have had one standout success are much more kind of ready to invest in the area of tech transfer than others who have their fingers burned by it. So I wouldn't say that I've observed a huge sort of sea change or big fluctuation in the last period, but there is definitely always a budgeting pressure on tech transfer activities. And any of the government-funded schemes being impacted by budget constraints. Again, we're a little bit to us and there is definitely -- you will hear that if you walk the corridors of universities that budget constraints are impacting the research. But I think in some of the exciting areas that we're focused on in areas like quantum computing and emerging AI research work, there is still good money flowing into those areas, and we've done some really exciting research. And U.K. has always done a lot with a little. We've always done good research with limited results. David Baynes: I'll go on next. I think I'll probably take this one. It looks like my direction of it. Andrew M, thank you for this. Is it really accurate share buyback program has accelerated? It's up compared to '24, pretty stable in '25. I mean, I guess the answer is yes and yes to that. It certainly accelerated compared with what it did historically. I mean certainly, the amount we bought about 75 million shares just in the last year compared with sort of GBP 88 million, I think, ever. So it has, yes, accelerated. But it's a fair point within the year, it has been buying back at a relatively constant rate. During the year, why can our program be increased further? Well, it could, obviously. But that's the correct balance. I think we feel if we think we're buying at about the right rate and using about the right proportion of our proceeds on that buyback program. We feel it's been relatively successful. Ironically helped by a very low share price and then we bought quite a large amount of shares in the first half year at an average of about 47p. So we think we've got the balance right. We've already made this commitment we're doing half of the proceeds this year. So I think we feel that we've got the balance about right. Of course, one could always do more. There are some people that are saying, why don't you do less. So it is about trying to get a balance really. Next one, I'll probably do that as well, [indiscernible] doesn't it from Haran. The cash generated in half 1 from sales, what was the cash value relative to the holding value. Well, ironically, they were all actually. There's about 5 sales over the period, and they're pretty much all public company -- public company. So in terms of we haven't talked about what was an up or down because it was just the market price at the time. And a number of them went, I think, in for example, went for about double. That was the main one. I think we got about GBP 8.8 million. I think at the year-end, that was got in books at about GBP 4.4 million. So we haven't -- it doesn't really make sense to talk about whether we sold them up or down at the time because they were public market shares in any case. Let's have a quick look at the next one, sorry, coming down, Phil N. I think we've had this before, Phil N, if you don't mind, you're asking a question about whether we could sell Hinge or not. I think we've answered that fairly comprehensively. Okay, this one is always a tricky one. I'll ask Phil. I mean probably I'll point this to you, Greg. Always difficult, but for the shares to ride, you need happy existing shareholders and new buyer's summary. So who are the people who are selling? Is there a pattern, a trend or what? And is there an excess being dribbled out by a certain style of owners? Yes, quite a lot in that question. Do you have another go at there? Gregory Smith: Yes. Well, the overall backdrop probably you'll have seen the same sort of data that we see around net flows in and out of U.K.-focused equities, which continues to be negative and quite significantly negative global equities, actually, the flows have started to become negative overall, but particularly the U.K. has been negative. So there has been certainly in my experience over the last 10, 15 years, the number of humans that we go and talk to in the U.K. who are managing small mid-cap capital has definitely decreased and the number of funds has definitely decreased. When you look at the -- we get a monthly register analysis each month, and we go through that and try and get some clues as to who's buying and selling. Often there's changes period-to-period on the tracker funds. And sometimes from month-to-month, you get some of the larger or middle-sized holdings either reducing the position a bit or increasing the position a bit. There's not really a huge pattern that I could talk to, if I'm honest. Our job is to deliver on the strategy to be able to communicate that strategy, and we seek to do that as actively as we can. We've got a number of capital markets events we've done over the course of the year to attract new investors. And Dave, maybe you just want to talk a little bit about the efforts we've done with brokers this year and the other sort of -- given the U.K. has been more net reduction in capital available with the other relationships we've been. David Baynes: Yes. Yes, we're very proactive actually. I mean we have quite a wide range of brokers. I say our primary brokers is extreme supportive and very good. Numis and Berenberg, but we do also get some help. There's an asset called [ TKDY ] in New York, a small team of 5, who have been -- they've kind of identified about 200 American investors who are interested in U.K. stocks. And they've been getting us meetings. I probably have a meeting on average about once a week on them. And if they're interested enough, then Greg joins me, and we do a joint meeting. We think we -- it's often actually hard to tell. I know it sounds funny. We get a full shareholder register every month and you're paying down and trying to analyze. Sometimes you can't immediately identify who is what because they get through nominees, for example. But we think some of those American presentations are beginning to bear fruit. Cantors have also been helping us as well. We're finding some meetings both in America, and we've got some roadshows in Europe coming up. [indiscernible] have helped us. They took on a roadshow in Switzerland recently. So we're actually extremely active. And you will find by the end of the year our Head of Global Capital [indiscernible] some presentations in the Middle East and also in the Far East. So it's definitely not due to a lack of energy, and we are trying to get out and see people. And we think that is begun to pay dividends. We think and that partly reflects in the share price that we are getting people to find out how interesting the story is and find out how extraordinary discount is and what the opportunity is, is pretty much what we're telling people. Next one is from Lucas, a shareholder from Switzerland. Lucas, good to have you there with us. A new written -- just thinking out loud, you're giving an additional GBP 200 million in exits in private holdings until 2027. So you add that on to sort of Nanopore, which sort of hopefully by then, something like GBP 170 million. Are you saying that there's nearly 70% to 80% of current market cap might be achieved? I think the answer is yes. That was pretty much what I said earlier. Yes, that is about right. Obviously, there's a lot ifs in that. But if we achieve that, which we believe we will on the sort of non-nanopore holding. If Nanopore still performs as it should, we believe it will, yes, there's something between GBP 150 million to GBP 200 million Nanopore on top of that number, we will hope we will see. Last one, David B. Always nice talking [indiscernible] Why are you so good on someone. David B, this is for you, Mark. Do you think the start of U.S. drug pricing and tariffs by the U.S. administration is affecting pricing in the biotech market but ultimately successful innovation? If so, does that mean the model needs to be revisited so it is sufficiently profitable given the huge development costs? It's repeat your question. Mark Reilly: Question -- danger of being a political question, yes. So from our perspective, yes, I think we've got to assume that there has an impact something that is an impact. It's something that the team is factoring into the valuation work that we do every time we make a transaction in the portfolio. And so with the sense of the model needing to be revised. I think it's about making sure that we're putting money in at the right price to reflect the ultimate terminal value of the company. And so that's -- you described it as a revision of the model on a macro basis, we're doing it from the ground up of the looking at these transactions and the value is there to be delivered in the context of the current market. The other thing I said, I don't think we're really seeing this in the conversations we're having with pharma in the portfolio yet. I don't think I haven't heard that we've had pharma coming to us and saying we can possibly engage with you on this or pay this much for this company on the basis that the ground has shifted beneath us, but that might be going. David Baynes: And the last question is not a question, thank you, Filip N. Thank you, everybody, who stayed with us this long, and thank you all the questions. That's a 29th and last question, Jake. Operator: Perfect, guys. That's great. And thank you, as usual, for being so generous of your time then addressing all of those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you after the presentation. But Greg, perhaps before really now just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great. Gregory Smith: Thanks, Jake. Yes, so to summarize, again, we've made strong progress in 2025 year-to-date, good progress on cash proceeds, and that gives us good confidence around that GBP 250 million of exit target to the end of 2027. I think the standout in performance for the first half or standout transaction was that successful Hinge Health IPO, which we're very pleased to see and delighted for the team and of course, for our financial returns, and that's helped NAV per share now get up to about GBP 1 a share, and hopefully, we go up from here. And then on the share price, we've done -- continue to do 2 things that we think we can to close the discount, convert more portfolio into cash and return that excess capital with discipline at today's price. We still think that buybacks are an accretive tool. And so we've been using that tool more aggressively that year, and as David said, to good effect, and we'll continue to weigh buybacks against new investments strictly on a returns basis. And so we are one of the world's most experienced university science investors. And so we remain uniquely positioned to capitalize on the sort of the fiscal reform that we're seeing and hopefully, this rising demand for high-growth innovation. So thank you all for listening and look forward to updating you on progress for the rest of the year and into 2026. Operator: Perfect, Greg. That's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of IP Group Plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.
Operator: Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the QuantaSing's Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I will now turn the conference over to Ms. Leah Guo, Investor Relations Associate Director of the company. Leah Guo: Thank you. Hello, everyone, and welcome to QuantaSing's Earnings Call for the Fourth Quarter and Fiscal Year 2025. With us today are Mr. Peng Li, our Founder, Chairman and CEO; and Mr. Dong Xie, our CFO. Mr. Li will provide a business overview for the quarter, then Xie will discuss the financials in more detail. Following their prepared remarks, Mr. Li and Xie will be available for the today's session. I will translate for Mr. Li. You can refer to our quarterly financial results on our IR website at ir.quantasing.com. You can also access a replay of this call on our IR website when it becomes available a few hours after its conclusion. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call. As we will be making forward-looking statements, please note that all numbers stated in the following management's prepared remarks are in RMB terms, and we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported in our earnings release and filings with the SEC. I will now turn the call over to CEO and Founder of QuantaSing, Mr. Li. Peng Li: Okay. Good morning, everyone. Thank you for joining us today for our Q4 and full fiscal year 2025 earnings call. I'm excited to share some really encouraging results with you today, along with significant strategic announcement that marks a new chapter for our company. As many of you know, we've been transforming from a traffic-driven to a product-driven business. And furthermore, we have consolidated a controlling stake in Letsvan since March 31 and have reached an agreement to acquire the remaining equity for a full 100% merger. Before diving into our quarterly results, I want to share important news about our strategic direction. We are announcing our potential business restructuring to divest all our non-Pop Toy business to focus exclusively on our high-growth Pop Toy business. This represents a decisive step forward in our transformation. We have been in negotiations with buyers, who are interested in acquiring this established business. The restructuring will allow us to concentrate all our resources, talent and capital on the tremendous opportunities we see in the Pop Toy market, while ensuring that our all established non-Pop Toy business found the right home with a buyer who can continue maintaining the operation of this business and achieve potential further development. We will share further details on timing and transaction terms once they are finalized, subject to final negotiations and customary closing conditions. This quarter marks our first full period with Letsvan's consolidation. From April through June, the quarter was defined by both challenge and accomplishment, yet I'm incredibly proud of what we have achieved with our strategic transition. Let's look at the numbers. Our revenue reached RMB 617.8 million. Most importantly, our Pop Toy business contributed RMB 65.8 million, representing our core growth engine moving forward. Beyond that, as of June 30, 2025, we held over RMB 1 billion in cash and cash equivalents, restricted cash and short-term investments for the company. This cash reserve established a strong foundation for our transition into Pop Toy business. Let me highlight what is driving this growth opportunity with our Pop Toy business. We are seeing rapid cultural transformation, driven by young digitally savvy consumers, who want emotional connection and unique collectible experiences. This is one of the most dynamic segments globally. The brands that win are those that brand creative IP, emotional storytelling and real-time engagement. These trends have transformed pop toys from niche items into lifestyle essentials for adults and millennials. As a pop toy company, we will be uniquely positioned to capitalize on this massive market opportunity. Each of our Pop Toy series features unique designs and distinctive personalities that resonate on the psychological level. For example, WAKUKU, our flagship IP, is now one of the most recognized trend toys in China, a skilled hunter, full of courage and wisdom. ZIYULI, the Chinese princess that grows by yourself. And SIINONO, a new IP launched in July 2025, an alien creature from the warm and carefree planet, Hassey. Following the strategy we outlined in Q3, we have been operating the Pop Toy business systematically and have achieved significant results to date. We are seeing strong market validation across our IP portfolio. Next, I will provide further details on our core strategy using the Q3 framework. First, IP brand development and product. We have built a diverse portfolio of unique IP designs that resonate deeply with consumers. Let me give you some new recent examples. Our WAKUKU, Fox and Bunny series achieved over 1 million unit sales since its launch on May 17th. During the initial launch of our new IP SIINONO wants to tell you a secret blind box sold out 10,000 units in 10 minutes at our Douyin flagship store and achieved approximately 300,000 units sales to date. Today, we are operating over 40 blind box product lines. And over 30-plus pendent card products across our IP portfolio. This includes 11 self-owned IPs, including WAKUKU and ZIYULI, 2 exclusive licensed IPs and 2 nonexclusive licensed IPs. We are strengthening our IP metrics through 3 key approaches. First, we are investing in our own, original IP development. We will continue to gather artistic and designer resources in various locations, establishing design centers in different cities, such as Beijing, Hangzhou and Shenzhen. We have a diverse and collaborative team that enables us to continuously innovate blending artistic vision with cultural insights to create IPs that truly resonate with our fans. Second, we are strategically pursuing IP licensing partnerships with proactively exploring and securing exclusive collaborations across design styles, product categories, audiences and international markets. We began to collaborating with artists and illustrators through in-depth product co-creation and development to help launch their first-generation blind box collectibles and limited-edition products, fostering mutually rewarding opportunities. Third, we are building strategic partnerships beyond traditional toy collaborations, linking our product with healthy, optimistic lifestyle brands. For example, we are partnered with China Open Tennis Tournament, Beijing Fashion Week, Universal Studios, Genki Forest, a leading health beverage brand and for Shanghai, hot TV series. These partnerships expand our reach across entertainment wellness and lifestyle markets. What truly sets us apart is how we leverage everything from our strategic partnerships to our product design around emotional connection, we are not just making toys. We are creating meaningful products that foster companionship and speak to a real emotional needs. By weaving rich, growth stories into our classic IPs, we transform them into emotional companies that resonate on the personal level. The second pillar of our strategic focus is on marketing and channel expansion, which is driving growth, both thematically and internationally. In our home market, our momentum is impressive. On the online front, we've built a community of over 250,000 followers on the two largest local social platforms. While our content has achieved remarkable viral reach with over 550 million views on Douyin and 140 million views on Xiaohongshu. Regarding GMV, since officially launching online operations in April, our GMV had already exceeded RMB 18 million in August, which is over 9x that of April. Offline. Our multichannel presence is equally robust. We've established a widespread wholesale network of over 10,000 retail stores through our distributor partners and actively participate in Pop Toy exhibitions in top-tier cities such as Beijing, Shanghai and Shenzhen, significantly enhancing brand visibility. At our partnership retail stores, the launch of SIINONO achieved more than 10,000 units sold in just 10 seconds. This underscores our strong capability to generate marketing impact and rapid sale through physical locations. Our self-operated retail strategy is a key driver of our offline expansion, with a focus on innovative pop-up stores and high-impact launch events. As we mentioned before, we are actively developing our flagship retail stores. In the meanwhile, we have already demonstrated strong offline capabilities through large scale pop-up installations and exclusive product launches. For example, on August 30th, we launched a pop-up store at Beijing Chaoyang Hopson One. In addition to a selection of our best-selling products, this limited time activations allow us to create immersive IP-driven environment that generate significant social buzz and translate excitement into direct sales. We are currently in negotiations with top-tier shopping malls in several first-tier cities to open flagship stores, with at least 3 to 5 locations expected to open by the end of December. These events boost brand visibility. They act as community touch points, featuring an interactive content and limited edition releases. This deepens emotional connections with fans and builds lasting brand loyalty. While still in the early stages of our international expansion, we are encouraged by the strong growth momentum we are seeing overseas. On the online front, we have established a North American independent e-commerce sites, launched flagship stores on TikTok for both North America and Southeast Asia as well as an official online store on Shopee in Southeast Asia. We have achieved significant breakthroughs in these markets. For offline channels, we have established wholesale networking over 20 countries through our distribution partners, such as Japan, major Southeast Asian countries, the United States, Canada, Australia, the United Kingdom, France, Germany, Italy and Saudi Arabia. Self-operated stores are a key part of our long-term global strategy. So we are still in the planning phase for our physical store rollout. We intend to take a data-informed test-and-learn approach once we enter new markets using real-world insights, including sales performance, customer engagement and market feedback to strategically guide our expansion and deepen brand engagement. In July, we opened approximately a 30 square meter pop-up store at Central Park Mall in Jakarta, Indonesia, to test the local market, which successfully validated both market demand and our team's operational capabilities. Regarding our non-Pop Toy business restructuring, we are making strong progress. This move will ensure the established business continues to operate smoothly and provides better development opportunities for the team. While the process from the sale will strengthen the company's own equity, more importantly, the transaction allows us to concentrate all resources on operating our Pop Toy business with maximum focus, transforming the company into a global trendsetter and creating substantial long-term value for the shareholders. We are confident this move delivers clear value to our shareholders and sharpen our strategic focus. As we transition into Pop Toy business, our strategy will be built around 3 core priorities. First, we are strengthening IP creation and incubation, by refreshing content, expanding product lines and collaborating across sectors. We are building emotion-driven ecosystem that boosts users' loyalty and brand value. Second, we are driving agile execution by refining supply chain operations, optimizing inventory and logistics and building the flexible production partnership. Speed and efficiency are key to our market responsiveness and cost control. We have made significant progress in the product capability. In August, the output of our mainstream plush products had already increased more than 20-fold since the beginning of the year in January, exceeding 1 million units. Third, we are dedicated to delivering sustainable returns to our shareholders. Our focus remaining on calculating high-valued IP, expanding global channels and maintaining disciplined profitability and cash flow management. In summary, Q4 fiscal year 2025 represents a defining moment in our transformation journey. Our potential business restructuring reflects our confidence in the exceptional growth potential of this market. This sharper focus means we can really build on our early wins in Pop Toy, speed up our growth in sustainable way and deliver even more value to our shareholders. We have shown, we know how to execute in this business. And now with total focus dedicated to resources and a stronger financial position, we are ready to become a true leader in this dynamic, high-growth industry. Thank you for your continued trust and support. Our performance to date gives us strong confidence in our future position. I will now turn it over to Tim for a detailed review of our financial results. Thank you, everyone. Dong Xie: Thank you. Before I go into the details of our financial results, please note that all amounts are in RMB terms, that the reporting period is the fourth quarter of fiscal year 2025 ended on June 30, 2025, and that in addition to GAAP measures, we will also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations. We are pleased to report solid financial performance this quarter, making our first full reporting period since completing the Letsvan acquisition in March 2025. Total revenue reached RMB 617.8 million with net income of RMB 108 million, achieving a strong net profit margin of 17.5%. These results reflect our intentional strategic transformation from traffic-driven growth to a more sustainable product focused business model. This transition is already showing clear results with sales and marketing expenses, improving significantly to 47.6% of revenue from 69.2% in the previous quarter. Our Pop Toy business now accounts for 10.6% of total revenue as it's becoming a significant part of our revenue base. Breaking down our revenue composition. Revenues from the Pop Toy business totaled RMB 65.8 million. With a continued momentum in this business, we expect it to drive meaningful growth in future quarters. Individual online learning services generated revenues of RMB 456.9 million compared to RMB 906.7 million in the fourth quarter of 2024. This change was primarily due to decreases in skills upgrading courses, financial literacy courses and recreation and leisure courses. Revenues from enterprise services was RMB 35.7 million compared to RMB 56.6 million a year ago. The change was primarily due to a deliberate reduction in the marketing services provided to a customer. Revenues from our consumer business was RMB 50.5 million compared to RMB 33.3 million a year ago. The change was primarily driven by the increase in revenue from wellness product sales. And finally, revenues from others were RMB 8.9 million compared to RMB 3.5 million a year ago. Gross profit for the quarter was RMB 467.6 million, with a gross margin of 75.7%, compared to 85.9% in the same period last year. This margin change reflects our strategic shift towards more product focused offerings, which naturally carry a different cost structure. On the operational front, we continued to prioritize effective cost management while focusing on our resources on the Pop Toy business. Total operating expenses were RMB 344.2 million, a decrease of 44.7% from RMB 622.9 million in the same period last year. To break this down, sales and marketing expenses decreased by 49.3% to RMB 294.1 million, mainly due to lower marketing and promotion costs, reduced labor outsourcing and lower staff expenses. This decrease was partially offset by new sales and marketing costs for the Pop Toy business following the Letsvan acquisition. As a percentage of total revenue, non-GAAP sales and marketing expenses, which excludes share-based compensation, decreased to 47.6% from 57.4% a year ago. Research and development expenses slightly declined by 0.1% to RMB 21.2 million, mainly due to lower staff costs, excluding share-based compensation, expenses of the established business. This decline was partially offset by the new research and development expenses for the Pop Toy business following Letsvan acquisition and by an increase in share-based compensation expenses of the established business. As a percentage of total revenue, non-GAAP R&D expenses, which excludes share-based compensation, was 3.4% compared to 3% a year ago. General and administrative expenses were RMB 29 million compared to RMB 11.6 million a year ago. The change was mainly due to the newly added general and administrative expenses for the Pop Toy business resulting from the acquisition of Letsvan and an increase in share-based compensation expenses for the established business. As a percentage of total revenue, non-GAAP G&A expenses, which exclude share-based compensation, is 4.3% compared to 2.5% a year ago. We achieved a net income of RMB 108 million, representing a net margin of 17.5%. Our adjusted net income, which excludes share-based compensation, was RMB 111.2 million, representing an adjusted net margin of 18%. Basic and diluted net income per share was RMB 0.67 and RMB 0.65 during the quarter. Adjusted basic and diluted net income per share were RMB 0.69 and RMB 0.67 during the quarter. Regarding our balance sheet position, as of June 30, 2025, we held RMB 1040.9 million in cash and cash equivalents, restricted cash and short-term investments, representing an increase of RMB 14.6 million from RMB 1026.3 million as of June 30, 2024. Both our established business and the Pop Toy business are cash self-sustaining and don't require significant additional capital. This allows us to focus our available cash reserves on strategically expanding the Pop Toy business, to accelerate its growth and market presence. Looking ahead, we're excited about the growth prospects for our Pop Toy business. Based on currently available information, we expect revenues from our Pop Toy business to be in the range of RMB 100 million to RMB 110 million for the first quarter of fiscal year 2026 and in the range of RMB 750 million to RMB 800 million for the full fiscal year 2026. This forecast reflects our confidence in the pop toy market opportunity and our ability to scale our IP portfolio and expand internationally. That concludes my prepared remarks. Operator, let's open up the call for questions. Thank you. Operator: [Operator Instructions] First question today comes from Alice Cai of Citi. Yijing Cai: I have several topics to cover. And let me begin with what I think most investors care most about, which is the toy revenue trajectory recently. Given that WAKUKU contribute RMB 43 million in Q4 and SIINONO, that's launched in July. And you now have 15 IPs in total. Could you please share the recent revenue run rate for July to September? And management mentioned that the demand so far is outpacing supply with order book through Q1 next year. So could you please quantify the confirmed order backlog in dollar terms? Dong Xie: Thank you, Alice. I'll answer this question. Regarding the growth curve, WAKUKU began operations last December, and we saw sustained volume expansion starting in March, right after the spring festival of China. Its growth rate can be described as explosive, out of the gate, gaining momentum very rapidly. By August, its monthly production capacity had reached approximately 20x the level at the beginning of the year. Strong demand from channels, our distributor partners and also the online and high user repurchase behavior provide strong visibility for our performance over the next several quarters. Also regarding the new IP, SIINONO, launched in July, SIINONO demonstrated our accelerating growth momentum as a completely new IP that has been on the market for only a few months. Its initial sales were exclusive. And recently, the sales of SIINONO have exceeded 300,000 boxes. This reflects our continuous evolution in product design, marketing and channel execution. When viewed together, the combined effect of these two engines, explosive new releases and sustained classic performance, is accelerating our overall revenue growth rapidly. This powerful momentum is the core reason for our confidence in future performance, and we look forward to sharing more detailed figures in the next earnings report. Regarding confirmed order value, our front-end sales team schedules production based on market feedback. For products already ordered by sales, the current delivery rate is less than 50%. That means a huge pipeline in process. Production and planning for future quarters is proceeding in an orderly manner. Yes, I think that will help to answer your question. Yijing Cai: It's helpful. And my last question is on the valuation of Letsvan because some investors are calculating its valuation at RMB 1.7 billion based on the 8x 18 million common shares divided by 20%. But these 18 million shares are granted in 3 tranches with a vesting period over several years, right? So could you please walk us through the specific arrangements for these three tranches? And are they tied to performance markdown? And if performance targets cannot be met, will later tranches be adjusted or canceled? Dong Xie: Okay. The acquisition of the remaining equity is currently still in the settlement process and further details will be disclosed in due course. I think I can give you some key points to help everyone to understand the transaction. First, Mr. Huiyu Zhan, the Founder and CEO of Letsvan, he represents the product strength of our Pop Toy business. And he himself is a seasoned entrepreneur with years of experience in this sector. He is highly optimistic about the future of the pop toy market and believe in the long-term value of fully committing to this field together with us. For this transaction, Mr. Zhan opted to receive shares as consideration for his remaining equity with no cash involved. The second point is that approximately 60% of the consideration was paid in newly issued shares in exchange for Mr. Zhan's remaining equity, while the remaining 40% was granted as long-term incentives, which will vest gradually over a period of about 8 years. So it's a very long time, and it means the commitment with us, and we can do that in a long time. I think the third one is this structure reflects our shared commitment to long-term collaboration and value creation. And also for the remaining one, except Mr. Zhan's shares, the remaining equity held by other shareholders was acquired for cash, for pure cash, at a valuation not exceeding RMB 1 billion. This portion of the transaction has been completed as of today. I think that's the information I can give to the market. Maybe we can give details when we fully complete the transaction. Yijing Cai: I have another question. Looking at the time line going forward, because you are guiding for RMB 100 million to RMB 110 million in Q1 and around RMB 750 million for the full year guidance, right? So given that Q4 already hit some RMB 66 million with just 3 months of contribution, are these targets conservative? When does the management expect the top revenue to -- toy revenue to surpass the education business? Dong Xie: Okay. I think first, our guidance for FY '25 and FY '26 were made based on the prudent assessment of the market environment and the piece of product and channel development when we formulated our strategy earlier this year. As you can see from the performance figures just released, growth across several key metrics has already outpaced our earlier expectations. Based on the recent business process and our updated market outlook, we are issuing our first formal earnings guidance for the Pop Toy business. And this guidance is supported by the following factors: The first is better-than-expected performance of hit products and mature IP matrix. Our established IPs, such as WAKUKU and ZIYULI have demonstrated strong longevity, and new generations of these IPs are already in the pipeline. In addition, the successful launch of our new IP SIINONO in July has been very well received with robust ongoing sales momentum. The next generation of products is already scheduled. This success validates our exclusive artist IP partnership model and sets a solid foundation for continuously introducing new artist IPs. In addition to the 15 IPs we had as of June 30, we recently signed two additional new exclusive licensed IPs. We have initially established a healthy product vision and pace, combining new explosive releases and sustained classic performance, driven jointly and by product strength and brand power. This indicates our IP operation capabilities and user loyalty are reaching a new level. The second is continuous expansion of online and offline sales channels. Our online GMV reached over RMB 18 million in August. We continue to deepen partnerships with offline distributors and self-operated pop-up stores as well as permanent flagship stores either under negotiation, all in the process of opening. We expect to open 3 to 5 flagship stores by end of year, laying a solid foundation for the expansion of self-operated stores next year. And also accelerated global expansion, we have established initial channel and marketing presence in Southeast Asia and North America. Although still in the early stages of expansion, the growth rate in these regions has exceeded our initial expectations and the market potential appears more promising than originally anticipated. This confirms our strategic direction is correct, and has positioned the company to capture future growth opportunities. I think based on these 3 areas of our outperformance and current business momentum, strongly supports a more optimistic outlook for future growth. As disclosed in our earnings release, given the rapid growth and market potential of the Pop Toy business, that concentrating all of our resources on this segment, we are currently in discussions with potential buyers regarding a group restructuring plan, which may include divesting non-Pop Toy businesses. The details will be announced promptly upon the completion of any relevant transaction. So all of the actions and plans will be conducted in accordance with the principles of business focus, enhancement of shareholder value and sustainable development of each business unit. We believe that upon completion of the restructuring we will achieve greater strategic focus, utilize resources more efficiently, see exceptional growth opportunities in the IP and Pop Toy sectors and create greater long-term value for shareholders. So in summary, I think the forecast all reflect our focus on this business sector and also our methodology to do the business and also our principle to do everything very seriously. So that figure reflects our very -- our confidence to deliver that, so that I think we will adjust the annual forecast based on new information, maybe in the next quarter, we will adjust and based on the ongoing development of the business so that we can give the market very serious and confident figures. Yijing Cai: And I have a follow-up question on the restructuring. It seems that you are considering a sale on the education segment, right? And if so, what's the pipeline looking like? Dong Xie: Yes, the pipeline is very strong. So as I just mentioned in several situations to the market, we will consider the different development direction of our existing business based on the performance of the Pop Toy business and other performances of the existing business. As we announced, since we have started the process of this restructuring, that means we are very confident that of the existing Pop Toy business' performance and also the development of this performance so that we can deliver a long-term value based on the solid foundation we have set up during the past months and since the acquisition and controlling of the Pop Toy business. Operator: Next question comes from Brenda Zhao with CICC. Liping Zhao: I got 2 questions here. So first, relates to the Pop Toy business because we've recently seen that Pop Mart launched its Mini Labubu. So could management introduce your product strategy and whether we will introduce more product categories in the future and what's our pipeline for new categories? And my second question is related to the collaboration with Yuehua. I'm wondering whether there will be new business model and innovations. If so, could you elaborate more on that side? Peng Li: Okay. Thank you for your question. I will answer in Chinese. [Foreign Language] [Interpreted] We have a clear and structured road map for IP launches. Our IP pipeline is already scheduled through the end of next year. Both our fundamental art library and product design reserves ensure a consistent and well placed rollout of our new products. In terms of the category innovation, we're also actively exploring and developing new directions. In addition to our core blind box series, some other categories will increase smaller sized line of figures and plush products, which will also include mini versions featuring more durable designs and accessible price. This will cater to wider user reverences for collecting and consumption, further expanding our market presence. Products in these new categories are set to debut in next fourth quarter. We can't wait to share them with you soon. Okay. That's the answer for the question one. And about the question two, first, in terms of the cooperation with Yuehua Entertainment, as you can see that our partnership with them is strategic initiatives build on the complementary strengths. We have established a joint venture with Yuehua Entertainment. In terms of the business model, we primarily provide joint venture with IP design, supply chain support and sales operation capabilities, while Yuehua Entertainment will leverage its extensive cross-industry resources in the film, television and celebrities field to drive promotion and strengthen IP breakout and enlarge the user engagement. In the future, we are planning to develop more IPs exclusively for the joint venture. These IPs will also incorporate Yuehua Entertainment's strength and also their capabilities. We will also continue to utilize these IPs and to promote them and operate using both companies' resources, we'll focus on IP design and product development while jointly building a close-loop ecosystem, causing the IP incubation, promotion and formalization. Operator: That is all the time we have for Q&A. I'd like to hand the conference back over to management for any closing remarks. Leah Guo: Thank you, everyone, for joining our call today. If you have any further questions, please feel free to contact us. Also make a request through our IR website. We look forward to speaking with everyone in our next call. Have a good day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the Evolution Petroleum Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I would now like to turn the conference over to Brandi Hudson, Investor Relations Manager. Please go ahead. Brandi Hudson: Thank you. Welcome to Evolution Petroleum's Fiscal Q4 2025 Earnings Call. I'm joined by Kelly Loyd, President and Chief Executive Officer; Mark Bunch, Chief Operating Officer; and Ryan Stash, Senior Vice President, Chief Financial Officer and Treasurer. We released our fiscal fourth quarter and full year 2025 financial results after the market closed yesterday. Please refer to our earnings press release for additional information containing these results. You can access our earnings release in the Investors section of our website. Please note that any statements and information provided in today's call speak only as of today's date, September 17, 2025, and any time-sensitive information may not be accurate at a later date. Our discussion today will contain forward-looking statements of management's beliefs and assumptions based on currently available information. These forward-looking statements are subject to risks, assumptions and uncertainties as described in our SEC filings. Actual results may differ materially from those expected. We undertake no obligation to update any forward-looking statements. During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted net income. Reconciliations of these measures to the closest comparable GAAP measures can be found in our earnings release. Kelly will begin today's call with opening comments. Mark will provide an update on our properties and plans as they relate to our ongoing strategy of maximizing shareholder returns, and Ryan will provide a brief overview of our financial highlights. After our prepared remarks, the management team will be available to answer any questions. As a reminder, this conference call is being recorded. If you wish to listen to a webcast replay of today's call, it will be available on the Investors section of our website. With that, I will turn the call over to Kelly. Kelly Loyd: Thank you, Brandi, and good morning, everyone. We demonstrated another solid quarter of execution in fiscal Q4. Evolution reported a material improvement in net income of $3.4 million and adjusted EBITDA of $8.6 million, underpinned by a balanced commodity mix and prudent cost controls. Average production was 7,198 BOE per day, and our revenue mix was 61% oil with natural gas and NGLs providing a meaningful offset in a volatile oil backdrop. We also declared a $0.12 per share dividend for fiscal Q1 '26, extending our record of dependable cash returns for shareholders. We have now consistently issued a dividend every quarter since 2013. We continued to upgrade the portfolio in ways that improve durability and capital efficiency. During the fiscal fourth quarter, we closed our highly accretive $9 million TexMex acquisition, which included nonoperated oil and natural gas assets across New Mexico, Texas and Louisiana. This acquisition adds roughly 440 net BOE per day of stable, low decline production with a roughly 60-40 mix of oil and natural gas with relatively low cost behind pipe upside potential. Subsequent to quarter end, we closed the largest minerals only acquisition in company history in the SCOOP/STACK. Approximately 5,500 net royalty acres with roughly 420 net BOE per day at the effective date with years of upside drilling that comes with no net cost to evolution. Minerals cash flows are very high margin as they come without lifting cost, which pairs beautifully with our existing position in the basin. These acquisitions are a great example of the kind of low decline, high return exposure that we seek, scalable capital-light and immediately cash generative. They also represent a clear demonstration of our ability to effectively adapt to market environments and deploy capital in the most effective manner. When oil prices are low, it presents compelling M&A opportunities rather than drilling opportunities and vice versa. In the market environment and what's going on there, commodity prices remained choppy through the quarter. Our model, which is grounded in diversified commodity exposure and tight cost discipline did what it is designed to do. It smoothed out cash flows and supported returns which is further reflected by our improved profitability despite essentially flat revenue and production. For oil, we see the demand picture of kind of steady as she goes. Over the last 10 years, on average, demand has grown at a little over 1% per year, and we expect this trend to continue. OPEC+ is continuing to add back supply. This has recently put the global speculative trading community on defense to the point where net positioning has reached some of the shortest net positioning observed in the past decade. On the other end of the spectrum, there's very little geopolitical risk priced into the forward curves, although potential disruptive hotspots are popping up all over from Russia to the Middle East, down to Southeast Asia and to South America. Additionally, we all know that the best cure for low oil prices is low oil prices, but it doesn't happen overnight. If prices stay in the 60s, we fully expect there to be a negative production response, and we're already seeing many examples of CapEx budgets here in the U.S. being reduced. If the demand picture holds, it's reasonable to assume that if more U.S. barrels are needed, we will see higher near-term prices as flowing barrels are more sought after as well as higher long-dated prices to incentivize increased CapEx from the North American E&P community. We're certainly not calling for it, but we could see a sharp snapback just like we did the last time WTI averaged in the 60s at $68 a barrel in 2021 and 2022's average WTI price increased to roughly $95 a barrel. For natural gas, we see the setup for a very strong forward demand curve. Current and planned incremental LNG exports as well as increased industrial demand tied to natural gas' portion of incremental power generation are the main drivers behind this. What is driving the expected increase in power usage, well, that's in large part related to new data centers, AI implementation and cryptocoin mining. In most years, since the beginning of the shale era, producers have needed forward Henry Hub prices of greater than $3.50 to grow production sufficiently enough to meet these levels of forward demand expectations. However, we must always remember that weather is a huge player for natural gas prices, and can cause sharp near-term swings. The weak weather scenario that requires a curtailment of supply has a far lesser financial impact on evolution than the positive financial benefit that we would receive from the opposite weather scenario, one where it's so cold that there's much more demand than supply. Overall, our portfolio of low decline producing assets with additional upside potential from new drilling locations to behind pipe prospects is primed to both ride out any weakness and flourish when there's strength. Regardless of the market environment, our capital allocation framework is unchanged, prioritize durable free cash flow, return cash through a reliable dividend and pursue accretive low-decline opportunities, both organic and inorganic. These will improve our per share value over time. The $0.12 per share dividend we recently declared for fiscal first quarter '26 reflects that discipline and our confidence in the portfolio and future cash flows. We also took a significant step to enhance flexibility with an amended and restatement of our senior secured reserve-based credit facility. The intent is straightforward: maintain conservative leverage and position our balance sheet with ample dry powder to capitalize on accretive opportunities for shareholders, be it organic or inorganic. With that, I'll hand it over to Mark for more details on the assets. J. Bunch: Thanks, Kelly, and good morning, everyone. I will focus my remarks on key operational highlights from the quarter and encourage listeners to review our earnings press release and filings for additional details across our asset base. Beginning with SCOOP/STACK on our working interest position, activity moderated late in the quarter with several wells in progress and late quarter contributions beginning to come through now in the fiscal first quarter of 2026. On the minerals package that closed after quarter end, we anticipate a gradual ramp-up aligned to operator schedules, with the majority of initial royalty cash flow beginning in fiscal 1Q '26 and building from there. As Kelly mentioned earlier, mineral interest provide royalty cash flows without typical working interest expenses and complement our existing footprint. In Chaveroo, we turned in line 4 gross wells on time and under budget, and early results are ahead of plan. We are advancing permits for the next phase and will pace activity to commodity prices to support returns and cash flow consistency. In Delhi, operations experienced downtime from shut-ins related to facility safety upgrades. We also experienced some seasonal effects related to the high ambient temperatures limiting the amount of CO2 injection. The operator continues to inject only recycled CO2, which remains economically favorable for this field. And in Jonah, operations were stable with reported sales volumes lower due to pipeline balancing. We expect makeup volumes to contribute in the first quarter of fiscal 2026. Across the portfolio, our properties -- our priorities are unchanged: safety, cost control and capital efficiency. We will continue to deploy capital where it competes best on a risk-adjusted per share basis. Over to you, Ryan. Ryan Stash: Thanks, Mark, and good morning, everyone. As Brandi mentioned earlier, we released our earnings yesterday, which contains more information on our results. For today, I'd like to walk through our financial highlights. In fiscal Q4 2025, we had total revenues of $21.1 million, essentially flat year-over-year. This reflected flat production at 7,198 BOE per day and overall pricing that was roughly unchanged on an aggregate basis given our diversified commodity mix. Realized natural gas prices increased 66% year-over-year However, oil prices declined 20% year-over-year and NGL prices declined 12% year-over-year. Operationally, temporary downtime at Delhi and pipeline balancing at Jonah weighed on reported sales volumes while our 4 new Chaveroo wells turned in line and production from our TexMex acquisition helped to offset the downtime. Quarterly net income improved materially, both sequentially and year-over-year to $3.4 million or $0.10 per diluted share. Adjusted EBITDA for the quarter was $8.6 million, up 7% year-over-year and 16% sequentially, driven by portfolio mix and cost discipline as well as positive impacts from our hedge portfolio. On a per unit basis, LOE was $17.35 per barrel and G&A, excluding stock-based compensation, was $2.99 per barrel. Cash provided by operating activities was $10.5 million for the quarter, and capital expenditures were $4.7 million. Our hedging program remains a core pillar of risk management. We maintain a balanced portfolio with our ultimate goal to protect downside while retaining prudent upside. We evaluate markets regularly and will layer in hedges when required by our credit facility covenants or when economics support our objectives, which are supporting our dividend program, locking in returns for capital plans and preserving balance sheet flexibility. We align hedge levels with expected volumes and the pace of development, consistent with our focus on maintaining free cash flow through commodity cycles. At June 30, 2025, we had cash and cash equivalents totaling $2.5 million, borrowings of $37.5 million and total liquidity of approximately $30 million. As Kelly mentioned earlier, on June 30, we amended and restated our senior secured reserve-based credit facility, adding a second lender and establishing a $65 million borrowing base under a $200 million revolving credit facility that matures on June 30, 2028. Subsequent to year-end, we funded our acquisition of mineral and royalty interest in the SCOOP/STACK with $15 million in borrowings under our revolver and cash on hand. We returned $4.1 million through common dividends in the quarter and $16.3 million in fiscal 2025. On September 11, 2025, the Board declared a $0.12 per share dividend for fiscal 1Q '26 payable September 30, 2025, to holders of record September 22, 2025, marketing the company's 48th consecutive quarterly dividend and 13th consecutive at the current level. Cumulatively, Evolution has returned approximately $134.8 million or $4.05 per share in common stock dividends, reinforcing our priority of steady capital returns and a dividend program built to remain dependable through cycles. Now I'll hand it back over to Kelly for closing comments. Kelly Loyd: Thanks, Ryan. To close, our team executed very well in both Q4 and fiscal 2025, especially when considering the volatile oil market, we've been navigating this calendar year. We are very excited as we enter fiscal '26. We are well positioned to accelerate growth and advance the company's strategy with multiple tailwinds in place, including our recent acquisitions of TexMex and SCOOP/STACK minerals along with multiple organic opportunities across our asset base. At Chaveroo and across the portfolio, we will pace development to market conditions and stay focused on our core objectives, creating durable free cash flow, a reliable dividend and disciplined accretive opportunities that compound per share value over time. With that, I'll turn it over to the operator to begin the Q&A session. Thank you very much. Operator: [Operator Instructions] And your first question comes from Poe Fratt with Alliance Global Partners. Charles Fratt: I have a couple of questions, if I may. The first of which is, can you just give me an idea of sort of where your run rates are right now for like the SCOOP/STACK and also Barnett and even Chaveroo, if you wouldn't mind? Kelly Loyd: Sure. You're talking about on a production basis? Charles Fratt: Yes. BOE, whatever the measure you want to use. Kelly Loyd: Okay. Yes. So the SCOOP/STACK is -- I mean it's in line with where we were in the quarter, honestly. And Chaveroo, where we're doing with that. So you see that the wells came on and they're going to decline pretty -- what mark on the first year average sort of 50% over the course of the year. So I apologize, but we don't like to give out intra-quarter sort of exact run rate. So I'm being a little evasive on purpose here for you. But it's in line with what we were in the quarter on the sort of natural declines we're talking about. So... Charles Fratt: Okay. Maybe on Chaveroo, when did you hit full production there? When did all 4 wells hit full production. J. Bunch: Like between -- in the first 2 weeks of May. Charles Fratt: Okay. Great. And then can you talk about CapEx looking into fiscal '26? Ryan Stash: Yes. So right now, we're -- and I'll let Mark and Kelly comment on Chaveroo specifically. But our budget currently is around $4 million to $6 million is what we're thinking for fiscal year '26, and that's primarily SCOOP/STACK CapEx, along with other maintenance CapEx that we typically see in our other areas. So right now, we're not currently budgeting any CapEx in that range for Chaveroo, and that's obviously dependent on our partner and just the outlook for oil prices in general. J. Bunch: Yes. And I'd like -- excuse me, I got choked for a second. Yes, I'd like to say like we have -- we're continuing to process to permit the wells and get them ready to drill. But we haven't yet decided whether we're going to pull the trigger on drilling them right now. It's going to depend upon commodity prices at the time. And we have a very similar viewpoint with our partner out there. So we'll be making that decision sometime much closer when -- sometime in probably calendar year '26. Kelly Loyd: Yes, I'll just follow up. Look, we consider these to be really valuable locations. And obviously, when you're drilling new wells, they come on flush production. And again, we'll make that decision later on, but we're doing everything we need to, so we can dynamically change in response to prices. But we'd rather not go full board drilling when prices are in the low 60s. So we'd rather save that for when prices are better and take advantage of that. Charles Fratt: Understood. And just one last one, if you wouldn't mind, on the cost side. Can you just talk about where you might see LOE on SCOOP/STACK go? And also with the Barnett, you had the audit benefit for the fiscal fourth quarter on that asset? And can you just talk about a run rate for LOE for the Barnett looking at fiscal '26? Kelly Loyd: Okay. So on the first question with regards to SCOOP/STACK LOE, the way we intend to do it, right, it's one asset for us, and we're going to look at it together. So we're still assessing the impact as cash flows come in, but we definitely -- obviously, there will be a material improvement with the Minerals acquisition. Mark, did you want to add to that? J. Bunch: Yes. I'd say on SCOOP/STACK, like it's where it runs right. We don't expect on a BOE per basis for it to increase substantially. So I mean, we should stay right where it is. It's a good asset. It's very, very profitable for us. Kelly Loyd: But again, when you combine it with the minerals, it will be... J. Bunch: Even better. But I mean I'm talking about just the -- I'm just talking about the operating side. I mean, it's been a star from a standpoint of cost per BOE. Charles Fratt: Yes, I'm guessing you see at least a 10% decline in your per BOE/LOE on SCOOP/STACK in the fiscal first quarter or maybe for the full year? Kelly Loyd: We will -- obviously, that will get refined as we sort of integrate more of these cash flows as they come in. But I mean for a starting point, I think that's a pretty good idea. Ryan Stash: Yes. On the Barnett, to answer your question, obviously, we're looking at -- if you look at our last quarter in our press release, it was about $18.50 a barrel all-in for the Barnett. We do see some of those costs hopefully going down a little bit going forward. I mean we do think there are going to be some benefits from the audit in terms of processes that were changed, but also there were gathering contracts where we negotiated by the operator diversified that it's going to have some benefit. So I would say run rate, we're seeing current levels be just slightly lower than that. So we should hopefully do a little better than that March 31 number that we have there in the press release. Operator: [Operator Instructions] Your next question comes from Chris Degner with Water Tower Research. Christopher Degner: I just wanted to ask a bit more about the recent SCOOP/STACK acquisition that was mostly mineral acreage. And curious if that's a shift in strategy or was more focused on that specific opportunity and how you think about acquisitions with working interest versus minerals? Kelly Loyd: Yes, Chris, thank you. This is Kelly. I appreciate the question. This was done on a truly an opportunistic basis. As you know, we screen many, many, many deals every year. And what we look at chiefly is how accretive will it be to our cash flow per share, i.e., our ability to fund our dividend, both near term and long term. And this one, it fits perfectly. We bought it for what I think is a very reasonable price on PDP alone. I'd say more than 80% of the value we placed on just the PDP side of it. But of those 5,500 sort of -- it's actually 5,603 net royalty acres, there are a ton of upside drilling locations. And as you know, with minerals, you don't pay for those. So it worked out to be something that -- again, we're really happy with the deal and where it's looking plus we understand the basin really well. So we understood how those locations are probably going to perform. And anyway, I think it's a really good deal. So going forward, it will be sort of the same strategy, Chris. If it's working interest, if it's minerals, we're going to go for whatever adds the most accretion to our cash flow per share going forward. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Kelly Loyd for any closing remarks. Kelly Loyd: Thank you very much. And we want to thank everyone for taking the time to be here and to listen to us. As you know, you can follow up with our IR department with Brandi Hudson, if you want to arrange for any more questions. Like I said, just really proud of the team and all the great work they've done putting this portfolio together that is truly primed to do really, really well when we get some favorable tailwinds on pricing and ride out all the storms. So thank you very much for your time. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by. My name is Erik, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bullish Global Sector Quarter 2025 Earnings Call and Q&A. All lines have been placed on mute to prevent any background noise. After the speakers emerge, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Michael Fedele. Please go ahead. Michael Fedele: Good evening and welcome to our first ever quarterly earnings call as a public company. I'm Michael Fedele, Vice President of Finance, and I'm joined on today's call by our Chief Executive Officer, Tom Farley, Chief Financial Officer, David Bonanno, and Director of Corporate Development, Liam Foley. This call will contain forward-looking statements, including those relating to our expected performance and business opportunities. These statements are not assurances of future performance. They are subject to risks and uncertainties, and our actual results could differ materially. For more details on these risks, please refer to today's earnings press release and our SEC filings, including our prospectus dated August 12th, 2025. We undertake no obligation to update or revise any forward-looking statements. This call will also include a discussion of non-IFRS financial measures. A reconciliation of these metrics to the most directly comparable IFRS metrics can be found in our earnings press release and presentation, which also contain additional information regarding non-IFRS financial measures and key performance indicators. I'll now turn the call over to Tom. Tom Farley: Hello, I'm Tom Farley, the CEO and Chairman of Bullish. I'm joined by David Bonanno, our CFO. Thank you for joining us today on our first earnings call since going public. I expect to be a little longer-winded today in introducing myself and our company than in future sessions. I'm excited to discuss our results, but before I do, I want to spend some time highlighting my background, Bullish, our mission at Bullish, and why I'm so excited to lead this business going forward. By way of background, I've spent my career working in market infrastructure with exchanges and other regulated entities across multiple asset classes and several geographies. In all, I've been Chairman, CEO, and/or President now of 10 regulated exchange or related businesses. I've held various leadership positions at Intercontinental Exchange, the world's largest traditional financial exchange group by market cap, where I served as President of the New York Stock Exchange, introduced electronic trading to the New York Board of Trade, also as President, and completed multiple large-scale transformational M&A transactions. I know this market infrastructure business model well. My experience gives me a deep understanding of the amazing value that exchange businesses can offer our investors, and perhaps even more importantly, our customers, but also of all the opportunities to further push the envelope, go the extra mile, if you will, and drive innovation. For the past several years, I've been applying my learnings to make Bullish the premier institutional digital asset market infrastructure business in the world. Bullish is an institutionally focused business that operates globally and provides market infrastructure and information services that are designed to help institutions grow their businesses, empower individual investors, and drive the adoption of stablecoins, digital assets, and blockchain technology. We hold what I believe to be the foremost respected and difficult-to-attain crypto licenses in the world, from the European Union by way of Germany, from Hong Kong, the United Kingdom, and as of yesterday, New York State, the BitLicense. Although the growth in the digital asset space over the past decade has been staggering, institutional adoption has lagged behind. Looking ahead, we're excited by the continued opportunity in the digital asset space, and we're not alone. Industry analysts estimate that the crypto space will more than double in the coming years, and we expect this may prove to be conservative, and we expect that this growth will largely be on the back of institutional adoption. What's changed? Up until now, we believe the lack of institutional adoption owed largely to regulatory uncertainty. Things are indeed changing, however. We are seeing increasing regulatory clarity all over the world. Europe's MiCA regulations and Hong Kong's Aspire roadmap both add clarity. We are also quite optimistic with recent progress in the United States, including the adoption of the GENIUS Act, which defines stablecoin regulation, and the progress towards a broader adoption of a crypto market structure bill, which intends to formulate the first national regulatory framework for digital assets market infrastructure. We believe that this regulatory framework is not only exciting in the context of existing blockchain and crypto adoption, but could also plant the seeds for the large-scale transition of many traditional finance workstreams and markets to blockchain technology in the years to come. Turning to our business, Bullish operates two primary brands: the Bullish Exchange, which includes our exchange and related market infrastructure offerings, and CoinDesk, our information services offering. Our exchange and related market infrastructure solutions differentiate Bullish from other competitors through our suite of Tier 1 regulatory licenses, one global order book, unconflicted business model, predictable and consistent liquidity with tight spreads, and other areas of differentiation. We offer spot, perpetual futures, and dated futures trading, and we'll soon launch options at scale. We offer clearing and custody and more. Our calling card is deep liquidity in crypto's largest assets and at competitive low fees. Year to date, through August 2025, our exchange has facilitated more than $530 billion of total volume, including more than $485 billion in spot volume alone. We support trading from many different trading pairs, and we have established significant volume market share in Bitcoin, Ethereum, and stablecoins as compared to our identified peer set of regulated exchanges. Notably, none of our volume to date has come from the United States. While we have already had the ability to operate in many states because of our regulatory approval, we refrained from launching our exchange in the United States until we received the New York State Department of Financial Services BitLicense, both because of the prominence of the BitLicense as well as the relative importance of New York State to our business model. We received that license yesterday, and we look forward to bringing our exchange and our leading liquidity to the United States imminently, and we believe this to be the largest geographic market by far. We're also excited by our liquidity services offering, which provides digital asset issuers with subscriptionized liquidity, listing, visibility, and distribution. This revenue line has grown significantly in recent months, as you can see, including through various recently signed agreements that are not yet reflected in our financial results, such as our collaboration with Solana, which was initiated on July 1st, and agreements with various other stablecoin and digital asset issuers, including effectively now all of the calendar stablecoins. Our information services brand CoinDesk offers three primary services: CoinDesk Indices, which designs tradable benchmarks that track the performance of digital assets. Our flagship products CoinDesk 5 Index, which, in conjunction with Grayscale, has filed to become the largest multi-token ETF in terms of assets in the world, and CoinDesk 20, which tracks the performance of the 20 largest digital assets by market cap. Our indices anchor about $41 billion in AUM and over $15 billion of trading volume as of June 30, 2025. Our second service, CoinDesk Data, offers a comprehensive suite of subscription-based market data and analytics solutions that serves as a key resource for more than 11,000 institutional investors, professional traders, and industry professionals. Recently, we announced we hired Dave LaValle, a longtime industry executive, well-respected and well-known in the industry, to lead both the Indices and CoinDesk Data initiatives. Our third service, CoinDesk Insights, provides news on the digital asset industry, having reached a global audience of more than 80 million people last year and serving as host for the consensus conferences in Hong Kong back in February and in Toronto earlier in Q2. Our Insights business earns revenue from advertising, sponsorship, and events and serves as a critical cross-sell function for the rest of our business lines. Each of these three services: indices, data, and insights is growing due to our great leadership team, introduction of new products, and utilization of our broad reach to find new customers while cross-selling to our existing base. Dave will hit on a recent cross-selling success in his remarks. I'll now shift gears to highlight a few accomplishments and areas of focus for us. First, on regulatory approval, Bullish has pursued intentionally a suite of difficult-to-attain regulatory licenses from the most reputable Tier 1 regulators in the world to set us apart and prepare us for the institutional adoption wave. We already hold Type 1 and Type 7 licenses from Hong Kong SFC and a benchmark administrator license from the United Kingdom FCA. While we were previously grandfathered into EU's regulatory regime through our license with Germany's BaFin, our license was recently uplifted to full alignment, requiring no further need for grandfathering with the EU's MiCA regulation. Repeating our very recent good news, we were approved for the New York DFS' prestigious BitLicense yesterday. Throughout our positive communications with the team at New York DFS, we remained confident and optimistic in the impending approval of our application and are pleased to now share that we are licensed in New York. The BitLicense is infrequently granted and known for stringent application requirements. We believe this milestone is a testament to our ability to merge our innovative technology, including, among others, our automated market-making instruction, with the capability to operate within the parameters of a highly regulated environment. This caps off the completion of what we call, quote, the quad factor, which is the four toughest Tier 1 digital assets regulatory licenses in the world. We're looking forward to launching in the US imminently. Moving on to our liquidity services, this business continues to grow rapidly, and in recent months, we have entered into a collaboration with the Solana Foundation and many more liquidity services partners that are powering some of the most exciting projects in the space, including Pudgy Penguins, World Liberty, USDG, JITOSOL, Agora, Bomb, AllUnity, Bitpanda, and many more, and have deepened our already strong sales pipeline for the future. Our decision to accept our IPO proceeds in stablecoin was very well received by our partners, both existing and new. While we've managed now to add many of the sizable challenger stablecoin providers to our liquidity services client list, the addressable market of both new stablecoin entrants and non-stablecoin token issuers remains massive. Accordingly, we have a deep and growing pipeline of future opportunities. For our existing exchange operations, we are constantly optimizing our pricing. Starting in March of this year and stretching through Q2, we made several iterations to our exchange pricing. These optimizations included the adjustment of fees based on client type and client activity. This experimentation led to non-standard fluctuations in both our volumes and our typical spread rates. We believe that the fruits of this optimization strategy have really started to manifest in Q3. You can review our monthly KPIs currently accessible on our IR website to see that monthly spreads, and particularly volatility-adjusted spreads, are a good deal higher in the first couple of months of Q3 than they were in Q2. Shifting gears, we continue to make progress towards an anticipated full launch of our options trading platform in Q4 of this year. In fact, our options trading product is already live in production as part of a mobilization or beta phase where clients are trading, but just in a risk-limited manner and ring-fenced to only a select number of clients. I've been a part of many trading product launches in my career, including options trading product launches, and this one has all the hallmarks of a successful initiative so far. We will report back as we move towards full launch. It was a busy quarter for our information services business. In addition to the hiring of Dave LaValle, on the CoinDesk Indices side, we continued to add assets under management, ending the quarter with $41 billion of assets under management tied to our indices, an increase of more than $9 billion from Q1. We also launched exciting new products, including CDOR, CoinDesk's overnight rate, a benchmark interest rate for stablecoins. On the CoinDesk Data side, our integration of CC Data acquired in Q4 of 2024 is now complete, and we continue to regularly cross and upsell our customers. For instance, recently we signed a far more comprehensive CoinDesk Data contract with LSEG Refinitiv. We also continue to execute on the multi-products cross and upsell, including through a recently signed custom deal with Midnight. We also executed a very successful consensus conference in Toronto during Q2, where we welcomed more than 15,000 guests. While we loved our time in Toronto, the United States is once again the capital of crypto, and we look forward to hosting our 2026 North America conference in Miami on May 5th through 7th. Please join us. Finally, I'd like to discuss our U.S. launch. As I mentioned a moment ago, we have received the New York BitLicense. This was the last critical item for us to launch in the United States. What's next? From an activation standpoint, our team has already been pounding the pavement, building a pipeline of interested exchange customers, including asset managers, hedge funds, retail brokers, and more. In many instances, we can leverage our relationships with these very customers on the information services front to establish warm introductions and get them excited about the prospect of onboarding to Bullish. Our onboarding team and relationship managers have hit the ground running. We are also advantaged due to our global order book, a single global order book. Any U.S. client that onboards to our exchange will have access to our already existing global liquidity from day one, meaning there is no zero-to-one or cold start problem, and meaning that U.S. customers will instantly benefit from our best-in-class liquidity in crypto's largest asset. It is worth noting that our targeted customer base is institutional. Institutional clients do take some time to fully onboard to the exchange and begin trading. We are optimistic about the opportunity in the United States, and we believe it could fast become our largest trading market. That said, we wish to guide conservatively to volume expectations, particularly in immediately ongoing quarters, since it will take some time for clients to fully hook to our platform technologically