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Operator: Good day, and welcome to the Star Group Fiscal 2025 Fourth Quarter Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Witty, Investor Relations Adviser. Please go ahead. Chris Witty: Thank you, and good morning. With me on the call today are Jeff Woosnam, President and Chief Executive Officer; and Rich Ambury, Chief Financial Officer. I would now like to provide a brief safe harbor statement. This conference call may include forward-looking statements that represent the company's expectations and beliefs concerning future events that involve risks and uncertainties and may cause the company's actual performance to be materially different from the performance indicated or implied by such statements. All statements other than statements of historical facts included in this conference call are forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the company's expectations are disclosed in this conference call, the company's annual report on Form 10-K for the fiscal year ended September 30, 2025, and the company's other filings with the SEC. All subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements. Unless otherwise required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this conference call. I'd now like to turn the call over to Jeff Woosnam. Jeff? Jeffrey Woosnam: Thanks, Chris, and good morning, everyone. Thank you for joining our fourth quarter conference call. It's an exciting time for us as we conclude another fiscal year and begin a new heating season. As we close out 2025, it's a great opportunity to reflect on Star's performance over the past 12 months. Most notably, temperatures were 8% warmer than normal this year, but 8% colder than in fiscal 2024. The lower temperatures coupled with recent acquisitions resulted in a 29 million gallon or 12% year-over-year increase in heating oil and propane volume. At the same time, we kept overhead expenses largely in check, maintained disciplined margin management and continued to invest in installation and service as a complementary service offering, which posted revenue growth of over -- of nearly 10% over fiscal 2024. The resulting bottom line impact on these efforts, along with cooler temperatures, fueled a year-over-year increase in adjusted EBITDA of $24.8 million or 22.2%. While net customer attrition rose modestly, we believe we are taking the necessary steps to manage through this with our ongoing focus on customer service across our operating footprint. Our internal customer satisfaction indicators and loss rates continue to improve, although we observed a lower level of overall real estate activity in the marketplace, which in part impacted new customer additions. Our acquisition program remains an important component of our overall business strategy. And in total, we completed 4 separate transactions during fiscal 2025, adding just under 12 million gallons of heating oil and propane volume annually. We continue to have many additional opportunities in various stages of review. In terms of overall capital allocation, in fiscal 2025, we invested approximately $81 million towards acquisitions and $16 million in unit repurchases and paid $26 million in distributions. We believe all of these activities serve to increase shareholder value. A recap of our results would not be complete without mentioning how proud I am of our talented team of employees who have not only supported but taken genuine ownership in effectively executing our strategy of differentiating Star from the competition through providing outstanding service and value to our customers. We are steadfast in our mission to grow and diversify the company by continuing to make both heating oil and propane acquisitions, keeping net attrition as low as possible and maximizing installation and service profitability over time. We look forward to taking advantage of further opportunities to improve the organization and its performance in fiscal 2026. So with that, I'll turn the call over to Rich to provide additional comments on the quarter and year-end results. Rich? Richard Ambury: Thanks, Jeff, and good morning, everyone. For the fourth quarter, our home heating oil and propane volume increased by 1.5 million gallons or 8% to 20 million gallons as the additional volume provided from acquisitions more than offset net customer attrition and other factors. Our product gross profit increased by $2.5 million or 6% to $45 million as the positive impact from higher home heating oil and propane volume was only offset by slightly lower per gallon margins, driven in part by the mix of volume associated with recent acquisitions. Delivery, branch and G&A expenses increased by $5 million year-over-year, largely reflecting the additional operating costs attributable to acquisitions of $4.2 million. Operating costs in the base business rose by just $800,000 or less than 1%. Depreciation and amortization rose by $1.3 million and net interest expense increased by $1.4 million year-over-year. These changes were largely attributable to the impact from recent acquisitions. We posted a net loss of $28.7 million in the fourth quarter of fiscal 2025 or $6.4 million less than the prior year period, reflecting a noncash favorable change in the fair value of derivative instruments of $12.2 million and a $3.8 million benefit from the sale of certain real estate. The impacts of these positive items were largely offset by a $3.6 million lower income tax benefit, a $3.3 million increase in our adjusted EBITDA loss, again, higher depreciation and amortization expense and higher acquisition-related financing costs, along with other factors. The adjusted EBITDA loss for the fourth quarter increased by $3.3 million to $33 million as the impact from an increase in volumes sold was more than offset by slightly lower home heating oil and propane per gallon margins and an increase in operating expenses of $5 million, again, of which $4.2 million was due to recent acquisitions. Now turning to the results of fiscal 2025. Our home heating oil and propane volume increased by 29 million gallons or 12% to 283 million gallons, again, reflecting colder temperatures and the additional volume provided from acquisitions more than offsetting net customer attrition and other factors. Temperatures in Star's geographic areas of operations for the full year were 8% colder than the prior year period, but 8% warmer than normal. Our product gross profit rose by $57 million or 12% to $525 million due to an increase in home heating oil and propane volumes sold and higher home heating oil and propane per gallon margins and a slight increase in gross profit from other petroleum products. In addition, as previously mentioned on prior calls, we've improved our service and installation profitability, which contributed to an increase in gross profit of $3.8 million year-to-date. Delivery, branch and G&A expenses rose by $36.6 million, of which $10.6 million was attributable to our weather hedging program. As a reminder, in fiscal 2025, we recorded an expense of $3.1 million under our weather hedges compared to a benefit of $7.5 million recorded in fiscal 2024, reflecting weather conditions in both periods. Aside from this, recent acquisitions accounted for an increase in expenses of $23 million year-over-year, while related costs in the base business rose again by just $3 million or 0.8%. Depreciation and amortization rose by $3.9 million and net interest expense increased by $2.8 million. These changes again were largely attributable to the impact from recent acquisitions. We posted net income of $73.5 million for fiscal 2025 or $38.2 million higher in the prior year period largely due to an increase in adjusted EBITDA of $24.8 million and a noncash favorable change in the fair value of derivative instruments of $32 million, which more than offset higher income tax expense of $16 million and other factors. Adjusted EBITDA rose by $24.8 million to $136.4 million, reflecting an $18.5 million increase in adjusted EBITDA in the base business and $17 million increase in adjusted EBITDA from recent acquisitions, partially offset by a $10.6 million change in expenses relating to the company's weather hedge contracts. And with that, I'll turn the call back to Jeff. Jeffrey Woosnam: Thanks, Rich. At this time, we'd be pleased to address any questions you may have. Chloe, can you please open the phone lines for questions? Operator: [Operator Instructions] The first question comes from Tim Mullen with Laurelton Management. Timothy Mullen: I was just curious if you guys could share any thoughts on the regulatory environment, specifically in New York? And what impact in the years ahead do you think it could have on Star Gas, things like the fossil fuel ban and some of the other regulatory items. Jeffrey Woosnam: It's really just very difficult for us to try to predict how that regulatory environment is going to impact us as a business. And a lot of that is still in flux and some of those plans are still trying to being determined. So again, it just -- it's really difficult to comment on how that might impact us going forward. Operator: [Operator Instructions] The next question comes from Michael Prouting with 10K Capital. Michael Prouting: Jeff, on the customer attrition, I just happened to notice -- so looking just at the fourth quarter, that looked like customer gains were down, customer losses were up. And then also, if you just look at the last few years, if you look at the net attrition for the year, it does seem like things are trending in the wrong direction. Was there anything specifically you think that affected attrition in the fourth quarter? And what are your thoughts about attrition going forward for the coming year? Jeffrey Woosnam: We're just generally seeing a low level of prospect activity in the marketplace, Michael. I would say for the full year because some of this is timing, but certainly for the full year, the encouraging part of it is that you can see that our loss rates as a percentage of our customer base are down and continue to come down each year, and I think they are really at historical low points. And all of our -- as I've mentioned, all of our customer with internal customer satisfaction indexes are pointing in the right direction. So the overall impact of that is it's lower churn on the business. The challenge has been new customer gains. And that's something we're constantly reviewing. There's -- in part, as I mentioned in my remarks, we've seen a lower level of activity -- real estate activity, which just takes fewer prospects out of the market. And I would also note that while fiscal '25 was colder than '24, it was still 8% warmer than normal, and we really didn't have a lot of disruptive weather in that period, which tends to attract prospects to our high-quality brands. So we're just constantly reviewing our sales and marketing structure and activities and to attract more customers to our brands. Michael Prouting: Okay. And then I had just actually 2 other questions. Jeff, one for you on the acquisition front. I just wanted to get your color on how the pipeline looks at this point and whether you see the effect of any significantly large deals? And I also had a question for Rich. So in terms of free cash flow, the K was not filed last night, although I have been going through it this morning. But I did happen to notice that free cash flow was lower than I would have expected in the fourth quarter. And it looks like that could be attributed to a combination of working capital tied up in receivables and inventory. And I was just wondering, especially with the inventory, if there was anything there like you guys got a really good deal on heating oil or just what it might have driven the lower-than-expected free cash flow in the quarter? Jeffrey Woosnam: Sure. Related to acquisitions, our pipeline is -- it remains active. We have a number of different opportunities currently under review. Nothing significantly sizable, several tuck-in opportunities, some smaller standalones, but we'll have to see how all of that kind of transpires and comes to fruition. But I'm very pleased with just the overall level of activities and transactions that we've been able to complete this past year. And really, when you think about it, 4 quality deals in 2025 and 4 in '24. So 9 completed acquisitions that we're very proud of over the last 2 years. But hopefully, we can continue that trend. Richard Ambury: Yes, if you look at our receivables, I think we have the same -- relatively same day sales outstanding this year versus last year on our accounts receivable. I don't really see any big difference between our free cash flow this year versus last year. We're paying the same taxes. EBITDA was $3.3 million less this year versus last year. Interest is up a little bit. The timing of income taxes could be possibly impacting free cash flow. But it all depends, too, on the timing of some inventory coming in, barges this year versus last year. And the way the cash flows work, it's a change versus the change in the prior year, but I don't see anything really impacting free cash flow or leading to possibly a distributable cash flow calculation because interest expense is up a little bit. Our cash taxes are not really all that much different. And interest expense is up a bit as well. And we didn't have any tremendous fourth quarter capital purchases this year versus last year, Michael. Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jeff Woosnam, CEO, for any closing remarks. Jeffrey Woosnam: Well, thank you for taking the time to join us today and your ongoing interest in Star Group. We look forward to sharing our 2026 fiscal first quarter results in February. Happy holidays, everyone. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Hello, and welcome to the Core & Main Q3 2025 Earnings Call. My name is Alex, and I'll be coordinating today's call. [Operator Instructions] I'll now hand it over to Glenn Floyd, Director of Investor Relations. Please go ahead. Glenn Floyd: Good morning, and thank you for joining us. I'm Glenn Floyd, Director of Investor Relations at Core & Main. We appreciate you taking the time to be with us today for Core & Main's fiscal 2025 Third Quarter Earnings Call. Joining me this morning are Mark Witkowski, our Chief Executive Officer; and Robyn Bradbury, our Chief Financial Officer. Mark will begin today's call by sharing an update on our business and recent performance. Robyn will follow with a review of our third quarter results and our outlook for the year. We'll then open the line for Q&A, and Mark will wrap up with closing remarks. As a reminder, our press release, presentation materials and the statements made during today's call may include forward-looking statements. These are subject to various risks and uncertainties that could cause actual results to differ materially from our expectations. For more information, please refer to the cautionary statements included in our earnings press release and in our filings with the SEC. We will also reference certain non-GAAP financial measures during today's discussion. We believe these metrics provide useful insight into the underlying performance of our business. Reconciliations to the most comparable GAAP measures are available in both our press release and in the appendix of today's investor presentation. Thank you again for your interest in Core & Main. I'll now turn the call over to our Chief Executive Officer, Mark Witkowski. Mark Witkowski: Thanks, Glenn, and good morning, everyone. Before we dive into our results, I want to start by reminding everyone of Core & Main's value proposition. Core & Main is a leading specialty distributor of water infrastructure products and services in North America, supporting the repair, upgrade and expansion of our nation's critical water systems. Our competitive advantages, including national scale and resources, local market expertise backed by the best trained sales force, industry-specific technology and comprehensive product solutions position us to lead an attractive secular growth market, driven by aging infrastructure, increasing water demand and ongoing investment needs. Our business model is built for resilience. Today, municipal projects represent over 40% of our sales, providing steady, predictable demand, supported by reliable funding sources. Our nonresidential end market, which represents roughly 40% of sales, benefits from a diverse project mix across commercial, industrial and infrastructure applications, many of which are poised for growth. Residential activity represents less than 20% of our sales. And while near-term dynamics in this market remain challenged, we continue to view the long-term outlook as attractive, supported by population growth and a structural undersupply of housing. This diversification, combined with emerging growth drivers like data centers and treatment plant modernization provides a strong foundation for our business. Core & Main consistently produces strong free cash flow and compelling returns on invested capital, giving us the flexibility to reinvest in the business, pursue strategic growth opportunities and return capital to shareholders. We continue to control our own destiny through disciplined execution on multiple fronts. For example, expanding into high-growth geographies, broadening our product offering in areas like treatment plants, smart meters and fusible HDPE, and deploying our strong balance sheet to pursue accretive M&A opportunities, including our recent expansion into the $5 billion Canadian market. These strategic investments are expanding our addressable market, strengthening customer relationships, and positioning us to capture above-market growth as near-term headwinds subside. Equally important, our pricing discipline and gross margin expansion in recent quarters demonstrate the strength of our value proposition in addition to our team's ability to execute. We are staying focused on what we can control and building the foundation for sustained growth and profitability. Turning now to the quarter. We delivered positive net sales growth despite soft residential demand and a tough comparison from last year, driven by contribution from acquisitions and strong performance across our sales initiatives. Municipal construction remains strong, supported by a highly favorable funding and demand environment. The recent federal government shutdown had little-to-no impact on the municipal projects we support as roughly 95% of funding for these projects comes from state and local sources. Local utility rate revenues and municipal bonds are dependable sources of funding and certain states are also advancing new legislation to repair and upgrade aging infrastructure. Recent actions include Texas authorizing up to $20 billion of funding for new water supply projects over the next 2 decades, New York deploying approximately $3 billion in new water infrastructure investments and Arkansas committing more than $500 million to water and sewer upgrades, each reinforcing a robust project pipeline. The state revolving funds provide a renewable source of capital to support water and wastewater infrastructure projects with current balances exceeding $100 billion in total. Supplemental funding from the Infrastructure Investment and Jobs Act remains a multiyear tailwind with roughly $30 billion allocated to the states and more expected next year, but only a fraction deployed by municipalities so far. Taken together, these dynamics provide long-term funding for critical water infrastructure projects that can no longer be deferred and remain essential to public health and economic development. In nonresidential, we continue to see healthy growth in infrastructure projects such as road and bridges, education and health care and data centers. This growth is helping to offset softness in commercial, retail and office space projects. Data centers represent a low single-digit portion of our total sales mix today, but they are becoming a more meaningful driver of our growth as AI-driven capacity expands. These projects require more water infrastructure than traditional manufacturing facilities due to cooling needs as they draw large volumes from local water supplies. This often necessitates upgrades to municipal systems and in some cases, on-site water treatment facilities to conserve usage. We also see private investment flowing into public utilities to build capacity, creating opportunities for Core & Main across the municipal and private end markets. Data center development doesn't happen in isolation. As these campuses come online, they attract workers and ancillary businesses, driving demand for housing, retail and commercial services, all of which drive the need for new water infrastructure. And this concentrated population growth places strain on local water systems, triggering further investment in water distribution and treatment infrastructure. We're seeing this firsthand at a major hyperscale campus near South Bend, Indiana, where project-related demand has been so substantial that our local branch has nearly tripled in size over the past few years. In many cases, the initial investment for data centers unlocks capacity for broader municipal, residential and nonresidential expansion, creating a long-term tailwind across our core markets. As we expected and discussed on last quarter's call, residential lot development softened during the quarter, particularly in the Sun Belt markets. Builders are carefully pacing lot development against housing affordability concerns and consumer uncertainty. But as housing affordability improves in the future, we will be well positioned to capitalize on the release of pent-up demand. Our growth initiatives continue to lay the foundation for long-term results. Let me highlight a few areas where our execution is creating competitive advantages. First, our product initiatives, including fusible HDPE, treatment plant solutions and geosynthetics each achieved double-digit growth in the quarter as we expand our ability to deliver integrated solutions for aging water infrastructure. Meter products returned to high single-digit growth in the third quarter. Recent contract awards, including our largest metering contract award to date, give us confidence in both near and long-term demand for our advanced metering products. Driving growth through geographic expansion also remains a key priority. We recently opened new branches near Houston and Denver, bringing our year-to-date total to five new locations. We expect to open more branches before fiscal year-end, and we are evaluating over a dozen additional high-growth markets for future expansion. These new branches enhance our proximity to high-growth markets and increase our service levels, supporting continued market share gains. In September, we completed the acquisition of Canada Waterworks, further expanding our growth platform in a fragmented $5 billion Canadian addressable market. This acquisition aligns with our core strengths and increases exposure to growing end markets. Canada is a natural adjacency to our U.S. markets, and we're excited to welcome the Canada Waterworks team to Core & Main. Integration activities are underway with a solid plan to realize synergies. While we continue to invest in growth, we remain equally focused on improving profitability. Gross margins improved by 60 basis points year-over-year to 27.2%, reflecting the success of our private label initiative and disciplined sourcing and pricing execution. Our private label strategy continues to produce strong results, and we are on track for private label products to represent approximately 5% of our total sales this year. On SG&A, we've implemented roughly $30 million of annualized cost savings in an effort to improve operating leverage and maximize the efficiency of our business. We expect to realize these savings over the next 12 months. We remain disciplined in our headcount decisions by selectively filling critical sales roles, while reallocating resources to areas of the business with the greatest growth potential. At the same time, we continue to invest in modern technologies to help us drive future SG&A leverage. These tools strengthen customer service, uncover more selling opportunities and expand our ability to take advantage of emerging AI capabilities. We expect these investments to enhance productivity and support margin expansion. Our strong free cash flow provides flexibility to pursue strategic M&A, invest in organic growth and return capital to shareholders. Profitable growth remains our top capital allocation priority, supported by a robust pipeline of acquisition and greenfield opportunities. We will remain disciplined on valuation and returns while maintaining balance sheet flexibility to drive shareholder value. As part of our disciplined capital allocation strategy, earlier this morning, we announced a $500 million increase to our share repurchase authorization. This action reflects our conviction in our growth outlook and free cash flow generation, and the Board's shared confidence in our ability to continue creating long-term shareholder value. With this expanded capacity, we can act opportunistically as market conditions present attractive opportunities. We are gaining momentum across our sales, growth margin and operational initiatives, strengthening our ability to drive organic growth, expand margins and achieving operating leverage. We remain confident in the attractiveness of our end markets over the medium and long term, and we continue to invest in our associates and value-added capabilities to capture growth and market share. In closing, I want to express my sincere appreciation for our teams across the country. Their dedication and focus on execution have been instrumental in advancing our strategic priorities, and I couldn't be more proud of what we've accomplished together this year. Thank you for your continued support and confidence in our vision. With that, I'll turn the call over to Robyn to review our third quarter financial results and outlook for the year. Go ahead, Robyn. Robyn Bradbury: Thanks, Mark. Good morning, everyone. I'll start on Page 7 of the presentation with some highlights from our third quarter results. Net sales increased 1% to $2.1 billion. Organic volumes and prices were roughly flat versus prior year, while acquisitions contributed about 1 point of growth. We delivered positive pricing across nearly all product categories in the third quarter. The one exception was municipal PVC pipe, where prices are down roughly 15% year-over-year and nearly 40% from the 2022 peak. As we've noted in prior quarters, even with the continued moderation in PVC pipe pricing, our discipline has enabled us to sustain a stable price environment overall. We estimate our end markets were down low single digits in the quarter, driven by declines in residential lot development and a tough comparison from last year. The residential decline was concentrated in Sun Belt markets like Florida, Texas, Arizona and Georgia, where developers have slowed the pace of new development. Activity appears to have stabilized as we move through the quarter, and we remain confident in the attractive long-term fundamentals of these high-growth markets. Our overall portfolio is resilient. Municipal demand continues to be a source of strength, and we're seeing solid activity in large, complex nonresidential projects where our scale, product breadth and technical expertise give us a strong competitive position. This balanced mix across end markets provides stability through varying demand environments. Gross margin in the third quarter was 27.2%, up 60 basis points year-over-year. This improvement was driven by benefits from our private label initiatives and disciplined purchasing and pricing execution. Total SG&A expenses increased 8% to $295 million. SG&A growth in the quarter was driven by acquisitions, elevated inflation in areas like facilities and fleet, higher employee benefits costs and strategic investments to support future growth. SG&A in the third quarter was $7 million lower than the second quarter, reflecting a reduction in onetime items and disciplined cost management. Cost inflation in our industry typically runs in the low single-digit range annually, but it's trending closer to mid-single digits this year. Against the softer end market backdrop and no incremental pricing, the productivity gains we're delivering aren't enough to fully absorb these pressures, especially given how efficient we already operate from an SG&A as a percentage of sales standpoint. This level of inflation is not typical, and while we expect it to moderate over time, we have moved quickly to address it. Since the last quarter, we've implemented $30 million of annualized cost savings with roughly $1 million of savings recognized in the third quarter. These savings primarily reflect reductions in personnel-related costs as we've eliminated approximately 4% of non-sales focused roles since last quarter. We expect fourth quarter SG&A to be roughly $25 million lower than the third quarter due to a seasonal reduction in sales and the results of our cost actions. Our approach is measured and focused on shifting resources without compromising customer service or long-term growth. While we take targeted actions to improve efficiency, we continue to invest in growth-focused roles to support product line and geographic expansion, including greenfields. We have an experienced management team that understands what takes to drive operational excellence through cycles, balancing near-term efficiency with the investments required to continue positioning Core & Main for long-term growth and success. We are committed to driving annual SG&A rate improvement going forward. Adjusted diluted EPS increased approximately 3% to $0.89 compared to $0.86 last year. Growth was driven by higher adjusted net income and the benefit of a lower share count from share repurchases. As a reminder, we exclude intangible amortization from adjusted EPS because a significant portion relates to the formation of Core & Main following our 2017 leveraged buyout. This adjusted metric better reflects the underlying earnings power and free cash flow generation of our business, which is why we view it as an important indicator of our performance. Adjusted EBITDA of $274 million was 1% below the prior year, while adjusted EBITDA margin declined 30 basis points to 13.3%, driven by a higher SG&A as a percentage of net sales. This was partially offset by 60 basis points of gross margin expansion. Turning to the balance sheet, cash flow and capital allocation. We ended the quarter with net debt at nearly $2.1 billion and net debt leverage of 2.2x, well within our target range. Liquidity was $1.3 billion, including $89 million of cash and the remainder under our ABL facility. Operating cash flow was $271 million, reflecting nearly 100% conversion from adjusted EBITDA and highlighting the strength of our cash generation ability. Over the last 12 months, we have generated free cash flow equal to 5.6% of our market capitalization, a level that is more than double the average free cash flow yield of S&P 500 companies and meaningfully above specialty distribution peers. We returned $50 million to shareholders through share repurchases during the third quarter, reducing our share count by roughly 1 million. Year-to-date, we've repurchased approximately 2.9 million shares for $140 million, including an additional $43 million deployed so far through the fourth quarter. We announced a $500 million increase to our share repurchase authorization this morning, bringing our total capacity to approximately $684 million. Since our 2021 IPO, we have repurchased over 50 million shares, roughly 20% of our original shares outstanding, reflecting our commitment to returning capital to shareholders. We remain opportunistic with share repurchases, and our strong cash-generating ability provides ample capacity to continue evaluating organic and inorganic investments to maximize long-term value. Turning to our outlook on Page 9. We are reaffirming the full year guidance we issued in September, including net sales of $7.6 billion to $7.7 billion, adjusted EBITDA of $920 million to $940 million, and operating cash flow $550 million to $610 million. Full year net sales growth is projected at 4% to 5%, excluding the impact of one fewer selling week compared to last year, which represents a roughly 2% headwind for FY '25. End market volumes are anticipated to be flat to slightly down for the year, reflecting a low double-digit decline in residential lot development, partially offset by low to mid-single-digit growth in municipal volumes and a roughly flat nonresidential market. Pricing is expected to have a neutral impact on sales growth, and we remain on track to deliver 2 to 4 percentage points of above-market growth. Gross margin is expected to improve year-over-year supported by continued private label growth and disciplined purchasing and pricing execution. We have successfully navigated a dynamic environment over the last few years, and I'm extremely proud of how consistently our teams have executed. We've meaningfully expanded our market share while broadening our addressable market through product and service adjacencies. We've demonstrated disciplined pricing, delivered sustainable gross margin expansion and generated strong free cash flow to reinvest in the business and return capital to shareholders. Our next objective is to convert that momentum into stronger growth and improved SG&A leverage. We have the management team in place to execute on that plan, supported by a long track record of operational excellence and disciplined cost management. We remain confident in the long-term fundamentals of our end markets. And with the strategic investments we've made, combined with our balance sheet flexibility and proven execution, we are well positioned to continue growing above the market through disciplined execution, value-accretive M&A and the exceptional service that enables us to support our customers and capture new opportunities. With that, we'll open the call for questions. Operator: [Operator Instructions] Our first question for today comes from Brian Biros of Thompson Research Group. Brian Biros: Can you talk about the large complex projects that you talked about? Do you have any updated market share numbers, growth rates or kind of revenue exposure numbers? Our understanding from a variety of context that these projects, depending on how you classify them, are seeing growth rates well above other end markets. And that distributors still play a critical role in these projects, maybe even more so as many products are still going through distribution as opposed to OEM direct, helping control the flow of products to the site. So just curious to what you're seeing given the value you provide there to these large complex projects. Mark Witkowski: Yes, Brian. It's Mark. We're excited about these complex projects, in particular, the data center activity that we've seen out there and for a number of reasons and some of which you mentioned there, I mean, these fit really right into our value proposition where these local relationships with the underground contractors really matter. They really rely on that local distribution to get them all the products that they need, and that's when scale really comes into play as well and having access to all the material that they need to really be that one-stop shop for our customers. So it really becomes critical, the ability to be able to timely supply all the products that they need, the pace of these projects as quick as you can imagine. And we're in a really good position just given our geographic diversity to capture a lot of that business. And I gave that example on the call about a market that Robyn and I recently visited about a year ago to really see this in action and on-site and talking to the customers there about really the value proposition and how they rely on our consistent and quality service that we provide really puts us in a great position then as these projects pop up in other markets. And in many cases, those customers travel to the next project. And we're really in a great position to capture that. So yes, we've seen really good growth in communities where these pop up. I'd say, as I've mentioned, this is still kind of a low single-digit overall exposure for us, but we've seen it grow rapidly. And like I said, really excited about really the growth that that's driving in that space. I'd say, in addition, what we see is these projects typically put a lot of demands on the water systems. That does a couple of things. One, it increases the value of water in a lot of these communities, which puts money back into the communities for further investment and then obviously puts a strain on the systems as well, which requires additional investment typically, some of which is done by the companies that are building these projects and then turned over to the municipalities. So we've just really seen a lot of characteristics there that drive some long-term demand for us and excited about that. Brian Biros: It'd be interesting to see where that goes over the next few years. I guess on the guidance, it looks like it's largely maintained. But I think the municipal outlook was raised slightly, now expected to be up low single digits to mid-single digits, where last quarter, it looked like it was just low single digits. So maybe just what's causing that slight raise? And is that just a short-term timing kind of for Q4? Or is that maybe signaling we could see an improved municipal market into the mid-single digits going forward for you guys? Robyn Bradbury: Yes. Thanks, Brian. We have a lot of confidence in our municipal end market. There's significant funding going in there at all levels. So on the federal side, there's still ample funding coming in at those levels with very little of the IIJA spending has been spent really at all. The municipalities are using a lot of local water funds to support their projects, and we're seeing them increase rates to customers there. So there's good tailwinds there. And then like Mark mentioned in the prepared remarks, there's a lot of state-level funding going out to support municipalities as well. So did lift it a little bit but just feel really good about the municipal end market over the short term, medium term, long term. Operator: Our next question comes from Matthew Bouley of Barclays. Matthew Bouley: I wanted to follow up on the end market side. Obviously, you just touched on muni. What I'm getting at is if you have any kind of early thoughts on 2026? So given where municipal is; I think I heard you say residential, might have been some signs of stabilization in Q3. And obviously, you got non-res, where it sounds like the data center piece is driving things. So just, I don't know, any help on kind of early thoughts and directional trends into 2026 there? Mark Witkowski: Yes. Thanks, Matt. It's Mark. Yes. As Robyn touched on in terms of the municipal end market, we continue to see that as really strong, steady growth for us as we wrap up 2025 and into 2026 and beyond. Nonresidential for us is, like we've talked about on previous calls, it's a mixed bag there. We've seen some really good strength in areas like these more complex projects that we see, and then there's been pockets of softness with the lighter commercial business that tends to follow some of the residential activity. So as we think about the resi side, obviously, we're watching rates closely. There's more decisions here coming up from the Fed in December, and we'll see what they touch on in terms of the outlook. So we want to see a little bit more on that front before we call residential as we go forward. It clearly softened into the second half of the year, which we warned people out earlier this year. So we're likely to see maybe a bit of a headwind as we start off 2026. But just given the overall levels of residential, I think we've covered most of that risk for any further softening of that. I would expect that at some point here, that pent-up demand is going to release, and we'll be back into really good residential growth that could then spur some of that additional commercial development. And I think on top of kind of continued investment of these data centers, I don't see that slowing down here anytime soon, that provides a really good backdrop here at some point when we see that resi market release. Matthew Bouley: Okay. Got it. Second one, kind of jumping into the margins. Obviously, a solid gross margin result there, above 27%. So if I heard you correctly, I think you said SG&A would be down $25 million sequentially in Q4. Correct me if I'm wrong, but that seems to imply the gross margin probably ends up fairly similar sequentially. So I'm just curious if this kind of 27% level is sort of a new normal here? And any sort of additional color there on what's driving the strength there? Robyn Bradbury: Yes. Sure. Matt, I'll take that one. So you're right. We had really strong gross margin performance in the quarter, driven by growth in our private label initiative. We did a really good job with some purchasing and pricing execution in the quarter. And we do expect to be able to continue to enhance gross margins from here, leveraging some of those margin initiatives that we've talked about. Gross margin in the fourth quarter should be -- it's probably going to be more in the range between the second and third quarter. Third quarter will probably be a little bit higher, maybe the peak level for the year as it can move around a little bit, but expecting a good result in the fourth quarter for gross margins, expecting -- you're right, expecting to bring SG&A down by about $25 million as we start to recognize some of the cost actions that we've done already. So should be a good result there. And then we expect to, like I said, continue to expand gross margins annually from there. It might not be exactly perfect sequentially every quarter. But on an annual basis, we expect to get that expansion. Operator: Our next question comes from David Manthey of Baird. David Manthey: First question on the top line. Last quarter, you said you expected residential to continue to soften through the second half. And Robyn, if I heard you right, you said you're seeing stabilization at the end of the third quarter. I don't want to read too much into that, and I know it's not getting stronger, but is that a slightly more optimistic residential view than you were expecting 90 days ago? Robyn Bradbury: Yes. Thanks, Dave. For resi, we started to see -- like we talked about on the last quarter call, we really started to see that soften at the end of July, and it really continued into August, September and October. So for the full quarter, it was soft and it was down in that kind of low double digits to mid-teens range for the quarter. I wouldn't say we've seen good movement there. We've just seen it kind of soften as homebuilders were developing less lots, awaiting some better affordability and some better demand there. So not a lot of movement during the quarter, but it did really perform in line with what we expected. We started to see some of that soften late last quarter and saw that continue throughout the quarter. David Manthey: Okay. And second, on gross margin. With private label at 5% of the mix, it doesn't seem large enough to move the needle. I know you talk about it a lot, and I'm sure there's a wide disparity between all other products and private label. But could you maybe talk about the magnitude of that in terms of stack ranking relative to gross margin benefit? And then you mentioned some of the other sourcing and pricing initiatives. Could you really lean into those a little bit and give us an idea of maybe some of those other buckets that are lifting gross margin? And how much opportunity remains in the coming, say, 1 to 3 years? Robyn Bradbury: Yes, sure. So private label is a big driver for us. And I would say, in the quarter, a good portion of that was driven by private label growth and then the other half or less than half was driven by our really strong execution on purchasing and pricing. And private label has expanded our margins, I would say, pretty significantly over the last several years since we started getting into this and driving the growth there. So we're really happy with the 5% of sales that we will have at the end of this year. Our long-term target there is in that 10% to 15% range. So lots of opportunity to continue to expand there. As we move forward into the upcoming years, I would say private label is going to still be a pretty big driver there. We think that can drive something like 10 to 20 basis points a year, some of our sourcing initiatives can drive additional margin enhancement on top of that. So those are areas that we have a lot of confidence and ability to continue to drive the gross margin improvement. Sourcing is a lot of managing the relationships with our suppliers and spend -- shifting our spend where it is best positioning us in the marketplace. And then on the purchasing side, we did a really nice job this year of buying ahead of price increases, similar to how we always do. We see price increases coming to the market kind of in the early spring time frame. And we're always constantly managing our inventory to make sure we're optimizing margin as much as possible. Operator: Our next question comes from Nigel Coe of Wolfe Research. Nigel Coe: Just want to go back to SG&A. So the guide for 4Q, does that fully embed the run rate of SG&A savings? That $30 million annualized, is that fully baked into 4Q? And then on the one hand, you're talking about you're running very lean right now. But then I think the slides and you referenced this, you're exploring further opportunities. I'm just actually wondering what kind of direction you're moving in, in terms of looking at further productivity? Robyn Bradbury: Yes. Sure, Nigel. Thanks for the questions. So the $30 million, a lot of that will hit in Q4 from a run rate perspective, not all of it. I would say it's probably going to be more in the kind of $5 million range of SG&A savings impact in the fourth quarter from some of the actions that we've taken. Some of them will go into effect. We've executed on the changes, but we'll realize more of the savings in FY '26. So we won't get the full run rate in Q4, but we'll get the full run rate into FY '26. And then remind me of your second question, Nigel? Nigel Coe: Yes. The second part of the question was really around -- on the one hand, you're talking about you're running very lean. You're not going to sacrifice growth initiatives, et cetera. But then you also then talk about other productivity actions that you're exploring. So I'm just wondering what direction you see above and beyond that $30 million? Robyn Bradbury: Yes, sure. Yes. And we do -- we -- if you compare us to others, we do have a very efficient SG&A rate already. We haven't gotten the operating leverage that we expected lately, and so that's where the cost-out actions came from. We do have a lot of things that we're working on to gain additional productivity in addition to the cost-out actions that we've already taken. And a lot of that stems around technology to make us more efficient, to service our customers better, to automate more in the back office. And so we have made some investments in technology that we believe will result in further productivity and help us get that SG&A leverage starting into next year. Operator: Our next question comes from Joe Ritchie of Goldman Sachs. Joseph Ritchie: So I wanted to touch on the private label discussion again. Can you just -- maybe just elaborate on what the constraint is on potentially moving private label in that initiative faster since you are seeing some good gains from that? And then where are you seeing the biggest penetration across your product lines or systems? Mark Witkowski: Yes, Joe, it's Mark. Thanks for the question. Yes, I would tell you on private label, we've been really pleased with the progress that we've made there. We've expanded our capabilities there pretty significantly, things that you need to continue to grow it at that pace, obviously include a lot of the product work that's done. We've got great engineers and researchers that help us on that product development that has to be sourced and vetted to continue to advance that through the system. You need the logistics capability. So we continue to invest in distribution space and facilities and equipment to work all that product through the system. Obviously, you need some customer acceptance on that side. So these are all kind of well-ingrained processes that we have to continue to expand that and has really been the key piece, as Robyn mentioned, to allow us to expand gross margins here over the past few years. So we've got continued opportunities there. That's big part of what we continue to look at. And I'd say we've got a really solid plan over the next 2 to 3 years to expand that. I think a pace of 1 point or so a year is something that we felt as achievable and something that we've been able to deliver historically. So we'll continue to work down those paths, and I think you should expect to see that growth as we move forward. Joseph Ritchie: Got it. That's helpful, Mark. And then I guess my follow-on question, look, it's interesting to hear you talking about the data center opportunity. Clearly, that is going to continue to accelerate, and there's a lot of momentum in the market. I guess as you think about your positioning, your capabilities, whether you need to make investments in certain regions in order to participate in a more meaningful way going forward, maybe just kind of talk a little bit through like whether there is additional investment that's necessary. And then also, to some degree, why it's such a small portion of your business today, given that there has been development over the last few years? Mark Witkowski: Yes. Thanks, Joe. As it relates to the scale, I think we obviously participate on a lot of projects all throughout the country, large-scale water replacement projects, other types of commercial and residential development. So this is still a good and important part of our business that's growing rapidly. I would tell you, we're always looking to make additional investments and improve our market position across the country, but we're -- we've got a great foundation. We have a broad geographic reach. So wherever these hyperscalers go to make these investments. We're always in a good kind of foundational position based on the local relationships that we have. It's still very much a local business. It's typically some of our best customers that are working on these types of projects because they're so critical to those developers to be successful. Where we've got the best relationships locally, we tend to get a lot of this work. And in areas where we need to earn those relationships with the customers that are doing that work, those are investments that we make similar to how we would operate in other markets where we're trying to improve our market position. So you should expect as there is growth in data centers in certain markets that we're looking to enhance our capabilities, build out our capacity and make sure that we can service that to the best of the customers' needs. So I think it looks very similar in terms of the investments. We've also got national relationships with some of the large contractors to get involved in these. So we attack it from various aspects, and we'll continue to invest to make sure that we get more than our fair share of that business. Operator: Our next question comes from Anthony Pettinari of Citi. Anthony Pettinari: Robyn, you had talked about cost inflation running kind of mid-single digit versus maybe a more typical low single-digit rate. And I'm wondering if you could give any more context in terms of the drivers there? And then just maybe in terms of cadence, like when those comps get easier, when you might expect that rate to normalize or any other color there? Robyn Bradbury: Sure. Yes, I would say the areas that we've seen driving the majority of the inflation this year have been on our facilities, on our fleet and on medical costs. So those are the main drivers. Obviously, those are some big buckets of costs for us. Our largest bucket of cost is personnel-related expense and then it's our facilities after that. So as we go through and renew some leases that we've had in the past that we've gotten really good pricing on, some of those fair market values are up and causing some inflation there. And then similarly on the fleet, we've just seen inflation there over time. And then medical is an area that we've had -- we had a big impact last quarter. We had a lot of high-cost claims, but there's also a lot of inflation hitting that area. So expect that to continue into the fourth quarter. Don't have a lot of that remediating in the fourth quarter yet. But I would say we started -- we'll probably anniversary around -- that around the second quarter of next year. That's when we started to see the larger impacts of that inflation. So we do expect it to moderate at some point in the coming quarters and get back to something that's a little bit more normalized per our industry. Anthony Pettinari: Okay. That's very helpful. And then just following up on data centers. Mark, I think that you made a reference to these being quick projects. I'm not sure if I heard that right. But in terms of kind of visibility into these projects, maybe time line, I'm sure it's hard to generalize, but is it possible to talk about sort of maybe what a typical project looks like in terms of your visibility into the demand and the time line and completing that? Mark Witkowski: Yes. Thanks, Anthony. Yes, I'm happy to clarify that. These projects are -- they're not completed quickly. They're -- I'd say the pace of construction of these is at a pace that requires that operational excellence that we provide our customers. So they're fast-pace projects, but they can last several years based on the nature of the build-out. We've seen some of the projects that we've worked on, just they continue to add phases to these projects. So we'll get pretty good visibility out as we get involved in these, at least kind of a year out of work that's being done, and then those projects can then expand beyond there based on what we've seen. So they can last quite a while, but your -- the pace that you have to execute at is very quick, and that's where the trust that our customers place in us really comes in hand and our ability to execute these projects so that they can be successful and they can be a preferred contractor on these projects going forward. That's when it really becomes a win-win for us and our customers when we're both working to complete those projects as efficiently as possible. Operator: Our next question comes from Patrick Baumann of JPMorgan. Patrick Baumann: Had a couple of cleanups here. Just on pricing, I think you said muni PVC pipe down about 15% in the quarter year-over-year, kind of implies everything else was up like low single digits. Is that right? And then is that -- kind of that algo, do you expect that to continue into '26 such that prices on net will remain stable? Robyn Bradbury: Yes. Thanks, Pat. That's right. PVC pricing has kind of come down off its peak levels over time, and that's the right range of what we're seeing. Don't expect a lot of changes from this point in the year. So pricing flat for the year. And as we get into FY '26, we'll provide more details on the next call. But expecting pricing to be at least flattish for FY '26. We could have some product categories that are down but expect the majority of them to be up overall. So I feel like that's going to be stable at minimum. Patrick Baumann: What are you seeing in other commodity products outside of the PVC stuff... Robyn Bradbury: Yes, well -- yes, if you think about steel and copper are really the only true commodities that we have that move with the underlying markets, and those would both have price favorability for the year. They've been price favorable for a while, and I would expect that to continue. So those are small areas of our overall products and sales, but those are up. And I would say, virtually every product, except for the municipal PVC, is up year-over-year. Patrick Baumann: And ductile iron is also up? Robyn Bradbury: Yes, that's right. Patrick Baumann: Okay. And then on the M&A pipeline, can you just talk about like what you're seeing there? Been a little bit of a lull here in terms of activity. What's causing that? And what -- how should we think about you guys deploying capital to M&A over the next 6 to 12 months? Mark Witkowski: Yes, Pat, it's Mark. We're still very excited about the M&A pipeline that we've got. We've got some very active deals that we're working right now. We got many opportunities that we continue to see out on the horizon. There has been, I'd say, a lull in the deals that are out in the market. We haven't, I'd say, missed out on anything in the market. I just want to assure you of that. It has been a I'd say, a lull in activity. But we are working some in real time that we're excited about and expect you'll hear some announcements from us soon, and we continue to be very active on that front. So I'd expect from a capital deployment perspective, our priorities haven't changed. We'll continue to invest organically. We will deploy capital for M&A, and we'll