and initiate trading at scale. Our receipt of the NYDFS BitLicense is an important milestone and positions us well. We're glad we have the opportunity to share this news with you folks today and look forward to addressing any questions about the license and our plans during Q&A. While there are several other highlights that I could address, including our recently launched investor trading competition, our IPO, or the impacts of accepting funds in stablecoins, or any of the exciting new CoinDesk 5 and CoinDesk 20 developments, I recognize that our prepared remarks are already pretty lengthy this time around, and I want to ensure we save time for Q&A. I'll stop here. I'll give Dave a chance to introduce himself, discuss our business model, review the quarterly results, and provide an outlook for the business. David Bonanno: Thanks, Tom, and good afternoon, everyone. Today, I'd like to walk you through our business model, the second quarter results, and provide some context on our operating performance. Financially, we are building Bullish around five core financial pillars that serve as our foundation for continued growth and drive our capital allocation framework. These pillars are organic revenue growth, diverse and complementary revenue streams, operating leverage, maintaining a well-capitalized, highly liquid, and uniquely flexible balance sheet, and finally, creating value through M&A for shareholders. The height of these financial pillars translates into our business model. As shown on page 10 of today's investor presentation, Bullish has a broad set of diversified and complementary revenue streams. While these various business lines each have their own revenue models, they all make money in familiar ways as described on the page. In particular, I'd like to call out our SS&O revenue, which includes liquidity services and all the CoinDesk brand of products inside of information services. Our SS&O revenue has grown to 45% of total adjusted revenue in the first half of 2025, up 28% from the full year 2024. This growth has been driven by significant new logo wins and cross-selling into our existing base of partners. On page 11, we feature several of Bullish's recent business highlights across the business. Tom already touched on most of these, but I'd like to drill down a bit more into how our cross-sell efforts are generating multi-product adoption across the Bullish and digital asset ecosystem. To do that, I'd like to highlight one extremely new exciting partner, Igloo Inc. As featured on pages 12 and 13 of our investor presentation, Igloo Inc. is the owner of the well-known Pudgy Penguins intellectual property and issuer of the PENGU Token. Igloo and Pudgy Penguins chose Bullish for multiple mission-critical subscription-based services during the third quarter that highlight the multiple ways that Bullish powers our partners' growth ambitions. Pudgy Penguins is a global Web3 IP-focused company onboarding new users to crypto through their globally recognized Pudgy Penguin character. Originally an NFT collection, Pudgy Penguins' IP and trademarks were acquired by serial entrepreneur Luca Netz in 2022. They have since become one of the world's most recognizable characters, with over 220 billion social media and gift views, more than 2 million toys sold across more than 10,000 global retailers, including Walmart and Target, and one of the most popular racing mobile video games in the Apple App Store, Pudgy Party. Today, the Pudgy Penguins NFT collections and PENGU Token have a combined market capitalization of approximately $3.5 billion. The toys include scannable QR codes to download a digital wallet with an NFT that can be used in their online properties and video games. Additionally, Pudgy Party is powered by an in-game blockchain-based marketplace for redeeming rewards and trading in-game assets. Igloo chose to partner with Bullish across several multi-year subscription-based products, including our liquidity services, CoinDesk Data, and multiple insights products, including our research and CoinDesk Edge. We are particularly excited about this partnership. We are bullish on the future of this promising team, and there's a clear line of sight to expanding the partnership by leveraging more of our CoinDesk Insights platform and Pudgy Penguins' strong ties to the Solana network and community. We look forward to sharing more developments with you here in the future. Turning to our adjusted second quarter results on page 14, you can see we closed the quarter roughly in the middle of all the previously provided ranges. Reconciliations of our non-IFRS metrics can be found in the back of today's presentation, as well as our 6-K filed earlier today with the SEC. Digging in a bit more into our adjusted operating results, as shown on page 16, the second quarter was shaped by historically low BTC price volatility, which led to lower market-wide digital asset trading volumes. Against these headwinds, we delivered record quarterly subscription service and other revenue, which helped to partially offset the lower trading activity, leading to total adjusted revenue for the second quarter of $57 million, down 8.7% sequentially and 6.1% year-over-year. Adjusted operating expenses for the quarter were $48.9 million. As seen on page 17, employee compensation expenses were $25.7 million, down 13% sequentially and 3% year-over-year, and we expect quarterly employee compensation expense to remain broadly at this level going forward. Additionally, I'd also highlight Q2 advertising and promotional costs of $7.4 million. This largely consists of consensus events variable expenses driven by our North American consensus events in Toronto. Adjusted EBITDA was $8.1 million, down 39% sequentially and 45% year-over-year as Q2's lower adjusted transaction revenue flowed through to the bottom line. Now, I'd like to turn to our Q3 guidance for adjusted operating results. We expect total adjusted revenue to be in the range of $69 million-$76 million, with adjusted transaction revenue between $25.5 million and $28 million, and subscription service and other revenue between $43.5 million and $48 million. We anticipate Q2 adjusted EBITDA between $25 million and $28 million, and adjusted net income between $12 million and $17 million. Going forward, we intend to provide guidance on a quarterly basis for adjusted operating expenses and SS&O revenue. Our monthly reporting for spot perpetual volumes and spreads should allow investors to see our performance at the exchange level on a regular basis. Thank you for joining us today. We look forward to the questions, and with that, I'll turn it back to Tom. Tom Farley: Thanks, Dave. We're thrilled to be able to share some of our accomplishments, our latest plans with you all. Q2 was a strong quarter, and the groundwork we've laid in Q2 should position us well for Q3, Q4, and beyond. With that, I'll pass it back to the operator to help facilitate Q&A. Operator: As a reminder, if you'd like to ask a question, please press star, followed by the number one on your telephone keypad. Your first question comes from the line of Ken Worthington with JPMorgan. Please go ahead. Ken Worthington: Hi, good afternoon. Thanks for taking the question. Congrats on the IPO, congrats on the BitLicense, congrats on the strong liquidity and subscription services numbers. My question goes to that liquidity and subscription services line item. You're guiding to sort of mid to high $40 million range for 3Q. If we look at 2Q, how many tokens were part of liquidity services at the beginning of the quarter, and how did it end the quarter? As we think about 3Q, where does that number grow to? Tom Farley: Hey, Ken. Thanks, and good to speak to you again. Yeah, that business kind of jumps out at me as well because it is really growing nicely. If I can just expand a bit and explain for the broader audience kind of what it is. What this business is, if you're a stablecoin issuer or a non-stablecoin token issuer, and Dave gave a couple of examples of non-stablecoin token issuers, you really need to have your product listed. Not just on Bullish, you need to have it listed in a number of different places to ensure that there's appropriate liquidity. You need to make sure that there is appropriate liquidity. If you just list your product somewhere and there's no bids or offers, it's a tree falling in the woods. You need to be able to have some level of visibility for your product. Advertising, or you need to be on stage at an industry conference, or you need to have research written on your token. When you look around and you say, geez, who can give me all of those? We like to think it's really just us. If you look around and you say, who can give me all those and who can do it with an institutional-grade wrapper that's credible and compliant, it's certainly only us. I suspect that's what's really driving it. To give you a little bit of a directional answer without necessarily giving you the specifics about, hey, we had this many in this quarter and that many in the following quarter, because we've not disclosed that level of detail, I will say it has accelerated rapidly throughout this entire year. I think a lot of it is just the groundswell of regulatory clarity all around the world. Everybody knows the rules of the road, so they're willing to kind of push the chips in the middle of the table, and they're willing to make these kind of long-term commitments to someone like us to pay us, in many cases, maybe even most cases, seven figures a year for this sort of subscription. Regulatory clarity is really helping us, and the growth has accelerated Q1 over Q4, Q2 over Q1, Q3 over Q2. I'll hand it over to Dave. David Bonanno: Yeah, Ken, I would just note that in the third quarter guidance we provided, it's important to note that that is the beginning of the Solana contract. That is a large collaboration for us. There's a lot to do for us there. Additionally, the additional proceeds from the IPO do carry some return on them, so that's going to influence the third quarter guide as well as those assets came on the balance sheet around mid-quarter. I just echo what Tom said. It's been a rapidly compounding line item for us. It's the bedrock and the balance head for the cross-sell efforts, and it's the growth of just the individual logos being amplified by the additional products and services that we're able to sell into our new partners and existing partners. Ken, you may remember from our first conversations, we were certainly excited about this business, but not overly so, because we ourselves wanted to make sure there's product-market fit, and we wanted to make sure that the customers were getting even more value out of it than we were receiving in the subscription fees. That's exactly what's happening. We're hearing from customers that it's driving liquidity, it's driving credibility, it's helping them with their projects, and that word of mouth has really accrued to our benefit. Ken Worthington: Thank you. Maybe thinking more about the outlook for that line, I suspect that the passage of the GENIUS Act sort of pulls forward a bunch of the stablecoins to kind of subscribe to your services. What does the pipeline look like going forward for that? Have you basically locked up all of the major new stablecoins, and is the growth that you're seeing maybe beyond 3Q and 4Q of this year comprised of, you think, more stablecoins, or is the growth as we look forward really expanding into non-stablecoin tokens? You know. Tom Farley: I appreciate that question, and perhaps oversharing, we actually had a version of our script, Ken, that we were working on that said we have, as customers, substantially all of the challenger stablecoins. I tweaked it because we're seeing new stablecoin entrants appear literally every single day. At one point, really around the time of the IPO, we looked out and we said, okay, let's look at our stablecoin partners, you know, PayPal, and I assume I can say these names, AgoraX, which is VanEck, and Ripple, and really great USDG, World, and so on and so forth. We kind of had this really great group. It begs the question, is this just a one-time burst of stablecoin issuers on the back of the GENIUS bill? Will it continue to grow? Will it consolidate? Will it not? I think that's an interesting industry question. Dave and I, as you've heard us say, have always believed it will continue to grow, and this is a thousand flowers blooming, and this will be a highly competitive industry. In the last week, I'll just give you two anecdotes. I got a call on Monday from an old friend from my NIBOT days, who you would know, Ken, saying, I'm launching a new stablecoin. I want to talk to you about it. I want to work together. I got an email immediately before this earnings call saying, I'm launching a stablecoin, and I want to work with you, from also an old friend, one of my closest friends in the world. The answer is the current pipeline is heavier on non-stablecoin token issuers. In other words, if we look at the current pipeline, and if I just say, hey, give me the 50, most likely more than 25 are non-stablecoin token issuers, but the stablecoin issuers just keep popping up, and the product-market fit that we offer is highly, highly compelling, which is why we had literally essentially all of the challenger stablecoins at one point in time. Did that answer your question, Ken? I know it was a little bit long-winded. Ken Worthington: Thank you very much. You answered it well. Tom Farley: Yeah, Ken, yes, Ken Worthington: congratulations. Operator: As a reminder, ladies and gentlemen, we ask that participants limit themselves to one question. Your next question comes from the line of Peter Christiansen with Citi. Please go ahead. Peter Christiansen: Thank you. Good evening. Thanks for the question. Certainly, congrats, Tom and team. It's been quite a month or two here, and certainly great to see the BitLicense being awarded. That's fantastic news. I was wondering, Tom, maybe is there like an analog that we should think of in the back of our head? Obviously, who knows what's going to happen over the next year and a half as the U.S. institutional sector hopefully starts opening up. An analog in terms of sales cycle to sign up an institutional sized account, time to implement on the back end, that kind of thing. As you think about time as cross-sales start coming after volume starts building up, I don't know if you've seen a steady schedule among some of your existing client engagements that might be helpful to us. I am going to throw in one last one here. I did notice the $10 million trader challenge promotion, which seems... How should we think about this, I guess, in marketing and selling expense going forward? Just thoughts on that. Thank you. Tom Farley: That's great. Thanks, Pete. Yeah, I'm going to let Dave address the trader challenge. Just in terms of the sales cycle, I think Pete's question is specifically about our U.S. launch. Again, for the avoidance of doubt, we've never brought on a U.S. customer. All of our customers are non-U.S. The BitLicense unlocks the U.S. as a market. Effective today, we now can enter the—actually, I think it's effective Monday. We can enter the United. Pete, unfortunately, if you look at our pipeline right now, it's filled with companies that have, you know, the word bank in their name or financial or investments. It's a more mature kind of white shoe set. The truth of the matter is it takes a while to hook them up. That's why I added that to my prepared remarks. A while can range from, you know, two months, and that's if somebody has a legal team that acts with the alacrity and let's say they're using someone to help connect them to trading in crypto, to quite literally six months if they're going to do all the connectivity to the APIs themselves, they're going to heavily negotiate the legal doc. The good news on our end, Pete, is we have been able to, because we have regulatory approvals throughout the U.S., just not in New York until yesterday, we have advanced discussions and an advanced pipeline. I think it's going to take a little while to see the first couple of customers come on board. If we don't start to see it in the next month or two, I can tell you I'm going to have some hard conversations internally because we have invested in a team that's been out building the funnel. I hope that gives you a little bit of color, but that kind of gives you a sense of what to expect. Peter Christiansen: Thanks, Pete. I think your second question, you broke up a little bit there, was related to the trading competition we announced. The prize is an up to $10 million seed investment in their fund. We're not just giving away the money. It's promotional rewards. We really like this type of activity. It's our first time engaging in it. What we've seen in terms of new customer onboard interest in participating in the program, our ability to push our data and its availability into new user bases who can then come trade on exchange, and maybe they get a fund one day and they can benchmark to our CoinDesk Indices products. The general idea behind it was exposing a different customer segment to our cross-sell potential, and we're really excited about it. Tom Farley: The $10 million is not a payment. I mean, it's an investment. We're excited about it. Next question, please. Operator: Your next question comes from the line of Dan Fannon with Jefferies. Please go ahead. Dan Fannon: Thanks. Good evening. Congrats. Wanted to talk about customer concentration. You guys mentioned how you've been adjusting some of the pricing for your various customer bases. Curious how that's evolved. Maybe talk about 3Q and how that's progressed. Ultimately, do you think you're done here, or is there some more tweaking when we think about pricing going forward that you still likely need to make? Tom Farley: Oh, man, the tweaking never ends, Dan. I wish it did. I mean that as a career-long commentary. I remember when we introduced electronic trading to the New York Board of Trade in February 2008, and you know, GetGo and Hudson River Trading were 50% of our volumes. It's a very common thing in markets where you'll see a certain number of customers that amass a significant amount of the volume. It's okay. It's something that we fiddle with currently. Dave and the team have actually done a great job of bringing that down to a reasonable level over the last several quarters. David Bonanno: Yeah, and Dan and I just commented the pricing changes we've made, which you can see the impact of that in the monthly operating results we provide. We're pleased with the outcome. If we continue to have some customers who are heavier in terms of concentration, we are okay with that in the relative new pricing framework. Having had a flat pricing fee, which created significant customer concentration, was not going to be a winning solution for us long term. We're happy with the pricing changes, the way it's diversified the customer base, and the way it's spread out the fees across activity levels, customer type. While we may continue to have a couple customers who are heavy at the top of the book in terms of volume, we're comfortable with that in the current pricing framework than we were previously. Operator: Your next question comes from the line of Brett Knoblauch with Cantor Fitzgerald. Please go ahead. Brett Knoblauch: All right. Thanks, guys. Congrats on the IPO. Tom, it seems like you're itching a bit to talk about CoinDesk 5, CoinDesk 20. It's nice to see the quarterly increase in kind of AUM tracking your indices and benchmarks. How should we think about the progression of maybe the asset linked fees going forward? Is there any catalyst on the horizon like a CoinDesk 5 ETF that could really accelerate some of those flows? Just more broadly about the indices business would be great. Tom Farley: Yeah, no, you sensed correctly, Brad, and you may know from our past conversations, but I love this business. That $41 billion of assets under management benchmarked to our indices, to be clear, we're getting paid fees on the whole of that $41 billion. The way it works in the multi-token index world, or even the single token index world, is you're talking about a small number of basis points. When you run the math of the $41 billion times, you know, a small number of basis points, it's a nice business, but it's not huge. You're asking the absolute right question, which is what's going to cause this to really grow? What's going to enable us to be the MSCI of crypto, if you will? Essentially, what's happened in crypto, if I can cover a decade of history in 30 seconds, is the first thing people were willing to invest in from an institutional perspective was Bitcoin, and that really compounded with the introduction of the Bitcoin ETF. With the ETH ETFs, people were willing to say, okay, I'll have a little Bitcoin exposure, and then I'll have an even smaller amount of ETH exposure as part of my overall portfolio. Now what we're seeing with Solana ETFs and other tokens, XRP, for example, Cardano, Avalanche, becoming more mainstream, people are looking for broader sets a la the DAO or the S&P 500 or MSCI's Emerging Markets Index or something to be able to invest in a broader swath of the market while maintaining Bitcoin as their primary way to invest. We have the CoinDesk 5, which is quite literally five tokens, and the 20, which is 20, covers a broader market to really be a catcher's net for both of those, for that trend that people move out the curve, first to the CoinDesk 5, then to the CoinDesk 20. They're going great. This Grayscale private trust vehicle, which, you know, touch wood, can we hope will be approved by the SEC to convert to an ETF, will be the largest multi-token ETF, I think, in the world on day one at a minimum, quite possibly. CoinDesk 20, we have a WisdomTree ETP in Europe that is gathering modest amounts of assets, inflows on a regular basis. That too is exciting. We have signed but not announced the particulars with a major global futures exchange as well as a major global major U.S. equities exchange to launch products on the CoinDesk 5 and CoinDesk 20 on those respective exchanges. We have a signed but not fully announced ETF arrangement in the U.S. for those products as well. It's going to take some time, Brett, because the market needs to get more comfortable investing in more products than just Bitcoin. It's happening in real time, and we're there for it. Operator: Your next question comes from the line of Brian Bedell with Deutsche Bank. Please go ahead. Brian Bedell: Great, thanks. Thanks for taking my question and congrats on everything as well. Just a bit back to liquidity services and particularly the stablecoin side. I'm just trying to get a sense of the, given the onboarding of these contracts, sort of that growth trajectory potential beyond 3Q. Maybe just to clarify, it sounds like the guide of the $45+ million for that for SS&O, I guess $40+ million of that is liquidity services, indices, and data. Applying a doubling roughly of, I guess, the second quarter run rate, how much of that additional growth is directly related to liquidity services from stablecoin? I guess, back to the first part of the question, which is, given the really strong market potential here with adding more challenger stablecoins, how should we think about that revenue growth potential? David Bonanno: Yeah, sure. Thanks, Brian. The growth is all the segments within subscription services and other revenue. All the business lines in there are growing, as Tom mentioned before. All of them are growing organically. They feed off of each other. The primary driver of the revenue growth that we discussed for Q3 is largely on the back of liquidity services. In terms of the revenue complexion, we spoke a little bit earlier about the pipeline and the outlook for the mix between stables and non-stables, but currently the revenue complexion is definitely weighted towards the stables. I include our work with the Solana Network in that bucket as well, because, as you know, it's a stablecoin-based collaboration. Although they don't issue a stablecoin, it's with our partners that we work with the Solana Network to move those over and generate other activity and acceptance on the Bullish Exchange. It is predominantly driven by the liquidity services, again, that is the bedrock for selling other recurring revenue streams into the customer base. Brian Bedell: Just that sort of growth trajectory, I guess, as we, not to give guidance in 4Q, but it sounds like it would be, the way you're layering in these deals, we would have even more uplift in 4Q potentially in that area. David Bonanno: We continue to see strength. We do expect to see growth in the fourth quarter of that line, just based on the booking trajectory and where we are in the third quarter. The growth in the line has been pretty substantial this year in terms of sequential growth. The Q3 guide, I wouldn't interpret that as this pace of growth well into the future. We look forward to kind of giving you the guide on Q4 subscription services and other on our next call, but we do continue to see growth in all of the product areas. Operator: Your next question comes from the line of Chris Brendler with Rosenblatt Securities. Please go ahead. Chris Brendler: Hi, thanks for the afternoon. It's a conversation for me as well. I'd like to discuss the monthly metrics and kind of the uptick we've seen in the spread over the last couple of months, especially in August. If you just give us a little color, we've talked about some of the pricing changes you're implementing, just the sustainability of that and how it looks into your guidance and into the fourth quarter would be great. Thanks. Tom Farley: Yeah, let me just editorialize for one moment, and then Dave can give you the real answer. The one thing I wanted to highlight is, because in crypto, a lot of people focus on spread in part because amongst the retail group, so electronic brokers serving the retail crowd or exchanges serving the retail crowd, they oftentimes will have 50 basis points, 100 basis points, 150 basis points, 200 basis points, 250 basis points, 300 basis points spread. We've all seen that movie of what ultimately happens to those kind of spreads, whether you look at what happened in FX or equities or what have you. We're in a different world. We don't compete on price. The institutional group, you got to get to a fair value price, and then you're competing on determinism, you're competing on what other services you provide, or what margin capabilities do you have, what licenses do you have, how reassuring is your custody solution, all those sorts of things. As we're moving our spreads around, what we're really doing is optimizing for revenue. We run experiments a lot. That is something that is going to continue. What we have found is a nice sweet spot where we kind of had overcorrected pushing for revenue, and really what we got out of it was volume and less revenue. Dave and the team, led by Chris Tyrer, President of our exchange business, have done a really nice job of finding a sweet spot over the last several months that we feel comfortable with. David Bonanno: Yeah, I think you'll see in the Q3 guide, the September implied spread, if you kind of run out the math and you can see the volume, is about consistent with where we were in August, but a little bit lower just based on lower volatility. I would say that while our spreads have gone up and volatility just didn't matter versus where we were previously, we still have some sensitivity to volatility. We'll just spend a bit lower here in September than it was in August. We do think that from a spread perspective, you'll get a good feel of where we should be, particularly when we get out the September results. Tom Farley: I just want to add one item. I said earlier when Brett asked the question, and thanks for asking it, Brett, about our index business. I told you I was excited, among other things, about a Grayscale product on our CoinDesk 5 Index. That has just been, during this call, approved by the SEC. That product, which, I don't know, it approaches $1 billion of assets under management, which, by the way, is huge for a crypto multi-token product, will become an ETF here in the U.S. and will likely be the largest ETF in the world on day one. Very exciting news and really good for that CoinDesk 5 franchise. Brett, to answer your question, how do we grow the thing? We just chop some wood. We'll take the next question. Operator: Your next question comes from the line of Rayna Kumar with Oppenheimer. Please go ahead. Operator: Hi, this is Guru on for Rayna. A lot of her questions have already been answered, but if you could just maybe touch on how we should expect the spread going forward. I know this is directly following the previous question, but if you could maybe just give us a trajectory of what we can expect going forward. Thanks. David Bonanno: Yeah, sure, and thank you for the question. As I was saying on the previous question, we expect spreads going forward to be roughly in line with the August numbers. They remain somewhat sensitive to volatility. September volatility has been lower than August when we put out the results and we finished the month of August. We're only about halfway through here. We think you'll see, depending on the full month volatility, consistency if the volatility is the same with August, slightly lower if volatility is lower, and obviously higher if volatility is higher. The reason we're doing the monthly disclosure on the transaction revenue spreads is to provide this type of clarity for you guys to see it in as real time as possible. We do optimize for total adjusted transaction revenue, as Tom mentioned before. We're also launching new products like options, which hopefully will be coming during the fourth quarter. That may induce us to adjust spreads in other assets in order to maximize total adjusted transaction revenue. Given all the moving parts in there, the dynamics around volatility, we believe the best way we can help you guys begin to tighten up your models is to do the monthly disclosure that we've been providing and then talk you through the trends as we go here. As of right now, we generally tend to view August as a good benchmark type month for the spot spreads going forward. Operator: Your next question comes from the line of Bill Papanastasiou with KBW. Please go ahead. Bill Papanastasiou: Good evening, gentlemen. Congrats on the inaugural earnings call and strong sequential SS&O revenue print. With respect to the BitLicense, obviously the grant of it helps to firm up timelines of penetrating the U.S. market. I was curious whether we should be thinking about any other additional read-throughs. In particular, I saw that the license allows for custody services in addition to trading. Is that an area that perhaps Bullish might be thinking of getting into down the road? Tom Farley: Yeah, sure, Bill. Good question. We actually are in custody, the provision of custody. We've taken a thousand flowers bloom approach where we enable our customers to custody with third-party qualified custodians, or in some cases, self-custody using software, or custody with us and our own bespoke custody solution. To answer your question, yes, but only in the sense that we're already in custody. We're not announcing any sort of mega changes to the business model with this BitLicense approval. We do have a few things in the works that we're not really ready to drop breadcrumbs around, but no extensive business model changes with respect to custody. Operator: Our last question comes from the line of Joseph Valve with Canaccord Genuity. Please go ahead. Joseph Vafi: Hey guys, good afternoon, and of course my congrats here as well. Maybe we just kind of double-click a bit on progress on the options platform. I know, Dave, you just mentioned it a little bit. Looks like maybe Q4 full rollout. Any other anecdotes there? Plus, you know, is it too early to really start thinking about what, you know, contribution may be there, might be, you know, from a full rollout in trading volume? Thanks a lot. Tom Farley: Great question. It's a meaty last question. We'd love to talk about it. First of all, let me start on a conservative note. It's a startup. It's a startup, so no promises. It's hard to build derivatives volume, no matter what market you're in. You should hear it from us that you should view this conservatively. Nonetheless, we're really excited about it. We're already live. Like live live, not fake live. People are in there trading real dollars in a regulatorily approved environment. It's working. Some of the biggest options traders on Earth are in there every day. We're limited to a certain number of customers. We want to get it right. We're limiting those customers to a certain size of their position. Looks good, and that's often the tough part, just getting off the ground with a system that works and an initial batch of customers. With respect to options, options have been this kind of tiny market in crypto, like teeny tiny, a couple of percent volumes relative to the overall spot volume. We made this bet, and we made it, I remember talking to Dave and Chris Tyrer about this a year ago, where we said it's got to grow up. It's got to grow. Every market you look at, the options market is minimum 25%. Look at U.S. equities, 25% or greater. Look at interest rate options, really, really easy market to get data on. More than 25% options as compared to the linear products. We just said this thing's going to grow, and there needs to be competition, and there needs to be institutionally focused competition, low cost, that has things like portfolio margining with the underlying futures, the underlying hedge. Let's go ahead and let's do it. We're being rewarded. In August, we saw options volumes in crypto tick up. In fact, they nearly doubled, or maybe even more than doubled, as a percentage of the overall spot volume. We're seeing the underlying options market grow. We're seeing customers come in and work with us on our beta launch here. We're going to share a lot more information with you on the calls ahead. Like I said, I put in my prepared remarks, I've been involved in a lot of launches, some real good ones, some losers, and you get a sense of what makes a successful launch. This one has all the hallmarks of something that could work out nicely for us. Operator: Ladies and gentlemen, there are no other questions at this time. I'll turn the call back over to management for closing remarks. Tom Farley: Sure. Thank you. Also, I want to thank our team, Liam and Michael, who got us prepared. We definitely had the jitters a little bit. It's our first earnings call. Randy, if you're out there, you polled us, whatever you do, you better not blow it on your first earnings call. I hope we at least get a passing grade. We appreciate all of you staying for what those of you on the East Coast, it's something like dinner time. You know, our commitment to you is we're going to do our best to be in touch with you, not just during the earnings calls, but in the interim, and be transparent with you about the success or lack thereof of this business. We really appreciate you following along. Just rest assured, we're working our butts off for certainly for our customers, but also for our shareholders. Thank you all very much, and good night. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good morning all, and thank you for joining us on today's PZ Cussons full year results. My name is Drew, and I'll be the operator on the call today. [Operator Instructions] With that, it's my pleasure to hand over to Jonathan Myers to begin. Please go ahead when you're ready. Jonathan Myers: Thank you very much, Drew, and good morning, everyone, and thank you for dialing into our results presentation for the year ended 31st of May 2025. For those of you that can see the slides we're presenting this morning, it's worth calling out a successful example of our brand-building activities in the last year on the slide in front of you. Original Source advertising on a London bus as part of our Nature Hits Different campaign. I'll have some more detail on this later, but suffice to say for now that the activity helped deliver another year of growth for the brand in FY '25. Turning to the agenda then for this morning. I will start with a brief introduction before handing over to Sarah to take us through a review of the financials. I'll then provide a broader update on strategic progress and performance before moving to a summary and a chance for you to ask any questions. Note on this slide too, an example of how we've been building brands over the past year. This one, driving trial of Cussons Baby, specifically the Telon oil launched last year as shoppers browse a specialist baby store in Jakarta. Our Telon oil has now reached 10% household penetration in urban Indonesia and is growing market share. So moving to our main messages for this morning. We are making progress against our strategy. Our 4 priority markets delivered a strong performance. We have good momentum in the core of our business. The U.K. delivered a strong improvement in profitability, fueled by revenue growth and gross margin expansion. Indonesia ended the year with its fifth consecutive quarter of revenue growth with a healthy mix of high single-digit revenue and volume growth for the year. We continue to gain market share in Australia on each of our top 3 brands and grew operating profit overall, but we were still battling against the softer consumer backdrop holding back our revenue. Finally, our Nigerian business demonstrated its resilience, continuing to perform well in a high inflation environment. Meanwhile, we have also made progress pushing change through the business, strengthening our brand building capabilities, driving better integration of our marketing and R&D teams and extending our planning horizons to enable greater focus on sufficiency and quality of our multiyear innovation plans. Since the close of our financial year, we announced the sale of 50% stake in PZ Wilmar to our joint venture partner, Wilmar International, in line with the objectives of the strategic review we announced in April 2024 to streamline and simplify our portfolio. It was also after careful consideration of alternative value creation options that we announced the decision to retain St. Tropez, setting a new strategic direction with a new partner in the U.S. and a dedicated operating model within PZ to delivery. While I appreciate you will naturally have questions on our wider African business, all I'm able to say today is that we are continuing to progress our strategic review and will, of course, provide an update when we do have something to say. Finally, we are working hard on reducing costs and unlocking value in the business, whether that's through reducing discretionary spend, tacking our structural cost base or the sale of surplus nonoperating assets. I'll cover more on this later. So overall, we know there is more work to be done and that we have not yet delivered all that we set out to achieve, but there has been good progress to date, particularly the underlying momentum in the core of the business. And we are focused on delivering our strategic actions and operational improvements to evolve PZ Cussons into a business with a more focused portfolio and stronger brands, delivering sustainable, profitable growth. And with that, I'll hand over to Sarah to take us through the financials. Sarah Pollard: Thanks, Jonathan, and good morning, everyone. I'm going to share a summary of our FY '25 full year results, walk you through the key movements at the group level, then by segment and finish with current trading and guidance for the year ahead. As Jonathan mentioned, we've seen momentum across most of our portfolio, with a particularly strong performance in the U.K. and Indonesia. Group revenue declined by GBP 14 million to GBP 514 million, with a GBP 47 million reduction attributable to the naira, which while more stable in FY '25, was nearly 40% weaker on average versus sterling than in FY '24. Like-for-like revenue growth calculated on a constant currency basis was 8%, driven by pricing in Nigeria. Excluding Africa, like-for-like revenue growth was flat. Adjusted operating profit was GBP 55 million, down 6%, with adjusted operating profit margin lower by 30 basis points at 10.7%. However, as you can see from the bottom of the slide, excluding from each year's figures, the contribution of PZ Wilmar, the sale of which we announced in June, group adjusted operating profit margin would have increased by 30 basis points. On a statutory basis, operating profit was GBP 21 million compared to a loss of GBP 84 million in FY '24, which was primarily attributable to ForEx translation and U.S. dollar-denominated liability losses in our Nigerian subsidiaries following the currency devaluation of June 2023. And we have since significantly reduced our exposure to any future naira shocks as we have made good progress in extinguishing historical liabilities and repatriating surplus cash. We maintained a flat net interest charge in the year. With a higher adjusted effective tax rate more indicative of the higher rate going forward, adjusted FY '25 earnings per share declined ahead of operating profit, down 8.5%. The Board is proposing a final dividend of 2.1p per share, taking the total for the year to 3.6p, the same level as the prior year. Free cash flow was GBP 42 million, up slightly due to an improvement in working capital, partially offset by the reduction in operating profit. Net debt improved slightly to GBP 112 million with a net debt-to-EBITDA ratio of 1.7x. However, taking into account the proceeds from the sale of our Wilmar joint venture, which is expected to complete in the final quarter of calendar 2025, our pro forma ratio would have been 1.1x. Turning now to the financial performance details and firstly, revenue. To aid comparability, the first bar shows the impact of adjusting for FX translation, presenting FY '24 revenues at FY '25 exchange rates. The breakdown of the adverse GBP 55 million impact is, as usual, provided in the appendix. On this like-for-like currency basis, revenue increased 8% in the U.K. and Indonesia. And Jonathan will come on to the brand drivers of that revenue growth later. We again took pricing in Africa with multiple increases throughout the year to offset double-digit inflation in Nigeria. Jonathan will also outline the steps we're taking to turn around St. Tropez brand. Now to operating profit. As I mentioned, our overall adjusted operating profit margin decreased by 30 basis points to 10.7%. We've shown this chart excluding Wilmar, given this represents the more accurate basis for future profitability, lower in absolute sterling terms, but more cash-light and sustainable in nature versus an equity accounted share in a noncore, lower-margin joint venture. On a constant currency basis, group gross profit margin was lower in the year, reflecting the adverse mix impact of strong revenue growth in Nigeria, where gross margins are structurally lower. This was more than offset by a 220 basis point reduction in overheads. Around half of this represents structural cash savings relevant to our go-forward business. Also included within this number is a reduction in amortization to reflect the business decision to extend the useful economic life of our SAP software now that the manufacturer support period will run for longer, allowing us to extract a higher return from that IT asset. Marketing investment was broadly unchanged as a percentage of revenue, while the impact of ForEx translation had an overall adverse 70 basis point impact on margins. So let me now provide some more detail on the performance in each of our regional reporting segments. Looking first in Europe and Americas, where we saw growth in both like-for-like revenue and operating profit. Revenue grew 0.6%, driven by price/mix growth and with a very small overall volume decline. Growth in our main U.K. brands was offset by a challenging St. Tropez performance, without which Europe and Americas revenue growth would have been 2.4%. Adjusted operating profit was up GBP 4 million, with a margin increase of 230 basis points, driven by tight cost control and the full year impact of the integration of the U.K. Personal Care and Beauty businesses as well as ongoing revenue growth management and product margin improvement initiatives. This more than offset the GBP 3 million impact from the introduction in the U.K. of extended producer responsibility plans and new costs, which we will seek to mitigate over time through, among other things, a review of our entire packaging portfolio. Turning now to Asia Pac, where like-for-like revenue was flat. Continued momentum in Indonesia was offset by a decline in ANZ. All our core Cussons Baby segments drove volume-led growth in Indonesia, and ANZ saw market share gains in all 3 major brands despite the softer macro environment there. Both markets improved their profitability with higher gross margins and lower overheads. This, though, was offset by a reduction in profitability in some small Asian markets and lower profits in our business manufacturing non-branded [indiscernible]. Overall, adjusted operating profit reduced by GBP 3 million with a margin decline of 150 basis points. Revenue in Africa declined by 7% due to the depreciation of the naira. The 35% like-for-like revenue growth reflects 20 rounds of price increases as inflation in Nigeria remained elevated at over 30% for much of the year. Whilst volumes declined 12% as a result of those price increases, this was mitigated somewhat by further route-to-market improvements that Jonathan will describe later. We've seen our Nigerian business return to volume as well as price-led revenue growth so far this FY '26 financial year. Electricals revenue was GBP 47 million, up over 30% on a like-for-like basis. Adjusted Africa operating profit margin improved by 250 basis points or excluding PZ Wilmar, it improved by 450 basis points. The operating profit numbers shown here are excluding a GBP 9 million benefit that the Africa region reported in FY '24 related to intragroup debt forgiveness, the cost of which was shown in last year's central cost line and which had a net 0 impact to overall group operating profit. And I noted to explain that the Africa segmental results presented here are both comparable year-on-year and representative of underlying operations. So finally then, our central cost line, which equated to GBP 30.5 million in FY '25 and which was, on a reported basis, down slightly versus FY '24. However, we have also made the corresponding Nigerian debt forgiveness adjustment here to ensure comparability. And as such, central costs increased GBP 6.8 million in FY '25. This was split between underlying cost increases and investments in group-wide capabilities attributable to the performance of business units, but best housed at the corporate center for maximum return and so reported them. For example, the shifting of some marketing and some R&D roles to sit central. As we'll come on to, we see this number falling considerably over the next 12 months given the cost savings we're announcing today. So moving now to cash flow and net debt. Total free cash flow was GBP 42.3 million compared to GBP 41.6 million in the prior year, reflecting an improvement in working capital, offset by lower profits. Net debt was GBP 112 million compared to GBP 115.3 million last year, representing a net debt-to-EBITDA ratio of 1.7x, which, as mentioned earlier, will then see a significant reduction following the completion of the Wilmar sale. The group also continues to have no surplus cash held in Nigeria following our successful repatriation efforts. As we said in the statement this morning, trading year-to-date has been in line with our expectations. Group like-for-like revenue to the end of September is expected to be up around 10%. Strong revenue growth in Asia Pac is made up of Indonesia posting its sixth consecutive quarter of growth, plus ANZ also being up. Africa is showing encouraging volume momentum. Europe and Americas is down 2% or up 2%, excluding St. Tropez. We expect Europe and Americas to continue to strengthen across October and November, which would see us back to overall revenue growth there in half 1. In terms of profit guidance, we expect group adjusted operating profit to be between GBP 48 million and GBP 53 million. And this figure strips out any contribution from Wilmar, which is now treated as an asset held for sale in accounting terms. And so its profit contribution in FY '26 will be reported as part of the disposal calculations. Captured within the guidance are cost savings of between GBP 5 million and GBP 10 million, some of which will be reinvested in the business, subject to clear return criteria. Finally, net debt will fall significantly in FY '26 to less than 1x EBITDA. We expect cash proceeds of between GBP 15 million and GBP 20 million from the ongoing program to sell surplus nonoperating assets, of which we have received GBP 8 million so far this current financial year. We're expecting to receive proceeds of approximately GBP 47 million before the end of the calendar year from the sale of our Wilmar joint venture. Jonathan will talk a little more about the cost savings and noncore asset sale proceeds in a little detail. And so with that, I'll now hand back to him. Jonathan Myers: Thanks, Sarah. So let me give a broader update on progress and performance framed around the highlights and messages I covered at the beginning of the presentation. And let's start with the U.K. and what was behind the strong operating profit that I mentioned earlier. Beyond the cost savings Sarah talked about, a key driver of the revenue performance has been better commercial and brand building activities. Taking Original Source as an example, we delivered a bold marketing campaign from February through to May, firmly targeting younger consumers with an optimized mix of social media, out-of-home and TV, leveraging our partnership with social media influencer and personality, Jamie Laing. This is a good example of how we are enabling more competitive brand activation with the GBP 2 million media campaign reaching more than 15 million people. Pickup in brand awareness meant Original Source not only achieved its highest household penetration in almost 5 years, but thanks to considered price and promotional optimization as well, the brand also grew gross margin. Based on the success of the first wave of Nature Hits Different campaign, look out for the next wave of activity on Original Source over the next couple of months, a good example of us prioritizing brand support against activities with proven return on investment. Another way of driving revenue on our brands is to work in partnership with the owners of other brands to engage common target consumers and drive in-store activation. Six months ago, we highlighted the success of Carex and its Gruffalo partnership, which we have since expanded to Zog and Room on the Broom. Notably, Carex grew revenue and gross margin in FY '25, consolidating its #1 position in the hand wash market. We've also extended this type of brand partnership to Childs Farm to include a tie-up with Bluey and BBC Studios. Now if you don't have young kids or don't know Bluey, it's one of the most popular TV shows in the world for children and is enabling us to secure disproportionate levels of support across retail outlets. Just take a look at this tie-up with Bluey and Kellogg's at Sainsbury's as evidence. So we've seen encouraging FY '25 performance in the U.K., and we look forward to more to come, not least our plans for Christmas gifting, which is starting to hit the shelves this very month. Turning to Indonesia and Cussons Baby. You may remember the Childs Farm SlumberTime product range launch, addressing the importance of reassuring parents that their washing and baby products are giving their babies the best possible chance of a good night sleep for the wellbeing of both the baby and their parents. The CuddleCalm range takes the consumer insights and product formulation learnings from Childs Farm and applies them to Cussons Baby, albeit in a very different context. It's a good example of us leveraging shared baby insights across geographies and brands as we have sought to create a more integrated marketing and R&D organization. Elsewhere in our Indonesian business, we continue to see phenomenal growth in e-commerce, whether that's through established platforms such as Shopee or the ongoing success of our own live streaming capability. Turning to our business in Australia and New Zealand, where we continue to see softness in category values through the year, though reassuringly, we've seen the first signs of amelioration in the latest quarter. Against that backdrop, we continue to make market share gains on our top 3 brands, thanks to renewed efforts to drive better in-store presence, competitive pricing and promotion and broader distribution across retail channels. The Morning Fresh photo on the right-hand side is an example of those efforts. We are already the clear market leader in washing up liquid, and we are leveraging this strong position and our brand equity for winning performance and great value to help grow market share in the auto dish category. We've been using net hangers on bottles of Morning Fresh liquid to drive awareness and then offering hundreds of thousands of samples of auto dish tablets to drive trial. While auto dish is a highly competitive category, our position of strength in the washing up liquid market gives us a clear competitive advantage to leverage as we seek to build trial, distribution and market share. Turning to Nigeria. Perhaps the best example of brand activation was the recent relaunch of Carex. Carex has been available in Nigeria for some time, but has always been subscale as the product positioning has largely been taken from the U.K. Thanks to good work with Nigerian consumers, our campaign Win the War Against Germs means the brand now looks and feels new and relevant with clear antibacterial positioning, distinct brand assets, bold disruptive messaging and benefiting from professional endorsement. Just like the Original Source example I gave earlier, the execution was a multifaceted campaign: Digital, TV, out-of-home advertising and a series of in-person launch events. In fact, we estimate the campaign reached 125 million people. It's early days, but signs so far are promising. Carex will absolutely be one of the drivers of Nigeria's performance in FY '26. Beyond the excellent work on Carex, we have continued to strengthen our go-to-market presence. A key part of this, as we've mentioned before, has been the number of stores served directly by us as opposed to via wholesalers. Simply put, covering the stores directly leads to better retailer relationships and in-store presence as we can directly influence which products turn up in which types of outfit. From covering just under 70,000 stores directly 3 years ago, we exceeded our target of reaching 200,000 in FY '25, and we're now striving for even more stores in direct coverage in FY '26. A driving force in how we are seeking to serve consumers better in our core categories is the strengthened brand building operating model we have adopted over the past year as the next phase in the journey to raise the bar on how effectively and consistently we build stronger brands. Many of you will remember where we started, strong brands with good tactical plans, but more of a trading mindset and limited cohesion across the portfolio. We moved on from that in recent years, creating better alignment across the group and strengthening in-year plans. But we know there's more to do. So we now have put in place a brand-building setup, which balances staying close to consumers in our priority markets, whilst leveraging more effective integration and collaboration across both markets, meaning improved visibility of multiyear innovation and revenue growth plans in our priority market. Ultimately, we are building on our strength of in-year activation to add excellent multiyear innovation. Not only is this good for our consumers, it's also good for our marketing teams. We've seen a 7 percentage point improvement in engagement scores for the marketing function across the group. Ultimately, though, success will be measured in sustained progress on market share, revenue and profitability. Moving to portfolio transformation. In June, we announced the sale of our 50% stake in PZ Wilmar, our Nigerian cooking oils business to Wilmar International, our joint venture partner, for cash consideration of $70 million. This will simplify our portfolio and as Sarah said, significantly strengthen our balance sheet. It sees us exit a noncore category and reduce group reliance on Nigeria as part of our overall efforts to rebalance the portfolio and concentrate on our core categories of hygiene, beauty and baby. The sale also benefits a number of our wider sustainability metrics as PZ Wilmar represents around 10% of our Scope 3 inventory. Turning now to St. Tropez. As we explained back in June, although our intention was to sell the brand, after running a comprehensive process to do so, our firm belief is that the better course of action for our shareholders is to retain it and maximize value in the coming years. There are 3 reasons which give us the confidence. First, it's important to remember that whilst it's had a challenging performance recently, St. Tropez is regarded as an iconic brand. It established the self-tan category and has for many years been the driving force behind the market. It still has great brand equity and awareness with more than 30% share of the [indiscernible] self-tan beauty market in the U.S. and envy positions on the shelves of key U.S. beauty retailers such as Ulta and Sephora. Second, the key tenet of the new direction is the partnership we have formed with the Emerson Group, a leading U.S.-based partner to many brand owners, including some of the world's largest personal care and beauty businesses. They will provide customer management, logistics services and brand activation in the U.S. St. Tropez will be integrated into Emerson's dedicated selling teams to key U.S. retailers with initial meetings having already taken place. Not only does this partnership give us access to a strong go-to-market operator in the U.S. with significant scale and expertise, it also dramatically simplifies our own operating model. We no longer have a need for our own team on the ground nor the expense of a dedicated office in Manhattan. Next, for the U.S., our St. Tropez model is better, simpler and more cost effective. Finally, we have also appointed a new executive with significant experience of the beauty category, not least from many years spent at L'Oréal to lead the St. Tropez business with a single-minded focus on value creation and a dedicated team coming together beneath him. Looking ahead, therefore, we're busy with the innovation plans for the 2026 season and working on celebrating the 30th anniversary of the launch of St. Tropez next year. So lots more to come on St. Tropez. Moving now to the final slide before summing up. As Sarah touched on earlier, we have made progress driving cost efficiencies and identifying opportunities to unlock further pockets of value, all of which will help to fund future growth. To that end, we have announced this morning that we expect to generate GBP 5 million to GBP 10 million of cost savings in FY '26. It's a big number at the top end of the range, but we're hard at work to deliver it. We've already developed a track record and a playbook to do this with a GBP 3 million savings in the U.K. business as Sarah mentioned, removing duplicated structures and operating expense. But more importantly, the organization is increasingly building a mindset of ongoing cost optimization, sometimes through significant structural interventions driven by changes in operating model, but also through the relentless and rigorous pursuit of grinding out the inefficiencies that consumers do not value and should not be expected to pay for. Whether that's saving on the retendering of label production in the U.K., the shifting of surfactant suppliers for our Nigerian business or sourcing a different enzyme for our Radiant laundry brand in Australia. We're also unlocking value from noncore or nonoperating assets, mostly in Asia and Africa. These range from high-end residential property in Ghana and undeveloped land in Indonesia to empty warehouses in Nigeria that are no longer required by the business and pretty much everything in between. The market value of these assets is significant, and we estimate that after fees and taxes, we should generate net cash proceeds of around GBP 30 million from those disposals, the majority of which will complete during this financial year. Common across all the activities shown on this slide is a single-minded pursuit of simplification, whether processes, operations or portfolio and as a result, unlocking value. In summary, while there's a lot going on at PZ and still much more to do to deliver, I want to be really clear that our day-to-day focus is on continuing to drive the underlying business across our priority markets. We're building stronger brands in our core categories, and we're driving more competitive go-to-market execution in our largest markets. The combination of which means we can get more PZ products into the homes and hands of more consumers. So with that, enough of us and a chance for you to let us know what are your questions. Operator: [Operator Instructions] Our first question today comes from Sahill Shan from Singer Capital Markets. Sahill Shan: Forgive me, I'm fairly new to the story, but I've got a couple of questions, if that's okay. Firstly, just on the St. Tropez brand. You've retained it and outlined a new U.S.-focused strategy with Emerson. I suppose my question is what internal KPIs or milestones are you using to evaluate success? And how quickly should investors expect signs of recovery in the brand's P&L contribution? So that's my first question. And the second one is around capital allocation. I think with the Wilmar proceeds and asset disposals, it looks like expected to significantly reduce net debt this year. How are you thinking about capital deployment priorities going forward around reinvestment, M&A or maybe returning capital back to shareholders? Jonathan Myers: So why don't I take the first of those questions relating to St. Tropez and I'll pass over to Sarah on capital allocation. So you're absolutely right. After a very considered process, we took the call to retain the brand because we saw more potential to create future value in doing so than in selling it. We're very clear as we did that, what are the strengths and what are the challenges that we need to address. And the most broken, if I can use that phrase, part of the business was in North America where we had seen double-digit declines. And it's for that reason, we have taken the most dramatic action of any part of the business model in North America effectively to adopt a new route-to-market partner and one who is very, very qualified because they're already operating with the likes of Ulta and Sephora as well as more mainstream retailers in driving both personal care but also high-end beauty care. So that's a sign of confidence for us that we are putting our business in the hands of a proven partner, one who we've known previously, by the way, through work together on Childs Farm. So as we look to the future, ultimately, the most important measure will be value creation. And that is indeed how we have structured our thinking and also our incentivization as we look at the team that will be leading that business. But obviously, what really matters will be driving growth in market share, growth in in-store distribution because ultimately it is a brand that wins in-store and online, but with sufficient social media activation and influencer support. And as that goes through perhaps 1 or 2 seasons, so coming to your question on how long, it's a very seasonal business. The summer is all important or late spring into summer is all important. So we are working hard for summer of '26, but we're also trying to make sure we get ahead of the game for the summer of '27. So I would be expecting to report to you improved momentum as we exit next season, but more importantly, the season after once we have a longer lead time to really address some of the more fundamental opportunities and challenges we see with the brand. But we're very hopeful and confident that we will see that improvement in value creation. Over to you, Sarah? Sarah Pollard: Thanks, Jonathan. Let me touch on the capital allocation point. So you're absolutely right to say we were very clear that the first use of any cash proceeds from the portfolio transformation would be to reduce our level of debt. It takes us for FY '25 to a pro forma leverage ratio of 1.1x and then with further surplus asset disposals and ongoing cash generation in FY '26, south of 1x. And that we see very much within our target range and a level of leverage we feel comfortable with. Then in terms of our broader use of capital, it's first and foremost to drive the organic growth of the business. And of course, as a brand-building organization, that is behind R&D investments, behind marketing campaigns to drive our brands and also CapEx, both to give us more capacity to grow volume, also automation to make sure our product margins remain very competitive. So first and foremost, we see the highest return on our capital being in driving the organic growth of the business. We also are retaining sufficient capital to support a sustainable level of dividend. We don't have a stated policy, but internally, we think a little bit around a targeted cover of 2x and that growing in line with earnings going forward. And then in the surplus capital, I think you can see us putting towards bolt-on M&A if we see opportunities that both sit very neatly within our core markets and our core categories or indeed the opportunity to acquire some additional capabilities, be that digital, and Childs Farm is our last such example in March 2022. And you should think about Childs Farm as being an example of something we might do again when the time is right. And I think we would say all of those things we consider to take precedence over surplus returns because we can do it. We believe we can deliver more return by deploying the capital internally. Sahill Shan: Super. That's really helpful. Just one final one for me. It would be really appreciated. Post these results, it would be good to catch up. Could you get the relevant IR person on your side to reach out to me, and we can take it from there. Operator: Our next question comes from Matthew Webb from Investec. Matthew Webb: I appreciate you've touched on this already, but I wonder if you could just provide a bit more detail on where the GBP 5 million to GBP 10 million of targeted savings are coming from. Jonathan, I think you sort of mentioned that GBP 10 million is quite a big number at the top end, and I would agree with that. So anything that could bring that to life would be very helpful. And then maybe also where your priorities are in terms of reinvesting a portion of those savings? That's the first question. Second question on the EPR. I mean, I infer from the way that you've talked about that, that you've really absorbed that GBP 3 million. I just wondered whether that's correct, whether there were any sort of discussions with your customers about passing that on, at least in part. And then also, I know you mentioned that this had prompted a review of your approach to packaging. And without sort of prejudging that review, I just wonder whether you could give any examples of some of the things you might consider there. And then the third question is just on Indonesia, where obviously, I appreciate your trading has been very strong. So probably the answer is no. But I just wondered whether you'd seen any impact from the recent political unrest in that country. Jonathan Myers: Right. So three good questions, Matthew. Sarah is going to be number one, and I'll come in with the EPR and the Indonesia response for you. Sarah Pollard: So Matthew, let me try and unpack that GBP 5 million to GBP 10 million a little bit. And as Jonathan mentioned, we're establishing a better understanding of where -- if you like, there might be opportunity in our overhead cost base as well as the muscle that we think we very definitely built in terms of optimizing product costs, having in FY '25 integrated our legacy U.K. Personal Care and Beauty businesses. So I think in terms of where we sit today on top of that historical overhead work is recognizing that we inherited a business that needed to unashamedly invest behind capabilities. And they were both commercial to drive the business, but they were also, if I use the word corporate, to meet the PLC bar to make sure we are doing things in the right way. And we have shown both good hard and soft benefits from those investments over the last 3 to 4 years. And we recognize we're in a position now where we can afford to maybe unpick some of those capabilities. So we have quite a strong corporate cost base. And in some of the enabling functions, most notably very close to home and finance, perhaps in HR and IT, we've now reached a level of capability that we think is sufficient. So we have been looking at some of the capabilities we can take away there. That GBP 5 million or GBP 10 million, we've got a good line of sight to the GBP 5 million. We're working on the additional GBP 5 million. It's probably split 2/3 people from increasing spans of control from internal promotions rather than external hires and yes, the net reduction in overall headcount. And then 1/3 is more, if you like, a little bit more tactial, be it the use of consultants, managing travel and expenses and just good continuous improvement and being very cost conscious. So some central capabilities on which we think we now no longer generate a level of return, 2/3 people, 1/3 on [indiscernible]. Jonathan Myers: So if I pick up on the EPR question, then I'll come on to Indonesia, Matthew. So first of all, on EPR, I would say we, along with other manufacturers, have been getting our heads around the implications of this tax. And we're one of the first to report just as the nature of our financial year-end, and we'll be all keenly looking to see what other people are saying as they report in the coming months as well. But I would say exactly as you've identified, really, there are 2 levers that we can pull as we try to deal with what is effectively a new cost in our cost structure. The first is absolutely as part of a broader revenue growth management effort, always looking at our ongoing optimization of pricing and promotion. And sometimes that is tweaking our promotional activity where you nudge up the price per liter or the price per pack. And other times, that can be literally straightforward price increases that we are communicating to retailers and working with them as they choose how much or little of those increases they want to reflect on [indiscernible]. And so that has clearly been one lever that we have been pulling, and we will continue to look at that over time. But also over time, particularly as we learn more about the exact drivers of the EPR tax and how it is applied is how we can optimize our packaging across our portfolio, be that primary packaging or secondary packaging to literally reduce the weight or volume that we are using. And so for example, over time, lightweighting of bottles or lightweighting of caps and also looking at our secondary packaging can be very important and very helpful as we learn how to more effectively optimize the EPR impact, but also continue to provide packaging that consumers find useful and usable. But obviously, then what it's also doing is helping us on our journey of delivering against our sustainability KPIs as well. So we're embracing the challenge, but obviously, we're also learning exactly how the tax works along those manufacturers. As for Indonesia, so just in case anyone else on the line didn't pick it up, there was some social unrest in Indonesia at the very tail end of August and the beginning of September. It was related to housing allowances for MPs and it rather snowballed from there. We obviously triggered our business continuity plan, put it into action. There was minimal disruption to our business. We did actually have our people working from home. So we closed our offices for a period of about 4 working days. Our factories continue to run and our distributors continue to operate. The interesting insight is rather as we have seen with previous events in Indonesia, what it leads to is the shopper actually going to their local open market, I think a wet market rather than a modern supermarket. And so we see a channel switch. And the good news is our distributors are very well placed to be able to support that switch. Our distributors will carry around 7.5 weeks of inventory. So even if we were unable to get some deliveries through, they still have sufficient product in their warehouses to deliver in their localities. So there's minimal disruption. I think in Q1, there's a little bit maybe in our P4 numbers, but all of that will come back in Q2. Operator: Our next question comes from Damian McNeela from Deutsche Numis. Damian McNeela: Two from me, please, this morning. Firstly, U.K. washing and bathing seems to be growing at around about 2%. Can you provide a little bit of insight into both the consumer experience of the category and also the competitive dynamics that you're managing at the minute, please? And then the sort of the last question is around marketing spend. And I think it was held broadly flat this year. What are your sort of expectations for the current year? And also to what extent is AI being used to try and optimize your marketing spend as well, please? Jonathan Myers: Damian, so I'll pick up a little bit on the washing and bathing category dynamics. Sarah can talk a little bit about M&C spend expectations, and I'll then come back with AI and how that can help us optimize and drive higher return on investment. First of all, I think probably in keeping with other consumer categories in the U.K. retail environment, we are seeing an increasingly competitive category of washing and bathing. There's growth to be had. There's still some growth in the market. So it's still an exciting and interesting segment of the market to be playing in, absolutely, particularly if you've got strong brands and strong relationships with the retailers and good go-to-market capabilities. But there is no doubt there is a significant tranche of shoppers, not all, so I don't want to generalize, but a significant tranche that is seeking value. And that's where it collides a little bit with where you're asking about competitive dynamics because we're also seeing some of our competitors, and you will be able to work out from their own comments, which ones I'm talking about, who are trying to rebalance for themselves a focus on value versus volume and perhaps they've been chasing value too much rather than volume. So how is that manifesting itself? There's no doubt there's still an awful lot of people that are interested in shower gels that sell at GBP 1 or less. So we need to make sure that we have pack sizes and promotional price points are absolutely delivered for that. But what we're also seeing is an increasing intensity in the competitive environment on larger pack sizes, and in particular, 500 and 600-milliliter bottles. So whereas in the past, they may have been relatively unpromoted versus the smaller circa GBP 1 price point bottle, you're now beginning increasingly to see quite a lot of price promotion on 500 mL and up [indiscernible]. So we are absolutely sharpening our pencil. We're absolutely trying to respond. It's always a little bit of a lag, as you know, in planning promotions based on the retailers' promotional calendars. But as we move through this year, we will be trying to make sure that we are responding to not just competitive pressures, but also how shoppers are evolving too. So as I say, very interesting subcategory to play in, but very competitive too. Sarah Pollard: Damian, let me address the M&C -- sorry, Damian, you come back. Damian McNeela: No, I'm just saying thank you, Sarah. So yes, brilliant. Sarah Pollard: Thank you, Damian. Let me talk to M&C then. So you're right in terms of the FY '25 margin bridge that we shared this morning. Effectively, what we're saying is that there was no positive contribution to our margin performance in FY '25 from M&C. Or the other way of putting that is we grew our marketing spend in line with our revenue growth, which is actually a good thing. So we probably shouldn't in reality, color code it red. What we've not done and what we won't do is either set internally or guide externally to a set of prescriptive marketing spend targets, either in absolute terms or with reference to our overall revenue because our brand portfolio is so diverse. So Cussons Baby, as Jonathan referenced being sold in wet markets through distributors in Indonesia has a very different support model in terms of the levers of profitable growth than will a St. Tropez being sold in the U.S. So what we do, do on a case-by-case basis is work out a level of sufficiency for each of our brands. And then with increasing scrutiny and data capability, and maybe Jonathan will touch on that as part of the AI topic, really understanding whether that M&C delivered incremental return or not, and if it doesn't move it or optimizing it. But I think what you should be very certain of is the overall direction of travel to underpin our brand building ambition will be a net increase in marketing investments. And if I think about the GBP 5 million to GBP 10 million of overhead cost savings that we're committing to in FY '26, where we talk about reinvesting a portion, marketing investment will absolutely be the #1 candidate on that list for investment, Damian. So hopefully, that answers the question. Jonathan Myers: I'll pick up on the AI part. My flip in response to you, Damian, having known you for a few years, I can say [indiscernible]. So what I mean by lemons is if you look at that Nature Hits Different campaign on the side of the bus I talked about earlier, those very first graphics were actually AI generated. So we are trying to embrace artificial intelligence and how it can help us. I'll come on to some other ways in which [indiscernible] actually AI can help us in the core elements of brand building and as fundamental as generating the graphics, which in that particular campaign, we were able to test and modify and then ultimately bring to market, whether that was on boring old traditional TV or much more interesting and exciting social media. So that's a good example of where we have been developing campaigns using artificial intelligence. But somewhat more fundamentally, as a company, we are also spearheading the use of data analytics and artificial intelligence in how we can improve revenue but also optimize processes and save some of the cost involved with that. So as part of forming a partnership with Microsoft on the Microsoft Fabric platform, we have been exploring, for example, how we can more effectively use our market share data to drive market and consumer insights to help us unlock opportunities for the future, but also how we can optimize our pricing and promotion planning a little bit in that whole area of revenue growth management, but also tackling some of our processes to optimize some of those, not least some of our financial forecasting process internally. So we'll have more to say on that in the future. I don't want to say we're just scratching the surface. It's not that we're doing nothing, but we do see that AI has an opportunity and a part to play for us in the future. Operator: Thank you. With that, that concludes the Q&A portion of today's call, and I'll hand back over to Jonathan Myers for some closing remarks. Jonathan Myers: Thank you, Drew. Thank you to everyone who's called in today and those who asked questions. Hopefully, you've got a sense of we are hard at work. There's plenty done, but we are firmly on the ground. We have plenty more to do, and we have a lot to get on with. So that is what we are going to go and do and ask for all of you in the U.K. as you go shopping in the next few weeks and you see our Christmas gift sets on the shelves, make sure you pick one up and put it in the stocking for someone in your family. And we'll thank you next time we talk. Bye-bye. Operator: Thank you all for joining. That concludes today's call. You may now disconnect your lines.