continue to look at share repurchases as you saw our additional authorization that we announced this morning. So continued right along with our strategy and the priorities that we've laid out. Operator: Our next question comes from Sam Reid of Wells Fargo. Richard Reid: Just looking for a little bit more detail on the SG&A cuts. And perhaps could you just give us a sampling of some of the, call it, maybe more back-office type jobs that you're eliminating as part of this process? Are they concentrated at the branch level, more skewed towards corporate? Just love some additional perspective there. Robyn Bradbury: Yes. Thanks for the question, Sam. We did, like I said on the call, $30 million of cost out. The majority of that is personnel-related costs. We were able to make reductions in about 4% of our roles overall. We were not focused on anything that was driving sales. I mean, we talked about in the last quarter that these were going to be very targeted actions, and we weren't going to do anything to compromise any customer service or long-term growth. And I think we've done a really good job of making sure those were targeted. On the back-office side, I would say, over time, we've been able to leverage technology and become more efficient. So I wouldn't point to any particular role, but I would say we were able to make some changes generally across the board to take cost out overall and then some additional kind of supporting functions. So it was a mix of head count, which is why we didn't talk about it in a detailed way on the last call because we knew it was going to be a little bit broad and across the board, but also kind of very targeted to specific areas that maybe we've had some overlap from M&A or maybe we've converted systems, and we're able to become more efficient in that way. Richard Reid: That helps, Robyn. And then to switch gears here, I just want to drill down a little bit on the muni -- or the meter business, I should say. It sounds like you were awarded a meter contract this quarter, if I'm not mistaken. Just maybe a little additional context on that. And then talk to the high single-digit growth, just maybe give me some context on whether that's coming from newer projects or whether that's more kind of just recurring from kind of some of your longer-term meter contracts. Mark Witkowski: Yes. Thanks, Sam. It's Mark. We continue to be really successful on the smart meter front. We've been, I would say, pivotal in advancing the digitization of the municipalities. And this is an area where we can really drive demand by going in and selling the value that we can bring by really converting them from a manual or kind of a legacy maybe first-generation system that they put in to really provide them the advantages of a modern system. So we've been, I'd say, very successful in many parts of the country selling [ to ] some of the largest municipalities now, which have been, I'd say, some of the slower adopters of the technology. So we're really starting to see some movement there and really gain the confidence of our manufacturer partners that we help sell their products for to really be the lead and drive the demand of these system enhancements for the municipalities. So real pleased with the progress there. We have achieved, I'd say, over the last couple of years, some of the largest projects in not only our company's history, but in the country's history in terms of the size and scale of these. So that's going to be a continued driver of growth for us and just really excited about the performance of our team there and continue to expect good growth ahead of us. Operator: Our next question comes from Matt Johnson of UBS. Matthew Johnson: I guess, first off, if we could just talk a little bit about greenfields. I think you guys have opened five year-to-date is what you said. I guess could you guys provide a little more color on, I guess, your ambitions for the rest of the year? Are there any specific markets that you're targeting, whether it be in the U.S. or Canada? And then is the target for FY '26 also to open 5 to 10 new greenfields? Mark Witkowski: Yes. Thanks for the question. Yes, we are really excited about some of the greenfields that we've got opened this year. As we've mentioned on the call, a couple of really good markets where we've got coverage today, but really looking to continue to expand in both Denver and Houston is really priority markets for us. We've got I'd say, several more identified, a few of which I expect will get opened between now and the end of the year still and a really good pipeline ahead of us that we're evaluating. We've got over a dozen markets right now that we're assessing for continued expansion and growth and expect that you'll see continued growth from a greenfield perspective. As we've talked about on previous calls, we typically are able to get those profitable within -- at least breakeven within the first year and profitable in years 2 and 3. And we've had really good success there as we've opened more this year. And the ones we've opened in prior years are continuing to perform as well. So that will be a continued strategy that you see as we look to continue to expand our geographic presence, and that would be both in the U.S. and in Canada. Matthew Johnson: That's great. And then I guess just one more for me. You guys talked a little bit about some of the different state funding that's gone, I think, across Texas, New York and Arkansas. And I think the number in Texas is far larger, at around $20 billion. So I guess, could you guys talk a little bit about how large the Texas market is for you guys and kind of what your participation rate looks like in that state and kind of how impactful you think this new bill could be for you guys moving forward? Mark Witkowski: Yes. Texas is a very important market for us. As you can imagine, as you think about construction spend across the U.S. for us, Florida Texas, California, those are really important markets, and they tend to drive -- just in those three states alone can really drive our business. So this additional investment into Texas, I think it will be really important to us. We've got good, strong position in Texas and expect us to be able to capitalize on that. In addition, Texas has had other advancements. One of the elements that we're excited about, which is very long-term oriented, that they now provide for corrugated HDPE as a solution for a lot of storm drainage work in Texas, which has been a heavy concrete market as well. So as we work to advance a lot of those products into the products that we distribute, that can be another good long-term growth driver. That's not -- those investments aren't things that happen overnight, but really set up a good foundation, and you'll continue to see us invest in Texas, just like we announced the greenfield in Houston. I'd expect that you'll continue to see us make more investments in that state. Operator: At this time, I'll now pass it back to Mark Witkowski for any further remarks. Mark Witkowski: Thank you all again for joining us today. Before we close, I want to leave you with a few key points. Over the last several years, Core & Main has executed exceptionally well through an unprecedented environment. We captured benefits from large price increases in 2021 and 2022, committed to holding it, and that is exactly what we've delivered. During that period, we also said we were over-earning gross margin by roughly 100 to 150 basis points. We moved through that normalization exactly as we expected, and we're now back to delivering steady structural gross margin expansion. Today, we're managing through stubborn inflation, higher cost and softer end markets. But we're not standing still. We've executed cost actions, and we see a clear path to generate future growth and operating leverage. Our strategic investments and sales initiatives are creating real share gains, and our diversified model positions us to generate resilient profitable growth. We've navigated several unusual years with discipline, consistency and transparency, and we're confident in our ability to deliver long-term value as the market returns to a more supportive backdrop. Thank you for your continued interest in Core & Main. Operator, that concludes our call. Operator: Thank you all for joining today's call. You may now disconnect the lines.
Operator: Good morning, and welcome to the Toll Brothers Fourth Quarter Fiscal Year 2025 Conference Call. [Operator Instructions] The company is planning to end the call at 9:30 when the market opens. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Douglas Yearley, CEO. Please go ahead. Douglas Yearley: Thank you, Drew. Good morning. Welcome, and thank you all for joining us. With me today are Rob Parahus, President and Chief Operating Officer; Wendy Marlett, Chief Marketing Officer; and Gregg Ziegler, our new Chief Financial Officer. While Gregg has been on these calls for many years, this is his first as our CFO. Congratulations, Gregg. Gregg Ziegler: Thank you, Doug. Douglas Yearley: As usual, I caution you that many statements on this call are forward-looking based on assumptions about the economy, world events, housing and financial markets, interest rates, the availability of labor and materials, inflation and many other factors beyond our control that could significantly affect future results. Please read our statement on forward-looking information in our earnings release of last night and on our website to better understand the risks associated with our forward-looking statements. Overall, I am pleased with our performance in fiscal 2025. We executed well and produced another year of strong results, notwithstanding a difficult sales environment. We delivered 11,292 homes at an average price of $960,000, generating a record $10.8 billion of home sales revenues. We posted an adjusted gross margin of 27.3%, an SG&A margin of 9.5% and earnings of $13.49 per diluted share. We grew our community count by 9%, continued to produce strong operating cash flows of $1.1 billion and returned approximately $750 million to stockholders through share repurchases and dividends and generated a return on beginning equity of 17.6%. These are the results that our entire team can be so proud of, and I'm grateful for the hard work and dedication that made these results possible. In our fourth quarter, we met or exceeded guidance across all of our core homebuilding metrics, generating $3.4 billion in home sales revenue with an adjusted gross margin of 27.1% and an SG&A margin of 8.3%. We earned $4.58 per diluted share, which was modestly below guidance, primarily due to the delayed closing of the sale of our Apartment Living business that we announced back in September. We expect to complete this transaction by the end of the first quarter and to completely exit the multifamily business over the next few years. Our fourth quarter and full year results demonstrate that our luxury business is differentiated as we serve a more affluent customer who is less impacted by the affordability pressures that continue to impact the broader housing market. These results also underscore the resilience of our business model. Our results over the past few years and especially this last year have proven that our business model and strategy can produce strong returns in good markets and bad. To illustrate this point, we started fiscal 2025 with fewer than 6,000 homes and $6.5 billion in backlog, down 9% in units and 7% in dollars from the prior year. Yet in fiscal 2025, we delivered a record 11,292 homes and $10.8 billion in home sales revenues, up 4% in units and 3% in dollars despite a soft market throughout the year. We did this while maintaining an attractive adjusted gross margin of 27.3% and an operating margin of 15.7%. Our business today is more nimble, thanks in large part to the broadening of our geographies, product lines and price points as well as our shift to a more balanced portfolio of build-to-order and spec homes, all of which have helped us bring down construction cycle times, improve inventory turns and gain efficiencies in the land development and construction processes. Our spec strategy has also allowed us to appeal to buyers looking for a quicker move-in, further widening our addressable market. In addition, many of our specs are sold early in the construction process, which affords many of our customers the opportunity to choose their finishes and make upgrades, an important competitive advantage for Toll Brothers. Specs accounted for approximately 54% of our deliveries in fiscal 2025. Given our year-end backlog and our deliveries guidance for fiscal 2026, we expect a similar ratio this year. In the fourth quarter, we signed 2,598 net agreements for $2.5 billion, down 2% in units and 5% in dollars compared to Q4 of last year. We sold at a pace of approximately 2 contracts per community per month. Sales modestly improved as the quarter progressed with October being our strongest month. Since the start of our fiscal 2026 6 weeks ago, our per community deposit activity has been almost identical to the same 6 weeks last year, which is somewhat encouraging since last year's period was up 22% from the prior year. Deposit activity in these first 6 weeks is also about the same as it was in October. Based on historical seasonal trends, it should have been down. While this activity is positive, it is just one data point, and November and December are seasonally slow, so we are not reading too much into it. The real tell for whether the housing market can accelerate will be the spring selling season, which starts in late January. We are encouraged that mortgage rates have stabilized in the low 6% range and may go lower. We also recognize that the underlying fundamentals that fuel housing demand in the long term have not changed. Demographics are favorable with millennials still in their prime home buying years and Gen Z right behind them. We also continue to have a structural undersupply of millions of homes in this country, and the average age of the home in the U.S. is now 40 years and growing. All of these trends support demand for new homes. In terms of pricing in the quarter, we continue to take a measured approach to balancing pace and price. Our average incentive was the same as the third quarter at approximately 8% of delivered price, which is also the current incentive on the next homes sold. Our average sales price in the quarter was approximately $972,000, down from $1 million in Q4 of last year due to mix. Geographically, we continue to see relative strength in the East from Boston down to South Carolina as well as in Coastal California and Boise in the West. Among our buyer segments, we saw little meaningful variation in demand. Given the cloudy near-term outlook for the overall housing market, which is being driven in large part by well-known affordability pressures, we are pleased to be serving an older, more affluent customer. According to data published by the National Association of REALTORS last month, the median age of a first-time homebuyer is at an all-time high of 40 years old and the median age of all buyers is now almost 60. And with just 1 in 5 sales to a first-time buyer, the vast majority of sales in the market are to move up or move down buyers. These trends play right into our strategy. Over 70% of our business serves the move-up and move-down segments. These buyers are wealthier, have greater financial flexibility and most have equity in their existing homes. The remaining 25% to 30% of our business is focused on the older, more affluent first-time buyer who is also feeling less affordability pressure. While we actively market rate buydowns and they do drive traffic, we have a very low take rate as our buyers do not need a lower rate to qualify for a mortgage and they'd rather spend incentive dollars upgrading their homes through our design studios. In the fourth quarter, the average spend on design studio selections, structural options and lot premiums was approximately $206,000 per home or roughly 24% of base price. These upgrades benefit our margins as they tend to be highly accretive. The financial strength of our customers is also highlighted by our high percentage of all cash buyers, the low LTVs of those who do take a mortgage and our industry low cancellation rate. Consistent with the past several quarters, approximately 26% of our buyers paid all cash in the fourth quarter. The LTVs of buyers who took a mortgage in the quarter were approximately 69%, and our contract cancellation rate was 4.3% of beginning backlog. Turning to land. At fiscal year-end, we controlled approximately 76,000 lots, 57% of which were optioned. We continue to target a mix of 60% optioned and 40% owned over the long term. Our land position allows us to continue being highly selective and disciplined as we assess new opportunities. It also facilitates our plans to continue growing community count over the next several years, including another 8% to 10% in fiscal 2026. In our fourth quarter, we repurchased $249 million of our common stock, bringing our full year repurchases to $652 million at an average price of $120.44 per share. During fiscal 2025, we repurchased 5% of our outstanding shares at the beginning of the year. We also paid $97 million in dividends. Dividends and buybacks have been and will continue to be an important part of our capital allocation strategy. As I mentioned earlier, in September, we announced the sale of a significant portion of our Apartment Living business to Kennedy Wilson. The purchase price is now $380 million, reflecting ongoing investments since the September announcement. We thought it would close in Q4, it will now close this quarter. We closed on part of the transaction last week and expect to complete the balance by the end of January. When it is completed, Kennedy Wilson will acquire about 1/2 of our Apartment Living portfolio, including our operating platform and organization. We expect to sell our remaining interest in the retained properties over the next few years. As we exit the multifamily business, we anticipate using the significant cash proceeds from these transactions to both grow our core homebuilding business and return capital to stockholders. With that, I will turn it over to Gregg. Gregg Ziegler: Thanks, Doug. Our fourth quarter capped off another strong year for Toll Brothers as we beat guidance across all our core homebuilding metrics. We would have beat on earnings as well, except for the delay in the Apartment Living sale. In fiscal year 2025's fourth quarter, we delivered 3,443 homes and generated home sales revenue of $3.4 billion, flat in units and up 5% in dollars from 1 year ago. The average price of homes delivered increased 4% to approximately $992,000. Fourth quarter net income was $446.7 million or $4.58 per diluted share compared to $475.4 million and $4.63 per diluted share 1 year ago. For the full year, we delivered 11,292 homes, up 4% year-over-year and generated home sales revenue of $10.8 billion, up 2.6%. Full year net income was $1.35 billion and $13.49 per diluted share compared to $1.57 billion and $15.01 last year. As a reminder, net income in 2024 included approximately $124 million or $1.19 per share of gains related to one parcel of land sold to a commercial developer for a data center. Excluding this gain, last year's net income would have been $1.45 billion or $13.82 per share. We signed 2,598 net contracts in the fourth quarter for $2.5 billion, down 2.3% in units and 5.0% in dollars from 1 year ago. The average price of contracts signed in the quarter was approximately $972,000, down 2.8% compared to last year's fourth quarter. As Doug mentioned, the decrease in ASP was primarily due to mix as we had fewer sales in our Pacific region. At year-end, our backlog stood at $5.5 billion and 4,647 homes. Our cancellation rate as a percentage of backlog was 4.3% in the fourth quarter. Our fourth quarter adjusted gross margin at 27.1% was slightly better than guidance. In the quarter and throughout the year, we outperformed expectations in all regions and buyer segments, reflecting the ongoing benefits of our cost control efforts and improved efficiencies. SG&A as a percentage of revenue was 8.3% in the quarter, flat compared to the same quarter 1 year ago and in line with our guidance. Joint venture, land sales and other income was $6 million in the fourth quarter compared to $44.5 million in the fourth quarter of fiscal year 2024 and our guidance of $65 million. As we noted earlier, the miss was primarily because of the delay in the closing of the Apartment Living transaction. In addition, we booked $24 million of pretax impairments that were primarily related to 3 land positions that we now intend to sell. Impairments included in home sales cost of revenue totaled $16.4 million in the quarter, almost half of which related to only 1 community in Oregon compared to $24.1 million in the prior year period. We continue to generate strong cash flow in fiscal 2025 with approximately $1.1 billion of cash flow from operations. We ended the fiscal year with over $3.5 billion of liquidity, including $1.3 billion of cash and $2.2 billion available under our revolving bank credit facility. In fiscal 2025, we invested $2.9 billion in land acquisition and land development. We also returned approximately $750 million to stockholders through share repurchases and dividends. Our net debt-to-capital ratio was 15.3% at fiscal year-end, and we have no significant debt maturities until fiscal 2027. Our balance sheet is in great shape. Turning to our first quarter and full year 2026 guidance. I want to emphasize that our assumptions and estimates are based on current market conditions, which, as Doug noted, are choppy. We have not assumed any market improvement in our forecast. We are projecting first quarter deliveries of 1,800 to 1,900 homes with an average price between $985,000 and $995,000. Consistent with normal seasonal patterns, first quarter deliveries are expected to be the low point of the year with deliveries for the full fiscal year weighted to the second half. For full year 2026, we are projecting new home deliveries of between 10,300 and 10,700 homes with an average price between $970,000 and $990,000. We expect our adjusted gross margin in the first quarter of fiscal 2026 to be approximately 26.25% and for the full year to be approximately 26.0%. We expect interest and cost of sales to be approximately 1.1% in the first quarter and for the full year. We project first quarter SG&A as a percentage of home sale revenues to be approximately 14.2%, reflecting lower fixed cost leverage as the first quarter tends to be our lowest revenue quarter. Also included in the first quarter SG&A is about $14 million of annual accelerated stock compensation expense that does not recur in the remainder of the year. For the full year, we project SG&A as a percentage of home sale revenues to be approximately 10.25%. Other income, income from unconsolidated entities and land sales gross profit is expected to be $70 million in the first quarter and $130 million for the full year. Our first quarter guidance includes gains on the sale of our apartment living assets to Kennedy Wilson. I want to be clear that after we complete the Apartment Living transaction with Kennedy Wilson, we will retain about half our existing interest in Apartment Living assets, which will be managed by Kennedy Wilson in the future. We do not intend to commit any new capital and will exit the multifamily business as we sell off the retained properties. We project a first quarter and full year tax rate of approximately 23.2% and 25.5%, respectively. We are budgeting $650 million of share repurchases in fiscal 2026, with most of that occurring later in the year, aligned with the higher operating cash flows we typically generate in the second half. We expect our weighted average share count to be approximately 97 million for the first quarter and 95 million for the full year. Based on land we currently own or control, we expect to grow community count by 8% to 10% by the end of fiscal 2026 and are targeting 480 to 490 communities. With that, I will turn the call back over to Doug. Douglas Yearley: Thank you, Gregg. Before we open it up to questions, I'd like to thank the entire Toll Brothers team for staying focused on our customers and consistently executing on our core strategies. Most importantly, you've helped position the company for continued success in 2026 and beyond. For that, I am truly grateful. Drew, let's open it up for questions. Drew? Douglas Yearley: Sure all of you right there can hear me, but we need to find our moderator. If everybody can hear me, my sincere apologies. We've apparently lost our moderator. We are being told that our prepared comments came through loud and clear. So if you could just hang in with us for hopefully just a second here, we're going to get Drew back. This may be Drew's last time working with Toll Brothers, but we'll enjoy him hopefully for the next half hour. And if we need to extend this beyond 9:30 because of this short delay, we will be more than happy to. So this is a first. It's not fair to Gregg Ziegler as he sits in the chair, but we will get through it. So please hang. Thank you. [Technical Difficulty] While we wait for our friend, Drew, we would ask that you e-mail questions in, and we will read them back to everybody and move through it. So why don't you send them... Gregg Ziegler: If you want, you can send them to Drew Petri. He is e-mailing you all as well just in case you don't have his e-mail address, but dpetri@tollbrothers.com. Douglas Yearley: So it's dpetri@tollbrothers.com. And we'll do this the old-fashioned way for the moment. Operator: I apologize. It looks like our original operator may have disconnected. We'll go to our next question. Our next question comes from Stephen Kim at Evercore. Douglas Yearley: Just want to make sure our friend Drew is okay. Thank you again, apologies. And Stephen, let's get it rolling here. Stephen Kim: All right. Sounds good. So thanks for all the help. I wanted to ask about your assumptions for the active adult buyer. I thought it was interesting you said the 70% of your sales are move up and move down. I was wondering if you could give us a sense of the move down. And any other kind of age breakdown of your buyer to the degree you can do it. And I'm curious what kind of trends you factor into your land purchasing decisions today? Because obviously, the stuff you're buying now or tying up, I should say, today isn't going to be used probably for another maybe 4 or 5 years. And so I'm curious as to what sort of potentially changing trends should we be cognizant about with respect to the move-down buyer in particular, in terms of what you're considering as well? Douglas Yearley: Sure. So active adult is doing well, as you would expect, older, more affluent buyer invested in the markets, equity in their existing homes. It's about 17% of our revenue. So the biggest part of that plus 70% we referenced being both move up and move down is our core move-up business, which is really doing well. Trends with that buyer, I think through these softer times, we continue to expect the active adult group to outperform, and we're seeing that. With respect to the age of the different buyer segments, we don't have great data on that. I think it's pretty consistent with the numbers I gave that the first-time buyer is now approaching 40 and the average buyer is approaching 60. I'm quite confident that would be about where we are. Our first-time buyer is not $250,000 to $400,000, our first-time buyer is $450,000 to -- in California, we have first-time buyers at $1.5 million. They're older, they're more affluent, less impacted by affordability issues, not looking for rate buydown. And I'm sure our age breakdown is pretty consistent with the numbers I gave. With respect to trends on land, we're seeing good deal flow. We are being very conservative. We are being very disciplined in our underwriting. We talk all the time about this combination score of gross margin and IRR. And we have a lot of great land. We have community count growth that's lined up at 8% to 10%, which will follow exactly 9% in '25, but we're seeing good deal flow. Part of that is some softer markets. Part of that is the other big builders with capital do not tend to compete with us for land. So we have a bit of an advantage. And so most of the land we're buying or contracting for now is setting up '27 and '28 revenue. So it's always forward-looking because we have to get entitlements and get roads in and get sales centers open. But we are being quite disciplined, but continuing to see good deal flow and gives us the opportunity to not just focus on returning capital to shareholders, but grow the company. Stephen Kim: Okay. That's helpful. And it was -- I guess my next question is sort of related to that, kind of a continuation of your thought there. I'm curious as to whether or not you think the number of lots owned by the end of next year could stay flat or maybe even decline compared to where it is today. And related to that, cash flow conversion next year, Gregg, any thoughts on maybe a range of values that you would generally target for cash flow conversion? Douglas Yearley: I'll take the first half and turn it over to Gregg. We think owned lots will continue to come down a little bit. They came down a little bit through '25. We're doing more and more land banking, joint ventures with other builders. We're getting extended terms with land sellers where we can buy land over time. That's very important to us as we continue to focus on ROE. And so I think, Stephen, I'd say flat to modestly down on the owned option ratio. I've said before, while right now, 60-40 option to owned is a goal. I mean it's not going to take too long for us to blow through that and give you a new goal that's even better. Gregg? Gregg Ziegler: Stephen, we think cash flow from operations will be modestly lower in '26 as it compares to 2025. So I think that the cash flow conversion, which is your original question, might be -- I'll throw out something in the 60% range. Operator: And our next question today comes from John Lovallo with UBS. John Lovallo: The first one is that, look, you guys have exceeded your quarterly delivery outlook in 11 of the past 12 quarters by like 5% on average versus the midpoint. You beat the gross margin outlook in each of the past 12 consecutive quarters, I think, about 70 basis points on average. I understand that visibility is limited here. But do you believe you're leaving a little bit of room for cushion in your outlook, particularly if the market is at least slightly better in 2026 as we expect it might be? Douglas Yearley: John, I'm a conservative guy. I've run this company, and I think a very conservative way. And I think all I'll say is the guidance we're giving you for '26 is conservative. We are not assuming any improvement in market conditions. We are not assuming that 8% incentive comes down. We have a lot of communities opening in the first half of the year. We have 30 opening in Q1. We have 60 opening in Q2. We now have over 30% -- 35%, excuse me, of our communities that can deliver homes in less than 8 months because, frankly, we've become better and more efficient builders and are turning houses faster. So there is an opportunity to get further into the spring, not just with the communities we have, but with the new openings that can still have deliveries this year. And that's just internally on how we're running the business. That doesn't even go to what the market conditions look like, whether rates come down, whether affordability pressure eases a bit, whether there's overall consumer confidence that improves, none of that is built in. So I'm not going to sit here and tell you that we're going to blow through our guidance, but we've approached it the right way. I've learned this for 35 years. When you're in a softer market that's a bit bumpy, that is the time to be conservative when you guide to the Street. And that's exactly what we've done setting up '26. John Lovallo: Yes, makes a lot of sense. Okay. The first quarter home sales gross margin guide is 26.25%. The full year guide is 26%, which would be seasonally sort of atypical given the normal cadence of sales. What's driving the implied moderation in the gross margin through the year in your view? Douglas Yearley: So we are starting more spec now to set up when people want to move into homes, right? Most people want to move into a home in June, July, August, September as the school year approaches or begins. And so you have to plan your spec strategy, in our opinion, not with an equal cadence month-to-month for spec starts, but begin homes focused on when they deliver and when the buyer wants them. And so in the later part of the year, we will have more spec deliveries. Some of those get sold early and they can go to that design studio and load it, but some of those don't get sold until the house is further along. And so we all know right now, there is a bigger incentive on spec than there is on build-to-order. And in the later part of the year, we will have more specs delivering. So we are being conservative in the gross margin guide, assuming that those specs will require a bit of a higher incentive, and that's in the later part of the year. So that's the answer. Operator: And our next question today comes from Mike Dahl at RBC Capital Markets. Stephen Mea: Steven Mea on for Mike Dahl today. I wanted to kind of dive a little more into the fiscal '26 delivery guide. Like the company delivered around 11,300 homes from beginning backlog of around 6,000 last year, representing a little under 2x your beginning backlog, kind of what you closed out the year with kind of -- and going into next year, the guide at around 10,500 at the midpoint, you're aiming for a little more than 2x your beginning backlog. What kind of -- if you could give us some more color on kind of what gives you confidence in that ramp? I'm assuming spec plays a big part of that, but if there's anything else you could speak to and perhaps any more color you can give on the spec strategy side, that would be helpful. Douglas Yearley: Sure. I'll be happy to. So let's go through the numbers for you because I want to make it clear. We have 4,500 homes in backlog. We have 3,000 spec homes or as we call quick move-ins under construction. That takes you to 7,500. We have 1,500 build-to-order homes that we believe conservatively will be sold and settled in fiscal '26. I mentioned that 35% or more of our communities are now delivering homes in less than 8 months from when the buyer signs the agreement to the closing date. I mentioned the new communities that will be opening in the first half of the year, and we are very comfortable in that 1,500 number. And then we have another 2,300 spec permits that have not started construction, but of those, we are selecting individually based on market conditions, 1,500 that we will start and will allow us to sell and settle by year-end. So when you add 4,500 backlog, 3,000 spec under construction, 1,500 build-to-order and 1,500 spec at permit that we are now selecting to start to have them done in those prime summer months, that gets you right to 10,500. Stephen Mea: Got it. That's super helpful. I appreciate the quantitative walk there. And if I could squeeze one in on the exit of the -- of the announcement to exit the remaining in the multifamily business. If you could give us a bit more color on how you came to that decision? And if I could also ask how we should maybe think about the use of potential additional proceeds once you're able to fully exit the business? Douglas Yearley: Sure. It's been a business I've been very proud of for the last 15 years. If we were private, we would stay in it. But we recognize as a public homebuilder, we're not getting the full credit that we think we deserve for the earnings generated from that business. We understand that analysts, investors and Wall Street would prefer that we focus on core pure-play homebuilding. And so we have waived the white flag. We are selling the business. We will focus exclusively on our for-sale business. And we wish our team who is so talented to have a tremendous future under the Kennedy Wilson platform in terms of the money generated, the cash generated from the sale, not just to Kennedy Wilson, but then the subsequent sale of the retained assets, it's going to be used to grow the business and to return cash to shareholders. Operator: And our next question today comes from Trevor Allinson with Wolfe Research. Trevor Allinson: First question on fourth quarter orders. Typically, they're down mid-single digits sequentially. This quarter, they were up 9%. I think ex COVID, that was the best sequential performance you guys have seen in a really long time. But you mentioned demand still remains soft. So what drove the outperformance in the quarter? Was that a desire to work down inventory? Or why did that outperform normal seasonality so significantly? And then with that in mind, how are you thinking about orders relative to normal seasonality here in your first quarter? Gregg Ziegler: Trevor, it's Gregg. Fourth quarter '25 order growth there, I think that we saw it in quite a number of geographies across the country as well as most of our buyer segments. So I think that we did well, and you will notice in the results there that the North region was definitely above our expectations. So we're proud of the results that we had there. As you're asking about orders for our contracts for the rest of the year, especially into Q1, I think our comments around the November demand we saw in deposits is probably as far as we would like to comment publicly on orders as we move forward. Trevor Allinson: Okay. Fair enough. Second question then is around new home inventory kind of industry levels. There's been a lot of talk about that being extended, especially in some of the weaker markets such as Texas and Florida. But obviously, you guys operate at very different price points versus a lot of your peers. So can you talk about where you think new home inventory stands at your price points in some of those more challenged markets? Do you think some of the overbuilding that we've seen is more across price points? Or do you think that from what you guys can see is more concentrated at the entry level? Douglas Yearley: It's definitely more concentrated at the entry level. You look at the Boston to, I'll call it, Philadelphia or even Northern Virginia corridor, which most in this room live in. There's very little on the resale market. There's very little land. For the new homebuilders, we have a pretty unique positioning there. It's tough to come into those markets and find land that you can get entitled quickly and get the machine running. So this is our home corridor that we do well in. We know how difficult the entitlements are, and we're benefiting from it with very, very tight resale markets and very few builders to compete with. That's also been true in Coastal California. We've done very well. I mentioned earlier, and it may surprise some, but while Sacramento and Palm Springs have been a bit off, both Northern Cal and Southern Cal, what we call our coastal markets, which is all the San Francisco suburbs and all the L.A. and Orange County communities are doing extremely well. There is limited resale at our price points. We don't have the other builders anywhere near our price points. And those markets have continued to perform well with limited competition. Just a couple of examples out of both of those East and West Coast areas. We opened a community in Central New Jersey 8 weeks ago in what's seasonally not considered a great time of October and November, and we took 20 sales at $1.8 million. We have a community in Irvine Ranch in Orange County that opened about 6 months ago back in May, has 47 sales at over $6 million, including 14 of those 47 sales just in the past 8 weeks. So those are just two examples. But yes, there are markets that have a lot of big publics that are building a lot of spec at lower prices. And we're in the food chain, right? So we have -- there is some impact on us, particularly because we have a lot of buyers that have homes to sell. But in our core business of $1 million homes, we're just not seeing it. We have a unique niche that we feel very lucky to be in. Operator: And our next question today comes from Sam Reid at Wells Fargo. Richard Reid: Just wanted to dig a little deeper on SG&A. When I run the numbers, it looks like SG&A dollars might be up a little bit year-over-year. Could you just bucket some of the incremental dollar expenses that you're planning for, maybe things like third-party broker commissions, new community growth? Would just love some additional context on the SG&A piece. Douglas Yearley: So it's pain to me to give the guide I gave on SG&A. We're fighting hard every day to reduce overhead in this company, and that effort is elevating. We're more and more focused on it than ever. That's what soft markets do. It is a conservative guide. We're 75 basis points above last year's result. 50 of those 75 basis points is just leverage on less revenue. And that obviously could change if we do better in '26 with our sales and with our deliveries. And the balance of 25 basis points is inflation in wages, it's health care costs, and it's some modest elevated both internal and third-party sales commissions. When you're in a softer market, per house, you pay your salespeople a little more because you don't want to take them backwards in their total comp. So if they're selling a few less houses, you give them a little more per house and you have to incent the third-party realtors a little bit more to get them to come to your community. So those numbers are modestly elevated, but that's the breakdown. 50 basis points leverage, 25 basis points, those other items. But we're fighting this fight every day, and I am determined to bring that number into all of you by the end of the year with a 9 in front of it. Richard Reid: All helpful context there. Maybe switching gears and talking lot costs. Would just love to hear some context as to where you exited 2025 on lot cost inflation? And then any sense in terms of what's embedded in guide for 2026 lot cost inflation based on what you plan to deliver? Douglas Yearley: The guys around me are telling me it's flat, and our guide is also flat. We're seeing, as I said, there's some opportunities now we're excited about, which sometimes happens in a softer market. We are renegotiating a lot of our land deals. The impairments were up modestly because we did sell out of a few of our deals. But that final sign-off by our land committee in here, there's a lot of conversations about going back and working to get a little better price because the market is a bit softer. So that's a longer answer to log cost land prices being flat. Operator: And our next question today comes from Michael Rehaut with JPMorgan. Michael Rehaut: I wanted to first zero in a little bit and kind of hit the closings guidance. I know, Doug, you kind of walked through some of the math on how to get to the midpoint earlier. But on an overall level, given the fact also that you expect the spec mix to be similar in '26 versus '25, you kind of obviously walked through the community count growth. On kind of looking at it from a different angle, is the guidance for the percent decline in closings largely just driven by math from where you're starting out the year with the backlog being down as it is? Or is there some element of a timing of community openings throughout the year or even perhaps a slower sales pace that you're baking in to protect margins, maybe if you were to be a little more aggressive on deliveries, it might be more at the expense of gross margin. So just trying to look at it from a different angle and understand the decline in closings in '26. Douglas Yearley: Mike, it is the lower backlog to begin '26. Michael Rehaut: Okay. So all those other factors, obviously really not coming into play then. Douglas Yearley: Correct -- I'm sorry, we assume we're going to sell at the same pace. Right now, we're running at about 2 sales per month per community. We have not assumed that's going to improve. And so we're doing the math off of the beginning backlog with those other buckets that I laid out for you earlier in terms of spec under construction, build-to-order that we think can sell and settle and spec permits that we are intending to start to have summer deliveries. But it all starts with that 4,500 of beginning year backlog. Michael Rehaut: Right. That's fair... Douglas Yearley: And as you -- go ahead, please. Michael Rehaut: No, no. Why don't you finish your thought, and then I'll ask my second question. Douglas Yearley: If the 2 per month, which is a pretty low number in the company's history, does a bit better, then obviously, each of those other buckets can improve, but that's not how we're approaching the guidance for '26. Michael Rehaut: Right. Okay. Second question kind of on the gross margins. I think you've highlighted the fact that your incentives are roughly flattish, at least most recently. I think you just said you're [indiscernible] in '26 to be flat versus '25. So I just wanted to understand what's driving the sequential decline in gross margins into the first quarter and then more broadly in the full year, because I would have assumed if you are assuming incentives being flat, I would have thought land cost inflation would be the primary driver of that. But I'd love to understand what's -- what are kind of the impacts or what are the factors driving 1Q and '26 overall relative to '25? Douglas Yearley: Sure. The incentive a year ago on this call that was out there for us was $68,000 a house. The incentive today is $80,000 a house. That explains the full 27.3% down to 26% margin change. And we are projecting out the year again on that same $80,000. Operator: And our next question today comes from Alan Ratner of Zelman & Associates. Alan Ratner: Nice performance in a tough market. Gregg, great job on the first call. I won't hold the technical snafu against you. It's all up from here though. Gregg Ziegler: That's all right. I can blame me for the technical snafu. Douglas Yearley: No, we're going to blame Marty Connor... Martin Connor: Yes. Exactly... Alan Ratner: So a lot of my questions are on the guidance, but I think we beat that topic there pretty good. Doug, just thinking about the consumer and your buyer today. Obviously, there's a lot of cross currents. The stock market remains strong, but we're hearing confidence is challenging. We're seeing on the resale side a lot of delistings. So people that might have been putting their house up for sale, deciding not to move forward with the sale and maybe some of that's seasonal. But I heard your encouraging sales data through the first 6 weeks of the quarter, but are you sensing any change in your consumer confidence or their desire to sell their house because the data would seem to be a bit more alarming on that front. Douglas Yearley: Yes. No, we're not -- I can't -- that's why I caution that don't read too much into November and December just because of the seasonality of those months not being slower sales and not telling us a lot. So it's modestly encouraging that the last 6 weeks were flat to '24, and '24 was up 22% to 23%. And that those 6 weeks were also flat to October, which shouldn't be the case. They should be down. But no, there's nothing I can point to, to feel great about where the market is. Consumer confidence for us, for our client is the #1 driver. Affordability, mortgage rates, while I will celebrate a 5.5% rate it's just not as important to our buyer as we talked about with our buydowns. We market the heck out of buydowns. The drive traffic and very, very few people take it. And so there's issues around job growth, we still have a lock-in effect, of course, that with 70% of our homes requiring a client to sell their existing home, whether they're moving up or moving down, there's still some that are locked in and just don't want to give up that 3% rate. So those are all real headwinds. The passage of time is a bit of a tailwind, right? It's just -- we're pretty far into this down cycle. If you look historically at housing down cycles, we should be on the other side of it and maybe coming out of it. But that's just looking at prior peaks and valleys. And as people stay in their beat up old house and always dreamed of moving those kids up to the pretty Toll Brothers house in a better school district and a bigger lot, join the fancy country club, whatever they want to do with their life, the passage of time has an amazing psychological effect on people finally saying, I've done well in the markets. I have equity in my house. I have a resale market that's pretty darn good, and we're going to bite that finger and move up. Now Marty Connor may not do that because he's a finance geek, but a lot of people want to do that because they want to improve the lives of their kids and their family. And so the passage of time really helps in that regard. But Alan, that's a very soft comment I'm making, right? It's just kind of the psychology of the buyer. But we're getting closer. I think we're getting closer to when we see some light. And I'm excited about that, but I can't point to it. But if there's pressure on rates coming down with a couple more cuts, if confidence improves a bit, as time moves on and we're further along in this down cycle, I think there's a great opportunity because of those long-term tailwinds to see some improvement. But I can't point to any data point right now, and that is the main reason why we're staying conservative in our '26 guide. Alan Ratner: Makes sense. No, understood. I appreciate the comments, even if you call them soft, I think it's helpful just to hear what you're seeing. Gregg, I'm going to put you on the spot and then hop off. Just on the share buyback guide for $650 million. So pretty flat with the past year. If I look at this past year, I think you did -- you generated $1.1 billion of cash. You're saying that maybe that's down a little bit, but you also have the sale of the apartment business in there in the first quarter. So it would seem like unless you're looking to, I don't know, build up cash or delever, which you don't have any debt coming due this year, that there should be an opportunity to drive that buyback number decently higher from '25. So what's holding you back there? Gregg Ziegler: Sure, Alan. We would like to go higher, but we do think that $650 million is very prudent guide at this point to start the year. So we'll continue to evaluate it throughout the year, but this is where we want to launch. Douglas Yearley: We're going to extend for another question because of our friend, Drew. Operator: Our next question comes from Rafe Jadrosich with Bank of America. Victoria Piskarev: You have Victoria Piskarev on for Rafe Jadrosich. My first question is on what are you thinking about stick and brick costs and labor costs for 2026? And what is embedded in the guidance? Douglas Yearley: Great question. We're seeing a modest decrease in construction costs in most parts of the country. It's either flat or it's down slightly. And maybe $2, maybe $3 a square foot in reduction in building costs. It costs us plus or minus $100 a square foot to build our homes. When I started in this business, Rob Parahus is here with me. We're the old guys. We used to build for $55 a square foot. Remember, Rob? So that's a couple of points, right? A couple of percentage points down, which is encouraging. And I think that should continue. We have not built in any continued reduction in building costs for the balance of the year. Operator: Thank you. That concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks. Douglas Yearley: Thanks, everyone. We appreciate all your interest, all your great questions. We're always here to answer any follow-up questions you may have. Have a wonderful, wonderful holiday season, and we look forward to seeing all of you soon. Thanks so much. Operator: Thank you, sir. The conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
Operator: Good morning, and welcome to the Naked Wines plc Half Year Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Rodrigo Maza. Good morning. Rodrigo Maza: Hello, everyone, and welcome to our half year '26 results presentation. We are very grateful for your time. I'm Rodrigo Maza, Naked's CEO. I'll be presenting today along with Dominic Neary, our Chief Financial Officer. Here's the agenda that we'll cover this morning. Before we get into the details, a few headlines to set the stage. We've made a lot of progress in the first half of the year. Our performance continues to track in line with the guidance we've shared with the market. We remain focused on delivering shareholder returns, and we're pleased to have completed our first distribution during the summer. As stated during our last presentation, we made structural changes to our business at the start of the year to enhance focus, speed and accountability. We're making tangible progress on both acquisition and retention. We strengthened both our senior leadership team and our Board of Directors. We're happy to welcome Jan Mohr and Susan Hooper as Non-Executive Directors. We extend our gratitude to Deirdre Runnette, who's exiting our Board for all her contributions to Naked Wines. We remain confident in the strategy shared with investors last March as we go through our peak trading season. Results so far are positive. Let's dive in. Naked Wines is all about connecting wine drinkers and winemakers. Our model removes the middlemen, so customers get better wine for their money and winemakers earn more for doing what they do best, making exceptional wine. This direct meaningful relationship builds loyalty, drives a sense of community and differentiates us in the market. Now this is what our model delivers. This chart leverages Vivino's data to show how Naked consistently overdelivers on quality for price when compared to traditional retail brands. This is one of our main drivers of retention. This is our model at scale. Naked currently connects over 0.5 million very satisfied angels in the U.K., the U.S. and Australia with over 300 of the world's most talented independent winemakers. As stated during our strategy event back in March, we think of our footprint as an advantage. This is especially true in the U.S. where the ability to legally deliver wine to over 90% of the population is a true moat. Operating across 3 countries adds meaningful resilience to our business. That diversification protects us from overexposure to any single market or regulatory shift. It also allows us to test things faster, accelerating our learning. When we exceed our angels' expectations, our whole flywheel accelerates. The lighter angels tell others. And when that happens at scale, everything moves. More angels means more funds, more sales, more cash. It's truly a virtuous cycle. When our angels are happy, our winemakers, our teams and our shareholders, they feel it too. Now over to you, Dom. Dominic Neary: Thank you very much, Maza. I'm going to be taking us through HY '26 performance. We'll then move on to our strategic pillars. I'll cover the first 2 of those, and Maza will cover return to growth. So moving on to our financials. We're seeing, first of all, continued strong cash generation, including the GBP 2 million share buyback, which was completed in September. So that's GBP 10 million of cash generation less the GBP 2 million share buyback is an GBP 8 million increase on 12 months ago. Adjusted EBITDA is doubling, reflecting the intentional strategy to reduce acquisition investment and to focus on higher-quality core profitable customers. So adjusted EBITDA up 112% on prior year at GBP 3.6 billion. This strategic change, which we've communicated before, leads to the lower revenue number you see there down on prior year. And as I repeat, this is what we've communicated and this is expected, and it's in line -- tracking in line with our full year guidance. The loss before tax you see there benefits, of course, from the doubling in EBITDA. It includes a number of items. There's a GBP 2 million restructuring, which we've announced in April. There's the one-off impact of EPR costs, which will unwind in H2. And then, of course, there's GBP 2.6 million of the inventory liquidation costs, which we've flagged as we proceed with the liquidation of our inventory. And that is part of the GBP 12 million or $17 million target, which we have over the medium term, which is likely to impact this year and the next 2. As we move on to our key strategic KPIs, free cash flow -- if we start at the top, free cash flow is positive. It's where we expect it to be. So inventories are down in the year -- in the half year. But what we are seeing is some inventory build in the U.K. and Oz, which is why free cash flow is lower than prior year, but this is still a strong result reflecting as it does cash generation ahead of our peak season where we would normally see cash being used up as we build for peak. So a strong result there. As we move on to ROIC, we can see the impact primarily of the doubling in profitability, but also the impact of share buyback impacting that as well. Gross profit margin is up materially. 