Operator: Thank you for standing by, and welcome to the Innate Pharma First Half 2025 Business Update and Financial Results Conference Call. [Operator Instructions]. I'd now like to turn the call over to Stéphanie Cornen, Vice President, Investor Relations and Communications. You may begin. Stéphanie Cornen: Good morning and good afternoon, everyone. Thank you for joining us for Innate Pharma H1 2025 Business Update and Financial Results Conference Call. The press release and today's presentation are both available on the IR section of our website. Before we begin, I'd like to remind everyone that today's presentation includes forward-looking statements based on current expectations. These statements involve risks and uncertainties that could cause actual results to differ materially. I'll briefly cover today's agenda. Our CEO, Jonathan Dickinson, will discuss our strategic overview, path forward and commercial opportunity. Our COO, Yannis Morel, will provide an update on the scientific differentiation of our lead ADC. He will then hand over to our CMO, Sonia Quaratino, who will present clinical pipeline updates on IPH4502, lacutamab and monalizumab. Afterwards, our CFO, Frederic Lombard, will review the financials. Then Jonathan will return with closing remarks and we'll open the call for Q&A. With that, I'll now hand it over to Jonathan. Jonathan Dickinson: Thank you, Stéphanie, and good morning to those joining from the U.S., and good afternoon to our participants in Europe. Moving to Slide 5. Innate Pharma's foundation is in leveraging our deep scientific expertise to advance life-enhancing cancer therapies. Through our years of pioneering work in antibody engineering, we have built a differentiated high-value clinical pipeline supported by compelling data, and this positions us to deliver truly transformative treatments. Turning to Slide 6. During the first half of the year, we've made significant progress across our portfolio, and today marks an important new chapter for Innate. As you may have read in the press release for our half yearly update that we issued earlier today, we have made the strategic decision to focus our investment where we believe we can deliver the greatest impact for both patients and our shareholders. Therefore, going forward, our main investments will be centered on 3 high-value clinical assets, IPH4502, lacutamab and monalizumab. These programs represent the strongest opportunities to transform care and create meaningful value, and they will form the focus of today's discussion. At the same time, we will concentrate on selecting and advancing our next ADCs towards clinical development. As a consequence of this prioritization and sharpened focus, we intend to streamline our organization to deliver on our strategic objectives and key near-term milestones. This is a pivotal moment for Innate. We are aligning our strategy, our science, our organization and our investments to drive forward the programs that can truly make the biggest difference. I could not be more confident in the path we are taking, and I'm excited to share with you how we will execute on this vision in the coming presentation. As you will also have seen in this morning's announcement, our CSO, Eric Vivier, has decided to return to full-time academic research. Eric has been a true driver of the scientific agenda within Innate, so we are extremely pleased that he will continue to support the company's innovation in the important role as an adviser to the R&D Committee of the Board of Directors. Our Chief Operating Officer, Yannis Morel, has always had responsibilities for preclinical research and development, and he will now also assume the Chief Scientific Officer responsibilities. With that, I will now hand it over to Yannis for a closer look at our lead ADCs and the potential. Yannis. Yannis Morel: Thank you, Jonathan. First, on Slide 8, let me share with you why we think Nectin-4 is an attractive target for a next-generation ADC and why our highly differentiated Nectin-4 ADC has more potential across many solid tumors. Even though Nectin-4 is a validated ADC target, PADCEV or enfortumab vedotin carries some challenges and has several limitations. It is approved solely for patients with urothelial cancer where Nectin-4 expression is the highest. In addition, PADCEV-related toxicity often leads to treatment discontinuations and relapse are frequently observed, creating a growing medical need in the post-PADCEV setting. Finally, even though Nectin-4 is expressed at moderate to high level in several other tumor types, there is limited evidence showing that PADCEV is active beyond urothelial cancer. On the next slide, Slide 9. I want to show you why we are so excited by our next-generation Nectin-4 ADC program called IPH4502. As I said previously, this is a differentiated ADC that leverages a novel design to improve both safety and efficacy. IPH4502 is based on a proprietary humanized antibody that binds a unique epitope on the Nectin-4 molecule. The linker used is stable, cleavable and hydrophilic ensuring high ADC exposure and low systemic release of free exatecan, which minimize potential side effects. The payload itself, exatecan, is a potent topoisomerase I inhibitor. It shows what's called bystander activity, which means it impacts number in tumor cells that do not express high level of Nectin-4 and can therefore address tumors with heterogenous expression of Nectin-4. In addition, it remains highly active in enfortumab vedotin or MMAE-resistant models, allowing it to target tumors that have or became resistant to EV. In summary, the design of IPH4502 is purpose-built to overcome the limitations seen with existing therapies of [indiscernible] enfortumab vedotin. On the next slide, Slide 10, turning to preclinical data. During the period, we were also pleased to present at the AACR Annual Meeting, our filings, that highlights the differentiated potential of IPH4502. Starting from a PDX model of urothelial cancer, we generated a model of acquired resistance by exposing tumors to repeated cycle of enfortumab vedotin. As anticipated, tumors that were initially sensitive became resistant to EV, while keeping expression of Nectin-4. But what is remarkable is that in the same model, IPH4502 maintained its activity. While EV lost efficacy, IPH4502 continued to control tumor growth, underscoring its differentiated profile and the opportunity to address patients who no longer responds to EV. On the next slide, Slide 11. Our preclinical data also demonstrated antitumor activity in PDX model with low or heterogenous Nectin-4 expression from various tumor types, including, for example, triple-negative breast, esophageal and head and neck cancers. These results highlight the potential of IPH4502 to extend the reach of Nectin-4 targeting beyond the urothelial cancer into tumor types with significant unmet medical needs. IPH4502 is currently in Phase I development, and we are very excited about the potential of this novel and differentiated Nectin-4 exatecan ADC to address high unmet medical needs both in bladder cancer post EV, but also in solid tumors with low or heterogenous expression of Nectin-4 representing a potentially broad market opportunity. I'll now hand over to Sonia, who will discuss the clinical progress of IPH4502 as well as our other clinical programs. Sonia Quaratino: Thank you, Yannis. Today, I will focus on preclinical assets that represent the potential to create the highest value for Innate, IPH4502, lacutamab and monalizumab. In the next slide, starting with IPH4502, the ADC-directed against Nectin-4, this is a trial that is an asset that is currently investigated in a first-in-human Phase I study. Enrollment in this dose escalation is going very well, and we are now on track to complete enrollment before the end of Q1 2026. The objective of the study is to assess the safety, tolerability and preliminary efficacy of IPH4502 in advanced solid tumors known to express Nectin-4. And we are pleased to present this study in a trial-in-progress poster at ASCO Annual Meeting in Chicago last June. The dose escalation is guided by an adaptive [indiscernible] design to determine the maximum tolerated dose. And once this is established, patients in 1 or 2 selected indications will be randomized across 2 dose levels to define the recommended Phase II dose as per FDA guidelines. The antitumor activity of IPH45 as a single agent will be further explored at RP2D in an expansion phase in selected indications in which signs of activities have been detected in the dose escalation, as well as confirming that the drug has a favorable safety profile and tolerability, the goal of this Phase I trial is to generate efficacy data that will guide the path forward for IPH4502, such as a basket trial in combination with standard of care or expansion phase to help maximize its value for both patients and shareholders. In Slide 14, we have the key milestones ahead for IPH4502. With enrollment progressing well, we expect to report preliminary safety and activity data in the first half of 2026. The preclinical data presented earlier by Yannis, are guiding us towards 2 key hypothesis to be explored in the clinic. The first, it's an urothelial carcinoma in the post EV setting, where IPH4502 may overcome resistance to EV. This represents an area of high unmet need with no approved drives and the potential to move rapidly into late-stage development is large. The second is to look for signals in other tumor types where a Nectin-4 expression may be low or heterogenous, which could open an even broader opportunity. With this hypothesis, the clinical data will guide us towards the indication where IPH4502 can make the greatest impact. Now turning on next slide on lacutamab. We are close to completion of the Phase III protocol following alignment with the FDA and EMA. To recap, lacutamab is a first-in-class anti-KIR3DL2 antibody in development for the treatment of cutaneous T-cell lymphoma and peripheral T-cell lymphoma. In CTCL, lacutamab has already generated strong long-term follow-up data, which we presented at ASCO this year and which we will summarize in the next slide. Importantly, the regulatory pathway is clear, supported by key designations that position lacutamab for potential accelerated approval in Sézary syndrome. Our confidence in the program was further strengthened earlier this year when the FDA granted breakthrough therapy designation for relapsed or refractory Sézary syndrome based on the TELLOMAK Phase II results. This designation is intended to accelerate both development and regulatory review of drugs that address serious conditions. Beyond CTCL, PTCL, peripheral T-cell lymphoma, represents a second indication. It's a group of aggressive lymphomas with poor prognosis and a significant life cycle management opportunity for lacutamab. Importantly, KIR3DL2 correlates with worse clinical outcome. And is expressed in approximately 40% of PTCL patients. In PTCL, lacutamab has previously demonstrated some objective responses as a single agent, reinforcing the relevance of the target and providing the rationale to pursue development in combination with chemotherapy. Building on these findings, lacutamab is now being investigated in the KILT trial, a randomized Phase II in combination with gemcitabine and oxaliplatin versus gemcitabine and oxaliplatin in relapsed refractory KIR3DL2 positive PTCL patients. When we move to next slide and to recap the data in CTCL that we presented at ASCO 2025, the long-term follow-up data from the TELLOMAK Phase II trial. Here, we see the results in Sézary syndrome, which is an aggressive subtype of CTCL and post mogamulizumab, where there are no approved drug, we have shown clinical efficacy. In heavily pretreated patients, all pretreated with Moga, lacutamab demonstrated a global overall response rate of 42.9%, and the medium progression-free survival of 8.3 months. Of note, the median duration of response was 25.6 months, underscoring lacutamab's potential to deliver durable clinical benefit in this very aggressive and difficult to treat population. Turning in the next slide to mycosis fungoides. The long-term follow-up data from the TELLOMAK Phase II trial showed that lacutamab achieved a global overall response rate of 19.6%, with consistent activity observed regardless of KIR3DL2 expression level. The median duration of response was 13.8 months and median progression-free survival was 10.2 months with no difference between the two sub groups. Importantly, in both Sézary syndrome and mycosis fungoides, every patient who achieved a complete response remained in response at the time of the data cutoff, once again highlighting lacutamab's ability to deliver durable benefit even in heavily pretreated patients. In both indications, Sézary and mycosis fungoides, lacutamab was well tolerated with an excellent safety profile that supports its potential use for long systemic therapy. Now in the next slide, let's look at the potential positioning of lacutamab in CTCL. The challenges in CTCL care are well known. The disease has a profound impact on quality of life with patients suffering from itching, fatigue and cutaneous lesions with important psychosocial implications. Preventing progression to advanced stages is critical as outcome in Stage IIb and beyond are poor. Yet very few tolerable systemic options are currently available for early-stage patients. And this is where lacutamab can make a real difference. Our data have shown deep antitumor activity, durable responses and meaningful progression-free survival. Equally important, lacutamab has shown an excellent safety profile overcoming the tolerability concern of other systemic therapies in earlier stages of disease. Furthermore, lacutamab address the symptoms that matter most to patients with a positive impact on the quality of life. In the next slide, we see that the combination of strong efficacy with excellent safety makes lacutamab a unique candidate for earlier use of systemic therapy in CTCL. And this becomes particularly important in mycosis fungoides, where survival estimates deteriorate once patients progress to more advanced stages. As you can see, in Stage IIb and beyond, the 5-year survival is lower than 50%. Poor survival in late-stage MF highlights the need for systemic therapies that can be used earlier to change the course of the disease. And here is where lacutamab could fill a critical gap offering a tolerable systemic option that can be introduced at an earlier time point with the potential to delay progression and improve patient outcomes. So altogether, we are on track to advance lacutamab towards Phase III in CTCL. As discussed, we are close to finalize the Phase III protocol following interaction with the FDA and EMA. And once financing is secured, we will be positioning to initiate the confirmatory Phase III trial next year, with the potential for accelerated approval in the following year, and enrollment advances in Sézary syndrome targeting approximately 2027. The key next step will be to determine the optimal path forward whether through partnering or additional investor support, always with the goal of maximizing value for both patients and shareholders. In parallel, in PTCL, the LYSA-sponsored KILT trial continues to enroll patients. And we look forward to data from this study in 2026, which could further validate lacutamab's potential across additional T-cell lymphoma. Now switching gear in the next slide. We discussed another late-stage program, monalizumab, with a great potential value creation for the company. As a reminder, monalizumab is a first-in-class anti-NKG2A checkpoint inhibitor currently evaluated in Phase III clinical trial in lung cancer by our partner, AstraZeneca, in combination with durvalumab. Three Phase II trial, COAST, NeoCOAST and NeoCOAST-2, demonstrated a strong rationale for this combination in unresectable non-small cell lung cancer and in the neoadjuvant setting. Now the Phase III PACIFIC-9 trial aims to demonstrate efficacy of durvalumab in combination with either monalizumab or the AstraZeneca anti-CD73 antibody, oleclumab in patients with unresectable Stage III non-small cell lung cancer who have not progressed following classic platinum-based concurrent chemoradiation therapy. The study is now fully recruited, and it remains on track for primary completion at the end of the first half of 2026. And this is an important catalyst for the program with data expected in the second half of 2026. Now I'm going to hand over to Jonathan again, who will walk through the commercial opportunity of these 2 late-stage assets, lacutamab and monalizumab. Jonathan Dickinson: Thank you, Sonia, for showing how lacutamab has the potential to fundamentally reshape the care of CTCL patients. As you can see on Slide 23, the opportunity for lacutamab starts with Sézary syndrome, where following a potential accelerated approval in 2027, we see a clear launch pathway. In the past months, by assessing U.S. claims data, we have identified a significantly greater opportunity in Sézary syndrome than previously anticipated. It's been established that there are around 1,000 Sézary syndrome patients in the U.S. with approximately 300 new cases each year and a large pool of post-mogamulizumab treated patients. This represents a meaningful and derisked first market opportunity for lacutamab following an accelerated approval. After accelerated approval in Sézary syndrome, the opportunity expands into second-line plus setting for mycosis fungoides and ultimately, into earlier stages of CTCL patients, where a tolerable systemic option that are currently lacking and where lacutamab has the potential to create a new market opportunity and change the course of the disease for patients through early intervention to stop or delay disease progression beyond Stage IIa. It's been established through the same U.S. claims data that there are approximately 20,000 CTCL patients in the U.S. with an incidence of approximately 5,000 patients suggesting a larger population than previously estimated based on publicly available data. These new dynamics, combined with the additional potential in PTCL have led us to reconsider our strategy and the value we assign to lacutamab. To maximize the opportunity for lacutamab, we are currently planning to bring the product into Phase III and submit a BLA in Sézary syndrome, either with the support of investors or with a partner, but with improved deal terms. Already at launch, lacutamab has the potential to reach a substantial patient population, making it an interesting, profitable and value-creating opportunity for Innate Pharma. We are actively collecting additional CTCL market data and conducting further analysis, leveraging claims data and market research to further define the market opportunity. We plan to share the new data and market insights at the lacutamab-focused investor event by the end of the year. Turning now to Slide 24, and to monalizumab. Our partnership with AstraZeneca for monalizumab continues to represent a significant value driver for Innate. The total agreement is worth up to $1.275 billion, and we have already received $450 million in upfront and milestone payments to date under this partnership. Moving forward, Innate is eligible to up to an additional $825 million in development and commercial milestones. Outside of Europe, AstraZeneca records all sales and Innate will receive double-digit royalties upon commercialization. In Europe, we retained co-promotion rights, along with a 50% profit share while contributing to a portion of the Phase III costs with a predefined cap. This structure ensures that Innate remains well positioned to benefit from monalizumab's future success globally. That concludes the pipeline update for this presentation. I will now turn the floor to Frederic Lombard, our Chief Financial Officer, to discuss the financials for the first half of the year. Frederic? Frederic Lombard: Thank you, Jonathan. So for the first half of 2025, we've reported total revenue of EUR 4.9 million, primarily driven by collaborations with AstraZeneca and Sanofi as well as governmental funding for research expenditures. Operating expenses were reaching EUR 30.3 million with EUR 20.5 million in R&D and EUR 9.8 million in G&A expenses. R&D expenses decreased by 29% compared to the prior year, reflecting the phasing of certain clinical programs, while G&A expenses remained stable at EUR 9.8 million. At June 30, 2025, we had EUR 70.4 million in cash, cash equivalents and financial assets, providing a cash runway until the end of the third quarter of 2026. With that, I'm turning it back to Jonathan for closing remarks. Jonathan Dickinson: Thank you, Frederic. Turning to Slide 28, you can see our news flow for the near and midterm, which is fully aligned with the strategic refocus I outlined at the beginning of today's call. For IPH4502, our novel Nectin-4 ADC, the Phase I trial is progressing well and we expect data in the first half of 2026. While our preclinical R&D continues to build a strong ADC pipeline to fuel our next wave of candidates as shown by Yannis. Lacutamab has secured FDA breakthrough therapy designation, supported by long-term follow-up data presented at ASCO. And we are preparing the Phase III protocol submission following our discussion with regulators as indicated by Sonia. And for monalizumab, AstraZeneca's Phase III PACIFIC-9 trial is fully recruited and remains on track for primary completion in the first half of 2026 with data expected in the second half of 2026. Turning to Slide 29. In summary, we are excited about the opportunities ahead and confident in our ability to deliver value for patients and shareholders. We are concentrating our investment on what we believe are our highest value clinical stage assets, IPH4502, lacutamab and monalizumab, where we have multiple near-term catalysts, and we will rightsize our organization to deliver on these strategic priorities. With EUR 70.4 million in cash at the end of June, we are funded to the end of the third quarter of 2026, providing Innate the ability to execute on our focused strategic priorities. Thank you for your attention. And with that, operator, please open the line for questions. Operator: [Operator Instructions] Your first phone question today comes from the line of Daina Graybosch from Leerink Partners. Bill Ling: You got Bill on for Daina. So I guess, what should we take away on the potential of targeting NK cells now that ANKET's are not included in your prioritization today as well as Eric Vivier sort of leaving the company? Jonathan Dickinson: So takeaways from -- I would like to say from Eric leaving the company, maybe that's the place to start off. Eric is leaving the company, but he will still play an important role with the company moving forward. He will be an adviser to the R&D Committee of our Board of Directors. And we have an extended research collaboration with his lab. So we basically will continue to benefit from any innovation, which Eric can bring to the table. Moving back to NK cells and the reading, we are still working on NK cells. It's not our main priority today. We're focusing on what we believe are our highest value clinical assets, IPH4502, lacutamab and monalizumab. We will be basing all future decisions on our NK cell engagers on clinical data and the relevance of that clinical data to markets, and we'll make the appropriate decisions on those assets when we have that clinical data and establish market relevance based on that data. So it's not the end of NK cells, but it's not our priority today anymore. Operator: We'll move on to our next question, and it comes from the line of Swayampakula Ramakanth from HCW. Swayampakula Ramakanth: So now that the ANKET programs are out at least as far as your development is concerned. Any commentary on where Sanofi is with the assets that they currently are developing? Jonathan Dickinson: Absolutely. So I'd just like to say that it's not the end of the story for NK cells. We're still moving forward and completing the studies with IPH6501. We have a path to explore IPH61 via investigator-initiated research and an interesting way forward. So I wouldn't say it's the end of NK cells. It's just that it's been basically lowered in our current company priorities. From a Sanofi perspective, Sanofi continues to progress the BCMA-targeted ANKET. And as I think we've communicated in the past, that's being explored in autoimmunity, in immunology as part of Sanofi's focus as a company, and we expect to have updates from Sanofi on that BCMA program in the near future. Swayampakula Ramakanth: And then regarding the Phase III start for lacutamab, should we still assume that unless you have a partner signed up ahead of the start of the study, it will still -- it will be a wait and watch until you get a partner or you have enough commitment from investors to go ahead and start that study? Jonathan Dickinson: So we are actively working with investors at the moment to basically keep options open. So we're continuing discussions with partners, but we also have some very advanced discussions with investors who are very interested in lacutamab, now that we effectively have a derisked development program to move forward into Phase III. And we also see interest based now on the increased potential commercial opportunity. This also will reinvigorate discussions with partners. And we are also expecting next steps with respect to the finalization of the protocol for the confirmatory Phase III study, which is also an important step for partners. So we continue the discussions with partners. But at this stage, we see it as very important to keep our future options open to either go down the partner route, but with improved deal terms based on the significantly larger potential market opportunity, particularly with the first accelerated approval launch in Sézary syndrome. And so yes, we're keeping the options open with both -- for both moving forward with investors and with potential partners. Swayampakula Ramakanth: So last question from me, Jonathan. This is on 4502. Based on the preclinical data that you have generated so far, what potential indications do you think 4502 will be effective? And since there are numerous Nectin-4 ADC's in the clinic right now, how differentiated are you is 4502 against those? Jonathan Dickinson: Yes. So maybe, Sonia, you can take the first part of that question, Sonia? Sonia Quaratino: Yes. Can you repeat the question, please? Swayampakula Ramakanth: Yes. Based on the preclinical data that you have generated to date, what indication do you think is where 4502 could be effective? Sonia Quaratino: Right. As I mentioned before, we focus on any indication that express Nectin-4 because we believe that we also can target dose indication with a relatively small Nectin-4 expression, but we also very much focus on the urothelial cancer patients who became refractory or resistance to PADCEV. And for these patients, there are no approved drugs. And if we have clinical -- good clinical data in this refractory relapsed patients, we really may have a very fast opportunity for an accelerated market approval in UC post-PADCEV. So we are exploring, let's say, the classic path as well as some more defined area for an accelerated -- potential accelerated approval. Jonathan Dickinson: And then in terms of differentiation, RK, I mean, I think we believe that we'll be able to show differentiation here, particularly versus PADCEV or MMAE-based ADCs, due to the payload and the different resistance and toxicity profile, which we believe we'll be able to show meaningful differences between IPH4502 and MMAE-based ADCs. Operator: Your next question comes from the line of Justin Zelin from BTIG. Justin Zelin: Maybe I'll continue the questioning on 4502. If you can just give us an update on how enrollment has been progressing here. I know you gave an update here on enrollment completion. Just was curious on how you could comment on how enrollment is going today. When we should expect the initial data, if it will be sometime in the first half of next year, how many patients' worth of data we should expect? And any expectations from a safety or efficacy standpoint from that update? Jonathan Dickinson: Sonia, do you want to take that one? Sonia Quaratino: Of course, of course. As mentioned, the enrollment with IPH45 is going extremely well. We always have, let's say, a list of patients to go in -- at a different dose level. And also with the [indiscernible] design that we have, we also have the possibility to have parallel enrollment in backfill cohorts. And so, we do not have the classic 3 plus 3 design with an extremely limited number of patients, but we can expand different to dose levels as we go along. To your question, of course, we plan to finish the enrollment in the first quarter of 2026. And of course, the data in terms of at least from the first CT scan can only occur as you can understand, 8 weeks later from the first dosing, so it takes another quarter to have the clinical efficacy from the last cohort recruited. Having said that, we are going to have probably a pool of data of 50, 60 patients by then. Operator: And there are no further phone questions at this time. I will now turn the call back over to management for any written questions. Stéphanie Cornen: Yes, we have one question on the line here from Rajan Sharma. So the first question is, does the new strategic focus means, ANKET assets will not be progressed irrespective of clinical data, given that 6501 data are expected in the near term? Jonathan Dickinson: So, I think I answered this earlier, but I'll repeat it again. So from an IPH6501 perspective, the study continues, and we expect to have data, I think, as we've communicated previously, towards the end of this year or very early next year. And we will make any decisions on the next steps for IPH6501 based on that clinical data and the clinical relevance of that data to the marketplace. Stéphanie Cornen: Okay. And so the next question, what is the financial impact of the strategic refocus and head count reduction and what proportion of current R&D expense are directed towards IPH4502 and lacutamab? Jonathan Dickinson: So the financial impact, we've not -- and we won't be communicating specific numbers on the impact of the financial reductions. We're in a legal process now, which is a French legal process to reduce the size of the organization, which gives us an obligation not to communicate on certain components, and that would fall under that legal framework that we're operating within. So we can't provide specific guidance there. In terms of R&D expenses, maybe Frederic would like to comment on the proportion. Stéphanie Cornen: So the question was, what proportion of current R&D expenses are directed towards IPH4502 and lacutamab? Frederic Lombard: Yes, we usually never communicate on the investment that we do in those 2 in the portfolio. But following up on the comment from Jonathan, we have a significant portion of our external expenditure, which are on those assets. Stéphanie Cornen: So we have another question from Oussema Denguir. So with regard to financial visibility, does estimate for the end of the third quarter of 2026, taking into account the impact of the restructuring plan? Jonathan Dickinson: The answer to that is yes. So the restructuring plan is fully embedded into the cash runway, which takes us to the end of Q3 2026. Stéphanie Cornen: And last question, concerning Phase III of lacutamab, can you provide an initial estimate of the investment requirements, if you decide to trial without a partner? Jonathan Dickinson: Again, this is something that we would not normally communicate on in terms of the cost. This is a standard Phase III study. So I think you can draw your own conclusions. It's nothing too dissimilar from similar oncology Phase III trials. Stéphanie Cornen: Thank you, Jonathan. There is no further question. Jonathan Dickinson: Okay. So thank you for everybody's time and attention and for your interest in Innate Pharma, and we'll look forward to meeting with you in person in the near future or on one of our next calls. Thank you, and goodbye. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Innate Pharma First Half 2025 Business Update and Financial Results Conference Call. [Operator Instructions]. I'd now like to turn the call over to Stéphanie Cornen, Vice President, Investor Relations and Communications. You may begin. Stéphanie Cornen: Good morning and good afternoon, everyone. Thank you for joining us for Innate Pharma H1 2025 Business Update and Financial Results Conference Call. The press release and today's presentation are both available on the IR section of our website. Before we begin, I'd like to remind everyone that today's presentation includes forward-looking statements based on current expectations. These statements involve risks and uncertainties that could cause actual results to differ materially. I'll briefly cover today's agenda. Our CEO, Jonathan Dickinson, will discuss our strategic overview, path forward and commercial opportunity. Our COO, Yannis Morel, will provide an update on the scientific differentiation of our lead ADC. He will then hand over to our CMO, Sonia Quaratino, who will present clinical pipeline updates on IPH4502, lacutamab and monalizumab. Afterwards, our CFO, Frederic Lombard, will review the financials. Then Jonathan will return with closing remarks and we'll open the call for Q&A. With that, I'll now hand it over to Jonathan. Jonathan Dickinson: Thank you, Stéphanie, and good morning to those joining from the U.S., and good afternoon to our participants in Europe. Moving to Slide 5. Innate Pharma's foundation is in leveraging our deep scientific expertise to advance life-enhancing cancer therapies. Through our years of pioneering work in antibody engineering, we have built a differentiated high-value clinical pipeline supported by compelling data, and this positions us to deliver truly transformative treatments. Turning to Slide 6. During the first half of the year, we've made significant progress across our portfolio, and today marks an important new chapter for Innate. As you may have read in the press release for our half yearly update that we issued earlier today, we have made the strategic decision to focus our investment where we believe we can deliver the greatest impact for both patients and our shareholders. Therefore, going forward, our main investments will be centered on 3 high-value clinical assets, IPH4502, lacutamab and monalizumab. These programs represent the strongest opportunities to transform care and create meaningful value, and they will form the focus of today's discussion. At the same time, we will concentrate on selecting and advancing our next ADCs towards clinical development. As a consequence of this prioritization and sharpened focus, we intend to streamline our organization to deliver on our strategic objectives and key near-term milestones. This is a pivotal moment for Innate. We are aligning our strategy, our science, our organization and our investments to drive forward the programs that can truly make the biggest difference. I could not be more confident in the path we are taking, and I'm excited to share with you how we will execute on this vision in the coming presentation. As you will also have seen in this morning's announcement, our CSO, Eric Vivier, has decided to return to full-time academic research. Eric has been a true driver of the scientific agenda within Innate, so we are extremely pleased that he will continue to support the company's innovation in the important role as an adviser to the R&D Committee of the Board of Directors. Our Chief Operating Officer, Yannis Morel, has always had responsibilities for preclinical research and development, and he will now also assume the Chief Scientific Officer responsibilities. With that, I will now hand it over to Yannis for a closer look at our lead ADCs and the potential. Yannis. Yannis Morel: Thank you, Jonathan. First, on Slide 8, let me share with you why we think Nectin-4 is an attractive target for a next-generation ADC and why our highly differentiated Nectin-4 ADC has more potential across many solid tumors. Even though Nectin-4 is a validated ADC target, PADCEV or enfortumab vedotin carries some challenges and has several limitations. It is approved solely for patients with urothelial cancer where Nectin-4 expression is the highest. In addition, PADCEV-related toxicity often leads to treatment discontinuations and relapse are frequently observed, creating a growing medical need in the post-PADCEV setting. Finally, even though Nectin-4 is expressed at moderate to high level in several other tumor types, there is limited evidence showing that PADCEV is active beyond urothelial cancer. On the next slide, Slide 9. I want to show you why we are so excited by our next-generation Nectin-4 ADC program called IPH4502. As I said previously, this is a differentiated ADC that leverages a novel design to improve both safety and efficacy. IPH4502 is based on a proprietary humanized antibody that binds a unique epitope on the Nectin-4 molecule. The linker used is stable, cleavable and hydrophilic ensuring high ADC exposure and low systemic release of free exatecan, which minimize potential side effects. The payload itself, exatecan, is a potent topoisomerase I inhibitor. It shows what's called bystander activity, which means it impacts number in tumor cells that do not express high level of Nectin-4 and can therefore address tumors with heterogenous expression of Nectin-4. In addition, it remains highly active in enfortumab vedotin or MMAE-resistant models, allowing it to target tumors that have or became resistant to EV. In summary, the design of IPH4502 is purpose-built to overcome the limitations seen with existing therapies of [indiscernible] enfortumab vedotin. On the next slide, Slide 10, turning to preclinical data. During the period, we were also pleased to present at the AACR Annual Meeting, our filings, that highlights the differentiated potential of IPH4502. Starting from a PDX model of urothelial cancer, we generated a model of acquired resistance by exposing tumors to repeated cycle of enfortumab vedotin. As anticipated, tumors that were initially sensitive became resistant to EV, while keeping expression of Nectin-4. But what is remarkable is that in the same model, IPH4502 maintained its activity. While EV lost efficacy, IPH4502 continued to control tumor growth, underscoring its differentiated profile and the opportunity to address patients who no longer responds to EV. On the next slide, Slide 11. Our preclinical data also demonstrated antitumor activity in PDX model with low or heterogenous Nectin-4 expression from various tumor types, including, for example, triple-negative breast, esophageal and head and neck cancers. These results highlight the potential of IPH4502 to extend the reach of Nectin-4 targeting beyond the urothelial cancer into tumor types with significant unmet medical needs. IPH4502 is currently in Phase I development, and we are very excited about the potential of this novel and differentiated Nectin-4 exatecan ADC to address high unmet medical needs both in bladder cancer post EV, but also in solid tumors with low or heterogenous expression of Nectin-4 representing a potentially broad market opportunity. I'll now hand over to Sonia, who will discuss the clinical progress of IPH4502 as well as our other clinical programs. Sonia Quaratino: Thank you, Yannis. Today, I will focus on preclinical assets that represent the potential to create the highest value for Innate, IPH4502, lacutamab and monalizumab. In the next slide, starting with IPH4502, the ADC-directed against Nectin-4, this is a trial that is an asset that is currently investigated in a first-in-human Phase I study. Enrollment in this dose escalation is going very well, and we are now on track to complete enrollment before the end of Q1 2026. The objective of the study is to assess the safety, tolerability and preliminary efficacy of IPH4502 in advanced solid tumors known to express Nectin-4. And we are pleased to present this study in a trial-in-progress poster at ASCO Annual Meeting in Chicago last June. The dose escalation is guided by an adaptive [indiscernible] design to determine the maximum tolerated dose. And once this is established, patients in 1 or 2 selected indications will be randomized across 2 dose levels to define the recommended Phase II dose as per FDA guidelines. The antitumor activity of IPH45 as a single agent will be further explored at RP2D in an expansion phase in selected indications in which signs of activities have been detected in the dose escalation, as well as confirming that the drug has a favorable safety profile and tolerability, the goal of this Phase I trial is to generate efficacy data that will guide the path forward for IPH4502, such as a basket trial in combination with standard of care or expansion phase to help maximize its value for both patients and shareholders. In Slide 14, we have the key milestones ahead for IPH4502. With enrollment progressing well, we expect to report preliminary safety and activity data in the first half of 2026. The preclinical data presented earlier by Yannis, are guiding us towards 2 key hypothesis to be explored in the clinic. The first, it's an urothelial carcinoma in the post EV setting, where IPH4502 may overcome resistance to EV. This represents an area of high unmet need with no approved drives and the potential to move rapidly into late-stage development is large. The second is to look for signals in other tumor types where a Nectin-4 expression may be low or heterogenous, which could open an even broader opportunity. With this hypothesis, the clinical data will guide us towards the indication where IPH4502 can make the greatest impact. Now turning on next slide on lacutamab. We are close to completion of the Phase III protocol following alignment with the FDA and EMA. To recap, lacutamab is a first-in-class anti-KIR3DL2 antibody in development for the treatment of cutaneous T-cell lymphoma and peripheral T-cell lymphoma. In CTCL, lacutamab has already generated strong long-term follow-up data, which we presented at ASCO this year and which we will summarize in the next slide. Importantly, the regulatory pathway is clear, supported by key designations that position lacutamab for potential accelerated approval in Sézary syndrome. Our confidence in the program was further strengthened earlier this year when the FDA granted breakthrough therapy designation for relapsed or refractory Sézary syndrome based on the TELLOMAK Phase II results. This designation is intended to accelerate both development and regulatory review of drugs that address serious conditions. Beyond CTCL, PTCL, peripheral T-cell lymphoma, represents a second indication. It's a group of aggressive lymphomas with poor prognosis and a significant life cycle management opportunity for lacutamab. Importantly, KIR3DL2 correlates with worse clinical outcome. And is expressed in approximately 40% of PTCL patients. In PTCL, lacutamab has previously demonstrated some objective responses as a single agent, reinforcing the relevance of the target and providing the rationale to pursue development in combination with chemotherapy. Building on these findings, lacutamab is now being investigated in the KILT trial, a randomized Phase II in combination with gemcitabine and oxaliplatin versus gemcitabine and oxaliplatin in relapsed refractory KIR3DL2 positive PTCL patients. When we move to next slide and to recap the data in CTCL that we presented at ASCO 2025, the long-term follow-up data from the TELLOMAK Phase II trial. Here, we see the results in Sézary syndrome, which is an aggressive subtype of CTCL and post mogamulizumab, where there are no approved drug, we have shown clinical efficacy. In heavily pretreated patients, all pretreated with Moga, lacutamab demonstrated a global overall response rate of 42.9%, and the medium progression-free survival of 8.3 months. Of note, the median duration of response was 25.6 months, underscoring lacutamab's potential to deliver durable clinical benefit in this very aggressive and difficult to treat population. Turning in the next slide to mycosis fungoides. The long-term follow-up data from the TELLOMAK Phase II trial showed that lacutamab achieved a global overall response rate of 19.6%, with consistent activity observed regardless of KIR3DL2 expression level. The median duration of response was 13.8 months and median progression-free survival was 10.2 months with no difference between the two sub groups. Importantly, in both Sézary syndrome and mycosis fungoides, every patient who achieved a complete response remained in response at the time of the data cutoff, once again highlighting lacutamab's ability to deliver durable benefit even in heavily pretreated patients. In both indications, Sézary and mycosis fungoides, lacutamab was well tolerated with an excellent safety profile that supports its potential use for long systemic therapy. Now in the next slide, let's look at the potential positioning of lacutamab in CTCL. The challenges in CTCL care are well known. The disease has a profound impact on quality of life with patients suffering from itching, fatigue and cutaneous lesions with important psychosocial implications. Preventing progression to advanced stages is critical as outcome in Stage IIb and beyond are poor. Yet very few tolerable systemic options are currently available for early-stage patients. And this is where lacutamab can make a real difference. Our data have shown deep antitumor activity, durable responses and meaningful progression-free survival. Equally important, lacutamab has shown an excellent safety profile overcoming the tolerability concern of other systemic therapies in earlier stages of disease. Furthermore, lacutamab address the symptoms that matter most to patients with a positive impact on the quality of life. In the next slide, we see that the combination of strong efficacy with excellent safety makes lacutamab a unique candidate for earlier use of systemic therapy in CTCL. And this becomes particularly important in mycosis fungoides, where survival estimates deteriorate once patients progress to more advanced stages. As you can see, in Stage IIb and beyond, the 5-year survival is lower than 50%. Poor survival in late-stage MF highlights the need for systemic therapies that can be used earlier to change the course of the disease. And here is where lacutamab could fill a critical gap offering a tolerable systemic option that can be introduced at an earlier time point with the potential to delay progression and improve patient outcomes. So altogether, we are on track to advance lacutamab towards Phase III in CTCL. As discussed, we are close to finalize the Phase III protocol following interaction with the FDA and EMA. And once financing is secured, we will be positioning to initiate the confirmatory Phase III trial next year, with the potential for accelerated approval in the following year, and enrollment advances in Sézary syndrome targeting approximately 2027. The key next step will be to determine the optimal path forward whether through partnering or additional investor support, always with the goal of maximizing value for both patients and shareholders. In parallel, in PTCL, the LYSA-sponsored KILT trial continues to enroll patients. And we look forward to data from this study in 2026, which could further validate lacutamab's potential across additional T-cell lymphoma. Now switching gear in the next slide. We discussed another late-stage program, monalizumab, with a great potential value creation for the company. As a reminder, monalizumab is a first-in-class anti-NKG2A checkpoint inhibitor currently evaluated in Phase III clinical trial in lung cancer by our partner, AstraZeneca, in combination with durvalumab. Three Phase II trial, COAST, NeoCOAST and NeoCOAST-2, demonstrated a strong rationale for this combination in unresectable non-small cell lung cancer and in the neoadjuvant setting. Now the Phase III PACIFIC-9 trial aims to demonstrate efficacy of durvalumab in combination with either monalizumab or the AstraZeneca anti-CD73 antibody, oleclumab in patients with unresectable Stage III non-small cell lung cancer who have not progressed following classic platinum-based concurrent chemoradiation therapy. The study is now fully recruited, and it remains on track for primary completion at the end of the first half of 2026. And this is an important catalyst for the program with data expected in the second half of 2026. Now I'm going to hand over to Jonathan again, who will walk through the commercial opportunity of these 2 late-stage assets, lacutamab and monalizumab. Jonathan Dickinson: Thank you, Sonia, for showing how lacutamab has the potential to fundamentally reshape the care of CTCL patients. As you can see on Slide 23, the opportunity for lacutamab starts with Sézary syndrome, where following a potential accelerated approval in 2027, we see a clear launch pathway. In the past months, by assessing U.S. claims data, we have identified a significantly greater opportunity in Sézary syndrome than previously anticipated. It's been established that there are around 1,000 Sézary syndrome patients in the U.S. with approximately 300 new cases each year and a large pool of post-mogamulizumab treated patients. This represents a meaningful and derisked first market opportunity for lacutamab following an accelerated approval. After accelerated approval in Sézary syndrome, the opportunity expands into second-line plus setting for mycosis fungoides and ultimately, into earlier stages of CTCL patients, where a tolerable systemic option that are currently lacking and where lacutamab has the potential to create a new market opportunity and change the course of the disease for patients through early intervention to stop or delay disease progression beyond Stage IIa. It's been established through the same U.S. claims data that there are approximately 20,000 CTCL patients in the U.S. with an incidence of approximately 5,000 patients suggesting a larger population than previously estimated based on publicly available data. These new dynamics, combined with the additional potential in PTCL have led us to reconsider our strategy and the value we assign to lacutamab. To maximize the opportunity for lacutamab, we are currently planning to bring the product into Phase III and submit a BLA in Sézary syndrome, either with the support of investors or with a partner, but with improved deal terms. Already at launch, lacutamab has the potential to reach a substantial patient population, making it an interesting, profitable and value-creating opportunity for Innate Pharma. We are actively collecting additional CTCL market data and conducting further analysis, leveraging claims data and market research to further define the market opportunity. We plan to share the new data and market insights at the lacutamab-focused investor event by the end of the year. Turning now to Slide 24, and to monalizumab. Our partnership with AstraZeneca for monalizumab continues to represent a significant value driver for Innate. The total agreement is worth up to $1.275 billion, and we have already received $450 million in upfront and milestone payments to date under this partnership. Moving forward, Innate is eligible to up to an additional $825 million in development and commercial milestones. Outside of Europe, AstraZeneca records all sales and Innate will receive double-digit royalties upon commercialization. In Europe, we retained co-promotion rights, along with a 50% profit share while contributing to a portion of the Phase III costs with a predefined cap. This structure ensures that Innate remains well positioned to benefit from monalizumab's future success globally. That concludes the pipeline update for this presentation. I will now turn the floor to Frederic Lombard, our Chief Financial Officer, to discuss the financials for the first half of the year. Frederic? Frederic Lombard: Thank you, Jonathan. So for the first half of 2025, we've reported total revenue of EUR 4.9 million, primarily driven by collaborations with AstraZeneca and Sanofi as well as governmental funding for research expenditures. Operating expenses were reaching EUR 30.3 million with EUR 20.5 million in R&D and EUR 9.8 million in G&A expenses. R&D expenses decreased by 29% compared to the prior year, reflecting the phasing of certain clinical programs, while G&A expenses remained stable at EUR 9.8 million. At June 30, 2025, we had EUR 70.4 million in cash, cash equivalents and financial assets, providing a cash runway until the end of the third quarter of 2026. With that, I'm turning it back to Jonathan for closing remarks. Jonathan Dickinson: Thank you, Frederic. Turning to Slide 28, you can see our news flow for the near and midterm, which is fully aligned with the strategic refocus I outlined at the beginning of today's call. For IPH4502, our novel Nectin-4 ADC, the Phase I trial is progressing well and we expect data in the first half of 2026. While our preclinical R&D continues to build a strong ADC pipeline to fuel our next wave of candidates as shown by Yannis. Lacutamab has secured FDA breakthrough therapy designation, supported by long-term follow-up data presented at ASCO. And we are preparing the Phase III protocol submission following our discussion with regulators as indicated by Sonia. And for monalizumab, AstraZeneca's Phase III PACIFIC-9 trial is fully recruited and remains on track for primary completion in the first half of 2026 with data expected in the second half of 2026. Turning to Slide 29. In summary, we are excited about the opportunities ahead and confident in our ability to deliver value for patients and shareholders. We are concentrating our investment on what we believe are our highest value clinical stage assets, IPH4502, lacutamab and monalizumab, where we have multiple near-term catalysts, and we will rightsize our organization to deliver on these strategic priorities. With EUR 70.4 million in cash at the end of June, we are funded to the end of the third quarter of 2026, providing Innate the ability to execute on our focused strategic priorities. Thank you for your attention. And with that, operator, please open the line for questions. Operator: [Operator Instructions] Your first phone question today comes from the line of Daina Graybosch from Leerink Partners. Bill Ling: You got Bill on for Daina. So I guess, what should we take away on the potential of targeting NK cells now that ANKET's are not included in your prioritization today as well as Eric Vivier sort of leaving the company? Jonathan Dickinson: So takeaways from -- I would like to say from Eric leaving the company, maybe that's the place to start off. Eric is leaving the company, but he will still play an important role with the company moving forward. He will be an adviser to the R&D Committee of our Board of Directors. And we have an extended research collaboration with his lab. So we basically will continue to benefit from any innovation, which Eric can bring to the table. Moving back to NK cells and the reading, we are still working on NK cells. It's not our main priority today. We're focusing on what we believe are our highest value clinical assets, IPH4502, lacutamab and monalizumab. We will be basing all future decisions on our NK cell engagers on clinical data and the relevance of that clinical data to markets, and we'll make the appropriate decisions on those assets when we have that clinical data and establish market relevance based on that data. So it's not the end of NK cells, but it's not our priority today anymore. Operator: We'll move on to our next question, and it comes from the line of Swayampakula Ramakanth from HCW. Swayampakula Ramakanth: So now that the ANKET programs are out at least as far as your development is concerned. Any commentary on where Sanofi is with the assets that they currently are developing? Jonathan Dickinson: Absolutely. So I'd just like to say that it's not the end of the story for NK cells. We're still moving forward and completing the studies with IPH6501. We have a path to explore IPH61 via investigator-initiated research and an interesting way forward. So I wouldn't say it's the end of NK cells. It's just that it's been basically lowered in our current company priorities. From a Sanofi perspective, Sanofi continues to progress the BCMA-targeted ANKET. And as I think we've communicated in the past, that's being explored in autoimmunity, in immunology as part of Sanofi's focus as a company, and we expect to have updates from Sanofi on that BCMA program in the near future. Swayampakula Ramakanth: And then regarding the Phase III start for lacutamab, should we still assume that unless you have a partner signed up ahead of the start of the study, it will still -- it will be a wait and watch until you get a partner or you have enough commitment from investors to go ahead and start that study? Jonathan Dickinson: So we are actively working with investors at the moment to basically keep options open. So we're continuing discussions with partners, but we also have some very advanced discussions with investors who are very interested in lacutamab, now that we effectively have a derisked development program to move forward into Phase III. And we also see interest based now on the increased potential commercial opportunity. This also will reinvigorate discussions with partners. And we are also expecting next steps with respect to the finalization of the protocol for the confirmatory Phase III study, which is also an important step for partners. So we continue the discussions with partners. But at this stage, we see it as very important to keep our future options open to either go down the partner route, but with improved deal terms based on the significantly larger potential market opportunity, particularly with the first accelerated approval launch in Sézary syndrome. And so yes, we're keeping the options open with both -- for both moving forward with investors and with potential partners. Swayampakula Ramakanth: So last question from me, Jonathan. This is on 4502. Based on the preclinical data that you have generated so far, what potential indications do you think 4502 will be effective? And since there are numerous Nectin-4 ADC's in the clinic right now, how differentiated are you is 4502 against those? Jonathan Dickinson: Yes. So maybe, Sonia, you can take the first part of that question, Sonia? Sonia Quaratino: Yes. Can you repeat the question, please? Swayampakula Ramakanth: Yes. Based on the preclinical data that you have generated to date, what indication do you think is where 4502 could be effective? Sonia Quaratino: Right. As I mentioned before, we focus on any indication that express Nectin-4 because we believe that we also can target dose indication with a relatively small Nectin-4 expression, but we also very much focus on the urothelial cancer patients who became refractory or resistance to PADCEV. And for these patients, there are no approved drugs. And if we have clinical -- good clinical data in this refractory relapsed patients, we really may have a very fast opportunity for an accelerated market approval in UC post-PADCEV. So we are exploring, let's say, the classic path as well as some more defined area for an accelerated -- potential accelerated approval. Jonathan Dickinson: And then in terms of differentiation, RK, I mean, I think we believe that we'll be able to show differentiation here, particularly versus PADCEV or MMAE-based ADCs, due to the payload and the different resistance and toxicity profile, which we believe we'll be able to show meaningful differences between IPH4502 and MMAE-based ADCs. Operator: Your next question comes from the line of Justin Zelin from BTIG. Justin Zelin: Maybe I'll continue the questioning on 4502. If you can just give us an update on how enrollment has been progressing here. I know you gave an update here on enrollment completion. Just was curious on how you could comment on how enrollment is going today. When we should expect the initial data, if it will be sometime in the first half of next year, how many patients' worth of data we should expect? And any expectations from a safety or efficacy standpoint from that update? Jonathan Dickinson: Sonia, do you want to take that one? Sonia Quaratino: Of course, of course. As mentioned, the enrollment with IPH45 is going extremely well. We always have, let's say, a list of patients to go in -- at a different dose level. And also with the [indiscernible] design that we have, we also have the possibility to have parallel enrollment in backfill cohorts. And so, we do not have the classic 3 plus 3 design with an extremely limited number of patients, but we can expand different to dose levels as we go along. To your question, of course, we plan to finish the enrollment in the first quarter of 2026. And of course, the data in terms of at least from the first CT scan can only occur as you can understand, 8 weeks later from the first dosing, so it takes another quarter to have the clinical efficacy from the last cohort recruited. Having said that, we are going to have probably a pool of data of 50, 60 patients by then. Operator: And there are no further phone questions at this time. I will now turn the call back over to management for any written questions. Stéphanie Cornen: Yes, we have one question on the line here from Rajan Sharma. So the first question is, does the new strategic focus means, ANKET assets will not be progressed irrespective of clinical data, given that 6501 data are expected in the near term? Jonathan Dickinson: So, I think I answered this earlier, but I'll repeat it again. So from an IPH6501 perspective, the study continues, and we expect to have data, I think, as we've communicated previously, towards the end of this year or very early next year. And we will make any decisions on the next steps for IPH6501 based on that clinical data and the clinical relevance of that data to the marketplace. Stéphanie Cornen: Okay. And so the next question, what is the financial impact of the strategic refocus and head count reduction and what proportion of current R&D expense are directed towards IPH4502 and lacutamab? Jonathan Dickinson: So the financial impact, we've not -- and we won't be communicating specific numbers on the impact of the financial reductions. We're in a legal process now, which is a French legal process to reduce the size of the organization, which gives us an obligation not to communicate on certain components, and that would fall under that legal framework that we're operating within. So we can't provide specific guidance there. In terms of R&D expenses, maybe Frederic would like to comment on the proportion. Stéphanie Cornen: So the question was, what proportion of current R&D expenses are directed towards IPH4502 and lacutamab? Frederic Lombard: Yes, we usually never communicate on the investment that we do in those 2 in the portfolio. But following up on the comment from Jonathan, we have a significant portion of our external expenditure, which are on those assets. Stéphanie Cornen: So we have another question from Oussema Denguir. So with regard to financial visibility, does estimate for the end of the third quarter of 2026, taking into account the impact of the restructuring plan? Jonathan Dickinson: The answer to that is yes. So the restructuring plan is fully embedded into the cash runway, which takes us to the end of Q3 2026. Stéphanie Cornen: And last question, concerning Phase III of lacutamab, can you provide an initial estimate of the investment requirements, if you decide to trial without a partner? Jonathan Dickinson: Again, this is something that we would not normally communicate on in terms of the cost. This is a standard Phase III study. So I think you can draw your own conclusions. It's nothing too dissimilar from similar oncology Phase III trials. Stéphanie Cornen: Thank you, Jonathan. There is no further question. Jonathan Dickinson: Okay. So thank you for everybody's time and attention and for your interest in Innate Pharma, and we'll look forward to meeting with you in person in the near future or on one of our next calls. Thank you, and goodbye. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to General Mills' First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Jeff Siemon, Vice President, Investor Relations and Corporate Finance. Thank you. Please go ahead. Jeff Siemon: Thank you, Julienne, and good morning, everyone. Thanks for joining us today for this Q&A session on our first quarter fiscal '26 results. I hope everyone had time to review our press release, listen to our prepared remarks and view our presentation materials, which we made available this morning on our Investor Relations website. It's important to note that in this Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements, and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Dana McNabb, Group President of North America Retail and North America Pet. Now let me turn it over to Jeff for some opening remarks. Jeff, go ahead. Jeffrey Harmening: Yes. Thanks, and good morning, everybody. Before we start the call today for questions, I'd just like to share a few thoughts summarizing some of our key messages. And I think it's pretty evident. There's a lot of change in the world, a lot of uncertainty. I mean the same could be said of the food category. And there's been a lot of change within our business as you unpack the first quarter results and the Yoplait divestiture, which we're executing well, as well our Whitebridge acquisition, which we're also executing well. So there's a lot of change. But what I want you to hear from me is that amidst all of this we are staying laser focused and clear on our strategy, which is returning to profitable organic growth as the best way to create value for our shareholders. And importantly, we are increasingly confident that our approach is working. And I'll take you back as a reminder to Q3 of last year, when we told you we're going to make some significant investments to address price cliffs and gaps. And we said we're going to do that on Pillsbury and Totino's, and we saw really good results. And that gave us more confidence. So that in Q3 of last year, we told you that we would expand that to the cereal category, as well as soup and fruit snacks. And again, we saw a pound share growth on that in line, or ahead of, what we expected. And so coming into this year, we had a heightened degree of confidence that our approach is working. And -- at the same time, while addressing price is important, I mean, especially in this environment where consumers are looking for value, it's not sufficient to generate long-term growth. And so coming this year, we also said we're going to invest significantly in innovation and new product news, new brand campaigns and renovation across all of our top categories. And then we're going to support this with industry-leading HMM cost savings and transformational benefits. And so the other question is, how is that playing out? And the reason we're increasingly confident is playing out the way we thought that it was. So, so far, so good. We strengthened our pound share in 8 of our top 10 categories and now we're holding pound share in Pet. And we're continuing strong competitiveness in foodservices. As you probably saw, we've increased our growth and competitiveness in international at the same time. On the P&L, we expect our profit results in Q1 will be pressured significantly by our increased investment profile, but also by the impact from the yogurt divestiture and a few phasing comparisons. And we think that will continue into Q2, but importantly, it will improve in the back half of this year, certainly in Q4, but throughout the back half of the year. So I want you to know, from my perspective, just stepping back, just a little bit, we're really encouraged by the early signs of improvements we're seeing. And we have great initiatives for Q2. I'm sure we'll talk about fresh pet food. But that's not the only thing. I mean, our new product volumes are already up 25%. We have some other good new products coming in the second quarter, also backed up by really strong plans in baking and soup, and the fall and winter are key seasons for that. And we plan to improve -- continue our positive momentum in foodservice and international. And so again, with Q1 now in the rearview mirror and in line with what we expected, and increased confidence, we reaffirmed our fiscal '26 guidance. So with that, Jeff, let's open it up for Q&A. Jeff Siemon: Great. Thanks, Julienne. I think we can go ahead with the first question. Thank you. Operator: [Operator Instructions] Our first question comes from Andrew Lazar from Barclays. Andrew Lazar: Jeff, maybe picking up on your comments. The ongoing debate in the food space, right, continues to be whether or not the current sort of challenging volume environment is more structural this time around than it has been in the past, or whether more of it is just a result of the significant pricing the industry was required to take combined with sort of a consumer that's under pressure? And I realize it's super early in your efforts. But as you've gotten some of the key price points in the right place and the other marketing levers can kind of start to work, as you said, you're starting to see some volume share improvement in a bunch of categories more recently. Yet I guess, if we look at NAR, right, volume did not yet improve sequentially from fiscal 4Q. So I guess what I'm wondering is, do you think recent results sort of support the thesis that while there are some external factors for the industry, maybe some of them are a little bit structural. There's still a lot more that in the industry's control and your control in terms of getting sort of volume back to bright? Jeffrey Harmening: Yes, Andrew, I think it's a really good question, a really fair question. And we believe it's largely in our control. I mean if you look at -- if you look at the last year or so, volumes in our category are about flat, which is about 50 basis points below what we've seen historically, but not too far behind. And -- and we -- there are a number of factors for that. Probably the most important, we believe, is that we saw in decades worth of inflation in a couple of years. And so consumers are still recovering that as wages have not yet caught up with all that inflation. And so we think that's the biggest driver. I mean GLP-1s has a -- we think, has had a small impact so far. And consumers seeking value and it stressed consumer may be a little bit. But again, it's a 50-point gap versus what we have seen historically. The bigger gap is actually on price/mix. And historically, we see some price and mix. But in this environment, we -- where the consumers are feeling the way they are, that's actually the more difficult piece rather than the volume piece. So volumes are pretty stable. And as we look at our year, we don't -- we need to be able to hold share in our categories to achieve the results we suggested for the year. But we don't need to gain massive amounts of share to hit the guidance that we already said and get back to flat, or a little bit of growth. And so we think it's mostly up to our control. Look, consumers their habits change over time, and we've been really good at changing with them. I'll give you an example, like I mentioned GLP-1s was a little bit of a headwind. But as a result of consumers looking for that, they want more protein. And there's a reason why Cheerios Protein is off to such a great start. Or Progresso Pitmaster, which is high-end protein is off to a really good start. We introduced Nature Valley creamy protein, and we like what we've seen with that so far. Or that our granola business is doing well. And so even though you can see something in a structure -- you can -- may say, is that a structural headwind, there are companies who are focused on the consumer, we are right now have means to seek opportunities in that, and that's what we're doing. Operator: Our next question comes from Robert Moskow from TD Cowen. Robert Moskow: So a couple of questions. One is, I just want to make sure I understand the path back to volume growth. Are you still expecting that to happen by fourth quarter of this year? And I'm trying to reconcile. So if your category volume is flat, but you're holding or gaining share in 8 out of 10 categories, why is your volume reported down negative one? It would seem just optically that you would be a little bit above category volume growth, not a little bit below? That's my question. Jeffrey Harmening: Yes. So let me -- let me have Dana McNabb take that math question from you, which is probably an important one. Dana McNabb: All right. Well, Rob, thanks for the question. It is true what you're saying in terms of our volume. But if you look at our top 10 categories, the volume improved by about 1 point in Q1 versus Q4. The total didn't, and that is because flower and desserts were down, and they significantly over-indexed on pounds, not on dollars. What's important, I think, is that where we're putting the price investments, we're encouraged in almost every case that we're getting the volume response we expected. And this is particularly on categories in Q1 like refrigerated dough, on fruit snacks, on salty snacks. And I'd also call out our snack bars. Even though we're comping in a period where our competitor lost distribution, the elasticities we've seen on the investments are at, or ahead, of model. So we, again, are feeling very confident that these investments are working. Now there's a few places where we still have work to do. Our Totino's business, volume was down a little bit in Q1, but we are in the middle of a price pack architecture change right now, where we're moving from a bag to a box. And so we need a little time to sort through that. And then, of course, our Cereal business, we did see an improvement, second consecutive quarter of pound share growth. Really good momentum behind Cheerios protein, our granola business up double digits. Our Cinnamon Toast Crunch business, when you get remarkability right, and have great advertising and great product news, it works. But the pounds in that category were down. Our performance was still down, and we have a little more work to do. But again, what we're encouraged is that in our top 10 categories, pounds have improved. And we believe our plans get better each quarter through the year. Jeff Siemon: Maybe, Rob, I'd just add one more point. If you get beyond North America Retail, we did see a shipment timing headwind in Pets to the tune of about 4 points. That's worth a little bit -- almost a full point to the company, about a little bit more than 0.5 point to the company. So that also weighed on total company pounds in the quarter. Operator: Our next question comes from Leah Jordan from Goldman Sachs. Leah Jordan: Just if you could provide more detail on your trends in dog food. I guess what can you attribute the slowdown in wilderness to? And how are you thinking about your ability to drive an improvement there? And then I was just also curious, on trends on pet treats, just excluding Whitebridge acquisition there, just given the discretionary nature? Dana McNabb: Yes. So if I think about -- thanks for the question, our BLUE Pet business, our core pet business, our results in Q1 were generally in line with where we were last year. We held our pound share in Q1. Our dollar share is down just a little bit, about 15 basis points. In terms of what is working, we're really encouraged by our BLUE Life Protection Formula business. This is our biggest business. It grew dollars and pounds. We have the value right. We have really good comparative advertising and strong in-store execution. Our cat feeding business is actually doing really well. So BLUE Tasteful, mid-single-digit growth. Again, we have a really good taste preference claim, and the kibble and gravy new product. That's working well for us. And then our Tiki Cat retail sales, they were up double digits. We've got good nutrition, a science formula that's launched on across different cat life stages, really good omnichannel excellence. So these big businesses are working really well for us. And then our Treats business, that has been a challenge, that inflected to some positive volume growth in Q1. So there are some things that we're really encouraged are working well on our BLUE business. The two areas that you rightly referenced that we need to see improvement on our Wilderness business. In this business, we have to improve our total product proposition. So we're coming with protein news and new products, comparative advertising, stronger in-store execution, we have to get better there, and we believe our plans are much stronger this year, but again, more work to do. And then our pet specialty channel continued to be a challenge. And this year, we're bringing Edgard & Cooper. So that's the super premium business that we had in Europe. We're launching an exclusive partnership with PetSmart, and that's already in market in Q1, and our turns are in line, or a little bit ahead of expectations. So there's a lot that we like about our pet business that's working. And two areas that we know we need to get better, and we're encouraged by the plans that we have in place. Leah Jordan: That's very helpful. And then I just wanted to step back and I have a higher-level question. There just seems to be a bigger debate around the industry scale versus complexity, and what's the right balance? I mean -- and you guys, you sound confident in the plan that you're putting forward today, but you've been battling a number of fronts over the last few quarters. So just maybe how do you think about what's the right balance? And as you go through driving better remarkability across your portfolio, what have been advantages, or disadvantages, with your portfolio mix today? Jeffrey Harmening: Yes, Thank you. The -- well, I'm going to turn the question a little on its side. So which is to say the most important thing is to focus on the consumers, and what they're looking for, and what they want, and then delivering that to them. And whether that's through better advertising, or product news, or new products, or whatever the case may be. That is the most important thing. Whether you're in one category or 15, that's the most important thing to do. Scale has some advantages for us. It's allowed us to invest in our capabilities like digital technology, digitizing our supply chain and SRM, and doing bundling consumer offerings across categories of stores, especially in the fall and back-to-school are really important for us. So we do see some scale advantages from that. Especially working across categories. When we kind of understand the consumer, I think more deeply than many others can, who are only in one category because we see the consumer from many different angles. Having said that, we've never been a believer in scale just for the sake of scale. And I don't think that just because you have scale it automatically accrues benefits. You have to be able to have to use the scale that you have to advantage and to make sure you're -- through all of the complexity that you have that you're staying focused on what the consumer wants in that particular occasion and that particular demand space, if you will. Operator: Our next question comes from David Palmer from Evercore ISI. David Palmer: Thanks for the great commentary in the prepared remarks. It looks like you continue to expect very strong growth from innovation and contribution to growth from innovation, but it also looks like there's a little bit more of an elongated timetable of the price promotion investments stretching into the second half of fiscal '26, perhaps more than you might have thought a few months ago. Perhaps where are the biggest changes in your reality when it comes to certain categories where the price promotions or investments are sticking around a little longer? And perhaps what are the categories where you're, perhaps, seeing what you would hope to see where you can, perhaps, get a little bit more balanced with price versus volume? And I have a quick follow-up. Dana McNabb: Thank you for the question. I think I'll start first with the price investment. And I think it's important to understand that initially, as Jeff said in his opening remarks, last year when we knew we had to improve value for the consumer, we had to move fast. And so the way we did that was we adjusted depth and frequency of promotion. And we are encouraged by the positive response that we saw. And as we shifted to this fiscal year, our focus has been on adjusting our base shelf price. Trying to get below key cliffs, or to make sure that we have a gap that's manageable to the competition. We need to do this across 2/3 of our portfolio, and we got the majority of that done in Q1, and again, results are ahead of what we expected. And we saw really good results on bars, on fruit snack, on salty snacks. We will complete the remainder of the base price adjustments in Q2, and that's going to make sure that we have the right market leading execution on our baking and on our soup season. And all of this gives us a guidance that we're on the right track. But as you pointed out, when you started the question, price is just one element of remarkability. Once we get the price rate, we're really focused on elevating our work on new products. We're moving from about 3.5% of net sales on new products to 5%. We feel really encouraged about the performance that we're seeing on things like Cheerios Protein, our Mott's bars. We have a lot of really good new products coming through the remainder of the year. And this just gives us confidence that this focus on remarkability and getting the total proposition right is the right thing to do. David Palmer: Great. And then just a follow-up on pet. You mentioned the 5,000 coolers going into initially some -- a big competitor out there, as well over 30,000. What -- how does that work where you get past this first step? I mean is it in the plans that this will continue to ramp? Or are you digesting this first sleeve of coolers, seeing how it goes, and will modulate the growth from there? And I'll pass it on. Dana McNabb: Well, we are excited to be moving from the planning phase of the fresh launch to the execution phase. And the plant production has started up really well. Our initial products are looking really strong. And as you mentioned, we're in the middle of installing coolers as we speak. So we'll have 1,000 coolers in place by the end of this month. 