50% of this is related to inventory liquidation differences between this year and prior year, but the rest of that is a genuine improvement, reflecting significant reductions in first order loss as we acquire customers and cost savings in G&A and marketing efficiencies. And this is despite significant ongoing regulatory cost increases from duty and EPR, which are impacting the industry more broadly. Acquisition breakeven, this is our new metric. So this -- historically, we've looked at a 5-year forecast for marketing acquisition, which we've called payback. We're now, as we've already indicated, moving to a 24-month metric, which we estimate is circa the same as an IRR of 23% and it's the equivalent to what would have been 1.7x in our old payback metric. So acquisition breakeven, which is when we obviously get the breakeven on our marketing acquisition investment, has improved significantly, this time 12 months ago. So we're down to 44 months from 75 months, clearly not at our target, but nevertheless, moving well in the right direction. And that is driven by a number of factors. We're seeing lower CACs, which we'll come on to in a second. We're seeing better retention, particularly of acquisition customers. And there are some notable impacts from margin improvements. And this is an area where we continue to anticipate significant margin improvements forthcoming over the next few years. Adjusted EBITDA, we've already talked about, so I'll move on. Moving on to the bottom row, return to sustainable growth. NPS remains excellent, so no change there. Member retention rate is in line with 12 months ago. It's actually up 100 basis points on the end of last year. We are seeing, as I've indicated, already some positive signals on retention rates of new members. Given this is a 12-month metric, you're not going to see that in here yet. That will come through at the end of the year. But nevertheless, positive movements in retention overall. CAC, as I've already said, is down, and that impacts from a number of factors, but it is critical to our metrics. And revenue per member going backwards slightly. This is largely geographic mix, and there is a little bit of hesitancy in the broader industry -- in our industry, which is having a small impact on that as well. Moving on to our 3 strategic pillars. So we're happy with the progress of our KPIs, and we believe this reflects progress as we implement our new strategic plan. As I've indicated, I'm going to be covering off the first 2 of these pillars. So that's cash and profitability, and Maza is going to be talking to you later about returning to sustainable growth. So if we dive straight into cash, HY '26 sees the continuation of a strong story. So cash generation continues. As I've already said, we've seen GBP 10 million of cash generation, which has funded GBP 2 million of share buyback, which was completed in September. So that's an GBP 8 million net cash increase. And importantly, we've seen an increase in cash generation in cash in the first half of the year against normal seasonality. And of course, that reflects the ongoing improvements both in profitability but also in liquidation of our inventory. So inventory continuing to decline. We are progressing well with this with our plan to generate GBP 40 million of net cash from inventory. Whilst the majority of the big drops are likely to happen in FY '28 and '29, we continue to see improvements here, and we have confidence, particularly because the biggest portion of overstock is in U.S. expensive reds. And the good news on these is that they last for in excess of 10 years. So we continue to anticipate generating net cash from our inventory, and that's a key part of that. We also continue with our commitment to generate value from our capital. So I talked already about the share buyback we completed in September, which the Board believes was at a value that is significantly below the intrinsic value of the company. We continue to anticipate ongoing distributions and, of course, more substantial distributions in the medium term. We will, of course, consider inorganic opportunities as they arise as well. Moving on to our profitable core. Again, we're seeing solid progress with profitability as we reiterate our medium-term target of up to GBP 14 million EBITDA over the medium term, clearly making great progress with this on EBITDA and the improvements to gross margin and G&A I've talked about. Key aspects of this are obviously visible in HY '26. So I've already talked about our new acquisition breakeven KPI, which is replacing payback. This is a much better short-term focus, as I've indicated, targeting about 24-month breakeven point, and we are seeing significant improvements in this. And a key part of those margin improvements is coming out of price increases in Australia and the U.K. And also, of course, another driver is the acquisition retention improvements that I flagged earlier. As a result of this focus on profitability, we are reducing inefficient marketing investment, and that's driving in excess of GBP 5 million of efficiencies versus FY '25. And that reflects the strategy we talked about in March, where we've reduced investment in vouchers and other ineffective channels. We are, of course, focused on costs everywhere across the P&L, and we have delivered GBP 1.5 million of G&A savings, which after inflation delivers the GBP 1.1 million reduction in G&A costs that we're seeing coming through the P&L. We continue to see this as an opportunity to drive significant value. And to that end, we are implementing a ZBB strategy on our costs, which will take effect from FY '27. So continuing focus here. And I'm going to hand over now to Maza, who's going to take you through the final pillar. Rodrigo Maza: Thank you, Dom. As you know, our third pillar is focused on the work we're doing across both retention and acquisition, leveraging our engaged community of angels and winemakers to drive sustainable growth. We're also enhancing our activity around business-to-business sales, which we view as a credible source for medium-term revenue and contribution growth. Back in March, we presented our growth strategy structured around retention and acquisition and enabled by selective tech modernization. While the building blocks remain unchanged, our understanding of how they come together in an improved experience that delivers on our mission and value proposition has evolved. Our business is a loop, not a funnel. What this means is that for us to accelerate sustainable growth, we need to find more ways to tap into our engaged community of angels and winemakers. Retention is our foundation. We remain focused on facilitating discovery with improvements to our catalog and its navigation soon to be scaled. We have created more options for our customers around delivery, and we're focused on unleashing the power of our community, partnering with winemakers to tell not only their wine stories, but to present the category to existing and future angels the Naked way, tearing down the parochial approach to wine that's very prevalent in our industry. As we deliver on our retention priorities, acquisition is becoming more efficient with advocacy and word of mouth becoming its key drivers. We remain committed to acquire customers that have a real interest in Naked's value proposition, which requires us evaluating every channel investment diligently, moving away from underperformance and scaling only those that deliver sustainable customer acquisition costs. Importantly, we remain focused on making sure that the first interaction with Naked delights every new joiner. A few highlights to share on the retention front. Our entry-level range in the U.S. has produced solid results since launch. We've seen a material increase in our rate of sale without cannibalizing our segments within our -- other segments within our catalog, which is exactly what we set out to do. We are now ready to roll out our automatic credit pack guarantee to all angels after a few months of validation. We view this as a key enabler of discovery and therefore, retention. We are now offering more delivery options to our customers. And while results still need to age out, we are seeing frequency improving in the markets in which these alternatives are available. And finally, we have started to offer angels the option to purchase 3-bottle cases through careful cost management to protect unit economics. This is proving to be quite effective as a reactivation lever. Next step is to offer this on the acquisition side of things as well as it reduces the amount customers would pay for trying out Naked Wines, which could obviously have a very positive impact on conversion. As I mentioned already, it's our community that's our unfair advantage and what we need to leverage to get Naked growing again. The campaigns we've recently launched have landed very well, not only commercially, but in driving angel engagement. You are bringing the magic back. This is the type of thing that makes me proud to be Naked. These are real customer comments that show we're in the right direction. As we're starting to get data that backs that up, we've seen referrals in the U.K. reaching the highest levels in over 2 years. Now let's talk acquisition. We've run several tests regarding our acquisition offer across all markets. We've seen significant improvement to our first order contribution as a result, and we are now ready to scale the learnings globally. We have a new homepage experience live in the U.K. and the U.S. This is a massive step forward for Naked as we're now representing our customer value proposition much more clearly while also allowing customers with different levels of intent to explore Naked the way that best suits them. We are very excited about this launch and its potential impact on our growth. It's important to talk about the things that haven't worked out too. We are expecting YouTube and other video platforms to become relevant channels for us. And while they are driving an important number of sessions and improving frequency among existing angels, the fact is that conversion remains challenging. For that reason, we are divesting away from this channel while we see focus on conversion efforts yield results. The same applies for lead gen. After running holdout tests across Australian geographies, it's clear to us that this channel is fast diminishing returns and that it makes no sense for us to continue to invest in it. We plan to get this business growing through advocacy and referrals. In order to do that, we need to go bigger on the moments that best represent Naked's model. The connection between winemakers and angels and how it adds value to both needs to be front and center, and we need both of them, plus carefully selected creators to spread the word about it. While these are still the early days, we're excited with the reaction we're getting and remain convinced that this is how we'll win in the market. Now back to you, Dom. Dominic Neary: Thank you very much, Maza. So moving on to post period end trading and reiterating our FY '26 guidance. So firstly, and importantly, we are in line -- we are tracking in line with guidance. We're delivering on what we said. We are also making good progress with the strategy we set out in March. The clear progress here is visible in margin and marketing efficiencies and, of course, in cash. We continue to see that and expect progress on that and cost savings as we progress. And of course, we continue to reiterate our medium-term inventory target. We continue to be committed to ongoing distributions and engaging with our partners on our next distribution. Peak is progressing satisfactorily so far. The next 2 weeks, as ever every year are critical, and we will revert in January with a trading update. On to our guidance, there is no change to our guidance. We are comfortable with all the metrics and particularly happy with the significant improvement in EBITDA versus 12 months ago. We continue to anticipate the full $17 million of inventory liquidation costs that we've talked about before. Those are, of course, spread over the next 3 years. As we wrap up, the headline is simple. The business is moving in the right direction. Our first half performance tracks the guidance we set, and we've begun returning cash to shareholders, an important milestone. The structural changes we made earlier this year are bedding in and are already driving clearer focus, faster execution and stronger accountability. We're seeing real progress in both acquisition and retention as a result. We've also strengthened the leadership bench and our Board. Jan and Susan bring fresh perspectives and diverse expertise to Naked. We're grateful to Deirdre for her commitment and service. To end, we remain fully confident in the strategy we set out in March. We're going through peak trading with momentum. And so far, results are encouraging. Thank you all for your time. Operator: That's great. Rodrigo and Dominic. Thank you very much indeed for your presentation. [Operator Instructions] While the company takes a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via investor dashboard. And Rodrigo, Dominic, if I may now hand back to you to take us through the Q&A session to read out the questions where appropriate to do so, and I'll pick up from you both at the end. Thank you. Rodrigo Maza: Sure thing, and thank you. Dom, do you want to take the first couple of questions, which is basically the same. Dominic Neary: Yes. Thanks, Maza. Yes. So we've got 2 questions, which are on share buybacks, essentially saying, should we be moving faster on those given the shares are trading below intrinsic value. As we set out in March in our Strategy Day, this is a business that is generating cash and is going to have significant excess cash over the medium term as we increase our profitability and as we generate GBP 40 million cash from our excess inventory. We also set out at the full year results, our clear policy of ongoing distributions, which we would be making as we go forward. And so that policy is that we will distribute up to 50% of cash generation in the last 12 months or adjusted EBITDA in the last 12 months as well, the lower of those 2. And as you'll see, we've made progress with that, and we've implemented that and done our first share buyback back in September. So that's an ongoing policy that will continue. Of course, that still leaves potentially material excess cash, particularly over the coming years. And we've been very clear that we would make one-off and will make one-off distributions of that where that makes sense. What we also need to be clear about is that -- and we said this, is that the key to that is increasing our profitability and working with our financial partners to agree those one-off distributions, and that's exactly what we're doing. So really to wrap up, we are moving ahead with our ongoing distribution policy. As the business becomes more profitable and as more excess cash is generated, that will free up the opportunity to do one-off distributions. That's a question of when, not if. It's not today, but it's hopefully in the not-too-distant future. Rodrigo Maza: Thank you, Dom. We also have a question related to the revenue mix from core members versus new growth and what's our views on that? So as we've shared, we're still going through the impact of the COVID cohorts. Once that has flowed through our base, we are expecting stabilization in the next couple of years. So that then means that acquisition needs to work, right? And our position there has been very, very clear. We are committed to disciplined acquisition, which means focusing on quality over quantity, getting customers -- getting the right customers through the door, people that actually are interested in Naked for the right reasons, for our value proposition and that deliver healthy paybacks for the business. So in summary, we remain focused on keeping retention, keeping Net Promoter Score high as we go through the COVID cohorts, and we remain committed to our disciplined acquisition strategies. There's another question, how about opening a few pop-up stores for peak season and sell Christmas gift boxes and other high-margin wines? This is something that we're definitely looking into. How can we leverage partnerships to bring the Naked experience into the real world beyond our tasting tour, which is massively successful and it's the biggest wine event in the U.K. But yes, we -- this is an area we're exploring. This is an area that we like. I don't think we need help in selling our Christmas gift boxes. Actually, we're very close to selling out of them this year. Over 70,000 of those Christmas cases have already been delivered into our angels homes. So we're very pleased about that. And yes, Christmas season is going well so far. Dominic Neary: Yes, I'd add we have a fantastic wine calendar as well, which -- advent calendar, which I have one of myself at home. And if there are any left at the end of the street when I go home, I'll be having some of that myself. Operator: That's great, Rodrigo, Dominic. Thank you for addressing all those questions from investors today. And of course, the company can review all questions submitted today, and we will publish those responses on the Investor Meet Company platform. But Rodrigo, before I redirect investors to provide you with their feedback, which I know is particularly important to the company, could I please just ask you for a few closing comments? Rodrigo Maza: Yes, of course. Well, first of all, thanks, everyone, for your time. We really appreciate it. We continue to be excited about Naked's future, and we remain very confident in our plan. Thank you for your time, and happy holidays. Operator: Fantastic, Rodrigo, Dominic, thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide feedback in order that the Board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Naked Wines plc, we'd like to thank you for attending today's presentation, and good morning to you all.
Operator: Ladies and gentlemen, welcome to Tims China's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. At this time, I would like to turn the call over to Gemma Bakx, who heads Tims China Investor Relations efforts for prepared remarks and introductions. Please go ahead, Gemma. Gemma Bakx: Thank you, Desmond, and hello, everyone. Thank you for joining us on today's call. My name is Gemma Bakx, Head of Investor Relations for Tims China, and Tims announced its third quarter 2025 financial results earlier today. The press release as well as an accompanying presentation, which contains operational and financial highlights are now available on the company's IR website at ir.timschina.com. Today, you will hear from Yongchen Lu, our CEO and Director; and Albert Li, our CFO. After the company's prepared remarks, the management team will conduct a question-and-answer session. You can find the slide presentation and the webcast of today's earnings call on our IR website. Before we get started, I'd like to remind you that our earnings presentation and investor materials contain forward-looking statements, which are subject to future events and uncertainties. Statements that are not historical facts, including, but not limited to, statements about the company's beliefs and expectations are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and our actual results may differ materially from these forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and risk factors included in our filings with the SEC. This presentation also includes certain non-GAAP financial measures, which we believe can be helpful in evaluating our performance; however, those measures should not be considered substitutes for the comparable GAAP measures. The accompanying reconciliation information related to those non-GAAP and GAAP measures can be found in our earnings press release issued earlier today. With that said, I would now like to turn it over to Yongchen Lu, our CEO and Director. Please go ahead, Yongchen. Yongchen Lu: Thank you, Gemma. Good morning and good evening, everyone. In Q3, we returned to positive net new store openings and continued our strong momentum in system sales, achieving a 12.8% year-over-year growth. With our successful Light & Fit Lunch Box platform products launched in Q2, we further enhanced our differentiated Coffee Plus Freshly Prepared Food strategy, driving a positive 3.3% same-store sales growth for company-owned and operated stores. As a result, food revenues increased by 24.2% year-over-year and food revenue contribution as a percentage of sales reached our historical high of 36.5%, an increase of [ 5 ] percentage points from 31.5% in the third quarter last year. We are also benefiting from the promotional offers from those delivery aggregators to take more market share, delivery revenues increased by 23.1% year-over-year. At the same time, our sub-franchisee and retail business maintained their steadily growing contributions to cash flow and profitability. Profits from other revenues achieved a year-over-year increase of 58.2% during the quarter. For the first 9 months of 2025, our adjusted company-owned and operated store contribution margin was 8.1%, same as that for the first 9 months of last year. Our adjusted corporate EBITDA and adjusted net loss, we continue to cut loss by 10.4% and 11.5%, respectively. These results underscore our team's resilience and discipline in execution. On store development, leveraging sub-franchisee partnerships, we expand our store footprint into 91 cities, including the city of Yanji in Jilin Province, Yangzhou in Jiangsu Province and Wuhu in Anhui Province that we entered in Q3, while maintaining capital efficiency and delivering value -- absolute convenience for our guests. Since we launched our individual franchise program in December 2023, we have received over 8,400 applications and successfully converted over [ 300 ] stores by the end of September, showcasing market confidence in our franchise model. We have attractive and desirable store unit economics for our subfranchisees with reasonable 2 to 3 years payback period on average. We are also focused on strategic channel development with 64 stores in locations such as high-speed train stations, airports, highway rest areas, hospitals, universities and schools at the end of September. As of the end of September 2025, our Registered Loyalty club members reached 27.9 million, reflecting a remarkable 22.3% year-over-year growth. The average number of members per store is now over 27,000, serving a strong catalyst for our future growth. Q3 represents the peak season for China's beverage market. This summer experienced record high temperatures, driving robust consumer demand for fresh prepared beverages, albeit a heightened price sensitivity. Compounding this dynamic, the coffee sector faced intensified competitive pressure from the rapidly expanding tea beverage categories, not only due to strong demand for non-coffee alternatives, but also because leading tea brands have begun entering the coffee space, further intensifying market competition. Our strategic initiatives, including a celebrity partnership during the Bagel Festival and enhanced summer beverage portfolio and target seasonal lunchtime operations enabled Tims China to return to positive same-store sales growth in Q3. We partnered with Lars Huang [indiscernible], a highly influential Gen Z celebrity to elevate brand awareness and drive engagement. The collaboration was integrated with compelling product angles to convert interest into purchases, supported by targeted promotions to encourage repeat visits. This holistic marketing approach delivered strong results. July marked our highest sales month of the year and the September Bagel Festival drove double-digit same-store sales growth, significantly outperforming the broader market. Building on the [ Cold Blue ] platform launched in Q2, we execute a series of monthly innovations throughout Q3 centered around refreshing some appropriate leverages. This was an intentional offensive strategy, leveraging a balanced portfolio of trended SKUs spanning coffee and non-coffee categories to capture incremental share in the summer beverage market, particularly among younger consumers whose preferences align closely with our endorsed audience. We anticipate competitive encroachment from key brands and responded decisively, reinforcing our coffee leadership through premium offerings like Cold Blue and Water Buffalo Milk [ lactase ] while deploying non-coffee SKUs to directly compete for tea drinkers wallet share. Notably, this dual check approach resonated strongly with our target demographic, contributing meaningfully to beverage sales growth. Following 6 months of focused launch time development, we proactively adapted our food strategy in Q3 to counter seasonal softness by introducing 6 new SKUs featuring chilled and [indiscernible] options to stimulate consumer interest and maintain meal relevance. In order to sustain momentum from our ongoing launch time expansion strategy, we also introduced seasonal cold food offerings tailored to evolving consumer preferences during hot weather. Additionally, we expanded our afternoon tea offerings with chilled variant of cakes and Smile Bagel of SKUs. The launch of the Smile Bagel series further reinforces our leadership in the bagel category and enhances our competitive differentiation. These initiatives have firmly helped cement Tims reputation as the go-to lunch destination in consumers' mindset. Thanks to our efforts over the past 3 quarters, more than half of all orders now include food and food sales make up over 1/3 of total revenues. At this time, I would like to turn it over to our CFO, Albert Li, to discuss our third quarter financial performance in more detail. Dong Li: Thank you, Yongchen. We remain focused on delivering high value for quality healthy products and thoughtful services to our ever-growing customer base. Our overall monthly average transacting customers reached 3.85 million in Q3 2025, a 16.7% increase from 3.3 million in the same quarter of 2024. Additionally, digital orders as a percentage of total orders rose from 86.6% in Q3 2024 to an all-time high of 91.0% in Q3 2025. We continue to enhance our digital capabilities to meet the growing demand from delivery and takeaway services. In Q3, our company-owned and operated store revenues dropped by 5.5% year-over-year, which was primarily due to the planned closure of certain underperforming stores, partially offset by a 3.3% increase in same-store sales growth for company-owned and operated stores. We have also achieved positive transaction growth in Q3, driven by strong momentum from food orders and delivery orders. In the meantime, revenues from our franchised business and retail business increased by 25.0% year-over-year. The number of our franchised stores increased from 382 as of September 30, 2024, to 479 as of September 30, 2025. Accordingly, our system sales increased by 12.8% year-over-year. Moving to cost and expenses for company-owned and operated stores since we offered higher discounts during the quarter, especially to others through those delivery platforms, food and packaging costs as a percentage of revenues from company-owned and operated stores increased by 1.6 percentage points year-over-year. Food and packaging costs accounted for 30.6% of our company-owned and operated store revenues during the quarter, and we maintained relatively stable labor cost, rental and property management fees and other store operating expenses as a percentage of revenues from company-owned and operated stores in Q3. Delivery costs as a percentage of revenues from company-owned and operated stores increased by 2.9 percentage points to 13.2% in the third quarter of 2025 compared to 10.3% in the same quarter of 2024, which was primarily due to the higher delivery revenue mix as a percentage of total revenues from company-owned and operated stores. The number of delivery orders from company-owned and operated stores increased by 20.9% year-over-year. Benefiting from our improved brand influence, marketing expenses as a percentage of total revenues accounted for approximately 4.4% during the quarter, representing a 0.7 percentage point decrease from 5.1% in the same quarter of 2024. Adjusted general and administrative expenses increased by 23.2% year-over-year, which was primarily due to an increase in outside service fees related to audit, IT and business travel, an increase in credit loss of accounts receivable, partially offset by a decrease in headquarter staff compensation costs and a decrease in depreciation and amortization. Adjusted general and administrative expenses as a percentage of total revenues increased from 10.7% in the third quarter of 2024 to 13.2% in the same quarter of 2025. As a result of the foregoing, adjusted corporate EBITDA margin was negative 4.2% in the third quarter of 2025 compared to positive 0.6% in the same quarter of 2024. Turning to liquidity. As of September 30, 2025, our total cash and cash equivalents, time deposits and restricted cash were RMB 159.3 million compared to RMB 184.2 million as of December 31, 2024. The change was primarily attributable to cash disbursements on the back of the expansion of our business, partially offset by the drawdown of additional bank borrowings. Looking ahead, with profitable growth always being front and center of everything we do, we are posed to further enhance our operational efficiencies such as supply chain capabilities and optimizations and rigorous cost controls to roll over our differentiating make-to-order fresh and healthy food preparation model to drive traffic, to optimize the overall store unit economics and to accelerate the expansion of our successful sub-franchising. I will now turn it over to Yongchen for concluding remarks followed by Q&A. Yongchen Lu: Yes. Thank you, Albert. Our third quarter performance reflects continuous improvement and the resiliency in our business and execution as well as both challenges and opportunities in this industry. We extend our heartfelt gratitude to our guests, team members, business partners, shareholders and everyone supporting our endeavors and journey. Together, we have built over 1,000 stores in 91 cities, a robust community of nearly 28 million loyalty club members, a unique coffee plus freshly prepared food business model offering the best value for quality products, a unique advantage of offering franchise opportunity as an international coffee brand in China and refined store unit economics with attractive payback period within 2 to 3 years on average. With these milestones, we are steadfast in our commitment to sustainable profit growth and to generating long-term value for our shareholders. We're excited to announce the successful issuance of approximately USD 89.9 million senior secured convertible notes due September 2029. The restructuring of our unsecured convertible notes due 2027 and the repurchase of all outstanding amount due under our variable rate convertible senior notes due 2026. These strategic transactions enable us to focus on the development of our overall store network and the core Tim Hortons brand nationwide. I will now turn to the call over to Gemma for today's Q&A session. Gemma? Gemma Bakx: Thank you very much, Yongchen. We will turn it over to Q&A and open it up for registered questions. Let's begin with the first question. Go ahead, operator. Operator: [Operator Instructions] Our first question comes from the phone line of Steve Silver from Argus Research Corporation. Steven Silver: Congratulations on the system and same-store sales growth. With the closing of the new convertible notes transaction in Q3, I was hoping you could provide just the company's latest thinking on its liquidity status and its long-term financing plan. Dong Li: Okay. Sure. Thanks, Steve, for asking this question. I will take this one. Okay. So we -- with the successful issuance of the USD 89.9 million 2025 senior secured convertible notes, I think the company -- we have used the part of the proceeds to fully repurchase the entire remaining amount of our 2021 variable notes actually due 2026. And actually, in the meantime, we have also extended the due date of our 2024 unsecured convertible notes from 2027 to the same time line of September 2029. So actually, after the closing of the transactions, the company does not have any near-term offshore liabilities so that actually we can focus more on our daily operations. And we believe these financing would also help reduce our onshore leverage ratio actually quite significantly. So I think we will also benefit greatly to actually get more in terms of the onshore bank facilities in terms of the expansion and the renewal from the PRC commercial banks. And I think as we have also mentioned, so in order to take the advantage of the lower rent level at the current market environment, and also to roll out our attractive mid- to outer store model. So I think we are also working very hard in terms of securing additional alternative debt or equity financing in order to support the development of our company-owned and operated store network. And so lastly, I also want to mention with the further improvement of our store and corporate level margin. So we are expecting to generate positive operating cash inflows. So we will become more and more self-sustainable in terms of to support the long-term sustainable growth of our business. So hopefully, I have addressed your question, Steve. Steven Silver: Yes, that was helpful. So in Q3 specifically, it looks like there was some pressure on the store contribution margins. It sounds like gross margin and delivery costs were impacted a bit. Do you expect that trend to continue over the near term? And maybe what the company's thoughts about the margin profile moving forward? Yongchen Lu: Okay. Yes, Steve, I will take this one. Thank you for your question. Yes, the lower store contribution margin in Q3 was mostly because of higher delivery revenue mix led by the delivery war in China. Those platforms gave aggressive subsidies trying to taking market share from the competitors. We would think this would be temporary play in our view. So in the first 9 months of 2024 and 2025, our company-owned store contribution margins was consistent at 8.1%. And we aim to further expand that to mid- to high teens by enhancing gross margins and driving same-store sales and also the network optimization. Essentially, we continue to close some high rent loss-making stores and we open high-quality new stores. So we plan to further improve our gross margins through supply chain optimization, increased pricing on delivery platforms, high-margin new product launch and optimize the recipe of existing core products. So by doing so, we expect, okay, we'll achieve double-digit store level margin next year. Steven Silver: Great. And one last one, if I may. The company has discussed focusing on strategic special channel stores under the franchise model. Curious if there's any information about the performance of some of these stores. Yongchen Lu: Yes, sure. So I mean, as of the end of September, of 2025, we have over 60 stores in those special channels, including high-speed road stations, airports, highway rest areas, hospitals, et cetera. Those stores at the special channels performed very, very well, generating store contribution margin of mid and even high teens EBITDA margin and the payback is around 2 years. So I mean, we have gained a lot of interest from the [indiscernible] franchise, which have access to those special channels. In China, there are thousands -- tens of thousands such a special channel locations. So we have seen a great momentum in these channels, and we're expecting to open much more next year. Operator: [Operator Instructions] At this time, there are no further questions. So with that, that concludes today's question-and-answer session. I would like to hand the call back to Yongchen for closing remarks. Yongchen Lu: Yes. Thank you so much for your time. And we are very glad we returned the growth on system sales and also more important on the same-store sales. So we're expecting another progress towards the end of the year and much even better next year. Thank you. Dong Li: Thank you. Gemma Bakx: Thank you all very much. Operator: That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Andreas Trösch: Hello, everyone. This is Andreas Trösch from Investor Relations. Also on behalf of my entire team, I wish you a very warm welcome to our conference call on the full year results '24-'25. With me in the room are our CEO, Miguel Lopez; and our CFO, Axel Hamann, plus my colleagues from the Investor Relations team. I have some housekeeping before I hand over to the CEO and CFO for the presentations. All the documents for this call are available in the IR section on the website. The call will be recorded, and a replay will be available shortly after the call. After the presentation, there will be the usual Q&A session for analysts. [Operator Instructions] And with that, I would like to hand over to our CEO, Miguel Lopez. Miguel Angel Lopez Borrego: Thank you, Andreas, and hello, everyone. Welcome to our conference call for fiscal year '24-'25. Please let me start with a recap from our key strategic milestones in the recent year. At last year's conference call, we proclaimed the year of decisions, and we have taken many. The presentation of our new strategic future model, ACES 2030 was one decisive step ahead. ACES 2030 provides the operating framework for our transformation, which we are already implementing with determination and at high speed. We also successfully listed TKMS by a spin-off on the stock exchange. Other businesses will follow as soon as we have put them in a profitable position that means ready for the capital market. We are, moreover, negotiating with Jindal Steel about the potential sale of our steel business. This is based on the industrial future concept developed by the Executive Board of Steel Europe, the road map for modern competitive and sustainable steel production. The collective restructuring agreement entered into with IG Metall in the past week is creating the required framework to implement this concept step by step. The milestones reached so far demonstrate that we are already in the middle of the year of execution and are driving the transformation with all our energy. Let's now take a look ahead. We have a clear vision for the future. We are realigning the group. The long-term goal is the gradual transition towards stand-alone businesses that are also open to third parties. We are jointly transforming thyssenkrupp into a financial holding company with strong independent entities under the umbrella of thyssenkrupp. The stand-alone solutions for the segments will significantly strengthen their entrepreneurial freedom and offer them new growth prospects, more decision-making power, greater flexibility to make investment and marketing decisions and individual access to the capital market. At the same time, the new structure offers increased accountability and more transparency for the businesses. These are both significant levers for improving performance. Overall, we build stand-alone structures for our segments, subject to their capital market readiness. This comprises not only a forward-looking strategy, but also a convincing performance. In those businesses where a stand-alone solution is not yet possible, we will continue to focus on performance and competitiveness. In this process, we are also realigning the corporate functions in the future headquarters with focus on the financial management of the entire portfolio. This realignment will probably take several years, and we approach it with determination and clear objectives as well as with sound judgment. Let's now look a little closer at TKMS, our actual first stand-alone business and what we already have achieved there in terms of value crystallization. We have completed the spin-off, unlocking significant value for our thyssenkrupp shareholders. Please let me remind you about some details of the spin-off. 49% of the TKMS shares were distributed to existing tkAG shareholders, while 51% remain with us as fully consolidated segment. Shareholders of thyssenkrupp received 1 TKMS share for every 20 tkAG shares. TKMS is now from October 20, listed on the Frankfurt Stock Exchange, posting capital market visibility in excess. And there are also good news from the last week, TKMS will be listed in the MDAX. Within just a few weeks, TKMS has managed to establish itself among the top 90 listed companies on the German Stock Exchange. Overall, this transaction delivered over 14% value creation for thyssenkrupp shareholders on the first day of TKMS trading. On top of the preceding tkAG share price increase of approximately 240% in fiscal year '24-'25. On our way towards the financial holding company, the TKMS spin-off might serve as a blueprint for the other segments. And now Axel, please go ahead with your financial section. Axel Hamann: Thanks, Miguel. So overall picture upfront. Persistent market headwinds more than offset by straight performance management. We basically saw pretty weak demand across most customer groups and regions throughout the year. In addition, geopolitical uncertainties persisted, for example, from global tariff developments. With regard to sales, we saw further market induced declines in the fourth quarter, minus 6% and consequently, over the entire fiscal year, around minus 6%, meaning EUR 2.2 billion sales decrease. On top of the minus 7% in the financial year '23-'24, that's even more proof of a solid performance considering a top line drop of almost EUR 5 billion in 2 years, while keeping our EBIT adjusted stable. Let's talk about EBIT adjusted. Despite the mentioned top line development, we saw a strong fourth quarter with EUR 274 million, leading to a financial year figure of EUR 640 million, an increase of EUR 72 million year-over-year. So the earnings increase is also an outcome of our rigid restructuring efforts. For example, FTE reduction of 4,800 year-to-date and thereof, you can attribute more or less 1,500 to Steel Europe. Regarding net income, we've ended in positive territory. Fourth quarter benefited significantly from the elevator valuation effects as expected and anticipated. That was EUR 902 million in the fourth quarter, therefore, leading to a quarterly net income of EUR 653 million. As a reminder, we also saw a negative tax effects of more or less EUR 150 million in the third quarter, resulting from the Marine spin-off in addition to the unfortunately usual overall impairments of approximately EUR 800 million in our financial year '24-'25. Of that EUR 800 million, approximately EUR 600 million are attributed to Steel Europe. Let's talk about free cash flow before M&A, third year in a row positive with EUR 363 million. That's an increase of EUR 253 million year-over-year, supported by a strong fourth quarter with, let's say, the usual net working capital seasonality pattern and also benefiting from a Marine Systems prepayment that already happened in the first quarter. So please keep also in mind the financial year '24-'25 free cash flow before M&A also includes the cash out for restructuring of approximately EUR 250 million. Talking about our net cash position, that's almost EUR 5 billion following the positive cash flow development and for example, the proceeds from the sale of our Electrical Steel India business. So that's a sound basis for all the portfolio topics to achieve the target picture of a financial holding company in the future. So overall, we've met our updated guidance for sales and EBIT adjusted and net income and free cash flow before M&A came in even slightly better. So let's talk about sales and EBIT adjusted development. As already mentioned, sales decline of more than EUR 2 billion have been offset in EBIT adjusted. This is again a pretty clear proof of our increasing underlying resilience. That means we tackle what can be tackled by ourselves. With regard to sales, we saw a decline across almost all segments, except Marine Systems. I'm sure you've heard about that yesterday in the investor call. Lower demand, especially from the automotive sector weighed in on automotive technology, but also on steel and materials in addition to some unfavorable pricing. EBIT adjusted, lower part of the chart, it's a mixed picture for the different segments, some declines, but also some increases. For example, Decarbon Technologies, that's up by EUR 126 million, also considering negative onetime effects in the prior year. Steel Europe also benefited from a mix of, for example, lower D&A, but also decreased raw material prices as well as some additional restructuring efforts. Let's come to Automotive Technology. Overall, soft demand, pretty tough market environment that led to declining sales, down by 7% year-over-year. Highlight, obviously, we saw growth at Bilstein, fueled by aftermarket activities. EBIT adjusted market headwinds mitigated to a large extent on the back of internal performance efforts such as restructuring and efficiency initiatives. EBIT adjusted came in at EUR 187 million, down by minus EUR 58 million year-over-year. So also here, we saw a decline in personnel expenses following our restructuring efforts that was outweighed, unfortunately by lower volumes, underutilization in project businesses as well as some negative onetime effects. Cash flow ended in positive territory at Automotive. Year-over-year decline, however, in the financial -- in the entire year, mainly driven by our restructuring cash outs. Let's talk about Decarbon Technologies. Overall, there, we saw an ongoing hesitant market environment with some project deferrals or postponements from our customers. So that translated into a weak order intake and therefore, also declining sales of minus 10% over the entire year, especially that's the case in the new build business and at chemicals and cement plants. So considering the sale of tk Industries India in the previous year, the organic sales decline was only down by minus 4%. Coming to EBIT adjusted, strong increase of EUR 126 million to EUR 71 million over the entire year '24-'25, almost all businesses with increased contributions, for example, also supported by performance measures and efficiency gains. In addition, prior year was negatively affected by significant a periodic higher costs in the range of a high 2-digit million euro amount at the cement business. Business cash flow, we saw a pleasant increase of EUR 192 million over the entire financial year. That's due to higher earnings as well as positive cash profiles in the project businesses. Let's continue with Materials. Also there, we saw challenging market conditions in Europe. Demand and price levels remain pretty weak across our key product groups. And as a result, sales fell by 6% with shipment volumes significantly lower, primarily due to weakness in the direct-to-customer business. However, North America showed some resilience. That's why we saw some slight growth in the North American distribution business that helped partially offset the downturn in Europe. Talking about EBIT adjusted, all business units remained profitable despite market headwinds and Supply Chain Solutions contributing here the highest share of our earnings. Overall, EBIT adjusted came in at Materials at EUR 132 million, down by EUR 71 million year-over-year. Business cash flow also down year-over-year, and that's mainly due to the lower net working capital release compared to the previous year. So let's continue with Steel Europe. Market conditions in Europe remain challenging with both demand and pricing. Consequently, sales decreased at steel by 9% and shipments fell by 6%, especially the European automotive industry and the industrial businesses remained quite weak. Higher volumes were seen at packaging and electrical steel, but those could only partly compensate the decrease. EBIT adjusted. So actually, due to the lower top line and despite the lower top line, EBIT adjusted increased to EUR 330 million. That was mainly driven by several positive effects, including restructuring efforts and also some more favorable raw materials prices. With regard to business cash flow, business cash flow was increased year-over-year, and that's mainly driven by a higher earnings base, as mentioned, the EUR 337 million EBIT adjusted as well as a higher net working capital release at the end of the year. Marine Systems, global markets show unchanged strong demand for defense products, including submarines and surface vessels as well as electronics, all three of our business units. As a consequence, the backlog of our Marine Systems business stands at a record level of EUR 18.2 billion, including new equipment orders as well as a very new service contract. So let me also briefly comment on Marine Systems as a segment of thyssenkrupp. As mentioned, I hope you've all been part of the investor call and the reporting of TKMS yesterday, all relevant KPIs, including sales, EBIT adjusted business cash flow are up and developing in the right direction. One highlight for sure, the strong increase in business cash flow on the back of the new submarine orders from Germany in the first quarter. So let's talk about our known EBIT adjusted bridge to net income bridge. Here, you can see that we are also in a transition period, especially in terms of special items. That's quite obvious. We see a mix of several effects, such as impairments, mainly in steel, some necessary restructuring, mainly automotive, but also some positive effects resulting, for example, from the sale of our Electrical Steel India business. Looking at our equity results. As of end of the fiscal year '25, we've changed the valuation approach of our elevator stake from equity towards a fair value approach. And that led to a positive valuation effect of around about EUR 900 million, which is included also in finance and others. With regard to taxes, we've talked about that in Q3, that position includes a devaluation of deferred tax assets resulting from our Marine Systems spin-off of more or less EUR 150 million. Overall, we're coming in at a positive net income of EUR 532 million. Next chart is the reconciliation from net income to free cash flow before M&A. That means basically the -- from the sale of Electrical Steel India that is not included and therefore, adjusted. We see the usual reconciliation elements to the operating cash flow, mainly including D&A, reversal effects from the mentioned elevator valuation and some positive net working capital effects also on the back of our known efficiency improvements as part of APEX. Let me make one general comment on the investments. Approximately 50% referred to Steel Europe. That is also in connection with the construction of the DRI plant in Duisburg. Overall, we saw a positive free cash flow before M&A the amount of EUR 363 million. Let me now come to the outlook for the running financial year '25-'26. Overall, that year will be a year of implementation with continued focus on performance and restructuring, while markets remain quite uncertain. We see ongoing tough market environment, especially in auto, with some slight hopes of first order intake coming from defense and infrastructure governmental programs, but not yet really certain or visible at the moment. Therefore, we do see a slight sales increase of around about 1% -- up to 1%. With regard to EBIT adjusted, depending on the top line development, as mentioned before, we see an EBIT adjusted of up to EUR 900 million. Like in the past year, ongoing restructuring efforts will be quite visible in free cash flow before M&A. And considering that our planned restructuring cash out amount to EUR 350 million, we expect free cash flow before M&A to come out in the range of minus EUR 600 million to EUR 300 million after 3 positive years that we just reported today. So as a reminder, driven by the typical cash flow pattern you've also seen in the last years and from today's perspective, Q1 is to be expected significantly negative from a free cash flow perspective, might even be a negative 4-digit figure, but that would, as in the last years, then reverse in the course of the following quarters. The recently agreed upon restructuring program at Steel and the corresponding restructuring provisions are obviously visible in our net income guidance for the actual financial year. And we estimate that in a range of minus EUR 800 million to minus EUR 400 million for the entire group. On a pro forma basis, considering the restructuring effects mainly at Steel Europe, the net income would end up around breakeven. Let's also take a look beyond the financial year '25-'26. Our midterm targets are clear and confirmed and remain valid. We are striving for an EBIT adjusted margin of 4% to 6% that will also lead to a significant positive free cash flow before M&A as well as reliable dividend payments. We will step-by-step bring the performance up by executing our agenda. One recent example that I also want to highlight against this background, at the end of November '25, we initiated the sale of Automation Engineering, a part of Automotive Technology. That's one of the three business units that are no longer part of our core automotive business. And with the signing of this agreement, our segment Automotive has taken an important step in its transformation process that will ultimately also boost performance. And with that, Miguel, back to you. Miguel Angel Lopez Borrego: Thank you, Axel. Before we come to our Q&A, I would like to share a few reflections and outline the way forward. A year of decisions is behind us, a year in which we bravely embarked on new paths and set the course for the future. We are developing thyssenkrupp into a financial holding company and thus strengthening the independence of our segments. This will then increase their accountability, entrepreneurial freedom, encourage innovation and unlock new growth prospects. In the current fiscal year, we are already in the middle of the execution phase, having reached first milestones by the successful stock market listing of TKMS and the signing of the collective restructuring agreement at Steel Europe. For the transformation of thyssenkrupp, we are pursuing an individual approach for each segment and ensure that we create the conditions for sustainable success, either by finding a stand-alone solution or initially by boosting competitiveness. Moreover, leveraging opportunities from the green transformation and making necessary restructuring investments will be crucial for positioning thyssenkrupp for future success. And with that, we wrap up today's presentation. Thank you all for your continued interest and trust. We are now ready to take your questions. Andreas, over to you. Andreas Trösch: [Operator Instructions] The first question today comes from Boris Bourdet. Can you hear us, Boris? Boris Bourdet: Sorry, mute was locked. I have 3 questions. The first is on the guidance and especially on the Steel Europe business. You are guiding for an EBIT adjusted that should be between EUR 225 million and EUR 325 million, which compares to EUR 337 million this year. So I'm curious to know the reasons for this cautiousness. Can you tell us how much is positive one-offs that won't recur next year? And what's the scenario in steel, having in mind that there will be a support from the European Commission and CBAM? That's the first question. Axel Hamann: Okay. Thank you, Boris. So guidance still for the next year, and you've mentioned positive effects for this year. First of all, the somewhat higher EBIT adjusted in the previous year was also on the back of some positive effects that we're not going to see in this year. That is why you see instead of the EUR 337 million, you see the EUR 325 million to EUR 325 million. And you've mentioned CBAM, that is something we would see as an opportunity beyond what we've guided. Boris Bourdet: Okay. And then can you quantify the one-offs last year? Axel Hamann: The one-offs last year, I'd quantify them between EUR 100 million and EUR 150 million. Boris Bourdet: Then my second question would be on the negotiations with Jindal. What would you say are the key topics of negotiations and the main obstacles you might be having to face in the negotiations? And how confident are you? And what would be the time frame for an agreement with Jindal? Miguel Angel Lopez Borrego: Yes. Thank you very much, Boris. Of course, during M&A processes, it is always very difficult to really get a timing precisely. The only thing that I can now state here is we are in the due diligence phase. The due diligence is running as expected. And we need to take it from here. So everything is positive, no major roadblocks. So we take it from here. Boris Bourdet: And then my last question is on HKM. There have been some headlines recently mentioning that Salzgitter was ready to operate HKM on its own on a reduced -- with a reduced scope and that thyssenkrupp, yourself and Vallourec might be required to provide some funds to help them adjust the business. So is this pure fantasy? Or is it likely a scenario in your view? Miguel Angel Lopez Borrego: Well, the statement we made is that in future, we don't need the capacity of HKM, and we are very positive about the fact that Salzgitter is looking at the future of HKM production on its own. And of course, we are prepared for positive and constructive talks and also negotiations. So we are happy that they see the future for HKM and we are looking forward to their further offerings. Boris Bourdet: Okay. Will that be already included in your provision for restructuring that you booked? Miguel Angel Lopez Borrego: That's correct. Boris Bourdet: Okay, so there is