5,000 coolers by the end of our fiscal Q2. And our plan is to ramp up that distribution into the next calendar year in 2026. So again, so far, everything is going really well. We are encouraged by what we're feeling with cooler distribution. And I should remind you that we have over 50 years experience in the refrigerated channel. When you think about our Pillsbury business and our yogurt business, and so we feel like we have a very strong product and a measured plan for getting coolers that will increase. And again, we're feeling very good about this launch right now. Operator: Our next question comes from Matt Smith from Stifel. Matthew Smith: Kofi and Jeff. Kofi, I wanted to talk about the margin performance in the quarter, it was above your expectations. Can you provide a little more detail on the gross margin composition? I believe you called out the international timing benefit was about 3 points of that segment's net sales, or is that like 50 basis points to the overall company? And then how we should think about the phasing of inflation investment through the year from here? Kofi Bruce: Sure. Sure. I appreciate the question, Matt. So I think as you rightly pointed out, we did flag that our profit performance in the quarter was a little bit better than expected on operating profit and EPS. Some of that coming through gross margin. The first factor, probably in a slightly heavier measure, was that our inflation phasing was a little bit lighter than we expected in the quarter. Probably closer to 2%, a little bit below the annual run rate of 3% that's sitting in our annual guidance. So that factor first, followed by the trade expense timing benefit in international, which would put it at about $20 million on the top and the bottom line. We expect both of these to kind of unwind largely in Q2. So given that these are timing-related items, as we see them unwind in Q2, I'd expect our operating profit to be down more in Q2 than in Q1. And I expect that, that doesn't change our outlook for the sort of first half aggregate profit looking roughly in line with Q4 of fiscal '25. We do think, kind of just as we look at the Q2 profit decline, it's important to think the supply chain phasing costs on inflation. I'd expect Q2 to be a little bit higher, probably maybe even above the annual run rate as we step into some of the inflationary pressure plus some inflation, or some inventory absorption headwinds. It's important to note we won't have any contributions from yogurt in the quarter as well. This quarter, we had 1 month of sales and profit in our results from the recently divested U.S. yogurt business. We'll start to see normalization of our comp and incentive comp benefits in Q2. And obviously, the international trade expense timing benefits will unwind. So there is a bit of a transitory effect here, both on margin and profit growth as you think about how to digest this. Matthew Smith: And as a follow-up, you called out the trade expense phasing in North America retail was about a point of drag in the first quarter. Is that similar as we get into the second quarter, and then normalize as we get into the second half? Kofi Bruce: Yes. You have it largely right. I would expect it to be a big drag in Q1 -- in Q2 as we're comping last year where we had Q1 and Q2 was effectively no trade expense. So it was a benefit relative to the other quarters in last year. And modest headwind in Q3 last year, and a huge headwind in Q4. So we expect those comps to turn favorable as we step into Q3, modestly and then a pretty significant tailwind in Q4. Operator: Our next question comes from Michael Lavery from Piper Sandler. Michael Lavery: Can you touch on what categories or brands drove the household penetration gains? And maybe how broad that was? And how much you feel like was driven maybe by pricing adjustments versus innovation or other factors? Dana McNabb: Thanks for the question. As you stated, we did see our household penetration grow overall for NAR the first time since fiscal '22, really encouraged by that result. In terms of where we saw penetration improvement, we saw it on bars, on fruit snacks, on salty snacks, on our Cereal business. And we do believe that getting our price value, and again, this is about getting below key clicks on the shelf, making sure we have manageable gaps relative to the competition that was a driver of that penetration improvement. But also it's not a coincidence that where we had a great remarkability approach, where we had good advertising, really good new product innovation, or product quality, price pack architecture, that is where we saw the best results. We called out in the presentation, Cinnamon Toast Crunch is a really good example. Really good product news, great advertising. We have the price right on that business, and we gained pad dollar share and penetration. So again, we still have more work to do, but we believe that we are on the right track with these investments, and we're confident in what we're seeing so far. Michael Lavery: Okay. That's helpful. And I just wanted to follow up on some of the comments in the prepared remarks around demand planning. I think it can be maybe an underappreciated challenge. But it sounds like you've got improvement there. Can you maybe elaborate on kind of how that worked and what some of the benefits are? And it's maybe a little surprising the human touch seems unhelpful. Can you just kind of bring that to life a little bit? Jeffrey Harmening: So let me take that one a little bit, Michael. The -- I would start by saying, I mean, we have a phenomenal supply chain as you well know. I mean during COVID we showed that, we continue to show it. We showed it in the Q1 this year, whether it's productivity, or service, or low cost. I mean our supply chain is fantastic, and we've got a great marketing team, too. And over time, our forecasting has been pretty good. It's just taken us a lot to get to an accurate forecast. And so what you see us doing now is that we're having -- we were using AI and leveraging technology to get to good forecasting much more efficiently. And the importance of that then is it frees up our marketing team to do better demand generation. And I think that's why you're seeing some of these better ideas that we're talking about right now. Because our marketers are having more time doing marketing than forecasting. And then our supply chain people, they're not double checking numbers that people give and spending all their times and meetings looking at forecast. They're just trying to figure out, okay, making the right stuff, at the right time, in the right place. And you see our waste elimination improve. And so really what we wanted to highlight that it seems small, but it's actually quite large, and it's a great way for technology to enable a little bit better accuracy, but a lot more efficiency. And that frees up the talented people we have. We have a really talented team, really talented people to do what they do best. And that's what we wanted to highlight in this particular case. Operator: Our next question comes from Alexia Howard from Bernstein. Alexia Howard: Can I ask about your efforts on reformulation? You're obviously ahead of the game on the elimination of the artificial dyes, getting rid of those by next summer. But there are other state-level legislations that have been approved, for example, in Texas, I think there's something that's already been ratified by the governor. It's gone through, that's about 44 additive. So it's a broader list. First of all, I guess, as you've gone through your remarkable efforts with some of these brands, are the ingredient list and additives coming up as concerns for some group of consumers? And is that something that you're working through the portfolio to actively drive out, not just the dyes, but maybe other additives that people are concerned about? Or are you going to wait until the regulations and the legislation settles, which could be a year or 2 down the line, and then you'll do it once everything is very, very clear? Just trying to get a sense for how aggressively you're going after that, or whether it's really not something beyond the artificial dyes that you're focused on at the moment? Jeffrey Harmening: Yes, Alexia, I would start by saying we're always -- we always do our best when we follow what the consumers are looking for. And that's kind of our North Star and why we have this remarkability framework. And as you know, 10 years ago, we took some certified colors out of tricks and that didn't work so well here in the U.S. By the way, it worked really well in Canada. And Canadian's moms loved it. It didn't work as well here. And that's because consumers in the U.S. weren't quite ready for it yet. 10 years later, the reason why we made the commitments we have is that consumers are more ready for this. An increasing number of consumers don't want to certify colors in some of their food. And so that's why we look to remove those. And we have better technology now than we did 10 years ago. And we can get customers what they want. Whether it's the colors they want, or the shapes they want it, the texture, or what have you. And so that's why we're undertaking our efforts. When it comes to the regulatory environment, I'll start with a couple of things. One is that, I mean, we've been around for 160 years, and now getting global federal and state regulation for more than a century. And so I have high confidence we can do that now. When it comes to things like colors, I mean, 98% of our K-12 school offerings don't have certified colors now, and 85% of our retail doesn't. So we're talking about a relatively small sample. What I will say without commenting on any particular state is that there are a lot of state regulations being brought up now. And I think there's a challenge in that. And it's a challenge really for consumers because there's a cost associated with trying to do something state by state, rather than a federal level. And ultimately, consumers will pay the cost for that. As well as confusion, how can something be good in one state and not good in another state? And so the -- we've always been a believer working at a federal level, working with health and human services as we have been, working with the FDA and the USDA to work on federal legislation and regulation that really makes sense for consumers. And we believe that's the best approach that we have right now. And so we're confident we can navigate this environment. We're making really good changes, really good progress. And -- but I think there's a challenge for the whole industry with a state-by-state approach. And it's certainly not just our challenge. And ultimately, I think it's better if we can get to something that's consistent on a federal level. Alexia Howard: Great. As a quick follow-up, you mentioned that the pace of innovation is stepping up, I think, 25%, I believe that was in North America Retail. Are you able to say what percentage of sales are now coming from new products introduced over the last year, or over the last 3 years? Where are you at in absolute terms on that front? Jeffrey Harmening: Yes, I'm glad you asked. Really, I'm really proud of the way our entire team is innovating. And we're at about -- we're roughly 5% of new products coming from new product innovation where we were at 3.5% a year ago. But I think there are a couple of important things that lie beyond that, which I want you to know. First, it's not that we're introducing more things. Its that really that what we're introducing, we think, has our bigger and better ideas with more staying power, which is not only good for this year, but in years to come. And that's true in North America retail. When you look at Cheerios Protein, for example, some of the granolas that we are bringing to market. Some of the Mott's fruit snacks that we're bringing to market, really good new product innovation. It's true in our pet food business, bringing fresh pet food to the market and investing behind that. It's true in international, where I mean, look, we grew Haagen-Dazs retail double digits in China in the first quarter. And the reason we did that was because we introduced stick bars. And so now we're taking that all over China, and it's really working well. And in foodservice. We have -- we -- again, we picked up share in foodservice have continued great momentum there behind some biscuit innovation. And so what I'm pleased with is not just one part of the company that's innovating better. We have all of the segments innovating better and by better, I mean I think bigger more on consumer trend ideas, and we're supporting those with investment. And so that's what's exciting to me. Operator: Our next question comes from Megan Clapps from Morgan Stanley. Megan Christine Alexander: I have a quick follow-up and then another question for Kofi, if that's okay. So the first is just following up on some of the earlier line of questioning. Jeff, I think you mentioned you don't need massive share gains to hit the guide. But based on some of the things I think Dana mentioned later, it sounds to me like maybe some category trends are softer than you expected. So could you just clarify how category performance has evolved thus far year-to-date relative to your initial expectations? And whether we need to see improvement in areas like cereal, for instance, to deliver on the guide? And just related as well, since you brought it up, Jeff, can you maybe just expand a little bit on the GLP-1 comment in terms of what you're seeing in the data that you track? Jeffrey Harmening: Okay. I'm going to try to get to all your questions. You have a lot of good ones.If I miss one, that's because I just forgot. But I would say that the year so far has played out as we thought it would and the consumer environment is what we thought it would be. In terms of how our progress looks in Nielsen, our top 10 -- our top 10 categories in North America retail are about a point better than what we expected. And so -- it's when you get beyond that like Flower and Betty Crocker desserts and things like that, where you see a little bit softer. And look for those key baking season starts in September. So we'll see when the weather gets colder. But the -- but our top 10 are performing at or a little bit better, actually a little bit better than what we anticipated. So I would say broadly, consumer sentiment is what we anticipated. The growth in our categories is about what we anticipated. And certainly, our performance within those categories, growing share in our and foodservice and international are holding. That is kind of what we anticipated. So I would say so far so good as kind of as we expected. With the GLP-1s, there's been some impact on our categories but not significant yet. I would expect GLP-1 usage will continue to grow. Everything I read says that it will continue to grow. And -- and with that comes to reduced calories, clearly for those who are using GLP-1s. But also there's opportunity because we know that people taking those medications. We know a couple of things. One is that they are looking for more protein because people tend to lose muscle mass when they they're reducing their calories and they need more macro nutrients, things like fiber. And things like breakfast cereal are high-end. That's why Cheerios Protein, I think, is doing so well. It's good in protein. It's high-end fiber. By the way oats is also high in fiber. And so even though a macro trend that GLP-1 usage that we think will continue, and we'll put some macro pressure on some categories over time. There's also a lot of opportunity in that. And I want you to make sure that you hear that for us as well. And -- and one of the things we're introducing a lot of new products that we think will meet this demand. So we feel good about that. Megan Christine Alexander: Great. That's super helpful. And then just a follow-up for Kofi as we think about pet phasing into the second quarter just because there seems to be a lot of puts and takes. Can you just help us understand a little bit what these -- how to frame these puts and takes? Just to keep in mind, there was lumpiness in 2Q last year. Wildernesses may be a bit softer. You also have the fresh pet launch. I also think maybe the shipment headwind was a bit bigger in the first quarter than you had talked about last quarter. So just with all those things in mind, if you could just help us think about how to frame phasing in 2Q, that would be helpful. Kofi Bruce: Sure. I think it's fair to say we expected the shipment timing issue at Q4. It might be modestly larger than we expected. We're not expecting a change to the overall outlook for the year, and I'm not going to get in the business of making quarterly predictions on pet just because I've failed at that multiple times. There is some volatility quarter-to-quarter in that business just inherently in shipment timing. I think broadly, you have the contours right. We will start to see a modest contribution in revenue as we ramp up behind shipments on fresh pet. I think we're expecting some modest improvement as we step into Q2 and then into the back half of the year. Operator: Our last question will come from Peter Galbo from Bank of America. Peter Galbo: Kofi, maybe just one clarification. I think you said based on the puts and takes on Q2 operating profit in the first half of this year would be down kind of similar to Q4. I think that lands Q2 operating profit down like 25-ish percent, but I just wanted to make sure that my math on that was correct? Kofi Bruce: Yes. I think your math largely works. Peter Galbo: Okay. Super. And Jeff, maybe just a broader question, and this probably goes back to Andrew's first question. Dana spent a lot of time talking about getting below certain price cliffs, driving value. And I guess what we haven't really talked about is your competition, not so much on the shelf at retail, but the away-from-home channel is getting a lot sharper in terms of price points, in terms of trying to drive value in their messaging and even in the pricing that they're charging. Whether it's $5 boxes, $8 boxes. Just -- is the industry, or is the retail packaged food industry, adapting fast enough in your mind to be able to compete effectively against away from home that, again, seems to be much more focused on driving a value price point? And whether you've noticed just any share shift there that's become more pronounced as we've gotten just a plethora of kind of these offerings? Jeffrey Harmening: Yes. The -- as far as speaking for the -- I probably won't speak for the whole packaged food industry, but I would like us to go faster rather than slower. But I would say that the -- if I look at away-from-home eating, just the traffic has been pretty -- has been quite stable and despite all the efforts of quick-serve restaurants and all. The traffic has been stable over time. And if you look at it, what the trends that we see here that low- and middle-income consumers are -- traffic is declining, in what we call the commercial channel or restaurants, and high-income consumers, call it, $200,000 or more a year is growing. And so it nets out to flat. And the challenge that, that particular portion of the business has with the value meals is that the inflation is growing faster than food at home. And quite a bit faster than food at home, driven by labor. And so even though you may see a lot of advertising about value deals and so forth, just note the traffic in commercial remains very flat. There is growth in the noncommercial channel, which is where General Mills over indexes in its food service business. And so we're very well positioned to capture the growth there. In the noncommercial, I mean, things like K-12 schools, and hospitality, and business, and industry where people are going back to work. And those channels are growing about 2% or so, and we're gaining share. And so any growth you would see would really be in that place, and we're very well positioned through our foodservice business to take advantage of that growth. And we are. And that's one of the reasons why you see our food service business continue to perform well. Jeff Siemon: Okay, Julienne, I think we'll have to wrap it up there. Thanks, everyone, for the good questions and the good engagement. And the IR team is available all day for follow-ups. We look forward to talking to you next quarter. Thanks. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Aegean Airlines conference call to present and discuss the first half 2025 financial results. [Operator Instructions] The conference is being recorded. At this time, I would like to turn the conference over to Mr. Eftichios Vassilakis, Chairman of the Board of Directors. Mr. Vassilakis, you may now proceed. Eftichios Vassilakis: Yes. Hello. Good afternoon, everybody, and welcome to our results presentation for the first 6 months of 2025. Just to remind that along with me, I have Mr. Kouveliotis, our Deputy CEO and CFO; Stella Dimaraki, our Treasurer and Investor Relations Director; and also Anthi Katelani, our Investor Relations Manager. So all 4 of us are here for you. Happy to answer any questions after my brief remarks. 2025, first half is, again, a quarter and 2 quarters where we had, I would say, modest growth driven by our particular restrictions in terms of how many of our neo aircraft are actually flying versus the ones grounded for GTF. And within the confines of those restrictions, the additional challenge of around 2 months in the second quarter where our important nearby markets, Israel, Lebanon, Israel, in particular, Lebanon and Jordan, we were not able to fly to due to the situation there, what's going on between Israel and Iran and the effect it had to the whole area and our inability to fly for around about 2, 2.5 months, which ended on the second week of July, if memory serves. So within the restrictions that we had, I think we've achieved a very strong set of results. We've managed to provide a revenue increase of 5%, which is 1% higher than the ASK, the ASK growth we put into the market, which was 4%, which meant that within an increasingly competitive environment, we have managed to actually increase our RASK marginally by 1%. This was done in both quarters in terms of growth, as you have already seen that the first quarter was significantly stronger in terms of ASK development versus the second. That is part of 2 things, one planned and one unplanned, first of all, we have indicated also in previous conversations and discussions with you that we see a gradual extension of the season. We also see an increasing pattern of Greeks traveling more. So within those 2 effects, we see ourselves operating growing more in what used to be referred to as the lowest months, so Q1 and Q4 relative to Q2 and Q3. That is also related to restrictions in ATC and airport capacities around our country. But that's the first part. The second part is, of course, what I referred to earlier, the fact that not being able to fly to Israel where at the peak of the season, we have around about 6 flights to 7 flights even a day from different places plus Jordan and Lebanon, that basically make the total amount of flights lost to be 9 for a period of 2, 2.5 months. This cost us around about 100,000 passengers on these routes. And on top of that, we lost around about 35,000 passengers on connecting routes. And in a way, the [ ConneX ] losses are more costly in the sense that those seats are not typically with the cancellation of flights close to departure, you're not able to redirect those lost [ ConneX ] seats route to other sources. So within the confines of that, achieving a revenue increase of 5% and achieving a significant increase in our bottom line and a modest increase in our EBITDA are, I think, significant positives as well as, of course, continuing to build -- to have extremely strong cash flows where despite a payout of dividends of circa EUR 70 million and an increase to our PDPs paid into Airbus by another EUR 40 million. So a total of EUR 110 million that have been spent this way. We still had an increase of circa EUR 60 million -- EUR 70 million, I'm sorry, in our available cash to EUR 840 million. And as we highlighted also on the report on the -- sorry, on the release, this is before, of course, the issuance of our early July bond of EUR 250 million that has further added in the middle -- beginning of July to our cash availability. It's fair to say, of course, that the development of -- the development in the same way that we lost passengers and capacity, both capacity and passengers and profitability in the second quarter due to the geopolitical problem. At the same token, we did have an advantage from the development of the euro and the development also of the fuel price. So there are effects both ways, positive and negative, which we can discuss in detail, if you like. But overall, we're happy what was done within the context of the restrictions that I previously announced or described. Within the difficulties that we're having with the fleet, the positive element is that gradually, we are flying more and more of the 321neo derivative. In particular, as you know, the big delta in seat capacity and in efficiency per seat comes from increasing the mix of those aircraft of the fleet due to the fact that they have a 220-seat capacity relative to 180 to the 320neo and 174 on the 320ceo. The important thing for the company is that going forward, all the remaining Airbus deliveries that we are to take are indeed of the 321neo type. So that is going to be building our efficiency going forward. And it's also important to understand that we are now in September of 2025, entering, I would say, the period for the next 12 to 14 months of maximum number of aircraft that will be on the ground awaiting these checks. Why? Because the aircraft that we have received up until the first quarter of 2024 were the ones affected with the initial defective or potentially defective part. As a result, those 28 aircraft that were accepted until April 2024 when they reach between 20 and 2,500 hours cycles they need to go for their preventive checks. And that maturity level is coming at its peak from what was basically last year 8 and what became 10 at the peak of this summer. Right now, we're at 11 to 12, and we will reach 14 -- between 12 and 14 for the next 12 to 14 months. So we're at the maximum part of the restriction in terms of how many aircraft will be on the ground. On the other hand, as we accept more aircraft gradually, we expect to have, of course, a higher number of flying neos and indeed a higher number of flying neo 321s, which will be contributing to our efficiency and to our competitiveness. I also need to say that I think there are adjustments that we've made in our network this year that have worked well and have allowed us to offset the effects of additional competition in several different markets and the consistent growth of the market to Greece in excess of the rate that Europe's overall shortfall is growing. So adjustments in the network have helped us retain profitability. And at the same time, I think many -- it's encouraging to continue to see that our business class product continues to have increasing penetration, still not at the level that one would like, but certainly much higher than in previous years and much, much higher than pre-COVID. So we've now -- I think this is an important aspect, especially as we're going towards the direction of introducing longer distance routes with the XLRs and the LRs that are coming forward. So we believe that this will also further help in this dimension and will have a reflection on what we should refer to as a traditional network as well. And another issue I would like to refer to is that certainly, there is no shortage of disruptions from air traffic control all over Europe, but also particularly in our country. We are significantly active in a hopefully constructive and consistent way over the last 4 or 5 years at least with our local authorities. And we hope that in the next months and years, the amounts that have been paid in by all airlines, including Aegean will finally be used in an effective way in our local market in order for the problem to be gradually mitigated because it is becoming significant for the quality of service that visitors to Greece overall experience. So we consider that a very important issue, which needs to be addressed, and we have highlighted that perhaps not in an equally aggressive way as others, but we have highlighted that consistently over the last 4 or 5 years. And we have made, I believe, specific suggestions on how parts of these issues could be mitigated. Finally, before we take questions, a word about our investment in Volotea. It's now been exactly a year since we started to invest in that company. I have reiterated that in the annual results, I said we got what we expected in terms of results from Volotea for 2024. I'm happy to report that it seems to be going positively and indeed in a more positive way for 2025. So we are significantly positive about the prospects of the company going forward. It is not yet beyond all possible risks and burdens because it was burdened during COVID by significant losses and significant debt. However, things seem to be evolving in a positive way. And we think that in the next 6 to 8 months, we will be called to make some decisions together with other shareholders about some additional injections of capital in a more significant way. And depending on what exactly the outcome of these conversations and the performance in the company in the meantime, we will also take our decisions about how to further proceed there. But overall, I think we're happy with the results. And we also think that it's possible in the future regardless of the amount of equity that we will now in the company to develop a somewhat complementary service to the regions of Greece. The reason it hasn't been done actually already is mostly because Volotea, much more than Aegean is restricted by the unavailability of aircraft in the market. We are restricted by our GTF Pratt & Whitney cycle. Therefore, we are both relatively conservative with our capacity development over the years. So we will need some more time to develop these particular commercial synergies. But overall, we're happy with the cooperation. So in a nutshell, also one more thing to say, expect our ASK development in the market to be somewhat higher, around about 3% in ASKs in Q3 and significantly higher than that between 9% and 10% of ASKs in Q4. I think it's fair to say that there is, again, a mix of factors going forward affecting our expectations. Demand is strong. Competition is also strong. There are fare pressures in different markets, not everywhere. Some markets are developing positively. I think in a great extent, what we have come to expect is an annual improvement year-on-year, particularly on the September to December period as opposed to the June to August period because, frankly, people are gradually changing their pattern of travel. And even though families will always need to travel for leisure at peak, the rest of customers seem to be modifying their behavior more. So we begin to see a spill of potentially positive results also in the latter part of the year. So I'll stop here and listen to your questions and hopefully, we'll give you a better idea of where we're at. Thank you. Operator: [Operator Instructions] The first question comes from the line of Lobbenberg Andrew with Barclays. Andrew Lobbenberg: Thank you so much for the clarity on capacity for the rest of this year. What's the right way to think about what we get in '26 given the more grounding but more deliberate? And then another question, could you perhaps give us more color on which markets are seeing the tougher competition and which are less? And you also spoke of doing some network adjustments that were positive. Can you remind us what those adjustments were? Eftichios Vassilakis: Well, thank you for the question. Let me first say that I'm not going to ask specific network -- I'm not going to respond to specific network questions because if I respond on where our RASK is improving and where it's deteriorating, it's like guiding other people to go after that. It's a mixed bag, and we are very dynamic about it. I think all airlines have become significantly more dynamic about network adjustments. There are opportunities, and we tend to make, I would say, 2% to 3% -- 1% to 3% ASK differential shifts in our overall market within a 3-month cycle. And whether that's up or down and where exactly it goes is something that we look at diligently and on a continuous basis. And I think the process itself is what brings the improvement. It's not specific trends in specific markets. Again, if you are to look at most incoming markets, most international markets in Greece, you will find between a 4% and a 7% capacity growth in all of them. So you can just not look at capacity and competition and adjust in advance. Now in terms of the aircraft there, I can be much more specific. Today, we have taken delivery of 36 neos, out of which this summer, 10 were idled. So we had 26 aircraft flying. Last summer, we had, if memory serves, 8 to 9 groundings with a total of 33 deliveries. So there were actually only 33 minus 820 books, no it's wrong. It's 30 -- no, 30 minus 8. There were 22 aircraft flying. So there were 4 more neos flying this year than last year. And next summer in peak, we expect to have 45 minus 12, that makes it 33 aircraft flying. So basically, you see an evolution where 8 grounded becomes 10 grounded this year and 12 grounded next year at peak. But at the same time, you see 22 aircraft flying in '24 at peak, new aircraft, of course, 26 this year and 33 next year. And what is particularly relevant even more than the increase in this number is that this year, we had 12 A321neos flying. Next summer, we'll have between 18 and 90 A321neos flying. So 50% more of the larger derivatives at work, which is what we expect more than anything else to support our results. So I hope at least on that part, I have been specific enough for you. Andrew Lobbenberg: That's helpful. Can I just come back on the network, and I appreciate the commercial sensitivities. But in that second quarter, we saw more growth on the domestic than on the international, which versus recent trends. So we meant -- I mean, what drove that? Was that really influenced by the Middle East? Or was that influenced by commercial decisions by... Eftichios Vassilakis: I would say both. I mean, certainly, the reason that you didn't have growth on the international network was the Middle East. We were planning to have small growth in the second quarter and a little bit more on the third and more on the fourth. Actually, the peak -- the maximum growth quarters for international were Q1 and Q4 by design. The lowest was going to be Q2 and in the middle was going to be Q3. Why? Because last year in Q3, we were not flying to Israel again and Lebanon and Beirut on and off. So one of the things that confuses the comparisons is that if you have markets that you're coming in and out, not by choice, but rather by what's going on in geopolitics, that makes things more confusing. But no, if we look at the year overall, we were not planning to have more of an increase in domestic than international. We were planning for an equivalent level of capacity increase of both. It turned out to be a little bit different on Q2 due to what happened. Now what I can say about the network is that within the international network. Certainly, we have emphasized a little bit more shorter destinations. So we do have, even if you're looking at the pure international network, a little bit of a drop in the average distance that we cover when we fly internationally. So that's as specific as I can be in the view. Operator: The next question comes from the line of Caithaml Jakub with Wood & Co. Jakub Caithaml: Three questions also from my side. On pricing, I understand that you're pricing slightly more softly in the summer than last year. Any comments on the extent of the softness? And also, could you tell us how the pricing was evolving during the individual months of the third quarter? And maybe related to that, are you now and to what extent flying back to Israel? Eftichios Vassilakis: Okay. Again, I'll start from the end because it's easier. Yes, we're flying back to Israel, and we're flying to Lebanon, and we're flying to Oman and Jordan. And we hope to increase our flying in the Middle East with some new destinations also in North Africa in the next 6 months. It is very important for us because we also sell connectivity through Athens to ensure that near destinations with a distance between 1.5 and 2.5 hours flying in particular, to our South and to our East are well connected and that Athens and the GN or GM and Athens are considered a valid route to the West, to the north, to the Balkans, at least even before we discuss flying further away like we plan to next year. So we are back and we are eager to expand our presence in different markets around there. But of course, I recognize that the stability of the region is not exactly stellar. And as we try to develop our network, we will have some instability depending on how conditions between the nations evolve. By the same token, I'm sure you understand that these markets are largely underserved. And therefore, when things are normal, you can expect a decent return, especially if you are positioned somewhere like Athens, which is convenient for these people either to come and visit for Greece and spend the holiday or business here or indeed just transit through Athens to another destination in Europe. So yes, these markets are important, and we'll continue to try to develop there, and we will accept that this might mean that sometimes we might have to stop for periods of time. And we, of course, are very careful to make sure we fly when other Western carriers fly and when our people are told that the situation is secure enough for us to fly. We don't take risks of that kind knowingly. And of course, #1 for everybody else is safe operation. For all of us, it's a safe operation. In terms of month-by-month evolution of -- I will say that international fares are somewhat lower, not in an alarming way. We are, at the same time, somewhat better 1 or 2 or 3 passengers more on average on people per aircraft. So that on passengers per aircraft, either because we're growing the aircraft or because we're getting small increases of load factors. So there is some measure of offset. And overall, the effect is there, but not super significant. So we'll have to wait a few more months to see how this evolves. At the rate that we are going now, we feel that it is likely to expect an improvement in our overall results for the year. But of course, one can never take this to the bank unless the whole year or most of the year is behind us. So that's the most I can give you in this direction. Jakub Caithaml: A quick follow-up on the Middle East. In terms of scale of the return? I mean, by September, I mean, are you back to where you would have been in your original expectations fully? Eftichios Vassilakis: Yes. In terms of capacity deployed, yes. Jakub Caithaml: Understood. Then the second question also on growth and pricing in the fourth quarter, where you are guiding for brisk growth of 9%, 10%. What kind of yield or RASK implications do you think this will have? And can you comment on the competition schedules, how they are looking for the shoulder season in the winter? Eftichios Vassilakis: The competition is also more or less applying higher increases in the winter than in the summer in terms of capacity. This is a pattern that we have seen for the last 3 years. So their capacity is higher also in winter, more so than in summer. And I don't have yet visibility on what the overall effect on RASK can be. But I would expect in terms of international fares, which is not necessarily RASK, the things to be a little bit softer again following the trend of the summer, I would consider that more likely than the reverse. But I have to say by the same token that we have seen and I've seen other airlines refer to that, an increasing trend of last-minute bookings. So it is becoming somewhat more difficult to be able to forecast exact RASK or exact load factor. Jakub Caithaml: Got it. This is very helpful. Last question from my side on engines. You mentioned that if I understood correctly, the powder metal engine issue can be resolved in 24, 28 months. Just to confirm, is this referring to today? Or is this referring to end of June? And the broader question on engines, could you share anything at this point on your expectations regarding the availability of the HS+ section upgrades in '26, '27, how many of the engines may be able to get this that you will be sending for shop visits? Or is there anything that you could share on the advantage engines availability and time line? Eftichios Vassilakis: Okay. First of all, I'm not sure I'm qualified to answer all of these questions, but I would at least answer the questions referring to the date and the significance of the number or the level of the number of the grounded aircraft. So as I said earlier in the discussion, the highest number, a number between 12 and 14, it will go up and down between those 2 figures will exist between September '25 and September, October '26. From October '26, we start having a decline, which will gradually lead to something like 7 aircraft in, I would say, September '27. And then between September '27 to March '28, it will probably go down to 0. Now this is -- takes into account what we have been promised in terms of slots for induction of engines for the next 12 months and then some expectation for -- in an equivalent fashion for '27. Unfortunately, these numbers are moving targets, but we believe that these numbers that we're giving are relatively conservative. We are continuously discussing and pushing Pratt & Whitney to give us priority in slots. And we, of course, have said many, many times that the compensation that we get does not fully cover the losses that we have from higher maintenance, a less efficient fuel consumption and of course, loss of seats per flight. The compensation barely covers the lease cost of the aircraft that is sitting down, but it is not covering the opportunity cost of not flying the improved aircraft, which is, of course, the reason why we made the investment. And on top of everything else, it makes our balance sheet more bloated because there are a significant number of idle leases, but we are not -- which are booked as a liability, but what we will receive as a compensation is not booked as an asset, not forward only once we receive it. Therefore, you have a level of inefficiency in your balance sheet. You have a level of inefficiency in your cost and you have a level of inefficiency in your utilization, which is, of course, the same thing as cost. And the 24 to 28 months is from the date of the announcement, meaning yesterday. So that's why I think the 28 months will expire around about early '28. I hope I have been thorough enough in the response. Jakub Caithaml: This is helpful. So I understand that at this point, it doesn't make sense to discuss the potential engine upgrades from Pratt & Whitney where they may be replacing some of the parts in the hot section of the engine... Eftichios Vassilakis: Mr. Kouveliotis would like to respond to that. Here he is. Michael Kouveliotis: The Advantage engine, yes, as the specs presented by Pratt & Whitney are promising. And we are expecting when the time comes to have more durability on time on wing. But actually, it's quite early to have a clear opinion and view because we are expecting to deliver some -- the first engines of the Advantage within '26. But again, it's not something very firm. So we hope and we believe that this is going to be an improvement, but too early to have. Eftichios Vassilakis: I mean in a nutshell, all of us knew that the Pratt & Whitney GTF engine was a new technology and that it presented potential benefits of evolution with versions coming out that would further improve mostly the fuel efficiency. So that was always the case there. Unfortunately, as you know, for the last 2 years already and for the next 2 years, as we've just said, this whole situation has been clouded by the problem regarding the early inspections and the effective grounded aircraft. So I think all of us need to get ourselves out of the first situation before we consider the second. But yes, we all think that there is potential for this engine to evolve in a positive way. But let's see the main problem we get out of the phase before we start counting what the benefit of that might be. And frankly, we are also all eager to make sure that we keep on the pressure to Pratt & Whitney to maximize either direct payouts for compensation, which are there, but they are inadequate or indeed to accelerate the availability of slots so that the program -- the problem can be dealt with more expediently. Operator: The next question comes from the line of Kumar Achal with HSBC. Unknown Analyst: I have 3 actually. So first of all, in terms of competitive landscape, so you mentioned that the increasing competitive environment. So just wanted to understand how the competitive environment looks like at Athens Airport versus the regional airports, the big cities. And especially, if I look at the table, it looks like the traffic growth at the airports operated by Fraport was quite slow, 1% flight growth and 2% passenger growth in the first half. So do you think with these kind of demand growth slowdown, the competitive environment could remain strong? Or do you think there is a possibility people could sort of take out the capacity? How do you see the demand versus supply going forward? Eftichios Vassilakis: Well, certainly, the demand growth -- sorry, the supply growth has been slower overall in Greece than in the past 2 years, where we were in '23, still in the, let's say, recovery path post-COVID and '24 had a strong follow-on both for Athens and all the regions. This year, we're seeing certainly a resurgence of growth of capacity to the north, to the Thessaloniki market, still some significant growth in Athens, but Athens is beginning to be significantly restricted both by ATC issues and also by terminal issues. The airport became facilitated, which is Level 2 this year for the first time. It will be even, I would say, more effectively facilitated because the ATC restrictions have been better translated into the coordinators planning next year. So that should -- well, hopefully allow us to operate a little better and at the same time, make it a little bit more difficult for too many people to add capacity. I think Greece has had a very good run. in terms of capacity development and demand development. And I think we should all be a little bit more moderate on what we expect going forward. Now this is still early to talk about what will happen next year. The only thing that I am certain about is that there will be some capacity growth. I would expect it to be, again, somewhat at least 1% or 1.5% higher than whatever the average capacity growth to Europe is going to be. We are now based effectively in a material way in 4 airports, Athens, which, of course, is the core of the network and the provider of all the connectivity and the network synergies. Thessaloniki in the North, where we have significantly invested this year and where we expect to invest even more next year. Larnaca in Cyprus, where we also have invested this year, and we expect we will invest some more again next year. And Heraklion in Crete, which is a very important, the second airport in the country, but is -- has been restricted in terms of capacity for many years now due to the terminal basically the terminal, the airport and the terminal itself. Heraklion is going to be replaced by a new airport in Crete probably March '28, so 2.5 years from now. We have 2 more years of operation on Heraklion, and we certainly consider Heraklion and the new airport of Heraklion a potential area of growth for us in the future. So these are the 4 places out of which we will be developing our capacity. I would say, if I were to say what's going to have the highest growth into next year, possibly that would be Thessaloniki because Thessaloniki is among the main Greek airport, the one which has lagged behind in terms of recovery from post-COVID. The average in Greece today is about 30% higher capacity and passengers relative to COVID, 30%, 32%. Thessaloniki is, I believe, right now at 15% and has shown better recovery trends during the last 12 months. So I don't know, I don't know how much I have answered and how much more you need. Unknown Analyst: No, perfect. And then you mentioned that Athens Airport remains constrained... Eftichios Vassilakis: It's beginning to be partially constrained. It's not Heathrow, right? But certainly, there are now times in the day, and there are a lot of times in the day where there will be significant difficulties in increasing capacity for us and for others [indiscernible]. Unknown Analyst: But does that mean there will be more opportunity or better opportunity for you to sort of get better pricing out of Athens if the capacity remains high, do you think? Eftichios Vassilakis: I promise to let you know as soon as I do, but I really don't know. I mean one would like to hope that. But in effect, what I'm mostly hoping for is that we reduced the number of operational -- the amount of operational problems that we are facing. Greece at this moment is not ranking well across Europe in delays, in ATC problems, we're ranking quite low. And it's impossible to escape the problems of your home country and of your hub if you are a carrier, particularly a carrier that does significant transfers in the airport. So what we're mostly concerned about is to improve -- that further improve the quality of our operation. The last 3 years have been very difficult in this direction for on-time performance due to these reasons. So we are more eager to see ATC problems and capacity problems expanded so that our operation regains both a certain amount of quality towards our customers, but also a lot of cost savings for us because delays in the air, delays on the ground, compensations for passengers, misconnections, all that stuff costs money and it costs to brand value. And those things are very important for us, and we hope this will be corrected. This will not be corrected next year and probably not the year after that. Will this create the adverse effect of somehow being able to support RASK? Possibly, but I don't know. I don't know. Unknown Analyst: Right. My second question is around the cost. So I can see in the first half, many of your costs have increased significantly, like your handling cost was up 20%, catering cost was up 14%, employee cost, 13%, other operating costs, 17%, while the capacity was ASK is up only about 4%. What's going on there? And particularly handling charge has [indiscernible] gone up by almost 20%, as I said. So is that because the new airports are pretty more expensive? And if that is the case, do you think the low-cost carriers will find it hard to stay? How do you see that? Eftichios Vassilakis: Let me say this. The -- well, certainly, the handling cost increase is the most important one, and that is related to basically increased labor costs in the country, new contract after 5 years, for the next 5 years, and that, in a great extent, has brought the increase in the handling cost. Catering is largely due to the higher amount of business class to some degree, but also to our effort to continue to provide a high-quality product. Perhaps we have overdone it a little bit there. The rest are not really significant. The part of the employees, the second -- the running rate as we go towards the year is actually at a much lower level. I would expect it to close the year between 9% and 10%, so significantly lower than 13%. Obviously, we were overstaffed and we were [ over planed ] as well in the second quarter relative to the capacity we actually displaced because, as I said, we didn't fly to 3 important markets. So that at least cost us 3% of our capacity for that quarter. Now also, you have to remember that we are continuing to beef up the staffing of our MRO. The MRO itself has added about 170 people in the last 18 months. And that is an effect on the payroll cost that is unrelated to the size of the operation. Therefore, I mean, to the size of the flight operation. So that is a factor there as well. I think that's what I have. I think the operating costs altogether did not have a very significant increase. The overall operating cost increase of the company was 5% in the first half. So this is the aggregate of everything -- that's excluding fuel. Including fuel. All right. So that includes fuel, which, of course, had a benefit, somewhat benefit because, of course, we were also hedged at the same time. But the overall expense was 5% for the operating expenses relative to a 4% increase in ASKs, right? Unknown Analyst: Okay. My last question is around your long-haul network. So you've just started -- you've just decided to start the flight -- direct flights to India. And you mentioned you're going to increase the long-haul operation. So I just want to understand... Eftichios Vassilakis: Longer haul, not long haul. Unknown Analyst: Yes, yes, exactly. So do you -- I mean, apart from India, do you have any other countries in plan or in mind what countries you are thinking about? And then if you find these longer-haul operations more profitable, do you think you can expand it? Or you're sticking yourselves to 4 XLRs which are planned currently? Eftichios Vassilakis: No. First of all, we don't have -- we have 2 XLRs and 4 LRs. So there are going to be, in aggregate, 6 aircraft that are competent to fly beyond 6 hours. Now we have told you in the past that we expect to invest these aircraft to a combination of routes that require the ability to fly further away, longer distance, but also to routes outside the EU that require a different aircraft configuration than the one that we're flying intra-Europe, which means a higher level business class because when we fly today to Saudi, as an example, or to Dubai, and we are -- we call ourselves a full-service carrier. We are competing with carriers on the routes to Athens as an example, to Riyadh or to Dubai where we have effectively an empty seat between 3 seats in business class, but other people have dedicated significantly more comfortable business class product. So the investment in the LRs and the XLRs is a combination of an effort to try to test longer distances, but also a recognition of the requirement to be able to serve customers outside the European Union in a product that looks more like the competitors that we have to face that don't call themselves low-cost carriers in these markets. So it's a combination of quality and ability to fly longer. Now our experience needs to be created out of the hopeful success of these initial efforts, be it how the improved product will be received in Dubai or be it how well we will do in the routes to India. So that's priority #1 for the next 2 years. And that's -- given we're getting 2 aircraft in '26, 2 aircraft in '27 and 2 aircraft in '28 out of these 6, as you might imagine, it will take us at least until the end of '27 to understand the initial response to these efforts. So beyond deploying these aircraft to India and beyond, which, by the way, India has got, as you know, many possible major destinations you can fly to. We're starting with Delhi and Mumbai. It doesn't mean that we'll be restricted to that if we seem to be doing well in that route. It's very important to note that just 2 days ago, we announced a signing of an MOU with IndiGo to develop code sharing to the Indian market. They will also be flying to Greece as of next year. But through their presence in India, we will have access and distribution to, of course, all the places within India that they fly to, and that's very important for us because Greece is small and India is big. So it's important to be known also in that country. So no, I don't have a particular idea of where beyond India. What I can say for sure is when and if Russia comes back in line, Russia is going to be served by some of these aircraft, mostly due to the comfort level and less so to the distance. The Indian market has got a lot of potential for development in the Middle East, whether it is Saudi Arabia, Dubai or some other potential destinations are going to take up capacity of the aircraft. So until the end of '27, I doubt very much we will see some other routes. Now if there appears to be some seasonal lags where we can try some long-haul leisure routes like Maldives or Seychelles in the winter for Greek people to fly out of Greece to go there, that will only happen if the seasonality pattern of usage of these longer distance aircraft seems to be such that it allows for idle capacity to go in those markets. We will not discontinue India to fly to -- for 3 months to the Maldives for a few Greeks to be able to go there directly, unless it doesn't make sense to fly to India in the winter. Our hope is that it will make sense to fly to these markets around the year. And our hope is that through flying to these parts of Asia that we can reach, we can further improve our seasonality because the pattern of travel of some of these nations is not exactly the same as Europeans. They tend to be a little bit less seasonal or place more -- some more interest in winter. And of course, whether that is with final destination Greece or somewhere in Europe, in both cases, it's interesting for us because we need the [ ConneX ] as well more in winter. So no, we don't have yet too many other ideas about where these aircraft might fly. Operator: [Operator Instructions] The next question comes from the line of [ Karanika Savagillos ] with NBG Securities. Unknown Analyst: Just a follow-up on unit costs for the second quarter. If my estimations are correct, there was around 7% increase in unit costs, excluding fuel at the operating level, EBIT so -- which seems a little bit high given the euro strength. Can you give us some more color behind this increase? And is it something that we could expect in the coming 2 quarters of the year? And also, if I may, perhaps some color on some big deviations in 2 expense lines, other operating expenses and leases? Eftichios Vassilakis: Yes. Again, underutilization of aircraft will cause costs to go up. Q2, we had basically 3 aircraft that were supposed to be flying in those 8 to 9 daily 2.5 to be precise, of aircraft that were supposed to be flying to these routes that were discontinued due to the geopolitical part idled and also the people manning the aircraft, maintaining the aircraft, supporting the aircraft. So the loss of 2.5 or 3% of expected capacity does not bring you, excluding fuel, as you said, an equivalent amount of saving because a lot of the things there stay constant, the aircraft, the people, okay, and the infrastructure to support them. So that's the reason that you had this particular spike in the second quarter, which is not the case for the whole -- it is not the case for the full 6 months, and it will not be the case for Q3 or Q4. I said earlier on also that both employee expenses and some other expense will be mitigated. The ones that will continue to have a higher than the activity, let's say, increase are handling for sure, and to a certain degree, maintenance costs and catering. The reason for the increase in the maintenance cost is like mainly the fact that we do not operate -- that we continue to operate the older aircraft which are getting older due to the grounding of the -- some of the younger aircraft. And that's a problem that will be retained to some degree while we still have the GTF problem in the next 24 to 28 months, as I said earlier on. Now in terms of why there is a drop in the operating -- you call it in the leases, the leases refer to ACMI. They are not the long-term operating leases or finance leases, which are dealt in EBITDA or EBIT. Those leases were committed in 2024 used to cover charter operation, and we didn't use ACMI again this year. So that's why there is a big delta on that line, a positive big delta on that line. Operator: Mr. Karas, have you finished with your questions? Eftichios Vassilakis: Okay. Is there another question? Operator: Ladies and gentlemen, no, there are no further questions at this time. I will now turn the conference over to Mr. Vassilakis for any closing comments. Thank you. Eftichios Vassilakis: Thank you all for attending. I know you'll be eager to follow how we continue to do in the year. I think I have tried to pass on a cautious optimism for the overall year. Not saying that there are no challenges, but that we think between the advantages and the problems will come out ahead of where we were last year. And I think in an airline where you see the cash flows as positive as ours, you shouldn't be too worried. So having said that, enjoy the rest of your day, and I hope to talk to you again in a few months. Thank you. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.
Operator: Good morning all, and thank you for joining us on today's PZ Cussons full year results. My name is Drew, and I'll be the operator on the call today. [Operator Instructions] With that, it's my pleasure to hand over to Jonathan Myers to begin. Please go ahead when you're ready. Jonathan Myers: Thank you very much, Drew, and good morning, everyone, and thank you for dialing into our results presentation for the year ended 31st of May 2025. For those of you that can see the slides we're presenting this morning, it's worth calling out a successful example of our brand-building activities in the last year on the slide in front of you. Original Source advertising on a London bus as part of our Nature Hits Different campaign. I'll have some more detail on this later, but suffice to say for now that the activity helped deliver another year of growth for the brand in FY '25. Turning to the agenda then for this morning. I will start with a brief introduction before handing over to Sarah to take us through a review of the financials. I'll then provide a broader update on strategic progress and performance before moving to a summary and a chance for you to ask any questions. Note on this slide too, an example of how we've been building brands over the past year. This one, driving trial of Cussons Baby, specifically the Telon oil launched last year as shoppers browse a specialist baby store in Jakarta. Our Telon oil has now reached 10% household penetration in urban Indonesia and is growing market share. So moving to our main messages for this morning. We are making progress against our strategy. Our 4 priority markets delivered a strong performance. We have good momentum in the core of our business. The U.K. delivered a strong improvement in profitability, fueled by revenue growth and gross margin expansion. Indonesia ended the year with its fifth consecutive quarter of revenue growth with a healthy mix of high single-digit revenue and volume growth for the year. We continue to gain market share in Australia on each of our top 3 brands and grew operating profit overall, but we were still battling against the softer consumer backdrop holding back our revenue. Finally, our Nigerian business demonstrated its resilience, continuing to perform well in a high inflation environment. Meanwhile, we have also made progress pushing change through the business, strengthening our brand building capabilities, driving better integration of our marketing and R&D teams and extending our planning horizons to enable greater focus on sufficiency and quality of our multiyear innovation plans. Since the close of our financial year, we announced the sale of 50% stake in PZ Wilmar to our joint venture partner, Wilmar International, in line with the objectives of the strategic review we announced in April 2024 to streamline and simplify our portfolio. It was also after careful consideration of alternative value creation options that we announced the decision to retain St. Tropez, setting a new strategic direction with a new partner in the U.S. and a dedicated operating model within PZ to delivery. While I appreciate you will naturally have questions on our wider African business, all I'm able to say today is that we are continuing to progress our strategic review and will, of course, provide an update when we do have something to say. Finally, we are working hard on reducing costs and unlocking value in the business, whether that's through reducing discretionary spend, tacking our structural cost base or the sale of surplus nonoperating assets. I'll cover more on this later. So overall, we know there is more work to be done and that we have not yet delivered all that we set out to achieve, but there has been good progress to date, particularly the underlying momentum in the core of the business. And we are focused on delivering our strategic actions and operational improvements to evolve PZ Cussons into a business with a more focused portfolio and stronger brands, delivering sustainable, profitable growth. And with that, I'll hand over to Sarah to take us through the financials. Sarah Pollard: Thanks, Jonathan, and good morning, everyone. I'm going to share a summary of our FY '25 full year results, walk you through the key movements at the group level, then by segment and finish with current trading and guidance for the year ahead. As Jonathan mentioned, we've seen momentum across most of our portfolio, with a particularly strong performance in the U.K. and Indonesia. Group revenue declined by GBP 14 million to GBP 514 million, with a GBP 47 million reduction attributable to the naira, which while more stable in FY '25, was nearly 40% weaker on average versus sterling than in FY '24. Like-for-like revenue growth calculated on a constant currency basis was 8%, driven by pricing in Nigeria. Excluding Africa, like-for-like revenue growth was flat. Adjusted operating profit was GBP 55 million, down 6%, with adjusted operating profit margin lower by 30 basis points at 10.7%. However, as you can see from the bottom of the slide, excluding from each year's figures, the contribution of PZ Wilmar, the sale of which we announced in June, group adjusted operating profit margin would have increased by 30 basis points. On a statutory basis, operating profit was GBP 21 million compared to a loss of GBP 84 million in FY '24, which was primarily attributable to ForEx translation and U.S. dollar-denominated liability losses in our Nigerian subsidiaries following the currency devaluation of June 2023. And we have since significantly reduced our exposure to any future naira shocks as we have made good progress in extinguishing historical liabilities and repatriating surplus cash. We maintained a flat net interest charge in the year. With a higher adjusted effective tax rate more indicative of the higher rate going forward, adjusted FY '25 earnings per share declined ahead of operating profit, down 8.5%. The Board is proposing a final dividend of 2.1p per share, taking the total for the year to 3.6p, the same level as the prior year. Free cash flow was GBP 42 million, up slightly due to an improvement in working capital, partially offset by the reduction in operating profit. Net debt improved slightly to GBP 112 million with a net debt-to-EBITDA ratio of 1.7x. However, taking into account the proceeds from the sale of our Wilmar joint venture, which is expected to complete in the final quarter of calendar 2025, our pro forma ratio would have been 1.1x. Turning now to the financial performance details and firstly, revenue. To aid comparability, the first bar shows the impact of adjusting for FX translation, presenting FY '24 revenues at FY '25 exchange rates. The breakdown of the adverse GBP 55 million impact is, as usual, provided in the appendix. On this like-for-like currency basis, revenue increased 8% in the U.K. and Indonesia. And Jonathan will come on to the brand drivers of that revenue growth later. We again took pricing in Africa with multiple increases throughout the year to offset double-digit inflation in Nigeria. Jonathan will also outline the steps we're taking to turn around St. Tropez brand. Now to operating profit. As I mentioned, our overall adjusted operating profit margin decreased by 30 basis points to 10.7%. We've shown this chart excluding Wilmar, given this represents the more accurate basis for future profitability, lower in absolute sterling terms, but more cash-light and sustainable in nature versus an equity accounted share in a noncore, lower-margin joint venture. On a constant currency basis, group gross profit margin was lower in the year, reflecting the adverse mix impact of strong revenue growth in Nigeria, where gross margins are structurally lower. This was more than offset by a 220 basis point reduction in overheads. Around half of this represents structural cash savings relevant to our go-forward business. Also included within this number is a reduction in amortization to reflect the business decision to extend the useful economic life of our SAP software now that the manufacturer support period will run for longer, allowing us to extract a higher return from that IT asset. Marketing investment was broadly unchanged as a percentage of revenue, while the impact of ForEx translation had an overall adverse 70 basis point impact on margins. So let me now provide some more detail on the performance in each of our regional reporting segments. Looking first in Europe and Americas, where we saw growth in both like-for-like revenue and operating profit. Revenue grew 0.6%, driven by price/mix growth and with a very small overall volume decline. Growth in our main U.K. brands was offset by a challenging St. Tropez performance, without which Europe and Americas revenue growth would have been 2.4%. Adjusted operating profit was up GBP 4 million, with a margin increase of 230 basis points, driven by tight cost control and the full year impact of the integration of the U.K. Personal Care and Beauty businesses as well as ongoing revenue growth management and product margin improvement initiatives. This more than offset the GBP 3 million impact from the introduction in the U.K. of extended producer responsibility plans and new costs, which we will seek to mitigate over time through, among other things, a review of our entire packaging portfolio. Turning now to Asia Pac, where like-for-like revenue was flat. Continued momentum in Indonesia was offset by a decline in ANZ. All our core Cussons Baby segments drove volume-led growth in Indonesia, and ANZ saw market share gains in all 3 major brands despite the softer macro environment there. Both markets improved their profitability with higher gross margins and lower overheads. This, though, was offset by a reduction in profitability in some small Asian markets and lower profits in our business manufacturing non-branded [indiscernible]. Overall, adjusted operating profit reduced by GBP 3 million with a margin decline of 150 basis points. Revenue in Africa declined by 7% due to the depreciation of the naira. The 35% like-for-like revenue growth reflects 20 rounds of price increases as inflation in Nigeria remained elevated at over 30% for much of the year. Whilst volumes declined 12% as a result of those price increases, this was mitigated somewhat by further route-to-market improvements that Jonathan will describe later. We've seen our Nigerian business return to volume as well as price-led revenue growth so far this FY '26 financial year. Electricals revenue was GBP 47 million, up over 30% on a like-for-like basis. Adjusted Africa operating profit margin improved by 250 basis points or excluding PZ Wilmar, it improved by 450 basis points. The operating profit numbers shown here are excluding a GBP 9 million benefit that the Africa region reported in FY '24 related to intragroup debt forgiveness, the cost of which was shown in last year's central cost line and which had a net 0 impact to overall group operating profit. And I noted to explain that the Africa segmental results presented here are both comparable year-on-year and representative of underlying operations. So finally then, our central cost line, which equated to GBP 30.5 million in FY '25 and which was, on a reported basis, down slightly versus FY '24. However, we have also made the corresponding Nigerian debt forgiveness adjustment here to ensure comparability. And as such, central costs increased GBP 6.8 million in FY '25. This was split between underlying cost increases and investments in group-wide capabilities attributable to the performance of business units, but best housed at the corporate center for maximum return and so reported them. For example, the shifting of some marketing and some R&D roles to sit central. As we'll come on to, we see this number falling considerably over the next 12 months given the cost savings we're announcing today. So moving now to cash flow and net debt. Total free cash flow was GBP 42.3 million compared to GBP 41.6 million in the prior year, reflecting an improvement in working capital, offset by lower profits. Net debt was GBP 112 million compared to GBP 115.3 million last year, representing a net debt-to-EBITDA ratio of 1.7x, which, as mentioned earlier, will then see a significant reduction following the completion of the Wilmar sale. The group also continues to have no surplus cash held in Nigeria following our successful repatriation efforts. As we said in the statement this morning, trading year-to-date has been in line with our expectations. Group like-for-like revenue to the end of September is expected to be up around 10%. Strong revenue growth in Asia Pac is made up of Indonesia posting its sixth consecutive quarter of growth, plus ANZ also being up. Africa is showing encouraging volume momentum. Europe and Americas is down 2% or up 2%, excluding St. Tropez. We expect Europe and Americas to continue to strengthen across October and November, which would see us back to overall revenue growth there in half 1. In terms of profit guidance, we expect group adjusted operating profit to be between GBP 48 million and GBP 53 million. And this figure strips out any contribution from Wilmar, which is now treated as an asset held for sale in accounting terms. And so its profit contribution in FY '26 will be reported as part of the disposal calculations. Captured within the guidance are cost savings of between GBP 5 million and GBP 10 million, some of which will be reinvested in the business, subject to clear return criteria. Finally, net debt will fall significantly in FY '26 to less than 1x EBITDA. We expect cash proceeds of between GBP 15 million and GBP 20 million from the ongoing program to sell surplus nonoperating assets, of which we have received GBP 8 million so far this current financial year. We're expecting to receive proceeds of approximately GBP 47 million before the end of the calendar year from the sale of our Wilmar joint venture. Jonathan will talk a little more about the cost savings and noncore asset sale proceeds in a little detail. And so with that, I'll now hand back to him. Jonathan Myers: Thanks, Sarah. So let me give a broader update on progress and performance framed around the highlights and messages I covered at the beginning of the presentation. And let's start with the U.K. and what was behind the strong operating profit that I mentioned earlier. Beyond the cost savings Sarah talked about, a key driver of the revenue performance has been better commercial and brand building activities. Taking Original Source as an example, we delivered a bold marketing campaign from February through to May, firmly targeting younger consumers with an optimized mix of social media, out-of-home and TV, leveraging our partnership with social media influencer and personality, Jamie Laing. This is a good example of how we are enabling more competitive brand activation with the GBP 2 million media campaign reaching more than 15 million people. Pickup in brand awareness meant Original Source not only achieved its highest household penetration in almost 5 years, but thanks to considered price and promotional optimization as well, the brand also grew gross margin. Based on the success of the first wave of Nature Hits Different campaign, look out for the next wave of activity on Original Source over the next couple of months, a good example of us prioritizing brand support against activities with proven return on investment. Another way of driving revenue on our brands is to work in partnership with the owners of other brands to engage common target consumers and drive in-store activation. Six months ago, we highlighted the success of Carex and its Gruffalo partnership, which we have since expanded to Zog and Room on the Broom. Notably, Carex grew revenue and gross margin in FY '25, consolidating its #1 position in the hand wash market. We've also extended this type of brand partnership to Childs Farm to include a tie-up with Bluey and BBC Studios. Now if you don't have young kids or don't know Bluey, it's one of the most popular TV shows in the world for children and is enabling us to secure disproportionate levels of support across retail outlets. Just take a look at this tie-up with Bluey and Kellogg's at Sainsbury's as evidence. So we've seen encouraging FY '25 performance in the U.K., and we look forward to more to come, not least our plans for Christmas gifting, which is starting to hit the shelves this very month. Turning to Indonesia and Cussons Baby. You may remember the Childs Farm SlumberTime product range launch, addressing the importance of reassuring parents that their washing and baby products are giving their babies the best possible chance of a good night sleep for the wellbeing of both the baby and their parents. The CuddleCalm range takes the consumer insights and product formulation learnings from Childs Farm and applies them to Cussons Baby, albeit in a very different context. It's a good example of us leveraging shared baby insights across geographies and brands as we have sought to create a more integrated marketing and R&D organization. Elsewhere in our Indonesian business, we continue to see phenomenal growth in e-commerce, whether that's through established platforms such as Shopee or the ongoing success of our own live streaming capability. Turning to our business in Australia and New Zealand, where we continue to see softness in category values through the year, though reassuringly, we've seen the first signs of amelioration in the latest quarter. Against that backdrop, we continue to make market share gains on our top 3 brands, thanks to renewed efforts to drive better in-store presence, competitive pricing and promotion and broader distribution across retail channels. The Morning Fresh photo on the right-hand side is an example of those efforts. We are already the clear market leader in washing up liquid, and we are leveraging this strong position and our brand equity for winning performance and great value to help grow market share in the auto dish category. We've been using net hangers on bottles of Morning Fresh liquid to drive awareness and then offering hundreds of thousands of samples of auto dish tablets to drive trial. While auto dish is a highly competitive category, our position of strength in the washing up liquid market gives us a clear competitive advantage to leverage as we seek to build trial, distribution and market share. Turning to Nigeria. Perhaps the best example of brand activation was the recent relaunch of Carex. Carex has been available in Nigeria for some time, but has always been subscale as the product positioning has largely been taken from the U.K. Thanks to good work with Nigerian consumers, our campaign Win the War Against Germs means the brand now looks and feels new and relevant with clear antibacterial positioning, distinct brand assets, bold disruptive messaging and benefiting from professional endorsement. Just like the Original Source example I gave earlier, the execution was a multifaceted campaign: Digital, TV, out-of-home advertising and a series of in-person launch events. In fact, we estimate the campaign reached 125 million people. It's early days, but signs so far are promising. Carex will absolutely be one of the drivers of Nigeria's performance in FY '26. Beyond the excellent work on Carex, we have continued to strengthen our go-to-market presence. A key part of this, as we've mentioned before, has been the number of stores served directly by us as opposed to via wholesalers. Simply put, covering the stores directly leads to better retailer relationships and in-store presence as we can directly influence which products turn up in which types of outfit. From covering just under 70,000 stores directly 3 years ago, we exceeded our target of reaching 200,000 in FY '25, and we're now striving for even more stores in direct coverage in FY '26. A driving force in how we are seeking to serve consumers better in our core categories is the strengthened brand building operating model we have adopted over the past year as the next phase in the journey to raise the bar on how effectively and consistently we build stronger brands. Many of you will remember where we started, strong brands with good tactical plans, but more of a trading mindset and limited cohesion across the portfolio. We moved on from that in recent years, creating better alignment across the group and strengthening in-year plans. But we know there's more to do. So we now have put in place a brand-building setup, which balances staying close to consumers in our priority markets, whilst leveraging more effective integration and collaboration across both markets, meaning improved visibility of multiyear innovation and revenue growth plans in our priority market. Ultimately, we are building on our strength of in-year activation to add excellent multiyear innovation. Not only is this good for our consumers, it's also good for our marketing teams. We've seen a 7 percentage point improvement in engagement scores for the marketing function across the group. Ultimately, though, success will be measured in sustained progress on market share, revenue and profitability. Moving to portfolio transformation. In June, we announced the sale of our 50% stake in PZ Wilmar, our Nigerian cooking oils business to Wilmar International, our joint venture partner, for cash consideration of $70 million. This will simplify our portfolio and as Sarah said, significantly strengthen our balance sheet. It sees us exit a noncore category and reduce group reliance on Nigeria as part of our overall efforts to rebalance the portfolio and concentrate on our core categories of hygiene, beauty and baby. The sale also benefits a number of our wider sustainability metrics as PZ Wilmar represents around 10% of our Scope 3 inventory. Turning now to St. Tropez. As we explained back in June, although our intention was to sell the brand, after running a comprehensive process to do so, our firm belief is that the better course of action for our shareholders is to retain it and maximize value in the coming years. There are 3 reasons which give us the confidence. First, it's important to remember that whilst it's had a challenging performance recently, St. Tropez is regarded as an iconic brand. It established the self-tan category and has for many years been the driving force behind the market. It still has great brand equity and awareness with more than 30% share of the [indiscernible] self-tan beauty market in the U.S. and envy positions on the shelves of key U.S. beauty retailers such as Ulta and Sephora. Second, the key tenet of the new direction is the partnership we have formed with the Emerson Group, a leading U.S.-based partner to many brand owners, including some of the world's largest personal care and beauty businesses. They will provide customer management, logistics services and brand activation in the U.S. St. Tropez will be integrated into Emerson's dedicated selling teams to key U.S. retailers with initial meetings having already taken place. Not only does this partnership give us access to a strong go-to-market operator in the U.S. with significant scale and expertise, it also dramatically simplifies our own operating model. We no longer have a need for our own team on the ground nor the expense of a dedicated office in Manhattan. Next, for the U.S., our St. Tropez model is better, simpler and more cost effective. Finally, we have also appointed a new executive with significant experience of the beauty category, not least from many years spent at L'Oréal to lead the St. Tropez business with a single-minded focus on value creation and a dedicated team coming together beneath him. Looking ahead, therefore, we're busy with the innovation plans for the 2026 season and working on celebrating the 30th anniversary of the launch of St. Tropez next year. So lots more to come on St. Tropez. Moving now to the final slide before summing up. As Sarah touched on earlier, we have made progress driving cost efficiencies and identifying opportunities to unlock further pockets of value, all of which will help to fund future growth. To that end, we have announced this morning that we expect to generate GBP 5 million to GBP 10 million of cost savings in FY '26. It's a big number at the top end of the range, but we're hard at work to deliver it. We've already developed a track record and a playbook to do this with a GBP 3 million savings in the U.K. business as Sarah mentioned, removing duplicated structures and operating expense. But more importantly, the organization is increasingly building a mindset of ongoing cost optimization, sometimes through significant structural interventions driven by changes in operating model, but also through the relentless and rigorous pursuit of grinding out the inefficiencies that consumers do not value and should not be expected to pay for. Whether that's saving on the retendering of label production in the U.K., the shifting of surfactant suppliers for our Nigerian business or sourcing a different enzyme for our Radiant laundry brand in Australia. We're also unlocking value from noncore or nonoperating assets, mostly in Asia and Africa. These range from high-end residential property in Ghana and undeveloped land in Indonesia to empty warehouses in Nigeria that are no longer required by the business and pretty much everything in between. The market value of these assets is significant, and we estimate that after fees and taxes, we should generate net cash proceeds of around GBP 30 million from those disposals, the majority of which will complete during this financial year. Common across all the activities shown on this slide is a single-minded pursuit of simplification, whether processes, operations or portfolio and as a result, unlocking value. In summary, while there's a lot going on at PZ and still much more to do to deliver, I want to be really clear that our day-to-day focus is on continuing to drive the underlying business across our priority markets. We're building stronger brands in our core categories, and we're driving more competitive go-to-market execution in our largest markets. The combination of which means we can get more PZ products into the homes and hands of more consumers. So with that, enough of us and a chance for you to let us know what are your questions. Operator: [Operator Instructions] Our first question today comes from Sahill Shan from Singer Capital Markets. Sahill Shan: Forgive me, I'm fairly new to the story, but I've got a couple of questions, if that's okay. Firstly, just on the St. Tropez brand. You've retained it and outlined a new U.S.-focused strategy with Emerson. I suppose my question is what internal KPIs or milestones are you using to evaluate success? And how quickly should investors expect signs of recovery in the brand's P&L contribution? So that's my first question. And the second one is around capital allocation. I think with the Wilmar proceeds and asset disposals, it looks like expected to significantly reduce net debt this year. How are you thinking about capital deployment priorities going forward around reinvestment, M&A or maybe returning capital back to shareholders? Jonathan Myers: So why don't I take the first of those questions relating to St. Tropez and I'll pass over to Sarah on capital allocation. So you're absolutely right. After a very considered process, we took the call to retain the brand because we saw more potential to create future value in doing so than in selling it. We're very clear as we did that, what are the strengths and what are the challenges that we need to address. And the most broken, if I can use that phrase, part of the business was in North America where we had seen double-digit declines. And it's for that reason, we have taken the most dramatic action of any part of the business model in North America effectively to adopt a new route-to-market partner and one who is very, very qualified because they're already operating with the likes of Ulta and Sephora as well as more mainstream retailers in driving both personal care but also high-end beauty care. So that's a sign of confidence for us that we are putting our business in the hands of a proven partner, one who we've known previously, by the way, through work together on Childs Farm. So as we look to the future, ultimately, the most important measure will be value creation. And that is indeed how we have structured our thinking and also our incentivization as we look at the team that will be leading that business. But obviously, what really matters will be driving growth in market share, growth in in-store distribution because ultimately it is a brand that wins in-store and online, but with sufficient social media activation and influencer support. And as that goes through perhaps 1 or 2 seasons, so coming to your question on how long, it's a very seasonal business. The summer is all important or late spring into summer is all important. So we are working hard for summer of '26, but we're also trying to make sure we get ahead of the game for the summer of '27. So I would be expecting to report to you improved momentum as we exit next season, but more importantly, the season after once we have a longer lead time to really address some of the more fundamental opportunities and challenges we see with the brand. But we're very hopeful and confident that we will see that improvement in value creation. Over to you, Sarah? Sarah Pollard: Thanks, Jonathan. Let me touch on the capital allocation point. So you're absolutely right to say we were very clear that the first use of any cash proceeds from the portfolio transformation would be to reduce our level of debt. It takes us for FY '25 to a pro forma leverage ratio of 1.1x and then with further surplus asset disposals and ongoing cash generation in FY '26, south of 1x. And that we see very much within our target range and a level of leverage we feel comfortable with. Then in terms of our broader use of capital, it's first and foremost to drive the organic growth of the business. And of course, as a brand-building organization, that is behind R&D investments, behind marketing campaigns to drive our brands and also CapEx, both to give us more capacity to grow volume, also automation to make sure our product margins remain very competitive. So first and foremost, we see the highest return on our capital being in driving the organic growth of the business. We also are retaining sufficient capital to support a sustainable level of dividend. We don't have a stated policy, but internally, we think a little bit around a targeted cover of 2x and that growing in line with earnings going forward. And then in the surplus capital, I think you can see us putting towards bolt-on M&A if we see opportunities that both sit very neatly within our core markets and our core categories or indeed the opportunity to acquire some additional capabilities, be that digital, and Childs Farm is our last such example in March 2022. And you should think about Childs Farm as being an example of something we might do again when the time is right. And I think we would say all of those things we consider to take precedence over surplus returns because we can do it. We believe we can deliver more return by deploying the capital internally. Sahill Shan: Super. That's really helpful. Just one final one for me. It would be really appreciated. Post these results, it would be good to catch up. Could you get the relevant IR person on your side to reach out to me, and we can take it from there. Operator: Our next question comes from Matthew Webb from Investec. Matthew Webb: I appreciate you've touched on this already, but I wonder if you could just provide a bit more detail on where the GBP 5 million to GBP 10 million of targeted savings are coming from. Jonathan, I think you sort of mentioned that GBP 10 million is quite a big number at the top end, and I would agree with that. So anything that could bring that to life would be very helpful. And then maybe also where your priorities are in terms of reinvesting a portion of those savings? That's the first question. Second question on the EPR. I mean, I infer from the way that you've talked about that, that you've really absorbed that GBP 3 million. I just wondered whether that's correct, whether there were any sort of discussions with your customers about passing that on, at least in part. And then also, I know you mentioned that this had prompted a review of your approach to packaging. And without sort of prejudging that review, I just wonder whether you could give any examples of some of the things you might consider there. And then the third question is just on Indonesia, where obviously, I appreciate your trading has been very strong. So probably the answer is no. But I just wondered whether you'd seen any impact from the recent political unrest in that country. Jonathan Myers: Right. So three good questions, Matthew. Sarah is going to be number one, and I'll come in with the EPR and the Indonesia response for you. Sarah Pollard: So Matthew, let me try and unpack that GBP 5 million to GBP 10 million a little bit. And as Jonathan mentioned, we're establishing a better understanding of where -- if you like, there might be opportunity in our overhead cost base as well as the muscle that we think we very definitely built in terms of optimizing product costs, having in FY '25 integrated our legacy U.K. Personal Care and Beauty businesses. So I think in terms of where we sit today on top of that historical overhead work is recognizing that we inherited a business that needed to unashamedly invest behind capabilities. And they were both commercial to drive the business, but they were also, if I use the word corporate, to meet the PLC bar to make sure we are doing things in the right way. And we have shown both good hard and soft benefits from those investments over the last 3 to 4 years. And we recognize we're in a position now where we can afford to maybe unpick some of those capabilities. So we have quite a strong corporate cost base. And in some of the enabling functions, most notably very close to home and finance, perhaps in HR and IT, we've now reached a level of capability that we think is sufficient. So we have been looking at some of the capabilities we can take away there. That GBP 5 million or GBP 10 million, we've got a good line of sight to the GBP 5 million. We're working on the additional GBP 5 million. It's probably split 2/3 people from increasing spans of control from internal promotions rather than external hires and yes, the net reduction in overall headcount. And then 1/3 is more, if you like, a little bit more tactial, be it the use of consultants, managing travel and expenses and just good continuous improvement and being very cost conscious. So some central capabilities on which we think we now no longer generate a level of return, 2/3 people, 1/3 on [indiscernible]. Jonathan Myers: So if I pick up on the EPR question, then I'll come on to Indonesia, Matthew. So first of all, on EPR, I would say we, along with other manufacturers, have been getting our heads around the implications of this tax. And we're one of the first to report just as the nature of our financial year-end, and we'll be all keenly looking to see what other people are saying as they report in the coming months as well. But I would say exactly as you've identified, really, there are 2 levers that we can pull as we try to deal with what is effectively a new cost in our cost structure. The first is absolutely as part of a broader revenue growth management effort, always looking at our ongoing optimization of pricing and promotion. And sometimes that is tweaking our promotional activity where you nudge up the price per liter or the price per pack. And other times, that can be literally straightforward price increases that we are communicating to retailers and working with them as they choose how much or little of those increases they want to reflect on [indiscernible]. And so that has clearly been one lever that we have been pulling, and we will continue to look at that over time. But also over time, particularly as we learn more about the exact drivers of the EPR tax and how it is applied is how we can optimize our packaging across our portfolio, be that primary packaging or secondary packaging to literally reduce the weight or volume that we are using. And so for example, over time, lightweighting of bottles or lightweighting of caps and also looking at our secondary packaging can be very important and very helpful as we learn how to more effectively optimize the EPR impact, but also continue to provide packaging that consumers find useful and usable. But obviously, then what it's also doing is helping us on our journey of delivering against our sustainability KPIs as well. So we're embracing the challenge, but obviously, we're also learning exactly how the tax works along those manufacturers. As for Indonesia, so just in case anyone else on the line didn't pick it up, there was some social unrest in Indonesia at the very tail end of August and the beginning of September. It was related to housing allowances for MPs and it rather snowballed from there. We obviously triggered our business continuity plan, put it into action. There was minimal disruption to our business. We did actually have our people working from home. So we closed our offices for a period of about 4 working days. Our factories continue to run and our distributors continue to operate. The interesting insight is rather as we have seen with previous events in Indonesia, what it leads to is the shopper actually going to their local open market, I think a wet market rather than a modern supermarket. And so we see a channel switch. And the good news is our distributors are very well placed to be able to support that switch. Our distributors will carry around 7.5 weeks of inventory. So even if we were unable to get some deliveries through, they still have sufficient product in their warehouses to deliver in their localities. So there's minimal disruption. I think in Q1, there's a little bit maybe in our P4 numbers, but all of that will come back in Q2. Operator: Our next question comes from Damian McNeela from Deutsche Numis. Damian McNeela: Two from me, please, this morning. Firstly, U.K. washing and bathing seems to be growing at around about 2%. Can you provide a little bit of insight into both the consumer experience of the category and also the competitive dynamics that you're managing at the minute, please? And then the sort of the last question is around marketing spend. And I think it was held broadly flat this year. What are your sort of expectations for the current year? And also to what extent is AI being used to try and optimize your marketing spend as well, please? Jonathan Myers: Damian, so I'll pick up a little bit on the washing and bathing category dynamics. Sarah can talk a little bit about M&C spend expectations, and I'll then come back with AI and how that can help us optimize and drive higher return on investment. First of all, I think probably in keeping with other consumer categories in the U.K. retail environment, we are seeing an increasingly competitive category of washing and bathing. There's growth to be had. There's still some growth in the market. So it's still an exciting and interesting segment of the market to be playing in, absolutely, particularly if you've got strong brands and strong relationships with the retailers and good go-to-market capabilities. But there is no doubt there is a significant tranche of shoppers, not all, so I don't want to generalize, but a significant tranche that is seeking value. And that's where it collides a little bit with where you're asking about competitive dynamics because we're also seeing some of our competitors, and you will be able to work out from their own comments, which ones I'm talking about, who are trying to rebalance for themselves a focus on value versus volume and perhaps they've been chasing value too much rather than volume. So how is that manifesting itself? There's no doubt there's still an awful lot of people that are interested in shower gels that sell at GBP 1 or less. So we need to make sure that we have pack sizes and promotional price points are absolutely delivered for that. But what we're also seeing is an increasing intensity in the competitive environment on larger pack sizes, and in particular, 500 and 600-milliliter bottles. So whereas in the past, they may have been relatively unpromoted versus the smaller circa GBP 1 price point bottle, you're now beginning increasingly to see quite a lot of price promotion on 500 mL and up [indiscernible]. So we are absolutely sharpening our pencil. We're absolutely trying to respond. It's always a little bit of a lag, as you know, in planning promotions based on the retailers' promotional calendars. But as we move through this year, we will be trying to make sure that we are responding to not just competitive pressures, but also how shoppers are evolving too. So as I say, very interesting subcategory to play in, but very competitive too. Sarah Pollard: Damian, let me address the M&C -- sorry, Damian, you come back. Damian McNeela: No, I'm just saying thank you, Sarah. So yes, brilliant. Sarah Pollard: Thank you, Damian. Let me talk to M&C then. So you're right in terms of the FY '25 margin bridge that we shared this morning. Effectively, what we're saying is that there was no positive contribution to our margin performance in FY '25 from M&C. Or the other way of putting that is we grew our marketing spend in line with our revenue growth, which is actually a good thing. So we probably shouldn't in reality, color code it red. What we've not done and what we won't do is either set internally or guide externally to a set of prescriptive marketing spend targets, either in absolute terms or with reference to our overall revenue because our brand portfolio is so diverse. So Cussons Baby, as Jonathan referenced being sold in wet markets through distributors in Indonesia has a very different support model in terms of the levers of profitable growth than will a St. Tropez being sold in the U.S. So what we do, do on a case-by-case basis is work out a level of sufficiency for each of our brands. And then with increasing scrutiny and data capability, and maybe Jonathan will touch on that as part of the AI topic, really understanding whether that M&C delivered incremental return or not, and if it doesn't move it or optimizing it. But I think what you should be very certain of is the overall direction of travel to underpin our brand building ambition will be a net increase in marketing investments. And if I think about the GBP 5 million to GBP 10 million of overhead cost savings that we're committing to in FY '26, where we talk about reinvesting a portion, marketing investment will absolutely be the #1 candidate on that list for investment, Damian. So hopefully, that answers the question. Jonathan Myers: I'll pick up on the AI part. My flip in response to you, Damian, having known you for a few years, I can say [indiscernible]. So what I mean by lemons is if you look at that Nature Hits Different campaign on the side of the bus I talked about earlier, those very first graphics were actually AI generated. So we are trying to embrace artificial intelligence and how it can help us. I'll come on to some other ways in which [indiscernible] actually AI can help us in the core elements of brand building and as fundamental as generating the graphics, which in that particular campaign, we were able to test and modify and then ultimately bring to market, whether that was on boring old traditional TV or much more interesting and exciting social media. So that's a good example of where we have been developing campaigns using artificial intelligence. But somewhat more fundamentally, as a company, we are also spearheading the use of data analytics and artificial intelligence in how we can improve revenue but also optimize processes and save some of the cost involved with that. So as part of forming a partnership with Microsoft on the Microsoft Fabric platform, we have been exploring, for example, how we can more effectively use our market share data to drive market and consumer insights to help us unlock opportunities for the future, but also how we can optimize our pricing and promotion planning a little bit in that whole area of revenue growth management, but also tackling some of our processes to optimize some of those, not least some of our financial forecasting process internally. So we'll have more to say on that in the future. I don't want to say we're just scratching the surface. It's not that we're doing nothing, but we do see that AI has an opportunity and a part to play for us in the future. Operator: Thank you. With that, that concludes the Q&A portion of today's call, and I'll hand back over to Jonathan Myers for some closing remarks. Jonathan Myers: Thank you, Drew. Thank you to everyone who's called in today and those who asked questions. Hopefully, you've got a sense of we are hard at work. There's plenty done, but we are firmly on the ground. We have plenty more to do, and we have a lot to get on with. So that is what we are going to go and do and ask for all of you in the U.K. as you go shopping in the next few weeks and you see our Christmas gift sets on the shelves, make sure you pick one up and put it in the stocking for someone in your family. And we'll thank you next time we talk. Bye-bye. Operator: Thank you all for joining. That concludes today's call. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Q4 and year-end 2025 Financial Results NanoXplore Earnings 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 speaker today, Pierre-Yves Terrisse, Vice President, Corporate Development. Please go ahead. Pierre-Yves Terrisse: [Foreign Language] Good morning, everyone, and thank you for joining this discussion of NanoXplore financial and operating results for the fourth quarter and year-end results of fiscal 2025. The press release reporting this result was published yesterday after market close and can also be found on our website along with our financial statements and MD&A. These documents are also available on SEDAR+. Before we begin, I'd like to remind you that today's remarks, including management's outlook and answer to questions, contain forward-looking statements. These forward-looking statements represent our expectation as of today, September 17, 2025, and accordingly, are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties. Actual results may differ materially, and listeners are cautioned not to place undue reliance on these forward-looking statements. A description of the risk factors that may affect future results is contained in NanoXplore annual information form available on our corporate website and in our filings with the Canadian Securities Administrator on SEDAR+. On the call with me this morning, we have Soroush Nazarpour, NanoXplore Chief Executive Officer; and Pedro Azevedo, our Chief Financial Officer. After remarks from Soroush and Pedro, we'll open the call to questions from financial analysts. Let me now turn the call over to Soroush. Soroush Nazarpour: Thank you, Pierre-Yves, and good morning to everyone joining us on the call. By now, you're all aware that I decided to step down from my CEO role at AGM. Stay on the board thereafter and support the corporation from a technical and a strategic point of view. This decision was taken for personal reasons. I have built this company from the ground up with the Nano team, and I'm very proud of what we have accomplished since inception. At this point, in the growth of the company, it's the right time to make this transition. NanoXplore will, in the very near future embark on the launch of a major graphene contract, which has been a major objective from the team. My successor is inheriting a graphene market leader on a strong footing and will bring the company to its next stage of growth. With that being said, nothing is changing until the AGM. So let's start with a quick review of the broader economic picture particularly tariffs since they continue to affect both our customers and us. Then I will move to our recently announced sales contract and finish with some comments on capital allocation and other parts of our business. From a macro standpoint, the current U.S. administration's trade and economic policies have been disruptive. The impact shows up directly in our customers' planning cycle and therefore, in our own visibility. Practically, this has meant delays in some of our announced contracts and volume reduction on some of our ongoing business. As it relates to our drilling fluid customer, we have made significant progress in the quarter. Specifically, we have completed well trials and are finalizing contract terms we should be able to discuss in the near future. This contract involves supplying our tribograph powder to a major U.S. oil and gas company for its lubricant for both onshore and offshore drilling fluid applications. Tribograph is a high-performance carbon powder, which is being produced in our graphene production facility in Montréal. This high-performance specialty carbon mixture is engineered particularly as lubricant additive for drilling fluids, metal working and stamping, providing superior friction reduction for protection and suspension stability. Tribograph when formulated in drilling fluids has demonstrated outstanding results in the industrial standard tribology and friction testing. Evaluation carried out under a wide range of conditions show that our solution consistently outperformed leading alternatives currently available on the market. This product is the result of years of development and fine-tuning and has already proved its reliability and performance during demanding extended reach drilling operations in the United States. More in-depth data collected during drilling operation has confirmed that Tribograph directly improved drilling performance. The results show faster drilling speeds, reduced rig time and lower overall operating cost. Furthermore, there is clear evidence that tribograph reduces wear on downhole tools, helping extend equipment life and further lowering operating and maintenance expenses. Now moving on to our North Carolina expansion. We have completed installation and commissioning of the equipment and preproduction parts have recently been shipped to our new customer. Those parts are pending final approval. Once that comes true, we will move quickly to scale production at Statesville at the beginning of October. Stepping back, Q4 was a tough operating environment. Revenue declined year-over-year. On the positive side, adjusted EBITDA margins improved, reflecting in part a broader adoption of our high-margin products and cost management. Regarding our dry process graphene and CSPG project, we have made significant inroads with both levels of government and for our electricity allocation. We are satisfied with the progress made with our stakeholders in the project. We will inform investors as we progress and reach key milestones. At the same time, we have ordered equipment to begin industrial scale production of our dry process graphene at our Thimens facility targeting early calendar 2026. This first module gives us between 500 and 1,000 tons per year of capacity depending on product grade. This first production module will allow us to supply larger volumes to our testing partners and will eventually be the first line installed in our new facility. Looking ahead to the fiscal year, we see 2 stages. Our Advanced materials, plastic and composite segment is currently seeing volume reduction from our 2 major customers. That will translate into a challenging Q1 and Q2. But as we move into the back half, we expect growth to be driven by higher margin graphene powder cells, Statesville production ramp up and by volumes resuming in graphene-enhanced SMC. To sum it up, while there are softer volumes in the near term, there's plenty of good news as well. Q4 delivered strong adjusted EBITDA margin, we are in the final stages of securing a major new oil and gas customer while progressing with other ones for our highest margin business segment. We completed the Statesville expansion and already have parts shipping, and we made solid progress on the dry graphene project as we gear up for future growth. Overall, we expect both growth and profitability to be weighted toward the second half of the year. With that, I'll now turn the call over to Pedro to walk you through our financial performance. Pedro Azevedo: Good morning, everyone. Today, I will begin with a review of our Q4 and full year financial results followed by an update on financial aspects of our 5-year plan and conclude with some commentary on near-term CapEx spending. Total revenues in Q4 were 17% lower than Q4 2024 at $31.7 million. This decrease was mainly due to a reduction in demand from our 2 largest customers as volumes have slowed to historically low levels after strong demand levels last year. Our 2 largest customers, along with others in the industry have reported layoffs and cadence reductions due to the current economic environment. Although revenues from parts and materials were lower, tooling revenues were higher due to the continued supply of tools for new programs and expansion of an existing program now completed. As previously indicated, this higher level of tooling will be the case during fiscal 2026 until part production starts on new programs during calendar 2026 and early 2027. Adjusted gross margins, which exclude depreciation as a percentage of sales continued to increase during the quarter to reach 24.7%, an increase of 110 basis points year-over-year driven mainly by positive variances on tooling revenue recognition, partly offset by lower manufacturing overhead cost absorption on lower volume. This year-over-year margin improvement has been the trend for over the last 12 quarters, and we are pleased that it is continuing. Looking back at the progress made over the quarters, I wanted to highlight that we started with an adjusted gross margin of 3% in Q1 of 2022 and have progressively improved quarter-by-quarter to reach 24.7% this past quarter. These improvements have come from improved operational efficiency, increased volume of both graphene-enhanced parts and other non-graphene enhanced parts, increasing graphene powder sales and a higher U.S. dollar. Adjusted EBITDA was $2.5 million, equal to last year and was comprised of $2.7 million in the Advanced materials, plastics and composite products segment, a decrease of $600,000 versus last year and by a loss of $247,000 in the Battery cells and materials segment, an improvement of $600,000 versus last year. With regard to our balance sheet and cash flows, we ended the quarter with $18.6 million in cash and cash equivalent and $5.2 million in short-term and long-term debt. Operating cash flows amounted to $1.8 million, mainly from changes in working capital items. Cash flows from financing activities were positive $1.8 million resulting from equipment lease financing advances inflow of $3.9 million and debt and lease repayments of $1.9 million. Finally, cash flows from investing activities were negative $5.4 million, mainly due to capital expenditure payments related to our 5-year strategic plan. Our cash, along with the unused space in our revolving credit lines resulted in a total liquidity of $28.6 million at June 30. Looking at our full year results. While sales were strong in the first half of our fiscal year and in line with expectations, the second half was disappointing as our 2 largest customers reduced their production cadence. Nevertheless, within our total sales, usage on sale of graphene powder continue to grow. Sales for the year were slightly below last year at $129 million, but with a record adjusted EBITDA of $6.1 million. If we look at the segments, adjusted EBITDA in the Advanced materials, plastics and composite Products segment reached $6.9 million, an improvement of $1.7 million versus fiscal year 2024. During the year, gross margins, excluding depreciation, increased from an average of 21.1% in fiscal 2024 to an average of 22.3% in fiscal 2025. Adjusted EBITDA loss in the Battery cells and materials segment was $725,000 compared to a loss of $2.7 million last year, mainly due to the cost reductions in the VoltaXplore initiative. With regard to the expansions of graphene-enhanced SMC capacity, expansion in our Beauce, Quebec plant was completed during the quarter. This expansion increased our capacity to produce parts for one customer by 50%. However, the capacity expansion currently remains underutilized due to the reduced demand in the mid- and heavy transportation industry. Our U.S. expansion, which includes both graphene enhanced SMC as well as additional capacity for the composites business is near completion with most of the equipment having been delivered and installed during the summer months. Start of production of a new program at the Statesville site will begin in early October, adding to revenues in our Q2. Lastly, in August 2025, NanoXplore was selected to receive up to $2.75 million over the next 3 years from Natural Resources Canada under the Energy Innovation Programs Battery Industry Acceleration call for proposals for the research and development on the use of silicon graphene in ultrahigh-powered cylindrical cells. Turning now to our near-term CapEx spending. With regard to CapEx spending, as expected, we spent approximately $5 million on CapEx in Q4. And expect to spend another $3 million to $5 million in each of the next 2 quarters as we complete the spending on the U.S. expansion initiative and the graphene-enhanced SMC initiative of the 5-year strategic plan. As previously mentioned, this will be financed through our RBC credit facility and mainly with equipment lease financing. With that, I will turn back to PY. Pierre-Yves Terrisse: Thank you, Pedro. Operator, we can now open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Amr Ezzat from Ventum Capital Markets. Amr Ezzat: I'd like to first acknowledge yesterday's news, Soroush, congrats on everything you've achieved in building NanoXplore has been certainly great to follow the story from your early days, and I'm glad to see that you remain involved as adviser and Vice Chair but maybe if we could start there, can you walk us through what drove the decision and the timing of the decision that you guys are in the cusp of commercialization. Then from an investor viewpoint, how should we think about I guess, the continuity in customer relationships, especially when it comes to powder commercialization as well as the strategy going forward? Is the change signaling a different direction? Soroush Nazarpour: Right. Right. All right. So let me start by saying I'm pretty happy with this transition, and it was a work in progress for quite some time. It's -- just let's step back. It's very normal for startups to be highly dependent to the founder. And this has been something that has been recognized in the company for the last few years. So throughout the time, Rocco and Pedro that are both pillars of the company. They are -- they took slowly some of the responsibility that I have throughout the years. And the best example of that the last 2 years, both of them have been involved directly as well with the Board of Directors reporting. So this has been a transition in the making for quite some time. Rocco is a fantastic executive. We have been working together for many years, and I'm very, very happy for this transition, seeing Rocco coming on board and taking lead from the December. Now on the personal side, I have decided to move on sometime in the next year. So we decided to put the transition really on the AGM. So I have still a good 6 to 9 months of being present physically actually to be able to support Rocco in the transition. Going forward, I'm also continuing in the Board of Nano and I'm a big supporter of the company. I started this, and I will continue to be the cheerleader regardless of the title. Having said that, I'm actually continuing with the company. The concept is not for me to move away. I will -- I'm still continuing to be here in supporting the business. So I see it as a very positive transition. I actually think highly dependent corporation to the founders are a risk, I believe we've done a great job with the Board of Directors of Nano and Rocco and Pedro to really manage the transition in a very positive way and something that we, I believe, removed the risk from the company. So all in all, very positive. I'm very happy. And on the timing of that. So we are in the cusp of signing a contract with a major oil and gas company. And that's what we have reflected in the script as well. This is -- the good news is actually we've been able to conclude this contract very soon, we will release the news related to that. And I think it's the best time the company is doing fantastic. The graphene sales is in the best shape possible. So I think it's a great time actually for this transition. Amr Ezzat: Fantastic. That's extremely helpful and congrats again. So let's go to the other big news like that you just mentioned on the prepared remarks. I think the wording that you used is you are finalizing the contracts on the drilling fluid side for powder commercialization, obviously, can you give us -- and I'm not sure if you can, like a sense of size and pricing of such a contract, then do we think of that as a one-off contract or is that a multiyear sort of contract? Soroush Nazarpour: So let me say that we actually recorded this script yesterday, but today, I can tell you the contract is concluded. So that's the positive side. I mean the contract is done. The press release will come out. Let me talk about what is this tribograph. So tribograph is, as I said in the script, is the mixture of carbon. It's technically produced in our Thimens facility. It has quite extensive lubricity properties. So it's very useful for the drilling fluid application and also other sort of metal working and so on. What it does is it brings down the friction while drilling. So moving away from the technical that how is doing it, it translates into cost reduction for the oil and gas companies and for the drillers. So this type of graphene type solution has -- are always exposed to extra cost for users, hasn't something that we have to manage today. This product is actually reducing the cost. So adoption going to be very strong. In terms of details of the contract, you got to wait for the press release to come, but it's a multiyear supply contract. That's what I can say today. But you will see the details of the contract and all the commitments very soon. Amr Ezzat: Fantastic congrats on that. And if you'll allow me 1 more. I mean, you guys spoke at length about the economic environment and your 2 largest customers have like been holding back volumes and certainly in Quebec, there's been a lot of local, I guess, coverage around PACCAR Sainte-Thérèse plant, whether it's the layoffs or the production cutbacks and a lot of it actually is post your Q4. So I'd like to understand the magnitude of the volume softness in Q1 for both your large clients relative to Q4, then when thinking about fiscal '26, should we view this as largely a Q1 event, then Q2 is a rebound? Is that a fair statement? Pedro Azevedo: So Amr, Q1, in terms of specific percentages, I'd rather not talk about those because it is a subset of the whole of NanoXplore. The decrease has continued throughout Q1 from Q4. So you can make it with what you will. You're right, the PACCAR plant closure of a shift and downsizing is definitely a direct impact on our Beauce plant. It's not an impact on other businesses, if that helps a little bit. When it comes to Q1, Q2, yes, it is mainly a Q1 issue because we have a lot of stuff coming into Q2 that we've talked about in the script. New programs are starting in Q2, new customers starting in Q2. While the issue related to the 2 largest customers might continue into Q1 and Q2, A couple of things. Number one, all of these new programs will offset some of that in H2 in our second half, we expect the transportation industry to start recovering, even if it's just a little bit with everything that's being built up, we see H2 being a recovery. So coming back to your point, Q1, probably the area where the softness will be mostly viewed, but then Q2 ramp-up will start. And then H2 will be, I would say, back to normal and then some... Operator: One moment for our next question. Our next question comes from the line of Baltej Sidhu from National Bank of Canada. Baltej Sidhu: Congratulations on the transition, Soroush. So just a question on the 5-year strategic plan and mainly the graphene and battery material expansion. Can we get an update on the outlook for this portion of the strategic plan? Have you had any further conversations with Hydro-Québec on the required power allocation? And this is a follow-up to that. If not, have you decided to make any change to the initial plan, whether it's exploring different geographies or manufacturing sites and the like. Soroush Nazarpour: Right. So we can only discuss what we have been able to discuss from the energy side. But I can tell you, we are happy with the outcome of that. There is no changes today. We're continuing -- we were in a point to mix switch to the program in the last during the summer. But I'm happy that things evolved, and we have -- we're happy with the outcome. Having said that, any sort of release needs to be managed by the government. So we have to follow those requirements. There is no change. We are still on -- the plan is still the same, and I hope that in the next couple of months, we will get -- you guys will get a lot of positive updates about that. Baltej Sidhu: Sounds great. And then just on the financing side of things. Have we seen any additional sources of financing come through or increased customer contributions or is that still that same stack with investment tax credits probably debt and the government funding? Soroush Nazarpour: We will update some of the CapEx numbers for sure, a little bit later. But the main component of this is to announce the government supports. And following that, we will have -- you will have more clarity about the numbers. Baltej Sidhu: Great. And then on the CSPG side of things, given the newly proposed tariffs by the U.S. on Chinese graphite, are you seeing any more indications of customer and down on this port product or any evolution in conversations that you've had in the past few months? Soroush Nazarpour: CSPG continues to be really undersupplied in North America, and the demand is there even though some of the demand related to EV looks to be slower than in terms of growth than anticipated, but the production is still pretty much nonexistent. So further pressure on Chinese graphite supply really doesn't change at this point. There is no -- there's not enough CSPG supply in North America. As the graphite and the graphite -- secondary transport graphite products are more tariffed, there is still -- there's more need for local production. So I don't see this to make significant changes in the landscape today, but it certainly makes it more difficult for Chinese suppliers to provide the product to North America. So it's a positive momentum for us. We're seeing as well new entrants of large companies into the CSPG. So again, that shows that this supply/demand is still attractive for us to play in it. But at the end of the day, I think the impact of the tariff on the graphite is minimum. Baltej Sidhu: Great. And then just on the tariff situation, just another follow up here is given the pressure on graphite supply, have you seen any changes in your contract with your supplier and/or your supply chains in sourcing graphite. And if you're able to give us any sense of kind of a contract length with the current Canadian supplier. Soroush Nazarpour: No, we have multiple sources for the graphite. The graphite availability is still a -- graphite market as a whole is oversupplied. So we don't really see any challenge in getting the graphite that we need. So again, it's not something that we are concerned at this point. Baltej Sidhu: Okay. And then just the last one for me, if I may, on the SMC expansion. What's the order book looking like for this facility? I recall in Q3, you had mentioned that there were around 4 programs for around $30 million to $35 million in sales. Have you seen increased traction or an evolution in conversations there? Pedro Azevedo: So as Soroush kind of mentioned, one of the issues that we did see is that the awards that were made and we've announced have been delayed. So we thought that they would have started by now, but they haven't, but they will be starting in Q2. When it comes to order book, there are various programs that are in the magnitude of $10 million to $20 million in the next 12 months, let's say, and then further another $10 million, give or say, take in 2017. So we've been awarded all of these projects into the next 2 years. But for the plant in Statesville and the North Carolina operations, these programs will start in the next few months in the next month, actually, and grow to 2027 when all these awards will now be in production. Operator: One moment for our next question. Our next question comes from the line of Marvin Wolff from Paradigm Capital. Marvin Wolff: Okay. I'll try to tone it down, Soroush. I'd just like to say congratulations. You've built a great company here, Soroush. Hats off to you, it's a big achievement. And sorry to hear you stepping aside, but I fully understand it from the evolution of the firm, and I think all shareholders down the road will find this as a good move. I had a question with regard to shovels in the ground. On the expansions. What can we kind of think of there now? Soroush Nazarpour: Well, I mean, we talked a little bit about the dry process and CSPG project. There has been a couple of milestones for us to get there before starting the construction. Of course, the power requirement was one, government support was the other one and then putting everything together and starting the construction. I think we are almost there. We can't -- I can't update you as like a press release or something because there are other partners that need to let us announce it, like Hydro-Québec as well. the government. But I'm quite confident that this project can move forward. What I'm seeing today is positive and we can go forward. Now in terms of the shovel in the ground, we have to build a plant, and this potentially starts. Marvin Wolff: Yes. Do you think you'll be able to catch this season or you got to wait through the winter? Soroush Nazarpour: Yet to be seen, but I think the supply-demand dynamic is not going to change by a couple of quarters. that's for sure. But I hope that we can start this very soon. Operator: One moment for our next question. Our next question comes from the line of Michael Glen from Raymond James. Michael Glen: Soroush, thank you for everything with NanoXplore over the years, all your patience with me in touring the facilities and bringing me up to speed on the future of graphene's all been really, really fun and interesting to watch. Soroush Nazarpour: Thank you very much. Michael Glen: Just to come back on the SMC facility and that outlook that was asked previously. When you -- Pedro, I think you were speaking to that. Like when you add all this together, you mentioned a number of different order items in the order book. When you add all those together, looking out say, in 2 years from now, what would the -- can you give a range like what the revenue contribution from all of this might look like? Pedro Azevedo: So just on the SMC initiative that we've been putting together, we expect a minimum in 2 years, and I think your time line is right because it's going to still take a little bit longer than from today to ramp up to that, but it is ramping up. So think of this as a ramp up over the next few years. It should reach around $30 million to $40 million in the next 2 years as these programs are all rolled out and the SMC initiative has really come to fruition, let's say, as we had originally planned. Michael Glen: Okay. And would you say that, that is largely in line with current gross margins? Pedro Azevedo: That will all be at current gross margins and possibly even a little bit more as we fill plants, the margins, the overheads gets absorbed by more revenue and therefore, the margin should improve. Michael Glen: Okay. Okay. And then back to the drilling fluid products. I can't remember the name of it, but is this a patent protected product or IP protected, just... Soroush Nazarpour: Yes. It's protected by intellectual properties. And it's pretty much coming out of the same graphene production line. It's the modification that we did on the output that to make it more suitable for lubrication properties... Michael Glen: And how does -- I know that we're waiting for some of the details, but how does the anticipated customer demand aligned with the installation you have right now? Soroush Nazarpour: It's -- I will -- I think it's better to wait and see the press release before I speculate on the volume. Michael Glen: Sorry, I missed the last part. What was that? Soroush Nazarpour: I think it's better to wait for the press release. This is a little bit of a speculation at this point. Let's get the press release details are in there. All in all, I would say I'm very happy with the outcomes, potentially the biggest graphene contract -- well, it's the biggest graphene contract for Nano and potentially the biggest graphene contract in the history. But let's wait for the contract to come out, and there's more details in there. Operator: Okay. Thank you. At this time, I would now like to turn the conference back over to Pierre-Yves for closing remarks. Pierre-Yves Terrisse: Thank you, operator. Is there any further questions from the analysts? Operator: There is not. Pierre-Yves Terrisse: Okay. Well, I'd like to thank everyone for participating in this call, and have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Cameron Kissel: Okay. Welcome, everybody. On behalf of JPMorgan, welcome to U.S. All-Stars 2025 Day 2. We're thrilled to have you here. My name is Cameron Kissel. I run our U.S. into Europe efforts. I am thrilled on behalf of the firm to welcome Jerry and Ken to the stage, CEO and CFO of Rollins. They are a perennial attendee here. Just a quick reminder, JPMorgan does not cover the stock. So these will be certainly higher-level questions. I last had the pleasure 2 years ago of interviewing these 2 gentlemen on stage. They just had just finished a large M&A deal. And then last year's interview was really lots of focus on the labor front. Cameron Kissel: So maybe just to start with, I know there's some newbies in the audience. There's also some long-term holders. I did a cursory look back. Had you been lucky enough to hold stock for the last 1.5 decades. And I don't want to make anybody blush, but it's a low double-digit bagger on a total return basis. And if you move the starting points and make it more like just a decade, it's sort of mid- to high single digits, but it's still outrageously high. So -- and obviously, starting points do matter, but they have continued to grow formidable business over time. And I guess just starting from a pretty high level, what we're seeing on the economic front is a very peculiar labor picture. Immigration is impacting jobs numbers a lot. Just wondering how that's impacting, you guys on the front line because I guess the juxtaposition is a lot of the corollary growth indicators are still really strong for us. So we still see a strong economy. At the same time, labor is giving us a really peculiar picture. So just wondering what you guys are seeing on the demand side. And just what do you see on the front lines? Jerry Gahlhoff: So thank you for hosting us again. Thank you for having us. It is always a fantastic event for us to attend. So thank you for that, first and foremost. So on the -- especially on the labor front, things are better today than they've been certainly since the COVID era. So we're finding it's much easier these days to attract people into our business. We have a really outstanding workforce. And we have a great business that's very consistent, a lot of continuity to it, and that attracts people to it once they understand our story. So once we engage with people and have the opportunity to tell our story about how wonderful the pest control industry is, how much opportunity there is, we're performing exceptionally well from attracting talent into our business. So it's been nothing, but good. And it's -- we certainly had our challenges during COVID and the first -- probably the year after COVID, but it's just gotten remarkably better. Cameron Kissel: And then I guess if I just kind of walk through the algorithm, so just cursory look back over the last nearly quarter of a century, revenues have gone from $600 million, $700 million to more like $3.8 billion. Margins are up 700, 800 basis points. Free cash flow conversion is very high, 100-plus percent. On the growth side, if you kind of look at -- organic tends to be 7% or 8%, you get a couple of points of M&A. How do we break down that organic side between price and volume? This is just kind of bigger picture, but just wondering what you're seeing on the pricing side as you're zooming into that. Kenneth Krause: Sure. Thanks for the question. And just adding on to what Jerry had indicated, quite frankly, growth is fun. And to be the growth leader, it makes it easy to attract people into our business. And that growth, as you had mentioned, Cameron, has been incredibly strong since COVID. Organic growth continues to be in that 7% to 8% range. M&A, 2% to 3%. This year, it's going to be more like a 3% to 4% number with the recent acquisition we made in April. And we enjoy a really attractive position from a pricing perspective. When you look at the pest control business in the pest control market, this is a CPI plus market. And so when you think about CPI being in that 2% to 3% sort of range, we are exceeding that, and we're delivering 3% to 4% price increase. That's up from what we saw pre-COVID when there was really very little inflation in the economy. And so we continue to price at 3% to 4%. We're seeing really good robust demand for our services. So volume is up as well. We're seeing really good volume performance with another 3% to 4% sort of growth, which is outpacing what many site is market growth in our markets. And when we think about the growth that we're delivering on the volume side, there's a number of things that are really paying off for us. First and foremost, the acquisition strategy that we've executed the last several years is certainly paying off, where we're buying businesses that are accretive to our organic growth profile. Saela and Fox are 2 really good examples of that. The second area that we continue to see incredible performance is in our ancillary area, growing a strong double-digit pace organically, which is really good to see. And then we continue to make investments in the commercial side, a really strong position with commercial accounts and commercial customers. The team is really doing a great job delivering there. So there's a number of things that are really paying off for us to really contribute to that 3% to 4% sort of organic volume growth on top of the 3% to 4% price increase that we're seeing. Cameron Kissel: Maybe just to follow up on this. You mentioned commercial ramping. Maybe just -- I know the B2B sales cycle is longer, residential ramps faster. So the investment in commercial takes longer to come through. At the same time, that's what's happening. It's resonating now. How do we think through the mix between the 2 and maybe what's happening competitively? And obviously, I guess we counteract that with -- we might get housing news today on rates and the housing market is sort of been blocked. But just how do you guys think about commercial versus resi as that commercial ramps? Jerry Gahlhoff: Yes. So the residential market has the most competition in it because that's where more of the -- I call them the smaller companies, the regional companies, the mom-and-pop companies -- that's the market that they are strongest in. It's a little harder when you're smaller to scale on the commercial side and be able to serve large commercial customers across a wide geographic area. So there's often fewer competitors in there, but they're really good competitors. So it is still a very good competitive environment and -- which is, I think, is great for all of us to keep us focused on what we do and what we do best. We're very proud of our Orkin brand, in particular, that has a coast-to-coast coverage and full scale in the commercial side where we can take on just about any type of account that you could possibly imagine and be able to service you just about anywhere in North America. So that presents us a pretty strong opportunity on the commercial side. And we have the power of the Orkin brand behind it. And what that means after being in business, Orkin next year will be -- have been in business for 125 years. And there's a lot of trust from consumers, both on the residential side and the commercial side that has been a lot of brand equity that has occurred over the last 125 years. And we feel like that puts us in a really strong position to continue to compete. Cameron Kissel: And I guess maybe just following up on that -- on the commercial side, fewer competitors. It feels like you've really been successful taking share. Is there anything that you're noting competitively? There's obviously, a local player, who also competes in that market and shareholders here who've seen them some of their challenges. I'm just wondering what that's -- what you guys are seeing on the front lines competitively. Jerry Gahlhoff: As we've talked about, we've put a lot of feet on the street in commercial. And that's really what it's about. It's about getting in front of people. It's about getting -- making sure you're top of mind and front of mind in the commercial space. So us building out the commercial sales force has been a strong part of that. Yes, it's competitive in that there's some really strong large regional and still national players. We have seen some of the landscape change over the years. If you go back 6, 7 years ago, there was a network called Copesan in North America that was a network of regional pest control companies that teamed up to be able to service national accounts throughout the United States. And years ago, they were acquired and dissolved into the Terminix brand. So there's -- there have been some fewer -- there are now fewer scaled competitors in that space than there was 5 or 6 years ago. So that may have created some lift, too. But at the end of the day, I would attribute it to our team, their focus and us making those investments in that business to be able to capitalize on it. Kenneth Krause: A few years ago, what we did was separate that business and place a greater focus on the commercial accounts. What we've realized is residential and commercial, B2C and B2B are completely different sort of markets. And so separating that, moving away from these res-com sort of branches and creating more focus on commercial is certainly paid off with really a strong high single-digit sort of growth that's accretive to the organic growth profile. Putting the feet on the street, putting the focus there, continuing to deliver really strong results. Jerry Gahlhoff: That's a good point, Ken. We just recently added a Chief Operating Officer within the Orkin brand that's focused on nothing but commercial. And that's how optimistic we are about that. Continue to see that opportunity there. Cameron Kissel: Yes. So is it safe to say, we will get to inorganic growth in a minute, but the organic growth investments that you guys made and you're sort of benefiting from now, there's not more of that to come near term, you're sort of where you need to be. Is this more of a kind of catch-up or opportunity to do this once every few years? How do we... Kenneth Krause: I would just say that we're a growth company, and we're in a growth market. And so we're going to continue to invest, but we're going to be balanced, of course. And so when you look at last year, the second half, we had a lot of resources. We're starting to see leverage on those resources, productivity. It takes time to get people ramped up and to get the productivity to the level that you want to get it to. And so -- but we've seen that. We continue to evaluate opportunities. But I think as you go into the third quarter here, you'll probably start to see a little bit more leverage coming through the business from the productivity initiatives that we talked about here more recently. Cameron Kissel: And what does that mean numerically for incremental margins as we start to leverage some of those people costs? Kenneth Krause: I mean our business, I've said it consistently, this is a 25%, 30% plus EBITDA -- or I'm sorry, incremental margin profile. When you think about a gross margin that we reported 53%, 54%, you know what our cost structure is in terms of our fixed and variable. So our incremental gross margin is more in that high 50% range. Similarly on the SG&A. If you take that into consideration, what you get to is a roughly 30% incremental margin profile. So our focus is that. We continue to target that. You're going to see quarters where we deliver that. You're also going to see quarters like we have had in the first half where we haven't. And the reason for that is quite simply our investments. It's investments we're making. It's not tariffs. It's not issues or challenges that others are dealing with, but it's really intentional investment in growth programs or the impact of unfortunate claims that we might have in the business and safety-related claims and auto accidents, which happen, unfortunately, from time to time, but we're making investments in a number of different areas around safety. And we're starting to see some impact -- some positive impact on the claims count with respect to that. So to sum it all up, this is a great business. We continue to invest in growth. But at the same time, we do realize the opportunity to deliver really strong margin profile. Cameron Kissel: And maybe, I guess, just a follow-up of leveraging people and arming them with additional services to sell. I came across this term creative selling in one of the transcripts, which obviously sounds a bit like cross-selling, but just maybe a holistic view on your approach to new products and services and arming your people with additional products to sell. Jerry Gahlhoff: Creative selling, to use that term, is really about -- a lot of it is about team sales, how our teams internally work together. So for example, if a pest control technician at Northwest Exterminating is doing a regular routine quarterly service for a customer and discover something in the attic or some past infestation or some other problem that we need to remediate, and we'll do that. But then there may be an opportunity to say, hey, look, the insulation has been damaged up in the attic and the person is exposed to rodent species or rodent urine in the attic, and they probably want to get that addressed. And so they then have the mindset that need to refer that to one of their teammates to say, hey, come out assess us with the customer and let them know what their options are. And that's how we sell ancillary services and grow so much in ancillary