no risk from negotiations with Salzgitter of you having to add new provisions or new investments in the future of HKM? Miguel Angel Lopez Borrego: Not at this time. Andreas Trösch: And the next question comes from Bastian Synagowitz. Bastian Synagowitz: Hopefully, you can hear me now? Andreas Trösch: Yes. Bastian Synagowitz: So just starting off maybe on the portfolio side and actually with automotive engineering. And that's been a business which, from memory, I think thyssenkrupp really struggled to handle and basically sell over almost like probably more than 10 years. So it's really good to see that you're basically making progress here. Could you maybe give us any color on how far this business has been contributing? Any losses to your 2025 numbers? And then also maybe related to this and also related to, I guess, all of the other moving parts, are there any other one-off items we should be keeping in mind for the first quarter already across the different businesses? This is my first question. Axel Hamann: So with regard to -- Bastian, with regard to your first question, AE, Automation Engineering, the fact that this is part of the three business units that we kind of separated or do not account for our core business anymore gives you an indication that this may not be -- not have been the most profitable business in the past. And that is why we are divesting now a substantial part of Automation Engineering. With regard to one-offs in the first quarter for the entire, let's say, financial year, I think we've touched upon in our presentation that we are foreseeing some provisions for restructuring. And that is basically the reason why you also would see the -- in our guidance, the negative net income. And if you ask me for one-offs, that is probably the one you should pay attention most. We're going to see due to the fact that we're entering into a year of implementation, we're going to see quite a lot of restructuring provisions. Bastian Synagowitz: Okay. Understood. I was also referring -- so first of all, I wanted to check whether there's maybe even like a loss contribution number you could give us for automotive because I guess, if you're selling it, that's actually very positive because you can basically cut off those losses. So just if you have that number. And then maybe in terms of one-offs, I guess there were also a couple of articles suggesting that there were some issues around, for example, the hot rolling line. So is there anything on the operational side, maybe we should be keeping in mind for the first quarter as a starting point? Axel Hamann: Yes. As mentioned, the fact that we are divesting the business is an indicator that this may have not been the greatest, let's say, performance contributor. And with regard to steel, we need to take that quarter-by-quarter, whether we would need to account for additional impairments or not. Let's see once we get there. Bastian Synagowitz: Okay. Sounds good. Fair enough. Then my next question is on [ D Tech ]. And here, I was wondering whether you could maybe give us an update on the trends you're currently seeing in your different subunits? Do you see maybe any signs of demand picking up in either road or the plant engineering units where last year has been obviously a little bit more difficult. I guess, quite frankly, it's not been a great year to take big investment decisions. But do you see whether anything is changing? Or do you think 2026 will be mostly driven by your big efforts here on cost cutting? Miguel Angel Lopez Borrego: In general, we still see that FID decisions on customer side are taken with great analysis and resilience. And so the pipeline is really quite full of projects that need to be then decided on. And so my expectation really is here that we will see some realization of FIDs in the next 12 to 24 months. So it is still, again, many, many regulations to be still decided upon, fixed by many governments out there. And that's the reason why, again, the pipeline is full. And we are preparing ourselves for being, as mentioned many times, for being really competitive. And as soon as FIDs are coming to be there and execute in the best manner. So this is my summary from today's perspective. Bastian Synagowitz: Okay. Great. And then maybe my last question, coming back also to the Jindal transaction within the scope of what you can say versus what you can't say. But could you maybe give us an update here? As it stands, would you lean to possibly retain a minority stake in the business? I guess there were a couple of headlines from your press conference earlier suggesting that. And has the targeted shareholder structure changed versus, I guess, the earlier starting point of the indicative bid? And then also here related to that and on the financing of the steel unit, which you announced together, I guess, with the successful finalization of the restructuring agreement with the unions, how is the financing structured? Have you basically have you injected a certain amount of capital, which the business now needs to run with? Or have you guaranteed any financing requirements until, I guess, the 2030 time line, which was mentioned in how is this financing structured basically? That would be my question. Miguel Angel Lopez Borrego: Thank you. So the discussions with Jindal are clearly focused on them taking a majority. And let's see how the majority will finally look like. This is a topic that obviously will be regarded at the end of the negotiations in much more detail. But the clear orientation is to get them a majority. Around the financing discussions, you know that we have been agreeing with the unions around the collective prepayment agreement that the financing is secured. And we won't provide any further detail around that. I hope you understand it. Andreas Trösch: [Operator Instructions] And the next question right now comes from Tommaso Castello. Tommaso Castello: I have two. The first one is on your free cash flow generation before M&A. You're guiding for negative values despite only a small increase in investments and EUR 350 million from restructuring, but you had EUR 250 million this year. So if you could spend some words, give us some color on what are the other drags there? Axel Hamann: Sure. Thanks, Tommaso. You're right. Our negative free cash flow is mainly burdened by restructuring cash outs. And the question in terms of difference year-over-year, maybe two aspects. We saw a significant milestone payment from Marine last year that we would not foresee to the extent this year. Tommaso Castello: And then maybe if I can go back to your Steel Europe division. Do you expect any further impairments next year? Axel Hamann: Yes, cannot be excluded. Let's see how the restructuring efforts kick in. But you're probably aware that we need first some data points on the improvements before we can exclude potential impairments. So at this point in time, short answer is, cannot be excluded. Andreas Trösch: Thank you very much for your question. There seems to be no more questions at this time. So thank you very much, everyone, for joining us here at the call. If you have more questions during the day, then please let us know at the Investor Relations team. Thank you so much, and have a great day.
Operator: Hello, and welcome to the Ashtead Group plc Q2 Results Analyst Call. I will shortly be handing you over to Brendan Horgan and Alex Pease, who will take you through today's presentation. [Operator Instructions] For now, over to Brendan Horgan at Ashtead Group plc. Brendan Horgan: Thank you, operator, and good morning. Thank you for joining, everyone, and welcome to the Ashtead Group Half 1 and Q2 Results Presentation. I'm joined this morning by Alex Pease and Kevin Powers, with Will Shaw on the line from London. Let's get into it, beginning as usual with safety on Slide 4. I'll begin by addressing our Sunbelt team members to specifically recognize their leadership in the health and safety of our people, our customers and the members of the communities we serve. Our total recordable incident rate and lost time rates that you see here continue to be best-in-class. However, despite these results and momentum behind our Engage for Life program, there are incidents that remind us there is never a finish line in safety, rather improvement milestones, nor is there room for complacency. With this said, I'll share with our team members that in 2026, we'll be taking on a significant effort to conduct Engage for Life culture and compliance assessments at every one of our branches. These third-party reviews will address local health and safety compliance, leadership engagement, along with a deep dive into the systems and programs our locations have in place to manage tasks that could potentially lead to a serious event, if not controlled properly. The safety of our team will always be the top priority at Sunbelt, and this will be one of the most important initiatives that we have in calendar year '26. So thank you for your dedication and engagement thus far and, in advance, for welcoming these assessments in the months to come as we continue to pursue perpetual improvement in our safety culture. Turning now to Slide 5. The key messages you'll hear from Alex and me today are the following: First, this is a solid set of results, in line with our expectations with group rental revenue growth at 2% for the first half and 1% in the second quarter despite a nonexistent hurricane season compared to an active period in the second quarter last year. On an underlying basis, growth in the second quarter was 3%, a sequential improvement from the first quarter. Second, the strength of free cash flow after CapEx investment in fleet and business expansion demonstrates the through-the-cycle free cash flow power of this business at our scale and margin, generating $1.1 billion of free cash flow, which is a 164% growth on last year. Third, while our key construction end markets remain mixed, we're seeing signs that the local nonresidential market is now an equilibrium in terms of completions and starts as well as continued positive momentum in many of our internal and external leading indicators. Mega project activity continues to be strong, and we're winning share across our regional and national strategic customers. Fourth, our strong free cash flow generation has enabled us to return over $1 billion to shareholders in the half through dividend payments and share buybacks. And we've announced today a new share buyback program of up to $1.5 billion that we intend to commence on March 2, which will follow on from the completion of the existing program and will coincide with our expected relisting date on the New York Stock Exchange. And finally, we are confident in reaffirming full year guidance for rental revenue growth, CapEx and free cash flow. Moving on to the financial highlights of the first half on Slide 6. Despite the quiet hurricane season, group rental revenues were up 2% in the first half, consistent with the 0% to 4% guidance we gave in September. The leading indicators, both internal and external that we track, have continued to trend positively. And therefore, we remain cautiously optimistic that these trends in our business will continue and are early signs of the local nonresidential portion of our end markets recovering. As when they do, we will experience accelerated momentum and improved results. Group adjusted EBITDA was $2.7 billion at a 46% margin. As we explained in the Q1 results, these margins reflect the mix effect of higher ancillary revenue, the proactive repositioning of our fleet to drive utilization, and unlock pockets of growth and increased repair costs as a larger portion of the fleet comes out of warranty coverage. From a capital allocation standpoint and in line with our Sunbelt 4.0 priorities, we invested $1.3 billion in CapEx focused on a mix of replacement and growth. Free cash flow in the 6 months was just over $1.1 billion, which is a record, demonstrating the resilience of our business while we continue to invest in growth. The strong free cash flow is supporting the current $1.5 billion buyback program, which we are on track to complete by the end of February '26, before commencing the new $1.5 billion program that I've just referred to. Moving on to our segmental performance on Slide 7. As I've already mentioned, performance in the second quarter was impacted by a very quiet hurricane season compared to Q2 last year, when we reported that hurricanes had contributed $55 million to $60 million in incremental revenue. Rental revenue on a billings per day basis for General Tool grew 2% in the second quarter and 1% in the first half, reflecting positive volume momentum and resilient rates in end markets, which continue to be mixed. As expected, we continue to be in a moderated local nonres construction market through the first half, offset in part by the ongoing strength of the mega project landscape and the broader nonconstruction markets. Specialty growth is more impacted by lower hurricane activity with growth in the quarter flat. Adjusting for the hurricane impact, underlying growth in Specialty was 5%. The strength in Specialty segments was broad-based, led by Power & HVAC, Temporary Fencing, Structures & Walls, and Trench Safety, all delivering strong growth in the half. On a constant currency basis, U.K. rental revenue was down 2% in the quarter, reflecting the ongoing challenges in the U.K. end markets. As a response to this and consistent with our 4.0 strategy, we're undertaking a series of onetime restructuring actions, including location consolidation, people transitions, exiting noncore lines, and G&A reductions. These actions will enable better service to our customers, unlock value, deliver sustainable double-digit return on investment, and produce consistent free cash flow, while continuing to lead as the premier rental platform in the U.K. Alex will cover the financial implications of these actions shortly. Slide 8 shows fleet on rent for North America over the last 4 years. You can clearly see that our efforts to drive growth with existing fleet has resulted in improved time utilization. This supports a more constructive rate environment and contributes to our strong ROI. It also demonstrates our disciplined and flexible capital allocation approach. Over the next couple of slides, we'll cover the activities and outlook for the North American construction end market. On Slide 9, we set out the main leading indicators for the construction sector, namely Dodge Starts, Dodge Momentum Index, the Architectural Billings Index and Fed Funds Rate. The outlook for construction growth continues to be underpinned by mega projects and infrastructure work, which remains strong, and in many cases, gaining further momentum. We made great progress in mega project wins in the first half with a growing funnel of future projects and advancing market share with our strategic customers, both regionally and nationally. Exercising the cross-selling power across the Specialty and General Tool businesses as well as the advantage of Sunbelt's significant breadth and depth of products, solutions and expertise is a strategic differentiator. Combine this with a technology suite that is second to none, creates a platform that can deliver world-class customer experience, efficiencies and value across a wide range of complex applications. As it relates to our local nonresidential end market, we remain in a moderated environment. However, as I flagged with the Q1 results, both our internal leading indicators such as quotations, reservations and continuing contract activity and key external indicators are encouraging. The Dodge Momentum Index, in particular, remains near record highs. Just to remind you, this index represents nonresidential projects, excluding manufacturing, that are below $500 million and entering the planning phase for the first time and is therefore representative of future velocity in what we refer to as the local nonresidential construction market. This clearly indicates ongoing strong planning activity across our nonres construction markets will lead to an increase in starts, likely within a period of 12 to 24 months. So while clearly positive leading indicators, it may take some time for this planning to translate into project starts. When it does, as we've said, we are poised to benefit. On Slide 10, you can see how these starts forecasts translate into the latest Dodge put in place forecast and the S&P forecast for the North American rental market. As we expected, Dodge's September report lowered their forecast for construction, excluding residential, by 2% for '25 and 3% for '26. Although we've not updated the mega project slide, which you can find in today's slides, Appendix #37, I can confirm that the outlook for ongoing growth in the mega project space is strong as new project plans are entering the funnel often. Further, the makeup of projects is broad in sector and geography. And finally, the team has done a great job year-to-date, winning more than our fair share and are very active in current RFPs. More details to come in this mega project landscape in March. Before I hand it over to Alex, I'll just touch on our Sunbelt 4.0 strategic plan on Slide 11. We're now 6 quarters into a 20-quarter plan. As I previously mentioned, our team has been laser-focused on advancing each of the 5 actionable components, which are customer, growth, performance, sustainability and investment. While I'm not going to give you a further detailed progress report today, I will say that our clarity and mission throughout the organization is certain and our momentum is building. We'll share more details as we progress through the year and, in particular, during our upcoming Investor Day this coming March. With that, I'll hand it over to Alex to cover the financials in more detail. Alex? Alexander Pease: Thanks, Brendan, and good morning to everybody. Starting with the second quarter results for the group on Slide 13. Group total revenue and rental revenue both increased 1% in the quarter, reflecting the impact of the quiet hurricane season that Brendan has already mentioned. Adjusting for the impact of the hurricane, underlying rental revenue growth in the quarter was around 3%. The EBITDA margin and EBITA margin continued to be strong at 47% and 27%, respectively. In line with the Q1 performance, the slight drop in margins primarily reflects the fact that top line growth is being driven by higher activity levels in both the mega project space and large strategic accounts as opposed to the more transactional business as well as a planned repositioning of fleet to drive both growth and utilization. Margins have also been impacted by a higher level of ancillary revenue associated with the growth in the nonconstruction markets, an increased level of internal repair costs with a greater portion of our fleet out of warranty coverage just as we expected, and lower gains on disposals of used equipment. Adjusted for depreciation at $592 million was up 1%, matching rental revenue growth as the challenges associated with the slight over-fleeting of the industry has abated. After interest expense of $133 million, reflecting lower average debt levels, adjusted pretax profit was 4% lower than last year at $656 million. As explained previously, we are adjusting for nonrecurring items associated with the move of the group's primary listing to the U.S. These costs amounted to $19 million in the quarter and $32 million in the first half. In addition, we've taken a onetime exceptional charge of $37 million in the quarter relating to the restructuring of the U.K. business that Brendan has already mentioned. The bulk of this charge is noncash in nature and the full scope of the actions taken in the year are expected to be cash accretive. Adjusted earnings per share were up at $1.168, reflecting the benefits of the ongoing share buyback program, and ROI on a trailing 12-month basis was a strong 14%. Slide 14 shows the first half results in a similar format. Rental revenue growth in the half was up 2%, and up 3% on an underlying basis, adjusting for the lack of hurricanes. The EBITDA margin and EBITA margin remained strong at 46% and 26%, respectively. Adjusted PBT was down 4% and adjusted EPS down 1% for the half. Slide 15 illustrates group revenue and EBITDA progression over the last 5 years and in the first half, highlighting significant track record of growth and margin strength over a range of economic conditions. Turning now to the individual segments. Slide 16 shows the performance for North American General Tool. Rental revenue for the first half grew by 1% to $3.2 billion, driven by improved volume, time utilization and stable rates. Excluding the hurricane-related impacts, rental revenue increased about 3% in the first half. As I explained previously, margins were impacted in the half, primarily by growth being driven by higher activity levels. EBITDA was $1.8 billion at a strong 54% margin. Operating margins were 33% and ROI was 20%. Turning now to North American Specialty on Slide 17. Rental revenue was 2% higher than the first half of last year at $1.8 billion as the nonconstruction market continues to be strong, particularly in Power & HVAC, Climate Control and Flooring Solutions. On an underlying basis, adjusting for hurricanes, rental revenues were up around 5% in the half. Margins in Specialty were broadly flat with EBITDA margin of 48% and an operating margin of 33%. ROI was 31%, again, clearly illustrating the higher returns achievable in the Specialty businesses. Turning now to the U.K. on Slide 18, and please note, all of these numbers are in U.S. dollars. U.K. rental revenue was 3% higher than a year ago at $422 million, benefiting from favorable FX movements. The U.K. business delivered an EBITDA margin of 26% and generated an operating profit of $35 million at a 7% margin. ROI was 5%. As Brendan has already mentioned, during the quarter, we commenced a restructuring of the U.K. business, better positioning it for the future and aimed at delivering improved margins and returns at a sustainable level, while positively impacting the customer experience. This involves aligning the network of locations to current business needs, rightsizing the staff and disposing of noncore fleet and business lines, including the sale of the U.K. hoist business in October for $16 million. Slide 19 illustrates the flexibility, resilience and agility of our capital allocation model. When markets are experiencing transitory headwinds we have experienced over the last few quarters, we remain disciplined in our deployment of capital to support strong utilization and rate discipline. When markets are growing more rapidly, we accelerate capital spending to capture opportunities and market share. In all cases, we generate significant free cash flow in excess of our investments, which we return to shareholders in the form of dividends, debt repayment and share buybacks. You see this clearly in the fiscal years 2021 and 2025, and we have started this year strongly with $1.1 billion generated in the first half, a record and significantly ahead of the comparable period of last year. We are well on track to deliver record free cash flow generation for the full year. Slide 20 updates our debt and leverage position at the end of October. This again clearly demonstrates the strong cash-generative characteristic of the business as we have lowered net borrowings by over $500 million in the last year to $7.6 million (sic) [ billion ]. This is despite the fact that we returned over $1 billion to shareholders in the half through share buybacks and dividends, invested $1.3 billion in CapEx, and invested $143 million on 7 bolt-on acquisitions. In addition to that, we opened 22 greenfields in North America, of which 12 were in General Tool and 10 were in Specialty, with a clear line of sight to achieving around 60 greenfields in the full year. As a result, excluding lease liabilities, leverage was 1.6x net debt-to-EBITDA, well within our stated range of between 1x to 2x net debt-to-EBITDA. We expect to be in the 1.5x to 1.6x range at the end of April, including the impact from the share buyback activity, but not including any potential impact of additional M&A activity. On the M&A front, we have a robust pipeline, which we continue to develop and pursue opportunistically as long as it is accretive to growth and generates margins and returns in line with our capital allocation expectations. Turning now to Slide 21 and our latest guidance for revenue, capital expenditure and free cash flow for fiscal year 2026. We're pleased to reaffirm the guidance that we gave in September. Our guidance for group rental revenue growth is between flat and plus 4%. The plan for growth capital expenditure is in the range of $1.8 billion to $2.2 billion. And finally, we expect free cash flow to be between $2.2 billion and $2.5 billion. And with that, I'll turn it back to Brendan to close this out. Brendan Horgan: Thanks, Alex. Turning to Slide 22. I think you'll agree, Alex and I have covered all of these capital allocation elements as part of the presentation this morning. All of this is consistent with our long-held policy, and we will continue to allocate capital on this basis throughout 4.0. To conclude, let's turn to Slide 23. In summary, I'll leave you with a few takeaways one should gather from our update today. One, recognizing the impact of hurricanes, the half resulted in exactly what we expected in revenue growth, improving utilization, free cash flow and advancing our 4.0 strategic plan, leading us to reiterate our guidance for revenue, CapEx and free cash flow. Two, we're continuing to see positive leading indicators in our business activity levels and in our pipeline, coupled with an encouraging indication of market demand statistics. And three, when you piece this all together, you should clearly see the secular progression in our business and in our industry. This demonstrates ever so clearly, in particular, during this modest growth environment, we continue to maintain discipline in pricing, investment and strategic focus, all while delivering record free cash flows, which we've used across all our allocation priorities. This business and balance sheet is stronger than ever and puts us in an incredibly powerful position, giving us great flexibility and optionality as opportunities unfold. And finally, just a comment, you should have received a save the date for our March 26 Investor Day in New York City, where we'll update you not only on our 4.0 progress, but showcases our ever-growing capabilities, and we certainly hope to see all of you there. And with that, operator, we will turn the call over to Q&A. Operator: [Operator Instructions] Our first question is from Lush Mahendrarajah from JPMorgan. Lushanthan Mahendrarajah: I've got 2. The first is just on rental rates and how we think about the combination of that and margins as we go through the second half. Clearly, some of those things are mix related, et cetera, and repositioning related. I mean, is that something that you want to start to offset and push rental rates a bit more? Or are you sort of happy with the status quo and sort of those things will sort of iron themselves out over time? So that's the first question. And the second is just on local and you've indicated, I think, there on the document sort of the 12- to 24-month lead time, but also interesting to hear, I think you said quotations and reservations for yourselves is trending upwards. I mean is it typical to see a lead time of 12, 24 months for those as well? I'd imagine those are short, just to get an idea of exactly what you're seeing there and what that actually means labeling into revenue? Brendan Horgan: Sure. Thanks, Lush. Rental rates, as we've said, so much so, in particular during this moderated level of growth that we've talked about, the resilience of. Our rates are strong, make no mistake. Your question specifically talks about what is our anticipation of where rates go in the second half. I can probably obviously always say to you that we prefer rates to be a bit higher as we move. I feel good about. We feel good about the momentum that we have. We have a number of initiatives underway to further progress the mechanized progress, if you will, of pricing. So we'll certainly be talking about that a bit in the Investor Day. I think the key thing is this when it comes to pricing. We believe at this stage that we've reached a good fleet balance in the industry. It's well known that for a period of time, the industry was a bit over-fleeted. We think that, that has largely corrected itself. And therefore, that leads to even more momentum and really expectation around pricing. But there are also a number of moving parts between some of that local nonres we've talked