services. But it takes a team mindset. It takes systems and processes to be able to drive those creative sales throughout. A lot of it is about referrals, lead passing. We even have those kinds of programs that go on between our brands, where one brand does a service that another brand doesn't, well, they can refer those leads to other brands. So we're not necessarily dependent on the digital performance marketing to drive growth in our business. Our own people and leveraging our customers is helping us do that. And then when you think about how over the years, we've added new services -- new service offerings, whether it be could be mosquito, it could be wildlife control, could be the insulation example that I gave you. It could be encapsulating across base to prevent moisture and mildew from damaging the underneath and causing odors and smells inside of a home. So I think Ken says we have, in hockey terminology, 9 shots on goal on a residential structure of all these services. And we continue to look for different things that we can add in and around the home that help our customers either prevent or solve pest problems. Cameron Kissel: And then just, I guess, back to M&A. The last time I interviewed you guys 2 years ago, we were digesting the Fox deal, big acquisition, big implications. And now you guys have just finished the Saela deal. You do a ton of M&A all the time. Maybe just learnings from those 2. Any nuances to relay? And then what you're seeing competitively? Has the backdrop changed at all in a higher rate environment? Or is it just kind of business as usual? And maybe just a follow-on, sorry, several questions here, but are there new regions or geographies that you sort of strategize around that you might want to lean into? Kenneth Krause: Sure. I'll take it. We continue to be acquisitive. We operate in an industry with 17,000-plus competitors. And so we continue to be acquisitive. But the Fox and the Saela deal have certainly been very successful. Fox, we're 2 or 3 years into that deal. So I think it's fair to say that we've got some history behind us that gives us confidence in our ability to say that, that's been very successful. It's been accretive to margins. It's been accretive to organic growth. It's been accretive to our return hurdles around cost of capital. It's really delivering. And we followed that on recently here with Saela, of course. And both of those businesses are in a new area for us. It's door knocking, and it's a new way of accessing customers. And so when we think about some of these acquisitions we've done, we look at the geographic presence. We also look at the way that we're accessing our channels and accessing our customers. And so when you think about the Saela deal, another door knocking business that we acquired, and it's performing extremely well. Granted, it's one only 1 quarter in. But one quarter in, we're seeing double-digit organic growth year-over-year in that business. We're seeing margins that are accretive to our margin profile. In the first quarter of owning it, it's neutral to slightly positive on a GAAP earnings basis, which is really hard to do in today's cost of capital environment and with the amortization you have kicking off from recent deals, but it has been very, very successful. And so we remain very focused on it on acquisitions. We remain focused across the spectrum. We oftentimes talk about certain parts of the U.S., certain parts of North America, where we're becoming more and more acquisitive. In Canada, we're making more acquisitions in the Midwestern part of the United States. But quite frankly, we're open to acquisitions across all of our core geographies. And so we continue to explore and evaluate opportunities. The pipeline is very full. We continue to look at a number of different opportunities across the spectrum. And from the standpoint of multiples, they remain very, very healthy. And for us, because, quite frankly, we don't compete on price. We compete on being the acquirer of choice. When you sell your business to us, we're going to come in and we're going to take care of your people. We're going to take care of your brands, and we're going to pay you a fair price for it. But in the end, what we're focused on is acquiring good cultures, good brands that we can invest in and continue to grow as we think about the future. Cameron Kissel: And maybe just going back to customers. One of the falls on some price I wanted to ask was, can you elaborate on this term or how you think about rollbacks? I think this is where maybe price increases are pushed back by the customer? Jerry Gahlhoff: Yes. So one of our key metrics about effectiveness or how we measure elasticity, if you will, is we're able to track how many customers call us and say, hey, I'm upset about my price increase we want you to roll it back. So oftentimes, we'll negotiate maybe we split the difference or depending on the size of the home. We look at the history with the customer. We certainly don't want to lose customers over what sometimes can just be a few dollars. So we use that as a metric to help us determine we look at how many calls did we get, how many times do we have to roll back price after following a price increase. Those numbers tend to be really, really low. I mean we're talking like less 0.5% to 1%. And we measure that by income band, by ZIP code. We have a really strong sense of what happens. And that gives us a sense of can we continue to put forth our pricing strategy on an ongoing basis. And that's just a way that we get the pulse just to see if there's any issues. And sometimes those issues just may pop up in one geographic area and we say, hey, next year, we maybe need to be a little more sensitive to that next year in this part of the country or -- and it's usually not even that part of the country. It's maybe that part of a state or these 6 branches, something like that. It just helps us get the pulse for what's going on with the consumer. Cameron Kissel: And just, I guess, back to the U.S. market overall and different regional cohorts. How do we -- is there any update or way to think about in your core markets, where you're seeing different trends? Or I know you guys have kind of committed to specific areas you want to invest in, but anything you could say about specific areas being healthier or less healthier? Jerry Gahlhoff: I think that some of that is more affected by weather and seasonality from place to place geographically, possibly more than anything. So there are some times where, let's say, August, for example, was a really mild month temperature-wise in places like Georgia, which is usually where it's almost unbearable with heat and humidity. And it was actually a really nice mild August this year. But then out west, you go out west and it's super hot. And then we're supposed to get the heat wave back in Georgia in September, which is more unusual. So what we see are these pockets that are driven often by weather fluctuations and things going on with that. That's usually what's driving it. And then the other thing that can occur is we have -- there's a lot of invasive species. We have for those of you that have spent much time in the United States, we have all kinds of crazy critters that you don't have here in England or in the United Kingdom. And there's all kinds of new stuff coming in all the time. Cameron Kissel: Such as? Jerry Gahlhoff: Well, Lyndsey talks about the Asian needle ant and these kinds of things that can actually have a sting and they come in, in one area and then they start to spread. And these are things that have never been in the United States before, but they get brought in maybe in landscape plants or things like that. And next thing you know, you've got pieces and parts of them and they're beginning to spread. You can look at -- in Florida, the University of Florida recently discovered that 2 invasive species of termites, the Asian termite and the Formosan termite. As you think based on their name, they're not from the United States. Those 2 have found a way to come together and create a new termite because they interbreed. And now we have a new termite with new biology and things like that going on that we have to figure out how to control. So it's just like -- it just never stops. And we just constantly have those kinds of things going on. And you have to stay -- you have to get ahead of that and stay in tune with what's going on because these things happen and it causes these pockets, if you will, of change and shifts in the business. Cameron Kissel: And maybe there's just a follow-on there. We talked last time, I interviewed you about the holistic global trends, weather, radical weather events, extremely hot weather, different pockets of the U.S. becoming harder than normal. That all feels like it's still coming your way. It still feels like a tailwind for all. Jerry Gahlhoff: Yes. It certainly is a tailwind. I don't -- for example, I gave that example of the temperatures in August. It's -- that's not always -- in Georgia, that wasn't the best environment to have the most calls about pest control, but it's a much better environment for our people to be able to work in. But yet, at the same time, go to Arizona, there's a heat wave. And sometimes it gets too hot and the ants, for example, won't forge once the temperature gets too hot, right? But if it stays in a certain range. So there's all those kinds of factors. So I'm not as -- I don't like the extremes that we sometimes get. I wish it was more consistent, but it makes the business sometimes a little more chaotic and you have to be agile and be willing to -- be willing and able to respond when those opportunities arise. Kenneth Krause: But generally, a warming environment is actually beneficial to our end market. So when you think about secular tailwinds and opportunities for longer-term inflection in terms of overall growth of market or market attractiveness, generally, the warmer environments are more favorable. And what you're seeing over a longer term is an increase in the warming of the environment -- the temperature of the environment. So I think generally, that is positive. But Jerry is spot on. I mean, if you do see volatility in weather patterns, you will see volatility in certain parts of the business. Remember, 75% of our business is recurring. So that business doesn't change as much. But what you see in terms of volatility is some of the onetime business, some of the delays and deferrals and things like that, that will occur if, for example, a hurricane impacts us. And so things to keep an eye out. But generally, this is a secular tailwind for us. Jerry Gahlhoff: Ken, we have [ Christian ] here from our U.K. operations. We had breakfast with them this morning. And on our walk over, I was asking Christian because I hear here, we had quite a warm heat wave and some drought-like conditions. And I asked them, I said, what does that meant in the residential side? And this market is not typically a residential market for pests. And he said, I think that's shifting. And I said, well, what's going on? He said, the population that we're seeing in stinging insects like wasps and waspnests here has been crazy. And oftentimes, it's because they're able -- when you have longer periods of warmth, they're able to reproduce and maybe add an additional generation of growth in their population. And we're getting the phone calls about that, right? So this climate shift really does impact the business. And that was the conversation I had with Christian on the way over here this morning. Cameron Kissel: I hear we enjoyed the best British summer in 2 decades as a father of a 10- and 12-year-old and not worried about wasp stings. Just shifting gears, I guess, I wanted to think about advertising and any impact from AI. I guess in an old world, we would have talked about the enhanced digital piece. You mentioned Saela and the door-to-door approach. Just wondering about ROIs and lead times and as AI has sort of hit flight, are you -- how do you guys think about it? How should we think about it as it relates to Rollins, I mean advertising and leads and new business front? Jerry Gahlhoff: Yes. So we certainly see a lot of opportunity in AI. I always want to make sure my team and all -- and everyone understands that at its core, what we do, we're a people business, we're a relationship business and people are at the core of what we do. So when we look to these types of technologies, we look to them as enablers because like there's no AI that's going to run out and go get a rat out of the kitchen. That's not really on our radar screen in the short term. But what we could do is use AI to help us use routing and scheduling to help get them there faster than we ever did before, right? So we are looking at AI enhancements to help us improve efficiency in our business, improve maybe knowledge, enable some back-office improvements. We work a lot with some of our suppliers, our vendors that have some of those technologies, and they bring them in and we start embedding them into our business. We're using AI in our call center, for example, to -- in the past, we would have to listen back to phone calls. So let's say, a call center supervisor had 10 agents they were responsible for and all those calls get recorded. Those supervisors would have to then listen back to all those calls and critique them and say and coach their people. And they could spend hours and hours listening back to those phone calls. These days, we can run it through an AI model. It can provide feedback as if we say, hey, let's look for times when making sure our team was empathetic to a customer calling with a concern and find good examples and bad examples and they can use that for coaching, and they can do that real time, really quick. And we're using AI for things like that. And at the end of the day, that's going to help our customer experience. That will help our customers get a better experience with the human. We're not looking to use AI to replace that human over the phone. I still want that, that person-to-person interaction, but we're using that as more of an enabler type of thing. Ken, would you add anything? Kenneth Krause: Yes. I mean the only thing I would add, you hit the nail on the head from the standpoint of AI's impact on our business and how we're trying to use it to improve the efficiency. But when you think about this business broadly, because I think the question started a little bit around advertising. And so when you think about this business, we do certainly leverage the digital channels, and we do have a digital footprint that we're leveraging. But the beauty of this business and how it's been created over the last 50 or 60 years is the fact that we don't overly index on one form of advertising. And so we are leveraging a number of different approaches, whether it be door knocking relationships with homebuilders, of course, Google, but also billboards and cross-sellers. There's just so many different channels that have been built to the customer that allows us to manage any changes we might see associated with AI and related areas. Cameron Kissel: I guess I wanted to go back to resi and homebuilding. Obviously, the -- we've had several other meetings with businesses tied to that around here. We're right on the cusp of a new rate cycle maybe. But as you guys have looked at other -- just from a macro perspective, how do you think about the housing market as it relates to your business? It's sort of been on the knees for a while for a lot of really well-understood reasons. That might be on the cusp of changing, but might that unlock a different 3 to 4 years ahead of us on the resi side? Jerry Gahlhoff: So we -- some of our brands are actually really closely tied to homebuilding. The HomeTeam Pest Defense business model installs a proprietary system that is built into new construction and that business continues to do well. Most of the new homebuilders in the U.S. are still -- have a lot of housing starts. They have an advantage. Oftentimes, they can do things like buy down mortgage interest rates and things like that to keep their businesses fairly healthy. Where we see the bigger softening is certainly in the existing home transaction side where that's gotten a little more challenging. Luckily for us, not a lot of our businesses tied to the real estate transaction. We don't operate businesses that are doing a lot of the inspection services for real estate transactions. We haven't been that, that impact by it. But what I would say, in some ways, it's helped us the current environment and that people staying in their homes are going to invest in their homes. So our ancillary work that we do and fixing up someone's crawlspace and making that a healthier environment or getting contaminants out of someone's attic, that type of work, people are willing to invest in that because they know they're going to stay in their home. And so I think it's made it a little easier for us on some of the ancillary side in the short run as well. So it hasn't really been a challenge for us. Cameron Kissel: I was looking through one of the presentations from last autumn and it was a look back at your business characterizing different periods and showing financial metrics during those periods. So for example, great financial crisis, revenues were sort of mid- to high singles. It shows that you guys deliver rain or shine, which is the point. And the second category was industrial -- or time frame was industrial slowdown 2015, 2016. Everybody who went through that period remember some of the implications. And that was a similar revenue profile. And then the third was the COVID pandemic. Obviously, revenue growth more likely doubled and then there were some real labor challenges coming out of it. There's a question here, which is, as we look back at what we've been through now in the last 3 years, what will that [ epoch beep ] be marked by from your perspective? And how will you frame the puts and takes of that period? Will it be around a lack of labor coming out of COVID and some challenges on that front? Will it be a reacceleration of commercial? Or how do we think about how you will define the last few years? Jerry Gahlhoff: So I would say for us, when we do talk about the labor front, it's more about the shifts in the labor front that we're really starting to get behind and do a better job with investments that we're making in people. So while I said, hey, it's become easier to hire and it's been easier to attract people to our business, we're also hiring a lot of younger people than we did before. Pre-COVID, the average age of some of our new hires was in the mid-30s. Today, it's in the 20s, which implies then too, we're hiring people that are 22, 23, 24 years old. And what that means is that we have to do a much better job onboarding, connecting with leading and creating emotional connections with those people. And that takes -- for us, it takes investments that we make in our leaders to make sure that they can do that, processes and systems to make sure we remain connected. We put a really strong focus on reducing. We know that when you join us, if we get you for a year, you're going to stay a very long time. We have the challenge with turnover in the first 60 to 90 days where somebody gets in, they don't feel like this is for them or they haven't made those connections and they leave us. And we've made some really strong strides, and I'm really proud of the team for the work that they've done, making good progress in that area. We're also -- to help address that as well is we've just embarked on about an 18-month long program to put every single one of our people managers through new leadership development training. So we have about 2,300 people leaders in our organization that are all going to be trained from the top down on what it means to work and be a part of Rollins and what it means to be a people leader these days at Rollins. We have a lot of tenure, right, in our leadership team, which is a strength. But at the same time, we have to continue to sharpen their skills and hone their skills for today and what we're -- over the last few years and what we're going to face in the future from a hiring environment to be able to retain the people, keep them embedded in our business and have long-term relationships with our people. When we have long-term relationships with our people, they have long-term relationships with our customers and the results that we get can be amplified, and we can do even better. I just imagine what we can accomplish if you look at such great results that you referenced even through these difficult cycles as we continue to leverage some strength and build some muscle behind how we lead people, it's only going to help us be even better. Kenneth Krause: The only thing I would add is when I think about the last 3 years, I joined the company 3 years ago almost to the day, and Jerry became CEO in January of '23. The one word that I used to describe the last 3 years is modernization. And I've talked about it and I've used that word very consistently over the last 3 years. The steps we've taken to modernize the business are having a huge impact. And so if you just go through that, we raised the dividend by 70%. And so we priced in the special dividend in the fall of '22. We've since raised it consistently. And over that period of time, it's up about 70%. We also put a new revolver in January of '23. We changed our auditor. We put a shelf in place. We sold the family down by -- to the tune of $1.5 billion. We bought back $250 million of stock during that transaction. We entered the investment-grade bond market. We went public earlier this year with our inaugural offering, which is one of the tightest spreads in industrial land over the last 5 or 6 years. We did 2 major acquisitions in a brand-new market of door knocking with Fox and Saela. And I can continue to go through the list of accomplishments over the last 3 years, which have really had a great impact. The one thing we also did, and Jerry talked a lot about on the talent was just completely change the back-office talent profile. In doing that, what we did is we brought in a lot of new resources. That's allowed us to do our first ever Investor Day last spring, and I think that was a huge success. We've expanded that sell-side coverage from 5 sell-side analysts to almost 13 today during that course. So it's been a really strong successful run. And I think right now, as we think about the next 3 years in modernization, it's really about how do we improve our processes. And so how do we take these people that we're bringing into the business and improve the back-office support, the back-office processes to allow Christian and those folks that are on the front line to focus on the customer. And if we can do that, I really do believe that the margin profile will continue to expand and our earnings profile will continue to grow. Cameron Kissel: We've got about 5 minutes left. That was a thorough answer. I appreciate it. And I know there are some holders in the audience. So I'll keep going, but I just thought I might turn it over to see if anybody wants to ask a question. Please, Sami. Unknown Analyst: Just on the competitive side, Rentokil have had their issues much like yourself over the last few years, they've been looking to write that. Are you seeing any change in competitive behavior from them at all? Are you noticing them in any markets? Or is the market simply big enough for both of you to succeed? Jerry Gahlhoff: I would say the way you said it the last, I mean, we've always had a lot of competitors. We've had big competitors, regional competitors. We have such a wonderful industry and great competition that exists. I don't -- I wouldn't characterize anything that they've done as some shift in any change. So there's still a formidable foe in terms of earning and getting business. And they've been that way and the Terminix brand has been that way for many, many years, and I think they can continue to do that. Cameron Kissel: James, please, is there a microphone there? Unknown Analyst: This was a great business 10 years ago. You guys are making even better today. Well done. Jerry Gahlhoff: Thank you. Unknown Analyst: You talked about some of the growth programs. Could you elaborate a little bit on the ones that you think might be the most material? And then from a kind of a commercial pitch standpoint, are there any ingredients that you can bring into a commercial pitch that others just simply can't match? Kenneth Krause: When I think about the growth programs, I start with our M&A program. The businesses we're buying are really good businesses. We're getting them at a very attractive price, and we're investing in them. And in turn, they're accretive to our organic growth profile. And so that's really important because it structurally changes our business as we think about the future. When we think about the ancillary part of the business, we've talked about it a few times here. That continues to be an incredible growth driver for our business as well, highly accretive to our growth, our organic growth. We're seeing double-digit organic growth coming out of the ancillary side. And quite frankly, it represents a really small portion of our customer base. So there's opportunities to continue to inflect that higher. And then on the commercial programs and the investments we're making there, the focus, the laser focus we have on the commercial market, really important for us. So there's a number of different things across. We're not really dependent upon one thing, but there's a number of different things and levers that we're pulling to really drive that 7% to 8% organic growth profile that we're enjoying today. Jerry Gahlhoff: And then on the commercial side, I'll give an example at Orkin, which is what we've talked about on the commercial side quite a bit. We have a triple guarantee. So imagine walking into a commercial establishment that may have an incumbent, somebody that's already servicing it and you're wanting to take that. And one of the fears is fear of making a change. You don't know what you're going to. So we have this triple guarantee. Part of that triple guarantee makes it really easy for you to change to us because what we'll offer you is, hey, we're going to come in, we're going to service you. And if you had some existing problem, we're going to keep coming at no charge until that problem is resolved. So that's one part. The second part is that if we are struggling to get it resolved, we're going to refund your money back to the first penny that you paid us, we'll give you a full refund. And the third element of that is if you're at the end of that, if we still don't have your complete satisfaction with the service that we're providing, we'll actually pay to -- you can choose another pest control provider and we'll pay for that initial service. That's how confident that we are that we're going to be able to take care of your problem. So if we get sales objections related to that, we can get over that really quickly by doing it. It's not -- it's something anybody can do, but you actually have to be able to service it and put your money where your mouth is to be able to execute to that. So that's something that in the Orkin brand that they sell hard on is that triple guarantee, and that's how we close a lot of deals. So I think that's -- it's not something -- it's certainly something anybody can do, but you also better live up to it if you make that guarantee. Cameron Kissel: That's great. We are just running out of time. I think we nailed it perfectly time-wise. Gentlemen, thank you very much. Jerry Gahlhoff: Thanks very much. Cameron Kissel: I really appreciate it.
Operator: Good day, and welcome to the Cracker Barrel Fourth Quarter Fiscal 2025 Conference Call and Webcast. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Adam Hanan, Director of Investor Relations. Please go ahead, sir. Adam Hannon: Thank you. Good afternoon, and welcome to Cracker Barrel's Fourth Quarter Fiscal 2025 Conference Call and Webcast. This afternoon, we issued a press release announcing our fourth quarter results. In this press release and on this call, we will refer to non-GAAP financial measures such as adjusted EBITDA for the fourth quarter ended August 1, 2025. Please refer to the footnotes in our press release for further details about these metrics. The company believes these measures provide investors with an enhanced understanding of the company's financial performance. This information is not intended to be considered in isolation or as a substitute for net income or earnings per share information prepared in accordance with GAAP. The last page of the press release include reconciliations from the non-GAAP information to the GAAP financials. On the call with me are Cracker Barrel's President and CEO, Julie Masino; and Senior Vice President and CFO, Craig Pommells. Julie and Craig will provide a review of the business, financials and outlook. We will then open up the call for questions. On this call, statements may be made by management of their beliefs and expectations regarding the company's future operating results or expected future events. These are known as forward-looking statements which involve risks and uncertainties that, in many cases, are beyond management's control and may cause actual results to differ materially from expectations. We caution our listeners and readers in considering forward-looking statements and information. Many of the factors that could affect results are summarized in the cautionary description of risks and uncertainties found at the end of the press release and are described in detail in our reports that we file with or furnished to the SEC. Finally, the information shared on this call is valid as of today's date, and the company undertakes no obligation to update it, except as may be required under applicable law. I'll now turn the call over to Cracker Barrel's President and CEO, Julie Masino. Julie? Julie Masino: Thank you, everyone, for joining. I'd like to start by saying what an honor it is to be trusted with the responsibility of stewarding the Cracker Barrel brand. Ever since the company's founding in 1969, Cracker Barrel has been a home away from home for America, with our restaurants, people and food offering a reminder of some of the country's greatest attributes, family, hard work, fresh-made meals and country hospitality. Cracker Barrel is not just an Old Country Store or a restaurant. It's the front porch of America, and we take that very seriously. The feedback we received from our guests in recent weeks on our brand refresh and store remodels, has shown us just how deeply people care about Cracker Barrel. We thank our guests for sharing their voices and love for the brand and telling us when we've misstepped. We've listened carefully. As we've discussed on past conference calls and presentations, we've been advancing a multiyear plan to return Cracker Barrel to growth and ensure we're here to welcome families around our table for generations to come, while staying true to what is so special about the brand. We conducted extensive research to inform our strategic plan. Well, what cannot be captured in data is how much our guests see themselves and their own story in the Cracker Barrel experience, which is what's led to such a strong response to these changes. We have already taken steps to get back on track. We want longtime fans and new guests to experience the full story of the people, places and food that makes Cracker Barrel so special. That's why our team pivoted quickly to switch back to our old-timer logo and has already begun executing new marketing, advertising and social media initiatives, leaning into Uncle Herschel and the nostalgia around the brand with more to come. We also hit pause on our remodels and are reverting the 4 locations with the modern design to our old-timer signage and more traditional interiors. And we've adjusted the investment plan for our restaurants. The brand refresh activities around our logo and our remodel tests were only one part of the work we were and are doing to make sure Cracker Barrel continues to thrive. A key imperative of our multiyear plan has been to deliver food and experience our guests love, and we are placing an even bigger emphasis in the kitchen and other areas that enhance the guest experience. In the past week, we've instituted process changes to ensure our signature biscuits are living up to our guests' memories and expectations, and there is more to come on the food front. We look forward to continuing to invest in our loyalty program to seek even more direct feedback from our core guests. We are confident in our path ahead, leveraging the many elements of our multiyear plan that have been working along with these recent changes we have made, leaning into Cracker Barrel's heritage, listening to and steepening the connection with our guests. We're moving ahead with a strong plan to regain traffic and the momentum we had a month ago. There is a lot to be optimistic about. And our teams are focused on getting back to a positive trajectory. I'll now turn the call over to Craig for details on our results as well as our outlook and I'll return later to dive more deeply into our key focus areas going forward. Craig Pommells: Thank you, Julie, and good afternoon, everyone. Before reviewing our fourth quarter results, I will share a brief update on the full year. Adjusting for the impact of the 53rd week in the prior year, we grew revenue by 2.2%, which included comparable store restaurant sales growth of 3.5%. Additionally, we delivered adjusted EBITDA growth of 9%. Our teams did a great job delivering these results in fiscal '25. Now turning to the quarterly results. For Q4, we reported total revenue of $868 million, which included restaurant revenue of $718.2 million and retail revenue of $149.8 million. Excluding the $62.8 million benefit from the 53rd week in the prior year, total revenue increased 4.4%. Comparable store restaurant sales grew by 5.4%, representing the fifth consecutive quarter of positive comparable store restaurant sales growth. Pricing for the quarter was 5.4%. We continue to be pleased with the strategic pricing initiative as flow-through results remain favorable. Additionally, menu mix was also favorable by 1%. Off-premise sales were 18.1% of restaurant sales, an increase of approximately 100 basis points versus prior year. Comparable store retail sales decreased by 0.8%. Moving on to our fourth quarter expenses. Total cost of goods sold in the quarter was 30.5% of total revenue versus 30.4% in the prior year. Restaurant cost of goods sold was 26.3% of restaurant sales versus 26% in the prior year. This 30 basis point increase was primarily driven by menu mix commodity inflation and higher promotion-driven waste, partially offset by menu pricing. Commodity inflation was approximately 2.3%, driven principally by higher beef, pork and egg prices, partially offset by lower poultry and produce prices. Retail cost of goods sold was 51% of retail sales versus 50.1% in the prior year. This 90 basis point increase was primarily driven by $2.4 million in additional tariff expense. Our inventories at quarter end were $180.6 million compared to $181 million in the prior year. Labor and related expenses were 36.5% of revenue compared to 37.5% in the prior year. This 100 basis point improvement was primarily driven by menu pricing, improved productivity and improved turnover, partially offset by wage inflation of approximately 1.1%. Other operating expenses were 24.9% of revenue compared to 23.9% in the prior year. This 100 basis point increase was primarily driven by higher advertising expense and higher depreciation. General and administrative expenses were 5.8% of revenue compared to adjusted general and administrative expenses of 5.2% in the prior year. This 60 basis point increase was primarily driven by investments to support our strategic initiatives and a more normalized incentive compensation. Our GAAP financial results include a noncash store impairment charge of $16.2 million, primarily related to low-performing Maple Street stores, many of which have already closed in the first quarter. Net interest expense was $4.7 million compared to net interest expense of $5.7 million in the prior year. This decrease was primarily the result of lower average interest rates. Our GAAP income taxes were a $4.3 million credit. Adjusted income taxes were a $1.2 million credit. GAAP earnings per diluted share were $0.30 and adjusted earnings per diluted share were $0.74. Adjusted EBITDA was $55.7 million or 6.4% of total revenue. Excluding the $5.8 million impact from the 53rd week in the prior year, adjusted EBITDA increased by 8%. Now turning to capital allocation and our balance sheet. In the fourth quarter, we invested $45.4 million in capital expenditures. For the full year, capital expenditures were $158.6 million, which includes approximately $105 million in store maintenance $20 million related to remodels, $19 million for technology and other strategic initiatives and $15 million for new stores. We ended the quarter with $445 million in debt net of cash, which was $19.6 million lower than the prior year. As disclosed through the quarter, we executed a new convertible debt transaction that raised approximately $345 million through the issuance and sale of 1.75% coupon convertible senior notes due in 2030. The proceeds were used to repay $150 million of the existing convertible debt. Purchased a capped call that reduces the dilution risk on the new convertible debt and pay down the revolver. We intend to repay the remaining $150 million of the existing convertible when it matures in June of 2026. We were pleased with the outcome and terms of the new convertible. This transaction, coupled with the refinancing of our credit facility in May, further fortifies our balance sheet, giving us confidence that we can successfully navigate through any short-term headwinds and also provides ample liquidity to execute our plans. Additionally, as announced in today's press release, the Board authorized a new $100 million share repurchase program and declared a quarterly dividend of $0.25 per share, payable on November 12, 2025, to shareholders of record on October 17, 2025. Turning to our fiscal '26 outlook. I'll start with an update on traffic trends to date in the first quarter. Traffic for the first half of August was down approximately 1%. Since August 19, the date of the initial logo change, traffic has declined approximately 8%. Assuming similar trends continue for the remainder of the quarter, we anticipate a Q1 traffic decline of approximately 7% to 8%. Our outlook reflects our best estimate today. The rate and level of our traffic recovery as well as the level of investment required will be key drivers of our fiscal '26 EBITDA performance. For fiscal '26, as outlined in our press release, we anticipate the following: total revenue of $3.35 billion to $3.45 billion, which contemplates annual traffic of negative 4% to negative 7%. This assumes that our traffic trend improved sequentially each quarter with a meaningfully higher rate of improvement in the second half of the year compared to the first half. Pricing up 4% to 5%, the opening of 2 new Cracker Barrel stores and the closure of 14 Maple Street units. Commodity inflation of 2.5% to 3.5%. Our only wage inflation of 3% to 4%. Related to retail, to our remediation efforts, we were able to largely offset the incremental impact from tariffs. Taking all of the above into account, we anticipate full year adjusted EBITDA for approximately $150 million to $190 million. For Q1, we expect adjusted EBITDA to be significantly below prior year due to lower traffic expectations and approximately $16 million in various costs related to our ongoing investments in advertising and marketing as well as our general managers conference, which typically occurs every other year and manage our training costs. We are planning for capital expenditures of approximately $135 million to $150 million, consisting of approximately 60% maintenance, 35% technology and other strategic initiatives and 5% new units with no spending on new remodels. Finally, as noted in the press release, this guidance replaces all previous guidance or projections, including with respect to fiscal '27. We look forward to updating you throughout the year as we work towards our objectives. I will now turn the call back over to Julie. Julie Masino: Thanks, Craig. Cracker Barrel is an incredible brand. We are proud to welcome millions of guests a year. Our hardworking team is more than 70,000 people strong. Our value proposition is exceptional. Our breakfast offerings are standout. Our retail assortments are enticing and our balance sheet is strong. As you know, the company for many years was not delivering the results that we know are possible for this brand. The choices people have, their expectations around food and experience the way they travel and their technology have all changed dramatically over the last decade, and the company had not kept pace. I share this to reground us in the importance of Cracker Barrel's growth. We deeply value the strong emotional connection our guests have, not just to the old-timer logo or vintage Americana decor, but to the sense of tradition and nostalgia those represent. That connection is powerful, and we recognize there are other areas where we must continue improving, especially in our food and overall guest experience. Fortunately, these were already part of our multiyear plan, and we are moving forward with a renewed focus on both. You've heard me say before that we have all the right pieces to return to being a leading restaurant company with meaningfully improved margins and growth potential. There are many elements of our plan that have been working well and delivering results. As you've seen from our 5 consecutive quarters of positive comp store restaurant sales and a 9% growth in adjusted EBITDA we delivered in fiscal 2025. Some of these successful elements of our plan include actions we've taken so far with our food and menu, bringing back old favorites like Uncle Herschel's breakfast and chicken and rice as well as introducing new dishes like pot roast and our improved New York strip steak, enhancing how our food is presented on our menus and evaluating and adjusting our pricing and value positioning. We've also taken significant steps in the back of house with the goal of improving food quality, while increasing efficiencies and reducing waste. We've continued to invest in our people and training. And in the last 2 years, we've seen hourly turnover improved by 19 percentage points along with more consistent and better operational execution in our restaurants, and our initiatives continue to drive improvement in digital and off-premise. The return of campfire meals to our summer menu in 2025 is a perfect example. We brought back a menu item that many guests and team members asked for, while improving quality and streamlining kitchen execution. The new offering started at a compelling price point of $10.99. The promotion was supported by an integrated advertising campaign that also highlighted our sponsorship of the Cracker Barrel 400, a NASCAR Cup Series motor race in June and activations at key Speedway Motorsports destinations nationwide. We shared the news of the return of Campfire First with our loyalty members, and they joined us. And the results were excellent. Our dinner traffic in Q4 was positive at 1% for the first time since fiscal year '19, excluding COVID. We're continuing to lean into craveable flavors and comforting dishes, which you can see on our current fall menu with our herb roasted chicken and our [indiscernible] Hashbrown Casserole, another innovation with our beloved Hashbrown Casserole. I mentioned earlier that we've instituted process changes to ensure our signature biscuits are living up to our guests memories and expectations. And we're also making changes to our Meatloaf and Green Beans preparation, along with accelerating testing on other core item improvements. I've talked before about back-of-house optimization as a key part of improving food quality and consistency, while simplifying operations and execution. Phase 1 of our back-of-house optimization was rolled out in Q3 and adjustments on our processes that I just mentioned are a direct result of learnings from that rollout. Phase 2 was piloted in 15 stores late in the fourth quarter. We're encouraged by the initial results and plan to test a region in the second half of fiscal '26. We're also leaning even more into country hospitality and operational excellence. In early August, we implemented our new service principles, The Herschel Way. inspired by our beloved Uncle Herschel and the warm and gracious hospitality he showed to all. The Herschel Way builds on the updated service standards we introduced in Q3 and aligns our team members to consistently deliver exceptional guest experiences. Our guest loyalty program is another element of our multiyear plan that has been performing well and delivering results. Over the past year, we continue to see strong membership growth for Cracker Barrel Rewards, with membership increasing by 3 million people. We now have over 9 million members after just 2 years of the program. And those members account for over 35% of tracked sales and an even higher percentage of retail sales. Notably, our Cracker Barrel Rewards membership has increased in recent weeks, rising by over 400,000 members in Q1 to date, and 300,000 in the most recent 4 weeks, both of which are above plan. Looking ahead to build on all we've heard in recent weeks, tomorrow, we are launching front porch feedback which gives our reward members the opportunity after every visit to comment directly to our team on aspects of their visit. We will be listening to an actioning initiatives based on their valuable input. Before I close the call and we turn it over for your questions, I want to spend a few minutes on our previous remodel program and our updated capital investment plan. From the time we introduced our multiyear plan, we committed to being careful stewards of capital, only making large-scale investments if we felt confident in the returns and to proceeding slowly with a test-and-learn mentality. In keeping with this philosophy, as Craig shared with you, the total invested in our remodel program during fiscal 2025 was approximately $20 million of our overall $159 million CapEx for the year. That number also includes some regular guest-facing maintenance in certain locations, such as restroom upgrades. Since the outset, we have been clear that our stores require significant maintenance and repair and it's this defensive spending that has made up the majority of our store investments over the past 2 years. Along with those critical investments, we also saw an opportunity to provide an even more welcoming and comfortable experience with additional incremental improvements. The kind of things that would lead to loyal guests visiting us more frequently, team members staying with us and new guests joining us, all while remaining authentically Cracker Barrel. We have shared information previously on our refreshes and various levels of remodels and have discussed the changes we were making in test stores. Over the past year, we have tested various elements, paint colors, lighting, sound, seating and so on. Listening closely to what our guests are telling us. We are still listening. The modern design that has been seen online and in social media was only tested in 4 of our locations. As we recently committed and as I noted earlier, we will not proceed with these modern stores. and have also begun reverting to our old-timer signage and bringing back more traditional Cracker Barrel interiors to these locations. Some of this will take time due to permitting and other constraints, but it is happening. In addition to those 4 modern design locations, we touched another 58 stores or less than 10% of our system since starting to test remodels. We've hit pause on these as well and will not roll out any further remodels or refreshes, while we continue to gather and evaluate data on the existing stores, looking at the specific elements that guests love and those they don't. Of course, in all of our locations, the core elements that people expect from Cracker Barrel are there today, and they will always be there. Rocking chairs on the front porch, Vintage Americana decor and antiques hold straight from our warehouse in Tennessee, peg games, fireplaces and our unique retail shop. Going forward, we'll continue to maintain and repair our stores and improve them in ways that our guests and team members expect and will leverage learnings from our test locations for any future improvements in a disciplined way. This brings me to our updated capital spending plans. As Craig noted, we expect to invest approximately $135 million to $150 million in the coming fiscal year. The bulk of this will be maintenance CapEx, things like paints, parking lots, lighting, retail fixtures, flooring and restrooms as well as investments in technology to support our stores and our loyalty program. Given the adjustments we are making, it's too early to set a specific CapEx range for fiscal '27, but we will be well below the prior 3-year figure of $600 million to $700 million that we provided at the outset of our program for fiscal '25 through '27. Our Board remains committed to a disciplined approach to capital allocation, investing in our core business, approving our quarterly dividend and authorizing a $100 million share repurchase program, all while maintaining a conservative balance sheet. This week, we will be celebrating Cracker Barrel's 56th birthday. As we cross this milestone and look ahead to America's 250th birthday, I want to say again how proud we are to serve our guests and to thank our hard-working team members. Cracker Barrel is a part of America's story. Our stores are in your communities. Our team members are your neighbors. Our suppliers are your local businesses. We are fortunate there's so much passion for the brand, our heritage and our place in people's lives. We are more focused than ever on making sure Cracker Barrel is here to serve families for generations to come. Again, there's a lot to be optimistic about. Operator, we'll now turn the call over for questions. Operator: [Operator Instructions] And your first question today will come from Brian Mullan with Piper Sandler. Brian Mullan: Thank you for sharing the traffic performance this quarter. Just given what you saw following the logo change, just had a question about the marketing plan this year. Do you still spend the same amount of dollars and maybe just change the message in order to drive that sequential traffic recovery you're expecting? Or maybe do you pull back on spending regroup a bit? Just how are you thinking about that as you sit here today? And is there any way to perhaps actually take advantage of all this recent attention over time? Julie Masino: Brian, thanks for the question. It's Julie. We expect marketing as a percent of sales will be a little bit higher in '26 than it was in '25 with Q1, in particular, up a bit. We're continuing to invest in marketing. You saw some great performance from our investment there in Q4, but especially given the need right now to drive traffic in light of the current headwinds, we're going to continue to invest there. Brian Mullan: Okay. And then just a follow-up on some of the back of the house issues. I think Phase 2 this year was always going to be focused on improving some of the processes. But separate from that in the prepared remarks, you've talked about improving some of the food quality of some of the items. Just trying to understand, like was this always the plan on the food quality side? Or is some of this maybe due to broader feedback you've done since the logo change, so just really any color on the plans, both processes as well as food on the menu that you're working on? Julie Masino: Sure. It's a great question. look, food quality has always been a north star for us in the plan. We've been focused on that as well as process simplification to make jobs easier and improve productivity. Phase 1, as we've talked about, rolled out in Q3, Phase 2 started testing in Q4, like I said in my prepared remarks, Kitchen initiatives like this are complex. And I think as we shared with you guys a couple of quarters ago, we said it was going to have 3 phases, multifaceted. We just continue to evaluate processes as they get out there. We're learning from scale. We continue to listen to our team members and watch food quality scores and value scores. We remain focused on all that, and we'll just keep focused on all of these things. Operator: And your next question today will come from Dennis Geiger with UBS. Dennis Geiger: I appreciate the quarter-to-date or year-to-date color. Wondering if you could share anything more sort of on how things have trended just given the sensitivity and the magnitude of some of the pressure. Anything to share have gone by? Have you've seen any kind of improvement within that trajectory? I understand you gave the 1Q guide. But just if anything more on the cadence -- weekly cadence so far? Craig Pommells: Dennis, this is Craig. I'll start on that one. I think for us, if we kind of think about where we were before all of this, before 08/19, traffic was down about 1%. Q4 was also down about 1%. And obviously, we had reported the 5 consecutive quarters of same-restaurant store sales. So we're very happy with that, and we're pleased with that performance. And obviously, things have changed a bit here recently. I think the guide that we've given for the quarter is really our best thinking at this point. And as we think about the year, the -- our best thinking right now is we'll continue to get better sequentially quarter-over-quarter, and we expect even greater rate of improvement in the second half of the year. But this is a bit of an unusual situation, and we've factored all that into our guidance. Julie Masino: The only thing I'd add, Dennis, is the teams are hard at work. We have taken the feedback from our guests, pivoted quickly. We've got a plan to drive traffic, and we're optimistic that we can get back to that prior run rate. Dennis Geiger: Very helpful, guys. And the last one, I guess sort of 2 parts. If anything additional on the weakness and the challenges, whether it's regional anything by cohort or frequency of guests if you've got anything more or maybe it's just broad-based. And the more important second part of the question is kind of Julie, what you just touched on. From here plans, in particular, to address kind of the near-term challenge, it sounds like the front porch feedback initiative is going to help to dictate some of the plans in the reaction here? Just wanted to see if I have that correct or if anything else to share on kind of near to medium-term stuff to recover that traffic? Craig Pommells: Dennis, this is Craig. I'll get started with the first part of that and then turn it over to Julie. We have seen declines that are relatively broad-based, but the declines are larger in the Southeast, excluding Florida. In terms of cohorts by income, we're not seeing any substantial differences by income. In terms of age, again, fairly broad-based. We're doing a little bit better or a little bit of less decline with the over 65 cohort. But speaking more generally, broad-based geographically, a little bit more in the Southeast, that's Florida and broad-based with income at age. Julie Masino: From a plan standpoint, Dennis, we had really planned to focus on a lot of new menu innovation this fall, driving our herbs roasted chicken, our sausage and egg Hashbrown Casserole. We've also brought back 2 guests request to the menu Uncle Herschel's breakfast rejoined the menu ironically on the day of the logo change as well as country mornings breakfast. So those are 2 breakfast items that guests have been asking for, for a while. We continue to listen to our guests. I think we've shown that throughout the last year with items coming back like Campfire. We're continuing to do that right now as we really pivot and double down. Marketing plans that you're going to be seeing in the next few weeks really center around college football. We've got some advertising buys there that were existing prior to this event. We've got some big news coming next that we're excited about. So just stay tuned. The teams are really actively engaged in making sure all of our guests know that we are honoring our legacy and our heritage and inviting everybody in for a great meal around our table. Operator: And your next question today will come from Jake Bartlett with Truist Securities. Jake Bartlett: My first was on the margin guidance. The implied margin guidance for '26. Maybe if you could kind of dig into the moving pieces before we had talked about $55 million to $60 million in cost savings from the back of the house sounds like that plan has changed a little bit, but it seems to be on track. Maybe just to describe maybe how much savings you expect there. What you're looking at from G&A.? I think obviously, 2025 is an investment year, as you described it. The situation has changed. Wondering whether G&A might -- there's opportunity to bring that down? And then lastly, within the guidance, are there any unusual items, and then something that won't be backed out, but they just are larger than normal, specifically maybe in the first quarter, maybe there's some expenses that you've incurred as you've had to react to the near-term disruptions. Craig Pommells: Jake, it's Craig. I'll start with Q1. I think the biggest item for Q1 is we -- obviously, we have the softer traffic and we've given the guide there in terms of our expectations. We also have that $16 million in additional costs that relates to the marketing, the advertising. Our general managers conference actually occurs every other year. So we'll incur that this year. We did not incur it last year and then we have some related training costs. So all of that together will be a meaningful impact to Q1. And as we think about the full year, the biggest driver in our EBITDA consideration at this point is really around traffic. So that negative 7% to negative 4%. That's a pretty big range, but obviously, we're still early in this. We're only about 30 days away from when all of this occurred. So that's going to be the big lever. And the marginal impact of that is also quite substantial. The way that we think about that is a flow-through rate on that traffic of somewhere between 30% and 45%. So those are going to be the biggest drivers in terms of our EBITDA guidance. We do have a fair bit of cost savings in the plan, but we also have things going in the other direction. So at this point, the best I can do is kind of point you to the full year guidance and point you to the traffic performance has been the biggest driver there. Julie Masino: I think the only clarifying point I would make, Jake is, as I thought I heard you say $55 million to $60 million attributed to back of house. I don't think we've actually attributed $55 million to $60 million to back of house. We've just said we'd have $55 million to $60 million in cost saves of which back of house is one of the key initiatives in there. So just to clarify that for you. We are moving forward with back of house. It's kind of a 3-phase program. There are savings associated with that, but that's not the only thing driving that $55 million to $60 million. Craig Pommells: Over multiple years as well as the other key point there. Jake Bartlett: Got it. Should we think about the $55 million to $60 million, and I'd love to hear what the other big buckets there are. But as something that is still would be expected within the '26 and '27 or is it the prior plan? Or has that changed materially? Craig Pommells: Yes. I think given all of the moving pieces here, we are not going to share any more about that at this point. I mean we think the $50 million to $60 million is still achievable. It may take the exact time frame. We'll have to update as we kind of navigate through all of that about $50 million to $60 million still achievable. We're still evaluating the exact timing of that at this point, and we've contemplated all of that in our guidance. Julie Masino: The only thing I'd add there, Jake, is, we are -- it's one of the things I think this company is really best at. We are really good at cost saves. And we have a history of delivering that over the last several years, even before my arrival. So the teams bubble down. They have some good plans there, and we will deliver there. Jake Bartlett: Great. And then my another question was on the balance sheet and the return of cash to shareholders. You have the authorization now, the $100 million. I guess the question is what your approach is to the balance sheet. It looks like your EBITDA guidance is about your equal to your CapEx guidance. So if you look at where your EBITDA guidance is, you're going to get a little bit higher leverage there anyway from that. So is it feasible to return cash to shareholders this year given in the framework of your guidance? Or is that just kind of a tool maybe for upside? Or how do we think about your approach to the balance sheet, returning cash to shareholders in the context of your guidance? Craig Pommells: Jake, I'll start with that one. The -- for a long time, the Cracker Barrel's Board's approach to capital allocation is to use a balanced approach. The Board is always looking to optimize and they focus on investing in value-creating activities in the core business, maintaining a conservative balance sheet, in particular as it relates to our debt profile and then returning cash to shareholders. So the Board is going to continue to evaluate that and be a bit opportunistic. So I don't think any of those decisions are final. They're going to -- obviously, they have made the authorization, they've approved the dividend and they're going to continue to monitor that as things evolve. Operator: And your next question today will come from Jeff Farmer with Gordon Haskett. Jeffrey Farmer: Several of your casual dining and family dining peers have been looks like increasingly aggressive in pursuing low price point offers or just value promotions at a certain price point. So again, sort of as the logo dynamic has played out over the last 5 to 6 weeks, even in that narrow time frame, the segment has gotten increasingly competitive. So in lieu of what a lot of your peers are doing, how does that impact your own top line strategy? Julie Masino: Yes. Jeff, it's Julie. I'll start and then Craig can jump in. We are -- we continue, as you've noted, to see that with the competition, there's a lot of promotional activity out there and dealing going on. No, we would expect some of that because it's back-to-school season, and you usually see a lot of that this time of year. I'd remind you and everyone out there, what an incredible value we deliver to our guests in so many ways. The first one that I'd love to point out is our check. Our check for fiscal '25 still ended the year right around $15, while family dining was a little over $18 and casual is at $27. So eating a meal at Cracker Barrel of our abundant scratch-made food. And remember, people at Cracker Barrel have told us, our guests have told us redoundingly that they value our delicious food in abundance. People leave with ] drug ] bag, they leave with to-go containers. And so we think that we really still represent that great value. We were recently on air with our Sunrise Special, which is our $7.99 all-day offering of 2 pancakes of your choice of either eggs or breakfast protein. We've got great items out there. If you think about Campfire, one of the reasons that landed so well with our guests is we had an opening price point at $10.99 on that new sausage and shrimp skillet as part of the Campfire menu. Our barbell strategy continues to resonate with our guests, think about how we've evidenced that in the last year, what we've been able to flow through in pricing, the 1 percentage point of mix we delivered every single quarter in '25. We've got early dinner deals starting at $8.99 that continue to perform well for us. And then honestly, the cherry on the top is our loyalty program, which is another way that we deliver tremendous value. When we look at the promotional activity that we've put out there in the last couple of weeks, just to reinvite guests back into our restaurants, they've resonated really well. We had the Sunrise Special BOGO. And then this last weekend, we offered the old timers' BOGO because we know how much everybody loves the old timer. What's better than 1, 2. So we brought in yet this past weekend with that. We saw that resonate not only with guests, but with our loyalty members as well. And they were able to earn pegs on all of those transactions. So it continues to be a way that we deliver great value to our guests. So we believe that we are well poised as I've said in the past to compete in this space because we have such great value day in and day out. Craig Pommells: Yes. And internally, we continue to see our value scores, make gains on top of gains. So we're particularly pleased with that. But we have some levers here. Jeffrey Farmer: Okay. And then I think I heard you guys say 4% to 5% menu pricing in 2026, is that accurate? Craig Pommells: Correct. Yes. Jeffrey Farmer: Okay. So the question that follows that, actually, a couple would be. So that's quite a bit of how do your commodity and wage inflation, roughly 100 to 200 basis points. And it would be one of the highest menu pricing levels in this sector. So 2 questions. So why do you guys feel the need to sort of push that pricing? Is this just, again, sort of going back to the -- or rejiggering the pricing structure? And do you expect your consumers to sort of accept this pricing without too much pushback? Craig Pommells: Absolutely. The -- so keep in mind, as you know, Jeff, we revamped our whole pricing approach a couple of years ago, we've built up that capability and that has been working well. And we measure that on an ongoing basis. We continue to see really good flow-through. We continue to make gains with our value scores. And we've actually -- even with that, we've been generating positive mix. And I think if you think about 4% to 5% in context of $15, it is just still a smaller dollar increase, and it continues to it continues to work for us. We've also been really careful as we use the kind of the barbell pricing approach. We've been really careful in terms of maintaining those entry price points, and that's been helpful. We also have the loyalty program that continues to grow and exceed our expectations. And so guests that dine with us more frequently effectively can get an incremental discount with that program. So we're taking higher pricing, but we've been really thoughtful about how to do that and continue to flow through well from a guest perspective. Operator: And your next question today will come from Sara Senatore with Bank of America. Sara Senatore: I guess one quick clarification. I think you said, Craig, that most of the age cohorts or you didn't see a lot of variation outside of the geographic kind of split, but that the older cohort was perhaps less affected than younger. So I just wanted to clarify that, and then I do have a question. Craig Pommells: Sara, yes, that's correct. We are seeing the impacts really across all of the cohorts. However, our over 65 cohorts has held up best relative to the others. Sara Senatore: Okay. And I guess in that context, and maybe, Julie, similar to what you said was that Cracker Barrel hadn't evolved with the guests from prior to many -- for many years, which I think certainly makes sense. I guess, if remodeling and rebranding isn't the way to sort of evolve or bring the brand forward. Maybe to talk a little bit more about what is as you think about maybe shift -- either shifting your customer base to perhaps maybe easing a little bit more useful? Or how you think about evolving the brand in the context of your comments earlier? Julie Masino: Yes, Sara, thanks for the question. Look, I think the way we've talked about the plan is we -- first of all, we spent a lot of time on research and really understanding where Cracker Barrel sat versus our competition and what our opportunities were and also what our strengths were. And that was always about food and experiences that guests love, and we were kind of in the middle of the pack on some of those scores when we rated ourselves against the competition. So one of the key tenets for our plan has been around food and experience. And when you think about the 5 pillars that we put out there, brand and even the logo piece was just one small work stream of those 5 pillars, so the 21 work streams that we've put out there, same with remodels, it's one small work stream. We know that we've had work to do on food, experience. The loyalty program was a piece of that, pricing was a piece of that. So all of those things are coming together in the plan. As we've talked on this call and in my prepared remarks, a lot of those pieces are really working. So we feel like this is still the right plan. And our focus right now, our renewed focus is on food and experience. We're really doubling down there, taking in a lot of the feedback from the recent weeks and continuing to evaluate the menu and the work that we need to do there. Sara Senatore: Okay. That's very helpful. And just then sorry, second quick modeling question, Craig. Can you just talk a little bit -- I'm sorry, if I missed it, G&A was a good guy again this quarter. I think last quarter, you had said that there might be some timing shifts. So could you just maybe explain maybe what happened? Craig Pommells: Well, we've been continuing to manage our G&A as a part of the broader our broader cost savings efforts. So we're always looking at our G&A spend and whenever there is an opportunity to spend less, we're always taking that. So we've continued to manage it. The entire team is working to deploy those dollars as effectively as possible, and that paid off in the quarter. Operator: [Operator Instructions] And your next question today will come from Jon Tower with Citi. Jon Tower: Jumping around on mix, if you don't mind. You had mentioned quarter-to-date, you're seeing good, not good, but you're seeing traffic declines. But at the same time you're seeing an uptick in loyalty sign-ups, I believe you talked about, I think in the recent weeks, 300,000 loyalty members sign up. So can you speak to what's happening there? Are you doing anything internally at the stores to get people to jump into the program more so than what you were doing previously? Julie Masino: Jon, it's Julie. Our loyalty program is not -- has not been impacted as we talked in by recent events. Your takeaways were correct. Traffic is a little bit down, not a little bit. I think you said good, I was like, I don't know about that. Traffic is down since 08/19, but the loyalty program sign-ups are actually ahead of our plan. So we've signed up about 400,000 people quarter-to-date and 300,000 of those people have come in since 08/19, again, exceeding our plan, exceeding our expectations. We haven't changed any activity in the stores around that to specifically answer your question. We know that it's a great program. People really love being in it. And as Craig and I talked earlier, it provides great value. And we're really excited to launch this front porch feedback piece of it tomorrow because we've gotten so much feedback in the last few weeks. What we think is -- what we think we can do with front porch feedback is really here from our loyal guests who are in all the time who've had an experience with us, we've set it up so that it actually is linked to the traffic so that we can understand their transaction, their store, and we can start to aggregate feedback in new ways. So we're really excited about it. It's just another way that we can value our guests beyond just the pegs that they earn or the discounts that we might provide to them. Jon Tower: And then, I guess jumping around a little bit. Maybe, Craig, you had mentioned 60% of the CapEx this year is going to be roughly maintenance. Is that a good that $80 million to $90 million maintenance CapEx, a good way to think about it longer term over the next several years, $80 million, $90 million for baseline maintenance? Craig Pommells: Yes. I think longer term, what we have shared -- what we've talked about is on an inflation-adjusted basis, this kind of $125 million as being a base spend amount. And that's what we were -- that's what we did in '24 and about that -- about '24 and '23 at about $125 million because -- and that includes base maintenance, it includes the things that -- some other ongoing projects. I think that's a good base number once you adjust that for inflation. We've also said that -- for the next couple of years, as we got a bit behind on maintenance in the stores through COVID, that is really important to get caught up there. We're in a competitive industry, and we need to ensure that we are showing up the way that we intend to in terms of that. So we've been making incremental investments there. Jon Tower: Okay. So that $125 million is a decent baseline in the next several years, adjusted for inflation in terms of... Craig Pommells: Well on top of the -- again, as a base. Now on top of the $125 million, like we had in '25 and '26, we are making incremental investments, particularly in catching up on deferred maintenance. And both in '25 and '26, we also have some additional technology spend. But once we get through that on an inflation-adjusted basis, that $125 million number has been our historical run rate. Jon Tower: Got it. And then just in terms of your comments around the tariff remediation measures, can you speak to what exactly is going on there? Are you guys just sourcing from countries with better lower rates of tariffs? Or are you effectively pricing to offset the higher tariff rates, like what's going on with these measures? Craig Pommells: Yes. Jon, the team has really done a great job there. Very proud of the work they've done. I'll give you a little bit more texture. In fiscal '26, we expect incremental year-over-year tariffs of about $25 million. So $25 million more in tariffs, in '26 than we did in '25. And that's -- the vast majority of that, vast, vast majority of that is being mitigated by a few things. Number one is vendor negotiations, and the team has been working really hard on that and have had a lot of success. We've had multiple rounds of vendor negotiations. The other change is just in our assortment, like we sell a lot of things that are largely discretionary. And if we can't make a reasonable profit on it, then we don't need to sell it. So we've made those adjustments. There's also pricing, as you mentioned, and we've also made adjustments to the country of origin. That is an ongoing process that does take a little bit more time. And finally, we've taken the opportunity with the tariffs, but part of our broader retail strategy to adjust our SKU count. So when we added '26, we expect our total SKU count in the retail side of the business to be down about 10%. So the team has really worked hard and accomplished a lot as it relates to working through the tariff impacts. Julie Masino: Our vendors are partnered nicely with us on a lot of that work, too. Yes. Operator: This will conclude our question-and-answer session. I would like to turn the conference back over to Julie Masino for any closing remarks. Julie Masino: Thank you for joining us today. We're moving ahead with a strong plan in place, and our teams are focused on getting back to a positive trajectory. We appreciate your interest and look forward to keeping you updated as we make progress throughout the fiscal year. Finally, I really want to express my sincere gratitude to our 70,000-plus team members for their dedication and hard work, particularly in these last few weeks. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Aegean Airlines conference call to present and discuss the first half 2025 financial results. [Operator Instructions] The conference is being recorded. At this time, I would like to turn the conference over to Mr. Eftichios Vassilakis, Chairman of the Board of Directors. Mr. Vassilakis, you may now proceed. Eftichios Vassilakis: Yes. Hello. Good afternoon, everybody, and welcome to our results presentation for the first 6 months of 2025. Just to remind that along with me, I have Mr. Kouveliotis, our Deputy CEO and CFO; Stella Dimaraki, our Treasurer and Investor Relations Director; and also Anthi Katelani, our Investor Relations Manager. So all 4 of us are here for you. Happy to answer any questions after my brief remarks. 2025, first half is, again, a quarter and 2 quarters where we had, I would say, modest growth driven by our particular restrictions in terms of how many of our neo aircraft are actually flying versus the ones grounded for GTF. And within the confines of those restrictions, the additional challenge of around 2 months in the second quarter where our important nearby markets, Israel, Lebanon, Israel, in particular, Lebanon and Jordan, we were not able to fly to due to the situation there, what's going on between Israel and Iran and the effect it had to the whole area and our inability to fly for around about 2, 2.5 months, which ended on the second week of July, if memory serves. So within the restrictions that we had, I think we've achieved a very strong set of results. We've managed to provide a revenue increase of 5%, which is 1% higher than the ASK, the ASK growth we put into the market, which was 4%, which meant that within an increasingly competitive environment, we have managed to actually increase our RASK marginally by 1%. This was done in both quarters in terms of growth, as you have already seen that the first quarter was significantly stronger in terms of ASK development versus the second. That is part of 2 things, one planned and one unplanned, first of all, we have indicated also in previous conversations and discussions with you that we see a gradual extension of the season. We also see an increasing pattern of Greeks traveling more. So within those 2 effects, we see ourselves operating growing more in what used to be referred to as the lowest months, so Q1 and Q4 relative to Q2 and Q3. That is also related to restrictions in ATC and airport capacities around our country. But that's the first part. The second part is, of course, what I referred to earlier, the fact that not being able to fly to Israel where at the peak of the season, we have around about 6 flights to 7 flights even a day from different places plus Jordan and Lebanon, that basically make the total amount of flights lost to be 9 for a period of 2, 2.5 months. This cost us around about 100,000 passengers on these routes. And on top of that, we lost around about 35,000 passengers on connecting routes. And in a way, the [ ConneX ] losses are more costly in the sense that those seats are not typically with the cancellation of flights close to departure, you're not able to redirect those lost [ ConneX ] seats route to other sources. So within the confines of that, achieving a revenue increase of 5% and achieving a significant increase in our bottom line and a modest increase in our EBITDA are, I think, significant positives as well as, of course, continuing to build -- to have extremely strong cash flows where despite a payout of dividends of circa EUR 70 million and an increase to our PDPs paid into Airbus by another EUR 40 million. So a total of EUR 110 million that have been spent this way. We still had an increase of circa EUR 60 million -- EUR 70 million, I'm sorry, in our available cash to EUR 840 million. And as we highlighted also on the report on the -- sorry, on the release, this is before, of course, the issuance of our early July bond of EUR 250 million that has further added in the middle -- beginning of July to our cash availability. It's fair to say, of course, that the development of -- the development in the same way that we lost passengers and capacity, both capacity and passengers and profitability in the second quarter due to the geopolitical problem. At the same token, we did have an advantage from the development of the euro and the development also of the fuel price. So there are effects both ways, positive and negative, which we can discuss in detail, if you like. But overall, we're happy what was done within the context of the restrictions that I previously announced or described. Within the difficulties that we're having with the fleet, the positive element is that gradually, we are flying more and more of the 321neo derivative. In particular, as you know, the big delta in seat capacity and in efficiency per seat comes from increasing the mix of those aircraft of the fleet due to the fact that they have a 220-seat capacity relative to 180 to the 320neo and 174 on the 320ceo. The important thing for the company is that going forward, all the remaining Airbus deliveries that we are to take are indeed of the 321neo type. So that is going to be building our efficiency going forward. And it's also important to understand that we are now in September of 2025, entering, I would say, the period for the next 12 to 14 months of maximum number of aircraft that will be on the ground awaiting these checks. Why? Because the aircraft that we have received up until the first quarter of 2024 were the ones affected with the initial defective or potentially defective part. As a result, those 28 aircraft that were accepted until April 2024 when they reach between 20 and 2,500 hours cycles they need to go for their preventive checks. And that maturity level is coming at its peak from what was basically last year 8 and what became 10 at the peak of this summer. Right now, we're at 11 to 12, and we will reach 14 -- between 12 and 14 for the next 12 to 14 months. So we're at the maximum part of the restriction in terms of how many aircraft will be on the ground. On the other hand, as we accept more aircraft gradually, we expect to have, of course, a higher number of flying neos and indeed a higher number of flying neo 321s, which will be contributing to our efficiency and to our competitiveness. I also need to say that I think there are adjustments that we've made in our network this year that have worked well and have allowed us to offset the effects of additional competition in several different markets and the consistent growth of the market to Greece in excess of the rate that Europe's overall shortfall is growing. So adjustments in the network have helped us retain profitability. And at the same time, I think many -- it's encouraging to continue to see that our business class product continues to have increasing penetration, still not at the level that one would like, but certainly much higher than in previous years and much, much higher than pre-COVID. So we've now -- I think this is an important aspect, especially as we're going towards the direction of introducing longer distance routes with the XLRs and the LRs that are coming forward. So we believe that this will also further help in this dimension and will have a reflection on what we should refer to as a traditional network as well. And another issue I would like to refer to is that certainly, there is no shortage of disruptions from air traffic control all over Europe, but also particularly in our country. We are significantly active in a hopefully constructive and consistent way over the last 4 or 5 years at least with our local authorities. And we hope that in the next months and years, the amounts that have been paid in by all airlines, including Aegean will finally be used in an effective way in our local market in order for the problem to be gradually mitigated because it is becoming significant for the quality of service that visitors to Greece overall experience. So we consider that a very important issue, which needs to be addressed, and we have highlighted that perhaps not in an equally aggressive way as others, but we have highlighted that consistently over the last 4 or 5 years. And we have made, I believe, specific suggestions on how parts of these issues could be mitigated. Finally, before we take questions, a word about our investment in Volotea. It's now been exactly a year since we started to invest in that company. I have reiterated that in the annual results, I said we got what we expected in terms of results from Volotea for 2024. I'm happy to report that it seems to be going positively and indeed in a more positive way for 2025. So we are significantly positive about the prospects of the company going forward. It is not yet beyond all possible risks and burdens because it was burdened during COVID by significant losses and significant debt. However, things seem to be evolving in a positive way. And we think that in the next 6 to 8 months, we will be called to make some decisions together with other shareholders about some additional injections of capital in a more significant way. And depending on what exactly the outcome of these conversations and the performance in the company in the meantime, we will also take our decisions about how to further proceed there. But overall, I think we're happy with the results. And we also think that it's possible in the future regardless of the amount of equity that we will now in the company to develop a somewhat complementary service to the regions of Greece. The reason it hasn't been done actually already is mostly because Volotea, much more than Aegean is restricted by the unavailability of aircraft in the market. We are restricted by our GTF Pratt & Whitney cycle. Therefore, we are both relatively conservative with our capacity development over the years. So we will need some more time to develop these particular commercial synergies. But overall, we're happy with the cooperation. So in a nutshell, also one more thing to say, expect our ASK development in the market to be somewhat higher, around about 3% in ASKs in Q3 and significantly higher than that between 9% and 10% of ASKs in Q4. I think it's fair to say that there is, again, a mix of factors going forward affecting our expectations. Demand is strong. Competition is also strong. There are fare pressures in different markets, not everywhere. Some markets are developing positively. I think in a great extent, what we have come to expect is an annual improvement year-on-year, particularly on the September to December period as opposed to the June to August period because, frankly, people are gradually changing their pattern of travel. And even though families will always need to travel for leisure at peak, the rest of customers seem to be modifying their behavior more. So we begin to see a spill of potentially positive results also in the latter part of the year. So I'll stop here and listen to your questions and hopefully, we'll give you a better idea of where we're at. Thank you. Operator: [Operator Instructions] The first question comes from the line of Lobbenberg Andrew with Barclays. Andrew Lobbenberg: Thank you so much for the clarity on capacity for the rest of this year. What's the right way to think about what we get in '26 given the more grounding but more deliberate? And then another question, could you perhaps give us more color on which markets are seeing the tougher competition and which are less? And you also spoke of doing some network adjustments that were positive. Can you remind us what those adjustments were? Eftichios Vassilakis: Well, thank you for the question. Let me first say that I'm not going to ask specific network -- I'm not going to respond to specific network questions because if I respond on where our RASK is improving and where it's deteriorating, it's like guiding other people to go after that. It's a mixed bag, and we are very dynamic about it. I think all airlines have become significantly more dynamic about network adjustments. There are opportunities, and we tend to make, I would say, 2% to 3% -- 1% to 3% ASK differential shifts in our overall market within a 3-month cycle. And whether that's up or down and where exactly it goes is something that we look at diligently and on a continuous basis. And I think the process itself is what brings the improvement. It's not specific trends in specific markets. Again, if you are to look at most incoming markets, most international markets in Greece, you will find between a 4% and a 7% capacity growth in all of them. So you can just not look at capacity and competition and adjust in advance. Now in terms of the aircraft there, I can be much more specific. Today, we have taken delivery of 36 neos, out of which this summer, 10 were idled. So we had 26 aircraft flying. Last summer, we had, if memory serves, 8 to 9 groundings with a total of 33 deliveries. So there were actually only 33 minus 820 books, no it's wrong. It's 30 -- no, 30 minus 8. There were 22 aircraft flying. So there were 4 more neos flying this year than last year. And next summer in peak, we expect to have 45 minus 12, that makes it 33 aircraft flying. So basically, you see an evolution where 8 grounded becomes 10 grounded this year and 12 grounded next year at peak. But at the same time, you see 22 aircraft flying in '24 at peak, new aircraft, of course, 26 this year and 33 next year. And what is particularly relevant even more than the increase in this number is that this year, we had 12 A321neos flying. Next summer, we'll have between 18 and 90 A321neos flying. So 50% more of the larger derivatives at work, which is what we expect more than anything else to support our results. So I hope at least on that part, I have been specific enough for you. Andrew Lobbenberg: That's helpful. Can I just come back on the network, and I appreciate the commercial sensitivities. But in that second quarter, we saw more growth on the domestic than on the international, which versus recent trends. So we meant -- I mean, what drove that? Was that really influenced by the Middle East? Or was that influenced by commercial decisions by... Eftichios Vassilakis: I would say both. I mean, certainly, the reason that you didn't have growth on the international network was the Middle East. We were planning to have small growth in the second quarter and a little bit more on the third and more on the fourth. Actually, the peak -- the maximum growth quarters for international were Q1 and Q4 by design. The lowest was going to be Q2 and in the middle was going to be Q3. Why? Because last year in Q3, we were not flying to Israel again and Lebanon and Beirut on and off. So one of the things that confuses the comparisons is that if you have markets that you're coming in and out, not by choice, but rather by what's going on in geopolitics, that makes things more confusing. But no, if we look at the year overall, we were not planning to have more of an increase in domestic than international. We were planning for an equivalent level of capacity increase of both. It turned out to be a little bit different on Q2 due to what happened. Now what I can say about the network is that within the international network. Certainly, we have emphasized a little bit more shorter destinations. So we do have, even if you're looking at the pure international network, a little bit of a drop in the average distance that we cover when we fly internationally. So that's as specific as I can be in the view. Operator: The next question comes from the line of Caithaml Jakub with Wood & Co. Jakub Caithaml: Three questions also from my side. On pricing, I understand that you're pricing slightly more softly in the summer than last year. Any comments on the extent of the softness? And also, could you tell us how the pricing was evolving during the individual months of the third quarter? And maybe related to that, are you now and to what extent flying back to Israel? Eftichios Vassilakis: Okay. Again, I'll start from the end because it's easier. Yes, we're flying back to Israel, and we're flying to Lebanon, and we're flying to Oman and Jordan. And we hope to increase our flying in the Middle East with some new destinations also in North Africa in the next 6 months. It is very important for us because we also sell connectivity through Athens to ensure that near destinations with a distance between 1.5 and 2.5 hours flying in particular, to our South and to our East are well connected and that Athens and the GN or GM and Athens are considered a valid route to the West, to the north, to the Balkans, at least even before we discuss flying further away like we plan to next year. So we are back and we are eager to expand our presence in different markets around there. But of course, I recognize that the stability of the region is not exactly stellar. And as we try to develop our network, we will have some instability depending on how conditions between the nations evolve. By the same token, I'm sure you understand that these markets are largely underserved. And therefore, when things are normal, you can expect a decent return, especially if you are positioned somewhere like Athens, which is convenient for these people either to come and visit for Greece and spend the holiday or business here or indeed just transit through Athens to another destination in Europe. So yes, these markets are important, and we'll continue to try to develop there, and we will accept that this might mean that sometimes we might have to stop for periods of time. And we, of course, are very careful to make sure we fly when other Western carriers fly and when our people are told that the situation is secure enough for us to fly. We don't take risks of that kind knowingly. And of course, #1 for everybody else is safe operation. For all of us, it's a safe operation. In terms of month-by-month evolution of -- I will say that international fares are somewhat lower, not in an alarming way. We are, at the same time, somewhat better 1 or 2 or 3 passengers more on average on people per aircraft. So that on passengers per aircraft, either because we're growing the aircraft or because we're getting small increases of load factors. So there is some measure of offset. And overall, the effect is there, but not super significant. So we'll have to wait a few more months to see how this evolves. At the rate that we are going now, we feel that it is likely to expect an improvement in our overall results for the year. But of course, one can never take this to the bank unless the whole year or most of the year is behind us. So that's the most I can give you in this direction. Jakub Caithaml: A quick follow-up on the Middle East. In terms of scale of the return? I mean, by September, I mean, are you back to where you would have been in your original expectations fully? Eftichios Vassilakis: Yes. In terms of capacity deployed, yes. Jakub Caithaml: Understood. Then the second question also on growth and pricing in the fourth quarter, where you are guiding for brisk growth of 9%, 10%. What kind of yield or RASK implications do you think this will have? And can you comment on the competition schedules, how they are looking for the shoulder season in the winter? Eftichios Vassilakis: The competition is also more or less applying higher increases in the winter than in the summer in terms of capacity. This is a pattern that we have seen for the last 3 years. So their capacity is higher also in winter, more so than in summer. And I don't have yet visibility on what the overall effect on RASK can be. But I would expect in terms of international fares, which is not necessarily RASK, the things to be a little bit softer again following the trend of the summer, I would consider that more likely than the reverse. But I have to say by the same token that we have seen and I've seen other airlines refer to that, an increasing trend of last-minute bookings. So it is becoming somewhat more difficult to be able to forecast exact RASK or exact load factor. Jakub Caithaml: Got it. This is very helpful. Last question from my side on engines. You mentioned that if I understood correctly, the powder metal engine issue can be resolved in 24, 28 months. Just to confirm, is this referring to today? Or is this referring to end of June? And the broader question on engines, could you share anything at this point on your expectations regarding the availability of the HS+ section upgrades in '26, '27, how many of the engines may be able to get this that you will be sending for shop visits? Or is there anything that you could share on the advantage engines availability and time line? Eftichios Vassilakis: Okay. First of all, I'm not sure I'm qualified to answer all of these questions, but I would at least answer the questions referring to the date and the significance of the number or the level of the number of the grounded aircraft. So as I said earlier in the discussion, the highest number, a number between 12 and 14, it will go up and down between those 2 figures will exist between September '25 and September, October '26. From October '26, we start having a decline, which will gradually lead to something like 7 aircraft in, I would say, September '27. And then between September '27 to March '28, it will probably go down to 0. Now this is -- takes into account what we have been promised in terms of slots for induction of engines for the next 12 months and then some expectation for -- in an equivalent fashion for '27. Unfortunately, these numbers are moving targets, but we believe that these numbers that we're giving are relatively conservative. We are continuously discussing and pushing Pratt & Whitney to give us priority in slots. And we, of course, have said many, many times that the compensation that we get does not fully cover the losses that we have from higher maintenance, a less efficient fuel consumption and of course, loss of seats per flight. The compensation barely covers the lease cost of the aircraft that is sitting down, but it is not covering the opportunity cost of not flying the improved aircraft, which is, of course, the reason why we made the investment. And on top of everything else, it makes our balance sheet more bloated because there are a significant number of idle leases, but we are not -- which are booked as a liability, but what we will receive as a compensation is not booked as an asset, not forward only once we receive it. Therefore, you have a level of inefficiency in your balance sheet. You have a level of inefficiency in your cost and you have a level of inefficiency in your utilization, which is, of course, the same thing as cost. And the 24 to 28 months is from the date of the announcement, meaning yesterday. So that's why I think the 28 months will expire around about early '28. I hope I have been thorough enough in the response. Jakub Caithaml: This is helpful. So I understand that at this point, it doesn't make sense to discuss the potential engine upgrades from Pratt & Whitney where they may be replacing some of the parts in the hot section of the engine... Eftichios Vassilakis: Mr. Kouveliotis would like to respond to that. Here he is. Michael Kouveliotis: The Advantage engine, yes, as the specs presented by Pratt & Whitney are promising. And we are expecting when the time comes to have more durability on time on wing. But actually, it's quite early to have a clear opinion and view because we are expecting to deliver some -- the first engines of the Advantage within '26. But again, it's not something very firm. So we hope and we believe that this is going to be an improvement, but too early to have. Eftichios Vassilakis: I mean in a nutshell, all of us knew that the Pratt & Whitney GTF engine was a new technology and that it presented potential benefits of evolution with versions coming out that would further improve mostly the fuel efficiency. So that was always the case there. Unfortunately, as you know, for the last 2 years already and for the next 2 years, as we've just said, this whole situation has been clouded by the problem regarding the early inspections and the effective grounded aircraft. So I think all of us need to get ourselves out of the first situation before we consider the second. But yes, we all think that there is potential for this engine to evolve in a positive way. But let's see the main problem we get out of the phase before we start counting what the benefit of that might be. And frankly, we are also all eager to make sure that we keep on the pressure to Pratt & Whitney to maximize either direct payouts for compensation, which are there, but they are inadequate or indeed to accelerate the availability of slots so that the program -- the problem can be dealt with more expediently. Operator: The next question comes from the line of Kumar Achal with HSBC. Unknown Analyst: I have 3 actually. So first of all, in terms of competitive landscape, so you mentioned that the increasing competitive environment. So just wanted to understand how the competitive environment looks like at Athens Airport versus the regional airports, the big cities. And especially, if I look at the table, it looks like the traffic growth at the airports operated by Fraport was quite slow, 1% flight growth and 2% passenger growth in the first half. So do you think with these kind of demand growth slowdown, the competitive environment could remain strong? Or do you think there is a possibility people could sort of take out the capacity? How do you see the demand versus supply going forward? Eftichios Vassilakis: Well, certainly, the demand growth -- sorry, the supply growth has been slower overall in Greece than in the past 2 years, where we were in '23, still in the, let's say, recovery path post-COVID and '24 had a strong follow-on both for Athens and all the regions. This year, we're seeing certainly a resurgence of growth of capacity to the north, to the Thessaloniki market, still some significant growth in Athens, but Athens is beginning to be significantly restricted both by ATC issues and also by terminal issues. The airport became facilitated, which is Level 2 this year for the first time. It will be even, I would say, more effectively facilitated because the ATC restrictions have been better translated into the coordinators planning next year. So that should -- well, hopefully allow us to operate a little better and at the same time, make it a little bit more difficult for too many people to add capacity. I think Greece has had a very good run. in terms of capacity development and demand development. And I think we should all be a little bit more moderate on what we expect going forward. Now this is still early to talk about what will happen next year. The only thing that I am certain about is that there will be some capacity growth. I would expect it to be, again, somewhat at least 1% or 1.5% higher than whatever the average capacity growth to Europe is going to be. We are now based effectively in a material way in 4 airports, Athens, which, of course, is the core of the network and the provider of all the connectivity and the network synergies. Thessaloniki in the North, where we have significantly invested this year and where we expect to invest even more next year. Larnaca in Cyprus, where we also have invested this year, and we expect we will invest some more again next year. And Heraklion in Crete, which is a very important, the second airport in the country, but is -- has been restricted in terms of capacity for many years now due to the terminal basically the terminal, the airport and the terminal itself. Heraklion is going to be replaced by a new airport in Crete probably March '28, so 2.5 years from now. We have 2 more years of operation on Heraklion, and we certainly consider Heraklion and the new airport of Heraklion a potential area of growth for us in the future. So these are the 4 places out of which we will be developing our capacity. I would say, if I were to say what's going to have the highest growth into next year, possibly that would be Thessaloniki because Thessaloniki is among the main Greek airport, the one which has lagged behind in terms of recovery from post-COVID. The average in Greece today is about 30% higher capacity and passengers relative to COVID, 30%, 32%. Thessaloniki is, I believe, right now at 15% and has shown better recovery trends during the last 12 months. So I don't know, I don't know how much I have answered and how much more you need. Unknown Analyst: No, perfect. And then you mentioned that Athens Airport remains constrained... Eftichios Vassilakis: It's beginning to be partially constrained. It's not Heathrow, right? But certainly, there are now times in the day, and there are a lot of times in the day where there will be significant difficulties in increasing capacity for us and for others [indiscernible]. Unknown Analyst: But does that mean there will be more opportunity or better opportunity for you to sort of get better pricing out of Athens if the capacity remains high, do you think? Eftichios Vassilakis: I promise to let you know as soon as I do, but I really don't know. I mean one would like to hope that. But in effect, what I'm mostly hoping for is that we reduced the number of operational -- the amount of operational problems that we are facing. Greece at this moment is not ranking well across Europe in delays, in ATC problems, we're ranking quite low. And it's impossible to escape the problems of your home country and of your hub if you are a carrier, particularly a carrier that does significant transfers in the airport. So what we're mostly concerned about is to improve -- that further improve the quality of our operation. The last 3 years have been very difficult in this direction for on-time performance due to these reasons. So we are more eager to see ATC problems and capacity problems expanded so that our operation regains both a certain amount of quality towards our customers, but also a lot of cost savings for us because delays in the air, delays on the ground, compensations for passengers, misconnections, all that stuff costs money and it costs to brand value. And those things are very important for us, and we hope this will be corrected. This will not be corrected next year and probably not the year after that. Will this create the adverse effect of somehow being able to support RASK? Possibly, but I don't know. I don't know. Unknown Analyst: Right. My second question is around the cost. So I can see in the first half, many of your costs have increased significantly, like your handling cost was up 20%, catering cost was up 14%, employee cost, 13%, other operating costs, 17%, while the capacity was ASK is up only about 4%. What's going on there? And particularly handling charge has [indiscernible] gone up by almost 20%, as I said. So is that because the new airports are pretty more expensive? And if that is the case, do you think the low-cost carriers will find it hard to stay? How do you see that? Eftichios Vassilakis: Let me say this. The -- well, certainly, the handling cost increase is the most important one, and that is related to basically increased labor costs in the country, new contract after 5 years, for the next 5 years, and that, in a great extent, has brought the increase in the handling cost. Catering is largely due to the higher amount of business class to some degree, but also to our effort to continue to provide a high-quality product. Perhaps we have overdone it a little bit there. The rest are not really significant. The part of the employees, the second -- the running rate as we go towards the year is actually at a much lower level. I would expect it to close the year between 9% and 10%, so significantly lower than 13%. Obviously, we were overstaffed and we were [ over planed ] as well in the second quarter relative to the capacity we actually displaced because, as I said, we didn't fly to 3 important markets. So that at least cost us 3% of our capacity for that quarter. Now also, you have to remember that we are continuing to beef up the staffing of our MRO. The MRO itself has added about 170 people in the last 18 months. And that is an effect on the payroll cost that is unrelated to the size of the operation. Therefore, I mean, to the size of the flight operation. So that is a factor there as well. I think that's what I have. I think the operating costs altogether did not have a very significant increase. The overall operating cost increase of the company was 5% in the first half. So this is the aggregate of everything -- that's excluding fuel. Including fuel. All right. So that includes fuel, which, of course, had a benefit, somewhat benefit because, of course, we were also hedged at the same time. But the overall expense was 5% for the operating expenses relative to a 4% increase in ASKs, right? Unknown Analyst: Okay. My last question is around your long-haul network. So you've just started -- you've just decided to start the flight -- direct flights to India. And you mentioned you're going to increase the long-haul operation. So I just want to understand... Eftichios Vassilakis: Longer haul, not long haul. Unknown Analyst: Yes, yes, exactly. So do you -- I mean, apart from India, do you have any other countries in plan or in mind what countries you are thinking about? And then if you find these longer-haul operations more profitable, do you think you can expand it? Or you're sticking yourselves to 4 XLRs which are planned currently? Eftichios Vassilakis: No. First of all, we don't have -- we have 2 XLRs and 4 LRs. So there are going to be, in aggregate, 6 aircraft that are competent to fly beyond 6 hours. Now we have told you in the past that we expect to invest these aircraft to a combination of routes that require the ability to fly further away, longer distance, but also to routes outside the EU that require a different aircraft configuration than the one that we're flying intra-Europe, which means a higher level business class because when we fly today to Saudi, as an example, or to Dubai, and we are -- we call ourselves a full-service carrier. We are competing with carriers on the routes to Athens as an example, to Riyadh or to Dubai where we have effectively an empty seat between 3 seats in business class, but other people have dedicated significantly more comfortable business class product. So the investment in the LRs and the XLRs is a combination of an effort to try to test longer distances, but also a recognition of the requirement to be able to serve customers outside the European Union in a product that looks more like the competitors that we have to face that don't call themselves low-cost carriers in these markets. So it's a combination of quality and ability to fly longer. Now our experience needs to be created out of the hopeful success of these initial efforts, be it how the improved product will be received in Dubai or be it how well we will do in the routes to India. So that's priority #1 for the next 2 years. And that's -- given we're getting 2 aircraft in '26, 2 aircraft in '27 and 2 aircraft in '28 out of these 6, as you might imagine, it will take us at least until the end of '27 to understand the initial response to these efforts. So beyond deploying these aircraft to India and beyond, which, by the way, India has got, as you know, many possible major destinations you can fly to. We're starting with Delhi and Mumbai. It doesn't mean that we'll be restricted to that if we seem to be doing well in that route. It's very important to note that just 2 days ago, we announced a signing of an MOU with IndiGo to develop code sharing to the Indian market. They will also be flying to Greece as of next year. But through their presence in India, we will have access and distribution to, of course, all the places within India that they fly to, and that's very important for us because Greece is small and India is big. So it's important to be known also in that country. So no, I don't have a particular idea of where beyond India. What I can say for sure is when and if Russia comes back in line, Russia is going to be served by some of these aircraft, mostly due to the comfort level and less so to the distance. The Indian market has got a lot of potential for development in the Middle East, whether it is Saudi Arabia, Dubai or some other potential destinations are going to take up capacity of the aircraft. So until the end of '27, I doubt very much we will see some other routes. Now if there appears to be some seasonal lags where we can try some long-haul leisure routes like Maldives or Seychelles in the winter for Greek people to fly out of Greece to go there, that will only happen if the seasonality pattern of usage of these longer distance aircraft seems to be such that it allows for idle capacity to go in those markets. We will not discontinue India to fly to -- for 3 months to the Maldives for a few Greeks to be able to go there directly, unless it doesn't make sense to fly to India in the winter. Our hope is that it will make sense to fly to these markets around the year. And our hope is that through flying to these parts of Asia that we can reach, we can further improve our seasonality because the pattern of travel of some of these nations is not exactly the same as Europeans. They tend to be a little bit less seasonal or place more -- some more interest in winter. And of course, whether that is with final destination Greece or somewhere in Europe, in both cases, it's interesting for us because we need the [ ConneX ] as well more in winter. So no, we don't have yet too many other ideas about where these aircraft might fly. Operator: [Operator Instructions] The next question comes from the line of [ Karanika Savagillos ] with NBG Securities. Unknown Analyst: Just a follow-up on unit costs for the second quarter. If my estimations are correct, there was around 7% increase in unit costs, excluding fuel at the operating level, EBIT so -- which seems a little bit high given the euro strength. Can you give us some more color behind this increase? And is it something that we could expect in the coming 2 quarters of the year? And also, if I may, perhaps some color on some big deviations in 2 expense lines, other operating expenses and leases? Eftichios Vassilakis: Yes. Again, underutilization of aircraft will cause costs to go up. Q2, we had basically 3 aircraft that were supposed to be flying in those 8 to 9 daily 2.5 to be precise, of aircraft that were supposed to be flying to these routes that were discontinued due to the geopolitical part idled and also the people manning the aircraft, maintaining the aircraft, supporting the aircraft. So the loss of 2.5 or 3% of expected capacity does not bring you, excluding fuel, as you said, an equivalent amount of saving because a lot of the things there stay constant, the aircraft, the people, okay, and the infrastructure to support them. So that's the reason that you had this particular spike in the second quarter, which is not the case for the whole -- it is not the case for the full 6 months, and it will not be the case for Q3 or Q4. I said earlier on also that both employee expenses and some other expense will be mitigated. The ones that will continue to have a higher than the activity, let's say, increase are handling for sure, and to a certain degree, maintenance costs and catering. The reason for the increase in the maintenance cost is like mainly the fact that we do not operate -- that we continue to operate the older aircraft which are getting older due to the grounding of the -- some of the younger aircraft. And that's a problem that will be retained to some degree while we still have the GTF problem in the next 24 to 28 months, as I said earlier on. Now in terms of why there is a drop in the operating -- you call it in the leases, the leases refer to ACMI. They are not the long-term operating leases or finance leases, which are dealt in EBITDA or EBIT. Those leases were committed in 2024 used to cover charter operation, and we didn't use ACMI again this year. So that's why there is a big delta on that line, a positive big delta on that line. Operator: Mr. Karas, have you finished with your questions? Eftichios Vassilakis: Okay. Is there another question? Operator: Ladies and gentlemen, no, there are no further questions at this time. I will now turn the conference over to Mr. Vassilakis for any closing comments. Thank you. Eftichios Vassilakis: Thank you all for attending. I know you'll be eager to follow how we continue to do in the year. I think I have tried to pass on a cautious optimism for the overall year. Not saying that there are no challenges, but that we think between the advantages and the problems will come out ahead of where we were last year. And I think in an airline where you see the cash flows as positive as ours, you shouldn't be too worried. So having said that, enjoy the rest of your day, and I hope to talk to you again in a few months. Thank you. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.
Operator: Good morning, ladies and gentlemen, and welcome to the IP Group Plc Half Year Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and we'll publish their responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, as usual, we would just like to submit the following poll. And if you'd give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from IP Group Plc. Greg, good morning, sir. Gregory Smith: Good morning, and thank you to Jake. And as always, thanks to everyone at Investor Meet Company for again hosting our half year results webinar. I was reflecting -- I was reading my FT on Saturday, and I almost choked my yogurt, I guess, these days, I've sort of had to move on from corn flakes for longevity reasons. But I saw the headline, the U.S. market for IPOs has exploded back to life with the busiest week for 4 years, and that's not something I've seen for a few years, I guess, maybe obviously based on the cycle. But it was an interesting reflection that the public markets have had quite a positive impact on the portfolio in more ways than one so far in 2025. And hopefully, there is more opportunity that arises for us in future as a result. I'm Greg Smith. And as CEO, I have the honor of leading IP Group and our excellent team on our mission to accelerate the power of science for a better future. And with me on today's call, we have our managing partner, Mark Reilly; and our CFO, Dave Baynes, both in the room really and virtually. As usual, this presentation will be uploaded on to the IR section of our website with a few appendices. Before we start, please note all the usual disclaimers and you can read that in the time I'm going to spend on the slide and good luck, but this covers all the information, particularly any forward-looking statements that we may make during the course of the next hour or so. So in terms of what we're going to cover, I'll provide an overview of the Group's performance in the first half, then I'll pass on to Mark, and he'll give an update on a number of our key balance sheet holdings and then some other notable development actually. And then Dave is going to run us through a summary of the numbers, and then we'll head into Q&A. As Jake said, as always, please post your questions up in the Q&A section. And as always, we'll endeavor to cover them all either live in the session or afterwards by platform as we run out of time. So for the half year, I think the main message is, overall, we made strong progress in the first half. We saw a number of encouraging developments in the portfolio. And indeed, the pipeline of significant milestones remains good through to the end of 2027. The public markets were more of a contributor in terms of fair value. And then there were a number of other positive developments in the private portfolio. That public side included the successful IPO of Hinge Health in May and strong half year results from Oxford Nanopore who beat city expectations. We recorded total cash proceeds of GBP 30 million. That's 9x what we saw in the first half of '24. And as a reminder, I said at the full year that we were targeting GBP 250 million of exits by the end of 2027. So what we've seen year-to-date means that we remain confident in achieving that target. And we had a small overall loss for the first 6 months. However, NAV per share essentially stabilized in the reporting period and has subsequently increased since the period end to about GBP 1 a share. We continue to be in a strong balance sheet position and have good liquidity, and we still got gross cash of GBP 237 million. And obviously, that's significantly up from this time last year when we had the Featurespace exit and others during the period. And then a final note is we are seeing increasing momentum in our efforts to add to our private scale-up capital under management. And the market hasn't necessarily moved as quickly as we hoped or expected on this front. However, we have good confidence of securing at least one new mandate by the time that I talked to you at the time of our full year results. So on the portfolio, coming into the year, 4 out of our top 5 holdings have seen encouraging developments in the year-to-date. As Mark and DB will cover briefly later, the fifth Oxa, while it's making encouraging underlying progress, is yet to close its latest funding round. And so our revised valuation has been pegged back to reflect that position. On Hinge, we were delighted for Dan and Gabe and the team to have the opportunities to ring the New York Stock Exchange opening bell on May 22. PitchBook described their successful IPO as a pivotal moment for digital health, signaling the reopening of the health tech public markets after a 3-year drought, and Mark will cover more on this shortly. But in summary, the company has traded very well since IPO is up about 80% off the back of strong Q2 numbers. Oxford Nanopore, they delivered a strong first half of trading. They beat analyst expectations on both revenue and on a lower EBIT loss. I think our observation was that growth was strong across all sectors and geographies. So by customer category, they grew in academic and in all of the 3 sort of applied sectors. And then by regions, even despite the sort of some of the headwinds in America, Americas was up, APAC was up, EMEA was up. So we're confident in the outlook for that company. By way of context, we are now the second largest holder behind EIT, The Ellison Institute of Technology, which is backed by Larry Ellison, as many of you will know. Of course, Larry recently became briefly the world's richest man, and he obviously has quite an incredible track record of delivering value through Oracle. I thought it was quite interesting that the U.K. press has started to pick up more recently on EIT and its Oxford Ambitions. And Nanopore is very relevant. If you go to the website, you can see how relevant it is to their focus on 2 of their big themes. One around health, medical science and generative biology and the other around food security and sustainable agriculture. In terms of our position, as a reminder, we invested about GBP 80 million into the company over time. We've realized about GBP 110 million to date. So we've already covered our costs in full. And as you'll have seen in our portfolio data for this year and last year, we've taken a small amount of liquidity on a couple of occasions. And as you'd expect, we continue to very actively monitor the company against where we consider fair value to be at any given time. But as I said, we remain really confident in the medium-term outlook for the business. And we -- our feeling was that the full year '25 guidance was maybe a bit conservative given the strong first half update. So we're confident in our holding. We look forward to further commercial updates from the company. There's clearly a number of interesting commercial relationships brewing there in biopharma and in clinical and also the deeper dive on their refined commercial strategy, which will be coming out in Q4, particularly around how they intend to exploit the sort of $13 billion to $14 billion of TAM that they've identified in what they call the higher priority segments. And then on Istesso, following the news that the -- their most recent trial didn't meet its primary endpoint back in February, the management team has worked hard to progress that program through to value. And the company published a peer-reviewed paper in The Journal of Pharmacology and Experimental Therapeutics, JPET, to its friends, and that was outlining the impact of its compounds on various chronic diseases where tissue damage occurs. So rheumatoid arthritis, as you know, but also things like osteoporosis, fibrosis and interestingly, sarcopenia or muscle loss. And that last bit, I think, led to the paper being picked up by some of the longevity publications because muscle loss is particularly relevant at the moment around the weight loss drugs very common side effects of some of the GLP-1s. And during the period, the company also added a very experienced nonexec, Dr. Mike Owen, delighted to have Dr. Owen joined the Board. And he -- you might recognize the name. He was a co-founder of Kymab, which sold to Sanofi back in 2021 for -- I think it was a GBP 1.1 billion upfront. And when he joined, he said Istesso's old approach to reversing tissue damage could fundamentally change the treatment paradigm for chronic diseases and therefore, holds enormous clinical and commercial potential. As I mentioned a few months ago at the full year results, the company has got funding to carry out a further trial and the location and design of which is well underway, and we anticipate that will commence before the end of the year. On exits, we had a good period for cash realizations. We set an internal target of GBP 50 million for full year '25 coming into the year and the momentum into half 2 and I guess, a more elevated level of inbound interest in the portfolio gives us a high degree of confidence that we'll achieve that and likely exceed it. Of the examples shown here, 2 companies were outright company acquisitions and one Centessa was a partial realization. For our remaining holding in Centessa, the company recently gave a positive update at the Morgan Stanley Global Healthcare Conference. And we anticipate the readout of the Phase II in narcolepsy is pretty imminent, and that will be the next catalyst for our remaining holding. In addition to these examples, also worth mentioning, we realized a small amount of our Hinge holding at the time of the IPO. And as I mentioned, the balance has gone up by around 80%. So our lockup expires on that in November. On what we've done with that cash, as a reminder, our policy is a commitment to deliver cash returns to supplement capital growth using a proportion of the exits that we make in any given year. At the moment, we are using buybacks, and we said that we'll do that until the discount gets to a lower level than 20% and given that persistent discount at the time of our full year results back in March, we announced the intention to use a greater proportion of our realizations in 2025, and we will again review that towards the end of this year based on our capital forecast for going into 2026. The current program is GBP 75 million, and that includes GBP 20 million that we announced in June. At today's date, as of yesterday, we've got about GBP 9 million left to run on that program. And so as we make further realizations, we'll look to add to that total. I think it's worth noting the acceleration this year has been quite significant. In fact, yesterday, I was looking at the numbers, our share count fell below 900 million shares for the first time, which means that we've now retired 15% of our capital in issue. We focused lots of our capital in the last couple of years on the buyback and on existing portfolio and getting those with the highest value potential through to their milestones and value realization. And I've -- we're starting to see as sort of performance and market appetite continues to return, we'll start to selectively add a few more new holdings to the balance sheet portfolio, including from Parkwalk and the wider ecosystem. But before I hand on to Mark, I just want to sort of briefly look forward quickly a reminder of the IP Group investment case, 3 things to believe. The first is that there is significant value potential in U.K. science and technology. I've talked about this and exemplified this at our Capital Markets Day back in June. The second is that IP Group is well positioned to exploit this given the team, the track record, the sourcing and the portfolio and that this represents an attractive shareholder opportunity, particularly given the discount to NAV against which we currently trade. To reiterate again, this is something that I've covered in the past few updates. This in a single slide, I guess, depicts the capital strategy that we are following to be able to exploit that opportunity. From the perspective of a developing science and technology business, we're one of the few investors that can support development from the very earliest stages to relative maturity at the sort of venture growth end of the journey. And complementary private funds are strategically important in terms of pipeline, particularly in the case of Parkwalk, but also development capital for our businesses, and they also contribute fees to mitigate our net overheads. In terms of scale and ambition, Parkwalk, we're aiming to maintain around GBP 0.5 billion of assets there, successful exits of balancing off against new subscriptions. On the balance sheet, we're focused on NAV per share delivery, and that obviously includes that GBP 140 million of cash that we've returned to shareholders over the last couple of years and is appropriate for where we are in the cycle. And then on the scale-up fund side, under which you'll remember Hostplus increased their commitment by a further GBP 125 million last year. And that's where there is a real growth opportunity to scale available capital to ensure strong returns from our balance sheet and our sources of -- for our various investors. On the first bit of that, just a quick update on our differentiated U.K. sourcing platform, Parkwalk. The business here, as you'll see from the numbers, as I mentioned, has about GBP 0.5 billion of assets under management there, which are all EIS tax advantage capital, and we partner with many of the U.K.'s leading universities to source new spin-out opportunities. I'll just pull a couple of highlights out from the first half. And so one, in addition to the alumni funds that we have with Oxford and Cambridge and Imperial and Bristol, we were very pleased to add a new fund in collaboration with Northern Gritstone, which covers Leeds, Liverpool, Manchester and Sheffield. And then similar to the theme that we're seeing on the balance sheet side, last week, we were delighted to announce the acquisition of one of our portfolio companies in the funds, [ Cytora ], which gave a good return to our EIS investors. And for our Plc shareholders, that generates additional fund management fees that contribute to lowering our net overheads. And then at the other end of the -- of that sort of capital strategy is our objective to add further scale up capital. I mean the context here continues to move in our favor. Our overall observation is that the public and private sectors are starting to align in terms of their policy and their approach. And during the first half, there have been quite a lot of important points of progress and those things like updated mandates and increased funding for the British Business Bank and the National Wealth Fund, which you can see there on the left-hand side. And a lot of that is highly aligned with the industrial strategy in the U.K. and the sectors that we focus on in turn, aligned with those. The pensions bill is currently passing through and the commons, how long that's quite going to take, but that removes some of the widely cited barriers to pension funds and similar long-term capital investing more in private productive assets in the U.K. And the Mansion House Accord, which is about 17 of the largest workplace pension providers in the U.K. committed to a voluntary commitment to have 10% of their default schemes in private markets by 2030, including half of that capital going into the U.K. So there's been quite a lot of sort of sector activity. Our experience and probably that of the wider market when you look at mandates is that there hasn't been very many VC commitments, perhaps with the notable exception of the Phoenix, Schroders joint venture future growth capital. But there's not been much that's really at scale. And our view is ultimately, that's what's needed and where the big opportunity lies. I would say encouragingly, the number and the stage of conversations with potential funders has seen quite an increase since the time of the Match House Accord, and we've added some additional experienced resource to our team to help exploit that. As I said at the start, we've got a good degree of confidence in securing at least one new mandate by the time I next talk to you for the full year results. And then quickly before I hand on to Mark, I thought I'd just cover a few of the companies or trail a few of the companies that we are excited about and particularly those that have either presented or are going to present at our events this year. So OXCCU, our sustainable airline fuel business. Mark is going to talk about that one shortly. Andrew, the Co-Founder and CEO, will be at our flagship scale-up event in October. Intrinsic, you might remember that the Co-Founder and CTO of Adnan presented at our Capital Markets event. There's a video on our YouTube channel. If you like a lot of technical detail, that's quite a technical one. They are producing the world's smallest nonvolatile memory, and they have a sort of tape-out coming towards the back end of this year. That does have very significant commercial potential given the company is initially targeting a segment of the memory market that's worth more than GBP 50 billion. And then genomics at the Capital Markets Day back in June again, David Thornton, who is the President there, gave a very compelling overview of the technology and its commercial applications. You also say right till the end to update everyone that revenues will grow by more than 100% this year and will do so again in 2026, taking them to $70 million, $80 million. He said they'll be EBITDA positive by the end of this year. So that's another of our top 20 companies to watch. And then on the therapeutics, our current clinical stage portfolio is worth about 23p per share, and there's a good number of clinical milestones coming up between now and the end of '27. Again, Mark is going to cover a couple of those shortly. And then just one other quick thing to mention just briefly on our licensing portfolio. We don't speak much about this. We have a licensing portfolio of IP predominantly from Imperial, and that contributes a few hundred thousand to our net overheads. There are 3 main projects in that portfolio. But I mentioned at the start that the public markets have contributed in more ways than one this period. And back in January, Metsera, Therapeutics business IPO-ed in the U.S. and actually, we licensed the core IP to Metsera. Now of course, it's early days, but if successful, there could be quite a meaningful source of royalty income over time. So we'll keep you updated on that one. So with that, I will hand on to Mark to talk a bit more about the portfolio. Mark Reilly: Thank you, Greg. Good morning, everybody. So there have been a few notable events over the course of the first half, perhaps arguably the standout one certainly for me personally having sort of witnessed the whole journey of Hinge Health. I recall, I think it was 2012, 2013 when its founder, Dan Perez who remains the Chief Executive of Hinge Health, walked into our office and very confidently said I'm going to make you guys a lot of money. And I think you can say that some confidence that, that was accurate now with a 50x overall return on our investment so far on to -- that asset. So the company, of course, we were the first investor when Dan was still a PhD student in the University of Oxford. It went on to raise substantial sums in -- from some of the top Silicon Valley investors, underwent very impressive growth and had that successful IPO in May of this year. We were able to sell a small amount at the IPO, and we did sell a larger chunk of our holding prior to that at a very good valuation in the private markets 2 or 3 years ago. But we still have a remaining holding that was worth just under $40 million at the half year and some share price continues to trend upward since then, which is good news. So that holding is locked in now until end of November, but we still have that holding [indiscernible] in the company has since put out some announcements of its latest results, its Q2 announcement and again, exceeded expectations, did very well. Revenue reported is increasing at 55% year-over-year, and they're now at $140 million of revenue in that period, and they're projecting 40% of the year-on-year growth going forward. So still very strong commercial progress there. I saw there was a question in the Q&A. The first question that came in, in the Q&A was why sell Hinge Health when there are lots of other smaller holdings in the portfolio that are -- that were described as nonlisted and nonrelevant in the question. So I would, first of all, highlight that Hinge was one of those nonrelevant nonlisted holdings until relatively recently. And so we think there is value in holding stuff that has potential that could hit that inflection curve. I think also the reason why you as investors have us holding shares on your behalf that there are some rationale for doing that, which is that we have this technical expertise internally that we can kind of arbitrage technical risk. We can judge that better than others. We have influence on these companies. We have extra visibility of a lot of these companies that others don't. And when those things become less true as the companies mature, that's less of a kind of rationale for us to hold them and so where that liquidity exists. That's where we start to consider divesting those positions. So just running through some of the other -- the top firm assets by value in the portfolio, just to update you on what's been happening at some of those assets. Greg spoke quite a bit about Nanopore, so I won't spend too long on that one other than to reiterate the fact that it continues to outperform its peers. They had a positive set of results that beat the market expectations, 28% rise in revenue, up to GBP 105 million now. And the key thing that we were looking for in those results was a diversification of revenue, a demonstration that they're moving into applied markets into clinical markets as well as this strong base of research revenue that they've already demonstrated over the past several years. And we really saw that this time. The revenue grew by over 50% in the clinical domain and 27% in the applied domain. So that's really showing that they're moving into those big market opportunities, and that's very encouraging. On [indiscernible] as Greg said, this was frustrating that they missed this endpoint in the first Phase II trial, but frustrating because it also demonstrated there's so much potential in this drug. And as Greg said, there was some data from that trial published in the Journal of Pharmacology and Experimental Therapeutics that demonstrated that this ability to elicit tissue repair, not just sort of preventing degrading the tissue, but actually showing that it's repairing the tissue, which has a lot of implications, but it showed these improvements in bone erosion and disability and fatigue. And so that has a lot of implications for sort of slowing aging and to slow the progress and even reverse the progress of some of these really detrimental conditions that people suffer from like this, their focus is currently on rheumatoid arthritis. So that publication certainly increased market confidence that there's a mechanism of action here that's really interesting. The efficacy of this drug is real that there's a range of clinical indications and diseases where it could be used. So we're sort of frustrating because of this potential. And unfortunately, that benefit didn't manifest in particular primary endpoint chosen over the time scale and over the cohort of this first trial. But we've learned a lot from that. They're going to do another trial now that implements those learnings and focuses on the things that they think they can really create a difference with, and they're well-funded to do that trial. So that's positive in that respect. So I remain optimistic about the sort of long-term prospects of that company. And finally, on this side, amongst our most valuable assets, Pulmocide. So they -- not a huge amount to report there because things are going well. The trial is on track. That's progressing according to plan. This is developing these respiratory treatments [indiscernible] inhaled treatments for respiratory infections like invasive pulmonary aspergillosis is a very nasty thing that you get wrong with your lungs and sort of mold infection in the lungs. And the trial is recruited well. And so we're still expecting that to read out in sort of H2 of '26 and have some results from that next year. Finally, not on this slide, but Greg also mentioned Oxa. So Oxa, we have taken this impairment on the holding there. It continues to make good technical progress. We've got very encouraging commercial progress. The company is doing well. It has been harder than we hope to raise money for the company, a bit frustrating because we have sort of the building blocks around, but it's -- we're just not quite over the line with that yet, but we are quite advanced now in discussions with some major potential cornerstone and I hope to have some good news on that asset soon. So that's sort of the higher-value stuff in the portfolio. That's the kind of top end. But another -- just picked out another handful of assets to mention because of some exciting developments in those assets. So Artios you may recall, is a company that's developing DNA damage response-based cancer therapies, and they are focused on hard-to-treat solid tumors. It's now public that they're targeting pancreatic and colorectal cancers, both of which have a huge, unfortunately, unmet clinical need. So a big market opportunity for the company, a big commercial opportunity. They did publish some of the sort of early data from the current trial, the Phase II trial at the American Association for Cancer Research Conference, and that data was very well received. They're funded to continue that trial and to explore the indications that they're seeing. And so we expect to see results from that end of next year, sort of early 2027 is the most likely time [indiscernible] I have to sort of qualify all of these clinical trial expectations that there are always things that can go off track and it can be delayed. But at the moment, as far as we know [indiscernible] both on track and expecting the same time scales that we've already guided. Then finally, there's 2 assets to mention in our Cleantech portfolio. So OXCCU, I don't know we maybe haven't spoken a huge amount about this company in the last few presentations, but this is a company in Oxford that spin out of Oxford University that's developing the world's lowest cost, lowest emission methods of making sustainable aviation fuel. So you use sort of waste carbon, and you turn it into fuel for airplanes and it's a good news for those of us who would like to continue traveling without, I think, quite the impact on the environment that it currently has. So that company raised GBP 28 million in a Series B round during the period. And the exciting thing about that is the sort of incredibly impressive list of strategic investors who came in to really validate the proposition that OXCCU is working on. So it was -- round was led by Safran, which is the world's second largest aircraft equipment manufacturer. The energy company Olin came into the round. IAG, which is the parent company of British Airways, came into that round. So a real kind of validation of their proposition based on the strategic interest that they've had in strategic financial support that they've got. They've built a demonstration plant. It sat on the top of my head there in Oxford Airport that's kicking out jet fuel. It's working. It's producing jet fuel now, and they started the process to develop a full-scale commercial project in the U.K. So that will be the sort of next scale up of their project. And finally, Hysata, we've talked about Hysata in these presentations before, a very compelling proposition. They have a hydrogen electrolyzer, a machine that produces hydrogen at 95% efficiency, which is well above anything that you will achieve if you buy a hydrogen electrolyzer off the shelf today. So their 100-kilowatt system, it is slightly delayed, but we anticipated there was a possibility that there will be a delay on this 100-kilowatt system. So that's built into their funding road map with the money that we raised with them last time. So they're still fund to produce that system, and we're still expecting it to be commissioned during Q3 as in this quarter of this year. They've also got a field trial going on a [indiscernible] machine running on a customer premises in Saudi Arabia. So this is not set in Hysata facility it's halfway around the world, and that is working, and it's -- they've reproduced that world-leading efficiency at that customer site. So they've demonstrated the ability to put machine in different places probably that [ where we need ] efficiency. And with that, I will hand back to David now. David Baynes: Thank you very much. Thanks, Mark. Yes, financial results, nice to review again as always. I'm going to go through this fairly quickly. It pretty much just pulls together all the things we've been talking about. Overall, cash, very strong again, GBP 237 million cash, that's actually up 47% from this time last year, and that's because of a very successful exit Featurespace at the end of last year, which of course, has generated significant amount of cash. We are, of course, slightly down from the year-end if we make investments, and I'll give you the cash flow in a minute to talk you through that. There was a small loss in the period, that 1.5% to about GBP 43 million loss. It is worth making the point as you've already heard that since the year-end, all of that has reversed actually for improvements in Nanopore and Hinge, about GBP 35 million of that's come back. And it means combined with share buyback, actually our NAV per share is now actually up. So it was briefly down at the half year from 97 to 96. We're now about GBP 1 a share. So that's, as I say, a combination of the improvement since year-end and also the share buyback which improves the NAV per share as we go along. And net overhead is down about 14% period-on-period. I'll do a slide on those in a minute and talk you through it. This next slide could be long, could be short. I'm certainly going for the short option increase and as disclosed in the interim results. There's a number of kind of uplifts over 5 or 6 companies and a number of write-downs over a similar number of companies and a foreign exchange loss of GBP 14 million, which relates to the pound being strong when we convert some of our American-denominated assets in particular, that may or may not reverse at some stage, depending on currency. But those elements just eliminate, quite frankly. And then you've got really just to do with 2 funding rounds really, Artios and Oxa, where actually, as you've already heard, the company is performing well, but actually, we've not either completed or have started a full funding. And as such, we have no choice but to actually make some kind of provision against both. And those -- that accounts for sort of GBP 9 million of that. So pretty much that is the story of the half. But just adjusting for those 2 assets in that small loss, but that loss has now been eliminated between the year-end and today. That's why when we now look at the assets here, assets are down a small amount from about GBP 1 billion to GBP 900 million, those are rounded, it's actually down about GBP 60 million. So it's a combination of that small loss and also shares we bought back because, of course, the buyback does actually balance sheet slightly smaller as we buy back shares. The concentration hasn't changed. So that next bit of the slide telling you there's no news. It was about exactly 56% of the top 10 at the year-end, and it is now. It's pretty much the same sort of ratio of how the portfolio looks. And actually, the next slide is also no change. This is a slide I always do but talks about how well the portfolio itself is funded because of course, that's very important. And actually, we've increasingly seeing this pattern whereby it's about 1/3 that is funded to profitability. You don't need to worry about that. And then there's about 1/3, which over the next year, 1.5 years need funding and then another 1/3 that doesn't need funding until '27 and beyond. So much of the portfolio is pretty well funded, but there will always be funding challenges and companies requiring funding at any point in time. So that kind of 1/3, 1/3, 1/3 rule is beginning to come pretty well solid as a rule. And now this just pulls it all together. So here's the cash of what's happened, and you've heard, I think, all of these numbers now. We've invested GBP 35 million in the period. It occurred over a number of assets. Most in current assets, only about 12% of that total investment into new assets as a single new company in the period. Realizations, we've talked about at length, GBP 30 million. Share repurchases, GBP 25 million. It almost exactly what we realized we've used on buybacks. That's actually a coincidence. But we are this year committed to 50% of our realizations to be done in the form of buybacks. It just so happens that some of the buybacks we've done relate to last year. It doesn't quite work out the math. But in short, we will be during the course of the year, I think 50% of our realizations and buybacks. Overhead is down, as we've heard, the net debt, actually, we generated about GBP 2.6 million net income on interest, but we've made some repayments on the debt in the period, which means the actual total move just a small reduction overall. And then there's a relatively large working capital movement. That relates to the licensing, which we just started talking about a bit. What happens on the licensing, we own certain licensing assets on Imperial College. We're responsible for them. We often collect in the proceeds and then actually we keep some, some need to distribute to other parties, it's Imperial College itself. And that means you sometimes have these working capital movements where we're paying out money in receipt on behalf of others. And that's why you get a relatively large movement. But that's the story of the cash, cash still very, very strong. And overheads, I'm very glad to say pretty much exactly what we said they'd be. So that 15% this time compared with this time last year, but we're going to do what we said we'd do. When we did the cost reduction in the second half last year, we said we'd reduced the '23 number, which was about GBP 22.5 million net to about GBP 16.5 million net. That's what we're going to do, 23% reduction. That still looks like what we'll achieve at the year-end. So I think without further ado, I'll pass back to Greg. Gregory Smith: Thank you, Dave. So leaving some good time for questions. So a summary of the half year results. So we made good progress in the first half. We saw a number of encouraging developments in the portfolio, many of which Mark has touched on, the public markets were a particular fair value contributor, including that Hinge Health IPO and Oxford Nanopore's strong trading. We made good progress on exits of GBP 30 million, and that momentum into half 2 means we remain confident of our target of achieving GBP 250 million of exits by the end of 2027. As Dave just mentioned, our NAV per share essentially stabilized over the period and has subsequently increased since the period end to GBP 1 a share -- about GBP 1 a share. And on the scale of capital and expanding our resources as a group, our capital resources as a group, we continue to see a big opportunity. And while the market hasn't necessarily moved as quickly as we hoped or expected, good confidence of securing at least one new mandate by the time we next see you all on the IMC platform for our full year results. I'll just quickly remind you, looking forward, our investment case is based on these 3 sort of hypotheses. The first is that there's significant value in U.K. science and technology, given our world-leading position there. And the IP Group is one of the pioneers in this space and with a long track record is well positioned to exploit that and that we hope we've set out an attractive shareholder opportunity in the next 6 months and indeed out to 2027. And then just because I think this is a good form, these were the priorities and future areas of focus that I set out at the full year, which we are aiming to achieve over the course of the time between now and the end of the year in 2027 on the exits. And I think on all of those, we're making good progress. So I won't go through them each in turn, and I'll cover them all off when we report to you our full year results. So thank you, everyone, for listening, and we will now turn to questions. David Baynes: Great. Thank you very much. Well, that's gone well so far. We said we'd be 40 minutes, and we're 38. So we've got quite a lot of questions, maybe not quite as many as normal. So we may get through this now. Laurent Tess, if you don't mind, I think we've answered yours, you had a question about why you're selling Hinge and keeping some of the smaller positions. I think Mark answered that while he was presenting. So I'll move on to next. Kane, nice to have you, analyst from Deutsche. Nice to have you here, Kane. You've got 3 questions. I'm going to do them one at a time. Mark, I'll do the first one with you. Might the adverse uncertain conditions research in the U.S. for example, funding like the NIH create opportunities in the U.K. Mark Reilly: Maybe. And there are headwinds as well and some pharma investments being withdrawn from the U.K. newspaper a couple of week or so ago. So I think we frequently see -- remember a few years ago, this question was about Brexit and the time before that, it was about the recession. And so there are lots of these kind of ebbs and flows of funding. I think it takes time to have an impact on us because it takes time to then filter through to the funding of the science, and that takes time to filter through to the commercialization that's coming out of those research lab, I would say not in the short term, but maybe in the long term. David Baynes: Kane, your second question, I'm going to point out to you, Greg. Why do you think Larry Ellison is so keen on LNG? Gregory Smith: I think looking at the time the question came in, it might have been before I said why I think he's keen. I mean I think the commercial answer is that the technology is incredibly well suited to 2 of those big themes that they're trying to solve the big global challenges they're trying to solve through the Ellison Institute of Technology, particularly around sort of human health and genetics, but also on the sort of sources of food and agriculture. Clearly, they're building a significant position there, which is interesting. So I haven't spoken to them directly. So I couldn't say definitively, but it's a good sign if you -- he's had such an incredible track record, like 40 years of delivering value through being able to not necessarily be ahead of the curve on technology adoption but certainly delivering real cash value. So I think it's a good sign, but also, it's one to watch. David Baynes: Yes. I'm going to point the next one to