about and also our national and strategic customers that we're growing so significantly. But overall, our expectations on rates are positive, and we do expect rate progression to be a feature of our growth for the years to come. Second question around the momentum that we're seeing, particularly in the internal indicators and, of course, in areas like that Dodge Momentum Index. Yes, internally, what we're seeing really now as compared to what we would have seen a year ago, we're seeing more normal rhythms in the business. And by that, I mean rhythms as it relates to seasonality where we had actually seen a decoupling of that at prior points. And in that, that's supportive of what we would have said in our prepared remarks. We feel as though both in terms of the actual data and then just a feel on the ground that when you look at completions versus starts, we've reached equilibrium. And if you think about that local nonres market, really for about 2 years' time, completions, in essence, were outpacing starts. We feel as though we've reached neutrality in that, and that gives us even more confidence in what we're seeing in some of these forecasts. That being said, and you sort of answered it in your question, Lush, that lead time from planning to actually progressing to start is 12 to 24 months, depending on what it may be. Some of your smaller retail might be 12 months, offices and lodging might be 18 months, larger projects beneath that $500 million may be more like the 24 months. So when that comes? Time will tell. We're seeing positive signs for that. And as we've said so many times, we are positioned well to take advantage of that when not if that returns. Operator: The next question is from Annelies Vermeulen from Morgan Stanley. Annelies Vermeulen: Two questions, please. So just on the U.K. restructuring charges. So you've mentioned closing branches and some headcount. So do you expect that, that business will be materially smaller going forward? And if you could talk a little bit about what has prompted that? And as part of that, you mentioned double-digit returns on those investments. So over what kind of time frame could we see that come through? And then secondly, just coming back to some of those green shoots on leading indicators. Is there anything incrementally different relative to the last time we spoke in September with regards to the type of customers or projects that you're seeing that across, or any particular drivers you're hearing in your conversations with customers such as rates, et cetera? Any color there? Alexander Pease: Great. Thanks for question, Annelies. I'll take the first part, and then I'll turn it over to Brendan to talk a little bit more about the green shoots that you mentioned. So the U.K. structuring, this is activity that we're undertaking to really sort of improve the performance of that business. We mentioned $37 million of nonrecurring charges. That's a onetime charge, mostly noncash in the quarter. Important to say that all of that will be cash accretive in the year. We pointed to the sale of the Hoist business for about $16 million. There's a little bit of severance in there, but it will all be cash accretive for the year. And largely, those actions are already behind us. So there's really not a whole lot more to be done. In terms of your question, will that be a materially smaller business? No. This is really about sort of optimizing the footprint, divesting some of the businesses where we weren't really competitively advantaged, closing locations where we didn't have scale. So it's really, I would say, just basic hygiene about how we drive improved performance in that business. In terms of what's our trajectory to more sustainable returns, obviously, it's a bit of a tricky question to answer, because it depends on how top line performance evolves as the market recovers. But we would expect all of these actions, like I say, to be accretive in the year and to be delivering positive returns as we look out into the next fiscal year. And so with that, I'll turn it over to Brendan to talk more about the green shoots that we're seeing in the marketplace. Brendan Horgan: Great. Thanks, Alex. And Annelies, your question really was, is there anything different really from Q1 when we first talked about what we're seeing internally and some of the forecast externally. And I think the biggest is, we've had 3 prints now of DMI that have maintained really high levels. And the key to that is, it is indicating the demand in the marketplace. And as we see that maintain that quite wholesome level, we have increased confidence that we will see those progress to starts. And that actually, that question, brings up a good point I think I'll make to perhaps reiterate our conviction there. When you study over time, the correlation between DMI and starts, it is a remarkably strong correlation, about as strong as you can get, which one would expect. You have someone who has literally entered the planning phase and the correlation from entering planning to, therefore, actually becoming a start is remarkably high. So that gives us extra confidence. And again, what we're seeing there is it's just the demand. And that demand, just to emphasize, remember, that is specifically DMI pointed to projects that are below $500 million, nonmanufacturing. So it really gets to the core of that local nonres. Operator: Our next question is from Neil Tyler from Rothschild & Co Redburn. Neil Tyler: Two for me, please. You've increased the amount of M&A slightly. You mentioned a robust pipeline. Does this reflect a more attractive M&A landscape more broadly? Is that maybe tying into your comments about some of the industry being a little bit over-fleeted? Are there assets available that have got increased headroom to improve sort of utilization compared to, say, a year or 2 back? That's the first question. And then a similar topic, but on your own fleet utilization, how are you thinking about utilization rates as you shape up for the 2026 season? How much growth headroom in terms of utilization rates do you think exists in your current fleet before CapEx will need to kind of raise to move the fleet in sort of lockstep with demand growth? Does that make sense? Brendan Horgan: Yes. Sure, Neil. The first in terms of M&A, well, look, we did 2 in Q1, we did 5 in Q2, nice little bolt-ons mix between Specialty and General Tool. So really, it's a combination of density and a bit of expansion into some markets where we didn't have quite the presence that we would have wanted, all part and parcel of our 4.0 expansion plan. Nice little specialty businesses in the first half that we added, one around perimeters that really supports our events business, everyday events, and then, of course, magnify with events like LA28. From a pipeline standpoint, it's remarkably strong, and it's remarkably strong, particularly in the specialty space. So there are a handful of opportunities that are out there that both complement existing lines that we offer today, but also some nice adjacent lines. Your question about do we see this ability to extract, in essence, higher utilization because of the industry's fleet levels? I think, frankly, it's not so much that. We get that in almost every circumstance. So we buy a business in any town, North America, for instance, and they may be running at a utilization level of 60, let's just say, for conversation's sake. And as we fold that into our overall system, our overall apparatus, we can comfortably run that business at a higher level of time utilization, if for no other reason, then we have a deeper offering of whatever products we tend to bring in. So certainly, that's one of our overall hallmarks of this bolt-on M&A strategy that we have. And we take those customers that we acquire by way of the acquisition, and we offer them a far broader set of solutions. So it's really no different than what it has been. As we've said in all of our updates, the pipeline has remained robust. We're just in a really good position right now. And frankly, we would expect the momentum in terms of our allocating capital investment in this regard to strengthen over the course of the quarters to come. In terms of our own time utilization, to your second question, and what sort of headroom, I mentioned that similar to the end market from a local nonres standpoint, I think we're kind of at equilibrium now. When you look at our business today, as you've seen and you would have heard from Alex's remarks, Specialty is becoming a larger part of our overall business. So time utilization isn't quite what it was before. Take, for instance, as we grow our climate business or we grow our load banks business to the degree in which we are, you have different seasonality as it relates to time utilization. So really, the answer to your question is the devil is in the details. We have certain product categories that we do have a bit of headroom, but we also have, and I would put it this way, equally have product categories that are at quite high levels of time utilization and, therefore, that's where you'll see our growth CapEx invested not only in the second half, but as we complete our planning from a CapEx standpoint for next year, which we're right in the middle or right in the throes of our growth plans for next fiscal year. I hope that answers your questions, Neil. Neil Tyler: Yes, that you did. That's very helpful. Operator: Our next question is from Arnaud Lehmann from Bank of America. Arnaud Lehmann: Two questions from my side. Firstly, on margin trends, you highlighted, again, a little bit of margin erosion year-on-year, highlighting the repairs and repositioning of the rental fleet. Do you expect that to continue into the second half of the fiscal year, or the repositioning is largely done? Maybe something remains on the repair side. My second question is just a few follow-ups on the U.S. relisting. When are you expecting to transition to U.S. GAAP? Are you going to move to a December year-end for reporting? And what sort of incremental U.S. relisting costs should we expect into Q3 and Q4, please? Alexander Pease: Okay. So I'll take both of these. On the margin point, a couple of points that I think are really important to understand. First of all, this is largely driven by mix. And the mix is coming from a couple of things. First, we have a disproportionate growth in Specialty relative to General Tool. And remember, Specialty is a little bit narrower margin, although it's higher return, because it's less capital intense. So that should be somewhat intuitive from the numbers. Secondly, the growth, as Brendan would have mentioned in his results, the growth broadly is coming from mega projects and the large strategic accounts as opposed to that local nonres more transactional business. And so again, I think it should be intuitive that, that type of business mix would carry with it a bit more of a lower margin profile. And then lastly, we're really optimizing the fleet positioning to unlock these pockets of growth. And that higher level of activity, comes with it higher cost. So as Brendan says frequently, we're really just running the business as you would want. There's nothing sort of structurally changing in the underlying economics. In terms of as it looks towards the second half, I think we would continue to expect Specialty to have relatively stronger growth than General Tool. I think the other issue that we pointed to was the higher internal repair costs as a portion of the fleet comes off warranty. You would expect that to continue through the balance of the year. So I think largely, you should expect the second half to look and feel similar to what the first half looked like. As it relates to the U.S. relisting, we're on track for that to be delivered March 2. We've submitted the first round of comments to the SEC -- or first round of response to the SEC's comments. We expect to get a second round back here in the course of the next week or so. And so everything is going exactly as we would have hoped despite the government closure throwing a bit of a speed bump in it. In terms of your question as it relates to the December year-end, we will likely make that decision at some point in the future. That is not something that we would undertake sort of imminently as we need to get through this process first, but we would likely take that decision at some point in the future. And we will continue to see some incremental cost as we get through the balance. I think we're kind of targeting a total budget of around $90 million or so by the time this is all said and done, the majority of which will happen as we get into sort of the second half of the year, but there will be some residual cost as we get into next year, which will all be adjusted out of the adjusted GAAP numbers. And then obviously, once we start reporting on the SEC regime, we'll be reporting U.S. GAAP numbers, and we'll bridge that very clearly for you in the Investor Day. Operator: Our next question is from Rob Wertheimer from Melius. Robert Wertheimer: A question on just profitability and ROIC on the mega projects versus the rest. We've seen the fleet positioning cost. I wonder -- I'm not sure if I understood the last answer to indicate that the repositioning is a kind of phase or, I don't know, whether it continues with each mega project as they sort of bounce around the country, whether that's just a new cost of doing business. But does the profitability kind of curve up to average? Or is it lower given competition? And -- well, anyway, I'll stop there for now. Brendan Horgan: Rob, thanks for that. You heard Alex allude to that margin impact. And I just want to clarify that, and I think this will answer your question. That's in the early phases of those wins and of those build-ups. So as we've said many times in the past, not only does history tell us, but our expectations are, as you reach that sort of crest, which is quite long on these mega projects, we would say, at a minimum, those are parity to the margins for the overall business. And the same thing goes really with our national strategics. I mean when you think about these not just mega projects, but these national contractors, and you put all that together, these are more experienced operators. The conditions on these sites are better governed. The products themselves, in so many instances, move in many ways a bit less than they do on other projects, and the repair and maintenance, when it comes to upkeeping with those, you have this great opportunity to have field service technicians deployed that are on site and they spend most every single day on those projects, maintaining this equipment. So over time, we would expect for that to be at a minimum parity to the rest of the business. Robert Wertheimer: Perfect. That does answer. And then just out of curiosity, I guess, just as you slowed expansion appropriately with the industry, then the repair cost comes up as more of the fleets off warranty, I get that. Is that a 1-year effect and you kind of rebase, or if you didn't expand faster again, would that continue to be a margin headwind over the next year? I'll stop there. Brendan Horgan: Yes. I mean, it's really -- if you look at the fleet profile slide that we have in the appendix, you'll see 2 extraordinary years of growth where we extracted significant share gains and expanded our business. So it's really those 2 rather large tranches. So unless we were to go to those levels of CapEx, say, next year, I think we have another year of that sort of headwind and then we balance out as we ordinarily would. And then, of course, look, there'll be these periods where you have significantly low replacement CapEx for tranches 7, 8 years ago that were lower. But I would expect that same sort of headwind for another 6 quarters or so. Operator: Our next question is from Suhasini Varanasi from Goldman Sachs. Suhasini Varanasi: Just one final follow-up from me, please. The U.K. restructuring program of $37 million, you mentioned it was cash positive, but can you maybe give us some color on what's the benefit on annualized SG&A costs for that region and, therefore, the benefit to margins on an annualized basis? Alexander Pease: Sure. So the bulk -- as I would have mentioned, the bulk of the restructuring would have been in sort of fixed assets, sale of underperforming businesses, consolidation of locations and those sorts of actions. So really where it hit -- and it's noncash, by the way, so where it typically would hit is more on the ROIC and the depreciation line than the sort of SG&A side. I don't have the exact number in front of me. I think it would be reasonable to expect 150 to 200 basis points of SG&A improvement on leverage. But again, the bulk of it is really focused on the asset footprint, if that helps. Operator: We'll now take our next question from Allen Wells from Jefferies. Allen Wells: A couple for me, please. Firstly, just on the margins. Sequentially, slightly worse, I think, down 140 bps versus 120 bps in Q1. The incremental decline there, is that all related to hurricane activity? Or were any of the other headwinds stronger in the quarter? And then maybe linked to that, I think kind of follows on from Rob's question on the repair costs. We should expect that obviously to be a continued headwind over the next few quarters. But when you look at that CapEx profile, the step-up between '22 and 2024, should we be thinking that the headwind from higher repair costs actually steps up over the next few quarters as well? So that's just those on the margin? And then secondly, just on the rate environment following on from a question earlier. Beyond the broader market conditions being slightly muted, are there any other factors that you would call out that are impacting rates? I'm particularly thinking about are there any particular smaller or midsized competitors being a bit more aggressive than you would typically expect on pricing or anything like that? Or is it just a broader market issue? Alexander Pease: Yes, I'll let Brendan take the rate question, but I'll hit the margin question quickly. So you sort of answered your own question. Yes, the hurricane activity -- the lack of hurricane activity, I should say, did have a dilutive impact on margins. You're also lapping a very strong period of margin expansion. So you sort of have a tougher comp that you're comparing against. So those are really the issues. As it relates to the higher repair costs, I think Brendan answered that. We do expect that to continue for the next, call it, 6 quarters as we're lapping those really 2 high CapEx years. So I think that would be more of a sustained headwind. And I'll let Brendan comment on the rate environment. Brendan Horgan: Yes. Allen, from a pricing standpoint, look, there will always be some competitor in some market somewhere who leads with price. That has been the realities of the business forever. The key to understanding pricing is, pricing in any business is dynamic. And the big takeaway would be, think about the structural change, the structural progression of this business and the secular outputs of that, and we're seeing those so clearly today. Secular outputs, particularly highlighted during this end market that we are working through today, that create larger TAMs, that create more resilience overall in the business, that deliver discipline when it comes to pricing. And largely speaking, that's exactly where we are. It's not different than most anywhere else. Pricing does have a momentum element. And at this particular juncture, it has proven to be remarkably resilient, and as we've said, pricing is still very much strong, and we look to take further advantage, if you will, of this structural output to progress pricing, as I've said, that we expect to be a feature of our growth for years to come. Allen Wells: And sorry, just a quick clarification, Alex. I appreciate you kind of confirmed that there'd be a sustained headwind in the higher repair cost. But I guess my question was, when I look at the CapEx profile, '23 was more CapEx than '22, '24 was more than '23. So is there any reason why that headwind shouldn't actually increase given that CapEx profile? Alexander Pease: Yes. I guess when we return to fueling larger growth capital investments, you would see that impact mitigate, because you'd be putting more capital on the balance sheet that's under warranty cost and the age of your fleet would come down slightly. So really, the higher warranty cost is entirely connected with the aging profile of the fleet. And Brendan is pulling up the slide in the appendix, which really shows the nature of how we've invested in the last couple of years. So you would expect that trend to continue as we lap those 2 years of $3 billion to $4 billion of investment. As those levels of CapEx get retired, you would expect it to come down to something a little bit more normal. Brendan Horgan: Yes. I think, Allen, to just add, let us not over-index on. I appreciate we may have put ourselves in that position because we call out the impact of higher repair costs as assets come out of warranty. Think about Sunbelt 4.0 and the actionable component of performance. Make no mistake, we have opportunities which are being actioned to drive margin improvement in this business just as we set out to do with 4.0. So whether it be the over '25 market logistics operations that we have employed year-over-year, growing from last year's 10 or 12 to today's over 25, which is more than 500 of our locations. We'll have more than 30 of these rolled out by April of our top 50 markets. Part and parcel of that MLO is a consolidated market field service approach. Furthermore, as you will see in full color on March 26 during our Investor Day is the new service platform that we've implemented throughout the business. So all of these improvements not only deliver exceptional customer experience, but they also will deliver, over time, improved operational processes and therefore, improved margins. So this is just a moment in time when we're going through those 2 years of extraordinary growth investment, which we all look forward to returning to. But make no mistake, the business is actioning significantly an improvement in the way that we operate, and that will translate into margins. I'll just talk to MLOs a bit more. We have reduced days to pick up for our assets. That creates opportunity for higher time utilization of an existing fleet. We have circa 15% better truck utilization in these markets. We reduced outside hauler spend in many cases, by 50% or more. And this whole measure we've looked at for so long, delivery cost recovery improves by 4% or 5%. So it's not all about just the warranty of the fleet, it's about how we continue to get better at our operations, and you've met the Brad Laws and [ Chais ] of our business. And that's what they're focused on every single day, and we have great momentum behind that. Operator: Our next question is from Karl Green from RBC. Karl Green: Just 2 questions. The first one, Brendan, given that we're seeing double-digit auction inventory builds in major equipment categories, I just wondered what gives you the confidence in the statement that the over-fleeting in the industry is being largely corrected? And then the second question, Alex, perhaps for you, just on depreciation. It looks like sequentially, adjusted depreciation went down between Q1 and Q2. So I just wanted to understand the moving parts of that. Was that partly due to accelerated write-offs in the U.K.? Or is there anything else going on there in terms of fleet mix that we should be aware of? And then just a final follow-up on that would be what would your expectation be for full year depreciation, please? Brendan Horgan: Sure, Karl. On the first, look, I think when you look at 2 things really, your question is about how we feel comfortable that we're reaching this sort of balance from a fleet versus demand standpoint in the industry? You're right, we do see some, and I want to say that very clearly, some product categories that are creating a bit of a backlog in that auction environment. As you know, there's some activities going on in the industry where some are taking the decision to rebalance fleet in some way, shape or form, more so when it comes to composition than when it comes to absolute levels. And you'll see that from time to time. I think you'll see that work through quite quickly. And you can see that also when it comes to secondhand values, which it's important to understand when you think about this business over the years rather than just quarter-by-quarter, you'll see oscillation when it comes to secondhand values. If we sort of collar what we get assets at least through the auction channel, you'll see peaks in the 42% to 45% of original equipment cost range down to extraordinary times like '08, '09, where you saw 25% or so relative to OEC. And today, we're in the kind of 32%, 33% range. So that also indicates a relative level of health in that space. But I think when we look at -- look, many of our OEMs are publicly traded, and you can understand what their volumes look like year-on-year or really over the last 18 months. So all of those line up to and indeed, our own time utilization, giving us this confidence that we are in a pretty good position overall from a fleet makeup in the industry. Alexander Pease: Yes. So a couple of points on depreciation. It would be the case that the majority of the decline would be tied to the U.K. Remember, that $37 million charge that I mentioned is largely accelerated depreciation. So that would be the case. If I look at rental depreciation in the quarter, it was for the first quarter that we had really in the last probably 6, rental depreciation was a good guide. So we've got back to a world where rental growth and depreciation are more in balance. You do have some other effects of depreciation going on with things like lease amortization, some of the greenfield investments before they come to scale, obviously, those would be headwinds to depreciation. But I think the headline number is the fact that this rental depreciation was more in line with rental growth, which is a good thing in the quarter. Does that help? Karl Green: That's helpful. Thank you. Operator: Our next question is from Neil Tyler from Rothschild. Neil Tyler: Just wanted to follow up actually on the answer to the previous question about the used equipment recovery rates. You said for some time that you have been trying to optimize the channels that you use. Can you give us any sort of update on that, thoughts on the current split and how far through that sort of optimization process you are? Brendan Horgan: Yes, Neil, I'm glad you asked that question because shame on me for not addressing that when I had the opportunity. Yes, I mean, we have, as you know, over the years of such significant growth and such organic investment in the business, we've relied primarily on 2 channels, one being trades to OEM, because when you're buying 3, 4 and even 5 to every 1 you're selling, it's a pretty optimal path. An asset lives a perfect life after its last day of rental. Once we deem it to be an asset to be replaced, it's sold nearly immediately, not taking any time away from the business or distraction to the business. And then secondarily was the path through auction. We have been working on standing up a strong retail and wholesale platform, which I would call 3 quarters through its build. And you will see in significance, beginning next year, more and more of our secondhand sales going into that retail and wholesale market. And of course, we think that overall will lead to better proceeds for our sales of used equipment. Operator: It appears there are currently no further questions at this time. With this, I'd like to hand the call back over to Brendan for closing remarks. Thank you. Brendan Horgan: Great. Thank you, operator, and indeed, everyone, for joining this morning. I think we have gotten across -- or hope certainly clearly that over the half and indeed year-over-year, we have invested in growth in this business. We have been working vigilantly to improve our craft, to improve the service throughout our actionable components of 4.0. We have generated significant free cash flow, which we have returned in record levels to our shareholders. We paid down debt, and we've done all of this within our leverage range presently at 1.6x. And I'll just reiterate what I would have said in my prepared remarks, which is this business is in a remarkably strong position, and we are poised to benefit as we see things recover and this great industry continues to grow. So with that, we look forward to seeing all of you on the 26th of March. Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.
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