you, Mark, we know it's coming. Hinge Health up strongly post period end. Will you be inclined to take some profits? Mark Reilly: Well, we're locked in at the moment, and we did take some of the IPO. Then as I said earlier, it's an evaluation of the liquidity and the value available to us at any given time also. David Baynes: Thank you very much. Gregory Smith: And as you'd expect, obviously, we don't want to tell you about our intentions on our quoted companies because there's smart people out there that can do things with that information. But yes, we're pleased with that holding, and it's a good source of liquidity over time. David Baynes: The next one, Sam. Nice to have you here. Another analyst at Berenberg, good to have you here, Sam. I'm mentioning this because people in the past have said, can you make it clear when someone is an analyst and when they're not, so I'm doing that. I'm going to split this question. I'll do the first bit, Mark, and then maybe give you the second, if that's all right. First, one sentence, but would you be able to provide more detail on your IP licensing portfolio? And then separately, and therapeutic programs, when do you expect licensing income to ramp up? I'll perhaps do a little bit on the licensing. Licensing traditionally has been a relatively small part of our business. We inherited the licensing as part of the acquisition when we bought Touchstone. They, as part of their remit used to do the licensing for Imperial College. A very large number of patents, some of what we call active, ones that actually we had an agreement around them and some of the ones that was just exploratory and still waiting for maybe some of the license. And we retained all of those active licenses. So there's a relatively big portfolio about 80 different licenses. The actual strengthen that's what question is. The actual strengthen is relatively small traditionally, we'd be recognizing something like GBP 500,000, GBP 700,000 income a year. That tends to be the patent licenses you have to have a large number, most of them generate relatively small amounts. And then from time to time, you can sometimes get some really big licenses, a single license can do 95%, 99% sometimes of your license income. We have kind of 3 licenses out there. Greg has already referred to the Net Zero one. It's early. It's early. We're not going to start making claims about their value. And we're not recognizing in the books. Actually, in accordance to accounting standards, it's unlikely we will recognize in the books until such time as actual license income is recognized. So you can't kind of recognize it like a potential intangible or something. But any of the top 3 have the potential to, in time, generate significant revenues. Net Zero are now about a GBP 3.8 billion company, a GLP-1 agonist and it looks promising at the end of a Phase II trial. There are some notes out there. If that got to a Phase III trial, if that then became a successful drug, there may in time be some decent license income that come to us and something we would be also shared with Imperial College. So that's probably what I can say at the moment. At the moment, no impact on the financials, no significant impact on the financials. But maybe in time, maybe -- and I'm thinking maybe 2 to 3 years' time, you may start seeing if some of the things go well, some decent licensing income, and we'll talk about that at the time. It's a bit of a wide one to talk about all therapeutic programs. Is anything you want to touch on, Mark, where we might treat that question as dealt. I don't know there's anything over and above what we've already talked about there. Mark Reilly: I wonder whether that was at 10:18 as well as we have couple... David Baynes: Yes, I think that is. Gregory Smith: It's worth saying in the appendices in our results presentation, we do a sort of a summary of the main holdings and where they are in their clinical development and our valuation. And so what we're sort of -- what we're seeing as milestones coming up. So that's sort of a ready reckoner and I'm very happy to talk about in more detail than any of the others we haven't covered when we next see you, Sam. David Baynes: I've got another one for you, Sam, you split yours. I'll give it to you, Greg. I mean, given the current cash position and potential exits over the next couple of years, is there any change in your thinking around buybacks? Gregory Smith: Well, we hope we've got a pretty clear policy out there. While the discount is greater than 20%, the proportion of cash that we allocate to returning to shareholders is being done by way of a buyback. We think that's most accretive way to do that at the moment. And at the moment, for this year, we're doing -- we're using 50% of our realizations to that end. We will, as always, look at that number for next year. Historically, it's been around 20% of realizations that we've returned, which we see as sort of a more sustainable steady state. But obviously, we'll look at the relative opportunities for buybacks of our own shares versus portfolio opportunities and some small number of new opportunities. So no real change in the policy. The application changes each year based on circumstances. David Baynes: Next, Josh L, not an analyst, of which I'm aware. I'll probably take this. How has there been no First Light Fusion fair value movement despite a complete change of strategy during the period? There has been a significant change in strategy and actually some very promising technical developments, which I won't try to talk to. You can ask Mark about those if you're interested. But actually, reviewing the valuation, one of the main considerations which is like the probability of funding, the likely valuation of funding. And when we reviewed it, we came to conclusion that actually the kind of value we carry it at looks pretty robust around what we'd expect to value that. Mark Reilly: Myr recollection is that the new strategy was fairly well advanced at the time of the full year valuation. So that was... David Baynes: Pretty much factored in, yes, exactly. And at the moment, I think from where I'm sitting in terms of technical side of valuing it, I think that actually we carry it where we sort of think it may be valued. We may be wrong, but we will see. But we -- after quite a lot of discussion, we felt it was fairly valued and the movement in its actual carrying value is that just related to money we've invested in the business. So it's gone from. So that [indiscernible] So next, who would this be? From MV, hi IP Group team, nice momentum in portfolio. Thank you. Any plans on a partial full sell down on Nanopore, particularly given the IT initiatives? Well, Greg has already mentioned unlikely to comment on that. I don't know if you want to say anything further, but we're unlikely to comment on ourselves to public companies. Maybe you want to add to that Greg [indiscernible] Gregory Smith: I don't think anything to add to what we've said on that front. We do look at it all the time. It's not -- I've said in the past; it's not our strategy to have big holdings in large, quoted liquid companies that our shareholders can access directly. So it's a matter of time, but we're very -- we're a happy holder given the progress in the portfolio, and we always look at liquidity. David Baynes: Next question from Bill H. Probably, Mark, is about you, what is the role of IP Group's managing partner? If you'd like to... Mark Reilly: Well, to deliver shareholder value to increase the value of our existing portfolio and to make exciting new investments into companies that will be future well-changing company. So I have responsibility across the portfolio. I'm the person that chairs our investment committee. So I sure that the decision-making is sound and as good as it can be. And I see all the decisions around transactions of investments and exits. David Baynes: Thank you. Again, I think one for you, Mark, how much you want to talk about this. Can you -- this is Milosz, another analyst, Edison this time. Milosz, nice to have you. Can you give us an update on the monetization of Ultraleap patents and what you're able to talk about on that, Mark, I think. Mark Reilly: I can. I wasn't sure if I could, but I [indiscernible] text the CEO and he told that they did a LinkedIn post on Monday actually on this that the transaction, you might recall, we had an agreement to sell the patent portfolio to a company called [indiscernible] specialist in monetizing patent portfolios. And we were way to close that transaction when we last spoke publicly about this. That transaction has now closed. And so that's very positive. And the company has received the proceeds for that initial part of the transaction. There is an earn-out agreement. So as [indiscernible] monetize that portfolio, funds flow to [indiscernible] very positive. We really believe in the value of that portfolio. There's a lot of places where we think those patents are valuable. So we're optimistic about future fund flows from... David Baynes: Thank you. Next one, there's more questions coming in actually. Questions are picking up page. Robin M, I'll give this to you, Greg. I think maybe you can talk a little bit about cash raise from private markets secondary sales, both in the past and going forward. Is this becoming an easier way to raise capital? I think possibly referring to the small deal we did last year. I'll let you... Gregory Smith: Yes, so yes, we did do a small secondary last year. I think there's another question further down that asked about how are the assets marked and all that sort of stuff. And I think at the time, we said that on average across the various holdings on the balance sheet, it was a slight premium. It was about NAV, maybe a tiny premium to NAV on the balance sheet, and it was across -- it was a secondary that was across a few companies on the [indiscernible] funds and a few companies on the balance sheet side. There was -- the exact total was around GBP 23 million, I think, across the 2 pools. And we also said that there were things like preemption rights and all that sort of stuff, which we -- which meant we couldn't complete the full transfers that we planned to. I think we did just over 2/3 of the GBP 23 million, I think that transaction is all played through. And we do look at other options like that. We've explored all the time that I've been at IP Group, which is sort of 15-plus years, we've always looked at are their ways that we can accelerate value through these sort of structured transactions. I think the secondary markets are interesting at the moment. And they're interesting potentially -- for us potentially as we think about how we access scale up capital and build some strategic relationships. But also the secondary market is quite interesting because we have a permanent balance sheet and our liquidity position is reasonably strong, relatively speaking. There is clearly an opportunity where in companies that we're existing shareholders of that we particularly like or even potentially companies that we've tracked over the last few years that have made significant developments, but perhaps the cap table isn't as strong as it could be, then clearly, there's secondary opportunities for us. So yes, we look at it on both sides, and we'll always consider those opportunities. David Baynes: Next one, I'll point towards you, Mark, from Milosz again. And it's one that probably just give a general feedback on. But what appetite for M&A and licensing deals do you see across the life science sector at present? It's quite a wide-reaching question. Mark Reilly: I mean it seems good. My context is perhaps lacking a bit because I wasn't responsible for life sciences until a year or so ago, but I don't have a full history of staying close to this market in a way that others might, but it's -- that we've had quite a lot of interest in particularly one of our portfolio companies, there's been some inbound interest from potential sort of license acquirers. So in the small sample set that we have, it's maybe not representative, but it seems positive. David Baynes: I'll have a next one. Congratulations. This is David R. Congratulations on a good set of results. Thank you for that. On what basis is the optimistic view of exits of GBP 250 million for the period through to '27? Well, it's basically on our internal projections. So you can imagine we're running the sort of capital allocation process all the time. So I'm always updating estimates of how much we need to invest, how much we think we're going to realize, therefore, what's the closing cash balance is going to be. And in that process, we're always running out 3-year projections what our realization is going to be. And we do feel relatively optimistic in the period at the end of '27, we will generate that level of realizations. And to be clear, that doesn't include Oxford Nanopore. There's no plan for selling that. Nanopore is not in that. So one would hope Nanopore itself, that's the number they're talking about, could easily grow to a GBP 200 million asset on its own share at least by that time. So that's separate. We do think looking -- particularly there's a number of the therapeutic programs, which we think will come through in that timeline reporting both in '26 and '27, which we feel if they are successful, could generate really quite sizable realizations for us. So when you look at our numbers, I mean too much detail. When you look at our estimates for what we think we're going to realize, we have weighted probabilities, all types of complexity to try and estimate it. But we're increasingly finding we're relatively accurate at it. Although it's sort of a balancing day with 10% probability of that and 40% probability of that actually, it seems to work out relatively well, which is why we've been able to manage our cash relatively well. So in short, it's based upon our current expectations of the portfolio as it stands, and there are quite a number of, as you can see, look at therapeutic readout, therapeutic quite big programs reading out, which if any one of those work could make a serious dent in that number. And we are certainly, as we've already said, on target to do the number we plan to this year already. Next one, Haran, I hope you don't think I'm ignoring you. I think this is a question around the secondary we did last year, which Greg referred to, and I think we've answered. So I'll have a next question, which could answer the last one I haven't read, but I will read it out. We'll see what we've got. This is from David R. Your ambition is simply to increase NAV rather than achieve a more typical target of, say, 15%, which might be expected for VC investing. Should shareholders assume either that you're very cautious or simply don't believe you can create typical value on this risk or asset class in the U.K. Greg, how about you have that one? Gregory Smith: We all have a view on that. David Baynes: Yes. We go for that. Gregory Smith: We've got to be realistic with the current environment that we're operating in. However, it's fair to say that our ambition or our objective is to deliver compelling financial returns that are consistent with that risk profile. And certainly, when the IC needs to consider any investment in a portfolio company, we're not looking at will we keep this holding flat. We're looking at VC type multiples and VC type IRRs. And so the objective is to have more of those successful returns, and we focused the investment strategy more into those areas where we've seen that those success returns in the past, but also importantly, where we think there is returns to be had in the future in delivering against the sort of science-back investing environment. I don't know, Mark, if you'd add anything particular to that. Mark Reilly: No, that's all. Gregory Smith: Hopefully, we're moving into a period where that the environment is a bit more accommodative, and we're seeing good pickup in M&A interest. I wouldn't say it's sort of like a wall of M&A interest, but certainly compared to the last couple of years, there's quite a marked increase in inquiries. So that's obviously what -- it's the sort of cash-on-cash returns ultimately, which are important. And I think if you look at the track record of things we've had, including feature space recently and others, the cash-on-cash record there is very good. It's sort of 5x, 6x and in the sort of 20%, 30% IRR. So that's what we're targeting. The NAV gives you an idea of how it's going over time. But sometimes we have NAV setbacks and that doesn't necessarily mean that the company is not going to deliver strong cash-on-cash returns in the future. David Baynes: I agree. I also -- but I think 15% is something we can certainly can achieve. And certainly when you look at some of the areas we now focus on, as Greg said, actually mathematically, you can see the past, no proof of the future, but you can see investing in those areas in the past, we have achieved those sort of returns. So it's certainly a number we have part to and believe we will achieve. Andrew M, next, talking about the fall in value of Oxa, which has been partially explained by Greg. Could we -- he has mentioned there's some good technical progress. Could we perhaps, Mark, a little bit more about how we feel the technical progress despite the fall in value. Mark Reilly: Yes. Yes, I get an e-mail from the CTO once every couple of weeks talking about some of the exciting technical progress in the -- most of it's in the context of deployment on actual vehicles in real-world applications. They're doing a lot of work. Some areas I don't want to go into too much detail of because this is sort of commercially sensitive information, but they're doing a lot of work deploying their software on to real-world vehicles. One is in Jacksonville in the U.S., where I got an e-mail from the CTO the other day saying they're now 1,000 journeys and over 4,000 kilometers traveled autonomously. And I believe all those passengers survived the experience. So that seems to be going very well. And the sort of equivalent proof point in the off-road domain currently fitting out the trucks that transport big containers around ports. And the CTO has been sending me videos of these trucks. Look, we've now got 2 of these things and they can drive around without driving into each other. And so its very rapid progress being made of deploying this software on unusual vehicles accommodating all the parameters of those vehicles and the different requirements of their environment and operating effectively in those environments. So yes, I think from a technical perspective, they move at a great pace at Oxford and it's very impressive. David Baynes: Thank you very much. I appreciate that. Going to the next one, Haran again. You do get your question at this time. There were reports in the press reg Hinge Health that some shareholders sold shares at the time of their most recent results. Could IP Group have sold at the time? Mark Reilly: Yes. I think that may refer to the staff sale I guess there was a provision which allowed them to sell in that period, which other shareholders couldn't. I'm in contact with the bankers and with the company pretty regularly. I spoke to them a couple of times around that time that the staff sales occurred. So... David Baynes: Yes. No, we can confidently say we couldn't have done no. We're aware that we've tested the market. We know what we can and can't do and we couldn't know. Next one, Andrew M, where GBP 5 million investment in First Light go, I think [indiscernible] effectively bridge funding, a standard way we often fund our companies. I don't know if... Mark Reilly: Yes, on this operating capital, it's paying the salaries of the people that are continuing the research, developing this product that they're selling to the people who are pursuing the nuclear fusion and the people who are selling that product. David Baynes: I should warn everybody, by the way, but we are exactly at 11:00. So those of you only have on that, we won't be offended if you leave, but we're going to carry on. I think I've got about 5 more questions, so we will carry on. So for those that are engaged, stay with us. I've been guessing about another 10 minutes. But thank you for those who have to leave. I'm going to hand this to you, Greg, slightly unusual, but interesting question. Which competitors do you use as internal benchmarks. Well, are there any public or private funding vehicles you view as best-in-class that you draw inspiration from? It's a good question. Gregory Smith: It's a good question. Competitors or comparators in the U.K. I mean there's a reasonably well-developed market in the U.K. for certainly the early-stage bit of commercializing U.K. science. And a lot of the comparators, and we don't really compete with them significantly more often because there's more opportunities in capital generally at the moment. And you're often looking to collaborate rather than compete. We do compete if it's competitive deal. So on the U.K. side, there's Oxford Sciences Enterprise, we've got a small holding in that. We were a founder, shareholder in setting that business up, same with Cambridge Innovation Capital, Northern Gritstone, we work reasonably closely with, and we just launched that fund I was talking about for early-stage EIS investing alongside them in the portfolio. We also work some of the other well-known VCs in the U.K., Amadeus. And then I suppose some of the people that I have looked up to in terms of scale of business, I guess it's businesses like ICG, who very successfully used their flagship credit product to build out a very scaled asset management business bringing in private capital to support their existing portfolio and indeed to then build that out. So I often look at those comparators as sort of ambitious directions of travel for the group because certainly, it does feel that there is a large amount of capital that wants to allocate to this space. And so clearly, being in a position where we're a public listed entity, we've got the professional valuations and the systems and the reporting and the track record puts us in hopefully in an attractive position for those partners who are looking sort of reputationally at working with people that have been around for a period of time. So yes, there's probably those sorts of businesses. And of course, there are some world-leading VCs who are focused in particular areas, and we look at those for best practice and various of the team have the sort of their favorite bloggers in VC space that we track their thought leadership. They're very well resourced on VCs on the West Coast, some of whom they're increasingly moving into the deep tech space where we are. And so looking at their pronouncements and how they're seeing the world is all useful information for us. David Baynes: Thank you. I'm going to move on to Ian. I'm going to point this from your direction, Mark, if that's all right. It's a question we sort of get from time to time. How are you finding the U.K. universities at present? Are their funding issues making much difference to the way they're approaching tech transfer? And sort of separately, but connected, are any of the government-funded schemes being impacted by budget constraints and has this affected you at all? Mark Reilly: I would say yes, but I would say that's been the case for the past 15 years. I mean, they've always had these constraints on budgets and that has always manifested in their approach to tech transfer, and it sort of varies by university based on recent success or lack of in the domain of commercializing innovation. I think some of the universities that have had one standout success are much more kind of ready to invest in the area of tech transfer than others who have their fingers burned by it. So I wouldn't say that I've observed a huge sort of sea change or big fluctuation in the last period, but there is definitely always a budgeting pressure on tech transfer activities. And any of the government-funded schemes being impacted by budget constraints. Again, we're a little bit to us and there is definitely -- you will hear that if you walk the corridors of universities that budget constraints are impacting the research. But I think in some of the exciting areas that we're focused on in areas like quantum computing and emerging AI research work, there is still good money flowing into those areas, and we've done some really exciting research. And U.K. has always done a lot with a little. We've always done good research with limited results. David Baynes: I'll go on next. I think I'll probably take this one. It looks like my direction of it. Andrew M, thank you for this. Is it really accurate share buyback program has accelerated? It's up compared to '24, pretty stable in '25. I mean, I guess the answer is yes and yes to that. It certainly accelerated compared with what it did historically. I mean certainly, the amount we bought about 75 million shares just in the last year compared with sort of GBP 88 million, I think, ever. So it has, yes, accelerated. But it's a fair point within the year, it has been buying back at a relatively constant rate. During the year, why can our program be increased further? Well, it could, obviously. But that's the correct balance. I think we feel if we think we're buying at about the right rate and using about the right proportion of our proceeds on that buyback program. We feel it's been relatively successful. Ironically helped by a very low share price and then we bought quite a large amount of shares in the first half year at an average of about 47p. So we think we've got the balance right. We've already made this commitment we're doing half of the proceeds this year. So I think we feel that we've got the balance about right. Of course, one could always do more. There are some people that are saying, why don't you do less. So it is about trying to get a balance really. Next one, I'll probably do that as well, [indiscernible] doesn't it from Haran. The cash generated in half 1 from sales, what was the cash value relative to the holding value. Well, ironically, they were all actually. There's about 5 sales over the period, and they're pretty much all public company -- public company. So in terms of we haven't talked about what was an up or down because it was just the market price at the time. And a number of them went, I think, in for example, went for about double. That was the main one. I think we got about GBP 8.8 million. I think at the year-end, that was got in books at about GBP 4.4 million. So we haven't -- it doesn't really make sense to talk about whether we sold them up or down at the time because they were public market shares in any case. Let's have a quick look at the next one, sorry, coming down, Phil N. I think we've had this before, Phil N, if you don't mind, you're asking a question about whether we could sell Hinge or not. I think we've answered that fairly comprehensively. Okay, this one is always a tricky one. I'll ask Phil. I mean probably I'll point this to you, Greg. Always difficult, but for the shares to ride, you need happy existing shareholders and new buyer's summary. So who are the people who are selling? Is there a pattern, a trend or what? And is there an excess being dribbled out by a certain style of owners? Yes, quite a lot in that question. Do you have another go at there? Gregory Smith: Yes. Well, the overall backdrop probably you'll have seen the same sort of data that we see around net flows in and out of U.K.-focused equities, which continues to be negative and quite significantly negative global equities, actually, the flows have started to become negative overall, but particularly the U.K. has been negative. So there has been certainly in my experience over the last 10, 15 years, the number of humans that we go and talk to in the U.K. who are managing small mid-cap capital has definitely decreased and the number of funds has definitely decreased. When you look at the -- we get a monthly register analysis each month, and we go through that and try and get some clues as to who's buying and selling. Often there's changes period-to-period on the tracker funds. And sometimes from month-to-month, you get some of the larger or middle-sized holdings either reducing the position a bit or increasing the position a bit. There's not really a huge pattern that I could talk to, if I'm honest. Our job is to deliver on the strategy to be able to communicate that strategy, and we seek to do that as actively as we can. We've got a number of capital markets events we've done over the course of the year to attract new investors. And Dave, maybe you just want to talk a little bit about the efforts we've done with brokers this year and the other sort of -- given the U.K. has been more net reduction in capital available with the other relationships we've been. David Baynes: Yes. Yes, we're very proactive actually. I mean we have quite a wide range of brokers. I say our primary brokers is extreme supportive and very good. Numis and Berenberg, but we do also get some help. There's an asset called [ TKDY ] in New York, a small team of 5, who have been -- they've kind of identified about 200 American investors who are interested in U.K. stocks. And they've been getting us meetings. I probably have a meeting on average about once a week on them. And if they're interested enough, then Greg joins me, and we do a joint meeting. We think we -- it's often actually hard to tell. I know it sounds funny. We get a full shareholder register every month and you're paying down and trying to analyze. Sometimes you can't immediately identify who is what because they get through nominees, for example. But we think some of those American presentations are beginning to bear fruit. Cantors have also been helping us as well. We're finding some meetings both in America, and we've got some roadshows in Europe coming up. [indiscernible] have helped us. They took on a roadshow in Switzerland recently. So we're actually extremely active. And you will find by the end of the year our Head of Global Capital [indiscernible] some presentations in the Middle East and also in the Far East. So it's definitely not due to a lack of energy, and we are trying to get out and see people. And we think that is begun to pay dividends. We think and that partly reflects in the share price that we are getting people to find out how interesting the story is and find out how extraordinary discount is and what the opportunity is, is pretty much what we're telling people. Next one is from Lucas, a shareholder from Switzerland. Lucas, good to have you there with us. A new written -- just thinking out loud, you're giving an additional GBP 200 million in exits in private holdings until 2027. So you add that on to sort of Nanopore, which sort of hopefully by then, something like GBP 170 million. Are you saying that there's nearly 70% to 80% of current market cap might be achieved? I think the answer is yes. That was pretty much what I said earlier. Yes, that is about right. Obviously, there's a lot ifs in that. But if we achieve that, which we believe we will on the sort of non-nanopore holding. If Nanopore still performs as it should, we believe it will, yes, there's something between GBP 150 million to GBP 200 million Nanopore on top of that number, we will hope we will see. Last one, David B. Always nice talking [indiscernible] Why are you so good on someone. David B, this is for you, Mark. Do you think the start of U.S. drug pricing and tariffs by the U.S. administration is affecting pricing in the biotech market but ultimately successful innovation? If so, does that mean the model needs to be revisited so it is sufficiently profitable given the huge development costs? It's repeat your question. Mark Reilly: Question -- danger of being a political question, yes. So from our perspective, yes, I think we've got to assume that there has an impact something that is an impact. It's something that the team is factoring into the valuation work that we do every time we make a transaction in the portfolio. And so with the sense of the model needing to be revised. I think it's about making sure that we're putting money in at the right price to reflect the ultimate terminal value of the company. And so that's -- you described it as a revision of the model on a macro basis, we're doing it from the ground up of the looking at these transactions and the value is there to be delivered in the context of the current market. The other thing I said, I don't think we're really seeing this in the conversations we're having with pharma in the portfolio yet. I don't think I haven't heard that we've had pharma coming to us and saying we can possibly engage with you on this or pay this much for this company on the basis that the ground has shifted beneath us, but that might be going. David Baynes: And the last question is not a question, thank you, Filip N. Thank you, everybody, who stayed with us this long, and thank you all the questions. That's a 29th and last question, Jake. Operator: Perfect, guys. That's great. And thank you, as usual, for being so generous of your time then addressing all of those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you after the presentation. But Greg, perhaps before really now just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great. Gregory Smith: Thanks, Jake. Yes, so to summarize, again, we've made strong progress in 2025 year-to-date, good progress on cash proceeds, and that gives us good confidence around that GBP 250 million of exit target to the end of 2027. I think the standout in performance for the first half or standout transaction was that successful Hinge Health IPO, which we're very pleased to see and delighted for the team and of course, for our financial returns, and that's helped NAV per share now get up to about GBP 1 a share, and hopefully, we go up from here. And then on the share price, we've done -- continue to do 2 things that we think we can to close the discount, convert more portfolio into cash and return that excess capital with discipline at today's price. We still think that buybacks are an accretive tool. And so we've been using that tool more aggressively that year, and as David said, to good effect, and we'll continue to weigh buybacks against new investments strictly on a returns basis. And so we are one of the world's most experienced university science investors. And so we remain uniquely positioned to capitalize on the sort of the fiscal reform that we're seeing and hopefully, this rising demand for high-growth innovation. So thank you all for listening and look forward to updating you on progress for the rest of the year and into 2026. Operator: Perfect, Greg. That's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of IP Group Plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Sangoma Investor Conference Call. The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Samantha Reburn, Chief Legal Officer. Please go ahead, Ms. Reburn. Samantha Reburn: Thank you, operator. Hello, everyone, and welcome to Sangoma's Fourth Quarter of Fiscal Year 2025 Investor Call. We are recording the call, and we will make it available on our website for anyone who is unable to join us live. I'm here today with Charles Salameh, Sangoma's Chief Executive Officer; Jeremy Wubs, Chief Operating and Marketing Officer; and Larry Stock, Chief Financial Officer. Charles will provide a high-level overview of the quarter. Jeremy and Larry will take you through the operating results for the fourth quarter of fiscal year 2025, which ended on June 30, 2025. Following their presentation, we will open the floor for Q&A with analysts. We will discuss the press release that was distributed earlier today, together with the company's financial statements and MD&A, which are available on SEDAR+, EDGAR and our website. As a reminder, Sangoma reports under International Financial Reporting Standards, IFRS. And during the call, we may refer to terms such as adjusted EBITDA and free cash flow, which are non-IFRS measures, but defined in our MD&A. Before we start, I'd like to remind you that the statements made during the course of this call that are not purely historical are forward-looking statements regarding the company or management's intentions, estimates, plans, expectations and strategies for the future. Because such statements deal with future events, they are subject to various risks and uncertainties, and actual results may differ materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in the accompanying MD&A, consolidated financial statements, our annual information form and the company's annual audited financial statements posted on SEDAR+, EDGAR and our website. With that, I'll hand the call over to Charles. Charles Salameh: Good afternoon, everyone, and thank you for joining us today. As we close out fiscal 2025, I am proud to report that Sangoma has delivered another quarter of strong performance, strategic execution and accelerating momentum. We exceeded consensus expectations in Q4 with revenues of $59.4 million, adjusted EBITDA of $11.4 million and margins of 19%. These results reflect the strength of our model, the discipline of our execution and the growing impact of our transformation. Over the past 24 months, we have modernized our systems, streamlined operations and sharpened our go-to-market strategy. That work is now complete, and the results are showing up across the business. With the solid foundation in place, we are relentlessly focused on growth, investing in innovation, including AI, channel expansion and deepening our partnerships to scale faster and capture share. Sequential growth this quarter was driven by prem-based product sales, which performed well on the back of targeted campaigns and strategic share gains. We're seeing clear signs that our integrated communication offerings are resonating with our customers, and that Sangoma is finally winning in the market. A prime example of our sharpened focus is the sale of our VoIP or VoIP Supply business completed at the end of June. We executed the divestiture with speed and discipline, marking a deliberate shift towards software-led recurring revenue services, which now represent more than 90% of our revenue mix, up from 79% 24 months ago when I joined this company. It also frees up resources for our high-impact growth initiatives with proceeds reinvesting to support our mid-market enterprise go-to-market strategy. Beginning in Q1, we will also evolve how we talk about and report our business. Going forward, we will categorize our results into 2 areas: core services and adjacent services. Now core represents our SaaS-led communication platform and is the growth engine, whereas adjacent are noncore but cash-generative businesses. This view clarifies where we're investing for growth and where we're harvesting cash flows and provide investors with greater transparency into where we see the strongest potential and how our mix is evolving. Jeremy is going to expand on this a little more shortly. As we enter fiscal 2026, our priorities are clear: deliver organic growth by investing in our people, products and partners; pursue inorganic opportunities where they create strategic value and generate strong cash flow to support these strategies and create value for our shareholders. We are increasing our investment into marketing and channel partner development to drive growth across our UCaaS, our CCaaS, our CPaaS and our infrastructure platforms. These investments are already yielding results, and we intend to broaden our presence in key verticals such as health care, education and distributed enterprise, positioning the company to capitalize on structural shifts in the market. And we're not doing this alone. As you may have seen by some of our recent press announcements, we've built strong strategic partnerships to deliver enterprise-grade solutions tailored to very specific industry needs. In hospitality, for example, we partner with VTech Hospitality to integrate their industry-leading phones with our UC platform, creating a fully unified guest experience solution for our hotels and for resorts. In education, we teamed up with Quicklert to help schools comply with Alyssa’s Law and enhance campus safety and urgent and growing opportunity across the U.S. Our prem-based solution is gaining solid traction here with a 16% rise in pipeline demand from this sector alone. Equally important is our partnership with Amazon Web Services, which I'm very excited about, which we announced this summer. This is not a one-way relationship. On one side, we leverage AWS technologies to deliver scalable, secure, high-performance communication infrastructure for our UCaaS and Contact Center platforms globally. On the other, we're aligning closely with AWS' vast ecosystem to tap into their global scale and co-sell opportunities driving stronger demand generation for our combined solutions. Together, we are better positioned to serve this mid-large market for the enterprise customer that we've been talking about for some time who require mission-critical cloud-based essential communication services. These partnerships reflect our commitment to building purpose-built solutions for very specific priority industries. Now looking ahead, we are encouraged by the momentum and the opportunities we see across the core business. Although some of the larger enterprise opportunities we've pursued in FY '25 have longer sales cycles and implementation cycles, we expect sequential growth to begin in Q2 and to continue through the remainder of fiscal 2026 and beyond. This has been a transition phase for Sangoma with fiscal Q1 marking the inflection point. As it concludes in the coming weeks, we expect growth to resume as the pipeline builds to create bookings, which flow into implementation and then on to revenue with contract terms lasting 3 to 5 years on average. The direction is clear. Our strategy is working, demand is building, and we are confident in the durability of these high-margin opportunities. In closing, I want to thank the entire Sangoma team for their outstanding work this year. Together, we have shaped a more focused company, one that is ready to scale and backed by strong, flexible balance sheet that gives us multiple pathways for growth. I also want to thank our investors for your continued support and confidence in our vision. We are energized by the opportunities ahead and confident in the significant value we will unlock. With that, I'll hand it over to Jeremy and Larry. Jeremy Wubs: Thanks, Charles. I want to echo Charles' remarks and thank the Sangoma team for their tremendous work and accomplishments this fiscal year and our investors for their continued support. While the pace of growth is ramping more gradually, I am confident and excited by the opportunities we are capturing. I'm going to focus on 2 topics this afternoon, both of which Charles referred to in his opening remarks. First, more detail on how we're going to categorize the business going forward; and second, more on a go-to-market progress and key indicators. In Q2, I explained that we restructured how each of the product lines fits within our ecosystem and how we consolidated 11 product lines down to a simplified structure. I also talked about some areas not fitting in with our strategy. We have acted on that with the recent sale of VoIP Supply. Now as we further push to focus the business with the objective of capitalizing and prioritizing on areas of growth and high margin potential, it's natural to categories the business between core and adjacent, with core being high-margin SaaS and related proprietary communications products covering UCaaS, CCaaS, CPaaS, Premise PBX solutions and our bundle strategy supported by our MSP capabilities. Put another way, core represents the products and services that materially contribute to our essential communication strategy for SMB and mid-market. And with adjacent being the communications technology supporting specific needs such as trunking, analog to digital and media gateways and open source solutions. So adjacent covers more established technologies that have a higher propensity to be sold standalone or as part of a third-party's communication solution. Core will be our growth engine and today represents roughly 75% of Sangoma's revenue while adjacent accounts for about 25%. Shifting to the go-to-market. Our offerings are resonating with customers, and we are winning in the market. We have and continue to see improvements in our forward-looking pipeline across the core categories I mentioned earlier, including UCaaS, managed services and our prem UC Product business, where we are capturing share from Avaya and Mitel. This drove a 3% sequential increase in our backlog at the end of Q4, reflecting healthy demand and providing visibility into future revenues. So why, as Charles mentioned, have our go-to-market efforts taken longer to impact revenue with their contributions expected to be more visible as we move through FY '26. During our transformation, we've reprioritized our cloud product road maps, advancing features like Microsoft integration, unified mobile apps and others to support acquiring larger logos and moving upmarket. As we were prioritizing and completing software development, which took longer than expected, we focused our go-to-market on our [ prem UC share-take ] program and large managed services opportunities. These larger managed services opportunities have a 6- to 8-month sales cycle and similar implementation cycles. This high mix of managed services deals in our pipeline means the MRR revenue is recognized in later quarters. Today, as we exit Q4 and enter Q1, that pipeline mix is becoming more balanced. Now we also have a growing number of shorter cycle deals of 60 to 90 days with implementation cycles of 30 to 60 days that will help as we progress through the fiscal year. Adding multiple layers of pipeline, long-cycle high-value opportunities and shorter cycle wins is providing better visibility into the growth that we expect to begin in Q2. This stronger, more balanced pipeline includes some of the largest MRR opportunities since Charles and I joined Sangoma, including some exceeding $100,000. And in our prem UC products, which contribute more quickly to the P&L, our channel has delivered 3 consecutive quarters of sequential revenue growth, including 18% growth in Q4 over Q3. We are opening new routes to market, including partnerships with service providers, hyperscalers and vertical solution providers. Charles highlighted a few of the recent examples like AWS, VTech and Quicklert. I've also talked in prior quarters about the untapped opportunity to provide solutions to service providers, something we put focus on as part of our wholesale offerings in late FY 2025. Since then, we started working on an opportunity with a CLEC approximately 4 months ago to provide a complete bundle to replace their SOFTSWITCH and provide hardware and services to install and activate new users. That opportunity is now in late stages of the sales process and will ramp to over $20,000 MRR in the next 7 months with the potential to double by FY 2027. Equally important is how we focus on monetizing existing channels and deepen relationships with current clients. For example, one of the top opportunities in our pipeline that we've been seeding for 8-plus months is an upsell with a distributed enterprise customer we supported for years, expanding to a broader managed service and UCaaS bundle. Our value proposition of essential communications with enterprise-like capabilities at an affordable price lends itself well to many of our clients, and in this case, supports an upsell of an incremental $16,000 MRR. These are just a few examples of how our go-to-market is taking hold across new logos, account expansion and strategic opportunities. With the right focus and the right programs in place, we are adding layers to our pipeline that give us the visibility and confidence that demand will translate into revenue growth. Thank you, and over to you, Larry. Lawrence Stock: Thanks, Jeremy, and welcome, everyone. We appreciate you joining us for today's call. In Q4, Sangoma built on the momentum from earlier in the year, delivering solid financial performance and disciplined execution, providing the financial flexibility to invest with discipline to drive long-term growth. In the fourth quarter, we generated $7.1 million in net cash from operating activities, including $3 million of accelerated vendor prepayments relating to our ERP implementation. Excluding this onetime impact, net operating cash flow would have been $10.1 million, representing a healthy 89% conversion from adjusted EBITDA. For fiscal '25, net cash from operating activities reached $41.8 million, representing 102% conversion rate from adjusted EBITDA. Working capital management was again a positive contributor as we added $1.9 million for the year, driven by strong collections and improved inventory management. This builds on the $3.9 million generated in fiscal '24. Free cash flow for the fourth quarter was $4.8 million or $0.14 per diluted share. For the full fiscal year, free cash flow reached $32.9 million or $0.98 per diluted share, consistent with the $1 per diluted share in fiscal '24, underscoring the value we are unlocking at Sangoma. This strong cash generation enabled us to retire an additional $5.2 million in debt during the fourth quarter, bringing total debt reduction for the year to $29.9 million. We ended Q4 at $47.9 million of total debt, well below our original target of $55 million to $60 million. We also executed on our NCIB as another way to return capital to shareholders. To date, more than 500,000 shares have been repurchased for cancellation, representing 1.5% of shares outstanding and reinforcing our confidence in Sangoma's long-term value. The consistency of our cash generation and strong balance sheet is enabling us to lean into growth while still expanding profitability. We are prioritizing organic investments to advance our products and platforms, enhance the customer experience and scale our go-to-market capacity. At the same time, we are preserving flexibility to execute on our inorganic pipeline, reduce debt and return capital to shareholders. Now turning to the P&L. Revenue for the fourth quarter was $59.4 million, representing an increase of $1.3 million or 2% sequentially from the third quarter, driven primarily by the strength in our prem-based product sales. Core platform revenue was stable sequentially, reflecting consistency in the base business. Gross profit was $40 million in the fourth quarter, representing 67% of revenue compared to 69% in the third quarter, reflecting a higher mix of product sales. Adjusted EBITDA for the fourth quarter was $11.4 million or 19% of revenue and included $0.5 million in expense related to our ERP implementation. Excluding these costs, adjusted EBITDA would have been $11.9 million or 20% of revenue. This is up from 17% in the third quarter and represents the highest margin we've delivered over the past 8 quarters. These results demonstrate the consistency of our performance and the resilience of our business model. Now on to guidance. On June 30, we completed the sale of VoIP Supply, our lower-margin resale business for $4.5 million in cash. This was a deliberate step to streamline our portfolio and sharpen our focus on recurring high-margin growth while realizing a solid outcome at roughly 4x trailing 12-month adjusted EBITDA. With this divestiture behind us, our fiscal '26 guidance reflects a stronger business mix and a sharper focus on our higher-margin core platform products and services. For fiscal '26, we are expecting total revenue in the range of $200 million to $210 million. This compares to $209 million in revenue in fiscal '25, excluding the contribution from VoIP Supply. As Charles and Jeremy mentioned earlier, demand in our core categories is building, supported by progress in our mid-market enterprise initiatives. We expect sequential growth to begin in Q2 and continue through the year with Q1 marking the low point and the bridge to stronger growth ahead. Beginning in Q1, we expect gross margins to improve to approximately 75% and with operating expenses stable at approximately $30 million per quarter, excluding the amortization of intangibles. Finally, we are guiding to an adjusted EBITDA margin in fiscal '26 in the range of 17% to 19%, up from 17% margin in fiscal '25. EBITDA margins will follow our normal seasonal pattern, starting lower in the first half and expanding in the back half, driven by higher sales and ERP-related cost efficiencies. This outlook reflects improved gross margin following the sale of VoIP Supply while also funding incremental investments in channel and partner initiatives. Importantly, we expect strong cash generation to continue, giving us flexibility to lean into the growth initiatives and return value to shareholders. As we enter fiscal '26, we do so with a stronger business mix, a healthy balance sheet and growing momentum in our core markets. We are confident these fundamentals, combined with disciplined execution, position Sangoma to deliver sustainable growth and long-term value. To repeat what Charles and Jeremy said earlier, we extend our sincere thanks to the talented team at Sangoma, whose dedication and daily contributions continue to drive our success. That concludes our prepared remarks. Operator, let's open the call up for some Q&A. Operator: [Operator Instructions] The first question comes from Gavin Fairweather with Cormark. Gavin Fairweather: Maybe just start on the incremental go-to-market investments. I'm curious how much of this is about going deeper with existing partners and channels versus kind of adding new partners and distribution channels. And then maybe just secondly, I mean, do you feel like you have some really good data in your pipeline that suggests to you that these incremental investments will make a nice return. Charles Salameh: Gavin, it's Charles. I'll take a shot at the beginning of this. So the investments are being put into kind of 3 areas, and I would kind of categorize an overarching theme of coverage. Our platform is now being transformed and literally infinitely scalable. It's time now to start putting money into coverage, and that comes in 2 areas. One is field coverage, which will be adding more bodies to cover more of our states in the U.S. and potentially into Canada as well as recruiting of new partners. And secondly, into marketing coverage, which is brand awareness, brand increases and marketing events and industry events, things of that nature that are much more tied to our vertical strategy. So we also now have better unit economics that we really didn't have, say, 2 years ago, as we now better understand the dollar of input of investments into the market, both in field coverage and in brand awareness and the translation of that to pipeline as well as the lag from pipeline to bookings and then bookings into revenue. So we have a pretty clear line of sight. We're being a little cautious with our investments. We don't want to go crazy right off the top. We're incrementally adding investments, seeing the results and then will continue to do so over the course of the year as the pipeline builds. And so far, the investments that we have made have begun to show improvement in not only pipeline size, but also the quality of some of the activities in the pipeline given the money we've spent so far. So it's a progressive investment strategy throughout the course of this year and certainly going into '27 and '28. Gavin Fairweather: Yes, I appreciate that. And Jeremy, you touched on growth taking a little bit longer to accelerate than you anticipated, and you touched on R&D initiatives and sales cycles. You didn't really mention the macro or competitive landscape. Curious if you've noted any change on those fronts as well. Jeremy Wubs: No, I think, Gavin, like we haven't necessarily seen any major competitive pressures. I think -- as I mentioned, the sales cycles are a little longer and the implementation cycle is a little longer when you're attacking and going upmarket into some of these larger opportunities. So it's really that, right? Larger deals take longer time to sell, longer time to implement. Like we balanced that out a little bit, as you saw from some of the onetime product sales, which went up quarter-over-quarter for 3 consecutive quarters. So it's just going to take a little bit of time for the -- kind of the MRR engine to light up. But Q2 and beyond, we'll start to see that lift quarter-over-quarter. Gavin Fairweather: Great. And just quickly on VoIP Supply. Was there a decent amount of Sangoma proprietary product moving to that channel? Or was it mostly third party? Charles Salameh: It was mostly third-party. I'd say 90% plus would be third party, and I think a little less than 10% was actual Sangoma, and they're still a distributor for us. So even though we sold them, they still sell our product as they do with all the other product lines that were carried in that particular portfolio. Gavin Fairweather: Got it. And then maybe just lastly on M&A, and you touched on it, Charles, in your opening remarks. I think you'd be looking at various opportunities for a little while now, but with the balance sheet kind of where it is and being in a great shape, maybe you can just discuss your appetite for kind of firing up that growth lever and discuss how active your funnel is. Charles Salameh: I'm starving. That's my appetite. I think we've been very cautious and very disciplined about our M&A strategy. We've actually embarked with another group to kind of help us fine-tune the target. We've got a target list. But I've been really waiting for the ERP to get finished, which got finished in May and June. The company is now very much able to accept in the manner by which I want to bring acquisitions on, integrate them within a quick period of time, 120 days, extract the integration savings. With now the systems in place, the tools in place, the structure is in place, the transformation behind us, we've shifted completely towards growth and driving the 2 growth engines of organic, which you heard Jeremy talk about, and now the inorganic has taken a top priority for us. So very much on the books and very much down the road looking at various targets in the areas we've described before at SD-WAN, Security, Zero Trust network, these kind of areas that add value to enrich the portfolio and create the stickiness that we're looking for. Jeremy Wubs: I'd just add to Charles' comments. We have a very robust funnel of targets. And part of our strategy to drive essential communications bundles into the market means when you do an acquisition, you want to be able to, in a simple way, bundle in those capabilities. So the leading work that was required that Charles talked about the ERP and some of those integration components are really required for us to go and deliver a compelling bundle based on some of the things that we have in our target. Operator: The next question comes from Mike Latimore with Northland Capital Markets. Mike Latimore: Congrats on the strong balance sheet improvement this year. That was awesome. In terms of your view into the second quarter sequential growth, maybe give a little more color on visibility there. Is that tied to basically deploying bookings you've already had in hand? Or is it dependent on a lot of kind of new or smaller sales that close quickly? Or like what are you sort of counting on for that sequential... Jeremy Wubs: Mike, it's Jeremy. It's a combination of both. I mean we've got some business we've closed already or closing in quarter or closed in quarter in the pipeline, some of those larger deals, which have longer sales cycles, they'll start to pull up and show in the second half and then a pretty robust funnel of newer deals that have shorter sales cycle. I mentioned a little bit of that in my early remarks. [ Two ] quarters ago, we started a pretty aggressive program to go after some of these larger logos. We've done that. They have 6- to 8-month sales cycles, 6- to 8-month implementation cycles with some of the new features and capabilities we've focused on from a product road map perspective. In the last quarter, we've been able to target some more cloud-based deals that have shorter cycles. So it's a combination of both that will help us drive the back half of the year and give us confidence in our forecast. Charles Salameh: You heard us talk about the company now in these core versus noncore or core versus plus adjacent. Those are the 2 categories of which we described the company. Core being the high-margin SaaS business at 85%, 90% margins. And then the adjacent businesses are really more of the cash generative businesses that creates stickiness with our customers. So both of these together are going to start moving based on stuff we did way back in January and certainly in Q3 and Q4, and that revenue starts to spill in, in the second quarter of this year and then continue as it compounds going into Q3, Q4 and then beyond. Mike Latimore: And for second quarter sequential growth, that's both -- are you thinking both total revenue as well as -- and services, both sequentially up? Lawrence Stock: So total revenue, but in the categories of core and adjacent, Mike, is how we're looking at it. That will take into account the MRR, NRR, et cetera. Mike Latimore: Yes, okay. And then on the adjacent category, how much investment is going to go there? It sounds like you're counting on that to grow some here. Just how important is this adjacent category? And are there other products in here you might divest? Jeremy Wubs: I would say the things that are in the adjacent category, I mean they're going concern businesses. They're reasonable markets. They don't have the same type of growth opportunity as the core does. So we're not putting a lot of investments per se in those areas, a little bit in kind of certain lines that are pretty targeted. So we do see some growth in some areas, but not to the same degree as really the core and where we think the big SaaS opportunities are that will really help drive margin and revenue over time. Charles Salameh: But to answer your question specifically, no, we don't see any divestitures there at this point. Operator: The next question comes from Suthan Sukumar with Stifel. Suthan Sukumar: For my first question, I wanted to touch on the customer churn that you guys have seen as part of refocusing the business, given that your gross retention rates remain pretty strong. Is that churn largely contained now? Or is there still some low-hanging fruit that could fall off in the quarters ahead? Charles Salameh: No. I think the churn is actually well under control. We're starting to see positive trends in that area. We're also deploying -- now that we've got some of the systems in place, we're deploying more advanced AI-based tools that are going to help us even mitigate churn further. Our models right now are predicting that churn will actually continue to decline over the year and certainly going into FY '27. As we've gone through the stage of a lot of the legacy customers that were in the business over the last 2 years through the transformation have kind of retired out and our ability to upsell and cross-sell the new customers creates even more stickiness with less churn. And so we feel pretty comfortable about churn sort of being balanced and actually improving going into the next 3 quarters. Unknown Executive: That's great. Suthan Sukumar: Next one, I want to touch on organic growth. It sounds like visibility is improving given your commentary on sequential growth in Q2 and forward. As you think about kind of the revenue growth and the bookings growth rather looking ahead, how do you expect the mix of expansion activity versus new business to trend compared to what we've seen in the past? Charles Salameh: I think they're going to be driven pretty equally. We're actually investing in our field coverage that way, right? And I'll explain quickly as I can. On the expansion side, we've lit up several new programs, we call them ignite programs where we're going to our existing base. And now that we've got better tool sets to allow cross-sell and upsell, we're seeing service attach and expansion to our existing clients beginning to ramp pretty significantly, actually, especially in our business voice platform. So some of the old Star2Star business that we had. And the example of that was the [ Vega ] deal that we just described, the deal that we described on one of our customers who creates kind of retail franchise operation who had a legacy access service with us, and we actually advanced a cross-sell solution to them. The other area is new logos where we're going into new industry verticals. So we're partnering with new partners in hospitality and health care. We're expanding the RCM footprint, our regional channel manager footprint, investing in those areas, and they're creating momentum on new activity, new customers who've never done business with us before, but they're coming in with larger deal sizes and bigger chunks from us at one time versus buying a single point solution. So it's a pretty dual strategy on both account expansion or share of wallet strategy as well as new logo or market share strategies. And then we have a third one, which is large strategic deals, which has its own momentum in and of itself that are not even really predicted in our forecast at this point because they're so binary. Suthan Sukumar: Got it. Okay. Great. That's helpful. And then just wanted to double click on the M&A commentary. With respect to M&A, what priorities do you have here? And in terms of -- are these about market access or running out the tech platform? Or is it really about looking at consolidating competitors or quasi-competitors here? Jeremy Wubs: A little bit of it is market access, different entry points into different channels, right? So some of the technology that was highlighted earlier, things like SASE, SD-WAN, Security, we provide some of those solutions a little bit more in MSP model. Our ability to integrate those kind of natively into our portfolio and leverage the partner ecosystem that would be part of an acquisition like that would open the door to not just selling more of those technologies, but also our -- some of our UCaaS platforms, Contact Center platforms and then vice versa. It gives us the opportunity to cross-sell those technologies into our existing partner ecosystem. So the strategy really is how do we make the go-to-market strategy we have today with our essential communications bundles kind of more fulsome and how do we not only provide value to the installed base through our cross-sell, upsell programs, but open up really new channels, right, that gives us an opportunity to cross-sell our existing technologies and solutions into those as well. Operator: The next question comes from Robert Young with Canaccord Genuity. Robert Young: Maybe just a couple of quick clarifications, if I could. The split, the 75-25 core versus adjacent. Is that a Q4 metric? Or is that what you expect in 2026 after VoIP Supply? Jeremy Wubs: Yes, that's 2026 and forward. Yes. Robert Young: Okay. And then a couple of comments on the return to growth. I just want to make sure I understand it. In the press release, it said second half return to growth in core platform. And then some of the comments were returning to growth in Q2. I just wanted to like parse that the right way. Like what are the pieces that are returning to growth just to make sure I understand it. Unknown Executive: So what we're seeing beginning in our Q2 is actually core and adjacent both growing from that point forward, Rob. Robert Young: Okay. And then maybe last question. The EBITDA margin guidance for 2026 at 17% to 19%. I'm just trying -- if you could help maybe bridge in simple terms. I know you talked about seasonality and expansion of some of the go-to-market. But I think you said that ex onetime items will be 20% in the Q4, and it's stepping down in 2026 despite gross margin going up quite a bit. And I think in the comments, you said $30 million OpEx ex amortization, which is -- I mean, it seems to be that similar to where it is. Maybe if you could just help me understand the -- maybe if you could bridge between the 20% to the 17% to 19% for me, that would be really helpful. Lawrence Stock: Yes, sure. So OpEx throughout the year will be about stable at about $30 million a quarter. You got to take out from '25, part of it is VoIP Supply, right? That was included in our '25 results, right, from both an OpEx and an EBITDA perspective. The EBITDA was about [indiscernible] million in the year. Also, revenue is down about $4 million and 75% is [ the other $3 ] million. So that bridges you down to that 17% to 19%, Rob. Robert Young: Okay. That's helpful. And -- then maybe last thing. The -- I think just -- I think you said you saw 18% growth in Q4 over Q3 from some of the channel efforts. Unknown Executive: Yes, our channel efforts around -- yes, just specifically around our Switchvox prem product line, we put a program in place 2 quarters ago to go after a lot of the Premise PBX market, specifically Avaya, Mitel. We hired some folks from those organizations. And we've seen like that's 3 quarters now of sequential growth in our Switchvox prem lines and our phones and the Q4 over Q3 had an 18% lift. Robert Young: Okay. And so that's a direct result of some of these competitors and on-prem disengaging and channel coming to you [indiscernible] there. Jeremy Wubs: Yes. We went to find them. We weren't shy about it, right? They didn't necessarily just ring us up and call them. We went to find them. We knew just given some of the distress in the market between those 2 organizations that we could go find opportunity. We had a compelling product, and we went and grabbed some of the key leaders from those organizations and kind of went out hunting, convince them of the value proposition of our products being competitive and having the right compelling features and signed up new partners, and we've seen pretty substantial, as I mentioned, 18% Q4 over Q3 growth. And we see that continue to be an opportunity for us going forward. Charles Salameh: Yes. I'll add one thing, Rob. Rob, you and I talked about this, that discontinuity that occurred in the market where some folks exited, the mainstream players exited the prem business, we were able to jump in very quickly. And there was this quick -- really quick lift. And we see that continuing for the foreseeable future. But one of the things that is unclear completely is how big is this going to be because these players have really moved out. And we're even a little bit surprised by how fast the reaction of the market was to our offering. The nice thing about our offering is a great transition from the prem markets at the clients' pace to move to cloud, which we can capture them in our Switchvox Cloud solution. So this is a really interesting new area of growth for us. We've been at it for about 3 or 4 months since we really tackled it, and we're just seeing this quick lift. And we're not really sure how big this is going to get over the course of the year, but certainly some opportunity that we're going to keep our eye on as we move through the year as a real growth engine for the company. Robert Young: If I maybe push this a little bit there, would you give an absolute dollar value for that business? Just to kind of -- the 18% growth is really impressive. Is it just a small piece of revenue? Or can you give us a sense of scale? Charles Salameh: We don't report [ nothing ] on that particular number as part of our overall core services, but I'll tell you, it's a major chunk of the business on 2 fronts, right? One is it creates a larger base of customers by which then get transitioned over to cloud. As long as you can maintain service levels, which we have, we have record service levels now and customer sat of over 90%. These become long-term value customers who go from prem-based to eventually cloud-based. So it's a significant part of the portfolio. I don't want to give you the exact number, but you can assume it's a material piece of 3. Prem, hybrid and cloud are the 3 big engines of growth for us. Prem plays a very important role in its current state, but then also in the future state as those customers move to cloud. Operator: The next question comes from David Kwan with TD Cowen. David Kwan: It sounds like the gains you've been making on the on-prem side has been more driven by you grabbing market share because of those players exiting versus kind of maybe a slowdown in that transition towards cloud-based solutions. Would that be a fair statement? Charles Salameh: Yes, that would be a fair statement. David Kwan: Okay. That's great. And it relates to the M&A strategy. So it looks like you're looking for acquisitions in probably higher growing markets, which I suspect might carry higher valuation multiples amongst other things. So are you willing to make a dilutive acquisition here to help bolster your growth profile? Charles Salameh: We don't -- are we willing to -- is that the question? Maybe to some degree, but to be honest, I think as the year progresses, also with the dynamics of what's going on in the industry with point solution providers, there are opportunities of other companies that are relatively close to our valuation that are in the market today. Particularly in the security MSP space, the SD-WAN market. The point solution providers are beginning to realize the market is looking for -- especially the mid-market is looking for single vendors that can provide a holistic set of solutions with a service wrapper on top. And going it alone, the valuations, I think, are coming down, and there's opportunities for companies like ours, especially given where we are with our leverage ability of the company to find targets, plenty of targets that are not going to be very dilutive to the company. So if there's something really good out there, and it's a smaller acquisition that's slightly dilutive, I don't think we'd have a problem with it. But nothing that would be too material from a dilution point of view. David Kwan: Okay. And how big of an acquisition would you look at? I don't know if that view has changed over the last year or so? Charles Salameh: The spectrum changes, right? I mean it's really about the value of the acquisition and how it fits into the opportunity that we see in the market relative to our base and the clients and the industries we're focusing on. But I've already expressed, we could go big with an acquisition if we wanted to or we could pick up a client and account for something sub-$1 million. It really depends on what -- how we're going after adding value to particular parts of our portfolio that capture market that we're maniacally focused on, health care, retail, education. And I think as the year goes on, that ideology might shift. But our target list right now spans a large spectrum of smaller type -- buttress type tuck-ins and larger type accounts that would be more materialistic to the company. David Kwan: Great. That's helpful. Just a couple more. Are you planning to provide historicals as it relates to kind of -- I assume it sounds like you're going to be changing how the revenue is going to be classified in your financials? And are you going to provide maybe other financial metrics like ARR? Lawrence Stock: We certainly will do both comparatives, David, and then look to add additional metrics beginning in Q1, absolutely. David Kwan: Great. Last question. Just looking at the revenue by geography, obviously, the vast majority of the revenue is coming out of the U.S. It's kind of been -- the growth has been kind of low to mid-single digits on the negative side. But outside the U.S., there's been much larger declines. So wondering what's driving that difference there? Is it just weaker demand abroad? Or are you maybe culling some of your international channel partners? Just wondering what's going on there. Charles Salameh: I'll let Jeremy fill in some blanks here, but I'll just give you a high-level view. Our focus has been North America, particularly the United States. It's just -- as we prioritize where we put our energy through the transformational phase of the company in the first 2 years, our focus was to revive the brand and really begin to open up new channels in the United States. Our focus now as we move into the transition and growth phase of the company is to focus on international markets, mostly English speaking, Canada and U.K. In the U.K., our business there has been predominantly built on the back of VoIP hardware technology, legacy technology that we own, proprietary technology. Our goal now is to expand the rest of our toolkit into those markets, into the U.K. and expand our international footprint, but also into establishing new presence in areas like Canada, where we don't really have much of a presence, but we have lots of infrastructure already in place. So the international side of the business is kind of part of the plan for this year and certainly will be a major part as we go into FY '27 and FY '28. Jeremy Wubs: I'd just add to that, too, that the international portfolio is very heavily oriented towards hardware products, right? So it doesn't have -- today have limited SaaS and software products that are of high margin [ pursuing a big ] part of our core growth strategy. So we've been selective in how we've moved investments in dollars towards core and where we see the biggest growth in margin opportunity. So that's why they certainly results in those areas in those areas. International theaters haven't been as strong because it's kind of a purposeful for us in terms of where we put our dollars and where we get the best return going forward. Charles Salameh: It will be part of the program [indiscernible]. Jeremy Wubs: Yes. Historically, a lot of it -- with the product mix, the later life cycle products. Charles Salameh: Correct. Operator: This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.